S-4 1 fgbi-s4_032323.htm REGISTRATION OF SECURITIES ISSUED IN BUSINESS COMBINATION TRANSACTIONS

 

As filed with the Securities and Exchange Commission on March 23, 2023

Registration No. 333-

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-4

REGISTRATION STATEMENT

 

UNDER THE SECURITIES ACT OF 1933

 

FIRST GUARANTY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

 

Louisiana 6022 26-0513559
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
     
  400 East Hammond Street  
  Hammond, Louisiana 70401  
  (985) 345-7685  

 

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Alton B. Lewis, Jr.

President and Chief Executive Officer

First Guaranty Bancshares, Inc.

400 East Hammond Street

Hammond, Louisiana 70401

(985) 345-7685

 

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

Copies to:

 

Mark A. Fullmer Gary A. Cotogno Josh T. McNulty
Evan C. Bell Patrick Baker Hunton Andrews Kurth LLP
Phelps Dunbar, LLP Pickering & Cotogno LLC 1445 Ross Avenue, Suite 3700
365 Canal Street, Suite 2000 1555 Poydras, Suite 430 Dallas, Texas 75202
New Orleans, Louisiana 70130 New Orleans, Louisiana 70112 (214) 979-8223
(504) 566-1311 (504) 581-1222  

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effective date of this registration statement and the satisfaction or waiver of all other conditions to the proposed merger described in the enclosed proxy statement/prospectus.

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, 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, check the following box and list the Securities Act registration 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(d) 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. ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐  Accelerated filer
Non-accelerated filer ☐  Smaller reporting company
    Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

 

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

 

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) ☐

Exchange Act Rule 143-1(d) (Cross-Border Third-Party Tender Offer) ☐

 

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 or until this registration statement on Form S-4 shall become effective on such date as the Securities and Exchange Commission acting pursuant to said Section 8(a), may determine.

 

 

 

 

Information in this proxy statement/prospectus is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This proxy statement/prospectus shall not constitute an offer to sell or the solicitation of any offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

 

PRELIMINARY—SUBJECT TO COMPLETION—DATED MARCH 23, 2023

 

PROXY STATEMENT/PROSPECTUS

 

   

 

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

 

To the Shareholders of Lone Star Bank:

 

On January 6, 2023, First Guaranty Bancshares, Inc. (or “First Guaranty”), First Guaranty Bank, First Guaranty’s wholly-owned banking subsidiary and a Louisiana state bank (or “First Guaranty Bank”), and Lone Star Bank (or “Lone Star”) entered into an Agreement and Plan of Merger (or the “merger agreement”), pursuant to which Lone Star will merge with and into First Guaranty Bank, with First Guaranty Bank surviving the merger (or the “merger”).

 

Pursuant to the merger agreement, each share of Lone Star common stock issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive a number of shares of First Guaranty common stock equal to the Exchange Ratio (as defined in the enclosed proxy statement/prospectus and in the merger agreement), plus cash in lieu of any fractional shares. Additionally, each Lone Star stock option to purchase shares of Lone Star common stock (or a “Lone Star option”) that is outstanding after the deadline to exercise the Lone Star options to be set by the Lone Star board of directors (or the “Lone Star Option Exercise Deadline”) will be cashed out prior to the effective time of the merger.

 

Under the terms of the merger agreement, First Guaranty will issue shares of First Guaranty common stock with an assumed value of $23.67 per share on the closing date of the merger to the shareholders of Lone Star. First Guaranty will issue a number of shares with an aggregate value equal to 1.5 times Lone Star’s tangible shareholders’ equity as of the month end prior to the closing date (or the “calculation date”), subject to certain adjustments set forth in the merger agreement; provided, that any increase in Lone Star’s tangible shareholders’ equity resulting from the exercise of Lone Star options after the signing of the merger agreement and prior to the Lone Star Option Exercise Deadline will be valued at the exercise price of such Lone Star options (collectively, the “Lone Star Aggregate Option Exercise Price”).

 

For illustration purposes only, assuming the merger had closed on January 6, 2023, the last trading date prior to the announcement of the merger, (i) the calculation date would be December 31, 2022, and (ii) based upon 3,325,420 shares of Lone Star common stock outstanding immediately prior to the effective time of the merger on January 6, 2023, each share of Lone Star common stock would be converted into the right to receive 0.3184 shares of First Guaranty common stock, equating to a value of $7.67 per share of Lone Star common stock, or total merger consideration of $25.50 million, based on First Guaranty’s closing stock price of $24.08 on January 6, 2023, the last trading date prior to the announcement of the merger. Additionally, based upon 438,832 Lone Star options outstanding on January 6, 2023, with a weighted average strike price of $2.85, the Lone Star options would be cashed out in exchange for aggregate net proceeds of approximately $2.12 million payable to the Lone Star option holders.

 

For illustration purposes only, assuming the merger had closed on [ ], 2023, the last practicable trading date prior to the mailing of the enclosed proxy statement/prospectus, (i) the calculation date would be [ ], 2023, and (ii) based upon [ ] shares of Lone Star common stock outstanding on [ ], 2023, the last practicable trading date prior to the mailing of this proxy statement/prospectus, each share of Lone Star common stock would be converted into the right to receive [ ] shares of First Guaranty common stock, equating to a value of $[ ] per share of Lone Star common stock, or total merger consideration of $[ ] million, based on First Guaranty’s closing stock price of $[ ] on [ ], 2023, the last practicable trading date prior to the mailing of the enclosed proxy statement/prospectus. Additionally, based upon [ ] Lone Star options outstanding on [ ], 2023, the last practicable trading date prior to the mailing of the enclosed proxy statement/prospectus, with a weighted average strike price of $[ ], the Lone Star options would be cashed out in exchange for aggregate net proceeds of approximately $[ ] million payable to the Lone Star option holders.

 

Assuming the merger had closed on [  ], 2023, the last practicable trading date prior to the mailing of the enclosed proxy statement/prospectus, former Lone Star shareholders would own approximately [ ]% of First Guaranty. While the assumed value of $23.67 per share of First Guaranty common stock is known, Lone Star’s tangible shareholders’ equity, the Lone Star Aggregate Option Exercise Price and Lone Star’s transaction expenses are unknown and will not be known until the calculation date. Accordingly, the value and amount of the actual consideration you will receive upon completion of the merger may be different from the amount and value described above. Additionally, it is impossible to predict what the actual trading price of First Guaranty common stock will be on the closing date.

 

 

 

 

We urge you to obtain current market quotations for the price of First Guaranty common stock. First Guaranty common stock is currently quoted on the Nasdaq Global Market under the symbol “FGBI.” There are no current market quotations for Lone Star common stock because Lone Star is a privately-owned corporation and its common stock is not traded on any established public trading market.

 

Each of First Guaranty and Lone Star expects that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, with the result that the Lone Star common stock exchanged by U.S. holders for First Guaranty common stock will generally be tax free for U.S. federal income tax purposes.

 

Lone Star will hold a special meeting of its shareholders (or the “Lone Star special meeting”) on [ ], 2023, at [ ], local time, at [ ], where Lone Star shareholders will be asked to vote on a proposal to approve the merger agreement and the transactions contemplated thereby, including the merger (or the “Lone Star merger proposal”), and related matters. The merger cannot be completed unless, among other things, holders of at least two-thirds of the outstanding shares of Lone Star common stock vote to approve the Lone Star merger proposal.

 

The Lone Star board of directors has unanimously (1) determined that the merger agreement and the transactions contemplated thereby, including the merger, are in the best interests of Lone Star and its shareholders and declared that the merger agreement is advisable and (2) approved the execution, delivery and performance of the merger agreement and the consummation of the transactions contemplated thereby. The Lone Star board of directors unanimously recommends that Lone Star shareholders vote “FOR” the Lone Star merger proposal and “FOR” the other matters to be considered at the Lone Star special meeting.

 

YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES OF LONE STAR COMMON STOCK YOU OWN. To vote your shares of Lone Star common stock at the Lone Star special meeting please follow the voting instructions in the enclosed proxy statement/prospectus and on your proxy card. Please vote promptly whether or not you expect to attend the Lone Star special meeting. Submitting a proxy now will NOT prevent you from being able to vote in person at the Lone Star special meeting. If you hold your shares in “street name,” you should instruct your broker, bank or other nominee how to vote in accordance with the voting instruction form you receive from your broker, bank or other nominee. Please note that if you do not vote, it will have the same effect as voting “AGAINST” the merger proposal.

 

The enclosed proxy statement/prospectus provides you with detailed information about the merger and includes a copy of the merger agreement. It also contains or references information about First Guaranty, First Guaranty Bank and Lone Star and certain related matters. You are encouraged to read the enclosed proxy statement/prospectus carefully. In particular, you should read the “Risk Factors” section beginning on page 17 for a discussion of the risks you should consider in evaluating the proposed merger and how it will affect you. You can also obtain information about First Guaranty from documents that have been filed with the Securities and Exchange Commission that are incorporated by reference in the enclosed proxy statement/prospectus.

 

We look forward to a successful completion of the merger and thank you for your prompt attention to this important matter.

 

Sincerely,

 

/s/ Alton B. Lewis, Jr. /s/ Dennis Harrington
   
Alton B. Lewis, Jr. Dennis Harrington
Vice Chairman, President and Chief Executive Officer President and Chief Executive Officer
First Guaranty Bancshares, Inc. Lone Star Bank

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued in the merger or passed upon the adequacy or accuracy of this document. Any representation to the contrary is a criminal offense.

 

The securities to be issued in the merger are not savings or deposit accounts or other obligations of any bank and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

 

The date of this document is [  ], 2023, and it is first being mailed or otherwise delivered to Lone Star shareholders on or about [ ], 2023.

 

 

 

 

 

 

LONE STAR BANK

2600 South Gessner Road, Suite 100

Houston, Texas 77063

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON [ ], 2023

 

To the Shareholders of Lone Star Bank:

 

NOTICE IS HEREBY GIVEN that Lone Star Bank (or “Lone Star”) will hold a special meeting of its shareholders (or the “Lone Star special meeting”) on [ ], 2023, at [ ], at [ ], local time, to consider and vote upon the following matters:

 

To consider and vote upon a proposal to approve the Agreement and Plan of Merger (or the “merger agreement”), dated January 6, 2023, by and among First Guaranty Bancshares, Inc. (or “First Guaranty”), First Guaranty Bank, a Louisiana state bank and First Guaranty’s wholly-owned banking subsidiary (or “First Guaranty Bank”), and Lone Star, pursuant to which Lone Star will merge with and into First Guaranty Bank, with First Guaranty Bank surviving the merger (or the “merger”), and the transactions contemplated by the merger agreement, including the merger, each as more fully described in the enclosed proxy statement/prospectus (or the “Lone Star merger proposal”); and
To consider and vote upon a proposal to adjourn the Lone Star special meeting, if necessary or appropriate, to solicit additional proxies in favor of the Lone Star merger proposal (or the “Lone Star adjournment proposal”).

 

The affirmative vote of at least two-thirds of the outstanding shares of Lone Star common stock entitled to vote thereon is required to approve the Lone Star merger proposal. Assuming a quorum is present, approval of the Lone Star adjournment proposal requires the affirmative vote of a majority of the outstanding shares of Lone Star common stock entitled to vote thereon and present in person or by proxy at the Lone Star special meeting. Lone Star will transact no other business at the special meeting, except for business properly brought before the special meeting or any adjournment or postponement thereof.

 

Lone Star shareholders must approve the Lone Star merger proposal in order for the merger to occur. If Lone Star shareholders fail to approve the Lone Star merger proposal, the merger will not occur. The proxy statement/prospectus accompanying this notice explains the merger agreement and the transactions contemplated thereby, as well as the proposals to be considered at the Lone Star special meeting. Please review the proxy statement/prospectus carefully.

 

Lone Star shareholders are entitled to dissenters’ rights under the Texas Finance Code (or the “TFC”) and the Texas Business Organizations Code (or the “TBOC”) in connection with the proposed merger. If the proposed merger is completed, Lone Star shareholders perfecting their dissenters’ rights are entitled, if they have complied with the provisions of the TBOC regarding rights of dissent and appraisal, to be paid the “fair value” of their shares in cash, as provided in the relevant sections of the TBOC. A copy of the procedural requirements for shareholders exercising dissenters’ rights is included with the enclosed proxy statement/prospectus as Annex F, and a summary of the provisions can be found under the section of the proxy statement/prospectus entitled “The Merger – Dissenters’ Rights.”

 

The Lone Star board of directors has fixed the close of business on [ ], 2023, as the record date for the Lone Star special meeting. Only Lone Star shareholders of record as of the record date are entitled to notice of, and to vote at, the Lone Star special meeting, or any adjournment or postponement of the Lone Star special meeting. Any shareholder entitled to attend and vote at the Lone Star special meeting is entitled to appoint a proxy to attend and vote on such shareholder’s behalf.

 

YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES OF LONE STAR COMMON STOCK YOU OWN. Whether or not you plan to attend the Lone Star special meeting, please complete, sign, date and return the enclosed proxy card in the postage-paid envelope provided at your earliest convenience. If you hold your shares in “street name” through a broker, bank or other nominee, you should direct the vote of your shares in accordance with the voting instruction form received from your broker, bank or other nominee.

 

 

 

 

The Lone Star board of directors has unanimously approved the merger agreement and the transactions contemplated thereby, including the merger, and unanimously recommends that Lone Star shareholders vote “FOR” the Lone Star merger proposal and “FOR” the Lone Star adjournment proposal (if necessary or appropriate).

 

The enclosed proxy statement/prospectus provides you with detailed information about the merger agreement and the merger. It also contains or references information about First Guaranty, First Guaranty Bank and Lone Star and certain related matters. You are encouraged to read the enclosed proxy statement/prospectus carefully. In particular, you should read the “Risk Factors” section beginning on page 17 for a discussion of the risks you should consider in evaluating the proposed merger and how it will affect you. You can also obtain information about First Guaranty from documents that have been filed with the Securities and Exchange Commission (or “SEC”) that are incorporated by reference in the enclosed proxy statement/prospectus.

 

BY ORDER OF THE BOARD OF DIRECTORS,
   
/s/ Dennis Harrington
   
Dennis Harrington
President and Chief Executive Officer

 

 

 

 

ADDITIONAL INFORMATION

 

This proxy statement/prospectus incorporates important business and financial information about First Guaranty from documents filed with the SEC that are not included in or delivered with this proxy statement/prospectus. You can obtain any of the documents filed with or furnished to the SEC by First Guaranty at no cost from the SEC’s website at http://www.sec.gov. First Guaranty has filed a registration statement on Form S-4 of which this proxy statement/prospectus forms a part. As permitted by SEC rules, this proxy statement/prospectus does not contain all of the information included in the registration statement or in the exhibits or schedules to the registration statement. You may obtain a free copy of the registration statement, including any amendments, schedules and exhibits at the address set forth below. Statements contained in this proxy statement/prospectus as to the contents of any contract or other documents referred to in this proxy statement/prospectus are not necessarily complete. In each case, you should refer to the copy of the applicable contract or other document filed as an exhibit to the registration statement. You may also request copies of these documents, including documents incorporated by reference in this proxy statement/prospectus, at no cost by contacting First Guaranty at the contact information set forth below:

 

First Guaranty Bancshares, Inc.

400 East Thomas Street

Hammond, Louisiana 70401

Attention: Eric J. Dosch

Telephone: (985) 375-0343

E-mail: investorrelations@fgb.net

 

You will not be charged for any of these documents that you request. To obtain timely delivery of these documents, you must request them no later than five business days before the date of the Lone Star special meeting, or [  ], 2023.

 

If you have any questions about the merger agreement, the merger, the Lone Star special meeting or the proxy statement/prospectus, please contact Dennis Harrington, the President and Chief Executive Officer of Lone Star, at Lone Star’s principal office, located at 2600 South Gessner Road, Suite 100, Houston, Texas 77063. If you would like additional copies of the proxy statement/prospectus, need a proxy card or need help voting your shares of Lone Star common stock, please contact Brent McRoberts, the Executive Vice President–Controller/Cashier of Lone Star, at Lone Star’s principal office, located at 2600 South Gessner Road, Suite 100, Houston, Texas 77063.

 

You should rely only on the information contained in, or incorporated by reference into, this proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement/prospectus. This proxy statement/prospectus is dated [ ], 2023, and you should assume that the information in this proxy statement/prospectus is accurate only as of such date. You should assume that the information incorporated by reference into this proxy statement/prospectus from another document is accurate as of the date of such other document or the date referenced in such other document with respect to particular information contained therein. Neither the mailing of this document to the shareholders of Lone Star nor the issuance by First Guaranty of shares of First Guaranty common stock in connection with the merger will create any implication to the contrary.

 

This document does not constitute an offer to sell, or a solicitation of an offer to buy any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Except where the context otherwise indicates, information contained in this document regarding Lone Star has been provided by Lone Star and information contained in, or incorporated by reference into, this document regarding First Guaranty has been provided by First Guaranty. SeeWhere You Can Find More Informationbeginning on page 85 for more details.

 

 

 

 

Table Of Contents
   
Questions And Answers 1
Summary 8
The Companies 8
The Merger 8
Merger Consideration 8
Treatment of Lone Star Options 9
Conversion of Shares; Exchange of Certificates 9
Recommendation of the Lone Star Board of Directors 9
Opinion of Lone Star’s Financial Advisor 10
Lone Star Special Meeting of Shareholders 10
Interests of Lone Star’s Directors and Executive Officers in the Merger 10
Board Composition and Management of First Guaranty After the Merger 11
Regulatory Approvals Required for the Merger 11
Conditions to Complete the Merger 11
Agreement Not to Solicit Other Offers 12
Termination of the Merger Agreement 12
Termination Fee 13
Expenses and Fees 13
Amendment, Waiver and Extension of the Merger Agreement 13
Comparison of Shareholders’ Rights 13
Risk Factors 13
Ancillary Agreements to the Merger Agreement 13
Dissenters’ Rights 14
Accounting Treatment 14
Material U.S. Federal Income Tax Consequences of the Merger 14
Market Prices and Share Information 14
Special Cautionary Note Regarding Forward-Looking Statements 15
Risk Factors 17
Risks Related to the Merger 17
Risks Related to the Combined Company After the Merger 21
Lone Star Special Meeting of Shareholders 23
Date, Time And Place of Lone Star Special Meeting 23
Matters to be Considered 23
Recommendation of the Lone Star Board of Directors 23
Record Date and Quorum 23
Required Vote; Treatment of Abstentions ; Failure to Vote or to Instruct Your Broker How to Vote 23
Voting and Revocation of Proxies 23
Shares Held in “Street Name”; Failure to Instruct Your Broker How to Vote 24
Shares Subject to Voting Agreement; Shares Held by Directors and Executive Officers 24
Solicitation of Proxies; Expenses 24
Dissenters’ Rights 24

i

 

 

Attending the Lone Star Special Meeting 25
Lone Star Merger Proposal 25
Lone Star Adjournment Proposal 25
Assistance 25
The Merger 26
Terms of the Merger  
Background of the Merger 26
Recommendation of the Lone Star Board of Directors and Its Reasons for the Merger 29
Opinion of Lone Star’s Financial Advisor 30
First Guaranty’s Reasons for the Merger 39
Board Composition and Management of First Guaranty After the Merger 41
Interests of Lone Star’s Directors and Executive Officers in the Merger 41
Trading Markets and Dividends 42
First Guaranty’s Dividend Policy 43
Restrictions on Resale of First Guaranty Common Stock 44
Dissenters’ Rights 44
Regulatory Approvals Required for the Merger 47
The Merger Agreement 49
Structure of the Merger 49
Merger Consideration 49
Anti-Dilutive Adjustments 49
Fractional Shares 50
Treatment of Lone Star Options 50
Closing and Effective Time 50
Organizational Documents of the Surviving Bank 50
Conversion of Shares; Exchange of Certificates 50
Letter of Transmittal 50
Withholding 51
Dividends and Distributions 51
Representations and Warranties 51
Definition of  “Material Adverse Change” 52
Covenants and Agreements 53
Conditions to Complete The Merger 58
Termination of the Merger Agreement 59
Effect of Termination 60
Termination Fee 60
Expenses and Fees 60
Amendment, Waiver and Extension of the Merger Agreement 61
ANCILLARY AGREEMENTS TO THE MERGER AGREEMENT 62
Voting Agreement 62
Director Support Agreements 63
Releases 63
The Companies 65
First Guaranty 65

ii

 

 

Lone Star 65
Security Ownership Of Certain Lone Star Beneficial Owners And Management 68
Description Of Capital Stock Of First Guaranty 70
Overview 70
Description of Common Stock 70
Certain Articles of Incorporation and Bylaw Provisions Potentially Having an Anti-Takeover Effect 71
Comparison Of Shareholders’ Rights 73
Accounting Treatment 79
Material U.S. Federal Income Tax Consequences Of The Merger 80
Tax Consequences of The Merger Generally 81
Tax Consequences to First Guaranty and Lone Star 81
Tax Consequences to U.S. Holders That Exchange Lone Star Common Stock for First Guaranty Common Stock 81
Cash Instead of Fractional Shares 82
Shareholders Exercising Dissenters’ Rights 82
Receipt of Cash in Cancellation of Stock Options 82
Potential Dividend Treatment 82
Net Investment Income Tax 82
Backup Withholding 82
Certain Reporting Requirements 83
Legal Matters 84
Experts 84
Where You Can Find More Information 85

 

ANNEX A – AGREEMENT AND PLAN OF MERGER, DATED AS OF JANUARY 6, 2023 A-1
   
ANNEX B – FORM OF VOTING AGREEMENT B-1
   
ANNEX C – FORM OF DIRECTOR SUPPORT AGREEMENT C-1
   
ANNEX D – FORM OF RELEASE D-1
   
ANNEX E – OPINION OF PERFORMANCE TRUST CAPITAL PARTNERS, LLC E-1
   
ANNEX F – CHAPTER 10, SUBCHAPTER H OF THE TEXAS BUSINESS ORGANIZATIONS CODE F-1

 

iii

 

 

QUESTIONS AND ANSWERS

 

The following are answers to certain questions you may have regarding the merger and the Lone Star special meeting of shareholders. We urge you to read carefully the remainder of this proxy statement/prospectus, including the annexes and the documents incorporated by reference into this proxy statement/prospectus, because the information in this section may not provide all the information that might be important to you in determining how to vote.

 

Unless the context otherwise requires, references in this proxy statement/prospectus toFirst Guarantyrefer to First Guaranty Bancshares, Inc., a Louisiana corporation, and its subsidiaries, including First Guaranty Bank, a Louisiana state bank and the wholly-owned subsidiary of First Guaranty Bancshares, Inc. Additionally, unless the context otherwise requires, references toLone Starrefer to Lone Star Bank, a Texas banking association; and references towe,” “ourorusrefer to First Guaranty and Lone Star.

 

Q:What is the merger?

 

A:First Guaranty, First Guaranty Bank and Lone Star entered into the Agreement and Plan of Merger on January 6, 2023 (or the “merger agreement”), pursuant to which Lone Star will merge with and into First Guaranty Bank, with First Guaranty Bank continuing as the surviving bank (or the “merger”).

 

Lone Star will hold a special meeting of its shareholders (or the “Lone Star special meeting”) to obtain the required shareholder approvals in connection with the merger, and you are being provided with this proxy statement/prospectus in connection with the Lone Star special meeting. A copy of the merger agreement is attached to this proxy statement/prospectus as Annex A. We urge you to read carefully this proxy statement/prospectus and the merger agreement in their entirety.

 

Q:Why am I receiving this proxy statement/prospectus?

 

A:We are delivering this document to you because it is a proxy statement being used by the Lone Star board of directors to solicit proxies of Lone Star shareholders in connection with approval and adoption of the merger agreement and related matters. In order to complete the merger, among other things, Lone Star shareholders must approve the merger agreement and the transactions contemplated thereby, including the merger.

 

In order to approve and adopt the merger agreement and related matters, Lone Star has called a special meeting of its shareholders. This document serves as the proxy statement for the Lone Star special meeting and describes the proposals to be presented at the Lone Star special meeting.

 

This document is also a prospectus that is being delivered to Lone Star shareholders because First Guaranty is offering shares of its common stock to Lone Star shareholders in connection with the merger.

 

This proxy statement/prospectus contains important information about the merger and the other proposals being voted on at the Lone Star special meeting. You should read it carefully and in its entirety. The enclosed materials allow you to have your shares voted by proxy without attending your meeting. Your vote is important. We encourage you to submit your proxy as soon as possible.

 

Q:What will Lone Star shareholders receive in the merger?

 

A:If the merger is completed, each share of Lone Star common stock (other than shares of Lone Star common stock held by Lone Star, First Guaranty and any Lone Star dissenting shareholders or as treasury shares) issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive a number of shares of First Guaranty common stock equal to the quotient, rounded to the nearest one ten thousandth (or the “Exchange Ratio”), obtained by dividing (A) the quotient, rounded to the nearest one-tenth of a cent (or the “Lone Star Per-Share Amount”), obtained by dividing (i) an amount equal to 1.5 times Lone Star’s tangible shareholders’ equity as of the month end prior to the closing date (or the “calculation date”), without considering the Lone Star Aggregate Option Exercise Price (as defined in this proxy statement/prospectus and the merger agreement), subject to certain adjustments set forth in the merger agreement, plus an amount equal to 1.0 times the Lone Star Aggregate Option Exercise Price (collectively, the “merger consideration”) by (ii) the number of shares of Lone Star common stock issued and outstanding immediately prior to the effective time of the merger by (B) $23.67 (the assumed value per share of First Guaranty common stock on the closing date), plus cash in lieu of any fractional shares of First Guaranty common stock.

 

 

 

 

Q:What happens to outstanding Lone Star equity awards in the merger?

 

A:Each Lone Star stock option to purchase shares of Lone Star common stock issued pursuant to any Lone Star stock plan and each underlying award agreement (or a “Lone Star option”) that is outstanding after the deadline to exercise the Lone Star options to be set by the Lone Star board of directors (or the “Lone Star Option Exercise Deadline”) will be cashed out prior to the effective time of the merger.

 

Q:Will the value of the merger consideration change between the date of this proxy statement/prospectus and the time the merger is completed?

 

A:Yes, the value of the merger consideration will fluctuate between the date of this proxy statement/prospectus and the completion of the merger based on the value of Lone Star’s tangible shareholders’ equity, net of adjustments for transaction expenses and other items. You should read carefully the risk factor entitled “Because the value of Lone Star’s tangible shareholders’ equity (as adjusted pursuant to the terms of the merger agreement) will fluctuate, Lone Star shareholders cannot be sure of the value of the merger consideration they will receive.”

 

Q:What will happen to shares of First Guaranty common stock in the merger?

 

A:Nothing. Each share of First Guaranty common stock outstanding will remain outstanding as a share of First Guaranty common stock following the effective time of the merger.

 

Q:What are Lone Star shareholders being asked to vote on and why is this approval necessary?

 

A:Lone Star shareholders are being asked to vote on the following proposals at the Lone Star special meeting: (1) the approval of the merger agreement and the transactions contemplated thereby, including the merger (or the “Lone Star merger proposal”); and (2) the approval of the adjournment of the Lone Star special meeting, if necessary or appropriate, to permit further solicitation of proxies in favor of the Lone Star merger proposal (or the “Lone Star adjournment proposal”).

 

Shareholder approval of the Lone Star merger proposal is required for completion of the merger. Lone Star will transact no other business, except for business properly brought before the Lone Star special meeting or any adjournment or postponement thereof.

 

Each director of Lone Star who owns shares of Lone Star common stock (which collectively constitute approximately [ ]% of the outstanding Lone Star shares) has entered into a voting agreement with First Guaranty and Lone Star agreeing to, among other things, vote their shares of Lone Star common stock in favor of the merger agreement and the transactions contemplated thereby and against any acquisition proposals (as defined in the merger agreement) or any actions that would result in a breach of any covenant, representation or warranty of Lone Star in the merger agreement.

 

Q:When and where is the Lone Star special meeting?

 

A:The Lone Star special meeting will be held on [ ], 2023, at [ ], local time, at [ ].

 

Q:Who is entitled to vote at the Lone Star special meeting?

 

A:All holders of Lone Star common stock who held shares at the close of business on [ ], 2023 (or the “record date”) are entitled to receive notice of and to vote at the Lone Star special meeting, provided that such shares of Lone Star common stock remain outstanding on the date of the Lone Star special meeting.

 

Q:What constitutes a quorum at the Lone Star special meeting?

 

A:The presence, in person or represented by proxy, of at least a majority of the total number of outstanding shares of Lone Star common stock entitled to vote is necessary in order to constitute a quorum for purposes of the matters being voted on at the Lone Star special meeting.

 

Abstentions and shares held of record by a broker, bank or other nominee that are voted are included in determining whether a quorum exists.

 

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Q:What vote is required to approve each proposal at the Lone Star special meeting?

 

A:

Lone Star merger proposal: Approval of the Lone Star merger proposal requires the affirmative vote of at least two-thirds of the outstanding shares of Lone Star common stock.

 

If you fail to vote in person or by proxy or fail to instruct your bank, broker or other nominee to vote, or if you mark “ABSTAIN” on your proxy, with respect to the Lone Star merger proposal, it will have the same effect as a vote “AGAINST” the Lone Star merger proposal. Lone Star shareholders must approve the Lone Star merger proposal in order for the merger to occur. If Lone Star shareholders fail to approve the merger proposal, the merger will not occur.

 

Lone Star adjournment proposal: Approval of the Lone Star adjournment proposal requires the affirmative vote of a majority of the outstanding shares of Lone Star common stock entitled to vote on the Lone Star adjournment proposal and present in person or by proxy at the Lone Star special meeting.

 

If you fail to vote in person or by proxy or fail to instruct your bank, broker or other nominee to vote, you will not be deemed present and it will have no effect on the Lone Star adjournment  proposal. If you mark “ABSTAIN” on your proxy, with respect to the Lone Star adjournment proposal, you will be deemed present but will not be deemed to have cast a vote with respect to such proposal, and it will have the same effect as a vote “AGAINST” the Lone Star adjournment proposal. Lone Star shareholders are not required to approve the Lone Star adjournment proposal in order for the merger to occur. If Lone Star shareholders fail to approve the Lone Star adjournment proposal, but approve the Lone Star merger approval, the merger may nonetheless occur.

 

Q:What are the conditions to completion of the merger?

 

A: The obligations of Lone Star and First Guaranty to complete the merger are subject to the satisfaction or waiver of certain closing conditions contained in the merger agreement, including the receipt of required regulatory approvals, tax opinions, and the approval of the Lone Star merger proposal by Lone Star shareholders. For more information, see “The Merger AgreementConditions to Complete the Merger” beginning on page 58.

 

Q:When will the merger be completed?

 

A: We will complete the merger when all of the conditions to completion contained in the merger agreement are satisfied or waived, including the receipt of required regulatory approvals and approval of the merger proposal by Lone Star shareholders. While we expect the merger to be completed in the second or third quarter of 2023, because fulfillment of some of the conditions to completion of the merger are not entirely within our control, we cannot assure you of the actual timing.

 

Q:How does the Lone Star board of directors recommend that I vote?

 

A:The Lone Star board of directors unanimously approved the merger agreement and the transactions contemplated thereby, including the merger, and unanimously recommends that Lone Star shareholders vote “FOR” the Lone Star merger proposal and “FOR” the Lone Star adjournment proposal (if necessary or appropriate).

 

Q:What do I need to do now?

 

A:After you have carefully read this proxy statement/prospectus and have decided how you wish to vote your shares, please vote your shares promptly using the enclosed proxy card, so that your shares are represented and voted at the Lone Star special meeting. If you hold your shares in your name as a shareholder of record, in order to vote your shares you must complete, sign, date and mail your proxy card in the enclosed postage-paid return envelope, as soon as possible. If you hold your shares in “street name” through a bank or broker, you must direct your bank or broker how to vote in accordance with the instructions you have received from your bank or broker. “Street name” shareholders who wish to vote in person at the Lone Star special meeting will need to obtain a legal proxy from the institution that holds their shares.

 

Q:How many votes do I have?

 

A:Lone Star shareholders are entitled to one vote on each proposal to be considered at the Lone Star special meeting for each share of Lone Star common stock owned as of the record date.

  

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Q:How do I vote?

