March
28,
2006
Dear
Stockholder:
You
are
cordially invited to attend the annual meeting of stockholders of Naugatuck
Valley Financial Corporation. We will hold the meeting in the Community Room
at
Naugatuck Valley Savings and Loan’s main office at 333 Church Street, Naugatuck,
Connecticut, on May 4, 2006 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 Whittlesey & Hadley,
P.C., the Company’s independent registered public accountants, 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 |
333
Church Street
Naugatuck,
Connecticut
06770
(203)
720-5000
____________________
NOTICE
OF 2006 ANNUAL MEETING OF STOCKHOLDERS
____________________
|
TIME
AND DATE
|
10:30
a.m. on Thursday, May 4, 2006
|
|
|
PLACE
|
The
Community Room in Naugatuck Valley Savings and Loan’s main office at 333
Church Street, Naugatuck, Connecticut
|
|
|
ITEMS
OF BUSINESS
|
(1)
|
The
election of three directors of the Company;
|
|
(2)
|
The
ratification of the appointment of Whittlesey &Hadley, P.C. as
independent registered public accountants for the Company for
the fiscal
year ending December 31, 2006; and
|
|
|
(3)
|
Such
other matters as may properly come before the annual meeting
or any
postponements or adjournments of the annual meeting. The Board
of
Directors is not aware of any other business to come before the
annual
meeting.
|
|
|
RECORD
DATE
|
In order to vote, you must have been a stockholder at the close of business on March 15, 2006. | |
|
PROXY
VOTING
|
It
is important that your shares be represented and voted at the
meeting. You
can vote your shares by completing and returning the proxy card
or voting
instruction card sent to you. Voting instructions are printed
on your
proxy card. You can revoke a proxy at any time prior to its exercise
at
the meeting by following the instructions in the proxy
statement
|
|
| /s/ Bernadette A. Mole | ||
|
Bernadette
A. Mole
|
||
|
Corporate
Secretary
|
||
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
PROXY
STATEMENT
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 in the Community
Room at Naugatuck Valley Savings and Loan’s main office at 333 Church Street,
Naugatuck, Connecticut, on May 4, 2006 at 10:30 a.m., local time. This
proxy statement and the enclosed proxy
card are being first mailed on or about March 28, 2006 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 15, 2006. As of the close of business on March 15, 2006,
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 15, 2006. 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” the 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.
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 year’s annual
meeting, stockholders will elect two 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 two. Votes
that are withheld and broker non-votes will have no effect on the outcome
of the
election.
In
voting
on the ratification of the appointment of Whittlesey & Hadley, P.C. as
independent registered public accountants, 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 2 (Ratification of Appointment of Independent Registered Public
Accountants). 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.
The
Board of Directors recommends a vote:
|
·
|
“FOR”
all of the nominees for director;
and
|
|
·
|
“FOR”
ratification of Whittlesey & Hadley, P.C. as independent registered
public accountants.
|
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
2
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.
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 27, 2006.
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;
3
(2)
the
composition, responsibilities and operation of the Board of
Directors;
|
(3)
|
the
establishment and operation of Board
committees;
|
|
(4)
|
succession
planning;
|
|
(5)
|
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.
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,
2005, the Board of Directors of the Company met seven times and the Board
of
Directors of the Bank met 25 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.
4
Committees
of the Board of Directors of Naugatuck Valley Financial
The
following table identifies our standing committees and their members as of
March
15, 2006.
|
Director
|
Audit
Committee
|
Nominating
and
Corporate
Governance
Committee
|
Compensation
Committee
|
|||
|
Carlos
S. Batista
|
X
|
X
|
||||
|
Richard
M. Famiglietti
|
X*
|
X
|
X*
|
|||
|
Ronald
D. Lengyel
|
X
|
X
|
X
|
|||
|
James
A. Mengacci
|
X*
|
X
|
||||
|
Michael
S. Plude
|
X
|
X
|
X
|
|||
|
John
C. Roman
|
||||||
|
Camilo
P. Vieira
|
X
|
X
|
||||
|
Jane
H. Walsh
|
||||||
|
Number
of Meetings in 2005
*Chairman
|
9
|
2
|
13
|
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. Each member of the Audit Committee 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 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 was included as an appendix to the Company’s
proxy statement for its 2005 annual meeting of stockholders. The report of
the
Audit Committee required by the rules of the Securities and Exchange Commission
is included in this proxy statement. See “Proposal
2-Ratification of Independent Registered Public Accountants-Report of Audit
Committee.”
