January 2, 2004
Dear Fellow Stockholders:
On behalf of the Board of Directors and management of Sound Federal
Bancorp, Inc., (the "Company") we cordially invite you to attend a Special
Meeting of Stockholders. The meeting will be at the Company's corporate offices
at 1311 Mamaroneck Avenue, White Plains, New York 10605 at 3:00 p.m., (local
time) on February 4, 2004.
We encourage you to attend the meeting in person. Whether or not you plan
to attend, however, please read the enclosed proxy statement and then complete,
sign and date the enclosed proxy card and return it in the accompanying
postage-paid return envelope as promptly as possible. This will save us
additional expense in soliciting proxies and will ensure that your shares are
represented at the special meeting.
The enclosed Notice of Special Meeting and Proxy Statement describe the
formal business to be transacted at the special meeting. The special meeting is
being held so that stockholders may vote for the adoption of the Sound Federal
Bancorp, Inc. 2004 Incentive Stock Benefit Plan.
Your Board of Directors has determined that the matter to be considered at
the special meeting is in the best interests of Sound Federal Bancorp, Inc. and
its stockholders. For the reasons set forth in the proxy statement, the Board of
Directors unanimously recommends a vote "For" the approval of the Sound Federal
Bancorp, Inc. 2004 Incentive Stock Benefit Plan.
Sincerely,
/s/ Richard p. McStravick
- ---------------------------
Richard P. McStravick
President and Chief Executive Officer
Sound Federal Bancorp, Inc.
1311 Mamaroneck Avenue
Suite 190
White Plains, New York 10605
(914) 761-3636
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On February 4, 2004
Notice is hereby given that the Special Meeting of Sound Federal Bancorp,
Inc. (the "Company") will be held at the Company's corporate offices at 1311
Mamaroneck Avenue, White Plains, New York 10605, on February 4, 2004 at 3:00
p.m., local time.
A Proxy Card and a Proxy Statement for the Special Meeting are enclosed.
The Special Meeting is for the purpose of considering and acting upon:
1. Approval of the Sound Federal Bancorp, Inc. 2004 Incentive Stock
Benefit Plan; and
2. Such other matters as may properly come before the Special Meeting, or
any adjournments thereof.
The Board of Directors is not aware of any other business to come before
the Special Meeting.
Any action may be taken on the foregoing proposals at the Special Meeting
on the date specified above, or on any date or dates to which the Special
Meeting may be adjourned. Stockholders of record at the close of business on
December 17, 2003 are the stockholders entitled to vote at the Special Meeting,
and any adjournments thereof.
A list of stockholders entitled to vote at the Special Meeting will be
available at the Company's corporate office located at 1311 Mamaroneck Avenue,
White Plains, New York 10605 for the 10 days immediately prior to the Special
Meeting. It also will be available for inspection at the meeting itself.
Each stockholder, whether he or she plans to attend the Special Meeting, is
requested to sign, date and return the enclosed proxy card without delay in the
enclosed postage-paid envelope. Any proxy given by the stockholder may be
revoked at any time before it is exercised. A proxy may be revoked by filing
with the Secretary of the Company a written revocation or a duly executed proxy
bearing a later date. Any stockholder present at the Special Meeting may revoke
his or her proxy and vote personally on each matter brought before the Special
Meeting. However, if you are a stockholder whose shares are not registered in
your own name, you will need additional documentation from your record holder in
order to vote personally at the special meeting.
By Order of the Board of Directors
/s/ Anthony J. Fabiano
---------------------------
Anthony J. Fabiano
Corporate Secretary
White Plains, New York
January 2, 2004
IMPORTANT: A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO
POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
PROXY STATEMENT
Sound Federal Bancorp, Inc.
1311 Mamaroneck Avenue
Suite 190
White Plains, New York 10605
(914) 761-3636
SPECIAL MEETING OF STOCKHOLDERS
February 4, 2004
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Sound Federal Bancorp, Inc. (the
"Company") to be used at the Special Meeting of Stockholders of the Company (the
"Special Meeting"), which will be held at the Company's corporate offices at
1311 Mamaroneck Avenue, White Plains, New York 10605, on February 4, 2004 at
3:00 p.m., local time, and any adjournment thereof. The accompanying Notice of
Special Meeting of Stockholders and this Proxy Statement are first being mailed
to stockholders on or about January 2, 2004.
REVOCATION OF PROXIES
Stockholders who execute proxies in the form solicited hereby retain the
right to revoke them in the manner described below. Unless so revoked, the
shares represented by such proxies will be voted at the Special Meeting and all
adjournments thereof. Proxies solicited on behalf of the Board of Directors of
the Company will be voted in accordance with the directions given thereon. Where
no instructions are indicated, proxies will be voted "FOR" the proposal set
forth in this Proxy Statement for consideration at the Special Meeting.
In accordance with the bylaws of the Company, the business of the Special
Meeting is limited to the proposal described in this proxy statement. In the
event there are not sufficient votes for a quorum, or to approve the proposal
being presented, at the time of the Special Meeting, the Special Meeting may be
adjourned in order to permit the further solicitation of proxies.
Proxies may be revoked by sending written notice of such revocation to the
Secretary of the Company, at the address of the Company shown above, executing a
later-dated proxy or by attending the Special Meeting and voting in person. The
presence at the Special Meeting of any stockholder who had given a proxy shall
not revoke such proxy unless the stockholder delivers his or her ballot in
person at the Special Meeting or delivers a written revocation to the Secretary
of the Company prior to the voting of such proxy.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Holders of record of the Company's common stock, par value $.01 per share
(the "Common Stock"), as of the close of business on December 17, 2003 (the
"Record Date") are entitled to one vote for each share then held. As of the
Record Date, the Company had 12,818,133 shares of Common Stock issued and
outstanding. The presence in person or by proxy of a majority of the outstanding
shares of Common Stock entitled to vote is necessary to constitute a quorum at
the Special Meeting. As to the approval of the Sound Federal Bancorp, Inc. 2004
Incentive Stock Benefit Plan, stockholders may vote (i) "FOR" approval, (ii)
"AGAINST" approval, or (iii) "ABSTAIN" from voting on the proposal. The approval
of the Sound Federal Bancorp, Inc. 2004 Incentive Stock Benefit Plan must be
approved by a majority of the shares voted at the Special Meeting without regard
to broker non-votes or proxies marked "ABSTAIN."
In accordance with the provisions of the Certificate of Incorporation of
the Company, record 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 with respect to the shares held in excess of the Limit. 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 supply information to the Company to enable the Board of Directors to
implement and apply the Limit.
Persons and groups who beneficially own in excess of five percent of the
Common Stock are required to file certain reports with the Securities and
Exchange Commission ("SEC") regarding such ownership pursuant to the Securities
Exchange Act of 1934 (the "Exchange Act").
The following table sets forth, as of the Record Date, the shares of Common
Stock beneficially owned by named executive officers and directors individually,
by executive officers and directors as a group and by each person who was the
beneficial owner of more than five percent of the Company's outstanding shares
of Common Stock on the Record Date.
Amount of Shares Percent of Shares
Name and Address of Owned and Nature of Common Stock
Beneficial Owner of Beneficial Ownership(4) Outstanding (2)(3)
Significant Shareholders:
Sound Federal Savings Employee Stock
Ownership Plan and Trust
1311 Mamaroneck Avenue
White Plains, New York 10605 1,125,421 8.4%
Named Directors and Executive Officers:(1)
Bruno J. Gioffre 225,361 1.8
Richard P. McStravick 267,887 2.1
Roberta I. Bernhardt 500 --
Joseph Dinolfo 117,781 0.9
Donald H. Heithaus 131,404 1.0
Joseph A. Lanza 98,455 0.8
Eldorus Maynard 45,434 0.4
James Staudt 75,101 0.6
Samuel T. Telerico 530 --
Anthony J. Fabiano 149,498 1.2
------- -----
All executive officers and directors
as a group (9 persons) 1,111,921 8.3%
========= =====
- -----------------------------
(1) The Company's executive officers and directors are also executive officers
and directors of Sound Federal Savings (the "Bank").
(2) Includes 14,575 shares awarded to each outside director other than Ms.
Bernhardt, Mr. Telerico and Mr. Maynard, 58,100 shares and 38,733 shares
awarded to Messrs. McStravick and Fabiano, respectively, pursuant to the
Company's Recognition and Retention Plan. Also includes 51,185 shares,
119,270 shares, and 98,670 shares for Messrs. Gioffre, McStravick and
Fabiano, respectively, and 38,735 shares each for Messrs. Heithaus,
Dinolfo, Lanza and Staudt subject to options pursuant to the Company's
Stock Option Plan.
(3) Calculated as a percentage of common shares outstanding plus stock options
that are exercisable within 60 days.
(4) Unless otherwise indicated, each person effectively exercises sole (or
shared with spouse) voting and dispositive power as to the shares reported.
2
STOCK PERFORMANCE GRAPH
Set forth below is a stock performance graph comparing the yearly total
return on the Company's Common Stock with (a) the monthly cumulative total
return on stocks included in the Nasdaq Composite Index, and (b) the monthly
cumulative total return on stocks for federal savings institutions included in
the Company's Standard Industry Code ("SIC") Index. The Company first issued its
Common Stock on October 8, 1998. Accordingly, the information presented below is
for the period beginning with the closing price of the Company's Common Stock on
October 8, 1998, its first trading day and ending on March 31, 2003. Cumulative
return assumes the reinvestment of dividends, and is expressed in dollars on an
assumed initial investment of $100.
There can be no assurance that the Company's stock performance will
continue in the future with the same or similar trend depicted in the graph. The
Company will not make or endorse any predictions as to future stock performance.
