<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
SOUTHSIDE BANCSHARES 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/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
SOUTHSIDE BANCSHARES, INC.
1201 South Beckham Avenue
Tyler, Texas 75701
April 2, 1996
Dear Shareholders:
On Wednesday, April 24, 1996, our shareholders will gather at the Southside
Bank Operations Center (formerly Wyatt's Cafeteria), 1221 South Beckham Avenue,
Tyler, to consider several propositions that are important to Southside
Bancshares, Inc. and Southside Bank. The matters to be considered at the
meeting include:
1. Election of three Directors to serve until the 1999 Annual
Shareholders' Meeting;
2. Approval of an amendment to increase the number of shares
authorized for issuance under the 1993 Incentive Stock Option
Plan;
3. Ratification of the appointment of Coopers & Lybrand L.L.P. as
independent accountants for the current fiscal year; and
4. Transaction of other business that may properly come before
the meeting or any adjournments.
Your attendance and vote are important and you are encouraged to vote by
completing the enclosed proxy card and returning it in the envelope provided.
Shareholders of record at the close of business on March 8, 1996, are entitled
to vote at the meeting.
Management will also report on operations and other matters affecting the
Corporation, as well as respond to your questions. After the meeting, officers
and directors will be available to visit with you.
Sincerely yours,
/s/ B. G. HARTLEY
- ---------------------------------
B. G. Hartley
Chairman of the Board
<PAGE> 3
SOUTHSIDE BANCSHARES, INC.
1201 South Beckham Avenue
Tyler, Texas 75701
NOTICE
OF
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 24, 1996
NOTICE IS HEREBY GIVEN THAT THE ANNUAL MEETING OF SHAREHOLDERS OF
SOUTHSIDE BANCSHARES, INC. (HEREINAFTER THE "CORPORATION" OR THE "COMPANY")
WILL BE HELD AT THE SOUTHSIDE BANK OPERATIONS CENTER, 1221 SOUTH BECKHAM
AVENUE, TYLER, TEXAS, ON APRIL 24, 1996, AT 4:00 P.M., LOCAL TIME, TO CONSIDER
AND VOTE UPON THE FOLLOWING MATTERS:
1. To elect three (3) Directors to serve until the 1999
Annual Shareholders' Meeting;
2. To approve an amendment to the 1993 Incentive Stock
Option Plan (the "Plan") to increase the number of
shares authorized for issuance under the Plan;
3. To ratify the appointment of Coopers & Lybrand L.L.P.
as independent accountants for the Corporation for
the year ending December 31, 1996; and
4. To transact such other business that may properly
come before the meeting or any adjournments.
Only shareholders who are registered on the Corporation's books as
owners of shares at the close of business on March 8, 1996, are entitled to
vote at the meeting.
Please date, sign, and return the enclosed proxy immediately in the
envelope provided. It is important that you sign and return the proxy, even
though you actually plan to attend the meeting in person. You may revoke the
proxy at any time before the proxy is exercised by giving written notice to the
Secretary of the Corporation or by advising the Secretary at the meeting.
By Order of the Board of Directors
/s/ B. G. HARTLEY
-----------------------------------
B. G. Hartley,
Chairman of the Board
Tyler, Texas
April 2, 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, IT IS REQUESTED THAT THE
ENCLOSED FORM OF PROXY BE PROPERLY EXECUTED AND PROMPTLY RETURNED TO SOUTHSIDE
BANCSHARES, INC. IN THE ENCLOSED ADDRESSED ENVELOPE.
<PAGE> 4
SOUTHSIDE BANCSHARES, INC.
1201 South Beckham Avenue
Tyler, Texas 75701
PROXY STATEMENT
FOR THE
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 24, 1996
To our Shareholders:
This Proxy Statement is being furnished to shareholders of Southside
Bancshares, Inc. (the "Corporation") in connection with the Annual Meeting of
Shareholders (the "Annual Meeting") to be held on April 24, 1996, at the time
and place and for the purposes set forth in the accompanying Notice of Annual
Meeting of Shareholders, and at any adjournments thereof. This Proxy Statement
and applicable form of proxy are first being sent to the shareholders of the
Corporation on or about April 2, 1996.
REVOCABILITY OF PROXY
If your proxy is executed and returned, it will be voted as you
direct. Additionally, if your proxy is executed and returned, it will be voted
to approve the minutes of the last Shareholders' Meeting. This will not amount
to a ratification of the action taken at that meeting nor will it indicate
approval or disapproval of that action. Your proxy may be revoked by notice in
writing, to the Secretary of the Corporation at its principal office at any
time, or by advising the Secretary at the meeting and voting your shares in
person. Your attendance at the meeting will not constitute automatic
revocation of the proxy.
PERSONS MAKING THE SOLICITATION
The proxy is being solicited by the Board of Directors. The cost of
soliciting your proxy will be borne entirely by the Corporation and no other
person or persons will bear such costs either directly or indirectly. In
addition to the use of the mails, proxies may be solicited by personal
interview, telephone and telegram by directors, officers, and employees of the
Corporation.
OUTSTANDING SHARES AND VOTING RIGHTS
The close of business on March 8, 1996, has been fixed as the record
date for determining the shareholders of the Corporation entitled to notice of
and to vote at the Annual Meeting. Each share of Common Stock is entitled to
one vote. In the election of three Directors, to serve until the 1999 Annual
Shareholders' Meeting, the three nominees receiving the highest number of votes
will be elected. For all other matters a majority of votes cast shall decide
each matter submitted to the Shareholders at the meeting. Abstentions and
broker non-votes are each included in the determination of the number of shares
present for determining a quorum, but will have no effect on the outcome of any
of the proposals. At the close of business on March 8, 1996, there were
3,084,298 shares of Common Stock outstanding and eligible to be voted on each
matter.
CERTAIN SHAREHOLDERS
As of this date, the Corporation knows of no person or entity that is
a beneficial owner of more than 5% of the outstanding Common Stock of the
Corporation.
1
<PAGE> 5
ELECTION OF DIRECTORS
(PROPOSAL 1)
There are three classes of Directors, two classes of which are
comprised of three Directors each and whose terms expire at the 1996 and 1997
Annual Meeting, respectively, and one of which is comprised of two directors
and whose terms expire at the 1998 Annual Meeting, or a total of eight
Directors constituting the full Board of Directors. One class of directors is
elected each year for a three-year term. The three nominees identified below
are nominees for election at the 1996 Annual Meeting for a three-year term
expiring at the 1999 Annual Meeting. All of the nominees are currently
directors of the Corporation and Southside Bank (a wholly-owned subsidiary).
Unless otherwise instructed, proxies received in response to this solicitation
will be voted in favor of the election of the persons nominated by management
for directors of the Corporation. While it is not expected that any of the
nominees will be unable to qualify or accept office, if for any reason one or
more shall be unable to do so, the proxies will be voted for the substitute
nominee(s) selected by the Board of Directors of the Corporation.
