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FIRST LITCHFIELD FINANCIAL CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
May 20, 2009
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 20, 2009
To the Shareholders of First Litchfield Financial Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of First
Litchfield Financial Corporation (the "Company") will be held at 3:00 p.m. on
Wednesday, May 20, 2009 at the Torrington Country Club, 250 Torrington Road
(Route 4), Goshen, Connecticut, for the following purposes:
1. To elect three (3) nominees to the Board of Directors, who will serve for
a term of three (3) years and until their successors are elected and
qualified, as described in the Proxy Statement.
2. To ratify the appointment of McGladrey & Pullen, LLP as the Company's
independent auditors for the year ending December 31, 2009.
3. To approve the Non-Binding Advisory Vote on the Compensation of the Named
Executive Officers.
4. To transact such other business as may properly come before the meeting,
or any adjournments thereof.
Only those shareholders of record at the close of business on the 3rd day
of April, 2009 are entitled to notice of, and to vote at this Annual Meeting. A
list of those shareholders will be available for inspection by shareholders for
ten (10) days preceding the meeting at the office of the Assistant Secretary of
the Company at the Company's main office, 13 North Street, Litchfield,
Connecticut, and will also be available for inspection by shareholders at the
Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS OF
FIRST LITCHFIELD FINANCIAL CORPORATION
George M. Madsen
Secretary
April 27, 2009
SHAREHOLDERS ARE REQUESTED TO MARK, DATE, SIGN, AND RETURN THE ENCLOSED PROXY AS
SOON AS POSSIBLE REGARDLESS OF WHETHER THEY PLAN TO ATTEND THE MEETING. ANY
PROXY GIVEN BY A SHAREHOLDER MAY BE REVOKED AT ANY TIME BEFORE IT IS EXERCISED,
AND ANY SHAREHOLDER WHO EXECUTES AND RETURNS A PROXY AND WHO ATTENDS THE ANNUAL
MEETING MAY WITHDRAW THE PROXY AT ANY TIME BEFORE IT IS VOTED AND VOTE HIS OR
HER SHARES IN PERSON. A PROXY MAY BE REVOKED BY GIVING NOTICE TO MICHELLE
QUIGLEY, ASSISTANT SECRETARY OF FIRST LITCHFIELD FINANCIAL CORPORATION, IN
WRITING PRIOR TO THE TAKING OF A VOTE.
PROXY STATEMENT
TABLE OF CONTENTS
Page No.
--------
Information Regarding The Annual Meeting 2
Security Ownership Of Principal Shareholders 3
Proposal 1 - Election Of Directors 4
Information About The Directors 4
Corporate Governance 6
Audit Committee Report 8
Security Ownership Of Directors, Nominees And Executive Officers 9
Information About The Executive Officers 10
Executive Compensation 11
Post Employment Compensation 14
Board of Directors Compensation 19
Transactions With Related Persons, Etc. 20
Proposal 2 - Ratification of the Appointment of Independent Auditors 21
Audit and Non-Audit Fees 22
Proposal 3 - Non-Binding Advisory Vote on the Compensation of Named
Executive Officers 23
Other Matters 24
Shareholder Proposals For 2009 24
Annual Report to Shareholders 25
1
Proxy Statement of First Litchfield Financial Corporation
ANNUAL MEETING OF SHAREHOLDERS OF
FIRST LITCHFIELD FINANCIAL CORPORATION
May 20, 2009
SOLICITATION OF PROXIES
The enclosed form of proxy (the "Proxy") is solicited by the Board of
Directors of FIRST LITCHFIELD FINANCIAL CORPORATION (the "Company"), 13 North
Street, Litchfield, Connecticut, 06759, for use at the Annual Meeting of
Shareholders, to be held on Wednesday, May 20, 2009, and at any and all
adjournments thereof. Any Proxy given may be revoked at any time before it is
actually voted on any matter in accordance with the procedures set forth in the
Notice of Annual Meeting. This Proxy Statement and the enclosed form of Proxy
are being mailed to shareholders (the "Shareholders") on or about April 27,
2009. The cost of preparing, assembling and mailing this Proxy Statement and the
material enclosed herewith is being borne by the Company. In addition to this
solicitation by mail, directors, officers and employees of the Company, and its
subsidiary The First National Bank of Litchfield (the "Bank"), without
additional compensation, may make solicitations personally or by telephone. Upon
request, the Company will reimburse banks, brokerage firms and others holding
shares in their names or in the names of nominees for their reasonable
out-of-pocket expenses in forwarding Proxies and Proxy materials to the
beneficial owners of such shares.
OUTSTANDING STOCK AND VOTING RIGHTS
The Board of Directors of the Company has fixed the close of business on
April 3, 2009 as the Record Date (the "Record Date") for the determination of
Shareholders entitled to notice of and to vote at the Annual Meeting. As of the
Record Date, 2,356,875 shares of the common stock of the Company (par value $.01
per share) were issued and outstanding and held of record by approximately 403
shareholders (the "Common Stock"), each of which shares is entitled to one vote
on all matters to be presented at the Annual Meeting. The holders of one-third
of the Company's Common Stock must be present, in person or by proxy, at the
Annual Meeting to constitute a quorum. Abstentions and broker non-votes are not
treated as having voted in favor of any proposal and are counted as present for
establishing a quorum. No other class of the Company's capital stock is entitled
to vote at the Annual Meeting. Assuming the presence of a quorum at the Annual
Meeting, directors will be elected by a plurality of the votes of the shares of
Common Stock present in person or represented by proxy and entitled to vote. The
affirmative vote of the majority of the votes cast is required to ratify the
appointment of the Company's independent auditors. Shareholders' votes will be
tabulated by the persons appointed by the Board of Directors to act as
inspectors of election for the Annual Meeting.
If the enclosed Proxy is properly executed and returned to the Company in
time to be voted at the Annual Meeting, the shares represented thereby will be
voted in accordance with the instructions marked thereon. Executed but unmarked
Proxies will be voted FOR the election of the three (3) nominees for election to
the Board of Directors, FOR ratification of appointment of McGladrey &
2
Pullen, LLP as the Company's independent auditors for the year ending December
31, 2009; and FOR approval of the non-binding advisory vote on the Compensation
of the Named Executive Officers. The Board of Directors does not know of any
matters other than those described in the Notice of Annual Meeting that are to
come before the Annual Meeting. If any other matters are properly brought before
the Annual Meeting, the persons named in the Proxy will vote the shares
represented by such Proxy upon such matters as determined by a majority of the
Board of Directors. The proxies confer discretionary authority to vote on any
matter of which the Company did not have notice at least 45 days prior to the
date of the Annual Meeting.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 20, 2009
Under the rules recently adopted by the Securities and Exchange
Commission, we are now furnishing proxy materials on the Internet in addition to
mailing paper copies of the materials to our shareholders.
This Notice, Proxy Statement and the Company's 2008 Annual Report are
available at www.cfpproxy.com/4824.
Directions to the Torrington Country Club may be obtained by writing to
George M. Madsen, Secretary, First Litchfield Financial Corporation, 13 North
Street, P.O. Box 578, Litchfield, Connecticut, 06759 or by calling 860-567-6459.
The information found on, or otherwise accessible through, the Company's
website is not incorporated by reference into, and is not otherwise a part of,
this Proxy Statement.
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDER
The following table includes certain information as of April 3, 2009
regarding the only shareholders (the "Principal Shareholder") of the Company
known to be a beneficial owner of five percent (5%) or more of the Company's
Common Stock. Percentages are based on 2,356,875 shares of the Company's Common
Stock issued and outstanding as of April 3, 2009.
