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NORTHWAY NORTHWAY FINANCIAL, INC.
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FINANCIAL
April 12, 2004
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of Northway Financial, Inc., to be held on Tuesday, May 25, 2004 at 2:00 p.m. at
The Town and Country Motor Inn, Route 2, Shelburne, New Hampshire 03581.
At the annual meeting you will be asked to consider and act upon the
following:
(1) to elect four (4) class I directors to serve until the 2007 Annual
Meeting of Stockholders or until their successors are duly elected
and qualified; and
(2) to transact such other business as may come properly before the
meeting and any adjournments or postponements thereof.
I, along with the other members of the Board of Directors, look forward
to greeting you personally at the Annual Meeting. However, whether or not you
plan to attend personally and regardless of the number of shares you own, it is
important that your shares be represented. YOU ARE URGED TO PROMPTLY SIGN, DATE
AND MAIL THE ENCLOSED PROXY IN THE POSTAGE-PAID ENVELOPE PROVIDED FOR YOUR
CONVENIENCE.
This will not prevent you from voting in person but will assure that
your vote is counted if you are unable to attend.
Very truly yours,
William J. Woodward
Chairman of the Board
9 Main Street, Berlin, New Hampshire 03570/Telephone 603-752-1171
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NORTHWAY
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FINANCIAL
NORTHWAY FINANCIAL, INC.
9 MAIN STREET
BERLIN, NEW HAMPSHIRE 03570
TELEPHONE 603-752-1171
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, MAY 25, 2004
NOTICE IS HEREBY GIVEN THAT the Annual Meeting of Stockholders of
Northway Financial, Inc. will be held on Tuesday, May 25, 2004 at 2:00 p.m. at
The Town and Country Motor Inn, Route 2, Shelburne, New Hampshire 03581 for the
following purposes:
(1) To elect four (4) class I directors to serve until the 2007 Annual
Meeting of Stockholders or until their successors are duly elected
and qualified; and
(2) To transact such other business as may come properly before the
meeting and any adjournments or postponements thereof.
The foregoing items are more fully described in the Proxy Statement
accompanying this Notice.
The Board of Directors has fixed the close of business on March 26, 2004
as the record date for determining stockholders entitled to notice of and to
vote at the Annual Meeting and any adjournments or postponements thereof. Only
holders of common stock of record at the close of business on that date will be
entitled to notice of and to vote at the Annual Meeting and any adjournments or
postponements thereof.
By Order of the Board of Directors
Joseph N. Rozek
Secretary
Berlin, New Hampshire
April 12, 2004
YOUR VOTE IS IMPORTANT
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WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE
ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. IF
YOU ATTEND THE ANNUAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU
HAVE PREVIOUSLY RETURNED YOUR PROXY CARD.
NORTHWAY FINANCIAL, INC.
9 MAIN STREET
BERLIN, NEW HAMPSHIRE 03570
TELEPHONE 603-752-1171
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, MAY 25, 2004
This Proxy Statement and accompanying form of proxy are furnished in
connection with the solicitation of proxies on behalf of the Board of Directors
of Northway Financial, Inc., a New Hampshire corporation (the "Company"), for
use in voting at the Annual Meeting of Stockholders (the "Meeting") to be held
at 2:00 p.m. on May 25, 2004, at The Town and County Motor Inn, Route 2,
Shelburne, New Hampshire 03581 and at any postponements or adjournments thereof.
This proxy statement and accompanying form of proxy were mailed on or about
April 12, 2004 to stockholders of record at the close of business on March 26,
2004 in connection with the solicitation.
At the close of business on March 26, 2004, there were outstanding and
entitled to vote 1,499,574 shares of the Company's common stock, par value of
$1.00 per share.
Each stockholder is entitled to one vote per share upon each matter
submitted at the Meeting. Only stockholders of record at the close of business
on March 26, 2004 shall be entitled to vote at the Meeting.
The proxies of holders of common stock are being solicited by the Board
of Directors. Stockholders are requested to complete, date, sign and promptly
return the accompanying proxy card in the enclosed envelope. Shares represented
by a properly executed proxy received prior to the vote at the Meeting and not
revoked will be voted at the Meeting as directed in the proxy. IF A PROXY IS
SUBMITTED AND NO DIRECTIONS ARE GIVEN, THE PROXY WILL BE VOTED "FOR" THE
APPROVAL OF THE PROPOSALS TO BE CONSIDERED AT THE MEETING.
A person giving the enclosed proxy may revoke it by filing an
instrument of revocation with Joseph N. Rozek, Secretary, Northway Financial,
Inc., 9 Main Street, Berlin, New Hampshire 03570. Any such person may also
revoke a proxy by filing a duly executed proxy bearing a later date, or by
appearing at the Meeting in person, notifying the Secretary, and voting by
ballot at the Meeting. Any stockholder of record attending the Meeting may vote
in person whether or not a proxy has been previously given, but the mere
presence (without notifying the Secretary) of a stockholder at the Meeting will
not constitute revocation of a previously given proxy.
The Company will bear the cost of soliciting proxies from the
stockholders, including mailing costs, and will pay all printing costs in
connection with this Proxy Statement. In addition to the use of the mails,
proxies may be solicited by the directors, officers, and certain employees of
the Company, and by personal interviews, telephone and facsimile. Such
directors, officers and employees will not receive additional compensation for
such solicitation but may be reimbursed for reasonable out-of-pocket expenses
incurred in connection therewith. The Company may also make arrangements with
brokerage houses and other custodians, nominees, and fiduciaries for the
forwarding of solicitation material to the beneficial owners of its common
stock. The Company may reimburse such custodians, nominees, and fiduciaries for
reasonable out-of-pocket expenses incurred in connection therewith.
The presence in person or by proxy of the holders of a majority of the
issued and outstanding shares entitled to vote at the Meeting is required to
constitute a quorum. Abstentions and "broker non-votes" (as defined below) will
be counted as present for purposes of determining the presence or absence of a
quorum for the transaction of business at the Meeting, but as unvoted for
purposes of determining the approval of any matter submitted to the stockholders
for a vote. A "broker non-vote" is a proxy from a broker or other nominee
indicating that such person has not received instructions from the beneficial
owner or other person entitled to vote the shares which are the subject of the
proxy on a particular matter and with respect to which the broker or other
nominee does not have discretionary voting power.
The Company is a New Hampshire corporation and the parent of The Berlin
City Bank, a New Hampshire-chartered bank based in Berlin, New Hampshire
("BCB"), The Pemigewasset National Bank of Plymouth, New Hampshire, a national
bank based in Plymouth, New Hampshire ("PNB"), Northway Capital Trust I ("NCT
I"), a Delaware statutory business trust, and Northway Capital Trust II ("NCT
II"), a Delaware statutory business trust.
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES AND DIRECTORS CONTINUING IN OFFICE
The Company's Board of Directors is currently composed of eleven
members. The Company's Amended and Restated Articles of Incorporation provide
that directors are to be divided into three classes, with all classes as nearly
equal as possible in size. Each director is elected for a three-year term and
the terms are staggered so that only one class is elected by the stockholders
annually.
At the Meeting, four directors will be elected to serve for a
three-year term until the 2007 Annual Meeting, and until their successors are
duly elected and qualified. The Board of Directors has nominated for election
Fletcher W. Adams, Arnold P. Hanson, Jr., John H. Noyes and William J. Woodward,
all of whom are current members of the Board of Directors. It is the intention
of the persons named in the accompanying form of proxy, or their substitutes, to
vote for the election of the foregoing nominees unless instructed to the
contrary. The Board of Directors believes that all of the nominees will be
available and able to serve as directors, but if for any reason any of the
nominees named above should not be available or able to serve, the proxies may
exercise discretionary authority to vote for one or more substitutes as the
Board of Directors may recommend. In the alternative, the Board of Directors
may, if permitted by law and the Amended and Restated Articles of Incorporation
and Bylaws, amend the Bylaws if necessary and reduce the size of the Board to
eliminate the resulting vacancy. The affirmative vote of a plurality of the
votes cast is required for the election of directors. Abstentions and broker
non-votes will not be counted as "votes cast" for purposes of electing directors
and, therefore, will not affect the election of the directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" ALL OF THE
NOMINEES FOR DIRECTOR OF THE COMPANY.
