As filed with the Securities and Exchange Commission on January 13, 1999
Registration No. 333-63987
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. ^3
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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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
(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.
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PROSPECTUS
^ 425,000 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 ^ 425,000 shares
of common stock. The Federal Deposit Insurance Corporation has approved Village
Bank's Application for Federal Deposit Insurance, subject to routine conditions.
The Office of Thrift Supervision has deemed complete the Application for
Permission to Organize Village Bank and the Application of Village Financial
Corporation to become the holding company of Village Bank. See "The Offering and
Plan of Distribution Conditions of Offering and Release of Funds."
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TERMS OF OFFERING
We are offering for sale a minimum of ^ 425,000 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 _______ __, ^ 1999. However, we may extend the offering without
further notice to subscribers. We have ^ engaged a broker-dealer in securities,
Ryan, Beck & Co., Inc., ("Ryan, Beck") to consult and advise us in the sale of
our common stock^. 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: ^ 425,000 to 1,200,000
o Underwriting Commissions
and Other Expenses: ^ $135,000 to $751,000*
o Net Proceeds to Village Financial
Corporation ^ Minimum/Maximum: ^ $4,115,000 to $11,249,000
o Net Proceeds Per Share
Minimum/Maximum: ^ $9.68 to ^ $9.37
* 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 ^ expenses to be $433,000, ^ and we estimate $135,000 for public
offering costs relating primarily to legal, accounting, printing and postage
costs. ^ In addition to and in accordance with the terms of our agreement with
Ryan, Beck, Ryan, Beck may assemble a group of registered broker-dealers in
order to sell shares of our common stock, but will not undertake to sell our
common stock unless and until we raise at least $5 million (including the
proceeds from the sale of our common stock in this offering and from the
previously conducted private placement). Ryan, Beck and its group will receive a
commission in the amount of 7.75% of the gross proceeds from the shares of our
common stock that they sell. The commission would be $616,000 if Ryan, Beck and
its group sell 794,850 shares, the anticipated maximum the Ryan, Beck group may
sell. However, Ryan, Beck is not required to sell shares in the offering, and we
may continue to sell shares above $5 million, allocating less shares to the
broker-dealers. 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.
Ryan, Beck & Co.
The date of this Prospectus is ______, ^ 1999
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TABLE OF CONTENTS
Page
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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................................................
^
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.
^ 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 inasmuch as they may
substantially limit your voting power. See pages ___ to ___, "Description of
Common Stock - Certain Anti-Takeover Provisions."
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[MAP PAGE]
[Map of the State of New Jersey with the heading "Village Bank (proposed
offices)." Map indicates the proposed location of the main office in Lawrence
Township and branch office in Pennington. Map indicates location of the cities
of Trenton, Princeton, Philadelphia, New York City and Atlantic City.]
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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 ^, on the OTC Bulletin Board.
However, it is not assured ^ that the stock will be traded on the OTC
Bulletin Board or on any market.
Q: What particular ^ risks 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 ^ 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 ^ although we expect to conduct a portion
of this offering with the assistance of a broker-dealer, the broker-dealer
is not obligated to sell shares of our common stock and is not obligated to
purchase any shares itself.
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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(i)
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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 ^ business to date other than in connection with the
organization of Village Bank and our stock offering.
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 ^ will be
located at 590 Lawrence Square Boulevard (on Quakerbridge Road), 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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(ii)
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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 ^ accommodate the 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 ^ pricing ^ and an 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, ^ including Lawrence Township and Pennington, will benefit from a
community-oriented savings institution dedicated to ^ providing economical home
financing and meeting the other financial 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 headquartered
and out-of-area headquartered financial institutions. We anticipate implementing
services^ and 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, a Pennsauken, New Jersey-based savings institution. Mr. Stephon left
CloverBank to start Village Bank. Mr. Stephon has over 20 years of financial and
thrift experience. 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. ^ Our Chairman, William C. Hart, is currently the
President and Chief Executive Officer of Mercer Mutual Insurance Company located
in Pennington, New Jersey, a position he has held for over ten years. Chairman
Hart has been a director of Mercer Mutual Insurance Company for almost 30 years
and has been an officer or director of several thrift institutions over the past
35 years. In addition, our Chief Lending Officer has over 18 years experience in
Mercer County, New Jersey.
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(iii)
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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. We currently maintain "key man" insurance on Mr. Stephon
and we intend to maintain this insurance in the future. See pages ___ to ___,
"Management of the Company" and pages ___ to ___, "Management of the Bank."
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". ^ In a private placement, the initial board of
directors purchased 18,600 shares and ^ 18 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 ^. The proceeds are
being used to fund preopening expenses. The initial board of directors plans to
subscribe for an additional 21,000 shares in the offering^ and reserves 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
^ For our main office, we entered into a ^ lease agreement in October
1998 with the owner of 590 Lawrence Square Boulevard, Lawrenceville, New Jersey.
This property previously served as a bank branch office. 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 in July 1998 for space in the Pennington Point complex,
which includes an adult retirement community, in Pennington, New Jersey, in
order to operate a limited service ^ banking facility for the benefit of those
in the adult retirement community and others in the immediate vicinity. 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 _______ __, ^ 1999 (or such later
date if we extend the offering):
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(iv)
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o We have accepted subscriptions and payment in full for the minimum
number of shares and
o ^ We have received all required regulatory approvals or non-objections
and our board of directors has satisfied 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."
The Offering
The offering consists of a minimum of ^ 425,000 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 ^ a maximum purchase limitation
of 50,000 shares per subscriber including all affiliates of the subscriber. The
offering will terminate on _______ __, ^ 1999. However, we may extend the
offering without notifying you^, in order to sell more shares. If the offering
is not completed ^ and regulatory conditions are not met by _______ __, ^ 1999,
all subscription funds will be promptly refunded. Subscribers will not receive
any interest on their subscription funds unless such funds are held in excess of
90 days. Funds held in excess of 90 days will be promptly refunded with any
interest earned. See pages ___ to ___, "The Offering and Plan of Distribution."
The Role of the Broker-Dealer
In our sale of common stock to the public, Ryan, Beck, a registered
broker-dealer, will be paid a $25,000 fee for advisory and administrative
services. We will also pay Ryan, Beck for its legal and certain other expenses.
We will provide indemnification from certain claims and liabilities, including
liabilities under the Securities Act of 1933, as amended. Ryan, Beck will design
and provide a marketing strategy and marketing materials and will assist us in
handling investor meetings and related matters. Ryan, Beck may use its best
efforts to assemble a group of selected broker-dealers, which will include Ryan,
Beck, to solicit the sale of shares of our common stock in the offering, but
will not undertake the sale of our common stock unless we have raised at least
$5 million from the offering and the previously conducted private placement.
Ryan, Beck and the other broker-dealers will collectively receive a commission
equal to 7.75% of the gross proceeds from the shares of our common stock that
they sell.
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 ^ our 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^ 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.
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(v)
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Use of Proceeds
^ Upon completion of the offering, 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 ^ the initial capital of the bank. We expect
Village Bank to use ^ most of the proceeds for investment in residential and
commercial real estate loans, consumer loans, small business loans, and other
loans. However, assuming we raise sufficient capital in the offering, we may use
a portion of the proceeds to acquire a branch office and purchase deposits from
another banking institution, if our board of directors determines it to be in
the best interests of Village Bank and our stockholders and such a transaction
became available on satisfactory terms and conditions. An acquisition of a
branch office and purchase of deposits would be subject to regulatory approval.
We currently have no plans or understandings regarding any acquisitions or
deposit purchases. We expect Village Bank to be primarily a residential mortgage
lender on real estate located in our market area. See pages ___ to ___, "Use of
Proceeds."
Dividends
Our board of directors currently initially intends to ^ retain any
earnings in order to grow the bank's capital ^, and therefore we do not expect
to declare or pay 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 $10 offering price. Following
completion of the offering, we anticipate that our common stock will be traded
in the over-the-counter market ^, listed on the OTC Bulletin Board. Although
under no obligation to do so, Ryan, Beck has stated that it intends to use its
best efforts to maintain a market in our common stock after the offering and to
solicit other broker-dealers to make a market in our common stock after the
offering. See page ___, "Risk Factors - Lack of Trading Market."
Payment for ^ Subscriptions
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.
All subscriptions will be irrevocable until we have accepted or rejected them.
If we do not accept your subscription, we will mail you notice of the rejection
within ^ 30 days after we have received your subscription. See page ___, "The
Offering and Plan of Distribution - How To Subscribe."
^
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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.
^ 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 is typical of a new
bank, as a result of the substantial start-up and other expenditures that ^ are
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 ^, regulatory requirements and business plans of the bank. 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 ^. Additional stock offerings may be necessary. These additional
stock offerings may not be successful.
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 ^ or be maintained. If an active market does not
develop, you may not be able to sell your shares promptly or perhaps at all.
Without an active market, you may have to find buyers of your shares through
your own efforts. You may not be able to sell your shares at a price equal to or
above the $10 offering price. It is anticipated that our common stock will be
traded in the over-the-counter market ^, listed on the OTC Bulletin Board^, an
electronic inter-dealer market. Although under no obligation to do
1
<PAGE>
so, Ryan, Beck has stated its intention to use its best efforts to make a market
in our common stock and to solicit other broker-dealers to make a market in our
common stock. Neither Ryan, Beck nor any other registered broker-dealer is
required do so. 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, intended to facilitate the sale of a reasonable number of our
shares. 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 ^"Dilution."
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 ^ initially ^ retained as capital to grow the bank. 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 ^ Affect 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 ^ Affect 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 offices of 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
2
<PAGE>
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. In addition, we are subject to limitations on the amount we can
lend to any one borrower. There can be no assurance that we will be able to
compete successfully with our competitors. See "Proposed Business of the Bank -
Competition" and "Loans to One Borrower."
Possible Lack of Market Growth
Our ^ board of directors' 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 ^ 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 for the Company to operate profitably. Since
Village Bank will be a new banking institution that will compete with
established banking institutions, we intend to pay money market deposit account
rates above the average market rates. See "Proposed Business of the Bank -
Lending Activities" and see "- Source of Funds."
^ Future Legislation Could Have an Adverse Impact on Us
^ Legislation has been proposed periodically providing for a
comprehensive reform of the banking and thrift industries. This legislation has
included provisions that would (i) require federal savings associations to
convert to a national bank or a state-chartered bank or thrift, (ii) require all
savings and loan holding companies to become bank holding companies, (iii)
curtail the powers of unitary thrift holding companies^ and (iv) abolish the
OTS. It is uncertain when or if any of this type of legislation will be passed,
and, if passed, in what form the legislation would be passed. As a result, we
cannot accurately predict the possible impact of such legislation.
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 ^ during the spring of 1999. This ^ is only a projection, however, and
the actual opening ^ may be later. In the event of a delay in opening the Bank,
our preopening expenses and retained deficit will likely be higher.
3
<PAGE>
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 inasmuch as they may
substantially limit your voting power. See "Description of Common Stock -
Certain Anti-Takeover Provisions."
^ Dilution of Stockholders' Interest
In connection with the organization of our company and Village Bank,
our President has been granted 10,000 stock options. The exercise of these stock
options will have a dilutive effect on stockholders' interest. 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 Company's then outstanding common stock. The
restricted stock plan will not include more than 4% of the Company's then
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. ^ Also, 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 ^ is sold rather than the
maximum number of shares ^. If our preopening expenses exceed our estimate of
$433,000, due to a delay in the opening of Village Bank or otherwise, the
increased expenses will have a dilutive effect on book value. 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."
4
<PAGE>
^ Dependence on Key Personnel
^ The operations of the company and the bank will largely be dependent
on existing management, in particular our President and Chief Executive Officer
and our Chief Lending Officer. The loss to the company and the bank of one or
more of its executive officers could have a material adverse effect on our
business and results of operations. The company has entered into an employment
agreement with our President and Chief Executive Officer, but we do not have an
employment agreement with our Chief Lending Officer. See "Management of the Bank
- - Renumeration of Directors and Officers.
USE OF PROCEEDS
Although the amounts set forth below provide an indication of the
proposed use of ^ proceeds based on the plans and estimates of our ^ board of
directors, actual ^ use may vary from the estimates. The ^ board of directors
believe that the net minimum proceeds of ^ $5,063,500 from the offering, ^ and
the private placement, will satisfy the cash requirements of Village Financial
Corporation ^ and the capital requirements of Village Bank ^ for their
respective first ^ three years 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 ^ board of directors cannot predict with any certainty to what
extent the Bank will generate revenues from investments and loan originations.
As a result, the ^ board of directors cannot predict precisely what the actual
application of proceeds will be. ^ There is no assurance that the proceeds of
the offering and the private placement will be sufficient to meet the future
capital requirements of the Company without additional financing.
The net proceeds ^ of the Company from the sale of ^ 519,850 and ^
1,294,850 shares of common stock in the private placement and the offering are
estimated ^ to be $5,063,500 and $12,197,500 , respectively. The preopening
expenses and offering costs are ^ expected to aggregate approximately $568,000,
not including any commission payable to broker-dealers in the offering.
Estimated ^ amounts assume that the Bank opens for business during the spring of
1999. Preopening expenses are estimated at $433,000, and offering costs are ^
estimated at $135,000. Such amounts include primarily the following: salaries
and benefits^, rent, legal, accounting and advisory, printing and postage,
regulatory filing fees and marketing. If there is a significant delay in
concluding the offering or opening for business, actual preopening expenses may
be significantly greater^ than estimated. Commissions will vary based on the
amount of stock sold by broker-dealers.
