<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 1998.
REGISTRATION NO. -
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
GUARANTY BANCSHARES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 6711 75-1656431
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NO.)
OF INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
DEVRY GARRETT
GENERAL COUNSEL
100 WEST ARKANSAS 100 WEST ARKANSAS
MOUNT PLEASANT, TEXAS 75456 MOUNT PLEASANT, TEXAS 75456
(903) 572-9881 (903) 572-9881
(ADDRESS, INCLUDING ZIP CODE, AND (NAME, ADDRESS, INCLUDING ZIP CODE,
TELEPHONE NUMBER, AND TELEPHONE
INCLUDING AREA CODE, OF REGISTRANT'S NUMBER, INCLUDING AREA CODE, OF AGENT
PRINCIPAL EXECUTIVE OFFICES) FOR SERVICE)
----------------
COPIES TO:
WILLIAM T. LUEDKE IV, ESQ. HERBERT H. DAVIS, III, ESQ.
BRACEWELL & PATTERSON, L.L.P. ROTHGERBER JOHNSON & LYONS LLP
2900 SOUTH TOWER PENNZOIL PLACE ONE TABOR CENTER
HOUSTON, TEXAS 77002-2781 1200 SEVENTEENTH STREET, SUITE 3000
DENVER, COLORADO 80202-5839
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If any of the Securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $1.00 par
value.................. 350,000 $15.25 $5,337,500 $1,617
- -----------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 31, 1998
PROSPECTUS
350,000 SHARES
LOGO
GUARANTY BANCSHARES, INC.
COMMON STOCK
-------------------
All 350,000 shares of Common Stock (the "Common Stock") offered hereby (the
"Offering") are being sold by Guaranty Bancshares, Inc. (the "Company"). Prior
to the Offering, there has been no established public market for the Common
Stock. The initial public offering price will be determined by negotiations
between the Company and Hoefer & Arnett, Incorporated (the "Underwriter"). It
is estimated that the initial public offering price will be in the range of
$13.25 to $15.25 per share. See "Underwriting." Application has been made to
have the shares of Common Stock approved for quotation on The Nasdaq Stock
Market's National Market ("Nasdaq/National Market") under the symbol "GNTY."
The Company intends to use the proceeds of the Offering to redeem its
outstanding preferred stock and for general working capital purposes,
including the support of anticipated balance sheet growth. See "Use of
Proceeds."
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT
ACCOUNTS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
BANK INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
SEE "RISK FACTORS" ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.............................. $ $ $
- --------------------------------------------------------------------------------
Total.................................. $ $ $
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting offering expenses payable by the Company, estimated at
$250,000.
The shares of Common Stock to be distributed to the public are offered by
the Underwriter, subject to prior sale, when, as and if received and accepted
by the Underwriter, subject to approval of certain legal matters by counsel
for the Underwriter and certain other conditions. The Underwriter reserves the
right to withdraw, cancel or modify such offer and to reject orders in whole
or in part. It is expected that delivery of the certificates for the shares of
Common Stock will be made against payment therefor in Dallas, Texas on or
about , 1998.
-------------------
HOEFER & ARNETT
INCORPORATED
The date of this Prospectus is , 1998
<PAGE>
[MAP OF TEXAS LOCATIONS]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY EFFECT TRANSACTIONS WHICH
STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE
THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE
EFFECTED ON THE NASDAQ/NATIONAL MARKET OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OFFERED
HEREBY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING THE MARKET PRICE OF THE
COMMON STOCK, THE PURCHASE OF COMMON STOCK TO COVER SYNDICATE SHORT POSITIONS
AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary does not purport to be complete, and is qualified in
its entirety by reference to the more detailed information and financial
statements (including the notes thereto) appearing elsewhere in this
Prospectus. Unless otherwise indicated, all share and per share information has
been adjusted to give effect to a 7 for 1 common stock split effected in the
form of a stock dividend issued to shareholders of record as of March 24, 1998.
THE COMPANY
Guaranty Bancshares, Inc. (the "Company") is a bank holding company
headquartered in Mount Pleasant, Texas, which is located in Northeast Texas.
The Company derives substantially all of its revenue and income from the
operation of its bank subsidiary, Guaranty Bank (the "Bank"), a Texas state
bank with seven banking offices located in the Texas communities of Mount
Pleasant (two offices), Bogata, Deport, Paris, Talco and Texarkana. The Company
was formed in 1980 as a holding company for the Bank, which was chartered in
1913, and for Talco State Bank, which was chartered in 1912 and merged into the
Bank in 1997. As of December 31, 1997, the Company had total assets of $244.2
million, gross loans of $157.4 million, total deposits of $223.0 million and
total shareholders' equity of $18.3 million. Since 1995, the Company's total
assets have grown at an average annual rate of 12.5% and its deposits have
grown at a 13.0% average annual rate.
The Company's primary market lies approximately 130 miles east of the Dallas-
Fort Worth metroplex in an area extending from the Company's headquarters in
Mount Pleasant, north and west to Paris, Texas and east to Texarkana on the
Texas-Arkansas border. Management of the Company believes that the banking
market in this portion of Texas is fragmented, with many small community banks
and few mid-sized competitors. Management believes that this fragmentation
provides the Company with excellent growth opportunities through acquisitions
and de novo branches.
The Company has grown through a combination of internal growth, the
acquisition of community banks and the opening of new community banking
offices. In 1992, the Company established its Deport location by acquiring
certain assets and liabilities of the First National Bank of Deport (the
"Deport Bank"). The Deport Bank also had a branch in Paris which the Company
acquired. To enhance its expansion in the Paris community, the Company
constructed a new facility to serve as its Paris location. In 1993, the Company
purchased a commercial bank in Bogata and in 1996 opened a retail banking
facility in Mount Pleasant. In 1997, the Company merged Talco State Bank into
the Bank and opened a full-service location in Texarkana. Texarkana is the
economic center of a trade area encompassing approximately 123,000 people.
Management of the Company believes that this trade area provides an opportunity
for strong future growth in loans and deposits. The upgrading of Highway 59, a
main artery to Texarkana which will serve as a NAFTA highway, is expected to
further enhance growth in this area.
In addition to balance sheet growth, the Company has focused on improving
profitability by taking the following initiatives:
. Improving Net Interest Margin--Management is seeking to gather
noninterest-bearing deposits in order to reduce its cost of funds.
During 1997, demand deposits grew approximately 20%. Additionally, the
Company plans to increase its loan to deposit ratio over time from 70%
currently to approximately 75%.
. Increasing Noninterest Income--Management's increased emphasis on fee-
based services has resulted in noninterest income growth in the areas of
check cashing, ATM fees, appraisal fees and wire transfer charges. Also,
a "free checking" program initiated during 1995 significantly increased
deposit totals and thereby created additional fee income from
insufficient funds and other charges. Additional sources of revenue
include BSC Securities, L.C. ("BSC"), a joint venture with a group of
other banks which provides brokerage services, and the Company's Trust
Department, which offers a complete line of trust services and held
$18.2 million in customer funds at December 31, 1997.
3
<PAGE>
. Enhancing Technology--The Company has made significant investments in
new technologies designed to heighten competitiveness, increase
efficiency and improve product delivery and customer service.
Enhancements include check imaging, credit file imaging, optical report
archival and an automated voice response system. Among other things, the
Company is currently exploring an Internet banking platform. Management
believes that the Company is a leader in its markets with respect to
communications and electronic convenience to its customers.
. Improving Efficiency--For the year ended December 31, 1997, the
Company's efficiency ratio was 71.09%. Management believes that this
ratio will improve in the future as the Company's de novo branches
mature and begin to realize economies of scale. Technology enhancements
and the expected growth in the Texarkana market should also help to
increase efficiency.
The Company adheres to a community banking philosophy focused on servicing
and investing in the communities that comprise its market. The Company
emphasizes service-oriented, convenient, relationship banking, featuring
individualized, quality customer service, extended banking hours and accessible
locations. The Company makes a substantial investment in its "human capital" by
hiring talented people and training them to satisfy customer needs and develop
additional business relationships. Representatives of the Company actively
participate in numerous important civic and public service organizations in the
Company's communities, enabling them to better ascertain and respond to
customer needs and access an active business referral network. Among the
Company's officers, there is a substantial historical continuity of service
with the Company, which has facilitated the development of long-term customer
relationships. The Company endeavors to foster and participate in the success
of the community's individuals and businesses by making local loans funded by
local core deposits.
Among the traditional commercial and consumer products and services offered
by community banks, the Company has developed an expertise in servicing the
needs of the small, community-oriented businesses in its market area. Although
the Company is not a participant in the Small Business Administration
guaranteed loan program, the Small Business Administration honored the Company
as the top rated small business lender in the State of Texas in 1994, 1995 and
1996. The remainder of the Company's loan portfolio is diversified among short-
term residential financing, agricultural lending and traditional consumer
financing.
The Bank owns interests in three entities which complement the Company's
business: (i) Guaranty Leasing Company ("Guaranty Leasing"), which finances
equipment leases and has engaged in certain transactions which have resulted in
the recognition of federal income tax losses deductible by the Company, (ii)
BSC, which provides brokerage services and (iii) Independent Bank Services,
L.C. ("IBS"), which performs compliance, loan review, internal audit and
electronic data processing audit functions. See "Risk Factors--Leveraged
Leasing Activities" and "The Company--Leveraged Leasing Activities."
The Company's guiding strategy is to increase shareholder value by providing
customers individualized, responsive, quality service and to augment its
existing market share and increase loans and deposits through additional
expansion opportunities in Northeast Texas while stressing efficiency and
maximizing profitability. The Company believes that by remaining responsive to
customer needs and offering new products, the Company can continue to attract
customers from and compete effectively with larger financial institutions.
4
<PAGE>
THE OFFERING
Common Stock offered by
the Company.............. 350,000 shares
Common Stock to be
outstanding after the
Offering................. 2,898,280 shares
Use of Proceeds........... The estimated net proceeds of the Offering
(approximately $4.4 million assuming an offering
price of $14.25 per share, the midpoint of the
estimated offering range) will be used to redeem
outstanding preferred stock and for general working
capital purposes, including the support of
anticipated balance sheet growth.
Risk Factors.............. See "Risk Factors" and "Dilution" for a discussion
of certain factors that should be considered by
each prospective investor.
Nasdaq/National Market
Symbol................... "GNTY"
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data of the Company is derived
from the Selected Consolidated Financial Data appearing elsewhere in this
Prospectus, and should be read in conjunction with the Consolidated Financial
Statements of the Company and the Notes thereto and the information contained
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income.......... $ 8,817 $ 7,932 $ 7,876 $ 7,188 $ 7,096
Provision for loan losses.... 355 206 149 298 89
-------- -------- -------- -------- --------
Net interest income after
provision for loan losses... 8,462 7,726 7,727 6,890 7,007
Noninterest income........... 1,657 2,390 1,440 1,582 1,459
Noninterest expense.......... 7,446 7,073 6,795 6,700 6,306
-------- -------- -------- -------- --------
Earnings before taxes...... 2,673 3,043 2,372 1,772 2,160
Provision for income tax
expense..................... 273 165 261 245 491
-------- -------- -------- -------- --------
Net earnings................. 2,400 2,878 2,111 1,527 1,669
Preferred stock dividend..... 74 74 74 74 74
-------- -------- -------- -------- --------
Net earnings available to
common shareholders......... $ 2,326 $ 2,804 $ 2,037 $ 1,453 $ 1,595
======== ======== ======== ======== ========
COMMON SHARE DATA(1):
Net earnings (basic and
diluted)(2)................. $ 0.91 $ 1.08 $ 0.75 $ 0.53 $ 0.60
Book value................... 6.84 6.06 5.32 4.69 4.40
Tangible book value.......... 6.74 5.95 5.21 4.57 4.27
Cash dividends............... 0.22 0.21 0.19 0.16 0.14
Dividend payout ratio........ 24.24% 18.81% 24.79% 29.26% 23.90%
Weighted average common
shares outstanding (in
thousands).................. 2,547 2,592 2,724 2,721 2,668
Period end shares outstanding
(in thousands).............. 2,548 2,545 2,723 2,723 2,711
BALANCE SHEET DATA:
Total assets................. $244,157 $213,932 $192,935 $187,547 $174,612
Securities................... 58,139 30,382 31,200 30,321 27,666
Loans........................ 157,395 139,289 126,287 124,307 116,506
Allowance for loan losses.... 1,129 1,055 1,005 1,012 1,078
Total deposits............... 222,961 194,855 174,717 170,884 158,873
Total common shareholders'
equity...................... 17,426 15,423 14,499 12,782 11,917
AVERAGE BALANCE SHEET DATA:
Total assets................. $228,782 $203,056 $190,782 $180,648 $172,225
Securities................... 50,089 29,520 30,770 26,030 29,761
Loans........................ 146,061 132,400 124,209 121,078 109,940
Allowance for loan losses.... 1,070 1,029 968 1,067 1,113
Total deposits............... 208,401 183,896 172,964 164,250 157,449
Total common shareholders'
equity...................... 16,508 15,164 13,861 12,559 11,329
PERFORMANCE RATIOS:
Return on average assets..... 1.05% 1.42% 1.11% 0.85% 0.97%
Return on average common
equity...................... 14.09 18.49 14.70 11.57 14.08
Net interest margin.......... 4.24 4.32 4.59 4.41 4.57
Efficiency ratio(3).......... 71.09 68.52 72.94 76.40 73.71
</TABLE>
(Table continued on following page)
6
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- --------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
ASSET QUALITY RATIOS(4):
Nonperforming assets to
total loans and other real
estate..................... 1.22% 1.49% 1.58% 2.67% 2.53%
Net loan charge-offs to
average loans.............. 0.19 0.12 0.13 0.30 0.12
Allowance for loan losses to
total loans................ 0.72 0.76 0.80 0.81 0.93
Allowance for loan losses to
nonperforming loans(5)..... 92.85 93.12 100.60 45.28 76.24
CAPITAL RATIOS(4):
Leverage ratio.............. 7.87% 7.87% 7.88% 7.35% 7.20%
Average shareholders' equity
to average total assets.... 7.58 7.88 7.70 7.41 7.06
Tier 1 risk-based capital
ratio...................... 11.16 11.07 12.11 11.13 10.90
Total risk-based capital
ratio...................... 11.86 11.80 12.92 11.98 11.85
</TABLE>
- --------
(1) Adjusted for a seven for one stock split.
(2) Net earnings per share is based upon the weighted average number of common
shares outstanding during the period. The Company has no dilutive potential
common shares.
(3) Calculated by dividing total noninterest expenses, excluding securities
losses, by net interest income plus noninterest income.
(4) At period end, except net loan charge-offs to average loans and average
shareholders' equity to average total assets.
(5) Nonperforming loans consist of nonaccrual loans, loans contractually past
due 90 days or more and restructured loans.
7
<PAGE>
RISK FACTORS
An investment in the Common Stock offered hereby involves certain risks. In
addition to the other information contained or incorporated by reference
herein, the following factors should be considered carefully in evaluating the
Company before purchasing the Common Stock offered hereby. Information
contained in this Prospectus contains "forward-looking statements" which can
be identified by the use of forward-looking terminology such as "believes,"
"expects," "will," "should," "projected," "contemplated" or "anticipates" or
the negative thereof or other variations thereon or comparable terminology. No
assurance can be given that the future results covered by the forward-looking
statements will be achieved. The following factors could cause actual
experience to vary materially from the future results covered in such forward-
looking statements. Other factors, such as the general state of the economy,
could also cause actual experience to vary materially from the matters covered
in such forward-looking statements.
LEVERAGED LEASING ACTIVITIES
Through Guaranty Leasing, the Company has invested in several equipment
leasing transactions through TransCapital Corporation ("TransCapital") and its
related entities that involve a structure sometimes referred to as "lease
strips" or "stripping transactions." These transactions create federal income
tax losses deductible by the Company, and largely as a result of these tax
benefits, the Company's effective federal income tax rates in 1997, 1996 and
1995 were 10.21%, 5.42% and 11.00%, respectively. The anticipated tax benefits
related to the leasing transactions begin to diminish in 1999 and will not be
available after 2001. As a result, the Company may be unable to achieve the
net income levels generated in years in which these benefits were available.
From time to time the Internal Revenue Service (the "Service") has challenged
the allocations of income, deductions and other types of tax treatment
recorded by companies engaged in these transactions. The Service has initiated
an examination of certain of the TransCapital transactions, including the
Company's lease investments. The Company believes that it has correctly
reported these transactions for tax purposes and that it has obtained
appropriate legal, accounting and appraisal opinions and authority to support
its positions. If the Service does successfully redetermine the Company's tax
liability, the adjustments may have a significant, adverse effect on the
Company. See "The Company--Leveraged Leasing Activities" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Income Taxes."
EXPOSURE TO LOCAL ECONOMIC CONDITIONS
The Company's success is dependent to a significant extent upon economic
conditions in Texas in general and in Northeast Texas in particular, including
inflation, recession, unemployment and other factors beyond the Company's
control. During the mid 1980s, severely depressed oil and gas and real estate
prices materially and adversely affected the Texas and Northeast Texas
economies, causing recession and unemployment in the region and resulting in
excess vacancies in the local real estate market. Since 1987, the Texas and
Northeast Texas economies have improved in part due to their expansion into
non-energy related industries. As the Texas and Northeast Texas economies have
diversified away from the energy industry, however, they have become more
susceptible to adverse effects resulting from recession in the national
economy. Economic recession over a prolonged period or other economic
dislocation in Texas and Northeast Texas could cause increases in
nonperforming assets, thereby causing operating losses, impairing liquidity
and eroding capital. There can be no assurance that future adverse changes in
the Texas and Northeast Texas economies would not have a material adverse
effect on the Company's financial condition, results of operations or cash
flows.
INTEREST RATE RISK
The Company's earnings depend to a great extent on "rate differentials,"
which are the differences between interest income that the Company earns on
loans and investments and the interest expense paid on deposits and other
borrowings. These rates are highly sensitive to many factors which are beyond
the Company's control, including general economic conditions and the policies
of various government and regulatory authorities. Increases in the discount
rate by the Board of Governors of the Federal Reserve System ("Federal Reserve
8
<PAGE>
Board") usually lead to rising interest rates, which affect the Company's
interest income, interest expense and investment portfolio. Also, governmental
policies such as the creation of a tax deduction for individual retirement
accounts can increase savings and affect the cost of funds. From time to time,
maturities of assets and liabilities are not balanced, and a rapid increase or
decrease in interest rates could have an adverse effect on the net interest
margin and results of operations of the Company. The nature, timing and effect
of any future changes in federal monetary and fiscal policies on the Company
and its results of operations are not predictable. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Interest Rate Sensitivity and Liquidity."
COMPETITION
The banking business is highly competitive, and the profitability of the
Company depends principally upon the Company's ability to compete in the
market areas in which its banking operations are located. The Company competes
with other commercial banks, savings banks, savings and loan associations,
credit unions, finance companies, mutual funds, insurance companies, brokerage
and investment banking firms, asset-based non-bank lenders and certain other
nonfinancial entities, including retail stores which may maintain their own
credit programs and certain governmental organizations which may offer more
favorable financing than the Company. Many of such competitors may have
greater financial and other resources than the Company. The Company has been
able to compete effectively with other financial institutions by emphasizing
customer service, technology and local office decision-making; by establishing
long-term customer relationships and building customer loyalty; and by
providing products and services designed to address the specific needs of its
customers. Although the Company has been able to compete effectively in the
past, no assurances may be given that the Company will continue to be able to
compete effectively in the future. Various legislative acts in recent years
have led to increased competition among financial institutions. There can be
no assurance that the United States Congress or the Texas legislature will not
enact legislation that may further increase competitive pressures on the
Company. Competition from both financial and nonfinancial institutions is
expected to continue. See "The Company--Competition."
SUPERVISION AND REGULATION
Bank holding companies and banks operate in a highly regulated environment
and are subject to extensive supervision and examination by several federal
and state regulatory agencies. The Company is subject to the Bank Holding
Company Act of 1956, as amended (the "BHCA"), and to regulation and
supervision by the Federal Reserve Board. The Bank, as a Texas state banking
association, is subject to regulation and supervision by the Texas Banking
Department and, as a result of the insurance of its deposits, by the Federal
Deposit Insurance Corporation ("FDIC"). These regulations are intended
primarily for the protection of depositors and customers, rather than for the
benefit of investors. The Company and the Bank are subject to changes in
federal and state laws, as well as changes in regulations and governmental
policies, income tax laws and accounting principles. The effects of any
potential changes cannot be predicted but could adversely affect the business
and operations of the Company and the Bank in the future. See "Supervision and
Regulation."
The Federal Reserve Board has adopted a policy that requires a bank holding
company such as the Company to serve as a source of financial strength to its
banking subsidiaries. The Federal Reserve Board has required bank holding
companies to contribute cash to their troubled bank subsidiaries based upon
this "source of strength" policy, which could have the effect of decreasing
funds available for distributions to shareholders. In addition, a bank holding
company in certain circumstances could be required to guarantee the capital
plan of an undercapitalized banking subsidiary. See "Supervision and
Regulation."
RESTRICTIONS ON ABILITY TO PAY DIVIDENDS
While the Company has paid cash dividends on the Common Stock since 1980,
there is no assurance that the Company will pay dividends on the Common Stock
in the future. The declaration and payment of dividends on the Common Stock
will depend upon the earnings and financial condition of the Company,
liquidity and
9
<PAGE>
capital requirements, the general economic and regulatory climate, the
Company's ability to service any equity or debt obligations senior to the
Common Stock and other factors deemed relevant by the Company's Board of
Directors. It is the policy of the Federal Reserve Board that bank holding
companies should pay cash dividends on common stock only out of income
available over the past year and only if prospective earnings retention is
consistent with the organization's expected future needs and financial
condition. The policy provides that bank holding companies should not maintain
a level of cash dividends that undermines the bank holding company's ability
to serve as a source of strength to its banking subsidiaries.
The Company's principal source of funds to pay dividends on the shares of
Common Stock will be cash dividends that the Company receives from the Bank.
The payment of dividends by the Bank to the Company is subject to certain
restrictions imposed by federal and state banking laws, regulations and
authorities. As of December 31, 1997, an aggregate of approximately $10.5
million was available for payment of dividends by the Bank to the Company
under applicable restrictions, without regulatory approval. See "Supervision
and Regulation--The Bank."
The federal banking statutes prohibit federally insured banks from making
any capital distributions (including a dividend payment) if, after making the
distribution, the institution would be "undercapitalized" as defined by
statute. In addition, the relevant federal regulatory agencies also have
authority to prohibit an insured bank from engaging in an unsafe or unsound
practice, as determined by the agency, in conducting an activity. The payment
of dividends could be deemed to constitute such an unsafe or unsound practice,
depending on the financial condition of the Bank. Regulatory authorities could
impose administratively stricter limitations on the ability of the Bank to pay
dividends to the Company if such limits were deemed appropriate to preserve
certain capital adequacy requirements. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Capital Resources"
and "Supervision and Regulation."
DEPENDENCE ON KEY PERSONNEL
The Company and the Bank are dependent on certain key personnel including
Arthur B. Scharlach, Jr., who is considered to be important to the success of
the Company. The unexpected loss of Mr. Scharlach or other members of senior
management could have an adverse effect on the Company and the Bank. The
Company has entered into an employment agreement with and obtained "key man"
insurance on Mr. Scharlach.
POSSIBLE ANTI-TAKEOVER PROVISIONS
The Company's Articles of Incorporation and Bylaws contain certain
provisions which may delay, discourage or prevent an attempted acquisition or
change of control of the Company. These provisions include: (i) a Board of
Directors classified into three classes of directors with the directors of
each class having staggered, three-year terms, (ii) a provision that any
special meeting of shareholders of the Company may be called only by a
majority of the Board of Directors, the Chairman of the Board, the President,
or the holders of at least 50% of the shares entitled to vote on the matter
and that any action required or permitted to be taken by the Company's
shareholders may not be effected by consent in writing, (iii) a provision
establishing certain advance notice procedures for nomination of candidates
for election as directors and for shareholder proposals to be considered at an
annual or special meeting of shareholders and (iv) a provision that denies
shareholders the right to amend the Bylaws of the Company. The Company's
Articles of Incorporation provide for noncumulative voting for directors and
authorize the Board of Directors of the Company to issue shares of preferred
stock of the Company, $5.00 par value per share, without shareholder approval
and upon such terms as the Board of Directors may determine. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions, financings and other corporate purposes, could have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, a controlling interest in the
Company. In addition, certain provisions of Texas law, including a recently
enacted provision which restricts certain business combinations between a
Texas corporation and certain affiliated shareholders, may delay, discourage
or prevent an attempted acquisition or change in control of the Company. See
"Supervision and Regulation," "Description of Securities of the Company--
Preferred Stock," and "--Texas Law and Certain Provisions of the Articles of
Incorporation and Bylaws."
10
<PAGE>
CONCENTRATION OF OWNERSHIP
After the consummation of the Offering, the executive officers and directors
of the Company will beneficially own 49.51% of the outstanding shares of
Common Stock. Accordingly, these executive officers and directors will be able
to influence, to a significant extent, the outcome of all matters required to
be submitted to the Company's shareholders for approval, including decisions
relating to the election of directors of the Company, the determination of
day-to-day corporate and management policies of the Company and other
significant corporate transactions. See "Management," "Principal Shareholders"
and "Description of Securities of the Company."
DILUTION OF COMMON STOCK
Investors purchasing shares of Common Stock in the Offering will incur
immediate dilution of approximately 47.7% in their investment, in that the
tangible book value of the Company after the Offering will be approximately
$7.45 compared with an assumed initial public offering price of $14.25 per
share. See "Dilution."
NO PRIOR TRADING MARKET
Prior to the Offering, there has been no public market for the shares of
Common Stock. Application has been made to have the Common Stock approved for
quotation on the Nasdaq/National Market under the symbol "GNTY." The
Underwriter has advised the Company that it intends to make a market in the
Common Stock as long as the volume of trading activity in the Common Stock and
certain other market making conditions justify doing so. Nonetheless, there
can be no assurance that an active public market will develop or be sustained
after the Offering or that if such a market develops, investors in the Common
Stock will be able to resell their shares at or above the initial public
offering price. Making a market involves maintaining bid and asked quotations
for the Common Stock and being available as principal to effect transactions
in reasonable quantities at those quoted prices, subject to various securities
laws and other regulatory requirements. A public trading market having the
desired characteristics of depth, liquidity and orderliness depends upon the
presence in the marketplace of willing buyers and sellers of the Common Stock
at any given time, which presence is dependent upon the individual decisions
of investors over which neither the Company, the Underwriter nor any market
maker has any control.
DETERMINATION OF MARKET PRICE AND POSSIBLE VOLATILITY OF STOCK PRICE
The initial public offering price of the shares of Common Stock was
determined by negotiations between the Company and the Underwriter and does
not necessarily bear any relationship to the Company's book value, past
operating results, financial condition or other established criteria of value
and may not be indicative of the market price of the Common Stock after the
Offering. Among the factors considered in such negotiations were prevailing
market and general economic conditions, the market capitalizations, trading
histories and stages of development of other traded companies that the Company
and the Underwriter believed to be comparable to the Company, the results of
operations of the Company in recent periods, the current financial position of
the Company, estimates of business potential of the Company and the present
state of the Company's development and the availability for sale in the market
of a significant number of shares of Common Stock. Additionally, consideration
was given to the general status of the securities market, the market
conditions for new issues of securities and the demand for securities of
comparable companies at the time the Offering was made. See "Underwriting" for
information relating to the method of determining the initial public offering
price. The stock market has from time to time experienced price and volume
volatility. These market fluctuations may be unrelated to the operating
performance of particular companies whose shares are traded and may adversely
affect the market price of the Common Stock. There can be no assurance that
the market price of the Common Stock will not decline below the initial public
offering price.
SHARES AVAILABLE FOR FUTURE SALE
The Company will have 2,898,280 shares of Common Stock outstanding after the
Offering. The Company, its executive officers and directors and certain
shareholders (who collectively will own 49.51% of the outstanding
11
<PAGE>
shares of Common Stock after the consummation of the Offering) have agreed
with the Underwriter not to offer, sell, contract to sell or otherwise dispose
of any of their shares of Common Stock for a period of 120 days after the date
of this Prospectus without the permission of the Underwriter. The currently
outstanding shares of Common Stock which are not subject to such agreement are
held by approximately 359 shareholders of record, and all of such shares will
be freely tradable in accordance with Rule 144(k) under the Securities Act. In
addition, all of the shares of Common Stock sold in the Offering will
generally be freely tradable under the Securities Act. No prediction can be
made as to the effect, if any, that future sales of Common Stock or the
availability of Common Stock for future sale will have on the market price of
the Common Stock prevailing from time to time. Sales of a substantial number
of such shares in the future, or the perception that such sales could occur,
could adversely affect the market price of the Common Stock. See "Management"
and "Principal Shareholders."
REGULATION OF CONTROL
Individuals, alone, or acting in concert with others, seeking to acquire 10%
or more of any class of voting securities of the Company must comply with the
Change in Bank Control Act, which requires the prior approval of the Federal
Reserve Board for any such acquisition. Entities seeking to acquire 5% or more
of any class of voting securities of, or otherwise to control, the Company
must obtain the prior approval of the Federal Reserve Board under the BHCA.
Accordingly, prospective investors need to be aware of and to comply with
these requirements, if applicable, in connection with any purchase of shares
of the Common Stock offered hereby.
12
<PAGE>
THE COMPANY
GENERAL
The Company was incorporated as a business corporation under the laws of the
State of Texas in 1980 to serve as a holding company for the Bank, which was
chartered in 1913, and for Talco State Bank, which was chartered in 1912 and
merged into the Bank in 1997. The Company's headquarters are located at 100
West Arkansas, Mount Pleasant, Texas 75455, and its telephone number is (903)
572-9881.
The Company has grown through a combination of internal growth, the
acquisition of community banks and the opening of new community banking
offices. In 1992, the Company established its Deport location by acquiring
certain assets and liabilities of the Deport Bank. The Deport Bank also had a
branch in Paris which the Company acquired. To enhance its expansion into the
Paris community, the Company constructed a new facility to serve as its Paris
location. In 1993, the Company purchased a commercial bank in Bogata and in
1996 opened a second retail-service banking facility in Mount Pleasant. In
1997, the Company merged Talco State Bank into the Bank and opened a full-
service location in Texarkana. Texarkana is the center of a trade area
encompassing approximately 123,000 people. Management of the Company believes
that this trade area provides opportunity for strong future growth in loans
and deposits. The upgrading of Highway 59, a main artery to Texarkana which
will serve as a NAFTA highway, is expected to further enhance growth in this
area.
The Bank owns interests in three entities which complement the Company's
business: (i) Guaranty Leasing, which finances equipment leases and has
engaged in certain transactions which have resulted in the recognition of
federal income tax losses deductible by the Company, (ii) BSC, which provides
brokerage services and (iii) IBS, which performs compliance, loan reserve,
internal audit and electronic data processing audit functions. See "Risk
Factors--Leveraged Leasing Activities" and "--Leveraged Leasing Activities."
BUSINESS
The Company's guiding strategy is to increase shareholder value by providing
customers individualized, responsive, quality service and to augment its
existing market share and increase loans and deposits through additional
expansion opportunities in Northeast Texas, while stressing efficiency and
maximizing profitability. In furtherance of this objective, the Company has
employed the following operating strategies.
Community Banking. The Company has developed a reputation of being a premier
provider of financial services to small- and medium-sized businesses,
professionals and individuals in Northeast Texas. The Company's reputation for
providing personal, professional and dependable service is very marketable in
communities located in this area. Each of the Company's full-service branch
locations is administered by a location President who has banking skills which
complement the particular local economy, whether it is based on agriculture,
industry and commerce or professional services. Decisions regarding loans are
made on-site in a timely manner. Indicative of the Company's community banking
expertise, the Small Business Administration honored the Company as the top
rated small business lender in the State of Texas in 1994, 1995 and 1996, even
though the Company did not participate in the Small Business Administration
guaranteed loan program. Management believes it can compete favorably with
super-regional and interstate banks in its communities on the basis of
personal service, diverse products and delivery.
Strong Core Growth. In recent years, the Company has increased its market
share in each of the communities in which it maintains a full-service banking
facility. In its principal location of Mount Pleasant, the Company has
increased its market share of financial institution deposits from 43.0% in
1996 to 50.0% in 1997. Although the Company's current share of the Paris
market is relatively low, deposits at the Paris location grew 77.6% in 1996
and 86.1% in 1997. The Company is well known in its geographic area as a
result of its longevity and reputation for service. The Company intends to
grow by continuing to seek strategic acquisitions and branching opportunities.
13
<PAGE>
Technology. The Company has embraced technological change as a way to remain
competitive, manage operational costs associated with growth and offer
superior products to its customers. Recent investments in technology include
check imaging, credit file imaging, optical report archival and an automated
voice response system. Currently, the Company is evaluating several additional
enhancements that will improve its ability to deliver information internally
to improve productivity and externally to provide convenience and
responsiveness to its growing customer base. Such enhancements include high-
speed wireless communications between all locations combining data and voice
traffic, and an end-user Internet banking product providing current account
information, electronic bill and note payment, on-line account reconciliation
and internal transfers. Management believes that the Company is a leader in
its markets with respect to communications and electronic convenience to its
customers.
Continuity and Quality of Management. The Company makes a substantial
investment in its "human capital" by hiring talented people and training them
to satisfy customer needs and develop additional business relationships. The
Company's two senior officers have been with the Company since 1969 and 1970,
respectively, and another senior officer recently retired after 53 years of
continuous service but continues as a director. This historical continuity of
service has facilitated the development and maintenance of long-term customer
relationships. The Company's employees focus on retaining existing customers,
expanding those relationships and acquiring new customers, all of which
requires excellence in three areas: service, sales, and operations. Management
of the Company believes that superior service inspires customer loyalty and
gives the Company a competitive advantage. The Company profiles every customer
with a view toward matching the right product or service with the customer's
financial needs. The Company focuses on behind-the-scenes operations that will
have a positive impact on both the bottom line and the Company's ongoing
ability to deliver extraordinary sales and service.
Marketing. The Company's management places great emphasis on the Company
being the most respected financial institution in its market areas. The
Company's primary external goal is to maintain and enhance its public image as
a top quality financial institution. Reputation and public confidence in the
Company are extremely important. Everyone associated with the Company is
expected to protect its integrity, image and reputation. To help maintain the
Company's reputation and public image, the staff continues to be heavily
involved in community affairs, including civic clubs, industrial development,
donations and volunteer work. The Company places strong emphasis on
coordinating the efforts between marketing campaigns and employee training.
Market research, with the support of the Company's customer information
system, enables the Company to continue to broaden existing products and
relationships and market new products to better serve its customers. These
products include a full-service Trust Department, in-house brokerage service,
loans and deposit accounts with new products such as Internet banking and
debit cards to be implemented in 1998.
Competitive Products. The Company recognizes that its competition is not
only banks, but brokerage houses, insurance companies, subsidized credit
unions and various other competitors, and in order to thrive it must be
competitive in the products that it offers. The Company offers a wide variety
of loan products at competitive terms, including a full range of commercial
loan products to small and medium-sized businesses, which include term loans,
lines of credit, fixed asset loans and working capital loans. The Company also
offers consumers a full range of loan products including automobile loans,
home improvement loans, personal loans and mortgage loans. The Company also
has a wide variety of deposit products, including a Premier money market
account that pays a rate competitive with most brokerage investment accounts
and has been very attractive to customers. This product, coupled with
certificates of deposit, NOW accounts, savings accounts, free checking and
overdraft protection, gives the customer a complete complement of deposit
products at competitive rates.
Additional Revenue Sources. In order to provide service to its customers and
to augment revenues, the Company offers brokerage and trust services. BSC is a
full-service brokerage company that offers a complete array of investment
options including stocks, bonds, mutual funds, financial and retirement
planning, tax advantaged investments and asset allocations. BSC offers
securities through Pershing Securities, the largest independent securities
clearing firm in the industry. BSC is licensed and regulated through the
National
14
<PAGE>
Association of Securities Dealers, the Securities and Exchange Commission and
various state and federal banking authorities. The Company's Trust Department
offers complete trust services, including estate administration, custodial
services and asset management. The Company believes that an aging affluent
population will foster an increase in the need for professional estate
administration services. The maturing of the baby boomer generation is
creating a market for asset management services. Management believes that
there is an opportunity for growth in the Trust Department because of the
Company's strong presence in its markets and the limited amount of competition
for trust services. Growth in trust assets and corresponding management fees
will result from expanding estate administration, traditional trust services,
asset management services and custodial services in the Company's markets.
Operating Efficiencies. In order to control overhead expenses, the Company
seeks to provide a full range of services as effectively as possible. Through
BSC the Company is able to provide its customers with full brokerage services
without having to carry the entire cost itself. Similarly, the Company enjoys
the compliance, loan review, internal audit and electronic data processing
audit functions provided by IBS on a shared cost basis with a group of other
banks participating in this arrangement. The Company has spent the last six
years and considerable revenue expanding its market and improving the delivery
of its financial products, which has resulted in a higher than desired
efficiency ratio. Beginning with the acquisition of the Deport Bank in 1992,
the Company has added four locations. As a result, it has taken longer for the
Company to achieve the desired economies of scale, but with its growth rate,
those economies are beginning to be realized, and the efficiency ratio is
expected to show declining trends in the future. The Company has the support
staff and related fixed asset investments to accommodate additional growth and
enjoy additional economies of scale.
FACILITIES
The Company conducts business at seven banking locations, two of which are
located in Mount Pleasant and the others located in the Texas communities of
Bogata, Deport, Paris, Talco and Texarkana. The Company's headquarters are
located at 100 West Arkansas in Mount Pleasant in a two story office building.
The Company owns all of its locations. The following table sets forth specific
information on each of the Company's locations.
<TABLE>
<CAPTION>
DEPOSITS AT
LOCATION DECEMBER 31, 1997
-------- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Bogata............................................. $ 12,520
Deport............................................. 9,019
Mount Pleasant-Downtown............................ 146,212
Mount Pleasant-South............................... 2,125
Paris.............................................. 33,499
Talco.............................................. 15,784
Texarkana(1)....................................... 3,802
</TABLE>
- --------
(1) Opened for business in August of 1997. This location is currently housed
in a temporary facility. The permanent structure is under construction and
is expected to be completed in August of 1998.
COMPETITION
The banking business is highly competitive, and the profitability of the
Company depends principally on the Company's ability to compete in the market
areas in which its banking operations are located. The Company competes with
other commercial banks, savings banks, savings and loan associations, credit
unions, finance companies, mutual funds, insurance companies, brokerage and
investment banking firms, asset-based non-bank lenders and certain other
nonfinancial entities, including retail stores which may maintain their own
credit programs and certain governmental organizations which may offer more
favorable financing than the Company. The Company has been able to compete
effectively with other financial institutions by emphasizing customer service,
technology and local office decision-making; by establishing long-term
customer relationships and building customer loyalty; and by providing
products and services designed to address the specific needs of its customers.
See "Risk Factors--Competition."
15
<PAGE>
LEVERAGED LEASING ACTIVITIES
In a series of transactions in 1992, 1994 and 1995, Guaranty Leasing
acquired limited partnership interests in certain partnerships (the
"Partnerships" or individually a "Partnership") engaged in the equipment
leasing business. The investments were structured by TransCapital through
various subsidiaries and controlled partnerships, and a TransCapital
partnership owns a 10% interest in Guaranty Leasing.
Generally, in each of the transactions the Partnership became the lessee of
equipment from an equipment owner (pursuant to a sale and leaseback
transaction) and the sublessor of the equipment to the equipment user. Each of
the Partnerships receives note payments from the equipment owner under a
purchase money note given to purchase the equipment from the Partnerships. The
Partnerships make lease payments to the equipment owners under a master lease
of the equipment. In most instances, payments under the purchase money notes
equal lease payments under the master lease. Rental payments from the
equipment used under the equipment subleases were sold in advance subject to
existing liens for purchase of the equipment.
The Partnerships generally show a tax loss while the master lease/sublease
structure is in place, primarily because deductions for rentals paid under the
master lease exceed taxable interest under the purchase money note.
Consequently, Guaranty Leasing has reported tax losses as a result of its
investments in the Partnerships. The Service has notified the Company that it
has commenced an administrative proceeding to examine the 1996 return for the
1992 Partnership in which Guaranty Leasing invested. The Company has reason to
believe that other Partnerships may be subject to similar scrutiny in the
future. The Company believes that it has correctly reported these transactions
for tax purposes and that it has obtained appropriate legal, accounting and
appraisal opinions and authority to support its positions. If the Service does
successfully redetermine the Company's tax liability, the adjustments may have
a significant adverse effect on the Company. See "Risk Factors--Leveraged
Leasing Activities."
EMPLOYEES
As of December 31, 1997, the Company had 121 full-time employees, 49 of whom
were officers of the Bank. The Company provides medical and hospitalization
insurance to its full-time employees. The Company considers its relations with
employees to be excellent.
USE OF PROCEEDS
The net proceeds to be received by the Company from the Offering (assuming
an initial public offering price of $14.25 per share, the midpoint of the
estimated offering range), after deducting the underwriting discount and
estimated expenses, are estimated to be approximately $4.4 million.
The Company intends to use a portion of the net proceeds to redeem all
165,456 shares of its Series A 9% Preferred Stock ("Preferred Stock") for
their per share liquidation value plus declared but unpaid dividends
immediately after completion of the Offering. Assuming the Preferred Stock is
redeemed on June 30, 1998, the redemption price will be $864,507. The
Preferred Stock was issued in 1990. Dividends on the Preferred Stock are
payable semi-annually and are calculated based on the $5.00 par value of such
shares which is also the liquidation value. Dividends on the Preferred Stock
are not cumulative, and the Company is prohibited from paying any dividends on
its Common Stock until a dividend is declared and paid with respect to the
Preferred Stock. The holders of Preferred Stock have no voting rights. The
Preferred Stock may be redeemed, in whole or in part, at $5.00 per share
together with all declared and unpaid dividends per share.
The remaining net proceeds will be used for general working capital purposes
including to support anticipated balance sheet growth in the Company's current
markets, particularly in Texarkana, and for possible future market expansions
and acquisitions.
Pending the application of the net proceeds, the Company intends to invest
such proceeds in short-term, interest-bearing securities, certificates of
deposit or guaranteed obligations of the United States of America.
16
<PAGE>
DIVIDEND POLICY
Holders of Common Stock are entitled to receive dividends when, as and if
declared by the Company's Board of Directors out of funds legally available
therefor. While the Company has declared dividends on its Common Stock since
1980 and currently pays semi-annual dividends aggregating $0.22 per share per
annum, there is no assurance that the Company will continue to pay dividends
in the future.
For a foreseeable period of time, the principal source of cash revenues to
the Company will be dividends paid by the Bank with respect to the Bank's
capital stock. There are certain restrictions on the payment of such dividends
imposed by federal and state banking laws, regulations and authorities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Capital Resources" and "Supervision and Regulation--The Bank."
In the future, the declaration and payment of dividends on the Common Stock
will depend upon the earnings and financial condition of the Company,
liquidity and capital requirements, the general economic and regulatory
climate, the Company's ability to service any equity or debt obligations
senior to the Common Stock and other factors deemed relevant by the Company's
Board of Directors. See "Supervision and Regulation" and "Description of
Securities of the Company." As of December 31, 1997, an aggregate of
approximately $10.5 million was available for payment of dividends by the Bank
to the Company under applicable restrictions, without regulatory approval.
Regulatory authorities could impose administratively stricter limitations on
the ability of the Bank to pay dividends to the Company if such limits were
deemed appropriate to preserve certain capital adequacy requirements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Capital Resources" and "Supervision and Regulation."
DILUTION
As of December 31, 1997, the tangible book value of the Common Stock was
$6.74 per share. "Tangible book value per share" represents the amount of
total tangible assets less total liabilities divided by the number of shares
of Common Stock outstanding. After giving effect to the sale by the Company of
350,000 shares of Common Stock offered hereby (after deducting underwriting
discount and other estimated offering expenses to be paid by the Company), the
pro forma tangible book value of the Company as of December 31, 1997 would
have been $7.45 per share. This represents an immediate increase in net
tangible book value of $0.71 per share to current shareholders and an
immediate dilution of $6.80 per share to new investors. The following table
illustrates this per share dilution.
<TABLE>
<S> <C>
Assumed price to public (the midpoint of the estimated offering
range).......................................................... $14.25
Tangible book value per share before Offering.................... 6.74
Increase per share attributable to new investors................. 0.71
------
Pro forma tangible book value per share after Offering........... 7.45
------
Dilution to new investors........................................ $ 6.80
======
</TABLE>
17
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of December 31, 1997, and as adjusted to give effect to (i) the
sale by the Company of 350,000 shares of Common Stock offered hereby, at a per
share price of $14.25 (the midpoint of the estimated offering range), less
underwriting discounts and other estimated offering expenses and (ii) the
redemption of the Series A Preferred Stock by the Company. See "Use of
Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Shareholders' Equity:
Preferred Stock, $5.00 par value; 15,000,000 shares
authorized; 165,456 shares designated Series A 9%
Preferred Stock, all of which are issued and
outstanding, none of which are outstanding as adjusted.. $ 827 $ --
------- -------
Common Stock, $1.00 par value; 50,000,000 shares
authorized; 2,548,280 shares issued and outstanding,
2,898,280 shares issued and outstanding as adjusted..... 2,548 2,898
Additional capital....................................... 5,396 9,469
Retained earnings........................................ 9,240 9,240
Net unrealized appreciation of available-for-sale
securities, net of deferred taxes of $124,000........... 242 242
------- -------
Total common shareholders' equity...................... $17,426 $21,849
------- -------
Total shareholders' equity............................. $18,253 $21,849
======= =======
</TABLE>
18
<PAGE>
NATURE OF THE TRADING MARKET AND MARKET PRICES
Prior to the Offering, there has been no public market for the shares of
Common Stock and there can be no assurance that an active public market will
develop or be sustained after the Offering or that if such a market develops,
investors in the Common Stock will be able to resell their shares at or above
the initial public offering price. The Underwriter has advised the Company
that it intends to make a market in the Common Stock as long as the volume of
trading activity in the Common Stock and certain other market making
conditions justify doing so. Nonetheless, there can be no assurance that an
active public market will develop or be sustained after the Offering or that
if such a market develops, investors in the Common Stock will be able to
resell their shares at or above the initial public offering price. Making a
market involves maintaining bid and asked quotations for the Common Stock and
being available as principal to effect transactions in reasonable quantities
at those quoted prices, subject to various securities laws and other
regulatory requirements. A public trading market having the desired
characteristics of depth, liquidity and orderliness depends upon the presence
in the marketplace of willing buyers and sellers of the Common Stock at any
given time, which presence is dependent upon the individual decisions of
investors over which neither the Company, the Underwriter nor any market maker
has any control. See "Risk Factors--No Prior Trading Market."
The initial public offering price of the shares of Common Stock will be
determined by negotiations between the Company and the Underwriter and does
not necessarily bear any relationship to the Company's book value, past
operating results, financial condition or other established criteria of value
and may not be indicative of the market price of the Common Stock after the
Offering. Among the factors considered in such negotiations were prevailing
market and general economic conditions, the market capitalizations, trading
histories and stages of development of other traded companies that the Company
and the Underwriter believe to be comparable to the Company, the results of
operations of the Company in recent periods, the current financial position of
the Company, estimates of the business potential of the Company and the
present state of the Company's development and the availability for sale in
the market of a significant number of shares of Common Stock. Additionally,
consideration was given to the general status of the securities market, the
market conditions for new issues of securities and the demand for securities
of comparable companies at the time the Offering was made. See "Underwriting"
for information relating to the method of determining the initial public
offering price. Application has been made to have the shares of Common Stock
approved for quotation on the Nasdaq/National Market under the symbol "GNTY."
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements of the Company and the
Notes thereto, appearing elsewhere in this Prospectus, and the information
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The selected historical consolidated financial data as
of and for the five years ended December 31, 1997 are derived from the
Company's Consolidated Financial Statements which have been audited by
independent public accountants.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income.............. $ 17,009 $ 14,851 $ 14,248 $ 11,658 $ 11,306
Interest expense............. 8,192 6,919 6,372 4,470 4,210
-------- -------- -------- -------- --------
Net interest income........ 8,817 7,932 7,876 7,188 7,096
Provision for loan losses.... 355 206 149 298 89
Net interest income after
provision for loan losses. 8,462 7,726 7,727 6,890 7,007
Noninterest income........... 1,657 2,390 1,440 1,582 1,459
Noninterest expense.......... 7,446 7,073 6,795 6,700 6,306
-------- -------- -------- -------- --------
Earnings before taxes...... 2,673 3,043 2,372 1,772 2,160
Provision for income tax
expense..................... 273 165 261 245 491
-------- -------- -------- -------- --------
Net earnings................. 2,400 2,878 2,111 1,527 1,669
Preferred stock dividend..... 74 74 74 74 74
-------- -------- -------- -------- --------
Net earnings available to
common shareholders......... $ 2,326 $ 2,804 $ 2,037 $ 1,453 $ 1,595
======== ======== ======== ======== ========
COMMON SHARE DATA(1):
Net earnings (basic and
diluted)(2)................. $ 0.91 $ 1.08 $ 0.75 $ 0.53 $ 0.60
Book value................... 6.84 6.06 5.32 4.69 4.40
Tangible book value.......... 6.74 5.95 5.21 4.57 4.27
Cash dividends............... 0.22 0.21 0.19 0.16 0.14
Dividend payout ratio........ 24.24% 18.81% 24.79% 29.26% 23.90%
Weighted average common
shares outstanding (in
thousands).................. 2,547 2,592 2,724 2,721 2,668
Period end shares outstanding
(in thousands).............. 2,548 2,545 2,725 2,723 2,711
BALANCE SHEET DATA:
Total assets................. $244,157 $213,932 $192,935 $187,547 $174,612
Securities................... 58,139 30,382 31,200 30,321 27,666
Loans........................ 157,395 139,289 126,287 124,307 116,506
Allowance for loan losses.... 1,129 1,055 1,005 1,012 1,078
Total deposits............... 222,961 194,855 174,717 170,884 158,873
Total common shareholders'
equity...................... 17,426 15,423 14,499 12,782 11,917
AVERAGE BALANCE SHEET DATA:
Total assets................. $228,782 $203,056 $190,782 $180,648 $172,225
Securities................... 50,089 29,520 30,770 26,030 29,761
Loans........................ 146,061 132,400 124,209 121,078 109,940
Allowance for loan losses.... 1,070 1,029 968 1,067 1,113
Total deposits............... 208,401 183,896 172,964 164,250 157,449
Total common shareholders'
equity...................... 16,508 15,164 13,861 12,559 11,329
</TABLE>
(Table continued on following page)
20
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- --------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS:
Return on average assets.... 1.05% 1.42% 1.11% 0.85% 0.97%
Return on average common
equity..................... 14.09 18.49 14.70 11.57 14.08
Net interest margin......... 4.24 4.32 4.59 4.41 4.57
Efficiency ratio(3)......... 71.09 68.52 72.94 76.40 73.71
ASSET QUALITY RATIOS(4):
Nonperforming assets to
total loans and other real
estate..................... 1.22% 1.49% 1.58% 2.67% 2.53%
Net loan charge-offs to
average loans.............. 0.19 0.12 0.13 0.30 0.12
Allowance for loan losses to
total loans................ 0.72 0.76 0.80 0.81 0.93
Allowance for loan losses to
nonperforming loans(5)..... 92.85 93.12 100.60 45.28 76.24
CAPITAL RATIOS(4):
Leverage ratio.............. 7.87% 7.87% 7.88% 7.35% 7.20%
Average shareholders' equity
to average total assets.... 7.58 7.88 7.70 7.41 7.06
Tier 1 risk-based capital
ratio...................... 11.16 11.07 12.11 11.13 10.90
Total risk-based capital
ratio...................... 11.86 11.80 12.92 11.98 11.85
</TABLE>
- --------
(1) Adjusted for a seven for one stock split.
(2) Net earnings per share is based upon the weighted average number of common
shares outstanding during the period. The Company has no dilutive
potential common shares.
(3) Calculated by dividing total noninterest expenses, excluding securities
losses, by net interest income plus noninterest income.
(4) At period end, except net loan charge-offs to average loans and average
shareholders' equity to average total assets.
(5) Nonperforming loans consist of nonaccrual loans, loans contractually past
due 90 days or more and restructured loans.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company analyzes the major elements of the Company's balance
sheets and statements of earnings. This section should be read in conjunction
with the Company's financial statements and accompanying notes and other
detailed information appearing elsewhere in this Prospectus.
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
OVERVIEW
Net earnings available to common shareholders from 1996 to 1997 showed a
$344,000 or 17.4% increase, excluding a one-time gain of $822,000 in 1996 from
the proceeds of a key man life insurance policy, which has been excluded from
the calculations contained in this paragraph. Net earnings available to common
shareholders were $2.3 million, $2.0 million and $2.0 million for the years
ended December 31, 1997, 1996 and 1995, respectively, and net earnings per
common share were $0.91, $0.76 and $0.75 for these same periods. The increase
in net earnings from 1996 to 1997 was primarily the result of an increase in
net interest income from $7.9 million to $8.8 million, offset in part by a
larger provision for loan losses and increased noninterest expense. Earnings
were relatively flat from 1995 to 1996. The Company posted returns on average
assets of 1.05%, 1.01% and 1.11% and returns on average common equity of
14.09%, 13.07% and 14.70%, for the years ended 1997, 1996 and 1995,
respectively.
Total assets at December 31, 1997, 1996 and 1995, were $244.2 million,
$213.9 million, and $192.9 million, respectively. Total deposits at December
31, 1997, 1996 and 1995 were $223.0 million, $194.9 million, and $174.7
million, respectively. Deposits increased by $20.1 million or 11.5% in 1996
and by $28.1 million or 14.4% in 1997. These increases were primarily
attributable to growth generated by the free checking campaign initiated by
the Company in 1995 and the development of the Premier money market account in
1996. At December 31, 1997, investment securities totaled $58.1 million, an
increase of $27.8 million or 91.4% from December 31, 1996. This increase was
primarily attributable to the investment of the growth in deposit funds.
Common shareholders' equity was $17.4 million, $15.4 million and $14.5 million
at December 31, 1997, 1996, and 1995, respectively, with the increases
resulting primarily from earnings retention.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income is the difference between income earned on interest-
earning assets and the interest expense incurred on interest-bearing
liabilities. The net yield on total interest-earning assets also referred to
as interest rate margin or net interest margin, represents net interest income
divided by average interest-earning assets. The Company's principal interest-
earning assets are loans, investment securities and federal funds sold.
Net interest income was $8.8 million in 1997 compared to $7.9 million in
1996, an increase of $885,000 or 11.2%. The additional income resulted from an
increase in average interest-earning assets of $24.6 million in 1997 over
1996, versus an increase in average interest-bearing liabilities of $21.5
million during the same period. A decrease in the net interest margin to 4.24%
in 1997 from 4.32% in 1996 partially offset the increase.
Total interest income was $17.0 million in 1997, an increase of $2.2 million
or 14.5% over 1996. The increase resulted primarily from growth in average
loans of $13.7 million or 10.3% and growth in average investment securities of
$20.1 million or 69.7%, which contributed $1.2 million and $1.3 million,
respectively, to the increase in total interest income in 1997 over 1996.
These volume increases were augmented slightly by higher yields on both loans
and investment securities, contributing $77,000 and $50,000, respectively, to
the 1997 increase in total interest income. The higher yield on investment
securities resulted in part from the Company repositioning its assets within
its investment policy guidelines into higher yielding U.S. Government
securities and mortgage-backed securities. U.S. Government securities
increased from $8.9 million in 1996 to
22
<PAGE>
$20.5 million in 1997 and mortgage-backed securities increased from $5.7
million in 1996 to $20.7 million in 1997. In this repositioning of interest-
earning assets, the Company also decreased federal funds sold from $18.2
million to $7.7 million, causing a decrease in federal funds interest income
of $233,000. The Company also decreased its interest-earning deposits in other
financial institutions from $7.1 million to zero.
Total interest expense in 1997 was $1.3 million or 18.4% higher in 1997 than
in 1996 due to several factors. Average balances in NOW, savings and money
market accounts increased by $8.1 million or 16.8% in 1997 over 1996,
primarily from growth in the Premier money market account. This increase
contributed $267,000 to the increase in total interest expense in 1997 over
1996. Rates paid on NOW, savings and money market accounts also increased by
25 basis points to 3.52% in 1997 from 3.27% in 1996, contributing $143,000 to
the increase in total interest expense. In addition, average time deposit
balances increased to $114.6 million in 1997 from $101.1 million in 1996, an
increase of $13.5 million or 13.4%, and rates paid on such deposits increased
by 15 basis points to 5.40% in 1997 from 5.25% in 1996. These increases
contributed $710,000 and $170,000, respectively, to the 1997 increase in total
interest expense.
Net interest income remained relatively steady in 1996 compared to 1995,
showing a $56,000 increase. The increase resulted from a growth in interest-
earning assets of $11.8 million in 1996 over 1995, versus an increase in
average interest-bearing liabilities of $7.5 million during the same period.
Loans increased $13.0 million from $126.3 million to $139.3 million, and
despite a 22 basis point decrease in the yield on these loans, interest income
on loans increased $456,000. Federal funds sold increased from $10.6 million
in 1995 to $18.2 million in 1996, resulting in an increase in federal funds
interest income of $162,000. Total interest income increased from $14.2
million in 1995 to $14.9 million in 1996.
Interest expense increased from $6.4 million in 1995 to $6.9 million in
1996. This increase of $547,000 was caused by an increase in interest-bearing
liabilities of $17.1 million and an increase in cost of funds from 4.48% in
1995 to 4.62% in 1996 or a 14 basis point increase. The Company's net interest
margin declined from 4.59% in 1995 to 4.32% in 1996.
The following table presents for the periods indicated the total dollar
amount of interest income from average interest-earning assets and the
resultant yields, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollars and rates. No tax equivalent
adjustments were made and all average balances are daily average balances.
Nonaccruing loans have been included in the tables as loans carrying a zero
yield.
23
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------------
1997 1996 1995
---------------------------- ---------------------------- ----------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/ OUTSTANDING EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE BALANCE PAID RATE
----------- -------- ------- ----------- -------- ------- ----------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans:
Commercial and
industrial............ $ 39,975 $3,411 8.53% $ 36,938 $3,183 8.62% $ 39,918 $3,535 8.86%
Real estate-mortgage
and construction...... 84,570 7,478 8.84 73,476 6,287 8.56 63,756 5,701 8.94
Installment and other.. 21,516 2,116 9.83 21,986 2,233 10.16 20,535 2,007 9.77
Fees on loans.......... -- 46 -- -- 58 -- -- 62 --
Securities............. 50,089 3,247 6.48 29,520 1,882 6.38 30,770 1,894 6.16
Federal funds sold..... 9,470 520 5.49 14,451 753 5.21 9,915 591 5.96
Interest-bearing
deposits in other
financial
institutions.......... 2,554 191 7.48 7,212 455 6.31 6,877 458 6.66
-------- ------ ---- -------- ------ ----- -------- ------ -----
Total interest-earning
assets................ 208,174 17,009 8.17% 183,583 14,851 8.09% 171,771 14,248 8.29%
------ ---- ------ ----- ------ -----
Less allowance for loan
losses................. (1,070) (1,029) (968)
-------- -------- --------
Total interest-earning
assets, net of
allowance............. 207,104 182,554 170,803
Non-earning assets:
Cash and due from
banks................. 8,228 7,838 7,421
Premises and equipment. 6,199 5,552 4,975
Interest receivable and
other assets.......... 6,361 6,165 6,301
Other real estate
owned................. 890 947 1,282
-------- -------- --------
Total assets........... $228,782 $203,056 $190,782
======== ======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest-bearing
liabilities:
NOW, savings, and money
market accounts....... $ 56,636 $1,994 3.52% $ 48,497 $1,584 3.27% $ 43,041 $1,332 3.09%
Time deposits.......... 114,596 6,185 5.40 101,059 5,305 5.25 98,644 4,971 5.04
-------- ------ ---- -------- ------ ----- -------- ------ -----
Total interest-bearing
deposits.............. 171,232 8,179 4.78 149,556 6,889 4.61 141,685 6,303 4.45
Other borrowed funds... 168 13 7.74 319 30 9.40 682 69 10.12
-------- ------ ---- -------- ------ ----- -------- ------ -----
Total interest-bearing
liabilities........... 171,400 8,192 4.78% 149,875 6,919 4.62% 142,367 6,372 4.48%
------ ---- ------ ----- ------ -----
Noninterest-bearing
liabilities:
Demand deposits........ 37,169 34,340 31,279
Accrued interest, taxes
and other liabilities. 2,878 2,850 2,448
-------- -------- --------
Total liabilities...... 211,447 187,065 176,094
Shareholders' equity.... 17,335 15,991 14,688
-------- -------- --------
Total liabilities and
shareholders' equity.. $228,782 $203,056 $190,782
======== ======== ========
Net interest income..... $8,817 $7,932 $7,876
====== ====== ======
Net interest spread..... 3.39% 3.47% 3.81%
==== ===== =====
Net interest margin..... 4.24% 4.32% 4.59%
==== ===== =====
</TABLE>
24
<PAGE>
The following schedule presents the dollar amount of changes in interest
income and interest expense for the major components of interest-earning
assets and interest-bearing liabilities and distinguishes between the increase
(decrease) related to higher outstanding balances and the volatility of
interest rates. For purposes of this table, changes attributable to both rate
and volume which can be segregated have been allocated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1997 VS. 1996 1996 VS. 1995
----------------------------- -----------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO
--------------------- ----------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
---------- --------- ------ ---------- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans................. $ 1,213 $ 77 $1,290 $ 746 $ (290) $456
Securities............ 1,315 50 1,365 (77) 65 (12)
Federal funds sold.... (260) 27 (233) 270 (108) 162
Interest-bearing
deposits in other
financial
institutions......... (294) 30 (264) 22 (25) (3)
---------- --------- ------ --------- ---------- ----
Total increase
(decrease) in
interest income.... 1,974 184 2,158 961 (358) 603
INTEREST-BEARING
LIABILITIES:
NOW, savings and money
market accounts...... 267 143 410 166 86 252
Time deposits......... 710 170 880 122 212 334
Other borrowed funds.. (13) (4) (17) (37) (2) (39)
---------- --------- ------ --------- ---------- ----
Total increase in
interest expense... 964 309 1,273 251 296 547
---------- --------- ------ --------- ---------- ----
Increase (decrease) in
net interest income.. $ 1,010 $ (125) $ 885 $ 710 $ (654) $ 56
========== ========= ====== ========= ========== ====
</TABLE>
Provision for Loan Losses
The amount of the provision for loan losses is based on periodic evaluations
of the loan portfolio, with particular attention directed toward nonperforming
and other potential problem loans. During these evaluations, consideration is
given to such factors as management's evaluation of specific loans, the level
and composition of nonperforming loans, historical loss experience, the market
value of collateral, the strength and availability of guaranties,
concentrations of credits and other subjective factors.
The Company's provision for loan losses during the twelve months ended
December 31, 1997 was $355,000, compared to $206,000 during the twelve months
ended December 31, 1996, or an increase of $149,000, as the Company's ratio of
net charge-offs to average loans increased slightly during 1997. The Company
made additional provisions to compensate for ongoing growth in the loan
portfolio and an increase in charge-offs. The Company's provision for loan
losses increased from $149,000 to $206,000 from 1995 to 1996 as the result of
loan growth. See "--Allowance for Loan Losses."
