SEC Form 424B3 filed by Princeton Bancorp Inc.

Filed Pursuant to Rule 424(b)(3)
Registration No. 333-278651

 

 

Prospectus		Proxy Statement
PRINCETON BANCORP, INC.		CORNERSTONE FINANCIAL CORPORATION

PROPOSED MERGER — YOUR VOTE IS VERY IMPORTANT

Dear Cornerstone Shareholders:

On January 18, 2024, Princeton Bancorp, Inc., a Pennsylvania corporation (which we refer to as “Princeton”), and Cornerstone Financial Corporation, a New Jersey corporation (which we refer to as “Cornerstone”), entered into an Agreement and Plan of Merger (which we refer to as the “merger agreement”) that provides for a strategic business combination, pursuant to which Cornerstone will merge (which we refer to as the “merger”) with and into Princeton, with Princeton being the surviving corporation. Under the terms of the merger agreement, immediately following the consummation of the merger, Cornerstone Bank, a New Jersey chartered bank and a wholly-owned subsidiary of Cornerstone (“Cornerstone Bank”), will merge with and into The Bank of Princeton, a New Jersey chartered bank and a wholly-owned subsidiary of Princeton (“Princeton Bank”), with Princeton Bank being the surviving bank (which we refer to as the “bank merger”).

At the effective time of the merger (which we refer to as the “effective time”), each outstanding share of the common stock, no par value, of Cornerstone (which we refer to as “Cornerstone common stock”), except for Cornerstone common stock that is held by Cornerstone as treasury stock or held by Cornerstone, any subsidiary of Cornerstone, Princeton or any subsidiary of Princeton but excluding shares held in any fiduciary or agency capacity or as a result of debts previously contracted (which we refer to as the “exception shares”), will be converted into the right to receive 0.24 shares, subject to adjustment as described below (such number being referred to as the “exchange ratio” and such shares being referred to as the “merger consideration”) of the common stock of Princeton, no par value (which we refer to as “Princeton common stock”), together with cash in lieu of any fractional shares. In the event that the sum of Cornerstone’s shareholders’ equity and allowance for loan losses as of the month end immediately prior to the effective time, calculated in accordance with the terms of the merger agreement, is less than the sum of Cornerstone’s shareholders’ equity and allowance for loan losses as of September 30, 2023, also calculated in accordance with the terms of the merger agreement ($26.8 million), the exchange ratio will be reduced to reflect the amount of such decrease. Also at the effective time, each outstanding share of Cornerstone preferred stock will be exchanged for its stated value of $1,000 per share in cash, or $3.34 million in the aggregate.

Although the number of shares of Princeton common stock that holders of Cornerstone common stock will be entitled to receive as the merger consideration, after any adjustment, will be fixed, the market value of such shares (and, therefore, the value of the merger consideration) will fluctuate with the market price of Princeton common stock and will not be known at the time Cornerstone shareholders vote on the merger. Based on the $30.28 closing price of Princeton common stock on The Nasdaq Global Select Market (which we refer to as the “Nasdaq”) on May 10, 2024, the latest practicable trading day before the printing of the accompanying proxy statement/prospectus, and assuming no adjustment is made, the per share value of the merger consideration will be equal to $7.27. Based on the exchange ratio and the number of shares of Cornerstone common stock outstanding as of May 10, 2024, the maximum number of shares of Princeton common stock estimated to be issuable at the closing date is 526,080. We urge you to obtain current market quotations for the Princeton common stock (trading symbol “BPRN”).

Cornerstone will hold a special meeting of its common shareholders in connection with the merger. At the special meeting, Cornerstone common shareholders will be asked to vote to approve the merger agreement, and the transactions contemplated thereby, and related matters as described in the accompanying proxy statement/prospectus including the “amendment proposal”. Pursuant to Cornerstone’s certificate of incorporation, as amended, because a majority of Cornerstone’s board of directors have approved the merger agreement, Cornerstone stockholder approval of the merger agreement requires the affirmative vote of at least a majority of the outstanding shares of Cornerstone’s capital stock entitled to vote at the special meeting. Under New Jersey law, stockholder approval of the amendment proposal requires the affirmative vote of at least a majority of the votes cast at the special meeting by the holders of shares of Cornerstone’s capital stock entitled to vote at the special meeting.

The special meeting is scheduled to be held on June 18, 2024 at Cornerstone’s offices located at 6000 Midlantic Drive, Suite 120S, Mt. Laurel, New Jersey 08054, at 3:00 p.m. local time.

The Cornerstone board of directors unanimously recommends that Cornerstone shareholders vote “FOR” the approval of the merger agreement and the transactions contemplated thereby, including, the merger, and “FOR” the other proposals to be considered at the special meeting.

The accompanying proxy statement/prospectus describes the special meeting, the merger, the documents related to the merger and other related matters. Please carefully read the entire accompanying proxy statement/prospectus, including “Risk Factors,” beginning on page 14, for a discussion of the risks relating to the merger. You also can obtain information about Princeton from documents that it has filed with the Securities and Exchange Commission.

 

Richard J. Gillespie Chairman Princeton Bancorp, Inc.		Susan M. Barrett Chairman of the Board Cornerstone Financial Corporation

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued in the merger or passed upon the adequacy or accuracy of the accompanying proxy statement/prospectus. Any representation to the contrary is a criminal offense.

The securities to be issued in the merger are not savings or deposit accounts or other obligations of any bank or non-bank subsidiary of either Princeton or Cornerstone, and they are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

The date of the accompanying proxy statement/prospectus is May 16, 2024 and it is first being mailed or otherwise delivered to the shareholders of Cornerstone on or about May 20, 2024.

CORNERSTONE FINANCIAL CORPORATION

6000 Midlantic Drive, Suite 120S

Mt. Laurel, New Jersey 08054

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Cornerstone Shareholders:

A special meeting of the shareholders of Cornerstone Financial Corporation, or Cornerstone, is scheduled to be held at 3:00 p.m. local time, on Tuesday, June 18, 2024, at Cornerstone’s offices located at 6000 Midlantic Drive, Suite 120S, Mt. Laurel, New Jersey 08054 to consider and vote upon the following proposals:

 

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A proposal to approve the Agreement and Plan of Merger, dated as of January 18, 2024, by and between Princeton Bancorp, Inc., or Princeton, and Cornerstone, and the transactions contemplated by that agreement, pursuant to which Cornerstone will merge with and into Princeton, as more fully described in the accompanying proxy statement/prospectus (we refer to proposal 1 as the “merger proposal”);

 

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A proposal to approve an amendment to Cornerstone’s certificate of incorporation to reflect the reverse stock split originally approved by Cornerstone’s shareholders on September 21, 2016 (we refer to proposal 2 as the “amendment proposal”); and

 

3.

A proposal to adjourn the special meeting, if necessary or appropriate, to solicit additional proxies in favor of the merger proposal and the amendment proposal (we refer to proposal 3 as the “adjournment proposal”).

We have fixed the close of business on May 15, 2024 as the record date for the special meeting. Only Cornerstone common shareholders of record as of this record date are entitled to notice of, and to vote at, the special meeting or any adjournment of the special meeting. Pursuant to Cornerstone’s certificate of incorporation, as amended, approval of the merger proposal requires the affirmative vote of at least a majority of the outstanding shares of capital stock of Cornerstone entitled to vote at the special meeting. Approval of the amendment proposal requires the affirmative vote of at least a majority of the votes cast at the special meeting by the holders of shares of Cornerstone capital stock entitled to vote at the special meeting. The adjournment proposal will be approved if the majority of the votes cast at the special meeting by the holders of shares of Cornerstone common stock entitled to vote at the special meeting, provided a quorum is present, vote in favor of such proposal.

Our board of directors has unanimously approved the Agreement and Plan of Merger and the amendment proposal, has determined that such agreement and the transactions contemplated by such agreement, including the merger, are advisable, fair to and in the best interests of Cornerstone and its shareholders, and unanimously recommends that shareholders vote “FOR” the merger proposal, “FOR” the amendment proposal and “FOR” the adjournment proposal.

Your vote is very important. We cannot complete the merger unless Cornerstone shareholders approve the merger proposal.

Regardless of whether you plan to attend the special meeting, please vote as soon as possible. If you hold shares of Cornerstone common stock in your name as a shareholder of record, please complete, sign, date and return the accompanying proxy card in the enclosed postage-paid return envelope. You may also vote by telephone or through the Internet by following the instructions on the proxy card. If you hold your shares of Cornerstone common stock in “street name” through a bank, broker or other nominee, please follow the instructions on the voting instruction card furnished by the record holder.

The accompanying proxy statement/prospectus provides a detailed description of the special meeting, the merger, the documents related to the merger and other related matters. We urge you to read the proxy statement/prospectus, including any documents incorporated in the proxy statement/prospectus by reference, and its annexes carefully and in their entirety.

BY ORDER OF THE BOARD OF DIRECTORS,

 

Susan M. Barrett

Chairman of the Board,

Cornerstone Financial Corporation

REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates important business and financial information about Princeton from documents filed by Princeton with the Securities and Exchange Commission (which we refer to as the “SEC”) that are not included in or delivered with this proxy statement/prospectus. You can obtain any of the documents filed with or furnished to the SEC by Princeton at no cost from the SEC’s website at http://www.sec.gov. You may also request copies of these documents, including documents incorporated by reference in this proxy statement/prospectus, at no cost by contacting Princeton at the following address:

Princeton Bancorp, Inc.

183 Bayard Lane

Princeton, New Jersey 08540

(609) 921-1700

You will not be charged for any of these documents that you request. To obtain timely delivery of these documents, you must request them no later than five business days before the date of the special meeting. This means that Cornerstone shareholders requesting documents must do so by June 11, 2024, in order to receive them before the special meeting.

You should rely only on the information contained in, or incorporated by reference into, this document. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this document. This document is dated May 16, 2024, and you should assume that the information in this document is accurate only as of such date. You should assume that the information incorporated by reference into this document is accurate as of the date of such document, and neither the mailing of this document to Cornerstone shareholders nor the issuance by Princeton of shares of Princeton common stock in connection with the merger will create any implication to the contrary.

This document does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction. Except where the context otherwise indicates, information contained in this document regarding Cornerstone has been provided by Cornerstone and information contained in this document regarding Princeton has been provided by Princeton.

See “Where You Can Find More Information” beginning on page 87 for more details.

TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS			1
SUMMARY			7
RISK FACTORS			14
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS			21
CORNERSTONE SPECIAL MEETING			22
CORNERSTONE PROPOSALS			26
INFORMATION ABOUT PRINCETON			29
INFORMATION ABOUT CORNERSTONE			30
THE MERGER			31
THE MERGER AGREEMENT			53
ANITICIPATED ACCOUNTING TREATMENT			71
U.S. FEDERAL INCOME TAX CONSEQUENCES			72
DESCRIPTION OF CAPITAL STOCK OF PRINCETON			74
COMPARISON OF SHAREHOLDERS’ RIGHTS			76
COMPARATIVE MARKET PRICES AND DIVIDENDS			83
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF CORNERSTONE			84
LEGAL MATTERS			85
EXPERTS			85
SHAREHOLDER COMMUNICATIONS AND PROPOSALS			85
WHERE YOU CAN FIND MORE INFORMATION			87

ANNEXES

 

A.		Agreement and Plan of Merger, dated January  18, 2024, by and between Princeton Bancorp, Inc. and Cornerstone Financial Corporation			A-1
B.		Form of Voting and Support Agreement with Certain Cornerstone Financial Corporation Shareholders			B-1
C.		Amendment to the Cornerstone Charter			C-1
D.		Opinion of Janney Montgomery Scott LLC			D-1

 

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RISK FACTORS

In addition to general investment risks and the other information contained in or incorporated by reference into this proxy statement/prospectus, including the matters addressed under the section “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 21, you should carefully consider the following risk factors in deciding how to vote for the proposals presented in this proxy statement/prospectus. You should also consider the other information in this proxy statement/prospectus and the Princeton documents incorporated by reference into this proxy statement/prospectus. See the section of this proxy statement/prospectus entitled “Where You Can Find More Information” beginning on page 87.

Because the market price of Princeton common stock may fluctuate, and the exchange ratio may be adjusted prior to the effective time, Cornerstone shareholders cannot be certain of the precise value of the merger consideration they will be entitled to receive.

At the time the merger is completed, each issued and outstanding share of Cornerstone common stock, except for exception shares, will be converted into the right to receive 0.24 shares of Princeton common stock, subject to adjustment, together with cash in lieu of fractional shares. There will be a lapse of time between each of the date of this proxy statement/prospectus, the date of the special meeting and the date on which Cornerstone shareholders entitled to receive the merger consideration actually receive the merger consideration. The market value of Princeton common stock may fluctuate during these periods as a result of a variety of factors, which may include general market and economic conditions, changes in Princeton’s businesses, operations and prospects and regulatory considerations. Many of these factors are outside of the control of Princeton and Cornerstone.

In addition, in the event that the sum of Cornerstone’s shareholders’ equity and allowance for loan losses as of the month end immediately prior to the effective time, calculated in accordance with the terms of the merger agreement (referred to as the “adjustment amount”), is less than the sum of Cornerstone’s shareholders’ equity and allowance for loan losses as of September 30, 2023, also calculated in accordance with the terms of the merger agreement ($26.8 million), the merger agreement provides that the exchange ratio will be reduced to reflect the amount of such decrease. For example, if the adjustment amount is $25.0 million, the exchange ratio would be reduced to 0.204.

Consequently, at the time Cornerstone shareholders must decide whether to approve the merger proposal, they will not know the actual market value of the shares of Princeton common stock they may receive when the merger is completed, or the actual number of shares to be received. The value will not be known at the time of the special meeting and may be more or less than the current price of Princeton common stock or the price of Princeton common stock at the time of the special meeting.

The market price of Princeton common stock after the merger is completed may be affected by factors different from those currently affecting the market price of Cornerstone or Princeton common stock.

Upon completion of the merger, Cornerstone shareholders will become Princeton shareholders. Princeton’s business differs in important respects from that of Cornerstone, and, accordingly, the results of operations of the combined company and the market price of Princeton common stock after the completion of the merger may be affected by factors different from those currently affecting the independent results of operations of each of Princeton and Cornerstone. For a discussion of the business of Princeton and of some important factors to consider in connection with that business, see the section of this proxy statement/prospectus entitled “Where You Can Find More Information” beginning on page 87.

Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company following the Merger.

Before the merger can be completed, Princeton and Princeton Bank must obtain approvals or waivers from the FRB, the FDIC, and the NJDOBI (including the Securities and Exchange Commission, collectively referred to as

 

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the “Regulatory Authorities” (as defined in the merger agreement)). Other approvals, waivers or consents from regulators may also be required. In determining whether to grant these approvals, waivers and consents the regulators consider a variety of factors, including the regulatory standing of each party and the factors described under the section of this proxy statement/prospectus entitled “The Merger — Regulatory Approvals Required for the Completion of the Merger” beginning on page 51. An adverse development in either party’s regulatory standing or these factors could result in an inability to obtain approval or a delay in their receipt. These regulators may impose conditions on the completion of the merger or require changes to the terms of the merger. Such conditions or changes could have the effect of delaying or preventing completion of the merger or imposing additional costs on or limiting the revenues of the combined company following the completion of the merger, any of which might have an adverse effect on the combined company following the completion of the merger. However, under the terms of the merger agreement, in connection with obtaining such regulatory approvals or waivers, Princeton is not required to complete the merger if the consents or waivers of any Regulatory Authority required to permit consummation of the merger contain any condition or requirement that would so materially and adversely impact the economic or business benefits to Princeton of the merger that, had such condition or requirement been known, Princeton would not, in its reasonable judgment, have entered into the merger agreement (which we refer to as a “materially burdensome regulatory condition”). For more information, see the section of this proxy statement/prospectus entitled “The Merger — Regulatory Approvals Required for the Merger” beginning on page 51.

Combining the two companies may be more difficult, costly or time consuming than expected and the anticipated benefits and cost savings of the merger may not be realized.

Princeton and Cornerstone have operated and, until the completion of the merger, will continue to operate, independently. The success of the merger, including anticipated benefits and cost savings, will depend, in part, on Princeton’s ability to successfully combine and integrate the businesses of Princeton and Cornerstone in a manner that permits growth opportunities and does not materially disrupt the existing customer relations nor result in decreased revenues due to loss of customers. It is possible that the integration process could result in the loss of key employees, the disruption of either company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the combined company’s ability to maintain relationships with clients, customers, depositors, employees and other constituents or to achieve the anticipated benefits and cost savings of the merger. The loss of key employees could adversely affect Princeton’s ability to successfully conduct its business, which could have an adverse effect on Princeton’s financial results and the value of its common stock. If Princeton experiences difficulties with the integration process, the anticipated benefits of the merger may not be realized fully or at all, or may take longer to realize than expected. As with any merger of financial institutions, there also may be business disruptions that cause Princeton and/or Cornerstone to lose customers or cause customers to remove their accounts from Princeton and/or Cornerstone and move their business to competing financial institutions. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on each of Princeton and Cornerstone during this transition period and for an undetermined period after completion of the merger on the combined company. In addition, the actual cost savings realized as a result of the merger could be less than anticipated.

Certain of Cornerstone’s directors and executive officers may have interests in the merger that may differ from the interests of Cornerstone shareholders.

Cornerstone shareholders should be aware that some of Cornerstone’s directors and executive officers may have interests in the merger and have arrangements that are different from, or in addition to, those of Cornerstone shareholders generally. The Cornerstone board was aware of these interests and considered these interests, among other matters, when making its decision to approve the merger agreement, and in recommending that Cornerstone shareholders vote in favor of the merger proposal and certain related matters.

 

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The material interests considered by the Cornerstone board were as follows:

 

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Under the agreement dated of as April 18, 2019, between Cornerstone Bank and Eugene D’Orazio, the chief executive officer of Cornerstone, in the event that during the 12 month period following the completion of the merger Mr. D’Orazio resigns from employment for “Good Reason” or is terminated without Cause, then he is entitled to a lump sum payment equal to 2.99 times his then current base salary at termination and a continuation of medical insurance benefits for 12 months.

 

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Under the agreement dated of as January 31, 2023, between Cornerstone Bank and Benjamin Watts, the chief financial officer of Cornerstone, in the event that during the 12 month period following the completion of the merger Mr. Watts resigns from employment for “Good Reason” or is terminated without Cause, then he is entitled, for a period of 18 months from the date of termination of employment, his base salary at termination, paid in equal monthly installments, and a continuation of medical insurance benefits.

 

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Under the agreement dated of as August 31, 2022, between Cornerstone Bank and Joseph Tredinnick, the chief lending officer of Cornerstone Bank, in the event that during the 12 month period following the completion of the merger Mr. Tredinnick resigns from employment for “Good Reason” or is terminated without Cause, then he is entitled, for a period of 12 months from the date of termination of employment, paid in equal monthly installments, his base salary at termination and a continuation of medical insurance benefits.

 

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Under the Amended and Restated Change in Control Agreement originally effective October 20, 2021 by and between Cornerstone, Cornerstone Bank, and Susan Barrett, Cornerstone’s chairman of the board, Ms. Barrett is entitled to a lump sum payment equal to 2.99 times her then current base salary in the event of a change in control.

 

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Holdings of Cornerstone common stock and preferred stock.

 

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Indemnification of each present and former officer, director or employee of Cornerstone and its subsidiaries and payment for directors’ and officers’ insurance by Princeton; and

 

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The appointment of one member of the Cornerstone board to the Princeton board and Princeton Bank board.

For a more detailed description of these interests, see the section of this proxy statement/prospectus entitled “The Merger — Interests of Cornerstone’s Directors and Executive Officers in the Merger” beginning on page 48.

The merger agreement may be terminated in accordance with its terms, and the merger may not be completed.

The merger agreement is subject to a number of customary closing conditions that must be satisfied or, where legally permissible, waived in order to complete the merger, including the receipt of the requisite approvals of Cornerstone shareholders and the requisite regulatory approvals. These conditions to the closing of the merger may not be satisfied or waived in a timely manner or at all, and, accordingly, the merger may be delayed or may not be completed. In addition, Princeton and Cornerstone may elect to terminate the merger agreement in certain other circumstances and, in certain circumstances, Cornerstone may be required to pay Princeton a termination fee of $849,000.

Termination of the merger agreement, or failure to complete the merger, could negatively impact Cornerstone or Princeton.

If the merger agreement is terminated, there may be various consequences. For example, Cornerstone’s or Princeton’s businesses may have been impacted adversely by the failure to pursue other opportunities due to management’s focus on the merger, without realizing any of the anticipated benefits of completing the merger. Additionally, if the merger agreement is terminated, the market price of Cornerstone common stock or Princeton

 

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common stock could decline to the extent that the current market prices reflect a market assumption that the merger will be completed. If the merger agreement is terminated under certain circumstances, Cornerstone may be required to pay to Princeton a termination fee of $849,000.

Furthermore, each of Princeton and Cornerstone has incurred and will incur substantial expenses in connection with the completion of the merger, as well as the costs and expenses of filing, printing and mailing this proxy statement/prospectus and all filing and other fees paid in connection with the merger. If the merger is not completed, Princeton and Cornerstone would have incurred these expenses without realizing the expected benefits of the merger.

In addition, if the merger is not completed, Cornerstone may experience negative reactions from the financial markets and from its shareholders, customers and employees. Also, Cornerstone may not be able to successfully resume independent operations, or enter into an agreement with another party with respect to a business combination transaction involving a sale of Cornerstone. If it is able to enter into another agreement with respect to a business combination transaction involving a sale of Cornerstone, it may be at a lower price or contain other unfavorable terms. If the merger is not completed, Cornerstone cannot assure its shareholders that the risks described above will not materialize and will not materially affect the business and financial results of Cornerstone or the price at which shares of Cornerstone common stock trade.

Cornerstone and Princeton will be subject to business uncertainties and contractual restrictions while the merger is pending.

Uncertainty about the effect of the merger on employees and customers may have an adverse effect on Cornerstone or Princeton. These uncertainties may impair Cornerstone’s or Princeton’s ability to attract, retain and motivate key personnel until the merger is completed, and could cause customers and others that deal with Cornerstone or Princeton to seek to change existing business relationships with Cornerstone or Princeton. Retention of certain employees by Cornerstone or Princeton may be challenging while the merger is pending, as certain employees may experience uncertainty about their future roles with Princeton. If key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with Cornerstone or Princeton, Cornerstone’s business or Princeton’s business could be harmed. In addition, subject to certain exceptions, Cornerstone has agreed to operate its business in the ordinary course prior to closing, and each of Cornerstone and Princeton has agreed to certain restrictive covenants. See the section of this proxy statement/prospectus entitled “The Merger Agreement — Covenants and Agreements” beginning on page 56 for a description of the restrictive covenants applicable to Cornerstone and Princeton.

The merger agreement limits Cornerstone’s ability to pursue acquisition proposals and requires Cornerstone to pay Princeton a termination fee of $849,000 under certain circumstances, including circumstances relating to competing acquisition proposals for Cornerstone.

The merger agreement prohibits Cornerstone from initiating, soliciting, knowingly encouraging or knowingly facilitating third-party acquisition proposals. For more information, see the section of this proxy statement/prospectus entitled “The Merger Agreement — Agreement Not to Solicit Other Offers” beginning on page 65. In addition, unless the merger agreement has been terminated in accordance with its terms, Cornerstone has an unqualified obligation to submit the merger proposal to a vote by Cornerstone shareholders, even if Cornerstone receives a proposal that the Cornerstone board believes is superior to the merger. For more information, see the section of this proxy statement/prospectus entitled “The Merger Agreement — Cornerstone Shareholder Meeting and Recommendation of the Cornerstone Board” beginning on page 64. The merger agreement also provides that Cornerstone must pay Princeton a termination fee in the amount of $849,000 in the event that the merger agreement is terminated under certain circumstances, including Cornerstone’s failure to abide by certain obligations not to solicit acquisition proposals or Cornerstone’s failure to recommend that Cornerstone shareholders approve the merger proposal. See the section of this proxy statement/prospectus entitled “The Merger Agreement —Termination Fee” beginning on page 69. These provisions might discourage a potential

 

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competing acquirer that might have an interest in acquiring all or a significant part of Cornerstone from considering or proposing such an acquisition. Each director and certain executive officers of Cornerstone, solely in his or her capacity as a Cornerstone shareholder, has entered into a separate voting and support agreement with Princeton, pursuant to which each such director and executive officer has agreed to vote in favor of the merger proposal and certain related matters and against alternative transactions, and has agreed to abide by certain restrictions with respect to the transfer of such shareholder’s shares of Cornerstone common stock prior to the earliest of approval of the merger proposal by Cornerstone shareholders, the effective time, or the date of termination of the merger agreement in accordance with its terms. As of the record date, Cornerstone directors and officers that are party to these support agreements were entitled to vote in the aggregate approximately 29.6% of the outstanding shares of Cornerstone common stock. For more information see the section of this proxy statement/prospectus entitled “The Merger Agreement — Voting and Support Agreements” beginning on page 70.