[OBJECT OMITTED]
Period Ending
------------------------------------------------------------------------
Index 10/08/98 03/31/99 03/31/00 03/31/01 03/31/02 03/31/03
-----
----------- ------------ ----------- ----------- ----------- -----------
Sound Federal Bancorp, Inc. 100.00 107.35 110.23 139.26 227.67 532.42
SIC Code 6035 - Federal Savings
Institutions 100.00 107.56 87.49 137.65 163.70 174.38
Nasdaq Market Index 100.00 145.24 267.45 110.08 111.45 81.74
3
EXECUTIVE COMPENSATION
The following table sets forth information as to annual and other
compensation for services in all capacities for executive officers who earned
more than $100,000 in salary and bonuses during the fiscal year ended March 31,
2003.
==================================================================================================================================
Summary Compensation Table
==================================================================================================================================
Annual Compensation Long-Term
Compensation Awards
- ------------------------------------------------------------------------------- ---------------------------------- ---------------
- -------------------------- ----------- ------------- --------- ---------------- ------------- ---------- ---------
Name and Fiscal Salary Bonus Other Restricted Options/ LTIP All Other
Annual
Compensation Stock SARs Compensation
Principal Position Year ($) ($) ($) (1) Award(s) ($) (#) Payouts ($) (2)
- -------------------------- ----------- ------------- --------- ---------------- ------------- ---------- --------- ---------------
Richard P. McStravick 2003 185,171 10,700 27,200 -- -- -- 3,942
President and Chief 2002 171,875 12,000 18,500 -- -- -- 3,800
Executive Officer 2001 155,690 9,000 18,675 -- -- -- 3,718
- -------------------------- ----------- ------------- --------- ---------------- ------------- ---------- --------- ---------------
Anthony J. Fabiano 2003 148,250 12,000 -- -- -- -- --
Senior Vice President, 2002 124,500 9,000 -- -- -- -- --
Chief Financial Officer 2001 106,167 7,800 -- -- -- -- --
and Corporate Secretary
========================== =========== ============= ========= ================ ============= ========== ========= ===============
(1) Represents director's fees for service on the Company's and Bank's Board of
Directors. (2) Consists of the use of the Bank's automobile.
Compensation Committee Interlocks and Insider Participation
The Company does not independently compensate its executive officers or
employees. The Executive Committee of Sound Federal Savings (the "Bank") has the
primary responsibility for determining compensation of the officers, directors
and employees of the Bank. The Executive Committee consists of Directors
Gioffre, Heithaus, Dinolfo, Staudt and McStravick. The Executive Committee
reviews the benefits provided to the Bank's officers and employees. During the
year ended March 31, 2003 the Executive Committee met three times.
Report of the Compensation Committee
Under rules established by the SEC, the Company is required to provide
certain data and information regarding the compensation and benefits provided to
the Company's Chief Executive Officer and other executive officers of the
Company. The disclosure requirements for the Chief Executive Officer and other
executive officers include the use of tables and a report explaining the
rationale and considerations that led to fundamental executive compensation
decisions affecting those individuals. In fulfilling this requirement, the
Executive Committee of the Bank, at the direction of the Board of Directors, has
prepared the following report for inclusion in this proxy statement.
The Board has delegated to the Executive Committee the responsibility of
assuring that the compensation of the Chief Executive Officer and other
executive officers is consistent with the compensation strategy, competitive
practices, performance of the Bank and the requirements of appropriate
regulatory agencies. Only non-employee directors who serve on the Executive
Committee participate in executive compensation decision making. Any cash
compensation paid to executive officers is paid by the Bank. The Company does
not currently pay any cash compensation to executive officers.
Compensation of senior management is reviewed annually on a calendar-year
basis. In general, the purpose of the annual compensation review is to ensure
that the Bank's base salary levels are competitive with financial institutions
similar in size, geographic market and business profile in order for the Bank to
attract and retain persons of high quality. In this regard, the Executive
Compensation Committee used various informational sources, including the
"Savings and Community Bankers Annual Salary Survey." In addition, the Executive
4
Compensation Committee considers the overall profitability of the Bank and the
executive officer's contribution to the Bank when making its decision.
The Board of Directors approved a base salary for the Bank's Chief
Executive Officer of $205,000 for fiscal year 2003, which represented a 15%
increase from the Chief Executive Officer's base salary of $177,650 in fiscal
year 2002. The 2003 base salary was based upon the Chief Executive Officer's
performance, industry standards, and the successful completion of the
second-step conversion.
The primary goal of the Bank and its Executive Committee is to provide an
adequate level of compensation and benefits in order to attract and retain key
executives. The performance of each officer is reviewed annually to determine
his or her contribution to the overall success of the institution.
This report has been provided by the non-employee members of the Executive
Committee consisting of Directors Gioffre, Heithaus, Dinolfo and Staudt
Compensation of Directors
Directors of the Company receive an annual retainer of $500, except for the
Chairman of the Board who receives $1,000. Directors of the Bank receive $2,000
for each meeting attended, except for the Chairman of the Board who receives
$4,000. In addition, the Chairman of the Board receives a $10,000 annual
retainer for his services as Chairman.
Benefits
Directors Deferred Fee Plan. The Directors Deferred Fee Plan ("Directors
Plan") is a non-qualified deferred compensation plan into which directors can
defer up to 100% of their board fees earned during the calendar year. All
amounts deferred by a director are fully vested at all times. Upon cessation of
a director's service with the Bank, the Bank will pay the director the amounts
credited to the director's deferred fee account. The amounts will be paid in
substantially equal annual installments, as selected by the director. The date
of the first installment payment also will be selected by the director. The
Directors Plan permits each director to determine whether to invest all or a
portion of such director's account in Common Stock of the Company.
If the director dies before all payments have been made, the remaining
payments will be made to the beneficiary designated by the director in the same
form that payments were made to the director. If a director dies before
receiving any payments, the Bank shall pay the director's account to the
director's beneficiary, commencing within 30 days of the director's death, over
the period initially elected by the director. At the request of the beneficiary,
and with the approval of the Board, the director's benefits may be paid to the
beneficiary in a lump sum. The director may request a hardship distribution of
all or part of his or her benefits if the director suffers an unforeseeable
emergency, defined as a severe financial hardship to the director resulting from
a sudden and unexpected illness or accident of the director or his or her
dependent, loss of the director's property due to casualty, or other similar
extraordinary and unforeseeable circumstances arising as a result of events
beyond the director's control.
Executive Agreements. The Bank has employment agreements with Messrs.
McStravick and Fabiano. The agreements with Messrs. McStravick and Fabiano have
a term of three years and may be extended for an additional 12 months on each
anniversary date so that the remaining term shall be 36 months. If the agreement
is not renewed, the agreement will expire 36 months following the anniversary
date. Under the agreements, the base salaries for Messrs. McStravick and Fabiano
are $205,000 and $165,000, respectively. In addition to the base salary, each
agreement provides for, among other things, participation in retirement plans,
stock option plans and other employee and fringe benefits applicable to other
employees. The agreements provide for termination by the Bank for cause at any
time, in which event, the executive would have no right to receive compensation
or other benefits for any period after termination. In the event the Bank
terminates the executive's employment for reasons other than disability or for
cause, or in the event of the executive's termination of employment for good
reason upon (i) failure by the Bank to comply with any material provision of the
agreement, which failure has not been cured within 10 days after a notice of
noncompliance is issued by the executive, (ii) following a change in control (as
defined) at any time during the term of the agreement, or (iii) any purported
5
<page>
termination of the executive's employment which is not pursuant to a valid
notice of termination, the executive would be entitled to severance pay in an
amount equal to three times the average annual compensation (computed on the
basis of the most recent five taxable years) includable in gross income for
federal income tax purposes. Messrs. McStravick and Fabiano would receive an
aggregate of approximately $671,000 and $470,000, respectively, pursuant to
their employment agreements upon a change in control of the Bank, based upon
current levels of compensation. The Bank would also continue, at the Bank's
expense, the executive's life, health, dental and other applicable benefit plan
coverage until the executive attains the age of 70 years, provided, however,
that the Bank's obligation terminates if the executive receives equivalent
medical or dental coverage from a new employer. The executive is entitled to
participate in the Bank's medical, dental and life insurance coverage and
reimbursement plans to the extent that such plans exist, until the executive's
death. Under each agreement, if the executive becomes disabled or incapacitated
to the extent that the executive is unable to perform his duties, he will be
entitled to 100% of his compensation for the first six months, and 60%
thereafter for the remaining term of the agreement. Any disability payment is
reduced to the extent benefits are received under disability insurance, workers'
compensation or other similar program.
In July 2001, the Company entered into employment agreements with Messrs.
McStravick and Fabiano. The Company's employment agreements with each executive
contain substantially similar provisions to the Bank employment agreements,
except that the Company employment agreements provide each executive
indemnification against any excise taxes which may be owed by the executive for
any payments made in connection with a change in control which would constitute
"excess parachute payments" under Section 280G of the Code. The indemnification
payment would be the amount necessary to ensure that the executive receives
payments and benefits equal in amount and value equal to what the executive
would receive in the absence of such excise tax, including any taxes on the
Company's payment to the executive attributable to such taxes. The agreements
with the Company do not provide for any additional compensation to either
executive.
Severance Plan for Key Employees. The Bank maintains the Severance Plan for
Key Employees, which is designed to offer a degree of economic security to
employees in the position of assistant vice-president and above in the event
their services are terminated as a result of a change in control. In the event
of (i) the involuntary termination of a key employee following a change in
control other than for cause, or (ii) the voluntary termination of a key
employee's employment within one year after a change in control, following any
demotion, loss of title, office or significant authority, reduction in annual
compensation or benefits or relocation of the key employee's principal place of
employment by more than 30 miles, the key employee shall be entitled to a
severance pay in an amount equal to one month of base salary multiplied by the
key employee's years of employment, up to 24 months, provided that the minimum
severance payment will be six months of base salary for an assistant
vice-president and 12 months for a vice-president. In addition, the key employee
will be entitled to continued life, medical and dental coverage for the same
period as the number of months used for the calculation of severance benefits.