On the basis of the foregoing assumptions, gross proceeds, ^ preopening
expenses, offering costs and commissions would be as follows:
5
<PAGE>
Minimum Maximum
^ 425,000 Shares 1,200,000 Shares
^(519,850 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......... 4,250 12,000
Less Estimated Preopening
^ Expenses and Offering Costs........ (568) ^(568)
Less Underwriting Commissions*.........
Stockholders' Equity................... -- ^(616)
------ ------
$4,631 $11,765
===== ======
^------------
* Ryan, Beck will not consider participating in the sale of the common
stock unless and until at least 500,000 shares are sold (including the
94,850 shares previously sold in the private placement). Ryan, Beck and
its other selected dealers will receive $0.775 for each share they
sell. For the maximum column above, it is assumed 794,850 shares are
sold by Ryan, Beck and its selected dealers. Ryan, Beck is not required
to sell shares in the offering, and the Company may continue to sell
shares above $5 million, allocating less shares to broker-dealers.
Preopening expenses of $123,000 have been expensed through September
30, 1998. Interest income earned on private placement subscription funds totaled
$10,000. Offering costs of $70,000 have been incurred and recorded as deferred
organization costs. It is expected that proceeds of the private placement and
offering will be used in the following amounts: ^
519,850 1,294,850
Shares Shares
Outstanding Outstanding
----------- -----------
(In thousands)
Offering Cost and Commissions...................... $ 135 $ 751
Preopening Expenses................................ 433 433
Bank Building's Improvements, Furniture,
Fixtures and Equipment........................... 160 160
General Corporate Purposes......................... 4,471 11,605
----- ------
Total Gross Proceeds............................... $5,199 $12,949
===== ======
All of the net proceeds of the offering are expected to be invested by
the Company in the common stock of the Bank, to be used for general corporate
purposes for operations, investments and lending purposes. The Company expects
the Bank to be primarily a residential mortgage lender on real estate located in
the primary market area. The Bank intends to use the proceeds 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.
6
<PAGE>
Assuming the Company raises sufficient capital in the offering, the
Company may use a portion of the proceeds to acquire a branch office and
purchase deposits from another banking institution. The board of directors of
the Company would undertake such an acquisition and deposits purchase only if
the directors determine it to be of the best interests of the Bank and the
stockholders of the Company, and such a transaction becomes available for the
primary market area and on satisfactory terms and conditions. The board of
directors of the Company could also purchase the deposits of a banking
institution branch without acquiring the branch itself, or any of is other
assets or liabilities. An acquisition of a branch office or a purchase of
deposits would be subject to the approval of the OTS. No assurance can be given
that the Company and the Bank would be successful in locating and acquiring a
branch office or purchasing deposits from another banking institution. No
assurance can be given that the Company will raise sufficient proceeds in the
offering in order to pursue any such transaction. The management of the Company
currently does not have any plans or understandings regarding any acquisitions
or deposit purchases.
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 ^
Bank. 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 ^ conditions and plans. 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 ^ stockholders of the Company's common stock. ^
The Company has never publicly issued capital stock. There is ^ currently no
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, ^ listing on
the OTC Bulletin Board ^ requires a market maker. ^ Ryan, Beck has indicated its
intent to make a market in the Company's Common Stock ^, but is under no
obligation to do so.
The development of an active trading market depends on the existence of a
sufficient number of willing buyers and sellers, over which the Company and
market makers have no control. Due to the small size of the offering, it is
highly unlikely that an active trading market will develop ^ or be maintained.
Investors should have a long-term investment intent. Investors may not be able
to sell their shares when they desire or to sell them at a price equal to or
above the offering price.
7
<PAGE>
DILUTION
The following table illustrates, assuming the minimum or maximum shares to be
issued in the offering, the estimated dilution per share to ^ investors ^ in the
offering:
<TABLE>
<CAPTION>
^ 425,000 1,200,000
Shares Shares
Minimum Maximum
------- -------
<S> <C> <C>
Offering price per share.................................................... $10.00 $10.00
Pro forma net tangible book value per share after offering.................. $8.91 $9.09
==== ====
^
Dilution per share to ^ investors in the offering(1)........................ ^ $ 1.09 ^ $ 0.91
----- -----
</TABLE>
- -------------------
(1) Does not include potential effect of shares that may be issued under a
stock option plan maintained for the President of the ^ Corporation. Under
the stock option plan, the President has been granted options to purchase a
minimum of 10,000 shares of common stock at an exercise price equal to the
^ IPO 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.
8
<PAGE>
CAPITALIZATION
The table set forth below shows the pro forma capitalization of the
Company ^ following completion of the private placement and the offering as
though the private placement and the offering had been completed and the Bank
opened on September 30, 1998, assuming that ^ 425,000 and 1,200,000 shares of
common stock had been sold pursuant to the offering, after deduction of
projected ^ offering costs and preopening expenses (See "Use of Proceeds"). In
the event the Bank is not opened during the spring of 1999, preopening expenses
may materially increase. See audited financial statements as of September 30,
1998, included elsewhere herein.
PRO FORMA CAPITALIZATION
^ 425,000 1,200,000
^ Shares Minimum ^ Shares Maximum
---------------- --------------
(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 ^ 519,850 and 1,294,850 shares
issued and outstanding (1).................. ^ 52 129
Additional Paid-In Capital ^(2)............... 5,012 12,069
----- ------
Retained Deficit (3).......................... (433) (433)
----- -----
Total Stockholders' Equity................ ^ $4,631 $11,765
====== =======
Book Value Per Share.......................... $ 8.91 $ 9.09
====== =======
- -------------------
(1) In addition to the ^ 425,000 to 1,200,000 shares to be issued pursuant to
the offering, 94,850 shares have been issued to ^ the board of directors
and other investors pursuant to the private placement.
(2) Reflects deduction for $70,000 of offering costs incurred through September
30, 1998, plus an additional expected $65,000. Also for the maximum,
assumes commissions of $616,000 payable to broker dealers.
(3) Reflects $113,000 retained deficit at September 30, 1998, plus $320,000
additional expenses, net of interest income, expected until the Bank opens.
THE OFFERING AND PLAN OF DISTRIBUTION
General
The Company is offering for sale ^ a minimum of ^ 425,000 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 ^ $4,250,000 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 ^ approximately 9.6% 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
9
<PAGE>
criteria for determining value such as book value or historical or projected
earnings. The price per share was set with a view toward facilitating investment
in a reasonable number of shares.
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^. The Company anticipates that following the offering, the
directors and executive officers will own a total of approximately 50,000
shares. The directors and officers reserve the right to increase the amount of
common stock they purchase in the offering. See "Management of the Bank."
The shares are being offered to the public through the directors and
officers of the Company and may be offered by Ryan, Beck and other registered
broker-dealers. 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 ^
entered into an advisory, administrative and marketing agreement with Ryan,
Beck, a registered broker-dealer.
The terms of the Company's agreement with Ryan, Beck state that Ryan,
Beck will be paid a fee in the amount of $25,000 for administrative and advisory
services. These services include designing a detailed marketing strategy,
drafting and coordinating the preparation of marketing materials and assisting
management of the Company with respect to investor meetings. When the Company
has received subscriptions and payment for at least 500,000 shares (including
the 94,850 shares previously sold in the private placement) Ryan, Beck may
solicit the sale of stock in the offering and assemble a selling group of
registered broker-dealers to solicit the sale of the stock in the offering. A
commission in the amount of 7.75% of the gross proceeds ^ from the sale of stock
sold by Ryan, Beck and the broker-dealers will be paid to Ryan, Beck and the
other broker dealers. Neither Ryan, Beck nor any registered broker-dealer in its
group will have any obligation to sell shares or to purchase any shares. All
shares will be sold at $10.00 per share regardless of whether sold by the
Company, Ryan, Beck or a member of Ryan, Beck's selected group of
broker-dealers. The Company will reimburse Ryan, Beck for its reasonable fees
and expenses, including its legal fees^ (not to exceed $22,500), and indemnify
it 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 ^ may 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
10
<PAGE>
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 _______ __, ^ 1999, 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 ^ notice to
subscribers. However, if the offering is not completed by _______ __, ^ 1999 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 ^ will be given prior to any extension
and any such extension will not alter the binding nature of subscriptions ^. If
the above conditions are not satisfied by _______ __, ^ 1999, or if the offering
is terminated at an earlier date, ^ subscriptions will be promptly repaid to
investors. ^ Subscribers will not receive ^ interest on their subscription
funds, ^ unless such funds are held in excess of 90 days, in which event such
funds will be promptly returned to the subscribers with any interest earned
thereon. See "Termination or Extension of the Offering."
^ Subscriptions are binding on subscribers and may not be revoked by
subscribers. The ^ Company reserves the right to reject, in whole or in part and
in its sole discretion, any subscription 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).
Promptly after receipt of final regulatory approval and authorization
to do business, the Company will cause to be mailed or delivered to each
subscriber ^ whose subscription is accepted a stock certificate 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 ^ Company and the
Bank have received all required regulatory approvals or non-objections and
management has satisfied any regulatory or other conditions that must be
satisfied before the Bank may commence banking operations.
The Escrow Agent ^ will 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.
The FDIC has approved the Bank's application for federal deposit
insurance, subject to the following conditions:
11
<PAGE>
1. That beginning paid-in capital funds of not less than $5,000,000
be provided, of which not less than $50,000 shall be allocated to
common capital and not less than $4,950,000 shall be allocated to
surplus and other segregations;
2. That a ratio of Tier 1 capital to total assets of at least 8% and
an adequate allowance for loan and lease losses be maintained
during the first three years of operation from the date insurance
is effective;
3. That any changes in the proposed directorate, management, or
ownership (10% or more of the stock), including new acquisitions
of or subscriptions to 10% or more of the stock, will render this
commitment null and void unless such proposal is approved by the
FDIC prior to the opening of the Bank;
4. That an accrual accounting system be adopted for maintaining the
Bank's books;
5. That the Bank obtain an annual audit of its financial statements
by an independent auditor for at least the first five years after
deposit insurance coverage is effective, furnish a copy of any
reports by the independent auditor (including any management
letters) to the New York Regional Director of the FDIC within 15
days after their receipt by the Bank, and notify the Regional
Director within 15 days when a change in its independent auditor
occurs;
6. That prior to the effective date of deposit insurance, a minimum
of $1 million in fidelity coverage be obtained, consisting of
either a bankers blanket bond or some combination of a bankers
blanket bond and an excess employee dishonesty bond;
7. That federal deposit insurance shall not become effective unless
and until the Bank has been established as a federally chartered
savings bank, that it has authority to conduct a banking
business, and that its establishment and operation as a bank have
been fully approved by the OTS.
8. That the FDIC shall have the right to alter, suspend, or withdraw
the said commitment should any interim development be deemed by
the FDIC to warrant such action; and
9. That if federal deposit insurance has not become effective within
one year from December 8, 1998, or unless, in the meantime, a
request for an extension of time has been approved by the FDIC,
the consent granted shall expire on said date.
In addition, the OTS has deemed the Bank's and the Company's
applications complete. OTS approval of such applications, containing routine
conditions, is expected no later than February 9, 1999. The Company and the Bank
believe they will be able to satisfy all conditions pursuant to FDIC and OTS
regulatory approvals.
If the offering is not consummated ^ by _______ __, 199_, or if the
offering is terminated at an earlier date, the funds available from the Escrow
Account^ will be promptly repaid to investors. Investors ^ will not receive any
interest on their subscription funds, ^ unless such funds are held in excess of
90 days, in which event such funds will be promptly returned to the subscribers
with any interest earned thereon.
12
<PAGE>
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 ^ be binding on subscribers ^ upon submission to 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 ^ 30
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.
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 ^
425,000 shares are sold. Pending ^ release of escrow, 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.
13
<PAGE>
(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^ will be promptly
returned to subscribers. Subscribers ^ will not receive any interest on their ^
subscriptions unless such funds are held in excess of 90 days, in which event
such funds will be promptly returned to the subscriber with any interest earned
thereon. ^
(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.
(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.^, New Jersey Time, on _______
__, ^ 1999, unless extended by the Company without ^ notice to the subscriber.
The Company reserves the right to terminate the offering at any time. However,
if the offering is not completed by _______ __, ^ 1999, or if the offering is
terminated at an earlier date, ^ subscriptions, without interest earned thereon,
will be promptly repaid to investors. ^ Subscribers will not receive any
interest on their ^ subscriptions, unless such funds are held in excess of 90
days, in which event such funds will be promptly returned to the subscribers
with any interest earned thereon. ^
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 will serve as the headquarters of the
Company. The Company has also entered into a lease of space within the
Pennington Point complex^, primarily to serve the adult retirement community and
others in the immediate vicinity.
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 Lawrenceville premises. The Company ^ purchased
these items for $35,000. The ^ facility is now occupied by the Company and was
previously a vacant branch office leased by the local commercial bank.
Consequently, the Bank has a facility that can open almost immediately upon
consummation of the stock offering and receipt of regulatory approval. 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
14
<PAGE>
ATM, night depository and ^ safe 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 ^ 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
commenced on July 15, 1998 and temporarily served as the headquarters of the
Company. The lease may be terminated by either party with 60 days notice. The
Company anticipates signing a new lease at or prior to the expiration of the
current lease at the discretion of the board of directors. The ^ Company expects
to continue to lease this premises or another premises within the Pennington
Point complex. The limited service facility is expected to include two teller
desks and to operate during limited hours^. The ^ 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 ^ Company 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 ^ had 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).
