September 15, 1999
Dear Stockholder:
We are pleased to invite you to attend a Special Meeting of Stockholders of
Sound Federal Bancorp (the "Company"). The Special Meeting will be held at the
Hyatt Regency Greenwich, 1800 E. Putnam Avenue, Old Greenwich, Connecticut
06870, at 10:00 a.m., (local time) on October 14, 1999.
The enclosed Notice of Special Meeting and Proxy Statement describe the formal
business to be transacted.
The Special Meeting is being held to afford stockholders an opportunity to
approve the Sound Federal Bancorp 1999 Stock Option Plan and the Sound Federal
Bancorp 1999 Recognition and Retention Plan.
The Board of Directors of the Company has determined that the matters to be
considered at the Special 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
Special 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 at the
meeting, 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
<PAGE>
Sound Federal Bancorp
300 Mamaroneck Avenue
Mamaroneck, New York 10543
(914) 698-6400
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On October 14, 1999
Notice is hereby given that the Special Meeting of Sound Federal
Bancorp (the "Company") will be held at the Hyatt Regency Greenwich, 1800 E.
Putnam Avenue, Old Greenwich, Connecticut 06870, on October 14, 1999 at 10:00
a.m., local time.
A Proxy Card and a Proxy Statement for the Special Meeting are
enclosed.
The Special Meeting is for the purpose of considering and acting upon:
1. Approval of the Sound Federal Bancorp 1999 Stock Option Plan;
2. Approval of the Sound Federal Bancorp 1999 Recognition and
Retention Plan; and
such other matters as may properly come before the Special Meeting, or any
adjournments thereof. The Board of Directors is not aware of any other business
to come before the Special Meeting.
Any action may be taken on the foregoing proposals at the Special
Meeting on the date specified above, or on any date or dates to which by
original or later adjournment the Special Meeting may be adjourned. Stockholders
of record at the close of business on September 2, 1999 are the stockholders
entitled to vote at the Special Meeting, and any adjournments thereof.
EACH STOCKHOLDER, WHETHER HE OR SHE PLANS TO ATTEND THE SPECIAL
MEETING, IS REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD WITHOUT
DELAY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. ANY PROXY GIVEN BY THE STOCKHOLDER
MAY BE REVOKED AT ANY TIME BEFORE IT IS EXERCISED. A PROXY MAY BE REVOKED BY
FILING WITH THE SECRETARY OF THE COMPANY A WRITTEN REVOCATION OR A DULY EXECUTED
PROXY BEARING A LATER DATE. ANY STOCKHOLDER PRESENT AT THE SPECIAL MEETING MAY
REVOKE HIS OR HER PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT BEFORE THE
SPECIAL MEETING. HOWEVER, IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT
REGISTERED IN YOUR OWN NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR
RECORD HOLDER IN ORDER TO VOTE PERSONALLY AT THE SPECIAL MEETING.
By Order of the Board of Directors
/s/ William H. Morel
William H. Morel
Corporate Secretary
Mamaroneck, New York
September 15, 1999
- --------------------------------------------------------------------------------
IMPORTANT: A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO
POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
- --------------------------------------------------------------------------------
<PAGE>
PROXY STATEMENT
SOUND FEDERAL BANCORP
300 Mamaroneck Avenue
Mamaroneck, New York 10543
(914) 698-6400
- --------------------------------------------------------------------------------
SPECIAL MEETING OF STOCKHOLDERS
October 14, 1999
- --------------------------------------------------------------------------------
This Proxy Statement is furnished in connection with the solicitation
of proxies on behalf of the Board of Directors of Sound Federal Bancorp (the
"Company") to be used at the Special Meeting of Stockholders of the Company (the
"Meeting"), which will be held at the Hyatt Regency Greenwich, 1800 E. Putnam
Avenue, Old Greenwich, Connecticut 06870, on October 14, 1999 at 10:00 a.m.,
local time, and all adjournments thereof. The accompanying Notice of Special
Meeting of Stockholders and this Proxy Statement are first being mailed to
stockholders on or about September 15, 1999.
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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.
Proxies may be revoked by sending written notice of revocation to the
Secretary of the Company, William H. Morel, at the address of the Company shown
above. 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.
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VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
- --------------------------------------------------------------------------------
Holders of record of the Company's common stock, par value $.10 per
share (the "Common Stock"), as of the close of business on September 2, 1999
(the "Record Date") are entitled to one vote for each share then held. As of the
Record Date, the Company had 5,077,218 shares of Common Stock issued and
outstanding, of which Sound Federal, MHC, the Company's mutual holding company
parent (the "Mutual Holding Company"), owns 2,810,510 shares, or 55.4% of the
total shares 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.
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.
<PAGE>
Percent of Shares
Name and Address of Amount of Shares of Common Stock
Beneficial Owner Owned Outstanding
- --------------------------------------- ---------------- ------------------
Sound Federal, MHC 2,810,510 55.36%
300 Mamaroneck Avenue
Mamaroneck, New York 10543
Named Directors and Executive Officers:(1)
Bruno J. Gioffre 30,000 0.59
Richard P. McStravick 28,141 0.55
Joseph Dinolfo 15,000 0.30
Donald H. Heithaus 25,900 0.51
Joseph A. Lanza 7,267 0.14
Arthur C. Phillips, Jr. 20,000 0.39
James Staudt 5,000 0.10
William H. Morel 3,578 0.07
Anthony J. Fabiano 2,000 0.04
------- ------
All officers and directors
as a group (9 persons) 136,886 2.70%
======= ======
- ------------------------------------
(1) The Company's executive officers and directors are also executive officers
and directors of the Mutual Holding Company and of Sound Federal Savings
and Loan Association (the "Bank").
- --------------------------------------------------------------------------------
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
Compensation Committee Interlocks and Insider Participation
The Company does not independently compensate its executive officers,
directors, or employees. The Executive Committee of the Bank retains the
principal responsibility for the compensation of the officers, directors and
employees of the Bank. The Executive Committee consists of Directors Gioffre,
Phillips and Heithaus. The Executive Committee reviews the benefits provided to
the Bank's officers and employees. During the year ended
March 31, 1999 the Executive Committee met five 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.
2
<PAGE>
The Board has delegated to the Executive Committee the responsibility of
assuring that the compensation of the Chief Executive Officer and other
executive officers is consistent with the compensation strategy, competitive
practices, the performance of the Bank, and the requirements of appropriate
regulatory agencies. The Executive Committee is comprised of non-employee
directors, all of whom participate in executive compensation decision making.
All cash compensation paid to executive officers is paid by the Bank. The
Company does not currently pay any cash compensation to executive officers.
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, Phillips and Heithaus
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 $1,400
for each meeting attended, except for the Chairman of the Board who receives
$2,800.
The following table sets forth information as to annual and other
compensation for services in all capacities for executive officers who earned
more than $100,000 in salary and bonuses during the fiscal year ended March 31,
1999.
<TABLE>
<CAPTION>
Summary Compensation Table
====================================================================================================================================
Annual Compensation Long-Term
Compensation Awards
Other
Annual Restricted Options/ All Other
Name and Fiscal Salary Bonus Compensation Stock SARs Compensation
Principal Position Year (1) ($) ($) ($) (2) Award(s) ($) (#) Payouts ($) (3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Richard P. McStravick 1999 131,875 7,949 23,200 -- -- -- 3,718
President and Chief 1998 124,375 7,491 14,175 -- -- -- 3,807
Executive Officer
- ------------------------- ------------ ---------- ---------- ------------ --------------- ----------- ---------- ---------------
William H. Morel 1999 96,250 5,700 -- -- -- -- --
Senior Vice President and
Chief Lending Officer
========================= ============ ========== ========== ============ =============== =========== ========== ===============
</TABLE>
(1) In accordance with the rules on executive officer and director compensation
disclosure adopted by the SEC Summary Compensation information is excluded for
the fiscal year ended March 31, 1997 as the Bank was not a public company during
such period.
(2) Represents director's fees for service on the Company's and Bank's Board of
Directors.
(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 a
director can defer up to 100% of a director's board fees earned during the
calendar year. All amounts deferred by a director are fully vested at all times.
Amounts credited to a deferred fee account are assumed to be invested, without
charge, at a 6% interest rate. 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 a director elects
3
<PAGE>
to invest all or a portion of such director's account in Common Stock, the
amount so invested will be credited with earnings and appreciation (or
depreciation) equivalent to that which would be earned on such investment and
the amount not invested in Common Stock will continue to earn interest at a 6%
interest rate.
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 Committee, 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 such director's 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
such director's 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 Emeritus Plan. The Director Emeritus Plan is a non-qualified
retirement plan. Under the Director Emeritus Plan, any director who attains the
age of 70 years after the completion of 15 years of service as a director
qualifies for director emeritus status. A director who has completed five years
of service as a director qualifies for director emeritus if termination of
service is due to the merger, consolidation, takeover or dissolution of the
Bank. Under the Director Emeritus Plan, a director emeritus is entitled to the
same compensation that the director received when such director retired as a
director, without the obligation of attendance at meetings of the Board of
Directors. Compensation is paid to the director emeritus from the date of
attainment of such status until their death.
Executive Agreements. The Bank has employment agreements with Messrs.
McStravick and Morel. The agreement with Mr. McStravick has 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. The
employment agreement with Mr. Morel terminates on January 31, 2001 unless
extended by action of the Board of Directors. Under the agreements, the base
salaries for Messrs. McStravick and Morel are $137,500 and $100,000,
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 Morel would receive an aggregate of
approximately $363,000 and $254,000, 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 the 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 of 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.
4
<PAGE>
Defined Benefit Pension Plan. The Bank maintains the Sound Federal
Savings and Loan Association Retirement Income Plan ("Retirement Plan") which is
a qualified, tax-exempt defined benefit plan. 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 Plan. The Bank contributes each year, if
necessary, an amount to the Retirement Plan to satisfy the actuarially
determined minimum funding requirements in accordance with the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). For the year ended
March 31, 1999, no contribution was required to be made to the Retirement Plan,
however, the Bank elected to make a contribution of approximately $91,000. At
March 31, 1999, the total market value of the assets in the Retirement Plan
trust fund was approximately $4.4 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 5th anniversary of participation in the Retirement Plan, 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 and 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 participant'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 Plan upon retirement at age 65 in calendar year
1999, expressed in the form of a single life annuity for the final average
salary and benefit service classifications specified below.
Final Average Years of Service and Benefit Payable at Retirement
Compensation 15 20 25 30
------------ ------- ------- ------- -------
$50,000 $26,763 $26,763 $26,763 $26,763
$75,000 $41,763 $41,763 $41,763 $41,763
$100,000 $56,763 $56,763 $56,763 $56,763
$125,000 $71,763 $71,763 $71,763 $71,763
$160,000 and above $92,763 $92,763 $92,763 $92,763
As of March 31, 1999, Mr. McStravick had 21 years of credited service
(i.e., benefit service) under the Retirement Plan.