Name and Address Number of Shares and Nature Percent of Outstanding
of Beneficial Owner of Beneficial Ownership (1) Common Stock
- -------------------- --------------------------- -----------------------
William J. Sweetman 123,568 (2) 5.24%
101 Talmadge Lane
Litchfield, CT 06759
- ----------
1. The definition of beneficial owner includes any person who, directly or
indirectly, through any contract, agreement or understanding, relationship
or otherwise, has or shares voting power or investment power with respect
to such security or has the right to acquire such voting or investment
power within 60 days.
2. Includes 14,347 shares owned by an estate as to which Mr. Sweetman has
voting power as fiduciary of said estate.
3
PROPOSAL (1)
ELECTION OF DIRECTORS
The Board of Directors of the Company is divided into three (3) classes,
each class being approximately equal in size. Each class of directors will stand
for election once every three (3) years. Directors are elected by a plurality of
the votes of shares present in person or represented by proxy at the meeting and
entitled to vote.
Pursuant to the Company's Certificate of Incorporation and Bylaws, the
Board has fixed the number of directorships at eleven (11). At this Annual
Meeting, three (3) directors are to be elected. The following three (3)
directors, whose terms expire at the 2009 Annual Meeting, are to be elected each
for a term of three (3) years and until their successors are elected and
qualified: Joseph J. Greco, Perley H. Grimes, Jr., and Gregory S. Oneglia. Each
nominee is now serving as a director. Each of the three (3) directors whose
terms expire at this meeting is nominated for re-election and each has indicated
a willingness to serve as a director. If any of them become unavailable, the
Proxy may be voted for a nominee or nominees who would be designated by the
Board of Directors.
There are no arrangements or understandings between any of the directors
or any other persons pursuant to which any of the above directors has been
selected as nominee.
THE BOARD OF DIRECTORS RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THE ELECTION OF ITS NOMINEES FOR
DIRECTOR
The following sets forth the name and age of each nominee (the first three
(3) directors listed), and each director who will continue his or her term of
office, the year in which each was first elected a director of the Company and
the Bank, and the principal occupation and business experience of each during
the past five (5) years:
NOMINEES FOR ELECTION
Position Held with Expiration Date
Name and Age the Company of Current Term
- -------------------------- ----------------------------------------- ---------------
Joseph J. Greco (58) President and Chief Executive 2009
Officer and Director of the Company
and of the Bank since 2002
Perley H. Grimes, Jr. (64) Director of the Company 2009
since 1988 and of the Bank since 1984 (1)
Gregory S. Oneglia (61) Director of the Company 2009
and of the Bank since 2002 (2)
4
CONTINUING DIRECTORS
Position held with Expiration Date
Name & Age the Company of Current Term
- -------------------------- ----------------------------------------- ---------------
George M. Madsen (75) Director of the Company 2010
and of the Bank since 1988 (3)
Alan B. Magary (66) Director of the Company 2010
and of the Bank since 2002 (4)
William J. Sweetman (62) Director of the Company 2010
and of the Bank since 1990 (5)
Patricia D. Werner (62) Director of the Company 2010
and of the Bank since 1996 (6)
Patrick J. Boland (61) Director of the Company 2011
and of the Bank since 2006 (7)
John A. Brighenti (54) Director of the Company 2011
and of the Bank since 2006 (8)
Richard E. Pugh (65) Director of the Company 2011
and of the Bank since 2006 (9)
H. Ray Underwood (55) Director of the Company 2011
and of the Bank since 1998 (10)
- ----------
1. Mr. Grimes is a Partner in the law firm of Cramer & Anderson.
2. Mr. Oneglia is Vice-Chairman of O&G Industries, Inc. since 2000. Mr.
Oneglia served as President of O&G Industries, Inc. from 1997 to 2000.
3. Mr. Madsen is retired. He formerly served as President of Roxbury
Associates.
4. Mr. Magary is retired. He formerly served as principal of Magary
Consulting Services through December 1999.
5. Mr. Sweetman is the President and Owner of Dwan & Co., Inc.
6. Ms. Werner is the head of the Washington Montessori Association, Inc.
7. Mr. Boland is retired. He formerly served as a Managing Director of Credit
Suisse Inc.
8. Mr. Brighenti is Vice President of Avon Plumbing & Heating.
9. Mr. Pugh is retired. He formerly served as President and Chief Executive
Officer of New Milford Hospital.
10. Mr. Underwood is Secretary and Treasurer of Underwood Services, Inc.
5
CORPORATE GOVERNANCE
--------------------
The Board of Directors and Its Committees
The Board of Directors of the Company met fifteen (15) times in 2008. With
the exception of William J. Sweetman, all directors attended at least 75% of the
aggregate of the total number of meetings of the board of directors and the
total number of meetings held by all committees of the Board on which such
director served during 2008. While a majority of directors generally attend the
Company Annual Meeting, the Company does not have an attendance policy for
directors with respect to attendance at the Company's Annual Meetings. Nine of
the then thirteen directors of the Company attended the Company's Annual Meeting
on May 21, 2008.
Board of Directors' Communications with Shareholders
While the Company's Board of Directors does not have a formal process for
shareholders to send communications to the Board, the volume of such
communications has historically been de minimus. Accordingly, the Board
considers the Company's informal process to be adequate to address the Company's
needs. Historically, such informal process has functioned as follows: A Board
recipient of a shareholder communication would forward same to the Chairman and
Chief Executive Officer for appropriate discussion by the Board and the
formulation of an appropriate response. Shareholders may forward written
communications to the Board by addressing such comments to the Board of
Directors of First Litchfield Financial Corporation, 13 North Street,
Litchfield, Connecticut 06759.
The Board of Directors has established several standing committees to
assist in the discharge of its responsibilities. All members are appointed
annually and serve until their successors are named. All committees report their
deliberations and recommendations to the Board. The principal responsibilities,
membership and number of meetings of each committee are described below.
Nominating Committee
The Nominating Committee met once in 2008. The current Committee members, all of
whom are "independent" in accordance with the independence standards of the NYSE
AMEX US, are: Perley H. Grimes, Jr., Alan B. Magary, and H. Ray Underwood. This
Committee reviews and evaluates potential candidates for nomination to the
Boards of Directors of the Company and the Bank and recommends proposed nominees
for election as members of the Boards of Directors and committees.
While the Nominating Committee does not have a formal charter or written
policy, the Company has procedures and guidelines for the selection of
directors.
The procedure for nomination of directors by the Nominating Committee is
as follows:
1. The Nominating Committee, selected by the Board from among its
members, identifies potential candidates with input from management
and other directors and obtains background information on
candidates.
2. The Nominating Committee presents proposed candidates to the Board
before contacting such candidates.
6
3. The Nominating Committee approaches the candidate and if such
candidate is interested, he or she fills out a questionnaire.
4. After review of the questionnaire, the Nominating Committee decides
whether to recommend to the Board that the candidate should be
nominated to the Board.
In addition, the Company's Bylaws include procedures for nominations by
shareholders. A copy of the Company's Bylaws is available by sending a written
request to or by calling George M. Madsen, Secretary, 13 North Street,
Litchfield, Connecticut 06759; (860) 567-8752. The Nominating Committee's
process for identifying and evaluating nominees for director, including nominees
recommended by shareholders, has historically operated informally and without
any differences in the manner in which nominees recommended by shareholders are
evaluated.
The Nominating Committee considers factors such as those summarized below
in evaluating director candidates and believes that the Company's Bylaws and the
qualifications and considerations such as those enumerated below provide
adequate guidance and flexibility in evaluating candidates.
o Experience in business or a profession, either active
currently or recently retired, and ability to contribute sound
judgment to Bank matters.
o Participation in community affairs.
o Residency, whether home or business, in the Company's primary
marketing area.
o Ability to refer desirable business to the Bank.
o Having integrity, ethical character and good reputation.
o Candidates must be less than 65 years of age when first
elected.
o Candidates should be willing and able to attend Board meetings
and Board committee meetings (each director must participate
on at least one committee) on a regular basis.
o Candidates should not be employed by, or be a partner in, any
corporation or business firm which already has an employee or
partner on the board.
o Candidates should not be close relatives of any member of the
Board.
o Candidates must not be a director of any other bank.
o Candidates should not have any significant conflict of
interest with the Company or the Bank which cannot be
satisfactorily handled by full disclosure and abstention of
voting when appropriate.