Noninterest Income
Noninterest income is an important source of revenue for financial
institutions in a deregulated environment. Excluding a $822,000 one-time gain
from the proceeds of a key man life insurance policy in 1996, noninterest
income for the year ended December 31, 1997 was $1.7 million, an increase of
$89,000 or 5.7% over 1996. Noninterest income was $1.4 million in 1995.
Excluding the one-time gain, noninterest income was $128,000 or 8.9% greater
in 1996 than in 1995.
25
<PAGE>
The following table presents for the periods indicated the major categories
of noninterest income:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
--------------------
1997 1996 1995
------ ------ ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C>
Service charges....................................... $1,097 $1,059 $1,032
Fee income............................................ 386 376 277
Securities gains, net................................. 19 2 --
Fiduciary income...................................... 43 43 34
Life insurance proceeds gain.......................... -- 822 --
Other noninterest income.............................. 112 88 97
------ ------ ------
Total noninterest income.......................... $1,657 $2,390 $1,440
====== ====== ======
</TABLE>
After excluding the one-time gain from proceeds of key man life insurance in
1996, the increase in noninterest income from 1996 to 1997 resulted primarily
from service charges and fee income due to an increase in the number of
deposit accounts. Additionally, the Company's increased emphasis on fee based
services resulted in greater income from check cashing, ATM fees, appraisal
fees and wire transfer fees. The increase in noninterest income from 1995 to
1996 was also the result of service charges and fee income related to an
increase in the number of deposit accounts.
Noninterest Expense
For the years ended 1997, 1996 and 1995, noninterest expense totaled $7.4
million, $7.1 million and $6.8 million, respectively. The $373,000 or 5.3%
increase in noninterest expense from 1996 to 1997 was primarily the result of
the opening of a second location in Mount Pleasant in October 1996 and a
location in Texarkana in August 1997, which caused employee compensation and
benefits to increase $168,000 or 4.7% as the number of full-time equivalent
employees increased from 110 in 1996 to 121 in 1997. In addition, bank
premises and fixed asset expense increased from $991,000 to $1.1 million, an
increase of $134,000 or 13.5%. Legal and professional fees increased $99,000
or 42.0% due to independent loan review expenses and bankruptcy and litigation
proceedings. The increase in total noninterest expense for 1996 over 1995 of
$278,000 or 4.1% was primarily due to an increase in employee compensation and
benefits of $238,000 or 7.2%, reflecting additional staff to handle customer
growth. The Company's efficiency ratios were 71.09% in 1997, 68.52% in 1996
and 72.94% in 1995. The following table presents for the periods indicated the
major categories of noninterest expense:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
--------------------
1997 1996 1995
------ ------ ------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C>
Employee compensation and benefits..................... $3,717 $3,549 $3,311
Non-staff expenses:
Net bank premises and fixed asset expense............ 1,125 991 933
Office and computer supplies......................... 291 225 175
Legal and professional fees.......................... 335 236 220
Advertising.......................................... 246 225 166
Postage.............................................. 119 118 103
FDIC insurance....................................... 23 5 219
Other................................................ 1,590 1,724 1,668
------ ------ ------
Total non-staff expenses........................... 3,729 3,524 3,484
------ ------ ------
Total noninterest expense.......................... $7,446 $7,073 $6,795
====== ====== ======
</TABLE>
Income Taxes
Federal income tax is reported as income tax expense and is influenced by
the amount of taxable income, the amount of tax-exempt income, the amount of
non-deductible interest expense and the amount of other non-deductible
expenses. The Company utilized tax benefits on leveraged lease transactions in
the amounts of
26
<PAGE>
$530,000, $616,000 and $517,000 in 1997, 1996 and 1995, respectively. In 1996,
the Company also had non-taxable income in the form of proceeds from key man
life insurance in the amount of $822,000. The effective tax rates in 1997,
1996, and 1995 were 10.21%, 5.42% and 11.00%, respectively. Income taxes for
financial purposes in the consolidated statements of earnings differ from the
amount computed by applying the statutory income tax rate of 34% to earnings
before income taxes. The difference in the statutory rate is primarily due to
the leveraged lease transactions and non-taxable income. See "Risk Factors--
Leveraged Leasing Activities" and "The Company--Leveraged Leasing Activities."
Additionally, the State of Texas imposes a Texas franchise tax. Taxable
income for the income tax component of the Texas franchise tax is the federal
pre-tax income, plus certain officers' salaries, less interest income from
federal securities. Total franchise tax expense was $34,000 in 1997, $58,000
in 1996 and $59,000 in 1995. Such expense was included as a part of other
noninterest expense.
Impact of Inflation
The effects of inflation on the local economy and on the Company's operating
results have been relatively modest for the past several years. Since
substantially all of the Company's assets and liabilities are monetary in
nature, such as cash, securities, loans and deposits, their values are less
sensitive to the effects of inflation than to changing interest rates, which
do not necessarily change in accordance with inflation rates. The Company
tries to control the impact of interest rate fluctuations by managing the
relationship between its interest rate sensitive assets and liabilities. See
"--Interest Rate Sensitivity and Liquidity" below.
FINANCIAL CONDITION
Loan Portfolio
The Company provides a broad range of commercial, real estate and consumer
loan products to small and medium-sized businesses and individuals. The
Company aggressively pursues qualified lending customers in both the
commercial and consumer sectors, providing customers with direct access to
lending personnel and prompt, professional service. The 70.59% loan to deposit
ratio as of December 31, 1997, reflects the Company's commitment as an active
lender in the local business community. Total loans increased by $18.1 million
or approximately 13.0% to $157.4 million at December 31, 1997, from $139.3
million at December 31, 1996. In 1996, total loans increased by $13.0 million
or 10.3% from $126.3 million at December 31, 1995. The growth in loans has
resulted from a strong local economy, an aggressive advertising campaign and
the solicitation of new companies and individuals entering the Company's
markets.
The following table summarizes the loan portfolio of the Company by type of
loan as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------------- ---------------- ---------------- ---------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
industrial............. $ 36,598 23.26% $ 29,412 21.11% $ 26,099 20.67% $ 24,696 19.86% $ 22,264 19.12%
Agriculture............. 8,174 5.19 7,159 5.14 6,466 5.12 4,814 3.87 3,813 3.27
Real estate:
Construction and land
development........... 3,072 1.95 2,292 1.65 2,948 2.33 2,944 2.37 4,309 3.70
1-4 family residential. 41,398 26.30 36,967 26.54 35,024 27.73 35,201 28.32 33,242 28.53
Farmland............... 6,492 4.12 6,685 4.80 5,865 4.64 5,515 4.44 5,445 4.67
Non-residential and
non-farmland.......... 42,363 26.92 36,460 26.18 29,672 23.50 29,191 23.48 24,432 20,97
Multi-family
residential........... 360 0.23 535 0.38 388 0.31 70 0.06 234 0.20
Consumer................ 18,938 12.03 19,779 14.20 19,825 15.70 21,876 17.60 22,767 19.54
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans........... $157,395 100.00% $139,289 100.00% $126,287 100.00% $124,307 100.00% $116,506 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
The primary lending focus of the Company is on small and medium-sized
commercial loans. The Company offers business loans, commercial real estate
loans, equipment loans, working capital loans, term loans, revolving lines of
credit and letters of credit. Most commercial loans are collateralized. The
purpose of a particular loan generally determines its structure. In almost all
cases, the Company requires personal guarantees on commercial loans to help
assure repayment.
27
<PAGE>
The Company's commercial mortgage loans are generally secured by first liens
on real estate, typically have fixed interest rates and amortize over a 10 to
15 year period with balloon payments due at the end of one to three years. In
underwriting commercial mortgage loans, consideration is given to the
property's operating history, future operating projections, current and
projected occupancy, location and physical condition. The underwriting
analysis also includes credit checks, appraisals and a review of the financial
condition of the borrower.
The Company makes loans to finance the construction of residential and, to a
limited extent, nonresidential properties. Construction loans generally are
secured by first liens on real estate. The Company conducts periodic
inspections, either directly or through an agent, prior to approval of
periodic draws on these loans. Underwriting guidelines similar to those
described above are also used in the Company's construction lending
activities. In keeping with the community-oriented nature of its customer
base, the Company provides construction and permanent financing for churches
located within its market area.
The Company rarely makes loans at its legal lending limit. Lending officers
are assigned various levels of loan approval authority based upon their
respective levels of experience and expertise. Loans above $500,000 are
evaluated and acted upon by the Executive Committee which meets once a week
and are reported to the Board of Directors. The Company's strategy for
approving or disapproving loans is to follow conservative loan policies and
underwriting practices which include: (i) granting loans on a sound and
collectible basis; (ii) investing funds properly for the benefit of
shareholders and the protection of depositors; (iii) serving the legitimate
needs of the community and the Company's general market area while obtaining a
balance between maximum yield and minimum risk; (iv) ensuring that primary and
secondary sources of repayment are adequate in relation to the amount of the
loan; (v) developing and maintaining adequate diversification of the loan
portfolio as a whole and of the loans within each category; and (vi) ensuring
that each loan is properly documented and, if appropriate, insurance coverage
is adequate. The Company's loan review and compliance personnel interact daily
with commercial and consumer lenders to identify potential underwriting or
technical exception variances. In addition, the Company has placed increased
emphasis on the early identification of problem loans to aggressively seek
resolution of the situations and thereby keep loan losses at a minimum.
Management believes that this strict adherence to conservative loan policy
guidelines has contributed to the Company's below average level of loan losses
compared to its industry peer group over the past few years.
The contractual maturity ranges of the commercial, industrial and real
estate construction loan portfolio and the amount of such loans with
predetermined or floating interest rates in each maturity range as of December
31, 1997, are summarized in the following table:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------
AFTER ONE AFTER
ONE YEAR THROUGH FIVE
OR LESS FIVE YEARS YEARS TOTAL
-------- ---------- ----- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial and industrial............. $21,775 $14,570 $253 $36,598
Real estate construction.............. 2,963 -- 109 3,072
-------- -------- ----- --------
Total............................... $24,738 $14,570 $362 $39,670
======== ======== ===== ========
Loans with a predetermined interest
rate................................. $19,340 $ 9,579 $216 $29,135
Loans with a floating interest rate... 5,398 4,991 146 10,535
-------- -------- ----- --------
Total............................... $24,738 $14,570 $362 $39,670
======== ======== ===== ========
</TABLE>
The Company's loans collateralized by single-family residential real estate
generally are originated in amounts of no more than 90% of the lower of cost
or appraised value. The Company requires mortgage title insurance and hazard
insurance in the amount of the loan. Of the mortgages originated, the Company
generally retains mortgage loans with short terms or variable rates and sells
longer term fixed-rate loans to Texas Independent Bank Mortgage Company.
28
<PAGE>
As of December 31, 1997, the Company's one to four family real estate loan
portfolio was $41.4 million. Of this amount, $27.1 million is repriceable in
one year or less and an additional $11.5 million is repriceable from one year
to five years. These high percentages in short-term real estate loans reflect
the Company's commitment to reducing interest rate risk.
The Company provides a wide variety of consumer loans including motor
vehicle, education loans, personal loans (collateralized and uncollateralized)
and deposit account collateralized loans. The terms of these loans typically
range from 12 to 72 months and vary based upon the nature of collateral and
size of loan. As of December 31, 1997, the Company had no indirect consumer
loans, indicating a preference to maintain personal banking relationships and
strict underwriting standards. Installment loans have decreased during the
last five years, reflecting management's tight control of consumer credit due
to record high personal bankruptcy filings nationwide. This concern also
prompted management to sell its credit card portfolio at book value to Texas
Independent Bank in March 1997.
Nonperforming Assets
The Company has several procedures in place to assist it in maintaining the
overall quality of its loan portfolio. The Company has established
underwriting guidelines to be followed by its officers and also monitors its
delinquency levels for any negative or adverse trends. There can be no
assurance, however, that the Company's loan portfolio will not become subject
to increasing pressures from deteriorating borrower credit due to general
economic conditions.
The Company's conservative lending approach, as well as a healthy local
economy, have resulted in strong asset quality. Nonperforming assets at
December 31, 1997, decreased 7.5% to $1.9 million compared to $2.1 million at
December 31, 1996. Nonperforming assets were $2.0 million at December 31,
1995. This resulted in ratios of nonperforming assets to total loans plus
other real estate of 1.22%, 1.49% and 1.58% for the years ended 1997, 1996 and
1995, respectively.
The Company generally places a loan on nonaccrual status and ceases accruing
interest when loan payment performance is deemed unsatisfactory. Loans where
the interest payments jeopardize the collection of principal are placed on
nonaccrual status, unless the loan is both well-secured and in the process of
collection. Cash payments received while a loan is classified as nonaccrual
are recorded as a reduction of principal as long as doubt exists as to
collection. The Company is sometimes required to revise a loan's interest rate
or repayment terms in a troubled debt restructuring, however, the Company had
no restructured loans at either December 31, 1997 or December 31, 1996 and had
only $10,000 in restructured loans at December 31, 1995. In addition to an
internal loan review and an independent audit, the Company retains IBS for an
annual external review to evaluate the loan portfolio.
The Company maintains current appraisals on loans secured by real estate,
particularly those categorized as nonperforming loans and potential problem
loans. In instances where updated appraisals reflect reduced collateral
values, an evaluation of the borrower's overall financial condition is made to
determine the need, if any, for appropriate additions to the allowance for
loan losses. The Company records other real estate at fair value at the time
of acquisition, less estimated costs to sell.
The following table presents information regarding nonperforming assets at
the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans....................... $ 298 $ 722 $ 817 $ 514 $ 923
Accruing loans past due 90 days or
more.................................. 918 411 172 1,683 466
Restructured loans..................... -- -- 10 38 25
Other real estate...................... 714 953 1,016 1,112 1,567
------ ------ ------ ------ ------
Total nonperforming assets........... $1,903 $2,086 $2,015 $3,347 $2,981
====== ====== ====== ====== ======
Nonperforming assets to total loans and
other real estate..................... 1.22% 1.49% 1.58% 2.67% 2.53%
</TABLE>
29
<PAGE>
The Company has adopted SFAS No. 114, Accounting by Creditors for Impairment
of a Loan, as amended by SFAS No. 118, Accounting by Creditors for Impairment
of a Loan-Income Recognition and Disclosures. Under SFAS No. 114, as amended,
a loan is considered impaired based on current information and events, if it
is probable that the Company will be unable to collect the scheduled payments
of principal or interest when due according to the contractual terms of the
loan agreement. The measurement of impaired loans is based on the present
value of expected future cash flows discounted at the loan's effective
interest rate or the loan's observable market price or based on the fair value
of the collateral if the loan is collateral dependent. The implementation of
SFAS No. 114 did not have a material adverse affect on the Company's financial
statements.
Allowance for Loan Losses
The allowance for loan losses is a reserve established through charges to
earnings in the form of a provision for loan losses. Management has
established an allowance for loan losses which it believes is adequate for
estimated losses in the Company's loan portfolio. Based on an evaluation of
the loan portfolio, management presents a quarterly review of the allowance
for loan losses to the Company's Board of Directors, indicating any change in
the allowance since the last review and any recommendations as to adjustments
in the allowance. In making its evaluation, management considers the
diversification by industry of the Company's commercial loan portfolio, the
effect of changes in the local real estate market on collateral values, the
results of recent regulatory examinations, the effects on the loan portfolio
of current economic indicators and their probable impact on borrowers, the
amount of charge-offs for the period, the amount of nonperforming loans and
related collateral security, the evaluation of its loan portfolio by the
annual external loan review conducted by IBS and the annual examination of the
Company's financial statements by its independent auditors. Charge-offs occur
when loans are deemed to be uncollectible.
The Company follows an internal loan review program to evaluate the credit
risk in the loan portfolio. In addition, the Company contracts with IBS to
annually perform an external loan review. Through the loan review process, the
Company maintains an internally classified loan list which, along with the
delinquency list of loans, helps management assess the overall quality of the
loan portfolio and the adequacy of the allowance for loan losses. Loans
internally classified as "substandard" or in the more severe categories of
"doubtful" or "loss" are those loans that at a minimum have clear and defined
weaknesses such as a highly-leveraged position, unfavorable financial ratios,
uncertain repayment sources or poor financial condition, which may jeopardize
recoverability of the debt. At December 31, 1997, the Company had $2.9 million
of such loans compared to $2.6 at December 31, 1996, an 11.5% increase.
In addition to the internally classified loan list and delinquency list of
loans, the Company maintains a separate "watch list" which further aids the
Company in monitoring loan portfolios. Watch list loans show warning elements
where the present status portrays one or more deficiencies that require
attention in the short term or where pertinent ratios of the loan account have
weakened to a point where more frequent monitoring is warranted. These loans
do not have all of the characteristics of a classified loan (substandard or
doubtful) but do show weakened elements as compared with those of a
satisfactory credit. The Company reviews these loans to assist in assessing
the adequacy of the allowance for loan losses. At December 31, 1997, the
Company had $385,000 of such loans.
In order to determine the adequacy of the allowance for loan losses,
management considers the risk classification or delinquency status of loans
and other factors, such as collateral value, portfolio composition, trends in
economic conditions and the financial strength of borrowers. Management
establishes specific allowances for loans which management believes require
reserves greater than those allocated according to their classification or
delinquent status. An unallocated allowance is also established based on the
Company's historical charge-off experience. The Company then charges to
operations a provision for loan losses to maintain the allowance for loan
losses at an adequate level determined by the foregoing methodology.
For the twelve months ended December 31, 1997, net loan charge-offs totaled
$281,000 or 0.19% of average loans outstanding for the period, compared to
$156,000 in net loan charge-offs or 0.12% of average loans for the
30
<PAGE>
year ended December 31, 1996. During 1997, the Company recorded a provision
for loan losses of $355,000 compared to $206,000 for 1996. The increase in the
provision for 1997 is the result of an $18.1 million increase in loans during
1997 and an increase in net charge-offs of $125,000 during the same period.
The Company made a provision for loan losses of $149,000 for 1995. At December
31, 1997, the allowance totaled $1.1 million, or 0.72% of total loans. At
December 31, 1996, the allowance aggregated $1.1 million or 0.76% of total
loans.
The following table presents, for the periods indicated, an analysis of the
allowance for loan losses and other related data:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average loans outstanding.... $146,061 $132,400 $124,209 $121,078 $109,940
-------- -------- -------- -------- --------
Gross loans outstanding at
end of period............... $157,395 $139,289 $126,287 $124,307 $116,506
-------- -------- -------- -------- --------
Allowance for loan losses at
beginning of period......... $ 1,055 $ 1,005 $ 1,012 $ 1,078 $ 1,122
Provision for loan losses.... 355 206 149 298 89
Charge-offs:
Commercial and industrial.. 53 116 184 299 154
Real estate................ 170 66 19 49 18
Consumer................... 162 101 95 68 74
Recoveries:
Commercial and industrial.. 65 65 81 34 34
Real estate................ 13 23 15 4 7
Consumer................... 26 39 46 14 72
-------- -------- -------- -------- --------
Net loan charge-offs......... 281 156 156 364 133
Allowance for loan losses at
end of period............... $ 1,129 $ 1,055 $ 1,005 $ 1,012 $ 1,078
======== ======== ======== ======== ========
Ratio of allowance to end of
period loans................ 0.72% 0.76% 0.80% 0.81% 0.93%
Ratio of net loan charge-offs
to average loans............ 0.19 0.12 0.13 0.30 0.12
Ratio of allowance to end of
period nonperforming loans.. 92.85 93.12 100.60 45.28 76.24
</TABLE>
The following tables describe the allocation of the allowance for loan
losses among various categories of loans and certain other information for the
dates indicated. The allocation is made for analytical purposes and is not
necessarily indicative of the categories in which future losses may occur. The
total allowance is available to absorb losses from any segment of loans.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1997 1996
------------------ ------------------
PERCENT OF PERCENT OF
LOANS TO LOANS TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ----------- ------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance of allowance for loan losses
applicable to:
Commercial and industrial............. $ 554 28.45% $ 501 26.25%
Real estate:
Construction and land development... -- 1.95 -- 1.65
1-4 family residential.............. 58 26.30 86 26.54
Commercial mortgage................. 128 26.92 91 26.18
Farmland............................ -- 4.12 -- 4.80
Multi-family........................ -- 0.23 -- 0.38
Consumer.............................. 171 2.03 128 14.20
Unallocated........................... 218 249
------ ------ ------ ------
Total allowance for loan losses... $1,129 100.00% $1,055 100.00%
====== ====== ====== ======
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
------------------ ------------------ ------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS TO LOANS TO LOANS TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ----------- ------ ----------- ------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance of allowance for
loan losses applicable
to:
Commercial and
industrial........... $ 320 25.79% $ 432 23.73% $ 509 22.39%
Real estate:
Construction and
land development... -- 2.33 -- 2.37 -- 3.70
1-4 family
residential........ 95 27.73 105 28.32 69 28.53
Commercial mortgage. 93 23.50 89 23.48 74 20.97
Farmland............ -- 4.64 -- 4.44 -- 4.67
Multi-family........ -- 0.31 -- 0.06 -- 0.20
Consumer.............. 124 15.70 102 17.60 49 19.54
Unallocated........... 373 284 377
------ ------ ------ ------ ------ ------
Total allowance
for loan losses.. $1,005 100.00% $1,012 100.00% $1,078 100.00%
====== ====== ====== ====== ====== ======
</TABLE>
Securities
The Company uses its securities portfolio to ensure liquidity for cash
requirements, to manage interest rate risk, to provide a source of income, to
ensure collateral is available for municipal pledging requirements and to
manage asset quality. At December 31, 1997, investment securities totaled
$58.1 million, an increase of $27.7 million from $30.4 million at December 31,
1996. The increase was primarily attributable to the investment of additional
funds generated by the free checking product, the Premier money market account
and the certificate of deposit campaign initiated in mid-1997. During 1996,
securities decreased slightly by approximately $818,000 from $31.2 million at
December 31, 1995, to $30.4 million at December 31, 1996. This was a
reflection of an increase in loan demand in 1996. At December 31, 1997,
investment securities represented 23.8% of total assets compared to 14.2% of
total assets at December 31,1996. The yield on the investment portfolio for
the year ended December 31, 1997, was 6.69% compared to a yield of 6.31% for
the year ended December 31, 1996.
Mortgage-backed securities are securities which have been developed by
pooling a number of real estate mortgages and are principally issued by
federal agencies such as the Federal National Mortgage Association and the
Federal Home Loan Mortgage Corporation. These securities are deemed to have
high credit ratings and minimum regular monthly cash flows of principal and
interest which are guaranteed by the issuing agencies. All the Company's
mortgage-backed securities at December 31, 1997, were agency-issued collateral
obligations.
At December 31, 1997, 55.42% of the mortgage-backed securities held by the
Company had final maturities of more than 10 years. However, unlike U.S.
Treasury and U.S. government agency securities, which have a lump sum payment
at maturity, mortgage-backed securities provide cash flows from regular
principal and interest payments and principal prepayments throughout the lives
of the securities. Therefore, the average life, or the average amount of time
until the Company receives the total amount invested, of the mortgage-backed
security will be shorter than the contractual maturity. The Company estimates
the remaining average life of the fixed-rate mortgage-backed security
portfolio to be less than five years. Mortgage-backed securities which are
purchased at a premium will generally suffer decreasing net yields as interest
rates drop because home owners tend to refinance their mortgages. Thus, the
premium paid must be amortized over a shorter period. Therefore, securities
purchased at a discount will obtain higher net yields in a decreasing interest
rate environment. As interest rates rise, the opposite will generally be true.
During a period of increasing interest rates, fixed rate mortgage-backed
securities do not tend to experience heavy prepayments of principal and
consequently, the average life of this
32
<PAGE>
security will not be unduly shortened. Approximately $11.4 million of the
Company's mortgage-backed securities earn interest at floating rates and
reprice within one year, and accordingly are less susceptible to declines in
value should interest rates increase.
The Company accounts for securities according to Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities. At the date of purchase, the Company is required to
classify debt and equity securities into one of three categories: held-to-
maturity, trading or available-for-sale. At each reporting date, the
appropriateness of the classification is reassessed. Investments in debt
securities are classified as held-to-maturity and measured at amortized cost
in the financial statements only if management has the positive intent and
ability to hold those securities to maturity. Securities that are bought and
held principally for the purpose of selling them in the near term are
classified as trading and measured at fair value in the financial statements
with unrealized gains and losses included in earnings. Investments not
classified as either held-to-maturity or trading are classified as available-
for-sale and measured at fair value in the financial statements with
unrealized gains and losses reported, net of tax, in a separate component of
shareholders' equity until realized.
The following table summarizes the amortized cost of investment securities
held by the Company as of the dates shown:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury securities............................ $14,372 $14,378 $18,470
U.S. Government securities.......................... 20,366 8,880 4,519
Mortgage-backed securities.......................... 20,664 5,654 6,722
Equity securities................................... 992 393 393
State and municipal securities...................... 1,379 1,048 1,065
------- ------- -------
Total securities.................................. $57,773 $30,353 $31,169
======= ======= =======
</TABLE>
The following table summarizes the contractual maturity of investment
securities on an amortized cost basis and their weighted average yields as of
December 31, 1997:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------------------------------------------
AFTER ONE AFTER FIVE
WITHIN ONE YEAR BUT WITHIN YEARS BUT WITHIN AFTER TEN
YEAR FIVE YEARS TEN YEARS YEARS
------------ ----------------- ----------------- -------------
AMONT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD TOTAL YIELD
------ ----- --------- ------- --------- ------- ------- ----- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
securities............. $8,293 6.21% $ 6,079 6.36% $ -- --% $ -- --% $14,372 6.27%
U.S. Government
securities............. -- -- 6,253 6.86 14,113 6.83 -- -- 20,366 6.86
Mortgage-backed
securities............. -- -- 29 7.25 9,184 6.88 11,451 6.69 20,664 6.78
Equity securities....... -- -- -- -- -- -- 992 2.85 992 2.85
State and municipal
securities............. 191 4.33 332 5.54 329 5.22 527 5.72 1,379 5.37
------ ---- --------- ------ --------- ------ ------- ---- ------- ----
Totals................. $8,484 61.7% $ 12,693 6.59% $ 23,626 6.83% $12,970 6.14% $57,773 6.69%
====== ==== ========= ====== ========= ====== ======= ==== ======= ====
</TABLE>
The following table summarizes the carrying value and classification of
securities as of the dates shown:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Available-for-sale................................... $42,906 $ 8,305 $ 6,151
Held-to-maturity..................................... 15,233 22,077 25,049
------- ------- -------
Total securities................................... $58,139 $30,382 $31,200
======= ======= =======
</TABLE>
33
<PAGE>
The following table summarizes the amortized cost of securities classified
as available-for-sale and their approximate fair values as of the dates shown:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------------------- --------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE COST GAIN LOSS VALUE
--------- ---------- ---------- ------- --------- ---------- ---------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
securities............. $12,178 $272 $ -- $12,450 $6,794 $27 $ -- $6,821
U.S. Government
securities............. 16,174 94 -- 16,268 996 2 -- 998
Mortgage-backed
securities............. 13,196 -- -- 13,196 93 -- -- 93
Equity securities....... 992 -- -- 992 393 -- -- 393
------- ---- ---- ------- ------ --- ---- ------
Total.................. $42,540 $366 $ -- $42,906 $8,276 $29 $ -- $8,305
======= ==== ==== ======= ====== === ==== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
--------- ---------- ---------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities............. $5,605 $33 $ 4 $5,634
U.S. Government securities........... -- -- -- --
Mortgage-backed securities........... 122 3 -- 125
Equity securities.................... 393 -- 1 392
------ --- --- ------
Total.............................. $6,120 $36 $ 5 $6,151
====== === === ======
</TABLE>
The following table summarizes the amortized cost of securities classified
as held-to-maturity and their approximate fair values as of the dates shown:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------------------- ---------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE COST GAIN LOSS VALUE
--------- ---------- ---------- ------- --------- ---------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
securities............. $ 2,194 $ 8 $ -- $ 2,202 $ 7,584 $ 66 $ -- $ 7,650
U.S. Government
securities............. 4,192 144 -- 4,336 7,884 113 5 7,992
Mortgage-backed
securities............. 7,468 -- -- 7,468 5,561 -- -- 5,561
State and municipal
securities............. 1,379 96 -- 1,475 1,048 39 -- 1,087
------- ---- ---- ------- ------- ---- ---- -------
Total.................. $15,233 $248 $ -- $15,481 $22,077 $218 $ 5 $22,290
======= ==== ==== ======= ======= ==== ==== =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
--------- ---------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities............. $12,865 $199 $-- $13,064
U.S. Government securities........... 4,519 144 2 4,661
Mortgage-backed securities........... 6,600 -- -- 6,600
State and municipal securities....... 1,065 46 2 1,109
------- ---- --- -------
Total.............................. $25,049 $389 $ 4 $25,434
======= ==== === =======
</TABLE>
Deposits
Total deposits at December 31, 1997, increased to $223.0 million from $194.9
million at December 31, 1996, an increase of $28.1 million or 14.42%. The
increase can be attributed to several factors. First, a certificate of deposit
campaign implemented in June 1997 for a two month period prompted an $18.2
million or 18.0% increase in total certificates of deposit during 1997.
Second, the free checking campaign which was implemented
34
<PAGE>
in 1995 provides checking without service charges, continued its momentum and
checking accounts increased by $6.8 million or 19.1% from 1996 to 1997. The
number of accounts also increased significantly from 10,788 to 13,139, a 21.8%
increase. The Paris location increased its deposits by $15.5 million or 86.1%
and continued to gain market share as the Company became better known in the
community. Another area of growth was in the Premier money market account
which increased $3.4 million or 11.7% in 1997. While the balances represent
primarily core deposits, customers' deposits in this investment vehicle may
fluctuate from time to time depending on other alternative investments or cash
needs. In 1996, deposits rose to $194.9 million from $174.7 million in 1995,
an increase of $20.2 million or 11.6%. This increase is primarily attributable
to the free checking campaign that increased checking accounts by $4.3 million
or 13.9%, and the Premier money market account that increased deposits by
$12.4 million or 72.5%. The Company's ratio of average noninterest-bearing
demand deposits to average total deposits for years ended December 31, 1997,
1996, and 1995, were 17.8%, 18.7%, and 18.1%, respectively.
The daily average balances and weighted average rates paid on deposits for
each of the years ended December 31, 1997, 1996, and 1995 are presented below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------- ---- -------- ---- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Regular savings........... $ 7,555 2.74% $ 8,191 2.81% $ 9,037 2.73%
NOW accounts.............. 17,516 2.78 16,818 2.90 17,916 3.16
Money market accounts..... 31,565 4.12 23,487 3.69 16,089 3.23
Time deposits less than
$100,000................. 70,743 5.32 63,177 5.18 62,751 4.91
Time deposits $100,000 and
over..................... 43,853 5.53 37,883 5.37 35,893 5.27
-------- ---- -------- ---- -------- ----
Total interest-bearing
deposits............... 171,232 4.78 149,556 4.61 141,686 4.45
Noninterest-bearing
deposits................. 37,169 -- 34,340 -- 31,278 --
-------- ---- -------- ---- -------- ----
Total deposits.......... $208,401 3.92% $183,896 3.75% $172,964 3.64%
======== ==== ======== ==== ======== ====
</TABLE>
The Company does not accept brokered deposits. The following table sets
forth the amount of the Company's certificates of deposit that are $100,000 or
greater by time remaining until maturity:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
3 months or less...................................... $12,374
Between 3 months and 6 months......................... 10,039
Between 6 months and 1 year........................... 18,645
Over 1 year........................................... 1,938
-------
Total............................................... $42,996
=======
</TABLE>
Interest Rate Sensitivity and Liquidity
The Company's Asset Liability and Funds Management Policy provides
management with the necessary guidelines for effective funds management, and
the Company has established a measurement system for monitoring its net
interest rate sensitivity position. The Company manages its sensitivity
position within established guidelines.
Interest rate risk is managed by the Asset Liability Committee ("ALCO"),
which is composed of senior officers of the Company, in accordance with
policies approved by the Company's Board of Directors. The ALCO formulates
strategies based on appropriate levels of interest rate risk. In determining
the appropriate level of interest rate risk, the ALCO considers the impact on
earnings and capital of the current outlook on interest rates, potential
changes in interest rates, regional economies, liquidity, business strategies,
and other factors. The ALCO meets regularly to review, among other things, the
sensitivity of assets and liabilities to interest rate changes, the
35
<PAGE>
book and market values of assets and liabilities, unrealized gains and losses,
purchase and sale activities, commitments to originate loans and the
maturities of investments and borrowings. Additionally, the ALCO reviews
liquidity, cash flow flexibility, maturities of deposits and consumer and
commercial deposit activity.
To effectively measure and manage interest rate risk, the Company uses
simulation analysis to determine the impact on net interest income under
various interest rate scenarios, balance sheet trends and strategies. From
these simulations, interest rate risk is quantified and appropriate strategies
are developed and implemented. Additionally, duration and market value
sensitivity measures are utilized when they provide added value to the overall
interest rate risk management process. The overall interest rate risk position
and strategies are reviewed by the Company's Board of Directors on an ongoing
basis. The Company has traditionally managed its business to reduce its
overall exposure to changes in interest rates, however, under current policies
of the Company's Board of Directors, management has been given some latitude
to increase the Company's interest rate sensitivity position within certain
limits if, in management's judgment, it will enhance profitability. As a
result, changes in market interest rates may have a greater impact on the
Company's financial performance in the future than they have had historically.
The Company manages its exposure to interest rates by structuring its
balance sheet in the ordinary course of business. The Company does not enter
into instruments such as leveraged derivatives, structured notes, interest
rate swaps, caps, floors, financial options, financial futures contracts or
forward delivery contracts for the purpose of reducing interest rate risk.
An interest rate sensitive asset or liability is one that, within a defined
time period, either matures or can experience an interest rate change in line
with general market interest rates. The management of interest rate risk is
performed by analyzing the maturity and repricing relationships between
interest-earning assets and interest-bearing liabilities at specific points in
time ("GAP") and by analyzing the effects of interest rate changes on net
interest income over specific periods of time by projecting the performance of
the mix of assets and liabilities in varied interest rate environments.
Interest rate sensitivity reflects the potential effect on net interest income
of a movement in interest rates. A company is considered to be asset
sensitive, or having a positive GAP, when the amount of its interest-earning
assets maturing or repricing within a given period exceeds the amount of its
interest-bearing liabilities also maturing or repricing within that time
period. Conversely, a company is considered to be liability sensitive, or
having a negative GAP, when the amount of its interest-bearing liabilities
maturing or repricing within a given period exceeds the amount of its
interest-earning assets also maturing or repricing within that time period.
During a period of rising interest rates, a negative GAP would tend to affect
adversely net interest income, while a positive GAP would tend to result in an
increase in net interest income. During a period of falling interest rates, a
negative GAP would tend to result in an increase in net interest income, while
a positive GAP would tend to affect net interest income adversely. However, it
is management's intent to achieve a proper balance so that incorrect rate
forecasts should not have a significant impact on earnings.
36
<PAGE>
The following table sets forth an interest rate sensitivity analysis for the
Company at December 31, 1997:
<TABLE>
<CAPTION>
VOLUMES SUBJECT TO REPRICING WITHIN
----------------------------------------------------------------------------------
0-30 31-180 181-365 1-3 3-5 5-10 GREATER THAN
DAYS DAYS DAYS YEARS YEARS YEARS 10 YEARS TOTAL
-------- -------- -------- ------- ------- ------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Securities............. $ 7,965 $ 5,434 $ 7,524 $ 7,561 $ 5,268 $23,834 $ 553 $ 58,139
Loans.................. 46,432 30,915 37,714 23,879 15,882 2,573 -- 157,395
Federal funds sold..... 7,720 -- -- -- -- -- -- 7,720
-------- -------- -------- ------- ------- ------- ------- --------
Total interest-earning
assets................ 62,117 36,349 45,238 31,440 21,150 26,407 553 223,254
-------- -------- -------- ------- ------- ------- ------- --------
Interest-bearing
liabilities:
NOW, money market and
savings deposits...... 57,071 -- -- -- -- -- -- 57,071
Certificates of deposit
and other time
deposits.............. 28,086 23,931 61,208 6,086 284 -- -- 119,595
-------- -------- -------- ------- ------- ------- ------- --------
Total interest-bearing
liabilities........... 85,157 23,931 61,208 6,086 284 -- -- 176,666
-------- -------- -------- ------- ------- ------- ------- --------
Period GAP.............. $(23,040) $ 12,418 $(15,970) $25,354 $20,866 $26,407 $ 553 $ 46,588
Cumulative GAP.......... $(23,040) $(10,622) $(26,592) $(1,238) $19,628 $46,035 $46,588
Period GAP to total
assets................. (9.44)% 5.09 % (6.54)% 10.38 % 8.55% 10.82% 0.23%
Cumulative GAP to total
assets................. (9.44)% (4.35)% (10.89)% (0.51)% 8.04% 18.85% 19.08%
Cumulative interest-
earning assets to
cumulative interest-
bearing liabilities.... 72.94 % 90.26 % 84.38 % 99.30 % 111.11% 126.06% 126.37%
</TABLE>
Shortcomings are inherent in GAP analysis since certain assets and
liabilities may not move proportionately as interest rates change.
Consequently, in addition to GAP analysis the Company uses a simulation model
and shock analysis to test the interest rate sensitivity of net interest
income and the balance sheet, respectively. Contractual maturities and
repricing opportunities of loans are incorporated in the model as are
prepayment assumptions, maturity data and call options within the investment
portfolio. Assumptions based on past experience are incorporated into the
model for non-maturity deposit accounts. The Company has found that
historically, interest rates on these deposits change more slowly in a rising
rate environment than in a declining rate environment. Based on the Company's
December 31, 1997, simulation analysis, the Company estimates that a 200 basis
point rise or decline in rates over the next twelve month period would have an
impact of less than 3.2% on its net interest income for the same period. The
change is relatively small, despite the Company's liability sensitive GAP
position. This results primarily from the behavior of NOW, money market and
savings deposits. The Company has found that historically interest rates on
these deposits change more slowly in a rising rate environment than in a
declining rate environment.
The Company's one-year cumulative GAP position at December 31, 1997 was
negative $26.6 million or 10.89% of assets. This is a one-day position that is
continually changing and is not indicative of the Company's position at any
other time. While the GAP position is a useful tool in measuring interest rate
risk and contributes toward effective asset and liability management, it is
difficult to predict the effect of changing interest rates solely on that
measure, without accounting for alterations in the maturity or repricing
characteristics of the balance sheet that occur during changes in market
interest rates. For example, the GAP position reflects only the prepayment
assumptions pertaining to the current rate environment. Assets tend to prepay
more rapidly during periods of declining interest rates than during periods of
rising interest rates. Because of this and other risk factors not contemplated
by the GAP position, an institution could have a matched GAP position in the
current rate environment and still have its net interest income exposed to
increased rate risk. The Company maintains a Rate Committee and the ALCO that
review the Company's interest rate risk position on a weekly or monthly basis,
respectively.
Liquidity involves the Company's ability to raise funds to support asset
growth or reduce assets to meet deposit withdrawals and other payment
obligations, to maintain reserve requirements and otherwise to operate the
Company on an ongoing basis. The Company's liquidity needs are met primarily
by financing activities, which consisted mainly of growth in core deposits,
supplemented by investment securities and earnings through operating
activities. Although access to purchased funds from correspondent banks is
available and has been
37
<PAGE>
utilized on occasion to take advantage of investment opportunities, the
Company does not generally rely on these external funding sources. The cash
and federal funds sold position, supplemented by amortizing investments along
with payments and maturities within the loan portfolio, have historically
created an adequate liquidity position.
Federal Home Loan Bank ("FHLB") advances may be utilized from time to time
as either a short-term funding source or a longer-term funding source. FHLB
advances can be particularly attractive as a longer-term funding source to
balance interest rate sensitivity and reduce interest rate risk. The Company
is eligible for two borrowing programs through the FHLB. The first, called
"Short-Term Fixed," requires delivery of eligible securities for collateral.
Maturities under this program range from 1-35 days. The Company does not
currently have any borrowings under this program. The Company currently
maintains some of its investment securities in safekeeping at the FHLB of
Dallas. At December 31, 1997, the Company had approximately $4.1 million
available for pledging.
The second borrowing program, the "Blanket Borrowing Program," is under a
borrowing agreement which does not require the delivery of specific
collateral. Borrowings are limited to a maximum of 75% of the Company's 1-4
family mortgage loans. At December 31, 1997, the Company had approximately
$31.0 million in potential borrowings available under this program.
Capital Resources
Capital management consists of providing equity to support both current and
future operations. The Company is subject to capital adequacy requirements
imposed by the Federal Reserve Board and the Bank is subject to capital
adequacy requirements imposed by the FDIC and the Texas Banking Department.
Both the Federal Reserve Board and the FDIC have adopted risk-based capital
requirements for assessing bank holding company and bank capital adequacy.
These standards define capital and establish minimum capital requirements in
relation to assets and off-balance sheet exposure, adjusted for credit risk.
The risk-based capital standards currently in effect are designed to make
regulatory capital requirements more sensitive to differences in risk profiles
among bank holding companies and banks, to account for off-balance sheet
exposure and to minimize disincentives for holding liquid assets. Assets and
off-balance sheet items are assigned to broad risk categories, each with
appropriate relative risk weights. The resulting capital ratios represent
capital as a percentage of total risk-weighted assets and off-balance sheet
items.
Bank regulatory authorities in the United States have issued risk-based
capital standards by which all bank holding companies and banks are evaluated
in terms of capital adequacy. The risk-based capital standards issued by the
Federal Reserve Board apply to the Company. These guidelines relate a
financial institution's capital to the risk profile of its assets. The risk-
based capital standards require all financial institutions to have "Tier 1
capital" of at least 4.0% and "total risk-based" capital (Tier 1 and Tier 2)
of at least 8.0% of total risk-adjusted assets. "Tier 1 capital" generally
includes common shareholders' equity and qualifying perpetual preferred stock
together with related surpluses and retained earnings, less deductions for
goodwill and various other intangibles. "Tier 2 capital" may consist of a
limited amount of intermediate-term preferred stock, a limited amount of term
subordinated debt, certain hybrid capital instruments and other debt
securities, perpetual preferred stock not qualifying as Tier 1 capital, and a
limited amount of the general valuation allowance for loan losses. The sum of
Tier 1 capital and Tier 2 capital is "total risk-based capital."
The Federal Reserve Board has also adopted guidelines which supplement the
risk-based capital guidelines with a minimum ratio of Tier 1 capital to
average total consolidated assets ("leverage ratio") of 3.0% for institutions
with well diversified risk, including no undue interest rate exposure;
excellent asset quality; high liquidity; good earnings; and that are generally
considered to be strong banking organizations, rated composite 1 under
applicable federal guidelines, and that are not experiencing or anticipating
significant growth. Other banking organizations are required to maintain a
leverage ratio of at least 4.0% to 5.0%. These rules further provide that
banking organizations experiencing internal growth or making acquisitions will
be expected to maintain capital positions substantially above the minimum
supervisory levels and comparable to peer group averages, without significant
reliance on intangible assets.
38
<PAGE>
Pursuant to Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), each federal banking agency revised its risk-based capital
standards to ensure that those standards take adequate account of interest
rate risk, concentration of credit risk and the risks of nontraditional
activities, as well as reflect the actual performance and expected risk of
loss on multifamily mortgages. The Bank is subject to capital adequacy
guidelines of the FDIC that are substantially similar to the Federal Reserve
Board's guidelines. Also pursuant to FDICIA, the FDIC has promulgated
regulations setting the levels at which an insured institution such as the
Bank would be considered "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized." The Bank is classified "well capitalized" for purposes of
the FDIC's prompt corrective action regulations. See "Supervision and
Regulation--The Company" and "--The Bank."
Shareholders' equity increased from $16.3 million at December 31, 1996, to
$18.3 million at December 31, 1997, an increase of $2.0 million or 12.23%.
This increase was primarily the result of net income of $2.4 million and an
increase in net unrealized gains on available for sale securities net of taxes
of $223,000, less the payment of common stock and preferred stock dividends of
$566,000 and $74,000, respectively. The Company had outstanding at December
31, 1997, $827,000 in Preferred Stock.
The following table provides a comparison of the Company's and the Bank's
leverage and risk-weighted capital ratios as of December 31, 1997 to the
minimum and well-capitalized regulatory standards:
<TABLE>
<CAPTION>
MINIMUM WELL- ACTUAL RATIO AT
REQUIRED CAPITALIZED DECEMBER 31, 1997
-------- ----------- -----------------
<S> <C> <C> <C>
THE COMPANY
Leverage ratio...................... 3.00%(1) N/A 7.87%
Tier 1 risk-based capital ratio..... 4.00% N/A 11.16%
Risk-based capital ratio............ 8.00% N/A 11.86%
THE BANK
Leverage ratio...................... 3.00%(2) 5.00% 7.60%
Tier 1 risk-based capital ratio..... 4.00% 6.00% 11.03%
Risk-based capital ratio............ 8.00% 10.00% 11.75%
</TABLE>
- --------
(1) The Federal Reserve Board may require the Company to maintain a leverage
ratio of up to 200 basis points above the required minimum.
(2) The FDIC may require the Bank to maintain a leverage ratio of up to 200
basis points above the required minimum.
Year 2000
The Company formally initiated a project in September of 1997 to ensure that
its operational and financial systems will not be adversely affected by Year
2000 software problems. A Year 2000 project team has been formed with
representatives from all areas of the Company. Management is supporting all
compliance efforts and is allocating the necessary resources to complete the
project. An inventory of all systems and products that could be affected by
the Year 2000 date change has been developed, verified and categorized as to
its importance to the Company. The software for the Company's systems is
primarily provided through service bureaus and software vendors. The Company
is requiring its software providers to demonstrate and represent that the
products provided are or will be Year 2000 compliant and has planned a program
of testing compliance. Management does not expect the costs of bringing the
Company's systems into Year 2000 compliance will have a materially adverse
effect on the Company's financial condition, results of operations or
liquidity.
39
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following is a list of all of the directors and executive officers of
the Company, their respective positions with the Company and the Bank and
their ages:
<TABLE>
<CAPTION>
NAME POSITION AGE
---- -------- ---
<C> <S> <C>
John A. Conroy.............. Director of the Company and the Bank 81
Jonice Crane................ Director of the Company and the Bank 71
C. A. Hinton, Sr. .......... Director of the Company and the Bank 75
Bill G. Jones............... Chairman of the Board and Chief Executive 68
Officer of the Company; Chairman of the
Board of the Bank
Russell L. Jones............ Director and Senior Vice President of the 43
Company; Director and Executive Vice
President of the Bank
Weldon Miller............... Director of the Company and the Bank 63
Clifton A. Payne............ Director, Senior Vice President and 40
Controller of the Company; Director,
Executive Vice President and Controller
of the Bank
Arthur B. Scharlach, Jr. ... Director and President of the Company; 58
Director, President and Chief Executive
Officer of the Bank
D. R. Zachry, Jr. .......... Director of the Company and the Bank 75
</TABLE>
John A. Conroy. Mr. Conroy has served as a director of the Company since it
was formed in 1980 and as a director of the Bank since 1975. Mr. Conroy is the
owner of Conroy Ford Tractor Company in Mount Pleasant, Texas.
Jonice Crane. Ms. Crane joined the Bank in 1943 and had 53 years of
continuous service until her retirement as an officer of the Bank in 1996. She
served as an Executive Vice President of the Bank from 1971 to 1996 and has
served as a director of the Bank since 1971 and a director of the Company
since its inception in 1980.
C.A. Hinton, Sr. Mr. Hinton has served as a director of the Bank since 1960
and as a director of the Company since it was formed in 1980. Mr. Hinton is
the Chairman of Hinton Production Company in Mount Pleasant, Texas. In 1994,
an affiliated company, Hinton Drilling Company, filed for bankruptcy under
Chapter 11 of the U.S. Bankruptcy Code.
Bill G. Jones. Mr. Jones joined the Bank as President and a director in 1969
and became Chairman of the Board in 1979. He retired as an officer of the Bank
in 1996 but continues to serve as Chairman of the Board. Mr. Jones has been
Chairman of the Board of the Company since 1992 and Chief Executive Officer of
the Company since its formation in 1980.
Russell L. Jones. Mr. Jones has been a director of the Company since 1992
and has served as Senior Vice President since 1992. Mr. Jones began working
for Talco State Bank in 1973. In 1982, he became a Director and Vice President
and, in 1988, President of Talco State Bank, which was acquired by the Company
in 1980 and merged into the Bank in 1997. Mr. Jones became a Senior Vice
President of the Bank in 1996 and was elected an Executive Vice President in
1998. Mr. Jones is the nephew of Bill G. Jones.
Weldon Miller. Mr. Miller became a director of the Company in 1980 and has
served as a director of the Bank since 1969. Mr. Miller is the President of
Everybody's Furniture Company in Mount Pleasant, Texas.
Clifton A. Payne. Mr. Payne joined the Bank in 1984 after four years in
private practice as a Certified Public Accountant. He became a Vice President
of the Bank in 1986 and was elected Controller in 1988 and Executive Vice
President in 1996. In 1995, Mr. Payne was elected to the Board of Directors of
the Company and the Bank. Mr. Payne has been a Senior Vice President of the
Company since 1990.
Arthur B. Scharlach, Jr. Mr. Scharlach is the President and a director of
the Company and President, Chief Executive Officer and a director of the Bank.
He joined the Bank in 1970 as a Vice President and Loan Officer and was
elected to the Bank's Board of Directors in 1971. He was elected a Senior Vice
President in 1974,
40
<PAGE>
President in 1979, Chief Operating Officer in 1983 and Chief Executive Officer
in 1989. He has served as a director of the Company since its inception and as
President since 1992. Mr. Scharlach is a director and Vice Chairman of Texas
Independent Bank, Dallas, Texas.
D. R. Zachry, Jr. Mr. Zachry has served as a director of the Bank since 1957
and as a director of the Company since its inception. He is retired.
Directors are elected for three year terms, classified into Classes I, II
and III. Messrs. Conroy, Zachry and Payne are Class I directors with terms of
office expiring on the date of the Company's annual meeting of shareholders in
1998; Messrs. Scharlach and Hinton and Ms. Crane are Class II directors with
terms of office expiring on the date of the Company's annual meeting in 1999;
and Messrs. Bill G. Jones, Russell L. Jones and Miller are Class III directors
with terms of office expiring on the date of the Company's annual meeting of
shareholders in 2000. Each officer of the Company is elected by the Board of
Directors of the Company and holds office until his or her successor is duly
elected and qualified or until his or her earlier death, resignation or
removal.
The Board of Directors has established Audit and Compensation Committees.
The Audit Committee reviews the general scope of the audit conducted by the
Company's independent auditors and matters relating to the Company's internal
control systems. In performing its function, the Audit Committee meets
separately with representatives of the Company's independent auditors and with
representatives of senior management. The Audit Committee is composed of Ms.
Crane and Messrs. Conroy and Miller, each of whom is an outside director.
The Compensation Committee is responsible for making recommendations to the
Board of Directors with respect to the compensation of the Company's executive
officers and is responsible for the establishment of policies dealing with
various compensation and employee benefit matters. The Compensation Committee
also administers the Company's stock option plans and makes recommendations to
the Board of Directors as to option grants to Company employees under such
plans. The Compensation Committee is comprised of Ms. Crane and Messrs. Hinton
and Zachry, each of whom is an outside director.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the formation of the Compensation Committee in 1998, matters
related to compensation and employee benefit matters were considered by the
Personnel Committee of the Bank, which included Messrs. Scharlach, Payne and
Russell Jones. As members of this committee, Messrs. Scharlach, Payne and
Russell Jones participated in determinations as to compensation to executive
officers, including themselves. Final determination regarding compensation was
made by the Board of Directors of the Bank.
DIRECTOR COMPENSATION
Directors of the Company receive fees for attending monthly Board meetings.
Inside Directors are paid $175.00 for each meeting attended, and outside
Directors are paid $400.00 for each meeting attended. The Board of Directors
of the Bank also meets monthly. Inside Directors of the Bank are paid $375.00
for each meeting attended, and outside Directors are paid $400.00 for each
meeting attended. An Executive Committee meets weekly and consists of inside
Directors who are paid $225.00 for each meeting attended and outside Directors
who are paid $250.00 for each meeting attended. The Executive Committee
consists of all members of the Board of Directors of the Company.
41
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chairman of the Board and each of the other five most highly compensated
executive officers of the Company (determined as of the end of the last fiscal
year) for the fiscal year ended December 31, 1997:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
OTHER ANNUAL
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1)
--------------------------- -------- ------- ---------------
<S> <C> <C> <C>
Bill G. Jones
Chairman of the Board and Chief Executive
Officer.................................... $ 48,000 $24,159 $40,733
Arthur B. Scharlach, Jr.
President................................... 195,994 51,916 14,750
Clifton A. Payne
Senior Vice President....................... 86,476 28,587 8,630
Devry W. Garrett
Legal Officer of the Bank................... 121,988 17,949 10,495
Russell L. Jones
Senior Vice President....................... 86,178 28,752 7,762
Byron M. Rhea
Senior Vice President of the Bank........... 85,176 26,586 7,784
</TABLE>
- --------
(1) Consists of contributions by the Company to the 401(k) Plan except for
$35,321 paid to Mr. Bill G. Jones in connection with a supplemental
retirement plan.
STOCK OPTION PLANS
The Company's Board of Directors and shareholders approved a new stock
option plan in 1998 (the "1998 Plan") which authorizes the issuance of up to
1,000,000 shares of Common Stock under both "non-qualified" and "incentive"
stock options to employees and "non-qualified" stock options to directors who
are not employees. Generally, under the 1998 Plan it is intended that the
options will vest 60% at the end of the third year following the date of grant
and an additional 20% at the end of each of the two following years; however,
an individual option may vest as much as 20% at the end of the first or second
year following the date of grant if necessary to maximize the "incentive" tax
treatment to the optionee for the particular option being granted. Options
under the 1998 Plan generally must be exercised within 10 years following the
date of grant or no later than three months after optionee's termination of
employment with the Company, if earlier. No options have been granted under
the 1998 Plan.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"). This statement established fair value based
accounting and reporting standards for all transactions in which a company
acquires goods or services by issuing its equity investments, which includes
stock-based compensation plans. Under SFAS 123, compensation cost is measured
at the grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. Fair value of stock
options is determined using an option- pricing model. This statement
encourages companies to adopt as prescribed the fair value based method of
accounting to recognize compensation expense for employee stock compensation
plans. However, it does not require the fair value based method to be adopted
but a company must comply with the disclosure requirements set forth in the
statement. The Company will apply accounting in Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations, and, accordingly, will provide the pro forma disclosures of
net income and earnings per share.
42
<PAGE>
BENEFIT PLANS
Employee Stock Ownership Plan. Effective January 1, 1992, the Board of
Directors of the Company voted to restate the existing 401(k) profit sharing
(defined contribution) plan as an Employee Stock Ownership Plan ("ESOP")
containing 401(k) provisions. The ESOP covers substantially all employees of
the Company. The ESOP is administered by five trustees, three of whom are
members of the Company's Board of Directors, and calls for an employee
matching contribution of up to 4.0% of qualified compensation. Contributions
to the ESOP charged to expenses totaled approximately $234,000, $232,000 and
$221,000 in 1997, 1996 and 1995, respectively. As of December 31, 1997, the
book value of ESOP assets was approximately $4.3 million, with an approximate
market value of $5.6 million.
Supplemental Retirement Plan. In 1992, the Company established a non-
qualified, non-contributory retirement plan for an executive officer who
retired from the Bank in 1996. The plan generally provides benefits equal to
amounts payable under the Bank's retirement plan and certain social security
benefits to aggregate a predetermined percentage of the final five year
average salary. The Company contributes to the retirement plan on a non-funded
basis. Plan expenses totaled approximately $20,000, $52,000 and $55,000 in
1997, 1996 and 1995, respectively.
EMPLOYMENT AGREEMENTS
Messrs. Scharlach, Payne, Garrett, Russell L. Jones and Rhea and the four
presidents of the bank locations in Bogata, Paris, Talco and Texarkana have
entered into employment agreements with the Company. Each agreement is for a
term of three years and automatically renews each year absent notice to the
contrary from the Company. Each agreement provides that upon an employee's
termination for various reasons prior to or after a change in control of the
Company (i) all stock options of the employee become fully exercisable,
regardless of whether they have vested and (ii) the employee shall be entitled
to a lump sum payment equal to two years' base salary.
INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Many of the directors, executive officers and principal shareholders of the
Company (i.e., those who own 10% or more of the Common Stock) and their
associates, which include corporations, partnerships and other organizations
in which they are officers or partners or in which they and their immediate
families have at least a 5% interest, are customers of the Company. During
1997, the Company made loans in the ordinary course of business to many of the
directors, executive officers and principal shareholders of the Company and
their associates, all of which were on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with persons unaffiliated with the Company and did not involve
more than the normal risk of collectibility or present other unfavorable
features. Loans to directors, executive officers and principal shareholders of
the Company are subject to limitations contained in the Federal Reserve Act,
the principal effect of which is to require that extensions of credit by the
Company to executive officers, directors and principal shareholders satisfy
the foregoing standards. On December 31, 1997, all of such loans aggregated
$5.2 million, which was approximately 28.9% of the Company's Tier 1 capital at
such date. The Company expects to have such transactions or transactions on a
similar basis with its directors, executive officers and principal
shareholders and their associates in the future.
43
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of February 28, 1998, and as
adjusted to reflect the sale of the Common Stock offered hereby by (i) each
director and executive officer of the Company, (ii) each person who is known
by the Company to own beneficially 5% or more of the Common Stock and (iii)
all directors and executive officers as a group. Unless otherwise indicated,
each person has sole voting and dispositive power over the shares indicated as
owned by such person and the address of each shareholder is the same as the
address of the Company.
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY OWNED
--------------------
NUMBER OF BEFORE AFTER
NAME SHARES OFFERING OFFERING(1)
---- --------- -------- -----------
<S> <C> <C> <C>
John A. Conroy............................... 126,350 4.96% 4.36%
Jonice Crane................................. 95,977(2) 3.77% 3.31%
Guaranty Bancshares, Inc. Employee Stock Own-
ership Plan................................. 241,024 9.46% 8.32%
C. A. Hinton, Sr............................. 179,676(3) 7.05% 6.20%
Bill G. Jones................................ 334,033(4) 13.11% 11.53%
Russell L. Jones............................. 103,145 4.05% 3.56%
Weldon Miller................................ 215,635(5) 8.46% 7.44%
Clifton A. Payne............................. 1,330 * *
Arthur B. Scharlach, Jr...................... 45,927(6) 1.80% 1.58%
D. R. Zachry, Jr............................. 92,029(7) 3.61% 3.18%
Directors and Executive Officers as a Group.. 1,435,126 56.31% 49.51%
</TABLE>
- --------
* Indicates ownership which does not exceed 1.0%
(1) Assumes the issuance of 350,000 shares in the Offering.
(2) Includes 105 shares held of record by the Jonice Crane IRA.
(3) Includes 2,884 shares held of record by the Charles A. Hinton IRA.
(4) Includes 1,393 shares held of record by the Bill G. Jones IRA, 24,745
shares held of record by the Bill Jones IRA Rollover and 5,803 shares held
of record by the Bill G. Jones IRA/SEP.
(5) Includes 8,463 shares held of record by Everybody's Furniture Company, of
which Mr. Miller is the President, and 31,150 shares of record held by the
Everybody's Furniture Company Profit Sharing Plan & Trust.
(6) Includes 7,427 shares held of record by the Arthur B. Scharlach, Jr. IRA.
(7) Includes 2,884 shares held of record by the D.R. Zachry IRA.
44
<PAGE>
SUPERVISION AND REGULATION
The supervision and regulation of bank holding companies and their
subsidiaries is intended primarily for the protection of depositors, the
deposit insurance funds of the FDIC and the banking system as a whole, and not
for the protection of the bank holding company shareholders or creditors. The
banking agencies have broad enforcement power over bank holding companies and
banks including the power to impose substantial fines and other penalties for
violations of laws and regulations.
The following description summarizes some of the laws to which the Company
and the Bank are subject. References herein to applicable statutes and
regulations are brief summaries thereof, do not purport to be complete, and
are qualified in their entirety by reference to such statutes and regulations.
THE COMPANY
The Company is a bank holding company registered under the BHCA, and it is
subject to supervision, regulation and examination by the Federal Reserve
Board. The BHCA and other federal laws subject bank holding companies to
particular restrictions on the types of activities in which they may engage,
and to a range of supervisory requirements and activities, including
regulatory enforcement actions for violations of laws and regulations.
Regulatory Restrictions on Dividends; Source of Strength. It is the policy
of the Federal Reserve Board that bank holding companies should pay cash
dividends on common stock only out of income available over the past year and
only if prospective earnings retention is consistent with the organization's
expected future needs and financial condition. The policy provides that bank
holding companies should not maintain a level of cash dividends that
undermines the bank holding company's ability to serve as a source of strength
to its banking subsidiaries.
Under Federal Reserve Board policy, a bank holding company is expected to
act as a source of financial strength to each of its banking subsidiaries and
commit resources to their support. Such support may be required at times when,
absent this Federal Reserve Board policy, a holding company may not be
inclined to provide it. As discussed below, a bank holding company in certain
circumstances could be required to guarantee the capital plan of an
undercapitalized banking subsidiary.
In the event of a bank holding company's bankruptcy under Chapter 11 of the
U.S. Bankruptcy Code, the trustee will be deemed to have assumed and is
required to cure immediately any deficit under any commitment by the debtor
holding company to any of the federal banking agencies to maintain the capital
of an insured depository institution, and any claim for breach of such
obligation will generally have priority over most other unsecured claims.
Activities "Closely Related" to Banking. The BHCA prohibits a bank holding
company, with certain limited exceptions, from acquiring direct or indirect
ownership or control of any voting shares of any company which is not a bank
or from engaging in any activities other than those of banking, managing or
controlling banks and certain other subsidiaries, or furnishing services to or
performing services for its subsidiaries. One principal exception to these
prohibitions allows the acquisition of interests in companies whose activities
are found by the Federal Reserve Board, by order or regulation, to be so
closely related to banking or managing or controlling banks, as to be a proper
incident thereto. Some of the activities that have been determined by
regulation to be closely related to banking are making or servicing loans,
performing certain data processing services, acting as an investment or
financial advisor to certain investment trusts and investment companies, and
providing securities brokerage services. Other activities approved by the
Federal Reserve Board include consumer financial counseling, tax planning and
tax preparation, futures and options advisory services, check guaranty
services, collection agency and credit bureau services, and personal property
appraisals. In approving acquisitions by bank holding companies of companies
engaged in banking-related activities, the Federal Reserve Board considers a
number of factors, and weighs the expected benefits to the public (such as
greater convenience and increased competition or gains in efficiency) against
the risks of possible adverse effects (such as undue concentration of
45
<PAGE>
resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices). The Federal Reserve Board is also empowered to
differentiate between activities commenced de novo and activities commenced
through acquisition of a going concern.