Severance benefits will be paid in a lump sum within 30 days of the key
employee's termination of employment. Benefits payable under the Severance Plan
for Key Employees will be reduced, if necessary, to avoid an "excess parachute
payment" under Section 280G of the Internal Revenue Code.
Director Emeritus Plan. The Director Emeritus Plan is a non-qualified
retirement plan. Under the Director Emeritus Plan, any director who attains the
age of 70 after the completion of 15 years of service as a director qualifies
for director emeritus status. A director who has completed five years of service
as a director qualifies for director emeritus if termination of service is due
to the merger, consolidation, takeover or dissolution of the Bank. Under the
Director Emeritus Plan, a director emeritus is entitled to the same compensation
that the Director received when he or she retired as a director, without the
obligation of attendance at meetings of the Board of Directors. Compensation is
paid to the director emeritus from the date of attainment of such status until
age 85, or for 15 years or death whichever comes first.
Defined Benefit Pension Plan. The Bank maintains two defined benefit
pension plans, one of which was assumed at the time the Company completed the
acquisition of Peekskill Financial Corporation ("Retirement Plans"). Employees
age 21 or older who have worked at the Bank for a period of one year and have
been credited with 1,000 or more hours of service with the Bank during the year
are eligible to accrue benefits under the Retirement Plans. The Bank contributes
each year, if necessary, an amount to the Retirement Plans to satisfy the
actuarially determined minimum funding requirements in accordance with the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). For the
year ended March 31, 2003, the Bank made contributions to the Retirement Plans
6
<page>
of approximately $3.1 million. At December 31, 2002, the total market value of
the assets in the Retirement Plans trust funds was approximately $7.1 million.
In the event of retirement on or after the normal retirement date (i.e.,
the first day of the calendar month coincident with or next following the later
of age 65 or the fifth anniversary of participation in the Retirement Plans, or,
for a participant prior to January 1, 1992, age 65), the plan is designed to
provide a single life annuity. For a married participant, the normal form of
benefit is an actuarially reduced joint and survivor annuity where, upon the
participant's death, the participant's spouse is entitled to receive a benefit
equal to 50% of that paid during the participant's lifetime. Alternatively, a
participant may elect (with proper spousal consent, if necessary) from various
other options, including a joint and 100% survivor annuity, joint and 66-2/3%
survivor annuity, joint and 50% survivor annuity, years certain option and
social security option. The normal retirement benefit provided is an amount
equal to the difference between 4% of final earnings (as defined in the plan)
and 0.65% of the final average compensation (average earnings during the last
three calendar years of service) up to the Social Security taxable wage base,
multiplied by the participant's years of credited service (up to a maximum of 15
years). Retirement benefits are also payable upon retirement due to early and
late retirement or death. A reduced benefit is payable upon early retirement at
age 55 and the completion of 5 years of vested service with the Bank. Fifty
percent of the normal retirement benefit will be paid to a surviving spouse if
the participant dies while in active service and has attained age 50 with 10
years of vested service. The preretirement death benefit is reduced by 1.96% for
each year the spouse is more than 10 years younger than the participant. If the
participant has not attained age 50 with 10 years of service, but has completed
5 years of service, the spouse will be eligible for a reduced benefit payable as
a joint and 50% annuity. Upon termination of employment other than as specified
above, a participant who has five years of vested service is eligible to receive
his or her accrued benefit commencing, generally, on the employee's normal
retirement date, or, if elected, on or after reaching age 55.
The following table indicates the annual retirement benefit that would be
payable under the Retirement Plans upon retirement at age 65 in calendar year
2003, expressed in the form of a single life annuity for the final average
salary and benefit service classifications specified below.
Final Average Years of Service and Benefit Payable at Retirement
--------------------------------------------------
Compensation 15 20 25 30
------------ ----------- ----------- ----------- ----------
$ 50,000 $ 26,154 $ 26,154 $ 26,154 $ 26,154
$ 75,000 $ 41,154 $ 41,154 $ 41,154 $ 41,154
$ 100,000 $ 56,154 $ 56,154 $ 56,154 $ 56,154
$125,000 $ 71,154 $ 71,154 $ 71,154 $ 71,154
$150,000 $ 86,154 $ 86,154 $ 86,154 $ 86,154
$ 175,000 $ 98,154 $ 98,154 $ 98,154 $ 98,154
$ 200,000 $ 116,154 $ 116,154 $ 116,154 $ 116,154
As of March 31, 2003, Mr. McStravick and Mr. Fabiano had 25 years and 4
years, respectively, of credited service (i.e., benefit service) under the
Retirement Plans.
Stock Option Plan. During the year ended March 31, 2000, the Company
adopted, and the Company's stockholders approved, the 1999 Stock Option Plan
(the "Stock Option Plan"). Pursuant to the Stock Option Plan, options to
purchase 261,453 shares were granted to non-employee directors (including two
directors emeriti) at an exercise price of $3.298 per share, the fair market
value of the underlying shares on the date of the award. The term of the options
is ten years from the date of grant, and the shares subject to awards will be
adjusted in the event of any merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, combination or exchange of shares
or other change in the corporate structure of the Company. The awards included
an equal number of reload options ("Reload Options"), limited stock appreciation
rights ("Limited Rights") and dividend equivalent rights ("Dividend Equivalent
Rights"). A Limited Right gives the option holder the right, upon a change in
control of the Company or the Bank, to receive the excess of the market value of
the shares represented by the Limited Rights on the date exercised over the
exercise price. The Limited Rights are subject to the same terms and conditions
as the stock options. Payment upon exercise of Limited Rights will be in cash,
or in the event of a merger transaction, for shares of the acquiring corporation
or its parent, as applicable. The Dividend Equivalent Rights entitle the option
holder to receive an amount of cash at the time that certain extraordinary
7
<page>
dividends are declared equal to the amount of the extraordinary dividend
multiplied by the number of options that the person holds. For these purposes,
an extraordinary dividend is defined as any dividend where the rate of dividend
exceeds the Bank's weighted average cost of funds on interest-bearing
liabilities for the current and preceding three quarters. The Reload Options
entitle the option holder, who has delivered shares that he or she owns as
payment of the exercise price for option stock, to a new option to acquire
additional shares equal to the number of shares he or she has traded in. Reload
Options may also be granted to replace option shares retained by the employer
for payment of the option holder's withholding tax. The option price at which
additional shares of stock can be purchased by the option holder through the
exercise of a Reload Option is equal to the market value of the previously owned
stock at the time it was surrendered. The option period during which the Reload
Option may be exercised expires at the same time as that of the original option
that the holder has exercised.
Set forth below is certain information concerning options outstanding to
the Named Executive Officers at March 31, 2003. No options were granted to
Messrs. McStravick and Fabiano during fiscal year 2003. No options were
exercised by Messrs. McStravick and Fabiano during fiscal year 2003.
====================================================================================================================
FISCAL YEAR-END OPTION VALUES
====================================================================================================================
============================ ================ ================= ========================= ==========================
Name Shares Acquired Value
Number of Unexercised Value of Unexercised
Options at In-The-Money Options at
Upon Exercise Realized Year-End Year-End (1)
------------------------- --------------------------
------------------------- --------------------------
Exercisable/Unexercisable Exercisable/Unexercisable
(#) ($)
- ---------------------------- ---------------- ----------------- ------------------------- --------------------------
- ---------------------------- ---------------- ----------------- ------------------------- --------------------------
Richard P. McStravick -- $-- 101,816/25,454 $937,928/$234,482
- ---------------------------- ---------------- ----------------- ------------------------- --------------------------
Anthony J. Fabiano -- $-- 88,536/22,134 $815,593/$203,898
============================ ================ ================= ========================= ==========================
- ------------------------------------
(1) Based on a market value of $12.51 per share at March 31, 2003 and an
exercise price of $3.298.
Recognition and Retention Plan. During the fiscal year ended March 31, 2000
the Company adopted, and the Company's stockholders approved, the 1999
Recognition and Retention Plan (the "Recognition Plan"). Pursuant to the
Recognition Plan, 14,575 shares of stock were awarded to each non-employee
director, except for Messrs. Maynard, Telerico and Ms. Bernhardt who did not
receive awards, and 58,100 and 38,733 shares were awarded to Mr. McStravick and
Mr. Fabiano, respectively.
The Company does not have any equity compensation program that was not
approved by stockholders other than its employee stock ownership plan.
Set forth below is certain information as of March 31, 2003 regarding
equity compensation to directors, directors emeriti, executive officers and
employees of the Company approved by stockholders.
===================================================================================================================
Plan Category Number of securities to be Weighted average Number of securities
------------- issued upon exercise of exercise price remaining available for
outstanding options and rights issuance under plans
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Equity compensation plans approved by
stockholders(1) 822,019 $3.298 --
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Total 822,019 $3.298 --
===================================================================================================================
- -------------
(1) Includes 40,424 shares awarded under the Recognition Plan that were not
vested at March 31, 2003. Shares awarded under the Recognition Plan are
owned by the recipient upon expiration of the vesting period and,
therefore, are not included in the weighted average exercise price.
8
<page>
TRANSACTIONS WITH CERTAIN RELATED PERSONS
Transactions With Certain Related Persons
The Bank offers loans to directors, officers, and employees in the ordinary
course of business on substantially the same terms (other than interest rate),
including collateral, as those prevailing at the time for comparable
transactions with other persons, and which do not involve more than the normal
risk of collectibility or present other unfavorable features. All such loans
were performing in accordance with their terms as of the date of this proxy
statement. Federal regulations permit executive officers and directors to
participate in loan programs that are available to other employees, so long as
the director or executive officer is not given preferential treatment compared
to other participating employees. The interest rate on loans to directors and
officers is the same as that offered to the Bank's other employees.