The shares of Princeton common stock to be received by Cornerstone common shareholders as a result of the merger will have different rights from the shares of Cornerstone common stock.

The rights of Cornerstone shareholders are currently governed by the NJBCA, Cornerstone’s certificate of incorporation and Cornerstone’s bylaws. Upon completion of the merger, Cornerstone common shareholders will become Princeton shareholders and their rights as shareholders will then be governed by the Pennsylvania Business Corporation Law of 1988 (“BCL”), Princeton’s articles of incorporation and Princeton’s bylaws. The rights associated with Cornerstone common stock are different from the rights associated with Princeton common stock. See the section of this proxy statement/prospectus entitled “Comparison of Shareholders’ Rights” beginning on page 76 for a discussion of the different rights associated with Princeton common stock.

Holders of Cornerstone common stock will have a reduced ownership and voting interest after the merger and will exercise less influence over management.

Holders of Cornerstone common stock currently have the right to vote in the election of directors of the Cornerstone board and on other matters affecting Cornerstone. Upon the completion of the merger, each share of Princeton common stock that a Cornerstone shareholder is entitled to receive in the merger will represent a smaller percentage ownership of Princeton than the percentage ownership of Cornerstone represented by the shares of Cornerstone common stock held by the shareholder prior to the closing date. It is currently expected that the former Cornerstone shareholders as a group will be entitled to receive shares of Princeton common stock in the merger constituting approximately 7.7% of the outstanding shares of Princeton common stock immediately after the merger. Because of this reduced ownership percentage, Cornerstone shareholders will have less influence on the management and policies of Princeton than they now have on the management and policies of Cornerstone.

Cornerstone shareholders do not have dissenters’ or appraisal rights in the merger.

Dissenters’ rights are statutory rights that, if applicable under law, enable shareholders to dissent from certain transactions, such as a merger, and to demand that the corporation pay the fair value of their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to shareholders in connection with the extraordinary transaction. New Jersey law provides that a shareholder is not entitled to demand the fair value of his, her or its shares of stock in any transaction if (i) a class or series of shares are listed on a national securities exchange or are held by not less than 1,000 shareholders or (ii) the shareholder is to receive (x) cash, (y) shares as consideration that will be listed on a national securities exchange or be held by not less than 1,000 shareholders or (z) cash and such securities. Because Princeton common stock is listed on The Nasdaq Global Select Market, the holders of Cornerstone common stock are not entitled to dissenters’ or appraisal rights in the merger.

Litigation against Princeton or Cornerstone or their respective boards of directors could prevent or delay the completion of the merger or result in the payment of damages following the completion of the merger.

While Princeton and Cornerstone believe that any claims that may be asserted by purported shareholder plaintiffs related to the merger would be without merit, the results of any such potential legal proceedings are difficult to

 

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predict and could delay or prevent the merger from becoming effective in a timely manner. The existence of litigation related to the merger could affect the likelihood of obtaining the required approval of the merger proposal. Moreover, any litigation could be time consuming and expensive, could divert Princeton management or Cornerstone management’s attention away from their regular business and, if any lawsuit is adversely resolved against Princeton, Cornerstone or their respective board of directors, it could have a material adverse effect on the financial condition of Princeton, Cornerstone or the surviving company in the merger.

Two conditions to the consummation of the merger are (a) the absence of any actual or threatened causes of action, investigations or proceedings (i) challenging the validity or legality of the merger agreement or the consummation of the transactions contemplated thereby, (ii) seeking damages in connection with the transactions contemplated by the merger agreement, or (iii) seeking to restrain or invalidate the transactions contemplated by the merger agreement, and (b) that no judgment, order, injunction or decree (whether temporary, preliminary or permanent) issued by any court or agency of competent jurisdiction or other legal restraints or prohibition preventing the consummation of the merger, the Bank Merger or any of the other transactions contemplated by the merger agreement shall be in effect Consequently, if a settlement or other resolution is not reached in any lawsuit that is filed and a claimant secures injunctive or other relief prohibiting, delaying or otherwise adversely affecting Princeton or Cornerstone’s ability to complete the merger, then such injunctive or other relief may prevent the merger from becoming effective in a timely manner or at all.

The fairness opinion received by the Cornerstone board from its financial advisor prior to execution of the merger agreement does not reflect changes in circumstances subsequent to the date of the fairness opinion.

Janney Montgomery Scott, LLC, Cornerstone’s financial advisor in connection with the merger, delivered to the Cornerstone board its fairness opinion on January 17, 2024. The opinion speaks only as of the date of such opinion. The opinion does not reflect changes that may occur or may have occurred after the date of the opinion, including changes to the operations and prospects of Princeton or Cornerstone, changes in general market and economic conditions or regulatory or other factors. Any such changes may materially alter or affect the relative values of Princeton and Cornerstone.

Estimates as to the future value of the combined company are inherently uncertain. You should not rely on such estimates without considering all of the information contained in or incorporated by reference into this proxy statement/prospectus.

Any estimates as to the future value of the combined company, including estimates regarding the earnings per share of the combined company, are inherently uncertain. The future value of the combined company will depend upon, among other factors, the combined company’s ability to achieve projected revenue and earnings expectations and to realize the anticipated synergies, all of which are subject to risks and uncertainties, including the risks and uncertainties described in these risk factors. Accordingly, you should not rely upon any estimates as to the future value of the combined company, whether made before or after the date of this proxy statement/prospectus by Princeton’s and Cornerstone’s respective management teams or others, without considering all of the information contained in or incorporated by reference into this proxy statement/prospectus.

Princeton has authorized a class of preferred stock, which could have voting, dividend or other preferences over shares of Princeton’s common stock and could dilute the voting power, equity position or share of earnings of common shareholders, and could have antitakeover effects.

Princeton’s articles of incorporation have been amended to authorize a class of preferred stock consisting of 2,000,000 shares, and to empower the Princeton board of directors to issue such shares as a class or in one or more series, with such voting, dividend, redemption, sinking fund, conversion, exchange, liquidation and other rights as are determined by the Princeton board, without further shareholder approval.

Provisions in a company’s certificate of incorporation authorizing preferred stock in this manner are often referred to as “blank check” provisions because they give a board of directors the flexibility, at any time or from

 

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time to time, without further shareholder approval (except as may be required by applicable laws, regulatory authorities, or the rules of any stock exchange on which the company’s securities are then listed), to create one or more series of preferred stock and to determine by resolution the terms of each such series or the class as a whole. The authority of the board of directors with respect to each series and the class, without limitation, includes a determination of the following: (a) the number of shares to constitute the series, (b) the liquidation rights, if any, (c) the dividend rights and rates, if any, (d) the rights and terms of redemption, (e) the voting rights, if any, which may be full, special, conditional, or limited, (f) whether the shares will be convertible or exchangeable into other securities of Princeton, and the rates thereof, if any, (g) any limitations on the payment of dividends on the common stock while any series is outstanding, (h) any other provisions that are not inconsistent with Princeton’s articles of incorporation, and (i) any other preference, limitations, or rights that are permitted by law.

Therefore, the Princeton board could authorize shares of preferred stock which have voting, dividend or other preferences over shares of its common stock and the issuance of preferred stock could dilute the voting power, equity position or share of earnings of common shareholders, although the Princeton board has no present plan or proposal to do so. Preferred stock also could be used to discourage or impede an attempt to obtain control of Princeton by merger, tender offer, proxy contest or other means and could be used to inhibit the removal of incumbent management. At this time, Princeton is not aware of any attempts to obtain control of Princeton.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus contains “forward-looking statements” within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended (which we refer to as the “Securities Act”), and Section 21E of the Exchange Act. These forward-looking statements may include: management plans relating to the merger; the expected timing of the completion of the merger; the ability to complete the merger; the ability to obtain any required regulatory, stockholder or other approvals; any statements of the plans and objectives of management for future operations, products or services, including the execution of integration plans relating to the merger; any statements of expectation or belief; projections related to certain financial metrics; and any statements of assumptions underlying any of the foregoing.

Forward-looking statements are typically identified by words such as “believe,” “expect,” “anticipate,” “intend,” “seek,” “plan,” “will,” “would,” “target,” “outlook,” “estimate,” “forecast,” “project” and other similar words and expressions or negatives of these words. Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time and are beyond our control. Forward-looking statements speak only as of the date they are made. Neither Princeton nor Cornerstone assumes any duty or undertaking to update any forward-looking statements. Because forward-looking statements are by their nature, to different degrees, uncertain and subject to assumptions, actual results or future events could differ, possibly materially, from those that Princeton or Cornerstone anticipated in their respective forward-looking statements, and future results could differ materially from historical performance. Factors that could cause or contribute to such differences include, but are not limited to, those included under the section of this proxy statement/prospectus entitled “Risk Factors” beginning on page 14 and under Item 1A “Risk Factors” in Princeton’s Annual Report on Form 10-K, and those disclosed in Princeton’s other periodic reports filed with the SEC, as well as the possibility that expected benefits of the merger may not materialize in the timeframe expected or at all, or may be more costly to achieve; that the merger may not be timely completed, if at all; that prior to the completion of the merger, Princeton’s and Cornerstone’s respective businesses may not perform as expected due to transaction-related uncertainty or other factors; that the parties are unable to successfully implement integration strategies related to the merger; that, with respect to the merger, required regulatory, shareholder or other approvals are not obtained or other customary closing conditions are not satisfied in a timely manner or at all; reputational risks and the reaction of the companies’ shareholders, customers, employees and other constituents to the merger; and diversion of management time as a result of matters related to the merger. For any forward-looking statements made in this proxy statement/prospectus, Princeton and Cornerstone claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Annualized, pro forma, projected and estimated numbers are used for illustrative purposes only, are not forecasts and may not reflect actual results.

 

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CORNERSTONE SPECIAL MEETING

This section contains information for Cornerstone shareholders about the special meeting that Cornerstone has called to allow its shareholders to consider and vote on the merger proposal, the amendment proposal and the adjournment proposal. Cornerstone is mailing this proxy statement/prospectus to you, as a Cornerstone common shareholder, on or about May 20, 2024. This proxy statement/prospectus is accompanied by a notice of the special meeting and a form of proxy card that the Cornerstone board is soliciting for use at the special meeting and at any adjournments or postponements of the special meeting.

Date, Time and Place of the Special Meeting

The special meeting is scheduled to be held in person at Cornerstone’s offices located at 6000 Midlantic Drive, Suite 120S Mt. Laurel, New Jersey 08054, at 3:00 p.m. local time, on Tuesday June 18, 2024. On or about May 20, 2024, Cornerstone will commence mailing this proxy statement/prospectus and the enclosed form of proxy card to its shareholders entitled to vote at the special meeting.

Matters to Be Considered

At the special meeting, you, as a Cornerstone shareholder, will be asked to consider and vote upon the following matters:

 

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the merger proposal;

 

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the amendment proposal; and

 

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the adjournment proposal.

Recommendation of the Cornerstone Board

The Cornerstone board has determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable, fair to and in the best interests of Cornerstone and its shareholders, has unanimously approved the merger agreement, the merger and the amendment proposal, and unanimously recommends that Cornerstone shareholders vote “FOR” the merger proposal, “FOR” the amendment proposal and “FOR” the adjournment proposal. See the section of this proxy statement/prospectus entitled “The Merger —Cornerstone’s Reasons for the Merger; Recommendation of the Cornerstone Board” beginning on page 34 for a more detailed discussion of the Cornerstone board’s recommendation.

Record Date and Quorum

The Cornerstone board has fixed the close of business on May 15, 2024, as the record date for determining its shareholders entitled to receive notice of, and to vote at, the special meeting.

As of the record date, Cornerstone’s records show that there were 2,191,999 shares of Cornerstone common stock outstanding and entitled to notice of, and to vote at, the special meeting held by 216 holders of record. Each share of Cornerstone common stock entitles the holder to one vote at the special meeting on each proposal to be considered at the special meeting.

The presence at the special meeting of the holders of shares of Cornerstone common stock entitled to cast not less than Thirty-Three and One-Third (1/3) Percent (33.33%) of all shares of Cornerstone entitled to vote at the special meeting will constitute a quorum at the special meeting for the transaction of business at the special meeting. Abstentions, if any, will be included in determining the number of shares present at the special meeting for the purpose of determining the presence of a quorum. Once a share is represented for any purpose at the special meeting, it is deemed present for quorum purposes for the remainder of the special meeting or any adjournment thereof.

Broker non-votes, if any, will not be included in determining the number of shares present at the special meeting for the purpose of determining the presence of a quorum because it is expected that all proposals to be voted on

 

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at the special meeting will be “non-routine” matters (i.e., matters with respect to which banks, brokers and other nominees do not have discretion to vote shares of Cornerstone common stock).

Required Vote; Treatment of Abstentions, Broker Non-Votes and Failure to Vote

The merger proposal:

 

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Standard: Approval of the merger proposal by the holders of Cornerstone common stock requires the affirmative vote of at least a majority of the outstanding shares of Cornerstone’s capital stock entitled to vote at the special meeting.

 

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Effect of abstentions and broker non-votes: If you mark “ABSTAIN” on your proxy, fail to submit a proxy or fail to vote in person at the special meeting, or fail to instruct your bank, broker or other nominee how to vote with respect to the merger proposal, it will have the same effect as a vote “AGAINST” the merger proposal.

The amendment proposal:

 

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Standard: Approval of the amendment proposal by the holders of Cornerstone common stock requires the affirmative vote of at least a majority of the votes cast at the special meeting by the holders of shares of Cornerstone common stock entitled to vote at the special meeting.

 

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Effect of abstentions and broker non-votes: If you mark “ABSTAIN” on your proxy, fail to submit a proxy or fail to vote in person at the special meeting, or if you fail to instruct your bank, broker or other nominee how to vote with respect to the amendment proposal, it will have no effect on the vote with respect to the amendment proposal.

The adjournment proposal:

 

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Standard: Approval of the adjournment proposal by the holders of Cornerstone common stock requires the affirmative vote of at least a majority of the votes cast at the special meeting by the holders of shares of Cornerstone common stock entitled to vote at the special meeting.

 

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Effect of abstentions and broker non-votes: If you mark “ABSTAIN” on your proxy, fail to submit a proxy or fail to vote in person at the special meeting, or if you fail to instruct your bank, broker or other nominee how to vote with respect to the adjournment proposal, it will have no effect on the vote with respect to the adjournment proposal.

Shares Held by Officers and Directors

As of the record date, Cornerstone’s records show there were 2,191,999 shares of Cornerstone common stock outstanding. As of the close of business on the record date, Cornerstone’s directors and executive officers and their affiliates were entitled to vote an aggregate of 648,579 shares of Cornerstone common stock at the special meeting, which represents approximately 29.6% of the issued and outstanding shares of Cornerstone common stock entitled to vote at the special meeting, as described in the section of this proxy statement/prospectus entitled “Security Ownership of Certain Beneficial Owners and Management of Cornerstone”.

Each director and certain executive officer of Cornerstone, solely in his or her capacity as a Cornerstone shareholder, has entered into a voting and support agreement with Princeton, pursuant to which each such shareholder has agreed to vote in favor of the merger proposal and certain related matters and against alternative transactions. As of the record date, Cornerstone shareholders that are party to the support agreements were entitled to vote in the aggregate approximately 29.6% of the outstanding shares of Cornerstone common stock. For more information regarding the support agreements, see the section of this proxy statement/prospectus entitled “The Merger Agreement — Voting and Support Agreement” beginning on page 70.

 

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As of the record date, Princeton did not beneficially own any shares of Cornerstone common stock.

Voting of Proxies; Incomplete Proxies

Any Cornerstone common shareholder may vote by proxy or in person at the special meeting. If you hold your shares of Cornerstone common stock in your name as a shareholder of record, to submit a proxy you, as a Cornerstone shareholder, may use one of the following methods:

 

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Through the Internet by visiting the website indicated on your proxy card and following the instructions.

 

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By telephone by following the instructions on your proxy card.

 

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By completing and returning the proxy card in the enclosed envelope. The envelope requires no additional postage if mailed in the United States.

Cornerstone requests that its shareholders vote by telephone or over the Internet prior to midnight on June 17, 2024 or by completing and signing the accompanying proxy card and returning it to Cornerstone as soon as possible in the enclosed postage-paid envelope. When the accompanying proxy card is returned properly executed, the shares of Cornerstone common stock represented by it will be voted at the special meeting in accordance with the instructions contained on the proxy card. If any proxy card is returned signed but without indication as to how to vote, the shares of Cornerstone common stock represented by the proxy card will be voted as recommended by the Cornerstone board.

Every Cornerstone shareholder’s vote is important. Accordingly, each shareholder should sign, date and return the enclosed proxy card, or, prior to midnight on June 17, 2024, vote by telephone or vote via the Internet, whether or not the shareholder plans to attend the special meeting in person. Sending in your proxy card or voting by telephone or on the Internet will not prevent you from voting your shares personally at the meeting, since you may revoke your proxy at any time before it is voted.

Shares Held in “Street Name”

If you are a Cornerstone shareholder and your shares are held in “street name” through a bank, broker or other nominee, you must provide the record holder of your shares with instructions on how to vote the shares. Please follow the voting instructions provided by the bank, broker or other nominee. Shareholders should check the voting form used by that firm to determine whether you may vote by telephone or the Internet.

You may not vote shares held in street name by returning a proxy card directly to Cornerstone or by voting in person at the special meeting unless you obtain a “legal proxy” from your broker, bank or other nominee.

Furthermore, brokers, banks or other nominees who hold shares of Cornerstone common stock on behalf of their customers will not vote your shares of Cornerstone common stock or give a proxy to Cornerstone to vote those shares with respect to any proposal at the special meeting without specific instructions from you, because brokers, banks and other nominees do not have discretionary voting power on such proposals. A broker non-vote occurs when the broker holder of record is unable to vote on a proposal because the proposal is non-routine and the beneficial owner does not provide any instructions. All of the proposals currently scheduled for consideration at the special meeting are “non-routine” matters.

Revocability of Proxies and Changes to a Cornerstone Shareholder’s Vote

You have the power to change your vote at any time before your shares of Cornerstone common stock are voted at the special meeting by:

 

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voting again by telephone or through the Internet prior to midnight on June 17, 2024, or completing a new proxy card with a later date – your latest vote will be counted; or

 

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filing with the Secretary of Cornerstone written notice of such revocation.

Attendance at the special meeting will not in and of itself constitute a revocation of a proxy.

If you choose to send a completed proxy card bearing a later date than your original proxy card, the new proxy card must be received before the beginning of the special meeting. If you have instructed a bank, broker or other nominee to vote your shares of Cornerstone common stock, you must follow the directions you receive from your bank, broker or other nominee in order to change or revoke your vote.

Solicitation of Proxies

Cornerstone will pay for the solicitation of proxies from Cornerstone shareholders. In addition to soliciting proxies by mail, Laurel Hill Advisory Group, Cornerstone’s proxy solicitor, will assist Cornerstone in soliciting proxies from its shareholders. Cornerstone has agreed to pay $7,500 plus expenses for these services. Cornerstone will, upon request, reimburse banks, brokers and other nominees for their expenses in sending proxy materials to their customers who are beneficial owners and obtaining their voting instructions. Additionally, directors, officers and employees of Cornerstone may solicit proxies personally and by telephone. None of these persons will receive additional or special compensation for soliciting proxies.

Attending the Special Meeting

All Cornerstone shareholders, including holders of record and shareholders who hold their shares through banks, brokers or other nominees, are invited to attend the special meeting. Cornerstone shareholders of record can vote in person at the special meeting. If you are not a Cornerstone shareholder of record, you must obtain a proxy executed in your favor from the record holder of your shares, such as a broker, bank or other nominee, to be able to vote in person at the special meeting. If you plan to attend the special meeting, you must hold your shares in your own name or have a letter from the record holder of your shares confirming your ownership. The use of cameras, sound recording equipment, communications devices or any similar equipment during the special meeting is prohibited.

Assistance

If you need assistance in completing your proxy card, have questions regarding the special meeting or would like additional copies of this proxy statement/prospectus, please contact Cornerstone’s proxy solicitor, Laurel Hill Advisory Group, at the following address 2 Robbins Lane, Suite 201, Jericho, New York 11753, or by telephone at (888) 742-1305.

 

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CORNERSTONE PROPOSALS

Proposal No. 1—The Merger Proposal

Cornerstone is asking its shareholders to approve the merger agreement and the transactions contemplated thereby, including the merger. Cornerstone shareholders should read this proxy statement/prospectus carefully and in its entirety, including the annexes, for more detailed information concerning the merger agreement and the merger. A copy of the merger agreement is attached to this proxy statement/prospectus as Annex A.

After careful consideration, the Cornerstone board unanimously approved the merger agreement and the transactions contemplated thereby, including the merger, having determined that the merger agreement and the transactions contemplated thereby were advisable, fair to and in the best interests of Cornerstone and its shareholders. See the section of this proxy statement/prospectus entitled “The Merger — Cornerstone’s Reasons for the Merger; Recommendation of the Cornerstone Board” beginning on page 34 for a more detailed discussion of the Cornerstone board’s recommendation.

The Cornerstone board unanimously recommends a vote “FOR” the merger proposal.

 

Proposal No. 2—The Amendment Proposal

General

Cornerstone is asking its shareholders to approve an amendment to its certificate of incorporation to reflect the reverse stock split originally approved by Cornerstone’s shareholders in 2016. At the shareholder meeting held on September 21, 2016, the shareholders of Cornerstone approved a one for 10 reverse stock split. Under New Jersey law, a reverse stock split (otherwise known as a share combination) may be implemented with or without the filing of a certificate of amendment to a company’s certificate of incorporation, depending upon the circumstances of the share combination. Princeton and Cornerstone disagree as to whether a certificate of amendment to Cornerstone’s certificate of incorporation was required for the reverse stock split approved in 2016, and so in an abundance of caution, and in order to satisfy Princeton’s concerns, Cornerstone is requesting and recommending that its shareholders approve an amendment to its certificate of incorporation, as previously amended (the “Cornerstone Charter”), to amend the Cornerstone Charter (the “Charter Amendment”) to reflect the reverse stock split approved in 2016.

However, as described below, the Charter Amendment will not change the number of shares held by any Cornerstone shareholder as shown on Cornerstone’s records. To the extent the filing of the certificate of amendment could be deemed to cause an adverse effect on any shareholder of the Cornerstone, Cornerstone shall be deemed to have issued additional shares, at no additional consideration, to such shareholder so that such shareholder shall be in the same position as he, she or it was prior to the Charter Amendment (i.e., after giving effect to the 2016 reverse stock split), provided that Cornerstone may not have more than 2,191,999 shares outstanding at any time. Therefore, upon filing the Charter Amendment, each Cornerstone shareholder will be deemed to own that number of shares of Cornerstone common stock as Cornerstone’s records show them owning prior to the Charter Amendment, and Cornerstone will have the same number of shares outstanding as Cornerstone’s records show Cornerstone had outstanding prior to the Charter Amendment.

Due to the impact of the additional shares issued by Cornerstone since 2016, the Charter Amendment will be deemed to effect a share combination having a ratio of 1-for-4.02880795 with respect to the issued and outstanding shares of Cornerstone common stock outstanding, although, as described above, the net effect to Cornerstone shareholders will be that no shareholder’s ownership of Cornerstone common stock will change.

As part of the Charter Amendment, the Certificate of the Designations, Numbers, Relative Rights, Preferences and Limitations (the “Certificate of Designation”) of Cornerstone’s Perpetual Non-Cumulative Non-Voting Preferred Stock, Series C, no par value (the “Series C Stock”), will be amended to revise the Conversion Ratio

 

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(as defined in the Certificate of Designation), from $1.75 to $17.50 in connection with the adoption of the amendment proposal. This amendment will change the number of shares of Cornerstone common stock that a Series C Stock holder would receive upon the conversion of one share of Series C Stock from 571.4 shares to 57.1 shares, and therefor has no adverse effect on the holders of Cornerstone common stock. The holder of all of the outstanding shares of Series C Stock has consented to this amendment. The proposed amendment to the Cornerstone Charter is attached to this proxy statement/prospectus as Annex C and Cornerstone shareholders are urged to read this proxy statement/prospectus carefully and in its entirety, including the annexes, for more detailed information.

Cornerstone’s board of directors unanimously consented to approve the Charter Amendment, including the amendment to the Certificate of Designation, and to recommend the Charter Amendment to its common shareholders to approve because the Cornerstone Board believes the merger is in the best interests of Cornerstone’s shareholders and Princeton is requiring the Charter Amendment as a condition to the merger. If the Cornerstone common shareholders approve this proposal and the merger proposal, then immediately prior to the effective date of the merger, Cornerstone will file a certificate of amendment evidencing the Charter Amendment with the New Jersey Department of Treasury. Upon closing of the merger, each share of Cornerstone common stock will be converted into the right to receive 0.24 shares of Princeton common stock.

