UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. ______)
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|_| Preliminary Proxy Statement
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(as permitted by Rule 14a-6(e)(2))
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|_| Soliciting Material Pursuant to ss. 240.14a-12
Naugatuck Valley Financial Corporation
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[Naugatuck Valley Financial Corporation LOGO]
April 1, 2005
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders of
Naugatuck Valley Financial Corporation. We will hold the meeting at Leary's
Crystal Room located at 98 School Street, Naugatuck, Connecticut, on May 5, 2005
at 10:30 a.m., local time.
The notice of annual meeting and proxy statement appearing on the
following pages describe the formal business to be transacted at the meeting.
During the meeting, we will also report on the operations of the Company.
Directors and officers of the Company, as well as a representative of Snyder &
Haller, P.C., the Company's independent auditors, will be present to respond to
appropriate questions of stockholders.
It is important that your shares are represented at this meeting, whether
or not you attend the meeting in person and regardless of the number of shares
you own. To make sure your shares are represented, we urge you to complete and
mail the enclosed proxy card. If you attend the meeting, you may vote in person
even if you have previously mailed a proxy card.
We look forward to seeing you at the meeting.
Sincerely,
/s/ John C. Roman
John C. Roman
President and Chief Executive Officer
Naugatuck Valley Financial Corporation
333 Church Street
Naugatuck, Connecticut 06770
(203) 720-5000
Notice of Annual Meeting of Stockholders
On May 5, 2005, Naugatuck Valley Financial Corporation (the "Company")
will hold its annual meeting of stockholders at Leary's Crystal Room located at
98 School Street, Naugatuck, Connecticut. The meeting will begin at 10:30 a.m.,
local time. At the meeting, stockholders will consider and act on the following:
1. The election of three directors to serve for a term of three years;
2. The approval of the Naugatuck Valley Financial Corporation 2005
Equity Incentive Plan;
3. The ratification of the appointment of Snyder & Haller, P.C. as
independent auditors for the Company for the fiscal year ending
December 31, 2005; and
4. Such other business that may properly come before the meeting.
NOTE: The Board of Directors is not aware of any other business to come
before the meeting.
The Board of Directors set March 14, 2005 as the record date for the
meeting. This means that owners of the Company's common stock at the close of
business on that date are entitled to receive notice of the meeting and to vote
at the meeting and any adjournments or postponements of the meeting.
Please complete, sign and date the enclosed proxy card, which is solicited
by the Board of Directors, and mail it promptly in the enclosed envelope. The
proxy will not be used if you attend the meeting and vote in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Bernadette A. Mole
Bernadette A. Mole
Corporate Secretary
Naugatuck, Connecticut
April 1, 2005
NOTE: Whether or not you plan to attend the annual meeting, please vote by
marking, signing, dating and promptly returning the enclosed proxy card in the
enclosed envelope.
NAUGATUCK VALLEY FINANCIAL CORPORATION
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PROXY STATEMENT
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This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Naugatuck Valley Financial Corporation
("Naugatuck Valley Financial" or the "Company") to be used at the annual meeting
of stockholders of the Company. Naugatuck Valley Financial is the holding
company for Naugatuck Valley Savings and Loan ("Naugatuck Valley Savings" or the
"Bank") and the majority-owned subsidiary of Naugatuck Valley Mutual Holding
Company ("Naugatuck Valley Mutual"). The annual meeting will be held at Leary's
Crystal Room located at 98 School Street, Naugatuck, Connecticut, on May 5, 2005
at 10:30 a.m., local time. This proxy statement and the enclosed proxy card are
being first mailed on or about April 1, 2005 to stockholders of record.
General Information About Voting
Who Can Vote at the Meeting
You are entitled to vote your shares of Naugatuck Valley Financial common
stock only if the records of the Company show that you held your shares as of
the close of business on March 14, 2005. As of the close of business on March
14, 2005, a total of 7,604,375 shares of Naugatuck Valley Financial common stock
were outstanding, including 4,182,407 shares of common stock held by Naugatuck
Valley Mutual. Each share of common stock has one vote. The Company's Charter
provides that, until September 30, 2009, record holders of the Company's common
stock, other than Naugatuck Valley Mutual, who beneficially own, either directly
or indirectly, in excess of 10% of the Company's outstanding shares are not
entitled to any vote in respect of the shares held in excess of the 10% limit.
Vote By Naugatuck Valley Mutual
Naugatuck Valley Mutual, the mutual holding company for Naugatuck Valley
Financial, owns 55% of the outstanding shares of common stock of Naugatuck
Valley Financial as of March 14, 2005. All shares of common stock owned by
Naugatuck Valley Mutual will be voted in accordance with the instructions of the
Board of Directors of Naugatuck Valley Mutual, the members of which are
identical to the members of the Board of Directors of Naugatuck Valley
Financial. Naugatuck Valley Mutual is expected to vote such shares "FOR" each
nominee for election as a director and "FOR" each other proposal.
Attending the Meeting
If you are a beneficial owner of Naugatuck Valley Financial common stock
held by a broker, bank or other nominee (i.e., in "street name"), you will need
proof of ownership to be admitted to the meeting. A recent brokerage statement
or letter from a bank or broker are examples of proof of ownership. If you want
to vote your shares of Naugatuck Valley Financial common stock held in street
name in person at the meeting, you must obtain a written proxy in your name from
the broker, bank or other nominee who is the record holder of your shares.
1
Quorum and Vote Required
The annual meeting will be held only if there is a quorum. A quorum exists
if a majority of the outstanding shares of common stock entitled to vote is
represented at the meeting. If you return valid proxy instructions or attend the
meeting in person, your shares will be counted for purposes of determining
whether there is a quorum, even if you abstain from voting. Broker non-votes
also will be counted for purposes of determining the existence of a quorum. A
broker non-vote occurs when a broker, bank or other nominee holding shares for a
beneficial owner does not vote on a particular proposal because the nominee does
not have discretionary voting power with respect to that item and has not
received voting instructions from the beneficial owner.
The Company's Board of Directors consists of eight members. At this years
annual meeting, stockholders will elect three directors to serve a term of three
years. In voting on the election of directors, you may vote in favor of all
nominees, withhold votes as to all nominees, or withhold votes as to specific
nominees. There is no cumulative voting for the election of directors. Directors
must be elected by a plurality of the votes cast at the annual meeting.
"Plurality" means that the nominees receiving the largest number of votes cast
will be elected as directors up to the maximum number of directors to be elected
at the annual meeting. At the annual meeting, the maximum number of directors to
be elected is three. Votes that are withheld and broker non-votes will have no
effect on the outcome of the election.
In voting on the approval of the Naugatuck Valley Financial Corporation
2005 Equity Incentive Plan (the "2005 Plan"), you may vote in favor of the
proposal, against the proposal or abstain from voting. To be approved, this
matter requires the affirmative vote of a majority of the votes eligible to be
cast at the annual meeting, including the shares held by Naugatuck Valley Mutual
("Vote Standard A"), and by the affirmative vote of a majority of the votes cast
at the annual meeting, excluding the shares held by Naugatuck Valley Mutual
("Vote Standard B"). For Vote Standard A, abstentions and broker non-votes will
have the same effect as a negative vote. For Vote Standard B, abstentions and
broker non-votes will have no effect on the voting.
In voting on the ratification of the appointment of Snyder & Haller, P.C.
as independent auditors, you may vote in favor of the proposal, vote against the
proposal or abstain from voting. This proposal will be decided by the
affirmative vote of a majority of the shares represented at the annual meeting
and entitled to vote. On this matter abstentions will have the same effect as a
negative vote and broker non-votes will have no effect on the voting.
Because Naugatuck Valley Mutual owns more than 50% of Naugatuck Valley
Financial's outstanding shares, the votes it casts will ensure the presence of a
quorum and control the outcome of the vote on Proposal 1 (Election of Directors)
and Proposal 3 (Ratification of Appointment of Independent Auditors). See "Vote
by Naugatuck Valley Mutual" above.
Voting by Proxy
The Board of Directors of Naugatuck Valley Financial is sending you this
proxy statement for the purpose of requesting that you allow your shares of
Naugatuck Valley Financial common stock to be represented at the annual meeting
by the persons named in the enclosed proxy card. All shares of Naugatuck Valley
Financial common stock represented at the annual meeting by properly executed
and dated proxy cards will be voted according to the instructions indicated on
the proxy card. If you sign, date and return a proxy card without giving voting
instructions, your shares will be voted as recommended by the Company's Board of
Directors.
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The Board of Directors recommends a vote:
o "FOR" all of the nominees for director;
o "FOR" approval of the Naugatuck Valley Financial Corporation
2005 Equity Incentive Plan; and
o "FOR" ratification of Snyder & Haller, P.C. as independent
auditors.
If any matters not described in this proxy statement are properly
presented at the annual meeting, the persons named in the proxy card will use
their own best judgment to determine how to vote your shares. This includes a
motion to adjourn or postpone the annual meeting in order to solicit additional
proxies. If the annual meeting is postponed or adjourned, your Naugatuck Valley
Financial common stock may be voted by the persons named in the proxy card on
the new annual meeting date as well, unless you have revoked your proxy. The
Company does not know of any other matters to be presented at the annual
meeting.
You may revoke your proxy at any time before the vote is taken at the
meeting. To revoke your proxy you must either advise the Corporate Secretary of
the Company in writing before your common stock has been voted at the annual
meeting, deliver a later dated proxy, or attend the meeting and vote your shares
in person. Attendance at the annual meeting will not in itself constitute
revocation of your proxy.
If your Naugatuck Valley Financial common stock is held in "street name,"
you will receive instructions from your broker, bank or other nominee that you
must follow in order to have your shares voted. Your broker, bank or other
nominee may allow you to deliver your voting instructions via the telephone or
the Internet. Please see the instruction form provided by your broker, bank or
other nominee that accompanies this proxy statement.
If you have any questions about voting, please contact our proxy
solicitor, Regan & Associates, at (800) 737-3426.
Participants in the Bank's ESOP or 401(k) Plan
If you participate in the Naugatuck Valley Savings and Loan Employee Stock
Ownership Plan (the "ESOP") or if you hold shares through the Naugatuck Valley
Savings and Loan 401(k) Profit Sharing Plan and Trust (the "401(k) Plan"), you
will receive a voting instruction form for each plan that reflects all shares
you may direct the trustees to vote on your behalf under the plans. Under the
terms of the ESOP, the ESOP trustee votes all shares held by the ESOP, but each
ESOP participant may direct the trustee how to vote the shares of common stock
allocated to his or her account. The ESOP trustee, subject to the exercise of
its fiduciary duties, will vote all unallocated shares of Company common stock
held by the ESOP and allocated shares for which no voting instructions are
received in the same proportion as shares for which it has received timely
voting instructions. Under the terms of the 401(k) Plan, a participant is
entitled to direct the trustee as to the shares in the Naugatuck Valley
Financial Stock Fund credited to his or her account. The trustee will vote all
shares for which no directions are given or for which instructions were not
timely received in the same proportion as shares for which the trustee received
voting instructions. The deadline for returning your voting instructions to each
plan's trustee is April 28, 2005.
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Corporate Governance
General
Naugatuck Valley Financial periodically reviews its corporate governance
policies and procedures to ensure that Naugatuck Valley Financial meets the
highest standards of ethical conduct, reports results with accuracy and
transparency and maintains full compliance with the laws, rules and regulations
that govern Naugatuck Valley Financial's operations. As part of this periodic
corporate governance review, the Board of Directors reviews and adopts best
corporate governance policies and practices for Naugatuck Valley Financial.
Corporate Governance Policies and Procedures
Naugatuck Valley Financial has adopted a corporate governance policy to
govern certain activities, including:
(1) the duties and responsibilities of each director;
(2) the composition, responsibilities and operation of the Board of
Directors;
(3) the establishment and operation of board committees;
(4) succession planning;
(5) appointing an independent lead director and convening executive
sessions of independent directors;
(6) the Board of Directors' interaction with management and third
parties; and
(7) the evaluation of the performance of the Board of Directors and of
the chief executive officer.
Code of Ethics and Business Conduct
Naugatuck Valley Financial has adopted a Code of Ethics and Business
Conduct that is designed to ensure that the Company's directors, executive
officers and employees meet the highest standards of ethical conduct. The Code
of Ethics and Business Conduct requires that the Company's directors, executive
officers and employees avoid conflicts of interest, comply with all laws and
other legal requirements, conduct business in an honest and ethical manner and
otherwise act with integrity and in the Company's best interest. Under the terms
of the Code of Ethics and Business Conduct, directors, executive officers and
employees are required to report any conduct that they believe in good faith to
be an actual or apparent violation of the Code.
As a mechanism to encourage compliance with the Code of Ethics and
Business Conduct, the Company has established procedures to receive, retain and
treat complaints received regarding accounting, internal accounting controls or
auditing matters. These procedures ensure that individuals may submit concerns
regarding questionable accounting or auditing matters in a confidential and
anonymous manner. The Code of Ethics and Business Conduct also prohibits the
Company from retaliating against any director, executive officer or employee who
reports actual or apparent violations of the Code.
4
Meetings of the Board of Directors
The Company and the Bank conduct business through meetings and activities
of their Boards of Directors and their committees. During the year ended
December 31, 2004, the Board of Directors of the Company, which was formed on
September 30, 2004, met two times and the Board of Directors of the Bank met 41
times. No director attended fewer than 75% of the total meetings of the
Company's and the Bank's respective Board of Directors and the committees on
which such director served. The Company has standing Audit, Compensation and
Nominating and Corporate Governance Committees.
Committees of the Board of Directors of Naugatuck Valley Financial
Audit Committee. The Board of Directors has a separately-designated
standing Audit Committee established in accordance with Section 3(a)(58)(A) of
the Securities Exchange Act of 1934, as amended. The Audit Committee currently
consists of Messrs. Famiglietti, Lengyel and Plude, each of whom is
"independent" in accordance with the listing standards of the Nasdaq Stock
Market ("Nasdaq"). This committee meets periodically with the independent
auditors and management to review accounting, auditing, internal control
structure and financial reporting matters. The committee met once during the
year ended December 31, 2004. The Board of Directors has determined that Mr.
Plude is an audit committee financial expert under the rules of the Securities
and Exchange Commission. The Audit Committee acts under a written charter
adopted by the Board of Directors, a copy of which is included as Appendix A to
this proxy statement. The report of the audit committee required by the rules of
the Securities and Exchange Commission is included in this proxy statement. See
"Proposal 3-Ratification of Independent Auditors-Report of Audit Committee."
