UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [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 Rule 14a-12
CULLEN/FROST BANKERS, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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:
-----------------------------------------------------------------------
[CULLEN FROST LOGO]
100 WEST HOUSTON STREET
SAN ANTONIO, TEXAS 78205
--------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 22, 2002
--------------------------------------------------------------------------------
To the Shareholders of
CULLEN/FROST BANKERS, INC.:
The Annual Meeting of Shareholders of Cullen/Frost Bankers, Inc.
("Cullen/Frost") will be held in the Commanders Room at The Frost National Bank,
100 West Houston Street, San Antonio, Texas, on Wednesday, May 22, 2002, at
10:00 a.m., San Antonio time, for the following purposes:
1. To elect five Directors to serve until the 2005 Annual Meeting of
Shareholders;
2. To ratify the selection of Ernst & Young LLP to act as independent
auditors of Cullen/Frost for the fiscal year that began January 1,
2002; and
3. To transact any other business that may properly come before the
meeting.
You must be a stockholder of record at the close of business on April 5,
2002, to vote at the Annual Meeting. In order to hold the meeting, holders of a
majority of the outstanding shares must be present either in person or by proxy.
Your vote is important, so please promptly complete and return the enclosed
proxy card in the postage prepaid envelope provided.
All shareholders are cordially invited to attend the Annual Meeting.
By Order of the Board of Directors,
/S/ STAN McCORMICK
STAN McCORMICK
Corporate Secretary
Dated: April 18, 2002
--------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
---------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS.................... Cover
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS...... 1
ELECTION OF DIRECTORS (ITEM 1 ON PROXY CARD)................ 2-5
GENERAL INFORMATION ABOUT THE BOARD OF DIRECTORS............ 6
MEETINGS AND COMMITTEES OF THE BOARD........................ 7-8
EXECUTIVE COMPENSATION AND RELATED INFORMATION.............. 8
1. Board Compensation and Benefits Committee Report on
Executive Compensation................................. 8-10
2. Compensation and Benefits Committee Interlocks and
Insider Participation in Compensation Decisions........ 10
3. Summary of Cash and Certain Other Compensation......... 11-12
4. Other Plans and Agreements............................. 12-14
5. Executive Stock Ownership.............................. 14-15
PERFORMANCE GRAPH........................................... 15
PRINCIPAL SHAREHOLDERS...................................... 16
TRANSACTIONS WITH MANAGEMENT AND OTHERS..................... 16
SELECTION OF AUDITORS (ITEM 2 ON PROXY CARD)................ 17
AUDIT COMMITTEE REPORT...................................... 17
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..... 18
SHAREHOLDER PROPOSALS....................................... 18
OTHER MATTERS............................................... 18
ANNEX A -- AUDIT COMMITTEE CHARTER.......................... A1 - A2
--------------------------------------------------------------------------------
[CULLEN FROST LOGO]
100 WEST HOUSTON STREET
SAN ANTONIO, TEXAS 78205
--------------------------------------------------------------------------------
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 22, 2002
--------------------------------------------------------------------------------
SOLICITATION AND REVOCATION OF PROXY
The Board of Directors of Cullen/Frost Bankers, Inc. ("Cullen/Frost" or the
"Company") is soliciting proxies to be used at the Annual Meeting of
Shareholders. The meeting will be held on May 22, 2002. This Proxy Statement and
the accompanying proxy card will be mailed to shareholders beginning on or about
April 18, 2002.
The Company will pay for solicitation of these proxies for the Annual
Meeting. The Directors, officers, and employees of Cullen/Frost may solicit
proxies by mail, telephone, telegram, facsimile, or in person. Cullen/Frost has
also retained Georgeson Shareholder Communications, Inc. to assist in the
solicitation of proxies for a fee of approximately $6,500.00, plus out-of-pocket
expenses. Cullen/Frost has requested that brokers, nominees, fiduciaries, and
other custodians forward proxy-soliciting material to the beneficial owners of
Cullen/Frost Common Stock. Cullen/Frost will reimburse these persons for their
out-of-pocket expenses.
All shares of Cullen/Frost Common Stock represented by properly executed
proxies, if returned in time, will be voted at the meeting in accordance with
the proxy's instructions. If no direction is given, proxies will be voted for
all proposals listed on the proxy and in the discretion of persons named on the
proxy with respect to any other business properly coming before the meeting. If
authority to vote on any matter is withheld, the shares will still be counted
for determining the number of shares present at the meeting.
A shareholder may revoke a proxy at any time before it is voted by
delivering a written revocation notice to the Company's principal executive
office. In particular, the notice should be addressed to the Secretary of
Cullen/Frost, Stan McCormick, 100 West Houston Street, San Antonio, Texas 78205.
A shareholder who attends the meeting may vote by ballot at the meeting if
desired, and such vote will cancel any proxy vote previously given.
VOTING OF SECURITIES
The only class of voting securities of Cullen/Frost outstanding and
entitled to vote at the meeting is Common Stock, par value $0.01 per share. On
April 5, 2002, there were outstanding 51,189,891 shares of Common Stock, with
each share entitled to one vote. A quorum of shareholders is required to hold a
valid meeting. If the holders of at least a majority of the issued and
outstanding shares are present or represented by proxy, a quorum will exist.
Abstentions and broker non-votes are counted as present for establishing a
quorum.
Directors are elected by a plurality of the votes cast at the meeting. With
respect to any other matter, the affirmative vote of the holders of a majority
of the shares entitled to vote on, and that voted for or against or expressly
abstained with respect to, that matter at the meeting will be the act of the
shareholders, unless otherwise provided in Cullen/Frost's Articles of
Incorporation, Bylaws or applicable law.
--------------------------------------------------------------------------------
1
--------------------------------------------------------------------------------
ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
----------------------
The Company's Bylaws provide for a classified Board of Directors. Directors
are assigned to one of three classes, and all classes are as equal in number as
possible. The term of office of Class I will expire at the 2003 Annual Meeting,
and the term of office of Class II will expire at the 2004 Annual Meeting. The
term of office of Class III expires at this 2002 Annual Meeting.
Of the six directors assigned to Class III, five have been nominated to
serve for a new three-year term. These persons are: Mr. R. Denny Alexander, Mr.
Eugene H. Dawson, Sr., Mr. Ruben M. Escobedo, Mr. Joe R. Fulton and Mrs. Ida
Clement Steen. Mr. Bob W. Coleman is not standing for re-election and will be
retiring from the Board of Directors after the Annual Meeting pursuant to the
Board of Directors' retirement age policy. If any nominee is unable to serve,
the individuals named as proxies on the enclosed proxy card will vote the shares
to elect the remaining nominees and any substitute nominee or nominees
designated by the Board.
The tables below provide information about each nominee and about each
Director whose term continues after the meeting.
NOMINEES FOR TERM EXPIRING IN 2005:
CLASS III
---------
SHARES OWNED(1)(2)
------------------------
AMOUNT AND
NATURE OF
PRINCIPAL OCCUPATION DIRECTOR BENEFICIAL
NAME AGE DURING PAST FIVE YEARS SINCE OWNERSHIP PERCENT
---- --- ---------------------- -------- ---------- -------
R. Denny Alexander........ 56 Investments; former 1998 164,612(3) 0.31%
Chairman, Overton Bank &
Trust and Director,
Overton Bancshares, Inc.
