As filed with the Securities and Exchange Commission on September 9, 2014 

Registration No. 333-197985

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________ 

 

Amendment No. 1 to

Form S-4

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

_________________________

 

SALISBURY BANCORP, INC.

(Exact name of Registrant as specified in its charter)

_________________________

 

Connecticut 6035 06-1514263
(State or other jurisdiction of   incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S.  Employer Identification No.)

 _________________________ 

Salisbury Bancorp, Inc.

5 Bissell Street

P.O. Box 1868

Lakeville, CT 06039

860-435-9801

(Name, address and telephone of principal executive offices)

_________________________

 

Richard J. Cantele, Jr.

President and Chief Executive Officer

Salisbury Bancorp, Inc. and

Salisbury Bank and Trust Company

5 Bissell Street

Lakeville, CT 06039

860-435-9801

(Name, address, including zip code and telephone number, including area code, of agent for service)

_________________________

 

with copies to:

J. J. Cranmore Robert A. Schwartz
Jennifer DiBella Windels Marx Lane & Mittendorf, LLP
Cranmore, FitzGerald & Meaney 120 Albany Street Plaza
49 Wethersfield Avenue New Brunswick, NJ  08901
Hartford, CT 06114 Telephone:  732-448-2548
Telephone:  860-522-9100 Facsimile:  732-846-8877
Facsimile:  860-522-3379  

 _________________________

 

Approximate date of commencement of the proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective and upon completion of the merger described in the enclosed proxy statement/prospectus.

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, as amended, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer Accelerated filer
Non-accelerated filer    (Do not check if a smaller reporting company) Smaller reporting company

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 
 

Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This document shall not constitute an offer to sell or the solicitation of any offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

 

PRELIMINARY - SUBJECT TO COMPLETION - DATED September 9, 2014

 

Joint Proxy Statement/Prospectus

 

 

 

MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT

 

Dear Shareholder:

 

On March 18, 2014, Salisbury Bancorp, Inc. (“SAL”), Salisbury Bank and Trust Company (“SBT”) and Riverside Bank (“Riverside”), entered into an Agreement and Plan of Merger (which we refer to as the “merger agreement”) that provides for the merger of Riverside into SBT (which we refer to as the “merger”). Based on financial results as of June 30, 2014, the combined institution would have approximately $847 million in total assets, $648 million in net loans, and $705 million in total deposits. In addition, upon consummation of the merger, the combined institution will have thirteen (13) full service branch offices across Connecticut, Massachusetts, and New York.

 

In the merger, each share of Riverside common stock (except for specified shares of Riverside common stock held by Riverside) will be converted into the right to receive 1.35 shares of SAL common stock (which we refer to as the “exchange ratio”). Although the number of shares of SAL common stock that Riverside shareholders will receive is fixed, the market value of the merger consideration will fluctuate with the market price of SAL common stock and will not be known at the time Riverside shareholders vote on the merger. Based on the closing price of SAL’s common stock on the NASDAQ Capital Market on March 18, 2014, the last trading day before public announcement of the merger, the exchange ratio represented approximately $36.32 in value for each share of Riverside common stock and on [__________, 2014], the latest practicable trading day before the date of this document, the exchange ratio represented approximately $[_______________] in value for each share of Riverside common stock. We urge you to obtain current market quotations for SAL (trading symbol “SAL”).

 

Based on the current number of shares of Riverside common stock outstanding and reserved for issuance under employee benefit plans, SAL expects to issue approximately 1.1 million shares of common stock to Riverside shareholders in the aggregate upon completion of the merger. The Riverside shareholders as a group will own approximately 37% of the combined institution following the merger.

 

Riverside and SAL will each hold a special meeting of its shareholders. Each company’s shareholders will be asked to vote to approve matters related to the merger, as described in the attached joint proxy statement/prospectus. Approval of the merger agreement requires the affirmative vote of at least two-thirds outstanding shares of Riverside common stock.

 

The special meeting of Riverside shareholders will be held on October 29, 2014 at The Poughkeepsie Grand Hotel, 40 Civic Center Plaza, Poughkeepsie, New York, 12601 at 10:30 a.m. local time.

 

Riverside’s board of directors unanimously recommends a vote “FOR” the approval of the merger agreement and “FOR” the other matters to be considered at the Riverside special meeting.

 

The special meeting of SAL shareholders will be held on October 29, 2014 at Hotchkiss School (Griswold Science Building, located off Route 41), 11 Interlaken Road, Lakeville, Connecticut 06039, at 4:00 p.m. local time.

 

 
 

SAL’s board of directors unanimously recommends a vote “FOR” the merger agreement, including the issuance of SAL common stock as merger consideration; “FOR” the approval of the amendment to its certificate of incorporation to increase its shares of authorized common stock and increase the number of directors; and “FOR” the other matters to be considered at the SAL special meeting.

 

This joint proxy statement/prospectus describes the special meetings of Riverside and SAL, the merger, the documents related to the merger and other related matters. Please carefully read this entire joint proxy statement/prospectus, including “Risk Factors,” beginning on page 20, for a discussion of the risks relating to the proposed merger. You also can obtain information about SAL from documents that it has filed with the Securities and Exchange Commission.

 

[SIGNATURE] [SIGNATURE]
Richard J. Cantele, Jr. John M. Davies
President and CEO President and CEO
Salisbury Bancorp, Inc. Riverside Bank

 

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

 

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

 

The date of this joint proxy statement/prospectus is [September ___, 2014], and it is first being mailed or otherwise delivered to the shareholders of SAL and Riverside on or about [September ___, 2014].

 

 
 

5 Bissell Street, P.O. Box 1868, Lakeville, CT 06039

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON

October 29, 2014

 

To the Shareholders of Salisbury Bancorp, Inc.:

 

Salisbury Bancorp, Inc. will hold a special meeting of shareholders at 4:00 p.m. local time, on Wednesday, October 29, 2014, at Hotchkiss School (Griswold Science Building, located off Route 41), 11 Interlaken Road, Lakeville, Connecticut 06039 to consider and vote upon the following matters:

 

a proposal to approve the Agreement and Plan of Merger dated as of March 18, 2014, by and among Salisbury Bank and Trust Company, Salisbury Bancorp, Inc., and Riverside Bank, pursuant to which Riverside will merge with and into SBT and pursuant to which SAL will issue shares of SAL common stock as merger consideration, as more fully described in the attached joint proxy statement/prospectus (which we refer to as the “SAL merger proposal”);
a proposal to approve the amendment to SAL’s certificate of incorporation to increase SAL’s authorized common stock and to eliminate the minimum and maximum number of directors on the SAL board (which we refer to as the “SAL certificate of amendment proposal”);
a proposal to approve one or more adjournments of the special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting, or at any adjournment or postponement of that meeting, to adopt and approve the merger agreement (which we refer to as the “SAL adjournment proposal”); and
such other matters as may properly come before the special meeting or any adjournment or postponement of that meeting.

 

We have fixed the close of business on September 5, 2014 as the record date for the special meeting. Only SAL common shareholders of record at that time are entitled to notice of, and to vote at, the SAL special meeting, or any adjournment or postponement of the SAL special meeting. Approval of the SAL merger proposal and the SAL certificate of amendment proposal require the affirmative vote of at least a majority of the outstanding shares of SAL common stock. Approval of the SAL adjournment proposal also requires the affirmative vote of a majority of the shares present or represented at the special meeting and entitled to vote on the matter.

 

SAL’s board of directors has unanimously adopted the merger agreement, has determined that the merger agreement and the transactions contemplated thereby, including the merger and the issuance of SAL common stock as merger consideration, are advisable and in the best interests of SAL and its shareholders, and unanimously recommends that SAL shareholders vote “FOR” the SAL merger proposal, “FOR” the SAL adjournment proposal, and “FOR” the SAL certificate of amendment proposal.

 

Your vote is very important. We cannot complete the merger unless SAL’s common shareholders approve the SAL merger proposal and approve the amendment to SAL’s certificate of incorporation to increase SAL’s authorized common stock. If you fail to vote, mark “ABSTAIN” on your proxy or fail to instruct your bank or broker with respect to the SAL merger proposal, it will have the same effect as a vote “AGAINST” the proposal.

 

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

 

 
 

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

 

BY ORDER OF THE BOARD OF DIRECTORS,

  

 

Shelly L. Humeston

Secretary

 

Lakeville, Connecticut

September ___, 2014

 

 
 

11 Garden Street, Poughkeepsie, NY 12601

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON

October 29, 2014

 

To the Shareholders of Riverside Bank:

 

Riverside Bank will hold a special meeting of shareholders at 10:30 a.m. local time, on Wednesday, October 29, 2014, at The Poughkeepsie Grand Hotel, 40 Civic Center Plaza, Poughkeepsie, New York, 12601 to consider and vote upon the following matters:

 

a proposal to approve the Agreement and Plan of Merger dated as of March 18, 2014, by and among Salisbury Bank and Trust Company, Salisbury Bancorp, Inc., and Riverside Bank, pursuant to which Riverside will merge with and into SBT, as more fully described in the attached joint proxy statement/prospectus (which we refer to as the “Riverside merger proposal”);
a proposal to adjourn the Riverside special meeting, if necessary or appropriate, to solicit additional proxies in favor of the Riverside merger proposal (which we refer to as the “Riverside adjournment proposal”);
to transact such other business as may properly come before the meeting or any adjournment thereof.

 

We have fixed the close of business on September 5, 2014 as the record date for the special meeting. Only Riverside common shareholders of record at that time are entitled to notice of, and to vote at, the Riverside special meeting, or any adjournment or postponement of the Riverside special meeting.

 

Riverside’s board of directors has adopted the merger agreement, has determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable and in the best interests of Riverside and its shareholders, and unanimously recommends a vote “FOR” the Riverside merger proposal, and “FOR” the Riverside adjournment proposal.

 

Your vote is very important. We cannot complete the merger unless Riverside’s common shareholders approve the merger agreement. If you fail to vote, mark “ABSTAIN” on your proxy or fail to instruct your bank or broker with respect to the Riverside merger proposal, it will have the same effect as a vote “AGAINST” the proposal.

 

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

 

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

 

BY ORDER OF THE BOARD OF DIRECTORS,

 

 

John M. Davies

President and Chief Executive Officer

 

Poughkeepsie, New York

September ___, 2014

 

 
 

ADDITIONAL INFORMATION

 

The accompanying joint proxy statement/prospectus provides a detailed description of the merger, the merger agreement and related matters, as well as important business and financial information about Salisbury Bancorp, Inc. and Riverside Bank. We urge you to read the joint proxy statement/prospectus, including any documents incorporated by reference from other documents filed with or furnished to the SEC by SAL into the proxy statement/prospectus, and its appendices carefully and in their entirety. You can obtain any of the documents filed with or furnished to the SEC by SAL at no cost from the SEC’s website at www.sec.gov. You may also request copies of such documents at no cost by contacting the appropriate company at the address and telephone numbers provided below. If you have any questions concerning the merger, the other meeting matters or the proxy statement/prospectus, or need assistance voting your shares, please contact the appropriate company at the following address or telephone number listed below:

 

Riverside Bank

11 Garden Street

Poughkeepsie, NY 12601

Attn: John M. Davies, President and CEO

Telephone: 845-454-5511

Salisbury Bancorp, Inc.

5 Bissell Street

P.O. Box 1868

Lakeville, CT 06038

Attn: Shelly L. Humeston, Secretary

Telephone: 860-435-9801

 

Please do not send your stock certificates at this time. Riverside shareholders will be sent separate instructions regarding the surrender of their stock certificates.

 

You should rely only on the information contained in, or incorporated by reference into, this document. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this document. This document is dated [_______], 2014, and you should assume that the information in this document is accurate only as of such date. You should assume that the information incorporated by reference into this document is accurate as of the date of such document. Neither the mailing of this document to Riverside shareholders or SAL shareholders, nor the issuance by SAL of shares of SAL common stock in connection with the merger, will create any implication to the contrary.

 

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

 

See “Where You Can Find More Information” for more details.

 

TABLE OF CONTENTS
  Page
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETINGS 1
   
SUMMARY 7
The Companies 7
The Special Meeting of Shareholders of Riverside 7
The Special Meeting of Shareholders of SAL 8
The Merger and the Merger Agreement 9
   
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION 13
   
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS 19
   
RISK FACTORS 20
   
INFORMATION ABOUT THE COMPANIES 24
Salisbury Bancorp, Inc. and Salisbury Bank and Trust Company 24
Riverside Bank 24
   
SPECIAL MEETING OF SHAREHOLDERS OF RIVERSIDE 25
Date, Time and Place of the Special Meeting 25
Purpose of the Special Meeting 25
Recommendation of the Board of Directors of Riverside 25
Record Date; Outstanding Shares; Shares Entitled to Vote 25
Quorum; Vote Required 25
Share Ownership of Management; Voting Agreements 26
Voting of Proxies 26
How to Revoke Your Proxy 26
Voting in Person 27
Abstentions and Broker Non-Votes 27
Proxy Solicitation 27
Stock Certificates 27
   
RIVERSIDE PROPOSALS 28
Proposal No. 1 - To Approve the Riverside Merger Proposal 28
Proposal No. 2 - To Approve the Riverside Adjournment Proposal 28
   
SPECIAL MEETING OF THE SHAREHOLDERS OF SAL 29
Date, Time and Place of the Special Meeting 29
Purpose of the Special Meeting 29
Recommendation of the Board of Directors of SAL 29
Record Date; Outstanding Shares; Shares Entitled to Vote 29
Quorum; Vote Required 29
Share Ownership of Management 30
Voting of Proxies 30
How to Revoke Your Proxy 30
Voting in Person 31
Abstentions and Broker Non-Votes 31
Proxy Solicitation 31
   
SAL PROPOSALS 32
Proposal No. 1 - To Approve the SAL Merger Proposal 32
Proposal No. 2 - To Approve the SAL Certificate of Amendment Proposal 32
Proposal No. 3 - To Approve the SAL Adjournment Proposal 32
   
THE MERGER 34
General 34
Background of the Merger 34
Riverside's Reasons for the Merger 37
SAL's Reasons for the Merger 38
Opinion of Keefe, Bruyette & Woods, Inc., Financial Advisor to Riverside 39
Opinion of Sterne, Agee & Leach, Financial Advisor to SAL 51
Interests of Riverside's Directors and Executive Officers 59
New Employment Agreements with Certain Riverside Officers 60
Other Employment and Change in Control Agreements 64
Riverside Stock Options 64
Material U.S. Federal Income Tax Consequences of the Merger 65
Accounting Treatment 67
Regulatory Approvals 67
Dissenters' Rights of Riverside Shareholders 68
Restrictions on Sale of Shares by Certain Affiliates 70
Stock Exchange Listing 70
   
THE MERGER AGREEMENT 71
Structure 71
Effective Time and Timing of Closing 71
Consideration to be Received in the Merger 71
Exchange of Certificates; Dividends 71
Treatment of Riverside Stock Options 72
Representations and Warranties 72
Conduct of Business Pending the Merger 73
Riverside Shareholders' Meeting 76
SAL Shareholders' Meeting 76
No Solicitation 76
Employee Matters 77
Indemnification and Insurance 77
Voting Agreements 77
Additional Agreements 78
Conditions to the Merger 78
Termination of the Merger Agreement 80
Termination Fee and Termination Expenses 80
Amendment, Waiver and Extension of the Merger Agreement 81
Expenses 81
Specific Performance 81
   
MARKET PRICES AND DIVIDEND INFORMATION OF SAL AND RIVERSIDE 82
Market Prices 82
Dividends 83
Securities Authorized for Issuance Under Equity Compensation Plans 83
   
INFORMATION ABOUT RIVERSIDE 84
Business 84
General 84
New York Banking Laws and Supervision 84
Federal Regulations 85
   
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION OF RIVERSIDE 91
Employees 103
Properties 104
Legal Proceedings 104
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 104
   
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 105
Riverside 105
SAL 105
   
BOARD OF DIRECTORS AND MANAGEMENT OF THE COMBINED COMPANY FOLLOWING THE MERGER 107
Directors and Executive Officers of the Combined Company Following the Merger 107
SAL's Board of Directors Independence 110
Executive Compensation of SAL 114
Supplemental Retirement Agreement 118
Executive Compensation of Riverside 118
Board of Directors Compensation - SAL 120
Directors' Fees - SAL 120
Board of Directors Compensation - Riverside 121
Directors' Fees - Riverside 121
Transactions with Management and Others - SBT and SAL 121
Transactions with Management and Others - Riverside 121
Indebtedness of Management and Others - SBT and SAL 121
Indebtedness of Management and Others - Riverside 121
   
DESCRIPTION OF CAPITAL STOCK AND COMPARISON OF SHAREHOLDER RIGHTS 122
SAL's Common Stock 122
Riverside's Common Stock 122
Certificate of Incorporation and Bylaw Provisions 123
Applicable Law 128
   
LEGAL MATTERS 130
   
EXPERTS 130
   
WHERE YOU CAN FIND MORE INFORMATION 131
   
FUTURE SHAREHOLDER PROPOSALS 132
   
INDEX TO RIVERSIDE'S FINANCIAL STATEMENTS FS-1
   
INDEPENDENT AUDITOR'S REPORT FS-2
   
RIVERSIDE FINANCIAL STATEMENTS FS-3
   
Appendix A Agreement and Plan of Merger A-1
Appendix B Sections 604 and 6022 of the New York Banking Law - Rights of Dissenting Shareholders and Procedure to Enforce Shareholder’s Right to Receive Payment for Shares B-1
Appendix C Opinion of Keefe, Bruyette & Woods, Inc., Financial Advisor to Riverside C-1
Appendix D Opinion of Sterne, Agee & Leach, Inc., Financial Advisor to SAL D-1
Appendix E Form of Certificate of Amendment to SAL Certificate of Incorporation E-1
Appendix F Form 10-K for Fiscal Year Ended December 31, 2013 F-1
Appendix G Form 10-Q for Quarter Ended June 30, 2014 G-1

 
 

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETINGS

 

The following questions and answers are intended to address briefly some commonly asked questions regarding the merger and the SAL and Riverside special meetings. These questions and answers may not address all questions that may be important to you as a shareholder. To better understand these matters, and for a description of the legal terms governing the merger, you should carefully read this entire joint proxy statement/prospectus, including the appendices, as well as the documents that have been incorporated by reference in this joint proxy statement/prospectus. See “Where You Can Find More Information”.

 

Unless otherwise required by context, references in this joint proxy statement/prospectus to “SAL” refer to Salisbury Bancorp, Inc., references to “SBT” refer to Salisbury Bank and Trust Company, and references made to “Riverside” refer to Riverside Bank.

 

Q: Why am I receiving this joint proxy statement/prospectus? 
     
A: SAL and Riverside have signed an agreement and plan of merger that is described in this joint proxy statement/prospectus pursuant to which Riverside will merge with and into SBT with SBT being the surviving bank. A copy of the merger agreement is attached to this joint proxy statement/prospectus as Appendix A. In order to complete the merger, Riverside shareholders must vote to approve the merger agreement and SAL shareholders must vote to approve the merger agreement, including the issuance of SAL common stock as merger consideration, and to amend SAL’s certificate of incorporation to increase its shares of authorized common stock and to eliminate the minimum and maximum number of directors on the SAL board, and to provide that the number of directors shall be fixed from time to time by the board of directors. A copy of the certificate of amendment to the SAL certificate of incorporation is attached as Appendix E hereto. Riverside and SAL will each hold a special meeting of their respective shareholders to obtain such approvals. This joint proxy statement/prospectus contains important information about the merger, the merger agreement, the special meetings of Riverside and SAL shareholders, and other related matters, and you should read it carefully. The enclosed voting materials for the special meetings allow you to vote your shares of Riverside or SAL common stock without attending the special meeting in person.

We are delivering this joint proxy statement/prospectus to you as both a proxy statement of Riverside, a proxy statement of SAL, and a prospectus of SAL. It is a proxy statement because the board of directors of Riverside is soliciting proxies from its shareholders to vote on the approval of the merger agreement, including the issuance of shares of SAL common stock as merger consideration at a special meeting of shareholders, and your proxy will be used at the special meeting or at any adjournment or postponement of the special meeting. In addition, the board of directors of SAL is soliciting proxies from its shareholders to vote on the amendment to SAL’s certificate of incorporation to increase shares of authorized SAL common stock and to increase its number of directors contingent upon the merger. It is also a prospectus because SAL will issue SAL common stock to Riverside shareholders as consideration in the merger, and this prospectus contains information about that common stock.
     
Q: What will I receive in the merger?
     
A: Riverside Shareholders.  If the merger agreement is approved and the merger is subsequently completed, Riverside shareholders will be entitled to receive 1.35 shares of SAL common stock for each outstanding share of Riverside common stock (other than stock held by Riverside or SAL) held at the time of the merger.  

The value of the stock consideration is dependent upon the value of SAL common stock and therefore will fluctuate with the market price of SAL common stock.  Accordingly, any change in the price of SAL common stock prior to the merger will affect the market value of the stock consideration that Riverside shareholders will receive as a result of the merger.

SAL Shareholders.  SAL shareholders will continue to hold their existing shares, which will not change as a result of the merger.
     
Q: What am I being asked to vote on?
     
A: Riverside shareholders are being asked to vote on the following proposals:
  to approve the merger agreement by and among SBT, SAL and Riverside; and
  to approve one or more adjournments of the special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes to approve the merger agreement at the time of the special meeting
     
  SAL shareholders are being asked to vote on the following proposals:
  to approve the merger agreement by and among SBT, SAL and Riverside and to approve the issuance of shares of SAL common stock as merger consideration;
  to approve the amendment to SAL’s certificate of incorporation to increase SAL’s authorized common stock and to eliminate the minimum and maximum number of directors on the SAL board; 
  to approve one or more adjournments of the special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting, or at any adjournment or postponement of that meeting, to adopt and approve the merger agreement; and 
  such other matters as may properly come before the special meeting or any adjournment or postponement of that meeting.
-1-
 
     
Q: What will happen in the merger?
     
A: In the proposed merger, Riverside will merge with and into Salisbury Bank and Trust Company, with Salisbury Bank and Trust Company being the surviving entity.
     
Q: Will Riverside shareholders receive any fractional shares of SAL common stock as part of the merger consideration?  
     
A: No.  SAL will not issue any fractional shares of SAL common stock in the merger.  Instead, SAL will pay you the cash value of a fractional share measured by the average of the daily closing prices of SAL common stock on The NASDAQ Capital Market, or NASDAQ, for the five consecutive trading days ending on the third business day immediately prior to the closing date, rounded to the nearest whole cent.  
     
Q: What will happen to my shares of SAL common stock in the merger?
     
A: Nothing.  Each share of SAL common stock outstanding will remain outstanding as a share of SAL common stock.  
     
Q: What are the conditions to completion of the merger?
     
A: The obligations of SAL and Riverside to complete the merger are subject to the satisfaction or waiver of certain closing conditions contained in the merger agreement, including, but not limited to, the receipt of required regulatory approvals, legal opinions delivered by tax counsel to SAL and Riverside, respectively, and approval of the merger agreement by Riverside shareholders and approval of the stock issuance by SAL shareholders to Riverside shareholders.
-2-
 
     
Q: When do you expect the merger to be completed?
     
A: We will complete the merger when all of the conditions to completion contained in the merger agreement are satisfied or waived, including obtaining customary regulatory approvals and the approval of the merger agreement by Riverside shareholders at its special meeting and the approval of an increase in SAL’s authorized common stock and the issuance of SAL common stock as merger consideration by SAL shareholders at its special meeting.  While we expect the merger to be completed in the fourth quarter of 2014, because fulfillment of some of the conditions to completion of the merger is not entirely within our control, we cannot assure you of the actual timing.
     
Q: What shareholder approvals are required to complete the merger?
     
A: The merger cannot be completed unless two-thirds of the shares of Riverside common stock outstanding and entitled to vote at the company’s special meeting approve the merger agreement and a majority of the shares of SAL common stock outstanding and entitled to vote at SAL’s special meeting approve the merger agreement, the issuance of SAL common stock as merger consideration and the amendment of SAL’s certificate of incorporation.  
     
Q: Are there any shareholders already committed to voting in favor of the merger agreement?  
     
A: Yes.  Each of the executive officers, directors and director nominees of Riverside individually have entered into an agreement with SAL to vote their shares of Riverside common stock in favor of the merger agreement and against any competing proposal.  These shareholders held approximately 52.3% of Riverside’s outstanding common stock as of the date the merger agreement and voting agreements were executed and held 52.3% as of the record date for the special meeting of Riverside shareholders.    
     
Q: When and where are the special meetings?
     
A: The special meeting of shareholders of Riverside will be held at The Poughkeepsie Grand Hotel, 40 Civic Center Plaza, Poughkeepsie, New York 12601 on October 29, 2014, at 10:30 a.m., local time.

The special meeting of shareholders of SAL will be held at Hotchkiss School (Griswold Science Building, located off Route 41), 11 Interlaken Road, Lakeville, Connecticut 06039 on October 29, 2014, at 4:00 p.m., local time.
     
Q: Who is entitled to vote at the special meetings?
     
A: You are entitled to receive notice of and to vote at the Riverside special meeting if you owned Riverside common stock at the close of business on September 5, 2014, which is the record date for the special meeting of Riverside shareholders.  You will be entitled to one vote for each share of Riverside common stock that you owned as of the record date.  

You are entitled to receive notice of and to vote at the SAL special meeting if you owned SAL common stock at the close of business on September 5, 2014, which is the record date for the special meeting of SAL shareholders.  You will be entitled to one vote for each share of SAL common stock that you owned as of the record date.
     
Q: What constitutes a quorum for the special meetings?
     
A: The quorum requirement for both the Riverside and SAL special meetings are the presence in person or by proxy of a majority of the total number of outstanding shares of common stock entitled to vote.  Abstentions will be included in determining the number of shares present for determining the presence of a quorum.  Broker non-votes will be counted for this purpose only if the beneficial owner of such shares has instructed the bank or broker how to vote with respect to at least one matter before the meeting.
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Q: How does the board of directors of Riverside recommend I vote?
     
A: After careful consideration, Riverside’s board of directors unanimously recommends that Riverside shareholders vote “FOR” approval of the Riverside merger proposal and “FOR” the Riverside adjournment proposal, if necessary.  
     
Q: How does the board of directors of SAL recommend I vote?
     
A: After careful consideration, SAL’s board of directors unanimously recommends that SAL shareholders vote “FOR” approval of the SAL merger proposal; “FOR” approval of the SAL certificate of amendment proposal; and “FOR” the SAL adjournment proposal, if necessary.
     
Q: Are there any risks that I should consider in deciding whether to vote for the approval of the merger agreement?
     
A: Yes.  You should read and carefully consider the risk factors set forth in the section in this joint proxy statement/prospectus entitled “Risk Factors” beginning on page 20 as well as the other information contained in or incorporated by reference into this joint proxy statement/prospectus, including the matters addressed in the section of this joint proxy statement/prospectus titled “Cautionary Note Concerning Forward-Looking Statements” on page 19.
     
Q: What do I need to do now?
     
A: You should carefully read and consider the information contained and incorporated by reference in this joint proxy statement/prospectus, including its appendices.  It contains important information about the merger, the merger agreement, SAL and Riverside.  After you have read and considered this information, you should complete and sign your proxy card and return it in the enclosed postage-paid return envelope as soon as possible so that your shares will be represented and voted at the appropriate special meeting.
     
Q: If my shares are held in “street name” by my broker, bank or other nominee, will my broker, bank or other nominee automatically vote my shares for me?
     
A: No.  Your broker, bank or other nominee will not vote your shares unless you provide instructions to your broker, bank or other nominee on how to vote.  You should instruct your broker, bank or other nominee to vote your shares by following the instructions provided by the broker, bank or nominee with this joint proxy statement/prospectus.
     
Q; How will my shares be represented at the special meeting?
     
A: At the appropriate special meeting, the proxies named in your proxy card will vote your shares in the manner you requested if you properly signed and submitted your proxy.  If you sign your proxy card and return it without indicating how you would like to vote your shares, your proxy will be voted as the board of directors recommends, which for Riverside, is (1) “FOR” the approval of the Riverside merger proposal and (2) “FOR” the approval of the Riverside adjournment proposal; and for SAL is “FOR” the approval of the SAL merger proposal; “FOR” approval of the SAL certificate of amendment proposal; and “FOR” the SAL adjournment proposal, if necessary.
     
Q: What if I fail to submit my proxy card or to instruct my broker, bank or other nominee?
     
A: If you fail to properly submit your proxy card or to instruct your broker, bank or other nominee to vote your shares of common stock and you do not attend the special meeting and vote your shares in person, your shares will not be voted.  
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Q: Can I attend the special meeting and vote my shares in person?
     
A: Yes.  Although the boards of directors request that you return the proxy card accompanying this joint proxy statement/prospectus, all shareholders are invited to attend the respective special meetings.  For Riverside, shareholders of record on September 5, 2014, can vote in person at the special meeting.  For SAL, shareholders of record on September 5, 2014, can vote in person at the special meeting.  If your shares are held by a broker, bank or other nominee, then you are not the shareholder of record and you must bring to the appropriate special meeting appropriate documentation from your broker, bank or other nominee to enable you to vote at such special meeting.  
     
Q: Can I change my vote after I have mailed my signed proxy card?
     
A: Riverside shareholders:
     
  Yes.  You can change your vote at any time after you have submitted your proxy card and before your proxy is voted at the special meeting.  
     
  you may deliver a written notice bearing a date later than the date of your proxy card to Riverside’s CEO at the address listed below, stating that you revoke your proxy;
  you may submit a new signed proxy card bearing a later date (any earlier proxies will be revoked automatically); or
  you may attend the special meeting and vote in person, although attendance at the special meeting will not, by itself, revoke a proxy.
     
  You should send any notice of revocation or your completed new proxy card, as the case may be, to Riverside at the following address:
     
    Riverside Bank
11 Garden Street
Poughkeepsie, NY  12601
Attn: John M.  Davies, President and CEO
     
  If you have instructed a bank, broker or other nominee to vote your shares, you must follow the directions you receive from your bank, broker or other nominee to change your voting instructions.
     
  SAL shareholders:
     
  Yes.  You can change your vote at any time after you have submitted your proxy card and before your proxy is voted at the special meeting.  
     
  you may deliver a written notice bearing a date later than the date of your proxy card to SAL’s Secretary at the address listed below, stating that you revoke your proxy;
  you may submit a new signed proxy card bearing a later date (any earlier proxies will be revoked automatically); or
  you may attend the special meeting and vote in person, although attendance at the special meeting will not, by itself, revoke a proxy.
     
  You should send any notice of revocation or your completed new proxy card, as the case may be, to SAL at the following address:
     
    Salisbury Bancorp, Inc.
5 Bissell Street
P.O. Box 1868
Lakeville, CT  06038
Attn:  Shelly L. Humeston, Secretary
     
  If you have instructed a bank, broker or other nominee to vote your shares, you must follow the directions you receive from your bank, broker or other nominee to change your voting instructions.
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Q: What happens if I sell my Riverside shares after the record date but before the special meeting?
     
A: The record date of the special meeting is earlier than the date of the special meeting and the date that the merger is expected to be completed.  If you sell or otherwise transfer your shares after the record date but before the date of the special meeting, you will retain your right to vote at the special meeting (provided that such shares remain outstanding on the date of the special meeting), but you will not have the right to receive the merger consideration to be received by Riverside shareholders in the merger.  In order to receive the merger consideration, you must hold your shares through completion of the merger.
     
Q: What do I do if I receive more than one proxy statement/prospectus or set of voting instructions?
     
A: If you hold shares directly as a record holder and also in “street name” or otherwise through a nominee, you may receive more than one proxy statement/prospectus and/or set of voting instructions relating to the special meeting.  These should each be voted and/or returned separately in order to ensure that all of your shares are voted.
     
Q: Should I send in my stock certificates of Riverside now?
     
A: No.  Riverside shareholders will receive a letter of transmittal and instructions for surrendering of their stock certificates.  In the meantime, you should retain your stock certificates because they are still valid.  Please do not send in your stock certificates with your proxy card.
     
Q: Where can I find more information about SAL and Riverside?
     
