Registration No. 333-________
As filed with the Securities and Exchange
Commission on August 24, 1998
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Sound Federal Bancorp
(Exact Name of Registrant as Specified in its Charter)
Federal (To be applied for)
(State of Incorporation) (IRS Employer Identification No.)
300 Mamaroneck Avenue
Mamaroneck, New York 10543-2647
(Address of Principal Executive Offices)
Sound Federal Savings and Loan Association
401(k) Profit Sharing Plan in RSI Retirement Trust
(Full Title of the Plans)
Copies to:
Richard P. McStravick Alan Schick, Esquire
President and Chief Executive Officer Michael E. Greene, Esquire
Sound Federal Bancorp Luse Lehman Gorman Pomerenk & Schick
300 Mamaroneck Avenue A Professional Corporation
Mamaroneck, New York 10543-2647 5335 Wisconsin Ave., N.W., #400
(914) 698-6400 Washington, D.C. 20015
(202) 274-2000
(Name, Address and Telephone
Number of Agent for Service)
If any of the securities being registered on this Form are
to be offered on a delayed or continuous basis pursuant to Rule
415 under the Securities Act of 1933 check the following box. /X/
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
Title of Proposed Proposed
Securities Amount Maximum Maximum Amount of
to be to be Offering Price Aggregate Registration
Registered Registered(1) Per Share Offering Price Fee
<S> <C> <C> <C> <C>
401(k) Participation
Interests (1) $0 $0 --(2)
</TABLE>
______________
(1) Represents an indeterminate number of interests in the Sound
Federal Savings and Loan Association 401(k) Profit Sharing Plan
in Retirement Trust (the "Plan").
(2) Pursuant to Rule 457(h)(3) no registration fee is required
to be paid.
This Registration Statement shall become effective upon
filing in accordance with Section 8(a) of the Securities Act of
1933 and 17 C.F.R. Section 230.462.
PART I.
Items 1 and 2. Plan Information and Registrant Information and
Employee Plan Annual Information
This Registration Statement relates to the registration of
an indeterminate number of participation interests in the Sound
Federal Savings and Loan Association 401(k) Savings Plan in RSI
Retirement Trust (the "Plan"). Documents containing the
information required by Part I of the Registration Statement have
been or will be sent or given to participants in the Plan, as
specified by Securities Act Rule 428(b)(1) and are filed as
Exhibit 4.1.
PART II.
Item 3. Incorporation of Documents by Reference
All documents filed by the Company pursuant to Sections
13(a) and (c), 14 or 15(d) of the Exchange Act after the date
hereof and prior to the filing of a post-effective amendment
which indicates that all securities offered hereby have been sold
or which deregisters all securities then remaining unsold, shall
be deemed to be incorporated by reference into this registration
statement and be part hereof from the date of filing of such
documents. Any statement contained in this Registration
Statement, or in a document incorporated by reference herein,
shall be deemed to be modified or superseded for purposes of this
Registration Statement to the extent that a statement contained
herein, or in any other subsequently filed document which also is
incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute
a part of this Registration Statement.
The following documents filed or to be filed with the
Commission are incorporated by reference in this Registration
Statement:
The Company's Registration Statement on Form S-1 originally
filed by the Company under the Securities Act of 1933 with the
SEC on June 19, 1998, and as amended on July 31, 1998 and August
11, 1998 (SEC File No. 333-573777).
<PAGE>
Item 4. Description of Securities
Not applicable.
Item 5. Interests of Named Experts and Counsel
None.
Item 6. Indemnification of Directors and Officers
Not applicable.
Item 7. Exemption From Registration Claimed
Not applicable.
Item 8. List of Exhibits.
The following exhibits are filed with or incorporated by
reference into this Registration Statement on Form S-8:
5 Opinion of Luse Lehman Gorman Pomerenk & Schick, A
Professional Corporation as to the legality of
participation interests registered hereby.
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick, A
Professional Corporation (contained in the opinion
included as Exhibit 5).
99.1 401(k) Prospectus Supplement
Item 9. Undertakings
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement to include any material information with respect to the
Registration Statement not previously disclosed in this
Registration Statement or any material change to such information
in this Registration Statement;
2. That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof;
3. To remove from registration by means of a post-
effective amendment any of the securities being registered which
remain unsold at the termination of the Plan; and
4. That, for purposes of determining any liability under
the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference
in the Registration Statement shall be deemed to be a new
Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
5. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the
<PAGE>
Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of
the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
5 Opinion of Luse Lehman Gorman Pomerenk & Schick, A
Professional Corporation as to the legality of the
Common Stock registered hereby.
