July 12, 2000
Dear Stockholder:
We are pleased to invite you to attend the Annual Meeting of Stockholders of
Sound Federal Bancorp (the "Company"). The Annual 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 August 10, 2000.
The enclosed Notice of Annual Meeting and Proxy Statement describe the formal
business to be transacted.
At the Annual Meeting stockholders will be given an opportunity to elect two
directors and to ratify the appointment of KPMG LLP as auditors for the
Company's 2001 fiscal year.
The Board of Directors of the Company has determined that the matters to be
considered at the Annual Meeting are in the best interest of the Company and its
stockholders. For the reasons set forth in the proxy statement, the Board of
Directors unanimously recommends a vote "FOR" each matter to be considered.
On behalf of the Board of Directors, we urge you to sign, date and return the
enclosed proxy card as soon as possible even if you currently plan to attend the
Annual Meeting. Your vote is important, regardless of the number of shares that
you own. Voting by proxy will not prevent you from voting in person, but will
assure that your vote is counted if you are unable to attend the meeting.
Sincerely,
/s/ Richard P. McStravick
Richard P. McStravick
President and Chief Executive Officer
<PAGE>
Sound Federal Bancorp
300 Mamaroneck Avenue
Mamaroneck, New York 10543
(914) 698-6400
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On August 10, 2000
Notice is hereby given that the Annual Meeting of Sound Federal Bancorp
(the "Company") will be held at the Hyatt Regency Greenwich, 1800 E. Putnam
Avenue, Old Greenwich, Connecticut 06870, on August 10, 2000 at 10:00 a.m.,
local time.
A Proxy Card and a Proxy Statement for the Annual Meeting are enclosed.
The Annual Meeting is for the purpose of considering and acting upon:
1. The election of two directors of the Company;
2. The ratification of the appointment of KPMG LLP as auditors for the
Company for the fiscal year ending March 31, 2001; and
such other matters as may properly come before the Annual Meeting, or any
adjournments thereof. The Board of Directors is not aware of any other business
to come before the Annual Meeting.
Any action may be taken on the foregoing proposals at the Annual Meeting on
the date specified above, or on any date or dates to which by original or later
adjournment the Annual Meeting may be adjourned. Stockholders of record at the
close of business on June 27, 2000 are the stockholders entitled to vote at the
Annual Meeting, and any adjournments thereof.
EACH STOCKHOLDER, WHETHER HE OR SHE PLANS TO ATTEND THE ANNUAL MEETING, IS
REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD WITHOUT DELAY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. ANY PROXY GIVEN BY THE STOCKHOLDER MAY BE
REVOKED AT ANY TIME BEFORE IT IS EXERCISED. A PROXY MAY BE REVOKED BY FILING
WITH THE SECRETARY OF THE COMPANY A WRITTEN REVOCATION OR A DULY EXECUTED PROXY
BEARING A LATER DATE. ANY STOCKHOLDER PRESENT AT THE ANNUAL MEETING MAY REVOKE
HIS OR HER PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT BEFORE THE ANNUAL
MEETING. HOWEVER, IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT REGISTERED IN
YOUR OWN NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER IN
ORDER TO VOTE PERSONALLY AT THE ANNUAL MEETING.
By Order of the Board of Directors
/s/ William H. Morel
William H. Morel
Corporate Secretary
Mamaroneck, New York
July 12, 2000
--------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------
ANNUAL MEETING OF STOCKHOLDERS
August 10, 2000
--------------------------------------------------------------------------------
This Proxy Statement is furnished in connection with the solicitation
of proxies on behalf of the Board of Directors of (the "Company") to be used at
the Annual 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 August 10, 2000 at 10:00 a.m., local time, and all
adjournments thereof. The accompanying Notice of Annual Meeting of Stockholders
and this Proxy Statement are first being mailed to stockholders on or about July
12, 2000.
