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ITEM 1ARISK FACTORS
Refer to Item 1A of Part I of the Companys Annual Report on Form 10-K forour 2023 Annual Report on Form 10-K, Item 1A of Part II of our First Quarter 2024 Form 10-Q, and our definitive proxy statement for our shareholder meeting on June 16, 2024 filed with the SEC on May 16, 2024 (the 2024 Proxy Statement) for a discussion of factors that could materially and adversely affect our business, financial condition, liquidity, results of operations and capital position. The following risk factors relate to and update certain risks described in these filings.
Regulatory approvals may not be received, have taken longer than expected, or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the Merger.
Before the year ended DecemMerger may be completed, various consents, approvals, waiver or non-objections must be obtained from state and federal governmental authorities, including the Federal Reserve Board, the Texas Department of Banking and the Director of the State of Washington Department of Financial Institutions. On October 3129, 2023 4, we and the Company's Quarterly Report FirstSun announced that, based on discussions FirstSun and its subsidiary, Sunflower Bank, have had with the Federal Reserve and the Texas Department of Banking, that regulatory approvals necessary for the Merger to proceed have not been obtained and FirstSun and Sunflower Bank have been asked to withdraw their merger applications. We and FirstSun are discussing the pursuit of an alternative regulatory structure for the quarter ended March 31Merger. We and FirstSun are also discussing terms on which the merger agreement would be terminated if no alternative structure is feasible. There can be no assurance that an alternative regulatory structure may ultimately be feasible. Under the Merger Agreement, the parties are not obligated to complete the Merger should any required regulatory approval contain any condition or restriction that would reasonably be expected to have a material adverse effect (as defined in the Merger Agreement) on the surviving entity in the Merger and its subsidiaries, taken as a whole, after giving effect to the Merger and the related merger of HomeStreet Bank into a wholly owned subsidiary of FirstSun.
Shareholder litigation could prevent or delay the completion of the Merger or otherwise negatively impact the business and operations of FirstSun and the Company.
On April 11, 2024 for a discuss, a putative shareholder of the Company filed a complaint against the Company and the Companys Board of Directors in the U.S. District Court for the Southern District of New York (the Complaint), alleging, among other things, that the proxy statement/prospectus filed with the SEC on March 8, 2024 in connection with the Merger was materially incomplete and misleading. The Complaint seeks remedies, including an injunction enjoining the Merger and rescission of factorr rescissory damages in the event the Merger contemplated by the Merger Agreement is consummated. For more information, see Part II, Item 1 Legal Proceedings in this Quarterly Report on Form 10-Q.
One of the conditions tho the closing is that could materially and adversely affthere must be no order, injunction or decree issued by any court or governmental entity of competent jurisdiction or other legal restraint preventing the consummation of the Merger or any of the other transactions contemplated by the Merger Agreement. If any plaintiff were successful in obtaining an injunction prohibiting FirstSun or the Company from completing the Merger or any of the other transactions contemplated by the Merger Agreement, then such injunction may delay or prevent the effectiveness of the Merger and could result in significant costs to FirstSun or the Company, including any cost associated with the indemnification of direct our business, financial condition, liors and officers of each company. FirstSun and the Company may incur additional costs in connection with the defense or settlement of any stockholder or shareholder lawsuits filed in connection with the Merger. Such litigation could have an adverse effect on the financial condition and results of operations of FirstSun and the Company and could prevent or delay the completion of the Merger.
The Merger Agreement limits the Companys ability to pursue alternatives to the Merger and may discourage other companies from trying to acquire the Company.
The Merger Agreement contains no shop covenants that restrict the Companys ability to, directly or indirectly, among other things, initiate, solicit, knowingly encourage or knowingly facilitate, inquiries or proposals with respect to, or, subject to certain exceptions generally related to the exercise of fiduciary duties by the Companys board of directors, engage in any negotiations concerning, or provide any confidential or non-public information or data relating to, any alternative acquidity, results of opersition proposal. These provisions, which include a $10 million termination fee payable by the Company under certain circumstances, may discourage a potential third-party acquirer that might have an interest in acquiring all or a significant part of the Company from considering or proposing that acquisition. In addition, the terms of the Merger Agreement limit the ability of the Company to pursue alternations and capitve business opportunities, including sales or transfers of multifamily loans or other assets, or make changes to its business pending the completion of the Merger and other restrictions on the Companys ability to conduct its business.
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We al posire subject to business uncertainties and contractual restrictions while the Merger is pending that could harm our business relation. There have been noships, financial condition and results of operations.
During the period prior to the closing of the Merger and pursuant to the terms of the Merger Agreement, our business is exposed to certain inherent risks and contractual restrictions that could harm our business relationships, financial condition, results of operations, and business, including:
potential uncertainty in the market for our banking products and services, which could lead to the loss of customers or cause customers to remove their accounts from the Company and move their business to competing financial institutions;
difficulties material changes in our risk factors from those described in ointaining existing and establishing new business relationships with customers, associates and other business partners;
disruption to our business and operations, including diversion of management attention and resources;
the inability to attract and retain key personnel and recruit prospective employees, and the possibility that our current employees could be distracted, and their productivity decline as a result, due to uncertainty regarding the Merger;
the inability to pursue alternative business opportunities or make changes to our business pending the completion of the Merger and other restrictions on our ability to conduct our business;
our inability to freely issue securities, incur certain indebtedness, declare or authorize dividends or distributions or make certain material capital expenditures without FirstSuns approval;
our inability to solicit other acquisition proposals during the pendency of the Merger under the terms of the Merger Agreement;
the costs, fees, expenses and charges related to the Merger Agreement and the Merger, including but not limited to the cost of professional services, insurance, regulatory compliance and litigation; and
other developments beyond our control, including, but not limited to, changes in U.S. or global economic conditions that may affect the timing or success of the Merger.
If any of these effects were to occur, it could adversely impact our business, cash flow, results of operations or financial condition, as well as the market price of our common stock and our 2023 Annuaperceived value, regardless of whether the Merger is completed.
The Company may need to initiate litigation against FirstSun to seek judicial relief from the Merger Agreement if the parties are unable to reach agreement on an alternative regulatory structure for the Merger or a mutual termination of the Merger Agreement if no alternative structure is deemed feasible.
On October 29, 2024, FirstSun and the Company announced that based on discussions with the Federal Report on Form 10-K serve and the Texas Department of Banking, regulatory approvals necessary for the Merger to proceed have not been obtained and FirstSun and Sunflower Bank have been asked to withdraw their merger applications. FirstSun and the Company are discussing the pursuit of an alternative regulatory structure for the Merger. The parties are also discussing terms on which they would terminate the Merger Agreement if no alternative regulatory structure is deemed feasible. There can be no assurance that an alternative regulatory structure may ultimately be feasible.
If the Company and First Quarter 2024 Report Sun are unable to agree that an alternative regulatory structure is feasible, or upon terms on which a mutual termination Form 10-Q.of the Merger Agreement would be acceptable, the Company may need to initiate litigation against FirstSun to seek judicial relief from the Merger Agreement. Litigation is subject to inherent risk, and therefore, the Companys success as to the outcome of any litigation cannot be guaranteed. Any litigation could also result in substantial costs to the Company, including litigation costs and potential settlement costs, and disruption to the Companys business and operations, including diversion of management attention and resources. The pursuit of any judicial relief or the settlement, or failure to reach a settlement, for any claims may result in negative media attention, and may adversely affect our business, financial condition, results of operations and market price of our common stock.
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