Securities Activities. The Federal Reserve Board has approved applications
by bank holding companies to engage, through nonbank subsidiaries, in certain
securities-related activities (underwriting of municipal revenue bonds,
commercial paper, consumer receivable-related securities and one-to-four
family mortgage-backed securities), provided that the affiliates would not be
"principally engaged" in such activities for purposes of Section 20 of the
Glass-Steagall Act. In limited situations, holding companies may be able to
use such subsidiaries to underwrite and deal in corporate debt and equity
securities.
Safe and Sound Banking Practices. Bank holding companies are not permitted
to engage in unsafe and unsound banking practices. The Federal Reserve Board's
Regulation Y, for example, generally requires a holding company to give the
Federal Reserve Board prior notice of any redemption or repurchase of its own
equity securities, if the consideration to be paid, together with the
consideration paid for any repurchases or redemptions in the preceding year,
is equal to 10% or more of the company's consolidated net worth. The Federal
Reserve Board may oppose the transaction if it believes that the transaction
would constitute an unsafe or unsound practice or would violate any law or
regulation. Depending upon the circumstances, the Federal Reserve Board could
take the position that paying a dividend would constitute an unsafe or unsound
banking practice.
The Federal Reserve Board has broad authority to prohibit activities of bank
holding companies and their nonbanking subsidiaries which represent unsafe and
unsound banking practices or which constitute violations of laws or
regulations, and can assess civil money penalties for certain activities
conducted on a knowing and reckless basis, if those activities caused a
substantial loss to a depository institution. The penalties can be as high as
$1,000,000 for each day the activity continues.
Anti-Tying Restrictions. Bank holding companies and their affiliates are
prohibited from tying the provision of certain services, such as extensions of
credit, to other services offered by a holding company or its affiliates.
Capital Adequacy Requirements. The Federal Reserve Board has adopted a
system using risk-based capital guidelines to evaluate the capital adequacy of
bank holding companies. Under the guidelines, specific categories of assets
are assigned different risk weights, based generally on the perceived credit
risk of the asset. These risk weights are multiplied by corresponding asset
balances to determine a "risk-weighted" asset base. The guidelines require a
minimum total risk-based capital ratio of 8.0% (of which at least 4.0% is
required to consist of Tier 1 capital elements). Total capital is the sum of
Tier 1 and Tier 2 capital. As of December 31, 1997, the Company's ratio of
Tier 1 capital to total risk-weighted assets was 11.16% and its ratio of total
capital to total risk-weighted assets was 11.86%. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Capital
Resources."
In addition to the risk-based capital guidelines, the Federal Reserve Board
uses a leverage ratio as an additional tool to evaluate the capital adequacy
of bank holding companies. The leverage ratio is a company's Tier 1 capital
divided by its average total consolidated assets. Certain highly-rated bank
holding companies may maintain a minimum leverage ratio of 3.0%, but other
bank holding companies may be required to maintain a leverage ratio of up to
200 basis points above the regulatory minimum. As of December 31, 1997, the
Company's leverage ratio was 7.87%.
The federal banking agencies' risk-based and leverage ratios are minimum
supervisory ratios generally applicable to banking organizations that meet
certain specified criteria, assuming that they have the highest regulatory
rating. Banking organizations not meeting these criteria are expected to
operate with capital positions well above the minimum ratios. The federal bank
regulatory agencies may set capital requirements for a particular banking
organization that are higher than the minimum ratios when circumstances
warrant. Federal Reserve Board guidelines also provide that banking
organizations experiencing internal growth or making acquisitions will be
expected to maintain strong capital positions substantially above the minimum
supervisory levels, without significant reliance on intangible assets.
46
<PAGE>
Imposition of Liability for Undercapitalized Subsidiaries. Bank regulators
are required to take "prompt corrective action" to resolve problems associated
with insured depository institutions whose capital declines below certain
levels. In the event an institution becomes "undercapitalized," it must submit
a capital restoration plan. The capital restoration plan will not be accepted
by the regulators unless each company having control of the undercapitalized
institution guarantees the subsidiary's compliance with the capital
restoration plan up to a certain specified amount. Any such guarantee from a
depository institution's holding company is entitled to a priority of payment
in bankruptcy.
The aggregate liability of the holding company of an undercapitalized bank
is limited to the lesser of 5% of the institution's assets at the time it
became undercapitalized or the amount necessary to cause the institution to be
"adequately capitalized." The bank regulators have greater power in situations
where an institution becomes "significantly" or "critically" undercapitalized
or fails to submit a capital restoration plan. For example, a bank holding
company controlling such an institution can be required to obtain prior
Federal Reserve Board approval of proposed dividends, or might be required to
consent to a consolidation or to divest the troubled institution or other
affiliates.
Acquisitions by Bank Holding Companies. The BHCA requires every bank holding
company to obtain the prior approval of the Federal Reserve Board before it
may acquire all or substantially all of the assets of any bank, or ownership
or control of any voting shares of any bank, if after such acquisition it
would own or control, directly or indirectly, more than 5% of the voting
shares of such bank. In approving bank acquisitions by bank holding companies,
the Federal Reserve Board is required to consider the financial and managerial
resources and future prospects of the bank holding company and the banks
concerned, the convenience and needs of the communities to be served, and
various competitive factors.
Control Acquisitions. The Change in Bank Control Act prohibits a person or
group of persons from acquiring "control" of a bank holding company unless the
Federal Reserve Board has been notified and has not objected to the
transaction. Under a rebuttable presumption established by the Federal Reserve
Board, the acquisition of 10% of more of a class of voting stock of a bank
holding company with a class of securities registered under Section 12 of the
Exchange Act, such as the Company, would, under the circumstances set forth in
the presumption, constitute acquisition of control of the Company.
In addition, any company is required to obtain the approval of the Federal
Reserve Board under the BHCA before acquiring 25% (5% in the case of an
acquiror that is a bank holding company) or more of the outstanding Common
Stock of the Company, or otherwise obtaining control or a "controlling
influence" over the Company.
THE BANK
The Bank is a Texas-chartered banking association, the deposits of which are
insured by the Bank Insurance Fund ("BIF") of the FDIC. The Bank is not a
member of the Federal Reserve System; therefore, the Bank is subject to
supervision and regulation by the FDIC and the Texas Banking Department. Such
supervision and regulation subjects the Bank to special restrictions,
requirements, potential enforcement actions and periodic examination by the
FDIC and the Texas Banking Department. Because the Federal Reserve Board
regulates the bank holding company parent of the Bank, the Federal Reserve
Board also has supervisory authority which directly affects the Bank.
Equivalence to National Bank Powers. The Texas Constitution, as amended in
1986, provides that a Texas-chartered bank has the same rights and privileges
that are or may be granted to national banks domiciled in Texas. To the extent
that the Texas laws and regulations may have allowed state-chartered banks to
engage in a broader range of activities than national banks, FDICIA has
operated to limit this authority. FDICIA provides that no state bank or
subsidiary thereof may engage as principal in any activity not permitted for
national banks, unless the institution complies with applicable capital
requirements and the FDIC determines that the activity poses no significant
risk to the insurance fund. In general, statutory restrictions on the
activities of banks are aimed at protecting the safety and soundness of
depository institutions.
47
<PAGE>
Branching. Texas law provides that a Texas-chartered bank can establish a
branch anywhere in Texas provided that the branch is approved in advance by
the Texas Banking Department. The branch must also be approved by the FDIC,
which considers a number of factors, including financial history, capital
adequacy, earnings prospects, character of management, needs of the community
and consistency with corporate powers.
Restrictions on Transactions With Affiliates and Insiders. Transactions
between the Bank and its nonbanking subsidiaries, including the Company, are
subject to Section 23A of the Federal Reserve Act. In general, Section 23A
imposes limits on the amount of such transactions, and also requires certain
levels of collateral for loans to affiliated parties. It also limits the
amount of advances to third parties which are collateralized by the securities
or obligations of the Company or its subsidiaries.
Affiliate transactions are also subject to Section 23B of the Federal
Reserve Act which generally requires that certain transactions between the
Bank and its affiliates be on terms substantially the same, or at least as
favorable to the Bank, as those prevailing at the time for comparable
transactions with or involving other nonaffiliated persons.
The restrictions on loans to directors, executive officers, principal
shareholders and their related interests (collectively referred to herein as
"insiders") contained in the Federal Reserve Act and Regulation O apply to all
insured institutions and their subsidiaries and holding companies. These
restrictions include limits on loans to one borrower and conditions that must
be met before such a loan can be made. There is also an aggregate limitation
on all loans to insiders and their related interests. These loans cannot
exceed the institution's total unimpaired capital and surplus, and the FDIC
may determine that a lesser amount is appropriate. Insiders are subject to
enforcement actions for knowingly accepting loans in violation of applicable
restrictions.
Restrictions on Distribution of Subsidiary Bank Dividends and Assets.
Dividends paid by the Bank have provided a substantial part of the Company's
operating funds and for the foreseeable future it is anticipated that
dividends paid by the Bank to the Company will continue to be the Company's
principal source of operating funds. Capital adequacy requirements serve to
limit the amount of dividends that may be paid by the Bank. Under federal law,
the Bank cannot pay a dividend if, after paying the dividend, the Bank will be
"undercapitalized." The FDIC may declare a dividend payment to be unsafe and
unsound even though the Bank would continue to meet its capital requirements
after the dividend.
Because the Company is a legal entity separate and distinct from its
subsidiaries, its right to participate in the distribution of assets of any
subsidiary upon the subsidiary's liquidation or reorganization will be subject
to the prior claims of the subsidiary's creditors. In the event of a
liquidation or other resolution of an insured depository institution, the
claims of depositors and other general or subordinated creditors are entitled
to a priority of payment over the claims of holders of any obligation of the
institution to its shareholders, including any depository institution holding
company (such as the Company) or any shareholder or creditor thereof.
Examinations. The FDIC periodically examines and evaluates insured banks.
Based upon such an evaluation, the FDIC may revalue the assets of the
institution and require that it establish specific reserves to compensate for
the difference between the FDIC-determined value and the book value of such
assets. The Texas Banking Department also conducts examinations of state banks
but may accept the results of a federal examination in lieu of conducting an
independent examination.
Audit Reports. Insured institutions with total assets of $500 million or
more must submit annual audit reports prepared by independent auditors to
federal and state regulators. In some instances, the audit report of the
institution's holding company can be used to satisfy this requirement.
Auditors must receive examination reports, supervisory agreements and reports
of enforcement actions. In addition, financial statements prepared in
accordance with generally accepted accounting principles, management's
certifications concerning responsibility for the financial statements,
internal controls and compliance with legal requirements designated by the
FDIC, and an attestation by the auditor regarding the statements of management
relating to the internal controls must be submitted. For institutions with
total assets of more than $3 billion, independent auditors may be required to
review quarterly financial statements. FDICIA requires that independent audit
committees be formed, consisting
48
<PAGE>
of outside directors only. The committees of such institutions must include
members with experience in banking or financial management, must have access
to outside counsel, and must not include representatives of large customers.
Capital Adequacy Requirements. The FDIC has adopted regulations establishing
minimum requirements for the capital adequacy of insured institutions. The
FDIC may establish higher minimum requirements if, for example, a bank has
previously received special attention or has a high susceptibility to interest
rate risk.
The FDIC's risk-based capital guidelines generally require state banks to
have a minimum ratio of Tier 1 capital to total risk-weighted assets of 4.0%
and a ratio of total capital to total risk-weighted assets of 8.0%. The
capital categories have the same definitions for the Bank as for the Company.
As of December 31, 1997, the Bank's ratio of Tier 1 capital to total risk-
weighted assets was 11.03% and its ratio of total capital to total risk-
weighted assets was 11.75%. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation of the Company--Capital
Resources."
The FDIC's leverage guidelines require state banks to maintain Tier 1
capital of no less than 5.0% of average total assets, except in the case of
certain highly rated banks for which the requirement is 3.0% of average total
assets. The Texas Banking Department has issued a policy which generally
requires state chartered banks to maintain a leverage ratio (defined in
accordance with federal capital guidelines) of 6.0%. As of December 31, 1997,
the Bank's ratio of Tier 1 capital to average total assets (leverage ratio)
was 7.60%. See "Management's Discussion and Analysis of Financial Condition
and Results of Operation of the Company--Capital Resources."
Corrective Measures for Capital Deficiencies. The federal banking regulators
are required to take "prompt corrective action" with respect to capital-
deficient institutions. Agency regulations define, for each capital category,
the levels at which institutions are "well capitalized," "adequately
capitalized," "under capitalized," "significantly under capitalized" and
"critically under capitalized." A "well capitalized" bank has a total risk
based capital ratio of 10.0% or higher; a Tier 1 risk based capital ratio of
6.0% or higher; a leverage ratio of 5.0% or higher; and is not subject to any
written agreement, order or directive requiring it to maintain a specific
capital level for any capital measure. An "adequately capitalized" bank has a
total risk based capital ratio of 8.0% or higher; a Tier 1 risk based capital
ratio of 4.0% or higher; a leverage ratio of 4.0% or higher (3.0% or higher if
the bank was rated a CAMEL 1 in its most recent examination report and is not
experiencing significant growth); and does not meet the criteria for a well
capitalized bank. A bank is "under capitalized" if it fails to meet any one of
the ratios required to be adequately capitalized.
In addition to requiring undercapitalized institutions to submit a capital
restoration plan, agency regulations contain broad restrictions on certain
activities of undercapitalized institutions including asset growth,
acquisitions, branch establishment, and expansion into new lines of business.
With certain exceptions, an insured depository institution is prohibited from
making capital distributions, including dividends, and is prohibited from
paying management fees to control persons if the institution would be
undercapitalized after any such distribution or payment.
As an institution's capital decreases, the FDIC's enforcement powers become
more severe. A significantly undercapitalized institution is subject to
mandated capital raising activities, restrictions on interest rates paid and
transactions with affiliates, removal of management, and other restrictions.
The FDIC has only very limited discretion in dealing with a critically
undercapitalized institution and is virtually required to appoint a receiver
or conservator.
Banks with risk-based capital and leverage ratios below the required
minimums may also be subject to certain administrative actions, including the
termination of deposit insurance upon notice and hearing, or a temporary
suspension of insurance without a hearing in the event the institution has no
tangible capital.
Deposit Insurance Assessments. The Bank must pay assessments to the FDIC for
federal deposit insurance protection. The FDIC has adopted a risk based
assessment system as required by FDICIA. Under this system, FDIC-insured
depository institutions pay insurance premiums at rates based on their risk
classification.
49
<PAGE>
Institutions assigned to higher-risk classifications (that is, institutions
that pose a greater risk of loss to their respective deposit insurance funds)
pay assessments at higher rates than institutions that pose a lower risk. An
institution's risk classification is assigned based on its capital levels and
the level of supervisory concern the institution poses to the regulators. In
addition, the FDIC can impose special assessments in certain instances. The
current range of BIF assessments is between 0% and 0.27% of deposits.
The FDIC established a process for raising or lowering all rates for insured
institutions semi-annually if conditions warrant a change. Under this new
system, the FDIC has the flexibility to adjust the assessment rate schedule
twice a year without seeking prior public comment, but only within a range of
five cents per $100 above or below the premium schedule adopted. Changes in
the rate schedule outside the five cent range above or below the current
schedule can be made by the FDIC only after a full rulemaking with opportunity
for public comment.
On September 30, 1996, President Clinton signed into law an act that
contained a comprehensive approach to recapitalizing the SAIF and to assure
the payment of the Financing Corporation's ("FICO") bond obligations. Under
this act, banks insured under the BIF are required to pay a portion of the
interest due on bonds that were issued by FICO to help shore up the ailing
Federal Savings and Loan Insurance Corporation in 1987. The BIF rate must
equal one-fifth of the Savings Association Insurance Fund ("SAIF") rate
through year-end 1999, or until the insurance funds are merged, whichever
occurs first. Thereafter BIF and SAIF payers will be assessed pro rata for the
FICO bond obligations. With regard to the assessment for the FICO obligation,
the current BIF rate is .0126% of deposits.
Enforcement Powers. The FDIC and the other federal banking agencies have
broad enforcement powers, including the power to terminate deposit insurance,
impose substantial fines and other civil and criminal penalties and appoint a
conservator or receiver. Failure to comply with applicable laws, regulations
and supervisory agreements could subject the Company or its banking
subsidiaries, as well as officers, directors and other institution-affiliated
parties of these organizations, to administrative sanctions and potentially
substantial civil money penalties. The appropriate federal banking agency may
appoint the FDIC as conservator or receiver for a banking institution (or the
FDIC may appoint itself, under certain circumstances) if any one or more of a
number of circumstances exist, including, without limitation, the fact that
the banking institution is undercapitalized and has no reasonable prospect of
becoming adequately capitalized; fails to become adequately capitalized when
required to do so; fails to submit a timely and acceptable capital restoration
plan; or materially fails to implement an accepted capital restoration plan.
The Texas Banking Department also has broad enforcement powers over the Bank,
including the power to impose orders, remove officers and directors, impose
fines and appoint supervisors and conservators.
Brokered Deposit Restrictions. Adequately capitalized institutions cannot
accept, renew or roll over brokered deposits except with a waiver from the
FDIC, and are subject to restrictions on the interest rates that can be paid
on such deposits. Undercapitalized institutions may not accept, renew, or roll
over brokered deposits.
Cross-Guarantee Provisions. The Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") contains a "cross-guarantee" provision
which generally makes commonly controlled insured depository institutions
liable to the FDIC for any losses incurred in connection with the failure of a
commonly controlled depository institution.
Community Reinvestment Act. The Community Reinvestment Act of 1977 ("CRA")
and the regulations issued thereunder are intended to encourage banks to help
meet the credit needs of their service area, including low and moderate income
neighborhoods, consistent with the safe and sound operations of the banks.
These regulations also provide for regulatory assessment of a bank's record in
meeting the needs of its service area when considering applications to
establish branches, merger applications and applications to acquire the assets
and assume the liabilities of another bank. FIRREA requires federal banking
agencies to make public a rating of a bank's performance under the CRA. In the
case of a bank holding company, the CRA performance record of the banks
involved in the transaction are reviewed in connection with the filing of an
application to acquire ownership or control of shares or assets of a bank or
to merge with any other bank holding company. An unsatisfactory record can
substantially delay or block the transaction.
50
<PAGE>
Consumer Laws and Regulations. In addition to the laws and regulations
discussed herein, the Bank is also subject to certain consumer laws and
regulations that are designed to protect consumers in transactions with banks.
While the list set forth herein is not exhaustive, these laws and regulations
include the Truth in Lending Act, the Truth in Savings Act, the Electronic
Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit
Opportunity Act, and the Fair Housing Act, among others. These laws and
regulations mandate certain disclosure requirements and regulate the manner in
which financial institutions must deal with customers when taking deposits or
making loans to such customers. The Bank must comply with the applicable
provisions of these consumer protection laws and regulations as part of their
ongoing customer relations.
INSTABILITY OF REGULATORY STRUCTURE
Various legislation, including proposals to overhaul the bank regulatory
system, expand the powers of banking institutions and bank holding companies
and limit the investments that a depository institution may make with insured
funds, is from time to time introduced in Congress. Such legislation may
change banking statutes and the operating environment of the Company and its
banking subsidiaries in substantial and unpredictable ways. The Company cannot
determine the ultimate effect that potential legislation, if enacted, or
implementing regulations with respect thereto, would have upon the financial
condition or results of operations of the Company or its subsidiaries.
EXPANDING ENFORCEMENT AUTHORITY
One of the major additional burdens imposed on the banking industry by
FDICIA is the increased ability of banking regulators to monitor the
activities of banks and their holding companies. In addition, the Federal
Reserve Board and FDIC are possessed of extensive authority to police unsafe
or unsound practices and violations of applicable laws and regulations by
depository institutions and their holding companies. For example, the FDIC may
terminate the deposit insurance of any institution which it determines has
engaged in an unsafe or unsound practice. The agencies can also assess civil
money penalties, issue cease and desist or removal orders, seek injunctions,
and publicly disclose such actions. FDICIA, FIRREA and other laws have
expanded the agencies' authority in recent years, and the agencies have not
yet fully tested the limits of their powers.
EFFECT ON ECONOMIC ENVIRONMENT
The policies of regulatory authorities, including the monetary policy of the
Federal Reserve Board, have a significant effect on the operating results of
bank holding companies and their subsidiaries. Among the means available to
the Federal Reserve Board to affect the money supply are open market
operations in U.S. Government securities, changes in the discount rate on
member bank borrowings, and changes in reserve requirements against member
bank deposits. These means are used in varying combinations to influence
overall growth and distribution of bank loans, investments and deposits, and
their use may affect interest rates charged on loans or paid for deposits.
Federal Reserve Board monetary policies have materially affected the
operating results of commercial banks in the past and are expected to continue
to do so in the future. The nature of future monetary policies and the effect
of such policies on the business and earnings of the Company and its
subsidiaries cannot be predicted.
51
<PAGE>
DESCRIPTION OF SECURITIES OF THE COMPANY
AUTHORIZED CAPITAL STOCK
The authorized capital stock of the Company consists of (i) 15,000,000
shares of preferred stock, $5.00 per share par value ("Preferred Stock"),
issuable in series, 165,456 shares of which are designated Series A Preferred
Stock, all of which are issued and outstanding and (ii) 50,000,000 shares of
Common Stock, $1.00 per share par value, of which 2,548,280 shares were issued
and outstanding as of the date of this Prospectus. The terms of any new series
of preferred stock may be fixed by the Board of Directors of the Company
within certain limits set by the Company's Articles of Incorporation.
The following discussion of the terms and provisions of the Company's
capital stock is qualified in its entirety by reference to the Company's
Articles of Incorporation and Bylaws, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.
PREFERRED STOCK
The Company is authorized to issue 15,000,000 shares of Preferred Stock. The
Preferred Stock (or other securities convertible in whole or in part into
Preferred Stock) is available for issuance from time to time for various
purposes as determined by the Company's Board of Directors, including, without
limitation, making future acquisitions, raising additional equity capital and
financing. Subject to certain limits set by the Company's Articles of
Incorporation, the Preferred Stock (or such convertible securities) may be
issued on such terms and conditions, and at such times and in such situations,
as the Board of Directors in its sole discretion determines to be appropriate,
without any further approval or action by the shareholders (unless otherwise
required by laws, rules, regulations or agreements applicable to the Company).
Moreover, except as otherwise limited by the Articles of Incorporation or
applicable laws, rules or regulations, the Board of Directors has the sole
authority to determine the relative rights and preferences of the Preferred
Stock and any series thereof without shareholder approval. The Company's
Articles of Incorporation require all shares of Preferred Stock to be
identical, except as to the following characteristics, which may vary between
different series of Preferred Stock:
(i) dividend rate, preference of dividend with respect to any other class
or series of stock, and cumulativity, non-cumulativity or partial
cumulativity of dividends;
(ii) redemption price and terms, including, to the extent permitted by law,
the manner in which shares are to be chosen for redemption if less
than all the shares of a series are to be redeemed;
(iii) sinking fund provisions for the redemption or purchase of shares;
(iv) the amount payable upon shares in the event of voluntary or
involuntary liquidation;
(v) the terms and conditions on which shares may be converted, if the
shares of any series are issued with the privilege of conversion;
(vi) voting rights; and
(vii) such other powers, preferences and rights as the Board of Directors
shall determine.
The Company has issued and outstanding 165,456 shares of Series A Preferred
Stock. Dividends on Series A Preferred Stock aggregate 9% of par value per
annum, payable semi-annually. Dividends with respect to the Series A Preferred
Stock are not cumulative. Accordingly, the Board of Directors of the Company
has no obligation to declare and pay dividends with respect to the Preferred
Stock except as expressly provided in the Articles of Incorporation or as
provided by law. Pursuant to the terms of the Series A Preferred Stock,
however, the Company may not declare or pay a dividend with respect to the
Common Stock unless the Company has paid all declared dividends with respect
to the Series A Preferred Stock. The Series A Preferred Stock has no voting
rights. The Series A Preferred Stock is redeemable at any time at the option
of the Company at the $5.00 liquidation value of the shares plus all declared
but unpaid dividends thereon to the date fixed for redemption. In the event of
the liquidation, dissolution or winding up of the affairs of the Company,
prior to any distribution or
52
<PAGE>
payment to the holders of Common Stock or any other class of stock of the
Company ranking junior to the Preferred Stock, holders of the Preferred Stock
shall be entitled to be paid in full the $5.00 liquidation value of the shares
plus all declared but unpaid dividends thereon to the date of payment. The
Company plans to redeem the Series A Preferred Stock after the closing of the
Offering.
The Board of Directors does not intend to seek shareholder approval prior to
any issuance of Preferred Stock or any series thereof, unless otherwise
required by law. Under the Texas Business Corporation Act ("TBCA"),
shareholder approval prior to the issuance of shares of Common Stock or
Preferred Stock is required in connection with certain mergers. Frequently,
opportunities arise that require prompt action, such as the possible
acquisition of a property or business or the private sale of securities, and
it is the belief of the Board of Directors that the delay necessary for
shareholder approval of a specific issuance could be to the detriment of the
Company and its shareholders. The Board of Directors does not intend to issue
any shares of Common Stock or Preferred Stock except on terms which the Board
of Directors deems to be in the best interests of the Company and its then
existing shareholders.
Although the Preferred Stock could be deemed to have an anti-takeover
effect, the Board of Directors is not aware of any takeover efforts. If a
hostile takeover situation should arise, shares of Preferred Stock could be
issued to purchasers sympathetic with the Company's management or others in
such a way as to render more difficult or to discourage a merger, tender
offer, proxy contest, the assumption of control by a holder of a large block
of the Company's securities or the removal of incumbent management.
The effects of the issuance of the Preferred Stock on the holders of Common
Stock could include, among other things, (i) reduction of the amount otherwise
available for payments of dividends on Common Stock if dividends are payable
on the series of Preferred Stock; (ii) restrictions on dividends on Common
Stock if dividends on the series of Preferred Stock are in arrears; (iii)
dilution of the voting power of Common Stock if the series of Preferred Stock
has voting rights, including a possible "veto" power if the series of
Preferred Stock has class voting rights; (iv) dilution of the equity interest
of holders of Common Stock if the series of Preferred Stock is convertible,
and is converted, into Common Stock; and (v) restrictions on the rights of
holders of Common Stock to share in the Company's assets upon liquidation
until satisfaction of any liquidation preference granted to the holders of the
series of Preferred Stock. Holders of Common Stock have no preemptive rights
to purchase or otherwise acquire any Preferred Stock that may be issued.
COMMON STOCK
The holders of the Common Stock are entitled to one vote for each share of
Common Stock owned. Except as expressly provided by law and except for any
voting rights which may be conferred by the Board of Directors on any shares
of Preferred Stock issued, all voting power is in the Common Stock. Holders of
Common Stock may not cumulate their votes for the election of directors.
Holders of Common Stock do not have preemptive rights to acquire any
additional, unissued or treasury shares of the Company, or securities of the
Company convertible into or carrying a right to subscribe for or acquire
shares of the Company.
Holders of Common Stock will be entitled to receive dividends out of funds
legally available therefor, if and when properly declared by the Board of
Directors. However, the Board of Directors may not declare or pay cash
dividends on Common Stock, and no Common Stock may be purchased by the
Company, unless full dividends have been declared and paid on outstanding
Preferred Stock for the current dividend period and, with respect to any
outstanding cumulative preferred stock, all past dividend periods. See "Risk
Factors--Restrictions on Ability to Pay Dividends" and "Supervision and
Regulation."
On the liquidation of the Company, the holders of Common Stock are entitled
to share pro rata in any distribution of the assets of the Company, after the
holders of shares of Preferred Stock have received the liquidation preference
of their shares plus any cumulated but unpaid dividends, if any, and after all
other indebtedness of the Company has been retired.
53
<PAGE>
TEXAS LAW AND CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS
Certain provisions of Texas law, the Company's Articles of Incorporation and
the Company's Bylaws could make more difficult the acquisition of the Company
by means of a tender offer, a proxy contest or otherwise and the removal of
incumbent officers and directors. These provisions are intended to discourage
certain types of coercive takeover practices and inadequate takeover bids and
to encourage persons seeking to acquire control of the Company to negotiate
first with the Company.
The Company is subject to the provisions of the Texas Business Combination
Law (Articles 13.01 through 13.08 of the TBCA), which provides that a Texas
corporation such as the Company may not engage in certain business
combinations, including mergers, consolidations and asset sales, with a
person, or an affiliate or associate of such person, who is an "Affiliated
Shareholder" (generally defined as the holder of 20% or more of the
corporation's voting shares) for a period of three years from the date such
person became an Affiliated Shareholder unless: (i) the business combination
or purchase or acquisition of shares made by the Affiliated Shareholder was
approved by the board of directors of the corporation before the Affiliated
Shareholder became an Affiliated Shareholder or (ii) the business combination
was approved by the affirmative vote of the holders of at least two-thirds of
the outstanding voting shares of the corporation not beneficially owned by the
Affiliated Shareholder, at a meeting of shareholders called for that purpose
(and not by written consent), not less than six months after the Affiliated
Shareholder became an Affiliated Shareholder. The Texas Business Combination
Law is not applicable to: (i) the business combination of a corporation: (a)
where the corporation's original charter or bylaws contain a provision
expressly electing not to be governed by the Texas Business Combination Law,
(b) that adopted an amendment to its charter or bylaws before December 31,
1997, expressly electing not to be governed by the Texas Business Combination
Law, or (c) that adopts an amendment to its charter or bylaws after December
31, 1997, by the affirmative vote of the holders, other than Affiliated
Shareholders, of at least two-thirds of the outstanding voting shares of the
corporation, expressly electing not to be governed by the Texas Business
Combination Law; (ii) a business combination of a corporation with an
Affiliated Shareholder that became an Affiliated Shareholder inadvertently, if
the Affiliated Shareholder: (a) as soon as practicable divests itself of
enough shares to no longer be an Affiliated Shareholder and (b) would not at
any time within the three year period preceding the announcement of the
business combination have been an Affiliated Shareholder but for the
inadvertent acquisition; (iii) a business combination with an Affiliated
Shareholder that was the beneficial owner of 20% or more of the outstanding
voting shares of the corporation on December 31, 1996, and continuously until
the announcement date of the business combination; (iv) a business combination
with an Affiliated Shareholder who became an Affiliated Shareholder through a
transfer of shares of the corporation by will or intestate succession and
continuously was such an Affiliated Shareholder until the announcement date of
the business combination; and (v) a business combination of a corporation with
a wholly owned subsidiary if the subsidiary is not an affiliate or associate
of the Affiliated Shareholder other than by reason of the Affiliated
Shareholder's beneficial ownership of the voting shares of the corporation.
Neither the Articles of Incorporation nor the Bylaws of the Company contain
any provision expressly providing that the Company will not be subject to the
Texas Business Combination Law. The Texas Business Combination Law may have
the effect of inhibiting a non-negotiated merger or other business combination
involving the Company, even if such event would be beneficial to the Company's
shareholders.
The following discussion is a summary of certain material provisions of the
Company's Articles of Incorporation and the Company's Bylaws, copies of which
are filed as exhibits to the Registration Statement of which this Prospectus
is a part.
Classified Board of Directors. Under the Company's Bylaws, the Board of
Directors is classified into three classes, with the directors being elected
for staggered, three-year terms. The classification of the Company's Board of
Directors will have the effect of making it more difficult to change the
composition of the Board of Directors, because at least two annual meetings of
the shareholders would be required to change the control of the Board of
Directors rather than one. In addition, the Bylaws provide that directors may
be removed by the shareholders only for cause and that vacancies on the Board
of Directors may be filled by the remaining directors.
54
<PAGE>
Advance Notice of Shareholder Proposals and Nominations. The Company's
Bylaws establish an advance notice procedure for shareholders to make
nominations of candidates for election as directors or bring other business
before an annual meeting of shareholders of the Company (the "Shareholder
Notice Procedure"). The Shareholder Notice Procedure provides that only
persons who are nominated by, or at the direction of, the Board, or by a
shareholder who has given timely written notice to the Secretary of the
Company prior to the meeting at which directors are to be elected, will be
eligible for election as directors of the Company and that, at an annual
meeting, only such business may be conducted as has been brought before the
meeting by, or at the direction of, the Board of Directors or by a shareholder
who has given timely written notice to the Secretary of the Company of such
shareholder's intention to bring such business before such meeting.
Under the Shareholder Notice Procedure, for notice of shareholder
nominations or other business to be made at an annual meeting to be timely,
such notice must be received by the Company not less than 60 days prior to the
first anniversary of the previous year's annual meeting (or if the date of the
annual meeting is advanced by more than 20 days not later than the tenth day
after public announcement of the date of such meeting is first made).
Notwithstanding the foregoing, in the event that the number of directors to be
elected is increased and there is no public announcement naming all of the
nominees for director or specifying the size of the increased Board made by
the Company at least 80 days prior to the first anniversary of the preceding
year's annual meeting, a shareholder's notice will be timely, but only with
respect to nominees for any new positions created by such increase, if it is
received by the Company not later than the 10th day after such public
announcement is first made by the Company.
Under the Shareholder Notice Procedure, a shareholder's notice to the
Company proposing to nominate a person for election as a director or proposing
other business must contain certain information specified in the Bylaws,
including the identity and address of the nominating shareholder, the class
and number of shares of stock of the Company owned by such shareholder,
information regarding the proposed nominee that would be required under the
federal securities laws to be included in a proxy statement soliciting proxies
for the proposed nominee and, with respect to business other than a
nomination, a brief description of the business the shareholder proposes to
bring before the meeting, the reasons for conducting such business at such
meeting and any material interest of such shareholder in the business so
proposed.
The Shareholder Notice Procedure may have the effect of precluding a contest
for the election of directors or the consideration of shareholder proposals if
the proper procedures are not followed, and of discouraging or deterring a
third party from conducting a solicitation of proxies to elect its own slate
of directors or to approve its own proposal, without regard to whether
consideration of such nominees or proposals might be harmful or beneficial to
the Company and its shareholders.
Special Meetings of Shareholders. The Articles of Incorporation provide that
special meetings of shareholders can be called by shareholders only at the
request of the holders of not less than one-half of the outstanding shares of
stock entitled to vote at the meeting.
Reduced Shareholder Vote Required for Certain Actions. The Company's
Articles of Incorporation provide that, notwithstanding any provision of the
TBCA that would require approval of more than a majority of the shares
entitled to vote on such matter and present or represented by proxy at the
meeting, the vote or approval of a majority of the shares of the Company's
stock entitled to vote on such matter will be sufficient to approve such
matter. This provision reduces the required shareholder approval level for
certain actions such as a merger, a consolidation, a share exchange, certain
sales of substantially all of the Company's assets, a dissolution or an
amendment to the Company's Articles of Incorporation, each of which would
otherwise require two-thirds shareholder approval under Texas law.
No Action by Written Consent. The Company's Bylaws provide that no action
required or permitted to be taken at an annual or special meeting of
shareholders may be taken by written consent in lieu of a meeting of
shareholders.
Amendment of Bylaws. The Company's Articles of Incorporation and Bylaws
provide that the Bylaws may be amended only by the Board of Directors.
Shareholders do not have the power to amend the Company Bylaws.
55
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement among the
Company and the Underwriter, the Underwriter has agreed to purchase from the
Company 350,000 shares of Common Stock at the initial public offering price
less the underwriting discounts and commissions set forth on the cover page of
this Prospectus.
The Underwriting Agreement provides that the obligations of the Underwriter
are subject to certain conditions precedent and that the Underwriter will
purchase all such shares of the Common Stock if any of such shares are
purchased. The Underwriter is obligated to take and pay for all of the shares
of Common Stock offered hereby if any are taken.
The Company has been advised by the Underwriter that the Underwriter
proposes to offer such shares of Common Stock to the public at the public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $ per share. The
Underwriter may allow, and such dealers may re-allow, a concession not in
excess of $ per share to certain other dealers. After the initial public
offering, the offering price and other selling terms may be changed by the
Underwriter.
The Company, each of its directors and executive officers, and certain other
shareholders of the Company have agreed not to sell or otherwise dispose of
any shares of Common Stock for a period of 120 days after the date of this
Prospectus without the prior written consent of the Underwriter. See "Risk
Factors--Restrictions on Future Sale of Shares."
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act.
Until the distribution of the Common Stock is completed, rules of the
Commission (as defined herein) may limit the ability of the Underwriter to bid
for and purchase the Common Stock. As an exception to these rules, the
Underwriter is permitted to engage in certain transactions that stabilize the
price of the Common Stock. Such transactions consist of bids or purchases for
the purpose of pegging, fixing or maintaining the price of the Common Stock.
If the Underwriter creates a short position in the Common Stock in
connection with the Offering, i.e., if it sells a greater aggregate number of
shares of Common Stock than is set forth on the cover page of this Prospectus,
the Underwriter may reduce the short position by purchasing shares of Common
Stock in the open market.
The Underwriter may also impose a penalty bid on certain selling group
members. This means that if the Underwriter purchases Common Stock in the open
market to reduce the selling group members' short position or to stabilize the
price of the Common Stock, it may reclaim the amount of the selling concession
from the selling group members who sold those shares of Common Stock as part
of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security.
Neither the Company nor the Underwriter make any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Stock. In
addition, neither the Company nor the Underwriter make any representation that
the Underwriter will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
The Underwriter and dealers may engage in passive market making transactions
in the shares of Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Commission. In general, a passive market maker may not bid
for, or purchase, shares of Common Stock at a price that exceeds the highest
56
<PAGE>
independent bid. In addition, the net daily purchases made by any passive
market maker generally may not exceed 30% of its average daily trading volume
in the Common Stock during a specified two month prior period, or 200 shares,
whichever is greater. A passive market maker must identify passive market
making bids as such on the Nasdaq electronic inter-dealer reporting system.
Passive market making may stabilize or maintain the market price of the Common
Stock above independent market levels. The Underwriter and dealers are not
required to engage in passive market making and may end passive market making
activities at any time.
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price for the Common Stock will be
determined by negotiations between the Company and the Underwriter. Among the
factors considered in such negotiations were prevailing market and general
economic conditions, the market capitalizations, trading histories and stages
of development of other traded companies that the Company and the Underwriter
believed to be comparable to the Company, the results of operations of the
Company in recent periods, the current financial position of the Company,
estimates of the business potential of the Company and the present state of
the Company's development and the availability for sale in the market of a
significant number of shares of Common Stock. Additionally, consideration was
given to the general status of the securities market, the market conditions
for new issues of securities and the demand for securities of comparable
companies at the time the Offering was made.
Application has been made to have the Common Stock approved for quotation on
the Nasdaq/National Market.
LEGAL MATTERS
The validity of the shares of Common Stock to be issued by the Company will
be passed upon by Bracewell & Patterson, L.L.P., Houston, Texas. Certain legal
matters with respect to the Common Stock offered hereby have been passed upon
for the Underwriter by Rothgerber Johnson & Lyons LLP, Denver, Colorado.
EXPERTS
The consolidated Balance Sheets of the Company as of December 31, 1997 and
1996 and the related consolidated Statements of Earnings, Shareholders'
Equity, and Cash Flows for each of the three years in the period ended
December 31, 1997, have been included in this Prospectus in reliance upon the
reports of Arnold, Walker, Arnold & Co., P.C., independent certified public
accountants, given on the authority of said firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company has not previously been subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended. The Company has filed with
the Securities and Exchange Commission (the "Commission") a Registration
Statement on Form S-1 (the "Registration Statement") under the Securities Act,
with respect to the offer and sale of Common Stock pursuant to this
Prospectus. This Prospectus, filed as a part of the Registration Statement,
does not contain all of the information set forth in the Registration
Statement or the exhibits and schedules thereto in accordance with the rules
and regulations of the Commission and reference is hereby made to such omitted
information. Statements made in this Prospectus concerning the contents of any
contract, agreement or other document filed as an exhibit to the Registration
Statement are summaries of the terms of such contracts, agreements or
documents and are not necessarily complete. Reference is made to each such
exhibit for a more complete description of the matters involved and such
statements shall be deemed qualified in their entirety by such reference. The
Registration Statement and the exhibits and schedules thereto filed with the
Commission may be inspected, without charge, and copies may be obtained at
prescribed rates, at the public reference facility maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
57
<PAGE>
Washington, D.C. 20549 and at the regional offices of the Commission located
at 7 World Trade Center, 13th Floor, New York, New York 10048 and CitiCorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60621-2511. For
further information pertaining to the Common Stock offered by this Prospectus
and the Company, reference is made to the Registration Statement. The
Registration Statement and other information filed by the Company with the
Commission are also available at the Commission's World Wide Web site on the
Internet at http:/www.sec.gov.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements certified by independent auditors and
quarterly reports containing unaudited financial statements for the first
three quarters of each fiscal year.
58
<PAGE>
INDEX TO FINANCIAL STATEMENTS
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditor's Report.............................................. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996.............. F-3
Consolidated Statements of Earnings for the Years Ended December 31, 1997,
1996, and 1995........................................................... F-4
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1997, 1996, and 1995........................................ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1996, and 1995..................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Shareholders
Guaranty Bancshares, Inc.
We have audited the accompanying consolidated balance sheets of Guaranty
Bancshares, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of earnings, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Guaranty Bancshares, Inc.
and Subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
ARNOLD, WALKER, ARNOLD & CO., P.C.
Mount Pleasant, Texas
January 28, 1998 (except for Note Q,
as to which the date is
March 24, 1998)
F-2
<PAGE>
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
ASSETS 1997 1996
------ -------- --------
<S> <C> <C>
Cash and cash equivalents
Cash and due from banks..................................... $ 9,750 $ 8,694
Interest bearing deposits in other banks.................... -- 7,115
-------- --------
Total cash and cash equivalents......................... 9,750 15,809
Federal funds sold............................................ 7,720 18,150
Securities
Available-for-sale.......................................... 42,906 8,305
Held-to-maturity............................................ 15,233 22,077
-------- --------
Total securities........................................ 58,139 30,382
Loans, net.................................................... 156,266 138,234
Premises and equipment, net................................... 6,359 5,532
Other real estate............................................. 714 953
Accrued interest receivable................................... 2,224 1,661
Other assets.................................................. 2,985 3,211
-------- --------
$244,157 $213,932
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities
Deposits
Noninterest-bearing....................................... $ 46,295 $ 38,070
Interest-bearing deposits................................. 176,666 156,785
-------- --------
Total deposits.......................................... 222,961 194,855
Accrued interest and other liabilities...................... 2,943 2,827
-------- --------
Total liabilities....................................... 225,904 197,682
Commitments and contingencies................................. -- --
Shareholders' equity
Preferred stock........................................... 827 827
Common stock.............................................. 2,548 2,548
Additional capital........................................ 5,396 5,396
Retained earnings......................................... 9,240 7,480
Net unrealized appreciation on available-for-sale
securities,
net of tax of $124 and $10............................... 242 19
-------- --------
18,253 16,270
Less common stock in treasury--at cost.................... -- (20)
-------- --------
18,253 16,250
-------- --------
$244,157 $213,932
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE>
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Interest income
Loans, including fees................................. $13,051 $11,761 $11,305
Securities
Taxable.............................................. 3,177 1,825 1,835
Nontaxable........................................... 70 57 59
Federal funds sold and interest bearing deposits...... 711 1,208 1,049
------- ------- -------
Total interest income............................... 17,009 14,851 14,248
Interest expense
Deposits.............................................. 8,179 6,889 6,303
Other................................................. 13 30 69
------- ------- -------
Total interest expense.............................. 8,192 6,919 6,372
Net interest income................................. 8,817 7,932 7,876
Provision for loan losses.............................. 355 206 149
------- ------- -------
Net interest income after provision for loan losses. 8,462 7,726 7,727
Noninterest income
Service charges....................................... 1,097 1,059 1,032
Net realized gains on sales of available-for-sale
securities........................................... 19 2 --
Life insurance proceeds gain.......................... -- 822 --
Other income.......................................... 541 507 408
------- ------- -------
Total noninterest income............................ 1,657 2,390 1,440
Noninterest expense
Employee compensation and benefits.................... 3,717 3,549 3,311
Occupancy expenses.................................... 1,125 991 933
Other operating expenses.............................. 2,604 2,533 2,551
------- ------- -------
Total noninterest expenses.......................... 7,446 7,073 6,795
------- ------- -------
Earnings before income taxes........................ 2,673 3,043 2,372
Provision for income taxes
Current............................................... 228 165 165
Deferred.............................................. 45 -- 96
------- ------- -------
273 165 261
------- ------- -------
NET EARNINGS........................................ $ 2,400 $ 2,878 $ 2,111
======= ======= =======
Basic earnings per common share........................ $ 0.91 $ 1.08 $ 0.75
======= ======= =======
Diluted earnings per common share...................... $ 0.91 $ 1.08 $ 0.75
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN
(LOSS) ON
SECURITIES COMMON TOTAL
PREFERRED COMMON ADDITIONAL RETAINED AVAILABLE- STOCK IN SHAREHOLDERS'
STOCK STOCK CAPITAL EARNINGS FOR-SALE TREASURY EQUITY
--------- ------ ---------- -------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995................... $827 $2,725 $5,479 $4,742 $(109) $ (5) $13,659
Purchase of treasury
stock.................. -- -- -- -- -- (95) (95)
Sale of treasury stock.. -- -- -- -- -- 100 100
Dividends
Preferred--$0.45 per
share................ -- -- -- (74) -- -- (74)
Common--$0.19 per
share................ -- -- -- (505) -- -- (505)
Net change in unrealized
gain (loss) on
available-for-sale
securities, net of tax
of $67................. -- -- -- -- 130 -- 130
Net earnings for the
year................... -- -- -- 2,111 -- -- 2,111
---- ------ ------ ------ ----- ---- -------
Balance at December 31,
1995................... 827 2,725 5,479 6,274 21 -- 15,326
Purchase of treasury
stock.................. -- -- -- -- -- (438) (438)
Sale of treasury stock.. -- -- -- -- -- 418 418
Redemption of common
stock.................. -- (177) (83) (1,070) -- -- (1,330)
Dividends
Preferred--$0.45 per
share................ -- -- -- (74) -- -- (74)
Common--$0.21 per
share................ -- -- -- (528) -- -- (528)
Net change in unrealized
gain (loss) on
available-for-sale
securities, net of tax
of $1.................. -- -- -- -- (2) -- (2)
Net earnings for the
year................... -- -- -- 2,878 -- -- 2,878
---- ------ ------ ------ ----- ---- -------
Balance at December 31,
1996................... 827 2,548 5,396 7,480 19 (20) 16,250
Sale of treasury stock.. -- -- -- -- -- 20 20
Dividends...............
Preferred--$0.45 per
share................ -- -- -- (74) -- -- (74)
Common--$0.22 per
share................ -- -- -- (566) -- -- (566)
Net change in unrealized
gain (loss) on
available-for-sale
securities, net of tax
of $114................ -- -- -- -- 223 -- 223
Net earnings for the
year................... -- -- -- 2,400 -- -- 2,400
---- ------ ------ ------ ----- ---- -------
Balance at December 31,
1997................... $827 $2,548 $5,396 $9,240 $ 242 $ -- $18,253
==== ====== ====== ====== ===== ==== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings...................................... $ 2,400 $ 2,878 $ 2,111
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation...................................... 537 467 429
Amortization of premiums, net of (accretion) of
discounts on securities.......................... 95 85 93
Net realized gain on available-for-sale
securities....................................... (19) (2) --
Provision for loan losses......................... 355 206 149
Write-down of other real estate and repossessed
assets........................................... 150 159 201
Gain on sale of premises, equipment and other real
estate........................................... (11) (47) (71)
(Decrease) increase in accrued interest receivable
and other assets................................. (623) 217 (700)
Increase in accrued interest and other
liabilities...................................... 287 207 245
-------- ------- -------
Net cash provided by operating activities....... 3,171 4,170 2,457
Cash flows from investing activities
Purchases of held-to-maturity securities.......... (7,179) (9,536) (6,265)
Proceeds from sales and maturities of available-
for-sale securities.............................. 1,630 5,108 3,906
Purchases of available-for-sale securities........ (35,990) (7,256) (600)
Proceeds from maturities and principal repayments
of held-to-maturity securities................... 14,023 12,507 2,141
Purchases of premises and equipment............... (1,368) (973) (398)
Proceeds from sale of premises, equipment and
other real estate................................ 296 329 1,085
Net increase in loans............................. (18,387) (13,161) (3,213)
Net decrease (increase) in federal funds sold..... 10,430 (7,560) (1,190)
-------- ------- -------
Net cash used by investing activities........... (36,545) (20,542) (4,534)
Cash flows from financing activities
Repayment of borrowings........................... (171) (272) (372)
Change in deposits, net........................... 28,106 20,138 3,833
Purchase of treasury stock........................ -- (438) (95)
Sale of treasury stock............................ 20 418 100
Redemption of common stock........................ -- (1,330) --
Dividends paid.................................... (640) (602) (579)
-------- ------- -------
Net cash provided by financing activities....... 27,315 17,914 2,887
-------- ------- -------
Net (decrease) increase in cash and cash equiva-
lents.......................................... (6,059) 1,542 810
Cash and cash equivalents at beginning of year..... 15,809 14,267 13,457
-------- ------- -------
Cash and cash equivalents at end of year........... $ 9,750 $15,809 $14,267
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed
in the preparation of the consolidated financial statements. The policies
conform to generally accepted accounting principles and to general practices
within the banking industry.
1. GENERAL
The Company operates seven locations in Northeast Texas. The Company's main
sources of income are derived from granting loans primarily in Northeast Texas
and investing in United States Treasury and Agency securities. A variety of
financial products and services are provided to individual and corporate
customers. The primary deposit products are checking accounts, money market
accounts, and certificates of deposit. The primary lending products are real
estate, commercial, and consumer loans. Although the Company has a diversified
loan portfolio, a substantial portion of its debtors' abilities to honor
contracts is dependent on the economy of the area.
2. PRINCIPLES OF CONSOLIDATION AND INVESTMENT IN SUBSIDIARIES
The consolidated financial statements include the accounts of Guaranty
Bancshares, Inc. (collectively referred to as the Company) and its wholly-
owned subsidiary Guaranty Financial Corp., Inc. which wholly owns Guaranty
Bank and one non-bank subsidiary Guaranty Company. Guaranty Bank has two non-
bank subsidiaries, Guaranty Leasing Company and GB Com, Inc. All significant
intercompany balances and transactions have been eliminated in consolidation.
3. CASH AND CASH EQUIVALENTS
For the purpose of presentation in the consolidated statements of cash
flows, cash and cash equivalents are defined as those amounts included in the
balance sheet caption "Total cash and cash equivalents." Cash and cash
equivalents includes due from bank accounts, teller and vault cash.
4. SECURITIES
The Company accounts for securities according to Statement of Financial
Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in
Debt and Equity Securities. At the date of purchase, the Company is required
to classify debt and equity securities into one of three categories: held-to-
maturity, trading, or available-for-sale. At each reporting date, the
appropriateness of the classification is reassessed. Investments in debt
securities are classified as held-to-maturity and measured at amortized cost
in the financial statements only if management has the positive intent and
ability to hold those securities to maturity. Securities that are bought and
held principally for the purpose of selling them in the near term are
classified as trading and measured at fair value in the financial statements
with unrealized gains and losses included in earnings. Investments not
classified as either held-to-maturity or trading are classified as available-
for-sale and measured at fair value in the financial statements with
unrealized gains and losses reported, net of tax, in a separate component of
shareholders' equity until realized.
Gains and losses on the sale of securities are determined using the
specific-identification method.
Declines in the fair value of individual held-to-maturity and available-for-
sale securities below their carrying value that are other than temporary
result in write-downs of the individual securities to their fair value. The
related write-downs are included in earnings as realized losses.
F-7
<PAGE>
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
Premiums and discounts are recognized in interest income using the interest
method over the period to maturity.
5. LOANS
Loans are reported at the principal amount outstanding, net of charge-offs,
unearned discounts, purchase discounts and an allowance for loan losses.
Unearned discounts on installment loans are recognized using a method which
approximates a level yield over the term of the loans. Interest on other loans
is calculated using the simple interest method on the daily balance of the
principal amount outstanding.
Loan origination and commitment fees, as well as certain direct origination
costs, are deferred and amortized as a yield adjustment over the lives of the
related loans using the interest method. Amortization of deferred loan costs
is discontinued when a loan is placed on nonaccrual status.
The Company applies SFAS No. 114, Accounting by Creditors for Impairment of
a Loan, as amended by SFAS No. 118. Under SFAS 114, as amended, a loan is
identified as impaired when it is probable that interest and principal will
not be collected according to the contractual terms of the loan agreement. The
accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due. All
loans past due 90 days are placed on nonaccrual status unless the loan is both
well-secured and in the process of collection. When interest accrual is
discontinued, all unpaid accrued interest is reversed. Interest income is
subsequently recognized only to the extent cash payments are received. Loans
are not again placed on accrual status until payments are brought current and,
in management's judgement, the loan will continue to pay as agreed.
6. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is considered adequate to provide for losses
based on past loan loss experience and management's evaluation of the loan
portfolio under current economic conditions. While management uses available
information to recognize losses on loans, future additions to the allowance
may be necessary based on changes in economic conditions. Recognized losses,
net of recoveries, are charged to the allowance for loan losses. Additions to
the allowance are included in the consolidated statements of earnings as
provision for loan losses.
7. PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided on the straight-line method over the estimated useful
lives of the related assets. Maintenance, repairs and minor improvements are
charged to noninterest expense as incurred.
8. OTHER REAL ESTATE AND REPOSSESSED ASSETS
Real estate properties acquired by foreclosure and repossessed assets are
recorded at fair value at the date of foreclosure, establishing a new cost
basis. After foreclosure, valuations are periodically performed by management
and the real estate is carried at the lower of carrying amount or fair value
less cost to sell. Revenue and expenses from operations and changes in the
valuation allowance are included in other noninterest expenses. Repossessed
assets are presented on the Balance Sheet as a component of other assets.
F-8
<PAGE>
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
9. INCOME TAXES
The Company files a consolidated Federal income tax return. By agreement
with the Parent, subsidiaries record a provision or benefit for Federal income
taxes on the same basis as if they filed a separate Federal income tax return.
The asset and liability method of accounting is used for income taxes where
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. When management determines that it is more likely than not that a
deferred tax asset will not be realized, a valuation allowance must be
established. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
10. EARNINGS PER SHARE
Basic earnings per common share is calculated by dividing net income
available for common shareholders by the weighted average number of common
shares outstanding during the year. Diluted earnings per share is calculated
by dividing net earnings available for common shareholders by the weighted
average number of common and dilutive potential common shares. Stock options
may be potential dilutive common shares and are therefore considered in the
earnings per share calculation, if dilutive. The number of dilutive potential
common shares is determined using the treasury stock method.
11. OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
In the ordinary course of business, the Company enters into off-balance
sheet financial instruments consisting of commitments to extend credit and
letters of credit. Such financial instruments are recorded in the financial
statements when they are funded or related fees are incurred or received.
12. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowance
for losses on loans and foreclosed real estate, management obtains independent
appraisals for significant properties.
A majority of the loan portfolio consists of real estate loans. The ultimate
collectibility of the loan portfolio and the recovery of a substantial portion
of the carrying amount of foreclosed real estate are susceptible to changes in
local market conditions.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowance may be necessary
based on changes in local economic conditions. In addition, regulatory
agencies, as an integral part of their examination process, periodically
review the recognition of allowances for losses on loans and foreclosed real
estate. Such agencies may require additions to the allowances
F-9
<PAGE>
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
based on their judgements about information available to them at the time of
their examination. Because of these factors, it is reasonably possible that
the allowances for losses on loans and foreclosed real estate may change in
the near term.
13. RECLASSIFICATIONS
Certain reclassifications have been made to conform to the 1997
presentation.
NOTE B--SECURITIES
The securities have been classified in the consolidated balance sheets
according to management's intent. The carrying amount of securities and their
approximate fair values are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES:
December 31, 1997:
U. S. Treasury securities............ $12,178 $272 $-- $12,450
U.S. Government agency securities.... 16,174 94 -- 16,268
Mortgage-backed securities........... 13,196 -- -- 13,196
Equity securities.................... 992 -- -- 992
------- ---- --- -------
$42,540 $366 $-- $42,906
======= ==== === =======
December 31, 1996:
U. S. Treasury securities............ $ 6,794 $ 27 $-- $ 6,821
U.S. Government agency securities.... 996 2 -- 998
Mortgage-backed securities........... 93 -- -- 93
Equity securities.................... 393 -- -- 393
------- ---- --- -------
$ 8,276 $ 29 $-- $ 8,305
======= ==== === =======
HELD-TO-MATURITY SECURITIES:
December 31, 1997:
U.S. Treasury securities............. $ 2,194 $ 8 $-- $ 2,202
U.S. Government agency securities.... 4,192 144 -- 4,336
Mortgage-backed securities........... 7,468 -- -- 7,468
Obligations of state and political
subdivisions........................ 1,379 96 -- 1,475
------- ---- --- -------
$15,233 $248 $-- $15,481
======= ==== === =======
December 31, 1996:
U.S. Treasury securities............. $ 7,584 $ 66 $-- $ 7,650
U.S. Government agency securities.... 7,884 113 5 7,992
Mortgage-backed securities........... 5,561 -- -- 5,561
Obligations of state and political
subdivisions........................ 1,048 39 -- 1,087
------- ---- --- -------
$22,077 $218 $ 5 $22,290
======= ==== === =======
</TABLE>
F-10
<PAGE>
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
There were no gross realized losses on sales of available-for-sale
securities for the years ended December 31, 1997, 1996, and 1995. Gross
realized gains on sales of available-for-sale securities were $19, $2, and $0
for the years ended December 31, 1997, 1996, and 1995.
The scheduled maturities of securities to be held-to-maturity and securities
available-for-sale December 31, 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-
SECURITIES SALE SECURITIES
----------------- -----------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Due in one year or less..................... $ 2,284 $ 2,291 $ 6,200 $ 6,210
Due from one year through five years........ 2,659 2,684 10,034 10,171
Due from five years through ten years....... 4,228 4,291 19,399 19,605
Due after ten years......................... 6,062 6,215 5,915 5,928
Equity securities........................... -- -- 992 992
------- ------- ------- -------
$15,233 $15,481 $42,540 $42,906
======= ======= ======= =======
</TABLE>
Mortgage-backed securities are presented based on contractual maturities.
The actual average life of these securities may be different from the
contractual maturity.
Securities with a market value of approximately $26,835 and $26,257 at
December 31, 1997, and 1996, were pledged to secure public deposits and for
other purposes as required or permitted by law.
NOTE C--LOANS
Major classifications of loans are as follows at December 31:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Commercial................................................... $ 36,598 $ 29,412
Agriculture.................................................. 8,174 7,159
Real estate
Construction............................................... 3,072 2,292
1-4 family residential..................................... 41,398 36,967
Farmland................................................... 6,492 6,685
Non-residential and non-farmland........................... 42,363 36,460
Other...................................................... 360 535
Consumer..................................................... 20,120 20,925
-------- --------
158,577 140,435
Less:
Unearned discounts......................................... 1,182 1,146
Allowance for loan losses.................................. 1,129 1,055
-------- --------
$156,266 $138,234
======== ========
</TABLE>
Impaired loans were $298 and $722 at December 31, 1997 and 1996. The
interest income associated with these impaired loans was insignificant and no
valuation allowance for loan losses related to impaired loans has been
established. There were no commitments to lend additional funds to borrowers
whose loans were classified as impaired.
Outstanding loans to directors and executive officers of the Bank and to
their related business interests aggregated approximately $5,210 and $4,617 at
December 31, 1997 and 1996.
F-11
<PAGE>
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
NOTE D--ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses were as follows at December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Balance at January 1.................................... $1,055 $1,005 $1,012
Provision............................................... 355 206 149
Charge-offs............................................. (385) (283) (298)
Recoveries.............................................. 104 127 142
------ ------ ------
Balance at December 31.................................. $1,129 $1,055 $1,005
====== ====== ======
</TABLE>
NOTE E--PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows at December 31:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Land............................................................. $1,597 $ 796
Building and improvements........................................ 5,367 5,178
Furniture, fixtures and equipment................................ 2,688 3,011
Automobiles...................................................... 279 233
------ ------
9,931 9,218
Less accumulated depreciation.................................... 3,572 3,686
------ ------
$6,359 $5,532
====== ======
</TABLE>
NOTE F--INTEREST-BEARING DEPOSITS
The types of accounts and their respective balances included in interest-
bearing deposits are as follows at December 31:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
NOW accounts................................................. $ 16,778 $ 18,379
Savings and money market accounts............................ 40,293 37,022
Certificates of deposit...................................... 119,595 101,384
-------- --------
$176,666 $156,785
======== ========
</TABLE>
The aggregate amount of certificates of deposit, each with a minimum
denomination of $100,000 was approximately $42,996 and $40,362 at December 31,
1997 and 1996. At December 31, 1997, the scheduled maturities of certificates
of deposit are as follows:
<TABLE>
<S> <C>
3 months or less...................................................... $ 28,084
Between 3 months and 6 months......................................... 24,246
Between 6 months and 1 year........................................... 60,895
Over 1 year........................................................... 6,370
--------
$119,595
========
</TABLE>
Deposits of executive officers, significant shareholders and directors were
$2,290 and $2,212 (including time deposits of $1,725 and $1,411) at December
31, 1997 and 1996.
F-12
<PAGE>
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE G--BORROWINGS
During the year ended December 31, 1997, the Company retired the final
installment of a note payable to Texas Independent Bank, Dallas, Texas.
Company subsidiaries' stock securing the debt was released. As of December 31,
1996 the balance outstanding was $171. Interest expense was $6, $30 and $69
for the years ended December 31, 1997, 1996, and 1995, respectively.
NOTE H--PREFERRED AND COMMON STOCK
The following summary of issued and outstanding shares of stock shows the
effects of a seven for one common shares stock split, effective March 24,
1998.
<TABLE>
<CAPTION>
ISSUED AND
OUTSTANDING COMMON COMMON
PREFERRED STOCK STOCK TREASURY
STOCK ISSUED OUTSTANDING STOCK
----------- --------- ----------- --------
<S> <C> <C> <C> <C>
Balance at January 1, 1995.......... 165,456 2,724,680 2,723,448 (1,232)
Sale of treasury stock............ -- -- 1,232 1,232
------- --------- --------- ------
Balance at December 31, 1995........ 165,456 2,724,680 2,724,680 --
Purchase of treasury stock........ -- -- (3,213) (3,213)
Redemption of common stock........ -- (176,400) (176,400) --
------- --------- --------- ------
Balance at December 31, 1996........ 165,456 2,548,280 2,545,067 (3,213)
Sale of treasury stock............ -- -- 3,213 3,213
------- --------- --------- ------
Balance at December 31, 1997........ 165,456 2,548,280 2,548,280 --
======= ========= ========= ======
</TABLE>
At December 31, 1997, 1996 and 1995, the Company had 3,000,000 authorized
shares of preferred stock of $5 par value. Effective March 24, 1998 a
resolution was passed authorizing a total of 15,000,000 shares of preferred
stock of $5 par value.
The preferred stock pays dividends semi-annually. The preferred stock is not
cumulative or participating, has no voting rights and is not convertible.
Preferred stock has liquidation preferences over common stock of the Company.
Dividends on common stock of the Company may not be declared or paid unless
dividends for the same period on preferred stock have been paid or declared.
At December 31, 1997, 1996 and 1995, the Company had 1,000,000 authorized
shares of common stock of $1 par value. Effective March 24, 1998 a resolution
was passed authorizing a total of 50,000,000 shares of common stock of $1 par
value.