<TABLE>
<CAPTION>
SHARES
BENEFI-
INITIAL CIALLY PERCENT
ELECTION TO OWNED OF
BOARD 12-31-95 (1) CLASS
----------- ------------ -------
<S> <C> <C> <C>
NOMINEES FOR DIRECTORS - TERM TO EXPIRE AT THE 1999 ANNUAL MEETING:
ROLLINS CALDWELL (74) - Mr. Caldwell is a private investor who served as 1990 78,958 2.5%
President of Caldwell Welding Supply Company for 37 years. He currently
is involved in equipment and real estate leasing.
WILLIAM SHEEHY (55) - Mr. Sheehy has been a partner in the law firm of 1983 17,672 *
Wilson, Sheehy, Knowles, Robertson and Cornelius since 1971, and a (2)
practicing attorney since 1964. Mr. Sheehy serves as Southside Bank's
outside general counsel.
MURPH WILSON (83) - Mr. Wilson has been a partner in the law firm of 1982 37,242 1.2%
Wilson, Sheehy, Knowles, Robertson and Cornelius since 1953, and a (3)
practicing attorney since 1938. He has also served as Chairman of the
Board of Directors of Southside Bank.
DIRECTORS CONTINUING UNTIL THE 1997 ANNUAL MEETING:
HERBERT C. BUIE (65) - Mr. Buie has been President of Tyler Packing 1988 112,862 3.7%
Company, Inc., a meat processing firm, since 1972. He was initially (4)
employed by Tyler Packing in 1947, and acquired an ownership interest in
1956. He has served on the Board of Directors of the Church of God,
School of Theology, since 1979 and also serves on the Board of Directors
of the University of Texas Health Center and the Developmental Board of
Directors of the University of Texas-Tyler. He also serves on the
Boards of Directors of the East Texas Regional Food Bank and the Texas
Chest Foundation.
</TABLE>
________________
* Less than 1%
2
<PAGE> 6
<TABLE>
<CAPTION>
SHARES
BENEFI-
INITIAL CIALLY PERCENT
ELECTION TO OWNED OF
BOARD 12-31-95 (1) CLASS
----------- ------------ -------
<S> <C> <C> <C>
DIRECTORS CONTINUING UNTIL THE 1997 ANNUAL MEETING:
ROBBIE N. EDMONSON (63) - Mr. Edmonson is President of the Corporation, 1982 20,519 *
serving since 1983. He joined Southside Bank as Vice President in 1968, (5)
and currently is Vice Chairman of the Board of Directors and Chief
Administrative Officer of Southside Bank.
W. D. (JOE) NORTON (59) - Mr. Norton has been the owner of W. D. Norton, 1988 46,710 1.5%
Inc., dba Overhead Door, since 1988. He also owns Norton Equipment
Company. Mr. Norton served as President and principal shareholder of
Norton Companies of Texas, Inc., for 24 years.
DIRECTORS CONTINUING UNTIL THE 1998 ANNUAL MEETING:
FRED E. BOSWORTH (78) - Mr. Bosworth has been Chairman of the Board of 1983 45,490 1.5%
Bosworth & Associates, Inc., an independent insurance agency, (6)
since 1982. He has been associated with the insurance industry in
various capacities since 1935.
B. G. HARTLEY (66) - Mr. Hartley became Chairman of the Board of the 1982 77,742 2.5%
Corporation in 1983, having served as President since 1982. He is also (7)
Chairman of the Board, President and Chief Executive Officer of
Southside Bank, having served as Southside Bank's Chief Executive
Officer since its opening in 1960. He is a member of the Board of
Directors of East Texas Medical Center Regional Healthcare Systems and a
Regional Vice President of Texas Taxpayers and Research Association. He
is also a Trustee of the R. W. Fair Foundation. He is Chairman of the
Texas Bankers Insurance Service Company and a Trustee and a member of
the Executive Committee of Texas College.
ALL DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS OF THE CORPORATION AND 473,917 15.3%
ITS SUBSIDIARY AS A GROUP (13 PERSONS) (8)
</TABLE>
3
<PAGE> 7
(1) Unless otherwise indicated, each person has sole voting and
dispositive power with respect to the shares set forth opposite his
name.
(2) Mr. Sheehy has sole voting power with respect to 14,478 shares, owned
individually. Mr. Sheehy has a beneficial interest in 3,194 shares
owned by Southside Bank, Custodian for William Sheehy IRA. Mr. Sheehy
directs voting of these 3,194 shares.
(3) Mr. Wilson has sole voting power with respect to 36,083 shares, owned
individually. Also included in the total are 1,159 shares owned
individually by Mr. Wilson's wife, Emily Wilson. Mr. Wilson disclaims
all beneficial interest in the shares owned by his wife.
(4) Mr. Buie has sole voting power with respect to 109,720 shares, owned
individually. Also included in the total are 1,735 shares owned by
Mr. Buie's wife, Melvina Buie, and 714 shares owned by Mrs. Buie as
Trustee for Herbert Rex Buie and 693 shares owned by Mrs. Buie as
Trustee for Robin J. Buie. Mr. Buie disclaims beneficial ownership of
these 3,142 shares.
(5) Mr. Edmonson holds sole voting and dispositive power with respect to
12,776 shares and holds voting power with respect to 2,533 shares,
owned in the Corporation's ESOP Plan, in which he is 100% vested. He
does not hold dispositive power. Also included in the total are 5,210
shares subject to incentive stock options that are exercisable within
60 days of the Record Date.
(6) Included in the total are 1,107 shares owned by Bosworth and
Associates, Inc., in which Mr. Bosworth is Chairman of the Board of
Directors. Mr. Bosworth disclaims beneficial ownership of these 1,107
shares.
(7) Mr. Hartley has sole voting and dispositive power with respect to
63,000 shares and is Trustee for Patrick Hartley with sole voting and
dispositive power with respect to 3,732 shares. He also holds sole
voting power with respect to 3,327 shares owned in the Corporation's
ESOP Plan, in which he is 100% vested. He does not hold dispositive
power. Also included in the total are 1,895 shares owned by Mr.
Hartley's wife, Billie Boyd Hartley, of which Mr. Hartley disclaims
all beneficial interest. Also included in the total are 5,788 shares
subject to incentive stock options that are exercisable within 60 days
of the Record Date.
(8) Please see footnotes (2) through (7) above for additional disclosure
regarding the nature and amount of beneficial ownership.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF
THE INDIVIDUALS NOMINATED FOR ELECTION AS A DIRECTOR.
BOARD MEETINGS, COMMITTEES AND ATTENDANCE
The Board of Directors of the Corporation met nine times during the
fiscal year. All directors were present for at least 75% of the meetings of
the Board and committees on which they served. Each director of the
Corporation also serves as a director of Southside Bank.