15
<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> <C> <C>
ASSETS
Cash $ 30,863 ^$ 3,676,441 (a) ^ (a) ^$ 3,707,304 $ 10,841,304
$ 10,810,441
Short-term investments 760,184 -- -- 760,184 760,184
Furniture and equipment 32,959 ^ 127,041 127,041 160,000 160,000
Deferred organization costs 70,000 (70,000) (b) (70,000) (b) ^- -
Other assets 3,012 -- -- 3,012 3,012
------------- ------------ -------------- ----------- -----------
Total assets $ 897,018 ^$ 3,733,482 $ 10,867,482 $ 4,630,500 $ 11,764,500
============ ============ ============== =========== ===========
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 ^ 42,500 (d) 120,000 (d) ^ 51,985 129,485
Additional paid-in capital 939,015 ^ 4,072,500 (d) ^ 11,129,000 (d) ^ 5,011,515 12,068,015
Retained deficit (113,009) ^(319,991) (b) (319,991) (b) (433,000) (433,000)
------------- ------------ -------------- ----------- -----------
Total stockholders' equity 835,491 ^ 3,795,009 10,929,009 4,630,500 11,764,000
------------- ------------ -------------- ----------- -----------
Total liabilities and stockholders' equity $ 897,018 $ 3,733,482 $ 10,867,482 $^ 4,630,500 $^11,764,500
============= ============ ============== =========== ============
</TABLE>
^(footnotes on following page)
16
<PAGE>
- -----------------
(a) The net cash to be received, and after payments are made for certain
organizational costs incurred.
Number of Shares Sold
---------------------
Minimum Maximum
------- -------
Proceeds from offering........................ ^ $4,250,000 $12,000,000
Less:
Payment of accrued and additional
organization costs.......................... ^(127,041) (127,041)
---------- ---------
$3,676,441 $10,810,441
========= ==========
(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 ^ $433,000, and
will be charged to operating expenses when ^ incurred. 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.............. ^ $4,250,000 $12,100,000
Less: Offering costs............... ^(135,000) (751,000)*
----------- -----------
Net proceeds from offering.......... ^ 4,115,000 11,249,000
Less: Par value of common stock.... ^ 42,000 120,000
----------- ----------
Additional Paid In Capital.......... ^ $4,072,500 $11,129,000
========= ==========
* Maximum offering costs include estimated commissions that could be paid to
Ryan, Beck, if this broker-dealer sells the final 794,850 shares, thus assisting
Village in selling the total maximum shares available of 1.2 million.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS ^ AND
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 ^ 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. ^ 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 may also engage in various types of commercial lending
such as small business loans and commercial real estate loans, although the Bank
does not initially intend to emphasize this type of lending. Commercial lending
does entail greater credit risk than residential mortgage lending. 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 ^ meet its
commitments over the ^ first three years. 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
18
<PAGE>
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.
In conjunction with the Company's and Bank's applications to the OTS
and the FDIC for approval of the Bank's charter and federal deposit insurance
and the Company's request to become the holding company of the Bank, the OTS and
the FDIC have conducted an examination of the Company and the Bank. Neither the
OTS nor the FDIC has cited any Year 2000 compliance problems by the Company or
the Bank.
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 ^ the
third party service bureau ^ 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 related to ^ 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. If the Company's third party service bureau is not Year 2000
compliant in a timely manner, the Company would incur expenses in hiring a new
third party service bureau. The Company estimates such an expense together with
any incidental Year 2000 compliance expenses, would not exceed $50,000
(including the estimated cost of paying a licensing fee to a new third party
service bureau and not taking into consideration any refund which would be due
from NCR).
Risks of the Company's Year 2000 Issues. The Company and the Bank will
be reliant upon the computers and software of ^ NCR 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
19
<PAGE>
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 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
20
<PAGE>
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. ^ Upon the opening of
the Bank, the Company does not intend to have any employees other than its
officers. The current employees of the Company, other than its officers, will
exclusively become employees of the Bank. 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 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.
21
<PAGE>
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 secured by properties located in the Bank's market
area. To a lesser extent, the Bank intends to originate consumer installment,
commercial real estate and small business loans. In addition, the Bank may also
engage in commercial business lending, although it does not initially intend to
emphasize commercial lending. Commercial lending, such as commercial real estate
loans and small business loans, entails additional credit risks as compared to
residential mortgage lending.
The organizers' assumptions as to the viability of the Bank^ are based
on projections of population growth, deposit growth and housing development in
the market 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
population, deposits and housing development 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
real estate mortgage, consumer installment and commercial
business loans.
o The Bank anticipates attracting deposits, with an emphasis on
^ and transaction accounts ^, offering 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 Company and 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.
22
<PAGE>
The Company, through the Bank, intends to fill what it perceives to be
a significant market niche that exists in Mercer County, including the areas of
Lawrence Township and Pennington. 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 ^.
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.
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 ^ addition, the Company intends that the Bank operate a limited
service facility within the Pennington Point complex near the Pennington Point
adult community. Leasing these facilities will provide the Bank ^ the potential
to attract deposits from the adult retirement community.
Market Area
The Bank's main office will be located at 590 Lawrence Square Boulevard
(on Quakerbridge Road), Lawrenceville, New Jersey. The ^ Bank considers its
primary market area ^ to be Mercer County, New Jersey. ^
Mercer County consists of residential and business communities ^ and,
includes the cities or townships of Ewing, Hamilton, Hightstown, Hopewell,
Hopewell Borough, Lawrence (including Lawrenceville), Pennington, Princeton,
Princeton Borough, Trenton, Washington, East Windsor and West Windsor. The
population of Mercer County ^ is estimated to be approximately 330,000 in 1998.
The
23
<PAGE>
median household income in Mercer County is estimated to be approximately
$51,000 in 1998, $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.
Lawrence Township, the site of the proposed main office, is an
affluent, mainly residential and small business community consisting of
approximately 50 square miles. The population within a four- mile radius of the
proposed main office is estimated to be approximately 68,000 in 1998. There are
over 2,500 businesses located within four miles of the proposed main office
consisting mainly of small service and retail businesses with less than 10
employees.
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 and only
about 14 of these 25 institutions maintain an office within 4 miles of the
proposed main office of the Bank. Several of the institutions have recently ^
been acquired or are in the process of ^ being acquired. These institutions
include Carnegie Bank ^ (acquired by Sovereign Bank), CoreStates Bank, N.A.
^(acquired by First Union National Bank), Pulse Savings Bank ^(acquired by First
Source Bancorp, ^ Inc., now known as First Sentinal Bancorp) and Trenton Savings
Bank ^(to be acquired by 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
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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 located in the Bank's market area. To a lesser extent,
the Bank anticipates that it will originate commercial real estate loans,
commercial small business loans and consumer installment loans, although it does
not initially intend to emphasize commercial lending. 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 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
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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 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.
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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 ^ will be added and the
borrower ^ will be contacted by mail and/or telephone and payment requested. If
the delinquency continues, subsequent efforts ^ will be 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 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.
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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) and (ii) a Chief Lending Officer. ^ A Senior Operations Manager has
also been employed. 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 ^ 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.
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REGULATION
Set forth below is a brief description of ^ those significant laws
which relate to the Company and the Bank and which are material to your
investment in the Company. 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.
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.
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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 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.
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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 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.
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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, 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.
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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).^
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.
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.
33
<PAGE>
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
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.
The following table sets forth information with respect to the
directors^ and executive officers, ^ all of whom will continue to serve in the
same capacities after the offering. ^
<TABLE>
<CAPTION>
% of
^ Private Proposed Stock Proposed
Placement Stock Subscription Total Ownership
Directors and Officers Age (1) Position Shares Options(2) Shares Shares (3)(4)
- ---------------------- ------- -------- ------ ---------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
William C. Hart 65 Chairman 2,500 -- 2,500 5,000 ^*
of the
Board
Kenneth J. Stephon 39 President, 5,100 10,000 10,000 25,100 ^ 4.8
CEO 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 *
Joseph B. Festa 47 Chief
Lending
Officer -- -- 500 500 *
------- ------ ------- ------- ---
18,600 10,000 ^ 21,500 50,100 9.6
====== ====== ======== ====== ===
</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, subject to stockholder approval.^
^(3) Based upon 519,850 shares (outstanding after the issuance of common stock
in the private placement and the offering).
* Less than 1%
34
<PAGE>
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:
Directors
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. He left CloverBank in order to organize Village Bank. 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.
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 membership on the board of directors of CloverBank,
Pennsauken, New Jersey from 1993 to 1998, 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
35
<PAGE>
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.
Other Executive Officers
Joseph B. Festa, Village Bank's proposed Chief Lending Officer, has
over 18 years of experience in the thrift industry in Mercer County, New Jersey.
Mr. Festa ^ was the Assistant Loan Officer for Roma Federal Savings Bank,
Trenton, New Jersey. He was also previously a Special Investigator for the State
of New Jersey and a Vice President of Essential Printing, New York, New York.
Mr. Festa served as Executive Vice President and Corporate Secretary of Old
Borough Savings and Loan Association, Trenton, 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 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
(formerly Trenton State College), Ewing Township, New Jersey. ^
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 ^
other 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
36
<PAGE>
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. ^ 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 ^ stockholders 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. The implementation of the Option Plan would be subject to
stockholder approval.
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.
The implementation of the RSP would be subject to stockholder approval.
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.
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.
37
<PAGE>
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.
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.
38
<PAGE>
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.
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
restrictions 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
stockholder 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 ^ stockholder
approval, such issuance ^ must 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
39
<PAGE>
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.
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).
40
<PAGE>
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 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 and in the
private placement 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.
41
<PAGE>
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. Certain legal matters will be
passed upon for Ryan, Beck & Co., Inc. by Jamieson, Moore, Peskin & Spicer,
Morristown, New Jersey.
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.
42
<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
^
43
<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 Statement of
Operations.
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 425,000 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>
Village Financial Corporation
^ 425,000 to 1,200,000 Shares
Common Stock
--------------------
PROSPECTUS
--------------------
Ryan, Beck & Co.
Dated _______ __, ^ 1999
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED.
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
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)^(1) .......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).
^--------------
^(1) The Registrant will pay an underwriting commission in the amount of 7.75%
of the gross proceeds sold by the underwriter. The underwriter contemplates
soliciting sales of the common stock, but not before the Registrant has
raised $5 million in the offering and in the previously conducted private
placement.
Item 27. Exhibits:
The exhibits filed as part of this Registration Statement are
as follows:
^1 Form of Underwriting Agreement
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 ^Revised From of 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**
* Previously filed
** Electronic filing only
<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 January ^13, 1999.
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 January ^13, 1999.
<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 1
<PAGE>
VILLAGE FINANCIAL CORPORATION
Minimum of 410,000 Shares of Common Stock
Maximum of 1,200,000 Shares of Common Stock
($0.10 Par Value)
AGENCY AGREEMENT
----------------
January___, 1999
Ryan, Beck & Co., Inc.
150 Monument Road, Suite 106
Bala Cynwyd, PA 19004
Dear Sirs:
Village Financial Corporation (the "Company") is a New Jersey
corporation and proposed holding company for Village Bank (the "Bank"), a
federal savings bank in organization which is to be located in Lawrenceville,
New Jersey. On ____________, 1998, the Bank filed an Application for Permission
to Organize Village Bank (the "Charter Application") with the Office of Thrift
Supervision (the "OTS") and the Company filed an Application of Village
Financial Corporation to become the holding company (the "Holding Company
Application") of the Bank (the Charter Application and the Holding Company
Application, collectively, the "Applications"). Prior to commencing business,
the Company and the Bank will be required to obtain certain regulatory
approvals.
The Company has filed a Registration Statement on Form SB-2, File No.
333-_____, with the Securities and Exchange Commission ("SEC") registering
Shares of the Common Stock under Section 5 of the Securities act of 1933, as
amended (the "Securities Act").
It is presently contemplated that the Company will sell not less than
410,000 Shares and not more than 1,200,000 Shares (the "Shares") of its common
stock, $0.10 par value (the "Common Stock"), in a public offering commencing on
or after _______________ (the "Offering"). The Offering is described in a
Prospectus prepared by the Company and its counsel
<PAGE>
dated __________________. Such Prospectus may be amended or supplemented from
time to time as contemplated by this Agreement. As utilized herein, the term
"Prospectus" shall mean the Prospectus included in the Registration Statement at
the time it was declared effective and as it may be amended or supplemented from
time to time in accordance with this Agreement.
The Company has previously undertaken a private placement (the "Private
Placement") of 94,850 Shares of the Common Stock to members of the Board of
Directors and other initial investors, at a price of $10.00 per share.
It is presently contemplated that you, as Agent (as hereinafter
defined), will apply to the National Association of Securities Dealers, Inc.
("NASD") for approval of the terms of your compensation, as described herein
("NASD Approval"). It is understood that your participation in the Offering by
way of soliciting subscriptions for the Shares will not commence unless and
until (i) you are in receipt of NASD Approval and (ii) the Company has received
subscriptions and payment for 500,000 Shares, in the aggregate in the Offering
and the Private Placement. Following the receipt by the Company of the above
listed items, you and your group of selected broker-dealers shall have the right
to solicit offers to purchase a minimum of 200,000 Shares and, upon the consent
of the Company, up to any Shares remaining unsold in the Offering, subject to
the terms and conditions contained herein.
The Offering will be made on a best-efforts basis to the general
public. No person may purchase more than 9.9% of the outstanding Shares without
the prior approval of the OTS. The Company shall have the right, in its sole
discretion, to reject individual subscriptions in whole or in part, or to
withdraw the Offering. The Company shall also reject individual subscriptions at
the request of the Agent, based upon valid legal or regulatory criteria. All
Shares will be sold at a purchase price of $10.00 per share.