NOTE I--INCOME TAXES
Federal income tax currently (payable) receivable, deferred tax asset and
deferred tax liability, included in other assets and other liabilities,
respectively, are as follows at December 31:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Current................................................. $ (89) $ 9 $ (41)
Deferred tax asset...................................... 256 340 444
Deferred tax liability.................................. (1,574) (1,499) (1,604)
</TABLE>
F-13
<PAGE>
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of
December 31 are presented below:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses.......................... $ 74 $ 67 $ 97
Tax credits........................................ 24 133 263
Difference in basis of other real estate........... 113 77 84
Other.............................................. 45 63 --
------- ------- -------
$256 $ 340 $ 444
======= ======= =======
Deferred tax liabilities:
Unrealized gain on available-for-sale securities... $ (124) $ (10) $ (11)
Depreciation....................................... (546) (446) (384)
Leasing transactions............................... (644) (799) (830)
Deferred loan costs, net........................... (260) (244) (268)
Other.............................................. -- -- (111)
------- ------- -------
$(1,574) $(1,499) $(1,604)
======= ======= =======
</TABLE>
The reconciliation between the Company's effective income tax rate and the
statutory federal income tax rate as of December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate....................... 34.00% 34.00% 34.00%
Effect of utilization of graduated tax rates............ (0.44) (0.39) (0.50)
Tax exempt income....................................... (0.90) (0.66) (1.90)
Effect of utilization of tax credits.................... (0.90) (4.37) (5.49)
Recognition of benefit on leveraged leases.............. (19.93) (20.25) (21.83)
Life insurance proceeds................................. -- (9.17) --
Other, net.............................................. (1.62) 6.26 6.72
------ ------ ------
Effective income tax rate............................... 10.21% 5.42% 11.00%
====== ====== ======
</TABLE>
NOTE J--COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company enters into various
transactions which, in accordance with generally accepted accounting
principles, are not included in the consolidated balance sheets. These
transactions are referred to as "off-balance sheet commitments". The Company
enters into these transactions to meet the financing needs of its customers.
These transactions include commitments to extend credit and letters of credit
which involve elements of credit risk in excess of the amounts recognized in
the consolidated balance sheets. The Company minimizes its exposure to loss
under these commitments by subjecting them to credit approval and monitoring
procedures.
The Company enters into contractual commitments to extend credit, normally
with fixed expiration dates or termination clauses, at specified rates and for
specific purposes. Customers use credit commitments to ensure that funds will
be available for working capital purposes, for capital expenditures and to
ensure access to funds at specified terms and conditions. Substantially all of
the Company's commitments to extend credit are contingent upon customers
maintaining specific credit standards at the time of loan funding. Management
assesses the credit risk associated with certain commitments to extend credit
in determining the level of the allowance for credit losses.
F-14
<PAGE>
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
Letters of credit are written conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. The Company's
policies generally require that letters of credit arrangements contain
security and debt covenants similar to those contained in loan agreements.
Outstanding commitments and letters of credit at December 31 are
approximately as follows:
<TABLE>
<CAPTION>
CONTRACT OR
NOTIONAL
AMOUNT
-------------
1997 1996
------ ------
<S> <C> <C>
Commitments to extend credit..................................... $7,977 $8,623
Letters of credit................................................ 202 153
Credit card arrangements......................................... -- 2,364
</TABLE>
The Company is involved in certain claims and lawsuits occurring in the
normal course of business. Management, after consultation with legal counsel,
does not believe that the outcome of these actions would have a material
impact on the financial statements of the Company.
The Company maintains an Employee Stock Ownership Plan containing Section
401(k) provisions covering substantially all employees. The plan provides for
a matching contribution of up to 4% of qualified compensation. Total
contributions accrued or paid for December 31, 1997, 1996 and 1995 were
approximately $234, $232 and $221.
The Company established a non-qualified, non-contributory "Supplemental
Retirement Plan" in 1992. The plan covers an executive officer, who retired
from the Bank in 1996, to provide benefits equal to amounts payable under the
Company's retirement plan and certain social security benefits to aggregate a
predetermined percentage of the final five year average salary. The plan is
non-funded. Amounts accrued or paid for the period ended December 31, 1997,
1996 and 1995 were approximately $20, $52 and $55.
The Company has a cash incentive plan which provides guidelines whereby key
employees can earn bonus compensation based on the profitability of the
Company. The bonus amounts are determined based on achievement by the Company
on certain percentages of return on equity targets. This plan is approved and
adopted annually by the Board of Directors of the Company at the first board
meeting of the year. Total expenses under this plan for the years ended
December 31, 1997, 1996, and 1995 were $306, $261, and $280.
NOTE K--REGULATORY MATTERS
The Company and Guaranty Bank are subject to various regulatory capital
requirements administered by state and federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have
a direct material effect on the Company's and the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Company and the Bank must meet specific capital
guidelines that involve quantitative measures of the Company's and the Bank's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company's and the Bank's capital amounts
and classifications are also subject to qualitative judgements by the
regulators about components, risk weighting, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as
F-15
<PAGE>
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
defined). Management believes, as of December 31, 1997, that the Company and
the Bank meet all capital adequacy requirements to which they are subject.
The most recent notification from the Federal Deposit Insurance Corporation
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.
The Company's and the Bank's actual capital amounts and ratios are also
presented in the table. (See Note L.)
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE
ADEQUACY ACTION
ACTUAL PURPOSES PROVISIONS
------------ -------------- --------------
AMOUNT RATIO AMOUNT* RATIO* AMOUNT* RATIO*
------ ----- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997
Total Capital (to Risk Weighted
Assets):
Guaranty Bancshares, Inc......... 19,137 11.86% 12,905 8.00% N/A N/A
Guaranty Bank.................... 18,435 11.75% 12,551 8.00% 15,688 10.00%
Tier 1 Capital (to Risk Weighted
Assets):
Guaranty Bancshares, Inc......... 18,008 11.16% 6,453 4.00% N/A N/A
Guaranty Bank.................... 17,306 11.03% 6,275 4.00% 9,413 6.00%
Tier 1 Capital (to Average
Assets):
Guaranty Bancshares, Inc......... 18,008 7.87% 6,863 3.00% N/A N/A
Guaranty Bank.................... 17,306 7.60% 6,830 3.00% 11,384 5.00%
As of December 31, 1996
Total Capital (to Risk Weighted
Assets):
Guaranty Bancshares, Inc......... 17,033 11.80% 11,546 8.00% N/A N/A
Guaranty Bank.................... 14,787 11.66% 10,150 8.00% 12,687 10.00%
Talco State Bank................. 1,632 14.48% 902 8.00% 1,127 10.00%
Tier 1 Capital (to Risk Weighted
Assets):
Guaranty Bancshares, Inc......... 15,978 11.07% 5,773 4.00% N/A N/A
Guaranty Bank.................... 13,911 10.96% 5,075 4.00% 7,612 6.00%
Talco State Bank................. 1,453 12.89% 451 4.00% 676 6.00%
Tier 1 Capital (to Average
Assets):
Guaranty Bancshares, Inc......... 15,978 7.87% 6,092 3.00% N/A N/A
Guaranty Bank.................... 13,911 7.57% 5,511 3.00% 9,185 5.00%
Talco State Bank................. 1,453 7.90% 552 3.00% 920 5.00%
</TABLE>
- -----------------------
* Greater than or equal to
NOTE L--MERGER
Effective January 1, 1997, former bank subsidiary Talco State Bank, merged
with Guaranty Bank under the Articles of Merger as filed with the Texas
Department of Banking. As a result of that merger, the Articles of Association
of Guaranty Bank were amended and restated and the common shares of Talco
State Bank were canceled. This merger had no effect on the consolidated
financial statements of the Company.
F-16
<PAGE>
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
NOTE M--SUPPLEMENTAL STATEMENT OF CASH FLOW INFORMATION
The following is supplemental information with respect to the December 31
Consolidated Statements of Cash Flows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
CASH PAID FOR:
Interest................................................ $8,030 $6,864 $6,267
Income taxes............................................ 130 215 50
NON-CASH ACTIVITY:
Loans transferred to other real estate or repossessed
assets................................................. 206 270 958
</TABLE>
NOTE N--FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values of financial instruments are based on management's estimates
and do not purport to represent the aggregate net fair value of the Company.
Further, the fair value estimates are based on various assumptions,
methodologies and subjective considerations, which vary widely among different
financial institutions and which are subject to change.
The following methods and assumptions were used by the Company in estimating
financial instrument fair values:
. CASH AND CASH EQUIVALENTS AND FEDERAL FUNDS SOLD
The balance sheet carrying amount approximates fair value.
. SECURITIES TO BE HELD-TO-MATURITY AND SECURITIES AVAILABLE-FOR-SALE
Fair values for investment securities are based on quoted market prices or
quotations received from securities dealers. If quoted market prices are
not available, fair value estimates may be based on quoted market prices of
similar instruments, adjusted for differences between the quoted
instruments and the instruments being valued.
. LOANS
Fair values of loans are estimated for segregated groupings of loans with
similar financial characteristics. Loans are segregated by type such as
commercial, real estate and consumer loans. Each of these categories is
further subdivided into fixed and adjustable rate loans and performing and
nonperforming loans. The fair value of performing loans is calculated by
discounting scheduled cash flows through the estimated maturity using
estimated market discount rates that reflect the credit and interest rate
risk inherent in the various types of loans. The fair value of
nonperforming loans is estimated at the value of the underlying collateral.
. DEPOSITS
The fair value of demand deposits, such as non-interest bearing demand
deposits and interest-bearing transaction accounts such as savings, NOW and
money market accounts are equal to the amount payable on demand as of
December 31, 1997 and 1996 (i.e. their carrying amounts).
The fair value of demand deposits is defined as the amount payable, and
prohibits adjustment for any value derived from the expected retention of
such deposits for a period of time. That value, commonly referred to as the
core deposit base intangible, is neither included in the following fair
value amounts nor recorded as an intangible asset in the balance sheet.
The fair value of certificates of deposit is based on the discounted value
of contractual cash flows. The discount rate used represents rates
currently offered for deposits of similar remaining maturities.
F-17
<PAGE>
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
. BORROWINGS
The fair value of borrowings is estimated by discounting the contractual
cash flows using the current interest rate at which similar borrowing for
the same remaining maturities could be made.
. OFF-BALANCE SHEET INSTRUMENTS
Estimated fair values for the Company's off-balance sheet instruments are
based on fees, net of related expenses, currently charged to enter into
similar agreements, considering the remaining terms of the agreements and
the counterparties' credit standing.
The following table presents the carrying amounts and fair values of the
Company's financial instruments at December 31, 1997 and 1996. The fair value
of financial instruments is defined as the amount at which the instrument
could be exchanged in a current transaction between willing parties, other
than in a forced or liquidation sale.
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents................ $ 9,750 $ 9,750 $ 15,809 $ 15,809
Federal funds sold....................... 7,720 7,720 18,150 18,150
Securities
Available-for-sale..................... 42,906 42,906 8,305 8,305
Held-to-maturity....................... 15,233 15,481 22,077 22,290
Loans, net............................... 156,266 155,729 138,234 137,710
Financial liabilities:
Deposits
Noninterest-bearing.................... $ 46,295 $ 46,295 $ 38,070 $ 38,070
Interest-bearing transaction and money
market accounts....................... 57,070 57,070 55,401 55,401
Certificates of deposit................ 119,596 120,039 101,384 101,083
Borrowings............................... -- -- 171 171
</TABLE>
NOTE O--EARNINGS PER SHARE
The following data show the amounts used in computing earnings per share
(EPS) and the weighted average number of shares of dilutive potential common
stock. Computations reflect the effects of a seven for one common shares stock
split, effective March 24, 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net earnings.............................................. $2,400 $2,878 $2,111
Less: dividends on preferred stock........................ 74 74 74
------ ------ ------
Net earnings available to common shareholders used in ba-
sic and diluted EPS...................................... $2,326 $2,804 $2,037
====== ====== ======
Weighted average common shares in basic EPS............... 2,547 2,592 2,724
Effect of dilutive securities............................. -- -- --
------ ------ ------
Weighted average common and potential dilutive common
shares used in dilutive EPS.............................. 2,547 2,592 2,724
====== ====== ======
</TABLE>
F-18
<PAGE>
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE P--NEW PRONOUNCEMENT
The FASB has issued Financial Accounting Standards No. 130, Reporting
Comprehensive Income, which is effective for fiscal years beginning after
December 15, 1997. The new standard requires an entity to report and display
comprehensive income and its components. Comprehensive income will include net
income plus net unrealized gain or loss on securities.
NOTE Q--SUBSEQUENT EVENTS
Effective March 24, 1998 the Company approved a seven for one common shares
stock split. The effects of such split have been incorporated into the
consolidated financial statements and notes thereto as if the split had been
effective January 1, 1995.
The Company on March 24, 1998 adopted a Stock Incentive Plan (the "1998
Stock Incentive Plan") which is intended to provide employees with an
opportunity to acquire a proprietary interest in the Company and provide
additional incentive opportunities based on the growth of the Company. The
1998 Stock Incentive Plan provides that a committee of the Board of Directors
(the "Compensation Committee") shall have the right to grant incentive stock
options, non-qualified stock options, restricted stock awards, stock
appreciation rights, performance awards, phantom stock awards and any
combination thereof. The aggregate number of shares that may be issued under
this plan is limited to 1,000,000 shares. The Plan has not been implemented,
and, no stock options have been awarded to any employee of the Company.
If approved by the Compensation Committee, incentive stock options may be
granted under terms and conditions they approve, provided, however, that the
term of any incentive stock option cannot exceed ten years, and no option may
be exercised earlier than six months from the date of the grant. The exercise
price is determined by the Compensation Committee, provided that the exercise
price cannot be less than the fair market value on the date the option is
granted, subject to adjustments. Restricted stock awards may allow an employee
to receive stock without cash payment, under terms approved by the
Compensation Committee, provided, that such awards are subject to restrictions
regarding disposition and subject to forfeiture as the Compensation Committee
may approve. The restrictions may be based on items such as earnings of the
Company, revenue of the Company, return on shareholders' equity achieved by
the Company, or other factors. A stock appreciation right permits the holder
to receive an amount in cash or stock or combination thereof equal to the
number of stock appreciation rights exercised by the holder multiplied by the
excess of the fair market value of the stock on the exercise date over the
stock appreciation right exercise price. No stock appreciation right may be
exercised earlier than six months from the date of the grant. Phantom stock
awards may also be paid in cash, stock, or any combination thereof, determined
by the Compensation Committee. The grant of such awards may be contingent upon
the achievement by the Company or a department thereof, of performance goals
established by the Company. The awards may terminate if the grantee's
employment with the Company is terminated. Such awards may vest as determined
by the Compensation Committee. As mentioned above, the Compensation Committee
has awarded no such options or rights to any employee.
F-19
<PAGE>
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
NOTE R--PARENT-ONLY FINANCIAL STATEMENTS
GUARANTY BANCSHARES, INC.
(PARENT ONLY)
BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ------- -------
<S> <C> <C>
Cash and cash equivalents..................................... $ 165 $ 223
Investment in subsidiaries.................................... 17,556 15,641
Investments, insurance........................................ 631 541
Premises and equipment, net................................... 22 36
Other assets.................................................. 2 9
------- -------
$18,376 $16,450
======= =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Borrowings.................................................... $ -- $ 171
Other liabilities............................................. 123 29
------- -------
Total liabilities......................................... 123 200
Commitments and contingencies................................. -- --
Preferred stock............................................. 827 827
Common stock................................................ 2,548 2,548
Additional capital.......................................... 5,396 5,396
Retained earnings........................................... 9,240 7,480
Net unrealized appreciation on available-for-sale
securities,
net of tax of $124 and $10................................. 242 19
------- -------
18,253 16,270
Less common stock in treasury--at cost...................... -- (20)
------- -------
18,253 16,250
------- -------
$18,376 $16,450
======= =======
</TABLE>
F-20
<PAGE>
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
GUARANTY BANCSHARES, INC.
(PARENT ONLY)
STATEMENTS OF EARNINGS
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Interest income
Interest bearing deposits............................ $ -- $ 6 $ --
Life insurance proceeds gain........................... -- 822 --
Other income........................................... 2 -- 2
------ ------ ------
2 828 2
Costs and expenses
General and administrative........................... 321 388 445
Income taxes
Current.............................................. (77) (123) (122)
Deferred............................................. -- -- --
------ ------ ------
(Loss) earnings before equity in net earnings of sub-
sidiaries............................................. (242) 563 (321)
Equity in net earnings of subsidiaries................. 2,642 2,315 2,432
------ ------ ------
NET EARNINGS........................................... $2,400 $2,878 $2,111
====== ====== ======
</TABLE>
F-21
<PAGE>
GUARANTY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
GUARANTY BANCSHARES, INC.
(PARENT ONLY)
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings........................................... $2,400 $2,878 $2,111
Adjustments to reconcile net earnings to net cash used
in operating activities
Earnings of subsidiaries.............................. (2,642) (2,315) (2,432)
Depreciation.......................................... 14 5 10
Amortization.......................................... -- 1 16
Life insurance proceeds gain.......................... -- (822) --
Increase in other assets.............................. (83) (11) (378)
Increase (decrease) in other liabilities.............. 94 (80) 131
------ ------ ------
Net cash used in operating activities............... (217) (344) (542)
Cash flows from investing activities
Dividends from subsidiaries........................... 950 1,425 1,325
Life insurance proceeds............................... -- 1,318 --
Purchases of premises and equipment................... -- (40) --
------ ------ ------
Net cash provided by investing activities........... 950 2,703 1,325
Cash flows from financing activities
Repayment of borrowings............................... (171) (272) (372)
Purchase of treasury stock............................ -- (438) (95)
Sale of treasury stock................................ 20 418 100
Redemption of common stock............................ -- (1,330) --
Dividends paid........................................ (640) (602) (579)
------ ------ ------
Net cash used in financing activities............... (791) (2,224) (946)
------ ------ ------
Net (decrease) increase in cash and cash equivalents... (58) 135 (163)
Cash and cash equivalents at beginning of year......... 223 88 251
------ ------ ------
Cash and cash equivalents at end of year............... $ 165 $ 223 $ 88
====== ====== ======
</TABLE>
F-22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES OF
COMMON STOCK OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH SOLICITATION OR OFFER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAIN HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Summary Consolidated Financial Data....................................... 6
Risk Factors.............................................................. 8
The Company............................................................... 13
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 17
Dilution.................................................................. 17
Capitalization............................................................ 18
Nature of the Trading Market and Market Prices............................ 19
Selected Consolidated Financial Data...................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 22
Management................................................................ 40
Principal Shareholders.................................................... 44
Supervision and Regulation................................................ 45
Description of Securities of the Company.................................. 52
Underwriting.............................................................. 56
Legal Matters............................................................. 57
Experts................................................................... 57
Available Information..................................................... 57
Index to Financial Statements............................................. F-1
</TABLE>
---------------
UNTIL (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
350,000 SHARES
[LOGO]
GUARANTY BANCSHARES, INC.
COMMON STOCK
------------
PROSPECTUS
------------
HOEFER & ARNETT
INCORPORATED
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated fees and expenses incurred by the Registrant in connection
with this Offering are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee...................... $1,617
National Association of Securities Dealers, Inc. filing fee.............. $ *
Printing and engraving expenses.......................................... $ *
Legal fees and expenses of counsel for the Registrant.................... $ *
Accounting fees and expenses............................................. $ *
Blue sky filing fees and expenses (including legal fees and expenses).... $ *
Transfer Agent fees...................................................... $ *
Miscellaneous............................................................ $ *
------
Total.................................................................... $ *
======
</TABLE>
- --------
* To be supplied by Amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Articles of Incorporation and Bylaws require the Registrant
to indemnify officers and directors of the Registrant to the fullest extent
permitted by Article 2.02-1 of the Business Corporation Act of the State of
Texas (the "TBCA"). The Articles of Incorporation and Bylaws of the Registrant
are filed as Exhibit 3.1 and 3.2 to the Registration Statement. Generally,
Article 2.02-1 of the TBCA permits a corporation to indemnify a person who
was, is, or is threatened to be made a named defendant or respondent in a
proceeding because the person was or is a director or officer if it is
determined that such person (i) conducted himself in good faith, (ii)
reasonably believed (a) in the case of conduct in his official capacity as a
director or officer of the corporation, that his conduct was in the
corporation's best interests, and/or (b) in other cases, that his conduct was
at least not opposed to the corporation's best interests, and (iii) in the
case of any criminal proceeding, had no reasonable cause to believe that his
conduct was unlawful. In addition, the TBCA requires a corporation to
indemnify a director or officer for any action that such director or officer
is wholly successfully in defending on the merits.
The Registrant's Articles of Incorporation provide that a director of the
Registrant will not be liable to the corporation for monetary damages for an
act or omission in the director's capacity as a director, except to the extent
not permitted by law. Texas law does not permit exculpation of liability in
the case of (i) a breach of the director's duty of loyalty to the corporation
or its shareholders, (ii) an act or omission not in good faith that involves
intentional misconduct or a knowing violation of the law, (iii) a transaction
from which a director received an improper benefit, whether or not the benefit
resulted from an action taken within the scope of the director's office, (iv)
an act or omission for which the liability of the director is expressly
provided by statute, or (v) an act related to an unlawful stock repurchase or
dividend.
Pursuant to the Underwriting Agreement, a form of which is filed as Exhibit
1.1 to this Registration Statement, the Underwriter has agreed to indemnify
the directors, officers and controlling persons of the Registrant against
certain civil liabilities that may be incurred in connection with this
Offering, including certain liabilities under the Securities Act.
The Registrant may provide liability insurance for each director and officer
for certain losses arising from claims or changes made against them while
acting in their capabilities as directors or officers of Registrant, whether
or not Registrant would have the power to indemnify such person against such
liability, as permitted by law.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following documents are filed as exhibits to this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ------------------------------------------------------------------
<C> <C> <S>
*1 -- Form of Underwriting Agreement by and between the Underwriter and
the Company.
3.1 -- Amended Articles of Incorporation of the Company.
3.2 -- Amended and Restated Bylaws of the Company.
*4 -- Form of Certificate representing shares of Common Stock.
*5 -- Opinion of Bracewell & Patterson, L.L.P. as to the legality of the
securities being registered.
10.1 -- Guaranty Bancshares, Inc. 1998 Stock Incentive Plan
10.2 -- Employment Agreement between Guaranty Bank and Ty Abston.
10.3 -- Employment Agreement between Guaranty Bank and Devry Garrett.
10.4 -- Employment Agreement between Guaranty Bank and Russell Jones.
10.5 -- Employment Agreement between Guaranty Bank and Virgil Jones.
10.6 -- Employment Agreement between Guaranty Bank and Kirk Lee.
10.7 -- Employment Agreement between Guaranty Bank and Clifton A. Payne.
10.8 -- Employment Agreement between Guaranty Bank and Byron M. Rhea.
10.9 -- Employment Agreement between Guaranty Bank and Joseph Rose.
10.10 -- Employment Agreement between Guaranty Bank and Arthur B.
Scharlach, Jr.
21 -- Subsidiaries of the Registrant
23.1 -- Consent of Arnold, Walker, Arnold & Co., P.C.
*23.2 -- Consent of Bracewell & Patterson, L.L.P. (included in the opinion
to be filed as Exhibit 5 to this Registration Statement).
27 -- Financial Data Schedule
</TABLE>
- --------
* To be supplied by Amendment.
(B) FINANCIAL STATEMENT SCHEDULES
None
All other schedules for which provision is made in Regulation S-X of the
Commission are not required under the related instructions or are inapplicable
and, therefore, have been omitted.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the underwriting agreement
certificates in such denominations and registered in such names as required by
the Underwriter to permit prompt delivery to each purchaser.
II-2
<PAGE>
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officer and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497)(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Guaranty Bancshares, Inc., has duly caused this Registration Statement or
amendment thereto to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Mount Pleasant and State of Texas on March 30,
1998.
GUARANTY BANCSHARES, INC.
By: /s/ Arthur B. Scharlach, Jr.
------------------------------
Arthur B. Scharlach, Jr.
President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement or amendment thereto has been signed by the following
persons in the indicated capacities on March 30, 1998.
SIGNATURE TITLE
--------- -----
/s/ Bill G. Jones Chairman of the Board
- -----------------------------------
Bill G. Jones
/s/ Clifton A. Payne Treasurer (principal
- ----------------------------------- financial officer and
Clifton A. Payne principal accounting
officer) and Director
/s/ Arthur B. Scharlach, Jr. President (principal
- ----------------------------------- executive officer)
Arthur B. Scharlach, Jr. and Director
/s/ John A. Conroy Director
- -----------------------------------
John A. Conroy
/s/ Jonice Crane Director
- -----------------------------------
Jonice Crane
/s/ C. A. Hinton, Sr. Director
- -----------------------------------
C. A. Hinton, Sr.
/s/ Russell L. Jones Director
- -----------------------------------
Russell L. Jones
/s/ Weldon Miller Director
- -----------------------------------
Weldon Miller
/s/ D. R. Zachry, Jr. Director
- -----------------------------------
D. R. Zachry, Jr.
II-4
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION OF
GUARANTY BANCORP, INC.
I, the undersigned natural person of the age of eighteen (18) years or
more, acting as incorporator of a corporation under the Texas Business
Corporation Act (the "Act"), do hereby adopt the following Articles of
Incorporation for such corporation.
ARTICLE I.
The name of the corporation is Guaranty Bancorp, Inc.
ARTICLE II.
The period of its duration is perpetual.
ARTICLE III.
The purpose or purposes for which the corporation is organized are:
(a) To act as a bank holding company.
(b) To buy, sell, lease, and deal in services, personal property, and
real property.
(c) To do each and every thing necessary, suitable or proper for the
accomplishment of any of the purposes or for the attainment of any one or more
of the objects herein enumerated or which at any time appear conductive to or
expedient for the protection or benefit of the corporation.
(d) For any lawful purpose.
The foregoing clauses shall be construed as powers as well as objects
and purposes, and the matter expressed in each clause shall, unless herein
otherwise expressly provided, be in nowise limited by reference to or inference
from the terms of any other
<PAGE>
clause, but shall be regarded as independent objects, purposes and powers, and
shall not be construed to limit or restrict in any manner the meaning of the
general terms or the general powers of the corporation.
ARTICLE IV.
A. The corporation is authorized to issue two classes of shares to be
designated respectively "preferred" and "common". The total number of shares of
all classes of stock which the corporation shall have authority to issue is
4,000,000 consisting of (1) 3,000,000 shares of Preferred Stock, par value $5.00
per share ("Preferred Stock"), and (2) 1,000,000 shares of Common Stock, par
value $1.00 per share ("Common Stock"). The consideration for the issuance of
the shares shall be paid to or received by the corporation in full before the
issuance and shall not be less than the par value per share. The consideration
shall be as is permitted by the laws of the State of Texas. In the absence of
actual fraud in the transaction, the judgement of the Board of Directors as to
the value of such consideration shall be conclusive. Upon payment of such
consideration, such shares shall be deemed to be fully paid and nonassessable.
B. The Board of Directors is hereby expressly authorized, by resolution
or resolutions from time to time adopted, to provide, out of the unissued shares
of Preferred Stock, for the issuance of series of Preferred Stock. Before any
shares of any such series are issued, the Board of Directors shall fix and
-2-
<PAGE>
state, and hereby is expressly empowered to fix, by resolution or resolutions,
the relative rights and preferences of the shares of each such series, and the
qualification, limitations, or restrictions thereon, including, but not limited
to, determination of any of the following:
(i) the designation of such series, and the number of shares to
constitute such series;
(ii) whether the shares of such series shall have voting rights,
in addition to any voting rights provided by law, and, if so, the terms
of such voting rights, which may be full or limited;
(iii) the dividends, if any, payable on such series, and at what
rates, whether any such dividends shall be cumulative, and, if so, from
what dates, the conditions and dates upon which such dividends shall be
payable, the preference or relation which such dividends shall bear to
the dividends payable on any shares of stock of any other class or any
other series of this class;
(iv) whether the shares of such series shall be subject to
redemption by the corporation, and, if so, the times, prices and other
terms and conditions of such redemption;
(v) the amount or amounts payable upon shares of such series
upon, and the rights of the holders of such series in, the voluntary or
involuntary liquidation, dissolution or winding up of the corporation;
(vi) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and
manner in which any such retirement or sinking fund shall be applied to
the purchase or redemption of the shares of such series for retirement
or other corporate purposes and the terms and provisions relative to the
operation thereof;
(vii) whether the shares of such series shall be convertible into,
or exchangeable for, shares of stock of any other class or any other
series of the same class or any other class or classes of securities and
if so, the price or prices or the rate or rates of conversion or
exchange and the method, if any, of adjusting the same, and any other
terms and conditions of conversion or exchange;
-3-
<PAGE>
(viii) the limitations and restrictions, if any, to be effective
while any shares of such series are outstanding upon the payment of
dividends or the making of other distributions on, and upon the
purchase, redemption or other acquisition by the corporation of, the
Common Stock or shares of stock of any other class or any other series
of the same class;
(ix) the conditions or restrictions, if any, upon the creation
of indebtedness of the corporation or upon the issue of any additional
stock, including additional shares of such series or of any other series
of the same class or of any other class; and
(x) any other powers, preferences and relative, participating
optional and other special rights, and any qualifications, limitations
and restrictions thereof.
The relative rights and preferences of each series of Preferred Stock, and the
qualification, limitations or restrictions thereof, if any, may differ from
those of any and all other series of Preferred Stock at any time outstanding;
provided, that all shares of any one series of Preferred Stock shall be
identical in all respects with all other shares of such series. Any of the
designations, preferences, limitations, or relative rights, including the voting
rights, of any series of shares may be dependent upon facts ascertainable
outside the Articles of Incorporation, provided that the manner in which such
facts operate upon the designations, preferences, and relative rights, including
the voting rights, of such series of shares is clearly set forth in the Articles
of Incorporation. The Board of Directors may increase the number of shares of
the Preferred Stock designated for any existing series by a resolution adding to
such series authorized and unissued shares of the Preferred Stock not
-4-
<PAGE>
designated for any other series. The Board of Directors may decrease the number
of shares of Preferred Stock designated for any existing series by a resolution
subtracting from such series unissued shares of the Preferred Stock designated
for such series, and the shares so subtracted shall become authorized, unissued,
and undesignated shares of the Preferred Stock.
C. Each holder of Common Stock shall be entitled to one vote for each
share of Common Stock held of record on all matters on which stockholders
generally are entitled to vote. Subject to the provisions of law and the rights
of the Preferred Stock and any other class or series of stock having a
preference as to dividends over the Common Stock then outstanding, dividends may
be paid on the Common Stock out of assets legally available for dividends, but
only at such times and in such amounts as the Board of Directors shall determine
and declare. Upon the dissolution, liquidation or winding up of the corporation,
after any preferential amounts to be distributed to the holders of the Preferred
Stock and any other class or series of stock having a preference over the Common
Stock then outstanding have been paid or declared and set apart for payment, the
holders of the Common Stock shall be entitled to receive all the remaining
assets of the corporation available for distribution to its stockholders ratably
in proportion to the number of shares held by them, respectively.
-5-
<PAGE>
ARTICLE V.
The corporation will not commence business until it has received for the
issuance of its shares consideration of the value of One Thousand Dollars
($1,000.00), consisting of money, labor done, or property actually received.
ARTICLE VI.
Except as may be otherwise provided in the Act, no contract, act or
transaction of the corporation with any corporation, person or persons, firm,
trust or association, or any other organization shall be affected or invalidated
by the fact that any director, officer or shareholder of this corporation is a
party to, or is interested in, such contract, act or transaction, or in any way
connected with any such person or persons, firm, trust or association, or is a
director, officer or shareholder of, or otherwise interested in, any such other
corporation, nor shall any duty to pay damages on account to this corporation be
imposed upon such director, officer or shareholder of this corporation solely by
reason of such fact, regardless of whether the vote, action or presence of any
such director, officer or shareholder may be, or may have been, necessary to
obligate this corporation on, or in connection with, such contract, act or
transaction, provided that if such vote, action or presence is, or shall have
been, necessary, such interest or connection (other than an
-6-
<PAGE>
interest as a noncontrolling shareholder of any such other corporation) be known
or disclosed to the Board of Directors of this corporation.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the board of directors or of a committee
which authorizes the contract or transaction.
ARTICLE VII.
A director of the corporation shall not be liable to the corporation or
its shareholders for monetary damages for an act or omission in the director's
capacity as a director, except that this article does not eliminate or limit the
liability of a director for:
(1) a breach of a director's duty of loyalty to the corporation
or its shareholders,
(2) an act or omission not in good faith or that involves
intentional misconduct or a knowing violation of the law,
(3) a transaction from which a director received an improper
benefit, whether or not the benefit resulted from an action taken within
the scope of the director's office,
(4) an act or omission for which the liability of a director is
expressly provided for by statute, or
(5) an act related to an unlawful stock repurchase or payment
of a dividend.
If the Texas Civil Statutes are amended after approval by the corporation's
shareholders of this Article VII to authorize corporate action further
eliminating or limiting the personal liability of directors or eliminating or
limiting the personal
-7-
<PAGE>
liability of officers, the liability of a director or officer of the corporation
shall be eliminated or limited to the fullest extent permitted by law. No repeal
or modification of this Article VII by the shareholders shall adversely affect
any right or protection of a director or officer of the corporation existing by
virtue of this Article VII at the time of such repeal or modification.
ARTICLE VIII.
(a) The corporation shall indemnify and hold harmless any person who
was, is, or is threatened to be named a defendant or respondent in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative, or investigative, any appeal in such
action, suit, or proceeding, and any inquiry or investigation that could lead to
such an action, suit, or proceeding by reason of the fact that he is or was a
director or officer of the corporation or, while a director or officer of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, venturer, proprietor, trustee, employee, agent, or similar
functionary of another foreign or domestic corporation, partnership, joint
venture sold proprietorship, trust, employee benefit plan or other enterprise,
against judgements, penalties (including excise and similar taxes), fines, and
reasonable expenses (including attorney's fees) actually incurred; provided that
he (i) conducted himself in good faith, (ii) reasonably believed, in the case of
conduct in his official capacity as a director or officer of the corporation,
that his conduct was in the corporation's best interests and, in all other cases
that his conduct was at least not opposed to the corporation's best interests,
and (iii) in the case of any criminal proceeding, had no reasonable cause to
believe his conduct was unlawful; and provided further that (i) he was not found
liable on the basis that he improperly received a personal benefit, whether or
not the benefit resulted from an action taken in the person's official capacity
and (ii) he was not found liable to the corporation. A person found liable
either to the corporation or on the basis that personal benefit was improperly
received by him, may only be indemnified for reasonable expenses (including
attorneys' fees) actually incurred by the person in connection with the
proceeding, however if that person was found liable for willful or intentional
misconduct in the performance of his duty to the corporation, the corporation
shall not indemnify him in
-8-
<PAGE>
any respect. Notwithstanding anything contained in this Article VIII which may
be to the contrary, the corporation shall indemnify a director or officer
against reasonable expenses incurred by him in connection with a proceeding in
which he is a named defendant or respondent because he was wholly successful, on
the merits or otherwise, in the defense of the proceeding. The indemnification
of directors and officers by the corporation herein provided shall be to the
fullest extent authorized or permitted by applicable law, as such law exists or
may hereafter be amended (but only to the extent that such amendment permits the
corporation to provide broader indemnification rights than permitted prior to
the amendment).
(b) The expenses of directors and officers incurred as a party to any
threatened pending or completed proceeding, shall be paid by the corporation as
they are incurred and in advance of the final disposition of the proceeding;
provided, however, that the advance payment of expenses shall be made only upon
receipt by the corporation of both a written affirmation from the director or
officer of his good faith belief that he has met the standard of conduct
necessary for indemnification under the Act and an undertaking by or on behalf
of the director or officer to repay all amounts so advanced in the event that
is ultimately determined by a final decision, order or decree of a court of
competent jurisdiction that the director or officer has not met those standards.
(c) Any director or officer may enforce his rights to indemnification or
advance payments for expenses in a suit brought against the corporation if his
request for indemnification or advance payments for expenses is wholly or
partially refused by the corporation or if there is no determination with
respect to such request within 60 days from receipt by the corporation of a
written notice from the director or officer for such a determination. If a
director or officer is successful in establishing in a suit his entitlement to
receive or recover an advancement of expenses or a right to indemnification, in
whole or in part, he shall also be indemnified by the corporation for costs and
expenses incurred in such suit. It shall be a defense to any such suit (other
than a suit brought to enforce a claim for the advancement of expenses under
Section (b) of this Article VIII when the required affirmation and undertaking
have been received by the corporation) that the claimant has not met the
standard of conduct set forth in the Act. Neither the failure of the corporation
nor independent legal counsel to have made a determination prior to the
commencement of such suit that indemnification of the director or officer is
proper in the circumstances because the director or officer has met the
applicable standard or conduct nor a determination by the corporation or by
independent legal counsel that the director or
-9-
<PAGE>
officer has not met such applicable standard of conduct shall be a defense to
the suit or create a presumption that the director or officer has not met the
applicable standard of conduct. In a suit brought by a director or officer to
enforce a right under this Section (c) or by the corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that a director or officer is not entitled to be indemnified or is not
entitled to an advancement of expenses under this Section (c) or otherwise,
shall be on the corporation.
(d) The right to indemnification and the payment or advancement of
expenses as they are incurred and in advance of the final disposition of an
action, suit, or proceeding shall not be exclusive of any other right to which a
person may be entitled under these Articles of Incorporation, the bylaws, a
resolution of shareholders or directors, an agreement, or otherwise; provided,
however, that all rights to indemnification and to the payment or advancement of
expenses are valid only to the extent that they are consistent with the Act, as
it may be limited by these Articles of Incorporation. The right to
indemnification under Section (a) hereof shall continue for a person who has
ceased to be a director or officer and shall inure to the benefit of his heirs,
next of kin, executors, administrators and legal representatives.
(e) The corporation may purchase and maintain insurance or other
arrangement at its expense to protect itself, any director, officer, employee,
or agent of the corporation or any person who is or was serving at the request
of the corporation as a director, officer, partner, venture, proprietor,
trustee, employee, agent, or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan, or other enterprise, against any liability asserted against him
and incurred by him in such a capacity or arising out of his status as such a
person, irrespective of whether or not the corporation would have the power to
indemnify him against that liability under this Article VIII. Without limiting
the power of the corporation to procure or maintain any kind of insurance or
other arrangement, the corporation may, for the benefit of persons indemnified
by the corporation, (i) create a trust fund, (ii) establish any form of
self-insurance, (iii) secure its indemnity obligation by grant of a security
interest or other lien on the assets of the corporation, or (iv) establish a
letter of credit, guaranty, or surety arrangement. The insurance or other
arrangement may be procured, maintained or established within the corporation or
with any insurer or other person deemed appropriate by the Board of Directors
regardless of whether all or part of the stock or other securities of the
insurer or other person are owned in whole or in part by the corporation.
-10-
<PAGE>
(f) The corporation shall not be obligated to reimburse the amount of any
settlement unless it has agreed to such settlement. If any person shall
unreasonably fail to enter into a settlement of any proceeding within the scope
of Section (a) hereof, offered or assented to by the opposing party or parties
and which is acceptable to the corporation, then notwithstanding any other
provision of this Article VIII, the indemnification obligation of the
corporation in connection with such action, suit, or proceeding shall be limited
to the total of the amount at which settlement could have been made and the
expenses incurred by such person prior to the time the settlement could
reasonably have been effected.
(g) The corporation may, but need not, to the extent authorized from time
to time by the Board of Directors, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the corporation or to any
director, officer, employee or agent of any of its subsidiaries to the fullest
extent of the provisions of the Act and of this Article VIII subject to the
imposition of such conditions or limitations as the Board of Directors of the
corporation may deem necessary or appropriate.
(h) The provisions of this Article VIII are valid only to the extent that
they are consistent with applicable laws and regulations. The invalidity of any
provision of this Article VIII will not affect the validity of the remaining
provisions of Article VIII.
ARTICLE IX.
The right to accumulate votes in the election of directors and/or
cumulative voting by any shareholder is hereby expressly denied.
ARTICLE X.
No shareholder of this corporation shall, by reason of his holding shares
of any class of stock of this corporation, have any preemptive or preferential
right to purchase or subscribe for any shares of any class of stock of this
corporation, now or hereafter to be authorized, or any notes, debentures, bonds
or
-11-
<PAGE>
other securities convertible into or carrying options, warrants or rights to
purchase shares of any class, now or hereafter to be authorized, whether or not
the issuance of any such shares or such notes, debentures, bonds or other
securities would adversely affect the dividend or voting rights of any such
shareholder, other than such rights if any, as the Board of Directors, at its
discretion, from time to time may grant, and at such price as the Board of
Directors at its discretion may fix; and the Board of Directors may issue shares
of any class of stock of this corporation or any notes, debentures, bonds or
other securities convertible into or carrying options, or warrants or rights to
purchase shares of any class of such notes debentures, bonds or other
securities, either in whole or in part, to the existing shareholders of any
class.
ARTICLE XI.
The address of its initial registered office is 100 West Arkansas, Mt.
Pleasant, Texas 75455 and the name of its initial registered agent at such
address is Bill G. Jones.
ARTICLE XII.
The number of directors shall be fixed by the bylaws of the corporation,
and until changed by the bylaws, shall be nine (9); the names and addresses of
those who are to serve as directors until the first annual meeting of the
shareholders or until their successors are elected and qualified are as follows:
-12-
<PAGE>
NAME ADDRESS
John Conroy P.O. Box 812
Mt. Pleasant, Texas 75455
Jonice Crane 503 Redbud
Mt. Pleasant, Texas 75455
John E. Greene P.O. Box 4
Mt. Pleasant, Texas 75455
C. A. Hinton P.O. Box 572
Mt. Pleasant, Texas 75455
Bill G. Jones 4810 Quail Creek
Mt. Pleasant, Texas 75455
Jerry Jones P.O. Box 186
Talco, Texas 75487
Weldon Miller P.O. Box 250
Mt. Pleasant, Texas 75455
Arthur B. Scharlach, Jr. P.O. Box 389
Mt. Pleasant, Texas 75455
D. R. Zachry, Jr. 310 Delwood
Mt. Pleasant, Texas 75455
The Board of Directors shall have the power to alter, amend or repeal
the bylaws of the corporation or to adopt new bylaws.
ARTICLE XIII.
The name and address of the incorporator is as follows:
NAME ADDRESS
Michael J. Forde 1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
IN WITNESS WHEREOF, I have hereunto set my hand as of the 4th day of
December, 1990.
/s/ Michael J. Forde
-------------------------
Michael J. Forde
-13-
<PAGE>
ARTICLES OF AMENDMENT
OF
GUARANTY BANCORP, INC.
1. Guaranty Bancorp, Inc. (the "Corporation"), pursuant to the
provisions of Article 4.04 of the Texas Business Corporation Act, hereby adopts
the following amendment to its Articles of Incorporation:
ARTICLE I
Article I of the Articles of Incorporation is hereby amended to read in
its entirety as follows:
"The name of the Corporation is Guaranty Bancshares, Inc."
2. The amendment to Article I of the Articles of Incorporation was
adopted on the 21st day of December, 1990, by the unanimous consent of the sole
shareholder of Guaranty Bancorp, Inc.
3. The number of common shares of eh Corporation outstanding at the time
such amendment was adopted was 1,000 and the number of such shares entitled to
vote thereon was 1,000.
4. There were 1,000 shares voted in favor of the amendment to Article
I, -0- shares voted against such amendment and -0- shares were not voted.
Dated the 21st day of December, 1990.
GUARANTY BANCORP, INC.
By: /s/ Bill G. Jones
-------------------------------
Bill G. Jones, President
<PAGE>
ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION
OF
GUARANTY BANCSHARES, INC.
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation hereby adopts the following
Articles of Amendment to its Articles of Incorporation
ARTICLE ONE
The name of the corporation is Guaranty Bancshares, Inc.
ARTICLE TWO
The following four amendments to the Articles of Incorporation were adopted
by the shareholders of the corporation on March 24, 1998. Two of the amendments
alter or change the amended Articles of Incorporation and two of the amendments
are additions to the amended Articles of Incorporation.
Article IV was amended to increase the number of authorized shares of
common stock to 50 million shares and to increase the number of authorized
shares of preferred stock to 15 million shares, issuable in series by the Board
of Directors. The amendment alters or changes Article IV of the amended
Articles of Incorporation and the full text of Article IV is as follows:
ARTICLE IV
Section 4.1. Authorized Shares. The aggregate number of all classes of
stock which the Corporation has authority to issue is 65,000,000 shares divided
into (A) one class of 50,000,000 shares of Common Stock with a par value of
$1.00 per share, and (B) one class of 15,000,000 shares of Preferred Stock with
a par value of $5.00 per share, which may be divided into and issued in series
as set forth in this Article IV.
Section 4.2. Authorization of Directors to Determine Certain Rights of
Preferred Stock. The shares of Preferred Stock may be divided into and issued
in series. The Board of Directors shall have the authority to establish series
of unissued shares of Preferred Stock by fixing and determining the relative
rights and preferences of the shares of any series so established, and to
increase or decrease the number of shares within each such series; provided,
however, that the Board of Directors may not decrease the number of shares
within a series of Preferred Stock to less than the number of shares within such
series that are then issued. The Preferred Stock of each such series shall have
such designations, preferences, limitations, or relative rights, including
voting rights, as
<PAGE>
shall be set forth in the resolution or resolutions establishing such series
adopted by the Board of Directors, including, but without limiting the
generality of the foregoing, the following:
(A) The distinctive designation of, and the number of shares of
Preferred Stock that shall constitute, such series, which number (except
where otherwise provided by the Board of Directors in the resolution
establishing such series) may be increased or decreased (but not below the
number of shares of such series then outstanding) from time to time by like
action of the Board of Directors;
(B) The rights in respect of dividends, if any, of such series of
Preferred Stock, the extent of the preference or relation, if any, of such
dividends to the dividends payable on any other class or classes or any
other series of the same or other class or classes of capital stock of the
Corporation and whether such dividends shall be cumulative or
noncumulative;
(C) The right, if any, of the holders of such series of Preferred
Stock to convert the same into, or exchange the same for, shares of any
other class or classes or of any other series of the same or any other
class or classes of capital stock, obligations, indebtedness, rights to
purchase securities or other securities of the Corporation or other
entities, domestic or foreign, or for other property or for any combination
of the foregoing, and the terms and conditions of such conversion or
exchange;
(D) Whether or not shares of such series of Preferred Stock shall be
subject to redemption, and the redemption price or prices and the time or
times at which, and the terms and conditions on which, shares of such
series of Preferred Stock may be redeemed;
(E) The rights, if any, of the holders of such series of Preferred
Stock upon the voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation or in the event of any merger or
consolidation of or sale of assets by the Corporation;
(F) The terms of any sinking fund or redemption or repurchase or
purchase account, if any, to be provided for shares of such series of
Preferred Stock;
(G) The voting powers, if any, of the holders of any series of
Preferred Stock generally or with respect to any particular matter, which
may be less than, equal to or greater than one vote per share, and which
may, without limiting the generality of the foregoing, include the right,
voting as a series of Preferred Stock as a class, to elect one or more
directors of the Corporation generally or under such specific circumstances
and on such conditions, as shall be provided in the resolution or
resolutions of the Board of Directors adopted pursuant hereto, including,
without limitation, in the event there shall have been a
<PAGE>
default in the payment of dividends on or redemption of any one or more
series of Preferred Stock; and
(H) Such other powers, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations and
restrictions thereof, as the Board of Directors shall determine.
Section 4.3. Preferences, Limitations and Relative Rights of All Classes
of Capital Stock.
(A) General. All shares of Common Stock shall have rights identical
to those of all other such shares. Except as they may vary among series
established pursuant to Section 4.2 of this Article IV, all shares of
Preferred Stock shall have preferences, limitations, and relative rights
identical to those of all other such shares.
(B) Liquidation Preference. In the event of dissolution, liquidation,
or winding up of the Corporation (whether voluntary or involuntary), after
payment or provision for payment of debts but before any distribution to
the holders of Common Stock, the holders of each series of Preferred Stock
then outstanding shall be entitled to receive the amount fixed by the Board
of Directors pursuant to Section 4.2 of this Article IV and no more. All
remaining assets shall be distributed pro rata among the holders of Common
Stock. If the assets distributable among the holders of Preferred Stock
are insufficient to permit full payment to them, the entire assets shall be
distributed among the holders of the Preferred Stock in proportion to their
respective liquidation preferences unless otherwise provided by the Board
of Directors pursuant to Section 4.2 of this Article IV. Neither the
consolidation, merger, or reorganization of the Corporation with any other
corporation or corporations, nor the sale of all or substantially all the
assets of the Corporation, nor the purchase or redemption by the
Corporation of any of its outstanding shares shall be deemed to be a
dissolution, liquidation, or winding up within the meaning of this
paragraph.
(C) Redemption.
(1) Right; Method. All or any part of any one or more series of
Preferred Stock may be redeemed at any time or times at the option of the
Corporation, by resolution of the Board of Directors, in accordance with
the terms and conditions of this Article IV and those fixed by the Board of
Directors pursuant to Section 4.2 of this Article IV. The Corporation may
redeem shares of any one or more series without redeeming shares of any
other series. If less than all the shares of any series are to be
redeemed, the shares of the series to be redeemed shall be selected ratably
or by lot or by any other equitable method determined by the Board of
Directors.
<PAGE>
(2) Notice. Notice shall be given to the holders of shares to be
redeemed, either personally or by mail, not less than twenty nor more than
fifty days before the date fixed for redemption.
(3) Payment. Holders of redeemed shares shall be paid in cash
the amount fixed by the Board of Directors pursuant to Section 4.2 of this
Article IV.
(4) Provision for Payment. On or before the date fixed for
redemption, the Corporation may provide for payment of a sum sufficient to
redeem the shares called for redemption either (a) by setting aside the
sum, separate from its other funds, in trust for the benefit of the holders
of the shares to be redeemed, or (b) by depositing such sum in a bank or
trust company (either one in Texas having capital and surplus of at least
$10,000,000 according to its latest statement of condition, or one anywhere
in the United States duly appointed and acting as transfer agent of the
Corporation) as a trust fund, with irrevocable instructions and authority
to the bank or trust company to give or complete the notice of redemption
and to pay to the holders of the shares to be redeemed, on or after the
date fixed for redemption, the redemption price on surrender of their
respective share certificates. The holders of shares to be redeemed may be
evidenced by a list certified by the Corporation (by its president or a
vice president and by its secretary or an assistant secretary) or by its
transfer agent. If the Corporation so provides for payment, then from and
after the date fixed for redemption (a) the shares shall be deemed to be
redeemed, (b) dividends thereon shall cease to accrue, (c) such setting
aside or deposit shall be deemed to constitute full payment for the shares,
(d) the shares shall no longer be deemed to be outstanding, (e) the holders
thereof shall cease to be shareholders with respect to such shares, and (f)
the holders shall have no rights with respect thereto except the right to
receive (without interest) their proportionate shares of the funds so set
aside or deposited upon surrender of their respective certificates, and any
right to convert such shares which may exist. Any interest accrued on
funds so set aside or deposited shall belong to the Corporation. If the
holders of the shares do not, within six years after such deposit, claim
any amount so deposited for redemption thereof, the bank or trust company
shall upon demand pay over to the Corporation the balance of the funds so
deposited, and the bank or trust company shall thereupon be relieved of all
responsibility to such holders.
(5) Status of Redeemed Shares. Shares of Preferred Stock which
are redeemed shall be canceled and shall be restored to the status of
authorized but unissued shares.
(D) Purchase. Except as fixed by the Board of Directors pursuant to
Section 4.2 of this Article IV or as otherwise expressly provided by law,
nothing herein shall limit the
<PAGE>
right of the Corporation to purchase any of its outstanding shares in
accordance with law, by public or private transaction.
Article VIII was amended to provide for indemnification to the fullest
extent allowed by law. The amendment alters or changes Article VIII of the
amended Articles of Incorporation and the full text of Article VIII is as
follows:
ARTICLE VIII
Section 8.1. Indemnification. As permitted by Section G of Article
2.02-1 of the Texas Business Corporation Act or any successor statute (the
"Indemnification Article"), the Corporation hereby:
(a) makes mandatory the indemnification permitted under Section B of
the Indemnification Article as contemplated by Section G thereof;
(b) makes mandatory its payment or reimbursement of the reasonable
expenses incurred by a former or present director who was, is, or is threatened
to be made a named defendant or respondent in a proceeding upon such director's
compliance with the requirements of Section K of the Indemnification Article;
and
(c) extends the mandatory indemnification referred to in Section
8.1(a) above and the mandatory payment or reimbursement of expenses referred to
in Section 8.1(b) above (i) to all former or present officers of the Corporation
and (ii) to all persons who are or were serving at the request of the
Corporation as a director, officer, partner or trustee of another foreign or
domestic corporation, partnership, joint venture, trust or employee benefit
plan, to the same extent that the Corporation is obligated to indemnify and pay
or reimburse expenses to directors.
Section 8.2. Nonexclusivity. The indemnification provided by this
Article shall not be deemed exclusive of any other rights to which the person
indemnified may be entitled under any bylaw, agreement, authorization of
shareholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall enure to the benefit of such person's heirs
and legal representatives.
Section 8.3. Insurance. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee, or agent of the Corporation or who is or was serving at the request of
the Corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another business, foreign, domestic or
non-profit corporation, partnership, joint venture, sole proprietorship, trust
or other
<PAGE>
enterprise or employee benefit plan, against any liability asserted against such
person and incurred by such person in such a capacity or arising out of such
person's status as such a person, whether or not the Corporation would have the
power to indemnify such person against that liability under the provisions of
this Article or the Texas Business Corporation Act.
Section 8.4. Witnesses. Notwithstanding any other provision of this
Article, the Corporation shall pay or reimburse expenses incurred by any
director, officer, employee or agent in connection with such person's appearance
as a witness or other participation in a proceeding at a time when such person
is not a named defendant or respondent in such proceeding.
Article XIV was added to reduce from two-thirds to a majority the number of
shares of common stock required to approve extraordinary corporate transactions.
The amendment is an addition to the amended Articles of Incorporation and the
full text of Article XIV is as follows:
ARTICLE XIV
With respect to any matter for which the affirmative vote of a portion of
the shares of the Corporation entitled to vote greater than a majority of such
shares is required by the Texas Business Corporation Act (or any successor or
replacement statute), as the same now exists or may hereafter be amended, the
affirmative vote of the holders of a majority of the shares of the Corporation
entitled to vote on the matter shall be the act of the shareholders.
Article XV was added to increase to 50% the percentage of the outstanding
shares of the corporation entitled to vote that is required to call a special
meeting of the corporation's shareholders. The amendment is an addition to the
amended Articles of Incorporation and the full text of Article XV is as follows:
ARTICLE XV
Special meetings of the shareholders of the Corporation may be called only
(1) by the Chairman of the Board, by the President, by a majority of the Board
of Directors, or by such other person or persons as may be authorized in the
Bylaws or (2) by the holders of 50% of the outstanding
shares of the Corporation entitled to vote at the proposed special meeting.
ARTICLE THREE
The number of shares of the corporation outstanding at the time of such
adoption was 364,040; and the number of shares entitled to vote thereon was
364,040.
<PAGE>
ARTICLE FOUR
The number of shares voted for the amendment to change Article IV was
295,273, the number of shares voted against such amendment was 3,907 and the
number of shares abstaining was 120.
The number of shares voted for the amendment to change Article VIII was
295,577, the number of shares voted against such amendment was 3,603 and the
number of shares abstaining was 120.
The number of shares voted for the amendment to add Article XIV was
295,069, the number of shares voted against such amendment was 4,111 and the
number of shares abstaining was 120.
The number of shares voted for the amendment to add Article XV was 294,787,
the number of shares voted against such amendment was 4,393 and the number of
shares abstaining was 120.
Dated: March 25, 1998
GUARANTY BANCSHARES, INC.
By: /s/ Arthur B. Scharlach, Jr.
----------------------------------
Arthur B. Scharlach, Jr.
President
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
GUARANTY BANCSHARES, INC.
A Texas Corporation
Date of Adoption
March 24, 1998
<PAGE>
TABLE OF CONTENTS
Page
Article 1
Offices
Section 1.1. Registered Office....................................... 1
Section 1.2. Other Offices........................................... 1
Article 2
Shareholders
Section 2.1. Place of Meetings....................................... 1
Section 2.2. Quorum; Adjournment of Meetings........................ 1
Section 2.3. Annual Meetings......................................... 2
Section 2.4. Special Meetings........................................ 2
Section 2.5. Record Date............................................. 2
Section 2.6. Notice of Meetings...................................... 3
Section 2.7. Shareholder List........................................ 3
Section 2.8. Proxies................................................. 3
Section 2.9. Voting; Election; Inspectors............................ 4
Section 2.10. Conduct of Meetings..................................... 5
Section 2.11. Notifications of Nominations and Proposed Business...... 5
Section 2.12. Treasury Stock.......................................... 6
Article 3
Board of Directors
Section 3.1. Power; Number; Term of Office........................... 6
Section 3.2. Classified Board........................................ 7
Section 3.3. Quorum; Voting.......................................... 7
Section 3.4. Place of Meetings; Order of Business.................... 7
Section 3.5. First Meeting........................................... 7
Section 3.6. Regular Meetings........................................ 8
Section 3.7. Special Meetings........................................ 8
Section 3.8. Removal................................................. 8
Section 3.9. Vacancies; Increases in the Number of Directors......... 8
Section 3.10. Compensation............................................ 8
-i-
<PAGE>
Section 3.11. Action Without a Meeting; Telephone Conference Meeting.. 8
Section 3.12. Approval or Ratification of Acts or Contracts by
Shareholders............................................ 9
Article 4
Committees
Section 4.1. Designation; Powers...................................... 9
Section 4.2. Procedure; Meetings; Quorum.............................. 10
Section 4.3. Substitution and Removal of Members; Vacancies........... 10
Article 5
Officers
Section 5.1. Number, Titles and Term of Office....................... 10
Section 5.2. Powers and Duties of the Chairman of the Board.......... 11
Section 5.3. Powers and Duties of the President...................... 11
Section 5.4. Vice Presidents......................................... 11
Section 5.5. Secretary............................................... 11
Section 5.6. Assistant Secretaries................................... 12
Section 5.7. Treasurer............................................... 12
Section 5.8. Assistant Treasurers.................................... 12
Section 5.9. Action with Respect to Securities of Other Corporations. 12
Section 5.10. Delegation.............................................. 12
Article 6
Capital Stock
Section 6.1. Certificates of Stock.................................... 13
Section 6.2. Transfer of Shares....................................... 13
Section 6.3. Ownership of Shares...................................... 13
Section 6.4. Regulations Regarding Certificates....................... 13
Section 6.5. Lost or Destroyed Certificates........................... 14
Article 7
Miscellaneous Provisions
Section 7.1. Fiscal Year.............................................. 14
Section 7.2. Corporate Seal........................................... 14
Section 7.3. Notice and Waiver of Notice.............................. 14
-ii-
<PAGE>
Section 7.4. Facsimile Signatures.................................... 15
Section 7.5. Reliance upon Books, Reports and Records................ 15
Section 7.6. Application of Bylaws................................... 15
Article 8
Indemnification of Officers and Directors
Section 8.1. Indemnification......................................... 15
Section 8.2. Nonexclusivity.......................................... 16
Section 8.3. Insurance............................................... 16
Section 8.4. Witnesses............................................... 16
Article 9
Amendments
Section 9.1. Amendments............................................... 16
-iii-
<PAGE>
BYLAWS
OF
GUARANTY BANCSHARES, INC.
Article 1
Offices
Section 1.1. Registered Office. The registered office of the Corporation
required by the State of Texas to be maintained in the State of Texas shall be
the registered office named in the Articles of Incorporation of the Corporation,
or such other office as may be designated from time to time by the Board of
Directors in the manner provided by law.
Section 1.2. Other Offices. The Corporation may also have offices at
such other places both within and without the State of Texas as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
Article 2
Shareholders
Section 2.1. Place of Meetings. All meetings of the shareholders shall
be held at the principal office of the Corporation, or at such other place
within or without the State of Texas as shall be specified or fixed in the
notices or waivers of notice thereof.
Section 2.2. Quorum; Adjournment of Meetings. Unless otherwise required
by law or provided in the Articles of Incorporation of the Corporation or these
Bylaws, the holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at any meeting of shareholders for the transaction of
business. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
Notwithstanding the other provisions of the Articles of Incorporation of
the Corporation or these Bylaws, the chairman of the meeting or the holders of a
majority of the issued and outstanding stock, present in person or represented
by proxy and entitled to vote thereat, at any meeting of shareholders, whether
or not a quorum is present, shall have the power to adjourn such meeting from
time to time, without any notice other than announcement at the meeting of the
time and place of the holding of the adjourned meeting. If the adjournment is
for more than thirty (30) days, or if after
<PAGE>
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each shareholder of record entitled
to vote at such meeting. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted which might have been
transacted at the meeting as originally called.
Section 2.3. Annual Meetings. An annual meeting of the shareholders, for
the election of directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place (within or without the State of Texas), on such
date, and at such time as the Board of Directors shall fix and set forth in the
notice of the meeting, which date shall be within thirteen (13) months
subsequent to the last annual meeting of shareholders.
Section 2.4. Special Meetings. Unless otherwise provided in the Articles
of Incorporation of the Corporation, special meetings of the shareholders for
any purpose or purposes may be called at any time by the Chairman of the Board,
by the President, by a majority of the Board of Directors, or by a majority of
the executive committee (if any) or by the holders of 50% of the outstanding
shares of the Company entitled to vote at the proposed special meeting, at such
time and at such place as may be stated in the notice of the meeting. Business
transacted at a special meeting shall be confined to the purpose(s) stated in
the notice of such meeting.
Section 2.5. Record Date. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders, or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors of the Corporation may fix a date as
the record date for any such determination of shareholders, which record date
shall not precede the date on which the resolutions fixing the record date are
adopted and which record date shall not be more than sixty (60) days nor less
than ten (10) days before the date of such meeting of shareholders, nor more
than sixty (60) days prior to any other action to which such record date
relates.
If the Board of Directors does not fix a record date for any meeting of the
shareholders, the record date for determining shareholders entitled to notice of
or to vote at such meeting shall be at the close of business on the day next
preceding the day on which notice is given, or, if in accordance with Article 7,
Section 7.3 of these Bylaws notice is waived, at the close of business on the
day next preceding the day on which the meeting is held. The record date for
determining shareholders for any other purpose (other than the consenting to
corporate action in writing without a meeting) shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. A determination of shareholders of record entitled to notice of or to
vote at a meeting of
-2-
<PAGE>
shareholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
For the purpose of determining the shareholders entitled to consent to
corporate action in writing without a meeting, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than ten (10) days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If the
Board of Directors does not fix the record date, the record date for determining
shareholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is necessary, shall be
the first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the Corporation at its registered office
in the State of Texas or at its principal place of business. If the Board of
Directors does not fix the record date, and prior action by the Board of
Directors is necessary, the record date for determining shareholders entitled to
consent to corporate action in writing without a meeting shall be at the close
of business on the day on which the Board of Directors adopts the resolution
taking such prior action.
