UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities and Exchange Act of 1934 (Amendment No. __)
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14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under ss. 240.14a-12
Salisbury Bancorp, Inc.
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(Name of Registrant as Specified in Its Charter)
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SALISBURY BANCORP, INC.
5 BISSELL STREET
P.O. BOX 1868
LAKEVILLE, CONNECTICUT 06039
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON March 10, 2009
To the Shareholders of Salisbury Bancorp, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Salisbury
Bancorp, Inc. (The "Company") will be held at 10:00 a.m., local time, on
Tuesday, March 10, 2009 at The Interlaken Inn, 74 Interlaken Road, Route 112,
Lakeville, Connecticut for the following purposes:
1. To approve an amendment to the Company's Certificate of
Incorporation to authorize a class of 25,000 shares of preferred
stock, par value $0.01 per share; and
2. To transact such other business as may properly be brought before
the Special Meeting or any adjournment(s) thereof.
Only those shareholders of record at the close of business on February 4,
2009 are entitled to notice of, and to vote at, this Special Meeting or any
adjournment thereof.
In order that you may be represented at the Special Meeting, please
complete, date, sign and mail promptly the enclosed proxy for which a
postage-prepaid return envelope is provided.
BY ORDER OF THE BOARD OF DIRECTORS
OF SALISBURY BANCORP, INC.
/s/ John F. Foley
--------------------------
February 9, 2009 John F. Foley
Lakeville, Connecticut Secretary
SHAREHOLDERS ARE REQUESTED TO MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS
SOON AS POSSIBLE REGARDLESS OF WHETHER THEY PLAN TO ATTEND THE MEETING. ANY
PROXY GIVEN BY A SHAREHOLDER WHO EXECUTES AND RETURNS A PROXY AND WHO ATTENDS
THE SPECIAL MEETING MAY WITHDRAW THE PROXY AT TIME BEFORE IT IS VOTED AND VOTE
HIS OR HER SHARES IN PERSON. A PROXY MAY ALSO BE REVOKED BY GIVING NOTICE TO
JOHN F. FOLEY, SECRETARY OF THE COMPANY, 5 BISSELL STREET, P.O. BOX 1868,
LAKEVILLE, CT 06039, IN WRITING PRIOR TO THE TAKING OF A VOTE.
SALISBURY BANCORP, INC.
5 BISSELL STREET
LAKEVILLE, CT 06039
860-435-9801
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PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS
March 10, 2009
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INTRODUCTION
The enclosed proxy card (the "Proxy") is solicited by the Board of
Directors (the "Board of Directors") of Salisbury Bancorp, Inc. (the "Company"),
for use at the Special Meeting of Shareholders (the "Special Meeting") to be
held on Tuesday, March 10, 2009, at 10:00 a.m., at The Interlaken Inn, 74
Interlaken Road, Route 112, Lakeville, Connecticut 06039, and at any and all
adjournments thereof. Any Proxy given may be revoked at any time before it is
actually voted on any matter in accordance with the procedures set forth on the
Notice of Special Meeting. This Proxy Statement and the enclosed form of Proxy
are being mailed to shareholders (the "Shareholders") on or about February 9,
2009. The cost of preparing, assembling and mailing this Proxy Statement and the
material enclosed herewith is being borne by the Company. In addition, proxies
may be solicited by Directors, officers and employees of the Company and
Salisbury Bank and Trust Company (the "Bank") personally by telephone or other
means. The Company will reimburse banks, brokers, and other custodians,
nominees, and fiduciaries for their reasonable and actual costs in sending the
proxy materials to the beneficial owners of the Company's common stock (the
"Common Stock"). The Company has engaged Morrow & Co., LLC to assist in the
solicitation of proxies at a fee of $7,500 plus expenses.
If your shares are in a brokerage or fiduciary account, your broker or
bank will send you a voting instruction form instead of a Proxy. Please follow
the instructions on such form to instruct your broker or bank how to vote your
shares. If you wish to attend the Special Meeting and vote your shares in
person, you must follow the instructions on the voting instructions form to
obtain a legal proxy from your broker or bank.
OUTSTANDING STOCK AND VOTING RIGHTS
The Board of Directors has fixed the close of business on February 4, 2009
as the record date (the "Record Date") for the determination of Shareholders
entitled to notice of and to vote at the Special Meeting. As of the Record Date,
1,685,861 shares of the Company's Common Stock (par value $.10 per share) were
outstanding and entitled to vote and held of record by approximately 1,500
Shareholders of Record. Each share of Common Stock is entitled to one vote on
all matters to be presented at the Special Meeting. Votes withheld, abstentions
and broker non-votes are counted only for purposes of determining whether a
quorum is present at the Special Meeting but will the effect of a vote against
Proposal 1.
A Proxy card is enclosed for your use. YOU ARE SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS TO COMPLETE, DATE, SIGN AND RETURN THE PROXY CARD IN THE
ACCOMPANYING ENVELOPE, which is postage-prepaid if mailed in the United States.
If the enclosed form of Proxy is properly executed and received by the
Company in time to be voted at the Special Meeting, the shares represented
thereby will be voted in accordance with the instructions marked thereon.
Executed, but unmarked proxies will be voted "FOR" Proposal 1 discussed in this
Proxy Statement.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Proxy Statement may include forward-looking statements relating to
such matters as:
(a) assumptions concerning future economic and business conditions and
their effect on the economy in general and on the markets in which
the Company and Salisbury Bank and Trust Company (the "Bank") do
business; and
(b) expectations for revenues and earnings for the Company and Bank.
Such forward-looking statements are based on assumptions rather than
historical or current facts and, therefore, are inherently uncertain and subject
to risk. For those statements, the Company claims the protection of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Act of 1995.
The Company notes that a variety of factors could cause the actual results
or experience to differ materially from the anticipated results or other
expectations described or implied by such forward-looking statements. The risks
and uncertainties that may affect the operation, performance, development and
results of the Company's and Bank's business include the following:
(a) the risk of adverse changes in business conditions in the banking
industry generally and in the specific markets in which the Bank
operates;
(b) changes in the legislative and regulatory environment that
negatively impacts the Company and Bank through increased operating
expenses;
(c) increased competition from other financial and non-financial
institutions;
(d) the impact of technological advances; and
(e) other risks detailed from time to time in the Company's filings with
the Securities and Exchange Commission.
Such developments could have an adverse impact on the Company's and the Bank's
financial position and results of operations.