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
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 June 27, 2000 (the "Record
Date") are entitled to one vote for each share then held. As of the Record Date,
the Company had 5,005,218 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 56.2% 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>
<TABLE>
<CAPTION>
Amount of Shares Percent of Shares
Name and Address of Owned and Nature of Common Stock
Beneficial Owner of Beneficial Ownership Outstanding (2)(3)
---------------------------------------------- ------------------------- -----------------------------
<S> <C> <C>
Sound Federal, MHC 2,810,510 55.68%
300 Mamaroneck Avenue
Mamaroneck, New York 10543
Named Directors and Executive Officers:(1)
Bruno J. Gioffre 38,968 0.77
Richard P. McStravick 60,252 1.19
Joseph Dinolfo 23,068 0.46
Donald H. Heithaus 34,768 0.69
Joseph A. Lanza 15,335 0.30
Arthur C. Phillips, Jr. 26,868 0.53
James Staudt 13,068 0.26
William H. Morel 23,859 0.47
Anthony J. Fabiano 24,000 0.48
------- ------
All officers and directors
as a group (10 persons) 260,186 5.16%
======= ======
------------------------------------
</TABLE>
(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").
(2) Includes 5,268 shares awarded to each outside director and 21,000 shares,
16,000 shares and 14,000 shares awarded to Messrs. McStravick, Morel and
Fabiano, respectively, pursuant to the Sound Federal Savings and Loan
Association Recognition and Retention Plan ("RRP"). Also includes 3,700
shares, 9,200 shares, 1,600 shares, 8,000 shares and 1,600 shares for
Messrs. Gioffre, McStravick, Phillips, Fabiano and Morel, respectively, and
2,800 shares each for Messrs. Heithaus, Dinolfo, Lanza and Staudt subject
to option pursuant to the Company's Stock Option Plan ("SOP").
(3) Calculated as a percent of common shares outstanding (5,005,218) plus stock
options that are exercisable within 60 days.
--------------------------------------------------------------------------------
PROPOSAL I--ELECTION OF DIRECTORS
--------------------------------------------------------------------------------
The Company's Board of Directors is composed of seven members. The
Company's bylaws provide that approximately one-third of the directors are to be
elected annually. Directors of the Company are generally elected to serve for a
three year period or until their respective successors shall have been elected
and shall qualify. The terms of the Board of Directors are classified so that
approximately one-third of the directors are up for election in any one year.
Three directors will be elected at the Meeting. The Board of Directors has
nominated to serve as directors Donald H. Heithaus and Joseph A. Lanza, each to
serve for a three-year term.
The table below sets forth certain information regarding the composition of
the Company's Board of Directors, including the terms of office of Board
members. Historical information relates to the Bank. It is intended that the
proxies solicited on behalf of the Board of Directors (other than proxies in
which the vote is withheld as to one or more nominees) will be voted at the
Meeting for the election of the nominees identified below. If any nominee is
unable to serve, the shares represented by all such proxies will be voted for
the election of such substitute as the Board of Directors may recommend. At this
time, the Board of Directors knows of no reason why any of the nominees might be
unable to serve, if elected. Except as indicated herein, there are no
arrangements or understandings between any nominee and any other person pursuant
to which such nominee was selected. The Board of Directors recommends a vote
"FOR" each of the nominees to serve as directors until their term expires.
2
<PAGE>
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially
Director Current Term Owned on the Percent
Name Age Positions Held Since (1) to Expire Record Date(2) Of Class
---------------------- --------- ---------------------- ----------- ----------- ----------- -- --------
NOMINEES
<S> <C> <C> <C> <C> <C> <C>
Donald H. Heithaus 65 Director 1978 2000 34,768 *
Joseph A. Lanza 53 Director 1998 2000 15,335 *
DIRECTORS CONTINUING IN OFFICE
Joseph Dinolfo 66 Director 1985 2001 23,068 *
Arthur C. Phillips, Jr. 76 Director 1976 2001 26,868 *
Bruno J. Gioffre 65 Chairman of the Board 1975 2002 38,968 *
Richard P. McStravick 51 President, Chief 1996 2002 60,252 1.19
Executive Officer
and Director
James Staudt 47 Director 1987 2002 13,068 *
</TABLE>
------------------------------------
* Less than 1%.
(1) Reflects initial appointment to the Board of Directors of the Bank's mutual
predecessor.
(2) Includes 5,268 shares awarded to each outside director and 21,000 shares,
16,000 shares and 14,000 shares awarded to Messrs. McStravick, Morel and
Fabiano, respectively, pursuant to the Sound Federal Savings and Loan
Association Recognition and Retention Plan ("RRP"). Also includes 3,700
shares, 9,200 shares, 1,600 shares, 8,000 shares and 1,600 shares for
Messrs. Gioffre, McStravick, Phillips, Fabiano and Morel, respectively, and
2,800 shares each for Messrs. Heithaus, Dinolfo, Lanza and Staudt subject
to option pursuant to the Company's Stock Option Plan ("SOP").