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick, A
Professional Corporation (contained in the opinion
included as Exhibit 5).
99.1 401(k) Prospectus Supplement
<PAGE>
SIGNATURES
The Registrant. Pursuant to the requirements of the
Securities Act of 1933, the registrant certifies that it has
reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this
registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of
Mamaroneck, state of New York, on this 20th day of August, 1998.
Sound Federal Bancorp
(In formation)
By: /s/ Richard P. McStravick
------------------------------
Richard P. McStravick,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933,
this registration statement has been signed by the following
persons in the capacities and on the date indicated.
By: /s/ Richard P. McStravick By: /s/ Stephen P. Milliot
------------------------- -------------------------
Richard P. McStravick Stephen P. Milliot
President Chief Executive Vice President and Chief
Office (Principal Executive Financial Officer
Officer) (Principal Financial and
Accounting Officer)
By: /s/ Bruno J. Gioffre By: /s/ Robert P. Joyce
------------------------- -------------------------
Bruno J. Gioffre, Chairman Robert P. Joyce, Director
of the Board
Date: August 20, 1998 Date: August 20, 1998
By: /s/ Joseph Dinolfo By: /s/ Joseph A. Lanza
------------------------- -------------------------
Joseph Dinolfo, Director Joseph A. Lanza, Director
Date: August 20, 1998 Date: August 20, 1998
By: /s/ Donald H. Heithaus By: /s/ Arthur C. Phillips
------------------------- -------------------------
Donald H. Heithaus, Director Arthur C. Phillips, Jr.,
Director
Date: August 20, 1998 Date: August 20, 1998
By: /s/ James Staudt
-------------------------
James Staudt, Director
Date: August 20, 1998
<PAGE>
[Luse Lehman Gorman Pomerenk & Schick Letterhead]
August 19, 1998 (202) 274-2000
Board of Directors
Sound Federal Bancorp
300 Mamaroneck Avenue
Mamaroneck, New York 10543-2647
Re: Sound Federal Savings and Loan Association 401(K)
Profit Sharing in RSI Retirement Trust
Registration Statement on Form S-8
Ladies and Gentlemen:
You have requested the opinion of this firm as to certain
matters in connection with the registration of participation
interests in the Sound Federal Savings and Loan Association
401(k) Profit Sharing Plan in RSI Retirement Trust (the "Plan").
We have reviewed the Sound Federal Bancorp's (the "Company")
proposed federal stock charter, the Plan, the Registration
Statement on Form S-8 (the "Form S-8"), as well as applicable
statutes and regulations governing the Company.
Based on the foregoing, we are of the following opinion:
Upon the effectiveness of the Form S-8, the participation
interests in the Plan will be legally issued, fully paid and non-
assessable.
This opinion has been prepared solely for the use of the
Company in connection with the preparation and filing of the Form
S-8, and should not be used for any other purpose or relied upon
by any other person without the prior written consent of this
firm. We hereby consent to the use of this opinion in the Form
S-8.
Very truly yours,
/s/ Luse Lehman Gorman Pomerenk & Schick
----------------------------------------
Luse Lehman Gorman Pomerenk & Schick
A Professional Corporation
<PAGE>
NOTICE TO PARTICIPANTS IN
SOUND FEDERAL SAVINGS AND LOAN ASSOCIATION
401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST
Attached to this Notice is a copy of the Prospectus and
Prospectus Supplement relating to the offer and sale of
participation interests and shares of common stock, par value
$.10 per share (the "Common Stock") of Sound Federal Bancorp (the
"Company").
The Sound Federal Savings and Loan Association 401(k)
Savings Plan in RSI Retirement Trust (the "Plan") enables you to
direct the investment of all or a portion of your account balance
into one of seven alternative investment funds. In connection
with the reorganization of Sound Federal Savings and Loan
Association (the "Association") from the mutual form of
organization to the mutual holding company form of organization,
the Association established an Employer Stock Fund as an
additional investment option under the Plan. The Prospectus
Supplement has been prepared and distributed to you so that you
can make an informed decision regarding your opportunity to
invest all or a portion of your account balance in the Plan in
the Employer Stock Fund. Your account will be reinvested in the
other funds available under the Plan in the event the offering is
oversubscribed and the total amount allocated to your account
cannot be used by the trustee to purchase Common Stock. The
other funds selected by the trustees of the Plan in which you may
invest include: A. Core Equity Fund, B. Emerging Growth Equity
Fund, C. Value Equity Fund, D. Actively Managed Bond Fund, E.