Section 402 of the Sarbanes-Oxley Act of 2002 generally prohibits a company
from extending credit, arranging for the extension of credit or renewing an
extension of credit in the form of a personal loan to an officer or director of
the Company. There are several exceptions to this general prohibition, including
loans made by an FDIC insured depository institution that is subject to the
insider lending restrictions of the Federal Reserve Act. All loans to the
Company's directors and officers comply with the Federal Reserve Act and the
Federal Reserve Board's Regulation O and, therefore, are excepted from the
prohibitions of Section 402.
PROPOSAL - APPROVAL OF THE SOUND FEDERAL BANCORP, INC.
2004 INCENTIVE STOCK BENEFIT PLAN
The Board of Directors has adopted the 2004 Incentive Stock Benefit Plan
(the "2004 Stock Benefit Plan") to provide officers, employees and directors of
Sound Federal Bancorp, Inc. and its affiliates with additional incentives to
share in our growth and performance. The following is a summary of the material
features of the 2004 Stock Benefit Plan, which is qualified in its entirety by
reference to the provisions of the Plan attached hereto as Exhibit A.
General
The 2004 Stock Benefit Plan will remain in effect for a period of ten years
following adoption by stockholders. The 2004 Stock Benefit Plan authorizes the
issuance of up to 1,089,303 shares of Sound Federal Bancorp, Inc. common stock
pursuant to grants of stock options or stock awards. This represents 14% of the
shares sold in connection with the "second-step" conversion of Sound Federal
Bancorp, MHC from mutual to stock form. No more than 389,037 shares under the
2004 Stock Benefit Plan, representing 5% of the shares sold in the 2003
conversion, will be available to be granted as stock awards. At least 700,266
shares available for award under the 2004 Stock Benefit Plan, representing 9% of
the shares sold in the 2003 stock conversion, will be available to be granted as
stock options.
The 2004 Stock Benefit Plan will be administered by a committee (the
"Committee") appointed by the Board of Directors which will consist of either at
least two "Non-employee Directors" or the entire Board of Directors. The
Committee has the power within the limitations set forth in the 2004 Stock
Benefit Plan to make all decisions and determinations regarding the selection of
participants and the granting of awards; establishing the terms and conditions
relating to each award; adopting rules, regulations and guidelines for carrying
out the Plan's purposes; and interpreting and otherwise construing the 2004
Stock Benefit Plan; provided, however, that the Board has the power to take any
action the Committee can take and may reverse or override the Committee action.
The 2004 Stock Benefit Plan may be amended by the Board or the Committee,
without the approval of stockholders, but no such amendments may adversely
affect any outstanding awards under the 2004 Stock Benefit Plan without the
consent of the holders thereof.
9
<page>
Eligibility
Key employees and outside directors of Sound Federal Bancorp, Inc. and its
affiliates are eligible to receive awards under the 2004 Stock Benefit Plan. In
addition, as of the date of this proxy statement no awards have been made to the
chief executive officer, other executive officers, any of our directors who are
not executive officers or to any of our employees including officers who are not
executive officers, and such awards have not been determined.
Types of Awards
The Committee may determine the type and terms and conditions of awards
under the Plan. Awards may be granted in a combination of options, limited
rights, reload options, dividend equivalent rights and stock awards. Such awards
may have terms providing that the settlement or payment of one type of award
automatically reduces or cancels the remaining award. Awards may include, but
are not limited to, the following:
Stock Options. A stock option gives the recipient the right to purchase
shares of common stock at a specified price for a specified period of time. The
exercise price of each option may not be less than 100% of the fair market value
of Sound Federal Bancorp, Inc. common stock on the date of grant. Fair market
value for purposes of the 2004 Stock Benefit Plan means the reported closing
price of the common stock on the day the option is granted or, if the common
stock is not traded on such date, on the next preceding day on which the common
stock was traded. Once granted, stock options may not be re-priced (i.e., the
exercise price may not be changed to be less than the fair market value of the
underlying share on the date of grant, other than adjustments for stock splits,
stock dividends and similar events).
Stock options are either "incentive" stock options or "non-qualified" stock
options. Incentive stock options have certain tax advantages and must comply
with the requirements of Section 422 of the Internal Revenue Code. Only
employees are eligible to receive incentive stock options. A stock option may be
exercised in whole or in installments, which may be cumulative. Shares of common
stock purchased upon the exercise of a stock option must be paid for in full at
the time of exercise either in cash, the surrender of shares of common stock, or
via a "cashless exercise" (as defined in the 2004 Stock Benefit Plan). Stock
options are subject to vesting conditions as determined by the Committee.
Limited Rights. A limited right gives the option holder the right, upon a
change in control of Sound Federal Bancorp, Inc. or Sound Federal Savings, to
receive the excess of the market value of the shares represented by the limited
right on the date exercised over the exercise price. Limited rights generally
will be subject to the same terms and conditions and exercisable to the same
extent as stock options, as described above. Payment upon exercise of a limited
right will be in cash or, in the event of a merger transaction, in shares of the
acquiring corporation or its parent, as applicable.
Limited rights may be granted at the time of, and must be related to, the
grant of a stock option. The exercise of a limited right is in lieu of the
exercise of a stock option and vice versa. If a limited right is granted with
and related to an incentive stock option, the limited right must satisfy all the
restrictions and limitations to which the related incentive stock option is
subject.
Reload Options. Reload options entitle the option holder, who has delivered
shares of common stock as payment of the exercise price for option stock, to a
new option to acquire additional shares equal in amount to the shares the option
holder has traded. Reload options also may be granted at the time of the grant
of a stock option. Reload options also may be granted to replace option shares
retained by Sound Federal Bancorp, Inc. for payment of the option holder's
withholding tax. The option price at which additional shares of stock may be
purchased through the exercise of a reload option is equal to the market value
of the common stock that was surrendered to pay the exercise price of the option
at the time it was surrendered. The option period during which the reload option
may be exercised expires at the same time as that of the original option that
was exercised.
Dividend Equivalent Rights. Dividend equivalent rights entitle the option
holder to receive an amount of cash at the time that certain extraordinary
dividends are declared equal to the difference between the amount of the
extraordinary dividend per share of common stock and the average dividend per
share of common stock based on the current and preceding three quarters
(assuming dividends were paid in each quarter, and if not then based on the
10
<page>
average of the last four quarters in which dividends were paid), multiplied by
the number of options that the person holds. For these purposes, an
extraordinary dividend is defined under the 2004 Stock Benefit Plan as any
dividend paid on shares of common stock where the dividend rate exceeds 200% of
Sound Federal Savings' weighted average cost of funds on interest-bearing
liabilities for the current quarter and preceding three quarters and the
annualized aggregate dollar amount of the dividend exceeds Sound Federal
Savings' net income after taxes for the current quarter and preceding three
quarters.
Stock Awards. No more than 389,037 shares may be granted in the form of
stock awards under the 2004 Stock Benefit Plan. Stock awards may constitute
actual shares of Common Stock or may be denominated in stock units that entitle
the recipient to receive future payments in either shares, cash, or a
combination thereof. Stock awards will be subject to conditions established by
the Committee which are set forth in the award agreement, and may include
continuous service with Sound Federal Bancorp, Inc., achievement of specific
business objectives, and other measurements of performance. Any stock awards
will be evidenced by agreements approved by the Committee which set forth the
terms and conditions of each award.
Generally, all awards, except non-incentive stock options, granted under
the 2004 Stock Benefit Plan will be nontransferable except by will or in
accordance with the laws of descent and distribution or pursuant to a domestic
relations order. During the life of the recipient, incentive stock options may
be exercised only by him or her. However, a participant may designate a
beneficiary to exercise his/her rights under any stock option, reload option,
limited right or dividend equivalent right under the 2004 Stock Benefit Plan
upon the participant's death.
Termination of Employment
Upon termination of employment for any reason other than disability,
retirement, change in control, death or termination for cause, an employee's
unvested stock awards will be forfeited and the employee's stock options will be
exercisable only as to those shares immediately purchasable by or vested in the
employee at the date of termination, and such options may be exercised only for
three months following termination. Upon termination because of disability,
retirement, change in control or death, the employee's unvested stock awards and
stock options will become fully vested and the employee's stock options will be
exercisable as to all shares, whether or not then exercisable, for up to five
years following termination. In no event will the exercise period extend beyond
the expiration of the stock option term. Stock options will expire upon
termination for cause.
Termination of Service as a Director
Upon termination of a director's service for any reason other than
disability, retirement, change in control, death or termination for cause, the
director's unvested stock awards will be forfeited and the director's stock
options will be exercisable only as to those shares immediately purchasable by
or vested in the director at the date of termination, and such options may be
exercised for one year following termination. Upon termination of a director's
service because of disability, retirement, change in control or death, unvested
stock awards will become fully vested and the director's stock options will be
exercisable as to all shares, whether or not then exercisable, for up to five
years following termination. In no event will the exercise period extend beyond
the expiration of the stock option term. Stock options will expire upon
termination for cause.
Tax Consequences
The following are the federal tax consequences generally arising with
respect to awards granted under the 2004 Stock Benefit Plan. The grant of an
option or limited right will create no tax consequences for a recipient or Sound
Federal Bancorp, Inc. The recipient will have no taxable income upon exercising
an incentive stock option and Sound Federal Bancorp, Inc. will receive no
deduction when an incentive stock option is exercised. However, the difference
between the fair market value of the common stock and the exercise price on the
date of exercise is a tax preference item for purposes of the alternative
minimum tax. Upon exercising a non-qualified option, the recipient must
recognize ordinary income equal to the difference between the exercise price and
the fair market value of the stock on the date of exercise, and Sound Federal
Bancorp, Inc. will be entitled to a deduction for the same amount. The tax
11
<page>
treatment for a recipient on a disposition of shares acquired through the
exercise of an option depends on how long the shares have been held and whether
such shares were acquired by exercising an incentive stock option or a
non-qualified option. Generally, there will be no tax consequences to Sound
Federal Bancorp, Inc. in connection with the disposition of shares acquired
pursuant to an option, except that Sound Federal Bancorp, Inc. may be entitled
to a deduction if shares acquired pursuant to an incentive stock option are sold
before the required holding periods have been satisfied.
