WORONOCO BANCORP INC, DEF 14A, 1999-08-23

WORONOCO BANCORP INC
DEF 14A, 1999-08-23
SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED

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<PAGE>

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_] Preliminary Proxy Statement

[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))

[X] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12

Woronoco Bancorp, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

Woronoco Bancorp, Inc.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:
N/A
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(2) Aggregate number of securities to which transaction applies:
N/A
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
N/A
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(4) Proposed maximum aggregate value of transaction:
N/A
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(5) Total fee paid:
N/A
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[_] Fee paid previously with preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>

WORONOCO BANCORP, INC.
31 Court Street
Westfield, Massachusetts 01085
(413) 568-9141

August 23, 1999

Fellow Shareholders:

You are cordially invited to attend the Annual Meeting of Shareholders (the
"Annual Meeting") of Woronoco Bancorp, Inc. (the "Company"), the holding company
for Woronoco Savings Bank (the "Bank"), Westfield, Massachusetts, which will be
held on October 6, 1999, at 10:00 a.m., Eastern Time, at the Springfield-
Marriott, The Corner of Boland and Columbus Avenues, Springfield, Massachusetts.

The attached Notice of the Annual Meeting and Proxy Statement describe the
formal business to be transacted at the Annual Meeting. Directors and officers
of the Company, as well as a representative of Wolf & Company, P.C., the
Company's independent auditors, will be present at the Annual Meeting to respond
to any questions that our shareholders may have.

The Board of Directors of the Company has determined that the matters to be
considered at the Annual Meeting are in the best interests of the Company and
its shareholders. For the reasons set forth in the Proxy Statement, the Board
unanimously recommends that you vote "FOR" each of the nominees as directors
specified under Proposal 1, "FOR" Proposal 2, the approval of the Woronoco
Bancorp, Inc. 1999 Stock-Based Incentive Plan, and "FOR" Proposal 3, the
ratification of auditors.

Please sign and return the enclosed proxy promptly. Your cooperation is
appreciated since a majority of the common stock must be represented, either in
person or by proxy, to constitute a quorum for the conduct of business at the
Annual Meeting.

On behalf of the Board of Directors and all of the employees of the Company
and the Bank, I wish to thank you for your continued interest and support.

Sincerely yours,

/s/ Cornelius D. Mahoney
Cornelius D. Mahoney
Chairman, President and Chief Executive Officer
<PAGE>

WORONOCO BANCORP, INC.
31 Court Street
Westfield, Massachusetts 01085
__________________________________

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be Held on October 6, 1999
__________________________________

NOTICE IS HEREBY GIVEN that the Annual Meeting of shareholders (the "Annual
Meeting") of Woronoco Bancorp, Inc. (the "Company"), the holding company for
Woronoco Savings Bank (the "Bank"), will be held on October 6, 1999 at 10:00
a.m., Eastern Time, at the Springfield-Marriott, The Corner of Boland and
Columbus Avenues, Springfield, Massachusetts.

The purpose of the Annual Meeting is to consider and vote upon the
following matters:

1. The election of four directors for terms of three years each;
2. The approval of the Woronoco Bancorp, Inc. 1999 Stock-Based Incentive
Plan;
3. The ratification of Wolf & Company, P.C. as independent auditors of the
Company for the year ending December 31, 1999; and
4. Such other matters as may properly come before the meeting and at any
adjournments thereof, including whether or not to adjourn the meeting.

The Board of Directors has established August 10, 1999, as the record date
for the determination of shareholders entitled to receive notice of and to vote
at the Annual Meeting and at any adjournments thereof. Only record holders of
the common stock of the Company as of the close of business on such record date
will be entitled to vote at the Annual Meeting or any adjournments thereof. In
the event there are not sufficient votes for a quorum or to approve the
foregoing proposals at the time of the Annual Meeting, the Annual Meeting may be
adjourned in order to permit further solicitation of proxies by the Company. A
list of shareholders entitled to vote at the Annual Meeting will be available at
Woronoco Bancorp, Inc., 31 Court Street, Westfield, Massachusetts 01085, for a
period of ten days prior to the Annual Meeting and will also be available at the
Annual Meeting itself.

By Order of the Board of Directors

/s/ Terry J. Bennett
Terry J. Bennett
Corporate Secretary

Westfield, Massachusetts
August 23, 1999
<PAGE>

WORONOCO BANCORP, INC.
_______________________

PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
October 6, 1999
_______________________

Solicitation and Voting of Proxies

This Proxy Statement is being furnished to shareholders of Woronoco
Bancorp, Inc. (the "Company") in connection with the solicitation by the Board
of Directors ("Board of Directors" or "Board") of proxies to be used at the
Annual Meeting of shareholders (the "Annual Meeting"), to be held on October 6,
1999 at 10:00 a.m. Eastern Time at the Springfield-Marriott, The Corner of
Boland and Columbus Avenues, Springfield, Massachusetts, and at any adjournments
thereof. The 1999 Annual Report to Shareholders, including the consolidated
financial statements of the Company for the year ended December 31, 1998,
accompanies this Proxy Statement which is first being mailed to record holders
on or about August 23, 1999.

Regardless of the number of shares of common stock owned, it is important
that record holders of a majority of the shares be represented by proxy or in
person at the Annual Meeting. Shareholders are requested to vote by completing
the enclosed proxy card and returning it signed and dated in the enclosed
postage-paid envelope. Shareholders are urged to indicate their vote in the
spaces provided on the proxy card. Proxies solicited by the Board of Directors
of the Company will be voted in accordance with the directions given therein.
Where no instructions are indicated, signed proxy cards will be voted "FOR" the
election of the nominees for directors named in this Proxy Statement, "FOR" the
approval of Woronoco Bancorp, Inc. 1999 Stock-Based Incentive Plan (the
"Incentive Plan") and "FOR" the ratification of Wolf & Company, P.C. as
independent auditors of the Company for the year ended December 31, 1999.

Other than the matters listed on the attached Notice of Annual Meeting of
Shareholders, the Board of Directors knows of no additional matters that will be
presented for consideration at the Annual Meeting. Execution of a proxy,
however, confers on the designated proxy holders discretionary authority to vote
the shares in accordance with their best judgment on such other business, if
any, that may properly come before the Annual Meeting and at any adjournments
thereof, including whether or not to adjourn the Annual Meeting.

A proxy may be revoked at any time prior to its exercise by filing a
written notice of revocation with the Corporate Secretary of the Company, by
delivering to the Company a duly executed proxy bearing a later date, or by
attending the Annual Meeting and voting in person. However, if you are a
shareholder whose shares are not registered in your own name, you will need
appropriate documentation from your record holder to attend the Annual Meeting
and vote personally at the Annual Meeting.
<PAGE>

The cost of solicitation of proxies on behalf of management will be borne
by the Company. In addition to the solicitation of proxies by mail, Kissel-Blake
Inc., a proxy solicitation firm, will assist the Company in soliciting proxies
for the Annual Meeting and will be paid a fee of $4,000 plus out-of-pocket
expenses. Proxies may also be solicited personally or by telephone by
directors, officers and other employees of the Company and its subsidiary,
Woronoco Savings Bank (the "Bank"), without additional compensation therefor.
The Company will also request persons, firms and corporations holding shares in
their names, or in the name of their nominees, which are beneficially owned by
others, to send proxy material to, and obtain proxies from, such beneficial
owners, and will reimburse such holders for their reasonable expenses in doing
so.

Voting Securities and Required Vote

The securities which may be voted at the Annual Meeting consist of shares
of common stock of the Company ("Common Stock"), with each share entitling its
owner to one vote on all matters to be voted on at the Annual Meeting, except as
described below.

The close of business on August 10, 1999, has been fixed by the Board of
Directors as the record date (the "Record Date") for the determination of
shareholders of record entitled to notice of and to vote at the Annual Meeting
and at any adjournments thereof. The total number of shares of Common Stock
outstanding on the Record Date was 5,998,860 shares.

As provided in the Company's Certificate of Incorporation, for voting
purposes, holders of Common Stock who beneficially own in excess of 10% of the
outstanding shares of Common Stock (the "Limit") are not entitled to any vote in
respect of the shares held in excess of the Limit and are not treated as
outstanding for voting purposes. A person or entity is deemed to beneficially
own shares owned by an affiliate of, as well as, by persons acting in concert
with, such person or entity. The Company's Certificate of Incorporation
authorizes the Board of Directors (i) to make all determinations necessary to
implement and apply the Limit, including determining whether persons or entities
are acting in concert, and (ii) to demand that any person who is reasonably
believed to beneficially own stock in excess of the Limit to supply information
to the Company to enable the Board of Directors to implement and apply the
Limit.

The presence, in person or by proxy, of the holders of at least a majority
of the total number of shares of Common Stock entitled to vote (after
subtracting any shares in excess of the Limit pursuant to the Company's
Certificate of Incorporation) is necessary to constitute a quorum at the Annual
Meeting. In the event that there are not sufficient votes for a quorum or to
approve or ratify any proposal at the time of the Annual Meeting, the Annual
Meeting may be adjourned in order to permit the further solicitation of proxies.

As to the election of directors (Proposal 1), the proxy card being provided
by the Board of Directors enables a shareholder to vote "FOR" the election of
the nominees proposed by the Board, or to "WITHHOLD" authority to vote for one
or more of the nominees being proposed. Under Delaware law and the Company's
Bylaws, directors are elected by a plurality of the votes cast, without regard
to either (i) broker non-votes, or (ii) proxies as to which authority to vote
for one or more of the nominees being proposed is withheld.

2
<PAGE>

As to the proposed approval of the Incentive Plan (Proposal 2) submitted
for shareholder action, the proxy card being provided by the Board of Directors
enables a shareholder to check the appropriate box on the proxy card to (i) vote
"FOR" the item, (ii) vote "AGAINST" the item, or (iii) "ABSTAIN" from voting on
such item.

As to the ratification of Wolf & Company, P.C. as independent auditors of
the Company (Proposal 3) and all other matters that may properly come before the
Annual Meeting, by checking the appropriate box, a shareholder may: (i) vote
"FOR" the item; (ii) vote "AGAINST" the item; or (iii) "ABSTAIN" from voting on
such item.

Under the Company's Bylaws and Delaware law, an affirmative vote of the
holders of a majority of the votes cast at the Annual Meeting on Proposal 2 and
Proposal 3 is required to constitute shareholder approval of each such proposal.
Shares underlying broker non-votes or in excess of the Limit will not be counted
as present and entitled to vote or as votes cast and will have no effect on the
vote. For purposes of the rules and regulations of the Securities and Exchange
Commission ("SEC"), shares as to which the "ABSTAIN" box has been selected on
the proxy card with respect to Proposal 2 have the effect of a vote against
Proposal 2 and shares underlying broker non-votes or in excess of the Limit are
not counted as entitled to vote on Proposal 2 and have no effect on the vote on
the Proposal. For further information regarding the vote required or certain
regulatory approvals or conditions which may be required to be satisfied in
order for the Company to implement the Incentive Plan, see the discussion under
Proposal 2 herein.

Proxies solicited are to be returned to the Company's transfer agent,
Registrar & Transfer Company ("R&T"). The Board of Directors has designated R&T
to act as inspectors of election and tabulate the votes at the Annual Meeting.
R&T is not otherwise employed by, or a director of, the Company or any of its
affiliates. After the final adjournment of the Annual Meeting, the proxies will
be returned to the Company.

Security Ownership of Certain Beneficial Owners

The following table sets forth information as to those persons believed by
management to be beneficial owners of more than 5% of the Company's outstanding
shares of Common Stock on the Record Date or as disclosed in certain reports
received to date regarding such ownership filed by such persons with the Company
and with the SEC, in accordance with Sections 13(d) and 13(g) of the Securities
Exchange Act of 1934, as amended ("Exchange Act"). Other than those persons
listed below, the Company is not aware of any person, as such term is defined in
the Exchange Act, that owns more than 5% of the Company's Common Stock as of the
Record Date.

3
<PAGE>

Amount and
Nature of
Name and Address Beneficial Percent of
Title of Class of Beneficial Owner Ownership Class
- -------------- ------------------------------ ----------- ----------

Common Stock Woronoco Savings Bank Employee 479,908(1) 8.0%
Stock Ownership Plan and Trust
("ESOP")
31 Court Street
Westfield, Massachusetts 01085

Common Stock Woronoco Savings Charitable 444,360(2) 7.4%
Foundation
31 Court Street
Westfield, Massachusetts 01085
____________________________
(1) Shares of Common Stock were acquired by the ESOP in the Bank's Conversion.
The ESOP Committee administers the ESOP. The ESOP Trustee votes all
allocated shares held in the ESOP in accordance with the instructions of the
participants. As of August 10, 1999, no shares had been allocated to
participants. However, for the sole purpose of providing the ESOP Trustee
with voting instructions, each participant shall be deemed to have one share
allocated to his account. Under the ESOP, the ESOP Trustee, subject to its
fiduciary duties under the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), votes unallocated shares held in a suspense account
in a manner calculated to most accurately reflect the instructions received
from participants regarding the allocated Shares of Common Stock.
(2) Woronoco Savings Charitable Foundation (the "Foundation") was established
and funded by the Company in connection with the Bank's Conversion with an
amount of the Company's Common Stock equal to 8.0% of the total amount of
Common Stock sold in the Conversion. The Foundation is a Delaware non-stock
corporation and is dedicated to charitable purposes within the communities
in which the Bank maintains a banking office. The Foundation is governed by
a board of directors with 7 members, all of whom are directors or officers
of the Company or the Bank. Pursuant to the terms of the contribution of
Common Stock, as mandated by the Federal Deposit Insurance Corporation
("FDIC"), all shares of Common Stock held by the Foundation must be voted in
the same ratio as all other shares of the Company's Common Stock on all
proposals considered by shareholders of the Company.