(merged with Cullen/Frost)
Eugene H. Dawson, Sr. .... 67 Chairman of the Board, 1996 48,403 0.09%
Pape-Dawson Consulting
Engineers
Ruben M. Escobedo......... 64 Certified Public 1996 23,000 0.04%
Accountant
Joe R. Fulton............. 67 Chairman, Fulton 1997 40,000 0.08%
Construction Corporation
Ida Clement Steen......... 49 Investments 1996 20,300 0.04%
(Table continued on following page)
--------------------------------------------------------------------------------
2
--------------------------------------------------------------------------------
DIRECTORS WHOSE TERM EXPIRES IN 2004:
CLASS II
--------
SHARES OWNED(1)(2)
------------------------
AMOUNT AND
NATURE OF
PRINCIPAL OCCUPATION DIRECTOR BENEFICIAL
NAME AGE DURING PAST FIVE YEARS SINCE OWNERSHIP PERCENT
---- --- ---------------------- -------- ---------- -------
Royce S. Caldwell......... 63 Former Vice Chairman, SBC 1994 18,800 0.04%
Operations, SBC
Communications Inc.
Richard W. Evans, Jr. .... 55 Chairman of the Board, 1993 489,728(4) 0.93%
Chief Executive Officer,
and President of
Cullen/Frost; Chairman of
the Board and Chief
Executive Officer of The
Frost National Bank, a
Cullen/Frost Subsidiary
T. C. Frost............... 74 Senior Chairman of the 1966 1,533,629(4,5,6) 2.92%
Board of Cullen/Frost
Preston M. Geren III...... 50 Special Assistant to the 2001 246,590(7) 0.47%
Secretary of Defense;
Attorney; Former
Management Consultant,
Public Strategies, Inc;
Former U.S. Congressman,
12th District of Texas
Karen E. Jennings......... 51 Senior Executive Vice 2001 4,100 0.01%
President Human Resources,
SBC Communications Inc.
Richard M. Kleberg, III... 59 Banking and Investments 1992 26,400 0.05%
Horace Wilkins, Jr. ...... 51 Former President, Special 1997 18,400 0.04%
Markets, SBC
Communications Inc.;
former Regional President,
Southwestern Bell
Telephone Co.
(Table continued on following page)
--------------------------------------------------------------------------------
3
--------------------------------------------------------------------------------
DIRECTORS WHOSE TERM EXPIRES IN 2003:
CLASS I
-------
SHARES OWNED(1)(2)
-------------------------------
AMOUNT AND
NATURE OF
PRINCIPAL OCCUPATION DIRECTOR BENEFICIAL
NAME AGE DURING PAST FIVE YEARS SINCE OWNERSHIP PERCENT
---- --- ---------------------- -------- ---------- -------
Carlos Alvarez............ 51 Chairman, President and 2001 10,000 0.02%
Chief Executive Officer of
The Gambrinus Company
Isaac Arnold, Jr. ........ 66 Oil, real estate, 1977 45,968 0.09%
investments
Harry H. Cullen........... 66 Oil, real estate, 1993 306,532(8) 0.58%
investments
Patrick B. Frost.......... 42 President, The Frost 1997 216,970.69(4,5,9) 0.41%
National Bank, a
Cullen/Frost Subsidiary
James L. Hayne............ 68 Managing partner of Catto 1977 162,716(3) 0.31%
& Catto Insurance
Robert S. McClane......... 63 President, McClane 1985 44,160 0.08%
Partners, LLC; Director of
Prodigy Communications;
former President of
Cullen/Frost
Mary Beth Williamson...... 69 Education (Consultant) 1996 18,880 0.04%
---------------
(1) Beneficial ownership is as of December 31, 2001 unless otherwise indicated.
The owners have sole voting and investment power for the shares of
Cullen/Frost Common Stock reported. Beneficial ownership includes the
following shares that the individual had a right to acquire pursuant to
stock options exercisable within sixty (60) days from December 31, 2001: Mr.
T. C. Frost 367,200(5); Mr. R. Denny Alexander 12,000; Mr. Carlos Alvarez
4,000; Mr. Richard W. Evans, Jr. 307,200; Mr. Patrick B. Frost 145,100(5);
Mr. Preston M. Geren III 4,000; Ms. Karen E. Jennings 4,000; and Mr. Robert
S. McClane 12,000; and for each of the other Directors, 18,000. The number
of shares of Cullen/Frost Common Stock beneficially owned by all Directors,
nominees and named executive officers as a group is disclosed on page 14.
(2) Reflects adjustment for the 2-for-1 stock split in 1996 and 1999.
(3) Disclaims beneficial ownership of shares: Mr. R. Denny Alexander 21,000
shares held in a charitable foundation; Mr. James L. Hayne 125,120 shares
due to spouse's investment in a limited partnership.
(4) Includes the following shares allocated under the 401(k) Stock Purchase Plan
for Employees of Cullen/ Frost Bankers, Inc., for which each beneficial
owner has both sole voting and investment power: Mr. T. C. Frost 44,471; Mr.
Richard W. Evans, Jr. 34,115; and Mr. Patrick B. Frost 15,309.
(5) Beneficial ownership is as of January 31, 2002.
(6) Includes (a) 707,493 shares beneficially owned by a limited partnership of
which the general partner is a limited liability company of which Mr. T.C.
Frost is the sole manager, (b) 334,452 shares beneficially owned by two
trusts of which Mr. T.C. Frost is the trustee and (c) 10,174 shares
beneficially owned by a limited partnership of which the general partner is
a limited liability company of which Mr. T.C. Frost is the sole manager.
Also includes 48,684 shares beneficially owned in the Pat and Tom Frost
Foundation Trust for which Mr. T.C. Frost disclaims beneficial ownership.
--------------------------------------------------------------------------------
4
--------------------------------------------------------------------------------
(7) Includes 59,140 shares held by a family limited partnership of which Mr.
Preston M. Geren III is a general partner and of which Mr. Preston M. Geren
III and his wife are limited partners. Mr. Preston M. Geren III disclaims
beneficial ownership of the shares held by such family limited partnership
except to the extent of his pecuniary interest therein.
(8) Includes 19,584 shares for which Mr. Harry H. Cullen has shared voting and
investment power with others. Also served as a Director of Cullen Bank, a
former Cullen/Frost subsidiary, from 1969 to 1993.
(9) Includes (a) 12,270 shares beneficially owned by Mr. Patrick B. Frost's
children for which Mr. Patrick B. Frost is the custodian and (b) 630 shares
beneficially owned by Mr. Patrick B. Frost's wife. Mr. Patrick B. Frost
disclaims beneficial ownership of these shares.
--------------------------------------------------------------------------------
5
--------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE BOARD OF DIRECTORS
--------------------------------------------------
No nominee has had any other principal occupation or employment with
Cullen/Frost or any of its subsidiaries within the last five years.