2
PROPOSAL 1
APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION
DESCRIPTION OF THE PROPOSAL
The Board of Directors has adopted an amendment to the Company's
Certificate of Incorporation to authorize a class of 25,000 shares of preferred
stock, par value $0.01 per share (the "Preferred Stock"). The full text of the
proposed amendment to the Company's Certificate of Incorporation is set forth in
Exhibit A to this proxy statement. The Company's Certificate of Incorporation
currently authorizes only the issuance of Common Stock. The proposed amendment
will vest in the Board of Directors the authority to determine by resolution the
terms of one or more series of Preferred Stock, including the preferences,
rights and limitations of each series. Provisions in a company's certificate of
incorporation authorizing preferred stock in this manner are often referred to
as "blank check" provisions, as 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 a 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. The Board of Directors believes that authorization of the
Preferred Stock in the manner proposed will provide the Company with greater
flexibility in meeting future capital requirements by creating series of
Preferred Stock customized to meet the needs of particular transactions and then
prevailing market conditions. Series of Preferred Stock would also be available
for issuance from time to time for any other proper corporate purposes,
including in connection with the redemption of the Preferred Stock described
below, strategic alliances, joint ventures, or acquisitions.
The Board of Directors does not have any plans calling for the issuance of
shares of Preferred Stock at the present time, other than the possible issuance
of Preferred Stock to the U.S. Department of the Treasury (the "Treasury") in
connection with the Treasury's recently announced Troubled Asset Relief Program
("TARP") Capital Purchase Program described below.
TERMS OF THE CAPITAL PURCHASE PROGRAM
On October 14, 2008, the Treasury announced the TARP Capital Purchase
Program. This program encourages U.S. financial institutions to build capital to
increase the flow of financing to U.S. businesses and consumers and to support
the U.S. economy. Under the program, the Treasury will purchase senior preferred
shares from banks, bank holding companies, and other financial institutions. The
senior preferred shares will qualify as Tier 1 capital for regulatory purposes
and will rank senior to common stock and at an equal level in the capital
structure with any existing preferred shares other than preferred shares which
by their terms rank junior to any other existing preferred shares. The senior
preferred shares purchased by the Treasury will pay a cumulative dividend rate
of 5 percent per annum for the first five years they are outstanding and
thereafter at a rate of 9 percent per annum. The senior preferred shares will be
non-voting, other than voting rights on matters that could adversely affect the
shares.The shares will be callable at one hundred percent of their issue price
plus any accrued and unpaid dividends after three years.
3
Prior to the end of three years, the senior preferred shares may be redeemed
with the proceeds from a qualifying equity offering of any Tier 1 perpetual
preferred or common stock.
If dividends on the senior preferred shares are not paid in full for six
dividend periods, whether or not consecutive, the senior preferred shares will
have the right to elect two directors. The right to elect directors will end
when full dividends have been paid for four consecutive dividend periods.
The Treasury will receive warrants to purchase a number of shares of
common stock having an aggregate market price equal to 15% of the senior
preferred shares on the date of investment, subject to reduction as set forth
below. The initial exercise price for the warrants, and the market price for
determining the number of shares of common stock subject to the warrants, will
be the market price for the common stock on the date of the preliminary approval
of the application (calculated on a 20-trading day trailing average), subject to
customary anti-dilution adjustments. The warrants will have a term of ten years.
The warrants will be immediately exercisable, in whole or in part. The warrants
will not be subject to any contractual restrictions on transfer, provided that
the Treasury may only transfer or exercise an aggregate of one-half of the
warrants prior to the earlier of (i) the date on which the issuer has received
aggregate gross proceeds of not less than 100% of the issue price of the senior
preferred shares from one or more Qualified Equity Offerings (the sale by the
issuer after the date of the sale of the senior preferred shares of Tier 1
qualifying perpetual preferred stock or common stock for cash) and (ii) December
31, 2009. In the event that the issuer receives aggregate gross proceeds of not
less than 100% of the issue price of the senior preferred shares from one or
more Qualified Equity Offerings on or prior to December 31, 2009, the number of
shares of common stock underlying the warrants then held by the Treasury will be
reduced by a number of shares equal to the product of (i) the number of shares
originally underlying the warrants (taking into account all adjustments) and
(ii) 0.5.
An issuer participating in the Capital Purchase Program will be required
to file a shelf registration statement with the Securities and Exchange
Commission for the purpose of registering the senior preferred shares, the
warrants and the common stock underlying the warrants as promptly as practicable
after the date of the sale of the senior preferred shares and will take all
action required to cause the shelf registration statement to be declared
effective as soon as possible and maintain the effectiveness of the registration
statement. The issuer will be required to apply for the listing on the national
exchange on which the issuer's common stock is traded of the common stock
underlying the warrants and will take such other steps as may be reasonably
requested to facilitate the transfer of the warrants or the common stock.
The Treasury will agree not to exercise voting power with respect to any
shares of common stock of the issuer issued to it upon exercise of the warrants.
The Treasury's consent also will be required for any increase in common
stock dividends per share or certain repurchases of common stock until the third
anniversary of the date of the investment unless prior to the third anniversary
that the senior preferred shares are issued are redeemed in whole or the
Treasury has transferred all of the senior preferred shares to third parties.
4
Banks and bank holding companies participating in the Capital Purchase
Program also must modify or terminate all benefit plans, arrangements and
agreements (including golden parachute agreements) to the extent necessary to be
in compliance with the executive compensation and corporate governance
requirements of Section 111 of the Emergency Economic Stabilization Act of 2008
and any guidance or regulations issued by the Secretary of the Treasury for the
period during which the Treasury holds equity issued under the Capital Purchase
Program. These standards include: (i) ensuring that incentive compensation for
specified senior executive officers does not encourage unnecessary and excessive
risks that threaten the value of the Company; (ii) requiring a clawback of any
bonus or incentive compensation paid to a specified senior executive officer
based on statements of earnings, gains or other criteria that are later proven
to be materially inaccurate; (iii) prohibiting the Company from making any
golden parachute payment to a specified senior executive officer based on
applicable Internal Revenue Code provisions; and (iv) agreeing not to deduct for
tax purposes executive compensation in excess of $500,000 for each specified
senior officer executive.
The Company has reviewed its executive compensation arrangements and does
not anticipate that it will be necessary to modify any existing employee plans
or contracts to comply with the applicable limits on executive compensation
described above.
See Exhibit B for the Summary of Senior Preferred Terms and Summary of
Warrant Terms as published by the Treasury.
COMPANY PARTICIPATION IN THE CAPITAL PURCHASE PROGRAM
The Company received preliminary approval on January 7, 2009 from the
Treasury to issue and sell up to 8,816 shares of the Preferred Stock and a
warrant to purchase approximately 57,671 shares of Common Stock (the "Warrant")
at an estimated exercise price of $22.93 per share for aggregate consideration
of $8,816,000. Each share of Preferred Stock issued to the Treasury will have a
liquidation preference of $1,000. If the Company sells the maximum amount of
Preferred Stock authorized under the Capital Purchase Program, the Company
estimates that the ownership percentage of the current shareholders would be
diluted by approximately 3.3% if the Warrant were fully exercised.