Intermediate-Term Bond Fund, F. Short-Term Investment Fund and G.
International Equity Fund.
The Plan's feature which allows participants the opportunity
to direct the investment of their account balances is intended to
satisfy the requirements of Section 404(c) of the Employee
Retirement Income Security Act of 1974 ("ERISA"). The effect of
this is two-fold. First, you will not be deemed a 'fiduciary' by
virtue of your exercise of investment discretion. Second, no
person who otherwise is a fiduciary (for example, the employer,
the Plan administrator, or the Plan's trustee) is liable under
the fiduciary responsibility provision of ERISA for any loss
which results from your exercise of control over the assets in
your Plan account.
Because you will be entitled to invest all or a portion of
your account balance in the Plan in the Employer Stock Fund which
will be invested in Common Stock, the regulations under Section
404(c) of ERISA require that the Plan establish procedures that
ensure the confidentiality of your decision to purchase, hold, or
sell employer securities, except to the extent that disclosure of
such information is necessary to comply with federal or state
laws not preempted by ERISA. These regulations also require that
your exercise of voting and similar rights with respect to the
Employer Stock Fund be conducted pursuant to procedures that
ensure the confidentiality of your exercise of these rights.
Accordingly, the Plan committee designates Mary Ellen Morel,
Secretary of Human Resources, as the person to whom your
investment instructions should be returned. Mary Ellen Morel
will transfer your investment instructions directly to First
Bankers Trust Company, N.A., c/o Carmen Walch, Trust Officer,
2321 Koch's Lane, Quincy, Illinois 62301, the trustee for the
Employer Stock Fund during the Offering. In the case of an event
that involves a potential for undue employer influence, you will
be instructed to return your instructions directly to First
Bankers Trust Company, N.A.
<PAGE>
Prospectus Supplement
SOUND FEDERAL BANCORP
SOUND FEDERAL SAVINGS AND LOAN ASSOCIATION
401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST
This Prospectus Supplement is being provided to participants
(the "Participants") in the Sound Federal Savings and Loan
Association 401(k) Savings Plan in RSI Retirement Trust (the
"Plan"). Sound Federal Savings and Loan Association (the
"Association") is reorganizing from the mutual form of
organization to the mutual holding company form of organization,
and shares of Common Stock of Sound Federal Bancorp (the
"Company") will be issued to certain depositors and the public
(the "Offering"). As a Participant, you may direct the trustee of
the Plan to purchase Company common stock ("Common Stock") in the
Offering with amounts allocated to your account under the Plan.
The Plan would invest in Common Stock through the Sound Federal
Bancorp Stock Fund ("Employer Stock Fund"). Since the Plan
actually purchases the Common Stock, you would acquire only a
"participation interest" in the shares and would not own the
shares directly. This Prospectus Supplement relates to your
initial election to direct that all or a portion of your account
be invested in the Employer Stock Fund in the Offering. Your
account will be reinvested in the other funds available under the
Plan in the event that the Offering is oversubscribed and the
total amount allocated to your account cannot be used by the
trustee to purchase Common Stock. You will be entitled to direct
the investment of your account in the Employer Stock Fund after
the Offering is completed.
The Prospectus of the Company dated August 13, 1998 (the
"Prospectus") which is attached to this Prospectus Supplement
includes detailed information with respect to the mutual holding
company reorganization and related stock offering, and the
financial condition, results of operations and business of the
Association. This Prospectus Supplement, which provides
information with respect to the Plan, should be read only in
conjunction with the Prospectus. Defined terms have the same
meaning as is set forth in the Prospectus.
____________________
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
EACH PARTICIPANT AS TO AN INVESTMENT IN THE COMMON STOCK, SEE
"RISK FACTORS" BEGINNING ON PAGE 17 OF THE PROSPECTUS
_____________________
THE INTERESTS IN THE PLAN AND THE OFFERING OF THE COMMON
STOCK HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE OFFICE OF THRIFT SUPERVISION,
THE SECURITIES AND EXCHANGE COMMISSION, ANY OTHER FEDERAL OR
STATE AGENCY.
