<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:
<TABLE>
<S> <C>
[ ] 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-11(c) or Rule 14a-12
</TABLE>
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] 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:
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(4) Date Filed:
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<PAGE> 2
SOUTHSIDE BANCSHARES, INC.
1201 South Beckham Avenue
Tyler, Texas 75701
March 25, 1999
Dear Shareholders:
On Wednesday, April 28, 1999, our shareholders will gather at Southside Bank
(Main Bank Lobby), 1201 South Beckham Avenue, Tyler, to consider several
propositions that are important to Southside Bancshares, Inc. (hereinafter the
"Corporation" or the "Company") and Southside Bank. The matters to be considered
at the meeting include:
1. Election of three Directors to serve until the 2002 Annual
Shareholders' Meeting;
2. Approval of an amendment to increase the number of shares
subject to the 1993 Incentive Stock Option Plan; and
3. 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 15, 1999, 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,
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 28, 1999
NOTICE IS HEREBY GIVEN THAT THE ANNUAL MEETING OF SHAREHOLDERS OF
SOUTHSIDE BANCSHARES, INC. WILL BE HELD AT SOUTHSIDE BANK (MAIN BANK LOBBY),
1201 SOUTH BECKHAM AVENUE, TYLER, TEXAS, ON APRIL 28, 1999 AT 4:30 P.M., LOCAL
TIME, TO CONSIDER AND VOTE UPON THE FOLLOWING MATTERS:
1. To elect three Directors to serve until the 2002 Annual
Shareholders' Meeting;
2. To approve an amendment to increase the number of shares
subject to the 1993 Incentive Stock Option Plan; and
3. To transact 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 15, 1999, 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
March 25, 1999
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 28, 1999
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 28, 1999, 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 March 25, 1999.
REVOCABILITY OF PROXY
IF YOUR PROXY IS EXECUTED AND RETURNED, IT WILL BE VOTED AS YOU DIRECT. IF NO
DIRECTION IS PROVIDED, THE PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND
THE PROXIES WILL USE THEIR DISCRETION WITH RESPECT TO VOTING ON ANY OTHER
MATTERS PRESENTED FOR VOTE. ADDITIONALLY, IF YOUR PROXY IS EXECUTED AND
RETURNED, IT WILL BE VOTED TO APPROVE THE MINUTES OF THE LAST SHAREHOLDERS'
MEETING. THIS VOTE 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 THAT
YOU WISH TO REVOKE YOUR PROXY 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 15, 1999, 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 2002 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 15, 1999, there were 3,500,399
shares of Common Stock outstanding and eligible to be voted on each matter.
<PAGE> 5
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.
INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers LLP served as the Company's independent public
accountants for the fiscal year ended December 31, 1998 and are serving in such
capacity for the current fiscal year. The appointment of independent public
accountants is made annually by the Board. The decision of the Board is based on
both the audit scope and estimated audit fees. Representatives of
PricewaterhouseCoopers LLP are expected to be present at the annual meeting and
will have the opportunity to make a statement if they desire to do so and to
respond to appropriate questions of shareholders.
ELECTION OF DIRECTORS
(PROPOSAL 1)
Three classes of directors, each of which is comprised of three directors, for a
total of nine directors, constitutes the full Board of Directors. One class of
directors is elected each year for a three-year term.
In 1998, Director Murph Wilson, a director of the Corporation and a member of
the Board of Southside Bank, passed away. Mr. Wilson was an invaluable member of
the Board of Directors serving both the bank and the Corporation faithfully
since 1960 and 1982, respectively. The Board of Directors, under Article 3.05 of
the amended and restated by-laws of Southside Bancshares, Inc. has the authority
to elect a new director to complete Mr. Wilson's term, but has not filled the
vacancy as of the date of the Annual Shareholders' Meeting. The three nominees
identified below are nominees for election at the Annual Meeting for a
three-year term expiring at the 2002 Annual Meeting of Shareholders. 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>
INITIAL SHARES
NOMINEES FOR DIRECTORS - ELECTION BENEFICIALLY PERCENT
TERMS TO EXPIRE AT THE 2002 ANNUAL MEETING TO BOARD OWNED OF
(12-31-98) CLASS
(1)
<S> <C> <C> <C>
ROLLINS CALDWELL (77) - Mr. Caldwell is a private investor who served as
President of Caldwell Welding Supply Company for 37 years. He currently is 1990 44,087 1.3%
involved in equipment and real estate leasing.
