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.)
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[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Westfield Financial, Inc.
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(Name of Registrant as Specified in Its Charter)
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WESTFIELD FINANCIAL, INC. [LOGO]
April 25, 2003
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of
Shareholders of Westfield Financial, Inc., the holding company for
Westfield Bank, which will be held on May 30, 2003 at 10:00 a.m., Eastern
Time, at the Tekoa Country Club, located at 459 Russell Road, Westfield,
Massachusetts 01085.
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 Westfield Financial and Westfield Bank, and
you will have an opportunity to ask questions.
The Board of Directors of Westfield Financial has determined that an
affirmative vote on each matter to be considered at the annual meeting is
in the best interests of Westfield 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 Westfield
Financial and Westfield Bank, we thank you for your continued support and
look forward to seeing you at the annual meeting.
Sincerely yours,
/s/ Donald A. Williams
Donald A. Williams
President and Chief Executive Officer
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Date: Friday, May 30, 2003
Time: 10:00 a.m., Eastern Time
Place: Tekoa Country Club
459 Russell Road
Westfield, Massachusetts 01085
At our 2003 annual meeting, we will ask you to:
1. 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
-------- --------------
David C. Colton, Jr. 2006
Mary C. O'Neil 2006
Donald A. Williams 2006
2. Ratify Article IX of the Westfield Financial, Inc. 2002 Stock
Option Plan ("Option Plan"), allowing for, among other things,
acceleration of vesting upon retirement or change in control.
3. Ratify Article X of the Westfield Financial, Inc. 2002 Recognition
and Retention Plan ("RRP"), allowing for, among other things,
acceleration of vesting upon retirement or change in control.
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
Westfield Financial at the close of business on April 9, 2003, the record
date.
By Order of the Board of Directors,
/s/ Donald A. Williams
Donald A. Williams
President and Chief Executive Officer
Westfield, Massachusetts
April 25, 2003
===========================================================================
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.
===========================================================================
GENERAL INFORMATION
GENERAL
Westfield Financial, Inc. is a Massachusetts-chartered stock holding
company, which was organized in November 2001. Westfield Financial is
registered as a bank holding company with the Federal Reserve Bank of
Boston and owns all of the capital stock of Westfield Bank. Westfield
Mutual Holding Company owns 53% of the outstanding shares of Westfield
Financial's common stock, which is listed on the American Stock Exchange
under the symbol "WFD." As used in this proxy statement, "we", "us" and
"our" refer to Westfield 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 April 25, 2003 to all shareholders
entitled to vote. If you owned common stock of Westfield Financial at the
close of business on April 9, 2003, the record date, you are entitled to
vote at the annual meeting. On the record date, there were 10,580,000
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 Westfield Financial that you owned as of the record
date at the close of business on April 9, 2003. 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.
1
VOTE BY WESTFIELD MUTUAL HOLDING COMPANY
Westfield Mutual Holding Company owns 53% of the outstanding shares
of Westfield Financial's common stock. All shares of Westfield Financial
owned by Westfield Mutual Holding Company will be voted in accordance with
the instructions of the Board of Trustees of Westfield Mutual Holding
Company. Westfield Mutual Holding Company is expected to vote "For" each
of the proposals identified in the Notice of Annual Meeting for which it is
entitled to vote.
VOTE REQUIRED
Proposal 1: Election of The nominees for director who receive the most
Three Directors votes will be elected. So, if you do not 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.
Because Westfield Mutual Holding Company owns
more than 50% of Westfield Financial's
outstanding shares, we expect that Westfield
Mutual Holding Company will control the
outcome of the vote on this proposal.
Proposals 2 & 3: Approval Approval of Proposal 2 and Proposal 3 requires
of Article IX of the 2002 the affirmative vote of a majority of the
Stock Option Plan and outstanding shares of Westfield Financial's
Article X of the 2002 common stock that is not held by Westfield
Recognition and Retention Mutual Holding Company. Under this standard,
Plan if you "abstain" from voting, it has the same
effect as if you voted "against" these
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 Three 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 2002 Stock
Option Plan and Article X of the 2002 Recognition and Retention
Plan. A broker non-vote with respect to either of these
proposals will be treated the same as a vote "against" the
proposal.
CONFIDENTIAL VOTING POLICY
Westfield 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.
2
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 the Clerk;
* submitting a signed proxy card bearing a later date; or
* 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 Westfield Financial.
SOLICITATION OF PROXIES
Westfield Financial will pay the costs of soliciting proxies from its
shareholders. Directors, officers or employees of Westfield Financial and
Westfield Bank may solicit proxies by mail, telephone and other forms of
communication. Westfield Financial has also hired Georgeson Shareholder
Communications, Inc. to assist in the solicitation of proxies for a fee of
$5,000, plus reimbursement of out of pocket expenses.
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
under the Westfield Financial, Inc. 2002 Stock Option Plan and restricted
stock awards under the Westfield Financial, Inc. 2002 Recognition and
Retention Plan. Amendments to these plans are being presented for
shareholder approval in Proposal 2 and Proposal 3, respectively. As a
result, our directors, officers and employees have a personal interest in
the outcome of the vote on those proposals.
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 fiscal year ended December 31, 2002, filed with
the Securities and Exchange Commission ("SEC"), we will send you one
(without exhibits) free of charge. Please write to Philip R. Smith, Clerk,
Westfield Financial, Inc., 141 Elm Street, Westfield, MA 01085.
3
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Shareholders of Westfield Financial.
The following table contains common stock ownership information for
persons known to Westfield Financial to "beneficially own" 5% or more of
Westfield Financial's common stock as of April 9, 2003. In general,
beneficial ownership includes those shares that a person has the power to
vote, sell or otherwise dispose of. Beneficial ownership also includes
that number of shares which an individual has the right to acquire within
60 days (such as stock options) after April 9, 2003. Two or more persons
may be considered the beneficial owner of the same shares. Westfield
Financial obtained the information provided in the following table from
filings with the SEC and from Westfield Financial.
Name and Address of Amount and Nature of
Title of Class Beneficial Owner Beneficial Ownership Percent
-------------- ------------------- -------------------- -------
<s> <c> <c> <c>
Common Stock, par value Westfield Mutual Holding Company 5,607,400(1) 53.0%
$0.01 per share 141 Elm Street
Westfield, MA 01581
<FN>
- --------------------
<F1> As reported by Westfield Mutual Holding Company in a Schedule 13D
dated January 7, 2002, which reported sole voting and dispositive
power over 5,607,400 shares.
</FN>
4
Security Ownership of Management.
The following table shows the number of shares of Westfield
Financial's common stock beneficially owned by each director, each
executive officer appearing in the "Summary Compensation Table," and all
directors and executive officers of Westfield Financial as a group, as of
March 20, 2003. 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 listed next to his or her name.
Amount and Nature of
Position with Beneficial Percent of Common
Name Westfield Financial Ownership(1)(2)(3)(4) Stock Outstanding
---- ------------------- --------------------- -----------------
<s> <c> <c> <c>
Victor J. Carra Executive Vice President and 52,318(5) *
Director
David C. Colton, Jr. Director 7,443(6) *
Robert T. Crowley, Jr. Director 7,500(7) *
James C. Hagan Vice President and 11,445 *
Chief Lending Officer
Thomas J. Howard Director 5,500(8) *
Michael J. Janosco, Jr. Chief Financial Officer 62,864(9) *
and Treasurer
Rebecca S. Kozaczka Vice President and Residential 9,722 *
Loan Officer
Harry C. Lane Director 5,000 *
William H. McClure Director 8,000(10) *
Mary C. O'Neil Director 6,000(11) *
Richard C. Placek Director 10,000(12) *
Paul R. Pohl Director 14,996(13) *
Charles E. Sullivan Director 12,000(14) *
Thomas C. Sullivan Director 35,000 *
Donald A. Williams President, Chief Executive 80,512(15) *
Officer and Director
Other Executive Officers 376,780(16) 3.61%
and ESOP
All Executive Officers 705,080(16) 6.93%
and Directors as a Group
(16 Persons)
(Footnotes to the table are on the next page)
5
<FN>
- --------------------
* Less than one percent of the total outstanding shares of common
stock.
