<PAGE>
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:
...........................................................................
2) Aggregate number of securities to which transaction applies:
...........................................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
...........................................................................
4) Proposed maximum aggregate value of transaction:
...........................................................................
5) Total fee paid:
...........................................................................
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0- 11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
...........................................................................
2) Form, Schedule or Registration Statement No.:
...........................................................................
3) Filing Party:
...........................................................................
4) Date Filed:
...........................................................................
<PAGE>
[GRAPHIC OMITTED]
NATIONAL BANCSHARES CORPORATION OF TEXAS
12400 Hwy 281 North
San Antonio, Texas 78216
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 19, 2000
- --------------------------------------------------------------------------------
To the Shareholders of National Bancshares Corporation of Texas:
NOTICE IS HEREBY GIVEN that the 2000 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 19, 2000 at 10:30 a.m. for the following purposes:
(1) To elect five directors to serve until the 2001 Annual Meeting of
Shareholders and until their successors are duly elected and
qualified;
(2) To approve certain amendments to the 1995 Stock Plan;
(3) To approve the appointment of auditors for the 2000 fiscal year; and
(4) To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only shareholders of record at the close of business on April 19, 2000 will
be entitled to vote at the Annual 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 attend.
By order of the Board of Directors,
Marvin E. Melson
President and Secretary
April 19, 2000
PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE RETURN ENVELOPE
FURNISHED FOR THAT PURPOSE, WHICH ENVELOPE REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES, AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE
ANNUAL MEETING. IF YOU LATER DESIRE TO REVOKE YOUR PROXY FOR ANY REASON, YOU MAY
DO SO IN THE MANNER DESCRIBED IN THE ENCLOSED PROXY STATEMENT.
<PAGE>
NATIONAL BANCSHARES CORPORATION OF TEXAS
- --------------------------------------------------------------------------------
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 19, 2000
- --------------------------------------------------------------------------------
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 2000 Annual Meeting of
Shareholders on Friday, May 19, 2000, at 10:30 a.m., or at any adjournments
thereof (the "Meeting"). This proxy statement and the accompanying proxy card
are being mailed to shareholders beginning on or about April 21, 2000.
The Company's Annual Report to Shareholders for the year ended December 31,
1999 is being furnished with this Proxy Statement to the shareholders of record
on April 19, 2000. 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 19, 2000, will be entitled to
vote at the Meeting. There were 4,127,334 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, such 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 either (a) giving written notice of revocation to the Secretary of the
Company, (b) by submitting a later-dated proxy, or (c) 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 members.
All of the current directors have been nominated by the Board of Directors for
re-election to serve until the 2001 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>
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 45, 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. Mr. Lustig has been a
member of the Board of Directors of Sightsound.com, Inc. since 1996. 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 64, 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 59, 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 are affiliated with the Company).
JOHN W. LETTUNICH, age 70, 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 65, 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 (which is
not affiliated with the Company).
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, 1999, the Board of Directors held
five meetings. During the fiscal year ended December 31, 1999, no director
attended fewer than 75 percent 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. The Company also pays a fee of $500 per
outside director for participation in any meetings of a committee to which he
has been appointed if the committee meeting is scheduled on a different day than
the board meeting.
AUDIT COMMITTEE. The Audit Committee of the Board of Directors, which currently
consists of H. Gary Blankenship, John Lettunich, and Charles T. Meeks met four
times during the 1999 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 to monitor the internal audit reports for
the Company and each of its subsidiaries. In addition, the Audit Committee
2
<PAGE>
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.
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 1999 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, 1999, was $6,774,000. 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 1999. During the year ended
December 31, 1999, new loans to such related parties amounted to $2,643,000, and
repayments amounted to $2,671,000. During fiscal year 1999, Mr. Meeks was
indebted to a Subsidiary Bank in connection with a real estate mortgage loan at
a high of $211,000, of which $202,000 was outstanding at year end. During fiscal
year 1999, Mr. Melson was indebted to a Subsidiary Bank in connection with a
real estate mortgage loan at a high of $237,000 of which $203,000 was
outstanding at year end. During fiscal year 1999, Anne Renfroe, the Chief
Financial Officer of the Company, was indebted to a Subsidiary Bank in
connection with a real estate mortgage loan at a high of $177,000 of which
$174,500 was outstanding at year end.
During 1999, the Company utilized a stock brokerage firm, which is 100
percent owned by Mr. Lustig, to execute certain transactions on its behalf. Net
revenues earned by the brokerage firm related to investment transactions by the
Company in 1999 totaled $7,128 on purchase and sale transactions of $4,173,014.
The Company uses an unrelated company to act as custodian and clearing firm for
its investment assets.
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, 1999, all Section 16(a) filing
requirements were satisfied.