NO OFFICE, CORPORATION, COMMISSION, BUREAU OR OTHER AGENCY
HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE PARTICIPATION INTERESTS OFFERED HEREBY ARE NOT (1)
SAVINGS ACCOUNTS OR DEPOSITS; (2) FEDERALLY INSURED OR
GUARANTEED, OR (3) GUARANTEED BY THE COMPANY OR THE ASSOCIATION.
THE PLAN'S ENTIRE INVESTMENT IN COMMON STOCK IS SUBJECT TO LOSS.
The date of this Prospectus Supplement is August 24, 1998.
<PAGE>
TABLE OF CONTENTS
THE OFFERING 1
Securities Offered 1
Election to Purchase Common Stock in the Offering;
Priorities. 1
Value of Participation Interests 2
Method of Director Transfer 2
Time for Directing Transfer 2
Irrevocability of Transfer Direction 2
Direction to Purchase Common Stock After the Offering 2
Purchase Price of Common Stock 3
Nature of a Participant's Interest in Common Stock 3
Voting Rights of Common Stock 3
DESCRIPTION OF THE PLAN 4
Introduction 4
Eligibility and Participation 5
Contributions Under the Plan 5
Limitations on Contributions 5
Investment of Contributions and Account Balances 7
Benefits Under the Plan 10
Withdrawals and Distributions From the Plan 10
Administration of the Plan 11
Reports to Plan Participants 12
Plan Administrator 12
Amendment and Termination 12
Merger, Consolidation or Transfer 12
Federal Income Tax Consequences 13
ERISA and Other Qualifications 16
SEC Reporting and Short-Swing Profit Liability 16
Financial Information Regarding Plan Assets 17
LEGAL OPINION 17
<PAGE>
THE OFFERING
Securities Offered
The securities offered hereby are participation interests in
the Plan. Up to 95,000 shares (assuming a purchase price of $10
per share) of Common Stock may be acquired by the Plan as part of
the Offering to be held in the employer stock fund ("Employer
Stock Fund"). The Company is the issuer of the Common Stock.
Only employees of the Association or its subsidiaries may become
Participants in the Plan. The Common Stock to be issued hereby
is conditioned on the consummation of the Reorganization. A
Participant's investment in the Employer Stock Fund in the
Offering is subject to the priority set forth in the Plan of
Reorganization. Information with regard to the Plan is contained
in this Prospectus Supplement and information with regard to the
Reorganization and the financial condition, results of operation
and business of the Association is contained in the attached
Prospectus. The address of the principal executive office of the
Association is 300 Mamaroneck Avenue, Mamaroneck, NY 10543. The
Association's telephone number is (914) 698-6400.
Election to Purchase Common Stock in the Offering; Priorities
The Plan permits each Participant to direct the investment
of his or her account balance among eight investment alternatives
which include the Employer Stock Fund in multiples of 10%. The
Trustee of the Plan will purchase Common Stock offered for sale
in connection with the Offering in accordance with each
Participant's directions. In the event the Offering is
oversubscribed and the Trustee (defined herein) is unable to use
the full amount allocated by a Participant to purchase Common
Stock in the Offering, the amount that cannot be invested in
Common Stock shall be reinvested in the other investment funds of
the Plan in accordance with the Participant's current investment
election. If a Participant fails to direct the investment of his
or her account balance, the Participant's account balance will
remain in the other investment funds of the Plan as previously
directed by the Participant. If a Participant has never made an
investment election, the Participant's account balance will be
invested in the Short-Term Investment Fund.
The shares of Common Stock to be sold in the Offering are
being offered in accordance with the following priorities: (i)
depositors of the Association with account balances of $50 or
more as of March 31, 1997 ("Eligible Account Holders")(The
Association's tax-qualified employee benefit plans, including the
Employee Stock Ownership Plan and related trust ("ESOP") will
have priority over such persons if more than 3,048,075 shares are
sold. Assuming that 3,505,286 (the adjusted maximum) shares of
Common Stock are sold, the ESOP may purchase 292,874 shares all
of which would be purchased in the first priority.); (ii) tax-
qualified employee plans of the Association, including the ESOP;
(iii) depositors of the Association with account balances of $50
or more as of June 30, 1998 who are not Eligible Account Holders
("Supplemental Eligible Account Holders"); (iv) borrowers and
depositors of the Association as of August 3, 1998 who are not
Eligible Account Holders or Supplemental Eligible Account
Holders; (v) employees, officers and directors of the
Association; and (vi) certain members of the general public, with
preference given to natural persons residing in Westchester
County, New York.
