SOUND FEDERAL SAVINGS
2005 DIRECTOR DEFERRED FEE PLAN
White Plains, New York
January 1, 2005
<PAGE>
SOUND FEDERAL SAVINGS
2005 DIRECTOR DEFERRED FEE PLAN
THIS
DIRECTOR DEFERRED FEE PLAN (the "Plan"), is hereby established
effective this 1st day of January 2005, by the Board of Directors of Sound
Federal Savings (the "Board"), a federally chartered savings association (the
"Association"), to provide Participants (as defined herein) or their
beneficiaries with retirement income
benefits.
WHEREAS,
the Association maintains the Sound Federal Savings and Loan
Association Restated Director Deferred Fee
Plan, which was initially effective
as of December 31, 1979 and was restated effective September 1, 1998 (the
"Restated Plan"), for the benefit of
certain directors of the Association; and
WHEREAS, Section
409A of the Internal Revenue Code of 1986, as amended (the
"Code"), requires that certain types of nonqualified deferred compensation
arrangements comply with its terms or be
subject to current taxes and penalties;
and
WHEREAS,
the Board froze the
Restated Plan effective as of December 31,
2004 in order to avoid the necessity of
complying with Code Section 409A; and
WHEREAS,
the Board now
desires to replace
the frozen Restated Plan by
adopting a new Director Deferred Fee Plan
effective as of January 1, 2005, which
complies with Code Section 409A, and for
certain other purposes.
NOW,
THEREFORE,
in consideration of the premises and
the mutual promises
herein contained, the Bank and the
directors agree as follows:
ARTICLE I
PURPOSE
The purpose of
this Plan is to provide current tax planning opportunities
as well as supplemental funds for retirement or death for
eligible directors of
the Association. It is intended that the Plan will aid in retaining and
attracting directors by providing such
persons with a means to supplement their
standard of living at retirement. The Plan is intended to comply with Code
Section 409A and any other regulatory
guidance issued
thereunder. Any terms
of
the Plan that conflict with Code Section 409A shall be
null and void as of the
effective date.
ARTICLE II
DEFINITIONS
For the
purposes of this Plan, the following terms have the meanings
indicated, unless the context clearly
indicates otherwise:
<Page>
2.1 Account.
"Account" means the Account as maintained by
the Association
in accordance with Article IV with respect to any deferral of Compensation
pursuant to this Plan. A Director's Account
shall be utilized solely as a device
for the determination and measurement of
the amounts to be paid to the Director
pursuant to the Plan. A Director's Account
shall not constitute or be treated as
a trust fund of any kind.
2.2 Association.
"Association"
means Sound Federal
Savings, a federally
chartered savings association, or any
successor to the business thereof, and any
affiliated or subsidiary corporations
designated by the Board.
2.3 Beneficiary. "Beneficiary" means the person or persons (and their
heirs) designated as Beneficiary in a Director's Beneficiary Designation
(attached as Exhibit B) to whom the
deceased Director's benefits are payable. If
no Beneficiary is so designated,
then the estate of the
Director will be deemed
the Beneficiary.
2.4 Board.
"Board" means the Board of Directors of the Association. -----
2.5 Change in
Control. "Change in
Control" of the
Association shall
mean
(i) a change in ownership of the
Association under
paragraph (a) below, or (ii)
a change in effective control of the Association
under paragraph (b)
below, or
(iii) a change in the ownership of a substantial portion of the assets of the
Association under paragraph (c) below:
(a) Change in the ownership of the
Association. A change
in the ownership
of the Association
shall occur on the
date that any one
person, or
more
than one person acting as a group (as defined in Proposed
Treasury Regulation Section 1.409A-3(g)(5)(v)(B)), acquires ownership
of stock of the
corporation that,
together with stock held by such
person or group,
constitutes more than
50% of the total fair
market
value or total voting power of the stock of such corporation.
(b) Change in the effective
control of the
Association.
A change in the
effective control
of the Association shall occur on the date that
either (i) any one person, or more than one person
acting as a group
(as
defined in
Proposed
Treasury
Regulation
Section
1.409A-3(g)(5)(v)(B)),
acquires (or has acquired during the 12-month
period ending
on the date of the
most recent acquisition by such
person or persons)
ownership of stock of the corporation possessing
35% or more of the total voting power of the stock of such
corporation; or (ii) a
majority of members of the corporation's Board
of Directors is replaced during any 12-month period by Directors
whose
appointment or
election is not
endorsed by a majority of the members
of the corporation's
Board of Directors prior to the date of the
appointment or
election, provided that this sub-section (ii) is
inapplicable where
a majority shareholder of the Association is
another
corporation.