With respect to other awards granted under the 2004 Stock Benefit Plan that
are settled either in cash or in stock, the participant must recognize ordinary
income equal to the cash or the fair market value of shares or other property
received and Sound Federal Bancorp, Inc. will be entitled to a deduction for the
same amount. With respect to awards that are settled in stock, the participant
must recognize ordinary income equal to the fair market value of the shares
received at the time the shares became transferable or not subject to
substantial risk of forfeiture, whichever occurs earlier. Sound Federal Bancorp,
Inc. will be entitled to a deduction for the same amount.
No options have been granted or stock awards made under the 2004 Stock
Benefit Plan as of the date of this proxy statement. There are eight
non-management directors of Sound Federal Bancorp, Inc. and its subsidiaries, 36
employees and two directors emeriti eligible to participate in the 2004 Stock
Benefit Plan.
As of December 17, 2003, the last sale price of the common stock, as
reported on the Nasdaq National Market, was $15.11. The affirmative vote of the
holders of a majority of the votes cast at the Special Meeting is required to
approve the 2004 Stock Benefit Plan. The purpose of obtaining shareholder
approval of the 2004 Stock Benefit Plan is to qualify the plan for the granting
of incentive stock options, to obtain an exemption for awards under the
Securities Exchange Act short swing profit trading rules and to satisfy the
requirement for listing the common stock on the Nasdaq National Market.
Amendment to the 2004 Stock Benefit Plan
The Board of Directors or the Committee may at any time modify or amend the
Plan as it deems necessary or appropriate or modify or amend an award received
by employees and/or outside directors; however, no such amendment may adversely
affect any outstanding awards under the 2004 Stock Benefit Plan without the
consent of the holders of such awards.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE SOUND
FEDERAL BANCORP, INC. 2004 INCENTIVE STOCK BENEFIT PLAN.
STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's proxy materials for
next year's Annual Meeting of Stockholders, any stockholder proposal to take
action at such meeting must be received at the Company's executive office, 1311
Mamaroneck Avenue, White Plains, New York 10605, no later than March 17, 2004.
Any such proposals shall be subject to the requirements of the proxy rules
adopted under the Exchange Act.
ADVANCE NOTICE OF BUSINESS TO BE CONDUCTED AT AN ANNUAL MEETING
The Bylaws of the Company provide an advance notice procedure before
certain business or nominations to the Board of Directors may be brought before
an annual meeting. In order for a stockholder to properly bring business before
an annual meeting, or to propose a nominee to the Board, the stockholder must
give written notice to the Secretary of the Company not less than 90 days before
the date fixed for such meeting; provided, however, that in the event that less
than 100 days notice or prior public disclosure of the date of the meeting is
given or made, to be timely, notice by the stockholder must be received no later
than the close of business on the tenth day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made. The notice must include the stockholder's name, record address, and
number of shares owned by the stockholder, describe briefly the proposed
business, the reasons for bringing the business before the annual meeting, and
any material interest of the stockholder in the proposed business. In the case
of nominations to the Board, 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 and proxy relating to an annual meeting any
stockholder proposal which does not meet all of the requirements for inclusion
established by the SEC in effect at the time such proposal is received.
12
<page>
The date on which next year's annual meeting of stockholders is expected to
be held is August 12, 2004. Accordingly, advance written notice of business or
nominations to the Board of Directors to be brought before the next annual
meeting of stockholders must be given to the Company no later than April 10,
2004.
MISCELLANEOUS
The Board of Directors is not aware of any business to come before the
Meeting other than the matters described above in this proxy statement. However,
if any matters should properly come before the Meeting, it is intended that
holders of the proxies will act as directed by a majority of the Board of
Directors, except for matters related to the conduct of the Meeting, as to which
the Board of Directors shall act in accordance with their best judgment.
The cost of solicitation of proxies will be borne by the Company. The
Company has engaged Georgeson Shareholder Communications, Inc. to assist in the
solicitation of proxies in connection with the Meeting. Georgeson Shareholder
Communications, Inc. will receive a fee of $7,500. The Company will reimburse
brokerage firms and other custodians, nominees and fiduciaries for reasonable
expenses incurred by them in sending proxy materials to the beneficial owners of
Common Stock. In addition to solicitations by mail, directors, officers and
regular employees of the Bank may solicit proxies personally or by telegraph or
telephone without additional compensation.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Anthony J. Fabiano
--------------------------------
Anthony J. Fabiano
Corporate Secretary
White Plains, New York
January 2, 2004
13
EXHIBIT A
SOUND FEDERAL BANCORP, INC.
2004 INCENTIVE STOCK BENEFIT PLAN
1. PURPOSE. The purpose of the Sound Federal Bancorp, Inc. 2004 Incentive
Stock Benefit Plan (the "Plan") is to (i) provide employees, officers and
directors of Sound Federal Bancorp, Inc. (the "Company"), Sound Federal Savings
(the "Association") and any Affiliates of the Company (as defined below), with
additional incentives to improve the growth and performance of the Company, and
(ii) to attract and retain qualified and experienced personnel to the Company
and its Affiliates.
2. TERM. The Plan shall be effective as of the date of stockholder approval
(the "Effective Date"), and shall remain in effect for ten years thereafter,
unless sooner terminated by the Company's Board of Directors (the "Board").
After termination of the Plan, no additional awards may be granted, but
previously granted awards shall remain outstanding in accordance with their
applicable terms and conditions and the terms and conditions of the Plan.
3. PLAN ADMINISTRATION.
(a) Role of the Committee. The Plan shall be administered by the
Committee. The Committee shall consist of either (i) at least two
"Non-Employee Directors" of the Company, or (ii) the entire Board of
the Company. A "Non-Employee Director" means, for purposes of the
Plan, a director who: (a) is not employed by the Company or an
Affiliate; (b) does not receive compensation directly or indirectly
from the Company as a consultant (or in any capacity other than as a
director) greater than $60,000; (c) does not have an interest in a
transaction requiring disclosure under Item 404(a) of Regulation S-K;
or (d) is not engaged in a business relationship for which disclosure
would be required pursuant to Item 404(b) of Regulation S-K. The
interpretation and construction by the Committee of any provisions of
the Plan or of any Award granted hereunder shall be final and binding,
except as set forth herein below. The Committee shall act by vote or
written consent of a majority of its members. Subject to the express
provisions and limitations of the Plan, the Committee may adopt such
rules and procedures as it deems appropriate for the conduct of its
affairs. The Committee shall have the power to interpret and implement
the Plan and any rules, regulations, guidelines or agreements adopted
hereunder, and to adopt such rules, regulations and guidelines for
carrying out the Plan as it may deem necessary or proper. These powers
shall include, but not be limited to: (i) determination of the type or
types of awards to be granted under the Plan; (ii) determination of
the terms and conditions of any awards under the Plan; (iii)
determination of whether, to what extent and under what circumstances
awards may be settled, paid or exercised in cash, shares, other
securities, other awards, other property, or accelerated, canceled,
extended, forfeited or suspended; (iv) adoption of modifications,
amendments, procedures, and subplans as may be necessary; (v) subject
to the rights of participants, modification, amendment or cancellation
of any award to correct an administrative error; and (vi) taking any
other action the Committee deems necessary or desirable for the
administration of the Plan. The Committee shall report its actions and
decisions with respect to the Plan to the Board at appropriate times,
but in no event less than one time per calendar year.
(b) Role of the Board. The members of the Committee shall be appointed or
approved by, and will serve at the pleasure of, the Board of Directors
of the Company. The Board may in its discretion from time to time
remove members from, or add members to, the Committee, subject to the
requirements set forth in subsection (a) above. The Board shall have
all of the powers allocated to it in the Plan, may take any action
under or with respect to the Plan that the Committee is authorized to
take, and may reverse or override any action taken or decision made by
the Committee under or with respect to the Plan; provided, however,
that the Board may not revoke any Award except in the event of
revocation for Cause or with respect to unearned Awards in the event
the Recipient of an Award voluntarily terminates employment with the
Company or its Affiliates prior to Normal Retirement.
(c) Plan Administration Restrictions. All grants, awards or other
acquisitions from the Company shall:
A-1
<page>
(i) be approved by the Company's full Board or by the Committee;
(ii) be approved, or ratified, in compliance with Section 14 of the
Exchange Act, by either: the affirmative vote of the holders of a
majority of the shares present, or represented and entitled to
vote at a meeting duly held in accordance with the laws under
which the Company is incorporated; or the written consent of the
holders of a majority of the securities of the issuer entitled to
vote, provided that such ratification occurs no later than the
date of the next annual meeting of stockholders; or
(iii)be held (unless forfeited) by the Recipient for a period of at
least six months prior to exercise, if the grant, award or
acquisition involves a Stock Option or Limited Right.
(d) Limitation of Liability. No member of the Board or the Committee shall
be liable for any determination made in good faith with respect to the
Plan or any Awards granted under it. If a member of the Board or the
Committee is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of
anything done or not done by him/her in such capacity under or with
respect to the Plan, the Company or its Affiliates shall indemnify
such member against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him/her in connection with such action, suit or
proceeding if he/she acted in good faith and in a manner he/she
reasonably believed to be in the best interests of the Company and its
Affiliates and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his/her conduct was unlawful.
4. ELIGIBILITY TO PARTICIPATE. Officers and employees of the Company and
its Affiliates shall be eligible to receive Incentive Stock Options,
Non-Statutory Stock Options, Stock Awards, Limited Rights, Reload Options and
/or Dividend Equivalent Rights under the Plan (collectively, "awards"). Outside
directors shall be eligible to receive Non-Statutory Stock Options, Reload
Options, Dividend Equivalent Rights and Stock Awards under the Plan. The term
"Company" includes any entity that is directly or indirectly controlled by the
Company or any entity in which the Company has a significant equity interest, as
determined by the Committee. The term "Affiliate" means any "parent corporation"
or "subsidiary corporation" of the Company within the meaning of Sections 424(e)
and (f) of the Internal Revenue Code ("Code"), respectively. An "outside
director" means a director of the Company or an Affiliate who is not an employee
of the Company or an Affiliate.