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 profit sharing 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
5
<PAGE>
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., $160,000 in 1998). Prior to February 1, 1999,
the Bank matched 50% of the first 10% of salary that a participant contributes
to the 401(k) Plan. The Bank ceased matching contributions on February 1, 1999.
All contributions and earnings are fully and immediately vested. A participant
may withdraw salary reduction contributions, rollover contributions and matching
contributions in the event the participant suffers a financial hardship. A
participant may make a withdrawal from such participant's 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. In connection with the
Offering, the 401(k) Plan was amended to offer participants the opportunity to
invest in an "Employer Stock Fund" which purchases Common Stock of the Company.
Each participant will be entitled to direct the trustee as to how to vote his or
her allocable shares of Common Stock.
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, 1999, the total market value of the assets in the 401(k)
Plan was approximately $952,000. The Bank's matching contributions to the 401(k)
Plan for the year ended March 31, 1999 totaled approximately $49,000.
Employee Stock Ownership Plan and Trust
The Bank established an ESOP for eligible employees effective in
January 1998. 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 192,125 shares of the Company Common Stock. The
loan is 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
loan over ten years. The loan bears interest at a floating rate equal to the
prime interest rate published in the Wall Street Journal. 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 loan 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
6
<PAGE>
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. The Company recognized an expense of $231,000 to the
ESOP in fiscal year 1999 and allocated 19,213 shares of Common Stock to
participants.
In connection with the establishment of the ESOP, the Bank established
a committee of non-employee directors to administer the ESOP and appointed an
independent financial institution to serve as trustee of the ESOP. The ESOP
committee may instruct the trustee regarding investment of funds contributed to
the ESOP. The ESOP trustee, subject to its fiduciary duty, must vote all
allocated shares held in the ESOP in accordance with the instructions of
participating employees. Under the ESOP, nondirected shares, and shares held in
the suspense account, will be voted in a manner calculated to most accurately
reflect the instructions it has received from participants regarding the
allocated stock so long as such vote is in accordance with the provisions of
ERISA.
- --------------------------------------------------------------------------------
PROPOSAL I--RATIFICATION AND APPROVAL OF THE
SOUND FEDERAL BANCORP 1999 STOCK OPTION PLAN
- --------------------------------------------------------------------------------
General
Pursuant to the Sound Federal Bancorp 1999 Stock Option Plan (the
"Stock Option Plan") options to purchase up to 210,738 shares of Common Stock
(or 10% of the shares issued to persons other than the Mutual Holding Company in
the Company's stock offering) may be granted to the Company's, and its
affiliates', including the Bank's key employees and directors who are not
otherwise officers or employees of the Company and/or its affiliates ("outside
directors"). At September 2, 1999, a total of six outside directors, two
Chairmen Emeritii and five key employees were eligible to participate in the
Stock Option Plan. The Boards of Directors of the Bank and the Company believe
that it is appropriate to adopt a flexible and comprehensive stock option plan
that permits the granting of a variety of long-term incentive awards to outside
directors and key employees as a means of enhancing and encouraging the
recruitment and retention of those individuals on whom the continued success of
the Bank and the Company most depends. Attached as Appendix A to this Proxy
Statement is the complete text of the form of Stock Option Plan. The principal
features of the Stock Option Plan are summarized below.
Principal Features of the Stock Option Plan
The Stock Option Plan provides for awards in the form of stock options,
reload options, limited stock appreciation rights ("Limited Rights") and
dividend equivalent rights. Each award shall be on such terms and conditions,
consistent with the Stock Option Plan and applicable OTS Regulations, as the
committee administering the Stock Option Plan may determine.
The term of stock options generally will not exceed ten years from the
date of grant. Stock options granted under the Stock Option Plan may be either
"Incentive Stock Options" as defined under Section 422 of the Code or stock
options not intended to qualify as such ("non-qualified stock options").
Shares issued upon the exercise of a stock option may be either
authorized but unissued shares, reacquired shares held by the Company in its
treasury, or shares purchased by the plan. Any shares subject to an award that
expires or is terminated unexercised will again be available for issuance under
the Stock Option Plan. Generally, in the discretion of the Board, all or any
non-qualified stock options granted under the Stock Option Plan may be
transferable by the participant but only to the persons or classes of persons
determined by the Board. No other award or any right or interest therein is
assignable or transferable except under certain limited exceptions set forth in
the Stock Option Plan.
The Stock Option Plan is administered by a committee (the "Committee")
consisting of either two or more "non-employee directors" (as defined in the
Stock Option Plan), or the entire Board of the Company. The members of the
Committee shall be appointed by the Board of the Company. Pursuant to the terms
of the Stock Option Plan, outside directors and key employees of the Company or
its affiliates, including the Bank, are eligible to participate.
7
<PAGE>
Subject to OTS regulation and policy, the Stock Option Committee will determine
to whom the awards will be granted, in what amounts, and the period over which
such awards will vest. In granting awards under the Stock Option Plan, the
Committee will consider, among other things, position and years of service,
value of the individual's services to the Company and the Bank and the added
responsibilities of such individuals as directors and key employees of a public
company and/or its subsidiary. The exercise price will be at least 100% of the
fair market value of the underlying Common Stock at the time of the grant. The
last sale price of the Common Stock on September 3, 1999 was $9.50 per share.
The exercise price may be paid in cash or Common Stock.
Stock Options. Incentive stock options can only be granted to key
employees of the Bank, the Company or an "Affiliate" (i.e., a parent or
subsidiary corporation of the Bank or the Company). Outside directors will be
granted nonstatutory stock options. No option granted to an officer in
connection with the Stock Option Plan will be exercisable as an Incentive Stock
Option subject to incentive tax treatment if exercised more than three months
after the date on which the optionee terminates employment with the Bank and/or
the Company, except as set forth below. In the event a participant ceases to
maintain continuous service with the Company or an affiliate by reason of normal
retirement (not applicable to Chairmen Emeritii), death or disability, or
coincident to or following a change in control (as defined), options still
subject to restrictions will vest and be free of these restrictions and can be
exercised for up to five (5) years after cessation of service but in no event
beyond the expiration of the options' original term. In the event a participant
ceases to maintain continuous service for any other reason, the participant will
forfeit all nonvested options. The participant's vested options will remain
exercisable for up to three months, in the case of Incentive Stock Options and
one year, in the case of nonstatutory stock options. If an optionee terminates
employment with the Bank, the Company or an Affiliate, any Incentive Stock
Options exercised more than three months following the date the optionee
terminates employment shall be treated as a nonstatutory stock option as
described above; provided, however, that in the event of death or disability,
incentive stock options may be exercised and receive incentive tax treatment for
up to at least one year following termination of employment, subject to the
requirements of the Code.
In the event of death or disability of an optionee, the Company, if
requested by the optionee or beneficiary, may elect, in exchange for the option,
to pay the optionee or beneficiary, the amount by which the fair market value of
the Common Stock exceeds the exercise price of the option on the date of the
optionee's termination of service for death or disability.
Limited Stock Appreciation Rights. The Committee may grant Limited
Rights to key employees simultaneously with the grant of any option. 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. Limited
Rights generally will be subject to the same terms and conditions and
exercisable to the same extent as stock options, as described above. Payment
upon exercise of a Limited Rights will be in cash, or in the event of a change
in control in which pooling accounting treatment is a condition to the
transaction, for shares of stock of the Company, or in the event of a merger
transaction, for shares of the acquiring corporation or its parent, as
applicable.
Limited Rights may be granted at the time of, and must be related to,
the grant of a stock option. The exercise of one will reduce to that extent the
number of shares represented by the other. If a Limited Rights is granted with
and related to an Incentive Stock Option the Limited Rights must satisfy all the
restrictions and limitations to which the related Incentive Stock Option is
subject.
Dividend Equivalent Rights. Dividend equivalent rights may also be
granted at the time of the grant of a stock option. 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 under the Stock Option Plan as
any dividend paid on shares of Common Stock 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.
8
<PAGE>
Reload Options. Reload options may also be granted at the time of the grant
of a stock option. 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 to the employer. 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.
Effect of Adjustments. Shares as to which awards may be granted under
the Stock Option Plan, and shares then subject to awards, will be adjusted by
the Stock Option Committee 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.
In the case of any merger, consolidation or combination of the Company
with or into another holding company or other entity, whereby either the Company
is not the continuing holding company or its outstanding shares are converted
into or exchanged for securities, cash or other property, or any combination
thereof, any individual to whom a stock option or Limited Rights has been
granted at least six months prior to such event will have the right (subject to
the provisions of the Stock Option Plan and any applicable vesting period) upon
exercise of the option or Limited Rights to an amount equal to the excess of
fair market value on the date of exercise of the consideration receivable in the
merger, consolidation or combination with respect to the shares covered or
represented by the stock option or Limited Rights over the exercise price of the
option multiplied by the number of shares with respect to which the option or
Limited Rights has been exercised.
Amendment and Termination. The Board may at any time, amend, suspend or
terminate the Stock Option Plan or any portion thereof, provided, however, that
no such amendment, suspension or termination shall impair the rights of any
individual, without his consent, in any Award made pursuant to the plan. Unless
previously terminated, the Stock Option Plan shall continue in effect for a term
of ten years, after which no further awards may be granted under the Stock
Option Plan.
The Bank will not implement the Stock Option Plan unless such plan has
been approved by a majority vote of shares of Common Stock present and voting at
the Meeting.
Federal Income Tax Consequences. Under present federal income tax laws,
awards under the Stock Option Plan will have the following consequences:
(1) The grant of an Award, by itself, will neither result in the
recognition of taxable income to the recipient nor entitle the Company
to a deduction at the time of such grant.
(2) The exercise of a stock option which is an "Incentive Stock Option"
within the meaning of Section 422 of the Code will generally not, by
itself, result in the recognition of taxable income to the individual
nor entitle the Company to a deduction at the time of such exercise.
However, the difference between the exercise price and the fair market
value of the option shares on the date of exercise is an item of tax
preference which may, in certain situations, trigger the alternative
minimum tax. The alternative minimum tax is incurred only when it
exceeds the regular income tax. The alternative minimum tax will be
payable at the rate of 26% to the first $175,000 of "ordinary income"
in excess of $33,750 (single person) or $45,000 (married person filing
jointly). This tax applies at a flat rate of 28% of so much of the
taxable ordinary income in excess of $175,000. The alternative minimum
tax will be payable at a maximum rate of 20% on net capital gain. If a
taxpayer has alternative minimum taxable income in excess of $150,000
(married persons filing jointly) or $112,500 (single person), the
$45,000 or $33,750 exemptions are reduced by an amount equal to 25% of
the amount by which the alternative minimum taxable income of the
taxpayer exceeds $150,000 or $112,500, respectively. The individual
will recognize long term capital gain or loss
9
<PAGE>
upon the resale of the shares received upon such exercise, provided the
individual holds the shares for more than eighteen months from the date
of exercise.