- ----------------------------------------------------------------------------------------------------------------------------
SAM DAWSON (51) - Mr. Dawson is President and Secretary of the Corporation,
having served in that capacity since 1998. He joined Southside Bank in 1974 and 1997 35,191 1.0%
currently is President and Chief Operating Officer of Southside Bank. He is a (2)
Director of East Texas Medical Center Hospital, Cancer Institute and ETMC
Rehabilitation Hospital. He is also a Director of the Tyler Area Chamber of
Commerce.
- ----------------------------------------------------------------------------------------------------------------------------
WILLIAM SHEEHY (58) - Mr. Sheehy has been a partner in the law firm of Wilson,
Sheehy, Knowles, Robertson and Cornelius since 1971, and a practicing attorney 1983 21,526 *
since 1964. Mr. Sheehy serves as Southside Bank's outside general counsel. (3)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
DIRECTORS CONTINUING UNTIL THE 2000 ANNUAL MEETING INITIAL SHARES
ELECTION BENEFICIALLY PERCENT
TO BOARD OWNED OF
(12-31-98) CLASS
(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HERBERT C. BUIE (68) - Mr. Buie has been Chief Executive Officer of Tyler
Packing Company, Inc., a meat processing firm since 1972. He serves on the 1988 130,658 3.7%
Boards of Directors of the Church of God (School of Theology), the (4)
University of Texas Health Center, the Development Board of Directors of
the University of Texas-Tyler, the East Texas Regional Food Bank, the
Salvation Army and Tyler Economic Development Council.
- ----------------------------------------------------------------------------------------------------------------------------
ROBBIE N. EDMONSON (66) - Mr. Edmonson is Vice Chairman of the Corporation,
having served in that capacity since 1998. He joined Southside Bank as 1982 37,747 1.1%
Vice President in 1968, and currently is Vice Chairman of the Board of (5)
Directors and Chief Administrative Officer of Southside Bank.
- ----------------------------------------------------------------------------------------------------------------------------
W. D. (JOE) NORTON (62) - Mr. Norton has been the owner of W. D. Norton,
Inc., dba Overhead Door, since 1988. He also owns Norton Equipment 1988 54,074 1.5%
Company. Mr. Norton served as President and was a principal shareholder of
Norton Companies of Texas, Inc., for 25 years. He is a Director of the
Tyler Area Chamber of Commerce.
- ----------------------------------------------------------------------------------------------------------------------------
DIRECTORS CONTINUING UNTIL THE 2001 ANNUAL MEETING
- ----------------------------------------------------------------------------------------------------------------------------
FRED E. BOSWORTH (81) - Mr. Bosworth was Chairman of the Board of Bosworth
& Associates, Inc., an independent insurance agency, from 1982, until his 1983 51,383 1.5%
retirement in November 1997. He has been associated with the insurance (6)
industry in various capacities since 1935.
- ----------------------------------------------------------------------------------------------------------------------------
B. G. HARTLEY (69) - Mr. Hartley became Chairman of the Board of the
Corporation in 1983, having previously served as President. He is also 1982 69,246 2.0%
Chairman of the Board and Chief Executive Officer of Southside Bank, having (7)
served as Southside Bank's Chief Executive Officer since its opening in
1960. He is a member of the American Bankers Association Board of
Directors, a member of the Board of Directors of East Texas Medical Center
Regional Healthcare Systems and past Chairman of Texas Taxpayers and
Research Association. He is also a Trustee of the R. W. Fair Foundation.
He is Chairman of the Texas Bankers General Agency, Inc. and a Trustee and
a member of the Executive Committee of Texas College.
- ----------------------------------------------------------------------------------------------------------------------------
NAMED EXECUTIVE OFFICERS
- ----------------------------------------------------------------------------------------------------------------------------
JERYL STORY (47) - Mr. Story is a Senior Executive Vice President of N/A 28,347 *
Southside Bank serving in that capacity since 1996. he joined Southside (8)
Bank in 1970 and is responsible for Loan Administration.