3
<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information as of March 1, 2000, 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
------- -----------
DIRECTORS, OFFICERS AND FIVE PERCENT SHAREHOLDERS (1)
- -------------------------------------------------
<S> <C> <C>
Jay H. Lustig (2)............................................................... 219,525 5.04%
Marvin E. Melson (3)............................................................ 141,431 3.25%
John W. Lettunich (3)........................................................... 70,386 1.62%
H. Gary Blankenship (4)......................................................... 54,362 1.25%
Charles T. Meeks (4)............................................................ 42,800 0.98%
Hakatak Enterprises, Inc., Nominee (5).......................................... 300,000 6.89%
All directors and executive officers as a group (7 persons)(6).................. 540,904 12.43%
</TABLE>
- ---------------------
(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 Mr. Lustig includes 157,125
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 (an investment partnership managed by an entity
controlled by Mr. Lustig); and 4,400 shares of Common Stock options which
are exercisable within 60 days of March 1, 2000.
(3) The number of shares beneficially owned by Messrs. Melson and Lettunich
includes 4,800 and 7,800 shares of Common Stock reserved for issuance under
stock options which are exercisable by each of them within 60 days of March
1, 2000.
(4) The number of shares beneficially owned by Messrs. Blankenship and Meeks
includes 37,800 shares of Common Stock reserved for issuance under stock
options which are exercisable by each of them within 60 days of March 1,
2000.
(5) 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.
(6) The number of shares of Common Stock beneficially owned by the directors
and officers as a group includes 103,600 shares of Common Stock reserved
for issuance under stock options which are exercisable within 60 days of
March 1, 2000. See footnotes (2),(3) and (5) above.
4
<PAGE>
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. The Committee adheres to the
following compensation policies which are intended to facilitate the achievement
of the Company's business strategies:
- - 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 banking organizations. Offering market-comparable
pay allows the Company to attract and maintain a stable, successful
management team.
- - 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.
- - 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.
- - 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.
In evaluating compensation, the Company is aware of the limitations on
deductibility of compensation paid to highly compensated persons as imposed by
the Internal Revenue Code section 162(m). While the Company does not at this
time have any executive officer within the range of compensation for which
limitations are imposed by that provision, the Compensation Committee's policy
is to review the impact of section 162(m), and the requirements imposed on
performance-based compensation described in the section, in the context of any
qualifying compensation that may be proposed to be paid in the future.
To preserve objectivity in the achievement of its goals, the Committee is
comprised of two independent, non-employee directors and one director, Mr.
Lustig, who is employed by the Company. 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
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<PAGE>
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 1999 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.
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, result-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.
1999 COMPENSATION OF THE PRESIDENT AND CHIEF EXECUTIVE OFFICER
Mr. Melson serves as the President and Chief Executive Officer of the
Company. Mr. Melson's 1999 base salary is governed by his employment agreement
entered into by the Company and Mr. Melson in 1999, 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 1999 he earned an incentive bonus of $30,000, which is approximately
17 percent 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 30,800 of
these shares as of December 31, 1999. 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
Mr. Lustig who is a member of the Compensation Committee of the Board
of Directors of the Company was, during 1999, an employee of the Company. During
1999, 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
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<PAGE>
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.
7
<PAGE>
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 earned over
$100,000 in annual salary and bonus ("the Named Executives"), for the years
ended December 31, 1999, 1998 and 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM 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 1999 $ 71,667 $18,000 - -
Chairman of the Company 1998 $ 60,000 $18,000 - -
1997 $ 60,000 $16,250 11,000 -
Marvin E. Melson 1999 $173,625 $30,000 - $6,400
President, CEO and Director 1998 $164,000 $30,000 - $4,000
of the Company 1997 $164,000 $30,000 12,000 $4,510
John W. Lettunich 1999 $ 40,000 - - $ 400
Director of the Company and 1998 $110,000 $26,000 - $3,675
Chairman of NBC Bank, N.A. 1997 $110,000 $26,000 7,000 $4,029
</TABLE>
- ---------------------
(1) All other compensation reflects payments by the Company to the Company's
401(k) Plan on behalf of Named Executives.
OPTION EXERCISES AND VALUATION
The table below reports exercises of stock options by the Named
Executives during fiscal year 1999 and the value of their unexercised stock
options as of December 31, 1999. The stock options were granted pursuant to the
Company's 1994 and 1995 Plans.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT 12/31/99 OPTIONS AT 12/31/99
ACQUIRED ON VALUE ----------------------------- ---------------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE (1)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Jay H. Lustig - $ - 25,400 6,600 $188,275 $10,725
Marvin E. Melson - - 30,800 7,200 $232,050 $11,700
John W. Lettunich - - 28,800 4,200 $185,675 $ 6,825
</TABLE>
- ---------------------
(1) The value of options is based on the difference between the closing sales
price of $14.875 per share of Common Stock on December 31, 1999 and the
exercise price of the option.
DEFERRED COMPENSATION
No deferred compensation has been awarded to the Named Executives.
8
<PAGE>
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
June 1, 1999, 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 $80,000.