(3) The sale of an Incentive Stock Option share prior to the applicable
holding period, i.e., the longer of two years from the date of grant of
the Incentive Stock Option or one year from the date of exercise, will
cause any gain to be taxed at ordinary income tax rates, with respect
to the spread between the exercise price and the fair market value of
the share on the date of exercise and at short term capital gains rates
with respect to any post exercise appreciation in the value of the
share.
(4) The sale of an Incentive Stock Option share after one year from the
date of exercise will generally result in long term capital gain or
loss.
(5) The exercise of a stock option which is not an Incentive Stock Option,
i.e., a non-qualified stock option, will result in the recognition of
ordinary income on the date of exercise in an amount equal to the
difference between the exercise price and the fair market value on the
date of exercise of the shares acquired pursuant to the stock option.
(6) The exercise of a Limited Rights will result in the recognition of
ordinary income by the individual on the date of exercise in an amount
of cash, and/or the fair market value on that date of the shares
acquired pursuant to the exercise.
(7) Reload options are of the same type (nonstatutory or incentive stock
option) as the option that the option holder exercised. Therefore, the
tax consequences of the reload option are determined under the
applicable tax rules for non-qualified or incentive stock options.
(8) The receipt of a cash payment pursuant to a dividend equivalent right
will result in the recognition of compensation or self-employment
income by the recipient.
(9) The Company will be allowed a deduction at the time, and in the amount,
of any ordinary income recognized by the individual under the various
circumstances described above, provided that the Company
meets its federal withholding tax obligations.
THE AFFIRMATIVE VOTE OF A MAJORITY OF SHARES PRESENT IN PERSON OR BY
PROXY IS REQUIRED FOR APPROVAL OF THE STOCK OPTION PLAN.
UNLESS MARKED TO THE CONTRARY, THE SHARES REPRESENTED BY THE ENCLOSED
PROXY, IF THE PROXY IS SIGNED AND RETURNED, WILL BE VOTED FOR THE RATIFICATION
AND APPROVAL OF THE STOCK OPTION PLAN.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION AND
APPROVAL OF THE STOCK OPTION PLAN.
- --------------------------------------------------------------------------------
PROPOSAL II--RATIFICATION AND APPROVAL OF THE
SOUND FEDERAL BANCORP 1999 RECOGNITION AND RETENTION PLAN
- --------------------------------------------------------------------------------
General
Subject to stockholder approval at the Special Meeting, the Company has
established the Sound Federal Bancorp 1999 Recognition and Retention Plan (the
"Recognition Plan") as a method of providing certain key employees and outside
directors of the Company and its affiliates, including the Bank, with a
proprietary interest in the Company in a manner designed to encourage such
persons to remain with the Bank and/or the Company, and
10
<PAGE>
to provide further incentives to achieve corporate objectives. The following
discussion is qualified in its entirety by reference to the Recognition Plan,
the form of which is attached hereto as Appendix B.
The Bank intends to contribute stock or sufficient funds for the
Recognition Plan to acquire 105,369 authorized but unissued shares of Common
Stock of the Company, which will be available to be awarded to key employees and
outside directors of the Company. Alternatively, such shares may be purchased in
the open market.
Principal Features of the Recognition Plan
The Recognition Plan provides for the award of shares of Common Stock
("Recognition Plan Shares") subject to the restrictions described below. Each
award under the Recognition Plan will be made on terms and conditions,
consistent with the Recognition Plan.
The Recognition Plan is administered by a committee, which shall be
appointed by the Board of Directors of the Company and shall consist of either
(i) at least two "non-employee directors" (as defined in the Recognition Plan)
of the Company or (ii) the entire Board of the Company (the "Committee"). The
Committee will select the recipients and terms of awards pursuant to the
Recognition Plan. Pursuant to the terms of the Recognition Plan, any director or
key employee of the Bank, the Company or its affiliates may be selected by the
Recognition Plan Committee to participate in the Recognition Plan. In
determining to whom and in what amount to grant awards, the Recognition Plan
Committee will consider the position and responsibilities of eligible persons,
the value of such person's services to the Company and the Bank and other
factors it deems relevant. As of September 2, 1999, there were six outside
directors, two Chairmen Emeritii and five key employees eligible to participate
in the Recognition Plan.
In the event a recipient ceases to maintain continuous service with the
Company or an affiliate by reason of normal retirement (not applicable to
Chairmen Emeritii), death or disability, or coincident to or following a change
in control (as defined), Recognition Plan Shares still subject to restrictions
will vest and be free of these restrictions. In the event of termination for any
other reason, all nonvested shares will be forfeited. Prior to vesting of the
nonvested Recognition Plan shares, a recipient will have the right to vote the
nonvested Recognition Plan Shares which have been awarded to the recipient and
will receive any dividends declared on such Recognition Plan Shares. Recognition
Plan Shares are subject to forfeiture if the recipient fails to remain in the
continuous service (as defined in the Recognition Plan) as an employee, officer,
or director of the Company or the Bank for a stipulated period (the "restricted
period").
Effect of Adjustments. Restricted stock awarded under the Recognition
Plan will be adjusted by the Committee in the event of a reorganization,
recapitalization, stock split, stock dividend, combination or exchange of
shares, merger, consolidation or other change in corporate structure.
Federal Income Tax Consequences. Holders of restricted stock will
recognize ordinary income on the date that the shares of restricted stock are no
longer subject to a substantial risk of forfeiture, in an amount equal to the
fair market value of the shares on that date. In certain circumstances, a holder
may elect to recognize ordinary income and determine such fair market value on
the date of the grant of the restricted stock. Holders of restricted stock will
also recognize ordinary income equal to their dividend or dividend equivalent
payments when such payments are received. Generally, the amount of income
recognized by individuals will be a deductible expense for tax purposes by the
Company.
Amendment to the Recognition Plan. The Board of Directors of the
Company may at any time, amend, suspend or terminate the Recognition Plan or any
portion thereof, provided, however, that no such amendment, suspension or
termination shall impair the rights of any award recipient, without such
person's consent, in any award therefore made pursuant to the Recognition Plan.
THE AFFIRMATIVE VOTE OF A MAJORITY OF SHARES REPRESENTED IN PERSON OR
BY PROXY IS REQUIRED TO APPROVE THE RECOGNITION PLAN.
11
<PAGE>
UNLESS MARKED TO THE CONTRARY, THE SHARES REPRESENTED BY THE ENCLOSED
PROXY, IF THE PROXY IS SIGNED AND RETURNED, WILL BE VOTED FOR THE RATIFICATION
AND APPROVAL OF THE RECOGNITION PLAN.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION AND
APPROVAL OF THE RECOGNITION PLAN.
- --------------------------------------------------------------------------------
MISCELLANEOUS
- --------------------------------------------------------------------------------
The Board of Directors is not aware of any business to come before the
Meeting other than the matters described above in the 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.
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1999 will be furnished without charge to stockholders as of the
record date upon written request to the Corporate Secretary, Sound Federal
Bancorp, 300 Mamaroneck Avenue, Mamaroneck, New York 10543.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ William H. Morel
William H. Morel
Corporate Secretary
Mamaroneck, New York
September 15, 1999
12
<PAGE>
REVOCABLE PROXY
SOUND FEDERAL BANCORP
SPECIAL MEETING OF STOCKHOLDERS
OCTOBER 14, 1999
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 Special Meeting of Stockholders ("Meeting") to be held at the
Hyatt Regency Greenwich, 1800 E. Putnam Avenue, Old Greenwich, Connecticut
06870, at 10:00 a.m. (local time) on October 14, 1999. The official proxy
committee is authorized to cast all votes to which the undersigned is entitled
as follows:
FOR AGAINST ABSTAIN
1. The ratification and approval of the Sound Federal [_] [_] [_]
Bancorp 1999 Stock Option Plan.
2. The ratification and approval of the Sound Federal [_] [_] [_]
Bancorp 1999 Recognition and Retention Plan.
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
- --------------------------------------------------------------------------------
<PAGE>
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 Special
Meeting of Stockholders, or by the filing of a later proxy statement prior to a
vote being taken on a particular proposal at the Meeting.
The undersigned acknowledges receipt from the Company prior to the execution of
this proxy of a Notice of the Meeting and a proxy statement dated September 15,
1999.
Dated: _________________, 1999 |_|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.
- --------------------------------------------------------------------------------
<PAGE>
APPENDIX B
SOUND FEDERAL BANCORP
1999 RECOGNITION AND RETENTION PLAN
1. Establishment of the Plan
Sound Federal Bancorp (the "Company") hereby establishes the Sound
Federal Bancorp 1999 Recognition and Retention Plan (the "Plan") upon the terms
and conditions hereinafter stated in the Plan.
2. Purpose of the Plan
The purpose of the Plan is to advance the interests of the Company and
its stockholders by providing Key Employees and Outside Directors of the Company
and its Affiliates, including Sound Federal Savings and Loan Association (the
"Bank"), upon whose judgment, initiative and efforts the successful conduct of
the business of the Company and its Affiliates largely depends, with
compensation for their contributions to the Company and its Affiliates and an
additional incentive to perform in a superior manner, as well as to attract
people of experience and ability.
3. Definitions
The following words and phrases when used in this Plan with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meanings set forth below. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural:
"Affiliate" means any "parent corporation" or "subsidiary corporation"
of the Company or the Bank, as such terms are defined in Section 424(e) and (f),
respectively, of the Code, or a successor to a parent corporation or subsidiary
corporation.
"Award" means the grant by the Committee of Restricted Stock, as
provided in the Plan.
"Bank" means Sound Federal Savings and Loan Association or a successor
corporation.
"Beneficiary" means the person or persons designated by a Recipient to
receive any benefits payable under the Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or if none, his estate.
1
<PAGE>
"Board" or "Board of Directors" means the Board of Directors of the
Company or an Affiliate, as applicable. For purposes of Section 4 of the Plan,
"Board" shall refer solely to the Board of the Company.
"Cause" means personal dishonesty, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, or the willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or a final cease-and-desist order, any
of which results in a material loss to the Company or an Affiliate.