Interests of Certain Persons in Matters to be Acted Upon

The four nominees proposed by the Board of Directors for election as director
were unanimously adopted by the Nominating Committee of the Board of Directors.
None of the nominees are being proposed for election pursuant to any agreement
or understanding between any of them and the Company.

After obtaining shareholder approval, the Company and the Bank will consider
granting awards to directors, officers and employees of the Bank and the
Company, under the Incentive Plan being presented for approval in Proposal 2.

4
<PAGE>

PROPOSALS TO BE VOTED ON AT THE MEETING

PROPOSAL 1. ELECTION OF DIRECTORS

Pursuant to its Bylaws, the number of directors of the Company is set at
twelve (12) unless otherwise designated by the Board of Directors. Each of the
12 members of the Board of Directors also presently serves as a director of the
Bank. Directors are elected for staggered terms of three years each, with a
term of office of only one of the three classes expiring each year. Directors
serve until their successors are elected and qualified.

The four nominees proposed for election at the Annual Meeting are Paul S.
Allen, Joseph M. Houser, Jr., Norman H. Storey and William G. Aiken. No person
being nominated as a director is being proposed for election pursuant to any
agreement or understanding between any such person and the Company.

In the event that any nominee is unable to serve or declines to serve for any
reason, it is intended that proxies will be voted for the election of the
balance of those nominees named and for such other persons as may be designated
by the present Board of Directors. The Board of Directors has no reason to
believe that any of the persons named will be unable or unwilling to serve.
Unless authority to vote for the directors is withheld, it is intended that the
shares represented by the enclosed proxy, if executed and returned, will be
voted "FOR" the election of all nominees proposed by the Board of Directors.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ALL NOMINEES
NAMED IN THIS PROXY STATEMENT.

Information with Respect to Nominees, Continuing Directors and Certain Executive
Officers

The following table sets forth, as of the Record Date, the names of the
nominees, continuing directors and the Named Executive Officers, as defined
below, as well as their ages, a brief description of their recent business
experience, including present occupations and employment, the year in which each
became a director of the Bank, and the year in which their terms (or in the case
of nominees, their proposed terms) as director of the Company expire. This
table also sets forth the amount of Common Stock and the percent thereof
beneficially owned by each director, each Named Executive Officer and all
directors and executive officers as a group as of the Record Date.

5
<PAGE>

<TABLE>
<CAPTION>
Name and Principal Expiration Shares of Common Ownership
Occupation at Present Director of Term as Stock Beneficially as a Percent
and for the Past Five Years Age Since(1) Director Owned(2)(3) of Class(4)
- -------------------------------------- --- ----------- ---------- ------------------ --------------
<S> <C> <C> <C> <C> <C> <C>

Nominees:
Paul S. Allen 79 1974 2002 5,000 *
Sole proprietor of Paul S. Allen, a
certified public accountant,
Westfield, Massachusetts.

Joseph M. Houser, Jr. 60 1983 2002 1,000 *
Self-employed certified public
accountant, practicing in
Westfield, Massachusetts.

Norman H. Storey 53 1987 2002 5,000 *
Real estate broker with Storey
Real Estate, Southwick,
Massachusetts.

William G. Aiken 58 1983 2002 1,500 *
Pharmacy Manager, Foodmart
Pharmacy, Westfield,
Massachusetts, since October
1997. From 1990 to September
1997, Mr. Aiken was pharmacy
manager for Brooks Drug,
Westfield, Massachusetts.

Continuing Directors:

Cornelius D. Mahoney 54 1985 2000 12,052 *
President, Chief Executive Officer
and Chairman of the Board of the
Company and the Bank.

James A. Adams 75 1962 2000 4,000 *
President of Adams Funeral
Service, Inc., Westfield,
Massachusetts.

Francis J. Ehrhardt 72 1979 2000 2,000 *
Commercial real estate manager
and general contractor in
Connecticut.

Joseph P. Keenan 50 1991 2001 20,200 *
Self-employed physician in
Westfield, Massachusetts.
</TABLE>

6
<PAGE>

Richard L. Pomeroy 72 1986 2001 1,000 *
Prior to his retirement in 1987, Mr.
Pomeroy was President of
Pomeroy Insurance, Inc.,
Westfield, Massachusetts.

Ann V. Schultz 65 1991 2001 2,100 *
Prior to her retirement in 1990,
Ms. Schultz was Vice President of
the Bank.

D. Jeffrey Templeton 58 1988 2000 5,000 *
Owner and president of The
Mosher Company, Inc., a
manufacturing company located in
Chicopee, Massachusetts.

Paul Tsatsos 52 1995 2001 4,000 *
Self-employed certified public
accountant practicing in
Southwick, Massachusetts.

Named Executive Officers:
(who are not Directors)

Augostino J. Calheno 49 -- -- 4,004 *
Senior Vice President of the
Company and Senior Vice
President and chief lending officer
of the Bank.

Debra L. Murphy 43 -- -- 7,393 *
Senior Vice President and Chief
Financial Officer of the Company
and Senior Vice President and
Treasurer of the Bank.

James G. Gardner 48 -- -- 5,117 *
Vice President, Woronoco Savings
Bank.

All directors and executive officers -- -- -- 79,366 1.32%
as a group (15 persons)
</TABLE>
- --------------------------------------------------------------------------------
* Does not exceed 1.0% of the Company's voting securities.
(1) Includes years of service as a director of the Bank.
(2) Each person effectively exercises sole (or shares with spouse or other
immediate family members) voting or dispositive power as to shares reported.
(3) Does not include options and awards intended to be granted under the
Incentive Plan, which is subject to shareholder approval. For a discussion
of the options and awards that are intended to be granted under the
Incentive Plan, see Proposal 2.
(4) As of the Record Date, there were 5,998,860 shares of Common Stock
outstanding.

7
<PAGE>

Meetings of the Board of Directors and Committees of the Board of Directors

The Board of Directors of the Company and the Board of Directors of the
Bank conduct business through meetings of the Board of Directors and through
activities of their committees. The Board of Directors of the Company meets at
least on a quarterly basis and may have additional meetings as needed. The
Board of Directors of the Bank generally meets on a monthly basis and may have
additional meetings as needed. During 1998, the Board of Directors of the
Company, which was formed on October 26, 1998, held three meetings primarily
related to organizational and other matters in connection with the formation of
the Company and the acquisition of the Bank through the Conversion. The Board
of Directors of the Bank held seven meetings during 1998. All of the current
directors of the Company and the Bank attended at least 75% of the total number
of the Company's and Bank's board meetings held and committee meetings on which
such directors served during 1998. The Board of Directors of the Company
maintains committees, the nature and composition of which are described below:

Audit Committee. The Audit Committee of the Company consists of Messrs.
Allen, Templeton and Tsatsos. The purpose of the Audit Committee is to review
the Company's audit reports and management's actions regarding the
implementation of audit findings and to review compliance with all relevant laws
and regulations. This Committee is also responsible for supervising the
Company's internal auditor and engaging the Company's external auditor. Due to
the timing of the Conversion, the Audit Committee of the Company did not meet in
1998.

Compensation Committee. The Compensation Committee during 1998 consisted
of Messrs. Ehrhardt, Templeton and Asher Nesin, a former Director of the Bank
and Company who passed away in January, 1999. This Committee is responsible for
making recommendations to the full Board of Directors on all matters regarding
compensation and fringe benefits. The committee met once in 1998.

Nominating Committee. The Company's Nominating Committee for the 1999
Annual Meeting consisted of Messrs. Adams and Storey and Ms. Schultz. The
Nominating Committee considers and recommends the nominees for director to stand
for election at the Company's Annual Meeting of Shareholders. The Company's
Bylaws provide for shareholder nominations of directors. These provisions
require such nominations to be made pursuant to timely written notice to the
Secretary of the Company. The shareholders' notice of nominations must contain
all information relating to the nominee which is required to be disclosed by the
Company's Bylaws and by the Exchange Act. See "Additional Information - Notice
of Business to be Conducted at an Annual Meeting." The Nominating Committee met
on July 28, 1999.

8
<PAGE>

Directors' Compensation

The Bank provides all non-employee Directors and the clerk of the Bank with
an annual retainer of $3,600 and a fee of $500 for all regular monthly and
special meetings attended. Members of the Bank's Executive Committee receive a
fee of $300 for each meeting attended. Members of all other Board committees of
the Bank also receive a fee of $300 for each meeting attended, except that no
such committee member may receive committee fees which aggregate more than
$1,200. There are no annual retainers for committee members or chairpersons.

The Bank currently sponsors the Trustee Indexed Fee Continuation Plan (the
"Trustee Plan") for members of its Board of Directors. The Trustee Plan
provides an annual retirement benefit to each Director upon the Director's
retirement from the Board. To qualify for benefits under the Trustee Plan, a
director must be 65 years old and have completed ten years of continuous service
with the Board at the time of his or her retirement. If the director has
completed at least five but less than ten continuous years of service with the
Board at the time of retirement, his or her benefits will be reduced. The
retirement benefit provided to each director is based on an indexed formula,
which is tied to the earnings on a specific life insurance policy. The Bank has
funded the Trustee Plan through the purchase of split-dollar life insurance on
the lives of the directors. The life insurance is designed to offset annual
expenses associated with the Trustee Plan. The Bank generally expects to offset
all of the expenses of the Trustee Plan during the life of each director, and
recover all of the plan's costs at the director's death.

Incentive Plan. The Company is presenting the Incentive Plan to
shareholders for approval, under which all directors of the Company and the Bank
are eligible to receive awards. See Proposal 2 for a summary of the material
terms of the Incentive Plan.

Executive Compensation

The report of the compensation committee and the stock performance graph
shall not be deemed incorporated by reference by any general statement
incorporating by reference this proxy statement into any filing under the
Securities Act of 1933 (the "Securities Act") or the Exchange Act, except as to
the extent that the Company specifically incorporates this information by
reference, and shall not otherwise be deemed filed under such Acts.

Compensation Committee Report on Executive Compensation. Under rules
established by the SEC, the Company is required to provide certain data and
information in regard to the compensation and benefits provided to the Company's
chief executive officer and the other executive officers of the Company. The
disclosure requirements for these executive officers include the use of tables
and a report explaining the rationale and considerations that led to fundamental
compensation decisions affecting those individuals. In fulfillment of this
requirement, the Compensation Committee, at the direction of the Board of
Directors, has prepared the following report for inclusion in this proxy
statement.

9
<PAGE>

Compensation Policies. The Company does not pay direct cash compensation
to the executive officers of the Company. However, the Company's executives are
also executives of the Bank and are compensated by the Bank. The members of the
Bank's Personnel & Compensation Committee are Messrs. Ehrhardt, Templeton, Aiken
and Mahoney, the President and Chief Executive Officer of the Company and the
Bank. Mr. Mahoney abstains from voting on matters related to his compensation.
The policies and objectives of the Committee are designed to assist the Company
and Bank in attracting and retaining qualified executives, to recognize
individual contributions towards achieving strategic business initiatives and
reward them for their achievement.

Salary compensation and bonus awards for all executive officers are
developed through consultation with Thomas Warren & Associates Inc. ("Warren"),
an independent Massachusetts-based consulting firm that specializes in
compensation analysis, salary administration programs and appraisal systems.
All decisions by the Committee relating to compensation affecting executive
officers of the Bank are reviewed and approved by the full Board of Directors.
The Committee meets at least annually to review and make recommendations to the
Board of Directors regarding the compensation of the executive officers. The
compensation package available to executive officers is comprised of the
following components:

(i) Base salary; and
(ii) Bonus awards.

Messrs. Mahoney and Calheno and Ms. Murphy have employment agreements which
specify an initial base salary. In addition, these individuals and all other
officers of the Company and the Bank participate in other benefit plans
available to all employees, including the ESOP.

Base Salaries. The salary levels for all executive officers are intended
to be competitive with other financial institutions of comparable size, locale
and profile and each executives' level of responsibility. The Committee has
consulted with Warren in determining the compensation paid to the executive
officers. The Warren analysis focuses on compensation paid to executive
officers with similar tenure and performing similar duties for comparable
institutions in New England.

Although the Committee's recommendations are discretionary and no specific
formula is used for decision making, salary increases are aimed at reflecting
the overall performance of the Company and Bank and the performance of the
individual executive officer.

Bonuses. Bonus compensation for executive officers generally consists of
cash awards. Historically, the Committee has granted cash bonuses to executive
officers after consulting with Warren. Bonus awards are intended to be
consistent with comparable practices of other comparable financial institutions
and each executive officer's level of responsibility. Such awards are based on
the Committee's subjective determinations of the executive officer's performance
and accomplishments during the year in relation to the budgeted financial
performance of the Company and Bank.