Principal Effects of the Reverse Stock Split

The amendment proposal is being presented to the Cornerstone shareholders so that they can authorize the filing of a certificate of amendment evidencing the Charter Amendment to facilitate the merger. If Cornerstone shareholders approve the merger proposal and the amendment proposal, and Cornerstone files the certificate of amendment evidencing the Charter Amendment, all Cornerstone common shareholders will be affected uniformly and there will be no change any common shareholder’s percentage ownership interest in the common stock of Cornerstone reflected on the books and records of Cornerstone (or, as explained above, the number of shares of Cornerstone common stock held by any shareholder, as reflected on such books and records), except to the extent that the reverse stock split would result in a shareholder otherwise owning a fractional share that would be rounded up or down as set forth below. Therefore, voting rights and other rights and preferences of the holders of Cornerstone common stock will not be affected by the Charter Amendment (other than as a result of the treatment fractional shares). Shares of Cornerstone common stock issued pursuant to the Charter Amendment will remain fully paid. The Charter Amendment will not change the number of authorized shares of Cornerstone common stock.

Fractional Shares

No fractional shares will be issued as a result of the Charter Amendment. All shares held by a Cornerstone common shareholder will be combined to attempt to create the largest number of post Charter Amendment whole shares. Fractional shares will be rounded to the nearest whole number of shares, and will not be cashed out.

The Cornerstone board unanimously recommends a vote “FOR” the amendment proposal.

Proposal No. 3—The Adjournment Proposal

The special meeting may be adjourned to another time or place, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the merger proposal or the amendment proposal.

If, at the special meeting, the number of shares of Cornerstone common stock present or represented by proxy and voting in favor of the merger proposal or the amendment proposal is insufficient to approve the merger proposal or the amendment proposal, Cornerstone intends to move to adjourn the special meeting in order to enable the Cornerstone board to solicit additional proxies for approval of the merger proposal or the amendment proposal, as applicable. In that event, Cornerstone will ask its shareholders to vote upon the adjournment proposal, but not the merger proposal or the revise stock split proposal.

 

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In this proposal, Cornerstone is asking its shareholders to authorize the holder of any proxy solicited by the Cornerstone board on a discretionary basis to vote in favor of adjourning the special meeting to another time and place for the purpose of soliciting additional proxies, including the solicitation of proxies from Cornerstone shareholders who have previously voted.

The Cornerstone board unanimously recommends a vote “FOR” the adjournment proposal.

 

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INFORMATION ABOUT PRINCETON

Princeton is based in Princeton, New Jersey and serves as the holding company for Princeton Bank, a New Jersey chartered bank. As a bank holding company, Princeton is subject to supervision and examination by the FRB and the NJDOBI. Princeton’s main office is located at 183 Bayard Lane, Princeton, New Jersey 08540, and its telephone number is (609) 921-1700.

Princeton acquired all of the outstanding capital stock of Princeton Bank as a result of the reorganization of Princeton Bank into a holding company structure on January 10, 2023. Prior to that date, Princeton did not have any material assets.

Other than its investment in Princeton Bank, Princeton currently conducts no other significant business activities. Princeton may determine to operate its own business or acquire other commercial banks, thrifts institutions or bank holding companies, or engage in or acquire such other activities or businesses as may be permitted by applicable law although it has no present plans or intentions to do so. When we refer to the business conducted by Princeton in this document including any lending or other banking activities, we are referring to the business that Princeton conducts through Princeton Bank.

Princeton Bank was incorporated and commenced operations in 2007 under the laws of the State of New Jersey as a New Jersey state-chartered bank. Princeton Bank is a full-service bank providing personal and business lending and deposit services. Princeton Bank is a New Jersey state-chartered commercial bank with 22 branches in New Jersey, five branches in the Philadelphia, Pennsylvania area and two in the New York metropolitan area. Princeton Bank is a member of the FDIC.

 

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INFORMATION ABOUT CORNERSTONE

Cornerstone

Cornerstone is the holding company for Cornerstone Bank, a New Jersey chartered commercial bank headquartered in Moorestown, New Jersey. Cornerstone Bank operates 6 branches located in Medford, Burlington City, Cherry Hill, Moorestown, Voorhees, and Woodbury, New Jersey.

Cornerstone common stock is traded on the OTC Bulletin Board under the symbol “CFIC.”

Cornerstone’s principal executive offices are located at 6000 Midlantic Dr, Suite 120S, Mount Laurel, New Jersey 08054 and its telephone number at that location is (856) 439-0300. Cornerstone’s website is https://www.cornerstonebank.net.

 

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THE MERGER

The following discussion contains certain information about the merger. The discussion is subject, and qualified in its entirety by reference, to the merger agreement attached as Annex A to this proxy statement/prospectus and incorporated herein by reference. We urge you to read carefully this entire proxy statement/prospectus, including the merger agreement attached as Annex A, for a more complete understanding of the merger.

Structure of the Merger

Each of the Princeton board and the Cornerstone board has unanimously approved the merger agreement. The merger agreement provides that Cornerstone will merge with and into Princeton with Princeton being the surviving corporation (sometimes referred to in such capacity as the “surviving corporation”).

At the effective time, each issued and outstanding share of Cornerstone common stock, except for the exception shares, will be converted into the right to receive 0.24 shares of Princeton common stock, subject to adjustment, together with cash in lieu of fractional shares. No fractional shares of Princeton common stock will be issued in connection with the merger, and Cornerstone shareholders will instead be entitled to receive cash in lieu of such fractional shares. In the event that the sum of Cornerstone’s shareholders’ equity and allowance for loan losses as of the month end immediately prior to the effective time, calculated in accordance with the terms of the merger agreement, is less than the sum of Cornerstone’s shareholders’ equity and allowance for loan losses as of September 30, 2023, also calculated in accordance with the terms of the merger agreement ($26.8 million), the exchange ratio will be reduced to reflect the amount of such decrease. Also at the effective time, each outstanding share of Cornerstone preferred stock will be exchanged for its stated value of $1,000 per share in cash, or aggregate consideration of $3.34 million.

Cornerstone shareholders are being asked to approve the merger agreement and the transactions contemplated thereby, including the merger and the amendment proposal. See the section of this proxy statement/prospectus entitled “The Merger Agreement” beginning on page 53 for additional and more detailed information regarding the legal documents that govern the merger, including information about the conditions to the completion of the merger and the provisions for terminating or amending the merger agreement.

Background of the Merger

After suffering significant losses related to credit issues due in part to the 2008 recession, Cornerstone has struggled to attain consistent profitability and raise sufficient capital to permit Cornerstone to grow its assets and thereby increase its revenue. In addition, as a result of these losses, Cornerstone has been subject to both formal regulatory enforcement actions as well as enhanced regulatory scrutiny, which limited Cornerstone’s ability to grow. Despite reducing its non-performing assets, stabilizing its balance sheet and successfully raising capital in 2021, Cornerstone, in part due to its small size, has been unable to attain consistent profitability. In addition, as regulatory demands on smaller depository institutions have increased, with attendant increases in costs, Cornerstone’s board has considered whether Cornerstone could remain as an independent institution, which would require raising a significant amount of additional capital, or whether it would best serve Cornerstone’s shareholders to seek a strategic partner. As part of these deliberations, management of Cornerstone has met from time to time with the management of other depository institutions that had an interest in a potential strategic transaction.

At the March 8, 2023 meeting of Cornerstone board, the board again reviewed its strategic alternatives with representatives of Janney Montgomery Scott (“JMS”), Cornerstone’s financial adviser. After reviewing Cornerstone’s current condition, need for capital, market conditions and other matters, the Cornerstone board authorized and directed Cornerstone management to begin an informal outreach process to determine the level of interest in a transaction with Cornerstone from potentially interested parties.

In April and May of 2023, the Chair and President and CEO of Cornerstone met with the management teams of five (5) parties identified by JMS as likely to have an interest in a strategic transaction with Cornerstone,

 

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including Princeton. In addition, Cornerstone management had met with the management of another potentially interested party that had contacted Cornerstone directly prior to the March 8 Cornerstone board meeting.

On April 18, 2023, Susan Barrett, Cornerstone’s Chair, and Gene D’Orazio, its President and CEO, met with Princeton’s Chairman Richard Gillespie, its President and CEO Edward Dietzler, and its COO and General Counsel Dan O’Donnell to discuss their respective organizations and business philosophies. Potential transaction terms were not discussed at this meeting.

On May 30, 2023, the Cornerstone board held a special meeting to discuss the company’s strategic alternatives. Representatives of JMS attended the meeting and made a presentation regarding the current M&A environment, potential valuation of Cornerstone, the structure of a potential sale process and potentially interested parties. The Cornerstone board then held an executive session to discuss Cornerstone’s prospects and the information provided by JMS. At the conclusion of the executive session, the Cornerstone board elected to begin a formal sale process, and to help ensure the likelihood of regulatory approval and successful execution of a transaction, and to help insure liquidity for Cornerstone shareholders as a result of the transaction, the board also elected to limit participation in the process to those entities with at least $1 billion in total assets and a liquid trading market for their stock.

At the May 2023 meeting of the Princeton board, Mr. Dietzler and Mr. Gillespie informed the Princeton board of the opportunity to pursue a strategic acquisition of Cornerstone.

On June 29, 2023, Cornerstone executed an engagement letter with JMS, formally retaining JMS as its financial advisor in a potential sale.

During June 2023, JMS worked with Cornerstone management to prepare a Confidential Information Memorandum (“CIM”). JMS also contacted seven (7) parties identified as potentially having an interest in a strategic transaction with Cornerstone (including Princeton) to determine if they would be interested in signing a standard non-disclosure agreement (“NDA”) and receiving the CIM. Four (4) of these parties, including Princeton, executed the NDA and received the CIM, with instructions to provide indication of interest letters by the second week of August, 2023.

In early August, Ms. Barrett again met with Mr. Dietzler and a member of Princeton’s Board. Potential transaction terms were not discussed at this meeting.

On August 9, 2023, Ms. Barrett and Gene D’Orazio, Cornerstone’s President and CEO, met with the President and CEO and a board member of one of the potentially interested parties to discuss their respective organizations and business philosophies. Potential transaction terms were not discussed at this meeting. Also on such date, the management of Princeton met with the Princeton board, its legal counsel and representatives of Raymond James & Associates, Inc., its financial advisor (which we refer to as “Raymond James”) to discuss and approve its initial indication letter, which included, among other things, the offer of one Princeton board seat to add southern New Jersey market experience to the Princeton’s board.

By August 10, 2023, Cornerstone had received indication letters from all four parties that had signed NDA’s. Three of the indication letters provided for mergers and provided for valuations ranging from an aggregate price of $17.5 million, or $8.00 per share from Princeton, to $23.0 million, or $10.50 per share. Cornerstone received a fourth indication for a purchase of Cornerstone Bank’s assets and liabilities for a $15.5 million premium to net asset value. This proposal would require Cornerstone to execute the bank level transaction and then subsequently liquidate the holding company and make a cash distribution to shareholders, estimated to range from $28.8 million in the aggregate, or $13.13 per share, to $34.3 million, or $15.71 per share, depending upon assumptions regarding the utilization and value of Cornerstone’s deferred tax assets and the tax impacts of the proposed structure This last indication also raised significant regulatory issues. Two of the indications provided consideration in a mix of cash and stock, one provided for all cash, and the Princeton indication provided for all stock consideration.

 

32

Representatives of JMS contacted Princeton’s financial advisor to inform them that their indication provided the lowest pricing, and to tell Princeton that they would need to enhance their indicated pricing if Princeton wanted to remain in the process. On August 14, 2023, after meeting with the Princeton board and representatives of Raymond James, Princeton management provided an updated pricing indication letter valuing Cornerstone at an aggregate value of $23.0 million, or $10.50 per share, paid in a mix of cash and Princeton stock.

On August 16, 2023, the Cornerstone board met to review the indications of interest. Representatives of JMS participated in the meeting, and reviewed with the Cornerstone board the terms of each of the indication letters received. The Cornerstone board elected to permit each of the four interested parties to conduct a more detailed diligence review, in order to provide a last, best and highest indication of value by the end of September.

After being notified that they were invited to perform a more detailed diligence review, one of the interested parties informed JMS that it was no longer participating in the sale process.

During August and September 2023, Princeton and one of the other interested parties (“Party A”) performed a more detailed diligence review of Cornerstone.

The party that had submitted the proposal for a bank asset sale did not engage in additional diligence, and ultimately informed JMS that it would not continue in the sale process.

At a meeting of the Princeton board held on September 29, 2023, representatives of Raymond James reviewed with the Princeton board the proposed transaction with Cornerstone, including the impact analysis for the transaction. The Princeton board then discussed the proposed terms of, benefits of and risks associated with, the transaction.

On September 29, 2023, Cornerstone received updated indication letters from Princeton and Party A. Party A’s indication valued Cornerstone at an aggregate price of $18.6 million, or $9.00 per share, with consideration paid in a mix of cash and Party A stock. Princeton’s indication valued Cornerstone at an aggregate value of $23.0 million, or $10.50 per share, payable all in stock.

The Cornerstone board held a special meeting on October 10, 2023 to review the two indication letters received. A representative of JMS attended the meeting, and reviewed the two indication letters, including the proposed value of each proposed transaction to the Cornerstone shareholders. After further discussion, based upon the indicated value of each of the indications received, the Cornerstone board unanimously agreed to begin exclusive negotiations with Princeton on a definitive transaction agreement. On October 12, 2023, after negotiation, Cornerstone entered into an agreement providing exclusivity to Princeton until December 11, 2023.

During October and November of 2023, Princeton continued its detailed diligence review of Cornerstone, including conducting detailed interviews with Cornerstone’s management personnel.

On December 6, 2023, Cornerstone Chair Barrett met with Princeton President and CEO Dietzler. Mr. Dietzler informed Ms. Barrett that based upon the results of Princeton’s diligence review, Princeton was reducing its pricing for Cornerstone to $9.00 per share, payable all in cash. That same day Stevens & Lee, counsel for Princeton (“S&L”), provided to Windels Marx Lane and Mittendorf, counsel for Cornerstone (“WMLM”), a proposed draft of the definitive agreement and plan of merger reflecting such $9.00 per share all cash purchase price, as well as an amendment to the exclusivity agreement between Princeton and Cornerstone extending the exclusivity period to December 31, 2023.

On December 8, 2023, the Cornerstone board held a special meeting to consider the proposed change in price from Princeton. Representatives of JMS and WMLM participated in the meeting. The representative of WMLM review with the Cornerstone board members their fiduciary duties to the Cornerstone shareholders. Ms. Barrett reviewed with the board members her meeting earlier in the week with Mr. Dietzler. The representative of JMS

 

33

reviewed the change in pricing with the Cornerstone board, and reviewed the resulting pricing metrics of the transaction. The Cornerstone board members discussed the change in pricing as well as Cornerstone’s alternatives. At the conclusion of the meeting, JMS was directed to discuss the pricing change with Princeton’s financial advisor, and to seek to have Princeton both increase the price and provide a Princeton stock component to the consideration, and inform Princeton that Cornerstone was unwilling to enter into an extension of the exclusivity agreement until these issues were resolved.

Between December 9 and December 19, 2023, representatives of JMS and WMLM negotiated terms of the definitive agreement and plan of merger with representatives of S&L and Raymond James. On December 20, 2023, S&L provided WMLM with an updated draft of the definitive agreement and plan of merger, providing for an all stock exchange of shares of Cornerstone common stock for Princeton common exchange at an exchange ratio of 0.24 PBI shares for each Cornerstone share.

Between December 21, 2023 and January 12, 2024, Cornerstone and Princeton and their respective advisors continued to negotiate the terms of the definitive agreement and plan or merger and related documents. On January 17, 2024, the boards of directors of both Cornerstone and Princeton met to review and vote upon the proposed transaction and the various transaction documents.

Representatives of JMS and WMLM participated in the Cornerstone board meeting. The representative of WMLM reviewed with the Cornerstone board the fiduciary duties owed to Cornerstone’s shareholders and the terms of the proposed merger, the merger agreement and the other transaction documents. The representatives of JMS provided a financial analysis of the proposed transaction. The representatives of JMS also orally rendered JMS’s opinion, which was subsequently confirmed in writing (a copy of which is attached as Annex D to this proxy statement/prospectus), to the effect that, as of January 17, 2024, and subject to the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by JMS as set forth in the opinion, the proposed merger consideration was fair, from a financial point of view, to the holders of Cornerstone common stock.

Representatives of Raymond James and S&L were present at the Princeton board meeting. After discussions, including a consideration of the factors described in the section of this proxy statement/prospectus entitled “— Princeton’s Reasons for the Merger,” the Princeton board unanimously adopted the merger agreement.

Cornerstone and Princeton jointly announced the transaction on the morning of January 18, 2024, before the opening of the trading markets.

Cornerstone’s Reasons for the Merger; Recommendation of the Cornerstone Board

In determining that the merger and the merger agreement were fair to and advisable for Cornerstone and its shareholders, in authorizing and approving the merger, in adopting the merger agreement and in recommending that Cornerstone shareholders vote for approval of the merger agreement, the Cornerstone board consulted with members of Cornerstone’s management and with JMS, and also considered a number of factors that the Cornerstone board viewed as relevant to its decisions. The following discussion of the information and factors considered by the Cornerstone board is not intended to be exhaustive; however, it does include all material factors considered by the Cornerstone board.

In reaching its decision to approve the merger agreement, the Cornerstone board considered the following:

 

•

the understanding of the Cornerstone board of the strategic options available to Cornerstone and the Cornerstone board’s assessment of those options, including the economic environment for smaller community banks and Cornerstone’s need for capital to support growth in order to attain consistent profitability, and the determination that none of those options were more likely to create greater present value for Cornerstone shareholders than the value to be paid by Princeton;

 

34

•

the challenges facing Cornerstone’s management to grow Cornerstone’s franchise and enhance shareholder value given Cornerstone’s need for additional capital, current market conditions, including increased operating costs resulting from regulatory and compliance mandates, and continued pressure on net interest margins from the current interest rate environment and competition, especially for deposits;

 

•

the strong capital base the resulting institution would have after the transaction;

 

•

the pro forma dividend paid on the Princeton stock to be issued as part of the merger consideration;

 

•

the ability to become part of a larger institution with a broader array pf products and services;

 

•

the geographic fit and increased customer convenience of the expanded branch network offered by the combined bank;

 

•

that the common stock the Cornerstone shareholders will receive will be listed on the Nasdaq Global Market, thereby providing enhanced liquidity to the Cornerstone shareholders, as the Cornerstone common stock is currently traded only on the OTC Pink Market;

 

•

the terms of the merger agreement and the structure of the merger transaction, including that the merger is intended to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes to common shareholders of Cornerstone;

 

•

the financial condition, results of operations, and prospects of the two entities;

 

•

the opinion of JMS, based upon various analyses described below, including a review of comparable transactions, that the consideration to be received by the Cornerstone common shareholders is fair to the common shareholders of Cornerstone from a financial point of view;

 

•

the Cornerstone board’s view, based on, among other things, the opinion of JMS, that the merger consideration is fair to the common shareholders of Cornerstone from a financial point of view; and

 

•

the likelihood of obtaining the shareholder and regulatory approvals needed to complete the transaction.

All business combinations, including the merger, also include certain risks and disadvantages. The material potential risks and disadvantages to Cornerstone’s shareholders identified by the Cornerstone board and management include the following material matters, the order of which does not necessarily reflect their relative significance:

 

•

the risks of attaining the type of revenue enhancements and cost savings necessary to cause the trading markets to consider the transaction a success;

 

•

that the Princeton stock may not perform well after the closing for reasons unrelated to the proposed transaction, including possible credit, funding or other issues related to Princeton’s business;

 

•

that the termination fee provided for in the merger agreement and certain other provisions of the merger agreement might discourage third parties from seeking to acquire Cornerstone, in light of the fact that Princeton was unwilling to enter into the merger agreement absent such provisions;

 

•

the potential risk of diverting management attention and resources from the operation of Cornerstone’s business and towards the completion of the merger;

 

•

the restrictions on the conduct of Cornerstone’s business before the completion of the merger, which are customary for merger agreements involving financial institutions, but which, subject to specific exceptions, could delay or prevent Cornerstone from undertaking business opportunities that may arise or any other action it would otherwise take with respect to the operations of Cornerstone absent the pending merger; and

 

•

the risk of potential employee attrition and/or adverse effects on business and customer relationships as a result of the pending merger.

 

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This discussion of the information and factors considered by the Cornerstone board in reaching its conclusions and recommendation includes the factors identified above, but is not intended to be exhaustive and may not include all of the factors considered by the Cornerstone board. In view of the wide variety of factors considered in connection with its evaluation of the merger and the other transactions contemplated by the merger agreement, and the complexity of these matters, the Cornerstone board did not find it useful and did not attempt to quantify, rank or assign any relative or specific weights to the various factors that it considered in reaching its determination to approve the merger and the other transactions contemplated by the merger agreement, and to make its recommendation to Cornerstone shareholders. Rather, the Cornerstone board viewed its decisions as being based on the totality of the information presented to it and the factors it considered, including its discussions with and questioning of members of Cornerstone’s management and outside legal and financial advisors. In addition, individual members of the Cornerstone board may have assigned different weights to different factors.

Certain of Cornerstone’s directors and executive officers have financial interests in the merger that are different from, or in addition to, those of Cornerstone’s shareholders generally. The Cornerstone board was aware of and considered these potential interests, among other matters, in evaluating the merger and in making its recommendation to Cornerstone shareholders. For a discussion of these interests, see “—Interests of Cornerstone’s Directors and Executive Officers in the Merger.”

Opinion of Janney Montgomery Scott, LLC

Janney Montgomery Scott, LLC (“Janney”) was engaged by the Board of Directors of Cornerstone Financial Corporation (“Cornerstone”) by letter dated June 29, 2023 to act as financial advisor and to render a fairness opinion for the Board of Directors of Cornerstone in connection with a potential business combination (the “Merger”) with Princeton Bancorp, Inc. (“Princeton”). Janney delivered to the Board of Directors of Cornerstone its opinion dated January 17, 2024 that, based upon and subject to the various considerations set forth in its written opinion, the merger consideration to be received by the shareholders of Cornerstone from Princeton is fair to the shareholders of Cornerstone from a financial point of view. In requesting Janney’s advice and opinion, no limitations were imposed by Cornerstone with respect to the investigations made or procedures followed by it in rendering this opinion. The full text of the opinion of Janney, which describes the procedures followed, assumptions made, matters considered and limitations on the review undertaken, is attached hereto as Annex D. Shareholders of Cornerstone should read this opinion in its entirety. Janney’s opinion speaks only as of January 17, 2024.

Janney is a nationally recognized investment banking firm and, as part of its investment banking business, it values financial institutions in connection with mergers and acquisitions, private placements and for other purposes. As a specialist in securities of financial institutions, Janney has experience in, and knowledge of, banks, thrifts and bank and thrift holding companies. Cornerstone’s Board of Directors selected Janney to render a fairness opinion in connection with the Merger on the basis of the firm’s reputation and expertise in transactions such as the Merger.

Janney has received compensation in the amount of $100,000 from Cornerstone for upon delivery of its written opinion to the Board of Directors of Cornerstone as to the fairness, from a financial point of view, of the Merger to shareholders of Cornerstone. The compensation Janney received from Cornerstone upon delivery of its fairness opinion will be credited towards the total estimated completion fee payable to Janney, 1.15% of total deal value, which is estimated to be $251,000 based on a total transaction value of $21,811,000. Further, Cornerstone has agreed to indemnify Janney against any claims or liabilities arising out of Janney’s engagement by Cornerstone. The opinion has been reviewed by Janney’s compliance officer and fairness committee consistent with its internal policy. Janney has not provided financial services and has not received compensation from Cornerstone during the prior two years. Janney has provided financial services and has received compensation from Princeton during the prior two years. Janney served as the financial advisor to Princeton Bank for their acquisition of Noah Bank, announced on October 20, 2023, and completed on May 19, 2023. For such services, Janney was paid a total advisory fee of $225,000.

 

36

The following is a summary of the analyses performed by Janney in connection with its fairness opinion. Certain analyses were confirmed in a presentation to the Board of Directors of Cornerstone by Janney. The summary set forth below does not purport to be a complete description of either the analyses performed by Janney in rendering its opinion or the presentation delivered by Janney to the Board of Directors of Cornerstone, but it does summarize all of the material analyses performed and presented by Janney.

The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial analyses and the application of those methods to the particular circumstances. In arriving at its opinion, Janney did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Janney may have given various analyses more or less weight than other analyses. Accordingly, Janney believes that its analyses and the following summary must be considered as a whole and that selecting portions of its analyses, without considering all factors, could create an incomplete view of the process underlying the analyses set forth in its report to the Board of Directors of Cornerstone and its fairness opinion.