The following are directorships held by nominees and Directors in public
companies (other than Cullen/ Frost) or in investment companies:
Mr. Arnold.... Nuevo Energy Co.
Mr. SABRE Corporation
Caldwell....
American Movil, S.A.
DeC. V in Mexico
Mr. Valero Energy Corp.
Escobedo....
Mr. Geren..... Anadarko Petroleum Corporation
Mr. McClane... Prodigy Communications Corp.
Mr. Wilkins... American Water Works
Company, Inc.
There are no arrangements or understandings between any nominee or Director
of Cullen/Frost and any other person regarding their selection as a Director or
nominee.
The only family relationships among the Directors or executive officers of
Cullen/Frost that are first cousin or closer are those of Messrs. T. C. Frost
and Patrick B. Frost, who are father and son, and Messrs. Harry H. Cullen and
Isaac Arnold, Jr., who are first cousins.
--------------------------------------------------------------------------------
6
--------------------------------------------------------------------------------
MEETINGS AND COMMITTEES OF THE BOARD
------------------------------------
The Cullen/Frost Board of Directors usually has four regularly scheduled
quarterly meetings each year. In 2001 there were five meetings, except for the
Audit Committee, which had six meetings in 2001. The Board has Executive, Audit,
Compensation and Benefits, and Strategic Planning Committees. The Committees'
functions and current members are as follows:
EMPLOYEE
COMMITTEE/MEMBERS (Y)ES FUNCTION
----------------- -------- --------
EXECUTIVE
MEETINGS IN 2001: Four
Richard W. Evans, Jr. Y - Acts for the Board of Directors between meetings,
Patrick B. Frost Y except as limited by Board resolutions, the
T. C. Frost Y Company's Bylaws, or Texas law
AUDIT
MEETINGS IN 2001: Six
Isaac Arnold, Jr. - Reviews:
Royce S. Caldwell Scope and results of outside audits
Eugene H. Dawson, Sr. Independence of outside auditors
Richard M. Kleberg, III Internal audits and loan reviews
Regulatory examinations
Financial reporting practices of Cullen/Frost
- Recommends choice for outside auditor
COMPENSATION AND BENEFITS
MEETINGS IN 2001: Two
Ruben M. Escobedo - Recommends compensation for certain officers
Karen E. Jennings - Administrative committee for the Company's:
Mary Beth Williamson Retirement Plan
John C. Korbell 1983 and 1988 Non-Qualified Stock Option Plan
(Advisory Director) Restricted Stock Plan
401(k) Stock Purchase Plan
1991 Thrift Stock Purchase Plan
1992 Stock Plan
2001 Stock Plan
Pre-Tax Benefit Plan
Group Medical and Life Insurance Plans
1997 Director Stock Plan
STRATEGIC PLANNING
MEETINGS IN 2001: Four
R. Denny Alexander - Analyzes strategic directions for the Company
Isaac Arnold, Jr. - Monitors corporate mission statement and capital
Royce S. Caldwell planning
Eugene H. Dawson, Sr. - Reviews short-term and long-term goals
Richard W. Evans, Jr. Y
T. C. Frost Y
James L. Hayne
During 2001, all of the current Directors attended at least 75 percent of
the aggregate of the meetings of the Board of Directors and the committees on
which he or she served.
Directors who are Cullen/Frost employees receive no fees for their services
as Directors or committee members. Outside Directors receive $7,500 as an annual
retainer fee, $1,250 for each board meeting attended, and a fee of $750 for each
committee meeting to which he or she has been appointed. The Chairman of the
Audit Committee receives $1,500 for each Audit Committee meeting attended. Each
Director also receives a grant of stock options each year (stock options in the
amount of 4,000 shares were granted to each Director in
--------------------------------------------------------------------------------
7
--------------------------------------------------------------------------------
2001). In addition, all but one of our Directors receive fees for serving as
Directors of Cullen/Frost's subsidiary bank, The Frost National Bank.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
----------------------------------------------
1. BOARD COMPENSATION AND BENEFITS COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation and Benefits Committee of the Board of Directors (the
"Committee") maintains compensation programs for the Company's executive
officers that further the Company's mission.
COMPENSATION POLICIES
- Compensation levels should be competitive with the median of comparable
financial organizations to attract and maintain a stable, successful
management team;
- Executives' total compensation packages should depend upon the level of
success in meeting specified Company and individual performance goals;
- Executive ownership of the Company's Common Stock should be encouraged to
align executives' interests with shareholders' interests; and
- Sustained superior performance by individual executives should be
rewarded.
COMMITTEE FUNCTIONS
- Comprised of three independent, non-employee directors and one
independent, non-employee advisory director;
- Develop compensation policies linked to strategic business objectives and
Company values;
- Approve, assess, and administer compensation programs in support of
compensation policies; and
- Review all salary arrangements and other remuneration for a group of
senior executives.
Each year an independent consultant engaged by the Committee provides a
comprehensive analysis of competitive market data. The data compares the
Company's compensation practices and programs to a group of comparator companies
that have business operations, total assets, market capitalizations, and lines
of business similar to the Company. These companies include, but are not limited
to, the companies in the Standard & Poor's (S&P's) Major Regional Bank Index.
The Committee has chosen not to use solely the S&P's Major Regional Bank Index
as its comparator group for compensation purposes because detailed data for all
senior executives at the banks comprising the index is not available.
The S&P's Major Regional Bank Index was used for comparison of total
shareholder return shown in the Performance Graph on page 15.
Key elements of the Company's executive compensation are base salary,
annual incentives, and long-term compensation. The Committee considers all
elements of an executive's total compensation package, including severance
plans, insurance, and other benefits.
BASE SALARY
- Represented 41% of total executive compensation in 2001.
- Reviewed annually for each of the four highest-paid executives.
- Based on subjective evaluation of individual performance, achievement,
and contribution to growth.
--------------------------------------------------------------------------------
8
--------------------------------------------------------------------------------
- May be adjusted to reflect competitive market levels following
performance evaluations.
- May be adjusted to attract and retain appropriate officers.
- Company base salary levels were slightly above median market levels of
comparator companies in 2001.
- No merit increases were granted for executives in 2001 as a result of a
salary freeze announced in September 2001.
ANNUAL INCENTIVES
- Represented 14% of total executive compensation in 2001 (incentives paid
in January 2001 for 2000 performance).
- Promote and reward teamwork as measured by overall corporate performance
and also recognize individual contributions.
- No bonus pool established until Company achieves a predetermined level of
financial performance, as established by the Committee.
- Committee has authority to adjust the total bonus pool up or down by 20%.
- No bonuses were awarded to any executive for 2001 performance because the
Company failed to achieve the necessary level of financial performance.
LONG-TERM INCENTIVES
- Represented 45% of total executive compensation in 2001.
- Size of award depends on levels of responsibility, prior experience,
individual performance, and compensation practices at comparator
companies.
- Current stock holdings and the magnitude of outstanding long-term
incentives are not considered in making current awards.
STOCK OPTIONS
- Primary long-term incentive vehicle.
- Nonqualified stock options granted at a price not less than the fair
market value of the Common Stock on the date of grant.
