STOCKHOLDER POSITION PRIOR TO SPLIT TRANSACTION -------------------------------------------------------------------------------------	EFFECT OF SPLIT TRANSACTION ------------------------------------------------------------------------------------------------------------------------
Stockholders holding in registered name 400 or more shares of common stock	Stockholders will ultimately hold twice as many shares as held pre-split transaction.
Stockholders holding in registered name fewer than 400 shares of common stock	Shares will be converted into $37.50 per share of common stock outstanding immediately prior to the reverse stock split.
Stockholders holding common stock in “street name” through a nominee (such as a bank or broker)	Northway intends for the split transaction to affect stockholders holding common stock through a nominee the same as those holding shares in a record account and nominees will be asked to effect the split transaction for their beneficial owners. However, your nominee may choose not to effect the split transaction on your common stock, and your nominee may have different procedures that you must follow. Stockholders holding shares in street name should contact their nominee to determine how the split transaction will affect them.

If you hold shares of Northway common stock in “street name” through a nominee (such as a broker or a bank), the effect of the split transaction on your shares of common stock may be different than for record holders. Your nominee may or may not effect the split transaction on your shares of common stock held in street name. You should contact your nominee to determine how the split transaction will affect you.

 

The primary effect of this transaction will be to reduce our total number of stockholders of record to below 300. As a result, we will terminate the registration of our common stock under federal securities laws, our reporting obligations with the Securities and Exchange Commission (the “SEC”) will be suspended, and we will no longer be eligible for trading on the NASDAQ Global Market.

 

We are proposing this transaction because our Board of Directors (the “Board”) has concluded, after careful consideration, that the costs and other disadvantages associated with being an SEC-reporting company outweigh the advantages. The reasons the Board reached this conclusion include:

·	we estimate that we can eliminate current costs of approximately $232,000 on an annual basis by eliminating the requirement to make periodic reports and reducing the expenses of stockholder communications;

·

operating as a non-SEC reporting company will reduce the burden on our management that arises from increasingly stringent SEC reporting requirements, including requirements of the Sarbanes-Oxley Act of 2002 (“SOX”), thus allowing management to focus more of its attention on our customers and the communities in which we operate;

·	at least 815 of our 1,087 record stockholders own fewer than 400 shares and the elimination of those small stockholders can be expected to reduce significantly our costs of stockholder communications; and

·	these costs of being a public company outweigh the benefits to a well-capitalized company of our size, and terminating our public company status will free up management to focus more on long-term business prospects beneficial to stockholders and customers.

The enclosed Proxy Statement includes a discussion of the alternatives and factors considered by the Board in connection with its approval of the reverse/forward stock split, and we encourage you to read carefully the Proxy Statement and its appendices. Your Board believes the terms of the proposed transaction are fair and are in the best interest of our stockholders, and unanimously recommends that you vote “FOR” the proposal to amend our articles of incorporation

I, along with the other members of the Board, 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 FINANCIAL, INC.

9 Main Street

Berlin, New Hampshire 03570

Telephone 603-752-1171

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON TUESDAY, JULY 31, 2007

NOTICE IS HEREBY GIVEN THAT the Annual Meeting of Stockholders of Northway Financial, Inc. will be held on Tuesday, July 31, 2007 at 2:00 p.m. at The Town and Country Motor Inn, Route 2, Shelburne, New Hampshire 03581 for the following purposes:

(1)	to consider and vote on a proposal to amend Northway Financial Inc.’s (“Northway”) articles of incorporation to effect a 1-for-400 reverse split of Northway’s common stock. The text of the proposed amendment is attached as Appendix A-1 to the accompanying Proxy Statement;

 

(2)	to consider and vote on a proposal to amend Northway’s articles of incorporation to effect an 800-for-1 forward split of Northway’s common stock. The text of the proposed amendment is attached as Appendix A-2 to the accompanying Proxy Statement;

 

(3)	to elect three (3) class I Directors to serve until the 2010 Annual Meeting of Stockholders and one (1) class III Director to serve until the 2009 Annual Meeting of Stockholders or until their respective successors are duly elected and qualified; and

 

(4)	to transact such other business as may properly come before the meeting and any adjournments or postponements thereof.

 

Although the reverse stock split and forward stock split are two separate proposals on which you may vote, unless the reverse stock split is approved by stockholders, neither of the splits will be implemented. Thus, a vote in favor of the forward stock split but not the reverse stock split effectively acts as a vote against both of the splits and the transactions described in this document.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THE STOCK SPLITS, PASSED UPON THE MERITS OR FAIRNESS OF THE STOCK SPLITS, OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY NORTHWAY.

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 June 1, 2007 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

June 21, 2007

YOUR VOTE IS IMPORTANT

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.

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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, JULY 31, 2007

This Proxy Statement and accompanying form of proxy are furnished in connection with the solicitation of proxies on behalf of the Board of Directors (“Board”) of Northway Financial, Inc., a New Hampshire corporation ("Northway"), for use in voting at the Annual Meeting of Stockholders (the "Annual Meeting") to be held at 2:00 p.m. on July 31, 2007, 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 June 21, 2007 to stockholders of record at the close of business on June 1, 2007 in connection with the solicitation.

At the close of business on June 1, 2007, there were outstanding and entitled to vote 1,494,174 shares of Northway’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 Annual Meeting. Only stockholders of record at the close of business on June 1, 2007 shall be entitled to vote at the Annual Meeting.

The proxies of holders of common stock are being solicited by the Board. 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 Annual Meeting and not revoked will be voted at the Annual 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 ANNUAL 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 Annual Meeting in person, notifying the Secretary, and voting by ballot at the Annual Meeting. Any stockholder of record attending the Annual 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 Annual Meeting will not constitute revocation of a previously given proxy.

Northway 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. Northway has retained The Altman Group, Inc. to help the Board solicit proxies and expects to pay a base fee of $5,000, fees based upon the number of stockholder contacts plus reasonable out-of-pocket expenses for its help. In addition to the use of the mails, proxies may be solicited by the Directors, officers, and certain employees of Northway and Northway Bank, 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. Northway 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. Northway 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 Annual 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 Annual 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.

Northway is a New Hampshire corporation and the parent of Northway Bank (“Bank”), a New Hampshire-chartered bank based in Berlin, New Hampshire, Northway Capital Trust I (“NCT I”), a Delaware statutory business trust, Northway Capital Trust II (“NCT II”), a Delaware statutory business trust, and Northway Capital Trust III (“NCT III”), a Delaware statutory business trust. Unless the context otherwise requires, references herein to the “Company” include Northway Financial, Inc. and its consolidated subsidiary, Northway Bank.

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FORWARD-LOOKING STATEMENTS

Certain statements in this report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include, but are not limited to, projections of revenue, income or loss, plans for future operations and acquisitions, projections based on assumptions regarding market and liquidity risk, and plans related to products or services of the Company. Such forward-looking statements are subject to known and unknown risks, uncertainties and contingencies, many of which are beyond the control of the Company. To the extent any such risks, uncertainties and contingencies are realized, the Company’s actual results, performance or achievements could differ materially from anticipated results, performance or achievements. Factors that might affect such forward-looking statements include, among other factors, overall economic and business conditions, economic and business conditions in the Company’s market areas, interest rate fluctuations, a prolonged continuation of the current interest rate environment, the demand for the Company’s products and services, competitive factors in the industries in which the Company competes, changes in government regulations, and the timing, impact and other uncertainties of future acquisitions.

In addition to the factors described above, the following are some additional factors that could cause our financial performance to differ from any forward-looking statement contained herein: i) changes in interest rates over the past year and the relative relationship between the various interest rate indices that the Company uses; ii) a deterioration in the financial markets affecting the valuation of securities held in the Company’s investment portfolio; (iii) a change in product mix attributable to changing interest rates, customer preferences or competition; iv) a significant portion of the Company’s loan customers are in the hospitality business and therefore could be affected by a slower economy, adverse weather conditions and/or rising gasoline prices; and v) the effectiveness of advertising, marketing and promotional programs.