10
<PAGE>

Chief Executive Compensation. The Board of Directors approved a 1998 base
salary for Mr. Mahoney of $188,000 which represented a 10.6% increase from the
base salary provided in 1997. The salary level was determined by the Committee
based on the Warren analysis. The salary was also based on the overall
performance of the Bank, the complexity of its operations and the tenure of Mr.
Mahoney. For fiscal 1998, the Committee also approved a bonus of $32,300. In
determining at the bonus amount, the Committee utilized the Warren analysis and
considered the Bank's financial performance and other long-term business
planning benchmarks.

Compensation Committee

Francis J. Ehrhardt
D. Jeffrey Templeton
William G. Aiken

11
<PAGE>

Stock Performance Graph. The following graph shows a comparison of
shareholder return on the Company's Common Stock based on the market price of
Common Stock assuming the reinvestment of dividends, with the cumulative total
returns for the companies on the American Stock Exchange Index and for savings
institutions on the American Stock Exchange ("American Stock Exchange Savings
Institutions") for the period beginning on March 19, 1999, the day the Company's
Common Stock began trading, through June 30, 1999. The graph was derived from a
limited period of time and, as a result, may not be indicative of possible
future performance of the Company's Common Stock. The data was supplied by the
Center for Research in Security Prices, a data service provider for publicly
traded financial institutions.

[CHART APPEARS HERE]

Summary

<TABLE>
<S> <C> <C> <C> <C> <C>
3/19/99 3/31/99 4/30/99 5/28/99 6/30/99
------- ------- ------- ------- -------
Woronoco Bancorp, Inc. 100.00 99.35 99.35 103.92 104.58
American Stock Exchange 100.00 99.70 108.43 110.14 112.60
American Stock Exchange Savings Institutions 100.00 97.10 99.77 101.87 102.28
</TABLE>

Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year-end is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to $100.00 on 3/19/99.

12
<PAGE>

Summary Compensation Table. The following table sets forth the cash
compensation paid by the Bank as well as other compensation paid or accrued for
services rendered in all capacities during the years ended December 31, 1998 and
1997 to the Chief Executive Officer and to other officers of the Bank who
received salary and bonus in excess of $100,000 ("Named Executive Officers").

<TABLE>
<CAPTION>
Long-Term Compensation(3)
--------------------------------------
Annual Compensation (1) Awards Payouts
------------------------------ ------------------------ ------------
Other Restricted Securities
Annual Stock Underlying All Other
Fiscal Salary Bonus Compensation Awards Option/SARs LTIP Payouts Compensation
Executive Year(2) ($) ($) ($)(3) ($)(4) (#)(5) ($)(6) ($)(7)
- --------------------- ------- ------ ---- ------------ ---------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cornelius D. Mahoney 1998 188,000 32,300 -- -- -- -- 1,950
President and Chief 1997 170,000 32,200 -- -- -- -- 1,572
Executive Officer

Augostino J. Calheno 1998 99,400 18,012 -- -- -- -- 1,621
Senior Vice 1997 94,800 17,940 -- -- -- -- --
President-Lending

Debra L. Murphy 1998 99,400 18,012 -- -- -- -- 1,599
Senior Vice President and 1997 94,800 17,800 -- -- -- -- --
Treasurer

James E. Gardner 1998 99,000 16,048 -- -- -- -- 1,555
Vice President 1997 94,400 9,060 -- -- -- -- --

</TABLE>
- ---------------------------
(1) Under Annual Compensation, the column titled "Salary" includes amounts
deferred by the Named Executive Officers under the Bank's 401(k) Plan.
"Bonus" consists of Board approved discretionary bonuses.
(2) Neither the Company nor its predecessor, the Bank, was a reporting company
with respect to the 1996 fiscal year.
(3) For 1998 and 1997, there were no (a) perquisites over the lesser of $50,000
or 10% of the individual's total salary and bonus for the year; (b) payments
of above-market preferential earnings on deferred compensation; (c) payments
of earnings with respect to long-term incentive plans before settlement or
maturation; (d) tax payment reimbursements; or (e) preferential discounts on
stock. For 1998 and 1997, the Bank had no restricted stock or stock related
plans in existence.
(4) No stock awards were granted or earned in 1998 or 1997. See Proposal 2.
(5) No stock options or SARs were earned or granted in 1998 or 1997. See
Proposal 2.
(6) For 1998 and 1997, there were no payouts or awards under any long-term
incentive plan.
(7) All Other Compensation includes the Bank's matching contributions under the
Bank's 401(k) Plan to Messrs. Calheno and Gardner and Ms. Murphy. Pursuant
to applicable SEC rules, for Mr. Mahoney, All Other Compensation includes
the amount of premiums attributable to the benefit of Mr. Mahoney pursuant
to a split dollar life insurance arrangement. The Company's Annual Report
on Form 10-K attributed to Mr. Mahoney, for 1998 and prior years, the entire
amount of the premium which was $121,000. However, the Company has
determined that, on a going-forward basis, it is more appropriate to
disclose the amount of the premium attributable to the benefit of Mr.
Mahoney.

Employment Agreements. Effective as of March 19, 1999, the Bank entered
into employment agreements with Messrs. Mahoney and Calheno and Ms. Murphy
(individually, the "Executive") (collectively, the "Bank Employment
Agreements"), and the Company entered into employment agreements with Messrs.
Mahoney and Calheno and Ms. Murphy (collectively the "Company Employment
Agreements"). The employment agreements are intended to ensure that the Bank
and the Company will be able to maintain a stable and competent management base.
The continued success of the Bank and the Company depends to a significant
degree on the skills and competence of the above referenced officers.

13
<PAGE>

The Bank Employment Agreements provide for a three-year term. Each Bank
Employment Agreement provides that commencing on the first anniversary date and
continuing each anniversary thereafter the Board of Directors of the Bank may
extend the agreement for an additional year so that the remaining term shall be
three years, unless notice of non-renewal is given by the Bank's Board of
Directors after conducting a performance evaluation of the Executive. Each
Company Agreement provides for a three year term which extends automatically on
a daily basis, unless written notice of non-renewal is given by the Company or
the Executive. The employment agreements provide that the Executive's base
salary will be reviewed annually. The base salaries which will initially be
effective for such employment agreements for Messrs. Mahoney and Calheno and Ms.
Murphy are $215,000, $115,000 and $115,000, respectively. In addition to the
base salary, the employment agreements provide for, among other things,
participation in various employee benefit plans and stock-based compensation
programs, as well as furnishing fringe benefits available to similarly-situated
executive personnel. The employment agreements provide for termination by the
Bank or the Company for cause, as defined in the employment agreements, at any
time. If the Bank or the Company chooses to terminate the Executive's
employment for reasons other than for cause, or if the Executive resigns from
the Bank and the Company after a: (1) failure to re-elect the Executive to
his/her current offices; (2) material change in the Executive's functions,
duties or responsibilities; (3) relocation of the Executive's principal place of
employment by more than 25 miles; (4) reduction in the benefits and perquisites
being provided to the Executive in the employment agreement; (5) liquidation or
dissolution of the Bank or the Company; or (6) breach of the employment
agreement by the Bank or the Company, the Executive or, if the Executive dies,
his/her beneficiary, would be entitled to receive an amount equal to the
remaining base salary payments due to the Executive for the remaining term of
the employment agreement and the contributions that would have been made on the
Executive's behalf to any employee benefit plans of the Bank and the Company
during the remaining term of the employment agreement. The Bank and the Company
would also continue and/or pay for the Executive's life, health, dental and
disability coverage for the remaining term of the employment agreement. Upon
the occurrence of an Event of Termination under the employment agreements, the
Executive is subject to a covenant not to compete with the Company and the Bank
for one year.

Under the employment agreements, if voluntary or involuntary termination
follows a change in control of the Bank or the Company, the Executive or, if the
Executive dies, his/her beneficiary, would be entitled to a severance payment
equal to the greater of: (1) the payments due for the remaining terms of the
agreement; or (2) three times the average of the five preceding taxable years'
annual compensation. The Bank and the Company would also continue the
Executive's life, health, and disability coverage for thirty-six months. Even
though both the Bank and Company Employment Agreements provide for a severance
payment if a change in control occurs, the Executive would only be entitled to
receive a severance payment under one agreement.

Payments under the Company's Employment Agreements in the event of a change
in control may constitute a "parachute payment" for federal income tax purposes,
resulting in the possible obligation of a federal excise tax payment by the
covered executive. In such case, the Company is

14
<PAGE>

obligated to pay to the Executive an amount so as to enable the Executive to
retain the economic value of the payments he would have retained had he not been
subject to such excise tax.

Payments to the Executive under the Bank's Employment Agreement will be
guaranteed by the Company if payments or benefits are not paid by the Bank.
Payment under the Company's Employment Agreement would be made by the Company.
All reasonable costs and legal fees paid or incurred by the Executive under any
dispute or question of interpretation relating to the employment agreements
shall be paid by the Bank or Company, respectively, if the Executive is
successful on the merits in a legal judgment, arbitration or settlement. The
employment agreements also provide that the Bank and Company shall indemnify the
Executive to the fullest extent legally allowable. If a change in control of
the Bank or the Company occurred, the total amount of payments due under the
Agreements, based solely on the base salaries of the officers who will receive
employment agreements excluding any benefits under any employee benefit plan
which may be payable, would equal approximately $1.4 million.

Change in Control Agreements. Effective as of March 19, 1999, the Bank
entered into three-year Change in Control Agreements with six officers, all of
whom are not covered by an employment agreement. The Change in Control
Agreement are renewable on an annual basis. The Change in Control Agreements
provide that if voluntary or involuntary termination follows a change in control
of the Company or the Bank, the officers would be entitled to receive a
severance payment equal to three times their average annual compensation for the
five most recent taxable years. The Bank would also continue and pay for the
officers' life, health and disability coverage for thirty-six months following
termination. If a change in control of the Company or the Bank occurred, the
total payments that would be due under the Change in Control Agreements, based
solely on the current annual compensation paid to the officers covered by the
Change in Control Agreements and excluding any benefits under any employee
benefit plan which may be payable, would equal approximately $1.3 million.

Pension Plan. The Bank also maintains a tax-qualified defined benefit
pension plan for its employees (the "Pension Plan"). Generally, eligible
employees of the Bank begin participating in the Pension Plan upon the
completion of one "Year of Service" (as defined in the Pension Plan) and the
attainment of age twenty-one. The Bank makes contributions to the Pension Plan
sufficient to fund benefits determined according to a formula set forth in the
plan. A participant's accrued benefit under the Pension Plan is actuarially
determined based on the participant's compensation (as described in the plan)
and the participant's service with the Bank. A participant becomes eligible for
a full benefit upon attainment of his normal retirement age (age 65). The
Pension Plan also provides a reduced early retirement benefit for participants
who retire between the ages of 55 and 65. Participants become vested in their
accrued benefits under the Pension Plan upon completing 3 years of service or
age sixty-two, if earlier.

15
<PAGE>

The table below reflects the annual pension benefit payable to a
participant in the Pension Plan, assuming various levels of compensation and
years of service credited as of the participant's normal retirement age. As of
December 31, 1998, Mr. Mahoney had 24 years of service with the Bank for
purposes of the Pension Plan.

Years of Credited Service
---------------------------------------------
Average
Annual
Earnings(1) 15 20 25 30 35
- ----------- ---------------------------------------------

$ 50,000 $11,823 $15,765 $19,706 $23,647 $23,647
75,000 19,136 25,515 31,893 38,272 38,272
100,000 26,448 35,265 44,081 52,897 52,897
125,000 33,761 45,015 56,268 67,522 67,522
150,000 41,073 54,765 68,456 82,147 82,147
175,000 43,998 58,665 73,331 87,997 87,997
200,000 43,998 58,665 73,331 87,997 87,997
250,000 43,998 58,665 73,331 87,997 87,997
300,000 43,998 58,665 73,331 87,997 87,997
350,000 43,998 58,665 73,331 87,997 87,997
400,000 43,998 58,665 73,331 87,997 87,997
- --------------------------------

(1) Code Section 401(a)(17) limits the amount of compensation the Bank may
consider in computing benefits under the Pension Plan to $160,000, as
periodically adjusted.

Supplemental Executive Retirement Plan. The Bank maintains a non-qualified
deferred compensation arrangement known as a Supplemental Executive Retirement
Plan (the "SERP"). The SERP provides benefits to eligible individuals
(designated by the Board of Directors of the Bank or its affiliates) that cannot
be provided under the ESOP as a result of the limitations imposed by the Code,
but that would have been provided under the ESOP but for such limitations. In
addition to providing for benefits lost under the ESOP as a result of
limitations imposed by the Code, the SERP also makes up lost ESOP benefits to
designated individuals who retire, who terminate employment in connection with a
change in control, or whose participation in the ESOP ends due to termination of
the ESOP in connection with a change in control before the complete scheduled
repayment of the ESOP loan. Generally, upon the retirement of an eligible
individual or upon a change in control of the Bank or the Company before
complete repayment of the ESOP loan, the SERP provides the individual with a
benefit equal to what the individual would have received under the ESOP had he
remained employed throughout the term of the ESOP or had the ESOP not been
terminated before the scheduled repayment of the ESOP loan less the benefits
actually provided under the ESOP on behalf of such individual. An individual's
benefits under the SERP will generally become payable

16
<PAGE>

upon the participant's retirement (in accordance with the standard retirement
policies of the Bank), upon the change in control of the Bank or the Company, or
as determined under the ESOP.