At September 30, 2008, the Company had capital ratios in excess of those
required to be considered well-capitalized under banking regulations. The Board
of Directors believes it is prudent for the Company to apply for capital
available under the Capital Purchase Program because (i) the Company believes
that the cost of capital under the Capital Purchase Program may be significantly
lower than the cost of capital otherwise available to the Company at this time,
and (ii) despite being well-capitalized, additional capital obtained under the
capital Purchase Program would provide the Company additional flexibility to
meet future capital needs that may arise.
5
The Board of Directors believes that the flexibility to issue shares of
Preferred Stock other than under the Capital Purchase Program can enhance the
Board of Director's arm's-length bargaining capability on behalf of the
Company's shareholders in a takeover situation. However, under some
circumstances, the ability to designate the rights of, and issue, Preferred
Stock could be used by the Board of Directors to make a change in control of the
Company more difficult.
The rights of the holders of the Company's Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future, including that issued under the Capital
Purchase Program. To the extent that dividends will be payable on any issued
shares of Preferred Stock, the result would be to reduce the amount otherwise
available for payment of dividends on outstanding shares of the Company's Common
Stock and there might be restrictions placed on the Company's ability to declare
dividends on the Common Stock or to repurchase shares of Common Stock. The
issuance of any Preferred Stock having voting rights would dilute the voting
power of the holders of Common Stock. To the extent that any Preferred Stock is
made convertible into shares of Common Stock, the effect, upon such conversion,
would also be to dilute the voting power and ownership percentage of the holders
of Common Stock. In addition, holders of Preferred Stock would normally receive
superior rights in the event of any dissolution, liquidation, or winding up of
the Company, thereby diminishing the rights of the holders of Common Stock to
distribution of the Company's assets. Shares of Preferred Stock of any series
would not entitle the holder to any pre-emptive right to purchase or subscribe
for any shares of that or any other class.
The Company has not made a final determination as to whether it will
participate in the Capital Purchase Program or if it does participate, the
extent to which it will do so. Assuming that the amendment to the Certificate of
Incorporation is approved by shareholders, the Board will make a final decision
near to the time of the closing of the sale to the Treasury, which is currently
scheduled to occur on March 13, 2009. Among the factors the Board will consider
are the then-current economic conditions nationally, regionally and locally, the
performance of the Bank at that time, especially of the loan portfolio, the
capital and liquidity positions of the Company and the Bank at that time, and
any restrictions on the use of the proceeds or corporate governance matters
imposed by Congress, the Treasury or bank regulatory authorities between the
date of this Proxy statement and the date that the Board makes the final
determination or are anticipated to be imposed in the future. There can be no
assurance that the Company will participate in the Capital Purchase Program, or
if it does participate, the extent to which it will participate. If the
amendment to the Certificate of Incorporation is approved by shareholders and
the Company does not participate in the Capital Purchase Program, the Preferred
Stock authorized will remain available for future issuance as described above.
6
USE OF PROCEEDS
Subject to limitations on use of proceeds that may be specified by the
Treasury, the Company intends to invest all of the proceeds from the issuance of
the Preferred Stock to the Treasury as equity in the Bank, its wholly-owned
banking subsidiary. The Company has identified the following priorities for the
use of the funds by the Bank: (i) increase, where possible and prudent,
additional consumer and commercial lending to stimulate economic activity in the
Bank's local and regional markets; (ii) strengthen the Bank in the face of an
uncertain and potentially prolonged economic downturn, which could have severe
negative effects upon the national and regional economy and which could provoke
credit or other than temporary impairment losses at the Bank at levels outside
historical norms and (iii) possibly facilitate appropriate acquisitions of bank
branches, or entire banks, whose capacity to flourish or even survive in the
current economy has become suspect. Prior to such deployment, the funds may be
used to reduce borrowings or augment investment securities.
PRO FORMA EFFECT ON THE COMPANY'S FINANCIAL STATEMENTS
The following discusses the pro forma effect of participation in the
Capital Purchase Program on the Company's financial statements. As indicated
above, the Company was notified on January 7, 2009 that the Treasury had
preliminarily approved the Company's application to participate in the Capital
Purchase Program in the amount of $8,816,000. This discussion assumes that the
Company receives the entire $8,816,000.
The pro forma effect of the receipt of $8,816,000 under the Capital
Purchase Program as of September 30, 2008 is as follows:
Minimum For
As Reported Pro Forma as of Regulatory
September 30, 2008 September 30, 2008 "Well-Capitalized"
(dollars in thousands) (dollars in thousands) Designation (1)
---------------------- ---------------------- ------------------
Capital Purchase Program Investment 0 $ 8,816
Total Tier 1 Capital $ 35,358 $ 44,174
Total Tier 2 Capital $ 3,140 $ 3,140
Total Capital (Tier 1 & 2) $ 38,498 $ 47,314
--------------- ------------- -----
Leverage Ratio 7.54% 9.25% 5.00%
Tier 1 Ratio 12.08% 14.65% 6.00%
Total Capital Ratio 13.15% 15.69% 10.00%
(1) Minimum regulatory percentages for banks. All other numbers and percentages
are calculated based on the Company's financial statements.
7
The following unaudited pro forma financial information of the Company for
the fiscal year ended December 31, 2007 and the nine-month period ended
September 30, 2008 show the effect of the receipt of $8,816,000 from the
Treasury pursuant to the Capital Purchase Program upon the issuance of Preferred
Stock and the Warrant. The pro forma financial data is not necessarily
indicative of the financial results that would have resulted had the proceeds of
the Capital Purchase Program been received for the above periods and is not
necessarily indicative of the results that the Company will achieve in the
future. The Company can provide no assurance that the pro forma results will be
achieved.
The Company has included the following unaudited pro forma financial
information solely for the purpose of providing shareholders with information
that may be useful for purposes of considering and evaluating the proposal to
amend the Company's Certificate of Incorporation. The Company's future results
are subject to prevailing economic, industry specific conditions, financial,
business and other known and unknown risks, and uncertainties, certain of which
are beyond the Company's control. These factors include, without limitation,
those described in this Proxy Statement under "Cautionary Statement Concerning
Forward-Looking Statements" and those described in the Company's Annual Report
on Form 10-K for the year ended December 31, 2007 and Quarterly Report on Form
10-Q for the quarter ended September 30, 2008, which are specifically
incorporated by reference in this Proxy Statement.