The Company has not paid a fee to any third party or parties to identify
or assist in identifying or evaluating potential nominees. The Nominating
Committee does not discriminate on the basis of sex, race, color, gender,
national origin, religion or disability in the evaluation of candidates. All
nominees for election as directors at the 2009 Annual Meeting were nominated by
the Nominating Committee and Board of Directors.
7
Compensation Committee
The Company and the Bank have a Compensation Committee consisting of the
same members. All compensation is paid by the Bank. The Compensation Committee
met twice in 2008. The Compensation Committee consists solely of independent
directors, in accordance with the NYSE AMEX US independence standards. The
current Committee members are: Patrick J. Boland, Alan B. Magary, Gregory S.
Oneglia, and Patricia D. Werner. The Compensation Committee is responsible for
developing policies relating to employee compensation, benefits and incentives,
annually evaluating the president and chief executive officer, and making
recommendations concerning salaries and other types of compensation to the full
Board of Directors of the Bank. The full Board of Directors of the Company
reviews and approves this Committee's recommendations. The Compensation
Committee has a charter, a copy of which is available on the Company's website
at www.fnbl.com. During 2008, the Company utilized the services of Clark
Consulting for compensation advice.
Audit/Compliance and Security Committee
The Audit/Compliance and Security Committee (the "Audit Committee") met
six (6) times in 2008. The current Committee members are: Patrick J. Boland,
John A. Brighenti, Alan B. Magary and H. Ray Underwood. In addition, the Bank's
Audit Liaison, Judith Leger, attends Audit Committee meetings. Subject to the
more detailed descriptions set forth in its written Charter, a copy of which is
available on the Company's website at www.fnbl.com; this Committee is
responsible for oversight of the internal audit function, internal accounting
controls, security programs and selection of independent accountants. As of the
date of this Proxy Statement, each of the Audit Committee Members is an
"independent director" under the NYSE AMEX US Independence Standards. The
members of the Audit Committee bring a range of education, business and
professional experience that is beneficial to the Audit Committee's function of
the Company and the Bank and is sufficient to enable the Audit Committee to
fulfill its responsibility. The Board has determined that Patrick J. Boland is
an "audit committee financial expert."
Audit Committee Report
The following Report of the Company's Audit Committee is provided in
accordance with the rules and regulations of the Securities and Exchange
Commission (the "SEC"). Pursuant to such rules and regulations, this report
shall not be deemed "soliciting material," filed with the SEC, subject to
Regulation 14A and 14C of the SEC or subject to the liabilities of Section 18 of
the Securities Exchange Act of 1934 (the "Exchange Act").
FIRST LITCHFIELD FINANCIAL CORPORATION
AUDIT COMMITTEE REPORT
The Audit Committee has reviewed and discussed the Company's audited
financial statements for the fiscal year ended December 31, 2008 with
management. The Audit Committee has also reviewed and discussed with McGladrey &
Pullen, LLP ("McGladrey"), the Company's independent auditors, the matters
required to be discussed by Statement on Auditing Standards No. 61, as amended
and as adopted by the Public Company Accounting Oversight Board in Rule 3200T,
Communication with Audit Committees.
The Audit Committee has received the written disclosures and the letter
from McGladrey
8
required by applicable requirements of the Public Company Accounting Oversight
Board for independent auditor communications with Audit Committees concerning
independence and has discussed McGladrey's independence with respect to the
Company with McGladrey.
Based on the review and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the Company's audited financial
statements be included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2008 for filing with the SEC.
First Litchfield Financial Corporation Audit Committee:
Patrick J. Boland, Chairman
John A. Brighenti
Alan B. Magary
H. Ray Underwood
SECURITY OWNERSHIP OF DIRECTORS, NOMINEES
AND EXECUTIVE OFFICERS
The following table sets forth the number of shares and percentage of
Common Stock beneficially owned by each current Director, each of the Executive
Officers, and the Directors and Executive Officers as a group at April 3, 2009.
Percentages are based on 2,356,875 shares of the Company's Common Stock issued
and outstanding as of April 3, 2009.
Name of Common Shares Beneficially Owned
Beneficial Owner At April 3, 2009 (1) Percent of Class
- ---------------- -------------------------------- ----------------
Joseph J. Greco 6,974 (2)(3) .30%
Patrick J. Boland 2,021 .09%
John A. Brighenti 220 .01%
Perley H. Grimes, Jr. 15,559 .66%
George M. Madsen 13,985 .59%
Alan B. Magary 266 (4) .01%
Gregory S. Oneglia 23,749 (4) 1.08%
Richard E. Pugh 54 .00%
William J. Sweetman 123,568 (5) 5.24%
H. Ray Underwood 6,500 .28%
Patricia D. Werner 4,866 .21%
Frederick F. Judd, III 762 (6) .03%
Carroll A. Pereira 1,645 (4), (6),(7) .07%
Matthew R. Robison 0 .00%
Joelene E. Smith 853 (6), (8) .03%
Robert E. Teittinen 510 (6) .02%
All Directors and Executives
Officers as a group (16 persons) 201,532 8.55%
9
1. The definition of beneficial owner includes any person who, directly or
indirectly, through any contract, agreement or understanding, relationship
or otherwise has or shares voting power or investment power with respect
to such security or has the right to acquire such voting or investment
power within 60 days.
2. Includes 1,500 shares of restricted Common Stock.
3. Includes 162 shares held in the Bank's ESOP.
4. Includes shares owned by, or as to which voting power is shared with,
spouse or children.
5. Includes 14,347 shares owned by an estate as to which Mr. Sweetman has
voting power as fiduciary of said estate.
6. Includes 500 shares of restricted Common Stock.
7. Includes 95 shares held in the Bank's ESOP.
8. Includes 71 shares held in the Bank's ESOP.
EXECUTIVE OFFICERS
The following table sets forth information concerning the current
Executive Officers of the Company and/or the Bank. Unless otherwise indicated,
each person has held the same or a comparable position for the last five years.
Name and Age Position Held with the Company and/or Bank
- ------------ ------------------------------------------
Joseph J. Greco (58) President, Chief Executive Officer and Director
of the Company and of the Bank since 2002
Carroll A. Pereira (53) Treasurer of the Company, Senior Vice President
and Chief Financial Officer of the Bank since 1984
Joelene A. Smith (50) Senior Vice President and Operations Officer of
the Bank since 2003
Robert E. Teittinen (58) Senior Vice President and Senior Loan Officer of
the Bank since 2005 (1)
Frederick F. Judd, III (44) Senior Vice President and Senior Trust and Wealth
Management Officer of the Bank since 2006 (2)
Matthew R. Robison (52) Senior Vice President, Retail Banking of the Bank
since 2008 (3)
10
- ----------
1. Mr. Teittinen was a Senior Vice President with TD Banknorth and headed up
their Waterbury Commercial Lending Unit from 2002 to 2005.
2. Prior to joining the Bank, Mr. Judd was a Senior Vice President and
Regional Manager with Webster Financial Advisors from 2003 to 2006.