In performing its analyses, Janney made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Cornerstone or Princeton. The analyses performed by Janney are not necessarily indicative of actual value or actual future results, which may be significantly more or less favorable than suggested by such analyses. Such analyses were prepared solely as part of Janney’s analysis of the fairness of the merger consideration, from a financial point of view, to Cornerstone shareholders. The analyses do not purport to be an appraisal or to reflect the prices at which a company might actually be sold or the prices at which any securities may trade at the present time or at any time in the future. Janney’s opinion does not address the relative merits of the merger as compared to any other business combination in which Cornerstone might engage. In addition, as described above, Janney’s opinion was one of many factors taken into consideration by the Board of Directors of Cornerstone in making its determination to approve the Agreement.

During the course of its engagement and as a basis for arriving at its opinion, Janney reviewed and analyzed material bearing upon financial and operating conditions of Cornerstone and Princeton and material prepared in connection with the Merger, including, among other things, the following:

 

(i)

a draft of the Agreement, dated January 16, 2024

 

(ii)

Certain publicly available financial statements and other historical financial information of Princeton and Princeton Bank, both audited and unaudited, that we deemed relevant, including reports filed by Princeton with the Securities and Exchange Commission, the Federal Deposit Insurance Corporation and the Federal Reserve Board;

 

(iii)

Certain publicly available financial statements and other historical financial information of Cornerstone and its banking subsidiary Cornerstone Bank, both audited and unaudited, that we deemed relevant, including reports filed by Cornerstone with the Federal Deposit Insurance Corporation and the Federal Reserve Board;

 

(iv)

Certain internal financial projections for Cornerstone for the years ending December 31, 2024 through December 31, 2029, with reliance upon assumptions concerning Cornerstone provided by management of Cornerstone, as well as input from Princeton Management on their internal projections on Cornerstone;

 

(v)

Research analyst estimates, as of January 12, 2024, for Princeton for the years ending December 31, 2023 through December 31, 2025, as well as an estimated long-term annual net income growth rate of 7.0% for the years ending December 31, 2026 through December 31, 2027;

 

(vi)

The pro forma financial impact of the Merger on Princeton based on certain assumptions related to transaction expenses, cost savings, and purchase accounting adjustments, as provided by senior management and representatives of Princeton;

 

37

(vii)

The publicly reported price, valuation and historical trading activity for Cornerstone common stock and Princeton common stock and certain stock indices, as well as similar publicly available information for certain other publicly traded companies;

 

(viii)

A comparison of certain market and financial information for Cornerstone and Princeton with similar financial institutions for which information is publicly available;

 

(ix)

The financial terms of certain recent business combinations in the bank and thrift industry on a nationwide and a regional basis, to the extent publicly available;

 

(x)

And, such other information, financial studies, analyses and investigations and financial, economic and market criteria as we considered relevant.

We also took into account our assessment of general economic, market and financial conditions and our experience in other transactions as well as our knowledge of the banking industry and our general experience in securities valuation.

In arriving at our opinion, we have assumed, without independent verification, the accuracy and completeness of the financial and other information and representations contained in the materials provided to us by Cornerstone and Princeton and made to us in the discussions with Cornerstone’s and Princeton’s respective management teams. We have not independently verified the accuracy or completeness of any such information. We have further relied upon the assurances of the management of Cornerstone and Princeton that the financial information provided has been prepared on a reasonable basis in accordance with industry practice, and that they are not aware of any information or facts that would make any information provided to us incomplete or misleading. Without limiting the generality of the foregoing, for the purpose of our analyses and our opinion, we have assumed that, with respect to financial forecasts, estimates and other forward-looking information reviewed by us, that such information has been reasonably prepared based on assumptions reflecting the best currently available estimates and judgments of the management of Cornerstone and Princeton (as the case may be) as to the expected future results of operations and financial condition of Cornerstone and Princeton and the other matters covered thereby.

We have also assumed that the financial estimates and estimates and allowances regarding under-performing and nonperforming assets and net charge-offs have been reasonably prepared on a basis reflecting the best currently available information, judgments and estimates of Cornerstone and Princeton and that such estimates will be realized in the amounts and at the times contemplated thereby. We are not experts in the evaluation of loan and lease portfolios for purposes of assessing the adequacy of the allowances for losses with respect thereto and have assumed and relied upon management’s estimates and projections. We were not retained to and did not conduct a physical inspection of any of the properties or facilities of Cornerstone or Princeton or their respective subsidiaries. In addition, we have not reviewed individual credit files nor have we made an independent evaluation or appraisal of the assets and liabilities of Cornerstone or Princeton nor any of their respective subsidiaries, and we were not furnished with any such evaluations or appraisals.

Summary of Proposed Merger Consideration and Implied Transaction Metrics. Janney reviewed the financial terms of the proposed transaction using an exchange ratio of 0.2400 shares of Princeton common stock for each share of Cornerstone common stock, based upon the Princeton’s 10-day volume weighted average price as of January 12, 2024, of $35.11, and the closing price of Cornerstone common stock on January 12, 2024, of $9.15. Janney calculated an aggregate implied total transaction value of approximately $21.8 million including the $3.3 million preferred equity which is being redeemed at par value. Janney calculated an aggregate implied transaction value to common shareholders of $18.5 million, or a transaction price per share of $8.43 and a pro forma

 

38

2025E dividend equivalent of $0.34 per share. Based upon financial information for Cornerstone as or for the last twelve months (“LTM”) ended September 30, 2023, unless otherwise noted, Janney calculated the following implied transaction metrics:

 

Transaction Price / LTM Earnings:			73.8	x
Transaction Price / Fully Diluted Tangible Book Value(1):			82.6	%
Pro Forma Ownership:			7.7	%

 

(1)	Tangible Book Value shown based upon adjustment for DTA mark of $1.5 million

Comparable Company Analyses. Janney used publicly available information to compare selected financial information for Princeton with a group of financial institutions selected by Janney for the Princeton Peer Valuation Comparison. The Princeton Peer Group consisted of publicly-traded holding companies, as defined by the Janney Research Department per its most recent publication of a Princeton peer group on October 27, 2023. The Princeton Peer Group consisted of the following companies:

 

First Bank		ESSA Bancorp
Unity Bancorp Inc.		First Commerce Bancorp
Blue Foundry Bancorp		William Penn Bancorp.
Parke Bancorp Inc.		Magyar Bancorp
BCB Bancorp Inc.

 

Janney Research BPRN Peers		Price / TBV (%)				Price / LTM EPS (x)				Price / Assets (%)
First Bank			115.7				12.7				9.9
Unity Bancorp Inc.			111.6				7.2				10.9
Blue Foundry Bancorp			69.1				NM				12.0
Parke Bancorp Inc.			78.8				7.2				11.0
BCB Bancorp Inc.			76.1				6.1				5.6
ESSA Bancorp			97.2				10.1				8.7
First Commerce Bancorp			77.9				12.2				10.1
William Penn Bancorp.			101.4				76.7				16.0
Magyar Bancorp			72.9				9.5				8.4
Average			89.0				17.7				10.3
Median			78.8				9.8				10.1

Note: Janney research public peers as of Janney published report on October 27, 2023

Note: Banks excluded if acquired since publishing of Janney research report

Source: S&P Capital IQ Pro; Company-filed documents

The analysis compared selected financial information for Princeton with the corresponding publicly available data for the Princeton Peer Group as of Year to Date September 30, 2023 (unless otherwise noted), with financial and pricing data as of January 12, 2024. The table below sets forth the data for Princeton and median and mean data for the Princeton Peer Group.

 

39

Princeton Peer Valuation Comparison

 

		Princeton				Princeton Peer Group Median				Princeton Peer Group Mean
Market Capitalization ($M)		$	214.8			$	211.3			$	199.7
Price/Tangible Book Value			96.9	%			78.8	%			89.0	%
Price/ LTM EPS			7.9	x			9.8	x			17.7	x
Price/Assets			11.2	%			10.1	%			10.3	%
Dividend Yield			3.5	%			1.7	%			2.2	%
Weekly Volume			1.1	%			1.1	%			1.2	%
Short Interest			1.7	%			0.6	%			0.8	%
Insider Ownership			21.3	%			14.0	%			15.0	%
Institutional Ownership			42.2	%			36.3	%			38.1	%
Last Twelve Months Return			9.7	%			-9.3	%			-8.6	%
Total Assets ($M)		$	1,913			$	2,061			$	2,160
Total Loans ($M)		$	1,499			$	1,699			$	1,780
Tangible Common Equity/ Tangible Assets			11.70	%			11.50	%			11.80	%
NPAs/Assets			0.35	%			0.58	%			0.60	%
LTM ROAA			1.63	%			0.92	%			0.86	%
LTM ROAE			12.36	%			7.31	%			7.70	%

Note: Financial data for the institutions in the Princeton Peer Group is not pro forma for any publicly announced and pending transactions.

Note: Banks excluded if acquired since publishing of Janney Research Report

Comparable Company Analyses. Janney used publicly available information to compare selected financial information for Princeton with a group of financial institutions selected by Janney for the Princeton Peer Valuation Comparison. The Princeton Peer Group consisted of publicly-traded holding companies, as defined by Princeton in its most recent proxy filing on April 3, 2023. The Princeton Peer Group consisted of the following companies:

 

ACNB Corp.		Meridian Corp.
Capital Bancorp Inc.		First Commerce Bancorp
Citizens & Northern Corp.		Franklin Financial Services
Fidelity D & D Bancorp.		CB Financial Services Inc.
LINKBANCORP Inc.		Embassy Bancorp
Unity Bancorp Inc.		Somerset Trust Holding Company
Norwood Financial Corp.		First Keystone Corp.
Blue Foundry Bancorp		QNB Corp.
Parke Bancorp Inc.		Kish Bancorp Inc.
ESSA Bancorp Inc.		ENB Financial Corp
1ST SUMMIT BANCORP Johnstown		AmeriServ Financial Inc.
Penns Woods Bancorp Inc.		FNB Bancorp Inc.
First United Corp.

 

Proxy BPRN Peers		Price / TBV (%)				Price / LTM EPS (x)				Price / Assets (%)
ACNB Corp.			186.7				10.0				15.8
Capital Bancorp Inc.			134.2				9.3				14.3
Citizens & Northern Corp.			165.5				11.2				12.3
Fidelity D & D Bancorp.			201.4				11.7				11.8
LINKBANCORP Inc.			121.0				70.9				10.1

 

40

Proxy BPRN Peers		Price / TBV (%)				Price / LTM EPS (x)				Price / Assets (%)
Unity Bancorp Inc.			112.8				7.3				11.0
Norwood Financial Corp.			174.0				10.0				10.8
Blue Foundry Bancorp			69.2				NM				12.0
Parke Bancorp Inc.			77.6				7.1				10.9
ESSA Bancorp Inc.			97.6				10.1				8.8
1ST SUMMIT BANCORP Johnstown			173.0				30.8				11.2
Penns Woods Bancorp Inc.			93.3				9.5				6.8
First United Corp.			104.3				7.3				7.7
Meridian Corp.			101.2				9.0				6.7
First Commerce Bancorp			78.2				12.2				10.1
Franklin Financial Services			119.5				9.2				6.9
CB Financial Services Inc.			120.6				9.0				8.9
Embassy Bancorp			130.0				7.5				6.6
Somerset Trust Holding Company			99.6				4.1				5.0
First Keystone Corp.			107.9				14.6				7.8
QNB Corp.			130.1				6.9				5.7
Kish Bancorp Inc.			111.9				6.0				6.1
ENB Financial Corp			84.2				6.4				4.3
AmeriServ Financial Inc.			61.7				17.5				4.0
FNB Bancorp Inc.			136.9				2.5				3.9
Average			119.7				12.5				8.8
Median			112.8				9.3				8.8

Note: Proxy public peers as of most recent proxy on April 3, 2023

Source: S&P Capital IQ Pro; Company-filed documents

The analysis compared selected financial information for Princeton with the corresponding publicly available data for the Princeton Peer Group as of Year to Date September 30, 2023 (unless otherwise noted), with pricing data as of January 12, 2024. The table below sets forth the data for Princeton and median and mean data for the Princeton Peer Group.

Princeton Peer Valuation Comparison

 

		Princeton				Princeton Peer Group Median				Princeton Peer Group Mean
Market Capitalization ($M)		$	214.8			$	148.4			$	176.0
Price/Tangible Book Value			96.9	%			112.8	%			119.7	%
Price/ LTM EPS			7.9	x			9.3	x			12.5	x
Price/Assets			11.2	%			8.8	%			8.8	%
Dividend Yield			3.5	%			3.9	%			3.7	%
Weekly Volume			1.1	%			0.8	%			0.6	%
Short Interest			1.7	%			0.2	%			0.4	%
Insider Ownership			21.3	%			10.6	%			12.6	%
Institutional Ownership			42.2	%			29.0	%			24.8	%
Last Twelve Months Return			9.7	%			-7.1	%			-4.6	%
Total Assets ($M)		$	1,913			$	1,928			$	1,878
Total Loans ($M)		$	1,499			$	1,359			$	1,389
Tangible Common Equity/ Tangible Assets			11.7	%			7.3	%			8.0	%

 

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		Princeton				Princeton Peer Group Median				Princeton Peer Group Mean
NPAs/Assets			0.35	%			0.35	%			0.44	%
LTM ROAA			1.63	%			0.92	%			0.90	%
LTM ROAE			12.36	%			11.48	%			10.97	%

Note: Financial data for the institutions in the Princeton Peer Group is not pro forma for any publicly announced and pending transactions.

Net Present Standalone Value Analyses. Janney performed an analysis that estimated the net present value per share of Princeton’s common stock assuming Princeton performed in accordance with estimates based on publicly available mean analyst earnings per share estimates as of January 12, 2024, for the years ending December 31, 2023 through December 31, 2025, as well as an estimated long-term annual net income growth rate of 7.0% for the years ending December 31, 2026 through December 31, 2027. Janney considered the equity risk premium and size-based premium as outlined in the 2022 Duff & Phelps Valuation Handbook, and the risk free rate based on the U.S. 10-year treasury rate of 3.96% as of January 12, 2024. To approximate the terminal value of a share of Princeton’s common stock at December 31, 2027, Janney applied a long-term growth rate range of 3.50% to 4.50%:

 

Dollars in Thousands
Princeton’s 2027 Net Income		$	20,965
Long Term Growth Rate			4.0	%
Princeton’s Terminal Value		$	309,358

The terminal values were then discounted to present values using discount rates ranging from 10.0% to 12.0%. The discount rates selected by Janney were intended to reflect different assumptions regarding the required rates of return for holders or prospective buyers of Princeton’s common stock. The analysis and the underlying assumptions yielded a range of values per share of Princeton’s common stock of $34.63 to $51.78 when applying a terminal value based on the long term growth.

Price per Share Sensitivity:

 

Discount Rate		3.50%				3.75%				4.00%				4.25%				4.50%
10.0%		$	45.37			$	46.78			$	48.31			$	49.97			$	51.78
10.5%		$	42.11			$	43.30			$	44.58			$	45.96			$	47.46
11.0%		$	39.28			$	40.30			$	41.38			$	42.55			$	43.81
11.5%		$	36.81			$	37.68			$	38.62			$	39.61			$	40.68
12.0%		$	34.63			$	35.39			$	36.19			$	37.05			$	37.96

Analysis of Selected Merger Transactions. Janney reviewed groups of selected merger and acquisition transactions that were deemed to be comparable to the Merger. These two groups were labeled as the “National” Group and “Mid-Atlantic” Group. The National Group consisted of seven selected bank merger transactions with disclosed transaction terms, where one-hundred percent of target equity was acquired, target total assets were between $150.0 million and $500.0 million, target LTM ROAA less than 1.00%, announced since March 1, 2023. The National Group was composed of the following transactions:

 

Buyer		Target		Price / Tg. Bk (%)				Price / Adj. Tg. Bk (1) (%)				Price / LTM EPS (x)				Price / Assets (%)				Core Deposit Premium (%)				Deal Value ($M)
Equity Bancshares Inc.		Rockhold Bancorp			127.0				73.9				11.9				10.9				2.8				44.3
LCNB Corp.		Eagle Financial Bancorp Inc.			88.1				88.1				NM				13.0				-3.0				23.2

 

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Buyer		Target		Price / Tg. Bk (%)				Price / Adj. Tg. Bk (1) (%)				Price / LTM EPS (x)				Price / Assets (%)				Core Deposit Premium (%)				Deal Value ($M)
MidwestOne Financial Group Inc.		Denver Bankshares Inc.			173.1				133.9				22.2				11.9				6.3				32.6
MC Bancshares Inc.		Heritage NOLA Bancorp Inc.			122.6				118.4				46.6				14.6				6.4				26.6
LCNB Corp.		Cincinnati Bancorp Inc			108.9				106.9				32.3				14.3				2.3				43.7
Bancorp 34 Inc.		CBOA Financial Inc.			95.1				79.9				8.2				7.5				-0.4				27.9
CrossFirst Bankshares Inc.		Canyon Bancorp. Inc.			80.2				51.1				7.0				6.0				-2.0				12.7
		Max			173.1				133.9				46.6				14.6				6.4				44.3
		Min			80.2				51.1				7.0				6.0				(3.0	)			12.7
		Average			113.6				93.2				21.4				11.2				1.8				30.1
		Median			108.9				88.1				17.1				11.9				2.3				27.9

 

(1)	Adjusted Tangible Book Value defined as Tangible Common Equity + Accumulated Other Comprehensive Income

Note: P/E > 50x deemed non meaningful for comparison purposes

Note: Excludes transactions without disclosed deal values, and excludes transactions categorized as mergers of equals

Source: S&P Capital IQ Pro; Company provided documents; Data as of January 12, 2024

Janney calculated the median values for the following relevant transaction pricing multiples for the National Group: the multiple of the offer value to the Cornerstone’s tangible book value; the multiple of the offer value to Cornerstone’s core net income for the last twelve months; the multiple of the offer value to Cornerstone’s total assets; and the premium over tangible book value divided by core deposits. Janney used these median multiples to estimate the value of Cornerstone’s common stock by applying each median multiple to Cornerstone’s tangible common equity, net income for the twelve months ended September 30, 2023, total assets, and core deposits as of September 30, 2023, respectively. The results of this analysis are as follows:

 

Dollars in thousands, except per share amounts						Comparable Transactions
Valuation Multiple		Cornerstone Value ($000s)				Factor Weight (%)				Median Multiple				Aggregate Value ($000s)				Value Per Share
Tangible Common Equity (1)		$	22,360				50	%			108.9	%		$	24,350			$	11.11
LTM Earnings		$	250				30	%			17.1	x		$	4,264			$	1.95
Total Assets		$	321,204				10	%			11.9	%		$	38,191			$	17.42
Core Deposits (2)		$	231,735				10	%			2.3	%		$	27,690			$	12.63
			Ranges of Values:								Minimum			$	4,264			$	1.95
											Maximum			$	38,191			$	17.42
			Factor-Weighted Average											$	20,042			$	9.14

 

(1)	Tangible Book Value shown based upon adjustment for DTA mark of $1.5 million

(2)	Core deposits defined as Total Deposits less Time Deposits

Note: Per share metrics based upon 2,191,999 shares outstanding

Source: S&P Capital IQ Pro; Company provided documents

 

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The National Group analysis suggested a range of value of $1.95 to $17.42 per share of Cornerstone’s common stock, with a factor-weighted average of $9.14.

The Mid-Atlantic Group consisted of five selected bank merger transactions with disclosed transaction terms, where one hundred percent of equity was acquired, with targets headquartered in the Mid-Atlantic Region, target total assets less than $1.0 billion, announced since March 1, 2023. The Mid-Atlantic Group was composed of the following transactions:

 

Buyer		Target		Price / Tg. Bk (%)				Price / Adj. Tg. Bk (1) (%)				Price / LTM EPS (x)				Price / Assets (%)				Core Deposit Premium (%)				Deal Value ($M)
Hudson Valley Credit Union		Catskill Hudson Bank			113.0				106.0				24.3				4.8				-2.4				28.6
LCNB Corp.		Eagle Financial Bancorp Inc			88.1				88.1				NM				13.0				-3.0				23.2
NexTier Inc.		Mars Bancorp Inc.			128.4				80.3				20.2				6.1				1.7				32.0
LCNB Corp.		Cincinnati Bancorp Inc			108.9				106.9				32.3				14.3				2.3				43.7
CCFNB Bancorp Inc.		Muncy Bank Financial			121.9				94.3				10.5				9.2				2.4				59.6
		Max			128.4				106.9				32.3				14.3				2.4				59.6
		Min			88.1				80.3				10.5				4.8				(3.0	)			23.2
		Average			112.1				95.1				21.8				9.5				0.2				37.4
		Median			113.0				94.3				22.2				9.2				1.7				32.0

 

(1)	Adjusted Tangible Book Value defined as Tangible Common Equity + Accumulated Other Comprehensive Income

Note: P/E > 50x deemed non meaningful for comparison purposes

Note: Mid-Atlantic Region defined as: DC, DE, MD, NJ, NY, OH, PA, VA, & WV

Note: Excludes transactions without disclosed deal values, and excludes transactions categorized as mergers of equals

Source: S&P Capital IQ Pro; Company provided documents; Data as of January 12, 2024

Janney calculated the median values for the following relevant transaction pricing multiples for the Mid-Atlantic Group: the multiple of the offer value to Cornerstone’s tangible book value; the multiple of the offer value to Cornerstone’s net income for the last twelve months; the multiple of the offer value to Cornerstone’s total assets; and the premium over tangible book value divided by core deposits. Janney used these median multiples to estimate the value of Cornerstone’s common stock by applying each median multiple to Cornerstone’s tangible common equity, net income for the twelve months ended September 30, 2023, total assets, and core deposits as of September 30, 2023, respectively. The results of this analysis are as follows:

 

Dollars in thousands, except per share amounts						Comparable Transactions
Valuation Multiple		Cornerstone Value ($000s)				Factor Weight (%)				Median Multiple				Aggregate Value ($000s)				Value Per Share
Tangible Common Equity (1)		$	22,360				50	%			113.0	%		$	25,273			$	11.53
LTM Earnings		$	250				30	%			22.2	x		$	5,558			$	2.54
Total Assets		$	321,204				10	%			9.2	%		$	29,422			$	13.42
Core Deposits (2)		$	231,735				10	%			1.7	%		$	26,392			$	12.04
			Ranges of Values:								Minimum			$	5,558			$	2.54
											Maximum			$	29,422			$	13.42
			Factor-Weighted Average											$	19,885			$	9.07

 

(1)	Tangible Book Value shown based upon adjustment for DTA mark of $1.5 million

(2)	Core deposits defined as Total Deposits less Time Deposits

 

44

Note: Mid-Atlantic Region defined as: DC, DE, MD, NJ, NY, OH, PA, VA, & WV

Note: Per share metrics based upon 2,191,999 shares outstanding

Source: S&P Capital IQ Pro; Company provided documents

The Mid-Atlantic Group analysis suggested a range of value of $2.54 to $13.42 per share of Cornerstone’s common stock, with a factor-weighted average of $9.07.

Net Present Value Analyses. Janney performed an analysis that estimated the net present value per share of Cornerstone’s common stock assuming Cornerstone performed in accordance with estimates based upon discussions with Cornerstone, as well as input from Princeton management on their internal projections for Cornerstone. Janney considered the equity risk premium and size-based premium as outlined in the 2022 Duff & Phelps Valuation Handbook, and the risk free rate based on the U.S. 10-year treasury rate of 3.96% as of January 12, 2024. To approximate the terminal value of a share of Cornerstone’s common stock at December 31, 2027, Janney applied price to 2027 earnings multiples ranging from 16.0x to 20.0x and multiples of December 31, 2027 tangible book value ranging from 100.0% to 140.0%:

 

Dollars in Thousands
CFIC’s 2027 Net Income		$	1,000
Terminal Earnings Multiple			18.0x
CFIC’s Terminal Value		$	18,000

The terminal values were then discounted to present values using discount rates ranging from 12.0% to 14.0%. The discount rates selected by Janney were intended to reflect different assumptions regarding the required rates of return for holders or prospective buyers of Cornerstone’s common stock. The analysis and the underlying assumptions yielded a range of values per share of Cornerstone’s common stock of $6.44 to $9.72 when applying a terminal value based on tangible book value and $4.18 to $5.64 when applying a terminal value based on earnings.

Price / Tangible Book Value Multiples

 

Discount Rate		1.00x				1.10x				1.20x				1.30x				1.40x
12.0%		$	6.95			$	7.64			$	8.34			$	9.03			$	9.72
12.5%		$	6.82			$	7.50			$	8.18			$	8.86			$	9.54
13.0%		$	6.69			$	7.36			$	8.03			$	8.70			$	9.36
13.5%		$	6.56			$	7.22			$	7.88			$	8.53			$	9.19
14.0%		$	6.44			$	7.09			$	7.73			$	8.38			$	9.02

Price / Earnings Multiples

 

Discount Rate		16.0x				17.0x				18.0x				19.0x				20.0x
12.0%		$	4.51			$	4.79			$	5.07			$	5.35			$	5.64
12.5%		$	4.42			$	4.70			$	4.98			$	5.25			$	5.53
13.0%		$	4.34			$	4.61			$	4.88			$	5.16			$	5.43
13.5%		$	4.26			$	4.53			$	4.79			$	5.06			$	5.33
14.0%		$	4.18			$	4.44			$	4.71			$	4.97			$	5.23

In connection with its analyses, Janney considered and discussed with Cornerstone’s Board of Directors how the present value analyses would be affected by changes in the underlying assumptions. Janney noted that the net present value analysis is a widely used valuation methodology, but the results of such methodology are highly dependent upon the numerous assumptions that must be made, and the results thereof are not necessarily indicative of actual values or future results.