<F1> See "Principal Shareholders of Westfield Financial" for definition of
"beneficial ownership."
<F2> Based on a total of 10,580,000 shares of Westfield Financial's Common
Stock outstanding as of December 31, 2002.
<F3> Includes invested shares of restricted stock awards held in trust as
part of the Westfield Financial, Inc. 2001Stock-Based Incentive Plan,
with respect to which the beneficial owner has voting but not
investment power as follows: Messrs. Colton, Crowley, Howard, Lane,
McClure, Placek, Pohl, C. Sullivan, T. Sullivan and Ms. O'Neil each -
5,000 shares; Mr. Williams - 49,000 shares; Mr. Carra and Mr. Janosco
- 29,400 shares; Mr. Hagan - 10,000 shares and Ms. Kozaczka - 8,500
shares.
<F4> Includes shares allocated to the account of the individuals under the
Westfield Financial, Inc. Employee Stock Ownership Plan with respect
to each individual has voting but not investment powers as follows:
Mr. Williams - 512 shares; Mr. Carra - 428 shares; Mr. Janosco - 464
shares; Mr. Hagan - 335 shares; and Ms. Kozaczka - 260 shares.
Includes shares held in trust in Westfield Bank 401(k) Plan as to
which each participant has investment but not voting powers: Mr.
Carra - 13,370 shares; Mr. Hagan - 1,110 shares; Ms. Kozaczka - 962
shares.
<F5> Includes 690 shares held in an individual retirement account ("IRA")
for the benefit of Mr. Carra's spouse, 830 shares held in an IRA for
the benefit of Mr. Carra, and 7,600 shares held jointly with Mr.
Carra's spouse.
<F6> Includes 1,272 shares held in an IRA for the benefit of Mr. Colton's
spouse, 671 shares held in an IRA for the benefit of Mr. Colton, and
500 shares held jointly with Mr. Colton's spouse.
<F7> Includes 2,500 shares held jointly with Mr. Crowley's spouse.
<F8> Includes 500 shares held by the Thomas J. Howard Revocable trust for
which Mr. Howard and his spouse serve as trustees.
<F9> Includes 20,279 shares held jointly with Mr. Janosco's spouse, and
12,721 shares held in an IRA for the benefit of Mr. Janosco.
<F10> Includes 3,000 shares held jointly with Mr. McClure's spouse.
<F11> Includes 1,000 shares held jointly with Ms. O'Neil's spouse.
<F12> Includes 2,500 shares held by Mr. Placek's spouse.
<F13> Includes 9,996 shares held jointly with Mr. Pohl's spouse.
<F14> Includes 3,000 shares held in an IRA for the benefit of Mr. Sullivan.
<F15> Includes 20,700 shares held jointly with Mr. Williams' spouse, 5,100
shares held in an IRA for the benefit of Mr. Williams, and 5,200
shares held in an IRA for the benefit of Mr. Williams' spouse.
<F16> The figures shown for each of the executive officers named in the
table do not include 366,890 shares held in trust pursuant to the
ESOP that have not been allocated as of December 31, 2001 to any
individual's account and as to which each of the executive officers
named in the table share voting powers with the other ESOP
participants. The figure shown for all directors and executive
officers as a group includes 366,890 as to which members of Westfield
Financial's Compensation Committee (consisting of Messrs. Lane, Pohl,
Thomas C. Sullivan and Williams) may be deemed to have sole
investment power, except in limited circumstances, thereby causing
each such member to be deemed a beneficial owner of such shares.
Each of the members of the Compensation Committee disclaims
beneficial ownership of such shares and, accordingly, such shares are
not attributed to the members of the Compensation Committee
individually. See "Benefit Plans-Employee Stock Ownership Plan".
</FN>
6
DISCUSSION OF PROPOSALS RECOMMENDED BY BOARD
--------------------------------------------------
PROPOSAL 1
ELECTION OF DIRECTORS
--------------------------------------------------
General
Nominees Term to Expire
-------- --------------
<s> <c>
David C. Colton, Jr. 2006
Mary C. O'Neil 2006
Donald A. Williams 2006
All three nominees are currently serving on Westfield Financial's
Board of Directors. If you elect all the nominees listed above, they will
hold office until the annual meeting in 2006 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.
===========================================================================
Nominees and Continuing Directors
Term Position(s) Held with Director
Nominees Age(1) Expires Westfield Financial Since(2)
-------- ------ ------- --------------------- --------
<s> <c> <c> <c> <c>
David C. Colton, Jr. 59 2003 Director 1980
Mary C. O'Neil 67 2003 Director 1994
Donald A. Williams 58 2003 President, Chief Executive 1983
Officer and Director
7
Term Position(s) Held with Director
Continuing Directors Age(1) Expires Westfield Financial Since(2)
- -------------------- ------ ------- --------------------- --------
<s> <c> <c> <c> <c>
Victor J. Carra 62 2004 Executive Vice President 1995
and Director
Robert T. Crowley, Jr. 54 2005 Director 1999
Thomas J. Howard 70 2004 Director 1979
Harry C. Lane 64 2005 Director 1978
William H. McClure 67 2005 Director 1996
Richard C. Placek 63 2004 Director 1979
Paul R. Pohl 61 2005 Director 1999
Charles E. Sullivan 59 2004 Director 1992
Thomas C. Sullivan 69 2004 Director 1989
<FN>
- --------------------
<F1> At December 31, 2002.
<F2> Includes terms served on the Board of Directors of Westfield Bank.
All members of the current Board of Directors of Westfield Financial
have served as directors since the company's inception in 2001.
</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
David C. Colton, Jr. is the owner and operator of The Colton Agency,
Inc., an insurance agency located in Westfield, Massachusetts. Mr. Colton
has served in these capacities since 1966.
Mary C. O'Neil is the Director of Development and Marketing at Noble
Health Systems, located in Westfield, Massachusetts. Ms. O'Neil has held
this position since 1993. Prior to that, she served as President of T.L.
O'Neil Insurance Agency, Inc.
Donald A. Williams has served as President of Westfield Bank since
1983 and Chief Executive Officer of Westfield Bank since 1987. Mr.
Williams has served in such capacities with Westfield Financial since its
inception in 2001.
Continuing Directors
Victor J. Carra has served as the Executive Vice President of
Westfield Bank since 1998 and Westfield Financial since its inception in
2001. Since 1975, Mr. Carra has served in various capacities during his
employment with Westfield Bank.
Robert T. Crowley, Jr. is a Certified Public Accountant and a
partner in the accounting firm of Downey, Sweeney, Fitzgerald & Co., P.C.
The firm provides services in tax, accounting and auditing services to the
public. Mr. Crowley has been a partner with this firm since 1980 and a
Certified Public Accountant since 1979.
8
Thomas J. Howard retired from Westfield Bank in 1994 after having
served as an Assistant Treasurer, Treasurer, Vice President and Executive
Vice President during his employment with Westfield Bank since 1964. Since
his retirement in 1994, Mr. Howard has served as a corporator and trustee
of Westfield Mutual Holding Company and a director of Westfield Bank. He
has served as a director of Westfield Financial since its inception in
2001. He has continued to follow economic developments and banking trends
in the industry.