5. SHARES OF STOCK SUBJECT TO THE PLAN. 1,089,303 shares of common stock of
the Company ("Common Stock") in the aggregate are reserved for issuance under
the Plan, which shares shall be available for issuance (subject to adjustment as
provided in Section 6) pursuant to the exercise of Stock Options, granted under
Sections 7(a) and 7(c) of the Plan, or Stock Awards, under Section 7(d) of the
Plan. No more than 389,037 shares will be available to be granted as Stock
Awards and at least 700,266 shares will be available for issuance pursuant to
the grant of Stock Options. The maximum number of Stock Options that may be
granted to any one employee of the Company is 175,067.
Any shares that are issued by the Company, and any awards that are granted
by, or become obligations of, the Company, through the assumption by the Company
or an Affiliate thereof, or in substitution for, outstanding awards previously
granted by an acquired company, shall not be counted against the shares
available for issuance under the Plan. In addition, any shares that are used for
the full or partial payment of the exercise price of any option or in full or
partial payment of a tax-withholding obligation under the Plan will not be
counted as issued under the Plan and will be available for future grants under
the Plan.
Any shares issued under the Plan may consist, in whole or in part, of
authorized and unissued shares, treasury shares or shares purchased by the Plan.
No fractional shares shall be issued under the Plan. Cash may be paid in lieu of
any fractional shares in settlement of awards under the Plan.
A-2
<page>
6. ADJUSTMENTS.
If the number of outstanding shares of Common Stock is increased or
decreased or the shares of Common Stock are changed into or exchanged for a
different number or kind of shares or other securities of the Company on account
of any recapitalization, reclassification, stock split, reverse split,
combination of shares, exchange of shares, stock dividend or other distribution
payable in capital stock, or other increase or decrease in such shares effected
without receipt of consideration by the Company occurring after the Effective
Date, the number and kinds of shares for which grants of awards may be made
under the Plan shall be adjusted proportionately and accordingly by the Company.
In addition, the number and kind of shares for which grants are outstanding
shall be adjusted proportionately and accordingly so that the proportionate
interest of the grantee immediately following such event shall, to the extent
practicable, be the same as immediately before such event. Any such adjustment
in outstanding Stock Options shall not change the aggregate Stock Option
purchase price payable with respect to shares that are subject to the
unexercised portion of the Stock Option outstanding, but shall include a
corresponding proportionate adjustment in the Stock Option purchase price per
share.
Adjustments under this Section 6 relating to shares of Common Stock or
securities of the Company shall be made by the Committee, whose determination in
that respect shall be final, binding and conclusive. No fractional shares or
other securities shall be issued pursuant to any such adjustment, and any
fractions resulting from any such adjustment shall be eliminated in each case by
rounding downward to the nearest whole share. The granting of awards pursuant to
the Plan shall not affect or limit in any way the right or power of the Company
to make adjustments, reclassifications, reorganizations, or changes of its
capital or business structure or to merge, consolidate, dissolve, or liquidate,
or to sell or transfer all or any part of its business or assets.
7. AWARDS. The Committee shall determine the type or types of award(s) to
be made to each participant under the Plan and shall approve the terms and
conditions governing these awards in accordance with Section 11. Awards may be
granted singly, in combination or in tandem so that the settlement or payment of
one automatically reduces or cancels the other. The types of awards that may be
made under the Plan are set forth below.
(a) "Stock Option" - means a grant of a right to purchase a specified
number of shares of Common Stock under the Plan during a specified
period. A Stock Option may be in the form of an "Incentive Stock
Option", which means a Stock Option granted by the Committee that
complies with Section 422 of the Code, as amended, and the regulations
thereunder at the time of grant, or of a Non-Statutory Stock Option,
as defined in this paragraph. A "Non-Statutory Stock Option" means a
Stock Option granted by the Committee to (i) an outside director or
(ii) to any other participant, and such option is either (A) not
designated by the Committee as an Incentive Stock Option, or (B) fails
to satisfy the requirements of an Incentive Stock Option as set forth
in Section 422 of the Code and the regulations thereunder. The
exercise price of each Stock Option shall be the per share Fair Market
Value of Common Stock on the date the award is granted. However, if a
key employee owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or its Affiliates
(or under Section 424(d) of the Code, is deemed to own stock
representing more than 10% of the total combined voting power of all
classes of stock of the Company or its Affiliates by reason of the
ownership of such classes of stock, directly or indirectly, by or for
any brother, sister, spouse, ancestor or lineal descendent of such key
employee, or by or for any corporation, partnership, estate or trust
of which such key employee is a shareholder, partner or beneficiary),
the purchase price per share of Common Stock deliverable upon the
exercise of each Incentive Stock Option shall not be less than 110% of
the Fair Market Value of the Company's Common Stock on the date the
Incentive Stock Option is granted. A Stock Option may be exercised in
whole or in installments, which may be cumulative. The price at which
shares of Common Stock may be purchased under a Stock Option shall be
paid in full at the time of the exercise, in either cash or such other
methods as provided by the Committee at the time of grant or as
provided in the form of agreement approved in accordance herewith,
including tendering (either actually or by attestation) Common Stock
at Fair Market Value on the date of surrender, or any combination
thereof.
(b) "Limited Right" - means the right to receive an amount of cash based
upon the terms set forth in Section 12.
A-3
<page>
(c) "Reload Option" - means an additional Stock Option granted pursuant to
Section 13.
(d) "Dividend Equivalent Right" - means the right to receive an amount of
cash based upon the terms set forth in Section 14 hereof.
(e) "Stock Award" - means an award under the Plan, made in stock or
denominated in units of stock. All or part of any Stock Award may be
subject to conditions established by the Committee, and set forth in
the award agreement, which may include, but are not limited to,
continuous service with the Company, achievement of specific business
objectives, and other measurements of individual, business unit or
Company performance.
8. DEFERRALS AND SETTLEMENTS. Payment of awards may be in the form of
Common Stock or other awards, or in the case of Limited Rights, cash, or in
combinations thereof as the Committee determines at the time of grant, and with
such restrictions as it may impose. No Stock Option is to be considered
exercised until payment in full is accepted by the Committee. The means by which
a recipient of an award may make payment is set forth below.
(a) Cash Payment. The exercise price may be paid in cash or by certified
check. To the extent permitted by law, the Committee may permit all or
a portion of the exercise price of a Stock Option to be paid from
borrowed funds.
(b) Cashless Exercise. Subject to vesting requirements, if applicable, a
participant may engage in a "cashless exercise" of the Stock Option.
Upon a cashless exercise, the participant shall give the Company
written notice of the exercise of the Stock Option together with an
order to a registered broker-dealer or equivalent third party, to sell
part or all of the Common Stock subject to the Stock Option and to
deliver enough of the proceeds to the Company to pay the Stock Option
exercise price and any applicable withholding taxes. If the
participant does not sell the Common Stock subject to the Stock Option
through a registered broker-dealer or equivalent third party, the
participant may give the Company written notice of the exercise of the
Stock Option and the third-party purchaser of the Common Stock subject
to the Stock Option shall pay the Stock Option exercise price plus
applicable withholding taxes to the Company.
(c) Exchange of Common Stock. The Committee may permit payment of the
Stock Option exercise price by the tendering of previously acquired
shares of Common Stock. All shares of Common Stock tendered in payment
of the exercise price of a Stock Option shall be valued at the Fair
Market Value of the Common Stock. No tendered shares of Common Stock
which were acquired by the participant upon the prior exercise of a
Stock Option or as awards under this or any other stock award plan
sponsored by the Company shall be accepted for exchange unless the
participant has held such shares (without restrictions imposed by said
plan or award) for at least six months prior to the exchange.
9. FAIR MARKET VALUE. "Fair Market Value" for all purposes under the Plan
shall mean the reported closing price of Common Stock as reported by the Nasdaq
stock market on such date (as reported in The Wall Street Journal, if
published), or if the Common Stock was not traded on such date, on the next
preceding day on which Common Stock was traded thereon. If the Common Stock is
not reported on the Nasdaq stock market, Fair Market Value shall mean the
average sale price of all shares of Common Stock sold during the 30-day period
immediately preceding the date on which such stock option was granted, and if no
shares of stock have been sold within such 30-day period, the average sale price
of the last three sales of Common Stock sold during the 90-day period
immediately preceding the date on which such stock option was granted. In the
event Fair Market Value cannot be determined in the manner described above, then
Fair Market Value shall be determined by the Committee. The Committee is
authorized, but is not required, to obtain an independent appraisal to determine
the Fair Market Value of the Common Stock.
Under no circumstances shall Fair Market Value be less than the par value
of the Common Stock.
A-4
<page>
10. TRANSFERABILITY AND EXERCISABILITY. All awards under the Plan, other
than Non-Statutory Stock Options, will be nontransferable and shall not be
assignable, alienable, saleable or otherwise transferable by the participant
other than by will or the laws of descent and distribution, except pursuant to a
domestic relations order entered by a court of competent jurisdiction or as
otherwise determined by the Committee.
If so permitted by the Committee, a participant may designate a beneficiary
or beneficiaries to exercise his rights under any Stock Option, Reload Option,
Limited Right or Dividend Equivalent Right who would be entitled to and receive
any distributions under the Plan upon the participant's death. However, in the
case of participants who are subject to Section 16 of the Securities Exchange
Act 1934 (the "1934 Act"), any contrary requirements of Rule 16b-3 under the
1934 Act, or any successor rule, shall prevail over the provisions of this
Section.