INFORMATION CONCERNING DIRECTORS AND NOMINEES
The following table sets forth the name and age, other positions held
with the Company, term of office and period served, business experience, and
certain other information, as of March 26, 2004, with respect to each nominee
and each director continuing in office. The information was provided by the
persons named.
Shares of
Common Stock Percent
Term Beneficially of Common
Name and Business Experience Director To Owned at Stock
for Past Five Years Age Since Expire Mar. 26, 2004(1) Ownership(1)
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NOMINEES OF THE BOARD
Adams, Fletcher W. 67 1997 2007 54,500 (2) 3.63%
Vice-Chairman of the Board,
Northway Financial, Inc.;
Chairman of the Board, The
Pemigewasset National Bank
of Plymouth, New Hampshire
Hanson, Jr., Arnold P. 54 1997 2007 19,312 (3) 1.29%
President, Isaacson
Structural Steel, Inc.
Noyes, John H. 57 1997 2007 12,185 (4) ****
President, Noyes Insurance
Agency, Inc.; President,
Central Square Insurance, Inc.
Woodward, William J. 58 1997 2007 89,088 5.94%
Chairman of the Board,
President, Chief Executive
Officer, Northway Financial,
Inc. and The Berlin City Bank;
Chief Executive Officer and
President, The Pemigewasset
National Bank of Plymouth,
New Hampshire
DIRECTORS CONTINUING IN OFFICE
Boucher, Stephen G. 57 1999 2005 250 ****
Chief Executive Officer and
Chairman of the Board, Airmar
Technology Corp.;
Kelley, Barry J. 54 1997 2005 42,039 (5) 2.80%
President, White
Mountain Lumber, Co.
Labnon, Randall, G. 50 1997 2005 3,072 ****
General Manager, Town &
Country Motor Inn
Anderson, Frederick C. 52 2002 2006 1,145 (6) ****
President, NH Electric
Cooperative, Inc.
Clifford, Jr., Charles H. 68 1997 2006 2,500 ****
Retired Businessman
Morris, John D. 73 1997 2006 6,136 ****
Retired Businessman
Ward, Brien L. 51 2002 2006 167 ****
Attorney
**** Owns less than 1% of the Company's outstanding common stock.
(1) Included in the shares listed as "beneficially owned" and in the calculation of common stock ownership are the
following shares which the persons listed have the right to acquire prior to the expiration date shown pursuant to
vested stock options granted under the 1999 stock option and grant plan - Mr. Woodward (7,500 prior to June 15, 2009
and 8,500 prior to October 17, 2010) and Mr. Adams (3,500 prior to June 15, 2009).
(2) Includes 23,000 shares held in a trust for which Mr. Adams serves as trustee.
(3) Includes 19,000 shares held in a trust for which Mr. Hanson serves as trustee and 312 shares owned jointly with
spouse.
(4) Includes 12,185 shares held in a trust for which Mr. Noyes serves as trustee.
(5) Includes 32,846 shares owned jointly with spouse and 3,135 shares owned by spouse for which Mr. Kelley may be deemed
the beneficial owner.
(6) Includes 104 shares owned jointly with son.
The Board of Directors has determined that the following directors:
Fletcher W. Adams, Arnold P. Hanson, Jr., John H. Noyes, Stephen G. Boucher,
Barry J. Kelley, Randall G. Labnon, Frederick C. Anderson, Charles H. Clifford,
Jr., John D. Morris, and Brien L. Ward, who comprise a majority of the Board of
Directors, are "independent" under the Nasdaq Stock Market rules.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company held thirteen (13) meetings during
the calendar year ended December 31, 2003. All incumbent directors attended at
least 75% of the aggregate number of meetings of the Board of Directors and the
committees of which he was a member in 2003.
Directors of the Company are paid an annual retainer fee of $10,000 for
service on the Board. In addition, Committee chairpersons are paid $600 for each
Committee meeting attended, and Committee members are paid $400 for each
Committee meeting attended. Directors who also serve on the Executive Committee
receive an additional annual fee of $12,000. The Vice Chairman of the Board, Mr.
Adams, receives an annual fee of $32,000.
The following sets forth the current members of each of the standing
committees of the Board of Directors together with a brief description of the
function of each such committee.
EXECUTIVE/INVESTMENT COMMITTEE
MEMBERS: William J. Woodward, Chairman; Fletcher W. Adams, John D. Morris; and John H. Noyes
FUNCTION: The Executive/Investment Committee generally has the authority to exercise the power of
the full Board during intervals between meetings of the Board.
NUMBER OF
MEETINGS: This Committee meets on a bi-weekly basis.
AUDIT AND COMPLIANCE COMMITTEE
MEMBERS: Arnold P. Hanson, Jr., Chairman; Frederick C. Anderson; Barry J. Kelley and Brien L. Ward.
FUNCTION: This Committee oversees the activities of the Company's Internal Auditor, its independent certified
public accounting firm, and activities of other accounting firms used on a project basis. This
Committee also reviews the results of each regulatory examination. The Committee also provides
oversight for all compliance and loan review activities of the Company, including those of the
Corporate Compliance Officer. The Audit and Compliance Committee operates under a written charter
adopted by the Board of Directors of the Company, a copy of which is included as Appendix A to this
proxy statement.
The Board of Directors has determined that no member of the Audit and Compliance Committee meets the
specific qualifications of an "audit committee financial expert" as defined in Item 401(h) of
Regulation S-K promulgated by the Securities and Exchange Commission. The Board believes that, taking
into account the relative breadth and complexity of the Company's financial statements, the current
members of the Audit and Compliance Committee possess the requisite level of financial expertise to
perform their responsibilities effectively.
NUMBER OF
MEETINGS: This Committee met nine (9) times during the 2003 fiscal year.
HUMAN RESOURCES, COMPENSATION AND NOMINATING COMMITTEE
MEMBERS: Stephen G. Boucher, Chairman; Fletcher W. Adams; Randall G. Labnon; John D. Morris and John H. Noyes.
FUNCTION: This Committee conducts annual and periodic reviews of director, officer, and employee compensation
in order to ensure that the Company has the programs necessary to attract and retain competent
professionals at all levels. The Human Resources, Compensation and Nominating Committee does not
currently have a written charter.
Further, this Committee selects nominees for election as directors of the Company. This Committee
nominated the persons standing for election at the 2004 Annual Meeting.
Historically, the Company has not received any proposals from stockholders recommending director
candidates to be nominated for membership on the Board of the Company. Consequently, the Board of
Directors has not viewed the development of a formal policy regarding the consideration of any
director candidates recommended by stockholders to be necessary, and this Committee does not have
such a formal policy. A stockholder wishing to nominate a director separately from the slate of
directors nominated by the Company should follow the procedures described in this proxy statement
under the heading "Stockholder Proposals."
The Board of Directors has adopted, based on this Committee's recommendations, certain guidelines
regarding "Director Role and Qualifications," that must be met by an individual in order to be
considered for nomination by this Committee to the Company's Board of Directors. In addition to
possessing strong personal qualifications such as, good character, sound judgment, diligence, and
ability to think critically and strategically, this Committee considers a broad range of other
factors in evaluating potential candidates for the Company's Board of Directors. These factors
include, without limitation, specialized skills, knowledge, expertise, business contacts and
relationships, and the ability to commit appropriate time to the duties of a director. The perceived
needs of the overall Board of Directors are also considered.
NUMBER OF
MEETINGS: This Committee met six (6) times during the 2003 fiscal year.
STOCKHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Stockholders wishing to communicate with the Company's Board of Directors
should address their inquiries to the Company's Chief Financial Officer by mail
sent to the Company's main address at 9 Main Street, Berlin, New Hampshire
03570. The mailing envelope should contain a clear notification indicating that
the enclosed letter is a "Stockholder-Board Communication" or
"Stockholder-Director Communication." All such letters should clearly state
whether the intended recipients are all members of the Board or certain
specified individual Directors. All communications will be reviewed by the
Company's Chief Executive Officer who will determine whether the communication
will be relayed to the Board. Except for resumes, sales and marketing
communications, or notices regarding seminars or conferences, summaries of all
shareholder communications will be provided to the Board.
EXECUTIVE OFFICERS
The following sets forth information regarding the executive and key
officers of the Company and/or its subsidiaries, the position or office held by
each of them, and the date from which they have continually served as executive
officers.
Executive
Officer
Name Age Since
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William J. Woodward 58 1989
Chairman, President, and Chief Executive Officer Northway Financial,
Inc. and The Berlin City Bank; and Chief Executive Officer and President,
The Pemigewasset National Bank of Plymouth, New Hampshire
Mark C. Bechtold 47 2004
Senior Vice President, Northway Financial, Inc.
Lawrence J. Bessinger 59 1999
Senior Vice President, Northway Financial, Inc.
James R. Brannen 42 1999
Senior Vice President, Northway Financial, Inc., The Berlin City
Bank, and The Pemigewasset National Bank of Plymouth, New
Hampshire
Richard T. Brunelle 61 1996
Senior Vice President, The Berlin City Bank and
The Pemigewasset National Bank of Plymouth, New Hampshire
Ronald P. Goudreau 50 2003
Senior Vice President, Northway Financial, Inc., The Berlin City
Bank, and The Pemigewasset National Bank of Plymouth, New
Hampshire
Robert F. Howe 58 2003
Senior Vice President, The Berlin City Bank and The Pemigewasset
National Bank of Plymouth, New Hampshire
Richard P. Orsillo 54 2001
Senior Vice President and Chief Financial Officer, Northway Financial,
Inc., The Berlin City Bank and The Pemigewasset National Bank of
Plymouth, New Hampshire
John H. Stratton, Jr. 57 1990
Senior Vice President, Northway Financial, Inc., The BerlinCity
Bank, and The Pemigewasset National Bank of Plymouth, New
Hampshire
Robert I. Walker 64 1999
Senior Vice President, Northway Financial, Inc.
William J. Woodward has served as Chairman of the Board of Directors,
President and Chief Executive Officer of the Company since 1997. In addition, he
has served as President and Chief Executive Officer of BCB since 1994 and has
served as Chairman of the Board of Directors of BCB since 1989. He became a
Director of BCB in 1975. He has served as Chief Executive Officer of PNB since
2002, as President of PNB since 2004 and has served as a director of PNB since
1997.
Mark C. Bechtold has served as Senior Vice President since February 2004
and is responsible for the Human Resources and Organizational Development. Prior
to joining the Company, he served as Vice President and Manager of Human
Resources of WICOR Americas, Inc. from May 1998 through January 2004.
Lawrence J. Bessinger has served as Senior Vice President of the Company
since July 1999 and is responsible for the technology division. Prior to this
promotion, Mr. Bessinger had served as Vice President-Chief Information Officer
for BCB since 1990.
James R. Brannen has served as Senior Vice President of the Company since
July 1999 and is responsible for retail lending and the operations division.
From November 1993 until July 1999, Mr. Brannen served as Vice President of
Retail Loan Operations for BCB.
Richard T. Brunelle has served as Senior Vice President of BCB since April
1996 and PNB since 2001 and is responsible for the commercial lending division.
From 1991 until his promotion, Mr. Brunelle served BCB as Vice President and
Senior Commercial Lender.
Ronald P. Goudreau has served as Senior Vice President and Operations
Officer of the Company since 2003. He is responsible for both deposit and loan
operations. Prior to joining the Company, he served as Senior Compliance
Examiner of the Federal Deposit Insurance Corporation since 1992.
Robert F. Howe has served as Senior Vice President of BCB since October
1998 and is responsible for the indirect lending division. Prior to joining BCB,
Mr. Howe served as Vice President of Consumer Lending of Concord Savings Bank
and President of Bancredit Corporation, the indirect lending subsidiary of
Concord Savings Bank from March 1984 through October 1998.
Richard P. Orsillo has served as Senior Vice President and Chief Financial
Officer of the Company, BCB and PNB since 2002. From December 1998 until his
promotion he served as Vice President and Corporate Controller of the Company,
BCB and PNB. Prior to joining the Company he served as Senior Vice President and
Chief Financial Officer of Elmira Savings Bank, FSB from March 1996 through
December 1998.
John H. Stratton, Jr. has served as Senior Vice President of the Company
since 2003 and is responsible for the retail banking division of both subsidiary
banks. Prior to assuming this position he served as Senior Vice President of BCB
since 1990 where he was responsible for the BCB retail banking division.
Robert I. Walker has served as Senior Vice President of the Company since
2003 and is responsible for retail product development and sales. From June 1999
until his promotion in January 2003, he served as Senior Vice President of PNB
where he was responsible for the PNB retail and marketing divisions. Prior to
joining PNB, Mr. Walker served as Senior Vice President of Vermont National Bank
from 1998 to 1999.
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 26, 2004, the beneficial
ownership of common stock by (i) each of the executive officers named under
"Executive Compensation" below and (ii) all directors and executive officers as
a group; and (iii) each person, including any group of persons, known by the
Company to beneficially own five percent (5%) or more of the outstanding common
stock. See "Information Concerning Directors and Nominees" above for the
beneficial ownership of common stock by Mr. Adams and other directors of the
Company.
Shares of Common Percent of Shares of
Name Stock Beneficially Owned(1) Common Stock Ownership(1)
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EXECUTIVE OFFICERS
William J. Woodward 89,088 5.94%
James R. Brannen 4,180 ****
Richard T. Brunelle 5,050 ****
Richard P. Orsillo 1,627 ****
John H. Stratton, Jr. 6,432 ****
Directors and executive officers 254,683 16.98%
as a group (18 persons)
**** Owns less than 1% of the Company's common stock.
(1) Included in the shares listed as "beneficially owned" and in the calculation of common stock
ownership are the following shares which the persons listed have the right to acquire prior to the
expiration date shown pursuant to vested stock options granted under the 1999 stock option and grant
plan - Mr. Woodward (7,500 prior to June 15, 2009 and 8,500 prior to October 17, 2010), Mr. Brannen
(1,500 prior to June 15, 2009 and 2,500 prior to October 17, 2010), Mr. Brunelle (2,000 prior to
June 15, 2009 and 3,000 prior to October 17, 2010), Mr. Orsillo (1,500 prior to October 17, 2010),
and Mr. Stratton (2,000 prior to June 15, 2009 and 3,000 prior to October 17, 2010). Additionally,
included in the shares listed as "beneficially owned" and in the calculation of common stock
ownership for directors and executive officers as a group there are 5,000 shares which other
executive officers not listed have the right to acquire prior to June 15, 2009 and 5,500 shares
prior to October 17, 2010, pursuant to vested stock options granted under The Company's 1999 Stock
Option and Grant Plan.
