Village Bank and Trust Financial Corp. (VBFC)

[Enterprising Investor]

Kenneth Lehman Enters Into Standby Purchase Agreement with VBFC (11/11/14)

On November 11, 2014, Village Bank and Trust Financial Corp. (the “Company”) entered into a standby purchase agreement (the “Standby Purchase Agreement”) with Kenneth R. Lehman, a private investor (the “Standby Investor”). Pursuant to the Standby Purchase Agreement, the Standby Investor has agreed, subject to there being sufficient shares available after purchases by shareholders exercising their basic subscription rights in the Company’s rights offering of common stock (the “Rights Offering”), to purchase from the Company, and the Company agreed to sell to him, at the subscription price in the Rights Offering, the lesser of (i) $8.0 million of the Company’s common stock (based on the subscription price per share), (ii) all shares of common stock not purchased by shareholders exercising their basic subscription privilege in the Rights Offering, and (iii) the maximum number of shares that he may purchase without causing an “ownership change” under Section 382(g) of the Internal Revenue Code of 1986, as amended (the “Code”).

In the Rights Offering, the Company intends to distribute to its shareholders non-transferable subscription rights entitling the holders thereof to purchase an aggregate of 1,002,882 shares of the Company’s common stock. The consummation of the sale of the Company’s common stock to the Standby Investor is conditioned on the completion of the Rights Offering and upon the number of unsubscribed shares available. The Company will not know the aggregate amount of common stock to be sold to the Standby Investor until the completion of the Rights Offering.

The Standby Purchase Agreement requires that, for a period of three years from the date of the agreement, the Standby Investor will not (i) serve as a director of the Company unless nominated by the Company’s board, (ii) nominate anyone to serve as a director of the Company, (iii) vote his shares in support of a director candidate that has not been nominated by the Company’s board, (iv) vote his shares in support of a business combination transaction with another entity unless such transaction has been approved by at least 80% of the Company’s board, or (v) vote any shares beneficially owned in excess of 40% of the Company’s total outstanding shares; provided, however, that such restrictions will only apply for so long as Company achieves certain performance targets and the Standby Investor is a director or beneficial holder of 10% or more of a bank or bank holding company with one or more offices in the Richmond, Virginia metropolitan statistical area.

The Standby Purchase Agreement requires the Company’s board of directors to adopt a restricted stock plan (the “Restricted Stock Plan”) as part of or immediately following the Rights Offering under which a number of shares of the Company’s common stock equal to 4.0% of the number of outstanding shares immediately after the closing of the Rights Offering will be reserved for issuance to the Company’s directors and officers. Under NASDAQ rules, adoption of the Restricted Stock Plan must be approved by the Company’s shareholders. It is expected that the Restricted Stock Plan will be submitted to shareholders for approval no later than the 2015 annual meeting of shareholders.

In the Standby Purchase Agreement, the Standby Investor has granted to the Company an option to redeem for cash, or exchange in connection with the Rights Offering at the subscription price, (i) all of the 4,023 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Series A preferred stock”) that he owned as of the date of the Standby Purchase Agreement based on a valuation of $500.34 per share of Series A preferred stock, and (ii) any additional shares of Series A preferred stock that he subsequently acquires based on a valuation of the Series A preferred stock that equates to a 5% annualized return on the amount that the Standby Investor pays to purchase such additional shares of Series A preferred stock. Any redemption by the Company of Series A preferred stock or exchange of Series A preferred stock for common stock will also be contingent upon approval from the Federal Reserve Bank of Richmond (the “Reserve Bank”).

In addition, if the Company terminates the Standby Purchase Agreement because of a breach of the agreement by the Standby Investor or because the Standby Investor is unable to obtain regulatory approval to acquire the shares he has committed to purchase, the Company will have an option, subject to certain conditions, expiring June 30, 2015 to redeem all of the shares of Series A preferred stock that he owns based on a valuation of the greater of (i) $500.34 per share, (ii) the average price paid by the Standby Investor to purchase any additional Series A preferred stock increased by an amount that equates to a 5% annualized return on such purchases, and (iii) the average redemption price paid to other holders of Series A preferred stock whose shares have been redeemed for cash by the Company on or prior to such date. Such option is contingent upon the Standby Investor purchasing at least 5,000 additional shares of Series A preferred stock from other holders or the Company redeeming at least 5,000 additional shares of Series A preferred stock by June 30, 2015.

The Company also agreed to enter into a registration rights agreement (the “Registration Rights Agreement”) with the Standby Investor which will provide the Standby Investor demand registration and piggyback registration rights with respect to the Standby Investor’s resale of the Company’s equity securities, subject to customary limitations. The Registration Rights Agreement is expected to be executed in connection with closing of the sale of shares of common stock to the Standby Investor. The Company has agreed to pay the expenses associated with any registration statements filed with the Securities and Exchange Commission (the “Commission”) pursuant to the Registration Rights Agreement. The Standby Investor’s demand registration rights will be immediately exercisable upon execution of the Registration Rights Agreement for, subject to certain limitations, the number of shares of common stock held by the Standby Investor and any equity securities issued or issuable directly or indirectly with respect to the shares of common stock held by the Standby Investor by way of conversion, exercise or exchange thereof or stock dividend or stock split or in connection with a combination of shares, recapitalization, reclassification, merger, amalgamation, arrangement, consolidation or other reorganization.

http://www.sec.gov/Archives/edgar/data/1290476/000114420414067223/v394069_8k.htm