July 8, 2004
Dear Stockholder:
We are pleased to invite you to attend the Annual Meeting of Stockholders of
Sound Federal Bancorp, Inc. (the "Company"). The Annual Meeting will be held at
the Company's corporate offices at 1311 Mamaroneck Avenue, White Plains, New
York at 4:00 p. m., (local time) on August 12, 2004.
The enclosed Notice of Annual Meeting and Proxy Statement describe the formal
business to be transacted.
At the Annual Meeting, stockholders will be given an opportunity to elect
directors and to ratify the appointment of KPMG LLP as auditors for the
Company's 2005 fiscal year. The Board of Directors has determined that the
matters to be considered at the Annual Meeting are in the best interest of the
Company and its stockholders. For the reasons set forth in the proxy statement,
the Board of Directors unanimously recommends a vote "FOR" each matter to be
considered.
On behalf of the Board of Directors, we urge you to sign, date and return the
enclosed proxy card as soon as possible, even if you currently plan to attend
the Annual Meeting. Your vote is important, regardless of the number of shares
that you own. Voting by proxy will not prevent you from voting in person, but
will assure that your vote is counted if you are unable to attend the meeting.
Sincerely,
/s/ Richard P. McStravick
Richard P. McStravick
President and Chief Executive Officer
Sound Federal Bancorp, Inc.
1311 Mamaroneck Avenue
White Plains, New York 10605
(914) 761-3636
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On August 12, 2004
Notice is hereby given that the Annual 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 on August 12, 2004 at 4:00 p. m.,
local time.
A Proxy Card and a Proxy Statement for the Annual Meeting are enclosed.
The Annual Meeting is for the purpose of considering and acting upon:
1. The election of three directors of the Company;
2. The ratification of the appointment of KPMG LLP as auditors
for the Company for the fiscal year ending March 31, 2005; and
Such other matters as may properly come before the Annual Meeting, or any
adjournments thereof. The Board of Directors is not aware of any other business
to come before the Annual Meeting.
Any action may be taken on the foregoing proposals at the Annual
Meeting on the date specified above, including all adjournments of the Annual
Meeting. Stockholders of record at the close of business on June 21, 2004 are
the stockholders entitled to vote at the Annual Meeting, and any adjournments
thereof. A list of stockholders entitled to vote at the Annual Meeting will be
available for inspection at our corporate office for a period of ten days prior
to the Annual Meeting and will also be available for inspection at the Annual
Meeting.
EACH STOCKHOLDER, WHETHER HE OR SHE PLANS TO ATTEND THE ANNUAL 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 ANNUAL MEETING MAY REVOKE
HIS OR HER PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT BEFORE THE ANNUAL
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 ANNUAL MEETING.
By Order of the Board of Directors
/s/ Anthony J. Fabiano
Anthony J. Fabiano
Corporate Secretary
White Plains, New York
July 8, 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
White Plains, New York 10605
(914) 761-3636
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ANNUAL MEETING OF STOCKHOLDERS
August 12, 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 Annual Meeting of Stockholders of the Company
(the "Meeting"), which will be held at the Company's corporate offices at 1311
Mamaroneck Avenue, White Plains, New York 10605 on August 12, 2004 at 4:00 p.
m., local time, and all adjournments thereof. The accompanying Notice of Annual
Meeting of Stockholders and this Proxy Statement are first being mailed to
stockholders on or about July 8, 2004.
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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 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 proposals set
forth in this Proxy Statement for consideration at the Meeting.
The Board of Directors knows of no additional matters that will be
presented for consideration at the Meeting. Execution of a proxy, however,
confers on the designated proxy holders discretionary authority to vote the
shares in accordance with their best judgment on such other business, if any,
that may properly come before the Meeting or any adjournments thereof.
Proxies may be revoked by sending written notice of revocation to the
Secretary of the Company, at the address of the Company shown above, voting a
later dated proxy, or by attending the Meeting and voting in person. The
presence at the 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 Meeting or delivers a written revocation to the Secretary of the Company
prior to the voting of such proxy. However, if you are a stockholder whose
shares are not registered in your name, you will need appropriate documents from
your record holder to vote personally at the Meeting.
- --------------------------------------------------------------------------------
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 June 21, 2004 (the
"Record Date") are entitled to one vote for each share then held. As of the
Record Date, the Company had 12,549,541 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 Meeting. Broker non-votes and proxies marked abstain will be counted for
purposes of determining that a quorum is present. In the event there are not
sufficient votes for a quorum, or to approve or ratify any matter being
presented at the time of the Meeting, the Meeting may be adjourned in order to
permit further solicitation of proxies.
Directors are elected by a plurality of the shares voted at the Meeting
without regard to broker non-votes or proxies as to which the authority to vote
is being withheld. The ratification of auditors must be approved by a majority
of the shares voted at the Meeting without regard to broker non-votes or proxies
marked "abstain."
1
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.
As to the election of directors, the proxy card being provided by the
Board of Directors enables a stockholder to vote FOR the election of the
nominees proposed by the Board of Directors or to WITHHOLD AUTHORITY to vote for
the nominees being proposed. Directors are elected by a plurality of votes cast,
without regard to either broker non-votes or proxies as to which the authority
to vote for the nominees being proposed is withheld.
As to the ratification of auditors, the proxy card being provided by
the Board of Directors enables a stockholder to: (i) vote FOR the proposal; (ii)
vote AGAINST the proposal; or (iii) ABSTAIN from voting on the proposal. The
ratification of auditors must be approved by the affirmative vote of a majority
of the votes cast without regard to broker non-votes or proxies marked ABSTAIN.
Proxies solicited hereby will be returned to the Company and will be
tabulated by an Inspector of Election designated by the Company's Board of
Directors.
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 Outstanding (2)
- ---------------------------------------------- ----------------------- -------------------
Significant Shareholders:
Sound Federal Savings Employee Stock
Ownership Plan and Trust
1311 Mamaroneck Avenue
White Plains, New York 10605 1,123,654 8.6%
Named Directors and Executive Officers:(1)
Bruno J. Gioffre (3) 272,976 2.2
Richard P. McStravick (4) 357,911 2.8
Roberta I. Bernhardt (5) 12,660 0.1
Joseph Dinolfo (6) 143,411 1.1
Donald H. Heithaus (7) 147,034 1.2
Joseph A. Lanza (8) 124,085 1.0
Eldorus Maynard (9) 77,536 0.6
James Staudt (10) 109,481 0.9
Samuel T. Telerico (11) 26,160 0.2
Anthony J. Fabiano (12) 224,301 1.8
------- ---
All executive officers and directors
as a group (10 persons) 1,495,055 11.5%
========= ====
_____________________________ (footnotes on following page)
2
(1) The Company's executive officers and directors are also executive
officers and directors of Sound Federal Savings (the "Bank").
(2) Calculated as a percentage of common shares outstanding plus stock
options that are exercisable within 60 days of the record date.
(3) Mr. Gioffre has sole voting power over 203,940 shares and shared voting
power over 56,432 shares. Includes 12,604 shares underlying options
exercisable within 60 days of the record date.
(4) Mr. McStravick has sole voting power over 193,294 shares and shared
voting power over 22,202 shares. Includes 142,415 shares underlying
options exercisable within 60 days of the record date.