3. Prior to joining the Bank, from 2000 to 2007 Mr. Robison was an Executive
Vice President and Regional Executive at Sovereign Bank with
responsibilities for retail administration in the Connecticut and Western
Massachusetts markets.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides certain information regarding the
compensation paid to the Named Executive Officers of the Company for services
rendered in all capacities during the fiscal year ended December 31, 2008 and
2007. All compensation expense was paid by the Bank.
- ---------------------------------------------------------------------------------------------------------------------------
Non-Qualified
Non-Equity Deferred
Stock Option Incentive Plan Compensation All Other
Name and Salary Bonus Awards Award Compensation Earnings Compensation Total
Principal Position Year ($) ($) ($) ($) ($) ($)(1) ($) ($)
- ---------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i) (j)
- ---------------------------------------------------------------------------------------------------------------------------
Joseph J. Greco - 2008 255,000 3,606 110,497 43,390(2) 412,493
President and
Chief Executive 2007 245,000 19,600(8) 87,391 42,405(3) 394,396
Officer of the
Bank and Company
- ---------------------------------------------------------------------------------------------------------------------------
Frederick F. Judd 2008 182,000 1,202 24,165(4) 207,367
III - Senior Vice
President and 2007 175,000 10,500(8) 24,378(5) 209,878
Senior Trust and
Wealth Management
Officer of the
Bank
- ---------------------------------------------------------------------------------------------------------------------------
Carroll A. Pereira 2008 130,000 1,202 19,603 22,378(6) 173,183
- - Treasurer of the
Company, Senior 2007 125,240 7,514(8) 13,628 55,237(7) 201,619
Vice President
and Chief
Financial Officer
of the Bank
- ---------------------------------------------------------------------------------------------------------------------------
- ----------
1. Amount represents an accrued expense associated with the supplemental
employee retirement plan for the benefit of the Named Executive Officers.
2. Amount includes the Bank's payment of matching contribution to the Bank's
401(k) plan for the benefit of the Named Executive Officer of $14,550.
Amount also includes fees paid to country clubs of $6,361, vehicle
allowance of $2,067, medical insurance of $3,644, health savings account
of $5,000, dental insurance of $721, life insurance of $710, long-term
disability insurance of $558, executive life insurance of $5,796, and
executive disability insurance of $3,983.
11
3. Amount includes the Bank's payment of matching contribution to the Bank's
401(k) plan for the benefit of the Named Executive Officer of $14,017.
Amount also includes fees paid to country clubs of $6,038, vehicle
allowance of $2,091, medical insurance of $3,507, health savings account
of $5,000, dental insurance of $719, life insurance of $1,050, long-term
disability insurance of $558, executive life insurance of $5,435, and
executive disability insurance of $3,990.
4. Amount includes the Bank's payment of matching contribution to the Bank's
401(k) plan for the benefit of the Named Executive Officer of $10,637.
Amount also includes medical insurance of $3,644, health savings account
of $5,000, dental insurance of $721, life insurance of $710, long-term
disability insurance of $553, executive life insurance of $2,475, and
executive disability insurance of $425.
5. Amount includes the Bank's payment of matching contribution to the Bank's
401(k) plan for the benefit of the Named Executive Officer of $8,279.
Amount represents payments for medical insurance of $3,507, health savings
account of $5,000, dental insurance of $719, life insurance of $1,050,
long-term disability insurance of $542, executive life insurance of
$2,448, executive disability insurance of $433, and mileage allowance of
$2,400.
6. Amount includes the Bank's payment of matching contribution to the Bank's
401(k) plan for the benefit of the Named Executive Officer of $7,800. This
amount also includes medical insurance of $3,644, health savings account
of $5,000, dental insurance of $721, life insurance of $710, long-term
disability insurance of $398, executive life insurance of $3,032, and
executive disability insurance of $1,073.
7. Amount includes the Bank's payment of matching contribution to the Bank's
401(k) plan for the benefit of the Named Executive Officer of $7,514.
Additionally, the amount includes $32,009 which can be attributed to the
exercise of stock options by the Named Executive Officer. This amount also
includes medical insurance of $9,484, dental insurance of $719, life
insurance of $1,050, long-term disability insurance of $388, executive
life insurance of $2,993, and executive disability insurance of $1,080.
8. Cash Incentive Bonus earned in 2007 but was paid in 2008.
Agreements with Named Executive Officers
There are no employment contracts between the Company and any of its Named
Executive Officers. There are Change in Control Agreements between the Bank and
its Named Executive Officers. These Change in Control Agreements provide that in
certain instances, if the Named Executive Officer is terminated or reassigned
within twenty-four (24) months following the occurrence of a change of control
(as such term is defined in the Change in Control Agreements), then such Named
Executive Officer shall be entitled to receive an amount as provided by such
agreement equal to twenty-four (24) months salary, reasonable legal fees and
expenses incurred by the Named Executive Officer as a result of such termination
or reassignment, and continued participation in certain benefit plans.
More information regarding such Change in Control Agreements is provided
below under "Change in Control Agreements".
Agreements with Employees
While there are no employment contracts between the Company and any of its
employees, there are change of control agreements between the Bank and those
employees who have been employed by the Bank for more than ten years. These
agreements provide that in certain instances, if the employee is terminated or
reassigned within six (6) months following the occurrence of a change of control
(as such term is defined in the Change of Control Agreements), then such
individual shall be entitled to receive an amount as provided by such agreement
equal to six (6) months salary, reasonable legal fees and expenses incurred by
the employee as a result of such termination or reassignment, and continued
participation in certain benefit plans.
12
1994 Stock Option Plan for Officers and Outside Directors
On May 4, 1994, Shareholders approved a stock option plan for officers and
outside directors of the Company and the Bank, respectively (the "1994 Stock
Option Plan"). The ability to grant options under the 1994 Stock Option Plan
expired on May 4, 1999. Certain Executive Officers and directors hold
outstanding options granted under the 1994 Stock Option Plan.
2007 Restricted Stock Plan
On May 16, 2007, shareholders approved the 2007 Restricted Stock Plan (the
"Restricted Stock Plan"). The Restricted Stock Plan provides that up to 25,000
shares of Common Stock may be issued to the Company's Executive Officers and
other key employees. Shares vest in five (5) equal installments beginning on the
first anniversary date of the grant, and annually thereafter. Unvested shares
will also immediately vest upon a change in control, death, or retirement.
Shares issued in 2008 totaled 3,500.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth outstanding option awards and unvested
stock awards held by certain of the Bank's Named Executive Officers as of
December 31, 2008. No other Named Executive Officer held any such awards at
December 31, 2008.
- ---------------------------------------------------------------------------------------------------------------------------
Option Awards Stock Awards
- ---------------------------------------------------------------------------------------------------------------------------
Equity
Incentive
Equity Plan
Incentive Awards:
Plan Market
Market Awards: or Payout
Equity Value Number Value of
Incentive of of Un-
Number of Plan Shares Unearned earned
Securities Awards: Number or Units Shares, Shares,
Number of Underlying Number of of Shares of Units or Units or
Securities Un- Securities or Units Stock Other Other
Underlying exercised Underlying of Stock That Rights Rights
Unexercised Options Unexercised Option That Have That That
Options (#) Unearned Exercise Option Have Not Not Have Not Have Not
(#) Un- Options Price Expiration Vested Vested Vested Vested
Name Exercisable exercisable (#) ($) Date (#) ($) ($) ($)
- ---------------------------------------------------------------------------------------------------------------------------
Carroll A. 5,434 0 0 11.93 1/29/09 0 0 0 0
Pereira
- ---------------------------------------------------------------------------------------------------------------------------
13
Option Exercises and Stock Vested
No stock options were exercised by officers during the fiscal year ended
December 31, 2008.