8
Pro Forma Effect - Balance Sheet
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2008
(DOLLARS IN THOUSANDS)
(UNAUDITED)
As of
09/30/08 Pro Forma Adjustments Pro Forma
---------- ---------------------- ----------
Balance Sheet Data:
ASSETS
Cash and due from banks $ 12,741 $ 0 $ 12,741
Securities available for sale, at fair 144,482 0 144,482
value
Loans, net of allowance for loan losses (1) 293,740 8,816 302,556
Other Assets 34,687 0 34,687
---------- ---------- ----------
TOTAL ASSETS $ 485,650 $ 8,816 $ 494,466
========== ========== ==========
LIABILITIES
Total deposits $ 344,608 0 $ 344,608
Borrowings 98,861 0 98,861
Other Liabilities 3,461 0 3,461
---------- ---------- ----------
TOTAL LIABILITIES 446,930 0 446,930
---------- ---------- ----------
SHAREHOLDERS' EQUITY
Preferred Stock (1) (2) $ 0 $ 8,816 $ 8,816
Capital Stock 169 0 169
Warrants (2) (4) 0 112 112
Discount on Preferred Stock (2) (3) 0 (112) (112)
Surplus 13,158 0 13,158
Retained Earnings 34,037 0 34,037
Accumulated other comprehensive (loss)
income (8,644) 0 (8,644)
---------- ---------- ----------
TOTAL SHAREHOLDERS'EQUITY 38,720 8,816 47,536
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 485,650 $ 8,816 $ 494,466
========== ========== ==========
(1) Pro forma amounts are based on the investment by the Treasury pursuant to
the Capital Purchase Program of the maximum amount of $8,816,000 for which the
Company has received preliminary approval. The Company expects ultimately to
utilize the proceeds to (i) increase, where prudent, consumer and commercial
lending; (ii) strengthen the Bank and (iii) when appropriate, facilitate the
acquisition of bank branches or entire banks. Prior to such deployment, the
proceeds may be used to reduce borrowings or augment investment securities.
Expenses related to the issuance of the Preferred Stock and the Warrant to the
Treasury are expected to be immaterial and have not been deducted from the sale
proceeds.
9
(2) The proceeds from the sale of the securities to the Treasury would be
allocated between the Preferred Stock and the Warrant based on their relative
fair values on the issue date. The fair value of the Warrant would be determined
using the Black-Scholes model, which includes assumptions regarding the price of
the Common Stock, dividend yield and stock price volatility, as well as
assumptions regarding the risk-free interest rate. The fair value of the
Preferred Stock issued to the Treasury would be determined based on assumptions
regarding the discount rate (market rate) on the Preferred Stock
(3) The discount on the Preferred Stock issued to the Treasury would be
determined based on the value that is allocated to the Warrant upon issuance and
would be accreted back to the value of the Preferred Stock over a five-year
period upon issuance.
(4) Assuming participation in the Capital Purchase Program in the maximum amount
of $8,816,000 for which the Company has received preliminary approval, based on
an exercise price of $22.93 per share for the Warrant, the Company estimates
that the Warrant would give the Treasury the right to purchase approximately
57,671 shares of Common Stock.
Pro Forma Effect - Income Statements
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
PRO FORMA IMPACT OF MAXIMUM ESTIMATED PROCEEDS
$8,816,000 PREFERRED AND WARRANTS FOR 57,671 SHARES
FOR THE YEAR ENDED DECEMBER 31, 2007
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Pro Forma
Historical 12 Months
12 Months Ended
Ended Adjustments 12/31/07
12/31/07 (unaudited) (unaudited)
--------------- --------------- ------------------
Net Interest Income $ 13,720 $ 572(1) $ 14,292
Loan Loss Provision 0 0
--------------- --------------- ------------------
Net Interest Income after Provision 13,720 572 14,292
Noninterest Income 4,465 4,465
Noninterest Expense 13,514 13,514
--------------- --------------- ------------------
Income/(Loss) Before Taxes 4,671 572 5,243
Provision for Income Taxes 870 126(2) 996
--------------- --------------- ------------------
Income before Preferred Dividends 3,801 446 4,427
Less: Preferred Dividends 0 441(3) 441
--------------- --------------- ------------------
Income available to common shareholders $ 3,801 $ 5 $ 3,806
=============== =============== ==================
Basic Earnings Per Share $ 2.26 $ 0 $ 2.26
=============== =============== ==================
Diluted Earnings Per Share $ 2.26 $ 0 $ 2.23
=============== =============== ==================
Weighted Average Shares Outstanding:
Basic 1,684,699 0 1,684,699
Diluted 1,684,699 19,484(4) 1,704,183
(1) Assumes maximum Capital Purchase Program proceeds of $8,816,000 are used to
increase loans at an assumed average annualized yield of approximately 6.49%.
The actual impact to net interest income could be different as the Company
expects ultimately to utilize a portion of the proceeds to (i) increase, where
prudent, consumer and commercial lending; (ii) strengthen the Bank and (iii)
when appropriate facilitate the acquisition of bank branches or entire banks.
Prior to such deployment, the proceeds may be used to reduce borrowings or
augment investment securities. Expenses related to the issuance of the Preferred
Stock and the Warrant to the Treasury are expected to be immaterial and have not
been deducted from the sale proceeds.
10
(2) Additional income tax expense is attributable to additional net interest
income as described in Note (1).
(3) Consists of dividends on the Preferred Stock at a 5% annual rate as well as
accretion on discount on the Preferred Stock upon issuance. The discount is
determined based on the value that is allocated to the Warrant upon issuance.
The discount is accreted back to par value over a five-year term, which is the
expected life of the Preferred Stock upon issuance. The estimated accretion is
based on a number of assumptions, which are subject to change. These assumptions
include the discount (market rate at issuance) rate on the Preferred Stock and
assumptions underlying the value of the Warrant. The estimated proceeds are
allocated based on the relative fair value of the Warrant as compared to the
fair value of the Preferred Stock. The fair value of the Warrant is determined
under a Black-Scholes model. The model includes assumptions regarding the Common
Stock price, dividend yield, stock price volatility, as well as assumptions
regarding the risk-free interest rate. The lower the value of the Warrant, the
lower is the negative impact on net income and earnings per share available to
common shareholders. The fair value of the Preferred Stock is determined based
on assumptions regarding the discount rate (market rate) on the Preferred Stock.
The lower the discount rate, the lower is the negative impact on net income and
earnings per share available to common shareholders.
(4) Assuming participation in the Capital Purchase Program in the maximum amount
of $8,816,000 for which the Company has received preliminary approval, based on
an exercise price of $22.93 per share for the Warrant, the Company estimates
that the Warrant would give the Treasury the right to purchase approximately
57,671 shares of Common Stock. The pro forma adjustment shows the increase in
diluted shares outstanding assuming that the Warrants had been issued on January
1, 2007 at the strike price of $22.93 and remained outstanding for the entire
period presented. The treasury stock method was utilized to determine dilution
of the Warrant for the period presented.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
PRO FORMA IMPACT OF MAXIMUM ESTIMATED PROCEEDS
$8,816,000 PREFERRED AND WARRANTS FOR 57,671 SHARES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Historical Pro Forma
9 Months 9 Months
Ended Ended
09/30/08 Adjustments 09/30/08
--------------- -------------- -------------
Net Interest Income $ 11,666 $ 411(1) $ 12,077
Loan Loss Provision 690 690
--------------- -------------- -------------
Net Interest Income after Provision 10,976 411 11,387
Noninterest Income
1,241 1,241
Noninterest Expense 11,183 11,183
--------------- -------------- -------------
Income/(Loss) Before Taxes 1,034 411 1,445
Provision for Income Taxes 882 90(2) 972
--------------- -------------- -------------
Income before Preferred Dividends 152 321 473
Less: Preferred Dividends 0 331(3) 331
--------------- -------------- -------------
Income available to common shareholders $ 152 $ (10) $ 142
=============== ============== =============
Basic Earnings Per Share $ 0.09 $ 0 $ 0.08
=============== ============== =============
Diluted Earnings Per Share $ 0.09 $ 0 $ 0.08
=============== ============== =============
Weighted Average Shares Outstanding:
Basic 1,685,444 1,685,444
Diluted 1,685,444 14,708(4) 1,700,152
11
(1) Assumes maximum Capital Purchase Program proceeds of $8,816,000 are used to
increase loans at an assumed average annualized yield of approximately 6.21%.