- ----------------------------------------------------------------------------------------------------------------------------
LEE GIBSON (42) - Mr. Gibson is an Executive Vice President of the N/A 19,267 *
Corporation and Southside Bank serving in those capacities since 1990. He (9)
joined Southside Bank in 1984 and is responsible for management of the
bank's investment portfolio.
- ----------------------------------------------------------------------------------------------------------------------------
ALL DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS OF THE CORPORATION AND ITS
SUBSIDIARY AS A GROUP (10 PERSONS). 491,526 14.0%
</TABLE>
- ----------
* LESS THAN 1%
<PAGE> 7
1) Unless otherwise indicated, each person has sole voting and investment
power with respect to the shares set forth opposite his name.
2) Mr. Dawson holds sole voting and investment power with respect to 4,807
shares and holds sole voting power, but not investment power, with
respect to 2,259 shares owned in the Corporation's ESOP Plan, in which
he is 100% vested. Also included in the total are 27,508 shares subject
to incentive stock options that are exercisable within 60 days of the
Record Date. Mr. Dawson's wife, Kay Dawson, owns 617 shares, of which
he disclaims all beneficial interest, but are included in the total.
3) Mr. Sheehy has sole voting and investment power with respect to 17,827
shares, owned individually. Mr. Sheehy owns 3,699 shares in an
individual retirement account and holds sole voting and investment
power.
4) Mr. Buie has sole voting and investment power with respect to 127,016
shares, owned individually. Also included in the total are 2,010 shares
owned by Mr. Buie's wife, Melvina Buie, and 828 shares owned by Mrs.
Buie as Trustee for Herbert Rex Buie and 804 shares owned by Mrs. Buie
as Trustee for Robin J. Buie. Mr. Buie disclaims beneficial ownership
of these 3,642 shares.
5) Mr. Edmonson holds sole voting and investment power with respect to
13,741 shares and holds voting power, but not investment power, with
respect to 3,310 shares, owned in the Corporation's ESOP Plan, in which
he is 100% vested. Also included in the total are 20,696 shares subject
to incentive stock options that are exercisable within 60 days of the
Record Date.
6) Mr. Bosworth owns 25,692 shares, individually, and holds a life estate
in 25,691 shares.
7) Mr. Hartley has sole voting and investment power with respect to 34,153
shares and is Trustee for Patrick Hartley with sole voting and
investment power with respect to 4,321 shares. He also holds sole
voting power, but not investment power, with respect to 4,279 shares
owned in the Corporation's ESOP Plan, in which he is 100% vested. Also
included in the total are 5,685 shares owned by Mr. Hartley's wife,
Billie Boyd Hartley, of which Mr. Hartley disclaims all beneficial
interest and 20,808 shares subject to incentive stock options that are
exercisable within 60 days of the Record Date.
8) Mr. Jeryl Story, Senior Executive Vice President of Southside
Bancshares, Inc., holds joint voting and investment power with his
wife, Kathlyn C. Story, with respect to 160 shares and sole voting, but
not investment power, with respect to 2,314 shares owned in the
Corporation's ESOP plan, in which he is 100% vested. Also included in
the total are 25,873 shares subject to incentive stock options that are
exercisable within 60 days of the Record Date, for a total 28,347
shares.
9) Lee Gibson, Executive Vice President of the Corporation and of
Southside Bank, holds sole voting power, but not investment power, with
respect to 2,045 shares owned in the Corporation's ESOP plan, in which
he is 100% vested. Also included in the total are 17,222 shares subject
to incentive stock options that are exercisable within 60 days of the
Record Date, for a total of 19,267 shares.
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 fourteen 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 two standing committees (the
Incentive Stock Option Committee and the Audit Committee), but its wholly owned
subsidiary, Southside Bank, has several standing committees to assist the Boards
of Directors of Southside Bank and 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:
<PAGE> 8
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 and Sheehy, 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, Edmonson, and Dawson who are
directors and officers of the Corporation and Southside Bank. Mr. Story is an
officer and director of Southside Bank and Mr. Gibson is an officer of the
Corporation and Southside Bank and is a director of Southside Bank. The
Executive Committee of Southside Bank meets weekly to discharge its
responsibilities, and met 52 times in 1998.