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 February 26, 1999, 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
$175,000 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 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
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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, 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, 1999 and 1998, totaled $189,391
and $140,767, respectively. Two Named Executives received contributions to the
401(k) Plan in 1999 and 1998: John W. Lettunich received $400 in 1999 and $3,675
in 1998; and Marvin E. Melson received $6,400 in 1999 and $4,000 in 1998.
APPROVAL OF AMENDMENT OF THE 1995 STOCK PLAN
(ITEM 2 ON PROXY CARD)
SUMMARY OF AMENDMENT TO 1995 STOCK PLAN
GENERAL
The shareholders of the Company are being asked to approve an amendment
(the "Amendment") to the National Bancshares Corporation of Texas 1995 Stock
Plan (as amended, the "Plan") in order to increase the number of shares of
common stock, par value $.001 per share (the "Common Stock"), of the Company
authorized for issuance thereunder by 205,000 shares of Common Stock to an
aggregate of 649,000 shares of Common Stock, provided that the number of shares
available for issuance under the Plan plus the number of shares subject to, and
issuable or issued, upon the exercise of options granted pursuant to the
Company's 1994 Non-Qualified Stock Option Plan (the "1994 Plan" and the shares
of Common Stock issued, or subject to options that are hereinafter issued, under
the 1994 Plan is referred to herein as the "1994 Plan Shares") may not exceed
649,000. Shares of Common Stock subject to options granted under the 1994 Plan
which for any reason expire or terminate unexercised would not thereafter be
deemed 1994 Plan Shares and would be available for issuance under the Plan. The
1994 Plan has been terminated effective concurrent with the adoption of the Plan
and no further grants of options will be made thereunder.
The Plan was adopted by the Board of Directors of the Company on February
24, 1995 and approved by the shareholders of the Company on May 26, 1995 and a
total of 214,000 shares of Common Stock (less the number of 1994 Plan Shares)
were originally available for issuance under the Plan. The Plan was amended and
restated by the approval of the shareholders of the Company on May 29, 1998,
effectively increasing the number of shares of Common Stock authorized for
issuance thereunder by 226,000 share to an aggregate of 440,000 shares of Common
Stock (less the number of 1994 Plan Shares).
The Plan is intended to provide incentives to the directors, officers,
employees and consultants of the Company and any present or future subsidiaries
of the Company (collectively, the "Related Corporations") and to help the
Company attract and retain qualified directors, officers, employees and
consultants by providing such individuals an opportunity to increase their
proprietary interest in the Company by the grant of such stock awards under the
terms of the Plan. The Board of Directors believes
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that the remaining shares under the Plan are insufficient to accomplish these
purposes. Therefore, the Board of Directors is proposing to increase number of
shares of Common Stock authorized for issuance under the Plan by 205,000 shares
of Common Stock to an aggregate of 649,000 shares of Common Stock (less the
number of 1994 Plan Shares). The Board of Directors believes that the Amendment
is in the best interests of the Company and its shareholders.
The shareholders of the Company are now being asked to approve the increase
in the number of shares authorized for issuance under the Plan by 205,000 shares
of Common Stock. The approval of the Amendment requires the affirmative vote of
the holders of a majority of the shares of Common Stock entitled to vote and
that voted for or against or expressly abstained with respect to the Amendment.
Set forth below is a summary of certain provisions of the Plan,
incorporating the terms of the proposed amendments to the Plan adopted by the
Board of Directors of the Company, and a general description of the Federal
income tax rules applicable to the grant and exercise of the stock awards under
the Plan. This summary does not purport to be complete and is subject to and
qualified in its entirety by reference to the complete text of the Plan, a copy
of which is available to any shareholder upon request.
SUMMARY OF THE PLAN
GENERAL. The purpose of the Plan is to provide incentives to the directors,
officers, employees and consultants of the Company and Related Corporations and
to help the Company attract and retain qualified directors, officers, employees
and consultants by providing such individuals an opportunity to increase their
proprietary interest in the Company by the grant of such stock awards under the
terms of the Plan. Any director who is not an employee of the Company (an
"Outside Director") is not eligible to receive stock awards under the Plan. On
April 17, 2000, the Board of Directors amended the Plan to eliminate the
provision which provided that on March 1st of each year, each Outside Directors
was automatically granted an option to purchase 7,000 shares of Common Stock.
Any grants of options to Outside Directors in the future will be made outside of
the Plan at the discretion of the Board of Directors.
Under the Plan, officers and other employees of the Company may be awarded
incentive stock options ("ISOs"), as defined in Section 422 of the Internal
Revenue Code, as may be modified or amended by the adopted regulations (the
"Code"), and directors (other than Outside Directors), officers, employees and
consultants of the Company and other persons or entities may be (i) granted
stock options which do not qualify as ISOs, or Non-qualified Options ("NQOs" and
together with ISOs, "Options") of the Company, stock awards ("Awards"), stock
appreciation rights ("SARs"), and units ("Units") representing phantom shares of
Common Stock, or (ii) given the right to make direct purchases of Common Stock
("Purchases" and collectively with Options, Awards, SARs, and Phantom Shares,
the "Stock Rights").