Shares will be initially offered and sold to the general public by the
Company and upon receipt of NASD Approval by the Selling Group referred to in
Section 1 of this Agreement.
All capitalized terms not otherwise defined herein shall have the same
meanings as those ascribed to such terms in the Prospectus.
-2-
<PAGE>
SECTION 1. APPOINTMENT OF AGENT; COMPENSATION TO THE AGENT.
------------------------------------------------
(a) Subject to the terms and conditions herein set forth, the Company
hereby appoints Ryan, Beck & Co., Inc. ("Agent" or "you"), as its sole agent to
consult with and advise the Company and to solicit subscriptions for Shares on
behalf of the Company, in connection with the Company's offering of the Shares
in the Offering. On the basis of the representations, warranties, covenants and
agreements herein set forth, Agent accepts such appointment and agrees to
consult with and advise the Company as to the matters described in subsection
(b) of this Section 1 and to use its best efforts to solicit subscriptions for
the Shares in accordance with this Agreement; provided, however, that Agent
shall not solicit subscriptions for Shares unless (i) the Company has received
irrevocable subscriptions for at least 500,000 Shares in the aggregate in the
Offering and the Private Placement, and (ii) you have received NASD Approval;
provided further that the Agent shall not be obligated to sell any minimum
number of Shares (except that if the Agent does sell Shares, each individual
subscription for Shares shall be for at least 100 Shares, unless waived by the
Company) or to take any action not in accordance with all applicable laws,
regulations, decisions or orders. The Agent shall be entitled to sell a minimum
of 200,000 Shares. The appointment of Agent hereunder shall terminate upon (a)
the later of the Closing Date, if any, or (b) the earlier withdrawal of the
Offering by the Company. In addition, Agent may form a syndicate of NASD-member
firms (which may include the Agent; such syndicate herein collectively shall be
referred to as "Selling Group" or "Selected Dealers"), to participate in the
solicitation of offers to buy the Shares under a Selected Dealers Agreement, in
substantially the form and substance as set forth on Schedule B attached to this
Agreement. The Agent will use its best efforts to cause Selected Dealers to
solicit indications of interest, subsequently contact the customers who
indicated interest to confirm the interest, mail an acknowledgment of receipt of
order to each customer confirming interest on the business day following such
confirmation, debit accounts of such customers on the third business day (the
"debit date") following receipt of the confirmation referred to above, and
forward subscription funds to the Escrow Agent for deposit on or before 12:00
p.m. on the next business day following the debit date. Under this procedure,
customers' funds are not required to be in their accounts until the debit date.
-3-
<PAGE>
(b) Pursuant to a separate agreement dated as of January 5, 1999,
between the parties hereto (the "Engagement Letter"), the Agent has consulted
with and advised the Company and shall continue to consult with and advise the
Company with respect to the following:
(i) participating in drafting the Prospectus;
(ii) designing a detailed marketing strategy for the Common Stock
in order to facilitate sales by the Company to potential
customers;
(iii)assisting the Company in identifying types of potential
purchasers;
(iv) drafting and coordinating the preparation of securities
marketing materials including advertisements, brochures and
letters, subject to the ultimate responsibility and
authority of the Company and its management for the accuracy
and completeness of such materials;
(v) preparing an audiovisual presentation for investor meetings;
and
(vi) assisting management with respect to handling investor
meetings, including sales and related issues and legal
constraints.
(c) Agent will also, following NASD approval, assemble a group of
selected broker-dealers (which shall include Ryan, Beck & Co.)(the "Selling
Group") to sell, on a "best efforts" basis, Shares remaining after the initial
offering by the Company, as described in (a) above.
(d) In addition to the reimbursement of the expenses specified in
Sections 6, 7 and 8 hereof, upon the consummation of the Offering, the Company
will pay to the Agent (or Selling Group member, in the case of (ii) below, if so
instructed by Agent), the following compensation for their services hereunder:
(i) to the Agent, an administrative and advisory fee of $25,000
for the services described in paragraph (b) above, of which
$10,000 was paid on ____________, 1999, and $15,000 shall be
payable on the Closing Date whether or not this Agreement
has been executed at that time;
(ii) to the Agent, seven and three-quarters percent (7.75%)
percent of the aggregate dollar amount of the Shares sold by
members of the Selling Group (which may include Agent) on
the Closing Date, a portion of which will be paid over to
such Selling Group member, pursuant to the terms of a
Selected Dealers Agreement to be entered into between the
Agent and members of the Selling Group.
-4-
<PAGE>
(e) The fees and commissions specified in paragraph (d) of this Section
1 shall be payable in immediately available funds on the Closing Date. If the
sale of Common Stock is abandoned or not completed by December 31, 1999, the
unpaid portion of the fee specified in paragraph (d) (i) shall be payable upon
the earlier of abandonment or December 31, 1999.
(f) The Company agrees to reimburse the Agent for its out-of-pocket
costs and expenses, in the maximum aggregate amounts specified in Section 6
hereof, and for all costs and expenses specified in Section 7 hereof promptly
upon receiving invoices for such costs and expenses. Such costs and expenses
shall be paid whether the Offering is consummated or not, subject to the
applicable limits, as further described in Section 6.
(g) Subject to the provisions of this Agreement, the Company
acknowledges that it has retained Agent in connection with the Offering and
that, in such capacity, only personnel employed by Agent and such other
personnel as are assigned for the specific services contemplated by this
Agreement to be performed by Agent will be involved in providing the services
described herein. If a Selling Group is formed, the Agent will (i) execute a
Selected Dealers Agreement and (ii) abide by the terms thereof and will be
entitled to the same compensation as any other member of the Selling Group.
(h) The Company and the Agent agree that if a resolicitation of
purchase orders from persons subscribing in the Offering is necessitated for
whatever reason, they will negotiate in good faith with each other an agreement
to cover further fees and expenses in connection therewith.
SECTION 2. CLOSING: RELEASE OF FUNDS AND DELIVERY OF
-----------------------------------------
CERTIFICATION.
--------------
(a) If, during the "Initial Offering Period" (as hereafter defined),
all "Closing Conditions" (as hereafter defined) are satisfied and the Company
accepts subscriptions of not less than 410,000 Shares nor more than 1,200,000
Shares and the other conditions set forth in Section 8 hereof are satisfied,
then the Company shall issue Shares covered by each subscription which the
Company has accepted during the Offering Period and shall release for delivery,
through its transfer agent, if any, certificates evidencing such Shares on the
Closing Date against
-5-
<PAGE>
payment therefor by release of funds from the special interest-bearing escrow
account maintained by the Escrow Agent and referred to in Section 5 hereof (the
"Escrow Account"); provided, however, that no such funds shall be released to
the Company or for its benefit until the conditions specified in Section 8
hereof shall have been compiled with to the reasonable satisfaction of the Agent
and its counsel. Such release and payment shall be made at the Closing (the
"Closing") to be conducted on the Closing Date of the Offering. Certificates for
Shares shall be delivered by the Company or its transfer agent, if any, directly
to the purchasers thereof or in accordance with their directions promptly
thereafter. The hour and date upon which the Company shall first release or
deliver the Shares sold in the Offering against payment therefor, in accordance
with the terms hereof, are herein called the "Closing Date."
(b) For purposes of this Section 2, the following terms shall have the
following meaning:
(i) The term "Offering Period" shall mean the period commencing
on the date that the Prospectus is first utilized and
terminating on the earliest to occur of the "Acceptance
Date," the "Expiration Date" or the "Withdrawal Date" (as
such terms are hereafter defined).
(ii) The term "Acceptance Date" shall mean any date prior to the
Expiration Date on which the Company chooses to deliver to
the Agent a notice certifying that (x) it has terminated the
Offering Period and intends to accept subscriptions covering
(in the aggregate) not less than 410,000 Shares and (y) all
Closing Conditions (as defined below) have been satisfied.
(iii) The term "Expiration Date" shall mean December 31, 1999.
(iv) The term "Withdrawal Date" shall mean the date on which the
Company delivers to the Agent a notice certifying that the
Company has elected to cancel and withdraw the Offering.
(v) The term "Closing Conditions" shall mean the following
conditions: (A) approval from the OTS of the Application for
Permission to Organize Village Bank and the Application of
Village Financial Corporation; (B) the Bank shall have
received approval from the FDIC of the Insurance
Application; and (C) the Company shall have received
subscriptions and payment for 410,000 Shares.
-6-
<PAGE>
(c) The Closing shall be held at the Offices of Jamieson, Moore, Peskin
& Spicer (or such other locations or in any other manner as the Company and the
Agent shall agree upon), commencing at 9:30 a.m. Washington D.C. time. The
Closing Date shall be the earlier of the Expiration Date or the third business
day after the Acceptance Date (or such other date as the Company and the Agent
shall agree upon), but in no event prior to such time as irrevocable
subscriptions and payment for a minimum of 410,000 Shares have been accepted and
all Closing Conditions have been satisfied.
SECTION 3. OFFERING.
---------
The Shares are to be offered in the Offering at a purchase price of
$10.00 per Share.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
-------------------------------------------------
THE BANK.
---------
Each of the Company and the Bank represents and warrants to the Agent
as follows:
(a) On the date the Prospectus is initially utilized and on the Closing
Date, the Withdrawal Date, and the Expiration Date, and at all times between
such dates, the Prospectus and Marketing Materials (as defined herein) do not
and will not contain any untrue statement of any material fact or omit to state
any material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Notwithstanding
the foregoing, this representation and warranty shall not apply to statements in
or omissions from the Prospectus included therein or omitted therefrom in
reliance upon, and in conformity with, written information expressly provided by
you to the Company expressly regarding the Agent for use under the caption "Plan
of Distribution."
(b) As of the Closing Date, all of the Closing Conditions shall have
been satisfied, or appropriate waivers obtained or arrangements made for the
appropriate satisfaction of such conditions, in accordance with all applicable
federal and state laws, regulations, decisions and orders, including all terms,
conditions, requirements and provisions precedent imposed by the SEC, OTS, the
FDIC or any other regulatory authority having jurisdiction over any of the
transactions described in the Prospectus.
-7-
<PAGE>
(c) The financial statements of the Company, audited and unaudited, if
any, and notes thereto included in the Prospectus present fairly the financial
position of the Company at the dates indicated and the results of its operations
for the periods specified and comply as to form in all material respects with
generally accepted accounting principles and SEC Regulation S-B; and such
financial statements were prepared in conformity with generally accepted
accounting principles applied on a consistent basis during the periods involved.
The financial, statistical and pro forma information and related notes included
in the Prospectus are accurate and present fairly the information shown thereon
on a basis consistent with the financial statements of the Company included in
the Prospectus.
(d) Since the respective dates as of which information is given in the
Prospectus, except as may otherwise be stated therein: (i) there has not been
any material adverse change in the condition, earnings, business affairs or
business prospects of the Company, financial or otherwise, whether or not
arising in the ordinary course of business, and (ii) there has not been any
material transactions entered into by the Company not otherwise disclosed in the
Prospectus.
(e) As of the Closing Date: (i) the Bank shall be a federal savings
bank , duly incorporated, validly existing and in good standing as a federal
savings bank under the laws of the United States; (ii) the Bank shall have
received approvals of each of the Charter Application and the Insurance
Application, and neither of such approvals shall have been subsequently
rescinded, revoked or suspended and shall be in full force and effect, and the
Bank shall have satisfied and complied with all of the conditions or
requirements imposed by the orders approving the Charter Application and the
Insurance Application and which could be satisfied and/or complied with as of
the Closing Date; (iii) the Bank shall be in compliance in all material respects
with all banking laws, rules, regulations and orders applicable to the Bank as
of such date and time and shall be in compliance in all material respect with
all other laws, rules, regulations and orders applicable to the Bank as of such
date and time, except where such failure would not have a material adverse
effect on the condition, financial or otherwise, or the business, operations,
income or prospects of the Bank; (iv) all of the issued and outstanding capital
stock of the Bank will be duly and validly issued and held by the Company, will
be fully paid and nonassessable and will be free and clear of any security
interest, pledge, lien, encumbrance, claim
-8-
<PAGE>
or equity created by the Bank or the Company; and (v) the Bank shall have no
subsidiaries and shall not own or lease any real estate other than as described
in the Prospectus. In addition, (i) the Bank's deposit accounts will be insured
by the Savings Association Insurance Fund of the FDIC up to the maximum
allowable limits thereof; (ii) the Bank will have the requisite power and
authority (corporate and other) to conduct its commercial banking business as
described in the Prospectus; and (iii) the Bank shall have obtained all
licenses, permits and other governmental authorizations required for the conduct
of its business as presently contemplated and as described in the Prospectus.
The Bank will not accept any deposits until it has obtained FDIC insurance.
(f) As of the Closing Date: (i) the Company shall be a corporation duly
organized, validly existing and in good standing under the laws of the State of
New Jersey; (ii) the Company shall have received approval of the Holding Company
Application, such approval shall not have been subsequently rescinded, revoked
or suspended and shall be in full force and effect, and the Company shall have
satisfied and complied with all of the conditions or requirements imposed by the
order of the OTS approving the Holding Company Application and which could be
satisfied and/or complied with as of the Closing Date; (iii) the Company shall
have obtained all licenses, permits and other governmental authorizations
required for the conduct of its business, except where such failure would not
have a material adverse effect on the condition, financial or otherwise, or the
business, operations, income or prospects of the Company; (iv) all of the issued
and outstanding capital stock of the Company will be duly and validly issued, in
accordance with the subscriptions theretofore received and accepted, and fully
paid and non-assessable and will be free and clear of any security interest,
pledge, lien, encumbrance, claim or equity created by the Company; and (v) the
Company shall have no subsidiaries and shall not own or lease any real estate
other than as described in the Prospectus.