 

45

Franchise Valuation. Janney used a franchise valuation analysis to estimate the value of Cornerstone’s common stock based on the composition of its balance sheet on September 30, 2023. The franchise valuation analysis involves calculating the net asset value of Cornerstone and adding a core deposit premium to the net asset value to determine the overall value of Cornerstone. In order to calculate Cornerstone’s net asset value, Janney adjusted Cornerstone’s tangible common equity with an after-tax credit mark of approximately $8,718 thousand. The deposit premium was calculated by assigning a premium to each deposit account type based on the perceived value of each type of deposit to a potential acquiror.

 

Dollars in thousands
						Premium
		09/30/23 Balance				(%)				($)
Non-Interest Bearing Deposits		$	72,115				8.00	%		$	5,769
NOW Accounts			56,836				4.00	%			2,273
Savings and Money Market Accounts			102,784				2.00	%			2,056
Total CDs			57,756				0.00	%			0
Total Deposits		$	289,491				3.49	%		$	10,098

Janney selected premiums of 0% for certificates of deposit, 2% for savings and money market accounts, 4% for NOW accounts, and 8% for non-interest bearing deposits. Applying these premiums to Cornerstone’s deposits suggested an overall premium of 3.49%, or $10.1 million. Janney noted that deposit premiums paid in bank merger transactions vary. Therefore, Janney also selected a range of deposit premiums from 2% to 6%. The franchise value analysis suggested an overall range of value of $8.87 to $14.15 per share for Cornerstone’s common stock. The value suggested by a 3.49% deposit premium was $10.83 per share. The following chart provides a summary of the franchise value analysis:

 

Dollars in thousands, except per share amounts
		Amount				Per Share
Tangible Common Equity (1)		$	22,360			$	10.20
Less: Credit Mark (After-Tax)		($	8,718	)		($	3.98	)
Add: Deposit Premium		$	10,098			$	4.61
Indicated Franchise Value		$	23,741			$	10.83
Minimum Franchise Value – (2% Deposit Premium)		$	19,432			$	8.87
Maximum Franchise Value – (6% Deposit Premium)		$	31,012			$	14.15

 

(1)	Tangible Book Value shown based upon adjustment for DTA mark of $1.5 million

Note: Dollars in thousands, except per share metrics

Note: Per share metrics based upon 2,191,999 shares outstanding

Note: Consolidated deposit data shown

Source: S&P Capital IQ Pro; Company provided documents

The franchise valuation analysis suggested a range of value of $8.87 to $14.15 per share of Cornerstone’s common stock, with a midpoint of $10.83.

Pro Forma Merger Analysis. Janney performed a pro forma merger analysis that combined projected income statement and balance sheet information of Cornerstone and Princeton. Janney analyzed the estimated financial impact of the merger on certain projected financial results for Cornerstone and Princeton and financial forecasts and projections relating to the earnings of Cornerstone and Princeton, which were derived by Janney from publicly available consensus estimates and discussions with management of Cornerstone and Princeton, and pro forma assumptions (including, without limitation, purchase accounting adjustments, cost savings and related expenses described below), which, in the case of Cornerstone and Princeton were derived by Janney from publicly available information.

 

46

Dollars in Millions
Cost Savings Estimate		$	5.7
Total Credit Mark to Market		($	3.7	)
Credit - Non-PCD Mark to Market		($	2.2	)
Credit - PCD Mark to Market		($	1.5	)
Loans - Interest Rate Fair Value Adjustment		($	10.3	)
Other Assets Fair Value Adjustment		($	2.5	)
Deposits - Interest Rate Fair Value Adjustment		($	1.0	)
Core Deposit Intangible		$	8.7
Pre-Tax Merger Charges		$	7.2

This analysis indicated that the merger could be accretive to Princeton’s estimated EPS in 2024 by more than 20% and have a 2.4-year payback period for Princeton with moderate dilution at closing to estimated tangible book value per share (5.6% dilutive to Princeton tangible book value per share). The analysis indicated that Cornerstone shareholders will receive both EPS and dividend accretion greater than 100% annually. The pro forma financial impact of the merger on BPRN is based on certain assumptions related to transaction expense expenses, cost savings and purchase accounting adjustments, as provided by senior management and representatives of BPRN.

Based upon the foregoing analyses and other investigations and assumptions set forth in its opinion, without giving specific weightings to any one factor or comparison, Janney determined that the merger consideration was fair, from a financial point of view, to the holders of Cornerstone’s common stock.

Princeton’s Reasons for the Merger

After careful consideration, the Princeton board, at a meeting held on January 17, 2024, unanimously approved the merger agreement and the transactions contemplated thereby.

In reaching its decision to approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, the Princeton board evaluated the merger agreement and the merger in consultation with Princeton management, as well as Princeton’s legal counsel and financial advisor, and considered a number of factors in favor of the merger, including the following material factors, which are not presented in order of priority:

 

•

the fact that the merger is expected to strengthen Princeton’s branch presence in southern New Jersey;

 

•

there is potential for significant efficiencies to be accelerated as a result of the merger through infrastructure optimization;

 

•

each of Princeton’s and Cornerstone’s businesses, operations, financial condition, asset quality, earnings and prospects, including the view of the Princeton’s board that Cornerstone’s business and operations provide a complementary addition to Princeton’s existing operations and lines of business;

 

•

the fact that Cornerstone’s experience in serving small and medium sized businesses aligns with Princeton’s commitment to growing its commercial banking platform, and provides an opportunity to leverage Princeton’s broader product offering across Cornerstone’s client base;

 

•

the fact that the merger is expected to be 21% accretive to Princeton’s 2025 earnings per share on a GAAP basis and 16% accretive on a cash basis;

 

•

the fact that the cost-savings for the merger are estimated to be 50% of Cornerstone’s non-interest expense base and that these cost savings are expected to be 75% phased-in during 2024 and 100% thereafter;

 

•

the current and prospective environment in which Princeton and Cornerstone operate, including national, regional and local economic conditions, the competitive environment for financial institutions generally and the likely effect of these factors on Princeton both with and without the merger;

 

47

•

the ability of Princeton to leverage its integration experience, having successfully integrated and met or exceeded financial targets for two whole bank acquisitions (one in 2023) and a five-branch, $191 million deposit acquisition in 2019;

 

•

its review and discussions with Princeton’s management and its legal counsel and financial advisor concerning the due diligence investigation of Cornerstone and the potential financial impact of the merger on the combined company;

 

•

the terms of the merger agreement, including the deal protection and termination fee provisions, which it reviewed with Princeton’s outside legal and financial advisors; and

 

•

the regulatory and other approvals required in connection with the merger and the expectation that such regulatory and other approvals will be received in a timely manner and without the imposition of unacceptable conditions.

Princeton also considered potential risks associated with the merger in connection with its deliberations, including (i) the potential risk of diverting management attention and resources from the operation of Princeton’s business and towards the completion of the merger; (ii) the potential risks associated with achieving anticipated cost synergies and savings and successfully integrating Cornerstone’s business, operations and workforce with those of Princeton; (iii) the risk that pursuing the merger could preclude Princeton’s exploration of other expansion opportunities during the pendency of the merger; and (iv) the other risks identified in the sections of this proxy statement/prospectus entitled “Risk Factors” beginning on page 14 and “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 21.

The foregoing discussion of the factors considered by the Princeton board is not intended to be exhaustive, but, rather, includes the material factors considered by the Princeton board. In reaching its decision to approve the merger agreement and the transactions contemplated by the merger agreement, the Princeton board did not quantify or assign any relative weights to the factors considered, and individual directors may have given different weights to different factors. The Princeton board considered all these factors as a whole and considered the factors to be favorable to, and to support, its determination. It should be noted that this explanation of the Princeton board’s reasoning and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under the section of this proxy statement/prospectus entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 21.

Interests of Cornerstone’s Directors and Executive Officers in the Merger

In considering the recommendations of the Cornerstone board, Cornerstone stockholders should be aware that Cornerstone’s directors and executive officers have interests in the merger that may be different from, or in addition to, the interests of Cornerstone stockholders generally. These interests are described below. The Cornerstone board was aware of these interests and considered them, among other matters, in approving the merger agreement and the transactions contemplated by the merger agreement, including the merger, and in determining to recommend that Cornerstone stockholders vote to approve the merger proposal.

The amounts shown below are estimates based on multiple assumptions that may or may not actually occur or be accurate on the relevant date, and do not reflect certain compensation actions that may be taken or that may occur before completion of the merger.

Employment and Change in Control Arrangements

 

•

Under the agreement dated of as April 18, 2019, between Cornerstone Bank and Eugene D’Orazio, the chief executive officer of Cornerstone, in the event that during the 12 month period following the completion of the merger Mr. D’Orazio resigns from employment for “Good Reason” or is terminated without Cause, then he is entitled to a lump sum payment equal to 2.99 times his then current base salary at termination and a continuation of medical insurance benefits for 12 months.

 

48

•

Under the agreement dated of as January 31, 2023, between Cornerstone Bank and Benjamin Watts, the chief financial officer of Cornerstone, in the event that during the 12 month period following the completion of the merger Mr. Watts resigns from employment for “Good Reason” or is terminated without Cause, then he is entitled, for a period of 18 months from the date of termination of employment, his base salary at termination, paid in equal monthly installments, and a continuation of medical insurance benefits.

 

•

Under the agreement dated of as August 31, 2022, between Cornerstone Bank and Joseph Tredinnick, the chief loan officer of Cornerstone Bank, in the event that during the 12 month period following the completion of the merger Mr. Tredinnick resigns from employment for “Good Reason” or is terminated without Cause, then he is entitled, for a period of 12 months from the date of termination of employment, paid in equal monthly installments, his base salary at termination and a continuation of medical insurance benefits.

 

•

Under the Amended and Restated Change in Control Agreement originally effective October 20, 2021 by and between Cornerstone, Cornerstone Bank, and Susan Barrett, Cornerstone’s chairman of the board, Ms. Barrett is entitled to a lump sum payment equal to 2.99 times her then current base salary in the event of a change in control.

In each case, the agreements described above provide that in the event the payment provided for under the agreement would constitute a “parachute payment” under Sections 280G and 4999 of the Code, the payment will be reduced to an amount equal to one dollar less than the trigger amount under Sections 280G and 4999 of the Code.

Indemnification and Insurance of Directors and Officers

Pursuant to the merger agreement, following the effective time of the merger, Princeton will indemnify and hold harmless each present and former officer, director or employee of Cornerstone and its subsidiaries against any costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, damages or liabilities incurred in connection with any threatened or actual claim, action, suit, proceeding or investigation arising out of the fact that such person is or was a director, officer or employee of Cornerstone or any of its subsidiaries and pertaining to matters existing or occurring at or prior to the effective time, including the transactions contemplated by the merger agreement, to the fullest extent that Cornerstone would have been permitted to do so under its certificate of incorporation and bylaws and any applicable law, provided that the indemnified party is not a plaintiff in any action or proceeding against Princeton (as successor to Cornerstone), or Cornerstone’s board of directors, that is pending at or after the effective time.

Princeton has also agreed, following the closing, to advance expenses as incurred by such indemnified party to the fullest extent such persons are entitled to advancement of expenses under applicable state or federal law, upon receipt of an undertaking to repay such advance payments if he or she shall be adjudicated or determined not to be entitled to indemnification.

In addition, Princeton has agreed, following the effective time, to maintain the current directors’ and officers’ liability insurance policy of Cornerstone, subject to certain exceptions, for six years after the effective time with respect to claims against such directors, officers and employees arising from facts or events that occurred before the effective time; provided that, Princeton is not obligated to pay, on an annual basis, an amount in excess of 250% of the current annual premium paid as of the date of the merger agreement by Cornerstone for such insurance. For additional information see the section entitled “The Merger Agreement — Director and Officer Indemnification and Insurance” beginning on page 62 of this proxy statement/prospectus.

Share Ownership

As of May 15, 2024, the record date, the directors and executive officers of Cornerstone may be deemed to be the beneficial owners of 648,579 shares, representing 29.6% of the outstanding shares of Cornerstone common stock.

 

49

Effective as of the effective time, as Cornerstone shareholders, the directors and executive officers will be entitled to receive the merger consideration for their shares of Cornerstone common stock. In addition, J. Mark Baiada, a director of Cornerstone, owns all of the 1,440 outstanding shares of the Series C Stock. At the effective time, each outstanding share of Series C Stock will be exchanged for its stated value of $1,000 per share in cash, or aggregate consideration of $1.44 million.

Board Position and Compensation

Princeton has agreed in the merger agreement, as of the effective time, to (i) increase the size of the Princeton’s board by one member and cause Princeton Bank to take such actions as may be necessary to increase the size of the Princeton Bank board by one member and (ii) appoint one member of the Cornerstone board, selected by Princeton’s Nominating/Governance Committee in consultation with Princeton’s board, to the Princeton board and the Princeton Bank board for terms to expire at Princeton’s next annual meeting of shareholders. Princeton has agreed to cause the new member to be nominated for election to a new term on the boards of directors of Princeton and Princeton Bank at Princeton’s next annual meeting of shareholders, unless prohibited by law or any regulatory authority.

The person who serves as a director of Princeton will be compensated in accordance with the policies of Princeton, which are anticipated to be substantially similar to the current policies of Princeton as described in its proxy statement, filed March 29, 2024, under the section entitled “2023 Compensation of Directors.”

Trading Markets

Princeton common stock is listed for trading on The Nasdaq Global Select Market under the symbol “BPRN.” It is a condition to each party’s obligations to complete the merger that the Princeton common stock to be issued pursuant to the merger agreement be authorized for listing on The Nasdaq Global Select Market subject to official notice of issuance. Immediately following the completion of the merger, shares of Princeton common stock will continue to be traded on The Nasdaq Global Select Market under the symbol “BPRN.”

Cornerstone common stock is traded on the OTC Bulletin Board under the symbol “CFIC.” Upon completion of the merger, Cornerstone common stock will cease to be traded on the OTC Bulletin Board.

Dividend Policy

Princeton currently pays a quarterly cash dividend of $ 0.30 per share, which is expected to continue, although the Princeton board may change this dividend policy at any time. Princeton shareholders, including Cornerstone shareholders who become Princeton shareholders as a result of the merger, will be entitled to receive dividends when and if declared by the Princeton board out of funds legally available for dividends. The Princeton board will consider Princeton’s financial condition and level of net income, future prospects, economic condition, industry practices and other factors, including applicable banking laws and regulations, in determining whether to pay dividends in the future and the amount of such dividends.

Princeton’s principal source of income is dividends that are declared and paid by Princeton Bank on its capital stock. Therefore, Princeton’s ability to pay dividends is dependent upon the receipt of dividends from Princeton Bank. Insured depository institutions such as Princeton Bank are prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become “undercapitalized,” as such term is defined in the applicable law and regulations. In the future, any declaration and payment of cash dividends will be subject to the Princeton board’s evaluation of Princeton’s operating results, financial condition, future growth plans, general business and economic conditions, and tax and other relevant considerations. The payment of cash dividends by Princeton in the future will also be subject to certain other legal and regulatory limitations and ongoing review by Princeton’s banking regulators.

 

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Regulatory Approvals Required for the Merger

Completion of the merger is subject to receipt of certain approvals, waivers and consents from applicable governmental and Regulatory Authorities, without certain conditions being imposed as part of a regulatory approval that would reasonably be expected to result in a materially burdensome regulatory condition. Subject to the terms and conditions of the merger agreement, Princeton and Cornerstone have agreed to cooperate with each other and use their respective reasonable best efforts to promptly prepare and file all necessary documentation and to obtain as promptly as practicable all regulatory approvals necessary or advisable to complete the transactions contemplated by the merger agreement. These include, among others, approval (or waiver of such approval) from the FRB, the FDIC and the NJDOBI. Princeton has submitted the FRB application, the FDIC application and the NJDOBI application. The FRB application was approved on April 22, 2024.

FRB, FDIC and NJDOBI approval (if granted) for the transactions: (i) would reflect only their view that the transactions do not contravene applicable competitive standards imposed by law and are consistent with regulatory policies relating to safety and soundness; (ii) would not be an opinion that the transactions are financially favorable to the shareholders or that the FRB, FDIC or NJDOBI has considered the adequacy of the terms of the transactions; and (iii) would not be an endorsement of, or recommendation for, the transactions. Although neither Cornerstone nor Princeton knows of any reason why it cannot obtain these regulatory approvals or waivers in a timely manner, Cornerstone and Princeton cannot be certain when, or if, they will be obtained.

Federal Reserve Board

Princeton is a bank holding company that is regulated and supervised by the FRB under the Bank Holding Company Act (which we refer to as the “BHC Act”). The transactions contemplated by the merger agreement require prior approval of the FRB under the BHC Act. In evaluating an application for such approval, the FRB takes into consideration a number of factors, including (i) the competitive impact of the proposal in the relevant geographic markets, (ii) financial, managerial and other supervisory considerations, including financial condition, future prospects, capital positions, managerial resources, and compliance with applicable banking, consumer protection, and anti-money laundering laws, (iii) convenience and needs of the communities to be served and the record of the insured depository institution subsidiaries of the companies under the Community Reinvestment Act (which we refer to as the “CRA”), (iv) effectiveness of the companies and the depository institutions concerned in combating money laundering activities, (v) availability of information needed to determine and enforce compliance with the BHC Act and other applicable federal banking laws, and (vi) the extent to which the proposal would result in greater or more concentrated risks to the stability of the United States banking or financial system. The FRB will provide an opportunity for public comment on the application and is authorized to hold a public meeting or other proceeding if it determines such meeting or other proceeding would be appropriate. The FRB application was approved on April 22, 2024.

Federal Deposit Insurance Corporation

Princeton Bank is an insured depository institution regulated and supervised by the FDIC. The merger of Cornerstone Bank with and into Princeton Bank requires prior approval of the FDIC under Section 18(c) of the Federal Deposit Insurance Act (which we refer to as the “Bank Merger Act”). In evaluating an application for such approval, the FDIC takes into consideration a number of factors, including (i) the competitive impact of the transaction, (ii) financial and managerial resources of the bank parties to the merger on a current and pro forma basis, (iii) the convenience and needs of the community to be served and the record of the banks under the CRA, including their CRA ratings, (iv) the banks’ effectiveness in combating money laundering activities, and (v) the extent to which the merger would result in greater or more concentrated risks to the stability of the U.S. banking or financial system. In connection with its review, the FDIC provides an opportunity for public comment on the application and is authorized to hold a public meeting or other proceeding if it determines that would be appropriate.

 

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New Jersey Department of Banking and Insurance.

The merger is subject to the approval of the NJDOBI under New Jersey law. In determining whether to approve such application, the NJDOBI may consider, among other factors whether the merger will be in the public interest and whether Princeton Bank, the surviving bank in the merger, has the minimum capital stock and surplus required under the New Jersey Banking Act of 1948.

Additional Regulatory Approvals and Notices

Princeton and Cornerstone believe that the transactions do not raise substantial antitrust or other significant regulatory concerns and that the parties to the transactions will be able to obtain all requisite regulatory approvals. However, neither Princeton nor Cornerstone can assure you that all of the regulatory approvals described above will be obtained and, if obtained, Princeton and Cornerstone cannot assure you as to the timing of any such approvals, their ability to obtain the approvals on satisfactory terms, or the absence of any litigation challenging such approvals. In addition, there can be no assurance that such approvals will not impose conditions or requirements that, individually or in the aggregate, would or could reasonably be expected to have a materially burdensome regulatory condition.

Neither Princeton nor Cornerstone is aware of any material governmental approvals or actions that are required for completion of the transactions other than those described above. It is presently contemplated that if any such additional governmental approvals or actions are required, those approvals or actions will be sought. There can be no assurance, however, that any additional approvals or actions will be obtained.

No Dissenters’ Rights

Dissenters’ rights are statutory rights that, if applicable under law, enable shareholders to dissent from certain transactions, such as a merger, and to demand that the corporation pay the fair value of their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to stockholders in connection with the extraordinary transaction. New Jersey law provides that a shareholder is not entitled to demand the fair value of his, her or its shares of stock in any transaction if (i) a class or series of shares are listed on a national securities exchange or are held by not less than 1,000 shareholders or (ii) the shareholder is to receive (x) cash, (y) shares as consideration that will be listed on a national securities exchange or be held by not less than 1,000 shareholders or (z) cash and such securities. Because the Princeton common stock is listed on the Nasdaq, the holders of Cornerstone common stock are not entitled to dissenters’ or appraisal rights in the Merger.

 

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THE MERGER AGREEMENT

The following description of the merger agreement is subject to, and qualified in its entirety by reference to, the express terms of the merger agreement, which is attached to this proxy statement/prospectus as Annex A and is incorporated by reference into this proxy statement/prospectus. We urge you to read the merger agreement carefully and in its entirety, as it is the legal document governing the merger.

Structure of the Merger

Each of the Princeton board and the Cornerstone board has unanimously approved the merger agreement. The merger agreement provides for (i) the merger of Cornerstone with and into Princeton, with Princeton being the surviving corporation in the merger and (ii) immediately following the completion of the merger, the merger of Cornerstone Bank with and into Princeton Bank with Princeton Bank as the surviving bank in the bank merger.

Merger Consideration

On the terms and subject to the conditions set forth in the merger agreement, at the effective time, each share of Cornerstone common stock issued and outstanding immediately prior to the closing date, except for any exception shares, which will be canceled and retired for no consideration in accordance with the merger agreement, will be converted into the right to receive 0.24 shares of Princeton common stock, subject to adjustment in the following manner: In the event that the sum of Cornerstone’s shareholders’ equity and allowance for loan losses as of the month end immediately prior to the effective time, calculated in accordance with the terms of the merger agreement, is less than the sum of Cornerstone’s shareholders’ equity and allowance for loan losses as of September 30, 2023, also calculated in accordance with the terms of the merger agreement ($26.8 million), the exchange ratio will be reduced to reflect the amount of such decrease. Also at the effective time, each outstanding share of Cornerstone preferred stock will be exchanged for its stated value of $1,000 per share in cash, or aggregate consideration of $3.34 million.

If, prior to the effective time, the outstanding shares of Princeton common stock or Cornerstone common stock are changed into a different number or kind of shares or securities as a result of a recapitalization, reclassification, stock dividend, stock split or reverse stock split (other than as contemplated by the amendment proposal), or if there is any extraordinary dividend or distribution, an appropriate and proportionate adjustment will be made to the merger consideration to give the holders of Cornerstone common stock the same economic effect as contemplated by the merger agreement prior to such event.

Fractional Shares

Princeton will not issue any fractional shares of Princeton common stock in the merger. Instead, any Cornerstone shareholder who otherwise would be entitled to receive such fractional share will receive an amount in cash (rounded to the nearest cent) determined by multiplying the weighted-average trading price of Princeton Common Stock on The Nasdaq Global Select Market (the “Nasdaq”)for the five full trading days ending on the last trading day preceding the closing date, by the fraction of a share of Princeton common stock that such holder would otherwise be entitled to receive at the effective time of the merger.

Governing Documents; Directors and Officers

Upon the effective time, the articles of incorporation and bylaws of Princeton as already in effect immediately prior to the effective time will be the articles of incorporation and bylaws of the surviving corporation.

Governance Matters

As of the effective time, Princeton has agreed to (i) increase the size of the Princeton board by one member and cause Princeton Bank to take such actions as may be necessary to increase the size of the board of directors of

 

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Princeton Bank (which we refer to as the “Princeton Bank board”) by one member and (ii) appoint one member of the Cornerstone board (which we refer to as the “new member”), selected by Princeton’s Nominating/Governance Committee in consultation with Princeton’s board, to the Princeton board and the Princeton Bank board for terms to expire at Princeton’s next annual meeting of shareholders. Princeton has agreed to cause the new member to be nominated for election to a new term on the boards of directors of Princeton and Princeton Bank at Princeton’s next annual meeting of shareholders, unless prohibited by law or any Regulatory Authority.

Closing and Effective Time

The merger will be completed only if all conditions to the merger set forth in the merger agreement (as discussed in this proxy statement/prospectus) are either satisfied or waived. See the section of this proxy statement/prospectus entitled “— Conditions to Complete the Merger.”

