exv10w1



 






Exhibit 10.1




SFSB, INC.




2005 STOCK OPTION PLAN



1. Purpose




     The purpose of the SFSB, INC. (“Company”) 2005 Stock Option Plan (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 Slavie Federal Savings Bank (“Bank”) and Slavie
Bancorp, MHC, the mutual holding company of 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 Bank or the
Company, 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.



     “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, incompetence, 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” means a transaction:



     (i) that would be required to be reported in response to Item 5.01 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, as amended (the “Exchange Act”); or



     (ii) that results in a Change in Control of the Bank or the Company within the meaning of the
Home Owners’ Loan Act, as amended (“HOLA”), and applicable rules and regulations promulgated
thereunder, as in effect at the time of the Change in Control; or



     (i) in which:




	 	(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 anything in this subsection to the contrary, a change in control shall not be
deemed to have occurred in the event of a conversion of the Company’s or the Bank’s mutual holding
company to stock form, or in connection with any reorganization used to effect such a conversion or
other similar transaction.



     “Code” means the Internal Revenue Code of 1986, as amended.



     “Committee” means a Committee of the Board consisting of either (i) two or more Non-Employee
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 $.01 per share.



     “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 with the Company, the
Bank or an Affiliate. 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 Company, the Bank or their affiliates, or in the case of
transfers between the Company, the Bank or their affiliates.



     “Date of Grant” means the actual date on which an Award is granted by the Committee.



     “Director” means a member of 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 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 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
such date, then 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.



     “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) to 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) satisfies such
requirements as the Securities and Exchange Commission may establish for non-employee directors
administering plans intended to qualify for exemption under Rule 16b-3 (or its successor) of the
Securities Exchange Act of 1934, as amended, and (ii) if considered appropriate by the Board, such
requirements as the Internal Revenue Service may establish for outside directors acting under plans
intended to qualify for exemption under Section 162 of the Code.



     “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 means a cessation of service on the Board of Directors for any
reason other than removal for Cause, after reaching 65 years of age and maintaining at least 10
years of Continuous Service.



     “Outside Director” means a Director of the Company or an Affiliate who is not an employee of
the Company or an Affiliate.



 









 





     “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.



     “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; or




     (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.



     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.


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 145,805 shares. Shares issued under the Plan may be issued by the
Company from authorized but unissued shares, treasury shares or acquired by the Company in open
market purchases. The maximum number of Options that may be awarded to a Key Employee is 36,451.
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.


6. Eligibility




     Key Employees of the Company and its Affiliates shall be eligible to receive Incentive Stock
Options, Non-Statutory Stock Options, Limited Rights, Dividend Equivalent Rights and/or Reload
Options 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




     (a) Grants to Outside Directors and Key Employees. 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.



 









 





     (b) 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 the terms and conditions of the option which shall not be
inconsistent with the terms of the Plan.



     (c) 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 the Option is granted. Shares may be purchased only upon full payment of the purchase price in
one or more of the manners set forth in Section 13 hereof, as determined by the Committee.



     (d) Manner of Exercise and Vesting. A Non-Statutory Stock Option granted under the Plan shall
vest in a Participant at the rate or rates determined by the Committee. 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 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) Terms 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 from the Date of Grant. No Options shall be
earned by a Participant unless the Participant maintains Continuous Service until the vesting date
of such Option, except as set forth herein. The shares comprising each installment may be purchased
in whole or in part at any time after such installment becomes purchasable. The Committee may, in
its sole discretion, accelerate or extend the time at which any Non-Statutory Stock Option may be
exercised in whole or in part by Key Employees and/or Outside Directors. 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 become immediately exercisable following
such Change in Control.



     (f) 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 termination of service or employment due to the Normal Retirement, or death or
Disability of any Participant, all Non-Statutory Stock Options held by the Participant, whether or
not exercisable at such time, shall be exercisable by the Participant or his legal representative
or beneficiaries for three years following the date of his termination due to Normal Retirement,
death or Disability, provided that in no event shall the period extend beyond the expiration of the
Non-Statutory Stock Option term.



 









 





     (g) 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:



     (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 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), 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 Common Stock on the date the Incentive Stock Option is granted. Shares
may be purchased only upon payment of the full purchase price in one or more of the manners set
forth in Section 13 hereof, as determined by the Committee.