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. The Loan/Discount Committee of
Southside Bank meets weekly, and met 52 times in 1998.
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,
Hartley and Dawson, directors of the Corporation and Southside Bank, serve on
this committee. Messrs. Richard Babb and Michael Gollob are directors of
Southside Bank, and serve as members of the Trust Committee. Titus Jones and
Kathy Hayden, officers of Southside Bank, also serve on this committee. Messrs.
Babb, Bosworth and Gollob are not officers or employees of the Corporation or
Southside Bank. The Trust Committee meets monthly, and met 12 times in 1998.
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 (honorary). The Audit-Compliance and Electronic Data
Processing Committee of Southside Bank meets monthly, and met 12 times in 1998.
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. and
Paul Powell, who are directors of Southside Bank. None of the foregoing
individuals are officers or employees of the Corporation or Southside Bank.
Messrs. Hartley, Edmonson, Dawson, Gibson and Story serve on the committee with
George Hall, Titus Jones, Lonny Uzzell and Andy Wall, each an officer of
Southside Bank. The Investment/Asset-Liability Committee meets monthly, and met
12 times in 1998.
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 did
not meet in 1998. Stock options granted in 1998 were approved by the full Board
of Directors.
AUDIT COMMITTEE OF SOUTHSIDE BANCSHARES, INC.
The Audit Committee of Southside Bancshares, Inc. is responsible for monitoring
the internal audit functions, internal accounting procedures and controls,
reviewing the annual audit of the external auditor and ensuring compliance with
all appropriate statutes. The committee is comprised solely of outside directors
of Southside Bancshares, Inc. who are not officers or employees of the
Corporation of Southside Bank. The committee consists of Herbert C. Buie and W.
D. (Joe) Norton. The committee meets monthly.
<PAGE> 9
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 directors of Southside Bank, are paid
for the scheduled directors' meeting, the Annual Shareholders' Meeting and the
Annual Director Retainer.
The current director compensation schedule for Southside Bank is as
follows:
<TABLE>
<S> <C>
Director (monthly) $500 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 year
------------------------------------------------------------------------
Annual Shareholder Meeting $500 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 $100,000. The corporation does not pay its
executive officers a salary, therefore, this information relates to compensation
paid by Southside Bank. The named executive officers have not received awards of
restricted stock or securities underlying stock options or stock appreciation
rights or payouts under long term incentive plans during 1998, 1997 or 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------------------------------------------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS * OTHER ALL OTHER
(1) ANNUAL COMPEN-
COMPEN- SATIONS
SATION ($)(3)(4)
(5)
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
B. G. HARTLEY - 1998 $200,000 $60,000 $7,000 $54,952
Chairman of the Board of 1997 200,000 35,000 5,700 59,825
the Corporation; Chairman 1996 200,000 35,000 12,536 0
of the Board and Chief
Executive Officer of
Southside Bank
----------------------------------------------------------------------------------------------------
SAM DAWSON - President and 1998 $125,000 $40,625 $7,000 0
Secretary of the 1997 110,000 13,750 5,700 0
Corporation; President of 1996 95,000 11,875 9,909 0
Southside Bank
----------------------------------------------------------------------------------------------------
JERYL STORY - 1998 $115,000 $39,375 $7,000 0
Senior Executive Vice 1997 105,000 13,125 5,700 0
President of Southside Bank 1996 95,000 11,875 10,002 0
----------------------------------------------------------------------------------------------------
LEE GIBSON, CPA - 1998 $110,000 $38,750 $7,000 0
Executive Vice President 1997 100,000 12,500 5,700 0
of the Corporation; 1996 92,292 11,531 7,736 0
Executive Vice President
of Southside Bank
----------------------------------------------------------------------------------------------------
TITUS E. JONES - Executive 1998 $100,000 $12,500 $7,000 0
Vice President of 1997 100,000 12,500 5,700 0
Southside Bank 1996 100,000 12,500 10,587 0
----------------------------------------------------------------------------------------------------
H. ANDY WALL - Executive 1998 $100,000 $12,500 $7,000 0
Vice President of 1997 100,000 12,500 5,700 0
Southside Bank 1996 100,000 12,500 10,257 0
----------------------------------------------------------------------------------------------------
</TABLE>
* Each executive officer received director fees from Southside Bank in 1998,
1997 and 1996 of $7,000, $5,700 and $6,100 respectively. ESOP contributions
comprise the remaining amount.