"Change in Control" of the Bank or the Company means a change in
control of a nature that: (i) would be required to be reported in response to
Item 1(a) of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); or (ii) results in a Change in Control of the Company within
the meaning of the Home Owners Loan Act, as amended, and applicable rules and
regulations promulgated thereunder, as in effect at the time of the Change in
Control (collectively, the "HOLA"); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (a) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 25% or more of
the combined voting power of the Company's outstanding securities except for any
securities purchased by the Bank's employee stock ownership plan or trust; or
(b) individuals who constitute the Board on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a majority thereof, provided
that any person becoming a director subsequent to the date hereof whose election
was approved by a vote of at least three-quarters of the directors comprising
the Incumbent Board, or whose nomination for election by the Company's
stockholders was approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (b), considered as though
he were a member of the Incumbent Board; or (c) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the Bank
or the Company or similar transaction in which the Bank or the Company is not
the surviving institution occurs; or (d) a proxy statement soliciting proxies
from stockholders of the Company, by someone other than the current management
of the Company, seeking stockholder approval of a plan of reorganization, merger
or consolidation of the Company or similar transaction with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to the Plan are to be exchanged for or converted into
cash or property or securities not issued by the Company; or (e) a tender offer
is made for 25% or more of the voting securities of the Company and the
shareholders owning beneficially or of record 25% or more of the outstanding
securities of the Company have tendered or offered to sell their shares pursuant
to such tender offer and such tendered shares have been accepted by the tender
offeror. Notwithstanding, the foregoing, a "Change in Control" shall not be
deemed to have occurred in the event of a conversion of the Company's mutual
holding company to stock form or in connection with any reorganization or action
used to effect such conversion.
"Code" means the Internal Revenue Code of 1986, as amended.
B-2
<PAGE>
"Committee" means a Committee of the Board consisting of either (i) at
least two NonEmployee Directors of the Company, or (ii) the entire Board of the
Company.
"Common Stock" means shares of the common stock of the Company, par
value $.10 per share.
"Company" means Sound Federal Bancorp, the stock holding company of the
Bank, or a successor corporation.
"Continuous Service" means employment as a Key Employee and/or service
as an Outside Director without any interruption or termination of such
employment and/or service. Continuous Service shall also mean a continuation as
a member of the Board of Directors following a cessation of employment as a Key
Employee. In the case of a Key Employee, employment shall not be considered
interrupted in the case of sick leave, military leave or any other leave of
absence approved by the Bank or in the case of transfers between payroll
locations of the Bank or between the Bank, its parent, its subsidiaries or its
successor.
"Director" means a member of the Board.
"Director Emeritus" means a former member of the Board who is
designated as a Director Emeritus by the Board.
"Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of an employee to perform the work
customarily assigned to him, or of a Director to serve as such. Additionally, in
the case of an employee, a medical doctor selected or approved by the Board must
advise the Committee that it is either not possible to determine when such
Disability will terminate or that it appears probable that such Disability will
be permanent during the remainder of such employee's lifetime.
"Effective Date" means the date of, or a date determined by the Board
of Directors following, approval of the Plan by the Company's stockholders.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Key Employee" means any person who is currently employed by the
Company or an Affiliate who is chosen by the Committee to participate in the
Plan.
"Non-Employee Director" means, for purposes of the Plan, a Director who
(a) is not employed by the Company or an Affiliate; (b) does not receive
compensation directly or indirectly as a consultant (or in any other capacity
than as a Director) greater than $60,000; (c) does not have an interest in a
transaction requiring disclosure under Item 404(a) of Regulation S-K; or (d) is
not engaged in a business relationship for which disclosure would be required
pursuant to Item 404(b) of Regulation S-K.
B-3
<PAGE>
"Normal Retirement" means for a Key Employee, retirement at the normal
or early retirement date set forth in the Bank's Employee Stock Ownership Plan,
or any successor plan. Normal Retirement for an Outside Director, other than a
Director Emeritus, means a cessation of service on the Board of Directors for
any reason other than removal for Cause, after reaching 60 years of age and
maintaining at least 10 years of Continuous Service. The term "Normal
Retirement" shall not apply to an Outside Director who is a Director Emeritus.
"Outside Director" means a Director of the Company or an Affiliate who
is not an employee of the Company or an Affiliate. For purposes of this Plan
"Outside Director" shall also mean a Director Emeritus who is selected to
participate in the Plan by the Company's full Board or by the Committee.
"Recipient" means a Key Employee or Outside Director of the Company or
its Affiliates who receives or has received an Award under the Plan.
"Restricted Period" means the period of time selected by the Committee
for the purpose of determining when restrictions are in effect under Section 6
with respect to Restricted Stock awarded under the Plan.
"Restricted Stock" means shares of Common Stock that have been
contingently awarded to a Recipient by the Committee subject to the restrictions
referred to in Section 6, so long as such restrictions are in effect.
4. Administration of the Plan.
4(a) Role of the Committee. The Plan shall be administered and
interpreted by the Committee, which shall have all of the powers allocated to it
in the Plan. The interpretation and construction by the Committee of any
provisions of the Plan or of any Award granted hereunder shall be final and
binding. The Committee shall act by vote or written consent of a majority of its
members. Subject to the express provisions and limitations of the Plan, the
Committee may adopt such rules and procedures as it deems appropriate for the
conduct of its affairs. The Committee shall report its actions and decisions
with respect to the Plan to the Board at appropriate times, but in no event less
than one time per calendar year.
4(b) Role of the Board. The members of the Committee shall be appointed
or approved by, and will serve at the pleasure of, the Board. The Board may in
its discretion from time to time remove members from, or add members to, the
Committee. The Board shall have all of the powers allocated to it in the Plan,
may take any action under or with respect to the Plan that the Committee is
authorized to take, and may reverse or override any action taken or decision
made by the Committee under or with respect to the Plan, provided, however, that
except as provided in Section 6(b), the Board may not revoke any Award except in
the event of revocation for Cause or with respect to unearned Awards in the
event the Recipient of an Award voluntarily terminates employment with the Bank
prior to Normal Retirement.
B-4
<PAGE>
4(c) Plan Administration Restrictions. All transactions involving a
grant, award or other acquisitions from the Company shall:
(i) be approved by the Company's full Board or by the Committee;
(ii) be approved, or ratified, in compliance with Section 14
of the Exchange Act, by either: the affirmative vote of the holders of a
majority of the shares present, or represented and entitled to vote at a meeting
duly held in accordance with the laws under which the Company is incorporated;
or the written consent of the holders of a majority of the securities of the
issuer entitled to vote provided that such ratification occurs no later than the
date of the next annual meeting of shareholders; or
(iii) result in the acquisition of common stock that is held
by the Recipient for a period of six months following the date of such
acquisition.
4(d) Limitation on Liability. No member of the Board or the Committee
shall be liable for any determination made in good faith with respect to the
Plan or any Awards granted under it. If a member of the Board or the Committee
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of anything done or not done by him in such capacity
under or with respect to the Plan, the Bank or the Company shall indemnify such
member against expense (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in the best interests of the Bank and the Company and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
5. Eligibility; Awards
5(a) Eligibility. Key Employees and Outside Directors are eligible to
receive Awards.
5(b) Awards to Key Employees and Outside Directors. The Committee may
determine which of the Key Employees and Outside Directors referenced in Section
5(a) will be granted Awards and the number of shares covered by each Award;
provided, however, that in no event shall any Awards be made that will violate
the Bank's Charter and Bylaws, the Company's Articles of Organization and
Bylaws, or any applicable federal or state law or regulation. Shares of
Restricted Stock that are awarded by the Committee shall, on the date of the
Award, be registered in the name of the Recipient and transferred to the
Recipient, in accordance with the terms and conditions established under the
Plan. The aggregate number of shares that shall be issued under the Plan is
105,369.
B-5
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In the event Restricted Stock is forfeited for any reason, the
Committee, from time to time, may determine which of the Key Employees and
Outside Directors will be granted additional Awards to be awarded from forfeited
Restricted Stock.
In selecting those Key Employees and Outside Directors to whom Awards
will be granted and the amount of Restricted Stock covered by such Awards, the
Committee shall consider such factors as it deems relevant, which factors may
include, among others, the position and responsibilities of the Key Employees
and Outside Directors, the length and value of their services to the Bank and
its Affiliates, the compensation paid to the Key Employees or fees paid to the
Outside Directors, and the Committee may request the written recommendation of
the Chief Executive Officer and other senior executive officers of the Bank, the
Company and its Affiliates or the recommendation of the full Board. All
allocations by the Committee shall be subject to review, and approval or
rejection, by the Board.
No Restricted Stock shall be earned unless the Recipient maintains
Continuous Service with the Bank or an Affiliate until the restrictions lapse.
5(c) Manner of Award. As promptly as practicable after a determination
is made pursuant to Section 5(b) to grant an Award, the Committee shall notify
the Recipient in writing of the grant of the Award, the number of shares of
Restricted Stock covered by the Award, and the terms upon which the Restricted
Stock subject to the Award may be earned. Upon notification of an Award of
Restricted Stock, the Recipient shall execute and return to the Company a
restricted stock agreement (the "Restricted Stock Agreement") setting forth the
terms and conditions under which the Recipient shall earn the Restricted Stock,
together with a stock power or stock powers endorsed in blank. Thereafter, the
Recipient's Restricted Stock and stock power shall be deposited with an escrow
agent specified by the Company ("Escrow Agent") who shall hold such Restricted
Stock under the terms and conditions set forth in the Restricted Stock
Agreement. Each certificate in respect of shares of Restricted Stock Awarded
under the Plan shall be registered in the name of the Recipient.
5(d) Treatment of Forfeited Shares. In the event shares of Restricted
Stock are forfeited by a Recipient, such shares shall be returned to the Company
and shall be held and accounted for pursuant to the terms of the Plan until such
time as the Restricted Stock is re-awarded to another Recipient, in accordance
with the terms of the Plan and the applicable state and federal laws, rules and
regulations.
6. Terms and Conditions of Restricted Stock
The Committee shall have full and complete authority, subject to the
limitations of the Plan, to grant awards of Restricted Stock to Key Employees
and Outside Directors and, in addition to the terms and conditions contained in
Sections 6(a) through 6(h), to provide such other terms and conditions (which
need not be identical among Recipients) in respect of such Awards, and the
vesting thereof, as the Committee shall determine.
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6(a) General Rules. Unless the Committee shall specifically state to
the contrary at the time an Award is granted, Restricted Stock shall be earned
by a Recipient at the rate of 20% of the initially awarded amount per year
commencing with the first installment being earned on the first anniversary of
the Date of Grant and succeeding installments being earned on the following
anniversaries, provided that such Recipient maintains Continuous Service.
Subject to any such other terms and conditions as the Committee shall provide
with respect to Awards, shares of Restricted Stock may not be sold, assigned,
transferred (within the meaning of Code Section 83), pledged or otherwise
encumbered by the Recipient, except as hereinafter provided, during the
Restricted Period. The Committee shall have the authority, in its discretion, to
accelerate the time at which any or all of the restrictions shall lapse with
respect to a Restricted Stock Award, or to remove any or all of such
restrictions.
