SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PORT FINANCIAL CORP.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[X] No fee required
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[LOGO]
PORT
FINANCIAL
CORP
March 28, 2001
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
of Port Financial Corp., the holding company for Cambridgeport Bank, which
will be held on May 2, 2001 at 9:00 a.m., local time, at Port Financial's
corporate headquarters, located at 1380 Soldiers Field Road, Brighton, MA
02135.
The attached Notice of Annual Meeting and proxy statement describe the
formal business that we will transact at the annual meeting. In addition to
the formal items of business, management will report on the operations and
activities of Port Financial and Cambridgeport Bank and you will have an
opportunity to ask questions.
The Board of Directors of Port Financial has determined that an
affirmative vote on each matter to be considered at the annual meeting is in
the best interests of Port Financial and its shareholders and unanimously
recommends a vote "FOR" each of these matters.
Please complete, sign and return the enclosed proxy card promptly,
whether or not you plan to attend the annual meeting. Your vote is
important regardless of the number of shares you own. Voting by proxy will
not prevent you from voting in person at the annual meeting but will assure
that your vote is counted if you cannot attend.
On behalf of the Board of Directors and the employees of Port
Financial and Cambridgeport Bank, we thank you for your continued support
and look forward to seeing you at the annual meeting.
Sincerely yours,
/s/ James B. Keegan
James B. Keegan
Chairman and Chief Executive Officer
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Date: Wednesday, May 2, 2001
Time: 9:00 a.m., local time
Place: Main Office of Port Financial Corp.
1380 Soldiers Field Road
Brighton, MA 02135
At our 2001 annual meeting, we will ask you to:
1. To elect the following individuals to serve as a director for a term
of office stated next to the individual nominee's name:
Nominees Term to Expire
-------- --------------
Samuel C. Fleming 2004
Robert D. Happ 2004
Jane L. Lundquist 2004
Sandra J. Sucher 2004
2. Approval of Article IX of the Port Financial Corp. 2000 Stock Option
Plan, allowing for, among other things, acceleration of vesting upon
retirement or change in control;
3. Approval of Article X of the Port Financial Corp. 2000 Recognition and
Retention Plan, allowing for, among other things, acceleration of
vesting upon retirement or change in control; and
4. Transact any other business as may properly come before the annual
meeting.
You may vote at the annual meeting if you were a shareholder of Port
Financial at the close of business on March 9, 2001, the record date.
By Order of the Board of Directors,
/s/ James B. Keegan
James B. Keegan
Chairman and Chief Executive Officer
Brighton, Massachusetts
March 28, 2001
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You are cordially invited to attend the annual meeting. It is important
that your shares be represented regardless of the number of shares you own.
The Board of Directors urges you to sign, date and mark the enclosed proxy
card promptly and return it in the enclosed envelope. Returning the proxy
card will not prevent you from voting in person if you attend the annual
meeting.
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GENERAL INFORMATION
GENERAL
Port Financial is a Massachusetts-chartered stock holding company,
which owns all the capital stock of Cambridgeport Bank. In April 2000, Port
Financial converted from a Massachusetts-chartered mutual holding company,
Cambridgeport Mutual Holding Company, to a Massachusetts-chartered stock
holding company and changed its name to Port Financial Corp., and conducted
an initial public offering of its common stock. As used in this proxy
statement, "we", "us" and "our" refer to Port Financial and/or its
subsidiaries, depending on the context. The term "annual meeting," as used
in this proxy statement, includes any adjournment or postponement of such
meeting.
We have sent you this proxy statement and enclosed proxy card because
the Board of Directors is soliciting your proxy to vote at the annual
meeting. This proxy statement summarizes the information you will need to
know to cast an informed vote at the annual meeting. You do not need to
attend the annual meeting to vote your shares. You may simply complete,
sign and return the enclosed proxy card and your votes will be cast for you
at the annual meeting. This process is described below in the section
entitled "Voting Rights."
We began mailing this proxy statement, the Notice of Annual Meeting
and the enclosed proxy card on or about March 28, 2001 to all shareholders
entitled to vote. If you owned common stock of Port Financial at the close
of business on March 9, 2001, the record date, you are entitled to vote at
the annual meeting. On the record date, there were 7,442,818 shares of
common stock outstanding.
QUORUM
A quorum of 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 common stock entitled to vote are represented in person or by proxy at
the annual meeting, a quorum will exist. We will include proxies marked as
abstentions and broker non-votes to determine the number of shares present
at the annual meeting.
VOTING RIGHTS
You are entitled to one vote at the annual meeting for each share of
the common stock of Port Financial that you owned as of record at the close
of business on March 9, 2001. The number of shares you own (and may vote)
is listed at the top of the back of the proxy card.
You may vote your shares at the annual meeting in person or by proxy.
To vote in person, you must attend the annual meeting and obtain and submit
a ballot, which we will provide to you at the annual meeting. To vote by
proxy, you must complete, sign and return the enclosed proxy card. If you
properly complete your proxy card and send it to us in time to vote, your
"proxy" (one of the individuals named on your proxy card) will vote your
shares as you have directed. If you sign the proxy card but do not make
specific choices, your proxy will vote your shares FOR each of the proposals
identified in the Notice of Annual Meeting.
If any other matter is presented, your proxy will vote the shares
represented by all properly executed proxies on such matters as a majority
of the Board of Directors determines. As of the date of this proxy
statement, we know of no other matters that may be presented at the annual
meeting, other than those listed in the Notice of Annual Meeting.
VOTE REQUIRED
Proposal 1: The nominees for director who receive the
Election of most votes will be elected. So, if you do not
Directors vote for a nominee, or you indicate "withhold
authority" for any nominee on your proxy
card, your vote will not count "for" or
"against" the nominee. You may not vote your
shares cumulatively for the election of
directors.
Proposals 2 & 3: Approval of each proposal requires the
Approval of Article IX of affirmative vote of a majority of the
the 2000 Stock Option Plan; outstanding shares of our common stock. So,
and Article X of the 2000 if you "abstain" from voting, it has the same
Recognition and Retention effect as if you voted "against" these
Plan proposals.
EFFECT OF BROKER NON-VOTES
If your broker holds shares that you own in "street name," the broker
may vote your shares on the proposals listed above even if the broker does
not receive instructions from you. If your broker does not vote on a
proposal, this will constitute a "broker non-vote." Here is the effect of a
"broker non-vote."
* Proposal 1: Election of Directors. A broker non-vote would have no
effect on the outcome of this proposal because only a plurality of
votes cast is required to elect a director.
* Proposals 2 & 3: Approval of Article IX of the 2000 Stock Option Plan
and Approval of Article X of the 2000 Recognition and Retention Plan.
A broker non-vote will have the effect of a vote against these
proposals.
CONFIDENTIAL VOTING POLICY
Port Financial maintains a policy of keeping shareholder votes
confidential. We only let our Inspector of Election and certain employees
of our independent tabulating agent examine the voting materials. We will
not disclose your vote to management unless it is necessary to meet legal
requirements. Our independent tabulating agent will, however, forward any
written comments that you may have to management.
REVOKING YOUR PROXY
You may revoke your grant of proxy at any time before it is voted by:
* filing a written revocation of the proxy with our Clerk;
* submitting a signed proxy card bearing a later date;
* attending and voting in person at the annual meeting, but you also
must file a written revocation with the clerk of the annual meeting
prior to the voting.
If your shares are not registered in your own name, you will need
appropriate documentation from your shareholder of record to vote personally
at the annual meeting. Examples of such documentation include a broker's
statement, letter or other document that will confirm your ownership of
shares of Port Financial.
SOLICITATION OF PROXIES
Port Financial will pay the costs of soliciting proxies from its
shareholders. Directors, officers or employees of Port Financial and
Cambridgeport Bank may solicit proxies by mail, telephone and other forms of
communication.
We will also reimburse banks, brokers, nominees and other fiduciaries
for the expenses they incur in forwarding the proxy materials to you.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Our directors, officers and employees have been granted stock options
and restricted stock awards under the Port Financial Corp. 2000 Stock Option
Plan and the Port Financial Corp. 2000 Recognition and Retention Plan,
respectively. Currently, the vesting of stock options and restricted stock
awards may be accelerated only upon the death or disability of the
participant. In certain cases, the stock options and restricted stock
awards will be permitted to vest upon the retirement of such person or a
change in control, as defined in the plans, of Port Financial if the
amendments being presented for approval in Proposals 2 and 3 are approved by
shareholders. As a result, certain of our directors, officers and employees
have a personal interest in the outcome of the vote on Proposals 2 and 3.
OBTAINING AN ANNUAL REPORT ON FORM 10-K
If you would like a copy of our Annual Report on Form 10-K and audited
financials for the year ended December 31, 2000, which will be filed with
the Securities and Exchange Commission ("SEC"), we will send you one
(without exhibits) free of charge. Please write to:
Jane L. Lundquist, Clerk
Port Financial Corp.
1380 Brighton Road
Brighton, Massachusetts 02135
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS OF PORT FINANCIAL
The following table sets forth, as of March 9, 2001, certain
information as to common stock beneficially owned by persons owning in
excess of 5% of the outstanding shares of our common stock. We know of no
person, except as listed below, who beneficially owned more than 5% of the
outstanding shares of our common stock as of March 9, 2001. Except as
otherwise indicated, the information provided in the following table was
obtained from filings with the Securities and Exchange Commission and with
Port Financial pursuant to the Securities Exchange Act of 1934, as amended
and on information presented to management. Addresses provided are those
listed in the filings as the address of the person authorized to receive
notices and communications. For purposes of the table below, in accordance
with Rule 13d-3 under the Securities Exchange Act of 1934, as amended, a
person is deemed to be the beneficial owner, for purposes of any shares of
common stock: (1) over which he or she has or shares, directly or
indirectly, voting or investment power; or (2) of which he or she has the
right to acquire beneficial ownership at any time within 60 days after March
9, 2001. As used in this proxy statement, "voting power" is the power to
vote or direct the voting of shares and "investment power" includes the
power to dispose or direct the disposition of shares.
Amount and
Nature of
Name and Address of Beneficial
Title of Class Beneficial Owner Ownership Percent
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Common Stock, The Baupost Group, L.L.C.
$.01 par value 44 Brattle Street, 5th Floor
Cambridge, Massachusetts 02138 710,000(1) 9.5%
Common Stock, Port Financial Corp. Employee Stock
$.01 par value Ownership Plan Trust
HSBC Bank USA
140 Broadway
New York, New York 10005 595,425(2) 7.9%
Common Stock, Wallace R. Weitz & Company, and
$.01 par value Wallace R. Weitz
1125 South 103rd Street, Suite 600
Omaha, Nebraska 68124-6008 545,000(3) 7.3%
Common Stock, Wellington Management Company, LLP
$.01 par value 75 State Street
Boston, Massachusetts 02109 841,000(4) 11.2%
<FN>
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<F1> As reported by The Baupost Group, LLC in a Schedule 13G/A dated
February 14, 2001, which reported sole voting power and sole
investment power with respect to 710,000 shares as of December 31,
2000.