A: You can find more information about SBT, SAL and Riverside from the various sources described under “Where You Can Find More Information” beginning on page 131.
     
Q: Whom can I call with questions?
     
A: You may contact SAL or Riverside at the telephone numbers listed under “Where You Can Find More Information” on page 131.  In each case, please ask to speak with the persons identified in that section.

 

 

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SUMMARY

 

The following is a summary of information located elsewhere in this document. It does not contain all of the information that is important to you. Before you vote, you should give careful consideration to all of the information contained in this document and the information incorporated into this document by reference to fully understand the merger. See “Where You Can Find More Information” on page 131. Each item in this summary refers to the page where that subject is discussed in more detail.

 

The Companies (Page 24)

 

Salisbury Bancorp, Inc.

 

SAL is a Connecticut corporation that owns all of the outstanding shares of common stock of SBT. At June 30, 2014, SAL had on a consolidated basis, assets of $621 million, deposits of $507 million, and shareholders’ equity of approximately $75 million. SAL’s stock is traded on the NASDAQ Capital Market under the symbol “SAL”. SBT, which is headquartered in Lakeville, CT, is a nine (9) branch community bank serving Litchfield County, Connecticut, Dutchess County, New York, and Berkshire County, Massachusetts. SBT offers a full range of deposit, loan and related banking and financial products and services to retail and commercial customers.

 

Riverside Bank

 

Riverside is a New York State chartered commercial bank headquartered in Poughkeepsie, New York. Riverside provides a full range of banking products and services through its main office in Poughkeepsie and three branch offices located in Red Oaks Mill, Fishkill and Newburgh, New York. Riverside’s primary business focus is serving the banking needs of small and medium sized businesses. Riverside focuses almost exclusively on commercial lending. At June 30, 2014, Riverside had assets of approximately $224 million and deposits of approximately $197 million.

 

The Special Meeting of Shareholders of Riverside

 

Date, Time and Place of the Special Meeting (Page 25)

 

Riverside will hold its special meeting of shareholders at The Poughkeepsie Grand Hotel, 40 Civic Center Plaza, Poughkeepsie, New York 12601 on October 29, 2014, at 10:30 a.m., local time.

 

Actions to be Taken at the Riverside Special Meeting (Page 25)

 

At the Riverside special meeting Riverside shareholders will be asked to approve the merger agreement and, if necessary, approve one or more adjournments of the special meeting.

 

Recommendation of Riverside Board of Directors (Page 25)

 

The Riverside board of directors has determined that the merger and the transactions contemplated by the merger agreement are advisable and in the best interests of Riverside and its shareholders, and the directors in attendance at the March 18, 2014 board meeting voted unanimously to adopt the merger agreement. Riverside’s board of directors unanimously recommends that Riverside shareholders vote “FOR” approval of the merger agreement and “FOR” approval of the proposal to adjourn the special meeting.

 

Riverside’s board of directors believes that the merger will provide value to its shareholders, customers and employees and strengthen the ability of the combined institution to support the communities in which it will operate. For additional factors considered by Riverside’s board of directors in reaching its decision to adopt the merger agreement, see “The Merger - Riverside’s Reasons for the Merger.”

 

Record Date; Outstanding Shares; Shares Entitled to Vote (Page 25)

 

Only holders of record of Riverside common stock at the close of business on the record date of September 5, 2014, are entitled to notice of and to vote at the special meeting. As of the record date, there were 741,876 shares of Riverside common stock outstanding, held of record by approximately 329 shareholders.

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Quorum; Vote Required (Page 25)

 

A quorum of Riverside shareholders is necessary to hold a valid meeting. If the holders of at least a majority of the total number of the outstanding shares of Riverside common stock entitled to vote are represented in person or by proxy at the special meeting, a quorum will exist. Riverside will include proxies marked as abstentions and broker non-votes in determining the presence of a quorum at the special meeting.

 

The affirmative vote of the holders of at least two-thirds of the shares of Riverside common stock outstanding and entitled to vote is required to approve the merger agreement. The affirmative vote of the holders of at least a majority of the shares present and entitled to vote at the special meeting is required to approve the proposal to adjourn the special meeting.

 

Share Ownership of Management; Voting Agreements (Page 26)

 

As of the record date, the directors and executive officers of Riverside and their affiliates collectively owned 303,045 shares of Riverside common stock, or approximately 39.52% of Riverside’s outstanding shares. Each Riverside director and executive officer has entered into a voting agreement with SAL, which requires each person to vote all of the shares of Riverside common stock beneficially owned by him or her “FOR” approval of the merger agreement and the other proposals described in the notice for the special meeting. None of the directors or executive officers were paid any additional consideration in connection with the execution of the voting agreement.

 

Proxies, Voting and Revocation (Page 26)

 

The Riverside board of directors requests that you return the proxy card accompanying this document for use at the special meeting. Please complete, date and sign the proxy card and promptly return it in the enclosed pre-paid envelope. All properly signed proxies received prior to the special meeting and not revoked before the vote at the special meeting will be voted at the special meeting according to the instructions indicated on the proxies or, if no instructions are given, to approve the merger agreement.

 

You may revoke your proxy at any time by taking any of the following actions before your proxy is voted at the special meeting:

 

delivering a written notice bearing a date later than the date of your proxy card to the President and CEO of Riverside, stating that you revoke your proxy;
signing and delivering to the CEO of Riverside a new proxy card relating to the same shares and bearing a later date; or
attending the special meeting and voting in person, although attendance at the special meeting will not, by itself, revoke a proxy.

 

The Special Meeting of Shareholders of SAL

 

Date, Time and Place of the SAL Special Meeting (Page 29)

 

SAL will hold its special meeting of shareholders at Hotchkiss School (Griswold Science Building, located off Route 41), 11 Interlaken Road, Lakeville, Connecticut 06039 on October 29, 2014, at 4:00 p.m., local time.

 

Actions to be Taken at the Special Meeting (Page 29)

 

At the SAL special meeting SAL shareholders will be asked to vote to approve the merger agreement including issuance of shares as merger consideration, to approve the amendment to the certificate of incorporation to increase SAL’s authorized stock and to eliminate the minimum and maximum number of directors on the SAL board and provide that the number of directors shall be fixed from time to time by the board of directors, and, if necessary, to approve one or more adjournments of the special meeting.

 

Recommendation of SAL Board of Directors (Page 29)

 

The SAL board of directors has determined that the merger, the merger agreement and the transactions contemplated thereby are advisable and in the best interests of SAL and its shareholders and has unanimously adopted the merger agreement. SAL’s board of directors unanimously recommends that SAL shareholders vote “FOR” approval of the SAL merger proposal,FOR” approval of the SAL certificate of amendment proposal, “FOR” approval of the proposal to issue SAL common stock, andFOR” approval of the SAL adjournment proposal.

-8-
 

SAL’s board of directors believes that Riverside’s business and operations complement those of SAL and that the transaction will enhance SAL’s franchise and create value for its shareholders, customers and employees. For additional factors considered by SAL’s board of directors in reaching its decision to adopt the merger agreement, see “The Merger - SAL’s Reasons for the Merger.”

 

Record Date; Outstanding Shares; Shares Entitled to Vote (Page 29)

 

Only holders of record of SAL common stock at the close of business on the record date of September 5, 2014, are entitled to notice of and to vote at the special meeting. As of the record date, there were 1,713,281 shares of SAL common stock outstanding, held of record by approximately 1,739 shareholders.

 

Quorum; Vote Required (Page 29)

 

A quorum of SAL shareholders is necessary to hold a valid meeting. If the holders of at least a majority of the total number of the outstanding shares of SAL common stock entitled to vote are represented in person or by proxy at the special meeting, a quorum will exist. SAL will include proxies marked as abstentions and broker non-votes in determining the presence of a quorum at the special meeting.

 

The affirmative vote of the holders of at least a majority of the shares of SAL common stock outstanding and entitled to vote is required to approve the SAL merger proposal, the SAL certificate of amendment proposal, and the SAL adjournment proposal, if necessary.

 

Share Ownership of Management (Page 30)

 

As of the record date, the directors and executive officers of SAL and their affiliates collectively owned 127,240 shares of SAL common stock, or approximately 7.43% of SAL’s outstanding shares.

 

Proxies, Voting and Revocation (Page 30)

 

SAL’s board of directors requests that you return the proxy card accompanying this document for use at the special meeting. Please complete, date and sign the proxy card and promptly return it in the enclosed pre-paid envelope. All properly signed proxies received prior to the special meeting and not revoked before the vote at the special meeting will be voted at the special meeting according to the instructions indicated on the proxies or, if no instructions are given, to approve the merger agreement.

 

You may revoke your proxy at any time by taking any of the following actions before your proxy is voted at the special meeting:

 

delivering a written notice bearing a date later than the date of your proxy card to the Secretary of SAL, stating that you revoke your proxy;
signing and delivering to the Secretary of SAL a new proxy card relating to the same shares and bearing a later date; or
attending the special meeting and voting in person, although attendance at the special meeting will not, by itself, revoke a proxy.

 

The Merger and the Merger Agreement

 

The proposed merger is of Riverside with and into SBT, with SBT as the surviving institution in the merger. The merger agreement is attached to this joint proxy statement/prospectus as Appendix A. Please carefully read the merger agreement as it is the legal document that governs the merger.

 

Structure of the Merger (Page 71)

 

Subject to the terms and conditions of the merger agreement, and in accordance with Connecticut Banking Law, at the completion of the merger, Riverside will merge with and into SBT. SBT will be the surviving institution in the merger and will continue its corporate existence under the laws of the State of Connecticut. Upon completion of the merger, the separate corporate existence of Riverside will terminate.

-9-
 

Consideration to be Received in the Merger (Page 71)

 

Upon completion of the merger, each outstanding share of Riverside common stock (other than any Riverside stock held by Riverside, which will be cancelled) will be converted into the right to receive 1.35 shares of SAL common stock.

 

No fractional shares of SAL common stock will be issued to any holder of Riverside common stock upon completion of the merger. For each fractional share that would otherwise be issued, SAL will pay each shareholder cash (without interest) in an amount equal to the fractional share interest to which such shareholder would otherwise be entitled multiplied by the average of the daily closing prices of SAL common stock during the regular session of SAL common stock on NASDAQ for the five consecutive trading days ending on the third business day immediately prior to the closing date, rounded to the nearest whole cent.

 

Treatment of Riverside’s Stock Options (Page 72)

 

At the effective time of the merger, SAL will assume each validly issued stock option granted under Riverside’s stock option plan, whether vested or unvested, and which has not been previously exercised or cancelled, subject to adjustment such that options granted under Riverside’s stock option plan will be exercisable for shares of SAL common stock. Of the 41,000 options granted in 2013, 21,000 options will not be assumed by SAL, and will be terminated by Riverside prior to the effective time.

 

Opinion of Keefe, Bruyette & Woods, Inc., Financial Advisor to Riverside (Page 39)

 

On March 18, 2014, Riverside’s financial advisor, Keefe, Bruyette & Woods, Inc. (“KBW”), rendered to the Riverside board of directors its opinion as to the fairness, from a financial point of view and as of the date of the opinion, of the exchange ratio in the proposed merger. The full text of KBW’s written opinion, which sets forth the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by KBW, is included as Appendix C to this joint proxy statement/prospectus. Riverside shareholders are urged to read the opinion in its entirety. KBW’s opinion speaks only as of the date of the opinion. The opinion was directed to the Riverside board of directors (in its capacity as such) in its consideration of the financial terms of the merger and addressed only the fairness, from a financial point of view, of the exchange ratio to the holders of Riverside common stock. It did not address the underlying business decision of Riverside to engage in the merger and does not constitute a recommendation to any Riverside shareholder as to how to vote in connection with the merger or any other matter.

 

Opinion of Sterne, Agee & Leach, Financial Advisor to SAL (Page 51)

 

On March 18, 2014, Sterne, Agee & Leach (“Sterne Agee”) rendered to the SAL board of directors its opinion that, as of such date, the consideration to be paid to the Riverside shareholders by SAL in the merger was fair, from a financial point of view, to SAL shareholders. The full text of Sterne Agee’s written opinion, which sets forth the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Sterne Agee, is included as Appendix D to this joint proxy statement/prospectus. SAL shareholders are urged to read the opinion in its entirety. The description of the opinion set forth herein is qualified in its entirety by reference to the full text of such opinion. Sterne Agee’s opinion speaks only as of the date of the opinion. The opinion is directed to the SAL board of directors and addresses only the fairness, from a financial point of view, of the merger consideration to be paid to the holders of SAL common stock. It does not address the underlying business decision to proceed with the merger and does not constitute a recommendation to any SAL shareholder as to how the shareholder should vote at the SAL special meeting.

 

Interests of Riverside’s Directors and Executive Officers in the Merger (Page 59)

 

Riverside’s executive officers and directors may have financial interests in the merger that are different from, or in addition to, the interests of Riverside shareholders. These interests include continued indemnification and insurance coverage by SAL after the merger for acts or omissions occurring before the merger, severance payments due certain executive officers in connection with the merger under pre-existing employment agreements, the entry into employment agreements with SAL and two (2) executive officers of Riverside, the appointment of five (5) individuals to the board of directors of both SAL and SBT following the effective date of the merger and the invitation of those Riverside directors who will not join the SAL or SBT boards of directors to serve on an advisory board of SAL and the assumption of outstanding Riverside stock options by SAL. Riverside’s board of directors was aware of these interests and considered them in its decision to approve the merger agreement.

 

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SAL and Salisbury Bank and Trust Company Management and Boards of Directors After the Merger (Page 107)

 

SBT has agreed to appoint John M. Davies, the current Chief Executive Officer and President of Riverside to the position of President of the New York Region of SBT and to appoint Todd Rubino, the current Executive Vice President and Senior Lending Officer of Riverside, to be the Vice President, Senior Lender of the New York Region pursuant to employment agreements to be effective upon consummation of the merger. In addition, SAL has agreed to appoint five (5) representatives of Riverside, Rudolph P. Russo, Charles M. Andola, George E. Banta, Michael D. Gordon and P. Diane Hoe, to the board of directors of SAL effective immediately following the effective date of the merger.

 

No Solicitation of Alternative Transactions (Page 76)

 

While the merger agreement is in effect, Riverside has agreed not to initiate, solicit, encourage or knowingly facilitate the submission of any proposals from third parties regarding acquiring Riverside or its businesses. In addition, Riverside has agreed not to engage in discussions or negotiations with or provide confidential information to a third party regarding acquiring Riverside or its businesses. However, if Riverside receives an acquisition proposal from a third party that did not result from solicitation in violation of its obligations under the merger agreement prior to the date of the special meeting of Riverside shareholders, Riverside may participate in discussions with, or provide confidential information to, such third party if, among other steps, Riverside’s board of directors concludes in good faith that the failure to take such actions would result in a violation of its fiduciary duties under applicable law.

 

Conditions to Completion of the Merger (Page 78)

 

As more fully described in this joint proxy statement/prospectus and the merger agreement, the completion of the merger depends on a number of mutual conditions being satisfied or waived, including approval of the merger agreement by Riverside and SAL shareholders, approval of an amendment to the SAL certificate of incorporation, approval of the issuance of SAL shares as merger consideration by the SAL shareholders, and receipt of required regulatory approvals.

 

Termination of the Merger Agreement (Page 80)

 

The merger agreement specifies a number of situations when SAL and Riverside may terminate the merger agreement. For example, the merger agreement may be terminated at any time prior to the effective time by mutual consent and by either party under specified circumstances, including if the merger is not consummated by December 31, 2014, unless the delay is due to a material breach of the merger agreement by the party seeking to terminate the merger agreement.

 

Termination Fee and Termination Expenses (Page 80)

 

Riverside has agreed to pay to SAL a termination fee of $1,200,000 plus certain termination expenses of up to $500,000, if the merger agreement is terminated under certain circumstances as specified in “The Merger Agreement - Termination Fee and Termination Expense” beginning on page 80.

 

Waiver or Amendment of Merger Agreement Provisions (Page 81)

 

At any time prior to the completion of the merger, a provision of the merger agreement may be waived by the party intended to benefit by the provision, or may be amended or modified by a written action taken or authorized by the parties’ respective boards of directors. However, after the approval of the merger agreement by the Riverside shareholders, no amendment will be made which by law requires further approval by Riverside shareholders without such further approval.

 

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Material U.S. Federal Income Tax Consequences of the Merger (Page 65)

 

The merger is intended to qualify for U.S. federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Code and counsel for each of SAL and Riverside has provided an opinion to that effect. Such opinions have been filed as exhibits to the registration statement of which this joint proxy statement/prospectus is a part. Accordingly, Riverside shareholders generally will not recognize any gain or loss on the conversion of shares of Riverside common stock solely into shares of SAL common stock. However, a Riverside shareholder generally will be subject to tax on cash received in lieu of any fractional share of SAL common stock that a Riverside shareholder would otherwise be entitled to receive.

 

Tax matters are very complicated and your tax consequences will depend on your individual situation. You should consult your tax advisor for a full explanation of the tax consequences of the merger to you.

 

Regulatory Approvals Required for the Merger (Page 67)

 

To complete the merger, SBT and Riverside need the prior approval of the Federal Deposit Insurance Corporation (“FDIC”) and the Connecticut Department of Banking (“CT DOB”). In addition, SAL must receive a waiver from the Federal Reserve Bank of Boston (“FRB”). The United States Department of Justice (the “DOJ”) is able to provide input into the approval process of federal banking agencies to challenge the approval on antitrust grounds. Prior to the date of the Riverside and SAL special meetings, SBT and Riverside will have filed all necessary applications and notices with regulators. Approval by the FDIC and CT DOB and the issuance of a waiver by the FRB is required prior to the merger of Riverside into SBT. SAL and Riverside cannot predict, however, whether or when the required regulatory approval will be obtained or whether any such approval and waiver will impose any burdensome condition upon SAL.

 

Accounting Treatment of the Merger (Page 67)

 

The merger will be accounted for using the purchase method of accounting with SBT treated as the acquiror. Under this method of accounting, Riverside’s assets and liabilities will be recorded by SBT at their respective fair values as of the closing date of the merger and added to those of SBT. Any excess of purchase price over the net fair values of Riverside’s assets and liabilities will be recorded as goodwill. Any excess of the fair value of Riverside’s net assets over the purchase price will be recognized in earnings by SBT on the closing date of the merger.

 

Dissenters’ Rights (Page 68)

 

Under New York law, holders of Riverside common stock have the right to dissent from, and obtain payment of the fair value of their shares of Riverside common stock in connection with, the merger. To perfect such dissenters’ rights, a Riverside shareholder must not vote for the approval of the merger agreement and must strictly comply with all of the procedures required under the New York law. These procedures are described more fully beginning on page 68.

 

The relevant provisions of the New York law are included as Appendix B to this joint proxy statement/prospectus.

 

Listing of SAL Common Stock to be Issued in the Merger (Page 70)

 

SAL’s common stock is quoted on the NASDAQ Capital Market under the trading symbol “SAL.” The SAL shares to be issued to the shareholders of Riverside will also be included for quotation on the NASDAQ Capital Market.

 

Comparison of Shareholders’ Rights (Page 122)

 

As a result of the merger, some or all of the holders of Riverside common stock will become holders of SAL common stock. Following the merger, Riverside shareholders will have different rights as shareholders of SAL than as shareholders of Riverside due to the different provisions of the governing documents of SAL and Riverside and differences between the New York Law, which governs the rights of Riverside shareholders, and the Connecticut Business Corporation Act, which governs the rights of SAL shareholders. For additional information regarding the different rights as shareholders of SAL than as shareholders of Riverside, see “Comparison of Shareholders’ Rights” beginning on page 122.

 

-12-
 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

The following unaudited pro forma condensed combined financial information gives effect to the merger of SAL and Riverside based on the assumptions set forth below. The unaudited pro forma condensed combined financial information reflects the impact of the merger on the combined balance sheets and on the combined statements of income under the acquisition method of accounting under generally accepted accounting principles with SAL treated as the acquirer. Under the acquisition method of accounting, Riverside’s assets and liabilities are recorded by SAL at their estimated fair values as of the date that the merger is completed. However, no pro forma adjustments have been included that reflect potential effects of cost savings or synergies that may be obtained by combining the operations of SAL and Riverside, or the costs of combining the companies and their operations.

 

The unaudited pro forma condensed combined balance sheet as of June 30, 2014 assumes the merger was completed on that date. The unaudited pro forma condensed combined statements of income for the year ended December 31, 2013 assume the merger was completed on January 1, 2013.

 

The unaudited pro forma information is provided for informational purposes only. The pro forma financial information presented is not necessarily indicative of the actual results that would have been achieved had the merger been consummated on the dates or at the beginning of the periods presented, and is not necessarily indicative of future results. The unaudited pro forma financial information should be read in conjunction with the historical consolidated financial statements and related notes of SAL, which are incorporated into this document by reference, and the historical consolidated financial statements and related notes of Riverside, which are included in this document.

 

The following unaudited pro forma condensed combined balance sheet as of June 30, 2014 combines the June 30, 2014 balance sheets of SAL and Riverside assuming the merger was completed on June 30, 2014.

 

Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 2014

 

   Salisbury Bancorp, Inc.  Riverside Bank  Adjustments     Unaudited
Pro Forma
   (in thousands)
Cash and cash equivalents and certificates of deposit  $34,908   $8,557   $(1,980)   (1)  $41,485 
Securities available for sale, at fair value   88,456    16,548    (138)   (2)   104,866 
Loans, net and loans held for sale   456,627    191,949    (869)   (3)   647,707 
Premises and equipment, net   13,013    1,122    (129)   (4)   14,006 
Goodwill   9,829        5,112    (5)   14,941 
Identifiable intangible assets   946        1,574    (6)   2,520 
Cash surrender value of life insurance policies   7,641    4,322             11,963 
Other assets   10,056    1,573    631    (7)   12,260 
Total assets  $621,476   $224,071   $4,201        $849,748 
                          
Deposits  $507,361   $196,892   $720    (8)  $704,973 
Borrowings   34,388                 34,388 
Other liabilities   4,727    1,027    535    (9)   6,289 
Shareholders’ equity   75,000    26,152    2,946    (10)   104,098 
Total liabilities and shareholders’ equity  $621,476   $224,071   $4,201        $849,748 
                          
Common Shares   1,712    742    999    (11)   2,711 

_______________________

 

(1)Cash component of transaction, which includes transaction expenses and costs.
(2)Acquisition accounting fair value adjustment on securities portfolio.
(3)Calculated to reflect fair value adjustments on loans of ($3,729), net of eliminated Riverside allowance for loan losses of $2,860.
(4)Acquisition accounting fair value adjustment on bank premises. Purchase discount is accreted over a 15-year period.
(5)Calculated as the fair value of consideration paid in the acquisition of Riverside, less amounts allocated to the fair value of identifiable assets acquired and liabilities assumed. The purchase price, purchase price allocation, and financing of the transaction are as follows:
-13-
 

 

(6)Calculated to reflect the recognition of the estimated fair value of core deposit intangible, or CDI. The estimated intangibles represent the estimated future economic benefit resulting from the acquired customer balances and relationships. These values were derived from similar transactions. The final values will be determined based upon independent appraisals at the date of acquisition.
(7)Calculated to reflect estimated deferred income tax assets of $631 arising from the purchase and fair value adjustments of assets and liabilities.
(8)Calculated to reflect fair value adjustments on deposits at current market rates.
(9)Calculated to reflect estimated deferred tax liabilities of $535 arising from the core deposit intangible.
(10)Calculated to reflect the elimination of Riverside shareholders' equity as part of the acquisition accounting adjustments and represents the conversion of 100% of Riverside shares into SAL shares at an exchange ratio of 1.35 of SAL shares (assuming a stock price of $30.01).
(11)Reflects newly issued SAL shares.

 

Purchase Price for Riverside paid as:      
Conversion of 100% of Riverside’s outstanding shares of common stock and in the money options into 1.35 shares of SAL stock (based upon the closing SAL’s stock price of $30.01 at June 30, 2014)   $30,648 
Allocated to:     
Historical net book value of Riverside assets and liabilities  $26,152 
Adjustment to Riverside equity resulting from transaction related to expenses attributable to Riverside and SAL  $(430)
Adjustments to step-up assets and liabilities to fair value:     
Securities available for sale  $(138)
Loans, net  $(869)
Premises and equipment  $(129)
Other assets (Net tax deferred asset)  $96 
Deposits  $(720)
Core deposit intangible  $1,574 
Excess purchase price over fair value of identifiable assets and liabilities (goodwill)  $5,112 

-14-
 

The following unaudited pro forma condensed combined statement of income for the six months ended June 30, 2014 combines the statements of income of SAL and Riverside assuming the merger was completed on January 1, 2014.

 

Unaudited Pro Forma Condensed Combined Statement of Income for the

Six Months Ended June 30, 2014

 

   Salisbury Bancorp, Inc.  Riverside Bank  Adjustments     Unaudited
Pro Forma
   (in thousands, except per share data)
Interest and dividend income:                         
Interest and fees on loans  $9,327   $4,813   $199    (1)  $14,339 
Interest and dividends on securities   1,623    91             1,714 
Interest on cash equivalents and certificates of deposit   45                 45 
Total interest and dividend income    10,995    2,435    199         16,098 
                          
Interest expense:                         
Interest on deposits   700    541    (35)   (2)   1,206 
Interest on borrowed funds   615                 615 
Total interest expense   1,315    541    (35)        1,821 
Net interest and dividend income   9,680    4,363    234         14,277 
Provision for loan losses   651    420             1,071 
Net interest and dividend income, after provision for loan losses   9,029    3,943    234         13,206 
                          
Non-interest income:                         
Service charges on deposits   1,168    95             1,263 
Income from fiduciary activities   1,718                 1,718 
Net gain on sales of securities       2             2 
Net increase in cash surrender value of bank-owned life insurance   113                 113 
Other operating income   121    256             377 
Total non-interest income   3,120    353             3,473 
                          
Non-interest expenses:                         
Salaries and employee benefits   5,275    1,685             6,960 
Occupancy and equipment expenses   1,374    325    4    (3)   1,703 
Deposit insurance expense   221    63             284 
Other operating expense   3,308    757    185    (4)   4,250 
Total non-interest expenses   10,178    2,830    189         13,197 
Income before income taxes   1,971    1,466    45         3,482 
                          
Provision for income taxes   454    532    15    (5)   1,001 
                          
Net income   $1,517   $934   $30        $2,481 
Net income available to common shareholders  $1,431   $934   $30        $2,395 
                          
Weighted-average shares outstanding:                         
Basic   1,712    999 (6)          2,711 
Diluted   1,712    1,000 (6)  20         2,732 
                          
Earnings per share                         
Basic  $0.83   $0.93            $0.88 
Diluted  $0.83   $0.93            $0.88 

-15-
 

 _________________

(1)Amount represents accretion of loan discount of approximately $1.2 million, over an estimated weighted average life of 3.4 years. $0.77 million is the portion of the fair value adjustment on loans which is due to changes in the interest rate environment and not the portion that reflects the credit quality fair value adjustment on the loans.
(2)Amount represents amortization of deposit fair value adjustment of $0.72 million, over the estimated life of the deposits.
(3)Amounts represents amortization of fair value adjustment on fixed assets over estimated life of 15 years.
(4)Amount represents CDI amortization of $1.6 million over an estimated life of 10 years using an accelerated method based on anticipated life of deposits.
(5)Amount represents a change in taxes from adjustments at an assumed tax rate of 34%.
(6)Weighted-average shares outstanding used in the computation of Riverside earnings per share reflect the conversion of such shares into SAL shares at an exchange ratio of 1.35 SAL shares.

 

-16-
 

The following unaudited pro forma condensed combined statement of income for the year ended December 31, 2013 combines the statements of income of SAL and Riverside assuming the merger was completed on January 1, 2013.

 

Unaudited Pro Forma Condensed Combined Statement of Income for the

Year Ended December 31, 2013

 

   Salisbury Bancorp, Inc.  Riverside Bank  Adjustments     Unaudited
Pro Forma
   (in thousands, except per share data)
Interest and dividend income:                         
Interest and fees on loans  $17,978   $9,686   $235   (1)  $27,899 
Interest and dividends on securities   3,705    143             3,848 
Interest on cash equivalents and certificates of deposit   67    1             68 
Total interest and dividend income    21,750    9,830    235        31,815 
                          
Interest expense:                         
Interest on deposits   1,813    1,263    (75)   (2)   3,001 
Interest on borrowed funds   1,249                 1,249 
Total interest expense   3,062    1,263    (75)        4,250 
Net interest and dividend income   18,688    8,567    310        27,565 
Provision for loan losses   1,066    820             1,886 
Net interest and dividend income, after provision for loan losses   17,622    7,747    310        25,679 
                          
Non-interest income:                         
Service charges on deposits   2,298    547             2,845 
Income from fiduciary activities   3,074                 3,074 
Net gain on sales of securities                     
Net increase in cash surrender value of bank-owned life insurance   234    117             351 
Other operating income   699    164             863 
Total non-interest income   6,305    828             7,133 
                          
Non-interest expenses:                         
Salaries and employee benefits   10,271    3,524             13,795 
Occupancy and equipment expenses   2,398    696    9    (3)   3,103 
Deposit insurance expense   470    142             612 
Other operating expense   5,796    1,338    360    (4)   7,494 
Total non-interest expenses   18,935    5,700    369         25,004 
Income before income taxes   4,992    2,875    (59)        7,808 
                          
Provision (benefit) for income taxes   909    1,069    (21)   (5)   1,957 
                          
Net income  $4,083   $1,806   $(38)       $5,851 
                          
Net income available to common shareholders  $3,922   $1,806   $(38)       $5,690 
                          
Weighted-average shares outstanding:                         
Basic   1,691    999             2,690 
Diluted   1,691    1,000    14         2,705 
                          
Earnings per share                         
Basic  $2.30   $1.81           $2.12 
Diluted  $2.30   $1.81           $2.10 

-17-
 

______________

(1)Amount represents accretion of loan discount of approximately $1.2 million, over an estimated weighted average life of 3.4 years. $0.77 million is the portion of the fair value adjustment on loans which is due to changes in the interest rate environment and not the portion that reflects the credit quality fair value adjustment on the loans.
(2)Amount represents amortization of deposit fair value adjustment of $0.72 million, over the estimated life of the deposits.
(3)Amount represents amortization of fair value adjustment on fixed assets over estimated life of 15 years
(4)Amount represents CDI amortization of $1.9 million over an estimated life of 10 years using an accelerated method based on anticipated life of deposits.
(5)Amount represents a change in taxes from adjustments at an assumed tax rate of 34.0%.
(6)Weighted-average shares outstanding used in the computation of Riverside earnings per share reflect the conversion of such shares into SAL shares at an exchange ratio of 1.35 SAL shares.

-18-
 

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

 

This joint proxy statement/prospectus, including information included or incorporated by reference in this joint proxy statement/prospectus, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about the benefits of the merger between SAL and Riverside, including future financial and operating results and performance; statements about SAL and Riverside’s plans, objectives, expectations and intentions with respect to future operations, products and services; and other statements identified by words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “will,” “should,” “may” or words of similar meaning. These forward-looking statements are based upon the current beliefs and expectations of SAL and Riverside’s management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and generally beyond the control of SAL and Riverside. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Actual results may differ materially from the anticipated results discussed in these forward-looking statements.

 

In addition to the items discussed under “Risk Factors” elsewhere in this joint proxy statement/prospectus, the following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

 

difficulties related to the consummation of the merger and the integration of the businesses of SBT and Riverside;
the level and timeliness of realization, if any, of expected cost savings from the merger;
lower than expected revenues following the merger;
difficulties in obtaining required shareholder and regulatory approvals for the merger;
limitations imposed by the merger agreement on Riverside’s ability to pursue alternatives to the merger;
local, regional, national and international economic conditions and the impact they may have on SBT or Riverside and their customers;
continued volatility and disruption in national and international financial markets;
changes in the level of non-performing assets and charge-offs;
changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements;
adverse conditions in the securities markets that lead to impairment in the value of securities in SAL’s or Riverside’s investment portfolio;
inflation, interest rate, securities market and monetary fluctuations;
the timely development and acceptance of new products and services and perceived overall value of these products and services by users;
changes in consumer spending, borrowings and savings habits;
technological changes;
the ability to increase market share and control expenses;
changes in the competitive environment among banks, financial holding companies and other financial service providers;
the effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which SBT, SAL and Riverside must comply;
the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board and other accounting standard setters;
the costs and effects of legal and regulatory developments including the resolution of legal proceedings or regulatory or other governmental inquiries and the results of regulatory examinations or reviews;
a possible change in SAL’s ability to pay dividends in the future in accordance with past practice, due to dependence on SBT’s earnings and certain legal and regulatory restrictions; and
SAL’s and Riverside’s success at managing the risks involved in the foregoing items.