- Size of stock option grants determined based on a percentage of annual
base salary; may be adjusted based on Committee's subjective evaluation
of individual factors and historical awards.
- Committee's objective is to deliver a competitive award opportunity.
- Number of options awarded varies from year to year.
RESTRICTED STOCK
- Provides executives with immediate link to shareholder interests.
- Helps maintain a stable executive team.
- No restricted stock was granted to senior executives in 2001.
--------------------------------------------------------------------------------
9
--------------------------------------------------------------------------------
CEO COMPENSATION
The Committee continued Mr. Evan's base salary at $550,000, which closely
approximates the median level of CEOs at comparator companies. The Committee did
not award Mr. Evans a bonus for 2001, since the Company failed to achieve the
necessary level of financial performance. Mr. Evans was granted 175,000 options
with an exercise price of $24.12 as detailed in the table on page 11. This award
was slightly above the median level for CEOs of comparator companies. As of
December 31, 2001, Mr. Evans had beneficial ownership of 489,728 shares of
stock, which includes 307,200 shares of which he has a right to receive pursuant
to presently exercisable options.
SECTION 162(M)
Section 162(m) of the Internal Revenue Code generally limits the corporate
tax deduction for compensation paid to the Chief Executive Officer and the four
other most highly compensated executive officers unless the compensation is
performance-based. One condition to qualify compensation as performance-based is
to establish the amount of the award on an objective formula that precludes any
discretion. The Committee continues to review the impact of this tax code
provision on the Company's incentive plans and has determined that Section
162(m) is currently inapplicable because no named executive officer receives
compensation in excess of $1 million. The Committee also believes it is in the
Company's and shareholders' best interests to retain the discretionary
evaluation of individual performance as provided in the annual incentive plan.
CONCLUSION
The Committee believes that Cullen/Frost's executive compensation policies
and programs effectively serve the interests of the Company and its
shareholders. The various compensation arrangements 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.
Ruben M. Escobedo, Chairman
Karen E. Jennings
John C. Korbell (Advisory Director)
Mary Beth Williamson
2. COMPENSATION AND BENEFITS COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN
COMPENSATION DECISIONS
Some of the members of the Compensation and Benefits Committee of
Cullen/Frost, and some of these persons' associates, are current or past
customers of one or more of the Company's subsidiaries. Since January 1, 2002,
the transactions between these persons and such subsidiaries have occurred,
including borrowings. In the opinion of management, all of the transactions have
been in the ordinary course of business and have had substantially the same
terms, interest rates, collateral, or risk as similar transactions with
unaffiliated individuals. Additional transactions may take place in the future.
--------------------------------------------------------------------------------
10
--------------------------------------------------------------------------------
3. SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
SUMMARY COMPENSATION TABLE
The table below gives information on compensation for the Senior Chairman
of Cullen/Frost and the other three most highly compensated executive officers
(the "named executive officers").
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------- -----------------------------------------------
NAME AND OTHER ANNUAL RESTRICTED STOCK OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) STOCK(2) (# OF SHARES)(3) COMPENSATION(4)
------------------ ---- -------- -------- --------------- ---------- ---------------- ---------------
T. C. Frost................. 2001 $ 30,000 $ -- $20,810 $ -- 8,000 $31,372
Senior Chairman 2000 $ 30,000 $ -- $27,902 $ -- 8,000 $31,372
Cullen/Frost 1999 $ 30,000 $ -- $21,691 $ -- 8,000 $32,105
Richard W. Evans, Jr. ...... 2001 $550,000 $ -- $27,920 $ -- 175,000 $48,094
Chairman & CEO 2000 $550,000 $400,000 $23,064 $ -- 150,000 $44,920
Cullen/Frost 1999 $491,667 $300,000 $ 8,175 $247,500 140,000 $23,980
Phillip D. Green............ 2001 $275,000 $ -- $ 1,332 $ -- 50,000 $ 4,856
Chief Financial Officer 2000 $255,000 $125,000 $ 2,107 $ -- 45,000 $ 6,679
Cullen/Frost 1999 $238,333 $100,000 $ 1,867 $ 74,250 40,000 $ 6,776
Patrick B. Frost............ 2001 $275,000 $ -- $ 2,364 $ -- 40,000 $ 6,900
President, San Antonio 2000 $260,000 $ 91,000 $ 2,084 $ -- 40,000 $ 5,964
Cullen/Frost 1999 $247,500 $ 74,300 $ 1,939 $ 74,250 40,000 $ 5,788
---------------
(1) Represents payments to compensate the employee for income taxes on elective
deferrals and company matching contributions to Cullen/Frost's 1991 Thrift
Stock Purchase Plan ("1991 Thrift Plan") and comparable benefits to the
Company's 401(k) Stock Purchase Plan for all employees whose participation
in the 401(k) Plan is limited by the IRS rules. This is approximately 32
employees for 2001. Mr. T.C. Frost's values represent the total
reimbursement to him for taxes on life insurance premiums paid by the
Company. Mr. Evans' values include $13,231 to reimburse him for taxes on
life insurance premiums paid for by the Company and a $6,000 automobile
allowance.
(2) Represents the dollar value of restricted stock awards, based on the closing
market price of Cullen/Frost stock on grant date. The total number of
restricted shares and their aggregate market value at December 31, 2001
were: Mr. T.C. Frost, 0 shares; Mr. Evans 20,000 shares valued at $617,500;
Mr. Green 4,800 shares valued at $148,200; and, Mr. P. Frost 5,000 shares
valued at $154,375. Aggregate market value is based on fair market value of
$30.875 at December 31, 2001. Dividends are paid on the restricted shares at
the same time and at the same rate as dividends paid to shareholders of
unrestricted shares. Stock awarded in 1998 and 1999 vests at the end of four
years from the date of the award.
(3) Reflects adjustment for the 2-for-1 stock split in 1996 and 1999.
(4) Represents total and/or imputed income from certain insurance premiums paid
by Cullen/Frost and the Company's contributions to the 1991 Thrift Plan. The
amounts for insurance premiums and/or imputed income for 2001 and 2000 were
$58,212 and $54,915 respectively. The Company's contribution to the 1991
Thrift Plan for these executives was $33,010 in 2001 and $34,020 in 2000.
--------------------------------------------------------------------------------
11
--------------------------------------------------------------------------------
The following tables provide information on stock options for 2001 under
the Cullen/Frost Bankers, Inc. 2001 Stock Plan to the named executive officers:
OPTION GRANTS IN LAST FISCAL YEAR(1)
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(2)
OPTIONS/ SARS EMPLOYEES IN EXERCISE EXPIRATION --------------------------
NAME GRANTED FISCAL YEAR(1) PRICE DATE 5% 10%
---- ------------- -------------- -------- ---------- ----------- ------------
T. C. Frost............................ 8,000 0.5% $24.12 10/21/2007 $ 65,625 $ 148,880
Richard W. Evans, Jr. ................. 175,000 10.4% $24.12 10/21/2007 $ 1,435,544 $ 3,256,759
Phillip D. Green....................... 50,000 3.0% $24.12 10/21/2007 $ 410,155 $ 930,503
Patrick B. Frost....................... 40,000 2.4% $24.12 10/21/2007 $ 328,124 $ 744,402
All Shareholders....................... N/A N/A $24.12 10/21/2007 $13,867,762 $314,612,223
---------------
(1) Based on 1,690,550 options granted to all employees in 2001.