Awards granted pursuant to the Plan may be exercisable pursuant to a
vesting schedule as determined by the Committee. The Committee may, in its sole
discretion, accelerate or extend the time during which any Stock Option may be
exercised, or any Stock Award may vest, in whole or in part, provided, however,
that with respect to an Incentive Stock Option, it must be consistent with the
terms of Section 422 of the Code in order to continue to qualify as an Incentive
Stock Option. Notwithstanding the above, in the event of Retirement (as defined
in Section 26 hereof), death or Disability (as defined in Section 26 hereof),
all awards shall immediately vest.
11. AWARD AGREEMENTS. Each award of Stock Options, Reload Options, Limited
Rights, Dividend Equivalent Rights and Stock Award under the Plan shall be
evidenced by an agreement that is approved by the Committee. The agreement must
set forth the terms, conditions and limitations to an award and the provisions
applicable in the event the participant's employment terminates, provided,
however, in no event shall the term of any Incentive Stock Option exceed a
period of ten years from the date of its grant. If any key employee, at the time
an Incentive Stock Option is granted to him/her, owns stock representing more
than 10% of the total combined voting power of all classes of stock of the
Company or its Affiliate (or, under Section 424(d) of the Code, is deemed to own
stock representing more than 10% of the total combined voting power of all
classes of stock, by reason of the ownership of such classes of stock, directly
or indirectly, by or for any brother, sister, spouse, ancestor or lineal
descendent of such key employee, or by or for any corporation, partnership,
estate or trust of which such key employee is a shareholder, partner or
beneficiary), the Incentive Stock Option granted to him/her shall not be
exercisable after the expiration of five years from the date of grant.
In addition, to the extent required by Section 422 of the Code, the
aggregate Fair Market Value (determined at the time the option is granted) of
the Common Stock for which Incentive Stock Options are exercisable for the first
time by a participant during any calendar year (under all plans of the Company
and its Affiliates) shall not exceed $100,000. In the event the amount
exercisable shall exceed $100,000, the first $100,000 of Incentive Stock Options
(determined as of the date of grant) shall be exercisable as Incentive Stock
Options and any excess shall be exercisable as Non-Statutory Stock Options.
12. LIMITED RIGHTS. The Committee may grant a Limited Right simultaneously
with the grant of any Stock Option, with respect to all or some of the shares
covered by such option. Limited Rights granted under the Plan are subject to the
following terms and conditions:
(a) Terms of Limited Rights. A Limited Right shall not be exercisable in
whole or in part before the expiration of six months from the date of
grant of the Limited Right. A Limited Right may be exercised only in
the event of a Change in Control of the Company or the Association.
The Limited Right may be exercised only when the underlying Stock
Option is eligible to be exercised; provided that the Fair Market
Value of the underlying shares on the day of exercise is greater than
the exercise price of the related Stock Option.
Upon exercise of a Limited Right, the related Stock Option shall cease
to be exercisable. Upon exercise or termination of a Stock Option, any
related Limited Rights shall terminate. The Limited Right may be for
no more than 100% of the difference between the exercise price and the
Fair Market Value of the Common Stock subject to the underlying Stock
Option. The Limited Right is transferable only when the underlying
Stock Option is transferable and under the same conditions.
A-5
<page>
(b) Payment. Upon exercise of a Limited Right, the holder shall promptly
receive from the Company an amount of cash equal to the positive
difference between the Fair Market Value on the date of grant of the
related Stock Option and the Fair Market Value of the underlying
shares on the date the Limited Right is exercised, multiplied by the
number of shares with respect to which such Limited Right is being
exercised. In the event of a merger transaction where the
consideration being paid by the acquiror is in the form of the
acquiror's common stock, the Limited Right shall be exercisable solely
for shares of the acquiring corporation or its parent, as applicable.
The number of shares to be received on the exercise of such Limited
Right shall be determined by dividing the amount of cash that would
have been available under the first sentence above by the Fair Market
Value at the time of exercise of the shares underlying the option
subject to the Limited Right.
13. RELOAD OPTION. Simultaneously with the grant of any Stock Option to a
participant, the Committee may grant a Reload Option with respect to all or some
of the shares covered by such Stock Option. A Reload Option may be granted to a
participant who satisfies all or part of the exercise price of the Stock Option
with shares of Common Stock. The Reload Option represents an additional Stock
Option to acquire the same number of shares of Common Stock used by the
participant to pay for the original Stock Option. Reload Options may also be
granted to replace Common Stock withheld by the Company for payment of a
participant's withholding tax under Section 16. A Reload Option is subject to
all of the same terms and conditions as the original Stock Option, including the
remaining option exercise term, except that (i) the exercise price of the shares
of Common Stock subject to the Reload Option will be determined at the time the
original Stock Option is exercised, and (ii) such Reload Option will conform to
all provisions of the Plan at the time the original option is exercised.
14. DIVIDEND EQUIVALENT RIGHTS. Simultaneously with the grant of any Stock
Option to a participant, the Committee may grant a Dividend Equivalent Right
with respect to all or some of the shares covered by such Stock Option. Dividend
Equivalent Rights granted under this Plan are subject to the following terms and
conditions:
(a) Terms of Rights. The Dividend Equivalent Right provides the
participant with a cash benefit per share for each share underlying
the unexercised portion of the related Stock Option equal to the
amount of any extraordinary dividend (as defined in Section 14 (c))
per share of Common Stock declared by the Company. The terms and
conditions of any Dividend Equivalent Right shall be evidenced in the
option agreement entered into with the participant and shall be
subject to the terms and conditions of the Plan. The Dividend
Equivalent Right is transferable only when the related option is
transferable and under the same conditions.
(b) Payment. Upon the payment of an extraordinary dividend, the
participant holding a Dividend Equivalent Right with respect to Stock
Options or portions thereof which have vested shall promptly receive
from the Company or its Affiliate, as applicable, the amount of cash
equal to the difference between the amount of the extraordinary
dividend per share of Common Stock and the average dividend per share
of Common Stock based on the current and preceding three quarters
(assuming dividends were paid in each quarter, and if not then based
on the average of the quarters in the last four quarters in which
dividends were paid), multiplied by the number of shares of Common
Stock underlying the unexercised portion of the related Stock Option.
With respect to Stock Options or portions thereof which have not
vested, the amount that would have been received pursuant to the
Dividend Equivalent Right with respect to the shares underlying such
unvested Stock Option or portion thereof shall be paid to the
participant holding such Dividend Equivalent Right together with
earnings thereon, on such date as the Stock Option or portion thereof
becomes vested. Payment of an extraordinary dividend will be decreased
by the amount of any applicable tax withholding prior to distribution
to the participant as set forth in Section 16.
(c) Extraordinary Dividend. For purposes of this Section 14, an
extraordinary dividend is any cash dividend paid on shares of Common
Stock where (i) the dividend rate exceeds 200% of the Association's
weighted average cost of funds on interest-bearing liabilities for the
current quarter and preceding three quarters, and (ii) the annualized
aggregate dollar amount of the dividend exceeds the Association's net
income after taxes for the current quarter and preceding three
quarters. For purposes of this Section 14, the dividend rate equals
A-6
<page>
the quotient, expressed as a percentage, of (i) the annualized dollar
amount of the dividend, and (ii) the last trade price of the Company's
Common Stock on the day immediately before the dividend is declared.
15. PLAN AMENDMENT. The Board or the Committee may modify or amend the Plan
as it deems necessary or appropriate or modify or amend an award received by key
employees and/or outside directors. No such amendment shall adversely affect any
outstanding awards under the Plan without the consent of the holders thereof.
16. TAX WITHHOLDING. The Company may deduct from any settlement of an award
made under the Plan, including the delivery or vesting of shares, an amount
sufficient to cover the minimum withholding required by law for any federal,
state or local taxes or to take such other action as may be necessary to satisfy
any such withholding obligations. The Committee may permit shares to be used to
satisfy the minimum required tax withholding and such shares shall be valued at
the Fair Market Value as of the settlement date of the applicable award.
17. OTHER COMPANY BENEFIT AND COMPENSATION PROGRAMS. Settlements of awards
received by participants under the Plan shall not be deemed a part of a
participant's regular, recurring compensation for purposes of calculating
payments or benefits from any Company benefit plan, severance program or
severance pay law of any country, unless otherwise determined by the Committee,
or unless the contrary is specifically provided in a Company benefit plan that
is exempt from tax under Section 401(a) of the Code.
18. UNFUNDED PLAN. Unless otherwise determined by the Committee, the Plan
is an unfunded plan. The Plan shall not create (or be construed to create) a
trust or a separate fund or funds. The Plan shall not establish any fiduciary
relationship between the Company and any participant or other person. To the
extent any person holds any rights by virtue of a grant awarded under the Plan,
such right (unless otherwise determined by the Committee) shall be no greater
than the right of an unsecured general creditor of the Company.
19. FUTURE RIGHTS. No person shall have any claim or right to be granted an
award under the Plan, and no participant shall have any rights by reason of the
grant of any award under the Plan to continued employment by the Company or any
subsidiary of the Company.
20. GENERAL RESTRICTION. Each award shall be subject to the requirement
that, if at any time the Committee shall determine, in its sole discretion, that
the listing, registration or qualification of any award under the Plan upon any
securities exchange or under any state or federal law, or the consent or
approval of any government regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such award or the grant or
settlement thereof, such award may not be exercised or settled in whole or in
part unless such listing, registration, qualification, consent or approval shall
have been effected or obtained free of any conditions not acceptable to the
Committee.
21. GOVERNING LAW. The validity, construction and effect of the Plan and
any actions taken or relating to the Plan shall be determined in accordance with
the laws of the State of Delaware.
22. SUCCESSORS AND ASSIGNS. The Plan shall be binding on all successors and
permitted assigns of a participant, including, without limitation, the guardian
or estate of such participant and the executor, administrator or trustee of such
estate, or any receiver or trustee in bankruptcy or representative of the
participant's creditors.