Compensation
Committee.
The
Compensation Committee is responsible for all matters regarding the Company’s
and the Bank’s employee compensation and benefit programs. Each member of the
Compensation Committee is “independent” in accordance with the listing standards
of Nasdaq. 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
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. Each member of
the
Nominating and Corporate Governance Committee is “independent” in accordance
with the listing standards of Nasdaq. The
5
Nominating
and Corporate Governance Committee acts under a written charter adopted by
the
Board of Directors. The charter is not available on the Company’s website, but a
copy of the charter was included as an appendix to the Company’s proxy statement
for its 2005 annual meeting of stockholders. 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.”
Attendance
at the Annual Meeting
The
Board
of Directors encourages directors to attend the annual meeting of stockholders.
All of the Company’s directors attended the Company’s 2005 annual meeting of
stockholders.
Directors’
Compensation
Cash
Retainer and Meeting Fees for Non-Employee Directors. The
following tables set forth the applicable retainers and fees that will be
paid
to non-employee directors for their service on the Board of Directors of
Naugatuck Valley Savings and the Board of Directors of Naugatuck Valley
Financial during 2006. Employee directors do not receive any retainers or
fees
for their services on the Boards of Directors.
Naugatuck
Valley Savings:
|
Annual
Retainer
|
$7,500
($11,500 for Chairman)
|
|
Fee
per Board Meeting (Regular or Special)
|
$500
|
|
Fee
per Committee Meeting
|
$400
|
|
Additional
Monthly Fee for Chairman of the Board as Asset/Liability Committee
liaison
|
$400
|
| Naugatuck Valley Financial: |
|
Quarterly
Retainer
|
$500
|
|
Fee
per Audit Committee Meeting
|
$400
|
In
addition, each non-employee director receives an annual retainer of $1,000
for
his or her service on the Board of Directors of Naugatuck Valley Mutual Holding
Company.
Non-Employee
Director Compensation. The
following table sets forth the total cash and equity compensation paid to
our
non-employee directors for their service on the Boards of Directors of Naugatuck
Valley Savings, Naugatuck Valley Financial and Naugatuck Valley Mutual Holding
Company during 2005.
6
|
Director
|
Cash
|
Restricted
Stock
Awards
(1)
|
Stock
Option
Awards
(2)
|
|||
|
Carlos
S. Batista
|
$56,400
|
7,452
|
18,630
|
|||
|
Richard
M. Famiglietti
|
$51,900
|
7,452
|
18,630
|
|||
|
Ronald
D. Lengyel
|
$61,833
|
7,452
|
18,630
|
|||
|
James
A. Mengacci
|
$51,100
|
7,452
|
18,630
|
|||
|
Michael
S. Plude
|
$49,100
|
7,452
|
18,630
|
|||
|
Camilo
P. Vieira
|
$46,500
|
7,452
|
18,630
|
______________________________
| (1) | All awards vest in five equal annual installments beginning one year from the date of grant, which was July 26, 2005. |
|
(2)
|
All
options have an exercise price of $11.10, the fair market value
of our
common stock on the date of grant, which was July 26, 2005. All
options
vest in five equal annual installments beginning one year from
the date of
grant.
|
Additionally,
in 2005 Naugatuck Valley Savings paid $4,957 on behalf of Ronald D. Lengyel,
its
Chairman of the Board, for his membership in a country club.
Director
Retirement Policy.
Naugatuck Valley Savings maintains a retirement benefits policy for certain
non-employee directors. The policy provides for an annual retirement benefit
for
directors who served as non-employee directors at the time the policy was
created equal to 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 non-employee directors
who
have served on the Board for at least 10 years as of the time he or she attains
age 70, the annual retirement benefit is equal to 60% of the benefit calculated
as above. For all non-employee directors, the benefits vest 10% per year
for
each year for the director serves between the ages of 60 and 70. 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 paid to the director but for his or her death.