The Board of Directors of the Corporation has only one standing
committee (the Incentive Stock Option Committee) but its wholly owned
subsidiary, Southside Bank, has several standing committees to assist the
Boards of Directors of Southside Bank and of the Corporation in the discharge
of their respective responsibilities. The committees and the purpose and
composition of these committees with respect to persons who are directors of
the Corporation and Southside Bank are as follows:
EXECUTIVE COMMITTEE OF SOUTHSIDE BANK
The Executive Committee is authorized to act on behalf of the Board of
Directors of Southside Bank between scheduled meetings of the Board, subject to
certain limitations. The committee is comprised of Messrs. Bosworth, Buie,
Caldwell, Norton, Sheehy and Wilson, who are directors of Southside Bank and
directors of the Corporation, but are not officers or employees of either
Southside Bank or of the Corporation. Also serving are Messrs. Hartley and
Edmonson, who are directors and officers of the Corporation and Southside
Bank. Messrs. Titus Jones and Andy Wall are officers and directors of
Southside Bank and also serve as members of the committee. The Executive
Committee of Southside Bank meets weekly to discharge its responsibilities.
In addition, the members of the Executive Committee comprise the
Loan/Discount Committee of Southside Bank. It is their responsibility to
monitor credit quality and review extensions of credit. During the fiscal
year, the Loan/Discount Committee of Southside Bank met weekly to discharge its
responsibilities.
4
<PAGE> 8
TRUST COMMITTEE OF SOUTHSIDE BANK
The Trust Committee of Southside Bank is responsible for the oversight
of the operations and activities of the Trust Department. Messrs. Bosworth,
Edmonson and Hartley, directors of the Corporation and Southside Bank, serve on
this committee. Messrs. Richard Babb, Michael Gollob, and Titus Jones (an
officer of Southside Bank) are directors of Southside Bank, and Sam Dawson (an
officer of Southside Bank and the Corporation), serve as members of the Trust
Committee. Mr. Babb, Mr. Bosworth and Mr. Gollob are not officers or employees
of the Corporation or Southside Bank. The Trust Committee meets monthly.
AUDIT-COMPLIANCE AND ELECTRONIC DATA PROCESSING COMMITTEE OF SOUTHSIDE BANK
The Audit-Compliance and Electronic Data Processing Committee of
Southside Bank is responsible for monitoring the internal audit functions,
internal accounting procedures and controls and for ensuring compliance with
all appropriate statutes. The Audit-Compliance and Electronic Data Processing
Committee is comprised solely of directors of Southside Bank who are not
officers or employees. Those directors are Messrs. Alton Cade, Jr., Michael
Gollob, James R. Hicks and W. H. Hudson. The Audit-Compliance and Electronic
Data Processing Committee of Southside Bank meets monthly.
INVESTMENT/ASSET-LIABILITY COMMITTEE OF SOUTHSIDE BANK
The Investment/Asset-Liability Committee is responsible for reviewing
Southside Bank's overall funding mix, asset-liability management policies and
investment policies. The members of the Committee are: Messrs. Buie and
Norton who are directors of the Corporation and Southside Bank; and Hoyt N.
Berryman, Jr., who is a director of Southside Bank; none of the foregoing are
officers or employees of the Corporation or Southside Bank; and Messrs.
Hartley and Edmonson. Also serving on this committee are Southside Bank
officers Sam Dawson, Lee Gibson, George Hall, Titus Jones, Jeryl Story, Lonny
Uzzell and Andy Wall. The Investment/Asset-Liability Committee meets monthly.
INCENTIVE STOCK OPTION COMMITTEE OF SOUTHSIDE BANCSHARES, INC.
The Incentive Stock Option Committee is primarily responsible for
administering the Southside Bancshares, Inc. 1993 Incentive Stock Option Plan.
The Incentive Stock Option Committee consists solely of non-employee directors
of the Corporation and includes Messrs. Bosworth, Buie and Norton. The
committee met once in 1995.
DIRECTOR COMPENSATION
The Corporation does not compensate its directors for committee
service. Each director is paid according to the compensation schedule of
Southside Bank. Officers of Southside Bank, who are also bank directors, are
paid for the monthly directors' meeting and the Annual Director Retainer.
The current director compensation schedule for Southside Bank is as
follows:
<TABLE>
<S> <C> <C>
Director (monthly) - $400 per meeting
Executive (weekly) - $200 per meeting
Trust (monthly) - $ 50 per meeting
Audit and Compliance (monthly) - $ 50 per meeting
Investment/Asset-Liability (monthly) - $ 50 per meeting
Annual Director Retainer - $500 per annum
Annual Shareholder Meeting - $400 per meeting
</TABLE>
EXECUTIVE COMPENSATION
The following information is furnished for the last three fiscal years
ended December 31, with respect to the executive officers of Southside Bank who
received compensation in excess of $100,000. The Corporation does not pay its
executive officers a salary; therefore, this information relates to
compensation paid by Southside Bank.
5
<PAGE> 9
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
-------------------------------------------------------
*Other Annual
Name and Principal Position Year Salary Bonus Compensation
---- ------ ----- -------------
<S> <C> <C> <C> <C>
B. G. Hartley - Chairman of the Board 1995 $200,000 $35,000 $ 9,343
of the Corporation; Chairman of the Board, 1994 178,000 34,450 8,408
President and Chief Executive Officer of 1993 178,000 22,250 9,500
Southside Bank
Robbie N. Edmonson - President of the 1995 $130,000 $16,250 $ 9,501
Corporation; Vice Chairman of the Board and 1994 125,000 15,625 8,485
Chief Administrative Officer of Southside Bank 1993 125,000 15,625 8,100
Titus Jones - Executive Vice President - 1995 $100,000 $12,500 $ 8,743
General Administration - Southside Bank 1994 95,000 11,875 7,830
1993 87,500 10,937 7,100
H. Andy Wall - Executive Vice President - 1995 $ 97,500 $12,188 $ 8,567
Lending - Southside Bank 1994 92,500 11,562 7,653
1993 87,500 10,937 7,100
Sam Dawson - Executive Vice President - 1995 $ 90,000 $11,250 $ 8,362
Trust - Southside Bank 1994 85,000 10,625 6,280
1993 80,000 10,000 6,301
Jeryl Story - Executive Vice President - 1995 $ 90,000 $11,250 $ 8,434
Loan Administration - Southside Bank 1994 85,000 10,625 6,349
1993 80,000 10,000 6,419
</TABLE>
* Each executive officer received director fees from Southside Bank in 1995,
1994 and 1993 of $5,700, $5,300 and $4,700 respectively. ESOP
contributions comprise the remaining amount.