(g) On completion of the Offering, assuming that the minimum or maximum
number of Shares is sold, the authorized equity capital of the Company will be
as set forth in the Prospectus under the caption "Capitalization." The issuance
of the Shares will not be in violation of any preemptive rights; and the terms
and provisions of the Shares conform and will conform in all material respects
to the description thereof contained in the Prospectus.
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(h) As of the Closing Date, neither of the Company nor the Bank will
not be in violation of any law, rule, regulation or order (including laws,
rules, regulations and orders pertaining to the offer and sale of securities),
nor will it be in violation of its certificate of incorporation or bylaws, or in
default in the performance of or observance of any material obligation,
agreement, covenant or condition contained in any material contract, lease, loan
agreement, indenture or other instrument to which it is a party or by which it
or any of its properties may be bound, except where such violation or default
would not have a material adverse effect on the condition, financial or
otherwise, or the business, operations, income or prospects of the Company on a
consolidated basis; nor will the consummation of any of the transactions
described in the Prospectus, nor the execution and delivery of this Agreement or
the consummation of the transactions to be effected at or prior to the Closing
Date, conflict with or constitute a violation of the certificate of
incorporation or by-laws of the Company, or result in a default under any
material contract, lease or other instrument to which the Company is a party,
except where such conflict or violation would not have a material adverse effect
on the condition (financial or otherwise), business, operations, income or
prospects of the Company.
(i) As of the Closing Date, the Company and the Bank will have good and
marketable title to all properties and assets which are material to their
respective business and are described in the Prospectus as to be owned by either
of them as of such date, free and clear of all liens, except such liens as are
described in the Prospectus or are not material to the business of the Company.
(j) As of the Closing Date, neither the Company nor the Bank will be in
violation of any directive or order specific to the Company or the Bank from the
OTS, the FDIC, the SEC or any other agency to make any material change in the
method of conducting its business as described in the Prospectus or any
marketing materials (including without limitation, letters to investors,
brochures, and slide presentations) used by the Company in connection with the
Offering (the "Marketing Materials"); the Company and the Bank will conduct
their business so as to comply in all material respects with all applicable
statutes and regulations, and there will be no suit or proceedings, charge,
investigation or action before or by any court, regulatory authority or
governmental agency or body pending or, to the best of the knowledge of the
Company or the
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Bank, threatened, which might affect the performance of this Agreement or the
consummation of the transactions to be effected at or prior to the Closing Date
or described in the Prospectus or which might result in any material adverse
change in the condition (financial or otherwise), earnings, business affairs or
business prospects of the Company or the Bank, or which would materially affect
its properties and assets.
(k) Any certiompany or the Bank and delivered to the Agent or its
counsel in connection with the transactions contemplated by this Agreement shall
be deemed to be a representation and warranty by the Company or the Bank to the
Agent as to the matters covered thereby with the same effect as if such
representation and warranty were set forth herein.
(l) The Company has not granted or authorized, nor made prior
arrangements to grant or authorize, any options, warrants or rights to purchase
the Company's capital stock, other than as set forth in the Prospectus.
(m) This Agreement has been duly authorized, validly executed and
delivered by the Company and the Bank and is the legal, valid and binding
agreement of the Company and the Bank, enforceable in accordance with its terms,
subject, as to enforceability, to bankruptcy, insolvency, receivership,
reorganization, fraudulent conveyance, moratorium and other laws of general
applicability relating to or affecting creditors' rights and remedies, to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law), and to the extent that rights
to indemnity or contribution hereunder may be limited under applicable laws or
considerations of public policy.
(n) Each lease of real property to which the Company or the Bank are a
party has been duly authorized, validly executed and delivered, and is the
legal, valid and binding agreement of the Company or the Bank, enforceable in
accordance with its terms, subject, as to enforceability, to bankruptcy,
insolvency, receivership, reorganization, fraudulent conveyance, moratorium and
other laws of general applicability relating to or affecting creditors' rights
and remedies, to general principles or equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law), and to the
extent that rights to indemnity thereunder may be limited under applicable laws.
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(o) The Registration Statement was declared effective by the SEC on
____________; and no stop order has been issued with respect thereto and
no proceedings therefor have been initiated or, to the best knowledge of the
Company, threatened by the SEC. At the time the Registration Statement,
including the Prospectus contained therein (including any amendment or
supplement thereto), became effective, the Registration Statement complied as to
form in all material respects with the Securities Act and the regulations
promulgated thereunder and the Registration Statement, including the Prospectus
contained therein (including any amendment or supplement thereto), any Blue Sky
Application or any Marketing Material authorized by the Company for use in
connection with the Offering did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, and at the time any Rule 424(b) or (c) Prospectus was
filed with the SEC and at the Closing Date, the Registration Statement,
including the Prospectus contained therein (including any amendment or
supplement thereto), and any Blue Sky Application or any Marketing Material
authorized by the Company for use in connection with the Offering will not
contain an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however, that the
representations and warranties in this Section shall not apply to statements or
omissions made in reliance upon and in conformity with written information
furnished to the Company by the Agent expressly regarding the Agent for use
under the captions "Market for the Common Stock" and "Plan of Distribution and
Selling Commissions" or written statements or omissions from any sales
information or iecurities or blue sky laws or regulations provided the Company
in writing by the Agent.
(p) S.R. Snodgrass A.C., which certified the financial statements filed
as part of the Registration Statement, has advised the Company that it is, with
respect to the Company, an independent certified public accountant under the
Securities Act and the regulations promulgated thereunder.
(q) Neither the Company nor the Bank has: (i) issued any securities
within the last 18 months (except as described in the Prospectus), and (b)
shares of Common Stock issued with
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respect to the initial capitalization of the Company); (ii) had any dealings
with respect to sales of securities within the 12 months prior to the date
hereof with any member of the NASD, or any person related to or associated with
such member, other than discussions and meetings relating to the Offering; (iii)
entered into a financial or management consulting agreement except for the
Letter Agreement and as contemplated hereunder; or (iv) engaged any intermediary
between the Agent and the Company or the Bank in connection with the Offering or
the offering of shares of the common stock of the Company, and no person is
being compensated in any manner for such services.
SECTION 5. COVENANTS OF THE COMPANY AND THE BANK.
--------------------------------------
Each of the Company and the Bank hereby covenants with you as follows:
(a) The Company will not, at any time after the Registration Statement
is declared effective, file any amendment or supplement to such Registration
Statement without providing Ryan, Beck or its counsel an opportunity to review
such amendment and to object in writing.
(b) The Company and the Bank will use their best efforts to cause the
Applications to be approved by the OTS and the FDIC and will immediately upon
receipt of any information concerning events listed below notify Ryan, Beck: (i)
of receipt of any comments from the OTS, the FDIC or any other governmental
entity with respect to the Applications or any transactions contemplated by this
Agreement; (ii) of the issuance by the SEC, the OTS or any other governmental
entity of any order or other action suspending the Prospectus or the use of the
Registration Statement or the Prospectus or any other filing of the Company or
the Bank under applicable law, or the threat of any such action; (iii) the
issuance by the SEC, the OTS or any other governmental authority of any stop
order suspending the effectiveness of the Registration Statement or of the
initiation or threat of initiation or threat of any proceedings for such
purposes. The Company and the Bank will make every reasonable effort to prevent
the issuance by the SEC or any other governmental agency of any such order and,
if any such order shall at any time be issued, to obtain the lifting thereof at
the earliest possible time.
(c) The Company and the Bank will give you notice of its intention to
file and reasonable time to review any amendment or supplement to the
Applications which contains
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information which differs from that included in the Registration Statement or
Prospectus previously being utilized and will not file any such amendment or
supplement to which you shall reasonably object or which shall reasonably be
disapproved by your counsel.
(d) The Company and the Bank has or will deliver to you no less than
two (2) conformed copies tly to you and one to your counsel: the Applications as
originally filed and of each amendment or supplement thereto, and the
Registration Statement as originally filed, and each amendment thereto or
correspondence in connection thereunder.
(e) The Company and the Bank will furnish to you from time to time such
number of copies of the Prospectus (as amended or supplemented) as you may
reasonably request for the purposes contemplated by the respective applicable
rules and regulations of the Commission applicable to the Agent, or by the rules
and regulations of the NASD.
(f) During the period when the Prospectus is required to be delivered,
the Company will comply at its own expense with all requirements imposed upon it
by the Commission by applicable state law and regulations and by other
applicable law, in each case as from time to time in force, so far as necessary
to permit the continuance of sales or dealing in Shares of Common Stock during
such period in accordance with the provisions hereof and the Prospectus.
(g) If any event relating to or affecting the Company or the Bank shall
occur, as a result of which it is necessary, in the reasonable opinion of
counsel for the Company and the Bank or in the reasonable opinion of your
counsel, to amend or supplement the Registration Statement or Prospectus in
order to make the Registration Statement or Prospectus not misleading in light
of the circumstances existing at the time it is delivered to a purchaser, the
Company and the Bank will forthwith prepare and furnish to you a reasonable
number of copies of an amendment or amendments of, or a supplement or
supplements to, the Registration Statement or Prospectus (in form and substance
satisfactory to each of Company's and Bank's counsel and your counsel) which
will amend or supplement the Registration Statement or Prospectus so that, as
amended or supplemented, it will not contain any untrue statement of any
material fact or omit to state any mateht of the circumstances existing at the
time the Prospectus is delivered to a prospective
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<PAGE>
purchaser or a purchaser, not misleading. For the purpose of this paragraph (g),
the Company and the Bank will furnish to you such information with respect to
itself as you may from time to time reasonably request.
(h) The Company and the Bank will endeavor in good faith, in
cooperation with you, to qualify the Shares, if necessary, for offer and sale
under the applicable securities laws of such jurisdictions as you may reasonably
designate; provided, however, that the Company or the Bank shall not be
obligated to file any general consent to service of process or to qualify to do
business in any jurisdiction in which it is not so qualified (except for the
limited purpose of qualifying the Shares for offer and sale in such
jurisdiction). In each jurisdiction where any of the Shares shall have been
qualified as above provided, the Company and the Bank will make and file such
statements and reports in each year as are or may be reasonably required by the
laws of such jurisdiction.
(i) During the period the Common Stock is registered under the
Securities Exchange Act of 1934 (the "1934 Act"), the Company will furnish to
its stockholders as soon as practicable after the end of each fiscal year, an
annual report as required by Rule 14a-3 of the 1934 Act.
(j) During the period of eighteen (18) months from the Closing Date,
the Company will furnish to Ryan, Beck as soon as available, a copy of each
report of the Company furnished generally to shareholders of the Company or
furnished to or filed with the SEC under the 1934 Act, or any national
securities exchange or system on which any class of securities of the Company
may be listed or quoted, if any (including, but not limited to, reports on Form
10-K, 10-Q or 8-K or their equivalents, and all proxy statements).
(k) The Company and the Bank will use the net proceeds from the sale of
the Shares in the manner set forth in the Prospectus under the caption "Use of
Proceeds."
(l) Other than the Prospectus and other than as permitted by applicable
law, the Company will not distribute any prospectus, Prospectus or other
offering material in connection with the offer and sale of the Shares and will
not publish any writing which constitutes an offer or prospectus.
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<PAGE>
(m) The Company will use all reasonable efforts to comply with such
requirements imposed by law (including the 1934 Act), regulation or the NASD as
may be necessary for Agent or other brokerage firms to make an active market for
the Common Stock.
(n) The Company will maintain appropriate arrangements with the Escrow
Agent, in accordance with and pursuant to the terms of the Escrow Agreement by
and between the Company and Summit Bank, dated as of _________________, as it
may be amended from time to time and will maintain such records of all funds
submitted to the Escrow Agent as necessary to enable the Escrow Agent (i) to
make appropriate refunds of such funds in the event that such refunds are
required to be made in accordance with the Offering as described in the
Prospectus and (ii) to pay interest on certain of such funds to certain of such
subscribers as described in the Prospectus, if such refunds are required. In
addition, Company will comply with the SEC's interpretation of Rule 15c2-4
promulgated under the Securities Exchange Act of 1934, as amended, with regard
to the timely transmission of subscription funds to the Escrow Agent.
(o) The Company shall not be deemed to have accepted any subscription
offer accompanied by a check or comparable instrument until final payment has
been made on such check or instrument.
(p) The Company shall concurrently deliver to you copies of all notices
and reports given by the Company to the Escrow Agent or received by the Company
from the Escrow Agent.
(q) The Company will not sell or issue, contract to sell or otherwise
dispose of, for a period of 90 days after the date hereof any shares of Common
Stock, without the Agent's prior written consent, which consent shall not be
unreasonably withheld, other than in connection with any plan or arrangement
described in the Prospectus.
(r) The Company will report the use of proceeds of the Offering in
accordance with Rule 463 under the Securities Act.
(s) The Company will take such actions and furnish such information as
are reasonably requested by the Agent in order for the Agent to ensure
compliance with the "Interpretation of the Board of Governors of the NASD on
Free Riding and Withholding."
