As filed with the Securities and Exchange Commission on ^ December 16, 1998
Registration No. 333-63987
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. ^ 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Village Financial Corporation
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(Exact name of Small Business Issuer as specified in charter)
New Jersey 6035 22-3562091
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(State or other jurisdiction (Primary SIC No.) (I.R.S. Employer
of incorporation or Identification No.)
organization)
590 Lawrence Square Boulevard, Lawrenceville, New Jersey 08648
(609) 730-0183
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(Address, including zip code, and telephone number, including area code, of
principal executive offices and principal place of business)
Kenneth J. Stephon, President
Village Financial Corporation
P.O. Box 6554, 590 Lawrence Square Boulevard
Lawrenceville, New Jersey 08648
(609) 730-0183
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(Name, address and telephone number of agent for service)
Please send copies of all communications to:
John J. Spidi, Esq.
Andrew S. White, Esq.
Malizia, Spidi, Sloane & Fisch, P.C.
1301 K Street, N.W., Suite 700 East, Washington, D.C. 20005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier 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 registration statement for the
same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
^ CALCULATION OF REGISTRATION FEE
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Title of Proposed Proposed Amount
Each Class of Shares Maximum Maximum Aggregate of
Securities to be Offering Price Offering Registration
To Be Registered Registered Per Unit Price(1) Fee(2)
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Common Stock,
$.10 Par Value 1,200,000 $10.00 $12,000,000 $3,336.00
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(1) Estimated solely for purposes of calculating the registration fee.
(2) Registrant previously paid $1,799.50 with the filing of Form SB-2 on
September 22, 1998.
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 of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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PROSPECTUS
410,000 to ^ 1,200,000 Shares of Common Stock
Village Financial Corporation
A Proposed Holding Company for Village Bank (In Organization)
590 Lawrence Square Boulevard
Lawrenceville, New Jersey 08648
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Village Financial Corporation is a New Jersey corporation formed in
January 1998 to become the holding company for Village Bank, a proposed
FDIC-insured federal savings bank to be located in Lawrenceville, New Jersey.
Village Financial Corporation will own all of the shares of Village Bank. The
common stock of Village Financial Corporation will be sold only if Village
Financial Corporation and Village Bank receive all required regulatory approvals
and Village Financial Corporation receives orders for at least 410,000 shares of
common stock.
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TERMS OF OFFERING
We are offering for sale a minimum of 410,000 shares and a maximum of ^
1,200,000 shares of our common stock to the general public on a "best efforts"
basis. All subscription funds tendered will be deposited in an interest bearing
escrow account with Summit Bank, Princeton, New Jersey (the "Escrow Agent")
pending completion, termination or cancellation of the offering. The offering
will expire on _______ __, 1998. However, we may extend the offering without
further notice to subscribers. We have not engaged an underwriter to assist in
the sale of our common stock, but we may do so during the course of the
offering. See pages ___ to ___, "The Offering and Plan of Distribution." Our
offering of common stock is based on the following terms:
o Price Per Share: $10.00
o Number of Shares
Minimum/Maximum: 410,000 to ^ 1,200,000
^o Expenses: $120,000*
o Net Proceeds to Village Financial Corporation
Minimum/Maximum: ^ $3,980,000 to $11,880,000
o Net Proceeds Per Share
Minimum/Maximum: ^ $9.71 to ^ $9.90
* We previously sold 94,850 shares of our common stock for $10.00 per share in a
private placement to pay for our preopening expenses. ^ We currently anticipate
our preopening organizational expenses to be ^ $433,000, of which an estimated ^
$120,000 is for the initial public offering relating to legal, accounting,
printing and postage costs. Of this $120,000 in expenses, $50,000 constitutes
estimated underwriting expenses, although we have not yet engaged an
underwriter. We may never engage an underwriter in which case these expenses may
be over-estimated. If we engage an underwriter, we expect to pay underwriting
commissions in an as yet undeterminable amount. See "The Offering and Plan of
Distribution."
Please refer to Risk Factors beginning on page 1 of this Prospectus.
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation ("FDIC") or any other government
agency.
Neither the Securities and Exchange Commission ("SEC"), the Office of Thrift
Supervision ("OTS"), nor any state securities regulator has approved or
disapproved these securities or determined if this Prospectus is accurate or
complete. Any representation to the contrary is a criminal offense.
For information on how to subscribe, call ^ us at (609) ^ 689-1010.
The date of this Prospectus is ______, 1998
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TABLE OF CONTENTS
Page
----
Questions and Answers About the Stock Offering.................................
^ Summary......................................................................
Risk Factors...................................................................
Use of Proceeds................................................................
Dividends......................................................................
Market for Common Stock........................................................
Dilution.......................................................................
Capitalization.................................................................
The Offering and Plan of Distribution.........................................
Office Facilities..............................................................
Unaudited Pro Forma Financial Information......................................
Management's Discussion and Analysis or Plan of Operation......................
Proposed Business of the Company...............................................
Proposed Business of the Bank..................................................
Regulation.....................................................................
Management of the Company......................................................
Management of the Bank.........................................................
Security Ownership of Certain Beneficial Owners................................
Description of Capital Stock...................................................
Legal Matters..................................................................
Experts........................................................................
Index to Financial Statements..................................................
Subscription Agreement......................................................A-1
This document contains forward-looking statements which involve risks
and uncertainties. Village Financial Corporation's actual results may differ
significantly from the results discussed in the forward- looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors" beginning on page 1 of this document.
You should rely only on the information contained in this document or
that we have referred you to. We have not authorized anyone to provide you with
information that is different. The affairs of Village Financial Corporation may
have changed since the dates referred to in this document.
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[MAP PAGE]
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QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING
Q: How do I purchase the stock?
A: You must complete and return the ^ subscription agreement to us together
with your payment no later than 4:00 p.m., New Jersey Time, _________,
1999.
Q: How much stock may I purchase?
A: The minimum purchase is 100 shares (or $1,000). The maximum purchase is
50,000 shares (or $500,000).
Q. Will the stock be traded on a market?
A. ^ Management of Village Financial Corporation anticipates that the stock
will be traded in the over-the-counter market and reported on the OTC
Bulletin Board. However it is not assured or guaranteed that the stock will
be traded on the OTC Bulletin Board or on any market.
Q: What particular factors should I consider when deciding whether to buy the
stock?
A: ^ Prior to purchasing our stock, you should be aware that investment in our
stock involves significant risk. You should read the Risk Factors section
on pages 1-5 of this document. As is disclosed in the Risk Factors section,
our company is a recently formed corporation with no operating history. We
may require additional capital in the future. It is unlikely that an active
trading market in our common stock will develop. As a new enterprise, we
have necessarily arbitrarily determined the offering price of our common
stock. You should not expect to receive dividends for the purchase of our
common stock. Village Bank will be operated in a highly regulated
environment and in a highly competitive market. We are subject to a
possible lack of market growth, interest rate risk, proposed adverse
legislation and possible delay in the opening of Village Bank. You should
be aware that our certificate of incorporation and bylaws contain certain
anti-takeover provisions, that the shares you purchase are subject to
dilution, that we may experience Year 2000 computer problems and that we
may be conducting this offering without the assistance of an underwriter.
Q: Who can help answer any other questions I may have about the stock
offering?
A: In order to make an informed investment decision, you should read this
entire document. In addition, you may contact:
Kenneth J. Stephon, President
Village Financial Corporation
^ 590 Lawrence Square Boulevard
Lawrenceville, New Jersey 08648
(609) ^ 689-1010
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^ SUMMARY
^ This summary highlights selected information from this document and
may not contain all the information that is important to you ^. To understand
the stock offering fully, ^ you should read carefully this entire document,
including the financial statements and the notes to the financial statements of
Village Financial Corporation. References in this document to "we," "us" and
"our" refer to Village Financial Corporation. In certain instances where
appropriate, "we," "us" or "our" refers collectively to Village Financial
Corporation and Village Bank. References in this document to "Village" or the
"Company" refer to Village Financial Corporation. References in this documents
to the "Bank" refer to Village Bank.
The Company and the Bank
Village Financial Corporation
590 Lawrence Square Boulevard
Lawrenceville, New Jersey 08648
(609) 689-1010
Village Financial Corporation is not an operating company and we have
not engaged in any significant business to date. Our company was formed in
January 1998 as a New Jersey-chartered corporation to be the holding company for
Village Bank, a federal savings bank in the process of organizing. The holding
company structure will provide greater flexibility in terms of operations,
expansion and diversification. Our office is located at 590 Lawrence Square
Boulevard, Lawrenceville, New Jersey 08648. Our mailing address is 590 Lawrence
Square Boulevard, Lawrenceville, New Jersey 08648. Our address for mailing
Subscription Agreements and payments is P.O. Box 6554, Lawrenceville, New Jersey
08648. Our telephone number is (609) 689-1010.
See pages ___ to ____, "Proposed Business of the Company."
Village Bank
590 Lawrence Square Boulevard
Lawrenceville, New Jersey 08648
(609) 689-1010
The principal business of Village Bank will be to accept various types
of transaction and savings deposits from the general public and to make
mortgage, consumer, small business and other loans. Our main office is expected
to be located at 590 Lawrence Square Boulevard, Lawrenceville, New Jersey,
formerly a branch office of a regional commercial bank. We intend to operate a
limited service facility within the Pennington Point complex, which includes the
Pennington Point adult community, in Pennington, New Jersey. See pages ____ to
____, "Proposed Business of the Bank."
Strategy
Our primary market area is currently serviced almost entirely by large,
regional financial institutions headquartered outside of the area. Village Bank
is being formed to provide the area with a locally managed and operated
financial institution with the policies and decisions of the bank being made by
people known to the customers.
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In a market dominated by large, regional and statewide banks and their
branches, we intend to offer the community an alternative. Village Bank will be
a highly personalized, community-oriented financial institution delivering
service that we believe only comes from responsive local decision-making.
The elements of this strategy include:
o Accessibility to the bank's President, officers and directors,
whether during or after business hours.
o Flexibility in loan and business decisions to account for local
community and customer needs.
o Investment of depositors funds back into the community.
o Involvement in the community affairs of our primary market area.
o Competitive products and pricing on a wide array of financial
services.
o Responsiveness to customer needs supported by an experienced and
service-oriented staff.
Community Ownership
Our organizers believe that our primary market area, ^ Mercer County,
New Jersey, is in need of a locally-headquartered financial institution
dedicated to the needs of its community. As a locally operated financial
institution, we will be able to more quickly recognize the needs of the local
residents and businesses, versus out-of-state and out-of-area financial
institutions. We anticipate implementing services, deposit and credit programs
intended to fulfill the financial needs of our primary market area. See pages
____ to ____, "Proposed Business of the Bank."
New Operation
We are a new entity without any operating history. However, as a newly
established financial institution, we intend to structure loans and savings
accounts with flexibility to react to changes in the interest rate environment
of today's economy. See page ___, "Risk Factors - Lack of Operating History" and
see pages ___ to ___, "Proposed Business of the Bank."
Management
Kenneth J. Stephon will serve as our President, Chief Executive
Officer, Chief Financial Officer and a director. Mr. Stephon is the former
President, Chief Executive Officer, Chief Financial Officer and a director of
CloverBank, Pennsauken, New Jersey. The board of directors includes local
business persons and professionals with diverse backgrounds, familiar with the
communities of ^ Mercer County. Members of the board of directors are involved
in local civic and non-profit organizations. We do not currently maintain "key
man" insurance on Mr. Stephon, but we intend to maintain this insurance in the
future. Mr. Stephon has entered into a three year employment agreement with us
that may be extended by our board of directors. Mr. Stephon's compensation will
include a base salary, discretionary bonus, participation in benefit plans,
retirement plans, medical plans and insurance policies, vacation and sick leave
pay, expense reimbursement and stock option awards. The employment contract
includes a noncompetition clause, termination and disability clauses and a
payment clause in the event of an involuntary termination due to a change in
control of our company. See pages ___ to ___, "Management of the Company" and
pages ___ to ___, "Management of the Bank."
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^ Organizers
The organizers consist of the initial board of directors of the
Company, Kenneth J. Stephon, William C. Hart, William V. R. Fogler, Paul J.
Russo, Jonathan R. Sachs and George M. Taber. See pages ____ to ____,
"Management of the Bank". The organizers purchased 18,600 shares and certain
other initial investors previously purchased 76,250 shares, for a total of
94,850 shares of common stock at $10.00 per share for long-term investment in a
private placement to fund preopening expenses. The initial board of directors
plans to subscribe for an additional 21,000 shares in the offering. The
organizers reserve the right to purchase additional shares in the offering. The
remaining shares are being offered to the public on a first come, first served
basis. However, we may refuse to accept any subscription in whole or in part for
any reason. For example, subscriptions will be refused if not accompanied by
full or proper payment for all shares subscribed for, if the subscription
agreement is not properly completed or signed or if fulfilling the subscription
would violate federal or state securities laws. All potential investors in the
common stock in the offering will have the opportunity to purchase the stock at
the same price and on the same terms. The initial investors in our common stock,
including our organizers, ^ paid $10.00 per share for the shares of stock they ^
purchased in the private placement. See pages ____ to ____, "Management's
Discussion and Analysis or Plan of Operation"; pages ____ to ____, "Management
of the ^ Bank"; and pages ____ to ____, "The Offering and Plan of Distribution."
Office Facilities
We entered into a Lease Agreement in October^ 1998 with the owner of
590 Lawrence Square Boulevard, Lawrenceville, New Jersey. The lease term is
through May 2005 and may be extended at our option for an additional five years.
We have prepaid the rent through December 1999 at an average of $4,990 per
month. The annual base rental amount will increase from approximately $50,000 to
$70,000 over the first five years and 4% per year thereafter. We also entered
into a lease agreement for space in the Pennington Point complex in order to
operate a limited service facility. This is a renewable one year lease at an
annual rental amount of $9,600. See pages ___ to ___, "Proposed Business of the
Bank" and see pages ___ to___, "Office Facilities."
Conditions of the Offering
We will terminate the offering, no shares of common stock will be
issued, and no subscription proceeds will be released from escrow to us, unless
the following conditions are met on or before _______ __, 1998 (or such later
date if we extend the offering):
o We have accepted subscriptions and payment in full for the
minimum number of shares and
o Our organizers have made provisions for satisfying any regulatory
or other conditions that must be satisfied before Village Bank
may commence banking operations. See page ____, "The Offering and
Plan of Distribution - Conditions of the Offering and Release of
Funds."
Subscription proceeds for shares subscribed for will be promptly
deposited in an interest-earning escrow account with Summit Bank as escrow agent
under the terms of an escrow agreement pending the satisfaction of the
conditions set forth above or the termination of the offering. Upon satisfaction
of the conditions set forth above, all subscription funds held in escrow,
including any interest earned, shall be released to us for our immediate use.
See pages ___ to ___, "The Offering and Plan of Distribution."
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The Offering
The offering consists of a minimum of 410,000 shares and a maximum of ^
1,200,000 shares of Common Stock at $10.00 per share. In the offering, there is
a minimum purchase requirement of 100 shares and a maximum purchase limitation
of 50,000 shares per subscriber including all affiliates of the subscriber. The
offering will terminate on _______ __, 1998. However, we may extend the offering
without notifying you. Circumstances under which we would extend the offering
include our inability to sell sufficient shares to raise the minimum amount of
initial capitalization, or we subsequently engage an underwriter to assist us in
the sale of our stock, and the underwriter requests that we extend the offering.
If the offering is not completed or regulatory conditions are not met by _______
__, 199_, all subscription funds will be promptly refunded. See pages ___ to
___, "The Offering and Plan of Distribution."
Private Placement for Preopening Expenses
Our organizers and certain other initial investors previously purchased
in a private placement an aggregate of 94,850 shares of the Company's Common
Stock at a price of $10.00 per share for a total of $948,500. The amount
received, and accrued interest thereon, from the private placement has been, and
will continue to be, used to pay our offering, organizational and preopening
expenses. We have and will continue to expend the proceeds received in the
private placement prior to the receipt of all regulatory approvals and
completion of the offering.
Use of Proceeds
We expect to contribute all of the net proceeds remaining from the
private placement and all of the net proceeds of the offering to Village Bank as
capital. We intend to use the proceeds as the initial capital of the bank. We
expect Village Bank to use a substantial portion of the proceeds for investment
in residential and commercial real estate loans, consumer loans, small business
loans, and other loans.
See pages ___ to ___, "Use of Proceeds."
Dividends
Our board of directors currently intends to initially grow the bank's
capital and not issue cash dividends. We may declare dividends on the common
stock at some time in the future depending upon our profitability, regulatory
and financial condition and other factors. However, no assurance can be given
that any dividends will be declared or, if declared, what the amount of
dividends will be, or whether such dividends, once declared, will continue. See
pages ___ to ___, "Risk Factors" and see pages ___ to ___, "Dividends."
Market for Common Stock
We do not anticipate that there will be an active trading market for
our common stock upon completion of the offering. You should have a long-term
investment intent. You may not be able to sell your shares when you desire or
sell them at a price equal to or above the offering price. Following completion
of the offering, we anticipate that our common stock will be traded in the
over-the-counter market and reported on the OTC Bulletin Board. See page ___,
"Risk Factors - Lack of Trading Market."
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(v)
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Payment for Subscription
Payments for subscriptions must be for the full amount subscribed and
must be made by check, bank draft or money order made payable to "Summit Bank,
Escrow Agent for Village Financial Corporation," and sent to or delivered to us.
If we do not accept your subscription, we will mail you notice of the rejection
within ten business days after we have received your subscription. See page ___,
"The Offering and Plan of Distribution - How To Subscribe."
Anti-Takeover Provisions/Voting Restrictions
Certain provisions included in our Certificate of Incorporation and
Bylaws are designed to encourage potential acquirors to negotiate directly with
our board of directors and to discourage takeover attempts. These provisions,
which include restrictions on stockholders' ability to call special meetings,
require an 80% vote for certain business combinations and amendments to the
Company's certificate of incorporation and bylaws and do not permit cumulative
voting in the election of directors, may discourage non-negotiated takeover
attempts. These provisions also tend to perpetuate management. You may determine
that these provisions are not in your best interest in as much as they may
substantially limit your voting power. See pages ___ to ___, "Description of
Common Stock - Certain Anti-Takeover Provisions."
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(vi)
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RISK FACTORS
In addition to the other information in this Prospectus, you should
consider carefully the following risk factors in evaluating an investment in our
common stock.
Certain statements in this Prospectus are forward-looking and are
identified by the use of forward- looking words or phrases such as "intended,"
"will be positioned," "believes," "expects," is or are "expected,"
"anticipates," and "anticipated." These forward-looking statements are based on
our current expectations. The risk factors set forth below are cautionary
statements identifying important factors that could cause actual results to
differ materially from those in the forward-looking statements.
Potential Total Loss of Investment
Investment in our common stock involves significant risk. Each
subscriber should be financially able to sustain a total loss of his investment.
OUR COMMON STOCK CANNOT AND WILL NOT BE INSURED BY THE FDIC OR ANY OTHER
GOVERNMENT AGENCY.
Lack of Operating History
Our Company is recently formed. Village Bank will be formed following
regulatory approval. Neither entity has any operating history. Accordingly,
prospective investors do not have access to all of the information that is
available to the purchasers of securities of a financial institution with a
history of operations. Because our primary asset will be the capital stock of
the bank, our operating results and financial position will be dependent upon
the operating results and financial condition of the bank. The business of the
bank is subject to the risks inherent in the establishment of any new business
and, specifically, of a new Federal stock savings bank. As a result of the
substantial start-up expenditures that must be incurred by a new bank, we may
not be profitable for several years after commencing business, if ever. See
"Unaudited Pro Forma Financial Information."
No Assurance of Ability to Raise Additional Capital That May be Required in the
Future
Although the organizers believe the proceeds from the offering will be
sufficient to support our initial operations and commitments, there can be no
assurance that the proceeds of the offering will be sufficient to meet our
future capital requirements without additional financing. The organizers expect
the offering proceeds to support the cash needs of Village Bank for three years
or more, depending on the amount of proceeds of the offering, the level of
deposits, the profitability of Village Bank and other factors. The amount of
capital required will depend, among other things, upon operating results, the
growth of assets and regulatory requirements. The organizers have made no
commitments to provide additional funds for the operation of our company.
Therefore, you should not expect the organizers personally to provide additional
funds for our operations or capital requirements if the proceeds of this
offering are insufficient.
Lack of Trading Market May Inhibit the Sale of Your Shares
Due to the small size of the offering, it is highly unlikely that an
active trading market will develop and be maintained. If an active market does
not develop, you may not be able to sell your shares promptly or perhaps at all.
You may not be able to sell your shares at a price equal to or above the
offering price. It is anticipated that our common stock will be traded in the
over-the-counter market and reported on the OTC Bulletin Board. However, we do
not yet have a market maker for our common
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stock. A market maker is a requirement for reporting on the OTC Bulletin Board.
Our common stock may not be appropriate as a short-term investment. See "Market
for Common Stock."
Arbitrary Determination of Offering Price
The offering price of our common stock has been arbitrarily determined
by our organizers. Our company is a new enterprise. We previously sold shares of
our common stock in a private placement at $10.00 per share, the offering price
per share in this offering. There can be no assurance that the shares of our
common stock can be resold at the offering price or any other amount. See "The
Offering and Plan of Distribution;" "Capitalization;" and "Dilutive."
Lack of Dividends
Village Financial Corporation is a legal entity separate and distinct
from Village Bank. Because we initially will engage in no business other than
owning all of the outstanding shares of capital stock of Village Bank, our
payment of dividends to you will generally be funded only from dividends we
receive from the bank. Any dividends to be paid to you will be dependent on,
among other things, the bank's profitability. In addition, the payment of
dividends may be made only if we are in compliance with certain applicable
regulatory requirements governing the payment of dividends. No assurance can be
given that dividends on our common stock will ever be paid. We expect that
earnings, if any, will be used initially for operating capital. We do not
foresee payment of any dividends in the near future. OUR COMMON STOCK SHOULD NOT
BE PURCHASED BY PERSONS WHO NEED OR DESIRE DIVIDEND INCOME FROM THIS INVESTMENT.
See "Dividends."
Government Regulation May Adversely Effect Our Business
We will operate in a highly regulated environment and will be subject
to examination, supervision and comprehensive regulation by the OTS and the
FDIC. Banking regulations, designed primarily for the safety of depositors, may
limit Village Bank's growth, and thus the return to you. The activities that may
be restricted include the payment of dividends, mergers with or acquisitions by
other institutions, investments, loans and interest rates, interest rates paid
on deposits and the creation of branch offices. We also will be subject to
capitalization guidelines set forth in federal legislation, and could be subject
to enforcement action to the extent Village Bank is found by regulatory
examiners to be undercapitalized. Laws and regulations applicable to us could
change at any time, and there can be no assurance that such changes would not
adversely affect our business. In addition, the cost of compliance with
regulatory requirements could adversely affect our ability to operate
profitably. See "Regulation."
^ Intense Competition For Banking Products and Services May Effect Profitability
Our primary market area will be ^ Mercer County, New Jersey. See
"Proposed Business of the Bank - Market Area." The Bank's primary emphasis will
be on residential real estate lending, and secondarily on commercial real estate
financing, consumer and small business lending. Within our market area there are
numerous financial institutions including banks, thrifts and credit unions. We
will be competing for deposits with these larger established institutions as
well as with money market mutual funds, brokerage services, private banking and
other non-traditional financial intermediaries. We will have to attract our
customer base from existing financial institutions and new residents. Many of
the competitors will be much larger than Village Bank in terms of assets. Our
competitors have more extensive facilities and greater depth of organizational
and marketing capabilities, and may initially be able to offer a greater range
of services. There can be no assurance that we will be able to compete
successfully. See "Proposed Business of the Bank - Competition."
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Possible Lack of Market Growth
Our organizers' assumptions about the viability of Village Financial
Corporation and Village Bank are based on their projections of growth trends in
population, deposits and housing starts in our primary market area, as well as
on their projections of interest rates, earning asset origination capability,
deposit account growth and operating expense trends. These projections are
merely forecasts and may prove to be inaccurate. Our primary market area has
experienced some growth in population, deposits and housing starts in recent
years, but there can be no assurance that growth will continue in the future or
that the Company will benefit from any such growth if it does continue. See
"Proposed Business of the Bank - Market Area."
Interest Rate Risk
Our operating results will depend to a great extent upon Village Bank's
net interest income. Net interest income which is the difference between the
interest earned on assets (primarily loans and investment securities) and the
interest paid for liabilities (primarily savings and time deposits). Market
interest rates for loans, investments and deposits are highly sensitive to many
factors beyond our control. These factors include general economic conditions
and the policies of various governmental and regulatory authorities. In
addition, due to current low prevailing market interest rates, it may be
difficult for us to utilize the bank's capital to originate loans and purchase
investments at a sufficient yield. See "Proposed Business of the Bank - Lending
Activities" and see "- Source of Funds."
Proposed Legislation Could Reduce Profitability
A bill, H.R. 10, has been passed by the U.S. House of Representatives,
that would curtail the powers of unitary thrift holding companies. We are a
proposed unitary thrift holding company. Furthermore, other proposed legislation
has been considered that might eliminate the federal thrift charter under, the
proposed charter of Village Bank. If this legislation becomes law, we will be
forced to convert Village Bank to a state chartered bank or national commercial
bank. If the bank becomes a commercial bank, the investment authority of the
bank and our ability to engage in diversified activities would be more limited.
This could affect our profitability. See "Regulation."
Possible Delay in the Opening of Village Bank
We anticipate that we will have completed all of the regulatory
conditions precedent to commencing business and will have Village Bank ready for
opening prior to the spring of 1999. This date is only a projection, however,
and the actual opening date may be later.
Anti-Takeover ^ Provisions/Voting Restrictions
Certain provisions included in our Certificate of Incorporation and
Bylaws are designed to encourage potential acquirors to negotiate directly with
our board of directors and to discourage takeover attempts. These provisions may
discourage non-negotiated takeover attempts. These provisions also tend to
perpetuate management. You may determine that these provisions are not in your
best interest inasmuch as they may substantially limit your voting power. See
"Description of Common Stock -Certain Anti-Takeover Provisions."
3
<PAGE>
Expected Future Dilution
After the offering, and subject to stockholder approval, we expect to
adopt a stock option plan and restricted stock plan that will permit us to grant
options and restricted stock to our officers, directors, and key employees. The
option price will be no less than the greater of the fair market value of our
common stock on the date the option is granted or $10.00 per share. The stock
option plan will not include more than 10% of the outstanding common stock. The
exercise of options and the granting of restricted stock could have a dilutive
effect on earnings and book value calculated on a per share basis. Furthermore,
our preopening expenses will have a dilutive effect on earnings and book value.
We may issue additional shares of common stock or preferred stock in the future.
In addition, ^ investors should be aware that the percentage of their ownership
of our common stock will depend upon the total number of shares sold in the
offering. Your percentage ownership will be over two times as great if the
minimum number of shares are sold rather than the maximum number of shares at
the top of the offering range. See "Dilution" and "Management of the Bank -
Remuneration of Directors and Officers."
Possible Year 2000 Computer Program Problems
A great deal of information has been disseminated about the global
computer crash that may occur in the Year 2000. Many computer programs that can
only distinguish the final two digits of the year entered (a common programming
practice in earlier years) are expected to read entries for the Year 2000 as the
Year 1900 and compute payment, interest or delinquency based on the wrong date
or are expected to be unable to compute payment, interest or delinquency. Rapid
and accurate data processing is essential to our operations. Data processing is
also essential to most other financial institutions and many other companies.
^ All of the bank's material data processing that could be affected by
this problem will be provided by NCR, a nationally recognized third party
service bureau. Village Bank's prospective service bureau provider has advised
us that it expects to resolve this potential problem before the Year 2000. NCR
has warranted that it will be Year 2000 compliant by June 1, 1999. However, if
this potential problem is not resolved before the Year 2000, we would likely
experience significant data processing delays, mistakes or failures. These
delays, mistakes or failures could have a significant adverse impact on the our
financial condition and results of operations. See "Management's Discussion and
Analysis or Plan of Operation" and "Office Facilities."
Direct Public ^ Offering/Lack of Underwriter to Assist in the Offering
No commitment exists for an underwriter to purchase any shares in this
offering. Instead, we are offering shares of our common stock directly to the
public on a "best efforts" basis. No assurance can be given that any shares will
be sold. If necessary, we may enter into a marketing or consulting agreement
with a registered broker/dealer to assist in the sale of our common stock
without further notice to subscribers. We estimate that such an agreement would
include compensation to the broker/dealer in the amount of 3% to ^ 7.75% of the
gross proceeds it receives from the sale of our common stock. See "Management's
Discussion and Analysis or Plan of Operation" and "The Offering and Plan of
Distribution."