REPORT ON EXECUTIVE COMPENSATION
GENERAL
The purpose of this report is to provide insight into the practice and
philosophy of the Board of Directors in establishing the compensation for the
executive officers of the Corporation and Southside Bank and to elaborate on
the relationship between corporate performance and executive compensation. All
monetary compensation for executive officers of the Corporation and Southside
Bank is paid solely by Southside Bank. Since neither the Corporation nor
Southside Bank has a formal compensation committee, the Executive Committee of
Southside Bank is responsible for all executive compensation recommendations.
The recommendations are presented to the Board of Directors of Southside Bank
for final approval.
Management of the Corporation and the Executive Committee keep abreast
of current executive compensation issues, trends and levels as a result of
financial industry contacts and peer group information. The Chairman of the
Board, B. G. Hartley, initially develops and presents executive compensation
recommendations to the Executive Committee with respect to all executive
officers. Salaries are approved once a year in January and bonuses are
approved in June and December. The Executive Committee acts upon the
recommendations and then requests approval of the full Board of Directors of
Southside Bank. After a review and discussion by the Board of Directors, the
compensation package for all executive officers is acted upon.
In determining the proper levels of executive compensation, the
Executive Committee considers the financial health of the Corporation and
Southside Bank. As a result, executive compensation is affected by the
financial performance of the Corporation and Southside Bank, although specific
correlation to financial performance is not
6
<PAGE> 10
established either for a group or an individual and in the final analysis
salaries are a subjective determination of the Board of Directors.
The total return on the Corporation's Common Stock is not a significant
factor in determining executive compensation. The Common Stock of the
Corporation is not traded on any market nor is there a market maker.
Fluctuating supply and demand from a relatively small ownership base can
dramatically affect the stock's price as well. Supply and demand of the stock
can at times have much more effect on the total return of the Common Stock than
financial performance by the Corporation or Southside Bank. Because of this
limited trading market, the actual performance of the Corporation's stock price
is not a significant factor in assessing executive performance or arriving at
executive compensation.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Company's Board of Directors considers the factors mentioned above,
primarily the financial well-being of the Corporation and peer group
compensation trends, in determining the compensation of the Chief Executive
Officer. Following an analysis of marketplace data and a subjective assessment
of the Chief Executive Officer's contribution to the Corporation, the Executive
Committee recommended, and the Board of Directors of Southside Bank approved,
an increase in the annual salary of the Chief Executive Officer from $178,000
to $200,000 for Fiscal 1995. The Chief Executive Officer also received a bonus
of $35,000 in 1995.
This report should provide insight into the decision making process
regarding executive officer compensation. It is the intent of the Board of
Directors of the Corporation and of Southside Bank that executive compensation
be commensurate with the executive officer's level of responsibility and
contribution in operating a sound and profitable financial institution.
BOARD OF DIRECTORS OF SOUTHSIDE BANCSHARES, INC.
Fred E. Bosworth Robbie N. Edmonson William Sheehy
Herbert C. Buie B. G. Hartley Murph Wilson
Rollins Caldwell Joe Norton
[CHART]
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Southside Bancshares, Inc. $100 $122 $209 $299 $259 $368
------------------------------------------------------------------------------
Dow Jones Equity $100 $132 $144 $158 $159 $221
------------------------------------------------------------------------------
Regional Banks South $100 $181 $241 $248 $244 $378
------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 11
1993 INCENTIVE STOCK OPTION PLAN
The purpose of the following table is to report grants of stock options to
the Executive Officers named in the Summary Compensation Table during 1995. No
stock appreciation rights have been granted. The Executive Officers were
granted stock options in 1993 and 1995 pursuant to the 1993 Incentive Stock
Option Plan. None were granted in 1994.
<TABLE>
<CAPTION>
========================================================================================================================
Option Grants In Last Fiscal Year
========================================================================================================================
Potential Realizable Value
at Assumed Annual
Rates of Stock Price
Individual Grants (1) Appreciation for Option Term(2)
- ------------------------------------------------------------------------------------------------------------------------
Percent
of
Total
Options Exercise
Granted or
to Employ- Base
Options ees in Price Expiration At 5% At 10%
Granted Fiscal ($/Sh) Date Annual Annual
Name (3) Year (3) (4) Growth Growth
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
B. G. Hartley 8,000 14.3% $12.00 06/22/05 $60,320 $153,040
- ------------------------------------------------------------------------------------------------------------------------
Robbie N. Edmonson 8,000 14.3% $12.00 06/22/05 $60,320 $153,040
- ------------------------------------------------------------------------------------------------------------------------
Titus E. Jones 8,000 14.3% $12.00 06/22/05 $60,320 $153,040
- ------------------------------------------------------------------------------------------------------------------------
H. Andy Wall 8,000 14.3% $12.00 06/22/05 $60,320 $153,040
- ------------------------------------------------------------------------------------------------------------------------
Sam Dawson 8,000 14.3% $12.00 06/22/05 $60,320 $153,040
- ------------------------------------------------------------------------------------------------------------------------
Jeryl Story 8,000 14.3% $12.00 06/22/05 $60,320 $153,040
========================================================================================================================
</TABLE>
(1) Options are granted at fair market value on the date of grant. One-fifth
of the options vest annually beginning in 1996. The options are scheduled
to expire in June 2005.
(2) The dollar amounts under these columns are the result of calculations at 5%
and 10% rates set by the Securities and Exchange Commission and are not
intended to forecast possible future price appreciation of the
Corporation's stock.
(3) Options listed in the table above are not adjusted for the stock dividend
declared in October 1995. The shares were increased to 8,400 and the
exercise price decreased to $11.43 per share.
(4) Each option agreement governing that option provides that upon the
dissolution or liquidation of the Corporation, a merger or consolidation in
which the Corporation is not the surviving corporation, a sale or
conveyance of all or substantially all of its assets, or a transaction or
series of related transactions in which another corporation makes a tender
offer or exchange offer for or becomes the owner of 50% or more of the
total combined voting power of all classes of stock of the Corporation, the
optionee may exercise the option at any time prior to the termination of
the option without regard to the extent that option would have been
exercisable under the cumulative installment provisions of his or her
option agreement.
8
<PAGE> 12
The following table discloses for each of the executive officers named
in the Summary Compensation Table the values of their options at December 31,
1995. During the year ended December 31, 1995, no executive officers exercised
stock options.
AGGREGATED OPTIONS EXERCISABLE IN 1995 AND
DECEMBER 31, 1995 OPTION VALUES
<TABLE>
<CAPTION>
===========================================================================================================
Number of Securities Value of Unexercised
Underlying Unexercised Options In-The-Money Options
at December 31, 1995 at December 31, 1995 (1)
- -----------------------------------------------------------------------------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
B. G. Hartley 5,788 17,084 $38,143 $74,616
- -----------------------------------------------------------------------------------------------------------
Robbie N. Edmonson 5,210 16,215 $34,334 $68,889
- -----------------------------------------------------------------------------------------------------------
Titus E. Jones 4,630 15,347 $30,512 $63,169
- -----------------------------------------------------------------------------------------------------------
H. Andy Wall 4,630 15,347 $30,512 $63,169
- -----------------------------------------------------------------------------------------------------------
Sam Dawson 4,630 15,347 $30,512 $63,169
- -----------------------------------------------------------------------------------------------------------
Jeryl Story 4,630 15,347 $30,512 $63,169
===========================================================================================================
</TABLE>
(1) Based on $13.50 per share of Common Stock, which was the fair market
value of a share of Common Stock on December 31, 1995.