The principal occupation during the past five years of each director of the
Company is set forth below. All directors and executive officers have held their
present positions for all five years unless otherwise stated.
Bruno J. Gioffre is the Chairman of the Board of Directors and has been so
since December 1997. Mr. Gioffre was formerly general counsel to the Bank. Mr.
Gioffre is of counsel to the law firm of Gioffre & Gioffre, Professional
Corporation and is a retired Senior Justice for the Town of Rye, New York.
Richard P. McStravick is President and Chief Executive Officer of the Bank.
Mr. McStravick has been employed by the Bank in various capacities since 1977.
Mr. McStravick was appointed to the Board of Directors in 1996. Joseph Dinolfo
is the President of the Dinolfo Wilson Agency, Inc. an insurance agency.
Donald H. Heithaus is the President and Chief Executive Officer of the
Happiness Laundry Service, Inc.
Joseph A. Lanza is the President of Lanza Electric, a private electrical
contractor.
James Staudt is a partner with the law firm of McCullough, Goldberger,
Staudt and Simon. Mr. Staudt is also general counsel to the Bank.
Arthur C. Phillips, Jr. is retired. Prior to his retirement, Mr. Phillips
was the Pension and Welfare Funds Manager for the Industry and Local 338 Pension
and Welfare Fund.
3
<PAGE>
Executive Officers Who Are Not Directors
William H. Morel is the Bank's Senior Vice President, Chief Lending Officer
and Corporate Secretary. He has been employed by the Bank in various capacities
since 1969. Mr. Morel is the beneficial owner of 23,859 shares of Common Stock.
Anthony J. Fabiano is Vice President and Chief Financial Officer since
January 1, 1999. He joined the Bank in July 1998. Prior to that, he was the
Chief Financial Officer at another thrift institution. Mr. Fabiano is the
beneficial owner of 24,000 shares of Common Stock.
Ownership Reports by Officers and Directors
The Common Stock is registered pursuant to Section 12(g) of the Exchange
Act. The officers and directors of the Company and beneficial owners of greater
than 10% of the Company's Common Stock ("10% beneficial owners") are required to
file reports on Forms 3, 4, and 5 with the SEC disclosing changes in beneficial
ownership of the Common Stock. SEC rules require disclosure in the Company's
Proxy Statement and Annual Report on Form 10-K of the failure of an officer,
director or 10% beneficial owner of the Company's Common Stock to file a Form 3,
4 or 5 on a timely basis. No disclosure is required with respect to the
Company's Officers and Directors.
--------------------------------------------------------------------------------
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
--------------------------------------------------------------------------------
The business of the Company's Board of Directors is conducted through
meetings and activities of the Board and its committees. During the fiscal year
ended March 31, 2000, the Board of Directors of the Company held 14 regular and
special meetings. During the year ended March 31, 2000, no director attended
fewer than 75 percent of the total meetings of the Board of Directors of the
Company or the Bank and committees on which such director served.
The Executive Committee acts as the Compensation Committee which meets
periodically to review the performance of officers and employees and determine
compensation programs and adjustments. It is comprised of Directors Gioffre,
Phillips, Heithaus and Dinolfo. The Executive Committee met three times during
the year ended March 31, 2000.
The Audit Committee consists of Directors Phillips, Heithaus and Staudt.
This committee meets on a quarterly basis and as otherwise required to review
audit programs and reports as well as other regulatory compliance issues. The
Audit Committee recommends to the Board of Directors the appointment of
independent auditors for the upcoming fiscal year. The Audit Committee met five
times during the year ended March 31, 2000.
The Board of Directors serves as the Nominating Committee. During the year
ended March 31, 2000, one meeting was held.
4
<PAGE>
Stock Performance Graph
Set forth below is a stock performance graph comparing the yearly total
return on the Company's Common Stock with (a) the monthly cumulative total
return on stocks included in the Nasdaq Composite Index, and (b) the monthly
cumulative total return on stocks included in the SNL Mutual Holding Company
Thrift Index. The Company first issued its Common Stock effective October 8,
1998. In accordance with the information presented below is for the period
beginning with the closing price of the Company's Common Stock on October 8,
1998, its first trading day and ending on March 31, 2000.