Compensation Committee. The Compensation Committee currently consists of
Messrs. Batista, Famiglietti, Lengyel, Mengacci, Plude and Vieira, each of whom
is "independent" in accordance with the listing standards of Nasdaq. The
Compensation Committee is responsible for all matters regarding the Company's
and the Bank's employee compensation and benefit programs. Due to the timing of
the Company's reorganization and minority stock offering, the Compensation
Committee of the Board of Directors of the Company did not meet in fiscal 2004.
The Bank's Compensation Committee met once during fiscal 2004. The report of the
compensation committee required by the rules of the Securities and Exchange
Commission is included in this proxy statement. See "Compensation Committee
Report on Executive Compensation."
Nominating and Corporate Governance Committee. The Nominating and
Corporate Governance Committee currently consists of Messrs. Famiglietti,
Batista, Lengyel, Mengacci, Plude and Vieira, each of whom is "independent" in
accordance with the listing standards of Nasdaq. The committee takes a
leadership role in shaping governance policies and practices including
recommending to the Board of Directors the corporate governance policies and
guidelines applicable to Naugatuck Valley Financial and monitoring compliance
with these policies and guidelines. In addition, the Nominating and Corporate
Governance Committee is responsible for identifying individuals qualified to
become Board members and recommending to the Board the director nominees for
election at the next annual meeting of stockholders. It leads the Board in its
annual review of the Board's performance and recommends director candidates for
each committee for appointment by the Board. This committee met once to
recommend the nominees for election of directors at this annual meeting. The
Nominating and Corporate Governance Committee acts under a written charter
adopted by the Board of Directors, a copy of which is included as Appendix B to
this proxy statement. The procedures of the Nominating and Corporate Governance
Committee required to be disclosed by the rules of the Securities and Exchange
Commission are included in this proxy statement. See "Nominating and Corporate
Governance Committee Procedures."
5
Attendance at the Annual Meeting
The Board of Directors encourages directors to attend the annual meeting
of stockholders. Due to the timing of the Company's reorganization and minority
stock offering on September 30, 2004, the Company did not hold an annual meeting
of stockholders in 2004.
Directors' Compensation
Fees. Each non-employee director of Naugatuck Valley Savings receives an
annual retainer of $7,500. The Chairman of the Board receives an annual retainer
of $11,500. In addition, each non-employee director receives $500 per Board
meeting attended and $400 per committee meeting attended. The Chairman of the
Board also receives $400 per month for his service as Asset/Liability Committee
liaison. Each non-employee director of Naugatuck Valley Financial receives a
quarterly retainer of $500 and each member of the Naugatuck Valley Financial
Audit Committee receives $400 per meeting attended. Naugatuck Valley Savings
also paid $4,623 in 2004 for the Chairman of the Board's membership in a country
club.
Director Retirement Policy. Naugatuck Valley Savings maintains a
retirement benefits policy for certain non-employee directors. Under the policy,
any person who served as a director on January 1, 2000, who has attained the age
of 68 on or by that date and who has served on the Board for at least 10 years
as of the time he or she attains age 70, becomes eligible for an annual
retirement benefit. The annual retirement benefit for these directors equals the
total amounts paid to all non-employee directors during the calendar year
preceding the director's retirement date divided by the number of non-employee
directors for that year. For all other directors who have served on the Board
for at least 10 years as of the time he or she attains age 70, the director's
annual retirement benefit equals the total amounts paid to all non-employee
directors during the calendar year preceding the director's retirement date
divided by the number of non-employee directors for that year and then
multiplying that result by 60%. These annual retirement benefits are payable to
each director in semi-annual installments for five years. If the director dies
before receiving each of the semi-annual installments, his or her beneficiary
will receive the remaining installments that would have been to the director but
for his or her death.
6
Stock Ownership
The following table provides information as of March 14, 2005 about the
persons and entities known to Naugatuck Valley Financial to be the beneficial
owners of more than 5% of the Company's outstanding common stock. A person or
entity may be considered to beneficially own any shares of common stock over
which the person or entity has, directly or indirectly, sole or shared voting or
investing power.
Percent of
Number of Common Stock
Name and Address Shares Owned Outstanding(2)
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Naugatuck Valley Mutual Holding Company
333 Church Street
Naugatuck, Connecticut 06770 4,182,407(1) 55.0%
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(1) Acquired in connection with the Company's minority stock offering, which
was completed on September 30, 2004. The members of the board of directors
of Naugatuck Valley Financial and Naugatuck Valley Savings also constitute
the board of directors of Naugatuck Valley Mutual.
(2) Based on 7,604,375 shares of the Company's common stock outstanding and
entitled to vote as of March 14, 2005.
The following table provides information as of March 14, 2005 about the
shares of Naugatuck Valley Financial common stock that may be considered to be
beneficially owned by each director, nominee for director, named executive
officer listed in the table under "Executive Compensation - Summary Compensation
Table," and all directors and executive officers of the Company as a group. A
person may be considered to beneficially own any shares of common stock over
which he or she has, directly or indirectly, sole or shared voting or investment
power. Unless otherwise indicated, each of the named individuals has sole voting
power and sole investment power with respect to the number of shares shown.
Number of Percent of Common
Name Shares Owned Stock Outstanding(1)
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Dominic J. Alegi 9,810(2) *
Carlos S. Batista 11,300(3) *
Richard M. Famiglietti 10,000 *
Ronald D. Lengyel 5,000 *
James A. Mengacci 6,206 *
Michael S. Plude 2,779(4) *
John C. Roman 6,880(5) *
Camilo P. Vieira 2,946(6) *
Jane H. Walsh 7,205(7) *
All directors and executive officers
as a group (12 persons) 85,726 1.13%
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* Less than 1.0% of shares outstanding.
(1) Based on 7,604,375 shares of the Company's common stock outstanding and
entitled to vote as of March 14, 2005.
(2) Includes 200 shares held by Mr. Alegi's spouse and 100 shares held in a
custodian's account for Mr. Alegi's grandchild.
7
(3) Includes 100, 100 and 100 shares, respectively, held in three custodian
accounts for Mr. Batista's grandchildren.
(4) Includes 1,200 and 579 shares, respectively, held by two corporations
controlled by Mr. Plude.
(5) Includes 70 shares held by Mr. Roman's daughter.
(6) Includes 1,839 shares held in Mr. Vieira's spouse's individual retirement
account.
(7) Includes 1,435 shares held in Ms. Walsh's spouse's individual retirement
account.
Interest of Certain Persons in Matters to be Acted Upon
The three nominees for election as director were unanimously nominated by
the Nominating and Governance Committee of the Board of Directors. None of the
nominees were nominated according to any agreement or understanding between any
of them and the Company.
The Naugatuck Valley Financial Corporation 2005 Equity Incentive Plan is
being presented to stockholders for approval. See "Proposal 2 -- Approval of the
Naugatuck Valley Financial Corporation 2005 Equity Incentive Plan" for more
information. Directors, officers and employees of the Company and Bank may be
granted stock awards and options under the 2005 Plan.
Proposal 1 -- Election of Directors
The Company's Board of Directors consists of eight members, all of whom
are independent under the listing standards of the Nasdaq Stock Market except
for Mr. Roman, President and Chief Executive Officer of Naugatuck Valley
Financial and Naugatuck Valley Savings, and Ms. Walsh, Senior Vice President of
Naugatuck Valley Financial and Naugatuck Valley Savings. The Board is divided
into three classes with three-year staggered terms, with approximately one-third
of the directors elected each year. The Board of Directors' nominees for
election this year, to serve for a three-year term or until their respective
successors have been elected and qualified, are Messrs. Batista, Roman and
Vieira, each of whom is currently a director of Naugatuck Valley Financial and
Naugatuck Valley Savings.
Unless you indicate on the proxy card that your shares should not be voted
for certain nominees, the Board of Directors intends that the proxies solicited
by it will be voted for the election of all of the Board's nominees. If any
nominee is unable to serve, the persons named in the proxy card would vote your
shares to approve the election of any substitute nominee proposed by the Board
of Directors. At this time, the Board of Directors knows of no reason why any
nominee might be unable to serve.
The Board of Directors recommends a vote "FOR" the election of Messrs.
Batista, Roman and Vieira.
Information regarding the Board of Directors' nominees and the directors
continuing in office is provided below. Unless otherwise stated, each individual
has held his or her current occupation for the last five years. The age
indicated for each individual is as of December 31, 2004. The indicated period
of service as a director includes the period of service as a director of
Naugatuck Valley Savings.
Board Nominees for Election of Directors
Carlos S. Batista is a Vice President of Bristol Babcock, Inc., a
manufacturer and world-wide supplier of products and services in the oil, gas,
water, wastewater, process control and power industries. Age 55. Director since
1999.
8
John C. Roman has served as President and Chief Executive Officer of
Naugatuck Valley Financial and Naugatuck Valley Mutual since 2004 and has been
President and Chief Executive Officer of Naugatuck Valley Savings since
September 1999. Mr. Roman previously was the Vice President and Chief Lending
Officer of Naugatuck Valley Savings. Age 51. Director since 1999.
Camilo P. Vieira is a consultant with, and previously served as the
President of, CM Property Management, a property management firm. Mr. Vieira
previously served with IBM Corp. as a project and financial manager for over 30
years. Age 61. Director since 2002.
Directors Continuing in Office
The following directors have terms ending in 2006:
Richard M. Famiglietti has been the owner of CM Property Management, a
property management firm, since 2002. Previously, Mr. Famiglietti was a Vice
President of sales for Naugatuck Glass Company, a glass fabricator. Age 57.
Director since 2000.
Ronald D. Lengyel serves as the Chairman of the Board of Directors of
Naugatuck Valley Financial, Naugatuck Valley Mutual and Naugatuck Valley
Savings. Mr. Lengyel previously served as President and Chief Executive Officer
of Naugatuck Valley Savings before his retirement in September 1999. Mr. Lengyel
is a director of Connecticut Water Service, Inc., a Nasdaq-listed company. Age
66. Director since 1971.
The following directors have terms ending in 2007:
James A. Mengacci has been the owner of James A. Mengacci Associates LLC,
a consulting firm, since 1999 and a partner in Allied Capital Management, LLC, a
marketing and investment firm, since 1999. Mr. Mengacci previously was the
Secretary and Treasurer of Fitzgerald Funeral Home, Inc. Age 46. Director since
1988.
Michael S. Plude is a certified public accountant and the managing partner
of Kaskie Plude & Co., an accounting firm located in Monroe, Connecticut. Mr.
Plude previously was an accountant with Pricewaterhouse. Age 45. Director since
2003.
Jane H. Walsh has served as Senior Vice President of Naugatuck Valley
Financial and Naugatuck Valley Mutual since 2004 and has been Senior Vice
President of Naugatuck Valley Savings since 2000. Ms. Walsh has served with
Naugatuck Valley Savings for over 30 years. Age 61. Director since 2001.
9
Proposal 2 -- Approval of the
Naugatuck Valley Financial Corporation
2005 Equity Incentive Plan
On March 9, 2005, the Board of Directors adopted, subject to stockholder
approval at the annual meeting, the Naugatuck Valley Financial Corporation 2005
Equity Incentive Plan. The 2005 Plan will become effective as of the date it is
approved by the stockholders.
The Board has reserved 521,659 shares of common stock for issuance upon
the grant or exercise of awards pursuant to the 2005 Plan. All of the Company's
employees, officers, and directors are eligible to participate in the 2005 Plan.
A summary of the 2005 Plan is set forth below. This summary is qualified in its
entirety by the full text of the 2005 Plan, which is attached to this proxy
statement as Appendix C.
Summary of the 2005 Plan
Purpose. The purpose of the 2005 Plan is to promote the Company's success
by linking the personal interests of its employees, officers and directors to
those of the Company's stockholders, and by providing participants with an
incentive for outstanding performance.
Permissible Awards. The 2005 Plan authorizes the granting of awards in any
of the following forms:
o options to purchase shares of Company common stock, which may be
non-statutory stock options or incentive stock options under the
U.S. Internal Revenue Code (the "Code"); and
o restricted stock, which is subject to restrictions on
transferability and subject to forfeiture.
Shares Available for Awards. Subject to adjustment as provided in the
plan, the aggregate number of shares of common stock reserved and available for
issuance pursuant to awards granted under the 2005 Plan is 521,659. Except for
shares retained or surrendered to satisfy tax withholding obligations, only
shares actually issued under the 2005 Plan count against the total number of
shares available under the 2005 Plan. Of the total shares available under the
2005 Plan, 372,614 may be issued in connection with the exercise of stock
options and 149,045 may be issued as restricted stock.
Limitations on Awards. The maximum number of shares of Company common
stock that may be covered by options granted under the 2005 Plan to any one
person during any one calendar year is 93,153.
Administration. The 2005 Plan will be administered by the Compensation
Committee of the Board of Directors. The Compensation Committee will have the
authority to designate participants; determine the type or types of awards to be
granted to each participant and the number, terms and conditions of awards;
establish, adopt or revise any rules and regulations as it may deem advisable to
administer the 2005 Plan; and make all other decisions and determinations that
may be required under the 2005 Plan.
Limitations on Transfer; Beneficiaries. No award will be assignable or
transferable by a participant other than by will or the laws of descent and
distribution or (except in the case of an incentive stock option) pursuant to a
qualified domestic relations order. The Compensation Committee may permit other
transfers where it concludes that such transferability does not result in
accelerated taxation, does not
10
cause any option intended to be an incentive stock option to fail to qualify as
such, and is otherwise appropriate and desirable, taking into account any
factors deemed relevant, including without limitation, any state or federal tax
or securities laws or regulations applicable to transferable awards. A
participant may, in the manner determined by the Compensation Committee,
designate a beneficiary to exercise the rights of the participant and to receive
any distribution with respect to any award upon the participant's death.
Acceleration Upon Certain Events. Unless otherwise provided in an award
agreement, if a participant's service terminates by reason of death or
disability, all of the participant's outstanding options and other awards in the
nature of rights that may be exercised will become fully vested and exercisable
and all time-based vesting restrictions on his or her outstanding awards will
lapse. The vesting of awards will also accelerate upon a change of control of
the Company.
Adjustments. In the event of a stock split, a dividend payable in shares
of Company common stock, or a combination or consolidation of the Company's
common stock into a lesser number of shares, the share authorization limits
under the 2005 Plan will automatically be adjusted proportionately, and the
shares then subject to each award will automatically be adjusted proportionately
without any change in the aggregate purchase price for such award. If the
Company is involved in another corporate transaction or event that affects its
common stock, such as an extraordinary cash dividend, recapitalization,
reorganization, merger, consolidation, split-up, spin-off, combination or
exchange of shares, the share authorization limits under the 2005 Plan will be
adjusted proportionately, and the Compensation Committee may adjust the 2005
Plan and outstanding awards to preserve the benefits or potential benefits of
the awards.