6(b) Continuous Service; Forfeiture. Except as provided in Section
6(c), if a Recipient ceases to maintain Continuous Service for any reason (other
than death, Disability, Change in Control or Normal Retirement), unless the
Committee shall otherwise determine, all shares of Restricted Stock theretofore
awarded to such Recipient and which at the time of such termination of
Continuous Service are subject to the restrictions imposed by Section 6(a) shall
upon such termination of Continuous Service be forfeited. Any stock dividends or
declared but unpaid cash dividends attributable to such shares of Restricted
Stock shall also be forfeited.
6(c) Exception for Termination Due to Death, Disability, Normal
Retirement or Following a Change in Control. Notwithstanding the general rule
contained in Section 6(a), Restricted Stock awarded to a Recipient whose
employment with of the Company or an Affiliate or service on the Board
terminates due to death, Disability, Normal Retirement or following a Change in
Control shall be deemed earned as of the Recipient's last day of employment with
the Company or an Affiliate, or last day of service on the Board of the Company
or an Affiliate; provided that Restricted Stock awarded to a Key Employee who at
any time also serves as a Director, shall not be deemed earned until both
employment and service as a Director have been terminated.
6(d) Revocation for Cause. Notwithstanding anything hereinafter to the
contrary, the Board may by resolution immediately revoke, rescind and terminate
any Award, or portion thereof, previously awarded under the Plan, to the extent
Restricted Stock has not been redelivered by the Escrow Agent to the Recipient,
whether or not yet earned, in the case of a Key Employee whose employment is
terminated by the Company or an Affiliate or an Outside Director whose service
is terminated by the Company or an Affiliate for Cause or who is discovered
after termination of employment or service on the Board to have engaged in
conduct that would have justified termination for Cause.
6(e) Restricted Stock Legend. Each certificate in respect of shares of
Restricted Stock awarded under the Plan shall be registered in the name of the
Recipient and deposited by the Recipient, together with a stock power endorsed
in blank, with the Escrow Agent and shall bear the following (or a similar)
legend:
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"The transferability of this certificate and the
shares of stock represented hereby are subject to the terms
and conditions (including forfeiture) contained in the Sound
Federal Bancorp 1999 Recognition and Retention Plan. Copies of
such Plan are on file in the offices of the Secretary of Sound
Federal Bancorp, 300 Mamaroneck Avenue, Mamaroneck, New York
10543."
6(f) Payment of Dividends and Return of Capital. After an Award has
been granted but before such Award has been earned, the Recipient shall receive
any cash dividends paid with respect to such shares, or shall share in any
pro-rata return of capital to all shareholders with respect to the Common Stock.
Stock dividends declared by the Company and paid on Awards that have not yet
been earned shall be subject to the same restrictions as the Restricted Stock
and the certificate(s) or other instruments representing or evidencing such
shares shall be legended in the manner provided in Section 6(e) and shall be
delivered to the Escrow Agent for distribution to the Recipient when the
Restricted Stock upon which such dividends were paid are earned. Unless the
Recipient has made an election under Section 83(b) of the Code, cash dividends
or other amounts so paid on shares that have not yet been earned by the
Recipient shall be treated as compensation income to the Recipient when paid. If
dividends are paid with respect to shares of Restricted Stock under the Plan
that have been forfeited and returned to the Company or to a trust established
to hold issued and unawarded or forfeited shares, the Committee can determine to
award such dividends to any Recipient or Recipients under the Plan, to any other
employee or director of the Company or the Bank, or can return such dividends to
the Company.
6(g) Voting of Restricted Shares. After an Award has been granted, the
Recipient as conditional owner of the Restricted Stock shall have the right to
vote such shares.
6(h) Delivery of Earned Shares. At the expiration of the restrictions
imposed by Section 6(a), the Escrow Agent shall redeliver to the Recipient (or
where the relevant provision of Section 6(b) applies in the case of a deceased
Recipient, to his Beneficiary) the certificate(s) and any remaining stock power
deposited with it pursuant to Section 5(c) and the shares represented by such
certificate(s) shall be free of the restrictions referred to Section 6(a).
7. Adjustments upon Changes in Capitalization
In the event of any change in the outstanding shares subsequent to the
Effective Date by reason of any reorganization, recapitalization, stock split,
stock dividend, combination or exchange of shares, or any merger, consolidation
or any change in the corporate structure or shares of the Company, without
receipt or payment of consideration by the Company, the maximum aggregate number
and class of shares as to which Awards may be granted under the Plan shall be
appropriately adjusted by the Committee, whose determination shall be
conclusive. Any shares of stock or other securities received, as a result of any
of the foregoing, by a Recipient with respect to Restricted Stock shall be
subject to the same restrictions and the certificate(s) or other instruments
representing or
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evidencing such shares or securities shall be legended and deposited with the
Escrow Agent in the manner provided in Section 6(e).
8. Assignments and Transfers
No Award nor any right or interest of a Recipient under the Plan in any
instrument evidencing any Award under the Plan may be assigned, encumbered or
transferred (within the meaning of Code Section 83) except, in the event of the
death of a Recipient, by will or the laws of descent and distribution until such
Award is earned.
9. Key Employee Rights under the Plan
No Key Employee shall have a right to be selected as a Recipient nor,
having been so selected, to be selected again as a Recipient and no Key Employee
or other person shall have any claim or right to be granted an Award under the
Plan or under any other incentive or similar plan of the Bank or any Affiliate.
Neither the Plan nor any action taken thereunder shall be construed as giving
any Key Employee any right to be retained in the employ of the Bank or any
Affiliate.
10. Outside Director Rights under the Plan
Neither the Plan nor any action taken thereunder shall be construed as
giving any Outside Director any right to be retained in the service of the Bank
or any Affiliate.
11. Withholding Tax
Upon the termination of the Restricted Period with respect to any
shares of Restricted Stock (or at any such earlier time that an election is made
by the Recipient under Section 83(b) of the Code, or any successor provision
thereto, to include the value of such shares in taxable income), the Bank or the
Company shall have the right to require the Recipient or other person receiving
such shares to pay the Bank or the Company the minimum amount of any federal or
state taxes, including payroll taxes, that are applicable to such supplemental
income and that the Bank or the Company is required to withhold with respect to
such shares, or, in lieu thereof, to retain or sell without notice, a sufficient
number of shares held by it to cover the amount required to be withheld. The
Bank or the Company shall have the right to deduct from all dividends paid with
respect to shares of Restricted Stock the amount of any taxes which the Bank or
the Company is required to withhold with respect to such dividend payments.
12. Amendment or Termination
The Board of the Company may amend, suspend or terminate the Plan or
any portion thereof at any time, provided, however, that no such amendment,
suspension or termination shall impair the rights of any Recipient, without his
consent, in any Award theretofore made pursuant to the Plan. Any amendment or
modification of the Plan or an outstanding Award under the Plan, including but
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not limited to the acceleration of vesting of an outstanding Award for reasons
other than death, Disability, Normal Retirement or termination following a
Change in Control, shall be approved by the Committee, or the full Board of the
Company.
13. Governing Law
The Plan shall be governed by the laws of the State of New York.
14. Term of Plan
The Plan shall become effective on the date of, or a date determined by
the Board of Directors following, approval of the Plan by the Company's
stockholders. It shall continue in effect until the earlier of (i) ten years
from the Effective Date unless sooner terminated under Section 12 hereof, or
(ii) the date on which all shares of Common Stock available for award hereunder,
have vested in the Recipients of such Awards.
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IN WITNESS WHEREOF, the Company has caused the Plan to be executed by
its duly authorized officers and the corporate seal to be affixed and duly
attested, as of the ____ day of _________, 1999.
Date Approved by Shareholders: __________
Effective Date: __________
ATTEST: SOUND FEDERAL BANCORP
By: _______________________________
Secretary
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APPENDIX A
SOUND FEDERAL BANCORP
1999 STOCK OPTION PLAN
1. Purpose
The purpose of the Sound Federal Bancorp 1999 Stock Option Plan (the
"Plan") is to advance the interests of Sound Federal Bancorp (the "Company") and
its stockholders by providing Key Employees and Outside Directors of the Company
and its Affiliates, including Sound Federal Savings and Loan Association (the
"Bank"), upon whose judgment, initiative and efforts the successful conduct of
the business of the Company and its Affiliates largely depends, with an
additional incentive to perform in a superior manner as well as to attract
people of experience and ability.
2. Definitions
"Affiliate" means any "parent corporation" or "subsidiary corporation"
of the Company or the Bank, as such terms are defined in Section 424(e) or
424(f), respectively, of the Code, or a successor to a parent corporation or
subsidiary corporation.
"Award" means an Award of Non-Statutory Stock Options, Incentive Stock
Options, Reload Options, Limited Rights, and/or Dividend Equivalent Rights
granted under the provisions of the Plan.
"Bank" means Sound Federal Savings and Loan Association or a successor
corporation.
"Beneficiary" means the person or persons designated by a Participant
to receive any benefits payable under the Plan in the event of such
Participant's death. Such person or persons shall be designated in writing on
forms provided for this purpose by the Committee and may be changed from time to
time by similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Participant's surviving spouse, if
any, or if none, his estate.
"Board" or "Board of Directors" means the board of directors of the
Company or its Affiliate, as applicable.
"Cause" means personal dishonesty, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, or the willful violation of any law, rule or regulation (other than
traffic violations or similar offenses) or a final cease-and-desist order, any
of which results in a material loss to the Company or an Affiliate.
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"Change in Control" of the Bank or the Company means a change in
control of a nature that: (i) would be required to be reported in response to
Item 1(a) of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); or (ii) results in a Change in Control of the Bank or the
Company within the meaning of the Home Owners Loan Act, as amended, and
applicable rules and regulations promulgated thereunder, as in effect at the
time of the Change in Control (collectively, the "HOLA"); or (iii) without
limitation such a Change in Control shall be deemed to have occurred at such
time as (a) any "person" (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of Company's outstanding
securities except for any securities purchased by the Bank's employee stock
ownership plan or trust; or (b) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Company's stockholders was approved by the same Nominating Committee
serving under an Incumbent Board, shall be, for purposes of this clause (b),
considered as though he were a member of the Incumbent Board; or (c) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Company or similar transaction in which the Bank or
Company is not the surviving institution occurs; or (d) a proxy statement
soliciting proxies from stockholders of the Company, by someone other than the
current management of the Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Company or similar transaction
with one or more corporations as a result of which the outstanding shares of the
class of securities then subject to the Plan are to be exchanged for or
converted into cash or property or securities not issued by the Company; or (e)
a tender offer is made for 25% or more of the voting securities of the Company
and the shareholders owning beneficially or of record 25% or more of the
outstanding securities of the Company have tendered or offered to sell their
shares pursuant to such tender offer and such tendered shares have been accepted
by the tender offeror. Notwithstanding the foregoing, a "change in control"
shall not be deemed to have occurred in the event of a conversion of the
Company's mutual holding company to stock form or in connection with any
reorganization or action used to effect such a conversion.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means a Committee of the Board consisting of either (i) at
least two NonEmployee Directors of the Company, or (ii) the entire Board of the
Company.