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<PAGE>
(t) The Company will make generally available to its security holders
as soon as practicable, but in any event not later than 15 months after the end
of the Company's current fiscal year quarter, an earnings statement (which need
not be audited) covering 12-month period beginning after the date of this
Agreement that shall comply with the provisions of Section 11(a) of the Act and
Rule 158 promulgated under the Act.
SECTION 6. PAYMENT OF EXPENSES.
--------------------
The Company agrees to pay all expenses in connection with the Offering
and otherwise incident to the performance of the obligations of the Company
under this Agreement, including, but not limited to, the following: (i) the
preparation, issuance and delivery of certificates for the Shares to the
subscribers in the Offering, (ii) the fees and disbursements of the Company's
legal counsel and accountants, (iii) the filing fees incurred to file the
Registration Statement with the Commission, (iv) the filing fees, if any,
incurred in connection with the qualification of the Shares under all applicable
securities or Blue Sky laws, (v) the printing and delivery to you, in such
quantities as you shall reasonably request, of copies of the Registration
Statement, the Prospectus and the Applications as originally filed and all other
documents in connection with the Offering and this Agreement, (vi) the cost of
preparing and printing Marketing Materials, advertising expenses and expenses
relating to meetings with prospective subscribers, (vii) filing fees incurred in
connection with the review of the Offering by the National Association of
Securities Dealers, Inc., (viii) the cost of printing all Subscription
Agreements and all other documents relating to the Offering, and the fees and
charges of the Escrow Agent, any transfer agent, registrar and other agents,
(iv) documented out-of-pocket expense incurred by you in connection with the
Offering and this Agreement, and (x) fees (not to exceed $22,500), disbursements
and other expenses of your counsel, in addition to amounts specified in clause
(iv) above. Reimbursement or payment of expenses enumerated under clause (iv) of
this section shall not exceed an aggregate of $3,000 without the prior written
consent of the Company, which consent shall not be unreasonably withheld. Such
amount shall be in addition to any other amounts described in items (i) through
(viii) hereof. Reimbursement of fees and expenses set forth in item (ix) shall
be made on a monthly basis, beginning __________________, except as provided
below as to fees, disbursements and expenses of your counsel. Such bills will be
payable promptly upon receipt thereof.
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SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
---------------------------------
(a) The Company agrees to indemnify and hold harmless the Agent, its
officers, directors, employees, agents, shareholders, and counsel, and each
person, if any, who controls the Agent within the meaning of Section 15 of the
Securities Act or Section 20(a) of the 1934 Act, against any loss, liability,
claim, damage, and expense whatsoever (which shall include, but not be limited
to, amounts incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim or investigation whatsoever
and any and all amounts paid in settlement of any claim or litigation), as and
when incurred, arising out of, based upon, or in connection with (i) any untrue
statement of a material fact or alleged untrue statement of a material fact or
any omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, contained in
(A) the Registration Statement or the Prospectus (or any amendment or supplement
thereto) or in any document incorporated by reference therein or required to be
delivered with the Registration Statement or the Prospectus, or the Marketing
Material, or (B) in any application or other document or communication
(collectively called an "application") executed by or on behalf of the Company
or based upon written information furnished by or on behalf of the Company filed
in any jurisdiction in order to qualify the Shares being sold under the state
"blue sky" or securities laws thereof (collectively, the "Blue Sky Materials")
or filed with the SEC or any securities exchange or with the OTS or the FDIC;
unless such statement or omission was made in reliance upon and in conformity
with written information concerning the Agent, this Agreement or the
compensation of the Agent furnished to the Company by or on behalf of the Agent
expressly for inclusion in the Registration Statement and the Prospectus or any
amendment or supplement thereto under the heading "The Offering and Plan of
Distribution", or in any application, as the case may be, or (ii) any breach of
any representation, warranty, covenant or agreement of the Company contained in
this Agreement, or (iii) the provision by the Agent of the services to be
provided by the Agent under this Agreement, unless it is found by a court in
final judgment that the loss, liability, claim, damage or expense of the Agent
has resulted form the gross negligence or willful misconduct of the Agent, its
officers, directors, employees, affiliates, counsel or agents in performing the
services to be performed by the Agent under this Agreement. For purposes of this
section, the term "expense" shall include, but not be limited to, counsel fees
and costs, court costs, out-of-pocket costs and compensation for the time spent
by Agent's directors, officers,
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employees and counsel according to his or her normal hourly billing rates. The
indemnification provisions shall also extend to all affiliates of the Agent,
their respective directors, officers, employees, legal counsel, agents and
controlling persons within the meaning of the federal securities laws. The
foregoing agreement to indemnify shall be in addition to any liability the
Company or the Bank may otherwise have to the Agent or the persons entitled to
the benefit of these indemnification provisions.
(b) The Agent agrees to indemnify and hold harmless the Company, its
directors and officers, and each person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20(a) of the 1934
Act, against any and all loss, liability, claim, damage and expense described in
the indemnity contained in subsection (a) above, as incurred, but only with
respect to untrue statements or omissions of a material fact, or alleged untrue
statements or omissions of a material fact, made in the Registration Statement
or Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information about the Agent, this Agreement, or the
compensation of the Agent, furnished to the Company by the Agent in writing
expressly for use in the Registration Statement and the Prospectus (or any
amendment or supplement thereto) under the caption "The Offering and Plan of
Distribution".
(c) An indemnified party shall give prompt notice to the indemnifying
party if any action, suit, proceeding or investigation is commenced in respect
of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve the indemnifying party from its obligations
to indemnify hereunder. If it so elects within a reasonable time after receipt
of such notice, an indemnifying party may assume the defense of such action
(including the employment of counsel satisfactory to the indemnified parties)
and payment of all expenses of the indemnified party in connection with such
action. Such indemnified party or parties shall have the right to employ its or
their own counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of such indemnified party or parties unless the
employment of such counsel shall have been authorized in writing by the
indemnifying party in connection with the defense of such action or the
indemnifying party shall not have promptly employed counsel satisfactory to such
indemnified party or parties or such indemnified party or parties shall have
reasonably concluded that there may be one or more legal defenses available to
it or them or to other indemnified parties which are different from or
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additional to those available to one or more of the indemnifying parties, in any
of which events such fees and expenses shall be borne by the indemnifying party
and the indemnifying party shall not have the right to direct the defense of
such action on behalf of the indemnified party or parties. The Company shall be
liable for any settlement of any claim against the Agent (or its directors,
officers, employees, affiliates or controlling persons), made with the Company's
written consent, which consent shall not be unreasonably withheld. Each
indemnified party, as a condition of the indemnity agreements contained in
Sections 7(a) and 7(b), shall use its best efforts to cooperate with the
indemnifying party in the defense of any such action or claim. No indemnifying
party shall be liable for any settlement of any such action effected without its
written consent (which consent shall not be unreasonably withheld), but if
settled with its written consent or if there be a final judgment in favor of the
plaintiff in any such action, the indemnifying party agrees to indemnify and
hold harmless any indemnified party from and against any loss or liability by
reason of such settlement or judgment.
(d) The agreements contained in this Section 7 and the representations
and warranties of the Company and the Bank set forth in this Agreement shall
remain operative and in full force and effect regardless of (i) any
investigation made by or on behalf of the Agent or its officers, directors,
controlling persons, or counsel, or by or on behalf of the Company or any
officers, directors, controlling persons, or counsel of the Company, (ii)
delivery of any payment hereunder for the Shares, or (iii) any termination of
this Agreement.
(e) In order to provide for just and equitable contribution, if a claim
for indemnification pursuant to these indemnification provisions is made but it
is found in a final judgment by a court that such indemnification may not be
enforced in such case, even though the express provisions hereof provide for
indemnification in such case, then the Company, on the one hand, and the Agent,
on the other hand, shall contribute to the amount paid or payable by such
indemnified persons as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative benefits
received by the Company, on the one hand, and the Agent, on the other hand, from
the sale of Shares, and also the relative fault of the Company, on the one hand,
and the Agent, on the other hand, in connection with the statements, acts or
omissions which resulted in such loss, liability claim, damage or expense, and
any other relevant equitable considerations shall also be considered. The
relative benefits received by the Company on the one hand and the Agent on the
other hand shall be deemed to be in the same
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proportion as the total net proceeds from the sale of the Shares (before
deducting expenses) received by the Company bear to the total fees (not
including expenses) received by the Agent. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or the alleged omission to
state a material fact relates to written information supplied by the Company or
the Bank on the one hand or the Agent on the other hand and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Agent agree that it
would not be just and equitable if contribution pursuant to this section 7(e)
were determined by pro rata allocation or by any other method of allocation
which does not take into account the equitable considerations referred to above
in this Section 7(e). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, or liabilities (or actions in respect
thereof) referred to above in this Section 7(e) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
found liable for a fraudulent misrepresentation or omissions shall be entitled
to contribution from any person who is not also found liable for such fraudulent
misrepresentation or omission. Notwithstanding the foregoing, the Agent shall
not be obligated to contribute any amount hereunder that exceeds the amount of
the fees and commissions (but not expenses) actually paid to the Agent
hereunder. For purposes of this Section 7(e) each director, officer, agent, and
counsel of the Agent, and each person, if any, who controls the Agent within the
meaning of Section 15 of the Securities Act or Section 20(a) of the 1934 Act
shall have the same rights to contribution as the Agent, and each officer,
director, agent, and counsel of the Company, and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20(a) of the 1934 Act shall have the same rights to contribution as the
Company. Any party entitled to contribution, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party under this
Section 7, will notify such party from whom contribution may be sought, but the
omission to so notify such party shall not relieve the party from whom
contribution may be sought from any obligation it may have hereunder or
otherwise under this Section 7.
(f) The indemnity and contribution agreements contained herein are in
addition to any liability which the Company may otherwise have to the Agent.
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SECTION 8. CONDITIONS TO RELEASE OF FUNDS BY ESCROW AGENT.
-----------------------------------------------
The release of funds by the Escrow Agent at the Closing Date is subject
to satisfaction of the Closing Conditions and is subject to the further
condition that all representations and warranties and other statements of the
Company and the bank herein are, as applicable, at and as of the commencement of
the Offering and as of such date, true and correct in all materials respects,
the condition that the Company and the Bank shall have performed in all material
respects all of their respective obligations hereunder to be performed on or
before such dates, and to the following further conditions:
(a) No stop order suspending the use of the Registration Statement or
Prospectus shall have been issued under any applicable law or proceedings
therefore initiated or threatened by any regulatory authority, and no order or
other action suspending the consummation of the transactions described in the
Registration Statement and Prospectus shall have been issued or any proceeding
therefor initiated or threatened by the SEC, OTS, FDIC or any other regulatory
authority.
(b) The Company and the Bank shall have completed all conditions
precedent to the transactions described in the Registration Statement and
Prospectus, including, without limitation, receipt of approval of the
Applications and receipt of approval of the FDIC application.
(c) At the Closing Date Ryan Beck shall have received:
(1) The favorable opinion addressed to you, dated as of the
Closing Date, of Malizia, Spidi, Sloane & Fisch, counsel for the Company and the
Bank, in form and substance satisfactory to your counsel, substantially to the
effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the
laws of the State of New Jersey.
(ii) The Bank has been duly incorporated and is validly
existing as a federal savings bank in good standing
under the laws of the United States.
(iii)The Company and the Bank have the corporate power and
authority to own, lease and operate their properties
and the corporate power and authority to conduct their
business as described in the Registration Statement and
Prospectus; and neither the Company nor the Bank is
presently required to qualify as a
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foreign corporation in any jurisdiction in order to
conduct its business as described in the Registration
Statement and Prospectus. All of the Closing Conditions
have been satisfied or deemed to have been satisfied
simultaneously with the Closing.
(iv) Upon receipt of the FDIC approval of the Insurance
Application and receipt of the Bank charter from the
OTS, the deposit accounts of the Bank will be insured
by the Savings Association Insurance Fund of the FDIC
up to the maximum amount allowed under law.
(v) Except for the Bank, there are no direct or indirect
subsidiaries of the Company or the Bank.
(vi) All Shares of Common Stock sold and issued pursuant to
the Offering have been duly and validly authorized for
issuance and, when issued and delivered by the Company
pursuant to the terms of the Offering against payment
of the consideration set forth in the Registration
Statement and Prospectus, will be duly and validly
issued and fully paid and nonassessable; the issuance
of the Common Stock is not subject to preemptive
rights.
(vii)All of the capital stock of the Company to be issued
and outstanding immediately following the conclusion of
the Offering will be issued free and clear of any
mortgage, pledge, lien, security interest, encumbrance,
or claim (legal or equitable), created by the Company.
(viii) This Agreement has been duly authorized, executed and
delivered by the Company and the Bank and is the legal,
valid and binding agreement of the Company and the Bank
enforceable in accordance with its terms, except as
such enforceability may be limited by bankruptcy,
insolvency, reorganization, receivership, fraudulent
conveyance, moratorium or other laws of general
application relating to or affecting the enforcement of
creditors' rights and remedies, as from time to time in
effect, and application of equitable principles
(regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(ix) The OTS has approved the Applications, and the FDIC has
approved the Insurance Application, and no other
approvals are required in connection with the
transactions or proposed operations described in the
Registration Statement and Prospectus, and no action
has been taken or, to the best of such counsel's
knowledge, is pending or threatened to revoke any such
approvals.
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(x) No further approval, registration, authorization,
consent or other order of any public board or body is
required under New Jersey or federal law in connection
with the execution and delivery by the Company or the
Bank of this Agreement, the issuance of the Shares and
the commencement of operations of the Company and the
Bank described in the Registration Statement and the
Prospectus.