 

You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this joint proxy statement/prospectus or the date of any document incorporated by reference in this joint proxy statement/prospectus. All subsequent written and oral forward-looking statements concerning the merger or other matters addressed in this joint proxy statement/prospectus and attributable to SAL and Riverside or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable law or regulation, SAL and Riverside undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this joint proxy statement/prospectus or to reflect the occurrence of unanticipated events.

 

-19-
 

RISK FACTORS

 

In addition to the other information included in this joint proxy statement/prospectus (including the matters addressed in “Cautionary Note Concerning Forward-Looking Statements”) and incorporated by reference into this document, you should carefully consider the matters described below in determining how to vote for the proposal presented in this joint proxy statement/prospectus. Any of these risks could have an adverse effect on SAL’s business, financial condition, results of operations or prospects, which could in turn affect the price of its shares.

 

The value of the merger consideration will vary with changes in SAL’s stock price.

 

Upon completion of the merger, all of the outstanding shares of Riverside common stock will be converted into shares of SAL common stock. The ratio at which the shares will be converted is fixed at 1.35 shares of SAL common stock for each share of Riverside common stock. Any change in the price of SAL common stock will affect the aggregate value Riverside shareholders will receive in the merger. Stock price changes may result from a variety of factors that are beyond the control of SAL and Riverside, including changes in businesses, operations and prospects, regulatory considerations, and general market and economic conditions. Accordingly, at the time of the special meeting, you will not know the exact value of the stock consideration to be received by Riverside shareholders in the merger. In addition, there will be a time period between the completion of the merger and the time at which former Riverside shareholders actually receive their shares of SAL common stock. Until shares are received, former Riverside shareholders may not be able to sell their SAL shares in the open market and, therefore, will not be able to avoid losses resulting from any decrease, or secure gains resulting from any increase, in the trading price of SAL common stock during this period.

 

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

 

The merger agreement is subject to a number of conditions which must be fulfilled in order to complete the merger. Those conditions include:

 

approval of the merger agreement by Riverside and SAL shareholders;
approval by SAL shareholders of an amendment to SAL’s certificate of incorporation to increase SAL’s authorized stock and eliminate the minimum and maximum number of directors on its board and the issuance of SAL common stock as merger consideration pursuant to the merger agreement;
the receipt of required regulatory approvals;
absence of orders prohibiting the completion of the merger;
effectiveness of the registration statement of which this joint proxy statement/prospectus is a part;
the continued accuracy of the representations and warranties by both parties and the performance by both parties of their covenants and agreements; and
the receipt by both parties of tax opinions from their respective counsels.

 

If these conditions are not satisfied or waived (to the extent legally waivable), we will not be able to consummate the merger and the merger agreement will be terminated. In addition, under the merger agreement, each of SAL and Riverside have the right to terminate the merger agreement under certain circumstances. We can give you no assurance that the merger will actually be completed.

 

The need for regulatory approvals may delay the date of completion of the merger or may diminish the benefits of the merger.

 

SBT, SAL and Riverside are required to obtain the approvals or nonobjections of bank regulatory agencies prior to completing the merger. Satisfying any requirements of these regulatory agencies may delay the date of completion of the merger. In addition, it is possible that, among other things, restrictions on the combined operations of the two companies, including divestitures, may be sought by governmental agencies as a condition to obtaining the required regulatory approvals. Any regulatory restriction may diminish the benefits of the merger to Riverside and SAL. SAL is not required to complete the merger if a governmental agency, as part of its authorization or approval, imposes any condition, restriction or requirement upon SAL that SAL reasonably determines in good faith would individually or in the aggregate, materially reduce the benefits of the merger to such a degree that SAL would not have entered into the merger agreement had such a condition, restriction or requirement been known at the time the merger agreement was entered into.

 

-20-
 

If the merger is not completed, Riverside and SAL will have incurred substantial expenses without their respective shareholders realizing the expected benefits.

 

Riverside and SAL have each incurred substantial expenses in connection with the transactions described in this joint proxy statement/prospectus. If the merger is not completed, Riverside expects that it will have incurred approximately $430,000 (after tax) in merger-related expenses and SAL expects that it will have incurred approximately $1,550,000 (after tax) in merger-related expenses. These expenses would likely have a material adverse impact on the operating results of Riverside and SAL, respectively, because they would not have realized the expected benefits of the merger. There can be no assurance that the merger will be completed.

 

Riverside and SAL will be subject to business uncertainties and contractual restrictions while the merger is pending.

 

Uncertainty about the effect of the merger on employees, suppliers and customers may have an adverse effect on Riverside or SAL. These uncertainties may impair Riverside’s or SAL’s ability to attract, retain and motivate key personnel until the merger is completed, and could cause customers, suppliers and others who deal with Riverside to seek to change existing business relationships with Riverside or SAL. Riverside or SAL employee retention and recruitment may be particularly challenging prior to the effective time of the merger, as employees and prospective employees may experience uncertainty about their future roles with the combined company.

 

The pursuit of the merger and the preparation for the integration may place a significant burden on management and internal resources. Any significant diversion of management attention away from ongoing business and any difficulties encountered in the transition and integration process could affect the financial results of Riverside or SAL and, following the merger, the combined company. In addition, the merger agreement requires that Riverside and SAL operate in the ordinary course of business consistent with past practice and restricts Riverside or SAL from taking certain actions prior to the effective time of the merger or termination of the merger agreement. This may limit the ability of Riverside or SAL to engage in new lines of business or take advantage of other business opportunities while the merger is pending.

 

The merger agreement limits Riverside’s ability to pursue alternatives to the merger.

 

The merger agreement contains terms and conditions that make it more difficult for Riverside to sell its business to a party other than SAL. Riverside has agreed to take action necessary to convene and to hold a meeting of shareholders of Riverside to consider and vote upon the approval of the merger agreement and the merger as promptly as practicable following the execution of the merger agreement. Subject to certain limited exceptions, Riverside’s board of directors is required to recommend such approval.

 

SAL required Riverside to agree to these provisions as a condition to SAL’s willingness to enter into the merger agreement. However, these provisions might discourage a third party that might have an interest in acquiring all or a significant part of Riverside from considering or proposing that acquisition even if it were prepared to pay consideration with a higher per share price than the current proposed merger consideration, and the termination fee might result in a potential competing acquirer proposing to pay a lower per share price to acquire Riverside than it might otherwise have proposed to pay.

 

SAL may fail to realize the anticipated benefits of the merger.

 

The success of the merger will depend, in part, on the combined company’s ability to realize the anticipated benefits from combining the businesses of SAL and Riverside. However, to realize these anticipated benefits, the businesses of SBT and Riverside must be successfully combined. If the combined company is not able to achieve these objectives, the anticipated benefits of the merger may not be realized fully or at all or may take longer to realize than expected.

 

SAL and Riverside have operated and, until the completion of the merger, will continue to operate independently. It is possible that the integration process could result in the loss of key employees, as well as the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies, any or all of which could adversely affect SAL’s ability to maintain relationships with clients, customers, depositors and employees after the merger or to achieve the anticipated benefits of the merger. Integration efforts between the two companies will also divert management attention and resources. These integration matters could have an adverse effect on each of SAL and Riverside.

 

-21-
 

Riverside’s executive officers and directors have interests in the merger that are different from the interests of the Riverside shareholders.

 

Riverside executive officers negotiated the merger agreement with SBT and SAL, and the board of directors approved the agreement and is recommending that Riverside shareholders who are entitled to vote, vote for the merger agreement. In considering these facts and the other information contained in this joint proxy statement/prospectus, you should be aware that Riverside’s executive officers and directors have interests in the merger in addition to the interests that they share with the Riverside shareholders. These interests include continued indemnification and insurance coverage by SAL after the merger for acts or omissions occurring before the merger, severance payments due certain executive officers in connection with the merger under pre-existing employment contracts, the continuation of employment and employment agreements with SBT for two officers following the effective date of the merger, the assumption of certain Riverside stock options by SAL, and the invitation of five other Riverside directors to serve on the boards of SBT and SAL. In addition, those non-officer Riverside directors who will not join the SAL board will be asked to serve on an advisory board of SAL. For a detailed discussion of these interests, see the section in this joint proxy statement/prospectus titled “Interests of Riverside’s Directors and Executive Officers in the Merger” beginning on page 59.

 

Unanticipated costs relating to the merger could reduce SAL’s future earnings per share.

 

SAL believes that it has reasonably estimated the likely costs of integrating the operations of SBT and Riverside, and the incremental costs of operating as a combined company. However, it is possible that unexpected transaction costs such as taxes, fees or professional expenses or unexpected future operating expenses such as increased personnel costs or increased taxes, as well as other types of unanticipated adverse developments, could have a material adverse effect on the results of operations and financial condition of the combined company. If unexpected costs are incurred, the merger could have a dilutive effect on the combined company’s earnings per share. In other words, if the merger is completed, the earnings per share of SAL common stock could be less than it would have been if the merger had not been completed.

 

Both Riverside and SAL shareholders will have a reduced ownership and voting percentage interest after the merger and will exercise less influence over management of the combined organization.

 

Each of Riverside and SAL shareholders currently have the right to vote in the election of their respective boards of directors and on various other matters affecting their respective companies. After the merger, each Riverside shareholder will hold a percentage ownership of the combined organization that is much smaller than such shareholder’s current percentage ownership of Riverside. Specifically, Riverside shareholders will hold in the aggregate approximately 37% of the outstanding shares of SAL common stock. Furthermore, because shares of SAL common stock will be issued to existing Riverside shareholders, current SAL shareholders will have their ownership and voting interests diluted to reflect the new ownership of 37% of SAL by the former shareholders of Riverside. In addition, the tangible book value dilution to shareholders of SAL at June 30, 2014 was approximately 7.50%. Accordingly, both Riverside and SAL shareholders will have less influence on the management and policies of the combined company than they now have on the management and policies of their respective companies.

 

The opinions of the respective financial advisors to Riverside and SAL do not reflect changes in circumstances subsequent to the date of the financial advisors’ opinions.

 

In connection with the proposed merger, KBW, Riverside’s financial advisor, delivered an opinion dated March 18, 2014 as to the fairness, from a financial point of view and as of the date of the opinion, of the exchange ratio in the proposed merger. Sterne Agee, SAL’s financial advisor also delivered an opinion dated March 18, 2014 in connection with the proposed merger as to the fairness, from a financial point of view, and as of the date of such opinion, of the merger consideration. The opinions do not reflect changes that may occur or may have occurred after the date of the opinions, including changes to the operations and prospects of SAL or Riverside, changes in general market and economic conditions or regulatory or other factors. Any such changes may materially alter or affect the relative values of SAL and Riverside.

 

-22-
 

Failure to complete the merger could negatively impact the stock prices and future businesses and financial results of SAL and Riverside.

 

If the merger is not completed, the ongoing businesses of SAL and Riverside may be adversely affected and SAL and Riverside will be subject to several risks, including the following:

 

Riverside may be required, under certain circumstances, to pay SAL a termination fee of $1,200,000 and potential reimbursement for certain expenses of up to $500,000 under the merger agreement;
SAL and Riverside will be required to pay certain costs relating to the merger, whether or not the merger is completed, such as legal, accounting, financial advisor and printing fees;
under the merger agreement, Riverside is subject to certain restrictions on the conduct of its business prior to completing the merger which may adversely affect its ability to execute certain of its business strategies; and
matters relating to the merger may require substantial commitments of time and resources by SAL and Riverside management, which could otherwise have been devoted to other opportunities that may have been beneficial to SAL and Riverside as independent companies, as the case may be.

 

In addition, if the merger is not completed, SAL and/or Riverside may experience negative reactions from the financial markets and from their respective customers and employees. SAL and/or Riverside also could be subject to litigation related to any failure to complete the merger or to enforcement proceedings commenced against SAL or Riverside to perform their respective obligations under the merger agreement. If the merger is not completed, SAL and Riverside cannot assure their shareholders that the risks described above will not materialize and will not materially affect their business, financial results and stock prices.

 

After the merger is completed, Riverside shareholders will become SAL shareholders and will have different rights that may be less advantageous than their current rights.

 

Upon completion of the merger, Riverside shareholders will become SAL shareholders. Differences in Riverside’s organization certificate and bylaws and SAL’s certificate of incorporation and bylaws and the laws governing Riverside and SAL will result in changes to the rights of Riverside shareholders who become SAL shareholders. See the section of this joint proxy statement/prospectus titled “Comparison of Rights of Shareholders of Riverside and SAL,” beginning on page 122 for more information.

 

-23-
 

INFORMATION ABOUT THE COMPANIES

 

Salisbury Bancorp, Inc. and Salisbury Bank and Trust Company

 

Salisbury Bancorp, Inc. is the parent company of Salisbury Bank and Trust Company, a Connecticut chartered commercial bank serving the communities of northwestern Connecticut and proximate communities in New York and Massachusetts since 1848, through full service branches in Canaan, Lakeville, Salisbury and Sharon, Connecticut, Dover Plains and Millerton, New York and Great Barrington, South Egremont and Sheffield, Massachusetts. At June 30, 2014, SAL has, on a consolidated basis, assets of $621 million, deposits of $507 million and shareholders’ equity of $75 million. SAL’s stock trades on the NASDAQ Capital Market under the symbol “SAL”. The Bank offers a full complement of consumer and business banking products and services as well as trust and wealth advisory services. Additional information about SAL and its subsidiary, SBT, is included in documents incorporated by reference in this joint proxy statement/prospectus. See “Where You Can Find Additional Information”.

 

SBT is committed to providing high quality community banking services in the geographic markets in which it conducts business. SBT’s products and services include a wide array of credit services, such as consumer loans, credit cards, commercial loans, small business loans, automobile loans, real estate mortgages, community development loans, HELOCs, SBA loans, and several other forms of credit; deposit services, such as personal and business checking accounts, savings accounts, money market accounts, certificates of deposit, HSAs, IRAs, SEPs, repurchase agreements, IOLTA accounts, CDARS, holiday and vacation club accounts, school savings programs and other similar deposit services and products; additional services such as safe deposit boxes, debit cards, wire transfers, telephone, on-line and mobile banking, and notary public and signature guarantee services; and, as noted above, trust and wealth advisory services.

 

Riverside Bank

 

Riverside Bank is a New York State chartered commercial bank serving small and medium sized businesses, professionals and individuals in the Hudson Valley with branches in Poughkeepsie, Red Oaks Mill, Newburgh and Fishkill, New York. Since opening for business in 1988, Riverside Bank has been committed to providing outstanding products and service to its customers focusing on serving small to medium sized businesses and professionals within its markets.

 

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SPECIAL MEETING OF SHAREHOLDERS OF RIVERSIDE

 

This joint proxy statement/prospectus is being furnished to holders of Riverside common stock for use at a special meeting of shareholders of Riverside and any adjournments or postponements thereof.

 

Date, Time and Place of the Special Meeting

 

The special meeting of shareholders of Riverside will be held at The Poughkeepsie Grand Hotel, 40 Civic Center Plaza, Poughkeepsie, New York 12601 on October 29, 2014, at 10:30 a.m., local time.

 

Purpose of the Special Meeting

 

At the special meeting, Riverside shareholders as of the record date will be asked to consider and vote on the following proposals (which are discussed in more detail below under “Riverside Proposals” on page 28):

 

1.to approve the Agreement and Plan of Merger by and among Riverside, SBT and SAL, dated as of March 18, 2014, pursuant to which Riverside will merge with and into SBT with SBT surviving;
2.to approve one or more adjournments of the special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting, or at any adjournment or postponement of that meeting, to adopt and approve the merger agreement; and
3.such other matters as may properly come before the special meeting or any adjournment or postponement of that meeting.

 

Recommendation of the Board of Directors of Riverside

 

The Riverside board of directors has approved the merger agreement and unanimously recommends that you vote your shares as follows:

 

FOR” adoption and approval of the merger agreement; and
FOR” the proposal to adjourn the special meeting, if necessary, to permit further solicitation of proxies.

 

Record Date; Outstanding Shares; Shares Entitled to Vote

 

Only holders of record of Riverside common stock at the close of business on the record date of September 5, 2014, are entitled to notice of and to vote at the special meeting of shareholders of Riverside. As of the record date, there were 741,876 shares of Riverside common stock outstanding, held of record by approximately 329 shareholders. Each holder of Riverside common stock is entitled to one vote for each share of Riverside common stock owned as of the record date.

 

A list of Riverside shareholders as of the record date will be available for review by any Riverside shareholder at Riverside’s principal executive offices during regular business hours beginning 10 days prior to the date of the special meeting and continuing through the special meeting.

 

Quorum; Vote Required

 

A quorum of Riverside shareholders is necessary to hold a valid meeting. If the holders of at least a majority of the total number of the outstanding shares of Riverside common stock entitled to vote are represented in person or by proxy at the special meeting, a quorum will exist. Riverside will include proxies marked as abstentions in determining the number of shares present at the special meeting.

 

The affirmative vote of the holders of at least two-thirds of the shares of Riverside common stock outstanding and entitled to vote at the special meeting is required to approve the merger agreement. The affirmative vote of the holders of at least a majority of the shares present and entitled to vote at the special meeting is required to approve the proposal to adjourn the special meeting.

 

Abstentions and broker non-votes will have the same effect as a vote “AGAINST” approval of the merger agreement. Abstentions will have the same effect as a vote “AGAINST” the adjournment proposal, but broker non-votes will have no effect on that proposal.

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Share Ownership of Management; Voting Agreements

 

As of the record date, the directors and executive officers of Riverside and their affiliates collectively owned 303,045 shares of Riverside common stock, or approximately 39.52% of Riverside’s outstanding shares. Each Riverside director and executive officer has entered into a voting agreement with SAL, which requires each person to vote all of the shares of Riverside common stock beneficially owned by him or her “FOR” approval of the merger agreement and the other proposals described in the notice for the special meeting. None of the directors or executive officers were paid any additional consideration in connection with the execution of the voting agreement.

 

When considering the recommendation of the board of directors of Riverside that you vote in favor of the approval of the merger agreement, you should be aware that the executive officers and directors of Riverside have financial interests in the merger that may be different from, or in addition to, the interests of shareholders of Riverside. See “The Merger - Interests of Riverside’s Directors and Executive Officers in the Merger” beginning on page 59.

 

Voting of Proxies

 

If you are a Riverside shareholder, the board of directors of Riverside requests that you return the proxy card accompanying this document for use at the special meeting. Please complete, date and sign the proxy card and promptly return it in the enclosed postage-paid envelope.

 

All properly signed proxies received prior to the special meeting and not revoked before the vote at the special meeting will be voted at the special meeting according to the instructions indicated on the proxies or, if no instructions are given, the shares will be voted “FOR” approval of the merger agreement and “FOR” an adjournment of the special meeting to solicit additional proxies, if necessary.

 

If you hold your shares of Riverside common stock in “street name,” meaning in the name of a bank, broker or other nominee who is the record holder, you must either direct the record holder of your shares of Riverside common stock how to vote your shares or obtain a proxy from the record holder to vote your shares in person at the special meeting. If you fail to properly submit your proxy card or to instruct your broker, bank or other nominee to vote your shares of Riverside common stock and you do not attend the special meeting and vote your shares in person, your shares will not be voted. This will have the same effect as a vote “AGAINST” adoption and approval of the merger agreement.

 

How to Revoke Your Proxy

 

If you are a Riverside shareholder, you may revoke your proxy at any time by taking any of the following actions before your proxy is voted at the special meeting:

 

delivering a written notice bearing a date later than the date of your proxy card to Riverside’s President and CEO at the address listed below, stating that you revoke your proxy;
submitting a new signed proxy card bearing a later date (any earlier proxies will be revoked automatically); or
attending the special meeting and voting in person, although attendance at the special meeting will not, by itself, revoke a proxy.

 

You should send any notice of revocation to John M. Davies, President and CEO, at the following address:

 

Riverside Bank

11 Garden Street

Poughkeepsie, New York 12601

 

If you have instructed a bank, broker or other nominee to vote your shares, you must follow the directions you receive from your bank, broker or other nominee to change your vote.

 

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Voting in Person

 

If you are a Riverside shareholder and plan to attend the special meeting of Riverside shareholders and wish to vote in person, you will be given a ballot at the special meeting. Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the special meeting, you must obtain a proxy from the broker, bank or other nominee in order to vote your shares.

 

Whether or not you plan to attend the special meeting, Riverside requests that you complete, sign, date and return the enclosed proxy card as soon as possible in the enclosed postage-paid envelope. This will not prevent you from voting in person at the special meeting but will assure that your vote is counted if you are unable to attend.

 

Abstentions and Broker Non-Votes

 

Only shares affirmatively voted for approval of the merger agreement, including shares represented by properly executed proxies that do not contain voting instructions, will be counted as votes “FOR approval of the merger agreement and “FOR” approval of the proposal to adjourn the special meeting, if necessary.

 

Brokers who hold shares of Riverside common stock in street name for a customer who is the beneficial owner of those shares may not exercise voting authority on the customer’s shares with respect to the actions proposed in this document without specific instructions from the customer. Proxies submitted by a broker that do not exercise this voting authority are referred to as broker non-votes. If your broker holds your Riverside common stock in street name, your broker will vote your shares only if you provide instructions on how to vote by filling out the voter instruction form sent to you by your broker with this joint proxy statement/prospectus.

 

Accordingly, you are urged to mark and return the enclosed proxy card to indicate your vote, or fill out the voter instruction form, if applicable.

 

Abstentions will be included in determining the presence of a quorum at the special meeting. Broker non-votes will be counted in determining the presence of a quorum at the special meeting, only if the beneficial owner of such shares has instructed the bank or broker how to vote with respect to at least one matter before the meeting. Abstentions and broker non-votes will have the same effect as a vote “AGAINST” approval of the merger agreement. Abstentions will have the same effect as a vote “AGAINST” the adjournment proposal, but broker non-votes will have no effect on that proposal.

 

Proxy Solicitation

 

If you are a Riverside shareholder, the enclosed proxy is solicited by and on behalf of the board of directors of Riverside. Riverside will pay the expenses of soliciting proxies to be voted at the special meeting. Following the original mailing of the proxies and other soliciting materials, Riverside and its agents also may solicit proxies by mail, telephone, facsimile or in person. No additional compensation will be paid to directors, officers or other employees of Riverside for making these solicitations.

 

This joint proxy statement/prospectus and the proxy card are first being sent to Riverside shareholders on or about September ___, 2014.

 

Stock Certificates

 

If you are a Riverside shareholder, you should not send in any certificates representing Riverside common stock. You will receive separate instructions from the exchange agent for the exchange of your certificates representing Riverside common stock.

 

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RIVERSIDE PROPOSALS

 

Proposal No. 1 - To Approve the Riverside Merger Proposal

 

Riverside is asking its shareholders to approve the merger agreement and the transactions contemplated thereby. Holders of Riverside common stock should read this joint proxy statement/prospectus carefully and in its entirety, including the appendices, for more detailed information concerning the merger agreement and the merger. A copy of the merger agreement is attached to this joint proxy statement/prospectus as Appendix A.

 

After careful consideration, the Riverside board of directors adopted the merger agreement and declared the merger agreement and the transactions contemplated thereby, including the merger, to be advisable and in the best interest of Riverside and the shareholders of Riverside. See “The Merger—Riverside’s Reasons for the Merger; Recommendation of Riverside’s Board of Directors” included elsewhere in this joint proxy statement/prospectus for a more detailed discussion of the Riverside board of directors’ recommendation.

 

The Riverside board of directors unanimously recommends a vote “FOR” the Riverside Merger Proposal.

 

Proposal No. 2 - To Approve the Riverside Adjournment Proposal

 

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

 

If at the Riverside special meeting the number of shares of Riverside common stock present or represented and voting in favor of the Riverside merger proposal is insufficient to approve such proposal, Riverside intends to move to adjourn the Riverside special meeting to solicit additional proxies for approval of the merger agreement. In that event, Riverside will ask its shareholders to vote upon the Riverside adjournment proposal, but not the Riverside merger proposal.

 

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

 

The Riverside board of directors unanimously recommends a vote “FOR” the Riverside Adjournment Proposal.

 

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SPECIAL MEETING OF SHAREHOLDERS OF SAL

 

This joint proxy statement/prospectus is being furnished to holders of SAL common stock for use at a special meeting of shareholders of SAL and any adjournments or postponements thereof.

 

Date, Time and Place of the Special Meeting

 

The special meeting of shareholders of SAL will be held at Hotchkiss School (Griswold Science Building, located off Route 41), 11 Interlaken Road, Lakeville, Connecticut 06039, on Wednesday, October 29, 2014, at 4:00 p.m., local time.

 

Purpose of the Special Meeting

 

At the special meeting, SAL shareholders as of the record date will be asked to consider and vote on the following proposals (which are discussed in more detail below under “SAL Proposals” on page 32):

 

to approve the SAL merger proposal;
to approve the SAL certificate of amendment proposal;
to approve one or more adjournments of the special meeting, if necessary, to permit further solicitation of proxies if there are not sufficient votes at the time of the special meeting, or at any adjournment or postponement of that meeting, to adopt and approve the merger agreement; and
such other matters as may properly come before the special meeting or any adjournment or postponement of that meeting.

 

Recommendation of the Board of Directors of SAL

 

The SAL board of directors has approved the merger agreement and the transactions contemplated thereby and unanimously recommends that you vote your shares as follows:

 

FOR” approval of the SAL merger proposal;
FOR” approval of the SAL certificate of amendment proposal; and
FOR” the SAL adjournment proposal.

 

Record Date; Outstanding Shares; Shares Entitled to Vote

 

Only holders of record of SAL common stock at the close of business on the record date of September 5, 2014, are entitled to notice of and to vote at the special meeting of shareholders of SAL. As of the record date, there were 1,713,281 shares of SAL common stock outstanding, held of record by 1,739 shareholders. Each holder of SAL common stock is entitled to one vote for each share of SAL common stock owned as of the record date.

 

A list of SAL shareholders as of the record date will be available for review by any SAL shareholder at SAL’s principal executive offices during regular business hours beginning 10 days prior to the date of the special meeting and continuing through the special meeting.

 

Quorum; Vote Required

 

A quorum of SAL shareholders is necessary to hold a valid meeting. If the holders of at least a majority of the total number of the outstanding shares of SAL common stock entitled to vote are represented in person or by proxy at the special meeting, a quorum will exist. SAL will include proxies marked as abstentions in determining the number of shares present at the special meeting.

 

The affirmative vote of the holders of at least a majority of the shares of SAL common stock outstanding and entitled to vote at the special meeting is required to approve the merger proposal, the SAL certificate of amendment proposal, and the SAL adjournment proposal. Abstentions and broker non-votes are counted “AGAINST” the SAL merger proposal, the proposal to amend SAL’s certificate of incorporation and the proposal to issue SAL common stock as merger consideration, but will have no effect on the SAL adjournment proposal.

 

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Share Ownership of Management

 

As of the record date, the directors and executive officers of SAL and their affiliates collectively owned 127,240 shares of SAL common stock, or approximately 7.43% of SAL’s outstanding shares.

 

When considering the recommendation of the board of directors of SAL that you vote in favor of the approval of the merger agreement, including the issuance of SAL common stock as merger consideration, and the approval of the amendment to SAL’s certificate of incorporation, you should be aware that the executive officers and directors of SAL have financial interests in the merger that may be different from, or in addition to, the interests of shareholders of SAL. See “The Merger - Interests of SAL’s Directors and Executive Officers in the Merger” beginning on page 59.

 

Voting of Proxies

 

If you are a SAL shareholder, the board of directors of SAL requests that you return the proxy card accompanying this document for use at the special meeting. Please complete, date and sign the proxy card and promptly return it in the enclosed postage-paid envelope.

 

All properly signed proxies received prior to the special meeting and not revoked before the vote at the special meeting will be voted at the special meeting according to the instructions indicated on the proxies or, if no instructions are given, the shares will be voted “FOR” approval of the SAL merger proposal, “FOR” approval of the SAL certificate of amendment proposal, and “FOR” the SAL adjournment proposal, if necessary.

 

If you hold your shares of SAL common stock in “street name,” meaning in the name of a bank, broker or other nominee who is the record holder, you must either direct the record holder of your shares of SAL common stock how to vote your shares or obtain a proxy from the record holder to vote your shares in person at the special meeting.

 

If you fail to properly submit your proxy card or to instruct your broker, bank or other nominee to vote your shares of SAL common stock and you do not attend the special meeting and vote your shares in person, your shares will not be voted. This will have the same effect as a vote “AGAINST” adoption and approval of the proposals to approve the merger agreement, to amend SAL’s certificate of incorporation and to issue shares as consideration for the merger, but will have no effect on the SAL adjournment proposal. However, if you mark “ABSTAIN” on your proxy card with respect to any proposal, it will have the same effect as a vote “AGAINST” such proposal.

 

How to Revoke Your Proxy

 

If you are a SAL shareholder, you may revoke your proxy at any time by taking any of the following actions before your proxy is voted at the special meeting:

 

delivering a written notice bearing a date later than the date of your proxy card to SAL’s Secretary at the address listed below, stating that you revoke your proxy;
submitting a new signed proxy card bearing a later date (any earlier proxies will be revoked automatically); or
attending the special meeting and voting in person, although attendance at the special meeting will not, by itself, revoke a proxy.

 

You should send any notice of revocation to Shelly L. Humeston, Secretary, at the following address:

 

Salisbury Bank and Trust Company

5 Bissell Street

P.O. Box 1868

Lakeville, CT 06039-1868

 

If you have instructed a bank, broker or other nominee to vote your shares, you must follow the directions you receive from your bank, broker or other nominee to change your vote.

 

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Voting in Person

 

If you are a SAL shareholder and plan to attend the special meeting of SAL shareholders and wish to vote in person, you will be given a ballot at the special meeting. Please note, however, that if your shares are held of record by a broker, bank or other nominee and you wish to vote at the special meeting, you must obtain a proxy from the broker, bank or other nominee in order to vote your shares.

 

Whether or not you plan to attend the special meeting, SAL requests that you complete, sign, date and return the enclosed proxy card as soon as possible in the enclosed postage-paid envelope. This will not prevent you from voting in person at the special meeting but will assure that your vote is counted if you are unable to attend.

 

Abstentions and Broker Non-Votes

 

Only shares affirmatively voted for approval, including shares represented by properly executed proxies that do not contain voting instructions, will be counted as votes “FOR” the approval of the SAL merger proposal; “FOR approval of the amendment to SAL’s certificate of incorporation to increase SAL’s authorized common stock and to increase the number of directors on SAL’s board; and “FOR” the SAL adjournment proposal, if necessary.

 

Brokers who hold shares of SAL common stock in street name for a customer who is the beneficial owner of those shares may not exercise voting authority on the customer’s shares with respect to the actions proposed in this document without specific instructions from the customer. Proxies submitted by a broker that do not exercise this voting authority are referred to as broker non-votes. If your broker holds your SAL common stock in street name, your broker will vote your shares only if you provide instructions on how to vote by filling out the voter instruction form sent to you by your broker with this joint proxy statement/prospectus.

 

Accordingly, you are urged to mark and return the enclosed proxy card to indicate your vote, or fill out the voter instruction form, if applicable.

 

Abstentions will be included in determining the presence of a quorum at the special meeting, but will be counted as a vote AGAINSTany of the proposals for which a shareholder marks ABSTAIN. Broker non-votes will only be included in determining the presence of a quorum at the special meeting, if the beneficial owner of such shares has instructed the bank or broker how to vote with respect to at least one matter before the meeting. Abstentions and broker non-votes will have the same effect as a vote AGAINST approval of the SAL merger proposal, and the SAL certificate of amendment proposal, except that broker non-votes will have no effect on the SAL adjournment proposal.