Section 2.6. Notice of Meetings. Written notice of the place, date and
hour of all meetings, and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall be given by or at the direction of the
Board of Directors or the other person(s) calling the meeting to each
shareholder entitled to vote thereat not less than ten (10) nor more than sixty
(60) days before the date of the meeting. Such notice may be delivered either
personally or by mail. If mailed, notice is given when deposited in the United
States mail, postage prepaid, directed to the shareholder at such shareholder's
address as it appears on the records of the Corporation.
Section 2.7. Shareholder List. A complete list of shareholders entitled
to vote at any meeting of shareholders, arranged in alphabetical order for each
class of stock and showing the address of each such shareholder and the number
of shares registered in the name of such shareholder, shall be open to the
examination of any shareholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The shareholder list
shall also be produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any shareholder who is present.
Section 2.8. Proxies. Each shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent to a corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy. Proxies for use at any meeting of shareholders shall be filed with the
Secretary, or such other officer as the Board of Directors may from time to time
-3-
<PAGE>
determine by resolution, before or at the time of the meeting. All proxies
shall be received and taken charge of and all ballots shall be received and
canvassed by the secretary of the meeting, who shall decide all questions
touching upon the qualification of voters, the validity of the proxies, and the
acceptance or rejection of votes, unless an inspector or inspectors shall have
been appointed by the chairman of the meeting, in which event such inspector or
inspectors shall decide all such questions.
No proxy shall be valid after eleven (11) months from its date, unless the
proxy provides for a longer period. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power.
Should a proxy designate two or more persons to act as proxies, unless such
instrument shall provide the contrary, a majority of such persons present at any
meeting at which their powers thereunder are to be exercised shall have and may
exercise all the powers of voting or giving consents thereby conferred, or if
only one be present, then such powers may be exercised by that one; or, if an
even number attend and a majority do not agree on any particular issue, each
proxy so attending shall be entitled to exercise such powers in respect of such
portion of the shares as is equal to the reciprocal of the fraction equal to the
number of proxies representing such shares divided by the total number of shares
represented by such proxies.
Section 2.9. Voting; Election; Inspectors. Unless otherwise required by
law or provided in the Articles of Incorporation of the Corporation, each
shareholder shall on each matter submitted to a vote at a meeting of
shareholders have one vote for each share of the stock entitled to vote which is
registered in his name on the record date for the meeting. For the purposes
hereof, each election to fill a directorship shall constitute a separate matter.
Shares registered in the name of another corporation, domestic or foreign, may
be voted by such officer, agent or proxy as the bylaws (or comparable body) of
such corporation may determine. Shares registered in the name of a deceased
person may be voted by the executor or administrator of such person's estate,
either in person or by proxy.
All voting, except as required by the Articles of Incorporation of the
Corporation or where otherwise required by law, may be by a voice vote;
provided, however, upon request of the chairman of the meeting or upon demand
therefor by shareholders holding a majority of the issued and outstanding stock
present in person or by proxy at any meeting a stock vote shall be taken. Every
stock vote shall be taken by written ballots, each of which shall state the name
of the shareholder or proxy voting and such other information as may be required
under the procedure established for the meeting. All elections of directors
shall be by written ballots, unless otherwise provided in the Articles of
Incorporation of the Corporation.
-4-
<PAGE>
At any meeting at which a vote is taken by written ballots, the chairman of
the meeting may appoint one or more inspectors, each of whom shall subscribe an
oath or affirmation to execute faithfully the duties of inspector at such
meeting with strict impartiality and according to the best of such inspector's
ability. Such inspector shall receive the written ballots, count the votes, and
make and sign a certificate of the result thereof. The chairman of the meeting
may appoint any person to serve as inspector, except no candidate for the office
of director shall be appointed as an inspector.
Unless otherwise provided in the Articles of Incorporation of the
Corporation, cumulative voting for the election of directors shall be
prohibited.
Section 2.10. Conduct of Meetings. The meetings of the shareholders shall
be presided over by the Chairman of the Board, or, if the Chairman of the Board
is not present, by the President, or, if the President is not present, by any
Vice President, or if no Vice President is present, by a chairman elected at the
meeting. The Secretary of the Corporation, if present, shall act as secretary
of such meetings, or, if the Secretary is not present, an Assistant Secretary
shall so act; if neither the Secretary or an Assistant Secretary is present,
then a secretary shall be appointed by the chairman of the meeting.
The chairman of any meeting of shareholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to the chairman in order.
Section 2.11. Notifications of Nominations and Proposed Business. Subject
to the rights of holders of any class of capital stock of the Corporation (other
than the common stock), nominations for the election of directors and proposals
for business to be brought before any shareholder meeting may be made by the
Board of Directors or by any shareholder entitled to vote in the election of
directors generally. However, any such shareholder may nominate one or more
persons for election as directors at a meeting or propose business to be brought
before a meeting, or both, only if such shareholder has given timely notice in
proper written form of his intent to make such nomination or nominations or to
propose such business. To be timely, a shareholder's notice must be delivered
to or mailed and received by the Secretary of the Corporation not later than
sixty (60) days prior to such meeting. To be in proper written form, a
shareholder's notice to the Secretary shall set forth:
(i) the name and address of the shareholder who intends to make
the nominations or propose the business and, in the case of nominations for
the election of directors, of the person or persons to be nominated;
-5-
<PAGE>
(ii) a representation that the shareholder is a holder of record
of stock of the Corporation entitled to vote at such meeting and, if
applicable, intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice or propose the
business specified in the notice;
(iii) if applicable, a description of all arrangements or
understandings between the shareholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the shareholder;
(iv) such other information regarding each nominee or each matter
of business to be proposed by such shareholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had the nominee been nominated or the
matter been proposed by the Board of Directors; and
(v) if applicable, the consent of each nominee to serve as
director of the Corporation if so elected.
A nomination of any person or proposal of any business not made in
compliance with the foregoing procedures shall not be eligible to be voted upon
by the shareholders at the meeting.
Section 2.12. Treasury Stock. The Corporation shall not vote, directly or
indirectly, shares of its own stock owned by it and such shares shall not be
counted for quorum purposes. Nothing in this Section 2.11 shall be construed as
limiting the right of the Corporation to vote stock, including but not limited
to its own stock, held by it in a fiduciary capacity.
Article 3
Board of Directors
Section 3.1. Power; Number; Term of Office. The business and affairs of
the Corporation shall be managed by or under the direction of the Board of
Directors, and, subject to the restrictions imposed by law or the Articles of
Incorporation of the Corporation, the Board of Directors may exercise all the
powers of the Corporation.
The number of directors which shall constitute the whole Board of Directors
shall be determined from time to time by the Board of Directors (provided that
no decrease in the number of directors which would have the effect of shortening
the term of an incumbent director may be made by the Board of Directors). If
the Board of Directors makes no such determination, the number of directors
shall be three. Each director shall hold office for the term for which such
director is
-6-
<PAGE>
elected, and until such director's successor shall have been elected and
qualified or until such director's earlier death, resignation or removal.
Unless otherwise provided in the Articles of Incorporation of the
Corporation, directors need not be shareholders nor residents of the State of
Texas.
Section 3.2. Classified Board. The directors of the Corporation shall be
divided into three classes, with respect to the time that they severally hold
office, as nearly equal in number as possible, with the initial term of office
of the first class of directors (the "Class I Directors") to expire at the 1998
annual meeting of holders of capital stock of the Corporation, the initial term
of office of the second class of directors (the "Class II Directors") to expire
at the 1999 annual meeting of holders of capital stock of the Corporation and
the initial term of office of the third class of directors (the "Class III
Directors") to expire at the 2000 annual meeting of holders of capital stock of
the Corporation. Directors elected to succeed those directors whose terms have
thereupon expired shall be elected for a term of office to expire at the third
succeeding annual meeting of holders of capital stock of the Corporation after
their election. If the number of directors is changed, any increase or decrease
shall be apportioned among the classes so as to maintain or attain, if possible,
the equality of the number of directors in each class, but in no case will a
decrease in the number of directors shorten the term of any incumbent director.
If such equality is not possible, the increase or decrease shall be apportioned
among the classes in such a way that the difference in the number of directors
in any two classes shall not exceed one.
Section 3.3. Quorum; Voting. Unless otherwise provided in the Articles
of Incorporation of the Corporation, a majority of the number of directors fixed
in accordance with Section 3.1 shall constitute a quorum for the transaction of
business of the Board of Directors and the vote of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
Section 3.4. Place of Meetings; Order of Business. The directors may
hold their meetings and may have an office and keep the books of the
Corporation, except as otherwise provided by law, in such place or places,
within or without the State of Texas, as the Board of Directors may from time to
time determine. At all meetings of the Board of Directors business shall be
transacted in such order as shall from time to time be determined by the
Chairman of the Board, or in the Chairman of the Board's absence by the
President, or in the President's absence by the Vice President, or by the Board
of Directors.
Section 3.5. First Meeting. Each newly elected Board of Directors may
hold its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place as the
annual meeting of the shareholders. Notice of such
-7-
<PAGE>
meeting shall not be required. At the first meeting of the Board of Directors in
each year at which a quorum shall be present, held after the annual meeting of
shareholders, the Board of Directors shall elect the officers of the
Corporation.
Section 3.6. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as shall be designated from
time to time by the Chairman of the Board, or in the absence of the Chairman of
the Board, by the President, or in the President's absence, by the Vice
President, or in the absence of the Vice President, by another officer of the
Corporation. Notice of such regular meetings shall not be required.
Section 3.7. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the President or, on the
written request of any director, by the Secretary, in each case on at least
twenty-four (24) hours personal, written, telegraphic, cable or wireless notice
to each director. Such notice, or any waiver thereof pursuant to Article 7,
Section 7.3 hereof, need not state the purpose or purposes of such meeting,
except as may otherwise be required by law or provided for in the Articles of
Incorporation of the Corporation or these Bylaws. Meetings may be held at any
time without notice if all the directors are present or if those not present
waive notice of the meeting in writing.
Section 3.8. Removal. Any director or the entire Board of Directors may
be removed, but only for cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
Section 3.9. Vacancies; Increases in the Number of Directors. Unless
otherwise provided in the Articles of Incorporation of the Corporation,
vacancies existing on the Board of Directors for any reason may be filled by the
affirmative vote of a majority of the directors then in office, although less
than a quorum, or by a sole remaining director; and any director so chosen shall
hold office until the next annual meeting held for the election of directors of
the class of directors to which such director has been appointed and until such
director's successor shall have been elected and qualified, or until such
director's earlier death, resignation or removal.
Section 3.10. Compensation. Directors and members of standing committees
may receive such compensation as the Board of Directors from time to time shall
determine to be appropriate, and shall be reimbursed for all reasonable expenses
incurred in attending and returning from meetings of the Board of Directors.
Section 3.11. Action Without a Meeting; Telephone Conference Meeting.
Unless otherwise restricted by the Articles of Incorporation of the Corporation,
any action required or permitted to be taken at any meeting of the Board of
Directors or any committee designated by the Board of
-8-
<PAGE>
Directors may be taken without a meeting if all members of the Board of
Directors or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors or committee. Such consent shall have the same force and effect as a
unanimous vote at a meeting, and may be stated as such in any document or
instrument filed with the Secretary of State of the State of Texas.
Unless otherwise restricted by the Articles of Incorporation of the
Corporation, subject to the requirement for notice of meetings, members of the
Board of Directors, or members of any committee designated by the Board of
Directors, may participate in a meeting of such Board of Directors or committee,
as the case may be, by means of a conference telephone connection or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in such a meeting shall
constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
Section 3.12. Approval or Ratification of Acts or Contracts by
Shareholders. The Board of Directors in its discretion may submit any act or
contract for approval or ratification at any annual meeting of the shareholders,
or at any special meeting of the shareholders called for the purpose of
considering any such act or contract, and any act or contract that shall be
approved or be ratified by the vote of the shareholders holding a majority of
the issued and outstanding shares of stock of the Corporation entitled to vote
and present in person or by proxy at such meeting (provided that a quorum is
present) shall be as valid and as binding upon the Corporation and upon all the
shareholders as if it has been approved or ratified by every shareholder of the
Corporation. In addition, any such act or contract may be approved or ratified
by the written consent of shareholders holding a majority of the issued and
outstanding shares of capital stock of the Corporation entitled to vote, and
such consent shall be as valid and binding upon the Corporation and upon all the
shareholders as if it had been approved or ratified by every shareholder of the
Corporation.
Article 4
Committees
Section 4.1. Designation; Powers. The Board of Directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, including, if they shall so determine, an executive committee, with
each such committee to consist of one or more of the directors of the
Corporation. Any such designated committee shall have and may exercise such of
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation as may be provided in such resolution,
except that no such committee shall have the power or authority of the Board of
Directors in reference to amending the Articles of Incorporation of the
Corporation, adopting an agreement of merger or consolidation, recommending to
the
-9-
<PAGE>
shareholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the shareholders a
dissolution of the Corporation or a revocation of a dissolution of the
Corporation, or amending, altering or repealing these Bylaws or adopting new
bylaws for the Corporation. Any such designated committee may authorize the seal
of the Corporation to be affixed to all papers which may require it. In addition
to the above, such committee or committees shall have such other powers and
limitations of authority as may be determined from time to time by the Board of
Directors.
Section 4.2. Procedure; Meetings; Quorum. Any committee designated
pursuant to this Article 4 shall keep regular minutes of its actions and
proceedings in a book provided for that purpose and report the same to the Board
of Directors at its meeting next succeeding such action, shall fix its own rules
or procedures, and shall meet at such times and at such place or places as may
be provided by such rules, or by such committee or the Board of Directors.
Should a committee fail to fix its own rules, the provisions of these Bylaws,
pertaining to the calling of meetings and conduct of business by the Board of
Directors, shall apply as nearly as may be possible. At every meeting of any
such committee, the presence of a majority of all the members thereof shall
constitute a quorum, except as provided in Section 4.3 of this Article 4, and
the affirmative vote of a majority of the members present shall be necessary for
the adoption by it of any resolution.
Section 4.3. Substitution and Removal of Members; Vacancies. The Board
of Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
such committee. In the absence or disqualification of a member of a committee,
the member or members present at any meeting and not disqualified from voting,
whether or not constituting a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of the absent or
disqualified member. The Board of Directors shall have the power at any time to
remove any member(s) of a committee and to appoint other directors in lieu of
the person(s) so removed and shall also have the power to fill vacancies in a
committee.
Article 5
Officers
Section 5.1. Number, Titles and Term of Office. The officers of the
Corporation shall be a Chairman of the Board, a President, one or more Vice
Presidents (any one or more of whom may be designated Executive Vice President
or Senior Vice President), a Treasurer, a Secretary, and such other officers as
the Board of Directors may from time to time elect or appoint (including, but
not limited to, one or more Assistant Secretaries and one or more Assistant
Treasurers). Each officer shall hold office until such officer's successor
shall be duly elected and shall qualify or until such officer's death or until
such officer shall resign or shall have been removed. Any number of offices
-10-
<PAGE>
may be held by the same person, unless the Articles of Incorporation of the
Corporation provide otherwise. Except for the Chairman of the Board, no officer
need be a director.
Section 5.2. Powers and Duties of the Chairman of the Board. The
Chairman of the Board shall be the chief executive officer of the Corporation.
Subject to the control of the Board of Directors and the Executive Committee (if
any), the Chairman of the Board shall have general executive charge, management
and control of the properties, business and operations of the Corporation with
all such powers as may be reasonably incident to such responsibilities; may
agree upon and execute all leases, contracts, evidences of indebtedness and
other obligations in the name of the Corporation and may sign all certificates
for shares of capital stock of the Corporation; and shall have such other
powers and duties as designated in accordance with these Bylaws and as from time
to time may be assigned to the Chairman of the Board by the Board of Directors.
The Chairman of the Board shall preside at all meetings of the shareholders and
of the Board of Directors.
Section 5.3. Powers and Duties of the President. Unless the Board of
Directors otherwise determines, the President shall have the authority to agree
upon and execute all leases, contracts, evidences of indebtedness and other
obligations in the name of the Corporation; and, unless the Board of Directors
otherwise determines, the President shall, in the absence of the Chairman of the
Board or if there be no Chairman of the Board, preside at all meetings of the
shareholders and of the Board of Directors; and the President shall have such
other powers and duties as designated in accordance with these Bylaws and as
from time to time may be assigned to the President by the Board of Directors or
the Chairman of the Board.
Section 5.4. Vice Presidents. Each Vice President shall at all times
possess power to sign all certificates, contracts and other instruments of the
Corporation, except as otherwise limited in writing by the Chairman of the Board
or the President of the Corporation. Each Vice President shall have such other
powers and duties as from time to time may be assigned to such Vice President by
the Board of Directors, the Chairman of the Board or the President.
Section 5.5. Secretary. The Secretary shall keep the minutes of all
meetings of the Board of Directors, committees of the Board of Directors and the
shareholders, in books provided for that purpose; shall attend to the giving
and serving of all notices; may in the name of the Corporation affix the seal
of the Corporation to all contracts and attest the affixation of the seal of the
Corporation thereto; may sign with the other appointed officers all
certificates for shares of capital stock of the Corporation; shall have charge
of the certificate books, transfer books and stock ledgers, and such other books
and papers as the Board of Directors may direct, all of which shall at all
reasonable times be open to inspection of any director upon application at the
office of the Corporation during business hours; shall have such other powers
and duties as designated in these
-11-
<PAGE>
Bylaws and as from time to time may be assigned to the Secretary by the Board of
Directors, the Chairman of the Board or the President; and shall in general
perform all acts incident to the office of Secretary, subject to the control of
the Board of Directors, the Chairman of the Board or the President.
Section 5.6. Assistant Secretaries. Each Assistant Secretary shall have
the usual powers and duties pertaining to such offices, together with such other
powers and duties as designated in these Bylaws and as from time to time may be
assigned to an Assistant Secretary by the Board of Directors, the Chairman of
the Board, the President or the Secretary. The Assistant Secretaries shall
exercise the powers of the Secretary during that officer's absence or inability
or refusal to act.
Section 5.7. Treasurer. The Treasurer shall have responsibility for the
custody and control of all the funds and securities of the Corporation, and
shall have such other powers and duties as designated in these Bylaws and as
from time to time may be assigned to the Treasurer by the Board of Directors,
the Chairman of the Board or the President. The Treasurer shall perform all
acts incident to the position of Treasurer, subject to the control of the Board
of Directors, the Chairman of the Board or the President; and the Treasurer
shall, if required by the Board of Directors, give such bond for the faithful
discharge of the Treasurer's duties in such form as the Board of Directors may
require.
Section 5.8. Assistant Treasurers. Each Assistant Treasurer shall have
the usual powers and duties pertaining to such office, together with such other
powers and duties as designated in these Bylaws and as from time to time may be
assigned to each Assistant Treasurer by the Board of Directors, the Chairman of
the Board, the President, or the Treasurer. The Assistant Treasurers shall
exercise the powers of the Treasurer during that officer's absence or inability
or refusal to act.
Section 5.9. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the Chairman of the Board
or the President, together with the Secretary or any Assistant Secretary shall
have power to vote and otherwise act on behalf of the Corporation, in person or
by proxy, at any meeting of security holders of or with respect to any action of
security holders of any other corporation in which this Corporation may hold
securities and otherwise to exercise any and all rights and powers which this
Corporation may possess by reason of its ownership of securities in such other
corporation.
Section 5.10. Delegation. For any reason that the Board of Directors may
deem sufficient, the Board of Directors may, except where otherwise provided by
statute, delegate the powers or duties of any officer to any other person, and
may authorize any officer to delegate specified duties of such office to any
other person. Any such delegation or authorization by the Board shall be
effected from time to time by resolution of the Board of Directors.
-12-
<PAGE>
Article 6
Capital Stock
Section 6.1. Certificates of Stock. The certificates for shares of the
capital stock of the Corporation shall be in such form, not inconsistent with
that required by law and the Articles of Incorporation of the Corporation, as
shall be approved by the Board of Directors. Every holder of stock represented
by certificates shall be entitled to have a certificate signed by or in the name
of the Corporation by the Chairman of the Board, the President or a Vice
President and the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer of the Corporation representing the number of shares (and,
if the stock of the Corporation shall be divided into classes or series,
certifying the class and series of such shares) owned by such shareholder which
are registered in certified form; provided, however, that any of or all the
signatures on the certificate may be facsimile. The stock record books and the
blank stock certificate books shall be kept by the Secretary or at the office of
such transfer agent or transfer agents as the Board of Directors may from time
to time determine. In case any officer, transfer agent or registrar who shall
have signed or whose facsimile signature or signatures shall have been placed
upon any such certificate or certificates shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued by the
Corporation, such certificate may nevertheless be issued by the Corporation with
the same effect as if such person were such officer, transfer agent or registrar
at the date of issue. The stock certificates shall be consecutively numbered
and shall be entered in the books of the Corporation as they are issued and
shall exhibit the holder's name and number of shares.
Section 6.2. Transfer of Shares. The shares of stock of the Corporation
shall be transferable only on the books of the Corporation by the holders
thereof in person or by their duly authorized attorneys or legal representatives
upon surrender and cancellation of certificates for a like number of shares.
Upon surrender to the Corporation or a transfer agent of the Corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
Section 6.3. Ownership of Shares. The Corporation shall be entitled to
treat the holder of record of any share or shares of capital stock of the
Corporation as the holder in fact thereof and, accordingly, shall not be bound
to recognize any equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of Texas.
Section 6.4. Regulations Regarding Certificates. The Board of Directors
shall have the power and authority to make all such rules and regulations as
they may deem expedient concerning
-13-
<PAGE>
the issue, transfer and registration or the replacement of certificates for
shares of capital stock of the Corporation.
Section 6.5. Lost or Destroyed Certificates. The Board of Directors may
determine the conditions upon which the Corporation may issue a new certificate
of stock in place of a certificate theretofore issued by it which is alleged to
have been lost, stolen or destroyed and may require the owner of such
certificate or such owner's legal representative to give bond, with surety
sufficient to indemnify the Corporation and each transfer agent and registrar
against any and all losses or claims which may arise by reason of the alleged
loss, theft or destruction of any such certificate or the issuance of such new
certificate in the place of the one so lost, stolen or destroyed.
Article 7
Miscellaneous Provisions
Section 7.1. Fiscal Year. The fiscal year of the Corporation shall begin
on the first day of January of each year.
Section 7.2. Corporate Seal. The corporate seal shall be circular in
form and shall have inscribed thereon the name of the Corporation and the state
of its incorporation, which seal shall be in the charge of the Secretary and
shall be affixed to certificates of stock, debentures, bonds, and other
documents, in accordance with the direction of the Board of Directors or a
committee thereof, and as may be required by law; however, the Secretary may,
if the Secretary deems it expedient, have a facsimile of the corporate seal
inscribed on any such certificates of stock, debentures, bonds, contract or
other documents. Duplicates of the seal may be kept for use by any Assistant
Secretary.
Section 7.3. Notice and Waiver of Notice. Whenever any notice is
required to be given by law, the Articles of Incorporation of the Corporation or
under the provisions of these Bylaws, said notice shall be deemed to be
sufficient if given (i) by telegraphic, cable or wireless transmission
(including by telecopy or facsimile transmission) or (ii) by deposit of the same
in a post office box or by delivery to an overnight courier service company in a
sealed prepaid wrapper addressed to the person entitled thereto at such person's
post office address, as it appears on the records of the Corporation, and such
notice shall be deemed to have been given on the day of such transmission or
mailing or delivery to courier, as the case may be.
Whenever notice is required to be given by law, the Articles of
Incorporation of the Corporation or under any of the provisions of these Bylaws,
a written waiver thereof, signed by the person entitled to notice, whether
before or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person, including without limitation a director, at a meeting
shall constitute a waiver of notice of such meeting, except when the person
attends a meeting for the
-14-
<PAGE>
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the shareholders, directors, or members of a
committee of directors need be specified in any written waiver of notice unless
so required by the Articles of Incorporation of the Corporation or these Bylaws.
Section 7.4. Facsimile Signatures. In addition to the provisions for the
use of facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the Corporation may be used
whenever and as authorized by the Board of Directors.
Section 7.5. Reliance upon Books, Reports and Records. A member of the
Board of Directors, or a member of any committee designated by the Board of
Directors, shall, in the performance of such person's duties, be protected to
the fullest extent permitted by law in relying upon the records of the
Corporation and upon information, opinion, reports or statements presented to
the Corporation.
Section 7.6. Application of Bylaws. In the event that any provisions of
these Bylaws is or may be in conflict with any law of the United States, of the
State of Texas or of any other governmental body or power having jurisdiction
over this Corporation, or over the subject matter to which such provision of
these Bylaws applies, or may apply, such provision of these Bylaws shall be
inoperative to the extent only that the operation thereof unavoidably conflicts
with such law, and shall in all other respects be in full force and effect.
Article 8
Indemnification of Officers and Directors
Section 8.1. Indemnification. As permitted by Section G of Article 2.02-
1 of the Texas Business Corporation Act or any successor statute (the
"Indemnification Article"), the Corporation hereby:
(a) makes mandatory the indemnification permitted under Section B of
the Indemnification Article as contemplated by Section G thereof;
(b) makes mandatory its payment or reimbursement of the reasonable
expenses incurred by a former or present director who was, is, or is threatened
to be made a named defendant or respondent in a proceeding upon such director's
compliance with the requirements of Section K of the Indemnification Article;
and
-15-
<PAGE>
(c) extends the mandatory indemnification referred to in Section
8.1(a) above and the mandatory payment or reimbursement of expenses referred to
in Section 8.1(b) above (i) to all former or present officers of the Corporation
and (ii) to all persons who are or were serving at the request of the
Corporation as a director, officer, partner or trustee of another foreign or
domestic corporation, partnership, joint venture, trust or employee benefit
plan, to the same extent that the Corporation is obligated to indemnify and pay
or reimburse expenses to directors.
Section 8.2. Nonexclusivity. The indemnification provided by this
Article shall not be deemed exclusive of any other rights to which the person
indemnified may be entitled under any bylaw, agreement, authorization of
shareholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall enure to the benefit of such person's heirs
and legal representatives.
Section 8.3. Insurance. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee, or agent of the Corporation or who is or was serving at the request of
the Corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another business, foreign, domestic or
non-profit corporation, partnership, joint venture, sole proprietorship, trust
or other enterprise or employee benefit plan, against any liability asserted
against such person and incurred by such person in such a capacity or arising
out of such person's status as such a person, whether or not the Corporation
would have the power to indemnify such person against that liability under the
provisions of this Article or the Texas Business Corporation Act.
Section 8.4. Witnesses. Notwithstanding any other provision of this
Article, the Corporation shall pay or reimburse expenses incurred by any
director, officer, employee or agent in connection with such person's appearance
as a witness or other participation in a proceeding at a time when such person
is not a named defendant or respondent in such proceeding.
Article 9
Amendments
Section 9.1. Amendments. The Board of Directors shall have the power to
adopt, amend and repeal from time to time Bylaws of the Corporation. The
shareholders of the Corporation shall not have the power to adopt, amend or
repeal the Bylaws of the Corporation.
-16-
<PAGE>
EXHIBIT 10.1
GUARANTY BANCSHARES, INC.
1998 STOCK INCENTIVE PLAN
I. PURPOSE
The purpose of the GUARANTY BANCSHARES, INC. 1998 STOCK INCENTIVE PLAN (the
"Plan") is to provide a means through which GUARANTY BANCSHARES, INC., a Texas
corporation (the "Company"), and its subsidiaries, may attract able persons to
enter the employ of the Company and to provide a means whereby those key
employees upon whom the responsibilities of the successful administration and
management of the Company rest, and whose present and potential contributions to
the welfare of the Company are of importance, can acquire and maintain stock
ownership, thereby strengthening their concern for the welfare of the Company
and their desire to remain in its employ. A further purpose of the Plan is to
provide such key employees with additional incentive and reward opportunities
designed to enhance the profitable growth of the Company. Accordingly, the Plan
provides for granting Incentive Stock Options, options which do not constitute
Incentive Stock Options, Stock Appreciation Rights, Restricted Stock Awards,
Performance Awards, Phantom Stock Awards, or any combination of the foregoing,
as is best suited to the circumstances of the particular employee as provided
herein.
II. DEFINITIONS
The following definitions shall be applicable throughout the Plan unless
specifically modified by any paragraph:
(a) "Affiliates" means any "parent corporation" of the Company and any
"subsidiary" of the Company within the meaning of Code Sections 424(e) and (f),
respectively.
(b) "Award" means, individually or collectively, any Option, Restricted
Stock Award, Phantom Stock Award, Performance Award or Stock Appreciation Right.
(c) "Board" means the Board of Directors of the Company.
(d) "Change of Control" means the occurrence of any of the following
events: (i) the Company shall not be the surviving entity in any merger,
consolidation or other reorganization (or survives only as a subsidiary of an
entity other than a previously wholly-owned subsidiary of the Company), (ii) the
Company sells, leases or exchanges all or substantially all of its assets to any
other person or entity (other than a wholly-owned subsidiary of the Company),
(iii) the Company is to be dissolved and liquidated, (iv) any person or entity,
including a "group" as contemplated by
<PAGE>
Section 13(d)(3) of the 1934 Act, acquires or gains ownership or control
(including, without limitation, power to vote) of more than 50% of the
outstanding shares of the Company's voting stock (based upon voting power), or
(v) as a result of or in connection with a contested election of directors, the
persons who were directors of the Company before such election shall cease to
constitute a majority of the Board.
(e) "Change of Control Value" shall mean (i) the per share price offered to
shareholders of the Company in any such merger, consolidation, reorganization,
sale of assets or dissolution transaction, (ii) the price per share offered to
shareholders of the Company in any tender offer or exchange offer whereby a
Change of Control takes place, or (iii) if such Change of Control occurs other
than pursuant to a tender or exchange offer, the Fair Market Value per share of
the shares into which Awards are exercisable, as determined by the Committee,
whichever is applicable. In the event that the consideration offered to
shareholders of the Company consists of anything other than cash, the Committee
shall determine the fair cash equivalent of the portion of the consideration
offered which is other than cash.
(f) "Code" means the Internal Revenue Code of 1986, as amended. Reference
in the Plan to any section of the Code shall be deemed to include any amendments
or successor provisions to any section and any regulations under such section.
(g) "Committee" means the Compensation Committee of the Board which shall
be (i) constituted so as to permit the Plan to comply with Rule 16b-3 and (ii)
constituted solely of "outside directors," within the meaning of section 162(m)
of the Code and applicable interpretive authority thereunder.
(h) "Company" means Guaranty Bancshares, Inc. and any of its Affiliates.
(i) "Director" means an individual elected to the Board by the shareholders
of the Company or by the Board under applicable corporate law who is serving on
the Board on the date the Plan is adopted by the Board or is elected to the
Board after such date.
(j) An "employee" means any person (including an officer or a Director) in
an employment relationship with the Company or any parent or subsidiary
corporation (as defined in section 424 of the Code).
(k) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(l) "Fair Market Value" means, as of any specified date, the mean of the
high and low sales prices of the Stock (i) reported by the any interdealer
quotation system on which the Stock is
-2-
<PAGE>
quoted on that date or (ii) if the Stock is listed on a national stock exchange,
reported on the stock exchange composite tape on that date; or, in either case,
if no prices are reported on that date, on the last preceding date on which such
prices of the Stock are so reported. If the Stock is traded over the counter at
the time a determination of its fair market value is required to be made
hereunder, its fair market value shall be deemed to be equal to the average
between the reported high and low or closing bid and asked prices of Stock on
the most recent date on which Stock was publicly traded. In the event Stock is
not publicly traded at the time a determination of its value is required to be
made hereunder, the determination of its fair market value shall be made by the
Committee in such manner as it deems appropriate.
(m) "Holder" means an employee who has been granted an Award.
(n) "Incentive Stock Option" means an incentive stock option within the
meaning of section 422(b) of the Code.
(o) "Nonqualified Stock Option" means an option granted under Paragraph VII
of the Plan to purchase Stock which does not constitute an Incentive Stock
Option.
(p) "Option" means an Award granted under Paragraph VII of the Plan and
includes both Incentive Stock Options to purchase Stock and Nonqualified Stock
Options to purchase Stock.
(q) "Option Agreement" means a written agreement between the Company and a
Holder with respect to an Option.
(r) "Performance Award" means an Award granted under Paragraph X of the
Plan.
(s) "Performance Award Agreement" means a written agreement between the
Company and a Holder with respect to a Performance Award.
(t) "Phantom Stock Award" means an Award granted under Paragraph XI of the
Plan.
(u) "Phantom Stock Award Agreement" means a written agreement between the
Company and a Holder with respect to a Phantom Stock Award.
(v) "Plan" means the Guaranty Bancshares, Inc. 1998 Stock Incentive Plan,
as amended from time to time.
(w) "Restricted Stock Agreement" means a written agreement between the
Company and a Holder with respect to a Restricted Stock Award.
-3-
<PAGE>
(x) "Restricted Stock Award" means an Award granted under Paragraph IX of
the Plan.
(y) "Rule 16b-3" means SEC Rule 16b-3 promulgated under the 1934 Act, as
such may be amended from time to time, and any successor rule, regulation or
statute fulfilling the same or a similar function.
(z) "Spread" means, in the case of a Stock Appreciation Right, an amount
equal to the excess, if any, of the Fair Market Value of a share of Stock on the
date such right is exercised over the exercise price of such Stock Appreciation
Right.
(aa) "Stock" means the common stock, $1.00 par value, of the Company.
(bb) "Stock Appreciation Right" means an Award granted under Paragraph VIII
of the Plan.
(cc) "Stock Appreciation Rights Agreement" means a written agreement
between the Company and a Holder with respect to an Award of Stock Appreciation
Rights.
III. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall be effective upon the date of its adoption by the Board,
provided that the Plan is approved by the shareholders of the Company within
twelve months thereafter. No further Awards may be granted under the Plan after
the expiration of ten years from the date of its adoption by the Board. The
Plan shall remain in effect until all Awards granted under the Plan have been
satisfied or expired.
IV. ADMINISTRATION
(a) Committee. The Plan shall be administered by the Committee.
(b) Powers. Subject to the provisions of the Plan, the Committee shall
have sole authority, in its discretion, to determine which employees shall
receive an Award, the time or times when such Award shall be made, whether an
Incentive Stock Option, Nonqualified Option or Stock Appreciation Right shall be
granted, the number of shares of Stock which may be issued under each Option,
Stock Appreciation Right or Restricted Stock Award, and the value of each
Performance Award and Phantom Stock Award. In making such determinations the
Committee may take into account the nature of the services rendered by the
respective employees, their present and potential contributions to the Company's
success and such other factors as the Committee in its discretion shall deem
relevant.
-4-
<PAGE>
(c) Additional Powers. The Committee shall have such additional powers as
are delegated to it by the other provisions of the Plan. Subject to the express
provisions of the Plan, the Committee is authorized to construe the Plan and the
respective agreements executed thereunder, to prescribe such rules and
regulations relating to the Plan as it may deem advisable to carry out the Plan,
and to determine the terms, restrictions and provisions of each Award, including
such terms, restrictions and provisions as shall be requisite in the judgment of
the Committee to cause designated Options to qualify as Incentive Stock Options,
and to make all other determinations necessary or advisable for administering
the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in any agreement relating to an Award in the manner
and to the extent it shall deem expedient to carry it into effect. The
determinations of the Committee on the matters referred to in this Article IV
shall be conclusive.
V. GRANT OF OPTIONS, STOCK APPRECIATION RIGHTS,
RESTRICTED STOCK AWARDS, PERFORMANCE AWARDS
AND PHANTOM STOCK AWARDS; SHARES SUBJECT TO THE PLAN
(a) Stock Grant and Award Limits. The Committee may from time to time
grant Awards to one or more employees determined by it to be eligible for
participation in the Plan in accordance with the provisions of Paragraph VI.
Subject to Paragraph XII, the aggregate number of shares of Stock that may be
issued under the Plan shall not exceed 1,000,000 shares. Shares of Stock shall
be deemed to have been issued under the Plan only to the extent actually issued
and delivered pursuant to an Award. To the extent that an Award lapses or the
rights of its Holder terminate or the Award is paid in cash, any shares of Stock
subject to such Award shall again be available for the grant of an Award. To the
extent that an Award lapses or the rights of its Holder terminate, any shares of
Stock subject to such Award shall again be available for the grant of an Award.
Separate stock certificates shall be issued by the Company for those shares
acquired pursuant the exercise of an Incentive Stock Option and for those shares
acquired pursuant to the exercise of a Nonqualified Stock Option.
(b) Stock Offered. The stock to be offered pursuant to the grant of an
Award may be authorized but unissued Stock or Stock previously issued and
outstanding and reacquired by the Company.
VI. ELIGIBILITY
Awards may be granted only to persons who, at the time of grant, are key
employees. Awards may not be granted to any Director who is not an employee.
An Award may be granted on more than one occasion to the same person, and,
subject to the limitations set forth in the Plan, such Award may include an
Incentive Stock Option or a Nonqualified Stock Option, a Stock Appreciation
-5-
<PAGE>
Right, a Restricted Stock Award, a Performance Award, a Phantom Stock Award or
any combination thereof.
VII. STOCK OPTIONS
(a) Option Period. The term of each Option shall be as specified by the
Committee at the date of grant.
(b) Limitations on Exercise of Option. An Option shall be exercisable in
whole or in such installments and at such times as determined by the Committee.
(c) Special Limitations on Incentive Stock Options. To the extent that the
aggregate Fair Market Value (determined at the time the respective Incentive
Stock Option is granted) of Stock with respect to which Incentive Stock Options
are exercisable for the first time by an individual during any calendar year
under all incentive stock option plans of the Company and its parent and
subsidiary corporations exceeds $100,000, such Incentive Stock Options shall be
treated as Nonqualified Stock Options as determined by the Committee. The
Committee shall determine, in accordance with applicable provisions of the Code,
Treasury Regulations and other administrative pronouncements, which of an
optionee's Incentive Stock Options will not constitute Incentive Stock Options
because of such limitation and shall notify the optionee of such determination
as soon as practicable after such determination. No Incentive Stock Option
shall be granted to an individual if, at the time the Option is granted, such
individual owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of its parent or subsidiary
corporation, within the meaning of section 422(b)(6) of the Code, unless (i) at
the time such Option is granted the option price is at least 110% of the Fair
Market Value of the Stock subject to the Option and (ii) such Option by its
terms is not exercisable after the expiration of five years from the date of
grant.
(d) Option Agreement. Each Option shall be evidenced by an Option
Agreement in such form and containing such provisions not inconsistent with the
provisions of the Plan as the Committee from time to time shall approve,
including, without limitation, provisions to qualify an Incentive Stock Option
under section 422 of the Code. An Option Agreement may provide for the payment
of the option price, in whole or in part, by the delivery of a number of shares
of Stock (plus cash if necessary) having a Fair Market Value equal to such
option price. Each Option Agreement shall provide that the Option may not be
exercised earlier than six months from the date of grant and shall specify the
effect of termination of employment on the exercisability of the Option.
Moreover, an Option Agreement may provide for a "cashless exercise" of the
Option by establishing procedures whereby the Holder, by a properly-executed
written notice, directs (i) an immediate market sale or margin loan respecting
all or a part of the shares of Stock to which he is entitled upon exercise
-6-
<PAGE>
pursuant to an extension of credit by the Company to the Holder of the option
price, (ii) the delivery of the shares of Stock from the Company directly to a
brokerage firm and (iii) the delivery of the option price from the sale or
margin loan proceeds from the brokerage firm directly to the Company. Such
Option Agreement may also include, without limitation, provisions relating to
(i) vesting of Options, subject to the provisions hereof accelerating such
vesting on a Change of Control, (ii) tax matters (including provisions (y)
permitting the delivery of additional shares of Stock or the withholding of
shares of Stock from those acquired upon exercise to satisfy federal or state
income tax withholding requirements and (z) dealing with any other applicable
employee wage withholding requirements), and (iii) any other matters not
inconsistent with the terms and provisions of this Plan that the Committee shall
in its sole discretion determine. The terms and conditions of the respective
Option Agreements need not be identical.
(e) Option Price and Payment. The price at which a share of Stock may be
purchased upon exercise of an Option shall be determined by the Committee, but
(i) such purchase price shall not be less than the Fair Market Value of Stock
subject to an Incentive Stock Option on the date the Incentive Stock Option is
granted and (ii) such purchase price shall be subject to adjustment as provided
in Paragraph XII. The Option or portion thereof may be exercised by delivery of
an irrevocable notice of exercise to the Company. The purchase price of the
Option or portion thereof shall be paid in full in the manner prescribed by the
Committee.
(f) Shareholder Rights and Privileges. The Holder shall be entitled to all
the privileges and rights of a shareholder only with respect to such shares of
Stock as have been purchased under the Option and for which certificates of
stock have been registered in the Holder's name.
(g) Options and Rights in Substitution for Stock Options Granted by Other
Corporations. Options and Stock Appreciation Rights may be granted under the
Plan from time to time in substitution for stock options held by individuals
employed by corporations who become employees as a result of a merger or
consolidation of the employing corporation with the Company or any subsidiary,
or the acquisition by the Company or a subsidiary of the assets of the employing
corporation, or the acquisition by the Company or a subsidiary of stock of the
employing corporation with the result that such employing corporation becomes a
subsidiary.
VIII. STOCK APPRECIATION RIGHTS
(a) Stock Appreciation Rights. A Stock Appreciation Right is the right to
receive an amount equal to the Spread with respect to a share of Stock upon the
exercise of such Stock Appreciation Right. Stock Appreciation Rights may be
granted in connection with the grant of an Option, in which case the Option
Agreement will provide that exercise of Stock Appreciation Rights will result in
the surrender of the right to purchase the shares under the Option as to which
the Stock
-7-
<PAGE>
Appreciation Rights were exercised. Alternatively, Stock Appreciation Rights may
be granted independently of Options in which case each Award of Stock
Appreciation Rights shall be evidenced by a Stock Appreciation Rights Agreement
which shall contain such terms and conditions as may be approved by the
Committee. The Spread with respect to a Stock Appreciation Right may be payable
either in cash, shares of Stock with a Fair Market Value equal to the Spread or
in a combination of cash and shares of Stock. With respect to Stock Appreciation
Rights that are subject to Section 16 of the 1934 Act, however, the Committee
shall, except as provided in Paragraph XII(c), retain sole discretion (i) to
determine the form in which payment of the Stock Appreciation Right will be made
(i.e., cash, securities or any combination thereof) or (ii) to approve an
election by a Holder to receive cash in full or partial settlement of Stock
Appreciation Rights. Each Stock Appreciation Rights Agreement shall provide that
the Stock Appreciation Rights may not be exercised earlier than six months from
the date of grant and shall specify the effect of termination of employment on
the exercisability of the Stock Appreciation Rights.
(b) Other Terms and Conditions. At the time of such Award, the Committee,
may in its sole discretion, prescribe additional terms, conditions or
restrictions relating to Stock Appreciation Rights, including, but not limited
to rules pertaining to termination of employment (by retirement, disability,
death or otherwise) of a Holder prior to the expiration of such Stock
Appreciation Rights. Such additional terms, conditions or restrictions shall be
set forth in the Stock Appreciation Rights Agreement made in conjunction with
the Award. Such Stock Appreciation Rights Agreements may also include, without
limitation, provisions relating to (i) vesting of Awards, subject to the
provisions hereof accelerating vesting on a Change of Control,(ii) tax matters
(including provisions covering applicable wage withholding requirements), and
(iii) any other matters not inconsistent with the terms and provisions of this
Plan, that the Committee shall in its sole discretion determine. The terms and
conditions of the respective Stock Appreciation Rights Agreements need not be
identical.
(c) Exercise Price. The exercise price of each Stock Appreciation Right
shall be determined by the Committee, but such exercise price (i) shall not be
less than the Fair Market Value of a share of Stock on the date the Stock
Appreciation Right is granted (or such greater exercise price as may be required
if such Stock Appreciation Right is granted in connection with an Incentive
Stock Option that must have an exercise price equal to 110% of the Fair Market
Value of the Stock on the date of grant pursuant to Paragraph VII(c)), and (ii)
shall be subject to adjustment as provided in Paragraph XII.
(d) Exercise Period. The term of each Stock Appreciation Right shall be as
specified by the Committee at the date of grant.
-8-
<PAGE>
(e) Limitations on Exercise of Stock Appreciation Right. A Stock
Appreciation Right shall be exercisable in whole or in such installments and at
such times as determined by the Committee.
IX. RESTRICTED STOCK AWARDS
(a) Forfeiture Restrictions to be Established by the Committee. Shares of
Stock that are the subject of a Restricted Stock Award shall be subject to
restrictions on disposition by the Holder and an obligation of the Holder to
forfeit and surrender the shares to the Company under certain circumstances (the
"Forfeiture Restrictions"). The Forfeiture Restrictions shall be determined by
the Committee in its sole discretion, and the Committee may provide that the
Forfeiture Restrictions shall lapse upon (i) the attainment of targets
established by the Committee that are based on (1) the price of a share of
Stock, (2) the Company's earnings per share, (3) the Company's revenue, (4) the
revenue of a business unit of the Company designated by the Committee, (5) the
return on shareholders' equity achieved by the Company, or (6) the Company's
pre-tax cash flow from operations, (ii) the Holder's continued employment with
the Company for a specified period of time, or (iii) a combination of any two or
more of the factors listed in clauses (i) and (ii) of this sentence. Each
Restricted Stock Award may have different Forfeiture Restrictions, in the
discretion of the Committee. The Forfeiture Restrictions applicable to a
particular Restricted Stock Award shall not be changed except as permitted by
Paragraph IX(b) or Paragraph XII.
(b) Other Terms and Conditions. Stock awarded pursuant to a Restricted
Stock Award shall be represented by a stock certificate registered in the name
of the Holder of such Restricted Stock Award. The Holder shall have the right
to receive dividends with respect to Stock subject to a Restricted Stock Award,
to vote Stock subject thereto and to enjoy all other shareholder rights, except
that (i) the Holder shall not be entitled to delivery of the stock certificate
until the Forfeiture Restrictions shall have expired, (ii) the Company shall
retain custody of the Stock until the Forfeiture Restrictions shall have
expired, (iii) the Holder may not sell, transfer, pledge, exchange, hypothecate
or otherwise dispose of the Stock until the Forfeiture Restrictions shall have
expired, and (iv) a breach of the terms and conditions established by the
Committee pursuant to the Restricted Stock Agreement, shall cause a forfeiture
of the Restricted Stock Award. At the time of such Award, the Committee may, in
its sole discretion, prescribe additional terms, conditions or restrictions
relating to Restricted Stock Awards, including, but not limited to, rules
pertaining to the termination of employment (by retirement, disability, death or
otherwise) of a Holder prior to expiration of the Forfeiture Restrictions. Such
additional terms, conditions or restrictions shall be set forth in a Restricted
Stock Agreement made in conjunction with the Award. Such Restricted Stock
Agreement may also include, without limitation, provisions relating to (i)
subject to the provisions hereof accelerating vesting on a Change of Control,
vesting of Awards, (ii) tax matters (including provisions (y) covering any
applicable employee wage withholding requirements and (z) prohibiting
-9-
<PAGE>
an election by the Holder under section 83(b) of the Code), and (iii) any other
matters not inconsistent with the terms and provisions of this Plan that the
Committee shall in its sole discretion determine. The terms and conditions of
the respective Restricted Stock Agreements need not be identical.
(c) Payment for Restricted Stock. The Committee shall determine the amount
and form of any payment for Stock received pursuant to a Restricted Stock Award,
provided that in the absence of such a determination, a Holder shall not be
required to make any payment for Stock received pursuant to a Restricted Stock
Award, except to the extent otherwise required by law.
(d) Agreements. At the time any Award is made under this Paragraph IX, the
Company and the Holder shall enter into a Restricted Stock Agreement setting
forth each of the matters as the Committee may determine to be appropriate. The
terms and provisions of the respective Restricted Stock Agreements need not be
identical.
X. PERFORMANCE AWARDS
(a) Performance Period. The Committee shall establish, with respect to and
at the time of each Performance Award, a performance period over which the
performance of the Holder shall be measured.
(b) Performance Awards. Each Performance Award shall have a maximum value
established by the Committee at the time of such Award.
(c) Performance Measures. A Performance Award shall be awarded to an
employee contingent upon future performance of the employee, the Company or any
subsidiary, division or department thereof by or in which is he employed during
the performance period. The Committee shall establish the performance measures
applicable to such performance prior to the beginning of the performance period
but subject to such later revisions as the Committee shall deem appropriate to
reflect significant, unforeseen events or changes.
(d) Awards Criteria. In determining the value of Performance Awards, the
Committee shall take into account an employee's responsibility level,
performance, potential, other Awards and such other considerations as it deems
appropriate.
(e) Payment. Following the end of the performance period, the Holder of a
Performance Award shall be entitled to receive payment of an amount, not
exceeding the maximum value of the Performance Award, based on the achievement
of the performance measures for such performance period, as determined by the
Committee. Payment of a Performance Award may be made in cash,
-10-
<PAGE>
Stock or a combination thereof, as determined by the Committee. Payment shall be
made in a lump sum or in installments as prescribed by the Committee. Any
payment to be made in Stock shall be based on the Fair Market Value of the Stock
on the payment date. If a payment of cash is to be made on a deferred basis, the
Committee shall establish whether interest shall be credited, the rate thereof
and any other terms and conditions applicable thereto.
(f) Termination of Employment. A Performance Award shall terminate if the
Holder does not remain continuously in the employ of the Company at all times
during the applicable performance period, except as may be determined by the
Committee or as may otherwise be provided in the Award at the time granted.
(g) Agreements. At the time any Award is made under this Paragraph X, the
Company and the Holder shall enter into a Performance Award Agreement setting
forth each of the matters contemplated hereby, and, in addition such matters as
are set forth in Paragraph IX(b) as the Committee may determine to be
appropriate. The terms and provisions of the respective agreements need not be
identical.
XI. PHANTOM STOCK AWARDS
(a) Phantom Stock Awards. Phantom Stock Awards are rights to receive
shares of Stock (or cash in an amount equal to the Fair Market Value thereof),
or rights to receive an amount equal to any appreciation in the Fair Market
Value of Stock (or portion thereof) over a specified period of time, which vest
over a period of time or upon the occurrence of an event (including without
limitation a Change of Control) as established by the Committee, without payment
of any amounts by the Holder thereof (except to the extent otherwise required by
law) or satisfaction of any performance criteria or objectives. Each Phantom
Stock Award shall have a maximum value established by the Committee at the time
of such Award.
(b) Award Period. The Committee shall establish, with respect to and at
the time of each Phantom Stock Award, a period over which or the event upon
which the Award shall vest with respect to the Holder.
(c) Awards Criteria. In determining the value of Phantom Stock Awards, the
Committee shall take into account an employee's responsibility level,
performance, potential, other Awards and such other considerations as it deems
appropriate.
(d) Payment. Following the end of the vesting period for a Phantom Stock
Award, the Holder of a Phantom Stock Award shall be entitled to receive payment
of an amount, not exceeding the maximum value of the Phantom Stock Award, based
on the then vested value of the Award.
-11-
<PAGE>
Payment of a Phantom Stock Award may be made in cash, Stock or a combination
thereof as determine by the Committee. Payment shall be made in a lump sum or in
installments as prescribed by the Committee in its sole discretion. Any payment
to be made in Stock shall be based on the Fair Market Value of the Stock on the
payment date. Cash dividend equivalents may be paid during or after the vesting
period with respect to a Phantom Stock Award, as determined by the Committee. If
a payment of cash is to be made on a deferred basis, the Committee shall
establish whether interest shall be credited, the rate thereof and any other
terms and conditions applicable thereto.
(e) Termination of Employment. A Phantom Stock Award shall terminate if
the Holder does not remain continuously in the employ of the Company at all
times during the applicable vesting period, except as may be otherwise
determined by the Committee or as set forth in the Award at the time of grant.
(f) Agreements. At the time any Award is made under this Paragraph XI, the
Company and the Holder shall enter into a Phantom Stock Award Agreement setting
forth each of the matters contemplated hereby and, in addition such matters as
are set forth in Paragraph IX(b) as the Committee may determine to be
appropriate. The terms and provisions of the respective agreements need not be
identical.
XII. RECAPITALIZATION OR REORGANIZATION
(a) The shares with respect to which Awards may be granted are shares of
Stock as presently constituted, but if, and whenever, prior to the expiration of
an Award theretofore granted, the Company shall effect a subdivision or
consolidation by the Company, the number of shares of Stock with respect to
which such Award may thereafter be exercised or satisfied, as applicable, (i) in
the event of an increase in the number of outstanding shares shall be
proportionately increased, and the purchase price per share shall be
proportionately reduced, and (ii) in the event of a reduction in the number of
outstanding shares shall be proportionately reduced, and the purchase price per
share shall be proportionately increased.
(b) If the Company recapitalizes or otherwise changes its capital
structure, thereafter upon any exercise or satisfaction, as applicable, of an
Award theretofore granted the Holder shall be entitled to (or entitled to
purchase, if applicable) under such Award, in lieu of the number of shares of
Stock then covered by such Award, the number and class of shares of stock and
securities to which the Holder would have been entitled pursuant to the terms of
the recapitalization if, immediately prior to such recapitalization, the Holder
had been the holder of record of the number of shares of Stock then covered by
such Award.
-12-
<PAGE>
(c) In the event of a Change of Control, all outstanding Awards shall
immediately vest and become exercisable or satisfiable, as applicable. The
Committee, in its discretion, may determine that upon the occurrence of a Change
of Control, each Award other than an Option outstanding hereunder shall
terminate within a specified number of days after notice to the Holder, and such
Holder shall receive, with respect to each share of Stock subject to such Award,
cash in an amount equal to the excess, if any, of the Change of Control Value.
Further, in the event of a Change of Control, the Committee, in its discretion
shall act to effect one or more of the following alternatives with respect to
outstanding Options, which may vary among individual Holders and which may vary
among Options held by any individual Holder: (i) determine a limited period of
time on or before a specified date (before or after such Change of Control)
after which specified date all unexercised Options and all rights of Holders
thereunder shall terminate, (2) require the mandatory surrender to the Company
by selected Holders of some or all of the outstanding Options held by such
Holders (irrespective of whether such Options are then exercisable under the
provisions of the Plan) as of a date, before or after such Change of Control,
specified by the Committee, in which event the Committee shall thereupon cancel
such Options and the Company shall pay to each Holder an amount of cash per
share equal to the excess, if any, of the Change of Control Value of the shares
subject to such Option over the exercise price(s) under such Options for such
shares, (3) make such adjustments to Options then outstanding as the Committee
deems appropriate to reflect such Change of Control (provided, however, that the
Committee may determine in its sole discretion that no adjustment is necessary
to Options then outstanding) or (4) provide that thereafter upon any exercise of
an Option theretofore granted the Holder shall be entitled to purchase under
such Option, in lieu of the number of shares of Stock then covered by such
Option the number and class of shares of stock or other securities or property
(including, without limitation, cash) to which the Holder would have been
entitled pursuant to the terms of the agreement of merger, consolidation or sale
of assets and dissolution if, immediately prior to such merger, consolidation or
sale of assets and dissolution the Holder has been the holder of record of the
number of shares of Stock then covered by such Option. The provisions contained
in this paragraph shall be inapplicable to an Award granted within six (6)
months before the occurrence of a Change of Control if the Holder of such Award
is subject to the reporting requirements of Section 16(a) of the 1934 Act. The
provisions contained in this paragraph shall not terminate any rights of the
Holder to further payments pursuant to any other agreement with the Company
following a Change of Control.
(d) In the event of changes in the outstanding Stock by reason of
recapitalization, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the date
of the grant of any Award and not otherwise provided for by this Paragraph XII,
any outstanding Awards and any agreements evidencing such Awards shall be
subject to adjustment by the Committee at its discretion as to the number and
price of shares of Stock or other consideration subject to such Awards. In the
event of any such change in the outstanding
-13-
<PAGE>
Stock, the aggregate number of shares available under the Plan may be
appropriately adjusted by the Committee, whose determination shall be
conclusive.
(e) The existence of the Plan and the Awards granted hereunder shall not
affect in any way the right or power of the Board or the shareholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities ahead of or
affecting Stock or the rights thereof, the dissolution or liquidation of the
Company or any sale, lease, exchange or other disposition of all or any part of
its assets or business or any other corporate act or proceeding.
(f) Any adjustment provided for in Subparagraphs (a), (b), (c) or (d) above
shall be subject to any required shareholder action.
(g) Except as hereinbefore expressly provided, the issuance by the Company
of shares of stock of any class or securities convertible into shares of stock
of any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares of obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number of
shares of Stock subject to Awards theretofore granted or the purchase price per
share, if applicable.
XIII. AMENDMENT AND TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with respect
to any shares for which Awards have not theretofore been granted. The Board
shall have the right to alter or amend the Plan or any part thereof from time to
time; provided that no change in any Award theretofore granted may be made which
would impair the rights of the Holder without the consent of the Holder (unless
such change is required in order to cause the benefits under the Plan to qualify
as performance-based compensation within the meaning of section 162(m) of the
Code and applicable interpretive authority thereunder), and provided, further,
that the Board may not, without approval of the shareholders, amend the Plan:
(a) to increase the maximum number of shares which may be issued on
exercise or surrender of an Award, except as provided in Paragraph XII;
(b) to change the Option price;
-14-
<PAGE>
(c) to change the class of employees eligible to receive Awards or
materially increase the benefits accruing to employees under the Plan;
(d) to extend the maximum period during which Awards may be granted under
the Plan;
(e) to modify materially the requirements as to eligibility for
participation in the Plan; or
(f) to decrease any authority granted to the Committee hereunder in
contravention of Rule 16b-3.
XIV. MISCELLANEOUS
(a) No Right to An Award. Neither the adoption of the Plan by the Company
nor any action of the Board or the Committee shall be deemed to give an employee
any right to be granted an Award to purchase Stock, a right to a Stock
Appreciation Right, a Restricted Stock Award, a Performance Award or a Phantom
Stock Award or any of the rights hereunder except as may be evidenced by an
Award or by an Option Agreement, Stock Appreciation Rights Agreement, Restricted
Stock Agreement, Performance Award Agreement or Phantom Stock Award Agreement on
behalf of the Company, and then only to the extent and on the terms and
conditions expressly set forth therein. The Plan shall be unfunded. The
Company shall not be required to establish any special or separate fund or to
make any other segregation of funds or assets to assure the payment of any
Award.
(b) No Employment Rights Conferred. Nothing contained in the Plan shall
(i) confer upon any employee any right with respect to continuation of
employment with the Company or any subsidiary or (ii) interfere in any way with
the right of the Company or any subsidiary to terminate his or her employment at
any time.
(c) Other Laws; Withholding. The Company shall not be obligated to issue
any Stock pursuant to any Award granted under the Plan at any time when the
shares covered by such Award have not been registered under the Securities Act
of 1933, as amended, and such other state and federal laws, rules or regulations
as the Company or the Committee deems applicable and, in the opinion of legal
counsel for the Company, there is no exemption from the registration
requirements of such laws, rules or regulations available for the issuance and
sale of such shares. No fractional shares of Stock shall be delivered, nor
shall any cash in lieu of fractional shares be paid. The Company shall have the
right to deduct in connection with all Awards any taxes required by law to be
withheld and to require any payments required to enable it to satisfy its
withholding obligations.
-15-
<PAGE>
(d) No Restriction on Corporate Action. Nothing contained in the Plan
shall be construed to prevent the Company or any subsidiary from taking any
corporate action which is deemed by the Company or such subsidiary to be
appropriate or in its best interest, whether or not such action would have an
adverse effect on the Plan or any Award made under the Plan. No employee,
beneficiary or other person shall have any claim against the Company or any
subsidiary as a result of any such action.
(e) Restrictions on Transfer. An Award shall not be transferable otherwise
than by will or the laws of descent and distribution or pursuant to a "qualified
domestic relations order" as defined by the Code or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder, and
shall be exercisable during the Holder's lifetime only by such Holder or the
Holder's guardian or legal representative.
(f) Rule 16b-3. It is intended that the Plan and any grant of an Award
made to a person subject to Section 16 of the 1934 Act meet all of the
requirements of Rule 16b-3. If any provision of the Plan or any such Award
would disqualify the Plan or such Award under, or would otherwise not comply
with, Rule 16b-3, such provision or Award shall be construed or deemed amended
to conform to Rule 16b-3.
(g) Section 162(m). If the Plan is subject to 162(m) of the Code, it is
intended that the Plan comply fully with and meet all the requirements of
Section 162(m) of the Code so that Options and Stock Appreciation Rights granted
hereunder and, if determined by the Committee, Restricted Stock Awards, shall
constitute "performance-based" compensation within the meaning of such section.
If any provision of the Plan would disqualify the Plan or would not otherwise
permit the Plan to comply with Section 162(m) as so intended, such provision
shall be construed or deemed amended to conform to the requirements or
provisions of Section 162(m); provided that no such construction or amendment
shall have an adverse effect on the economic value to a Holder of any Award
previously granted hereunder.
(h) Governing Law. This Plan shall be construed in accordance with the
laws of the State of Texas.
-16-
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is by and between Guaranty
Bank, a Texas banking corporation (the "Bank"), and Ty Abston, an individual
residing in Texarkana, Bowie County, Texas (the "Employee"), effective as of
March __, 1998 (the "Effective Date").
W I T N E S S E T H:
In consideration of the mutual covenants and agreements contained in this
Agreement, the parties agree as follows:
1. Employment. On the terms and subject to the conditions of this
Agreement, the Bank hereby employs Employee, and engages the services of the
Employee to serve as President of the Texarkana branch (the "Office") of the
Bank, and Employee hereby accepts employment with the Bank according to the
terms set forth in this Agreement.
2. Duties. Employee is hereby employed and shall work at the location of
the Bank or at such other place or places as may be directed by the Bank. The
Employee shall have the position (including status, offices, titles and
reporting requirements), authority, duties, and responsibilities usually
associated with the Office of a bank having assets similar in nature and value
to the assets of the Bank.
2.1 The Employee shall devote his entire time and attention during normal
working hours to the Office during the term of this Agreement for the profit and
benefit of Bank. During the term of this Agreement, the Employee shall not
directly or indirectly render any services or be engaged in any activity of a
business, commercial, or professional nature to any other person or
organization, whether for compensation or otherwise, other than Bank, without
the prior written consent of the Bank.
3. Compensation and Benefits. The compensation and other benefits payable
to Employee under this Agreement shall constitute the full consideration to be
paid to Employee for all services to be rendered by Employee for the Bank.
3.1 The Bank will pay to Employee an annual salary as determined by the
Board of Directors of the Bank which is stated on Exhibit "A" attached hereto.
The Employee's annual salary shall be payable in accordance with the Bank's
customary policies, subject to payroll and withholding deductions as may be
required by law and other deductions applied generally to employees of the Bank
for insurance or other employee benefit plans.
<PAGE>
3.2 Employee shall be reimbursed for any and all reasonable costs and
expenses incurred by Employee in performance of his services and duties as
specified in this Agreement or incurred by Employee on behalf of, or in
furtherance of the business of, the Bank, including, but not limited to business
expenses incurred in connection with travel and entertainment; provided,
however, that Employee shall submit to the Bank supporting receipts and
information satisfactory to the Bank with respect to such reasonable costs and
expenses.
3.3 During the term of Employee's employment, he shall be entitled (i) to
receive health insurance benefits with the same coverages and deductibles as are
currently in effect with respect to Employee (subject to the availability of
such benefits at a reasonable cost), (ii) to participate in the Bank's other
benefit plans to such extent as determined by the Board of Directors of the
Bank, (iii) to participate in the Bank's other policies, including vacation and
sick leave.