USE OF PROCEEDS
Although the amounts set forth below provide an indication of the
proposed use of funds based on the plans and estimates of our organizers, actual
expenses may vary from the estimates. The organizers believe that the net
minimum proceeds of ^ $3,980,000 from the offering, as well as the
4
<PAGE>
remaining proceeds from the private placement, will satisfy the cash
requirements of Village Financial Corporation (hereafter the "Company") and the
capital requirements of Village Bank (hereafter the "Bank") for their respective
first year of operations but there can be no assurance that this will be the
case. Because the Company and the Bank constitute a new enterprise, the
organizers cannot predict with any certainty to what extent the Bank will
generate revenues from investments and loan originations. As a result, the
organizers cannot predict precisely what the actual application of proceeds will
be. However, there is no assurance that the proceeds of the offering will be
sufficient to meet the future capital requirements of the Company without
additional financing.
The net proceeds to the Company from the sale of 410,000 and ^
1,200,000 shares of common stock in the offering are estimated at ^ $3,980,000
and $11,880,000, respectively. The preopening expenses and offering costs are
estimated at approximately ^ $433,000. The preopening expenses, estimated to be
$313,000, are to be paid from the proceeds of the private placement. The
estimated ^ $120,000 in offering costs may be paid from the proceeds of the
offering. Estimated preopening expenses and offering costs are the total of the
following estimated expenses: preopening salaries and benefits - $183,000;
marketing, travel and promotions - $8,000; legal - $100,000; accounting and
consulting - $30,000; printing and office supplies - $10,000; filing fees -
$20,000; underwriter expenses -
$50,000 (underwriting commissions have not been included these amounts or in
the table below. See "The Offering and Plan of Distribution"); and other
miscellaneous operating expenses - $32,000. As a result of delays in the
offering, regulatory comments and other factors, expenses may be significantly
greater. In the event there are insufficient revenues from operations and
investments, the salaries and benefits of the officers and employees hired may
be paid from the proceeds of the offering. On the basis of the foregoing
assumptions, gross proceeds, expenses and net proceeds at the minimum and
maximum offering amount would be as follows:
Minimum Maximum
410,000 Shares ^ 1,200,000 Shares
(504,850 Total ^(1,294,850 Total
Outstanding Shares) Outstanding Shares)
at $10.00 Per Share at $10.00 Per Share
------------------- -------------------
(In thousands)
Gross Proceeds from Private
Placement..................... $ 949 $ 949
Gross Proceeds from offering.... 4,100 ^ 12,000
Less Estimated Preopening and
offering Expenses............. ^(433) ^(433)
------ ------
Estimated Net Proceeds.......... ^ $4,616 ^ $12,516
===== ======
All of the proceeds of the offering are expected to be invested by the
Company in the common stock of the Bank. Until utilized by the Bank for
operations, investments or lending purposes, proceeds of this offering will be
invested by the Company in short-term interest-bearing investments and
securities. The Bank ^ intends to use the proceeds from the sale of its Stock to
the Company for:
o investment in residential and commercial real estate loans,
consumer loans, small business loans, and other loans
o payment of operating expenses
o working capital purposes
o the purchase of investment securities as needed for liquidity and
investment purposes.
5
<PAGE>
DIVIDENDS
The board of directors of the Company initially expects to follow a
policy of retaining any earnings to provide funds to operate and expand the
Company. Consequently, there are no plans for any cash dividends to be paid in
the near future.^ The Company's ability to pay any cash dividends to its
stockholders in the future will depend primarily on the Bank's ability to pay
cash dividends to the Company. The payment of dividends may be made only if the
Bank is in compliance with certain applicable regulatory requirements governing
the payment of dividends. In addition, the payment of cash dividends by the
Company is subject to the discretion of the Company's board of directors, which
will consider a number of factors, including business condition. See "Regulation
- - Saving Institution Regulation -- Dividend and Other Capital Distribution
Limitations."
MARKET FOR COMMON STOCK
The Company issued a total of 94,850 shares of its common stock in a
private placement. There are 24 shareholders of the Company's common stock.
However, as a newly organized company, the Company has never publicly issued
capital stock. There is no established market for the common stock. Following
the completion of the offering, it is anticipated that the common stock will be
traded on the over-the-counter market with quotations available through the OTC
Bulletin Board. However, the Company may not make use of the OTC Bulletin Board
without a market maker. No market maker has agreed to make a market in the
Company's Common Stock at this time. If the common stock cannot be quoted on the
OTC Bulletin Board it is expected that the transactions in the common stock will
be reported in the pink sheets of the National Quotations Bureau, Inc. In the
event the Company meets the requirements for listing on The Nasdaq Stock Market,
the Company intends to apply for listing on either the Nasdaq National Market or
the Nasdaq SmallCap Market, as appropriate.
The development of an active trading market depends on the existence of
willing buyers and sellers. Due to the small size of the offering, it is highly
unlikely that an active trading market will develop and be maintained. Investors
should have a long-term investment intent. Investors may not be able to sell
their shares when they desire or sell them at a price equal to or above the
offering price.
6
<PAGE>
DILUTION
The following table illustrates, assuming the minimum or maximum shares to be
issued in the offering, the estimated dilution per share to new investors from
the offering:
410,000 ^ 1,200,000
Shares Shares
Minimum Maximum
------- -------
Offering price per share.................... $10.00 $10.00
----- -----
Pro forma net tangible book value per
share at September 30, 1998 (1)........... $ 8.81 $ 8.81
Increase per share attributable to new
investors from offering..................... ^ 0.33 ^ 0.86
------- -------
Pro forma net tangible book value per
share after offering...................... $ ^ 9.14 $ ^ 9.67
======= =======
Dilution per share to new investors from
offering.................................. $ ^ 0.86 $ ^ 0.33
======= =======
- -----------------
(1) Does not include potential effect of shares ^ that may be issued under a
stock option plan ^ maintained for the President of the ^ Company. Under
the stock option plan, the President has been granted options to purchase
10,000 shares of common stock at an exercise price equal to the initial
public offering price per share. In the event these shares are issued with
newly issued shares rather than shares purchased in the open market, the
voting interests of existing stockholders would be diluted, but by less
than 2% at either the minimum or maximum initial offering levels. Since
these shares are available for exercise at a price per share equal to the
offering price, there would be no dilution upon exercise. Refer to the
notes to the financial statements ^ as of September 30, 1998 for further
details.
CAPITALIZATION
The table set forth below shows the pro forma capitalization of the
Company immediately following completion of the private placement and the
offering as though the private placement and the offering had been completed on
September 30, 1998, assuming that 410,000 and ^ 1,200,000 shares of common stock
had been sold pursuant to the offering, after deduction of projected
organizational and initial public offering expenses of ^ $433,000 .
7
<PAGE>
PRO FORMA CAPITALIZATION
410,000 1,200,000
Shares Sold Shares Sold
----------- -----------
(In thousands)
Preferred Stock ($0.10 par value)
Authorized - 1,000,000; Assumed
none outstanding......................... $ -- $ --
Common Stock ($0.10 par value)
Authorized - 5,000,000 shares;
Assumed 505,000 and ^ 1,295,000 shares
issued and outstanding (1)............... 50 ^ 129
Additional Paid-In Capital................. ^ 4,878 12,699
------- ------
Pro Forma Retained Deficit................. (313) (313)
----- -----
Total Stockholders' Equity............. ^ $4,615 $12,515
===== ======
- -----------------
(1) In addition to the 410,000 to ^ 1,200,000 shares to be issued pursuant
to the offering, 94,850 shares have been issued to organizers and
certain other investors pursuant to the private placement.
THE OFFERING AND PLAN OF DISTRIBUTION
General
The Company is offering for sale in the offering a minimum of 410,000
shares and a maximum of ^ 1,200,000 shares of its common stock at a purchase
price of $10.00 per share to raise gross proceeds between $4,100,000 and ^
$12,000,000 for the Company. The Company has established a minimum subscription
of 100 shares ($1,000) and a maximum subscription of 50,000 shares ($500,000).
The maximum subscription is 9.9% of the minimum number of shares to be
outstanding. Because the Company is a new organization with no operating history
and the Bank is in organization, the offering price of the common stock was
arbitrarily determined by the organizers without reference to traditional
criteria for determining value such as book value or historical or projected
earnings.
Subscribers should be aware that beneficial ownership of as little as
5% of the outstanding shares of common stock could obligate the beneficial owner
to comply with certain reporting and disclosure requirements of federal
securities and banking laws. Additionally, no person may purchase more than 9.9%
of our outstanding stock without prior approval of the OTS. See "Description of
Capital Stock Provisions of the Company's Certificate of Incorporation and
Bylaws -- and Regulatory Restrictions."
The Company's directors are expected to purchase additional shares in
the offering, resulting in total aggregate purchases of at least 39,600 shares.
The organizers reserve the right to increase the amount of common stock they
purchase in the offering. See "Management of the Bank."
8
<PAGE>
The shares are being offered to the public through the directors and
officers of the Company. No director or officer, other than Director Fogler, is
affiliated with a securities broker or dealer. Director Fogler will not act as a
broker or dealer in this transaction. No commission or other sales compensation
will be paid to any organizer in connection with the offering. The Company has
not entered into any marketing or consulting agreement with a registered
broker/dealer. If necessary, the Company may enter into an agreement with a
registered broker/dealer to assist in the sale of common stock in this public
offering, without notice to subscribers. If the Company enters into such an
agreement with a registered broker/dealer, the broker/dealer would likely
receive 3% to 7.75% of the gross proceeds it receives from the sale of the
common stock. The net proceeds received by the Company from the offering would
be reduced correspondingly. The Company would also likely reimburse the
broker/dealer for its reasonable fees and expenses, including its legal fees,
and indemnify the broker/dealer from certain claims and liabilities including
indemnification for claims and liabilities arising under the Securities Act of
1933, as amended.
Except for one director of the Company, none of the Company's directors
and officers participating in the offering are registered or licensed as a
broker or dealer or an agent of a broker or dealer. The unlicensed officers and
directors of the Company will assist in sales activities in connection with the
offering pursuant to an exemption from registration as a broker or dealer
provided by Rule 3a4-1 promulgated under the Securities Exchange Act of 1934
("Rule 3a4-1"). Rule 3a4-1 generally provides that an "associated person of an
issuer" of securities shall not be deemed a broker solely by reason of
participation in the sale of securities of such issuer if the associated person
meets certain conditions. Such conditions include, but are not limited to, that
the associated person participating in the sale of an issuer's securities not be
compensated in connection therewith at the time of participating, that such
person not be associated with a broker or dealer and that such person observe
certain limitations on his participation in the sale of securities. For purposes
of this exemption, "associated person of an issuer" is defined to include any
person who is a director, officer or employee of the issuer or a company that
controls, is controlled by, or is under common control with, the issuer.
Subscriptions to purchase shares of the common stock will be received
until ^ 4:00 p.m. New Jersey Time, on _______ __, 1998, unless all of the common
stock is earlier sold or the offering is earlier terminated or extended by the
Company. See "Conditions of the Offering and Release of Funds" below. The
Company reserves the right to extend the offering without further notice to
subscribers. However, if the offering is not completed by _______ __, 199_ all
subscription funds will be promptly refunded. The date the offering expires (as
possibly extended) is referred to herein as the "Expiration Date." No written
notice of an extension of the offering until _______ __, 199_ need be given
prior to any extension and any such extension will not alter the binding nature
of subscriptions already accepted by the Company. If the offering is extended
beyond _______ __, 199_, subscribers will be resolicited and all subscription
funds previously submitted will be promptly refunded. If the above conditions
are not satisfied by _______ __, 199_, or if the offering is terminated at an
earlier date, the funds including any interest earned thereon, will be promptly
repaid to investors. Investors may not receive any interest on their
subscription funds, if the offering expenses are in excess of amounts to be
covered by the proceeds of the private placement. However, if such funds are
held in excess of 90 days, such funds will be promptly returned to the
subscribers with any interest earned thereon. See "Termination or Extension of
the Offering."
Following acceptance by the Company, subscriptions are binding on
subscribers and may not be revoked by subscribers. The Company reserves the
right to cancel accepted subscriptions at any time and for any reason until the
proceeds of the offering are released from escrow (as discussed in greater
detail in "Conditions of the Offering and Release of Funds" below), and the
Company reserves the right to reject, in whole or in part and in its sole
discretion, any subscription.
9
<PAGE>
Promptly after receipt of final regulatory approval and authorization
to do business, the Company will cause to be mailed or delivered to each
subscriber stock certificates representing the shares of common stock purchased
by such subscriber.
Conditions of the Offering and Release of Funds
Subscription proceeds for shares subscribed for will be promptly
deposited in an interest-earning escrow account with the Summit Bank, Princeton,
New Jersey, as escrow agent (the "Escrow Agent"), under the terms of an escrow
agreement (the "Escrow Agreement"), pending the satisfaction of the conditions
of the offering or the termination of the offering. Neither the Company nor any
of its officers or directors is affiliated with the Escrow Agent. The offering
will be terminated, no shares of common stock will be issued, and no
subscription proceeds will be released from escrow to the Company unless on or
before the Expiration Date (i) the Company has accepted subscriptions and
payment in full for the minimum number of shares and (ii) the organizers have
made provisions for satisfying any regulatory or other conditions that must be
satisfied before the Bank may commence banking operations.
The Escrow Agent is expected to place the funds held in the Escrow
Account ^ in interest-bearing accounts. Until the regulatory authorities
authorize the organizers to use the proceeds of this offering to capitalize the
Company, the $948,500 obtained from the organizers of the Company and certain
other initial investors in the private placement will be used to pay for
expenses incurred. Upon disbursement of funds from the Escrow Account to the
Company, any investment earnings on the Escrow Account will be the property of
the Company. The Escrow Agent has not investigated the desirability or
advisability of an investment in the common stock by prospective investors and
has not approved, endorsed or passed upon the merits of an investment in the
common stock.
If the above conditions are not satisfied by _______ __, 199_, or if
the offering is terminated at an earlier date, the funds available from the
Escrow Account, including any interest earned thereon, will be promptly repaid
to investors. Investors may not receive any interest on their subscription
funds, if the offering expenses are in excess of amounts to be covered by the
proceeds of the private placement. However, if such funds are held in excess of
90 days, such funds will be promptly returned to the subscribers with any
interest earned thereon.
How To Subscribe
All subscriptions must be made by completing a Subscription Agreement.
Additional copies of the Prospectus and the Subscription Agreement may be
obtained by contacting the Company at the address set forth below. Subscriptions
will not be binding on subscribers until accepted by the Company.
SUBSCRIPTIONS WILL NOT BE ACCEPTED UNLESS ACCOMPANIED BY PAYMENT IN
FULL AT THE SUBSCRIPTION PRICE. The Company reserves the right to reject any
subscription, in whole or in part, with or without cause, but will inform the
subscriber of the reason for such rejection. The Company will refuse any
subscription by sending written notice to the subscriber by personal delivery or
first-class mail within ten calendar days after receipt of the subscription, and
the subscriber's Subscription Agreement and refund of payment will accompany
such notice, together with a statement as to the reason for such rejection. Any
Subscription Agreement which is completely and correctly filled out, which is
accompanied by proper and full payment and which is physically received at the
offices of the Company by any employee or agent of the Company, shall be deemed
to have been accepted if it is not refused as hereinbefore provided within ten
business days after such receipt.
10
<PAGE>
A completed Subscription Agreement and payment in full (made in the
manner specified below) of the total subscription price for the number of shares
subscribed should be mailed to the Company at the following address:
Village Financial Corporation
P.O. Box 6554
Lawrenceville, New Jersey 08648
Subscriptions and payment in full also may be delivered in person to
the office of the Company at ^ 590 Lawrence Square Boulevard, Lawrenceville, New
Jersey between ^ 9:00 a.m. and ^ 4 :00 p.m., Monday through Friday. If the
offering is canceled, all subscriptions will be promptly refunded.
IMPORTANT: PAYMENTS MUST BE MADE IN UNITED STATES FUNDS BY CHECK, BANK
DRAFT OR MONEY ORDER PAYABLE TO "SUMMIT BANK, ESCROW AGENT FOR VILLAGE FINANCIAL
CORPORATION." FAILURE TO INCLUDE THE FULL SUBSCRIPTION PRICE WITH THE
SUBSCRIPTION AGREEMENT WILL RESULT IN THE SUBSCRIPTION BEING RETURNED BY THE
COMPANY.
Escrow Account
The offering is being made subject to the requirement that at least
410,000 shares are sold. Pending receipt of insurance of accounts, payments
received from subscribers will be held in an interest-bearing escrow account
maintained with the Escrow Agent. Funds in the Escrow Account may not be reached
by creditors of the organizers. The terms of the Escrow Agreement include the
following provisions:
(a) Payments of subscribers will be identified to each subscriber and
will be deposited by the Escrow Agent in the Escrow Account, which shall be
known as "Village Financial Corporation - Stock Purchase Account," and shall be
held in escrow and disbursed, including the interest earned thereon, only in
accordance with the provisions of the Escrow Agreement.
(b) The ^ funds in the Escrow Account will be invested by the Escrow
Agent in bank accounts, short-term U.S. government securities (or mutual funds
consisting thereof) and/or in FDIC-insured short term Certificates of Deposit.
(c) Funds deposited in the Escrow Account shall earn interest ^ in
accordance with the terms of the account or security in which the funds are
deposited or invested.
(d) Upon receipt of written confirmation that the Company has ^
accepted the minimum aggregate subscription amount and all other closing
conditions have been satisfied, the Escrow Agent will pay any and all funds in
the Escrow Account to the order of the Company. In the event that the offering
is not completed by _______ __, 199_, all funds in the Escrow Account, including
any interest earned thereon, will be promptly returned to subscribers.
Subscribers may not receive any interest on their money if offering expenses are
in excess of the amounts to be covered by the proceeds of the private placement.
However, if such funds are held in excess of 90 days, such funds will be
promptly returned to the subscriber with any interest earned thereon. The Escrow
Agent may conclusively rely on a certificate of the president of the Company
stating the amount of organizational expenses.
(e) The Escrow Agent will be liable only for monies received by it and
not disbursed by it pursuant to the provisions of the Escrow Agreement.
11
<PAGE>
(f) The Company has agreed to indemnify the Escrow Agent for, and to
hold it harmless against, any loss, liability or expense incurred without gross
negligence or bad faith on the part of the Escrow Agent.
(g) All interest earned and accrued on the deposited subscription funds
shall accrue for the benefit of the subscribers and the Company and the Escrow
Agent shall report such interest as having been earned by the Company. All funds
will be repaid in accordance with paragraph (d) above.
(h) The Escrow Agent's fees will be paid by the Company and the Escrow
Agent may be authorized to deduct such fees from the interest earned on the
Escrow Account.
Termination or Extension of the Offering
The offering will terminate at ^ 4:00 p.m., Lawrenceville, New Jersey
Time, on _______ __, 1998, unless extended by the Company without further notice
to the subscriber. The Company reserves the right to terminate the offering at
any time. However, if the offering is not completed by _______ __, 199_, all
subscription funds will be promptly refunded. If the above conditions are not
satisfied by _______ __, 199_, or if the offering is terminated at an earlier
date, the funds including any interest earned thereon, will be promptly repaid
to investors. Investors may not receive any interest on their subscription
funds, if the offering expenses are in excess of amounts to be covered by the
proceeds of the private placement. However, if such funds are held in excess of
90 days, such funds will be promptly returned to the subscribers with any
interest earned thereon.
If an extension to the offering is obtained, subscribers will be
resolicited and would be provided a supplemental offering Prospectus, declared
effective by the Securities and Exchange Commission ("SEC"). Upon
resolicitation, subscribers would have an opportunity to increase or decrease
their subscriptions, subject to applicable minimum and maximum purchase
limitations.
The Company will deliver an effective Prospectus to all persons to whom
the securities offered hereby are to be sold at least 48 hours prior to the
acceptance or confirmation of sale to such persons or to send such a Prospectus
to such persons under circumstances that it would normally be received by them
48 hours prior to acceptance or confirmation of the sale. The Company will mail
to all subscribers and other persons who have received a Prospectus written
notice of any such determination to terminate the offering at least seven days
prior to such terminations. During this seven day period, the Company may
continue to accept subscriptions for up to ^ 1,200,000 shares. The Company
expects only one closing.
OFFICE FACILITIES
The Company agreed to the terms of the lease in October 1998 with
Lawrenceville Associates, a New Jersey Partnership, to lease the premises
located at 590 Lawrence Square Boulevard, Lawrenceville, New Jersey to be the
main office of the Bank. These premises serve as the headquarters of the
Company. The Company has also entered into a lease of space within the
Pennington Point complex. The Pennington Point adult community is within the
same complex in Pennington, New Jersey.
The ^ Company has purchased the furniture, fixtures and equipment ^,
including a vault and a two lane drive-up area, from the local commercial bank
that previously occupied the premises. The ^ Company purchases these items for
$35,000. The main office is currently occupied by the Company and was previously
a vacant branch office ^ leased by the local commercial bank. The building is a
3,952 square feet one story facility located in a two-building office complex.
The main office will include a vault, six teller stations, a two lane drive-up
area, walk-up ATM, night depository and space designed for safe
12
<PAGE>
deposit boxes. The terms of the lease provide for 20 designated parking spaces.
The Bank does not intend to make any renovations to the main office prior to
opening other than adding signage and other incidental changes in order to
prepare the facility for operation. The lease will expire on May 31, 2005. The
lease will be assignable and is renewable for one additional five-year term. The
annual base rental amount will increase from approximately $50,000 to $70,000
over the course of the first five years and will increase at an annual amount of
four percent for any and all subsequent years. In accordance with the terms of
the lease, the Company ^ prepaid its rent in the ^ amount of ^ $69,870 for the
proposed main office from November 1, 1998, the commencement of the lease,
through December 31, 1999. The ^ Company intends to amortize the cost of the
prepaid rent over the fourteen month period ^ at approximately $4,990 per month.
The Company prepaid the lease from the funds received in the private placement.
The Bank's limited service facility will be located in the Pennington
Point complex, 23 Route 31 North, Suite A22, Pennington, New Jersey, where the
Company has leased an office within a suite of offices for one year. The lease
may be terminated by either party with 60 days notice. The Company anticipates
signing a new lease at the expiration of the current lease at the discretion of
the board of directors. The office is expected to include two teller desks and
to operate during limited hours, three days per week. The current annual rental
amount of the lease is $9,600. There is no limit on the number of terms or years
the lease may be renewed.
The bank has contracted for data processing services with NCR in
Framingham, Massachusetts. The Bank will incur a monthly data processing fee of
approximately $5,000 to $6,000 and will also incur a one-time software licensing
fee of approximately $40,000 to $50,000. NCR will perform substantially all of
the data services needed by the Bank.
^
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information and explanatory
notes have been derived from the historical financial statements of the Company,
adjusted to give effect to the sale of the minimum number of shares and the
maximum number of shares in the offering. The Unaudited Pro Forma Combined
Balance Sheet assumes such transactions occurred on September 30, 1998, and that
the Company's application for the formation of the Bank has been approved. No
pro forma consolidated statement of operations is presented because as of
September 30, 1998, the Company has been in existence for approximately nine
months, and all activity through this date has been dedicated to the formation
of the Bank. The unaudited pro forma financial information does not show the
effect of: (a) results of operations, (b) changing market prices of the shares
after the initial offering is complete, or (c) potential effects of newly issued
shares to be granted to the President of the Company under the terms of the
President's employment agreement (see notes to the financial statements
regarding the employment agreement of the President.
13
<PAGE>
VILLAGE FINANCIAL CORPORATION
PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Company Company
As Adjusted As Adjusted
Minimum No. Maximum No. Minimum No. Maximum No.
Corporation of Shares of Shares of Shares of Shares
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash $ 30,863 ^ $3,788,482 (a) ^ $11,688,482 ^ $3,819,345 $11,719,345
(a)
Short-term investments 760,184 -- -- 760,184 760,184
Furniture and equipment 32,959 -- -- 32,959 32,959
Deferred organization costs 70,000 (70,000) (b) (70,000)(b) 0 0
Other assets 3,012 -- -- 3,012 3,012
------------- ------------ ----------- ---------- -----------
Total assets $ 897,018 ^ $3,718,482 $11,618,482 $4,615,500 $12,515,500
============ ============= =========== ========= ==========
LIABILITIES
Accounts payable and accrued expenses 61,527 (61,527)(c) (61,527)(c) -- --
------------- ------------ ------------ ----------- -----------
Total liabilities 61,527 (61,527) (61,527) -- --
------------- ------------ ------------ ----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock -- -- -- -- --
Common stock 9,485 41,000 (d) ^ 120,000 (d) 50,485 ^ 129,485
Additional paid-in capital 939,015 ^ 3,939,000 (d) ^ 11,760,000 (d) ^ 4,878,015 12,699,015
Retained deficit (113,009) (199,991)(b) (199,991)(b) (313,000) (313,000)
------------- ------------ ----------- ----------- ------------
Total stockholders' equity 835,491 ^ 3,780,009 11,680,009 4,615,500 12,515,500
------------- ------------- ----------- ----------- ------------
Total liabilities and stockholders' equity $ 897,018 $ ^3,718,482 $11,618,482 $^ 4,615,500 $^12,515,500
============= ============ =========== ============ ============
</TABLE>
14
<PAGE>
VILLAGE FINANCIAL CORPORATION
NOTES TO PRO FORMA BALANCE SHEET AT SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
(a) The net cash to be received, and after payments are made for certain
organizational costs incurred.
<TABLE>
<CAPTION>
Number of Shares Sold
---------------------------
Minimum Maximum
------- -------
<S> <C> <C>
Proceeds from offering................................. $4,100,000 ^ $12,000,000
Less:
Payment of accrued and additional organization costs... ^(311,518) (311,518)
---------- ---------
$3,788,482 $11,688,482
========= ==========
</TABLE>
(b) Reflects the reclass of the deferred organization and offering costs
against the offering proceeds and available cash at September 30, 1998.
Organizational costs to be incurred are estimated to be $313,000, and
will be charged to operating expenses when paid. Such items are
construed to be start up activity expenditures, relating primarily to
the regulatory application processes for the proposed bank formation.
These costs are for consulting, legal, accounting and audit services,
as well as for regulatory filing fees and outside marketing assistance.
These costs also include in-formation period expenses to be incurred
for normal operations and salary and benefits of staff through the
successful completion of the stock offering and regulatory approval
processes.
(c) Reflects the payments of payables outstanding at September 30, 1998 for
offering and organizational costs.
(d) Reflects stockholders' equity, after payments are made for certain
estimated costs incurred in the offering:
Number of Shares Sold
---------------------
Minimum Maximum
------- -------
Proceeds from offering.................... $4,100,000 $6,100,000
Less: Offering costs..................... ^(120,000) (120,000)
----------- -----------
Net proceeds from offering................ ^ 3,980,000 11,880,000
Less: Par value of common stock.......... 41,000 ^ 120,000
---------- ------------
Additional Paid In Capital................ ^ $3,939,000 $11,760,000
========= ==========
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
General
The Company was incorporated under the laws of the State of New Jersey
on January 16, 1998, for the purpose of becoming a unitary savings and loan
holding company, which will own all of the outstanding shares of capital stock
of a proposed federal stock savings bank, Village Bank. A unitary savings and
loan holding company is a company that directly or indirectly controls only one
savings association. It is anticipated, though there is no assurance, that the
Company will receive regulatory approval to open the Bank in January or
February, 1999.
Prior to the offering, the only material source of funds for the
Company has been private sales of the Company's common stock to the organizers
of the Company and certain other initial investors at a price of $10.00 per
share. In connection with such sales, these individuals purchased 94,850 shares
of Common Stock. The Company received aggregate gross proceeds of $948,500.^
The Company is recently formed and the Bank will be newly formed, both
without any prior operating history. The operating results of the Company will
be dependent upon the operating results of the Bank. The Bank will to a large
extent be a first mortgage lender on residential real estate and its
profitability will depend in large part on the real estate market of its primary
market area. The Bank will incur operating expenses and there can be no
assurances as to when, if ever, the Bank will generate sufficient revenues to
operate profitably. Assuming that the minimum net proceeds from the offering are
raised, the Company presently believes that it will have sufficient capital
resources to meets its commitments over the next twelve months. See "Use of
Proceeds;" "Unaudited Pro Forma Financial Information;" and "Office Facilities."
Year 2000 Evaluation
General. Issues regarding the year 2000 arise because many computer
programs use only the last two digits to refer to a year. This could result in
programs treating "00" as 1900 instead of 2000. In addition, the year 2000 is a
leap year, whereas the year 1900 was not a leap year. Programs may not provide
for the date of February 29 for the year "00." Consequently, many programs could
miscalculate date-sensitive information beginning January 1, 2000.
The Company's State of Readiness. The following discussion pertaining
to the year 2000 contains forward-looking statements. The information in the
Year 2000 Discussion is based on the Company's best estimates. There can be no
assurance that these estimates will be achieved and actual results could
materially differ.
