FIRST SOUTH BANCORP, INC. (NASDAQ:FSBK) Files An 8-K Entry into a Material Definitive AgreementItem 1.01
Agreement and Plan of Merger and Reorganization
On June 9, 2017, First South Bancorp, Inc. (the Registrant), the holding company for First South Bank, Washington, North Carolina, entered into an Agreement and Plan of Merger and Reorganization (the Merger Agreement) with Carolina Financial Corporation (CARO), the holding company for CresCom Bank, Charleston, South Carolina. Under the Merger Agreement, the Registrant will merge with and into CARO (the Merger) and First South Bank will merge with and into CresCom Bank.
Subject to the terms and conditions of the Merger Agreement, the Registrants shareholders will receive 0.52 shares of CARO common stock for each share of the Registrants common stock. The aggregate merger consideration equals $162 million as of June 9, 2017. The parties anticipate closing the Merger during the fourth quarter of 2017.
The Merger Agreement has been unanimously approved by the boards of directors of each of the Registrant and CARO. The closing of the Merger is subject to the required approval of the Registrants and CAROs shareholders, requisite regulatory approvals, the effectiveness of the registration statement to be filed by CARO with respect to the CARO common stock to be issued in the Merger, and other customary closing conditions.
The Merger Agreement contains usual and customary representations and warranties that the Registrant and CARO made to each other as of specific dates. The assertions embodied in those representations and warranties were made solely for purposes of the contract between the Registrant and CARO, and may be subject to important qualifications and limitations agreed to by the parties in connection with negotiating its terms. Moreover, certain representations and warranties are subject to a contractual standard of materiality that may be different from what may be viewed as material to shareholders, and the representations and warranties may have been used to allocate risk between the Registrant and CARO rather than establishing matters as facts.
The Merger Agreement also provides that prior to the closing of the Merger, CARO will appoint two members of the Registrants board of directors, mutually agreed upon by the Registrant and CARO, to the board of directors of CARO to be effective immediately following the closing of the Merger. In addition, CresCom Bank will appoint Bruce W. Elder to its board of directors prior to the closing of the merger between CresCom Bank and First South Bank and effective immediately following the merger.
The Merger Agreement may be terminated in certain circumstances, including: (i) by mutual written agreement of the parties; (ii) by either party in the event of a breach by the other party of any representation or warranty contained in the Merger Agreement which has not been cured within thirty days and where such breach is reasonably likely to permit such party to refuse to consummate the Merger; (iii) by either party in the event that any consent of any required regulatory authority is denied by final action or any law or order prohibiting the Merger shall become final and nonappealable; (iv) by either party if the requisite approval of the other partys shareholders is not obtained; (v) by either party in the event that the Merger shall not have been consummated by March 31, 2018; (vi) by CARO in the event that the Registrants board of directors has not recommended for approval the Merger Agreement to its shareholders except as permitted by the Merger Agreement; (vii) by CARO in the event that the Registrants board of directors fails to duly convene and hold a meeting of the Registrants shareholders for the purpose of voting on the Merger Agreement; (vii) by the Registrant, if after a shareholders meeting where the requisite approval of the Registrants shareholders is not obtained and Registrant received a superior penalty when certain events occur related to a decrease in CAROs stock price. Upon termination of the Merger Agreement by (i) CARO if the Registrants board of directors has not recommended for approval the Merger Agreement to its shareholders due to an alternate superior proposal, or (ii) by the Registrant to enter into a superior proposal, the Registrant may be required to pay to CARO a termination fee of $5.75 million.
In connection with entering into the Merger Agreement, the Registrant has agreed to offer each of the current option holders of its stock options the opportunity to cancel, effective upon and subject to the Merger, all of their respective stock options covering shares of the Registrants common stock having an exercise price per share less than the per share value of the merger consideration in exchange for a cash payment equal to the per share value of the merger consideration minus the exercise price for each share of the Registrants subject to such stock option. Any stock option not cancelled will convert into an option to acquire shares of CARO common stock.
The foregoing summary of the Merger Agreement is qualified in its entirety by reference to the complete text of such document, which is filed as Exhibit 2.1 to this Current Report on Form 8-K and which is incorporated herein by reference. The related press release is filed as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.
Support Agreements
In connection with entering into the Merger Agreement, each of the directors and certain executive officers of the Registrant have entered into a Shareholder Support Agreement (collectively, the Support Agreements). The Support Agreements generally require that the shareholder party thereto vote all of his or her shares of the Registrants common stock in favor of the Merger and against alternative transactions and generally prohibit such shareholder from transferring his or her shares of the Registrants common stock prior to the consummation of the Merger. The Support Agreements will terminate upon the earlier of the consummation of the Merger and the termination of the Agreement in accordance with its terms.
Agreements with Bruce W. Elder and Cornelius F. Sullivan
Simultaneously with the execution of the Merger Agreement, Bruce W. Elder and Cornelius F. Sullivan each entered into an Employment Agreement with CARO and CresCom Bank. Mr. Elder is the Registrants president and chief executive officer and Mr. Sullivan is a senior vice president and area executive of the Registrant.
Director Non-Compete Agreements
Simultaneously with the execution of the Merger Agreement, each of the Registrants non-employee directors entered into a Non-Employee Director Non-Competition Agreement with CARO. The Non-Employee Director Non-Competition Agreements contain provisions related to non-disclosure of confidential information, non-recruitment of employees, non-solicitation of customers, and non-competition.