<F2> The Port Financial Corp. Employee Stock Ownership Plan ("ESOP") is
administered by the ESOP committee of Port Financial (the "ESOP
Committee"). The ESOP's assets are held in a trust (the "ESOP Trust"),
for which HSBC Bank USA, serves as trustee (the "ESOP Trustee"). The
ESOP Trust purchased these shares with funds borrowed from Port
Financial, initially placed these shares in a suspense account for
future allocation to be allocated to employees participating in the
ESOP over a period of years as its acquisition debt is retired. The
ESOP Trustee is the beneficial owner of the shares held in the ESOP
Trust. The terms of the ESOP Trust Agreement provide that, subject to
the ESOP Trustee's fiduciary responsibilities under the Employee
Retirement Income Security Act of 1974, as amended, the ESOP Trustee
will vote, tender or exchange shares of common stock held in the ESOP
Trust in accordance with instructions received from the participants.
As of March 9, 2001, 19,848 shares held by the ESOP Trust have been
released for allocation. The ESOP Trustee will vote allocated shares
as to which no instructions are received and any shares that have not
been allocated to participants' accounts in the same proportion as
allocated shares with respect to which the ESOP trustee receives
instructions are voted. The ESOP Trustee will tender or exchange any
shares in the suspense account or that otherwise have not been
allocated to participants' accounts in the same proportion as
allocated shares with respect to which the ESOP Trustee receives
instructions are tendered or exchanged, but otherwise has no
disposition power. As a result, the ESOP has sole voting power over
575,577 shares and disposition power over 595,425 shares.
<F3> As reported by Wallace R. Weitz & Company and Mr. Wallace R. Weitz, as
President and Sole Owner of Wallace R. Weitz & Company in a Schedule
13G/A dated June 20, 2000. Wallace R. Weitz & Company reported sole
voting and investment power with respect to 545,000 shares and shared
voting and investment power with respect to 545,000 shares. Mr. Weitz
reported shared voting and investment power with respect to 545,000
shares.
<F4> Based on information reported by Wellington Management Company, LLP in
a Schedule 13G/A dated February 13, 2001, which reported sharing
voting power with respect to 214,800 shares and shared investment
power with respect to 1,034,600 shares as of December 31, 2000 and
subsequent information presented to the management of Port Financial
Corp. The shares beneficially owned by Wellington Management Company,
LLP include shares beneficially owned by First Financial Fund, Inc. as
reported in a Schedule 13G/A dated February 12, 2001 which reported
sole voting power with respect to 715,800 shares investment power with
respect to 715,800 shares as December 31, 2000.
</FN>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information about the shares of common
stock beneficially owned by each director of Port Financial, by each named
executive officer of Port Financial identified in the Summary Compensation
Table included elsewhere in this proxy statement, and all directors and
executive officers of Port Financial or Port Financial's wholly owned
subsidiary, Cambridgeport Bank, as a group as of March 9, 2001. Except as
otherwise indicated, each person and each group shown in the table has sole
voting and investment power with respect to the shares of common stock
indicated.
Percent of
Amount and Nature Common Stock,
Position with of Beneficial $.01 par value
Name Port Financial Ownership(1)(2) Outstanding
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James B. Keegan Chairman of the Board 95,000(3) *
and Chief Executive
Officer
Jane L. Lundquist Director, President and 51,295(4) *
Clerk
Charles Jeffrey Senior Vice President, 26,000(5) *
Treasurer and Chief
Financial Officer
Paul R. Corcoran, Jr. Director 15,885 *
Daniel C. Crane, Esq. Director 17,445 *
Samuel C. Fleming Director 12,445 *
William Goldberg, Esq. Director 24,885 *
Thomas H. Niles Director 20,580 *
Robert D. Happ Director 27,445 *
Joseph F. O'Connor Director 17,445 *
Rudolph R. Russo Director 24,885 *
Sandra J. Sucher Director 2,060 *
Lawrence Weber Director 3,360 *
All directors and
executive officers as a
group (13 persons)(6) 934,155 12.55%
======= =====
<FN>
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* Less than one percent
<F1> See "Security Ownership of Certain Beneficial Owners and Management --
Principal Shareholders of Port Financial" for a definition of
"beneficial ownership."
<F2> Includes restricted stock awards of 83,735 shares made to outside
directors under the Port Financial Corp. 2000 Recognition and
Retention Plan. Under the plan, Mr. Keegan, Ms. Lundquist and Mr.
Jeffrey were also granted restricted stock awards of 70,000, 38,000
and 15,000 shares of common stock, respectively. Each recipient of a
restricted share award has sole voting power but no investment power,
except in limited circumstances, over the common stock covered by the
award. The restricted stock awards will vest at the rate of 20% per
year on each January 23rd following the date of grant, with the first
installment to vest on January 23, 2002.
<F3> Includes 14,700 shares held in Mr. Keegan's 401(k) plan.
<F4> Includes 400 shares held by Ms. Lundquist as custodian for her minor
children under the Uniform Transfer to Minors Act, and 2,395 shares
held in Ms. Lundquist's 401(k) Plan.
<F5> Amount reflects shares held in Mr. Jeffrey's individual retirement
account.
<F6> The amount of shares for all directors and executive officers as a
group includes 595,425 shares held by the ESOP Trust that have not
been allocated to eligible participants as of December 31, 2000, over
which the ESOP Committee (consisting of Messrs. Keegan, Jeffrey,
Robert Montgomery-Rice and Ms. Lundquist) may be deemed to have sole
investment power, except in limited circumstances, thereby causing
each committee member to be a beneficial owner of such shares. Each
of the members of the ESOP Committee disclaims beneficial ownership of
such shares and accordingly, such shares are not attributed to the
members of the ESOP Committee individually. As of March 9, 2001, no
shares of Port Financial's common stock have been allocated to
participants pursuant to Port Financial's Employee Stock Ownership
Plan.
</FN>
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PROPOSAL 1
ELECTION OF DIRECTORS
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General
Nominees Term to Expire
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Samuel C. Fleming 2004
Robert D. Happ 2004
Jane L. Lundquist 2004
Sandra J. Sucher 2004
All four nominees are currently serving on Port Financial's Board of
Directors. If you elect all the nominees listed above, they will hold
office until the annual meeting in 2004 or until their successors have been
elected and qualified.
We know of no reason why any nominee may be unable to serve as a
director. If any nominee is unable to serve, your proxy may vote for
another nominee proposed by the Board. If for any reason these nominees
prove unable or unwilling to stand for election, the Board will nominate
alternates or reduce the size of the Board of Directors to eliminate the
vacancy. The Board has no reason to believe that its nominees would prove
unable to serve if elected.
============================================================================
The Board of Directors unanimously recommends a vote "For" all of the
nominees for election as directors.
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Nominees and Continuing Directors
Term Position(s) Held with Director
Nominees Age(1) Expires Port Financial Since(2)
- -------------------------------------------------------------------------------------
Samuel C. Fleming 60 2001 Director 1993
Robert D. Happ 60 2001 Director 1997
Jane L. Lundquist 47 2001 Director, President 1999
and Clerk
Sandra J. Sucher 53 2001 Director 2000
Continuing Directors
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Paul R. Corcoran, Jr. 68 2002 Director 1972
William Goldberg, Esq. 71 2002 Director 1977
Joseph F. O'Connor 71 2002 Director 1979
Lawrence Weber 45 2002 Director 2000
Daniel C. Crane, Esq. 50 2003 Director 1986
James B. Keegan 59 2003 Chairman and Chief 1983
Executive Officer
Rudolph R. Russo 73 2003 Director 1977
Thomas H. Niles 60 2003 Director 2000
<FN>
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<F1> At December 31, 2000.
<F2> Includes terms served on the Board of Trustees of Cambridgeport Bank.
</FN>
Biographical Information
The principal occupation and business experience of each nominee for
election as director and each continuing director are set forth below.
Nominees
Samuel C. Fleming has been the Board Chairman and Chief Executive
Officer of Decision Resources, Inc., an international health care research
and consulting company since 1990. From 1967 to 1990, Mr. Fleming held
various positions at Arthur D. Little, Inc., most recently as Senior Vice
President, Member of the Corporate Management Committee and Chairman of
Arthur D. Little Decision Resources, which he founded in the mid-1970s. Mr.
Fleming received a B.Ch.E. from Cornell University and an M.B.A. from
Harvard Business School. He also serves as a director of CareGroup, Inc.
and as a Trustee of Cornell University and the Standish Ayer & Wood
Investment Trust.
Robert D. Happ retired in 1994 from his position as Regional Managing
Partner of the firm formerly known as KPMG Peat Marwick, a position he had
held since 1985. He had also served as a director of NetOptix Corp. until
its acquisition by Corning, Inc. in April of 2000.
Jane L. Lundquist has been the President and Clerk of Port Financial
since 2000 and the Executive Vice President of Cambridgeport Bank since
1996. Prior to holding these positions, she served as the Senior Vice
President from 1987 to 1996. As Executive Vice President, she is the senior
officer responsible for consumer banking, including mortgage lending,
consumer lending, branch banking and telebanking. She also oversees the
management of Human Resources, Marketing, Community Relations and Auditing
(administrative reporting only). Prior to Port Financial and Cambridgeport
Bank, Ms. Lundquist worked at Braxton Associates, a strategic management
consulting firm, and at Arthur Andersen LLP. Ms. Lundquist holds a business
degree from the University of North Carolina and an MBA from the University
of Virginia.
Sandra J. Sucher is a professor with the Harvard Business School's
Technology and Operations Management department, a position she has held
since 1998. Prior to that, she worked at Fidelity Investments as Vice
President of Corporate Quality; Vice President of Retail Service Quality and
Planning; and Vice President of Human Resources. Ms. Sucher also served in
fashion retailing at Filene's for over 10 years in various capacities,
including Vice President of Customer Service. Before that, she served as a
director of Education and Research for The Sanctuary, Inc., a non-profit
drug treatment, education, and research facility.
Continuing Directors
Paul R. Corcoran, Jr. is the owner and the President of The Harvard
Shop, Inc., a retail specialty store which sells college insignia
merchandise. He has held the office of Clerk of Cambridgeport Bank since
1990.
William Goldberg, Esq. has been an attorney with the Goldberg Law
Office in Cambridge, Massachusetts since 1954.
Joseph F. O'Connor is a Consultant to the Charles Stark Draper
Laboratory, Inc., a nonprofit research company and Secretary of that
corporation. He retired as Vice-President of Administration in 1994. He
also serves as Chairman of the Board of the Delta Dental Corporation of
Massachusetts, Inc., a nonprofit dental insurance company.
Lawrence Weber has provided counsel to a variety of clients in
applying technology to the practice of public relations for over 20 years.
He is currently Chairman and Chief Executive Officer of Allied
Communications Group, a division of the Interpublic Group of Companies,
Inc., a marketing communications holding company. Mr. Weber has held this
position since 1987, when his company, The Weber Group, a technology public
relation firm, was purchased by The Interpublic Group of Companies, Inc. He
also serves on the board of several organizations, including the
Massachusetts Interactive Media Council where he is a founding member and
Chairman of the Board, the Museum of Science in Boston, the Council on
Competitiveness, and the Technology Review, a Massachusetts Institute of
Technology magazine. Mr. Weber also serves on the Board of several Internet
start-up companies.