Termination and Amendment
The Board of Directors may, at any time and from time to time, terminate
or amend the 2005 Plan, but if an amendment to the 2005 Plan would materially
increase the number of shares of stock issuable under the 2005 Plan, expand the
types of awards provided under the 2005 Plan, materially expand the class of
participants eligible to participate in the 2005 Plan, materially extend the
term of the 2005 Plan or otherwise constitute a material amendment requiring
stockholder approval under applicable stock market or stock exchange listing
requirements, laws, policies or regulations, then such amendment will be subject
to stockholder approval. In addition, the Board of Directors may condition any
amendment on the approval the stockholders for any other reason. No termination
or amendment of the 2005 Plan may adversely affect any award previously granted
under the 2005 Plan without the written consent of the participant.
The Compensation Committee may amend or terminate outstanding awards;
however, such amendments may require the consent of the participant and, unless
approved by the stockholders or otherwise permitted by the anti-dilution
provisions of the 2005 Plan, the exercise price of an outstanding option may not
be reduced, directly or indirectly, and the original term of an option may not
be extended.
Prohibition on Repricing
As indicated above under "Termination and Amendment," outstanding stock
options cannot be repriced, directly or indirectly, without the prior consent of
the Company's stockholders. The exchange of an "underwater" option (i.e., an
option having an exercise price in excess of the current market value of the
underling stock) for another award would be considered an indirect repricing and
would, therefore, require the prior consent of the Company's stockholders.
11
Regulatory Restrictions
Under the 2005 Plan, the Compensation Committee may not grant options and
restricted stock to any one individual for shares that would exceed 25% of the
shares reserved for each type of award. The Compensation Committee may not grant
options and restricted stock to any non-employee individual director for shares
that would exceed 5% of the shares received for each type of award. The
Compensation Committee may not grant, in the aggregate, to non-employee
directors options and restricted stock that would exceed 30% of the shares
reserved for each type of award. All awards must vest over a period of time no
more rapidly than 20% per year commencing on the first anniversary of the date
of grant, however, awards may fully vest upon death or disability of an award
recipient or upon a change in control. These provisions comply with the rules
and regulations issued by the Office of Thrift Supervision.
Certain Federal Income Tax Effects
Nonstatutory Stock Options. There will be no federal income tax
consequences to the optionee or to the Company upon the grant of a nonstatutory
stock option under the 2005 Plan. When the optionee exercises a nonstatutory
option, however, he or she will recognize ordinary income equal to the excess of
the fair market value of the common stock received upon exercise of the option
at the time of exercise over the exercise price, and the Company will be allowed
a corresponding deduction, subject to any applicable limitations under Code
Section 162(m). Any gain that the optionee realizes when he or she later sells
or disposes of the option shares will be short-term or long-term capital gain,
depending on how long the shares were held.
Incentive Stock Options. There typically will be no federal income tax
consequences to the optionee or to the Company upon the grant or exercise of an
incentive stock option. If the optionee holds the option shares for at least two
years after the date the option was granted or for one year after exercise, the
difference between the exercise price and the amount realized upon sale or
disposition of the option shares will be long-term capital gain or loss, and the
Company will not be entitled to a federal income tax deduction. If the optionee
disposes of the option shares in a sale, exchange, or other disqualifying
disposition before the required holding period ends, he or she will recognize
taxable ordinary income in an amount equal to the excess of the fair market
value of the option shares at the time of exercise over the exercise price, and
the Company will be allowed a federal income tax deduction equal to such amount.
While the exercise of an incentive stock option does not result in current
taxable income, the excess of the fair market value of the option shares at the
time of exercise over the exercise price will be an item of adjustment for
purposes of determining the optionee's alternative minimum taxable income.
Restricted Stock. Unless a participant makes an election to accelerate
recognition of the income to the date of grant as described below, a participant
will not recognize income, and the Company will not be allowed a tax deduction,
at the time a restricted stock award is granted, provided that the award is
subject to restrictions on transfer and is subject to a substantial risk of
forfeiture. When the restrictions lapse, the participant will recognize ordinary
income equal to the fair market value of the common stock as of that date (less
any amount he or she paid for the stock), and the Company will be allowed a
corresponding federal income tax deduction at that time, subject to any
applicable limitations under Code Section 162(m). If the participant files an
election under Code Section 83(b) within 30 days after the date of grant of the
restricted stock, he or she will recognize ordinary income as of the date of
grant equal to the fair market value of the stock as of that date (less any
amount paid for the stock), and the Company will be allowed a corresponding
federal income tax deduction at that time, subject to any applicable limitations
under Code Section 162(m). Any future appreciation in the stock will be taxable
to the participant at capital gains rates. However, if the stock is later
forfeited, the participant will not be able to recover the tax previously paid
pursuant to the Code Section 83(b) election.
12
Benefits to Named Executive Officers and Others
Awards, if any, will be granted under the 2005 Plan only after the 2005
Plan is approved by stockholders. All awards under the 2005 Plan will be made at
the discretion of the Compensation Committee or under delegated authority.
Therefore, it is not possible to determine the benefits or amounts that will be
received by any individuals or groups pursuant to the 2005 Plan in the future,
or the benefits or amounts that would have been received by any individuals or
groups for the last completed fiscal year if the 2005 Plan had been in effect.
Equity Compensation Plan Information as of December 31, 2004
Naugatuck Valley Financial does not maintain any equity compensation plans
under which its common stock may be issued upon exercise of options, warrants
and rights as of December 31, 2004.
The Board of Directors recommends that you vote "FOR" approval of the
Naugatuck Valley Financial Corporation 2005 Equity Incentive Plan.
Proposal 3 -- Ratification of Independent Auditors
Snyder & Haller, P.C. was the Company's independent auditor for the 2004
fiscal year. The Audit Committee of the Board of Directors has appointed Snyder
& Haller, P.C. to be the Company's independent auditors for the 2005 fiscal
year, subject to ratification by stockholders. A representative of Snyder &
Haller, P.C. is expected to be present at the annual meeting to respond to
appropriate questions from stockholders and will have the opportunity to make a
statement should he or she desire to do so.
If the ratification of the appointment of the independent auditors is not
approved by a majority of the shares represented at the annual meeting and
entitled to vote, the Audit Committee of the Company's Board of Directors will
consider other independent auditors.
The Board of Directors recommends that stockholders vote "FOR" the
ratification of the appointment of independent auditors.
Audit Fees
The following table sets forth the fees that Snyder & Haller, P.C. billed
to the Company for the fiscal years ended December 31, 2004 and 2003:
2004 2003
------- -------
Audit fees(1) .......................... $53,250 $45,250
Audit related fees ..................... -- --
Tax fees(2) ............................ 7,500 6,250
All other fees ......................... -- --
----------
(1) Consists of fees for professional services rendered for the audit of
the consolidated financial statements and the review of financial
statements included in quarterly reports on Form 10-Q.
(2) Consists of fees for tax return preparation, planning and tax
advice.
13
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Auditor
The Audit Committee is responsible for appointing, setting compensation,
and overseeing the work of the independent auditor. In accordance with its
charter, the Audit Committee approves, in advance, all audit and permissible
non-audit services to be performed by the independent auditor to ensure that the
external auditor does not provide any non-audit services to the Company that are
prohibited by law or regulation.
In addition, the Audit Committee has established a policy regarding
pre-approval of all audit and permissible non-audit services provided by the
independent auditor. Requests for services by the independent auditor for
compliance with the auditor services policy must be specific as to the
particular services to be provided. The request may be made with respect to
either specific services or a type of service for predictable or recurring
services.
During the year ended December 31, 2004, all services were approved, in
advance, by the Audit Committee in compliance with these procedures.
Report of the Audit Committee
The Company's management is responsible for the Company's internal
controls and financial reporting process. The independent auditors are
responsible for performing an independent audit of the Company's consolidated
financial statements and issuing an opinion on the conformity of those financial
statements with generally accepted accounting principles. The Audit Committee
oversees the Company's internal controls and financial reporting process on
behalf of the Board of Directors.
In this context, the Audit Committee has met and held discussions with
management and the independent auditors. Management represented to the Audit
Committee that the Company's consolidated financial statements were prepared in
accordance with generally accepted accounting principles, and the Audit
Committee has reviewed and discussed the consolidated financial statements with
management and the independent auditors. The Audit Committee discussed with the
independent auditors matters required to be discussed by Statement on Auditing
Standards No. 61 (Communication With Audit Committees), including the quality,
not just the acceptability, of the accounting principles, the reasonableness of
significant judgments, and the clarity of the disclosures in the financial
statements.
In addition, the Audit Committee has received the written disclosures and
the letter from the independent auditors required by the Independence Standards
Board Standard No. 1 (Independence Discussions With Audit Committees) and has
discussed with the independent auditors the auditors' independence from the
Company and its management. In concluding that the auditors are independent, the
Audit Committee considered, among other factors, whether the non-audit services
provided by the auditors were compatible with its independence.
The Audit Committee discussed with the Company's independent auditors the
overall scope and plans for their audit. The Audit Committee meets with the
independent auditors, with and without management present, to discuss the
results of their examination, their evaluation of the Company's internal
controls, and the overall quality of the Company's financial reporting.
In performing all of these functions, the Audit Committee acts only in an
oversight capacity. In its oversight role, the Audit Committee relies on the
work and assurances of the Company's management, which has the primary
responsibility for financial statements and reports, and of the independent
auditors who, in their report, express an opinion on the conformity of the
Company's financial statements to
14
generally accepted accounting principles. The Audit Committee's oversight does
not provide it with an independent basis to determine that management has
maintained appropriate accounting and financial reporting principles or
policies, or appropriate internal controls and procedures designed to assure
compliance with accounting standards and applicable laws and regulations.
Furthermore, the Audit Committee's considerations and discussions with
management and the independent auditors do not assure that the Company's
financial statements are presented in accordance with generally accepted
accounting principles, that the audit of the Company's consolidated financial
statements has been carried out in accordance with the standards of the Public
Company Accounting Oversight Board (United States) or that the Company's
independent auditors are in fact "independent."
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors, and the Board has approved,
that the audited consolidated financial statements be included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2004 for filing with
the Securities and Exchange Commission. The Audit Committee and the Board of
Directors also have approved, subject to stockholder ratification, the selection
of the Company's independent auditors.
The Audit Committee
Richard M. Famiglietti, Chairman
Ronald D. Lengyel
Michael S. Plude
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange Act
of 1934 that might incorporate future filings, including this proxy statement,
in whole or in part, the above report of the Audit Committee shall not be
incorporated by reference into any such filings.
15
Executive Compensation
Summary Compensation Table
The following information is provided for John C. Roman, President and
Chief Executive Officer, and Dominic J. Alegi, Jr., Executive Vice President.
Messrs. Roman and Alegi are the only executive officers who received salary and
bonus totaling $100,000 or more during the year ended December 31, 2004.
Annual Compensation (1)
--------------------------------
All Other
Name and Position Year Salary Bonus Compensation (2)
----------------- ---- ------ ----- ----------------
John C. Roman 2004 $158,679 $10,298 $4,912
President and Chief Executive 2003 141,833 13,271 4,028
Officer 2002 130,510 20,592 2,215
Dominic J. Alegi, Jr. 2004 $102,743 $ 6,972 $3,272
Executive Vice President 2003 98,020 9,383 2,848
2002 95,935 14,658 1,728
----------
(1) Does not include the aggregate amount of perquisites or other
personal benefits, which was less than $50,000 or 10% of the total
annual salary and bonus reported. Salaries and bonuses for 2003 and
2002 have been restated to reflect the portion of salaries and
bonuses earned for each year but paid in the following year.
(2) For 2004, represents matching contributions under the 401(k) Savings
Plan of $4,912 and $3,272 for Mr. Roman and Mr. Alegi, respectively.
Employment Agreements
Naugatuck Valley Savings and Naugatuck Valley Financial are both parties
to an employment agreement with John C. Roman. The employment agreement provides
for a three-year term. The term of the employment agreement may be renewed on an
annual basis after review by the respective Board of Directors. The employment
agreement establishes a base salary of $156,000, subject to increase. The Boards
of Directors will review Mr. Roman's base salary each year in order to consider
any appropriate changes. In addition to base salary, the employment agreement
provides for, among other things, participation in stock-based benefit plans and
fringe benefits applicable to Mr. Roman.
The employment agreement provides that Naugatuck Valley Savings and
Naugatuck Valley Financial may terminate the executive's employment for cause,
as described in the employment agreement, at any time. If Naugatuck Valley
Savings or Naugatuck Valley Financial terminates the executive's employment for
reasons other than for cause, or if the executive resigns from Naugatuck Valley
Savings or Naugatuck Valley Financial after specified circumstances that would
constitute constructive termination, the executive or, if he dies, his
beneficiary, would be entitled to receive an amount equal to the remaining base
salary payments due for the remaining term of the employment agreement and the
contributions that would have been made on his behalf to any employee benefit
plans of Naugatuck Valley Savings and Naugatuck Valley Financial during the
remaining term of the employment agreement. Naugatuck Valley Savings would also
continue and/or pay for the executive's life, health and dental coverage for the
remaining term of the employment agreement. The executive must agree not to
compete with Naugatuck Valley Savings or Naugatuck Valley Financial for one year
following his termination of employment other than in connection with a change
in control.
16
Under the employment agreement, if the executive voluntarily (upon
circumstances discussed in the agreement) or involuntarily terminates employment
following a change in control of Naugatuck Valley Savings or Naugatuck Valley
Financial, the executive or, if the executive dies, the executive's beneficiary,
would receive a severance payment equal to the greater of: (1) the payments due
for the remaining term of the agreement; or (2) three times the average of the
five preceding taxable years' annual compensation. Naugatuck Valley Savings
would also continue the executive's life, health, and dental coverage for 36
months following termination of employment. Code Section 280G provides that
severance payments that equal or exceed three times the individual's base amount
are deemed to be "excess parachute payments" if they are contingent upon a
change in control. Individuals receiving excess parachute payments are subject
to a 20% excise tax on the amount of the payment in excess of the base amount,
and the employer would not be entitled to deduct such amount. The agreements
limit payments made to the executive in connection with a change in control to
amounts that will not exceed the limits imposed by Code Section 280G.
Naugatuck Valley Savings or Naugatuck Valley Financial will pay or
reimburse the executive for all reasonable costs and legal fees paid or incurred
by the executive in any dispute or question of interpretation relating to the
employment agreement if the executive is successful on the merits in a legal
judgment, arbitration or settlement. The employment agreement also provides that
Naugatuck Valley Savings and Naugatuck Valley Financial will indemnify Mr. Roman
to the fullest extent legally allowable.