 

A:If you are a shareholder of record of Lone Star as of the record date, you may vote by proxy before the Lone Star special meeting by completing, signing, dating and returning the enclosed proxy card to Lone Star using the enclosed postage-paid envelope, or by delivering your proxy card in person to Brent McRoberts, the Executive Vice President–Controller/Cashier of Lone Star, at Lone Star’s principal office, located at 2600 South Gessner Road, Suite 100, Houston, Texas 77063. If you intend to submit your proxy by mail, your completed proxy card must be received prior to the Lone Star special meeting.

 

If you are a shareholder of record of Lone Star as of the record date, you may also cast your vote in person at the Lone Star special meeting. If you plan to attend the Lone Star special meeting, you must hold your shares in your own name or have a letter from the record holder of your shares confirming your ownership. In addition, you must bring a form of personal photo identification with you in order to be admitted to the meeting. Lone Star reserves the right to refuse admittance to anyone without proper proof of stock ownership or without proper photo identification. Whether or not you intend to be present in person at the Lone Star special meeting, you are urged to complete, sign, date and return the enclosed proxy card to Lone Star in the enclosed postage-paid envelope as soon as possible. If you are then present and wish to vote your shares in person, your original proxy may be revoked by attending and voting at the Lone Star special meeting.

 

If you hold your shares in “street name” through a broker, bank or other nominee, your broker, bank or other nominee will send you separate instructions describing the procedure for voting your shares. If your shares are held in “street name,” you must obtain a legal proxy, executed in your favor, from the record holder of your shares, such as a broker, bank or other nominee, to vote your shares in person at the Lone Star special meeting.

 

Q:What is the difference between a shareholder of record and a “street name” holder?

 

A:If you are a shareholder of Lone Star and if your shares of Lone Star common stock are registered directly in your name, you are considered the shareholder of record with respect to those shares of stock. If your shares of stock are held in a stock brokerage account or by a bank or other nominee, the nominee is considered the record holder of those shares. You are considered the beneficial owner of these shares, and your shares are held in “street name.” If your shares are held in street name, this proxy statement/prospectus and the proxy card, as applicable, have been forwarded to you by your nominee. As the beneficial owner, you have the right to direct your nominee concerning how to vote your shares by using the voting instructions your nominee included in the mailing or by following its instructions for voting.

 

Q:If my shares are held in “street name” by my bank or broker, will my bank or broker automatically vote my shares for me?

 

A:No. Your bank or broker cannot vote your shares without instructions from you. You should instruct your bank or broker how to vote your shares in accordance with the instructions provided to you. Please check the voting form used by your bank or broker. Please note that you may not vote shares held in street name by returning a proxy card directly to Lone Star or by voting in person at the Lone Star special meeting unless you provide a “legal proxy,” which you must obtain from your broker, bank or other nominee.

 

Brokers, as holders of record, are permitted to vote on certain routine matters, but not on non-routine matters. The Lone Star merger proposal and the Lone Star adjournment proposal are both non-routine matters, and a broker or nominee does not have discretionary voting power with respect to the proposals. As a result, if you hold your shares of Lone Star common stock in “street name,” your shares will not be represented and will not be voted on any matter unless you affirmatively instruct your bank, broker or other nominee how to vote your shares in one of the ways indicated by your bank, broker or other nominee. It is therefore critical that you cast your vote by instructing your bank, broker or other nominee on how to vote. If you fail to instruct your bank, broker, or nominee how to vote, it will have the same effect as a vote “AGAINST” the Lone Star merger proposal and your shares will not be treated as present for purposes of determining whether a quorum is present; however, it will have no effect on the Lone Star adjournment proposal.

 

Shares held of record by a broker or nominee that are voted are included in determining whether a quorum exists.

 

Q:How are abstentions treated?

 

A:Abstentions are included in determining whether a quorum exists. Abstentions will have the effect of a vote “AGAINST” both the Lone Star merger proposal and the Lone Star adjournment proposal.

  

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Q:What will happen if I return my proxy card without indicating how to vote?

 

A:If you sign and return your proxy card without indicating how to vote on any particular proposal, the shares of Lone Star common stock represented by your proxy will be voted as recommended by the Lone Star board of directors with respect to such proposals.

 

Q:Can I change my vote?

 

A:Yes. If you are the record holder of your Lone Star shares, you may revoke your proxy in any one of three ways: (1) you may submit another properly completed proxy card bearing a later date which is received prior to the Lone Star special meeting; (2) you may send a written notice which is received prior to the Lone Star special meeting that you are revoking your proxy to: Lone Star Bank, 2600 Gessner Road, Suite 100, Houston, Texas 77063, Attention: Brent McRoberts; or (3) you may attend the Lone Star special meeting and notify the election officials that you wish to revoke your proxy and vote in person. However, your attendance at the Lone Star special meeting will not, by itself, revoke your proxy.

 

If your shares are held by your broker, bank or other agent as your nominee, you should follow the instructions provided by your broker, bank or other agent.

 

Q:Will Lone Star be required to submit the Lone Star merger proposal to its shareholders even if Lone Star’s board of directors has withdrawn, modified or qualified its recommendation?

 

A:Yes. Unless the merger agreement is terminated before the Lone Star special meeting, Lone Star is required to submit the merger proposal to its shareholders even if Lone Star’s board of directors has withdrawn, modified or qualified its recommendation.

 

Q:Do Lone Star directors and executive officers have interests in the merger that are different from, or in addition to, the interests of Lone Star shareholders?

 

A: Yes. In considering the recommendation of the Lone Star board of directors with respect to the merger agreement, you should be aware that Lone Star’s directors and executive officers have interests in the merger that are different from, or in addition to, the interests of Lone Star shareholders generally. Interests of officers and directors that may be different from or in addition to the interests of Lone Star shareholders include, but are not limited to, cash out payments for outstanding Lone Star options (vested or unvested), payments under existing employment agreements and/or change in control agreements with Lone Star, a special bonus for the Chairman of Lone Star’s board of directors, and continued indemnification and directors’ and officers’ insurance coverage under the merger agreement. For further information, see “The MergerInterests of Lone Star’s Directors and Executive Officers in the Merger” beginning on page 41.

 

Q:Are Lone Star shareholders entitled to dissenters’ rights?

 

A: Yes. Under Texas law, record holders of shares of Lone Star common stock have the right to demand in writing to receive a payment in cash for the “fair value” of their shares as determined by an appraisal process. To exercise those dissenters’ rights, a Lone Star shareholder must follow exactly the procedures specified under Texas law. These procedures are summarized in this proxy statement/prospectus. In addition, the text of the applicable provisions of Texas law is included as Annex F to this document. The value determined in the appraisal process may be more or less than the value a Lone Star shareholder would receive in the merger under the terms of the merger agreement. Failure to strictly comply with the applicable Texas law provisions will result in the loss of dissenters’ rights. For further information, see “The MergerDissenters’ Rights” on page 44.

 

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Q:What are the U.S. federal income tax consequences of the merger to Lone Star shareholders?

 

A:The obligations of First Guaranty and Lone Star to complete the merger are subject to, among other customary closing conditions described in this proxy statement/prospectus, the merger qualifying as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (or the “Code”). Assuming that the merger qualifies as a reorganization under the Code, a U.S. holder of Lone Star common stock generally would not recognize gain or loss on the exchange of his, her or its shares of Lone Star common stock for shares of First Guaranty common stock pursuant to the merger. Lone Star shareholders generally would be subject to tax on any cash received in lieu of a fractional share of First Guaranty common stock.

 

For further information, see the section of this proxy statement/prospectus entitled “Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 80 for a general discussion of the material U.S. federal income tax consequences of the merger. The U.S. federal income tax consequences described above may not apply to all Lone Star shareholders. Tax matters can be complicated, and the tax consequences of the merger to you will depend on your particular tax situation. You should consult your tax advisor to determine the tax consequences of the merger to you.

 

Q:What happens if the merger is not completed?

 

A: If the merger is not completed, holders of Lone Star common stock will not receive any consideration for their shares in connection with the merger. Instead, Lone Star will remain an independent bank. In addition, if the merger agreement is terminated under certain circumstances, Lone Star may be required to pay a termination fee. See the section of this proxy statement/prospectus entitled “The Merger AgreementTermination Fee” beginning on page 60 for a discussion of the circumstances under which termination fees will be required to be paid.

 

Q:What happens if I sell my shares after the record date but before the Lone Star special meeting?

 

A:The record date is earlier than the date of the Lone Star special meeting and earlier than the date that the merger is expected to be completed. If you sell or otherwise transfer your shares of Lone Star common stock after the record date but before the date of the Lone Star special meeting, you will retain your right to vote at the Lone Star special meeting (provided that such shares remain outstanding on the date of the Lone Star special meeting), but you will not have the right to receive the merger consideration to be received by Lone Star shareholders in connection with the merger. In order to receive the merger consideration, you must hold your shares of Lone Star common stock through completion of the merger.

 

Q:If I am a Lone Star shareholder, should I send in my Lone Star stock certificates now?

 

A: No. Please do not send in your Lone Star stock certificates with your proxy. No later than 10 days prior to the closing date of the merger, First Guaranty’s exchange agent, ClearTrust, LLC, will send you instructions for exchanging Lone Star stock certificates for your portion of the merger consideration. See “The Merger AgreementConversion of Shares; Exchange of Certificates” beginning on page 50.

 

Q:Who may I contact if I cannot locate my Lone Star stock certificate(s)?

 

A:If you are unable to locate your original Lone Star stock certificate(s), you should contact Lone Star Bank, 2600 Gessner Road, Suite 100, Houston, Texas 77063, Attention: Brent McRoberts. Generally, merger consideration for lost certificates cannot be delivered except upon the making of an affidavit claiming such certificate to be lost, stolen or destroyed and the posting of a bond in such amount as First Guaranty and/or the exchange agent may determine is reasonably necessary as indemnity against any claim that may be made with respect to such lost certificate.

 

Q:What should I do if I receive more than one set of voting materials?

 

A:Shareholders may receive more than one set of voting materials, including multiple copies of this proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, if you hold shares of stock in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold such shares. If you are a holder of record of stock and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive or otherwise follow the voting instructions set forth in this proxy statement/prospectus to ensure that you vote every share of stock that you own.

  

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Q:Whom should I call with questions?

 

A:If you have any questions about the merger agreement, the merger, the Lone Star special meeting or the proxy statement/prospectus, please contact Dennis Harrington, the President and Chief Executive Officer of Lone Star, at (713) 358-9400. If you would like additional copies of the proxy statement/prospectus, need a proxy card or need help voting your shares of Lone Star common stock, please contact Brent McRoberts, the Executive Vice President–Controller/Cashier of Lone Star, at (713) 358-9400.

  

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SUMMARY

 

This summary highlights selected information included in this proxy statement/prospectus and does not contain all of the information that may be important to you. You should read this entire proxy statement/prospectus and its annexes and the other documents to which this document refers before you decide how to vote with respect to the merger agreement. In addition, this proxy statement/prospectus incorporates by reference important business and financial information about First Guaranty. For a description of this information, please seeWhere You Can Find More Informationbeginning on page 85. You may obtain the information incorporated by reference into this proxy statement/prospectus without charge by following the instructions in the section entitled Additional Informationin the forepart of this document. Each item in this summary includes a page reference directing you to a more complete description of that item.

 

The Companies (page 65)

 

About First Guaranty

 

First Guaranty is a Louisiana corporation headquartered in Hammond, Louisiana and the parent of First Guaranty Bank, a Louisiana state bank, which provides personalized commercial banking services mainly to Louisiana and Texas customers through 36 banking facilities primarily located in the Metropolitan Statistical Areas (or “MSA”) of Hammond, Baton Rouge, Lafayette, Shreveport-Bossier City, Lake Charles, Alexandria, Dallas-Fort Worth-Arlington, Waco and our Mideast Market of Vanceburg, Kentucky and Bridgeport, West Virginia. As of December 31, 2022, First Guaranty had consolidated total assets of $3.15 billion, deposits of $2.72 billion and total shareholders’ equity of $234.99 million.

 

First Guaranty’s common stock is traded on the Nasdaq Global Market under the symbol “FGBI.”

 

First Guaranty’s executive offices are located at 400 East Thomas Street, Hammond, Louisiana 70401, and its telephone number at that location is (985) 345-7685. First Guaranty’s website address is www.fgb.net.

 

About Lone Star

 

Lone Star is a Texas state banking association, chartered in 2006, and headquartered in Houston, Texas. Lone Star offers full consumer and commercial banking services to customers throughout its market areas in and around Houston, Texas. Lone Star has four banking locations located throughout the greater Houston MSA. As of December 31, 2022, Lone Star reported total assets of $160.80 million, total deposits of $140.17 million and stockholders’ equity of $20.12 million. Lone Star does not file reports with the SEC.

 

Lone Star’s principal executive office is located at 2600 South Gessner Road, Suite 100, Houston, Texas 77063, and its telephone number at that location is (713) 358-9400.

 

The Merger (page 26)

 

First Guaranty, First Guaranty Bank and Lone Star have entered into the merger agreement, pursuant to which Lone Star will merge with and into First Guaranty Bank, with First Guaranty Bank surviving the merger.

 

The terms and conditions by which Lone Star will merge with and into First Guaranty Bank are contained in the merger agreement, a copy of which is attached to this proxy statement/prospectus as Annex A. All descriptions in this summary and elsewhere in this proxy statement/prospectus of the terms and conditions of the transaction are qualified by reference to the merger agreement. We encourage you to read that agreement carefully, as it is the legal document that governs the transaction.

 

Merger Consideration (page 49)

 

Under the terms of the merger agreement, First Guaranty will issue shares of First Guaranty common stock with an assumed value of $23.67 per share on the closing date of the merger to the shareholders of Lone Star. First Guaranty will issue a number of shares with an aggregate value equal to 1.5 times Lone Star’s tangible shareholders’ equity as of the calculation date, subject to certain adjustments set forth in the merger agreement; provided, that any increase in Lone Star’s tangible shareholders’ equity resulting from the exercise of a Lone Star option after the signing of the merger agreement and prior to the Lone Star Option Exercise Deadline will be valued at the exercise price of such Lone Star option (collectively, the “Lone Star Aggregate Option Exercise Price”). Lone Star options that are outstanding after the Lone Star Option Exercise Deadline will be cashed out prior to the effective time of the merger.

  

 

 8

 

 

 

For illustration purposes only, assuming the merger had closed on January 6, 2023, the last trading date prior to the announcement of the merger, (i) the calculation date would be December 31, 2022, and (ii) based upon 3,325,420 shares of Lone Star common stock outstanding immediately prior to the effective time of the merger on January 6, 2023, each share of Lone Star common stock would be converted into the right to receive 0.3184 shares of First Guaranty common stock, equating to a value of $7.67 per share of Lone Star common stock, or total merger consideration of $25.50 million, based on First Guaranty’s closing stock price of $24.08 on January 6, 2023, the last trading date prior to the announcement of the merger. Additionally, based upon 438,832 Lone Star options outstanding on January 6, 2023, with a weighted average strike price of $2.85, the Lone Star options would be cashed out in exchange for aggregate net proceeds of approximately $2.12 million payable to the Lone Star option holders.

 

For illustration purposes only, assuming the merger had closed on [ ], 2023, the last practicable trading date prior to the mailing of the enclosed proxy statement/prospectus, (i) the calculation date would be [ ], 2023, and (ii) based upon [ ] shares of Lone Star common stock outstanding on [ ], 2023, the last practicable trading date prior to the mailing of this proxy statement/prospectus, each share of Lone Star common stock would be converted into the right to receive [ ] shares of First Guaranty common stock, equating to a value of $[ ] per share of Lone Star common stock, or total merger consideration of $[ ] million, based on First Guaranty’s closing stock price of $[ ] on [ ], 2023, the last practicable trading date prior to the mailing of the enclosed proxy statement/prospectus. Additionally, based upon [ ] Lone Star options outstanding on [ ], 2023, the last practicable trading date prior to the mailing of the enclosed proxy statement/prospectus, with a weighted average strike price of $[ ], the Lone Star options would be cashed out in exchange for aggregate net proceeds of approximately $[ ] million payable to the Lone Star option holders.

 

Assuming the merger had closed on [ ], 2023, the last practicable trading date prior to the mailing of the enclosed proxy statement/prospectus, former Lone Star shareholders would own approximately [ ]% of First Guaranty. While the assumed value of $23.67 per share of First Guaranty common stock is known, Lone Star’s tangible shareholders’ equity, the Lone Star Aggregate Option Exercise Price and Lone Star’s transaction expenses are unknown and will not be known until the calculation date. Accordingly, the value and amount of the actual consideration a Lone Star shareholder will receive upon completion of the merger may be different from the amount and value described above. Additionally, it is impossible to predict what the actual trading price of First Guaranty common stock will be on the closing date.

 

First Guaranty will not issue any fractional shares of First Guaranty common stock in the merger. Instead, a Lone Star shareholder who otherwise would have received a fraction of a share of First Guaranty common stock, rounded to the nearest one hundredth of a share, will receive an amount in cash (without interest and rounded to the nearest whole cent) determined by multiplying the fractional share interest in First Guaranty common stock to which such holder would otherwise be entitled by the Lone Star Per-Share Amount.

 

Treatment of Lone Star Options (page 50)

 

The Lone Star board of directors shall set the Lone Star Option Exercise Deadline before which each Lone Star option may be exercised by the holder thereof in accordance with its terms. After such date and at least five business days prior to the effective time of the merger, each unexercised Lone Star option, whether vested or unvested, will be cancelled by Lone Star and will, in accordance with the terms of the merger agreement and the terms of the respective Lone Star stock plan, be converted into the right of the holder of each Lone Star option to receive an amount in cash equal to the difference between (i) the Lone Star Per-Share Amount, and (ii) the exercise price of each Lone Star option (such amount the “Lone Star Per-Option Value”). Lone Star will pay each applicable holder of a Lone Star option a cash payment equal to the holder’s Lone Star Per-Option Value prior to the effective time of the merger.

 

Conversion of Shares; Exchange of Certificates (page 50)

 

No later than 10 days prior to the closing date of the merger, First Guaranty’s exchange agent, ClearTrust, LLC, will mail to each holder of record of Lone Star common stock that is converted into the right to receive the merger consideration a letter of transmittal and instructions for the surrender of the holder’s Lone Star common stock for the merger consideration (including cash in lieu of any fractional shares of First Guaranty common stock), and any dividends or distributions to which such holder is entitled to pursuant to the merger agreement. Please do not send in your certificates until you receive these instructions.

 

Recommendation of the Lone Star Board of Directors (page 29)

 

The Lone Star board of directors has unanimously approved the merger agreement and the transactions contemplated thereby, including the merger, and unanimously recommends that Lone Star shareholders vote “FOR” the Lone Star merger proposal and “FOR” the Lone Star adjournment proposal (if necessary or appropriate). For the factors considered by the Lone Star board of directors in reaching its decision to approve the merger agreement, see “The Merger – Recommendation of the Lone Star Board and Its Reasons for the Merger” on page 29.

 

 

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Opinion of Lone Star’s Financial Advisor (page 30 and Annex E)

 

Performance Trust Capital Partners, LLC (or “PT”) acted as financial advisor to the Lone Star board of directors in connection with the merger and participated in certain of the negotiations leading to the execution of the merger agreement. At the January 6, 2023 meeting at which the Lone Star board of directors considered the merger agreement, PT delivered to the Lone Star board of directors its oral opinion, which was subsequently confirmed in writing on January 6, 2023, to the effect that, as of such date, the merger consideration was fair, from a financial point of view, to the holders of Lone Star common stock. The full text of PT’s opinion is attached as Annex E to this proxy statement/prospectus. The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by PT in rendering its opinion. Holders of Lone Star common stock are urged to read the entire opinion carefully in connection with their consideration of the proposed merger.

 

PT’s opinion was directed to the Lone Star board of directors in connection with its consideration of the merger and the merger agreement and does not constitute a recommendation to any Lone Star shareholder as to how any such shareholder should vote at any meeting of shareholders called to consider and vote upon the approval of the merger and the merger agreement. PT’s opinion was directed only to the fairness, from a financial point of view, of the merger consideration to the holders of Lone Star common stock and did not address any other aspect or implication of the merger. The references to PT’s opinion in this proxy statement/prospectus are qualified in their entirety by reference to the full text of PT’s written opinion.

 

For further information, please see the section entitled “The Merger – Opinion of Lone Star’s Financial Advisor” on page 30.

 

Lone Star Special Meeting of Shareholders (page 23)

 

Lone Star will hold a special meeting of its shareholders on [ ], 2023, at [ ], local time, at [ ]. At the Lone Star special meeting, Lone Star shareholders will be asked to vote on the Lone Star merger proposal and the Lone Star adjournment proposal. The Lone Star board of directors has fixed the close of business on [ ], 2023 as the record date for determining the holders of Lone Star common stock entitled to receive notice of, and to vote at, the Lone Star special meeting. As of the record date, there were [ ] shares of Lone Star common stock outstanding and entitled to vote at the Lone Star special meeting held by [ ] holders of record.

 

Shareholder approval of the Lone Star merger proposal is required to complete the merger. Lone Star will transact no business other than as listed above at the Lone Star special meeting, except for business properly brought before the Lone Star special meeting or any adjournment or postponement thereof. Each share of Lone Star common stock entitles the holder thereof to one vote at the Lone Star special meeting on each proposal to be considered at the Lone Star special meeting.

 

The presence, in person or represented by proxy, of at least a majority of the total number of outstanding shares of Lone Star common stock entitled to vote is necessary in order to constitute a quorum for purposes of the matters being voted on at the Lone Star special meeting.

 

Approval of the Lone Star merger proposal requires the affirmative vote of at least two-thirds of the outstanding shares of Lone Star common stock entitled to vote thereon. Assuming a quorum is present, approval of the Lone Star adjournment proposal (if necessary or appropriate) requires the affirmative vote of a majority of the outstanding shares of Lone Star common stock entitled to vote thereon and present in person or by proxy at the Lone Star special meeting. Lone Star shareholders must approve the Lone Star merger proposal in order for the merger to occur. Lone Star shareholders are not, however, required to approve the Lone Star adjournment proposal in order for the merger to occur. If Lone Star shareholders fail to approve the Lone Star adjournment proposal, but approve the Lone Star merger proposal, the merger may nonetheless occur.

 

The directors of Lone Star who own shares of Lone Star common stock entered into a voting agreement with First Guaranty and Lone Star agreeing to, among other things, vote their shares of Lone Star common stock in favor of the merger agreement and the transactions contemplated thereby and against any acquisition proposals or any actions that would result in a breach of any covenant, representation or warranty of Lone Star in the merger agreement.

 

Even if you expect to attend the special meeting of shareholders, Lone Star recommends that you promptly complete and return your proxy card in the enclosed return envelope.

 

Interests of Lone Star’s Directors and Executive Officers in the Merger (page 41)

 

In considering the recommendation of the Lone Star board of directors with respect to the merger agreement, Lone Star shareholders should be aware that certain of Lone Star’s directors and executive officers may have interests in the merger that are different from, or in addition to, the interests of Lone Star shareholders generally. Interests of directors and executive officers that may be different from or in addition to the interests of Lone Star shareholders include, but are not limited to, the following:

 

Lone Star will make payments to certain executive officers under existing employment agreements and/or change in control agreements;

  

 

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all unexercised Lone Star options, whether vested or unvested, will be cashed out prior to the closing of the merger;

a one-time cash payment will be made to the Chairman of Lone Star’s board of directors; and

the directors and officers will have the right to continued indemnification and insurance coverage under the merger agreement.

 

The Lone Star board of directors was aware of these interests and considered them, among other matters, in approving the merger agreement. For a more complete description of these interests, see “The MergerInterests of Lone Stars Directors and Executive Officers in the Merger” beginning on page 41.

 

Board Composition and Management of First Guaranty after the Merger (page 41)

 

The members of the First Guaranty board of directors following the effective time of the merger will be the members of the First Guaranty board of directors immediately prior to the effective time of the merger. Immediately following the effective time of the merger, the executive officers of each of First Guaranty and First Guaranty Bank will remain the same as the executive officers immediately prior to the effective time of the merger.

 

Upon completion of the merger, the number of individuals constituting the First Guaranty Bank board of directors will be increased by one individual, and Jeff A. Berkley, who is currently a member of the Lone Star board of directors, will be appointed to fill the newly created vacancy on the First Guaranty Bank board of directors.

 

Regulatory Approvals Required for the Merger (page 47)

 

To complete the merger, the parties must receive the prior approval, or a waiver of the applicable approval requirements, of the Board of Governors of the Federal Reserve (or the “Federal Reserve”), the Federal Deposit Insurance Corporation (or the “FDIC”), and the Office of Financial Institutions of the State of Louisiana (or the “OFI”). The U.S. Department of Justice (or the “DOJ”) is also able to provide input into the approval process of federal banking agencies and will have between 15 and 30 days following any approval of a federal banking agency to challenge the approval on antitrust grounds. Although neither First Guaranty nor Lone Star knows of any reason why the regulatory approvals cannot be obtained, First Guaranty and Lone Star cannot be certain when or if they will be obtained, as the length of the review process may vary based on, among other things, requests by regulators for additional information or materials.

 

Conditions to Complete the Merger (page 58)

 

Currently, First Guaranty and Lone Star expect to complete the merger in the second or third quarter of 2023 but, as more fully described in this proxy statement/prospectus and in the merger agreement, the completion of the merger depends on a number of conditions being satisfied or, where legally permissible, waived. Lone Star’s and First Guaranty’s respective obligations to complete the merger are subject to the satisfaction or waiver of the following conditions, among others:

 

the approval of the Lone Star merger proposal by the requisite vote of the Lone Star shareholders;

the receipt of all required regulatory approvals upon terms agreeable to the parties, and no such regulatory approvals containing any burdensome condition (as defined in the merger agreement);

no judgment, order, injunction or decree having been issued by any court or agency of competent jurisdiction or other legal restraint or prohibition preventing the consummation of any of the transactions contemplated by the merger agreement, and no statute, rule, regulation, order, injunction or decree having been enacted, entered, promulgated or enforced by any governmental authority that prohibits or makes illegal the consummation of any of the transactions contemplated by the merger agreement;

the effectiveness of the registration statement on Form S-4 of which this proxy statement/prospectus is a part with respect to the First Guaranty common stock to be issued upon the consummation of the merger and the absence of any stop order or proceedings to suspend the effectiveness of the registration statement;

each party’s receipt of a tax opinion from their respective legal counsel that the merger qualifies as a reorganization under Section 368(a) of the Code;

the approval for listing the shares of First Guaranty common stock to be issued in connection with the transactions contemplated by the merger agreement on the Nasdaq Global Market; and

the receipt of all consents, approvals, waivers and other assurances identified by the merger agreement.

 

The obligations of each of Lone Star and First Guaranty to complete the merger are subject to additional conditions set forth in the merger agreement. Neither First Guaranty nor Lone Star can provide assurance as to when or if all of the conditions to the merger can or will be satisfied or waived by the appropriate party, or that the merger will be completed. For more information see “The Merger Agreement – Conditions to Complete the Merger” beginning on page 58.

 

 

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Agreement Not to Solicit Other Offers (page 56)

  

Under the merger agreement, Lone Star has agreed that it will not, and will cause its representatives not to, directly or indirectly, (1) initiate, solicit, induce or knowingly encourage, or take any action to facilitate the making of, any inquiry, offer or proposal which constitutes, or could reasonably be expected to lead to, an acquisition proposal; (2) participate in any discussions or negotiations regarding any acquisition proposal or furnish, or otherwise afford access, to any person (other than First Guaranty) any information or data with respect to Lone Star or otherwise relating to an acquisition proposal; (3) release any person from, waive any provisions of, or fail to enforce any confidentiality agreement or standstill agreement to which Lone Star is a party; or (4) enter into any agreement, confidentiality agreement, agreement in principle or letter of intent with respect to any acquisition proposal or approve or resolve to approve any acquisition proposal or any agreement, agreement in principle or letter of intent relating to an acquisition proposal.

 

However, prior to the date of the Lone Star special meeting, Lone Star may, under certain specified circumstances, participate in negotiations or discussions with any third party making an acquisition proposal that is reasonably likely to result in a superior proposal and provide confidential information described in the merger agreement to such third party (subject to a confidentiality agreement). Lone Star must notify First Guaranty promptly thereof in accordance with terms of the merger agreement.

 

Additionally, prior to the date of the Lone Star special meeting, the Lone Star board of directors may, under certain specified circumstances, withdraw, qualify, amend or modify its recommendation to its shareholders with respect to the merger agreement in order to enter into an acquisition agreement with respect to a superior proposal if it determines in good faith, after consultation with and having considered the advice of outside legal counsel and its financial advisor, that it is reasonably necessary to take such actions to comply with its fiduciary duties to Lone Star’s shareholders under applicable law. However, Lone Star cannot take any of those actions in response to a superior proposal unless it provides First Guaranty with a five business day period to negotiate in good faith to enable First Guaranty to adjust the terms and conditions of the merger agreement such that it would cause the superior proposal to no longer constitute a superior proposal.

 

Termination of the Merger Agreement (page 59)

 

The merger agreement may be terminated at any time prior to the effective time of the merger in the following circumstances, whether before or after approval of the Lone Star merger proposal by Lone Star shareholders:

 

by the mutual written agreement of the parties upon the vote of a majority of the members of the entire board of each party;

by either party, if either of their respective boards of directors so determines by a vote of a majority of the members of its entire board, in the event that (1) any regulatory approval required for consummation of the transactions contemplated by the merger agreement shall have been denied by final, non-appealable action by such governmental authority; (2) an application therefor shall have been permanently withdrawn at the request of a governmental authority; (3) First Guaranty makes a reasonable determination in good faith after consultation with its counsel that there is a substantial likelihood that any regulatory approval will be obtained only upon the imposition of a burdensome condition; or (4) any governmental authority shall have issued a final, nonappealable law or order permanently enjoining or otherwise prohibiting or making illegal the consummation of the merger, unless in each case the failure to obtain a regulatory approval shall be due to the failure of the party seeking to terminate the merger agreement to perform or observe the covenants and agreements of such party set forth;

by either party if the requisite Lone Star vote will not have been obtained at the Lone Star special meeting; provided, that no party may terminate the merger agreement if such party has breached in any material respect any of its obligations under the merger agreement that caused the failure to obtain the requisite Lone Star shareholder approval at the Lone Star special meeting;

by either party (provided such party is not then in material breach of the merger agreement) if there has been a material breach of the merger agreement by the other party thereto and such breach has not been cured prior to the earlier of 30 days after notice from the non-breaching party or two business days prior to the expiration date (as defined in the merger agreement), or such breach cannot be cured;

by either party if the merger has not been consummated by the close of business on June 30, 2023 (which shall automatically extend to September 30, 2023, if the only outstanding condition to closing is receipt of regulatory approvals), unless the failure of the closing to occur by such date shall be due to a breach of the merger agreement by the party seeking to terminate the merger agreement;

by First Guaranty if (1) Lone Star materially breaches its covenant not to solicit acquisition proposals, or (2) the Lone Star board of directors (i) withdraws, qualifies, amends, modifies or withholds its recommendation to its shareholders with regard to the Lone Star merger proposal, (ii) materially breaches its obligation to call, give notice of and commence the Lone Star special meeting, (iii) approves or recommends an alternative acquisition proposal, (iv) fails to publicly recommend against a publicly announced acquisition proposal, (v) fails to publicly reconfirm its recommendation for the Lone Star merger proposal within three business days of being requested by First Guaranty to do so, or (vi) resolves or otherwise determines to take or announces an intention to take any of the foregoing actions; or

by Lone Star in connection with entering into a definitive agreement to effect a superior proposal (as defined in the merger agreement) after making a Lone Star subsequent determination (as defined in the merger agreement).

  

 

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Termination Fee (page 60)

 

If the merger agreement is terminated under certain circumstances, including circumstances involving an alternative acquisition proposal and changes in the recommendation of the Lone Star board of directors, Lone Star may be required to pay to First Guaranty a termination fee equal to $1.00 million. This termination fee could discourage other companies from seeking to acquire or merge with Lone Star. For more information, see “The Merger AgreementTermination Fee” beginning on page 60.

 

Expenses and Fees (page 60)

 

Except as specifically provided in the merger agreement, all costs and expenses incurred in connection with the merger agreement and all agreements and documents contemplated thereby, and the consummation of the transactions contemplated thereby, will be paid by the party incurring such costs or expenses.