Daniel C. Crane, Esq. has served as Chief Bar Counsel for the Board of
Bar Overseers of the Supreme Judicial Court of Massachusetts since
September, 1999. Prior to this position, he was an attorney in private
practice for over 20 years with the firm Finn & Crane. He has served on the
boards of directors of a number of charitable and professional
organizations, including service as President of the Massachusetts Bar
Association.
James B. Keegan has served as the Chairman of the Board and Chief
Executive Officer of Port Financial since 2000 and President and Chief
Executive Officer of Cambridgeport Bank since 1984. Prior to holding these
positions, he was the Executive Vice President of Cambridgeport Bank for one
year. Before joining Cambridgeport Bank, Mr. Keegan held positions in
various financial institutions, including Rochester Savings Bank, First
Pennsylvania Bank and New England Merchants National Bank. Mr. Keegan
earned his undergraduate degree from Harvard College and his MBA from the
Harvard Business School.
Thomas H. Niles is a director and President of T.H. Niles Real Estate
Group, Inc., positions he has held since 1998. Prior to that, for over 33
years, he served as the owner, a director and the President of The Niles
Company, a commercial real estate services firm based in Boston,
Massachusetts, which was sold in 1996.
Rudolph R. Russo has 50 years of experience in all phases of real
estate including brokering, appraising, investing, developing and
consulting. He also served as Chairman of the Board of Assessors for the
City of Cambridge from 1969 to 1982. He has been involved with
Cambridgeport Bank since 1977.
Executive Officers Who are Not Directors
Charles Jeffrey, age 53, has served as Senior Vice President, Chief
Financial Officer and Treasurer of Port Financial since April of 2000 and
with Cambridgeport Bank, since July of 1998. From 1994 to 1997, he served as
President of the Massachusetts Division of Albank, FSB located in Ludlow,
Massachusetts. His background also includes 15 years at Bank of America
where he held positions in commercial lending, operations, and finance.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND MANAGEMENT
Meetings and Committees of the Board of Directors
Port Financial's Board of Directors currently consists of twelve
members. The Board of Directors oversees our business and monitors the
performance of our management. In accordance with our corporate governance
procedures, the Board of Directors does not involve itself in the day-to-day
operations of Port Financial. Port Financial's executive officers and
management oversee our day-to-day operations. Our directors fulfill their
duties and responsibilities by attending regular meetings of the board which
are held on a monthly basis. Our directors also discuss business and other
matters with the Chairman, other key executives, and our principal external
advisers (legal counsel, auditors, financial advisors and other
consultants).
The Board of Directors held 14 regular meetings and two special
meetings during the fiscal year ended December 31, 2000. Each incumbent
director attended at least 75% of the meetings of the Board of Directors,
plus meetings of committees on which that particular director served during
this period.
Committees of the Board
The Board of Directors of Port Financial have established the
following committees:
EXECUTIVE The Executive Committee exercises the powers of the
COMMITTEE Board of Directors between board meetings.
Directors Keegan, Corcoran, Fleming, Goldberg, Lundquist and
Russo currently serve as members of the committee. Mr.
Keegan is the Chairman of the committee. The Executive
Committee met six times in the 2000 fiscal year.
COMPENSATION The Compensation Committee provides advice and
COMMITTEE recommendation to the Board of Directors in the areas of
employee salaries and benefit programs.
Directors Corcoran, Fleming, Happ, Keegan, Lundquist, and
O'Connor currently serve on the committee. Mr. Corcoran is
the Chairman of the committee. The Compensation Committee
met eight times in the 2000 fiscal year. The non-employee
members of the Compensation Committee administer our 2000
Stock Option Plan and the 2000 Recognition and Retention
Plan.
CREDIT The Credit Committee establishes Cambridgeport Bank's credit
COMMITTEE polices and is responsible for review, ratification, and/or
approval of loans, mortgages and commercial loans, that
exceed certain threshold amounts. The credit committee also
approves all loans which do not comply with policy
guidelines. Directors Keegan, Lundquist, Niles and Russo
currently serve on the committee. Mr. Keegan is the
Chairman of the committee. The Credit Committee met 48
times in the 2000 fiscal year.
NOMINATING The Nominating Committee recommends nominees for election as
COMMITTEE directors and reviews if any shareholder nominations comply
with the notice procedures set forth in Port Financial's
Bylaws. Port Financial's Bylaws set forth a procedure for
shareholders to nominate directors by notifying the Clerk of
Port Financial in writing and meeting other requirements set
forth in the Bylaws.
Directors Crane, Fleming and Keegan currently serve on the
committee. Mr. Crane is the Chairman of the committee. The
Nominating Committee met once in January, 2001 to select the
nominees for election as directors at the annual meeting.
AUDIT The Audit Committee reviews the annual audit prepared by
COMMITTEE the independent accountants, recommends the appointment of
accountants and review the work of the internal auditors.
The Audit Committee consists of Messrs. Crane, Happ and
O'Connor, with Mr. Crane serving as Chair. The Audit
Committee met four times during 2000.
AUDIT COMMITTEE REPORT
The following Audit Committee Report is provided in accordance with
the rules and regulations of the Securities and Exchange Commission (the
"SEC"). Pursuant to such rules and regulations, this report shall not be
deemed "soliciting materials," filed with the SEC, subject to Regulation 14A
or 14C of the SEC or subject to the liabilities of section 18 of the
Securities Exchange Act of 1934, as amended.
During 2000, the Audit Committee of Port Financial's Board held four
formal meetings. It also met periodically throughout the year to discuss
matters consistent with its duties. The Audit Committee's membership was
compromised of Directors Crane, Happ and O'Connor, with Mr. Crane serving as
Chairman.
Each member of Port Financial's Audit Committee is independent as
defined under the National Association of Securities Dealers' listing
standards. Port Financial's Audit Committee operates under a written
charter approved by the Board, a copy of which is attached as Appendix A to
this proxy statement.
Port Financial's Audit Committee assists the Board by overseeing the
audit coverage and monitoring the accounting, financial reporting, data
processing, regulatory, and internal control environments. The primary
duties and responsibilities of Port Financial's Audit Committee are to: (1)
serve as an independent and objective party to monitor Port Financial's
financial reporting process and internal control systems; (2) review and
appraise the audit efforts of Port Financial's independent auditors and
internal audit department; (3) evaluate Port Financial's quarterly financial
performance, as well as its compliance with laws and regulations; (4)
oversee management's establishment and enforcement of financial policies;
and (5) provide an open avenue of communication among the independent
auditors, financial and senior management, the internal audit department,
and the Board.
Port Financial's Audit Committee has reviewed and discussed the
audited financial statements of Port Financial for the fiscal year ended
December 31, 2000 with Port Financial's management and Arthur Andersen LLP,
Port Financial's independent auditors. Port Financial's Audit Committee has
discussed the matters required by Statement on Auditing Standards No. 61
(Communication with Audit Committee) with Arthur Andersen LLP.
During the fiscal year ended December 31, 2000 Port Financial
retained and paid Arthur Andersen LLP to provide audit and other services as
follows:
Audit Fees $132,500
All Other Fees $209,279
Port Financial's Audit Committee has also received the written
disclosures and the letter from Arthur Andersen LLP required by Independence
Standards Board Standard No. 1 (entitled "Independence Discussions with
Audit Committees"), has discussed the independence of Arthur Andersen LLP
and considered whether the provision of non-audit services by Arthur
Andersen LLP is compatible with maintaining the auditor's independence.
Based on the review and discussions noted above, Port Financial's
Audit Committee has recommended to the Board that Port Financial's audited
financial statements be included in Port Financial's Annual Report on Form
10-K for the fiscal year ended December 31, 2000 for filing with the SEC. A
representative of Arthur Andersen LLP is expected to be present at the
Annual Meeting to respond to appropriate questions and will have the
opportunity to make a statement if she or he so desires. Port Financial's
Audit Committee also recommended the reappointment, subject to shareholder
approval, of the independent auditors, and the Board concurred in such
recommendation.
Audit Committee of Port Financial Corp.
Daniel C. Crane, Esq. (Chairman)
Robert D. Happ
Joseph F. O'Connor
Directors' Compensation
Meetings and Fees. Currently, each non-employee director of Port
Financial receives an annual retainer of $5,000 for serving on the board of
directors of Port Financial Corp.; and $500 for each board meeting or
committee meeting attended. Port Financial paid fees totaling $61,344 to
its non-employee directors for the year ended December 31, 2000.
Directors receive additional compensation for serving on the board of
directors of Cambridgeport Bank. Only one board or committee meeting fee is
paid to a director for any joint meeting of the boards of Port Financial and
Cambridgeport Bank or any joint meeting of any committees of the boards.
Directors' Emeritus Consultation Plan. Directors of Port Financial
Corp. who retire from service on the board of Port Financial Corp. within
four years from the conversion may elect to participate in the Directors'
Emeritus Consultation Plan by agreeing to provide consulting services to
Port Financial Corp. for a period of 12 to 36 months. A retiring director
who elects to provide consulting services will receive a fee of $1,000 per
month and will be designated as a director emeritus. A director emeritus
will provide agreed upon consulting services and may attend meetings of the
board of Port Financial Corp., but will have no power or right to vote at
such meetings.
EXECUTIVE COMPENSATION
The report of Port Financial's Compensation Committee and performance
graph included in this section are provided in accordance with the rules and
regulations of the SEC. Pursuant to such rules and regulations, the report
and the graph are not to be deemed "soliciting materials," filed with the
SEC, subject to Regulation 14A or 14C of the SEC or subject to the
liabilities of Section 18 of the 1934 Securities Exchange Act of 1934, as
amended.
Compensation Committee Report on Executive Compensation
The Compensation Committee is responsible for administering the
compensation and benefits programs for Cambridgeport Bank's President and
Chief Executive Officer and Port Financial's Chairman and Chief Executive
Officer and all other executive officers. Compensation of the President and
Chief Executive Officer of Cambridgeport Bank and Chairman and Chief
Executive Officer of Port Financial and other executive officers for the
fiscal year ended 2000 was paid by Cambridgeport Bank and Port Financial,
respectively and determined by both Boards of Directors upon the
recommendation of the Compensation Committee for Cambridgeport Bank and Port
Financial.
The committee reviews the compensation and benefits programs for all
executive officers on an annual basis. Recommendations and rationale of Mr.
Keegan's and Ms. Lundquist's positions with Cambridgeport Bank and Port
Financial, respectively, are taken into consideration during such review.
Mr. Keegan and Ms. Lundquist do not participate in the Committee's decisions
regarding their own compensation review and recommendation. The non-
employee members of the Compensation Committee serve on the Administrative
Committee of the Compensation Committee. The Administrative Committee
administers the 2000 Stock Option Plan and the 2000 Recognition and
Retention Plan.