Split Dollar Life Insurance Arrangement. In 1995, the Bank established a
split-dollar life insurance arrangement for Mr. Mahoney primarily to restore
retirement benefits lost under the Pension Plan due to limitations imposed by
the Code. Under the terms of the arrangement, the Bank pays the premiums on the
life insurance policy, which is owned by Mr. Mahoney. Upon Mr. Mahoney's death,
or upon liquidation of the policy's cash surrender value, the Bank will recover
all of the payments it made with respect to the policy. In connection with the
split-dollar arrangement, the Bank also agreed to reimburse Mr. Mahoney each
year for the tax obligations arising from any federal or state taxable income he
recognizes as a result of the reportable economic benefit of the arrangement and
as a result of the Bank's reimbursement for such tax liabilities.

Transactions With Certain Related Persons

Federal regulations require that all loans or extensions of credit to
executive officers and Directors must be made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with the general public and must not involve more than
the normal risk of repayment or present other unfavorable features. In
addition, Massachusetts law regulates the granting of loans to officers and
Directors of the Bank. Loans made to a Director or executive officer in excess
of the greater of $25,000 or 5% of the Bank's 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.

The Bank currently makes loans to its executive officers and Directors on
the same terms and conditions offered to the general public. The Bank's policy
provides that all loans made by the Bank to its executive officers and Directors
be made in the ordinary course of business, on substantially the same terms,
including collateral, as those prevailing at the time for comparable
transactions with other persons and may not involve more than the normal risk of
collectibility or present other unfavorable features. As of December 31, 1998,
11 of the Bank's executive officers or Directors had loans with outstanding
balances totaling $723,000 in the aggregate. All such loans were made by the
Bank in the ordinary course of business, with no favorable terms and such loans
do not involve more than the normal risk of collectibility or present
unfavorable features.

The Company intends that all transactions in the future between the Company
and its executive officers, Directors, holders of 10% or more of the shares of
any class of its common stock and affiliates thereof, will contain terms no less
favorable to the Company than could have been obtained by it in arm's length
negotiations with unaffiliated persons and will be approved by a majority of
independent outside Directors of the Company not having any interest in the
transaction.

17
<PAGE>

PROPOSAL 2. APPROVAL OF THE WORONOCO BANCORP, INC.
1999 STOCK-BASED INCENTIVE PLAN

The Board of Directors of the Company is presenting for shareholder
approval the Woronoco Bancorp, Inc. 1999 Stock-Based Incentive Plan ("Incentive
Plan"), in the form attached hereto as Appendix A. The purpose of the Incentive
Plan is to attract and retain qualified personnel in key positions, provide
officers, employees and non-employee directors ("Outside Directors") of the
Company and any of its affiliates, including the Bank, with a proprietary
interest in the Company as an incentive to contribute to the success of the
Company, promote the attention of management to other shareholder's concerns and
reward employees for outstanding performance. The following is a summary of the
material terms of the Incentive Plan which is qualified in its entirety by the
complete provisions of the Incentive Plan attached as Appendix A.

General

The Incentive Plan authorizes the granting of options to purchase Common
Stock of the Company ("Options") and awards of restricted shares of Common Stock
("Stock Awards") (collectively, Options and Stock Awards are referred to as
"Awards"). Subject to certain adjustments to prevent dilution of Awards to
participants, the maximum number of shares of Common Stock reserved for Awards
under the Incentive Plan is 839,840 shares, consisting of 599,886 shares
reserved for Options and 239,954 shares reserved for Stock Awards. All
employees and Outside Directors of the Company and its affiliates, including the
Bank, are eligible to receive Awards under the Incentive Plan. The Incentive
Plan will be administered by a committee (the "Committee") consisting of three
members of the Board of Directors, none of which are not employees of the
Company or its affiliates. Authorized but unissued shares or shares previously
issued and reacquired by the Company may be used to satisfy Awards under the
Incentive Plan. If authorized but unissued shares are used to satisfy the grant
of Stock Awards and the exercise of Options granted under the Incentive Plan, it
will result in an increase in the number of shares outstanding and will have a
dilutive effect on the holdings of existing shareholders. It is currently
anticipated that a trust (the "Incentive Plan Trust") will be established which
will purchase previously issued shares to fund the Company's obligation for
Stock Awards which such stock will be purchased by the Incentive Plan trustee in
open market transactions with contributions from the Company or Bank. As of the
date of this Proxy Statement, no Awards have been granted under the Incentive
Plan.

Types of Awards

General. The Incentive Plan authorizes the grant of Awards in the form of:
(i) Options intended to qualify as incentive stock options under Section 422 of
the Code (Options which afford certain tax benefits to the recipients upon
compliance with certain conditions and which do not result in tax deductions to
the Company), referred to as "Incentive Stock Options"; (ii) Options that do not
so qualify (Options which do not afford certain income tax benefits to
recipients, but which may provide tax deductions to the Company), referred to as
"Non-Statutory Stock Options"; and

18
<PAGE>

(iii) Stock Awards. Each type of Award may be subject to vesting or service
requirements or other conditions imposed by the Committee.

Options. The Committee has the authority to determine the date or dates on
which each Option shall become exercisable and any other conditions applicable
to the exercisability of an Option; provided, however, certain regulatory
limitations on exercisability will apply to any Option granted prior to March
20, 2000. See "Amendments" and "Shareholder Approval, Effective Date of Plan
and Regulatory Compliance." The exercise price (described below) of any Option
may generally be paid in cash or in Common Stock at the discretion of the
Committee. See "Method of Exercise." The term of Options shall be determined
by the Committee, but in no event shall an Option be exercisable more than ten
years from the date of grant.

All Options granted under the Incentive Plan to officers and employees may
qualify as Incentive Stock Options to the extent permitted under Section 422 of
the Code and to the extent awarded as such by the Committee. In order to
qualify as Incentive Stock Options under Section 422 of the Code, the Option
must be granted only to an employee, the exercise price must not be less than
100% of the fair market value on the date of grant (except in the case of "10%
owners," as described below), the term of the Option may not exceed ten years
from the date of grant (except in the case of "10% owners," as described below),
no more than $100,000 of options may become exercisable for the first time in
any calendar year and the options must not be transferable except by the laws of
descent and distribution. Incentive Stock Options granted to any person who is
the beneficial owner of more than 10% of the outstanding voting stock (a "10%
owner") may be exercised only for a period of five years from the date of grant
and the exercise price must be at least equal to 110% of the fair market value
of the underlying Common Stock on the date of grant.

Each Outside Director of the Company or its affiliates will be eligible to
receive Non-Statutory Stock Options to purchase shares of Common Stock.
Additionally, officers and employees are also eligible to receive Non-Statutory
Stock Options.

Unless otherwise determined by the Committee and subject to applicable
regulation, upon termination of an optionee's services for any reason other than
death, disability, retirement, change in control or termination for cause, all
then exercisable Options shall remain exercisable for a period of three months
following termination and all unexercisable Options shall be cancelled. In the
event of the death or disability of an optionee, all unexercisable Options held
by such optionee will become fully exercisable and remain exercisable for up to
one year thereafter. In the event of termination for cause, all exercisable and
unexercisable Options held by the optionee shall be cancelled. In the event of
retirement, all exercisable options held by such optionee will remain generally
exercisable for a period of one year following the optionee's termination from
service. However, in the event of the retirement of an optionee, the Committee
shall, subject to applicable regulation, have the discretion to allow
unexercisable Options to continue to vest or become exercisable in accordance
with their original terms. In the event an optionee's service or employment
with the Company or the Bank is actually or constructively terminated in
connection

19
<PAGE>

with a change in control, the optionee may exercise all vested Options for one
year after such termination. All unexercisable options shall be canceled.

Under generally accepted accounting principles, compensation expense is
generally not recognized with respect to the award of options to officers and
employees of the Company and its subsidiaries, However, the Financial
Accounting Standards Board recently indicated that it would propose rules during
1999 that would generally require recognition of compensation expense with
respect to awards made to non-employees, including non-employee directors of the
Company, and that the proposed changes would apply to awards made after December
15, 1998 and not fully vested prior to October 1, 1999.

Stock Awards. The Committee has the authority to determine the dates on
which Stock Awards granted will vest or any other conditions which must be
satisfied prior to vesting; provided, however, certain regulatory conditions on
vesting will apply to any Stock Award granted prior to March 20, 2000. See
"Amendments" and "Shareholder Approval, Effective Date of Plan and Regulatory
Compliance."

When Stock Awards are distributed (i.e., vest) in accordance with the
Incentive Plan, the recipients will receive an amount equal to accumulated cash
and stock dividends (if any) with respect thereto plus earnings thereon minus
any required tax withholding amounts. Prior to vesting, recipients of Stock
Awards may direct the voting of shares of Common Stock granted to them and held
in the Incentive Plan Trust. Shares of Common Stock held by the Incentive Plan
Trust which have not been allocated or for which voting has not been directed
are voted by the trustee in the same proportion as the awarded shares are voted
in accordance with the directions given by all recipients of Stock Awards.

Unless otherwise determined by the Committee and subject to applicable
regulation, upon termination of the services of a Stock Award recipient for any
reason other than death, disability, retirement or termination for cause, all
such holder's rights in unvested Stock Awards shall be cancelled. In the event
of the death or disability of the holder of the Stock Award, all unvested Stock
Awards held by such individual will become fully vested. In the event of
termination for cause of a holder of a Stock Award, all unvested Stock Awards
held by such individual shall be cancelled. In the event of retirement of the
holder of a Stock Award, the Committee shall, subject to applicable regulation,
have the discretion to determine that all unvested Stock Awards shall continue
to vest in accordance with their original terms.

Tax Treatment

Options. An optionee will generally not recognize taxable income upon
grant or exercise of any Incentive Stock Option, provided that shares
transferred in connection with the exercise are not disposed of by the optionee
for at least one year after the date the shares are transferred in connection
with the exercise of the Option and two years after the date of grant of the
Option. If these holding periods are satisfied, upon disposal of the shares,
the aggregate difference between the

20
<PAGE>

per share Option exercise price and the fair market value of the Common Stock is
recognized as income taxable at capital gains rates. No compensation deduction
may be taken by the Company as a result of the grant or exercise of Incentive
Stock Options, assuming these holding periods are met.

In the case of the exercise of a Non-Statutory Stock Option, an optionee
will recognize ordinary income upon exercise of the Option in an amount equal to
the aggregate amount by which the per share exercise price is exceeded by the
fair market value of the Common Stock. In the event shares received through the
exercise of an Incentive Stock Option are disposed of prior to the satisfaction
of the holding periods (a "disqualifying disposition"), the exercise of the
Option will essentially be treated as the exercise of a Non-Statutory Stock
Option, except that the optionee will recognize the ordinary income for the year
in which the disqualifying disposition occurs. The amount of any ordinary
income recognized by the optionee upon the exercise of a Non-Statutory Stock
Option or due to a disqualifying disposition will be a deductible expense of the
Company for federal income tax purposes, subject to the limitations imposed by
Code Section 162(m) (discussed below).

Stock Awards. A participant who has been granted Stock Awards under the
Plan and does not make an election under Section 83(b) of the Code will not
recognize taxable income at the time of the Stock Award grant. At the time any
transfer or forfeiture restrictions applicable to the Stock Award lapse, the
recipient will recognize ordinary income, and the Company will be entitled to a
corresponding deduction, equal to the excess of the fair market value of such
Common Stock at such time over the amount, if any, paid for the award. Any
dividend paid to the recipient on the restricted stock subject to the Stock
Award at or prior to such time will be ordinary compensation income to the
recipient and deductible as such by the Company.

A recipient of a Stock Award who makes an election under Section 83(b) of
the Code will recognize ordinary income at the time of the Stock Award and the
Company will be entitled to a corresponding deduction equal to the fair market
value of such stock at such time over the amount, if any, paid for the award.
Any dividends subsequently paid to the recipient on the restricted stock subject
to the Stock Award will be dividend income to the recipient and not deductible
by the Company. If the recipient makes a Section 83(b) election, there are no
federal income tax consequences either to the recipient or the Company at the
time any transfer or forfeiture restrictions applicable to the restricted stock
award lapse.

Performance Awards.

General. The Incentive Plan provides the Committee with the ability to
condition or restrict the vesting or exercisability of any Award upon the
achievement of performance targets or goals as set forth under the Incentive
Plan. Any Award subject to such conditions or restrictions is considered to be
a "Performance Award." Subject to the express provisions of the Plan and as
discussed in this paragraph, the Committee has discretion to determine the terms
of any Performance Award, including the amount of the award, or a formula for
determining such, the performance

21
<PAGE>

criteria and level of achievement related to these criteria which determine the
amount of the award granted, issued, retainable and/or vested, the period as to
which performance shall be measured for determining achievement of performance
(a "performance period"), the timing of delivery of any awards earned,
forfeiture provisions, the effect of termination of employment for various
reasons, and such further terms and conditions, in each case not inconsistent
with the Plan, as may be determined from time to time by the Committee. The
performance criteria upon which Performance Awards are granted, issued, retained
and/or vested may be based on financial performance and/or personal performance
evaluations, except that for any Performance Award that is intended by the
Committee to satisfy the requirements for "performance based compensation" under
Code Section 162(m), the performance criteria shall be a measure based on one or
more Qualifying Performance Criteria (as defined below). Notwithstanding
satisfaction of any performance goals, the number of Shares granted, issued,
retainable and/or vested under a Performance Award may be adjusted by the
Committee on the basis of such further considerations as the Committee in its
sole discretion shall determine. However, the Committee may not increase the
amount earned upon satisfaction of any performance goal by any Participant who
is a "covered employee" within the meaning of Section 162(m) of the Code.