 

Amendment, Waiver and Extension of the Merger Agreement (page 61)

 

First Guaranty and Lone Star may jointly amend the merger agreement, and each of First Guaranty and Lone Star may waive its right to require the other party to comply with particular provisions of the merger agreement. However, First Guaranty and Lone Star may not amend the merger agreement or waive their respective rights after the Lone Star special meeting if the amendment or waiver would legally require further approval by the Lone Star shareholders without first obtaining such further approval. The merger agreement may not be amended except by an instrument in writing signed on behalf of each of the parties thereto.

 

Comparison of Shareholders’ Rights (page 73)

 

The rights of Lone Star shareholders will change as a result of the merger due to differences in applicable law and First Guaranty’s and Lone Star’s governing documents. See “Comparison of ShareholdersRights” beginning on page 73 for a description of the material differences in shareholders’ rights under each of the First Guaranty and Lone Star governing documents.

 

Risk Factors (page 17)

 

You should consider all the information contained in this proxy statement/prospectus in deciding how to vote for the proposals presented in this proxy statement/prospectus. In particular, you should consider the factors described under the section of this proxy statement/prospectus entitled “Risk Factors” beginning on page 17.

 

Ancillary Agreements to the Merger Agreement (page 62)

 

Voting Agreement

 

As a condition to First Guaranty entering into the merger agreement, each director of Lone Star who owns shares of Lone Star common stock entered into a voting agreement with First Guaranty and Lone Star in the form attached as Annex B to this proxy statement/prospectus. Under the voting agreement, each such director agreed, among other things, to vote his or her shares of Lone Star common stock (1) to approve the merger agreement and the transactions contemplated thereby (or any adjournment or postponement necessary to solicit additional proxies to approve and adopt the merger agreement), (2) against any action or agreement that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of Lone Star contained in the merger agreement or of a shareholder contained in the voting agreement, and (3) against any acquisition proposals or any other action, agreement or transaction that is intended, or could reasonably be expected, to impede, interfere or be inconsistent with, delay, postpone, discourage or materially and adversely affect consummation of the transactions contemplated by the merger agreement or the voting agreement. Each director of Lone Star also agreed not to sell, transfer, assign or otherwise dispose of such director’s Lone Star common stock, subject to limited exceptions, until the earlier of (1) the termination of the voting agreement, or (2) the approval of the merger by the Lone Star shareholders.

 

Director Support Agreements

 

In addition, as a condition to First Guaranty entering into the merger agreement, each director of Lone Star who is not an employee of Lone Star entered into a director support agreement with First Guaranty and Lone Star in the form attached as Annex C to this proxy statement/prospectus. Under the director support agreement, each such director agreed to, among other things and subject to certain exceptions, for a period of 24 months after the completion of the merger, (1) not disclose or use any confidential information about the merger agreement and the transactions contemplated thereby, (2) not engage in certain competitive activities with First Guaranty, including not soliciting employees and customers of Lone Star or acquiring any interest in any financial institution that has a location within a 50-mile radius of any location of Lone Star (or the “noncompete area”), and (3) not serve as a director, officer, employee, consultant or agent of another insured depository institution within the noncompete area.

  

 

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Releases

 

At the time of the execution of the merger agreement, each director of Lone Star executed a release in favor of Lone Star in the form attached as Annex D to this proxy statement/prospectus. Under the release, each such director irrevocably and unconditionally released, waived and forever discharged Lone Star and its successors from any and all liabilities and claims relating to, arising out of or in connection with Lone Star and its businesses or assets, including any claims arising out of or resulting from such director’s status, relationship, affiliation, rights, obligations or duties as a director, officer, employee or security holder of Lone Star or any of its subsidiaries for all periods occurring through the date of the release, with certain exceptions.

 

Dissenters’ Rights (page 44)

 

Under Texas law, record holders of shares of Lone Star common stock have the right to demand in writing to receive a payment in cash for the “fair value” of their shares as determined by an appraisal process. To exercise those rights of dissent and appraisal, a Lone Star shareholder must follow exactly the procedures specified under Texas law. These procedures are summarized in this proxy statement/prospectus. In addition, the text of the applicable provisions of Texas law is included as Annex F to this document. Failure to strictly comply with these provisions may result in the loss of dissenters’ rights of appraisal. The value determined in the appraisal process may be more or less than the value a Lone Star shareholder would receive in the merger under the terms of the merger agreement.

 

Accounting Treatment (page 79)

 

First Guaranty will account for the merger as a business combination using the acquisition method of accounting for financial reporting purposes.

 

Material U.S. Federal Income Tax Consequences of the Merger (page 80)

 

The merger is expected to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. It is a condition to the respective obligations of First Guaranty and Lone Star to complete the merger that each of First Guaranty and Lone Star receives a tax opinion from its respective outside legal counsel, dated the closing date of the merger, to that effect. Based upon a qualification of the merger as a reorganization under the Code, U.S. holders of Lone Star common stock who exchange their shares of Lone Star common stock for shares of First Guaranty common stock generally will not recognize gain or loss with respect to the receipt of First Guaranty common stock in the merger. Holders of Lone Star common stock generally will be subject to tax with respect to any cash received in lieu of fractional shares of First Guaranty common stock.

 

The U.S. federal income tax consequences described above may not apply to all holders of Lone Star common stock. Your tax consequences will depend on your individual situation. Accordingly, First Guaranty and Lone Star strongly urge you to consult your tax advisor for a full understanding of the particular tax consequences of the merger to you.

 

Market Prices and Share Information

 

First Guaranty common stock is listed on the Nasdaq Global Market under the symbol “FGBI.” The following table sets forth the closing sale prices of First Guaranty common stock as reported on the Nasdaq Global Market on January 6, 2023, the last full trading day before the public announcement of the merger agreement, and on [ ], 2023, the latest practicable trading date before the date of this proxy statement/prospectus.

 

      First Guaranty
Common Stock
    Implied Value of
One Share of
Lone Star
Common Stock
to be Converted
to
Merger
Consideration
 
January 6, 2023     $ 24.08     $ 7.67 (1) 
[ ], 2023     $ [ ]     $ [ ] (2) 

 

 

(1)Based on 3,325,420 shares of Lone Star common stock outstanding.

(2)Based on [ ] shares of Lone Star common stock outstanding.

  

 

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SPECIAL CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Some of the statements contained or incorporated by reference in this proxy statement/prospectus contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements about the financial condition, results of operations, earnings outlook and business plans, goals, expectations and prospects of First Guaranty, Lone Star and the combined company following the proposed merger and statements for the period after the merger. Words such as “anticipate,” “believe,” “feel,” “expect,” “estimate,” “indicate,” “seek,” “strive,” “plan,” “intend,” “outlook,” “forecast,” “project,” “position,” “target,” “mission,” “contemplate,” “assume,” “achievable,” “potential,” “strategy,” “goal,” “aspiration,” “outcome,” “continue,” “remain,” “maintain,” “trend,” “objective” and variations of such words and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions, as they relate to First Guaranty, Lone Star, the proposed merger or the combined company following the merger often identify forward-looking statements, although not all forward-looking statements contain such words.

 

These forward-looking statements are predicated on the beliefs and assumptions of management based on information known to management as of the date of this proxy statement/prospectus and do not purport to speak as of any other date. Forward-looking statements may include descriptions of the expected benefits and costs of the transaction; forecasts of revenue, earnings or other measures of economic performance, including statements of profitability, business segments and subsidiaries; management plans relating to the merger; the expected timing of the completion of the merger; the ability to complete the merger; the ability to obtain any required regulatory, shareholder or other approvals; any statements of the plans and objectives of management for future or past operations, including the execution of integration plans; any statements of expectation or belief and any statements of assumptions underlying any of the foregoing.

 

The forward-looking statements contained or incorporated by reference in this proxy statement/prospectus reflect the view of management as of this date with respect to future events and are subject to risks and uncertainties. Should one or more of these risks materialize or should underlying beliefs or assumptions prove incorrect, actual results could differ materially from those anticipated by the forward-looking statements or historical results. Such risks and uncertainties include, among others, the following possibilities:

 

the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement, including a termination of the merger agreement under circumstances that could require Lone Star to pay a termination fee to First Guaranty;

the inability to complete the merger contemplated by the merger agreement due to the failure to satisfy conditions necessary to close the merger, including the receipt of the requisite approval of Lone Star shareholders;

the risk that a regulatory approval that may be required for the merger is not obtained or is obtained subject to conditions that are not anticipated;

risks associated with the timing of the completion of the merger;

management time and effort may be diverted to the resolution of merger-related issues;

the risk that the businesses of First Guaranty and Lone Star will not be integrated successfully, or such integration may be more difficult, time-consuming or costly than expected;

First Guaranty’s ability to achieve the synergies and value creation contemplated by the proposed merger with Lone Star;

the expected growth opportunities or costs savings from the merger with Lone Star may not be fully realized or may take longer to realize than expected;

revenues following the merger may be lower than expected as a result of losses of customers or other reasons;

potential deposit attrition, higher than expected costs, customer loss and business disruption associated with First Guaranty’s integration of Lone Star, including, without limitation, potential difficulties in maintaining relationships with key personnel;

the outcome of any legal proceedings that may be instituted against First Guaranty or Lone Star or their respective boards of directors;

general economic conditions, either globally, nationally, in the States of Louisiana and Texas, or in the specific markets in which First Guaranty or Lone Star operate;

limitations placed on the ability of First Guaranty and Lone Star to operate their respective businesses by the merger agreement;

the effect of the announcement of the merger on First Guaranty’s and Lone Star’s business relationships, employees, customers, suppliers, vendors, other partners, standing with regulators, operating results and businesses generally;

customer acceptance of the combined company’s products and services;

the amount of any costs, fees, expenses, impairments and charges related to the merger;

fluctuations in the market price of First Guaranty common stock and the related effect on the market value of the merger consideration that Lone Star shareholders will receive upon completion of the merger;

civil unrest, natural disasters, epidemics (including the re-emergence of the COVID-19 pandemic) and other catastrophic events in First Guaranty’s or Lone Star’s geographic area;

the introduction, withdrawal, success and timing of business initiatives;

significant increases in competition in the banking and financial services industry;

  

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legislation, regulatory changes or changes in monetary or fiscal policy that adversely affect the businesses in which First Guaranty or Lone Star are engaged, including potential changes resulting from currently proposed legislation;

credit risk of borrowers, including any increase in those risks due to changing economic conditions;

changes in consumer spending, borrowing, and savings habits;

competition among depository and other financial institutions;

liquidity risk affecting First Guaranty’s or Lone Star’s ability to meet their respective obligations when they become due;

interest rate risk involving the effect of a change in interest rates;

compliance risk resulting from violations of, or nonconformance with, laws, rules, regulations, prescribed practices or ethical standards;

strategic risk resulting from adverse business decisions or improper implementation of business decisions;

reputational risk that adversely affects earnings or capital arising from negative public opinion;

terrorist activities risk that results in loss of consumer confidence and economic disruptions; and

other risks and uncertainties identified in this proxy statement/prospectus under the heading “Risk Factors” and detailed from time to time in First Guaranty’s SEC filings including, without limitation, in First Guaranty’s Annual Report on Form 10-K for the year ended December 31, 2022, and in any updates to those risk factors in First Guaranty’s subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

 

Any forward-looking statements made in this proxy statement/prospectus or in any documents incorporated by reference into this proxy statement/prospectus, are subject to the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on these statements, which speak only as of the date of this proxy statement/prospectus or the date of any document incorporated by reference in this proxy statement/prospectus. First Guaranty and Lone Star do not undertake to update forward-looking statements to reflect facts, circumstances, assumptions or events that occur after the date the forward-looking statements are made, unless and only to the extent otherwise required by law. All subsequent written and oral forward-looking statements concerning the merger or other matters addressed in this proxy statement/prospectus and attributable to First Guaranty, Lone Star or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this proxy statement/prospectus.

 

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RISK FACTORS

 

An investment in First Guaranty common stock in connection with the merger involves risks. In addition to the other information contained in or incorporated by reference into this proxy statement/prospectus, including the risk factors included in First Guaranty’s Annual Report on Form 10-K for the year ended December 31, 2022, and any subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K, you should carefully consider the following risk factors in deciding whether to vote to approve the merger agreement. You should keep these risk factors in mind when you read forward-looking statements in this document and in the documents incorporated by reference into this document. Please refer to the section of this proxy statement/prospectus titledSpecial Cautionary Note Regarding Forward-Looking Statements.You should also consider the other information in this document and the other documents incorporated by reference into this document. Please see the sections entitledAdditional Informationin the forepart of this document andWhere You Can Find More Informationbeginning on page 85.

 

Risks Related to the Merger

 

Because the value of Lone Star’s tangible shareholders’ equity (as adjusted pursuant to the terms of the merger agreement) will fluctuate, Lone Star shareholders cannot be sure of the value of the merger consideration they will receive.

 

At the effective time of the merger, each outstanding share of Lone Star common stock will be converted into the right to receive a pro-rata share of the merger consideration (with cash paid in lieu of fractional shares), which will be based on Lone Star’s tangible shareholders’ equity on the calculation date, subject to certain adjustments set forth in the merger agreement. Additionally, each Lone Star option that is outstanding after the Lone Star Option Exercise Deadline will be cashed out prior to the effective time of the merger pursuant to the terms of the merger agreement. While the assumed value of $23.67 per share of First Guaranty common stock is known, the value of Lone Star’s tangible shareholders’ equity, net of adjustments for transaction expenses and other items, is unknown and will not be known until the calculation date. Any change in Lone Star’s adjusted net tangible shareholders’ equity prior to completion of the merger will affect the aggregate value of the merger consideration that Lone Star shareholders will receive at the effective time of the merger. Accordingly, at the time of the Lone Star special meeting, Lone Star shareholders will not know or be able to calculate the value of the merger consideration they would receive at the effective time of the merger. Likewise, the value of the Lone Star Aggregate Option Exercise Price is unknown and will not be known until the calculation date.

 

Even if Lone Star shareholders knew the exchange ratio that would be applied to their shares of Lone Star common stock at the effective time of the merger, there would be no way to know the market value of the shares of First Guaranty common stock at the effective time of the merger or thereafter, as stock price changes may result from a variety of factors, including general market and economic conditions, changes in First Guaranty’s business, operations and prospects and regulatory considerations, many of which factors are beyond First Guaranty’s control.

 

Because there is no established trading market for Lone Star common stock, it is difficult to determine how the value of Lone Star common stock compares with the merger consideration.

 

There is no established trading market for Lone Star common stock. No broker makes a market in Lone Star common stock. The market for Lone Star common stock is illiquid, and there is no regular trading. This lack of liquidity makes it difficult to determine the value of Lone Star common stock.

 

The merger may not be consummated unless important conditions are satisfied.

 

First Guaranty and Lone Star expect the merger to close in the second or third quarter of 2023, but the acquisition is subject to the satisfaction of a number of closing conditions. Satisfaction of many of these conditions is beyond First Guaranty’s and Lone Star’s control. If these conditions are not satisfied or waived, the merger will not be completed or may be delayed and each of First Guaranty and Lone Star may lose some or all of the intended benefits of the merger. Certain of the conditions that remain to be satisfied include, but are not limited to:

 

the approval of the merger agreement and the transactions contemplated thereby by the requisite vote of Lone Star shareholders;

the receipt of required regulatory approvals, including the approval of or waiver from the Federal Reserve, FDIC and OFI, which are necessary to consummate the merger, and the expiration of all statutory waiting periods without the imposition of any materially burdensome regulatory condition;

the absence of any injunction, order or decree restraining, enjoining or otherwise prohibiting the merger or any of the other transactions contemplated by the merger agreement or making the completion of the merger illegal;

the effectiveness under the Securities Act of 1933, as amended (or the “Securities Act”), of the registration statement on Form S-4 of which this proxy statement/prospectus is a part, and the absence of the issuance of a stop order or the initiation or threat by the SEC of proceedings for that purpose;

 

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the receipt of all required consents and approvals identified by the merger agreement;

each party’s receipt of a tax opinion from its respective outside legal counsel, dated as of the closing date of the merger, confirming the merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Code;

the absence of 5.00% or more of the outstanding shares of Lone Star’s common stock exercising their appraisal rights;

the absence of any material adverse change in the financial condition, business or results of operations of Lone Star, First Guaranty or First Guaranty Bank;

the continued accuracy of the representations and warranties made by the parties in the merger agreement; and

the performance by each party of its respective obligations under the merger agreement.

 

As a result, the merger may not close as scheduled or at all. In addition, either First Guaranty or Lone Star may terminate the merger agreement under certain circumstances. For additional information regarding the conditions to the merger, see “The Merger AgreementConditions to Complete the Merger” beginning on page 58.

 

Regulatory approvals may not be received, may take longer than expected or may impose conditions that First Guaranty does not anticipate or cannot be met.

 

Before the transactions contemplated by the merger agreement may be completed, various approvals or consents must be obtained from various federal and state governmental entities. These governmental entities may impose conditions on the completion of the merger or require changes to the terms of the merger. Such conditions or changes could have the effect of delaying completion of the merger or imposing additional costs on or limiting the revenues of First Guaranty following the merger, any of which might have a material adverse effect on First Guaranty following the merger. First Guaranty is not obligated to complete the merger if the regulatory approvals received in connection with the completion of the merger impose certain burdensome conditions on First Guaranty or Lone Star, as described more fully in “The MergerRegulatory Approvals Required for the Merger” beginning on page 47.

 

Lone Stars officers and directors have interests in the merger in addition to or different from the interests that they share with you as a Lone Star shareholder.

 

Some of Lone Star’s executive officers participated in negotiations of the merger agreement with First Guaranty, and the Lone Star board of directors approved the merger agreement and is recommending that Lone Star shareholders vote to approve the merger agreement. In considering these facts and the other information included in or incorporated by reference into this proxy statement/prospectus, you should be aware that certain of Lone Star’s executive officers and directors have economic interests in the merger that are different from or in addition to the interests that they share with you as a Lone Star shareholder. These interests include, but are not limited to, as a result of the merger, cash out payments for outstanding Lone Star options (vested or unvested), payments under existing employment agreements and/or change in control agreements with Lone Star, a special bonus for the Chairman of Lone Star’s board of directors, and the right to continued indemnification and insurance coverage under the merger agreement. These interests and arrangements may create potential conflicts of interest and may influence or may have influenced the directors and executive officers of Lone Star to support or approve the merger and the merger agreement. For further discussion of the interests of Lone Star’s directors and officers in the merger, see “The MergerInterests of Lone Stars Directors and Executive Officers in the Merger” beginning on page 41.

 

The opinion delivered by Lone Stars financial advisor to the Lone Star board of directors will not reflect changes in circumstances between the date of such opinion and the completion of the merger.

 

PT, Lone Star’s financial advisor, delivered its opinion to the Lone Star board of directors on January 6, 2023, to the effect that, as of such date, the merger consideration was fair, from a financial point of view, to the holders of Lone Star common stock. Such opinion has not been updated as of the date of this proxy statement/prospectus and will not be updated at, or prior to, the time of the completion of the merger. Changes in the operations and prospects of First Guaranty and Lone Star, general market and economic conditions and other factors that may be beyond the control of First Guaranty and Lone Star may alter the value of First Guaranty or Lone Star or the prices of shares of First Guaranty common stock by the time the merger is completed. The opinion does not speak as of the time the merger is completed or as of any date other than the date of the opinion. A copy of the opinion is included as Annex E to this proxy statement/prospectus. For a description of the opinion that Lone Star received from its financial advisor, please refer to “The MergerOpinion of Lone Stars Financial Advisor” beginning on page 30.

 

The merger agreement contains provisions granting both First Guaranty and Lone Star the right to terminate the merger agreement in certain circumstances.

 

The merger agreement contains certain termination rights, including, but not limited to, the right, subject to certain exceptions, of either party to terminate the merger agreement if the merger is not completed on or prior to June 30, 2023 (or September 30, 2023, if the only outstanding condition to closing the merger is regulatory approval), and the right of Lone Star to terminate the merger agreement, subject to certain conditions, to accept a business combination transaction deemed to be superior to the merger by the Lone Star board of directors. If the merger is not completed, the ongoing business of Lone Star could be adversely affected and Lone Star will be subject to several risks, including the risks described elsewhere in this “Risk Factors” section. See “The Merger Agreement Termination of the Merger Agreement” beginning on page 59.

 

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Termination of the merger agreement could negatively impact Lone Star and First Guaranty.

 

If the merger agreement is terminated before closing there may be various consequences. For example, Lone Star’s business may have been impacted adversely by the failure to pursue other beneficial opportunities due to the focus of management on the merger, without realizing any of the anticipated benefits of completing the merger. Also, Lone Star will have incurred substantial expenses in connection with the proposed merger without realizing the benefits of the merger. If the merger agreement is terminated and the Lone Star board of directors seeks another merger or business combination, Lone Star shareholders cannot be certain that Lone Star will be able to find a party willing to pay the equivalent or greater consideration than that which First Guaranty has agreed to pay in the merger. In addition, if the merger agreement is terminated under certain circumstances, Lone Star may be required to pay First Guaranty a termination fee. See “The Merger AgreementEffect of Termination” beginning on page 60.

 

Further, if the merger agreement is terminated and the merger is not consummated, First Guaranty’s stock price may decline to the extent that its current market price reflects a market assumption that the merger will be completed. In addition, the reputation of First Guaranty as an acquirer may be harmed and, as a result, it may make it more difficult for First Guaranty to consummate future acquisitions.

 

First Guaranty and Lone Star will incur significant, non-recurring merger-related transaction and integration costs in connection with the merger, which could adversely affect either companys financial condition and results of operations.

 

First Guaranty and Lone Star each have incurred and expect to continue to incur substantial costs in connection with the negotiation and completion of the merger and combining the businesses and operations of the two companies, and additional unanticipated transaction- and merger-related costs may be incurred prior to or following the consummation of the merger. Whether or not the merger is consummated, First Guaranty and Lone Star expect to continue to incur substantial expenses associated with planning for and completing the merger and combining the operations of the two companies, including such non-recurring expenses as legal, accounting and financial advisory fees, printing fees, data processing and other fees related to formulating integration and conversion plans. Although First Guaranty and Lone Star expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, may offset incremental transaction- and merger-related costs over time, this net benefit may not be achieved in the near term, or at all. The costs described above, as well as other unanticipated costs and expenses, could have a material adverse effect on the financial condition and operating results of First Guaranty following completion of the merger.

 

The termination fees and the restrictions on third-party acquisition proposals set forth in the merger agreement may discourage others from trying to acquire Lone Star and limit Lone Stars ability to pursue alternatives to the merger.

 

The merger agreement prohibits Lone Star from initiating, soliciting, encouraging or facilitating certain third-party acquisition proposals. In addition, Lone Star has agreed to pay First Guaranty a termination fee of $1.00 million if the merger agreement is terminated because Lone Star decides to enter into or close another acquisition transaction, or if Lone Star enters into or closes another acquisition transaction within 12 months after the merger agreement is terminated for certain unrelated reasons. See “The Merger AgreementTermination Fee” beginning on page 60. These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of Lone Star from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share price than that proposed in the merger, or might result in a potential competing acquirer proposing to pay a lower per share price to acquire Lone Star than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances under the merger agreement.

 

First Guaranty and Lone Star will be subject to business uncertainties and Lone Star will be subject to contractual restrictions while the merger is pending.

 

Uncertainty about the effect of the merger on employees and customers may have an adverse effect on First Guaranty and Lone Star. These uncertainties may impair the ability of First Guaranty or Lone Star to attract, retain and motivate strategic personnel until the merger is consummated, and could cause customers and others that deal with First Guaranty or Lone Star to seek to change existing business relationships. Experienced employees in the financial services industry are in high demand, and competition for their talents can be intense. Employees of Lone Star may experience uncertainty about their future role with the surviving corporation until, or even after, strategies with regard to the combined company are announced or executed. If any key employees of First Guaranty or Lone Star depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the surviving corporation, Lone Star’s business prior to the merger closing and First Guaranty’s business after the merger closes could be harmed. In addition, subject to certain exceptions, Lone Star has agreed to operate its business in the ordinary course, and to comply with certain other operational restrictions, prior to closing the merger. See “The Merger AgreementCovenants and AgreementsConduct of Business Prior to the Completion of the Merger” beginning on page 53 for a description of the restrictive covenants applicable to Lone Star.

 

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The merger with Lone Star may distract First Guarantys management from its other responsibilities.

 

The acquisition of Lone Star could cause First Guaranty’s management to focus its time and energies on matters related to the acquisition that otherwise would be directed to the business and operations of First Guaranty. Any such distraction on the part of management, if significant, could affect its ability to service existing business and develop new business and adversely affect the business and earnings of First Guaranty.

 

First Guaranty and Lone Star may waive one or more of the conditions to the merger without re-soliciting shareholder approval for the merger.

 

Each of the conditions to the obligations of First Guaranty and Lone Star to complete the merger may be waived, in whole or in part, to the extent permitted by applicable law, by agreement of First Guaranty and Lone Star, if the condition is a condition to both parties’ obligation to complete the merger, or by the party for which such condition is a condition of its obligation to complete the merger. The Lone Star board of directors may evaluate the materiality of any such waiver to determine whether amendment of this proxy statement/prospectus and re-solicitation of proxies are necessary. Lone Star, however, generally does not expect any such waiver to be significant enough to require re-solicitation of shareholders. If any such waiver is not determined to be significant enough to require re-solicitation of shareholders, Lone Star will have the discretion to complete the merger without seeking further shareholder approval.

 

Lone Star shareholders will experience a reduction in percentage ownership and voting power of their shares as a result of the merger and will have less influence on the management and policies of First Guaranty than they had on Lone Star before the merger.

 

Lone Star shareholders will have a much smaller percentage ownership interest and effective voting power in First Guaranty compared to their ownership interest and voting power in Lone Star prior to the merger. Consequently, Lone Star shareholders will have significantly less influence on the management and policies of First Guaranty after the merger than they currently have on the management and policies of Lone Star. If the merger is consummated, current Lone Star shareholders will own approximately [ ]% of the combined company (assuming the merger had closed on [ ], 2023, the last practicable trading date prior to the mailing of this proxy statement/prospectus). Accordingly, former Lone Star shareholders would own less of the outstanding voting stock of the combined company than current First Guaranty shareholders and would, as a result, be outvoted by current First Guaranty shareholders if such current First Guaranty shareholders voted together as a group.

 

The merger may fail to qualify as areorganizationwithin the meaning of Section 368(a) of the Code.

 

Each of First Guaranty and Lone Star intends and expects the merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Code, and the obligation of each of First Guaranty and Lone Star to complete the merger is conditioned upon the receipt, by each company, of a U.S. federal income tax opinion to that effect from First Guaranty’s and Lone Star’s respective tax counsels. Each tax opinion represents the legal judgment of counsel rendering the opinion and is not binding on the Internal Revenue Service (or the “IRS”) or the courts. If the merger were to fail to qualify as a reorganization within the meaning of Section 368(a) of the Code, then the merger would be treated as a taxable sale of the assets of Lone Star to First Guaranty followed by a taxable liquidation of Lone Star. Generally, the deemed sale of the assets of Lone Star would result in Lone Star recognizing gain or loss equal to the difference between (1) the fair market value of the merger consideration and (2) the adjusted tax basis in such assets held by Lone Star. Generally, the deemed distribution of the merger consideration distributed in respect of each share of Lone Star common stock would result in each shareholder recognizing gain or loss equal to the difference between (1) the fair market value of the merger consideration distributed in respect of each share of Lone Star common stock and (2) the adjusted tax basis in the shares of such Lone Star common stock surrendered in exchange therefor. The consequences of the merger to any particular shareholder will depend on that shareholder’s individual situation. We strongly urge you to consult your own tax advisor to determine the particular tax consequences of the merger to you.

 

This proxy statement/prospectus contains limited financial information on which to evaluate the merger.

 

As permitted by applicable regulations of the SEC, this proxy statement/prospectus does not contain historical financial information about Lone Star and does not contain pro forma combined financial information about First Guaranty and Lone Star after giving effect to the merger. The financial condition of the combined company following the merger will impact the price of First Guaranty’s common stock after the merger.

 

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Lone Star or First Guaranty or both may be subject to claims and litigation pertaining to the merger that could prevent or delay the completion of the merger.

 

Any lawsuits filed in connection with the proposed merger could prevent or delay completion of the merger and result in substantial costs to Lone Star and First Guaranty, including any costs associated with indemnification. The defense or settlement of any lawsuit or claim that may be filed seeking remedies against Lone Star, its board of directors or First Guaranty or its board of directors in connection with the merger that remains unresolved at the effective time of the merger may adversely affect First Guaranty’s business, financial condition, results of operations and cash flows.

 

Risks Related to the Combined Company after the Merger

 

First Guaranty may fail to realize some or all of the anticipated benefits of the merger.

 

The success of the merger will depend on, among other things, First Guaranty’s ability to successfully combine the businesses of First Guaranty and Lone Star. If First Guaranty is not able to successfully achieve this objective, the anticipated benefits of the merger may not be realized fully, or at all, or may take longer to realize than expected.

 

First Guaranty and Lone Star have operated and, until the consummation of the merger, will continue to operate independently. It is possible that the integration process or other factors could result in the loss or departure of key employees, the disruption of the ongoing business of First Guaranty or inconsistencies in standards, controls, procedures and policies. It is also possible that clients, customers, depositors and counterparties of First Guaranty (or former clients, customers, depositors and counterparties of Lone Star) could choose to discontinue their relationships with the combined company post-merger because they prefer doing business with an independent company or for any other reason, which would adversely affect the future performance of the combined company. These transition matters could have an adverse effect on each of First Guaranty and Lone Star during the pre-merger period and on First Guaranty for an undetermined time after the consummation of the merger.

 

First Guaranty may be unsuccessful in integrating the operations of the businesses it has acquired or expects to acquire in the future, including Lone Star.

 

From time to time, First Guaranty evaluates and acquires businesses that it believes complement its existing business. The acquisition component of First Guaranty’s growth strategy depends on the successful integration of these acquisitions. First Guaranty faces numerous risks and challenges to the successful integration of acquired businesses, including the following:

 

the potential for unexpected costs, delays and challenges that may arise in integrating acquisitions into First Guaranty’s existing business;

limitations on First Guaranty’s ability to realize the expected cost savings and synergies from an acquisition;

challenges related to integrating acquired operations, including First Guaranty’s ability to retain key employees and maintain relationships with significant customers and depositors;

challenges related to the integration of businesses that operate in new geographic areas, including difficulties in identifying and gaining access to customers in new markets; and

discovery of previously unknown liabilities following an acquisition associated with the acquired business.

 

If First Guaranty is unable to successfully integrate the businesses it acquires, First Guaranty’s business, financial condition and results of operations may be materially adversely affected.

 

The market price of the combined companys common stock may decline as a result of the merger.

 

The market price of the combined company’s common stock may decline as a result of the merger if the combined company does not achieve the perceived benefits of the merger or if the effect of the merger on the combined company’s financial results is not consistent with the expectations of financial or industry analysts. In addition, upon completion of the merger, Lone Star shareholders will own interests in a combined company operating an expanded business with a different mix of assets, risks and liabilities.

 

Current First Guaranty and Lone Star shareholders may not wish to continue to invest in the combined company, or for other reasons may wish to dispose of some or all of their shares of the combined company. Shares of First Guaranty common stock that are issued in the merger will be freely tradable without restrictions or further registration under the Securities Act, except that shares of First Guaranty common stock received by persons who are or become affiliates of First Guaranty for purposes of Rule 144 under the Securities Act may be resold by them only in transactions permitted by Rule 144, or as otherwise permitted under the Securities Act. If the merger is completed and if former Lone Star shareholders sell substantial amounts of First Guaranty common stock in the public market, the market price of First Guaranty common stock may decrease. These sales might also make it more difficult for First Guaranty to sell equity or equity-related securities at a time and price that it otherwise would deem appropriate. 

 

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The combined company may be unable to retain First Guaranty and/or Lone Star personnel successfully after the merger is completed.

 

The success of the merger will depend in part on the combined company’s ability to retain the talents and dedication of key employees currently employed by First Guaranty and Lone Star. It is possible that these employees may decide not to remain with First Guaranty and Lone Star, as applicable, while the merger is pending or with the combined company after the merger is consummated. If key employees terminate their employment or if an insufficient number of employees is retained to maintain effective operations, the combined company’s business activities may be adversely affected, and management’s attention may be diverted from successfully integrating Lone Star to hiring suitable replacements, all of which may cause the combined company’s business to suffer. In addition, First Guaranty and Lone Star may not be able to locate suitable replacements for any key employees who leave either company or to offer employment to potential replacements on reasonable terms.