Change in Control Agreements. Naugatuck Valley Savings has entered into
change in control agreements with certain individuals, including Mr. Alegi and
Ms. Walsh. Each change in control agreement has either a two- or three-year
term, subject to renewal by the Board of Directors on an annual basis. Mr. Alegi
and Ms. Walsh have three-year agreements. If, following a change in control of
Naugatuck Valley Savings or Naugatuck Valley Financial, Naugatuck Valley Savings
or Naugatuck Valley Financial or their successors terminates the employment of
an individual who has entered into a change in control agreement for reasons
other than for cause, or if the individual voluntarily resigns upon the
occurrence of circumstances specified in the agreements, the officer will
receive a severance payment under the agreements equal to two or three times,
based on the term of the agreement, the officer's average annual compensation
for the five most recent taxable years. Naugatuck Valley Savings will also
continue health and welfare benefit coverage for 24 or 36 months, based on the
term of the agreement, following termination of employment. The agreements limit
payments made to the executives in connection with a change in control to
amounts that will not exceed the limits imposed by Code Section 280G.
Death Benefit Agreements. Naugatuck Valley Savings has entered into death
benefit agreements with certain employees, including Messrs. Roman and Alegi.
Under Mr. Roman's agreement, Mr. Roman's beneficiary becomes entitled to a
single lump sum payment of $193,000 upon Mr. Roman's death while still an
employee of Naugatuck Valley Savings or $25,000 upon Mr. Roman's death at any
other time. Under Mr. Alegi's agreement, Mr. Alegi's beneficiary becomes
entitled to a single lump sum payment of $25,000 upon Mr. Alegi's death at any
time.
Employee Severance Compensation Plan. Naugatuck Valley Savings has adopted
the Naugatuck Valley Savings and Loan Employee Severance Compensation Plan to
provide severance benefits to eligible employees whose employment terminates in
connection with a change in control of Naugatuck Valley Savings or Naugatuck
Valley Financial. Employees become eligible for severance benefits under the
plan if they have a minimum of one year of service with Naugatuck Valley
Savings. Individuals who enter into employment or change in control agreements
with Naugatuck Valley Savings or Naugatuck Valley Financial will not participate
in the severance plan. Under the severance plan, if, within 24 months of a
change in control, Naugatuck Valley Savings or Naugatuck Valley Financial or
17
their successors terminate an employee's employment or if the individual
voluntarily terminates employment upon the occurrence of events specified in the
severance plan, then that individual will receive a severance payment equal to
one month's compensation for each year of service with Naugatuck Valley Savings,
up to a maximum payment equal to 24 months of compensation.
Benefit Plans
Retirement Plan. Naugatuck Valley Savings participates in the Financial
Institutions Retirement Fund (the "Retirement Plan") to provide retirement
benefits for eligible employees. Employees are eligible to participate in the
Retirement Plan after the completion of six months of employment and the
attainment of age 21. The formula for normal retirement benefits payable
annually under the Retirement Plan is 1.5% of the average of the participant's
highest five years of compensation multiplied by the participant's years of
benefit service.
Participants generally have no vested interest in Retirement Plan benefits
before the completion of five years of service. Following the completion of five
years of vesting service, or in the event of a participant's attainment of age
65, death or termination of employment due to disability, a participant will
become 100% vested in the accrued benefit under the Retirement Plan. The table
below reflects the annual pension benefit payable to a participant assuming
various levels of earnings and years of service. The amounts of benefits paid
under the Retirement Plan are not reduced for any social security benefit
payable to participants. Under the Internal Revenue Code, maximum annual
benefits under the Retirement Plan are presently limited to $156,844 per year
and annual compensation for calculation purposes is limited to $210,000 per year
for the 2005 calendar year. As of December 31, 2004, Messrs. Roman and Alegi had
credited years of service of six and 34 years, respectively.
Years of Benefit Service
--------------------------------------------------------------
Final Average Earnings 15 20 25 30 35
---------------------- ------- ------- ------- ------- -------
$ 75,000 $16,875 $ 25,500 $ 28,125 $ 33,750 $ 39,375
100,000 22,500 30,000 37,500 45,000 52,500
125,000 28,125 37,500 46,875 56,250 65,625
150,000 33,750 45,000 56,250 67,500 78,750
175,000 39,375 52,500 65,625 78,750 91,875
200,000 45,000 60,000 75,000 90,000 105,000
250,000 56,250 75,000 93,750 112,500 131,250
300,000 67,500 90,000 112,500 135,000 157,500
350,000 78,750 105,000 131,250 157,500 183,750
18
Compensation Committee Report on Executive Compensation
The following is the report of the Compensation Committee of the Board of
Directors of Naugatuck Valley Financial (the "Compensation Committee") regarding
executive compensation. The following discussion addresses compensation
information relating to executive officers of Naugatuck Valley Financial and
Naugatuck Valley Savings for fiscal 2004.
Compensation Policies
The Compensation Committee bases its executive compensation policy on the
same principles that guide Naugatuck Valley Financial in establishing all of its
compensation programs. Naugatuck Valley Financial designs programs to attract,
retain and motivate highly talented individuals at all levels of the
organization while balancing the interests of stockholders. Naugatuck Valley
Savings emphasizes using a competitive base salary and program of retirement
benefits as a means of attracting and retaining employees. Naugatuck Valley
Savings maintains a bonus program that provides all employees with the
opportunity to receive a bonus based upon the performance of Naugatuck Valley
Savings. In the case of officers and managers of Naugatuck Valley Savings, a
portion of the bonus is based upon individual performance.
Components of Executive Compensation
Base Salary. Salary levels of all employees, including executive officers,
are set so as to reflect the duties and levels of responsibilities inherent in
the position and to reflect competitive conditions in the banking business in
Naugatuck Valley Savings' market area. Comparative salaries paid by other
financial institutions are considered in establishing the salary for a given
position. The Compensation Committee utilizes the Compensation Survey compiled
by the Connecticut Bankers Association as well as other surveys prepared by
trade groups and independent benefits consultants. Base salaries for executive
officers are reviewed annually by the Compensation Committee which takes into
account the competitive level of pay as reflected in the surveys consulted. In
setting base salaries, the Compensation Committee also considers a number of
factors relating to the particular executive, including individual performance,
job responsibilities, level of experience, ability and knowledge of the
position. These factors are considered in the aggregate and none of the factors
are accorded a specific weight.
Bonus and Participation in Employee Benefit Plans. Compensation for
executive officers is also composed of bonus and participation in various
employee benefit plans, such as the Retirement Plan, the 401(k) Plan and the
employee stock ownership plan.
Chief Executive Officer Compensation. The Compensation Committee fixed the
2004 base salary for the Naugatuck Valley Savings President and Chief Executive
Officer, John C. Roman, in a manner consistent with the base salary guidelines
applied for executive officers of Naugatuck Valley Savings as described above.
In general, the Compensation Committee considers Naugatuck Valley Savings'
financial performance, peer group financial performance and compensation survey
data when making decisions regarding the Chief Executive Officer's compensation,
including salary and bonus. Mr. Roman also participates in the Naugatuck Valley
Financial's employee benefit plans, including the Retirement Plan, the 401(k)
Plan and the employee stock ownership plan. In addition, Naugatuck Valley
Financial supplies Mr. Roman with an automobile and fuel. The monthly
depreciation charge for the automobile during 2004 was $624.58. The value of the
personal use of the automobile and fuel is added to Mr. Roman income for tax
purposes.
19
The Compensation Committee
Richard M. Famiglietti, Chairman Carlos S. Batista
Ronald D. Lengyel Camilo P. Vieira
James A. Mengacci Michael S. Plude
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange Act
of 1934 that might incorporate future filings, including this proxy statement,
in whole or in part, the above report of the Compensation Committee shall not be
incorporated by reference into any such filings.
Compensation Committee Interlocks and Insider Participation
No executive officer of the Company or the Bank serves or has served as a
member of the compensation committee of another entity, one of whose executive
officers serves on the Compensation Committee of the Company or the Bank. No
executive officer of the Company or the Bank serves or has served as a director
of another entity, one of whose executive officers serves on the Compensation
Committee of the Company or the Bank. Mr. Lengyel, who serves on the
Compensation Committee, previously served as President and Chief Executive
Officer of Naugatuck Valley Savings before his retirement in September 1999.
20
Stock Performance Graph
The following graph compares the cumulative total shareholder return on
the Company's common stock with the cumulative total return on the NASDAQ
Composite (U.S. Companies), SNL MHC Thrift Index and the SNL $250M - $500M
Thrift Index. Total return assumes the reinvestment of all dividends. The graph
assumes $100 was invested at the close of business on October 1, 2004, the
initial day of trading of the Company's common stock.
[LINE GRAPH]
Index 10/01/04 10/15/04 10/31/04 11/15/04 11/30/04 12/15/04 12/31/04
- ----------------------------- -------- -------- -------- -------- -------- -------- --------
Naugatuck Valley Financial $100.00 $100.00 $ 96.48 $ 98.06 $104.17 $102.69 $ 99.63
NASDAQ Composite 100.00 98.43 101.71 107.90 108.06 111.48 112.19
SNL $250-$500M Thrift Index 100.00 99.85 100.48 101.27 103.31 104.60 105.16
SNL MHC Thrift Index 100.00 100.65 103.20 110.54 111.51 111.07 107.69
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange Act
of 1934 that might incorporate future filings, including this proxy statement,
in whole or in part, the above stock performance graph shall not be incorporated
by reference into any such filings.
21
Other Information Relating to Directors and Executive Officers
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who own more than 10% of
any registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Executive officers, directors and greater than 10% stockholders are required by
regulation to furnish the Company with copies of all Section 16(a) reports they
file.
Based solely on the Company's review of copies of the reports it has
received and written representations provided to it from the individuals
required to file the reports, the Company believes that each of its executive
officers and directors has complied with applicable reporting requirements for
transactions in Naugatuck Valley Financial common stock during the year ended
December 31, 2004, except for Michael S. Plude who filed one late Form 4
relating to one transaction.
Transactions with Management
Loans and Extensions of Credit. The Sarbanes-Oxley Act of 2002 generally
prohibits loans by Naugatuck Valley Financial to its executive officers and
directors. However, the Sarbanes-Oxley Act contains a specific exemption from
such prohibition for loans by Naugatuck Valley Savings to its executive officers
and directors in compliance with federal banking regulations. Federal
regulations require that all loans or extensions of credit to executive officers
and directors of insured institutions must be made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons and must not involve more than
the normal risk of repayment or present other unfavorable features. Naugatuck
Valley Savings is therefore prohibited from making any new loans or extensions
of credit to executive officers and directors at different rates or terms than
those offered to the general public, except for loans made pursuant to programs
generally available to all employees. Notwithstanding this rule, federal
regulations permit Naugatuck Valley Savings to make loans to executive officers
and directors at reduced interest rates if the loan is made under a benefit
program generally available to all other employees and does not give preference
to any executive officer or director over any other employee.
In addition, loans made to a director or executive officer in an amount
that, when aggregated with the amount of all other loans to the person and his
or her related interests, are in excess of the greater of $25,000 or 5% of
Naugatuck Valley Savings' capital and surplus, up to a maximum of $500,000, must
be approved in advance by a majority of the disinterested members of the Board
of Directors.
22
Nominating and Corporate Governance Committee Procedures
General
It is the policy of the Nominating and Corporate Governance Committee of
the Board of Directors of Company to consider director candidates recommended by
shareholders who appear to be qualified to serve on the Company's Board of
Directors. The Nominating and Corporate Governance Committee may choose not to
consider an unsolicited recommendation if no vacancy exists on the Board of
Directors and the Nominating and Corporate Governance Committee does not
perceive a need to increase the size of the Board of Directors. In order to
avoid the unnecessary use of the Nominating and Corporate Governance Committee's
resources, the Nominating and Corporate Governance Committee will consider only
those director candidates recommended in accordance with the procedures set
forth below.
Procedures to be Followed by Stockholders
To submit a recommendation of a director candidate to the Nominating and
Corporate Governance Committee, a shareholder should submit the following
information in writing, addressed to the Chairman of the Nominating and
Corporate Governance Committee, care of the Corporate Secretary, at the main
office of the Company:
1. The name of the person recommended as a director candidate;
2. All information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors
pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended;
3. The written consent of the person being recommended as a director
candidate to being named in the proxy statement as a nominee and to
serving as a director if elected;
4. As to the shareholder making the recommendation, the name and
address, as they appear on the Company's books, of such shareholder;
provided, however, that if the shareholder is not a registered
holder of the Company's common stock, the shareholder should submit
his or her name and address along with a current written statement
from the record holder of the shares that reflects ownership of the
Company's common stock; and
5. A statement disclosing whether such shareholder is acting with or on
behalf of any other person and, if applicable, the identity of such
person.
In order for a director candidate to be considered for nomination at the
Company's annual meeting of shareholders, the recommendation must be received by
the Nominating and Corporate Governance Committee at least 120 calendar days
before the date the Company's proxy statement was released to shareholders in
connection with the previous year's annual meeting, advanced by one year.
Minimum Qualifications
The Nominating and Corporate Governance Committee has adopted a set of
criteria that it considers when it selects individuals to be nominated for
election to the Board of Directors. First, a candidate must meet the eligibility
requirements set forth in the Company's bylaws, which include a residency
requirement and a requirement that the candidate not have been subject to
certain criminal or
23
regulatory actions. A candidate also must meet any qualification requirements
set forth in any Board or committee governing documents.
The Nominating and Corporate Governance Committee will consider the
following criteria in selecting nominees: financial, regulatory and business
experience; familiarity with and participation in the local community;
integrity, honesty and reputation; dedication to the Company and its
stockholders; independence; and any other factors the Nominating and Corporate
Governance Committee deems relevant, including age, diversity, size of the Board
of Directors and regulatory disclosure obligations.
In addition, before nominating an existing director for re-election to the
Board of Directors, the Nominating and Corporate Governance Committee will
consider and review an existing director's Board and committee attendance and
performance; length of Board service; experience, skills and contributions that
the existing director brings to the Board; and independence.
Process for Identifying and Evaluating Nominees
The Nominating and Corporate Governance Committee's process for
identifying and evaluating individuals to be nominated for election to the Board
of Directors is as follows:
Identification. For purposes of identifying nominees for the Board of
Directors, the Nominating and Corporate Governance Committee relies on personal
contacts of committee members and other members of the Board of Directors as
well as its knowledge of members of Naugatuck Valley Savings' local communities.
The Nominating and Corporate Governance Committee will also consider director
candidates recommended by shareholders in accordance with the policy and
procedures set forth above. The Nominating and Corporate Governance Committee
has not used an independent search firm to identify nominees.