(5) Ms. Bernhardt has sole voting power over 4,826 shares and shared voting
power over 1,500 shares. Includes 6,334 shares underlying options
exercisable within 60 days of the record date.
(6) Mr. Dinolfo has sole voting power over 98,342 shares. Includes 45,069
shares underlying options exercisable within 60 days of the record
date.
(7) Mr. Heithaus has sole voting power over 69,026 shares and shared voting
power over 42,939 shares. Includes 35,069 shares underlying options
exercisable within 60 days of the record date.
(8) Mr. Lanza has sole voting power over 75,816 shares and shared voting
power over 3,200 shares. Includes 45,069 shares underlying options
exercisable within 60 days of the record date.
(9) Mr. Maynard has sole voting power over 25,769 shares and shared voting
power over 45,433 shares. Includes 6,334 shares underlying options
exercisable within 60 days of the record date.
(10) Mr. Staudt has sole voting power over 60,818 shares and shared voting
power over 3,594 shares. Includes 45,069 shares underlying options
exercisable within 60 days of the record date.
(11) Mr. Telerico has sole voting power over 19,526 shares and shared voting
power over 300 shares. Includes 6,334 shares underlying options
exercisable within 60 days of the record date.
(12) Mr. Fabiano has sole voting power over 104,359 shares. Includes 119,942
shares underlying options exercisable within 60 days of the record
date.
- --------------------------------------------------------------------------------
PROPOSAL I--ELECTION OF DIRECTORS
- --------------------------------------------------------------------------------
The Company's Board of Directors currently consists of nine members.
The Company's bylaws provide that approximately one-third of the directors are
to be elected annually. Directors of the Company are generally elected to serve
for a three-year period or until their respective successors shall have been
elected and shall qualify. Three directors will be elected at the Meeting. The
Board of Directors has nominated to serve as directors Joseph Dinolfo, Eldorus
Maynard and Samuel T. Telerico, each to serve for a three-year term. Messrs.
Dinolfo, Maynard and Telerico are currently members of the Board of Directors.
The table below sets forth certain information regarding the
composition of the Company's Board of Directors, including the terms of office
of Board members. It is intended that the proxies solicited on behalf of the
Board of Directors (other than proxies in which the vote is withheld as to one
or more nominees) will be voted at the Meeting for the election of the nominees
identified below. If any nominee is unable to serve, the shares represented by
all such proxies will be voted for the election of such substitute as the Board
of Directors may recommend. At this time, the Board of Directors knows of no
reason why any of the nominees might be unable to serve, if elected. Except as
indicated herein, there are no arrangements or understandings between any
nominee and any other person pursuant to which such nominee was selected. The
Board of Directors recommends a vote "FOR" each of the nominees for director
listed in this proxy statement.
3
Shares of
Common Stock
Current Beneficially
Director Term Owned on the Percent
Name Age Positions Held Since (1) to Expire Record Date (2) Of Class
- ---------------------- --------- ---------------------- ------------- ------------- ------------------- ---------
NOMINEES
Joseph Dinolfo 70 Director 1985 2004 143,411 1.1%
Eldorus Maynard 69 Director 2000 2004 77,536 0.6%
Samuel T. Telerico 68 Director 2001 2004 26,160 0.2%
DIRECTORS CONTINUING IN OFFICE
Bruno J. Gioffre 69 Chairman of the Board 1975 2005 272,976 2.2%
James Staudt 51 Director 1987 2005 109,481 0.9%
Richard P. McStravick 55 President, Chief 1996 2005 357,911 2.8%
Executive Officer
and Director
Donald H. Heithaus 69 Director 1978 2006 147,034 1.2%
Joseph A. Lanza 57 Director 1998 2006 124,085 1.0%
Roberta I. Bernhardt 65 Director 2003 2006 12,160 0.1%
- ----------------------------
(1) Reflects initial appointment to the Board of Directors of the Bank's
mutual predecessor.
(2) Includes shares underlying stock options exercisable within 60 days of
the Record Date.
The principal occupation during the past five years of each director of
the Company is set forth below. All directors and executive officers have held
their present positions for all five years unless otherwise stated.
Bruno J. Gioffre is the Chairman of the Board of Directors and has been
so since December 1997. Mr. Gioffre is of counsel to the law firm of Gioffre &
Gioffre Professional Corporation and is a retired Senior Justice for the Town of
Rye, New York.
Richard P. McStravick is President and Chief Executive Officer of the
Bank. Mr. McStravick has been employed by the Bank in various capacities since
1977. Mr. McStravick was appointed to the Board of Directors in 1996.
Roberta I. Bernhardt, CPA, is a partner in the accounting firm of
Citrin Cooperman & Company, LLP.
Joseph Dinolfo is the retired President of the Dinolfo Wilson Agency,
Inc. an insurance agency.
Donald H. Heithaus is the President of the Happiness Laundry Service,
Inc.
Joseph A. Lanza is the President of Lanza Electric, a private
electrical contractor.
Eldorus Maynard is the retired Chairman of the Board and Chief
Executive Officer of Peekskill Financial Corporation ("Peekskill"). Mr. Maynard
was employed by Peekskill since 1958 and became a member of the Company's Board
of Directors in July 2000.
4
James Staudt is a partner with the law firm of McCullough, Goldberger &
Staudt, LLP. Mr. Staudt is also general counsel to the Bank.
Samuel T. Telerico is a principal with Teleden Enterprises
International, an international trade and consulting firm. Mr. Telerico was
previously employed by American Can Company from 1960 until 1990.
Executive Officer Who Is Not A Director
Anthony J. Fabiano is Senior Vice President, Chief Financial Officer
and Corporate Secretary of the Company. He joined the Bank in July 1998. Prior
to joining the Bank, he was the Chief Financial Officer at MSB Bancorp, Inc.
Board Independence
The Board of Directors has determined that Directors Bernhardt,
Dinolfo, Heithaus, Lanza, Maynard and Telerico are each an "independent
director" within the meaning of the Nasdaq corporate governance listing
standards.
Ownership Reports by Officers and Directors
The Common Stock is registered pursuant to Section 12(g) of the
Exchange Act. The officers and directors of the Company and beneficial owners of
greater than 10% of the Company's Common Stock ("10% beneficial owners") are
required to file reports on Forms 3, 4, and 5 with the SEC disclosing changes in
beneficial ownership of the Common Stock. SEC rules require disclosure in the
Company's Proxy Statement and Annual Report on Form 10-K of the failure of an
officer, director or 10% beneficial owner of the Company's Common Stock to file
a Form 3, 4 or 5 on a timely basis. All Officers and Directors of the Company
who are required to file Forms 3, 4 and 5 filed these forms on a timely basis
except for a Form 4 for each of Joseph Dinolfo and Donald H. Heithaus. The Form
4 for Joseph Dinolfo was filed on May 10, 2003 and reported the purchase of
7,971 shares on May 5, 2003. The Form 4 for Donald H. Heithaus was filed on
December 23, 2003 and reported the purchase of 290 shares on May 11, 2000.
- --------------------------------------------------------------------------------
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
The business of the Company's Board of Directors is conducted through
meetings and activities of the Board and its committees. During the fiscal year
ended March 31, 2004, the Board of Directors of the Company held 11 regular and
special meetings. During the year ended March 31, 2004, no director attended
fewer than 75 percent of the total meetings of the Board of Directors of the
Company or the Bank and committees on which such director served. Beginning in
fiscal year 2005, independent directors of the Board of the Company will hold
regularly scheduled executive sessions. Although the Company has no formal
policy requiring board attendance at the annual meeting of stockholders, all of
our directors attended last year's annual meeting.
The Executive Committee of the Bank, which also acted as the
Compensation Committee during fiscal year 2004, met periodically to review the
performance of officers and employees and to determine compensation programs and
adjustments for recommendation to the Board of Directors of the Bank. It is
comprised of Directors Gioffre, Staudt, Heithaus and Dinolfo. The Executive
Committee met three times during the year ended March 31, 2004. Beginning in
fiscal year 2005, executive compensation will be determined by the Board of
Directors based on recommendations made by a majority of the independent
directors.
The Nominating and Corporate Governance Committee
During fiscal year 2004, the Board of Directors served as the
Nominating Committee. During the year ended March 31, 2004, one meeting of the
Nominating Committee was held. Beginning in fiscal year 2005, the Nominating and
Corporate Governance Committee (the "Nominating Committee") of the Company
consists of directors Heithaus, Dinolfo and Maynard. Each member of the
Nominating Committee is considered "independent"
5
as defined in the Nasdaq corporate governance listing standards. The Company's
Board of Directors has adopted a written charter for the Committee, which is
available at the Company's website at www.soundfed.com.
The functions of the Nominating Committee include the following:
o to lead the search for individuals qualified to become members
of the Board and to recommend to the Board of Directors
nominees to be presented for stockholder approval;
o to review and monitor compliance with the requirements for
board independence; and
o to review the committee structure and make recommendations to
the Board regarding committee membership.
The Nominating Committee identifies nominees by first evaluating the
current members of the Board of Directors willing to continue in service.
Current members of the Board with skills and experience that are relevant to the
Company's business and who are willing to continue in service are first
considered for re-nomination, balancing the value of continuity of service by
existing members of the Board with that of obtaining a new perspective. If any
member of the Board does not wish to continue in service or retires, or if the
Committee or the Board decides not to re-nominate a member for re-election, or
if the size of the Board is increased, the Committee would solicit suggestions
for director candidates from all Board members. In addition, the Committee is
authorized by its charter to engage a third party to assist in the
identification of director nominees. The Nominating Committee would seek to
identify a candidate who, at a minimum, satisfies the following criteria:
o has personal and professional ethics and integrity and whose
values are compatible with the Company's;
o has had experiences and achievements that have given him or
her the ability to exercise and develop good business
judgment;
o is willing to devote the necessary time to the work of the
Board and its committees, which includes being available for
Board and committee meetings;
o is familiar with the communities in which the Company operates
and/or is actively engaged in community activities;
o is involved in other activities or interests that do not
create a conflict with his or her responsibilities to the
Company and its stockholders; and
o has the capacity and desire to represent the balanced, best
interests of the stockholders of the Company as a group, and
not primarily a special interest group or constituency.
The Nominating Committee will also take into account whether a
candidate satisfies the criteria for "independence" under the Nasdaq corporate
governance listing standards and, if a nominee is sought for service on the
Audit Committee, the financial and accounting expertise of a candidate,
including whether an individual qualifies as an audit committee financial
expert.
Procedures for the Nomination of Directors by Shareholders
The Nominating Committee has adopted procedures for the submission of
director nominees by stockholders. If a determination is made that an additional
candidate is needed for the Board of Directors, the Nominating Committee will
consider candidates submitted by the Company's stockholders. Stockholders can
submit the names of qualified candidates for Director by writing to our
Corporate Secretary at 1311 Mamaroneck Avenue, White Plains, New York 10605. The
Corporate Secretary must receive a submission not less than ninety (90) days
prior to the date of the Company's proxy materials for the preceding year's
annual meeting. The submission must include the following information:
6
o the name and address of the stockholder as they appear on the
Company's books, and number of shares of the Company's common
stock that are owned beneficially by such stockholder (if the
stockholder is not a holder of record, appropriate evidence of
the stockholder's ownership will be required);
o the name, address and contact information for the candidate,
and the number of shares of common stock of the Company that
are owned by the candidate (if the candidate is not a holder
of record, appropriate evidence of the stockholder's ownership
should be provided);
o a statement of the candidate's business and educational
experience;
o such other information regarding the candidate as would be
required to be included in the proxy statement pursuant to SEC
Regulation 14A;
o a statement detailing any relationship between the candidate
and the Company;
o a statement detailing any relationship between the candidate
and any customer, supplier or competitor of the Company;
o detailed information about any relationship or understanding
between the proposing stockholder and the candidate; and
o a statement of the candidate that the candidate is willing to
be considered and willing to serve as a Director if nominated
and elected.
A nomination submitted by a stockholder for presentation by the
stockholder at an annual meeting of stockholders must comply with the procedural
and informational requirements described in "Advance Notice of Business to be
Conducted at an Annual Meeting."
Stockholder Communications with the Board
A stockholder of the Company who wants to communicate with the Board of
Directors or with any individual director can write to the Corporate Secretary
of the Company at 1311 Mamaroneck Avenue, White Plains, New York 10605,
Attention: Board Administration. The letter should indicate that the author is a
stockholder and if shares are not held of record, should include appropriate
evidence of stock ownership. Depending on the subject matter, management will:
o forward the communication to the director or directors to whom
it is addressed;
o attempt to handle the inquiry directly, for example where it
is a request for information about the Company or it is a
stock-related matter; or
o not forward the communication if it is primarily commercial in
nature, relates to an improper or irrelevant topic, or is
unduly hostile, threatening, illegal or otherwise
inappropriate.
At each Board meeting, management shall present a summary of all
communications received since the last meeting that were not forwarded and make
those communications available to the directors.
Code of Business Conduct and Ethics
The Company has adopted a Code of Business Conduct and Ethics (the
"Code") that is applicable to the officers, directors and employees of the
Company, including the Company's principal executive officer, principal
financial officer, principal accounting officer or controller, or persons
performing similar functions. The Code is
7
available on the Company's website at www.soundfed.com. Amendments to and
waivers from the Code will also be disclosed on the Company's website.
The Audit and Compliance Committee
The Audit and Compliance Committee (the "Audit Committee") consists of
Directors Heithaus, Bernhardt, Maynard and Telerico. This committee meets on a
quarterly basis and as otherwise required to review audit programs and reports
as well as other regulatory compliance issues. The Audit Committee's primary
function is to assist the Board of Directors in fulfilling its oversight
responsibilities. The primary duties of the Audit Committee include, but are not
limited to, the following:
o Prepare the report of the Committee included in the Company's
annual proxy statements;
o Serve as an independent and objective party to monitor the
Company's financial reporting process and internal control
systems;
o Retain and monitor the qualifications, independence and
performance of the Company's independent auditor; and
o Provide an open avenue of communication among the independent
auditor, senior management, the internal auditing department
and the Board.
Each member of the Audit Committee is "independent" as defined in the
Nasdaq listing standards and under SEC Rule 10A-3. The Board of Directors has
determined that Ms. Bernhardt qualifies as an "audit committee financial expert"
as that term is used in the rules and regulations of the SEC, primarily as a
result of her profession as a certified public accountant. The Audit Committee
met five times during the year ended March 31, 2004.
The Audit Committee reviews the contents of and conclusions in audit
reports prepared by the internal auditor and the Company's independent auditors;
reviews and approves the annual engagement of the Company's independent
auditors, the Company's audit policy, the internal audit function and the plan
of audit coverage; and reviews with management, and the Company's independent
auditor, the Company's financial statements and internal controls. The Company's
Board of Directors has adopted a written charter for the Audit Committee of the
Company, the current version of which is appended to this proxy statement as
Exhibit A. The charter also is available on the Company's website at
www.soundfed.com.
Audit Committee Report
The Audit Committee of the Board is responsible for providing
independent, objective oversight of the Company's accounting functions and
internal controls. The Audit Committee operates under a written charter approved
by the Board of Directors.
Management is responsible for the Company's internal controls and
financial reporting process. The independent auditors are responsible for
performing an independent audit of the Company's consolidated financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States) and to issue a report thereon. The Audit
Committee's responsibility is to monitor and oversee these processes.
In connection with these responsibilities, the Audit Committee met with
management and KPMG LLP, the independent auditing firm for the Company, to
review and discuss the March 31, 2004 consolidated financial statements. The
Audit Committee also discussed with KPMG LLP the matters required by Statement
on Auditing Standards No. 61 (Communication with Audit Committees). The Audit
Committee also received the required written disclosures from KPMG LLP,
concerning the firm's independence from the Company.
Based upon the Audit Committee's discussions with management and the
independent auditors, and the Audit Committee's review of the representations of
management and the independent auditors, the Audit Committee recommended that
the Board of Directors include the audited consolidated financial statements in
the Company's Annual Report on Form 10-K for the year ended March 31, 2004,
filed with the Securities and Exchange Commission.
8
This report shall not be deemed incorporated by reference by any
general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933, as amended, or the Exchange Act except
to the extent that the Company specifically incorporates this information by
reference, and shall not otherwise be deemed filed under such Acts.
This report has been provided by the Audit Committee:
Director Donald Heithaus (Chairman of the Audit Committee)
and Directors Bernhardt, Maynard and Telerico
9
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 information presented
below is for the period beginning with the closing price of the Company's Common
Stock on March 31, 1999 and ending on March 31, 2004. 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 March 31,
March 31 --------------------------------------------------------
Index 1999 2000 2001 2002 2003 2004
- ----- ---- ---- ---- ---- ---- ----
Sound Federal Bancorp, Inc. 100.00 102.68 129.72 212.08 495.96 591.64
SIC Code 6035 - Federal
Savings Institutions 100.00 81.34 127.97 152.19 162.12 250.44
Nasdaq Market Index 100.00 184.14 75.79 76.74 56.28 84.00
10
Compensation Committee Interlocks and Insider Participation
The Company does not independently compensate its executive officers or
employees. The Executive Committee of the Bank had the principal responsibility
for making recommendations to the Board of Directors for the compensation of the
officers, directors and employees of the Bank in fiscal year 2004. The Executive
Committee consists of Directors Gioffre, Heithaus, Dinolfo and Staudt. The
Executive Committee reviewed the benefits provided to the Bank's officers and
employees. During the year ended March 31, 2004 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 in regard to 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 fulfillment of 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.
In fiscal year 2004, the Board delegated to the Executive Committee the
responsibility of assuring that the compensation of the Chief Executive Officer
and the other executive officer is consistent with the compensation strategy,
competitive practices, the performance of the Bank, and the requirements of
appropriate regulatory agencies. Beginning in fiscal year 2005, executive
compensation will be determined by the Board of Directors based on
recommendations made by a majority of the independent directors. 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 Committee utilized various informational sources, including the
"Savings and Community Bankers Annual Salary Survey." In addition, the Executive
Committee considered the overall profitability of the Bank and the executive
officer's contribution to the Bank when making its recommendation to the Board
of Directors.
The Board of Directors approved a base salary for the Bank's Chief
Executive Officer of $214,000 for calendar year 2004, which represented a 4.4%
increase from the Chief Executive Officer's base salary of $205,000 in calendar
year 2003. The 2004 base salary was based upon the Chief Executive Officer's
performance, industry standards, and the performance of the Company.
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 Executive Committee:
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
$2,300 for each meeting attended, except for the Chairman of the Board who
receives $4,600. In addition, the Chairman of the Board receives a $25,000
annual stipend for his services as Chairman.
11
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 $100,000 in salary and bonuses during the fiscal year ended March 31,
2004.
==================================================================================================================================
Summary Compensation Table
==================================================================================================================================
Annual Compensation Long-Term
Compensation Awards
- -------------------------- ----------- ------------- --------- ---------------- ------------- ---------- --------- ---------------
Other Restricted
Annual Stock Options/ All Other
Name and Fiscal Salary Bonus Compensation Award(s) SARs LTIP Compensation
Principal Position Year ($) ($) ($) (1) ($)(2) (#) Payouts ($)(3)
- -------------------------- ----------- ------------- --------- ---------------- ------------- ---------- --------- ---------------
Richard P. McStravick 2004 207,306 16,400 29,250 957,600 115,725 -- 3,942
President and Chief 2003 185,171 10,700 27,200 -- -- -- 3,942
Executive Officer 2002 171,875 12,000 18,500 -- -- -- 3,800
- -------------------------- ----------- ------------- --------- ---------------- ------------- ---------- --------- ---------------
Anthony J. Fabiano 2004 166,750 13,200 -- 767,600 106,370 -- --
Senior Vice President, 2003 148,250 12,000 -- -- -- -- --
Chief Financial Officer 2002 124,500 9,000 -- -- -- -- --
and Corporate Secretary
========================== =========== ============= ========= ================ ============= ========== ========= ===============
(1) Represents director's fees for service on the Company's and Bank's
Board of Directors.
(2) Represents stock awards pursuant to the 2004 Stock Plan with a value of
$15.20 at the date of the award.
(3) Consists of the use of the Bank's automobile.
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.
Director Retirement Plan. The Director Retirement Plan is an amendment
and restatement of the former Director Emeritus Program. Under the Director
Retirement Plan, any person who was a director on January 1, 2004, who retires
or dies after age 70 and who completes 15 years of continuous service as a
director becomes entitled to an annual retirement benefit for the longer of 20
years or his/her lifetime, equal to the amount of annual fees paid for
attendance at regular monthly board meetings during the preceding twelve months,
plus the amount of any annual stipend paid to such director in that year. A
director who retires at or after age 60 with 5 years but less than 15 years of
continuous service will receive an annual benefit for the longer of 20 years or
for his lifetime, equal to the amount of his/her annual fees paid for attendance
at regular monthly board meetings during the calendar year in which he/she
retires, plus the amount of any annual stipend paid to such director in that
year, multiplied by a fraction, the
12
numerator of which is the number of years of service and the denominator of
which is 15. A director who incurs a disability after 5 years of service will
receive a benefit identical to the benefit provided to a director who retires at
or after age 60 with 5 years of continuous service, irrespective of his/her age
at disability. In the event of a change in control, directors will be credited
with years of service as if they had remained members of the Board of Directors
until age 70 and be entitled to benefits payable in a lump sum, at the time of
the change in control. A retired director will receive the present value of his
remaining benefit paid in a lump sum at the time of a change in 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 $214,000 and $172,000, 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
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 (5) taxable years) includable in gross income for
federal income tax purposes. Messrs. McStravick and Fabiano would receive an
aggregate of approximately $731,000 and $586,000, 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 amount of such payments
and the value of such benefits received by the executive be equal to the amount
of such payments and the value of such benefits as the executive would receive
in the absence of such excise tax, including any federal, state and local taxes
on the Company's payment to the executive attributable to such taxes. The
agreements with the Company do not provide for additional compensation to either
executive.
Supplemental Executive Retirement Plan. The Supplemental Executive
Retirement Plan ("SERP") is a non-qualified plan which provides supplemental
retirement benefits to certain key employees. Supplemental retirement benefits
are calculated annually, based on certain actuarial assumptions, as the
difference between the benefit the executive would be entitled to receive upon
retirement at normal retirement age under Sound Federal's pension plan and
employee stock ownership plan, without giving consideration to the applicable
limitations under tax law, and the amount the executive is actually entitled to
receive as the result of the applicable limitations. Such benefit is payable in
monthly installments, commencing on the later of the first day of the month
following the month in which the executive attains his normal retirement age and
the first day of the month following the month in which the executive actually
retires, and continuing for the longer of 180 months or the executive's
lifetime. In the event the executive dies before attainment of normal retirement
age or following normal retirement but before completion of the payments due
under the SERP, the executive's beneficiary will be entitled to a benefit
payable
13
monthly or the continuation of the monthly payments for the remainder of the
payout period. In the event the executive's employment is involuntarily
terminated prior to attainment of the executive's normal retirement age, for any
reason other than cause, the executive's death, disability, or following a
change in control, or the executive voluntarily terminates employment, the
executive (or designated beneficiary) will be entitled to the executive's
accrued benefit at the time of termination of employment. Such benefit will
commence at the executive's normal retirement age, be annuitized and paid in
monthly installments throughout the payout period. The SERP administrator may
determine to pay such benefit in a lump sum. In the event the executive's
employment is terminated voluntarily or involuntarily following a change in
control, the executive will be entitled to the supplemental retirement benefit
as if the executive had remained employed by Sound Federal until attainment of
normal retirement age. In the event the executive becomes disabled, the
executive would be entitled to a benefit equal to accrued benefit, annuitized
and paid over the payout period. No benefits shall be paid in the event a
participant is terminated for cause.
Executive Life Insurance Plan. The Bank maintains life insurance
policies on the lives of certain executives. Participants commence participation
in the Plan by executing a split dollar endorsement for each policy covering the
life of the Participant. Upon the death of a participant in the Plan while the
participant is employed by the Bank, the death benefit will be the lesser of (i)
twice the participant's base annual salary, less any group term life insurance
benefit payable at the time of the participant's death, and (ii) the remainder
of the death benefit proceeds after payment to the Bank of 100% of the policy's
cash value, less any policy loans and unpaid interest or cash withdrawals
previously incurred by the Bank. In the event the participant dies following
termination of employment due to disability, retirement, or upon a change in
control, the participant's death benefit will be equal to the lesser of (i)
twice the participant's base annual salary at termination of employment, and
(ii) the remainder of the death benefit proceeds after payment to the Bank of
100% of the policy's cash value, less any policy loans and unpaid interest or
cash withdrawals previously incurred by the Bank. Participation in the Plan will
cease in the event of a participant's termination of employment for cause or
termination of employment prior to the participant's normal retirement age for
reasons other than disability or following a change in control.
Severance Plan for Key Employees. The Bank maintains a Severance Plan
for Key Employees, which is designed to offer a degree of economic security to
employees who do not have an employment agreement with the Bank, 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 twenty-four months, provided that the minimum severance
payment will be six months of base salary for an assistant vice-president and
twelve 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.
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"). In the
past, the Bank has contributed more than the minimum funding requirements. For
the year ended March 31, 2004, the Bank made contributions to the Retirement
Plans of approximately $787,000. At December 31, 2003, the total market value of
the assets in the Retirement Plans trust funds was approximately $10.2 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,
14
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 (3) 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
2004, 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 $ 25,711 $ 25,711 $ 25,711 $ 25,711
$ 75,000 $ 40,711 $ 40,711 $ 40,711 $ 40,711
$ 100,000 $ 55,711 $ 55,711 $ 55,711 $ 55,711
$ 125,000 $ 70,711 $ 70,711 $ 70,711 $ 70,711
$ 150,000 $ 85,711 $ 85,711 $ 85,711 $ 85,711
$ 170,000 $ 97,711 $ 97,711 $ 97,711 $ 97,711
$ 200,000 $ 115,711 $ 115,711 $ 115,711 $ 115,711
As of March 31, 2004, Mr. McStravick and Mr. Fabiano had 26 years and
five years, respectively, of credited service (i.e., benefit service) under the
Retirement Plans.
401(k) Plan. The Bank maintains the Sound Federal Savings and Loan
Association 401(k) Savings Plan in RSI Retirement Trust (the "401(k) Plan")
which is a qualified, tax-exempt defined contribution plan with a salary
deferral feature under Section 401(k) of the Code. Employees who have attained
age 21 and have completed one year of employment are eligible to participate,
provided, however, that leased employees, employees paid on an hourly or
contract basis, employees covered by a collective bargaining agreement and owner
employees (as defined in the plan) are not eligible to participate. Eligible
employees are entitled to enter the 401(k) Plan on a monthly basis.
Under the 401(k) Plan, participants are permitted to make salary
reduction contributions (in whole percentages) equal to the lesser of (i) from
1% to 10% of compensation or (ii) $10,000 (as indexed annually). For these
purposes, "compensation" includes wages, salary, fees and other amounts received
for personal services prior to reduction for the participant contribution to the
401(k) plan, commissions, compensation based on profits, overtime, bonuses, wage
continuation payments due to illness or disability of a short-term nature,
amounts paid or reimbursed for moving expenses, and the value of any
nonqualified stock option granted to the extent includable in gross income for
the year granted. Compensation does not include contributions made by the Bank
to any other pension, deferred compensation, welfare or other employee benefit
plan, amounts realized from the exercise of a nonqualified stock option or the
sale of a qualified stock option, and other amounts which received special tax
benefits. Compensation does not include compensation in excess of the Code
Section 401(a)(17) limits (i.e., $205,000 in 2004). All contributions and
earnings are fully and immediately vested. A participant may withdraw
15
salary reduction contributions, rollover contributions and matching
contributions in the event the participant suffers a financial hardship. A
participant may make a withdrawal from his or her accounts for any reason after
age 59 1/2.
The 401(k) Plan permits employees to direct the investment of his or her
own accounts into various investment options including an "Employer Stock Fund."
Participants are entitled to direct the trustee as to how to vote his or her
allocable shares of Common Stock in the Employer Stock Fund.
Plan benefits will be paid to each participant in the form of a single
cash payment at normal retirement age unless earlier payment is selected. If a
participant dies prior to receipt of the entire value of his or her 401(k) Plan
accounts, payment will generally be made to the beneficiary in a single cash
payment as soon as possible following the participant's death. Payment will be
deferred if the participant had previously elected a later payment date. If the
beneficiary is not the participant's spouse, payment will be made within one
year of the date of death. If the spouse is the designated beneficiary, payment
will be made no later than the date the participant would have attained age 70
1/2. Normal retirement age under the 401(k) Plan is age 65. Early retirement age
is age 55.
At March 31, 2004, the total market value of the assets in the 401(k)
Plan was approximately $3.6 million.
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
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 in amount to the 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.
2004 Incentive Stock Benefit Plan. During the year ended March 31, 2004,
the Company adopted, and the Company's stockholders approved the 2004 Incentive
Stock Benefit Plan (the "2004 Plan"). Under the 2004 Plan, the Company may issue
to key employees, non-employee directors and directors emeriti up to 1,089,303
shares of Company common stock pursuant to grants of stock options, limited
rights, reload options, dividend equivalent rights or stock awards, provided
that no more than 389,037 shares may be issued as stock awards. The term of
awards under the 2004 Plan, with the exception of stock awards, is ten years
from the date of grant, and the shares subject to such 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. A stock option gives the option
holder the right to purchase shares of common stock at a specified price for a
specified period of time. The exercise price shall not be less than the fair
market value on the date the stock option is granted. A limited right gives the
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. 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
16
corporation or its parent, as applicable. Dividend equivalent rights entitle the
holder of an option to receive an amount of cash equal to the dollar value of
dividends declared under certain circumstances. The holder of an option may
receive a payment under a dividend equivalent right where the dividend to be
paid to stockholders exceeds 200% of the Bank's weighted average cost of funds
on interest-bearing liabilities for the current and preceding three quarters and
the annualized aggregate dollar amount of the dividend exceeds the Bank's net
income after taxes for the current quarter and preceding three quarters. Reload
options entitle the 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 in amount to the 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 shares on the
date the original option is exercised. 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. For the year ended March 31, 2004, Messrs.
McStravick and Fabiano received 63,000 and 50,500 shares of restricted stock,
respectively, and options to purchase 115,725 and 106,370 shares of common stock
under the 2004 Plan. In addition, our non-employee directors received the
following under the 2004 Plan: Mr. Gioffre received 35,011 shares of restricted
stock, Messrs. Dinolfo, Heithaus, Lanza, Maynard, Staudt, and Telerico each
received 19,296 shares of restricted stock, and Ms. Bernhardt received 4,826
shares of restricted stock and all non-employee directors other than Mr. Gioffre
received options to purchase 31,673 shares of our common stock. Mr. Gioffre
received options to purchase 63,024 shares of our common stock. Restricted stock
granted under the 2004 Plan will vest ratably over a five year period with the
first vesting occurring on November 1, 2004. Option awards to employees and to
our non-employee directors will vest at the rate of 20% over a five-year period
commencing on the date of grant and have an exercise price of $15.20.
Set forth below is certain information regarding options granted to the
Named Executive Officers during the fiscal year ended March 31, 2004.
===================================================================================================================
OPTION GRANTS IN LAST FISCAL YEAR
===================================================================================================================
Individual Grants
- -------------------------- ------------- -------------------- ----------- ------------- ---------------------------
Percent of Total
Options Granted to
Options Employees in FY Exercise Expiration Grant Date Present
Name Granted 2004 Price Date Value
- -------------------------- ------------- -------------------- ----------- ------------- ---------------------------
Richard P. McStravick 115,725 17.4% $15.20 2/05/2014 $ 484,888
- -------------------------- ------------- -------------------- ----------- ------------- ---------------------------
Anthony J. Fabiano 106,370 16.0% $15.20 2/05/2014 $ 445,690
========================== ============= ==================== =========== ============= ===========================
The grant date present value of $4.19 per share was computed using the
Black-Scholes option pricing model and the following assumptions: dividend yield
of 1.6%, volatility rate of approximately 21%, risk-free interest rate of 4.7%
and expected option life of seven-years.
17
Set forth below is certain information concerning options outstanding to
the Named Executive Officers at March 31, 2004 and options exercised by the
Named Executive Officers during the fiscal year ending March 31, 2004.
====================================================================================================================
FISCAL YEAR-END OPTION VALUES
============================ ================ ================= ========================= ==========================
Number of Unexercised Value of Unexercised
Options at In-The-Money Options at
Year-End Year-End (1)
------------------------- --------------------------
Shares Acquired Value Exercisable/Unexercisable Exercisable/Unexercisable
Name Upon Exercise Realized (#) ($)
- ---------------------------- ---------------- ----------------- ------------------------- --------------------------
Richard P. McStravick 8,000 $ 97,376 142,415/92,580 $1.4 million/$--
- ---------------------------- ---------------- ----------------- ------------------------- --------------------------
Anthony J. Fabiano 12,000 $146,424 119,942/85,096 $1.1 million/$--
============================ ================ ================= ========================= ==========================
- ------------------------------------
(1) Based on a market value of $14.70 per share at March 31, 2004 and an
exercise price of $3.298 for the options granted in 2000 and $15.20 for
the options granted in 2004.
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, 2004 regarding
equity compensation to directors, directors emeriti, executive officers and
employees of the Company approved by stockholders.
===================================================================================================================
Number of securities to be
issued upon exercise of Number of securities
outstanding options and Weighted average remaining available for
Plan Category rights exercise price issuance under plans
- -------------------------------------------------------------------------------------------------------------------
Equity compensation plans approved by
stockholders(1) 1,503,587 $10.40 (2) 35,013
- -------------------------------------------------------------------------------------------------------------------
Equity compensation plans not approved
by stockholders -- -- --
- -------------------------------------------------------------------------------------------------------------------
Total 1,503,587 $10.40 35,013
===================================================================================================================
- -------------
(1) Includes 389,037 shares awarded under the 2004 Plan that were unvested
at March 31, 2004.
(2) Relates to 1,114,550 outstanding stock options.
Employee Stock Ownership Plan and Trust
The Bank has an employee stock ownership plan ("ESOP") for eligible
employees. 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 during the
year are eligible to participate. The ESOP borrowed funds from the Company and
used those funds to purchase 531,563 shares of the Company Common Stock in the
1998 conversion to a mutual holding company. The ESOP purchased 622,458 shares
of the Company's Common Stock in the Company's second-step conversion that was
completed in January 2003. The shares were purchased with the proceeds of a $6.2
million loan from the Company. The loans are collateralized by the Common Stock
purchased by the ESOP. The Bank will contribute to the ESOP sufficient funds to
pay the principal and interest on the loans. At March 31, 2004, the loans have
balances of $769,000 and $6.1 million, respectively; have a ten-year and
twenty-year term, respectively; and bear interest at the prime rate and 6.0%,
respectively. Shares purchased by the ESOP are held in a suspense account for
allocation among participants as the loan is repaid.
Shares are released from the suspense account in an amount proportional
to the repayment of the ESOP loans and are allocated among ESOP participants on
the basis of compensation in the year of allocation.
Participants in the ESOP received credit for service prior to the
effective date of the ESOP. A participant vests in 100% of his or her account
balance after 5 years of credited service. A participant who terminates
18
employment for reasons other than death, retirement, disability or following a
change in control prior to five years of credited service will forfeit the
nonvested portion of his or her benefits under the ESOP. Benefits are payable in
the form of Common Stock and cash upon death, retirement, disability or
separation from service. Alternatively, a participant may request that the
benefits be paid entirely in the form of Common Stock.
- --------------------------------------------------------------------------------
TRANSACTIONS WITH CERTAIN RELATED PERSONS
- --------------------------------------------------------------------------------
Transactions With Certain Related Persons
The Bank offers loans to directors, officers, and employees which are
made by the Bank to such persons 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 an
issuer from: (1) extending or maintaining credit; (2) arranging for the
extension of credit; or (3) renewing an extension of credit in the form of a
personal loan for an officer or director. There are several exceptions to this
general prohibition, one of which is applicable to the Company. Sarbanes-Oxley
does not apply to loans made by a depository institution that is insured by the
FDIC and is subject to the insider lending restrictions of the Federal Reserve
Act. All loans to the Company's directors and officers are made in conformity
with the Federal Reserve Act and applicable regulations.
Set forth below is certain information as to loans made by Sound
Federal Savings to certain of its directors and executive officers, or their
affiliates, whose aggregate indebtedness to Sound Federal Savings exceeded
$60,000 at any time since April 1, 2003. All of the loans are secured loans and
all loans designated as residential loans are first mortgage loans secured by
the borrower's principal place of residence.
Highest Interest
Original Balance Balance on Rate
Date Loan During 2004 March 31, on March
Name of Individual Loan Type Originated Amount Fiscal Year 2004 31, 2004
------------------ --------- ---------- ------ ----------- ---- --------
Joseph Dinolfo Personal 7/26/2002 $168,000 $ 151,845 $ 120,604 6.50%
Bruno J. Gioffre Residential Mortgage 5/6/1998 300,000 234,154 219,801 5.00
Donald H. Heithaus Residential Mortgage 10/15/1997 300,000 279,320 269,725 5.25
Commercial Mortgage 2/27/2002 600,000 577,021 551,022 6.25
Home Equity 6/11/2003 300,000 263,119 263,119 7.00
Joseph A. Lanza Home Equity 12/17/2002 260,000 204,210 204,210 7.00
Commercial Mortgage 06/10/2003 220,000 220,000 218,258 6.125
Bruno J. Gioffre, in addition to his duties as Chairman of the Board of
the Company, is counsel to the law firm of Gioffre & Gioffre Professional
Corporation, which represents the Bank in mortgage loan transactions. For the
year ended March 31, 2004, the Bank paid Gioffre & Gioffre Professional
Corporation fees of $258,000. The terms and conditions of these fees and
services are substantially the same as those for similar transactions with other
parties.
James Staudt, in addition to his duties as a Director of the Company,
is a partner in the law firm of McCullough, Goldberger & Staudt, LLP which also
represents the Bank in mortgage loan transactions. Effective January 1, 1999,
Mr. Staudt has also acted as general counsel to the Company. For the year ended
March 31, 2004,
19
the Bank paid McCullough, Goldberger & Staudt fees of $95,000 and paid Mr.
Staudt legal fees of $37,500 for his services as general counsel.
Joseph A. Lanza, in addition to his duties as Director of the Company,
is the President of Lanza Electric, an electrical contractor. Lanza Electric
provides services to the Bank. For the year ended March 31, 2004, the Bank paid
Lanza Electric $84,000.
- --------------------------------------------------------------------------------
PROPOSAL II--RATIFICATION OF APPOINTMENT OF AUDITORS
- --------------------------------------------------------------------------------
The Company's independent auditors for the year ended March 31, 2004
were KPMG LLP. The Audit Committee of the Company has approved the engagement of
KPMG LLP to be the Company's independent auditors for the year ending March 31,
2005, subject to the ratification of the engagement by the Company's
stockholders at the Meeting. Representatives of KPMG LLP are expected to attend
the Meeting to respond to appropriate questions and to make a statement if
deemed appropriate.
Set forth below is certain information concerning aggregate fees billed
for professional services rendered during fiscal years 2004 and 2003 by KPMG
LLP. The aggregate fees included in the Audit category were fees billed for the
fiscal years for the audit of the Company's annual financial statements and the
review of the Company's quarterly financial statements. The aggregate fees
included in each of the other categories were fees billed in the fiscal years.
2004 2003
---------- ---------
Audit Fees $ 223,000 $ 297,000
Audit-Related Fees -- --
Tax Fees 41,450 113,050
All Other Fees -- --
Audit Fees. Audit fees of $217,500 in fiscal year 2004 and $159,000 in
fiscal year 2003 were for professional services rendered for the audits of the
consolidated financial statements of the Company, review of the financial
statements included in the Company's quarterly reports on Form 10-Q and the
internal controls attestation required under Federal Deposit Insurance
Corporation regulations. Audit fees also include $5,500 in fiscal year 2004 and
$138,000 in fiscal year 2003 for professional services in connection with SEC
filings, including those related to the second-step conversion.
Tax Fees. Tax fees of $41,450 in fiscal year 2004 and $73,050 in fiscal
year 2003 were for services related to tax compliance and tax planning. Fiscal
year 2003 also includes $40,000 for tax services associated with the second-step
conversion.
The Audit Committee considered whether the provision of non-audit
services was compatible with maintaining the independence of its auditors. The
Audit Committee concluded that performing such services did not affect the
auditors' independence in performing their function as auditors of the Company.
Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of
Independent Auditor
The Audit Committee's policy is to pre-approve all audit and non-audit
services provided by the independent auditors. These services may include audit
services, audit-related services, tax services and other services. The Audit
Committee has delegated pre-approval authority to its Chairman when expedition
of services is necessary. The independent auditors and management are required
to periodically report to the full Audit Committee regarding the extent of
services provided by the independent auditors in accordance with this
pre-approval, and the fees for the services performed to date. The tax fees paid
in fiscal year 2004 were for services commenced prior to the implementation of
the Audit Committee's pre-approval policies.
20
In order to ratify the selection of KPMG LLP as the auditors for the
2005 fiscal year, the proposal must receive the affirmative vote of a majority
of the shares represented at the Meeting and entitled to vote. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF KPMG LLP AS AUDITORS FOR
THE 2005 FISCAL YEAR.
- --------------------------------------------------------------------------------
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 10, 2005.
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.
The date on which next year's annual meeting of stockholders is expected
to be held is August 11, 2005. 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 May 13, 2005.
- --------------------------------------------------------------------------------
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
they shall act in accordance with their best judgment.
The cost of solicitation of proxies will be borne by the Company. 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.
21
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED MARCH 31, 2004 WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE
RECORD DATE UPON WRITTEN REQUEST TO THE CORPORATE SECRETARY, SOUND FEDERAL
BANCORP, INC., 1311 MAMARONECK AVENUE, WHITE PLAINS, NEW YORK 10605.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Anthony J. Fabiano
Anthony J. Fabiano
Corporate Secretary
White Plains, New York
July 8, 2004
22
EXHIBIT A
Audit and Compliance Committee Charter of Sound Federal Bancorp, Inc.
---------------------------------------------------------------------
Organization
This Charter governs the operations of the Audit and Compliance Committee (the
"Committee") of Sound Federal Bancorp, Inc. (the "Company") and its subsidiary,
Sound Federal Savings and its subsidiaries. The Committee shall review and
reassess the charter at least annually and obtain the approval of the Board of
Directors as to any modifications thereof. The Committee shall consist of
members of, and shall be appointed by, the Board of Directors and shall comprise
at least three directors, each of whom is independent of management and the
Company. Members of the Committee shall be considered independent so long as
they do not accept any consulting, advisory, or other compensatory fee from the
Company and are not an affiliated person of the Company or its subsidiaries, and
meet all other independence requirements set forth in the applicable NASDAQ
regulations and Securities Act Rule 10A-3. All Committee members shall be
financially literate, and at least one member shall be an "Audit Committee
financial expert," as defined by SEC and applicable NASDAQ regulations.
Purpose
The Committee shall provide assistance to the Board of Directors in fulfilling
its oversight responsibility to the shareholders, potential shareholders, the
investment community, and others relating to: the integrity of the Company's
financial statements; the financial reporting process; the systems of internal
accounting and financial controls; the performance of the Company's internal
audit function and external auditors; the external auditor's qualifications and
independence; and the Company's compliance with ethics policies and legal and
regulatory requirements. In so doing, it is the responsibility of the Committee
to maintain free and open communication between the Committee, external
auditors, the internal auditors, and management of the Company.
In discharging its oversight role, the Committee is empowered to investigate any
matter brought to its attention with full access to all books, records,
facilities, and personnel of the Company and the authority to engage independent
counsel and other advisers as it determines necessary to carry out its duties.
Duties and Responsibilities
The primary responsibility of the Committee is to oversee the Company's
financial reporting process on behalf of the Board of Directors and report the
results of its activities to the Board of Directors. While the Committee has the
responsibilities and powers set forth in this Charter, it is not the duty of the
Committee to plan or conduct audits or to determine itself that the Company's
financial statements are complete and accurate and are fairly presented, in all
material respects, in conformity with generally accepted accounting principles
in the United States. Management is responsible for the preparation,
presentation, and integrity of the Company's financial statements and for the
appropriateness of the accounting principles and reporting policies that are
used by the Company. The external auditors are responsible for auditing the
Company's financial statements and for performing timely reviews of the
Company's unaudited interim financial statements.
The Committee, in carrying out its responsibilities, believes its duties and
responsibilities should remain flexible and subject to periodic revision in
order to best react to changing conditions and circumstances. The Committee
should take appropriate actions to ensure that Management sets the overall
corporate "tone" for quality financial reporting, sound business risk practices,
and ethical behavior. The following shall be the principal duties and
responsibilities of the Committee. These are set forth as a guide with the
understanding that the Committee may supplement them as appropriate.
o The Committee shall be directly responsible for the
appointment, termination, compensation, and oversight of the
work of the external auditors, including resolution of
disagreements between Management and the auditor regarding
financial reporting.
o The Committee shall pre-approve all audit and non-audit
services provided by the external auditors and shall not
engage the external auditors to perform the specific non-audit
services prohibited by law or regulation.
o The Committee may delegate pre-approval authority to one or
more members of the Committee. The decisions of any Committee
member to whom pre-approval authority is delegated must be
presented to the full Committee for ratification at its next
scheduled meeting.
A-1
o At least annually, the Committee shall obtain and review a
report or reports prepared by the external auditors
describing:
o The matters specified by Statement on Auditing
Standards ("SAS") No. 61, "Communication with Audit
Committees", as amended; and
o The firm's communication concerning independence
matters, as required by rules promulgated by the
Independence Standards Board.
The communication under SAS No. 61 should include a discussion of the
critical accounting policies and practices of the Company and alternative
treatments of financial information within generally accepted accounting
principles that have been discussed with management.
o The Committee shall discuss with the external auditors the
results of inspections and quality control reviews of the
external audit firm conducted by the Public Company Accounting
Oversight Board.
o The Committee shall discuss with the internal auditors and the
external auditors the overall scope and plans for their
respective audits, including the adequacy of staffing and
compensation.
o The Committee shall discuss with management, the internal
auditors, and the external auditors the adequacy and
effectiveness of the accounting and financial controls,
including the Company's policies and procedures to assess,
monitor, and manage business risks and legal and ethical
compliance programs (e.g., the Company's Code of Conduct).
o Periodically, the Committee shall meet separately with
Management, the internal auditors, and the external auditors
to discuss issues and concerns warranting Committee attention.
The Committee shall provide sufficient opportunity for the
internal auditors and the external auditors to meet privately
with the members of the Committee.
o The Committee shall review Management's assertion on its
assessment of the effectiveness of internal controls as of the
end of the most recent fiscal year and the external auditors'
report on Management's assertion.
o The Committee shall review the interim financial statements
and disclosures under Management's Discussion and Analysis of
Financial Condition and Results of Operations. Also, the
Committee shall discuss the results of the quarterly review
and any other matters required to be communicated to the
Committee by the external auditors under generally accepted
auditing standards. The Chair of the Committee may represent
the entire Committee for the purposes of this review.
o The Committee shall review with Management and the external
auditors the financial statements and disclosures under
Management's Discussion and Analysis of Financial Condition
and results of operations to be included in the Company's
Annual Report on Form 10-K (or the annual report to
shareholders if distributed prior to the filing of Form 10-K),
including their judgment about the quality, not just the
acceptability, of the accounting principles, the
reasonableness of significant judgments, and the clarity of
the disclosures in the financial statements.
o The Committee shall establish procedures for the receipt,
retention, and treatment of complaints received by the issuer
regarding accounting, internal accounting controls, or
auditing matters, and the confidential, anonymous submission
by employees of the issuer of concerns regarding questionable
accounting or auditing matters.
o The Committee shall receive a report from the Company's
General Counsel of any evidence of any material violation of
securities laws or breaches of fiduciary duty.
o The Committee shall also prepare its report to be included in
the Company's annual proxy statement, as required by SEC
regulations.
A-2
o The Committee shall perform an evaluation of its performance
at least annually to determine whether it is functioning
effectively.
A-3
REVOCABLE PROXY
SOUND FEDERAL BANCORP, INC.
ANNUAL MEETING OF STOCKHOLDERS
August 12, 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 the Company which the undersigned is entitled
to vote at the Annual Meeting of Stockholders ("Meeting") to be held at the
Company's corporate offices at 1311 Mamaroneck Avenue, White Plains, New York at
4:00 p.m., (local time) on August 12, 2004. The official proxy committee is
authorized to cast all votes to which the undersigned is entitled as follows:
FOR
WITHHOLD ALL
FOR ALL EXCEPT
--- ----- ------
1. The election as directors of all nominees
listed below (except as marked to the
contrary below) |_| |_| |_|
Joseph Dinolfo
Eldorus Maynard
Samuel T. Telerico
INSTRUCTION: To withhold your vote for one or
more nominees, write the name of the
nominee(s) on the line(s) below.
----------------------------------
----------------------------------
FOR AGAINST ABSTAIN
--- ------- -------
2. The ratification of the appointment of KPMG
LLP as auditors for the fiscal year ending |_| |_| |_|
March 31, 2005.
The Board of Directors recommends a vote "FOR" each of the listed proposals.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR EACH OF THE PROPOSITIONS 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 the
Company 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 the Company at the address set forth on the Notice of
Annual 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 the Company prior to the
execution of this proxy of a Notice of the Meeting, the Company's Annual Report
for the year ended March 31, 2004 and a proxy statement dated July 8, 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.