401(k) Plan
The Bank offers an employee savings plan under Section 401(k) of the
Internal Revenue Code. Under the terms of the Plan, employees may contribute up
to 10% of their pre-tax compensation. For the years ended December 31, 2008 and
2007, the Bank made matching contributions equal to 50% of participant
contributions up to the first 6% of pre-tax compensation of a contributing
participant. The Bank also made a contribution of 3% of pre-tax compensation for
all eligible participants regardless of whether the participant made voluntary
contributions to the 401(k) plan. Participants vest immediately in both their
own contributions and the Bank's contributions. Employee savings plan expense
was $273,483 and $237,461 for 2008 and 2007, respectively.
Employee Stock Ownership Plan
In 2005, the Bank established an Employee Stock Ownership Plan (the
"ESOP"), for the benefit of its eligible employees. The ESOP invests in the
Common Stock of the Company, providing participants with the opportunity to
participate in any increases in the value of Common Stock. Under the ESOP,
eligible employees, who are substantially all full-time employees, may be
awarded shares of the Common Stock which are allocated among participants in the
ESOP in proportion to their compensation. The Board determines the total amount
of compensation to be awarded under the ESOP. That amount of compensation
divided by the fair value of the Common Stock at the date the shares are
transferred to the ESOP determines the number of shares contributed to the ESOP.
Dividends are allocated to participant accounts in proportion to their
respective shares. There were no amounts charged to operations during 2008 or
2007 under the ESOP. The Company did not contribute any shares to the ESOP
during 2008 or 2007. Under the terms of the ESOP, the Company is required to
repurchase shares from participants upon their death or termination of
employment. The fair value of the shares of Common Stock subject to repurchase
at December 31, 2008 is less than $25,000.
POST EMPLOYMENT COMPENSATION
Noncontributory Defined Benefit Pension Plan
The Bank has a noncontributory defined benefit pension plan (the "Pension
Plan") that covers substantially all employees who have completed one year of
service and have attained age 21. The benefits are based on years of service and
the employee's compensation during the last five (5) years of employment. Prior
to the Pension Plan's curtailment described below, the Bank's funding policy was
to contribute amounts to the Pension Plan sufficient to meet the minimum funding
requirements set forth in ERISA, plus such additional amounts as the Bank
determined to be appropriate from time to time.
The Pension Plan was frozen effective May 1, 2005. No new employees will
be eligible for the Pension Plan and no further benefits will be earned.
Benefits payable at normal retirement age
14
(generally age 65) to an existing participant will be based on service and
participation credit and earnings history through May 1, 2005.
Pension benefits are based upon average salary (determined as of each
November 15th) during the highest five (5) consecutive plan years of services
prior to the date the Pension Plan was frozen. The amount of the annual benefit
is 1.55% of average salary per year of service (to a maximum of 25 years). This
benefit formula may be modified to conform to changes in the pension laws.
Internal Revenue Code Section 401 (a)(17) limited earnings used to calculate
qualified plan benefits to $210,000 for 2005. This limit was used in the
preparation of the following table.
- -----------------------------------------------------------------------------------------
Present
Number of Value of Payments
Years Credited Accumulated During Last
Service Benefit Fiscal Year
Name Plan Name (#) ($) ($)
- -----------------------------------------------------------------------------------------
(a) (b) (c) (d)(1) (e)
- -----------------------------------------------------------------------------------------
Joseph J. Greco First National Bank of 2 16,082 0
Litchfield Pension Plan
- -----------------------------------------------------------------------------------------
Carroll A. Pereira First National Bank of 19 98,279 0
Litchfield Pension Plan
- -----------------------------------------------------------------------------------------
1. Column (d) - assumptions for calculating the Present Value of Accumulated
Benefit:
Discount rate: 6.00%
Mortality table: 194 Group Mortality Table RP2000 Healthy Annuitant Table
projected to 2015 used for postretirement only; no
pre-retirement mortality assumption was included.
Long Term Incentive and Deferred Compensation Plans
The Bank has entered into Long Term Incentive Retirement Agreements, as
amended (the "Executive Incentive Agreements") with its Named Executive Officers
to encourage the Named Executive Officers to remain employees of the Bank. The
Executive Incentive Agreements provide for the award of deferred bonuses of from
4.6% to 16.1% of the Named Executive Officer's base salary if the Bank's
earnings growth is at least 5% and its return on equity is at least 11%; the
formula for such awards may be revised by the Board of Directors. Amounts are
awarded after the end of each fiscal year. No awards were earned with respect to
the Company's 2008 performance. Tax-deferred earnings on such awards accrue
annually at a rate equivalent to the rate of appreciation in the Company's stock
price in the preceding year, with a guaranteed minimum of 4% and a maximum of
15%. Such awards are immediately vested with respect to 20% of the award and an
additional 20% vests for each additional year of service and the award is 100%
vested upon a change in control, upon termination due to disability, at normal
retirement of 65 or retirement at age 55 with 20 years of service. If the Named
Executive Officer dies while serving as an Executive Officer of the Bank, the
amount payable to the participant's beneficiary is equivalent to the
participant's projected retirement benefit (as defined in the Executive
Incentive Agreements). Upon retirement, the Named Executive Officer's total
deferred compensation, including earnings thereon, may be paid out in one lump
sum, or paid in equal annual installments over fifteen (15) years, during which
payout period earnings continue to accrue at the rate in effect at the date of
retirement; in the case of early retirement, the Named Executive Officer may
elect to defer commencement of the payment of benefits, during which
15
period earnings continue to accrue at the rate in effect at the date of early
retirement. All provisions of the Executive Retirement Agreements have been
structured to be compliant with the provisions of Section 409A of the Internal
Revenue Code. The Bank is in the process of amending its Executive Retirement
Agreements with the Named Executive Officers to make the Agreements compliant
with the provisions of the American Recovery and Reinvestment Act of 2009
("ARRA") by prohibiting any Golden Parachute while any United States Department
of the Treasury's Troubled Assets Relief Program ("TARP") funds received by the
Company are outstanding. See discussion regarding the ARRA set forth below.
In concert with the Executive Incentive Agreements and the Director
Incentive Agreements described below, the Bank has invested in universal cash
surrender value life insurance with a cash surrender value of $10.4 million as
of December 31, 2008. The insurance policies, which were acquired on the lives
of all but two (2) of the Bank's Executive Officers, four (4) non-senior
officers and all but one (1) of the Bank's directors, are designed to recover
the costs of the Bank's Executive and Director Incentive Agreements. The death
benefits of the policies have been structured to indemnify the Bank against the
death benefit provision of the Executive and Director Incentive Agreements. The
policies were paid with a single premium. Policy cash values will earn interest
at a current rate of approximately 4.0% and policy mortality costs will be
charged against the cash value monthly. There are no load or surrender charges
associated with the policies.
Supplemental Retirement Plan
The Bank has entered into Supplemental Retirement Agreements with Joseph
J. Greco and Carroll A. Pereira. At December 31, 2008, accrued supplemental
retirement benefits of $377,000 are recognized in the Company's balance sheet
related to the Supplement Retirement Agreement for these Executive Officers.
Upon retirement, the Supplemental Retirement Agreements provide for payments to
these individuals ranging from 10% to 25% of the three-year average of the
Executive Officer's compensation prior to retirement for the life expectancy of
the Executive Officer at the retirement date. All provisions of the Supplemental
Retirement Agreements have been structured to be compliant with the provisions
of Section 409A of the Internal Revenue Code. The Bank is in the process of
amending its Supplemental Retirement Agreements with the Named Executive
Officers to make the Agreements compliant with the provisions of the ARRA by
prohibiting any Golden Parachute while any TARP funds received by the Company
are outstanding. See discussion regarding the ARRA set forth below.
Change in Control Agreements
Pursuant to the Change in Control Agreements between the Company and each
of the Named Executive Officers, each Named Executive Officer is eligible to
receive payments and other benefits, subject to certain conditions described
below, in the event the Executive Officer is terminated, involuntarily
reassigned more that fifty (50) miles from Litchfield, Connecticut, or has an
involuntary reduction in compensation, duties or responsibilities during the
twenty-four (24) month period following a change in control.