The Company is a start-up company with no operating history. The
Company has purchased new computers and software to operate the "internal"
functions of the Company and the Bank. The software includes a general ledger
program from Interactive Planning Systems that is certified as Year 2000
compliant. However, all of the Bank's material data processing that could be
affected by the Year 2000 issue will be provided by NCR, a nationally recognized
third party service bureau. NCR has advised management of the Company that NCR
expects to resolve its Year 2000 issues before the year 2000 and has warranted
that it will be Year 2000 compliant in its written contract of the Company. The
Company utilizes NCR's STARCOM application software in accordance with the terms
of the service contract with NCR.
16
<PAGE>
Management of the Company has purchased computer equipment and software
and has hired a third party service bureau with Year 2000 issues in mind, and
has attempted to provide Year 2000 compliant materials for the Bank and a
reputable third party service bureau that has assured Year 2000 compliance.
Management of the Company intends to continue to monitor the Year 2000 issues
that pertain to the Company and the Bank to ensure compliance to the greatest
extent reasonably possible. Management intends to contract with vendors that are
already Year 2000 compliant or that provide assurances of compliance. For those
that provide assurances, management will monitor their progress and will hire
alternative vendors prior to the Year 2000 if management deems it prudent. The
Company and the Bank will require a Year 2000 compliance clause in their loan
agreements and contracts with borrowers, vendors and customers. The clause will
require the borrower, vendor or customer to certify Year 2000 compliance and
that there will be no material adverse effect to the Company or the Bank if the
borrower, vendor or customer experiences a malfunction as a result of a Year
2000 issue. However, there can be no assurance that the Company, the Bank or
their borrowers, vendors and customers and their third party service bureaus
will have corrected Year 2000 issues on a timely basis.
The Company and the Bank will make use of embedded technologies such as
building security, power, heating, ventilation and air conditioning. To the
extent management of the Company has the ability to determine the providers of
these systems, management will attempt to select providers that are Year 2000
compliant.
Costs to Address the Company's Year 2000 Issues. As a new Company, the
Company does not anticipate any material costs to remedy Year 2000 issues. The
Bank does not yet have any depositors or borrowers. The Company and the Bank do
not expect to have to modify software or hire any Year 2000 solution providers.
Risks of the Company's Year 2000 Issues. The Company and the Bank will
be reliant upon the computers and software of the third party service bureau for
data processing. Rapid and accurate data processing is essential to the
operations of the Company and the Bank. If this service bureau experiences
malfunctions in the year 2000, these malfunctions could adversely effect the
operations of the Company and the Bank. To a much lesser extent, the Company and
the Bank risk the effects of a malfunction by their telecommunication service
providers. The Company and the Bank could experience a slowing of operations if
the telecommunication service providers suffer malfunctions. However, the Bank
will not employ on-line banking prior to the year 2000, if at all, and,
therefore, the Bank should not be significantly effected by any
telecommunication service disruptions. Because the Bank anticipates having fewer
borrowers prior to the year 2000 than larger, more established banks, it risks
having a larger percentage of loan repayment problems relative to its total loan
portfolio if borrowers experience Year 2000 disruptions and are unable to pay
their loans on time. The Company and the Bank consider this to be a remote risk.
If any of the internal computers, software or embedded technologies malfunction,
the Company and the Bank would be adversely effected, however management does
not anticipate any problems in these areas.
Company's Contingency Plans. The Company is monitoring the progress of
NCR to evaluate whether it will be Year 2000 compliant. If NCR is not able to
become Year 2000 compliant on or before its scheduled compliance date, the
Company will attempt to locate an alternative service bureau that is year 2000
compliant. The terms of the service contract with NCR allow the Company to
terminate the contract without further cost if NCR fails to become Year 2000
compliant. If the Company is unsuccessful in locating an alternative service
bureau, management of the Bank will enter deposit and loan transactions by hand
in the general ledger and compute loan payments and deposit balances and
interest with the Company's own internal computer system. The Bank believes it
can do this because of the relatively small number of loan and deposit accounts
the Bank will have and the Bank's internal
17
<PAGE>
bookkeeping system. The Bank's computer systems will be independently able to
generate labels and mailings for all of the Bank's customers and the Bank will
periodically test this system and print and store this material. If this labor
intensive approach is necessary, the Bank will be less efficient. However,
management of the Bank believes that it would be able to operate in this manner
indefinitely, until the service bureau, or its replacement, is able to again
provide data processing services. If very few financial institution service
bureaus were operating in the year 2000, replacement costs, assuming the Bank
could negotiate an agreement, could be material to the Company.
PROPOSED BUSINESS OF THE COMPANY
General
The Company, a New Jersey corporation, was incorporated primarily to be
the holding company of the Bank. The Company has not conducted any business
activities to date other than entering into the Lease Agreement and those
activities deemed necessary by the Company to obtain regulatory approval for the
Bank and to proceed with the offering. The Company will initially engage
exclusively in the business of owning all of the outstanding shares of capital
stock of the Bank. However, the Company may pursue other business interests in
the future, subject to regulatory approval. There can be no assurances as to
when, if ever, the Company will pursue such interests. Accordingly, the
Company's initial earnings will be dependent upon dividends received by the
Company from the Bank, which dividends are dependent on the Bank's profitability
and the Bank's compliance with certain regulatory requirements. See "Regulation
- - Savings Institution Regulation -- Dividend and Other Capital Distribution
Limitations."
The Company may not acquire the capital stock of the Bank without the
approval of the Office of Thrift Supervision (the "OTS"). On August 3, 1998, the
Company filed with the OTS an Application for Permission to Organize the Bank,
and an Application H-(e)1 to become the holding company for the Bank. These
Applications were filed to obtain the necessary approvals and ^ were deemed
complete by the OTS on ^ December 11, 1998. An FDIC Application for Federal
Deposit Insurance was filed on August 7, 1998 and approval was conditionally
granted on ^ December 8, 1998. Upon satisfaction of the conditions of the
offering and of the regulators and the release of escrowed funds to the Company,
the Company will proceed to acquire all of the shares of capital stock of the
Bank and the Company will become, subject to the Bank's compliance with certain
regulatory requirements discussed below, a unitary savings and loan holding
company. As such, the company will be subject to examination and comprehensive
regulation by the OTS. Because the Company will own only one savings
association, it generally will not be restricted in the types of business
activities in which it may engage, provided that the Bank retains a specified
amount of its assets in housing-related investments. See "Regulation -Holding
Company Regulation."
The Company is ^ located at 590 Lawrence Square Boulevard,
Lawrenceville, New Jersey 08648. The telephone number is (609) 689-1010. At the
present time, upon the approval and opening of the Bank, the Company does not
intend to have any employees other than its officers. The Company may utilize
the support staff of the Bank from time to time. The Company initially will
engage in no business other than owning all of the outstanding shares of capital
stock of the Bank; therefore, the competitive conditions to be faced by the
Company will be the same as those faced by the Bank.
Additional Information
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement under the Securities Act of 1933, as amended,
with respect to the common stock offered
18
<PAGE>
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement. For further information with respect to the Company and
the common stock, reference is hereby made to the Registration Statement and the
exhibits thereto. The Registration Statement may be examined at, and copies of
the Registration Statement may be obtained at prescribed rates from, the Public
Reference Section of the SEC, Room 1024, 450 Fifth Street, N.W., Washington, DC
20549. ^ Information on the operation of the Public Reference Room may be
obtained by calling the SEC at 1-800-SEC-0330. Information filed by and
regarding the issuer may also be accessed electronically by means of the SEC's
home page on the Internet at "http://www.sec.gov".
The Company and the Bank have filed various applications with the OTS
and the FDIC, as required by the applicable regulatory authorities. Prospective
investors should rely only on information contained in this Prospectus and in
the Company's related Registration Statement in making an investment decision.
To the extent that information available from the Company and information in
public files and records maintained by the OTS and the FDIC is inconsistent with
information presented in this Prospectus, such other information is superseded
by the information presented in this Prospectus.
Reports to Stockholders
Upon the effective date of the Registration Statement, the Company will
be subject to the reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), which includes requirements to file annual
reports on Form 10-KSB and quarterly reports on Form 10-QSB with the SEC. This
reporting obligation will exist for at least one year and may continue for
fiscal years thereafter, except that such reporting obligations may be suspended
for any subsequent fiscal year if at the beginning of such year the common stock
of the Company is held of record by fewer than three hundred persons or if the
common stock of the Company is held of record by fewer than five hundred persons
and the total assets of the Company have not exceeded $10 million on the last
day of each of the Company's three most recent fiscal years.
Regardless of whether the Company is subject to the reporting
requirements of the Exchange Act, the Company intends to furnish its
stockholders with annual reports containing audited financial information for
each fiscal year. The Company's fiscal year ends on December 31.
PROPOSED BUSINESS OF THE BANK
General
The proposed business of the Bank will primarily consist of accepting
deposits and originating mortgage, consumer, small business and other loans. The
Bank intends to supplement its portfolio of loans with investment securities
deemed prudent by the board of directors. Upon regulatory approval, the Bank
will seek to attract deposits. The Bank intends to pay money market deposit
account rates above the average market rates. The Bank also intends to offer a
checking account, a savings account and a NOW account and various certificates
of deposit products at competitive interest rates. The Bank or Company may also
offer through affiliations with other companies, alternative non-deposit
investments, such as mutual funds and securities, although no determination has
been made as to when, if ever, the Bank or Company will enter into such
affiliations. The Bank anticipates originating primarily residential mortgage
loans and home equity loans. To a lesser extent, the Bank intends to originate
consumer installment, commercial real estate and small business loans.
The organizers' assumptions as to the viability of the Bank, as
represented in their business plan, are based on projections of population
growth, deposit growth and housing development in the market
19
<PAGE>
area and adjacent communities, as well as on assumed levels of earning assets,
interest rates and operating expenses. These projections and assumptions are
thus subject to the hazards of forecast and may prove to be inaccurate.
Furthermore, although the Company anticipates some growth in its primary market
area, there can be no assurance of any growth or that the Bank will benefit from
any growth.
The Bank has prepared a strategic business plan to provide direction
for the Bank over the next three years. Although the Bank anticipates numerous
revisions as to tactics and possibly even to strategy, the basic objectives of
the Bank, though there is no assurance that such objectives will be attained,
are as follows:
o The Company will pursue aggressive, but controlled, balance
sheet growth with the Bank originating a broad array of
lending products, including residential mortgage, commercial
mortgage, consumer installment and commercial loans.
o The Bank anticipates attracting deposits with an emphasis on
core deposits and transaction accounts with competitive rates
and products, supported by individuals with strong customer
service attitudes and skills.
o The Bank intends to outsource non-banking services, such as
data processing, in order to employ a core group of banking
professionals focused on customer needs.
Prospects
Although investment in its common stock involves significant risk, the
organizers believe that the Company will be able to compete effectively.
Furthermore, as a stockholder-owned institution, the Bank will not be subject to
the limitations on raising capital that have constrained mutual institutions,
and will have the opportunity to raise capital from institutional and other
private investors.
The Company, through the Bank, intends to fill what it perceives to be
a significant market niche that exists in ^ Mercer County. The county is
currently served almost entirely by large financial institutions based outside
of the area. The Bank will have local owners, directors and senior management
and therefore anticipates being more responsive to the banking needs of the
local community. However, there can be no assurance that the Bank will achieve
this goal.
In the current environment of bank mergers, acquisitions, and
consolidations, there is a perceived need for banks focused on the needs of the
local community. The organizers believe this void of community focused banks is
particularly evident in ^ Mercer County. The organizers of the proposed Bank
intend to provide a community bank oriented toward the local residents and small
businesses in the primary market area.
The Bank believes that the following attributes will make the Bank
attractive to the local business people and residents:
o Direct and easy access to the Bank's President, officers and directors
by members of the community, whether during or after business hours.
o Local conditions and needs will be taken into account by the Bank when
deciding loan applications and making other business decisions
affecting members of the community.
20
<PAGE>
o A personalized relationship banking approach that is supported by
decision making that is local and responsive to customer needs.
o Offering competitive interest rates and fees on savings and checking
accounts.
o Prompt review and processing of loan applications.
o Depositors' funds will be invested back into the community.
o Positive involvement of the Bank in the community affairs within its
primary market area.
o A staff of individuals with strong customer service attitudes and
skills dedicated to meeting customer needs.
In October 1998, Village Financial Corporation agreed to the terms of a
lease for 590 Lawrence Square Boulevard, a facility previously operated as a
bank branch and equipped with much of the necessary banking equipment. As such,
the Bank ^ will have a facility which can open immediately upon receipt of
regulatory approval. The ^ Company has also signed a lease ^ so that the Bank
may operate a limited service facility near the Pennington Point adult
community. Leasing these facilities will provide the Bank with a convenient
location in Lawrenceville, with an ATM facility, a drive-in facility, teller
stations and the potential to add safe deposit boxes, as well as the potential
to attract deposits from the retirement community.
Market Area
The Bank's main office will be located at 590 Lawrence Square
Boulevard, Lawrenceville, New Jersey. The Bank's primary market area will
consist ^ Mercer County, New Jersey. A final determination as to the boundaries
of the primary market area is subject to regulatory approval or non-objection.
^ Mercer County consists of residential and business communities
covering over 200 square miles. Included within Mercer County are the cities or
townships of Ewing, Hamilton, Hightstown, Hopewell, Hopewell Borough, Lawrence,
Pennington, Princeton, Princeton Borough, Trenton, Washington, East Windsor and
West Windsor. The population of Mercer County has been estimated to be
approximately 330,000. ^ The median household income in Mercer County is
estimated to be approximately $51,000, $5,000 higher than the estimated median
household income across the state of New Jersey. There are approximately 10,000
businesses located in Mercer County.
Competition
Competition for deposits and loans is strong among savings
institutions, commercial banks, mortgage banks, mortgage brokers, credit unions
and money market funds. There is also increasing competition from securities
firms and other financial service corporations not traditionally engaged in the
banking or savings business. The primary factors with which institutions compete
for deposits and loans are interest rates, loan origination fees and range of
services offered.
Mercer County^ is served almost entirely by large, regional financial
institutions, almost all of which are headquartered out of the area. ^ There are
approximately 50 financial institutions that have offices in Mercer County.
However, approximately 25 of these 50 institutions are credit unions that are
able to accept deposits and make loans only to their respective members. Several
of the institutions have recently merged or are in the process of merging. These
institutions include Carnegie Bank (merged with
21
<PAGE>
Sovereign Bank), ^ CoreStates Bank, N.A. ^(merged with First Union National
Bank), ^ Pulse Savings Bank (merging with First Source Bancorp, Inc.)^ and
Trenton Savings Bank (merging with Sovereign Bank)^.
^ All of the financial institutions in Mercer County have been in
existence for a longer period of time than the Bank, are better established than
the Bank and have financial resources substantially greater than those of the
Bank. The Bank will not have an existing deposit base when it commences
operations, and will be competing for deposits with these larger established
institutions as well as with investment bankers, money market mutual funds and
other non-traditional financial intermediaries. The Bank will have to attract
its loan customer base from existing financial institutions and from growth in
the community.
Market Strategy
The Bank's objective will be to create a customer-driven financial
institution focused on providing value to residents and businesses within the
local community by delivering products and services matched to the clients'
needs. It is believed that customers will be drawn to a locally managed
institution that demonstrates an active interest in its customers and their
business and personal financial needs.
The banking industry in general has experienced substantial
consolidation in recent years. From the organizers' point of view, this
consolidation has resulted in increasing fees for bank services, the dissolution
of local boards of directors, management and personnel changes and a decline in
the level of customer service and attention to the needs of local communities.
With the permissibility of interstate banking and the announcements of several
mergers by large financial institutions, the organizers anticipate this type of
consolidation to continue. The organizers believe that the present competitive
and economic environment is right for a new, independent, locally managed bank
to service the financial needs of residents and businesses of ^ Mercer County.
Lending Activities
General. The Bank anticipates that its lending activities will be
primarily composed of the origination of residential mortgage loans and home
equity loans for the purpose of financing and refinancing one-to-four family
residential properties. To a lesser extent, the Bank anticipates that it will
originate commercial real estate loans, commercial business loans and consumer
installment loans. The types of loans the Bank will originate generally will be
subject to federal and state law and regulation. All loan requests will be
subject to appropriate underwriting guidelines, a loan review process,
management supervision and monitoring by the board of directors on an ongoing
basis. The Bank will implement various lending limits for the Bank's loan
officers and will maintain a loan committee composed of the President, Chief
Lending Officer and ^ the Senior Operations Manager, subject to oversight of the
board of directors.
The Bank's ability to originate loans will be dependent upon the
relative customer demand, which will be affected by the current and expected
future level of interest rates. Interest rates will be affected by the demand
for loans and the supply of money available for lending purposes and the rates
offered by competitors. Among other things, these factors are, in turn, affected
by economic conditions, monetary policies of the federal government and
legislative tax policies.
The Bank intends to originate the following loans:
One- to Four-Family Mortgage Loans. The Bank intends to offer
fixed-rate and adjustable-rate mortgage loans primarily secured by one- to
four-family residences, with maturities up to 30 years. It
22
<PAGE>
is anticipated that such loans will be secured by properties located in the
Bank's market areas. All one-to four-family loans will be underwritten using
generally accepted lending standards such as Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA"), or the
Federal Home Loan Mortgage Corporation ("FHLMC"). The Bank will originate loans
for both owner occupied and non-owner occupied (investor) residential
properties. Non-owner occupied residential mortgage loans generally carry a
higher degree of credit risk than owner occupied residential mortgage loans. The
Bank intends to limit non-owner occupied residential lending for a given year to
approximately 5% of the total residential loan volume for the year. The maximum
loan-to-value ratio for such loans will be 70% to 80%. The Bank plans on
maintaining all residential mortgage loans originated during the first three
years of existence but intends to sell a portion of such loans if the Bank deems
it necessary. If the Bank sells any of its loans, the Bank intends to retain the
servicing rights to such loans. The Bank expects its one- to four-family
mortgage loans to be composed primarily of one-year adjustable rate loans,
15-year fixed rate loans and 30-year fixed rate loans.
Home Equity Loans. The Bank intends to offer home equity term loans and
home equity revolving lines of credit, primarily secured by one- to four-family,
owner occupied residences. It is anticipated that the Bank will employ similar
underwriting standards in making home equity loans as those utilized in making
residential mortgage loans. The Bank expects to originate term loans for periods
up to 15 years and to originate adjustable rate revolving lines of credit.
Commercial Real Estate Loans. The Bank intends to offer commercial and
multi-family real estate loans (five units or more) generally secured by
property located in the Bank's market areas. The Bank intends to originate
commercial mortgage loans for the acquisition, construction and refinancing of
commercial real estate. At times such loans may exceed the Bank's internal
lending limits and will require the Bank to obtain the participation of other
financial institutions to assist in funding excess loan amounts. In such cases,
the Bank expects to maintain servicing responsibility for the loans.
Commercial real estate and multi-family loans are generally larger and
present a greater degree of credit risk than loans secured by one- to
four-family residences. Because payments on loans secured by commercial real
estate and multi-family properties are often dependent on the successful
operation or management of the properties, repayment of such loans may be
subject to a greater extent to adverse conditions in the real estate market or
in the economy. It is anticipated that the Bank will seek to minimize these
risks through its underwriting standards. The Bank currently does not anticipate
originating more than one multi-family loan per year. The maximum loan amount
for multi-family loans will be up to 75% of the appraised value of the property.
Small Business Commercial Loans. The Bank intends to pursue
opportunities to offer small business loans, primarily to businesses located in
the Bank's market areas. Federally chartered savings institutions such as the
Bank are authorized to make secured or unsecured loans and letters of credit for
commercial, corporate, business and agricultural purposes and to engage in
commercial leasing activities. However, federally chartered savings institutions
generally are limited in the amount of commercial business loans they may hold
in their portfolio to a maximum of 20% of total assets.
Unlike residential mortgage loans, which generally are made on the
basis of the borrower's ability to make repayment from his or her employment and
other income, and which are secured by real estate property whose value tends to
be more easily ascertainable, commercial business loans are of higher credit
risk and typically are made on the basis of the borrower's ability to make
repayment from cash flow of the borrower's business. As a result, the
availability of funds for the repayment of commercial business loans may be
substantially dependent on the success of the business itself. Further, the
collateral
23
<PAGE>
securing the loans may depreciate over time, may be difficult to appraise and
may fluctuate in value on the success of the business.
Consumer Loans. The Bank intends to make a variety of consumer loans
which are anticipated to consist primarily of fixed-rate installment loans
secured by automobiles or by deposits at the Bank. The Bank may originate home
improvement loans not secured by real estate and other personal loans, both
secured and unsecured.
Consumer loans may entail greater credit risk than do residential
mortgage loans, particularly in the case of consumer loans that are unsecured or
that are secured by rapidly depreciable assets, such as automobiles. In such
cases, any repossessed collateral for a defaulted consumer loan may not provide
an adequate source of repayment of the outstanding loan balance as a result of
the greater likelihood of damage, loss or depreciation. In addition, consumer
loan collections are dependent on the borrower's continuing financial stability,
and therefore are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loan.
Participation Interests. The Bank will consider participating in loans
originated in New Jersey outside its primary market area, provided such loans
meet approval criteria as will be stipulated in the Bank's lending policies. The
Bank anticipates participation in the origination of loans through Thrift
Institutions' Community Investment Corporation, a subsidiary of the New Jersey
League - Savings and Community Bankers.
Loan Approval. The Bank's lending activity will be conducted primarily
through advertising, customer calls and contacts by the Bank's employees,
officers and directors and solicitations to local real estate brokers, builders
and real estate developers. The Bank's lending will be subject to written
underwriting standards (including, as applicable, a Year 2000 compliance clause)
and loan origination procedures. The Year 2000 compliance clause will require
each commercial borrower to certify its Year 2000 compliance and readiness.
Decisions on loan applications will be made on the basis of detailed
applications and property valuations. The loan applications will be designed
primarily to determine the borrower's ability to repay and the more significant
items on the applications will be verified through the use of credit reports,
financial statements, tax returns and/or confirmations.
The Bank generally will require title insurance on its real estate
secured loans as well as fire and extended coverage casualty insurance in
amounts at least equal to the principal amount of the loan or the value of
improvements on the property, depending on the type of loan. The Bank also will
require flood insurance to protect the property securing its interest when the
property is located in a flood plain.
Loan Fees and Service Charges. In addition to interest earned on loans,
the Bank will generally recognize fees and service charges which consist
primarily of loan origination fees and late charges.
Loans to One Borrower. Under applicable regulations, the maximum amount
of loans that may be made to one borrower initially will not exceed the greater
of $500,000 or 15% of the unimpaired capital and surplus of the Bank. The Bank
may lend an additional 10% of unimpaired capital and surplus if a loan is fully
secured by readily marketable collateral.
Delinquencies. The Bank's collection procedures are expected to provide
that when a loan is 30 days past due, a late charge is added and the borrower is
contacted by mail and/or telephone and payment requested. If the delinquency
continues, subsequent efforts are made to contact the delinquent borrower.
Additional late charges may be added and, if the loan continues in a delinquent
status for 90 days or
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<PAGE>
more, the Bank will likely initiate foreclosure proceedings unless other
repayment arrangements are made.
Non-Performing Assets and Asset Classification. Loans will be reviewed
on a regular basis and classified in accordance with the requirements of the OTS
and internal policies of the Bank. The Bank's internal classifications will be
reviewed annually through a loan review process. Such a loan review will likely
be outsourced to an independent qualified third party.
Investment Activities
The Bank will be required under federal regulations to maintain a
minimum amount of liquid assets which may be invested in specified short-term
securities and certain other investments. The Bank expects to maintain a
liquidity portfolio in excess of regulatory requirements. Until the Bank is able
to originate sufficient loans, it expects to leverage its capital by investing
deposits and borrowed money in securities and other investments at a positive
interest rate spread exceeding the cost of deposits received and borrowings.
Liquidity levels may be increased or decreased depending upon the yields on
investment alternatives and upon management's judgment as to the attractiveness
of the yields then available in relation to other opportunities and its
expectation of the level of yield that will be available in the future, as well
as management's projections as to the short term demand for funds to be used in
the Bank's loan origination and other activities. The Bank intends to invest
primarily in U.S. Government and agency obligations, federal funds sold and U.S.
government agency issued mortgage-backed securities.
Sources of Funds
General. The management of the Bank will endeavor to build a deposit
base with the expectation that deposits will be the major source of the Bank's
funds for lending and other investment purposes. In addition to deposits, the
Bank anticipates deriving funds from payment streams of loans and securities,
sale or maturities of investment securities, operations and, as needed, advances
from the Federal Home Loan Bank ("FHLB") of New York. Scheduled loan principal
repayments are generally a stable source of funds for banking institutions,
while deposit inflows and outflows and loan prepayments are significantly
influenced by general interest rates and market conditions. Borrowings may be
used on a short-term basis to compensate for reductions in the availability of
funds from other sources or on a longer term basis for general business
purposes.
Deposits. Consumer and commercial deposits will be attracted
principally from within the Bank's primary market area through the offering of a
broad selection of deposit instruments including NOW, regular savings, money
market deposit, term certificate accounts (including negotiated jumbo
certificates in denominations of $100,000 or more) and individual retirement
accounts and Keogh accounts. Deposit account terms will vary acc ording to the
minimum balance required, the time periods the funds must remain on deposit and
the interest rate, among other factors. The Bank will regularly evaluate the
internal cost of funds, survey rates offered by competing institutions, review
the Bank's cash flow requirements for lending and liquidity and execute rate
changes when deemed appropriate. The Bank does not anticipate obtaining funds
through brokers. The Bank may seek to acquire deposits from another financial
institution in the Bank's primary market area, but presently has no agreements
nor intentions to do so.
Employees
The Bank anticipates having 10 full-time equivalent employees,
including two executive officers, when it commences operations. The executive
officers of the Bank are expected to initially include (i) the President and
Chief Executive Officer (who will also serve initially as the Chief Financial
Officer)
25
<PAGE>
and (ii) a Chief Lending Officer. The Bank also expects to employ a Senior
Operations ^ Manager. In addition, the Bank intends to employ a Branch Manager,
Administrative Assistant and a Customer Service Representative. The Bank may
employ a Loan Processor and an Operations Supervisor subsequent to the opening
of the Bank, but will not likely employ such individuals until the year 2000.
The remaining employees will provide staff support in the teller, new accounts
and loan processing functions. The employees of the Bank will concentrate on
providing a high level of service to the customers of the Bank. Non-banking
services, such as data processing, will likely be outsourced to companies
specializing in those areas. The Company anticipates having the same executive
officers of the Bank act as executive officers of the Company. No other
employees of the Company are anticipated at this time. See "Management of the
Company" and "Management of the Bank."
Total compensation for the Bank's employees for the first full year of
operations is projected to be $387,000. In addition, the Bank intends to provide
its employees with certain benefits programs, including medical insurance, paid
vacation time and sick leave. Directors will receive fees in the amount of $300
per month. A stock option plan and restricted stock plan are expected to be
adopted by the Board, subject to stockholder approval. Other benefit programs
such as a profit sharing plan may also be adopted following commencement of
operations of the Bank. The board of directors will consider the implementation
of a pension plan, but no such plan will be in place at the commencement of
operations of the Bank.
REGULATION
Set forth below is a brief description of certain laws which relate to
the Company and the Bank. The description is not complete and is qualified in
its entirety by references to applicable laws and regulations.
Holding Company Regulation
General. The Company will be required to register and file reports with
the OTS and will be subject to regulation and examination by the OTS. In
addition, the OTS will have enforcement authority over the Company and any
non-savings institution subsidiaries. This will permit the OTS to restrict or
prohibit activities that it determines to be a serious risk to the Company and
the Bank. This regulation is intended primarily for the protection of the Bank's
depositors and not for the benefit of the stockholders of the Company.
Qualified Thrift Lender ("QTL") Test. Since the Company will only own
one savings institution, it will be able to diversify its operations into
activities not related to banking, if the Bank satisfies the QTL test. If the
Company controls more than one savings institution, it would lose the ability to
diversify its operations into non-banking related activities, unless such other
savings institutions each also qualify as a QTL or were acquired in a supervised
acquisition. See "- Savings Institution Regulation -- Qualified Thrift Lender
Test."
Restrictions on Acquisitions. The Company must obtain approval from the
OTS before acquiring control of any other SAIF-insured savings institution. No
person may acquire control of a federally insured savings institution without
providing at least 60 days written notice to the OTS and giving the OTS an
opportunity to disapprove the proposed acquisition.
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<PAGE>
Savings Institution Regulation
General. As a federally chartered, SAIF-insured savings institution,
the Bank is subject to extensive regulation by the OTS and the FDIC. The Bank's
lending activities and other investments must comply with various federal and
state statutory and regulatory requirements.
The OTS, in conjunction with the FDIC, will regularly examine the Bank
and prepare reports for the consideration of the board of directors on any
deficiencies that the OTS finds in the Bank's operations. The Bank's
relationship with the depositors and borrowers also will be regulated to a great
extent by federal and state law, especially in such matters as the ownership of
savings accounts and the form and content of its mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other financial institutions. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in regulations, whether by the OTS, the FDIC or any other
government agency, could have a material adverse impact on the Bank's
operations.