ELIGIBILITY. Subject to the terms of the Plan, the Administrators (as
defined below) have full and final authority to select the directors, officers,
employees and consultants of the Company who will be granted Stock Rights. As of
April 17, 2000, there were approximately 270 directors, officers and employees
eligible to receive Stock Rights under the Plan.
SHARES SUBJECT TO THE PLAN. The Common Stock subject to the Stock Rights
are authorized but unissued shares of Common Stock or shares reacquired by the
Company. As of April 17, 2000, 444,000 shares of Common Stock were authorized
for issuances pursuant to Stock Rights under the Plan (exclusive of the increase
in shares subject to shareholder approval at this meeting); provided that the
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number of shares available for issuance under the Plan plus the number of 1994
Plan Shares may not exceed 444,000. Options to purchase 284,275 shares were
outstanding under the Plan, and 89,000 shares of Common Stock had been issued
upon the exercise of Options granted under the Plan, at an average exercise
price of $6.25 per share. Additionally, as of April 17, 2000, there were an
aggregate of 27,200 1994 Plan Shares, which consisted of outstanding options to
purchase 21,900 shares, and 5,300 shares which had been issued upon the exercise
of options granted under the 1994 Plan. Subject to the adjustment provisions
described below and the limitations on the number of shares that may be issued
under the Plan, upon the approval of the Amendment by the shareholders of the
Company, as of April 17, 2000, the aggregate number of shares of Common Stock
available for future grants of Stock Rights would be an aggregate of 248,525
shares, calculated as follows: (i) the 649,000 shares authorized for issuance
under the Plan, MINUS (ii) the 89,000 shares issued under the Plan upon the
exercise of Options, MINUS (iii) the 284,275 shares subject to outstanding
Options under the Plan, MINUS (iv) 27,200 shares representing the 1994 Plan
Shares. Shares of Common Stock subject to Stock Rights which for any reason
expire or terminate unexercised under the Plan or the 1994 Plan, and shares
which are reacquired by the Company after issuances under the Plan, may again be
available for issuance under the Plan. The number of shares of Common Stock
available for issuance under the Plan are subject to adjustment in the event of
certain corporate transactions, including stock dividends, mergers,
recapitalizations or similar events.
ADMINISTRATION. The Plan shall be administered by the Board of Directors or
a committee or subcommittee appointed by the Board of Directors (the
"Committee") from among its members (collectively, the "Administrators"). Unless
the Board of Directors determines otherwise, the Committee shall consist solely
of not less than two members who shall each qualify as (i) a "Non-Employee
Director" (as that term is defined in the rules and regulations under Section 16
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) and
(ii) an "outside director" (as that term is defined under Section 162(m) of the
Code). Subject to the terms of the Plan, the Administrators shall have the
authority to determine the price, time, terms, and to whom the grants under the
Plan are to be made. Additionally, subject to the provisions of the Plan, the
Administrators shall have full authority and sole discretion to interpret the
Plan, and prescribe and rescind rules and regulations relating to it.
STOCK OPTIONS. The Options granted under the Plan may be ISOs or NQOs. The
price per share of Common Stock subject to an Option (the "Option Price") shall
not be less than the fair market value of the Common Stock on the date of the
grant of the Option; provided, however, the Option Price of an ISO granted to a
participant that owns ten percent or more of the Common Stock shall not be less
than 110 percent of the fair market value of the Common Stock on the date of the
grant of the ISO.
SPECIAL PROVISIONS FOR ISOS. Subject to applicable provisions of the Code,
ISOs may be granted to any employee of the Company or any Related Corporation.
All ISOs shall be granted under the Plan within ten years from the date the Plan
was adopted by the Board of Directors, February 24, 1995. No ISO shall be
exercisable after the lapse of ten years from the date such ISO is granted;
provided, however, if an employee owns more than ten percent of the total
combined voting power of all classes of stock of the Company or any Related
Corporation, such employee's ISO shall not be exercisable after the lapse of
five years from the date such ISO is granted.
If the recipient of an ISO ceases to be employed by the Company or any
Related Corporation other than by reason of death or disability, any ISO granted
to such person within the six month period immediately preceding such
termination shall be cancelled forthwith. With respect to any ISOs granted more
than six months prior to such termination, no further installments of such ISO's
shall become exercisable and such ISO shall terminate upon 60 days from the date
of such termination, except to the
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extent such ISO's have be converted into NQOs (as defined in the Plan and
summarized below). Upon the death or disability of an optionee, any ISO may be
exercised, to the extent of the number of shares with respect to which it could
have been exercised on the date of such death or disability, at any time prior
to the earlier of the date specified in the ISO agreement, the ISO's specified
expiration date or one year after the death of the optionee.
SPECIAL PROVISIONS FOR NQOS. Each NQO shall expire on the date specified by
the Administrators, but in no event later than ten years from the date of the
grant. Subject to longer or shorter vesting periods and termination provisions
which the Administrator may impose, 20 percent of the shares under any NQO shall
be exercisable in each calendar year following the date of the grant of such
NQO.
