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SPOKANE, WA-Local commercial real estate lender Source Capital has agreed to be acquired by locally based Sterling Financial Corp. in an stock transaction valued at about $9.75 million, or about $7.50 for each of Source Capital’s 1.3 million outstanding shares.

The purchase agreement states that the $7.50 per share figure is an initial price that will float within a range based upon the trading prices of Sterling’s common stock prior to the completion of the merger. On June 25, two days before the announcement, Source’s shares were trading at $4.60 apiece and Sterling’s stock price stood at $15.80. On Thursday, the day after the announcement, Source’s share price closed up $2.40 at an even $7 and Sterling’s closed up 30 cents at $15.30.

Source Capital President and Chief Executive Officer D. Michael Jones says his company was “unable to execute (its) business plan … due to market conditions and the lack of reasonable financing.” Sterling Chairman and Chief Executive Officer Harold B. Gilkey says Source Capital will beef up the company’s loan-servicing and lending group and allow the company to increase lending opportunities.

Both companies’ boards have approved the merger and shareholders are expected to follow suit. Source and Sterling have agreed to pay termination fees in the amounts of $300,000 and $75,000, respectively, under certain circumstances. In addition, Source has granted to Sterling an option to purchase up to 19.9% of Source’s common stock currently outstanding.

The merger of the publicly traded companies will be structured as a tax-free reorganization and be accounted for as a purchase. Sterling says it will continue loan servicing on the Source commercial real estate portfolios as well as the mature equipment-leasing portfolio still on the Source books.

Witherspoon, Kelley, Davenport & Toole, P.S. served as legal counsel to Sterling. Source’s legal counsel was Paine Hamblen Coffin Brooke & Miller LLP and Feldman Financial Advisors Inc. acted as financial advisers.

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