Evaluation. In evaluating potential nominees, the Nominating and Corporate
Governance Committee determines whether the candidate is eligible and qualified
for service on the Board of Directors by evaluating the candidate under the
selection criteria set forth above. In addition, the Nominating and Corporate
Governance Committee will conduct a check of the individual's background and
interview the candidate.
Submission of Business Proposals and Stockholder Nominations
The Company must receive proposals that stockholders seek to include in
the proxy statement for the Company's next annual meeting no later than December
2, 2005. If next year's annual meeting is held on a date more than 30 calendar
days from May 5, 2006, a stockholder proposal must be received by a reasonable
time before the Company begins to print and mail its proxy solicitation for such
annual meeting. Any stockholder proposals will be subject to the requirements of
the proxy rules adopted by the Securities and Exchange Commission.
The Company's Bylaws provides that in order for a stockholder to make
nominations for the election of directors or proposals for business to be
brought before the annual meeting, a stockholder must deliver notice of such
nominations and/or proposals to the Secretary not less than 30 days before the
date of the annual meeting; provided that if less than 40 days' notice or prior
public disclosure of the date of the annual meeting is given to stockholders,
such notice must be received not later than the close of business on the 10th
day following the day on which notice of the date of the annual meeting was
mailed to stockholders or prior public disclosure of the meeting date was made.
A copy of the Bylaws may be obtained from the Company.
24
Stockholder Communications
The Company encourages stockholder communications to the Board of
Directors and/or individual directors. Communications regarding financial or
accounting policies may be made in writing to the Chairman of the Audit
Committee, Richard M. Famiglietti, at Naugatuck Valley Financial Corporation,
c/o Corporate Secretary, 333 Church Street, Naugatuck, Connecticut 06770. Other
communications to the Board of Directors may be made in writing to the Chairman
of the Nominating and Corporate Governance Committee, James A. Mengacci, at
Naugatuck Valley Financial Corporation, c/o Corporate Secretary, 333 Church
Street, Naugatuck, Connecticut 06770. Communications to individual directors may
be made to such director in writing to such director at Naugatuck Valley
Financial Corporation, c/o Corporate Secretary, 333 Church Street, Naugatuck,
Connecticut 06770.
Miscellaneous
The Company will pay the cost of this proxy solicitation. The Company will
reimburse brokerage firms and other custodians, nominees and fiduciaries for
reasonable expenses incurred by them in sending proxy materials to the
beneficial owners of Naugatuck Valley Financial common stock. In addition to
soliciting proxies by mail, directors, officers and regular employees of the
Company may solicit proxies personally or by telephone without receiving
additional compensation. The Company will pay Regan & Associates, a proxy
solicitation firm, a fee of $5,000 to assist the Company in soliciting proxies.
The Company's Annual Report to Stockholders has been mailed to persons who
were stockholders as of the close of business on March 14, 2005. Any stockholder
who has not received a copy of the Annual Report may obtain a copy by writing to
the Corporate Secretary of the Company. The Annual Report is not to be treated
as part of the proxy solicitation material or as having been incorporated in
this proxy statement by reference.
A copy of the Company's Annual Report on Form 10-K, without exhibits, for
the year ended March 31, 2004, as filed with the Securities and Exchange
Commission, will be furnished without charge to persons who were stockholders as
of the close of business on March 14, 2005 upon written request to Bernadette A.
Mole, Naugatuck Valley Financial Corporation, 333 Church Street, Naugatuck,
Connecticut 06770.
If you and others who share your address own your shares in street name,
your broker or other holder of record may be sending only one annual report and
proxy statement to your address. This practice, known as "householding," is
designed to reduce our printing and postage costs. However, if a shareholder
residing at such an address wishes to receive a separate annual report or proxy
statement in the future, he or she should contact the broker or other holder of
record. If you own your shares in street name and are receiving multiple copies
of our annual report and proxy statement, you can request householding by
contacting your broker or other holder of record.
25
Whether or not you plan to attend the annual meeting, please vote by
marking, signing, dating and promptly returning the enclosed proxy card in the
enclosed envelope.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Bernadette A. Mole
Bernadette A. Mole
Corporate Secretary
Naugatuck, Connecticut
April 1, 2005
26
Appendix A
NAUGATUCK VALLEY FINANCIAL CORPORATION
AUDIT COMMITTEE CHARTER
Organization
The primary function of the Audit Committee (the "Audit Committee") of the
Board of Directors (the "Board") of Naugatuck Valley Financial Corporation (the
"Company") is to review: the integrity of the financial reports and other
financial information provided by the Company to any governmental body or the
public, including any certification, report, opinion or review performed by the
Company's independent accountants; the Company's compliance with legal and
regulatory requirements; the independent accountant's qualifications and
independence; the performance of the Company's internal audit functions, its
independent accountants and system of internal controls and disclosure
procedures regarding finance, accounting, legal compliance and ethics that
management and the Board have established; the Company's auditing, accounting
and financial reporting processes generally; and the preparation of information
required by the Securities and Exchange Commission rules to be included in the
Company's annual proxy statement.
The Audit Committee will be comprised of three or more directors as
determined by the Board each of whom shall satisfy the definition of independent
director as defined in any qualitative listing requirements for The Nasdaq Stock
Market, Inc. issuers and any applicable Securities and Exchange Commission rules
and regulations. All members of the Audit Committee must be financially literate
at time of appointment, or within a reasonable period of time thereafter,
meaning they must have the ability to read and understand fundamental financial
statements, including the Company's balance sheet, income statement and cash
flow statement. In addition, at least one member of the Audit Committee shall
have past employment in finance or accounting, requisite professional
certification in accounting, or any other comparable experience or background
which results in the individual's financial sophistication, including having
been a chief executive officer, chief financial officer or other senior officer
with oversight responsibilities. The members of the Audit Committee will be
elected by the Board on an annual basis.
Responsibilities
In carrying out its responsibilities, the Audit Committee believes its
policies and procedures should remain flexible, in order to best react to
changing conditions and to ensure to the directors and shareholders that the
corporate accounting and reporting practices of the Company are in accordance
with all requirements and are of the highest quality. To fulfill its
responsibilities and duties the Audit Committee shall:
1. Provide an open avenue of communication between management, the
independent auditor, internal audit department and the Board.
2. Meet four times per year or more frequently as circumstances may require.
A quorum of the Audit Committee shall be declared when a majority of the
appointed members of the Audit Committee are in attendance.
3. The Audit Committee shall meet with the independent auditors and
management at least quarterly to review the Company's financial
statements. In meetings attended by the independent auditors or by
regulatory examiners, a portion of the meeting will be reserved for the
Audit Committee to meet in closed session with these parties.
4. Keep written minutes for all meetings.
5. Review with the independent auditor and internal audit department the work
to be performed by each to assure completeness of coverage, reduction of
redundant efforts and the effective use of audit resources.
6. Review all significant risks or exposures to the Company found during
audits performed by the independent auditor and internal audit department
and ensure that these items are discussed with management. From these
discussions, assess and report to the Board regarding how the findings
should be addressed.
7. Review recommendations from the independent auditor and internal auditing
department regarding internal controls and other matters relating to the
accounting policies and procedures of the Company.
8. Following each meeting of the Audit Committee, the chairman of the
committee will submit a record of the meeting to the Board including any
recommendations that the Committee may deem appropriate.
9. Ensure that the independent auditor discusses with the Audit Committee
their judgments about the quality, not just the acceptability, of the
Company's accounting principles as applied in the financial reports. The
discussion should include such issues as the clarity of the Company's
financial disclosures and degree of aggressiveness or conservatism of the
Company's accounting principles and underlying estimates and other
significant decisions made by management in preparing the financial
disclosures.
10. Review the Company's audited annual financial statements and the
independent auditor's opinion regarding such financial statements,
including a review of the nature and extent of any significant changes in
accounting principles.
11. Arrange for the independent auditor to be available to the full Board at
least annually to discuss the results of the annual audit and the audited
financial statements that are a part of the annual report to shareholders.
12. Review with management, the independent auditor, internal audit department
and legal counsel, legal and regulatory matters that may have a material
impact on the financial statements.
13. Review with management and the independent auditor all interim financial
reports filed pursuant to the Securities Exchange Act of 1934.
14. Generally discuss earnings press releases and financial information as
well as earnings guidance provided to analysts and rating agencies.
15. Select the independent auditor, considering independence and
effectiveness, and be solely responsible for their compensation, oversight
and retention (including resolution of disagreements between management
and the auditor regarding financial reporting) for the purpose of
preparing or issuing an audit report or related work, and each such
registered public accounting firm shall report directly to the audit
committee. The Audit Committee should confirm the independence of the
independent auditor by requiring them to disclose in writing all
A-2
relationships that, in the auditor's professional judgment, may reasonably
be thought to bear on the ability to perform the audit independently and
objectively.
16. Review the performance of the independent auditor.
17. Review the activities, organizational structure and qualifications of the
internal audit department. The Audit Committee should also review and
concur in the appointment, replacement, reassignment, or dismissal of the
manager of the internal audit department.
18. Be authorized to retain independent counsel and other advisors as it deems
necessary to carry out its duties and to assist it in the conduct of any
investigation. In connection therewith, the Audit Committee shall be
provided appropriate funding as determined by the Audit Committee for
payment to accountants and advisors.
19. Have in place procedures for (1) receiving complaints regarding
accounting, internal accounting controls, or auditing matters, and (2) the
confidential, anonymous submission by employees of concerns regarding
questionable accounting.
20. Approve, in advance, all permissible non-audit services to be completed by
the independent auditor. Such approval process will ensure that the
independent auditor does not provide any non-audit services to the Company
that are prohibited by law or regulation.
21. Set clear hiring policies for hiring employees or former employees of the
independent auditors.
22. Review and approve all related-party transactions.
In addition to the responsibilities presented above, the Audit Committee
will examine this Charter on an annual basis to assure that it remains adequate
to address the responsibilities that the Audit Committee has. Further, the Audit
Committee will disclose in each annual proxy statement to its shareholders
whether it satisfied the responsibilities during the prior year in compliance
with the Charter, and will disclose a copy of the Charter every three years
either in the annual report to shareholders or proxy statement.
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Appendix B
NAUGATUCK VALLEY FINANCIAL CORPORATION
NOMINATING AND CORPORATE GOVERNANCE COMMITTEE CHARTER
I. Purpose
The primary objectives of the Nominating and Corporate Governance Committee (the
"Committee") are to assist the Board of Directors (the "Board") of Naugatuck
Valley Financial Corporation (the "Company") by: (i) identifying individuals
qualified to become Board members and recommending that the Board select a group
of director nominees for each annual meeting of the Company's stockholders; (ii)
ensuring that the Audit and Nominating and Corporate Governance Committees of
the Board shall have the benefit of qualified and experienced "independent"
directors; and (iii) developing and recommending to the Board a set of effective
corporate governance policies and procedures applicable to the Company.
II. Organization
The Committee shall consist of three or more directors, each of whom shall
satisfy the definition of independent director as defined in any qualitative
listing requirements for The Nasdaq Stock Market, Inc. issuers and any
applicable Securities and Exchange Commission rules and regulations.
Committee members shall be elected by the Board at the annual organizational
meeting of the Board of Directors. Members shall serve until their successors
are appointed. The Committee's chairperson shall be designated by the full Board
or, if it does not do so, the Committee members shall elect a Chairman by vote
of a majority of the full Committee.
The Committee may form and delegate authority to subcommittees when appropriate.
III. Structure and Meetings
The chairperson of the Committee will preside at each meeting and, in
consultation with the other members of the Committee, will set the frequency and
length of each meeting and the agenda of items to be addressed at each meeting.
The chairperson of the Committee shall ensure that the agenda for each meeting
is circulated to each Committee member in advance of the meeting.
IV. Goals and Responsibilities
The Committee shall: (i) develop and recommend to the Board a Corporate
Governance Policy (the "Policy") applicable to the Company, and review and
reassess the adequacy of such Policy annually and recommend to the Board any
changes deemed appropriate; (ii) develop policies on the size and composition of
the Board; (iii) review possible candidates for Board membership consistent with
the Board's criteria for selecting new directors; (iv) perform Board performance
evaluations on an annual basis; (v) annually recommend a slate of nominees to
the Board with respect to nominations for the Board at the annual meeting of the
Company's stockholders; and (vi) generally advise the Board (as a whole) on
corporate governance matters.
The Committee shall also advise the Board on (i) committee member
qualifications; (ii) committee member appointments and removals; (iii) committee
structure and operations (including authority to delegate to subcommittees); and
(iv) committee reporting to the Board. The Committee shall maintain an
orientation program for new directors and a continuing education program for all
directors.
The Committee will annually review and reassess the adequacy of this charter and
recommend any proposed changes to the Board for approval.
The Committee shall perform any other activities consistent with this charter,
the Company's bylaws and governing law and regulations as the Committee or the
Board deems appropriate.
V. Performance Evaluation
The Committee shall conduct an annual performance evaluation of the Board. The
evaluation shall be of the Board's contribution as a whole and specifically
review areas in which the Board and/or management believes a better contribution
could be made.
VI. Committee Resources
The Committee shall have the authority to obtain advice and seek assistance from
internal or external legal, accounting or other advisors. The Committee shall
have the sole authority to retain and terminate any search firm to be used to
identify director candidates, including sole authority to approve such search
firm's fees and other retention terms.
B-2
Appendix C
NAUGATUCK VALLEY FINANCIAL CORPORATION
2005 EQUITY INCENTIVE PLAN
ARTICLE 1
PURPOSE
The purpose of the Naugatuck Valley Financial Corporation 2005 Equity
Incentive Plan (the "Plan") is to promote the success, and enhance the value, of
Naugatuck Valley Financial Corporation (the "Company"), by linking the personal
financial and economic interests of employees, officers and directors of the
Company or any Affiliate (as defined below) to those of Company shareholders and
by providing such persons with an incentive for outstanding performance. The
Plan is further intended to provide flexibility to the Company in its ability to
motivate, attract, and retain the services of employees, officers and directors
upon whose judgment, interest, and special effort the successful conduct of the
Company's operation is largely dependent. Accordingly, the Plan permits the
grant of equity incentive awards from time to time to selected employees,
officers and directors of the Company and its Affiliates.
ARTICLE 2
DEFINITIONS
When a word or phrase appears in this Plan with the initial letter
capitalized, and the word or phrase does not commence a sentence, the word or
phrase shall generally be given the meaning ascribed to it in this Article 2
unless a clearly different meaning is required by the context. The following
words and phrases shall have the following meanings:
"Affiliate" means an entity that directly or through one or more
intermediaries controls, is controlled by or is under common control with, the
Company, as determined by the Committee.
"Award" means any Option or Restricted Stock Award granted to a
Participant under the Plan.