Stock
Ownership
The
following table provides information as of March 15, 2006 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.
|
Name
and Address
|
Number
of
Shares
Owned
|
Percent
of
Common
Stock
Outstanding
(1)
|
||
|
Naugatuck
Valley Mutual Holding Company
333
Church Street
Naugatuck,
Connecticut 06770
|
4,182,407
(2)
|
55.0%
|
______________________________
|
(1)
|
Based
on 7,604,375 shares of the Company’s common stock outstanding and entitled
to vote as of March 15, 2006.
|
|
(2)
|
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.
|
7
The
following table provides information as of March 15, 2006 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
officers listed in the 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.
|
Name
|
Number
of
Shares
Owned (1)(2)
|
Percent
of
Common
Stock
Outstanding
(3)
|
|||||
|
Dominic
J. Alegi
|
24,971
|
(4) |
*
|
||||
|
Carlos
S. Batista
|
18,752
|
(5) |
*
|
||||
|
Richard
M. Famiglietti
|
17,452
|
*
|
|||||
|
Ronald
D. Lengyel
|
12,902
|
(6) |
*
|
||||
|
James
A. Mengacci
|
13,658
|
*
|
|||||
|
William
C. Nimons
|
29,446
|
(7) |
*
|
||||
|
Michael
S. Plude
|
9,031
|
(8) |
*
|
||||
|
John
C. Roman
|
30,570
|
*
|
|||||
|
Camilo
P. Vieira
|
10,398
|
(9)
|
*
|
||||
|
Jane
H. Walsh
|
22,127
|
(10) |
*
|
||||
|
All
directors and executive officers
as a group (12 persons)
|
189,307
|
2.49%
|
|||||
__________________________
* Less
than
1.0%.
| (1) | Includes shares of unvested restricted stock held in trust as part of the Naugatuck Valley Financial Corporation 2005 Equity Incentive Plan (the “2005 Incentive Plan”) with respect to which individuals have voting but not investment power as follows: Mr. Alegi—14,000 shares, Messrs. Batista, Famiglietti, Lengyel, Mengacci, Plude and Vieira—7,452 shares each, Mr. Roman—22,000 shares, Ms. Walsh—14,000 shares and Mr. Nimons—10,000 shares. All restricted stock awards vest in five equal annual installments commencing one year from the date of grant, which was July 26, 2005. |
| (2) | Includes shares allocated to the account of individuals under the Bank’s ESOP with respect to which individuals have voting but not investment power as follows: Mr. Alegi—896 shares, Mr. Nimons— 829 shares, Mr. Roman—1,407 shares, and Ms. Walsh—724 shares. |
|
(3)
|
Based
on 7,604,375 shares of the Company’s common stock outstanding and entitled
to vote as of March 15, 2006.
|
|
(4)
|
Includes
200 shares held by Mr. Alegi’s spouse and 100 shares held in a
custodian’s
account for Mr. Alegi’s grandchild.
|
|
(5)
|
Includes
300 shares held in three custodian accounts for Mr. Batista’s
grandchildren.
|
|
(6)
|
Includes
450 shares held in nine custodian accounts for Mr. Lengyel’s
grandchildren.
|
|
(7)
|
Includes
8,700 shares held in Mr. Nimons’ spouse’s individual retirement account
and 200 shares held by Mr. Nimons’
son.
|
|
(8)
|
Includes
579 shares held by a corporation controlled by Mr. Plude.
|
|
(9)
|
Includes
1,839 shares held in Mr. Vieira’s spouse’s individual retirement account.
|
|
(10)
|
Includes
1,435 shares held in Ms. Walsh’s spouse’s individual retirement account.
|
8
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. Famiglietti and Lengyel,
both of whom are currently directors 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 both 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 either nominee might be unable
to
serve.
The
Board of Directors recommends a vote “FOR” the election of Messrs. Famiglietti
and Lengyel.
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, 2005. 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
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 58. 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 67. Director since
1971.
Directors
Continuing in Office
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.
Mr. Mengacci previously was the Secretary and Treasurer of Fitzgerald
Funeral Home, Inc. Age 47. Director since 1988.
Michael
S. Plude
is a
certified public accountant and the managing partner of Kaskie, Plude &
Pacotwa, LLC, an accounting firm located in Monroe, Connecticut. Mr. Plude
previously was an accountant with Pricewaterhouse. Age 46. 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
9
since
2000. Ms. Walsh has served with Naugatuck Valley Savings for over 30 years.
Age
62. Director since 2001.
The
following directors have terms ending in 2008:
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 56. Director since 1999.