SARS. The Administrators may also grant SARs. At the discretion of the
Administrators, Options granted under the Plan may be granted in tandem with
SARs ("Tandem SARs"), or SARs may be granted independently and not in tandem
with any Option ("Naked SARs"). A Tandem SAR is the right of an optionee,
without payment to the Company, to receive the excess of the fair market value
per share on the date on which such SAR is exercised over the option price per
share as provided in the underlying Option. A Tandem SAR pertains to, and is
granted and exercisable only in conjunction with, the related underlying Option.
A Naked SAR may be granted irrespective of whether the recipient holds, is being
granted, or has been granted any Options or Tandem SARs under any stock plan of
the Company. Upon exercise, the holder of an SAR is entitled to receive an
amount (in cash or shares of Common Stock) equal in value to the excess of the
fair market value of the shares covered by such SAR on the date of exercise over
the aggregate exercise price of the related Option (with respect to a Tandem
SAR) or the award price (with respect to a Naked SAR). As of April 17, 2000, no
SARs had been granted under the Plan.
UNITS. At the discretion, and upon the terms and conditions determined by
the Administrators, performance awards in the form of Units may be granted
either independently of or in tandem with a Stock Right, except that such Units
shall not be granted in tandem with ISOs under the Plan. The grant of Units may
be based upon such factors as changes in the market price for shares of Common
Stock, personal performance of the grantee or of his or her division or
department or any other factors or criteria set by the Administrators. As of
April 17, 2000, no Units had been granted under the Plan.
PURCHASES. The Plan provides that the Administrators will have discretion
to provide directors, officers, employees and consultants of the Company or any
Related Corporation with the opportunity to purchase shares of Common Stock.
Each such Purchase will be at a purchase price determined by the Administrators
on the date of the grant and the Purchase and the shares of Common Stock
acquired thereunder will be subject to such restrictions and conditions as the
Administrators may, in their discretion, specify. As of April 17, 2000, no
rights to make Purchases had been granted under the Plan.
CHANGE IN CONTROL; ACCELERATION OF VESTING. As a result of, or in
anticipation of, a Change of Control (as defined in the Plan), subject to the
provisions of the Plan, the Administrators may take, in their sole discretion,
any of the following actions with respect to any Stock Right to assure fair and
equitable treatment of the grantee thereof: (i) accelerate the time periods for
vesting in, or realizing gain from any outstanding Stock Right, (ii) waive
conditions or restrictions applicable to Stock Rights, (iii) purchase any
outstanding Stock Right made pursuant to the Plan for its equivalent cash value,
or (iv) make any adjustments or modifications to outstanding Stock Rights as the
Administrators deem appropriate to maintain and protect the rights and interests
of the grantee thereof. Additionally, subject to the provisions of the Plan, the
Administrators may at any time accelerate the exercisability of any Stock
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Right and may waive any restrictions and conditions on Stock Rights to the
extent it shall in its sole discretion determine.
TERMINATION OR AMENDMENT. The Board of Directors, at any time, may
terminate or amend the Plan in any respect, except that no amendment shall,
without the approval of the shareholders, increase the total number of shares
which may be issued under the Plan.
NON-TRANSFERABILITY OF STOCK RIGHTS. Generally, Stock Rights under the Plan
cannot be sold or otherwise transferred except by (i) will or the laws of
descent and distribution or (ii) other than with respect to an ISO or SAR,
pursuant to a qualified domestic relations order as defined by the Code or Title
I of the Employee Retirement Income Security Act of 1974 ("ERISA"), or the rules
thereunder.
ADJUSTMENT UPON CHANGES IN CAPITALIZATION AND DIVIDENDS. In the event
shares of Common Stock are subdivided or combined into a greater or smaller
number of shares or if upon a merger, consolidation, reorganization, split-up,
liquidation, combination or recapitalization of the Company, the shares of
Common Stock shall be exchanged for other securities of the Company or of
another corporation, or for other assets (including cash) each grantee of a
Stock Right shall be entitled to purchase (or have used for measurement
purposes) such number of shares of Common Stock or amount of other securities of
the Company or such other corporation, or assets (including cash), as were
exchangeable for the number of shares of Common Stock such grantee would have
been entitled to purchase subject to any adjustments to reflect such
subdivision, combination or exchange. These new, additional or different shares
or securities shall be subject to all of the conditions applicable to the Common
Stock.
In the event the Company shall issue any of its shares as a stock dividend
upon or with respect to the shares of stock of the class which at the time shall
be subject to a Stock Right, each grantee upon exercise of a Stock Right shall
be entitled to receive such number of shares of the class or classes in which
such stock dividend or dividends were declared or paid, and such amount of cash
in lieu of fractional shares, or other consideration as would have been received
if he such participant had been the holder of the shares as to which he is
exercising his Stock Right at all times between the date of grant of such Stock
Rights and the date of its exercise. No adjustments shall be made for dividends
paid in cash or in property unless otherwise provided in the instrument
evidencing such Stock Right.