The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project” or the negative of such terms and other similar expressions which are predictions of or indicate future events and trends and which do not relate to historical matters identify forward-looking statements. Reliance should not be placed on forward-looking statements because they involve known or unknown risks, uncertainties or other factors, which may cause the actual results, performance or achievements of the Company to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. The Company expressly disclaims any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Though the Company has attempted to list comprehensively the factors which might affect forward-looking statements, the Company wishes to caution you that other factors may in the future prove to be important in affecting the Company’s results of operations. New factors emerge from time-to-time and it is not possible for management to anticipate all of such factors, nor can it assess the impact of each such factor, or combination of factors, which may cause actual results to differ materially from forward-looking statements.

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TABLE OF CONTENTS

SUMMARY TERM SHEET	1
QUESTIONS AND ANSWERS ABOUT THE SPLIT TRANSACTION AND THE ANNUAL MEETING	5
ABOUT THE ANNUAL ANNUAL MEETING	8
Date, Time and Place of Annual Annual Meeting	8
Matters to be Considered at the Annual Meeting	8
Record Date; Voting Power	8
Quorum	8
Vote Required for Approval	8
Voting and Revocation of Proxies	9
Solicitation of Proxies; Expenses of Solicitation	9
Other Matters to be Considered at Annual Meeting	9
THE SPLIT TRANSACTION -- SPECIAL FACTORS	9
Overview of the Split Transaction	9
Background of the Split Transaction	10
Reasons for the Split Transaction	13
Current and Historical Market Prices of Northway’s Common Stock	14
Premium over Market Price	14
Net Book Value	14
Going Concern Value	14
Liquidation Value	15
Stock Repurchases	15
Fairness of the Split Transaction	16
Substantive Fairness	16
Procedural Fairness	17
Effects of the Split Transaction on Affiliates	19
Determination of Fairness of Split Transaction by Affiliates	19
Board Recommendation	19
Fairness Opinion Northeast Capital	19
Availability of Documents	25
Structure of the Split Transaction	25
Effects of the Split Transaction on Northway	25
Elimination of Non-Continuing Stockholders	26
Financial Effects of the Split Transaction	26
Effect on Options	26
Effect on Conduct of Business after the Transaction	26
Dividend Payments	27
Plans or Proposals	27
Interests of Certain Persons in the Split Transaction	27
Financing of the Split Transaction	27
Federal Income Tax Consequences	27
Appraisal Rights and Dissenters' Rights	29
Regulatory Requirements	29
Accounting Treatment	29
Fees and Expenses	29
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA	30
MARKET PRICE OF NORTHWAY COMMON STOCK AND DIVIDEND INFORMATION	31
COMMON STOCK PURCHASE INFORMATION	31
ELECTION OF DIRECTORS	32
Nominees and Directors Continuing in Office	32
Meetings and Committees of the Board	33
Stockholder Communications with the Board	35
Executive Officers	35
Security Ownership of Management and Principal Stockholders	36
Compensation Discussion and Analysis	37
Executive Compensation	39
Employment Contracts	41
Key Employee Agreement	42
Compensation of Directors	42
Fees Paid to Independent Auditors	44
Certain Relationships and Related Transactions	44
RELATIONSHIP WITH INDEPENDENT AUDITORS	45
OTHER MATTERS	45
INFORMATION INCORPORATED BY REFERENCE	45
STOCKHOLDER PROPOSALS	45
APPENDIX A-1 Proposed Form of Amendment to Amended and Restated Articles of Incorporation to Effect Reverse Stock Split	A-1
Proposed Form of Amendment to Amended and Restated Articles of Incorporation to Effect Forward Stock Split	A-2
APPENDIX B-1 Opinion of Northeast Capital & Advisory, Inc	B-1
APPENDIX B-2 Updated Opinion of Northeast Capital & Advisory, Inc.	B-2
APPENDIX C Northway Financial, Inc. Audit Committee Charter	C-1
APPENDIX D Selected Provisions of the New Hampshire Business Corporation Act	D-1

 

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SUMMARY TERM SHEET

 

This summary provides an overview of material information from this Proxy Statement. However, it is a summary only. To better understand the reverse stock split and forward stock split transaction and for a more complete description of its terms, and for a description of other matters to be considered at the Annual Meeting, we encourage you to read carefully this entire document and the documents to which it refers before voting.

 

In this Proxy, the term "non-continuing stockholders" of Northway means all holders of common stock of Northway with fewer than 400 shares at the effective time of the reverse stock split transaction who will be cashed out as a result of the split transaction. Northway intends for the split transaction to affect "street name" stockholders the same as those holding shares in a record account, and nominees will be asked to effect the split transaction for their beneficial owners. However, nominees may choose not to effect the split transaction on street name shares. The term "continuing stockholders" means all holders of common stock of Northway with at least 400 shares at the effective time of the reverse stock split transaction. References to "common stock" or "shares" refer to the Northway's common stock, par value $1.00 per share.

 

Proposals to be Considered at the Annual Meeting

 

At the Annual Meeting, stockholders will be asked:

 

(1)	To consider and vote on a proposal to amend Northway’s articles of incorporation to effect a 1-for-400 reverse split of Northway’s common stock. The text of the proposed amendment is attached as Appendix A-1 to the accompanying Proxy Statement;

(2)	To consider and vote on a proposal to amend Northway’s articles of incorporation to effect an 800-for-1 forward split of Northway’s common stock. The text of the proposed amendment is attached as Appendix A-2 to the accompanying Proxy Statement;

 

(3)	to elect three (3) class I Directors to serve until the 2010 Annual Meeting and one (1) class III Director to serve until the 2009 Annual Meeting or until their respective successors are duly elected and qualified; and

(4)	to transact such other business as may properly come before the meeting and any adjournments or postponements thereof.

 

Stockholders are also being asked to consider and vote upon any other matters that may properly be submitted to a vote at the meeting or any adjournment or postponement of the Annual Meeting. See "ABOUT THE ANNUAL MEETING."

 

Record Date

You may vote at the Annual Meeting if you owned Northway common stock at the close of business on June 1, 2007, which has been set as the record date. At the close of business on the record date, there were 1,494,174 shares of Northway’s common stock, par value of $1.00 per share, outstanding and entitled to vote. You are entitled to one vote on each matter considered and voted upon at the Annual Meeting for each share of common stock you held of record at the close of business on the record date.

 

Vote Required for Approval

 

The Reverse/Forward Stock Split. Approval of the split transaction requires the affirmative vote of the holders of a majority of all outstanding shares of our common stock entitled to vote at the Annual Meeting, or 747,088 of the 1,494,174 outstanding shares. Although the reverse stock split and forward stock split are two separate proposals on which stockholders may vote, unless the reverse stock split is approved by stockholders, neither of the splits will be implemented. Because the Executive Officers and Directors of the Company have the power to vote a total of 225,111 shares and we believe that all of such Executive Officers and Directors will vote in favor of the transaction, this means a total of 521,977 shares held by stockholders who are not Executive Officers or Directors of the Company will be required to vote in favor of the transaction for it to be approved. Because the Executive Officers and Directors of Company own only approximately 15.1% of the voting power of our outstanding common stock, there is no assurance that the split transaction will be approved.

 

Election of Directors. Directors will be elected by a plurality of the votes cast at the Annual Meeting. Plurality means that the individuals who receive the largest number of votes cast are elected up to the maximum number of Directors to be elected at the meeting.

 

The Company

Northway is a New Hampshire corporation and the parent of the Bank, a New Hampshire-chartered bank with a business address of 9 Main Street, Berlin, New Hampshire, 03570 and a business telephone number of (603) 752-1171. The Company derives substantially all of its revenue and income from the furnishing of bank and bank-related services, principally to individuals and small and medium-sized companies in New Hampshire. The Bank operates as a typical community banking institution and does not engage in any specialized finance or capital market activities. Northway functions primarily as the holder of stock of its subsidiary and assists the management of its subsidiary as appropriate.