(2) Shows potential realizable value at assumed annual rates for all
shareholders based on 51,355,235 shares outstanding as of December 31, 2001.
Gains on "All Shareholders" assume a base price of $30.875.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/
SHARES OPTIONS/SARS AT FISCAL SARS HELD AT FISCAL
ACQUIRED YEAR-END(1) YEAR-END(2)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ---------- ----------- ------------- ----------- -------------
T. C. Frost............................... 107,880 $3,870,020 367,200 24,000 $7,837,706 $ 103,040
Richard W. Evans, Jr. .................... 16,764 $ 526,104 307,200 471,000 $4,530,684 $2,080,335
Phillip D. Green.......................... 14,400 $ 415,544 79,600 137,000 $1,110,858 $ 596,320
Patrick B. Frost.......................... 11,548 $ 326,231 145,100 122,000 $2,686,699 $ 528,770
---------------
(1) Reflects 10% stock dividend in 1993 and 2-for-1 stock split in 1996 and
1999.
(2) Value of options based on fair market value of Company Common Stock of
$30.875 as of December 31, 2001.
4. OTHER PLANS AND AGREEMENTS
Retirement Plan and Restoration Plan
Cullen/Frost has a non-contributory Retirement Plan and Trust for Employees
of Cullen/Frost Bankers, Inc. and its Affiliates that is designed to comply with
the requirements of the Employee Retirement Income Security Act of 1974. The
Company also has a Restoration Plan that provides benefits in excess of the
limits under Section 415 of the Internal Revenue Code and in excess of the
limits on eligible earnings set by the Tax Reform Act of 1986; benefits are
provided in connection with both the Retirement Plan and a previous employee
stock ownership plan. The entire cost of the Retirement and Restoration Plans is
supported by Cullen/Frost and its subsidiaries. Both of these plans were frozen
effective December 31, 2001. There will be no additional accruals of
compensation or service under either plan.
--------------------------------------------------------------------------------
12
--------------------------------------------------------------------------------
The Pension Plan Table below shows the anticipated annual benefit, computed
on a straight line basis, payable under the frozen Retirement Plan and
Restoration Plan upon the normal retirement of a vested executive officer of
Cullen/Frost at age 65 after 15, 20, 25, 30, 35, 40, 45 and 50 years of credited
service (as of December 31, 2001) at specified final average annual compensation
levels.
PENSION PLAN TABLE
12/31/2001 FINAL
YEARS OF SERVICE AS OF DECEMBER 31, 2001
AVERAGE -------------------------------------------------------------------------------------
COMPENSATION 15 20 25 30 35 40 45 50
------------ -------- -------- -------- -------- -------- -------- -------- --------
$175,000 $ 42,979 $ 57,306 $ 71,632 $ 85,958 $100,285 $111,222 $122,160 $133,097
200,000 49,542 66,056 82,570 99,083 115,597 128,097 140,597 153,097
225,000 56,104 74,806 93,507 112,208 130,910 144,972 159,035 173,097
250,000 62,667 83,556 104,445 125,333 146,222 161,847 177,472 193,097
300,000 75,792 101,056 126,320 151,583 176,847 195,597 214,347 233,097
400,000 102,042 136,056 170,070 204,083 238,097 263,097 288,097 313,097
450,000 115,167 153,556 191,945 230,333 268,722 296,847 324,972 353,097
500,000 128,292 171,056 213,820 256,583 299,347 330,597 361,847 393,097
550,000 141,417 188,556 235,695 282,833 329,972 364,347 398,722 433,097
600,000 154,542 206,056 257,570 309,083 360,597 398,097 435,597 473,097
650,000 167,667 223,556 279,445 335,333 391,222 431,847 472,472 513,097
The frozen Retirement Plan provides a monthly benefit based on a percentage
of an eligible employee's final average Compensation based on the highest three
years of compensation during the last ten years of service prior to January 1,
2002. Included in "Compensation" according to the Retirement Plan are Salary,
Overtime, Bonuses, Commissions, and Wages deferred for the Company 401(k) Plan
or used to pay health care premiums, expenses, or parking under the Company Pre
Tax Plan (IRS Section 125 Plan). Participants in the Plan are fully vested in
their accrued benefits under the Plan upon attaining age 65 or after five years
of service, whichever occurs first. Death benefits are provided to married
participants who have completed five years of service. Normal retirement is at
age 65, but early retirement is available starting at age 55. Early Retirement
benefits are provided on a reduced basis. The benefit amounts listed in the
table represent amounts payable from the plans and are not subject to any
additional deduction for Social Security benefits or other offset amounts.
The years of credited service under the Retirement Plan as of December 31,
2001 for each person named in the Summary Compensation Table on page 11 are: Mr.
T. C. Frost -- 52 years; Mr. Evans -- 31 years; Mr. P. Frost -- 17 years; and
Mr. Green -- 21 years. Mr. T. C. Frost activated his retirement benefit
effective July 1, 1994, but still remains an active employee.
The Company also maintains a supplemental executive retirement plan (SERP).
The plan provides for target retirement benefits, as a percentage of annual cash
compensation, beginning at age 55. The target percentage is 45% of annual cash
compensation at age 55, increasing to 60% at age 60 and later. Benefits under
the SERP are reduced dollar-for-dollar by benefits received under the Retirement
and Restoration Plans, described previously, and any Social Security benefits.
Effective January 1, 2002, SERP benefits will also be reduced by the annuity
equivalent of any account balance in the Company's Profit Sharing Plan at
retirement. The Profit Sharing Plan was implemented by the Company effective
January 1, 2002. Contributions to the Profit Sharing Plan will be made annually
to each participant's account based on the profitability of the Company. The
first contribution to the Profit Sharing Plan is expected to be made in early
2003.
Mr. Evans currently participates in the SERP. At current salary levels, at
age 60, Mr. Evans would receive $115,761 annually. This benefit has not been
reduced by his Profit Sharing Plan account balance because Mr. Evans' account
balance is currently $0.
--------------------------------------------------------------------------------
13
--------------------------------------------------------------------------------
Change in Control Agreements
Cullen/Frost has change-in-control agreements with three of the four named
executives above and other key employees. The main purposes of these agreements
are: (i) to help executives evaluate objectively whether a potential
change-in-control is in the best interests of shareholders; (ii) to help protect
against the departure of executives, thus assuring continuity of management, in
the event of an actual or threatened merger or change-in-control; and (iii) to
maintain compensation and benefits comparable to those available from competing
employers. "Change-in-control" includes an acquisition of 20 percent or more of
Cullen/ Frost Common Stock by an individual, corporation, partnership, group,
association, or other person; certain changes in the composition of the Board of
Directors by 50 percent or more; or certain changes-in-control that must be
reported to the Securities and Exchange Commission.