The committee strives to provide a compensation program that assures
both the motivation and retention of the executive officers, proper
alignment with the financial interests of Port Financial's stockholders, and
competitiveness with the external marketplace. To this end, Port Financial
and Cambridgeport Bank have retained a nationally recognized compensation
consulting firm to assist with the review and recommendation process. In
order to determine competitive practices regarding compensation, a group of
companies with similar size and business mix to that of Cambridgeport Bank
and Port Financial was compiled. The committee reviewed the compensation
practices of the peer group in order to develop recommendations for
Cambridgeport Bank's and Port Financial's executive officers.
Port Financial's and Cambridgeport Bank's compensation program for
executive officers consists of: base salary, annual bonuses and long-term
incentive awards. These elements are intended to provide an overall
compensation package that is commensurate with Port Financial's and
Cambridgeport Bank's financial resources, that is appropriate to assure that
retention of experienced management personnel, and align their financial
interests with those of Port Financial's shareholders.
Base Salaries
- -------------
Salary levels recommended by the committee are intended to be
competitive with salary levels of the companies in Cambridgeport Bank's and
Port Financial's peer groups, commensurate with the executive officers'
respective duties and responsibilities, and reflect the financial
performance of Cambridgeport Bank and Port Financial.
Stock Options
- -------------
Port Financial has implemented the 2000 Stock Option Plan under which
the executive officers and directors may be eligible to receive awards. The
Compensation Committee has determined stock option grants based on the
financial performance achieved by Cambridgeport Bank, and the level of long-
term incentive awards made by the companies in the peer group. As of the
fiscal year ended December 31, 2000, 658,750 options were granted to the
eligible employees or directors.
Recognition and Retention Plan
- ------------------------------
Port Financial has implemented the 2000 Recognition and Retention Plan
under which the executive officers and directors are eligible to receive
restricted stock awards. The Compensation Committee has determined
restricted share awards based on the financial performance achieved by
Cambridgeport Bank, and the level of long-term incentive awards made by the
companies in the peer group. On October 18, 2000, 282,735 awards were
granted to directors, officers and employees.
Chief Executive Officer
- -----------------------
The Compensation Committee recognizes the significant additional
efforts required of the Chairman and Chief Executive Officer in bringing
about Cambridgeport Bank's successful stock conversion and Port Financial's
initial public offering.
Based on the foregoing criteria discussed above, for fiscal year ended
December 31, 2000, Mr. Keegan's base salary was $375,000 and he was awarded
a bonus of $105,000. He was also eligible to participate in the 2000 Stock
Option Plan and the 2000 Recognition and Retention Plan. During fiscal
2000, Mr. Keegan was awarded 139,000 options under the 2000 Stock Option
Plan and 70,000 shares under the 2000 Recognition and Retention Plan.
Compensation Committee of Port Financial Corp.
Paul R. Corcoran (Chairman)
Samuel C. Fleming
Robert D. Happ
James B. Keegan
Jane L. Lundquist
Joseph F. O'Connor
Compensation Committee Interlocks and Insider Participation.
During the fiscal year ended December 31, 2000, the Compensation
Committee consisted of Directors Corcoran, Fleming, Happ, Keegan, Lundquist
and O'Connor with Mr. Corcoran serving as Chairman. Mr. Keegan and Ms.
Lundquist are executive officers of Port Financial. During fiscal 2000,
there were no interlocks between members of the compensation committee or
executive officers of Port Financial and corporations with respect to which
such persons are affiliated.
Performance Graph.
The following graph compares Port Financial's total cumulative
shareholder return by an investor who invested $100.00 on April 11, 2000,
the date following Port Financial's initial public offering, to December 31,
2000, to the total return by an investor who invested $100.00 in each of the
Russell 2000 Index and the Nasdaq Bank Index for the same period.
4/11/00 12/31/00
----------------------
Port Financial Corp. $100.00 $176.88
Nasdaq Bank 100.00 126.41
Russell 2000 100.00 90.56
SUMMARY COMPENSATION TABLE
The following table provides information about the compensation paid
during the fiscal year ended December 31, 2000 to the Chief Executive
Officer of Port Financial and Cambridgeport Bank and to the other most
highly compensated executive officers of Port Financial and Cambridgeport
Bank whose annual salary and bonus for 2000 was at least $100,000. We refer
to these individuals as "named executive officers" in this proxy statement.
Summary Compensation Table
Long Term Compensation
---------------------------------------------
Annual Compensation Awards Payouts
---------------------------------- -------------------- ----------------------
Other Restricted
Annual Stock LTIP All Other
Name and Principal Compensation Awards Options Payouts Compensation
Positions with Port Financial Year Salary($) Bonus($) ($)(a) ($)(b) (#)(c) ($) ($)(d)
- ------------------------------------------------------------------------------------------------------------------------------
James B. Keegan,
Chairman of the Board and Chief
Executive Officer 2000 375,000 105,000 -- 1,111,250 139,000 -- 105,472
1999 331,602 120,000 -- -- -- -- 8,520
Jane L. Lundquist,
Director, President and Clerk 2000 220,000 62,000 -- 603,250 80,000 -- 21,844
1999 216,009 90,000 -- -- -- -- 6,940
Charles Jeffrey,
Senior Vice President, Chief
Financial Officer and
Treasurer 2000 150,000 42,500 -- 238,125 44,000 -- 21,241
1999 139,669 40,000 -- -- -- -- 2,130
<FN>
- --------------------
(a) We provide our executive officers with non-cash benefits and
perquisites, such as the use of employer-owned or leased automobiles.
We believe that the aggregate value of these benefits for 2000 did
not, in the case of any executive officer, exceed $50,000 or 10% of
the aggregate salary and annual bonus reported for him or her in the
Summary Compensation Table.
(b) Pursuant to the 2000 Recognition and Retention Plan, Mr. Keegan, Ms.
Lundquist and Mr. Jeffrey were granted 70,000, 38,000 and 15,000
shares of restricted stock, respectively, effective October 18, 2000.
These awards vest in 20% increments on January 23rd of each year. The
first installment will vest on January 23, 2002. Dividends
attributed to such awards are distributed to participants from the
custodial account holding shares under the the Recognition and
Retention Plan. The dollar amount shown is based on the fair market
value of a share of common stock on October 18, 2000, which was
$15.875 per share. Accelerated vesting occurs in the case of death or
disability, or if stockholders approve Proposal 3 (see "Proposal 3 --
Approval of Article X of the Port Financial Corp. 2000 Recognition and
Retention Plan), retirement or a change in control. A portion of the
restricted stock and option awards made to Mr. Keegan and Ms.
Lundquist were made in complete substitution for performance units
previously granted under the Port Financial long-term incentive plan.
(c) Represents shares of common stock as to which the named individual has
the right to acquire beneficial ownership pursuant to the exercise of
stock options. Such options were granted on October 18, 2000 pursuant
to the Port Financial Corp. 2000 Stock Option Plan, and vest in 20%
increments on January 20th of each year. The first installment will
vest on January 20, 2002. A portion of the restricted stock and
option awards made to Mr. Keegan and Ms. Lundquist were made in
complete substitution for performance units previously granted under
the Port Financial long-term incentive plan.
(d) Includes the following components: (1) employer matching
contributions to the Cambridgeport Bank 401(k) plan during 2000 and
1999, respectively: Mr. Keegan, $5,100 and $3,754; Ms. Lundquist,
$5,100 and $2,400; and Mr. Jeffrey, $5,100 and $882; (2) the premium
cost for life insurance coverage provided by Cambridgeport Bank during
2000 and 1999, respectively: Mr. Keegan, $3,045 and $4,766; Ms.
Lundquist, $847 and $2,488; and Mr. Jeffrey, $1,589 and $1,248; (3)
payments made to the ESOP Restoration Plan during 2000: Mr. Keegan,
$82,249, Ms. Lundquist, $9,479, and Mr. Jeffrey, $13,887; and (4)
contributions made by Cambridgeport Bank to a supplemental benefit
plan during 2000: Mr. Keegan, $15,078; Ms. Lundquist, $6,418; and Mr.
Jeffrey, $665.
</FN>
EMPLOYMENT AGREEMENTS
Port Financial and Cambridgeport Bank jointly entered into employment
agreements with Mr. Keegan to secure his services as President and Chief
Executive Officer of Cambridgeport Bank and Chairman and Chief Executive
Officer of Port Financial, Ms. Lundquist to secure her services as Executive
Vice President of Cambridgeport Bank and President of Port Financial and Mr.
Jeffrey to secure his services as Chief Financial Officer of Port Financial
and Cambridgeport Bank. For purposes of Port Financial's obligations, the
employment agreements have rolling three-year terms that began on November
1, 1999 in the case of
Mr. Keegan and Ms. Lundquist and a rolling two-year term beginning on
November 1, 2000 in the case of Mr. Jeffrey, which by decision of the
executive or joint decision of Port Financial and Cambridgeport Bank may be
converted to a fixed three-year term in the case of Mr. Keegan and Ms.
Lundquist or a fixed two-year term in the case of Mr. Jeffrey. For purposes
of Cambridgeport Bank's obligations, the employment agreements have fixed
terms of three years which began on November 1, 1999 for Mr. Keegan and Ms.
Lundquist and a fixed term of two years beginning on November 1, 2000 for
Mr. Jeffrey and may be renewed annually after a review of the executive's
performance. These agreements provide for minimum annual salaries of
$375,000, and $220,000 and $150,000, respectively, discretionary cash
bonuses, and participation on generally applicable terms and conditions in
other compensation and fringe benefit plans. They also guarantee customary
corporate indemnification and errors and omissions insurance coverage
throughout the employment term and for six years after termination.
Port Financial and Cambridgeport Bank may terminate each executive's
employment, and each executive may resign, at any time with or without
cause. However, in the event of termination during the term without cause,
Port Financial and Cambridgeport Bank will owe the executive severance
benefits generally equal to the value of the cash compensation and fringe
benefits that the executive would have received if he or she had continued
working for an additional three years in the case of Mr. Keegan and Ms.
Lundquist and an additional two years in the case of Mr. Jeffrey. The same
severance benefits would be payable if the executive resigns during the term
following: a loss of title, office or membership on the board of directors;
material reduction in duties, functions or responsibilities; involuntary
relocation of the executive's principal place of employment to a location
over 25 miles in distance from Cambridgeport Bank's principal office and
over 25 miles from the executive's principal residence; or other material
breach of contract by Port Financial or Cambridgeport Bank which is not
cured within 30 days. For 60 days after a change in control, each executive
may resign for any reason and collect severance benefits as if he or she had
been discharged without cause. The employment agreements also provide
uninsured death and disability benefits.
If Port Financial or Cambridgeport Bank experiences a change in
ownership, a change in effective ownership or control or a change in the
ownership of a substantial portion of their assets as contemplated by
section 280G of the Internal Revenue Code, a portion of any severance
payments under the employment agreements might constitute an "excess
parachute payment" under current federal tax laws. Federal tax laws impose
a 20% excise tax, payable by the executive, on excess parachute payments.
