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SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
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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 sec.240.14a-11(c) or sec.240.14a-12
NATIONAL PROCESSING, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
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(1) Title of each class of securities to which transaction applies:
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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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[ ] 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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NATIONAL PROCESSING, INC.
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March 31, 1997
Dear Shareholder:
You are invited to attend the first Annual Meeting of Shareholders of National
Processing, Inc., which will be held at National City Bank, 1900 East Ninth
Street, 4th Floor, Cleveland, Ohio 44114, on Tuesday, May 13, 1997, commencing
at 11:00 a.m., EASTERN DAYLIGHT TIME.
The primary business of the meeting will be the election of four Class I
directors and the approval of the selection of Ernst & Young LLP as independent
auditors for 1997, and to transact such other business as may properly come
before the meeting.
The formal Notice of Annual Meeting and Proxy Statement containing further
information pertinent to the business of the meeting are set forth on the
following pages. Our Annual Report on Form 10-K for the year 1996 is also
enclosed. We shall report to you at the meeting on the business and affairs of
National Processing, Inc.
Your vote is important no matter how many shares you own. We hope you will be
able to attend the meeting in person; but, in any event, please sign and date
the enclosed proxy and return it in the accompanying envelope. If you wish to
communicate directly with National Processing, Inc., the mailing address of the
executive offices is: National Processing, Inc., One Oxmoor Place, 101 Bullitt
Lane, Suite 450, Louisville, Kentucky 40222.
Sincerely,
/s/ Robert Showalter
ROBERT E. SHOWALTER
President and Chief Executive Officer
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Shareholders of
NATIONAL PROCESSING, INC.
The first Annual Meeting of Shareholders of National Processing, Inc. will be
held at National City Bank, 1900 East Ninth Street, 4th Floor, Cleveland, Ohio
44114, on Tuesday, May 13, 1997, at 11:00 a.m., EASTERN DAYLIGHT TIME, for the
purpose of considering and voting upon the following matters:
1. The election of four Class I directors;
2. The approval of the selection of independent auditors for 1997; and
3. The transaction of such other business as may properly come before
the meeting.
Shareholders of record on March 28, 1997, are entitled to receive notice of
and to vote at the meeting. A list of the shareholders will be available at the
meeting and for the 10 days preceding the meeting at the offices of National
Processing, Inc., One Oxmoor Place, 101 Bullitt Lane, Suite 450, Louisville,
Kentucky 40222 and National City Bank, 1900 East Ninth Street, Cleveland, Ohio
44114-3484.
All Shareholders who are entitled to vote, even if they now plan to attend the
meeting, are requested to execute the enclosed proxy card and return it without
delay in the enclosed postage-paid envelope. You may revoke your proxy at any
time before it is voted by giving written notice to National Processing, Inc. If
you attend the meeting and vote in person, your vote will supersede your proxy.
Please mark, date, and sign the enclosed proxy and return it in the
accompanying envelope.
By Order of the Board of Directors
/s/ Louis C. Parker, III
LOUIS C. PARKER, III
Secretary
March 31, 1997
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PROXY STATEMENT
MARCH 31, 1997
SOLICITATION AND REVOCABILITY OF PROXIES
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of National Processing, Inc. ("National Processing") of the
accompanying proxy to be used at the first Annual Meeting of Shareholders of
National Processing (the "Annual Meeting"), and any adjournment thereof, and is
being sent on approximately the date of this Proxy Statement to each of the
holders of National Processing's Common Stock ("National Processing Common").
The Annual Meeting will be held on Tuesday, May 13, 1997, at the time and place
and for the purposes set forth in the accompanying Notice of Annual Meeting of
Shareholders. Shares represented by properly executed proxies, if such proxies
are received in time and not revoked, will be voted at such meeting in
accordance with any specifications thereon or, if no specifications are made,
will be voted as set forth therein. Any proxy may be revoked by the person
giving it at any time before it is exercised by receipt of a later dated proxy,
or by receipt by the Secretary of National Processing of a revocation, or by
such person appearing at the meeting and electing to vote in person.
INFORMATION AS TO VOTING SECURITIES
The Board of Directors has fixed the close of business on March 28, 1997, as
the record date for the determination of shareholders entitled to receive notice
of and to vote at the Annual Meeting. On the record date, National Processing
had 50,575,000 shares of National Processing Common outstanding.
BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors of National Processing has responsibility for
establishing broad corporate policies and for overall performance of National
Processing. However, it is not involved in the day-to-day operating details of
National Processing's business. Members of the Board are kept informed of
National Processing's business through various documents and reports provided by
the Chairman and other officers of National Processing and by participating in
Board and committee meetings. All directors have access to all books, records,
and reports of National Processing; and members of management are available at
all times to answer their questions.
In 1996, the Board of Directors of National Processing held two meetings.
Average attendance by directors at those meetings was 100%, and all directors
attended 75% or more of the meetings of the Board of Directors. The board
committees did not meet during 1996.
The Board of Directors of National Processing has established two permanent
committees comprised of directors who are appointed annually to those
committees. The principal committees are the Audit Committee and the
Compensation Committee, each of which is described below. The members of each of
those committees are identified in the biographical material of the nominees for
election of Directors beginning at page 7.
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THE AUDIT COMMITTEE. The Audit Committee will meet at least semiannually but
did not meet during 1996. National Processing became a publicly held corporation
on August 9, 1996. The Audit Committee is comprised of directors who are
independent of the management of National Processing and are free of any
relationship that would interfere with their exercise of independent judgment as
committee members. The responsibility for effective auditing of National
Processing and any subsidiary is carried out by the Audit Committee with the
assistance of the general auditor of National City Corporation ("National
City"), which owns approximately 85% of the National Processing Common
outstanding, and the independent auditors. The Audit Committee will provide
assistance to the Board of Directors in fulfilling its responsibility to
shareholders, potential shareholders, and the investment community relating to
corporate accounting and reporting practices of National Processing,
effectiveness of its internal control structure and procedures for financial
reporting, and compliance with designated laws and regulations. In so doing, the
Audit Committee will maintain free and open communications among the directors,
the independent auditors, the general auditor, and the management of National
Processing.
THE COMPENSATION COMMITTEE. The Compensation Committee will meet on the call
of the Chairman and did not meet during 1996. National Processing became a
publicly held corporation on August 9, 1996. The Compensation Committee is
comprised of directors who are independent of the management of National
Processing. The Compensation Committee considers matters relating to
compensation policy and compensation of senior officers of National Processing
and its subsidiaries and makes recommendations to the Board of Directors on
matters relating to succession and organization of senior executive management.
Under the terms of each of the National Processing, Inc. 1996 Stock Option Plan
and the National Processing, Inc. Non-Employee Directors Stock Option Plan, the
Compensation Committee is authorized to grant share option rights and share
appreciation rights to officers and employees of National Processing and its
subsidiaries. The Compensation Committee also determines participants for the
National City Processing Company Long-Term Incentive Compensation Plan for
Senior Officers and sets the awards granted pursuant to the National City
Processing Company Short-Term Incentive Compensation Plan for Senior Officers.
COMPENSATION OF DIRECTORS
Members of the Board of Directors of National Processing who are not officers
of National City, National Processing or any of their subsidiaries ("Outside
Directors"), receive a yearly retainer, payable in quarterly installments, and a
fee for each meeting of the Board, and each committee thereof, which they
attend. The yearly retainer is $12,000. The fee for attendance at any Board
meeting or any committee meeting is $1,000.