<PAGE>
To the extent that the Plan or the Participants fall into
one of these categories, the Participants are being permitted to
use funds in their Plan account to subscribe or pay for the
Common Stock being acquired. Common Stock so purchased will be
placed in a Participant's Employer Stock Fund account within his
or her Plan account. Funds not transferred to the Employer Stock
Fund will remain in the other investment funds of the Plan as
directed by the Participant.
Value of Participation Interests
The assets of the Plan were valued at approximately $860,000
as of March 31, 1998. Each Participant was informed of the value
of his or her beneficial interest in the Plan as of March 31,
1998. The $860,000 value represents the aggregate market value as
of March 31, 1998, of all Participants' accounts and earnings
thereon, less previous withdrawals.
Method of Directing Transfer
Each Participant shall receive a form (the "Investment
Election Form") which provides for a Participant to direct that
all or a portion of his or her beneficial interest in the Plan
(in multiples of 10%) be transferred to the Employer Stock Fund.
If a Participant wishes to invest all or part of his or her
beneficial interest in the assets of the Plan to the purchase of
Common Stock issued in connection with the Offering, he or she
should indicate that decision on the Investment Election Form.
Time for Directing Transfer
Directions to transfer amounts to the Employer Stock Fund in
order to purchase Common Stock issued in connection with the
Offering must be returned to Mary Ellen Morel, Secretary of Human
Resources at the Association, no later than 12 p.m. on September
4, 1998.
Irrevocability of Transfer Direction
A Participant's direction to transfer amounts credited to
such Participant's account in the Plan to the Employer Stock Fund
in order to purchase shares of Common Stock in connection with
the Offering is irrevocable. Participants, however, will be able
to direct the investment of their accounts under the Plan as
explained below.
Direction to Purchase Common Stock After the Offering
After the Offering, a Participant will continue to be able
to direct that a certain percentage of his or her interest in the
Plan be transferred to the Employer Stock Fund and invested in
Common Stock or to the other investment funds available under the
Plan (amounts invested in the investment funds may be invested in
multiples of 10% from 10% to 100%). Alternatively, a Participant
may direct that all or any portion of his or her interest in the
Plan be transferred to the following funds in accordance with the
terms of the Plan:
<PAGE>
-- Core Equity Fund
-- Emerging Growth Equity Fund
-- Value Equity Fund
-- Actively Managed Bond Fund
-- Intermediate-Term Bond Fund
-- Short-Term Investment Fund
-- International Equity Fund
(Said funds, together with the Employer Stock Fund being
hereinafter referred to as the "Plan Funds"). Participants are
permitted to direct that future contributions (in multiples of
10%) made to the Plan by or on their behalf will be invested
among any of the Plan Funds. The allocation of a Participant's
interest in a Plan Fund may be changed not more often than once
per quarter. Note that the election to invest in the Employer
Stock Fund during the Offering will not be considered to be the
Participant's quarterly allocation election. Special
restrictions may apply to transfers directed to and from the
Employer Stock Fund by those Participants who are officers,
directors and principal shareholders of the Company who are
subject to the provisions of Section 16(b) of the Securities and
Exchange Act of 1934 ("1934 Act").
Purchase Price of Common Stock
The funds transferred to the Employer Stock Fund for the
purchase of Common Stock in connection with the Offering will be
used by First Bankers Trust Company, N.A. ( the "Employer Stock
Fund Trustee") to purchase shares of Common Stock, except in the
event of an oversubscription, as discussed above. The price paid
for such shares of Common Stock will be the same price as is paid
by all other persons who purchase shares of Common Stock in the
Offering.
Subsequent to the Offering, Common Stock purchased by the
Employer Stock Fund Trustee will be acquired in open market
transactions. The prices paid by the Trustee for shares of
Common Stock will not exceed "adequate consideration" as defined
in Section 3(18) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA").
Nature of a Participant's Interest in the Common Stock
The Common Stock will be held in the name of the Employer
Stock Fund Trustee, as Trustee. Shares of Common Stock acquired
at the direction of a Participant will be allocated to the
Participant's account under the Plan. Therefore, earnings with
respect to a Participant's account should not be affected by the
investment designations (including investments in Common Stock)
of other Participants. The Employer Stock Fund Trustee as record
holder will vote such allocated and unallocated shares, if any,
as directed by Participants.