23. RIGHTS AS A SHAREHOLDER. A participant shall have no rights as a
shareholder with respect to awards under the Plan until he or she becomes the
holder of record of shares granted under the Plan.
24. CHANGE IN CONTROL. Notwithstanding anything to the contrary in the
Plan, the following shall apply to all outstanding awards granted under the Plan
in the event of a Change in Control:
(a) Definition. A "Change in Control" of the Association or the Company
means a change in control 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)
A-7
<page>
of the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii)
results in a Change in Control of the Association or the Company
within the meaning of the Home Owners' Loan Act, as amended ("HOLA"),
and applicable rules and regulations promulgated thereunder, as in
effect at the time of the Change in Control; or (iii) 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 Company representing 25% or more of
the combined voting power of Company's outstanding securities except
for any securities purchased by the Association's employee stock
ownership plan or trust; or (b) individuals who constitute the Board
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 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
Association or the Company or similar transaction in which the
Association or Company is not the surviving corporation occurs; or (d)
a proxy statement soliciting proxies from stockholders of the Company,
by someone other than the current Board of Directors of the Company,
seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Company or similar transaction with one or more
corporations as a result of which the outstanding shares of the common
stock of the Company are exchanged for or converted into cash or
property or securities not issued by the Company; or (e) a tender
offer is made for 25% or more of the voting securities of the Company
and the shareholders owning beneficially or of record 25% or more of
the outstanding securities of the Company have tendered or offered to
sell their shares pursuant to such tender offer and such tendered
shares have been accepted by the tender offeror.
(b) Acceleration of Vesting and Payment of Limited Rights.
(1) Upon the occurrence of an event constituting a Change in Control,
all Limited Rights, Stock Options, Stock Awards or any other
award granted pursuant to this Plan outstanding on such date
shall become 100% vested.
(2) Upon the occurrence of an event constituting a Change in Control
involving an exchange of stock, all Stock Options shall become
options to purchase the exchanged stock at the applicable
exchange ratio (with no change in the aggregate exercise price).
(c) Effect of a Change in Control on Stock Option Awards. In the event of
a Change in Control, the Committee and the Board of Directors will
take one or more of the following actions to be effective as of the
date of such Change in Control:
(1) provide that such Stock Options shall be assumed, or equivalent
stock options shall be substituted ("Substitute Options") by the
acquiring or succeeding corporation (or an affiliate thereof),
provided that: (A) any such Substitute Options exchanged for
Incentive Stock Options shall meet the requirements of Section
424(a) of the Code, and (B) the shares of stock issuable upon the
exercise of such Substitute Options shall be registered in
accordance with the Securities Act of 1933, as amended ("1933
Act") or such securities shall be exempt from such registration
in accordance with Sections 3(a)(2) or 3(a)(5) of the 1933 Act,
(collectively, "Registered Securities"), or in the alternative,
if the securities issuable upon the exercise of such Substitute
Options shall not constitute Registered Securities, then the
participant will receive upon consummation of the Change in
Control a cash payment for each Stock Option surrendered equal to
the difference between (1) the fair market value of the
consideration to be received for each share of Common Stock in
the Change in Control times the number of shares of Common Stock
subject to such surrendered Stock Options, and (2) the aggregate
exercise price of all such surrendered Stock Options; or
A-8
<page>
(2) in the event of a Change in Control transaction whereby the
holders of Common Stock will receive a cash payment (the "Merger
Price") for each share of Common Stock exchanged in the Change in
Control transaction, make or provide for a cash payment to the
participants equal to the difference between (1) the Merger Price
times the number of shares of Common Stock subject to such Stock
Options held by each participant (to the extent then exercisable
at prices not in excess of the Merger Price), and (2) the
aggregate exercise price of all such surrendered Stock Options.
25. COMPLIANCE WITH SECTION 16. With respect to persons subject to Section
16 of the 1934 Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the 1934 Act. To the
extent any provisions of the Plan or actions of the Committee fail to so comply,
it shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee.
26. TERMINATION OF EMPLOYMENT. Upon the termination of an employee's
employment for any reason other than Disability, Retirement, Change in Control,
death or Termination for Cause, the employee's Stock Options shall be
exercisable, but only as to those shares that were immediately purchasable by,
or vested in, such employee at the date of termination, and such options may be
exercised only for a period of three (3) months following such termination. Upon
the termination of an employee's employment for any reason other than
Disability, Retirement, Change in Control, death or Termination for Cause, all
of the employee's unvested stock awards shall be forfeited. Upon the termination
of an employee's service because of Disability, Retirement, Change in Control or
death, the employee's Stock Options shall be exercisable as to all shares
whether or not then exercisable, and the employee's Stock Awards shall vest as
to all shares subject to an outstanding award, whether or not otherwise
immediately vested in such employee at the date of termination and options may
be exercised for a period of five (5) years following termination.
Notwithstanding anything to the contrary herein, in no event shall the exercise
period extend beyond the expiration of the Stock Option term. In the event of
termination of employment or service for Cause (as defined herein) all rights
and awards granted to an employee or director under the Plan not exercised or
vested shall expire upon termination.
No option shall be eligible for treatment as an Incentive Stock Option in
the event such option is exercised more than three (3) months following the date
of the employee's Retirement or termination of employment following a Change in
Control; and provided further, that no option shall be eligible for treatment as
an Incentive Stock Option in the event such option is exercised more than one
year following termination of employment due to Disability, and provided
further, in order to obtain Incentive Stock Option treatment for options
exercised by heirs or devisees of an optionee, the optionee's death must have
occurred while employed or within three (3) months of termination of employment.
"Disability" means, with respect to an employee, the permanent and total
inability by reason of mental or physical infirmity or both, of an employee to
perform the work customarily assigned to him. Additionally, a medical doctor
selected or approved by the Board of Directors must advise the Committee that it
is either not possible to determine when such Disability will terminate or that
it appears probable that such Disability will be permanent during the remainder
of the employee's lifetime.
"Retirement" means, with respect to an employee, retirement at the normal
or early retirement date set forth in the Association's employee stock ownership
plan, or as determined by the Board of Directors, or such other time as
determined by written resolution of the Committee.
Termination "for Cause" means the termination upon personal dishonesty,
willful misconduct, any breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, or the willful violation of any
law, rule or regulation (other than traffic violations or similar offenses) or a
final cease-and-desist order, any of which results in a material loss to the
Company or an Affiliate.
27. TERMINATION OF SERVICE AS A DIRECTOR. Upon the termination of a
director's service for any reason other than Disability, Retirement, Change in
Control, death or Termination for Cause, the director's Stock Options shall be
exercisable, but only as to those shares that were immediately purchasable by,
or vested in, such director at the date of termination, and options may be
exercised for a period of one (1) year following termination of service, and all
of the director's unvested Stock Awards shall be forfeited. In the event of
A-9
<page>
termination of service for Cause (as defined above) all rights granted to the
director under the Plan not exercised by or vested in such director shall expire
upon termination of service. Upon the termination of a director's service
because of Retirement, Disability, Change in Control or death, the director's
Stock Options shall be exercisable as to all shares, whether or not then
exercisable, and the director's Stock Awards shall vest as to all shares subject
to an outstanding award, whether or not otherwise immediately vested in such
director at the date of termination, and options may be exercised for a period
of five (5) years following such termination. In no event shall the exercise
period extend beyond the expiration of the Stock Option term.
"Disability" means, with respect to an outside director, the permanent and
total inability by reason of mental or physical infirmity or both, of a director
to carry out the responsibilities of a director of the Company or an Affiliate,
as required by applicable state and federal law.
"Retirement" means, with respect to a director, retirement on or after
attainment of age sixty-five (65) or seven (7) years of service at the Company
or an Affiliate, or such other time as determined by written resolution of the
Committee.
"Termination for Cause" has the same meaning as set forth under Paragraph
26 above.
A-10
<page>
REVOCABLE PROXY
Sound Federal Bancorp, Inc.
SPECIAL MEETING OF STOCKHOLDERS
February 4, 2004
The undersigned hereby appoints the full Board of Directors, with full
powers of substitution to act as attorneys and proxies for the undersigned to
vote all shares of common stock of Sound Federal Bancorp, Inc. which the
undersigned is entitled to vote at a Special Meeting of Stockholders ("Meeting")
to be held at the Company's corporate offices at 1311 Mamaroneck Avenue, White
Plains, New York 10605, at 3:00 p.m., (local time) on February 4, 2004. The
official proxy committee is authorized to cast all votes to which the
undersigned is entitled as follows:
FOR AGAINST ABSTAIN
1. Approval of the Sound Federal Bancorp, Inc.
2004 Incentive Stock Benefit Plan. [ ] [ ] [ ]
The Board of Directors recommends a vote "FOR" the listed proposal.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE PROPOSITION STATED ABOVE. IF ANY OTHER BUSINESS IS
PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THE ABOVE-NAMED PROXIES
AT THE DIRECTION OF A MAJORITY OF THE BOARD OF DIRECTORS. AT THE PRESENT TIME,
THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE
MEETING.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting or at
any adjournment thereof and after notification to the Secretary of Sound Federal
Bancorp, Inc. at the Meeting of the stockholder's decision to terminate this
proxy, then the power of said attorneys and proxies shall be deemed terminated
and of no further force or effect. This proxy may also be revoked by sending
written notice to the Secretary of Sound Federal Bancorp, Inc. at the address
set forth on the Notice of Special Meeting of Stockholders, or by the filing of
a later proxy statement prior to a vote being taken on a particular proposal at
the Meeting.
The undersigned acknowledges receipt from Sound Federal Bancorp, Inc. prior
to the execution of this proxy of a Notice of Special Meeting and a proxy
statement dated January 2, 2004.
Dated: _________________, 2004
[ ] Check Box if You Plan to Attend Meeting
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
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 should sign.
Please complete and date this proxy and return it promptly
in the enclosed postage-prepaid envelope.