Under the change-in-control agreements, Messrs. Evans, P. Frost, and Green
could receive severance payments equal to three times their base salary and
target bonus if their position is terminated by the Company within two years
following a change-in-control , if the termination is for reasons other than
cause, disability or retirement. "Cause" is generally defined in the agreements
as an executive's (i) willful and continued failure to substantially perform his
duties after delivery of a written demand for substantial performance, (ii)
willful engagement in conduct materially injurious to Cullen/Frost or (iii)
conviction of a felony. In addition, the change-in-control agreements provide
that Messrs. Evans, P. Frost, and Green could receive severance payments
described above if they terminate their employment for good reason within two
years following a change-in-control. "Good reason" is generally defined in the
agreements as the occurrence of one or more of the following events: (a) a
significant change or reduction in the executive's responsibilities, (b) an
involuntary transfer to a location that is 50 miles further than the distance
between the executive's current residence and the company's headquarters, (c) a
significant reduction in the executive's current compensation, (d) the failure
of any successor to Cullen/Frost to assume the executive's change-in-control
agreement, or (e) any failure by Cullen/Frost to terminate properly the
executive's employment. The change-in-control agreements also provide for a
continuation of certain employee benefits and a tax gross-up payment in an
amount necessary to make the executive whole for any excise taxes paid as a
result of the severance payments.
5. EXECUTIVE STOCK OWNERSHIP
The table below lists the number of shares of Cullen/Frost Common Stock
beneficially owned by each of the named executive officers and by all directors,
nominees, and executive officers of Cullen/Frost as a group:
SHARES OWNED(1,2)
-------------------------
AMOUNT AND
NATURE OF
BENEFICIAL
OWNERSHIP(3) PERCENT
------------ -------
T. C. Frost................................................. 1,533,629(4,5) 2.92%
Richard W. Evans, Jr. ...................................... 489,728 0.93%
Patrick B. Frost............................................ 216,970(5,6) 0.41%
Phillip D. Green............................................ 119,480 0.23%
All directors, nominees and executive officers as a Group
(20 persons, including two advisory directors)............ 4,100,321(7) 7.81%
---------------
(1) All balances reflect 2-for-1 stock split paid 1996 and 1999.
(2) Beneficial ownership is as of December 31, 2001 unless otherwise indicated.
Beneficial ownership includes the following shares that the individual has a
right to acquire pursuant to employee stock options exercisable within sixty
(60) days from December 31, 2001, as follows: Mr. T. C. Frost 402,024; Mr.
Richard W. Evans, Jr. 307,200; Mr. Patrick B. Frost 153,900; Mr. Phillip D.
Green 79,600 and all executive officers and directors as a group 1,194,724.
--------------------------------------------------------------------------------
14
--------------------------------------------------------------------------------
(3) Includes the following shares allocated under the 401(k) Stock Purchase Plan
for which each beneficial owner has both sole voting and investment power:
Mr. T. C. Frost 44,471; Mr. Richard W. Evans, Jr. 34,115; Mr. Patrick B.
Frost 15,309; and Mr. Phillip D. Green 20,261.
(4) Includes (a) 707,493 shares beneficially owned by a limited partnership of
which the general partner is a limited liability company of which Mr. T.C.
Frost is the sole manager, (b) 334,452 shares beneficially owned by two
trusts of which Mr. T.C. Frost is the trustee and (c) 10,174 shares
beneficially owned by a limited partnership of which the general partner is
a limited liability company of which Mr. T.C. Frost is the sole manager.
Also includes 48,684 shares beneficially owned in the Pat and Tom Frost
Foundation Trust for which Mr. T.C. Frost disclaims beneficial ownership.
(5) Beneficial ownership is as of January 31, 2002.
(6) Includes (a) 12,270 shares beneficially owned by Mr. Patrick B. Frost's
children for which Mr. Patrick B. Frost is the custodian and (b) 630 shares
beneficially owned by Mr. Patrick B. Frost's wife. Mr. Patrick B. Frost
disclaims beneficial ownership of these shares.
(7) Includes 115,130 shares for which directors, nominees and named executive
officers have both sole voting and investment power; 150,268 shares with
shared voting and shared investment power with others; and 170,806 shares
owned by two advisory directors.
PERFORMANCE GRAPH
-----------------
The following performance graph compares the cumulative total shareholder
return on Cullen/Frost Common Stock with the cumulative total return of
companies on the Standard & Poor's 500 Stock Index and the Standard & Poor's
Major Regional Bank Index.
5 YEAR TOTAL SHAREHOLDER RETURN
[PERFORMANCE GRAPH]
----------------------------------------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
----------------------------------------------------------------------------------------------------------------
Cullen Frost $100 $186.42 $172.21 $165.93 $276.14 $209.50
S&P 500 $100 $133.32 $171.33 $207.33 $188.42 $166.12
S&P 500 Banks (Major Regional) $100 $150.30 $165.98 $142.51 $182.28 $169.96
--------------------------------------------------------------------------------
15
--------------------------------------------------------------------------------
PRINCIPAL SHAREHOLDERS
----------------------
At December 31, 2001 the only shareholders known by the management of
Cullen/Frost to own beneficially more than five percent of the outstanding
shares of Cullen/Frost Common Stock were:
INVESTMENT
VOTING AUTHORITY AUTHORITY AMOUNT OF PERCENT
------------------------------- -------------------------------- BENEFICIAL OF
NAME AND ADDRESS SOLE SHARED NONE SOLE SHARED NONE OWNERSHIP(1) CLASS
------------------------------------ ------- --------- --------- ------- ---------- --------- ------------ -------
Cullen/Frost Bankers, Inc. ......... 404,857 12,733(2) 1,071,881 381,246 44,680 1,063,545(2) 4,598,761 9.0%
P.O. Box 1600
San Antonio, Texas 78296
---------------
(1) Cullen/Frost owns no securities of Cullen/Frost for its own account. All of
the shares are held by Cullen/ Frost's subsidiary bank, The Frost National
Bank. The Frost National Bank has reported that the securities registered in
its name as fiduciary or in the names of various of its nominees are owned
by many separate accounts. The accounts are governed by separate instruments
which set forth the powers of the fiduciary with regard to the securities
held.
(2) Excludes 3,109,290 shares held by participants in the Cullen/Frost 401(k)
Stock Purchase Plan.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
---------------------------------------
Some of the Directors and executive officers of Cullen/Frost, and some of
these persons' associates, are current or past customers of one or more of the
Company's subsidiaries. Since January 1, 2001, transactions between these
persons and such subsidiaries have occurred, including borrowings. Other
transactions have included the following:
1. The offices of the Hulen Financial Center of The Frost National
Bank are leased on a long-term basis from OPNB Building, a Texas joint
venture. During 2001, lease payments of $671,336.59 were made by Frost Bank
to OPNB Building J.V. Mr. R. Denny Alexander, a Director of Cullen/Frost,
owns a 13.3 percent interest in OPNB Building J.V.
2. The offices of the Leopard Financial Center of The Frost National
Bank were renovated to accommodate a long-term lease with the City of
Corpus Christi. During 2001, payment of $103,448.20 was made by Frost Bank
to Fulton Construction Corporation/Coastcon Corp., a Joint Venture. Mr. Joe
R. Fulton, a Director of Cullen/Frost, owns a 26.67 percent interest in
Fulton Construction Corporation/ Coastcon Corp., a Joint Venture.