The Bank is engaged in a general commercial banking business and offers commercial and construction loans, real estate mortgages, consumer loans, including personal secured and unsecured loans, and lines of credit. The Bank accepts savings, time, demand, NOW and money market deposit accounts, and offers a variety of banking services including safe deposit boxes, credit cards, official checks and money orders, overdraft lines of credit, alternative investments, commercial cash management, and wire transfer services.

 

Introduction and Overview of the Split Transaction

 

If approved, the Split Transaction will consist of the following steps:

 

·	A 1-for-400 reverse stock split of Northway common stock will occur on the date that the New Hampshire Secretary of State accepts for filing articles of amendment to our Articles (such date, the "Effective Date"). As a result:

Each record holder of less than 400 shares of common stock immediately before the reverse stock split will receive from Northway cash in the amount of $37.50, without interest, for each share of common stock held immediately before the reverse stock split and will no longer be a shareholder of Northway; and

Each record holder of 400 or more shares of common stock immediately prior to the reverse stock split will own one one-four-hundreth of the number of shares of common stock as were held by the shareholder immediately before the reverse stock split. We will not purchase any fractional shares of common stock (i.e., less than one whole common share) held by record holders of 400 or more shares of common stock on the Effective Date and we will not make any payments to holders of 400 or more shares of our common stock.

·

After completion of the reverse stock split, each holder of 400 or more shares of common stock immediately before the reverse stock split will participate in a 800-for-1 forward stock split, which will result in such holder owning twice the number of shares of common stock after the forward stock split as such holder owned immediately before the reverse stock split.

·

If you are a record holder who holds less than 400 shares of common stock but do not want to be cashed out in the Split Transaction, you may theoretically remain a shareholder of Northway by purchasing a sufficient number of shares of common stock in the open market, to the extent available, far enough in advance of the Split Transaction so that you hold at least 400 shares of common stock on the Effective Date. Conversely, if you are a record holder of 400 or more shares of common stock and want to be cashed out in the Split Transaction, you may theoretically do so by selling a sufficient number of shares of common stock in the open market far enough in advance of the Split Transaction so that you hold less than 400 shares of common stock on the Effective Date. However, given the limited trading volume in our shares of common stock, you may not be able to purchase or sell shares of common stock in order to remain a shareholder of Northway or liquidate shares of common stock, as the case may be. In the absence of an active trading market for the common stock, you would have to acquire or sell Northway shares in a privately negotiated transaction, which would require you to identify one or more additional holders of Northway common stock who desire to sell or purchase Northway common stock.

·

If you hold shares of Northway common stock in "street name" through a nominee (such as a broker or a bank), the effect of the Split Transaction on your shares of common stock may be different than for record holders. Northway intends for the split transaction to affect "street name" stockholders the same as those holding shares in a record account, and nominees will be asked to effect the split transaction for their beneficial owners. However, your nominee may or may not effect the Split Transaction on your shares of common stock held in street name. You should contact your nominee to determine how the Split Transaction will affect you.

These numbers and amounts may change as a result of trading activity in our shares between the date hereof and the effective date of the split transaction. See “THE SPLIT TRANSACTION--SPECIAL FACTORS--Overview of the Split Transaction.”

 

We expect to pay a total of approximately $4,889,000 to stockholders in the reverse stock split and we anticipate that the number of outstanding shares of our common stock will decrease approximately 8.7%, from 1,494,174 shares to approximately 1,363,797 shares as a result of the split transaction. These numbers and amounts may change as a result of trading activity in our shares between the date hereof and the effective date of the split transaction. See “THE SPLIT TRANSACTION--SPECIAL FACTORS--Overview of the Split Transaction.”

 

Background of the Split Transaction

 

For a description of the events leading to the approval of the split transaction by our Board and the reasons for its approval, you should refer to “THE SPLIT TRANSACTION--SPECIAL FACTORS--Background of the Split Transaction,” “--Reasons for the Split Transaction”, “--Fairness of the Split Transaction,” and “--Board Recommendation” on pages 10 through 19. As we explain more fully in these sections, our Board considered and rejected various alternative methods of effecting a transaction that would enable us to become a non-SEC reporting company, while remaining an independently-owned, community-based bank.

 

Reasons for the Split Transaction

 

The Board’s reasons for the split transaction are set forth on pages 13 to 14. The Board has concluded that the costs of complying with the securities laws outweigh the benefits Northway receives for being an SEC reporting company.

 

See “THE SPLIT TRANSACTION--SPECIAL FACTORS -- Reasons for the Split Transaction.”

 

Fairness of the Split Transaction

 

Based on a careful review of the facts and circumstances relating to the split transaction, our Board believes that the split transaction and the terms and provisions of the split transaction, including the cash to be paid to the non-continuing stockholders, are substantively and procedurally fair to our unaffiliated stockholders, including unaffiliated stockholders that are continuing stockholders and unaffiliated stockholders that are non-continuing stockholders. Our Board unanimously approved the split transaction. See “THE SPLIT TRANSACTION--SPECIAL FACTORS--Fairness of the Split Transaction.”

 

For a complete discussion of the positive and negative factors considered by the Board, please see pages 16 through 18.

 

Fairness Opinion of Northeast Capital & Advisory, Inc.

 

In deciding to approve the split transaction and recommend it to our stockholders, our Board considered the opinion of Northeast Capital & Advisory, Inc. (“Northeast Capital”) that the $37.50 per share consideration proposed to be paid to the non-continuing stockholders, whether affiliated or unaffiliated, is fair from a financial point of view to those stockholders.

 

The full text of the fairness opinion is attached to this Proxy Statement as Appendix B-1, and you are encouraged to read it carefully. See “THE SPLIT TRANSACTION--SPECIAL FACTORS--Fairness Opinion of Northeast Capital.”

 

Structure of the Split Transaction

 

The transaction has been structured as a two-step stock split transaction because the reverse stock split will enable us to reduce the number of our stockholders of record to fewer than 300, while the forward stock split will bring the price per share to a level more typical for a community bank holding company. See “THE SPLIT TRANSACTION--SPECIAL FACTORS--Background of the Split Transaction” beginning on page 10.

 

If you hold shares of Northway common stock in “street name” through a nominee (such as a broker or a bank), the effect of the Split transaction on your shares of common stock may be different than for record holders. Your nominee may or may not effect the Split transaction on your shares of common stock held in street name. You should contact your nominee to determine how the Split transaction will affect you.

 

Effects of the Split Transaction

 

The split transaction is a “going private” transaction for Northway, meaning it will allow us to deregister with the SEC and suspend our reporting obligations under federal securities laws.

 

For a further description of how the split transaction will affect our stockholders, including the different effects on the affiliated and unaffiliated continuing and non-continuing stockholders, please see “THE SPLIT TRANSACTION--SPECIAL FACTORS--Fairness of the Split Transaction--Substantive Fairness” on pages 16 and 17. For more information on the effects on Northway of the split transaction, see “THE SPLIT TRANSACTION--SPECIAL FACTORS--Effects of the Split Transaction on Northway.”

 

Interests of Certain Persons in the Split Transaction

 

You should be aware that the Board and Executive Officers of the Company have interests in the split transaction that may present actual or potential, or the appearance of actual or potential, conflicts of interest in connection with the split transaction.

 

See “THE SPLIT TRANSACTION--SPECIAL FACTORS--Interests of Certain Persons in the Split Transaction.”

 

Financing of the Split Transaction

 

We estimate that the total funds required to fund the payment of the split transaction consideration to the non-continuing stockholders and to pay fees and expenses relating to the split transaction will be approximately $5,112,000. This amount may increase as a result of trading activity in our shares between the date hereof and the effective date of the split transaction. Northway has sufficient working capital pay this amount or reasonably anticipated increases in this amount.