5% HOLDER
Shares of Common Percent of Shares of
Name and Address Stock Beneficially Owned Common Stock Ownership
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1. Jeffrey L. Gendell(1) 146,801 9.79%
55 Railroad Avenue, 3rd Floor
Greenwich CT 06830
(1) Shares voting power through Tontine Financial Partners, L.P.; Tontine Management, L.L.C.; and
Tontine Overseas Associates, L.L.C.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for services rendered in all capacities to the Company
during the fiscal years ended December 31, 2003, 2002, and 2001, of those
persons who were, at December 31, 2003: (i) the chief executive officer of the
Company and (ii) the other four most highly compensated executive officers
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
Annual Compensation
---------------------------
Other(2)
Name and Principal Position Year Salary Bonus(1) Compensation
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William J. Woodward 2003 $276,000 $30,520 $ 4,000
Chairman, President and 2002 262,500 5,700 25,735
Chief Executive Officer 2001 250,000 28,210 24,268
James R. Brannen 2003 113,923 4,557 2,278
Senior Vice President 2002 108,077 2,162 2,161
2001 101,539 6,092 3,046
Richard T. Brunelle 2003 125,193 5,008 2,408
Senior Vice President 2002 120,289 2,406 2,221
Berlin City Bank and The 2001 112,923 6,775 3,251
Pemigewasset National Bank
of Plymouth, New Hampshire
Richard P. Orsillo 2003 121,000 4,840 2,420
Senior Vice President 2002 115,000 2,300 1,990
and Chief Financial Officer 2001 90,500 5,430 2,715
John H. Stratton, Jr. 2003 122,462 4,898 2,449
Senior Vice President 2002 117,423 2,348 2,348
2001 113,558 6,813 3,407
(1) The 2003 bonus granted by the Board of Directors to the Chief Executive Officer is based on the
assessment of his level of performance in achieving several strategic objectives relating to
improvement in profitability, efficiency, product development, organization development, and
others. The performance assessment was conducted by the Human Resources, Compensation, and
Nominating Committee on behalf of the Board.
(2) The compensation reported in this column is comprised of: (a) amounts allocated to the accounts
of the Named Executive Officers in connection with the Company's Profit Sharing Plan. During
2003 and 2002 no amounts were allocated in connection with the Company's Profit Sharing Plan.
During 2001 the amounts allocated to the Company's Profit Sharing Plan were as follows: Mr.
Woodward, $2,855; Mr. Brannen, $1,015; Mr. Brunelle, $1,129; Mr. Orsillo, $905; and Mr.
Stratton, $1,136; (b) employer matching contributions allocated to the accounts of the Named
Executive Officers in connection with the Company's 401(k) Plan; and (c) with respect to Mr.
Woodward, $7,015 and $736, which represents imputed income to Mr. Woodward associated with the
term portion of a split-dollar life insurance arrangement for 2002 and 2001, respectively. With
respect to 2002 and 2001, the reported compensation amounts also include $14,720 and $11,573,
respectively, which amounts represent benefits to Mr. Woodward of the remainder of the premium
payments by the Company under a split-dollar life insurance arrangement prior to enactment of
the Sarbanes-Oxley Act on July 30, 2002. These amounts represent the interest the Company would
have received had it loaned the premium amounts to Mr. Woodward at a market rate of interest.
Effective May 29, 2003, the existing Executive Life program was terminated and replaced with a
Supplemental Executive Retirement Plan (SERP), which is described under "Supplemental Executive
Retirement Plan" below.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table shows stock option exercises by the Named Executive
Officers during the fiscal year ended December 31, 2003. In addition, this table
includes the number of shares covered by both exercisable and unexercisable
options as of December 31, 2003. Also reported are the values for "in-the money"
options, which represent the positive spread between the exercise price of any
such existing options and the year-end closing price of the Company's common
stock.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/
Options/SARs at FY- SARs at FY-End ($)
Shares Acquired Value Realized(1) End(#) Exercisable/ Exercisable/
Name On Exercise (#) ($) Unexercisable Unexercisable(1)
- ----------------------------------------------------------------------------------------------------------------
William J. Woodward 0 0 16,000/0 157,688/0
James R. Brannen 0 0 4,000/0 41,438/0
Richard T. Brunelle 0 0 5,000/0 51,125/0
Richard P. Orsillo 0 0 1,500/0 18,563/0
John H. Stratton, Jr. 0 0 5,000/0 51,125/0
(1) Calculated using a market price of $35.00 per share.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Company's common stock (assuming $100 was invested on September 30, 1997, the
date when the Company's common stock became publicly traded, and all dividends
were reinvested) against (i) the cumulative total return of the S&P Composite
500 Stock Index, and (ii) the NASDAQ Bank Stock Index.
[GRAPHIC OMITTED]
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12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
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NWFI $ 100.00 $ 89.26 $ 86.73 $ 79.42 $ 101.46 $115.50 $129.67
- ------------------------------------------------------------------------------------------------------
S&P 500 100.00 126.67 151.40 136.05 118.31 90.66 114.58
- ------------------------------------------------------------------------------------------------------
NASDAQ Bank Stocks 100.00 88.23 81.19 93.10 102.48 107.11 139.17
- ------------------------------------------------------------------------------------------------------
EMPLOYMENT CONTRACTS
Mr. Woodward has entered into an employment agreement with the Company.
Pursuant to the employment agreement, he provides ongoing services to the
Company on a full-time basis for a period of three years. This term is
automatically renewed for a one year period commencing on each anniversary of
the agreement unless either he or the Company gives written notice to the other
electing not to extend the term. The employment agreement provides for annual
base salaries that are subject to increase from time to time in the discretion
of the Board of Directors. The employment agreement also provides that he is
entitled to participate in any incentive or bonus program established by the
Board of Directors, as well as other employee benefit plans which the Company
may from time to time have in effect for all or most of its senior executives.
In addition to certain confidentiality and non-compete provisions, the
agreement provides that if Mr. Woodward is terminated from full-time employment
with the Company without cause prior to the end of the respective term, then he
will be entitled to receive his base salary at the rate then in effect and
certain group health benefits for the remainder of such term (the "Termination
Benefits Period"); provided, that in the event he commences any employment or
self-employment during the Termination Benefits Period, the remaining amount of
base salary due, for the period from the commencement of such employment or
self-employment to the end of the Termination Benefit Period, will be reduced by
one-half of the salary he receives from such employment or self-employment. In
addition, if he receives benefits from such employment or self-employment
comparable to those benefits provided by the Company, the continuation of group
health benefits shall cease effective as of the date of commencement of such
employment or self-employment.
The employment agreement also provides for termination benefits if Mr.
Woodward's employment with the Company is terminated under certain circumstances
following a "change of control." If within 18 months following a change of
control of the Company, his employment is terminated by the Company or its
successor or by himself following the occurrence of certain adverse actions
taken with respect to his employment, or if his employment is terminated without
cause, the Company must, in lieu of any other termination benefits described
above, pay to him (or his estate, if applicable) a lump-sum payment equal to
2.99 times his "base amount" (within the meaning of section 280G of the Internal
Revenue Code of 1986, as amended).
KEY EMPLOYEE AGREEMENTS
The Company and its subsidiaries have entered into Key Employee agreements
with the Named Executive Officers as well as other senior officers of the
Company. These agreements provide for payments to the officer upon the officer's
termination or resignation in connection with certain specified actions adverse
to the officer's employment status following a change in control of the Company.
The amount of such payments ranges from 1.0 to 1.5 times such officer's annual
compensation.
PENSION PLANS
The Company maintains a noncontributory defined benefit pension plan
covering all full-time and part-time employees who work at least 1,000 hours,
have completed one year of service and have attained the age of 21. Vesting will
occur after 5 years, and age 65 will be the normal retirement age. Early
retirement may be taken, however, after age 55.
The following table illustrates estimated annual pension benefits for
retirement at age 65 under the most advantageous plan provisions available for
the various levels of compensation and years of service, limited to 30. The
figures in this table are calculated based on the sum of one percent of final
average earnings up to a covered compensation limit, plus 0.65 percent of final
average earnings in excess of covered compensation, times years of service since
January 1, 1999, up to 30. Final average earnings are defined as the five
consecutive years out of the employee's last ten years of employment during
which compensation is highest. Covered compensation for the purpose of this
calculation is currently $46,284.