The actual impact to net interest income could be different as the Company
expects ultimately to utilize a portion of the proceeds to (i) increase, where
prudent, consumer and commercial lending; (ii) strengthen the Bank and (iii)
when appropriate facilitate the acquisition of bank branches or entire banks.
Prior to such deployment, the proceeds may be used to reduce borrowings or
augment investment securities. Expenses related to the issuance of the Preferred
Stock and the Warrant to the Treasury are expected to be immaterial and have not
been deducted from the sale proceeds.
(2) Additional income tax expense is attributable to additional net interest
income as described in Note (1).
(3) Consists of dividends on the Preferred Stock at a 5% annual rate as well as
accretion on discount on the Preferred Stock upon issuance. The discount is
determined based on the value that is allocated to the Warrant upon issuance.
The discount is accreted back to par value over a five-year term, which is the
expected life of the Preferred Stock upon issuance. The estimated accretion is
based on a number of assumptions, which are subject to change. These assumptions
include the discount (market rate at issuance) rate on the Preferred Stock and
assumptions underlying the value of the Warrant. The estimated proceeds are
allocated based on the relative fair value of the Warrant as compared to the
fair value of the Preferred Stock. The fair value of the Warrant is determined
under a Black-Scholes model. The model includes assumptions regarding the Common
Stock price, dividend yield, stock price volatility, as well as assumptions
regarding the risk-free interest rate. The lower the value of the Warrant, the
lower is the negative impact on net income and earnings per share available to
common shareholders. The fair value of the Preferred Stock is determined based
on assumptions regarding the discount rate (market rate) on the Preferred Stock.
The lower the discount rate, the lower is the negative impact on net income and
earnings per share available to common shareholders.
(4) Assuming participation in the Capital Purchase Program in the maximum amount
of $8,816,000 for which the Company has received preliminary approval, based on
an exercise price of $22.93 per share for the Warrant, the Company estimates
that the Warrant would give the Treasury the right to purchase approximately
57,671 shares of Common Stock. The pro forma adjustment shows the increase in
diluted shares outstanding assuming that the Warrants had been issued on January
1, 2008 at the strike price of $22.93 and remained outstanding for the entire
period presented. The treasury stock method was utilized to determine dilution
of the Warrant for the period presented.
APPROVAL REQUIREMENT AND BOARD OF DIRECTORS RECOMMENDATION
Approval of the proposed amendment to the Company's Certificate of
Incorporation requires the approval of at least a majority of the votes entitled
to be cast at the meeting.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND THE
COMPANY'S CERTIFICATE OF INCORPORATION.
12
OTHER BUSINESS
The Company is not aware of any business to be acted upon at the Special
Meeting other than that which is discussed in this Proxy Statement. In the event
that any other business requiring a vote of the Shareholders is properly
presented at the Special Meeting, the holders of the Proxies will vote your
shares in accordance with their best judgment and the recommendations of a
majority of the Board of Directors.
You are encouraged to exercise your right to vote by marking the
appropriate boxes and dating and signing the enclosed Proxy card. The Proxy card
may be returned in the enclosed envelope, postage-prepaid if mailed in the
United States. In the event that you are later able to attend the Special
Meeting, you may revoke your Proxy and vote your shares in person. A prompt
response will be helpful and your cooperation is appreciated.
SECURITY OWNERSHIP OF MANAGEMENT AND SHAREHOLDERS
The following table sets forth certain information as of December 31, 2008
regarding the number of shares of Common Stock beneficially owned by each
Director and Executive Officer of the Company and by all Directors and Executive
Officers of the Company as a group. Management is not aware of any person
(including any "group" as defined in Rule 13(d)(3) of the Securities and
Exchange Commission (the "SEC")) who owns beneficially more than 5% of the
Common Stock as of December 31, 2008.
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership (1) Percent of Class (2)
--------------------------------------- ------------------------ --------------------
Louis E. Allyn, II 1,481 .09%
John R. H. Blum 16,365(3) .97%
Louise F. Brown 2,928 .17%
Richard J. Cantele, Jr. 3,006(4) .18%
Robert S. Drucker 8,468(5) .50%
John F. Foley 7,443(6) .44%
Nancy F. Humphreys 1,840(7) .11%
Holly J. Nelson 1,888(8) .11%
John F. Perotti 11,454(9) .68%
Michael A. Varet 66,486(10) 3.94%
----------------------------------------- ---------- ---------
(All Directors and Executive Officers of 121,359 7.20%
the Company as a group of ten (10)
persons)
----------
(1) The shareholdings also include, in certain cases, shares owned by or in
trust for a director's spouse and/or children or grandchildren, and in
which all beneficial interest has been disclaimed by the Director or has
the right to acquire such security within sixty (60) days of December 31,
2008.
13
(2) Percentages are based upon the 1,685,861 shares of the Company's Common
Stock outstanding and entitled to vote on December 31, 2008. The
definition of beneficial owner includes any person who, directly or
indirectly, through any contract, agreement or understanding, relationship
or otherwise, has or shares voting power or investment power with respect
to such security.
(3) Includes 2,100 shares owned by John R. H. Blum's spouse.
(4) Includes 1,320 shares owned jointly by Richard J. Cantele, Jr. and his
spouse and 6 shares owned by Richard J. Cantele, Jr. as custodian for his
daughter.
(5) Includes 1,500 shares owned by Robert S. Drucker's spouse.
(6) Includes 3,322 shares owned jointly by John F. Foley and his spouse, 1,543
owned by his spouse and 100 shares owned by John F. Foley as custodian for
his children.
(7) Includes 1,000 shares owned jointly by Nancy F. Humphreys and her spouse.
(8) Includes 6 shares owned by Holly J. Nelson as guardian for a minor child.
(9) Includes 9,514 shares owned jointly by John F. Perotti and his spouse,
1,100 shares owned by his spouse and 564 shares owned by his son, of which
shares owned by his spouse and son, John F. Perotti has disclaimed
beneficial ownership.