"Award Agreement" means a written document, in such form as the Committee
prescribes from time to time, setting forth the terms and conditions of an
Award.
"Board of Directors" means the Board of Directors of the Company.
"Change in Control" means the occurrence of any one of the following
events:
(1) Merger: The Company merges into or consolidates with another
corporation, or merges another corporation into the Company, and, as
a result, less than a majority of the combined voting power of the
resulting corporation immediately after the merger or consolidation
is held by persons who were stockholders of the Company immediately
before the merger or consolidation.
(2) Acquisition of Significant Share Ownership: A report on Schedule 13D
or another form or schedule (other than Schedule 13G) is filed or is
required to be filed under Sections 13(d) or 14(d) of the Securities
Exchange Act of 1934, if the schedule discloses that the filing
person or persons acting in concert has or have become the
beneficial owner of 25% or more of a class of the Company's voting
securities, but this clause (b) shall not apply to beneficial
ownership of Company voting shares held in a fiduciary
capacity by an entity of which the Company directly or indirectly
beneficially owns fifty percent (50%) or more of its outstanding
voting securities;
(3) Change in Board Composition: During any period of two consecutive
years, individuals who constitute the Company's Board of Directors
at the beginning of the two-year period cease for any reason to
constitute at least a majority of the Company's Board of Directors;
provided, however, that for purposes of this clause (3), each
director who is first elected by the board (or first nominated by
the board for election by the stockholders) by a vote of at least
two-thirds (?) of the directors who were directors at the beginning
of the two-year period shall be deemed to have also been a director
at the beginning of such period; or
(4) Sale of Assets: The Company sells to a third party all or
substantially all of its assets.
Notwithstanding anything in this Plan to the Contrary, in no event shall
the reorganization of Naugatuck Valley Savings and Loan into the holding company
form of organization constitute a "Change in Control" for purposes of this Plan;
specifically by means of a full conversion of Naugatuck Valley Mutual Holding
Company, or any successor corporation, to the stock form of ownership under
applicable regulations.
"Change in Control Price" means the highest price per share of Shares
offered in conjunction with any transaction resulting in a Change in Control (as
determined in good faith by the Committee if any part of the offered price is
payable other than in cash) or, in the case of a Change in Control occurring
solely by reason of a change in the composition of the Board of Directors, the
highest Fair Market Value of the Shares on any of the thirty (30) trading days
immediately preceding the date on which a Change in Control occurs.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the committee of the Board of Directors described in
Article 4 of the Plan.
"Company" means Naugatuck Valley Financial Corporation, or any successor
corporation.
"Continuous Status as a Participant" means the absence of any interruption
or termination of service as an employee, officer or director of the Company or
any Affiliate, as applicable. Continuous service shall not be considered
interrupted in the case of sick leave, military leave or any other absence
approved by the Company or an Affiliate, in the case of transfers between
payroll locations or between the Company, an Affiliate or a successor or
performance of services in an emeritus advisory or consulting capacity,
provided, however, that for purposes of an Incentive Stock Option, "Continuous
Status as a Participant" means the absence of any interruption or termination of
service as an employee of the Company or any Parent or Subsidiary, as
applicable.
"Covered Employee" means a covered employee as defined in Section
162(m)(3) of the Code.
"Disability" shall mean any illness or other physical or mental condition
of a Participant that renders the Participant incapable of performing his
customary and usual duties for the Company, or any medically determinable
illness or other physical or mental condition resulting from a bodily injury,
disease or mental disorder which, in the judgment of the Committee, is permanent
and continuous in nature. The Committee may require such medical or other
evidence as it deems necessary to judge the nature and permanency of the
Participant's condition. Notwithstanding the above, with respect to an
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Incentive Stock Option, Disability shall mean Permanent and Total Disability as
defined in Section 22(e)(3) of the Code.
"Effective Date" has the meaning assigned such term in Section 3.1 of the
Plan.
"Eligible Participant" means an employee, officer or director of the
Company or any Affiliate.
"Exchange" any national securities exchange on which the Stock may from
time to time be listed or traded.
"Fair Market Value" on any date, means (i) if the Stock is listed on an
Exchange, the closing sales price on such exchange or over such system on such
date or, in the absence of reported sales on such date, the closing sales price
on the immediately preceding date on which sales were reported, or (ii) if the
Stock is not listed on a securities exchange, Fair Market Value shall mean a
price determined by the Committee in good faith on the basis of objective
criteria.
"Grant Date" means the date an Award is made by the Committee.
"Incentive Stock Option" means an Option that is intended to be an
incentive stock option and meets the requirements of Section 422 of the Code or
any successor provision thereto.
"Non-Employee Director" means a director of the Company or an Affiliate
who is not a common law employee of the Company or an Affiliate.
"Nonstatutory Stock Option" means an Option that is not an Incentive Stock
Option.
"Option" means a right granted to a Participant under Article 7 of the
Plan to purchase Stock at a specified price during specified time periods. An
Option may be either an Incentive Stock Option or a Nonstatutory Stock Option.
"Parent or Subsidiary" means a "parent" or "subsidiary" as such terms are
defined in Sections 424(e) and (f) of the Code.
"Participant" means a person who, as an employee, officer or director of
the Company or any Affiliate, has been granted an Award under the Plan; provided
that in the case of the death of a Participant, the term "Participant" refers to
a beneficiary designated pursuant to Article 9.4 of the Plan or the legal
guardian or other legal representative acting in a fiduciary capacity on behalf
of the Participant under applicable state law and court supervision.
"Plan" means the Naugatuck Valley Financial Corporation 2005 Equity
Incentive Plan, as amended from time to time.
"Restricted Stock Award" means Stock granted to a Participant under
Article 9 of the Plan that is subject to certain restrictions and to risk of
forfeiture.
"Shares" means shares of the Company's Stock. If there has been an
adjustment or substitution pursuant to Article 10 of the Plan, the term "Shares"
shall also include any shares of stock or other securities that are substituted
for Shares or into which Shares are adjusted pursuant to Article 10 of the Plan.
C-3
"Stock" means the common stock of the Company, par value $0.01, and such
other securities of the Company as may be substituted for Stock pursuant to
Article 11 of the Plan.
"1933 Act" means the Securities Act of 1933, as amended from time to time.
"1934 Act" means the Securities Exchange Act of 1934, as amended from time
to time.
ARTICLE 3
EFFECTIVE TERM OF PLAN
3.1 EFFECTIVE DATE. The Plan shall be effective as of the date it is
approved by the shareholders of the Company (the "Effective Date").
3.2 TERMINATION OF PLAN. The Plan shall terminate on the tenth anniversary
of the Effective Date. The termination of the Plan on such date shall not affect
the validity of any Award outstanding on the date of termination.
ARTICLE 4
ADMINISTRATION
4.1 COMMITTEE. The Plan shall be administered by a Committee appointed by
the Board of Directors (which Committee shall consist of at least two
disinterested directors) or, at the discretion of the Board from time to time,
the Plan may be administered by the Board of Directors. It is intended that at
least two of the directors appointed to serve on the Committee shall be
"non-employee directors" (within the meaning of Rule 16b-3 promulgated under the
1934 Act) and "outside directors" (within the meaning of Code Section 162(m) and
the regulations thereunder) and that any such members of the Committee who do
not so qualify shall abstain from participating in any decision to make or
administer Awards that are made to Eligible Participants who at the time of
consideration for such Award (i) are persons subject to the short-swing profit
rules of Section 16 of the 1934 Act, or (ii) are reasonably anticipated to
become Covered Employees during the term of the Award. However, the mere fact
that a Committee member shall fail to qualify under either of the foregoing
requirements or shall fail to abstain from such action shall not invalidate any
Award made by the Committee which Award is otherwise validly made under the
Plan. The members of the Committee shall be appointed by, and may be changed at
any time and from time to time in the discretion of, the Board of Directors. The
Board of Directors may reserve for itself any or all of the authority and
responsibility of the Committee under the Plan or may act as administrator of
the Plan for any and all purposes. To the extent the Board of Directors has
reserved any authority and responsibility or during any time that the Board of
Directors is acting as administrator of the Plan, it shall have all the powers
of the Committee hereunder, and any reference herein to the Committee (other
than in this Section 4.1) shall include the Board of Directors. To the extent
any action of the Board of Directors under the Plan conflicts with actions taken
by the Committee, the actions of the Board of Directors shall control.
4.2 ACTION AND INTERPRETATIONS BY THE COMMITTEE. For purposes of
administering the Plan, the Committee may from time to time adopt rules,
regulations, guidelines and procedures for carrying out the provisions and
purposes of the Plan and make such other determinations, not inconsistent with
the Plan, as the Committee may deem appropriate. The Committee's interpretation
of the Plan, any Awards granted under the Plan, any Award Agreement and all
decisions and determinations by the Committee with respect to the Plan are
final, binding, and conclusive on all parties. Each member of the Committee is
entitled to, in good faith, rely or act upon any report or other information
furnished to that member by any officer or other employee of the Company or any
Affiliate, the Company's or an Affiliate's independent certified public
accountants, Company counsel or any
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executive compensation consultant or other professional retained by the Company
to assist in the administration of the Plan.
4.3 AUTHORITY OF COMMITTEE. Except as provided below, the Committee has
the exclusive power, authority and discretion to:
(a) Grant Awards;
(b) Designate Participants;
(c) Determine the type or types of Awards to be granted to each
Participant;
(d) Determine the number of Awards to be granted and the number of
Shares to which an Award will relate;
(e) Determine the terms and conditions of any Award granted under the
Plan, including but not limited to, the exercise price, any
restrictions or limitations on the Award, any schedule for lapse of
forfeiture restrictions or restrictions on the exercisability of an
Award, and accelerations or waivers thereof, based in each case on
such considerations as the Committee in its sole discretion
determines;
(f) Accelerate the vesting, exercisability or lapse of restrictions of
any outstanding Award in accordance with Articles 9 and 10 of the
Plan, based in each case on such considerations as the Committee in
its sole discretion determines;
(g) Prescribe the form of each Award Agreement, which need not be
identical for each Participant;
(h) Decide all other matters that must be determined in connection with
an Award;
(i) Establish, adopt or revise any rules, regulations, guidelines or
procedures as it may deem necessary or advisable to administer the
Plan;
(j) Make all other decisions and determinations that may be required
under the Plan or as the Committee deems necessary or advisable to
administer the Plan;
(k) Amend the Plan or any Award Agreement as provided herein.
Notwithstanding the above, the Board of Directors or the Committee may
also delegate, to the extent permitted by applicable law, to one or more
officers of the Company, the Committee's authority under subsections (a) through
(h) above, pursuant to a resolution that specifies the total number of Options
or Restricted Stock Awards that may be granted under the delegation, provided
that no officer may be delegated the power to designate himself or herself as a
recipient of such Awards; and provided further that no delegation of its duties
and responsibilities may be made to officers of the Company with respect to
Awards to Eligible Participants who as of the Grant Date are persons subject to
the short-swing profit rules of Section 16 of the 1934 Act, or who as of the
Grant Date are reasonably anticipated to be become Covered Employees during the
term of the Award. The acts of such delegates shall be treated hereunder as acts
of the Committee and such delegates shall report to the Committee regarding the
delegated duties and responsibilities.
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4.4 AWARD AGREEMENTS. Each Award shall be evidenced by an Award Agreement.
Each Award Agreement shall include such provisions, not inconsistent with the
Plan, as may be specified by the Committee.
ARTICLE 5
SHARES SUBJECT TO THE PLAN
5.1 NUMBER OF SHARES. Subject to adjustment as provided in Article 10 of
the Plan, the aggregate number of Shares reserved and available for issuance
pursuant to Awards granted under the Plan shall be 521,659.
5.2 SHARE COUNTING.
(a) To the extent that an Award is canceled, terminates, expires, is
forfeited or lapses for any reason, any unissued Shares subject to
the Award will again be available for issuance pursuant to Awards
granted under the Plan.
(b) If the exercise price of an Option is satisfied by delivering Shares
to the Company (by either actual delivery or attestation), only the
number of Shares issued in excess of the delivery or attestation
shall be considered for purposes of determining the number of Shares
remaining available for issuance pursuant to Awards granted under
the Plan.
(c) To the extent that the full number of Shares subject to an Option is
not issued upon exercise of the Option for any reason (other than
Shares used to satisfy an applicable tax withholding obligation),
only the number of Shares issued and delivered upon exercise of the
Option shall be considered for purposes of determining the number of
Shares remaining available for issuance pursuant to Awards granted
under the Plan. Nothing in this subsection shall imply that any
particular type of cashless exercise of an Option is permitted under
the Plan, that decision being reserved to the Committee or other
provisions of the Plan.
5.3 STOCK DISTRIBUTED. Any Stock distributed pursuant to an Award may
consist, in whole or in part, of authorized and unissued Stock, treasury Stock
or Stock purchased on the open market.
5.4 LIMITATION ON AWARDS. Notwithstanding any provision in the Plan to the
contrary (but subject to adjustment as provided in Section 10.1), the maximum
number of Shares that may be delivered pursuant to Options under the Plan is
372,614 and the maximum number of Shares that may be delivered pursuant to Award
of Restricted Stock under the Plan is 149,045. The maximum number of Shares with
respect to which more Options may be granted during any one calendar year under
the Plan to any one Participant shall be 93,153.
ARTICLE 6
ELIGIBILITY
Awards may be granted only to Eligible Participants; except that Incentive
Stock Options may be granted only to Eligible Participants who are employees of
the Company or a Parent or Subsidiary of the Company.
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ARTICLE 7
STOCK OPTIONS
7.1 GENERAL. The Committee is authorized to grant Options to Participants
on the following terms and conditions:
(a) Exercise Price. The exercise price of an Option shall not be less
than the Fair Market Value as of the Grant Date.
(b) Time and Conditions of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in
part, subject to Section 7.1(d) of the Plan. The Committee shall
also determine the conditions, if any, that must be satisfied before
all or part of an Option may be exercised or vested. The Committee
may waive any exercise or vesting provisions at any time in whole or
in part based upon factors as the Committee may determine in its
sole discretion so that the Option becomes exercisable or vested at
an earlier date.
(c) Payment. The Committee shall determine the methods by which the
exercise price of an Option may be paid, the form of payment,
including, without limitation, cash, Shares, or other property
(including "cashless exercise" arrangements), and the methods by
which Shares shall be delivered or deemed to be delivered to
Participants.
(d) Exercise Term. In no event may any Option be exercisable for more
than ten years from the Grant Date.