4. Conflicts of Interests; Covenant Not to Compete.
4.1 Employee shall, during the term of this Agreement, devote his entire
time, attention, energies and business efforts to his duties as an employee of
the Bank and to the business of the Bank. Employee shall not, during the term
of this Agreement, directly or indirectly, for and on behalf of himself or any
person, firm, partnership, corporation or other legal entity, own, manage,
operate, control, invest in, make loans on advances to, guarantee the
obligations of or participate in the ownership or management or operations of or
be employed by or otherwise engage in the operation of any business that is in
competition in any manner whatsoever with the business of the Bank.
5. Confidential Information.
5.1 As used herein, "Confidential Information" means all technical and
business information (including financial statements and related books and
records, personnel records, customer lists, arrangements with customers and
suppliers, manuals and reports) of the Bank and its affiliates (whether such
information is owned by, licensed to or otherwise possessed by the Bank or any
affiliate), whether patentable or not, which is of a confidential, trade secret
and/or proprietary character and which is either developed by Employee (alone or
with others) or to which Employee has had access during his employment.
"Confidential Information" shall include but is not limited to information of a
technical or business nature such as ideas, discoveries, inventions,
improvements, trade secrets, know-how, manufacturing processes, specifications,
writings and other works of authorship, computer programs, financial figures and
reports, marketing plans, customer lists and data, and/or business plans or data
which relate to the actual or anticipated business of the Bank or any affiliate
or its actual or anticipated areas of research and development. "Confidential
-2-
<PAGE>
Information" shall also include but is not limited to confidential evaluations
of, and the confidential use or non-use by Bank or any affiliate of, technical
or business information in the public domain.
5.2 Employee shall, both during and after his employment with the Bank,
protect and maintain the confidential, trade secret and/or proprietary character
of all Confidential Information. Employee shall not, during or after
termination of his employment, directly or indirectly, use (for himself or
another) or disclose any Confidential Information, for so long as it shall
remain proprietary or protectible as confidential or trade secret information,
except as may be necessary for the performance of his duties under this
Agreement.
5.3 Employee shall deliver promptly to the Bank, at the termination of his
employment, or at any other time at the Bank's request, without retaining any
copies, all documents and other material in his possession relating, directly or
indirectly, to any Confidential Information.
5.4 Each of Employee's obligations in this Section 5 shall also apply to
the confidential, trade secret and proprietary information learned or acquired
by him during his employment from others with whom the Bank or any affiliate has
a business relationship.
6. Term and Termination.
6.1 Term. The term of this Agreement shall be for two years commencing on
the Effective Date and shall automatically be extended each day from the
Effective Date.
6.2 Termination of Agreement. Except as may otherwise be provided herein,
this Agreement may terminate prior to the end of the Term upon the occurrence
of:
(a) Thirty (30) days after written notice of termination is given by
either party to the other; or
(b) Employees's death or, at the Bank's option, upon Employee's
becoming Disabled (as defined in Section 7.3 hereof).
Any notice of termination given by Employee to the Bank under Section 6.2(a)
above shall specify whether such termination is made with or without Good
Reason-Change in Control (as defined in Section 7.5 hereof). Any notice of
termination given by the Bank to Employee under Section 6.2(a) above shall
specify whether such termination is with or without Cause (as defined in Section
7.4 hereof.
-3-
<PAGE>
7. Obligations of the Bank Upon Termination.
7.1 Cause and Other than for Good Reason-Change in Control. If the
Bank terminates this Agreement with Cause pursuant to Section 6.2(a) above, or
if Employee terminates this Agreement without Good Reason-Change in Control
pursuant to Section 6.2(a) hereof, this Agreement shall terminate without
further obligations to Employee, other than those obligations owing or accrued
to, vested in, or earned by Employee through the date of termination, including,
but not limited to:
(a) to the extent not theretofore paid, Employee's annual salary
in effect at the time of such termination through the date of
termination; and
(b) in the case of compensation previously deferred by Employee,
all amounts previously deferred (together with any accrued interest
thereon) and not yet paid by the Bank and any accrued vacation pay not
yet paid by the Bank; and
(c) all other amounts or benefits owing or accrued to, vested in,
earned by Employee through the date of termination under the then
existing or applicable plans, programs, arrangements, and policies of
Bank;
such obligations owing or accrued to, vested in, or earned by Employee through
the date of termination, including, but not limited to, such amounts and
benefits specified in clauses (a), (b), and (c) of this sentence, being
hereinafter collectively referred to as the "Accrued Obligations." The
aggregate amount of such obligations owing or accrued to, vested in, or earned
by Employee through the date of termination, including, but not limited to, the
Accrued Obligations, shall be paid by the Bank to Employee in cash in one lump
sum within thirty (30) days after the date of termination.
7.2 Good Reason-Change in Control; Other than for Cause Before or
After a Change in Control. If Employee terminates this Agreement with Good
Reason-Change in Control pursuant to Section 6.2(a) hereof, or if the Bank
terminates this Agreement without Cause before or after the occurrence of a
Change in Control pursuant to Section 6.2(a) hereof, the Bank shall pay to
Employee cash in one lump sum within thirty (30) days after the date of
termination the aggregate of the following amounts (the "Change in Control-Lump
Sum Payment"):
(i) to the extent not theretofore paid, Employee's annual
salary at the annual rate in effect at the time of such
termination through the date of termination; and
-4-
<PAGE>
(ii) to the extent not theretofore paid, any bonus through
the date of termination; and
(iii) in the case of compensation previously deferred by
Employee, all amounts previously deferred (together with any
accrued interest thereon) and not yet paid by the Bank, and any
accrued vacation pay not yet paid by the Bank; and
(iv) all other amounts or benefits owing or accrued to,
vested in, or earned by Employee through the date of termination
under the then existing or applicable plans, programs,
arrangements, and policies of the Bank; and
(v) any and all other Accrued Obligations not otherwise
described in clause (i), (ii), (iii), (iv) or (v) of this Section
7.2; and
(vi) an amount equal to two (2) times the Employee's annual
salary in effect at the time of such termination.
7.3 Death or Disabilities. If Employee's employment is terminated
under Section 6.2(b) hereof by reason of Employee's death or Disability, the
Bank shall pay to Employee's legal representatives cash in one lump sum within
thirty (30) days after the date of Employee's death or Disability the full
amount of the obligations owing or accrued to, vested in, or earned by Employee
through the date of Employee's death or disability, including, but not limited
to, the Accrued Obligations. Anything in this Agreement to the contrary
notwithstanding, the Employee's legal representatives or beneficiaries shall be
entitled to receive benefits provided under the then existing or applicable
plans, programs, or arrangements and policies of the Bank relating to death or
disability. As used herein, "Disabled" shall have the meanings as being
disabled under the Guaranty Bancshares, Inc. 1998 Stock Incentive Plan.
7.4 Cause. As used in this Agreement, the term "Cause" means (i)
willful misconduct by Employee, (ii) the gross neglect by Employee of his duties
as an employee, officer or director of the Bank which continues for more than
thirty (30) days after written notice from the Bank to Employee specifically
identifying the gross negligence of Employee and directing Employee to
discontinue same, (iii) the commission by Employee of an act, other than an act
taken in good faith within the course and scope of Employee's employment, which
is directly detrimental to the Bank and which act exposes the Bank to material
liability.
-5-
<PAGE>
7.5 Good Reason-Change in Control. As used in this Agreement, the
term "Good Reason-Change in Control" means after the occurrence of a Change in
Control and a determination by Employee that any one or more of the following
events has occurred:
(a) the assignment by the Bank to Employee of duties that are
inconsistent with the Office at the time of such assignment, or the removal
by the Bank from Employee of those duties usually appertaining to the
Office at the time of such removal; or
(b) a change by the Bank, without Employee's prior written consent, in
Employee's responsibilities to the Bank as such responsibilities existed at
the time of the occurrence of such Change in Control (or as such
responsibilities may thereafter exist from time to time as a result of
changes in such responsibilities made with Employee's prior written
consent); or
(c) any removal of Employee from, or any failure to elect or reelect
Employee to, the Office, except in connection with Employee's promotion,
with his prior written consent, to a higher office (if any) with the Bank;
or
(d) the Bank's direction that Employee discontinue service (or not
seek reelection or reappointment) as a director, officer or member of any
corporation or other entity of which Employee is a director, officer or
member at the time of the occurrence of such Change in Control; or
(e) the failure of the Bank to continue to provide Employee with
office space, related facilities and support personnel (including, but not
limited to, administrative and secretarial assistance) that are both
commensurate with the Office and Employee's responsibilities to and
position with the Bank at the time of the occurrence of such Change in
Control and not materially dissimilar to the office space, related
facilities and support personnel provided to other key executive officers
of the Bank; or
(f) a reduction by the Bank in the amount of Employee's minimum salary
specified in Section 2.1(a) (or as subsequently increased) and as in effect
at the time of the occurrence of such Change in Control, or a failure of
the Bank to pay such minimum annual salary to the Employee at the time and
in the manner specified in Section 3.1(a) of this Agreement; or
(g) Employee's principal office space or the related facilities or
support space or the related facilities or support personnel referred to in
paragraph (e) of this Section 7.5 cease to be located within the Bank's
principal executive offices, or for a period of more than 45
-6-
<PAGE>
consecutive days Employee is required by the Bank to perform a majority of
this duties outside the Bank's principal executive offices; or
(h) the relocation, without Employee's prior written consent, of the
Bank's principal executive offices to a location outside the county in
which such offices are located at the time of the occurrence of such Change
in Control; or
(i) the failure of the Bank to obtain the assumption by any successor
to the Bank of the obligations imposed upon the Bank under this Agreement,
as required by Section 14 of this Agreement; or
(j) the employment of Employee under this Agreement is terminated by
the Bank without Cause; or
(k) the Bank notifies Employee of the Bank's intention not to observe
or perform one or more of the obligations of the Bank under this Agreement;
or
(l) the Bank breaches any provision of this Agreement.
7.6 Change in Control. As used herein, the term "Change in Control"
shall mean the occurrence with respect to the Bank or Guaranty Bancshares, Inc.
(the "Parent") of any of the following events:
(a) a report on Schedule 13D is filed with the Securities and Exchange
Commission (the "SEC") pursuant to Section 13(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), disclosing that any person,
entity or group (within the meaning of Section 13(d) or 14(d) of the
Exchange Act), other than the Bank or the Parent (or one of its
subsidiaries) or any employee benefit plan sponsored by the Bank or the
Parent (or one of its subsidiaries), is the beneficial owner (as such term
is defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of 20 percent or more of the outstanding shares of common stock
of the Bank or the Parent or the combined voting power of the then-
outstanding securities of the Bank or the Parent;
(b) a report is filed by the Bank or the Parent disclosing a response
to either Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act, or to Item 1 of Form 8-K promulgated under the Exchange Act,
or to any similar reporting requirement hereafter promulgated by the SEC;
-7-
<PAGE>
(c) any person, entity or group (within the meaning of Section 13(d)
or 14(d) of the Exchange Act), other than the Bank or the Parent (or one of
its subsidiaries) or any employee benefit plan sponsored by the Bank or the
Parent (or one of its subsidiaries), shall purchase securities pursuant to
a tender offer or exchange offer to acquire any common stock of the Bank or
the Parent (or securities convertible into common stock) for cash,
securities or any other consideration, provided that after consummation of
the offer, the person, entity or group in question is the beneficial owner
(as such term is defined in Rule 13d-3 promulgated under the Exchange Act),
directly or indirectly, of 20 percent or more of the combined voting power
of the then-outstanding securities of the Bank or the Parent (as determined
under paragraph (d) of Rule 13d-3 promulgated under the Exchange Act, in
the case of rights to acquire common stock);
(d) the stockholders of the Bank or the Parent shall approve:
(i) any merger, consolidation, or reorganization of the Bank or
the Parent:
(A) in which the Bank or the Parent is not the continuing or
surviving corporation,
(B) pursuant to which shares of common stock of the Bank or
the Parent would be converted into cash, securities or other
property,
(C) with a corporation which prior to such merger,
consolidation, or reorganization owned 20 percent or more of the
combined voting power of the then-outstanding securities of the
Bank or the Parent, or
(D) in which the Bank or the Parent will not survive as an
independent corporation;
(ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all the assets of the Bank or the Parent, or
(iii) any liquidation or dissolution of the Bank or the Parent;
(e) the stockholders of the Bank or the Parent shall approve a merger,
consolidation, reorganization, recapitalization, exchange offer, purchase
of assets or other transaction after the consummation of which any person,
entity or group (as defined in accordance with Section 13(d) or 14(d) of
the Exchange Act) would own beneficially in
-8-
<PAGE>
excess of 50% of the outstanding shares of common stock of the Bank or the
Parent or in excess of 50% of the combined voting power of the then-
outstanding securities of the Bank or the Parent; or
(f) during a period of two consecutive years, the individuals who at
the beginning of such period constituted the Board of Directors of Bank or
the Parent cease for any reason to constitute a majority of such Board,
unless the election or nomination for election by the Bank or the Parent's
stockholders of each new director during any such two-year period was
approved by the vote by two-thirds of the directors then still in office
who were directors at the beginning of such two-year period.
8. Parachute Payments.
8.1 General. For the purposes of the determinations to be made
pursuant to Paragraph 8.2 below, capitalized terms that are not defined in this
Agreement shall have the meanings set forth in Section 280G of the Internal
Revenue Code of 1986, as amended ("Code"). A "Change in Control" of the Bank or
the Parent shall have the meaning set forth in Section 7.6 above and shall refer
to an ownership change described in Section 280G(b)(2)(A)(i) of the Code with
respect to the Bank of the Parent. "Incentive Agreements" mean this Agreement
and all stock option agreements, incentive compensation unit agreements,
supplemental pension agreements or other arrangements or agreements, whether in
existence on the date hereof or hereafter entered into by the Employee and the
Bank or the Parent that entitled the Employee to receive payments or other
property from the Bank or the Parent.
8.2 Limitation. If the Aggregate Present Value of Parachute Payments
payable to or in respect of the Employee by reason of a Change in Control of the
Bank or the Parent under all Incentive Agreements then in effect is greater than
or equal to three times the Base Amount, then the Aggregate Present Value of
Parachute Payments made to the Employee shall be limited to an amount equal to
the greater of the portion of the Parachute Payments constituting Reasonable
Compensation or three times the Base Amount less one dollar. Any amount
required to be withheld from payments made to the Employee pursuant to this
Paragraph 8.2 shall be deducted from the Change in Control-Lump Sum Payment
referred to in Section 7.2 above.
9. Notices. Any notice under this Agreement must be in writing and may
be given by certified or registered mail, postage prepaid, addressed to the
party or parties to be notified with return receipt requested, or by delivering
the notice in person. For purposes of notice, the address of Employee or any
administrator, executor or legal representative of Employee or his estate, as
the case may be, shall be the last address of the Employee on the records of the
Bank. The address of the Bank shall be its principal business address.
-9-
<PAGE>
10. Controlling Law. This Agreement shall be governed by the laws of the
State of Texas.
11. Entire Agreement. This Agreement contains the entire agreement of the
parties and may only be amended in writing signed by both parties; provided,
that no amendment to this Agreement shall be effective unless authorized by
resolution of the Board of Directors and signed on behalf of the Bank by a duly
authorized officer of the Bank other than Employee.
12. Remedies, Modification and Separability. Employee and the Bank agree
that Employee's breach of Sections 4 and 5 of this Agreement will result in
irreparable harm to the Bank, that no adequate remedy at law is available, and
that the Bank shall be entitled to injunctive relief; however, nothing herein
shall prevent the Bank from pursuing any other remedies at law or at equity
available to the Bank. Should a court of competent jurisdiction declare any of
the covenants set forth in Sections 4 or 5 unenforceable, the court shall be
empowered to modify or reform such covenants so as to provide relief reasonably
necessary to protect the interests of the Bank and Employee and to award
injunctive relief, or damages, or both, to which the Bank may be entitled. If
any provision of this Agreement is declared by a court of last resort to be
invalid, the Bank and Employee agree that such declaration shall not affect the
validity of the other provisions of this Agreement. If any provision of this
Agreement is capable to two constructions, one of which would render the
provision void and the other of which would render the provision valid, then the
provision shall have the construction which renders it valid.
13. Preservation of Business; Fiduciary Responsibility. Employee shall
use his best efforts to preserve the business and organization of the Bank, to
keep available to the Bank the services of its present employees and to preserve
the business relations of the Bank with suppliers, distributors, customers and
others. Employee shall not commit any act which would injure the Bank.
Employee shall observe and fulfill proper standards of fiduciary responsibility
attendant upon his Office.
14. Assignments. This Agreement is personal to Employee and without the
prior written consent of the Bank shall not be assignable by Employee other than
by will or the laws of descent and distribution. This Agreement shall inure to
the benefit of and be enforceable by Employee's legal representatives and heirs.
This Agreement shall inure to the benefit of and be binding upon the Bank and
its successors and assigns. The Bank shall require any corporation, entity,
individual or other person who is the successor (whether direct or indirect, by
purchase, merger, consolidation, reorganization, or otherwise) to all or
substantially all of the business or assets of the Bank to expressly assume and
agree to perform, by a written agreement in form and substance satisfactory to
Employee, all of the obligations of the Bank under this Agreement. As used in
this Agreement, the term "Bank" shall mean the Bank as hereinbefore defined and
any successor to its business
-10-
<PAGE>
and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, written agreement, or otherwise.
15. Waiver of Breach. The waiver by the Bank of a breach of any provision
of this Agreement by Employee shall not operate or be construed as a waiver by
the Bank of any subsequent breach of Employee.
16. Revocation of Previous Employment Agreements. Any and all previous
employment agreements existing between the Bank and Employee are revoked and
canceled.
17. Headings. The section headings in this Agreement are for convenience
of reference and shall not be used in the interpretation or construction of this
Agreement.
18. Attorney's Fees. In the event Bank or Employee breaches any term or
provision of this Agreement and the other party employs an attorney or attorneys
to enforce the terms of this Agreement, then the breaching or defaulting party
agrees to pay the other party the reasonable attorney's fees and costs incurred
to enforce this Agreement.
19. Execution. This Agreement may be executed in multiple counterparts
each of which shall be deemed an original and all of which shall constitute one
instrument.
Employee acknowledges that he has read this Agreement and understands that
signing this Agreement is a condition of employment.
IN WITNESS WHEREOF, this Agreement is executed as of the ____ day of
______________, 1998.
"EMPLOYEE" "BANK"
Guaranty Bank
- ------------------------- By:
Ty Abston --------------------------------
Name:
------------------------------
Title:
-----------------------------
-11-
<PAGE>
Exhibit "A"
Employment Agreement By and Between
Guaranty Bank and Ty Abston
Calendar Year Annual Salary Bank Initials Employee Initials
- ------------- ------------- ------------- -----------------
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
-12-
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is by and between Guaranty
Bank, a Texas banking corporation (the "Bank"), and Devry Garrett, an individual
residing in Mount Pleasant, Titus County, Texas (the "Employee"), effective as
of March ___, 1998 (the "Effective Date").
W I T N E S S E T H:
In consideration of the mutual covenants and agreements contained in this
Agreement, the parties agree as follows:
1. Employment. On the terms and subject to the conditions of this
Agreement, the Bank hereby employs Employee, and engages the services of the
Employee to serve as Legal Officer (the "Office") of the Bank, and Employee
hereby accepts employment with the Bank according to the terms set forth in this
Agreement.
2. Duties. Employee is hereby employed and shall work at the location of
the Bank or at such other place or places as may be directed by the Bank. The
Employee shall have the position (including status, offices, titles and
reporting requirements), authority, duties, and responsibilities usually
associated with the Office of a bank having assets similar in nature and value
to the assets of the Bank.
2.1 The Employee shall devote his entire time and attention during normal
working hours to the Office during the term of this Agreement for the profit and
benefit of Bank. During the term of this Agreement, the Employee shall not
directly or indirectly render any services or be engaged in any activity of a
business, commercial, or professional nature to any other person or
organization, whether for compensation or otherwise, other than Bank, without
the prior written consent of the Bank.
3. Compensation and Benefits. The compensation and other benefits payable
to Employee under this Agreement shall constitute the full consideration to be
paid to Employee for all services to be rendered by Employee for the Bank.
3.1 The Bank will pay to Employee an annual salary as determined by the
Board of Directors of the Bank which is stated on Exhibit "A" attached hereto.
The Employee's annual salary shall be payable in accordance with the Bank's
customary policies, subject to payroll and withholding deductions as may be
required by law and other deductions applied generally to employees of the Bank
for insurance or other employee benefit plans.
<PAGE>
3.2 Employee shall be reimbursed for any and all reasonable costs and
expenses incurred by Employee in performance of his services and duties as
specified in this Agreement or incurred by Employee on behalf of, or in
furtherance of the business of, the Bank, including, but not limited to business
expenses incurred in connection with travel and entertainment; provided,
however, that Employee shall submit to the Bank supporting receipts and
information satisfactory to the Bank with respect to such reasonable costs and
expenses.
3.3 During the term of Employee's employment, he shall be entitled (i) to
receive health insurance benefits with the same coverages and deductibles as are
currently in effect with respect to Employee (subject to the availability of
such benefits at a reasonable cost), (ii) to participate in the Bank's other
benefit plans to such extent as determined by the Board of Directors of the
Bank, (iii) to participate in the Bank's other policies, including vacation and
sick leave.
4. Conflicts of Interests; Covenant Not to Compete.
4.1 Employee shall, during the term of this Agreement, devote his entire
time, attention, energies and business efforts to his duties as an employee of
the Bank and to the business of the Bank. Employee shall not, during the term
of this Agreement, directly or indirectly, for and on behalf of himself or any
person, firm, partnership, corporation or other legal entity, own, manage,
operate, control, invest in, make loans on advances to, guarantee the
obligations of or participate in the ownership or management or operations of or
be employed by or otherwise engage in the operation of any business that is in
competition in any manner whatsoever with the business of the Bank.
5. Confidential Information.
5.1 As used herein, "Confidential Information" means all technical and
business information (including financial statements and related books and
records, personnel records, customer lists, arrangements with customers and
suppliers, manuals and reports) of the Bank and its affiliates (whether such
information is owned by, licensed to or otherwise possessed by the Bank or any
affiliate), whether patentable or not, which is of a confidential, trade secret
and/or proprietary character and which is either developed by Employee (alone or
with others) or to which Employee has had access during his employment.
"Confidential Information" shall include but is not limited to information of a
technical or business nature such as ideas, discoveries, inventions,
improvements, trade secrets, know-how, manufacturing processes, specifications,
writings and other works of authorship, computer programs, financial figures and
reports, marketing plans, customer lists and data, and/or business plans or data
which relate to the actual or anticipated business of the Bank or any affiliate
or its actual or anticipated areas of research and development. "Confidential
-2-
<PAGE>
Information" shall also include but is not limited to confidential evaluations
of, and the confidential use or non-use by Bank or any affiliate of, technical
or business information in the public domain.
5.2 Employee shall, both during and after his employment with the Bank,
protect and maintain the confidential, trade secret and/or proprietary character
of all Confidential Information. Employee shall not, during or after
termination of his employment, directly or indirectly, use (for himself or
another) or disclose any Confidential Information, for so long as it shall
remain proprietary or protectible as confidential or trade secret information,
except as may be necessary for the performance of his duties under this
Agreement.
5.3 Employee shall deliver promptly to the Bank, at the termination of his
employment, or at any other time at the Bank's request, without retaining any
copies, all documents and other material in his possession relating, directly or
indirectly, to any Confidential Information.
5.4 Each of Employee's obligations in this Section 5 shall also apply to
the confidential, trade secret and proprietary information learned or acquired
by him during his employment from others with whom the Bank or any affiliate has
a business relationship.
6. Term and Termination.
6.1 Term. The term of this Agreement shall be for two years commencing on
the Effective Date and shall automatically be extended each day from the
Effective Date.
6.2 Termination of Agreement. Except as may otherwise be provided herein,
this Agreement may terminate prior to the end of the Term upon the occurrence
of:
(a) Thirty (30) days after written notice of termination is given by
either party to the other; or
(b) Employees's death or, at the Bank's option, upon Employee's
becoming Disabled (as defined in Section 7.3 hereof).
Any notice of termination given by Employee to the Bank under Section 6.2(a)
above shall specify whether such termination is made with or without Good
Reason-Change in Control (as defined in Section 7.5 hereof). Any notice of
termination given by the Bank to Employee under Section 6.2(a) above shall
specify whether such termination is with or without Cause (as defined in Section
7.4 hereof.
-3-
<PAGE>
7. Obligations of the Bank Upon Termination.
7.1 Cause and Other than for Good Reason-Change in Control. If the
Bank terminates this Agreement with Cause pursuant to Section 6.2(a) above, or
if Employee terminates this Agreement without Good Reason-Change in Control
pursuant to Section 6.2(a) hereof, this Agreement shall terminate without
further obligations to Employee, other than those obligations owing or accrued
to, vested in, or earned by Employee through the date of termination, including,
but not limited to:
(a) to the extent not theretofore paid, Employee's annual salary
in effect at the time of such termination through the date of
termination; and
(b) in the case of compensation previously deferred by Employee,
all amounts previously deferred (together with any accrued interest
thereon) and not yet paid by the Bank and any accrued vacation pay not
yet paid by the Bank; and
(c) all other amounts or benefits owing or accrued to, vested in,
earned by Employee through the date of termination under the then
existing or applicable plans, programs, arrangements, and policies of
Bank;
such obligations owing or accrued to, vested in, or earned by Employee through
the date of termination, including, but not limited to, such amounts and
benefits specified in clauses (a), (b), and (c) of this sentence, being
hereinafter collectively referred to as the "Accrued Obligations." The
aggregate amount of such obligations owing or accrued to, vested in, or earned
by Employee through the date of termination, including, but not limited to, the
Accrued Obligations, shall be paid by the Bank to Employee in cash in one lump
sum within thirty (30) days after the date of termination.
7.2 Good Reason-Change in Control; Other than for Cause Before or
After a Change in Control. If Employee terminates this Agreement with Good
Reason-Change in Control pursuant to Section 6.2(a) hereof, or if the Bank
terminates this Agreement without Cause before or after the occurrence of a
Change in Control pursuant to Section 6.2(a) hereof, the Bank shall pay to
Employee cash in one lump sum within thirty (30) days after the date of
termination the aggregate of the following amounts (the "Change in Control-Lump
Sum Payment"):
(i) to the extent not theretofore paid, Employee's annual
salary at the annual rate in effect at the time of such
termination through the date of termination; and
-4-
<PAGE>
(ii) to the extent not theretofore paid, any bonus through
the date of termination; and
(iii) in the case of compensation previously deferred by
Employee, all amounts previously deferred (together with any
accrued interest thereon) and not yet paid by the Bank, and any
accrued vacation pay not yet paid by the Bank; and
(iv) all other amounts or benefits owing or accrued to,
vested in, or earned by Employee through the date of termination
under the then existing or applicable plans, programs,
arrangements, and policies of the Bank; and
(v) any and all other Accrued Obligations not otherwise
described in clause (i), (ii), (iii), (iv) or (v) of this Section
7.2; and
(vi) an amount equal to two (2) times the Employee's annual
salary in effect at the time of such termination.
7.3 Death or Disabilities. If Employee's employment is terminated
under Section 6.2(b) hereof by reason of Employee's death or Disability, the
Bank shall pay to Employee's legal representatives cash in one lump sum within
thirty (30) days after the date of Employee's death or Disability the full
amount of the obligations owing or accrued to, vested in, or earned by Employee
through the date of Employee's death or disability, including, but not limited
to, the Accrued Obligations. Anything in this Agreement to the contrary
notwithstanding, the Employee's legal representatives or beneficiaries shall be
entitled to receive benefits provided under the then existing or applicable
plans, programs, or arrangements and policies of the Bank relating to death or
disability. As used herein, "Disabled" shall have the meanings as being
disabled under the Guaranty Bancshares, Inc. 1998 Stock Incentive Plan.
7.4 Cause. As used in this Agreement, the term "Cause" means (i)
willful misconduct by Employee, (ii) the gross neglect by Employee of his duties
as an employee, officer or director of the Bank which continues for more than
thirty (30) days after written notice from the Bank to Employee specifically
identifying the gross negligence of Employee and directing Employee to
discontinue same, (iii) the commission by Employee of an act, other than an act
taken in good faith within the course and scope of Employee's employment, which
is directly detrimental to the Bank and which act exposes the Bank to material
liability.
-5-
<PAGE>
7.5 Good Reason-Change in Control. As used in this Agreement, the
term "Good Reason-Change in Control" means after the occurrence of a Change in
Control and a determination by Employee that any one or more of the following
events has occurred:
(a) the assignment by the Bank to Employee of duties that are
inconsistent with the Office at the time of such assignment, or the removal
by the Bank from Employee of those duties usually appertaining to the
Office at the time of such removal; or
(b) a change by the Bank, without Employee's prior written consent, in
Employee's responsibilities to the Bank as such responsibilities existed at
the time of the occurrence of such Change in Control (or as such
responsibilities may thereafter exist from time to time as a result of
changes in such responsibilities made with Employee's prior written
consent); or
(c) any removal of Employee from, or any failure to elect or reelect
Employee to, the Office, except in connection with Employee's promotion,
with his prior written consent, to a higher office (if any) with the Bank;
or
(d) the Bank's direction that Employee discontinue service (or not
seek reelection or reappointment) as a director, officer or member of any
corporation or other entity of which Employee is a director, officer or
member at the time of the occurrence of such Change in Control; or
(e) the failure of the Bank to continue to provide Employee with
office space, related facilities and support personnel (including, but not
limited to, administrative and secretarial assistance) that are both
commensurate with the Office and Employee's responsibilities to and
position with the Bank at the time of the occurrence of such Change in
Control and not materially dissimilar to the office space, related
facilities and support personnel provided to other key executive officers
of the Bank; or
(f) a reduction by the Bank in the amount of Employee's minimum salary
specified in Section 2.1(a) (or as subsequently increased) and as in effect
at the time of the occurrence of such Change in Control, or a failure of
the Bank to pay such minimum annual salary to the Employee at the time and
in the manner specified in Section 3.1(a) of this Agreement; or
(g) Employee's principal office space or the related facilities or
support space or the related facilities or support personnel referred to in
paragraph (e) of this Section 7.5 cease to be located within the Bank's
principal executive offices, or for a period of more than 45
-6-
<PAGE>
consecutive days Employee is required by the Bank to perform a majority of
this duties outside the Bank's principal executive offices; or
(h) the relocation, without Employee's prior written consent, of the
Bank's principal executive offices to a location outside the county in
which such offices are located at the time of the occurrence of such Change
in Control; or
(i) the failure of the Bank to obtain the assumption by any successor
to the Bank of the obligations imposed upon the Bank under this Agreement,
as required by Section 14 of this Agreement; or
(j) the employment of Employee under this Agreement is terminated by
the Bank without Cause; or
(k) the Bank notifies Employee of the Bank's intention not to observe
or perform one or more of the obligations of the Bank under this Agreement;
or
(l) the Bank breaches any provision of this Agreement.
7.6 Change in Control. As used herein, the term "Change in Control"
shall mean the occurrence with respect to the Bank or Guaranty Bancshares, Inc.
(the "Parent") of any of the following events:
(a) a report on Schedule 13D is filed with the Securities and Exchange
Commission (the "SEC") pursuant to Section 13(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), disclosing that any person,
entity or group (within the meaning of Section 13(d) or 14(d) of the
Exchange Act), other than the Bank or the Parent (or one of its
subsidiaries) or any employee benefit plan sponsored by the Bank or the
Parent (or one of its subsidiaries), is the beneficial owner (as such term
is defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of 20 percent or more of the outstanding shares of common stock
of the Bank or the Parent or the combined voting power of the then-
outstanding securities of the Bank or the Parent;
(b) a report is filed by the Bank or the Parent disclosing a response
to either Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act, or to Item 1 of Form 8-K promulgated under the Exchange Act,
or to any similar reporting requirement hereafter promulgated by the SEC;
-7-
<PAGE>
(c) any person, entity or group (within the meaning of Section 13(d)
or 14(d) of the Exchange Act), other than the Bank or the Parent (or one of
its subsidiaries) or any employee benefit plan sponsored by the Bank or the
Parent (or one of its subsidiaries), shall purchase securities pursuant to
a tender offer or exchange offer to acquire any common stock of the Bank or
the Parent (or securities convertible into common stock) for cash,
securities or any other consideration, provided that after consummation of
the offer, the person, entity or group in question is the beneficial owner
(as such term is defined in Rule 13d-3 promulgated under the Exchange Act),
directly or indirectly, of 20 percent or more of the combined voting power
of the then-outstanding securities of the Bank or the Parent (as determined
under paragraph (d) of Rule 13d-3 promulgated under the Exchange Act, in
the case of rights to acquire common stock);
(d) the stockholders of the Bank or the Parent shall approve:
(i) any merger, consolidation, or reorganization of the Bank or
the Parent:
(A) in which the Bank or the Parent is not the continuing or
surviving corporation,
(B) pursuant to which shares of common stock of the Bank or
the Parent would be converted into cash, securities or other
property,
(C) with a corporation which prior to such merger,
consolidation, or reorganization owned 20 percent or more of the
combined voting power of the then-outstanding securities of the
Bank or the Parent, or
(D) in which the Bank or the Parent will not survive as an
independent corporation;
(ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all the assets of the Bank or the Parent, or
(iii) any liquidation or dissolution of the Bank or the Parent;
(e) the stockholders of the Bank or the Parent shall approve a merger,
consolidation, reorganization, recapitalization, exchange offer, purchase
of assets or other transaction after the consummation of which any person,
entity or group (as defined in accordance with Section 13(d) or 14(d) of
the Exchange Act) would own beneficially in
-8-
<PAGE>
excess of 50% of the outstanding shares of common stock of the Bank or the
Parent or in excess of 50% of the combined voting power of the then-
outstanding securities of the Bank or the Parent; or
(f) during a period of two consecutive years, the individuals who at
the beginning of such period constituted the Board of Directors of Bank or
the Parent cease for any reason to constitute a majority of such Board,
unless the election or nomination for election by the Bank or the Parent's
stockholders of each new director during any such two-year period was
approved by the vote by two-thirds of the directors then still in office
who were directors at the beginning of such two-year period.
8. Parachute Payments.
8.1 General. For the purposes of the determinations to be made
pursuant to Paragraph 8.2 below, capitalized terms that are not defined in this
Agreement shall have the meanings set forth in Section 280G of the Internal
Revenue Code of 1986, as amended ("Code"). A "Change in Control" of the Bank or
the Parent shall have the meaning set forth in Section 7.6 above and shall refer
to an ownership change described in Section 280G(b)(2)(A)(i) of the Code with
respect to the Bank of the Parent. "Incentive Agreements" mean this Agreement
and all stock option agreements, incentive compensation unit agreements,
supplemental pension agreements or other arrangements or agreements, whether in
existence on the date hereof or hereafter entered into by the Employee and the
Bank or the Parent that entitled the Employee to receive payments or other
property from the Bank or the Parent.
8.2 Limitation. If the Aggregate Present Value of Parachute Payments
payable to or in respect of the Employee by reason of a Change in Control of the
Bank or the Parent under all Incentive Agreements then in effect is greater than
or equal to three times the Base Amount, then the Aggregate Present Value of
Parachute Payments made to the Employee shall be limited to an amount equal to
the greater of the portion of the Parachute Payments constituting Reasonable
Compensation or three times the Base Amount less one dollar. Any amount
required to be withheld from payments made to the Employee pursuant to this
Paragraph 8.2 shall be deducted from the Change in Control-Lump Sum Payment
referred to in Section 7.2 above.
9. Notices. Any notice under this Agreement must be in writing and may
be given by certified or registered mail, postage prepaid, addressed to the
party or parties to be notified with return receipt requested, or by delivering
the notice in person. For purposes of notice, the address of Employee or any
administrator, executor or legal representative of Employee or his estate, as
the case may be, shall be the last address of the Employee on the records of the
Bank. The address of the Bank shall be its principal business address.
-9-
<PAGE>
10. Controlling Law. This Agreement shall be governed by the laws of the
State of Texas.
11. Entire Agreement. This Agreement contains the entire agreement of the
parties and may only be amended in writing signed by both parties; provided,
that no amendment to this Agreement shall be effective unless authorized by
resolution of the Board of Directors and signed on behalf of the Bank by a duly
authorized officer of the Bank other than Employee.
12. Remedies, Modification and Separability. Employee and the Bank agree
that Employee's breach of Sections 4 and 5 of this Agreement will result in
irreparable harm to the Bank, that no adequate remedy at law is available, and
that the Bank shall be entitled to injunctive relief; however, nothing herein
shall prevent the Bank from pursuing any other remedies at law or at equity
available to the Bank. Should a court of competent jurisdiction declare any of
the covenants set forth in Sections 4 or 5 unenforceable, the court shall be
empowered to modify or reform such covenants so as to provide relief reasonably
necessary to protect the interests of the Bank and Employee and to award
injunctive relief, or damages, or both, to which the Bank may be entitled. If
any provision of this Agreement is declared by a court of last resort to be
invalid, the Bank and Employee agree that such declaration shall not affect the
validity of the other provisions of this Agreement. If any provision of this
Agreement is capable to two constructions, one of which would render the
provision void and the other of which would render the provision valid, then the
provision shall have the construction which renders it valid.
13. Preservation of Business; Fiduciary Responsibility. Employee shall
use his best efforts to preserve the business and organization of the Bank, to
keep available to the Bank the services of its present employees and to preserve
the business relations of the Bank with suppliers, distributors, customers and
others. Employee shall not commit any act which would injure the Bank.
Employee shall observe and fulfill proper standards of fiduciary responsibility
attendant upon his Office.
14. Assignments. This Agreement is personal to Employee and without the
prior written consent of the Bank shall not be assignable by Employee other than
by will or the laws of descent and distribution. This Agreement shall inure to
the benefit of and be enforceable by Employee's legal representatives and heirs.
This Agreement shall inure to the benefit of and be binding upon the Bank and
its successors and assigns. The Bank shall require any corporation, entity,
individual or other person who is the successor (whether direct or indirect, by
purchase, merger, consolidation, reorganization, or otherwise) to all or
substantially all of the business or assets of the Bank to expressly assume and
agree to perform, by a written agreement in form and substance satisfactory to
Employee, all of the obligations of the Bank under this Agreement. As used in
this Agreement, the term "Bank" shall mean the Bank as hereinbefore defined and
any successor to its business
-10-
<PAGE>
and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, written agreement, or otherwise.
15. Waiver of Breach. The waiver by the Bank of a breach of any provision
of this Agreement by Employee shall not operate or be construed as a waiver by
the Bank of any subsequent breach of Employee.
16. Revocation of Previous Employment Agreements. Any and all previous
employment agreements existing between the Bank and Employee are revoked and
canceled.
17. Headings. The section headings in this Agreement are for convenience
of reference and shall not be used in the interpretation or construction of this
Agreement.
18. Attorney's Fees. In the event Bank or Employee breaches any term or
provision of this Agreement and the other party employs an attorney or attorneys
to enforce the terms of this Agreement, then the breaching or defaulting party
agrees to pay the other party the reasonable attorney's fees and costs incurred
to enforce this Agreement.
19. Execution. This Agreement may be executed in multiple counterparts
each of which shall be deemed an original and all of which shall constitute one
instrument.
Employee acknowledges that he has read this Agreement and understands that
signing this Agreement is a condition of employment.
IN WITNESS WHEREOF, this Agreement is executed as of the ____ day of
______________, 1998.
"EMPLOYEE" "BANK"
Guaranty Bank
By:
- ------------------------ ---------------------------------
Devry Garrett Name:
-------------------------------
Title:
------------------------------
-11-
<PAGE>
Exhibit "A"
Employment Agreement By and Between
Guaranty Bank and Devry Garrett
Calendar Year Annual Salary Bank Initials Employee Initials
- ------------- ------------- ------------- -----------------
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
-12-
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is by and between Guaranty
Bank, a Texas banking corporation (the "Bank"), and Russell L. Jones, an
individual residing in Mount Pleasant, Titus County, Texas (the "Employee"),
effective as of March ___, 1998 (the "Effective Date").
W I T N E S S E T H:
In consideration of the mutual covenants and agreements contained in this
Agreement, the parties agree as follows:
1. Employment. On the terms and subject to the conditions of this
Agreement, the Bank hereby employs Employee, and engages the services of the
Employee to serve as Senior Vice President (the "Office") of the Bank, and
Employee hereby accepts employment with the Bank according to the terms set
forth in this Agreement.
2. Duties. Employee is hereby employed and shall work at the location of
the Bank or at such other place or places as may be directed by the Bank. The
Employee shall have the position (including status, offices, titles and
reporting requirements), authority, duties, and responsibilities usually
associated with the Office of a bank having assets similar in nature and value
to the assets of the Bank.
2.1 The Employee shall devote his entire time and attention during normal
working hours to the Office during the term of this Agreement for the profit and
benefit of Bank. During the term of this Agreement, the Employee shall not
directly or indirectly render any services or be engaged in any activity of a
business, commercial, or professional nature to any other person or
organization, whether for compensation or otherwise, other than Bank, without
the prior written consent of the Bank.
3. Compensation and Benefits. The compensation and other benefits payable
to Employee under this Agreement shall constitute the full consideration to be
paid to Employee for all services to be rendered by Employee for the Bank.
3.1 The Bank will pay to Employee an annual salary as determined by the
Board of Directors of the Bank which is stated on Exhibit "A" attached hereto.
The Employee's annual salary shall be payable in accordance with the Bank's
customary policies, subject to payroll and withholding deductions as may be
required by law and other deductions applied generally to employees of the Bank
for insurance or other employee benefit plans.
<PAGE>
3.2 Employee shall be reimbursed for any and all reasonable costs and
expenses incurred by Employee in performance of his services and duties as
specified in this Agreement or incurred by Employee on behalf of, or in
furtherance of the business of, the Bank, including, but not limited to business
expenses incurred in connection with travel and entertainment; provided,
however, that Employee shall submit to the Bank supporting receipts and
information satisfactory to the Bank with respect to such reasonable costs and
expenses.
3.3 During the term of Employee's employment, he shall be entitled (i) to
receive health insurance benefits with the same coverages and deductibles as are
currently in effect with respect to Employee (subject to the availability of
such benefits at a reasonable cost), (ii) to participate in the Bank's other
benefit plans to such extent as determined by the Board of Directors of the
Bank, (iii) to participate in the Bank's other policies, including vacation and
sick leave.
4. Conflicts of Interests; Covenant Not to Compete.
4.1 Employee shall, during the term of this Agreement, devote his entire
time, attention, energies and business efforts to his duties as an employee of
the Bank and to the business of the Bank. Employee shall not, during the term
of this Agreement, directly or indirectly, for and on behalf of himself or any
person, firm, partnership, corporation or other legal entity, own, manage,
operate, control, invest in, make loans on advances to, guarantee the
obligations of or participate in the ownership or management or operations of or
be employed by or otherwise engage in the operation of any business that is in
competition in any manner whatsoever with the business of the Bank.
5. Confidential Information.
5.1 As used herein, "Confidential Information" means all technical and
business information (including financial statements and related books and
records, personnel records, customer lists, arrangements with customers and
suppliers, manuals and reports) of the Bank and its affiliates (whether such
information is owned by, licensed to or otherwise possessed by the Bank or any
affiliate), whether patentable or not, which is of a confidential, trade secret
and/or proprietary character and which is either developed by Employee (alone or
with others) or to which Employee has had access during his employment.
"Confidential Information" shall include but is not limited to information of a
technical or business nature such as ideas, discoveries, inventions,
improvements, trade secrets, know-how, manufacturing processes, specifications,
writings and other works of authorship, computer programs, financial figures and
reports, marketing plans, customer lists and data, and/or business plans or data
which relate to the actual or anticipated business of the Bank or any affiliate
or its actual or anticipated areas of research and development. "Confidential
-2-
<PAGE>
Information" shall also include but is not limited to confidential evaluations
of, and the confidential use or non-use by Bank or any affiliate of, technical
or business information in the public domain.
5.2 Employee shall, both during and after his employment with the Bank,
protect and maintain the confidential, trade secret and/or proprietary character
of all Confidential Information. Employee shall not, during or after
termination of his employment, directly or indirectly, use (for himself or
another) or disclose any Confidential Information, for so long as it shall
remain proprietary or protectible as confidential or trade secret information,
except as may be necessary for the performance of his duties under this
Agreement.
5.3 Employee shall deliver promptly to the Bank, at the termination of his
employment, or at any other time at the Bank's request, without retaining any
copies, all documents and other material in his possession relating, directly or
indirectly, to any Confidential Information.
5.4 Each of Employee's obligations in this Section 5 shall also apply to
the confidential, trade secret and proprietary information learned or acquired
by him during his employment from others with whom the Bank or any affiliate has
a business relationship.
6. Term and Termination.
6.1 Term. The term of this Agreement shall be for two years commencing on
the Effective Date and shall automatically be extended each day from the
Effective Date.
6.2 Termination of Agreement. Except as may otherwise be provided herein,
this Agreement may terminate prior to the end of the Term upon the occurrence
of:
(a) Thirty (30) days after written notice of termination is given by
either party to the other; or
(b) Employees's death or, at the Bank's option, upon Employee's
becoming Disabled (as defined in Section 7.3 hereof).
Any notice of termination given by Employee to the Bank under Section 6.2(a)
above shall specify whether such termination is made with or without Good
Reason-Change in Control (as defined in Section 7.5 hereof). Any notice of
termination given by the Bank to Employee under Section 6.2(a) above shall
specify whether such termination is with or without Cause (as defined in Section
7.4 hereof.
-3-
<PAGE>
7. Obligations of the Bank Upon Termination.
7.1 Cause and Other than for Good Reason-Change in Control. If the
Bank terminates this Agreement with Cause pursuant to Section 6.2(a) above, or
if Employee terminates this Agreement without Good Reason-Change in Control
pursuant to Section 6.2(a) hereof, this Agreement shall terminate without
further obligations to Employee, other than those obligations owing or accrued
to, vested in, or earned by Employee through the date of termination, including,
but not limited to:
(a) to the extent not theretofore paid, Employee's annual salary
in effect at the time of such termination through the date of
termination; and
(b) in the case of compensation previously deferred by Employee,
all amounts previously deferred (together with any accrued interest
thereon) and not yet paid by the Bank and any accrued vacation pay not
yet paid by the Bank; and
(c) all other amounts or benefits owing or accrued to, vested in,
earned by Employee through the date of termination under the then
existing or applicable plans, programs, arrangements, and policies of
Bank;
such obligations owing or accrued to, vested in, or earned by Employee through
the date of termination, including, but not limited to, such amounts and
benefits specified in clauses (a), (b), and (c) of this sentence, being
hereinafter collectively referred to as the "Accrued Obligations." The
aggregate amount of such obligations owing or accrued to, vested in, or earned
by Employee through the date of termination, including, but not limited to, the
Accrued Obligations, shall be paid by the Bank to Employee in cash in one lump
sum within thirty (30) days after the date of termination.
7.2 Good Reason-Change in Control; Other than for Cause Before or
After a Change in Control. If Employee terminates this Agreement with Good
Reason-Change in Control pursuant to Section 6.2(a) hereof, or if the Bank
terminates this Agreement without Cause before or after the occurrence of a
Change in Control pursuant to Section 6.2(a) hereof, the Bank shall pay to
Employee cash in one lump sum within thirty (30) days after the date of
termination the aggregate of the following amounts (the "Change in Control-Lump
Sum Payment"):
(i) to the extent not theretofore paid, Employee's annual
salary at the annual rate in effect at the time of such
termination through the date of termination; and
-4-
<PAGE>
(ii) to the extent not theretofore paid, any bonus through
the date of termination; and
(iii) in the case of compensation previously deferred by
Employee, all amounts previously deferred (together with any
accrued interest thereon) and not yet paid by the Bank, and any
accrued vacation pay not yet paid by the Bank; and
(iv) all other amounts or benefits owing or accrued to,
vested in, or earned by Employee through the date of termination
under the then existing or applicable plans, programs,
arrangements, and policies of the Bank; and
(v) any and all other Accrued Obligations not otherwise
described in clause (i), (ii), (iii), (iv) or (v) of this Section
7.2; and
(vi) an amount equal to two (2) times the Employee's annual
salary in effect at the time of such termination.
7.3 Death or Disabilities. If Employee's employment is terminated
under Section 6.2(b) hereof by reason of Employee's death or Disability, the
Bank shall pay to Employee's legal representatives cash in one lump sum within
thirty (30) days after the date of Employee's death or Disability the full
amount of the obligations owing or accrued to, vested in, or earned by Employee
through the date of Employee's death or disability, including, but not limited
to, the Accrued Obligations. Anything in this Agreement to the contrary
notwithstanding, the Employee's legal representatives or beneficiaries shall be
entitled to receive benefits provided under the then existing or applicable
plans, programs, or arrangements and policies of the Bank relating to death or
disability. As used herein, "Disabled" shall have the meanings as being
disabled under the Guaranty Bancshares, Inc. 1998 Stock Incentive Plan.
7.4 Cause. As used in this Agreement, the term "Cause" means (i)
willful misconduct by Employee, (ii) the gross neglect by Employee of his duties
as an employee, officer or director of the Bank which continues for more than
thirty (30) days after written notice from the Bank to Employee specifically
identifying the gross negligence of Employee and directing Employee to
discontinue same, (iii) the commission by Employee of an act, other than an act
taken in good faith within the course and scope of Employee's employment, which
is directly detrimental to the Bank and which act exposes the Bank to material
liability.
-5-
<PAGE>
7.5 Good Reason-Change in Control. As used in this Agreement, the
term "Good Reason-Change in Control" means after the occurrence of a Change in
Control and a determination by Employee that any one or more of the following
events has occurred:
(a) the assignment by the Bank to Employee of duties that are
inconsistent with the Office at the time of such assignment, or the removal
by the Bank from Employee of those duties usually appertaining to the
Office at the time of such removal; or
(b) a change by the Bank, without Employee's prior written consent, in
Employee's responsibilities to the Bank as such responsibilities existed at
the time of the occurrence of such Change in Control (or as such
responsibilities may thereafter exist from time to time as a result of
changes in such responsibilities made with Employee's prior written
consent); or
(c) any removal of Employee from, or any failure to elect or reelect
Employee to, the Office, except in connection with Employee's promotion,
with his prior written consent, to a higher office (if any) with the Bank;
or
(d) the Bank's direction that Employee discontinue service (or not
seek reelection or reappointment) as a director, officer or member of any
corporation or other entity of which Employee is a director, officer or
member at the time of the occurrence of such Change in Control; or
(e) the failure of the Bank to continue to provide Employee with
office space, related facilities and support personnel (including, but not
limited to, administrative and secretarial assistance) that are both
commensurate with the Office and Employee's responsibilities to and
position with the Bank at the time of the occurrence of such Change in
Control and not materially dissimilar to the office space, related
facilities and support personnel provided to other key executive officers
of the Bank; or
(f) a reduction by the Bank in the amount of Employee's minimum salary
specified in Section 2.1(a) (or as subsequently increased) and as in effect
at the time of the occurrence of such Change in Control, or a failure of
the Bank to pay such minimum annual salary to the Employee at the time and
in the manner specified in Section 3.1(a) of this Agreement; or
(g) Employee's principal office space or the related facilities or
support space or the related facilities or support personnel referred to in
paragraph (e) of this Section 7.5 cease to be located within the Bank's
principal executive offices, or for a period of more than 45
-6-
<PAGE>
consecutive days Employee is required by the Bank to perform a majority of
this duties outside the Bank's principal executive offices; or
(h) the relocation, without Employee's prior written consent, of the
Bank's principal executive offices to a location outside the county in
which such offices are located at the time of the occurrence of such Change
in Control; or
(i) the failure of the Bank to obtain the assumption by any successor
to the Bank of the obligations imposed upon the Bank under this Agreement,
as required by Section 14 of this Agreement; or
(j) the employment of Employee under this Agreement is terminated by
the Bank without Cause; or
(k) the Bank notifies Employee of the Bank's intention not to observe
or perform one or more of the obligations of the Bank under this Agreement;
or
(l) the Bank breaches any provision of this Agreement.
7.6 Change in Control. As used herein, the term "Change in Control"
shall mean the occurrence with respect to the Bank or Guaranty Bancshares, Inc.
(the "Parent") of any of the following events:
(a) a report on Schedule 13D is filed with the Securities and Exchange
Commission (the "SEC") pursuant to Section 13(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), disclosing that any person,
entity or group (within the meaning of Section 13(d) or 14(d) of the
Exchange Act), other than the Bank or the Parent (or one of its
subsidiaries) or any employee benefit plan sponsored by the Bank or the
Parent (or one of its subsidiaries), is the beneficial owner (as such term
is defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of 20 percent or more of the outstanding shares of common stock
of the Bank or the Parent or the combined voting power of the then-
outstanding securities of the Bank or the Parent;
(b) a report is filed by the Bank or the Parent disclosing a response
to either Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act, or to Item 1 of Form 8-K promulgated under the Exchange Act,
or to any similar reporting requirement hereafter promulgated by the SEC;
-7-
<PAGE>
(c) any person, entity or group (within the meaning of Section 13(d)
or 14(d) of the Exchange Act), other than the Bank or the Parent (or one of
its subsidiaries) or any employee benefit plan sponsored by the Bank or the
Parent (or one of its subsidiaries), shall purchase securities pursuant to
a tender offer or exchange offer to acquire any common stock of the Bank or
the Parent (or securities convertible into common stock) for cash,
securities or any other consideration, provided that after consummation of
the offer, the person, entity or group in question is the beneficial owner
(as such term is defined in Rule 13d-3 promulgated under the Exchange Act),
directly or indirectly, of 20 percent or more of the combined voting power
of the then-outstanding securities of the Bank or the Parent (as determined
under paragraph (d) of Rule 13d-3 promulgated under the Exchange Act, in
the case of rights to acquire common stock);
(d) the stockholders of the Bank or the Parent shall approve:
(i) any merger, consolidation, or reorganization of the Bank or
the Parent:
(A) in which the Bank or the Parent is not the continuing or
surviving corporation,
(B) pursuant to which shares of common stock of the Bank or
the Parent would be converted into cash, securities or other
property,
(C) with a corporation which prior to such merger,
consolidation, or reorganization owned 20 percent or more of the
combined voting power of the then-outstanding securities of the
Bank or the Parent, or
(D) in which the Bank or the Parent will not survive as an
independent corporation;
(ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all the assets of the Bank or the Parent, or
(iii) any liquidation or dissolution of the Bank or the Parent;
(e) the stockholders of the Bank or the Parent shall approve a merger,
consolidation, reorganization, recapitalization, exchange offer, purchase
of assets or other transaction after the consummation of which any person,
entity or group (as defined in accordance with Section 13(d) or 14(d) of
the Exchange Act) would own beneficially in
-8-
<PAGE>
excess of 50% of the outstanding shares of common stock of the Bank or the
Parent or in excess of 50% of the combined voting power of the then-
outstanding securities of the Bank or the Parent; or
(f) during a period of two consecutive years, the individuals who at
the beginning of such period constituted the Board of Directors of Bank or
the Parent cease for any reason to constitute a majority of such Board,
unless the election or nomination for election by the Bank or the Parent's
stockholders of each new director during any such two-year period was
approved by the vote by two-thirds of the directors then still in office
who were directors at the beginning of such two-year period.
8. Parachute Payments.
8.1 General. For the purposes of the determinations to be made
pursuant to Paragraph 8.2 below, capitalized terms that are not defined in this
Agreement shall have the meanings set forth in Section 280G of the Internal
Revenue Code of 1986, as amended ("Code"). A "Change in Control" of the Bank or
the Parent shall have the meaning set forth in Section 7.6 above and shall refer
to an ownership change described in Section 280G(b)(2)(A)(i) of the Code with
respect to the Bank of the Parent. "Incentive Agreements" mean this Agreement
and all stock option agreements, incentive compensation unit agreements,
supplemental pension agreements or other arrangements or agreements, whether in
existence on the date hereof or hereafter entered into by the Employee and the
Bank or the Parent that entitled the Employee to receive payments or other
property from the Bank or the Parent.
8.2 Limitation. If the Aggregate Present Value of Parachute Payments
payable to or in respect of the Employee by reason of a Change in Control of the
Bank or the Parent under all Incentive Agreements then in effect is greater than
or equal to three times the Base Amount, then the Aggregate Present Value of
Parachute Payments made to the Employee shall be limited to an amount equal to
the greater of the portion of the Parachute Payments constituting Reasonable
Compensation or three times the Base Amount less one dollar. Any amount
required to be withheld from payments made to the Employee pursuant to this
Paragraph 8.2 shall be deducted from the Change in Control-Lump Sum Payment
referred to in Section 7.2 above.
9. Notices. Any notice under this Agreement must be in writing and may
be given by certified or registered mail, postage prepaid, addressed to the
party or parties to be notified with return receipt requested, or by delivering
the notice in person. For purposes of notice, the address of Employee or any
administrator, executor or legal representative of Employee or his estate, as
the case may be, shall be the last address of the Employee on the records of the
Bank. The address of the Bank shall be its principal business address.
-9-
<PAGE>
10. Controlling Law. This Agreement shall be governed by the laws of the
State of Texas.
11. Entire Agreement. This Agreement contains the entire agreement of the
parties and may only be amended in writing signed by both parties; provided,
that no amendment to this Agreement shall be effective unless authorized by
resolution of the Board of Directors and signed on behalf of the Bank by a duly
authorized officer of the Bank other than Employee.
12. Remedies, Modification and Separability. Employee and the Bank agree
that Employee's breach of Sections 4 and 5 of this Agreement will result in
irreparable harm to the Bank, that no adequate remedy at law is available, and
that the Bank shall be entitled to injunctive relief; however, nothing herein
shall prevent the Bank from pursuing any other remedies at law or at equity
available to the Bank. Should a court of competent jurisdiction declare any of
the covenants set forth in Sections 4 or 5 unenforceable, the court shall be
empowered to modify or reform such covenants so as to provide relief reasonably
necessary to protect the interests of the Bank and Employee and to award
injunctive relief, or damages, or both, to which the Bank may be entitled. If
any provision of this Agreement is declared by a court of last resort to be
invalid, the Bank and Employee agree that such declaration shall not affect the
validity of the other provisions of this Agreement. If any provision of this
Agreement is capable to two constructions, one of which would render the
provision void and the other of which would render the provision valid, then the
provision shall have the construction which renders it valid.
13. Preservation of Business; Fiduciary Responsibility. Employee shall
use his best efforts to preserve the business and organization of the Bank, to
keep available to the Bank the services of its present employees and to preserve
the business relations of the Bank with suppliers, distributors, customers and
others. Employee shall not commit any act which would injure the Bank.
Employee shall observe and fulfill proper standards of fiduciary responsibility
attendant upon his Office.
14. Assignments. This Agreement is personal to Employee and without the
prior written consent of the Bank shall not be assignable by Employee other than
by will or the laws of descent and distribution. This Agreement shall inure to
the benefit of and be enforceable by Employee's legal representatives and heirs.
This Agreement shall inure to the benefit of and be binding upon the Bank and
its successors and assigns. The Bank shall require any corporation, entity,
individual or other person who is the successor (whether direct or indirect, by
purchase, merger, consolidation, reorganization, or otherwise) to all or
substantially all of the business or assets of the Bank to expressly assume and
agree to perform, by a written agreement in form and substance satisfactory to
Employee, all of the obligations of the Bank under this Agreement. As used in
this Agreement, the term "Bank" shall mean the Bank as hereinbefore defined and
any successor to its business
-10-
<PAGE>
and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, written agreement, or otherwise.
15. Waiver of Breach. The waiver by the Bank of a breach of any provision
of this Agreement by Employee shall not operate or be construed as a waiver by
the Bank of any subsequent breach of Employee.
16. Revocation of Previous Employment Agreements. Any and all previous
employment agreements existing between the Bank and Employee are revoked and
canceled.
17. Headings. The section headings in this Agreement are for convenience
of reference and shall not be used in the interpretation or construction of this
Agreement.
18. Attorney's Fees. In the event Bank or Employee breaches any term or
provision of this Agreement and the other party employs an attorney or attorneys
to enforce the terms of this Agreement, then the breaching or defaulting party
agrees to pay the other party the reasonable attorney's fees and costs incurred
to enforce this Agreement.
19. Execution. This Agreement may be executed in multiple counterparts
each of which shall be deemed an original and all of which shall constitute one
instrument.
Employee acknowledges that he has read this Agreement and understands that
signing this Agreement is a condition of employment.
IN WITNESS WHEREOF, this Agreement is executed as of the ____ day of
______________, 1998.
"EMPLOYEE" "BANK"
Guaranty Bank
By:
- ----------------------- ------------------------------
Russell L. Jones Name:
----------------------------
Title:
---------------------------
-11-
<PAGE>
Exhibit "A"
Employment Agreement By and Between
Guaranty Bank and Russell L. Jones
Calendar Year Annual Salary Bank Initials Employee Initials
- ------------- ------------- ------------- -----------------
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
-12-
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is by and between Guaranty
Bank, a Texas banking corporation (the "Bank"), and Virgil Jones, an individual
residing in _______________, __________ County, Texas (the "Employee"),
effective as of March __, 1998 (the "Effective Date").
W I T N E S S E T H:
In consideration of the mutual covenants and agreements contained in this
Agreement, the parties agree as follows:
1. Employment. On the terms and subject to the conditions of this
Agreement, the Bank hereby employs Employee, and engages the services of the
Employee to serve as President of the Talco and Deport branches (the "Office")
of the Bank, and Employee hereby accepts employment with the Bank according to
the terms set forth in this Agreement.
2. Duties. Employee is hereby employed and shall work at the location of
the Bank or at such other place or places as may be directed by the Bank. The
Employee shall have the position (including status, offices, titles and
reporting requirements), authority, duties, and responsibilities usually
associated with the Office of a bank having assets similar in nature and value
to the assets of the Bank.
2.1 The Employee shall devote his entire time and attention during normal
working hours to the Office during the term of this Agreement for the profit and
benefit of Bank. During the term of this Agreement, the Employee shall not
directly or indirectly render any services or be engaged in any activity of a
business, commercial, or professional nature to any other person or
organization, whether for compensation or otherwise, other than Bank, without
the prior written consent of the Bank.
3. Compensation and Benefits. The compensation and other benefits payable
to Employee under this Agreement shall constitute the full consideration to be
paid to Employee for all services to be rendered by Employee for the Bank.
3.1 The Bank will pay to Employee an annual salary as determined by the
Board of Directors of the Bank which is stated on Exhibit "A" attached hereto.
The Employee's annual salary shall be payable in accordance with the Bank's
customary policies, subject to payroll and withholding deductions as may be
required by law and other deductions applied generally to employees of the Bank
for insurance or other employee benefit plans.
<PAGE>
3.2 Employee shall be reimbursed for any and all reasonable costs and
expenses incurred by Employee in performance of his services and duties as
specified in this Agreement or incurred by Employee on behalf of, or in
furtherance of the business of, the Bank, including, but not limited to business
expenses incurred in connection with travel and entertainment; provided,
however, that Employee shall submit to the Bank supporting receipts and
information satisfactory to the Bank with respect to such reasonable costs and
expenses.