(10) Includes 18,540 shares which are owned by his spouse and 18,546 shares
which are owned by his children, of which shares Michael A. Varet has
disclaimed beneficial ownership.
IMPORTANT NOTICE REGARDING THE AVAILABILTY OF PROXY MATERIALS FOR THE SPECIAL
SHAREHOLDER MEETING TO BE HELD ON APRIL 10, 2009
THIS NOTICE AND PROXY STATEMENT ARE AVAILABLE AT WWW.CFPPROXY.COM/4607.
Directions to the Interlaken Inn, 74 Interlaken Road, Route 112,
Lakeville, Connecticut, may be obtained by writing to John F. Foley, Secretary,
Salisbury Bancorp, Inc. 5 Bissell Street, PO Box 1868, Lakeville, CT 06039-1868,
by calling 1-860-435-9801 or toll-free at 1-800-222-9801.
14
DEADLINE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
Any proposal that a Company shareholder wishes to have included in the
Company's Proxy Statement and form of Proxy relating to the Company's 2009
Annual Meeting of Shareholders under Rule 14a-8 of the SEC must have been
received by the Company's Secretary by December 8, 2008.
In addition, under the Company's Bylaws, shareholders who wish to nominate
a director or bring other business before an annual meeting must comply with the
following:
o You must be a shareholder of record and must have given notice in writing
to the Secretary of the Company (a) not less than twenty (20) days nor
more than one hundred thirty (130) days prior to the meeting with respect
to matters other than the nomination of directors and (b) not less than
thirty (30) days nor more than fifty (50) days prior to the meeting with
respect to the nomination of directors.
o Your notice must contain specific information required in the Company's
Bylaws.
Nominations and proposals should be addressed to John F. Foley, Secretary,
Salisbury Bancorp, Inc., 5 Bissell Street, PO Box 1868, Lakeville, CT
06039-1868.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We do not anticipate that representatives from Shatswell, MacLeod &
Company, P.C. will be present and available to respond to questions or make a
statement at the Special Meeting.
15
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC's rules allow the Company to "incorporate by reference" into this
Proxy Statement certain information the Company files with the SEC. Any
information incorporated by reference into this Proxy Statement is considered to
be part of this Proxy Statement. Any reports filed by the Company with the SEC
after the date of this Proxy Statement will automatically update and, where
applicable, supersede any information contained in this Proxy Statement or
incorporated by reference in this Proxy Statement.
The Company incorporates by reference the following financial statements
and other portions of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2007 as filed with the SEC on March 28, 2008 (the "Form
10-K") and the Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2008 as filed with the SEC on November 13, 2008 (the "Form 10-Q"):
o The audited consolidated financial statements and notes thereto and
supplementary data as of and for the fiscal year ended December 31, 2007
appearing in Part II, Item 8 of the Form 10-K;
o The unaudited condensed consolidated financial statements and notes
thereto as of and for the three and nine months ended September 30, 2008
appearing in Part I, Item 1 of the Form 10-Q;
o Management's Discussion and Analysis of Financial Condition and Results of
Operations appearing in Part II, Item 7 of the Form 10-K and Part I, Item
2 of the Form 10-Q; and
o Changes in and Disagreements with Accountants appearing in Part II, Item 9
of the Form 10-K.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Proxy Statement is delivered, upon his or her
written or oral request, by first class mail or other equally prompt means
within one business day of receipt of such request, a copy of any or all
documents referred to above that have been or may be incorporated by reference
into this Proxy Statement, excluding exhibits to those documents unless they are
specifically incorporated by reference into those documents. Copies of these
filings may be requested, at no cost, by contacting John F. Foley, Secretary,
Salisbury Bancorp, Inc., at 5 Bissell Street, PO Box 1868, Lakeville, CT
06039-1868 or by telephone at 1-860-435-9801 or toll-free at 1-800-222-9801.
By order of the Board of Directors
/s/ John F. Foley
--------------------------
John F. Foley
Secretary
Lakeville, Connecticut
February 9, 2009
16
Exhibit A
-----------
PROPOSED AMENDMENT TO
CERTIFICATE OF INCORPORATION
OF
SALISBURY BANCORP, INC.
Article THIRD shall be amended and restated in its entirety as follows:
THIRD: Capital Stock. The amount of the capital stock of the Corporation
hereby authorized is three million (3,000,000) shares of Common Stock, par
value $0.10 per share and twenty-five thousand (25,000) shares of
Preferred Stock, par value $0.01 per share.
A. Common Stock.
Each holder of shares of Common Stock shall be entitled to one vote
for each share held by such holder. There shall be no cumulative
voting rights in the election of directors. Each share of Common
Stock shall have the same relative rights as and be identical in all
respects with all other shares of Common Stock. The voting, dividend
and liquidation rights of the Common stock are subject to and
qualified by the rights of the holders of the Preferred Stock of any
series as may be determined by the Board of Directors before the
issuance of any series of Preferred Stock.
B. Preferred Stock.
(1) General. Preferred Stock may be issued from time to time
in one or more series, each to have such terms as are set
forth herein and in the resolutions of the Board of Directors
authorizing the issue of such series. Any shares of Preferred
Stock which may be redeemed, purchased or otherwise acquired
by the Corporation may be reissued. Different series of
Preferred Stock shall not be construed to constitute different
classes of shares for the purposes of voting by classes unless
expressly so provided.
(2) Authority of Board of Directors. The Board of Directors
may from time to time issue the Preferred Stock in one or more
series. The Board of Directors may, in connection with the
creation of any such series, determine the preferences,
limitations and relative rights of each such series before the
issuance of such series. Without limiting the foregoing, the
Board of Directors may fix the voting powers, dividend rights,
conversion rights, redemption privileges and liquidation
preferences, all as the Board of Directors deems appropriate,
to the full extent now or hereafter permitted by the
Connecticut Business Corporation Act.
A-1
The resolutions providing for issuance of any series of
Preferred Stock may provide that such series shall be superior
or rank equally or be junior to the Preferred Stock of any
other series to the extent permitted by law. Except as
otherwise provided in this Certificate of Incorporation, no
vote of the holders of the Preferred Stock or Common Stock
shall be a prerequisite to the designation or issuance of
shares of any series of the Preferred Stock authorized by and
complying with the conditions of this Certificate of
Incorporation and the Connecticut Business Corporation Act.
C. No shareholder of the Corporation shall by reason of his holding
shares of capital stock of the Corporation have any preemptive or
preferential rights to purchase or subscribe to any share of any
class of stock of the Corporation, now or hereafter to be
authorized, or to any notes, debentures, bonds or other securities
(whether or not convertible into or carrying options or warrants to
purchase shares of any class of capital stock) now or hereafter to
be authorized, excepting only such preemptive or preferential
rights, warrants or options as the Board of Directors in its
discretion may grant from time to time; and the Board of Directors
may issue shares of any class of stock of the Corporation, or any
notes, debentures, bonds or other securities (whether or not
convertible into or carrying rights, options or warrants to purchase
shares of any class of capital stock) without offering any such
shares to the existing Shareholders of the Corporation.