 

Material Federal Income Tax Consequences of the Split Transaction

 

We believe that the split transaction, if approved and completed, will have the following federal income tax consequences:

 

·	the split transaction should result in no material federal income tax consequences to us;

·	the continuing stockholders, whether affiliated or unaffiliated, will not recognize any gain or loss or dividend income in connection with the split transaction; and

·

the receipt of cash in the split transaction by the non-continuing stockholders, whether affiliated or unaffiliated, will be taxable to those stockholders, who will generally recognize gain or loss in the split transaction in an amount determined by the difference between the cash they receive and their adjusted tax basis in their common stock surrendered. Any such recognized gain will be treated as capital gain unless, in the case of the particular stockholder, the receipt of the cash is deemed to have the effect of a dividend.

 

Because determining the tax consequences of the split transaction can be complicated, you should consult your own tax advisor to understand fully how the split transaction will affect you. See “THE SPLIT TRANSACTION--SPECIAL FACTORS--Federal Income Tax Consequences.”

 

Appraisal Rights

 

Under New Hampshire law, non-continuing stockholders will have appraisal rights in connection with the split transaction. Although you will not have appraisal rights in connection with the split transaction if you are a continuing stockholder, you may pursue all available remedies under applicable law. See “THE SPLIT TRANSACTION -- SPECIAL FACTORS -- Appraisal Rights.”

 

Recommendation of the Board

 

Our Board unanimously recommends that you vote “FOR” the proposed amendments to our articles of incorporation that will effect the split transaction.

 

Our Board also recommends that you vote "FOR" the director nominees, namely Fletcher W. Adams, Arnold P. Hanson, Jr., John H. Noyes and William J. Woodward.

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QUESTIONS AND ANSWERS ABOUT THE

 

SPLIT TRANSACTION AND THE ANNUAL MEETING

 

Q:	What is the date, time and place of the Annual Meeting?

 

A:	The Annual Meeting of our stockholders will be held at 2:00 p.m. on July 31, 2007 at The Town and Country Motor Inn, Route 2, Shelburne, New Hampshire 03581.

 

Q:	What is the proposed split transaction?

 

A:	We are proposing that our stockholders approve a reverse 1-for-400 stock split followed immediately by a forward 800-for-1 stock split of our outstanding common stock.

 

The purpose of the split transaction is to allow us to suspend our SEC-reporting obligations (referred to as “going private”) by reducing the number of our stockholders of record to fewer than 300. This will allow us to terminate our registration under the Securities Exchange Act of 1934, and relieve us of the costs typically associated with the preparation and filing of reports and other documents with the SEC.

 

Q:	What will I receive in the split transaction?

 

A:

If you are the registered owner of fewer than 400 shares of our common stock on the date of the reverse stock split, you will receive $37.50 in cash from us for each pre-split share you own. If you are the registered owner of 400 or more shares of our common stock on the date of the reverse stock split, you will not receive any cash payment for your shares in connection with the split transaction and will hold twice as many shares of our common stock following the split transaction as you did before the split transaction.

 

Q:	Why is 400 shares the cutoff number for determining which stockholders will be cashed out and which stockholders will remain as stockholders of Northway?

 

A:

The purpose of the split transaction is to reduce the number of our stockholders of record to fewer than 300, which will allow us to de-register as an SEC-reporting company. Our Board selected 400 shares as the “cutoff” number in order to enhance the probability that after the split transaction, if approved, we will have fewer than 300 stockholders of record.

 

Q:	What if I hold my shares in “street name”?

 

A:

Northway intends for the split transaction to affect "street name" stockholders the same as those holding shares in a record account, and nominees will be asked to effect the split transaction for their beneficial owners. However, your nominee may choose not to effect the split transaction on your street name shares, and your nominee may have different procedures that you must follow. Stockholders holding shares in street name should contact their nominee to determine how the split transaction will affect them.

 

Q:	What if I want to remain a stockholder of Northway?

 

A:

The key date for acquiring additional shares is August 6, 2007. So long as you are able to acquire a sufficient number of shares so that you are the registered owner of 400 or more shares by August 6, 2007, your shares of common stock will not be cashed out by the split transaction. However, you may be unable to purchase enough additional shares because of the limited market in the shares of common stock. In the absence of an active trading market for the common stock, you would have to acquire shares in a privately negotiated transaction, which would require you to identify one or more additional holders of Northway common stock who desire to sell such common stock, which may be difficult.

 

Q:	What is the recommendation of our Board regarding the proposal?

 

A:

Our Board has determined that the split transaction is advisable and in the best interests of Northway’s stockholders, including affiliated and unaffiliated stockholders. Our Board has unanimously approved the split transaction and recommends that you vote “FOR” approval of the split transaction at the Annual Meeting.

---

 

Q:	When is the split transaction expected to be completed?

 

A:	If the proposed amendments to our articles of incorporation are approved at the Annual Meeting, we expect the split transaction to be completed as soon as practicable thereafter. We need to file the amendments with the New Hampshire Secretary of State for the split transaction to become effective.

 

Q:	Who is entitled to vote at the Annual Meeting?

 

A:	Holders of record of our common stock as of the close of business on June 1, 2007, are entitled to vote at the Annual Meeting. Each of our stockholders is entitled to one vote for each share of our common stock owned at the record date.

 

Q:	What vote is required for our stockholders to approve the split transaction?

 

A:	For the amendments to our articles of incorporation to be adopted and the split transaction to be approved, holders of a majority of the outstanding shares entitled to vote at the Annual Meeting must vote “FOR” the split transaction.

 

Q:	What if the proposed split transaction is not completed?

 

A:

It is possible that the proposed split transaction will not be completed. The proposed split transaction will not be completed if, for example, the holders of a majority of our common stock do not vote to adopt the proposed amendments to our articles of incorporation and approve the proposed split transaction. Alternatively, even if stockholder approval is received, if the Board determines that it is not in the best interests of Northway’s stockholders to complete the transaction, the Board may decide to abandon it. If the split transaction is not completed, we will continue our current operations, and we will continue to be subject to the reporting requirements of the SEC.

 

Q:	What happens if I do not return my proxy card?

 

A:

Because the affirmative vote of the holders of a majority of the shares of our common stock outstanding on the record date is required to approve the split transaction, unless you vote in person, a failure to return your proxy card will have the same effect as voting against the split transaction proposal.

 

Q:	What do I need to do now?

 

A:

After carefully reading and considering the information contained in this Proxy Statement, please vote your shares of common stock as soon as possible. You may vote your shares by returning the enclosed proxy or by voting in person at the Annual Meeting of stockholders. This Proxy Statement includes detailed information on how to cast your vote.

 

Q:	If my shares are held for me by my broker, will my broker vote those shares for me?

 

A:	Your broker will vote your shares only if you provide instructions to your broker on how to vote. You should instruct your broker on how to vote your shares using the voting instruction card provided by your broker.

 

Q:	Can I change my vote after I have mailed my proxy card?

 

A:	Yes. You can change your vote at any time before your proxy is voted at the Annual Meeting by following the procedures outlined in this Proxy Statement.

 

Q:	Do I need to attend the Annual Meeting in person?

 

A:	No. You do not have to attend the Annual Meeting to vote your Northway shares.

 

Q:	Will I have appraisal or dissenters’ rights in connection with the split transaction?

 

A:

Under New Hampshire law, which governs the split transaction, if you are a non-continuing stockholder you may have the right to demand the appraised value of your shares or any other dissenters’ rights if you vote against the proposed split transaction. If you are a continuing stockholder, or you do not vote against the proposed transaction, you do not have the right to demand the appraised value of your shares. Your rights are described in more detail under “THE SPLIT TRANSACTION--SPECIAL FACTORS--Appraisal Rights and Dissenters’ Rights” at page 29.

 

Q:	Should I send in my stock certificates now?

 

A:

No. If you are the registered owner of fewer than 400 shares of common stock on the date the split transaction is completed, our transfer agent will send you written instructions for exchanging your stock certificates for cash. If you are the registered owner of 400 or more shares of our common stock, our transfer agent will send you written instructions for exchanging your existing stock certificates for new stock certificates.