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 52. 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 62. Director
since 2002.
Proposal
2 — Ratification of Independent Registered Public
Accountants
Snyder
& Haller, P.C. was the Company’s independent registered public accountants
for 2005. In connection with the merger of Snyder & Haller with Whittlesey
& Hadley, P.C., Snyder & Haller resigned as the independent registered
public accounting firm of the Company on January 13, 2006. On the same date,
the
Company engaged Whittlesey & Hadley as its successor independent registered
public accounting firm.
The
reports of Snyder & Haller on the consolidated financial statements of the
Company as of and for the fiscal years ended December 31, 2003 and 2004,
did not
contain an adverse opinion or a disclaimer of opinion and were not qualified
or
modified as to uncertainty, audit scope, or accounting principles.
During
the Company’s fiscal years ended December 31, 2003 and 2004 and subsequent
interim periods preceding the resignation of Snyder & Haller, there were no
disagreements between the Company and Snyder & Haller on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction
of
Snyder & Haller, would have caused Snyder & Haller to make reference to
the subject matter of the disagreements in connection with its audit reports
on
the Company’s consolidated financial statements.
During
the Company’s fiscal years ended December 31, 2003 and 2004 and subsequent
interim periods preceding the engagement of Whittlesey & Hadley, the Company
did not consult with Whittlesey & Hadley regarding the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on the Company’s
consolidated financial statements.
10
The
Audit
Committee of the Company’s Board of Directors approved the engagement of
Whittlesey & Hadley to be its independent
registered public accountants for the 2006 fiscal year, subject to ratification
by stockholders. A representative of Whittlesey & Hadley 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 registered public accountants
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 registered public accountants.
The
Board of Directors recommends that stockholders vote “FOR” the ratification of
the appointment of independent registered public
accountants.
Audit
Fees
The
following table sets forth the fees billed to the Company for the fiscal
years
ending December 31, 2005 and 2004 by its independent registered public
accountants:
|
2005
|
2004
|
||||||
|
Audit
fees(1)
|
$
|
75,350
|
$
|
53,250
|
|||
|
Audit
related fees
|
--
|
--
|
|||||
|
Tax
fees(2)
|
10,625
|
7,500
|
|||||
|
All
other fees(3)
|
3,550
|
--
|
|||||
_____________
|
(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.
|
|
(3)
|
Consists
of fees charged for the review of the Company’s implementation of new
accounting standards surrounding stock-based compensation and a
special
branch audit.
|
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, 2005, all services were approved, in advance,
by the
Audit Committee in compliance with these procedures.
11
Report
of the Audit Committee
The
Company’s management is responsible for the Company’s internal controls and
financial reporting process. The independent registered public accountants
(“independent accountants”) 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 accountants. 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 accountants. The Audit Committee discussed with the independent
accountants 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 accountants required by the Independence Standards
Board Standard No. 1 (Independence Discussions With Audit Committees) and
has
discussed with the independent accountants 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 accountants the overall scope
and plans for their audit. The Audit Committee meets with the independent
accountants, 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 accountants who,
in
their report, express an opinion on the conformity of the Company’s financial
statements to 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 accountants 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 accountants are in fact “independent.”
12
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, 2005 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 registered public accountants.
The
Audit Committee
Richard
M. Famiglietti, Chairman
Ronald
D.
Lengyel
Michael
S. Plude
13
Executive
Compensation
Summary
Compensation Table
The
following information is provided for John C. Roman, President and Chief
Executive Officer, Dominic J. Alegi, Jr., Executive Vice President, and William
C. Nimons, Senior Vice President. Messrs. Roman, Alegi and Nimons are the
only executive officers who received salary and bonus totaling $100,000 or
more
during 2005.