There can be no assurance that the Company's stock performance will
continue in the future with the same or similar trend depicted in the graph. The
Company will not make or endorse any predictions as to future stock performance.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Period Ending
----------------------------- -------------------------------------------------------------------------- ------------
10/8/98 12/31/98 03/31/99 06/30/99 09/30/99 12/31/99 03/31/00
----------------------------- ---------- ----------- ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sound Federal Bancorp 100.0 111.03 107.35 111.89 112.66 109.77 104.57
Nasdaq Composite 100.0 155.57 174.43 190.87 195.46 288.37 323.85
MHC Thrifts 100.0 124.36 123.67 126.49 118.20 110.61 112.07
</TABLE>
5
<PAGE>
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, Heithaus and Dinolfo. The Executive Committee reviews the benefits
provided to the Bank's officers and employees. During the year ended March 31,
2000 the Executive Committee met three times.
Report of the Compensation Committee
Under rules established by the SEC, the Company is required to provide
certain data and information in regard to the compensation and benefits provided
to the Company's Chief Executive Officer and other executive officers of the
Company. The disclosure requirements for the Chief Executive Officer and other
executive officers include the use of tables and a report explaining the
rationale and considerations that led to fundamental executive compensation
decisions affecting those individuals. In fulfillment of this requirement, the
Executive Committee of the Bank, at the direction of the Board of Directors, has
prepared the following report for inclusion in this proxy statement.
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. Only non-employee directors serve on the Executive
Committee and participate in executive compensation decision making. Any cash
compensation paid to executive officers is paid by the Bank. The Company does
not currently pay any cash compensation to executive officers.
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, Heithaus and Dinolfo
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 $1,500
for each meeting attended, except for the Chairman of the Board who receives
$3,000.
6
<PAGE>
--------------------------------------------------------------------------------
EXECUTIVE COMPENSATION
--------------------------------------------------------------------------------
The following table sets forth information as to annual and other
compensation for services in all capacitie s for executive officers who earned
more than $100,000 in salary and bonuses during the fiscal year ended March 31,
2000.
<TABLE>
<CAPTION>
Summary Compensation Table
====================================================================================================================================
Long-Term
Annual Compensation Compensation Awards
----------------------------------------------------------------------------- --------------------------------------
Other Restricted
Annual Stock Options/ All Other
Name and Fiscal Salary Bonus Compensation Award(s) SARs Compensation
Principal Position Year ($) ($) ($) (1) ($)(3) (#)(4) Payouts ($) (2)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard P. McStravick 2000 143,259 8,408 21,900 191,625 46,000 -- 3,718
President and Chief 1999 131,875 7,949 23,200 -- -- -- 3,718
Executive Officer 1998 124,375 7,491 14,175 -- -- -- 3,807
------------------------- ------------ --------- -------- --------------- --------------- ----------- ---------- ---------------
William H. Morel 2000 101,250 6,000 -- 146,000 8,000 -- --
Senior Vice President and 1999 96,250 5,700 -- -- -- -- --
Chief Lending Officer
========================= ============ ========= ======== =============== =============== =========== ========== ===============
Anthony J. Fabiano 2000 96,250 5,741 -- 127,750 40,000 -- --
Vice President and Chief
Financial Officer
========================= ============ ========= ======== =============== =============== =========== ========== ===============
</TABLE>
(1) Represents director's fees for service on the Company's and Bank's Board of
Directors.
(2) Consists of the use of the Bank's automobile.
(3) Amount reflects dollar value of award of 21,000 shares, 16,000 shares and
14,000 shares of restricted stock granted to Messrs. McStravick, Morel and
Fabiano, respectively. The dollar value per share of such award on the date
of grant was $9.125.
(4) On October 20, 1999, pursuant to the Sound Federal Bancorp 1999 Stock
Option Plan, the Company granted these options to purchase shares of common
stock of the Company at an exercise price of $9.125, the market value per
share on the date of the grant.
Benefits
Directors Deferred Fee Plan. The Directors Deferred Fee Plan ("Directors
Plan") is a non-qualified deferred compensation plan into which directors can
defer up to 100% of their board fees earned during the calendar year. All
amounts deferred by a director are fully vested at all times. 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 to invest all or a portion of his or her
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 his or her benefits if the director suffers an unforeseeable
emergency, defined as a severe financial hardship to the director resulting from
a sudden and unexpected illness or accident of the director or his or her
dependent, loss of the director's property due to casualty,
7
<PAGE>
or other similar extraordinary and unforeseeable circumstances arising as a
result of events beyond the director's control.