 

Q:	If I own fewer than 400 shares and cannot locate my stock certificates, what should I do?

 

A:

If you are entitled to receive cash in the split transaction you will be sent a Letter of Transmittal with instructions for tendering your stock certificates. Those instructions will explain what to do if you cannot find your stock certificates. Generally, you will need to submit a lost share affidavit and a fee for a surety bond in lieu of submitting the lost, misplaced or destroyed stock certificate.

 

Q:	What are the tax consequences of the split transaction to me?

 

A:

There will be no tax consequences to you if you are the owner of more than 400 shares of Northway common stock. If you receive cash in the split transaction because you are the registered owner of fewer than 400 shares of Northway common stock, you will generally recognize gain or loss in the split transaction in an amount determined by the difference between the cash you receive and your adjusted tax basis in your shares of common stock surrendered. See “PROPOSAL 1--THE SPLIT TRANSACTION--SPECIAL FACTORS--Federal Income Tax Consequences.”

 

Q:	Where can I find more information about Northway?

 

A:

We file periodic reports and other information with the SEC. You may read and copy this information at the SEC’s public reference facilities. Please call the SEC at 1-800-SEC-0330 for information about these facilities. This information is also available at the Internet site maintained by the SEC at http://www.sec.gov. General information about us is available at our Internet site at www.northwaybank.com; the information on our Internet site is not incorporated by reference into this Proxy Statement and does not form a part of this Proxy Statement. For a more detailed description of the information available, please see page 45.

 

Q:	Who can help answer my questions?

 

A:	If you have questions about the split transaction after reading this Proxy Statement or need assistance in voting your shares, you should contact Richard P. Orsillo, our Chief Financial Officer, at (603) 752-1171.

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ABOUT THE ANNUAL MEETING

 

Date, Time and Place of Annual Meeting

 

Our Board is asking for your proxy for use at our Annual Meeting of stockholders to be held at 2:00 p.m. on July 31, 2007 at The Town and Country Motor Inn, Route 2, Shelburne, New Hampshire 03581, and at any adjournments or postponements of that meeting.

 

Matters to be Considered at the Annual Meeting

 

The purpose of the Annual Meeting is for you to consider and vote upon:

 

Proposal 1:

The adoption of an amendment to our articles of incorporation that will result in a reverse stock split in which each 400 shares of our common stock held in the record name of a stockholder at the effective time of the reverse stock split will be converted into one share of common stock. Each record stockholder owning fewer than 400 shares of common stock immediately prior to the reverse stock split will receive a cash payment of $37.50 per share on a pre-split basis.

 

Proposal 2:

The adoption of an amendment to our articles of incorporation that will result in a forward stock split, in which each share of common stock outstanding after completion of the reverse stock split will be converted into 800 shares of common stock.

 

Proposal 3:

The election of three Directors to serve until 2010 and one Director to serve until 2009.

 

Stockholders are also being asked to consider and vote upon any other matters that may properly be submitted to a vote at the Annual Meeting or any adjournment or postponement of the Annual Meeting. The Board is not aware of any other business to be conducted at the Annual Meeting.

 

Record Date; Voting Power

 

You may vote at the Annual Meeting if you were the record owner of shares of our common stock at the close of business on June 1, 2007, which has been set as the record date. At the close of business on the record date, there were 1,494,174 shares of our common stock, par value of $1.00 per share, outstanding. You are entitled to one vote on each matter considered and voted upon at the Annual Meeting for each share of common stock you held of record at the close of business on the record date.

 

Quorum

The presence, in person or by proxy, of a majority of our outstanding shares is necessary to constitute a quorum at the Annual Meeting. Abstentions and broker non-votes are counted for purposes of establishing a quorum at the Annual Meeting.

 

Vote Required for Approval

 

Approval of the split transaction (Proposal 1 and Proposal 2) requires the affirmative vote of the holders of a majority of all outstanding shares of our common stock entitled to vote at the Annual Meeting, or 747,088 of the 1,494,174 outstanding shares. Because the Executive Officers and Directors of the Company have the power to vote a total of 225,111 shares and because we believe that all of the Executive Officers and Directors will vote in favor of the transaction, this means a total of 521,977 shares held by stockholders who are not Executive Officers or Directors of the Company will be required to vote in favor of the transaction for it to be approved. Because the Executive Officers and Directors hold only approximately 15.1% of the voting power of our outstanding common stock, there is no assurance that the split transaction will be approved. Approval of the amendments and the split transaction do not require the separate vote of a majority of our unaffiliated stockholders, and no separate vote will be conducted. Because broker non-votes and abstentions are not affirmative votes, they will have the effect of a vote against the split transaction.

 

The election of Directors (Proposal 3) will be determined by a plurality of the votes cast at the Annual Meeting. Plurality means that the individuals who receive the largest number of votes cast are elected up to the maximum number of Directors to be elected at the meeting. Broker non-votes, abstentions and instructions to withhold votes for one or more Directors will result in that nominee receiving fewer votes but will not count as a vote against the nominee.

 

Voting and Revocation of Proxies

 

You may vote your shares in person by attending the Annual Meeting, or by mailing us your completed proxy if you are unable or do not wish to attend. If a proxy card is submitted without instructions, the proxies will be voted "FOR" the proposal to approve the split transaction, the Director Nominees, and the proposal to adjourn or postpone the Annual Meeting, if necessary.

 

You can revoke your proxy at any time before the vote is taken at the Annual Meeting 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 Annual Meeting in person, notifying the Secretary, and voting by ballot at the Annual Meeting. Any stockholder of record attending the Annual 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 Annual Meeting will not constitute revocation of a previously given proxy.

 

Solicitation of Proxies; Expenses of Solicitation

 

We are mailing this proxy material to our stockholders on or about June 21, 2007.

 

The enclosed proxy is solicited on behalf of our Board. We 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. Northway has retained The Altman Group, Inc. to help the Board solicit proxies and expects to pay a base fee of $5,000, fees based upon the number of stockholder contacts, plus reasonable out-of-pocket expenses for its help. 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. Northway 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. Northway may reimburse such custodians, nominees, and fiduciaries for reasonable out-of-pocket expenses incurred in connection therewith.

 

Other Matters to be Considered at Annual Meeting

 

As of the date of this Proxy Statement, the only business that our Board expects to be presented at the Annual Meeting is that set forth above. If any other matters are properly brought before the Annual Meeting, or any adjournments thereof, it is the intention of the persons named in the accompanying form of proxy to vote the proxy on such matters in accordance with their best judgment.

THE SPLIT TRANSACTION -- SPECIAL FACTORS

 

Overview of the Split Transaction

 

This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Northway and is to be used at an Annual Meeting at which our stockholders, among other things, will be asked to consider and vote upon proposals to amend our articles of incorporation. If approved, the amendments will result in a 1-for-400 reverse split of our common stock, followed immediately by an 800-for-1 forward split of our common stock.

 

If the reverse and forward stock splits are approved as described below, holders of fewer than 400 shares of our common stock prior to the reverse split will no longer be stockholders of Northway. Instead, those stockholders will be entitled only to receive payment of $37.50 per share of common stock held prior to the reverse split. Stockholders holding 400 or more pre-split shares will remain stockholders. We intend, immediately following the split transaction, to terminate the registration of our shares, and our registration and further reporting under the Securities Exchange Act of 1934.

---

 

If approved by our stockholders at the Annual Meeting and implemented by our Board, the split transaction will generally affect our stockholders as follows:

Legal expense	$ 90,000
Staff expense	50,000
Auditing and accounting expense	40,500
NASDAQ listing expense	24,500
Transfer agent expense	10,000
Printing expense	8,500
EDGAR expense	6,000
Press release expense	2,500
	$232,000

 

Comparable totals for 2007 and 2008 are forecast to be $250,000 and $325,000, respectively.