 

First Guaranty has not previously operated in Lone Stars market area.

 

Lone Star’s primary market area is the Houston, Texas market. The banking business in this market is extremely competitive, and the level of competition may increase further. First Guaranty has not previously operated in this market area and there may be unexpected challenges and difficulties that could adversely affect First Guaranty following the completion of the merger.

 

The market price of First Guaranty common stock after the merger may be affected by factors different from those affecting Lone Star common stock or First Guaranty common stock currently.

 

The results of operations of the combined company, as well as the market price of shares of the common stock of the combined company after the merger, may be affected by factors in addition to those currently affecting First Guaranty’s or Lone Star’s results of operations and the market prices of shares of First Guaranty common stock. Accordingly, the historical financial results of First Guaranty and Lone Star and the historical market prices of shares of First Guaranty common stock may not be indicative of these matters for the combined company after the merger. For a discussion of the business of First Guaranty and of certain factors to consider in connection with that business, see the documents incorporated by reference by First Guaranty into this proxy statement/prospectus referred to under “Where You Can Find More Information” beginning on page 85.

 

Future capital needs could result in dilution of shareholder investment.

 

First Guaranty’s board of directors may determine from time to time there is a need to obtain additional capital through the issuance of additional shares of its common stock or other securities. These issuances would dilute the ownership interests of its shareholders and may dilute the per share book value of First Guaranty common stock. New investors may also have rights, preferences and privileges senior to First Guaranty’s shareholders which may adversely impact its shareholders.

 

Shares of First Guaranty common stock to be received by holders of Lone Star common stock as a result of the merger will have rights different from the shares of Lone Star common stock.

 

Upon completion of the merger, the rights of former Lone Star shareholders will be governed by the Restated Articles of Incorporation of First Guaranty (or the “First Guaranty articles”) and Bylaws of First Guaranty (or the “First Guaranty bylaws”). Accordingly, certain rights associated with Lone Star common stock may differ from the rights associated with First Guaranty common stock. See “Comparison of ShareholdersRights” beginning on page 73 for a discussion of the different rights associated with First Guaranty common stock.

 

Additional Risks Relating to First Guaranty’s business.

 

Investing in First Guaranty’s common stock involves risks. You should read and consider risk factors specific to First Guaranty’s business that will also affect the combined company after the merger. These risks are described in the sections entitled “Risk Factors” in First Guaranty’s Annual Report on Form 10-K for the year ended December 31, 2022, and in other documents incorporated by reference into this proxy statement/prospectus. Please see “Where You Can Find More Information” for the location of information incorporated by reference into this proxy statement/prospectus.

 

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LONE STAR SPECIAL MEETING OF SHAREHOLDERS

 

Date, Time and Place of Lone Star Special Meeting

 

The Lone Star special meeting of shareholders will be held on [ ], 2023, at [ ], at [ ], local time. On or about [ ], 2023, Lone Star commenced mailing this document and the enclosed forms of proxy cards to its shareholders entitled to vote at the Lone Star special meeting.

 

Matters to be Considered

 

At the Lone Star special meeting, the holders of Lone Star common stock will be asked to consider and vote upon the Lone Star merger proposal and, if necessary, the Lone Star adjournment proposal. Completion of the merger is conditioned on, among other things, Lone Star shareholder approval of the Lone Star merger proposal. No other business may be conducted at the Lone Star special meeting, except for business properly brought before the special meeting or any adjournment or postponement thereof.

 

Recommendation of the Lone Star Board of Directors

 

On January 6, 2023, the Lone Star board of directors unanimously approved the merger agreement and the transactions contemplated thereby. Based on Lone Star’s reasons for the merger described in the section of this proxy statement/prospectus entitled “The Merger – Recommendation of the Lone Star Board and Its Reasons for the Merger” beginning on page 29, the Lone Star board of directors believes that the merger is in the best interests of Lone Star shareholders. Accordingly, the Lone Star board of directors unanimously recommends that its shareholders vote “FOR” the Lone Star merger proposal and, if necessary, vote “FOR” the Lone Star adjournment proposal.

 

Record Date and Quorum

 

The Lone Star board of directors has fixed the close of business on [ ], 2023, as the record date, which is the date for determining the holders of Lone Star common stock entitled to receive notice of and to vote at the Lone Star special meeting. As of the record date, there were [ ] shares of Lone Star common stock outstanding and entitled to notice of, and to vote at, the Lone Star special meeting or any adjournment thereof, and such outstanding shares of Lone Star common stock were held by [ ] holders of record. Each share of Lone Star common stock entitles the holder to one vote at the Lone Star special meeting on each proposal to be considered at the Lone Star special meeting.

 

The holders of a majority of the shares of Lone Star common stock issued and outstanding and entitled to vote at the Lone Star special meeting must be present, either in person or by proxy, to constitute a quorum at the Lone Star special meeting. Abstentions and shares held of record by a broker or nominee that are voted will be included in determining whether a quorum exists. No business may be transacted by the holders of Lone Star common stock at the Lone Star special meeting unless a quorum is present.

 

Required Vote; Treatment of Abstentions; Failure to Vote or to Instruct Your Broker How to Vote

 

The Lone Star Merger Proposal. The affirmative vote of the holders of at least two-thirds of the outstanding shares of Lone Star common stock is required to approve the Lone Star merger proposal. If you fail to vote in person or by proxy or fail to instruct your bank, broker or other nominee to vote, or if you mark “ABSTAIN” on your proxy, with respect to the Lone Star merger proposal, it will have the same effect as a vote “AGAINST” the Lone Star merger proposal.

 

The Lone Star Adjournment Proposal. The affirmative vote of a majority of the outstanding shares of Lone Star common stock entitled to vote on the Lone Star adjournment proposal and present in person or by proxy at the Lone Star special meeting is required to approve the proposal. If you fail to vote in person or by proxy or fail to instruct your bank, broker or other nominee to vote, it will have no effect on the Lone Star adjournment proposal. If you mark “ABSTAIN” on your proxy, with respect to the Lone Star adjournment proposal, it will have the same effect as a vote “AGAINST” the Lone Star adjournment proposal.

 

The Lone Star board of directors encourages you to submit your proxy promptly so that your voice is heard on these matters.

 

Voting and Revocation of Proxies

 

Proxies, in the forms enclosed, which are properly executed and returned, and not subsequently revoked, will be voted in accordance with the instructions indicated on the proxies. Any properly executed proxy on which voting instructions are not specified will be voted “FOR” the Lone Star merger proposal and “FOR” the Lone Star adjournment proposal, if applicable.

 

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If you are a shareholder of record of Lone Star as of [ ], 2023, the record date, you may vote by proxy before the Lone Star special meeting by completing, signing, dating and returning the enclosed proxy card to Lone Star using the enclosed postage-paid envelope, or by delivering your proxy card in person to Brent McRoberts, the Executive Vice President–Controller/Cashier of Lone Star, at Lone Star’s principal office, located at 2600 South Gessner Road, Suite 100, Houston, Texas 77063. If you intend to submit your proxy by mail, your completed proxy card must be received prior to the Lone Star special meeting.

 

If you are the record holder of your Lone Star shares, you may revoke your proxy at any time before it is voted at the special meeting by:

 

submitting another properly completed proxy card bearing a later date which is received prior to the Lone Star special meeting;

sending a written notice which is received prior to the Lone Star special meeting that you are revoking your proxy to: Lone Star Bank, 2600 South Gessner Road, Suite 100, Houston, Texas 77063, Attention: Brent McRoberts; or
attending the Lone Star special meeting and notifying the election officials that you wish to revoke your proxy and vote in person.

 

Attendance at the Lone Star special meeting will not, by itself, revoke your proxy. If you hold your shares in “street name” with a bank or broker or other nominee, you must contact such bank or broker or other nominee for instructions as to how to revoke your proxy.

 

Shares Held in “Street Name”; Failure to Instruct Your Broker How to Vote

 

Banks, brokers and other nominees who hold shares of Lone Star common stock in “street name” for a beneficial owner of those shares typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions from beneficial owners. However, banks, brokers and other nominees are not allowed to exercise their voting discretion with respect to the approval of matters determined to be “non-routine,” without specific instructions from the beneficial owner. The Lone Star merger proposal and the Lone Star adjournment proposal are both non-routine matters, and a broker or nominee does not have discretionary voting power with respect to the proposals. As a result, if you hold your shares of Lone Star common stock in “street name,” your shares will not be represented and will not be voted on any matter unless you affirmatively instruct your bank, broker or other nominee how to vote your shares in one of the ways indicated by your bank, broker or other nominee. It is therefore critical that you cast your vote by instructing your bank, broker or other nominee on how to vote. If you fail to instruct your bank, broker, or nominee how to vote, it will have the same effect as a vote “AGAINST” the Lone Star merger proposal and your shares will not be treated as present for purposes of determining whether a quorum is present; however, it will have no effect on the Lone Star adjournment proposal.

 

If your broker, bank or other nominee holds your shares of Lone Star common stock in “street name,” your broker, bank or other nominee will vote your shares of Lone Star common stock only if you provide instructions on how to vote by filling out the voter instruction form sent to you by your broker, bank or other nominee with this proxy statement/prospectus.

 

Shares Subject to Voting Agreement; Shares Held by Directors and Executive Officers

 

The directors of Lone Star who own shares of Lone Star common stock have entered into a voting agreement with Lone Star and First Guaranty, solely in their capacity as shareholders of Lone Star, pursuant to which they have agreed to vote their shares of Lone Star common stock in favor of the approval of the merger agreement and the merger and against the approval or adoption of any proposal made in opposition to the merger. As of the record date, [ ] shares of Lone Star common stock, or approximately [ ]% of the outstanding shares of Lone Star common stock entitled to vote at the Lone Star special meeting, are bound by the voting agreement.

 

Solicitation of Proxies; Expenses

 

This proxy solicitation is made by the Lone Star board of directors. Lone Star is responsible for its expenses incurred in preparing, assembling, printing, and mailing this proxy statement/prospectus. Proxies will be solicited through the mail. Additionally, directors and officers of Lone Star may solicit proxies personally or by telephone or other means of communication. The directors and officers will not be additionally compensated for any such solicitation. Lone Star will reimburse banks, brokers, and other custodians, nominees and fiduciaries for their reasonable expenses in forwarding the proxy materials to beneficial owners. In addition, Lone Star retains the discretion to engage a third-party proxy solicitor to assist Lone Star in soliciting proxies from the Lone Star shareholders.

 

Dissenters’ Rights

 

Lone Star shareholders are entitled to assert rights of dissent and appraisal with respect to the merger proposal. These dissenters’ rights are conditioned on strict compliance with the requirements of the TBOC. Please see “The Merger – Dissenters’ Rights,” beginning on page 44, and the full text of the applicable provisions of the TBOC, which is reproduced in full in Annex F to this proxy statement/prospectus, for additional information.

 

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Attending the Lone Star Special Meeting

 

All shareholders of Lone Star as of the record date, including shareholders of record and shareholders who hold their shares in “street name” through banks, brokers, nominees or any other holder of record as of the record date, are invited to attend the Lone Star special meeting. Shareholders of record of Lone Star common stock can vote in person at the Lone Star special meeting. If you are not a shareholder of record as of the record date, you must obtain a proxy card, executed in your favor, from the record holder of your shares, such as a broker, bank or other nominee, to be able to vote in person at the Lone Star special meeting. If you plan to attend the Lone Star special meeting, you must hold your shares in your own name or have a letter from the record holder of your shares confirming your ownership. In addition, you must bring a form of personal photo identification with you in order to be admitted. Lone Star reserves the right to refuse admittance to anyone without proper proof of share ownership or without proper photo identification. The use of cameras, sound recording equipment, communications devices or any similar equipment during the Lone Star special meeting is prohibited without Lone Star’s express written consent.

 

A Lone Star shareholder who holds shares in “street name” through a broker, bank, trustee or other nominee who desires to attend the Lone Star special meeting in person must bring proof of beneficial ownership as of the record date, such as a letter from the broker, bank, trustee or other nominee that is the record owner of such beneficial owner’s shares, a brokerage account statement or the voting instruction form provided by the broker.

 

Lone Star Merger Proposal

 

Lone Star is asking its shareholders to approve the Lone Star merger proposal. Holders of Lone Star common stock should read this proxy statement/prospectus carefully and in its entirety, including the annexes, for more detailed information concerning the merger agreement and the merger. A copy of the merger agreement is attached to this proxy statement/prospectus as Annex A.

 

After careful consideration, the Lone Star board of directors, by a unanimous vote of all directors, approved the merger agreement and declared the merger agreement and the transactions contemplated thereby, including the merger, to be advisable and in the best interest of Lone Star and its shareholders. See “The Merger – Recommendation of the Lone Star Board and Its Reasons for the Merger” beginning on page 29 of this proxy statement/prospectus for a more detailed discussion of the Lone Star board of directors’ recommendation.

 

The Lone Star board of directors unanimously recommends a vote “FOR” the Lone Star merger proposal.

 

Lone Star Adjournment Proposal

 

The Lone Star special meeting may be adjourned to another time or place, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Lone Star special meeting to approve the Lone Star merger proposal.

 

If, at the Lone Star special meeting, the number of shares of Lone Star common stock present or represented and voting in favor of the Lone Star merger proposal is insufficient to approve the Lone Star merger proposal, Lone Star intends to move to adjourn the Lone Star special meeting in order to enable the Lone Star board of directors to solicit additional proxies for approval of the Lone Star merger proposal. In that event, Lone Star will ask the holders of Lone Star common stock to vote upon the Lone Star adjournment proposal, but not the Lone Star merger proposal.

 

In this proposal, Lone Star is asking the holders of Lone Star common stock to authorize the holder of any proxy solicited by the Lone Star board of directors on a discretionary basis to vote in favor of adjourning the Lone Star special meeting to another time and place for the purpose of soliciting additional proxies, including the solicitation of proxies from Lone Star shareholders who have previously voted.

 

The Lone Star board of directors unanimously recommends a vote “FOR” the Lone Star adjournment proposal.

 

Assistance

 

If you have any questions regarding Lone Star’s special meeting, please contact Dennis Harrington, the President and Chief Executive Officer of Lone Star, at (713) 358-9400. If you need assistance in voting your shares of Lone Star common stock or if you would like additional copies of the proxy statement/prospectus, please contact Brent McRoberts, the Executive Vice President–Controller/Cashier of Lone Star, at (713) 358-9400.

 

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THE MERGER

 

The following discussion contains certain information about the merger. The discussion is subject, and qualified in its entirety by reference, to the merger agreement attached as Annex A to this proxy statement/prospectus and incorporated herein by reference. First Guaranty and Lone Star urge you to read carefully this entire proxy statement/prospectus, including the merger agreement attached as Annex A, for a more complete understanding of the merger.

 

Terms of the Merger

 

Each of the boards of directors of First Guaranty and Lone Star has approved the merger agreement and the transactions contemplated thereby including, in the case of the First Guaranty board of directors, the issuance of shares of First Guaranty common stock as merger consideration. The merger agreement provides that, subject to the terms and conditions set forth in the merger agreement, Lone Star will merge with and into First Guaranty Bank, First Guaranty’s wholly-owned banking subsidiary, with First Guaranty Bank as the surviving bank.

 

If the merger is completed, all of the shares of Lone Star common stock (other than shares of Lone Star common stock held by Lone Star, First Guaranty, any Lone Star dissenting shareholders or as treasury shares) issued and outstanding immediately prior to the effective time of the merger will convert into the right to receive shares of First Guaranty common stock.

 

The aggregate consideration payable in the merger will be determined on the last day of the calendar month that precedes the closing of the merger and will be an amount equal to 1.5 times Lone Star’s adjusted net tangible shareholders’ equity, subject to certain adjustments described in the merger agreement; provided, that any increase in Lone Star’s tangible shareholders’ equity resulting from the exercise of Lone Star options after the signing of the merger agreement and prior to the Lone Star Option Exercise Deadline will be valued at the Lone Star Aggregate Option Exercise Price.

 

The amount of the merger consideration available to each share of Lone Star stock will be based upon the Exchange Ratio.

 

If the merger is completed, each share of Lone Star common stock (other than shares of Lone Star common stock held by Lone Star, First Guaranty, any Lone Star dissenting shareholders or as treasury shares) issued and outstanding immediately prior to the effective time of the merger will convert into the right to receive, without interest, a number of shares of First Guaranty common stock equal to the Exchange Ratio.

 

First Guaranty will not issue any fractional shares of First Guaranty common stock in the merger. Instead, a Lone Star shareholder who otherwise would have received a fraction of a share of First Guaranty common stock will receive an amount in cash (without interest and rounded to the nearest whole cent) determined by multiplying (1) the Lone Star Per-Share Amount by (2) the fraction of a share (rounded to the nearest one hundredth of a share) of First Guaranty common stock to which such shareholder would otherwise be entitled to receive.

 

In addition, each Lone Star option that is outstanding after the Lone Star Option Exercise Deadline will be cancelled and converted into the right of the holder of each Lone Star option to receive an amount in cash equal to the Lone Star Per-Option Value. Lone Star will pay each applicable holder of a Lone Star option a cash payment equal to the holder’s Lone Star Per-Option Value prior to the effective time of the merger.

 

Lone Star shareholders are being asked to approve the Lone Star merger proposal. See the section of this proxy statement/prospectus entitled “The Merger Agreement” beginning on page 49 for additional and more detailed information regarding the legal documents that govern the merger, including information about the conditions to the completion of the merger and the provisions for terminating or amending the merger agreement.

 

Background of the Merger

 

From time to time, each of the Lone Star and First Guaranty boards of directors has engaged in reviews and discussions of their respective long-term strategic objectives to consider ways that each company might enhance performance, prospects and shareholder value in light of competitive and other relevant factors. For each company, these reviews have included periodic discussions regarding potential strategic options, including but not limited to, expanding organically, raising additional capital through private placements or public offerings of equity or debt securities, and merging with another financial institution.

 

The Lone Star board of directors has regularly reviewed and discussed Lone Star’s business strategy, performance and prospects in the context of the national and local economic environment and developments in the competitive landscape. Among other things, these reviews and discussions have included possible strategic transactions available to Lone Star, such as potential acquisitions of and business combinations with other financial institutions. Certain of these reviews and discussions included analyses of the mergers and acquisitions environment, including multiples and premiums being paid, and an assessment of potential partners for Lone Star.

 

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From November 2021 to January 2022, the Lone Star board of directors met with multiple investment banking firms to learn more about the economic environment for financial institution mergers, the price that potential acquirers were paying for financial institutions similar to Lone Star, and the process that investment banking firms utilize to sell a bank. At the Lone Star board meeting held on January 20, 2022, the senior management and directors of Lone Star met with Lone Star’s legal counsel to discuss the sale process from a legal perspective and engaged in a discussion regarding strategic alternatives available to Lone Star, including merging with a larger institution or continuing to remain independent. After considering these strategic alternatives and the benefits and risks that each posed, the Lone Star board of directors determined that it would be in the best interests of Lone Star and its shareholders to explore a merger with another financial institution based on many of the factors described under the section entitled “– Recommendation of the Lone Star Board and Its Reasons for the Merger,” and the Lone Star board of directors authorized Lone Star’s senior management to engage a financial advisor.

 

On February 3, 2022, the Lone Star board of directors engaged PT to act as independent financial advisor and Bracewell LLP (or “Bracewell”), to act as legal counsel, in connection with a potential business combination.

 

During January and February of 2022, representatives of PT contacted 30 parties, including First Guaranty, to gauge their interest in a potential strategic transaction on a no-name basis. These parties were selected in consultation with the Lone Star board of directors based upon their size, capacity to pay on terms that would be attractive to Lone Star shareholders and strategic interest in Lone Star or banks in the Texas marketplace. Seventeen of the parties executed nondisclosure agreements, including First Guaranty, and 10 were given access to preliminary diligence materials, including First Guaranty. Representatives of PT requested that interested parties submit nonbinding written letters of interest on or before March 10, 2022. PT received written letters of interest from three parties, and a verbal offer from First Guaranty, to acquire all of the issued and outstanding capital stock of Lone Star. Discussions with these four institutions continued throughout March 2022, with some institutions indicating a greater level of interest than others. On April 1, 2022, the Lone Star board of directors met to discuss the letters of interest and elected to enter into an indication of interest with a bank holding company (or “Party A”). Party A offered the highest merger consideration of the four institutions with an offer to acquire all of the outstanding shares of Lone Star common stock for $28.00 million. Lone Star and Party A entered into the indication of interest letter on April 4, 2022. On April 6, 2022, First Guaranty submitted a non-binding letter of intent that contemplated First Guaranty acquiring all of the issued and outstanding shares of Lone Star common stock in exchange for shares of First Guaranty common stock, subject to, among other things, completion of due diligence and entry into a definitive agreement. Following additional due diligence, Party A informed Lone Star that it could not continue at the price set forth in its original offer, and Party A and Lone Star terminated the indication of interest on April 25, 2022.

 

On May 6, 2022, PT contacted two parties, an investor group (or “Party B”) that previously submitted an indication of interest and First Guaranty. Both parties confirmed that they were still interested in acquiring Lone Star. On May 18, 2022, the Lone Star board of directors terminated its engagement with Bracewell and engaged Hunton Andrews Kurth, LLP (or “Hunton”), to act as legal counsel, in connection with a potential business combination. On May 19, 2022, Party B submitted a non-binding letter of intent that contemplated Party B acquiring all of the issued and outstanding stock of Lone Star in exchange for cash, subject to, among other things, completion of due diligence and entry into a definitive agreement. On May 24, 2022, Lone Star’s board of directors held a special meeting to review, consider, and discuss the proposed transactions with First Guaranty and Party B. At the May 24 special meeting, representatives of PT and Hunton explained the terms of the non-binding letters of intent to Lone Star. Based on the board’s discussion, the board determined that the proposals submitted by First Guaranty and Party B were insufficient to move forward, and the Lone Star board of directors requested that First Guaranty and Party B provide Lone Star with their best and final offers.

 

On June 2, 2022, senior management of First Guaranty met with members of the Lone Star board of directors and senior management in Houston to discuss First Guaranty’s offer. The Chairman of First Guaranty’s board of directors, Mr. Marshall Reynolds, and Chairman of Lone Star’s board of directors, Mr. Greg Bernica, had additional discussions on June 6, 2022. On June 8, 2022, Lone Star’s board of directors met with the executive officers of Party B, and subsequent to that meeting, Party B submitted a revised non-binding letter of intent. On June 13, 2022, First Guaranty submitted a revised offer that incorporated terms previously discussed by the parties.

 

On June 22, 2022, Lone Star’s board of directors held a meeting to review and discuss both offers. Lone Star’s board of directors determined that the offer from First Guaranty was superior to the offer from Party B, because First Guaranty’s offer was for a higher merger consideration amount and presented a higher likelihood of closing the merger. Additionally, Lone Star’s board of directors determined at the June 22 meeting that pursuing a transaction with First Guaranty at that time was more likely to maximize Lone Star shareholder value than the offer of Party B or Lone Star’s stand-alone prospects, subject to certain revisions to First Guaranty’s offer. Over the next few weeks, Mr. Bernica and senior management of Lone Star held discussions with Mr. Alton Lewis, the President and Chief Executive Officer of First Guaranty, to convey the requested revisions, and subsequent to that conversation, First Guaranty submitted a revised non-binding letter of intent that reflected the requested revisions. During the week of July 11, 2022, senior management of Lone Star met with representatives of Hunton and PT to discuss the terms of First Guaranty’s revised offer, as well as Lone Star’s certified public accountant to discuss the accounting treatment of the offer and related transaction costs. On July 16, 2022, Lone Star’s board of directors held a meeting and approved the revised non-binding letter of intent submitted by First Guaranty, subject to certain additional changes.

 

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On July 26, 2022, First Guaranty provided Lone Star a revised, non-binding letter of intent that contemplated First Guaranty acquiring all of the issued and outstanding Lone Star common stock at an aggregate purchase price of 1.5 times Lone Star’s net tangible book value as of the close of the month preceding closing, net of the obligation to pay any stock options and net of the obligation to pay any golden parachute payments, payable in First Guaranty’s common stock. The revised non-binding letter of intent addressed the changes approved by Lone Star’s board of directors on July 16, 2022, and was executed by both parties on July 26, 2022. On July 26, 2022, the closing price of First Guaranty’s stock was $24.82.

 

Between August 25, 2022, and September 9, 2022, senior management of Lone Star met in person and had multiple telephone calls with senior management of First Guaranty to discuss the progress of First Guaranty’s due diligence and Lone Star’s reverse due diligence of First Guaranty. On September 27, 2022, Lone Star’s board of directors met to discuss the findings of Lone Star’s due diligence. After review and discussion, Lone Star’s board of directors agreed to move forward with negotiating the merger agreement with First Guaranty.

 

On October 4, 2022, First Guaranty provided an initial draft of the merger agreement to Lone Star. During the next few weeks, Hunton and senior management of Lone Star and First Guaranty and its legal counsel met to discuss the merger agreement and certain terms of the merger agreement that differed from the terms of the non-binding letter of intent executed by the parties on July 26, 2022; specifically, whether Lone Star would pay for its merger related costs and expenses incurred during the pendency of the transaction. On October 28, 2022, First Guaranty submitted an amendment to the non-binding letter of intent that contemplated First Guaranty reimbursing certain costs incurred by Lone Star during the pendency of the transaction and that any increase in Lone Star’s net tangible book value resulting from the exercise of stock options would be valued at an amount equal to one times the increased net tangible book value.

 

Between October 28, 2022, and December 2, 2022, Hunton and senior management of Lone Star discussed and negotiated with First Guaranty and its legal counsel the various legal and business terms of the merger agreement and the potential transaction. On December 12, 2022, Lone Star’s board of directors reviewed a revised draft of the merger agreement and discussed the draft of the merger agreement with representatives of Hunton. During the meeting, the board discussed at length various topics, including, but not limited to: the treatment of Lone Star options; the restrictions on the operations of Lone Star between signing and closing; overall market volatility; transaction execution risk; closing conditions and termination rights; and the termination fee payable by Lone Star upon certain circumstances. On December 12, 2022, Lone Star provided a revised draft of the merger agreement to First Guaranty. For the next few weeks, Hunton and senior management of Lone Star and First Guaranty and its legal counsel continued to discuss and negotiated various issues, including, but not limited to, the amount and scope of adjustments to the aggregate merger consideration calculation; the timing of transaction expenses in connection with the merger agreement; the exchange ratio; treatment of Lone Star options; tax, accounting and contract issues relating to labor and employee benefit matters, including employee compensation after the closing of the merger; the timing of the merger; the operations of Lone Star between signing and closing; and representations, warranties and covenants of Lone Star. The parties exchanged multiple drafts of the merger agreement and ancillary agreements and had numerous calls to discuss and negotiate various issues.

 

On January 4, 2023, First Guaranty provided Lone Star with a revised draft of the merger agreement. Lone Star’s board of directors held a special meeting to review the revised merger agreement.

 

On January 6, 2023, the respective boards of directors of Lone Star and First Guaranty met to discuss the final merger agreement and ancillary agreements. At Lone Star’s meeting, representatives of Hunton reviewed with the Lone Star board of directors their fiduciary duties and explained the terms of the merger agreement and related transaction documents. Also at this meeting, representatives of PT reviewed the financial aspects of the proposed merger and summarized the potential strategic and financial rationale for the transaction for both parties and responded to questions by the Lone Star board of directors. PT then delivered its oral opinion, which was confirmed in writing on January 6, 2023, to the effect that, as of such date and subject to the procedures followed, assumptions made, matters considered, qualifications and limitations on the review undertaken by PT as set forth in its opinion, the merger consideration was fair, from a financial point of view to the holders of Lone Star common stock. See “– Opinion of Lone Star’s Financial Advisor.” After further discussion among the directors and Lone Star’s advisors, including with respect to the factors described in “– Recommendation of the Lone Star Board and Its Reasons for the Merger,” the Lone Star board of directors unanimously determined that the merger and the merger agreement were advisable, fair to, and in the best interests of, Lone Star and its shareholders, and unanimously approved the merger agreement and related actions and recommended the adoption and approval of such agreement and transactions to the Lone Star shareholders. At First Guaranty’s meeting, management and legal advisors explained the terms of the merger agreement and related transaction documents, the purchase price, the expenses of the merger and the potential strategic and financial rationale for the transaction. After further discussion, the First Guaranty board of directors approved the merger agreement and related actions.

 

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After their respective board meetings, the parties finalized the merger agreement and entered into the merger agreement and ancillary agreements, including the voting agreement wherein each of the directors of Lone Star agreed to vote their shares of Lone Star common stock in favor of the merger, and announced the merger in a joint press release prior to the opening of trading on January 9, 2023.

 

Recommendation of the Lone Star Board of Directors and Its Reasons for the Merger

 

After careful consideration, on January 6, 2023, after holding a meeting to discuss the merger and the merger agreement, the Lone Star board of directors determined that the merger is in the best interests of Lone Star and its shareholders and that the consideration to be received in the merger is fair, from a financial point of view, to the Lone Star shareholders. Accordingly, the Lone Star board of directors unanimously approved the merger agreement and recommended that the Lone Star shareholders vote “FOR” the Lone Star merger proposal.

 

The Lone Star board of directors believes that partnering with First Guaranty and First Guaranty Bank will maximize the long-term value of its shareholders’ investment in Lone Star, and that the merger will provide the combined company with additional resources necessary to compete more effectively in the Houston MSA.

 

In reaching its decision to approve the merger agreement and recommend the merger to its shareholders, the Lone Star board of directors evaluated the merger and the merger agreement, in consultation with Lone Star’s management, as well as its legal and financial advisors, and considered a number of positive factors, including the following material factors, which are not presented in order of priority:

 

its knowledge of the business, operations, financial and regulatory condition, earnings and prospects of Lone Star and First Guaranty;

its knowledge of the current environment in the financial services industry, including national and regional economic conditions, increased regulatory burdens, evolving trends in technology, increasing competition, the current financial market and regulatory conditions and the likely effects of these factors on the potential growth of Lone Star and First Guaranty, development, productivity, profitability and strategic options;

the complementary aspects of Lone Star’s and First Guaranty’s respective businesses, including customer focus, geographic coverage, business orientation and compatibility of the companies’ management and operating styles;

Lone Star’s belief that a merger with First Guaranty Bank would allow Lone Star shareholders to participate in the future performance of a combined bank that would have better future prospects than Lone Star was likely to achieve on a stand-alone basis or through other strategic alternatives;

Lone Star’s belief that Lone Star, First Guaranty and First Guaranty Bank share a similar strategic vision;

First Guaranty’s commitment to enhancing its strategic position in its markets;

the fact that the merger consideration paid in the form of First Guaranty common stock would allow former Lone Star shareholders to participate as First Guaranty shareholders in the growth of First Guaranty and in any synergies resulting from the merger;

the historical performance of First Guaranty common stock;

First Guaranty’s historical cash dividend payments;

the limited liquidity that Lone Star shareholders have with respect to their investment in Lone Star, for which there is no active public market, and the fact that as First Guaranty shareholders, Lone Star’s shareholders would be expected to have increased liquidity in the form of a publicly-traded, Nasdaq-listed security;

the value of the merger consideration compared to the current and projected book value of Lone Star and compared to similar recent transactions in the industry;

the fact that the merger consideration paid in the form of First Guaranty common stock is expected to be tax-free to Lone Star shareholders;

the terms of the merger agreement, and the presentation by Lone Star’s legal advisors regarding the merger and the merger agreement;

the financial presentation of PT, dated January 6, 2023, to the Lone Star board of directors and the opinion of PT, dated January 6, 2023, to the Lone Star board of directors to the effect that, as of January 6, 2023, and subject to the assumptions, limitations and qualifications set forth in the opinion, the merger consideration was fair, from a financial point of view, to the holders of Lone Star common stock, as more fully described below under the section of this proxy statement/prospectus entitled “The MergerOpinion of Lone Star’s Financial Advisor” beginning on page 30;

the regulatory and other approvals required in connection with the merger and the likelihood that the approvals needed to complete the merger will be obtained within a reasonable time and without unacceptable conditions; and

  

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the likelihood of First Guaranty consummating the merger based upon First Guaranty’s history of completing other merger transactions.