 

Proxy Solicitation

 

If you are a SAL shareholder, the enclosed proxy is solicited by and on behalf of the board of directors of SAL. SAL will pay the expenses of soliciting proxies to be voted at the special meeting. Following the original mailing of the proxies and other soliciting materials, SAL and its agents also may solicit proxies by mail, telephone, facsimile or in person. No additional compensation will be paid to directors, officers or other employees of SAL for making these solicitations. SAL has retained a proxy solicitation firm, Morrow & Co., LLC to aid in its solicitation process. SAL will pay Morrow & Co., LLC a fee of approximately $5,000, plus reasonable disbursements in connection with the solicitation. SAL intends to reimburse persons who hold SAL common stock of record but not beneficially, such as brokers, custodians, nominees, and fiduciaries, for their reasonable expense in forwarding copies of proxies and other soliciting materials to, and requesting authority for the exercise of proxies from, the persons for whom they hold shares.

 

This joint proxy statement/prospectus and the proxy card are first being sent to SAL shareholders on or about September ___, 2014.

 

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SAL PROPOSALS

 

Proposal No. 1 - To Approve the SAL Merger Proposal

 

SAL is asking its shareholders to approve the merger agreement and the transactions contemplated thereby. Holders of SAL common stock should read this joint proxy statement/prospectus carefully and in its entirety, including the appendices, for more detailed information concerning the merger agreement and the merger. A copy of the merger agreement is attached to this joint proxy statement/prospectus as Appendix A.

 

In connection with the merger agreement, SAL is also asking its shareholders to approve the issuance of SAL common stock as merger consideration proposal. Pursuant to the merger agreement, upon completion of the merger, holders of Riverside common stock will be entitled to receive, for each share of Riverside common stock that is issued and outstanding, 1.35 shares of SAL common stock.

 

After careful consideration, the SAL board of directors unanimously adopted the merger agreement and declared the merger agreement and the transactions contemplated thereby, including the merger and the issuance of SAL common stock as merger consideration, to be advisable and in the best interests of SAL and the shareholders of SAL. See “The Merger—SAL’s Reasons for the Merger; Recommendation of SAL’s Board of Directors” included elsewhere in this joint proxy statement/prospectus for a more detailed discussion of the SAL board of directors’ recommendation.

 

The SAL board of directors unanimously recommends a vote “FOR” the approval of the SAL Merger Proposal, including the issuance of SAL common stock as merger consideration.

 

Proposal No. 2 - To Approve the SAL Certificate of Amendment Proposal

 

SAL is asking its shareholders to approve the SAL certificate of amendment proposal. This proposal would increase the number of authorized common shares of SAL from 3,000,000 to 5,000,000 shares. In addition, the certificate of incorporation would be amended to eliminate the minimum and maximum number of directors of SAL to provide that the board of directors may fix the number of directors from time to time. Currently, the certificate of incorporation provides that the SAL board should consist of no more than twelve (12) directors. At the effective time of the merger, pursuant to the merger agreement, SAL’s board will consist of fifteen (15) directors (its ten (10) current directors and the five (5) Riverside representatives who will become directors of SAL and SBT). A copy of the form of the SAL certificate of amendment is attached to this joint proxy statement/prospectus as Appendix E. Approval of this proposal is necessary in order for SAL to have sufficient shares to issue to the former Riverside shareholders as consideration in the merger, and, therefore, SAL cannot complete the merger unless this proposal is approved.

 

After careful consideration, the SAL board of directors, by a unanimous vote of all directors, adopted the SAL certificate amendment proposal. The increase in the number of authorized shares will provide sufficient shares to be issued as merger consideration in connection with the merger and provided sufficient shares for outstanding options, as well as provide shares for future issuance. The larger board size will allow all current SAL directors and the five Riverside representatives to serve on the board of directors of SAL as of the effective time.

 

The SAL board of directors unanimously recommends a vote “FOR” the SAL Certificate of Amendment Proposal.

 

Proposal No. 3 - To Approve the SAL Adjournment Proposal

 

The SAL special meeting may be adjourned to another time or place, if necessary or appropriate, to permit, among other things, further solicitation of proxies if necessary to obtain additional votes in favor of the SAL merger proposal.

 

If, at the SAL special meeting, the number of shares of SAL common stock present or represented and voting in favor of the SAL merger proposal is insufficient to approve such proposal, SAL intends to move to adjourn the SAL special meeting to solicit additional proxies for the approval of the merger agreement. In that event, SAL will ask its shareholders to vote upon the SAL adjournment proposal, but not the SAL merger proposal.

 

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

 

The SAL board of directors unanimously recommends a vote “FOR” the SAL Adjournment Proposal.

 

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THE MERGER

 

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

 

General

 

On March 18, 2014, the SBT and SAL boards of directors and board of directors of Riverside approved the merger agreement. The merger agreement provides for the merger of Riverside with and into SBT, with SBT as the surviving corporation.

 

Upon completion of the merger, holders of Riverside common stock (other than stock held by Riverside or SAL) will be entitled to receive, for each share of Riverside common stock that is issued and outstanding, 1.35 shares of SAL common stock.

 

See “The Merger Agreement” beginning on page 71, for additional and more detailed information regarding the legal documents that govern the merger, including information about the conditions to the merger and the provisions for terminating or amending the merger agreement.

 

Background of the Merger

 

The board of Riverside, as part of its ongoing strategic planning, has historically reviewed alternatives available to Riverside on an ongoing basis. The board concluded that in order for Riverside to remain as an independent organization, it would need to raise additional capital. Although Riverside’s regulatory capital ratios have consistently exceeded the regulatory minimums required for it to be considered “well capitalized”, Riverside’s ability to grow its loan portfolio and customer base has been constrained by its relatively low legal lending limit, which is 15% of capital for most loans. This has meant that in order to originate larger credits, and serve the needs of growing or larger customers, Riverside has needed to share the credit with a participating institution. Riverside has therefore run the risk of its customers outgrowing the bank. In addition, the board of Riverside believed that in the current regulatory environment, it has been and would continue to be difficult for a small institution to absorb all of the increasing costs of regulatory compliance. Therefore, to remain independent, the board believed that Riverside would need to continue to grow, and Riverside would, therefore, require additional capital to support that growth.

 

The Riverside board also concluded that for a number of reasons, including the difficulty incurred by small, illiquid banks in accessing the capital markets, Riverside would have difficulty raising additional capital on terms that would benefit its existing shareholders.

 

As an outgrowth of these planning sessions, in May of 2012, George Banta, then a director of Riverside, suggested that John Davies, the President and CEO of Riverside, reach out to Richard J. Cantele, Jr., President and CEO of SAL and SBT. Mr. Banta is a shareholder of SAL, and believed that SAL was interested in expanding further in New York.

 

Mr. Davies met with Mr. Cantele in May of 2012 to discuss whether there was any basis for the two companies to engage in a transaction. No terms were discussed at this meeting. Both Messrs. Davies and Cantele believed that a deal between Riverside and SAL could be beneficial to the shareholders of both and agreed to keep speaking.

 

Messrs. Davies and Cantele met again in June and in October of 2012 to informally discuss a potential transaction. Economic terms of a transaction were not discussed at either meeting. At the October 2012 meeting, Mr. Davies agreed to provide Mr. Cantele with publicly available financial information for Riverside, including financial results through September 30, 2012. Over the next several weeks, Mr. Davies provided the requested information to Mr. Cantele.

 

In January 2013, SAL retained Sterne Agee to produce a pro forma model showing a combination of SAL and Riverside, assuming a stock for stock exchange with an exchange ratio of 1.22 shares of SAL common stock for each share of Riverside common stock. In late January 2013, Mr. Davies met with Mr. Cantele, and Mr. Cantele reviewed the Sterne Agee model with Mr. Davies. Both Mr. Davies and Mr. Cantele agreed that the model represented a basis on which to move forward with a possible combination of SBT and Riverside.

 

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The board of directors of Riverside received and reviewed the Sterne Agree model at its February 26, 2013 board meeting, and concluded that the model represented terms on which the board would be willing to negotiate a combination with SAL, and directed the executive committee of the board to meet with representatives of SAL and further explore the terms of a possible transaction.

 

On March 5, 2013, members of the executive committee of the Riverside board met with Mr. Cantele and a delegation of the board members of SAL. At that meeting, the parties discussed social and structural aspects of the proposed transaction, but did not discuss financial terms. The Riverside executive committee reported the results of that meeting to the full board of Riverside at its meeting on March 26, 2013. As a result, the board authorized the Riverside executive committee to have a second meeting with representatives of SAL, and authorized management to contact KBW about acting as a financial advisor to Riverside. Mr. Davies thereafter contacted a representative of KBW.

 

On April 8, 2013 members of the executive committee of the Riverside board again met with Mr. Cantele, and a designated board committee of SAL to discuss a potential transaction. In addition, representatives of Sterne Agee attended the meeting, and reviewed their model with the members of Riverside’s executive committee. As a result of that meeting, the Riverside executive committee determined that Riverside should move forward with discussions with SAL.

 

At approximately the same time in April, Mr. Davies was contacted by a senior executive of another financial institution and asked whether he would have lunch with the executive and the institution’s CEO. Mr. Davies knew both from professional activities, and agreed to meet. He was not told the purpose of the meeting.

 

Mr. Davies met with the two executives, and they expressed an interest in purchasing Riverside in an all cash transaction. No proposed price was discussed at that meeting.

 

Mr. Davies then contacted KBW and requested that KBW provide assistance with assessing the financial ability of SAL and the other financial institution to purchase Riverside through a stock for stock exchange in the case of SAL and through an all cash transaction in the case of the other institution. At a meeting held on April 23, 2013, the board authorized Mr. Davies to have further discussions with the other financial institution to ascertain the potential terms of their interest in Riverside.

 

At the request of the other financial institution, Mr. Davies in late April and early May of 2013 provided the other financial institution with publicly available financial information regarding Riverside.

 

On May 24, 2013, the other financial institution presented an indication of interest valuing Riverside at $35.00 per share in a proposed all cash purchase. At a meeting on May 28, 2013, the board discussed the indication of interest and determined that the indication inadequately valued Riverside and that the bank should continue with its efforts to negotiate a merger with SAL. Riverside management communicated the board’s decision to the other financial institution.

 

Riverside management and KBW continued to discuss the terms of the proposed transaction with SAL management and Sterne Agee. During these discussions, SAL proposed an exchange ratio of 1.245 SAL shares for each Riverside share. In addition, the other financial institution continued discussions with Riverside management and KBW, and continued to express interest in acquiring Riverside in an all cash transaction.

 

On June 25, 2013, the Riverside board held a meeting at which representatives of KBW were present to review the current terms of the proposed transaction with SAL and the continued interest of the other financial institution. The board concluded that KBW should reach out to each of SAL and the other institution and direct them to present their best and final indication of interest for a proposed transaction with Riverside.

 

Both SAL and the other institution presented indications of interest. SAL proposed a stock for stock exchange with an exchange ratio of 1.25 SAL shares for each Riverside share. The other financial institution proposed an all cash transaction valuing Riverside at $43.00 per share.

 

On July 12, 2013, the board of Riverside held a meeting, which representatives of KBW attended, and which Windels Marx Lane & Mittendorf, Riverside’s counsel, also attended, to review the indications. Counsel reviewed with the board its fiduciary duties and the obligations it owed to Riverside’s shareholders. The representatives of KBW discussed with the board the financial terms and financial aspects of each indication. After further discussions, the board elected to proceed with the proposed transaction with SAL, and authorized and directed management, working with counsel and KBW, to negotiate a definitive agreement with SAL.

 

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Over the next few days, certain shareholders with knowledge of the two proposed transactions, including emeritus members of the board, expressed reservations about turning down the all-cash deal, based in part on the liquidity it offered. The Riverside board became concerned about Riverside’s ability to obtain a two-thirds vote in favor of the SAL transaction in light of the concerns expressed by these shareholders.

 

On July 19, 2013, the Riverside board met with counsel to again review the two indications of interest and the concerns expressed by the emeritus members of the board. After further discussion, the Riverside board authorized and directed management, working with counsel and KBW, to negotiate a definitive merger agreement providing for an all cash transaction at $43.00 per share with the other financial institution.

 

During August and September of 2013, the other financial institution undertook a detailed diligence review of Riverside, and during September of 2013, counsel for the other financial institution began to negotiate the definitive agreements with counsel for Riverside. By late September and early October of 2013, several issues had arisen in the negotiations which were proving difficult to resolve. The purchasing financial institution had imposed a condition to the transaction that certain shareholders who were not members of the Riverside board of directors agree to vote in favor of the transaction. One or more of these shareholders were unwilling to so agree. In addition, the purchasing financial institution required senior management of Riverside to waive their current employment and/or change in control agreements and enter into new agreements with the acquirer. However, the parties were unable to come to agreement on the terms of the new agreements.

 

As a result of these issues, in early October 2013, the other financial institution notified Riverside that is was ending the negotiations to acquire Riverside, and that it would not move forward with the transaction.

 

The executive committee of the Riverside board then held a meeting also attended by KBW to discuss Riverside’s alternatives, and elected to approach SAL to gauge its interest in a possible transaction with Riverside. On or about October 8, 2013, Mr. Davies called Mr. Cantele, who indicated that SAL remained interested in a potential transaction with Riverside. On October 22, 2013, Mr. Davies informed the Riverside board of SAL’s continued interest and on October 25, 2013, Mr. Cantele informed the SAL board that discussions with Riverside have been revived.

 

SAL then provided an updated indication of interest on November 4, 2013. The indication provided for a stock for stock exchange in a merger with an exchange ratio of 1.35 SAL shares for each Riverside share. Mr. Davies presented the new SAL indication of interest to the Riverside board, which concluded that it represented the basis on which the board was willing to negotiate a definitive agreement with SAL.

 

SAL engaged an independent consultant to assist with due diligence and during December of 2013 and January of 2014, SAL undertook a detailed diligence review of Riverside, and counsel for SAL began to prepare drafts of the definitive transaction documents.

 

During February and March of 2014, counsel for SAL and counsel for Riverside negotiated the definitive transaction documents, including the merger agreement and employment related agreements for Riverside management. In addition, Riverside undertook a diligence review of SAL.

 

On March 18, 2014, the respective boards of Riverside and SAL met and approved the definitive merger agreement. At the Riverside board meeting, representatives of Windels Marx Lane & Mittendorf and KBW made presentations prior to the vote being taken by the Riverside board. The presentation by Windels, Marx, Lane & Mittendorf covered the terms of the merger agreement and the fiduciary duties of board members. At this meeting, KBW reviewed the financial aspects of the proposed transaction, and, at the request of the Riverside board of directors, rendered its opinion to the Riverside board of directors as to the fairness, from a financial point of view and as of the date of its opinion, to the holders of Riverside common stock of the exchange ratio in the proposed merger pursuant to the merger agreement. At the SAL meeting, representatives of Cranmore, FitzGerald & Meaney and Sterne Agee made presentations prior to the vote being taken by the SAL board. Sterne Agee reviewed and discussed its financial analyses of the merger and the merger consideration with the SAL board based on materials previously provided to the directors. Sterne Agee delivered its written opinion that, as of March 18, 2014, and subject to the limitations and qualifications set forth in the opinion, the proposed merger consideration was fair to SAL’s shareholders, from a financial point of view.

 

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After the respective meetings were concluded, the merger agreement and various ancillary documents were signed by the parties, after the close of the financial markets for the trading day. Prior to the opening of trading in the financial markets on March 19, a joint press release announcing the execution of the definitive merger agreement was disseminated by the parties.

 

Riverside’s Reasons for the Merger

 

In the course of its deliberations on the proposed transaction with SAL, the Riverside board consulted with its legal counsel with respect to its legal duties and the terms of the merger agreement. The Riverside board consulted with Riverside’s financial advisor with respect to the financial aspects of the transaction and with senior management regarding, among other things, operational and diligence matters.

 

The following discussion of the information and factors considered by the Riverside board is not intended to be exhaustive; it does, however, include all material factors considered by the board.

 

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

 

the ability to create a combined institution with over $800 million in assets, a higher lending limit and the infrastructure for growth in small and middle-market lending;
the fact that SAL’s stock was traded on the NASDAQ Capital Market, providing liquidity to Riverside shareholders for the first time;
the benefits of combining Riverside’s focus on small business customers with SAL’s full suite of consumer products;
the terms of the merger agreement, including the exchange ratio and the fact that the Riverside shareholders would have substantial representation on the board of directors of the resulting entity;
the compatibility of the business cultures of the two organizations,
the financial condition, results of operations and prospects of the two companies, as well as SAL’s history of paying cash dividends; and
the opinion dated March 18, 2014 of KBW provided to the Riverside board of directors as to the fairness, from a financial point of view and as of the date of such opinion, to the holders of Riverside common stock of the exchange ratio in the proposed merger pursuant to the merger agreement.

 

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

 

there can be no assurance that the combined company will attain the type of revenue enhancements and cost savings necessary to cause the trading markets to consider the transaction a success, increasing the value of the combined company’s stock received by the shareholders of Riverside;
since the exchange ratio is fixed, Riverside shareholders will receive less value if the SAL common stock price declines prior to the closing;
although the SAL stock is traded on the NASDAQ Capital Market, it is not highly liquid, and Riverside shareholders looking to sell a large position could be required to sell over a prolonged time period, and
the fact that the termination fee provided for in the merger agreement and certain other provisions of the merger agreement might discourage third parties from seeking to acquire Riverside, in light of the fact that SAL was unwilling to enter into the merger agreement absent such provisions.

 

In reaching the determination to approve the merger agreement and the related transactions, the Riverside board of directors did not quantify or otherwise attempt to assign any relative weight to the various factors it considered, and individual directors may have viewed certain factors more positively or negatively than others. In addition, as in any business combination, there can be no assurances that the benefits of the merger perceived by the Riverside board of directors and described above will be realized or will outweigh the risks and uncertainties.

 

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SAL’s Reasons for the Merger

 

In reaching its decision to adopt the merger agreement and approve the merger and the other transactions contemplated by the merger agreement, and to recommend that its shareholders approve the merger agreement, the SAL board of directors consulted with SAL management, as well as its financial and legal advisors, and considered a number of factors.

 

The SAL board of directors considered its view that Riverside’s business and operations complement those of SAL and that the branch networks are a natural extension of each company’s stand-alone footprint. The SAL board considered that the merger would result in a premier community bank franchise in the combined institution’s four counties of operation, which would rank #10 in deposit market share in such four counties. In addition, the SAL Board believes that the scale of the combined companies, which would result in over $800 million in assets, would allow for greater size and product breadth to compete effectively. The SAL board also considered that the combined company would have the ability to deliver new and existing customers quality banking products and services and provide them with more locations to do their banking.

 

The board of directors further considered a number of strategic benefits, including the following:

 

Each of SAL’s and Riverside’s business, operations, financial condition, asset quality, earnings and prospects.
The significant cross-sale opportunities through SAL’s established residential lending and wealth management platform and Riverside’s higher commercial/commercial real estate concentration;
The increased market capitalization and liquidity;
The complementary nature of the cultures and product mix of the two companies, including with respect to strategic focus, target markets, client service and strong community orientation, which management believes should facilitate integration and implementation of the transaction;
The expanded possibilities, including organic growth and future acquisitions, that would be available to the combined company, given its larger size, asset base, capital and geographic footprint;
Its understanding of the current and prospective environment in which SAL and Riverside operate, including national and local economic conditions, the competitive environment for financial institutions generally, and the likely effect of these factors on SAL both with and without the proposed transaction;
That the transaction is financially compelling. The SAL board, in consultation with its financial advisors considered the following, in addition to other factors, as compelling reasons for the transaction:

ºThe EPS accretion for both sets of shareholders;

ºThe manageable tangible book value dilution to SAL;

ºThe opportunity to improve operating efficiency and grow earnings by spreading costs over a larger asset base; and

ºThe upside from revenue synergies identified through increased lending capacity and cross-sales;

The continued participation of some of Riverside’s board of directors and management in the combined company, which enhances the likelihood that the strategic benefits that SAL expects to achieve as a result of the merger will be realized and that the benefits and talents that Riverside brings to the combined institution will be appropriately valued and effectively utilized; in particular, SAL’s board of directors considered the following:

ºThat John M. Davies, Riverside’s current President and Chief Executive Officer, would serve as the President of the New York Region of SBT as the surviving bank;

ºThat Todd Rubino, Riverside’s current Executive Vice President and Senior Lending Officer, would serve as Vice President, Senior Lender of the New York Region of SBT as the surviving bank;

Its review and discussions with SAL’s management concerning the extensive due diligence of Riverside;
Management’s expectation that the combined company will have a strong capital position upon completion of the transaction;
The opinion of Sterne Agee, dated March 18, 2014, to SAL’s board of directors as to the fairness to SAL, from a financial point of view and as of the date of the opinion, of the merger consideration provided for in the merger, as more fully described below in the section entitled “Opinion of Sterne Agee”;
The financial and other terms of the merger agreement, including the fixed exchange ratio, expected tax treatment and deal protection and termination fee provisions, which it reviewed with its outside financial and legal advisors; and
The expectation that all necessary regulatory approvals will be received in a timely manner and without the imposition of unacceptable conditions.

 

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In addition to the foregoing benefits of the merger, the board of directors of SAL considered a number of risks associated with the merger, including:

 

The potential risk of diverting management attention and resources from the operation of SAL’s business and towards the completion of the merger; and
The potential risks associated with achieving anticipated cost synergies and savings and successfully integrating Riverside’s business, operations and workforce with those of SAL.

 

The foregoing discussion of the factors considered by the SAL board of directors is not intended to be exhaustive, but, rather, includes the material factors considered by the SAL board of directors. In reaching its decision to adopt the merger agreement and approve the merger and the other transactions contemplated by the merger agreement, the SAL board of directors did not quantify or assign any relative weights to the factors considered, and individual directors may have given different weights to different factors. The SAL board of directors considered all these factors as a whole, including discussions with, and questioning of, SAL’s management and SAL’s financial and legal advisors, and overall considered the factors to be favorable to, and to support, its determination. There can be no assurance that the potential synergies or opportunities considered by the SAL board will be achieved through completion of the merger. See the section of this document titled “Risk Factors—Risks Relating to the Merger” beginning on page 20.

 

Opinion of Keefe, Bruyette & Woods, Inc., Financial Advisor to Riverside

 

Riverside engaged KBW to render financial advisory and investment banking services to Riverside, including an opinion to the Riverside board of directors as to the fairness, from a financial point of view, to the holders of Riverside common stock, of the exchange ratio in the proposed merger. Riverside selected KBW because KBW is a nationally recognized investment banking firm with substantial experience in transactions similar to the merger. As part of its investment banking business, KBW is continually engaged in the valuation of financial services businesses and their securities in connection with mergers and acquisitions.

 

At the meeting held on March 18, 2014 at which the Riverside board evaluated the proposed merger, KBW reviewed the financial aspects of the proposed merger and rendered an opinion to the effect that, as of such date and subject to the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW as set forth in such opinion, the exchange ratio in the proposed merger was fair, from a financial point of view, to the holders of Riverside common stock. The Riverside board approved the merger agreement at this meeting.

 

The description of the opinion set forth herein is qualified in its entirety by reference to the full text of the opinion, which is attached as Appendix C to this document and is incorporated herein by reference, and describes the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by KBW in preparing the opinion.

 

KBW’s opinion speaks only as of the date of the opinion. The opinion was for the information of, and was directed to, the Riverside board (in its capacity as such) in connection with its consideration of the financial terms of the merger. The opinion addressed only the fairness, from a financial point of view, of the exchange ratio in the merger to the holders of Riverside common stock. It did not address the underlying business decision of Riverside to engage in the merger or enter into the merger agreement. KBW’s opinion did not and does not constitute a recommendation to the Riverside board in connection with the merger, and it did not and does not constitute a recommendation to any Riverside shareholder or any shareholder of any other entity as to how to vote in connection with the merger or any other matter, nor does it constitute a recommendation on whether or not any such shareholder should enter into a voting, shareholders’ or affiliates’ agreement with respect to the merger or exercise any dissenters’ or appraisal rights that may be available to such shareholder.

 

KBW’s opinion was reviewed and approved by KBW’s Fairness Opinion Committee in conformity with its policies and procedures established under the requirements of Rule 5150 of the Financial Industry Regulatory Authority.

 

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In connection with the opinion, KBW reviewed, analyzed and relied upon material bearing upon the financial and operating condition of Riverside and SAL and the merger, including, among other things:

 

a draft, dated March 15, 2014, of the merger agreement (the most recent draft then made available to KBW);
the audited financial statements and Annual Reports on Form 10-K for the three years ended December 31, 2012 of SAL;
the audited financial statements and Annual Reports for the two years ended December 31, 2012 of Riverside;
the draft financial statements and Annual Reports for the year ended December 31, 2013 for Riverside and SAL;
the quarterly call reports for the three year period ended December 31, 2013 of Riverside, SAL and SBT;
the Quarterly Reports on Form 10-Q for the quarters ended March 31, 2013, June 30, 2013 and September 30, 2013 of SAL;
certain other interim reports and other communications of Riverside and SAL to their respective shareholders; and
other financial information concerning the businesses and operations of Riverside and SAL furnished to KBW by Riverside and SAL for purposes of KBW’s analysis.

 

KBW’s consideration of financial information and other factors that it deemed appropriate under the circumstances or relevant to its analyses included, among others, the following:

 

the historical and current financial position and results of operations of Riverside and SAL;
the assets and liabilities of Riverside and SAL;
the nature and terms of certain other merger transactions and business combinations in the banking industry;
a comparison of certain financial information of Riverside and certain financial and stock market information for SAL with similar information for certain other companies the securities of which are publicly traded;
financial and operating forecasts and projections of Riverside that were prepared by, and provided to and discussed with KBW by, Riverside management and that were relied upon by KBW with the consent of the Riverside board; and
financial and operating forecasts and projections of SAL and estimates regarding certain pro forma financial effects of the merger on SAL (including, without limitation, the cost savings, revenue enhancements and related expenses expected to result from the merger) that were prepared by, and provided to and discussed with KBW by SAL management and that were used and relied upon by KBW with the consent of the Riverside board.

 

KBW also performed such other studies and analyses as it considered appropriate and took into account its assessment of general economic, market and financial conditions and its experience in other transactions, as well as its experience in securities valuation and knowledge of the banking industry generally. KBW also held discussions with senior management of Riverside and SAL regarding the past and current business operations, regulatory relations, financial condition and future prospects of their respective companies and such other matters that KBW deemed relevant to its inquiry.

 

In conducting its review and arriving at its opinion, KBW relied upon and assumed the accuracy and completeness of all of the financial and other information provided to it or publicly available and did not independently verify the accuracy or completeness of any such information or assume any responsibility or liability for such verification, accuracy or completeness. KBW relied upon the respective management teams of Riverside and SAL as to the reasonableness and achievability of the financial and operating forecasts and projections of Riverside and SAL (and the assumptions and bases therefor) that were prepared by such management teams and KBW assumed, at the direction of Riverside, that such forecasts and projections were reasonably prepared on a basis reflecting the best currently available estimates and judgments of such management teams and that such forecasts and projections would be realized in the amounts and time periods estimated by such management teams. KBW further relied upon SAL management as to the reasonableness and achievability of the estimates regarding certain pro forma financial effects of the merger on SAL that were prepared by and provided to KBW by such management, and that were discussed with KBW by such management (and the assumptions and bases therefor, including but not limited to the financial and operating projections of Riverside that were prepared by SAL in connection therewith and used by KBW at the direction of the Riverside board and any potential cost savings and operating synergies and other potential pro forma effects assumed or estimated by SAL with respect to the merger), and KBW assumed, with the consent of Riverside, that all such estimates were reasonably prepared on a basis reflecting the best available estimates and judgments of SAL management and that such estimates would be realized in the amounts and in the time periods estimated.

 

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The forecasts, projections and estimates of Riverside and SAL that were provided to KBW were not prepared with the expectation of public disclosure. All such information was based on numerous variables and assumptions that are inherently uncertain, including, without limitation, factors related to general economic and competitive conditions and that, accordingly, actual results could vary significantly from those set forth in such forecasts, projections and estimates. KBW assumed, based on discussions with the respective management teams of Riverside and SAL, that such forecasts, projections and estimates referred to above, provided a reasonable basis upon which KBW could form its opinion and KBW expressed no view as to any such information or the assumptions or bases therefor. KBW relied on all such information without independent verification or analysis and did not in any respect assume any responsibility or liability for the accuracy or completeness thereof.

 

KBW assumed that there were no material changes in the assets, liabilities, financial condition, results of operations, business or prospects of either Riverside or SAL since the date of the last financial statements made available to KBW. KBW is not an expert in the independent verification of the adequacy of allowances for loan and lease losses and KBW assumed, without independent verification and with Riverside’s consent, that the aggregate allowances for loan and lease losses for Riverside and SAL were adequate to cover such losses. In rendering its opinion, KBW did not make or obtain any evaluations or appraisals or physical inspection of the property, assets or liabilities (contingent or otherwise) of Riverside or SAL, the collateral securing any of such assets or liabilities, or the collectability of any such assets, nor did KBW examine any individual loan or credit files, nor did it evaluate the solvency, financial capability or fair value of Riverside or SAL under any state or federal laws, including those relating to bankruptcy, insolvency or other matters. Estimates of values of companies and assets do not purport to be appraisals or necessarily reflect the prices at which companies or assets may actually be sold. Because such estimates are inherently subject to uncertainty, KBW assumed no responsibility or liability for their accuracy.

 

KBW assumed that, in all respects material to its analyses:

 

the merger would be completed substantially in accordance with the terms set forth in the merger agreement (the final terms of which KBW assumed would not differ in any respect material to KBW’s analyses from the latest draft of the merger agreement that had been reviewed by KBW) with no adjustments to the exchange ratio or additional forms of consideration;
the representations and warranties of each party in the merger agreement and in all related documents and instruments referred to in the merger agreement are true and correct;
each party to the merger agreement and all related documents would perform all of the covenants and agreements required to be performed by such party under such documents;
there are no factors that would delay or subject to any adverse conditions, any necessary regulatory or governmental approval for the merger and that all conditions to the completion of the merger would be satisfied without any waivers or modifications to the merger agreement; and
in the course of obtaining the necessary regulatory, contractual, or other consents or approvals for the merger, no restrictions, including any divestiture requirements, termination or other payments or amendments or modifications, would be imposed that would have a material adverse effect on the future results of operations or financial condition of Riverside, SAL, the combined entity or the contemplated benefits of the merger, including the cost savings, revenue enhancements, and related expenses expected to result from the merger.

 

KBW assumed that the merger would be consummated in a manner that complied with the applicable provisions of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and all other applicable federal and state statutes, rules and regulations. KBW further assumed that Riverside relied upon the advice of its counsel, independent accountants and other advisors (other than KBW) as to all legal, financial reporting, tax, accounting and regulatory matters with respect to Riverside, SAL, SBT, the merger and any related transaction, and the merger agreement. KBW did not provide and is not providing advice with respect to any such matters.