"Common Stock" means shares of the common stock of the Company, par
value $.10 per share.
"Company" means Sound Federal Bancorp or a successor corporation.
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"Continuous Service" means employment as a Key Employee and/or service
as an Outside Director without any interruption or termination of such
employment and/or service. Continuous Service shall also mean a continuation as
a member of the Board of Directors following a cessation of employment as a Key
Employee. In the case of a Key Employee, employment shall not be considered
interrupted in the case of sick leave, military leave or any other leave of
absence approved by the Bank or in the case of transfers between payroll
locations of the Bank or between the Bank, its parent, its subsidiaries or its
successor.
"Date of Grant" means the actual date on which an Award is granted by
the Committee.
"Director" means a member of the Board.
"Director Emeritus" means a former member of the Board who is
designated as a Director Emeritus by the Board.
"Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of an employee to perform the work
customarily assigned to him, or of a Director or Outside Director to serve as
such. Additionally, in the case of an employee, a medical doctor selected or
approved by the Board must advise the Committee that it is either not possible
to determine when such Disability will terminate or that it appears probable
that such Disability will be permanent during the remainder of said employee's
lifetime.
"Dividend Equivalent Rights" means the right to receive an amount of
cash based upon the terms set forth in Section 10 hereof.
"Effective Date" means the date of, or a date determined by the Board
of Directors following, approval of the Plan by the Company's stockholders.
"Fair Market Value" means, when used in connection with the Common
Stock on a certain date, the reported closing price of the Common Stock as
reported by the Nasdaq stock market (as published by the Wall Street Journal, if
published) on such date, or if the Common Stock was not traded on the day prior
to such date, on the next preceding day on which the Common Stock was traded;
provided, however, that if the Common Stock is not reported on the Nasdaq stock
market, Fair Market Value shall mean the average sale price of all shares of
Common Stock sold during the 30-day period immediately preceding the date on
which such stock option was granted, and if no shares of stock have been sold
within such 30-day period, the average sale price of the last three sales of
Common Stock sold during the 90-day period immediately preceding the date on
which such stock option was granted. In the event Fair Market Value cannot be
determined in the manner described above, then Fair Market Value shall be
determined by the Committee. The Committee is authorized, but is not required,
to obtain an independent appraisal to determine the Fair Market Value of the
Common Stock.
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"Incentive Stock Option" means an Option granted by the Committee to a
Participant, which Option is designated as an Incentive Stock Option pursuant to
Section 8.
"Key Employee" means any person who is currently employed by the
Company or an Affiliate who is chosen by the Committee to participate in the
Plan.
"Limited Right" means the right to receive an amount of cash based upon
the terms set forth in Section 9.
"Non-Statutory Stock Option" means an Option granted by the Committee
to (i) an Outside Director or (ii) any other Participant and such Option is
either (A) not designated by the Committee as an Incentive Stock Option, or (B)
fails to satisfy the requirements of an Incentive Stock Option as set forth in
Section 422 of the Code and the regulations thereunder.
"Non-Employee Director" means, for purposes of the Plan, a Director who
(a) is not employed by the Company or an Affiliate; (b) does not receive
compensation directly or indirectly as a consultant (or in any other capacity
than as a Director) greater than $60,000; (c) does not have an interest in a
transaction requiring disclosure under Item 404(a) of Regulation S-K; or (d) is
not engaged in a business relationship for which disclosure would be required
pursuant to Item 404(b) of Regulation S-K.
"Normal Retirement" means for a Key Employee, retirement at the normal
or early retirement date set forth in the Bank's Employee Stock Ownership Plan,
or any successor plan. Normal Retirement for an Outside Director, other than a
Director Emeritus, means a cessation of service on the Board of Directors for
any reason other than removal for Cause, after reaching 60 years of age and
maintaining at least 10 years of Continuous Service. The term "Normal
Retirement" shall not apply to an Outside Director who is a Director Emeritus.
"Outside Director" means a Director of the Company or an Affiliate who
is not an employee of the Company or an Affiliate. For purposes of this Plan
"Outside Director" shall also mean a Director Emeritus who is selected to
participate in the Plan by the Company's full Board or by the Committee.
"Option" means an Award granted under Section 7 or Section 8.
"Participant" means a Key Employee or Outside Director of the Company
or its Affiliates who receives or has received an award under the Plan.
"Reload Option" means an option to acquire shares of Common Stock
equivalent to the shares (i) used by a Participant to pay for an Option, or (ii)
deducted from any distribution in order to satisfy income tax required to be
withheld, based upon the terms set forth in Section 19.
"Right" means a Limited Right or a Dividend Equivalent Right.
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"Termination for Cause" means the termination of employment or
termination of service on the Board caused by the individual's personal
dishonesty, willful misconduct, any breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, or the willful violation
of any law, rule or regulation (other than traffic violations or similar
offenses), or a final cease-and-desist order, any of which results in material
loss to the Company or one of its Affiliates.
3. Plan Administration Restrictions
The Plan shall be administered by the Committee. The Committee is
authorized, subject to the provisions of the Plan, to establish such rules and
regulations as it deems necessary for the proper administration of the Plan and
to make whatever determinations and interpretations in connection with the Plan
it deems necessary or advisable. All determinations and interpretations made by
the Committee shall be binding and conclusive on all Participants in the Plan
and on their legal representatives and beneficiaries.
All transactions involving a grant, award or other acquisition from the
Company shall:
(a) be approved by the Company's full Board or by the Committee;
(b) be approved, or ratified, in compliance with Section 14 of the
Exchange Act, by either: the affirmative vote of the holders of a majority of
the securities present, or represented and entitled to vote at a meeting duly
held in accordance with the laws of the state in which the Company is
incorporated; or the written consent of the holders of a majority of the
securities of the issuer entitled to vote provided that such ratification occurs
no later than the date of the next annual meeting of shareholders; or
(c) result in the acquisition of an Option or Limited Right that is
held by the Participant for a period of six months following the date of such
acquisition.
4. Types of Awards
Awards under the Plan may be granted in any one or a combination of:
(a)Incentive Stock Options; (b) Non-Statutory Stock Options; (c) Limited Rights;
(d) Dividend Equivalent Rights; and (e) Reload Options.
5. Stock Subject to the Plan
Subject to adjustment as provided in Section 17, the maximum number of
shares reserved for issuance under the Plan is 210,738 shares. To the extent
that Options or Rights granted under the Plan are exercised, the shares covered
will be unavailable for future grants under the Plan; to the extent that Options
together with any related Rights granted under the Plan terminate, expire or are
canceled without having been exercised or, in the case of Limited Rights
exercised for cash, new Awards may be made with respect to these shares.
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6. Eligibility
Key Employees of the Company and its Affiliates shall be eligible to
receive Incentive Stock Options, Non-Statutory Stock Options, Limited Rights,
Reload Options and/or Dividend Equivalent Rights under the Plan. Outside
Directors shall be eligible to receive Non-Statutory Stock Options, Dividend
Equivalent Rights and Reload Options under the Plan.
7. Non-Statutory Stock Options
The Committee may, from time to time, grant Non-Statutory Stock Options
to eligible Key Employees and Outside Directors, and, upon such terms and
conditions as the Committee may determine, grant Non-Statutory Stock Options in
exchange for and upon surrender of previously granted Awards under the Plan.
Non-Statutory Stock Options granted under the Plan, including Non-Statutory
Stock Options granted in exchange for and upon surrender of previously granted
Awards, are subject to the terms and conditions set forth in this Section 7. The
maximum number of shares subject to a Non-Statutory Option that may be awarded
under the Plan to any Key Employee shall be 105,369.
(a) Option Agreement. Each Option shall be evidenced by a written
option agreement between the Company and the Participant specifying the number
of shares of Common Stock that may be acquired through its exercise and
containing such other terms and conditions that are not inconsistent with the
terms of the Plan.
(b) Price. The purchase price per share of Common Stock deliverable
upon the exercise of each Non-Statutory Stock Option shall be the Fair Market
Value of the Common Stock of the Company on the Date of Grant. Shares may be
purchased only upon full payment of the purchase price. Payment of the purchase
price may be made, in whole or in part, through the surrender of shares of the
Common Stock of the Company at the Fair Market Value of such shares determined
in the manner described in Section 2.
(c) Vesting. Unless the Committee shall specifically state to the
contrary at the time an Award is granted, Non-Statutory Stock Options awarded to
Key Employees and Outside Directors shall vest at the rate of 20% of the
initially awarded amount per year commencing with the vesting of the first
installment one year from the Date of Grant, and succeeding installments on each
anniversary of the Date of Grant. No Options shall become vested by a
Participant unless the Participant maintains Continuous Service until the
vesting date of such Option, except as set forth herein. Notwithstanding any
other provision of this Plan, in the event of a Change in Control of the Company
or the Bank, all Non-Statutory Stock Options that have been awarded shall
immediately vest.
(d) Exercise of Options. A vested Option may be exercised from time to
time, in whole or in part, by delivering a written notice of exercise to the
President or Chief Executive Officer of the Company, or his designee. Such
notice shall be irrevocable and must be accompanied by full
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payment of the purchase price in cash or shares of Common Stock at the Fair
Market Value of such shares, determined on the exercise date in the manner
described in Section 2 hereof. If previously acquired shares of Common Stock are
tendered in payment of all or part of the exercise price, the value of such
shares shall be determined as of the date of such exercise.
(e) Amount of Awards. Non-Statutory Stock Options may be granted to any
Key Employee or Outside Director in such amounts as determined by the Committee.
In granting NonStatutory Stock Options, the Committee shall consider such
factors as it deems relevant, which factors may include, among others, the
position and responsibility of the Key Employee or Outside Director, the length
and value of his service to the Bank, the Company or the Affiliate, the
compensation paid to the Key Employee or Outside Director, and the Committee's
evaluation of the performance of the Bank, the Company or the Affiliate,
according to measurements that may include, among others, key financial ratios,
level of classified assets and independent audit findings.