In addition, the three Outside Directors each received non-qualified stock
options to purchase 25,000 shares of National Processing Common at 100% of the
market value as of the day of his respective election to the Board, pursuant to
the Non-Employee Directors Stock Option Plan. Mr. Hayunga, a non-employee
director at the time of the initial public offering, received non-qualified
options to purchase 50,000 shares of National Processing Common at the initial
public offering price.
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SHAREHOLDER ACTION
1. ELECTION OF DIRECTORS -- NATIONAL PROCESSING.
The Board of Directors is comprised of eight individuals who are classified as
either Class I or Class II directors. The Class I directors' term of office
shall expire at the Annual Meeting, and until their respective successors are
duly elected and have been qualified. The Class II directors' term of office
shall expire at the 1998 Annual Meeting of Shareholders and until their
respective successors are duly elected and have been qualified. It is intended
that shares represented by the proxies, unless contrary instructions are given,
will be voted for the election of the Class I nominees listed as directors,
whose number is four. Although management does not expect that any nominee will
be unavailable for election, in the event that vacancies occur unexpectedly, the
shares will be voted for substitute nominees, if any.
The Class II directors and the four nominees for election to the Board of
Directors as Class I directors are identified on pages 7 through 9. All of the
nominees are presently directors of National Processing. All of the incumbent
members of the Board of Directors were elected to the Board of Directors during
1996 with the exception of Mr. Showalter, who was elected to the Board on March
12, 1997. The following material contains biographical information concerning
each director and nominee, including recent employment, positions with National
Processing, other directorships, age, and the number of shares of National
Processing Common beneficially owned, all as of March 31, 1997. Unless otherwise
indicated, the directors and nominees have sole voting and investment power with
respect to National Processing's securities shown to be owned by each. (See
Beneficial Ownership at page 10).
CLASS I NOMINEES FOR ELECTION AS DIRECTORS
Bell Photo JAMES R. BELL, III, President and Chief Executive Officer of National
City Bank of Kentucky, a commercial bank, since 1996. Vice Chairman of
National City Bank of Kentucky from 1995 to 1996 and Executive Vice
President from 1994 to 1995. Senior Vice President of National City Bank
from 1991 to 1993. Director of National Processing since 1996. Age: 40.
Shares of National Processing Common owned: 3,030.
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Gonzalez-Baz Photo AURELIANO GONZALEZ-BAZ, Partner in Bryan Gonzalez Vargas y Gonzalez-Baz,
a full service law firm, since 1974. Director of National Processing
since 1996. Chairman of the Audit Committee and Member of the
Compensation Committee. Age: 49. Shares of National Processing Common
owned: 0.
Heller, Jr. Photo PRESTON B. HELLER, JR., Retired as Chairman, Chief Executive Officer and
President of Pioneer-Standard Electronics, Inc., an industrial
distributor of electronics and computer products, during 1996. Prior to
that time he served as Chairman and Chief Executive Officer from 1992 to
1995. Director of Pioneer-Standard Electronics, Inc. Director of National
Processing since 1996. Member of the Audit and Compensation committees.
Age: 67. Shares of National Processing Common owned: 4,500.
Siefers Photo ROBERT G. SIEFERS, Executive Vice President and Chief Financial Officer
of National City, a diversified financial services company, since 1991.
Director of National Processing since 1996. Age: 51. Shares of National
Processing Common owned: 10,000.
VOTE BY SHAREHOLDERS
The election of directors requires the plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors.
THE BOARD OF DIRECTORS OF NATIONAL PROCESSING RECOMMENDS A VOTE FOR THE SLATE
OF DIRECTOR NOMINEES.
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CLASS II DIRECTORS WHOSE TERMS CONTINUE UNTIL THE 1998 ANNUAL SHAREHOLDERS
MEETING.
Cotsakos Photo CHRISTOS M. COTSAKOS, President and Chief Executive Officer of E*TRADE
Group, Inc., an electronic commerce company, since 1996. Prior to that
time, served as President and Co-Chief Executive Officer of A. C.
Nielsen, Inc. from 1992 to 1995. Director of National Processing since
1996. Chairman of the Compensation Committee and Member of the Audit
Committee. Age: 48. Shares of National Processing Common owned: 11,000
Hayunga Photo DELROY R. HAYUNGA, President and Chief Executive Officer of Stored Value
Systems, Inc., a developer of smart card technology and stored value
systems (a subsidiary of National City), since 1995. President and Chief
Executive Officer of National City Processing Company (now known as
National Processing Company) from 1991 to 1995. Director of National
Processing since 1996. Age: 53. Shares of National Processing Common
owned: 6,060.
Robertson Photo WILLIAM R. ROBERTSON, Chairman of the Board of National Processing, Inc.,
since 1996. President of National City, a diversified financial services
company, since 1995. Deputy Chairman of National City from 1991 to 1994.
Director of National Processing since 1996. Age: 55. Shares of National
Processing Common owned: 5,000.
Showalter Photo ROBERT E. SHOWALTER, President and Chief Executive Officer of National
Processing since March 1997. President and Chief Executive Officer of
National City Bank, Northeast from 1995 to 1997 and President and Chief
Executive Officer of National City Bank, Northwest from 1991 to 1995.
Director of National Processing since 1997. Age: 60. Shares of National
Processing Common owned: 11,000.
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BENEFICIAL OWNERSHIP
As of March 31, 1997, National Processing had one class of equity security
outstanding, National Processing Common without par value.
Beneficial ownership of National Processing's outstanding equity security, for
purposes of the ownership disclosures, has been determined in accordance with
Rule 13d-3 of the General Rules and Regulations under the Securities Exchange
Act of 1934 ("Exchange Act"), under which Rule a person is deemed to be the
beneficial owner of securities if he or she has or shares voting power or
investment power in respect of such securities or has the right to acquire
beneficial ownership within 60 days. Accordingly, the amounts shown do not
purport to represent beneficial ownership for any purpose other than as set
forth under such Rule. Further, beneficial ownership as determined in this
manner does not necessarily bear on the economic incidence of ownership of
National Processing's equity securities.
As of March 31, 1997, to the knowledge of National Processing, no person or
firm, other than National City, beneficially owned more than 5% of National
Processing Common outstanding on that date. National City owned 43,100,000
shares of National Processing Common, which constituted 85.2% of the outstanding
National Processing Common on that date. As of March 31, 1997, no individual
director, nominee, or officer beneficially owned more than 5% of National
Processing Common outstanding. For purpose of this disclosure, the amount of
outstanding National Processing Common is the aggregate number of shares of
National Processing Common actually outstanding on such date plus an amount
equal to the aggregate amount of National Processing Common which could be
issued upon the exercise of stock options by such person or firm at that date.