For purposes of the Change in Control Agreements, a "Change in Control"
means the occurrence of one or more of the following events:
16
(a) The acquisition of fifty percent (50%) or more of any class of
equity securities of the Company by any person (or persons working
in concert) or entity after the date hereof;
(b) The acquisition of fifty percent (50%) or more of any class of
equity securities of the Bank by any person or entity other than the
Company;
(c) A merger, consolidation or reorganization to which the Bank or the
Company is a party, if, as a result thereof, individuals who were
directors of the Bank or Holding Company, immediately before such
transaction shall cease to constitute a majority of the Board of
Directors of the surviving entity;
(d) A sale of all or substantially all of the assets of the Bank or the
Company to another party;
(e) The assumption of all or substantially all of the deposits of the
Bank by another party other than the Federal Deposit Insurance
Corporation; or
(f) During any twenty-four (24) month period, individuals who at the
beginning of such period constitute the Board of Directors of the
Bank and the Company, cease for any reason (other than death or
disability) to constitute at least a majority thereof unless the
election or the nomination for election by the stockholders of the
Bank and the stockholders of Company, respectively, of each new
director was approved by a vote of at least a majority of the
directors of the Bank or of Company as applicable, then still in
office who were directors of the Bank or the Company, as applicable,
at the beginning of the period.
The circumstances in which and the estimated amounts to be paid to the
Named Executive Officers under the Change in Control Agreements are as follows:
(a) If, within twenty-four (24) months after a Change in Control as
defined above, shall have occurred, the Named Executive Officer's
employment with the Bank terminates or is reassigned (except by an
agency acting with proper jurisdiction, or by a board of directors
for cause or as a result of death, retirement or disability), then
the Bank and/or its successor shall pay the Named Executive Officer
within five (5) days after the date of termination an amount equal
to the sum of:
(i) Two (2) years of the Named Executive Officer's annual
compensation based upon the most recent aggregate base salary
paid to the Named Executive Officer in the twelve (12) month
period immediately preceding his/her termination or
reassignment less amounts previously paid to the Named
Executive Officer from the date of the Change in Control; plus
(ii) Reasonable legal fees and expenses incurred by the Named
Executive Officer as a result of such termination or
reassignment (including all such fees and
17
expenses, if any, incurred in contesting or disputing any such
termination or reassignment or in seeking to obtain or enforce
any right or benefit provided for by the Change in Control
Agreement).
(b) The Bank and/or its successors shall maintain in full force and
effect for the Named Executive Officer's continued benefit, for the
two (2) year period beginning upon a Change in Control, all life
insurance, medical, health and accident and disability policies,
plans, programs or arrangements which were in effect immediately
prior to the Change in Control.
(c) In the event the Named Executive Officer should obtain other
employment or be compensated for services rendered to any depository
or lending institution, then any payments provided for in the Change
in Control Agreement shall be reduced by any compensation earned by
the Named Executive Officer as the result of employment or
consulting after the date of termination or reassignment.
(d) It is the intention of the parties to the Change in Control
Agreements that no payments by the Bank to or for the Named
Executive Officer's benefit under the Agreements shall be
non-deductible to the Bank by reason of the operation of Section
280G of the Internal Revenue Code. Accordingly, if by reason of the
operation of said Section 280G of the Internal Revenue Code, any
such payments exceed the amount that can be deducted by the Bank,
the amount of such payments shall be reduced to the maximum that can
be deducted by the Bank. To the extent that payments in excess of
the amount that can be deducted by the Bank have been made to and
for the Named Executive Officer's benefit, they shall be refunded
with interest at the applicable rate provided under Section 1274(d)
of the Internal Revenue Code, or at such other rate as may be
required in order that no such payment to or for the Named Executive
Officer's benefit shall be non-deductible pursuant to Section 280G
of the Internal Revenue Code. Any payments made under the Change in
Control Agreements that are not deductible by the Bank as result of
losses that have been carried forward by the Bank for Federal tax
purposes shall not be deemed a non-deductible amount.
(e) The Executive Agreements provide that they shall be administered in
a manner, and all provisions shall be interpreted to be, compliant
with Section 409A of the Internal Revenue Code.
The Company participated in the United States Department of the Treasury's
Troubled Assets Relief Program ("TARP") Capital Purchase Program.
Notwithstanding the provisions of the Change in Control Agreements, so long as
TARP funds are outstanding, the Company is precluded from making a payment which
constitutes a "Golden Parachute" payment as defined in the American Recovery and
Reinvestment Act of 2009 ("ARRA"). The Company is in the process of amending its
Change in Control Agreements with the Named Executive Officers to make the
Agreements compliant with the provisions of the ARRA by prohibiting any Golden
Parachute, while any TARP funds received by the Company are outstanding.
18
BOARD OF DIRECTORS COMPENSATION
In 2008, each director of the Company who was not an employee of the Bank,
received $400 for each Board meeting attended and $350 for each committee
meeting attended. The Chairman of the Board of Directors also received an annual
retainer of $7,250 and each other non-officer director of the Company also
received an annual retainer of $6,000 for serving as a director. Directors who
are employees of the Bank receive no additional compensation for their services
as members of the Board or any Board committee.
Director Compensation Table
- -----------------------------------------------------------------------------------------------------------------------
Change in Pension
Value and
Nonqualified
Fees Earned Non-Equity Deferred
or Paid in Stock Option Incentive Plan Compensation All Other
Name Cash Awards Awards(4) Compensation Earnings Compensation Total
- -----------------------------------------------------------------------------------------------------------------------
($) (1) ($) ($) ($) ($) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------
Patrick J. Boland 18,500 0 0 0 0 0 18,500
- -----------------------------------------------------------------------------------------------------------------------
John A. Brighenti 16,700 0 0 0 0 0 16,700
- -----------------------------------------------------------------------------------------------------------------------
Joseph J. Greco 0 (2) 0 0 0 0 0 0
- -----------------------------------------------------------------------------------------------------------------------
Perley H. Grimes, Jr. 18,550 0 0 0 0 1,943 (3) 20,493
- -----------------------------------------------------------------------------------------------------------------------
George M. Madsen 16,450 0 0 0 0 0 16,450
- -----------------------------------------------------------------------------------------------------------------------
Alan B. Magary 15,350 0 0 0 0 0 15,350
- -----------------------------------------------------------------------------------------------------------------------
Gregory S. Oneglia 15,700 0 0 0 0 0 15,700
- -----------------------------------------------------------------------------------------------------------------------
Richard E. Pugh 17,800 0 0 0 0 0 17,800
- -----------------------------------------------------------------------------------------------------------------------
William Sweetman 12,800 0 0 0 0 2,007 (3) 14,807
- -----------------------------------------------------------------------------------------------------------------------
H. Ray Underwood 19,600 0 0 0 0 0 19,600
- -----------------------------------------------------------------------------------------------------------------------
Patricia D. Werner 14,700 0 0 0 0 2,007 (3) 16,707
- -----------------------------------------------------------------------------------------------------------------------
- ----------
1. All directors' fees are paid in cash.
2. As an officer of the Company and Bank, Director Greco received no
compensation for his services as a Director.
3. Amount represents the value of stock options that were previously issued
and vested, that were exercised in 2008. The value is based on the
difference between the option price and market price on the date of
exercise.
4. No options were awarded in 2008. Pursuant to the 1994 Stock Option Plan
for Officers and outside Directors, there were no options outstanding at
December 31, 2008.
Long Term Incentive and Deferred Compensation Plans
The Bank has entered into Long Term Incentive Retirement Agreements with
each of its directors (the "Director Incentive Agreements") to reward past
service and encourage continued service of each director.