Insurance of Deposit Accounts. The FDIC is authorized to establish
separate annual assessment rates for deposit insurance for members of the BIF
and the SAIF. The FDIC may increase assessment rates for either fund if
necessary to restore the fund's ratio of reserves to insured deposits to its
target level within a reasonable time and may decrease such assessment rates if
such target level has been met. The FDIC has established a risk-based assessment
system for both SAIF and BIF members. Under this system, assessments are set
within a range, based on the risk the institution poses to its deposit insurance
fund. This risk level is determined based on the institution's capital level and
the FDIC's level of supervisory concern about the institution.
Because a significant portion of the assessments paid into the SAIF by
savings institutions were used to pay the cost of prior savings institution
failures, the reserves of the SAIF were below the level required by law. The BIF
had, however, met its required reserve level during the third calendar quarter
of 1995. As a result, deposit insurance premiums for deposits insured by the BIF
were substantially less than premiums for deposits which are insured by the
SAIF. Legislation to capitalize the SAIF and to eliminate the significant
premium disparity between the BIF and the SAIF became effective September 30,
1996. The recapitalization plan provided for a special assessment equal to $.657
per $100 of SAIF deposits held at March 31, 1995, in order to increase SAIF
reserves to the level required by law. Certain BIF institutions holding
SAIF-insured deposits were required to pay a lower special assessment.
The recapitalization plan also provides that the cost of prior failures
which were funded through the issuance of Fico Bonds (bonds issued to fund the
cost of savings institution failures in prior years) will be shared by members
of both the SAIF and the BIF. This increased BIF assessments for healthy banks
to approximately $.0125 per $100 of deposits in 1998. SAIF assessments for
healthy savings institutions in 1998 were approximately $.0628 per $100 in
deposits and may be reduced, but not below the level set for healthy BIF
institutions.
The FDIC has lowered the rates on assessments paid to the SAIF and
widened the spread of those rates. The FDIC's action established a base
assessment schedule for the SAIF with rates ranging from
27
<PAGE>
4 to 31 basis points, and an adjusted assessment schedule that reduces these
rates by 4 basis points. As a result, the effective SAIF rates range from 0 to
27 basis points as of October 1, 1996. In addition, the FDIC's final rule
prescribed a special interim schedule of rates ranging from 18 to 27 basis
points for SAIF-member savings institutions for the last quarter of calendar
1996, to reflect the assessments paid to the Financing Corporation (Fico Bonds).
Finally, the FDIC's action established a procedure for making limited
adjustments to the base assessment rates by rulemaking without notice and
comment, for both the SAIF and the BIF.
The recapitalization plan also provides for the merger of the SAIF and
BIF effective January 1, 1999, assuming there are no savings institutions under
federal law. Under separate proposed legislation, Congress is considering the
elimination of the federal thrift charter and elimination of the separate
federal regulation of thrifts. As a result, the Bank may have to convert to a
different financial institution charter and be regulated under federal law as a
bank, including being subject to the more restrictive activity limitations
imposed on national banks. The Bank cannot predict the impact of the proposed
legislation unless and until the legislation requiring such change is enacted.
Regulatory Capital Requirements. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) core capital equal to at least 3% of total
adjusted assets, and (3) risk-based capital equal to 8% of total risk-weighted
assets. The Bank's capital ratios, which are set forth under "Historical and Pro
Forma Capital Compliance," are expected to be well in excess of these
requirements.
Tangible capital is defined as core capital less all intangible assets
(including supervisory goodwill), less certain mortgage servicing rights and
less certain investments. Core capital is defined as common stockholders' equity
(including retained earnings), noncumulative perpetual preferred stock and
minority interests in the equity accounts of consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits of mutual savings associations and
qualifying supervisory goodwill, less nonqualifying intangible assets, certain
mortgage servicing rights and certain investments.
The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital (which is defined as core capital plus
supplementary capital) of 8% of risk-weighted assets. The components of
supplementary capital include, among other items, cumulative perpetual preferred
stock, perpetual subordinated debt, mandatory convertible subordinated debt,
intermediate-term preferred stock, and the portion of the allowance for loan
losses not designated for specific loan losses. The portion of the allowance for
loan and lease losses includable in supplementary capital is limited to a
maximum of 1.25% of risk-weighted assets. Overall, supplementary capital is
limited to 100% of core capital. A savings association must calculate its
risk-weighted assets by multiplying each asset and off-balance sheet item by
various risk factors as determined by the OTS, which range from 0% for cash to
100% for delinquent loans, property acquired through foreclosure, commercial
loans, and other assets.
The risk-based capital standards of the OTS generally require savings
institutions with more than a "normal" level of interest rate risk to maintain
additional total capital. An institution's interest rate risk will be measured
in terms of the sensitivity of its "net portfolio value" to changes in interest
rates. Net portfolio value is defined, generally, as the present value of
expected cash inflows from existing assets and off-balance sheet contracts less
the present value of expected cash outflows from existing liabilities. A savings
institution will be considered to have a "normal" level of interest rate risk
exposure if the decline in its net portfolio value after an immediate 200 basis
point increase or decrease in market interest rates (whichever results in the
greater decline) is less than two percent of the current estimated economic
value of its assets. An institution with a greater than normal interest rate
risk will be required to deduct from total capital, for purposes of calculating
its risk-based capital requirement, an amount (the "interest
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<PAGE>
rate risk component") equal to one-half the difference between the institution's
measured interest rate risk and the normal level of interest rate risk,
multiplied by the economic value of its total assets.
The OTS calculates the sensitivity of an institution's net portfolio
value based on data submitted by the institution in a schedule to its quarterly
Thrift Financial Report and using the interest rate risk measurement model
adopted by the OTS. The amount of the interest rate risk component, if any, to
be deducted from an institution's total capital will be based on the
institution's Thrift Financial Report filed two quarters earlier. Savings
institutions with less than $300 million in assets and a risk-based capital
ratio above 12% are generally exempt from filing the interest rate risk schedule
with their Thrift Financial Reports. However, the OTS may require any exempt
institution that it determines may have a high level of interest rate risk
exposure to file such schedule on a quarterly basis and may be subject to an
additional capital requirement based upon its level of interest rate risk as
compared to its peers. However, due to the Bank's net size and risk-based
capital level, it is expected to be exempt from the interest rate risk
component.
In accordance with the requirements of the Federal Deposit Insurance
Corporation with respect to the Application for Insurance of Deposits of Village
Bank, the organizers agreed to maintain a Tier 1 Capital ratio to total
estimated assets of at least 8% and an adequate allowance for loan and lease
losses for the first three years of operation of the Bank from the date the FDIC
deposit insurance is effective.
Dividend and Other Capital Distribution Limitations. OTS regulations
require the Bank to give the OTS 30 days advance notice of any proposed
declaration of dividends to the Company, and the OTS has the authority under its
supervisory powers to prohibit the payment of dividends by the Bank to the
Company.
OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to stockholders of another institution in
a cash-out merger, and other distributions charged against capital. The rule
establishes three tiers of institutions based primarily on an institution's
capital level. An institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year, or (ii) 75% of its net income over the most recent four quarter period.
Any additional capital distributions require prior regulatory notice. The Bank
expects to qualify as a Tier 1 institution, but there can be no assurance that
it will achieve this goal.
In the event the Bank's capital falls below the fully phased-in
requirement or the OTS notifies the Bank that it needs more than normal
supervision, the Bank would become a Tier 2 or Tier 3 institution and as a
result, its ability to make capital distributions could be restricted. Tier 2
institutions, which are institutions that before and after the proposed
distribution meet their current minimum capital requirements, may only make
capital distributions of up to 75% of net income over the most recent four
quarter period. Tier 3 institutions, which are institutions that do not meet
current minimum capital requirements and propose to make any capital
distribution, and Tier 2 institutions that propose to make a capital
distribution in excess of the noted safe harbor level, must obtain OTS approval
prior to making such distribution. In addition, the OTS could prohibit a
proposed capital distribution by any institution,
29
<PAGE>
which would otherwise be permitted by the regulation, if the OTS determines that
such distribution would constitute an unsafe or unsound practice. The OTS has
proposed rules relaxing certain approval and notice requirements for
well-capitalized institutions.
In January 1998, the OTS proposed amendments to its current regulations
with respect to capital distributions by savings associations. Under the
proposed regulation, savings associations that would remain at least adequately
capitalized following the capital distribution, and that meet other specified
requirements, would not be required to file a notice or application for capital
distributions (such as cash dividends) declared below specified amounts. Under
the proposed regulation, savings associations which are eligible for expedited
treatment under current OTS regulations are not required to file a notice or an
application with the OTS if (i) the savings association would remain at least
adequately capitalized following the capital distribution and (ii) the amount of
capital distribution does not exceed an amount equal to the savings
association's net income for that year to date, plus the savings association's
retained net income for the previous two years. Thus, under the proposed
regulation, only undistributed net income for the prior two years may be
distributed in addition to the current year's undistributed net income without
the filing of an application with the OTS. Savings associations which do not
qualify for expedited treatment or which desire to make a capital distribution
in excess of the specified amount, must file an application with, and obtain the
approval of, the OTS prior to making the capital distribution. Under certain
other circumstances, savings associations will be required to file a notice with
OTS prior to making the capital distribution. The OTS proposed limitations on
capital distributions are similar to the limitations imposed upon national
banks. The Company is unable to predict whether or when the proposed regulation
will become effective.
A savings institution is prohibited from making a capital distribution
if, after making the distribution, the savings institution would be
undercapitalized (i.e., not meet any one of its minimum regulatory capital
requirements). Further, a savings institution cannot distribute regulatory
capital that is needed for its liquidation account.
Qualified Thrift Lender Test. Savings institutions must meet a
qualified thrift lender ("QTL") test. If the Bank maintains an appropriate level
of qualified thrift investments ("QTIs") (primarily residential mortgages and
related investments, including certain mortgage-related securities) and
otherwise qualifies as a QTL, the Bank will continue to enjoy full borrowing
privileges from the FHLB of New York. The required percentage of QTIs is 65% of
portfolio assets (defined as all assets minus intangible assets, property used
by the institution in conducting its business and liquid assets equal to 10% of
total assets). Certain assets are subject to a percentage limitation of 20% of
portfolio assets. In addition, savings institutions may include shares of stock
of the FHLBs, FNMA, and FHLMC as QTIs. Compliance with the QTL test is
determined on a monthly basis in nine out of every 12 months.
Transactions With Affiliates. Generally, restrictions on transactions
with affiliates require that transactions between a savings institution or its
subsidiaries and its affiliates be on terms as favorable to the savings
institution as comparable transactions with non-affiliates. In addition, certain
of these transactions are restricted to an aggregate percentage of the savings
institution's capital. Collateral in specified amounts must usually be provided
by affiliates in order to receive loans from the savings institution. The Bank's
affiliates include the Company and any company which would be under common
control with the Bank. In addition, a savings institution may not extend credit
to any affiliate engaged in activities not permissible for a bank holding
company or acquire the securities of any affiliate that is not a subsidiary. The
OTS has the discretion to treat subsidiaries of savings institutions as
affiliates on a case-by-case basis.
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<PAGE>
Liquidity Requirements. All savings institutions are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings institutions. Monetary penalties may be imposed upon
institutions for violations of liquidity requirements.
Federal Home Loan Bank System. The Bank will be a member of the FHLB of
New York, which is one of 12 regional FHLBs. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from funds deposited by savings institutions and proceeds derived from the sale
of consolidated obligations of the FHLB System. It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the board of
directors of the FHLB.
As a member, the Bank will be required to purchase and maintain stock
in the FHLB of New York in an amount equal to at least 1% of our aggregate
unpaid residential mortgage loans, home purchase contracts or similar
obligations at the beginning of each year. The FHLB imposes various limitations
on advances such as limiting the amount of certain types of real estate related
collateral to 30% of a member's capital and limiting total advances to a member.
The FHLBs are required to provide funds for the resolution of troubled
savings institutions and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future.
Federal Reserve System. The Federal Reserve System requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve System may be used
to satisfy the liquidity requirements that are imposed by the OTS. Savings
institutions have authority to borrow from the Federal Reserve System "discount
window," but Federal Reserve System policy generally requires savings
institutions to exhaust all other sources before borrowing from the Federal
Reserve System.
MANAGEMENT OF THE COMPANY
The board of directors of the Company currently consists of the same
individuals who will serve as directors of the Bank. The Company's certificate
of incorporation and bylaws require that directors be divided into three
classes, as nearly equal in number as possible. Each class of directors serves
for a three-year period, with approximately one-third of the directors elected
each year. The Bank's officers will be elected by the Board and serve at the
Board's discretion.
MANAGEMENT OF THE BANK
Directors
The proposed board of directors of the Bank will be composed of six
members. The proposed stock charter and bylaws for the Bank require that
directors be divided into three classes, as nearly equal in number as possible.
The officers are elected annually by the Board and serve at the Board's
discretion.
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The following table sets forth information with respect to the
directors, executive officers, and significant employees, all of whom will
continue to serve in the same capacities after the offering. The Bank is
currently negotiating with one individual to become Vice President and Chief
Lending Officer and another individual to become Vice President and Senior
Operations Officer.
<TABLE>
<CAPTION>
Proposed % of
Stock Proposed
Organization Stock Subscription Total Ownership
Directors Age (1) Position Shares Options(2) Shares Shares ^(3)(4)
- --------- ------- -------- ------ ---------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
William C. Hart 65 Chairman of the 2,500 -- 2,500 5,000 1.0
Board
Kenneth J. Stephon 39 President, CEO 5,100 10,000 ^ 10,000 25,100 4.9
and Director
William V. R. Fogler 54 Director 3,000 -- 3,000 6,000 1.2
Paul J. Russo 47 Director 5,000 -- 1,000 6,000 1.2
Jonathan R. Sachs 41 Director 1,500 -- 2,000 3,500 *
George M. Taber 56 Director 1,500 -- 2,500 4,000 *
------ -------- ------ ------ ---
18,600 10,000 21,000 ^49,600 9.7
====== ======== ====== ====== ===
</TABLE>
- -------------
(1) At September 30, 1998.
(2) According to the terms of the Employment Agreement with Mr. Stephon, the
board of directors granted stock options to purchase 10,000 shares of
common stock at $10.00 per share.
(3) Includes shares purchased in the private placement.
^(4) Based upon ^ 515,000 shares (outstanding after the issuance of common stock
in the private placement and the offering). * Less than 1%
Messrs. Hart and Stephon have over forty years combined experience in
the banking industry. Each has served as Chief Executive Officer and a director
of a thrift institution in New Jersey.
There is no family relationship between any director or executive
officer. No director or executive officer has filed a petition in bankruptcy in
the past five years, nor been convicted in a criminal proceeding. The business
experience for the past five years of each of the directors and executive
officers is as follows:
Kenneth J. Stephon was President, Chief Executive Officer and a
Director of CloverBank, Pennsauken, New Jersey from 1993 until July 1998, having
previously served CloverBank as Executive Vice President and Chief Financial
Officer. Mr. Stephon has over twenty years of experience in the banking and
thrift industries, with experience in all facets of financial institution
operations, with particular emphasis on administration, strategic planning and
implementation, investment portfolio management, asset and liability management,
budgeting and accounting. While at CloverBank, he was responsible for the daily
management of the $30 million, three office, community-oriented federal savings
bank. Mr. Stephon presently serves as Chairman of the MBA Advisory Board of
Rowan University, Glassboro, New Jersey. He is a member of the School of
Business Advisory Committee of The College of New Jersey and the Business
Advisory Commission of Mercer County Community College, West Windsor Township,
New Jersey. He has also served as a member of the Board of Governors of the New
Jersey League - Community and Savings Bankers for two terms and is a Past
President of the Burlington/Camden Counties Savings League. He has a Master's
Degree in Business Administration from Rider University, Lawrenceville, New
Jersey and a Bachelor of Science Degree in Accounting from The College of New
Jersey (formerly Trenton State College), Ewing Township, New Jersey.
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<PAGE>
William C. Hart has been the President and Chief Executive Officer of
Mercer Mutual Insurance Company, Pennington, New Jersey since 1987. Mr. Hart has
been a Director of Mercer Mutual Insurance Company since 1970 and was Chairman
of the Board from 1979 to 1985. He has also been the Chairman of the Investment
Committee at the insurance company since 1979. His experience in the thrift
industry includes Executive Vice President of Colonial Savings and Loan
Association, Roselle Park, New Jersey and President of Colonial Service
Corporation from 1984 to 1985 and Chief Executive Officer of Centennial Savings
and Loan Association, Pennington, New Jersey from 1962 to 1984. He has a
Bachelor of Science Degree in Accounting from Rider University, Lawrenceville,
New Jersey.
William V. R. Fogler is the founder and President of Van Rensselaer,
Ltd., Princeton, New Jersey, a registered investment advisory and arbitration
consulting firm, founded in 1989. The registered investment advisory division of
Van Rensselaer, Ltd. specializes in the management of individual, corporate and
ERISA portfolios. Mr. Fogler's exchange affiliations include, NYSE and NASD
General Securities Representative and the American Stock Exchange Puts and
Calls. He is a member of the NYSE, NASD and American Arbitration Association
arbitration panels. He is a Licensed Life Insurance Agent with the State of New
Jersey. He is a three term board member of the Rider University Business
Advisory Board and is the Chairman of the Development Committee. He has a
Bachelor of Science Degree in Business Administration from Rider University
School of Business Administration.
Paul J. Russo is the Vice President and part-owner of the Lawrenceville
Home Improvement Center, Inc., Lawrenceville, New Jersey, where he has worked
since 1973. Mr. Russo's responsibilities include sales, marketing and
management. He has been a volunteer manager and coach for the Lawrence Township
Little League and Babe Ruth League for ten years. He has a Bachelor's Degree of
Science in Commerce, magna cum laude, from Rider University, Lawrenceville, New
Jersey.
Jonathan R. Sachs, M.D. has been a physician with the Princeton
Gastroenterology Associates, Princeton, New Jersey since 1993, and in private
practice since 1989. Dr. Sachs is a licensed Medical Doctor in the State of New
Jersey and the Commonwealth of Pennsylvania. He became board certified in
Internal Medicine in 1987 and in Gastroenterology in 1989. He is a Fellow in
both the American College of Physicians and the American College of
Gastroenterology. He is the co-author of numerous articles in professional
publications and abstracts. He is the past Chairman of the Section of
Gastroenterology, Department of Internal Medicine at the Medical Center at
Princeton. He has been active with the Unitarian Church of Princeton, the
Citizens for Quality Schools in Hopewell Township, New Jersey, and as a hockey
coach in the Nassau Hockey League. He is a summa cum laude graduate of Amherst
College, where he received his Bachelor of Arts Degree and graduated medical
school from the Medical College of Pennsylvania, Philadelphia, Pennsylvania.
George M. Taber is the founder and President of BUSINESS NEWS New
Jersey. BUSINESS NEWS New Jersey, founded in its original form in 1988, is a
weekly newspaper with a readership of approximately 50,000. Mr. Taber is also
the daily business commentator for the radio station New Jersey 101.5, and
moderated "Business New Jersey This Week," a weekly cable television show. He
was a reporter and editor with Time magazine for 21 years. He has a Master of
Arts Degree from the College of Europe in Bruges, Belgium and a Bachelor of Arts
Degree from Georgetown University in Washington, D.C.
Joseph B. Festa, Village Bank's proposed Chief Lending Officer, has
over 18 years experience in the thrift industry in Mercer County, New Jersey.
Mr. Festa previously served as Executive Vice President and Corporate Secretary
of Old Borough Savings and Loan Association, Trenton, New Jersey. Mr. Festa
holds a Master's Degree in Management from Rider University, Lawrenceville, New
Jersey and a Bachelor of Science Degree in Business Administration/Marketing
from The College of New Jersey
33
<PAGE>
(formerly Trenton State College), Ewing Township, New Jersey. Mr. Festa is a
member of the Executive Committee of the Mercer County Chapter of the National
Association of Independent Fee Appraisers, and is a Past President of the Mercer
County Savings and Loan League. Mr. Festa is currently a Special Investigator
for the State of New Jersey and previously was the Assistant Loan Officer for
Roma Federal Savings Bank, Trenton, New Jersey and Vice President of Essential
Printing, New York, New York.
Remuneration of Directors and Officers
Director Compensation. The directors of the Bank will each receive fees
in the amount of $300 per month, except Mr. Stephon, who will not receive
directors' fees. The organizers do not intend for the Company to pay directors'
fees apart from those paid by the Bank. The Company may consider the payment of
separate board fees in the future based upon several factors, including, but not
limited to, the contribution of board members to the operations of the Company
rather than the Bank and the financial condition of the Company.
Employment Agreement. The Company entered into an employment agreement
with Mr. Stephon to serve as President and Chief Executive Officer of the
Company and the Bank for a three-year term. Mr. Stephon receives a base salary
of $9,167 per month. ^ According to the terms of the employment agreement ^, Mr.
Stephon ^ was awarded ^ 10,000 ^ stock options prior to the effective date of
this Prospectus, exercisable at a price equal to the offering price in this
offering, and exercisable for a period of ten years from the effective date of
the Prospectus.
Pension Plan. The Bank will not initially sponsor a tax-qualified
pension plan. Initially, the Bank may implement a 401(k) plan, which initially
will have contributions only by the employee. In the future, the Bank will
consider the implementation of a retirement plan that will involve contributions
made by the Bank.
Stock Option Plan. The board of directors expects to consider a stock
option plan or plans (the Option Plan) following the offering. The exercise
price is expected to be the fair market value of the common stock on the date of
grant, but not less than $10.00 per share. Options are expected to vest over
three years. The Board considers the adoption of the Option Plan to be in the
best interests of the Company and its shareholders by assisting the Company and
the Bank in attracting and retaining highly qualified individuals to serve as
members of management and the Board. The Option Plan shares may be issued from
shares purchased from the market or they may be issued from authorized but
unissued shares.
Restricted Stock Plan. The board of directors expects to consider a
restricted stock plan (the RSP) following the offering, the objective of which
is to enable the Company and the Bank to retain personnel and directors of
experience and ability in key positions of responsibility. The RSP will be
implemented in accordance with applicable OTS regulations. The RSP would be
managed by a committee of non-employee directors. The RSP shares may be issued
from shares purchased from the market or from authorized but unissued shares.
Other Benefits. The Bank expects to pay benefit costs for its
employees, including its officers. These costs may include such items as health
care, disability insurance and group term life insurance.
34
<PAGE>
Transactions with Related Parties
After the Company commences operations, it may engage in transactions
with its organizers, officers, employees, directors or other affiliated persons
only to the extent that such activities are permitted by, and consistent with,
all applicable state and federal regulations. OTS and FDIC regulations impose a
number of restrictions on transactions and dealings between the Company and
affiliated persons. The definition of "affiliated person" includes the Company's
directors and officers and their spouses and certain members of their immediate
families. Also included as affiliated persons are certain persons, corporations
and other organizations that have a close relationship with the Company as set
out in the regulations. All dealings between the Company and its affiliated
persons will have to comply with those regulations. The Company plans to adopt
policies designed to assure compliance with those regulations. Such
transactions, should they occur, are expected to be primarily in the nature of
loans made in the ordinary course of business such as home loans, educational
loans or consumer loans. In addition, future material transactions made or
entered into will be no less favorable to the Company than those that can be
obtained from unaffiliated third parties. All future loans to directors,
officers and affiliates, if any, will be made for bona fide business purposes.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of September 30, 1998, the shares of
common stock owned by each person who is a beneficial owner of more than five
percent of the outstanding common stock of the Company and is not an officer or
director of the Company.
Name and Address of Amount of Percent of Class
Beneficial Owner Beneficial Ownership Before Offering(1)
- ---------------- -------------------- ------------------
Fred D. Price
Cranbury, NJ 20,000 21.09%
Peter and Mary Russo Trust
Lawrenceville, NJ 10,000 10.54%
Felix Buccellata
Belle Mead, NJ 7,500 7.91%
Raman R. Patel
Lawrenceville, NJ 5,000 5.27%
John P. Russo, Jr.
Lawrenceville, NJ 5,000 5.27%
- ---------------------
(1) Prior to this public offering of the common stock of the Company, there
were 94,850 shares of Company common stock outstanding.
35
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 5,000,000 shares of the common
stock, $0.10 par value, of which 94,850 shares were issued on May 20, 1998 in
the private placement. The Company is authorized to issue 1,000,000 shares of
serial preferred stock, $0.10 par value, with none issued to date. The Company
does not intend to issue any shares of serial preferred stock in the offering,
nor are there any present plans to issue such preferred stock following the
offering. The following is a summary of ^ material terms of the common stock and
is subject to and qualified in its entirety by reference to the certificate of
incorporation and bylaws of the Company which are filed with the SEC as exhibits
to the registration statement of which this Prospectus forms a part.
Common Stock
Voting Rights. Each share of the common stock will have the same
relative rights and will be identical in all respects to every other share of
the common stock. The holders of the common stock will possess exclusive voting
rights in the Company, except to the extent that shares of serial preferred
stock issued in the future may have voting rights, if so designated by the board
of directors of the Company. Each holder of the common stock will be entitled to
only one vote for each share held of record on all matters submitted to a vote
of holders of the common stock and will not be permitted to cumulate their votes
in the election of the Company's directors.
Liquidation. In the unlikely event of the complete liquidation or
dissolution of the Company, the holders of the common stock will be entitled to
receive all assets of the Company available for distribution in cash or in kind,
after payment or provision for payment of (i) all debts and liabilities of the
Company (including all savings accounts and accrued interest thereon); (ii) any
accrued dividend claims; and (iii) liquidation preferences of any serial
preferred stock which may be issued in the future.
Restrictions on Acquisition of the Common Stock. See "Certain
Anti-Takeover Provisions" for a discussion of the limitations on acquisition of
shares of the common stock.
Other Characteristics. Holders of the common stock will not have
preemptive rights with respect to any additional shares of the common stock
which may be issued. Therefore, the board of directors may sell shares of
capital stock of the Company without first offering such shares to existing
stockholders of the Company. The common stock is not subject to call for
redemption, and the outstanding shares of common stock when issued and upon
receipt by the Company of the full purchase price therefor will be fully paid
and non-assessable.
Issuance of Additional Shares. Other than shares to be issued pursuant
to the benefit plans, the Company has no present plans, proposals, arrangements
or understandings to issue additional authorized shares of the common stock. In
the future, the authorized but unissued and unreserved shares of the common
stock will be available for general corporate purposes, including, but not
limited to, possible issuance as stock dividends, in connection with mergers or
acquisitions, under a cash dividend reinvestment or stock purchase plan, in a
public or private offering, or under employee benefit plans. Normally no
stockholder approval would be required for the issuance of these shares, except
as described herein or as otherwise required to approve a transaction in which
additional authorized shares of the common stock are to be issued.
36
<PAGE>
Serial Preferred Stock
None of the 1,000,000 authorized shares of serial preferred stock of
the Company will be issued in the offering. After the offering is completed, the
board of directors of the Company will be authorized to issue serial preferred
stock and to fix and state voting powers, designations, preferences or other
special rights of such shares and the qualifications, limitations and res
trictions thereof, subject to regulatory approval but without stockholder
approval. If and when issued, the serial preferred stock is likely to rank prior
to the common stock as to dividend rights, liquidation preferences, or both, and
may have full or limited voting rights. The board of directors, without stockh
older approval, can issue serial preferred stock with voting and conversion
rights which could adversely affect the voting power of the holders of the
common stock. The board of directors has no present intention to issue any of
the serial preferred stock. If such stock is issued without shareholder
approval, such issuance will be approved by a majority of independent directors
who do not have an interest in the transaction and who have access to counsel.
^ Anti-Takeover Provisions
The following discussion is a ^ summary of the material provisions of
the certificate of incorporation, bylaws, and certain other regulatory
provisions of the Company, which may be deemed to have such an anti-takeover
effect.
Provisions of the Company's Certificate of Incorporation and Bylaws
Election of Directors. Certain provisions of the Company's certificate
of incorporation and bylaws will impede changes in majority control of the board
of directors. The Company's certificate of incorporation provides that the board
of directors of the Company will be divided into three staggered classes, with
directors in each class elected for three-year terms. Thus, it would take two
annual elections to replace a majority of the Company's board. The Company's
certificate of incorporation provides that the size of the board of directors
may be increased or decreased only if two-thirds of the directors then in office
concur in such action. The certificate of incorporation also provides that any
vacancy occurring in the board of directors, including a vacancy created by an
increase in the number of directors, shall be filled for the remainder of the
unexpired term by a majority vote of the directors then in office. Finally, the
certificate of incorporation and the bylaws impose certain notice and
information requirements in connection with the nomination by stockholders of
candidates for election to the board of directors or the proposal by
stockholders of business to be acted upon at an annual meeting of stockholders.