DEFINED BENEFIT RETIREMENT PLAN
The Corporation has a retirement plan for eligible employees of the
Corporation and Southside Bank that is designed to comply with the requirements
of the Employee Retirement Income Security Act of 1974, the entire cost of
which is provided by Corporation contributions. Compensation covered by the
plan includes all cash and cash equivalent forms of remuneration reported for
federal income tax purposes [including compensation deferred under IRC 401(K)].
The years of credited service under the plan as of December 31, 1995,
for each person named in the current compensation table on the preceding page
are as follows: B. G. Hartley - 35 years (35 years at age 66); Robbie N.
Edmonson - 27 years (28 years at age 65); Titus E. Jones - 30 years (43 years
at age 65); H. Andy Wall - 27 years (36 years at age 65); Sam Dawson - 21
years (38 years at age 65); and Jeryl Story - 16 years (37 years at age 65).
The following table shows the anticipated annual benefit, computed on
a ten-year certain and life basis, payable upon the normal retirement as of
December 31, 1996, of a vested Executive Officer of the Corporation at age 65
after 15, 20, 25, 30, or 35 years of credited service at specified annual
compensation levels.
<TABLE>
<CAPTION>
FINAL 60 MONTHS YEARS OF CREDITED SERVICE AT RETIREMENT
AVERAGE ANNUAL ------------------------------------------------------------------------------
COMPENSATION 15 20 25 30 35
- ------------------- ------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$125,000 $46,272 $ 61,697 $ 70,871 $ 80,045 $ 89,219
150,000 56,022 74,697 85,871 97,045 108,219
175,000 65,772 87,697 100,871 114,045 127,219
200,000 75,522 100,697 115,871 131,045 146,219
225,000 85,272 113,697 130,871 148,045 165,219
250,000 95,022 126,697 145,871 165,045 184,219
</TABLE>
9
<PAGE> 13
NOTE: Benefits under the employer's qualified plan, Retirement Plan for
Subsidiaries of Southside Bancshares, Inc., are subject to the maximum annual
benefit limitation during 1996 under Section 415 of the Internal Revenue Code
(IRC) of $120,000. In addition, compensation that can be considered by the
plan is limited during 1996 to $150,000, as provided by Section 401(a)(17) of
the IRC. These IRC limitations are subject to annual cost-of-living
adjustments. The employer has adopted a nonqualified plan that pays to the
employee amounts restricted by the IRC. Hence, the benefits shown represent
the total amount the employee would receive from both plans and are not subject
to any deduction for social security benefits or other offset amounts.
RETIREMENT BENEFIT RESTORATION PLAN
On August 1, 1991, the Board of Directors voted unanimously to approve
and adopt a nonqualified Retirement Benefit Restoration Plan that would
reinstate retirement benefits to those employees whose benefits are restricted
under the limitation as set forth in Section 415 of the Internal Revenue Code
of 1986 (IRC). The plan was amended effective January 1, 1994, to also restore
any benefits restricted by Section 401(a)(17) of the IRC. The restoration plan
will reinstate any retirement benefit, previously provided by the Corporation's
Defined Benefit Plan, but restricted as a result of legislation enacted to
limit retirement benefits.
EMPLOYEE STOCK OWNERSHIP PLAN
The Corporation has an Employee Stock Ownership Plan which was
established to attract, reward and retain valuable employees. The plan is
established for the exclusive benefit of the employees of the Corporation and
Southside Bank. The ESOP, which is a qualified retirement plan, is designed to
invest in the securities of the Corporation and allocate the stock to all
eligible full-time employees of the Corporation and Southside Bank after
completion of one year's service. Full vesting occurs upon completion of six
years credited service. The Corporation contributed $150,000 to the Plan
during the fiscal year ended December 31, 1995. Contributions for 1995 were
allocated to the Corporation's executive officers as follows: B. G. Hartley
$3,643, Robbie Edmonson $3,801, Titus Jones $3,043, H. Andy Wall $2,867, Sam
Dawson $2,662 and Jeryl Story $2,734.
401(K) EMPLOYEE SAVINGS PLAN
The Corporation also sponsors a 401-K Employee Savings Plan. All
full-time employees of the Corporation and Southside Bank are eligible to
contribute to the Plan. The Corporation does not contribute to the plan.
Employees, through salary reduction, are able to contribute up to 20% of their
salary (not to exceed $9,240 in 1995) to the qualified plan. Since
participation is voluntary and the Corporation does not contribute,
participants are 100% vested. Withdrawals from the Plan are allowed at age 59
1/2, upon disability or death, at the occurrence of a financial hardship or
termination of employment.
OFFICERS LONG-TERM DISABILITY INCOME PLAN
There is a Long-Term Disability Income Plan (the "Disability Plan"),
which covers certain officers of the Corporation and Southside Bank in the
event they become disabled. Individuals are automatically covered under the
plan if they (a) have been elected as an officer of either the Corporation or
Southside Bank, (b) have been an employee of the Corporation or Southside Bank
for three years and (c) receive earnings of $50,000 or more on an annual basis.
The Disability Plan provides that should a covered individual become totally
disabled a benefit of at least 66.7% of current salary, not to exceed $10,000
per month, is available through this plan, the retirement plan and Social
Security. The benefits paid out of the Disability Plan may be limited by the
benefits paid to the individual under the terms of other Corporate-sponsored
benefit plans and Social Security. The annual cost of the Disability Plan is
approximately $14,000.
10
<PAGE> 14
DEFERRED COMPENSATION PLAN
Southside Bank has a deferred compensation agreement with seven of its
executive officers, which provides for payment of an amount over a maximum
period of fifteen years after retirement or death. If an executive officer
leaves the bank's employ or is terminated with good cause by the Board of
Directors of Southside Bank, no benefits are payable under the plan. The
deferred compensation agreements are as follows: Mr. Hartley - $800,000
payable over 15 years; Mr. Edmonson - $360,000 payable over 10 years; and
Messrs. Jones, Wall, Dawson and Story - $300,000 each payable over 10 years.
The present value of the future benefits assuming a discount rate of 8% is as
follows: B. G. Hartley $534,000; Robbie N. Edmonson $217,000; Titus Jones
$16,000; Andy Wall $27,000; Sam Dawson $12,000 and Jeryl Story $8,000. The
benefits provided by the compensation plan are in addition to those of the
Retirement Plan of the Corporation. Southside bank has acquired a life
insurance policy on each executive, with the bank as beneficiary, to cover the
cost of the deferred compensation plan.