FEDERAL INCOME TAX INFORMATION
The following is a brief summary of the effects of federal income taxation
upon the recipient and the Company under the Plan based upon the Code. This
summary does not purport to be complete and does not discuss the income tax laws
of any municipality, state or country outside the United States in which a
recipient may reside.
BUSINESS EXPENSE DEDUCTION. Commencing in taxable years beginning on or
after January 1, 1994, a publicly held corporation (a corporation with
securities required to be registered under Section 12 of the Exchange Act) may
not, subject to limited exceptions, deduct for Federal income tax purposes
certain compensation paid to an executive officer who is the chief executive
officer or one of the four other highest paid executive officers in excess of $1
million in any taxable year (the "$1 Million Cap"). Compensation attributable to
the exercise of options and other awards granted after February 17, 1993 may be
counted in determining whether the $1 Million Cap has been exceeded in any
taxable year. Certain performance based compensation may not be subject to the
$1 Million Cap. The $1 Million Cap will not apply to compensation received in
connection with Stock Rights that were granted prior to 1996
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(i.e., the first calendar year immediately following the calendar year in which
the Company became publicly held), even though such Options or SARs are
exercised after the Company becomes publicly held. Whether (i) the grant of
other types of awards under the Plan are subject to the $1 Million Cap, (ii) the
$1 Million Cap with respect to such an executive will be exceeded and (iii)
whether the Company's deductions for compensation paid in excess of the $1
Million Cap will be denied, will depend on the resolution of various factual and
legal issues that cannot be determined with certainty at this time. However, the
Company believes that the grants of Stock Rights under the Plan will be excluded
from the calculation of the $1 Million Cap and the Company will receive a tax
deduction with respect thereto.
TAX WITHHOLDING. Each recipient of a Stock Right shall, no later than the
date as of which the value of the Stock Right or of any Common Stock or other
amount received thereunder first becomes includable in the gross income of the
recipient for Federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Administrators regarding payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to such income. The Administrators may permit payment of such taxes to
be made through the tender of cash or securities, the withholding of Common
Stock or any other arrangement satisfactory to the Administrators. The Company
and its subsidiaries shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment of any kind otherwise due to the
recipient of the Stock Right.
NQOS. A NQO granted under the Plan is taxed in accordance with Section 83
of the Code and the regulations issued thereunder. The following general rules
are applicable to the holders of such NQOs and to the Company for federal income
tax purposes under existing law, based upon the assumptions that (i) the NQOs do
not have a readily ascertainable fair market value at the date of the grant, and
(ii) the Common Stock acquired by exercising the NQO is either transferable or
not subject to a substantial risk of forfeiture (as defined in the regulations
under Section 83 of the Code). Under the Code, a participant receiving a NQO
does not recognize taxable income upon the grant of the Option, and the Company
is not allowed a business expense deduction by reason of such grant. A
participant does, however, recognize ordinary income upon the exercise of a NQO
to the extent that the fair market value of the Common Stock on the date of
exercise (or, in some cases, a later tax recognition date) exceeds the Option
Price.
In accordance with the regulations under the Code, the Company will require
the holder of an Option to pay to the Company an amount sufficient to satisfy
the withholding taxes in respect of such compensation income at the time of the
exercise of the Option. If the Company withholds shares to satisfy this
withholding tax obligation, instead of cash, the holder of an Option nonetheless
will be required to include in income the fair market value of the shares
withheld. The Company may deduct for Federal income tax purposes (subject to the
$1 Million Cap, if applicable, and subject to satisfying the federal income
withholding requirements) an amount equal to the ordinary income so recognized
by the participant.
Upon the subsequent sale of the shares acquired pursuant to a NQO, any gain
or loss will be a capital gain or loss in an amount equal to the difference
between the amount realized on the sale of the shares and the basis in the
shares (i.e., the exercise price plus the amount taxed to the holder of an
Option as compensation income). If the holder of an Option holds the shares for
longer than one year, this gain or loss will be a long-term capital gain or
loss. There will be no tax consequences to the Company upon the subsequent sale
of shares acquired pursuant to a NQO.
ISOS. The grant of an ISO or the issuance of shares upon the exercise of an
ISO does not result in taxable income to an employee participant if: (1) the
participant is a ten percent or less shareholder
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until the option is exercised; or (2) the per share ISO exercise price is at
least 110 percent of the fair market value of the shares at the date of the
grant and (ii) the ISO by its terms is not exercisable after the expiration of
five years from the date the ISO was granted. The exercise of an ISO also does
not result in taxable income, provided that the employment requirements
specified in the Code are satisfied, although such exercise may give rise to
alternative minimum taxable income for the participant. In addition, if the
participant does not dispose of the Common Stock acquired upon exercise of an
ISO during the statutory holding period, then any gain or loss upon subsequent
sale of the Common Stock will be a long-term capital gain or loss, assuming the
shares represent a capital asset in the participant's hands.