Beneficial ownership of National Processing Common includes, as of such date,
those shares which could have been acquired by the exercise of stock options.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under federal securities law, National Processing's directors, certain
officers, and persons holding more than 10% of any class of National
Processing's equity securities are required to report, within specified monthly
and annual due dates, their initial ownership in any class of National
Processing's equity securities and all subsequent acquisitions, dispositions or
other transfers of interest in such securities, if and to the extent reportable
events occur that require reporting by such due dates. National Processing is
required to describe in this proxy statement whether it has knowledge that any
person required to file such a report may have failed to do so in a timely
manner. In this regard, to National Processing's knowledge, based solely on the
review of copies of reports furnished to National Processing by its directors
and executive officers pursuant to Rule 16a-3 promulgated pursuant to the
Exchange Act, and on written representations that no other reports were required
during the period ending December 31, 1996, all of National Processing's
directors and officers satisfied such filing requirements in full except for
Aureliano Gonzalez-Baz, Christos M. Cotsakos and Preston B. Heller, Jr., who
each filed one late Form 3 after having been elected a director during 1996. Jim
Cate also filed a late Form 3 after having been elected senior vice president
and chief financial officer during January 1997.
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The following table sets forth the beneficial security ownership of (a) each
director and nominee of National Processing; (b) the chief executive officer and
the four other most highly compensated executive officers of National
Processing; and (c) all directors and executive officers of National Processing
as a Group, as of March 31, 1997 (including shares that such individuals could
have acquired by the exercise of options within 60 days):
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BENEFICIAL SECURITY OWNERSHIP OF MANAGEMENT
AMOUNT OF
SHARES PERCENT
BENEFICIALLY OF
TITLE OF CLASS NAME OF BENEFICIAL OWNER OWNED CLASS
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Common Stock Richard A. Alston 500 *
Common Stock James R. Bell, III 3,030 *
Common Stock Christos M. Cotsakos 11,000 *
Common Stock Aureliano Gonzalez-Baz 0 *
Common Stock Delroy R. Hayunga 6,060 *
Common Stock Preston B. Heller, Jr. 4,500 *
Common Stock Tony G. Holcombe 10,000 *
Common Stock Robert E. Johnson 5,000 *
Common Stock Kurt S. Knipp 0 *
Common Stock William R. Robertson 5,000 *
Common Stock Robert E. Showalter 11,000 *
Common Stock Robert G. Siefers 10,000 *
Common Stock Thomas A. Wimsett 7,700 *
Common Stock David R. Zook 4,150 *
Common Stock Directors and Executive
Officers of National
Processing as a Group 87,940 *
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* The percent of National Processing Common beneficially owned is less than 1%.
2. SELECTION OF INDEPENDENT AUDITORS -- NATIONAL PROCESSING.
The Board of Directors of National Processing believes it appropriate to
submit for action by the shareholders of National Processing the approval of the
selection of Ernst & Young LLP, independent auditors, as auditors for National
Processing for the year 1997. This firm and its predecessors have served as
independent auditors for National Processing Company, a subsidiary of National
Processing, since 1993. In the opinion of the Board of Directors of National
Processing, the reputation, qualifications, and experience of the firm make
appropriate its appointment for 1997. A representative of the firm is expected
to be present at the Annual Meeting of National Processing, with the opportunity
to make a statement if such representative desires to do so, and is expected to
be available to respond to appropriate questions.
VOTE BY SHAREHOLDERS
The proposal requires for its adoption the affirmative vote of the majority of
votes cast in person or by proxy at the meeting.
THE BOARD OF DIRECTORS OF NATIONAL PROCESSING RECOMMENDS A VOTE FOR THIS
PROPOSAL.
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REPORT OF COMPENSATION COMMITTEE
National Processing believes that its shareholders should be provided
information about executive compensation that is easily understood and
consistent with the Securities and Exchange Commission's proxy rules on
executive compensation.
The information provided is intended to enable shareholders to fully
understand the cash, performance-based and equity-based compensation programs
for executives. National Processing welcomes shareholder comments or suggestions
on whether the disclosure objectives have been met. Please send any comments to
the Corporate Secretary, National Processing, Inc., One Oxmoor Place, 101
Bullitt Lane, Suite 450, Louisville, Kentucky 40222.
COMPENSATION PHILOSOPHY
National Processing is committed to aligning compensation strategies with
overall business objectives. The performance of National Processing's employees
is key to delivering the types of products and services that will result in
returned value to shareholders. National Processing will structure its
compensation plans to reward individuals based on their contributions to
individual, unit, and corporate objectives. Compensation strategies that support
and are aligned with business objectives will be pursued. National Processing's
compensation philosophy recognizes the need for diversification in pay
practices. Variable pay opportunities provided through incentive plans and
performance bonus programs are important vehicles for rewarding individual
employee contributions.
EXECUTIVE COMPENSATION PRINCIPLES
National Processing believes that executive compensation should be dependent
on the attainment of aggressive business goals, and the integration and
implementation of annual and strategic planning. Above-average executive
compensation levels can only be attained by meeting corporate and individual
goals.
The cornerstone of the executive compensation programs of National Processing
is based on the following guiding principles.
The program:
Focuses on total compensation in determining overall and individual
competitiveness;
Provides rewards for long-term strategic management and promotes a
concept of equity ownership as a reinforcement of corporate success and
attention to shareholder values;
Places significant pay at risk based on the attainment of both corporate
and individual performance goals; and
Attracts and retains key executives critical to the long-term success of
National Processing.
National Processing believes that it is in the best interest of
shareholders to retain as much flexibility as possible, now and in the
future, with respect to the design and payment of
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compensation to its executive officers. National Processing does, however,
recognize the constraints imposed on this flexibility by Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code") which disallows
a tax deduction for non-exempted compensation it pays in excess of
$1,000,000 to key executives. National Processing's compensation plans are
currently structured in such a manner that it is unlikely that non-exempted
compensation paid to any executive officer in any year will exceed the
limitation for deduction by National Processing established by Section
162(m).
EQUITY-BASED REWARDS
National Processing is committed to ensuring that the shareholders and
employee owners share long-term interests. A focus on increasing employee equity
ownership strengthens the link between executive rewards and long-term corporate
performance.
Stock Options are an important component of total compensation and provide a
long-term incentive to participants to align performance with shareholder
interests. Stock options are awarded to employees based on their performance and
contributions. Broad guidelines are used to award the stock options, with
above-average awards linked to above-average individual performance and long-
term potential.
The National Processing, Inc. 1996 Stock Option Plan provides for an
additional stock option grant (an "Additional Option") when the employee has
used previously owned National Processing Common to pay the exercise price of an
original option grant (a swap transaction). The additional option feature
typically encourages an employee to exercise the option grant earlier than if
the feature were not present, thereby increasing the employee's level of equity
ownership. Each Additional Option's termination date is the same as the
termination date of the option that originally had the additional option
feature. Its option price is the market price at the time of the exercise of the
original option. An Additional Option is NOT provided upon exercise of an
Additional Option. This feature supports National Processing's focus on
increased equity ownership.
CASH-BASED REWARDS
National Processing believes that cash compensation should be driven by the
attainment of aggressive business goals. These goals are based on annual and
three-year plan cycles. Performance is assessed in terms of achievement of
National Processing division and individual goals. In addition, the chief
executive officer's cash compensation is also dependent on the performance of
National City.
National Processing establishes a salary range for each executive officer that
is determined by an evaluation of job criteria. National Processing's objective
is to provide base compensation at market median and to provide total cash
compensation opportunities above the market median when there is above-average
performance. Executive salaries can vary within National Processing's range
structure based on performance, experience, and long-term potential.