7.2 INCENTIVE STOCK OPTIONS. The terms of any Incentive Stock Options
granted under the Plan must comply with the following additional rules:
(a) Lapse of Option. Subject to any earlier termination provision
contained in the Award Agreement, an Incentive Stock Option shall
lapse upon the earliest of the following circumstances; provided,
however, that the Committee may, prior to the lapse of the Incentive
Stock Option under the circumstances described in subsections (3),
(4) or (5) below, provide in writing that the Option will extend
until a later date, but if an Option is so extended and is exercised
after the dates specified in subsections (3) and (4) below, it will
automatically become a Nonstatutory Stock Option:
(1) The expiration date set forth in the Award Agreement.
(2) The tenth anniversary of the Grant Date.
(3) Three months after termination of the Participant's Continuous
Status as a Participant for any reason other than the
Participant's Disability or death.
(4) One year after the Participant's Continuous Status as a
Participant by reason of the Participant's Disability.
(5) One year after the termination of the Participant's death if
the Participant dies while employed, or during the three-month
period described in paragraph (3) or during the one-year
period described in paragraph (4) and before the Option
otherwise lapses.
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Unless the exercisability of the Incentive Stock Option is
accelerated as provided in Articles 9 or 10 of the Plan, if a
Participant exercises an Option after termination of employment, the
Option may be exercised only with respect to the Shares that were
otherwise vested on the Participant's termination of employment.
Upon the Participant's death, any exercisable Incentive Stock
Options may be exercised by the Participant's beneficiary,
determined in accordance with Section 9.4 of the Plan.
(b) Individual Dollar Limitation. The aggregate Fair Market Value
(determined as of the Grant Date) of all Shares with respect to
which Incentive Stock Options are first exercisable by a Participant
in any calendar year may not exceed $100,000.00 (or any higher value
as may be permitted under Section 422 of the Code).
(c) Ten Percent Owners. No Incentive Stock Option shall be granted to
any individual who, at the Grant Date, owns stock possessing more
than ten percent of the total combined voting power of all classes
of stock of the Company or any Parent or Subsidiary unless the
exercise price per share of such Option is at least 110% of the Fair
Market Value per Share at the Grant Date and the Option expires no
later than five years after the Grant Date.
(d) Expiration of Authority to Grant Incentive Stock Options. No
Incentive Stock Option may be granted pursuant to the Plan after the
day immediately prior to the tenth anniversary of the date the Plan
was approved by shareholders, or the termination of the Plan, if
earlier.
(e) Right to Exercise. During a Participant's lifetime, an Incentive
Stock Option may be exercised only by the Participant or, in the
case of the Participant's Disability, by the Participant's guardian
or legal representative.
(f) Eligible Grantees. The Committee may not grant an Incentive Stock
Option to a person who is not at the Grant Date an employee of the
Company or of an Affiliate.
ARTICLE 8
RESTRICTED STOCK
8.1 GRANT OF RESTRICTED STOCK. The Committee is authorized to make Awards
of Restricted Stock to Participants in such amounts and subject to such terms
and conditions as may be selected by the Committee. An Award of Restricted Stock
shall be evidenced by an Award Agreement setting forth the terms, conditions,
and restrictions applicable to the Award.
8.2 ISSUANCE AND RESTRICTIONS. Restricted Stock shall be subject to such
restrictions on transferability and other restrictions as the Committee may
impose (including, without limitation, limitations on the right to vote
Restricted Stock or the right to receive dividends on the Restricted Stock).
These restrictions may lapse separately or in combination at such times, under
such circumstances, in such installments, upon the satisfaction of performance
goals or otherwise, as the Committee determines at the time of the grant of the
Award or thereafter. Except as otherwise provided in an Award Agreement, the
Participant shall have all of the rights of a shareholder with respect to the
Restricted Stock.
8.3 FORFEITURE. Except as otherwise determined by the Committee at the
time of the grant of the Award or thereafter, upon termination of Continuous
Status as a Participant during the
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applicable restriction period, Restricted Stock that is at that time subject to
restrictions shall be forfeited; provided, however, that the Committee may
provide in any Award Agreement that restrictions or forfeiture conditions
relating to Restricted Stock will be waived in whole or in part in the event of
terminations resulting from death or disability or in connection with a Change
in Control, and the Committee may in other cases waive in whole or in part
restrictions or forfeiture conditions relating to Restricted Stock.
8.4 DELIVERY OF RESTRICTED STOCK. Unless otherwise held in a trust and
registered in the name of the trustee, reasonably promptly after the Grant Date
with respect to shares of Restricted Stock, the Company shall cause to be issued
a stock certificate, registered in the name of the Participant to whom the
Restricted Stock was granted, evidencing such shares. Each such stock
certificate shall bear the following legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the restrictions, terms and
conditions (including forfeiture provisions and restrictions against
transfer) contained in the Naugatuck Valley Financial Corporation
2005 Equity Incentive Plan and Award Agreement entered into between
the registered owner of such shares and Naugatuck Valley Financial
Corporation or its Affiliates. A copy of the Plan and Award
Agreement is on file in the office of the Corporate Secretary of
Naugatuck Valley Financial Corporation"
Such legend shall not be removed until the Participant vests in such
shares pursuant to the terms of the Plan and Award Agreement. Each certificate
issued pursuant to this Section 8.4, in connection with a Restricted Stock
Award, shall be held by the Company or its Affiliates, unless the Committee
determines otherwise.
8.5 VOTING RIGHTS. Unless otherwise determined by the Committee at the
time of grant, a Participant holding Restricted Stock shall be entitled to
exercise full voting rights with respect to those Shares during the restriction
period.
8.6 DIVIDENDS AND OTHER DISTRIBUTIONS. During the restriction period, a
Participant holding Restricted Stock may, if the Committee so determines, be
credited with dividends paid with respect to the underlying Shares. Such
dividends shall be paid to the Participant at times determined by the Committee
in its sole discretion. The Committee may apply any restrictions to the
dividends that the Committee deems appropriate.
ARTICLE 9
GENERAL PROVISIONS APPLICABLE TO AWARDS
9.1 STAND-ALONE AND TANDEM AWARDS. Awards granted under the Plan may, in
the discretion of the Committee, be granted either alone or in addition to or,
in tandem with, any other Award granted under the Plan.
9.2 TERM OF AWARD. The term of each Award shall be for the period as
determined by the Committee, provided that in no event shall the term of any
Incentive Stock Option exceed a period of ten years from its Grant Date (or, if
Section 7.2(c) applies, five years from its Grant Date).
9.3 LIMITS ON TRANSFER. No right or interest of a Participant in any
unexercised or restricted Award may be pledged, encumbered, or hypothecated to
or in favor of any party other than the Company or an Affiliate, or shall be
subject to any lien, obligation, or liability of such Participant to any
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other party other than the Company or an Affiliate. No unexercised or restricted
Award shall be assignable or transferable by a Participant other than by will or
the laws of descent and distribution or, except in the case of an Incentive
Stock Option, pursuant to a domestic relations order that would satisfy Section
414(p)(1)(A) of the Code if that Code Section applied to an Award under the
Plan; provided, however, that the Committee may (but need not) permit other
transfers where the Committee concludes that such transferability (i) does not
result in accelerated taxation, (ii) does not cause any Option intended to be an
Incentive Stock Option to fail to be described in Code Section 422(b), and (iii)
is otherwise appropriate and desirable, taking into account any factors deemed
relevant, including without limitation, state or federal tax or securities laws
applicable to transferable Awards.
9.4 BENEFICIARIES. Notwithstanding Section 9.3 of the Plan, a Participant
may, in the manner determined by the Committee, designate a beneficiary to
exercise the rights of the Participant and to receive any distribution with
respect to any Award upon the Participant's death. A beneficiary, legal
guardian, legal representative, or other person claiming any rights under the
Plan is subject to all terms and conditions of the Plan and any Award Agreement
applicable to the Participant, except to the extent the Plan and Award Agreement
otherwise provide, and to any additional restrictions deemed necessary or
appropriate by the Committee. If no beneficiary has been designated or survives
the Participant, payment shall be made to the Participant's estate. Subject to
the foregoing, a beneficiary designation may be changed or revoked by a
Participant at any time provided the change or revocation is filed with the
Committee.
9.5 STOCK CERTIFICATES. All Stock issuable under the Plan is subject to
any stop-transfer orders and other restrictions as the Committee deems necessary
or advisable to comply with federal or state securities laws, rules and
regulations and the rules of any national securities exchange or automated
quotation system on which the Stock is listed, quoted, or traded. The Committee
may place legends on any Stock certificate or issue instructions to the transfer
agent to reference restrictions applicable to the Stock.
9.6 ACCELERATION UPON DEATH OR DISABILITY. Except as otherwise provided in
the Award Agreement, upon the Participant's death or Disability during his or
her Continuous Status as a Participant, all of such Participant's outstanding
Options and other Awards in the nature of rights that may be exercised shall
become fully exercisable and all time-based vesting restrictions on the
Participant's outstanding Awards shall lapse. Any Awards shall thereafter
continue or lapse in accordance with the other provisions of the Plan and the
Award Agreement. To the extent that this provision causes Incentive Stock
Options to exceed the dollar limitation set forth in Section 7.2(c) of the Plan,
the excess Options shall be deemed to be Nonstatutory Stock Options.
9.7 TERMINATION OF EMPLOYMENT. Whether military, government or other
service or other leave of absence shall constitute a termination of employment
shall be determined in each case by the Committee at its discretion, and any
determination by the Committee shall be final and conclusive. A Participant's
Continuous Status as a Participant shall not be deemed to terminate in a
circumstance in which a Participant transfers from the Company to an Affiliate,
transfers from an Affiliate to the Company, or transfers from one Affiliate to
another Affiliate. To the extent that this provision causes Incentive Stock
Options to extend beyond three months from the date a Participant is deemed to
be an employee of the Company, a Parent or Subsidiary for purposes of Sections
424(e) and 424(f) of the Code, the Options held by such Participant shall be
deemed to be Nonstatutory Stock Options.
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ARTICLE 10
CHANGE IN CAPITAL STRUCTURE; CHANGE IN CONTROL
10.1 CHANGES IN CAPITAL STRUCTURE. In the event of a corporate event or
transaction involving the Company (including, without limitation, any stock
dividend, stock split, extraordinary cash dividend, recapitalization, merger,
consolidation, split-up, spin-off, combination or exchange of shares), the
authorization limits under Article 5 shall be adjusted proportionately, and the
Committee may adjust the Plan and Awards to preserve the benefits or potential
benefits of the Awards. Action by the Committee may include: (i) adjustment of
the number and kind of shares which may be delivered under the Plan; (ii)
adjustment of the number and kind of shares subject to outstanding Awards; (iii)
adjustment of the exercise price of outstanding Awards or the measure to be used
to determine the amount of the benefit payable on an Award; and (iv) any other
adjustments that the Committee determines to be equitable. Without limiting the
foregoing, in the event of a subdivision of the outstanding stock (stock-split),
a declaration of a dividend payable in Shares, or a combination or consolidation
of the outstanding stock unto a lesser number of Shares, the authorization
limits under Article 5 shall automatically be adjusted proportionately, and the
Shares then subject to each Award shall automatically be adjusted
proportionately without any change in the aggregate purchase price therefor.
10.2 ACCELERATED VESTING AND PAYMENT. Subject to the provisions of Section
10.3 of the Plan or as otherwise provided in the Award Agreement, in the event
of a Change in Control, unless otherwise specifically prohibited under law or by
the rules and regulations of an Exchange:
(a) Any and all Options granted hereunder shall become immediately
exercisable; additionally, if a Participant's employment or service
is involuntarily terminated or constructively terminated for any
reason except cause within twelve (12) months of such Change in
Control, the Participant shall have until the expiration of the term
of the Option to exercise such Options;
(b) Any time-based and other restrictions imposed on Restricted Stock
shall lapse; and
(c) The Committee shall have the ability to unilaterally determine that
all outstanding Awards are cancelled upon a Change in Control, and
the value of such Awards, as determined by the Committee in
accordance with the terms of the Plan and the Award Agreement, be
paid out in cash in an amount based on the Change in Control Price
within a reasonable time subsequent to the Change in Control.
10.3 ALTERNATIVE AWARDS. Notwithstanding Section 10.2 of the Plan, no cash
settlement or other payment shall occur with respect to any Award if the
Committee reasonably determines in good faith prior to the occurrence of a
Change in Control that such Award shall be honored or assumed, or new rights
substituted therefor (such honored, assumed or substituted Award hereinafter
called an "Alternative Award") by any successor as described in Section 12.16 of
the Plan; provided that any such Alternative Award must:
(a) Be based on stock which is traded on an established U.S. securities
market, or that the Committee reasonably believes will be so traded
within sixty (60) days after the Change in Control;
(b) Provide such Participant with rights and entitlements substantially
equivalent to or better than the rights, terms and conditions
applicable under such Award;
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(c) Have substantially equivalent economic value to such Award
(determined at the time of the Change in Control); and
(d) Have terms and conditions which provide that in the event that the
Participant's employment is involuntarily terminated or
constructively terminated, any conditions on a Participant's rights
under, or any restrictions on transfer or exercisability applicable
to, each such Alternative Award shall be waived or shall lapse, as
the case may be.
ARTICLE 11
AMENDMENT, MODIFICATION AND TERMINATION
11.1 AMENDMENT, MODIFICATION AND TERMINATION. The Board or the Committee
may, at any time and from time to time, amend, modify or terminate the Plan
without shareholder approval; provided, however, that if an amendment to the
Plan would, in the reasonable opinion of the Board of Directors or the
Committee, either (i) materially increase the number of Shares available under
the Plan, (ii) expand the types of awards under the Plan, (iii) materially
expand the class of participants eligible to participate in the Plan, (iv)
materially extend the term of the Plan, or (v) otherwise constitute a material
change requiring shareholder approval under applicable laws, policies or
regulations or the applicable listing or other requirements of an Exchange, then
such amendment shall be subject to shareholder approval; and provided, further,
that the Board of Directors or Committee may condition any other amendment or
modification on the approval of shareholders of the Company for any reason,
including by reason of such approval being necessary or deemed advisable to (i)
permit Awards made hereunder to be exempt from liability under Section 16(b) of
the 1934 Act, (ii) to comply with the listing or other requirements of an
exchange, or (iii) to satisfy any other tax, securities or other applicable
laws, policies or regulations.