 

The Lone Star board of directors also considered potential risks and potentially negative factors concerning the merger in connection with its deliberations of the proposed transaction, including the following material factors:

 

the challenges of combining the businesses, assets and workforces of two financial institutions;
the potential risk of diverting management focus and resources from other strategic opportunities and from operational matters while working to implement the merger;
the risks and costs to Lone Star if the merger is not completed;
the fact that the merger consideration, which consists of shares of First Guaranty common stock, provides less certainty of value to Lone Star shareholders compared to a transaction in which they would receive only cash consideration;
the potential for a decline in the value of First Guaranty common stock—whether before or after consummation of the merger—reducing the value of the consideration received by Lone Star’s shareholders;
the provisions of the merger agreement restricting Lone Star’s solicitation of third party acquisition proposals and the fact that Lone Star would be obligated to pay a termination fee following the termination of the merger agreement in certain circumstances;
the potential for unintended delays in the regulatory approval process; and
the interests of certain of Lone Star’s directors and executive officers in the merger that are different from, or in addition to, their interests as Lone Star shareholders, which are further described in the section of this proxy statement/prospectus entitled “– Interests of Lone Star’s Directors and Executive Officers in the Merger” beginning on page 41.

 

The foregoing discussion of the factors considered by the Lone Star board of directors is not intended to be exhaustive, but is believed to include the material factors considered by the Lone Star board of directors. The Lone Star board of directors collectively reached the unanimous conclusion to approve the merger agreement and the merger in light of the various factors described above and other factors that each member of the Lone Star board of directors determined was appropriate. In view of the wide variety of the factors considered in connection with its evaluation of the merger and the complexity of these matters, the Lone Star board of directors did not find it useful, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In considering the factors described above, the individual members of the Lone Star board of directors may have given different weight to different factors. The Lone Star board of directors conducted an overall analysis of the factors described above including thorough discussions with Lone Star management and Lone Star’s advisors, and considered the factors overall to be favorable to, and to support, its determination.

 

LONE STAR’S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE MERGER AGREEMENT AND THE MERGER.

 

Opinion of Lone Star’s Financial Advisor

 

Lone Star retained PT to act as financial advisor to the Lone Star board of directors in connection with Lone Star’s consideration of a possible business combination. Lone Star selected PT to act as its financial advisor because PT is a nationally recognized investment banking firm which specializes in community financial institutions. In the ordinary course of its investment banking business, PT is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions.

 

PT acted as financial advisor to the Lone Star board of directors in connection with the proposed merger and participated in certain of the negotiations leading to the execution of the merger agreement. At the January 6, 2023 meeting at which the Lone Star board of directors considered the merger and the merger agreement, PT delivered to the board of directors its oral opinion, which was subsequently confirmed in writing on January 6, 2023, to the effect that, as of such date, the merger consideration was fair, from a financial point of view, to the holders of Lone Star common stock. The full text of PTs opinion is attached as Annex E to this proxy statement/prospectus. The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by PT in rendering its opinion. The description of the opinion set forth below is qualified in its entirety by reference to the full text of the opinion. Holders of Lone Star common stock are urged to read the entire opinion carefully in connection with their consideration of the proposed merger.

 

PT’s opinion was directed to the Lone Star board of directors in connection with its consideration of the merger and the merger agreement and does not constitute a recommendation to any Lone Star shareholder as to how any such shareholder should vote at any meeting of shareholders called to consider and vote upon the approval of the merger and the merger agreement. PT’s opinion was directed only to the fairness, from a financial point of view, of the merger consideration to the holders of Lone Star common stock and did not address the underlying business decision of Lone Star to engage in the merger, the form or structure of the merger or any other transactions contemplated in the merger agreement, the relative merits of the merger as compared to any other alternative transactions or business strategies that might exist for Lone Star or the effect of any other transaction in which Lone Star might engage. PT also did not express any opinion as to the fairness of the amount or nature of the compensation to be received in the merger by any officer, director or employee of Lone Star or First Guaranty, or any class of such persons, if any, relative to the compensation to be received in the merger by any other shareholder. PT’s opinion was approved by PT’s fairness opinion committee.

  

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This analysis includes:

 

a summary of selected terms of the transaction; and

financial analyses with respect to Lone Star and First Guaranty.

 

In undertaking this analysis, PT has:

 

reviewed a draft, dated January 4, 2023, of the merger agreement;

reviewed certain publicly available business and financial information relating to Lone Star and First Guaranty;

reviewed certain other business, financial, and operating information relating to Lone Star provided to PT by the management of Lone Star, including financial forecasts for Lone Star for the 2023-2024 fiscal years ending December 31st;

met with, either by phone or in person, certain members of Lone Star to discuss the business prospects of Lone Star and First Guaranty and the proposed transaction;

reviewed certain financial terms of the proposed transaction and compared certain of those terms with the publicly available financial terms of certain transactions that have recently been affected or announced;

reviewed certain financial data of Lone Star and First Guaranty and compared that data with similar data for companies with publicly traded equity securities that PT deemed relevant; and

considered such other information, financial studies, analyses, investigations, economic data, and market criteria that PT deemed relevant.

 

PT also discussed with certain members of the senior management of Lone Star and its representatives the business, financial condition, results of operations and prospects of Lone Star and held similar discussions with certain members of the senior management of First Guaranty and its representatives regarding the business, financial condition, results of operations and prospects of First Guaranty.

 

In performing its review, PT relied upon the accuracy and completeness of all of the financial and other information that was available to and reviewed by PT from public sources, that was provided to PT by Lone Star or First Guaranty or their respective representatives, or that was otherwise reviewed by PT, and PT assumed such accuracy and completeness for purposes of rendering its opinion without any independent verification or investigation. PT relied on the assurances of the respective managements of Lone Star and First Guaranty that they were not aware of any facts or circumstances that would have made any of such information inaccurate or misleading. PT was not asked to and did not undertake an independent verification of any of such information and PT did not assume any responsibility or liability for the accuracy or completeness thereof. PT did not make an independent evaluation or perform an appraisal of the specific assets, the collateral securing assets or the liabilities (contingent or otherwise) of Lone Star or First Guaranty, nor was PT furnished with any such evaluations or appraisals. PT rendered no opinion or evaluation on the collectability of any assets or the future performance of any loans of Lone Star or First Guaranty. PT did not make an independent evaluation of the adequacy of the allowance for loan losses of Lone Star or First Guaranty, or of the combined entity after the merger, and PT did not review any individual credit files relating to Lone Star or First Guaranty. PT assumed, with Lone Star’s consent, that the respective allowances for loan losses for both Lone Star and First Guaranty were adequate to cover such losses and would be adequate on a pro forma basis for the combined entity after taking into account estimated purchase accounting adjustments.

 

In preparing its analyses, PT used internal monthly net income, tangible book value and transaction expense estimates for Lone Star for the year ending December 31, 2023, as provided by the senior management of Lone Star. In addition, PT used publicly available mean analyst earnings per share estimates for First Guaranty for the years ending December 31, 2023, and December 31, 2024. PT also received and used in its pro forma analyses certain assumptions relating to transaction expenses, purchase accounting adjustments, cost synergies and savings as provided by the senior management of Lone Star. With respect to the foregoing information, the respective senior managements of Lone Star and First Guaranty confirmed to PT that such information reflected (or, in the case of the publicly available median analyst estimates referred to above, were consistent with) the best currently available estimates and judgments of those respective managements as to the future financial performance of Lone Star and First Guaranty, respectively, and PT assumed that the future financial performance reflected in such information would be achieved. PT expressed no opinion as to such information, or the assumptions on which such information was based. PT also assumed that there had been no material change in the respective assets, financial condition, results of operations, business or prospects of Lone Star or First Guaranty since the date of the most recent financial statements made available to PT. PT assumed in all respects material to its analyses that Lone Star and First Guaranty would remain as going concerns for all periods relevant to its analyses.

 

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PT also assumed, with Lone Star’s consent, that (i) each of the parties to the merger agreement would comply in all material respects with all material terms and conditions of the merger agreement and all related agreements, that all of the representations and warranties contained in such agreements were true and correct in all material respects, that each of the parties to such agreements would perform in all material respects all of the covenants and other obligations required to be performed by such party under such agreements and that the conditions precedent in such agreements were not and would not be waived, (ii) in the course of obtaining the necessary regulatory or third party approvals, consents and releases with respect to the merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on Lone Star, First Guaranty, the merger or any related transactions, and (iii) the merger and any related transactions would be consummated in accordance with the terms of the merger agreement without any waiver, modification or amendment of any material term, condition or agreement thereof and in compliance with all applicable laws and other requirements. Finally, with Lone Star’s consent, PT relied upon the advice that Lone Star received from its legal, accounting and tax advisors as to all legal, accounting and tax matters relating to the merger and the other transactions contemplated by the merger agreement. PT expressed no opinion as to any such matters.

 

PT’s opinion was necessarily based on financial, economic, regulatory, market and other conditions as in effect on, and the information made available to PT as of, the date thereof. Events occurring after the date thereof could materially affect PT’s opinion. PT has not undertaken to update, revise, reaffirm or withdraw its opinion or otherwise comment upon events occurring after the date thereof. PT expressed no opinion as to the trading value of First Guaranty common stock at any time or what the value of First Guaranty common stock would be once it is actually received by the holders of Lone Star common stock.

 

In rendering its opinion, PT performed a variety of financial analyses. The summary below is not a complete description of all the analyses underlying PT’s opinion or the presentation made by PT to the Lone Star board of directors, but is a summary of the material analyses performed and presented by PT. The summary includes information presented in tabular format. In order to fully understand the financial analyses, these tables must be read together with the accompanying text. The tables alone do not constitute a complete description of the financial analyses. The preparation of a fairness opinion is a complex process involving subjective judgments as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. The process, therefore, is not necessarily susceptible to a partial analysis or summary description. PT believes that its analyses must be considered as a whole and that selecting portions of the factors and analyses to be considered without considering all factors and analyses, or attempting to ascribe relative weights to some or all such factors and analyses, could create an incomplete view of the evaluation process underlying its opinion. Also, no company included in PT’s comparative analyses described below is identical to Lone Star or First Guaranty and no transaction is identical to the merger. Accordingly, an analysis of comparable companies or transactions involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading values or transaction values, as the case may be, of Lone Star and First Guaranty and the companies to which they were compared. In arriving at its opinion, PT did not attribute any particular weight to any analysis or factor that it considered. Rather, PT made qualitative judgments as to the significance and relevance of each analysis and factor. PT did not form an opinion as to whether any individual analysis or factor (positive or negative) considered in isolation supported or failed to support its opinion, rather, PT made its determination as to the fairness of the merger consideration from a financial point of view to the holders of Lone Star common stock on the basis of its experience and professional judgment after considering the results of all its analyses taken as a whole.

 

In performing its analyses, PT also made numerous assumptions with respect to industry performance, business and economic conditions and various other matters, many of which cannot be predicted and are beyond the control of Lone Star, First Guaranty, and PT. The analyses performed by PT are not necessarily indicative of actual values or future results, both of which may be significantly more or less favorable than suggested by such analyses. PT prepared its analyses solely for purposes of rendering its opinion and provided such analyses to the Lone Star board of directors at its January 6, 2023, meeting. Estimates on the values of companies do not purport to be appraisals or necessarily reflect the prices at which companies or their securities may actually be sold. Such estimates are inherently subject to uncertainty and actual values may be materially different. Accordingly, PT’s analyses do not necessarily reflect the value of Lone Star common stock or First Guaranty common stock or the prices at which Lone Star common stock or First Guaranty common stock may be sold at any time. The analyses of PT and its opinion were among a number of factors taken into consideration by the Lone Star board of directors in making its determination to approve the merger agreement and the analyses described below should not be viewed as determinative of the decision of the Lone Star board of directors with respect to the fairness of the merger consideration.

 

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Summary of Proposed Merger Consideration and Implied Transaction Metrics

 

PT reviewed the financial terms of the proposed merger. As set forth in the merger agreement, at the effective time of the merger, each share of Lone Star common stock issued and outstanding immediately prior to the effective time of the merger, by virtue of the merger and without any action on the part of the holder thereof, will be converted into and exchanged for the right to receive shares of First Guaranty common stock, subject to adjustment as set forth in the merger agreement. PT calculated an aggregate implied transaction value of $27.97 million and an implied purchase price per share of $7.76 consisting of the implied value of 3,325,420 shares of Lone Star common stock and 438,832 Lone Star options outstanding with a weighted average strike price of $2.85, and based on the 20-day average closing price of First Guaranty common stock on January 5, 2023, estimated equity at month end prior to close of $20.63 million, and the assumption that none of Lone Star’s options will be exercised. Based upon financial information for Lone Star as of or for the 12 months (or “LTM”) ended September 30, 2022, and the closing price of First Guaranty common stock on January 5, 2023, PT calculated the following implied transaction metrics:

 

Aggregate Merger Consideration / Tangible Book Value   143.4%
Aggregate Merger Consideration / LTM Net Income   15.4x
Tangible Book Premium / Core Deposits¹   9.2%

 

 

1 Core deposits defined as total deposits excluding time deposits with balances greater than $100,000

 

Stock Trading History

 

PT reviewed the publicly available historical reported total return of First Guaranty common stock for the one-year period ended January 4, 2023. PT then compared the relationship between the movements in First Guaranty common stock total return to movements in the S&P U.S. BMI Banks – Southwest Region – Total Return.

 

First Guarantys One-Year Stock Performance

 

   Total Return (Daily) 
   January 4, 2023 
First Guaranty – Total Return (Daily)   19.3%
S&P U.S. BMI Banks – Southwest Region – Total Return (Daily)   -15.6%

 

Comparable Company Analyses

 

PT used publicly available information to compare selected financial information for Lone Star with two groups of financial institutions selected by PT. The Lone Star National Peer Group included: U.S. publicly traded banks and thrifts with assets between $50.00 million and $600.00 million, LTM return on average assets for the period ended September 30, 2022, between 0.50% and 2.00%, tangible equity / tangible assets greater than 8.5%, and companies with a 90-day average daily trading volume of greater than 750 shares; excludes companies subject to an announced merger and mutual holding companies (or “MHCs”). The Lone Star National Peer Group consisted of the following companies:

 

OptimumBank Holdings, Inc. (FL)

 

Mission Valley Bancorp (CA)

 

M&F Bancorp, Inc. (NC)

 

Cullman Bancorp, Inc. (AL)

 

Ottawa Bancorp, Inc. (IL)

 

Cincinnati Bancorp, Inc (OH)

 

Pacific West Bancorp (OR)

 

 

The Lone Star Regional Peer Group included: Publicly traded banks and thrifts headquartered in the Southwest and West, as defined by S&P Capital IQ Pro, with assets between $50.00 million and $1.00 billion, LTM return on average assets for the period ended September 30, 2022, between 0.50% and 2.00%, tangible equity / tangible assets greater than 8.0%, and companies with a 90-day average daily trading volume of greater than 500 shares; excludes companies subject to an announced merger and MHCs. The Lone Star Regional Peer Group consisted of the following companies:

 

Sound Financial Bancorp, Inc. (WA)

 

Summit Bank Group, Inc. (OR)

 

Pinnacle Bank (CA)

 

Bank of San Francisco (CA)

 

Home Federal Bancorp, Inc. of Louisiana (LA)

 

Commencement Bancorp, Inc. (WA)

 

Mission Valley Bancorp, Inc. (CA)

 

Pacific West Bancorp (OR)

 

 

The analysis compared publicly available financial information for Lone Star with corresponding data for the Lone Star Peer Groups as of or for the LTM ended September 30, 2022, with pricing data as of January 5, 2023. The tables below set forth the data for Lone Star and the 25th percentile, median, and 75th percentile data for the Lone Star National and Regional Peer Groups.

 

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Lone Star National Selected Public Companies Analysis

  

            Lone Star Peer Group  
      Lone Star       25th Percentile       Median       75th Percentile  
Total assets¹ (in millions)   $ 151     $ 292     $ 404     $ 510  
Tangible equity / Tangible assets¹     12.9 %     9.9 %     11.6 %     12.8 %
LTM Return on average assets¹     1.21 %     0.72 %     0.94 %     1.15 %
LTM Return on average equity¹     9.68 %     5.10 %     6.14 %     11.93 %
LTM Net interest margin¹     4.06 %     3.65 %     3.67 %     3.97 %
LTM Efficiency ratio¹     66.5 %     64.4 %     65.1 %     74.3 %
LTM Non-interest income / Average assets¹     0.55 %     0.40 %     0.74 %     1.45 %
Nonperforming assets / Total assets¹ ²     0.19 %     0.14 %     0.28 %     0.91 %
Market Capitalization (in millions)           31.2       42.7       43.5  
90-day Average Daily Volume           1,532       2,654       7,515  
Price / Tangible book value           81.9 %     98.2 %     109.4 %
Price / LTM EPS           9.5 x     12.5 x     23.3 x

 

 

1Represents bank level data

2Nonperforming assets defined as nonperforming loans, other real estate owned, and other nonaccrual assets

 

Lone Star Regional Selected Public Companies Analysis

 

        Lone Star Peer Group 
    Lone Star    25th Percentile    Median    75th Percentile 
Total assets¹ (in millions)  $151   $521   $597   $925 
Tangible equity / Tangible assets¹   12.9%   9.0%   9.9%   10.4%
LTM Return on average assets¹   1.21%   0.92%   0.98%   1.26%
LTM Return on average equity¹   9.68%   8.93%   10.69%   13.27%
LTM Net interest margin¹   4.06%   3.53%   3.81%   3.94%
LTM Efficiency ratio¹   66.5%   55.4%   66.2%   68.6%
LTM Non-interest income / Average assets¹   0.55%   0.16%   0.40%   0.55%
Nonperforming assets / Total assets¹ ²   0.19%   0.14%   0.45%   0.64%
Market Capitalization (in millions)       44.5    53.2    94.0 
90-day Average Daily Volume       1,781    2,312    3,932 
Price / Tangible book value       99.9%   106.7%   111.9%
Price / LTM EPS       8.7x   9.8x   12.9x

 

 

1Represents bank level data

2Nonperforming assets defined as nonperforming loans, other real estate owned, and other nonaccrual assets

 

PT used publicly available information to perform a similar analysis for First Guaranty by comparing selected financial information for First Guaranty with a group of financial institutions selected by PT (or the “First Guaranty Peer Group”). The First Guaranty Peer Group included banks headquartered in the Southwest and West regions, as defined by S&P Capital IQ Pro, whose securities are traded on the Nasdaq Stock Market with total assets between $2.00 billion and $4.00 billion, LTM return on average assets for the period ended September 30, 2022, between 0.75% and 1.50%, most recent quarter nonperforming assets / total assets less than 1.00%, most recent quarter efficiency ratio less than 70.0%, and companies with a 90-day average daily trading volume of greater than 1,000 shares; excludes companies subject to an announced merger and MHCs.

 

Sierra Bancorp (CA)

 

Guaranty Bancshares, Inc. (TX)

 

Home Bancorp, Inc. (LA)

 

Coastal Financial Corporation (WA)

 

Red River Bancshares, Inc. (LA)

 

Northrim BanCorp, Inc. (AK)

 

Investar Holding Corporation (LA)

 

FS Bancorp, Inc. (WA)

 

BayCom Corp (CA)

 

Central Valley Community Bancorp (CA)

 

Territorial Bancorp, Inc. (HI)

 

California BanCorp (CA)

 

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The analysis compared publicly available financial information for First Guaranty with corresponding data for the First Guaranty Peer Group as of or for the period ended September 30, 2022, with pricing data as of January 5, 2023. The table below sets forth the data for First Guaranty and the median, mean, 25th percentile and 75th percentile data for the First Guaranty Peer Group.

 

First Guaranty Comparable Company Analysis

 

        First Guaranty Peer Group 
    First Guaranty    25th Percentile    Median    75th Percentile 
Total assets (in millions)  $3,097   $2,507   $2,690   $3,142 
Loans / Deposits   89.2%   69.3   82.6%   93.3%
Tangible common equity / tangible assets   5.9%   7.3%   7.6%   8.0%
LTM Return on average assets   1.09%   1.02%   1.10%   1.26%
LTM Return on average equity   14.1%   10.9%   12.4%   13.3%
LTM Efficiency ratio   60.2%   58.8   61.1%   63.6%
LTM Fee income / operating revenue   10.1%   9.1%   14.8%   19.1%
LTM Non-interest expense / Average assets   2.37%   2.16%   2.43%   2.69%
Nonperforming assets / Total assets¹   0.35%   0.20   0.32%   0.59%
Loan loss reserve / gross loans   0.97%   0.89%   1.11%   1.20%
Price / Tangible book value   139.3%   118.0%   136.8%   159.4%
Price / LTM EPS   8.6x   9.3   9.8x   10.9x
Price / 2022E EPS   9.1x   8.9   9.5x   10.4x
Price / 2023E EPS   11.5x   7.7   8.3x   9.6x
Core Deposit Premium   3.0%   2.0%   3.4%   5.2%
Dividend Yield   2.7%   0.9%   2.4%   2.8%

 

 

1 Nonperforming assets defined as nonaccrual loans and leases, renegotiated loans and leases, and foreclosed or repossessed assets, from both the held for sale and held for investment portfolios

2  Based on median analyst consensus earnings per share estimates

 

Analysis of Precedent Transactions

 

PT reviewed two groups of recent bank and thrift merger and acquisition transactions. The national group consisted of transactions with disclosed financial terms which were announced between January 1, 2021, and January 5, 2023, involving nationwide bank and thrift targets with total assets between $50.00 million and $500.00 million with target LTM return on average assets for the period ended September 30, 2022, between 0.50% and 2.00% and tangible equity / tangible assets between 10.0% and 20.0%; excludes investor group buyers, mergers of equals, less than 100% equity ownership acquired, and transactions with a price less than 100% of tangible book value (or the “Nationwide Selected Transactions”). The Nationwide Selected Transactions group was composed of the following transactions:

 

Acquiror Target
Mid Penn Bancorp, Inc (PA) Brunswick Bancorp (NJ)
First Community Bankshares, Inc. (VA) Surrey Bancorp (NC)
Republic Bancorp, Inc. (KY) CBank (OH)
Home Federal Bancorp, Inc. of Louisiana (LA) Northwest Bancshares Corporation (LA)
Taichung Commercial Bank Co., Ltd. (Taiwan) American Continental Bancorp (CA)
MVB Financial Corp. (WV) Integrated Financial Holdings, Inc. (NC)
Middlefield Banc Corp. (OH) Liberty Bancshares, Inc. (Ada, OH)
Cambridge Bancorp (MA) Northmark Bank (MA)
Home Bancorp, Inc. (LA) Friendswood Capital Corporation (TX)
Alerus Financial Corporation (ND) MPB BHC, INC. (AZ)
InBankshares, Corp (CO) Legacy Bank (CO)
Eagle Bancorp Montana, Inc. (MT) First Community Bancorp, Inc. (MT)
Seacoast Banking Corporation of Florida (FL) Business Bank of Florida, Corp. (FL)
Scott Credit Union (IL) Tempo Bank (IL)
HBT Financial, Inc. (IL) NXT Bancorporation, Inc. (IA)
United Bancorporation of Alabama, Inc. (AL) Town-Country National Bank (AL)
First National Corporation (VA) Bank of Fincastle (VA)
Investar Holding Corporation (LA) Cheaha Financial Group, Inc. (AL)

 

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The regional group consisted of transactions with disclosed financial terms which were announced between January 1, 2021 and January 5, 2023, involving Southwest and West headquartered, as defined by S&P Capital IQ Pro, bank and thrift targets with total assets between $50.00 million and $1.00 billion with target LTM return on average assets for the period ended September 30, 2022, between 0.50% and 2.00% and tangible equity / tangible assets greater than 9.0%; excludes investor group buyers, mergers of equals, less than 100% equity ownership acquired, and transactions with a price less than 100% of tangible book value (or the “Regional Selected Transactions”). The Regional Selected Transactions group was composed of the following transactions:

 

Acquiror Target
Home Federal Bancorp, Inc. of Louisiana (LA) Northwest Bancshares Corporation (LA)
Taichung Commercial Bank Co., Ltd (Taiwan) American Continental Bancorp (CA)
Home Bancorp, Inc. (LA) Friendswood Capital Corporation (TX)
Alerus Financial Corporation (ND) MPB BHC, INC. (AZ)
InBankshares, Corp (CO) Legacy Bank (CO)
Business First Bancshares, Inc. (LA) Texas Citizens Bancorp, Inc. (TX)
Eagle Bancorp Montana, Inc. (MT) First Community Bancorp, Inc. (MT)
First Western Financial, Inc. (CO) Teton Financial Services, Inc. (WY)
Southern California Bancorp (CA) Bank of Santa Clarita (CA)
Bank of Marin Bancorp (CA) American River Bankshares (CA)
Plumas Bancorp (NV) Feather River Bancorp, Inc. (CA)

 

Using the latest publicly available information prior to the announcement of the relevant transaction, PT reviewed the following transaction metrics: transaction price to tangible book value per share, transaction price to LTM earnings per share for the period ended September 30, 2022, and tangible book value premium to core deposits. PT compared the indicated transaction metrics for the merger to the 25th percentile, median and 75th percentile metrics of both transaction groups.

 

Nationwide Selected Transactions Analysis

 

   First             
   Guaranty   Nationwide Precedent Transactions Group 
   / Lone Star    25th Percentile    Median    75th Percentile 
Total assets1 (in millions)  $151   $223   $351   $439 
LTM Return on average assets1   1.21%   0.98%   1.39%   1.61%
LTM Return on average equity1   9.68%   7.42%   9.79%   13.30%
Tangible equity / Tangible assets1   12.9%   11.1%   12.0%   13.3%
Nonperforming assets / Total assets1 2   0.19%   0.01%   0.37%   0.91%
Transaction Price / Tangible Book Value Per Share   143.4%   126.2%   137.9%   181.0%
Transaction Price / LTM Earnings Per Share   15.4x   10.0x   13.3x   17.9x
Tangible Book Value Premium to Core Deposits   9.2%   4.0%   7.4%   10.5%

 

 

1Represents target bank level data

2Nonperforming assets defined as nonperforming loans, other real estate owned, and other nonaccrual assets

 

Regional Selected Transactions Analysis
 
   First             
   Guaranty   Regional Precedent Transactions Group     
    / Lone Star    25th Percentile    Median    75th Percentile 
Total assets1 (in millions)  $151   $324   $421   $497 
LTM Return on average assets1   1.21%   0.86%   0.97%   1.60%
LTM Return on average equity1   9.68%   7.03%   9.16%   13.01%
Tangible equity / Tangible assets1   12.9%   9.8%   10.3%   12.9%
Nonperforming assets / Total assets1 2   0.19%   0.00%   0.35%   0.86%
Transaction Price / Tangible Book Value Per Share   143.4%   127.1%   147.3%   179.4%
Transaction Price / LTM Earnings Per Share   15.4x   10.6x   15.1x   17.6x
Tangible Book Value Premium to Core Deposits   9.2%   3.9%   5.2%   8.4%

 

 

1Represents target bank level data
2Nonperforming assets defined as nonperforming loans, other real estate owned, and other nonaccrual assets

 

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Dividend Discount Analyses

 

PT performed an analysis that estimated the net present value of Lone Star’s excess tangible common equity over a threshold of 8.00% tangible common equity / tangible assets assuming Lone Star performed in accordance with internal net income estimates of $1.92 million in 2022, $1.91 million in 2023, and 5.0% annual growth thereafter through 2027, as provided by the senior management of Lone Star. This analysis also assumed asset growth of 6.3% in 2022, 10.0% in 2023, and 5.0% from 2024 through 2027. To approximate the terminal value of a share of Lone Star common stock at December 31, 2027, PT applied price to 2027 earnings multiples ranging from 9.0x to 13.0x and multiples of 2025 tangible book value ranging from 80% to 120% using pre-tax cost of cash of 3.00% and a marginal tax rate of 21.0%. The terminal values were then discounted to present values using different discount rates ranging from 13.0% to 17.0%, which were chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of Lone Star common stock. As illustrated in the following tables, the analysis indicated an imputed range of values of Lone Star common stock of $18,237 thousand to $24,473 thousand when applying multiples of earnings and $16,220 thousand to $21,373 thousand when applying multiples of tangible book value.

 

Lone Star Standalone Dividend Discount Analysis - Terminal P/E Multiple ($000s)

 

        Discount Rate    
Earnings Per Share Multiple 13.0% 14.0% 15.0% 16.0% 17.0%
9.0x   20,204 19,673 19,170 18,692 18,237
10.0x   21,271 20,692 20,143 19,622 19,127
11.0x   22,339 21,711 21,116 20,552 20,016
12.0x   23,406 22,730 22,090 21,482 20,905
13.0x   24,473 23,749 23,063 22,412 21,794

 

Lone Star Standalone Dividend Discount Analysis - Terminal TBV Value ($000s)

 

        Discount Rate    
Tangible Book Value Multiple 13.0% 14.0% 15.0% 16.0% 17.0%
80.0%   17,782 17,361 16,961 16,581 16,220
90.0%   18,680 18,218 17,779 17,363 16,968
100.0%   19,578 19,075 18,598 18,146 17,716
110.0%   20,475 19,932 19,417 18,928 18,464
120.0%   21,373 20,790 20,236 19,711 19,212

 

PT also performed an analysis that estimated the net present value per share of First Guaranty common stock, in excess of 8.00% tangible common equity / tangible assets assuming First Guaranty performed in accordance with publicly available mean analyst earnings per share estimates for First Guaranty for the years ending December 31, 2022, through December 31, 2024, as well as an estimated net income growth rate of 6.0% thereafter. To approximate the terminal value of a share of First Guaranty common stock at December 31, 2027, PT applied price to 2027 earnings multiples ranging from 9.0x to 11.0x using a 3.0% cost of cash and 21.0% tax rate. The terminal values were then discounted to present values using different discount rates ranging from 12.0% to 14.0%, which were chosen to reflect different assumptions regarding required rates of return of holders or prospective buyers of First Guaranty common stock. As illustrated in the following tables, the analysis indicated an imputed range of values per share of First Guaranty common stock of $13.18 to $18.25 when applying multiples of earnings.

 

First Guaranty Standalone Dividend Discount Analysis

 

Discount Rate Earnings Per Share Multiple
9.0x 10.0x 11.0x
12.00% $14.69 $16.47 $18.25
13.00% $13.92 $15.62 $17.33
14.00% $13.18 $14.82 $16.45

 

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PT performed an additional analysis that estimated the net present value per share of First Guaranty common stock with the impacts of a merger with Lone Star. This analysis uses the same assumptions as the First Guaranty standalone dividend discount analysis, but includes merger assumptions of 32.5% cost savings, a credit mark of 1.60% (1.13x of allowance for loan and lease losses as of September 30, 2022), and no other fair value marks.

 

First Guaranty Pro Forma Dividend Discount Analysis

 

Discount Rate Earnings Per Share Multiple
9.0x 10.0x 11.0x
12.00% $15.73 $17.50 $19.28
13.00% $14.95 $16.65 $18.35
14.00% $14.21 $15.84 $17.47

 

PT noted that the dividend discount analysis is a widely used valuation methodology, but the results of such methodology are highly dependent upon the numerous assumptions that must be made, and the results thereof are not necessarily indicative of actual values or future results.

 

Contribution Analysis

 

PT performed a simple contribution analysis to indicate how much addition to the balance sheet and income statement Lone Star provides to First Guaranty. The analysis compares Lone Star and First Guaranty selected balance sheet items and LTM earnings as of September 30, 2022, in addition to estimated earnings for the years ending December 31, 2023, and December 31, 2024. The earnings estimates provided by Lone Star management use net income for the year ending December 31, 2023, of $1.91 million and 5.0% net income growth for the year ending December 31, 2024. Research analyst consensus earnings per share estimates were used for First Guaranty for the years ending December 31, 2023, and December 31, 2024. Forward looking earnings estimates do not consider any adjustments for the merger.

 

Contribution Analysis

 

    ($000s)  

Contribution

Implied

Exchange

  First Guaranty Lone Star Combined   First Guaranty Lone Star Ratio
Assets   3,096,797 151,222 3,248,019   95.3% 4.7% 0.157x
Net Loans   2,393,859 126,669 2,520,528   95.0% 5.0% 0.171x
Deposits   2,708,572 131,456 2,840,028   95.4% 4.6% 0.156x
Tangible Common Equity   180,951 19,505 200,456   90.3% 9.7% 0.347x
LTM Net Income   31,811 1,821 33,632   94.6% 5.4% 0.184x
2023E Net Income   24,297 1,914 26,211   92.7% 7.3% 0.254x
2024E Net Income   28,316 2,010 30,326   93.4% 6.6% 0.229x
        Average   93.8% 6.2% 0.214x
        Median   94.6% 5.4% 0.184x
                   

Pro Forma Transaction Analysis

 

PT analyzed certain potential pro forma effects of the merger on First Guaranty assuming the merger closes on April 30, 2023. PT also utilized the following information and assumptions: (a) estimated net income and balance sheet values for Lone Star for the years ending December 31, 2022, and December 31, 2023, as provided by senior management of Lone Star; and (b) certain assumptions relating to transaction expenses, purchase accounting adjustments, cost synergies and savings. The analysis indicated that the merger could be accretive to First Guaranty’s estimated earnings per share (excluding one-time transaction costs and expenses) in the years ending December 31, 2023, and years thereafter and dilutive to First Guaranty’s estimated tangible book value per share at closing and for years thereafter.