TRANSACTIONS WITH DIRECTORS, OFFICERS AND ASSOCIATES
Certain of the executive officers and directors of the Corporation (and
their associates) have been customers of Southside Bank and have been granted
loans in the ordinary course of business. All loans or other extensions of
credit made by Southside Bank to executive officers and directors of the
Corporation and Southside Bank were made in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and did
not involve more than the normal risk of collection or present unfavorable
features. The Corporation expects similar transactions to occur with its
executive officers and directors as well as directors and officers of Southside
Bank. During 1995, the Corporation believes that all directors and executive
officers of the Corporation timely filed all reports required pursuant to
Section 16(a) of the Securities Exchange Act of 1934.
The law firm of Wilson, Sheehy, Knowles, Robertson and Cornelius, of
which Directors Murph Wilson and William Sheehy are partners, has provided
legal services to the Corporation and Southside Bank for many years and
continues to do so during the current fiscal year. The Corporation and
Southside Bank paid the law firm $152,000 for services rendered in calendar
year 1995. During 1995, the Corporation and Southside Bank paid Bosworth and
Associates, Inc.,of which Fred E. Bosworth is Chairman of the Board,
approximately $57,000 for insurance premiums for various insurance policies.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a Compensation Committee of the Board of
Directors during 1995. In addition, the Company did not pay any compensation to
its executive officers during 1995. See "Executive Compensation." The
compensation of the executive officers of Southside Bank is determined by the
Executive Committee of Southside Bank, which is comprised of all of the
directors of the Company, including Messrs. Hartley and Edmonson (who are each
executive officers of Southside Bank and the Company).
During 1995, no executive officer of the Company or Southside Bank
served as a director of another corporation. During 1995, no executive officer
of the Company or Southside Bank served as a member of the Compensation
Committee (or other board committee performing similar functions or, in the
absence of any such committee, the entire board of directors) of another
corporation.
For information concerning transactions by the Company and Southside
Bank with certain members of the Executive Committee of Southside Bank, please
see "Transactions with Directors, Officers and Associates."
11
<PAGE> 15
PROPOSED AMENDMENT TO INCREASE THE NUMBER OF
SHARES SUBJECT TO THE 1993 INCENTIVE STOCK OPTION PLAN
(PROPOSAL 2)
GENERAL
On March 28, 1996, the Board of Directors approved, subject to
shareholder approval, a proposal to amend (the "Amendment") the 1993 Incentive
Stock Option Plan (the "Plan") to increase the number of shares of Common Stock
available for issuance under the Plan from 231,525 (which number has been
appropriately adjusted to account for the past stock dividends effected by the
Company) to 350,000 shares. In connection with the approval of the Amendment,
the Board of Directors also considered and approved several housekeeping
amendments to the Plan (the "Additional Amendments"), none of which required
shareholder approval and each of which took effect on the date of its approval
by the Board of Directors. The material terms of the Additional Amendments are
briefly described below under the caption "--Description of the Plan." Upon
shareholder approval of the Amendment, the Amendment and the Additional
Amendments will be incorporated into an amended and restated Plan.
If approved by the shareholders at the Annual Meeting, the Amendment
will be effected by changing the first sentence of Section 5 of the Plan to
read in its entirety as follows:
"The Committee may not grant options under the Plan for more
than 350,000 shares of Common Stock of the Company, but this
number may be adjusted to reflect, if deemed appropriate by
the Committee, any stock dividend, stock split, share
combination, recapitalization or the like, of or by the
Company."
The remaining language of Section 5 will remain unchanged and the only
effect of the Amendment will be to increase the number of shares of Common
Stock issuable upon the exercise of stock options granted under the Plan.
Over recent years, the Company's operations have grown substantially.
As a result, the Company now has more employees than it did in April 1993 when
the Plan was originally approved by the shareholders. The proposed Amendment
will provide the Company with the flexibility to issue options to members of
its expanded employee base and will enable the Company to continue the purpose
of the Plan to attract and retain qualified and competent employees, upon whose
judgment the success of the Company is largely dependent.
Shareholder approval of the Amendment is required by Rule 16b-3
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Approval of the
Amendment by the shareholders is advisable for the Plan to continue to comply
with Rule 16b-3. Rule 16b-3 provides an exemption from the operation of the
"short-swing profit" recovery provisions of Section 16(b) of the Exchange Act,
with respect to the acquisition of stock options and the use of already owned
stock as payment for the exercise price of any stock option granted under the
Plan.
The Company has previously registered the 231,525 shares currently
authorized for issuance upon exercise of stock options granted under the Plan
under the Securities Act of 1933, as amended (the "Act"). The Company intends
to register the 118,475 additional shares of Common Stock issuable upon
shareholder approval of the Amendment, assuming the shareholders approve the
Amendment.
Since participation in the Plan is voluntary and generally open to all
employees, it is not possible at this time to indicate the number, names or
positions of employees who will receive stock options or the number of shares
for which options will be granted to any employee under the Plan. The Plan is
not subject to the qualifications requirements of Section 401 of the Internal
Revenue Code (the "Code"), nor is the Plan subject to the provisions of ERISA.
12
<PAGE> 16
DESCRIPTION OF THE PLAN
The purpose of the Plan is to provide key employees of the Company and
its subsidiaries with a proprietary interest in the Company through the
granting of options which will increase the interest of key employees in the
Company's welfare, furnish an incentive to key employees to continue their
services for the Company and its subsidiaries, and provide a means through
which the Company and its subsidiaries may attract able persons to enter the
employ of the Company and/or its subsidiaries. Key employees are those
officers and employees of the Company and its subsidiaries whose performance
and responsibilities are considered to be influential to the success of the
Company. All key employees of the Company and its subsidiaries are eligible to
receive options under the Plan. As a part of the Additional Amendments, the
Board of Directors voted to change the name of the Plan from the SoBank 1993
Incentive Stock Option Plan to the Southside Bancshares, Inc. 1993 Incentive
Stock Option Plan. As of March 1, 1996, options for 199,750 shares of Common
Stock have been granted under the Plan.
The Plan is administered by the Incentive Stock Option Committee of the
Company (the "Committee"), which is presently comprised of Fred E. Bosworth,
Herbert C. Buie, and W. D. (Joe) Norton, each of whom is an outside director,
and a "disinterested person" within the meaning of Rule 16b-3, to administer
the Plan. The Committee has the authority to select, from time to time, the
key employees of the Company and its subsidiaries to whom options are to be
granted under the Plan, to determine the terms of which options are granted,
and to interpret the Plan. As part of the Additional Amendments, the Board of
Directors also approved an amendment to the Plan that generally clarifies the
status and role of the Committee in administering the Plan.