The certificate of incorporation provides that a director may only be
removed for cause by the affirmative vote of at least 80% of the outstanding
shares of the Company entitled to vote generally in an election of directors
cast at a meeting of stockholders called for that purpose.
Restrictions on Call of Special Meetings. The certificate of
incorporation of the Company provides that a special meeting of stockholders may
be called only by the President of the Company, by a majority of the board of
directors of the Company, or by a committee of the board of directors pursuant
to a resolution adopted by a majority of the board of directors or pursuant to
the bylaws of the Company.
Absence of Cumulative Voting. The Company's certificate of
incorporation provides that stockholders may not cumulate their votes in the
election of directors.
37
<PAGE>
Authorized Shares. The certificate of incorporation authorizes the
issuance of 5,000,000 shares of common stock and 1,000,000 shares of preferred
stock. The shares of common stock and preferred stock were authorized in an
amount greater than that to be issued in the offering to provide the Company's
board of directors with as much flexibility as possible to effect, among other
transactions, financings, acquisitions, stock dividends, stock splits and the
exercise of stock options. However, these additional authorized shares may also
be used by the board of directors consistent with its fiduciary duty to deter
future attempts to gain control of the Company. The board of directors also has
sole authority to determine the terms of any one or more series of Preferred
Stock, including voting rights, conversion rates, and liquidation preferences.
As a result of the ability to fix voting rights for a series of Preferred Stock,
the board has the power, to the extent consistent with its fiduciary duty, to
issue a series of Preferred Stock to persons friendly to management in order to
attempt to block a post-tender offer merger or other transaction by which a
third party seeks control, and thereby assist management to retain its position.
Procedures for Business Combinations. The certificate of incorporation
requires the affirmative vote of at least 80% of the outstanding shares of the
Company for any merger, consolidation, liquidation, or dissolution of the
Company or any action that would result in the sale or other disposition of at
least 50% of the tangible assets of the Company, unless the transaction has been
approved by the board of directors. Any amendment to this provision requires the
affirmative vote of at least 80% of the outstanding shares of capital stock of
the Company entitled to vote generally in the election of directors.
Amendment to Certificate of Incorporation and Bylaws. Amendments to the
Company's certificate of incorporation must be approved by the Company's board
of directors and also by a majority of the outstanding shares of the Company's
voting stock, provided, however, that approval by at least 80% of the
outstanding voting stock entitled to vote generally in the election of directors
is generally required for certain provisions (i.e., number, classification,
election and removal of directors; amendment of bylaws; call of special
stockholder meetings; preemptive rights; nomination of directors and stockholder
proposals; voting rights; director liability; business combinations; power of
indemnification; and amendments to provisions relating to the foregoing in the
certificate of incorporation).
The bylaws may be amended by a two-thirds vote of the board of
directors or the affirmative vote of the holders of at least 80% of the
outstanding shares of the Company entitled to vote in the election of directors
cast at a meeting called for that purpose.
Regulatory Restrictions. Federal regulations require that, prior to
obtaining control of an insured institution, a person, other than a company,
must give 60 days notice to the OTS and have received no OTS objection to such
acquisition of control, and a company must apply for and receive OTS approval of
the acquisition. Control involves a 25% voting stock test, control in any manner
of the election of a majority of the institution's directors, or a determination
by the OTS that the acquiror has the power to direct, or directly or indirectly
to exercise a controlling influence over, the management or policies of the
institution. Acquisition of more than 10% of an institution's voting stock, if
the acquiror also is subject to any one of either "control factors," constitutes
a rebuttable determination of control under the regulations. The determination
of control may be rebutted by submission to the OTS, prior to the acquisition of
stock or the occurrence of any other circumstances giving rise to such
determination, of a statement setting forth facts and circumstances which would
support a finding that no control relationship will exist and containing certain
undertakings. The regulations provide that persons or companies which acquire
beneficial ownership exceeding 10% or more of any class of a savings
association's stock after the effective date of the regulations must file with
the OTS a certification that the holder is not in control of such institution,
is not subject to a rebuttable determination of control and
38
<PAGE>
will take no action which would result in a determination or rebuttable
determination of control without prior notice to or approval of the OTS, as
applicable.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have a minimum of
504,850 and a maximum of ^ 1,294,850 shares of common stock issued and
outstanding. All shares of common stock issued in the offering will be available
for resale in the public market without restriction or further registration
under the Securities Act, except for shares purchased by affiliates of the
Company (in general, any person who has a control relationship with the Company)
which shares will be subject to the resale limitations of Rule 144 under the
Securities Act. After the offering, shares of common stock held by affiliates
will be considered "control shares", and are eligible for sale in the public
market in compliance with Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including a person who may be deemed to be an
"affiliate" of the Company as that term is defined under the Securities Act, is
entitled to sell, within any three month period, a number of restricted shares
as to which at least one year has elapsed from the later of the acquisition of
such shares from the Company or an affiliate of the Company in an amount that
does not exceed the greater of (i) one percent of the then outstanding shares of
common stock, or (ii) if the Common Shares are quoted on the Nasdaq National
Market or a stock exchange, the average weekly trading volume of the Common
Shares during the four calendar weeks preceding such sale. Sales under Rule 144
are also subject to certain requirements as to the manner of sale, notice, and
the availability of current public information about the Company. However, a
person who is not deemed to have been an affiliate of the Company during the 90
days preceding a sale by such person and who has beneficially owned shares as to
which at least two years have elapsed from the later of the acquisition of such
shares from the Company or an affiliate of the Company is entitled to sell them
without regard to the volume, manner of sale, or notice requirements of Rule
144.
LEGAL MATTERS
The validity of the common stock offered hereby and certain other
matters will be passed upon for the Company by Malizia, Spidi, Sloane & Fisch,
P.C., Washington D.C., counsel to the Company.
EXPERTS
The financial statements of the Company included herein and elsewhere
in this Prospectus from inception to September 30, 1998, have been included in
reliance upon the report of S.R. Snodgrass A.C., Wexford, Pennsylvania,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm and experts in accounting and auditing. There have
been no changes in or disagreements with the accountants.
39
<PAGE>
VILLAGE FINANCIAL CORPORATION
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors...............................................F-1
Balance Sheet.............................................................. F-2
Income Statement.............................................................F-3
Statement of Changes in Stockholders' Equity............................... F-4
Statement of Cash Flows.................................................... F-5
Notes to Financial Statements............................................ F-6-8
40
<PAGE>
[S.R. Snodgrass, A.C. letterhead]
REPORT OF INDEPENDENT AUDITORS
------------------------------
Organizers and Stockholders
Village Financial Corporation
We have audited the accompanying balance sheet of Village Financial Corporation
as of September 30, 1998, and the related statements of income, and cash flows
for the period from January 16, 1998 (inception) to September 30, 1998. These
financial statements are the responsibility of management. Our responsibility is
to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Village Financial Corporation
as of September 30, 1998 and the results of its operations and its cash flows
for the period from January 16, 1998 (inception) to September 30, 1998, in
conformity with generally accepted accounting principles.
/s/S.R. Snodgrass, A.C.
- -----------------------
Wexford, PA
October 9, 1998
F-1
<PAGE>
VILLAGE FINANCIAL CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
September 30,
1998
--------------
ASSETS
<S> <C>
Cash $ 30,863
Short-term investments 760,184
Furniture and equipment 32,959
Deferred organization costs 70,000
Other assets 3,012
-------------
Total assets $ 897,018
=============
LIABILITIES
Accounts payable and accrued expenses $ 61,527
-------------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.10; 1,000,000 shares authorized;
none outstanding -
Common stock, par value $.10; 5,000,000 shares authorized;
94,850 issued and outstanding 9,485
Additional paid-in capital 939,015
Retained deficit (113,009)
-------------
Total stockholders' equity 835,491
Total liabilities and stockholders' equity $ 897,018
=============
</TABLE>
See accompanying notes to the financial statements.
F-2
<PAGE>
VILLAGE FINANCIAL CORPORATION
INCOME STATEMENT
Period From
January 16, 1998
(Inception) to
September 30, 1998
------------------
INTEREST INCOME $ 10,453
-------------
EXPENSES
Salaries and employee benefits 16,899
Occupancy and equipment 5,053
Professional services 82,858
Other 18,652
-------------
Total expenses 123,462
-------------
Loss before income taxes (113,009)
Income taxes -
-------------
NET LOSS $ (113,009)
=============
LOSS PER SHARE ($1.19)
AVERAGE SHARES OUTSTANDING (From May 20, 1998) 94,850
See accompanying notes to the financial statements.
F-3
<PAGE>
VILLAGE FINANCIAL CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Deficit Total
----- ------- ------- -----
<S> <C> <C> <C> <C>
Balance, January 16, 1998 (Inception) $ - $ - $ - $ -
Sale of common stock for
cash ($10.00 per share) 9,485 939,015 948,500
Net loss for the period
ended September 30 (113,009) (113,009)
------------ ------------ ------------- ------------
Balance, September 30, 1998 $ 9,485 $ 939,015 $ (113,009) $ 835,491
============ ============ ============= ============
</TABLE>
See accompanying notes to the financial statements.
F-4
<PAGE>
VILLAGE FINANCIAL CORPORATION
STATEMENT OF CASH FLOWS
Period From
January 16, 1998
(Inception) to
September 30, 1998
------------------
OPERATING ACTIVITIES
Net loss $ (113,009)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation 1,010
Decrease in accrued organization expenses, net (11,485)
------------
Net cash used for operating activities (123,484)
------------
INVESTING ACTIVITIES
Purchase of equipment and vehicle (33,969)
------------
FINANCING ACTIVITIES
Proceeds from sale of common stock 948,500
-----------
Increase in cash and cash equivalents 791,047
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD -
-----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 791,047
===========
See accompanying notes to the financial statements.
F-5
<PAGE>
VILLAGE FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
- --------------------------------------
Village Financial Corporation ("the Corporation") was incorporated under the
laws of the State of New Jersey on January 16, 1998, for the purpose of becoming
a holding company, which will own all of the outstanding shares of capital stock
of a proposed federal stock savings bank with the name Village Bank ("the
Bank"). The Corporation will be a unitary savings and loan holding company and
will own only the Bank. As of September 30, 1998, the Corporation is capitalized
to the extent currently considered necessary to provide adequate funding of the
ongoing organization efforts of management in the formation of the Bank.
Additional funds necessary to adequately capitalize the Bank will be raised
through a contemplated initial public offering ("IPO"), which is discussed in
greater detail in these notes. Upon satisfaction of the conditions of the IPO
and receipt of appropriate regulatory approval, the Bank will operate two branch
offices as a community oriented bank concentrating on consumer residential and
installment loan products and deposit services, and will be headquartered in
Lawrenceville, New Jersey. Qualifying customer bank deposit accounts will be
insured by the Federal Deposit Insurance Corporation. The anticipated opening of
the Bank is scheduled for the first quarter of 1999, pending receipt of
necessary regulatory approvals and raising adequate capital funds.
To date, the Corporation's operations have been limited to in-formation
procedures; raising capital, recruiting officers and staff, obtaining a banking
facility and working towards obtainment of regulatory approval. Since the
Corporation's planned principal operations have not yet commenced no significant
revenue has been derived therefrom. There is no assurance that the Corporation
will be able to raise sufficient capital to satisfy minimum regulatory capital
requirements. Further, if such capital requirements are not met, the formation
of the Bank will be delayed or not materialize.
The accounting and reporting policies of the Corporation conform with generally
accepted accounting principles ("GAAP"). The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the balance
sheet date and income and expenses during the reported period. Actual results
could differ from those estimates. In the opinion of management, the
accompanying financial statements of the Corporation contain all adjustments
necessary for the fair presentation of the Corporation's balance sheet, results
of operations and cash flows for the period from inception through September 30,
1998. The results of operations for this period are not indicative of the
results that may actually occur once operations commence and could be materially
different.
Short-term Investments
- ----------------------
The Corporation's short term investments are comprised of a money market deposit
account maintained with a correspondent bank and shares purchased in a national
dealer/broker interest-bearing money fund account.
F-6
<PAGE>
VILLAGE FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Furniture and Equipment
- -----------------------
Furniture and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over the estimated useful
lives of the assets. Expenditures for maintenance and repairs are charged
against income as incurred. Costs of major additions are capitalized.
On July 17, 1998 the Corporation entered into an operating lease arrangement for
office space located in Pennington, New Jersey. Monthly office rental payments
of $700 and furniture rental payments of $62 a month will be payable over the
lease term, which is for one year. This site will serve as the Corporation's
temporary headquarters until a full service banking and administrative site has
been negotiated.
Deferred Organization Costs and Start-up Activities Expenses
- ------------------------------------------------------------
Such costs are for organization work being completed as well as the registration
process for the IPO. Offering expenses will be charged to stockholders' equity
upon completion of the IPO and are presently recorded as deferred organization
costs. Organizational services relating to the preparation of regulatory
applications, feasibility studies, and financial projections are considered
costs of start-up activities and will be charged to expense once paid.
All other ongoing organizational and start-up costs incurred primarily before
the commencement of operations as a bank will also be expensed in accordance
with the AICPA accounting statement of Position 98-5, "Reporting on the Costs of
Start-up Activities." The Statement requires entities to expense costs of
start-up activities as they are incurred.
Cash Flow Information
- ---------------------
Cash equivalents include the interest-bearing deposit held with a correspondent
bank and funds held in a money fund with a dealer/broker.
Income Taxes
- ------------
The Corporation has not provided for a federal or state income tax
provision for the period ending September 30, 1998, as the Corporation
represents an entity in-formation and has incurred a cumulative operating loss
since the date of incorporation. As such, a 100% valuation allowance for the
deferred tax assets, comprised solely of the tax benefit generated from the
operating loss, has been recorded.
F-7
<PAGE>
VILLAGE FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Continued)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Organization Period Stock Option Plan - President
- -------------------------------------------------
Effective August 1, 1998 the Corporation entered into an Employment Agreement
with the President of the Corporation. As a part of the Agreement, the
Corporation has granted stock options for a minimum of 10,000 shares, and a
maximum of 30,000 shares of common stock. The President vests in 833 shares for
every full month that transpires through the effective date of the Corporation's
IPO and is guaranteed the minimum of 10,000 shares. The per share exercise price
of an option granted ^will be for $10, which is the anticipated IPO offering
price. The stock options have an expiration term of ten years from the effective
date of the ^Employment Agreement. The Corporation accounts for stock option
grants in accordance with APB Opinion 25, "Accounting for Stock Issued to
Employees," and, accordingly, recognizes no compensation expense for the stock
option grants. Had the Corporation accounted for compensation cost on the basis
of fair value pursuant to Financial Accounting Standards Board Statement No.
123, "Accounting for Stock-Based Compensation," there would have been no effect
on the net loss and loss per share information as disclosed on the Income
Statement.
Stockholders' Equity and Initial Public Offering
- ------------------------------------------------
Initial capitalization of the Corporation has occurred through the subscription
and issuance of common stock, in a private placement during the second quarter
of 1998. As of September 30, 1998, a total of 94,850 shares, at an offering
price of $10.00 per share, have been subscribed to and issued.
The Corporation intends to issue between 410,000 and ^1,200,000 shares of common
stock at $10.00 per share in the IPO. Current shares of common stock owned by
investors, from a private placement, and any other additional shares issued
prior to the IPO, will remain issued and outstanding. The Corporation
anticipates purchasing all of the common stock to be issued by the Bank with the
net proceeds received from the private placement and the IPO.
Earnings Per Share
- ------------------
For the period ending September 30, 1998, earnings per share is calculated using
the weighted average number of shares outstanding from May 20, 1998 (issue date)
through September 30, 1998, including common stock equivalents, if such items
have a dilutive effect. For 1998, the Corporation has maintained a simple
capital structure; therefore, there are no dilutive effects on loss per share
computations.
F-8
<PAGE>
APPENDIX A
VILLAGE FINANCIAL CORPORATION
A proposed
Holding Company for Village Bank
(In Organization)
Lawrenceville, New Jersey
SUBSCRIPTION AGREEMENT
THE OFFER OF THE SECURITIES IS MADE ONLY
BY THE ACCOMPANYING PROSPECTUS
Subject to the terms and conditions of sale contained in the Prospectus
dated ______, 1998, (the "Prospectus"), the undersigned hereby subscribes for
the purchase of the number of shares shown below of the common stock ($0.10 par
value), of Village Financial Corporation (the "Company"), a proposed holding
company for Village Bank (In Organization) (the "Bank"). The purchase price is
$10.00 per share and full payment is enclosed with this Subscription Agreement.
Enclosed as payment for the shares subscribed to herein is a check, bank draft
or money order payable to "Summit Bank, Escrow Agent for Village Financial
Corporation," in the amount shown below.
Terms not otherwise defined herein shall have the same meaning as in
the Prospectus.
All subscriptions for the offering are subject to a 100 share purchase
minimum and a 50,000 share maximum purchase limitation per subscriber. For
purposes of determining the maximum purchase limitation, the term subscriber
includes all persons who are affiliates of the person submitting this
Subscription Agreement (an affiliate is a person that directly, or indirectly,
controls, is controlled by or is under common control with, the subscriber).
Method of Subscription
All subscriptions must be made on this Subscription Agreement.
Subscriptions are not binding until accepted by the Company. The Company
reserves the right to reject any subscription, with or without cause. The
Company will refuse any subscription by sending written notice to the subscriber
by first-class mail within ten calendar days after receipt of the subscription,
and the subscriber's Subscription Agreement and refund of payment will accompany
such notice. Any Subscription Agreement which is completely and correctly filled
out, which is accompanied by proper and full payment and which is physically
received at the office of the Company by an employee or agent of the Company by
the date set forth in the Prospectus, shall be deemed to have been accepted if
it is not refused as hereinbefore provided within ten calendar days after such
receipt.
A-1
<PAGE>
A completed Subscription Agreement and payment in full (made in the
manner specified below) of the total subscription price for the number of shares
subscribed should be mailed to the Company at the following address:
Village Financial Corporation
P.O. Box 6554
Lawrenceville, New Jersey 08648
Subscriptions also may be delivered in person to the office of the Company at ^
590 Lawrence Square Boulevard, Lawrenceville, New Jersey between ^ 9:00 a.m. and
^ 4:00 p.m. Monday through Friday.
IMPORTANT: PAYMENTS MUST BE MADE IN UNITED STATES FUNDS BY CHECK, BANK DRAFT OR
MONEY ORDER PAYABLE TO "SUMMIT BANK, ESCROW AGENT FOR VILLAGE FINANCIAL
CORPORATION," CHECKS MAY NOT BE MADE PAYABLE TO THE ORGANIZERS OF THE COMPANY.
FAILURE TO INCLUDE THE FULL SUBSCRIPTION PRICE WITH THE SUBSCRIPTION AGREEMENT
WILL RESULT IN THE SUBSCRIPTION BEING RETURNED BY THE ESCROW AGENT.
Terms of the offering
The Company is offering a minimum of 410,000 shares and a maximum of ^
1,200,000 shares at $10.00 per share pursuant to the Prospectus. The offering
will terminate at ^ 4:00 p.m., New Jersey Time, on _______ __, 1998, unless
extended by the Company without further notice to subscribers. If the offering
is not completed by _______ __, 199_, subscribers will be refunded their
subscription funds.
If an extension to the offering is obtained, subscribers would be
resolicited and all subscription funds would be promptly refunded. Subscribers
would also be provided with a supplemental offering prospectus declared
effective by the SEC. Upon resolicitation, subscribers would have an opportunity
to increase or decrease their subscriptions.
The Company will deliver an effective prospectus to all persons to whom
the securities offered hereby are to be sold at least 48 hours prior to the
acceptance or confirmation of sale to such persons or to send such a prospectus
to such persons under circumstances that it would normally be received by them
48 hours prior to acceptance or confirmation of the sale. The Company will mail
to all subscribers who have theretofore received a Prospectus written notice of
any such determination to terminate the offering at least seven days prior to
such termination. During this seven day period, the Company will continue to
accept subscriptions for up to ^ 1,200,000 shares. The Company expects only one
closing.
Subscription Escrow Agreement
The Escrow Agent will maintain the records of the Escrow Account ^. The
funds in the Escrow Account will be invested by the Escrow Agent in bank
accounts, short-term U.S. government securities (or mutual funds consisting
thereof) and/or in FDIC-insured short-term Certificates of Deposit.
Subscribers may not receive interest on their subscription funds, if
the offering expenses are in excess of the amounts to be covered by the proceeds
of the private placement. However, if such funds are held by the Company in
excess of 90 days, such funds will be promptly returned to the subscriber with
any interest earned thereon. Subscribers will not be entitled to any return of
funds during the offering period.
A-2
<PAGE>
Receipts
Not sooner than forty-eight hours after receipt of the subscriber's
Subscription Agreement and payment in full for the shares subscribed the Company
will deliver a receipt to the subscriber by first-class mail or by personal
delivery.
Stock Certificates
Within approximately seven business days after receipt of final
regulatory approval and authorization to do business, the Company will cause to
be mailed by first-class mail or deliver to each subscriber a certificate
representing the shares of common stock purchased by such subscriber.
Acknowledgements
The undersigned hereby acknowledges receipt of a copy of the
Prospectus, and represents that this Subscription Agreement is made solely on
the basis of the information contained in the Prospectus and is not made in
reliance on any inducement, representation or statement not contained in the
Prospectus. The undersigned understands that no person (including any ^
organizer) has authority to give any information or to make any representation
not contained in the Prospectus, and if given or made, such information or
representation must not be relied upon as having been authorized. The
undersigned represents that this subscription is made for the benefit of the
undersigned and not for the benefit of any other person who is not identified on
this Subscription Agreement. The undersigned also acknowledges that there is in
the offering a minimum purchase requirement of 100 shares and a maximum purchase
limitation of 50,000 shares. The undersigned is aware that ownership of 5% or
more of the outstanding common stock could obligate the undersigned to comply
with certain reporting and other requirements of federal and state banking and
securities laws. The undersigned understands that the shares of the common stock
offered by the Company are not savings accounts or deposits and are not insured
by the Federal Deposit Insurance Corporation, the Savings Association Insurance
Fund or any other governmental or private agency.
A-3
<PAGE>
This Subscription Agreement is made in consideration of the premises
set forth in the Prospectus and the subscriptions of others, and the undersigned
acknowledges that this Subscription Agreement creates a legally binding
obligation unless refused by the Company.
Number __________ of shares __________ at $10.00 per share (100 share minimum)
equals $___________________
(Total Purchase Price)
-----------------------------------------------------------
(Name(s) in which stock certificates should be registered*)
-----------------------------------------------------------
(Street Address)
-----------------------------------------------------------
(City/State/Zip Code)
----------------------------------------------------------- ( )
(Social Security or Tax I.D. No.) (Telephone No.)
- ----------------------------------------- -----------------------------------
(Date) (Signature)
- ----------------------------------------- -----------------------------------
(Date) (Signature)
*Stock certificates for shares to be issued in the names of two or more
persons will be registered in the names of such persons as joint tenants with
right of survivorship, and not as tenants in common.
If shares are to be held in joint ownership, all joint owners should
sign this Agreement. Information on the Agreement will be treated confidentially
by the Company, to the extent legally permissible.
If purchaser is a corporation or partnership, list the names of the
principals of the corporation or partnership as well as the name of the
corporation or partnership.
A-4
<PAGE>
VILLAGE FINANCIAL CORPORATION
410,000 to ^ 1,200,000 Shares
Common Stock
--------------------
PROSPECTUS
--------------------
Dated _______ __, 1998
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED.
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Officers and Directors.
Section 14A:3-5 of the New Jersey Business Corporation Act sets forth
circumstances under which directors, officers, employees and agents may be
insured or indemnified against liability which they may incur in their
capacities as such.
Provisions regarding indemnification of directors, officers, employees
or agents of the Company are contained in Article 17 of the Company's Articles
of Incorporation.
Under a directors' and officers' liability insurance policy, directors
and officers of the Company are insured against certain liabilities, including
certain liabilities under the Securities Act, as amended.
The Company believes that these provisions assist the Company in, among
other things, attracting and retaining qualified persons to serve the Company
and its subsidiary. However, a result of such provisions could be to increase
the expenses of the Company and effectively reduce the ability of stockholders
to sue on behalf of the Company because certain suits could be barred or amounts
that might otherwise be obtained on behalf of the Company could be required to
be repaid by the Company to an indemnified party.
Item 25. Other Expenses of Issuance and Distribution
* Legal services................................................$100,000
* Accounting and consulting fees................................ 30,000
* Registration and application fees............................. 20,000
* Printing, stationery and supplies............................. 10,000
* Pre-opening salaries/benefits/health insurance................ 183,000
* Occupancy costs............................................... 20,000
* Marketing, travel and promotions.............................. 8,000
* Underwriting expenses (not including commissions)............. 50,000
* Postage and telephone......................................... 2,000
* Miscellaneous................................................. 10,000
-------
TOTAL ........................................................$433,000
========
* Estimated. Includes all expenses in connection with all regulatory
applications (i.e., SEC, OTS, and FDIC).
Item 26. Recent Sales of Unregistered Securities.
Set forth below is certain information concerning all sales of
securities by the Company since inception that were not registered under the
Securities Act of 1933 (the "Securities Act").
During the second quarter of 1998, the Company offered and sold to
investors 94,850 shares of its common stock at $10.00 per share. The total
offering price was $948,500. The Company received all of the proceeds of the
offering. There were no underwriting fees or commissions.
<PAGE>
The above sales were exempt from the registration requirements of the
Securities Act pursuant to Section 3(b) and the provisions of Rule 504 of
Regulation D in that the aggregate offering price of the securities sold in this
offering did not exceed $1,000,000.
Item 27. Exhibits:
The exhibits filed as part of this Registration Statement are
as follows:
<TABLE>
<CAPTION>
<S> <C>
3(i) Certificate of Incorporation of Village Financial Corporation*
(ii) Bylaws of Village Financial Corporation*
4.1 Specimen Stock Certificate of Village Financial Corporation*
4.2 Form of Subscription Agreement (included as Appendix A to the Prospectus)
5 Opinion of Malizia, Spidi, Sloane & Fisch, P.C.*
10.1 Employment Agreement with Kenneth J. Stephon*
10.2 Lease Agreement (Lawrenceville)^
10.3 Lease Agreement (Pennington)^
10.4 Escrow Agreement^
23.1 ^ Consent of Malizia, Spidi, Sloane & Fisch, P.C. (included in Exhibit 5)*
23.2 Consent of S.R. Snodgrass, A.C.
24.1 ^ Power of Attorney (reference is made to the Signature page)*
24.2 Certified Board Resolutions authorizing Power of Attorney*
27 Financial Data Schedule*
^
</TABLE>
------------
* Previously filed
^
Item 28. Undertakings
The undersigned registrant hereby undertakes:
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act, and is therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
<PAGE>
^ SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in Lawrenceville, New
Jersey, on ^ December 16, 1998.
VILLAGE FINANCIAL CORPORATION
By: ^/s/ Kenneth J. Stephon
-----------------------------------------------
Kenneth J. Stephon
President, Director and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated as of ^ December 16 , 1998.
<TABLE>
<CAPTION>
<S> <C>
By:^/s/ Kenneth J. Stephon By: /s/ Paul J. Russo *
--------------------------------------------- --------------------------
Kenneth J. Stephon Paul J. Russo
President, Director, Chief Executive Director
Officer and Chief Financial/Accounting ^Officer
By:^/s/ William C. Hart * By: ^/s/ Jonathan R. Sachs *
--------------------------------------------- --------------------------
William C. Hart Jonathan R. Sachs
Director Director
(Chairman of the Board)
By:^/s/ William V.R. Fogler * By: ^/s/ George M. Taber *
--------------------------------------------- --------------------------
William V.R. Fogler George M. Taber
Director Director
^* By:/s/ Kenneth J. Stephon
---------------------------------------------
Kenneth J. Stephon,
under Power of Attorney dated August 27, 1998
</TABLE>
EXHIBIT 10.2
<PAGE>
10/1/98
THIS LEASE, made the 22nd day of October, 1998, by and between
LAWRENCEVILLE ASSOCIATES, a New Jersey partnership, c/o Edward Wasser, Partner,
having an address at P.0. Box 576, Somerville, New Jersey 08876 (hereinafter
called the "Landlord") and VILLAGE FINANCIAL CORPORATION, having an address of
P.O. Box 6554, Lawrenceville, New Jersey 08648 (hereinafter called the
"Tenant");
W I T N E S S E T H :
The Landlord and Tenant, in consideration of the mutual covenants and
conditions set forth herein do hereby agree as follows:
1. Leased Premises. Landlord hereby leases to Tenant and Tenant hereby
leases from the Landlord, subject to the terms and conditions of this Lease, the
following space: approximately 3,612 gross square feet of interior space and a
canopy consisting of approximately three hundred forty (340) gross square feet
in Building 1 ("Building") of two buildings ("Complex") to be constructed by the
Landlord in Village Square Plaza, located in Block 49, Lot 37 (more commonly
known as Quakerbridge Road) in the County of Mercer, Township of Lawrence and
State of New Jersey, which space is more particularly described and
cross-hatched upon the plan attached hereto as Exhibit A and made a part hereof
("Leased Premises" or "Premises"), together with the right to use in common with
other tenants of the Building and the Complex, their invitees, customers and
employees, those areas of the common facilities as hereinafter defined and
together with the right to exclusively use those parking spaces designated as
exclusive spaces of Tenant set forth in Exhibit B attached hereto and made a
part hereof. The terms "rentable" and "useable" shall have the meanings set
forth in Exhibit F.