Voting Rights of Common Stock
The Employer Stock Fund Trustee generally will exercise
voting rights attributable to all Common Stock held by the Trust
as directed by Participants with interests in the Employer Stock
<PAGE>
Fund. With respect to each matter as to which holders of Common
Stock have a right to vote, each Participant will be allocated
voting instruction rights reflecting such Participant's
proportionate interest in the Employer Stock Fund. The number of
shares of Common Stock held in the Employer Stock Fund that are
voted in the affirmative and negative on each matter shall be
proportionate to the number of voting instruction rights
exercised by Participants in the affirmative and negative
respectively.
DESCRIPTION OF THE PLAN
Introduction
Effective January 1, 1987, the Association adopted the Sound
Federal Savings and Loan Association Tax Deferral Savings Plan
(the "Prior Plan"). Effective as of January 1, 1993, the Prior
Plan was amended and restated in its entirety and RSI Retirement
Trust was named successor trustee. The Plan is a profit sharing
plan with a cash or deferred compensation feature established in
accordance with the requirements under Section 401(a) and Section
401(k) of the Internal Revenue Code of 1986, as amended (the
"Code"). The Plan is qualified under Section 401(a) of the Code,
and its related trust is qualified under Section 501(a) of the
Code.
The Association intends that the Plan, in operation, will
comply with the requirements under Section 401(a) and Section
401(k) of the Code. The Association will adopt any amendments to
the Plan that may be necessary to ensure the qualified status of
the Plan under the Code and applicable Treasury Regulations.
Employee Retirement Income Security Act. The Plan is an
"individual account plan" other than a "money purchase pension
plan" within the meaning of ERISA. As such, the Plan is subject
to all of the provisions of Title I (Protection of Employee
Benefit Rights) and Title II (Amendments to the Internal Revenue
Code Relating to Retirement Plans) of ERISA, except the funding
requirements contained in Part 3 of Title I of ERISA which by
their terms do not apply to an individual account plan (other
than a money purchase plan). The Plan is not subject to Title IV
(Plan Termination Insurance) of ERISA. The funding requirements
contained in Title IV of ERISA are not applicable to Participants
(as defined below) or beneficiaries under the Plan.
Reference to full Text of Plan. The following statements are
summaries of certain provisions of the Plan. They are not
complete and are qualified in their entirety by the full text of
the Plan. Words capitalized but not defined in the following
discussion have the same meaning as set forth in the Plan.
Copies of the Plan are available to all employees by filing a
request with the Plan Administrator, c/o Sound Federal Savings
and Loan Association, Attention: Richard P. McStravick, President
and Chief Executive Officer, 300 Mamaroneck Avenue, Mamaroneck,
New York 10543. Each employee is urged to read carefully the full
text of the Plan.
<PAGE>
Eligibility and Participation
Any salaried employee of the Employer is eligible to
participate in the Plan on the first day of any calendar month
following completion of a Period of Service of one (1) year with
the Association, provided he or she has reached age 21 at such
time. The plan year is January 1 to December 31 (the "Plan
Year").
As of December 31, 1997, there were approximately 39
employees eligible to participate in the Plan, and 34 employees
participating by making salary deferral contributions.
Contributions Under the Plan
401(k) Plan Contributions. Each Participant in the Plan is
permitted to elect to defer such Participant's compensation (as
defined below) on a pre-tax basis up to the lesser of 10% of
annual Compensation (expressed in terms of whole percentages) or
the applicable limit under the Code (for 1998, the applicable
limit is $10,000) and subject to certain other restrictions
imposed by the Code, and to have that amount contributed to the
Plan on such Participant's behalf. (Under the Code, the pre-tax
basis could be increased to the lesser of 25% of annual
Compensation or the $10,000 applicable limit). For purposes of
the Plan, "Compensation" means, generally, a Participant's total
compensation received from the Association, including amounts the
Participant elects to defer as salary contributions to the Plan.
In 1998, the annual Compensation of each Participant taken into
account under the Plan was, and is, limited to $160,000. (Limits
established by the Internal Revenue Service ("IRS") are subject
to increase pursuant to an annual cost of living adjustment, as
permitted by the Code). A Participant may elect to modify the
amount contributed to the Plan not more often than once per year,
effective March 1, by providing written notice to the Plan
Administrator at least ten (10) days prior to the first payroll
period that includes the first day of March. However, special
restrictions apply to persons subject to Section 16 of the 1934
Act.