It is intended that only incentive stock options (within the meaning of
Section 422 of the Code) are to be granted under the Plan. All options under
the Plan are granted by the Committee and evidenced by stock option agreements
containing terms approved by the Committee, but not inconsistent with the Plan.
Additional options may be granted to persons to whom options have previously
been granted, and there are no restrictions (other than the limits of Code
Section 422) on the maximum or minimum number of shares of Common Stock covered
by options that may be granted to any one person. If an option granted under
the Plan expires or terminates or is cancelled without having been exercised,
the unpurchased shares subject thereto shall again be available for the
granting of options under the Plan.
Unless sooner terminated by action of the Board of Directors, the Plan
shall terminate on March 31, 2003, and no options may thereafter be granted
under the Plan. Options granted prior to March 31, 2003 will continue to be
effective after that date in accordance with their terms.
The Board of Directors as part of the Additional Amendments also
approved a change to the amendments and discontinuation provisions of the Plan,
which now provide as described below in this paragraph. The Committee may from
time to time amend, suspend or terminate the Plan or any option outstanding
thereunder; provided, however, that, no such amendment may, without the
approval by the shareholders of the Company, change the Plan in any manner that
would require shareholder approval pursuant to Rule 16b-3 or Section 422 of the
Code, as such rules may be amended from time to time; and provided, further
that, except to the extent provided for in any stock option agreement, no
amendment or suspension of the Plan or any stock option shall substantially
impair any option previously granted to any optionee without the consent of
such optionee, except as may be necessary for any incentive stock option to
comply with the requirements of the Code. Shareholders should be aware that
Rule 16b-3 currently provides that shareholder approval of an amendment to the
Plan will be necessary only if such amendment would (a) materially increase the
benefits accruing to participants under the Plan; (b) materially increase the
number of securities which may be issued under the Plan; or (c) materially
modify the requirements as to eligibility for participation in the Plan. There
are proposals currently before the Securities and Exchange Commission which
would amend Rule 16b-3 so as to eliminate the necessity of shareholder approval
for any amendments to employee benefit plans. If Rule 16b-3 is so amended,
amendments to the Plan would require shareholder approval only if Section 422
of the Code required such approval. Section 422 presently provides that
shareholder approval is only necessary when the number of shares eligible for
grants under an incentive stock option plan is increased or the class of
employees eligible to receive incentive stock options changes.
13
<PAGE> 17
The exercise price of each option granted under the Plan shall not be
less than one hundred percent (100%) of the fair market value per share of the
Common Stock on the date the option is granted. The option period may not be
more than ten (10) years from the date the option is granted. However, an
option may not be granted under the Plan to an employee who owns more than ten
percent (10%) of the outstanding Common Stock of the Company unless the option
price is at least one hundred ten percent (110%) of the fair market value of
the Common Stock at the date of grant and the option is not exercisable more
than five (5) years after it is granted. There is no limit on the fair market
value of incentive stock options that may be granted to an employee in any
calendar year, but no employee may be granted options that first become
exercisable during a calendar year for the purchase of stock with an aggregate
fair market value (determined as of the date of grant of each option) in excess
of $100,000. An option (or an installment thereof) counts against the annual
limitation only in the year it first becomes exercisable. Options may be
exercised in annual installments. All installments that become exercisable are
cumulative and may be exercised at any time after they become exercisable until
expiration of the option.
The Committee may provide for termination of options granted under the
Plan in case of termination of employment, dishonesty or any other reason the
Committee determines. Upon termination of the employment of an employee
holding an option under the Plan other than for cause, his option is
exercisable for a period of thirty (30) days after termination. Options may
not be transferred other than by will or the laws of descent and distribution.
If the optionee dies before the termination of his right to exercise his
option, the legal representatives of his estate may exercise his option for a
period of 180 days from the date of the optionee's death, provided that the
option is exercised prior to the date of its expiration, and the option may be
exercised only as to those shares the optionee could have purchased under the
option on the date of death.
An option agreement may provide that upon the dissolution or
liquidation of the Company, a merger or consolidation in which the Company is
not the surviving corporation, a sale or conveyance of all or substantially all
of its assets, or a transaction or series of related transactions in which
another corporation makes a tender offer or exchange offer for or becomes the
owner of fifty percent (50%) or more of the total combined voting power of all
classes of stock of the Company, the optionee may have the right to exercise
the option at any time prior to the termination of the option without regard to
the extent that option would have been exercisable under the cumulative
installment provisions of his or her option agreement.
FEDERAL INCOME TAX CONSEQUENCES
All stock options that qualify under the rules of Section 422 of the
Code will be entitled to "incentive stock option" treatment. To receive
incentive stock option treatment, an optionee must not dispose of the acquired
stock within two (2) years after the option is granted or within one (1) year
after exercise. In addition, the individual must have been an employee of the
Company for the entire time from the date of granting of the option until three
(3) months (one year if the employee is disabled) before the date of the
exercise. The requirements that the individual be an employee and the two (2)
year and one (1) year holding periods are waived in the case of death of the
employee. If all such requirements are met, no tax will be imposed upon
exercise of the option, and any gain upon sale of the stock will be entitled to
capital gain treatment.
If an employee does not meet the two (2) year and one (1) year holding
requirements specified above (a "disqualifying disposition"), but does meet all
other requirements, tax will be imposed at the time of sale of the stock, but
the employee's gain on exercise will be treated as ordinary income rather than
capital gain and the Company will get a corresponding deduction at the time of
sale. Any remaining gain on sale will be short-term or long-term capital gain,
depending on the holding period of the stock. If the amount realized on the
disqualifying disposition is less than the value at the date of exercise, the
amount includable in gross income, and the amount deductible by the Company,
will equal the excess of the amount realized on the sale or exchange over the
exercise price.
Exercise of an incentive stock option increases the optionee's
alternative minimum taxable income ("AMTI") by an amount equal, in general, to
the excess of the fair market value of the shares acquired under the option
over the option price. If there is a disqualifying disposition of the shares
that occurs in the same year, the maximum amount of AMT income is the gain on
the disposition of the shares. An increase in AMTI may give rise to an
14
<PAGE> 18
alternative minimum tax ("AMT") liability. The amount of AMT, if any, paid by
the optionee in respect of the option exercise may, subject to certain
limitations, be applied as a credit against regular income tax liability in
subsequent years.
An optionee's stock option agreement may permit payment for stock upon
the exercise of an incentive stock option to be made with other shares of the
Company's Common Stock. In such a case, the optionee should be aware that, in
general, if an employee uses stock acquired pursuant to the exercise of an
incentive stock option to acquire other stock in connection with the exercise
of an incentive stock option, it may result in ordinary income if the stock so
used has not met the minimum statutory holding period necessary for favorable
tax treatment as an incentive stock option.
