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Core processor termination fees affected terms of S Bankshares sale


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Core processor termination fees affected terms of S Bankshares sale

's coreprocessor termination fees played a role in pre-deal negotiations with

Accordingto information provided in a Form S-4, Glennville, Ga.-based S Banksharesdecided in April 2015 to explore the possibility of a sale or merger, withAtlanta-based State Bank approaching S Bankshares regarding a potential deal inOctober 2015.

The twoinstitutions executed a nondisclosure agreement Oct. 28, 2015, and on Dec. 3,2015, State Bank submitted a preliminary indication of interest, offering$55.00 per share, or a total of approximately $10.5 million, and including amechanism providing for a purchase price adjustment based on the results ofdiscussions with S Bankshares' core processor regarding termination feesassociated with its core processing agreement.

SBankshares asked State Bank to come back with a higher offer, and State Bank submitteda revised proposal Dec. 30, 2015, with a purchase price of approximately $56.00per share, or an aggregate of approximately $10.9 million, but without apurchase price adjustment. S Bankshares requested that State Bank reconsiderthe revised proposal to include a purchase price adjustment if S Bankshareswere able to successfully negotiate a reduction of the core processortermination fees. State Bank submitted a second revised proposal Jan. 26,keeping its offer at $56.00 per share, and again including a mechanism forincreasing the consideration based on a reduction in the core processortermination fees negotiated by S Bankshares. The proposal also provided for SBankshares shareholders to elect, subject to certain limitations, either cashor State Bank stock as consideration.

On Feb. 2,S Bankshares accepted and executed a nonbinding letter of intent, with StateBank submitting a final offer of a combination of cash and State Bank commonstock.

Furthertalks and due diligence efforts followed; among the issues raised was pendinglitigation associated with S Bankshares' employee stock ownership plan and aformer executive officer.

As a resultof State Bank's due diligence findings, discussions between S Bankshares andits core processor regarding expected core processor termination fees, and theincrease in the market price of State Bank's common stock during thenegotiation period, the two institutions agreed to a purchase price of $56.70per share and a fixed exchange ratio of 2.7444 State Bank common shares foreach common share of S Bankshares, bringing the aggregate proposed purchaseprice to roughly $11.0 million.

Themerger agreement andother ancillary transaction documents were executed May 19, with the mergeragreement amended Sept. 15 to extend the date until which the deal may beterminated to Dec. 31 from Dec. 15.