     (c) Manner of Exercise. Incentive Stock Options granted under the Plan shall vest in a
Participant at the rate or rates determined by the Committee. The 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 purchase 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 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, all Incentive Stock Options that have been awarded shall become
immediately exercisable, unless the aggregate exercise price of the amount exercisable as



 









 




a result of a Change in Control, together with the aggregate exercise price of all other Incentive Stock
Options first exercisable in the year in which the Change in Control occurs, shall exceed $100,000
(determined as of the Date of Grant). In such event, 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.




     (d) Amounts of Options. 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. 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. In the case of an Option intended to qualify as an Incentive Stock Option, the
aggregate Fair Market Value (determined as of the time the Option is granted) of the Common Stock
with respect to which Incentive Stock Options granted are exercisable for the first time by the
Participant during any calendar year (under all plans of the Company and its Affiliates) shall not
exceed $100,000. The provisions of this Section 8(d) shall be construed and applied in accordance
with Section 422(d) of the Code and the regulations, if any, promulgated thereunder.



     (e) 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), the Incentive Stock Option granted to him shall not be exercisable
after the expiration of five years from the Date of Grant. Notwithstanding any other provision 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 become immediately exercisable following such Change in
Control.



     (f) Termination of Employment. Upon the termination of a Key Employee’s service for any reason
other than Disability, Normal Retirement, Change in Control, death or termination for Cause, the
Key Employee’s Incentive Stock Options shall be exercisable only as to those shares 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, or death or
Disability, all Incentive Stock Options held by such Key Employee, whether or not exercisable at
such time, shall be exercisable for a period of three years following the date of his cessation of
employment, provided however, that any such Option shall not, consistent with applicable law and
subject to the provisions of the option agreement, 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.



     (g) 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.



     (h) 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, 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 terms and conditions of any Limited
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 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.



 









 





     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. If provided in the option agreement, the Limited Right may be exercisable
for shares of stock of the Company or 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 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.



 









 





     (c) Extraordinary Dividend. For purposes of this Section 10, an extraordinary dividend is any
dividend paid on shares of Common Stock where (i) the dividend rate exceeds the Bank’s weighted
average cost of funds on interest-bearing liabilities for the current quarter, or (ii) the
annualized aggregate dollar amount of the dividend exceeds the Bank’s after-tax net income for the
current quarter. For purposes of this Section 10, the dividend rate equals the quotient, expressed
as a percentage, of (i) the annualized dollar amount of the dividend, and (ii) the last trade price
of the Company’s Common Stock on the day immediately before the dividend is declared.


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 Committee 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 Committee is under no obligation to any
Participant whatsoever to make such payments. In the event that the Committee 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.



 









 





     (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 Company 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 Company 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 Optionee can give the
Company 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 Company.



     (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 and any such term shall be reflected in
the Option agreement. 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 law.


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 corporate
change, or other increase or decrease in such shares, without receipt or payment of consideration
by the Company, the Committee shall 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 of shares of Common Stock that may be awarded under
the Plan;



     (b) Adjustments in the aggregate number of shares of Common Stock that may be awarded to any
single individual under the Plan;



     (c) Adjustments in the aggregate number of shares of Common Stock covered by Awards already
made under the Plan; or



     (d) Adjustments in the purchase price of outstanding Incentive and/or Non-Statutory Stock
Options, or any Related 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 the
registration provisions of the 1933 Act, (collectively, “Registered Securities”), 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 (A) the Merger Price times the number of shares of
Common Stock subject to such Options held by each Optionee (to the extent then exercisable at
prices not in excess of the Merger Price) and (B) the aggregate exercise price of all such
surrendered Options in exchange for 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 tax required by any governmental authority to be withheld. Shares of Common Stock
shall 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, terminate, 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. Notwithstanding anything to the
contrary contained in the Plan, the Board may not amend or modify the Plan without stockholder
approval where such approval is required by applicable law or by the rules of any securities
exchange or quotation system (e.g., Nasdaq) on which the Common Stock is listed or traded.
Furthermore, notwithstanding anything to the contrary contained in the Plan, the Board or the
Committee may not amend or modify any Award if such amendment or modification would require the
approval of the stockholders if the amendment or modification were made to the Plan.



 









 




21. Effective Date of Plan




     The Plan shall become effective upon the date of 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 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.



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     IN WITNESS WHEREOF, the Company has caused the Plan to be executed by its duly authorized
officers, as of the        day
of          , 2005.


Date Approved by Stockholders:                                                            



Effective Date:                                                            




	 	 	 	 	 
	ATTEST:

	 	 	 	SFSB, INC.
	 
	 	 	 	 
	 

	 	 	 	 
	Secretary

	 	 	 	Chief Executive Officer