Participants in the Merger Solicitation.
The Registrant and CARO, and certain of their respective directors, executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from the shareholders of the Registrant in respect of the Merger. Information regarding the directors and executive officers of the Registrant and CARO and other persons who may be deemed participants in the solicitation of the Registrants shareholders in connection with the Merger will be included in the joint proxy statement/prospectus for the Registrants special meeting of shareholders, which will be filed with the SEC. Information about the Registrants directors and executive officers can also be found in the Registrants definitive proxy statement in connection with its 2017 annual meeting of shareholders, as filed with the SEC on June 2, 2017, and other documents subsequently filed by the Registrant with the SEC. Information about CAROs directors and executive officers can also be found in CAROs definitive proxy statement in connection with its 2017 annual meeting of stockholders, as filed with the SEC on March 20, 2017, and other documents subsequently filed by CARO with the SEC. Additional information regarding the interests of such participants will be included in the joint proxy statement/prospectus and other relevant documents regarding the Merger filed with the SEC when they become available.
Item 8.01 Other Events.
On June 12, 2017, the Registrant issued a press release announcing the execution of the Merger Agreement with CARO. The complete text of the press release is attached to this report as Exhibit 99.1.
| Item 9.01 | Financial Statements and Exhibits. |
| (d) | Exhibits |
| Exhibit No. | Description | |
| 2.1 | Agreement and Plan of Merger and Reorganization, dated June 9, 2017, by and between Carolina Financial Corporation and First South Bancorp, Inc. | |
| 99.1 | Press release dated June 12, 2017 announcing the Merger Agreement with Carolina Financial Corporation |
Cautionary Statements Regarding Forward-Looking Information.
This Current Report contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. In general, forward-looking statements usually use words such as may, believe, expect, anticipate, intend, will, should, plan, estimate, predict, continue and potential or the negative of these terms or other comparable terminology, including statements related to the expected timing of the closing of the Merger, the expected returns and other benefits of the Merger, to shareholders, expected improvement in operating efficiency resulting from the Merger, estimated expense reductions resulting from the transactions and the timing of achievement of such reductions, the impact on and timing of the recovery of the impact on tangible book value, and the effect of the Merger on regulatory capital ratios. Forward-looking statements represent managements beliefs, based upon information available at the time the statements are made, with regard to the matters addressed; they are not guarantees of future performance. Forward-looking statements are subject to numerous assumptions, risks and uncertainties that change over time and could cause actual results or financial condition to differ materially from those expressed in or implied by such statements.
Factors that could cause or contribute to such differences include, but are not limited to, the possibility that expected benefits may not materialize in the time frames expected or at all, or may be more costly to achieve; that the Merger may not be timely completed, if at all; that prior to completion of the Merger or thereafter, the parties respective businesses may not perform as expected due to transaction-related uncertainties or other factors; that the parties are unable to implement successful integration strategies; that the required regulatory, shareholder, or other closing conditions are not satisfied in a timely manner, or at all; reputational risks and the reaction of the parties customers to the Merger; diversion of management time to Merger-related issues; and other factors and risk influences contained in the cautionary language included under the headings Managements Discussion and Analysis of Financial Condition and Results of Operations in the Registrants Form 10-K for the year ended December 31, 2016 and other documents subsequently filed by the Company with the SEC. Consequently, no forward-looking statement can be guaranteed. Neither the Registrant nor CARO undertakes any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For any forward-looking statements made in this Current Report on Form 8-K, the exhibits hereto or any related documents, the Registrant and CARO claim protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
Additional Information and Where to Find It.
This communication is being made in respect of the Merger involving the Registrant and CARO. This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. In connection with the Merger, CARO will file with the Securities and Exchange Commission (the SEC) a registration statement on Form S-4 that will include a joint proxy statement/prospectus for the Registrants shareholders. The Registrant and CARO also plan to file other documents with the SEC regarding the Merger. The Registrant will mail the final joint proxy statement/prospectus to its shareholders. BEFORE MAKING ANY VOTING OR INVESTMENT DECISION, INVESTORS AND SHAREHOLDERS ARE URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS REGARDING THE MERGER AND ANY OTHER RELEVANT DOCUMENTS CAREFULLY IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE MERGER. The joint proxy statement/prospectus, as well as other filings containing information about the Registrant and CARO, will be available without charge, at the SECs website (http://www.sec.gov). Copies of the joint proxy statement/prospectus and other documents filed with the SEC in connection with the Merger can also be obtained, when available, without charge, from the Registrants website (http://www.firstsouthnc.com) and CAROs website (http://www.haveanicebank.com).
About FIRST SOUTH BANCORP, INC. (NASDAQ:FSBK)
First South Bancorp, Inc. is the bank holding company for First South Bank (the Bank). Through the Bank, the Company operates a commercial banking business. The Bank is a North Carolina chartered commercial bank. The Bank’s segment is providing general commercial banking services to its markets located in the state of North Carolina. The Bank’s principal business consists of attracting deposits from the general public and investing the funds in commercial real estate loans, commercial and industrial business loans, consumer loans and loans secured by first and second mortgages on owner-occupied, single-family residences in the Bank’s market area. The Bank provides both personal and business on-line banking services. Its services include mobile banking, mobile deposits, e-statements, bill paying, funds transfers between accounts, automated clearing house originations, wire transfers and stop payment orders for checks, as applicable by personal or business account type.