(c) Change in the ownership of a
substantial portion of
the Association's
assets. A change in
the ownership
of a substantial portion of the
Association's assets
shall occur on the date that any one person, or
more than one
person acting as a group (as defined in Proposed
Treasury Regulation
Section 1.409A-3(g)(v)(B)), acquires (or has
2
<Page>
acquired during the
12-month period ending on the date of the most
recent acquisition
by such person or persons) assets from the
corporation that have a total gross fair market value equal to or
more
than 40% of the total gross fair market value of (i) all of the
assets
of the Association, or (ii) the value of the assets being disposed
of,
either of which
is determined without regard to any liabilities
associated with such assets.
(d) For all purposes hereunder,
the definition of
Change in Control shall
be construed
to be consistent with the requirements of Proposed
Treasury Regulation
Section 1.409A-3(g), except to the extent that
such proposed
regulations are superseded by subsequent guidance. In
addition, for purposes
of this Section 2.5 only, "Association" shall
be construed to mean also the Company.
2.6 Code.
"Code" means the
Internal Revenue Code
of 1986, as amended from
time to time, and the rules and regulations
promulgated thereunder.
2.7 Committee.
"Committee" means the
Committee appointed to administer the
Plan pursuant to Article VII.
2.8 Company.
"Company" means Sound
Federal Bancorp, the holding company of
the Association.
2.9 Compensation. "Compensation" means any Board or Committee fees or
retainer to which the Director becomes
entitled during the Deferral Period.
2.10 Deferral
Agreement. "Deferral
Agreement" means the agreement filed by
a Director which acknowledges assent to the terms of the Plan
and in which the
Director elects to defer the receipt of
Compensation
earned during a
Deferral
Period. The Deferral Agreement must be filed with the Committee
prior to the
beginning of the Deferral Period. A new Deferral Agreement or Notice of
Adjustment of Deferral may be submitted by the Director for each Deferral
Commitment. If the Director fails to submit a
new Deferral Agreement
or Notice
of Adjustment of Deferral prior to the
beginning of a Deferral Period, deferrals
for such period shall be made in
accordance
with the last
submitted Deferral
Agreement or Notice of Adjustment of
Deferral.
2.11 Deferral
Commitment. "Deferral
Commitment" means an election to defer
Compensation made by a Director pursuant to
Article III and for which a separate
Deferral Agreement or Notice of Adjustment
of Deferral has been submitted by the
Director to the Committee.
2.12
Deferral Period. "Deferral Period" means the period over which a
Director has elected to defer a portion of
his Compensation. Each
calendar year
shall be a separate Deferral Period.
2.13
Determination Date.
"Determination
Date" means the last
day of each
calendar month.
3
<Page>
2.14 Director.
"Director" means a member of the Board.
2.15 Disability.
"Disability" means any case in which a Participant: (i) is
unable to engage in any substantial
gainful activity by
reason of any medically
determinable physical or mental impairment which can be expected to result
in
death or can be expected to last for a continuous period of not less than 12
months; or (ii) is, by reason of any
medically determinable
physical or mental
impairment which can be expected to result in death or can
be expected to last
for a continuous period of not less than 12
months, receiving income replacement
benefits for a period of not less than 3
months under an
accident and health
plan covering employees of the
Participant's employer.
2.16 Investment
Options. "Investment
Options" means the investment options
designated by the Committee from which each Director may
express a preference,
as described in Article IV, for the
constructive
investment
of his Account.
Investment Options shall include only (i) cash or
cash equivalents,
and (ii)
stock in the Company. Investment Options shall be used as earning
indices as
described in Section 4.4. No provision of
the Plan shall be construed as giving
any Director an interest in any of these Investment Options nor shall any
provision require that the Company make any investment in any option. 2.17
Notice of Adjustment of Deferral.
"Notice of Adjustment
of Deferral" means
the
notice which the Director may submit for
Deferral Periods
following the initial
Deferral Period in which the initial
Deferral Agreement is submitted. The Notice
of Adjustment of Deferral shall set forth
the Director's
elections with respect
to deferrals for said period.
2.18
Participant.
"Participant" means
any individual who is designated by
the Association to participate in this Plan and who elects to
participate by
filing a Deferral Agreement as provided in
Article VI.
2.19 Plan
Benefit. "Plan
Benefit" means the benefit payable to a Director
as calculated in Article V.
2.20 Plan Year.
"Plan Year" means a twelve month period commencing January
1 and ending the following December 31.