(f) Term of Options. The term during which each Non-Statutory Stock
Option may be exercised shall be determined by the Committee, but in no event
shall a Non-Statutory Stock Option be exercisable in whole or in part more than
10 years and one day from the Date of Grant. The Committee may, in its sole
discretion, accelerate the time during which any Non-Statutory Stock Option
vests in whole or in part to the Key Employees and/or Outside Directors.
(g) Termination of Employment or Service. Upon the termination of a Key
Employee's employment or upon termination of an Outside Director's service for
any reason other than, Normal Retirement, death, Disability, Change in Control
or Termination for Cause, the Participant's Non-Statutory Stock Options shall be
exercisable only as to those shares that were immediately purchasable on the
date of termination and only for one year following termination. In the event of
Termination for Cause, all rights under a Participant's Non-Statutory Stock
Options shall expire upon termination. In the event of the Participant's
termination of employment or service due to Normal Retirement, death or
Disability, or coincident with or following a Change in Control all
Non-Statutory Stock Options held by the Participant, whether or not vested at
such time, shall vest and become exercisable by the Participant or his legal
representative or beneficiaries for five years following the date of such
termination, death or cessation of employment or service, provided that in no
event shall the period extend beyond the expiration of the Non-Statutory Stock
Option term.
(h) Transferability. In the discretion of the Board, all or any
Non-Statutory Stock Option granted hereunder may be transferable by the
Participant once the Option has vested in the Participant, provided, however,
that the Board may limit the transferability of such Option or Options to a
designated class or classes of persons.
8. Incentive Stock Options
The Committee may, from time to time, grant Incentive Stock Options to
Key Employees. Incentive Stock Options granted pursuant to the Plan shall be
subject to the following terms and conditions:
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(a) Option Agreement. Each Option shall be evidenced by a written
option agreement between the Company and the Key Employee specifying the number
of shares of Common Stock that may be acquired through its exercise and
containing such other terms and conditions that are not inconsistent with the
terms of the Plan.
(b) Price. Subject to Section 17 of the Plan and Section 422 of the
Code, the purchase price per share of Common Stock deliverable upon the exercise
of each Incentive Stock Option shall be not less than 100% of the Fair Market
Value of the Company's Common Stock on the date the Incentive Stock Option is
granted. However, if a Key Employee owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or its
Affiliates (or under Section 424(d) of the Code is deemed to own stock
representing more than 10% of the total combined voting power of all classes of
stock of the Company or its Affiliates by reason of the ownership of such
classes of stock, directly or indirectly, by or for any brother, sister, spouse,
ancestor or lineal descendent of such Key Employee, or by or for any
corporation, partnership, estate or trust of which such Key Employee is a
shareholder, partner or Beneficiary), the purchase price per share of Common
Stock deliverable upon the exercise of each Incentive Stock Option shall not be
less than 110% of the Fair Market Value of the Company's Common Stock on the
date the Incentive Stock Option is granted. Shares may be purchased only upon
payment of the full purchase price. Payment of the purchase price may be made,
in whole or in part, through the surrender of shares of the Common Stock of the
Company at the Fair Market Value of such shares, determined on the exercise
date, in the manner described in Section 2.
(c) Vesting. Incentive Stock Options granted under the Plan shall vest
in a Participant at the rate or rates determined by the Committee. Unless the
Committee shall specifically state to the contrary at the time an Award is
granted, Incentive Stock Options awarded to Key Employees shall vest at the rate
of 20% of the initially awarded amount per year commencing with the vesting of
the first installment one year from the Date of Grant, and succeeding
installments on each anniversary of the Date of Grant. Notwithstanding any other
provisions of this plan, in the event of a Change in Control of the Company or
the Bank, all Incentive Stock Options that have been awarded shall immediately
vest.
(d) Exercise of Options. Vested Options may be exercised from time to
time, in whole or in part, by delivering a written notice of exercise to the
President or Chief Executive Officer of the Company or his designee. Such notice
is irrevocable and must be accompanied by full payment of the exercise price in
cash or shares of Common Stock at the Fair Market Value of such shares
determined on the exercise date by the manner described in Section 2.
The Options comprising each installment may be exercised in whole or
in part at any time after such installment becomes vested, provided that the
amount able to be first exercised in a given year is consistent with the terms
of Section 422 of the Code. To the extent required by Section 422 of the Code,
the aggregate Fair Market Value (determined at the time the Option is granted)
of the Common Stock for which Incentive Stock Options are exercisable for the
first time by a Participant
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during any calendar year (under all plans of the Company and its Affiliates)
shall not exceed $100,000.
The Committee may, in its sole discretion, accelerate the time at which
any Incentive Stock Option may be exercised in whole or in part, provided that
it is consistent with the terms of Section 422 of the Code. Notwithstanding the
above, in the event of a Change in Control of the Company, all Incentive Stock
Options that have been awarded shall become immediately exercisable, provided,
however, that if the aggregate Fair Market Value (determined at the time the
Option is granted) of Common Stock for which Options are exercisable as a result
of a Change in Control, together with the aggregate Fair Market Value
(determined at the time the Option is granted) of all other Common Stock for
which Incentive Stock Options become exercisable during such year, exceeds
$100,000, then the first $100,000 of Incentive Stock Options (determined as of
the Date of Grant) shall be exercisable as Incentive Stock Options and any
excess shall be exercisable as Non-Statutory Stock Options (but shall remain
subject to the provisions of this Section 8 to the extent permitted).
(e) Amounts of Awards. Incentive Stock Options may be granted to any
eligible Key Employee in such amounts as determined by the Committee; provided
that the amount granted is consistent with the terms of Section 422 of the Code.
Notwithstanding the above, the maximum number of shares that may be subject to
an Incentive Stock Option awarded under the Plan to any Key Employee shall be
40,250. In granting Incentive Stock Options, the Committee shall consider such
factors as it deems relevant, which factors may include, among others, the
position and responsibilities of the Key Employee, the length and value of his
or her service to the Bank, the Company, or the Affiliate, the compensation paid
to the Key Employee and the Committee's evaluation of the performance of the
Bank, the Company, or the Affiliate, according to measurements that may include,
among others, key financial ratios, levels of classified assets, and independent
audit findings. The provisions of this Section 8(e) shall be construed and
applied in accordance with Section 422(d) of the Code and the regulations, if
any, promulgated thereunder.
(f) Terms of Options. The term during which each Incentive Stock Option
may be exercised shall be determined by the Committee, but in no event shall an
Incentive Stock Option be exercisable in whole or in part more than 10 years
from the Date of Grant. If any Key Employee, at the time an Incentive Stock
Option is granted to him, owns stock representing more than 10% of the total
combined voting power of all classes of stock of the Company or its Affiliate
(or, under Section 424(d) of the Code, is deemed to own stock representing more
than 10% of the total combined voting power of all classes of stock, by reason
of the ownership of such classes of stock, directly or indirectly, by or for any
brother, sister, spouse, ancestor or lineal descendent of such Key Employee, or
by or for any corporation, partnership, estate or trust of which such Key
Employee is a shareholder, partner or Beneficiary), the Incentive Stock Option
granted to him shall not be exercisable after the expiration of five years from
the Date of Grant.
(g) Termination of Employment. Upon the termination of a Key Employee's
service for any reason other than Normal Retirement, death, Disability, a Change
in Control, or Termination for Cause, the Key Employee's Incentive Stock Options
shall be exercisable only as to those shares
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that were immediately purchasable by such Key Employee at the date of
termination and only for a period of three months following termination. In the
event of Termination for Cause all rights under the Incentive Stock Options
shall expire upon termination.
Upon termination of a Key Employee's employment due to Normal
Retirement, death, Disability, or following a Change in Control, all Incentive
Stock Options held by such Key Employee, whether or not exercisable at such
time, shall be exercisable for a period of five years following the date of his
cessation of employment, provided however, that any such Option shall not be
eligible for treatment as an Incentive Stock Option in the event such Option is
exercised more than three months following the date of his Normal Retirement or
termination of employment following a Change in Control; and provided further,
that no Option shall be eligible for treatment as an Incentive Stock Option in
the event such Option is exercised more than one year following termination of
employment due to Disability; and provided further, in order to obtain Incentive
Stock Option treatment for Options exercised by heirs or devisees of an
Optionee, the Optionee's death must have occurred while employed or within three
(3) months of termination of employment. In no event shall the exercise period
extend beyond the expiration of the Incentive Stock Option term.
(h) Transferability. No Incentive Stock Option granted under the Plan
is transferable except by will or the laws of descent and distribution and is
exercisable during his lifetime only by the Key Employee to which it is granted.
(i) Compliance with Code. The options granted under this Section 8 are
intended to qualify as Incentive Stock Options within the meaning of Section 422
of the Code, but the Company makes no warranty as to the qualification of any
Option as an Incentive Stock Option within the meaning of Section 422 of the
Code. If an Option granted hereunder fails for whatever reason to comply with
the provisions of Section 422 of the Code, and such failure is not or cannot be
cured, such Option shall be a Non-Statutory Stock Option.
9. Limited Rights
The Committee may grant a Limited Right simultaneously with the grant
of any Option to any Key Employee of the Bank, with respect to all or some of
the shares covered by such Option. Limited Rights granted under the Plan are
subject to the following terms and conditions:
(a) Terms of Rights. In no event shall a Limited Right be exercisable
in whole or in part before the expiration of six months from the date of grant
of the Limited Right. A Limited Right may be exercised only in the event of a
Change in Control.
The Limited Right may be exercised only when the underlying Option is
eligible to be exercised, provided that the Fair Market Value of the underlying
shares on the day of exercise is greater than the exercise price of the related
Option.
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Upon exercise of a Limited Right, the related Option shall cease to be
exercisable. Upon exercise or termination of an Option, any related Limited
Rights shall terminate. The Limited Rights may be for no more than 100% of the
difference between the exercise price and the Fair Market Value of the Common
Stock subject to the underlying Option. The Limited Right is transferable only
when the underlying Option is transferable and under the same conditions.
(b) Payment. Upon exercise of a Limited Right, the holder shall
promptly receive from the Company an amount of cash equal to the difference
between the Fair Market Value on the Date of Grant of the related Option and the
Fair Market Value of the underlying shares on the date the Limited Right is
exercised, multiplied by the number of shares with respect to which such Limited
Right is being exercised. In the event of a Change in Control in which pooling
of interests accounting treatment is a condition to the transaction, the Limited
Right shall be exercisable solely for shares of stock of the Company, or in the
event of a merger transaction, for shares of the acquiring corporation or its
parent, as applicable. The number of shares to be received on the exercise of
such Limited Right shall be determined by dividing the amount of cash that would
have been available under the first sentence above by the Fair Market Value at
the time of exercise of the shares underlying the Option subject to the Limited
Right.