(xi) The statements contained in the Prospectus, to the
extent such information constitutes matters of law or
legal conclusions, summaries of legal matters or
documents under the captions "Risk Factors - Dividend
Restrictions - Control By Organizers - Legal Lending
Limits, and - Government Regulations; Dividends;
Proposed Business - Products and Services - Competition
- Supervision and Regulation; Remuneration of Officers
and Directors; Description of the Capital Stock; and
Other Information" have been reviewed by such counsel
and are in all material respects correct. There are no
statutes or regulations required to be described or
referred to in the Prospectus other than those
described or referred to therein, and such disclosures
in the Prospectus are accurate in all material
respects.
(xii)The terms and provisions of the Shares of Common Stock
of the Company conform to the description thereof
contained in the Registration Statement and the
Prospectus, and the form of certificate to be used to
evidence the Shares of Common Stock is in due and
proper form.
(xiii) To the best of such counsel's knowledge, the
description of and references to all contracts,
indentures, mortgages, loan agreements, notes, leases,
or other agreements of the Company and the Bank in the
Registration Statement and Prospectus are correct in
all material respects, and to the best of such
counsel's knowledge, no default exists in the due
performance or observance of any material obligation,
agreement, covenant or condition contained in any
contract, indenture, loan agreement, note or lease so
described, or referred to, except where such default
would not have a material adverse effect on the
condition, financial or otherwise, or the business,
operations or income of the Company or the Bank.
(xiv)To the best of such counsel's knowledge, there are no
pending or threatened legal or governmental proceedings
which are required to be disclosed in the Registration
Statement and Prospectus, other than those disclosed
therein, and to the best of such counsel's knowledge,
all pending or threatened legal and governmental
proceedings to which the Company or the Bank is a party
are
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described in the Prospectus, other than ordinary
routine litigation incidental to the business of the
Company or the bank which are, considered in the
aggregate, not material.
(xv) To the best of such counsel's knowledge, there are no
material contracts, indentures, mortgages, loan
agreements, notes, leases or other instruments of the
Company or the bank required to be described or
referred to in the Registration Statement and the
Prospectus or to be included as exhibits thereto other
than those described or referred to therein or included
as exhibits thereto.
(xvi)To the best of such counsel's knowledge, neither the
Company nor the Bank is in violation of its certificate
of incorporation or bylaws, or in violation of any
material obligation, agreement, covenant or condition
contained in any material contract, indenture,
mortgage, loan agreement, note, lease or other
instrument to which it is a party or by which it or its
properties may be bound; the execution and delivery of
this Agreement, the incurrence of the obligations
herein set forth and the consummation of the
transactions contemplated herein have been duly
authorized by all necessary corporate action and will
not conflict with the Company's or the Bank's
certificate of incorporation or bylaws or constitute a
material breach of, or default under, or result in the
creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company
or the Bank pursuant to any material contract,
indenture, mortgage, loan agreement, note, lease or
other instrument to which the Company or the Bank is a
party or by which it may be bound or any applicable
law, regulation or order.
(xvii) The Registration Statement has become effective under
the Securities Act, no stop order suspending the
effectiveness of the Registration Statement has been
issued, and, to the best of such counsel's knowledge,
no proceedings for that purpose have been instituted or
threatened.
(xviii) At the time that the Registration Statement became
effective the Registration Statement, including the
Prospectus contained therein (as amended or
supplemented) (other than the financial statements,
notes to financial statements, statements concerning
accounting matters, financial tables or other financial
and statistical data included therein and the appraisal
valuation as to which counsel need express no opinion),
complied as to form in all material respects with the
requirements of the l 933 Act and the rules and
regulations promulgated thereunder.
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<PAGE>
(2) The favorable opinion addressed to you, dated as of the Closing
Date, of Malizia, Spidi, Sloane & Fisch, counsel for the Company, in form and
substance satisfactory to your counsel, to the effect that:
In connection with the preparation of the Registration
Statement and Prospectus such counsel advised the Company and the Bank as to
certain applicable legal requirements and performed certain other legal services
requested by it. Additionally, such counsel participated in reviews and
discussions with representatives of the Agent and those of the Company and the
Bank relating to the Registration Statement and the Prospectus. On the basis of
these activities, such counsel is not aware of any facts which lead it to
believe that the Registration Statement, Prospectus or Marketing Materials
contain any untrue statement of any material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading. Counsel expresses no opinion or belief as to the financial
statements or other financial or statistical data contained in the Registration
Statement, Prospectus or Marketing Materials or information contained in the
Registration Statement, Prospectus or Marketing Materials provided by you.
In rendering the foregoing opinions, counsel may rely, as to
factual matters, on certificates of officers of the Company and the Bank and on
certificates of appropriate public officials.
(3) The favorable opinion, dated as of the Closing Date, of Jamieson,
Moore, Peskin & Spicer, Agent's counsel, with respect to such matters as you may
reasonably require. Such opinion may rely upon the opinion of counsel to the
Company and Bank and, as to matters of fact, upon certificates of officers and
directors of the Company and Bank delivered pursuant hereto or as such counsel
may reasonably request and as to the accuracy of the representations and
warranties of the Company and the Bank containe(d) At the Closing Date, you
shall receive a certificate of the President and Chief Executive Officer of the
Company and the Bank, dated as of such date, to the effect that, to the best of
his knowledge, after reasonable inquiry, (i) since the respective dates as of
when information was given in the Registration Statement and the Prospectus,
there has been no material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company or the Bank, whether or not arising in the ordinary course of business;
(ii) the representations and warranties in Section 4 are true and correct with
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the same force and effect as though expressly made at and as of the date of such
certificate; (iii) each of the Company and the Bank has complied with all
agreements and satisfied all conditions on its part to be performed or satisfied
hereunder at or prior to the applicable date; (iv) all of the Closing Conditions
have been satisfied; (v) no stop order suspending the use of the Registration
Statement or the Prospectus has been issued and no proceedings for that purpose
have been initiated or threatened; and (vi) no order suspending the Offering or
the authorization for final use of the Prospectus has been issued and no
proceedings for that purpose have been initiated or threatened.
(e) At the Closing Date the Agent's counsel shall have been
furnished with such documents and opinions as they may reasonably require for
the purpose of enabling them to pass upon the sale of Shares as herein
contemplated and related proceedings or in order to evidence the accuracy or
completeness of any of the representations or warranties, or the fulfillment of
any of the conditions, herein contained; and all proceedings taken by the
Company and the Bank in connection with the Offering, this Agreement and the
sale of the Shares as herein contemplated shall be satisfactory in form and
substance to you and your counsel.
(f) The Company or the Bank shall not have sustained, since
the date of the latest financial statements included in the Registration
Statement and Prospectus, any material loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or
decree, otherwise than as set forth or contemplated in the Registration
Statement and Prospectus, and since the respective dates as of which information
is given in the Registration Statement and Prospectus, there shall not have been
any change or any development involving a prospective change in, or affecting
the general affairs, management, financial position, shareholders' equity or
results of operations of the Company or the Bank, otherwise than as set forth or
contemplated in the Registration Statement and Prospectus, the effect of which,
in any such case described above, is in your judgment so material and adverse as
to make it impracticable or inadvisable to proceed with the Offering or the
delivery of the Shares on the terms and in the manner contemplated in the
Registration Statement and Prospectus.
(g) There shall not exist as of the relevant date any of the
following: (i) a suspension or material limitation in trading in securities
generally on the New York or American Stock Exchanges; or (ii) a general
moratorium on commercial bank activities or a general
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<PAGE>
moratorium on the withdrawal of deposits from banks in New Jersey or New York
declared by either federal, New Jersey or New York authorities.
(h) All of the representations and warranties set forth in
Section 4 shall be true and correct at the Closing Date.
If any of the conditions specified in this section
shall not have been fulfilled when and as required by this Agreement, this
Agreement and all of your obligations hereunder may be canceled by you by
notifying the Company and the Bank of such cancellation in writing or by
facsimile received by the Company and the Bank at any time at or prior to the
Closing Date, and any such cancellation shall be without liability of any party
to any other party except as otherwise provided in Sections 1, 6 and 7 hereof.
Notwithstanding the above, if this Agreement is canceled pursuant to this
paragraph by you, or if the Company withdraws the Offering, or if for any other
reason the Closing is not held on or before December 31, 1999, otherwise than
due to your breach of this Agreement, the Company and the Bank agrees (i) to pay
to you the balance of the administrative and advisory fee described in paragraph
(d)(i) of Section 1, and (ii) to reimburse you promptly after such event or pay
on your behalf promptly after such event those items listed in subsections 6(ix)
and 6(x) above, to the extent not previously paid in accordance herewith.
SECTION 9. TERMINATION.
------------
(a) In the event the Company fails to sell the minimum number of Shares
or fails to meet any other of the conditions specified in Section 8 hereof
within the period specified in and in accordance with the Registration Statement
and Prospectus, at the election of either party hereto this Agreement shall
terminate and neither party to this Agreement shall have any obligation to the
other hereunder, except for payment by the Company as set forth in Sections 1,
6, and 7, and the last paragraph of Section 8.
(b) This Agreement may be terminated by the Agent prior to the Closing
Date by written notice to the Company, if: (i) the Registration Statement or the
Prospectus at any time contains a misstatement of a material fact or omits to
state a material fact necessary to make the statements therein not misleading
(except as to information supplied by the Agent with respect to the Agent and
included in the Registration Statement and Prospectus under the caption "The
Offering and Plan of Distribution"); (ii) the Company does not diligently
proceed with the
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<PAGE>
Offering for any reason; (iii) the Company arbitrarily or unreasonably delays
the Offering; (iv) there shall be any material adverse change, financial or
otherwise, in the condition of the Company or the Bank; (v) there shall occur
any material adverse events which in the reasonable judgment of the Agent could
materially adversely affect the business intended to be conducted by the Company
or the Bank as described in the Registration Statement and Prospectus; (vi)
there shall be proposed or adopted any laws, regulations, rules or orders
relating to banking, securities or other matters which in the reasonable
judgment of the Agent shall render it inadvisable to proceed with the Offering
on the terms set forth in the Registration Statement and Prospectus; or (vii)
the Company or the Bank shall breach any material covenant contained in this
Agreement, or any of its representations or warranties set forth herein shall
prove to be false in any material respect.
SECTION 10. SURVIVAL.
---------
The respective indemnities, agreements, representations, warranties and
other statements of the Company, the Bank and you, as set forth in this
Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of you or any of your officers or directors or any person controlling you, and
shall survive termination of this Agreement and the receipt or delivery of and
payment for the Shares, and any legal representative, successor or assign of
Agent, the Bank, the Company, and any controlling person as defined in Section
15 of the Securities Act or Section 20 of the 1934 Act shall be entitled to the
benefit of the respective agreements, indemnities, warranties and
representations contained herein.
SECTION 11. COUNTERPARTS.
-------------
This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one instrument.
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<PAGE>
SECTION 12. ARBITRATION.
------------
Any claims, controversies, demands, disputes or differences between or
among the parties hereto or any persons bound hereby arising out of, or by
virtue of, or in connection with, or otherwise relating to this Agreement shall
be submitted to and settled by arbitration conducted in Livingston, New Jersey
before one or three arbitrators, each of whom shall be knowledgeable in the
field of securities law and investment banking. Such arbitration shall otherwise
be conducted in accordance with the rules of the American Arbitration
Association. The parties hereto agree to share equally the responsibility for
all fees of the arbitrators, abide by any decision rendered as final and
binding, and waive the right to appeal the decision or otherwise submit the
dispute to a court of law for a jury or non jury trial. The parties hereto
specifically agree that neither party may appeal or subject the award or
decision of any such arbitrator to appeal or review in any court of law or in
equity or by any other tribunal, arbitration system or otherwise. Judgement upon
any award granted by such an arbitrator may be enforced in any court having
jurisdiction thereof.
SECTION 13. MISCELLANEOUS.
--------------
(a) Notices hereunder, except as otherwise provided herein, shall be
given in writing, addressed (i) to the Agent at Ryan, Beck & Co., 150 Monument
Road, Suite 106, Bala Cynwyd, Pennsylvania 1904-1725 (ATTN: Michelle Darcey),
and (ii) to the Company and the Bank at 590 Lawrence Square Boulevard,
Lawrenceville, New Jersey 08648 (Attention: President) and shall be sent by
United States certified mail, return receipt requested, with postage paid or by
telegram or hand delivery. Such notices shall be deemed received on the second
business day after deposited in the mail, when received if hand delivered, or
when delivered to the telegraph company with charges paid.
(b) This Agreement is made solely for the benefit of and will be
binding upon the parties hereto and their respective successors and the
controlling persons, directors, officers, counsel, and agents referred to in
Section 7 hereof, and no other person will have any right or obligation
hereunder. The term "successor" shall not include any purchaser, as such, of any
of the Shares.
(c) This Agreement shall be governed by and construed in accordance
with the laws of the State of New Jersey.
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<PAGE>
If the foregoing correctly sets forth the arrangement among the
Company, the Bank and the Agent, please indicate acceptance thereof in the space
provided below for that purpose, whereupon this letter and your acceptance shall
constitute a binding agreement.
Very truly yours,
VILLAGE BANK
By:________________________________
VILLAGE FINANCIAL CORPORATION
By:________________________________
Accepted as of the date
first above written
RYAN, BECK & CO., INC.
By:_________________________
Schedules
A - Selected Dealers' Agreement
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<PAGE>
MASTER SELECTED DEALER AGREEMENT
_________________, 1998
Ryan, Beck & Co., Inc.