Qualifying Performance Criteria and Section 162(m) Limits. Subject to
shareholder approval of the Plan, the Performance Criteria for any Performance
Award that is intended to satisfy the requirements for "performance based
compensation" under the Code Section 162(m) shall be based upon any one or more
of the following Performance Criteria, either individually, alternatively or in
any combination, applied to either the Company as a whole or to a business unit
or subsidiary, either individually, alternatively or in any combination, and
measured either on an absolute basis or relative to a pre-established target, to
previous years' results or to a designated comparison group, in each case as
preestablished by the Committee under the terms of the Award: net income, as
adjusted for non-recurring items; cash earnings; earnings per share; cash
earnings per share; return on equity; return on assets; assets; stock price;
total shareholder return; capital; net interest income; market share; cost
control or efficiency ratio; and asset growth.

Maximum Awards. The aggregate amount of Options granted under the Plan
during any 60 month period to any one Participant may not exceed 25% of the
total amount of options available to be granted under the Incentive Plan. The
aggregate amount of shares of Common Stock issuable under a Stock Award granted
under the Plan for any 60 month period to any one Participant may not exceed 25%
of the total amount of Stock Awards available to be granted under the Incentive
Plan.

Payout Alternatives

Any shares of Common Stock tendered in payment of an obligation arising
under the Incentive Plan or applied to tax withholding amounts shall be valued
at the fair market value of the Common Stock. The Committee may use treasury
stock, authorized but unissued stock or it may direct the market purchase of
shares of Common Stock to satisfy its obligations under the Incentive Plan.

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<PAGE>

Method of Exercise of Options

Subject to the terms of the Incentive Plan, the Committee also has
discretion to determine the form of payment for the exercise of an Option. The
Committee may indicate acceptable forms in the Award Agreement covering such
Options or may reserve its decision to the time of exercise. No Option is to be
considered exercised until payment in full is accepted by the Committee. The
Committee may permit the following forms of payment for Options: (a) in cash;
(b) by tendering previously acquired shares of Common Stock; or (c) some other
method acceptable to it, including exercise by means of a cashless exercise
arrangement with a qualifying broker-dealer. Any shares of Common Stock
tendered in payment of the exercise price of an Option shall be valued at the
fair market value of the Common Stock on the date prior to the date of exercise.

Amendments

Subject to limitations imposed by the Incentive Plan, the Board of
Directors or Committee may amend the Incentive Plan in any respect, at any time,
provided that no amendment may affect the rights of the holder of an Award
without his or her permission and such amendment must comply with applicable law
and regulation.

Adjustments

In the event of any change in the outstanding shares of Common Stock of the
Company by reason of any stock dividend or split, recapitalization, merger,
consolidation, spin-off, reorganization, combination or exchange of shares, or
other similar corporate change, or other increase or decrease in such shares
without receipt or payment of consideration by the Company, or in the event an
extraordinary capital distribution is made, including the payment of an
extraordinary dividend, the Committee may make such adjustments to previously
granted Awards, to prevent dilution, diminution or enlargement of the rights of
the holder; provided, however, that in the case of an extraordinary dividend,
the Committee may be required to obtain regulatory approval prior to any such
adjustment. All Awards under the Incentive Plan shall be binding upon any
successors or assigns of the Company.

Nontransferability

Unless determined otherwise by the Committee, Awards under the Incentive
Plan shall not be transferable by the recipient other than by will or the laws
of intestate succession or pursuant to a domestic relations order. With the
consent of the Committee, an Award recipient may permit transferability or
assignment of Non-Statutory Stock Options for valid estate planning purposes as
permitted under the Code or Rule 16b-3 under the Exchange Act and a participant
may designate a person or his or her estate as beneficiary of any Award to which
the recipient would then be entitled, in the event of the death of the
participant.

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<PAGE>

Shareholder Approval, Effective Date of Plan and Regulatory Compliance

The implementation of the Incentive Plan is subject to the approval of the
Commissioner of Banks of the Commonwealth of Massachusetts (the "Commissioner").
The Company believes the Incentive Plan complies with all applicable laws and
regulations. However, neither the Commissioner, the FDIC nor any other
regulatory authority has in any way endorsed or approved the Incentive Plan.

The Incentive Plan shall become effective upon the earlier of: (i) the date
that it is approved by a majority of votes eligible to be cast by the Company's
shareholders at a duly called meeting of shareholders, or (ii) March 20, 2000;
provided, however, that the Incentive Plan will not be implemented prior to the
Company's receipt of any required approval by the Commissioner or satisfaction
of any conditions required by the Commissioner.

New Plan Benefits

As of the date of this Proxy Statement, no determination had been made
regarding the granting of Awards under the Incentive Plan.

Unless marked to the contrary, the shares represented by the enclosed proxy
card, if executed and returned, will be voted "FOR" the approval of the Woronoco
Bancorp, Inc. 1999 Stock-Based Incentive Plan.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE
WORONOCO BANCORP, INC. 1999 STOCK-BASED INCENTIVE PLAN.

24
<PAGE>

PROPOSAL 3. RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT AUDITORS

The Company's independent auditors for the year ended December 31, 1998
were Wolf & Company, P.C. The Company's Board of Directors has reappointed
Wolf & Company, P.C. to continue as independent auditors for the Bank and the
Company for the fiscal year ending December 31, 1999, subject to ratification of
such appointment by the shareholders.

Representatives of Wolf & Company, P.C. will be present at the Annual
Meeting. They will be given an opportunity to make a statement if they desire
to do so and will be available to respond to appropriate questions from
shareholders present at the Annual Meeting.

Unless marked to the contrary, the shares represented by the enclosed proxy
will be voted "FOR" ratification of the appointment of Wolf & Company, P.C. as
the independent auditors of the Company.

THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF WOLF & COMPANY, P.C. AS THE INDEPENDENT AUDITORS OF THE COMPANY.

ADDITIONAL INFORMATION

Shareholder Proposals

To be considered for inclusion in the Company's proxy statement and form of
proxy relating to the 2000 Annual Meeting of Shareholders, a shareholder
proposal must be received by the Secretary of the Company at the address set
forth on the Notice of Annual Meeting of Shareholders not later than April 25,
2000. If such annual meeting is held on a date more than 30 calendar days from
October 6, 2000, a stockholder proposal must be received by a reasonable time
before the proxy solicitation for such annual meeting is made. Any such
proposal will be subject to 17 C.F.R. (S) 240.14a-8 of the Rules and Regulations
under the Exchange Act.

Notice of Business to be Conducted at an Annual Meeting

The Bylaws of the Company set forth the procedures by which a shareholder
may properly bring business before a meeting of shareholders. Pursuant to the
Bylaws, only business brought by or at the direction of the Board of Directors
may be conducted at a Annual Meeting. The Bylaws of the Company provide an
advance notice procedure for a shareholder to properly bring business before an
Annual Meeting. The shareholder must give written advance notice to the
Secretary of the Company not less than ninety (90) days before the date
originally fixed for such meeting; provided, however, that in the event that
less than one hundred (100) days notice or prior public disclosure of the date
of the meeting is given or made to shareholders, notice by the shareholder to be
timely must be received not later than the close of business on the tenth day
following the date on which the Company's notice to shareholders of the Annual
Meeting date was mailed or such public disclosure was made. In order for the
notice of a stockholder proposal for consideration at the Company's 2000

25
<PAGE>

Annual Meeting of Stockholders to be timely, the Company would have to receive
such notice no later than July 8, 2000 assuming the 2000 Annual Meeting is held
on October 6, 2000 and that the Company provides at least 100 days notice or
public disclosure of the date of the meeting. The advance notice by shareholders
must include the shareholder's name and address, as they appear on the Company's
record of shareholders, a brief description of the proposed business, the reason
for conducting such business at the Annual Meeting, the class and number of
shares of the Company's capital stock that are beneficially owned by such
shareholder and any material interest of such shareholder in the proposed
business. In the case of nominations to the Board of Directors, certain
information regarding the nominee must be provided. Nothing in this paragraph
shall be deemed to require the Company to include in its proxy statement or the
proxy relating to any Annual Meeting any shareholder proposal which does not
meet all of the requirements for inclusion established by the SEC in effect at
the time such proposal is received.

Other Matters Which May Properly Come Before the Meeting

The Board of Directors knows of no business which will be presented for
consideration at the Annual Meeting other than as stated in the Notice of Annual
Meeting of Shareholders. If, however, other matters are properly brought before
the Annual Meeting, it is the intention of the persons named in the accompanying
proxy to vote the shares represented thereby on such matters in accordance with
their best judgment.

Whether or not you intend to be present at the Annual Meeting, you are
urged to return your proxy card promptly. If you are then present at the Annual
Meeting and wish to vote your shares in person, your original proxy may be
revoked by voting at the Annual Meeting. However, if you are a shareholder
whose shares are not registered in your own name, you will need appropriate
documentation from your recordholder to vote personally at the Annual Meeting.

A COPY OF THE FORM 10-K (WITHOUT EXHIBITS) FOR THE YEAR ENDED DECEMBER 31,
1998, AS FILED WITH THE SEC, WILL BE FURNISHED WITHOUT CHARGE TO SHAREHOLDERS OF
RECORD UPON WRITTEN REQUEST TO TERRY J. BENNETT, CORPORATE SECRETARY, WORONOCO
BANCORP, INC., 31 COURT STREET, WESTFIELD, MASSACHUSETTS 01085.

By Order of the Board of Directors

/s/ Terry J. Bennett
Terry J. Bennett
Corporate Secretary
Westfield, Massachusetts
August 23, 1999

YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE
REQUESTED TO SIGN, DATE AND PROMPTLY RETURN THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.

26
<PAGE>

Appendix A

WORONOCO BANCORP, INC.
1999 STOCK-BASED INCENTIVE PLAN

1. DEFINITIONS.

(a) "Affiliate" means any "parent corporation" or "subsidiary corporation"
of the Holding Company, as such terms are defined in Sections 424(e) and 424(f)
of the Code.

(b) "Award" means, individually or collectively, a grant under the Plan of
Non-Statutory Stock Options, Incentive Stock Options and Stock Awards.

(d) "Bank" means Woronoco Savings Bank.

(e) "Board of Directors" means the board of directors of the Holding
Company.

(f) "Change in Control" of the Holding Company or the Bank shall mean an
event of a nature that: (i) would be required to be reported in response to Item
1(a) of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); or (ii) results in a Change in Control of the Bank or the
Holding Company within the meaning of the Change in Bank Control Act and the
Rules and Regulations promulgated by the Federal Deposit Insurance Corporation
("FDIC") at 12 C.F.R. (S) 303.4(a) with respect to the Bank and the Board of
Governors of the Federal Reserve System ("FRB") at 12 C.F.R. (S) 225.41(b) with
respect to the Holding Company, as in effect on the date hereof; or (iii)
results in a transaction requiring prior FRB approval under the Bank Holding
Company Act of 1956 and the regulations promulgated thereunder by the FRB at 12
C.F.R. (S) 225.11, as in effect on the date hereof except for the Holding
Company's acquisition of the Bank; or (iv) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Bank or the Holding Company
representing 20% or more of the Bank's or the Holding Company's outstanding
securities except for any securities of the Bank purchased by the Holding
Company in connection with the conversion of the Bank to the stock form and any
securities purchased by any tax qualified employee benefit plan of the Bank; or
(B) individuals who constitute the Board of Directors on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Holding Company's stockholders was approved by the same Nominating Committee
serving under an Incumbent Board, shall be, for purposes of this clause (B),
considered as though he were a member of the Incumbent Board; or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Holding Company or similar transaction occurs in which
the Bank or Holding Company is not the resulting entity; or (D) solicitations of
shareholders of the Holding Company, by someone other than the current
management of the Holding Company, seeking stockholder approval of a plan or
reorganization, merger of consolidation of the Holding Company or Bank or
similar transaction with one or more corporations as a result of which the
outstanding shares of the class of securities then subject to the plan or
transaction are exchanged for or converted into cash or property or securities
not issued by the Bank or the Holding Company shall be distributed; or (E) a
tender offer is made for 20% or more of the voting securities of the Bank or the
Holding Company.

(g) "Code" means the Internal Revenue Code of 1986, as amended.

(h) "Committee" means the committee designated by the Board of Directors,
pursuant to Section 2 of the Plan, to administer the Plan.

(i) "Common Stock" means the Common Stock of the Holding Company, par
value, $.01 per share.
<PAGE>

(j) "Date of Grant" means the effective date of an Award.

(k) "Disability" means any mental or physical condition with respect to
which the Participant qualifies for and receives benefits for under a long-term
disability plan of the Holding Company or an Affiliate, or in the absence of
such a long-term disability plan or coverage under such a plan, "Disability"
shall mean a physical or mental condition which, in the sole discretion of the
Committee, is reasonably expected to be of indefinite duration and to
substantially prevent the Participant from fulfilling his duties or
responsibilities to the Holding Company or an Affiliate.

(l) "Effective Date" means the earlier of the date the Plan is approved by
shareholders or March 19, 2000.

(m) "Employee" means any person employed by the Holding Company or an
Affiliate. Directors who are employed by the Holding Company or an Affiliate
shall be considered Employees under the Plan.