10. Dividend Equivalent Rights
Simultaneously with the grant of any Option to a Participant, the
Committee may grant a Dividend Equivalent Right with respect to all or some of
the shares covered by such Option. Dividend Equivalent Rights granted under this
Plan are subject to the following terms and conditions:
(a) Terms of Rights. The Dividend Equivalent Right provides the
Participant with a cash benefit per share for each share underlying the
unexercised portion of the related Option equal to the amount of any
extraordinary dividend (as defined in Section 10(c)) per share of Common Stock
declared by the Company. The terms and conditions of any Dividend Equivalent
Right shall be evidenced in the Option agreement entered into with the
Participant and shall be subject to the terms and conditions of the Plan. The
Dividend Equivalent Right is transferable only when the related Option is
transferable and under the same conditions.
(b) Payment. Upon the payment of an extraordinary dividend, the
Participant holding a Dividend Equivalent Right with respect to Options or
portions thereof which have vested shall promptly receive from the Company or
the Bank the amount of cash equal to the amount of the extraordinary dividend
per share of Common Stock, multiplied by the number of shares of Common Stock
underlying the unexercised portion of the related Option. With respect to
Options or portions thereof which have not vested, the amount that would have
been received pursuant to the Dividend Equivalent Right with respect to the
shares underlying such unvested Option or portion thereof shall be paid to the
Participant holding such Dividend Equivalent Right together with earnings
thereon, on such date as the Option or portion thereof becomes vested. Payments
shall be decreased by the amount of any applicable tax withholding prior to
distribution to the Participant as set forth in Section 19.
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(c) Extraordinary Dividend. For purposes of this Section 10, an
extraordinary dividend is any dividend paid on shares of Common Stock where the
rate of the dividend exceeds the Bank's weighted average cost of funds on
interest-bearing liabilities for the current and preceding three quarters.
11. Reload Option
Simultaneously with the grant of any Option to a Participant, the
Committee may grant a Reload Option with respect to all or some of the shares
covered by such Option. A Reload Option may be granted to a Participant who
satisfies all or part of the exercise price of the Option with shares of Common
Stock (as described in Section 13(c) below). The Reload Option represents an
additional Option to acquire the same number of shares of Common Stock as is
used by the Participant to pay for the original Option. Reload Options may also
be granted to replace Common Stock withheld by the Company for payment of a
Participant's withholding tax under Section 19.
A Reload Option is subject to all of the same terms and conditions as the
original Option except that (i) the exercise price of the shares of Common Stock
subject to the Reload Option will be determined at the time the original Option
is exercised and (ii) such Reload Option will conform to all provisions of the
Plan at the time the original Option is exercised.
12. Surrender of Option
In the event of a Participant's termination of employment or
termination of service as a result of death, Disability or Normal Retirement,
the Participant (or his or her personal representative(s), heir(s), or
devisee(s)) may, in a form acceptable to the Committee make application to
surrender all or part of the Options held by such Participant in exchange for a
cash payment from the Company of an amount equal to the difference between the
Fair Market Value of the Common Stock on the date of termination of employment
or the date of termination of service on the Board and the exercise price per
share of the Option. Whether the Company accepts such application or determines
to make payment, in whole or part, is within its absolute and sole discretion,
it being expressly understood that the Company is under no obligation to any
Participant whatsoever to make such payments. In the event that the Company
accepts such application and determines to make payment, such payment shall be
in lieu of the exercise of the underlying Option and such Option shall cease to
be exercisable.
13. Alternate Option Payment Mechanism
The Committee has sole discretion to determine what form of payment it
will accept for the exercise of an Option. The Committee may indicate acceptable
forms in the agreement with the Participant covering such Options or may reserve
its decision to the time of exercise. No Option is to be considered exercised
until payment in full is accepted by the Committee or its agent.
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(a) Cash Payment. The exercise price may be paid in cash or by
certified check. To the extent permitted by law, the Committee may permit all or
a portion of the exercise price of an Option to be paid through borrowed funds.
(b) Cashless Exercise. Subject to vesting requirements, if applicable,
a Participant may engage in a "cashless exercise" of the Option. Upon a cashless
exercise, the Participant shall give the Bank written notice of the exercise of
the Option together with an order to a registered broker-dealer or equivalent
third party, to sell part or all of the Common Stock subject to the Option and
to deliver enough of the proceeds to the Bank to pay the Option exercise price
and any applicable withholding taxes. If the Participant does not sell the
Common Stock subject to the Option through a registered broker-dealer or
equivalent third party, the Participant may give the Bank written notice of the
exercise of the Option and the third party purchaser of the Common Stock subject
to the Option shall pay the Option exercise price plus applicable withholding
taxes to the Bank.
(c) Exchange of Common Stock. The Committee may permit payment of the
Option exercise price by the tendering of previously acquired shares of Common
Stock. All shares of Common Stock tendered in payment of the exercise price of
an Option shall be valued at the Fair Market Value of the Common Stock on the
date prior to the date of exercise. No tendered shares of Common Stock which
were acquired by the Participant upon the previous exercise of an Option or as
awards under a stock award plan (such as the Company's Recognition and Retention
Plan) shall be accepted for exchange unless the Participant has held such shares
(without restrictions imposed by said plan or award) for at least six months
prior to the exchange.
14. Rights of a Stockholder
A Participant shall have no rights as a stockholder with respect to any
shares covered by a Non-Statutory and/or Incentive Stock Option until the date
of issuance of a stock certificate for such shares. Nothing in the Plan or in
any Award granted confers on any person any right to continue in the employ of
the Company or its Affiliates or to continue to perform services for the Company
or its Affiliates or interferes in any way with the right of the Company or its
Affiliates to terminate his services as an officer, director or employee at any
time.
15. Agreement with Participants
Each Award of Options, Reload Options, Limited Rights, and/or Dividend
Equivalent Rights will be evidenced by a written agreement, executed by the
Participant and the Company or its Affiliates that describes the conditions for
receiving the Awards, including the date of Award, the purchase price,
applicable periods, and any other terms and conditions as may be required by the
Board or applicable securities laws.
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16. Designation of Beneficiary
A Participant may, with the consent of the Committee, designate a
person or persons to receive, in the event of death, any Option, Reload Option,
Limited Rights Award or Dividend Equivalent Rights to which he would then be
entitled. Such designation will be made upon forms supplied by and delivered to
the Company and may be revoked in writing. If a Participant fails effectively to
designate a Beneficiary, then his estate will be deemed to be the Beneficiary.
17. Dilution and Other Adjustments
In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend or split, pro rata return of capital to all
shareholders, recapitalization, or any merger, consolidation, spin-off,
reorganization, combination or exchange of shares, or other similar corporate
change, or other increase or decrease in such shares, without receipt or payment
of consideration by the Company, the Committee will make such adjustments to
previously granted Awards, to prevent dilution or enlargement of the rights of
the Participant, including any or all of the following:
(a) adjustments in the aggregate number or kind of shares of
Common Stock that may be awarded under the Plan;
(b) adjustments in the aggregate number or kind of shares of
Common Stock covered by Awards already made under the Plan; or
(c) adjustments in the purchase price of outstanding Incentive
and/or Non-Statutory Stock Options, or any Limited Rights
attached to such Options.
No such adjustments may, however, materially change the value of
benefits available to a Participant under a previously granted Award. With
respect to Incentive Stock Options, no such adjustment shall be made if it would
be deemed a "modification" of the Award under Section 424 of the Code.
18. Effect of a Change in Control on Option Awards
In the event of a Change in Control, the Committee and the Board of
Directors will take one or more of the following actions to be effective as of
the date of such Change in Control:
(a) provide that such Options shall be assumed, or equivalent options
shall be substituted ("Substitute Options") by the acquiring or succeeding
corporation (or an affiliate thereof), provided that: (A) any such Substitute
Options exchanged for Incentive Stock Options shall meet the requirements of
Section 424(a) of the Code, and (B) the shares of stock issuable upon the
exercise of such Substitute Options shall constitute securities registered in
accordance with the Securities Act of 1933, as amended ("1933 Act") or such
securities shall be exempt from such registration in accordance with Sections
3(a)(2) or 3(a)(5) of the 1933 Act, (collectively, "Registered Securities"),
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or in the alternative, if the securities issuable upon the exercise of such
Substitute Options shall not constitute Registered Securities, then the
Participant will receive upon consummation of the Change in Control a cash
payment for each Option surrendered equal to the difference between the (1) Fair
Market Value of the consideration to be received for each share of Common Stock
in the Change in Control times the number of shares of Common Stock subject to
such surrendered Options, and (2) the aggregate exercise price of all such
surrendered Options; or
(b) in the event of a transaction under the terms of which the holders
of Common Stock will receive upon consummation thereof a cash payment (the
"Merger Price") for each share of Common Stock exchanged in the Change in
Control transaction, make or provide for a cash payment to the Participants
equal to the difference between (1) the Merger Price times the number of shares
of Common Stock subject to such Options held by each Participant (to the extent
then exercisable at prices not in excess of the Merger Price), and (2) the
aggregate exercise price of all such surrendered Options.
19. Withholding
There may be deducted from each distribution of cash and/or Common
Stock under the Plan the minimum amount of any federal or state taxes, including
payroll taxes, that are applicable to such supplemental taxable income and that
are required by any governmental authority to be withheld. Shares of Common
Stock will be withheld where required from any distribution of Common Stock.
20. Amendment of the Plan
The Board may at any time, and from time to time, modify or amend the
Plan in any respect, or modify or amend an Award received by Key Employees
and/or Outside Directors; provided, however, that no such termination,
modification or amendment may affect the rights of a Participant, without his
consent, under an outstanding Award. Any amendment or modification of the Plan
or an outstanding Award under the Plan, including but not limited to the
acceleration of vesting of an outstanding Award for reasons other than the
death, Disability, Normal Retirement, or a Change in Control, shall be approved
by the Committee or the full Board of the Company.
21. Effective Date of Plan
The Plan shall become effective upon the date of, or a date determined
by the Board of Directors following, approval of the Plan by the Company's
stockholders.
22. Termination of the Plan
The right to grant Awards under the Plan will terminate upon the
earlier of (i) 10 years after the Effective Date, or (ii) the date on which the
exercise of Options or related rights equaling the maximum number of shares
reserved under the Plan occurs, as set forth in Section 5. The Board may
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suspend or terminate the Plan at any time, provided that no such action will,
without the consent of a Participant, adversely affect his rights under a
previously granted Award.
23. Applicable Law
The Plan will be administered in accordance with the laws of the State
of New York.
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IN WITNESS WHEREOF, the Company has caused the Plan to be executed by
its duly authorized officers and the corporate seal to be affixed and duly
attested, as of the ____ day of _________________, 1999.
Date Approved by Stockholders: __________
Effective Date: _____________
ATTEST: SOUND FEDERAL BANCORP
Secretary President
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