3.3 During the term of Employee's employment, he shall be entitled (i) to
receive health insurance benefits with the same coverages and deductibles as are
currently in effect with respect to Employee (subject to the availability of
such benefits at a reasonable cost), (ii) to participate in the Bank's other
benefit plans to such extent as determined by the Board of Directors of the
Bank, (iii) to participate in the Bank's other policies, including vacation and
sick leave.
4. Conflicts of Interests; Covenant Not to Compete.
4.1 Employee shall, during the term of this Agreement, devote his entire
time, attention, energies and business efforts to his duties as an employee of
the Bank and to the business of the Bank. Employee shall not, during the term
of this Agreement, directly or indirectly, for and on behalf of himself or any
person, firm, partnership, corporation or other legal entity, own, manage,
operate, control, invest in, make loans on advances to, guarantee the
obligations of or participate in the ownership or management or operations of or
be employed by or otherwise engage in the operation of any business that is in
competition in any manner whatsoever with the business of the Bank.
5. Confidential Information.
5.1 As used herein, "Confidential Information" means all technical and
business information (including financial statements and related books and
records, personnel records, customer lists, arrangements with customers and
suppliers, manuals and reports) of the Bank and its affiliates (whether such
information is owned by, licensed to or otherwise possessed by the Bank or any
affiliate), whether patentable or not, which is of a confidential, trade secret
and/or proprietary character and which is either developed by Employee (alone or
with others) or to which Employee has had access during his employment.
"Confidential Information" shall include but is not limited to information of a
technical or business nature such as ideas, discoveries, inventions,
improvements, trade secrets, know-how, manufacturing processes, specifications,
writings and other works of authorship, computer programs, financial figures and
reports, marketing plans, customer lists and data, and/or business plans or data
which relate to the actual or anticipated business of the Bank or any affiliate
or its actual or anticipated areas of research and development. "Confidential
-2-
<PAGE>
Information" shall also include but is not limited to confidential evaluations
of, and the confidential use or non-use by Bank or any affiliate of, technical
or business information in the public domain.
5.2 Employee shall, both during and after his employment with the Bank,
protect and maintain the confidential, trade secret and/or proprietary character
of all Confidential Information. Employee shall not, during or after
termination of his employment, directly or indirectly, use (for himself or
another) or disclose any Confidential Information, for so long as it shall
remain proprietary or protectible as confidential or trade secret information,
except as may be necessary for the performance of his duties under this
Agreement.
5.3 Employee shall deliver promptly to the Bank, at the termination of his
employment, or at any other time at the Bank's request, without retaining any
copies, all documents and other material in his possession relating, directly or
indirectly, to any Confidential Information.
5.4 Each of Employee's obligations in this Section 5 shall also apply to
the confidential, trade secret and proprietary information learned or acquired
by him during his employment from others with whom the Bank or any affiliate has
a business relationship.
6. Term and Termination.
6.1 Term. The term of this Agreement shall be for two years commencing on
the Effective Date and shall automatically be extended each day from the
Effective Date.
6.2 Termination of Agreement. Except as may otherwise be provided herein,
this Agreement may terminate prior to the end of the Term upon the occurrence
of:
(a) Thirty (30) days after written notice of termination is given by
either party to the other; or
(b) Employees's death or, at the Bank's option, upon Employee's
becoming Disabled (as defined in Section 7.3 hereof).
Any notice of termination given by Employee to the Bank under Section 6.2(a)
above shall specify whether such termination is made with or without Good
Reason-Change in Control (as defined in Section 7.5 hereof). Any notice of
termination given by the Bank to Employee under Section 6.2(a) above shall
specify whether such termination is with or without Cause (as defined in Section
7.4 hereof.
-3-
<PAGE>
7. Obligations of the Bank Upon Termination.
7.1 Cause and Other than for Good Reason-Change in Control. If the
Bank terminates this Agreement with Cause pursuant to Section 6.2(a) above, or
if Employee terminates this Agreement without Good Reason-Change in Control
pursuant to Section 6.2(a) hereof, this Agreement shall terminate without
further obligations to Employee, other than those obligations owing or accrued
to, vested in, or earned by Employee through the date of termination, including,
but not limited to:
(a) to the extent not theretofore paid, Employee's annual salary
in effect at the time of such termination through the date of
termination; and
(b) in the case of compensation previously deferred by Employee,
all amounts previously deferred (together with any accrued interest
thereon) and not yet paid by the Bank and any accrued vacation pay not
yet paid by the Bank; and
(c) all other amounts or benefits owing or accrued to, vested in,
earned by Employee through the date of termination under the then
existing or applicable plans, programs, arrangements, and policies of
Bank;
such obligations owing or accrued to, vested in, or earned by Employee through
the date of termination, including, but not limited to, such amounts and
benefits specified in clauses (a), (b), and (c) of this sentence, being
hereinafter collectively referred to as the "Accrued Obligations." The
aggregate amount of such obligations owing or accrued to, vested in, or earned
by Employee through the date of termination, including, but not limited to, the
Accrued Obligations, shall be paid by the Bank to Employee in cash in one lump
sum within thirty (30) days after the date of termination.
7.2 Good Reason-Change in Control; Other than for Cause Before or
After a Change in Control. If Employee terminates this Agreement with Good
Reason-Change in Control pursuant to Section 6.2(a) hereof, or if the Bank
terminates this Agreement without Cause before or after the occurrence of a
Change in Control pursuant to Section 6.2(a) hereof, the Bank shall pay to
Employee cash in one lump sum within thirty (30) days after the date of
termination the aggregate of the following amounts (the "Change in Control-Lump
Sum Payment"):
(i) to the extent not theretofore paid, Employee's annual
salary at the annual rate in effect at the time of such
termination through the date of termination; and
-4-
<PAGE>
(ii) to the extent not theretofore paid, any bonus through
the date of termination; and
(iii) in the case of compensation previously deferred by
Employee, all amounts previously deferred (together with any
accrued interest thereon) and not yet paid by the Bank, and any
accrued vacation pay not yet paid by the Bank; and
(iv) all other amounts or benefits owing or accrued to,
vested in, or earned by Employee through the date of termination
under the then existing or applicable plans, programs,
arrangements, and policies of the Bank; and
(v) any and all other Accrued Obligations not otherwise
described in clause (i), (ii), (iii), (iv) or (v) of this Section
7.2; and
(vi) an amount equal to two (2) times the Employee's annual
salary in effect at the time of such termination.
7.3 Death or Disabilities. If Employee's employment is terminated
under Section 6.2(b) hereof by reason of Employee's death or Disability, the
Bank shall pay to Employee's legal representatives cash in one lump sum within
thirty (30) days after the date of Employee's death or Disability the full
amount of the obligations owing or accrued to, vested in, or earned by Employee
through the date of Employee's death or disability, including, but not limited
to, the Accrued Obligations. Anything in this Agreement to the contrary
notwithstanding, the Employee's legal representatives or beneficiaries shall be
entitled to receive benefits provided under the then existing or applicable
plans, programs, or arrangements and policies of the Bank relating to death or
disability. As used herein, "Disabled" shall have the meanings as being
disabled under the Guaranty Bancshares, Inc. 1998 Stock Incentive Plan.
7.4 Cause. As used in this Agreement, the term "Cause" means (i)
willful misconduct by Employee, (ii) the gross neglect by Employee of his duties
as an employee, officer or director of the Bank which continues for more than
thirty (30) days after written notice from the Bank to Employee specifically
identifying the gross negligence of Employee and directing Employee to
discontinue same, (iii) the commission by Employee of an act, other than an act
taken in good faith within the course and scope of Employee's employment, which
is directly detrimental to the Bank and which act exposes the Bank to material
liability.
-5-
<PAGE>
7.5 Good Reason-Change in Control. As used in this Agreement, the
term "Good Reason-Change in Control" means after the occurrence of a Change in
Control and a determination by Employee that any one or more of the following
events has occurred:
(a) the assignment by the Bank to Employee of duties that are
inconsistent with the Office at the time of such assignment, or the removal
by the Bank from Employee of those duties usually appertaining to the
Office at the time of such removal; or
(b) a change by the Bank, without Employee's prior written consent, in
Employee's responsibilities to the Bank as such responsibilities existed at
the time of the occurrence of such Change in Control (or as such
responsibilities may thereafter exist from time to time as a result of
changes in such responsibilities made with Employee's prior written
consent); or
(c) any removal of Employee from, or any failure to elect or reelect
Employee to, the Office, except in connection with Employee's promotion,
with his prior written consent, to a higher office (if any) with the Bank;
or
(d) the Bank's direction that Employee discontinue service (or not
seek reelection or reappointment) as a director, officer or member of any
corporation or other entity of which Employee is a director, officer or
member at the time of the occurrence of such Change in Control; or
(e) the failure of the Bank to continue to provide Employee with
office space, related facilities and support personnel (including, but not
limited to, administrative and secretarial assistance) that are both
commensurate with the Office and Employee's responsibilities to and
position with the Bank at the time of the occurrence of such Change in
Control and not materially dissimilar to the office space, related
facilities and support personnel provided to other key executive officers
of the Bank; or
(f) a reduction by the Bank in the amount of Employee's minimum salary
specified in Section 2.1(a) (or as subsequently increased) and as in effect
at the time of the occurrence of such Change in Control, or a failure of
the Bank to pay such minimum annual salary to the Employee at the time and
in the manner specified in Section 3.1(a) of this Agreement; or
(g) Employee's principal office space or the related facilities or
support space or the related facilities or support personnel referred to in
paragraph (e) of this Section 7.5 cease to be located within the Bank's
principal executive offices, or for a period of more than 45
-6-
<PAGE>
consecutive days Employee is required by the Bank to perform a majority of
this duties outside the Bank's principal executive offices; or
(h) the relocation, without Employee's prior written consent, of the
Bank's principal executive offices to a location outside the county in
which such offices are located at the time of the occurrence of such Change
in Control; or
(i) the failure of the Bank to obtain the assumption by any successor
to the Bank of the obligations imposed upon the Bank under this Agreement,
as required by Section 14 of this Agreement; or
(j) the employment of Employee under this Agreement is terminated by
the Bank without Cause; or
(k) the Bank notifies Employee of the Bank's intention not to observe
or perform one or more of the obligations of the Bank under this Agreement;
or
(l) the Bank breaches any provision of this Agreement.
7.6 Change in Control. As used herein, the term "Change in Control"
shall mean the occurrence with respect to the Bank or Guaranty Bancshares, Inc.
(the "Parent") of any of the following events:
(a) a report on Schedule 13D is filed with the Securities and Exchange
Commission (the "SEC") pursuant to Section 13(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), disclosing that any person,
entity or group (within the meaning of Section 13(d) or 14(d) of the
Exchange Act), other than the Bank or the Parent (or one of its
subsidiaries) or any employee benefit plan sponsored by the Bank or the
Parent (or one of its subsidiaries), is the beneficial owner (as such term
is defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of 20 percent or more of the outstanding shares of common stock
of the Bank or the Parent or the combined voting power of the then-
outstanding securities of the Bank or the Parent;
(b) a report is filed by the Bank or the Parent disclosing a response
to either Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act, or to Item 1 of Form 8-K promulgated under the Exchange Act,
or to any similar reporting requirement hereafter promulgated by the SEC;
-7-
<PAGE>
(c) any person, entity or group (within the meaning of Section 13(d)
or 14(d) of the Exchange Act), other than the Bank or the Parent (or one of
its subsidiaries) or any employee benefit plan sponsored by the Bank or the
Parent (or one of its subsidiaries), shall purchase securities pursuant to
a tender offer or exchange offer to acquire any common stock of the Bank or
the Parent (or securities convertible into common stock) for cash,
securities or any other consideration, provided that after consummation of
the offer, the person, entity or group in question is the beneficial owner
(as such term is defined in Rule 13d-3 promulgated under the Exchange Act),
directly or indirectly, of 20 percent or more of the combined voting power
of the then-outstanding securities of the Bank or the Parent (as determined
under paragraph (d) of Rule 13d-3 promulgated under the Exchange Act, in
the case of rights to acquire common stock);
(d) the stockholders of the Bank or the Parent shall approve:
(i) any merger, consolidation, or reorganization of the Bank or
the Parent:
(A) in which the Bank or the Parent is not the continuing or
surviving corporation,
(B) pursuant to which shares of common stock of the Bank or
the Parent would be converted into cash, securities or other
property,
(C) with a corporation which prior to such merger,
consolidation, or reorganization owned 20 percent or more of the
combined voting power of the then-outstanding securities of the
Bank or the Parent, or
(D) in which the Bank or the Parent will not survive as an
independent corporation;
(ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all the assets of the Bank or the Parent, or
(iii) any liquidation or dissolution of the Bank or the Parent;
(e) the stockholders of the Bank or the Parent shall approve a merger,
consolidation, reorganization, recapitalization, exchange offer, purchase
of assets or other transaction after the consummation of which any person,
entity or group (as defined in accordance with Section 13(d) or 14(d) of
the Exchange Act) would own beneficially in
-8-
<PAGE>
excess of 50% of the outstanding shares of common stock of the Bank or the
Parent or in excess of 50% of the combined voting power of the then-
outstanding securities of the Bank or the Parent; or
(f) during a period of two consecutive years, the individuals who at
the beginning of such period constituted the Board of Directors of Bank or
the Parent cease for any reason to constitute a majority of such Board,
unless the election or nomination for election by the Bank or the Parent's
stockholders of each new director during any such two-year period was
approved by the vote by two-thirds of the directors then still in office
who were directors at the beginning of such two-year period.
8. Parachute Payments.
8.1 General. For the purposes of the determinations to be made
pursuant to Paragraph 8.2 below, capitalized terms that are not defined in this
Agreement shall have the meanings set forth in Section 280G of the Internal
Revenue Code of 1986, as amended ("Code"). A "Change in Control" of the Bank or
the Parent shall have the meaning set forth in Section 7.6 above and shall refer
to an ownership change described in Section 280G(b)(2)(A)(i) of the Code with
respect to the Bank of the Parent. "Incentive Agreements" mean this Agreement
and all stock option agreements, incentive compensation unit agreements,
supplemental pension agreements or other arrangements or agreements, whether in
existence on the date hereof or hereafter entered into by the Employee and the
Bank or the Parent that entitled the Employee to receive payments or other
property from the Bank or the Parent.
8.2 Limitation. If the Aggregate Present Value of Parachute Payments
payable to or in respect of the Employee by reason of a Change in Control of the
Bank or the Parent under all Incentive Agreements then in effect is greater than
or equal to three times the Base Amount, then the Aggregate Present Value of
Parachute Payments made to the Employee shall be limited to an amount equal to
the greater of the portion of the Parachute Payments constituting Reasonable
Compensation or three times the Base Amount less one dollar. Any amount
required to be withheld from payments made to the Employee pursuant to this
Paragraph 8.2 shall be deducted from the Change in Control-Lump Sum Payment
referred to in Section 7.2 above.
9. Notices. Any notice under this Agreement must be in writing and may
be given by certified or registered mail, postage prepaid, addressed to the
party or parties to be notified with return receipt requested, or by delivering
the notice in person. For purposes of notice, the address of Employee or any
administrator, executor or legal representative of Employee or his estate, as
the case may be, shall be the last address of the Employee on the records of the
Bank. The address of the Bank shall be its principal business address.
-9-
<PAGE>
10. Controlling Law. This Agreement shall be governed by the laws of the
State of Texas.
11. Entire Agreement. This Agreement contains the entire agreement of the
parties and may only be amended in writing signed by both parties; provided,
that no amendment to this Agreement shall be effective unless authorized by
resolution of the Board of Directors and signed on behalf of the Bank by a duly
authorized officer of the Bank other than Employee.
12. Remedies, Modification and Separability. Employee and the Bank agree
that Employee's breach of Sections 4 and 5 of this Agreement will result in
irreparable harm to the Bank, that no adequate remedy at law is available, and
that the Bank shall be entitled to injunctive relief; however, nothing herein
shall prevent the Bank from pursuing any other remedies at law or at equity
available to the Bank. Should a court of competent jurisdiction declare any of
the covenants set forth in Sections 4 or 5 unenforceable, the court shall be
empowered to modify or reform such covenants so as to provide relief reasonably
necessary to protect the interests of the Bank and Employee and to award
injunctive relief, or damages, or both, to which the Bank may be entitled. If
any provision of this Agreement is declared by a court of last resort to be
invalid, the Bank and Employee agree that such declaration shall not affect the
validity of the other provisions of this Agreement. If any provision of this
Agreement is capable to two constructions, one of which would render the
provision void and the other of which would render the provision valid, then the
provision shall have the construction which renders it valid.
13. Preservation of Business; Fiduciary Responsibility. Employee shall
use his best efforts to preserve the business and organization of the Bank, to
keep available to the Bank the services of its present employees and to preserve
the business relations of the Bank with suppliers, distributors, customers and
others. Employee shall not commit any act which would injure the Bank.
Employee shall observe and fulfill proper standards of fiduciary responsibility
attendant upon his Office.
14. Assignments. This Agreement is personal to Employee and without the
prior written consent of the Bank shall not be assignable by Employee other than
by will or the laws of descent and distribution. This Agreement shall inure to
the benefit of and be enforceable by Employee's legal representatives and heirs.
This Agreement shall inure to the benefit of and be binding upon the Bank and
its successors and assigns. The Bank shall require any corporation, entity,
individual or other person who is the successor (whether direct or indirect, by
purchase, merger, consolidation, reorganization, or otherwise) to all or
substantially all of the business or assets of the Bank to expressly assume and
agree to perform, by a written agreement in form and substance satisfactory to
Employee, all of the obligations of the Bank under this Agreement. As used in
this Agreement, the term "Bank" shall mean the Bank as hereinbefore defined and
any successor to its business
-10-
<PAGE>
and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, written agreement, or otherwise.
15. Waiver of Breach. The waiver by the Bank of a breach of any provision
of this Agreement by Employee shall not operate or be construed as a waiver by
the Bank of any subsequent breach of Employee.
16. Revocation of Previous Employment Agreements. Any and all previous
employment agreements existing between the Bank and Employee are revoked and
canceled.
17. Headings. The section headings in this Agreement are for convenience
of reference and shall not be used in the interpretation or construction of this
Agreement.
18. Attorney's Fees. In the event Bank or Employee breaches any term or
provision of this Agreement and the other party employs an attorney or attorneys
to enforce the terms of this Agreement, then the breaching or defaulting party
agrees to pay the other party the reasonable attorney's fees and costs incurred
to enforce this Agreement.
19. Execution. This Agreement may be executed in multiple counterparts
each of which shall be deemed an original and all of which shall constitute one
instrument.
Employee acknowledges that he has read this Agreement and understands that
signing this Agreement is a condition of employment.
IN WITNESS WHEREOF, this Agreement is executed as of the ____ day of
______________, 1998.
"EMPLOYEE" "BANK"
Guaranty Bank
By:
- ------------------------ --------------------------------
Virgil Jones Name:
------------------------------
Title:
-----------------------------
-11-
<PAGE>
Exhibit "A"
Employment Agreement By and Between
Guaranty Bank and Virgil Jones
Calendar Year Annual Salary Bank Initials Employee Initials
- ------------- ------------- ------------- -----------------
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
-12-
<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is by and between Guaranty
Bank, a Texas banking corporation (the "Bank"), and Kirk Lee, an individual
residing in Paris, Lamar County, Texas (the "Employee"), effective as of March
__, 1998 (the "Effective Date").
W I T N E S S E T H:
In consideration of the mutual covenants and agreements contained in this
Agreement, the parties agree as follows:
1. Employment. On the terms and subject to the conditions of this
Agreement, the Bank hereby employs Employee, and engages the services of the
Employee to serve as President of the Paris branch (the "Office") of the Bank,
and Employee hereby accepts employment with the Bank according to the terms set
forth in this Agreement.
2. Duties. Employee is hereby employed and shall work at the location of
the Bank or at such other place or places as may be directed by the Bank. The
Employee shall have the position (including status, offices, titles and
reporting requirements), authority, duties, and responsibilities usually
associated with the Office of a bank having assets similar in nature and value
to the assets of the Bank.
2.1 The Employee shall devote his entire time and attention during normal
working hours to the Office during the term of this Agreement for the profit and
benefit of Bank. During the term of this Agreement, the Employee shall not
directly or indirectly render any services or be engaged in any activity of a
business, commercial, or professional nature to any other person or
organization, whether for compensation or otherwise, other than Bank, without
the prior written consent of the Bank.
3. Compensation and Benefits. The compensation and other benefits payable
to Employee under this Agreement shall constitute the full consideration to be
paid to Employee for all services to be rendered by Employee for the Bank.
3.1 The Bank will pay to Employee an annual salary as determined by the
Board of Directors of the Bank which is stated on Exhibit "A" attached hereto.
The Employee's annual salary shall be payable in accordance with the Bank's
customary policies, subject to payroll and withholding deductions as may be
required by law and other deductions applied generally to employees of the Bank
for insurance or other employee benefit plans.
<PAGE>
3.2 Employee shall be reimbursed for any and all reasonable costs and
expenses incurred by Employee in performance of his services and duties as
specified in this Agreement or incurred by Employee on behalf of, or in
furtherance of the business of, the Bank, including, but not limited to business
expenses incurred in connection with travel and entertainment; provided,
however, that Employee shall submit to the Bank supporting receipts and
information satisfactory to the Bank with respect to such reasonable costs and
expenses.
3.3 During the term of Employee's employment, he shall be entitled (i) to
receive health insurance benefits with the same coverages and deductibles as are
currently in effect with respect to Employee (subject to the availability of
such benefits at a reasonable cost), (ii) to participate in the Bank's other
benefit plans to such extent as determined by the Board of Directors of the
Bank, (iii) to participate in the Bank's other policies, including vacation and
sick leave.
4. Conflicts of Interests; Covenant Not to Compete.
4.1 Employee shall, during the term of this Agreement, devote his entire
time, attention, energies and business efforts to his duties as an employee of
the Bank and to the business of the Bank. Employee shall not, during the term
of this Agreement, directly or indirectly, for and on behalf of himself or any
person, firm, partnership, corporation or other legal entity, own, manage,
operate, control, invest in, make loans on advances to, guarantee the
obligations of or participate in the ownership or management or operations of or
be employed by or otherwise engage in the operation of any business that is in
competition in any manner whatsoever with the business of the Bank.
5. Confidential Information.
5.1 As used herein, "Confidential Information" means all technical and
business information (including financial statements and related books and
records, personnel records, customer lists, arrangements with customers and
suppliers, manuals and reports) of the Bank and its affiliates (whether such
information is owned by, licensed to or otherwise possessed by the Bank or any
affiliate), whether patentable or not, which is of a confidential, trade secret
and/or proprietary character and which is either developed by Employee (alone or
with others) or to which Employee has had access during his employment.
"Confidential Information" shall include but is not limited to information of a
technical or business nature such as ideas, discoveries, inventions,
improvements, trade secrets, know-how, manufacturing processes, specifications,
writings and other works of authorship, computer programs, financial figures and
reports, marketing plans, customer lists and data, and/or business plans or data
which relate to the actual or anticipated business of the Bank or any affiliate
or its actual or anticipated areas of research and development. "Confidential
-2-
<PAGE>
Information" shall also include but is not limited to confidential evaluations
of, and the confidential use or non-use by Bank or any affiliate of, technical
or business information in the public domain.
5.2 Employee shall, both during and after his employment with the Bank,
protect and maintain the confidential, trade secret and/or proprietary character
of all Confidential Information. Employee shall not, during or after
termination of his employment, directly or indirectly, use (for himself or
another) or disclose any Confidential Information, for so long as it shall
remain proprietary or protectible as confidential or trade secret information,
except as may be necessary for the performance of his duties under this
Agreement.
5.3 Employee shall deliver promptly to the Bank, at the termination of his
employment, or at any other time at the Bank's request, without retaining any
copies, all documents and other material in his possession relating, directly or
indirectly, to any Confidential Information.
5.4 Each of Employee's obligations in this Section 5 shall also apply to
the confidential, trade secret and proprietary information learned or acquired
by him during his employment from others with whom the Bank or any affiliate has
a business relationship.
6. Term and Termination.
6.1 Term. The term of this Agreement shall be for two years commencing on
the Effective Date and shall automatically be extended each day from the
Effective Date.
6.2 Termination of Agreement. Except as may otherwise be provided herein,
this Agreement may terminate prior to the end of the Term upon the occurrence
of:
(a) Thirty (30) days after written notice of termination is given by
either party to the other; or
(b) Employees's death or, at the Bank's option, upon Employee's
becoming Disabled (as defined in Section 7.3 hereof).
Any notice of termination given by Employee to the Bank under Section 6.2(a)
above shall specify whether such termination is made with or without Good
Reason-Change in Control (as defined in Section 7.5 hereof). Any notice of
termination given by the Bank to Employee under Section 6.2(a) above shall
specify whether such termination is with or without Cause (as defined in Section
7.4 hereof.
-3-
<PAGE>
7. Obligations of the Bank Upon Termination.
7.1 Cause and Other than for Good Reason-Change in Control. If the
Bank terminates this Agreement with Cause pursuant to Section 6.2(a) above, or
if Employee terminates this Agreement without Good Reason-Change in Control
pursuant to Section 6.2(a) hereof, this Agreement shall terminate without
further obligations to Employee, other than those obligations owing or accrued
to, vested in, or earned by Employee through the date of termination, including,
but not limited to:
(a) to the extent not theretofore paid, Employee's annual salary
in effect at the time of such termination through the date of
termination; and
(b) in the case of compensation previously deferred by Employee,
all amounts previously deferred (together with any accrued interest
thereon) and not yet paid by the Bank and any accrued vacation pay not
yet paid by the Bank; and
(c) all other amounts or benefits owing or accrued to, vested in,
earned by Employee through the date of termination under the then
existing or applicable plans, programs, arrangements, and policies of
Bank;
such obligations owing or accrued to, vested in, or earned by Employee through
the date of termination, including, but not limited to, such amounts and
benefits specified in clauses (a), (b), and (c) of this sentence, being
hereinafter collectively referred to as the "Accrued Obligations." The
aggregate amount of such obligations owing or accrued to, vested in, or earned
by Employee through the date of termination, including, but not limited to, the
Accrued Obligations, shall be paid by the Bank to Employee in cash in one lump
sum within thirty (30) days after the date of termination.
7.2 Good Reason-Change in Control; Other than for Cause Before or
After a Change in Control. If Employee terminates this Agreement with Good
Reason-Change in Control pursuant to Section 6.2(a) hereof, or if the Bank
terminates this Agreement without Cause before or after the occurrence of a
Change in Control pursuant to Section 6.2(a) hereof, the Bank shall pay to
Employee cash in one lump sum within thirty (30) days after the date of
termination the aggregate of the following amounts (the "Change in Control-Lump
Sum Payment"):
(i) to the extent not theretofore paid, Employee's annual
salary at the annual rate in effect at the time of such
termination through the date of termination; and
-4-
<PAGE>
(ii) to the extent not theretofore paid, any bonus through
the date of termination; and
(iii) in the case of compensation previously deferred by
Employee, all amounts previously deferred (together with any
accrued interest thereon) and not yet paid by the Bank, and any
accrued vacation pay not yet paid by the Bank; and
(iv) all other amounts or benefits owing or accrued to,
vested in, or earned by Employee through the date of termination
under the then existing or applicable plans, programs,
arrangements, and policies of the Bank; and
(v) any and all other Accrued Obligations not otherwise
described in clause (i), (ii), (iii), (iv) or (v) of this Section
7.2; and
(vi) an amount equal to two (2) times the Employee's annual
salary in effect at the time of such termination.
7.3 Death or Disabilities. If Employee's employment is terminated
under Section 6.2(b) hereof by reason of Employee's death or Disability, the
Bank shall pay to Employee's legal representatives cash in one lump sum within
thirty (30) days after the date of Employee's death or Disability the full
amount of the obligations owing or accrued to, vested in, or earned by Employee
through the date of Employee's death or disability, including, but not limited
to, the Accrued Obligations. Anything in this Agreement to the contrary
notwithstanding, the Employee's legal representatives or beneficiaries shall be
entitled to receive benefits provided under the then existing or applicable
plans, programs, or arrangements and policies of the Bank relating to death or
disability. As used herein, "Disabled" shall have the meanings as being
disabled under the Guaranty Bancshares, Inc. 1998 Stock Incentive Plan.
7.4 Cause. As used in this Agreement, the term "Cause" means (i)
willful misconduct by Employee, (ii) the gross neglect by Employee of his duties
as an employee, officer or director of the Bank which continues for more than
thirty (30) days after written notice from the Bank to Employee specifically
identifying the gross negligence of Employee and directing Employee to
discontinue same, (iii) the commission by Employee of an act, other than an act
taken in good faith within the course and scope of Employee's employment, which
is directly detrimental to the Bank and which act exposes the Bank to material
liability.
-5-
<PAGE>
7.5 Good Reason-Change in Control. As used in this Agreement, the
term "Good Reason-Change in Control" means after the occurrence of a Change in
Control and a determination by Employee that any one or more of the following
events has occurred:
(a) the assignment by the Bank to Employee of duties that are
inconsistent with the Office at the time of such assignment, or the removal
by the Bank from Employee of those duties usually appertaining to the
Office at the time of such removal; or
(b) a change by the Bank, without Employee's prior written consent, in
Employee's responsibilities to the Bank as such responsibilities existed at
the time of the occurrence of such Change in Control (or as such
responsibilities may thereafter exist from time to time as a result of
changes in such responsibilities made with Employee's prior written
consent); or
(c) any removal of Employee from, or any failure to elect or reelect
Employee to, the Office, except in connection with Employee's promotion,
with his prior written consent, to a higher office (if any) with the Bank;
or
(d) the Bank's direction that Employee discontinue service (or not
seek reelection or reappointment) as a director, officer or member of any
corporation or other entity of which Employee is a director, officer or
member at the time of the occurrence of such Change in Control; or
(e) the failure of the Bank to continue to provide Employee with
office space, related facilities and support personnel (including, but not
limited to, administrative and secretarial assistance) that are both
commensurate with the Office and Employee's responsibilities to and
position with the Bank at the time of the occurrence of such Change in
Control and not materially dissimilar to the office space, related
facilities and support personnel provided to other key executive officers
of the Bank; or
(f) a reduction by the Bank in the amount of Employee's minimum salary
specified in Section 2.1(a) (or as subsequently increased) and as in effect
at the time of the occurrence of such Change in Control, or a failure of
the Bank to pay such minimum annual salary to the Employee at the time and
in the manner specified in Section 3.1(a) of this Agreement; or
(g) Employee's principal office space or the related facilities or
support space or the related facilities or support personnel referred to in
paragraph (e) of this Section 7.5 cease to be located within the Bank's
principal executive offices, or for a period of more than 45
-6-
<PAGE>
consecutive days Employee is required by the Bank to perform a majority of
this duties outside the Bank's principal executive offices; or
(h) the relocation, without Employee's prior written consent, of the
Bank's principal executive offices to a location outside the county in
which such offices are located at the time of the occurrence of such Change
in Control; or
(i) the failure of the Bank to obtain the assumption by any successor
to the Bank of the obligations imposed upon the Bank under this Agreement,
as required by Section 14 of this Agreement; or
(j) the employment of Employee under this Agreement is terminated by
the Bank without Cause; or
(k) the Bank notifies Employee of the Bank's intention not to observe
or perform one or more of the obligations of the Bank under this Agreement;
or
(l) the Bank breaches any provision of this Agreement.
7.6 Change in Control. As used herein, the term "Change in Control"
shall mean the occurrence with respect to the Bank or Guaranty Bancshares, Inc.
(the "Parent") of any of the following events:
(a) a report on Schedule 13D is filed with the Securities and Exchange
Commission (the "SEC") pursuant to Section 13(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), disclosing that any person,
entity or group (within the meaning of Section 13(d) or 14(d) of the
Exchange Act), other than the Bank or the Parent (or one of its
subsidiaries) or any employee benefit plan sponsored by the Bank or the
Parent (or one of its subsidiaries), is the beneficial owner (as such term
is defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of 20 percent or more of the outstanding shares of common stock
of the Bank or the Parent or the combined voting power of the then-
outstanding securities of the Bank or the Parent;
(b) a report is filed by the Bank or the Parent disclosing a response
to either Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act, or to Item 1 of Form 8-K promulgated under the Exchange Act,
or to any similar reporting requirement hereafter promulgated by the SEC;
-7-
<PAGE>
(c) any person, entity or group (within the meaning of Section 13(d)
or 14(d) of the Exchange Act), other than the Bank or the Parent (or one of
its subsidiaries) or any employee benefit plan sponsored by the Bank or the
Parent (or one of its subsidiaries), shall purchase securities pursuant to
a tender offer or exchange offer to acquire any common stock of the Bank or
the Parent (or securities convertible into common stock) for cash,
securities or any other consideration, provided that after consummation of
the offer, the person, entity or group in question is the beneficial owner
(as such term is defined in Rule 13d-3 promulgated under the Exchange Act),
directly or indirectly, of 20 percent or more of the combined voting power
of the then-outstanding securities of the Bank or the Parent (as determined
under paragraph (d) of Rule 13d-3 promulgated under the Exchange Act, in
the case of rights to acquire common stock);
(d) the stockholders of the Bank or the Parent shall approve:
(i) any merger, consolidation, or reorganization of the Bank or
the Parent:
(A) in which the Bank or the Parent is not the continuing or
surviving corporation,
(B) pursuant to which shares of common stock of the Bank or
the Parent would be converted into cash, securities or other
property,
(C) with a corporation which prior to such merger,
consolidation, or reorganization owned 20 percent or more of the
combined voting power of the then-outstanding securities of the
Bank or the Parent, or
(D) in which the Bank or the Parent will not survive as an
independent corporation;
(ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all the assets of the Bank or the Parent, or
(iii) any liquidation or dissolution of the Bank or the Parent;
(e) the stockholders of the Bank or the Parent shall approve a merger,
consolidation, reorganization, recapitalization, exchange offer, purchase
of assets or other transaction after the consummation of which any person,
entity or group (as defined in accordance with Section 13(d) or 14(d) of
the Exchange Act) would own beneficially in
-8-
<PAGE>
excess of 50% of the outstanding shares of common stock of the Bank or the
Parent or in excess of 50% of the combined voting power of the then-
outstanding securities of the Bank or the Parent; or
(f) during a period of two consecutive years, the individuals who at
the beginning of such period constituted the Board of Directors of Bank or
the Parent cease for any reason to constitute a majority of such Board,
unless the election or nomination for election by the Bank or the Parent's
stockholders of each new director during any such two-year period was
approved by the vote by two-thirds of the directors then still in office
who were directors at the beginning of such two-year period.
8. Parachute Payments.
8.1 General. For the purposes of the determinations to be made
pursuant to Paragraph 8.2 below, capitalized terms that are not defined in this
Agreement shall have the meanings set forth in Section 280G of the Internal
Revenue Code of 1986, as amended ("Code"). A "Change in Control" of the Bank or
the Parent shall have the meaning set forth in Section 7.6 above and shall refer
to an ownership change described in Section 280G(b)(2)(A)(i) of the Code with
respect to the Bank of the Parent. "Incentive Agreements" mean this Agreement
and all stock option agreements, incentive compensation unit agreements,
supplemental pension agreements or other arrangements or agreements, whether in
existence on the date hereof or hereafter entered into by the Employee and the
Bank or the Parent that entitled the Employee to receive payments or other
property from the Bank or the Parent.
8.2 Limitation. If the Aggregate Present Value of Parachute Payments
payable to or in respect of the Employee by reason of a Change in Control of the
Bank or the Parent under all Incentive Agreements then in effect is greater than
or equal to three times the Base Amount, then the Aggregate Present Value of
Parachute Payments made to the Employee shall be limited to an amount equal to
the greater of the portion of the Parachute Payments constituting Reasonable
Compensation or three times the Base Amount less one dollar. Any amount
required to be withheld from payments made to the Employee pursuant to this
Paragraph 8.2 shall be deducted from the Change in Control-Lump Sum Payment
referred to in Section 7.2 above.
9. Notices. Any notice under this Agreement must be in writing and may
be given by certified or registered mail, postage prepaid, addressed to the
party or parties to be notified with return receipt requested, or by delivering
the notice in person. For purposes of notice, the address of Employee or any
administrator, executor or legal representative of Employee or his estate, as
the case may be, shall be the last address of the Employee on the records of the
Bank. The address of the Bank shall be its principal business address.
-9-
<PAGE>
10. Controlling Law. This Agreement shall be governed by the laws of the
State of Texas.
11. Entire Agreement. This Agreement contains the entire agreement of the
parties and may only be amended in writing signed by both parties; provided,
that no amendment to this Agreement shall be effective unless authorized by
resolution of the Board of Directors and signed on behalf of the Bank by a duly
authorized officer of the Bank other than Employee.
12. Remedies, Modification and Separability. Employee and the Bank agree
that Employee's breach of Sections 4 and 5 of this Agreement will result in
irreparable harm to the Bank, that no adequate remedy at law is available, and
that the Bank shall be entitled to injunctive relief; however, nothing herein
shall prevent the Bank from pursuing any other remedies at law or at equity
available to the Bank. Should a court of competent jurisdiction declare any of
the covenants set forth in Sections 4 or 5 unenforceable, the court shall be
empowered to modify or reform such covenants so as to provide relief reasonably
necessary to protect the interests of the Bank and Employee and to award
injunctive relief, or damages, or both, to which the Bank may be entitled. If
any provision of this Agreement is declared by a court of last resort to be
invalid, the Bank and Employee agree that such declaration shall not affect the
validity of the other provisions of this Agreement. If any provision of this
Agreement is capable to two constructions, one of which would render the
provision void and the other of which would render the provision valid, then the
provision shall have the construction which renders it valid.
13. Preservation of Business; Fiduciary Responsibility. Employee shall
use his best efforts to preserve the business and organization of the Bank, to
keep available to the Bank the services of its present employees and to preserve
the business relations of the Bank with suppliers, distributors, customers and
others. Employee shall not commit any act which would injure the Bank.
Employee shall observe and fulfill proper standards of fiduciary responsibility
attendant upon his Office.
14. Assignments. This Agreement is personal to Employee and without the
prior written consent of the Bank shall not be assignable by Employee other than
by will or the laws of descent and distribution. This Agreement shall inure to
the benefit of and be enforceable by Employee's legal representatives and heirs.
This Agreement shall inure to the benefit of and be binding upon the Bank and
its successors and assigns. The Bank shall require any corporation, entity,
individual or other person who is the successor (whether direct or indirect, by
purchase, merger, consolidation, reorganization, or otherwise) to all or
substantially all of the business or assets of the Bank to expressly assume and
agree to perform, by a written agreement in form and substance satisfactory to
Employee, all of the obligations of the Bank under this Agreement. As used in
this Agreement, the term "Bank" shall mean the Bank as hereinbefore defined and
any successor to its business
-10-
<PAGE>
and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, written agreement, or otherwise.
15. Waiver of Breach. The waiver by the Bank of a breach of any provision
of this Agreement by Employee shall not operate or be construed as a waiver by
the Bank of any subsequent breach of Employee.
16. Revocation of Previous Employment Agreements. Any and all previous
employment agreements existing between the Bank and Employee are revoked and
canceled.
17. Headings. The section headings in this Agreement are for convenience
of reference and shall not be used in the interpretation or construction of this
Agreement.
18. Attorney's Fees. In the event Bank or Employee breaches any term or
provision of this Agreement and the other party employs an attorney or attorneys
to enforce the terms of this Agreement, then the breaching or defaulting party
agrees to pay the other party the reasonable attorney's fees and costs incurred
to enforce this Agreement.
19. Execution. This Agreement may be executed in multiple counterparts
each of which shall be deemed an original and all of which shall constitute one
instrument.
Employee acknowledges that he has read this Agreement and understands that
signing this Agreement is a condition of employment.
IN WITNESS WHEREOF, this Agreement is executed as of the ____ day of
______________, 1998.
"EMPLOYEE" "BANK"
Guaranty Bank
By:
- ------------------------- ----------------------------------
Kirk Lee Name:
--------------------------------
Title:
-------------------------------
-11-
<PAGE>
Exhibit "A"
Employment Agreement By and Between
Guaranty Bank and Kirk Lee
Calendar Year Annual Salary Bank Initials Employee Initials
- ------------- ------------- ------------- -----------------
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
-12-
<PAGE>
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is by and between Guaranty
Bank, a Texas banking corporation (the "Bank"), and Clifton A. Payne, an
individual residing in Mount Pleasant, Titus County, Texas (the "Employee"),
effective as of March ___, 1998 (the "Effective Date").
W I T N E S S E T H:
In consideration of the mutual covenants and agreements contained in this
Agreement, the parties agree as follows:
1. Employment. On the terms and subject to the conditions of this
Agreement, the Bank hereby employs Employee, and engages the services of the
Employee to serve as Executive Vice President (the "Office") of the Bank, and
Employee hereby accepts employment with the Bank according to the terms set
forth in this Agreement.
2. Duties. Employee is hereby employed and shall work at the location of
the Bank or at such other place or places as may be directed by the Bank. The
Employee shall have the position (including status, offices, titles and
reporting requirements), authority, duties, and responsibilities usually
associated with the Office of a bank having assets similar in nature and value
to the assets of the Bank.
2.1 The Employee shall devote his entire time and attention during normal
working hours to the Office during the term of this Agreement for the profit and
benefit of Bank. During the term of this Agreement, the Employee shall not
directly or indirectly render any services or be engaged in any activity of a
business, commercial, or professional nature to any other person or
organization, whether for compensation or otherwise, other than Bank, without
the prior written consent of the Bank.
3. Compensation and Benefits. The compensation and other benefits payable
to Employee under this Agreement shall constitute the full consideration to be
paid to Employee for all services to be rendered by Employee for the Bank.
3.1 The Bank will pay to Employee an annual salary as determined by the
Board of Directors of the Bank which is stated on Exhibit "A" attached hereto.
The Employee's annual salary shall be payable in accordance with the Bank's
customary policies, subject to payroll and withholding deductions as may be
required by law and other deductions applied generally to employees of the Bank
for insurance or other employee benefit plans.
<PAGE>
3.2 Employee shall be reimbursed for any and all reasonable costs and
expenses incurred by Employee in performance of his services and duties as
specified in this Agreement or incurred by Employee on behalf of, or in
furtherance of the business of, the Bank, including, but not limited to business
expenses incurred in connection with travel and entertainment; provided,
however, that Employee shall submit to the Bank supporting receipts and
information satisfactory to the Bank with respect to such reasonable costs and
expenses.
3.3 During the term of Employee's employment, he shall be entitled (i) to
receive health insurance benefits with the same coverages and deductibles as are
currently in effect with respect to Employee (subject to the availability of
such benefits at a reasonable cost), (ii) to participate in the Bank's other
benefit plans to such extent as determined by the Board of Directors of the
Bank, (iii) to participate in the Bank's other policies, including vacation and
sick leave.
4. Conflicts of Interests; Covenant Not to Compete.
4.1 Employee shall, during the term of this Agreement, devote his entire
time, attention, energies and business efforts to his duties as an employee of
the Bank and to the business of the Bank. Employee shall not, during the term
of this Agreement, directly or indirectly, for and on behalf of himself or any
person, firm, partnership, corporation or other legal entity, own, manage,
operate, control, invest in, make loans on advances to, guarantee the
obligations of or participate in the ownership or management or operations of or
be employed by or otherwise engage in the operation of any business that is in
competition in any manner whatsoever with the business of the Bank.
5. Confidential Information.
5.1 As used herein, "Confidential Information" means all technical and
business information (including financial statements and related books and
records, personnel records, customer lists, arrangements with customers and
suppliers, manuals and reports) of the Bank and its affiliates (whether such
information is owned by, licensed to or otherwise possessed by the Bank or any
affiliate), whether patentable or not, which is of a confidential, trade secret
and/or proprietary character and which is either developed by Employee (alone or
with others) or to which Employee has had access during his employment.
"Confidential Information" shall include but is not limited to information of a
technical or business nature such as ideas, discoveries, inventions,
improvements, trade secrets, know-how, manufacturing processes, specifications,
writings and other works of authorship, computer programs, financial figures and
reports, marketing plans, customer lists and data, and/or business plans or data
which relate to the actual or anticipated business of the Bank or any affiliate
or its actual or anticipated areas of research and development. "Confidential
-2-
<PAGE>
Information" shall also include but is not limited to confidential evaluations
of, and the confidential use or non-use by Bank or any affiliate of, technical
or business information in the public domain.
5.2 Employee shall, both during and after his employment with the Bank,
protect and maintain the confidential, trade secret and/or proprietary character
of all Confidential Information. Employee shall not, during or after
termination of his employment, directly or indirectly, use (for himself or
another) or disclose any Confidential Information, for so long as it shall
remain proprietary or protectible as confidential or trade secret information,
except as may be necessary for the performance of his duties under this
Agreement.
5.3 Employee shall deliver promptly to the Bank, at the termination of his
employment, or at any other time at the Bank's request, without retaining any
copies, all documents and other material in his possession relating, directly or
indirectly, to any Confidential Information.
5.4 Each of Employee's obligations in this Section 5 shall also apply to
the confidential, trade secret and proprietary information learned or acquired
by him during his employment from others with whom the Bank or any affiliate has
a business relationship.
6. Term and Termination.
6.1 Term. The term of this Agreement shall be for two years commencing on
the Effective Date and shall automatically be extended each day from the
Effective Date.
6.2 Termination of Agreement. Except as may otherwise be provided herein,
this Agreement may terminate prior to the end of the Term upon the occurrence
of:
(a) Thirty (30) days after written notice of termination is given by
either party to the other; or
(b) Employees's death or, at the Bank's option, upon Employee's
becoming Disabled (as defined in Section 7.3 hereof).
Any notice of termination given by Employee to the Bank under Section 6.2(a)
above shall specify whether such termination is made with or without Good
Reason-Change in Control (as defined in Section 7.5 hereof). Any notice of
termination given by the Bank to Employee under Section 6.2(a) above shall
specify whether such termination is with or without Cause (as defined in Section
7.4 hereof.
-3-
<PAGE>
7. Obligations of the Bank Upon Termination.
7.1 Cause and Other than for Good Reason-Change in Control. If the
Bank terminates this Agreement with Cause pursuant to Section 6.2(a) above, or
if Employee terminates this Agreement without Good Reason-Change in Control
pursuant to Section 6.2(a) hereof, this Agreement shall terminate without
further obligations to Employee, other than those obligations owing or accrued
to, vested in, or earned by Employee through the date of termination, including,
but not limited to:
(a) to the extent not theretofore paid, Employee's annual salary
in effect at the time of such termination through the date of
termination; and
(b) in the case of compensation previously deferred by Employee,
all amounts previously deferred (together with any accrued interest
thereon) and not yet paid by the Bank and any accrued vacation pay not
yet paid by the Bank; and
(c) all other amounts or benefits owing or accrued to, vested in,
earned by Employee through the date of termination under the then
existing or applicable plans, programs, arrangements, and policies of
Bank;
such obligations owing or accrued to, vested in, or earned by Employee through
the date of termination, including, but not limited to, such amounts and
benefits specified in clauses (a), (b), and (c) of this sentence, being
hereinafter collectively referred to as the "Accrued Obligations." The
aggregate amount of such obligations owing or accrued to, vested in, or earned
by Employee through the date of termination, including, but not limited to, the
Accrued Obligations, shall be paid by the Bank to Employee in cash in one lump
sum within thirty (30) days after the date of termination.
7.2 Good Reason-Change in Control; Other than for Cause Before or
After a Change in Control. If Employee terminates this Agreement with Good
Reason-Change in Control pursuant to Section 6.2(a) hereof, or if the Bank
terminates this Agreement without Cause before or after the occurrence of a
Change in Control pursuant to Section 6.2(a) hereof, the Bank shall pay to
Employee cash in one lump sum within thirty (30) days after the date of
termination the aggregate of the following amounts (the "Change in Control-Lump
Sum Payment"):
(i) to the extent not theretofore paid, Employee's annual
salary at the annual rate in effect at the time of such
termination through the date of termination; and
-4-
<PAGE>
(ii) to the extent not theretofore paid, any bonus through
the date of termination; and
(iii) in the case of compensation previously deferred by
Employee, all amounts previously deferred (together with any
accrued interest thereon) and not yet paid by the Bank, and any
accrued vacation pay not yet paid by the Bank; and
(iv) all other amounts or benefits owing or accrued to,
vested in, or earned by Employee through the date of termination
under the then existing or applicable plans, programs,
arrangements, and policies of the Bank; and
(v) any and all other Accrued Obligations not otherwise
described in clause (i), (ii), (iii), (iv) or (v) of this Section
7.2; and
(vi) an amount equal to two (2) times the Employee's annual
salary in effect at the time of such termination.
7.3 Death or Disabilities. If Employee's employment is terminated
under Section 6.2(b) hereof by reason of Employee's death or Disability, the
Bank shall pay to Employee's legal representatives cash in one lump sum within
thirty (30) days after the date of Employee's death or Disability the full
amount of the obligations owing or accrued to, vested in, or earned by Employee
through the date of Employee's death or disability, including, but not limited
to, the Accrued Obligations. Anything in this Agreement to the contrary
notwithstanding, the Employee's legal representatives or beneficiaries shall be
entitled to receive benefits provided under the then existing or applicable
plans, programs, or arrangements and policies of the Bank relating to death or
disability. As used herein, "Disabled" shall have the meanings as being
disabled under the Guaranty Bancshares, Inc. 1998 Stock Incentive Plan.
7.4 Cause. As used in this Agreement, the term "Cause" means (i)
willful misconduct by Employee, (ii) the gross neglect by Employee of his duties
as an employee, officer or director of the Bank which continues for more than
thirty (30) days after written notice from the Bank to Employee specifically
identifying the gross negligence of Employee and directing Employee to
discontinue same, (iii) the commission by Employee of an act, other than an act
taken in good faith within the course and scope of Employee's employment, which
is directly detrimental to the Bank and which act exposes the Bank to material
liability.
-5-
<PAGE>
7.5 Good Reason-Change in Control. As used in this Agreement, the
term "Good Reason-Change in Control" means after the occurrence of a Change in
Control and a determination by Employee that any one or more of the following
events has occurred:
(a) the assignment by the Bank to Employee of duties that are
inconsistent with the Office at the time of such assignment, or the removal
by the Bank from Employee of those duties usually appertaining to the
Office at the time of such removal; or
(b) a change by the Bank, without Employee's prior written consent, in
Employee's responsibilities to the Bank as such responsibilities existed at
the time of the occurrence of such Change in Control (or as such
responsibilities may thereafter exist from time to time as a result of
changes in such responsibilities made with Employee's prior written
consent); or
(c) any removal of Employee from, or any failure to elect or reelect
Employee to, the Office, except in connection with Employee's promotion,
with his prior written consent, to a higher office (if any) with the Bank;
or
(d) the Bank's direction that Employee discontinue service (or not
seek reelection or reappointment) as a director, officer or member of any
corporation or other entity of which Employee is a director, officer or
member at the time of the occurrence of such Change in Control; or
(e) the failure of the Bank to continue to provide Employee with
office space, related facilities and support personnel (including, but not
limited to, administrative and secretarial assistance) that are both
commensurate with the Office and Employee's responsibilities to and
position with the Bank at the time of the occurrence of such Change in
Control and not materially dissimilar to the office space, related
facilities and support personnel provided to other key executive officers
of the Bank; or
(f) a reduction by the Bank in the amount of Employee's minimum salary
specified in Section 2.1(a) (or as subsequently increased) and as in effect
at the time of the occurrence of such Change in Control, or a failure of
the Bank to pay such minimum annual salary to the Employee at the time and
in the manner specified in Section 3.1(a) of this Agreement; or
(g) Employee's principal office space or the related facilities or
support space or the related facilities or support personnel referred to in
paragraph (e) of this Section 7.5 cease to be located within the Bank's
principal executive offices, or for a period of more than 45
-6-
<PAGE>
consecutive days Employee is required by the Bank to perform a majority of
this duties outside the Bank's principal executive offices; or
(h) the relocation, without Employee's prior written consent, of the
Bank's principal executive offices to a location outside the county in
which such offices are located at the time of the occurrence of such Change
in Control; or
(i) the failure of the Bank to obtain the assumption by any successor
to the Bank of the obligations imposed upon the Bank under this Agreement,
as required by Section 14 of this Agreement; or
(j) the employment of Employee under this Agreement is terminated by
the Bank without Cause; or
(k) the Bank notifies Employee of the Bank's intention not to observe
or perform one or more of the obligations of the Bank under this Agreement;
or
(l) the Bank breaches any provision of this Agreement.
7.6 Change in Control. As used herein, the term "Change in Control"
shall mean the occurrence with respect to the Bank or Guaranty Bancshares, Inc.
(the "Parent") of any of the following events:
(a) a report on Schedule 13D is filed with the Securities and Exchange
Commission (the "SEC") pursuant to Section 13(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), disclosing that any person,
entity or group (within the meaning of Section 13(d) or 14(d) of the
Exchange Act), other than the Bank or the Parent (or one of its
subsidiaries) or any employee benefit plan sponsored by the Bank or the
Parent (or one of its subsidiaries), is the beneficial owner (as such term
is defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of 20 percent or more of the outstanding shares of common stock
of the Bank or the Parent or the combined voting power of the then-
outstanding securities of the Bank or the Parent;
(b) a report is filed by the Bank or the Parent disclosing a response
to either Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act, or to Item 1 of Form 8-K promulgated under the Exchange Act,
or to any similar reporting requirement hereafter promulgated by the SEC;
-7-
<PAGE>
(c) any person, entity or group (within the meaning of Section 13(d)
or 14(d) of the Exchange Act), other than the Bank or the Parent (or one of
its subsidiaries) or any employee benefit plan sponsored by the Bank or the
Parent (or one of its subsidiaries), shall purchase securities pursuant to
a tender offer or exchange offer to acquire any common stock of the Bank or
the Parent (or securities convertible into common stock) for cash,
securities or any other consideration, provided that after consummation of
the offer, the person, entity or group in question is the beneficial owner
(as such term is defined in Rule 13d-3 promulgated under the Exchange Act),
directly or indirectly, of 20 percent or more of the combined voting power
of the then-outstanding securities of the Bank or the Parent (as determined
under paragraph (d) of Rule 13d-3 promulgated under the Exchange Act, in
the case of rights to acquire common stock);
(d) the stockholders of the Bank or the Parent shall approve:
(i) any merger, consolidation, or reorganization of the Bank or
the Parent:
(A) in which the Bank or the Parent is not the continuing or
surviving corporation,
(B) pursuant to which shares of common stock of the Bank or
the Parent would be converted into cash, securities or other
property,
(C) with a corporation which prior to such merger,
consolidation, or reorganization owned 20 percent or more of the
combined voting power of the then-outstanding securities of the
Bank or the Parent, or
(D) in which the Bank or the Parent will not survive as an
independent corporation;
(ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all the assets of the Bank or the Parent, or
(iii) any liquidation or dissolution of the Bank or the Parent;
(e) the stockholders of the Bank or the Parent shall approve a merger,
consolidation, reorganization, recapitalization, exchange offer, purchase
of assets or other transaction after the consummation of which any person,
entity or group (as defined in accordance with Section 13(d) or 14(d) of
the Exchange Act) would own beneficially in
-8-
<PAGE>
excess of 50% of the outstanding shares of common stock of the Bank or the
Parent or in excess of 50% of the combined voting power of the then-
outstanding securities of the Bank or the Parent; or
(f) during a period of two consecutive years, the individuals who at
the beginning of such period constituted the Board of Directors of Bank or
the Parent cease for any reason to constitute a majority of such Board,
unless the election or nomination for election by the Bank or the Parent's
stockholders of each new director during any such two-year period was
approved by the vote by two-thirds of the directors then still in office
who were directors at the beginning of such two-year period.
8. Parachute Payments.
8.1 General. For the purposes of the determinations to be made
pursuant to Paragraph 8.2 below, capitalized terms that are not defined in this
Agreement shall have the meanings set forth in Section 280G of the Internal
Revenue Code of 1986, as amended ("Code"). A "Change in Control" of the Bank or
the Parent shall have the meaning set forth in Section 7.6 above and shall refer
to an ownership change described in Section 280G(b)(2)(A)(i) of the Code with
respect to the Bank of the Parent. "Incentive Agreements" mean this Agreement
and all stock option agreements, incentive compensation unit agreements,
supplemental pension agreements or other arrangements or agreements, whether in
existence on the date hereof or hereafter entered into by the Employee and the
Bank or the Parent that entitled the Employee to receive payments or other
property from the Bank or the Parent.
8.2 Limitation. If the Aggregate Present Value of Parachute Payments
payable to or in respect of the Employee by reason of a Change in Control of the
Bank or the Parent under all Incentive Agreements then in effect is greater than
or equal to three times the Base Amount, then the Aggregate Present Value of
Parachute Payments made to the Employee shall be limited to an amount equal to
the greater of the portion of the Parachute Payments constituting Reasonable
Compensation or three times the Base Amount less one dollar. Any amount
required to be withheld from payments made to the Employee pursuant to this
Paragraph 8.2 shall be deducted from the Change in Control-Lump Sum Payment
referred to in Section 7.2 above.
9. Notices. Any notice under this Agreement must be in writing and may
be given by certified or registered mail, postage prepaid, addressed to the
party or parties to be notified with return receipt requested, or by delivering
the notice in person. For purposes of notice, the address of Employee or any
administrator, executor or legal representative of Employee or his estate, as
the case may be, shall be the last address of the Employee on the records of the
Bank. The address of the Bank shall be its principal business address.
-9-
<PAGE>
10. Controlling Law. This Agreement shall be governed by the laws of the
State of Texas.
11. Entire Agreement. This Agreement contains the entire agreement of the
parties and may only be amended in writing signed by both parties; provided,
that no amendment to this Agreement shall be effective unless authorized by
resolution of the Board of Directors and signed on behalf of the Bank by a duly
authorized officer of the Bank other than Employee.
12. Remedies, Modification and Separability. Employee and the Bank agree
that Employee's breach of Sections 4 and 5 of this Agreement will result in
irreparable harm to the Bank, that no adequate remedy at law is available, and
that the Bank shall be entitled to injunctive relief; however, nothing herein
shall prevent the Bank from pursuing any other remedies at law or at equity
available to the Bank. Should a court of competent jurisdiction declare any of
the covenants set forth in Sections 4 or 5 unenforceable, the court shall be
empowered to modify or reform such covenants so as to provide relief reasonably
necessary to protect the interests of the Bank and Employee and to award
injunctive relief, or damages, or both, to which the Bank may be entitled. If
any provision of this Agreement is declared by a court of last resort to be
invalid, the Bank and Employee agree that such declaration shall not affect the
validity of the other provisions of this Agreement. If any provision of this
Agreement is capable to two constructions, one of which would render the
provision void and the other of which would render the provision valid, then the
provision shall have the construction which renders it valid.
13. Preservation of Business; Fiduciary Responsibility. Employee shall
use his best efforts to preserve the business and organization of the Bank, to
keep available to the Bank the services of its present employees and to preserve
the business relations of the Bank with suppliers, distributors, customers and
others. Employee shall not commit any act which would injure the Bank.
Employee shall observe and fulfill proper standards of fiduciary responsibility
attendant upon his Office.
14. Assignments. This Agreement is personal to Employee and without the
prior written consent of the Bank shall not be assignable by Employee other than
by will or the laws of descent and distribution. This Agreement shall inure to
the benefit of and be enforceable by Employee's legal representatives and heirs.
This Agreement shall inure to the benefit of and be binding upon the Bank and
its successors and assigns. The Bank shall require any corporation, entity,
individual or other person who is the successor (whether direct or indirect, by
purchase, merger, consolidation, reorganization, or otherwise) to all or
substantially all of the business or assets of the Bank to expressly assume and
agree to perform, by a written agreement in form and substance satisfactory to
Employee, all of the obligations of the Bank under this Agreement. As used in
this Agreement, the term "Bank" shall mean the Bank as hereinbefore defined and
any successor to its business
-10-
<PAGE>
and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, written agreement, or otherwise.
15. Waiver of Breach. The waiver by the Bank of a breach of any provision
of this Agreement by Employee shall not operate or be construed as a waiver by
the Bank of any subsequent breach of Employee.
16. Revocation of Previous Employment Agreements. Any and all previous
employment agreements existing between the Bank and Employee are revoked and
canceled.
17. Headings. The section headings in this Agreement are for convenience
of reference and shall not be used in the interpretation or construction of this
Agreement.
18. Attorney's Fees. In the event Bank or Employee breaches any term or
provision of this Agreement and the other party employs an attorney or attorneys
to enforce the terms of this Agreement, then the breaching or defaulting party
agrees to pay the other party the reasonable attorney's fees and costs incurred
to enforce this Agreement.
19. Execution. This Agreement may be executed in multiple counterparts
each of which shall be deemed an original and all of which shall constitute one
instrument.
Employee acknowledges that he has read this Agreement and understands that
signing this Agreement is a condition of employment.
IN WITNESS WHEREOF, this Agreement is executed as of the ____ day of
______________, 1998.
"EMPLOYEE" "BANK"
Guaranty Bank
By:
- ------------------------- ------------------------------
Clifton A. Payne Name:
----------------------------
Title:
---------------------------
-11-
<PAGE>
Exhibit "A"
Employment Agreement By and Between
Guaranty Bank and Clifton A. Payne
Calendar Year Annual Salary Bank Initials Employee Initials
- ------------- ------------- ------------- -----------------
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
-12-
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is by and between Guaranty
Bank, a Texas banking corporation (the "Bank"), and Byron M. Rhea, an individual
residing in Mount Pleasant, Titus County, Texas (the "Employee"), effective as
of March __, 1998 (the "Effective Date").
W I T N E S S E T H:
In consideration of the mutual covenants and agreements contained in this
Agreement, the parties agree as follows:
1. Employment. On the terms and subject to the conditions of this
Agreement, the Bank hereby employs Employee, and engages the services of the
Employee to serve as Senior Vice President (the "Office") of the Bank, and
Employee hereby accepts employment with the Bank according to the terms set
forth in this Agreement.
2. Duties. Employee is hereby employed and shall work at the location of
the Bank or at such other place or places as may be directed by the Bank. The
Employee shall have the position (including status, offices, titles and
reporting requirements), authority, duties, and responsibilities usually
associated with the Office of a bank having assets similar in nature and value
to the assets of the Bank.
2.1 The Employee shall devote his entire time and attention during normal
working hours to the Office during the term of this Agreement for the profit and
benefit of Bank. During the term of this Agreement, the Employee shall not
directly or indirectly render any services or be engaged in any activity of a
business, commercial, or professional nature to any other person or
organization, whether for compensation or otherwise, other than Bank, without
the prior written consent of the Bank.
3. Compensation and Benefits. The compensation and other benefits payable
to Employee under this Agreement shall constitute the full consideration to be
paid to Employee for all services to be rendered by Employee for the Bank.
3.1 The Bank will pay to Employee an annual salary as determined by the
Board of Directors of the Bank which is stated on Exhibit "A" attached hereto.
The Employee's annual salary shall be payable in accordance with the Bank's
customary policies, subject to payroll and withholding deductions as may be
required by law and other deductions applied generally to employees of the Bank
for insurance or other employee benefit plans.
<PAGE>
3.2 Employee shall be reimbursed for any and all reasonable costs and
expenses incurred by Employee in performance of his services and duties as
specified in this Agreement or incurred by Employee on behalf of, or in
furtherance of the business of, the Bank, including, but not limited to business
expenses incurred in connection with travel and entertainment; provided,
however, that Employee shall submit to the Bank supporting receipts and
information satisfactory to the Bank with respect to such reasonable costs and
expenses.