 

In connection with this analysis, PT considered and discussed with the Lone Star board of directors how the analysis would be affected by changes in the underlying assumptions, including the impact of final purchase accounting adjustments determined at the closing of the transaction, and noted that the actual results achieved by the combined company may vary from projected results and the variations may be material.

 

PT’s Relationship

 

PT is acting as Lone Star’s financial advisor in connection with the merger and will receive a fee for such services in an amount equal to 1.25% of the merger consideration up to $28.00 million and 5.00% of the amount above $28.00 million. The advisory fee is contingent upon the closing of the merger. Based on the aggregate merger consideration using the First Guaranty common stock 20-day average closing price on January 5, 2023, estimated adjusted net tangible shareholders’ equity as of the month-end preceding closing, and the proceeds to options holders assuming none are exercised, PT’s fee was approximately $358,782.00. PT received a $50,000.00 fee from Lone Star upon rendering its opinion and a $10,000.00 retainer fee, which will both be credited in full towards the advisory fee that will become payable to PT upon closing of the merger. Lone Star has also agreed to indemnify PT against certain claims and liabilities arising out of PT’s engagement and to reimburse PT for certain of its out-of-pocket expenses incurred in connection with PT’s engagement, subject to a cap of $10,000.00 on such expenses.

 

PT did not provide any other investment banking services to Lone Star in the two years preceding the date of its opinion. PT did not provide any investment banking services to First Guaranty in the two years preceding the date of its opinion. In the ordinary course of PT’s business as a broker-dealer, PT may purchase securities from and sell securities to Lone Star and First Guaranty. PT may also actively trade the equity and debt securities of First Guaranty for PT’s account and for the accounts of PT’s customers.

 

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First Guaranty’s Reasons for the Merger

After careful consideration, the First Guaranty board of directors determined that the merger agreement and the transactions contemplated thereby, including the merger and the issuance of shares of First Guaranty common stock as merger consideration, are in the best interests of First Guaranty and its shareholders. Accordingly, the First Guaranty board of directors approved the merger agreement and the transactions contemplated thereby.

In evaluating the merger agreement and the transactions contemplated thereby, including the merger and the issuance of shares of First Guaranty common stock as merger consideration, the First Guaranty board of directors consulted with First Guaranty’s management and legal and financial advisors and, in reaching its decision to approve the merger agreement and the transactions contemplated thereby, the First Guaranty board of directors considered a number of factors, including the following material factors, which are not presented in order of priority:

the aggregate merger consideration and the other amounts to be paid or incurred in connection with the merger;
the impact of the issuance of First Guaranty common stock in the merger on the existing shareholders of First Guaranty, including the expected earnback period for the resulting dilution;
each of First Guaranty’s, Lone Star’s, and the combined company’s business, operations, financial condition, asset quality, earnings, and prospects;
the addition of Houston, Texas as a market area for First Guaranty;
Lone Star’s established presence in and knowledge of the Houston, Texas market;
the expectation of annual cost savings resulting from the merger, enhancing efficiencies;
its understanding of the current and prospective industry and economic conditions in which First Guaranty and Lone Star operate, including national, state and local economic conditions, the competitive environment for financial institutions generally, and the likely effect of these factors on First Guaranty both with and without the proposed merger;
Lone Star’s complementary management team, the compatible corporate cultures of Lone Star and First Guaranty, all of which First Guaranty believes should facilitate integration and implementation of the merger and retention of key Lone Star employees;
its review and discussions with First Guaranty’s management concerning the due diligence investigation of Lone Star, including its review of Lone Star’s financial condition, results of operation, asset quality (including Lone Star’s long-term experience and market knowledge with respect to its loan portfolio), market areas, growth potential (projected potential accretion to earnings per share and the projected payback period of the estimated decrease in tangible book value) and quality of senior management;
the structure of the merger as a combination in which the combined company would operate under the First Guaranty brand;
First Guaranty’s successful track record of creating shareholder value through acquisitions, including its proven experience in successfully integrating acquired businesses and retaining key personnel, and First Guaranty’s management’s belief that it will be able to successfully integrate Lone Star with First Guaranty;
the financial and other terms of the merger agreement, including the merger consideration, expected tax treatment, the deal protection and termination fee provisions, and restrictions on the conduct of Lone Star’s business between the date of the merger agreement and the date of completion of the merger, which it reviewed with First Guaranty’s management and legal counsel; and

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other alternatives to the merger.

The First Guaranty board of directors also considered the potential risks related to the merger but concluded that the anticipated benefits of the merger were likely to outweigh these risks. These potential risks include:

the possibility of encountering difficulties in achieving anticipated cost synergies and savings in the amounts estimated or in the time frame contemplated;
the impact of the dilution resulting from the stock issuance on First Guaranty’s current shareholders, and the ability of First Guaranty to realize the benefits of the merger in a reasonable time frame to offset the effects of such dilution;
the possibility of encountering difficulties in completing the merger;
the possibility of encountering difficulties in successfully integrating Lone Star’s business, operations, and workforce with those of First Guaranty;
certain anticipated merger-related costs;
the diversion of management attention and resources from the operation of First Guaranty’s business towards the completion of the merger;
the regulatory and other approvals required in connection with the merger and the risk that such regulatory approvals will not be received in a timely manner or may impose unacceptable conditions;
the possibility of litigation in connection with the merger;
the possibility of negative investor perception of the merger; and
other risks associated with business combinations in the financial services industry, including those set forth in this proxy statement/prospectus under the heading “Risk Factors” beginning on page 17.

 

The foregoing discussion of the factors considered by the First Guaranty board of directors is not intended to be exhaustive, but is believed to include the material factors considered by the First Guaranty board of directors. The First Guaranty board of directors collectively reached the conclusion to approve the merger agreement and the merger in light of the various factors described above and other factors that each member of the First Guaranty board of directors determined was appropriate. In view of the wide variety of the factors considered in connection with its evaluation of the merger and the complexity of these matters, the First Guaranty board of directors did not find it useful, and did not attempt, to quantify, rank or otherwise assign weights to these factors. In considering the factors described above, the individual members of the First Guaranty board of directors may have given different weight to different factors. The First Guaranty board of directors conducted an overall analysis of the factors described above including thorough discussions with First Guaranty management and First Guaranty’s legal counsel, and considered the factors overall to be favorable to, and to support, its determination.

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Board Composition and Management of First Guaranty after the Merger

 

The members of the First Guaranty board of directors following the effective time of the merger will be the members of the First Guaranty board of directors immediately prior to the effective time of the merger. Immediately following the effective time of the merger, the executive officers of each of First Guaranty and First Guaranty Bank will remain the same.

 

Upon completion of the merger, the number of individuals constituting the First Guaranty Bank board of directors will be increased by one individual, and Jeff A. Berkley, who is currently a member of the Lone Star board of directors, will be appointed to fill the newly created vacancy on the First Guaranty Bank board of directors. Jeff A. Berkley has been designated by the Lone Star board of directors and is reasonably acceptable to the First Guaranty board of directors and will serve as a director of First Guaranty Bank from and after the effective time of the merger until succeeded in accordance with the bylaws of First Guaranty Bank.

 

Information regarding the executive officers and directors of First Guaranty is contained in documents filed by First Guaranty with the SEC and incorporated by reference into this proxy statement/prospectus, including First Guaranty’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 16, 2023, and its definitive proxy statement on Schedule 14A for its 2022 annual meeting, filed with the SEC April 15, 2022, respectively. See “Where You Can Find More Information” beginning on page 85 and “Additional Information” in the forepart of this document.

 

Interests of Lone Star’s Directors and Executive Officers in the Merger

 

In considering the recommendation of the Lone Star board of directors with respect to the merger agreement, Lone Star shareholders should be aware that certain of Lone Star’s directors and executive officers may have interests in the merger that are different from, or in addition to, the interests of Lone Star shareholders generally. Interests of directors and executive officers that may be different from or in addition to the interests of Lone Star shareholders include the items discussed below. The Lone Star board of directors was aware of these interests and considered them, among other matters, in approving the merger agreement.

 

Employment Agreement with Lone Star

 

Lone Star is a party to an employment agreement (or the “original agreement”) with Dennis L. Harrington, the President and Chief Executive Officer of Lone Star. As part of the original agreement, Lone Star agreed to provide payments to Mr. Harrington upon certain events, including relating to a change of control of Lone Star. In connection with the execution of the merger agreement, the original agreement was amended (or the original agreement as so amended, the “amended agreement”) to provide, among other things, that upon consummation of the merger and contingent upon Mr. Harrington accepting an offer of employment with First Guaranty Bank, Mr. Harrington will be provided a lump-sum cash bonus equal to 24 months of his then-current base salary, which would equal $541,948.00. In the event Mr. Harrington does not accept employment with First Guaranty Bank, he will receive a lump-sum cash payment in an amount equal to $566,467.00 under the terms of the amended agreement. In consideration of this lump sum payment, the parties agreed that any payments due to Mr. Harrington under the original agreement with respect to a change of control of Lone Star are waived and terminated, assuming that the merger is consummated prior to December 31, 2024.

 

Treatment of Lone Star Options

 

In accordance with the merger agreement, the Lone Star board of directors will set the Lone Star Option Exercise Deadline. After the Lone Star Option Exercise Deadline and prior to the closing, each unexercised Lone Star option, whether vested or unvested, will be cancelled by Lone Star and will, in accordance with the terms of the merger agreement and the terms of the respective Lone Star stock option plan, be converted into the right of the holder of such option to receive an amount in cash equal to the Lone Star Per-Option Value. Lone Star will pay each applicable holder of a Lone Star option a cash payment equal to the holder’s Lone Star Per-Option Value prior to the closing of the merger.

  

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Assuming the merger had closed on [  ], 2023, the last practicable trading date prior to the mailing of this proxy statement/prospectus, and based upon [ ] Lone Star options outstanding on such date, current directors and executive officers of Lone Star would receive aggregate net proceeds of approximately $[ ] in exchange for their Lone Star options.

 

Change in Control Agreements with Lone Star

 

Lone Star is a party to change in control agreements with certain executives of Lone Star, including Brent McRoberts, Matthew Melvin and Kathy Stuckey (or the “original change in control agreements”). In connection with the merger agreement, the original change in control agreements were amended to extend the end date from December 31, 2022, to December 31, 2024. Under these arrangements, Lone Star will make payments to these executives upon certain events, including a change in control of Lone Star. The amounts to be paid to these executives upon the occurrence of the merger, assuming consummation of the merger on March 31, 2023, are as follows: $61,622.00, $87,107.50, and $72,449.50, respectively.

 

Indemnification of Lone Star Directors and Officers

 

First Guaranty has agreed to indemnify the directors and officers of Lone Star for a period of four years following the effective time of the merger. First Guaranty has also agreed to maintain in effect a directors’ and officers’ liability insurance policy for a period of four years after the effective time of the merger with respect to claims arising from facts, events or actions which occurred prior to the effective time of the merger and covering persons who are currently covered by such insurance (with Lone Star agreeing to pay the difference between the cost of a three-year policy and a four-year policy). The insurance policy must contain substantially the same coverage and amounts, and contain terms and conditions not materially less advantageous to the directors and officers as currently provided; provided, however, that First Guaranty shall not be required to pay a premium for such insurance in excess of 200.00% of the annual premium paid by Lone Star on January 6, 2023. If the premium for such insurance exceeds the 200.00% limitation described above, then First Guaranty, after consultation with Lone Star, shall obtain tail insurance with the greatest coverage reasonably available for a cost not exceeding such limitation.

 

Special Bonus for Chairman of Lone Star

 

To recognize the efforts and extraordinary time commitments of R. Gregory Bernica, the Chairman of Lone Star’s board of directors, in connection with the merger, the Lone Star board of directors determined that Mr. Bernica will receive a one-time cash payment of $25,000.00 prior to the closing of the merger.

 

Trading Markets and Dividends

 

First Guaranty

 

First Guaranty’s common stock is listed for trading on the Nasdaq Global Market under the symbol “FGBI” and will continue to be listed under that symbol following the merger. Under the terms of the merger agreement, First Guaranty will cause the shares of common stock to be issued to Lone Star shareholders in the merger to be approved for listing on the Nasdaq Global Market.

 

The following table sets forth the closing sale prices of First Guaranty common stock as reported on the Nasdaq Global Market on January 6, 2023, the last full trading day before the public announcement of the merger agreement, and on [ ], 2023, the latest practicable trading date before the date of this proxy statement/prospectus.

 

    First Guaranty
Common
Stock
    Implied Value of
One Share of
Lone Star Common Stock to
be Converted
to Merger Consideration
 
January 6, 2023   $ 24.08     $ 7.67 (1)   
[ ], 2023   $ [ ]     $ [ ] (2) 

 

 

(1) Based on 3,325,420 shares of Lone Star common stock outstanding.

(2) Based on [ ] shares of Lone Star common stock outstanding. 

 

Lone Star

 

There is no established public trading market for the shares of Lone Star common stock, and no market for Lone Star common stock is expected to develop if the merger does not occur. No registered broker/dealer makes a market in Lone Star common stock, and Lone Star common stock is not listed for trading or quoted on any stock exchange or automated quotation system. Lone Star acts as the transfer agent and registrar for its own shares. Shares of Lone Star common stock are traded solely in individually arranged transactions between buyers and sellers. Management is not aware of any trades in Lone Star’s common stock since the fiscal year ended December 31, 2022. As of the record date, there were approximately [ ] holders of Lone Star common stock.

 

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Lone Star is not obligated to register its common stock or, upon any registration, to create a market for its common stock.

 

Lone Star’s general dividend policy is to retain earnings to augment capital and to fund growth. Accordingly, Lone Star has never paid dividends on its outstanding common stock.

 

Lone Star’s shareholders are entitled to receive dividends out of legally available funds when, as and if declared by Lone Star’s board of directors, in its sole discretion. As a Texas state banking association, Lone Star’s ability to pay distributions is restricted by certain laws and regulations. Lone Star is required by state law to obtain prior approval of the Texas Department of Banking (or the “TDB”) for payments of dividends out of its capital stock and certified surplus. In addition, under federal law, Lone Star may not pay any dividend if the payment of the dividend would cause Lone Star to become “undercapitalized” or in the event that Lone Star is “undercapitalized.”

 

Quantitative measures established by regulation to ensure capital adequacy also require Lone Star to maintain minimum amounts and defined ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to adjusted total assets, also known as the leverage ratio. To be well-capitalized, Lone Star must generally maintain a common equity Tier 1 capital ratio (or “CET1”) of at least 6.50%, a leverage ratio of at least 5.00%, a Tier 1 risk-based capital ratio of at least 8.00% and a total risk-based capital ratio of at least 10.00%. As of December 31, 2022, Lone Star’s CET1, leverage, Tier 1 risk-based capital and total risk-based capital ratios were 16.00%, 13.15%, 16.00%, and 17.25%, respectively.

 

First Guaranty’s Dividend Policy

 

Subject to certain regulatory restrictions and the rights of the holders of outstanding shares of First Guaranty’s preferred stock (or “preferred stock”), all shares of First Guaranty common stock are entitled to share equally in dividends from legally available funds, when, as and if declared by the First Guaranty board of directors. Any determination relating to the payment of dividends on First Guaranty’s common stock will depend upon a number of factors, including, but not limited to: (1) First Guaranty’s historical and projected financial condition, liquidity and results of operations; (2) First Guaranty’s capital levels and needs; (3) any acquisitions or potential acquisitions that First Guaranty is considering; (4) contractual, statutory and regulatory prohibitions and other limitations (as briefly discussed below); (5) general economic conditions; and (6) other factors deemed relevant by the First Guaranty board of directors. First Guaranty cannot assure you that it will be able to pay dividends to holders of its common stock in the future.

 

The right of holders of First Guaranty common stock to receive dividends is subordinate to the rights of holders of First Guaranty preferred stock. Dividends on the 34,500 outstanding shares of First Guaranty preferred stock accrue and are payable when, as and if authorized and declared by the board of directors out of legally available funds, on a non-cumulative basis, on the $1,000.00 per share liquidation preference, at a rate equal to 6.75% per annum, in arrears on March 1, June 1, September 1 and December 1 of each year. During any dividend period in which the preferred stock is outstanding, unless, in each case, the full dividends for the most recently completed dividend period on all outstanding shares of preferred stock have been declared and paid in full or declared and a sum sufficient for the payment thereof has been set aside, no dividend or distribution will be declared or paid or set aside for payment on any of First Guaranty’s junior stock, including its common stock, subject to certain exceptions.

 

As a Louisiana corporation, First Guaranty is subject to certain restrictions on dividends under the Louisiana Business Corporation Act (or the “LBCA”). Generally, a Louisiana corporation may pay dividends to its shareholders unless, after giving effect to the dividend, either: (1) the corporation would not be able to pay its debts as they come due in the usual course of business; or (2) the corporation’s total assets would be less than the sum of its total liabilities and the amount that would be needed, if the corporation were to be dissolved at the time of the payment of the dividend, to satisfy the preferential rights of shareholders whose preferential rights are superior to those receiving the dividend.

 

First Guaranty’s status as a bank holding company also affects its ability to pay dividends, in two ways. First, as a bank holding company, First Guaranty’s payment of dividends must comply with the policies and enforcement powers of the Federal Reserve. The Federal Reserve has issued a policy statement regarding the payment of dividends by bank holding companies. In general, the Federal Reserve’s policies provide that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the bank holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. The Federal Reserve’s policies also require that a bank holding company serve as a source of financial strength to its subsidiary banks by using available resources to provide capital funds during periods of financial stress or adversity and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. Under the prompt corrective action laws, the ability of a bank holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. These regulatory policies could affect the ability of First Guaranty to pay dividends or otherwise engage in capital distributions.

 

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Second, as a bank holding company with no material business activities, First Guaranty’s ability to pay dividends is substantially dependent upon the ability of First Guaranty Bank to transfer funds to it in the form of dividends, loans and advances.

 

First Guaranty Bank’s ability to pay dividends to First Guaranty is itself subject to various legal, regulatory and other restrictions under securities law and federal law. In general, Louisiana law provides that First Guaranty Bank may not pay any dividends unless it has unimpaired surplus at least equal to 50.00% of its capital stock and such unimpaired surplus will not be reduced below 50.00% following payment of the dividend. Prior approval of the OFI is required for First Guaranty Bank to pay any dividend if the total of all year-to-date dividends declared and paid and amounts used to redeem or purchase shares of its capital stock would exceed the bank’s net profits earned during the current year combined with its retained net profits of the immediately preceding year, after deducting (a) amounts paid or accrued for the payments of cash dividends, (b) the value of all property paid in dividends, and (c) amounts paid or accrued to redeem or purchase shares of the bank’s capital stock over the calculation period.

 

The FDIC has also issued guidance providing that a bank generally should pay dividends only when (1) the bank’s net income available to common shareholders over the past year has been sufficient to fully fund the dividends, and (2) the prospective rate of earnings retention appears consistent with the bank’s capital needs, asset quality, and overall financial condition. The FDIC may further restrict the payment of dividends by engaging in supervisory action to restrict dividends or by requiring First Guaranty Bank to maintain a higher level of capital than would otherwise be required to be adequately capitalized for regulatory purposes. Moreover, if, in the opinion of the FDIC, First Guaranty Bank is engaged in an unsound practice (which could include the payment of dividends), the FDIC may require, generally after notice and hearing, First Guaranty Bank to cease such practice.

 

First Guaranty has paid a regular quarterly dividend to holders of its common stock since the third quarter of 1993. However, no assurances can be given that any dividends on First Guaranty common stock will be paid by First Guaranty or that dividends on First Guaranty common stock, if paid, will not be reduced or eliminated in future periods. Dividends from First Guaranty will depend, in large part, upon receipt of dividends from First Guaranty Bank. The First Guaranty board of directors may change its dividend policy at any time, and the payment of dividends by bank holding companies is subject to the legal and regulatory limitations as discussed above.

 

For additional information about the regulatory restrictions and limitations on both First Guaranty and First Guaranty Bank with respect to the payment of dividends, see the sections entitled “Supervision and Regulation – Louisiana Bank Regulation” and “– Federal Regulations” and “Holding Company Regulation” in First Guaranty’s Annual Report on Form 10-K for the year ended December 31, 2022, which is incorporated by reference into this proxy statement/prospectus.

 

Restrictions on Resale of First Guaranty Common Stock

 

The shares of First Guaranty common stock to be issued to Lone Star shareholders in connection with the merger will be registered under the Securities Act. These shares may be traded freely and without restriction, except for shares issued to any shareholder who may be deemed to be an “affiliate” of First Guaranty for purposes of Rule 144 under the Securities Act. Persons who may be deemed to be affiliates of First Guaranty include individuals or entities that control, are controlled by, or are under common control with First Guaranty and may include the executive officers, directors and significant shareholders of First Guaranty.

 

Dissenters’ Rights

 

The following discussion is not a complete description of the law relating to rights of dissent and appraisal available under Texas law. This description is qualified in its entirety by the full text of the relevant provision of the TBOC, which is reprinted in its entirety as Annex F to this proxy statement/prospectus. If you desire to exercise your dissenters’ rights of appraisal, you should review carefully the TBOC and are urged to consult a legal advisor before electing or attempting to exercise these rights.

 

Lone Star shareholders who are entitled to vote on the merger have a right to demand payment in cash of the “fair value” of their shares of Lone Star common stock in accordance with the procedures established by Texas law. Shareholders who receive a fair value cash payment will not be entitled to receive any shares of First Guaranty common stock offered in the merger. Section 32.303 of the TFC and Chapter 10, Subchapter H of the TBOC (§§ 10.351-10.368) set forth the rights of Lone Star shareholders who wish to demand fair value payments for their shares. The following is a summary of the material terms of the statutory procedures to be followed by a Lone Star shareholder to perfect appraisal rights under the TBOC. Shareholders who do not properly follow appraisal rights procedures will receive the merger consideration provided under the merger agreement if the merger is effected. A copy of the applicable provisions of the TBOC is attached as Annex F to this proxy statement/prospectus.

 

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How to exercise and perfect the right to dissent

 

To be eligible to exercise the right to dissent to the merger, a Lone Star shareholder must:

 

prior to the Lone Star special meeting, provide Lone Star with a written objection to the merger that states that such shareholder will exercise his, her or its right to dissent if the merger is completed and that provides an address to which First Guaranty may send a notice if the merger is completed;
vote such shareholder’s shares of Lone Star common stock against the Lone Star merger proposal at the Lone Star special meeting;
not later than the 20th day after First Guaranty sends the dissenting shareholder notice that the merger was completed, provide First Guaranty with a written demand for payment of the fair value of such shareholder’s shares of Lone Star common stock, that states the number and class of shares of Lone Star common stock owned, the estimate of the fair value of such stock, and an address to which a notice relating to the dissent and appraisal procedures may be sent; and
not later than the 20th day after the date on which the shareholder makes the written demand for payment from First Guaranty, submit to First Guaranty the certificates representing the shares of Lone Star common stock to which the demand relates, for purposes of making a notation on the certificates that a demand for the payment of the fair value of the shares has been made.

 

If you intend to dissent from the merger, you should send your written objection, prior to the Lone Star special meeting, to Lone Star at the following address:

 

Lone Star Bank

2600 South Gessner Road, Suite 100

Houston, Texas 77063

Attention: President and Secretary

 

Lone Star shareholders who fail to vote their shares of Lone Star common stock at the Lone Star special meeting against the approval of the Lone Star merger proposal will lose their right to dissent from the merger. Such shareholders will instead receive shares of First Guaranty common stock, as described in the merger agreement. Shareholders who comply with the first two items above will receive a written notice from First Guaranty advising them that the merger has been completed. First Guaranty must deliver this notice within 10 days after the merger is completed.

 

Demand for payment

 

If you wish to receive the fair value of your shares of Lone Star common stock in cash, you must, within 20 days of the date the notice of consummation of the merger was delivered or mailed to you by First Guaranty, send a written demand to First Guaranty for payment of the fair value of your shares of Lone Star common stock. The fair value of your shares of Lone Star common stock will be the value of the shares on the day immediately preceding the effective time of the merger, excluding any appreciation or depreciation in anticipation of the merger. Your written demand and any notice addressed to First Guaranty must be sent to:

 

First Guaranty Bancshares, Inc.
400 East Thomas Street

Hammond, Louisiana 70401
Attention: President and Secretary

 

Your written demand must state how many shares of Lone Star common stock you own and your estimate of the fair value of your shares of Lone Star common stock. If you fail to send this written demand to First Guaranty within 20 days of First Guaranty’s delivery or mailing of notice that the merger is completed, you will be bound by the merger and you will not be entitled to receive a cash payment representing the fair value of your shares of Lone Star common stock. Instead, you will receive shares of First Guaranty common stock as described in the merger agreement.

 

In addition, not later than the 20th day after the date on which you make written demand for payment, you must submit to First Guaranty your certificates representing the shares of Lone Star common stock to which the demand relates for purposes of making a notation on the certificates that a demand for the payment of the fair value of your shares of Lone Star common stock has been made. If you fail to submit your certificates within the required period, it will have the effect of terminating, at the option of First Guaranty, your right to dissent and appraisal unless a court, for good cause shown, directs otherwise.

 

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Action upon receipt of your demand for payment

 

Within 20 days after First Guaranty receives your demand for payment and your estimate of the fair value of your shares of Lone Star common stock, First Guaranty must send you written notice stating whether it accepts your estimate of the fair value of your shares claimed in the demand or rejects the demand.

 

If First Guaranty accepts your estimate, First Guaranty will notify you that it will pay the amount of your estimated fair value within 90 days of the merger being completed. First Guaranty will make this payment to you only if you have surrendered the certificates representing your shares of Lone Star common stock, duly endorsed for transfer, to First Guaranty.

 

If First Guaranty does not accept your estimate, First Guaranty will notify you of this fact and will make an offer of an alternative estimate of the fair value of your shares that it is willing to pay you. You will have 90 days from the date of the completion of the merger to accept or decline First Guaranty’s offer. If you accept the offer, First Guaranty must pay the agreed amount within 120 days of the merger being completed, but only if you have surrendered the certificates representing your shares of Lone Star common stock, duly endorsed for transfer, to First Guaranty.

 

Payment of the fair value of your shares of Lone Star common stock upon agreement of an estimate

 

If you and First Guaranty reach an agreement on the fair value of your shares of Lone Star common stock within 90 days after the merger is completed, First Guaranty must pay you the agreed amount within 120 days after the merger is completed, but only if you have surrendered the share certificates representing your shares of Lone Star common stock, duly endorsed for transfer, to First Guaranty.

 

Commencement of legal proceedings if a demand for payment remains unsettled

 

If you and First Guaranty are unable to reach an agreement as to the fair market value of your shares of Lone Star common stock within 90 days after the merger is completed, you or First Guaranty may, within 60 days after the expiration of the 90-day period, commence proceedings in Dallas County, Texas, asking the court to determine the fair value of your shares of Lone Star common stock. The court will determine if you have complied with the dissenters’ rights provisions of the TBOC and if you have become entitled to a valuation of and payment for your shares of Lone Star common stock. The court will appoint one or more qualified persons to act as appraisers to determine the fair value of your shares. The appraisers will be entitled to a reasonable fee payable from court costs, which the court shall allocate between First Guaranty and the dissenting shareholders as the court determines to be fair and equitable.

 

The appraisers will determine the fair value of your shares and will report this value to the court. The court will consider the report, and both you and First Guaranty may object to all or part of the appraisal report. The court will determine the fair value of your shares and direct First Guaranty to pay that amount, plus interest accruing from the 91st day after the merger is completed until the date of the court’s judgment. First Guaranty must pay the amount of the judgment to you immediately after you surrender to First Guaranty the certificates representing your shares of Lone Star common stock, duly endorsed for transfer, to First Guaranty.

 

Rights as a shareholder

 

If you have demanded payment for your shares of Lone Star common stock pursuant to the procedures described above, you will not thereafter be entitled to vote or exercise any other rights as a Lone Star shareholder except the right to receive payment for your shares as described above and the right to bring an appropriate action to obtain relief on the ground that the merger would be or was fraudulent. In the absence of fraud, your right to dissent and receive payment of the fair value of your shares of Lone Star common stock under the dissenters’ rights provisions described herein is the exclusive remedy for the recovery of the value of your shares or money damages with respect to the merger.

 

Withdrawal of demand

 

If you have made a written demand to First Guaranty for payment of the fair value of your shares of Lone Star common stock, you may withdraw such demand at any time before payment for your shares has been made or before a petition has been filed with a court for determination of the fair value of your shares.

 

Termination of right to dissent

 

If you do not perfect your dissenters’ rights, withdraw your demand, or are otherwise unsuccessful in asserting your dissenters’ rights, your right to be paid the fair value of your shares of Lone Star common stock in cash will cease and you will be entitled to receive the same consideration received by other Lone Star shareholders in the merger. Your status as a shareholder will be restored and you will be entitled to receive any dividends or distributions made after the date of your payment demand.

 

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If you do not follow the prescribed procedures, you will not be entitled to dissenters’ rights with respect to your shares. Because of the complexity of the procedures necessary to exercise dissenters’ rights of appraisal, any shareholder wishing to exercise the right to appraisal should consult with his, her or its own legal counsel.

 

Regulatory Approvals Required for the Merger

 

Completion of the merger is subject to the receipt of all approvals, consents and waivers required to complete the transactions contemplated by the merger agreement from applicable governmental and regulatory authorities, and the expiration of any applicable statutory waiting periods, in each case, without the imposition of a condition or requirement that would reasonably be expected to have a material adverse effect on the surviving corporation and its subsidiaries, taken as a whole, after giving effect to the merger. Subject to the terms and conditions of the merger agreement, First Guaranty and Lone Star have agreed to use their reasonable best efforts and cooperate to promptly prepare and file, or cause to be prepared and filed, all necessary documentation, to obtain as promptly as practicable all regulatory approvals necessary or advisable to complete the transactions contemplated by the merger agreement, and to comply with the terms and conditions of all such approvals. First Guaranty and Lone Star have filed all necessary applications and notifications to obtain the required regulatory approvals, consents and waivers.

 

There can be no assurance that regulatory approvals will be obtained, that such approvals will be received on a timely basis, or that such approvals will not impose conditions or requirements that, individually or in the aggregate, would or could reasonably be expected to have a material adverse effect on the financial condition, results of operations, assets or business of First Guaranty or Lone Star following completion of the merger. There can likewise be no assurance that any state attorney general or other domestic regulatory authority will not attempt to challenge the merger on antitrust grounds or for other reasons, or, if such a challenge is made, as to the result thereof. The merger is conditioned upon the receipt of all consents, approvals and actions of governmental authorities and the filing of all other notices with such authorities in respect of the merger. See “The Merger Agreement – Conditions to Complete the Merger” beginning on page 58 of this proxy statement/prospectus.

 

Federal Reserve

 

The transactions contemplated by the merger agreement require approval by the Federal Reserve pursuant to Section 3 of the Bank Holding Company Act of 1956, as amended (or the “BHC Act”), and its implementing regulations, unless the Federal Reserve waives the approval requirements of the BHC Act. First Guaranty requested such a waiver on February 16, 2023.

 

If the Federal Reserve does not grant the requested waiver, the Federal Reserve will consider a number of factors when acting on applications under Section 3 of the BHC Act (12 U.S.C. § 1842(c)) and Section 225.13 of Regulation Y (12 C.F.R. § 225.13). These factors include the financial condition of the holding companies and banks involved and the future prospects of the combined organization (including consideration of the current and projected capital positions and the levels of indebtedness) and the managerial resources (including the competence, experience, and integrity of the officers, directors, and principal shareholders, as well as their record of compliance with laws and regulations). The Federal Reserve also considers the effectiveness of the applicant in combating money laundering, the convenience and needs of the communities to be served, as well as the extent to which the proposal would result in greater or more concentrated risks to the stability of the U.S. banking or financial system. The Federal Reserve may not approve a proposal that would have significant adverse effects on competition or on the concentration of resources in any banking market.