11.2 AWARDS PREVIOUSLY GRANTED. At any time and from time to time, the
Committee may amend, modify or terminate any outstanding Award without approval
of the Participant; provided, however:
(a) Subject to the terms of the applicable Award Agreement, such
amendment, modification or termination shall not, without the
Participant's consent, reduce or diminish the value of such Award
determined as if the Award had been exercised, vested, or otherwise
settled on the date of such amendment or termination (with the
per-share value of an Option for this purpose being calculated as
the excess, if any, of the Fair Market Value as of the date of such
amendment or termination over the exercise price of such Award);
(b) The original term of an Option may not be extended without the prior
approval of the shareholders of the Company;
(c) Except as otherwise provided in Article 10 of the Plan, the exercise
price of an Option may not be reduced, directly or indirectly,
without the prior approval of the shareholders of the Company; and
(d) No termination, amendment, or modification of the Plan shall
adversely affect any Award previously granted under the Plan,
without the written consent of the Participant affected thereby. An
outstanding Award shall not be deemed to be "adversely affected" by
a Plan amendment if such amendment would not reduce or diminish the
value of such Award determined as if the Award had been exercised,
vested, or otherwise settled on the date of such amendment (with the
per-share value of an Option for this purpose being calculated
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as the excess, if any, of the Fair Market Value as of the date of
such amendment over the exercise or base price of such Award).
ARTICLE 12
GENERAL PROVISIONS
12.1 NO RIGHTS TO AWARDS; NON-UNIFORM DETERMINATIONS. No Participant or
any Eligible Participant shall have any claim to be granted any Award under the
Plan. Neither the Company, its Affiliates nor the Committee is obligated to
treat Participants or Eligible Participants uniformly, and determinations made
under the Plan may be made by the Committee selectively among Eligible
Participants who receive, or are eligible to receive, Awards (whether or not
such Eligible Participants are similarly situated).
12.2 NO SHAREHOLDER RIGHTS. Except as otherwise provided in this Plan or
an Award Agreement, no Award gives a Participant any of the rights of a
shareholder of the Company unless and until Shares are in fact issued to such
person in connection with such Award.
12.3 WITHHOLDING. The Company or any Affiliate shall have the authority
and the right to deduct or withhold, or require a Participant to remit to the
Company, an amount sufficient to satisfy federal, state, and local taxes
(including the Participant's FICA obligation) required by law to be withheld
with respect to any exercise, lapse of restriction or other taxable event
arising as a result of the Plan. If Shares are surrendered to the Company to
satisfy withholding obligations in excess of the minimum withholding obligation,
such Shares must have been held by the Participant as fully vested shares for
such period of time, if any, as necessary to avoid variable accounting for the
Option. With respect to withholding required upon any taxable event under the
Plan, the Committee may, at the time the Award is granted or thereafter, require
or permit that any such withholding requirement be satisfied, in whole or in
part, by withholding from the Award Shares having a Fair Market Value on the
date of withholding equal to the minimum amount (and not any greater amount)
required to be withheld for tax purposes, all in accordance with such procedures
as the Committee establishes.
12.4 NO RIGHT TO CONTINUED SERVICE. Nothing in the Plan, any Award
Agreement or any other document or statement made with respect to the Plan,
shall interfere with or limit in any way the right of the Company or any
Affiliate to terminate any Participant's employment or status as an officer,
director or consultant at any time, nor confer upon any Participant any right to
continue as an employee, officer, director or consultant of the Company or any
Affiliate, whether for the duration of a Participant's Award or otherwise.
12.5 UNFUNDED STATUS OF AWARDS. The Plan is intended to be an "unfunded"
plan for incentive and deferred compensation. With respect to any payments not
yet made to a Participant pursuant to an Award, nothing contained in the Plan or
any Award Agreement shall give the Participant any rights that are greater than
those of a general creditor of the Company or any Affiliate. The Plan is not
intended to be subject to the Employee Retirement Income Security Act of 1974
("ERISA").
12.6 RELATIONSHIP TO OTHER BENEFITS. No payment under the Plan shall be
taken into account in determining any benefits under any pension, retirement,
savings, profit sharing, group insurance, welfare or benefit plan of the Company
or any Affiliate unless provided otherwise in such other plan.
12.7 EXPENSES. The expenses of administering the Plan shall be borne by
the Company and its Affiliates.
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12.8 TITLES AND HEADINGS. The titles and headings of the Sections in the
Plan are for convenience of reference only, and in the event of any conflict,
the text of the Plan, rather than such titles or headings, shall control.
12.9 GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
12.10 FRACTIONAL SHARES. No fractional Shares shall be issued and the
Committee shall determine, in its discretion, whether cash shall be given in
lieu of fractional Shares or whether such fractional Shares shall be eliminated
by rounding up or down.
12.11 GOVERNMENT AND OTHER REGULATIONS.
(a) Notwithstanding any other provision of the Plan, no Participant who
acquires Shares pursuant to the Plan may, during any period of time
that such Participant is an affiliate of the Company (within the
meaning of the rules and regulations of the Securities and Exchange
Commission under the 1933 Act), sell such Shares, unless such offer
and sale is made (i) pursuant to an effective registration statement
under the 1933 Act, which is current and includes the Shares to be
sold, or (ii) pursuant to an appropriate exemption from the
registration requirement of the 1933 Act, such as that set forth in
Rule 144 promulgated under the 1933 Act.
(b) Notwithstanding any other provision of the Plan, if at any time the
Committee shall determine that the registration, listing or
qualification of the Shares covered by an Award upon any Exchange or
under any federal, state or local law or practice, or the consent or
approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the granting of
such Award or the purchase or receipt of Shares thereunder, no
Shares may be purchased, delivered or received pursuant to such
Award unless and until such registration, listing, qualification,
consent or approval shall have been effected or obtained free of any
condition not acceptable to the Committee. Any Participant receiving
or purchasing Shares pursuant to an Award shall make such
representations and agreements and furnish such information as the
Committee may request to assure compliance with the foregoing or any
other applicable legal requirements. The Company shall not be
required to issue or deliver any certificate or certificates for
Shares under the Plan prior to the Committee's determination that
all related requirements have been fulfilled. The Company shall in
no event be obligated to register any securities pursuant to the
1933 Act or applicable state law or to take any other action in
order to cause the issuance and delivery of such certificates to
comply with any such law, regulation or requirement.
(c) Notwithstanding any other provision contained in the Plan, this Plan
will comply with the requirements of 12 C.F.R. Section 575.8 and 12
C.R.R. Section 563b.500, including:
(i) No Options or Restricted Stock Awards granted to any Eligible
Individual employee who is a common law may exceed 25% of the
total amount of Options or Restricted Stock Awards, as
applicable, available under the Plan;
(ii) No Options or Restricted Stock Awards granted to any
individual Non-Employee Director may exceed 5% of the total
amount of Options or Restricted Stock Awards, as applicable,
available under the Plan;
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(iii) The aggregate amount of Options or Restricted Stock Awards
granted to all Non-Employee Directors may not exceed 30% of
the total amount of Options or Restricted Stock Awards, as
applicable, under the Plan; and
(iv) No single grant of Options or Restricted Stock Awards under
the Plan may become exercisable or vest at a rate more quickly
than 20% per year commencing one year from the Grant Date.
12.12 GOVERNING LAW. To the extent not governed by federal law, the Plan
and all Award Agreements shall be construed in accordance with and governed by
the laws of the State of Connecticut.
12.13 ADDITIONAL PROVISIONS. Each Award Agreement may contain such other
terms and conditions as the Committee may determine; provided that such other
terms and conditions are not inconsistent with the provisions of the Plan.
12.14 INDEMNIFICATION. To the extent allowable under applicable law, each
member of the Committee shall be indemnified and held harmless by the Company
from any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by such member in connection with or resulting from any
claim, action, suit, or proceeding to which such member may be a party or in
which he may be involved by reason of any action or failure to act under the
Plan and against and from any and all amounts paid by such member in
satisfaction of judgment in such action, suit, or proceeding against him
provided he gives the Company an opportunity, at its own expense, to handle and
defend the same before he undertakes to handle and defend it on his own behalf.
The foregoing right of indemnification shall not be exclusive of any other
rights of indemnification to which such persons may be entitled under the
Company's Charter or Bylaws, as a matter of law, or otherwise, or any power that
the Company may have to indemnify them or hold them harmless.
12.15 NO LIMITATIONS ON RIGHTS OF COMPANY. Subject to Section 12.16 of the
Plan, the grant of any Award shall not in any way affect the right or power of
the Company to make adjustments, reclassification or changes in its capital or
business structure or to merge, consolidate, dissolve, liquidate, sell or
transfer all or any part of its business or assets. The Plan shall not restrict
the authority of the Company, for proper corporate purposes, to draft or assume
Awards, other than under the Plan, to or with respect to any person. If the
Committee so directs, the Company may issue or transfer Shares to an Affiliate,
for such lawful consideration as the Committee may specify, upon the condition
or understanding that the Affiliate will transfer such Shares to a Participant
in accordance with the terms of an Award granted to such Participant and
specified by the Committee pursuant to the provisions of the Plan.
12.16 SUCCESSORS. Any obligations of the Company or an Affiliate under the
Plan with respect to Awards granted hereunder, shall be binding on any successor
to the Company or Affiliate, respectively, whether the existence of such
successor is the result of a direct or indirect purchase, merger, consolidation,
or otherwise, of all or substantially all of the business and/or assets of the
Company or Affiliate, as applicable.
C-15
REVOCABLE PROXY
NAUGATUCK VALLEY FINANCIAL CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
May 5, 2005
10:30 a.m., Eastern Time
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Ronald D. Lengyel, James A. Mengacci and
Richard M. Famiglietti, each with full power of substitution, to act as proxy
for the undersigned, and to vote all shares of common stock of the Company which
the undersigned is entitled to vote only at the Annual Meeting of Shareholders,
to be held on May 5, 2005, at 10:30 a.m. local time, at Leary's Crystal Room
located at 98 School Street, Naugatuck, Connecticut, and at any and all
adjournments of the meeting, with all of the powers the undersigned would
possess if personally present at such meeting, as indicated to the right:
1. The election as directors of all nominees listed (except as marked
to the contrary below).
Carlos S. Batista, John C. Roman and Camilo P. Vieira
FOR VOTE WITHHELD FOR ALL EXCEPT
|_| |_| |_|
INSTRUCTION: To withhold your vote for any individual nominee, mark
"For All Except" and write that nominee's name on the line provided
below.
- --------------------------------------------------------------------------------
2. The approval of the Naugatuck Valley Financial Corporation 2005
Equity Incentive Plan.
FOR AGAINST ABSTAIN
|_| |_| |_|
3. The ratification of the appointment of Snyder & Haller, P.C. as
independent auditors of Naugatuck Valley Financial Corporation for
the year ending December 31, 2005.
FOR AGAINST ABSTAIN
|_| |_| |_|
The Board of Directors recommends that you vote "FOR" each of the listed
proposals.
This proxy, properly signed and dated, is revocable and will be voted as
directed, but if no instructions are specified, this proxy will be voted "FOR"
the proposals listed. If any other business is presented at the annual meeting,
including whether or not to adjourn the meeting, this proxy will be voted by the
proxies in their best judgment. At the present time, the Board of Directors
knows of no other business to be presented at the annual meeting. This proxy
also confers discretionary authority on the Board of Directors to vote with
respect to the election of any person as director where the nominees are unable
to serve or for good cause will not serve and matters incident to the conduct of
the meeting.
Please be sure to sign below and date this Proxy in the box provided.
Date_________________________
_____________________________
Stockholder sign above
_____________________________
Co-holder (if any) sign above
Detach above card, sign, date and mail in postage paid envelope provided.
NAUGATUCK VALLEY FINANCIAL CORPORATION
The above signed acknowledges receipt from the Company prior to the
execution of this proxy of a Notice of Annual Meeting of Stockholders, a Proxy
Statement for the Annual Meeting of Stockholders and the Annual Report to
Stockholders.
Please sign exactly as your name appears on this card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder may sign but only one signature
is required.
PLEASE COMPLETE, DATE, SIGN AND PROMPTLY
MAIL THIS PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
VOTE AUTHORIZATION FORM
-----------------------
I understand that First Bankers Trust Services, Inc., the ESOP Trustee, is
the holder of record and custodian of all shares of Naugatuck Valley Financial
Corporation (the "Company") common stock under the Naugatuck Valley Savings and
Loan Employee Stock Ownership Plan. I understand that my voting instructions are
solicited on behalf of the Company's Board of Directors for the Annual Meeting
of Shareholders to be held on May 5, 2005.
You are to vote my shares as follows:
1. The election as directors of all nominees listed (except as marked to the
contrary below).
Carlos S. Batista, John C. Roman and Camilo P. Vierra
VOTE FOR ALL
FOR WITHHELD EXCEPT
--- -------- ------
|_| |_| |_|
INSTRUCTION: To withhold authority to vote for any individual nominee, mark the
"For All Except" and write that nominee's name on the line provided below.
- --------------------------------------------------------------------------------
2. The approval of the Naugatuck Valley Financial Corporation 2005 Equity
Incentive Plan.
FOR AGAINST ABSTAIN
--- ------- -------
|_| |_| |_|
3. The ratification of the appointment of Snyder & Haller, P.C. as
independent auditors of Naugatuck Valley Financial Corporation for the
year ending December 31, 2005.
FOR AGAINST ABSTAIN
--- ------- -------
|_| |_| |_|
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSALS.
The ESOP Trustee is hereby authorized to vote all shares of Company common
stock allocated to me in its trust capacity as indicated above.
______________________ ________________________
Date Signature
Please date, sign and return this form in the enclosed postage-paid envelope no
later than April 28, 2005.
VOTE AUTHORIZATION FORM
-----------------------
I understand that ING National Trust (the "Trustee") is the holder of
record and custodian of all shares of Naugatuck Valley Financial Corporation
(the "Company") common stock credited to me under the Naugatuck Valley Savings
and Loan 401(k) Profit Sharing Plan and Trust. I understand that my voting
instructions are solicited on behalf of the Company's Board of Directors for the
Annual Meeting of Shareholders to be held on May 5, 2005.
You are to vote my shares as follows:
1. The election as directors of all nominees listed (except as marked to the
contrary below).
Carlos S. Batista, John C. Roman and Camilo P. Vierra
VOTE FOR ALL
FOR WITHHELD EXCEPT
--- -------- ------
|_| |_| |_|
INSTRUCTION: To withhold authority to vote for any individual nominee, mark the
"For All Except" and write that nominee's name on the line provided below.
- --------------------------------------------------------------------------------
2. The approval of the Naugatuck Valley Financial Corporation 2005 Equity
Incentive Plan.
FOR AGAINST ABSTAIN
--- ------- -------
|_| |_| |_|
3. The ratification of the appointment of Snyder & Haller, P.C. as
independent auditors of Naugatuck Valley Financial Corporation for the
year ending December 31, 2005.
FOR AGAINST ABSTAIN
--- ------- -------
|_| |_| |_|
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSALS.
The Trustee is hereby authorized to vote the shares credited to me in its
trust capacity as indicated above.
________________________ _________________________
Date Signature
Please date, sign and return this form in the enclosed postage-paid envelope no
later than April 28, 2005