The Director Incentive Agreements award a director with the right to earn
and defer the receipt of a bonus in an amount or percentage ranging from 14.5%
to 50% of the director's retainer, meeting fees and committee fees, depending on
the return on equity and earnings growth in the preceding year, provided that
there is no award if the return on equity in the preceding year is less
19
than 11% and earnings growth in the preceding year is less than 5%. Earnings
accrue annually on such amounts at a rate equivalent to the appreciation in the
Company's stock price in the preceding year, with a guaranteed minimum of 4% and
a maximum of 15%. No awards were earned with respect to the Company's 2007
performance. All amounts in the Director Incentive Agreements are immediately
vested with respect to 20% of the award and an additional 20% is vested for each
additional year of service, with 100% vesting upon a change in control, at
normal retirement at age 72, regardless of years of service, or retirement prior
to age 72 with at least ten years of service. If the director becomes disabled
prior to retirement, the director will receive the entire balance in their
deferral account at termination of employment. Upon retirement, the director's
total deferred compensation, including earnings thereon, may be paid out in one
lump sum, or paid in equal annual installments over ten (10) years, during which
payout period earnings continue to accrue as stated above. All provisions of the
Director Incentive Agreements have been structured to be compliant with the
provisions of Section 409A of the Internal Revenue Code.
Directors' Fees Plan
The Bank previously offered directors the option to defer their directors'
fees. If deferred, the fees are held in a trust account with the Bank. The Bank
has no control over the trust. The market value of the related trust assets and
corresponding liability was $93,234 and $180,951 at December 31, 2008, and 2007,
respectively. During 2005, the plan was amended to cease the deferral of any
future fees. Amounts previously deferred remain in the trust.
Policies and Procedures for the Review, Approval or Ratification of Transactions
with Related Persons
Pursuant to the Company's written Code of Ethics and Conflicts of Interest
Policy, all business dealings and transactions between the Company and its
officers, directors, principal shareholders and employees or their related
interests, must be conducted in an arm's-length fashion. Any consideration paid
or received by the Company in such a transaction must be on terms and under
circumstances that are substantially the same or as favorable as those
prevailing at the time for comparable business dealings with unaffiliated third
parties. Related parties of the Company must fully disclose to the Board of
Directors any personal interest they have in matters affecting the Company.
TRANSACTIONS WITH RELATED PERSONS, PROMOTERS,
AND CERTAIN CONTROL PERSONS
The Bank has had, and expects to have in the future, transactions in the
ordinary course of its business with directors, Executive Officers, principal
shareholders and their associates on substantially the same terms, including
interest rates and collateral on loans, as those prevailing at the same time for
comparable transactions with others, on terms that do not involve more than the
normal risk of collectibility or present other unfavorable features. The
aggregate dollar amount of these loans was $2,077,873 and $2,219,055 at December
31, 2008 and 2007, respectively. During 2008, $383,945 of new loans were made
and repayments totaled $406,636. At December 31, 2008, all loans to Executive
Officers, directors, principal shareholders and their associates were performing
in accordance with the contractual terms of the loans.
20
Perley H. Grimes, Jr., a director of the Company and the Bank, is a
partner in Cramer & Anderson, a law firm which renders certain legal services to
the Bank in connection with various matters. During 2008 and 2007, the Bank paid
Cramer & Anderson $8,500 and $25,300, respectively, for legal services rendered,
a portion of which was reimbursed to the Bank by third parties.
Gregory S. Oneglia, a director of the Company and the Bank, was a
one-sixth owner of property that was leased by the Bank for its North Main
Street, Torrington branch. During the year ended December 31, 2008, the Bank
made no payments for this property. During 2007, the Company paid approximately
$14,100 for rent and $407,000 for the purchase of the branch property.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires that the Company's directors,
Executive Officers, and any person holding more than ten percent (10%) of the
Company's Common Stock file with the SEC reports of ownership and changes in
ownership of the Company's Common Stock and that such individuals furnish the
Company with copies of the reports.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons, with the exception of
Gregory S. Oneglia, Robert E. Teittinen, and Carroll A. Pereira, each of whom
filed one Form 4 late, and H. Ray underwood, who filed two Form 4s late, the
Company believes that all of its Executive Officers and directors complied with
all Section 16(a) filing requirements applicable to them.
PROPOSAL (2)
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee has selected McGladrey & Pullen, LLP as independent
auditors to audit the consolidated financial statements of the Company for the
fiscal year ending December 31, 2009. McGladrey & Pullen, LLP served as the
auditors for the Company for the fiscal year ended December 31, 2008. McGladrey
& Pullen, LLP's opinion on the Consolidated Financial Statements of First
Litchfield Financial Corporation and subsidiary for the year ended December 31,
2008 is included in the First Litchfield Financial Corporation 2008 Annual
Report on Form 10-K.
21
During the period covering the fiscal years ended December 31, 2008 and 2007,
McGladrey & Pullen, LLP and RSM McGladrey, Inc., (a separate entity which
performs non-audit services,) performed the following professional services:
- -----------------------------------------------------------------------------------------------------------
First Litchfield Financial Corporation
Principal Accountant Fees and Services
Years Ended December 31, 2008 and 2007
Description 2008 2007
- -----------------------------------------------------------------------------------------------------------
Audit Fees, consist of fees for professional services rendered for the audit of $ 197,153 $ 183,957
the consolidated financial statements and review of financial statements
included in quarterly reports on Form 10-Q and services connected with statutory
and regulatory filings or engagements.
- -----------------------------------------------------------------------------------------------------------
Audit Related Fees are fees principally for professional services rendered for $ 27,391 $ 18,400
the audit of the Bank's 401(k) Plan and FHLB Qualified Collateral Report.
- -----------------------------------------------------------------------------------------------------------
Tax Service Fees consist of fees for tax return preparation, IRS audit $ 47,344 $ 19,545
consultations, planning and tax advice for the Company.
- -----------------------------------------------------------------------------------------------------------
All Other Fees consist of fees for consultations on the Company's Sarbanes-Oxley $ 2,000 $ 6,000
Section 404 implementation during 2008.
- -----------------------------------------------------------------------------------------------------------
Independence
The Audit Committee of the Board of Directors of the Company has
considered and determined that the provision of services by McGladrey & Pullen,
LLP relating to audit related services, tax services and other services reported
above, is compatible with maintaining the independence of such accountants.
A representative of McGladrey & Pullen, LLP will be available at the
Annual Meeting to answer questions and will be afforded the opportunity to make
a statement if he or she desires to do so.
22
Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of
Independent Auditors
The Audit Committee's policy is to require pre-approval of all audit and
non-audit services provided by the independent auditors, other than those listed
under the de minimus exception. These services may include audit services,
audit-related services, tax services and other services. Pre-approval is
detailed as to a particular service or category of services and is generally
subject to a specific budget. The Audit Committee has delegated pre-approval
authority to its Chairman when expeditious delivery of services is necessary.
The independent auditors and management are required to report to the full Audit
Committee the extent of services provided by independent auditors in accordance
with this pre-approval and the fees for the services performed to date. All of
the audited-related fees, tax fees, or other fees paid in 2008 were approved per
the Audit Committee's pre-approval policies.
Required Vote for Ratification of the Independent Auditors
The affirmative vote of a majority of the shares represented at the
meeting is required to ratify the appointment of McGladrey & Pullen, LLP as the
independent auditors for the year ending December 31, 2009.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR RATIFICATION OF THE INDEPENDENT AUDITORS
PROPOSAL (3)
NON-BINDING ADVISORY VOTE ON THE COMPENSATION OF NAMED
EXECUTIVE OFFICERS
The following proposal is submitted to shareholders to comply with Section
7001 of the American Recovery and Reinvestment Act of 2009 ("ARRA"), which
amended Section 111(e) of the Emergency Economic Stabilization Act of 2008. This
amendment applies to the Company because of its participation in the United
States Department of the Treasury's Troubled Assets Relief Program ("TARP")
Capital Purchase Program.