THE NATIONAL CITY PROCESSING COMPANY SHORT-TERM INCENTIVE COMPENSATION PLAN
FOR SENIOR OFFICERS allows for rewards to be based on the achievement of
individual performance goals, National Processing's results and, for the Chief
Executive Officer, National City's financial results. Awards
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under this plan are a percent of base pay and can range from 0% to 70% for the
chief executive officer, 0% to 55% for the executive vice presidents, 0% to 40%
for senior vice presidents, and 0% to 20% for vice presidents of National
Processing or its major subsidiaries.
THE NATIONAL CITY PROCESSING COMPANY LONG-TERM INCENTIVE COMPENSATION PLAN FOR
SENIOR OFFICERS is designed to maximize returns to shareholders by linking the
compensation of key executives to the overall profitability and success of
National Processing. Awards are based on National Processing's compound growth
rate in earnings over a three-year plan cycle. Awards are paid at the completion
of each plan cycle and can range from 30% to 60% for the chief executive officer
and 20% to 40% for executive officers of National Processing or its major
subsidiaries. The incentive award is computed based on the executive's average
annual salary during each plan cycle. The first potential award will be paid
upon completion of the 1995-1997 plan cycle.
SUMMARY
National Processing's compensation programs serve to closely align an
individual's compensation opportunities with the impact of the individual's
contributions on the overall performance of National Processing. Both cash-based
and equity-based vehicles are used to reward performance that is measured
annually and over a three-year period. Achievement of aggressive business goals
is used as measurement criteria. National Processing will continue to build on
programs that tie total compensation to National Processing's success.
THE COMPENSATION COMMITTEE'S REVIEW OF CEO COMPENSATION
National Processing's executive compensation program is based on National
Processing's, National City's, and the individual's performance and places a
significant portion of an executive's compensation at risk if these goals are
not attained. In addition, the program rewards long-term strategic management by
using compensation vehicles that promote equity ownership and emphasize
attention to shareholder value.
Tony Holcombe served as President and Chief Executive Officer of National City
Processing Company (now National Processing Company) from January to July 1995
and President and Chief Executive Officer of National Processing from August
1995 to March 1997. His compensation plan included base salary, short- and
long-term bonuses and stock options. Mr. Holcombe received a base salary of
$233,333 plus a bonus of $148,050 for 1996. The National City Processing Company
Short-Term Incentive Compensation Plan award for Mr. Holcombe is
performance-based and is comprised of two components; National Processing's
performance compared to established standards of net income growth (which
comprised 60% of the award); and (2) National City's relative performance
against a peer group of financial institutions, (which comprised the other 40%).
The National City Processing Company Long-Term Incentive Compensation Plan
focuses on providing superior returns for shareholders of National Processing.
Payments under the plan are based on National Processing's attainment of
established performance standards for annual compound growth rates over three
years. Payments are made at the end of each three-year period, the first of
which began on January 1, 1995. The first potential payment under the plan, if
performance goals are met, will be for the plan cycle completed in 1997.
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The purpose of the National Processing, Inc. 1996 Stock Option Plan is to
enable National Processing to attract, compensate, and retain officers and other
key employees and provide them with appropriate employment incentives and
rewards for superior performance by encouraging capital accumulation and stock
ownership. Mr. Holcombe received options to purchase 200,000 shares of Common
Stock with an exercise price of $16.50.
Mr. Holcombe resigned his position during March 1997 and was succeeded as
President and Chief Executive Officer by Robert E. Showalter. Mr. Showalter's
compensation plan includes base pay, short- and long-term bonuses and stock
options. Mr. Showalter will receive base pay of $300,000 and pursuant to the
National Processing, Inc. 1996 Stock Option Plan, he received options to
purchase 200,000 shares of National Processing Common. He participates in the
National City Savings and Investment Plan, the National City Executive Savings
Plan, the National City Short-Term Incentive Compensation Plan for Senior
Officers, the National City Long-Term Incentive Compensation Plan for Senior
Officers, and the National City Supplemental Executive Retirement Plan. Mr.
Showalter is eligible to receive options to purchase shares of National City
common stock.
COMPENSATION COMMITTEE
CHRISTOS M. COTSAKOS, CHAIRMAN
AURELIANO GONZALEZ-BAZ
PRESTON B. HELLER, JR.
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STOCKHOLDER RETURN PERFORMANCE
Set forth below is a line graph comparing the total shareholder return (stock
price change plus dividends) of National Processing Common from August 9, 1996
through February 26, 1997 with that of the Standard & Poor's 500 Index (the "S&P
500 Index") and the Standard & Poor's Computer Software and Services Index (the
"S&P Computer and Software and Services Index"). The graph assumes that the
value of the investment in National Processing Common and each index was $100 on
August 9, 1996 and that all dividends, if any, were reinvested. The initial
public offering of National Processing Common occurred on August 9, 1996, and
that the initial offering price of $16.50 was used as the beginning price for
National Processing Common's price on the performance graph. National Processing
also notes that the initial offering price of $16.50 is different from National
Processing Common's initial trading price of $19.00.
COMPARISON OF CUMULATIVE TOTAL RETURN
S&P COMPUTER
SOFTWARE AND
MEASUREMENT PERIOD NATIONAL SERVICES
(FISCAL YEAR COVERED) PROCESSING INDEX S&P 500 INDEX
8/9/96 100 100 100
8/30/96 104 95 98
9/30/96 119 105 104
10/31/96 116 107 108
11/29/96 109 117 115
12/31/96 97 111 112
1/31/97 70 124 120
2/26/97 72 123 123
On February 26, 1997, the total shareholder return on National Processing
Common had decreased from August 9, 1996 (using the initial offering price of
$16.50) by 28.0%, compared with increases in the total returns on the S&P 500
Index and the S&P Computer Software and Services Index of 23.1% and 23.5%,
respectively.
REVIEW OF COMPANY PERFORMANCE
National Processing's 1996 net income was $31.4 million, compared with $25.8
million in 1995 and $19.3 million in 1994. Revenues totaled $373.7 million in
1996 versus $339.3 million in 1995 and $319.5 million in 1994.
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A significant portion of National Processing's revenues result from long-term
customer relationships. National Processing estimates that the average tenure of
its relationship with its 50 largest customers has been approximately 10 years.
National Processing strives for ongoing reduction in costs. For example, an
important contributor to National Processing's cost structure has been the use
of low-cost international labor markets. National Processing established its
initial presence internationally with the opening of a processing facility in
Juarez, Mexico in 1988. Over time, the Juarez operations have become
increasingly significant to National Processing, representing approximately 37%
of National Processing's employees as of December 31, 1996.
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REMUNERATION OF EXECUTIVE OFFICERS
AND TRANSACTIONS WITH MANAGEMENT -- NATIONAL PROCESSING
EXECUTIVE COMPENSATION
(a) COMPENSATION. The following table sets forth, together with certain other
information, the compensation earned during the fiscal year ended December 31,
1996 by (i) Tony G. Holcombe, the chief executive officer and (ii) the four
other most highly compensated executive officers of National Processing and its
subsidiaries.