<PAGE> 10
(1) Includes amounts deferred at the officer's election pursuant to the
Company's 401(k) plan.
(2) The Company did not grant any SARs in fiscal 1998.
(3) Includes amounts paid under the Company's Retirement Benefit
Restoration Plan.
(4) Excludes any benefits paid out of the Company's Long-Term Disability
Income Plan.
(5) Southside Bank has a deferred compensation agreement with its executive
officers that provides for payment of an amount over a maximum period
of fifteen years. 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, unless change of control
provisions are triggered. If a change of control does occur the
definition of "good reason" changes, under certain conditions, to the
same as retirement and benefits are effectuated immediately. The
deferred compensation agreements are as follows: Mr. Hartley - $800,000
payable over 15 years; Mr. Edmonson - $360,000 payable over 10 years;
Mr. Dawson - $500,000 payable over 10 years; Mr. Story and Mr. Gibson
each $400,000 payable over 10 years and Mr. Jones and Mr. Wall $300,000
payable over 10 years. The present value of the future benefits
assuming a discount rate of 7% is as follows: B. G. Hartley $676,000;
Robbie N. Edmonson $258,000; Sam Dawson $42,000; Jeryl Story $23,000,
Lee Gibson $15,000, Titus Jones $33,000 and Andy Wall $54,000.
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 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 executive compensation recommendations. The recommendations
are presented to the Board of Directors of Southside Bank for final approval.
During 1998, Management and the Executive Committee kept abreast of current
executive compensation issues, trends and levels as a result of financial
industry contacts and peer group information. The Chief Executive Officer, B. G.
Hartley, initially developed and presented executive compensation
recommendations to the Executive Committee with respect to all Executive
Officers. Salaries were approved in January and bonuses were approved in June
and December. The Executive Committee acted upon the recommendations and then
recommended 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 was acted upon.
In determining the proper levels of executive compensation, the Executive
Committee considered the financial health of the Corporation and Southside Bank.
As a result, executive compensation was affected by the financial performance of
the Corporation and Southside Bank, although specific correlation to financial
performance was not established either for a group or an individual and in the
final analysis salaries were a subjective determination of the Board of
Directors.
The total return on the Corporation's Common Stock was not a major factor in
determining executive compensation. In April, 1998, the Corporation's common
stock was listed on the Nasdaq National Market under the symbol SBSI. Since that
date the Corporation's stock has had two market makers that provided additional
liquidity for the shareholders, but the stock is thinly traded and trades at
discounted multiples relative to the bank market nationwide. As a result, the
Board of Directors did not used the Corporation's stock performance as a major
ingredient in determining the CEO's performance level or compensation in 1998.
The Board of Directors approved an exchange program, pursuant to which all
employees holding options under the Corporation's 1993 Incentive Stock Option
Plan would be given the opportunity to surrender their existing options for new
options at a new exercise price. For a discussion of the exchange and repricing
of the options see "Ten Year Option/SAR Repricing."
CHIEF EXECUTIVE OFFICER COMPENSATION
The Company's Board of Directors considered 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 in
<PAGE> 11
1998. 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,
the annual salary and bonus of the Chief Executive Officer. 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.
<TABLE>
<S> <C> <C>
FRED E. BOSWORTH SAM DAWSON JOE NORTON
HERBERT C. BUIE ROBBIE N. EDMONSON WILLIAM SHEEHY
ROLLINS CALDWELL B. G. HARTLEY
</TABLE>
COMPARATIVE OF FIVE YEAR TOTAL RETURN FOR
THE YEAR ENDED DECEMBER 31, 1998
[GRAPH]
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Southside Bancshares, Inc. $100 $149 $193 $196 $216
- ---------------------------------------------------------------------------------------------------
Dow Jones Banks 100 160 227 337 365
- ---------------------------------------------------------------------------------------------------
Regional Banks South 100 154 214 317 356
- ---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 12
1993 INCENTIVE STOCK OPTION PLAN
The purpose of the following table is to report grants of stock options to the
Executive Officers named in the Summary Compensation Table during 1998. No stock
appreciation rights have been granted. Stock options were granted in 1993, 1995,
1996, 1997 and 1998 under the 1993 Incentive Stock Option Plan. None were
granted in 1994.