3.3 During the term of Employee's employment, he shall be entitled (i) to
receive health insurance benefits with the same coverages and deductibles as are
currently in effect with respect to Employee (subject to the availability of
such benefits at a reasonable cost), (ii) to participate in the Bank's other
benefit plans to such extent as determined by the Board of Directors of the
Bank, (iii) to participate in the Bank's other policies, including vacation and
sick leave.
4. Conflicts of Interests; Covenant Not to Compete.
4.1 Employee shall, during the term of this Agreement, devote his entire
time, attention, energies and business efforts to his duties as an employee of
the Bank and to the business of the Bank. Employee shall not, during the term
of this Agreement, directly or indirectly, for and on behalf of himself or any
person, firm, partnership, corporation or other legal entity, own, manage,
operate, control, invest in, make loans on advances to, guarantee the
obligations of or participate in the ownership or management or operations of or
be employed by or otherwise engage in the operation of any business that is in
competition in any manner whatsoever with the business of the Bank.
5. Confidential Information.
5.1 As used herein, "Confidential Information" means all technical and
business information (including financial statements and related books and
records, personnel records, customer lists, arrangements with customers and
suppliers, manuals and reports) of the Bank and its affiliates (whether such
information is owned by, licensed to or otherwise possessed by the Bank or any
affiliate), whether patentable or not, which is of a confidential, trade secret
and/or proprietary character and which is either developed by Employee (alone or
with others) or to which Employee has had access during his employment.
"Confidential Information" shall include but is not limited to information of a
technical or business nature such as ideas, discoveries, inventions,
improvements, trade secrets, know-how, manufacturing processes, specifications,
writings and other works of authorship, computer programs, financial figures and
reports, marketing plans, customer lists and data, and/or business plans or data
which relate to the actual or anticipated business of the Bank or any affiliate
or its actual or anticipated areas of research and development. "Confidential
-2-
<PAGE>
Information" shall also include but is not limited to confidential evaluations
of, and the confidential use or non-use by Bank or any affiliate of, technical
or business information in the public domain.
5.2 Employee shall, both during and after his employment with the Bank,
protect and maintain the confidential, trade secret and/or proprietary character
of all Confidential Information. Employee shall not, during or after
termination of his employment, directly or indirectly, use (for himself or
another) or disclose any Confidential Information, for so long as it shall
remain proprietary or protectible as confidential or trade secret information,
except as may be necessary for the performance of his duties under this
Agreement.
5.3 Employee shall deliver promptly to the Bank, at the termination of his
employment, or at any other time at the Bank's request, without retaining any
copies, all documents and other material in his possession relating, directly or
indirectly, to any Confidential Information.
5.4 Each of Employee's obligations in this Section 5 shall also apply to
the confidential, trade secret and proprietary information learned or acquired
by him during his employment from others with whom the Bank or any affiliate has
a business relationship.
6. Term and Termination.
6.1 Term. The term of this Agreement shall be for two years commencing on
the Effective Date and shall automatically be extended each day from the
Effective Date.
6.2 Termination of Agreement. Except as may otherwise be provided herein,
this Agreement may terminate prior to the end of the Term upon the occurrence
of:
(a) Thirty (30) days after written notice of termination is given by
either party to the other; or
(b) Employees's death or, at the Bank's option, upon Employee's
becoming Disabled (as defined in Section 7.3 hereof).
Any notice of termination given by Employee to the Bank under Section 6.2(a)
above shall specify whether such termination is made with or without Good
Reason-Change in Control (as defined in Section 7.5 hereof). Any notice of
termination given by the Bank to Employee under Section 6.2(a) above shall
specify whether such termination is with or without Cause (as defined in Section
7.4 hereof.
-3-
<PAGE>
7. Obligations of the Bank Upon Termination.
7.1 Cause and Other than for Good Reason-Change in Control. If the
Bank terminates this Agreement with Cause pursuant to Section 6.2(a) above, or
if Employee terminates this Agreement without Good Reason-Change in Control
pursuant to Section 6.2(a) hereof, this Agreement shall terminate without
further obligations to Employee, other than those obligations owing or accrued
to, vested in, or earned by Employee through the date of termination, including,
but not limited to:
(a) to the extent not theretofore paid, Employee's annual salary
in effect at the time of such termination through the date of
termination; and
(b) in the case of compensation previously deferred by Employee,
all amounts previously deferred (together with any accrued interest
thereon) and not yet paid by the Bank and any accrued vacation pay not
yet paid by the Bank; and
(c) all other amounts or benefits owing or accrued to, vested in,
earned by Employee through the date of termination under the then
existing or applicable plans, programs, arrangements, and policies of
Bank;
such obligations owing or accrued to, vested in, or earned by Employee through
the date of termination, including, but not limited to, such amounts and
benefits specified in clauses (a), (b), and (c) of this sentence, being
hereinafter collectively referred to as the "Accrued Obligations." The
aggregate amount of such obligations owing or accrued to, vested in, or earned
by Employee through the date of termination, including, but not limited to, the
Accrued Obligations, shall be paid by the Bank to Employee in cash in one lump
sum within thirty (30) days after the date of termination.
7.2 Good Reason-Change in Control; Other than for Cause Before or
After a Change in Control. If Employee terminates this Agreement with Good
Reason-Change in Control pursuant to Section 6.2(a) hereof, or if the Bank
terminates this Agreement without Cause before or after the occurrence of a
Change in Control pursuant to Section 6.2(a) hereof, the Bank shall pay to
Employee cash in one lump sum within thirty (30) days after the date of
termination the aggregate of the following amounts (the "Change in Control-Lump
Sum Payment"):
(i) to the extent not theretofore paid, Employee's annual
salary at the annual rate in effect at the time of such
termination through the date of termination; and
-4-
<PAGE>
(ii) to the extent not theretofore paid, any bonus through
the date of termination; and
(iii) in the case of compensation previously deferred by
Employee, all amounts previously deferred (together with any
accrued interest thereon) and not yet paid by the Bank, and any
accrued vacation pay not yet paid by the Bank; and
(iv) all other amounts or benefits owing or accrued to,
vested in, or earned by Employee through the date of termination
under the then existing or applicable plans, programs,
arrangements, and policies of the Bank; and
(v) any and all other Accrued Obligations not otherwise
described in clause (i), (ii), (iii), (iv) or (v) of this Section
7.2; and
(vi) an amount equal to two (2) times the Employee's annual
salary in effect at the time of such termination.
7.3 Death or Disabilities. If Employee's employment is terminated
under Section 6.2(b) hereof by reason of Employee's death or Disability, the
Bank shall pay to Employee's legal representatives cash in one lump sum within
thirty (30) days after the date of Employee's death or Disability the full
amount of the obligations owing or accrued to, vested in, or earned by Employee
through the date of Employee's death or disability, including, but not limited
to, the Accrued Obligations. Anything in this Agreement to the contrary
notwithstanding, the Employee's legal representatives or beneficiaries shall be
entitled to receive benefits provided under the then existing or applicable
plans, programs, or arrangements and policies of the Bank relating to death or
disability. As used herein, "Disabled" shall have the meanings as being
disabled under the Guaranty Bancshares, Inc. 1998 Stock Incentive Plan.
7.4 Cause. As used in this Agreement, the term "Cause" means (i)
willful misconduct by Employee, (ii) the gross neglect by Employee of his duties
as an employee, officer or director of the Bank which continues for more than
thirty (30) days after written notice from the Bank to Employee specifically
identifying the gross negligence of Employee and directing Employee to
discontinue same, (iii) the commission by Employee of an act, other than an act
taken in good faith within the course and scope of Employee's employment, which
is directly detrimental to the Bank and which act exposes the Bank to material
liability.
-5-
<PAGE>
7.5 Good Reason-Change in Control. As used in this Agreement, the
term "Good Reason-Change in Control" means after the occurrence of a Change in
Control and a determination by Employee that any one or more of the following
events has occurred:
(a) the assignment by the Bank to Employee of duties that are
inconsistent with the Office at the time of such assignment, or the removal
by the Bank from Employee of those duties usually appertaining to the
Office at the time of such removal; or
(b) a change by the Bank, without Employee's prior written consent, in
Employee's responsibilities to the Bank as such responsibilities existed at
the time of the occurrence of such Change in Control (or as such
responsibilities may thereafter exist from time to time as a result of
changes in such responsibilities made with Employee's prior written
consent); or
(c) any removal of Employee from, or any failure to elect or reelect
Employee to, the Office, except in connection with Employee's promotion,
with his prior written consent, to a higher office (if any) with the Bank;
or
(d) the Bank's direction that Employee discontinue service (or not
seek reelection or reappointment) as a director, officer or member of any
corporation or other entity of which Employee is a director, officer or
member at the time of the occurrence of such Change in Control; or
(e) the failure of the Bank to continue to provide Employee with
office space, related facilities and support personnel (including, but not
limited to, administrative and secretarial assistance) that are both
commensurate with the Office and Employee's responsibilities to and
position with the Bank at the time of the occurrence of such Change in
Control and not materially dissimilar to the office space, related
facilities and support personnel provided to other key executive officers
of the Bank; or
(f) a reduction by the Bank in the amount of Employee's minimum salary
specified in Section 2.1(a) (or as subsequently increased) and as in effect
at the time of the occurrence of such Change in Control, or a failure of
the Bank to pay such minimum annual salary to the Employee at the time and
in the manner specified in Section 3.1(a) of this Agreement; or
(g) Employee's principal office space or the related facilities or
support space or the related facilities or support personnel referred to in
paragraph (e) of this Section 7.5 cease to be located within the Bank's
principal executive offices, or for a period of more than 45
-6-
<PAGE>
consecutive days Employee is required by the Bank to perform a majority of
this duties outside the Bank's principal executive offices; or
(h) the relocation, without Employee's prior written consent, of the
Bank's principal executive offices to a location outside the county in
which such offices are located at the time of the occurrence of such Change
in Control; or
(i) the failure of the Bank to obtain the assumption by any successor
to the Bank of the obligations imposed upon the Bank under this Agreement,
as required by Section 14 of this Agreement; or
(j) the employment of Employee under this Agreement is terminated by
the Bank without Cause; or
(k) the Bank notifies Employee of the Bank's intention not to observe
or perform one or more of the obligations of the Bank under this Agreement;
or
(l) the Bank breaches any provision of this Agreement.
7.6 Change in Control. As used herein, the term "Change in Control"
shall mean the occurrence with respect to the Bank or Guaranty Bancshares, Inc.
(the "Parent") of any of the following events:
(a) a report on Schedule 13D is filed with the Securities and Exchange
Commission (the "SEC") pursuant to Section 13(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), disclosing that any person,
entity or group (within the meaning of Section 13(d) or 14(d) of the
Exchange Act), other than the Bank or the Parent (or one of its
subsidiaries) or any employee benefit plan sponsored by the Bank or the
Parent (or one of its subsidiaries), is the beneficial owner (as such term
is defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of 20 percent or more of the outstanding shares of common stock
of the Bank or the Parent or the combined voting power of the then-
outstanding securities of the Bank or the Parent;
(b) a report is filed by the Bank or the Parent disclosing a response
to either Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act, or to Item 1 of Form 8-K promulgated under the Exchange Act,
or to any similar reporting requirement hereafter promulgated by the SEC;
-7-
<PAGE>
(c) any person, entity or group (within the meaning of Section 13(d)
or 14(d) of the Exchange Act), other than the Bank or the Parent (or one of
its subsidiaries) or any employee benefit plan sponsored by the Bank or the
Parent (or one of its subsidiaries), shall purchase securities pursuant to
a tender offer or exchange offer to acquire any common stock of the Bank or
the Parent (or securities convertible into common stock) for cash,
securities or any other consideration, provided that after consummation of
the offer, the person, entity or group in question is the beneficial owner
(as such term is defined in Rule 13d-3 promulgated under the Exchange Act),
directly or indirectly, of 20 percent or more of the combined voting power
of the then-outstanding securities of the Bank or the Parent (as determined
under paragraph (d) of Rule 13d-3 promulgated under the Exchange Act, in
the case of rights to acquire common stock);
(d) the stockholders of the Bank or the Parent shall approve:
(i) any merger, consolidation, or reorganization of the Bank or
the Parent:
(A) in which the Bank or the Parent is not the continuing or
surviving corporation,
(B) pursuant to which shares of common stock of the Bank or
the Parent would be converted into cash, securities or other
property,
(C) with a corporation which prior to such merger,
consolidation, or reorganization owned 20 percent or more of the
combined voting power of the then-outstanding securities of the
Bank or the Parent, or
(D) in which the Bank or the Parent will not survive as an
independent corporation;
(ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all the assets of the Bank or the Parent, or
(iii) any liquidation or dissolution of the Bank or the Parent;
(e) the stockholders of the Bank or the Parent shall approve a merger,
consolidation, reorganization, recapitalization, exchange offer, purchase
of assets or other transaction after the consummation of which any person,
entity or group (as defined in accordance with Section 13(d) or 14(d) of
the Exchange Act) would own beneficially in
-8-
<PAGE>
excess of 50% of the outstanding shares of common stock of the Bank or the
Parent or in excess of 50% of the combined voting power of the then-
outstanding securities of the Bank or the Parent; or
(f) during a period of two consecutive years, the individuals who at
the beginning of such period constituted the Board of Directors of Bank or
the Parent cease for any reason to constitute a majority of such Board,
unless the election or nomination for election by the Bank or the Parent's
stockholders of each new director during any such two-year period was
approved by the vote by two-thirds of the directors then still in office
who were directors at the beginning of such two-year period.
8. Parachute Payments.
8.1 General. For the purposes of the determinations to be made
pursuant to Paragraph 8.2 below, capitalized terms that are not defined in this
Agreement shall have the meanings set forth in Section 280G of the Internal
Revenue Code of 1986, as amended ("Code"). A "Change in Control" of the Bank or
the Parent shall have the meaning set forth in Section 7.6 above and shall refer
to an ownership change described in Section 280G(b)(2)(A)(i) of the Code with
respect to the Bank of the Parent. "Incentive Agreements" mean this Agreement
and all stock option agreements, incentive compensation unit agreements,
supplemental pension agreements or other arrangements or agreements, whether in
existence on the date hereof or hereafter entered into by the Employee and the
Bank or the Parent that entitled the Employee to receive payments or other
property from the Bank or the Parent.
8.2 Limitation. If the Aggregate Present Value of Parachute Payments
payable to or in respect of the Employee by reason of a Change in Control of the
Bank or the Parent under all Incentive Agreements then in effect is greater than
or equal to three times the Base Amount, then the Aggregate Present Value of
Parachute Payments made to the Employee shall be limited to an amount equal to
the greater of the portion of the Parachute Payments constituting Reasonable
Compensation or three times the Base Amount less one dollar. Any amount
required to be withheld from payments made to the Employee pursuant to this
Paragraph 8.2 shall be deducted from the Change in Control-Lump Sum Payment
referred to in Section 7.2 above.
9. Notices. Any notice under this Agreement must be in writing and may
be given by certified or registered mail, postage prepaid, addressed to the
party or parties to be notified with return receipt requested, or by delivering
the notice in person. For purposes of notice, the address of Employee or any
administrator, executor or legal representative of Employee or his estate, as
the case may be, shall be the last address of the Employee on the records of the
Bank. The address of the Bank shall be its principal business address.
-9-
<PAGE>
10. Controlling Law. This Agreement shall be governed by the laws of the
State of Texas.
11. Entire Agreement. This Agreement contains the entire agreement of the
parties and may only be amended in writing signed by both parties; provided,
that no amendment to this Agreement shall be effective unless authorized by
resolution of the Board of Directors and signed on behalf of the Bank by a duly
authorized officer of the Bank other than Employee.
12. Remedies, Modification and Separability. Employee and the Bank agree
that Employee's breach of Sections 4 and 5 of this Agreement will result in
irreparable harm to the Bank, that no adequate remedy at law is available, and
that the Bank shall be entitled to injunctive relief; however, nothing herein
shall prevent the Bank from pursuing any other remedies at law or at equity
available to the Bank. Should a court of competent jurisdiction declare any of
the covenants set forth in Sections 4 or 5 unenforceable, the court shall be
empowered to modify or reform such covenants so as to provide relief reasonably
necessary to protect the interests of the Bank and Employee and to award
injunctive relief, or damages, or both, to which the Bank may be entitled. If
any provision of this Agreement is declared by a court of last resort to be
invalid, the Bank and Employee agree that such declaration shall not affect the
validity of the other provisions of this Agreement. If any provision of this
Agreement is capable to two constructions, one of which would render the
provision void and the other of which would render the provision valid, then the
provision shall have the construction which renders it valid.
13. Preservation of Business; Fiduciary Responsibility. Employee shall
use his best efforts to preserve the business and organization of the Bank, to
keep available to the Bank the services of its present employees and to preserve
the business relations of the Bank with suppliers, distributors, customers and
others. Employee shall not commit any act which would injure the Bank.
Employee shall observe and fulfill proper standards of fiduciary responsibility
attendant upon his Office.
14. Assignments. This Agreement is personal to Employee and without the
prior written consent of the Bank shall not be assignable by Employee other than
by will or the laws of descent and distribution. This Agreement shall inure to
the benefit of and be enforceable by Employee's legal representatives and heirs.
This Agreement shall inure to the benefit of and be binding upon the Bank and
its successors and assigns. The Bank shall require any corporation, entity,
individual or other person who is the successor (whether direct or indirect, by
purchase, merger, consolidation, reorganization, or otherwise) to all or
substantially all of the business or assets of the Bank to expressly assume and
agree to perform, by a written agreement in form and substance satisfactory to
Employee, all of the obligations of the Bank under this Agreement. As used in
this Agreement, the term "Bank" shall mean the Bank as hereinbefore defined and
any successor to its business
-10-
<PAGE>
and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, written agreement, or otherwise.
15. Waiver of Breach. The waiver by the Bank of a breach of any provision
of this Agreement by Employee shall not operate or be construed as a waiver by
the Bank of any subsequent breach of Employee.
16. Revocation of Previous Employment Agreements. Any and all previous
employment agreements existing between the Bank and Employee are revoked and
canceled.
17. Headings. The section headings in this Agreement are for convenience
of reference and shall not be used in the interpretation or construction of this
Agreement.
18. Attorney's Fees. In the event Bank or Employee breaches any term or
provision of this Agreement and the other party employs an attorney or attorneys
to enforce the terms of this Agreement, then the breaching or defaulting party
agrees to pay the other party the reasonable attorney's fees and costs incurred
to enforce this Agreement.
19. Execution. This Agreement may be executed in multiple counterparts
each of which shall be deemed an original and all of which shall constitute one
instrument.
Employee acknowledges that he has read this Agreement and understands that
signing this Agreement is a condition of employment.
IN WITNESS WHEREOF, this Agreement is executed as of the ____ day of
______________, 1998.
"EMPLOYEE" "BANK"
Guaranty Bank
By:
- ----------------------- --------------------------
Byron M. Rhea Name:
------------------------
Title:
-----------------------
-11-
<PAGE>
Exhibit "A"
Employment Agreement By and Between
Guaranty Bank and Byron M. Rhea
Calendar Year Annual Salary Bank Initials Employee Initials
- ------------- ------------- ------------- -----------------
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
-12-
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is by and between Guaranty
Bank, a Texas banking corporation (the "Bank"), and Joseph Rose, an individual
residing in Bogata, Red River County, Texas (the "Employee"), effective as of
March __, 1998 (the "Effective Date").
W I T N E S S E T H:
In consideration of the mutual covenants and agreements contained in this
Agreement, the parties agree as follows:
1. Employment. On the terms and subject to the conditions of this
Agreement, the Bank hereby employs Employee, and engages the services of the
Employee to serve as President of the Bogata branch (the "Office") of the Bank,
and Employee hereby accepts employment with the Bank according to the terms set
forth in this Agreement.
2. Duties. Employee is hereby employed and shall work at the location of
the Bank or at such other place or places as may be directed by the Bank. The
Employee shall have the position (including status, offices, titles and
reporting requirements), authority, duties, and responsibilities usually
associated with the Office of a bank having assets similar in nature and value
to the assets of the Bank.
2.1 The Employee shall devote his entire time and attention during normal
working hours to the Office during the term of this Agreement for the profit and
benefit of Bank. During the term of this Agreement, the Employee shall not
directly or indirectly render any services or be engaged in any activity of a
business, commercial, or professional nature to any other person or
organization, whether for compensation or otherwise, other than Bank, without
the prior written consent of the Bank.
3. Compensation and Benefits. The compensation and other benefits payable
to Employee under this Agreement shall constitute the full consideration to be
paid to Employee for all services to be rendered by Employee for the Bank.
3.1 The Bank will pay to Employee an annual salary as determined by the
Board of Directors of the Bank which is stated on Exhibit "A" attached hereto.
The Employee's annual salary shall be payable in accordance with the Bank's
customary policies, subject to payroll and withholding deductions as may be
required by law and other deductions applied generally to employees of the Bank
for insurance or other employee benefit plans.
<PAGE>
3.2 Employee shall be reimbursed for any and all reasonable costs and
expenses incurred by Employee in performance of his services and duties as
specified in this Agreement or incurred by Employee on behalf of, or in
furtherance of the business of, the Bank, including, but not limited to business
expenses incurred in connection with travel and entertainment; provided,
however, that Employee shall submit to the Bank supporting receipts and
information satisfactory to the Bank with respect to such reasonable costs and
expenses.
3.3 During the term of Employee's employment, he shall be entitled (i) to
receive health insurance benefits with the same coverages and deductibles as are
currently in effect with respect to Employee (subject to the availability of
such benefits at a reasonable cost), (ii) to participate in the Bank's other
benefit plans to such extent as determined by the Board of Directors of the
Bank, (iii) to participate in the Bank's other policies, including vacation and
sick leave.
4. Conflicts of Interests; Covenant Not to Compete.
4.1 Employee shall, during the term of this Agreement, devote his entire
time, attention, energies and business efforts to his duties as an employee of
the Bank and to the business of the Bank. Employee shall not, during the term
of this Agreement, directly or indirectly, for and on behalf of himself or any
person, firm, partnership, corporation or other legal entity, own, manage,
operate, control, invest in, make loans on advances to, guarantee the
obligations of or participate in the ownership or management or operations of or
be employed by or otherwise engage in the operation of any business that is in
competition in any manner whatsoever with the business of the Bank.
5. Confidential Information.
5.1 As used herein, "Confidential Information" means all technical and
business information (including financial statements and related books and
records, personnel records, customer lists, arrangements with customers and
suppliers, manuals and reports) of the Bank and its affiliates (whether such
information is owned by, licensed to or otherwise possessed by the Bank or any
affiliate), whether patentable or not, which is of a confidential, trade secret
and/or proprietary character and which is either developed by Employee (alone or
with others) or to which Employee has had access during his employment.
"Confidential Information" shall include but is not limited to information of a
technical or business nature such as ideas, discoveries, inventions,
improvements, trade secrets, know-how, manufacturing processes, specifications,
writings and other works of authorship, computer programs, financial figures and
reports, marketing plans, customer lists and data, and/or business plans or data
which relate to the actual or anticipated business of the Bank or any affiliate
or its actual or anticipated areas of research and development. "Confidential
-2-
<PAGE>
Information" shall also include but is not limited to confidential evaluations
of, and the confidential use or non-use by Bank or any affiliate of, technical
or business information in the public domain.
5.2 Employee shall, both during and after his employment with the Bank,
protect and maintain the confidential, trade secret and/or proprietary character
of all Confidential Information. Employee shall not, during or after
termination of his employment, directly or indirectly, use (for himself or
another) or disclose any Confidential Information, for so long as it shall
remain proprietary or protectible as confidential or trade secret information,
except as may be necessary for the performance of his duties under this
Agreement.
5.3 Employee shall deliver promptly to the Bank, at the termination of his
employment, or at any other time at the Bank's request, without retaining any
copies, all documents and other material in his possession relating, directly or
indirectly, to any Confidential Information.
5.4 Each of Employee's obligations in this Section 5 shall also apply to
the confidential, trade secret and proprietary information learned or acquired
by him during his employment from others with whom the Bank or any affiliate has
a business relationship.
6. Term and Termination.
6.1 Term. The term of this Agreement shall be for two years commencing on
the Effective Date and shall automatically be extended each day from the
Effective Date.
6.2 Termination of Agreement. Except as may otherwise be provided herein,
this Agreement may terminate prior to the end of the Term upon the occurrence
of:
(a) Thirty (30) days after written notice of termination is given by
either party to the other; or
(b) Employees's death or, at the Bank's option, upon Employee's
becoming Disabled (as defined in Section 7.3 hereof).
Any notice of termination given by Employee to the Bank under Section 6.2(a)
above shall specify whether such termination is made with or without Good
Reason-Change in Control (as defined in Section 7.5 hereof). Any notice of
termination given by the Bank to Employee under Section 6.2(a) above shall
specify whether such termination is with or without Cause (as defined in Section
7.4 hereof.
-3-
<PAGE>
7. Obligations of the Bank Upon Termination.
7.1 Cause and Other than for Good Reason-Change in Control. If the
Bank terminates this Agreement with Cause pursuant to Section 6.2(a) above, or
if Employee terminates this Agreement without Good Reason-Change in Control
pursuant to Section 6.2(a) hereof, this Agreement shall terminate without
further obligations to Employee, other than those obligations owing or accrued
to, vested in, or earned by Employee through the date of termination, including,
but not limited to:
(a) to the extent not theretofore paid, Employee's annual salary
in effect at the time of such termination through the date of
termination; and
(b) in the case of compensation previously deferred by Employee,
all amounts previously deferred (together with any accrued interest
thereon) and not yet paid by the Bank and any accrued vacation pay not
yet paid by the Bank; and
(c) all other amounts or benefits owing or accrued to, vested in,
earned by Employee through the date of termination under the then
existing or applicable plans, programs, arrangements, and policies of
Bank;
such obligations owing or accrued to, vested in, or earned by Employee through
the date of termination, including, but not limited to, such amounts and
benefits specified in clauses (a), (b), and (c) of this sentence, being
hereinafter collectively referred to as the "Accrued Obligations." The
aggregate amount of such obligations owing or accrued to, vested in, or earned
by Employee through the date of termination, including, but not limited to, the
Accrued Obligations, shall be paid by the Bank to Employee in cash in one lump
sum within thirty (30) days after the date of termination.
7.2 Good Reason-Change in Control; Other than for Cause Before or
After a Change in Control. If Employee terminates this Agreement with Good
Reason-Change in Control pursuant to Section 6.2(a) hereof, or if the Bank
terminates this Agreement without Cause before or after the occurrence of a
Change in Control pursuant to Section 6.2(a) hereof, the Bank shall pay to
Employee cash in one lump sum within thirty (30) days after the date of
termination the aggregate of the following amounts (the "Change in Control-Lump
Sum Payment"):
(i) to the extent not theretofore paid, Employee's annual
salary at the annual rate in effect at the time of such
termination through the date of termination; and
-4-
<PAGE>
(ii) to the extent not theretofore paid, any bonus through
the date of termination; and
(iii) in the case of compensation previously deferred by
Employee, all amounts previously deferred (together with any
accrued interest thereon) and not yet paid by the Bank, and any
accrued vacation pay not yet paid by the Bank; and
(iv) all other amounts or benefits owing or accrued to,
vested in, or earned by Employee through the date of termination
under the then existing or applicable plans, programs,
arrangements, and policies of the Bank; and
(v) any and all other Accrued Obligations not otherwise
described in clause (i), (ii), (iii), (iv) or (v) of this Section
7.2; and
(vi) an amount equal to two (2) times the Employee's annual
salary in effect at the time of such termination.
7.3 Death or Disabilities. If Employee's employment is terminated
under Section 6.2(b) hereof by reason of Employee's death or Disability, the
Bank shall pay to Employee's legal representatives cash in one lump sum within
thirty (30) days after the date of Employee's death or Disability the full
amount of the obligations owing or accrued to, vested in, or earned by Employee
through the date of Employee's death or disability, including, but not limited
to, the Accrued Obligations. Anything in this Agreement to the contrary
notwithstanding, the Employee's legal representatives or beneficiaries shall be
entitled to receive benefits provided under the then existing or applicable
plans, programs, or arrangements and policies of the Bank relating to death or
disability. As used herein, "Disabled" shall have the meanings as being
disabled under the Guaranty Bancshares, Inc. 1998 Stock Incentive Plan.
7.4 Cause. As used in this Agreement, the term "Cause" means (i)
willful misconduct by Employee, (ii) the gross neglect by Employee of his duties
as an employee, officer or director of the Bank which continues for more than
thirty (30) days after written notice from the Bank to Employee specifically
identifying the gross negligence of Employee and directing Employee to
discontinue same, (iii) the commission by Employee of an act, other than an act
taken in good faith within the course and scope of Employee's employment, which
is directly detrimental to the Bank and which act exposes the Bank to material
liability.
-5-
<PAGE>
7.5 Good Reason-Change in Control. As used in this Agreement, the
term "Good Reason-Change in Control" means after the occurrence of a Change in
Control and a determination by Employee that any one or more of the following
events has occurred:
(a) the assignment by the Bank to Employee of duties that are
inconsistent with the Office at the time of such assignment, or the removal
by the Bank from Employee of those duties usually appertaining to the
Office at the time of such removal; or
(b) a change by the Bank, without Employee's prior written consent, in
Employee's responsibilities to the Bank as such responsibilities existed at
the time of the occurrence of such Change in Control (or as such
responsibilities may thereafter exist from time to time as a result of
changes in such responsibilities made with Employee's prior written
consent); or
(c) any removal of Employee from, or any failure to elect or reelect
Employee to, the Office, except in connection with Employee's promotion,
with his prior written consent, to a higher office (if any) with the Bank;
or
(d) the Bank's direction that Employee discontinue service (or not
seek reelection or reappointment) as a director, officer or member of any
corporation or other entity of which Employee is a director, officer or
member at the time of the occurrence of such Change in Control; or
(e) the failure of the Bank to continue to provide Employee with
office space, related facilities and support personnel (including, but not
limited to, administrative and secretarial assistance) that are both
commensurate with the Office and Employee's responsibilities to and
position with the Bank at the time of the occurrence of such Change in
Control and not materially dissimilar to the office space, related
facilities and support personnel provided to other key executive officers
of the Bank; or
(f) a reduction by the Bank in the amount of Employee's minimum salary
specified in Section 2.1(a) (or as subsequently increased) and as in effect
at the time of the occurrence of such Change in Control, or a failure of
the Bank to pay such minimum annual salary to the Employee at the time and
in the manner specified in Section 3.1(a) of this Agreement; or
(g) Employee's principal office space or the related facilities or
support space or the related facilities or support personnel referred to in
paragraph (e) of this Section 7.5 cease to be located within the Bank's
principal executive offices, or for a period of more than 45
-6-
<PAGE>
consecutive days Employee is required by the Bank to perform a majority of
this duties outside the Bank's principal executive offices; or
(h) the relocation, without Employee's prior written consent, of the
Bank's principal executive offices to a location outside the county in
which such offices are located at the time of the occurrence of such Change
in Control; or
(i) the failure of the Bank to obtain the assumption by any successor
to the Bank of the obligations imposed upon the Bank under this Agreement,
as required by Section 14 of this Agreement; or
(j) the employment of Employee under this Agreement is terminated by
the Bank without Cause; or
(k) the Bank notifies Employee of the Bank's intention not to observe
or perform one or more of the obligations of the Bank under this Agreement;
or
(l) the Bank breaches any provision of this Agreement.
7.6 Change in Control. As used herein, the term "Change in Control"
shall mean the occurrence with respect to the Bank or Guaranty Bancshares, Inc.
(the "Parent") of any of the following events:
(a) a report on Schedule 13D is filed with the Securities and Exchange
Commission (the "SEC") pursuant to Section 13(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), disclosing that any person,
entity or group (within the meaning of Section 13(d) or 14(d) of the
Exchange Act), other than the Bank or the Parent (or one of its
subsidiaries) or any employee benefit plan sponsored by the Bank or the
Parent (or one of its subsidiaries), is the beneficial owner (as such term
is defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of 20 percent or more of the outstanding shares of common stock
of the Bank or the Parent or the combined voting power of the then-
outstanding securities of the Bank or the Parent;
(b) a report is filed by the Bank or the Parent disclosing a response
to either Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act, or to Item 1 of Form 8-K promulgated under the Exchange Act,
or to any similar reporting requirement hereafter promulgated by the SEC;
-7-
<PAGE>
(c) any person, entity or group (within the meaning of Section 13(d)
or 14(d) of the Exchange Act), other than the Bank or the Parent (or one of
its subsidiaries) or any employee benefit plan sponsored by the Bank or the
Parent (or one of its subsidiaries), shall purchase securities pursuant to
a tender offer or exchange offer to acquire any common stock of the Bank or
the Parent (or securities convertible into common stock) for cash,
securities or any other consideration, provided that after consummation of
the offer, the person, entity or group in question is the beneficial owner
(as such term is defined in Rule 13d-3 promulgated under the Exchange Act),
directly or indirectly, of 20 percent or more of the combined voting power
of the then-outstanding securities of the Bank or the Parent (as determined
under paragraph (d) of Rule 13d-3 promulgated under the Exchange Act, in
the case of rights to acquire common stock);
(d) the stockholders of the Bank or the Parent shall approve:
(i) any merger, consolidation, or reorganization of the Bank or
the Parent:
(A) in which the Bank or the Parent is not the continuing or
surviving corporation,
(B) pursuant to which shares of common stock of the Bank or
the Parent would be converted into cash, securities or other
property,
(C) with a corporation which prior to such merger,
consolidation, or reorganization owned 20 percent or more of the
combined voting power of the then-outstanding securities of the
Bank or the Parent, or
(D) in which the Bank or the Parent will not survive as an
independent corporation;
(ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all the assets of the Bank or the Parent, or
(iii) any liquidation or dissolution of the Bank or the Parent;
(e) the stockholders of the Bank or the Parent shall approve a merger,
consolidation, reorganization, recapitalization, exchange offer, purchase
of assets or other transaction after the consummation of which any person,
entity or group (as defined in accordance with Section 13(d) or 14(d) of
the Exchange Act) would own beneficially in
-8-
<PAGE>
excess of 50% of the outstanding shares of common stock of the Bank or the
Parent or in excess of 50% of the combined voting power of the then-
outstanding securities of the Bank or the Parent; or
(f) during a period of two consecutive years, the individuals who at
the beginning of such period constituted the Board of Directors of Bank or
the Parent cease for any reason to constitute a majority of such Board,
unless the election or nomination for election by the Bank or the Parent's
stockholders of each new director during any such two-year period was
approved by the vote by two-thirds of the directors then still in office
who were directors at the beginning of such two-year period.
8. Parachute Payments.
8.1 General. For the purposes of the determinations to be made
pursuant to Paragraph 8.2 below, capitalized terms that are not defined in this
Agreement shall have the meanings set forth in Section 280G of the Internal
Revenue Code of 1986, as amended ("Code"). A "Change in Control" of the Bank or
the Parent shall have the meaning set forth in Section 7.6 above and shall refer
to an ownership change described in Section 280G(b)(2)(A)(i) of the Code with
respect to the Bank of the Parent. "Incentive Agreements" mean this Agreement
and all stock option agreements, incentive compensation unit agreements,
supplemental pension agreements or other arrangements or agreements, whether in
existence on the date hereof or hereafter entered into by the Employee and the
Bank or the Parent that entitled the Employee to receive payments or other
property from the Bank or the Parent.
8.2 Limitation. If the Aggregate Present Value of Parachute Payments
payable to or in respect of the Employee by reason of a Change in Control of the
Bank or the Parent under all Incentive Agreements then in effect is greater than
or equal to three times the Base Amount, then the Aggregate Present Value of
Parachute Payments made to the Employee shall be limited to an amount equal to
the greater of the portion of the Parachute Payments constituting Reasonable
Compensation or three times the Base Amount less one dollar. Any amount
required to be withheld from payments made to the Employee pursuant to this
Paragraph 8.2 shall be deducted from the Change in Control-Lump Sum Payment
referred to in Section 7.2 above.
9. Notices. Any notice under this Agreement must be in writing and may
be given by certified or registered mail, postage prepaid, addressed to the
party or parties to be notified with return receipt requested, or by delivering
the notice in person. For purposes of notice, the address of Employee or any
administrator, executor or legal representative of Employee or his estate, as
the case may be, shall be the last address of the Employee on the records of the
Bank. The address of the Bank shall be its principal business address.
-9-
<PAGE>
10. Controlling Law. This Agreement shall be governed by the laws of the
State of Texas.
11. Entire Agreement. This Agreement contains the entire agreement of the
parties and may only be amended in writing signed by both parties; provided,
that no amendment to this Agreement shall be effective unless authorized by
resolution of the Board of Directors and signed on behalf of the Bank by a duly
authorized officer of the Bank other than Employee.
12. Remedies, Modification and Separability. Employee and the Bank agree
that Employee's breach of Sections 4 and 5 of this Agreement will result in
irreparable harm to the Bank, that no adequate remedy at law is available, and
that the Bank shall be entitled to injunctive relief; however, nothing herein
shall prevent the Bank from pursuing any other remedies at law or at equity
available to the Bank. Should a court of competent jurisdiction declare any of
the covenants set forth in Sections 4 or 5 unenforceable, the court shall be
empowered to modify or reform such covenants so as to provide relief reasonably
necessary to protect the interests of the Bank and Employee and to award
injunctive relief, or damages, or both, to which the Bank may be entitled. If
any provision of this Agreement is declared by a court of last resort to be
invalid, the Bank and Employee agree that such declaration shall not affect the
validity of the other provisions of this Agreement. If any provision of this
Agreement is capable to two constructions, one of which would render the
provision void and the other of which would render the provision valid, then the
provision shall have the construction which renders it valid.
13. Preservation of Business; Fiduciary Responsibility. Employee shall
use his best efforts to preserve the business and organization of the Bank, to
keep available to the Bank the services of its present employees and to preserve
the business relations of the Bank with suppliers, distributors, customers and
others. Employee shall not commit any act which would injure the Bank.
Employee shall observe and fulfill proper standards of fiduciary responsibility
attendant upon his Office.
14. Assignments. This Agreement is personal to Employee and without the
prior written consent of the Bank shall not be assignable by Employee other than
by will or the laws of descent and distribution. This Agreement shall inure to
the benefit of and be enforceable by Employee's legal representatives and heirs.
This Agreement shall inure to the benefit of and be binding upon the Bank and
its successors and assigns. The Bank shall require any corporation, entity,
individual or other person who is the successor (whether direct or indirect, by
purchase, merger, consolidation, reorganization, or otherwise) to all or
substantially all of the business or assets of the Bank to expressly assume and
agree to perform, by a written agreement in form and substance satisfactory to
Employee, all of the obligations of the Bank under this Agreement. As used in
this Agreement, the term "Bank" shall mean the Bank as hereinbefore defined and
any successor to its business
-10-
<PAGE>
and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, written agreement, or otherwise.
15. Waiver of Breach. The waiver by the Bank of a breach of any provision
of this Agreement by Employee shall not operate or be construed as a waiver by
the Bank of any subsequent breach of Employee.
16. Revocation of Previous Employment Agreements. Any and all previous
employment agreements existing between the Bank and Employee are revoked and
canceled.
17. Headings. The section headings in this Agreement are for convenience
of reference and shall not be used in the interpretation or construction of this
Agreement.
18. Attorney's Fees. In the event Bank or Employee breaches any term or
provision of this Agreement and the other party employs an attorney or attorneys
to enforce the terms of this Agreement, then the breaching or defaulting party
agrees to pay the other party the reasonable attorney's fees and costs incurred
to enforce this Agreement.
19. Execution. This Agreement may be executed in multiple counterparts
each of which shall be deemed an original and all of which shall constitute one
instrument.
Employee acknowledges that he has read this Agreement and understands that
signing this Agreement is a condition of employment.
IN WITNESS WHEREOF, this Agreement is executed as of the ____ day of
______________, 1998.
"EMPLOYEE" "BANK"
Guaranty Bank
By:
- -------------------------- -------------------------------
Joseph Rose Name:
-----------------------------
Title:
----------------------------
-11-
<PAGE>
Exhibit "A"
Employment Agreement By and Between
Guaranty Bank and Joseph Rose
Calendar Year Annual Salary Bank Initials Employee Initials
- ------------- ------------- ------------- -----------------
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
-12-
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is by and between Guaranty
Bank, a Texas banking corporation (the "Bank"), and Arthur B. Scharlach, Jr., an
individual residing in Mount Pleasant, Titus County, Texas (the "Employee"),
effective as of March __, 1998 (the "Effective Date").
W I T N E S S E T H:
In consideration of the mutual covenants and agreements contained in this
Agreement, the parties agree as follows:
1. Employment. On the terms and subject to the conditions of this
Agreement, the Bank hereby employs Employee, and engages the services of the
Employee to serve as President (the "Office") of the Bank, and Employee hereby
accepts employment with the Bank according to the terms set forth in this
Agreement.
2. Duties. Employee is hereby employed and shall work at the location of
the Bank or at such other place or places as may be directed by the Bank. The
Employee shall have the position (including status, offices, titles and
reporting requirements), authority, duties, and responsibilities usually
associated with the Office of a bank having assets similar in nature and value
to the assets of the Bank.
2.1 The Employee shall devote his entire time and attention during normal
working hours to the Office during the term of this Agreement for the profit and
benefit of Bank. During the term of this Agreement, the Employee shall not
directly or indirectly render any services or be engaged in any activity of a
business, commercial, or professional nature to any other person or
organization, whether for compensation or otherwise, other than Bank, without
the prior written consent of the Bank.
3. Compensation and Benefits. The compensation and other benefits payable
to Employee under this Agreement shall constitute the full consideration to be
paid to Employee for all services to be rendered by Employee for the Bank.
3.1 The Bank will pay to Employee an annual salary as determined by the
Board of Directors of the Bank which is stated on Exhibit "A" attached hereto.
The Employee's annual salary shall be payable in accordance with the Bank's
customary policies, subject to payroll and withholding deductions as may be
required by law and other deductions applied generally to employees of the Bank
for insurance or other employee benefit plans.
<PAGE>
3.2 Employee shall be reimbursed for any and all reasonable costs and
expenses incurred by Employee in performance of his services and duties as
specified in this Agreement or incurred by Employee on behalf of, or in
furtherance of the business of, the Bank, including, but not limited to business
expenses incurred in connection with travel and entertainment; provided,
however, that Employee shall submit to the Bank supporting receipts and
information satisfactory to the Bank with respect to such reasonable costs and
expenses.
3.3 During the term of Employee's employment, he shall be entitled (i) to
receive health insurance benefits with the same coverages and deductibles as are
currently in effect with respect to Employee (subject to the availability of
such benefits at a reasonable cost), (ii) to participate in the Bank's other
benefit plans to such extent as determined by the Board of Directors of the
Bank, (iii) to participate in the Bank's other policies, including vacation and
sick leave.
4. Conflicts of Interests; Covenant Not to Compete.
4.1 Employee shall, during the term of this Agreement, devote his entire
time, attention, energies and business efforts to his duties as an employee of
the Bank and to the business of the Bank. Employee shall not, during the term
of this Agreement, directly or indirectly, for and on behalf of himself or any
person, firm, partnership, corporation or other legal entity, own, manage,
operate, control, invest in, make loans on advances to, guarantee the
obligations of or participate in the ownership or management or operations of or
be employed by or otherwise engage in the operation of any business that is in
competition in any manner whatsoever with the business of the Bank.
5. Confidential Information.
5.1 As used herein, "Confidential Information" means all technical and
business information (including financial statements and related books and
records, personnel records, customer lists, arrangements with customers and
suppliers, manuals and reports) of the Bank and its affiliates (whether such
information is owned by, licensed to or otherwise possessed by the Bank or any
affiliate), whether patentable or not, which is of a confidential, trade secret
and/or proprietary character and which is either developed by Employee (alone or
with others) or to which Employee has had access during his employment.
"Confidential Information" shall include but is not limited to information of a
technical or business nature such as ideas, discoveries, inventions,
improvements, trade secrets, know-how, manufacturing processes, specifications,
writings and other works of authorship, computer programs, financial figures and
reports, marketing plans, customer lists and data, and/or business plans or data
which relate to the actual or anticipated business of the Bank or any affiliate
or its actual or anticipated areas of research and development. "Confidential
-2-
<PAGE>
Information" shall also include but is not limited to confidential evaluations
of, and the confidential use or non-use by Bank or any affiliate of, technical
or business information in the public domain.
5.2 Employee shall, both during and after his employment with the Bank,
protect and maintain the confidential, trade secret and/or proprietary character
of all Confidential Information. Employee shall not, during or after
termination of his employment, directly or indirectly, use (for himself or
another) or disclose any Confidential Information, for so long as it shall
remain proprietary or protectible as confidential or trade secret information,
except as may be necessary for the performance of his duties under this
Agreement.
5.3 Employee shall deliver promptly to the Bank, at the termination of his
employment, or at any other time at the Bank's request, without retaining any
copies, all documents and other material in his possession relating, directly or
indirectly, to any Confidential Information.
5.4 Each of Employee's obligations in this Section 5 shall also apply to
the confidential, trade secret and proprietary information learned or acquired
by him during his employment from others with whom the Bank or any affiliate has
a business relationship.
6. Term and Termination.
6.1 Term. The term of this Agreement shall be for two years commencing on
the Effective Date and shall automatically be extended each day from the
Effective Date.
6.2 Termination of Agreement. Except as may otherwise be provided herein,
this Agreement may terminate prior to the end of the Term upon the occurrence
of:
(a) Thirty (30) days after written notice of termination is given by
either party to the other; or
(b) Employees's death or, at the Bank's option, upon Employee's
becoming Disabled (as defined in Section 7.3 hereof).
Any notice of termination given by Employee to the Bank under Section 6.2(a)
above shall specify whether such termination is made with or without Good
Reason-Change in Control (as defined in Section 7.5 hereof). Any notice of
termination given by the Bank to Employee under Section 6.2(a) above shall
specify whether such termination is with or without Cause (as defined in Section
7.4 hereof.
-3-
<PAGE>
7. Obligations of the Bank Upon Termination.
7.1 Cause and Other than for Good Reason-Change in Control. If the
Bank terminates this Agreement with Cause pursuant to Section 6.2(a) above, or
if Employee terminates this Agreement without Good Reason-Change in Control
pursuant to Section 6.2(a) hereof, this Agreement shall terminate without
further obligations to Employee, other than those obligations owing or accrued
to, vested in, or earned by Employee through the date of termination, including,
but not limited to:
(a) to the extent not theretofore paid, Employee's annual salary
in effect at the time of such termination through the date of
termination; and
(b) in the case of compensation previously deferred by Employee,
all amounts previously deferred (together with any accrued interest
thereon) and not yet paid by the Bank and any accrued vacation pay not
yet paid by the Bank; and
(c) all other amounts or benefits owing or accrued to, vested in,
earned by Employee through the date of termination under the then
existing or applicable plans, programs, arrangements, and policies of
Bank;
such obligations owing or accrued to, vested in, or earned by Employee through
the date of termination, including, but not limited to, such amounts and
benefits specified in clauses (a), (b), and (c) of this sentence, being
hereinafter collectively referred to as the "Accrued Obligations." The
aggregate amount of such obligations owing or accrued to, vested in, or earned
by Employee through the date of termination, including, but not limited to, the
Accrued Obligations, shall be paid by the Bank to Employee in cash in one lump
sum within thirty (30) days after the date of termination.
7.2 Good Reason-Change in Control; Other than for Cause Before or
After a Change in Control. If Employee terminates this Agreement with Good
Reason-Change in Control pursuant to Section 6.2(a) hereof, or if the Bank
terminates this Agreement without Cause before or after the occurrence of a
Change in Control pursuant to Section 6.2(a) hereof, the Bank shall pay to
Employee cash in one lump sum within thirty (30) days after the date of
termination the aggregate of the following amounts (the "Change in Control-Lump
Sum Payment"):
(i) to the extent not theretofore paid, Employee's annual
salary at the annual rate in effect at the time of such
termination through the date of termination; and
-4-
<PAGE>
(ii) to the extent not theretofore paid, any bonus through
the date of termination; and
(iii) in the case of compensation previously deferred by
Employee, all amounts previously deferred (together with any
accrued interest thereon) and not yet paid by the Bank, and any
accrued vacation pay not yet paid by the Bank; and
(iv) all other amounts or benefits owing or accrued to,
vested in, or earned by Employee through the date of termination
under the then existing or applicable plans, programs,
arrangements, and policies of the Bank; and
(v) any and all other Accrued Obligations not otherwise
described in clause (i), (ii), (iii), (iv) or (v) of this Section
7.2; and
(vi) an amount equal to two (2) times the Employee's annual
salary in effect at the time of such termination.
7.3 Death or Disabilities. If Employee's employment is terminated
under Section 6.2(b) hereof by reason of Employee's death or Disability, the
Bank shall pay to Employee's legal representatives cash in one lump sum within
thirty (30) days after the date of Employee's death or Disability the full
amount of the obligations owing or accrued to, vested in, or earned by Employee
through the date of Employee's death or disability, including, but not limited
to, the Accrued Obligations. Anything in this Agreement to the contrary
notwithstanding, the Employee's legal representatives or beneficiaries shall be
entitled to receive benefits provided under the then existing or applicable
plans, programs, or arrangements and policies of the Bank relating to death or
disability. As used herein, "Disabled" shall have the meanings as being
disabled under the Guaranty Bancshares, Inc. 1998 Stock Incentive Plan.
7.4 Cause. As used in this Agreement, the term "Cause" means (i)
willful misconduct by Employee, (ii) the gross neglect by Employee of his duties
as an employee, officer or director of the Bank which continues for more than
thirty (30) days after written notice from the Bank to Employee specifically
identifying the gross negligence of Employee and directing Employee to
discontinue same, (iii) the commission by Employee of an act, other than an act
taken in good faith within the course and scope of Employee's employment, which
is directly detrimental to the Bank and which act exposes the Bank to material
liability.
-5-
<PAGE>
7.5 Good Reason-Change in Control. As used in this Agreement, the
term "Good Reason-Change in Control" means after the occurrence of a Change in
Control and a determination by Employee that any one or more of the following
events has occurred:
(a) the assignment by the Bank to Employee of duties that are
inconsistent with the Office at the time of such assignment, or the removal
by the Bank from Employee of those duties usually appertaining to the
Office at the time of such removal; or
(b) a change by the Bank, without Employee's prior written consent, in
Employee's responsibilities to the Bank as such responsibilities existed at
the time of the occurrence of such Change in Control (or as such
responsibilities may thereafter exist from time to time as a result of
changes in such responsibilities made with Employee's prior written
consent); or
(c) any removal of Employee from, or any failure to elect or reelect
Employee to, the Office, except in connection with Employee's promotion,
with his prior written consent, to a higher office (if any) with the Bank;
or
(d) the Bank's direction that Employee discontinue service (or not
seek reelection or reappointment) as a director, officer or member of any
corporation or other entity of which Employee is a director, officer or
member at the time of the occurrence of such Change in Control; or
(e) the failure of the Bank to continue to provide Employee with
office space, related facilities and support personnel (including, but not
limited to, administrative and secretarial assistance) that are both
commensurate with the Office and Employee's responsibilities to and
position with the Bank at the time of the occurrence of such Change in
Control and not materially dissimilar to the office space, related
facilities and support personnel provided to other key executive officers
of the Bank; or
(f) a reduction by the Bank in the amount of Employee's minimum salary
specified in Section 2.1(a) (or as subsequently increased) and as in effect
at the time of the occurrence of such Change in Control, or a failure of
the Bank to pay such minimum annual salary to the Employee at the time and
in the manner specified in Section 3.1(a) of this Agreement; or
(g) Employee's principal office space or the related facilities or
support space or the related facilities or support personnel referred to in
paragraph (e) of this Section 7.5 cease to be located within the Bank's
principal executive offices, or for a period of more than 45
-6-
<PAGE>
consecutive days Employee is required by the Bank to perform a majority of
this duties outside the Bank's principal executive offices; or
(h) the relocation, without Employee's prior written consent, of the
Bank's principal executive offices to a location outside the county in
which such offices are located at the time of the occurrence of such Change
in Control; or
(i) the failure of the Bank to obtain the assumption by any successor
to the Bank of the obligations imposed upon the Bank under this Agreement,
as required by Section 14 of this Agreement; or
(j) the employment of Employee under this Agreement is terminated by
the Bank without Cause; or
(k) the Bank notifies Employee of the Bank's intention not to observe
or perform one or more of the obligations of the Bank under this Agreement;
or
(l) the Bank breaches any provision of this Agreement.
7.6 Change in Control. As used herein, the term "Change in Control"
shall mean the occurrence with respect to the Bank or Guaranty Bancshares, Inc.
(the "Parent") of any of the following events:
(a) a report on Schedule 13D is filed with the Securities and Exchange
Commission (the "SEC") pursuant to Section 13(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), disclosing that any person,
entity or group (within the meaning of Section 13(d) or 14(d) of the
Exchange Act), other than the Bank or the Parent (or one of its
subsidiaries) or any employee benefit plan sponsored by the Bank or the
Parent (or one of its subsidiaries), is the beneficial owner (as such term
is defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of 20 percent or more of the outstanding shares of common stock
of the Bank or the Parent or the combined voting power of the then-
outstanding securities of the Bank or the Parent;
(b) a report is filed by the Bank or the Parent disclosing a response
to either Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act, or to Item 1 of Form 8-K promulgated under the Exchange Act,
or to any similar reporting requirement hereafter promulgated by the SEC;
-7-
<PAGE>
(c) any person, entity or group (within the meaning of Section 13(d)
or 14(d) of the Exchange Act), other than the Bank or the Parent (or one of
its subsidiaries) or any employee benefit plan sponsored by the Bank or the
Parent (or one of its subsidiaries), shall purchase securities pursuant to
a tender offer or exchange offer to acquire any common stock of the Bank or
the Parent (or securities convertible into common stock) for cash,
securities or any other consideration, provided that after consummation of
the offer, the person, entity or group in question is the beneficial owner
(as such term is defined in Rule 13d-3 promulgated under the Exchange Act),
directly or indirectly, of 20 percent or more of the combined voting power
of the then-outstanding securities of the Bank or the Parent (as determined
under paragraph (d) of Rule 13d-3 promulgated under the Exchange Act, in
the case of rights to acquire common stock);
(d) the stockholders of the Bank or the Parent shall approve:
(i) any merger, consolidation, or reorganization of the Bank or
the Parent:
(A) in which the Bank or the Parent is not the continuing or
surviving corporation,
(B) pursuant to which shares of common stock of the Bank or
the Parent would be converted into cash, securities or other
property,
(C) with a corporation which prior to such merger,
consolidation, or reorganization owned 20 percent or more of the
combined voting power of the then-outstanding securities of the
Bank or the Parent, or
(D) in which the Bank or the Parent will not survive as an
independent corporation;
(ii) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all the assets of the Bank or the Parent, or
(iii) any liquidation or dissolution of the Bank or the Parent;
(e) the stockholders of the Bank or the Parent shall approve a merger,
consolidation, reorganization, recapitalization, exchange offer, purchase
of assets or other transaction after the consummation of which any person,
entity or group (as defined in accordance with Section 13(d) or 14(d) of
the Exchange Act) would own beneficially in
-8-
<PAGE>
excess of 50% of the outstanding shares of common stock of the Bank or the
Parent or in excess of 50% of the combined voting power of the then-
outstanding securities of the Bank or the Parent; or
(f) during a period of two consecutive years, the individuals who at
the beginning of such period constituted the Board of Directors of Bank or
the Parent cease for any reason to constitute a majority of such Board,
unless the election or nomination for election by the Bank or the Parent's
stockholders of each new director during any such two-year period was
approved by the vote by two-thirds of the directors then still in office
who were directors at the beginning of such two-year period.
8. Parachute Payments.
8.1 General. For the purposes of the determinations to be made
pursuant to Paragraph 8.2 below, capitalized terms that are not defined in this
Agreement shall have the meanings set forth in Section 280G of the Internal
Revenue Code of 1986, as amended ("Code"). A "Change in Control" of the Bank or
the Parent shall have the meaning set forth in Section 7.6 above and shall refer
to an ownership change described in Section 280G(b)(2)(A)(i) of the Code with
respect to the Bank of the Parent. "Incentive Agreements" mean this Agreement
and all stock option agreements, incentive compensation unit agreements,
supplemental pension agreements or other arrangements or agreements, whether in
existence on the date hereof or hereafter entered into by the Employee and the
Bank or the Parent that entitled the Employee to receive payments or other
property from the Bank or the Parent.
8.2 Limitation. If the Aggregate Present Value of Parachute Payments
payable to or in respect of the Employee by reason of a Change in Control of the
Bank or the Parent under all Incentive Agreements then in effect is greater than
or equal to three times the Base Amount, then the Aggregate Present Value of
Parachute Payments made to the Employee shall be limited to an amount equal to
the greater of the portion of the Parachute Payments constituting Reasonable
Compensation or three times the Base Amount less one dollar. Any amount
required to be withheld from payments made to the Employee pursuant to this
Paragraph 8.2 shall be deducted from the Change in Control-Lump Sum Payment
referred to in Section 7.2 above.
9. Notices. Any notice under this Agreement must be in writing and may
be given by certified or registered mail, postage prepaid, addressed to the
party or parties to be notified with return receipt requested, or by delivering
the notice in person. For purposes of notice, the address of Employee or any
administrator, executor or legal representative of Employee or his estate, as
the case may be, shall be the last address of the Employee on the records of the
Bank. The address of the Bank shall be its principal business address.
-9-
<PAGE>
10. Controlling Law. This Agreement shall be governed by the laws of the
State of Texas.
11. Entire Agreement. This Agreement contains the entire agreement of the
parties and may only be amended in writing signed by both parties; provided,
that no amendment to this Agreement shall be effective unless authorized by
resolution of the Board of Directors and signed on behalf of the Bank by a duly
authorized officer of the Bank other than Employee.
12. Remedies, Modification and Separability. Employee and the Bank agree
that Employee's breach of Sections 4 and 5 of this Agreement will result in
irreparable harm to the Bank, that no adequate remedy at law is available, and
that the Bank shall be entitled to injunctive relief; however, nothing herein
shall prevent the Bank from pursuing any other remedies at law or at equity
available to the Bank. Should a court of competent jurisdiction declare any of
the covenants set forth in Sections 4 or 5 unenforceable, the court shall be
empowered to modify or reform such covenants so as to provide relief reasonably
necessary to protect the interests of the Bank and Employee and to award
injunctive relief, or damages, or both, to which the Bank may be entitled. If
any provision of this Agreement is declared by a court of last resort to be
invalid, the Bank and Employee agree that such declaration shall not affect the
validity of the other provisions of this Agreement. If any provision of this
Agreement is capable to two constructions, one of which would render the
provision void and the other of which would render the provision valid, then the
provision shall have the construction which renders it valid.
13. Preservation of Business; Fiduciary Responsibility. Employee shall
use his best efforts to preserve the business and organization of the Bank, to
keep available to the Bank the services of its present employees and to preserve
the business relations of the Bank with suppliers, distributors, customers and
others. Employee shall not commit any act which would injure the Bank.
Employee shall observe and fulfill proper standards of fiduciary responsibility
attendant upon his Office.
14. Assignments. This Agreement is personal to Employee and without the
prior written consent of the Bank shall not be assignable by Employee other than
by will or the laws of descent and distribution. This Agreement shall inure to
the benefit of and be enforceable by Employee's legal representatives and heirs.
This Agreement shall inure to the benefit of and be binding upon the Bank and
its successors and assigns. The Bank shall require any corporation, entity,
individual or other person who is the successor (whether direct or indirect, by
purchase, merger, consolidation, reorganization, or otherwise) to all or
substantially all of the business or assets of the Bank to expressly assume and
agree to perform, by a written agreement in form and substance satisfactory to
Employee, all of the obligations of the Bank under this Agreement. As used in
this Agreement, the term "Bank" shall mean the Bank as hereinbefore defined and
any successor to its business
-10-
<PAGE>
and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, written agreement, or otherwise.
15. Waiver of Breach. The waiver by the Bank of a breach of any provision
of this Agreement by Employee shall not operate or be construed as a waiver by
the Bank of any subsequent breach of Employee.
16. Revocation of Previous Employment Agreements. Any and all previous
employment agreements existing between the Bank and Employee are revoked and
canceled.
17. Headings. The section headings in this Agreement are for convenience
of reference and shall not be used in the interpretation or construction of this
Agreement.
18. Attorney's Fees. In the event Bank or Employee breaches any term or
provision of this Agreement and the other party employs an attorney or attorneys
to enforce the terms of this Agreement, then the breaching or defaulting party
agrees to pay the other party the reasonable attorney's fees and costs incurred
to enforce this Agreement.
19. Execution. This Agreement may be executed in multiple counterparts
each of which shall be deemed an original and all of which shall constitute one
instrument.
Employee acknowledges that he has read this Agreement and understands that
signing this Agreement is a condition of employment.
IN WITNESS WHEREOF, this Agreement is executed as of the ____ day of
______________, 1998.
"EMPLOYEE" "BANK"
Guaranty Bank
By:
- ------------------------- --------------------------------
Arthur B. Scharlach, Jr. Name:
------------------------------
Title:
-----------------------------
-11-
<PAGE>
Exhibit "A"
Employment Agreement By and Between
Guaranty Bank and Arthur B. Scharlach, Jr.
Calendar Year Annual Salary Bank Initials Employee Initials
- ------------- ------------- ------------- -----------------
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
-12-
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF GUARANTY BANCSHARES, INC.
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
Guaranty Financial Corp. Delaware
Guaranty Bank Texas
Guaranty Company, Inc. (inactive) Texas
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 28, 1998 (except for Note Q, as to
which the date is March 24, 1998), accompanying the financial statements of
Guaranty Bancshares, Inc. and Subsidiaries contained in the Registration
Statement and Prospectus. We consent to the use of the aforementioned report in
the Registration Statement and Prospectus, and to the use of our name as it
appears under the caption "Experts".
ARNOLD, WALKER, ARNOLD & CO., P.C.
Mount Pleasant, Texas
March 31, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 9,750
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 7,720
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 42,906
<INVESTMENTS-CARRYING> 15,233
<INVESTMENTS-MARKET> 15,481
<LOANS> 156,266
<ALLOWANCE> 1,129
<TOTAL-ASSETS> 244,157
<DEPOSITS> 222,961
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,943
<LONG-TERM> 0
0
827
<COMMON> 2,548
<OTHER-SE> 14,878
<TOTAL-LIABILITIES-AND-EQUITY> 244,157
<INTEREST-LOAN> 13,051
<INTEREST-INVEST> 3,247
<INTEREST-OTHER> 711
<INTEREST-TOTAL> 17,009
<INTEREST-DEPOSIT> 8,179
<INTEREST-EXPENSE> 8,192
<INTEREST-INCOME-NET> 8,817
<LOAN-LOSSES> 355
<SECURITIES-GAINS> 19
<EXPENSE-OTHER> 7,446
<INCOME-PRETAX> 2,673
<INCOME-PRE-EXTRAORDINARY> 2,400
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,400
<EPS-PRIMARY> .91
<EPS-DILUTED> .91
<YIELD-ACTUAL> 8.17
<LOANS-NON> 298
<LOANS-PAST> 918
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,055
<CHARGE-OFFS> 385
<RECOVERIES> 104
<ALLOWANCE-CLOSE> 1,129
<ALLOWANCE-DOMESTIC> 911
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 218
</TABLE>