Harry C. Lane is the President of John S. Lane & Son, Inc., a quarry
and asphalt company located in Westfield, Massachusetts, incorporated in
1904. Mr. Lane has served in this capacity since 1986.
William H. McClure is the President of the McClure Insurance Agency,
Inc., a position he has held since December 1993. He is an owner of 51% of
this insurance agency which sells and services fire, casualty, life and
health insurance. He is also an owner of 103 Van Deene Realty Trust which
is made up of a building located at that same address. He is not
affiliated with any company or property which the bank owns.
Richard C. Placek is the President of Commercial Distributing
Company, located in Westfield Massachusetts. Mr. Placek has held this
position since 1985. Prior to that, he served as General Manager.
Paul R. Pohl has served as the President and Owner of Chemi-Graphic,
Inc., a name plate manufacturing company located in Ludlow, Massachusetts.
Mr. Pohl has served in this capacity since 1964.
Charles E. Sullivan is the President of Charles E. Sullivan C.P.A.,
Inc., a public accounting firm located in West Springfield, Massachusetts.
Mr. Sullivan has served in this capacity since 1979.
Thomas C. Sullivan is retired and was formerly the President and
Chief Operating Officer of Sullivan Paper Co., Inc., located in West
Springfield, Massachusetts. He retired from this position in 1998. Mr.
Sullivan presently serves as a director of Sullivan Paper Co., Inc., a
position he has held since 1959. He also serves as President and Director
of Patriot Realty, located in Appleton, Wisconsin and is the Vice President
and Director of George Sullivan Realty, a realty company located in West
Springfield, Massachusetts. Mr. Sullivan has served in these capacities
since 1994 and 1970, respectively.
Executive Officers Who are Not Directors
James C. Hagan, age 41, has served as Vice President and Commercial
Loan Department Manager of Westfield Bank since 1998. From 1994 through
1998, Mr. Hagan was a Commercial Loan Officer at Westfield Bank.
Michael J. Janosco, Jr., age 56, has served as the Chief Financial
Officer and Treasurer of Westfield Bank since 1999 and of Westfield
Financial since its inception in 2001. Mr. Janosco was previously a
partner at KPMG Peat Marwick until his retirement in 1994. From 1994 to
1997, he served as the Chief Financial Officer and Treasurer of Primary
Bank, located in Peterborough, New Hampshire. From October 1997 to March
1999, he was a consultant to various banks.
Rebecca S. Kozaczka, age 52, has served as Vice President and
Residential Loan Officer at Westfield Bank since 1989. She worked as a
Mortgage Loan Officer and Assistant Vice President since 1985.
Deborah J. McCarthy, age 43, has served as Vice President since 2000.
She is the Manager of the Operations and Information Systems departments.
She has worked for Westfield Bank in numerous capacities since 1979.
9
INFORMATION ABOUT THE BOARD OF DIRECTORS AND MANAGEMENT
Meetings and Committees of the Board of Directors
Westfield 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 Westfield Financial. Westfield 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 key executives and our principal external
advisers (legal counsel, auditors, financial advisors and other
consultants).
The Board of Directors of Westfield Financial held four (4) regular
meetings during the fiscal year ended December 31, 2002. The Board of
Directors of Westfield Bank held fourteen (14) meetings during the fiscal
year ended December 31, 2002. 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 Westfield Financial has established the
following committees:
<s> <c>
Executive The Executive Committee exercises the powers of the Board of Directors
Committee between board meetings. The Executive Committee consists of directors Colton,
Lane, O'Neil, C. Sullivan and Williams. The Executive Committee of Westfield
Financial met four times during the 2002 fiscal year; however, the Executive
Committee of Westfield Bank, which serves the same functions and has the
identical make-up, met fifty (50) times during the 2002 fiscal year.
Audit Committee The Audit Committee is chaired by Director Placek, with Directors Crowley and
McClure as members. The Audit Committee oversees and monitors our financial
reporting process and internal control system, reviews and evaluates the audit
performed by our outside auditors and reports any substantive issues found during
the audit to the Board. The Audit Committee is directly responsible for the
appointment, compensation and oversight of the work of our independent
auditors. The committee will also review and approve all transactions with
affiliated parties. The board of directors of the Company have adopted a written
charter for the Audit Committee. All members of the Audit Committee are
independent directors as defined under The American Stock Exchange listing
standards. Westfield Financial believes that Mr. Crowley qualifies as an Audit
Committee Financial Expert as that term is defined by SEC regulations. The
committee of Westfield Financial met six times in the 2002 fiscal year.
Compensation The Compensation Committee provides advice and recommendation to the Board
Committee of Directors in the areas of employee salaries and benefit programs. The
Compensation Committee consists of directors Lane, Pohl, T. Sullivan and
Williams with Director Lane serving as Chairperson of the committee. The
Compensation Committee of Westfield Financial met four times during the 2002
fiscal year.
10
Nominating/ The Nominating Committee recommends nominees for election as directors and
Corporate reviews if any shareholder nominations comply with the notice procedures set
Governance forth in Westfield Financial's Bylaws. Westfield Financial's Bylaws set forth a
Committee procedure for shareholders to nominate directors by notifying the Clerk of
Westfield Financial in writing and meeting other requirements set forth in the
Bylaws. During 2002, the Executive Committee acted as the Nominating
Committee. As of the date of this proxy statement, a formal Nominating
Committee comprised solely of independent directors has been established.
Directors Colton, Lane, O'Neil and Sullivan serve on this committee. The
Nominating Committee met one time in the 2002 fiscal year.
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 the 2002 fiscal year, the Audit Committee of Westfield
Financial met six times. The Audit Committee's membership was comprised of
Directors Crowley, McClure and Placek with Placek serving as Chairperson.
Westfield Financial believes that Mr. Crowley qualifies as an Audit
Committee Financial Expert as that term is defined by SEC regulations.
Each member of Westfield Financial's Audit Committee is independent
as defined under the American Stock Exchange listing standards. Westfield
Financial's Audit Committee operates under a written charter approved by
the Board.
Westfield 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 the Audit Committee are to: (1) oversee and
monitor the financial reporting process and internal control system; (2)
review and evaluate the audit performed by outside auditors and report any
substantive issues found during the audit to the Board; (3) appoint,
compensate and oversee the work of the independent auditors; (4) review and
approve all transactions with affiliated parties; and (5) provide an open
avenue of communication among the independent auditors, financial and
senior management, the internal audit department, and the Board.
Westfield Financial's Audit Committee has reviewed and discussed the
audited financial statements of Westfield Financial for the fiscal year
ended December 31, 2002 with management and Deloitte & Touche LLP,
Westfield Financial's independent auditors. Westfield Financial's Audit
Committee has discussed the matters required by Statement on Auditing
Standards No. 61 (Communication with Audit Committee) with Deloitte &
Touche LLP.
During the fiscal year ended December 31, 2002, Westfield Bank
retained and paid Deloitte & Touche LLP to provide audit and other services
as follows:
<s> <c>
Audit Fees $161,000
All Other Fees (primarily initial public offering and tax matters) $124,000
Westfield Financial's Audit Committee has also received the written
disclosures and the letter from Deloitte & Touche LLP required by
Independence Standards Board Standard No. 1 (entitled "Independence
Discussions with Audit Committees"), has discussed the independence of
Deloitte &
11
Touche LLP and considered whether the provision of non-audit services by
Deloitte & Touche LLP is compatible with maintaining the auditor's
independence.
Based on the review and discussions noted above, Westfield
Financial's Audit Committee recommended to the Board that Westfield
Financial's audited financial statements be included in the company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2002.
A representative of Deloitte & Touche 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.
Westfield Financial, Inc.
Audit Committee
Richard C. Placek, Chairperson
Robert T. Crowley, Jr.