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<PAGE>
2. Term. The initial term of this Lease ("Initial Term") shall be for five
(5) years commencing June 1, 2000. The preliminary term of this Lease
("Preliminary Term") shall commence on the date of this Lease and shall expire
on the day preceding the Commencement Date. The Preliminary Term and the Initial
Term are collectively referred to as the "Term."
3. Use and Occupancy.
(a) The Leased Premises, or any part thereof, shall not be used by
anyone except Tenant, its invitees, customers and employees and shall be used or
permitted to be used for no use other than a bank or other business activity in
the financial services field, which Tenant or any parent company, affiliate/or
subsidiary of Tenant or Tenant's parent company is permitted to offer.
(b) (i) Landlord covenants and agrees with Tenant that Landlord shall
not lease or permit any other portion of the Building described in Paragraph 1,
or to the extent controlled by Landlord or an entity or entities affiliated with
Landlord elsewhere in the commercial complex (the "Complex") of which the
Building is a part (or to consent to or permit or suffer the sublease of such
space or the assignment of any lease pertaining to such space) to any other
financial institution (as such term is defined in Exhibit H attached to and made
a part of this Addendum and this Lease) for use as a branch banking facility or
consumer or commercial lending facility (including, without limitation, a loan
production office or a facility any function of which is a loan production
office, whether or not designated as such). (ii) Without the prior written
consent of Tenant, Landlord shall not lease any space in the Building (or
consent to or knowingly permit the sublease of such space or the assignment of
any lease pertaining to such space) for the following purposes: (a) Any
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<PAGE>
governmental entity for use as criminal, juvenile, family or divorce courts,
prosecutor's offices, public defenders offices, probation departments,
work-release programs or offices for any types of public welfare assistance; (b)
massage parlor; (c) adult book store selling any pornographic material; (d) spa,
health, physical fitness or exercise salon; (e) manufacturing of any kind; (f)
the business of barbering, hairdressing or manicuring; (g) the business of boot
blackening; (h) the business of sending or receiving telegrams or cables; (i) an
auction of any kind; (j) laundromat; (k) any establishment dispensing alcoholic
beverages (except as set forth in subparagraph (iii) below); and (l) any
establishment involved in the treatment or diagnosis of medical, dental or
psychiatric illnesses, except as set forth in subparagraph (ii) above and in
subparagraph (iii) below, Landlord may lease other space in the Complex, without
the prior consent of Tenant, to any tenant operating a business or establishment
in accordance with the uses permitted by the applicable municipal zoning
ordinance.
(iii) Landlord shall be permitted to lease space in the Complex to a
business establishment involved in the preparation, dispensation or consumption
of food and beverages, as long as a separate HVAC system services the premises.
In addition, no live entertainment except for incidental music shall be
permitted on the premises. If such an establishment occupies any portion of the
Complex as a tenant, Landlord agrees to take sole responsibility to insure that
such establishment will be operated in a manner such that malodorous fumes shall
not become a nuisance to Tenant, (c) Landlord hereby assigns twenty (20)
designated parking spaces in the Building's parking lot ("the General Parking
Area"), as set forth in Exhibit B attached hereto, for the exclusive use of
Tenant, and Tenant's employees and business invitees. Landlord shall
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<PAGE>
provide the appropriate painted markings on each parking space indicating that
the spaces are provide the appropriate painted marking reserved for Tenant, the
use of parking spaces assigned to Tenant shall be subject to such reasonable
rules and regulations as may be established by Landlord and of which Tenant is
notified in advance in writing, including all signs and notices posted by
Landlord in the parking area or roadways leading thereto. In addition, Tenant
shall also have the right to use all undesignated parking spaces in common with
all other tenants, their employees and business invitees.
(d) Intentionally Omitted.
(e) Intentionally Omitted.
4. Basic Rent, Additional Rent.
(a) The Tenant shall pre-pay through December 31, 1999 and monthly
thereafter until May 31, 2000, as its basic rent during the preliminary term, a
sum equal to one- half of the rent owed by Summit Bank, including increases,
pursuant to a Lease between the Landlord and United Jersey Bank/Central N.A.,
dated November 21, 1989. Commencing June 1, 2000, the Tenant shall pay
$67,056.00 per year based on $18.00 per square foot on the 3,612 gross square
feet of interior space and the sum of $6.00 per square foot on the 340 gross
square feet of canopy space (hereinafter referred to as "Rent" or "Basic Rent")
payable in advance to Landlord in equal monthly installments on the first day of
each calendar month during the term. Basic Rent for any period of less than one
month shall be apportioned based on the number of days in that month. For
purposes of this Lease, the term "Basic Rent" shall be deemed to be the rent
paid during the initial one (1) year period of this Lease, or the rent paid in
any succeeding one (1) year period as the same may be hereinafter adjusted in
accordance with subparagraph (b)(i) below. Commencing June 1, 2001, the rent
shall
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<PAGE>
be increased to $19.00 per square foot of interior space and $6.33 per square
foot of canopy space. Upon termination, the Landlord shall keep all monies paid
during the preliminary term and neither party shall have any further liability
to the other.
(b) Tenant agrees to pay to Landlord during each successive one (1)
year period of the Initial Term of this Lease (and for each year of any renewal
term if Tenant exercises its option to extend the Initial Term as set forth in
Paragraph 24 of this Lease) Basic Rent as provided in subparagraph (a) for the
immediately preceding one (1) year period, all additional rent and any other
impositions or charges due under this Lease, plus an adjustment in the Basic
Rent equal to four (4%) percent of Basic Rent. (c) Tenant shall pay Basic Rent
and any additional rent ("Additional Rent") as hereinafter provided to Landlord
at Landlord's above stated address of or at such other place as Landlord may
designate in writing, without demand and without any abatement, counterclaim,
deduction or setoff whatsoever except as provided herein, (Basic Rent and
Additional Rent are sometimes hereinafter collectively referred to as "Rent")
Any demand, voucher or invoice from Landlord to Tenant for the payment of
Additional Rent claimed to be due from Tenant under the terms of this Lease
shall include such information and documentation as is reasonably necessary for
Tenant to verify the amounts so claimed. 5. Commencement of Rent. Tenant shall
commence paying Rent on the Commencement Date. The Commencement Date shall be
the earlier of (I) sixty (60) days after Landlord delivers the Leased Premises
to Tenant for commencement of Tenant's leasehold improvements (provided that at
the expiration of such period a certificate of occupancy or temporary
certificate of occupancy has been obtained for the Leased Premises) or (II)
Tenant's
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<PAGE>
occupancy of the Leased Premises for any purpose other than construction of
Tenant's leasehold improvements. The parties shall execute a memorandum in
recordable form memorializing the date of the Commencement Date once such date
has been established. 6. Services to Be Rendered By Landlord. (a) Landlord, at
its expense, shall furnish adequate water to the building for drinking,
lavatory, fire protection and cleaning purposes. (b) Landlord represents that
sanitary sewer, water, electric and (if applicable) natural gas, of sufficient
capacity to meet the normal demands of Tenant's permitted uses, are currently
available to the demised premises. Neither Landlord nor any of its agents or
employees has knowledge of any statute, regulation, rule, administrative or
court order or similar restriction adversely affecting Tenant's ability to
connect to or use any or all of such utilities. (c) Tenant may (but shall not be
obligated to) erect a sign or signs in or on the interior or exterior of the
Leased Premises, the Building, the complex or the Building Parcel identifying
Tenant and/or Tenant's activities and services offered at the Leased Premises,
provided: (1) The number, size, location, material and installation of all such
signs comply with all applicable governmental requirements (unless Tenant has
obtained a valid variance from or waiver of such requirement); and (2) Tenant
obtains Landlord's prior written consent to the erection of such sign(s), which
consent will not be unreasonably withheld or delayed.
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<PAGE>
All signs so erected shall remain the personal property of Tenant and
Tenant may (but shall not be required to) remove them following the expiration
or prior termination of this Lease, Tenant shall, however, repair any damage
caused by such removal.
Subject to subparagraph (1) herein and subject to subparagraph (2) as
to location only, Landlord and Tenant agree that Tenant shall be permitted to
erect a freestanding illuminated sign on Quakerbridge Road and a freestanding
illuminated sign on Lawrence Square Boulevard South
(d) Landlord represents and warrants that there is no asbestos in the
Building.
7. Repairs and Maintenance.
(a) Landlord agrees that at the time the Leased Premises are delivered
to the Tenant for commencement of Tenant's leasehold improvements, the Leased
Premises will be in compliance with all applicable statutes, regulations, rules,
codes, ordinances, orders, judgments and other legal requirements,
(b) Tenant shall take good care of the Leased Premises and any and all
fixtures therein, and shall quit and surrender the Leased Premises in broom
clean condition,
(c) Landlord shall be responsible for the maintenance, repair and
replacement, if necessary, of the roof and all structural and mechanical systems
of the Building during the Tenn portions of the Lease, except as set forth
hereafter. Tenant shall be responsible for the normal maintenance and repair of
the HVAC system and plumbing system which services the Leased Premises, except
that Landlord shall be responsible for all costs beyond the normal repair and
maintenance, including, but not limited to replacement of the HVAC system, as
long as Tenant has met its repair and maintenance responsibilities, Landlord
shall assign to Tenant all warranties issued to Landlord on the HVAC system.
- 7 -
<PAGE>
(d) Tenant shall make no alterations, changes, additions or
improvements in the Leased Premises without the written consent of Landlord,
which consent shall not be unreasonably withheld or delayed.
(e) All alterations, additions and improvements made by either party
upon the Leased Premises shall become the property of Landlord and shall remain
upon and be surrendered with the Leased Premises as part thereof at the
expiration or termination of the Lease; except that at such expiration or
termination, Tenant shall have the right to remove and retain as Tenant's own
property any additions or improvements made by the Tenant or at Tenant's sole
expense, except for carpeting, provided that Tenant shall repair any damage
caused by such removal.
(f) Tenant shall, before making any alterations, additions,
installations, or improvements, at its expense, obtain all permits, approvals
and certificates required by any governmental or quasi-governmental bodies and
(upon completion) certificates of final approval thereof and shall deliver
promptly duplicates of all such permits, approvals and certificates to Landlord.
Tenant agrees to carry and will cause Tenant's contractors and subcontractors to
carry such Worker's Compensation, general liability, personal and property
damage insurance as Landlord reasonably may require in connection with such
construction activities. If any mechanic's lien is filed against the Building or
Leased Premises, for work claimed to have been done for, or materials furnished
to, Tenant, whether or not done pursuant to this paragraph, such lien shall be
discharged by Tenant within thirty (30) days thereafter at Tenant's expense by
filing the bond required by law or in such other manner as may be satisfactory
to Landlord.
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<PAGE>
8. Electricity. Tenant shall, at Tenant's expense, pay directly to the
appropriate utility the charges for gas, electric and water services for the
Leased Premises, for as long as these expenses are separately metered. Landlord
shall, at Landlord's cost and expense, provide separate meters to the Leased
Premises for such services.
9. Tax and Operating Expense Adjustment.
(a) In addition to Basic Rent as provided in Paragraph 4 of this Lease,
Tenant shall pay to Landlord Tenant's proportionate share of Real Estate Taxes
which are assessed against the Building as defined in subparagraph (c) below
plus Tenant's proportionate share of Operating Expenses, as defined in
subparagraph (b),below. Tenant's proportionate share of such costs shall be
based upon the ratio that the total floor space of the Leased Premises bears to
the total rentable area of the Building.
(b) "Operating Expenses" as used herein shall mean Landlord's direct
cost and expenses of operation and maintenance of the Building and the Complex
as defined in Paragraph 1 hereof and the surrounding walks, driveways, parking
areas and landscaped areas adjacent thereto, in accordance with generally
accepted accounting principle or other generally recognized and accepted
accounting practices, consistently applied, including by way of illustration and
not limitation: maintenance and maintenance personnel (including snow removal),
wages and related employee benefits of Landlord's management personnel, repairs,
landscaping, common area utilities (including gas, water, electric and
sewerage), sewerage for the Complex and insurance (excluding mortgage payment or
similar credit insurance). In addition, Tenant shall pay to Landlord a
management fee equal to four (4%) percent of the Basic Rent described in this
paragraph, Landlord's operating expenses shall not, however, include the
following: capital
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<PAGE>
improvements, restoration and repair costs covered by insurance proceeds,
Tenant's installations, Landlord's improvements in connection with Landlord's
initial construction for Tenant as set forth in this lease, preparing space for
any new Tenant, depreciation, real estate brokerage and lease commissions,
principal and interest payments on any mortgage or similar encumbrances, rental
under any ground or underlying lease, franchise or income taxes of Landlord, the
costs of electricity furnished directly to Tenant and any other tenants of the
Building which are separately metered, the cost of any work or service performed
for or facilities furnished to a tenant for the account of such tenant and, in
general, any other costs and expenses which would not, under generally accepted
accounting principles, be regarded as operating and maintenance costs expenses.
In addition, in no event shall operating Expenses include any assessment
relating to transportation development districts or similar charges assessed
against real estate owners or developers in connection with transportation
improvements.
(c) "Real Estate Taxes" shall in addition to municipal real property
taxes (or any other tax hereafter enacted as a substitute or replacement
therefor or any part thereof) also include sewer rents and any special, ordinary
or extraordinary assessments and governmental levies against the Complex, the
Building or Leased Premises. Real Estate Taxes shall be the actual annual tax
billed for the Complex in which the Leased Premises are located. In addition,
Tenant shall not be responsible to Landlord for any amounts associated with
assessments, impositions or taxes made, levied or assessed against or imposed
upon improvements in, on or about the Complex in which the Leased Premises are
located unless those improvements are made by or on behalf of Tenant or are for
the improvement and benefit of such Complex as a whole and not for the benefit
of other individual tenants. Furthermore, Tenant shall not be
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<PAGE>
responsible to Landlord for any amounts assessed against the complex, the
Building, the Leased Premises, the Common Areas or any portion thereof to the
extent that the same are attributable to any time period prior to the
Commencement Date or subsequent to the end of the Term.
(d) Additional Rent due to Landlord under this Lease shall be paid
within thirty (30) days after receipt by Tenant of a statement showing the
computation of the amount due to Landlord. Landlord shall make available its
records and reasonable detail supporting the items referred to in such statement
for at least sixty (60) days after submission thereof, for examination at
reasonable times by Tenant and its authorized representative.
(e) It is intended that if real estate taxes increase more than ten
(10%) percent in any particular year, Landlord will appeal same and pass on any
savings to Tenant, If Landlord does not take such an appeal, Tenant may do so at
its expense on behalf of the Landlord. Any savings won by the Tenant shall be
shared after first deducting the reasonable cost to Tenant of such appeal, with
the other tenants in the Building, however, in proportion to each tenant's
percentage of the Building.
10. Assignment and Subletting. Tenant may assign this Lease to any
party subject to the consent of the Landlord, which consent shall not be
unreasonably withheld.
11. Requirements of Law
(a) Tenant shall give prompt notice to Landlord of any notice it
receives of the violation of any law or requirement of public authority, or from
the Bureau of Fire Safety,
(b) Landlord represents that as of the date of execution of this Lease
neither it nor its agents or employees have received notice or are aware of (1)
any building, code violation or any other violation in respect of the demised
premises or the building of which the
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demised premises are a part (the "Building") or the land; or (2) any pending or
threatened eminent domain proceedings or proceedings in the nature or in lieu
thereof. Landlord further represents that the permitted use under this Lease is
permitted by applicable zoning and other land use requirements.
(c) Tenant, at its own cost and expense, shall promptly execute and
comply with any statutes, ordinances rules, orders, regulations and requirements
of the Federal, state, or Municipal government, and of any of their departments
or bureaus, which may be applicable to the Leased Premises by reason of any act
or conduct on the part of the Tenant or by reason of the character of its
occupancy of the Leased Premises; and Tenant shall promptly correct and abate
any such violation caused by its acts, at its own cost and expense. Tenant shall
also promptly comply with the provisions of the Uniform Fire Safety Act,
N.J.S.A, 52:27D-192 et seq., for the prevention of fires or the risk thereof
where such regulations are made applicable by any act or conduct of the Tenant,
or by the character of its occupancy of the Leased Premises. Landlord represents
that at the time of delivery of the Leased Premises to Tenant, the Leased
Premises shall be in compliance with all such statutes, ordinances, rules,
orders, regulations and requirements.
(d) In the event that Tenant shall fail or neglect to do or perform any
of the matters required by this paragraph, then Landlord or its agents after
notice to the Tenant as prescribed in Paragraph 16 of this Lease, and after
Tenant's failing to remedy such failure or neglect within the time periods set
forth in Paragraph 16 hereof, and subject to Paragraph 21 hereof, may enter the
Leased Premises, and comply with any and all of said statutes, ordinances,
rules, orders, regulations or requirements at the cost and expense of Tenant,
and in case of
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Tenant's failure to pay therefor, the cost and expense thereof shall be due and
payable within thirty (30) days following Landlord's written demand therefor, in
addition to any other remedy Landlord may have hereunder by reason of such
default on the part of Tenant.
(e) Tenant shall not do or suffer anything to be done on the Leased
Premises which will increase the rate of fire insurance on the Building.
12. Limitation of Liability.
(a) Landlord shall not be held responsible for and is hereby expressly
relieved from any and all liability by reason of any injury, loss, or damage to
any person or property in the Leased Premises due to any cause whatsoever and
whether the loss, injury or damage be to the person or property of Tenant or any
other person, and whether or not occurring before or after the execution of this
Lease. Tenant further agrees to indemnify, defend and save Landlord harmless
from and against all claims made on account of such injury, loss or damage,
including but not limited to reasonable attorneys' fees and other legal
expenses.
(b) Tenant shall not be held responsible for and is hereby expressly
relieved from any and all liability by reason of any injury, loss or damage to
any person or property in or about any part of the Building or the commercial
complex of which the Building is a part (including but not limited to common
areas and parking, areas) ("Complex") other than the Leased Premises due to any
cause whatsoever and whether the loss, injury or damage be to the person or
property of Landlord or any other person, and whether or not occurring before or
after the execution of this Lease. Landlord further agrees to indemnify, defend
and save Tenant harmless from and against all claims made on account of such
injury, loss or damage, including but not limited to reasonable attorneys' fees
and other legal expenses.
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(c) No (i) exculpation from or limitation of liability on the
part of the Landlord or Tenant, or their respective employees servants, agents,
guests, invitees, contractors, subcontractors, licensees, successors or assigns,
or (ii) indemnification by Landlord or Tenant in favor of the other and/or their
respective employees, servants, agents, guests, invitees, contractors,
subcontractors, licensees, successors or assigns shall be effective to the
extent that the loss, cost, expense, damage, claim or occurrence in connection
with which the benefit of such exculpation or indemnification is claimed is
attributable to the negligence or willful misconduct of the party claiming such
benefit.
(d) Landlord and Tenant each hereby releases the other, to the
extent of the releasing party's actual recovery under its insurance policies,
from any and all liability for any loss, damage or injury which may be inflicted
upon its respective property or to persons for which Tenant or Landlord is
insured, even if such lose, damage, or injury shall be brought about by the
fault or negligence of the other, its agents or employees; provided however,
that this release shall be effective only with respect to loss or damage
occurring during such time an the appropriate policy of insurance shall contain
a clause to the effect that this release shall not adversely affect such policy
or impair the right of the insured to recover thereunder. Landlord and Tenant
agree to obtain endorsements to their respective insurance policies permitting
such a waiver of subrogation and to pay the amount of any additional premium
charges for such endorsement to their respective policies,
13. Insurance.
(a) Tenant, at Tenant's sole cost and expense, shall maintain
and keep in effect throughout the term of this Lease:
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(i) Insurance against loss or damage to the Leased
Premises and all Tenant's improvements upon the Leased Premises, as well as
Tenant's trade fixtures and other contents of the Leased Premises, by fire with
extended coverage and such other casualties as customarily are included in all
risk insurance generally carried by businesses for similar properties and
permitted uses (including without limitation coverage against loss or damage by
vandalism, malicious mischief and water damage), in an amount at least equal to
the full insurable value thereof.
(ii) Insurance against loss or liability in
connection with bodily injury or death or property damage in or upon the Leased
Premises, under policies or comprehensive general public liability insurance
(with contractual liability endorsement and workers compensation insurance) with
such limits as to each as may be reasonably required by Landlord from time to
time but not less than $1,000,000 combined single limit for bodily injury or
death or property damage.
(b) All policies shall add Landlord as an additional insured (except as
to contents). The insurance coverage required under subparagraph (a)(i) above
shall contain standard mortgagee endorsements in favor of any mortgage
designated in writing by Landlord. All such policies (except Worker's
Compensation) shall provide that the insurance carrier shall not cancel the
coverage unless the carrier notifies Landlord and any mortgagee so designated by
Landlord under the preceding sentence at least thirty (30) days prior to the
effective date of such cancellation. Tenant shall deliver certificates of
insurance evidencing the insurance coverages referred to above. (c) If the
foregoing insurance expires, is canceled, or becomes void or voidable in whole
or in part by reason of Tenant's breach of any condition thereof, Tenant shall
place new insurance on the Leased Premises reasonably satisfactory to Landlord.
The renewal certificates of insurance shall be delivered to Landlord promptly
after they become available from the carrier or its agent.
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(d) In the event of loss (except for a loss relating solely to
the contents of the Leased Premises), Tenant will promptly notify Landlord
thereof in writing, Landlord may make, but is not obligated to make, proof of
loss if not made promptly by Tenant (except for a loss relating solely to the
contents of the Leased Premises); provided, however, that any adjustment of a
proof of lose in respect of a claim for more than $100,000 shall require the
prior written consent of Landlord, which consent shall not be unreasonably
withheld or delayed.
(e) Landlord shall maintain appropriate insurance coverages in
respect of the Building, the parking areas and other areas in the Complex (but
in any event coverage of not less than the full replacement cost of the
Building) and will provide Tenant with certificates of insurance evidencing such
coverage from time to time.
14. Damage, Fire or Other Casualty.
(a) In case of any damage to or destruction of the Leased
Premises or any part thereof, Tenant shall promptly give written notice thereof
to Landlord.
(b) In case of the destruction of the Leased Premises or the
Building, by fire or other casualty during the term of this Lease, or such
partial destruction or damage thereto so as to render the Leased Premises wholly
untenantable or unusable or unfit for the normal operations of the Tenant, or
should the Leased Premises be so badly injured that the same cannot be repaired,
in the reasonable opinion of Landlord's architect, within one hundred twenty
(120) days from the occurrence of such damage, then and in any such case the
term hereby created shall cease and become null and void from the date of such
damage or destruction and Tenant shall surrender the Leased Premises and all
interest therein to Landlord, and Tenant shall pay the basic rent and additional
rent only to the time of such destruction or damage, and in case of such
destruction or partial destruction of the Building by fire or other casualty,
Landlord may re-enter and repossess the Leased Premises discharged from this
Lease, provided however that Tenant shall have a reasonable opportunity to
remove Tenant or Customer property.
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(c) In case of damage to the Leased Premises, the Building or
any part thereof which can, in the reasonable opinion of Landlord's architect,
be repaired within one hundred twenty (120) days from the occurrence thereof,
Landlord shall enter and restore the Leased Premises or the Building with all
reasonable speed to substantially their condition prior to such occurrence, but
in any event within such one hundred twenty (120) day period. Tenant shall be
entitled to reasonable assurances of such timely completion including, but not
limited to, a cost estimate and completion schedule prepared by such Architect.
From the date of such damage and until repairs shall have been completed the
rent and additional rent or other similar charges (if any reserved in this
Lease), or such proportionate share thereof as may be attributable to the
portion damaged, destroyed or rendered unusable or unfit in whole or part shall
be abated.
(d) In the event the Leased Premises shall be so slightly injured by
fire or other casualty as not to be rendered untenantable or unusable or unfit
for the normal operations of Tenant, then Landlord agrees to repair the same
promptly, and in that case the basic rent and additional rent accrued and
accruing shall not cease but shall continue without abatement.
15. Quiet Enjoyment. The Landlord covenants and agrees that the Tenant,
upon payment of the Basic Rent and Additional Rent or other similar charges (if
any) reserved herein and upon observing and keeping the covenants, agreements
and stipulations of this Lease on its part to be kept, shall lawfully, peaceably
and quietly hold, occupy and enjoy the Leased of this lease and any extension or
extensions thereof, without hindrance, Premises during the term in ejection or
molestation by Landlord or any person or persons claiming under Landlord or
claiming by a title superior to that of Landlord.
16. Defaults and Remedies.
(a) Each of the following shall be a default by Tenant under this
Lease:
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(i) Any failure on the part of Tenant to pay any installment of Basic
Rent or Additional Rent or any other payment required under this Lease on the
date when such payment shall fall due.
(ii) Any failure on the part of Tenant to observe or perform any of the
other terms, covenants or conditions of this Lease.
(iii) If Tenant becomes insolvent, admits in writing the inability to
pay debts as they become due, is adjudged bankrupt (by way of voluntary or
involuntary petition) under the Federal Bankruptcy Act as now in effect or
hereafter amended, seeks reorganization or similar arrangement or relief under
the Federal Bankruptcy Act, or makes an assignment for the benefit of creditors,
or if a receiver or trustee is appointed in connection with any of the foregoing
or similar proceedings.
(iv) The dissolution or liquidation or commencement of an action for
dissolution or liquidation, of the Tenant. Notwithstanding anything to the
contrary contained in this Lease, anything or act which would otherwise be a
default by Tenant hereunder or would entitle Landlord to any remedy hereunder
shall not be a default and Landlord shall not be entitled to such remedy unless,
with respect to a breach of the nature described in subparagraph (a)(i) above,
Tenant shall have failed to cure the same within ten (10) days after receipt of
written notice thereof given by Landlord to Tenant or if with respect to any
other breach by Tenant under this Lease, Landlord shall have given Tenant
written notice of such written notice of such breach and Tenant shall have
failed to cure the same within thirty (30) days after receipt of such written
notice or, if the breach is of such a nature that it cannot with due diligence
be cured within thirty (30) days, Tenant shall have failed to commence curing
such breach within such thirty (30) day period and to proceed with due diligence
and in good faith to complete the curing thereof. This paragraph shall not apply
to any defaults under subparagraph (a)(iii) or (iv) above.
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(b) In the event of any default by Tenant, Landlord, at any
time after the expiration of applicable notice and cure periods, may exercise
any one or more of the following remedies:
(i) Landlord may give Tenant ten (10) days written notice of its
intention to cancel and terminate this Lease and after the expiration of such
ten (10) day period, this Lease shall be canceled and terminated, and the Tenant
will then peaceably quit and surrender the Leased Premises to the Landlord, but
Tenant shall remain liable as provided below.
(ii) Landlord may declare the entire remaining rent and additional rent
for the then current term of this Lease, and all other sums payable by Tenant
under this Lease, immediately due and payable, together with interest thereon at
the annual rate of four percent (4%) above the announced "base" rate of United
Jersey Bank, Hackensack, New Jersey, until all such sums are actually paid to
Landlord.
(iii) Landlord may, with or without terminating this Lease, re-enter
the Leased Premises and dispossess Tenant by appropriate legal proceedings.
(iv) Landlord may, with or without terminating this Lease, relet the
Leased Premises or any part thereof, upon such commercially reasonable terms and
conditions as the Landlord may deem appropriate, and may grant commercially
reasonable concessions in connection with such reletting, without in any way
affecting Tenant's liability for the rental or any other sums payable hereunder.
The entire net proceeds of any such reletting shall be credited against Tenant's
then-outstanding obligations under this Lease. As used herein, the term "net
proceeds" shall mean the full amount of rent and all other charges paid to
Landlord by all succeeding tenants of all or any portion of the Leased Premises,
less those actual and reasonable expenses described in subparagraph (c) below.
Landlord shall in no event be liable and Tenant's liability shall not be
affected or diminished in any way whatsoever for the failure to relet the Leased
Premises, or in the event that the Leased Premises are relet, for failure to
collect the rent thereof under such reletting, provided, however that Landlord
shall use its
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best efforts to mitigate any damages otherwise recoverable against Tenant by
reletting the Leased Premises and collecting, the rent in connection therewith.
(v) Landlord shall have the right of injunction and the right to invoke
any remedy allowed at law or in equity whether or not specifically mentioned in
this Lease. Mention in this Lease of any particular remedy shall not preclude
Landlord or Tenant from any other remedy, in law or in equity, it being the
intent hereof that Landlord's and Tenant's respective remedies under this Lease
shall be cumulative and not exclusive.