In the opinion of management, all of the foregoing transactions, including
borrowings, have been in the ordinary course of business and have had the same
terms, interest rates, collateral, or risk as similar transactions with
unaffiliated individuals. Additional transactions may take place in the future.
--------------------------------------------------------------------------------
16
--------------------------------------------------------------------------------
SELECTION OF AUDITORS
(ITEM 2 ON PROXY CARD)
----------------------
The Board of Directors recommends that the shareholders of the Company
ratify the selection of Ernst & Young LLP, certified public accountants, as
independent auditors of Cullen/Frost. Ernst & Young has audited the financial
statements of Cullen/Frost since 1969.
Neither Cullen/Frost's Articles of Incorporation nor Bylaws requires that
the shareholders ratify the selection of Ernst & Young LLP as our independent
auditors. Cullen/Frost is doing so because it believes it is a matter of good
corporate practice. If the shareholders do not ratify the selection, the Board
of Directors and the Audit Committee will reconsider whether or not to retain
Ernst & Young, but may retain such independent auditors. Even if the selection
is ratified, the Board of Directors and the Audit Committee in their discretion
may change the appointment at any time during the year if they determine that
the change would be in the best interests of Cullen/Frost and its shareholders.
Fees for the last fiscal year's annual Audit of Cullen/Frost (Audit Fees)
were $379,065. Fees for all other services performed by Ernst & Young (All Other
Fees) were $501,724, which total included audit related fees of $382,032 and
non-audit fees of $119,692. Audit related fees include audits of funds
administered by the Financial Management Group, audits of Cullen/Frost's
subsidiaries, audit procedures required by government regulation, and other
required audit oriented services.
Representatives from Ernst & Young LLP will not be present at the meeting.
If any shareholder wants to ask them an appropriate question, management will
ensure that the question is sent to the independent auditors and that an
appropriate response is made directly to the shareholder.
AUDIT COMMITTEE REPORT
----------------------
The Audit Committee is established to assist the Board of Directors in
fulfilling its oversight responsibility for Cullen/Frost's financial reporting
process and systems of internal control. The Audit Committee operates pursuant
to a Charter that was last amended and restated by the Board of Directors on
February 26, 2002, a copy of which is attached to this Proxy Statement as Annex
A. The Board of Directors, in its business judgment, has determined that all
members of the Audit Committee are "independent" as required by applicable
listing standards of the New York Stock Exchange.
In fulfilling its oversight responsibilities, the Audit Committee reviewed
the audited financial statements with management, including a discussion of the
quality, not just the acceptability, of the accounting principles, the
reasonableness of significant judgments, and the clarity of the disclosures in
the financial statements. The Audit Committee also reviewed with Ernst & Young
LLP, Cullen/Frost's independent auditors who are responsible for expressing an
opinion on the conformity of those audited financial statements with generally
accepted accounting principles, their judgments as to the quality, not just the
acceptability, of Cullen/Frost's accounting principles and such other matters as
are required to be discussed with Ernst & Young under generally accepted
auditing standards. In addition, The Audit Committee has discussed with Ernst &
Young their independence from management and Cullen/Frost, including the matters
in the written disclosures required by the Independence Standards Board, and
have considered the compatibility of Ernst & Young's provision of non-audit
services with Ernst & Young's independence.
Based upon the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in Cullen/Frost's Annual Report on Form 10-K for the year
ended December 31, 2001 for filing with the Securities and Exchange Commission.
The Audit Committee of Cullen/Frost Bankers, Inc.
Isaac Arnold, Jr.
Royce S. Caldwell
Eugene H. Dawson, Sr.
Richard M. Kleberg, III
--------------------------------------------------------------------------------
17
--------------------------------------------------------------------------------
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
--------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers to file reports with the Securities and
Exchange Commission and the New York Stock Exchange relating to their ownership
and changes in ownership of the Company's Common Stock. Based on information
provided by the Company's directors and executive officers and a review of such
reports, the Company believes that all required reports were filed on a timely
basis during 2001, except that in February 2002, due to inadvertent
administrative oversight in the Corporate Secretary's office, each of T.C. Frost
and Patrick B. Frost made a one day late filing relating to the exempt exercise
of stock options.
SHAREHOLDER PROPOSALS
---------------------
To be eligible under the Securities and Exchange Commission's shareholder
proposal rule (Rule 14a-8) for inclusion in Cullen/Frost's proxy statement,
proxy card, and presentation at Cullen/Frost's 2003 Annual Meeting of
Shareholders (currently scheduled to be held on May 21, 2003), a proper
shareholder proposal must be received by Cullen/Frost at its principal offices
no later than December 20, 2002. For a proper shareholder proposal submitted
outside of the process provided by Rule 14a-8 to be eligible for presentation at
Cullen/Frost's 2002 Annual Meeting, timely notice thereof must be received by
Cullen/Frost not less than 60 days nor more than 90 days before the meeting (for
a May 21, 2003 meeting, notice is required by no later than March 21, 2003). If
the date of the 2003 Annual Meeting is changed, this date will change. This
notice must be in the manner and form required by Cullen/Frost's Bylaws.
OTHER MATTERS
-------------
Management of Cullen/Frost knows of no other business to be presented at
the meeting. If other matters do properly come before the meeting, the persons
named in the proxy will vote shares according to their best judgment unless they
are instructed differently.
By Order of the Board of Directors
/s/ STAN McCORMICK
STAN McCORMICK
Corporate Secretary
Dated: April 18, 2002
A copy of Cullen/Frost's 2001 Annual Report on Form 10-K is available
without charge (except for exhibits) upon written request to Cullen/Frost
Bankers, Inc., attention Greg Parker, 100 West Houston Street, San Antonio,
Texas 78205.
--------------------------------------------------------------------------------
18
--------------------------------------------------------------------------------
ANNEX A
AUDIT COMMITTEE CHARTER
-----------------------
STATEMENT OF PURPOSE
The Audit Committee is established to assist the Board of Directors in
fulfilling its oversight responsibility to current and future shareholders and
others outside the corporate organization relating to:
- The Company's financial reporting process and systems of internal
controls regarding finance, accounting, and legal compliance.
- The independence and performance of the Company's outside auditors and
internal audit department.
In addition, the Audit Committee shall provide for free and open
communication among the outside auditors, the internal audit department,
regulatory authorities, management, and the Board of Directors.
COMPOSITION AND MEETINGS
The Audit Committee shall be appointed by the Board of Directors and shall
be comprised of at least three directors each of whom shall be independent of
management and the Company, free from any relationship that would interfere with
the exercise of their independent judgment. Audit Committee members shall meet
the requirements of the New York Stock Exchange and the FDIC Improvement Act (12
CFR 363). All members of the Committee shall be financially literate, able to
read and understand fundamental financial statements, and at least one member of
the Committee shall have accounting or related financial management expertise.
The Audit Committee shall meet at least four times annually, or more
frequently as circumstances dictate. A report of each meeting of the Committee
shall be made to the Board of Directors at the Board's next meeting.