<TABLE>
<CAPTION>
========================================================================================================================
OPTION GRANTS IN LAST FISCAL YEAR
========================================================================================================================
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR OPTION
TERM (1)
- ------------------------------------------------------------------------------------------------------------------------
PERCENT OF
NAME OPTIONS TOTAL OPTIONS EXERCISE OR EXPIRATION AT 5% AT 10%
GRANTED GRANTED BASE PRICE DATE ANNUAL ANNUAL
(3) TO EMPLOYEES IN ($/SH) (3) GROWTH GROWTH
FISCAL YEAR (2)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
B. G. HARTLEY 1,400 1.89% $18.25 10-15-08 $16,086 $40,726
- ------------------------------------------------------------------------------------------------------------------------
SAM DAWSON 1,400 1.89% $18.25 10-15-08 $16,086 $40,726
- ------------------------------------------------------------------------------------------------------------------------
JERYL STORY 1,400 1.89% $18.25 10-15-08 $16,086 $40,726
- ------------------------------------------------------------------------------------------------------------------------
LEE GIBSON 1,400 1.89% $18.25 10-15-08 $16,086 $40,726
- ------------------------------------------------------------------------------------------------------------------------
TITUS JONES 3,000 4.05% $18.25 10-15-08 $36,194 $87,270
- ------------------------------------------------------------------------------------------------------------------------
H. ANDY WALL 0 n/a n/a n/a n/a n/a
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
1) 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.
2) Options are granted at fair market value on the date of grant. For a
discussion of the repricing of options under the Corporation's 1999
Incentive Stock Option Plan see "Ten Year Option/SAR Repricing."
3) One-fifth of the options vest annually beginning in 1999. The options are
scheduled to expire in October, 2008. 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.
The following table discloses for each of the Executive Officers named in
the Summary Compensation Table the values of their options at December 31,
1998.
<PAGE> 13
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT DECEMBER 31, 1998 DECEMBER 31, 1998
(1)
- ------------------------------------------------------------------------------------------------------------------------
NAME SHARES VALUE EXERCIS- UNEXERCIS- EXERCIS- UNEXERCISABLE
ACQUIRED ON REALIZED (2) ABLE ABLE ABLE
EXERCISE (#)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
B. G. HARTLEY 0 0 18,492 17,528 $181,668 $102,631
- ------------------------------------------------------------------------------------------------------------------------
SAM DAWSON 0 0 25,192 17,528 $272,319 $102,631
- ------------------------------------------------------------------------------------------------------------------------
JERYL STORY 500 $9,511 24,557 17,087 $264,841 $101,131
- ------------------------------------------------------------------------------------------------------------------------
LEE GIBSON 3,050 $40,096 14,906 17,087 $134,263 $101,131
- ------------------------------------------------------------------------------------------------------------------------
TITUS JONES 6,500 $100,225 15,282 17,806 $141,589 $100,136
- ------------------------------------------------------------------------------------------------------------------------
ANDY WALL 1,000 $12,230 22,488 13,923 $241,315 $ 93,384
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on $19.50 per share of Common Stock, which was the fair market
value of a share of Common Stock on December 31, 1998.
(2) The "value realized"--represents the difference between the exercise
price of the option shares and the market price of the option shares on
the date the option was exercised, without tax considerations.
TEN YEAR OPTION/SAR REPRICING
Incentive options were granted on May 7, 1998 at a price of $26.375.
This action was taken shortly after the Corporation's stock was listed on the
Nasdaq National Market. During that time period the stock price moved sharply up
from $18.00 a share to $27.375 per share on June 3, and then abruptly reversed
course. Since over 88% of the options were awarded to non-executive officers,
the Board and Management believed it was in the best interest of the bank to
reprice the options and avoid the considerable damage that could be done to
employee morale as a result of market action. The Board also noted that this
decline came while the Corporation's financial health was strong, and the
decline in the stock price appeared to be unwarranted based on earnings. On
October 15, 1998 the Board authorized cancellation of the May 7 grants and
granted the same number of shares to the group at the market price of $18.25 per
share.