Executive Agreements. The Bank has employment agreements with Messrs.
McStravick, Morel and Fabiano. The agreements with Messrs. McStravick, Morel and
Fabiano have a term of three years and may be extended for an additional 12
months on each anniversary date so that the remaining term shall be 36 months.
If the agreement is not renewed, the agreement will expire 36 months following
the anniversary date. 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, Morel and Fabiano are
$137,500, $100,000 and $95,000, 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, Morel and Fabiano would receive
an aggregate of approximately $392,000, $276,000 and $295,000, 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 for the remaining term of the agreement. Any disability payment is
reduced to the extent benefits are received under disability insurance, workers'
compensation or other similar program.
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 her or she retired as a
director, without the obligation of attendance at meetings of the Board of
Directors.
Compensation is paid to the director emeritus from the date of attainment of
such status until his or her death.
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, 2000, no contribution was required to be made to the Retirement Plan;
however, the Bank elected to make a contribution of approximately $77,000. At
March 31, 2000, 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,
8
<PAGE>
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 employee's normal
retirement date, or, if elected, on or after reaching age 55.
The following table indicates the annual retirement benefit that would be
payable under the Retirement Plan upon retirement at age 65 in calendar year
2000, expressed in the form of a single life annuity for the final average
salary and benefit service classifications specified below.
Final Average Years of Service and Benefit Payable at Retirement
--------------------------------------------------
Compensation 15 20 25 30
------------ ----------- ----------- ----------- ----------
$ 50,000 $ 25,125 $ 25,125 $ 25,125 $ 25,125
$ 75,000 $ 37,941 $ 37,941 $ 37,941 $ 37,941
$ 100,000 $ 52,941 $ 52,941 $ 52,941 $ 52,941
$ 125,000 $ 67,941 $ 67,941 $ 67,941 $ 67,941
$160,000 and above $ 88,941 $ 88,941 $ 88,941 $ 88,941
As of March 31, 2000, Mr. McStravick had 22 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 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
9
<PAGE>
January 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 his
accounts for any reason after age 59 1/2.
The 401(k) Plan permits employees to direct the investment of his or her
own accounts into various investment options including an "Employer Stock Fund."
Participants are entitled to direct the trustee as to how to vote his or her
allocable shares of Common Stock in the Employer Stock Fund.
Plan benefits will be paid to each participant in the form of a single cash
payment at normal retirement age unless earlier payment is selected. If a
participant dies prior to receipt of the entire value of his or her 401(k) Plan
accounts, payment will generally be made to the beneficiary in a single cash
payment as soon as possible following the participant's death. Payment will be
deferred if the participant had previously elected a later payment date. If the
beneficiary is not the participant's spouse, payment will be made within one
year of the date of death. If the spouse is the designated beneficiary, payment
will be made no later than the date the participant would have attained age 70
1/2. Normal retirement age under the 401(k) Plan is age 65. Early retirement age
is age 55.
At March 31, 2000, the total market value of the assets in the 401(k) Plan
was approximately $1.1 million.
Stock Option Plan. During the year ended March 31, 2000, the Company
adopted, and the Company's stockholders approved, the 1999 Stock Option Plan
(the "Stock Option Plan"). Pursuant to the Stock Option Plan, options to
purchase 94,500 shares were granted to non-employee directors (including two
directors emeriti) at an exercise price of $9.125 per share, the fair market
value of the underlying shares on the date of the award. The term of the options
is ten years from the date of grant, and the shares subject to awards will be
adjusted in the event of any merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, combination or exchange of shares
or other change in the corporate structure of the Company. The awards included
an equal number of reload options ("Reload Options"), limited stock appreciation
rights ("Limited Rights") and dividend equivalent rights ("Dividend Equivalent
Rights"). A Limited Right gives the option holder the right, upon a change in
control of the Company or the Bank, to receive the excess of the market value of
the shares represented by the Limited Rights on the date exercised over the
exercise price. The Limited Rights are subject to the same terms and conditions
as the stock options. Payment upon exercise of Limited Rights will be in cash,
or in the event of a 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. The Dividend Equivalent Rights entitle the option holder
to receive an amount of cash at the time that certain extraordinary dividends
are declared equal to the amount of the extraordinary dividend multiplied by the
number of options that the person holds. For these purposes, an extraordinary
dividend is defined as any dividend where the rate of dividend exceeds the
Bank's weighted average cost of funds on interest-bearing liabilities for the
current and preceding three quarters. The Reload Options entitle the option
holder, who has delivered shares that he or she owns as payment of the exercise
price for option stock, to a new option to acquire additional shares equal in
amount to the shares he or she has traded in. Reload Options may also be granted
to replace option shares retained by the employer for payment of the option
holder's withholding tax. The option price at which additional shares of stock
can be purchased by the option holder through the exercise of a Reload Option is
equal to the market value of the previously owned stock at the time it was
surrendered. The option period during which the Reload Option may be exercised
expires at the same time as that of the original option that the holder has
exercised.