William H. McClure
DIRECTOR COMPENSATION
Meeting Fees. The members of the board of directors of Westfield
Financial are identical to that of Westfield Bank. To date, Westfield Bank
has compensated its directors for their services to the bank. Westfield
Financial has not paid any additional compensation to its directors for
their additional services to the holding company. Westfield Financial
expects to continue this practice until there is a business reason to
establish separate compensation fees.
Westfield Bank's practice has been to pay a fee of $700 to each of
its non-employee directors for attendance at each board meeting. In
addition, each member of the Executive Committee received $1,733 per month
for attendance at meetings, each member of the Audit Committee received
$400 for each meeting the member attended and each member of the
Compensation Committee received $200 for each meeting the member attended.
Westfield Bank paid fees totaling $194,000 to its non-employee directors
for the year ended December 31, 2002.
Directors' Deferred Compensation Plan. Westfield Bank has
established the Westfield Bank Directors' Deferred Compensation Plan for
the benefit of non-employee directors. Under the Deferred Compensation
Plan, each non-employee director may make an annual election to defer
receipt of all or a portion of his or her director fees received from
Westfield Financial and Westfield Bank. The deferred amounts are allocated
to a deferral account and credited with interest at an annual rate equal to
the rate on the highest yielding certificate of deposit issued by Westfield
Bank during the year or according to the investment return of other assets
as may be selected by the Compensation Committee of Westfield Bank. The
Deferred Compensation Plan is an unfunded, non-qualified plan that provides
for distribution of the amounts deferred to participants or their
designated beneficiaries upon the occurrence of certain events such as
death, retirement, disability or a change in control of Westfield Financial
or Westfield Bank (as those terms are defined in the Deferred Compensation
Plan).
12
EXECUTIVE OFFICER COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is composed of Directors Lane, Pohl,
Thomas C. Sullivan, and Williams with Director Lane serving as the
Chairperson of the Committee. None of the members of the Compensation
Committee, except Mr. Williams, were officers or employees of Westfield
Financial or its subsidiaries during 2002 or in prior years. For 2003, the
Compensation Committee is composed of Directors Lane, Pohl and Thomas C.
Sullivan with Director Lane serving as Chairperson of the Committee.
The following Report of Westfield Financial's Compensation Committee
is provided in accordance with the rules and regulations of the SEC.
Pursuant to such rules and regulations, this Report shall not be deemed
"soliciting material," filed with the SEC subject to Regulation 14A or 14C
of the SEC or subject to the liabilities of Section 18 of the Exchange Act.
Compensation Committee Report on Executive Compensation
On December 27, 2001, Westfield Financial, Inc. became the holding
company for Westfield Bank upon completion of a corporate reorganization of
Westfield Mutual Holding Company and related initial stock offering by
Westfield Financial.
The Compensation Committee provides advice and recommendations to the
Board of Directors in the areas of employee salaries and benefit programs.
Compensation of the President and Chief Executive Officer and other
executive officers of Westfield Bank for the fiscal year ended 2002 was
paid by Westfield Bank and determined by the Board of Directors.
The committee reviews the compensation and benefits programs for all
executive officers on an annual basis. Mr. Williams did not participate in
the committee's decisions regarding his own compensation review and
recommendation in 2002 or in prior years.
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 Westfield Financial's
stockholders, and competitiveness with the external marketplace. To this
end, the committee reviewed the compensation practices of a peer group of
companies with similar size and business mix to that of Westfield Bank in
order to develop recommendations for Westfield Bank's executive officers.
Westfield 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 Westfield Bank's financial resources, that is appropriate
to assure that retention of experienced management personnel, and that
aligns their financial interests with those of Westfield Financial's
shareholders.
Base Salaries
Salary levels recommended by the committee are intended to be
competitive with salary levels of the companies in Westfield Bank's peer
groups, commensurate with the executive officers' respective duties and
responsibilities, and reflect the financial performance of Westfield Bank.
13
Stock Options
Westfield Financial has implemented the 2002 Stock Option Plan under
which executive officers, employees, and directors are eligible to receive
awards. The Compensation Committee has determined stock option grants
based on the financial performance achieved by Westfield Bank, and the
level of long-term incentive awards made by companies in the peer group.
As of the fiscal year ended December 31, 2002, 448,000 options were granted
to eligible executive officers, employees and directors.
Recognition and Retention Plan
Westfield Financial has implemented the 2002 Recognition and
Retention Plan under which executive officers, employees, and directors are
eligible to receive restricted stock awards. The Compensation Committee
has determined restricted stock awards based on the financial performance
achieved by Westfield Bank, and the level of long-term incentive awards
made by companies in the peer group. As of the fiscal year ended December
31, 2002, 189,800 restricted stock awards were granted to eligible
executive officers, employees and directors.
Chief Executive Officer
The Compensation Committee recognizes the significant additional
efforts required of the President and Chief Executive Officer in bringing
about Westfield Financial's initial public offering.
Based on the foregoing criteria discussed above, for fiscal year
ended December 31, 2002, Mr. Williams' base salary was $307,930 and he was
awarded a bonus of $15,256. He was also eligible to participate in the
2002 Stock Option Plan and the 2002 Recognition and Retention Plan. During
fiscal 2002, Mr. Williams was awarded 120,000 options under the 2002 Stock
Option Plan and 49,000 shares under the 2002 Recognition and Retention
Plan.
Westfield Financial, Inc.
Compensation Committee
Harry C. Lane, Chairperson
Paul R. Pohl
Thomas C. Sullivan
Donald A. Williams
Compensation Committee Interlocks and Insider Participation.
Except for Mr. Williams, who recused himself from discussions
regarding his compensation, none of the executive officers of Westfield
Financial served as a member of another entity's Board of Directors or as a
member of the Compensation Committee (or other board committee performing
equivalent functions) during 2002, which entity had an executive officer
serving on the Board of Directors or as a member of the Compensation
Committee of Westfield Financial. There are no interlocking relationships
between Westfield Financial and other entities that might affect the
determination of the compensation of our executive officers.
14
PERFORMANCE GRAPH
The following graph compares Westfield Financial, Inc.'s total
cumulative shareholder return by an investor who invested $100.00 on
December 28, 2001, the date following Westfield Financial, Inc.'s
conversion, to September 30, 2002, 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.
Cumulative Total Return
----------------------------
12/28/01 12/01 12/02
-------- ----- -----
<s> <c> <c> <c>
Westfield Financial, Inc. 100.00 100.22 116.97
Russell 2000 100.00 98.96 78.69
Nasdaq Bank 100.00 99.31 101.53
15
SUMMARY COMPENSATION TABLE
Summary Compensation Table. The following table provides information
about the compensation paid for 2002 to Westfield Financial's and Westfield
Bank's President and Chief Executive Officer and to the four other most
highly compensated executive officers whose salary and bonus for 2002 was
at least $100,000.
Long Term
Compensation
Annual Compensation Awards
------------------------------------- ---------------------
Other Restricted
Name and Principal Annual Stock All Other
Positions with Westfield Compensation Awards Options Compensation
Financial Year Salary($) Bonus($) ($)(1) ($)(2) (#)(3) ($)(4)
- ------------------------ ---- --------- -------- ------------ ---------- ------- ------------
<s> <c> <c> <c> <c> <c> <c> <c>
Donald A. Williams, 2002 307,930 15,256 - 705,110 120,000 146,629
President and Chief 2001 290,498 43,575 - - - 113,516
Executive Officer 2000 267,616 40,234 - - - 106,041
Michael J. Janosco, Jr., 2002 165,555 8,366 - 423,066 72,000 13,916
Chief Financial Officer 2001 152,100 22,815 - - - 7,173
and Treasurer 2000 139,000 20,850 - - - 4,344
Victor J. Carra, 2002 156,338 7,817 - 423,066 72,000 42,621
Executive Vice President 2001 142,116 21,317 - - - 43,282
2000 128,741 19,584 - - - 40,236
James C. Hagan, 2002 124,670 6,234 - 143,900 12,000 9,824
Vice President 2001 113,334 17,000 - - - 3,772
2000 95,764 14,365 - - - 2,938
Rebecca S. Kozaczka, 2002 96,616 4,831 - 122,315 9,000 7,807
Vice President 2001 92,014 13,802 - - - 3,784
2000 89,147 13,372 - - - 3,570
<FN>
- --------------------
<F1> Westfield Bank provides its executive officers with non-cash benefits
and perquisites, such as the use of employer-owned or leased
automobiles. Management of the Bank believes that the aggregate value
of these benefits for 2002 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.