A-2
Exhibit B
---------
TARP CAPITAL PURCHASE PROGRAM
SENIOR PREFERRED STOCK AND WARRANTS
SUMMARY OF SENIOR PREFERRED TERMS
Issuer: Qualifying Financial Institution ("QFI") means (i) any U.S. bank or U.S.
savings association not controlled by a Bank Holding Company ("BHC")or Savings
and Loan Holding Company ("SLHC"); (ii) any U.S. BHC, or any U.S. SLHC which
engages only in activities permitted for financial holdings companies under
Section 4(k) of the Bank Holding Company Act, and any U.S. bank or U.S. savings
association controlled by such a qualifying U.S. BHC or U.S. SLHC; and (iii) any
U.S. BHC or U.S. SLHC whose U.S. depository institution subsidiaries are the
subject of an application under Section 4(c)(8) of the Bank Holding Company Act;
except that QFI shall not mean any BHC, SLHC, bank or savings association that
is controlled by a foreign bank or company. For purposes of this program, "U.S.
bank", "U.S. savings association", "U.S. BHC" and "U.S. SLHC" means a bank,
savings association, BHC or SLHC organized under the laws of the United States
or any State of the United States, the District of Columbia, any territory or
possession of the United States, Puerto Rico, Northern Mariana Islands, Guam,
American Samoa, or the Virgin Islands. The United States Department of the
Treasury will determine eligibility and allocation for QFIs after consultation
with the appropriate Federal banking agency.
Initial Holder: United States Department of the Treasury (the "UST").
Size: QFIs may sell preferred to the UST subject to the limits and terms
described below.
Each QFI may issue an amount of Senior Preferred equal to not less than 1% of
its risk-weighted assets and not more than the lesser of (i) $25 billion and
(ii) 3% of its risk-weighted assets.
Security: Senior Preferred, liquidation preference $1,000 per share. (Depending
upon the QFI's available authorized preferred shares, the UST may agree to
purchase Senior Preferred with a higher liquidation preference per share, in
which case the UST may require the QFI to appoint a depositary to hold the
Senior Preferred and issue depositary receipts.)
Ranking: Senior to common stock and pari passu with existing preferred shares
other than preferred shares which by their terms rank junior to any existing
preferred shares.
Regulatory Capital Status: Tier 1.
Term: Perpetual life.
Dividend: The Senior Preferred will pay cumulative dividends at a rate of 5% per
annum until the fifth anniversary of the date of this investment and thereafter
at a rate of 9% per annum.
B-1
For Senior Preferred issued by banks which are not subsidiaries of holding
companies, the Senior Preferred will pay non-cumulative dividends at a rate of
5% per annum until the fifth anniversary of the date of this investment and
thereafter at a rate of 9% per annum. Dividends will be payable quarterly in
arrears on February 15, May 15, August 15 and November 15 of each year.
Redemption: Senior Preferred may not be redeemed for a period of three years
from the date of this investment, except with the proceeds from a Qualified
Equity Offering (as defined below) which results in aggregate gross proceeds to
the QFI of not less than 25% of the issue price of the Senior Preferred. After
the third anniversary of the date of this investment, the Senior Preferred may
be redeemed, in whole or in part, at any time and from time to time, at the
option of the QFI. All redemptions of the Senior Preferred shall be at 100% of
its issue price, plus (i) in the case of cumulative Senior Preferred, any
accrued and unpaid dividends and (ii) in the case of noncumulative Senior
Preferred, accrued and unpaid dividends for the then current dividend period
(regardless of whether any dividends are actually declared for such dividend
period), and shall be subject to the approval of the QFI's primary federal bank
regulator.
"Qualified Equity Offering" shall mean the sale by the QFI after the date of
this investment of Tier 1 qualifying perpetual preferred stock or common stock
for cash.
Following the redemption in whole of the Senior Preferred held by the UST, the
QFI shall have the right to repurchase any other equity security of the QFI held
by the UST at fair market value.
Restrictions on Dividends: For as long as any Senior Preferred is outstanding,
no dividends may be declared or paid on junior preferred shares, preferred
shares ranking pari passu with the Senior Preferred, or common shares (other
than in the case of pari passu preferred shares, dividends on a pro rata basis
with the Senior Preferred), nor may the QFI repurchase or redeem any junior
preferred shares, preferred shares ranking pari passu with the Senior Preferred
or common shares, unless (i) in the case of cumulative Senior Preferred all
accrued and unpaid dividends for all past dividend periods on the Senior
Preferred are fully paid or (ii) in the case of non-cumulative Senior Preferred
the full dividend for the latest completed dividend period has been declared and
paid in full.
Common dividends: The UST's consent shall be required for any increase in common
dividends per share until the third anniversary of the date of this investment
unless prior to such third anniversary the Senior Preferred is redeemed in whole
or the UST has transferred all of the Senior Preferred to third parties.
Repurchases: The UST's consent shall be required for any share repurchases
(other than (i) repurchases of the Senior Preferred and (ii) repurchases of
junior preferred shares or common shares in connection with any benefit plan in
the ordinary course of business consistent with past practice) until the third
anniversary of the date of this investment unless prior to such third
anniversary the Senior Preferred is redeemed in whole or the UST has transferred
all of the Senior Preferred to third parties.In addition, there shall be no
share repurchases of junior preferred shares, preferred shares ranking pari
passu with the Senior Preferred, or common shares if prohibited as described
above under "Restrictions on Dividends".
B-2
Voting rights: The Senior Preferred shall be non-voting, other than class voting
rights on (i) any authorization or issuance of shares ranking senior to the
Senior Preferred, (ii) any amendment to the rights of Senior Preferred, or (iii)
any merger, exchange or similar transaction which would adversely affect the
rights of the Senior Preferred. If dividends on the Senior Preferred are not
paid in full for six dividend periods, whether or not consecutive, the Senior
Preferred will have the right to elect 2 directors. The right to elect directors
will end when full dividends have been paid for four consecutive dividend
periods.
Transferability: The Senior Preferred will not be subject to any contractual
restrictions on transfer. The QFI will file a shelf registration statement
covering the Senior Preferred as promptly as practicable after the date of this
investment and, if necessary, shall take all action required to cause such shelf
registration statement to be declared effective as soon as possible. The QFI
will also grant to the UST piggyback registration rights for the Senior
Preferred and will take such other steps as may be reasonably requested to
facilitate the transfer of the Senior Preferred including, if requested by the
UST, using reasonable efforts to list the Senior Preferred on a national
securities exchange. If requested by the UST, the QFI will appoint a depositary
to hold the Senior Preferred and issue depositary receipts.