AVERAGE
COMPENSATION YEARS OF SERVICE
- ----------------------------------------------------------------------------
15 20 25 30+
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$125,000 26,425 35,233 44,041 52,850
$150,000 32,612 43,483 54,354 65,225
$170,000 37,562 50,083 62,604 75,125
$175,000 38,800 51,733 64,666 77,600
$200,000 44,987 59,983 74,979 89,975
$225,000 45,235 60,313 75,391 90,470
$250,000 45,235 60,313 75,391 90,470
The compensation used to determine retirement benefits under the pension
plan is calculated on the same basis as compensation set forth in the Summary
Compensation Table except that under federal tax laws a maximum of $205,000 of
compensation may be recognized. Benefits payable under the plan are not offset
by social security benefits. The officers named in the Summary Compensation
Table have each been credited with five years of service since January 1, 1999.
In addition, each named executive officer other than Mr. Woodward and Mr.
Orsillo is entitled to receive a benefit from the pension plan based on the
benefit formula and his compensation and service in effect as of December 31,
1998. The annual amount of this frozen benefit payable at age 65 in the form of
a single life annuity is as follows: Mr. Brannen: $5,275; Mr. Brunelle: $8,416;
and Mr. Stratton: $13,433.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Effective May 29, 2003, the existing Executive Life program sponsored by
the Company was terminated and replaced with a Supplemental Executive Retirement
Plan (SERP). The existing Split Dollar Life Insurance policy designed to support
the Executive Life program is now fully owned by Northway. This policy will be
maintained by Northway and is used as the benchmark for the newly established
SERP.
This SERP is an "account balance" type plan designed to provide retirement
income to Mr. Woodward. Pre-retirement, Northway credits the participant's
account with a contribution at the end of each calendar year. Contributions to
the account are equal to the excess (if any) of the gain in the associated life
insurance contract over the cost of the funds expense as defined in the SERP.
Contributions are not guaranteed by the Company.
The total retirement SERP benefit is as follows: Upon Mr. Woodward's
termination of employment for reasons other than death or for cause, the account
balance is paid out to him in ten (10) equal annual installments on the first
day of the month following the month in which employment is terminated. Upon
death after retirement, the unpaid account balance, if any, is paid out in a
lump sum to the named beneficiary. During retirement, an additional retirement
payment, based on the policy gains associated with the prior calendar year, will
also be paid on an annual basis until the executive's death. In the event of Mr.
Woodward's death while employed by the Company, the SERP permits a death benefit
of $2,000,000 be paid to his beneficiary.
REPORT OF THE AUDIT AND COMPLIANCE COMMITTEE
The Board of Directors has established an Audit and Compliance Committee,
whose members, as of December 31, 2003, are Arnold P. Hanson, Jr., Chairman;
Frederick C. Anderson; Barry J. Kelly; and Brien L. Ward. The Board of Directors
has determined that the members of the Audit and Compliance Committee are
"independent" under the rules of the Nasdaq Stock Market.
During 2003, the Audit and Compliance Committee reviewed and discussed the
audited financial statements with the Company's management and discussed with
Shatswell, MacLeod & Company, P.C., the Company's independent auditors, the
matters required to be discussed by SAS No. 61 (Communication with Audit
Committees) as amended by SAS No. 90 (Audit Committee Communications).
In addition, the Audit and Compliance Committee has also received from the
independent auditors the written disclosures and the letter required by the
Independence Standards Board Standards No. 1 (Independence Discussions with the
Audit Committee) and has discussed with the auditors their independence and
received from the auditors disclosures regarding their independence.
The Audit and Compliance Committee has recommended to the Board of
Directors that the audited financial statements be included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2003, based on its
review and the discussions described above.
When considering the auditors' independence, the Company's Audit and
Compliance Committee considered and concluded that the provision of the
non-audit services above is compatible with maintaining the auditor's
independence.
Submitted by the members of the Audit and Compliance Committee.
Arnold P. Hanson, Jr., Chairman Frederick C. Anderson
Barry J. Kelley Brien L. Ward
THE FOREGOING REPORT SHALL NOT BE DEEMED TO BE "SOLICITING MATERIAL" OR TO BE
"FILED" WITH THE SECURITIES AND EXCHANGE COMMISSION AND SHOULD NOT BE DEEMED
INCORPORATED BY REFERENCE BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE
THIS PROXY STATEMENT INTO ANY FILING UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, EXCEPT TO THE
EXTENT THAT THE COMPANY SPECIFICALLY INCORPORATES THIS INFORMATION BY REFERENCE
AND SHALL NOT OTHERWISE BE DEEMED FILED UNDER SUCH ACTS.
FEES PAID TO INDEPENDENT AUDITORS
The following table presents fees for professional audit services rendered
by Shatswell, MacLeod & Company, P.C. for the audit of the Company's annual
financial statements for 2003 and 2002, and fees billed for other services
rendered by Shatswell, MacLeod & Company, P.C.
2003 2002
-------- -------
Audit Fees $120,000 $89,000
Tax Fees 11,500 12,500
All Other Fees 5,500(1) 23,600(2)
(1) Fees for certification of The Retirement Plan for the Employees of Northway
Financial and for The Northway Financial, Inc. 401(k) and Profit Sharing
Plan.
(2) Includes $5,300 for certification of The Retirement Plan for the Employees
of Northway Financial and for The Northway Financial, Inc. 401(k) and Profit
Sharing Plan and $18,300 for assistance in the preparation of a disaster
recovery plan.
The Audit and Compliance Committee pre-approves all auditing services and
the terms thereof (which may include providing comfort letters in connection
with securities underwritings) and non-audit services (other than non-audit
services prohibited under Section 10A(g) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") or the applicable rules of the Securities and
Exchange Commission or the Public Company Accounting Oversight Board) to be
provided to the Company by the independent auditor; provided, however, the
pre-approval requirement is waived with respect to the provision of non-audit
services for the Company if the "de minimus" provisions of Section 10A(i)(1)(B)
of the Exchange Act are satisfied. There were no services provided under the "de
minimus" provision in 2003. The authority to pre-approve non-audit services may
be delegated to one or more members of the Audit Committee, who shall present
all decisions to pre-approve an activity to the full Audit and Compliance
Committee at its first meeting following such decision
REPORT OF THE HUMAN RESOURCES, COMPENSATION AND NOMINATING COMMITTEE
GENERAL POLICIES
The Board of Directors has established a Human Resources, Compensation, and
Nominating Committee whose responsibility is to recommend to the Board of
Directors the approval of: (i) programs relating to compensation and benefits
for all employees; (ii) compensation levels for all executive officers,
including the Chief Executive Officer, (iii) nomination of Directors to serve on
the Board of Directors of the parent company and its subsidiaries, and (iv)
remuneration of Directors for their service on the Boards of the parent company
and its subsidiaries. The Committee also will approve all of the strategic
objectives assigned to the Chief Executive Officer, and will monitor and track
throughout each year the progress made by the Chief Executive Officer toward
achievement of those objectives. As of the date of the Meeting, this Committee
will be comprised of four outside Directors whom the Board of Directors has
determined to be "independent" under the rules of the Nasdaq Stock Market.
The base salary for the executive officers is set at an amount within an
established salary range that reflects the executive's position, duties and
level of responsibility. The salary range consists of minimum and maximum levels
distributed around an average of base salaries paid to executives who hold
substantially similar positions within a selected peer group. Any bonuses are
designed to reward executives for performance and are based primarily on the
Company's financial results.
CEO COMPENSATION
In connection with Mr. Woodward's employment agreement described above, the
Company engaged a bank compensation consultant to act as its advisor in the
matter of executive compensation. This consultant specializes in compensation
matters for New England financial institutions and maintains an extensive data
base for banks in various asset size groups.
Using a variety of established surveys concerning bank salaries, the
Company's consultant recommended a competitive salary range for Mr. Woodward. In
connection with Mr. Woodward's employment agreement, the consultant's
recommendation was subsequently approved by the Board.
Submitted by the members of the Human Resources and Compensation Committee.