The merger will become effective as of the date and time specified in the articles of merger for the merger to be filed with the Department of State of the Commonwealth of Pennsylvania (the “PA Department of State”) and the New Jersey Department of Treasury. Under the merger agreement, the closing of the merger will take place at 10:00 a.m., New York City time, on the last business day of the month in which the conditions set forth in the merger agreement have been satisfied or waived as permitted by applicable law, unless another date or time is agreed to in writing by Princeton and Cornerstone. Princeton and Cornerstone currently expect to complete the merger in the second or third quarter of 2024, without the written consent of Princeton, subject to the receipt of the requisite approvals of Cornerstone shareholders, the receipt of the required regulatory approvals, and the satisfaction or, where legally permissible, waiver of other customary closing conditions set forth in the merger agreement, but neither Cornerstone nor Princeton can guarantee when, or if, the merger will be completed.

Conversion of Shares; Exchange of Certificates

The conversion of Cornerstone common stock and Cornerstone preferred stock into the right to receive the merger consideration will occur automatically at the effective time.

Letter of Transmittal

As promptly as practicable after the effective time, but in no event later than five business days after the effective time, Princeton will cause the exchange agent to mail to each holder of record of Cornerstone common stock and Cornerstone preferred stock immediately prior to the effective time a letter of transmittal and instructions on how to surrender shares of Cornerstone common stock and Cornerstone preferred stock in exchange for the merger consideration, including any applicable cash in lieu of fractional shares, the holder is entitled to receive under the merger agreement.

If a certificate for Cornerstone common stock has been lost, stolen or destroyed, the exchange agent will issue the new certificates representing the merger consideration, including any applicable cash in lieu of fractional shares, upon receipt of an affidavit of that fact by the claimant and, if required by the exchange agent, the posting of a bond in an amount as the exchange agent may require is reasonably necessary as indemnity against any claim that may be made against it with respect to such certificate.

Following completion of the merger, there will be no transfers on the stock transfer books of Cornerstone of shares of Cornerstone common stock or Cornerstone preferred stock that were issued and outstanding immediately prior to the effective time.

Withholding

Princeton will be entitled to deduct and withhold, or cause the exchange agent to deduct and withhold, from the merger consideration otherwise payable pursuant to the merger agreement or the transactions contemplated

 

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hereby to any holder of the Cornerstone common stock or Cornerstone preferred stock, such amounts as it determines it is required to deduct and withhold with respect to the making of such payment under the code or any provision of state, local or foreign tax law. To the extent that amounts are so withheld by Princeton or the exchange agent, as the case may be, and paid over to the appropriate governmental entity, the withheld amounts will be treated for all purposes of the merger agreement as having been paid to the person in respect of which the deduction and withholding was made by Princeton or the exchange agent, as the case may be.

Dividends and Distributions

No dividends or other distributions declared with respect to Princeton common stock with a record date after the effective time will be paid to the holder of any unsurrendered certificates of Cornerstone common stock until the holder surrenders such certificate in accordance with the terms of the merger agreement. After the surrender of a certificate in accordance with the terms of the merger agreement, the record holder of such certificate will be entitled to receive any dividends or other distributions having a record date after the effective time, without any interest thereon, which previously became payable with respect to the shares of Princeton common stock issued as the stock portion of the merger consideration to the holder of the shares of Cornerstone common stock represented by such certificate.

Representations and Warranties

The representations and warranties described below, and elsewhere in this proxy statement/prospectus, and included in the merger agreement, were made by Princeton and Cornerstone for the benefit of the other party, only for purposes of the merger agreement and as of specific dates. In addition, the representations and warranties may be subject to limitations, qualifications or exceptions agreed upon by the parties to the merger agreement, including those included in confidential disclosures made for the purposes of, among other things, allocating contractual risk between Princeton and Cornerstone rather than establishing matters as facts, and may be subject to standards of materiality that differ from those standards relevant to investors. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the merger agreement, which subsequent information may or may not be fully reflected in public disclosures by Princeton or Cornerstone. Therefore, you should not rely on the representations and warranties or any description thereof as characterizations of the actual state of facts or condition of Princeton and Cornerstone or any of their respective subsidiaries or affiliates without considering the foregoing. The representations and warranties and other provisions of the merger agreement should not be read alone, but instead should be read only in conjunction with the information provided elsewhere in this proxy statement/prospectus and in the documents incorporated by reference into this proxy statement/prospectus. See the section of this proxy statement/prospectus entitled “Where You Can Find More Information” beginning on page 87. Princeton will provide additional disclosure in its periodic reports to the extent it become aware of the existence of any material facts that are required to be disclosed in a periodic report under federal securities laws and that might otherwise contradict the representations and warranties in the merger agreement and will update such disclosure as required by the federal securities laws.

Under the merger agreement, Cornerstone made various representations and warranties to Princeton that relate to, among other things: corporate organization and qualification; capitalization; call reports; authority; financial statements; loans, loan portfolio and reserves; consents and approvals; broker’s fees; absence of certain changes; legal proceedings; tax matters; employee benefit plans; title to property and related real estate matters; environmental matters; commitments and contracts; regulatory matters; antitakeover; insurance matters; labor matters; compliance with laws; transactions with management; derivatives; deposits; controls and procedures; intellectual property; fairness opinion; information technology; related party transactions; and matters relating to dissenters’ or appraisal rights.

The merger agreement also contains representations and warranties made by Princeton to Cornerstone that relate to, among other things: organization and related matters; authorization; consents and approvals; regulatory matters; access to funds, capitalization; financial statements; broker’s fees; absence of changes or events; legal proceedings; SEC reports; compliance with laws; information technology; and tax matters.

 

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Certain representations and warranties of Princeton and Cornerstone are qualified as to “materiality” or “material adverse effect.” For purposes of the merger agreement, a “material adverse effect,” when used in reference to either Cornerstone, Princeton or the surviving corporation, means a material adverse effect on the business, properties, assets, liabilities, results of operations or financial condition of such party and its subsidiaries taken as a whole, provided that a material adverse effect will not be deemed to include the impacts of changes, after the date of the merger agreement, in U.S. generally accepted accounting principles, which we refer to as “GAAP”, or applicable regulatory accounting requirements, changes, after the date of the merger agreement, in laws, rules or regulations of general applicability to companies in the industries in which such party and its subsidiaries operate, or interpretations thereof by governmental entities, changes, after the date of the merger agreement, in global, national or regional political conditions, (including the outbreak of war or acts of terrorism) or in economic or market conditions affecting the financial services industry generally and not specifically relating to such party or its subsidiaries, public disclosure of the transactions contemplated by the merger agreement or actions expressly required by the merger agreement or actions or omissions that are taken with the prior written consent of the other party in contemplation of the transactions contemplated by the merger agreement, or the reasonable, customary and documented expenses incurred by either party in negotiating and complying with the provisions of the merger agreement and in documenting, effecting and consummating the transactions contemplated by the merger agreement except to the extent that the impacts of such change are materially disproportionately adverse to the business, properties, assets, liabilities, results of operations or financial condition of such party and its subsidiaries, taken as a whole, as compared to other companies in the industry in which such party and its subsidiaries operate, or the ability of such party to timely consummate the transactions contemplated by the merger agreement.

Covenants and Agreements

Covenants of Cornerstone

Cornerstone made certain covenants under the merger agreement, including, among others, the following:

 

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Subject to specified exceptions, prior to the closing date, or earlier termination of the merger agreement in accordance with its terms, Cornerstone will, and will cause each of its subsidiaries to, (i) conduct its business in the usual, regular and ordinary course consistent with past practice and prudent banking principles, (ii) use its best efforts to maintain and preserve intact for Cornerstone and Princeton its business organization, employees, goodwill with customers and advantageous business relationships and retain the services of its officers and key employees, (iii) except as required by law or regulation, not take any action that would adversely affect or delay the ability of any of a party to obtain any consent from any Regulatory Authority (as defined in the merger agreement) or other approvals required for the consummation of the transactions contemplated thereby or to perform its covenants and agreements under the merger agreement, and (iv) not take any action that results in or that would reasonably be expected to result in a material adverse effect on Cornerstone, provided that compliance with the forgoing will not require Cornerstone to violate any other provision of the merger agreement.

 

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Subject to specified exceptions, the merger agreement provides that Cornerstone will not, and will not permit any of its subsidiaries to, without the prior written consent of Princeton, which, consent cannot be unreasonably withheld, undertake the following actions:

 

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change, delete or add any provision of or to its certificate of incorporation or bylaws or other governing documents of any such entity;

 

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change the number of shares of the authorized, issued or outstanding Cornerstone capital stock, including any issuance, purchase, redemption, split, combination or reclassification thereof, issue or grant any option, warrant, call, commitment, subscription, right or agreement to purchase relating to the authorized or issued capital stock, including without limitation any Cornerstone restricted stock awards; or declare, set aside or pay any dividend or other distributions;

 

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with respect to borrowings, incur any liabilities or material obligations, other than deposit liabilities and short-term borrowings, including FHLB borrowings and correspondent bank

 

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borrowings with maturities of six months or less in the ordinary course of business, whether directly or by way of guaranty, including any obligation for borrowed money, or whether evidenced by any note, bond, debenture, or similar instrument;

 

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make any capital expenditures individually in excess of $5,000 and collectively in excess of $10,000, other than expenditures necessary to maintain existing assets in good repair;

 

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except as otherwise provided, sell, transfer, convey or otherwise dispose of any real property, including “other real estate owned” or interest therein;

 

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(i) enter into, adopt or terminate any employee benefit or compensation plan, program, practice, policy, contract or arrangement for the benefit or welfare of any current or former employee, officer, director, independent contractor or consultant, or any spouse or dependent of such individual, (ii) amend, whether in writing or through the interpretation of any Employee Plan of Cornerstone or any Cornerstone subsidiary, (iii) increase the compensation or benefits payable to any current or former employee, officer, director, independent contractor or consultant, or any spouse or dependent of such individual, except for annual base salary or wage increases for employees, other than executive officers, in the ordinary course of business and set forth in a schedule to the merger agreement, that do not exceed two percent (2.0%) of an individual’s base salary or wage rate in effect as of the date hereof, and do not exceed two percent (2.0%) in the aggregate for all non-executive officer employees, (iv) pay or award, or commit to pay or award, any bonuses or incentive compensation, grant or accelerate the vesting of any equity or equity-based awards or other compensation, negotiate or enter into any new, or amend any existing, employment, severance, change in control, retention, bonus guarantee, collective bargaining agreement or similar agreement or arrangement, (v) fund any rabbi trust or similar arrangement, terminate the employment or services of any officer or any employee whose annual base salary, or annual base compensation, in the case of any independent contractor or consultant is equal to or greater than $50,000, other than for cause, as determined in the ordinary course of business, (vi) hire or promote any officer or any employee, independent contractor or consultant whose annual base salary, or annual base compensation, in the case of any independent contractor or consultant, is equal to or greater than $10,000, except for any hire or promotion upon the consent of Princeton, which will not be unreasonably withheld, to replace an employee who has terminated his or her employment at a target total annual compensation less than or equal to the replaced employee, or (vii) waive, release or limit any restrictive covenant obligation of any current or former officer, employee, independent contractor or consultant of Cornerstone or any of its subsidiaries;

 

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except as otherwise provided in a schedule to the merger agreement, or in connection with capital expenditures and sales and dispositions permitted under the merger agreement, enter into or extend any agreement requiring payments by Cornerstone in excess of $5,000, including but not limited to any lease or license relating to real property, personal property, data processing or bankcard functions;

 

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acquire or agree to acquire one percent (1%) or more of the assets or equity securities of any person or acquire direct or indirect control of any person other than in connection with foreclosures in the ordinary course of business; provided however, that Cornerstone will consult with Princeton with respect to any such foreclosures;

 

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originate, purchase, extend or grant (i) any loan or extension of credit, including modifications to any loans existing on the date of the merger agreement, in principal amount in excess of $250,000, or (b) any non-owner occupied construction loan, business equipment loan, manufactured housing loan, marine or boat loan, airplane loan or loan not in compliance with board approved policies of Cornerstone Bank in effect as of the date of the merger agreement, in any amount, provided that the prior written consent of Princeton will not be unreasonably withheld.

 

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•

file any notices or applications or make any contract with respect to branching by Cornerstone (whether de novo, purchase, sale or relocation), open, relocate or close any branch office, loan production office or other significant office or operations facility of it or its subsidiaries, or acquire or construct, or enter into any agreement to acquire or construct, any interest in real property other than in connection with foreclosure proceedings;

 

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form any new subsidiary;

 

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increase or decrease the rate of interest paid on time deposits or on certificates of deposit, except in a manner and pursuant to policies consistent with Cornerstone’s past practices;

 

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take any action that is intended or may reasonably be expected to result in any of the conditions to the merger set forth in the merger agreement not being satisfied;

 

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purchase or sell or otherwise acquire any investment securities other than U.S. Treasury securities, U.S. Government agency securities or mortgage-backed securities guaranteed by an agency of the U.S. Government, in each case purchased in the ordinary course of business consistent with past practices and in accordance with Cornerstone’s investment policy;

 

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(a) commence any cause of action, other than counter-claims brought in any action in which Cornerstone is a defendant, or proceeding other than in accordance with past practice, or (b) settle any action, claim, arbitration, complaint, criminal prosecution, demand letter, governmental or other examination or investigation, hearing, inquiry or other proceeding against it for material money damages or restrictions upon any of Cornerstone’s operations; provided that the amount for which Cornerstone or any of its subsidiaries is liable, net of any insurance recoveries received by Cornerstone or any of its subsidiaries, for all such settlements will not exceed $25,000 in the aggregate;

 

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waive, release, grant or transfer any material rights of value or modify or change in any material respect any existing agreement or indebtedness to which it is a party, other than in the ordinary course of business, consistent with past practice;

 

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enter into, renew, extend or modify any other transaction, other than a deposit transaction, with any affiliate other than pursuant to existing policies;

 

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enter into any futures contract, option, interest rate caps, interest rate floors, interest rate exchange agreement or other agreement, or take any other action for purposes of hedging the exposure of its interest-earning assets and interest-bearing liabilities to changes in market rates of interest;

 

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except for actions taken or that will be taken in accordance with the merger agreement and performance thereunder, take any action that would give rise to a right of payment to any individual under any employment agreement, other than salary earned for prior service;

 

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make any change in policies in existence on the date of the merger agreement with regard to: the extension of credit, or the establishment of reserves with respect to the possible loss thereon or the charge off of losses incurred thereon; investments; asset/liability management; or other material banking policies in any material respect except as may be required by changes in applicable law or regulations or by a Regulatory Authority or changes in GAAP, as advised by Cornerstone’s independent public accountants;

 

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except for the execution of the merger agreement, and the transactions contemplated therein, take any action that would give rise to an acceleration of the right to payment to any individual under any employee plan of Cornerstone or any Cornerstone subsidiaries;

 

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enter into any new line of business, or purchase or otherwise acquire, or sell or otherwise dispose of, any assets or incur any liabilities other than in the ordinary course of business consistent with past practices and policies or otherwise permitted under the merger agreement;

 

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•

foreclose upon or take a deed or title to any commercial real estate without first conducting a Phase I environmental assessment of the property or if such assessment indicates the presence of hazardous material or an underground storage tank;

 

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make any written communications to the directors, officers or employees of Cornerstone or any Cornerstone subsidiary pertaining to compensation or benefit matters that are affected by the transactions contemplated by the merger agreement without first providing Princeton with a copy or description of the intended communication, which Princeton will promptly review and comment on, and Princeton and Cornerstone will cooperate in providing any such mutually agreeable communication;

 

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issue any broadly distributed communication of a general nature to customers without the prior approval of Princeton, which will not be unreasonably withheld, except as required by law or for communications in the ordinary course of business consistent with past practice that do not relate to the merger or other transactions contemplated by the merger agreement;

 

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materially reduce the amount of insurance coverage or fail to renew any material existing insurance policy, in each case, with respect to the key employees, properties or assets of Cornerstone or any Cornerstone subsidiary;

 

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purchase any bank owned life insurance;

 

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use any credits under or in connection with Cornerstone’s current core platform data processing contract;

 

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reduce any of Cornerstone’s loan loss or other reserves, except as may be required under GAAP;

 

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merge or consolidate itself or any of its subsidiaries with any other person, or restructure, reorganize or completely or partially liquidate or dissolve itself or any of its subsidiaries;

 

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defer any compensation or make any payments to officers or directors under Cornerstone Bank’s Nonqualified Deferred Compensation Plan or Directors’ Fee Deferral and Death Benefit Plan; or

 

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agree to do any of the foregoing;

 

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Prior to the closing date, or earlier termination of the merger agreement in accordance with its terms, and subject to certain exceptions, Cornerstone will cause one or more of its designated representatives to confer on a regular and frequent basis with representatives of Princeton and to report the general status of the ongoing operations of Cornerstone and its subsidiaries. Cornerstone will promptly notify Princeton of any material change in the normal course of business or the operations or the properties of Cornerstone or its subsidiaries, any governmental complaints, investigations or hearings (or communications indicating that the same may be contemplated) affecting Cornerstone or its subsidiaries or the threat of litigation, claims, threats or causes of action involving Cornerstone or its subsidiaries, and will keep Princeton fully informed of such events. Cornerstone will furnish to Princeton, promptly after their preparation and/or receipt by Cornerstone Bank, copies of its unaudited monthly and quarterly periodic financial statements and call reports of Cornerstone Bank for the applicable periods then ended.

 

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Subject to certain exceptions, Cornerstone shall (i) permit Princeton or its agents, upon reasonable notice, reasonable access to Cornerstone’s properties, and disclose and make available to Princeton and its internal auditors, loan review officers, attorneys, accountants and other representatives, all books, papers and records relating to the assets, stock, properties, operations, obligations and liabilities of Cornerstone and its subsidiaries, (ii) provide Prince-ton with as much notice as reasonably possible of all special and regular meetings of the Cornerstone board and committees thereof, and Cornerstone and the Cornerstone Bank will invite a Princeton representative to attend all meetings of their respective boards and committees, except for any portion of such meetings related to the merger agreement or any of the transactions contemplated by the merger, or confidential regulatory material, and (iii) provide

 

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information to Princeton not less than weekly regarding the business activities and operations of Cornerstone and its subsidiaries, and all parties will establish procedures for coordination and monitoring of transition activities;

 

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Cornerstone shall, and shall cause its and its subsidiaries’ directors, officers and employees to, and shall make all reasonable efforts to cause the Cornerstone Bank’s data processing service providers to, cooperate and assist Princeton in connection with an electronic and systematic conversion of all applicable data regarding the Cornerstone Bank to Princeton Bank’s system of electronic data processing, and to make reasonable arrangements to permit personnel and representatives of Princeton to train the Cornerstone Bank’s employees in Princeton Bank’s system of electronic data processing;

 

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Subject to certain exceptions, Cornerstone will take all steps necessary under applicable laws to obtain shareholder approval of the merger agreement and the transactions contemplated thereby, including the Charter Amendment, and for the Cornerstone board to recommend to its shareholders the approval of the merger agreement and the transactions contemplated thereby, including the Charter Amendment;

 

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Subject to certain exceptions, neither Cornerstone nor its affiliates, nor any investment banker, attorney, accountant or other representative retained by Cornerstone will not (i) initiate, solicit, encourage or otherwise take any action designed to or which could reasonably be expected to facilitate any inquiries or the making of any proposal or offer that constitutes, or may reasonably be expected to lead to, an alternative acquisition proposal by any other party or (ii) enter into, continue or otherwise participate in any discussions or negotiations regarding or furnish any information with respect to, or otherwise cooperate in any way with, any alternative acquisition proposal;

 

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Maintain Cornerstone’s properties and assets in satisfactory condition and repair for the purposes for which they are intended, ordinary wear and tear excepted;

 

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Upon the written request of Princeton, Cornerstone will permit Princeton to procure environmental audits, preliminary assessments, property condition assessments and/or such other environmental evaluations of such real property as Princeton deems necessary or appropriate;

 

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Upon the written request of Princeton, Cornerstone will permit Princeton to obtain a commitment to issue owner’s title insurance in such amounts and by such insurance company reasonably acceptable to Princeton;

 

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Upon the written request of Princeton, with respect to each parcel of real property as to which a title insurance policy is to be procured, Cornerstone will permit Princeton to obtain a survey of such real property;

 

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Cornerstone will obtain all consents necessary or appropriate for Cornerstone to complete the merger and the transactions contemplated thereby, to transfer and assign all right, title and interest of Cornerstone and its subsidiaries to Princeton and to permit the use and operation of the leased premises by Princeton;

 

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Cornerstone shall maintain disclosure controls and procedures that are effective to ensure that material information relating to Cornerstone and its subsidiaries is made known to Cornerstone senior management to permit Cornerstone to record, process, summarize and report financial data in a timely and accurate manner. Such officers shall promptly disclose to Cornerstone’s auditors and audit committee any significant deficiencies in the design or operation of internal controls that could adversely affect Cornerstone’s ability to record, process, summarize and report financial data, any material weaknesses identified in internal controls, and any fraud, whether or not material, that involves management or other employees who have a significant role in Cornerstone’s internal controls. Cornerstone shall take appropriate corrective actions to address any such significant deficiencies or material weaknesses identified in the internal controls;

 

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Cornerstone and its employees and accountants shall fully cooperate with Princeton in the preparation, documentation, review, testing and all other actions Princeton deems reasonably necessary to satisfy its internal control certification requirements of Section 404 of the Sarbanes-Oxley Act.

 

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Covenants of Princeton

Princeton made certain covenants under the merger agreement, including, among others, the Princeton shall not, and shall not permit any of its subsidiaries to, without the prior written consent of Cornerstone, which, consent cannot be unreasonably withheld, undertake the following actions:

 

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amend Princeton’s articles of incorporation or bylaws in a manner that would adversely affect the economic benefits of the merger to Cornerstone shareholders;

 

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adjust, split, combine or reclassify any of Princeton’s capital stock;

 

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take any action that is intended to result in any of Princeton’s representations and warranties set forth in the merger agreement being or becoming untrue in any material respect at any time prior to the closing date, or in any of the conditions to the merger set forth in the merger agreement not being satisfied or in a violation of any provision of the merger agreement;

 

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take any action or knowingly fail to take any action where such action or failure to act would reasonably be expected to prevent the merger, taken together, from being treated as a transaction that qualifies as a “reorganization” within the meaning of Section 368(a) of the Code;

 

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make, declare or pay any extraordinary dividend on the capital stock of Princeton;

 

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take any action that is intended to, would or would be reasonably likely to prevent or materially delay the consummation of the transactions contemplated by the merger agreement, except, in every case, as may be required by applicable law; or

 

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agree to take, make any commitment to take, or adopt any resolutions of Princeton’s board of directors or similar governing body in support of, any of the foregoing.

Mutual Covenants of Cornerstone and Princeton

Cornerstone and Princeton made certain mutual covenants under the merger agreement, including, among others, the following:

 

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Each company shall deliver certificates containing appropriate representations and covenants to each company’s respective counsel, as may be required by such counsel in connection with deliveries of opinions with respect to the tax treatment of the merger;

 

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Each company shall use its reasonable best efforts in good faith promptly to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations, or otherwise, including attempting to obtain all necessary consents, so as permit consummation of the merger and the transactions contemplated thereby as promptly as practicable and otherwise to enable consummation of the transactions contemplated by the merger agreement, and to cooperate fully with the other party to that end.

Regulatory Matters

Princeton and Cornerstone have agreed to use commercially reasonable best efforts in good faith promptly to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations, or otherwise, including attempting to obtain all necessary consents, so as permit consummation of the merger and the bank merger as promptly as practicable and otherwise to enable consummation of the transactions contemplated by the merger agreement, including the satisfaction of the conditions set forth in hereof, and furthermore agrees to cooperate fully with the other party to that end.

Employee Benefit Matters

Princeton has agreed that Princeton will honor the employment agreements and change in control agreement of Cornerstone, subject to the terms of any amendment to such agreement entered into between Princeton and the

 

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officer of Cornerstone who is a party to the employment agreement, and Cornerstone filing any required applications and certifications with the Regulatory Authorities in order to obtain the approvals required by the FDIC under Part 359 of the FDIC’s regulations, to the extent applicable, and any other approvals of the Regulatory Authorities which may be required.

With respect to any employee benefit plans of Princeton or its subsidiaries in which any continuing employees become eligible to participate on or after the closing date, which we refer to as the “new plans”, Princeton will or will cause the surviving corporation to use commercially reasonable efforts to:

 

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waive all exclusions and waiting periods with respect to participation and coverage requirements applicable to such employees and their eligible dependents under any new plans, except to the extent such pre-existing conditions, exclusions or waiting periods would apply under the analogous Cornerstone benefit plan;

 

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provide each such employee and their eligible dependents with credit for any co-payments and deductibles paid prior to the closing date under a Cornerstone benefit plan to the same extent that such credit was given under the analogous Cornerstone benefit plan prior to the closing date in satisfying any applicable deductible or out-of-pocket requirements under any new plans; and

 

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recognize all service of such employees with Cornerstone and its subsidiaries, for all purposes in any new plans to the same extent that such service was taken into account under the analogous Cornerstone benefit plan prior to the closing date, provided that such service recognition will not apply to the extent it would result in duplication of benefits for the same period of services, for purposes of any defined benefit pension plan or benefit plan that provides retiree welfare benefits or to any benefit plan that is a frozen plan or provides grandfathered benefits.