Executive Compensation: As a condition to the closing of this investment, the
QFI and its senior executive officers covered by the EESA shall modify or
terminate all benefit plans, arrangements and agreements (including golden
parachute agreements) to the extent necessary to be in compliance with, and
following the closing and for so long as UST holds any equity or debt securities
of the QFI, the QFI shall agree to be bound by, the executive compensation and
corporate governance requirements of Section 111 of the EESA and any guidance or
regulations issued by the Secretary of the Treasury on or prior to the date of
this investment to carry out the provisions of such subsection. As an additional
condition to closing, the QFI and its senior executive officers covered by the
EESA shall grant to the UST a waiver releasing the UST from any claims that the
QFI and such senior executive officers may otherwise have as a result of the
issuance of any regulations which modify the terms of benefits plans,
arrangements and agreements to eliminate any provisions that would not be in
compliance with the executive compensation and corporate governance requirements
of Section 111 of the EESA and any guidance or regulations issued by the
Secretary of the Treasury on or prior to the date of this investment to carry
out the provisions of such subsection.
SUMMARY OF WARRANT TERMS
Warrant: The UST will receive warrants to purchase a number of shares of common
stock of the QFI having an aggregate market price equal to 15% of the Senior
Preferred amount on the date of investment, subject to reduction as set forth
below under "Reduction". The initial exercise price for the warrants, and the
market price for determining the number of shares of common stock subject to the
warrants, shall be the market price for the common stock on the date of the
Senior Preferred investment (calculated on a 20-trading day trailing average),
subject to customary anti-dilution adjustments. The exercise price shall be
reduced by 15% of the original price on each six-month anniversary of the issue
date of the warrants if the consent of the QFI stockholders described below has
not been received, subject to a maximum reduction of 45% of the original
exercise price.
B-3
Term: 10 years.
Exercisability: Immediately exercisable, in whole or in part.
Transferability: The warrants will not be subject to any contractual
restrictions on transfer; provided that the UST may only transfer or exercise an
aggregate of one-half of the warrants prior to the earlier of (i) the date on
which the QFI has received aggregate gross proceeds of not less than 100% of the
issue price of the Senior Preferred from one or more Qualified Equity Offerings
and (ii) December 31, 2009. The QFI will file a shelf registration statement
covering the warrants and the common stock underlying the warrants as promptly
as practicable after the date of this investment and, if necessary, shall take
all action required to cause such shelf registration statement to be declared
effective as soon as possible. The QFI will also grant to the UST piggyback
registration rights for the warrants and the common stock underlying the
warrants and will take such other steps as may be reasonably requested to
facilitate the transfer of the warrants and the common stock underlying the
warrants. The QFI will apply for the listing on the national exchange on which
the QFI's common stock is traded of the common stock underlying the warrants and
will take such other steps as may be reasonably requested to facilitate the
transfer of the warrants or the common stock.
Voting: The UST will agree not to exercise voting power with respect to any
shares of common stock of the QFI issued to it upon exercise of the warrants.
Reduction: In the event that the QFI has received aggregate gross proceeds of
not less than 100% of the issue price of the Senior Preferred from one or more
Qualified Equity Offerings on or prior to December 31, 2009, the number of
shares of common stock underlying the warrants then held by the UST shall be
reduced by a number of shares equal to the product of (i) the number of shares
originally underlying the warrants (taking into account all adjustments) and
(ii) 0.5.
Consent: In the event that the QFI does not have sufficient available authorized
shares of common stock to reserve for issuance upon exercise of the warrants
and/or stockholder approval is required for such issuance under applicable stock
exchange rules, the QFI will call a meeting of its stockholders as soon as
practicable after the date of this investment to increase the number of
authorized shares of common stock and/or comply with such exchange rules, and to
take any other measures deemed by the UST to be necessary to allow the exercise
of warrants into common stock.
Substitution: In the event the QFI is no longer listed or traded on a national
securities exchange or securities association, or the consent of the QFI
stockholders described above has not been received within 18 months after the
issuance date of the warrants, the warrants will be exchangeable, at the option
of the UST, for senior term debt or another economic instrument or security of
the QFI such that the UST is appropriately compensated for the value of the
warrant, as determined by the UST.
B-4
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
REVOCABLE PROXY
SALISBURY BANCORP, INC.
THIS PROXY SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF SALISBURY BANCORP, INC.
The undersigned holder(s) of the Common Stock of Salisbury Bancorp, Inc.
(the "Company") do hereby nominate, constitute and appoint ____________________
and ______________________ jointly and severally, proxies with full power of
substitution, for us and in our name, place and stead to vote all the Common
Stock of the Company, standing in our name on February 4, 2009 at the Special
Meeting of its Shareholders to be held at The Interlaken Inn, 74 Interlaken
Road, Route 112, Lakeville, Connecticut on Tuesday, March 10, 2009 at 10:00 a.m.
or any adjournment thereof with all the powers the undersigned would possess if
personally present, as follows:
(1) APPROVAL of an amendment to the Company's Certificate of Incorporation to
authorize 25,000 shares of preferred stock, par value $0.01 per share.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(2) OTHER BUSINESS: To conduct whatever other business may properly be brought
before the Special Meeting or any adjournment thereof. Management at
present knows of no other business to be presented by or on behalf of the
Company or its Management at the Special Meeting. In the event that any
other business requiring a vote of the Shareholders is properly presented
at the Special Meeting, the holders of the proxies will vote your shares
in accordance with their best judgment and the recommendations of a
majority of the Board of Directors.
PLEASE CHECK THE BOX IF YOU PLAN TO ATTEND THE MEETING [ ]
Please be sure to sign and date Date ____________, 2009
this Proxy in the box below.
----------------------- -----------------------------
Shareholder sign above Co-holder (if any) sign above
--------------------------------------------------------------------------------
Detach above card, date, sign and mail in postage-prepaid envelope provided.
SALISBURY BANCORP, INC.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL (1).
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATION INDICATED.
IF NO SPECIFICATION IS INDICATED, THIS PROXY WILL BE VOTED "FOR" PROPOSAL (1)
AND IN ACCORDANCE WITH THE DETERMINATION OF A MAJORITY OF THE BOARD OF DIRECTORS
AS TO OTHER MATTERS.
All joint owners must sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title. If more than one
trustee, all must sign.
THIS PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE MEETING BY PROVIDING
WRITTEN NOTICE TO THE COMPANY SECRETARY OR MAY BE WITHDRAWN AND YOU MAY VOTE IN
PERSON SHOULD YOU ATTEND THE SPECIAL MEETING.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
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IF YOUR ADDRESS HAS CHANGED, PLEASE CORRECT THE ADDRESS IN THE SPACE PROVIDED
BELOW AND RETURN THIS PORTION WITH THE PROXY IN THE ENVELOPE PROVIDED.