<F2> Pursuant to the Westfield Financial, Inc. 2000 Recognition and
Retention Plan, Mr. Williams, Mr. Janosco, Jr., Mr. Carra, Mr. Hagan
and Ms. Kozaczka were granted 49,000, 29,400, 29,400, 10,000 and
8,500 shares of restricted stock, respectively, effective July 26,
2002. These awards vest in 20% increments each year. Dividends
attributed to such awards are distributed to participants from the
custodial account holding shares under the Recognition and Retention
Plan. The dollar amount shown above is based on the fair market
value of a share of common stock on July 26, 2002, which was $14.39
per share. The value of aggregate restricted stock awards as of
December 31, 2002 was $759,500, $455,700, $455,700, $155,000 and
$131,750 for each of Messrs. Williams, Janosco, Carra, Hagan and Ms.
Kozaczka, respectively. Accelerated vesting occurs in the case of
death or disability and, if Proposal 3 is approved, upon retirement
or a change in control.
<F3> 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 July 26,
2002 pursuant to the Westfield Financial, Inc. 2002 Stock Option
Plan, and vest in 20% increments each year. Accelerated vesting
occurs in the case of death or disability and, if Proposal 2 is
approved, upon retirement or a change of control.
<F4> Includes the following components for fiscal 2002, 2001 and 2000,
respectively: (1) employer matching contributions to the Westfield
Bank 401(k) Plan: Mr. Williams, $6,000, $5,100 and $5,100; Mr.
Janosco, $5,191, $4,563 and $3,210; Mr. Carra, $4,786, $4,264 and
$3,873; Mr. Hagan, $3,740, $3,400 and $2,665; and Ms. Kozaczka,
$2,899, $2,761 and $2,675; (2) the dollar value of premium payments
for life insurance coverage provided by Westfield Bank: Mr. Williams,
$1,824, $4,428 and $3,964; Mr. Janosco, $1,573, $2,610 and $1,850;
Mr. Carra, $1,469, $3,230 and $2,997; Mr. Hagan, $1,171, $372 and
$273; and Ms. Kozaczka, $896, $1,023 and $895; and (3) amounts
accrued under deferred compensation agreements: Mr. Williams,
$122,897, $103,988 and $96,977 and Mr. Carra, $27,876, $35,788 and
$33,366. Also includes the following components for fiscal 2002: (1)
the value of allocations under the ESOP: Mr. Williams, $7,938; Mr.
Janosco, Jr., $7,199; Mr. Carra, $6,641; Mr. Hagan, $5,195; and Ms.
Kozaczka, $4,026; and (2) the value accrued under the Benefit
Restoration Plan: Mr. Williams, $7,970.
</FN>
16
Employment Agreements
Westfield Financial and Westfield Bank have jointly entered into
employment agreements with Mr. Donald A. Williams to secure his services as
President and Chief Executive Officer, Mr. Victor J. Carra to secure his
services as Executive Vice President, and Mr. Michael J. Janosco, Jr., to
secure his services as Chief Financial Officer. For purposes of Westfield
Financial's obligations, the employment agreements have rolling three-year
terms beginning on January 1, 2002, which by decision of the executive or
joint decision of Westfield Financial and Westfield Bank may be converted
to a fixed three-year term. For purposes of Westfield Bank's obligations
the employment agreements have fixed terms of three years beginning on
January 1, 2002, and may be renewed annually after a review of the
executive's performance. These agreements provide for minimum annual
salaries of $307,930, $156,338 and $165,555, 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. Westfield Financial and Westfield 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, they 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 had continued working for an additional three
years. 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 Westfield Bank's
principal office in Westfield, Massachusetts and over 25 miles from the
executive's principal residence; or other material breach of contract by
Westfield Financial or Westfield 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 Westfield Financial or Westfield 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, Westfield 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 Westfield
Financial, rather than the executive, bears the financial cost of the
excise tax. Neither Westfield Financial nor Westfield Bank could claim a
federal income tax deduction for an excess parachute payment, excise tax
reimbursement payment or gross-up payment.
Change of Control Agreements
Westfield Bank and Westfield Financial have jointly entered into one-
year change of control agreements with three vice presidents, James C.
Hagan, Rebecca S. Kozaczka and Deborah J. McCarthy. The term of these
agreements is perpetual until Westfield Bank gives notice of non-extension,
at which time the term is fixed for one year. Generally, Westfield Bank may
terminate the employment of any officer covered by these agreements, with
or without cause, at any time prior to a change of control without
obligation for severance benefits. However, if Westfield Bank or Westfield
Financial signs a merger or other business combination agreement, or if a
third party makes a tender offer or initiates a proxy contest, it could not
terminate an officer's employment without cause without liability for
severance benefits. The severance benefits would generally be equal to the
value of the cash compensation and
17
fringe benefits that the officer would have received if he or she had
continued working for an additional one year. Westfield Bank would pay the
same severance benefits if the officer resigns after a change of control
following a loss of title, office or membership on the Board of Directors,
material reduction in duties, functions or responsibilities, involuntary
relocation of his or her principal place of employment to a location over
25 miles from Westfield Bank's principal office on the day before the
change of control and over 25 miles from the officer's principal residence
or other material breach of contract which is not cured within 30 days.
These agreements also provide uninsured death and disability benefits. If
Westfield Bank or Westfield Financial 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 change
of control agreements might constitute an "excess parachute payment" under
current federal tax laws. Any excess parachute payment would be subject to
a federal excise tax payable by the officer and would be non- deductible by
Westfield Bank and Westfield Financial for federal income tax purposes. The
change of control agreements do not provide a tax indemnity.
BENEFIT PLANS
Pension Plan. Westfield Bank maintains a pension plan for its
eligible employees. Generally, employees of Westfield Bank begin
participation in the pension plan once they reach age 21 and complete 1,000
hours of service in a consecutive 12-month period. Participants in the
pension plan become vested in their accrued benefit under the pension plan
upon the earlier of the: (1) attainment of their "normal retirement age"
(as described in the pension plan) while employed at Westfield Bank; (2)
completion of five vesting years of service with Westfield Bank; or (3)
death or disability of the participant. Participants are generally credited
with a vesting year of service for each year in which they complete at
least 1,000 hours of service. A participant's normal benefit under the
pension plan equals the sum of (1) 1.25% of the participant's average
compensation (generally defined as the average taxable compensation for the
three consecutive limitation years that produce the highest average) by the
number of years of service the participant has under the plan up to 25
years of service, plus (2) 0.6% of the excess of the participant's average
compensation over the participant's covered compensation (the social
security taxable wage base for the 35 years ending in the year the
participant becomes eligible for non-reduced social security benefits) for
each year of service under the plan up to 25 years of service. Participants
may retire at or after age 65 and receive their full benefit under the
plan. Participants may also retire early at age 62 or at age 55 with ten
years of service or at age 50 with 15 years of service under the plan and
receive a reduced retirement benefit. Pension benefits are payable in equal
monthly installments for life, or for married persons, as a joint survivor
annuity over the lives of the participant and spouse. Participants may also
elect a lump sum payment with the consent of their spouse. If a participant
dies while employed by Westfield Bank, a death benefit will be payable to
either his or her spouse or estate, or named beneficiary, equal to the
entire amount of the participant's accrued benefit in the plan.