 

KBW’s opinion addressed only the fairness, from a financial point of view, as of the date of such opinion, of the exchange ratio in the merger to the holders of Riverside common stock. KBW expressed no view or opinion as to any terms or other aspects of the merger or any related transaction, including without limitation, the form or structure of the merger or any related transaction, any consequences of the merger to Riverside, its shareholders, creditors or otherwise, or any terms, aspects or implications of any voting, support, shareholder or other agreements, arrangements or understandings contemplated or entered into in connection with the merger or otherwise. KBW’s opinion was necessarily based upon conditions as they existed and could be evaluated on the date of such opinion and the information made available to KBW through such date. Developments subsequent to the date of KBW’s opinion may have affected, and may affect, the conclusion reached in KBW’s opinion and KBW did not and does not have an obligation to update, revise or reaffirm its opinion. KBW’s opinion did not address, and KBW expressed no view or opinion with respect to:

 

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the underlying business decision of Riverside to engage in the merger or enter into the merger agreement;
the relative merits of the merger as compared to any strategic alternatives that are, have been or may be available to or contemplated by Riverside or the Riverside board;
the fairness of the amount or nature of any compensation to any of Riverside’s officers, directors or employees, or any class of such persons, relative to any compensation to the holders of Riverside common stock;
the effect of the merger or any related transaction on, or the fairness of the consideration to be received by, holders of any class of securities of Riverside other than Riverside common stock (solely with respect to the exchange ratio), or of any class of securities of SAL, SBT or any other party to any transaction contemplated by the merger agreement;
the actual value of the SAL common stock to be issued in the merger;
the prices, trading range or volume at which the common stock of Riverside or SAL would trade following the public announcement of the merger or the consummation of the merger;
any advice or opinions provided by any other advisor to any of the parties to the merger or any other transaction contemplated by the merger agreement; or
any legal, regulatory, accounting, tax or similar matters relating to Riverside, SAL, SBT, their respective shareholders, or relating to or arising out of or as a consequence of the merger or any related transaction, including whether or not the merger would qualify as a tax-free reorganization for United States federal income tax purposes.

 

In performing its analyses, KBW made numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, which are beyond the control of KBW, Riverside and SAL. Any estimates contained in the analyses performed by KBW are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by these analyses. Additionally, estimates of the value of businesses or securities do not purport to be appraisals or to reflect the prices at which such businesses or securities might actually be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty. In addition, the KBW opinion was among several factors taken into consideration by the Riverside board in making its determination to approve the merger agreement and the merger. Consequently, the analyses described below should not be viewed as determinative of the decision of the Riverside board with respect to the fairness of the exchange ratio. The type and amount of consideration payable in the merger were determined through negotiation between Riverside and SAL and the decision to enter into the merger agreement was solely that of the Riverside board.

 

The following is a summary of the material financial analyses performed by KBW in connection with its opinion. The summary is not a complete description of the financial analyses underlying the opinion, but summarizes the material analyses performed in connection with such opinion. The preparation of a fairness opinion is a complex analytic process involving various determinations as to appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis or summary description. In arriving at its opinion, KBW did not attribute any particular weight to any analysis or factor that it considered, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. The financial analyses summarized below include information presented in tabular format. Accordingly, KBW believes that its analyses and the summary of its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on the information presented below in tabular format, without considering all analyses and factors or the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the process underlying its analyses and opinion. The tables alone do not constitute a complete description of the financial analyses.

 

Selected Companies Analyses. Using publicly available information, KBW compared the financial performance and, financial condition of Riverside to 20 selected publicly traded banks and thrifts headquartered in the New England region (defined as Connecticut Massachusetts, New Hampshire, Rhode Island and Vermont) or the Mid-Atlantic region (defined as Delaware, Maryland, New Jersey, New York and Pennsylvania) of the United States with total assets between $150 million and $300 million, loans / deposits ratios greater than 50% and nonperforming assets / (loans + OREO) ratios less than 4.0%. KBW also reviewed the market performance of the selected companies.

 

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The selected companies included in Riverside’s “peer” group were:

 

Farmers and Merchants Bank First Suffield Financial, Inc.
PSB Holding Corporation Fleetwood Bank Corporation
Grand Bank Corporation Highlands Bancorp, Inc.
Community Bankers’ Corporation Elmer Bancorp, Inc.
Peoples Limited Rockport National Bancorp, Inc.
Damascus Community Bank Harmony Bank
First Colebrook Bancorp, Inc. GNB Financial Services, Inc.
Landmark Bancorp, Inc. JTNB Bancorp, Inc.
National Bank of Coxsackie First Resource Bank
Bank of Akron ES Bancshares, Inc.

 

To perform this analysis, KBW used last-twelve-months (“LTM”) and other financial information as of or for the most recent completed quarter available and market price information as of March 17, 2014. Certain financial data prepared by KBW, as referenced in the tables presented below, may not correspond to the data presented in Riverside’s historical financial statements, or the data prepared by Sterne Agee presented under the section “Opinion of SAL’s Financial Advisor,” as a result of the different periods, assumptions and methods used by KBW to compute the financial data presented.

 

KBW’s analysis showed the following concerning the financial performance of Riverside and the selected companies in its “peer” group:

 

         Peer Group
         25th             75th
    Riverside    Percentile    Average    Median    Percentile 
LTM Core Return on Average Assets (1)   0.83%   0.48%   0.65%   0.61%   0.84%
LTM Core Return on Average Equity (1)   7.49%   6.11%   6.76%   6.73%   8.41%
LTM Net Interest Margin   4.13%   3.33%   3.67%   3.73%   3.96%
LTM Fee Income / Revenue Ratio (2)   8.2%   10.9%   13.4%   12.7%   16.5%
LTM Efficiency Ratio   60.6%   79.1%   73.9%   75.8%   67.9%

_________________

(1)Core income excludes extraordinary items, gain/loss on sale of securities and nonrecurring revenues/expenses.
(2)Excludes gain/loss on sale of securities.

 

KBW’s analysis also showed the following concerning the financial condition of Riverside and the selected companies in its “peer” group:

 

         Peer Group
         25th             75th
    Riverside    Percentile    Average    Median    Percentile 
Tangible Common Equity / Tangible Assets   11.34%   6.86%   8.36%   8.14%   9.79%
Total Risk-Based Capital / Risk-Weighted Assets   14.08%   13.03%   15.18%   14.00%   17.04%
Loans / Deposits   95.6%   74.2%   78.7%   79.1%   85.0%
Loan Loss Reserve / Gross Loans   1.40%   0.97%   1.23%   1.18%   1.34%
Nonperforming Assets / Loans + OREO   1.26%   2.84%   1.92%   1.83%   0.98%
LTM Net Charge-Offs / Average Loans   0.34%   0.36%   0.18%   0.13%   0.04%

 

In addition, KBW’s analysis showed the following concerning the market performance of the selected companies in Riverside’s “peer” group (excluding the impact of certain selected company LTM earnings per share (“EPS”) multiples considered to be not meaningful because they were negative or greater than 30.0x):

-43-
 

 

    Peer Group
    25th             75th
    Percentile    Average    Median    Percentile 
One - Year Stock Price Change   0.0%   5.2%   2.3%   10.0%
One - Year Total Return   1.0%   7.3%   5.3%   11.0%
YTD Stock Price Change   (1.4%)   0.2%   0.0%   2.2%
Stock Price / Book Value per Share   0.78x   0.98x   0.93x   1.13x
Stock Price / Tangible Book Value per Share   0.79x   0.99x   0.93x   1.13x
Stock Price / LTM EPS   9.3x   12.3x   11.9x   13.0x
Dividend Yield   0.9%   2.1%   2.2%   3.2%
LTM Dividend Payout   13.9%   25.6%   27.4%   38.9%

 

Using publicly available information, KBW compared the financial performance, financial condition and market performance of SAL to 21 selected banks and thrifts traded on NASDAQ or the New York Stock Exchange and headquartered in the New England region or the Mid-Atlantic region of the United States with total assets between $400 million and $750 million and nonperforming assets / loans + OREO ratios less than 4.0%.

 

The selected companies included in SAL’s “peer” group were:

 

Oneida Financial Corp. Union Bankshares, Inc.
1st Constitution Bancorp Patriot National Bancorp, Inc.
Northeast Bancorp Emclaire Financial Corp.
Mid Penn Bancorp, Inc. Prudential Bancorp, Inc.
Norwood Financial Corp. Elmira Savings Bank
Hampden Bancorp, Inc. Howard Bancorp, Inc.
DNB Financial Corporation First Bank
Bancorp of New Jersey, Inc. Wellesley Bancorp, Inc.
Malvern Bancorp, Inc. Bay Bancorp, Inc.
Peoples Federal Bancshares, Inc. Alliance Bancorp, Inc. of Pennsylvania
Chicopee Bancorp, Inc.  

 

To perform this analysis, KBW used LTM and other financial information as of or for the most recent completed quarter available and market price information as of March 17, 2014. Certain financial data prepared by KBW, as referenced in the tables presented below, may not correspond to the data presented in SAL’s historical financial statements, or the data prepared by Sterne Agee presented under the section “Opinion of SAL’s Financial Advisor,” as a result of the different periods, assumptions and methods used by KBW to compute the financial data presented.

 

KBW’s analysis showed the following concerning the financial performance of SAL and the selected companies in its “peer” group:

 

         Peer Group
         25th             75th
    SAL    Percentile    Average    Median    Percentile 
LTM Core Return on Average Assets (1)   0.69%   0.43%   0.40%   0.54%   0.72%
LTM Core Return on Average Equity (1)   5.67%   2.88%   3.93%   5.01%   8.31%
LTM Net Interest Margin   3.57%   3.23%   3.48%   3.40%   3.60%
LTM Fee Income / Revenue Ratio (2)   25.2%   8.2%   16.5%   14.7%   18.1%
LTM Efficiency Ratio   71.3%   81.2%   75.7%   72.9%   68.8%

___________________

(1)Core income excludes extraordinary items, gain/loss on sale of securities and nonrecurring revenues/expenses.
(2)Excludes gain/loss on sale of securities.

-44-
 

 

KBW’s analysis also showed the following concerning the financial condition of SAL and the selected companies in its “peer” group:

 

         Peer Group
         25th             75th
    SAL    Percentile    Average    Median    Percentile 
Tangible Common Equity / Tangible Assets   8.04%   7.45%   11.20%   10.20%   12.56%
Total Risk-Based Capital / Risk-Weighted Assets   16.46%   13.88%   18.50%   15.97%   19.43%
Loans / Deposits   92.8%   84.5%   89.6%   89.0%   98.1%
Loan Loss Reserve / Gross Loans   1.06%   0.92%   1.04%   1.09%   1.22%
Nonperforming Assets / Loans + OREO   3.62%   2.32%   1.84%   1.69%   1.48%
LTM Net Charge-Offs / Average Loans   0.18%   0.32%   0.36%   0.17%   0.05%

 

In addition, KBW’s analysis showed the following concerning the market performance of SAL and the selected companies in its peer group (excluding the impact of certain selected company LTM EPS multiples considered to be not meaningful because they were negative or greater than 30.0x):

 

         Peer Group
         25th             75th
    SAL    Percentile    Average    Median    Percentile 
One - Year Stock Price Change   7.9%   0.5%   9.7%   7.3%   20.4%
One - Year Total Return   12.3%   2.9%   11.5%   11.2%   21.2%
YTD Stock Price Change   1.1%   (3.4%)   1.1%   (1.4%)   1.6%
Stock Price / Book Value per Share   0.82x   0.96x   1.12x   1.04x   1.21x
Stock Price / Tangible Book Value per Share   1.00x   0.98x   1.19x   1.05x   1.27x
Stock Price / LTM EPS   11.8x   14.0x   16.9x   15.2x   19.3x
Dividend Yield   4.1%   0.0%   1.6%   1.4%   3.5%
LTM Dividend Payout   48.7%   0.0%   30.6%   27.6%   52.6%

 

Using publicly available information, KBW reviewed the financial performance, financial condition and market performance of 17 selected banks and thrifts traded on NASDAQ or the New York Stock Exchange and headquartered in the New England region or the Mid-Atlantic region of the United States with total assets between $750 million and $1.25 billion and nonperforming assets / loans + OREO ratios less than 4.0%.

 

The selected companies included in this third group were:

 

Citizens & Northern Corporation ACNB Corporation
Penns Woods Bancorp, Inc. Community Financial Corporation
Orrstown Financial Services, Inc. Ocean Shore Holding Co.
Old Line Bancshares, Inc. Republic First Bancorp, Inc.
Codorus Valley Bancorp, Inc. Unity Bancorp, Inc.
Fox Chase Bancorp, Inc. TF Financial Corporation
Cape Bancorp, Inc. Evans Bancorp, Inc.
AmeriServ Financial, Inc. Two River Bancorp
BSB Bancorp, Inc.  

 

To perform this analysis, KBW used LTM and other financial information of the selected companies as of or for the most recent completed quarter available and market price information of the selected companies as of March 17, 2014.

 

-45-
 

KBW’s analysis showed the following concerning the financial performance of the selected companies in the third group and certain corresponding pro forma combined information of SAL and Riverside:

 

      Peer Group
  Pro Forma   25th          75th
  SAL-Riverside   Percentile   Average   Median   Percentile 
LTM Core Return on Average Assets (1)(2) 0.83%  0.52%  0.72%  0.69%  0.90%
LTM Core Return on Average Equity (1)(2) 6.91%  4.36%  6.91%  7.37%  9.47%
LTM Net Interest Margin    3.48%  3.61%  3.59%  3.83%
LTM Fee Income / Revenue Ratio (3)    12.4%  19.1%  17.0%  25.8%
LTM Efficiency Ratio    73.3%  69.8%  67.5%  63.2%

______________

(1)Core income excludes extraordinary items, gain/loss on sale of securities and nonrecurring revenues/expenses.
(2)Pro forma SAL and Riverside ratios based on projected pro forma financial data for the 2015 fiscal year provided by SAL management and include impact of purchase accounting adjustments provided by SAL management.
(3)Excludes gain/loss on sale of securities.

 

KBW’s analysis also showed the following concerning the financial condition of the selected companies in the third group and certain corresponding pro forma combined information of SAL and Riverside:

 

      Peer Group
  Pro Forma   25th          75th
  SAL-Riverside   Percentile   Average   Median   Percentile 
Tangible Common Equity / Tangible Assets (1) 8.57%  7.71%  9.63%  9.13%  10.71%
Total Risk-Based Capital / Risk-Weighted Assets (1) 14.61%  13.21%  15.96%  15.00%  16.30%
Loans / Deposits (1) 93.0%  87.5%  90.6%  91.6%  95.9%
Loan Loss Reserve / Gross Loans    1.06%  1.39%  1.28%  1.57%
Nonperforming Assets / Loans + OREO    2.96%  2.44%  2.63%  1.87%
LTM Net Charge-Offs / Average Loans    0.21%  0.15%  0.10%  0.04%

______________

(1)Pro forma SAL and Riverside ratios based on pro forma financials as of September 30, 2014 provided by SAL management and include impact of purchase accounting adjustments provided by SAL management.

 

In addition, KBW’s analysis showed the following concerning the market performance of the selected companies in the third group (excluding the impact of certain selected company LTM EPS multiples considered to be not meaningful because they were negative or greater than 30.0x) and certain corresponding pro forma combined information of SAL and Riverside:

 

      Peer Group
  Pro Forma   25th          75th
  SAL-Riverside   Percentile   Average   Median   Percentile 
One - Year Stock Price Change    13.5%  21.9%  23.6%  28.8%
One - Year Total Return    13.5%  23.9%  25.1%  30.5%
YTD Stock Price Change    (0.2%)  9.8%  8.4%  12.2%
Stock Price / Book Value per Share (1) 0.88x  1.01x  1.20x  1.19x  1.38x
Stock Price / Tangible Book Value per Share (1) 1.05x  1.09x  1.29x  1.19x  1.41x
Stock Price / LTM EPS (1) 11.6x  12.8x  14.8x  13.5x  15.5x
Dividend Yield 4.1%  1.0%  1.9%  1.7%  2.4%
LTM Dividend Payout    15.1%  29.6%  21.3%  48.7%

______________

(1)Pro forma SAL and Riverside book value per share and tangible book value per share multiples based on the closing price of SAL common stock on March 17, 2014 and pro forma financials as of September 30, 2014 provided by SAL management and include impact of purchase accounting adjustments provided by SAL management. Pro forma SAL and Riverside LTM EPS multiple based on 2013 reported earnings of Riverside and SAL and include impact of purchase accounting adjustments and other merger adjustments provided by SAL management.

 

-46-
 

No company used as a comparison in the above selected companies analyses is identical to Riverside or SAL. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.

 

Selected Transactions Analyses. KBW reviewed publicly available information related to 15 selected bank and thrift transactions announced since June 30, 2012 with acquired companies in the New England region or the Mid-Atlantic region of the United States, transaction values of between $10 million and $50 million. Terminated transactions, mergers of equals and mutual-to-mutual transactions were excluded from the selected transactions. The selected transactions included in the group were:

 

Acquiror: Acquired Company:
Southern National Bancorp of Virginia, Inc. Prince George’s Federal Savings Bank
Mascoma Mutual Financial Services Corporation Connecticut River Bancorp, Inc.
ESSA Bancorp, Inc. Franklin Security Bancorp, Inc.
1st Constitution Bancorp Rumson-Fair Haven Bank & Trust Co.
Wilshire Bancorp, Inc. BankAsiana
Haven Bancorp, MHC Hilltop Community Bancorp, Inc.
Independent Bank Corp. Mayflower Bancorp, Inc.
New Hampshire Thrift Bancshares, Inc. Central Financial Corporation
Riverview Financial Corporation Union Bancorp, Inc.
Liberty Bank Southern Connecticut Bancorp, Inc.
TF Financial Corporation Roebling Financial Corp, Inc.
Penns Woods Bancorp, Inc. Luzerne National Bank Corporation
Old Line Bancshares, Inc. WSB Holdings, Inc.
New Hampshire Thrift Bancshares, Inc. Nashua Bank
Hana Financial Group Inc. BNB Financial Services Corporation

 

For each selected transaction, KBW derived the ratio of the transaction consideration value per common share paid for the acquired company to the following, in each case based on the acquired company’s then latest publicly available financial statements of the acquired company available prior to the announcement of the acquisition:

 

tangible book value per share of the acquired company;
tangible equity premium to core deposits (total deposits less time deposits greater than $100,000); and
LTM EPS for the acquired company.

 

The above transaction multiples and premium for the selected transactions were compared with the corresponding transaction multiples and premium for the proposed merger based on the implied value of the merger consideration of $36.71 per share of Riverside common stock (which implied value was based on the exchange ratio of 1.35 shares of SAL common stock to be exchanged in the merger for each share of Riverside common stock and the closing price of SAL common stock on March 17, 2014) and using historical financial information for Riverside as of December 31, 2013. KBW also reviewed the price per common share paid for the acquired company for each selected transaction involving a publicly traded acquired company as a premium to the closing price of the acquired company one day prior to the announcement of the acquisition (expressed as a percentage and referred to as the one-day market premium).

 

The results of the analysis (excluding the impact of certain selected transaction LTM EPS multiples and the one-day premium for one of the selected transactions, which LTM EPS multiples and one-day premium were considered to be not meaningful) are set forth in the following table:

 

    SAL /    Selected Transactions
    Riverside    25th             75th
Transaction Price to:   Merger    Percentile    Average    Median    Percentile 
Tangible Book Value per Share   1.08x   0.89x   1.13x   1.07x   1.33x
Core Deposit Premium   1.6%   (1.9%)   0.9%   0.7%   5.1%
LTM EPS   15.1x   24.0x   30.2x   30.5x   32.6x
One-Day Market Premium   NA    50.3%   54.1%   56.5%   67.8%

-47-
 

 

Additionally, KBW reviewed publicly available information related to 14 selected nationwide bank and thrift transactions announced since January 1, 2011 with transaction values of between $10 million and $100 million, 100% stock consideration and acquired company total assets / acquiror total assets percentages greater than 30%. Terminated transactions, mergers of equals and mutual-to-mutual transactions were excluded from the selected transactions. The selected transactions included in the group were:

 

Acquiror: Acquired Company:
New Century Bancorp, Inc. Select Bancorp, Inc.
Riverview Financial Corporation Union Bancorp, Inc.
Nicolet Bankshares, Inc. Mid-Wisconsin Financial Services, Inc.
Coronado First Bank San Diego Private Bank
Old Florida Bancshares, Inc. New Traditions National Bank
Crescent Financial Bancshares, Inc. ECB Bancorp, Inc.
HaleCo Bancshares, Incorporated LubCo Bancshares, Inc.
Equity Bancshares, Inc. First Community Bancshares, Inc.
United Financial Bancorp, Inc. New England Bancshares, Inc.
First Priority Financial Corp. Affinity Bancorp, Inc.
Tompkins Financial Corporation VIST Financial Corp.
California United Bank Premier Commercial Bancorp
AltaPacific Bancorp Stellar Business Bank
FNB United Corp. Bank of Granite Corporation

 

For each selected transaction, KBW derived the ratio of the transaction consideration value per common share paid for the acquired company to the following, in each case based on the acquired company’s then latest publicly available financial statements of the acquired company available prior to the announcement of the acquisition:

 

tangible book value per share of the acquired company;
tangible equity premium to core deposits; and
LTM EPS for the acquired company.

 

The above transaction multiples and premium for the selected transactions were compared with the corresponding transaction multiples and premium for the proposed merger based on the implied value of the merger consideration of $36.71 per share of Riverside common stock and using historical financial information for Riverside as of December 31, 2013. KBW also reviewed the one-day market premium for each selected transaction.

 

The results of the analysis, excluding the impact of certain selected transaction LTM EPS multiples considered to be not meaningful, are set forth in the following table:

 

    SAL /    Selected Transactions
    Riverside    25th             75th
Transaction Price to:   Merger    Percentile    Average    Median    Percentile 
Tangible Book Value per Share   1.08x   0.95x   1.04x   1.00x   1.13x
Core Deposit Premium   1.6%   (0.8%)   0.1%   (0.1%)   1.1%
LTM EPS   15.1x   12.9x   18.9x   14.4x   23.9x
One-Day Market Premium   NA    49.6%   55.1%   55.0%   62.8%

 

No company or transaction used as a comparison in the above selected transaction analyses is identical to Riverside or the proposed merger. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies involved.

 

-48-
 

Relative Contribution Analysis. KBW analyzed the relative stand-alone contribution of SAL and Riverside to various pro forma balance sheet and income statement items to derive implied exchange ratios of shares of SAL common stock for each share of Riverside common stock. This analysis did not include purchase accounting adjustments. To perform this analysis, KBW used (i) reported balance sheet data for SAL and Riverside as of December 31, 2013 and 2013 reported net income for SAL and Riverside, and (ii) 2014 and 2015 net income estimates for SAL and Riverside per SAL’s and Riverside’s respective managements. Implied exchange ratios were derived by dividing the implied share price for Riverside common stock based on the Riverside contribution to the applicable pro forma item, taking into account the dilutive impact of Riverside stock options, by the closing share price of SAL common stock on March 17, 2014. The results of KBW’s analysis are set forth in the following table, which also compares the results of KBW’s analysis with the implied pro forma ownership percentages of SAL and Riverside shareholders in the combined company based on the 1.35 exchange ratio in the proposed merger:

 

   SAL  Riverside  Implied
   as a %  as a %  Exchange
   of Total  of Total  Ratio (1)
Balance Sheet               
Assets   73%   27%   0.868x
Gross Loans Held for Investment   70%   30%   0.968x
Deposits   71%   29%   0.940x
Tangible Common Equity   65%   35%   1.233x
                
Net Income to Common               
2013 GAAP Net Income   68%   32%   1.055x
2014 Estimated GAAP Net Income   64%   36%   1.286x
2015 Estimated GAAP Net Income   64%   36%   1.286x
                
Pro Forma Ownership at 1.350x Exchange Ratio   63%   37%   1.350x

______________

(1)Implied exchange ratio calculates the implied price per Riverside share based on Riverside contribution to the total company (including dilutive impact of Riverside options) divided by SAL’s closing price of $27.19 as of 3/17/2014.

 

Discounted Cash Flow Analyses. KBW performed a discounted cash flow analysis to estimate a range for the implied equity value of Riverside. In this analysis, KBW used financial forecasts and projections relating to the earnings and assets of Riverside prepared, and provided to KBW, by Riverside management and assumed discount rates ranging from 13.0% to 17.0%. The ranges of values were derived by adding (i) the present value of the estimated free cash flows that SAL could generate over the period from September 30, 2014 to December 31, 2018 as a stand-alone company, and (ii) the present value of Riverside’s implied terminal value at the end of such period. KBW assumed that Riverside would maintain a tangible common equity ratio of 8.00% and would retain sufficient earnings to maintain that level based on these assumptions. Any free cash flows in excess of what would need to be retained represented dividendable cash flows for Riverside. KBW derived implied terminal multiples using two methodologies, one based on 2019 earnings multiples and the other based on 2018 tangible book value multiples. Using implied terminal values for Riverside calculated by applying a range of 10.0x and 14.0x estimated 2019 earnings, KBW derived a range of implied values per share of Riverside common stock of approximately $34.34 to $46.41. Using implied terminal values for Riverside calculated by applying a range of 0.80x to 1.10x estimated 2018 tangible book value, KBW derived a range of implied values per share of Riverside common stock of approximately $28.58 to $36.67.

 

KBW also performed a discounted cash flow analysis to estimate a range for the implied equity value of SAL. In this analysis, KBW used financial forecasts and projections relating to the earnings and assets of SAL prepared, and provided to KBW, by SAL management and assumed discount rates ranging from 13.0% to 17.0%. The ranges of values were derived by adding (i) the present value of the estimated free cash flows that SAL could generate over the period from September 30, 2014 to December 31, 2018 as a stand-alone company, and (ii) the present value of SAL’s implied terminal value at the end of such period. KBW assumed that SAL would maintain a tangible common equity ratio of 8.00% and would retain sufficient earnings to maintain that level based on these assumptions. Any free cash flows in excess of what would need to be retained represented dividendable cash flows for SAL. KBW derived implied terminal multiples using two methodologies, one based on 2019 earnings multiples and the other based on 2018 tangible book value multiples. Using implied terminal values for SAL calculated by applying a range of 13.0x and 17.0x estimated 2019 earnings, KBW derived a range of implied values per share of SAL common stock of approximately $23.24 to $33.60 and a range of implied values for 1.35 shares of SAL common stock of approximately $31.38 to $45.36. Using implied terminal values for SAL calculated by applying a range of 0.95x and 1.25x estimated 2018 tangible book value, KBW derived a range of implied values per share of SAL common stock of approximately $19.91 to $28.69 and a range of implied values for 1.35 shares of SAL common stock of approximately $26.88 to $38.74.

-49-
 

 

Additionally KBW performed a discounted cash flow analysis to estimate a range for the implied equity value of the pro forma combined company. In this analysis, KBW used financial forecasts and projections relating to the earnings and assets of Riverside and SAL prepared, and provided to KBW, by the respective managements of Riverside and SAL and pro forma assumptions (including purchase accounting assumptions, cost savings and related expenses) provided by SAL management and assumed discount rates ranging from 13.0% to 17.0%. The ranges of values were derived by adding (i) the present value of the estimated free cash flows that the pro forma combined company could generate over the period from September 30, 2014 to December 31, 2018, and (ii) the present value of the pro forma combined company’s implied terminal value at the end of such period. KBW assumed that the pro forma combined company would maintain a tangible common equity ratio of 8.00% and would retain sufficient earnings to maintain that level based on these assumptions. Any free cash flows in excess of what would need to be retained represented dividendable cash flows for the pro forma combined company. KBW derived implied terminal multiples using two methodologies, one based on 2019 earnings multiples and the other based on 2018 tangible book value multiples. Using implied terminal values for the pro forma combined company calculated by applying a range of 13.0x and 17.0x estimated 2019 earnings, KBW derived a range of implied values for 1.35 shares of SAL common stock of approximately $37.50 to $52.87. Using implied terminal values for the pro forma combined company calculated by applying a range of 1.10x and 1.40x estimated 2018 tangible book value, KBW derived a range of implied values for 1.35 shares of SAL common stock of approximately $31.19 to $42.40.

 

The discounted cash flow analysis is a widely used valuation methodology, but the results of such methodology are highly dependent on the assumptions that must be made, including asset and earnings growth rates, terminal values, dividend payout rates, and discount rates. The analysis did not purport to be indicative of the actual values or expected values of Riverside, SAL or the pro forma combined company.

 

Pro Forma Financial Impact Analysis. KBW performed a pro forma financial impact analysis that combined projected income statement and balance sheet information of SAL and Riverside. Using closing balance sheet estimates as of September 30, 2014 for SAL and Riverside based on long-term balance sheet growth rate assumptions provided by the respective managements of SAL and Riverside, financial forecasts and projections for SAL and Riverside provided by the respective managements of SAL and Riverside and pro forma assumptions (including purchase accounting assumptions, cost savings and related expenses) provided by SAL management, KBW analyzed the potential financial impact of the merger on certain projected financial results of SAL. This analysis indicated the merger could be accretive to SAL’s 2015 estimated EPS and dilutive to SAL’s estimated tangible book value per share as of September 30, 2014. Furthermore, the analysis indicated that, pro forma for the proposed merger, SAL’s tangible common equity to tangible assets ratio as of September 30, 2014 could be higher and that SAL’s leverage ratio, Tier 1 Risk Based Capital Ratio and Total Risk Based Capital Ratio as of September 30, 2014 could be lower. For all of the above, the actual results achieved by SAL following the merger may vary from the projected results, and the variations may be material.

 

Miscellaneous. KBW acted as financial advisor to Riverside in connection with the proposed merger and did not act as an advisor to or agent of any other person. As part of its investment banking business, KBW is continually engaged in the valuation of bank and bank holding company securities in connection with acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for various other purposes. As specialists in the securities of banking companies, KBW has experience in, and knowledge of, the valuation of banking enterprises. Further to ongoing sales and trading relationships between KBW and each of Riverside and SAL, from time to time KBW has, in the ordinary course of its business as a broker-dealer, purchased securities from, or sold securities to, Riverside and SAL. As a market maker in securities, KBW may from time to time have a long or short position in, and buy or sell, debt or equity securities of Riverside and SAL for its own account and for the accounts of its customers. To the extent KBW held any such positions as of the date of its opinion, it was disclosed to the Riverside board.

 

Pursuant to the KBW engagement agreement, Riverside agreed to pay KBW a cash fee equal to 1.50% of the aggregate merger consideration, of which $50,000 and $100,000 became payable upon the entry into the engagement agreement and the rendering of KBW’s opinion, respectively, and the balance of which is contingent upon the consummation of the merger. Riverside also agreed to reimburse KBW for reasonable out-of-pocket expenses and disbursements incurred in connection with its retention and to indemnify KBW against certain liabilities relating to or arising out of KBW’s engagement or KBW’s role in connection therewith. Other than in connection with this present engagement, during the two years preceding the date of its opinion, KBW has not provided investment banking and financial advisory services to Riverside. In the past two years, KBW has not provided investment banking and financial advisory services to SAL. KBW may in the future provide investment banking and financial advisory services to Riverside or SAL and receive compensation for such services.

 

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Opinion of Sterne, Agee & Leach, Financial Advisor to SAL

 

SAL retained Sterne Agee to act as its financial advisor in connection with its proposed merger with Riverside. Sterne Agee agreed to assist SAL in analyzing, structuring, and negotiating the merger and was also engaged to render a written opinion to SAL’s board of directors as to whether the merger consideration pursuant to the merger agreement was fair, from a financial point of view, to SAL. Sterne Agee is a nationally recognized investment banking firm with substantial experience in transactions similar to the merger and is familiar with SAL and its business. As part of its investment banking business, Sterne Agee is continually engaged in the valuation of financial services companies and their securities in connection with mergers and acquisitions.

 

As part of its engagement, representatives of Sterne Agee attended the meeting of the SAL board of directors, held on March 18, 2014, at which the SAL board of directors evaluated the proposed merger with Riverside. At this meeting, Sterne Agee reviewed the financial aspects of the proposed merger and rendered an opinion that, as of such date and based upon and subject to the various factors, assumptions and limitations set forth in its opinion, the merger consideration pursuant to the merger agreement was fair, from a financial point of view, to SAL. Following extensive review and discussion, the SAL board of directors approved the merger agreement at this meeting.

 

The full text of Sterne Agee’s written opinion is attached as Appendix D to this document and is incorporated herein by reference. SAL shareholders are urged to read the opinion in its entirety for a description of the procedures followed, assumptions made, matters considered, and qualifications and limitations on the review undertaken by Sterne Agee. The description of the opinion set forth herein is qualified in its entirety by reference to the full text of such opinion. Sterne Agee has consented to the inclusion of its opinion and a summary thereof in this joint proxy statement/prospectus and in the registration statement on Form S-4, which includes this joint proxy statement/prospectus. The issuance of Sterne Agee’s opinion was approved by a fairness opinion committee of Sterne Agee. Sterne Agee provided its opinion to the SAL board of directors in connection with and for the purposes of its evaluation of the merger.