Under the employment agreements, Cambridgeport Bank and Port Financial would
reimburse the executive for the amount of this excise tax and would make an
additional gross-up payment so that, after payment of the excise tax and all
income and excise taxes imposed on the reimbursement and gross-up payments,
the executive will retain approximately the same net-after tax amounts under
the employment agreement that he or she would have retained if there were no
20% excise tax. The effect of this provision is that Cambridgeport Bank and
Port Financial, rather than the executive, bears the financial cost of the
excise tax. Neither Port Financial nor Cambridgeport Bank could claim a
federal income tax deduction for an excess parachute payment, excise tax
reimbursement payment or gross-up payment.
BENEFIT PLANS
Pension Plans. Mr. Keegan and Ms. Lundquist also are entitled to
retirement benefits under the Cambridgeport Bank 1999 Nonqualified Pension
Plan. Under this plan, each executive is entitled to a monthly retirement
benefit equal to the greater of 25% of his or her highest monthly salary or
75% of his or her highest monthly salary, reduced by his or her monthly
retirement benefit under the SBERA Pension Plan and his or her monthly
social security benefit. Under the plan, the executive's highest monthly
salary is equal to the executive's average annual base salary for the three
calendar years out of the five calendar years prior to retirement in which
the executive's base salary is the highest, divided by twelve.
Until October 31, 2000, we maintained a tax-qualified defined benefit
pension for substantially all of our salaried employees. In connection with
a restructuring of our benefit programs following our initial public
offering, we froze benefits under this plan and terminated it as of October
31, 2000. At October 31, 2000, the annual accrued benefits of Mr. Keegan,
Ms. Lundquist and Mr. Jeffrey, expressed in the form of a single life
annuity payable at age 65, were $48,624, $40,944 and $5,472, respectively.
These benefits are not subject to an offset for Social Security benefits or
any other benefit offset. When the plan's termination is complete, each
participant, including our executive officers, will have the right to
receive a commercial annuity contract to provide for the future payment of
their benefits or an immediate lump sum payment in lieu of future benefits.
The amount if any lump sum payment that may be made to Mr. Keegan, Ms.
Lundquist or Mr. Jeffrey will depend on prevailing interest rates and
mortality tables at the time of payment.
401(k) Plan. Cambridgeport Bank has adopted the SBERA 401(k) Plan, a
tax-qualified defined contribution plan, for substantially all employees of
Cambridgeport Bank who have attained age 21 and completed at least one year
of service. Eligible employees may contribute from 1% to 15% of annual
compensation to the plan on a pre-tax basis each year, subject to
limitations of the Internal Revenue Code. For 2000, the limit was $10,500.
In 2000, Cambridgeport Bank made a matching contribution to the plan equal
to 100% of the first three percent of a participant's annual compensation
contributed to the plan on a pre-tax basis. This plan has an individual
account for each participant's contributions and allows each participant to
direct the investment of his or her account. One permitted investment is
Port Financial's common stock.
Officers' Deferred Compensation Plan. Cambridgeport Bank also
maintains the Cambridgeport Bank Officers' Deferred Compensation Plan, a
non-qualified plan, in order to provide restorative payments to executives
whose employer matching contributions under the 401(k) Plan are limited by
legal limitations applicable to tax-qualified plans. The Officers' Deferred
Compensation Plan also offers eligible executives the opportunity to defer
the receipt of a portion of their income in a manner that defers the
taxation of such income.
Employee Stock Ownership Plan. This plan is a tax-qualified plan that
covers substantially all employees who have at least one year of service and
have attained age 21. The plan has purchased 595,425 shares as of December
31, 2000.
Port Financial has committed to lend this plan enough money to
purchase 595,425 shares. Although contributions to this plan will be
discretionary, Cambridgeport Bank intends to contribute enough money each
year to make the required principal and interest payments on the loan from
Port Financial. The loan is for a term of 30 years and calls for level
annual payments of principal and interest. The plan has pledged the shares
it purchases as collateral for the loan and holds them in a suspense
account.
As of December 31, 2000, the plan has allocated 19,848 shares to
participant accounts. The plan will allocate the shares released each year
among the accounts of participants in proportion to their compensation for
the year. For example, if a participant's compensation for a year
represents 1% of the total compensation of all participants for the year,
the plan would allocate to that participant 1% of the shares released for
the year. Participants direct the voting of shares allocated to their
accounts. Shares in the suspense account will usually be voted in a way
that mirrors the votes which participants cast for shares in their
individual accounts. This plan may purchase additional shares in the
future, and may do so using borrowed funds, cash dividends, periodic
employer contributions or other cash flow.
ESOP Restoration Plan. Port Financial has also established the ESOP
Restoration Plan of Port Financial in order to provide payments to
executives who are prevented from receiving the full benefits contemplated
by the Employee Stock Ownership Plan benefit formula. The payments consist
of payments in lieu of shares that cannot be allocated to participants under
the Employee Stock Ownership Plan due to the legal limitations imposed on
tax-qualified plans and, in the case of participants who retire before the
repayment in full of the Employee Stock Ownership Plan loan, payments in
lieu of the shares that would have been allocated if employment had
continued through the full term of the loan.
2000 Stock Option Plan. The 2000 Port Financial Stock Option Plan was
adopted by our Board of Directors and approved by our shareholders at a
special meeting held on October 18, 2000. Article IX of the 2000 Port
Financial Stock Option Plan to allow for acceleration of vesting upon
retirement of the option holder or a change in control of Port Financial,
terms that are defined in the plans, is subject to the approval of our
shareholders at this annual meeting. For information on this proposal,
please see "Proposal 2."
The following table summarizes the grants of options that were made to
the named executive officers pursuant to the 2000 Stock Option Plan during
fiscal 2000. The 2000 Stock Option Plan does not provide for the grant of
stock appreciation rights.
Option/SAR Grants in Fiscal Year 2000 (1)
Individual Grants
Potential Realizable Value
At Assumed Annual Rates
Securities Percent of of Stock Price
Underlying Options/SARs Appreciation for Option
Options/SARs Granted to Employees Exercise or Base Term
Granted in Fiscal Year Price Expiration --------------------------
Name (#) (%) ($ Per Share) Date 5% ($) 10% ($)
- ----------------------------------------------------------------------------------------------------------------------
James B. Keegan 139,000 30.4 15.875 10/18/10 1,387,734 3,516,791
Jane L. Lundquist 80,000 17.5 15.875 10/18/10 798,696 2,024,052
Charles Jeffrey 44,000 9.6 15.875 10/18/10 439,283 1,113,229
<FN>
- --------------------
<F1> All options were granted on October 18, 2000, the date of shareholder
approval of the 2000 Stock Option Plan and vest at the rate of 20% per
year beginning on January 20, 2002, with accelerated vesting in the
case of death or disability, or if, shareholders approve Proposal 2
(see "Proposal 2 -- Approval of Article IX of the Port Financial Corp.
2000 Stock Option Plan), retirement of the option holder or change in
control of Port Financial while in the service of Port Financial or
Cambridgeport Bank.
</FN>
The following table provides the value for "in-the-money" options,
which represent the positive spread between the exercise price of any such
existing stock options and the closing price per share of the common stock
on December 29, 2000, the last trading day of the 2000 fiscal year, which
was $17.689 per share. The first installment of options will become
exercisable on January 20, 2002.
2000 Fiscal Year End Option/SAR Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Value Options/SARs at Fiscal Options/SARs at Fiscal
Acquired on Realized on Year-end Year-end
Exercise Exercise (#) ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable (2)
- ---------------------------------------------------------------------------------------------------------
James B. Keegan N/A N/A 0/139,000 0/251,590
Jane L. Lundquist N/A N/A 0/80,000 0/144,800
Charles Jeffrey N/A N/A 0/44,000 0/79,640
<FN>
- -------------------
<F1> All options were granted on October 18, 2000, and will vest at the
rate of 20% per year beginning on January 20, 2002.
<F2> The closing price per share of common stock on December 29, 2000, the
last trading day before the fiscal year ended December 31, 2000, was
$17.689, and all options have an exercise price of $15.875 per share,
which equals a spread of $1.81 per share.
</FN>
2000 Recognition and Retention Plan. The 2000 Port Financial
Recognition and Retention Plan was adopted by our Board of Directors and
approved by our shareholders at a special meeting held on October 18, 2000.
Article X of the 2000 Port Financial Recognition and Retention Plan to
allow for acceleration of vesting upon retirement or change in control of
Port Financial, terms which are defined in the plans, is subject to the
approval of our shareholders at this annual meeting. For more information on
this proposal, please see "Proposal 3."
LIMITATIONS ON FEDERAL TAX DEDUCTIONS FOR EXECUTIVE OFFICER COMPENSATION
As a private entity, Cambridgeport Bank had been subject to federal
tax rules which permitted it to claim a federal income tax deduction for a
reasonable allowance for salaries or other compensation for personal
services actually rendered. Because Cambridgeport Bank is now a subsidiary
of a public company, federal tax laws may limit this deduction in future
years to $1.0 million each tax year for each executive officer named in the
summary compensation table in Port Financial's proxy statement for that
year. This limit will not apply to non-taxable compensation under various
broad-based retirement and fringe benefit plans, to compensation that is
"qualified performance-based compensation" under applicable law or to
compensation that is paid in satisfaction of commitments that arose before
the conversion. Port Financial and Cambridgeport Bank expect that the
compensation committee will take this deduction limitation into account with
other relevant factors in establishing future compensation levels of their
executive officers and in setting the terms of compensation programs.
Currently, none of our executives officers receive annual compensation
expected to exceed this limit. However, there is no assurance that all
compensation paid to our executive officers will be deductible for federal
income tax purposes. To the extent that compensation paid to any executive
officer is not deductible, the net after-tax cost of providing the
compensation will be higher and the net after-tax earnings of Port Financial
and Cambridgeport Bank will be reduced.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
Cambridgeport Bank does not make loans to its executive officers or
employees. However, Cambridgeport Bank does make loans to its non-employee
directors. These loans bear interest at the same rate as loans offered to
non-director borrowers and have the same underwriting terms that apply to
non-director borrowers. The outstanding principal balance of such loans to
directors totaled $100,736, or 0.07%, of Port Financial's total equity at
December 31, 2000.
Pursuant to a lease agreement, Cambridgeport Bank leases office space
for one of its branch offices from 1280 Massachusetts Avenue LP, a retail
and office property, which is 40 percent owned by THN Cambridge LP. This
entity is 90.845% beneficially owned by Mr. Thomas H. Niles, a director of
Port Financial and Cambridgeport Bank. During the fiscal year ended
December 31, 2000, Cambridgeport Bank paid $168,567 to 1280 Massachusetts
Avenue LP under the leasing agreement.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires Port Financial's directors and executive officers, and persons who
own more than 10% of Port Financial's common stock, to report to the SEC
their initial ownership of Port Financial's common stock and any subsequent
changes in that ownership. Specific due dates for these reports have been
established by the SEC and Port Financial is required to disclose in this
proxy statement any late filings or failures to file.