18
The following table indicates the annual employer-provided retirement
benefits that would be payable under the pension plan upon retirement at
age 65 to a participant electing to receive his pension benefit in the
standard form of benefit, assuming various specified levels of plan
compensation and various specified years of credited service. Under the
Internal Revenue Code, maximum annual benefits under the pension plan are
limited to $160,000 per year and annual compensation for benefit
calculation purposes is limited to $200,000 per year for the 2002 calendar
year.
Years of Service
Average Annual ----------------------------------------
Compensation 10 15 20 25
-------------- -- -- -- --
<c> <c> <c> <c> <c>
$ 20,000 $ 2,500 $ 3,750 $ 5,000 $ 6,250
40,000 5,033 7,550 10,067 12,583
60,000 8,733 13,100 17,467 21,833
80,000 12,433 18,650 24,867 31,083
100,000 16,133 24,200 32,267 40,333
120,000 19,833 29,750 39,667 49,583
125,000 20,758 31,138 41,517 51,896
140,000 23,533 35,300 47,067 58,833
150,000 25,383 38,075 50,767 63,458
175,000 30,008 45,013 60,017 75,021
200,000 34,633 51,950 69,267 86,583
The benefits listed on the table above for the pension plan are not
subject to a reduction for Social Security benefits or any other offset
amount. As of December 31, 2002, Messrs. Williams, Janosco, Carra, Hagan
and Ms. Kozaczka had 29, 3, 26, 7 and 12 years of service, respectively,
for purposes of the pension plan.
401(k) Plan. Westfield Bank has adopted the SBERA 401(k) Plan, a tax-
qualified defined contribution plan, for substantially all employees of
Westfield Bank who have attained age 21 and completed at least three months
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 2002 the limit was $11,000).
Westfield Bank makes a matching contribution to the plan equal to 50% of
the first six percent of annual compensation contributed to the plan on a
pre-tax basis by a participant after such participant has completed one
year of service. 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 the common stock of Westfield
Financial.
Employee Stock Ownership Plan (ESOP). This plan is a tax-qualified
plan that covers substantially all employees who have completed 1,000 hours
of service in a 12 month period and attained age 21. The ESOP took effect
at the completion of the reorganization. Westfield Financial has lent this
plan enough money to purchase up to 8% of the shares of the total number of
shares held by persons other than Westfield Mutual Holding Company. The
plan intends to purchase all of these shares in private transactions or on
the open market from time to time to the extent that shares are available
for purchase on reasonable terms. Although contributions to this plan will
be discretionary, Westfield Bank intends to contribute enough money each
year to make the required principal and interest payments on the loan from
Westfield Financial. This loan is for a term of 30 years and calls for
level annual payments of principal and interest. The plan pledges the
shares it purchases as collateral for the loan and holds them in a suspense
account. The plan will not distribute the pledged shares right away.
Instead, it will release a portion of the pledged shares annually. Assuming
the plan repays its loan as scheduled over a 30-year
19
term, we expect that 1/30th of the shares will be released annually in
years 2002 through 2032. 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, subject to certain legal limitations imposed on tax qualified
plans. Participants direct the voting of shares allocated to their
accounts. Shares in the suspense account will usually be voted by the plan
trustee 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.
Benefit Restoration Plan. Westfield Financial has also established
the Benefit Restoration Plan of Westfield Financial in order to provide
restorative payments to executives who are prevented from receiving the
full benefits contemplated by the ESOP's benefit formula as well as the
401(k) Plan's benefit formula. The restorative payments consist of payments
in lieu of shares that cannot be allocated to participants under the ESOP
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 ESOP's
loan, payments in lieu of the shares that would have been allocated if
employment had continued through the full term of the loan. The restorative
payments also consist of amounts unable to be provided under the 401(k)
Plan due to certain legal limitations imposed on tax-qualified plans.
Deferred Compensation Agreements. Westfield Bank has also entered
into deferred compensation agreements with each of Donald A. Williams and
Victor J. Carra. Under these agreements, each executive is guaranteed
monthly payments equal to 70% of his monthly salary after retirement for
the remainder of the executive's life or 240 months, whichever is greater.
The amounts of these payments is reduced by any payments received from the
pension plan and are also reduced by Social Security payments attributable
to contributions made by Westfield Bank. These agreements also provide for
payments upon the death or disability of the executive that are equal in
amount to the payments that would have been payable to the executive upon
retirement with such payments being made for a period of 120 months.
2002 Stock Option Plan. The Westfield Financial, Inc. 2002 Stock
Option Plan was adopted by our Board of Directors and approved by our
shareholders. Article IX of the Option Plan which allows for acceleration
of vesting upon retirement of the option holder or a change in control of
Westfield Financial, Inc., 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."
20
The following table summarizes the grants of options that were made
to the named executive officers pursuant to the Option Plan during fiscal
2002. The Option Plan does not provide for the grant of stock appreciation
rights.
Option/SAR Grants in Fiscal Year 2002(1)
Individual Grants
- ----------------------------------------------------------------------------------------------------------------
Securities Percent of
Underlying Options/SARs Exercise
Options/ Granted to or Base Potential Realizable Value At
SARs Employees in Price Assumed Annual Rates of Stock
Granted Fiscal Year ($ Per Expiration Price Appreciation for Option
Name (#) (%) Share) Date Term
- ---- ---------- ------------ -------- ---------- -----------------------------
5% ($) 10% ($)
------ -------
<s> <c> <c> <c> <c> <c> <c>
Donald A. Williams 120,000 39.3 14.39 7/26/12 1,085,975 2,752,074
Michael J. Janosco, Jr. 72,000 23.6 14.39 7/26/12 651,585 1,651,245
Victor J. Carra 72,000 23.6 14.39 7/26/12 651,585 1,651,245
James C. Hagan 12,000 3.9 14.39 7/26/12 108,598 275,207
Rebecca C. Kozaczka 9,000 3.0 14.39 7/26/12 81,448 206,406
<FN>
- --------------------
<F1> All options were granted on July 26, 2002 and vest at the rate of 20%
per year with the first installment vesting beginning on July 26,
2003, with accelerated vesting in the case of death or disability, or
if, shareholders approve Proposal 2 (see "Proposal 2 -- Ratify
Article IX of the Westfield Financial, Inc. 2002 Stock Option Plan),
retirement of the option holder or change in control of Westfield
Financial, Inc. while in the service of Westfield Financial, Inc. or
Westfield 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 31, 2002, the last trading day of Westfield Financial's 2002
fiscal year, which was $15.50 per share. The first installment of options
will become exercisable on July 26, 2003.
2002 Fiscal Year End Option/SAR Values
- ---------------------------------------------------------------------------------------------------------
Number of Securities
Shares Value Underlying Unexercised Value of Unexercised In-
Acquired Realized Options/SAR at Fiscal the-Money Options/SARs
on on Year-end at Fiscal Year-end
Exercise Exercise (#) ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- -------- -------- ------------------------- -------------------------
<s> <c> <c> <c> <c>
Donald A. Williams - - 0/120,000 0/133,200
Michael J. Janosco, Jr. - - 0/72,000 0/79,920
Victor J. Carra - - 0/72,000 0/79,920
James C. Hagan - - 0/12,000 0/13,320
Rebecca C. Kozaczka - - 0/9,000 0/9,990
<FN>
- --------------------
<F1> Based on the following information with respect to options: the
closing price per share of common stock on December 31, 2002 was
$15.50 per share and all options have an exercise price of $14.39 per
share, which equals a spread of $1.11 per share.