 

Sterne Agee’s opinion speaks only as of the date of the opinion. The opinion is directed to the SAL board of directors and addresses only the fairness, from a financial point of view, of the merger consideration to be paid by SAL in the merger. It does not address the underlying business decision to proceed with the merger and does not constitute a recommendation to any SAL shareholder as to how the shareholder should vote at the SAL special meeting on the merger or any related matter.

 

In rendering its opinion, Sterne Agee reviewed, among other things:

 

certain publicly-available financial and business information of SAL, Riverside and their affiliates which it deemed to be relevant;
certain information, including financial forecasts, relating to the business, earnings, cash flow, assets, liabilities, liquidity and prospects of SAL and Riverside;
certain information detailing the merger prepared by SAL, Riverside and their affiliates and by their legal and accounting advisors including the estimated amount and timing of the cost savings and related expenses and synergies expected to result from the merger (the “Synergies”);
a comparison of certain financial metrics of SAL and Riverside to other selected banks and thrifts that it deemed to be relevant;
the terms of the merger relative to selected prior mergers and acquisitions involving a depository institution as the selling entity;
the projected pro forma impact of the merger on the projected balance sheet, capital ratios, tangible book value per share and estimated earnings per share of SAL;
the recent price performance of the common stock of SAL and compared it to other selected banks and thrifts that it deemed relevant;
the overall environment for depository institutions in the United States;
the merger agreement dated March 18, 2014; and
such other financial studies, analyses and investigations and took into account such other matters as it deemed appropriate for purposes of its opinion, including its assessment of general economic, market and monetary conditions and its experience in other transactions, as well as its experience in securities valuation and knowledge of the banking industry generally.

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 Sterne Agee also held several discussions with members of senior management and representatives of both SAL and Riverside with respect to certain aspects of the merger, as well as their respective businesses and prospects before and after giving effect to the merger and certain other matters Sterne Agee believed necessary or appropriate to its inquiry.

 

Sterne Agee, in conducting its review and arriving at its opinion, relied upon, without independent verification, the accuracy and completeness of the information provided to it by SAL, Riverside and their affiliates. In addition, where appropriate, Sterne Agee relied upon publicly available information, without independent verification, that Sterne Agee believes to be reliable, accurate and complete; however, Sterne Agee cannot guarantee the reliability, accuracy, or completeness of any such publicly available information. Sterne Agee was not engaged to express, and is not expressing, any opinion with respect to any other transaction, including any alternative transaction between SAL and Riverside. Sterne Agee prepared its opinion using internal projections for SAL and Riverside provided by and discussed with senior management of SAL and Riverside. With respect to the financial forecasts, including the synergies and restructuring charges, supplied to Sterne Agee, Sterne Agee assumed, with SAL’s consent, that they were reasonably prepared and reflected, as of the date of Sterne Agee’s opinion, the best currently available estimates and judgments of SAL and Riverside as to the future operating and financial performance of SAL, Riverside and the combined company.

 

Sterne Agee did not make an independent evaluation or appraisal or physical inspection of the assets or liabilities (contingent or otherwise) of SAL, Riverside or their affiliates, including, but not limited to, any derivative or off-balance sheet assets or liabilities nor did Sterne Agee conduct any review of individual credit files of SAL or Riverside, evaluate the adequacy of the loan or lease loss reserves of SAL or Riverside or evaluate the solvency of SAL or Riverside under any state or federal laws relating to bankruptcy, insolvency or similar matters. Sterne Agee rendered no opinion or evaluation on the collectability of any asset or the future performance of any loan of SAL or Riverside. Sterne Agee was not retained to evaluate loan or lease portfolios for the purpose of assessing the adequacy of the allowances for losses with respect thereto and, accordingly, Sterne Agee did not make an independent evaluation of the adequacy of the allowance for loan and lease losses of SAL or Riverside or on the credit mark assumed taken in the merger, and Sterne Agee has assumed, with SAL’s consent, that the respective allowances for loan and lease losses for both SAL and Riverside, respectively, as well as the credit mark are adequate to cover such losses and will be adequate on a pro forma basis for the combined company. Sterne Agee has relied upon and assumed, without assuming any responsibility for independent verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by Sterne Agee.

 

For purposes of rendering its opinion, Sterne Agee assumed that, in all respects material to its analyses:

 

the merger will be completed substantially in accordance with the terms set forth in the merger agreement with no additional payments or adjustments to the merger consideration;
the representations and warranties of each party in the merger agreement and in all related documents and instruments referred to in the merger agreement are true and correct;
each party to the merger agreement and all related documents will perform all of the covenants and agreements required to be performed by such party under such documents;
all conditions to the completion of the merger will be satisfied without any waiver; and
in the course of obtaining the necessary regulatory, contractual, or other consents or approvals for the merger, no restrictions, including any divestiture requirements, termination or other payments or amendments or modifications, will be imposed that will have a material adverse effect on the future results of operations or financial condition of the combined entity or the contemplated benefits of the merger, including the synergies and restructuring charges expected to result from the merger.

 

Sterne Agee further assumed, without assuming any responsibility for independent verification, that the merger will be accounted for as a purchase transaction under GAAP, and that the merger will qualify as a tax-free reorganization for United States federal income tax purposes. Sterne Agee’s opinion is not an expression of an opinion as to the actual value of the shares of common stock of the combined company when issued pursuant to the merger, or the price at which the shares of common stock of the combined company will trade following the completion of the merger.

 

The merger consideration was determined through negotiations between SAL and Riverside and was approved by SAL’s board of directors. Sterne Agee provided advice to SAL during these negotiations; Sterne Agee did not recommend that any specific merger consideration constituted the only appropriate merger consideration for the merger.

 

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Summary of Analyses by Sterne Agee

 

In accordance with customary investment banking practice, Sterne Agee employed generally accepted valuation methods in reaching its opinion. The following is a summary of the material financial analyses undertaken by Sterne Agee in connection with rendering its opinion to the SAL board of directors on March 18, 2014. The summary is not a complete description of the analyses underlying the Sterne Agee opinion or the presentation made by Sterne Agee to the SAL board of directors, but summarizes the material analyses performed and presented in connection with such opinion. The preparation of a fairness opinion is a complex analytic process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. In arriving at its opinion, Sterne Agee did not attribute any particular weight to any analysis or factor that it considered, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. The financial analyses summarized below include information presented in tabular format. The tables alone do not constitute a complete description of the financial analyses. Accordingly, Sterne Agee believes that its analyses and the summary of its analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on the information presented below in tabular format, without considering all analyses and factors or the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the process underlying its analyses and opinion.

 

Summary of Proposal

 

Pursuant to the terms of the merger agreement, each outstanding share of Riverside common stock not owned by SAL or Riverside other than shares owned in a fiduciary or agency capacity or as a result of debts previously contracted, will be converted into the right to receive 1.350 shares of SAL common stock (the “merger consideration”). Based on SAL’s closing price on March 14, 2014, of $26.90, the exchange ratio represented a price of $36.32 per share to Riverside’s shareholders.

 

Demographic and Branch Analysis

 

Sterne Agee reviewed and compared selected demographic information on SAL’s and Riverside’s markets where they have one or more active branch offices and conduct business. On a weighted average basis, based on data provided by a nationally recognized consolidator of this information, SNL Financial, Riverside’s franchise was found to have a projected household income change from 2013 to 2018 of 17.4% and 2013 median household income of $72,345. SAL’s franchise was found to have a projected household income change from 2013 to 2018 of 14.9% and 2013 median household income of $67,823. Sterne Agee also prepared a pro forma map combining SAL branch offices with Riverside’s branch offices. The map revealed the complementary nature of each institution’s branch footprint, with a total of 25,386 businesses with less than 500 employees, based on the latest U.S. Census Bureau data, operating in the combined four counties of operation.

 

Riverside Publicly Traded Companies Analysis

 

Using publicly available information, Sterne Agee compared the financial performance and financial condition of Riverside to the following publicly traded banks and bank holding companies and thrifts and thrift holding companies headquartered in the state of either New York, Connecticut, Massachusetts, Maine, New Hampshire or Rhode Island, excluding mutual holding companies and pending merger targets, with assets between $100 million and $400 million and nonperforming assets to assets less than 4.0%. Companies in this group were:

 

          Greater Hudson Bank, National Association           Bank of Akron
          VSB Bancorp, Inc.           First Suffield Financial, Inc.
          Grand Bank Corporation           Rockport National Bancorp, Inc.
          Delhi Bank Corp.           Damariscotta Bankshares, Inc.
          National Bank of Coxsackie           Island Bancorp, Inc.
          First Colebrook Bancorp, Inc.           ES Bancshares, Inc.
          Georgetown Bancorp, Inc.           First National Bank of Groton
          CMS Bancorp, Inc.           Patriot Federal Bank
          Delaware Bancshares, Inc.  

 

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To perform this analysis, Sterne Agee used financial information for the three months ended December 31, 2013 (or as of the most recently available quarter) and market price information as of March 14, 2014. Certain financial data prepared by Sterne Agee, and as referenced in the tables presented below, may not correspond to the data presented in Riverside’s historical financial statements, or to the data prepared by KBW, presented under the section “Opinion of Keefe, Bruyette & Woods, Inc., Financial Advisor to Riverside,” as a result of the different periods, assumptions and methods used by Sterne Agee to compute the financial data presented. No company used as a comparison in the analysis below is identical to Riverside. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies.

 

The following table summarizes the relevant data items for Riverside and the peer group:

 

                
         Riverside Peer Group
    Riverside    Minimum    Median    Mean    Maximum 
Balance Sheet (Most Recent Quarter)                         
Total Assets ($ millions)  $221   $107   $262   $231   $336 
Loan / Deposits   95.6%   27.2%   79.6%   75.0%   126.3%
Securities / Assets   9.2%   8.5%   19.5%   25.9%   51.6%
Tangible Common Equity / Tangible Assets   11.3%   6.9%   9.8%   9.6%   13.5%
Tier 1 Capital Ratio   12.8%   11.7%   15.9%   17.1%   27.6%
Total Risk Based Capital Ratio   14.1%   12.8%   17.1%   18.3%   28.9%
Income Analysis (Most Recent Quarter)                         
Return on Average Assets   1.03%   0.16%   0.45%   0.51%   1.33%
Return on Average Equity   9.1%   1.6%   4.8%   5.0%   9.9%
Return on Average Tangible Common Equity   9.1%   1.6%   5.2%   5.3%   9.9%
Net Interest Margin   4.24%   2.83%   3.52%   3.58%   4.84%
Efficiency Ratio   60.4%   57.0%   77.4%   76.3%   88.2%
Fee Income / Operating Revenue   8.8%   3.6%   12.4%   13.6%   26.9%
Asset Quality (Most Recent Quarter)                         
Non-Performing Assets / Total Assets   1.06%   0.15%   1.10%   1.09%   2.65%
Loan Loss Reserves / Total Loans   1.4%   0.3%   1.1%   1.2%   2.0%
Net Charge-Offs / Total Loans   0.27%   (0.71%)   0.08%   0.23%   1.45%
Trading Multiples & Market Statistics (1)(2)                         
Stock Price / Tangible Book Value   NA    54.7%   87.3%   96.4%   179.9%
Stock Price / Last Quarter Annualized EPS   NA    8.1x   12.4x   13.3x   18.8x
Stock Price / Last Twelve Months EPS   NA    8.8x   12.9x   13.9x   18.3x
Stock Price / Core Deposit Premium (3)   NA    (6.4%)   (2.0%)   (0.7%)   10.6%
Current Dividend Yield   NA    0.0%   2.0%   2.0%   5.7%

______________________________

(1)As of 3/14/2014
(2)Riverside is not a public company
 (3)Core deposits defined as total deposits less time deposits over $100,000. The core deposit premium is calculated by taking the market capitalization less tangible book value, divided by core deposits

 

Riverside Comparable Transaction Analysis

 

Sterne Agee reviewed publicly available information related to selected acquisitions of banks and bank holding companies as well as thrifts and thrift holding companies with headquarters in the state of either New York, Connecticut, Massachusetts, Maine, New Hampshire or Rhode Island announced after December 31, 2010, where deal value was available and the buyer was a bank or bank holding company or a thrift or thrift holding company, the seller had assets between $100 million and $500 million and nonperforming assets to assets less than 4.0%. The transactions included in the groups were:

 

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Acquiror   Acquiree
Mascoma Mutual Financial Services Corporation   Connecticut River Bancorp, Inc.
Independent Bank Corp.   Mayflower Bancorp, Inc.
SI Financial Group, Inc.   Newport Bancorp, Inc.
New Hampshire Thrift Bancshares, Inc.   Nashua Bank
Commerce Bancshares Corp.   Mercantile Capital Corp
Provident New York Bancorp   Gotham Bank of New York
NBT Bancorp Inc.   Hampshire First Bank
Berkshire Hills Bancorp, Inc.   Connecticut Bank and Trust Company

 

Transaction multiples for the merger were derived from an offer price of $36.32 per share for Riverside, based on SAL’s March 14, 2014 closing price of $26.90. For each precedent transaction, Sterne Agee derived and compared, among other things, the implied ratio of price per common share paid for the acquired company to:

 

tangible book value per share of the acquired company based on the latest public financial statements of the company available prior to the announcement of the acquisition;
tangible equity premium to core deposits (core deposits defined as total deposits less time deposits over $100,000) based on the financial statements of the company available prior to the announcement of the acquisition and;
the last twelve months earnings per share based on the financial statements of the company available prior to the announcement of the acquisition

 

The results of the analysis are set forth in the following table:

 

    Salisbury /    Comparable    Comparable    Comparable    Comparable 
    Riverside    Transactions    Transactions    Transactions    Transactions 
Transaction Price to:   Merger    Minimum    Median    Mean    Maximum 
Tangible Book Value   107%   116%   142%   144%   194%
Core Deposit Premium   1.2%   2.0%   5.7%   5.9%   10.8%
LTM Earnings Per Share   14.9x   16.3x   29.1x   31.9x   51.2x

 

Riverside Dividend Discount Analysis with Synergies

 

Sterne Agee performed an analysis that estimated the present value per share of Riverside common stock through December 31, 2019. Sterne Agee based the analysis on Riverside’s projected earnings stream as derived from the internal financial projections provided by Riverside’s management for full year 2014 and 2015 and a 6.0% growth rate thereafter provided by SAL’s management as well as synergies and restructuring charges as projected by management of SAL and calculated the assumed potential after-tax distributions to common shareholders such that Riverside’s tangible common equity ratio would remain 8.0% of tangible assets. To approximate the terminal value of Riverside’s common stock at December 31, 2019, Sterne Agee applied price to forward earnings multiples of 12.0x to 14.0x of 2019 forecasted earnings. The income streams and terminal values were then discounted to present values using different discount rates ranging from 12.0% to 14.0% (based on a capital asset pricing model, and certain stock market estimated return information as calculated by Ibbotson Associates, a financial research firm). This discounted dividend analysis resulted in a net present value per share range of $51.81 to $61.03 per share of Riverside common stock as illustrated below.

 

  Terminal Earnings Multiple
Discount Rate   12.0x   13.0x   14.0x
12.0% $ 54.86 $ 57.94 $ 61.03
13.0% $ 53.30 $ 56.27 $ 59.24
14.0% $ 51.81 $ 54.67 $ 57.53

 

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The dividend discount analysis is a widely used valuation methodology that relies on numerous assumptions, including asset and earnings growth rates, terminal values and discount rates. The analysis did not purport to be indicative of the actual values or expected values of Riverside.

 

SAL Stock Price Performance

 

Sterne Agee reviewed the history of the publicly reported trading prices of SAL’s common stock for the one year period ended March 14, 2014. SAL’s common stock traded as low as $25.20 per share and as high as $29.95 per share, as compared to the closing price of SAL’s common stock on March 14, 2014 of $26.90 per share.

 

SAL Publicly Traded Companies Analysis

 

Using publicly available information, Sterne Agee compared the financial performance, financial condition and market performance of SAL to the following publicly traded banks and bank holding companies and thrifts and thrift holding companies headquartered in the states of New York, Connecticut, Massachusetts, Maine, New Hampshire or Rhode Island, excluding mutual holding companies and pending merger targets, with assets between $400 million and $750 million and nonperforming assets to assets less than 4.0%. Companies in this group were:

 

        Oneida Financial Corp.        Elmira Savings Bank
        Lyons Bancorp, Inc.        Naugatuck Valley Financial Corporation
        Northeast Bancorp        Empire Bancorp Inc.
        Hampden Bancorp, Inc.        Wellesley Bancorp, Inc.
        Solvay Bank Corporation        Steuben Trust Corporation
        Orange County Bancorp, Inc.        SBT Bancorp, Inc.
        Katahdin Bankshares Corporation        Glenville Bank Holding Company, Inc.
        Peoples Federal Bancshares, Inc.        Ballston Spa Bancorp, Inc.
        Chicopee Bancorp, Inc.        Citizens National Bancorp, Inc.
        Patriot National Bancorp, Inc.  

 

To perform this analysis, Sterne Agee used financial information for the three months ended December 31, 2013 (or as of the most recently available quarter) and market price information as of March 14, 2014. Certain financial data prepared by Sterne Agee, and as referenced in the tables presented below, may not correspond to the data presented in SAL’s historical financial statements, or to the data prepared by KBW, presented under the section “Opinion of Keefe, Bruyette & Woods, Inc., Financial Advisor to Riverside,” as a result of the different periods, assumptions and methods used by Sterne Agee to compute the financial data presented. No company used as a comparison in the analysis below is identical to SAL. Accordingly, an analysis of these results is not mathematical. Rather, it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies.

 

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The following table summarizes the relevant data items for SAL and the peer group:

  

         Salisbury Peer Group
    Salisbury    Minimum    Median    Mean    Maximum 
Balance Sheet (Most Recent Quarter)                         
Total Assets ($ millions)  $587   $403   $541   $560   $742 
Loan / Deposits   92.8%   42.6%   91.9%   85.1%   112.3%
Securities / Assets   17.0%   7.0%   18.7%   22.9%   64.1%
Tangible Common Equity / Tangible Assets   8.0%   4.4%   8.9%   9.9%   17.9%
Tier 1 Capital Ratio   15.2%   10.2%   15.3%   15.8%   24.3%
Total Risk Based Capital Ratio   16.5%   11.4%   16.0%   17.0%   25.0%
Income Analysis (Most Recent Quarter)                         
Return on Average Assets   0.67%   (1.97%)   0.59%   0.50%   1.20%
Return on Average Equity   5.5%   (16.4%)   5.1%   5.1%   12.9%
Return on Average Tangible Common Equity   8.6%   (16.4%)   6.2%   5.7%   13.0%
Net Interest Margin   3.72%   3.11%   3.40%   3.53%   5.21%
Efficiency Ratio   73.6%   59.6%   77.1%   77.0%   104.8%
Fee Income / Operating Revenue   24.7%   6.3%   16.5%   18.3%   62.0%
Asset Quality (Most Recent Quarter)                         
Non-Performing Assets / Total Assets   2.62%   0.22%   1.23%   1.32%   3.50%
Loan Loss Reserves / Total Loans   1.1%   0.3%   1.1%   1.3%   2.7%
Net Charge-Offs / Total Loans   0.15%   (0.02%)   0.11%   0.21%   1.00%
Trading Multiples & Market Statistics (1)                         
Stock Price / Tangible Book Value   99.2%   47.8%   100.3%   105.9%   191.1%
Stock Price / Last Quarter Annualized EPS   12.2x   7.2x   11.6x   12.4x   19.0x
Stock Price / Last Twelve Months EPS   11.7x   7.0x   11.5x   12.8x   19.3x
Stock Price / Core Deposit Premium (2)   (0.1%)   (4.8%)   0.0%   0.5%   9.0%
Current Dividend Yield   4.2%   0.0%   2.5%   2.3%   4.0%

_____________________

(1)As of 3/14/2014
(2)Core deposits defined as total deposits less time deposits over $100,000. The core deposit premium is calculated by taking the market capitalization less tangible book value, divided by core deposits

 

SAL Dividend Discount Analysis

 

Sterne Agee performed an analysis that estimated the present value per share of SAL’s common stock through December 31, 2019. Sterne Agee based the analysis on SAL’s projected earnings stream as derived from the internal financial projections provided by SAL’s management for full year 2014 and 2015 and a 6.0% growth rate thereafter provided by SAL’s management and calculated the assumed potential after-tax distributions to common shareholders such that SAL’s tangible common equity ratio would remain 8.0% of tangible assets. To approximate the terminal value of SAL’s common stock at December 31, 2019, Sterne Agee applied price to forward earnings multiples of 12.0x to 14.0x of 2019 forecasted earnings. The income streams and terminal values were then discounted to present values using different discount rates ranging from 12.0% to 14.0% (based on a capital asset pricing model, and certain stock market estimated return information as calculated by Ibbotson Associates). This discounted dividend analysis resulted in a net present value per share range of $22.22 to $27.51 per share of SAL’s common stock as illustrated below.

 

  Terminal Earnings Multiple
Discount Rate   12.0x   13.0x   14.0x
12.0% $ 23.95 $ 25.73 $ 27.51
13.0% $ 23.07 $ 24.78 $ 26.49
14.0% $ 22.22 $ 23.87 $ 25.52

 

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Relative Contribution Analysis

 

Sterne Agee analyzed the relative contribution of SAL and Riverside to the pro forma balance sheet and income statement items of the combined entity, including pro forma ownership, assets, loans, deposits, equity, tangible common equity, trailing twelve months earnings, quarter ended December 31, 2013 annualized earnings, and projected 2014 and 2015 earnings estimates. This analysis excluded all purchase accounting adjustments. Sterne Agee compared the pro forma ownership interests of SAL and Riverside of approximately 63% and 37%, respectively, to the select financial information shown in the following table.

 

    Salisbury    Riverside 
Assets   72.6%   27.4%
Net Loans   70.4    29.6 
Deposits   71.0    29.0 
Equity   74.4    25.6 
Tangible Common Equity   64.9    35.1 
Last Twelve Months Earnings   69.3    30.7 
Most Recent Quarter Annualized Earnings   63.6    36.4 
Estimated 2014 Earnings   63.9    36.1 
Estimated 2015 Earnings   63.9    36.1 
Median   69.3    30.7 
Estimated Pro Forma Ownership   62.7    37.3 

 

Financial Impact Analysis

 

Sterne Agee performed pro forma merger analyses that combined the projected income statement and balance sheet information of SAL and Riverside. In performing this analysis, Sterne Agee used internal earnings estimates for Riverside and SAL for full year 2014 and 2015 provided by SAL management. Sterne Agee also used synergies estimates, purchase accounting adjustments, and restructuring charges provided by SAL and Riverside management to calculate the financial impact that the merger would have on certain projected financial results of Riverside and SAL. This analysis indicated that the merger is expected to be accretive to Riverside’s and SAL’s estimated earnings per share in 2014 and 2015. The analysis also indicated that the merger is expected to be dilutive to tangible book value per share for SAL; however, SAL is estimated to earn back its tangible book value dilution in approximately 5 years and maintain well capitalized capital ratios. For all of the above analyses, the actual results achieved by SAL and Riverside, following the merger, will vary from the projected results and the variations may be material.

 

Value Creation Analysis

 

In addition, Sterne Agee performed a dividend discount analysis to estimate a range of the present values of after-tax cash flows that SAL (pro forma for the merger) could provide to equity holders through December 31, 2019. In performing this analysis, Sterne Agee used earnings estimates, synergies estimates, purchase accounting adjustments, and restructuring charges provided by SAL’s and Riverside’s management. To approximate the terminal value of SAL’s common stock (pro forma for the merger) at December 31, 2019, Sterne Agee applied earnings multiples ranging from 12.0x to 14.0x. The income stream and terminal value was then discounted to present value using a range of 12% to 14% discount rate (based on a capital asset pricing model and certain stock market estimated return information as calculated by Ibbotson Associates). Based on these assumptions, the following table sets forth the respective valuation ranges for SAL on a standalone and pro forma basis.

 

Net Present Value Per Share - Stand Alone Terminal Earnings Multiple
Discount Rate   12.0x   13.0x   14.0x
12.0% $ 23.95 $ 25.73 $ 27.51
13.0% $ 23.07 $ 24.78 $ 26.49
14.0% $ 22.22 $ 23.87 $ 25.52
             
Net Present Value Per Share - Pro Forma for Riverside Terminal Earnings Multiple
Discount Rate   12.0x   13.0x   14.0x
12.0% $ 29.67 $ 31.61 $ 33.55
13.0% $ 28.68 $ 30.55 $ 32.42
14.0% $ 27.74 $ 29.54 $ 31.34

 

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General

 

In performing its analyses, Sterne Agee made numerous assumptions with respect to industry performance, general business, economic, market and financial conditions and other matters, which are beyond the control of Sterne Agee, SAL and Riverside. Any estimate contained in the analyses performed by Sterne Agee is not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by these analyses. Additionally, estimates of the value of businesses or securities do not purport to be appraisals or to reflect the prices at which such businesses or securities might actually be sold. Accordingly, these analyses and estimates are inherently subject to substantial uncertainty. In addition, the Sterne Agee opinion was among several factors taken into consideration by the SAL board of directors in making its determination to approve the merger agreement and the merger. Consequently, the analyses described above should not be viewed as determinative of the decision of the SAL board of directors with respect to the fairness of the merger consideration, from a financial point of view, to SAL. Further, events and developments occurring after the date of the Sterne Agee opinion could materially affect the assumptions used in preparing the opinion, and Sterne Agee does not have any obligation to update, revise or reaffirm its opinion.

 

SAL and Sterne Agee have entered into an agreement relating to the services to be provided by Sterne Agee in connection with the merger. SAL paid Sterne Agee $25,000 upon signing of its engagement letter to serve as financial advisor in connection with the proposed merger and $100,000 with the rendering of the fairness opinion relating to the merger. Additionally, SAL has agreed to pay to Sterne Agee $500,000 at the time of closing of the merger (the “Success Fee”). The fees paid prior to the Success Fee payment will be credited against the Success Fee. Pursuant to the Sterne Agee engagement agreement, SAL also agreed to reimburse Sterne Agee for reasonable out-of-pocket expenses and disbursements incurred in connection with its retention and to indemnify against certain liabilities, including liabilities under the federal securities laws.

 

Other than Sterne Agee’s engagement by SAL in connection with the merger, Sterne Agee has not provided any other material investment banking services to SAL, Riverside or their affiliates during the past two years; however, Sterne Agee may do so in the future. In the ordinary course of Sterne Agee’s business as a broker-dealer, Sterne Agee may, from time to time, purchase securities from and sell securities to SAL, Riverside or their affiliates.

 

Interest of Riverside’s Directors and Executive Officers

 

As described below, Riverside’s directors and executive officers have interests in the merger that are in addition to, or different from, the interests of Riverside’s shareholders generally. Riverside’s board of directors was aware of these interests and considered them, among other matters, when it approved the merger agreement.

 

Share Ownership

 

On September 5, 2014, the record date for the special meeting of Riverside’s shareholders, Riverside’s directors and executive officers beneficially owned, in the aggregate, 303,045 shares of Riverside’s common stock, representing approximately 39.52% of the outstanding shares of Riverside common stock. See the section of this joint proxy statement/prospectus titled “The Voting Agreements” beginning on page 77 for further information regarding the voting agreements between SAL and directors and executive officers and certain principal shareholders of Riverside.

 

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Certain Riverside Directors and Affiliates to be Appointed to the Board of Directors of SAL and SBT

 

Effective immediately after the consummation of the merger, SBT and SAL shall have no less than fourteen (14) and no more than sixteen (16) directors, and will include five (5) individuals who are current directors or affiliates of Riverside: Rudolph P. Russo, Charles M. Andola, George E. Banta, Michael D. Gordon and P. Diane Hoe. These nominees will be appointed and elected to the SAL and SBT boards of directors to serve in the classes as follows: Rudolph P. Russo - Class of 2015 (to be nominated for re-election at the 2015 Annual Meeting of Shareholders of SAL for the Class of 2018); Charles M. Andola - Class of 2017; George E. Banta - Class of 2017; Michael D. Gordon - Class of 2016; and P. Diane Hoe - Class of 2016 (provided such individuals do not have any material conflict of interest with SBT or involve a risk that would necessitate an adverse disclosure); provided, however, that subject to the exercise by SAL board of directors of its fiduciary duties, the Riverside nominee whose term would expire at SAL’s 2015 annual meeting of shareholders will be nominated for re-election at SAL’s 2015 annual meeting of shareholders in a manner consistent with SAL’s certificate of incorporation and by-laws. All other directors of SAL and SBT prior to the effective time shall remain directors of SAL and SBT following the effective time, subject to shareholder approval at SAL and SBT annual meetings. John M. Davies shall be appointed as President of the New York Region of SBT and Todd Rubino will be appointed Vice President and Senior Lender of the New York Region of SBT. All other officers of SAL and SBT prior to the effective time shall remain officers of SAL and SBT following the effective time, subject to board approval.

 

Advisory Board

 

The merger agreement provides that SBT and SAL will invite all of the non-officer directors of Riverside, excluding those that will serve on the boards of directors of SBT and SAL, to serve as members of an advisory board.

 

New Employment Agreements with Certain Riverside Officers

 

Compensation that may be paid or become payable to Riverside’s executive officers in connection with the merger pursuant to agreements solely between such executive officers and SAL is not subject to a non-binding advisory vote but is described below.

 

New Employment Agreement with John M. Davies

 

SBT and Mr. Davies have entered into an employment agreement, which is effective upon consummation of the merger and which supersedes his existing employment agreement with Riverside. Pursuant to such agreement, Mr. Davies, currently the Chief Executive Officer and President of Riverside will become President of the New York Region of SBT.

 

Mr. Davies’ initial base salary will be $225,000 per year, payable in installments in accordance with SBT’s normal payroll practices, less such deductions or withholdings as are required by law. Such base salary will be subject to at least annual evaluations and shall be not less than $225,000. SBT shall pay, or shall direct Riverside to pay immediately prior to the effective time of the merger, Mr. Davies an initial cash success bonus of $70,000, contingent upon (i) the closing of the merger at or prior to December 31, 2014, and (ii) as of the effective time, the dollar amount of the gross loan portfolio of Riverside equaling at least 90% of the dollar amount of the gross loan portfolio of Riverside as of December 31, 2013.

 

In addition, Mr. Davies shall be entitled to receive the following cash payments, subject to the vesting requirements set forth below. Upon the vesting of each award, the cash award shall be paid to Mr. Davies:

 

$100,000 awarded in 2015 on the anniversary of the effective date and fully vested and paid to Mr. Davies in 2016 on the anniversary of the effective date;
$100,000 awarded in 2016 on the anniversary of the effective date and fully vested and paid to Mr. Davies in 2018 on the anniversary of the effective date; and
$100,000 awarded in 2017 on the anniversary of the effective date and fully vested and paid to Mr. Davies in 2018 on the anniversary of the effective date.

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In order for the foregoing awards to vest and be paid over to Mr. Davies, Mr. Davies must be employed by SBT on both the award date and the vesting date; provided however, that (i) in the event Mr. Davies’ employment is terminated by SBT for any reason other than “cause”, (ii) Mr. Davies terminates his employment with SBT for “good reason” (as defined in the employment agreement), or (iii) there occurs a change in control, then in that case (x) any award set forth above which has not yet been awarded to Mr. Davies shall be awarded to Mr. Davies, and (y) all such awards shall be deemed fully vested and paid to Mr. Davies, all as of his termination date or the effective date of such change in control, whichever is applicable.

 

Pursuant to the employment agreement, SBT shall also grant to Mr. Davies 3,000 shares of restricted SAL common stock on the effective time of the merger, which shall vest at a rate of 750 shares on the effective date and on each of the subsequent three anniversaries of the effective date, provided Mr. Davies is still employed by SBT on such anniversary date; provided however, that (i) in the event Mr. Davies’ employment is terminated by SBT for any reason other than “cause”, (ii) Mr. Davies terminates his employment with SBT for good reason, or (iii) there occurs a change in control, then in that case any unvested shares of restricted stock then held by Mr. Davies shall be deemed fully vested as of his termination date or the effective date of such change in control, whichever is applicable.