(n) "Exchange Act" means the Securities Exchange Act of 1934, as amended.

(o) "Exercise Price" means the price at which a Participant may purchase a
share of Common Stock pursuant to an Option.

(p) "Fair Market Value" means the market price of Common Stock, determined
by the Committee as follows:

(i) If the Common Stock was traded on the date in question on The
Nasdaq Stock Market then the Fair Market Value shall be equal to
the closing price reported for such date;

(ii) If the Common Stock was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the
closing price reported by the applicable composite transactions
report for such date; and

(iii)If neither of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good
faith on such basis as it deems appropriate.

Whenever possible, the determination of Fair Market Value by the Committee
shall be based on the prices reported in The Wall Street Journal. The
Committee's determination of Fair Market Value shall be conclusive and binding
on all persons.

(q) "Holding Company" means Woronoco Bancorp, Inc.

(r) "Incentive Stock Option" means a stock option granted to a Participant,
pursuant to Section 7 of the Plan, that is intended to meet the requirements of
Section 422 of the Code.

(s) "Non-Statutory Stock Option" means a stock option granted to a
Participant pursuant to the terms of the Plan but which is not intended to be
and is not identified as an Incentive Stock Option or a stock option granted
under the Plan which is intended to be and is identified as an Incentive Stock
Option but which does not meet the requirements of Section 422 of the Code.

(t) "Option" means an Incentive Stock Option or Non-Statutory Stock Option.

2
<PAGE>

(u) "Outside Director" means a member of the board(s) of directors of the
Holding Company or an Affiliate who is not also an Employee of the Holding
Company or an Affiliate.

(v) "Participant" means any person who holds an outstanding Award.

(w) "Performance Award" means an Award granted to a Participant pursuant to
Section 9 of the Plan.

(x) "Plan" means this Woronoco Bancorp, Inc. 1999 Stock-Based Incentive
Plan.

(y) "Retirement" means retirement from employment with the Holding Company
or an Affiliate in accordance with the then current retirement policies of the
Holding Company or Affiliate, as applicable. "Retirement" with respect to an
Outside Director means the termination of service from the board(s) of directors
of the Holding Company and any Affiliate following written notice to such
board(s) of directors of the Outside Director's intention to retire.

(z) "Stock Award" means an Award granted to a Participant pursuant to
Section 8 of the Plan.

(aa) "Termination for Cause" shall mean termination because of a
Participant's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or material breach of any provision of any
employment agreement between the Holding Company and/or any subsidiary of the
Holding Company and a Participant.

(bb) "Trust" means a trust established by the Board of Directors in
connection with this Plan to hold Common Stock or other property for the
purposes set forth in the Plan.

(cc) "Trustee" means any person or entity approved by the Board of
Directors or its designee(s) to hold any of the Trust assets.

2. ADMINISTRATION.

(a) The Committee shall administer the Plan. The Committee shall consist
of two or more disinterested directors of the Holding Company, who shall be
appointed by the Board of Directors. A member of the Board of Directors shall
be deemed to be "disinterested" only if he satisfies (i) such requirements as
the Securities and Exchange Commission may establish for non-employee directors
administering plans intended to qualify for exemption under Rule 16b-3 (or its
successor) under the Exchange Act and (ii) such requirements as the Internal
Revenue Service may establish for outside directors acting under plans intended
to qualify for exemption under Section 162(m)(4)(C) of the Code. The Board of
Directors may also appoint one or more separate committees of the Board of
Directors, each composed of one or more directors of the Holding Company or an
Affiliate who need not be disinterested, that may grant Awards and administer
the Plan with respect to Employees, Outside Directors, and other individuals who
are not considered officers or directors of the Holding Company under Section 16
of the Exchange Act or for whom Awards are not intended to satisfy the
provisions of Section 162(m) of the Code.

(b) The Committee shall (i) select the individuals who are to receive
Awards under the Plan, (ii) determine the type, number, vesting requirements and
other features and conditions of such Awards, (iii) interpret the Plan and Award
Agreements in all respects and (iv) make all other decisions relating to the
operation of the Plan. The Committee may adopt such rules or guidelines as it
deems appropriate to implement the Plan. The Committee's determinations under
the Plan shall be final and binding on all persons.

(c) Each Award shall be evidenced by a written agreement ("Award
Agreement") containing such provisions as may be required by the Plan and
otherwise approved by the Committee. Each Award Agreement shall constitute a
binding contract between the Holding Company or an Affiliate and the
Participant, and every

3
<PAGE>

Participant, upon acceptance of an Award Agreement, shall be bound by the terms
and restrictions of the Plan and the Award Agreement. The terms of each Award
Agreement shall be in accordance with the Plan, but each Award Agreement may
include any additional provisions and restrictions determined by the Committee,
in its discretion, provided that such additional provisions and restrictions are
not inconsistent with the terms of the Plan. In particular, and at a minimum,
the Committee shall set forth in each Award Agreement: (i) the type of Award
granted; (ii) the Exercise Price of any Option; (iii) the number of shares
subject to the Award; (iv) the expiration date of the Award; (v) the manner,
time, and rate (cumulative or otherwise) of exercise or vesting of such Award;
and (vi) the restrictions, if any, placed upon such Award, or upon shares which
may be issued upon exercise of such Award. The Chairman of the Committee and
such other directors and officers as shall be designated by the Committee is
hereby authorized to execute Award Agreements on behalf of the Company or an
Affiliate and to cause them to be delivered to the recipients of Awards.

(d) The Committee may delegate all authority for: (i) the determination of
forms of payment to be made by or received by the Plan and (ii) the execution of
any Award Agreement. The Committee may rely on the descriptions,
representations, reports and estimates provided to it by the management of the
Holding Company or an Affiliate for determinations to be made pursuant to the
Plan, including the satisfaction of any conditions of a Performance Award.
However, only the Committee or a portion of the Committee may certify the
attainment of any conditions of a Performance Award intended to satisfy the
requirements of Section 162(m) of the Code.

3. TYPES OF AWARDS.

The following Awards may be granted under the Plan:

(a) Non-Statutory Stock Options.
(b) Incentive Stock Options.
(c) Stock Awards.

4. STOCK SUBJECT TO THE PLAN.

Subject to adjustment as provided in Section 14 of the Plan, the maximum
number of shares reserved for Awards under the Plan is 839,840, which number
shall not exceed 14% of the shares of the Common Stock issued by the Company in
connection with the Bank's conversion from mutual to stock form of organization.
Subject to adjustment as provided in Section 14 of the Plan, the maximum number
of shares reserved hereby for purchase pursuant to the exercise of Options,
including Incentive Stock Options, granted under the Plan is 599,886 which
number shall not exceed 10% of the publicly traded shares of Common Stock as of
the Effective Date. The maximum number of the shares reserved for Stock Awards
is 239,954, which number shall not exceed 4% of the publicly traded shares of
Common Stock as of the Effective Date. The shares of Common Stock issued under
the Plan may be either authorized but unissued shares or authorized shares
previously issued and acquired or reacquired by the Trustee or the Holding
Company, respectively. To the extent that Options and Stock Awards are granted
under the Plan, the shares underlying such Awards will be unavailable for any
other use including future grants under the Plan except that, to the extent that
Stock Awards or Options terminate, expire or are forfeited without having vested
or without having been exercised, new Awards may be made with respect to these
shares.

5. ELIGIBILITY.

Subject to the terms of the Plan, all Employees and Outside Directors shall
be eligible to receive Awards under the Plan. In addition, the Committee may
grant eligibility to consultants and advisors of the Holding Company or an
Affiliate, as it sees fit.

4
<PAGE>

6. NON-STATUTORY STOCK OPTIONS.

The Committee may, subject to the limitations of this Plan and the
availability of shares of Common Stock reserved but not previously awarded under
the Plan, grant Non-Statutory Stock Options to eligible individuals upon such
terms and conditions as it may determine to the extent such terms and conditions
are consistent with the following provisions:

(a) Exercise Price. The Committee shall determine the Exercise Price of
each Non-Statutory Stock Option. However, the Exercise Price shall not be less
than 100% of the Fair Market Value of the Common Stock on the Date of Grant.

(b) Terms of Non-statutory Stock Options. The Committee shall determine
the term during which a Participant may exercise a Non-Statutory Stock Option,
but in no event may a Participant exercise a Non-Statutory Stock Option, in
whole or in part, more than ten (10) years from the Date of Grant. The
Committee shall also determine the date on which each Non-Statutory Stock
Option, or any part thereof, first becomes exercisable and any terms or
conditions a Participant must satisfy in order to exercise each Non-Statutory
Stock Option. The shares of Common Stock underlying each Non-Statutory Stock
Option may be purchased in whole or in part by the Participant at any time
during the term of such Non-Statutory Stock Option, or any portion thereof, once
the Non-Statutory Stock Option becomes exercisable.

(c) Non-Transferability. Unless otherwise determined by the Committee in
accordance with this Section 6(c), a Participant may not transfer, assign,
hypothecate, or dispose of in any manner, other than by will or the laws of
intestate succession, a Non-Statutory Stock Option. The Committee may, however,
in its sole discretion, permit transferability or assignment of a Non-Statutory
Stock Option if such transfer or assignment is, in its sole determination, for
valid estate planning purposes and such transfer or assignment is permitted
under the Code and Rule 16b-3 under the Exchange Act. For purposes of this
Section 6(c), a transfer for valid estate planning purposes includes, but is not
limited to: (a) a transfer to a revocable intervivos trust as to which the
Participant is both the settlor and trustee, (b) a transfer for no consideration
to: (i) any member of the Participant's Immediate Family, (ii) any trust solely
for the benefit of members of the Participant's Immediate Family, (iii) any
partnership whose only partners are members of the Participant's Immediate
Family, and (iv) any limited liability corporation or corporate entity whose
only members or equity owners are members of the Participant's Immediate Family,
or (c) a transfer to the Woronoco Savings Charitable Foundation. For purposes
of this Section 6(c), "Immediate Family" includes, but is not necessarily
limited to, a Participant's parents, grandparents, spouse, children,
grandchildren, siblings (including half bothers and sisters), and individuals
who are family members by adoption. Nothing contained in this Section 6(c)
shall be construed to require the Committee to give its approval to any transfer
or assignment of any Non-Statutory Stock Option or portion thereof, and approval
to transfer or assign any Non-Statutory Stock Option or portion thereof does not
mean that such approval will be given with respect to any other Non-Statutory
Stock Option or portion thereof. The transferee or assignee of any Non-
Statutory Stock Option shall be subject to all of the terms and conditions
applicable to such Non-Statutory Stock Option immediately prior to the transfer
or assignment and shall be subject to any other conditions proscribed by the
Committee with respect to such Non-Statutory Stock Option.

(d) Termination of Employment or Service (General). Unless otherwise
determined by the Committee, upon the termination of a Participant's employment
or other service for any reason other than Retirement, Disability or death, a
Change in Control, or Termination for Cause, the Participant may exercise only
those Non-Statutory Stock Options that were immediately exercisable by the
Participant at the date of such termination and only for a period of three (3)
months following the date of such termination, or, if sooner, until the
expiration of the term of the Option.

(e) Termination of Employment or Service (Retirement). Unless otherwise
determined by the Committee, in the event of a Participant's Retirement, the
Participant may exercise only those Non-Statutory Stock Options that were
immediately exercisable by the Participant at the date of Retirement and only
for a period of one

5
<PAGE>

(1) year following the date of Retirement, or, if sooner, until the expiration
of the term of the Option; provided, however, that upon the Participant's
Retirement, the Committee, in its discretion, may determine that all unvested
Stock Awards shall continue to vest in accordance with the Award Agreement if
the Participant is immediately engaged by the Holding Company or an Affiliate as
a consultant or advisor or continues to serve the Holding Company or an
Affiliate as a director, advisory director, or director emeritus.

(f) Termination of Employment or Service (Disability or Death). Unless
otherwise determined by the Committee, in the event of the termination of a
Participant's employment or other service due to Disability or death, all Non-
Statutory Stock Options held by such Participant shall immediately become
exercisable and remain exercisable for a period one (1) year following the date
of such termination, or, if sooner, until the expiration of the term of the
Option.

(g) Termination of Employment or Service (Change in Control). Unless
otherwise determined by the Committee, in the event of the termination of a
Participant's employment or service due to a Change in Control, whether such
termination is actual, constructive, or otherwise, the Participant may exercise
only those Non-Statutory Stock Options that were immediately exercisable by the
Participant at the date of such termination and only for a period of one (1)
year following the date of such termination.

(h) Termination of Employment or Service (Termination for Cause). Unless
otherwise determined by the Committee, in the event of a Participant's
Termination for Cause, all rights with respect to the Participant's Non-
Statutory Stock Options shall expire immediately upon the effective date of such
Termination for Cause.

(i) Payment. Payment due to a Participant upon the exercise of a Non-
Statutory Stock Option shall be made in the form of shares of Common Stock.

(j) Maximum Individual Award. No individual Employee shall be granted an
amount of Non-Statutory Stock Options which exceeds 25% of all Options eligible
to be granted under the Plan within any 60-month period.