|
Annual
Compensation (2)
|
Long-Term
Compensation
Awards
|
|||||||||||
|
Name
and Position
|
Year
|
Salary
(1)
|
Bonus
|
Restricted
Stock
Awards
(3)
|
Securities
Underlying
Options (4)
|
All
Other
Compensation
(5)
|
||||||
|
John
C. Roman
President
and Chief Executive
Officer
|
2005
2004
2003
|
$157,177
150,065
133,313
|
$
1,000
10,298
13,271
|
$244,200
-
-
|
37,000
-
-
|
$16,892
7,269
4,028
|
||||||
|
Dominic
J. Alegi, Jr.
Executive
Vice President
|
2005
2004
2003
|
$100,106
98,900
94,208
|
$
1,000
6,972
9,383
|
$155,400
-
-
|
22,000
-
-
|
$11,160
5,401
2,848
|
||||||
|
William
C. Nimons
Senior
Vice President
|
2005
2004
2003
|
$101,223
85,046
68,174
|
$
1,000
4,183
6,962
|
$111,000
-
-
|
18,000
-
-
|
$10,587
3,830
1,967
|
||||||
___________________________
|
(1)
|
Salaries
for 2004 and 2003 have been restated to reflect disclosure of
reimbursements for the payment of taxes under “Other Annual
Compensation.”
|
|
(2)
|
Does
not include the aggregate amount of perquisites or other personal
benefits, which was less than the lesser of $50,000 or 10% of the
total
annual salary and bonus reported.
|
|
(3)
|
Represents
the market value of 22,000, 14,000 and 10,000 shares of restricted
stock
granted to Messrs. Roman, Alegi and Nimons, respectively, on July
26,
2005, based on a per share value of $11.10, the closing price of
the
Company’s common stock on the date of grant. The restricted stock awards
vest in five equal annual installments commencing one year from
the date
of grant. Dividends,
if any, will be paid on the restricted stock. The number and value
of all
unvested shares of restricted stock held under the 2005 Incentive
Plan by
each named executive officer as of December 31, 2005, based on
a per share
value of $10.25, the closing price of the Company’s common stock on
December 30, 2005, the last day that the Company’s common stock was traded
during 2005, is as follows: Mr. Roman—22,000 shares, valued at $225,500;
Mr. Alegi—14,000 shares, valued at $143,500; and Mr. Nimons—10,000 shares,
valued at $102,500.
|
|
(4)
|
Options
become exercisable in five equal annual installments commencing
one year
from the date of grant, which for all options shown was July 26,
2005.
|
|
(5)
|
For
2005, represents matching contributions under the 401(k) Plan of
$5,577,
$4,004 and $3,757 for Messrs. Roman, Alegi and Nimons, respectively,
and
allocations under the employee stock ownership plan of $11,315,
$7,156 and
$6,830 for Messrs. Roman, Alegi and Nimons,
respectively.
|
14
Option
Grants in Last Fiscal Year
The
following table lists all grants of options in 2005 to the named executive
officers listed in the Summary Compensation Table and contains certain
information about the potential value of those options based upon certain
assumptions as to the appreciation of the Company’s stock over the life of the
option.
|
Name
|
Number
of
Securities
Underlying
Options
Granted
(1)
|
%
of
Total
Options
Granted
to
Employees
in
Fiscal
Year
|
Exercise
Price
or
Base
Price
|
Expiration
Date
|
Grant
Date
Present
Value
(2)
|
|||||
|
John
C. Roman
|
37,000
|
10.4%
|
$11.10
|
July
26, 2015
|
$93,610
|
|||||
|
Dominic
J. Alegi, Jr.
|
22,000
|
6.2
|
11.10
|
July
26, 2015
|
55,660
|
|||||
|
William
C. Nimons
|
18,000
|
5.1
|
11.10
|
July
26, 2015
|
45,540
|
|||||
_____________________________
(1)
Options
become exercisable in five equal annual installments commencing one year
from
the date of grant, which for all options shown was July 26, 2005.
(2)
The
estimated present value of the options granted during fiscal year 2005 have
been
calculated using the Black-Scholes option pricing model, based on the following
assumptions: estimated time until exercise of 6.5 years; a risk-free interest
rate of 4.18%; a volatility rate of 11.47%; and a dividend yield of 1.44%.
The
values associated with the option pricing variables described above are
hypothetical and have been provided solely to comply with the rules of the
SEC.
The actual gain, if any, that will be realized by each officer on any option
will depend on the difference between the exercise price of the option and
the
market price of the Company’s common stock on the date that the option is
exercised.