 

Federal Deposit Insurance Corporation

 

The prior approval of the FDIC is required under the Federal Deposit Insurance Act (12 U.S.C. 1828(c)) (or the “Bank Merger Act”) to merge Lone Star with and into First Guaranty Bank. First Guaranty filed an application requesting such approval on February 16, 2023. In evaluating an application filed under the Bank Merger Act, the FDIC generally considers: (1) the competitive impact of the transaction, (2) financial and managerial resources of the banks party to the bank merger, (3) the convenience and needs of the community to be served and the record of the banks under the Community Reinvestment Act (or the “CRA”), including their CRA ratings, (4) the banks’ effectiveness in combating money-laundering activities, and (5) the extent to which the bank merger would result in greater or more concentrated risks to the stability of the U.S. banking or financial system. First Guaranty and Lone Star are not aware of any reason why the FDIC would fail to approve the merger.

 

Louisiana Office of Financial Institutions

 

The merger of Lone Star with and into First Guaranty Bank requires the approval of the commissioner of the OFI pursuant to Louisiana Revised Statutes § 6:351 and 6:352. First Guaranty filed an application requesting such approval on February 16, 2023. Under Louisiana law, the commissioner of the OFI considers the financial and managerial resources and future prospects of the existing and proposed institutions and whether the convenience and needs of the community will be served. If the commissioner finds that the public interest will not be served by permitting such merger or consolidation, the commissioner will refuse to approve the merger. First Guaranty and Lone Star are not aware of any reason why the OFI would fail to approve the merger.

 

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Texas Department of Banking

 

Prior notice of the merger is required to be provided to the TDB under Section 203.003 of the TFC. First Guaranty filed such notice on February 16, 2023.

 

Public Notice and Comments

 

The Bank Merger Act, applicable Louisiana law, and applicable regulations require published notice of, and the opportunity for public comment on, these applications, and authorize the Federal Reserve and the FDIC to hold a public hearing or meeting if either agency determines that a hearing or meeting would be appropriate. The Federal Reserve, the FDIC, and the OFI take into account the views of third-party commenters, particularly on the subject of the merging parties’ CRA performance and record of service to their respective communities, and any hearing, meeting or comments provided by third parties could prolong the period during which the applications are under review by these agencies.

 

Waiting Periods

 

The DOJ has between 15 and 30 days following approvals by the Federal Reserve and the FDIC to challenge the approval on antitrust grounds. The commencement of an antitrust action would stay the effectiveness of such an approval unless a court specifically ordered otherwise. In reviewing the merger, the DOJ could analyze the merger’s effect on competition differently than the Federal Reserve or the FDIC, and thus it is possible that the DOJ could reach a different conclusion than the Federal Reserve or the FDIC regarding the merger’s effects on competition. While First Guaranty and Lone Star do not know of any reason that the DOJ would challenge regulatory approval by the Federal Reserve and the FDIC and believe that the likelihood of such action is remote, there can be no assurance that the DOJ will not initiate such a proceeding, or if such a proceeding is initiated, as to the result of any such challenge. A determination by the DOJ not to object to the merger may not prevent the filing of antitrust actions by private persons or state attorneys general.

 

Additional Regulatory Approvals and Notices

 

Notifications and/or applications requesting approval may be submitted to various other federal and state regulatory authorities and self-regulatory organizations; however First Guaranty and Lone Star are not aware of any material governmental approvals or actions that are required prior to the parties’ completion of the merger other than those described in this proxy statement/prospectus. If any additional governmental approvals or actions are required, the parties presently intend to seek those approvals or actions. The parties cannot assure you that any of these additional approvals or actions will be obtained.

 

The approval of any notice or application merely implies satisfaction of regulatory criteria for approval and does not include review of the merger from the standpoint of the adequacy of the consideration to be received by, or fairness to, shareholders. Regulatory approval does not constitute an endorsement or recommendation of the proposed merger.

 

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THE MERGER AGREEMENT

 

The following describes certain aspects of the merger, including certain material provisions of the merger agreement. The following description of the merger agreement is subject to, and qualified in its entirety by reference to, the merger agreement, which is attached to this proxy statement/prospectus as Annex A and is incorporated by reference into this proxy statement/prospectus. We urge you to read the merger agreement carefully and in its entirety, as it is the legal document governing the merger.

 

Structure of the Merger

 

Each of the boards of directors of First Guaranty, First Guaranty Bank and Lone Star have approved the merger agreement. Under the merger agreement, Lone Star will merge with and into First Guaranty Bank, First Guaranty’s wholly-owned banking subsidiary, with First Guaranty Bank surviving the merger.

 

Merger Consideration

 

Under the terms of the merger agreement, First Guaranty will issue shares of First Guaranty common stock with an assumed value of $23.67 per share on the closing date of the merger to the shareholders of Lone Star. First Guaranty will issue a number of shares with an aggregate value equal to 1.5 times Lone Star’s tangible shareholders’ equity as of the calculation date, subject to certain adjustments set forth in the merger agreement; provided, that any increase in Lone Star’s tangible shareholders’ equity resulting from the exercise of a Lone Star option after the signing of the merger agreement and prior to the Lone Star Option Exercise Deadline will be valued at the Lone Star Aggregate Option Exercise Price. Prior to the effective time of the merger, each Lone Star option that remains outstanding after the Lone Star Option Exercise Deadline will be cashed out.

 

For illustration purposes only, assuming the merger had closed on January 6, 2023, the last trading date prior to the announcement of the merger, (i) the calculation date would be December 31, 2022, and (ii) based upon 3,325,420 shares of Lone Star common stock outstanding immediately prior to the effective time of the merger on January 6, 2023, each share of Lone Star common stock would be converted into the right to receive 0.3184 shares of First Guaranty common stock, equating to a value of $7.67 per share of Lone Star common stock, or total merger consideration of $25.50 million, based on First Guaranty’s closing stock price of $24.08 on January 6, 2023, the last trading date prior to the announcement of the merger. Additionally, based upon 438,832 Lone Star options outstanding on January 6, 2023, with a weighted average strike price of $2.85, the Lone Star options would be cashed out in exchange for aggregate net proceeds of approximately $2.12 million payable to the Lone Star option holders.

 

For illustration purposes only, assuming the merger had closed on [ ], 2023, the last practicable trading date prior to the mailing of the enclosed proxy statement/prospectus, (i) the calculation date would be [ ], 2023, and (ii) based upon [ ] shares of Lone Star common stock outstanding on [ ], 2023, the last practicable trading date prior to the mailing of this proxy statement/prospectus, each share of Lone Star common stock would be converted into the right to receive [ ] shares of First Guaranty common stock, equating to a value of $[ ] per share of Lone Star common stock, or total merger consideration of $[ ] million, based on First Guaranty’s closing stock price of $[ ] on [ ], 2023, the last practicable trading date prior to the mailing of the enclosed proxy statement/prospectus. Additionally, based upon [ ] Lone Star options outstanding on [ ], 2023, the last practicable trading date prior to the mailing of the enclosed proxy statement/prospectus, with a weighted average strike price of $[ ], the Lone Star options would be cashed out in exchange for aggregate net proceeds of approximately $[ ] million payable to the Lone Star option holders.

 

Assuming the merger had closed on [ ], 2023, the last practicable trading date prior to the mailing of the enclosed proxy statement/prospectus, former Lone Star shareholders would own approximately [ ]% of First Guaranty. While the assumed value of $23.67 per share of First Guaranty common stock is known, Lone Star’s tangible shareholders’ equity, the Lone Star Aggregate Option Exercise Price and Lone Star’s transaction expenses are unknown and will not be known until the calculation date. Accordingly, the value and amount of the actual consideration a Lone Star shareholder will receive upon completion of the merger may be different from the amount and value described above. Additionally, it is impossible to predict what the actual trading price of First Guaranty common stock will be on the closing date.

 

First Guaranty common stock is currently quoted on the Nasdaq Global Market under the symbol “FGBI.”

 

Anti-Dilutive Adjustments

 

The consideration to be received by Lone Star shareholders is subject to an anti-dilutive adjustment only if the number of shares of First Guaranty common stock or Lone Star common stock issued and outstanding prior to the effective time of the merger is increased or decreased, or changed into or exchanged for a different number or kind of shares or securities, in any such case as a result of a stock split, reverse stock split, stock combination, stock dividend, recapitalization, reclassification, reorganization or similar transaction, or there will be any extraordinary dividend or distribution with respect to such stock; provided, however, that the increase in shares of Lone Star common stock issued and outstanding through the exercise of Lone Star options is not considered such an event, and the record date therefor will be prior to the effective time of the merger. In that case, an appropriate and proportionate adjustment will be made to the merger consideration to give holders of Lone Star common stock the same economic effect as contemplated by the merger agreement prior to such event. There are no other adjustments to the merger consideration contemplated under the merger agreement.

 

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Fractional Shares

 

First Guaranty will not issue any fractional shares of First Guaranty common stock in the merger. Instead, a Lone Star shareholder who otherwise would have received a fraction of a share of First Guaranty common stock, rounded to the nearest one hundredth of a share, will receive an amount in cash (without interest and rounded to the nearest whole cent) determined by multiplying the fractional share interest in First Guaranty common stock to which such holder would otherwise be entitled by the Lone Star Per-Share Amount.

 

Treatment of Lone Star Options

 

The Lone Star board of directors shall set the Lone Star Option Exercise Deadline. After such date and at least five business days prior to the effective time of the merger, each unexercised Lone Star option, whether vested or unvested, will be cancelled by Lone Star and will, in accordance with the terms of the merger agreement and the terms of the respective Lone Star stock plan, be converted into the right of the holder of each Lone Star option to receive an amount in cash equal to the Lone Star Per-Option Value. Lone Star will pay each applicable holder of a Lone Star option a cash payment equal to such holder’s Lone Star Per-Option Value prior to the effective time of the merger.

 

Closing and Effective Time

 

The merger will be closed on the business day immediately preceding the effective time of the merger. The effective time of the merger will be the date and time specified in the certificate of merger issued by the OFI. It currently is anticipated that the merger will be completed in the second or third quarter of 2023, subject to the receipt of regulatory approvals and the satisfaction of other closing conditions set forth in the merger agreement, but neither First Guaranty nor Lone Star can guarantee when or if the merger will be completed. See “The Merger AgreementConditions to Complete the Merger” beginning on page 58.

 

Organizational Documents of the Surviving Bank

 

The First Guaranty Bank articles of incorporation and the First Guaranty Bank bylaws as in effect immediately prior to the effective time of the merger will be the articles of incorporation and bylaws of the surviving bank. As described in the section entitled “The Merger Board Composition and Management of First Guaranty after the Merger,” the First Guaranty board of directors and the First Guaranty Bank board of directors immediately prior to the effective time of the merger will be the surviving corporation’s and surviving bank’s board of directors, respectively, following consummation of the merger, with the addition of one member of the Lone Star board (Jeff A. Berkley) to the First Guaranty Bank board of directors immediately following the effective time of the merger. Each of First Guaranty’s and First Guaranty Bank’s officers immediately prior to the effective time of the merger will be the officers of the surviving corporation and surviving bank, respectively, from and after the consummation of the merger.

 

Conversion of Shares; Exchange of Certificates

 

The conversion of Lone Star common stock into the right to receive the merger consideration will occur automatically at the effective time of the merger. After completion of the merger, the exchange agent will exchange certificates or book-entry shares representing shares of Lone Star common stock for the merger consideration to be received pursuant to the terms of the merger agreement.

 

Letter of Transmittal

 

No later than 10 days prior to the closing date of the merger, First Guaranty will cause the exchange agent, ClearTrust, LLC, to mail or otherwise deliver to each holder of record of Lone Star common stock as of immediately prior to the effective time of the merger a letter of transmittal and instructions on how to surrender shares of Lone Star common stock in exchange for the merger consideration the holder is entitled to receive under the merger agreement.

 

If a certificate for Lone Star common stock has been lost, stolen or destroyed, the exchange agent will issue the merger consideration deliverable in respect of Lone Star common stock represented by such certificate upon receipt of (1) an affidavit of that fact by the claimant and (2) if required by First Guaranty or the exchange agent, the posting of a bond in an amount as First Guaranty or the exchange agent may direct as indemnity against any claim that may be made against the surviving entity or Lone Star with respect to such certificate.

 

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After the effective time of the merger, there will be no transfers on the share transfer books of Lone Star of shares of Lone Star common stock that were outstanding immediately before such time.

 

Withholding

 

First Guaranty or the exchange agent, as applicable, will be entitled to deduct and withhold from the consideration otherwise payable to any holder of Lone Star common stock, or otherwise payable pursuant to the merger agreement, such amounts as First Guaranty or the exchange agent, in its reasonable discretion, determines it is required to deduct and withhold under applicable law. If any such amounts are withheld and paid over to the appropriate governmental authority, these amounts will be treated for all purposes of the merger agreement as having been paid to the person or entity from whom they were withheld.

 

Dividends and Distributions

 

No dividends or other distributions declared with respect to First Guaranty common stock will be paid to the holder of any unsurrendered certificates or book-entry shares of Lone Star common stock until the holder surrenders such certificate in accordance with the merger agreement. After the surrender of a certificate or book-entry share in accordance with the merger agreement, the record holder thereof will be entitled to receive any such dividends or other distributions, without any interest, which had previously become payable with respect to the whole shares of First Guaranty common stock represented by such certificate or book-entry share.

 

Representations and Warranties

 

The representations, warranties and covenants described below and included in the merger agreement were made only for purposes of the merger agreement and as of specific dates, are solely for the benefit of First Guaranty and Lone Star, may be subject to limitations, qualifications or exceptions agreed upon by the parties, including those included in confidential disclosures made for the purposes of, among other things, allocating contractual risk between First Guaranty and Lone Star rather than establishing matters as facts, and may be subject to standards of materiality that differ from those standards relevant to investors. You should not rely on the representations, warranties, covenants or any description thereof as characterizations of the actual state of facts or condition of First Guaranty, Lone Star or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the merger agreement, which subsequent information may or may not be fully reflected in public disclosures by First Guaranty or Lone Star. The representations and warranties and other provisions of the merger agreement should not be read alone, but instead should be read only in conjunction with the information provided elsewhere in this proxy statement/prospectus.

 

The merger agreement contains customary representations and warranties of each of First Guaranty and Lone Star relating to their respective businesses. The representations and warranties in the merger agreement generally do not survive the effective time of the merger.

 

The merger agreement contains representations and warranties made by Lone Star relating to a number of matters, including the following:

 

  corporate matters, including due organization and qualification and subsidiaries;
  capitalization;
  subsidiaries;
  authority relative to execution and delivery of the merger agreement and consummation of the transactions contemplated thereby;
  the absence of conflicts with, or violations of, organizational documents, contracts or other obligations as a result of the merger;
  required governmental and other regulatory filings and consents and approvals in connection with the merger;
  financial statements and internal controls;
  regulatory reports;
  the absence of certain changes or events;
  legal proceedings;
  compliance with laws and regulations;
  certain material contracts and agreements with regulatory agencies;
  receipt by the Lone Star board of directors of a fairness opinion from its financial advisor;
  employee benefit matters;
  employee relationship matters;
  environmental matters;
  certain tax matters;
  investment securities and commodities;
  derivative contracts;

 

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  regulatory capitalization;
  loan portfolio and reserve for loan losses;
  absence of trust business;
  absence of investment management activities;
  repurchase agreements;
  deposit insurance matters;
  transactions with affiliates;
  title to assets;
  intellectual property;
  insurance matters;
  the lack of any antitakeover provisions applicable to the transaction;
  the accuracy of certain information provided by Lone Star; and
  absence of unauthorized access to any information technology networks.

 

The merger agreement contains representations and warranties made by First Guaranty relating to a more limited number of matters, including the following:

 

  corporate matters, including due organization and qualification and subsidiaries;
  capitalization;
  authority relative to execution and delivery of the merger agreement and consummation of the transactions contemplated thereby;
  the absence of conflicts with, or violations of, organizational documents, contracts or other obligations as a result of the merger;
  First Guaranty’s SEC filings, financial statements, internal controls and accounting matters;
  compliance with applicable laws, permits and instruments, and regulatory compliance and reports;
  required governmental and other regulatory filings and consents and approvals in connection with the merger;
  the accuracy of certain information provided by First Guaranty;
  the absence of certain changes or events;
  compliance with certain laws and regulations;
  regulatory compliance matters and the ability to obtain regulatory approvals;
  absence of a broker;
  legal proceedings;
  certain tax matters;
  regulatory capitalization; and
  compliance with the provisions of the Community Reinvestment Act.

 

Definition of  “Material Adverse Change”

 

Certain representations and warranties of First Guaranty and Lone Star are qualified as to “materiality” or “Material Adverse Effect.” For purposes of the merger agreement, a “Material Adverse Effect”, with respect to any party, means (i) any change, development or effect that individually or in the aggregate is, or is reasonably likely to be, material and adverse to the condition (financial or otherwise), results of operations, or business of such party and its subsidiaries, taken as a whole, or (ii) any change, development or effect that individually or in the aggregate would, or would be reasonably likely to, materially impair the ability of such party to perform its obligations under the merger agreement or otherwise materially impairs, or is reasonably likely to materially impair, the ability of such party to consummate the merger and the transactions contemplated by the merger agreement; provided, however, that, in the case of clause (i) only, a Material Adverse Effect shall not be deemed to include the impact of (A) changes in laws of general applicability to companies in the industries in which such party and its subsidiaries operate or interpretations thereof by governmental authorities (except to the extent that such change disproportionately adversely affects Lone Star or First Guaranty and its subsidiaries, as the case may be, compared to other companies of similar size operating in the same industry in which Lone Star and First Guaranty operate, in which case only the disproportionate effect will be taken into account), (B) changes in GAAP or regulatory accounting requirements applicable to banks or bank holding companies generally (except to the extent that such change disproportionately adversely affects Lone Star or First Guaranty and its subsidiaries, as the case may be, compared to other companies of similar size operating in the same industry in which Lone Star and First Guaranty operate, in which case only the disproportionate effect will be taken into account), (C) changes in economic or market conditions in the United States or any state therein affecting the financial services industry generally, including changes in equity, credit and debt markets, general downgrades in the credit markets and changes in interest rates (except to the extent that such change disproportionately adversely affects Lone Star or First Guaranty and its subsidiaries, as the case may be, compared to other companies of similar size operating in the same industry in which Lone Star and First Guaranty operate, in which case only the disproportionate effect will be taken into account), (D) public disclosure, pendency or completion of the transactions contemplated hereby or actions expressly required by the merger agreement or actions or omissions that are taken with the prior written consent of or at the written request of the other party, or as otherwise expressly permitted or contemplated by the merger agreement, (E) any failure by Lone Star or First Guaranty to meet any internal or published industry analyst projections or forecasts or estimates of revenues or earnings for any period (it being understood and agreed that the facts and circumstances giving rise to such failure that are not otherwise excluded from the definition of Material Adverse Effect may be taken into account in determining whether there has been a Material Adverse Effect), (F) changes in the trading price or trading volume of First Guaranty common stock (it being understood and agreed that the facts and circumstances giving rise to such change that are not otherwise excluded from the definition of Material Adverse Effect may be taken into account in determining whether there has been a Material Adverse Effect), (G) the merger agreement and the transactions contemplated hereby on relationships with customers or employees (including the loss of personnel subsequent to the date of the merger agreement), (H) any local, regional, national or global health conditions (including any epidemic, pandemic or disease outbreak (including SARS-CoV-2 or COVID-19, and any evolutions thereof (or “COVID-19”))), including any material worsening of such conditions or any law, directive, guidelines or recommendations issued by a governmental authority, the Centers for Disease Control and Prevention, the World Health Organization, or any other governmental authority providing for business closures, “sheltering-in-place,” curfews, quarantines or other restrictions that relate to, or arise out of, an epidemic, pandemic or disease outbreak (including COVID-19), or any change in such law, directive, guidelines, recommendations or interpretation thereof, (I) changes in global, national or regional political conditions, including the outbreak or escalation of hostilities, declared or undeclared acts of war or terrorism, or (J) acts of God or other natural or environmental disasters or comparable events in the United States, or any escalation of the foregoing.

 

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Covenants and Agreements

 

First Guaranty and Lone Star each agreed to use commercially reasonable efforts in good faith to take, or cause to be taken, all actions, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws, so as to permit consummation of the transactions contemplated by the merger agreement as promptly as practicable, including the satisfaction of the conditions set forth in the merger agreement, and shall reasonably cooperate with the other party to that end.

 

Conduct of Business Prior to the Completion of the Merger

 

Lone Star has agreed that, from the date of the merger agreement until the effective time of the merger, except as contemplated by the merger agreement, it will carry on its business in the ordinary course of business in all material respects and consistent with past banking practices and will use commercially reasonable efforts to (i) preserve its business organizations and assets intact, (ii) keep available to itself and First Guaranty the present services of the current officers and employees of Lone Star, (iii) preserve for itself and First Guaranty the goodwill of its customers, employees, lessors and others with whom business relationships exist, and (iv) continue diligent collection efforts with respect to any delinquent loans.

 

Lone Star has also agreed that, from the date of the merger agreement until the effective time of the merger, except as contemplated by the merger agreement, required by applicable law, or with the prior written consent of First Guaranty, and subject to any and all specified exceptions described in the merger agreement, it will not:

 

  (i) issue (except for shares issued with respect to the exercise of Lone Star options prior to the effective time of the merger), sell, grant, pledge, dispose of, encumber or otherwise permit to become outstanding, or authorize the creation of, any additional shares of its stock, any rights, any new award or grant under the Lone Star stock plans or otherwise, or any other securities, or enter into any agreement with respect to the foregoing, (ii) accelerate the vesting of any existing rights, or (iii) directly or indirectly change (or establish a record date for changing), adjust, split, combine, redeem, reclassify, exchange, purchase or otherwise acquire any shares of its capital stock, or any other securities convertible into or exchangeable for any additional shares of stock, including any rights issued and outstanding prior to the effective time of the merger;
  issue a replacement of any certificate representing securities of Lone Star to the purported holder thereof other than in accordance with past practices and the governing documents of Lone Star;
  make, declare, pay or set aside for payment of dividends payable in cash, stock or property on or in respect of, or declare or make any distribution on, any shares of its capital stock;
  enter into or amend or renew any employment, consulting, compensatory, severance, retention or similar agreements or arrangements with any director, officer or employee of Lone Star, or grant any salary, wage or fee increase or increase any employee benefit or pay any incentive or bonus payments;
  hire any person as an employee or officer of Lone Star except for at-will employment at an annual rate of base salary not to exceed $150,000 to fill vacancies that may arise from time to time in the ordinary course of business;
  enter into, establish, adopt, amend, modify or terminate any Lone Star benefit plan;
 

pay, loan or advance any amount to, or sell, transfer or lease any properties or assets (real, personal or mixed, tangible or intangible) to, or enter into any agreement or arrangement with, any of its officers or directors or any of their immediate family members or any affiliates or associates of any of its officers or directors other than compensation or business expense advancements or reimbursements in the ordinary course of business;

 

sell, license, lease, transfer, mortgage, pledge, encumber or otherwise dispose of or discontinue any of its rights, assets, deposits, business or properties or cancel or release any indebtedness owed to Lone Star;

  acquire all or any material portion of the assets, debt, business, deposits or properties of any other entity or person;
  make any capital expenditures in amounts exceeding $50,000.00 individually, or $250,000.00 in the aggregate;

 

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  amend Lone Star’s governing documents;
  implement or adopt any change in its accounting principles, practices or methods, other than as may be required by applicable laws or GAAP or applicable accounting requirements of any governmental authority, in each case, including changes in the interpretation or enforcement thereof;
  enter into, amend, modify, terminate, renew, extend, or waive any material provision of, any Lone Star material contract, lease or insurance policy, or make any change in any instrument or agreement governing the terms of any of its securities, or material lease, license or contract, other than normal renewals of contracts, licenses and leases without material adverse changes of terms with respect to Lone Star, or enter into any contract that would constitute a Lone Star material contract if it were in effect on the date of the merger agreement, except for any amendments, modifications or terminations reasonably requested by First Guaranty;
  (i) enter into any settlement or similar agreement with respect to any action, suit, proceeding, order or investigation to which Lone Star is a party or becomes a party after the date of the merger agreement, which settlement or agreement involves payment by Lone Star of an amount which exceeds $50,000.00 individually or $150,000.00 in the aggregate and/or would impose any material restriction on the business of Lone Star, or (ii) waive or release any material rights or claims, or agree or consent to the issuance of any injunction, decree, order or judgment restricting or otherwise affecting its business or operations;
  (i) enter into any material new line of business, introduce any material new products or services, any material marketing campaigns or any material new sales compensation or incentive programs or arrangements, (ii) change in any material respect its lending, investment, underwriting, risk and asset liability management and other banking and operating policies, except as required by applicable law, regulation or policies imposed by any governmental authority, (iii) make any material changes in its policies and practices with respect to underwriting, pricing, originating, acquiring, selling, servicing, or buying or selling rights to service loans, its hedging practices and policies, or (iv) incur any material liability or obligation relating to retail banking and branch merchandising, marketing and advertising activities and initiatives except in the ordinary course of business;
  enter into any derivative transaction;
  incur any indebtedness for borrowed money other than in the ordinary course of business with a term not in excess of 12 months, or incur, assume or become subject to, whether directly or by way of any guarantee or otherwise, any obligations or liabilities (absolute, accrued, contingent or otherwise) of any other person, other than the issuance of letters of credit in the ordinary course of business;
  (i) sell or otherwise dispose of any debt security or equity investment or any certificates of deposits issued by other banks, or (ii) change the classification method for any of the Lone Star investment securities from “held to maturity” to “available for sale” or from “available for sale” to “held to maturity”;
  make any changes to deposit pricing, except in the ordinary course of business and consistent with safe and sound banking practices;
  make or extend any new loan or other credit facility commitment (including without limitation, lines of credit and letters of credit) to a loan relationship that exceeds $2.50 million or any loan that exceeds $2.50 million;
 

make any investment or commitment to invest in real estate or in any real estate development project other than by way of foreclosure or deed in lieu thereof or make any investment or commitment to develop, or otherwise take any actions to develop any real estate owned by Lone Star;

 

make or change any material tax election, file any material amended tax return, enter into any material closing agreement with respect to taxes, settle or compromise any material liability with respect to taxes, agree to any material adjustment of any tax attribute, file any claim for a material refund of taxes, or consent to any extension or waiver of the limitation period applicable to any material tax claim or assessment;

  commit any act or omission which constitutes a material breach or default by Lone Star under any agreement with any governmental authority or under any Lone Star material contract, lease or other material agreement or material license to which Lone Star is a party or by which any of them or their respective properties are bound or under which any of them or their respective assets, business, or operations receives benefits;
  foreclose on or take a deed or title to any real estate other than single-family residential properties without first conducting an environmental site assessment of the property, or foreclose on or take a deed or title to any real estate other than single-family residential properties if such environmental assessment indicates the presence or likely presence of any hazardous substances under conditions that indicate an existing release, a past release, or a material threat of a release of any hazardous substances into structures on the property or into the ground, ground water, or surface water of the property;
  repurchase, redeem or otherwise acquire any shares of its capital stock or any securities convertible into or exercisable for any shares of its capital stock;
  file any application or make any contract or commitment for the opening, relocation or closing of any, or open, relocate or close any, branch office, loan production or servicing facility or automated banking facility;
  merge or consolidate itself with any other person, or restructure, reorganize or completely or partially liquidate or dissolve itself;

 

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  take any action or knowingly fail to take any action that is intended or is reasonably likely to (i) prevent, delay or impair Lone Star’s ability to consummate the merger or the transactions contemplated by the merger agreement, or (ii) agree to take, make any commitment to take, or adopt any resolutions of its board of directors in support of, any of the actions prohibited by the merger agreement; and
  (i) enter into any contract with respect to, or otherwise agree or commit to do, or adopt any resolutions of its board of directors or similar governing body in support of, any of the foregoing or (ii) take any action that is intended or expected to result in any of its representations and warranties set forth in the merger agreement being or becoming untrue in any material respect at any time prior to the effective time of the merger, or in any of the conditions to the merger not being satisfied in any material respect or in a violation of any provision of the merger agreement.

 

Additionally, First Guaranty has agreed that from the date of the merger agreement until the effective time of the merger, it will carry on its business, including the business of each of its subsidiaries, in the ordinary course of business in all material respects and consistent with prudent banking practice and in compliance in all material respects with all applicable laws.

 

First Guaranty has also agreed that from the date of the merger agreement until the effective time of the merger, except as contemplated by the merger agreement, required by applicable law, or with the prior written consent of Lone Star, First Guaranty will not, and will not permit any of its subsidiaries to:

 

  amend its governing documents in a manner that would materially and adversely affect the economic benefits of the merger to the holders of Lone Star common stock;
  adopt or publicly propose a plan of complete or partial liquidation or dissolution;
  take any action or knowingly fail to take any action that is intended or would reasonably be expected to result in the merger failing to qualify as a “reorganization” under Section 368(a) of the Code;
  take any action or knowingly fail to take any action that is reasonably likely to prevent, delay or impair First Guaranty’s ability to consummate the merger or the transactions contemplated by the merger agreement or First Guaranty Bank’s ability to consummate the merger or perform any of its obligations under the merger agreement; or
  agree to take, make any commitment to take, or adopt any resolutions of its board of directors in support of, any of the actions prohibited by the merger agreement.

 

Regulatory Matters

 

First Guaranty and Lone Star have agreed to cooperate and use their reasonable best efforts to promptly prepare and file or cause to be filed applications for all regulatory approvals required to be obtained in connection with the merger agreement and the transactions contemplated thereby, including the necessary applications for the prior approval of the merger by the Federal Reserve, FDIC and OFI. Each party has the right to review and approve in advance any portions of such regulatory applications relating to such party prior to submission. Each party has agreed to furnish to the other for review a copy of any such filing made in connection with the transactions contemplated by the merger agreement with any governmental authority prior to its filing.

 

Shareholder Approval

 

Lone Star has agreed to submit to its shareholders the Lone Star merger proposal as soon as reasonably practicable after the registration statement on Form S-4 of which this proxy statement/prospectus is a part is declared effective by the SEC. The Lone Star board of directors will recommend approval of the merger agreement and the transactions contemplated by the merger agreement and any other matters required to be approved by Lone Star’s shareholders for consummation of the merger and the transactions contemplated by the merger agreement.

 

Federal Securities Law Matters

 

First Guaranty and Lone Star have agreed to cooperate in the preparation of a registration statement on Form S-4 of which this proxy statement/prospectus is a part. Lone Star has agreed to use commercially reasonable efforts to deliver to First Guaranty any information that may be required in order to file the registration statement, and any other report required to be filed by First Guaranty with the SEC.

 

Each of First Guaranty and Lone Star have agreed to use their respective commercially reasonable efforts to cause the registration statement to be declared effective by the SEC as promptly as reasonably practicable after the filing thereof and to maintain such effectiveness for as long as necessary to consummate the merger and the other transactions contemplated by the merger agreement. First Guaranty also agreed to use commercially reasonable efforts to obtain any necessary state securities law or “blue sky” permits and approvals required to carry out the transactions contemplated by the merger agreement. Lone Star also agreed to cooperate with First Guaranty and its counsel and accountants in requesting and obtaining appropriate opinions, consents and letters from Lone Star’s independent auditors in connection with the registration statement and this proxy statement/prospectus, and to mail or cause to be mailed this proxy statement/prospectus to the holders of Lone Star common stock.

 

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Each of First Guaranty and Lone Star have agreed to cooperate with the other party with regards to the effectiveness of the registration statement and the preparation of any related supplements or amendments, the issuance of any related stop orders, notice of initiated or threatened proceedings or the receipt of comments from the SEC.