(vi) Landlord shall not (whether by self-help or with the assistance of
a sheriff, constable or other official) distrain Tenant's personal property
(whether or not such property is within the scope of subparagraph 16(c) below)
in the absence of a valid court order authorizing such distraint, issued
following prior notice to Tenant and a hearing, in which Tenant has had the
opportunity to be heard, before the court issuing such order.
(c) Anything in this Lease to the contrary notwithstanding, all
furniture, inventory, fixtures and equipment ("Equipment") which are owned or
leased by Tenant or are being purchased by Tenant pursuant to an installment
sales contract shall remain personal property and Landlord waives and releases
any and all right of distraint, levy or execution against any such furniture,
inventory or equipment for rent or other sums due or to become due Landlord
under this Lease and all claims and demands against the Equipment, but only to
the extent such Equipment is pledged as a security or collateral to any
Equipment lessor or lender or other secured party. Landlord further agrees that
any Equipment lessor or lender or other secured party with respect to any of the
Equipment may, in any manner permitted by law, enter the Leased Premises to
remove the Equipment or any item thereof to which it or they have any legal or
equitable interest provided that any damage to the Leased Premises or the
Building caused by such removal shall be the responsibility of Tenant or such
Equipment lessor, lender or other secured party.
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(d) Notwithstanding any other provisions contained in this
lease, in the event (a) Lessee or its successors or assignees shall become
insolvent or bankrupt, or if it or their interests under this Lease shall be
levied upon or sold under execution or other legal process, or (b) the
depository institution then operating on the Premises is closed, or is taken
over by any depository institution supervisory authority, ("Authority"), Lessor
may, in either such event, terminate this Lease only with the concurrence of any
Receiver or Liquidator appointed by such Authority; provided, that in the event
this Lease is terminated by the Receiver or Liquidator, the maximum claim of
Lessor for rent, damages, or indemnity for injury resulting from the
termination, rejection, or abandonment of the unexpired Lease shall in no event
be greater than an amount equal to all accrued and unpaid rent to the date of
termination.
(e) In the case of any default, re-entry, expiration or
dispossession by summary dispossess proceedings or otherwise under this Lease,
Landlord also may recover such reasonable costs and expenses as Landlord may
incur in connection therewith, including without limitation costs of suit and
reasonable attorneys' fees, including those incident to the recovery of
possession, brokerage fees, and costs and expenses of putting the Leased
Premises in good order and repair or for preparing the same for re- rental,
provided that the making by the Landlord of any such expenditures for putting
the Leased Premises in good order and repair shall not operate or be construed
as a release of Tenant from liability hereunder.
(f) Notwithstanding anything contained herein to the contrary,
any action taken by Landlord under this Paragraph 16 shall not operate as a
waiver of any right which the Landlord would otherwise have against Tenant for
rent hereby reserved or otherwise, and Tenant shall remain responsible to
Landlord for any loss or damage suffered by Landlord by reason of Tenant's
default or breach under this Lease. The words "re-enter" and "re-entry" as used
in this Lease are not restricted to their technical legal meaning.
17. Continuing Default of Tenant. In the event Tenant shall fail,
refuse or neglect to perform any of the covenants or agreements contained herein
beyond the applicable grace and/or cure periods
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following notice, Landlord may perform the same for the account of Tenant. Any
amount paid or expense or liability reasonably incurred by Landlord in the
performance of any such matter for the account of Tenant, including reasonable
attorneys, fees, shall be deemed to be additional rent hereunder and the same
(together with interest thereon as the rate specified in Paragraph 16(b)(ii)
from the date of Landlord's demand following the expiration of such periods)
shall be repaid by Tenant to Landlord upon demand therefor by Landlord.
Nothing contained herein shall be construed to postpone the right of
Landlord immediately upon extending such sums to collect such sums with interest
by action or otherwise.
18. Landlord Default.
(a) If Landlord defaults in the observance or performance of
any term or covenant required to be performed by it under this Lease, Tenant,
after not less than thirty (30) days notice to Landlord (unless such default
results in an imminent risk of harm to persons or property, in which event no
such notice shall be required):
(i) may, but shall not be obligated to, remedy such default and in
connection therewith may pay expenses and employ counsel, provided that Tenant
shall have the right to remedy such default without notice In the event of an
emergency, All sums expended or obligations incurred by Tenant in connection
therewith (including but not limited to reasonable attorney's fees) shall be
paid by Landlord to Tenant upon ten (10) days demand, and if Landlord falls to
reimburse Tenant, Tenant may, in addition to any other right or remedy that
Tenant may have, deduct such amount from subsequent installments of Basic Rent
or Additional Rent which from time to time thereafter become due to Landlord,
(ii) may elect to terminate this Lease (in the event Landlord's default results
in a material interference of Tenant's business operation) upon giving, at least
thirty (30) days notice to Landlord of its intention so to dot in which event
this Lease shall terminate upon the date fixed in such notice, unless Landlord
shall have meanwhile cured such default (or, if such default is
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not susceptible of cure within such thirty (30) day period, Landlord has
provided Tenant with adequate assurance that such cure will be accomplished
promptly, has in fact commenced such cure and thereafter diligently pursues such
cure to completion).
(iii) may commence an action in the Superior Court of New Jersey
seeking to compel Landlord to perform its obligations hereunder.
(b) Tenant may exercise any of the foregoing remedies singly or
concurrently and without prejudice to the future exercise of any remaining
available remedies.
(c) Anything in this Lease to the contrary notwithstanding, Tenant
agrees that it will not terminate this Lease or withhold any rentals due
hereunder because of Landlord's default in performance hereof until the Tenant
has first given written notice to the holders of any existing mortgages or
installment sale agreements covering the Building of whose respective interests
in the Leased Premises Tenant first has been advised in writing (which as of the
date hereof are identified on Schedule E, which shall be amended by Landlord
when appropriate from time to time by written notice to Tenant) specifying the
nature of the default by Landlord and allowing Landlord and such holders, or any
of them, thirty (30) days after the date of such notice to cure such default. If
circumstances are such that such default cannot reasonably be cured within that
thirty (30) day period, Tenant shall allow a reasonable period of time to
complete such cure provided that such parties commence such cure within the
original thirty (30) day period and diligently pursue such cure to completion.
19. Subordination. With respect to each existing or future mortgage or lease
which purports to be senior in lien or obligation to this Lease or to which
Tenant is being required to subordinate this Lease, Tenant's acknowledgment and
consent to the seniority of such instrument is conditioned on (1) the absence
from such instrument of obligations purporting to be binding on Tenant that are
in excess of those herein assumed by Tenant and (2) the existence in the
applicable instrument or an executed nondisturbance and attornment agreement
from the mortgagee(s) and/or underlying lessor(s), as the case
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may be, of a covenant to the effect that so long as Tenant is not in default
under this Lease beyond the applicable grace and cure periods, no foreclosure or
enforcement of any other remedy under such instrument shall divest, impair,
modify, abrogate or otherwise adversely affect any interest or rights whatsoever
of the Tenant under this Lease. Landlord shall use its best efforts to obtain a
nondisturbance and attornment agreement substantially in the form attached as
Exhibit G in form reasonably satisfactory to Tenant from all mortgagees and
underlying lessors with respect to the premises within thirty (30) days
following the execution of this Lease.
20. Condemnation.
(a) If the whole of the Building or Leased Premises shall be taken
under the exercise of the power of condemnation or eminent domain, then this
Lease shall automatically terminate on the date that possession is taken by the
condemnor and the rent shall be apportioned as of said date. Landlord agrees to
indemnify and save Tenant harmless from any claim which the condemnor may make
or assert with respect to Tenant's continued use and occupancy of the Leased
Premises for the period from the date the condemnor takes title to the date the
condemnor takes possession, provided, however, that Landlord's indemnity
pursuant to this Paragraph 20(a) shall be limited to the square foot rental set
forth at Paragraph 4 above. If any part of the Building or Leased Premises or
access to either be so taken so as to materially restrict, limit or adversely
affect the intended use,, occupancy or enjoyment of Tenant, then Tenant shall
have the option to terminate this Lease by thirty (30) days written notice to
the Landlord, which notice must be given within ninety (90) days after
possession on the partial taking Is obtained by condemnor, but in any event
Tenant shall have not less than seventy-five (75) days after receipt by Tenant
of notice from Landlord as to the occurrence of such taking to exercise such
option to terminate, and the rent shall be apportioned on the effective date of
termination of the lease by Tenant, Notwithstanding the foregoing, if parking
space only is taken, Tenant may not terminate this lease if Landlord furnishes
to
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Tenant an equivalent number of parking spaces situated in reasonable distance of
the property lines of the real property on which the Leased Premises are
situated.
(b) If there shall be a taking and this Lease shall not
terminate or be terminated under the provisions of Paragraph 20(a) hereof, then
the rental shall be equitably apportioned according to the space so taken, and
the Landlord shall, at its own cost and expense, restore the remaining- portion
of the Leased Premises and/or the Building, as the case may be, and access to
the extent necessary to render it reasonably suitable for the purposes for which
it was leased, shall provide sufficient parking- facilities equivalent to those
originally furnished to Tenant, and shall make all repairs to the building- in
which the Leased Premises is located to the extent necessary to constitute the
Building, a complete architectural unit, provided, however, that if the amount
of the award received by Landlord is not adequate to cover the cost of such
restoration or repairing, Landlord may elect by written notice to Tenant to that
effect to terminate this Lease.
(c) In the event of the exercise of the power of condemnation
or eminent domain by any public body, by which the Leased Premises or any
portion thereof or interest therein is taken for a public purpose any portion of
any award of compensation or damages which either: (1) is attributable to the
taking of or damage to any personal property of or leasehold improvements
constructed by or on the account of Tenant; or (2) represents payment or
reimbursement of Tenant's relocation costs; or (3) represents payment or
reimbursement of any other cost, damage or expense suffered by Tenant as a
result of such exercise, (other than the diminution in or destruction of the
value of Tenant's leasehold interest in the demised premises) shall be the
exclusive property of and shall be payable solely to Tenant. Tenant shall have
all rights available under applicable law to contest the validity of any such
exercise as to Tenant's personal property or as to the sufficiency of any award
of compensation or damages to which Tenant is exclusively entitled pursuant to
subparagraphs (1) through (3) above.
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21. Access. Subject to Tenant's reasonable security requirements and
upon reasonable prior notice to Tenant's agent in charge at the Leased Premises,
the Landlord or Landlord's agent or employees shall have the right, upon request
to enter or pass through-h the Leased Premises or any part thereof during normal
business hours or other reasonable times, (a) to examine the Leased Premises and
to show them to the owners, lessors of superior leases, holders of superior
mortgages or prospective purchasers, mortgagees or lessees of the Building, or
the Leased Premises, and (b) for the purpose of making such repairs or changes
or doing such repainting in or to the Leased Premises or in or to the Building
or to facilities as may be provided for by this Lease or as may be mutually
agreed upon by the parties or as Landlord may be required to make by law or in
order to prepare and maintain the Building or its fixtures or facilities or in
order to satisfy any obligation imposed on Landlord to any other tenant
occupying or about to occupy part of the Building. Landlord shall be allowed to
take all material into and from the Leased Premises that may be required for
such repairs, changes, repainting or maintenance, provided, however, that
Landlord shall repair any damage caused by Landlord, its agents or employees.
Landlord shall use best efforts to minimize the disruption of Tenant's normal
operations caused by such activities. In case of emergency, no notice from
Landlord shall be required prior to entering the Leased Premises to make
emergency repairs or to take such other appropriate action in response to such
emergency. In such case, however, Landlord shall give verbal notice of
Landlord's entry as soon as possible thereafter.
22. Tenant's Estoppel Certificate. Tenant shall, from time to time, but
not more than once annually except in the event of a sale of the Building, on
not less than thirty (30) days prior written request by Landlord, execute,
acknowledge and deliver to Landlord a written statement certifying that this
Lease is unmodified and in full force and effect, or that this Lease is in fall
force and effect as modified and listing the instruments of modification; the
dates to which the rents and charges have been paid; and, whether or not to the
best of Tenant's knowledge Landlord is in default hereunder, and if so,
specifying the nature of the default. It is intended that any such statement
delivered pursuant to this
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Paragraph 22 may be relied on by a prospective purchaser of Landlord's interest
or mortgagee of Landlord's interest or assignee of any mortgage of Landlord's
interest.
23. Personal Liability. Notwithstanding anything to the contrary
provided in this Lease, it is specifically understood and agreed, such agreement
being a primary consideration for the execution of this Lease by Landlord, that
there shall be absolutely no personal liability on the part of Landlord, its
successors, assigns or any mortgages in possession (for the purposes of this
paragraph, collectively referred to as "Landlord"), with respect to any of the
terms, covenants and conditions of this Lease, and that Tenant shall look solely
to the equity of Landlord in the Building and the land, for the satisfaction of
each and every remedy of Tenant in the event of any breach by Landlord of any of
the terms, covenants and conditions of this Lease to be performed by Landlord,
and If Landlord is in breach or default with respect to its obligations or
otherwise, Tenant shall look solely to the equity of the Landlord in the real
estate for the satisfaction of Tenant's remedies, It is expressly understood and
agreed that Landlord's liability under the terms, covenants, conditions and
obligations of this Lease shall in no event exceed the loss of its equity in the
real estate. Landlord agrees to maintain not less than a ten (10%) percent
equity position in the land and Building.
24. Option to Extend.
(a) Provided that Tenant shall not be in default of any term,
provision, condition or covenant herein at the time of the exercise of the
option set forth in this Paragraph 24 or at the time said option shall take
effect, Tenant shall have the night to extend the term of this lease for one
(1,) additional period of five (5) years, commencing on the date following, the
termination of the prior term. Said option to extend the Term shall be on the
same terms, conditions, provisions and covenants as are set forth herein, with
the following exceptions:
(i) The annual Rent during each Lease Year of the extended period shall
be as set forth in Paragraph 4 of this Lease.
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(ii) Nothing, contained herein shall be construed to permit or c,rant
any option or extension of the Term beyond the five (5) year period set forth
herein.
(b) The option herein granted to extend the Term shall be exercised by
Tenant by the delivery of written notice thereof to Landlord, not less than six
(6) months prior to the expiration of the Term or the then current renewal term.
In the event that the Tenant shall fall to deliver such notice within such time,
it shall be conclusively deemed to mean that Tenant has elected not to exercise
said option, whereupon said option shall cease and terminate and be of no
further force and effect.
25. Real Estate Broker. Landlord and Tenant each represent to the other
that it has dealt with no real estate broker in connection with this Lease and
Landlord and Tenant agree that if any claims should be made for commissions by
any broker by reason of its acts or acts of its representatives, it will
indemnify and save harmless the other from any and all claims, demands, losses,
liabilities, judgment, costs, expenses, attorney's fees or other damages
resulting from, arising- out of, or in connection therewith. Landlord agrees to
pay the brokerage. omission due in connection with this Lease to the aforesaid
brokers in accordance with the terms and conditions of a separate agreements
entered into or to be entered into between the Landlord and said broker(s).
26. Covenant Performance. The failure of Landlord or Tenant, as the
case may be, to insist in any one or more instances upon strict performance of
any of the covenants, terms or conditions of this Lease, or to exercise any
option herein contained, shall not be construed as a waiver or relinquishment of
any of the covenants, terms or conditions hereof, or the right to exercise such
option, and Landlord or Tenant, as the case may be, shall have the right
thereafter to insist upon strict performance by the other party of any or all of
them, The receipt by Landlord of any rent provided for hereunder with knowledge
of the breach of any covenant hereof shall not be deemed a waiver of such
breach, and no waiver by Landlord or Tenant, as the case may be, of any
provisions hereof shall be deemed to have been made unless expressed in writing
and signed by the party against which such waiver is sought to be
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enforced. The receipt by Landlord of any installment of the rent provided for
hereunder shall not be a waiver of any other sums or additional rent due, nor
shall any endorsement or statement on any check or other instrument operate as a
compromise or accord and satisfaction unless the same is approved In writing by
Landlord.
27. Good Faith Dealing. Whenever in this Lease Landlord may be required
to take certain action(s) on the basis of, or the occurrence or nonoccurrence of
certain events Is dependent upon, whether, in Landlord's opinion, judgment,
determination or similar term, a certain factual situation exists, Landlord
shall act reasonably and in good faith in forming that opinion, judgment, etc.,
it being acknowledged that conditioning the availability of certain remedies or
course of action on Landlord's opinion alone would otherwise subject Tenant to
the unbridled discretion of Landlord. Similarly, where Landlord's approval or
consent is required, Landlord shall not withhold or delay such approval or
consent unreasonably and shall otherwise act in good faith with respect to the
request requiring such approval or consent.
28. Notices. All notices required to be given to the Landlord or Tenant
shall be given by registered or certified mail
(a) addressed to Tenant at the Leased Premises with a copy to:
================================== or
(b) addressed to Landlord at the address first set forth herein (unless
and until notified by either party to send such notices to a different person or
entity). Notices shall be effective only upon receipt by the indicated
addressees.
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29. Environmental Representations and Warranties. Landlord hereby
represents and warrants that, to the best of Landlord's knowledge and belief, as
of the date of execution of this Lease, and throughout the term of this Lease:
(a) All required federal, state and local permits, consents
and approvals concerning or related to environmental protection and regulation
of the Premises, the Building, the Complex and all real property adjacent to the
Building and/or the complex which is owned and/or controlled by Landlord (the
"Land"), have been secured and are current, and shall be maintained.
(b) The Landlord, with regard to the Premises, Building, Land
and Complex, has been, is and shall be in full compliance with such
environmental permits, and all other requirements under all federal, state or
local environmental laws, regulations or ordinances applicable to the Premises
(the "Environmental Laws") including but not limited to the Comprehensive
Environmental Response, Compensation and Liability Act, the Superfund Amendment
and Reauthorization Act, the Environmental Cleanup Responsibility Act, the Spill
Compensation and Control Act, and the Hazardous Discharge Notification Act, as
the same are in effect from time to time.
(c) There are no pending actions against the Landlord, or any
prior tenant located in the Premises with respect to any such tenant's
activities in the Premises, under any environmental law, regulation or
ordinance, and the Landlord has not received notice in any form of such an
action, or of a possible action.
(d) There have not been, nor are there now, nor shall there be
in the future any releases of hazardous substances (as that term is defined in
any of the Environmental Laws) or hazardous substances present in, on, over, at,
from, into or onto any portion of the Premises, the Building, the Land or the
Complex,
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(e) There is no environmental condition contamination,
situation or incident on, at, or concerning the Premises, the Land, the Building
or the Complex, that may give rise to an action or to liability under any law,
rule, ordinance or common law theory.
(f) Landlord shall immediately notify Tenant in the event it
receives: (i) any notices or correspondence from the Environmental Protection
Agency or the New Jersey Department of Environmental Protection concerning the
Premises alleging the presence or release of any hazardous substances or
environmental contaminants in, on, around or under the Premises, the Building or
the Land; or (ii) any information suggesting or demonstrating the release or
presence of any hazardous substances or environmental contaminants in, on,
around or under the Premises, the Building or the Land.
30. Breach of Warranties and Representations.
(a) In the event that Landlord or any agent, employee or
independent contractor hired by Landlord breaches any of the representations or
warranties contained in Paragraph 29, above, or if it is determined that the
Leased Premises is contaminated by hazardous substances as that term is defined
in any of the Environmental Laws, at levels unacceptable to Tenant (in Tenant's
sole judgment), Tenant shall have the right to terminate this Lease by written
notice at any time following such breach by a notice served in the manner and
form required by Paragraph 28 hereof Such termination shall become effective
forty-five (45) days after Landlords receipt of such notice, at which time this
Lease shall be null and void and Tenant shall vacate the Premises.
(b) In the event that Tenant chooses to not terminate this
Lease pursuant to this Paragraph 30, Landlord shall: (i) to the extent required
to cause the Premises to be in compliance with all Environmental Laws, take all
measures required to clean up or remediate any environmental contamination as
determined by the applicable governmental authority (except to the extent caused
by Tenant, its agents, invitees, employees or subcontractors); and (ii)
indemnify, defend, and hold Tenant harmless for all claims, demands, losses,
liabilities, damages or expenses (including reasonable attorneys
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fees) incurred by Tenant as the result of such contamination, notwithstanding
whether or not Landlord had knowledge of such non-compliance and Landlord shall
indemnify, defend, save and hold Tenant harmless for loss, damage, liability or
expenses incurred with respect to such cleanup and environmental contamination.
Without limiting the generality of the foregoing, with respect to any
environmental contamination requiring cleanup occurring prior to the
Commencement Date and which contamination or cleanup delays Tenant's initial
occupancy of the Premises Landlord shall also indemnify and hold harmless Tenant
from the amount by which holdover rents or substitute rental arrangements exceed
the rent which would have been payable for such period under the Lease, lease
cancellation fees and additional moving or storage fees and equipment
rescheduling, delay or cancellation fees incurred as the result of such delay.
In the event any environmental cleanup is necessary and the Premises cannot be
safely and lawfully occupied during such cleanup as the result of the
environmental contamination requiring the cleanup, Tenant shall have the right
to terminate the Lease :If such cleanup is not or cannot be completed to the
extent required to permit the safe and lawful occupancy thereof by Tenant within
six (6) months of the date Landlord receives notice from Tenant or a
governmental authority regarding the environmental contamination requiring
cleanup.
31. Environmental Indemnification. Landlord hereby indemnities and
holds harmless (and shall, at Tenant's option, defend) Tenant, its employees
agents, guests, visitors and invitees, and Tenant's tenants or subtenants and
their employees, agents, guests, visitors and invitees, from and against any and
all cost, expense (including without limitation reasonable attorneys and
environmental consultants fees), loss, damage or liability arising directly or
indirectly from a breach by Landlord of any of the representations or warranties
contained in Paragraph 29, above, except to the extent that the environmental
contamination condition or presence causing the breach of -the representations
and warranties in Paragraph 29, above, was caused by an act of negligence or
wilful misconduct on the part of Tenant, its agents, employees, authorized
visitors, designees or sublessees. The foregoing covenant
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of indemnification shall survive the termination of this Lease in connection
with any liability of the Landlord hereunder.
32. Environmental Inspection Tenant shall have the right at its own
expense to have one or more qualified environmental consultants test the
Building, the Leased Premises, the Land and the Complex for environmental
contamination including without limitation asbestos, radon, any form of
hazardous waste (as that term is defined in any of the Environmental Laws) or
other environmental pollutant, provided, however, that such inspections will
occur on or by the 90th day following both parties' execution of this Lease, If
the reports of such consultants) indicates environmental contamination of the
Building, the Land, the Leased Premises, or the Complex, beyond levels
acceptable to Tenant in its reasonable discretion, Tenant shall be entitled to
terminate this Lease without further liability to Landlord and receive a refund
of any monies theretofore paid to Landlord in connection with the execution of
this Lease, provided, however, that such right of termination shall be
exercised, if at all, within 90 days after receipt of said reports.
33. Tenant Representation. Tenant shall, at Tenant's cost and expense,
comply with the Environmental Laws in connection with the closing, termination
or transfer of Tenant's operation at the Leased Premises. In no event shall
Tenant be responsible for any cleanup at the Leased Premises unless resulting
directly from Tenant's use and occupancy of the Leased Premises
34. Miscellaneous.
(a) Any reasonable rules and regulations with regard to the
use and occupancy of the Building or the Leased Premises by Tenant as attached
hereto or as adopted at any time during the term of this Lease and of which
Tenant is notified in writing, shall in all thin-s be observed and performed by
Tenant, its servants, agents, and invitees, provided that such rule shall not be
inconsistent with the Tenant's rights or the Landlord's obligations as herein
expressed.
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(b) The headings of the articles and the numbers of the items
in this Lease are inserted as a matter of convenience to the parties and shall
not affect the construction of this Lease.
(c) This Lease contains the entire agreement between the
parties. No additions, changes or modifications, renewals or extensions hereof,
shall be binding unless reduced to writing and signed by Landlord and Tenant.
(d) The terms, conditions, covenants and provisions of this
Lease shall be deemed to be severable, If any clause or provision herein
contained shall be adjudged to be invalid or unenforceable by a court of
competent jurisdiction or by operation of any applicable law, it shall not
affect the validity of any other clause or provision herein, but such other
clauses or provisions shall remain in full force and effect. In addition,
Landlord may pursue the relief or remedy sought in any invalid clause, by
conforming the said clause with the provisions of the statutes or the
regulations of any governmental agency in such case made and provided as if the
particular provisions of the applicable statutes or regulations were set forth
herein at length.
(e) This Lease shall be interpreted, governed by, and enforced
in accordance with the laws of the State of New Jersey.
(f) In all references herein to any parties, person, entities
or corporations the use of any particular gender or the plural or singular
number is intended to include the appropriate gender or number as the context of
the within instrument may require. All the terms, covenants and conditions
herein contained shall be for and shall inure to the benefit of and shall bind
the parties hereto, and their respective heirs, executors, administrators,
personal or legal representatives, successors and assigns,
(g) Common facilities for purposes of this Lease shall mean
the nonassigned parking areas, lobby, elevators, fire stairs, public hallways,
public lavatories, and all other general building- facilities that service all
building, tenants; air conditioning room, fan room, janitor's closet, electrical
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closet, telephone closet, elevator shafts and machine room, flues, stacks, pipe
shafts and vertical ducts with their enclosing walls.
(h) Landlord agrees that it shall not issue, or cause or
permit to be issued on its behalf, any advertisement, public announcement, press
release or other promotional materials referring to the existence of this Lease
or the status of Tenant as a tenant of Landlord without the prior written
approval of the Legal Department of Tenant. In the event of a violation or
threatened violation of this Paragraph 34(h), Tenant shall be entitled to
injunctive relief in addition to its other legal remedies, The provisions of
this Paragraph 34(h) shall survive the termination or expiration of the Tenn of
this Lease.
(i) This Lease shall be subject to and contingent upon Tenant,
at its sole cost and expense, obtaining (i) from the appropriate banking
regulators by March 1, 1999 approval to maintain and operate a banking office at
the Leased Premises and (ii) such other state and local non-banking approvals as
may be required in order for Tenant to complete Tenant's leasehold improvements
and open its facility to the public. Tenant covenants promptly to make
applications for such approvals. Tenant further covenants expeditiously to
prosecute such applications for approval. In the event Tenant's application for
any such approval is denied, this Lease shall be automatically terminated.
(j) This Lease is further subject to the execution of a
Termination Agreement with Summit Bank terminating their lease of the Leased
Premises simultaneously with the execution of this Lease Agreement.
35. Security Deposit. Tenant, concurrently with the execution of this
Lease, has deposited $11,176.00 with Landlord (the "Security Deposit"), the
receipt of which is hereby acknowledged. Said Security Deposit shall be retained
by Landlord as security for the payment by Tenant to the monies herein agreed to
be paid by Tenant, and for the faithful performance by Tenant of the ten-nw and
covenants of the Lease. In the event of any default by Tenant, Landlord, at its
option, may at any time apply said sum, or any part thereof, (a) toward the
payment of any or all rent or other monies payable under this
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Lease that are in default, or (b) so as to cure any default of Lessee, but
Tenant's liability under this Lease shall thereby be discharged but only to the
extent that Security Deposit covers the amount in default, and Tenant shall
remain liable for any amounts that such sum shall bee insufficient to pay.
Landlord is not required to exhaust any or all rights and remedies available at
law or equity against Tenant before resorting to the Security Deposit. Tenant's
failure to restore any of the Security Deposit used by Landlord within ten (10)
days of Landlord's request for same shall be an act of default hereunder. In the
event this Security Deposit shall not be utilized for any purposes herein
permitted and provided Tenant is not in default at the expiration of the Lease
Term or any Option Term as applicable, then each Security Deposit shall be
returned by Landlord to Tenant within thirty (30) days after the expiration of
the Lease Term or Option Term, as applicable. Landlord shall pay Tenant interest
on said Security Deposit.
Upon execution of the lease, the payment of the security deposit and
proof of liability insurance in the amount of $3,000,000.00, naming the Landlord
as an additional insured, the Tenant shall have a right of entry onto the Leased
Premises as of October 13, 1998.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals. or caused these presents to be signed by their proper corporate
officers and their proper corporate seal to be hereto affixed, on the day and
year directly adjacent to their respective signatures.