Fiscal
Year-End Option Values
The
following table sets forth information at December 31, 2005 concerning the
number and value of options held by the named executive officers listed in
the
Summary Compensation Table. The named executive officers did not exercise
any
options during 2005.
|
Number
of Securities
Underlying
Unexercised
Options
at Fiscal Year End
|
Value
of Unexercised
In-the-Money
Options
at Year End (1)
|
|||||||
|
Name
|
Exercisable
|
Unexercisable
|
Exercisable
|
Unexercisable
|
||||
|
John
C. Roman
|
--
|
37,000
|
--
|
--
|
||||
|
Dominic
J. Alegi, Jr.
|
--
|
22,000
|
--
|
--
|
||||
|
William
C. Nimons
|
--
|
18,000
|
--
|
--
|
||||
________________________________
(1)
None
of
the options held by the named executive officers were in-the-money at December
31, 2005. Options are considered in-the-money if the market value of the
underlying securities exceeds the exercise price of the shares of Company
common
stock represented by the outstanding options. The closing price of the Company’s
common stock on December 30, 2005, the last day that the Company’s common stock
was traded during 2005, was $10.25 per share, which was below the exercise
price
of $11.10 per share for all options held by the named executive officers.
15
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 reviews 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.
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. Internal Revenue 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 Internal Revenue 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, Mr. Nimons 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, Mr. Nimons and Ms.
Walsh have three-year agreements. If, following a change in control of Naugatuck
Valley
16
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 Internal Revenue 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 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.
Retirement
Plan
Naugatuck
Valley Savings participates in the Financial Institutions Retirement Fund
(the
“Retirement Plan”) to provide retirement benefits for eligible employees.
However, the accrual of benefits under the Retirement Plan was frozen as
of
September 1, 2005. The following table shows the estimated annual benefits
payable under the pension plan based upon the respective years of service
and
compensation indicated below as calculated under the Retirement Plan. As
of
December 31, 2005, Messrs. Roman, Alegi and Nimons had credited years
of service of 6, 35 and 29 years, respectively.
17
|
Years
of Benefit Service
|
||||||||||
|
Final
Average Earnings
|
15
|
20
|
25
|
30
|
35
|
|||||
|
$
75,000
|
|
$16,875
|
|
$22,500
|
|
$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
|
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 2005.
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.
18
Long-Term
Incentive Compensation.
Under
the Naugatuck Valley Financial Corporation 2005 Equity Incentive Plan (the
“2005
Incentive Plan”), the Compensation Committee is authorized, in its discretion,
to grant stock options and restricted stock awards in such proportions and
upon
such terms and conditions as the Compensation Committee may determine. All
stock
options granted have an exercise price equal to the fair market value of
the
Company’s common stock at the time of grant and are exercisable within a 10-year
period. In order to assure the retention of high level executives and to
tie the
compensation of those executives to the creation of long-term value for
stockholders, the Compensation Committee requires that stock options granted
under the 2005 Incentive Plan become exercisable in equal portions over a
five-year period.
The
awards of restricted stock to executive officers and other key employees
represent shares of Company common stock that the recipient cannot sell or
otherwise transfer until the applicable restriction period lapses. Restricted
stock awards also are intended to increase the ownership of executives in
the
Company, thereby further integrating the compensation of the executive with
the
creation of long-term value for stockholders. The Compensation Committee
has
provided that restricted stock awards granted under the 2005 Incentive Plan
vest
in equal portions over five years.
Chief
Executive Officer Compensation. The
Compensation Committee fixed the 2005 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, bonus,
and awards made under the 2005 Incentive Plan. In recognition of Mr. Roman’s
leadership and contribution to the success of the Company, the Compensation
Committee increased Mr. Roman’s base salary for 2005 to $157,177 from $150,065
in 2004. In addition, in 2005 Mr. Roman was awarded 22,000 restricted stock
awards and 37,000 stock options under the 2005 Incentive Plan. 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 annual depreciation charge for the automobile during
2005 was $8,498. The value of the personal use of the automobile and fuel
is
added to Mr. Roman’s income for tax purposes.
The
Compensation Committee
|
Richard
M. Famiglietti, Chairman
|
Carlos
S. Batista
|
|
Ronald
D. Lengyel
|
Camilo
P. Vieira
|
|
James
A. Mengacci
|
Michael
S. Plude
|
Compensation
Committee Interlocks and Insider Participation
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.