10
<PAGE>
The following table sets forth information relating to options granted
under the Stock Option Plan to the Named Executive Officers during 2000.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
=============================================================================================================================
Individual Grants
-----------------------------------------------------------------------------------------------------------------------------
Percent of Total
Options Granted Grant Date Present
to Employees in Exercise or Expiration Value (1)
Name Options Granted FY 2000 Base Price Date
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Richard P. McStravick 46,000 39.6% $9.125 10/20/09 $2.25
William Morel 8,000 6.9% $9.125 10/20/09 $2.25
Anthony J. Fabiano 40,000 34.4% $9.125 10/20/09 $2.25
=============================================================================================================================
</TABLE>
-----------------------------------
(1) The grant date present value was derived using the Black-Scholes option
pricing model with the following assumptions: volatility of 20.0%; risk
free rate of return of 6.4%; dividend yield of 3.1%; and a 7 year
option life.
Set forth below is certain information concerning options outstanding to
the Named Executive Officers at March 31, 2000. No options were exercised by the
Named Executive Officers during fiscal year 2000.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
=========================================================================================================================
Number of Unexercised Value of Unexercised In-
Options at The-Money Options at
Shares Acquired Value Year-End Year-End (1)
Name Upon Exercise Realized ------------------------- --------------------------
Exercisable/Unexercisable Exercisable/Unexercisable
(#) ($)
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Richard P. McStravick -- $-- 9,200/36,800 $--/$--
William Morel -- $-- 1,600/6,400 $--/$--
Anthony J. Fabiano -- $-- 8,000/32,000 $--/$--
=========================================================================================================================
</TABLE>
------------------------------------
(1) The exercise price of the options exceeded the fair market value of the
Common Stock.
Recognition and Retention Plan. During the fiscal year ended March 31, 2000
the Company adopted, and the Company's stockholders approved, the 1999
Recognition and Retention Plan (the "Recognition Plan"). Pursuant to the
Recognition Plan, 5,268 shares of stock were awarded to each non-employee
director.
Employee Stock Ownership Plan and Trust
The Bank established an ESOP for eligible employees. Employees age 21 or
older who have worked at the Bank for a period of one year and have been
credited with 1,000 or more hours of service during the year are eligible to
participate. The ESOP borrowed funds from the Company and used those funds to
purchase 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.
11
<PAGE>
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
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 $178,000 to the
ESOP in fiscal year 2000 and allocated 19,214 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 provided such action does not violate ERISA standards.
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.
--------------------------------------------------------------------------------
TRANSACTIONS WITH CERTAIN RELATED PERSONS
--------------------------------------------------------------------------------
Transactions With Certain Related Persons
The Bank offers to directors, officers, and employees mortgage loans
secured by their principal residence. All loans to the Bank's directors,
officers and employees are made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions, and do not involve more than normal risk of collectibility.
Bruno J. Gioffre, in addition to his duties as Chairman of the Board of the
Company, is counsel to the law firm of Gioffre & Gioffre, Professional
Corporation which represents the Bank in mortgage loan transactions. Prior to
January 1, 1999, Mr. Gioffre also acted as general counsel to the Bank. For the
year ended March 31, 2000, the Bank paid Gioffre & Gioffre, Professional
Corporation fees of $154,000. The terms and conditions of these fees and
services are substantially the same as those for similar transactions with other
parties.