 

Agreement Not to Solicit Other Offers

 

Except as permitted by the third paragraph below, Lone Star has agreed that it will not, and will cause its officers, directors and employees not to, and will not authorize any investment bankers, financial advisors, attorneys, accountants, consultants, affiliates or other agents of Lone Star (collectively, the “Lone Star representatives”) to, directly or indirectly, (i) initiate, solicit, induce or knowingly encourage, or take any action to facilitate the making of, any inquiry, offer or proposal which constitutes, or could reasonably be expected to lead to, an acquisition proposal; (ii) participate in any discussions or negotiations regarding any acquisition proposal or furnish, or otherwise afford access, to any person (other than First Guaranty) any information or data with respect to Lone Star or otherwise relating to an acquisition proposal; (iii) release any person from, waive any provisions of, or fail to enforce any confidentiality agreement or standstill agreement to which Lone Star is a party; or (iv) enter into any agreement, confidentiality agreement, agreement in principle or letter of intent with respect to any acquisition proposal or approve or resolve to approve any acquisition proposal or any agreement, agreement in principle or letter of intent relating to an acquisition proposal. Any violation of the foregoing restrictions by any of the Lone Star representatives, whether or not such Lone Star representative is so authorized and whether or not such Lone Star representative is purporting to act on behalf of Lone Star or otherwise, shall be deemed to be a breach of the merger agreement by Lone Star. Lone Star shall and shall cause each of the Lone Star representatives to, immediately cease and cause to be terminated any and all existing discussions, negotiations, and communications with any persons (other than First Guaranty and its representatives) with respect to any existing or potential acquisition proposal.

 

For purposes of the merger agreement, an “acquisition proposal” means any inquiry, offer or proposal (other than an inquiry, offer or proposal from First Guaranty), whether or not in writing, contemplating, relating to, or that could reasonably be expected to lead to, an acquisition transaction. “Acquisition transaction” means (A) any transaction or series of transactions involving any merger, consolidation, recapitalization, share exchange, liquidation, dissolution or similar transaction involving Lone Star; (B) any transaction pursuant to which any third party or group acquires or would acquire (whether through sale, lease or other disposition), directly or indirectly, a significant portion of the assets of Lone Star; (C) any issuance, sale or other disposition of (including by way of merger, consolidation, share exchange or any similar transaction) securities (or options, rights or warrants to purchase or securities convertible into, such securities) representing 20.00% or more of the votes attached to the outstanding securities of Lone Star; (D) any tender offer or exchange offer that, if consummated, would result in any third party or group beneficially owning 20.00% or more of any class of equity securities of Lone Star; or (E) any transaction which is similar in form, substance or purpose to any of the foregoing transactions, or any combination of the foregoing.

 

Notwithstanding any other provision of the merger agreement, prior to the date of the Lone Star special meeting, Lone Star may take any of the actions described in subsections (ii) and (iv) of the first paragraph above if, but only if, (i) Lone Star has received a bona fide unsolicited written acquisition proposal that did not result from a breach of the first paragraph of this section; (ii) the Lone Star board of directors reasonably determines in good faith, after consultation with and having considered the advice of its outside financial advisor and outside legal counsel, that (A) such acquisition proposal constitutes or is reasonably likely to lead to a superior proposal and (B) it is reasonably necessary to take such actions to comply with its fiduciary duties to Lone Star’s shareholders under applicable law; (iii) Lone Star has provided First Guaranty with at least three business days’ prior notice of such determination; and (iv) prior to furnishing or affording access to any information or data with respect to Lone Star or otherwise relating to an acquisition proposal, Lone Star receives from such person a confidentiality agreement with terms no less favorable to Lone Star than those contained in the confidentiality agreement with First Guaranty. Lone Star shall promptly provide to First Guaranty any non-public information regarding Lone Star provided to any other person which was not previously provided to First Guaranty, such additional information to be provided no later than the date of provision of such information to such other party.

 

A “superior proposal” means a bona fide, unsolicited acquisition proposal (i) that if consummated would result in a third party (or in the case of a direct merger between such third party and Lone Star, the shareholders of such third party) acquiring, directly or indirectly, more than 50.00% of the outstanding Lone Star common stock or more than 50.00% of the assets of Lone Star, taken as a whole, for consideration consisting of cash and/or securities and (ii) that the Lone Star board of directors reasonably determines in good faith, after consultation with its outside financial advisor and outside legal counsel, (A) is reasonably capable of being completed, taking into account all financial, legal, regulatory and other aspects of such proposal, including all conditions contained therein and the person making such acquisition proposal, and (B) taking into account any changes to the merger agreement proposed by First Guaranty in response to such acquisition proposal, and all financial, legal, regulatory and other aspects of such takeover proposal, including all conditions contained therein and the person making such proposal, is more favorable to the shareholders of Lone Star from a financial point of view than the merger.

 

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Lone Star shall promptly (and in any event within 24 hours) notify First Guaranty in writing if any proposals or offers are received by, any information is requested from, or any negotiations or discussions are sought to be initiated or continued with, Lone Star or the Lone Star representatives, in each case in connection with any acquisition proposal, and such notice shall indicate the name of the person initiating such discussions or negotiations or making such proposal, offer or information request and the material terms and conditions of any proposals or offers (and, in the case of written materials relating to such proposal, offer, information request, negotiations or discussion, providing copies of such materials (including e-mails or other electronic communications) except to the extent that such materials constitute confidential information of the person making such offer or proposal under an effective confidentiality agreement). Lone Star agrees that it shall keep First Guaranty informed, on a reasonably current basis, of the status and terms of any such proposal, offer, information request, negotiations or discussions (including any amendments or modifications to such proposal, offer or request).

 

Neither the Lone Star board of directors nor any committee thereof shall (i) withdraw, qualify, amend or modify, or propose to withdraw, qualify, amend or modify, in a manner adverse to First Guaranty in connection with the transactions contemplated by the merger agreement (including the merger), the Lone Star recommendation, fail to reaffirm the Lone Star recommendation within three business days following a request by First Guaranty, or make any statement, filing or release, in connection with the Lone Star special meeting or otherwise, inconsistent with the Lone Star recommendation (it being understood that taking a neutral position or no position with respect to an acquisition proposal shall be considered an adverse modification of the Lone Star recommendation); (ii) approve or recommend, or propose to approve or recommend, any acquisition proposal; or (iii) enter into (or cause Lone Star to enter into) any letter of intent, agreement in principle, acquisition agreement or other agreement (A) related to any acquisition transaction, or (B) requiring Lone Star to abandon, terminate or fail to consummate the merger or any other transaction contemplated by the merger agreement.

 

Notwithstanding the paragraph immediately above, prior to the date of the Lone Star special meeting, the Lone Star board of directors may withdraw, qualify, amend or modify the Lone Star recommendation (a “Lone Star subsequent determination”) after the fifth business day following First Guaranty’s receipt of a notice (or the “notice of superior proposal”) from Lone Star advising First Guaranty that the Lone Star board of directors has decided that a bona fide unsolicited written acquisition proposal that it received (that did not result from a breach of the first paragraph of this section) constitutes a superior proposal if, but only if, (i) the Lone Star board of directors has determined in good faith, after consultation with and having considered the advice of outside legal counsel and its financial advisor, that it is reasonably necessary to take such actions to comply with its fiduciary duties to Lone Star’s shareholders under applicable law, (ii) during the five business day period after receipt of the notice of superior proposal by First Guaranty (or the “notice period”), Lone Star and the Lone Star board of directors shall have cooperated and negotiated in good faith with First Guaranty to make such adjustments, modifications or amendments to the terms and conditions of the merger agreement as would enable Lone Star to proceed with the Lone Star recommendation without a Lone Star subsequent determination; provided, however, that First Guaranty shall not have any obligation to propose any adjustments, modifications or amendments to the terms and conditions of the merger agreement, and (iii) at the end of the notice period, after taking into account any such adjusted, modified or amended terms as may have been proposed by First Guaranty since its receipt of such notice of superior proposal, the Lone Star board of directors has again in good faith made the determination (A) in clause (i) of this paragraph and (B) that such acquisition proposal constitutes a superior proposal. In the event of any material revisions to the superior proposal, Lone Star shall be required to deliver a new notice of superior proposal to First Guaranty and again comply with the requirements of the merger agreement, except that the notice period shall be reduced to three business days.

 

Notwithstanding any Lone Star subsequent determination, unless the merger agreement has been terminated in accordance with its terms, the merger agreement shall be submitted to Lone Star’s shareholders at the Lone Star special meeting for the purpose of voting on the approval of the merger agreement and the transactions contemplated hereby (including the merger) and nothing contained in the merger agreement shall be deemed to relieve Lone Star of such obligation; provided, however, that if the Lone Star board of directors shall have made a Lone Star subsequent determination with respect to a superior proposal, then the Lone Star board of directors may recommend approval of such superior proposal by the shareholders of Lone Star and may submit the merger agreement to Lone Star’s shareholders without recommendation either for or against, in which event the Lone Star board of directors shall communicate the basis for its recommendation of such superior proposal and the basis for its lack of a recommendation with respect to the merger agreement and the transactions contemplated thereby to Lone Star’s shareholders in the proxy statement/prospectus or an appropriate amendment or supplement thereto.

 

Nothing contained in the merger agreement shall prohibit Lone Star or the Lone Star board of directors from complying with Lone Star’s obligations required under Rule 14e-2(a) under the Securities Exchange Act of 1934, as amended (or the “Exchange Act”); provided, however, that any such disclosure relating to an acquisition proposal (other than a “stop, look and listen” or similar communication of the type contemplated by Rule 14d-9(f) under the Exchange Act) shall be deemed a change in the Lone Star recommendation unless the Lone Star board of directors reaffirms the Lone Star recommendation in such disclosure.

 

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Indemnification

 

First Guaranty has agreed to indemnify and advance expenses to the directors and officers of Lone Star for a period of four years following the effective time of the merger to the same extent such persons have the right to be indemnified pursuant to the organizational documents of Lone Star in effect on the date of the merger agreement.

 

First Guaranty has also agreed to maintain in effect a directors’ and officers’ liability insurance policy for a period of four years after the effective time of the merger with respect to claims against such directors and officers arising from facts or events occurring before the effective time of the merger (including the transactions contemplated by the merger agreement), with Lone Star agreeing to pay the difference between the cost of a three-year policy and a four-year policy. The insurance policy must contain substantially the same coverage and amounts and contain terms and conditions not materially less advantageous to the directors and officers of Lone Star as currently provided; provided, however, that First Guaranty shall not be required to pay a premium for such insurance in excess of 200.00% of the annual premium paid by Lone Star on January 6, 2023. If the premium for such insurance exceeds the 200.00% limitation described above, then First Guaranty, after consultation with Lone Star, shall obtain tail insurance with the greatest coverage reasonably available for a cost not exceeding such limitation.

 

Other Agreements

 

In addition to the covenants and agreements described above, and subject to certain specified exceptions set forth in the merger agreement, the parties made certain other customary covenants and agreements in the merger agreement, including but not limited to the following:

 

  regulatory filings, permits, consents, approvals and authorizations of third parties necessary to consummate the transactions contemplated by the merger agreement;
  publicity regarding the merger agreements and the transactions contemplated thereby;
  providing access to certain information, systems and documents;
  employment matters, including employment agreements, and benefit plans;
  notification of changes resulting in a material adverse effect;
  integration of Lone Star following the merger;
  actions required in connection with Lone Star’s terminated contracts;
  operations prior to the effective time of the merger;
  certain litigation matters;
  board representation, director resignations and the creation of an advisory board;
  execution and delivery of releases by Lone Star directors;
  general coordination and cooperation amongst the parties in preparation for the consummation of the merger;
  proprietary and confidential information;
  compliance with Section 16 of the Exchange Act;
  certain tax matters; and
  payment of transaction expenses.

 

Conditions to Complete the Merger

 

First Guaranty’s and Lone Star’s respective obligations to complete the merger are subject to the fulfillment or written waiver of the following conditions:

 

  the approval of the Lone Star merger proposal by the requisite vote of the Lone Star shareholders;
  the receipt of all required regulatory approvals upon terms agreeable to the parties, and no such regulatory approvals containing any burdensome condition;
  no judgment, order, injunction or decree has been issued by any court or agency of competent jurisdiction or other legal restraint or prohibition preventing the consummation of any of the transactions contemplated by the merger agreement, and no statute, rule, regulation, order, injunction or decree has been enacted, entered, promulgated or enforced by any governmental authority that prohibits or makes illegal the consummation of any of the transactions contemplated by the merger agreement;
  the effectiveness of the registration statement on Form S-4 of which this proxy statement/prospectus is a part with respect to the First Guaranty common stock to be issued upon the consummation of the merger and the absence of any stop order or proceedings to suspend the effectiveness of the registration statement;
  the receipt of opinions from Bradley Arant Boult Cummings LLP (or “Bradley”) and Hunton that the merger qualifies as a reorganization under Section 368(a) of the Code;
  the approval for listing the shares of First Guaranty common stock to be issued in connection with the transactions contemplated by the merger agreement on the Nasdaq Global Market; and

 

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  receipt by First Guaranty of all consents, approvals, waivers and other assurances from all non-governmental third parties which are required to be obtained under any contract, agreement or instrument to which First Guaranty or any of its subsidiaries is a party or by which any of their respective properties is bound in order to prevent the consummation of the transactions contemplated by the merger agreement from constituting a default under such contract, agreement or instrument or creating any lien, claim or charge upon any of the assets of First Guaranty or any of its subsidiaries.

 

In addition to the conditions applicable to both parties, Lone Star’s obligations to complete the merger are also subject to the fulfillment or written waiver of the following conditions:

 

  subject to certain exceptions and qualifiers set forth in the merger agreement, all representations and warranties of First Guaranty being true and correct as of the date of the merger agreement and as of the closing date;
  First Guaranty having performed and complied with all of its obligations under the merger agreement in all material respects at or prior to the closing date;
  receipt of all documents, instruments and certificates required to be delivered by First Guaranty at or prior to closing; and
  there having been (i) no “material adverse effect” (as defined in the merger agreement) with respect to First Guaranty or First Guaranty Bank and (ii) no condition, event, fact, circumstance or other occurrence that may reasonably be expected to have or result in such parties being subject to a material adverse effect.

 

In addition to the conditions applicable to both parties, First Guaranty’s obligations to complete the merger are subject to the fulfillment or written waiver of the following conditions:

 

  subject to certain exceptions and qualifiers set forth in the merger agreement, all representations and warranties of Lone Star being true and correct as of the date of the merger agreement and as of the closing date;
  Lone Star having performed and complied with all of its obligations under the merger agreement in all material respects at or prior to the closing date;
  receipt of all documents, instruments, consents, approvals and certificates required to be delivered or obtained by Lone Star at or prior to closing;
  holders of no more than 5.00% of the issued and outstanding shares of Lone Star common stock demanding or being entitled to exercise dissenters rights under the TBOC;
  payment of all unpaid transactions expenses incurred by Lone Star prior to the calculation date, or the last day of the calendar month preceding the closing date;
  there having been (i) no “material adverse effect” (as defined in the merger agreement) with respect to Lone Star and (ii) no condition, event, fact, circumstance or other occurrence that may reasonably be expected to have or result in such parties being subject to a material adverse effect; and
  cancellation of and payment for all unexercised Lone Star options in accordance with the merger agreement.

 

Neither Lone Star nor First Guaranty can provide assurance as to when or if all of the conditions to the merger can or will be fulfilled or waived by the appropriate party, or that the merger will be completed.

 

Termination of the Merger Agreement

 

The merger agreement may be terminated at any time prior to the effective time of the merger in the following circumstances, whether before or after approval of the Lone Star merger proposal by Lone Star shareholders:

 

  by the mutual written agreement of the parties upon the vote of a majority of the members of the entire board of each party;
  by either party, if either of their respective boards of directors so determines by a vote of a majority of the members of its entire board, in the event that (1) any regulatory approval required for consummation of the transactions contemplated by the merger agreement shall have been denied by final, non-appealable action by such governmental authority, (2) an application therefor shall have been permanently withdrawn at the request of a governmental authority; (3) First Guaranty makes a reasonable determination in good faith after consultation with its counsel that there is a substantial likelihood that any regulatory approval will be obtained only upon the imposition of a burdensome condition; or (4) any governmental authority shall have issued a final nonappealable law or order permanently enjoining or otherwise prohibiting or making illegal the consummation of the merger, unless in each case the failure to obtain a regulatory approval shall be due to the failure of the party seeking to terminate the merger agreement to perform or observe the covenants and agreements of such party set forth;
  by either party if the requisite Lone Star vote will not have been obtained at the Lone Star special meeting; provided, that no party may terminate the merger agreement if such party has breached in any material respect any of its obligations under the merger agreement that caused the failure to obtain the requisite Lone Star shareholder approval at the Lone Star special meeting;

 

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  by either party (provided such party is not then in material breach of the merger agreement) if there has been a material breach of the merger agreement by the other party thereto and such breach has not been cured prior to the earlier of 30 days after notice from the non-breaching party or two business days prior to the expiration date (as defined in the merger agreement), or such breach cannot be cured;
  by either party if the merger has not been consummated by the close of business on June 30, 2023 (which shall automatically extend to September 30, 2023, if the only outstanding condition to closing is receipt of regulatory approvals), unless the failure of the closing to occur by such date shall be due to a breach of the merger agreement by the party seeking to terminate the merger agreement;
  by First Guaranty if (1) Lone Star materially breaches its covenant not to solicit acquisition proposals, or (2) the Lone Star board of directors (i) withdraws, qualifies, amends, modifies or withholds its recommendation to its shareholders with regard to the Lone Star merger proposal, (ii) materially breaches its obligation to call, give notice of and commence the Lone Star special meeting, (iii) approves or recommends an alternative acquisition proposal, (iv) fails to publicly recommend against a publicly announced acquisition proposal, (v) fails to publicly reconfirm its recommendation for the Lone Star merger proposal within three business days of being requested by First Guaranty to do so, or (vi) resolves or otherwise determines to take or announces an intention to take any of the foregoing actions (collectively, a “failure to recommend, etc.”); or
  by Lone Star in connection with entering into a definitive agreement to effect a superior proposal (as defined in the merger agreement) after making a Lone Star subsequent determination (as defined in the merger agreement).

 

Effect of Termination

 

If Lone Star pays or causes to be paid to First Guaranty the termination fee in accordance with the merger agreement, Lone Star (or any successor in interest of Lone Star) will not have any further obligations or liabilities to First Guaranty with respect to the merger agreement or the transactions contemplated by the merger agreement.

 

Termination of the merger agreement will not relieve a breaching party from liability for any breach of any covenant, agreement, representation or warranty of the merger agreement (1) giving rise to such termination and (2) resulting from fraud or any willful and material breach.

 

Termination Fee

 

Provided that First Guaranty in not in material breach of the merger agreement, Lone Star may be required to pay a termination fee of $1.00 million to First Guaranty.

 

Lone Star will be required to pay First Guaranty the termination fee in the event of any of the following:

 

  in the event that after the date of the merger agreement and prior to the termination of the merger agreement, an acquisition proposal shall have been made known to senior management of Lone Star or has been made directly to its holders generally or any person shall have publicly announced (and not withdrawn) an acquisition proposal with respect to Lone Star and (A) thereafter the merger agreement is terminated (i) by either First Guaranty or Lone Star because the approval of the Lone Star shareholders has not been obtained, (ii) by First Guaranty because Lone Star has materially breached a representation, warranty, covenant or other agreement, or (iii) by First Guaranty because of a failure to recommend, etc.; and (B) prior to the date that is 12 months after the date of such termination, Lone Star enters into any agreement or consummates a transaction with respect to an acquisition proposal (whether or not the same acquisition proposal as that referred to above), then Lone Star shall, on the earlier of the date it enters into such agreement and the date of consummation of such transaction, pay First Guaranty the termination fee, subject to certain exceptions set forth in the merger agreement (provided that for purposes of this paragraph, all references in the definition of “acquisition proposal” to 20.00% shall instead refer to 50.00%); or
  in the event Lone Star terminates the merger agreement in connection with entering into a definitive agreement to effect a superior proposal (as defined in the merger agreement) after making a Lone Star subsequent determination (as defined in the merger agreement), then Lone Star shall pay First Guaranty the termination fee within one business day after Lone Star’s notification of such termination.

 

Expenses and Fees

 

Except as specifically provided in the merger agreement, all costs and expenses incurred in connection with the merger agreement and all agreements and documents contemplated thereby, and the consummation of the transactions contemplated thereby, will be paid by the party incurring such costs or expenses.

 

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Amendment, Waiver and Extension of the Merger Agreement

 

First Guaranty and Lone Star may jointly amend the merger agreement, and each of First Guaranty and Lone Star may waive its right to require the other party to comply with particular provisions of the merger agreement. However, First Guaranty and Lone Star may not amend the merger agreement or waive their respective rights after the Lone Star special meeting if the amendment or waiver would legally require further approval by the Lone Star shareholders without first obtaining such further approval. The merger agreement may not be amended except by an instrument in writing signed on behalf of each of the parties thereto.

 

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ANCILLARY AGREEMENTS TO THE MERGER AGREEMENT

 

Voting Agreement

 

In connection with, and as a condition to, entering into the merger agreement, each director of Lone Star who own shares of Lone Star common stock entered into a voting agreement with First Guaranty and Lone Star. The following summary of the voting agreement is subject to, and qualified in its entirety by reference to, the form of voting agreement attached as Annex B to this proxy statement/prospectus.

 

Under the voting agreement, each such director has agreed to appear at the Lone Star special meeting (in person or by proxy) and to vote his or her shares of Lone Star common stock:

 

  in favor of the approval and adoption of the merger agreement and the transactions contemplated thereby (including any amendments or modifications of the terms thereof approved by the Lone Star board of directors);
  in favor of any proposal to adjourn or postpone such meeting, if necessary, to solicit additional proxies to approve and adopt the merger agreement;
  against any action or agreement that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of Lone Star contained in the merger agreement or of a shareholder contained in the voting agreement; and
  against any acquisition proposal or any other action, agreement or transaction that is intended, or could reasonably be expected, to impede, interfere or be inconsistent with, delay, postpone, discourage or materially and adversely affect consummation of the transactions contemplated by the merger agreement or the voting agreement.

 

In addition, the voting agreement provides that until the earlier of (i) the termination of the voting agreement and (ii) the approval of the merger proposal by the Lone Star shareholders, each such shareholder party will not directly or indirectly, without the prior written consent of First Guaranty, sell, transfer, pledge, assign or otherwise dispose of, or enter into any contract, option, commitment or other arrangement or understanding with respect to the sale, transfer, pledge, assignment or other disposition of, any or all of his or her shares of Lone Star common stock, subject to limited exceptions.

 

Each shareholder party to the voting agreement also agreed, subject to certain exceptions, not to vote or execute any written consent to rescind or amend any prior vote or written consent, as a shareholder of Lone Star, to approve or adopt the merger agreement unless the voting agreement is terminated.

 

From the date of the voting agreement until its termination, each such shareholder, solely in his or her capacity as a shareholder of Lone Star, agreed not to, directly or indirectly, except in his or her capacity as a director or officer of Lone Star and under circumstances for which such actions are permitted for Lone Star under the merger agreement:

 

  initiate, solicit, induce or knowingly encourage, or take any action to facilitate the making of, any inquiry, offer or proposal which constitutes, or could reasonably be expected to lead to, any inquiry, offer or proposal (other than an inquiry, offer or proposal from First Guaranty), whether or not in writing, contemplating, relating to, or that could reasonably be expected to lead to, an acquisition proposal;
  participate in any discussions or negotiations regarding any acquisition proposal or furnish, or otherwise afford access, to any person any information or data with respect to Lone Star in connection with an acquisition proposal;
  enter into any agreement, agreement in principle or letter of intent with respect to an acquisition proposal or approve or resolve to approve any acquisition proposal or any agreement, agreement in principle or letter of intent relating to an acquisition proposal;
  solicit proxies with respect to an acquisition proposal or otherwise encourage or assist any party in taking or planning any action that would compete with, restrain or otherwise serve to interfere with or inhibit the timely consummation of the merger in accordance with the terms of the merger agreement; or
  initiate a shareholders’ vote or action by consent of Lone Star’s shareholders with respect to an acquisition proposal.

 

The voting agreement may be terminated at any time prior to the consummation of the transactions contemplated by the merger agreement by mutual written agreement of the parties thereto. The voting agreement will automatically terminate upon the earlier of (1) the effective date of the merger, (2) the amendment of the merger agreement in any manner that materially and adversely affects any of the shareholder party’s rights, (3) the termination of the merger agreement, or (4) three years from the date of the voting agreement. The Lone Star directors entered into the voting agreement solely in their personal capacities as Lone Star shareholders, and not in their capacities as directors of Lone Star.

 

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As of the record date, shareholders who are party to the voting agreement beneficially owned and were entitled to vote an aggregate of approximately [ ] shares of Lone Star common stock, which represented approximately [ ]% of the shares of Lone Star common stock outstanding on that date.

 

Director Support Agreements

 

In addition, as a condition to First Guaranty entering into the merger agreement, each director of Lone Star who is not an employee of Lone Star entered into a director support agreement with First Guaranty and Lone Star. The following summary of the support agreements is subject to, and qualified in its entirety by reference to, the form of support agreement attached as Annex C to this proxy statement/prospectus.

 

Under the support agreement, each such director has agreed to, among other things:

 

  use his or her best efforts to refrain from harming the goodwill of Lone Star, First Guaranty and its subsidiaries, and their respective customer and client relationships; and
  keep confidential all information about the merger agreement and the transactions contemplated thereby, except as disclosed in this proxy statement/prospectus.

 

Other than in any capacity for or on behalf of First Guaranty or any of its subsidiaries, each such director has also agreed not to, directly or indirectly, individually or as an employee, partner, officer, director or shareholder or in any other capacity whatsoever:

 

  except as disclosed on the schedules to the support agreement, solicit the business of any person or entity who is a customer of Lone Star or any of its subsidiaries as of the date of the support agreement or as of the closing date on behalf of any other insured depository institution, excluding general solicitations of the public that are not based in whole or in part on any list of customers of Lone Star or any of its subsidiaries;
  subject to certain exceptions set forth in the support agreement or on the schedules to the support agreement, (A) acquire any interest in, directly or indirectly, charter, operate or enter into any franchise or other management agreement with, any insured depository institution or holding company thereof that has a location within the noncompete area as of the date of the support agreement or as of the closing date, (B) serve as an officer, director, employee, agent or consultant to any insured depository institution that has a location within the noncompete area, or (C) establish or operate a branch or other office of an insured depository institution within the noncompete area; or
  within the financial services business, recruit, hire, assist others in recruiting or hiring, discuss employment with, or refer others concerning employment, any person who as of the closing date is, or within the 12 months preceding the closing date was, an employee of Lone Star unless such person’s employment has been terminated by First Guaranty prior to the time of such solicitation, excluding recruiting efforts made through general solicitations of the public that are not based on any list of, or directed at, employees of Lone Star.

 

The restrictions in the director support agreements will become effective only upon the consummation of the merger and will automatically terminate upon the earlier of (1) the termination of the merger agreement pursuant to its terms, or (2) the date that is 24 months after the completion of the merger.

 

Releases

 

At the time of the execution of the merger agreement, each director of Lone Star (or a “releasor”) executed a release in favor of Lone Star. The following summary of the release is subject to, and qualified in its entirety by reference to, the release attached as Annex D to this proxy statement/prospectus.

 

Under the release, each such director, effective upon the execution of the release, irrevocably and unconditionally released, waived and forever discharged Lone Star and its successors from any and all liabilities and claims relating to, arising out of or in connection with Lone Star and its businesses or assets, including any claims arising out of or resulting from the releasor’s status, relationship, affiliation, rights, obligations or duties as a director, officer, employee or security holder of Lone Star or any of its subsidiaries for all periods occurring through the date of the release.

 

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The release does not apply to any obligations or liabilities: (1) in connection with any accrued compensation and rights under any benefit plans, employment, severance, change in control, equity or other arrangements of Lone Star or any of its subsidiaries existing as of the date of the release; (2) as to any rights of indemnification and related benefits pursuant to any applicable law, the merger agreement, the certificate of formation, bylaws or other governing documents or agreement of Lone Star, or otherwise, or to claim insurance coverage or to be defended under any insurance coverage, including without limitation any directors and officers insurance coverage which applies to or benefits directors and/or officers of Lone Star and which applies to the releasor or the other releasor persons; (3) any rights or claims of the releasor or the other releasor persons under the merger agreement; (4) in connection with any deposits or similar accounts or banking products of the releasor or the other releasor persons at Lone Star as of the date of the release; (5) pursuant to the loan documents executed in connection with the loans listed on the exhibits to the release; or (6) any medical claims not yet filed.

 

The release becomes effective upon the consummation of the merger. If the merger agreement is terminated in accordance with its terms prior to the consummation of the merger, the release shall be null and void and of no force or effect.

 

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THE COMPANIES

 

First Guaranty

 

First Guaranty is a Louisiana corporation headquartered in Hammond, Louisiana, and the parent of First Guaranty Bank, a Louisiana state bank, which provides personalized commercial banking services mainly to Louisiana and Texas customers through 36 banking facilities primarily located in the MSAs of Hammond, Baton Rouge, Lafayette, Shreveport-Bossier City, Lake Charles, Alexandria, Dallas-Fort Worth-Arlington, Waco and our Mideast Market of Vanceburg, Kentucky and Bridgeport, West Virginia. As of December 31, 2022, First Guaranty had consolidated total assets of $3.15 billion, deposits of $2.72 billion and total shareholders’ equity of $234.99 million.

 

First Guaranty’s common stock is traded on the Nasdaq Global Market under the symbol “FGBI.”

 

First Guaranty’s executive offices are located at 400 East Thomas Street, Hammond, Louisiana 70401, and its telephone number at that location is (985) 345-7685. First Guaranty’s website address is www.fgb.net.

 

Information relating to executive compensation, various benefit plans, the principal holders of voting securities, relationships and related transactions and other related matters as to First Guaranty is included in documents incorporated by reference in this proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 85.

 

Management

 

Upon the completion of the merger, the number of directors of the First Guaranty Bank board of directors will be increased by one director and Jeff A. Berkley, who is currently a member of the Lone Star board of directors, will be appointed to fill the newly created vacancy.

 

As of the date of this proxy statement/prospectus, Mr. Berkley is 65 years old. Mr. Berkley is the Chairman of the Board of New Millennium Bankshares, Inc. (or “NMBI”), a single bank holding company owning 100% of Alliance Bank (or “AB”), a commercial bank in Topeka, Kansas. Mr. Berkley was one of the founders of NMBI and AB, both of which were organized in 1998. Mr. Berkley has served on the Lone Star board of directors since 2007 and served as President of Lone Star from November 2007 to May 2011. During his time as a member of the Lone Star board of directors, Mr. Berkley has also served on several committees of the board. In addition, Mr. Berkley has served as member of the board of directors of Bennington State Bank (or “BSB”) located in Salina, Kansas since 2015. Mr. Berkley has also served on several committees during his time with BSB. Mr. Berkley’s service as a member of the First Guaranty Bank board of directors will commence in connection with the closing of the merger. First Guaranty has not yet determined which committees Mr. Berkley, as a new director of the First Guaranty Bank board of directors upon the closing of the merger, is expected to join. Mr. Berkley’s extensive experience as a director and executive officer of financial institutions make him qualified to serve on the First Guaranty Bank board of directors.

 

Additional information relating to First Guaranty’s directors, executive officers, executive compensation, various benefit plans, the principal holders of voting securities, relationships and related transactions and other related matters as to First Guaranty is included in documents incorporated by reference in this proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 85.

 

Lone Star

 

General

 

Lone Star is a Texas state banking association, chartered in 2006, and headquartered in Houston, Texas. Lone Star offers full consumer and commercial banking services to customers throughout its market areas in and around Houston, Texas. Lone Star has four banking locations located throughout the greater Houston MSA.

 

Lone Star’s principal executive office is located at 2600 South Gessner Road, Suite 100, Houston, Texas 77063, and its telephone number at that location is (713) 358-9400.

 

As a Texas banking association and non-member bank, Lone Star is subject to supervision and regulation by the TDB and FDIC.

 

As of December 31, 2022, Lone Star reported total assets of $160.80 million, total deposits of $140.17 million and stockholders’ equity of $20.12 million. Lone Star does not file reports with the SEC.

 

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Products and Services

 

Lone Star is a traditional commercial bank offering a variety of banking services to consumer and commercial customers throughout the Houston MSA and adjacent market areas. Lone Star offers a range of lending services, including real estate, commercial and consumer loans to individuals and small- to medium-sized business and professional firms that are located in or conduct a substantial portion of their business in Lone Star’s market areas. Real estate loans offered by Lone Star are secured by first or second mortgages on the subject collateral, and often relate to owner-occupied office and retail buildings. Commercial loans offered include loans to small- and medium-sized businesses for the purpose of purchasing equipment, inventory, facilities or for working capital. Consumer loans offered include loans for the purpose of purchasing automobiles, recreational vehicles, personal residences, household goods, home improvements or for educational needs.