- --------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
----------------------------------------
AWARDS
ANNUAL COMPENSATION -------------------------
------------------------------------------- RESTRICTED SECURITIES PAYOUTS
OTHER STOCK UNDERLYING ----------
NAME AND PRINCIPAL BONUS ANNUAL AWARD(S) OPTIONS/ LTIP
POSITION YEAR SALARY($) ($)(1) COMP($) ($) SARS(#)(2) PAYOUTS($)
- ------------------------------------------------------------------------------------------------------------------
Tony G. Holcombe(5) 1996 $233,333 $148,050 $0 $0 200,000 $0
President and 1995 $225,000 $138,600 $0 $0 10,000 $0
Chief Executive Officer 1994 $163,666 $100,000 $0 $0 5,000 $0
Richard A. Alston(5) 1996 $152,500 $ 84,700 $0 $0 100,000 $0
Executive Vice President 1995 $142,304 $ 72,800 $0 $0 5,000 $0
1994 -- -- $0 $0 0 $0
Robert E. Johnson 1996 $165,667 $ 71,638 $0 $0 100,000 $0
Executive Vice President 1995 $157,500 $ 70,200 $0 $0 4,000 $0
1994 $138,999 $ 35,000 $0 $0 4,300 $0
Thomas A. Wimsett 1996 $152,500 $ 84,700 $0 $0 100,000 $0
Executive Vice President 1995 $103,833 $ 58,000 $0 $0 3,500 $0
1994 $ 82,492 $ 24,300 $0 $0 2,900 $0
David R. Zook 1996 $187,998 $110,000 $0 $0 100,000 $0
Executive Vice President 1995 $157,500 $190,000 $0 $0 7,000 $0
1994 $138,291 $ 32,000 $0 $0 5,000 $0
ALL
OTHER
NAME AND PRINCIPAL COMP
POSITION ($)(3)(4)
- ----------------------------
Tony G. Holcombe(5) $24,753
President and $21,064
Chief Executive Officer $16,059
Richard A. Alston(5) $ 6,471
Executive Vice President $64,852
$ 0
Robert E. Johnson $21,551
Executive Vice President $19,708
$17,992
Thomas A. Wimsett $11,938
Executive Vice President $17,413
$ 5,342
David R. Zook $18,551
Executive Vice President $66,633
$13,080
- --------------------------------------------------------------------------------
(1) During 1995, $130,000 was paid to David R. Zook for a retention bonus
pursuant to a prior agreement.
(2) For years ended 1994 and 1995, the Securities Underlying Options/SARs
pertain to options to purchase shares of National City Common Stock and not
National Processing Common.
(3) All Other Compensation includes the Executive Savings Plan (see page 22) and
the Savings and Investment Plan (see page 21) matching and profit-sharing
components together with premiums paid by National Processing in connection
with split dollar insurance contracts, but does not include retirement
accruals as these are not calculable. For the year 1996, each of the named
executive officers were credited with the following matching and
profit-sharing amount under the Savings and Investment Plan; Tony G.
Holcombe, $8,998; Richard A. Alston $6,109; Robert E. Johnson, $9,066;
Thomas A. Wimsett, $8,374; David R. Zook, $9,038. The named executive
officers were credited with the following match and profit-sharing amount
under the Executive Savings Plan during the year 1996; Tony G. Holcombe,
$11,669; Richard A. Alston, $362; Robert E. Johnson, $5,517; Thomas A.
Wimsett, $3,564; David R. Zook, $5,659. All other compensation also includes
the following amounts equal to the full dollar value of the remainder of the
premiums paid by National Processing in connection with life insurance
policies issued pursuant to the Split Dollar Life Insurance Agreements
between National City and the following Named Executive Officers during
1996, respectively, as applicable: Tony G. Holcombe, $4,086; Richard A.
Alston, $0; Robert E. Johnson , $6,968; Thomas A. Wimsett, $0; David R.
Zook, $3,884. The premiums paid by National Processing in connection with
the life insurance policies issued pursuant to such Split Dollar Life
Insurance Agreements, set forth in the preceding sentence, generally will be
recovered in full by National Processing upon the cancellation or purchase
by a Named Executive Officer of any such life insurance policy or the
payment of any death benefits under any such life insurance policy.
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(4) During 1995, the following compensation is included: $64,852 to Richard A.
Alston; $10,000 to Thomas A. Wimsett for a signing bonus; $50,000 to David
R. Zook for a signing bonus.
(5) Tony G. Holcombe resigned as President and Chief Executive Officer of
National Processing during March 1997 and is succeeded by Robert E.
Showalter. Richard A. Alston resigned as Executive Vice President during
March 1997. No successor has been named.
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(b) OPTIONS. The following table provides information on options granted in
fiscal year 1996 to the Named Executive Officers.
- --------------------------------------------------------------------------------
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
----------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(#)(1) FISCAL YEAR(2) ($/SH) DATE VALUE($)(3)
- -----------------------------------------------------------------------------------------------------------
Tony G. Holcombe..... 200,000... 9.1% $16.50 8/13/06 1,794,000
Richard A. Alston.... 100,000... 4.6% 16.50 8/13/06 897,000
Robert E. Johnson.... 100,000... 4.6% 16.50 8/13/06 897,000
Thomas A. Wimsett.... 100,000... 4.6% 16.50 8/13/06 897,000
David R. Zook........ 100,000... 4.6% 16.50 8/13/06 897,000
- --------------------------------------------------------------------------------
(1) Options are non-qualified stock options. Subject to the named individual
remaining in the continuous employment of National Processing, the options
become exercisable 33% annually beginning one year from the date of grant
and expire not later than 10 years from the date of grant.
(2) National Processing granted options representing 2,187,500 shares to
employees during 1996.
(3) In accordance with Securities and Exchange Commission rules, the
Black-Scholes pricing model was used to estimate the Grant Date Present
Value. The values indicated were calculated using the following assumptions:
(i) an expected volatility of .412, (ii) an expected dividend yield of 0%,
(iii) a risk-free interest rate at the date of grant of 6.54%, (iv) an
expected option life of 7 years, and (v) no discounts for
non-transferability or risk of forfeiture. The estimated values have been
included solely for purposes of disclosure in accordance with the rules of
the Securities and Exchange Commission and represent theoretical values. The
actual value, if any, an executive may realize will depend upon the increase
in the market price of National Processing Common through the date of
exercise. Such an increase would benefit all shareholders.
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- --------------------------------------------------------------------------------
The following table sets forth the National City stock options exercised by
each of the Named Executive Officers during the calendar year 1996 and the
December 31, 1996 value of all unexercised options for National City common
stock held by the named executive officers.
- --------------------------------------------------------------------------------
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT 12/31/96 AT 12/31/96(3)
SHARES ------------- ----------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($)(1) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------------------------------------------------------------------
Tony G. Holcombe........ 0 $ 0 0/200,000 (2) $ 0/0(2)
17,800 $235,602 4,999/5,001 $ 74,985/$75,015
Richard A. Alston....... 0 $ 0 0/100,000 (2) $ 0/0(2)
2,499 $ 12,807 0/2,501 $ 0/$37,515
Robert E. Johnson....... 0 $ 0 0/100,000 (2) $ 0/0(2)
12,800 $252,362 12,299/2,001 $237,607/$30,015
Thomas A. Wimsett....... 0 $ 0 0/100,000 (2) $ 0/0(2)
0 $ 0 4,649/1,751 $ 79,522/$26,265
David R. Zook........... 0 $ 0 0/100,000 (2) $ 0/0(2)
10,400 $123,856 3,499/3,501 $ 52,485/$52,515
- --------------------------------------------------------------------------------
(1) The "Value Realized" is equal to the difference between the option exercise
price and the fair market value of National City common stock on the date of
exercise.