</FN>
21
2002 Recognition and Retention Plan. The Westfield Financial, Inc.
2002 Recognition and Retention Plan was adopted by our Board of Directors
and approved by our shareholders. Article X of the Recognition and
Retention Plan which allows for acceleration of vesting upon retirement of
the option holder or a change in control of Westfield Financial, Inc.,
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 3".
Aggregated Equity Compensation Disclosure. The following table sets
forth the aggregate information of our equity compensation plans in effect
as of December 31, 2002.
Number of securities
Number of securities remaining available for
to be issued Weighted-average future issuance under
upon exercise of exercise price of equity compensation plans
outstanding options, outstanding options, (excluding securities
Plan category warrants and rights warrants and rights reflected in column (a))
------------- -------------------- -------------------- -------------------------
(a) (b) (c)
<s> <c> <c> <c>
Equity compensation
plans approved by
security holders 448,000 $14.39 248,164
Equity compensation
plans not approved by
security holders - - -
------- ------ -------
Total 448,000 $14.39 248,164(1)
------- ------ -------
<FN>
- --------------------
<F1> Reflects 49,260 shares reserved for future grant under the Westfield
Financial, Inc. 2002 Stock Option Plan, 189,800 shares subject to
current restricted stock awards under the Westfield Financial, Inc.
2002 Recognition and Retention Plan ("RRP") and 9,104 shares reserved
for future awards under the RRP.
</FN>
LIMITATIONS ON FEDERAL TAX DEDUCTIONS FOR EXECUTIVE OFFICER COMPENSATION
As a private entity, Westfield 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 Westfield Bank is now a subsidiary of
a public company, federal tax laws may limit this deduction in future years
to $1 million each tax year for each executive officer named in the summary
compensation table in Westfield 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. Westfield Financial and Westfield 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 executive 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 Westfield
Financial and Westfield Bank will be reduced.
22
TRANSACTIONS WITH CERTAIN RELATED PERSONS
Westfield Bank makes loans to its executive officers, employees and
directors. These loans are made in the ordinary course of business and on
the same terms and conditions as those of comparable transactions with the
general public prevailing at the time, in accordance with our underwriting
guidelines, and do not involve more than the normal risk of collectibility
or present other unfavorable features. At December 31, 2002, loans to non-
employee directors and their associates totaled $2,313,000.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires Westfield Financial's directors and executive officers, and
persons who own more than 10% of Westfield Financial's common stock, to
report to the Securities and Exchange Commission their initial ownership of
Westfield Financial's common stock and any subsequent changes in that
ownership. Specific due dates for these reports have been established by
the Securities and Exchange Commission and Westfield 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
Westfield Financial and written representations that no other reports were
required during the fiscal year ended December 31, 2002, all Section 16(a)
filing requirements applicable to Westfield Financial's executive officers
and directors during fiscal 2002 were met.
--------------------------------------------------
PROPOSAL 2
RATIFY ARTICLE IX OF THE WESTFIELD FINANCIAL, INC.
2002 STOCK OPTION PLAN
--------------------------------------------------
General Plan Information
The shareholders of Westfield Financial approved the Westfield
Financial, Inc. 2002 Stock Option Plan, and the plan became effective on
July 26, 2002. The purpose of the 2002 Stock Option Plan is to enable
Westfield Financial to grant certain officers, employees and outside
directors a right, known as an option, to purchase shares of the common
stock of Westfield Financial at a stated price during a specified period or
term. If the option is not exercised during its term, it will expire. The
2002 Stock Option Plan is not an employee pension or welfare benefit plan.
As a result, the 2002 Stock Option Plan is not subject to the Employee
Retirement Income Security Act of 1974, as amended.
Pursuant to regulations applicable to 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 2002
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 applicable regulations, Article IX of the 2002
Stock Option Plan, which was included in the 2002 Stock Option Plan as
approved by shareholders on July 26, 2002, but by its terms will become
effective only if approved by the shareholders of Westfield Financial again
at a meeting held after December 27, 2002, eliminates such restrictions and
limitations. Article IX does not increase the number of shares reserved
for issuance under the 2002 Stock Option Plan, decrease the price per share
at
23
which options were granted under the 2002 Stock Option Plan or alter the
classes of individuals eligible to participate in the 2002 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 2002 Stock
Option Plan will remain in effect.
The principal provisions of the 2002 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 A to this
proxy statement and the summary of Article IX provided below is qualified
in its entirety by such reference.
Purpose of the 2002 Stock Option Plan
The 2002 Stock Option Plan is a long-term incentive compensation
plan. Its purpose is to promote the growth and profitability of Westfield
Financial by providing its key officers, employees and directors with an
"equity stake" in Westfield Financial that will encourage them to achieve
corporate goals and increase the value of Westfield Financial and its
subsidiaries. The 2002 Stock Option Plan will also assist Westfield
Financial in attracting and retaining officers, employees and directors of
outstanding caliber and experience through future grants to be made from
the 2002 Stock Option Plan's share reserve.
Description of the 2002 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 Westfield
Financial or Westfield Bank; and (2) do not receive material compensation
from Westfield Financial or Westfield 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 2002 Stock Option Plan. Westfield Financial has
reserved 497,260 shares of common stock of Westfield Financial for issuance
upon the exercise of options under the plan. Such shares may be authorized
and unissued shares or shares previously issued that Westfield 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, 2002, the aggregate fair market value of the shares
reserved for issuance under the plan was $7,707,530 based on the latest
closing sales price per share of Westfield Financial's common stock of
$15.50 on the American Stock Exchange on December 31, 2002.
Eligibility. An administrative committee of Westfield Financial
selects the people who receive stock option grants. Any employee of
Westfield Financial, Westfield Bank or any affiliate approved by the Board
of Directors may be selected to receive options. As of December 31, 2002,
11 employees have been selected by the committee as eligible to receive
option grants, and 10 directors of Westfield Financial, Westfield 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 124,315 shares
to any one employee. In addition, it may not grant options to
purchase more than 24,863 shares to any one non-
24
employee director or options to purchase more than 149,178
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
only grant options that accelerate vesting in cases 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 Westfield
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 Westfield 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 Westfield Financial is not the surviving entity,
outstanding options may be canceled upon written notice to the option
holder so long as the option holder receives payment determined by
Westfield Financial's Board of Directors to be of a value equivalent to the
value of the canceled options.
Termination or Amendment of the 2002 Stock Option Plan. The 2002
Stock Option Plan is in effect for a ten-year period that began July 26,
2002, 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 2002 Stock Option Plan
Currently, the 2000 Stock Option Plan requires that options granted
prior to December 28, 2002 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 Westfield Financial or the retirement of the option holder, as
such terms are defined in the 2002 Stock Option Plan. Pursuant to Article
IX, all options that are outstanding as of the date of a change in control
of Westfield 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 Westfield
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
December 27, 2002.
25
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 Westfield 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. State and local tax consequences may also be significant.
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 Westfield Financial. When a non-
qualified stock option is exercised, Westfield 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 Board of Directors unanimously recommends a vote "For" the approval of
Article IX of the Westfield Financial, Inc. 2002 Stock Option Plan.
===========================================================================
26
--------------------------------------------------
PROPOSAL 3
RATIFY ARTICLE X OF THE WESTFIELD FINANCIAL, INC.