 

We will apply for termination of the registration of our common stock and suspension of our SEC reporting obligations as soon as practicable following completion of the split transaction. Following completion of the split transaction, we intend to continue to provide our stockholders with financial information by continuing to disseminate annual reports.

 

Elimination of Non-Continuing Stockholders

 

As a result of the split transaction, all shares held by non-continuing stockholders will be converted into the right to receive $37.50 in cash. As a result, the non-continuing stockholders will not have the opportunity to participate in our earnings and growth after the split transaction. Similarly, the non-continuing stockholders will not face the risk of losses generated by our operations or any decline in our value after the split transaction. For more effects of the split transaction on our stockholders, see “--Fairness of the Split Transaction.”

 

Financial Effects of the Split Transaction

 

We expect that the split transaction and the use of approximately $5,112,000 in cash to complete the split transaction, which includes approximately $4,889,000 to be paid to non-continuing stockholders in exchange for their shares, and approximately $223,000 in professional fees, printing and mailing costs, filing fees, and other expenses related to the split transaction, will not have any material adverse effect on our capital adequacy, liquidity, results of operations or cash flow. The amount to be paid to non-continuing stockholders may change as a result of trading activity in our shares between the date hereof and the effective date of the split transaction. See “--Fees and Expenses” for a description of the fees and expenses we expect to incur in connection with the split transaction. See “--Financing of the Split Transaction” below for a description of how the split transaction will be financed.

 

Effect on Options

 

Upon effectiveness of the split transaction, the number of shares of common stock subject to outstanding options under Northway’s stock option plans will be two times the existing number and the exercise prices of the options will be reduced to one half their current levels.

 

Effect on Conduct of Business after the Transaction

 

We expect our business and operations to continue as they are currently being conducted and the transaction is not anticipated to have any effect upon the conduct of our business. Although we cannot guarantee the continued payment of a dividend, we do not intend to change our current dividend policy or practice at this time. No changes in our Board or Executive Officers are anticipated to result from the split transaction.

 

Dividend Payments

 

Northway anticipates declaring a dividend for the second quarter payable to stockholders of record on July 27, 2007. This dividend payment will be paid on August 6, 2007. Stockholders who are cashed out in the split transaction will receive that dividend if they were stockholders of record on July 27, 2007. They are not expected to receive any additional dividend payments on any dividend for the third quarter which will not be declared until October 30, 2007.

 

Plans or Proposals

 

As described above, Northway during the last 12 months considered possible affiliations with other banking organizations within and outside of its market area although it never engaged in serious negotiations with any such potential merger parties and is not engaged in any discussions with such parties at this time. Northway has no present plans to engage in a merger with or acquisition of any banking organizations. Other than as described in this Proxy Statement, the Company has no current plans or proposals to effect any extraordinary corporate transaction, either with respect to Northway or the Bank, such as a merger, reorganization or liquidation, to sell or transfer any material amount of our or the Bank’s assets, to change either the Board or management, to change materially our indebtedness or capitalization, or otherwise to effect any material change in our corporate structure or business or that of the Bank. Although the Company does not presently have any intent to enter into any transaction described above, either at the holding company or Bank level, nor is our management in negotiations with respect to any such transaction, there is always a possibility that we may enter into such an arrangement or transaction in the future, including, but not limited to, entering into a merger or acquisition transaction, making a public or private offering of our shares or entering into any other arrangement or transaction we may deem appropriate. In such event, our continuing stockholders may receive payment for their shares in any such transaction lower than, equal to or in excess of the amount paid to the non-continuing stockholders in the split transaction. Any acquisition strategy is dependent upon the opportunities that might arise, and there can be no certainty that any such transactions will occur.

 

Interests of Certain Persons in the Split Transaction

 

It is not anticipated that the split transaction will have any effect on the Directors and Executive Officers of the Company, other than with respect to their relative share ownership. We expect that some of our Directors and Executive Officers will not hold more than 400 shares at the effective time of the split transaction, and therefore some Directors and Executive Officers will not continue to own shares after the split transaction.

 

Because total outstanding shares will be reduced, the Executive Officers and Directors as a group will hold a larger relative percentage of the company. As of the record date, these Directors and Executive Officers collectively beneficially held 252,611 shares, or 15.1% of our common stock. Based upon our estimates, taking into account the effect of the split transaction on our outstanding shares as described above, the Directors and Executive Officers will beneficially hold 18.5% of our common stock following the split transaction.

 

This represents a potential conflict of interest because the Directors of Northway approved the split transaction and are recommending that you approve it. Despite this potential conflict of interest, the Board believes the proposed split transaction is fair to our unaffiliated stockholders for the reasons discussed in this Proxy Statement

 

Financing of the Split Transaction

 

Northway expects that the split transaction will require approximately $5,112,000 in cash, which includes approximately $4,889,000 to be paid to non-continuing stockholders in exchange for their shares and approximately $223,000 in professional fees, printing and mailing costs, filing fees, and other expenses payable by us related to the split transaction. See “--Fees and Expenses” for a breakdown of the expenses associated with the split transaction. The amount payable to non-continuing stockholders may change as a result of trading activity in our shares between the date hereof and the effective date of the split transaction. Northway has sufficient working capital at the holding company level to pay these amounts or projected increases in these amounts.

 

Federal Income Tax Consequences

 

The following discusses the material federal income tax consequences to us and our stockholders that would result from the split transaction. No opinion of counsel or ruling from the Internal Revenue Service has been sought or obtained with respect to the tax consequences of the split transaction, and the conclusions contained in this summary are not binding on the

 

 

Fees and Expenses

 

We will be responsible for paying the split transaction related fees and expenses. We estimate that our expenses will total approximately $223,000, assuming the split transaction is completed. This amount consists of the following estimated fees:

Legal expense	$120,000
Fairness opinion expense	45,000
Transfer agent expense	35,000
Proxy solicitor expense	10,000
NASDAQ expense	7,500
Other expense	5,500
	$223,000

 

SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA

 

 

 

 

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APPENDIX B-1

 

OPINION OF NORTHEAST CAPITAL

 

 

 

 

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APPENDIX B-2

 

UPDATED OPINION OF NORTHEAST CAPITAL

[ __, 2007]

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APPENDIX C

 

NORTHWAY FINANCIAL, INC.

 

Audit Committee Charter

 

(Adopted by the Board of Directors at a meeting held on February 27, 2007)

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:

 

·	oversee the accounting and financial reporting processes of the Company and the audits of the Company’s financial statements;

·	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

·	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;

·	oversee the internal audit function of the Company.

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-3(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. At least one member of the Audit Committee shall have past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities.

 

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

 

·	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

 

·

The Audit Committee shall be directly responsible for the 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.

·	The Audit Committee shall instruct the independent auditor to report directly to the Audit Committee.

·

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.

·

The Audit Committee shall determine, to the extent it deems necessary or appropriate, 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.

·	The Audit Committee may review and approve the scope and staffing of the independent auditors’ annual audit plan(s).

·

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.

·	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.

·	The Audit Committee may recommend to the Board policies with respect to the potential hiring of current or former employees of the independent auditor.

·	The Audit Committee shall evaluate the independent auditors’ qualifications, performance and independence, and present its conclusions with respect to the independent auditors to the full Board. As part of such evaluation, at least annually, the Audit Committee shall:

·

obtain and review a report or reports from the independent auditor regarding (1) the auditor’s internal quality-control procedures, (2) any material issues raised by the most recent internal quality-control review or peer review of the auditors or by any inquiry or investigation by government or professional authorities, within the preceding five years, regarding one or more independent audits carried out by the auditors, and any steps taken to address any such issues, and (3) in order to assess the auditor’s independence, all relationships between the independent auditor and the Company;

·	review and evaluate the performance of the independent auditor and the lead partner; and

·	assure the regular rotation of the audit partners (including, without limitation, the lead and concurring partners) as required under Section 10A(j) of the Exchange Act and Rule 2-01 of Regulation S-X.