7. INCENTIVE STOCK OPTIONS.

The Committee may, subject to the limitations of the Plan and the
availability of shares of Common Stock reserved but unawarded under this Plan,
grant Incentive Stock Options to an Employee upon such terms and conditions as
it may determine to the extent such terms and conditions are consistent with the
following provisions:

(a) Exercise Price. The Committee shall determine the Exercise Price of
each Incentive Stock Option. However, the Exercise Price shall not be less than
100% of the Fair Market Value of the Common Stock on the Date of Grant;
provided, however, that if at the time an Incentive Stock Option is granted, the
Employee owns or is treated as owning, for purposes of Section 422 of the Code,
Common Stock representing more than 10% of the total combined voting securities
of the Holding Company ("10% Owner"), the Exercise Price shall not be less than
110% of the Fair Market Value of the Common Stock on the Date of Grant.

(b) Amounts of Incentive Stock Options. To the extent the aggregate Fair
Market Value of shares of Common Stock with respect to which Incentive Stock
Options that are exercisable for the first time by an Employee during any
calendar year under the Plan and any other stock option plan of the Holding
Company or an Affiliate exceeds $100,000, or such higher value as may be
permitted under Section 422 of the Code, such Options in excess of such limit
shall be treated as Non-Statutory Stock Options. Fair Market Value shall be
determined as of the Date of Grant with respect to each such Incentive Stock
Option.

(c) Terms of Incentive Stock Options. The Committee shall determine the
term during which a Participant may exercise an Incentive Stock Option, but in
no event may a Participant exercise an Incentive Stock Option, in whole or in
part, more than ten (10) years from the Date of Grant; provided, however, that
if at the time

6
<PAGE>

an Incentive Stock Option is granted to an Employee who is a 10% Owner, the
Incentive Stock Option granted to such Employee shall not be exercisable after
the expiration of five (5) years from the Date of Grant. The Committee shall
also determine the date on which each Incentive Stock Option, or any part
thereof, first becomes exercisable and any terms or conditions a Participant
must satisfy in order to exercise each Incentive Stock Option. The shares of
Common Stock underlying each Incentive Stock Option may be purchased in whole or
in part at any time during the term of such Incentive Stock Option after such
Option becomes exercisable.

(d) Non-Transferability. No Incentive Stock Option shall be transferable
except by will or the laws of descent and distribution and is exercisable,
during his lifetime, only by the Employee to whom the Committee grants the
Incentive Stock Option. The designation of a beneficiary does not constitute a
transfer of an Incentive Stock Option.

(e) Termination of Employment (General). Unless otherwise determined by
the Committee, upon the termination of a Participant's employment or other
service for any reason other than Retirement, Disability or death, a Change in
Control, or Termination for Cause, the Participant may exercise only those
Incentive Stock Options that were immediately exercisable by the Participant at
the date of such termination and only for a period of three (3) months following
the date of such termination, or, if sooner, until the expiration of the term of
the Option.

(f) Termination of Employment (Retirement). Unless otherwise determined
by the Committee, in the event of a Participant's Retirement, the Participant
may exercise only those Incentive Stock Options that were immediately
exercisable by the Participant at the date of Retirement and only for a period
of one (1) year following the date of Retirement, or, if sooner, until the
expiration of the term of the Option. Any Option originally designated as an
Incentive Stock Option shall be treated as a Non-Statutory Stock Option to the
extent the Participant exercises such Option more than three (3) months
following the Participant's cessation of employment.

(g) Termination of Employment (Disability or Death). Unless otherwise
determined by the Committee, in the event of the termination of a Participant's
employment or other service due to Disability or death, all Incentive Stock
Options held by such Participant shall immediately become exercisable and remain
exercisable for a period one (1) year following the date of such termination,
or, if sooner, until the expiration of the term of the Option.

(h) Termination of Employment (Change in Control). Unless otherwise
determined by the Committee, in the event of the termination of a Participant's
employment or service due to a Change in Control, the Participant may exercise
only those Incentive Stock Options that were immediately exercisable by the
Participant at the date of such termination and only for a period of one (1)
year following the date of such termination.

(i) Termination of Employment (Termination for Cause). Unless otherwise
determined by the Committee, in the event of an Employee's Termination for
Cause, all rights under such Employee's Incentive Stock Options shall expire
immediately upon the effective date of such Termination for Cause.

(j) Payment. Payment due to a Participant upon the exercise of an
Incentive Stock Option shall be made in the form of shares of Common Stock.

(k) Maximum Individual Award. No individual Employee shall be granted an
amount of Incentive Stock Options which exceeds 25% of all Options eligible to
be granted under the Plan within any 60-month period.

(l) Disqualifying Dispositions. Each Award Agreement with respect to an
Incentive Stock Option shall require the Participant to notify the Committee of
any disposition of shares of Common Stock issued pursuant to the exercise of
such Option under the circumstances described in Section 421(b) of the Code
(relating to certain disqualifying dispositions), within 10 days of such
disposition.

7
<PAGE>

8. STOCK AWARDS.

The Committee may make grants of Stock Awards, which shall consist of the
grant of some number of shares of Common Stock, to a Participant upon such terms
and conditions as it may determine to the extent such terms and conditions are
consistent with the following provisions:

(a) Grants of the Stock Awards. Stock Awards may only be made in whole
shares of Common Stock. Stock Awards may only be granted from shares reserved
under the Plan and available for award at the time the Stock Award is made to
the Participant.

(b) Terms of the Stock Awards. The Committee shall determine the dates on
which Stock Awards granted to a Participant shall vest and any terms or
conditions which must be satisfied prior to the vesting of any Stock Award or
portion thereof. Any such terms or conditions shall be determined by the
Committee as of the Date of Grant.

(c) Termination of Employment or Service (General). Unless otherwise
determined by the Committee, upon the termination of a Participant's employment
or service for any reason other than Retirement, Disability or death, a Change
in Control, or Termination for Cause, any Stock Awards in which the Participant
has not become vested as of the date of such termination shall be forfeited and
any rights the Participant had to such Stock Awards shall become null and void.

(d) Termination of Employment or Service (Retirement). In the event of a
Participant's Retirement, any Stock Awards in which the Participant has not
become vested as of the date of Retirement shall be forfeited and any rights the
Participant had to such unvested Stock Awards shall become null and void;
provided however, that upon the Participant's Retirement, the Committee, in its
discretion, may determine that all unvested Stock Awards shall continue to vest
in accordance with the Award Agreement if the Participant is immediately engaged
by the Holding Company or an Affiliate as a consultant or advisor or continues
to serve the Holding Company or an Affiliate as a director, advisory director,
or director emeritus.

(e) Termination of Employment or Service (Disability or Death). Unless
otherwise determined by the Committee, in the event of a termination of the
Participant's service due to Disability or death all unvested Stock Awards held
by such Participant shall immediately vest as of the date of such termination.

(f) Termination of Employment or Service (Change in Control). Unless
otherwise determined by the Committee, in the event of a termination of the
Participant's service due to a Change in Control any Stock Awards in which the
Participant has not become vested as of the date of such termination shall be
forfeited and any rights the Participant had to such unvested Stock Awards shall
become null and void.

(g) Termination of Employment or Service (Termination for Cause). Unless
otherwise determined by the Committee, or in the event of the Participant's
Termination for Cause, all Stock Awards in which the Participant had not become
vested as of the effective date of such Termination for Cause shall be forfeited
and any rights such Participant had to such unvested Stock Awards shall become
null and void.

(h) Maximum Individual Award. No individual Employee shall be granted an
amount of Stock Awards which exceeds 25% of all Stock Awards eligible to be
granted under the Plan within any 60-month period.

(i) Issuance of Certificates. Unless otherwise held in Trust and
registered in the name of the Trustee, reasonably promptly after the Date of
Grant with respect to shares of Common Stock pursuant to a Stock Award, the
Holding Company shall cause to be issued a stock certificate, registered in the
name of the Participant to whom such Stock Award was granted, evidencing such
shares; provided, that the Holding Company shall not cause such a stock
certificate to be issued unless it has received a stock power duly endorsed in
blank with respect to such shares. Each such stock certificate shall bear the
following legend:

8
<PAGE>

"The transferability of this certificate and the shares of stock
represented hereby are subject to the restrictions, terms and
conditions (including forfeiture provisions and restrictions against
transfer) contained in the Woronoco Bancorp, Inc. 1999 Stock-Based
Incentive Plan and Award Agreement entered into between the registered
owner of such shares and Woronoco Bancorp, Inc. or its Affiliates. A
copy of the Plan and Award Agreement is on file in the office of the
Corporate Secretary of Woronoco Bancorp, Inc. 31 Court Street,
Westfield, Massachusetts 01086-0978.

Such legend shall not be removed until the Participant becomes vested in such
shares pursuant to the terms of the Plan and Award Agreement. Each certificate
issued pursuant to this Section 8(i), in connection with a Stock Award, shall be
held by the Holding Company or its Affiliates, unless the Committee determines
otherwise.

(j) Non-Transferability. Except to the extent permitted by the Code, the
rules promulgated under Section 16(b) of the Exchange Act or any successor
statutes or rules:

The recipient of a Stock Award shall not sell, transfer, assign,
pledge, or otherwise encumber shares subject to the Stock Award until
full vesting of such shares has occurred. For purposes of this
section, the separation of beneficial ownership and legal title
through the use of any "swap" transaction is deemed to be a prohibited
encumbrance.

Unless determined otherwise by the Committee and except in the event
of the Participant's death or pursuant to a domestic relations order,
a Stock Award is not transferable and may be earned in his lifetime
only by the Participant to whom it is granted. Upon the death of a
Participant, a Stock Award is transferable by will or the laws of
descent and distribution. The designation of a beneficiary shall not
constitute a transfer.

If a recipient of a Stock Award is subject to the provisions of
Section 16 of the Exchange Act, shares of Common Stock subject to such
Stock Award may not, without the written consent of the Committee
(which consent may be given in the Award Agreement), be sold or
otherwise disposed of within six (6) months following the date of
grant of the Stock Award.

(k) Accrual of Dividends. To the extent Stock Awards are held in Trust and
registered in the name of the Trustee, unless otherwise specified by the Trust
Agreement whenever shares of Common Stock underlying a Stock Award are
distributed to a Participant or beneficiary thereof under the Plan, such
Participant or beneficiary shall also be entitled to receive, with respect to
each such share distributed, a payment equal to any cash dividends and the
number of shares of Common Stock equal to any stock dividends, declared and paid
with respect to a share of the Common Stock if the record date for determining
shareholders entitled to receive such dividends falls between the date the
relevant Stock Award was granted and the date the relevant Stock Award or
installment thereof is issued. There shall also be distributed an appropriate
amount of net earnings, if any, of the Trust with respect to any dividends paid
out on the shares related to the Stock Award.

(l) Voting of Stock Awards. After a Stock Award has been granted but for
which the shares covered by such Stock Award have not yet been vested, earned
and distributed to the Participant pursuant to the Plan, the Participant shall
be entitled to vote or to direct the Trustee to vote, as the case may be, such
shares of Common Stock which the Stock Award covers subject to the rules and
procedures adopted by the Committee for this purpose and in a manner consistent
with the Trust agreement.

(m) Payment. Payment due to a Participant upon the redemption of a Stock
Award shall be made in the form of shares of Common Stock.

9
<PAGE>

9. PERFORMANCE AWARDS.

(a) The Committee may determine to make any Award under the Plan contingent
upon the satisfaction of any conditions related to the performance of the
Holding Company, an Affiliate of the Participant. Each Performance Award shall
be evidenced in the Award Agreement, which shall set forth the applicable
conditions, the maximum amounts payable and such other terms and conditions as
are applicable to the Performance Award. Unless otherwise determined by the
Committee, each Performance Award shall be granted and administered to comply
with the requirements of Section 162(m) of the Code and subject to the following
provisions:

(b) Any Performance Award shall be made not later than 90 days after the
start of the period for which the Performance Award relates and shall be made
prior to the completion of 25% of such period. All determinations regarding the
achievement of any applicable conditions will be made by the Committee. The
Committee may not increase during a year the amount of a Performance Award that
would otherwise be payable upon satisfaction of the conditions but may reduce or
eliminate the payments as provided for in the Award Agreement.

(c) Nothing contained in the Plan will be deemed in any way to limit or
restrict the Committee from making any Award or payment to any person under any
other plan, arrangement or understanding, whether now existing or hereafter in
effect.

(d) A Participant who receives a Performance Award payable in Common Stock
shall have no rights as a shareholder until the Company Stock is issued pursuant
to the terms of the Award Agreement. The Common Stock may be issued without
cash consideration.

(e) A Participant's interest in a Performance Award may not be sold,
assigned, transferred, pledged, hypothecated, or otherwise encumbered.

(f) No Award or portion thereof that is subject to the satisfaction of any
condition shall be distributed or considered to be earned or vested until the
Committee certifies in writing that the conditions to which the distribution,
earning or vesting of such Award is subject have been achieved.

10. DEFERRED PAYMENTS.

The Committee, in its discretion, may permit a Participant to elect to
defer receipt of all or any part of any cash or stock payment under the Plan, or
the Committee may determine to defer receipt by some or all Participants, of all
or part of any such payment. The Committee shall determine the terms and
conditions of any such deferral, including the period of deferral, the manner of
deferral, and the method for measuring appreciation on deferred amounts until
their payout.