(2) The number and value of Exercisable/Unexercisable options pertain to options
to purchase shares of National Processing Common and not National City
common stock. As of December 31, 1996, the exercise price of all of the
options exceeded the December 31, 1996 closing market price of National
Processing Common of $16.00
(3) The "Value of Unexercised In-The-Money Options/SARs at 12/31/96" is equal to
the difference between the option/SAR exercise price and National City
common stock's closing price on December 31, 1996 of $44.875.
- --------------------------------------------------------------------------------
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The following table provides information on the awards of long-term incentive
plan participation during the year 1996.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
ESTIMATED FUTURE PAYOUTS UNDER
PERFORMANCE NON-STOCK
NUMBER OF OR OTHER PRICE-BASED PLANS(3)
SHARES, UNITS PERIOD UNTIL -----------------------------------
OR OTHER MATURATION OR THRESHOLD TARGET MAXIMUM
NAME RIGHTS(#)(1) PAYOUT(2) ($) ($) ($)
- ---------------------------------------------------------------------------------------------------------
Tony G. Holcombe..... N/A December 31, 1999 77,236 77,236 154,473
Richard A. Alston.... N/A December 31, 1999 33,653 33,653 67,306
Robert E. Johnson.... N/A December 31, 1999 36,558 36,558 73,117
Thomas A. Wimsett.... N/A December 31, 1999 33,653 33,653 67,306
David R. Zook........ N/A December 31, 1999 39,207 39,207 78,413
- --------------------------------------------------------------------------------
(1) The National City Processing Company Long-Term Incentive Compensation Plan
for Senior Officers ("LTIP") grants cash awards based on a percentage of the
individual's base pay. No shares or other rights are granted. (See page 22)
(2) The LTIP is based on a three-year cycle starting 1/1/97 and ending 12/31/99.
Messrs. Johnson, Wimsett and Zook were each awarded the opportunity to
participate in the next three-year cycle. Payouts occur only at the end of
the cycle. (See page 22)
(3) The payout is based on National Processing's compound growth rate in
earnings over a three-year period. Payouts are made on a basis of a
percentage of the average base pay for the three-year period for each
participant. (See page 22)
- --------------------------------------------------------------------------------
The value of benefits paid or furnished by National Processing in 1996 to
executive officers, other than those included in the preceding table, are less
than the amounts required to be disclosed pursuant to the Exchange Act.
DESCRIPTION OF NATIONAL PROCESSING'S COMPENSATION AND BENEFIT PLANS
SAVINGS PLAN. National Processing participates in the National City Savings
and Investment Plan (the "Savings Plan"). The Savings Plan is a qualified salary
reduction profit-sharing plan within the meaning of Section 401(k) of the Code.
Under the Savings Plan as amended, all eligible employees (generally, an
eligible employee is one who has completed one year of continuous service, is 21
years of age or older and has completed 1,000 hours of service) of National
Processing and its adopting subsidiaries may participate in the Savings Plan by
directing their employers to make Before-Tax Contributions (as defined in the
Savings Plan) to the Savings Plan Trust (the "Trust") for their accounts and to
reduce their compensation by an equal amount. Contributions may be directed in
any whole percentage between 1% and 10% of the employee's base compensation. The
employers also make contributions to the Trust ("Matching Employer
Contributions") in an amount equal to the Matching Employer Contribution
percentage then in effect (the Matching Employer Contribution percentage is
currently an amount equal to 100% of the first 3% of the employee's pay
contributed as a
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Before-Tax Contribution, plus 50% of the next 4% of the employee's pay similarly
contributed as a Before-Tax Contribution, with no further Matching Employer
Contribution for any additional pay contributed as a Before-Tax Contribution).
Amounts contributed pursuant to the Savings Plan may be invested in certain
investment choices. Before-Tax Contributions and Matching Employer Contributions
are fully vested at all times.
The Savings Plan has a profit-sharing feature based upon National City's
profitability, as measured by the percentage return on common equity ("ROE")
from year to year. The profit-sharing contribution is in addition to the regular
Matching Employer Contributions described above. The additional amount of this
profit-sharing contribution in any year depends on National City's ROE for that
year and ranges, in five-cent increments from no additional contribution, if a
minimum ROE of 12% is not attained, to a maximum of 50 cents for each $1.00 of
an individual's Before-Tax Contributions for the year if National City's ROE is
equal to or greater than 18.5%. In 1996, National City's ROE was 17.69%, which
resulted in National City contributing 40 cents for each $1.00 of an
individual's Before-Tax Contribution as a profit-sharing contribution for the
year 1996.
EXECUTIVE PLAN. National Processing participates in the National City
Executive Savings Plan (the "Executive Plan"). The Executive Plan is a
non-qualified salary reduction profit-sharing plan, similar to the Savings Plan.
The Executive Plan is to supplement the Savings Plan with respect to employee
Before-Tax Contributions and the attendant Matching Employer Contributions
which, by reason of an individual's annual compensation, would not be otherwise
allowed because of the annual maximum limit of the Code or because of the
application, under the Code, of actual deferral percentage testing against
prohibited excessive deferrals by highly compensated employees. The Executive
Plan is substantially similar to the Savings Plan as to amounts of employee
Before-Tax Contributions and Matching Employer Contributions.
Participants in the Executive Plan are limited to those key officers of
National Processing or its subsidiaries who may be designated from time to time
by the Compensation Committee of the Board of Directors. The benefits of the
Executive Plan are without regard to any limitation imposed by the Code, or any
other applicable law limiting the amount payable under a qualified plan (such as
the Savings Plan), and represent unfunded general obligations of National
Processing. Portions of such benefits are subject to certain provisions for
forfeiture as set forth in the Executive Plan.
Directors of National Processing or its subsidiaries who are not also
employees of National Processing, National City or any of their subsidiaries are
not eligible to participate in the Savings Plan or the Executive Plan.
LONG-TERM PLAN. The National City Processing Company Long-Term Incentive
Compensation Plan (the "Long-Term Plan") for Senior Officers focuses on
maximizing returns to shareholders and promotes the long-term profitability and
success of National Processing by providing an incentive to those key executives
who are primarily responsible for such profitability and success.
The Long-Term Plan is administered by the Compensation Committee. Awards are
based on the earnings of National Processing over a three-year cycle commencing
on January 1 of each fiscal year. Each new fiscal year begins a new three-year
cycle. Participants may receive either a target or maximum award expressed as a
percentage of base salary and determined by the compound growth rate in the
earnings of National Processing. Under the Long-Term Plan, a participant shall
receive the
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target award if National Processing has attained a compound growth rate in
earnings of 10% or the maximum award if the compound growth rate of 15% is
attained. If the compound growth rate in earnings of National Processing is
greater than 10% but less than 15%, the award shall be pro-rated.
The awards can range up to 60% of an individual participant's average annual
base salary during the cycle for the chief executive officer of National
Processing and up to a lesser percentage for other senior executive officers
selected to participate in the Long-Term Plan.
Amounts awarded under the Long-Term Plan may be in cash, in unfunded future
benefits, or a combination thereof. With the exception of the cash award, awards
are not funded, but simply remain contractual liabilities of National Processing
and are subject to payment upon the recipient's termination of employment with
National Processing or its subsidiaries. Generally, these unfunded benefits,
together with earnings thereon, are payable to the former officer, his
beneficiary, or his estate on an installment basis over 10 years. Unfunded
future benefits awards are considered as invested in the funds described in the
Savings Plan or as directed by the recipient from time to time in the equivalent
of a savings account and are subject to the gains or losses on those
investments.