Section 7001 of the ARRA requires participants in the Treasury's TARP
Capital Purchase Program to permit a separate, non-binding shareholder vote to
approve the compensation of the Named Executive Officers, as disclosed pursuant
to the compensation disclosure rules of the Securities and Exchange Commission
(including the compensation tables and any related material). As a participant
in the Capital Purchase Program, the Company is providing you the opportunity to
endorse or not endorse the Company's executive pay policies.
The Company believes that its compensation policies strongly align the
interests of its Named Executive Officers with the Company's shareholders. The
Company believes that its executive compensation practices and corporate culture
focus the Named Executive Officers on prudent risk management and appropriately
reward executives for performance. The Company's compensation policies are
described in the Executive Compensation section of this Proxy Statement.
23
Because your vote is advisory, it will not be binding upon the Board of
Directors. However, the Compensation Committee will take into account the
outcome of the vote when considering future executive compensation arrangements.
Upon the recommendation of the Company's Board of Directors, the Company
requests that shareholders consider the following resolution:
"RESOLVED, that the Company's shareholders approve the compensation of the
Company's executives named in the Summary Compensation Table of the
Company's Proxy Statement for the 2009 Annual Meeting of Shareholders, as
described in the Executive Compensation Tables and the related disclosure
contained in the Proxy Statement."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE
RESOLUTION REGARDING THE COMPENSATION OF NAMED EXECUTIVE
OFFICERS, AS DESCRIBED ABOVE.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors of the
Company does not know of any other matters to be presented for action by the
shareholders at the 2009 Annual Meeting. If, however, any other matters not now
known are properly brought before the meeting, the persons named in the
accompanying Proxy will vote such Proxy in accordance with the determination of
a majority of the Board of Directors.
PROPOSALS OF SHAREHOLDERS
Under the Company's Bylaws, for business proposed by a shareholder (other
than director nomination) to be a proper subject for action at an Annual Meeting
of Shareholders, in addition to any requirement of law, the shareholder must
timely request that the proposal be included in the Company's proxy statement
for the meeting. The Company received no such request from any shareholder with
respect to the 2009 Annual Meeting.
In order to be included in the Company's proxy statement and form of proxy
for the 2010 Annual Meeting of Shareholders and in order to be a proper subject
for action at that meeting, proposals of shareholders intended to be presented
to that meeting must be received at the Company's principal executive offices by
December 17, 2009, pursuant to proxy soliciting regulations of the SEC. The
SEC's rules contain standards as to what shareholder proposals are required to
be in the proxy statement. Any such proposal will be subject to Rule 14a-8 of
the rules and regulations promulgated by the SEC. Nothing in this paragraph
shall be deemed to require the Company to include in its proxy statement and
form of proxy for such meeting any shareholder proposal which does not meet the
requirements of the SEC in effect at the time. In addition, under the Company's
24
Bylaws, shareholders who wish to nominate a director or bring other business
before an annual meeting must comply with the following:
You must be a shareholder of record and must have given timely notice in
writing to the Secretary of the Company.
Your notice must contain specific information required in the Company's
Bylaws.
Any other proposal for consideration by shareholders at the Company's 2010
Annual Meeting of shareholders must be delivered to, or mailed to and received
by, the Secretary of the Company not less than 45 days nor more than 90 days
prior to the date of the meeting if the Company gives at least 30 days notice or
prior public disclosure of the meeting date to shareholders.
Shareholder proposals should be mailed to: George M. Madsen, Secretary,
First Litchfield Financial Corporation, P.O. Box 578, 13 North Street,
Litchfield, Connecticut 06759.
ANNUAL REPORT TO SHAREHOLDERS
The Company files Annual Reports on Form 10-K with the Securities and
Exchange Commission. A copy of the Company's Annual Report on Form 10-K, without
exhibits, and Annual Report to Shareholders, including consolidated financial
statements, may be obtained without charge upon written request to: Carroll A.
Pereira, Treasurer, First Litchfield Financial Corporation, P.O. Box 578, 13
North Street, Litchfield, Connecticut 06759.
By Order of the Board of Directors
April 27, 2009 George M. Madsen
Secretary
25
PROXY
FIRST LITCHFIELD FINANCIAL CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
FIRST LITCHFIELD FINANCIAL CORPORATION
The undersigned holder(s) of the Common Stock of First Litchfield Financial
Corporation (the "Company") do hereby nominate, constitute and appoint Herbert
L. Curtiss, Jr. and Arthur B. Webster of Litchfield County, Connecticut, jointly
and severally, as our proxies with full power of substitution, for us and in our
name, place and stead to vote all the Common Stock of said Company, standing in
our name on its books on April 3, 2009 at the Annual Meeting of its shareholders
to be held at the Torrington Country Club, 250 Torrington Road, (Route 4),
Goshen, Connecticut, on May 20, 2009 at 3:00 p.m. or at any adjournment thereof
with all the powers the undersigned would possess if personally present, as
follows:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS (1), (2) & (3)
(1) ELECTION OF DIRECTORS:
To re-elect the following three (3) Directors to the Board of Directors
each to serve for a term of three (3) years and until their successors are
elected and qualified, as described in the Proxy Statement. Nominees:
Joseph J. Greco; Perley H. Grimes, Jr., Gregory S. Oneglia
[ ] FOR [ ] WITHHOLD [ ] FOR ALL EXCEPT
INSTRUCTION: To withhold authority to vote for any individual mark "For
All Except" and write that nominee's name in the space provided below.
____________________________________________
(2) APPOINTMENT OF AUDITORS:
To ratify the appointment of McGladrey & Pullen, LLP as the Company's
independent auditors for the year ending December 31, 2009.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) NON-BINDING ADVISORY VOTE ON THE COMPENSATION OF NAMED EXECUTIVE OFFICERS:
To approve the compensation of the Company's Named Executive Officers in
the Summary Compensation Table of the Company's Proxy Statement for the
2009 Annual Meeting of Shareholders, as described in the Executive
Compensation Tables and the related disclosure contained in the Proxy
Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(4) OTHER BUSINESS:
To transact such other business as may properly come before the meeting,
or any adjournments thereof. Management knows of no other business to be
presented by or on behalf of the Company or its management at the meeting.
However, if any other matters are properly brought before the meeting, the
persons named in this Proxy or their substitutes will vote in accordance
with the determination of a majority of the Board of Directors.
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATION INDICATED. IF NO
SPECIFICATION IS INDICATED, THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF THE
NOMINEES LISTED IN PROPOSAL 1; "FOR" THE RATIFICATION OF THE COMPANY'S
APPOINTMENT OF INDEPENDENT AUDITORS (PROPOSAL 2); AND "FOR" THE APPROVAL OF THE
NON-BINDING ADVISORY VOTE OF NAMED EXECUTIVE OFFICERS (PROPOSAL 3) AND IN
ACCORDANCE WITH THE
DETERMINATION OF A MAJORITY OF THE BOARD OF DIRECTORS AS TO ANY OTHER MATTERS.
DATE: _____________________________ Please be sure to sign and date
this Proxy in the box below.
____________________________ (L.S.)
____________________________ (L.S.)
Please sign exactly as name
appears. When shares are held in
more than one name, including joint
tenants, each party should sign.
When signing as attorney, executor,
administrator, trustee or guardian,
give full title as such.
THIS PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE MEETING BY WRITTEN NOTICE TO
THE COMPANY OR MAY BE WITHDRAWN AND YOU MAY VOTE IN PERSON SHOULD YOU ATTEND THE
ANNUAL MEETING.
PLEASE SIGN AND RETURN