2.21
Separation
from Service. "Separation from Service" means the
Participant's death, retirement or termination of employment with the
Association. No Separation from Service
shall be deemed to occur due to military
leave, sick leave or other bona fide leave of absence if the period of such
leave does not exceed six months or, if longer, so long as the Participant's
right to reemployment is provided by law or contract.
If the leave exceeds
six
months and the Participant's right to reemployment is not
provided by law or by
contract, then the Participant shall be have a Separation from
Service on the
first date immediately following such
six-month period.
The Participant
shall not be treated as having a Separation from Service if
the Participant provides more than insignificant services for the Association
following the Participant's actual or purported termination of employment with
the Association. Services shall be treated as not
being insignificant if
such
4
<Page>
services are performed at an annual rate that is at least
equal to 20% of the
services rendered by the Participant for
the Association, on average, during the
immediately preceding three full calendar years of employment (or if
employed
less than three years, such shorter period of
employment)
and the annual
base
compensation for such services is at least equal to 20% of the average base
compensation earned during the final three
full calendar years of employment (or
if employed less than three years, such
shorter period of employment).
Where the
Participant continues
to provide services to a previous employer
in a capacity other than as an employee,
a Separation
from Service will not
be
deemed to have occurred if the Participant is providing services at an annual
rate that is 50% or more of the
services rendered, on average, during the
immediate preceding three full calendar
years of employment (or if employed less
than three years, such lesser period) and the annual
base compensation for such
services is 50% or more of the annual base
compensation earned
during the final
three full calendar years of employment (or
if less, such lesser period).
2.22
Specified Employee. "Specified Employee" means, in the event the
Association or any corporate parent is or becomes publicly traded, a Key
Employee as such term is defined in Code Section 416(i) without regard to
paragraph 5 thereof.
2.23
Trustee. "Trustee" means the Trustee, if any, of any grantor trust
which may be established by the Association
to accumulate assets for the purpose
of funding the benefits promised under this
Plan.
ARTICLE III
PARTICIPATION AND DEFERRAL COMMITMENTS
3.1 Eligibility
and Participation.
(a) Eligibility.
Eligibility to participate in the Plan shall be limited to
members of the Board.
(b) Participation. A Director may elect to
participate
in the Plan with
respect to any Deferral Period by
submitting, as to the initial Deferral Period,
a Deferral Agreement (as set forth at Exhibit
A) or, as to subsequent Deferral
Periods, a Notice of Adjustment of Deferral (as set forth at
Exhibit C). Said
Deferral Agreement or Notice of Adjustment
of Deferral shall be submitted to the
Committee by December 15 of the calendar
year immediately preceding the Deferral
Period for which it will be effective.
If a previously
eligible Director
fails
to submit a new Deferral Agreement or Notice of
Adjustment
of Deferral for a
Deferral Period, the Committee shall treat the
previously submitted
Deferral
Agreement or Notice of Adjustment
of Deferral as still
in effect. In the
event
that a Director first becomes a Director during a calendar year, a Deferral
Agreement must be submitted to the Committee no later than thirty (30) days
following the date the individual first becomes a Director,
and such Deferral
Agreement shall be effective only with
regard to Compensation
earned or payable
following the submission of the Deferral
Agreement to the Committee.
5
<Page>
(c) Changes in
Participation. In the
event that a Participant ceases to be
a Director or in the event that a Director ceases to defer receipt of his
Compensation, the balance of his Account shall continue to be adjusted in
accordance with Section 4.3 and 4.4. A Director who has filed a Notice of
Adjustment of Deferral pursuant to which he
elects to cease deferring receipt of
any portion of his Compensation
may thereafter again
file a Deferral
Agreement
or Notice of Adjustment of Deferral to defer receipt of his Compensation in
accordance with Section 3.1(b), but only with respect to
Compensation
to be
earned following submission of such
Deferral Agreement to the Committee.
3.2 Form of
Deferral. Except as provided in Section 3.1(b) above, a
Director may elect in the Deferral
Agreement to defer in whole percentages up to
100% of his Compensation for the calendar year following the calendar year in
which the Deferral Agreement is
submitted.
ARTICLE IV
DEFERRED COMPENSATION ACCOUNTS
4.1 Accounts. For record keeping purposes only, an Account shall be
maintained for each Director. Separate subaccounts shall be maintained to the
extent necessary to properly reflect the Director's total vested Account
balance.