In the event of a change in control of National Processing, the Long-Term Plan
provides that all the performance cycles shall terminate. The Long-Term Plan
provides that if such change in control occurs, then each of the three-year
performance cycles then existing shall terminate as of the date of change in
control. National Processing's compound growth rate during each of the
abbreviated performance cycles shall be deemed to have reached that level at
which the participant in the Long-Term Plan would be entitled to be awarded his
or her maximum award, and the award for each cycle shall be apportioned based
upon the number of full months from the beginning of the performance cycle to
the premature cycle termination date divided by 36. In adopting this plan, it
was felt this termination was appropriate in that those individuals previously
charged with providing superior total returns to the shareholders of National
Processing would no longer be in the same position to guide the affairs of
National Processing as they were prior to the event constituting a change in
control and, furthermore, following such a change in control, no further
performance comparisons could be made.
Directors of National Processing or its subsidiaries who are not also
employees of National Processing or its subsidiaries are not eligible to
participate in the Long-Term Plan.
SHORT-TERM PLAN. The National City Processing Company Short-Term Incentive
Compensation Plan for Senior Officers (the "Short-Term Plan") focuses on the
short-term goals achieved by the individual participant, National Processing's
results and in some cases, National City's financial results. Under this plan,
awards can be granted to any senior officer of National Processing, or to other
officers of National Processing or its subsidiaries as may be designated from
time to time by the Compensation Committee. Each participant in the Short-Term
Plan is evaluated annually with respect to performance on approved objectives.
Awards are based on individual results and can range from 0% to 70% of the
recipient's base salary in effect at the close of the year for which the
evaluation is made. Awards under this plan are paid or credited no later than
the end of first quarter of the following year.
Amounts awarded under the Short-Term Plan may be in cash, in unfunded future
benefits, or a combination thereof. With the exception of the cash award, awards
are not funded, but simply remain
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contractual liabilities of National Processing and are subject to payment upon
the recipient's termination of employment with National Processing and its
subsidiaries. Generally, these unfunded benefits, together with earnings
thereon, are payable to the former officer, his beneficiary, or his estate on an
installment basis over 10 years. Unfunded future benefits awards are considered
as invested as directed by the recipient from time to time, in funds described
in the Savings Plan or in the equivalent of a savings account and are subject to
the gains or losses on those investments.
In the event of a change in control, the Short-Term Plan provides that each
participant will be paid at the effective time of the change in control, the
maximum benefit the participant is entitled to receive under the Short-Term
Plan.
STOCK OPTION PLANS. The National Processing, Inc. 1996 Stock Option Plan (the
"Option Plan") generally provides for the granting of options to purchase shares
of National Processing Common. The options are non-qualified options which are
not intended to qualify as Incentive Stock Options under Section 422 of the
Code. The Option Plan provides for the granting of Appreciation Rights, but only
in tandem with stock options previously granted or contemporaneously being
granted. Under the Option Plan, no options may be granted at less than 100% of
the market value of National Processing Common on the date of the grant of the
option. Stock option awards are based on current individual performance.
Previous awards are not considered except for assuring the plan maximums are not
exceeded.
AGREEMENTS WITH EXECUTIVES. Certain key executives have employment agreements
(the "Employment Agreements") with National Processing Company ("NPC"), a
subsidiary of National Processing. Each of the Employment Agreements provides
for a minimum annual base salary that does not differ materially from the
amounts shown as salary in the Summary Compensation Table on page 18. The
Employment Agreements generally provide that if such Executive Officer is
terminated for any reason other than his violation of the contract an amount
equal to his base pay will be paid in monthly installments, for either one or
two years after his termination, depending on the position he holds. Pursuant to
each of their Employment Agreements, Mr. Holcombe will receive his base pay and
annual bonus for two years after his resignation and Mr. Alston and Mr. Knipp
will receive their base salary for two years after their resignations. The
Employment Agreements also generally provide for the continuation of certain
employee benefits.
Each of the Executive Officers has agreed pursuant to the Employment
Agreements not to compete with National Processing in the United States and, in
some cases, Mexico by not engaging in any capacity in any business that is
competitive with, in the case of certain executives, any business of NPC and, in
the case of the other certain executives, the business of National Processing
for which such officer bears primary managerial responsibility. These
non-competitive restrictions remain in effect for the period in which such
executive is entitled to receive payments under the Employment Agreement
following termination as generally described above.
SEVERANCE AGREEMENTS. In order to assure itself of both present and future
continuity of management in the event of a change in control, National
Processing has entered into severance agreements (the "Severance Agreements")
with certain of its senior executive officers and other key employees
("Executives"). The Severance Agreements become immediately operative upon a
change in control.
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The Severance Agreements provide that following a change in control, such
Executives will be entitled to severance compensation upon termination of
employment during the period commencing with the occurrence of the change in
control and continuing until the earliest of (i) the third anniversary of the
occurrence of the change in control, (ii) death, or (iii) attainment of age
sixty-five and upon the occurrence of one or more certain additional events. As
of the date of this proxy, there are Severance Agreements with 20 key employees
of National Processing and its subsidiaries.
The severance compensation will be a lump sum payment in an amount equal to
three times the sum (for Executives) and two times the sum (for other senior
officers) of (i) base pay at the highest rate in effect for any period prior to
the termination date plus (ii) incentive pay in an amount equal to not less than
the highest aggregate annual bonus, incentive, or other payments of cash
compensation made or to be made in regard to services rendered in any calendar
year during the three calendar years immediately preceding the year in which the
change in control occurs, less the sum of (iii) any and all payments received
from National Processing, National City, or a successor or their affiliates
following a change in control plus (iv) any future payments to be made in
accordance with any Employment Agreements or other contracts between National
Processing and such other entities (specifically excluding payments from any
deferred compensation plan). For three years (for Executives) and two years (for
other senior officers) following termination, National Processing will arrange
to provide the Executives with welfare benefits substantially similar to those
they were receiving or were entitled to receive immediately prior to the
termination date, with such three-year period qualifying as service with
National Processing for the purpose of determining service credits and benefits
under National Processing's various retirement benefit plans. Each Executive may
waive one year of severance pay in exchange for being released from the
non-competition restrictions contained in their respective Employment
Agreements.
National Processing has agreed to pay any and all legal fees incurred by the
Executives in connection with the interpretation, enforcement, or defense of
their rights under the Severance Agreements. The terms of the Severance
Agreements run until the later of (i) the close of business on May 24, 1999 or
(ii) the expiration of the three-year period of severance benefit coverage.
Beginning next year, the Severance Agreements will automatically be renewed for
successive one-year terms unless National Processing or the Executive gives
notice of intent to terminate before such renewal.
Under the Severance Agreements, a change in control occurs upon either of the
following events: (i) National Processing is merged, consolidated or reorganized
into or with another person other than National City, a successor of National
City or an affiliate of National City or (ii) National Processing sells or
otherwise transfers all or substantially all of its assets to another
corporation, or National Processing causes or permits the sale or transfer of
all or substantially all of its assets or assets of any subsidiary that has
assets equal to or greater than 80% of the total assets of National Processing
as reported on a consolidated basis, and as a result of such sale or transfer
less than 50% of the combined voting power of the then outstanding securities of
such corporation is held by National City.