 

The agreement also provides for change in control protection. In the event of Mr. Davies’ involuntary termination of employment for reasons other than cause or a voluntary termination of employment for good reason occurring on or after a change in control, he shall be entitled to the following:

 

(a)A lump sum cash payment equal to two (2.0) times his annual rate of base salary in effect on the date of termination or, if greater, his average annual base salary rate for the twelve (12) month period ending on the last day of the calendar month immediately prior to the date of such termination. Such amount shall be paid to Mr. Davies within sixty (60) days following his separation from service.

 

(b)Life insurance coverage and non-taxable medical and dental coverage, at no cost to Mr. Davies, that is substantially comparable (and on substantially the same terms and conditions) to the coverage maintained by SBT for Mr. Davies immediately prior to his date of termination. Such life insurance and non-taxable medical and dental coverage shall be provided by SBT to the Mr. Davies for two (2) years following his separation from service and subject to the same terms and conditions as other benefits provided under the employment agreement. If, as the result of any change in, or interpretation of, the laws applicable to the continued welfare benefits to be provided under the employment agreement, such benefits are deemed illegal or subject to penalties, then SBT shall, to the extent permitted under such laws, pay to Mr. Davies a cash lump sum payment reasonably estimated to be equal to the amount of welfare benefits (or the remainder of such amount) that Mr. Davies is no longer permitted to receive in-kind. Such lump sum payment shall be required to be within sixty (60) days following Mr. Davies’ separation from service, or if later, within sixty (60) days following a determination that such payment would be illegal or subject to penalties.

 

(c)Unpaid compensation and benefits, and unused vacation, accrued through the date of his termination of employment. Mr. Davies shall also be entitled to be reimbursed by SBT for final expenses that he reasonably and necessarily incurred on behalf of SBT prior to his termination of employment, provided that Mr. Davies submits expense reports and supporting documentation of such expenses in accordance with SBT’s expense reimbursement policies in effect at that time. Such reimbursement payment(s) shall be made no later than the time required by applicable law (or, if earlier, by SBT or SAL policy, practice, or rule), but in no event later than the sixtieth (60th) day following Mr. Davies’ date of termination.

 

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“Change in control” shall mean (i) a change in the ownership of SAL or SBT, (ii) a change in the effective control of SAL or SBT, or (iii) a change in the ownership of a substantial portion of the assets of SAL or SBT, as described below.

 

(i)A change in the ownership of a corporation occurs on the date that any one person, or more than one person acting as a group (as defined in Treasury Regulation §1.409A-3(i)(5)(v)(B)), acquires ownership of stock of SAL or SBT that, together with stock held by such person or group, constitutes more than fifty (50) percent of the total fair market value or total voting power of the stock of such corporation. For these purposes, a change in ownership will not be deemed to have occurred if no stock of SAL or SBT is outstanding.

 

(ii)A change in the effective control of SAL or SBT occurs on the date that either (A) any one person, or more than one person acting as a group (as defined in Treasury Regulation §1.409A-3(i)(5)(vi)(D)) acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of SAL or SBT possessing thirty (30) percent or more of the total voting power of the stock of SAL or SBT, or (B) a majority of the members of SAL’s or SBT’s board of directors is replaced during any twelve (12)-month period by directors whose appointment or election is not endorsed by a majority of the members of SAL’s or SBT’s board of directors prior to the date of the appointment or election, provided that this definition of a change in control is inapplicable where a majority shareholder of the entity that experiences the change in control is another corporation.

 

(iii)A change in a substantial portion of SAL’s or SBT’s assets occurs on the date that any one person or more than one person acting as a group (as defined in Treasury Regulation §1.409A-3(i)(5)(vii)(C)) acquires (or has acquired during the twelve (12)-month period ending on the date of the most recent acquisition by such person or persons) assets from SAL or SBT that have a total gross fair market value equal to or more than forty (40) percent of the total gross fair market value of (A) all of the assets of SAL or SBT, or (B) the value of the assets being disposed of, either of which is determined without regard to any liabilities associated with such assets.

 

The employment agreement also includes typical confidentiality and non-compete and non-solicitation provisions.

 

New Employment Agreement with Todd Rubino

 

Upon consummation of the merger, Todd Rubino, currently the Executive Vice President and Senior Lending Officer of Riverside will become Vice President and Senior Lender of the New York Region of SBT. Mr. Rubino has entered into an employment agreement with SBT, which supersedes his existing change in control agreement with Riverside, and which is effective upon consummation of the merger.

 

Mr. Rubino’s initial base salary will be $147,000 per year. Such base salary shall be evaluated at least annually and shall be not less than $147,000. The Bank shall pay, or shall direct Riverside Bank to pay immediately prior to the effective time of the merger, Mr. Rubino an initial cash success bonus of $40,000, contingent upon (i) the closing of the merger at or prior to December 31, 2014, and (ii) as of the effective time, the dollar amount of the gross loan portfolio of Riverside equaling at least 90% of the dollar amount of the gross loan portfolio of Riverside as of December 31, 2013.

 

Mr. Rubino will also be entitled to receive the following cash payments, subject to the vesting requirements set forth below:

 

$43,334 awarded on the effective date and fully vested and paid to Mr. Rubino in 2015 on the anniversary of the effective date;
$43,334 awarded in 2015 on the anniversary of the effective date and fully vested and paid to Mr. Rubino in 2016 on the anniversary of the effective date; and
$43,334 awarded in 2016 on the anniversary of the effective date and fully vested and paid to Mr. Rubino in 2017 on the anniversary of the effective date.

 

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In order for the foregoing awards to vest and be paid over to Mr. Rubino, Mr. Rubino must be employed by SBT on both the award date and the vesting date; provided however, that (i) in the event Mr. Rubino’s employment is terminated by SBT for any reason other than “Cause”, (ii) Mr. Rubino terminates his employment with SBT for “good reason” (as defined in the employment agreement), or (iii) there occurs a Change in Control, then in that case (x) any award set forth above which has not yet been awarded to Mr. Rubino shall be awarded to Mr. Rubino, and (y) all such awards shall be deemed fully vested and paid to Mr. Rubino, all as of his termination date or the effective date of such Change in Control, whichever is applicable.

 

SBT shall grant to Mr. Rubino 2,000 shares of restricted Company common stock on the Effective Time of the Merger, which shall vest at a rate of 500 shares on the effective date and on each of the subsequent three anniversaries of the effective date, provided Mr. Rubino is still employed by SBT on such anniversary date; provided however, that (i) in the event Mr. Rubino’s employment is terminated by SBT for any reason other than “Cause”, (ii) Mr. Rubino terminates his employment with SBT for “good reason”, or (iii) there occurs a change in control, then in that case any unvested shares of restricted stock then held by Mr. Rubino shall be deemed fully vested as of his termination date or the effective date of such change in control, whichever is applicable.

 

The agreement also provides for change in control protection. In the event of Mr. Rubino’s involuntary termination of employment for reasons other than Cause or a voluntary termination of employment for Good Reason occurring on or after a Change in Control, Mr. Rubino shall be entitled to the following:

 

(a)A lump sum cash payment equal to Mr. Rubino’s annual rate of base salary in effect on Mr. Rubino’s date of termination or, if greater, Mr. Rubino’s average annual base salary rate for the twelve (12) month period ending on the last day of the calendar month immediately prior to the date of such termination. Such amount shall be paid to Mr. Rubino within sixty (60) days following Mr. Rubino’s separation from service.

 

(b)Life insurance coverage and non-taxable medical and dental coverage, at no cost to Mr. Rubino, that is substantially comparable (and on substantially the same terms and conditions) to the coverage maintained by the Bank for Mr. Rubino immediately prior to his date of termination. Such life insurance and non-taxable medical and dental coverage shall be provided by SBT to Mr. Rubino for one year following Mr. Rubino’s separation from service and subject to the same terms and conditions as the benefits provided under the employment agreement. If as the result of any change in, or interpretation of, the laws applicable to the continued welfare benefits to be provided under the employment agreement, such benefits are deemed illegal or subject to penalties, then SBT shall, to the extent permitted under such laws, pay to Mr. Rubino a cash lump sum payment reasonably estimated to be equal to the amount of welfare benefits (or the remainder of such amount) that Mr. Rubino is no longer permitted to receive in-kind. Such lump sum payment shall be required to be within sixty (60) days following Mr. Rubino’s separation from service, or if later, within sixty (60) days following a determination that such payment would be illegal or subject to penalties.

 

(c)Unpaid compensation and benefits, and unused vacation, accrued through the date of Mr. Rubino’s termination of employment. Mr. Rubino shall also be entitled to be reimbursed by SBT for final expenses that Mr. Rubino reasonably and necessarily incurred on behalf of SBT prior to Mr. Rubino’s termination of employment, provided that Mr. Rubino submits expense reports and supporting documentation of such expenses in accordance with SBT’s expense reimbursement policies in effect at that time. Such reimbursement payment or payments shall be made no later than the time required by applicable law (or, if earlier, by SBT or SAL policy, practice or rule), but in no event later than the sixtieth (60th) day following Mr. Rubino’s date of termination.

 

“Change in control” under Mr. Rubino’s agreement is defined in the same manner as under Mr. Davies’ employment agreement described above.

 

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Other Employment and Change in Control Agreements

 

Riverside maintains a change in control agreement with Gilbert Dilg, its Chief Financial Officer. Such agreement becomes effective as of the date on which a change in control, as defined in the agreement, occurs and continues for 24 months thereafter (referred to as the “Coverage Period”). If, following a change in control within the Coverage Period Mr. Dilg were to voluntarily terminate his employment (except as provided below), or leave due to a Constructive Discharge (as defined in the agreement), within 5 business days after termination, Riverside must pay or cause to be paid to Mr. Dilg (i) accrued but unpaid salary; (ii) accrued, unused vacation and sick time; and (iii) a lump sum equal to 1.5 times his annual base salary at the time of his termination. In addition, any outstanding stock options would immediately become vested and exercisable. Riverside must also provide a continuation of certain benefits for 18 months for Mr. Dilg and his dependents. If Riverside were to terminate Mr. Dilg’s employment for any reason other than cause, death or disability (as defined in the agreement), Mr. Dilg would also be entitled to such benefits and payments. If Mr. Dilg were to voluntarily terminate his employment for any reason during the first full calendar month following the one year anniversary of the consummation of the change in control (unless Riverside has already given him notice that it intends to terminate him for cause), within 5 business days after termination, Riverside must pay or cause to be paid to Mr. Dilg: (i) accrued but unpaid salary; (ii) accrued, unused vacation and sick time; and (iii) a lump sum equal to two-thirds times his annual base salary at the time of his termination and any outstanding stock options would immediately become vested and exercisable.

 

Employee Severance Payments

 

Pursuant to the merger agreement, each person who is an employee of Riverside as of the closing date, and who is terminated by SAL for a reason other than “cause” within six (6) months subsequent to the closing date, or is not offered employment with SAL as of the effective date, or resigns for good reason, excluding those employees who are entitled to benefits under employment arrangements, shall be entitled to severance benefits pursuant to Riverside’s current severance plan or policy; provided, however, that if such benefits pursuant to Riverside’s plan or policy will result in an excise tax under Code Section 4980D, such plan or policy shall be modified to the extent necessary so as to avoid the imposition of such excise tax.

 

With respect to severance payments, Riverside’s Human Resources Policy Manual provides that non-officer employees with 0-2 years of service shall receive 2 weeks’ salary; non-officer employees with 2-4 years of service shall receive 4 weeks’ salary; and non-officer employees with over 4 years of service shall receive 6 weeks’ salary. In addition, officer employees with 0-3 years of service shall receive 2 months’ salary; officer employees with 3-5 years of service shall receive 2 months’ salary, plus 1 week for each year of service; and officer employees with over 5 years of service shall receive 3 months’ salary, plus 1 week for each year of service. Severance pay will also include medical, dental and life insurance premiums during the employee’s compensation period with a minimum of one month paid benefits.

 

Riverside Stock Options

 

At the effective time of the merger, SAL will assume each validly issued stock option granted under Riverside’s stock option plan, whether vested or unvested, and which has not been previously exercised or cancelled, subject to adjustment such that options granted under Riverside’s stock option plan will be exercisable for shares of SAL common stock. Of the 41,000 options granted in 2013, 21,000 options will not be assumed by SAL, and will be terminated by Riverside prior to the effective time.

 

The table below sets forth the outstanding stock options held by Riverside directors and officers and employees that will be converted to options to purchase SAL common stock at the effective time of the merger.

 

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Name

 

Number of Shares

Subject to Riverside

Stock Options

 

Number of Shares

Subject to Option to

Purchase SAL

Common Stock

David MacFarland (retired employee) 16,000   21,600
Gil Dilg 7,500   10,125
Liliana Guarino 7,000   9,450
Todd Rubino 6,500   8,775
Roxie Geramita 6,000   8,100
John Davies 4,000   5,900
Bonnie Brocco 4,000   5,900
George Harnen (retired employee) 4,000   5,900
Total 55,000   74,250

 

Indemnification

 

Pursuant to the merger agreement, SAL has agreed that, after the effective date of the merger, it will indemnify, defend and hold harmless, for a period of six years from the effective time of the merger, each present and former officer or director of Riverside against all losses, claims, damages, costs, expenses (including attorneys’ fees), liabilities, judgments and amounts that are paid in settlement of or in connection with any claim, action, suit, proceeding or investigation, based in whole or in part on, or arising in whole or in part out of, the fact that such person is or was a director or officer of Riverside if such action or proceeding pertains to any matter of fact arising, existing or occurring before the closing date of the merger to the fullest extent permitted under SAL’s bylaws.

 

Directors’ and Officers’ Insurance

 

SAL has further agreed to ensure that, for a six-year period following the effective time of the merger, the persons serving as officers and directors of Riverside immediately prior to the effective date continue to be covered by Riverside’s current directors’ and officers’ liability insurance policies, or by a policy which is not materially less advantageous than such policy, or by single premium tail coverage with policy limits equal to Riverside’s existing coverage limits, with respect to acts or omissions occurring prior to the effective date which were committed by such officers and directors in their capacity as such. However, in no event will SAL be required to expend in any one year more than 150% of the current annual cost currently expended by Riverside with respect to such insurance.

 

Material U.S. Federal Income Tax Consequences of the Merger

 

The following is a general summary of material United States federal income tax consequences of the merger of SBT and Riverside. The federal income tax laws are complex and the tax consequences of the merger may vary depending upon each shareholder’s individual circumstances or tax status. The following discussion is based upon current provisions of the Code, existing temporary and final regulations under the Code and current administrative rulings and court decisions, all of which are subject to change, possibly on a retroactive basis. No attempt has been made to comment on all United States federal income tax consequences of the merger that may be relevant to Riverside shareholders. The tax discussion set forth below is included for general information only. It is not intended to be, nor should it be construed to be, legal or tax advice to a particular Riverside shareholder.

 

The following discussion may not apply to particular categories of holders of shares of Riverside common stock subject to special treatment under the Code, such as insurance companies, financial institutions, broker-dealers, tax-exempt organizations, individual retirement and other tax-deferred accounts, banks, persons subject to the alternative minimum tax, persons who hold Riverside capital stock as part of a straddle, hedging or conversion transaction, persons whose functional currency is other than the United States dollar, persons eligible for tax treaty benefits, foreign corporations, foreign partnerships and other foreign entities, individuals who are not citizens or residents of the United States and holders whose shares were acquired pursuant to the exercise of an employee stock option or otherwise as compensation. This discussion assumes that holders of shares of Riverside common stock hold their shares as capital assets. The following discussion does not address state, local or foreign tax consequences of the merger. You are urged to consult your tax advisors to determine the specific tax consequences of the merger, including any state, local or foreign tax consequences of the merger.

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Tax Consequences of the Merger Generally

 

SAL will receive an opinion from Cranmore, FitzGerald & Meaney and Riverside will receive an opinion from Windels Marx Lane & Mittendorf, LLP, each dated as of the closing date, to the effect that the merger will qualify as a reorganization under Section 368(a) of the Code. Such opinions are filed as exhibits to the registration statement on Form S-4 of which this joint proxy statement/prospectus is a part. The tax opinions received by SAL and Riverside are based on certain representations, covenants, and assumptions, as described below, all of which must continue to be true and accurate in all material respects as of the effective time of the merger. It is a condition to the obligation of each of SAL and Riverside to complete the merger that their respective tax counsel confirms its opinion as of the closing date of the merger. Neither SAL nor Riverside intends to waive this condition. If any of the representations, covenants, or assumptions relied upon by tax counsel is inaccurate, tax counsel may not be able to provide the required closing date opinions or the tax consequences of the merger could differ from those described below. An opinion of counsel neither binds the Internal Revenue Service (the “IRS”) nor precludes the IRS or the courts from adopting a contrary position. Neither SAL nor Riverside intends to obtain a ruling from the IRS regarding the tax consequences of the merger.

 

Based on the tax opinions described above, the anticipated material United States federal income tax consequences of the merger are as follows:

 

no gain or loss will be recognized by SAL or Riverside as a result of the merger;
no gain or loss will be recognized by a Riverside shareholder on the exchange, except to the extent the shareholder receives cash in lieu of a fractional share of SAL common stock;
the aggregate tax basis in the SAL common stock received by a Riverside shareholder pursuant to the merger will equal that shareholder’s aggregate tax basis in the shares of Riverside common stock being exchanged, reduced by any amount allocable to a fractional share of SAL common stock for which cash is received;
the holding period of SAL common stock received by a Riverside shareholder in the merger will include the holding period of the shares of Riverside common stock being exchanged; and
although no fractional shares of SAL common stock will be issued in the merger, a Riverside shareholder who receives cash in lieu of such a fractional share will be treated as having received that fractional share pursuant to the merger and then as having exchanged such fractional share for cash in a redemption by SAL. A Riverside shareholder will generally recognize capital gain or loss on such a deemed redemption of the fractional share in an amount determined by the excess of the amount of cash received and the shareholder’s tax basis in the fractional share. Any capital gain or loss will be long-term capital gain or loss if the Riverside common stock was held for more than one year.

 

For purposes of the above discussion of the bases and holding periods for shares of Riverside common stock and SAL common stock, Riverside shareholders who acquired different blocks of Riverside common stock at different times for different prices must calculate their basis, gains and losses, and holding periods separately for each identifiable block of such stock exchanged, converted, cancelled or received in the merger.

 

Backup Withholding

 

Payments of cash to a Riverside shareholder pursuant to the merger are subject to information reporting and may, under certain circumstances, be subject to backup withholding unless such shareholder provides SAL with its taxpayer identification number and otherwise complies with the backup withholding rules. Any amounts withheld from payments to a Riverside shareholder under the backup withholding rules are not additional tax and generally will be allowed as a refund or credit against the Riverside shareholders’ federal income tax liability, provided that the Riverside shareholder timely furnishes the required information to the Internal Revenue Service.

 

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Reporting Requirements

 

Riverside shareholders who receive SAL common stock as a result of the merger will be required to retain records pertaining to the merger, and Riverside shareholders who hold at least 5% of the outstanding Riverside common stock immediately before the merger will be required to file with their United States federal income tax return for the year in which the merger takes place a statement setting forth certain facts relating to the merger.

 

This summary does not address tax consequences that may vary with, or are contingent on, individual circumstances. Moreover, it does not address any non-income tax or any foreign, state or local tax consequences of the merger. Tax matters are very complicated, and the tax consequences of the merger to you will depend upon the facts of your particular situation. Accordingly, we strongly urge you to consult with a tax advisor to determine the particular federal, state, local and foreign income and other tax consequences to you of the merger.

 

Accounting Treatment

 

The merger will be accounted for using the purchase method of accounting with SAL treated as the acquiror. Under this method of accounting, Riverside’s assets and liabilities will be recorded by SAL at their respective fair values as of the closing date of the merger and added to those of SAL. Any excess of purchase price over the net fair values of Riverside’s assets and liabilities will be recorded as goodwill. Any excess of the fair value of Riverside’s net assets over the purchase price will be recognized in earnings by SAL on the closing date of the merger. Financial statements of SAL issued after the merger will reflect these values, but will not be restated retroactively to reflect the historical financial position or results of operations of Riverside prior to the merger. The results of operations of Riverside will be included in the results of operations of SAL beginning on the effective date of the merger.

 

Regulatory Approvals

 

General

 

SAL and Riverside have agreed to use their reasonable best efforts to obtain all permits, consents, approvals and authorizations of all third parties and governmental authorities that are necessary to consummate the merger. This includes the approval of the CT DOB, the FDIC and the approval or nonobjection of the FRB. SAL and Riverside have filed the applications or waiver requests necessary to obtain these regulatory approvals and nonobjections. SAL and Riverside have also submitted a copy of such regulatory applications to the New York Department of Financial Services (“NYFS”). The merger cannot be completed without such approvals and non-objections. SAL and Riverside cannot assure you that all required regulatory approvals and nonobjections will be obtained, when they will be received or whether they will be subject to any conditions.

 

CT DOB

 

SAL filed an application with the Connecticut Banking Commissioner for approval of the merger of Riverside with and into SBT on May 6, 2014. In reviewing the application, the CT DOB will review and consider, among other things, whether the investment and lending policies of SBT and Riverside, if applicable, and whether the services or proposed services are consistent with safe and sound banking practices and will benefit the economy of the state, and the financial and managerial resources and future prospects of SBT, the effectiveness of the institutions in combatting money laundering, and the effect of the transaction on the convenience and needs of the communities to be served. The Connecticut Banking Commissioner must also determine whether the merger will promote public convenience, whether benefits to the public clearly outweigh possible adverse effects, and whether the terms of the merger are reasonable and in accordance with law and sound public policy. The Connecticut Banking Commissioner also will review the records of SBT and Riverside under the Community Reinvestment Act of 1977 (the “CRA”) to assess whether SBT and Riverside meet the credit needs of the communities to be served.

 

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FDIC

 

The Bank Merger Act requires the prior written approval of the FDIC before any insured depository institution may merge or consolidate with another insured depository institution, if the resulting institution will be a state bank. As a state chartered bank, SAL’s subsidiary, SBT, filed its application for approval of the bank merger with the FDIC on May 6, 2014.

 

The Bank Merger Act prohibits the FDIC from approving any proposed bank merger transaction that would result in a monopoly, or would further a combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the United States. Similarly, the Bank Merger Act prohibits the FDIC from approving a proposed bank merger transaction whose effect in any section of the country may be substantially to lessen competition, or to tend to create a monopoly, or which in any other manner would be in restraint of trade.

 

In every proposed bank merger transaction, the FDIC must also consider the financial and managerial resources and future prospects of the existing and proposed institutions, the convenience and needs of the community to be served (including performance of each bank under the CRA), and the effectiveness of each insured depository institution involved in the proposed bank merger transaction in combating money-laundering activities. Further, the FDIC must consider the extent to which the proposed transaction would result in greater or more concentrated risks to the stability of the United States banking or financial system. Applicable regulations require publication of notice of an application for approval of the bank merger and an opportunity for the public to comment on the application in writing and to request a hearing.

 

Any transaction approved by the FDIC may not be completed until 30 days after such approval. With the concurrence of the DOJ, the waiting period may be reduced to 15 days.

 

FRB

 

Unless the application is waived, the merger is subject to the prior approval of the FRB, which may not approve the merger if:

 

such transaction would result in a monopoly or would be in furtherance of any combination or conspiracy to monopolize or attempt to monopolize the business of banking in any part of the United States; or
the effect of such transaction, in any section of the country, may be to substantially lessen competition, or tend to create a monopoly, or in any manner restrain trade, unless in each case the FRB finds that the anticompetitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the communities to be served.

 

In every case, the FRB is required to consider the financial and managerial resources and future prospects of the companies and banks concerned and the convenience and needs of the communities to be served. Under the CRA, the FRB also must take into account the record of performance of each bank in meeting the credit needs of the entire community, including low and moderate-income neighborhoods. In addition, the FRB must consider the effectiveness of the companies in combating money laundering activities. Further, the FRB must consider the extent to which the proposed transaction would result in greater or more concentrated risks to the stability of the United States banking or financial system. Applicable regulations require publication of notice of an application for approval of the merger and an opportunity for the public to comment on the application in writing and to request a hearing.

 

If a waiver is not granted, and application is thereafter made to the FRB, any transaction approved by the FRB may not be completed until 30 days after such approval, during which time the DOJ may challenge such transaction on antitrust grounds and seek divesture of certain assets and liabilities. With the concurrence of the DOJ, the waiting period may be reduced to 15 days.

 

SAL intends to file a request for a waiver of the required application with the FRB.

 

Dissenters’ Rights of Riverside Shareholders

 

Dissenters’ rights are statutory rights that enable shareholders to dissent from an extraordinary transaction, such as a merger, and to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to shareholders in connection with the merger.

 

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Shareholders of Riverside, but not of SAL, are entitled to exercise their rights as dissenting shareholders under Section 604 of the New York Banking Law, but only if they comply strictly with all procedural and other requirements of Section 604 and Section 6022 of the New York Banking Law, copies of which are attached to this document as Appendix B.

 

The following is intended as a brief summary of the material provisions of the New York statutory procedures that a Riverside shareholder must follow in order to dissent from the merger and obtain payment of the fair value of his or her shares of Riverside common stock instead of the merger consideration. This summary, however, is not a complete statement of all applicable requirements and is qualified in its entirety by reference to Sections 604 and 6022 of the New York Banking Law, the full text of which appears in Appendix B of this joint proxy statement/prospectus.

 

In the event you wish to dissent, you must deliver to Riverside written notice of your intent to demand payment. If you intend to demand payment of the fair value of your shares of Riverside common stock, you must deliver, before the special meeting of shareholders at which the merger is submitted to a vote, or at such meeting but before the vote, a written notice of intent to demand payment for your shares if the proposed merger is completed. This written notice of intent must be separate from the proxy card. A vote against the merger agreement alone will not constitute a written notice of intent to demand payment. Riverside shareholders who elect to exercise dissenters’ rights should mail or deliver a written notice of intent to demand payment to: Riverside Bank, 11 Garden Street, Poughkeepsie, New York 12601, Attention: John M. Davies.

 

In the event you wish to dissent, you must NOT vote for approval of the merger agreement. If you intend to demand payment of the fair value of your shares of Riverside common stock, you must not vote for approval of the merger agreement. If you vote, by proxy or in person, in favor of the merger agreement, this will terminate your right to demand payment for your shares under Section 604 and Section 6022 of the New York Banking Law. You will also terminate your right to demand payment if you submit a signed proxy card and (1) fail to vote against approval of the merger agreement or (2) fail to note that you are abstaining from voting. If you do either of these two things, your dissenters’ rights will terminate, even if you previously filed a written notice of intent to demand payment. However, you will not terminate your right to demand payment if you do not submit a proxy card.

 

In the event you wish to dissent, you must demand payment for your shares of Riverside common stock and deposit certificates for certificated shares. If the merger agreement is approved by Riverside shareholders within ten (10) days after the special meeting, Riverside shall give notice of the approval of the merger by registered mail to each shareholder who filed a written objection excepting any who voted for or consented in writing to the proposed action. Within twenty (20) days thereafter, any shareholder to whom Riverside was required to give such notice, and who elects to dissent shall file with Riverside further written notice of such election to dissent, stating his or her name and residence address, the number and classes of shares as to which he or she dissents, and a demand for payment of the fair value of his or her shares.

 

You must demand payment for your shares of Riverside common stock using the form provided with Riverside’s written dissenters’ notice and, on or within thirty (30) days of such demand, submit the certificates representing your shares to Riverside which shall conspicuously note thereon that a notice of election has been filed and shall return the certificate to the shareholder. If you do not demand payment or deposit your certificates for certificated shares as required by the written dissenters’ notice, and do not submit your stock certificates for notation in each instance in the time period provided above, you will not be entitled to payment for your shares under Sections 604 and 6022 of the New York Banking Law.

 

If you fail to strictly comply with any of the conditions of the New York Banking Law and the merger becomes effective, you will only be entitled to receive the consideration provided in the merger agreement for your shares. If the merger is completed, each holder of shares of Riverside common stock who perfected dissenters’ rights in accordance with Sections 604 and 6022 of the New York Banking Law, shall receive from SAL (as the surviving corporation) within seven (7) days of the consummation of the merger, a written offer to pay for his or her shares at a specified price which SAL considers to be their fair value. Such offer shall be accompanied by SAL’s balance sheet as of the latest available date, which shall not be earlier than twelve (12) months before the making of such offer, and a profit and loss statement for not less than a twelve (12) month period ended on the date of such balance sheet. If within thirty (30) days after the making of such offer, SAL and any shareholder agree upon the price to be paid for such shareholder’s shares, payment therefore shall be made within sixty (60) days after the making of such offer upon the surrender of the certificates representing such shares.

 

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If SAL fails to make such offer within such period of seven days, or if it makes the offer and any dissenting shareholder fails to agree with it within the period of thirty (30) days thereafter upon the price to be paid for their shares:

 

SAL shall, within twenty (20) days after the expiration of whichever is applicable of the two periods last mentioned, institute a special proceeding in the supreme court in the judicial district in which the office of Riverside is located to determine the rights of dissenting shareholders and to fix the fair value of their shares.
If SAL fails to institute such proceeding within such period of twenty (20) days, any dissenting shareholder may institute such proceeding for the same purpose not later than thirty (30) days after the expiration of such twenty (20) day period. If such proceeding is not instituted within such thirty (30) day period, all dissenters’ rights shall be lost unless the supreme court, for good cause shown, shall otherwise direct.

 

If you are considering dissenting and demanding payment of the fair value of your shares, you should note that the fair value of your shares determined under the New York Banking Law could be more than, the same as, or less than the consideration you would receive under the terms of the merger agreement if you did not demand payment of the fair value of your shares. Investment banking opinions as to the fairness from a financial point of view of consideration payable in a transaction such as the merger are not opinions as to, and do not address in any way, fair value under New York Banking Law. If a dissenting shareholder petitions the court to determine the fair value of the shares, the court will assess costs of the proceeding, including reasonable compensation and expenses of appraisers appointed by the court, 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. The court may also assess the fees and expenses of counsel and experts in amounts the court finds equitable against Riverside if the court finds that Riverside did not substantially comply with the requirements of Sections 604 and 6022 of the New York Banking Law, or against either Riverside or the dissenters.

 

If you fail to comply strictly with the procedures described in Sections 604 and 6022 of the New York Banking Law and summarized above, you will lose your dissenters’ rights. Consequently, if you wish to exercise your dissenters’ rights, you are strongly urged to consult with your legal advisor before attempting to do so.

 

Restrictions on Sales of Shares by Certain Affiliates

 

The shares of SAL common stock to be issued in the merger will be freely transferable under the Securities Act, except for shares issued to any shareholder who is an “affiliate” of SAL as defined by Rule 144 under the Securities Act. Affiliates consist of individuals or entities that control, are controlled by, or are under common control with SAL and include the executive officers and directors of SAL and may include significant shareholders of SAL.

 

Stock Exchange Listing

 

Following the merger, the shares of SAL common stock will continue to trade on the NASDAQ Capital Market under the symbol “SAL.”

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THE MERGER AGREEMENT

 

The information in this section is qualified in its entirety by reference to the full text of the merger agreement, a copy of which is attached to this joint proxy statement/prospectus as Appendix A beginning on page A-1 and which is incorporated by reference into this document.

 

Structure

 

Under the merger agreement, Riverside will be merged with and into SBT, with SBT as the surviving entity. Each share of SAL common stock that is issued and outstanding at the effective time of the merger will remain issued and outstanding as one share of common stock of SAL, and each share of Riverside common stock issued and outstanding at the effective time of the merger (other than stock held by Riverside or SAL) will be converted into the right to receive 1.35 shares of SAL common, as described below. See “Consideration to be Received in the Merger.”

 

The articles of incorporation of SBT will be the articles of incorporation of the combined bank, and the bylaws of SBT will be the bylaws of the combined institution.

 

The merger agreement provides that SAL may change the method of effecting the business combination between SBT and Riverside. However, no such change may (A) alter or change the amount of merger consideration to be issued to Riverside shareholders under the merger agreement, (B) reasonably be expected to materially impede or delay consummation of the merger, (C) adversely affect the federal income tax treatment of the Riverside shareholders in connection with the merger, or (D) require submission to or approval by Riverside’s shareholders after such shareholders have approved the plan of merger as set forth in the merger agreement.