11. METHOD OF EXERCISE OF OPTIONS.

Subject to any applicable Award Agreement, any Option may be exercised by
the Participant in whole or in part at such time or times, and the Participant
may make payment of the Exercise Price in such form or forms permitted by the
Committee, including, without limitation, payment by delivery of cash, Common
Stock or other consideration (including, where permitted by law and the
Committee, Awards) having a Fair Market Value on the day immediately preceding
the exercise date equal to the total Exercise Price, or by any combination of
cash, shares of Common Stock and other consideration, including exercise by
means of a cashless exercise arrangement with a qualifying broker-dealer, as the
Committee may specify in the applicable Award Agreement.

10
<PAGE>

12. RIGHTS OF PARTICIPANTS.

No Participant shall have any rights as a shareholder with respect to any
shares of Common Stock covered by an Option until the date of issuance of a
stock certificate for such Common Stock. Nothing contained herein or in any
Award Agreement confers on any person any right to continue in the employ or
service of the Holding Company or an Affiliate or interferes in any way with the
right of the Holding Company or an Affiliate to terminate a Participant's
services.

13. DESIGNATION OF BENEFICIARY.

A Participant may, with the consent of the Committee, designate a person or
persons to receive, in the event of death, any Award to which the Participant
would then be entitled. Such designation will be made upon forms supplied by
and delivered to the Holding Company and may be revoked in writing. If a
Participant fails effectively to designate a beneficiary, then the Participant's
estate will be deemed to be the beneficiary.

14. DILUTION AND OTHER ADJUSTMENTS.

In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend or split, recapitalization, merger, consolidation,
spin-off, reorganization, combination or exchange of shares, or other similar
corporate change, or other increase or decrease in such shares without receipt
or payment of consideration by the Holding Company, or in the event an
extraordinary capital distribution is made, the Committee may make such
adjustments to previously granted Awards, to prevent dilution, diminution, or
enlargement of the rights of the Participant, including any or all of the
following:

(a) adjustments in the aggregate number or kind of shares of Common Stock
or other securities that may underlie future Awards under the Plan;

(b) adjustments in the aggregate number or kind of shares of Common Stock
or other securities underlying Awards already made under the Plan;

No such adjustments may, however, materially change the value of benefits
available to a Participant under a previously granted Award. All Awards under
this Plan shall be binding upon any successors or assigns of the Holding
Company. Notwithstanding the above, in the event of an extraordinary capital
distribution, any adjustment under this Section 14 shall be subject to required
regulatory approval.

15. TAXES.

(a) Whenever under this Plan, cash or shares of Common Stock are to be
delivered upon exercise or payment of an Award or any other event with respect
to rights and benefits hereunder, the Committee shall be entitled to require as
a condition of delivery (i) that the Participant remit an amount sufficient to
satisfy all federal, state, and local withholding tax requirements related
thereto, (ii) that the withholding of such sums come from compensation otherwise
due to the Participant or from any shares of Common Stock due to the Participant
under this Plan or (iii) any combination of the foregoing provided, however,
that no amount shall be withheld from any cash payment or shares of Common Stock
relating to an Award which was transferred by the Participant in accordance with
this Plan.

(b) If any disqualifying disposition described in Section 7(l) is made with
respect to shares of Common Stock acquired under an Incentive Stock Option
granted pursuant to this Plan, or any transfer described in Section 6(c) is
made, or any election described in Section 16 is made, then the person making
such disqualifying disposition, transfer, or election shall remit to the Holding
Company or its Affiliates an amount sufficient to satisfy

11
<PAGE>

all federal, state, and local withholding taxes thereby incurred; provided that,
in lieu of or in addition to the foregoing, the Holding Company or its
Affiliates shall have the right to withhold such sums from compensation
otherwise due to the Participant, or, except in the case of any transfer
pursuant to Section 6(c), from any shares of Common Stock due to the Participant
under this Plan.

(c) The Trustee may deduct from any distribution of shares of Common Stock
awarded to an Outside Director under this Plan, sufficient amounts of shares of
Common Stock to cover any applicable tax obligations incurred as a result of
vesting of the Stock Award.

16. NOTIFICATION UNDER SECTION 83(b).

The Committee may, on the Date of Grant or any later date, prohibit a
Participant from making the election described below. If the Committee has not
prohibited such Participant from making such election, and the Participant
shall, in connection with the exercise of any Option, or the grant of any Stock
Award, make the election permitted under Section 83(b) of the Code, such
Participant shall notify the Committee of such election within 10 days of filing
notice of the election with the Internal Revenue Service, in addition to any
filing and notification required pursuant to regulations issued under the
authority of Section 83(b) of the Code.

17. AMENDMENT OF THE PLAN AND AWARDS.

(a) Except as provided in paragraph (c) of this Section 17, the Board of
Directors may at any time, and from time to time, modify or amend the Plan in
any respect, prospectively or retroactively; provided however, that provisions
governing grants of Incentive Stock Options shall be submitted for shareholder
approval to the extent required by such law, regulation or otherwise. Failure
to ratify or approve amendments or modifications by shareholders shall be
effective only as to the specific amendment or modification requiring such
ratification. Other provisions of this Plan will remain in full force and
effect. No such termination, modification or amendment may adversely affect the
rights of a Participant under an outstanding Award without the written
permission of such Participant.

(b) Except as provided in paragraph (c) of this Section 17, the Committee
may amend any Award Agreement, prospectively or retroactively; provided,
however, that no such amendment shall adversely affect the rights of any
Participant under an outstanding Award without the written consent of such
Participant.

(c) In no event shall the Board of Directors amend the Plan or shall
the Committee amend an Award Agreement in any manner that has the effect of:

(i) Allowing any Option to be granted with an exercise below the Fair
Market Value of the Common Stock on the Date of Grant.

(ii) Allowing the exercise price of any Option previously granted
under the Plan to be reduced subsequent to the Date of Award.

(d) Notwithstanding anything in this Plan or any Award Agreement to the
contrary, if any Award or right under this Plan would, in the opinion of the
Holding Company's accountants, cause a transaction to be ineligible for pooling
of interest accounting that would, but for such Award or right, be eligible for
such accounting treatment, the Committee, at its discretion, may modify, adjust,
eliminate or terminate the Award or right so that pooling of interest accounting
is available.

12
<PAGE>

18. EFFECTIVE DATE OF PLAN.

The Plan shall become effective upon approval by the Holding Company's
shareholders in accordance with FDIC, Commissioner of Banks of the Commonwealth
of Massachusetts ("Commissioner") and Internal Revenue Service ("IRS")
regulations or March 19, 2000, whichever is earlier; provided, however, that the
Plan shall not be implemented prior to receipt of any required approval by the
Commissioner or satisfaction of any conditions required by the Commissioner.
The failure to obtain shareholder ratification for such purposes will not effect
the validity of the Plan and any Awards made under the Plan; provided, however,
that if the Plan is not ratified by stockholders in accordance with IRS
regulations, the Plan shall remain in full force and effect, and any Incentive
Stock Options granted under the Plan shall be deemed to be Non-Statutory Stock
Options and any Award intended to comply with Section 162(m) of the Code shall
not comply with Section 162(m) of the Code.

19. TERMINATION OF THE PLAN.

The right to grant Awards under the Plan will terminate upon the earlier
of: (i) ten (10) years after the Effective Date; (ii) the issuance of a number
of shares of Common Stock pursuant to the exercise of Options or the
distribution of Stock Awards is equivalent to the maximum number of shares
reserved under the Plan as set forth in Section 4 hereof. The Board of
Directors has the right to suspend or terminate the Plan at any time, provided
that no such action will, without the consent of a Participant, adversely affect
a Participant's vested rights under a previously granted Award.

20. APPLICABLE LAW.

The Plan will be administered in accordance with the laws of the state of
Delaware to the extent not pre-empted by applicable federal law.

21. TREATMENT OF UNVESTED, UNEXERCISED, OR NON-EXERCISABLE AWARDS UPON A CHANGE
IN CONTROL.

(a) Notwithstanding any other provision of this Plan, and unless otherwise
determined by the Committee, in the event of a Change in Control, all Awards
shall continue to remain exercisable (in the case of Options) and shall continue
to vest or become exercisable (in the case of Stock Awards and Options) in
accordance with the terms and conditions of the grant of the Awards, as set
forth in the Award Agreement(s) governing the grant of such Awards; provided,
however, that the continuation or timing of vesting or exercisability shall take
place without regard to the Participant's continued employment or service or
satisfaction of any other requirements concerning vesting or exercisability set
forth in the Award Agreement(s).

(b) Subject to paragraph (a) of this Section 21, in the event of a Change
in Control where the Holding Company or the Bank is not the surviving entity,
the Board of Directors of the Holding Company and/or the Bank, as applicable,
shall require that the successor entity take one of the following actions with
respect to all Awards held by Participants at the date of the Change in Control:

(i) Assume the Awards with the same terms and conditions as granted
to the Participant under this Plan; or

(ii) Replace the Awards with comparable Awards, subject to the same or
more favorable terms and conditions as the Award granted to the
Participant under this Plan, whereby the Participant will be
granted common stock or the option to purchase common stock of
the successor entity; or, only if the Committee determines that
neither of the alternatives set forth in clauses (i) or (ii) are
legally available,

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<PAGE>

(iii)Replace the Awards with a cash payment under an incentive plan,
program, or other arrangement of the successor entity that
preserves the economic value of the Awards and makes any such
cash payment subject to the same vesting or exercisability
schedule applicable to such Awards.

(c) The determination of comparability of Awards offered by a successor
entity under clause (ii) of paragraph(b) above shall be made by the Committee,
and the Committee's determination shall be conclusive and binding.

22. COMPLIANCE WITH FDIC AND MASSACHUSETTS COMMISSIONER OF BANKS OF THE
COMMONWEALTH OF MASSACHUSETTS CONVERSION REGULATIONS.

Notwithstanding any other provision contained in this Plan:

(a) Unless the Plan is approved by a majority vote of the outstanding
shares of the Holding Company eligible to be cast at a meeting of
stockholders to consider the Plan, as determined by Delaware law, the
Plan and any Awards under the Plan shall not become effective or
implemented prior to March 19, 2000.

(b) No Options or Stock Awards granted to any individual Employee prior to
one year from the date of the Bank's conversion from the mutual to
stock form ("Conversion") may exceed 25% of the total amount of Options
or Stock Awards, as applicable, which may be granted under the Plan;

(c) No Options or Stock Awards granted to any individual Outside Director
prior to one year from the Bank's Conversion may exceed 5% of the total
amount of Options or Stock Awards, as applicable, which may be granted
under the Plan;

(d) The aggregate amount of Options or Stock Awards granted to all Outside
Directors prior to one year from the Bank's Conversion may not exceed
30% of the total amount of Options or Stock Awards, as applicable,
which may be granted under the Plan; and

(e) No Option granted prior to one year from the Bank's Conversion may be
granted with an exercise price which is less than the Fair Market Value
of the Common Stock underlying the Option on the Date of Grant.

14
<PAGE>

WORONOCO BANCORP, INC.
ANNUAL MEETING OF SHAREHOLDERS

October 6, 1999
10:00 a.m. Eastern Time
_______________________________

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints the official proxy committee of the Board
of Directors of Woronoco Bancorp, Inc. (the "Company"), each with full power of
substitution, to act as proxy for the undersigned, and to vote all shares of
common stock of the Company which the undersigned is entitled to vote only at
the Annual Meeting of Shareholders, to be held on October 6, 1999, at 10:00 a.m.
Eastern Time, at the Springfield-Marriott, The Corner of Boland and Columbus
Avenues, Springfield, Massachusetts, and at any and all adjournments thereof,
with all of the powers the undersigned would possess if personally present at
such meeting as follows:

1. The election as directors of all nominees listed (except as marked to the
contrary below).

Paul S. Allen Joseph M. Houser, Jr. Norman H. Storey William G. Aiken

FOR ALL
FOR VOTE WITHHELD EXCEPT
--- ------------- -------

[ ] [ ] [ ]

INSTRUCTION: To withhold your vote for any individual nominee, mark "FOR ALL
EXCEPT" and write that nominee's name in the space provided below.

________________________________________________________________________________

2. The approval of the Woronoco Bancorp, Inc. 1999 Stock-Based Incentive
Plan.

FOR VOTE WITHHELD ABSTAIN
--- ------------- -------

[ ] [ ] [ ]

3. The ratification of the appointment of Wolf & Company, P.C. as independent
auditors of Woronoco Bancorp, Inc. for the year ending December 31, 1999.

FOR VOTE WITHHELD ABSTAIN
--- ------------- -------

[ ] [ ] [ ]

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
EACH OF THE LISTED PROPOSALS.
<PAGE>

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS

This proxy is revocable and will be voted as directed, but if no instructions
are specified, this proxy will be voted "FOR" each of the proposals listed. If
any other business is presented at the Annual Meeting, including whether or not
to adjourn the meeting, this proxy will be voted by the proxies in their best
judgment. At the present time, the Board of Directors knows of no other
business to be presented at the Annual Meeting.

The above-signed acknowledges receipt from the Company prior to the execution
of this proxy of a Notice of Annual Meeting of Shareholders and of a Proxy
Statement dated August 23, 1999 and of the Annual Report to Shareholders.

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.

Dated:___________________________

________________________________
SHAREHOLDER SIGN ABOVE

________________________________
CO-HOLDER (IF ANY) SIGN ABOVE

_____________________________

PLEASE COMPLETE, DATE, SIGN AND PROMPTLY MAIL THIS PROXY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE.