SCHEDULE 14-A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant []
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Sound Federal Bancorp
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(Name of Registrant as Specified In Its Charter)
Alan Schick, Luse Lehman Gorman Pomerenk & Schick, PC
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(Name of Person(s) Filling Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
.......................................................................
2) Aggregate number of securities to which transaction applies:
.......................................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
.......................................................................
4) Proposed maximum aggregate value of transaction:
.......................................................................
5) Total fee paid:
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[ ] Fee previously paid:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
July 7, 2005
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 11, 2005.
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 the Company's independent
registered public accounting firm for the 2006 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
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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 11, 2005
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 11, 2005 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 the
Company's independent registered public accounting firm for
the fiscal year ending March 31, 2006; 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 20, 2005 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 7, 2005
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 11, 2005
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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 11, 2005 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 7, 2005.
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REVOCATION OF PROXIES
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Stockholders who properly complete their proxies 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.
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VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
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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 20, 2005 (the "Record
Date") are entitled to one vote for each share then held. As of the Record Date,
the Company had 12,298,206 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.
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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 1,118,291 8.7%
Named Directors and Executive Officers:(1)
Bruno J. Gioffre (3) 285,581 2.3
Richard P. McStravick (4) 366,588 2.9
Roberta I. Bernhardt (5) 18,994 0.2
Joseph Dinolfo (6) 149,745 1.2
Donald H. Heithaus (7) 143,368 1.2
Joseph A. Lanza (8) 130,419 1.1
Eldorus Maynard (9) 83,870 0.7
James Staudt (10) 118,215 1.0
Samuel T. Telerico (11) 32,294 0.3
Anthony J. Fabiano (12) 229,925 1.9
All executive officers and directors
as a group (10 persons) 1,558,999 12.2%
_____________________________
(footnotes on following page)
(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 25,209 shares underlying options
exercisable within 60 days of the record date.
(4) Mr. McStravick has sole voting power over 198,826 shares and shared voting
power over 22,202 shares. Includes 145,560 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 12,668 shares underlying options
exercisable within 60 days of the record date.
(6) Mr. Dinolfo has sole voting power over 98,342 shares. Includes 51,403
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 31,403 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 51,403 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 12,668 shares underlying options
exercisable within 60 days of the record date.
(10) Mr. Staudt has sole voting power over 63,218 shares and shared voting power
over 3,594 shares. Includes 51,403 shares underlying options exercisable
within 60 days of the record date.
(11) Mr. Telerico has sole voting power over 19,326 shares and shared voting
power over 300 shares. Includes 12,668 shares underlying options
exercisable within 60 days of the record date.
(12) Mr. Fabiano has sole voting power over 108,709 shares. Includes 121,216
shares underlying options exercisable within 60 days of the record date.
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PROPOSAL I--ELECTION OF DIRECTORS
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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 Bruno J. Gioffre, James Staudt and
Richard P. McStravick, each to serve for a three-year term. Messrs. Gioffre,
Staudt and McStravick 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.
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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
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NOMINEES
Bruno J. Gioffre 70 Chairman of the Board 1975 2005 285,581 2.3%
James Staudt 53 Director 1987 2005 118,215 1.0%
Richard P. McStravick 56 President, Chief 1996 2005 366,588 2.9%
Executive Officer
and Director
DIRECTORS CONTINUING IN OFFICE
Donald H. Heithaus 70 Director 1978 2006 143,368 1.2%
Joseph A. Lanza 58 Director 1998 2006 130,419 1.1%
Roberta I. Bernhardt 66 Director 2003 2006 18,994 0.2%
Joseph Dinolfo 71 Director 1985 2007 149,745 1.2%
Eldorus Maynard 70 Director 2000 2007 83,870 0.7%
Samuel T. Telerico 69 Director 2001 2007 32,294 0.3%
- ----------------------------
(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.
Mr. Heithaus is a trustee and a member of the Executive Committee of the
Teamsters Center Service Fund (the "Fund"). The Fund provides benefits and
services to Teamsters and their families.
Joseph A. Lanza is the President of Lanza Electric, a private electrical
contractor.
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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.
James Staudt is a partner with the law firm of McCullough, Goldberger &
Staudt, LLP. Mr. Staudt is 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. A majority of
the Board of Directors is "independent."
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.
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MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
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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, 2005, the Board of Directors of the Company held eight regular
and special meetings. During the year ended March 31, 2005, 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. The
independent directors of the Board of the Company 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 Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee (the "Nominating
Committee") of the Company consists of directors Heithaus, Dinolfo and Maynard.
During the year ended March 31, 2005, two meetings of the Nominating Committee
were held. Each member of the Nominating Committee is considered "independent"
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;
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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 the membership of all committees.
The Nominating Committee begins its search for individuals qualified to
become members of the Board 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 recommendation and
re-election, 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, if the Committee decides not to
recommend an existing member for nomination, if the Board decides not to
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 qualified individuals. 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. 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 based upon the assumption that the month and day of
the proxy materials will be the same as it was for the preceding year. The
submission must include the following information:
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);
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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 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.
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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 Audit 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 registered public accounting firm; and
o Provide an open avenue of communication among the independent
registered public accounting firm, 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, 2005.
The Audit Committee reviews the contents of and conclusions in audit
reports prepared by the internal auditor and the Company's independent
registered public accounting firm; reviews and approves the annual engagement of
the Company's independent registered public accounting firm, the Company's audit
policy, the internal audit function and the plan of audit coverage; and reviews
with management, and the Company's independent registered public accounting
firm, 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, which 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 registered public accounting firm is
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 Company's independent registered public accounting
firm, to review and discuss the March 31, 2005 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
communication from KPMG LLP, concerning the firm's independence from the
Company.
Based upon the Audit Committee's discussions with management and the
independent registered public accounting firm for the Company, and the Audit
Committee's review of the representations of management and the independent
registered public accounting firm for the Company, 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, 2005, filed with the Securities and Exchange Commission.
This report shall not be deemed incorporated by reference by any general
statement incorporating by reference this proxy statement into any filing under
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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
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, 2000 and ending on March 31, 2005. 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]
March 31, Year Ended March 31,
--------- ------------------------------------------------------
Index 2000 2001 2002 2003 2004 2005
- ------------------------------- --------- ------------------------------------------------------
Sound Federal Bancorp, Inc. 100.00 126.33 206.54 483.00 576.18 614.87
SIC Code 6035 - Federal Savings
Institutions 100.00 157.34 187.12 199.33 307.91 330.96
Nasdaq Market Index 100.00 41.16 41.67 30.56 45.62 45.82
9
<Page>
Compensation Committee Interlocks and Insider Participation
The Company does not independently compensate its executive officers or
employees. The independent directors of the Board had the principal
responsibility for making recommendations to the Board of Directors for the
compensation of senior officers. The Executive Committee of the Bank made
recommendations to the Board of Directors for the compensation of directors and
employees other than executive officers. The Nominating and Corporate Governance
Committee also reviewed the compensation of directors. The Executive Committee
consists of Directors Gioffre, Heithaus, Dinolfo and Staudt. The Executive
Committee also reviewed the benefits provided to the Bank's officers and
employees. During the year ended March 31, 2005 the Executive Committee met
three times.
Report of the Independent Directors Regarding Compensation
Under rules established by the SEC, the Company is required to provide
certain data and information in regard to the compensation and benefits provided
to the Company's Chief Executive Officer and 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
independent directors of the Company, has prepared the following report for
inclusion in this proxy statement.
In fiscal year 2005, the independent directors of the Board had 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. The Board of Directors determines executive
compensation based on the recommendations 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 executive officers 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 independent
directors utilized various informational sources, including the "Savings and
Community Bankers Annual Salary Survey." In addition, the independent directors
considered the overall profitability of the Bank and the executive officer's
contribution to the Bank when making their recommendation to the Board of
Directors.
The Board of Directors approved a base salary for the Bank's Chief
Executive Officer of $240,000 for calendar year 2005, which represented a 12.1%
increase from the Chief Executive Officer's base salary of $214,000 in calendar
year 2004. The 2005 base salary was based upon the Chief Executive Officer's
performance, industry standards, and the performance of the Company.
The primary goal of the Board of Directors with respect to executive
officer compensation 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 Company.
This report has been provided by the independent directors of the Board of
Directors: Directors Heithaus, Bernhardt, Dinolfo, Lanza, Maynard and Telerico
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 $2,500
for each meeting attended, except for the Chairman of the Board who receives
$5,000. In addition, the Chairman of the Board receives a $40,000 annual stipend
for his services as Chairman.
10
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 $100,000 in salary and bonuses during the fiscal year ended March 31,
2005.
==================================================================================================================================
Summary Compensation Table
==================================================================================================================================
Long-Term
Annual Compensation Compensation Awards
- ------------------------------------------------------------------------------- ---------------------------------- ---------------
Other Restricted
Annual Stock Options/ All Other
Name and Fiscal Salary Bonus Compensation Award(s) SARs LTIP Compensation
Principal Position Year ($) ($) ($) (1) ($)(2) (#) Payouts ($)(3)
- -------------------------- ----------- ------------- --------- ---------------- ------------- ---------- --------- ---------------
Richard P. McStravick 2005 226,455 17,120 28,200 -- -- -- 3,421
President and Chief 2004 207,306 16,400 29,250 957,600 115,725 -- 3,942
Executive Officer 2003 185,171 10,700 27,200 -- -- -- 3,942
- -------------------------- ----------- ------------- --------- ---------------- ------------- ---------- --------- ---------------
Anthony J. Fabiano 2005 176,818 13,794 -- -- -- -- --
Senior Vice President, 2004 166,750 13,200 -- 767,600 106,370 -- --
Chief Financial Officer 2003 148,250 12,000 -- -- -- -- --
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 per share 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. In December 2004, the Director Plan was frozen to
preserve and grandfather the exisiting features that do not conform to the
requirements of new Internal Revuene Code Section 409A enacted under the
American Jobs Creation Act of 2004. Also, in December 2004, the Board approved
the adoption of a 2005 Directors Deferred Fee Plan that conforms with the
requirements of Internal Revenue Section 409A.
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 calendar year in which
he/she retires, 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
11
<Page>
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 preceding twelve
months in which he/she retires, plus the amount of any annual stipend paid to
such director in that year, multiplied by a fraction, the 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 $240,000 and $190,000, 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 $949,000 and $713,000, 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
12
<Page>
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 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 the 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
13
<Page>
the year ended March 31, 2005, the Bank made contributions to the Retirement
Plans of approximately $727,000. At December 31, 2004, the total market value of
the assets in the Retirement Plans trust funds was approximately $11.0 million.
In the event of retirement on or after the normal retirement date (i.e.,
the first day of the calendar month coincident with or next following the later
of age 65 or the fifth anniversary of participation in the Retirement Plans, or,
for a participant prior to January 1, 1992, age 65), the plan is designed to
provide a single life annuity. For a married participant, the normal form of
benefit is an actuarially reduced joint and survivor annuity where, upon the
participant's death, the participant's spouse is entitled to receive a benefit
equal to 50% of that paid during the participant's lifetime. Alternatively, a
participant may elect (with proper spousal consent, if necessary) from various
other options, including a joint and 100% survivor annuity, joint and 66-2/3%
survivor annuity, joint and 50% survivor annuity, years certain option and
social security option. The normal retirement benefit provided is an amount
equal to the difference between 4% of final earnings (as defined in the plan)
and 0.65% of the final average compensation (average earnings during the last
three (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 $ 25,481 $ 25,481 $ 25,481 $ 25,481
$ 75,000 $ 40,481 $ 40,481 $ 40,481 $ 40,481
$ 100,000 $ 55,481 $ 55,481 $ 55,481 $ 55,481
$ 125,000 $ 70,481 $ 70,481 $ 70,481 $ 70,481
$ 150,000 $ 85,481 $ 85,481 $ 85,481 $ 85,481
$ 170,000 $ 97,481 $ 97,481 $ 97,481 $ 97,481
$ 200,000 $115,481 $ 115,481 $ 115,481 $ 115,481
$ 205,000 $118,481 $ 118,481 $ 118,481 $ 118,481
As of March 31, 2005, Mr. McStravick and Mr. Fabiano had 27 years and six
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 (as defined in the 401(k) Plan) or (ii) $10,000 (as indexed
annually).
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<Page>
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, 2005, the total market value of the assets in the 401(k) Plan
was approximately $4.0 million.
Stock Option Plan. Pursuant to the 1999 Stock Option Plan (the "Stock
Option Plan"), options to purchase 583,048 shares were granted 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"). During the year ended March 31, 2004, the
Company issued 389,037 shares as stock awards and granted 665,253 stock options
under the 2004 Plan. The Company did not issue any stock awards or grant any
stock options during fiscal year 2005. Stock options granted under the 2004 Plan
have a term of 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 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
15
<Page>
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. Restricted stock granted under the 2004 Plan
vests 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 February 5,
2004 and have an exercise price of $15.20.
Set forth below is certain information concerning options outstanding to
the Named Executive Officers at March 31, 2005 and options exercised by the
Named Executive Officers during the fiscal year ended March 31, 2005.
====================================================================================================================
FISCAL YEAR-END OPTION VALUES
====================================================================================================================
Number of Unexercised Value of Unexercised
Options at In-The-Money Options at
Year-End Year-End (1)
------------------------- --------------------------
Shares Acquired Value Exercisable/Unexercisable Exercisable/Unexercisable
Name Upon Exercise Realized (#) ($)
- ---------------------------- ---------------- ----------------- ------------------------- --------------------------
Richard P. McStravick 20,000 $ 239,640 145,560/69,435 $1.2 million/$19,442
- ---------------------------- ---------------- ----------------- ------------------------- --------------------------
Anthony J. Fabiano 20,000 $ 199,640 121,216/63,822 $970,000/$17,870
============================ ================ ================= ========================= ==========================
- ------------------------------------
(1) Based on a market value of $15.48 per share at March 31, 2005 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, 2005 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) 1,348,115 $10.93(2) 35,013
- -------------------------------------------------------------------------------------------------------------------
Equity compensation plans not approved
by stockholders -- -- --
- -------------------------------------------------------------------------------------------------------------------
Total 1,348,115 $10.93 35,013
===================================================================================================================
- --------------------
(1) Includes 311,230 shares awarded under the 2004 Plan that were unvested at
March 31, 2005. (2) Relates to 1,036,885 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 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
16
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principal and interest on the loans. At March 31, 2005, the 1998 and 2003 loans
have balances of $576,000 and $5.9 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 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.
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TRANSACTIONS WITH CERTAIN RELATED PERSONS
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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, 2004. 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
Original Balance Balance on Interest Rate
Date Loan During 2005 March 31, on March
Name of Individual Loan Type Originated Amount Fiscal Year 2005 31, 2005
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Joseph Dinolfo Personal 7/26/2002 $168,000 $ 120,604 $ 85,250 6.50%
Bruno J. Gioffre Residential Mortgage 5/6/1998 300,000 219,801 200,284 5.00
Donald H. Heithaus Residential Mortgage 10/15/1997 300,000 269,726 256,760 5.25
Commercial Mortgage 2/27/2002 600,000 551,022 522,641 6.25
Home Equity 6/11/2003 300,000 263,119 -- --
Joseph A. Lanza Home Equity 12/17/2002 260,000 259,610 259,610 7.00
Commercial Mortgage 06/10/2003 220,000 218,258 215,440 6.125
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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, 2005, the Bank paid Gioffre & Gioffre Professional
Corporation fees of $222,000. 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 general counsel and 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. For the year
ended March 31, 2005, the Bank paid McCullough, Goldberger & Staudt fees of
$194,000.
Joseph A. Lanza, in addition to his duties as a 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, 2005, the Bank paid
Lanza Electric $35,000.
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PROPOSAL II--RATIFICATION OF APPOINTMENT OF THE COMPANY'S INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
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The Company's independent registered public accounting firm for the year
ended March 31, 2005 was KPMG LLP. The Audit Committee of the Company has
approved the engagement of KPMG LLP to be the Company's independent registered
public accounting firm for the year ending March 31, 2006, 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 2005 and 2004 by KPMG LLP.
The aggregate fees included in the Audit Fees 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.
2005 2004
----------- ------------
Audit Fees $ 465,000 $ 223,000
Audit-Related Fees -- --
Tax Fees 49,000 41,450
All Other Fees -- --
Audit Fees. Audit Fees represent fees for professional services rendered
for the audit of the Company's consolidated financial statements, the reviews of
the unaudited consolidated financial statements included in the Quarterly
Reports on Form 10-Q and services normally provided in connection with statutory
and regulatory filings or engagements including, for the fiscal year ended March
31, 2005, services rendered in connection with the audit of internal control
over financial reporting as required by the Sarbanes-Oxley Act of 2002.
Tax Fees. Tax Fees represent fees for professional services for tax
compliance (preparation and review of the Company's income tax returns), tax
advice and tax planning.
The Audit Committee considered whether the provision of non-audit services
was compatible with maintaining the independence of KPMG LLP. The Audit
Committee concluded that performing such services did not affect the firm's
independence in performing its function as the Company's independent registered
public accounting firm.
Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of the
Company's Independent Registered Public Accounting Firm
The Audit Committee's policy is to pre-approve all audit and non-audit
services provided by the independent registered public accounting firm. These
services may include audit services, audit-related services, tax services and
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other services. The Audit Committee has delegated pre-approval authority to its
Chairman when expedition of services is necessary. The independent registered
public accounting firm and management are required to periodically report to the
full Audit Committee regarding the extent of services provided by the
independent registered public accounting firm in accordance with this
pre-approval, and the fees for the services performed to date.
In order to ratify the selection of KPMG LLP as the Company's independent
registered public accounting firm for the 2006 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 THE COMPANY'S INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM FOR THE 2006 FISCAL YEAR.
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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 9, 2006.
Any such proposals shall be subject to the requirements of the proxy rules
adopted under the Exchange Act.
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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, the
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 10, 2006. 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 12, 2006.
- -------------------------------------------------------------------------------
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.
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A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED MARCH 31, 2005 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 7, 2005
20
REVOCABLE PROXY
SOUND FEDERAL BANCORP, INC.
ANNUAL MEETING OF STOCKHOLDERS
August 11, 2005
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 11, 2005. The official proxy committee is
authorized to cast all votes to which the undersigned is entitled as follows:
WITHHOLD FOR ALL
FOR All EXCEPT
1. The election as directors of all [ ] [ ] [ ]
nominees listed below (except as
marked to the contrary below)
Bruno J. Gioffre
James Staudt
Richard P. McStravick
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 the Company's independent [ ] [ ] [ ]
registered public accounting firm for the
fiscal year ending March 31, 2006.
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, 2005 and a proxy statement dated July 7, 2005.
Dated: _________________, 2005 [ ] 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.
2