 

Effective Time and Timing of Closing

 

SAL and Riverside anticipate that the merger will be completed in the fourth quarter of 2014. However, completion of the merger could be delayed if there is a delay in obtaining the required regulatory approvals or in satisfying any other conditions to the merger. There can be no assurances as to whether, or when, SBT and Riverside will obtain the required approvals or complete the merger.

 

Consideration to be Received in the Merger

 

Upon completion of the merger, each outstanding share of Riverside common stock (other than stock held by Riverside) will be converted into the right to receive 1.35 shares of SAL common stock.

 

No fractional shares of SAL common stock will be issued to any holder of Riverside common stock upon completion of the merger. For each fractional share that would otherwise be issued, SAL will pay each shareholder cash (without interest) in an amount equal to the fractional share interest to which such shareholder would otherwise be entitled multiplied by the average of the daily closing prices of SAL common stock during the regular session of SAL common stock on NASDAQ for the five consecutive trading days ending on the third business day immediately preceding the closing date, rounded to the nearest whole cent.

 

Exchange of Certificates; Dividends

 

On or before the closing date of the merger, SAL will cause to be delivered to the exchange agent certificates representing the shares of SAL common stock to be issued in the merger and cash to be paid in lieu of fractional shares of Riverside common stock.

 

Not later than five (5) Business Days following the effective time of the merger, the exchange agent will mail to each Riverside shareholder of record at the effective time of the merger a letter of transmittal and instructions for use in surrendering the shareholder’s Riverside stock certificates. When such Riverside shareholders deliver their Riverside stock certificates to the exchange agent along with a properly completed and duly executed letter of transmittal and any other required documents, their Riverside stock certificates will be cancelled and in exchange they will receive, as allocated to them:

 

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a SAL stock certificate representing the number of whole shares of SAL common stock that they are entitled to receive under the merger agreement; and
a check representing the amount of cash that they are entitled to receive in lieu of any fractional shares.

 

Riverside shareholders are not entitled to receive any dividends or other distributions on SAL common stock with a record date after the merger until they have surrendered their Riverside stock certificates in exchange for a SAL stock certificate. After the surrender of their Riverside stock certificates, Riverside shareholders of record will be entitled to receive any dividend or other distribution, without interest, which had become payable with respect to their SAL common stock.

 

SAL will issue a stock certificate for SAL common stock or a check for cash in lieu of a fractional share in a name other than the name in which a surrendered Riverside stock certificate is registered only if the exchange agent is presented with all documents required to show and effect the unrecorded transfer of ownership, together with evidence that any applicable stock transfer taxes have been paid.

  

Treatment of Riverside Stock Options

 

At the effective time, each Riverside stock option, whether vested or unvested, that is outstanding and unexercised immediately prior to the effective time shall cease to represent a right to acquire shares of Riverside common stock and shall be, converted automatically into an option to purchase shares of SAL common stock for a number of shares and at an exercise price determined as provided below, with such converted option to continue to be subject to the same terms and conditions as were applicable to the Riverside stock option under the Riverside stock option plan and the applicable award agreement thereunder (but taking into account any acceleration or vesting thereof provided for in the Riverside stock option plan, or in the related award agreement, by reason of the consummation of the transactions contemplated hereby). With regard to the options to purchase 41,000 Riverside shares granted in 2013, options to purchase 21,000 Riverside shares will not be assumed by SAL and will be terminated by Riverside prior to the effective time. The remaining options to purchase 20,000 shares will only be converted to purchase SAL shares to the extent that SAL receives, prior to the effective time, an opinion in writing from Riverside’s legal counsel that such valid 2013 options are enforceable.

 

The number of shares of SAL common stock to be subject to the new option shall be equal to the product of the number of shares of Riverside common stock subject to the Riverside stock option and the exchange ratio; provided, that any fractional shares of SAL common stock resulting from such multiplication shall be rounded down to the nearest whole share, and the exercise price per share of SAL common stock under the new option shall be equal to the exercise price per share of Riverside common stock subject to the Riverside stock option divided by the exchange ratio; provided, that such exercise price shall be rounded up to the nearest whole cent.

 

Representations and Warranties

 

The merger agreement contains representations and warranties made by and to SAL, SBT and Riverside. The statements embodied in those representations and warranties were made for purposes of the contract among SAL, SBT and Riverside and are subject to important qualifications and limitations agreed to by SAL, SBT and Riverside in connection with negotiating its terms. In addition, certain representations and warranties were made as of a specified date, may be subject to contractual standards of materiality different from what may be viewed as material to shareholders, or may have been used for the purpose of allocating risk between SAL, SBT and Riverside rather than establishing matters as facts. For the foregoing reasons, you should not rely on the representations and warranties as statements of fact. Third parties are not entitled to the benefits of the representations and warranties in the merger agreement.

 

Each of SAL, SBT and Riverside has made representations and warranties to the other regarding, among other things:

 

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due organization, good standing and authority;
capitalization;
subsidiaries;
corporate power;
corporate authority;
no violation or breach of certain organizational documents, agreements and governmental orders;
SEC documents and/or financial or regulatory reports;
tax matters;
absence of certain changes or events;
legal proceedings and regulatory action;
compliance with laws;
brokers;
employee benefit matters; 
environmental matters;
risk management instruments;
deposits and deposit insurance;
internal controls;
related party transactions;
CRA, anti-money laundering and customer information security compliance;
issuance of the SAL’s common stock in accordance with the merger agreement;
loans and nonperforming and classified assets;
property and insurance coverage;
fiduciary accounts;
the receipt of the opinion of its financial advisor;
material contracts, leases, and defaults;
labor matters;
intellectual property; and
preparation of this joint proxy statement/prospectus.

 

The representations and warranties of each of SAL, SBT and Riverside will expire upon the effective time of the merger. The representations and warranties in the merger agreement are complicated and not easily summarized. You are urged to carefully read Articles IV and V of the merger agreement attached to this joint proxy statement/prospectus as Appendix A.

 

Conduct of Business Pending the Merger

 

Conduct of Business of Riverside Pending the Merger

 

Under the merger agreement, Riverside has agreed that, until the effective time of the merger or the termination of the merger agreement, Riverside will not, except as expressly permitted by the merger agreement or with the prior written consent of SAL:

 

conduct its business other than in the usual, regular and ordinary course consistent with past practice and consistent with prudent banking practice and in compliance in all material respects with applicable laws and regulations;
fail to use reasonable best efforts to preserve intact its business organization and assets, and maintain its rights and franchises;
change the number of authorized or issued shares of its capital stock, issue any shares of common stock that are held as Treasury Stock as of the date of the merger agreement, or issue or grant any right or agreement relating to its authorized or issued capital stock or any securities convertible into shares of such stock, make any grant or award under the Riverside Stock Option Plan or split, combine or reclassify any shares of capital stock, or declare, set aside or pay any dividend in cash, stock or property or other distribution in respect of capital stock, or redeem stock, except that Riverside may issue shares upon the valid exercise of presently outstanding Riverside Stock Options issues under the Riverside Stock Option Plan;
change or waive any provision of its certificate of incorporation or bylaws, except as required by law;
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enter into, amend in any material respect or terminate any material contract or agreement (including without limitation any settlement agreement with respect to litigation) in excess of $10,000 except as contemplated by the merger agreement;
make application for the opening or closing of any, or open or close any, branch or automated banking facility;
grant or agree to pay any bonus (discretionary or otherwise), severance or termination to, or enter into, renew or amend any employment agreement, severance agreement and/or supplemental executive agreement with, or increase in any manner the compensation or fringe benefits of, any of its directors, officers, employees or consultants, except (i) as may be required pursuant to commitments existing on the date of the merger agreement and disclosed to SAL, (ii) for salary adjustments in the ordinary course of business consistent with past practice provided that any increases to such amounts shall not exceed three percent (3%) in the aggregate, (iii) performance bonuses for calendar year 2014 in accordance with Riverside’s 2014 budget and in such amounts as have been accrued by Riverside up to the effective time; provided, however, that such bonuses shall be prorated by multiplying the amount of the bonus by a fraction, the numerator of which shall be the number of months in 2014 which have occurred prior to the effective time of the merger and the denominator of which shall be twelve (12), or (iv) as otherwise contemplated by the merger agreement. Riverside shall not hire or promote any employee to a rank having a title of vice president or other more senior rank or hire any new employee at an annual rate of compensation in excess of $30,000; provided, however, that Riverside shall not hire any new employee without first seeking to fill any position internally;
enter into or, except as may be required by law or any such plan or agreement or by the terms of the merger agreement and the transactions contemplated therein, modify any pension, retirement, stock option, stock purchase, stock appreciation right, stock grant, savings, profit sharing, deferred compensation, supplemental retirement, consulting, bonus, group insurance or other employee benefit, incentive or welfare contract, plan or arrangement, or any trust agreement related thereto, in respect of any of its directors, officers or employees, or make any contributions to any defined contribution or defined benefit plan not in the ordinary course of business consistent with past practice;
merge or consolidate Riverside with any other person; sell or lease all or any substantial portion of the assets or business of Riverside; make any acquisition of all or any substantial portion of the business or assets of any other person other than in connection with foreclosures, settlements in lieu of foreclosure, troubled loan or debt restructuring, or the collection of any loan or credit arrangement between Riverside or Riverside and any other person; enter into a purchase and assumption transaction with respect to deposits and liabilities; incur deposit liabilities, other than liabilities incurred in the ordinary course of business consistent with past practice and in keeping with prevailing competitive rates; permit the revocation or surrender by Riverside of its certificate of authority to maintain, or file an application for the relocation of, any existing branch office, or file an application for a certificate of authority to establish a new branch office;
sell or otherwise dispose of any asset of Riverside other than in the ordinary course of business consistent with past practice; except for transactions with the FHLB, subject any asset of Riverside to a lien, pledge, security interest or other encumbrance (other than in connection with deposits, repurchase agreements, bankers acceptances, pledges in connection with acceptance of governmental deposits, and transactions in “federal funds” and the satisfaction of legal requirements in the exercise of trust powers) other than in the ordinary course of business consistent with past practice; incur any indebtedness for borrowed money (or guarantee any indebtedness for borrowed money), except in the ordinary course of business consistent with past practice;
change its method, practice or principle of accounting, except as may be required from time to time by GAAP (without regard to any optional early adoption date) or regulatory accounting principles or by any bank regulator responsible for regulating Riverside;
waive, release, grant or transfer any rights of value or modify or change any existing agreement or indebtedness to which Riverside is a party;
purchase any securities except securities: (i) rated “A” or higher by either Standard & Poor’s Ratings Services or Moody’s Investors Services, (ii) purchased in accordance with Riverside’s existing investment policy, (iii) having a face amount in the aggregate of not more than $500,000, (iv) having a duration of not more than three (3) years and (v) otherwise in the ordinary course of business consistent with past practice;
except as specifically provided for in the merger agreement, and except for commitments issued prior to the date of the merger agreement which have not yet expired and which have been disclosed to SAL, and except for the renewal of existing lines of credit, (i) make or acquire any new loan or other credit facility commitment (including without limitation, loan participations, lines of credit and letters of credit) other than in the ordinary course of business consistent with past practice or (ii) make or acquire any new loan or issue any commitment for any new loan with a principal amount of $1,000,000 or more without the prior consent of SAL or SBT; provided that such consent shall be deemed to have been granted if SAL or SBT does not object within three (3) business days of receipt of written notice from Riverside of its intent to make such loan;
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enter into, renew, extend or modify any other transaction (other than a deposit transaction) with any affiliate;
enter into any futures contracts, options, interest rate caps, interest rate floors, interest rate exchange agreements or other agreements or take any other action for purposes of hedging the exposure of its interest-earning assets and interest-bearing liabilities to changes in market rates of interest;
except for the execution of the merger agreement, and actions taken or which will be taken in accordance with the merger agreement and performance thereunder, take any action that would give rise to a right of payment to any individual under any employment agreement;
make any change in policies with regard to: the extension of credit, or the establishment of reserves with respect to the possible loss thereon or the charge off of losses incurred thereon; investments; asset/liability management; or other banking policies except as may be required by changes in applicable law or regulations, GAAP or regulatory accounting principles or by a bank regulator;
except for the execution of the merger agreement, and the transactions contemplated therein and any terminations of employment, take any action that would give rise to an acceleration of the right to payment to any individual under any Riverside benefit plan;
make any capital expenditures in excess of $5,000 individually or $20,000 in the aggregate, other than pursuant to binding commitments existing on the date of the merger agreement;
purchase or otherwise acquire, or sell or otherwise dispose of, any assets or incur any liabilities other than in the ordinary course of business consistent with past practices and policies;
except for existing commitments to sell any participation interest in any loan, sell any participation interest in any loan (other than sales of loans secured by one- to four-family real estate that are consistent with past practice) unless SBT has been given the first opportunity and a reasonable time to purchase any loan participation being sold, or purchase any participation interest in any loan other than purchases of participation interests from SBT; provided, that in the event Riverside proposes to sell any such participation interest, it will provide the chief lending officer of SBT with notice of such intent, including underwriting information for such loan. In the event that SBT has not elected within six (6) business days to purchase such participation interests, Riverside shall be free to sell such participation interest to a third party;
undertake or enter into any lease, contract or other commitment for its account, other than in the ordinary course of providing credit to customers as part of its banking business, involving a payment by Riverside of more than $10,000 annually, or containing any financial commitment extending beyond twelve (12) months from the date of the merger agreement;
pay, discharge, settle or compromise any claim, action, litigation, arbitration or proceeding, other than any such payment, discharge, settlement or compromise in the ordinary course of business consistent with past practice that involves solely money damages in the amount not in excess of $5,000 individually or $20,000 in the aggregate, and that does not create negative precedent for other pending or potential claims, actions, litigation, arbitration or proceedings;
foreclose upon or take a deed or title to any commercial real estate without having a Phase I environmental assessment of the property conducted as of a reasonably current date and, in the event such Phase I environmental assessment of the property indicates the presence of materials of environmental concern, providing notice to SAL thereof prior to final sale;
purchase or sell any mortgage loan servicing rights other than in the ordinary course of business consistent with past practice;
issue any broadly distributed communication of a general nature to employees (including general communications relating to benefits and compensation) without prior consultation with SAL and, to the extent relating to post-closing employment, benefit or compensation information without the prior consent of SAL (which shall not be unreasonably withheld, conditioned or delayed) or issue any broadly distributed communication of a general nature to customers without the prior approval of SAL (which shall not be unreasonably withheld, conditioned or delayed), except as required by law or for communications in the ordinary course of business consistent with past practice that do not relate to the merger or other transactions contemplated hereby;
make, change or rescind any material election concerning taxes or tax returns, file any amended tax return, enter into any closing agreement with respect to taxes, settle or compromise any material tax claim or assessment or surrender any right to claim a refund of taxes or obtain any tax ruling; or
enter into any contract with respect to, or otherwise agree or commit to do, any of the foregoing.

 

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Conduct of Business of SAL Pending the Merger

 

SAL has agreed that, except with the prior written consent of Riverside, it will and will cause SBT to, among other things, to: operate its business only in the usual, regular and ordinary course of business; use reasonable best efforts to preserve intact its business organization and assets and maintain its rights and franchises; and voluntarily take no action which would (i) materially adversely affect the ability of the parties to obtain the regulatory approvals or materially increase the period of time necessary to obtain such approvals; (ii) materially adversely affect its ability to perform its covenants and agreements under the merger agreement; or (iii) result in the representations and warranties contained in Article V of the merger agreement not being true and correct on the date of the merger agreement or at any future date on or prior to the closing date or in any of the conditions set forth in Article IX thereof not being satisfied.

 

Riverside Shareholders’ Meeting

 

Riverside has agreed to call, hold and convene a meeting of its shareholders as promptly as practicable after the registration statement of which this joint proxy statement/prospectus is a part becomes effective, subject to extension with the consent of the other party to consider and vote upon the approval of the merger agreement and any other matter required to be approved by the Riverside shareholders in order to consummate the merger. Riverside has also agreed to ensure that the Riverside shareholders’ meeting is called, noticed, convened, held and conducted, and that all proxies solicited in connection with the meeting are solicited, in compliance with law, Riverside’s articles of association and bylaws and all other applicable legal requirements.

 

Additionally, the board of directors of Riverside has agreed to recommend that Riverside shareholders vote to approve the merger agreement and the transactions contemplated thereby (including the merger) and any other matters required to be approved by their shareholders for consummation of the merger.

 

SAL Shareholders’ Meeting

 

SAL has agreed to call, hold and convene a meeting of its shareholders as promptly as practicable after the registration statement of which this joint proxy statement/prospectus is a part becomes effective, subject to extension with the consent of the other party to consider the amendments to SAL’s certificate of incorporation to authorize additional shares of common stock, and to take such other actions as are contemplated pursuant to the merger agreement.

 

No Solicitation

 

Until the merger is completed or the merger agreement is terminated, Riverside has agreed that it and its officers and directors will not:

 

solicit, initiate or encourage, or take any other action designed to facilitate any inquiries or the making of any proposal to acquire Riverside, whether by merger, consolidation, business combination, tender offer or exchange offer for 25% or more of Riverside’s stock or otherwise;
enter into or participate in any discussions or negotiations regarding any such acquisition proposal; or
make or authorize any statement in support of any such other acquisition proposal.

 

Riverside may, however, furnish information regarding Riverside to, or enter into discussions or negotiations with, any person or entity in response to, or authorize any statement or recommendation in support of an unsolicited acquisition proposal if:

 

Prior to the shareholder vote, Riverside’s board of directors determines in good faith, after consultation with its financial advisers that the acquisition proposal is a superior proposal, and after receiving a written opinion from its outside legal counsel, that such actions would be required in order for Riverside’s directors to comply with their fiduciary obligations under applicable law;
Riverside promptly notifies SAL of such inquiries, proposals or offers, the material terms of such inquiries, proposals or offers and the identity of the person making such inquiry, proposal or offer; and
during the three day period following notification to SAL, Riverside negotiates in good faith with SAL to make adjustments to the merger agreement such that the other acquisition proposal is not reasonably likely to result in a transaction more favorable from a financial point of view to Riverside’s shareholders than the merger with SAL, and such negotiations fail to result in the necessary adjustments to the merger agreement.

 

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Employee Matters

 

After the closing date of the merger, except to the extent SAL continues in effect any Riverside benefit plan providing benefits of a similar type, continuing employees of Riverside will be eligible for the employee benefits that SAL provides to its similarly-situated employees generally and on substantially the same terms and basis as is applicable to such employees. SAL has the right in its sole discretion to terminate, merge or continue any of Riverside’s employee benefit plans, except that SAL will maintain Riverside’s plans (other than stock-based or incentive plans) until the employees of Riverside and Riverside Bank are permitted to participate in comparable SAL plans. To the extent permitted under applicable law and SAL’s benefit plans, each Riverside employee will be given credit with respect to the satisfaction of limitations as to pre-existing condition exclusions, evidence of insurability requirements and waiting periods for participation and coverage equal to the credit that such employee had received as of the effective time of the merger under the comparable Riverside benefit plans.

 

Indemnification and Insurance

 

Indemnification

 

Pursuant to the merger agreement, SAL has agreed that, after the effective date of the merger, it will indemnify, defend and hold harmless, for a period of six years from the effective time of the merger, each present and former officer or director of Riverside against all losses, claims, damages, costs, expenses (including attorneys’ fees), liabilities, judgments and amounts that are paid in settlement of or in connection with any claim, action, suit, proceeding or investigation, based in whole or in part on, or arising in whole or in part out of, the fact that such person is or was a director or officer of Riverside if such action or proceeding pertains to any matter of fact arising, existing or occurring before the closing date of the merger to the fullest extent permitted under SAL’s bylaws.

 

Directors’ and Officers’ Insurance

 

SAL has further agreed to ensure that, for a six-year period following the effective time of the merger, the persons serving as officers and directors of Riverside immediately prior to the effective date continue to be covered by Riverside’s current directors’ and officers’ liability insurance policies, or by a policy which is not materially less advantageous than such policy, or by single premium tail coverage with policy limits equal to Riverside’s existing coverage limits, with respect to acts or omissions occurring prior to the effective date which were committed by such officers and directors in their capacity as such. However, in no event will SAL be required to expend in any one year more than 150% of the current annual cost currently expended by Riverside with respect to such insurance.

 

Voting Agreements

 

Riverside’s directors, executive officers and certain principal shareholders of Riverside who will become directors of SBT and SAL (referred to as “designated nominees”) have entered into voting agreements with SAL. In the voting agreements, each director, executive officer and designated nominee agreed to vote, and granted SAL an irrevocable proxy and power of attorney to vote, all of his or her shares of Riverside common stock:

 

in favor of adoption and approval of the merger agreement and the transactions contemplated by the merger agreement, including the merger; and
against approval of any other agreement providing for a merger, consolidation, sale of assets, or other business combination of Riverside with any person or entity other than SAL.

 

Under the voting agreements, each director, executive officer and designated nominee agreed not to, and not to permit any of their affiliates, to:

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solicit or encourage or initiate any communication with any other person or entity with respect to, any proposal for a merger, consolidation, sale of assets, or other business combination involving Riverside, or for the acquisition of Riverside stock; or encourage any person, firm, corporation, group or other entity to engage in any such action;
solicit proxies or become a participant in a solicitation with respect to another acquisition proposal (other than the merger agreement) or otherwise encourage or assist any party in taking or planning any action that would compete with, restrain or otherwise serve to interfere with or inhibit the timely consummation of the merger in accordance with the terms of the merger agreement;
initiate a shareholders’ vote or action by consent of Riverside’s shareholders with respect to another acquisition proposal; or
except by reason of the voting agreement, become a member of a group with respect to any voting securities of Riverside that takes any action in support of another acquisition proposal.

 

In addition, except under limited circumstances, each director, executive officer and designated nominee also agreed not to sell, assign, transfer or otherwise dispose of or encumber his or her shares of Riverside common stock while the voting agreement is in effect. The voting agreements terminate immediately upon the earlier of the effective time of the merger, the termination of the merger agreement in accordance with its terms, or mutual written agreement of SAL and the director, executive officer, or designated nominee.

 

As of the record date, the directors, executive officers and designated nominees of Riverside and their affiliates collectively owned 303,045 shares of Riverside common stock, or approximately 39.52% of Riverside’s outstanding shares. None of the directors, executive officers or designated nominees were paid any additional consideration in connection with the execution of the voting agreements.

 

Additional Agreements

 

SAL and Riverside have also agreed to use their reasonable best efforts to:

 

take all actions necessary, proper or advisable under the merger agreement and applicable law to consummate the merger as soon as practicable; and
promptly prepare and file all necessary documentation to obtain the consent, approval and authorization of all third parties and governmental entities which are necessary or advisable to consummate the merger.

 

The merger agreement also contains covenants relating to cooperation in the preparation of this joint proxy statement/prospectus and additional agreements relating to, among other things, access to information, notice of certain matters and the listing of SAL common stock on NASDAQ.

 

Conditions to the Merger

 

The respective obligations of SAL and Riverside to complete the merger are subject to various conditions prior to the merger. The conditions include the following:

 

approval of the merger by all applicable federal and state regulatory authorities and the expiration or termination of all applicable waiting periods;
effectiveness of the registration statement filed with the SEC with respect to the common stock to be issued by SAL in accordance with the merger agreement;
the shares of SAL common stock to be issued in the merger being approved for listing on the NASDAQ;
no judgment, order, injunction or decree issued by any court or agency of competent jurisdiction or other legal restraint or prohibition preventing the merger or any of the other transactions contemplated by the merger agreement from taking place is in effect, and no statute, rule, regulation, order, injunction or decree is enacted, entered, promulgated or enforced by any governmental entity which prohibits or makes illegal the consummation of the merger; and
the receipt of legal opinions delivered by tax counsel to SAL and Riverside, respectively, to the effect that the merger will qualify as a reorganization under Section 368(a) of the Code.

 

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The parties may waive conditions to their obligations unless they are legally prohibited from doing so. Shareholder and regulatory approvals may not be legally waived.

 

SAL is not obligated to complete the merger unless the following additional conditions are satisfied or waived:

 

the representations and warranties of Riverside contained in the merger agreement are true and correct in all material respects as of the date of the merger agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the closing date of the merger as though made on and as of the closing date, except where the failure to be so true and correct has not had, and would not reasonably be expected to result in, a material adverse effect on Riverside;
Riverside performs in all material respects all covenants and agreements contained in the merger agreement to be performed by Riverside at or prior to the closing date;
SAL having received a certificate from the chief executive officer of Riverside with respect to compliance with the foregoing conditions;
no required regulatory approval listed in the merger agreement contains any condition, restriction or requirement which the board of directors of SAL reasonably determines in good faith would, individually or in the aggregate, materially reduce the benefits of the merger to such a degree that SAL would not have entered into the merger agreement had such condition, restriction or requirement been known at the date hereof; and
the merger agreement and the merger are approved by the affirmative vote of the holders of at least two-thirds of the outstanding shares of Riverside common stock entitled to vote at the special meeting.

 

Riverside is not obligated to complete the merger unless the following additional conditions are satisfied or waived:

 

the representations and warranties of SAL contained in the merger agreement are true and correct as of the date of the merger agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the closing date of the merger as though made on and as of the closing date, except where the failure to be so true and correct has not had, and would not reasonably be expected to result in, a material adverse effect on SAL;
SAL performs in all material respects all covenants and agreements contained in the merger agreement required to be performed by it at or prior to the closing date;
The shareholders of SAL have approved the amendment to SAL’s certificate of incorporation to increase the authorized number of SAL shares of common stock and to eliminate the minimum and maximum number of directors to provide SAL the ability to increase its number of directors pursuant to the merger agreement and approved the issuance of SAL common stock as consideration in the merger; and
Riverside having received a certificate from the chief executive officer and chief financial officer of SAL with respect to compliance with the foregoing conditions.

 

“Material adverse effect” means, with respect to Riverside, any effect that is material and adverse to the financial position, results of operations or business of Riverside or that would materially impair the ability of Riverside to perform its obligations under the merger agreement or otherwise materially impairs the ability of Riverside to consummate the transactions contemplated by the merger agreement; provided, however, that material adverse effect shall not be deemed to include the impact of:

 

changes in banking and similar laws of general applicability or interpretations thereof by governmental authorities;
changes in GAAP or regulatory accounting requirements applicable to banks generally;
changes in general economic conditions (including interest rates) affecting banks generally or changes or events affecting the financial services industry generally;
changes in the value of Riverside’s securities or loan portfolio, or any change in the value of the deposits or borrowings of Riverside resulting from a change in interest rates generally, or the issuance in and of itself of any order or directive by any bank regulator (although, the underlying facts giving rise to such an issuance or the effects of such issuance may constitute a material adverse effect);
reasonable expenses incurred in connection with the transactions contemplated by the merger agreement; and
the effects of any action or omission taken with the prior consent of SAL or as otherwise expressly permitted or contemplated by the merger agreement.

 

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With respect to SAL, the term “material adverse effect” means any effect that materially impairs the ability of SAL to make payment at the effective time of the aggregate merger consideration or otherwise materially impairs the ability of SAL to consummate the transactions contemplated by the merger agreement.

 

Termination of the Merger Agreement

 

The merger agreement may be terminated prior to the closing, before or after approval by SAL’s or Riverside’s shareholders, as follows:

 

by mutual agreement of SAL and Riverside;
by either party, if any required regulatory approvals for consummation of the merger are not obtained or are denied in a final nonappealable action or are permanently withdrawn at the request of a governmental authority;
by either party, if the shareholders of SAL do not approve the increase in the number of SAL common shares and the issuance of shares as consideration in the merger or if the shareholders of SAL or Riverside do not approve the merger agreement; 
by the non-breaching party, if the other party breaches any covenants, agreements, representations or warranties contained in the merger agreement such that the terminating party would not be obligated to complete the merger and such breach has not been cured within thirty days after notice from the terminating party;
by either party, if the closing of the merger has not occurred on or before December 31, 2014, or such later date as has been agreed upon in writing by SAL and Riverside, and such failure to close is not due to the terminating party’s material breach of any representation, warranty, covenant or other agreement contained in the merger agreement;
by either party, if the other party fails to recommend in the proxy statement that its shareholders approve the transactions contemplated by the merger agreement or withdraws, modifies, or qualified such recommendation in a manner adverse to the other party or resolves to do so;
by SAL, if Riverside fails to recommend against acceptance of a tender offer or exchange offer for outstanding Riverside common stock that has been publicly disclosed within ten (10) business days after commencement of such tender or exchange offer, or if Riverside recommends or endorses an acquisition proposal or fails to issue a press release announcing its opposition to an acquisition proposal within ten (10) business days after an acquisition proposal is publicly announced or if Riverside breaches its obligations not to solicit another acquisition proposal, breaches its obligation to recommend approval of the merger with SAL to Riverside shareholders, recommends, proposes or publicly announces the intention to recommend or propose to engage in an acquisition transaction with any party other than SAL or SBT, or breaches its obligation to convene the meeting of Riverside shareholders to vote upon the merger agreement; or
by Riverside, if Riverside has received a superior proposal and in accordance with Section 6.10 of the merger agreement regarding acquisition proposals has entered into an acquisition agreement with respect to the superior proposal provided Riverside pays SAL the termination fee and termination expenses described below and delivers to SAL a release signed by the parties to the acquisition agreement and any controlling entity of the parties, which irrevocably waives any right the releasing parties may have to challenge the payment to SAL of the termination fee and termination expenses.

 

Termination Fee and Termination Expenses

 

Under the terms of the merger agreement, Riverside must pay SAL a termination fee of $1,200,000 (“Termination Fee”) and actual out-of-pocket expenses incurred by the other party (“Termination Expenses”) in an amount of up to $500,000, if:

 

SAL terminates the merger agreement as a result of Riverside’s board of directors withdrawing, qualifying, modifying its recommendation to its shareholders to vote in favor of the merger agreement or making any statement, filing or release that is inconsistent with the recommendation.

 

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In addition, Riverside must pay SAL the Termination Fee and Termination Expenses if:

 

Riverside enters into an acquisition agreement with respect to a superior proposal prior to receipt of shareholder approval; or
Riverside fails to recommend against acceptance of a tender offer or exchange offer for outstanding Riverside common stock that has been publicly disclosed (other than by SAL or a SAL affiliate) within ten (10) business days after the commencement of such tender or exchange offer; or
Riverside recommends or endorses an acquisition proposal or fails to issue a press release announcing its opposition to such acquisition proposal within ten (10) business days after an acquisition proposal is publicly announced; or
Riverside fails to take all steps necessary to duly call, given notice of convene and hold a special meeting of its shareholders as promptly as is practicable after this registration statement is declared effective by the SEC, for the purpose of considering the merge and merger agreement.

 

Amendment, Waiver and Extension of the Merger Agreement

 

Subject to compliance with applicable law, the merger agreement may be amended by the parties in writing at any time before or after approval of the matters presented in connection with merger by the shareholders of SAL and Riverside, except that after approval of the merger agreement by the shareholders of Riverside, there may not be, without further approval of Riverside shareholders, any amendment of the merger agreement that decreases or increases the amount or value or changes the form of the merger consideration to be delivered to Riverside shareholders.

 

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

 

Expenses

 

Each party will pay all fees and expenses it incurs in connection with the merger agreement and the related transactions, except that SAL and Riverside will share equally any printing costs and SEC filing and registration fees.

 

Specific Performance

 

SAL and Riverside have agreed that they are each entitled to an injunction or other equitable relief to prevent breaches of the merger agreement and to enforce specifically the terms and provisions of the merger agreement, this being in addition to any other remedy to which the parties are entitled at law or in equity.

 

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MARKET PRICES AND DIVIDEND INFORMATION OF SAL AND RIVERSIDE

 

Market Prices

 

SAL common stock is listed on the NASDAQ Capital Market under the symbol “SAL.” The following table shows the high and low sales prices as reported on the NASDAQ Capital Market during the periods indicated, as well as any dividends declared on SAL common stock.

 

                    Dividend