·	In this regard, the Audit Committee shall also (1) seek the opinion of management and the internal auditors of the independent auditors’ performance and (2) consider whether, in order to assure continuing auditor independence, there should be regular rotation of the audit firm.

 

C.

Audited Financial Statements and Annual Audit

 

·

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”).

·	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, (b) the Company’s disclosures under Management’s Discussion and Analysis, prior to the filing of the Company’s Annual Report on Form 10-K and (c) any significant financial reporting issues that have arisen in connection with the preparation of such audited financial statements.

 

(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 and any special audit steps adopted in light of material control deficiencies.

 

(iv)	major changes in and other issues regarding accounting and auditing principles and procedures and financial statement presentations, 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.

 

·

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(b) of the Exchange Act has not been implicated.

·

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.

·

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.

 

·	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.

·

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 are reasonably likely to 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.

·

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.

·	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.

Internal Auditors

 

·

At least annually, the Audit Committee shall evaluate the performance, responsibilities, budget and staffing of the Company’s internal audit function and review the internal audit plan. Such evaluation may include a review of the responsibilities, budget and staffing of the Company’s internal audit function with the independent auditors.

·	In connection with the Audit Committee’s evaluation of the Company’s internal audit function, the Audit Committee may evaluate the performance of the senior officer or officers responsible for the internal audit function.

E.

Unaudited Quarterly Financial Statements

 

·

The Audit Committee shall discuss with management and the independent auditor, prior to the filing of the Company’s Quarterly Reports on Form 10-Q, (1) the Company’s quarterly financial statements and the Company’s related disclosures under Management’s Discussion and Analysis, (2) such issues as may be brought to the Audit Committee’s attention by the independent auditor pursuant to Statement on Auditing Standards No. 100 and (3) any significant financial reporting issues that have arisen in connection with the preparation of such financial statements.

F.

Procedures for Addressing Complaints and Concerns

 

·

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.

·	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.

G.

Regular Reports to the Board

 

·

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

·

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

·

The Audit Committee may discuss with management and the independent auditor and review with the Board 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.

·	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

·	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.

·	The Audit Committee may perform such other oversight functions outside of its stated purpose as may be requested by the Board from time to time.

·

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.

·

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.

·	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.

 

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APPENDIX D

 

CHAPTER 293-A

NEW HAMPSHIRE BUSINESS CORPORATION ACT

Dissenters' Rights

 

293-A:13.01 Definitions. - In this subdivision:

 

       (1) "Corporation'' means the issuer of the shares held by a dissenter before the corporate action, or the surviving or acquiring corporation or other entity by merger, share exchange, or conversion of that issuer.

 

       (2) "Dissenter'' means a stockholder who is entitled to dissent from corporate action under RSA 293-A:13.02 and who exercises that right when and in the manner required by RSA 293-A:13.20 through 293-A:13.28.

 

       (3) "Fair value,'' with respect to a dissenter's shares, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action, unless exclusion would be inequitable.

 

       (4) "Interest'' means interest from the effective date of the corporate action until the date of payment, at the average rate currently paid by the corporation on its principal bank loans or, if none, at a rate that is fair and equitable under all the circumstances.

 

       (5) "Record stockholder'' means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation.

 

       (6) "Beneficial stockholder'' means the person who is a beneficial owner of shares held in a voting trust or by a nominee as the record stockholder.

 

       (7) "Stockholder'' means the record stockholder or the beneficial stockholder.

 

293-A:13.02 Right to Dissent. - (a) A stockholder is entitled to dissent from, and obtain payment of the fair value of his shares in the event of, any of the following corporate actions:

 

       (1) Consummation of a plan of merger to which the corporation is a party:

 

          (i) If stockholder approval is required for the merger by RSA 293-A:11.03 or the articles of incorporation and the stockholder is entitled to vote on the merger; or

 

          (ii) If the corporation is a subsidiary that is merged with its parent under RSA 293-A:11.04.

 

       (2) Consummation of a plan of share exchange to which the corporation is a party as the corporation whose shares will be acquired, if the stockholder is entitled to vote on the plan.

 

       (3) Consummation of a sale or exchange of all, or substantially all, of the property of the corporation other than in the usual and regular course of business, if the stockholder is entitled to vote on the sale or exchange, including a sale in dissolution, but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the stockholders within one year after the date of sale.

 

       (4) An amendment of the articles of incorporation that materially and adversely affects rights in respect of a dissenter's shares because it:

 

          (i) Alters or abolishes a preferential right of the shares.

 

          (ii) Creates, alters, or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares.

 

          (iii) Alters or abolishes a preemptive right of the holder of the shares to acquire shares or other securities.

 

          (iv) Excludes or limits the right of the shares to vote on any matter, or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights.

 

          (v) Reduces the number of shares owned by the stockholder to a fraction of a share if the fractional share so created is to be acquired for cash under RSA 293-A:6.04.

 

       (5) Any corporate action taken pursuant to a stockholder vote to the extent the articles of incorporation, bylaws, or a resolution of the board of Directors provides that voting or nonvoting stockholders are entitled to dissent and obtain payment for their shares.

 

       (6) Consummation of a plan of conversion to which the corporation is a party converting to another entity.

 

    (b) A stockholder entitled to dissent and obtain payment for his shares under this subdivision shall not challenge the corporate action creating his entitlement, unless the action is unlawful or fraudulent with respect to the stockholder or the corporation.

 

293-A:13.03 Dissent by Nominees and Beneficial Owners. - (a) A record stockholder may assert dissenters' rights as to fewer than all the shares registered in his name only if he dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he asserts dissenters' rights. The rights of a partial dissenter under this subsection are determined as if the shares as to which he dissents and his other shares were registered in the names of different stockholders.

 

    (b) A beneficial stockholder may assert dissenters' rights as to shares held on his behalf only if:

 

       (1) He submits to the corporation the record stockholder's written consent to the dissent not later than the time the beneficial stockholder asserts dissenters' rights; and

 

       (2) He does so with respect to all shares of which he is the beneficial stockholder or over which he has power to direct the vote.

 

293-A:13.20 Notice of Dissenters' Rights. - (a) If proposed corporate action creating dissenters' rights under RSA 293-A:13.02 is submitted to a vote at a stockholders' meeting, the meeting notice shall state that stockholders are or may be entitled to assert dissenters' rights under this subdivision and be accompanied by a copy of this subdivision.

 

    (b) If corporate action creating dissenters' rights under RSA 293-A:13.02 is taken without a vote of stockholders or by consent pursuant to RSA 293-A:7.04, the corporation shall notify in writing all stockholders entitled to assert dissenters' rights that the action was taken and send them the dissenters' notice described in RSA 293-A:13.22.

 

    293-A:13.21 Notice of Intent to Demand Payment. - (a) If proposed corporate action creating dissenters' rights under RSA 293-A:13.02 is submitted to a vote at a stockholders' meeting, a stockholder who wishes to assert dissenters' rights:

 

       (1) Shall deliver to the corporation before the vote is taken written notice of his intent to demand payment for his shares if the proposed action is effectuated; and

 

       (2) Shall not vote his shares in favor of the proposed action.

 

    (b) A stockholder who does not satisfy the requirements of subsection (a) is not entitled to payment for his shares under this subdivision.

 

   293-A:13.22 Dissenters' Notice. - (a) If proposed corporate action creating dissenters' rights under RSA 293-A:13.02 is authorized at a stockholders' meeting, the corporation shall deliver a written dissenters' notice to all stockholders who satisfied the requirements of RSA 293-A:13.21.

 

    (b) The dissenters' notice shall be sent no later than 10 days after corporate action was taken, and shall:

 

       (1) State where the payment demand shall be sent and where and when certificates for certificated shares shall be deposited.

 

       (2) Inform holders of uncertificated shares to what extent transfer of the shares will be restricted after the payment demand is received.

 

       (3) Supply a form for demanding payment that includes the date of the first announcement to news media or to stockholders of the terms of the proposed corporate action and requires that the person asserting dissenters' rights certify whether or not he acquired beneficial ownership of the shares before that date.