Stephen G. Boucher, Chairman Fletcher W. Adams
Randall G. Labnon John Morris
John H. Noyes
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has, during its ordinary course of business, made loans to
directors and executive officers. Loans are made on substantially the same
terms, including rates and collateral, as those prevailing at the time for
comparable transactions with other persons and do not involve more than the
normal risk of collectibility or present other unfavorable features. The Company
has had (and expects to have in the future) banking transactions with directors,
executive officers, principal stockholders, and their associates on the same
terms (including interest rates and collateral on loans) as those prevailing at
the same time for comparable transactions with others, and do not involve more
than the normal risk of collectibility or present other unfavorable features.
The largest aggregate amount of such extensions of credit to directors,
executive officers, principal stockholders, and their associates during the
period of January 1, 2003 through December 31, 2003 was $998,550. The aggregate
amount owing to the Company from such individuals on December 31, 2003 was
$363,930, or 0.76% of stockholders' equity. As mentioned above, these loans were
made on the same terms for comparable transactions with others.
There were no executive officers or directors whose direct or indirect
liability to the Company exceeded 10% of stockholders' equity at any time during
the year.
During 2003 the Company received services from certain directors and their
affiliated business or professional entities, which either totaled $60,000 or
represented more than 5% of that firm's gross revenue, as follows: Noyes
Insurance Agency, of which John H. Noyes is owner, provided insurance services
totaling $77,000; and New Hampshire Electric Cooperative, of which Frederick C.
Anderson is President, provided electric services totaling $91,000.
RELATIONSHIP WITH INDEPENDENT AUDITORS
Shatswell, MacLeod & Company, P.C. was the Company's independent auditing
firm for 2003. Representatives of Shatswell, MacLeod & Company, P.C. are
expected to be present at the meeting to respond to stockholders' questions and
will have the opportunity to make a statement if they so desire. The firm of
Shatswell, MacLeod & Company, P.C. has served as the Company's independent
auditing firm since September 30, 1997.
OTHER MATTERS
The Board of Directors is not aware of any business to come before the
Meeting other than those matters described above in this Proxy Statement.
However, if any other matters should properly come before the Meeting, it is
intended that proxies in the accompanying form will be voted in respect thereof
in accordance with the judgment of the person or persons voting the proxies.
MISCELLANEOUS
A copy of the Company's Annual Report to Stockholders, including financial
statements has been mailed to all stockholders of record as of the close of
business on March 26, 2004. Any stockholder who has not received a copy of such
Annual Report or would like to obtain a copy of the Company's Annual Report on
Form 10-K may do so, free of charge, by writing to Richard P. Orsillo, Senior
Vice President & Chief Financial Officer, c/o Northway Financial, Inc., 9 Main
Street, Berlin, NH 03570. Alternatively, this report is available free of charge
on the Company's website at www.northwayfinancialinc.com as soon as reasonably
practicable after such material is electronically filed with or furnished to the
Securities and Exchange Commission. Such Annual Report is not to be treated as a
part of the proxy solicitation material or as having been incorporated herein by
reference.
STOCKHOLDER PROPOSALS
The Company's Bylaws provide that any director nominations and new business
proposals intended to be submitted by stockholders in connection with an Annual
Meeting of Stockholders must be filed, delivered to, or mailed to and received
by, the Company at its principal executive office not less than 75 days nor more
than 120 days prior to the anniversary date of the immediately preceding Annual
Meeting (the "Anniversary Date") or, in other words, no later than March 13,
2005 and no earlier than January 28, 2005; provided, however, that in the event
the Annual Meeting is scheduled to be held on a date more than 30 days before
the Anniversary Date or more than 60 days after the Anniversary Date, a
stockholder's notice shall be timely if delivered to, or mailed to and received
by, the Company at its principal executive office not later than the close of
business on the later of (1) the 75th day prior to the scheduled date of such
Annual Meeting and (2) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the Company.
Any proposal should be sent to, and a copy of the applicable provision(s) of the
Bylaws may be obtained, without charge, upon written request to, Joseph N.
Rozek, Secretary, of the Company at its principal executive office in Berlin,
New Hampshire. The proposal must also comply with the other requirements of the
Company's Bylaws. Proxies solicited by the Board of Directors will confer
discretionary voting authority with respect to these proposals, subject to SEC
rules governing the exercise of this authority.
In addition to the foregoing, in accordance with the rules of the SEC, any
proposal that a stockholder intends to present at the annual meeting of
stockholders in 2005 must be received by the Company not less than 120 calendar
days prior to the anniversary date of the immediately preceding proxy statement,
or December 16, 2004, to be eligible for inclusion in the proxy statement and
form of proxy relating to such meeting. These proposals must also comply with
the rules of the SEC governing the form and content of proposals in order to be
included in the Company's proxy statement and form of proxy.
By Order of the Board of Directors
Joseph N. Rozek
Secretary
Berlin, New Hampshire
April 12, 2004
APPENDIX A
NORTHWAY FINANCIAL, INC BOARD OF DIRECTORS AUDIT COMMITTEE CHARTER
(Adopted by the Board of Directors at a meeting held on February 24, 2004)
I. GENERAL STATEMENT OF PURPOSE
The purposes of the Audit Committee of the Board of Directors (the "Audit
Committee") of Northway Financial, Inc. (the "Company") are to:
o oversee the accounting and financial reporting processes of the
Company and the audits of the Company's financial statements;
o assist the Board of Directors (the "Board") in its oversight of (1)
the integrity of the Company's financial statements, and (2) the
qualifications, independence and performance of the Company's
independent auditors; and
o prepare the report required by the rules of the Securities and
Exchange Commission (the "SEC") to be included in the Company's annual
proxy statement.
II. COMPOSITION
The Audit Committee shall consist of at least three (3) members of the
Board, each of whom must (1) be "independent" as defined in Rule 4200 under
the Marketplace Rules of the National Association of Securities Dealers,
Inc. ("NASD"), (2) meet the criteria for independence set forth in Section
10A(m)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and Rule 10A-(b)(1) promulgated thereunder (subject to the exemptions
provided in Rule 10A-3(c)), and (3) not have participated in the preparation
of the financial statements of the Company or any current subsidiary of the
Company at any time during the past three years.
Notwithstanding the foregoing, one director who (1) is not "independent" as
defined in Rule 4200 under the Marketplace Rules of the NASD, (2) meets the
criteria for independence set forth in Section 10A(m)(3) of the Exchange Act
and the rules promulgated thereunder, and (3) is not a current officer or
employee or a "family member" (as defined in Rule 4200 under the Marketplace
Rules of the NASD) of such officer or employee, may be appointed to the
Audit Committee, if the Board, under exceptional and limited circumstances,
determines that membership on the Audit Committee by the individual is
required by the best interests of the Company and its stockholders, and the
Board discloses, in the next annual proxy statement subsequent to such
determination, the nature of the relationship and the reasons for that
determination. A member appointed under this exception may not serve on the
Audit Committee for more than two years and may not chair the Audit
Committee. Each member of the Audit Committee must be able to read and
understand fundamental financial statements, including a company's balance
sheet, income statement, and cash flow statement.
The Human Resources, Compensation and Nominating Committee shall recommend
nominees for appointment to the Audit Committee annually and as vacancies or
newly created positions occur. The members of the Audit Committee shall be
appointed annually by the Board and may be replaced or removed by the Board
with or without cause. Resignation or removal of a Director from the Board,
for whatever reason, shall automatically and without any further action
constitute resignation or removal, as applicable, from the Audit Committee.
Any vacancy on the Audit Committee, occurring for whatever reason, may be
filled only by the Board. The Board shall designate one member of the Audit
Committee to be Chairman of the committee.
III. COMPENSATION
A member of the Audit Committee may not, other than in his or her capacity
as a member of the Audit Committee, the Board or any other committee
established by the Board, receive from the Company any consulting, advisory
or other compensatory fee from the Company. A member of the Audit Committee
may receive additional directors' fees to compensate such member for the
significant time and effort expended by such member to fulfill his or her
duties as an Audit Committee member. Such additional fees may be greater
than those fees paid to other directors, but should be commensurate with the
time and effort expected to be expended by such Audit Committee member in
the performance of his or her duties as an Audit Committee member.