Based solely on its review of the copies of such reports furnished to
Port Financial and written representations that no other reports were
required during the fiscal year ended December 31, 2000, all Section 16(a)
filing requirements applicable to Port Financial's executive officers and
directors during fiscal 2000 were met except that Mr. Weber inadvertently
failed to timely file a Form 5 to reflect stock options granted to him
during the 2000 fiscal year. Mr. Weber reported this award on a Form 5 with
the SEC on February 16, 2001.
- ----------------------------------------------------------------------------
PROPOSAL 2
APPROVAL OF ARTICLE IX OF THE
PORT FINANCIAL CORP. 2000 STOCK OPTION PLAN
- ----------------------------------------------------------------------------
General Plan Information
The shareholders of Port Financial approved the Port Financial Corp.
2000 Stock Option Plan, and the plan became effective on October 18, 2000.
The purpose of the 2000 Stock Option Plan is to enable Port Financial to
grant certain officers, employees and outside directors a right, known as an
option, to purchase shares of the common stock of Port Financial at a stated
price during a specified period or term. If the option is not exercised
during its term, it will expire. The 2000 Stock Option Plan is not an
employee pension or welfare benefit plan. As a result, the 2000 Stock
Option Plan is not subject to the Employee Retirement Income Security Act of
1974, as amended.
Pursuant to regulations of the Massachusetts Division of Banks
applicable management stock benefit plans established or implemented by a
savings bank or its holding company within one year following the completion
of a mutual to stock conversion, the 2000 Stock Option Plan contains certain
restrictions and limitations, including among others, provisions requiring
the vesting of options granted to occur no more rapidly than 20% per year
beginning on the first anniversary of the date the stock option plan is
approved by shareholders, with accelerated vesting only in cases of death or
disability of an option holder.
In accordance with the regulations of the Massachusetts Division of
Banks, Article IX of the 2000 Stock Option Plan, which was included in the
2000 Stock Option Plan as approved by shareholders on October 18, 2000, but
by its terms will become effective only if approved by the shareholders of
Port Financial again at a meeting held after April 11, 2001, eliminates such
restrictions and limitations. Article IX does not increase the number of
shares reserved for issuance under the 2000 Stock Option Plan, decrease the
price per share at which options were granted under the 2000 Stock Option
Plan or alter the classes of individuals eligible to participate in the 2000
Stock Option Plan. In the event that Article IX is not approved by the
shareholders at the annual meeting, Article IX will not take effect, but the
2000 Stock Option Plan will remain in effect.
The principal provisions of the 2000 Stock Option Plan, including the
provisions set forth in Article IX, are summarized below. The full text of
Article IX of the 2000 Stock Option Plan is set forth as Appendix B to this
proxy statement and the summary of Article IX provided below is qualified in
its entirety by such reference.
Purpose of the 2000 Stock Option Plan
The 2000 Stock Option Plan is a long-term incentive compensation plan.
Its purpose is to promote the growth and profitability of Port Financial by
providing its key officers, employees and directors with an "equity stake"
in Port Financial that will encourage them to achieve corporate goals and
increase the value of Port Financial and its subsidiaries. The 2000 Stock
Option Plan will also assist Port Financial in attracting and retaining
officers, employees and directors of outstanding caliber and experience
through future grants to be made from the 2000 Stock Option Plan's share
reserve.
Description of the 2000 Stock Option Plan
Administration. A committee of outside directors administers this
plan. Its members are the members of the compensation committee of our
Board of Directors who are "disinterested directors" under the federal tax
and securities laws. In general, disinterested directors are directors who
(1) are not, and never were, executive officers or employees of Port
Financial or Cambridgeport Bank; and (2) do not receive material
compensation from Port Financial or Cambridgeport Bank except for service as
a director. The administrative committee must have at least two members and
has broad discretionary powers.
Stock Subject to the 2000 Stock Option Plan. Port Financial has
reserved 744,282 shares of common stock of Port Financial for issuance upon
the exercise of options under the plan. Such shares may be authorized and
unissued shares or shares previously issued that Port Financial has
reacquired. Any shares subject to grants under the option plan which expire
or are terminated, forfeited or canceled without having been exercised or
vested in full, shall be available for new option grants. As of December
31, 2000, the aggregate fair market value of the shares reserved for
issuance under the plan was $13,164,488 based on the latest closing sales
price per share of common stock of $17.6875 on The Nasdaq Stock Market on
December 29, 2000, the last trading day during the fiscal year ended
December 31, 2000.
Eligibility. An administrative committee of Port Financial selects the
people who receive stock option grants. Any employee of Port Financial,
Cambridgeport Bank or any affiliate approved by the Board of Directors may
be selected to receive options. As of December 31, 2000, 74 employees have
been selected by the committee as eligible to receive option grants, and 10
directors of Port Financial, Cambridgeport Bank or any affiliate approved by
the Board of Directors who are not also employees or officers were selected
by the committee to receive option grants.
Terms and Conditions of Options Granted to Officers and Employees. The
administrative committee sets the terms and conditions of the stock options
that it grants. In setting terms and conditions, it must observe the
following restrictions:
* It may not grant options to purchase more than 186,070 shares to
any one employee. In addition, it may not grant options to
purchase more than 37,214 shares to any one non-employee
director or options to purchase more than 223,284 shares of our
common stock to all outside directors in the aggregate.
* It may not grant a stock option with a purchase price that is
less than the fair market value of a share of our common stock
on the date it grants the stock option.
* It may not grant a stock option with a term that is longer than
ten years.
* Unless we obtain stockholder approval for Article IX, it may not
grant options that become exercisable more rapidly than at the
rate of 20% per year measured from the date we receive
shareholder approval for the plan, with acceleration permitted
only in case of death or disability.
The committee may grant incentive stock options that qualify for
special federal income tax treatment or non-qualified stock options that do
not qualify for special federal income tax treatment. Incentive stock
options are subject to certain additional restrictions under the Internal
Revenue Code and the plan.
Upon the exercise of an option, the exercise price of the option must
be paid in full. Payment may be made in cash, common stock of Port
Financial already owned by the option holder, shares to be acquired by the
option holder upon exercise of the option, or in such other consideration as
the administrative committee authorizes. Options may be transferred prior
to exercise only to certain family members, certain non-profit
organizations, and on the death of the option holder.
Mergers and Reorganizations; Adjustments for Stock Dividends. The
number of shares available under the plan, the maximum limits on option
grants to individual officers and directors and to non-employee directors in
the aggregate, and the number of shares subject to outstanding options will
be adjusted to reflect any merger, consolidation or business reorganization
in which Port Financial is the surviving entity, and to reflect any stock
split, stock dividend or other event generally affecting the number of
shares. If a merger, consolidation or other business reorganization occurs
and Port Financial is not the surviving entity, outstanding options may be
canceled upon 30 days' written notice to the option holder so long as the
option holder receives payment determined by Port Financial's Board of
Directors to be of a value equivalent to the value of the canceled options.
Termination or Amendment of the 2000 Stock Option Plan. The 2000 Stock
Option Plan is in effect for a ten-year period that began October 18, 2000,
the date of shareholder approval, and will end on the tenth anniversary of
this date. The Board of Directors may suspend or terminate the plan before
then. It may also amend this plan at any time and in any respect. Any
amendment that would change the class of eligible employees, increase the
number of stock options that may be granted to any person or in total, or
reduce the minimum option price must first be approved by our shareholders.
Purpose of Article IX of the 2000 Stock Option Plan
Currently, the 2000 Stock Option Plan requires that options granted
become exercisable no more rapidly than 20% per year beginning on the first
anniversary date of shareholder approval, with accelerated vesting only upon
death or disability of the option holder. Adoption of Article IX would
permit accelerated vesting upon a change in control of Port Financial or the
retirement of the option holder, as such terms are defined in the 2000 Stock
Option Plan. Pursuant to Article IX, all options that are outstanding as of
the date of a change in control of Port Financial, and as of the date of an
option holder's retirement may automatically become fully vested and
exercisable.
The provisions of Article IX will not be applicable, and will be of no
force or effect, unless and until the shareholders of Port Financial have
approved such provisions by an affirmative vote of the holders of a majority
of the shares represented in person or by proxy and entitled to vote at a
meeting of shareholders duly called and held after April 11, 2001.
Federal Income Tax Consequences
The following discussion is intended to be a summary and is not a
comprehensive description of the federal tax laws, regulations and policies
affecting Port Financial and recipients of stock option grants under the
plan. Any descriptions of the provisions of any law, regulation or policy
are qualified in their entirety by reference to the particular law,
regulation or policy. Any change in applicable law or regulation or in the
policies of various taxing authorities may have a significant effect on this
summary. The plan is not a qualified plan under Section 401(a) of the
Internal Revenue Code.
Federal Tax Consequences for Option Recipients. Incentive stock
options will not create federal income tax consequences when they are
granted. If they are exercised during employment or within three months
after termination of employment, the exercise will not result in income that
may increase taxable income, but will create an item of adjustment that may
affect liability for alternative minimum tax. When the shares acquired on
exercise of an incentive stock option are sold, the seller must pay federal
income taxes on the amount by which the sales price exceeds the purchase
price. This amount will be taxed at capital gains rates if the sale occurs
at least two years after the option was granted and at least one year after
the option was exercised. Otherwise, it is taxed as ordinary income.
Incentive stock options that are exercised more than one year after
termination of employment due to death or disability or three months after
termination of employment for other reasons are treated as non-qualified
stock options. Non-qualified stock options will not create federal income
tax consequences when they are granted. When they are exercised, federal
income taxes at ordinary income tax rates must be paid on the amount by
which the fair market value of the shares acquired by exercising the option
exceeds the exercise price. When an option holder sells shares acquired by
exercising non-qualified stock option, he or she must pay federal income
taxes on the amount by which the sales price exceeds the purchase price plus
the amount included in ordinary income at option exercise. This amount will
be taxed at capital gains rates, which will vary depending upon the time
that has elapsed since the exercise of the option. A cash payment under the
plan's change of control provisions is taxed as if it were the exercise of a
non-qualified stock option followed immediately by a resale of the stock
acquired by exercising the option.
Federal Tax Consequences for Port Financial. When a non-qualified
stock option is exercised, Port Financial may be allowed a federal income
tax deduction for the same amount that the option holder includes in his or
her ordinary income. When an incentive stock option is exercised, there is
no tax deduction unless the shares acquired are resold sooner than two years
after the option was granted or one year after the option was exercised. A
cash payment under the plan's change of control provisions is deductible as
if it were the exercise of a non-qualified stock option. The Internal
Revenue Code places an annual limit of $1.0 million each on the tax
deduction which we may claim in any fiscal year for the compensation of our
Chief Executive Officer and for the compensation of our four next most
highly compensated executive officers whose salary and bonus for the fiscal
year in question equals or exceeds $100,000. There is an exception to this
limit for so-called "qualified performance-based compensation." We have
designed this plan with the intention that the stock options that we grant
will constitute qualified performance-based compensation. As a result, we
do not believe that this limit will impair our ability to claim federal
income tax deductions that are otherwise available when an option holder
exercises a non-qualified stock option.