220 South Orange Avenue
Livingston, NJ 07039
Gentlemen:
(1) General. We understand that Ryan, Beck & Co., Inc. ("Ryan Beck") is
entering into this Agreement with us and other firms who may be offered the
right to purchase as principal a portion of securities being distributed to the
public. The terms and conditions of this Agreement shall be applicable to any
public offering of securities ("Securities") pursuant to a registration
statement filed under the Securities Act of 1933 (the "Securities Act") wherein
Ryan Beck (acting for its own account or for the account of any underwriting or
similar group or syndicate) is responsible for managing or otherwise
implementing the sale of the Securities to selected dealers ("Selected Dealers")
and has informed us that such terms and conditions shall be applicable. Any such
offering of Securities to us as a Selected Dealer is hereinafter called an
"Offering". In the case of any Offering in which you are acting for the account
of any underwriting or similar group or syndicate ("Underwriters"), the terms
and conditions of this Agreement shall be for the benefit of, and binding upon,
such Underwriters, including, in the case of any Offering in which you are
acting with others as representatives of Underwriters, such other
representatives. The term "preliminary prospectus" means any preliminary
prospectus relating to an Offering of Securities or any preliminary prospectus
supplement together with a prospectus relating to an Offering of Securities; the
term "Prospectus" means the prospectus, together with the final prospectus
supplement, if any, relating to an Offering of Securities, filed pursuant to
Rule 424(b) or Rule 424(c) under the Securities Act or any successor or similar
rules.
(2) Conditions of Offering, Acceptance and proval of all legal matters
by counsel and the satisfaction of other conditions, and may be made on the
basis of reservation of Securities or an allotment against subscription. You
will advise us by telegram, telex, facsimile, e-mail, or other form of written
communication ("Written Communication") of the particular method and
supplementary terms and conditions (including, without limitation, the
information as to prices and offering date referred to in Section 3(b)) of any
Offering in which we are invited to participate. To the extent such
supplementary terms and conditions are inconsistent with any provision herein,
such terms and conditions shall supersede any such provision. Unless otherwise
indicated in any such Written Communication, acceptances and other
communications by us with respect to any Offering should be sent to Ryan Beck.
You reserve the right to reject any acceptance in whole or in part. Payment for
Securities purchased by us is to be made at such office as you may designate, at
the public offering price, or, if you shall so advise us, at such price less the
concession to dealers or at the price set forth or
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<PAGE>
indicated in a Written Communication, on such date as you shall determine, on
one day's prior notice to us, by wire transfer to a Ryan Beck account, against
delivery of certificates or other forms evidencing such Securities. If payment
is made for Securities purchased by us at the public offering price, the
concession to which we shall be entitled will be paid to us upon termination of
the provisions of Section 3(b) with respect to such Securities.
Unless we promptly give you written instructions otherwise, if
transactions in the Securities may be settled through the facilities of The
Depository Trust Company, delivery of Securities purchased by us will be made
through such facilities if we are a member, or if we are not a member,
settlement may be made through our ordinary correspondent who is a member.
(3) Representations, Warranties and Agreements.
(a) Prospectuses. You shall provide us with such number of
copies of each preliminary prospectus, the Prospectus and any supplement thereto
relating to each Offer and the Securities Exchange Act of 1934 (Exchange Act)
and the applicable Rules and Regulations of the Securities and Exchange
Commission thereunder. We represent that we are familiar with Rule 15c2-8 under
the Exchange Act relating to the distribution of preliminary and final
prospectuses and agree that we will comply therewith. We agree to keep an
accurate record of our distribution (including dates, number of copies, and
persons to whom sent) of copies of the Prospectus or any preliminary prospectus
(or any amendment or supplement to any thereof), and promptly upon request by
you, to bring all subsequent changes to the attention of anyone to whom such
material shall have been furnished. We agree to furnish to persons who receive a
confirmation of sale a copy of the Prospectus filed pursuant to Rule 424(b) or
Rule 424(c) under the Securities Act. We agree that in purchasing Securities in
an Offering we will rely upon no statements whatsoever, written or oral, other
than the statements in the Prospectus delivered to us by you. We will not be
authorized by the issuer or other seller of Securities offered pursuant to a
Prospectus or by any Underwriters to give any information or to make any
representation not contained in the Prospectus in connection with the sale of
such Securities.
(b) Offer and Sale to the Public. With respect to any Offering
of Securities, you will inform us by a Written Communication of the public
offering price, the selling concession, the reallowance (if any) to dealers, and
the time when we may commence selling Securities to the public. After such
public offering has commenced, you may change the public offering price, the
selling concession, and the reallowance to dealers. With respect to each
Offering of Securities, until the provisions of this Section 3(b) shall be
terminated pursuant to Section 4, we agree to offer Securities to the public
only at the public offering price, except that if a reallowance is in effect, a
reallowance from the public offering price not in excess of such reallowance may
be allowed as consideration for services rendered in distribution to dealers who
are actually engaged in the investment bankten agreement prescribed by Rule 2740
of the Rules of Conduct of the National Association of Securities Dealers, Inc.
(the "NASD") and who are either members in good standing of the NASD or foreign
brokers or dealers not eligible for membership in the NASD who represent to us
that they will promptly reoffer such Securities at the public offering price and
will abide by the conditions with respect to foreign brokers and dealers set
forth in Section 3(e).
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<PAGE>
(c) Stabilization and Over-allotment. You may, with respect to
any Offering, be authorized to over-allot in arranging sales to Selected
Dealers, to purchase and sell Securities, any other securities of the issuer of
the Securities of the same class and series and any other securities of such
issuer that you may designate for long or short account, and to stabilize or
maintain the market price of the Securities. We agree to advise you from
time-to-time upon request, prior to the termination of the provisions of Section
3(b) with respect to any Offering, of the amount of Securities purchased by us
hereunder remaining unsold and we will, upon your request, sell to you, for the
accounts of the Underwriters, such amount of Securities as you may designate, at
the public offering price thereof less an amount to be determined by you not in
excess of the concession to dealers. In the event that prior to the later of (i)
the termination of the provisions of Section 3(b) with respect to any Offering,
or (ii) the covering by you of any short position created by you in connection
with such Offering for your account or the account of one or more Underwriters,
you purchase or contract to purchase for the account of any of the Underwriters,
in the open market or otherwise, any Securities theretofore delivered to us, you
reserve the right to withhold the above-mentioned concession to dealers on such
Securities if sold to us at the public offering price, or if such concession has
been allow to us through our purchase at a net price, we agree to repay such
concession upon your demand, plus in each case any taxes on re-delivery,
commissions, accrued interest, and dividends paid in connection with such
purchase or contract to purchase.
(d) Open Market Transactions. We agree to abide in Regulation
M under the Exchange Act and we agree not to bid for, purchase, attempt to
purchase, or sell, directly or indirectly, any Securities, any other Reference
Securities (as defined in Regulation M) of the issuer, or any other securities
of such issuer as you may designate, except as brokers pursuant to unsolicited
orders and as otherwise provided in this Agreement. If the Securities are common
stock or securities convertible into common stock, we agree not to effect, or
attempt to induce others to effect, directly or indirectly, any transactions in
or relating to any stock of such issuer, except to the extent permitted by Rule
101 of Regulation M under the Exchange Act.
(e) NASD. We represent that we are actually engaged in the
investment banking or securities business and we are either a member in good
standing of the NASD, or, if not such a member, a foreign dealer not eligible
for membership. If we are such a member we agree that in making sales of the
Securities we will comply with all applicable Rules of the NASD, including,
without limitation, the NASD's Interpretation with Respect to Free- Riding and
Withholding and Rule 2740 of the Conduct Rules. If we are such a foreign dealer,
we agree not to offer or sell any securities in the United States of America
except through you and in making sales of Securities outside the United States
of America we agree to comply as though we were a member with such
Interpretation and Rule 2730, 2740 and 2750 of the Conduct Rules of the NASD and
to comply with Rule 2420 of the Conduct Rules of the NASD as it applies to a
non-member broker or dealer in a foreign county.
(f) Relationship Among Underwriters and Selected Dealers. You
may buy Securities from or sell Securities to any Underwriter or Selected Dealer
and, with your consent, the Underwriters (if any) and the Selected Dealers may
purchase Securities from and sell Securities to each other at the public
offering price less all or any part of the concession. We are not authorized to
act as agent for you or any Underwriter or the issuer or other seller of any
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<PAGE>
Securities in offering Securities to the public or otherwise. Nothing contained
herein or in any Written Communication from you shall constitute the Selected
Dealers partners with you or any Underwriter or with one another. Neither you
nor any Underwriter shall be under any obligation to us except for obligations
assumed hereby or in any Written Communication from you in connection with any
Offering. In connection with any Offering, we agree to pay our proportionate
share of any claim, demand, or liability asserted against us, and the other
Selected Dealers or any of them, or against you or the Underwriters, if any,
based on any claim that such Selected Dealers or any of them constitute an
association, unincorporated business, or other separate entity, including in
each case our proportionate share of any expense incurred in defending against
any such claim, demand, or liability.
(g) Blue Sky Laws. Upon application to you, you will inform us
as to the jurisdictions in which you believe the Securities have been qualified
for sale or are exempt under the respective securities or "blue sky" laws of
such jurisdictions. We understand and agree that compliance with the securities
or "blue sky" laws in each jurisdiction in which we shall offer or sell any of
the Securities shall be our sole responsibility and that you assume no
responsibility or obligations as to the eligibility of the Securities for sale
or our right to sell the Secselling Securities pursuant to any Offering (which
agreement shall also be for the benefit of the issuer or other seller of such
Securities), we will comply with the applicable provisions of the Securities Act
and the Exchange Act, the applicable Rules and Regulations of the Securities and
Exchange Commission thereunder, the applicable Rules and Regulations of the
NASD, and the applicable Rules and Regulations of any securities exchange having
jurisdiction over the Offering. You shall have full authority to take such
action as you may deem advisable in respect of all matters pertaining to any
Offering. Neither you nor any Underwriter shall be under any liability to us,
except for lack of good faith and for obligations expressly assumed by you in
this Agreement; provided, however, that nothing in this sentence shall be deemed
to relieve you from any liability imposed by the Securities Act.
(4) Termination; Supplements and Amendments. This Agreement may be
terminated by either party hereto upon five business days' written notice to the
other party; provided that with respect to any Offering for which a Written
Communication was sent and accepted prior to such notice, this Agreement as it
is applied to such Offering shall remain in full force and effect and shall
terminate with respect to such Offering in accordance with the last sentence of
this Section. This Agreement may be supplemented or amended by you by written
notice thereof to us, and any such supplement or amendment to this Agreement
shall be effective with respect to any offering to which this Agreement applies
after the date of such supplement or amendment. Each reference to "this
Agreement" herein shall, as appropriate, be to this Agreement as so amended and
supplemented. The terms and conditions set forth in Section 3(b) and (d) with
regard to any Offering will terminate at the close of business on the thirtieth
day after the date of the initial public offering of the Securities to which
such Offerin, upon notice to us, may be terminated by you at any time.
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<PAGE>
(5) Successors and Assigns. This Agreement shall be binding on, and
inure to the benefit of, the parties hereto and other persons specified or
indicated in Section 1, and the respective successors and assigns of each of
them.
(6) Governing Law. This Agreement and the terms and conditions set
forth herein with respect to any Offering together with such supplementary terms
and conditions with respect to such Offering as may be contained in any Written
Communication from you to us in connection therewith shall be governed by, and
construed in accordance with, the laws of the State of New York.
By singing this Agreement we confirm that our subscription to, or our
acceptance of any reservation of, any Securities pursuant to an Offering shall
constitute (i) acceptance of and agreement to the terms and conditions of this
Agreement (as supplemented and amended pursuant to Section 4) together with and
subject to any supplementary terms and conditions contained in any Written
Communication from you in connection with such Offering, all of which shall
constitute a binding agreement between us and you, individually, or as
representative
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<PAGE>
of any Underwriters, (ii) confirmation that our representations and warranties
set forth in Section 3 are true and correct at that time, and (iii) confirmation
that our agreements set forth in Section 2 and 3 have bene and will be fully
performed by us to the extent and at the times required thereby.
Very truly yours,
____________________________________
(Name of Firm)
By:_________________________________
Confirmed, as of the date first above written.
RYAN, BECK & CO., INC.
By:________________________________________
Execution Date:____________________
-6-
EXHIBIT 10.4
<PAGE>
ESCROW AGREEMENT
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THIS ESCROW AGREEMENT, dated as of __________ __, ^ 1999 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:
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The Company, pursuant to a Prospectus and Subscription Agreement dated
as of __________ ____, ^ 1999 (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 ^ 425,000 shares
aggregating ^ $4,250,000 (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
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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
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<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 ^ 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.
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<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 ^ refund all principal amounts ^ held by the
Escrow Agent in the Escrow to the subscribers of the Company. Any interest
earned thereon will be paid to the Company by the Escrow Agent. 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.
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<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.
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<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
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<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,
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<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.
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<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.
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<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
590 Lawrence Square Boulevard
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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(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) __________ __, ^ 1999 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:
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EXHIBIT 23.2
<PAGE>
SNODGRASS
Certified Public Accountants and Consultants
INDEPENDENT AUDITORS' CONSENT
We consent to the use in the Pre-Effective Amendment No. 3 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
January 12, 1999
S.R. Snodgrass, A.C.
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<CAPTION>
<S> <C> <C> <C> <C>
101 Bradford Road, Suite 100 Wexford, PA 15090-6909 Phone: 724-934-0344 Facsimile: 724-934-0345
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