19
Stock
Performance Graph
The
following graph compares the cumulative total stockholder 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.
|
Period
Ending
|
|||||||
|
Index
|
|
10/01/04
|
12/31/04
|
03/31/05
|
06/30/05
|
09/30/05
|
12/31/05
|
|
Naugatuck
Valley Financial Corp.
|
$100.00
|
$
99.63
|
$
99.52
|
$
99.36
|
$122.35
|
$
96.31
|
|
|
NASDAQ
Composite
|
100.00
|
112.19
|
103.27
|
106.44
|
111.53
|
117.50
|
|
|
SNL
MHC Thrift Index
|
100.00
|
107.69
|
104.90
|
107.72
|
107.90
|
110.64
|
|
|
SNL
$250M-$500M Thrift Index
|
100.00
|
105.16
|
97.52
|
94.62
|
98.27
|
96.98
|
|
20
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,
2005,
except for one late report on Form 4 filed by Mark Graveline with regard
to a
single purchase of Company common stock.
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.
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 stockholders
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
21
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 stockholder 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 stockholder making the recommendation, the name and address,
as
they appear on the Company’s books, of such stockholder; provided,
however, that if the stockholder is not a registered holder of
the
Company’s common stock, the stockholder 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 stockholder 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 stockholders, 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 stockholders 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 requirement that the
candidate not have been subject to certain criminal or 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
22
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
stockholders 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 November 28, 2006.
If next year’s annual meeting is held on a date more than 30 calendar days from
May 4, 2007, a stockholder proposal must be received by a reasonable time
before
the Company begins to print and mail its proxy solicitation material 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.
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
23
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 the
reasonable expenses they incur 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’s Annual Report to Stockholders has been mailed to persons who were
stockholders as of the close of business on March 15, 2006. 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 December 31, 2005, 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 15, 2006 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 stockholder 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.
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
March
28,
2006
24
REVOCABLE
PROXY
NAUGATUCK
VALLEY FINANCIAL CORPORATION
ANNUAL
MEETING OF STOCKHOLDERS
May
4, 2006
10:30
a.m., Eastern Time
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The
undersigned hereby appoints James Mengacci and Carlos Batista, 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 Stockholders, to be held on May 4, 2006, at
10:30
a.m. local time, at the Community Room in Naugatuck Valley Savings and Loan’s
main office at 333 Church 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).
|
Richard
M. Famiglietti and Ronald D. Lengyel
|
FOR
|
VOTE
WITHHELD
|
FOR
ALL EXCEPT
|
|
|
o
|
o
|
o
|
|
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
ratification of the appointment of Whittlesey & Hadley, P.C. as
independent registered public accountants of Naugatuck Valley Financial
Corporation for the year ending December 31,
2006.
|
|
FOR
|
AGAINST
|
ABSTAIN
|
|
|
o
|
o
|
o
|
The
Board of Directors recommends that you vote “FOR” each of the nominees and the
listed proposal.
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
nominees and the proposal 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 Stockholders to be held on May 4, 2006.
You
are
to vote my shares as follows:
1. The
election as directors of all nominees listed (except as marked to the contrary
below).
Richard
M. Famiglietti and Ronald D. Lengyel
|
FOR
|
VOTE
WITHHELD
|
FOR
ALL
EXCEPT
|
|
|
o
|
o
|
o
|
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
ratification of the appointment of Whittlesey & Hadley, P.C. as independent
registered public accountants of Naugatuck Valley Financial Corporation for
the
year ending December 31, 2006.
|
FOR
|
AGAINST
|
ABSTAIN
|
|
|
o
|
o
|
o
|
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH OF THE NOMINEES AND THE LISTED
PROPOSAL.
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 27, 2006.
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 Stockholders to be held on May 4, 2006.
You
are
to vote my shares as follows:
|
1.
|
The
election as directors of all nominees listed (except as marked
to the
contrary below).
|
Richard
M. Famiglietti and Ronald D. Lengyel
|
FOR
|
VOTE
WITHHELD
|
FOR
ALL
EXCEPT
|
|
|
o
|
o
|
o
|
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
ratification of the appointment of Whittlesey & Hadley, P.C. as
independent registered public accountants of Naugatuck Valley Financial
Corporation for the year ending December 31,
2006.
|
|
FOR
|
AGAINST
|
ABSTAIN
|
|
|
o
|
o
|
o
|
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH OF THE NOMINEES AND THE LISTED
PROPOSAL.
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 27, 2006.