Mr. Showalter also has a severance agreement with National City. The severance
agreement was entered into upon the recommendation of National City's
Compensation and Organization Committee and the form of the agreement was
approved by National City's Board of Directors at its December 19, 1994 meeting.
The agreement becomes immediately operative upon a change in control.
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25
The severance agreement provides that upon termination of employment with
National City, a subsidiary, or a successor to National City within three years
following a change in control, unless the termination is because of death,
permanent disability, or cause, Mr. Showalter will be entitled to severance
compensation. The severance agreement also provides that following a change in
control, Mr. Showalter may terminate his own employment with National City or a
subsidiary with the right to severance compensation during the period commencing
with the occurrence of the change in control and continuing until the earliest
of (i) the third anniversary of the occurrence of the change in control, (ii)
death, or (iii) attainment of age sixty-five and upon the occurrence of one or
more certain additional events. His severance agreement also provides that in
the event of a change in control, he may terminate his employment with National
City or any subsidiary for any reason during the thirty-day period immediately
following the first anniversary of the first occurrence of a change in control
without cause with the right to severance compensation.
The severance compensation will be a lump sum payment in an amount equal to
three times the sum of (i) base pay at the highest rate in effect for any period
prior to the termination date plus (ii) incentive pay in an amount equal to not
less than the highest aggregate annual bonus, incentive, or other payments of
cash compensation made or to be made in regard to services rendered in any
calendar year during the three calendar years immediately preceding the year in
which the change in control occurs. For thirty-six months following the
termination, National City will arrange to provide Mr. Showalter with employee
benefits that are welfare benefits substantially similar to those which he was
receiving or was entitled to receive immediately prior to the termination date
and such thirty-six month period will be considered service with National City
for the purpose of determining service credits and benefits due and payable
under National City's various retirement benefit plans.
National City has agreed to bear the expense of any and all legal fees
incurred by Mr. Showalter associated with the interpretation, enforcement, or
defense of his rights under the severance agreement.
NATIONAL PROCESSING SHAREHOLDER PROPOSALS
Holders of National Processing Common who wish to make a proposal to be
included in National Processing's Proxy Statement and Proxy for National
Processing's 1998 Annual Meeting of Shareholders which, unless changed, is
scheduled to be held on May 12, 1998, in Cleveland, Ohio must cause such
proposal to be received by National Processing at its principal office not later
than November 14, 1997. Each proposal submitted should be accompanied by the
name and address of the shareholder submitting the proposal, the number of
shares of National Processing Common owned, and the dates those shares were
acquired by the shareholder. If the proponent is not a shareholder of record,
proof of beneficial ownership should also be submitted. The proponent should
also state his or her intention to appear at National Processing's 1998 Annual
Meeting, either in person or by representative, to present the proposal. The
proxy rules of the Commission govern the content and form of shareholder
proposals and the minimum stockholding requirement. All proposals must be made
in compliance with National Processing's Amended Articles of Incorporation and
Code of Regulations and must be a proper subject for action at National
Processing's 1998 Annual Meeting of Shareholders.
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TRANSACTIONS WITH MANAGEMENT
One of National Processing's directors provided various legal services to
National Processing and its subsidiaries in the ordinary course of business in
1996. Without exception, all services provided by the director were at market
rates. Similar additional services may be provided in the ordinary course of
business in the future.
VOTING
A quorum is required for the transaction of business by shareholders at the
meeting. The election of directors requires the plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. The selection of Ernst & Young LLP as
independent auditors for 1997, requires the affirmative vote of the holders of a
majority of the votes cast, whether in person or by proxy at the 1997 Annual
Meeting. Abstentions are not counted for the purposes of determining the number
of votes cast in person or by proxy at the meeting and will have no impact on
the election of directors and selection of independent auditors. Shares not
voted on proxies returned by brokers are not counted for the purposes of
determining the number of votes cast in person or by proxy at the meeting and
will have no impact on the election of directors and the selection of
independent auditors.
GENERAL
The costs of solicitation of proxies will be borne by National Processing. In
addition to using the mails, proxies may be solicited by personal interview,
telephone, and wire; and it is anticipated that banks and brokerage houses, and
other institutions, nominees, or fiduciaries will be requested to forward their
proxy soliciting material to their principals and to obtain authorizations for
the executions of proxies. Officers and regular employees of National Processing
or its subsidiaries, acting on its behalf, may solicit proxies personally or by
telephone or wire. National Processing does not expect to pay any other
compensation for the solicitation of proxies, but may, upon request, pay the
standard charges and expenses of banks, brokerage houses, and other
institutions, nominees, and fiduciaries for forwarding proxy materials to and
obtaining proxies from their principals. However, no such payment will be made
to any National Processing subsidiaries acting through their nominees or acting
as a fiduciary.
Management of National Processing is not aware of any matter which may be
presented for action at the Annual Meeting other than the matters herein set
forth. If any other matters come before the meeting or any adjournment thereof,
it is the intention of the persons named in the enclosed proxy to vote the
shares represented thereby in accordance with their best judgment pursuant to
the discretionary authority granted in the proxy.
By Order of the Board of Directors
LOUIS C. PARKER, III
Secretary
March 31, 1997
27
27
NATIONAL PROCESSING, INC.
Notice of Annual Meeting
and
Proxy Statement
Annual Meeting of Shareholders
to be held on
May 13, 1997
28
NATIONAL PROCESSING, INC. PROXY SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS FOR MAY 13, 1997
ANNUAL MEETING
The undersigned shareholder of National Processing, Inc. hereby
P appoints Thomas A. Richlovsky and Louis C. Parker, III and each of
R them, with power of substitution, proxies for the undersigned to vote
O all the shares of Common Stock of National Processing which the
X undersigned is entitled to vote at the Annual Meeting of Shareholders
Y of National Processing to be held on May 13, 1997 and any adjournment
thereof as follows and in their discretion to vote and act upon such
other business as may properly come before the meeting. The Board of
Directors recommends a vote FOR the following:
1. THE ELECTION OF DIRECTORS
FOR all nominees listed below [ ] WITHHOLD AUTHORITY [ ]
(except as otherwise marked below) to vote for all nominees
listed below
J. R. Bell III, A. Gonzalez-Baz, P. B. Heller Jr. and R. G.
Siefers.
(Instructions: to withhold authority to vote for any individual
nominee, strike a line through that nominee's name.)
2. APPROVE THE SELECTION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued, and to be signed, on the reverse side.)
Proxy No. (Continued from reverse side.) Shares
UNLESS OTHERWISE INDICATED, THE PROXIES ARE INSTRUCTED TO VOTE FOR THE
ELECTION OF DIRECTORS AND FOR THE SELECTION OF ERNST & YOUNG LLP.
Dated , 1997
----------------------------
----------------------------
(Sign here)
INSTRUCTIONS: Please sign
exactly as shown hereon.
When signing as a fiduciary
or on behalf of a
corporation, bank, trust
company, or other similar
entity, your title or
capacity should be shown.
PLEASE SIGN, DATE, AND RETURN YOUR PROXY
PROMPTLY IN THE ENCLOSED ENVELOPE TO STOCK
TRANSFER DEPT., (NPI), NATIONAL CITY BANK, P.O.
BOX 92301, CLEVELAND, OHIO 44193-0900.