TEN YEAR OPTION/SAR REPRICING
<TABLE>
<CAPTION>
NAME DATE SECURITIES MARKET EXERCISE PRICE NEW LENGTH OF
UNDERLYING PRICE OF AT TIME OF EXERCISE ORIGINAL TERM
OPTIONS/SARS STOCK AT REPRICING OR PRICE ($) REMAINING AT DATE
REPRICED OR TIME OF AMENDMENT($) OF REPRICING OR
AMENDED (#) REPRICING AMENDMENT
OR
AMEND-
MENT($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
B. G. HARTLEY 10-15-98 1,400 18.25 26.375 18.25 10 YEARS
- ------------------------------------------------------------------------------------------------------------------------
SAM DAWSON 10-15-98 1,400 18.25 26.375 18.25 10 YEARS
- ------------------------------------------------------------------------------------------------------------------------
JERYL STORY 10-15-98 1,400 18.25 26.375 18.25 10 YEARS
- ------------------------------------------------------------------------------------------------------------------------
LEE GIBSON 10-15-98 1,400 18.25 26.375 18.25 10 YEARS
- ------------------------------------------------------------------------------------------------------------------------
TITUS JONES 10-15-98 3,000 18.25 26.375 18.25 10 YEARS
- ------------------------------------------------------------------------------------------------------------------------
H. ANDY WALL N/A 0 N/A N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 14
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 including bonus 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, 1998, for each
person named in the current compensation table on the preceding page are as
follows: B. G. Hartley - 38 years (38 years at age 68); Robbie N. Edmonson - 30
years (30 years at age 66); Sam Dawson - 24 years (38 years at age 65); Jeryl
Story - 19 years (37 years at age 65), Lee Gibson- 14 years (37 years at age
65), Titus Jones - 33 years (44 years at age 65) and Andy Wall - 30 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,
1998, 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 AVERAGE YEARS OF CREDITED SERVICE AT RETIREMENT
----------------------------------------------------------------------
ANNUAL COMPENSATION 15 20 25 30 35
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$130,000 $47,735 $63,647 $73,059 $82,471 $91,883
-----------------------------------------------------------------------------------------------------------
155,000 57,485 76,647 88,059 99,471 110,883
-----------------------------------------------------------------------------------------------------------
180,000 67,235 89,647 103,059 116,471 129,883
-----------------------------------------------------------------------------------------------------------
205,000 76,985 102,647 118,059 133,471 148,883
-----------------------------------------------------------------------------------------------------------
225,000 84,785 113,047 130,059 147,071 164,083
-----------------------------------------------------------------------------------------------------------
250,000 94,535 126,047 145,059 164,071 183,083
-----------------------------------------------------------------------------------------------------------
300,000 114,035 152,047 175,059 198,071 221,083
-----------------------------------------------------------------------------------------------------------
</TABLE>
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 1999 under Section 415 of the Internal Revenue Code
(IRC) of $130,000. In addition, compensation that can be considered by the plan
is limited during 1998 to $160,000, 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. In accordance with the
provisions in the defined benefit plan, which is available to all employees age
65 that choose to continue employment, Messrs. Hartley and Edmonson received
benefits earned under the plan in 1998 of $151,061 and $81,628, respectively.
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.
The law firm of Wilson, Sheehy, Knowles, Robertson and Cornelius, of which
Director William Sheehy is a partner, 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
$176,000 for services rendered in calendar year 1998 some of which was
reimbursed by bank customers.
<PAGE> 15
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Corporation believes its Executive Officers and Directors have complied with
all applicable Section 16(a) of the Securities Exchange Act of 1934 filing
requirements on a timely basis.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Corporation did not have a Compensation Committee of the Board of Directors
during 1998. In addition, the Corporation did not pay any compensation to its
Executive Officers during 1998 (see "Executive Compensation"). The compensation
of the Executive Officers of Southside Bank is determined by the Executive
Committee of Southside Bank and the Board of Directors of Southside Bank, which
is comprised of all of the directors of the Corporation, including Messrs.