The statutory holding period for Common Stock acquired pursuant to the
exercise of an ISO is the later of two years from the date the ISO is granted or
one year from the date the Common Stock is transferred to the participant
pursuant to the exercise of the ISO. If the employment and statutory holding
period requirements are satisfied, the Company may not claim any Federal income
tax deduction upon either the exercise of the ISO or the subsequent sale of the
Common Stock received upon exercise of the ISO. If these requirements are not
satisfied, the amount of ordinary income taxable to the participant is the
lesser of (i) the fair market value of Common Stock on the date of exercise (or
later tax recognition date) minus the Option Price, and (ii) the amount
recognized on disposition minus the Option Price. The Company may deduct for
Federal income tax purposes (subject to the $1 Million Cap, if applicable) an
amount equal to the ordinary income so recognized by the participant. Any excess
of the amount realized by the holder of an Option as the result of a
disqualifying disposition over the sum of the (i) exercise price, and (ii) the
amount of ordinary income recognized under the above described rules, will be
treated as either long-tem or short-tem capital gains, depending upon the time
elapsed between receipt and disposition of such shares.
SARS. No income will be recognized by a holder of an Option, and no
deduction will be allowed to the Company upon the grant of a SAR. However, a
participant recognizes ordinary income in the year of its exercise or payment an
amount equal to the amount of cash received and the fair market value of the
Common Stock subject to the SAR (or, in some cases, a later tax recognition
date) and the Company may then deduct for Federal income tax purposes (subject
to the $1 Million Cap, if applicable and subject to satisfying federal
withholding requirements) an amount equal to the ordinary income recognized by
the participant. Where the holder of an Option is subject to Section 16(b) of
the Exchange Act, ordinary income realized in respect of the exercise of a SAR
right settled in stock (or a discretionary payment in stock in cancellation of
an Option) may be measured and included in income six months after exercise of
cancellation, under rules similar to those described for Restricted Stock. Upon
the subsequent sale of shares acquired pursuant to a SAR, any gain or loss will
be capital gain or loss, assuming the shares represent a capital asset in the
hands of the participant.
UNITS. The grantee of a Unit will generally be subject to tax at ordinary
income rates on any cash received and the fair market value of any Common Stock
issued under the Unit, and the Company will generally be entitled to a deduction
equal to the amount of ordinary income realized by the recipient. Such cash and
the fair market value of such stock received with respect to a Unit will
generally be included in income by the recipient (and a corresponding deduction
will generally be available to the Company) at time of receipt; no income will
be recognized by the grantee of a Unit, and no deduction will be allowed to the
Company, on the date of grant of a Unit. The capital gain or loss holding period
for any Common Stock distributed under a Unit will begin when the recipient
recognizes ordinary income in respect of that distribution.
RESTRICTED STOCK. Common Stock that is subject to restrictions on transfer
and also to a substantial risk of forfeiture (as defined in regulations under
Section 83 of the Code), referred to herein as
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"Restricted Stock," is subject to special tax rules. If the Common Stock
acquired on the exercise of a NQO is Restricted Stock, the amount of income
recognized by the holder of an Option generally will be determined as of the
time the restrictions on transfer lapse or the substantial risk of forfeiture no
longer exists. Officers and directors of the Company who exercise NQOs may
receive stock treated as Restricted Stock for this purpose because of certain
securities-law rules applicable to such holders of Options. Restricted Stock
acquired by exercising an ISO generally is not subject to the rules of Section
83, but rather to the rules discussed above under "ISOs."
Under Section 83(b) of the Code, an election is available to the holder
of an Option to include in gross income, 30 days after the Restricted Stock is
first transferred to the holder of an Option, the amount of any excess of the
fair market value (as determined under Section 83) of the Restricted Stock over
the amount (if any) paid for such stock. Therefore, no ordinary income will
result if the full fair market value at the time of the grant is paid at the
time the option is exercised. If this election is made, no further tax liability
will arise at the time the transfer restrictions on the Restricted Stock lapse
or the substantial risk of forfeiture no longer exists. However, if shares of
Restricted Stock for which a Section 83(b) election is in effect are forfeited
while such shares are both nontransferable and subject to a substantial risk of
forfeiture, the loss realized by the holder of an Option on the forfeiture, for
tax purposes, is limited to the amount paid for such shares (not including any
compensation income recognized by the holder of an Option at the time of the
transfer) less any amount realized by the holder of an Option on such
forfeiture.