RESPONSIBILITIES AND DUTIES
The following shall be the principal recurring processes of the Audit
Committee in carrying out its oversight responsibilities. These duties are set
forth as a guide with the understanding that the Committee may supplement them
as appropriate. In discharging its oversight role, the Audit Committee is
authorized to retain outside counsel, or other experts or consultants as the
Committee may deem appropriate.
The Audit Committee serves in an oversight capacity and as such does not
provide expert or special assurance on the Company's financial statements.
1. The Committee shall review and reassess this charter at least
annually and obtain approval of the Board of Directors.
2. The Committee shall annually review the independence of the outside
auditors including discussion of relationships they have with the Company;
compliance with the Company policy of not hiring from the outside auditors
any partner or manager who worked on the Company's account during the prior
three years; the matters included in the written disclosures required by
the Independence Standards Board; and the compatibility of non-audit
services with the auditor's independence. The outside auditors are
ultimately accountable to the Audit Committee and the Board of Directors.
The Committee shall, on an annual basis, review and recommend to the Board
of Directors the appointment or replacement of the outside auditors,
subject to shareholders' approval.
3. The Committee shall discuss with the internal auditors and the
outside auditors the overall scope and plans for their respective audits
including the adequacy of staffing and compensation. With regard to
--------------------------------------------------------------------------------
A-1
--------------------------------------------------------------------------------
the outside auditors, the Committee shall review the resumes of the key
partners and managers who work on the Company's account; the firm's quality
control procedures; and the firm's most recent quality control review
including steps taken to address any reported problems.
4. The Committee shall discuss with management, the internal auditors,
and the outside auditors the adequacy and effectiveness of the accounting
and financial controls, including the Company's system to monitor and
manage business risk, and legal and ethical compliance programs. The
Committee shall review and discuss legal matters that could have a
significant impact on the Company's financial statements, the
reasonableness of significant judgments by management, and significant
audit and regulatory findings along with management's responses. The
Committee shall meet privately with the internal auditors, the outside
auditors, and regulatory authorities as appropriate, without members of
management present.
5. The Committee shall review the interim financial statements with
management and the outside auditors prior to the filing of the Company's
Quarterly Report on form 10-Q. The Committee shall discuss the results of
the quarterly review and any other matters required to be communicated to
the Committee by the outside auditors under generally accepted auditing
standards.
6. The Committee shall review with management and the outside auditors
the financial statements to be included in the Company's Annual Report on
Form 10-K, including their judgment about the quality, not just
acceptability, of accounting principles, the reasonableness of significant
judgments by management, and the clarity of the disclosures in the
financial statements. The Committee shall discuss the results of the annual
audit and any other matters required to be communicated to the Committee by
the outside auditors under generally accepted auditing standards.
--------------------------------------------------------------------------------
A-2
o DETACH PROXY CARD HERE o
--------------------------------------------------------------------------------
PLEASE BE CERTAIN THAT YOU
[ ] HAVE DATED AND SIGNED THIS [X]
PROXY. RETURN YOUR PROXY IN VOTES MUST BE INDICATED
THE ENCLOSED ENVELOPE. (X) IN BLACK OR BLUE INK.
(1) ELECTION OF DIRECTORS
FOR all WITHHOLD AUTHORITY *EXCEPTIONS: FOR
nominees listed to vote for all nominees all nominees except
below listed below those listed below
[ ] [ ] [ ]
CLASS III: R. Denny Alexander, Eugene H. Dawson, Sr., Ruben M. Escobedo, Joe R.
Fulton, Ida Clement Steen.
*Exceptions
----------------------------------------------------
To change your address, please mark this box. [ ]
(2) To ratify the selection of Ernst & Young LLP to act as independent auditors
of Cullen/Frost Bankers, Inc. for the fiscal year that began January 1,
2002.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
SCAN LINE
Signature should correspond with the
printed name appearing hereon. When
signing in a fiduciary or representative
capacity, give full title as such, or
when more than one owner, each should
sign.
Date Share Owner sign here Co-Owner sign here
---------------------------- ------------------
---------------------------- ------------------
3994
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR ANNUAL MEETING
OF CULLEN/FROST BANKERS, INC.
The undersigned hereby revoking all proxies previously granted, appoints
T.C. FROST, RICHARD W. EVANS, JR., and PATRICK B. FROST, and each of them, with
power of substitution, as proxy of the undersigned, to attend the Annual Meeting
of Shareholders of Cullen/Frost Bankers, Inc. on May 22, 2002, and any
adjournments thereof, and to vote the number of shares the undersigned would be
entitled to vote if personally present as designated on the reverse.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE NOMINEES LISTED IN
PROPOSAL 1 AND FOR PROPOSAL 2 AND AT THE DISCRETION OF THE PROXIES UPON SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING.
(Continued and to be dated and signed on the reverse.)
CULLEN/FROST BANKERS, INC.
P.O. BOX 11225
NEW YORK, N.Y. 10203-0225
o DETACH PROXY CARD HERE o
--------------------------------------------------------------------------------
PLEASE BE CERTAIN THAT YOU
[ ] HAVE DATED AND SIGNED THIS [X]
PROXY. RETURN YOUR PROXY IN VOTES MUST BE INDICATED
THE ENCLOSED ENVELOPE. (X) IN BLACK OR BLUE INK.
(1) ELECTION OF DIRECTORS
FOR all WITHHOLD AUTHORITY *EXCEPTIONS: FOR
nominees listed to vote for all nominees all nominees except
below listed below those listed below
[ ] [ ] [ ]
CLASS III: R. Denny Alexander, Eugene H. Dawson, Sr., Ruben M. Escobedo, Joe R.
Fulton, Ida Clement Steen.
*Exceptions
----------------------------------------------------
To change your address, please mark this box. [ ]
(2) To ratify the selection of Ernst & Young LLP to act as independent auditors
of Cullen/Frost Bankers, Inc. for the fiscal year that began January 1,
2002.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
SCAN LINE
Signature should correspond with the
printed name appearing hereon. When
signing in a fiduciary or representative
capacity, give full title as such, or
when more than one owner, each should
sign.
Date Share Owner sign here Co-Owner sign here
---------------------------- ------------------
---------------------------- ------------------
3995
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR ANNUAL MEETING
OF CULLEN/FROST BANKERS, INC.
The undersigned hereby revoking all proxies previously granted, appoints
T.C. FROST, RICHARD W. EVANS, JR., and PATRICK B. FROST, and each of them, with
power of substitution, as proxy of the undersigned, to attend the Annual Meeting
of Shareholders of Cullen/Frost Bankers, Inc. on May 22, 2002, and any
adjournments thereof, and to vote the number of shares the undersigned would be
entitled to vote if personally present as designated on the reverse.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE NOMINEES LISTED IN
PROPOSAL 1 AND FOR PROPOSAL 2 AND AT THE DISCRETION OF THE PROXIES UPON SUCH
OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING.
(Continued and to be dated and signed on the reverse.)
CULLEN/FROST BANKERS, INC.
P.O. BOX 11228
NEW YORK, N.Y. 10203-0228