Hartley, Dawson and Edmonson (who are each Executive Officers of Southside Bank
and the Corporation).
For information concerning transactions by the Corporation and Southside Bank
with certain members of the Executive Committee of Southside Bank, please see
"Transactions with Directors, Officers and Associates."
PROPOSED AMENDMENT TO INCREASE THE NUMBER OF
SHARES SUBJECT TO THE 1993 INCENTIVE STOCK OPTION PLAN
(PROPOSAL 2)
GENERAL
On March 11, 1999 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 405,169 (which number has been
appropriately adjusted to account for the past stock dividends effected by the
Company) to 600,000 shares. The material terms of the Additional Amendment are
briefly described below under the caption "--Description of the Plan." Upon
shareholder approval of the Amendment, the Amendment 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 600,000 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 350,000 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 194,831 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 qualification
<PAGE> 16
requirements of Section 401 of the Internal Revenue Code (the "Code"), nor is
the Plan subject to the provisions of ERISA.
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 of March 15, 1999, options for 399,252 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. 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.
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.
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
<PAGE> 17
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 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 28OG 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
<PAGE> 18
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. A MAJORITY OF VOTES
ENTITLED TO BE CAST AT A MEETING WHICH CONSTITUTES A QUORUM IS NECESSARY TO
APPROVE THE AMENDMENT.
ANNUAL REPORT TO SHAREHOLDERS
THE CORPORATION'S ANNUAL REPORT ON FORM 10-K, AS INTEGRATED INTO THE ANNUAL
REPORT TO SHAREHOLDERS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998, ACCOMPANIES
THIS PROXY STATEMENT. THE ANNUAL REPORT DOES NOT CONSTITUTE OUTSIDE SOLICITATION
MATERIALS. ADDITIONAL COPIES OF FORM 10-K ARE AVAILABLE AT NO EXPENSE AND
EXHIBITS TO THE FORM 10-K ARE AVAILABLE FOR A COPYING EXPENSE, TO ANY
SHAREHOLDER UPON WRITTEN REQUEST ADDRESSED TO THE SECRETARY OF THE CORPORATION,
POST OFFICE BOX 8444, TYLER, TEXAS 75711.
SHAREHOLDER'S PROPOSALS
Any shareholder wishing to have a proposal considered for inclusion in the Board
of Directors' proxy solicitation materials for the 2000 Annual Meeting must, in
addition to other applicable requirements, set forth their proposal in writing
and file it with the Secretary of the Corporation on or before January 28, 2000.
The Board of Directors will review any proposals received by that date and will
determine whether applicable requirements have been met for including the
proposal in the 2000 proxy solicitation materials. Any shareholder wishing to
have a proposal considered for the 2000 Annual Meeting but who does not submit
the proposal for inclusion in the Board of Directors' proxy must submit the
proposal as set forth above on or before February 9, 2000. If the proposal is
not received by that date, the persons named as proxies in the proxy
solicitation materials will use their discretion in voting the proxies when
those matters are raised at the meeting.
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
---------------------------------------------------------
B. G. Hartley,
Chairman of the Board
Tyler, Texas
March 25, 1999
<PAGE> 19
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 (Main Bank Lobby), 1201 South Beckham Ave., Tyler, Texas,
on April 28, 1999 at 4:30 p.m., local time, and the Proxy Statement in
connection therewith, and (b) appoints Herbert C. Buie, Robbie N. Edmonson and
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:
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<S> <C>
ELECTION OF THREE DIRECTOR NOMINEES [ ] FOR nominees listed below except as marked to the contrary below
TO SERVE UNTIL THE 2002 ANNUAL MEETING [ ] WITHHOLD AUTHORITY by writing nominee's name in space below
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Rollins Caldwell, Sam Dawson, and William Sheehy
Approval of an amendment to increase the number of shares subject to the 1993 Incentive Stock Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
APPROVAL OF SUCH OTHER BUSINESS AS MAY COME BEFORE THE MEETING OR ANY ADJOURNMENTS THEREOF
[ ] FOR [ ] AGAINST [ ] ABSTAIN
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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)
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: , 1999
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Signature
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(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.