MINIMUM TAX. In addition to the tax consequences described above, the
exercise of ISOs granted under the Plan may result in a further "minimum tax"
under the Code. The Code provides that an "alternative minimum tax" (at
graduated rates up to 28%) will be applied against a taxable base which is equal
to regular taxable income, adjusted for certain limited deductions and losses,
increased by items of tax preference, and reduced by a statutory exemption. The
statutory exemption is phased out for certain higher income taxpayers. The
bargain element at the time of exercise of an ISO (i.e., the amount by which the
value of the Common Stock received upon exercise of the ISO exceeds the exercise
price) is included in the holder of an Option's alternative minimum taxable
income for purposes of the minimum tax, subject to the rules of Section 83 of
the Code. Thus, if upon exercise of an ISO a holder of an Option receives stock
which is not Restricted Stock (as defined above), the bargain element is
included in the holder of an Option's alternative minimum taxable income in the
year(s) that the restrictions(s) on the stock lapse(s), unless the holder of an
Option files a Code Section 83(b) election with the Internal Revenue Service
within 30 days of the date of exercise of the ISO and thereby elects to include
the bargain element in minimum taxable income in the year of exercise. For
purposes of determining alternative minimum taxable income (but not regular
taxable income) for any subsequent year in which the taxpayer sells the stock
acquired by exercise of the ISO, the basis of such stock will be its fair market
value at the time the ISO was exercised. A taxpayer is required to pay the
higher of his regular tax liability or the alternative minimum tax. A taxpayer
who pays alternative minimum tax attributable to the exercise of an ISO may be
entitled to a tax credit against regular tax liability in later years.
AMENDED PLAN BENEFITS
1995 STOCK PLAN
The grant of Stock Rights is subjected to the discretion of the
Administrators. As of the date of this Proxy Statement, there has been no
determination by the Administrators with respect to future awards under the
Plan. The following sets forth information with respect to the grant of Options
to the Named Executives, to all current executive officers as a group and to all
other employees as a group during the
17
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1999 fiscal year. The Company has not made any other grants of Stock Rights to
directors, officers, employees and/or consultants of the Company.
<TABLE>
<CAPTION>
NAME OF SECURITIES UNDERLYING AVERAGE WEIGHTED EXERCISE PRICE
INDIVIDUAL OPTIONS GRANTED (#) PER SHARE ($/SHARE)
---------- ------------------ -------------------
<S> <C> <C>
Marvin E. Melson -0-
John W. Lettunich -0-
All current executive officers as a group 3,500 $15.25
All current employees as a group 99,700 $15.25
</TABLE>
APPOINTMENT OF AUDITORS
(ITEM 3 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 2000 fiscal year. KPMG
has audited the Company's financial statements since 1999. Representatives of
KPMG 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 Stratemann, LLP
("Padgett"), who had 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 1997 and 1998 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
1997 and 1998 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 Form 10-K/A, filed April 23, 1999, the Company 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 1997 and 1998 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 resulted in the restatement of
earnings. During 1997 and 1998 and through April 22, 1999, the Company had not
consulted with KPMG regarding either:
18
<PAGE>
(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
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.
19
<PAGE>
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.
[GRAPH]
<TABLE>
<CAPTION>
PERIOD ENDING
-------------------------------------------------------------------------
INDEX 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
National Bancshares Corp. 100.00 164.00 192.00 304.00 266.00 238.00
S&P 500 100.00 137.58 169.03 225.44 289.79 350.78
SNL AMEX Bank Index 100.00 146.98 190.04 324.36 337.35 310.54
</TABLE>
20
<PAGE>
SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Proposals of shareholders intended to be presented at the 2001 Annual
Meeting of Shareholders must be received in writing by the Company at its
corporate office no later than December 30, 2000. 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 $3,500, 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,
-----------------------------------
Marvin E. Melson
President and Secretary
Dated: April 19, 2000
21
<PAGE>
NATIONAL BANCSHARES CORPORATION OF TEXAS
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY /X/
1. Election of Directors
01 Jay H. Lustig, 02 Marvin E. Melson, 03 H. Gary Blankenship, 04 John W.
Lettunich and 05 Charles T. Meeks
For Withhold For All
All All Except
/ / / / / /
Except nominee(s) number(s) written below _______________
2. To approve certain amendments to the 1995 Stock Plan.
For Against Abstain
/ / / / / /
3. Ratify the appointment of KPMG, LLP as independent auditors
For Against Abstain
/ / / / / /
4. In their discretion, the proxies are authorized to vote on any other matter
that may properly come before the meeting of any adjournment thereof.
- --------------------------------
SIGNATURE OF SHAREHOLDER
- --------------------------------
SIGNATURE OF SHAREHOLDER
(if jointly held)
Dated _______________ , 2000
Please complete, sign and return this proxy promptly in the enclosed
envelope. Sign exactly as the name appears hereon. Executors, administrators,
trustees, etc. should so indicate when signing. When shares are held by joint
tenants, both should sign. If the signature is for a corporation, please sign
the full corporate name by an authorized officer. If the signature is for a
partnership, please sign the full partnership name by an authorized person.
If shares are registered in more than one name, all holders must sign.
- FOLD AND DETACH HERE -
PLEASE MARK, SIGN, DATE, AND RETURN YOUR PROXY CARD
PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE>
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 19, 2000, 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, Number 3 and Number 4.
(Continued and to be signed on the reverse side.)
- FOLD AND DETACH HERE -