IV. MEETINGS
The Audit Committee shall meet as often as it determines is appropriate to
carry out its responsibilities under this charter, but not less frequently
than quarterly. A majority of the members of the Audit Committee shall
constitute a quorum for purposes of holding a meeting and the Audit
Committee may act by a vote of a majority of the members present at such
meeting. The Chairman of the Audit Committee, in consultation with the other
Committee members, may determine the frequency and length of the committee
meetings and may set meeting agendas consistent with this Charter.
V. RESPONSIBILITIES AND AUTHORITY
A. Review of Charter
o The Audit Committee shall review and reassess the adequacy of this
Charter annually and recommend to the Board any amendments or
modifications to the Charter that the Audit Committee deems
appropriate.
B. Matters Relating to Selection, Performance and Independence of
Independent Auditor
o The Audit Committee shall be directly responsible for appointment,
compensation, retention and oversight of the work of the independent
auditor (including resolution of disagreements between management and
the independent auditor regarding financial reporting) for the purpose
of preparing or issuing an audit report or performing other audit,
review or attest services.
o The Audit Committee shall instruct the independent auditor to report
directly to the Audit Committee.
o The Audit Committee shall pre-approve all auditing services and the
terms thereof (which may include providing comfort letters in
connection with securities underwritings) and non-audit services
(other than non-audit services prohibited under Section 10A(g) of the
Exchange Act or the applicable rules of the SEC or the Public Company
Accounting Oversight Board) to be provided to the Company by the
independent auditor; provided, however, the pre-approval requirement
is waived with respect to the provision of non-audit services for the
Company if the "de minimus" provisions of Section 10A(i)(1)(B) of the
Exchange Act are satisfied. This authority to pre-approve non-audit
services may be delegated to one or more members of the Audit
Committee, who shall present all decisions to pre-approve an activity
to the full Audit Committee at its first meeting following such
decision.
o The Audit Committee shall determine the compensation to be paid to the
independent auditor or other registered public accounting firm engaged
for the purpose of preparing or issuing an audit report or performing
other audit, review or attest services for the Company and the Company
shall pay such compensation.
o The Audit Committee may review and approve the scope and staffing of
the independent auditors' annual audit plan(s).
o The Audit Committee shall request that the independent auditor provide
the Audit Committee with the written disclosures and the letter
required by Independence Standards Board Standard No. 1, as modified
or supplemented, require that the independent auditor submit to the
Audit Committee on a periodic basis a formal written statement
delineating all relationships between the independent auditor and the
Company, discuss with the independent auditor any disclosed
relationships or services that may impact the objectivity and
independence of the independent auditor, and based on such
disclosures, statement and discussion take or recommend that the Board
take appropriate action in response to the independent auditor's
report to satisfy itself of the independent auditor's independence.
o The Audit Committee may consider whether the provision of the services
covered in Items 9(e)(2) and 9(e)(3) of Regulation 14A of the Exchange
Act (or any successor provision) is compatible with maintaining the
independent auditor's independence.
o The Audit Committee shall assure the regular rotation of the lead
audit partner and lead reviewing partner as required under Section
10A(j) of the Exchange Act.
o The Audit Committee may recommend to the Board polices with respect to
the potential hiring of current or former employees of the independent
auditor.
o The Audit Committee shall evaluate annually the independent auditor's
qualifications, performance and independence, and present its
conclusions with respect to the independent auditors to the full
Board.
C. Audited Financial Statements and Annual Audit
o The Audit Committee shall review the overall audit plan (both internal
and external) with the independent auditor and the members of
management who are responsible for preparing the Company's financial
statements, including the Company's Chief Financial Officer and/or
principal accounting officer or principal financial officer (the Chief
Financial Officer and such other officer or officers are referred to
herein collectively as the "Senior Accounting Executive").
o The Audit Committee shall review and discuss with management
(including the Company's Senior Accounting Executive) and with the
independent auditor:
I. THE COMPANY'S ANNUAL AUDITED FINANCIAL STATEMENTS AND
MANAGEMENT'S DISCUSSION AND ANALYSIS, INCLUDING (A) ALL CRITICAL
ACCOUNTING POLICIES AND PRACTICES USED OR TO BE USED BY THE
COMPANY AND (B) ANY SIGNIFICANT FINANCIAL REPORTING ISSUES THAT
HAVE ARISEN IN CONNECTION WITH THE PREPARATION OF SUCH AUDITED
FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS,
PRIOR TO THE FILING OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K;
II. ANY ANALYSES PREPARED BY MANAGEMENT, THE INTERNAL AUDITORS AND/OR
THE INDEPENDENT AUDITORS SETTING FORTH SIGNIFICANT FINANCIAL
REPORTING ISSUES AND JUDGMENTS MADE IN CONNECTION WITH THE
PREPARATION OF THE FINANCIAL STATEMENTS, INCLUDING ANALYSES OF
THE EFFECTS OF ALTERNATIVE GAAP METHODS ON THE FINANCIAL
STATEMENTS. THE AUDIT COMMITTEE MAY CONSIDER THE RAMIFICATIONS OF
THE USE OF SUCH ALTERNATIVE DISCLOSURES AND TREATMENTS ON THE
FINANCIAL STATEMENTS, AND THE TREATMENT PREFERRED BY THE
INDEPENDENT AUDITOR. THE AUDIT COMMITTEE MAY ALSO CONSIDER OTHER
MATERIAL WRITTEN COMMUNICATIONS BETWEEN THE REGISTERED PUBLIC
ACCOUNTING FIRM AND MANAGEMENT, SUCH AS ANY MANAGEMENT LETTER OR
SCHEDULE OF UNADJUSTED DIFFERENCES;
III. THE ADEQUACY OF THE COMPANY'S INTERNAL CONTROLS AND PROCEDURES
FOR FINANCIAL REPORTING;
IV. MAJOR CHANGES IN AND OTHER ISSUES REGARDING ACCOUNTING AND
AUDITING PRINCIPLES AND PROCEDURES, INCLUDING ANY SIGNIFICANT
CHANGES IN THE COMPANY'S SELECTION OR APPLICATION OF ACCOUNTING
PRINCIPLES;
V. THE EFFECT OF REGULATORY AND ACCOUNTING INITIATIVES, AS WELL AS
OFF-BALANCE SHEET TRANSACTIONS AND STRUCTURES, ON THE FINANCIAL
STATEMENTS OF THE COMPANY; AND
VI. THE CONDUCT, THE ADEQUACY AND RESULTS OF THE REVIEW OF THE LOAN
PORTFOLIOS OF THE COMPANY'S SUBSIDIARY BANKS.
o The Audit Committee shall review and discuss with the independent
auditor (outside of the presence of management) how the independent
auditor plans to handle its responsibilities under the Private
Securities Litigation Reform Act of 1995, and request assurance from
the auditor that Section 10A of the Private Securities Litigation
Reform Act of 1995 has not been implicated.
o The Audit Committee shall review and discuss with the independent
auditor any audit problems or difficulties and management's response
thereto. This review shall include (1) any difficulties encountered by
the auditor in the course of performing its audit work, including any
restrictions on the scope of its activities or its access to
information, (2) a discussion of the responsibilities, budget and
staffing of the Company's internal audit function, and (3) any
significant disagreements with management.