Effective as of the date immediately preceding the closing date, Cornerstone will terminate the Cornerstone Bank 401(k) Plan, unless Princeton requests otherwise in writing at least five (5) days prior to the closing date in accordance with the terms of the merger agreement. As soon as practicable following the closing date, Princeton will permit or cause its subsidiaries to permit the continuing employees to roll over their account balances and outstanding loan balances, if any, under the Cornerstone Bank 401(k) Plan into an “eligible retirement plan” within the meaning of Section 402(c)(8)(B) of the Code maintained by Princeton or its subsidiaries.

Princeton has agreed that any employee of Cornerstone, excluding any employee who is party to an employment agreement that provides for severance payments whose employment is terminated, other than for “cause” as defined in Princeton’s severance policy at the written request of Princeton, but in the sole discretion of Cornerstone, prior to the closing date, or is terminated by Princeton or a subsidiary of Princeton within one year following the closing date in a manner entitling such individual to benefits under Princeton’s severance policy, will be entitled to receive certain severance payments.

Princeton and Cornerstone agreed to use their best efforts to create a retention pool on terms, in amounts and for employees of Cornerstone as mutually agreed by Princeton and Cornerstone. Princeton and Cornerstone have not yet agreed on the terms of any such retention pool. Following the effective time of the merger, retention payments under any such pool would be made to the applicable individuals if they are still employed by Princeton or Princeton Bank on their designated “work through” date set forth in their retention bonus pool agreement.

Director and Officer Indemnification and Insurance

Under the terms of the merger agreement, Princeton has agreed to, following the closing date, for a period of six (6) years after the effective time, indemnify, defend and hold harmless the directors and officers of Cornerstone (each of the indemnified directors and officers of Cornerstone, an “indemnified party”) against any costs or expenses, including reasonable attorneys’ fees, judgments, fines, losses, damages or liabilities incurred in

 

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connection with any threatened or actual claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, whether arising before or after the effective time, arising out of the fact that such person is or was a director, officer or employee of Cornerstone or any Cornerstone subsidiary and pertaining to matters existing or occurring at or prior to the effective time , including, without limitation, transactions contemplated by the merger agreement, to the fullest extent that Cornerstone would have been permitted under its certificate of incorporation and bylaws and any applicable law, provided that the indemnified party is not a plaintiff in any action or proceeding against Cornerstone or Cornerstone Bank, their respective board of directors or any member thereof that is pending at or after the time. With respect to any action or proceeding to which an indemnified party is entitled to indemnification under the prior sentence, Princeton will pay expenses, including reasonable attorney’s fees, as they are incurred and in advance of the final disposition of any such action or proceeding to each such indemnified party to the fullest extent permitted by applicable state or federal law upon receipt of an undertaking to repay such advance payments if he or she will be adjudicated or determined not to be entitled to indemnification.

After the effective time, other than for claims, actions, suits, proceedings or investigations addressed above, directors, officers and employees of Cornerstone will have indemnification rights having prospective application only. These prospective indemnification rights will consist of such rights to which directors, officers and employees of Princeton and its subsidiaries would be entitled under the articles of incorporation and bylaws of Princeton or the particular subsidiary for which they are serving as officers, directors or employees and under such directors’ and officers’ liability insurance policy as Princeton may then make available to officers, directors and employees of Princeton and its subsidiaries.

For a period of six (6) years after the effective time, Princeton will cause to be maintained in effect the current policies of directors’ and officers’ liability insurance maintained by Cornerstone, provided that Princeton may substitute therefor its policies with a substantially comparable insurer of at least the same coverage and amounts containing terms and conditions that are no less advantageous to the insured, with respect to claims arising from facts or events that occurred at or before the effective time; provided, however, that Princeton will not be obligated to expend, on an annual basis, an amount in excess of 250% of the most recent annual premium paid prior to January 18, 2024 by Cornerstone for such insurance (the “Premium Cap”), and if such premiums for such insurance would at any time exceed the Premium Cap, then Princeton will cause to be maintained policies of insurance that, in Princeton’s good faith determination, provide the maximum coverage available at an annual premium equal to the Premium Cap. In lieu of the foregoing, Cornerstone, in consultation with Princeton, but only upon the prior written consent of Princeton, may, and at the request of Princeton, Cornerstone will use its reasonable best efforts to, obtain at or prior to the effective time a six-year prepaid “tail” policy under Cornerstone’s existing directors and officers insurance policy providing equivalent coverage to that described in the preceding sentence if and to the extent that the same may be obtained for an amount that, in the aggregate, does not exceed the Premium Cap and, in such case, Princeton will not have any further obligations, other than to maintain such prepaid “tail” policy.

If Princeton or any of its successors and assigns will consolidate with or merge into any other person and will not be the continuing or surviving person of such consolidation or merger, or will transfer all or substantially all of its assets to any person, then, in each case, proper provisions will be made so that the successors and assigns of Princeton will assume the obligations.

Restructuring Efforts

If Cornerstone fails to obtain the approval of the merger proposal or the amendment proposal by the requisite vote of Cornerstone shareholders at the special meeting or any adjournment or postponement thereof, then, unless the merger agreement has been terminated in accordance with its terms, each of Cornerstone and Princeton is required to in good faith use its reasonable best efforts to negotiate a restructuring of the transaction (except that neither party will have any obligation to alter or change any material terms, including the amount or kind of the consideration to be issued to holders of Cornerstone common stock as provided for in the merger

 

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agreement, in a manner adverse to such party or its shareholders), and/or resubmit the merger agreement or the transactions contemplated thereby (or as restructured pursuant to the terms of the merger agreement) to the shareholders of Cornerstone for approval.

Cybersecurity

As promptly as reasonably practicable after the date of the merger agreement, Cornerstone, if requested by Princeton, is required to engage a third party who is reasonably acceptable to Princeton (who we refer to as the “systems consultant”), and at Princeton’s sole cost and expense, to (i) conduct an examination and review of Cornerstone’s computer, information technology and data processing systems for the purpose of identifying certain deficiencies, weaknesses or vulnerabilities and (ii) prepare a written report that assesses the matters described in clause (i) (which we refer to as the “systems report”). Cornerstone is required to request that the systems consultant deliver the systems report to Cornerstone and Princeton as soon as practicable after the date of the merger agreement (and is required to deliver the systems report to Princeton no later than 120 days after the systems request or, if earlier, the closing date). Cornerstone is required to, prior to the closing, permit Princeton, at Princeton’s expense, to remediate any weaknesses, deficiencies or vulnerabilities identified in the systems report to the reasonable satisfaction of Princeton.

Certain Additional Covenants

The merger agreement also contains additional covenants, including, among others, covenants relating to the filing of this proxy statement/prospectus, obtaining required consents, the listing of the shares of Princeton common stock to be issued in the merger, access to information of Cornerstone, the attendance by representatives of Princeton and Princeton Bank’s at Cornerstone board meetings and certain committee meetings following the receipt of the requisite regulatory approvals, exemption from takeover laws, public announcements with respect to the transactions contemplated by the merger agreement and communication and cooperation between Cornerstone and Princeton to plan and prepare for the consolidation of the companies at the closing date.

Cornerstone Shareholder Meeting and Recommendation of the Cornerstone Board

Cornerstone will take all steps necessary under applicable laws to call, give notice of, convene and hold a meeting of its shareholders to be held as reasonably practicable after the registration statement of which this proxy statement/prospectus is a part is declared effective for the purpose of obtaining the required shareholder approval of the merger agreement and the transactions contemplated thereby. The board of directors of Cornerstone recommends to its shareholders the approval of the merger agreement and the transactions contemplated thereby, and Cornerstone will use its reasonable best efforts to obtain the necessary approvals by its shareholders of the merger agreement and the transactions contemplated thereby; provided, however, that the board of Cornerstone will be entitled to change its recommendation to the shareholders of Cornerstone (an “Adverse Recommendation Change”) after the third (3rd) Business Day following Princeton’s receipt of a notice (the “Notice of Superior Proposal”) from Cornerstone advising Princeton that Cornerstone board of directors has decided that a bona fide unsolicited written Acquisition Proposal (the “Acquisition Proposal”) that it received constitutes a superior proposal (the “Superior Proposal”), with it being understood that Cornerstone will be required to deliver a new Notice of Superior Proposal in respect of any revised Superior Proposal from such third party or its affiliates that Cornerstone proposes to accept and the subsequent notice period will be two (2) Business Day if, but only if, the Cornerstone board of directors has reasonably determined in good faith, after consultation with and having considered the advice of outside legal counsel and a financial advisor, that the failure to take such actions would be inconsistent with its fiduciary duties to Cornerstone’s shareholders under applicable law, at the end of such three (3) Business Day period or the two (2) Business Day period (as the case may be), after taking into account any such adjusted, modified or amended terms as may have been committed to in writing by Princeton since its receipt of such Notice of Superior Proposal, provided, however, that Princeton will not have any obligation to propose any adjustments, modifications or amendments to the terms and

 

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conditions of the merger agreement, Cornerstone board has again in good faith made the determination that such Acquisition Proposal constitutes a Superior Proposal and Cornerstone has fully complied.

Agreement Not to Solicit Other Offers

Cornerstone has agreed that neither it, any affiliate of Cornerstone, nor any investment banker, attorney, accountant or other representative (collectively, “representatives”) retained by Cornerstone, will directly or indirectly initiate, solicit, encourage or otherwise take any action designed to or which could reasonably be expected to facilitate any inquiries or the making of any proposal or offer that constitutes, or may reasonably be expected to lead to, any Acquisition Proposal by any other party or enter into, continue or otherwise participate in any discussions or negotiations regarding or furnish any information with respect to, or otherwise cooperate in any way with, any Acquisition Proposal. Neither Cornerstone nor any affiliate or representative thereof will furnish any non-public information that it is not legally obligated to furnish or negotiate or enter into any agreement or contract with respect to any Acquisition Proposal and will direct and use its reasonable efforts to cause its affiliates or representatives not to engage in any of the foregoing. Cornerstone will promptly notify Princeton orally and in writing in the event that it receives any inquiry or proposal relating to any such transaction. Cornerstone will immediately cease and cause to be terminated as of the date of the merger agreement any existing activities, discussions or negotiations with any other parties conducted heretofore with respect to any of the foregoing. Notwithstanding , in the event that, prior to obtaining shareholder approval of the merger agreement, Cornerstone receives an unsolicited bona fide written Acquisition Proposal not solicited in violation of the merger agreement, and the Cornerstone board of directors concludes in good faith and after consultation with its outside legal counsel and financial advisor it is legally necessary for the proper discharge of its fiduciary duties for the board to respond to such Acquisition Proposal and such Acquisition Proposal constitutes a “Superior Proposal”, Cornerstone may furnish or cause to be furnished confidential information or data to the third party making such proposal and participate in negotiations or discussions, provided that prior to providing, or causing to be provided, any confidential information or data permitted to be provided pursuant to this sentence, Cornerstone will have entered into a confidentiality agreement with such third party on terms no less restrictive to Cornerstone than the confidentiality agreement with Princeton, and provided further that Cornerstone also will provide to Princeton a copy of any such confidential information or data that it is providing to any third party to the extent not previously provided or made available to Princeton. Cornerstone will promptly advise Princeton orally and in writing of any Acquisition Proposal, the material terms and conditions of any such Acquisition Proposal and the identity of the Person making any such Acquisition Proposal. Cornerstone will keep Princeton fully informed in all material respects of the status and details, including any change to the terms thereof, of any Acquisition Proposal, provide to Princeton as soon as practicable after receipt or delivery thereof copies of all correspondence and other written material sent or provided to Cornerstone from any person that describes any of the terms or conditions of any Acquisition Proposal, including any draft acquisition agreement, and keep Princeton fully informed in all material respects of the status and details of any determination by Cornerstone’s board of directors with respect to any such Acquisition Proposal.

Further, Cornerstone has agreed that it will not, and will cause its subsidiaries and its and their officers, directors, agents, advisors and representatives not to, directly or indirectly, initiate, solicit, knowingly encourage or knowingly facilitate any inquiries or proposals with respect to any acquisition proposal, engage or participate in any negotiations with any person concerning any acquisition proposal, provide any confidential or nonpublic information or data to any person, other than Princeton, Princeton Bank and their representatives in their capacity as such, concerning any acquisition proposal, or have or participate in any discussions with any person, other than Princeton, Princeton Bank and their representatives in their capacity as such, relating to, any acquisition proposal, except to notify such person of the existence of these non-solicit provisions of the merger agreement. However, if Cornerstone receives an unsolicited bona fide written acquisition proposal prior to the date of Cornerstone special meeting and such proposal did not result from a breach of Cornerstone’s non-solicitation obligations under the merger agreement, Cornerstone may, and may permit its subsidiaries and its and its subsidiaries’ officers, directors, agents, advisors and representatives to, furnish or cause to be furnished nonpublic information or data to, and participate in discussions with such person with respect to such acquisition

 

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proposal but only to the extent that, prior to doing so, Cornerstone board concludes in good faith, after receiving the advice of its outside counsel, and with respect to financial matters, its financial advisor, that such acquisition proposal constitutes or is reasonably likely to lead to a superior proposal and failure to take such actions would result in a violation of its fiduciary duties under applicable law, except that, prior to providing any such nonpublic information or data, or participating in discussions, in each case, Cornerstone provides such information or data to Princeton and enters into a confidentiality agreement with such person on terms no less stringent to such person than the confidentiality agreement between Princeton and Cornerstone, and which confidentiality agreement does not provide such person with any exclusive right to negotiate with Cornerstone or its representatives.

Cornerstone has also agreed to, and to cause its officers, directors, agents, advisors and representatives to, immediately cease and terminate any activities, discussions or negotiations conducted before the execution of the merger agreement with any person, other than Princeton, Princeton Bank and their representatives in their capacity as such, with respect to any acquisition proposal. Cornerstone has also agreed to promptly, and in any event within 24 hours, advise Princeton following receipt of any acquisition proposal or any inquiry that could reasonably be expected to lead to an acquisition proposal, and the substance thereof, including the terms and conditions of and the identity of the person making such inquiry or acquisition proposal and copies of any written acquisition proposal and written summaries of any material oral communications relating to an acquisition proposal, and to keep Princeton apprised of any related developments, discussions and negotiations on a current basis, including any amendments to or revisions of the terms of such inquiry or acquisition proposal.

Conditions to Complete the Merger 

Princeton’s and Cornerstone’s respective obligations to complete the merger are subject to the satisfaction or, where legally permissible, waiver of the following customary closing conditions:

 

•

the approval of the merger agreement and amendment proposal by the requisite vote of Cornerstone shareholders;

 

•

the authorization for listing on Nasdaq, subject to official notice of issuance, of the Princeton common stock to be issued pursuant to the merger agreement;

 

•

the receipt of required regulatory approvals or waivers, including from the FRB, the FDIC and the NJDOBI, and the expiration of all statutory waiting periods in respect thereof;

 

•

the effectiveness of the registration statement of which this proxy statement/prospectus is a part, with respect to the Princeton common stock to be issued upon the consummation of the merger, and the absence of any stop order (or proceedings for that purpose initiated or threated and not withdrawn);

 

•

the absence of any actual or threatened causes of action, investigations or proceedings (i) challenging the validity of the merger, or (ii) seeking damages in connection with the merger, or (iii) seeking to restrain or invalidate the merger. No judgment, order, injunction or decree (whether temporary, preliminary or permanent) issued by any court or agency of competent jurisdiction or other legal restraints or prohibition preventing the consummation of the merger, the bank merger or any of the other transactions contemplated by the merger. No statute, rule regulation, order, inunction or decree (whether temporary, preliminary or permanent) will have been enacted, entered, promulgated or enforced by any governmental entity that prohibits, restricts or makes illegal the consummation of the merger or the bank merger;

 

•

the accuracy of the representations and warranties of the other party contained in the merger agreement as of the date on which the merger agreement was entered into and (except to the extent such representations and warranties speak as of an earlier date, in which case such representations and warranties will be so true and correct as of such earlier date) as of the date on which the merger is completed, subject to the materiality standards provided in the merger agreement (and the receipt by each party to an officers’ certificate from the other party to such effect); and

 

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•

receipt by such party of an opinion of legal counsel to the effect that on the basis of facts, representations and assumptions set forth or referred to in such opinion, the merger will be treated as a transaction that qualifies as a “reorganization” within the meaning of Section 368(a) of the Code.

In addition, Princeton’s obligation to complete the merger is subject to the satisfaction or, where legally permissible, waiver of the following conditions:

 

•

the representations and warranties of Cornerstone delivered to Princeton will be true and correct, in all material respects, or where any statement in a representation or warranty expressly contains a standard of materiality, such statement will be true and correct in all respects taking into consideration the standard of materiality contained therein, as of the effective time;

 

•

the performance in all material respects by Cornerstone of all other obligations required to be performed by it under the merger agreement;

 

•

Cornerstone will have obtained the consent or approval of each person, other than the Consents of the Regulatory Authorities, whose consent or approval will be required in order to permit the succession by Princeton to any obligation, right or interest of Cornerstone and Cornerstone Bank under any loan or credit agreement, note, mortgage, indenture, lease, license, or other agreement or instrument;

 

•

the absence of a materially burdensome regulatory condition to any required regulatory approvals of the transactions that would so materially and adversely impact the economic or business benefits to Princeton of the merger that, had such condition or requirement been known, Princeton would not, in its reasonable judgment, have entered into the merger agreement, including, without limitation, (i) any prohibition or material limitation on the ownership or operation by Princeton of all or any material portion of the business or assets of Cornerstone, (ii) any requirement to dispose of or hold separate all or any material portion of the business or assets of Cornerstone, (iii) any requirement to continue in effect after the effective time any regulatory requirement or restriction in effect against Cornerstone prior to the effective time, or (iv) any material impairment to the value of Cornerstone to Princeton;

 

•

Cornerstone will have delivered a certificate to Princeton that, other than as set forth in such certificate, Cornerstone is not aware of any pending or threatened claim under the directors and officers’ liability insurance policy or the fidelity bond coverage of Cornerstone;

 

•

each director and executive officer of Cornerstone will have executed a Support Agreement prior to the effective time;

 

•

since the date of the execution of the merger agreement there will not have occurred any material adverse effect with respect to Cornerstone or any Cornerstone subsidiary;

 

•

Cornerstone’s independent audit firm shall deliver an unqualified opinion on the audited financial statements of Cornerstone at and for the year-ended December 31, 2023 on or before April 30, 2024;

 

•

the amendment as it pertains to the reverse stock split will be approved by the holders of Cornerstone common stock, and by the holders of the Series C Stock voting separately as a class, pursuant to the requirements set forth in the BCA, and shall be filed with New Jersey Department of Treasury and effective prior to the effective time;

 

•

Princeton will have received the written opinion of S&L, in form and substance reasonably satisfactory to Princeton, dated as of the effective time, to the effect that, on the basis of facts, representations and assumptions set forth or referred to in such opinion, that are consistent with the state of facts existing at the effective time, the merger shall be treated as an transaction that qualifies as a “reorganization” within the meaning of Section 368(a) of the Code.

 

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In addition, Cornerstone’s obligation to complete the merger is subject to the satisfaction or, where legally permissible, waiver of the following condition:

 

•

the performance in all material respects by Princeton of all obligations required to be performed by it under the merger agreement at or prior to the closing (and the receipt by Cornerstone of an officers’ certificate from the Princeton to such effect);

 

•

Cornerstone will have received the written opinion of WMLM, in form and substance reasonably satisfactory to Cornerstone, dated as of the effective time, to the effect that, on the basis of facts, representations and assumptions set forth or referred to in such opinion, that are consistent with the state of facts existing at the effective time, the merger shall be treated as an transaction that qualifies as a “reorganization” within the meaning of Section 368(a) of the Code.

Neither Cornerstone nor Princeton can be certain when, or if, the conditions to the merger will be satisfied or waived or that the merger will be completed.

Termination of the Merger Agreement

The merger agreement can be terminated at any time prior to the completion of the merger under the following circumstances:

 

•

by the mutual consent in writing of the Princeton board and the Cornerstone board;

 

•

by the Princeton board or the Cornerstone board if the merger has not occurred on or prior to December 31, 2024, provided that the failure to consummate the merger on or before such date is not caused by any breach of any of the representations, warranties, covenants or other agreements contained herein by the party electing to terminate;

 

•

by the Princeton board or the Cornerstone board, provided that the terminating party is not then in breach of any representation. warranty, covenant or agreement contained in the merger agreement), in the event of an inaccuracy of any representation or warranty of the other party contained in the merger agreement that cannot be or has not been cured within thirty days after the giving of written notice to the breaching party of such inaccuracy and which inaccuracy would provide the terminating party the ability to refuse to consummate the merger under the applicable standard set forth in the merger agreement;

 

•

by the Princeton board or the Cornerstone board (provided that the terminating party is not then in breach of any representation, warranty, covenant or other agreement contained in the merger agreement) in the event of a material breach by the other party of any covenant or agreement contained in the merger agreement that cannot be or has not been cured within 30 days after the giving of written notice to the breaching party of such breach;

 

•

by the Princeton board or the Cornerstone board in the event (i) any consent of any regulatory authorities required for consummation of the merger or the bank merger has been denied by a final nonappealable action of such authority or if the parties agree that any action taken by such authority should not be appealed within the time limit for appeal; (ii) any governmental entity of competent jurisdiction has issued a final and nonappealable order permanently enjoining or otherwise prohibiting or making illegal the consummation of the transactions contemplated by the merger agreement: or (iii) an application for any required consent of any regulatory authorities has been withdrawn at the request of the applicable Regulatory Authorities, subject to certain exceptions;

 

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•

by the Princeton board or the Cornerstone board (provided that the terminating party is not then in breach of any representation, warranty, covenant or agreement contained in the merger agreement ) upon delivery of written notice of termination at the time that it is determined that any of the conditions precedent to the obligations of such party to consummate the merger cannot be satisfied or fulfilled by the date specified in the merger agreement;

 

•

by the Princeton board, (i) if the Cornerstone board either (A) fails to recommend, or fails to continue its recommendation, that the shareholders of Cornerstone vote in favor of the adoption of the merger agreement, (B) modifies, withdraws or changes in any manner adverse to Princeton its recommendation that the shareholders of Cornerstone vote in favor of the adoption of the merger agreement, (C) fails to recommend against acceptance of any publicly disclosed tender offer or exchange offer for outstanding Cornerstone common stock, within the 10 business day period specified in Rule 14e-2(a) under the Exchange Act, or (D) recommends or endorses an acquisition proposal, (ii) if Cornerstone breaches any of its obligations in any material respect prohibiting the solicitation of other buyers for Cornerstone; or (iii) if Cornerstone materially breaches any of its obligations regarding obtaining shareholder approval of the proposals presented in this proxy statement/prospectus;

 

•

by the Cornerstone board if, after it has received a Superior Proposal and otherwise complied with all of its obligations, Cornerstone or any of its Subsidiaries enters into a definitive agreement with respect to, or consummates a transaction which is the subject of, an acquisition proposal; or

 

•

by Cornerstone, following the special meeting , if Cornerstone (i) received an acquisition proposal prior to the special meeting, (ii) has not breached any of its obligations and (iii) fails to obtain the shareholder approval of the merger agreement at the special meeting.

Effect of Termination

If the merger agreement is terminated, it will become void and have no effect, except that (i) each of Princeton and Cornerstone will remain liable for any liabilities or damages arising out of its fraud or any knowing, intentional and material breach of any of its representations, warranties, covenants and agreements set forth in the merger agreement and (ii) designated provisions of the merger agreement will survive the termination, including those relating to payment of termination fees and expenses and the confidential treatment of information.

Termination Fee

In the event that, prior to the termination of the merger agreement, (i) a bona fide acquisition proposal has been made known to senior management of Cornerstone or the Cornerstone board or has been made directly to Cornerstone shareholders generally or any person has publicly announced an acquisition proposal or the intention to make an acquisition proposal (whether or not conditional) with respect to Cornerstone, (ii) (A) thereafter the merger agreement is terminated by (A) either Princeton or Cornerstone because the closing has not occurred prior to the termination date and without the requisite Cornerstone shareholder vote having been obtained or (B) Princeton based on a willful breach of the merger agreement by Cornerstone that would constitute the failure of a closing condition in favor of Princeton and that has not been cured during the permitted time period or by its nature cannot be cured during such period, and (iii) on or prior to the date that is 12 months after the date of such termination, Cornerstone enters into a definitive agreement (regardless of whether a transaction is consummated) or consummates a transaction with respect to an acquisition proposal (whether or not the same acquisition proposal as that referred to above in clause (i)), then Cornerstone will, on the earlier of the date it enters into such definitive agreement and the date of consummation of such transaction, pay Princeton, by wire transfer of same day funds, the $849,000 termination fee.