James Staudt, in addition to his duties as a Director of the Company, is a
partner in the law firm of McCullough, Goldberger, Staudt & Simon which also
represents the Bank in mortgage loan transactions. Effective January 1, 1999,
Mr. Staudt is also general counsel to the Company. For the year ended March 31,
2000, the Bank paid McCullough, Goldberger, Staudt & Simon fees of $15,500 and
paid Mr. Staudt legal fees of $21,250 for his services as general counsel.
--------------------------------------------------------------------------------
PROPOSAL II--RATIFICATION OF APPOINTMENT OF AUDITORS
--------------------------------------------------------------------------------
The Board of Directors of the Company has approved the engagement of KPMG
LLP to be the Company's auditors for the 2001 fiscal year, subject to the
ratification of the engagement by the Company's stockholders. At the Meeting,
stockholders will consider and vote on the ratification of the engagement of
KPMG LLP for the Company's fiscal year ending March 31, 2001. A representative
of KPMG LLP is expected to attend the Meeting to respond to appropriate
questions and to make a statement, if deemed appropriate.
In order to ratify the selection of KPMG LLP as the auditors for the 2001
fiscal year, the proposal must receive at least a majority of the votes cast,
either in person or by proxy, in favor of such ratification. The Board of
Directors recommends a vote "FOR" the ratification of KPMG LLP as auditors for
the 2001 fiscal year.
12
<PAGE>
--------------------------------------------------------------------------------
STOCKHOLDER PROPOSALS
--------------------------------------------------------------------------------
In order to be eligible for inclusion in the Company's proxy materials for
next year's Annual Meeting of Stockholders, any stockholder proposal to take
action at such meeting must be received at the Company's executive office, 300
Mamaroneck Avenue, Mamaroneck, New York 10543, no later than March 15, 2001. Any
such proposals shall be subject to the requirements of the proxy rules adopted
under the Exchange Act.
The Bylaws of the Company provide an advance notice procedure for certain
business, or nominations to the Board of Directors, to be brought before an
annual meeting. In order for a stockholder to properly bring business before an
annual meeting, or to propose a nominee to the Board, the stockholder must give
written notice to the Secretary of the Company at least five (5) days before the
date fixed for such meeting. The notice must include the stockholder's name,
record address, and number of shares owned by the stockholder, describe briefly
the proposed business, the reasons for bringing the business before the annual
meeting, and any material interest of the stockholder in the proposed business.
In the case of nominations to the Board, certain information regarding the
nominee must be provided. Nothing in this paragraph shall be deemed to require
the Company to include in its proxy statement and proxy relating to an annual
meeting any stockholder proposal which does not meet all of the requirements for
inclusion established by the SEC in effect at the time such proposal is
received.
--------------------------------------------------------------------------------
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, 2000 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
July 12, 2000
13
<PAGE>
REVOCABLE PROXY
SOUND FEDERAL BANCORP
ANNUAL MEETING OF STOCKHOLDERS
August 10, 2000
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 a Annual 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 August 10, 2000. The official proxy committee is
authorized to cast all votes to which the undersigned is entitled as follows:
VOTE
FOR WITHHELD
--- --------
1. The election as directors of all nominees
listed below (except as marked to the |_| |_|
contrary below)
Donald H. Heithaus
Joseph A. Lanza
INSTRUCTION: To withhold your vote for one or
more nominees, write the name of the nominee(s) on
the lines below.
---------------------------------
---------------------------------
FOR AGAINST ABSTAIN
--- ------- -------
2. The ratification of the appointment of
KPMG LLP as auditors for the fiscal year
ending March 31, 2001. |_| |_| |_|
The Board of Directors recommends a vote "FOR" each of the listed proposals.
--------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR EACH OF THE PROPOSITIONS STATED ABOVE. IF ANY OTHER
BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THE
ABOVE-NAMED PROXIES AT THE DIRECTION OF A MAJORITY OF THE BOARD OF DIRECTORS.
AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE
--------------------------------------------------------------------------------
<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 Annual
Meeting of Stockholders, or by the filing of a later proxy statement prior to a
vote being taken on a particular proposal at the Meeting.
The undersigned acknowledges receipt from the Company prior to the
execution of this proxy of a Notice of the Meeting and a proxy statement dated
July 12, 2000.
Dated: _________________, 2000 |_|
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.
--------------------------------------------------------------------------------