SIGNED, SEALED & DELIVERED (LANDLORD)
IN THE PRESENCE OF: LAWRENCEVILLE ASSOCIATES
________________________________ By:_____________________________
(TENANT)
VILLAGE FINANCIAL CORPORATION
ATTEST:
- --------------------------------- By:/s/Kenneth J. Stephon
Secretary Kenneth J. Stephon
President
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EXHIBIT A
Floor Plan of Leased Premises
-41-
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EXHIBIT B
Designated Parking Spaces
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EXHIBIT C
Intentionally Omitted
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EXHIBIT D
Intentionally Omitted
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EXHIBIT E
Intentionally Omitted
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EXHIBIT F
BOMA Standards
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EXHIBIT G
SUBORDINATION, RECOGNITION AND
NON-DISTURBANCE AGREEMENT
THIS AGREEMENT, is made the day of 1998, by and
between with a residence or principal office at (the "Mortgagee,) and
VILLAGE FINANCIAL CORPORATION, a corporation, having an office at New Jersey,
(the "Tenant").' WITNESSETH: WHEREAS, the Mortgagee is the present holder of a
certain Mortgage (the "Mortgage") dated 1998 by (the "Mortgagor" or "Landlord")
in the stated principal amount of which Mortgage was recorded on 1998, in
County, New Jersey, in Mort-a-e Book page and which
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Mortgage covers a parcel of land located in the Township of County, New Jersey
and more particularly described on Exhibit "A" annexed hereto and made a part
hereof. together with the improvements now or hereafter erected thereon (said
parcel of land and improvements thereon being hereinafter called the "Mortgaged
Property"); and
WHEREAS, by certain (Ground) Lease heretofore entered into between the
Landlord and the Tenant dated 1998, (the "Lease"), the Landlord leased to the
Tenant certain premises within the boundaries of the Mortgaged Property together
with the building, and
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other improvements erected or to be erected on the leased premises (said
premises and the improvements erected or to be erected thereon being hereinafter
called the "Demised Premises"); and
WHEREAS, a Memorandum of the Lease is intended to be recorded; and
WHEREAS, a copy of the Lease has been delivered to the Mortgagee.. the receipt
of which is hereby acknowledged; and WHEREAS, the parties hereto desire to
effect the subordination of the Lease to the lien of the Mortgage and to provide
for the non-disturbance of the Tenant by the Mortgagee, NOW, THEREFORE, in
consideration of the promises and of the mutual covenants and agreements herein
contained, the parties hereto, intending to be legally bound hereby, agree as
follows: 1. The Mortgagee hereby consents to and approves the Lease. 2. The
Tenant covenants and agrees with the Mortgagee that the Lease hereby is made and
shall continue hereafter to be subject and subordinate to the lien of the
Mortgage, and all renewals, modifications replacements and extensions thereof,
without regard to the order of priority of execution and recording of the
Mortgage and the Memorandum of the Lease, subject, however, to the provisions of
this Agreement, 3. The Tenant certifies that the Lease is presently in full
force and effect. 4. The Mortgagee agrees that so long as the Lease shall be in
full force and effect: (a) The Tenant shall not be named or Joined as a party
defendant or otherwise in any suit, action or proceeding for the foreclosure of
the Mortgage or to enforce any rights under the Mortgage or the bond, note or,
other obligation secured thereby;
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(b) The possession by the Tenant of the Demised Premises and all the
Tenant's rights, options and privileges with respect thereto arising under the
Lease shall not be disturbed, affected or impaired by, nor will the Lease or the
term thereof be terminated or otherwise affected by (i) any suit, action or
proceeding upon the Mortgage or the bond, note or other obligation secured
thereby, or for the foreclosure of the Mortgage or the enforcement of any rights
under the Mortgage or any other documents held by the Mortgagee, or by any
judicial sale or execution or other sale of the Mortgaged Property or the
Demised Premises, or by any deed given in lieu of foreclosure, or by the
exercise of any other rights given to the Mortgagee by any other documents or as
a matter of law, or (ii) any default under the Mortgage or the bond. note or
other obligation secured thereby;
(c) All condemnation awards and insurance proceeds paid or payable with
respect to the Demised Premises and received by the Mortgagee shall be applied
and paid in the manner set forth in the Lease; and (d) Neither the Mortgage nor
any other security instrument executed in connection therewith shall cover or be
construed as subjecting in any manner to the lien thereof any trade fixtures.
signs or other personal property at any time furnished or installed by or for
the account of the Tenant or its subtenants, assigns, successors or licensees on
the Demised Premises regardless of the manner or mode of attachment thereof. 5.
If the Mortgagee shall become the owner of the Mortgaged Property by reason of
foreclosure of the Mortgage or otherwise, or if the Mortgaged Property shall be
sold as a result of any action or proceeding to foreclose the Mortgage or by a
deed given in lieu of foreclosure, the Lease shall continue in full force and
effect, without necessity for executing any new lease, as a direct lease between
the Tenant and the then owner of the Mortgaged Property, as landlord
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thereunder, upon all of the same terms, covenants and provisions contained in
the Lease, and in such event:
(a) The Tenant shall be bound to such new owner under all of the terms,
covenants and provisions of the Lease for the remainder of the term thereof
(including the renewal periods, if any, if the Tenant elects or has elected to
exercise any renewal option under the Lease to extend the term) and the Tenant
hereby agrees to attorn to such new owner and to recognize such new owner as
landlord under the Lease; and
(b) Such new owner shall be bound to the Tenant under all of the terms,
covenants and provisions of the Lease for the remainder of the term thereof
(including any such renewal periods, if the Tenant elects or has elected to
exercise any renewal option under the Lease to extend the term) which, by taking
title, such new owner agrees to assume and perform.
6 . Any notices or communications given under this Agreement shall be
in writing and shall be given by registered or certified mail, return receipt
requested, postage prepaid (a) if to the Mortgagee, at the address of the
Mortgagee as hereinabove set forth or at such other address as the Mortgagee may
designate by notice, or (b) if to the Tenant, at the address of the Tenant as
hereinabove set forth or at such other address as the Tenant may designate by
notice, with a copy to Edward J. Butrym, Esq., 1 Pennington-Washington Crossing
Road, Pennington, NJ 08534.
7. This Agreement shall bind and inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, personal
representatives, successors and assigns.
8. This Agreement contains the entire agreement between the parties and
cannot be changed, modified, waived or canceled except by an agreement in
writing executed by the party against whom enforcement of such modification,
change, waiver or cancellation is sought.
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9. This Agreement and the covenants herein contained are intended to
run with and bind all lands affected thereby,
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement the day and year first above written
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FINANCIAL INSTITUTION EXHIBIT
As used herein "financial institution" shall mean any bank, bank
holding company, savings bank, savings and loan association, trust company,
credit union, mortgage banker or mortgage broker, broker or placement agent for
any other type of loan, consumer or commercial credit lender, factoring
business, or other retail or wholesale lender or deposit taking entity or any
lending or deposit taking facility of the type operated by those entities
referred to (including, without limitation, a loan production facility, whether
or not designated as such) or any discount brokerage organization. As used
herein "deposit" shall mean:
(a) deposits (as that term is used in Regulation Q of the Board of
Governors of the Federal Reserve system, 12 C.F.R. 217 et sec., or the rules of
the Depository Institutions Deregulation Committee, 12 C.F.R. 1204 et seq.,
[i.e., commercial banks. non-bank banks, and savings banks];
(b) accounts (as the term is used in the regulations of the Federal
Home Loan Bank Board and the Federal Savings and Loan Insurance Corporation.. 12
C.F.R. 561.1 et. seq., [i.e.. savings and loan associations];
(c) share accounts, share draft accounts, share certificate accounts,
or deposits (as those terms are used in the regulations of the National Credit
Union Administration. [C.F.R. 745.et seq., and 12 C.F.R. 701. )5 et
seq.,[i.e. credit unions]; or
(d) accounts or deposits of a similar nature insured by other state or
federally
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chartered organizations, the primary purpose of which is insurance of accounts
or deposits; or any successors to any of the foregoing organizations or
regulations referred to above.
Tenant's failure to restore any of the Security Deposit used by Landlord within
ten (10) days of Landlord's request for same shall be an act of default
hereunder. In the event this Security Deposit shall not be utilized for any
purposes herein permitted and provided Tenant is not in default at the
expiration of the Lease Tenn or any Option Term as applicable, then each
Security Deposit shall be returned by Landlord to Tenant within thirty (30) days
after the expiration of the Lease Term or Option Term, as applicable. Landlord
shall pay Tenant interest on said Security Deposit.
Upon execution of the lease, the payment of the security deposit and
proof of liability insurance in the amount of $3,000,000.00, naming the Landlord
as an additional insured, the Tenant shall have a right of entry onto the Leased
Premises as of October 13, 1998.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals, or caused these presents to be signed by their proper corporate
officers and their proper corporate seal to be hereto affixed, on the day and
year directly adjacent to their respective signatures.
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STATE OF NEW JERSEY:
SS"
COUNTY OF_______________
BE IT REMEMBERED, That on this day of 1998, before me, the subscriber,
personally appeared who, I am satisfied, is the person who signed the within
Instrument, and (s)he acknowledged that (s)he signed, caused (if applicable) to
be sealed with the corporate seal and delivered the same as such officer or
partner aforesaid, and that the within Instrument is the voluntary act and deed
of such corporation or partnership, made by virtue of authority of the corporate
Board of Directors or such partnership.
STATE OF NEW JERSEY:
SS.
COUNTY OF _______________
BE IT REMEMBERED, That on this 1998, before me the subscriber. personally
appeared Financial Corporation, who I am satisfied, is the person who signed
thhe acknowledged that (s)he signed. caused and delivered the same as such
officer aforesaid and that the within Instrument is the voluntary act and deed
of such corporation, made by virtue of authority of its Board of Directors..
<PAGE>
ADDENDUM
--------
The Lease Agreement by and between LAWRENCEVILLE ASSOCIATES and VILLAGE
FINANCIAL CORPORATION dated October 22, 1998 regarding the property located at
590 Lawrence Square Boulevard, Lawrenceville, New Jersey (the "Lease") is hereby
amended as follows:
a. The first page of the Lease is revised to include the property
address, 590 Lawrence Square Boulevard, Lawrenceville, New Jersey.
b. Section 1 of the Lease is revised to remove the reference to the
buildings "...to be constructed by the Landlord..." inasmuch as
Village Bank will operate from Building 1, a fully constructed
building previously operated as a branch bank.
c. Section 4 of the Lease is revised to indicate the amount of the
rent during the preliminary term, deleting any reference to the
previous Summit Lease. The first sentence of Section 4 will now state:
"Village Financial Corporation/Village Bank will pre-pay its base rent
from November 1, 1998 through December 31, 1999 in the amount of
$69,867.25 and will pay $5,064.27 per month thereafter through May 31,
2000." The remaining terms of the rent from June 1, 2000 forward
remain in full force and effect.
d. The references to "intentionally omitted" exhibits within the lease
are removed. The exhibits are re-lettered such that the floor plan is
at Exhibit A, the designated parking spaces is at Exhibit B, the BOMA
Standards is at Exhibit C, the Subordination, Recognition and
Non-Disturbance Agreement is at Exhibit D and the Financial
Institution definition is at Exhibit E.
Dated:
----------------
LAWRENCEVILLE ASSOCIATES VILLAGE FINANCIAL CORPORATION
BY: BY:
------------------------------ ----------------------------
EXHIBIT 10.3
<PAGE>
LEASE AGREEMENT BETWEEN H.V. PROPERTIES AND VILLAGE FINANCIAL
CORPORATION. RENTAL PROPERTY LOCATED AT 23 ROUTE 31 NORTH, SUITE
A22, PENNINGTON, NJ 08534
MONTHLY RENTAL AMOUNT $700.00
This amount to include rent, utilities, common fee, weekly office cleaning, use
of work room (billed for usage), conference room, bathrooms and kitchen area.
All expenses are billed monthly and are due the first of each month. If they are
received after the first of each month, they are considered delinquent and a
$70.00 administrative charge will be added the next month.
A SIXTY DAY NOTICE TO TERMINATE the lease is expected of both parties.
One month security deposit plus first month pro-rated amount of $350 rent
($1050.00) is due before lease commences on July 15, 1998.
The expenses itemized in this lease are valid for one year from the date of
commencement and will be renegotiated the following year.
Receptionist and phone services are available at an additional cost.
Furniture rental price (list attached) will be $62.46 per month.
/s/ Kenneth J. Stephon /s/ Peter Blicher
- ---------------------------------- -----------------------------------
Ken Stephon Peter Blicher
Village Financial Corporation President, H.V. Properties
7/13/98 7/13/98
- ---------------------------------- -----------------------------------
Date Date
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first hereinabove written.
Village Financial Corporation
ATTEST: By: /s/ William C. Hart
------------------------------------
/s/ William V.R. Fogler
- ----------------------------------
WITNESS:
/s/ J.R. Sachs /s/ Kenneth J. Stephon
- ---------------------------------- ------------------------------------
Kenneth J. Stephon, Executive
EXHIBIT 10.4
<PAGE>
ESCROW AGREEMENT
----------------
THIS ESCROW AGREEMENT, dated as of __________ __, 1998 between VILLAGE
FINANCIAL CORPORATION, a New Jersey Corporation (the "Company") and SUMMIT BANK,
a Banking Corporation organized and existing under the laws of the State of New
Jersey (the "Escrow Agent").
WITNESSETH:
-----------
The Company, pursuant to a Prospectus and Subscription Agreement dated
as of __________ ____, 1998 (collectively, the "Agreement") is offering
securities (the "Offering"), to certain subscribers (the "Subscribers"),
consisting of a minimum of 100 shares and a maximum of 50,000 shares of the
Company's common stock per subscriber, for a purchase price of $10.00 per share.
The aggregate minimum subscriptions that must be received before any
subscription payments will be released to the Company from the escrow created
pursuant to the terms and conditions contained herein is 410,000 shares
aggregating $4,100,000 (the "Minimum Aggregate Subscriptions Amount").
Additionally, certain other conditions set forth in the Agreement under the
caption "Summary" (the "Closing Conditions") must be satisfied. Subscription
payments will be released to the Company upon written certification by the
Company to the Escrow Agent that all closing conditions have been satisfied.
Pursuant to the terms of the offering, subscribers or the Company will
deliver to the Escrow Agent each subscription payment (a "Subscription
Payment"). The Subscription Payment of each subscriber will be collectively held
in one escrow by the Escrow Agent on the
<PAGE>
terms and conditions hereinafter set forth. The Escrow Agent shall forward to
the Company any Subscription Agreements received by the Escrow Agent. The Escrow
Agent will maintain all subscriber records and at least weekly and at such other
times as reasonably requested by the Company supply the Company with a list
showing such subscribers name, address and amount of Subscription Payment.
NOW, THEREFORE, the Company and the Escrow Agent agree as follows;
1. Deposits. Each Subscription Payment received by the Company from a
subscriber shall be forwarded to the Escrow Agent along with a copy of the
Subscriber's Subscription Agreement containing the name, address, social
security number and telephone number of such subscriber, the number of shares
being purchased and the purchase price being paid for the same. If the
Subscription Payment is in the form of a check, it shall be enclosed with the
Subscription Agreement. If the Subscription Payment is to be made by wire
transfer, the Subscription Agreement shall also state the name, address and
telephone number of the financial institution that will be wiring such
Subscription Payment. Each Subscription Payment received by the Escrow Agent
from the Subscribers or the Company will be deposited and held in accordance
with Section 6(a) below. Such account will be held in the name of Village
Financial Corporation in an account which shall be known as "Village Financial
Corporation Stock Purchase Account" (the "Escrow"). It is understood that all
checks received by Escrow Agent are subject to clearance time and the funds
represented thereby cannot be drawn upon or invested until such time as the same
constitute good and collected funds. It is additionally understood
- 2 -
<PAGE>
that should any checks be returned to the Escrow Agent as uncollectible, or
returned because of insufficient funds, the Escrow Agent is authorized and
instructed to charge expenses incurred by the Escrow Agent on such uncollected
checks to the Company. The Escrow Agent shall redeposit such check(s) for
collection only upon the verbal instruction of the Company; however, in no
instance shall the check(s) be presented for collection more than two (2) times.
Should the check(s) be uncollectible after the second presentation, the Escrow
Agent, shall promptly notify the Company and hold said check(s) until the
subscriber has replaced the same with a cashier's check or such other form of
draft that the Company and Escrow Agent approve, at which time the Escrow Agent
shall as soon as practicable return said uncollectible check(s) to the
subscriber. In the event the subscriber does not replace said check(s) with a
cashier's check or such other form or draft acceptable to Escrow Agent and the
Company, the Escrow Agent shall as soon as practicable return the same to such
subscriber.
2. Rejection of Subscription Payment. The Company hereby certifies that
each Subscription Agreement provides that the purchase of any shares of common
stock is subject to the approval of the Company. The Company agrees to notify
the Escrow Agent in writing or telephonically with written confirmation as to
which Subscriptions are being accepted and which rejected. All such rejections
shall be refunded to the respective subscribers directed in writing by the
Company.
3. Release of Escrow Funds on Closing. If on the date of closing (as
more fully described in the Agreement), the Escrow Agent (a) holds Subscription
Payments, Representing
- 3 -
<PAGE>
subscriptions as to which the Company has notified the Escrow Agent, pursuant to
paragraph 2 hereof, that the Company has accepted, and (b) has received from the
Company a Certificate executed by an authorized representative of the Company
stating that the Minimum Aggregate Subscription Amount has been accepted and all
other closing conditions have been satisfied, then the Escrow Agent is
authorized and instructed to make the following payments: (i) all principal
amounts and interest owed thereon held by the Escrow Agent in the Escrow
representing subscriptions as to which the Company has notified the Escrow
Agent, pursuant to paragraph 2 hereof, that the Company has accepted, shall be
paid to the Company; (ii) all principal amounts and interest owed, held by the
Escrow Agent in the Escrow, representing subscriptions as to which the Company
has notified the Escrow Agent, pursuant to paragraph 2 hereof, that the Company
has rejected, shall be paid to the subscriber. All payments to be made by the
Escrow Agent to a subscriber shall be forwarded to the last known address of the
subscriber, as communicated in writing to the Escrow Agent by the Company, or
the subscriber, mailed by first class mail. All payments to be made by the
Escrow Agent to the Company shall be forwarded to the Company at P.O. Box 6554,
Lawrenceville, New Jersey 08648, Attention: Kenneth J. Stephon, or issued to
such account as the Company shall direct. Upon (i) release of any funds pursuant
to paragraph 4, and (ii) the completion of the offering as described in the
Agreement, the Escrow shall be closed as to the funds released; provided,
however, that this Escrow Agreement shall remain in effect for further
Subscription Payments received by the Escrow Agent from subscribers which shall
be placed in Escrow and held by the Escrow Agent in accordance with the terms of
this Escrow Agreement.
- 4 -
<PAGE>
4. Other Refunds. If the Escrow Agent has received from the Company a
certificate stating that the Offering is being terminated, then the Escrow Agent
is authorized and instructed to pay all principal amounts and interest earned
thereon held by the Escrow Agent in the Escrow to the subscribers of the
Company. The expenses incurred by the Escrow Agent for uncollected checks shall
be paid to the Escrow Agent by the Company. All payments to be made by the
Escrow Agent to the subscriber, as communicated in writing to the Escrow Agent
by the Company, shall be mailed by first class mail. All payments to be made by
the Escrow Agent to the Company shall be forwarded to the Company at P.O. Box
6554, Lawrenceville, New Jersey 08648, or issued to such account as the Company
may direct. Upon release of the funds pursuant to this paragraph 4, the Escrow
Agent's duties as Escrow Agent will cease and the Escrow shall be closed.
5. Fees. The Company hereby agrees that the Escrow Agent shall be
entitled to (i) a one-time document review fee of $500, (ii) an annual
administration fee of $3,000 and (iii) a returned check fee of $10.00 (to the
extent applicable) plus all reasonable out-of-pocket expenses (billed at cost
plus a slight administrative fee, if appropriate) incurred by the Escrow Agent
(the "Escrow Fee"). The fee is due and payable by the Company upon execution of
this Agreement.
6. Liabilities and Indemnification of the Escrow Agent.
(a) The Escrowed Funds shall be invested by the Escrow Agent
in bank accounts, short-term U.S. Government securities (or mutual funds
consisting thereof) and/or in FDIC-insured short-term Certificates of Deposit.
The foregoing mutual fund is the U.S.
- 5 -
<PAGE>
Treasury Securities portfolio of The Pillar Funds managed by the Investment
Management Division of the Escrow Agent. The Investment Management Division of
the Escrow Agent derives a fee for managing the Funds and acting as its
Custodian.
In investing the Escrowed Funds, the Escrow Agent shall rely upon the
written instructions of Kenneth J. Stephon, President of the Company, or his
successor and the Escrow Agent shall be and hereby is relieved of all liability
with respect to making, holding, redeeming or selling such investments in
accordance with such instructions. In the absence of the written investment
instructions contemplated herein, for any reason whatsoever, the Escrow Agent
shall be and hereby is relieved of all liability with respect to making,
holding, redeeming or selling investments made in accordance with the preceding
paragraph which prescribes the permissible investment vehicles for the Escrowed
Funds.
Escrow Agent is and shall be under no duty to enforce the obligation of
the Company to furnish written investment instructions nor shall the Escrow
Agent be liable to any person, firm or corporation, including any of the parties
hereto, for the investments made, held, redeemed or sold as permitted hereby in
the event that written investment instructions from the company are not
furnished to the Escrow Agent.
(b) The Escrow Agent shall not be responsible for or be
required to enforce any of the terms or conditions of the Escrow Agreement or
any other agreement between the Company and any subscriber.
- 6 -
<PAGE>
The Escrow Agent shall not be responsible or liable in any manner
whatsoever for the performance of or by the Company of its obligations under
this Escrow Agreement nor shall the Escrow Agent be responsible or liable in any
manner whatsoever for the failure of the Company to honor any of the provisions
of this Escrow Agreement.
(c) The Company represents to the Escrow Agent that it is
authorized to enter into this Escrow Agreement by its duly authorized
representatives and that the Escrow Agent is entitled to rely on this
representation without the need to confirm the authority of the representatives.
(d) The duties and obligations of the Escrow Agent shall be
limited to and determined solely by the express provisions of this Escrow
Agreement and no implied duties or obligations shall be read into this Escrow
Agreement against the Escrow Agent.
(e) The Escrow Agent is not bound by and is under no duty to
inquire into the terms or validity of any other agreements or documents,
including any agreements or documents which may be related to, referred to in or
deposited with the Escrow Agent in connection with this Escrow Agreement.
(f) The Escrow Agent shall be entitled to rely upon and shall
be protected in acting in reliance upon any instruction, notice, information,
certificate, instrument or other document which is submitted to it by the
Company in connection with its duties under this
- 7 -
<PAGE>
Escrow Agreement. The Escrow Agent shall have no liability with respect to the
form, executions validity or authenticity thereof.
(g) The Escrow Agent shall not be liable for any act which the
Escrow Agent may do or omit to do hereunder, or for any mistake of fact or law,
or for any error of judgment, or for the misconduct of any employee, agent or
attorney appointed by it, while acting in good faith, unless caused by or
arising from its own gross negligence or willful misconduct.
(h) The Escrow Agent shall be entitled to consult with counsel
of its own selection and the opinion of such counsel shall be full and complete
authorization and protection to the Escrow Agent in respect of any action taken
or omitted by the Escrow Agent hereunder in good faith and in accordance with
the opinion of such counsel.
(i) The Escrow Agent shall have the right at any time to
resign for any reason and be discharged of its duties as Escrow Agent hereunder
by giving written notice of its resignation to the parties hereto at least
thirty (30) business days prior to the date specified for such resignation to
take effect. All obligations of the Escrow Agent hereunder shall cease and
terminate on the effective date of its resignation and its sole responsibility
thereafter shall be to hold the Escrowed Funds, etc. for a period of thirty (30)
business days following the effective date of resignation, at which time,
- 8 -
<PAGE>
(A) if a successor escrow agent shall have been
appointed and written notice thereof shall have been given to the resigning
Escrow Agent by parties hereto and the successor escrow agent, then the
resigning Escrow Agent shall deliver the Escrowed Funds, etc. to the successor
escrow agent; or
(B) if a successor escrow agent shall not have been
appointed within a reasonable period of time, for any reason whatsoever, the
resigning Escrow Agent shall deliver the Escrowed Funds, etc. to a court of
competent jurisdiction and give written notice of the same to the parties
hereto.
The resigning Escrow Agent shall be entitled to be reimbursed
by the Company for any reasonable expenses incurred in connection with its
resignation and transfer of the Escrowed Funds, etc., pursuant to and in
accordance with the provisions of this section.
(j) The company agrees to indemnify and hold the Escrow Agent
harmless from and against any and all liabilities, causes of action, claims,
demands, judgments, damages, costs and expenses (including reasonable attorneys
fees and expenses) that may arise out of or in connection with the Escrow
Agent's good faith acceptance of or performance of its duties and obligations
under this Escrow Agreement provided, however, that the Company shall not be
required to indemnify and hold the Escrow Agent harmless from and against any of
the foregoing resulting from or arising out of Escrow Agent's willful misconduct
or gross negligence.
- 9 -
<PAGE>
(k) In the event that the Escrow Agent shall be uncertain as
to its duties or rights hereunder or shall receive instructions with respect to
the Escrow Fund which, in its sole discretion, are in conflict either with other
instructions received by it or with any provision of this Agreement, the Escrow
Agent shall have the absolute right to suspend all further performance under
this Escrow Agreement (except for the safekeeping of the Escrow Fund) until the
resolution of such uncertainty or conflicting instructions to the parties'
satisfaction. In the event the parties are unable to resolve the uncertainty,
the Escrow Agent may submit the matter to a court of competent jurisdiction.
(l) In the event that any controversy arises between one or
more of the parties hereto or any other party with respect to this Escrow
Agreement or the Escrow Fund which cannot reasonably be resolved among the
parties, the Escrow Agent shall not be required to determine the proper
disposition of such controversy or the proper disposition of the Escrow Fund and
shall have the absolute right, in its sole discretion, to deposit the Escrow
Fund with the Clerk of a court of competent jurisdiction, file a suit in
interpleader and obtain an order from the court requiring all parties involved
to litigate in such court their respective claims arising out of or in
connection with the Escrow Fund. Upon the deposit by the Escrow Agent of the
Escrow Fund with the Clerk of a court of competent jurisdiction in accordance
with this provision, the Escrow Agent shall be relieved of all further
obligations and released from all liability hereunder.
- 10 -
<PAGE>
(m) Neither this Escrow Agreement, the Agreement or any other
agreement between the Company and the Escrow Agent shall be deemed to create a
joint venture between the Escrow Agent and the Company. Nor shall the Escrow
Agent be considered the alter ego of the Company by virtue of this Agreement, or
any other agreement.
7. Modification, Amendment, Rescission. No rescission, modification,
amendment, supplement or change of this Escrow Agreement shall be valid or in
effect unless notice thereof is given to the Escrow Agent in writing by the
Company and accepted by the Escrow Agent.
8. Successors and Assigns. The provisions hereof shall be binding upon
and inure to the benefit of the parties hereto and their respective legal
representatives, heirs, successors or assigns and shall survive the termination
of this Escrow Agreement.
9. Copies. This Escrow Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10. Notices. All notices, instructions and other communications under
this Escrow Agreement shall be in writing except as otherwise specified herein
and shall be deemed duly given it sent by certified or registered mail, postage
prepaid, return receipt requested and addressed as follows:
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<PAGE>
(a) If to the Escrow Agent:
Summit Bank
Attn: Corporate Trust: Administration
210 Main Street, 6th floor
Hackensack, New Jersey 07601
Attention Shernetta D. Harris
Corporate Trust Officer
(b) If to the Company:
Kenneth J. Stephon, President
Village Financial Corporation
P.O. Box 6554
Lawrenceville, New Jersey 08648
and to:
John J. Spidi, Esq.
Malizia, Spidi, Sloane & Fisch, P.C.
1301 K Street, N.W., Suite 700 East
Washington, D.C. 20005
11. Applicable Law. This Escrow Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey.
12. Escrow Period. The Escrow Period shall begin with the date of the
Agreement and shall terminate upon the earlier of the following dates:
(a) The date upon which the Escrow Agent confirms that it has
received the certificate from the Company and paid the proceeds in accordance
with paragraph 3 hereof;
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<PAGE>
(b) The date upon which a determination is made by the Company
to terminate the Offering prior to the sale of the Minimum Aggregate
Subscription Amount; or,
(c) __________ __, 1998 unless extended as permitted in the
Agreement for an additional period as determined by the current Incorporators of
the Company with a copy of such extension provided to the Escrow Agent.
IN WITNESS WHEREOF, parties hereto have executed this Escrow Agreement
on the day and year first above written.
VILLAGE FINANCIAL CORPORATION
By:
-----------------------------------
SUMMIT BANK, as Escrow Agent
By:
----------------------------------
Title:
-------------------------------
- 13 -
EXHIBIT 23.2
<PAGE>
SNODGRASS
Certified Public Accountants and Consultants
INDEPENDENT AUDITORS' CONSENT
We consent to the use in the Pre-Effective Amendment No. 2 to the
Registration Statement of Village Financial Corporation on Form SB-2 of our
report dated October 9, 1998 appearing in the Prospectus, which is part of such
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
/s/ S.R. Snodgrass, A.C.
Wexford, PA
December 16, 1998
S.R. Snodgrass, A.C.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
101 Bradford Road, Suite 100 Wexford, PA 15090-6909 Phone: 724-934-0344 Facsimile: 724-934-0345
</TABLE>