In the event that the merger agreement is terminated by Princeton based on Cornerstone board having (i) failed to recommend in this proxy statement/prospectus that Cornerstone shareholders approve the merger agreement, or withdrawn, modified or qualified such recommendation in a manner adverse to Princeton, or resolved to do so, or

 

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failed to reaffirm such recommendation within two business days after Princeton has requested in writing that such action be taken, or failed to recommend against acceptance of a publicly disclosed tender offer or exchange offer for outstanding Cornerstone common stock (other than by Princeton or an affiliate of Princeton) within ten business days after the commencement of such tender or exchange offer, (ii) recommended or endorsed an acquisition proposal, or (iii) breached certain obligations, including with respect to acquisition proposals or calling and holding a meeting of its shareholders and recommending that Cornerstone shareholders approve the merger agreement, in any material respect, then Cornerstone will pay Princeton, by wire transfer of same day funds, a $849,000 termination fee on the date of termination.

If the merger agreement is terminated by Cornerstone under circumstances where Cornerstone (i) received an acquisition proposal prior to the special meeting, (ii) has not breached any of its obligations with respect to acquisition proposals or the calling and holding of a meeting of its shareholders and recommending that Cornerstone shareholders approve the merger agreement, and (iii) has failed to obtain the required vote of its shareholders at such meeting, and if Cornerstone made an adverse recommendation change prior to the date of termination, Cornerstone will be required to pay Princeton, by wire transfer of same day funds, a $849,000 termination fee on the date of termination. In addition, if (x) Cornerstone terminates the merger agreement based on clauses (i), (ii) and (iii) of preceding sentence, (y) Cornerstone did not make an adverse recommendation change prior to termination and (z) on or prior to the date that is 12 months after the date of termination, Cornerstone enters into a definitive agreement (regardless of whether a transaction is consummated) or consummates a transaction with respect to an acquisition proposal (regardless of whether it is the same or different acquisition proposal as that referenced in clause (i) of the preceding sentence), then Cornerstone will be required to pay Princeton, by wire transfer of same day funds, a $849,000 termination fee on the earlier of the date Cornerstone enters into such definitive agreement or the date of consummation of such transaction.

Expenses and Fees

Unless expressly provided otherwise in the merger agreement, all costs and expenses incurred in connection with the merger agreement and the transactions contemplated thereby will be paid by the party incurring such expense.

Amendment, Waiver and Extension of the Merger Agreement

Subject to compliance with applicable law, the merger agreement may be amended by the parties at any time before or after approval of the matters presented in connection with the merger by the requisite vote of Cornerstone shareholders, except that after approval of the merger agreement by Cornerstone shareholders there may not be, without further approval of such shareholders, any amendment of the merger agreement that requires further approval under applicable law.

At any time prior to the completion of the merger, the parties may, to the extent legally permitted, extend the time for the performance of any of the obligations or other acts of the other party, waive any inaccuracies in the representations and warranties contained in the merger agreement or in any document delivered pursuant to the merger agreement, and waive compliance with any of the agreements or satisfaction of any conditions contained in the merger agreement, except that after approval of the merger agreement by the requisite vote of Cornerstone shareholders, there may not be, without further approval of such shareholders, any extension or waiver of the merger agreement or any portion thereof that requires further approval under applicable law.

Voting and Support Agreements

Concurrently with the execution of the merger agreement, each of the directors and executive officers, in their capacity as shareholders of Cornerstone entered into a voting and support agreement with Princeton, pursuant to which each such shareholder has agreed to vote the shares of Cornerstone common stock held by such person in favor of the approval of the merger agreement and related matters. In addition, each such shareholder agreed to

 

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vote such shares against any proposal made in competition with the merger agreement and to abide by certain restrictions with respect to the transfer of such shares. As of the record date, shares of Cornerstone common stock subject to the voting and other obligations under the support agreements equaled in the aggregate approximately 29.6% of the outstanding shares of Cornerstone common stock.

The foregoing description of the support agreement is subject to, and qualified in its entirety by reference to, the support agreement, a form of which is attached to this proxy statement/prospectus as Annex B and is incorporated by reference into this proxy statement/prospectus.

ANITICIPATED ACCOUNTING TREATMENT

The merger will be accounted for using the acquisition method of accounting, in accordance with the provisions of FASB ASC Topic 805-10, Business Combinations. Under the acquisition method of accounting, the assets (including identifiable intangible assets) and liabilities (including executory contracts and other commitments) of Cornerstone as of the effective date of the merger will be recorded at their respective fair values and added to those of Princeton. If the purchase price exceeds the difference between the fair value of assets acquired and the fair value of the liabilities assumed, then such excess will be recorded as goodwill. Financial statements of Princeton issued after the completion of the merger will reflect these fair values and will not be restated retroactively to reflect the historical financial position or results of operations of Cornerstone before the merger.

 

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U.S. FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of the U.S. federal income tax considerations generally applicable to a “U.S. holder” (as defined below) of Cornerstone common stock that receives Princeton common stock pursuant to the merger. This discussion is based upon the Code, Treasury regulations promulgated thereunder, administrative rulings and judicial decisions in effect as of the date of this proxy statement/prospectus, all of which are subject to change at any time, possibly with retroactive effect. Any such change could affect the accuracy of the statements and conclusions set forth in this discussion. This discussion does not address (i) any U.S. state or local or non-U.S. tax considerations or any U.S. federal estate, gift, alternative minimum tax, or Medicare contribution tax considerations applicable to the merger, (ii) any tax considerations applicable to any shares of preferred stock of Cornerstone exchanged in the merger, or (iii) any tax considerations applicable to the bank merger.

The following discussion applies only to U.S. holders of Cornerstone common stock with respect to Cornerstone common stock held by them, who hold such shares as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment). Further, this discussion does not purport to consider all aspects of U.S. federal income taxation that might be relevant to U.S. holders in light of their particular circumstances such as their exchange in the merger of any shares of preferred stock of Cornerstone and does not apply to U.S. holders subject to special treatment under the U.S. federal income tax laws (such as, for example, dealers or brokers in securities, commodities or foreign currencies, traders in securities that elect to apply a mark-to-market method of accounting, banks and certain other financial institutions, insurance companies, mutual funds, tax-exempt organizations, holders subject to the alternative minimum tax provisions of the Code, partnerships, S corporations or other pass-through entities or investors in partnerships, regulated investment companies, real estate investment trusts, controlled foreign corporations, passive foreign investment companies, former citizens or residents of the United States, holders whose functional currency is not the U.S. dollar, holders who hold shares of Cornerstone common stock as part of a hedge, straddle, constructive sale or conversion transaction or other integrated investment, holders who acquired Cornerstone common stock pursuant to the exercise of employee stock options, through a tax qualified retirement plan or otherwise as compensation, holders who exercise appraisal rights or holders who actually or constructively own five percent or more of Cornerstone common stock).

For purposes of this discussion, a “U.S. holder” is a beneficial owner of Cornerstone common stock that is, for U.S. federal income tax purposes, (i) an individual citizen or resident of the United States, (ii) a corporation, or entity treated as a corporation, organized in or under the laws of the United States or any political subdivision thereof, (iii) an estate, the income of which is includible in gross income for U.S. federal income tax purposes, regardless of its source, or (iv) a trust if (a) a court within the United States is able to exercise primary supervision over the trust’s administration and one or more U.S. persons have the authority to control all of the trust’s substantial decisions or (b) such trust has made a valid election to be treated as a U.S. person for U.S. federal income tax purposes.

If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds Cornerstone common stock, the tax treatment of a partner in such partnership will generally depend on the status of the partner and the activities of the partnership. Any entity treated as a partnership for U.S. federal income tax purposes that holds Cornerstone common stock, and any partners in such partnership, should consult their tax advisors regarding the tax consequences of the merger to their specific circumstances.

The obligation of Princeton and Cornerstone to complete the merger is conditioned upon the receipt of an opinion of its counsel, dated the closing date of the merger, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Neither Princeton nor Cornerstone currently intends to waive these respective opinion conditions. These opinions of counsel will be based on customary assumptions and representations, covenants, and undertakings of Princeton and Cornerstone. If any of the assumptions, representations, covenants or undertakings is incorrect, incomplete, inaccurate, or is violated, the validity of the opinions may be affected and the U.S. federal income tax consequences of the merger could differ materially from those described in this proxy statement/prospectus.

 

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An opinion of counsel represents counsel’s legal judgment but is not binding on the IRS or any court and there can be no assurance that the IRS will not challenge the conclusions reflected in the opinions or that a court would not sustain such a challenge. Neither Princeton nor Cornerstone intends to obtain a ruling from the IRS with respect to the tax treatment of the merger. If the IRS were to successfully challenge the “reorganization” status of the merger, the tax consequences would be different from those set forth in this proxy statement/prospectus.

The following discussion assumes that the merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Code.

Subject to the discussion below relating to the receipt of cash instead of a fractional share, U.S. holders of Cornerstone common stock will generally not recognize gain or loss on the exchange of shares of Cornerstone common stock solely for shares of Princeton common stock.

A U.S. holder’s aggregate tax basis in Princeton common stock received pursuant to the merger (including the basis allocable to any fractional share of Princeton common stock for which cash is received) will equal the U.S. holder’s aggregate tax basis in Cornerstone common stock exchanged therefor.

A U.S. holder’s holding period in Princeton common stock received pursuant to the merger will include the holding period for its shares of Cornerstone common stock surrendered in exchange therefor. U.S. holders who hold shares of Cornerstone common stock with differing bases or holding periods should consult their tax advisors with regard to identifying the bases or holding periods of the particular shares of Princeton common stock received in the merger.

Cash In Lieu of Fractional Shares. A U.S. holder that receives cash in lieu of a fractional share of Princeton common stock will generally be treated as having received such fractional share and then as having received such cash in redemption of the fractional share. Gain or loss will generally be recognized based on the difference between the amount of cash received in lieu of the fractional share and the portion of the U.S. holder’s aggregate adjusted tax basis in the shares of Cornerstone common stock surrendered which is allocable to the fractional share. Such gain or loss will generally be long-term capital gain or loss if the U.S. holder’s holding period for its Cornerstone common stock exceeds one year at the closing date of the merger.

This discussion of U.S. federal income tax consequences is for general information purposes only and is not intended to be, and should not be construed as, tax advice. Determining the actual tax consequences of the merger to you may be complex and will depend on your specific situation and on factors that are not within our control. You should consult your tax advisors with respect to the application of U.S. federal income tax laws to your particular situation as well as any tax consequences arising with respect to the exchange of shares of preferred stock of Cornerstone or arising under the U.S. federal estate or gift tax rules or under the laws of any state, local, non-U.S. or other taxing jurisdiction.

 

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DESCRIPTION OF CAPITAL STOCK OF PRINCETON

The following is a brief description of the terms of the capital stock of Princeton. This summary does not purport to be complete in all respects. This description is subject to and qualified in its entirety by reference to the BCL, Princeton’s articles of incorporation and bylaws, and, where applicable, federal banking law. Copies of Princeton’s articles of incorporation and bylaws have been filed with the SEC and are also available upon request from Princeton. To find out where copies of these documents can be obtained, see the section of this proxy statement/prospectus entitled “Where You Can Find More Information” beginning on page 87.

General

The authorized capital of the Princeton consists of 15,000,000 shares of common stock, with no par value, and 2,000,000 shares of preferred stock. Except as described below, each share of the Princeton common stock will have the same relative rights as, and will be identical in all respects with, each other share of the Princeton common stock.

Common Stock

Voting Rights. The holders of the common stock will possess exclusive voting rights in the Princeton. Except as set forth below, each holder of shares of common stock will be entitled to one vote for each share held on matters upon which shareholders have the right to vote. Shareholders will not be entitled to cumulate their votes for the election of directors.

Princeton’s articles of incorporation do contain a provision prohibiting any person who as of March 11, 2022 beneficially owned more than nine percent (9.0%) of the outstanding shares of common stock of Princeton Bank (such person to be referred to herein as a “Material Shareholder”) from acquiring “voting control” of Princeton, which is generally defined as the beneficial ownership at any time of shares of Princeton’s outstanding capital stock with more than 9.9% of the total voting power of Princeton’s outstanding capital stock. A Material Shareholder who acquires more than 9.9% of the total voting power of Princeton’s outstanding capital stock is not permitted to vote any shares that exceed the 9.9% limit.

Dividends. Under Pennsylvania law, Princeton may not pay a dividend, if, after giving effect thereto, it would be unable to pay its debts as they become due in the usual course of business and, after giving effect to the dividend, the total assets of Princeton would be less than the sum of its total liabilities plus the amount that would be needed, if Princeton were to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of shareholders whose rights are superior to those receiving the dividend.

It is also the policy of the Federal Reserve that a bank holding company generally may only pay dividends on common stock out of net income available to common shareholders over the past twelve months and only if the prospective rate of earnings retention appears consistent with a bank holding company’s capital needs, asset quality, and overall financial condition. A bank holding company also should not maintain a dividend level that places undue pressure on the capital of such institution’s subsidiaries, or that may undermine the bank holding company’s ability to serve as a source of strength for such subsidiaries.

Funds for dividend distribution must initially come from dividends paid to the Princeton by Princeton Bank, so that the restrictions on Princeton Bank’s ability to pay dividends are indirectly applicable to the Princeton. Under the New Jersey Banking Act of 1948, as amended, a bank may declare and pay cash dividends only if, after payment of the dividend, the capital stock of the bank will be unimpaired and either the bank will have a surplus of not less than 50% of its capital stock or the payment of the dividend will not reduce the bank’s surplus. The FDIC prohibits payment of cash dividends if, as a result, the institution would be undercapitalized, or the institution is in default with respect to any assessment due to the FDIC.

The Princeton presently intends to continue Princeton Bank’s policy of paying dividends if, as and when declared by the Princeton board of directors. Princeton currently pays a quarterly cash dividend of $0.30 per share, which

 

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is expected to continue, although the Princeton board may change this dividend policy at any time. Princeton stockholders will be entitled to receive dividends when and if declared by the Princeton board out of funds legally available for dividends. The Princeton board will consider Princeton’s financial condition and level of net income, future prospects, economic condition, industry practices and other factors, including applicable banking laws and regulations, in determining whether to pay dividends in the future and the amount of such dividends.

Preemptive Rights; Redemption. Holders of the Princeton common stock will not be entitled to preemptive rights with respect to any shares of the Princeton that may be issued. The common stock will not be subject to redemption. Upon receipt by the Princeton of the full specified purchase price therefor, the common stock will be fully paid and nonassessable.

Liquidation. In the event of any liquidation, dissolution, or winding up of the affairs of Princeton, after payment of all debts and liabilities of the Princeton, the holders of the Princeton common stock would be entitled to receive all assets of the Princeton available for distribution in cash or in kind.

Transfer. The shares of the Princeton common stock issued in the merger will be freely transferable.

Preferred Stock

Princeton’s articles of incorporation authorize a class of preferred stock consisting of 2,000,000 shares, and empower the Princeton board to issue such shares as a class or in one or more series, with such voting, dividend, redemption, sinking fund, conversion, exchange, liquidation and other rights as are determined by the Princeton boards, without further shareholder approval.

Provisions in a company’s certificate of incorporation authorizing preferred stock in this manner are often referred to as “blank check” provisions because they give a board of directors the flexibility, at any time or from time to time, without further shareholder approval (except as may be required by applicable laws, regulatory authorities, or the rules of any stock exchange on which the company’s securities are then listed), to create one or more series of preferred stock and to determine by resolution the terms of each such series or the class as a whole. The authority of the board of directors with respect to each series and the class, without limitation, includes a determination of the following: (a) the number of shares to constitute the series, (b) the liquidation rights, if any, (c) the dividend rights and rates, if any, (d) the rights and terms of redemption, (e) the voting rights, if any, which may be full, special, conditional, or limited, (f) whether the shares will be convertible or exchangeable into other securities of Princeton, and the rates thereof, if any, (g) any limitations on the payment of dividends on the common stock while any series is outstanding, (h) any other provisions that are not inconsistent with Princeton’s articles of incorporation, and (i) any other preference, limitations, or rights that are permitted by law.

Therefore, the Princeton board could authorize shares of preferred stock which have voting, dividend or other preferences over shares of its common stock and the issuance of preferred stock could dilute the voting power, equity position or share of earnings of common shareholders, although the Princeton board has no present plan or proposal to do so. Preferred stock also could be used to discourage or impede an attempt to obtain control of Princeton by merger, tender offer, proxy contest or other means and could be used to inhibit the removal of incumbent management. At this time, Princeton is not aware of any attempts to obtain control of Princeton and has no plans to issue any preferred stock.

 

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COMPARISON OF SHAREHOLDERS’ RIGHTS

If the merger is completed, Cornerstone shareholders will be entitled to receive shares of Princeton common stock in exchange for their shares of Cornerstone common stock. Princeton is organized under the laws of the Commonwealth of Pennsylvania, and Cornerstone is organized under the laws of the State of New Jersey. As a result of the merger, Cornerstone shareholders will become shareholders of Princeton. Thus, following the merger, the rights of Cornerstone shareholders who become Princeton shareholders as a result of the merger will be governed by the BCL and will also then be governed by Princeton’s articles of incorporation and its bylaws. Princeton’s articles of incorporation and bylaws will be unaltered by the Merger.

The following is a summary of the material differences between (1) the current rights of Cornerstone shareholders under the NJBCA, Cornerstone’s certificate of incorporation and Cornerstone’s bylaws and (2) the current rights of Princeton shareholders under the BCL, Princeton’s articles of incorporation and Princeton’s bylaws. Princeton and Cornerstone believe that this summary describes the material differences between the rights of Princeton shareholders as of the date of this proxy statement/prospectus and the rights of Cornerstone shareholders as of the date of this proxy statement/prospectus; however, it does not purport to be a complete description of those differences. Copies of Princeton’s governing documents have been filed with the SEC. Copies of Cornerstone’s governing documents are available upon request.

 

PRINCETON		CORNERSTONE
AUTHORIZED CAPITAL STOCK
Princeton’s articles of incorporation authorize it to issue up to 15,000,000 shares of common stock, without par value, and 2,000,000 shares of preferred stock, which may be issued in one or more classes or series. As of the most recent practicable date prior to the mailing of this proxy statement/prospectus, there were 6,345,361 shares of Princeton common stock issued and outstanding and no shares of Princeton preferred stock outstanding.		Cornerstone’s certificate of incorporation authorizes it to issue up to 10,000,000 shares of common stock, without par value, and 1,000,000 shares of preferred stock, which may be issued in one or more classes or series. The shares of common stock and the shares of preferred stock of each class or series shall be without nominal or par value. In addition to the 2,191,999 shares of Cornerstone common stock outstanding on the record date, Cornerstone has established two classes of preferred stock, ‘Perpetual Non-Cumulative Preferred Stock, Series A’(the “Series A Stock”), of which 2,000 shares, no par value, are outstanding, and the Series C Stock, of which 1,440 shares, no par value, are outstanding. Each of the Series A Stock and Series C Stock is perpetual, with no maturity date.
GENERAL VOTING STANDARD
Generally, each holder of Princeton common stock is entitled to one vote for each share of Princeton common stock held by such shareholder, except as provided below. No shareholder shall be entitled to cumulate any votes for the election of directors.   Princeton’s articles of incorporation contain a provision prohibiting any person who as of March 11, 2022 beneficially owned more than nine percent (9.0%) of the outstanding shares of common stock of Princeton Bank (such person to be referred to herein as a “Material Shareholder”) from acquiring “voting control” of		Each holder of Cornerstone common stock is entitled to one vote for each share of Cornerstone common stock held by such shareholder. A shareholder may vote in person or by proxy. Except as otherwise provided by law or by the certificate of incorporation, any corporate action to be taken by a vote of the shareholders, other than the election of directors, shall be authorized by not less than a majority of the votes cast at a meeting by the shareholders present in person or proxy and entitled to vote thereon.

 

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PRINCETON		CORNERSTONE
Princeton, which is generally defined as the beneficial ownership at any time of shares of Princeton’s outstanding capital stock with more than 9.9% of the total voting power of Princeton’s outstanding capital stock. A Material Shareholder who acquires more than 9.9% of the total voting power of Princeton’s outstanding capital stock is not permitted to vote any shares that exceed the 9.9% limit.
SIZE OF THE BOARD OF DIRECTORS
Princeton’s articles of incorporation and bylaws provide that the number of directors constituting the entire board of directors Princeton will not be less than three (3) nor more than twenty-five (25) members in number, and provide that the exact number will be fixed from time to time by the board of directors The board of directors has fixed the number of directors constituting the entire board of directors at eight (8).   There are currently 8 directors on the Princeton board. Under the merger agreement, Princeton will increase the size of the Princeton board by one member and will appoint a member of Cornerstone board to the Princeton board.		Cornerstone’s certificate of incorporation and bylaws provide that the number of directors of Cornerstone board shall consist of not less than one nor more than 25 directors, as determined by a resolution adopted by a majority of Cornerstone board.   There are currently 9 directors on Cornerstone board.
CLASSES OF DIRECTORS
Princeton’s board of directors is not classified; all directors are elected annually.		Cornerstone’s certificate of incorporation provides that Cornerstone board is divided into three classes, with the term of office of one class expiring each year. Each class of directors serves a three-year term.
DIRECTOR QUALIFICATIONS
Under Princeton’s bylaws, each director shall be a natural person of full age and at least a majority of the directors shall be persons who are: (i) not employees of the Princeton or of any entity controlling, controlled by or under common control with the Princeton, (ii) not beneficial owners of a controlling interest in the voting stock of the Princeton or of any entity controlling, controlled by or under common control with the Princeton, and (iii) otherwise independent within the meaning of any applicable statute or any listing requirement of a stock exchange or over the counter market on which any security of the Princeton is admitted for trading. A director having the attributes set forth in (i), (ii) and (iii) shall hereinafter be deemed an “Independent Director”.		Cornerstone’s bylaws provide that an individual is not qualified to serve as a director on Cornerstone board if he or she is: (a) under indictment for, or has ever been convicted of, a criminal offense, involving dishonesty or breach of trust and the penalty for such offense could be imprisonment for more than one year; (b) is a person against whom a federal or state bank regulatory agency has issued a cease and desist order for conduct involving dishonesty or breach of trust and that order is final and not subject to appeal; (c) has been found either by any federal or state regulatory agency whose decision is final and not subject to appeal or by a court to have: (1) breached a fiduciary duty involving personal profit, or (2) committed a willful violation of any law, rule or regulation governing banking, securities, commodities or insurance, or any final cease and desist order issued by a banking, securities, commodities or insurance regulatory agency; or

 

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PRINCETON		CORNERSTONE
		(d) has been nominated by a person who would be disqualified from serving as a director of this Cornerstone under subsection (a), (b) or (c), or (e) is a party, either directly or through an affiliate, to litigation or an administrative proceeding adverse to Cornerstone or its bank subsidiary, except: (1) derivative litigation brought in the name of Cornerstone or its bank subsidiary by the director in his or her capacity as a shareholder of Cornerstone or, (2) litigation arising out of a proxy fight concerning the election of directors of Cornerstone or Cornerstone bank or otherwise involving control of Cornerstone or Cornerstone bank.   Under NJBCA Section 14A:6-1(1), all directors on Cornerstone board must be at least eighteen years of age.
REMOVAL OF DIRECTORS
The shareholders of Princeton may remove from office the entire board of directors or any individual director only for cause (as defined in its articles of incorporation). Such removal shall be made by a vote of shareholders constituting at least a majority of the votes which all shareholders would be entitled to cast at an annual election of directors.   The Princeton board may remove a director if that director: (i) has been judicially declared of unsound mind; (ii) has been convicted of an offense punishable by imprisonment for a term of more than six months; (iii) has failed to attend at least 75% of the regular meetings of the Princeton board held during an entire calendar year, or has failed to attend three consecutive regular meetings, (iv) if within 60 days after notice of his or her election, the director does not accept such office either in writing or by attending a meeting of the Princeton board and fulfilling such other requirements of qualification as the bylaws or articles of incorporation may provide; (v) Princeton is ordered by the Board of Governors of the Federal Reserve or its designee or the New Jersey Department of Banking and Insurance to remove the director; or (vi) the director is ineligible for any reason to serve as a director of Princeton Bank.		Cornerstone’s certificate of incorporation provides that none of the present or future directors of Cornerstone may be removed without cause by the shareholders of Cornerstone.   The Cornerstone board has the power to remove directors and to suspend directors pending a final determination that cause exists for removal.
FILLING VACANCIES ON THE BOARD OF DIRECTORS / NEWLY CREATED DIRECTORSHIPS
The Princeton bylaws provide that newly created vacancies in the board of directors shall exist in the case of the happening of any of the following events: (i) the death or resignation of any director; (ii) if at any annual		Cornerstone bylaws provide that any vacancy in the board arising from an increase in the number of directors or otherwise may be filed by the vote of a majority of the directors then in office, though less

 

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