o The Audit Committee shall review and discuss with the independent
auditor those matters brought to the attention of the Audit Committee
by the auditors pursuant to Statement on Auditing Standards No. 61
("SAS 61") and may otherwise consider in connection with its review of
any difficulties that the auditor may have encountered with management
or others:
I. ANY RESTRICTIONS ON THE SCOPE OF THE INDEPENDENT AUDITORS'
ACTIVITIES OR ACCESS TO REQUESTED INFORMATION;
II. ANY ACCOUNTING ADJUSTMENTS THAT WERE NOTED OR PROPOSED BY THE
AUDITORS BUT WERE "PASSED" (AS IMMATERIAL OR OTHERWISE);
III. ANY COMMUNICATIONS BETWEEN THE AUDIT TEAM AND THE AUDIT FIRM'S
NATIONAL OFFICE REGARDING AUDITING OR ACCOUNTING ISSUES PRESENTED
BY THE ENGAGEMENT;
IV. ANY MANAGEMENT OR INTERNAL CONTROL LETTER ISSUED, OR PROPOSED TO
BE ISSUED, BY THE AUDITORS; AND
V . ANY SIGNIFICANT DISAGREEMENTS BETWEEN THE COMPANY'S MANAGEMENT
AND THE INDEPENDENT AUDITORS.
o The Audit Committee shall review and discuss with the independent
auditors the report required to be delivered by such auditors pursuant
to Section 10A(K) of the Exchange Act.
o If brought to the attention of the Audit Committee, the Audit
Committee shall discuss with the CEO and CFO of the Company (1) all
significant deficiencies and material weaknesses in the design or
operation of internal controls and procedures for financial reporting,
including the Company's loan review process, which could adversely
affect the Company's ability to record, process, summarize and report
financial information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act, within the
time periods specified in the SEC's rules and forms, and (2) any fraud
involving management or other employees who have a significant role in
the Company's internal controls and procedures for financial
reporting.
o Based on the Audit Committee's review and discussions (1) with
management of the audited financial statements, (2) with the
independent auditor of the matters required to be discussed by SAS 61,
and (3) with the independent auditor concerning the independent
auditor's independence, the Audit Committee shall make a
recommendation to the Board as to whether the Company's audited
financial statements should be included in the Company's Annual Report
on Form 10-K for the last fiscal year.
o The Audit Committee shall prepare the Audit Committee report required
by Item 306 of Regulation S-K of the Exchange Act (or any successor
provision) to be included in the Company's annual proxy statement.
D. Unaudited Quarterly Financial Statements
o The Audit Committee shall discuss with management and the independent
auditor, such issues as may be brought to the Audit Committee's
attention by the independent auditor pursuant to Statement on Auditing
Standards No. 71 and in connection with such auditor's review of
Management's Discussion and Analysis in the related quarterly report.
E Procedures for Addressing Complaints and Concerns
o The Audit Committee shall establish procedures for (1) the receipt,
retention and treatment of complaints received by the Company
regarding accounting, internal accounting controls, or auditing
matters and (2) the confidential, anonymous submission by employees of
the Company of concerns regarding questionable accounting or auditing
matters.
o The Audit Committee may review and reassess the adequacy of these
procedures periodically and adopt any changes to such procedures that
the Audit Committee deems necessary or appropriate.
F. Regular Reports to the Board
o The Audit Committee shall regularly report to and review with the
Board any issues that arise with respect to the quality or integrity
of the Company's financial statements, the Company's compliance with
legal or regulatory requirements, the performance and independence of
the independent auditors, the performance of the internal audit or
loan review function and any other matters that the Audit Committee
deems appropriate or is requested to review for the benefit of the
Board.
VI. ADDITIONAL AUTHORITY
The Audit Committee is authorized, on behalf of the Board, to do any of
the following as it deems necessary or appropriate:
A. Engagement of Advisors
o The Audit Committee may engage independent counsel and such other
advisors, as it deems necessary or advisable to carry out its duties,
responsibilities and powers. If such counsel or other advisors are
engaged, the Audit Committee shall determine the compensation or fees
payable to such counsel or other advisors and the Company shall pay
such compensation or fees.
B. Legal and Regulatory Compliance
o The Audit Committee may discuss with management and the independent
auditor the legal and regulatory requirements applicable to the
Company and its subsidiaries and the Company's compliance with such
requirements. The Audit Committee may, if it determines it to be
appropriate, make recommendations to the Board or other committees of
the Board with respect to the Company's policies and procedures
regarding compliance with applicable laws and regulations.
o The Audit Committee may discuss with management legal matters
(including pending or threatened litigation) that may have a material
effect on the Company's financial statements or its compliance
policies and procedures.
C. General
o The Audit Committee may form and delegate authority to subcommittees
consisting of one or more of its members as the Audit Committee deems
appropriate to carry out its responsibilities and exercise its powers.
o The Audit Committee may perform such other oversight functions as may
be requested by the Board from time to time.
o In performing its oversight function, the Audit Committee shall be
entitled to rely upon advice and information that it receives in its
discussions and communications with management, the independent
auditor and such experts, advisors and professionals as may be
consulted with by the Audit Committee.
o The Audit Committee is authorized to request that any officer or
employee of the Company, the Company's outside legal counsel, the
Company's independent auditor or any other professional retained by
the Company to render advice to the Company attend a meeting of the
Audit Committee or meet with any members of or advisors to the Audit
Committee.
o The Audit Committee is authorized to incur such ordinary
administrative expenses as are necessary or appropriate in carrying
out its duties and the Company shall pay such expenses.
Notwithstanding the responsibilities and powers of the Audit Committee set forth
in this Charter, the Audit Committee does not have the responsibility of
planning or conducting audits of the Company's financial statements or
determining whether the Company's financial statements are complete, accurate
and in accordance with GAAP. Such responsibilities are the duty of management
and, to the extent of the independent auditor's audit responsibilities, the
independent auditor. In addition, it is not the duty of the Audit Committee to
conduct investigations or to assure compliance with laws and regulations or the
Company's Ethics and Conflict of Interest Policy.
DETACH HERE ZNRTC2
NORTHWAY FINANCIAL, INC.
9 MAIN STREET, BERLIN, NEW HAMPSHIRE 03570
PROXY FOR COMMON STOCK
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Joseph N. Rozek and Richard P. Orsillo, and each
of them, proxies with full power of substitution to vote for and on behalf of
the undersigned at the Annual Meeting of Stockholders of Northway Financial,
Inc. ("Northway"), to be held at the Town & Country Motor Inn, Route 2,
Shelburne, New Hampshire, on May 25, 2004 at 2:00 p.m., and at any adjournment
or postponements thereof, hereby granting full power and authority to act on
behalf of the undersigned at said meeting or any adjournment or postponement
thereof. The undersigned revokes any proxy previously given in connection with
such meeting and acknowledges receipt of Notice of the Annual Meeting of
Stockholders and Northway's 2003 Annual Report to Stockholders.
- ----------- -----------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SEE REVERSE
SIDE SIDE
- ----------- -----------
NORTHWAY FINANCIAL, INC.
C/O EQUISERVE TRUST COMPANY N.A.
P.O. BOX 8694
EDISON, NJ 08818-8694
DETACH HERE ZNRTC1
- -- PLEASE MARK
X VOTES AS IN #NRT
- -- THIS EXAMPLE.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO INSTRUCTIONS
ARE INDICATED, THE UNDERSIGNED'S VOTES WILL BE CAST "FOR" EACH OF SUCH MATTERS. PLEASE SIGN AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
1. Proposal to elect (01) Fletcher W. Adams, (02) Arnold P. Such other business as may properly come before the
Hanson, Jr., (03) John H. Noyes and (04) William J. Woodward meeting or any adjournments or postponements
for a three year term to continue until the 2007 Annual thereof.
Meeting of Stockholders, and until the successor of each is
duly elected and qualified. Such other business as may
properly come before the meeting or any adjournments or
postponements thereof.
FOR -------- --------- WITHHELD
ALL FROM ALL
NOMINEES -------- --------- NOMINEES
---------
- ----------
---------------------------------------
For all nominees except as noted above
-----
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT.
-----
For joint accounts, each owner should sign.
Executors, administrators, trustees, corporate
officers and others acting in a representative
capacity should give full title or authority.
Signature: __________________________________ Date: __________ Signature: __________________________________ Date: __________