 

       (4) Set a date by which the corporation shall receive the payment demand, which date shall not be fewer than 30 nor more than 60 days after the date the notice is delivered.

 

       (5) Be accompanied by a copy of this subdivision.

 

293-A:13.23 Duty to Demand Payment. - (a) A stockholder sent a dissenters' notice described in RSA 293-A:13.22 shall demand payment, certify whether he acquired beneficial ownership of the shares before the date required to be set forth, in the dissenters' notice pursuant to RSA 293-A:13.22(b)(3), and deposit his certificates in accordance with the terms of the notice.

 

    (b) The stockholder who demands payment and deposits his share certificates under subsection (a) retains all other rights of a stockholder until these rights are cancelled or modified by the taking of the proposed corporate action.

 

    (c) A stockholder who does not demand payment or deposit his share certificates where required, each by the date set in the dissenters' notice, is not entitled to payment for his shares under this subdivision.

 

  293-A:13.24 Share Restrictions. - (a) The corporation may restrict the transfer of uncertificated shares from the date the demand for their payment is received until the proposed corporate action is taken or the restrictions released under RSA 293-A:13.26.

 

    (b) The person for whom dissenters' rights are asserted as to uncertificated shares retains all other rights of a stockholder until these rights are cancelled or modified by the taking of the proposed corporate action.

 

  293-A:13.25 Payment. - (a) Except as provided in RSA 293-A:13.27, as soon as the proposed corporate action is taken, or upon receipt of a payment demand, the corporation shall pay each dissenter who complied with RSA 293-A:13.23 the amount the corporation estimates to be the fair value of his shares, plus accrued interest.

 

    (b) The payment shall be accompanied by:

 

       (1) The corporation's balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in stockholders' equity for that year, and the latest available interim financial statements, if any;

 

       (2) A statement of the corporation's estimate of the fair value of the shares;

 

       (3) An explanation of how the interest was calculated;

 

       (4) A statement of the dissenter's right to demand payment under RSA 293-A:13.28; and

 

       (5) A copy of this subdivision.

 

    293-A:13.26 Failure to Take Action. - (a) If the corporation does not take the proposed action within 60 days after the date set for demanding payment and depositing share certificates, the corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares.

 

    (b) If after returning deposited certificates and releasing transfer restrictions, the corporation takes the proposed action, it shall send a new dissenters' notice under RSA 293-A:13.22 and repeat the payment demand procedure.

 

    293-A:13.27 After-Acquired Shares. - (a) A corporation may elect to withhold payment required by RSA 293-A:13.25 from a dissenter, unless he was the beneficial owner of the shares before the date set forth in the dissenters' notice as the date of the first announcement to news media or to stockholders of the terms of the proposed corporate action.

 

    (b) To the extent the corporation elects to withhold payment under subsection (a), after taking the proposed corporate action, it shall estimate the fair value of the shares, plus accrued interest, and shall pay this amount to each dissenter who agrees to accept it in full satisfaction of his demand. The corporation shall send with its offer a statement of its estimate of the fair value of the shares, an explanation of how the interest was calculated, and a statement of the dissenter's right to demand payment under RSA 293-A:13.28.

 

293-A:13.28 Procedure if Stockholder Dissatisfied With Payment or Offer. - (a) A dissenter may notify the corporation in writing of his own estimate of the fair value of his shares and amount of interest due, and demand payment of his estimate, less any payment under RSA 293-A:13.25, or reject the corporation's offer under RSA 293-A:13.27 and demand payment of the fair value of his shares and interest due, if:

 

       (1) The dissenter believes that the amount paid under RSA 293-A:13.25 or offered under RSA 293-A:13.27 is less than the fair value of his shares or that the interest due is incorrectly calculated;

 

       (2) The corporation fails to make payment under RSA 293-A:13.25 within 60 days after the date set for demanding payment; or

 

       (3) The corporation, having failed to take the proposed action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment.

 

    (b) A dissenter waives his right to demand payment under this section unless he notifies the corporation of his demand in writing under subsection (a) within 30 days after the corporation made or offered payment for his shares.

 

    293-A:13.30 Court Action. - (a) If a demand for payment under RSA 293-A:13.28 remains unsettled, the corporation shall commence a proceeding within 60 days after receiving the payment demand and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not commence the proceeding within the 60-day period, it shall pay each dissenter whose demand remains unsettled the amount demanded.

 

    (b) The corporation shall commence the proceeding in the superior court of the county where a corporation's principal office, or, if none in this state, its registered office, is located. If the corporation is a foreign corporation or other entity without a registered office in this state, it shall commence the proceeding in the county in this state where the registered office of the domestic corporation merged with or converted into or whose shares were acquired by the foreign corporation or other entity was located.

 

    (c) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the proceeding as in an action against their shares and all parties shall be served with a copy of the petition. Nonresidents may be served by registered or certified mail or by publication as provided by law.

 

    (d) The jurisdiction of the court in which the proceeding is commenced under subsection (b) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decisions on the question of their value. The appraisers have the powers described in the order appointing them, or in any amendment to it. The dissenters are entitled to the same discovery rights as parties in other civil proceedings.

 

    (e) Each dissenter made a party to the proceeding is entitled to judgment:

 

       (1) For the amount, if any, by which the court finds the fair value of his shares, plus interest, exceeds the amount paid by the corporation; or,

 

       (2) For the fair value, plus accrued interest, of his after-acquired shares for which the corporation elected to withhold payment under RSA 293-A:13.27.

 

    293-A:13.31 Court Costs and Counsel Fees. - (a) The court in an appraisal proceeding commenced under RSA 293-A:13.30 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court. The court shall assess the costs against the corporation, except that the court may assess costs against all or some of the dissenters, in amounts the court finds equitable, to the extent the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith in demanding payment under RSA 293-A:13.28.

 

    (b) The court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable:

 

       (1) Against the corporation and in favor of any or all dissenters if the court finds the corporation did not substantially comply with the requirements of RSA 293-A:13.20 through RSA 293-A:13.28.

 

       (2) Against either the corporation or a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by this subdivision.

 

    (c) If the court finds that the services of counsel for any dissenter were of substantial benefit to other dissenters similarly situated, and that the fees for those services should not be assessed against the corporation, the court may award to these counsel reasonable fees to be paid out of the amounts awarded the dissenters who were benefited.

 

 

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	*	Mark this box with an X if you have made changes to your name or address details above.
Annual Meeting Proxy Card

		For	Withhold
A Stock Split Transaction
1.Approval of an amendments to the Company’s articles of incorporation to effect a reverse 1-for-400 stock split. Each registered stockholder owing fewer than 400 shares of common stock immediately prior to the reverse stock split will, instead of participating in the forward stock split, receive a cash payment equal to $37.50 per share on a pre-split basis.		*	*

 

2.Approval of an amendments to the Company’s articles of incorporation to effect a forward 800-for-1 stock split of common shares immediately following the reverse stock split.

*

*

 

B	Election of Directors
1. Proposal to elect the following nominees for a three-year term to continue until the 2010 Annual Meeting of Stockholders, and until the successor of each is duly elected and qualified:

 

	For	Withhold
01 - Arnold P. Hanson, Jr.	*	*
02 - John H. Noyes	*	*
03 - William J. Woodward	*	*

 

2. Proposal to elect the following nominee for a two-year term to continue until the 2009 Annual Meeting of Stockholders, and until the successor of each is duly elected and qualified:

 

	For	Withhold
01 - Fletcher W. Adams	*	*

Such other business as may properly come before the meeting or any adjournments or postponements thereof.

 

B	Authorized Signatures - Sign Here - This section must be completed for your instructions to be executed.

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 1 - Please keep signature within the box	Signature 2 - Please keep signature within the box	Date (mm/dd/yyyy)

 

 

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Proxy 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 July 31, 2007 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 2006 Annual Report to Stockholders.

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.

CONTINUED AND TO BE SIGNED ON REVERSE SIDE