4.2 Elective Deferred Compensation. The amount of Compensation that a
Director elects to defer shall be withheld
from each payment of Compensation and
credited to the Director's Account as the nondeferred portion of the
Compensation becomes or would have become
payable. Any
withholding of taxes or
other amounts with respect to deferred
Compensation which is
required by state,
federal or local law shall be withheld from the Director's nondeferred
Compensation to the maximum extent possible
with any excess being withheld from
the Director's Account.
4.3 Determination of Accounts. Each Director's Account as of each
Determination Date will consist of the balance
of the Director's
Account as of
the immediately preceding Determination
Date, increased by Compensation deferred
pursuant to a Deferral Commitment and earnings,
and decreased by
distributions
and losses, since that Determination
Date.
4.4
Determination of Earnings. Subject to such limitations as may from
time
to time be required by law or imposed by the
Committee,
and subject to such
operating rules and procedures as may be imposed from time to time by the
Committee, each Director may express to the
Committee a preference as to how the
Director's Account should be constructively invested among the Investment
Options.
(a) Any initial or
subsequent expression
of investment preference
shall be in
writing, on a form
provided by and filed
with the
Committee,
and shall be
subject to such rules
and procedures
as the Committee may
promulgate
from time to time,
including rules as to
when an expression of
investment
preference will be
effective. In the
event a grantor trust has
been
established, the
Committee shall forward the Director's expression of
investment
preference to the Trustee.
6
<Page>
(b) If the Committee (or Trustee, in the case of establishment of a
grantor trust)
chooses to honor a
Director's investment
preferences,
in
whole or in
part, (i) the contributions and credits and other amounts added
to a Director's
Account shall be constructively invested in accordance with
the then
effective designation of investment preference, and (ii) as of
the
effective
date of any new
investment preference,
all or a portion of
the
Director's
Account at that date
shall be constructively reallocated among
the designated
Investment Options
according to the directions specified in
the investment preferences unless and until a subsequent investment
preference shall
be filed and become effective. Unless otherwise announced
by the
Committee, investment
preferences
may be changed no more
than two
times per
calendar year and must
be received by the Committee no less than
ten (10) days
before the effective
date of the
change. In the event the
Committee, or in
the case that a grantor trust is established, the Trustee,
fails to honor a
Director's expression of investment preference, in whole
or in part,
the Committee or Trustee shall so
inform the Director as soon
as reasonably
practicable.
(c) If the
Committee receives an initial or revised investment
preference
which it deems
to be incomplete, unclear or improper, the
Director's
investment preference then in effect shall remain in effect
(or,
in the case of a
deficiency in an initial investment preference) until the
next
Determination Date, unless the Committee provides for, and permits
the
application of,
corrective
action prior to that
time. The Committee shall
announce
to the Director a default Investment Option, which shall be
substituted for
the Director's investment preference for any portion of his
Account for
which he fails to file an investment preference.
(d) All investment
preferences
shall be advisory only
and shall not
bind the
Company, the Committee, or Trustee (if any). The Company shall
not
be obligated to
invest any funds in connection with this Plan. If, however,
the Company
chooses to invest
funds to provide for its liabilities under
this
Plan, the Committee, or in the event a grantor trust has been
established,
the Trustee, shall
have complete discretion as to investment.
Notwithstanding
anything herein to the
contrary, in the event
of a Change
in Control or
imminent Change in Control, the Association shall establish a
grantor trust (if none has been
previously established hereunder) and shall
transfer to such
trust prior to the Change in Control, the present value of
an amount
sufficient
to fully fund the then existing Accounts of each
Director.
(e) Each Director's
Account will be
credited with earnings or losses
as if the
Account were actually
invested in accordance with the Director's
expression of
investment preference,
as follows. As of each
Determination
Date,
the net earnings or losses of each Investment Option since the
preceding
Determination
Date shall be
allocated among all Accounts in
accordance
with the preferences indicated by each Director as
though the
Accounts had
been invested in the Investment Option in accordance with each
Director's
indicated preference. For purposes of this allocation, the
7
<page>
Account of each
Director will consist of the balance of the
Account as of
the preceding
Determination Date, adjusted (i) by adding to the balance any
elective
deferred Compensation made since the preceding Determination Date
and (ii) by
subtracting
from such balance all
distributions
made to the
Director or to a Beneficiary. Each Account shall be further adjusted to
reflect any
changes in investment
preferences which have
become effective
since the last
Determination Date.
(f) If it is determined that the constructive value of an Account as
of any date on
which distributions
are to be made differs
materially from
the constructive
value of the Account on the prior Determination Date upon
which the
distribution is to be
based, the Committee,
in its discretion,
shall
have the right to designate any date in the interim as a
Determination
Date for the purpose of constructively revaluing the Account
so