The preceding statements summarize the general principles of current
federal income tax law applicable to options that may be granted under the
plan. State and local tax consequences may also be significant.
============================================================================
The Board of Directors unanimously recommends a vote "For" the approval of
Article IX of the Port Financial Corp. 2000 Stock Option Plan.
============================================================================
- ----------------------------------------------------------------------------
PROPOSAL 3
APPROVAL OF ARTICLE X OF THE
PORT FINANCIAL CORP. 2000 RECOGNITION AND RETENTION PLAN
- ----------------------------------------------------------------------------
General Plan Information
The shareholders of Port Financial approved the 2000 Recognition and
Retention Plan, and the plan became effective on October 18, 2000. The 2000
Recognition and Retention Plan allows Port Financial to grant restricted
stock awards to certain officers, employees and outside directors. A
"restricted stock award" constitutes a right to receive a certain number of
shares of common stock upon the award holder's satisfaction of certain
requirements. As a general rule, if the award holder fails to fulfill the
requirements contained in the restricted stock award, the award will not
vest. Instead, the award will be forfeited and canceled. The 2000
Recognition and Retention Plan, like the 2000 Stock Option Plan, is not
subject to Employee Retirement Income Security Act of 1974, as amended, and
is not a tax-qualified plan under the Internal Revenue Code.
Pursuant to regulations of the Massachusetts Division of Banks
applicable to stock plans established or implemented within one year
following the completion of a mutual to stock form of organization, the 2000
Recognition and Retention Plan contains certain restrictions and
limitations, including among others, provisions requiring the vesting of
awards granted to occur no more rapidly 20% per year beginning on the first
anniversary of the date the 2000 Recognition and Retention Plan was approved
by shareholders, with accelerated vesting only in the case of death or
disability of an award holder.
In accordance with regulations of the Massachusetts Division of Banks,
Article X of the 2000 Recognition and Recognition Plan, which was included
in the 2000 Recognition and Retention Plan as approved by the shareholders
on October 18, 2000, but by its terms will become effective only if approved
by the shareholders of Port Financial again at a meeting held after April
11, 2001, eliminates such restrictions and limitations. Article X does not
increase the number of shares reserved for issuance under 2000 Recognition
and Retention Plan, decrease the price per share at which the Awards were
granted under the 2000 Recognition and Retention Plan or alter the classes
of individuals eligible to participate in the 2000 Recognition and Retention
Plan. In the event that Article X is not approved by the shareholders at
the annual meeting, Article X will not take effect, but 2000 Recognition and
Retention Plan will remain in effect.
The principal provisions of Article X are summarized below. The full
text of Article X is set forth in Appendix C to this proxy statement, to
which reference is made, and the summary of Article X provided below is
qualified in its entirety by such reference.
Purpose of the 2000 Recognition and Retention Plan
The 2000 Recognition and Retention Plan is also a long-term incentive
compensation plan. Its purpose is to promote the growth and profitability
of Port Financial by providing key personnel and directors with an incentive
to achieve corporate objectives. Awards granted under the 2000 Recognition
and Retention Plan are also used to attract and retain individuals of
outstanding competence and to provide such individuals with an equity
interest in Port Financial. The 2000 Recognition and Retention Plan will
also assist Port Financial in attracting and retaining top-notch officers,
employees and directors through future awards to be made from the 2000
Recognition and Retention Plan's share reserve.
Description of the 2000 Recognition and Retention Plan
Administration. A committee of outside directors administers this
plan. This committee consists of members of the compensation committee of
our Board of Directors who are "disinterested directors" under the federal
tax and securities laws. In general, disinterested directors are directors
who (1) are not, and never were, officers or employees of Port Financial or
Cambridgeport Bank; and (2) do not receive material compensation from Port
Financial or Cambridgeport Bank except for service as a director. The
administrative committee must have at least two members and has broad
discretionary powers.
Stock Subject to the 2000 Recognition and Retention Plan. Port
Financial will establish a fund and will contribute certain amounts of money
or property to be determined by the Board of Directors of Port Financial, in
its discretion. No contributions by participants will be permitted. The
funding agent will invest the assets of the fund primarily in the shares of
our common stock that will be used to make restricted stock awards. It is
currently anticipated that the fund will purchase common stock on the open
market or in private transactions. The fund will not purchase previously
authorized but unissued shares from Port Financial. The fund is not
authorized to purchase more than 297,713 shares of common stock of Port
Financial and cannot purchase more than this number. As of December 31,
2000, the aggregate fair market value of the shares to be purchased under
this plan was $5,265,799 based on the closing sales price per share of
common stock of $17.6875 on The Nasdaq Stock Market on December 29, 2000,
the last trading day before the fiscal year ended December 31, 2000.
Eligibility. An administrative committee of Port Financial selects the
people who receive restricted stock awards under the plan. Any employee of
Port Financial, Cambridgeport Bank or any affiliate approved by the Board of
Directors may be selected to receive stock awards. As of December 31, 2000,
26 employees have been selected by the committee to receive stock awards,
and 10 directors of Port Financial, Cambridgeport Bank or any affiliate
approved by the Board of Directors who are not also employees or officers
have been selected by the committee to receive stock awards.
Terms and Conditions of Awards. The administrative committee may, in
its discretion, grant awards of restricted stock to eligible individuals, up
to a maximum of 297,713 shares. The administrative committee will determine
at the time of the grant the number of shares of common stock subject to an
award, the vesting schedule applicable to the award and may, in its
discretion, establish other terms and conditions applicable to the award.
In setting terms and conditions, it must observe the following restrictions:
* It may not grant restricted stock awards for more than 74,428
shares of our common stock to any one officer or employee, more
than 14,885 shares of our common stock to any one non-employee
director, or more than 89,313 shares to all non-employee
directors in the aggregate.
* It may not grant restricted stock awards that vest more rapidly
than at the rate of 20% per year measured from the date we
receive shareholder approval for the plan, with acceleration
permitted only in cases of death or disability.
* It may not grant restricted stock awards with an effective date
that is before the date that we receive shareholder approval for
the plan.
As a general rule, shares of our common stock that are subject to a
restricted stock award are held in a fund for the benefit of the award
recipient until vested and, when vested, are transferred from the fund to
the award recipient. While the shares are held in the fund, the award
recipient receives dividends and exercises voting rights. In the
alternative, the administrative committee may authorize the immediate
distribution of the restricted shares to the award recipient in the form of
a stock certificate bearing a legend containing the applicable vesting
restrictions.
Mergers and Reorganizations. The number of shares available under the
plan, the maximum limits on restricted stock awards to individual officers
and directors and to non-employee directors in the aggregate, and any
outstanding awards will be adjusted to reflect any merger, consolidation or
business reorganization in which Port Financial is the surviving entity, and
to reflect any stock split, stock dividend or other event generally
affecting the number of shares. If a merger, consolidation or other
business reorganization occurs and Port Financial is not the surviving
entity, the funding agent will hold any money, stock, securities or other
property received in the fund, and adjust any award by allocating such
money, stock, securities or other property to the individual eligible for
the award.
Termination or Amendment of the 2000 Recognition and Retention Plan.
The Board of Directors of Port Financial has the authority to suspend or
terminate the plan in whole or in part at any time by giving written notice
to the administrative committee, but the plan may not be terminated while
there are outstanding awards that may vest in the future. Upon the
termination of the plan, the funding agent will make distributions from the
fund as directed by the administrative committee and will return any
remaining assets of the fund to Port Financial.
Purpose of Article X of the 2000 Recognition and Retention Plan
Currently, the shares covered by an award will become vested in
accordance with the terms of the award and, as soon as practicable following
such vesting, the trustee will transfer the shares to the recipient.
Currently, the 2000 Recognition and Retention Plan requires that awards
granted will vest no more rapidly than 20% per year beginning on the first
anniversary date of shareholder approval of the plan with accelerated
vesting only upon death or disability. Adoption by shareholders of Article
X would permit accelerated vesting upon a change in control of Port
Financial or the retirement of an award holder, as such terms are defined in
the 2000 Recognition and Retention Plan.
The provisions of Article X will not be applicable, and will be of no
force or effect, unless and until the shareholders of Port Financial have
approved such provisions by an affirmative vote of the holders of a majority
of the shares represented in person or by proxy and entitled to vote at a
meeting of shareholders duly called and held after April 11, 2001 approve
the proposal.
Federal Income Tax Consequences
The following discussion is intended to be a summary and is not a
comprehensive description of the federal tax laws, regulations and policies
affecting Port Financial and recipients of awards that may be granted under
the plan. Any descriptions of the provisions of any law, regulation or
policy are qualified in their entirety by reference to the particular law,
regulation or policy. Any change in applicable law or regulation or in the
policies of various taxing authorities may have a significant effect on this
summary. The plan is not a qualified plan under Section 401(a) of the
Internal Revenue Code.
The stock awards under the plan do not result in federal income tax
consequences to either Port Financial or the award recipient. As a general
rule, once the award is vested and the shares subject to the award are
distributed, the award recipient will generally be required to include in
ordinary income, for the taxable year in which the vesting date occurs, an
amount equal to the fair market value of the shares on the vesting date.
Port Financial will generally be allowed to claim a deduction, for
compensation expense, in a like amount. If dividends are paid on unvested
shares held under the plan, such dividend amounts will also be included in
the ordinary income of the recipient. Port Financial will be allowed to
claim a deduction for compensation expense for this amount as well.
Section 162(m) of the Internal Revenue Code limits Port Financial's
deductions for compensation in excess of $1.0 million per year for the Chief
Executive Officer and the four other most highly paid executives named in
its proxy statement. Compensation amounts resulting from restricted stock
awards will be subject to this deduction limitation if this amount of the
restricted stock awards plus other compensation of the executive that is
subject to the limit exceeds $1.0 million. We expect that the
Administrative Committee will take these deduction limits into account in
setting the size and the terms and conditions of restricted stock awards.
However, the Administrative Committee may decide to grant restricted stock
awards all or a portion of which will exceed the deduction limit.
The preceding statements are intended to summarize the general
principles of current federal income tax law applicable to awards that may
be granted under the plan. State and local tax consequences may also be
significant.
============================================================================
The Board of Directors unanimously recommends a vote "For" the approval of
Article X of the Port Financial Corp. 2000 Recognition and Retention Plan.
============================================================================
INDEPENDENT ACCOUNTANTS
Arthur Andersen LLP served as independent public accountants for the
purpose of auditing Port Financial's consolidated financial statements for
the year ended December 31, 2000 and will continue to serve as Port
Financial's independent accountants for the year ended December 31, 2001. A
representative of Arthur Andersen LLP is expected to be present at the
annual meeting to answer questions concerning the financial statements
presented and will be permitted to make a statement at the meeting.
ADDITIONAL INFORMATION
Information About Shareholder Proposals
If you wish to submit proposals to be included in our proxy statement
for the 2002 Annual Meeting of Shareholders, we must receive them on or
before November 29, 2001 pursuant to the proxy soliciting regulations of the
SEC. SEC rules contain standards as to what shareholder proposals are
required to be in the proxy statement. All shareholder proposals for
inclusion in Port Financial's proxy materials shall be subject to the
requirements of the proxy rules adopted under the Securities Exchange
Act of 1934, as amended, and as with any shareholder proposal
(regardless of whether it is included in Port Financial's proxy materials),
Port Financial's Articles of Organization and Bylaws, and Massachusetts law.