2002 RECOGNITION AND RETENTION PLAN
--------------------------------------------------
General Plan Information
The shareholders of Westfield Financial approved the 2002 Recognition
and Retention Plan, and the plan became effective on July 26, 2002. The
2002 Recognition and Retention Plan allows Westfield 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 2002 Recognition and Retention Plan, like the 2002 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 applicable to stock plans established or
implemented within one year following the completion of a mutual to stock
form of organization, the 2002 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 2002 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 applicable regulations, Article X of the 2002
Recognition and Recognition Plan, which was included in the 2002
Recognition and Retention Plan as approved by the shareholders on July 26,
2002, but by its terms will become effective only if approved by the
shareholders of Westfield Financial again at a meeting held after December
27, 2002, eliminates such restrictions and limitations. Article X does not
increase the number of shares reserved for issuance under 2002 Recognition
and Retention Plan, decrease the price per share at which the Awards were
granted under the 2002 Recognition and Retention Plan or alter the classes
of individuals eligible to participate in the 2002 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
2002 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 B 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 2002 Recognition and Retention Plan
The 2002 Recognition and Retention Plan is also a long-term incentive
compensation plan. Its purpose is to promote the growth and profitability
of Westfield Financial by providing key personnel and directors with an
incentive to achieve corporate objectives. Awards granted under the 2002
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 Westfield Financial. The 2002 Recognition and
Retention Plan will also assist Westfield Financial in attracting and
retaining top-notch officers, employees and directors through future awards
to be made from the 2002 Recognition and Retention Plan's share reserve.
27
Description of the 2002 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 Westfield
Financial or Westfield Bank; and (2) do not receive material compensation
from Westfield Financial or Westfield 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 2002 Recognition and Retention Plan. Westfield
Financial will establish a fund and will contribute certain amounts of
money or property to be determined by the Board of Directors of Westfield
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 Westfield
Financial. The fund is not authorized to purchase more than 198,904 shares
of common stock of Westfield Financial and cannot purchase more than this
number. As of December 31, 2002, the aggregate fair market value of the
shares to be purchased under this plan was $3,083,012 based on the latest
closing sales price per share of Westfield Financial's common stock of
$15.50 on the American Stock Exchange on December 31, 2002.
Eligibility. An administrative committee of Westfield Financial
selects the people who receive restricted stock awards under the plan. Any
employee of Westfield Financial, Westfield Bank or any affiliate approved
by the Board of Directors may be selected to receive stock awards. As of
December 31, 2002, 7 employees have been selected by the committee to
receive stock awards, and 10 directors of Westfield Financial, Westfield
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 198,904 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 49,726
shares of our common stock to any one officer or employee, more
than 9,945 shares of our common stock to any one non-employee
director, or more than 59,671 shares to all non-employee
directors in the aggregate.
* Unless we obtain stockholder approval for Article X, it may
only grant restricted stock awards that accelerate vesting 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.
28
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 Westfield 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 Westfield 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 2002 Recognition and Retention Plan.
The Board of Directors of Westfield 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 Westfield Financial.
Purpose of Article X of the 2002 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 2002 Recognition and Retention Plan requires
that awards granted prior to December 28, 2002 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 Westfield Financial or the retirement
of an award holder, as such terms are defined in the 2002 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 Westfield 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 December 27,
2002 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 Westfield 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 Westfield 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.
Westfield 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. Westfield Financial will be allowed
to claim a deduction for compensation expense for this amount as well.
29
Section 162(m) of the Internal Revenue Code limits Westfield
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 Westfield Financial, Inc. 2002 Recognition and Retention
Plan.
===========================================================================
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP served as independent public accountants for
the purpose of auditing Westfield Financial's consolidated financial
statements for the year ended December 31, 2002 and will continue to serve
as Westfield Financial's independent accountants for the year ended
December 31, 2003. A representative of Deloitte & Touche 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.
30
ADDITIONAL INFORMATION
Information About Shareholder Proposals
If you wish to submit proposals to be included in our proxy statement
for the 2004 annual meeting of Westfield Financial shareholders, we must
receive them on or before December 31, 2003, pursuant to the proxy
soliciting regulations of the SEC. Nothing in this paragraph shall be
deemed to require Westfield Financial to include in its proxy statement and
proxy card for such meeting any shareholder proposal which does not meet
the requirements of the SEC in effect at the time. Any such proposal will
be subject to 17 C.F.R. [SECTION]240.14a-8 of the Rules and Regulations
promulgated by the SEC under the Exchange Act.
In addition, under Westfield Financial's Bylaws, if you wish to
nominate a director or bring other business before an annual meeting (which
is not included in the proxy statement for the 2004 Annual Meeting), the
following criteria must be met: (i) you must be a shareholder of record;
(ii) you must have given timely notice in writing to the Clerk of Westfield
Financial; and (iii) your notice must contain specific information required
in our Bylaws. To be considered timely for inclusion in our 2004 Annual
Meeting, we must receive your advance written notice of business or
nominations to the Board of Directors no later than 120 days preceding the
anniversary date of this year's annual meeting. For example, if we hold
this year's annual meeting on May 30, 2003, we should receive your advance
notice of business or nomination no later than January 30, 2003.
By Order of the Board of Directors,
/s/ Philip R. Smith
Philip R. Smith
Clerk
Westfield, Massachusetts
April 25, 2003
===========================================================================
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.
===========================================================================
31
Appendix A
----------
ARTICLE IX OF THE WESTFIELD FINANCIAL, INC.
2002 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 9.2: (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 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 (excluding those Shares held by Westfield Mutual
Holding Company) represented in person or by proxy and entitled to vote at
a meeting of shareholders duly called and held after December 27, 2002.
A-1
Appendix B
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ARTICLE X OF THE WESTFIELD FINANCIAL, INC.
2002 RECOGNITION AND RETENTION PLAN
ARTICLE X
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ADDITIONAL PROVISIONS SUBJECT TO FURTHER SHAREHOLDER APPROVAL
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Section 10.1 Accelerated Vesting Upon Retirement or Change in Control.
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Notwithstanding anything in the Plan to the contrary, but subject to
section 10.2, 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 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 (excluding those Shares held by Westfield Mutual
Holding Company) represented in person or by proxy and entitled to vote at
a meeting of shareholders duly called and held on or after December 27,
2002.
B-1
Westfield Financial, Inc. REVOCABLE PROXY
This Proxy is solicited on behalf of the Board of Directors of
Westfield Financial, Inc.
for the Annual Meeting of Stockholders to be held on May 30, 2003.
The undersigned stockholder of Westfield Financial, Inc. hereby appoints
Victor J. Carra and Thomas J. Howard, each of them, with full powers of
substitution, to represent and to vote as proxy, as designated, all shares
of common stock of Westfield Financial, Inc. held of record by the
undersigned on April 9, 2003, at the Annual Meeting of Stockholders (the
"Annual Meeting") to be held at 10:00 a.m., Eastern Time, on May 30, 2003,
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 April 25, 2003 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 recommends a vote "FOR" all of the
nominees named in Item 1 and a vote "FOR" each of the proposals in Items 2
and 3.
I Will Attend Annual Meeting. [ ]
Please Mark Your Choice Like This
in Blue or Black Ink. [X]
1. Election of three directors for terms of three years each. Nominees:
David C. Colton, Mary C. O'Neil and Donald A. Williams.
For Against Abstain
[ ] [ ] [ ]
Instruction: TO WITHHOLD AUTHORITY to vote for any individual
nominee, write that nominee's name in the space provided:
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2. Ratification of Article IX of the Westfield Financial, Inc. 2002
Stock Option Plan, allowing, among other things, for the acceleration
of vesting upon retirement or change in control.
For Against Abstain
[ ] [ ] [ ]
3. Ratification of Article X of the Westfield Financial, Inc. 2002
Recognition and Retention Plan, allowing, among other things, for the
acceleration of vesting upon retirement or change in control.
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 April 25, 2003.
___________________________________
___________________________________
Signature(s)
Dated: ______________________, 2003
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.