If an optionee's stock option agreement provides that all or any
portion of an option granted under the Plan becomes immediately exercisable
because of a change in (i) the ownership or effective control of the Company or
(ii) the ownership of a substantial portion of the assets of the Company (a
"Change in Control") and the participant is an officer, shareholder or
highly-compensated employee of the Company, such acceleration could be subject
to the "golden parachute" provisions of Sections 280G and 4999 of the Code.
Such sections (a) disallow a Federal income tax deduction to the payor of an
"excess parachute payment," and (b) impose a non-deductible excise tax on the
recipient of such payment equal to twenty percent (20%) of the "excess
parachute payment." In general, a payment will be a "parachute payment" if (a)
it is contingent on a Change in Control and (b) together with all other such
payments to the recipient, it equals or exceeds three times his or her "base
amount" (i.e., the average of the employee's annual compensation during the
five (5) years immediately preceding the year in which the Change in Control
occurs). "Excess parachute payments" generally are parachute payments that
exceed the greater of (a) the recipient's base amount or (b) reasonable
compensation for personal services actually rendered by the employee. Whether
a payment will be a parachute payment or an excess parachute payment depends
upon facts and circumstances that cannot be known until payment is made.
The foregoing statements are based upon present federal income tax laws
and regulations and are subject to change if the tax laws and regulations, or
interpretations thereof, are changed.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE
PROPOSED AMENDMENT TO THE 1993 INCENTIVE STOCK OPTION PLAN.
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
(PROPOSAL 3)
The Board of Directors has selected Coopers & Lybrand L.L.P. as
independent accountants to audit the financial statements of the Corporation
for fiscal year 1996. Coopers & Lybrand L.L.P. has served as the Corporation's
independent accountants since August 1991. A representative of Coopers &
Lybrand L.L.P. will be in attendance at the Annual Meeting to answer questions
from shareholders. If this proposal to ratify the appointment of Coopers &
Lybrand L.L.P. is not approved, the Board of Directors will reconsider the
appointment of independent auditors.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT ACCOUNTANTS.
ANNUAL REPORT TO SHAREHOLDERS
Form 10-K is integrated into the Annual Report to Shareholders for the
fiscal year ended December 31, 1995, which accompanies this Proxy Statement.
Additional copies of Form 10-K are available at no expense to the shareholder
upon written request addressed to the Secretary of the Corporation, Post Office
Box 8444, Tyler, Texas 75711.
15
<PAGE> 19
SHAREHOLDER'S PROPOSALS
A shareholder must submit his proposal to the Secretary of the
Corporation on or before December 3, 1996, for consideration at the
Corporation's Annual Meeting to be held in 1997.
GENERAL
The Board of Directors knows of no other business other than that set
forth above to be transacted at the meeting, but if other matters requiring a
vote of the shareholders arise, the persons designated as proxies will vote the
shares of Common Stock represented by the proxies in accordance with their
judgment on such matters. If a shareholder specifies a different choice on the
proxy, his shares of Common Stock will be voted in accordance with the
specification so made.
/s/ B. G. HARTLEY
---------------------
Tyler, Texas B. G. Hartley,
April 2, 1996 Chairman of the Board
16
<PAGE> 20
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
SOUTHSIDE
MEASUREMENT PERIOD BANCSHARES, DOW JONES REGIONAL
(FISCAL YEAR COVERED) INC. EQUITY BANKS SOUTH
<S> <C> <C> <C>
1990 100 100 100
1991 122 132 181
1992 209 144 241
1993 299 158 248
1994 259 159 244
1995 368 221 375
</TABLE>
<PAGE> 21
- --------------------------------------------------------------------------------
PROXY SOUTHSIDE BANCSHARES, INC.
The undersigned hereby (a) acknowledges receipt of the Notice of Annual
Meeting of Shareholders of Southside Bancshares, Inc. (the "Corporation") to be
held at Southside Bank Operations Center, 1221 South Beckham Ave., Tyler, Texas,
on April 24, 1996 at 4:00 p.m., local time, and the Proxy Statement in
connection therewith, and (b) appoints Herbert C. Buie, Robbie N. Edmonson &
W.D. (Joe) Norton, and each of them, his proxies with full power of substitution
and revocation, for and in the name, place and stead of the undersigned, to vote
upon and act with respect to all of the shares of Common Stock of the
Corporation standing in the name of the undersigned or with respect to which the
undersigned is entitled to vote and act at said meeting or at any adjournment
thereof, and the undersigned directs that his proxy be voted as follows:
<TABLE>
<S> <C>
ELECTION OF THREE DIRECTOR NOMINEES / / FOR nominees listed below except as marked to the contrary below
TO SERVE UNTIL THE 1999 ANNUAL MEETING / / WITHHOLD AUTHORITY by writing nominee's name in space below
--------------------------------------------------------------------
Rollins Caldwell, William Sheehy and Murph Wilson
</TABLE>
APPROVAL OF THE PROPOSED AMENDMENTS TO THE 1993 INCENTIVE STOCK OPTION PLAN
DESCRIBED IN THE PROXY STATEMENT
/ / FOR / / AGAINST / / ABSTAIN
RATIFICATION OF THE SELECTION OF COOPERS & LYBRAND L.L.P. AS THE
CORPORATION'S INDEPENDENT AUDITORS
/ / FOR / / AGAINST / / ABSTAIN
APPROVAL OF SUCH OTHER BUSINESS AS MAY COME BEFORE THE MEETING OR ANY
ADJOURNMENTS THEREOF
/ / FOR / / AGAINST / / ABSTAIN
If more than one of the proxies above shall be present in person or by
substitute at the meeting or any adjournment thereof, the majority of said
proxies so present and voting, either in person or by substitute, shall exercise
all of the powers hereby given.
THIS PROXY WILL BE VOTED AS SPECIFIED ABOVE; IF NO SPECIFICATION IS MADE,
THIS PROXY WILL BE VOTED FOR EACH OF THE MATTERS SPECIFICALLY REFERRED TO ABOVE.
(continued on reverse side)
- --------------------------------------------------------------------------------
<PAGE> 22
- --------------------------------------------------------------------------------
The undersigned hereby revokes any proxy or proxies heretofore given to vote
upon or act with respect to such stock and hereby ratifies and confirms all that
said proxies, their substitutes, or any of them, may lawfully do by virtue
hereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE
CORPORATION.
Dated: , 1996
-------------------------------------
Signature
-------------------------------------
(Signature if held jointly)
Please date the proxy and sign your
name exactly as it appears hereon.
Where there is more than one owner,
each should sign. When signing as an
attorney, administrator, executor,
guardian or trustee, please add your
title as such. If executed by a
corporation, the proxy should be
signed by a duly authorized officer.
Please sign the proxy and return it
promptly whether or not you expect to
attend the meeting. You may
nevertheless vote in person if you do
attend.
- --------------------------------------------------------------------------------