In addition, under Port Financial's Bylaws, if you wish to nominate a
director or bring other business before an annual meeting:
* You must be a shareholder of record and have given timely
notice in writing to the Clerk of Port Financial.
* Your notice must contain specific information required in our
Bylaws.
By Order of the Board of Directors,
/s/ Jane L. Lundquist
Jane L. Lundquist
Clerk
Brighton, Massachusetts
March 28, 2001
============================================================================
To assure that your shares are represented at the annual meeting, please
complete, sign, date and promptly return the accompanying proxy card in the
postage-paid envelope provided.
============================================================================
APPENDIX A
AUDIT COMMITTEE CHARTER OF PORT FINANCIAL CORP.
Objective
- ---------
The objective of an Audit Committee ("Committee") is to assist the
Directors in fulfilling their fiduciary responsibilities. The Committee in
this document refers to the Audit Committees of Port Financial Corp. and
Cambridgeport Bank. Members of the Committee should evaluate both Port
Financial Corp. and the Bank's compliance with laws, regulations, policies,
plans, procedures, ethical standards and public responsibilities. The
Committee should determine that Port Financial Corp. and the Bank have
adequate administrative, operating and internal accounting controls. In
addition, the Committee should seek to give assurance regarding the
integrity of financial and other data based on Port Financial Corp. and Bank
activities.
Responsibilities
- ----------------
The Committee is responsible for:
* Selecting, evaluating, and replacing the independent auditor
jointly with the Board of Directors.
* Obtaining a formal written statement concerning the independence
of the independent auditor.
* Serving as the primary communication channel between the
internal and external auditors and Board of Directors.
* Approve the selection and participate in the compensation and
performance evaluation of the internal auditor. Evaluations
should be based on audit reports submitted and on discussions
with management and the external auditors.
* Reviewing and approving annual audit plans of the internal and
external auditors and determining that no restrictions are
imposed upon audit scope.
* Assuring that the independent auditors have free access to the
Committee, without the presence of management, to discuss the
results of their audits. The independent auditor is ultimately
accountable to the Committee and Board of Directors.
* Quarterly consultation with the independent public accountant,
review of the quarterly press release, and the Quarterly Reports
on Form 10-Q and the Annual Report on Form 10-K, as appropriate.
* Assessing the impact on the Bank and Port Financial Corp. of new
accounting principles or policies, promulgated by the accounting
profession or proposed by Bank and Port Financial Corp.
personnel.
* Reviewing published Bank and Port Financial Corp. financial
statements and the annual report for accuracy, timeliness and
appropriate disclosure.
* Reviewing the adequacy and effectiveness of key accounting and
financial policies.
* Following-up on corrective actions taken to strengthen internal
control.
* Coordinating the investigation of conflicts of interest and
unethical conduct.
* Reviewing and approving the extent of non-audit services
provided by the independent auditors.
* Evaluating management's response to audit findings and reports
of examinations conducted by external auditors and regulatory
authorities.
* Monitoring the accomplishments of audit goals and objectives.
* Ascertaining that appropriate policy and procedures manuals are
in being, and in use.
* Ascertaining the sufficiency of budget funds for the audit
function.
* Conducting an annual review of the Committee charter and
recommending revision, as necessary.
The above responsibilities of the Committee will be discharged through
review of audit reports and discussions with the internal and external
auditor and Port Financial Corp. and Bank management.
Committee Membership
- --------------------
The Audit Committee shall consist of at least three "independent"
Directors elected annually by the Board of Directors. An 'independent"
Director is defined as an individual who (a) is not an officer or salaried
employee of Port Financial Corp. or Cambridgeport Bank within the three
years preceding service on the Committee, (b) is not an attorney who
receives any fee or compensation from Port Financial Corp. or Cambridgeport
Bank, (c) does not have any relationship that, in the opinion of the Board
of Directors, would interfere with his exercise of independent judgement as
an Audit Committee member and (d) meets the Nasdaq Stock Market's definition
of independent director. Additionally, Audit Committee members should have
few or no ties to the company other than through their duties as Board
members. In selecting the members of Audit Committee, the Board of
Directors will take into account the requirements imposed by, and the
interpretations of, the applicable federal and state banking regulators.
At least one member of the Audit Committee shall have accounting or
financial management expertise. Each Committee member must be able to read
and understand financial statements, including a balance sheet, income
statement and cash flow statement, or become so able within a reasonable
period after joining the Audit Committee. The Audit Committee, with the
assistance of the independent public auditors, shall develop and implement a
skill enhancement plan and assess member contribution and performance.
The members of the Audit Committee shall be designated by the full
Board of Directors at each annual meeting of the Board. The Board shall
designate one member of the Audit Committee to serve as Chairman of the
Audit Committee.
Committee Meetings
- ------------------
The Committee shall meet at least quarterly, including an executive
session with the internal and external auditor and otherwise as needed.
Written minutes should be prepared for each meeting.
APPENDIX B
ARTICLE IX OF THE 2000 PORT FINANCIAL CORP.
STOCK OPTION PLAN
ARTICLE IX
----------
ADDITIONAL PROVISIONS SUBJECT TO FURTHER SHAREHOLDER APPROVAL
-------------------------------------------------------------
Section 9.1 Accelerated Vesting Upon Retirement or Change in Control.
Notwithstanding anything in the Plan to the contrary, but subject to
section 9.3: (a) in the event that any Eligible Employee terminates service
as an Employee of all Employers, or in the event that an Eligible Director
terminates service as a voting member of all Employers' boards of
directors, and such termination constitutes a Retirement, all Options
outstanding to such holder on the date of his Retirement shall, to the
extent not already exercisable, become exercisable upon Retirement; and (b)
in the event of a Change in Control, all Options outstanding under the Plan
on the date of the Change in Control shall, to the extent not already
exercisable, become exercisable on the date of the Change in Control.
Section 9.2 Discretion to Establish Vesting Schedules
Notwithstanding anything in the Plan to the contrary, but subject to
section 9.3, section 5.5(b) shall apply in determining the exercisability of
Options granted to Eligible Employees only if no different vesting schedule
is established by the Committee and specified in the agreement evidencing an
outstanding Option.
Section 9.3 No Effect Prior to Shareholder Approval
Notwithstanding anything contained in this Article IX to the contrary,
the provisions of this Article IX shall not be applied, and shall be of no
force or effect, unless and until the shareholders of the Company shall have
approved such provisions by affirmative vote of the holders of a majority of
the Shares represented in person or by proxy and entitled to vote at a
meeting of shareholders duly called and held after April 11, 2001.
APPENDIX C
ARTICLE X OF THE 2000 PORT FINANCIAL CORP.
RECOGNITION AND RETENTION PLAN
ARTICLE X
---------
ADDITIONAL PROVISIONS SUBJECT TO FURTHER SHAREHOLDER APPROVAL
-------------------------------------------------------------
Section 10.1 Accelerated Vesting Upon Retirement or Change in Control.
Notwithstanding anything in the Plan to the contrary, but subject to
section 10.3, unless otherwise determined by the Committee and specified in
the Award Notice relating to an Award: (a) in the event that any Eligible
Employee terminates service as an Employee of all Employers, or in the event
that an Eligible Director terminates service as a voting member of all
Employers' boards of directors, and such termination constitutes a
Retirement, all Awards outstanding to such holder on the date of his
Retirement shall, to the extent not already vested, become vested upon
Retirement; and (b) in the event of a Change of Control, all Awards
outstanding under the Plan on the date of the Change of Control shall, to
the extent not already vested, become vested on the date of the Change of
Control.
Section 10.2 Discretion to Establish Vesting Schedules
Notwithstanding anything in the Plan to the contrary, but subject to
section 10.3, section 7.1 shall apply in determining the vesting of Awards
only if no different vesting schedule is established by the Committee and
specified in the Award Notice.
Section 10.3 No Effect Prior to Stockholder Approval.
Notwithstanding anything contained in this Article X to the contrary,
the provisions of this Article X shall not be applied, and shall be of no
force or effect, unless and until the shareholders of the Company shall have
approved such provisions by affirmative vote of the holders of a majority of
the Shares represented in person or by proxy and entitled to vote at a
meeting of shareholders duly called and held on or after April 11, 2001.
Port Financial Corp. REVOCABLE PROXY
This Proxy is solicited on behalf of the
Board of Directors of Port Financial Corp.
for the Annual Meeting of Stockholders to be held on May 2, 2001.
The undersigned stockholder of Port Financial Corp. hereby appoints
Paul R. Corcoran, Jr. and Daniel C. Crane, each of them, with full powers of
substitution, to represent and to vote as proxy, as designated, all shares
of common stock of Port Financial Corp. held of record by the undersigned on
March 9, 2001, at the Annual Meeting of Stockholders (the "Annual Meeting")
to be held at 9:00 a.m., Eastern Time, on May 2, 2001, or at any adjournment
or postponement thereof, upon the matters described in the accompanying
Notice of the Annual Meeting of Stockholders and Proxy Statement, dated
March 28, 2001 and upon such other matters as may properly come before the
Annual Meeting. The undersigned hereby revokes all prior proxies.
This Proxy, when properly executed, will be voted in the manner
directed herein by the undersigned stockholder. If no direction is given,
this Proxy will be voted FOR the election of all nominees listed in Item 1
and FOR the proposals listed in Items 2 and 3.
PLEASE MARK, SIGN AND DATE THIS PROXY ON THE REVERSE SIDE
AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
The Board of Directors unanimously I Will Attend Annual Meeting. [ ]
recommends a vote "FOR" all of the
nominees named in Item 1 and a vote Please Mark Your Choice Like
"FOR" each of the proposals in Items This in Blue or Black Ink. [x]
2 and 3.
1. Election of four directors for terms of three years each.
Nominees: Samuel C. Fleming, Robert D. Happ, Jane L. Lundquist and
Sandra J. Sucher.
For Against Abstain
[ ] [ ] [ ]
Instruction: TO WITHHOLD AUTHORITY to vote for any individual nominee, write
that nominee's name in the space provided:
_____________________________________
2. Approval of Article IX of Port Financial Corp. 2000 Stock Option Plan.
For Against Abstain
[ ] [ ] [ ]
3. Approval of Article X of the Port Financial Corp. 2000 Recognition and
Retention Plan.
For Against Abstain
[ ] [ ] [ ]
The undersigned hereby acknowledges
receipt of the Notice of Annual
Meeting of Stockholders and the Proxy
Statement for the Annual Meeting
dated March 28, 2001.
____________________________________
____________________________________
Signature(s)
Dated: _______________________, 2001
Please sign exactly as your name
appears on this proxy. Joint owners
should each sign personally. If
signing as attorney, executor,
administrator, trustee or guardian,
please include your full title.
Corporate or partnership proxies
should be signed by an authorized
officer.