Employer Contributions. The Association makes matching
contributions to the Plan equal to 50% of the elective deferral
contributions.
The Association may also make discretionary Qualified Non-
Elective Contributions on behalf of Non-Highly Compensated
Employees equal to a percentage of each eligible Participant's
Compensation, to be determined each year by the Association.
Limitations on Contributions
Limitation on Employee Salary Deferrals. The annual amount
of deferred Compensation of a Participant (when aggregated with
any elective deferrals of the Participant under a simplified
employee pension plan or a tax-deferred annuity) may not exceed
the limitation contained in Section 402(g) of the Code, adjusted
for increases in the cost of living as permitted by the Code (the
limitation for 1998 is $10,000). Contributions in excess of this
limitation ("excess deferrals") will be included in the
Participant's gross income for federal income tax purposes in the
year they are made. In addition, any such excess deferral will
again be subject to federal income tax when
<PAGE>
distributed by the Plan to the Participant, unless the excess
deferral (together with any income allocable thereto) is
distributed to the Participant not later than the first April
15th following the close of the taxable year in which the excess
deferral is made. Any income on the excess deferral that is
distributed not later than such date shall be treated, for
federal income tax purposes, as earned and received by the
Participant in the taxable year in which the distribution is
made.
Limitations on Annual Additions and Benefits. Pursuant to
the requirements of the Code, the Plan provides that the amount
of contributions and forfeitures allocated to each Participant's
account during any Plan Year may not exceed the lesser of $30,000
or 25% of the Participant's Compensation for the Plan Year. In
addition, annual additions are limited to the extent necessary to
prevent contributions on behalf of any employee from exceeding
the employee's combined plan limit, i.e., a limit that takes into
account the contributions and benefits made on behalf of an
employee to all plans of the Association. To the extent that
these limitations have been exceeded with respect to a
Participant, the Plan Administrator shall use the excess amounts
in the next limitation year (and succeeding limitation years, if
necessary) to reduce Basic Contributions, Matching Contributions
and Special Contributions for that Participant if such
Participant is an Eligible Employee (as defined) during the next
limitation year, or if the Participant is not an Eligible
Employee, allocate and reallocate the excess amounts in the next
limitation year (and succeeding limitation years, if necessary)
to all Participants then actively participating in the Plan.
Limitation on Plan Contributions for Highly Compensated
Employees. Sections 401(k) and 401(m) of the Code limits the
amount of salary deferral contributions and matching
contributions that may be made to the Plan in any Plan Year on
behalf of Highly Compensated Employees (defined below) in
relation to the amount of salary deferral contributions made by
or on behalf of all other employees eligible to participate in
the Plan. Specifically, the "actual deferral percentage" ("ADP")
(i.e., the average of the actual deferral ratios, expressed as a
percentage, of each Eligible Employee's salary deferral
contribution if any, for the Plan Year over the employee's
Compensation), of the Highly Compensated Employees must meet
either of the following tests: (i) the ADP of the eligible Highly
Compensated Employees is not more than 125% of the ADP of all
other Eligible Employees, or (ii) the ADP of the eligible Highly
Compensated Employees is not more than 200% of the ADP of all
other Eligible Employees, and the excess of the ADP for the
eligible Highly Compensated Employees over the ADP of all other
Eligible Employees is not more than two percentage points.
Similarly, the actual contribution percentage ("ACP") (i.e., the
average of the actual contribution ratios, expressed as a
percentage, of each Eligible Employee's matching contributions,
if any, for the Plan Year over the employee's Compensation) of
the Highly Compensated Employees must meet either of the
following tests: (i) the ACP of the eligible Highly Compensated
Employees is not more than 125% of the ACP of all other Eligible
Employees, or (ii) the ACP of the eligible Highly Compensated
Employees is not more than 200% of the ACP of all other Eligible
Employees, and the excess of the ACP for the eligible Highly
Compensated Employees over the ACP of all other employees is not
more than two percentage points.
In general, for Plan Years beginning in 1998, a Highly
Compensated Employee includes any employee, who, (1) during the
Plan Year or the preceding Plan Year, was at any time a 5% owner
(i.e., owns directly or indirectly more than 5% of the stock of
an employer, or stock possessing more
<PAGE>
than 5% of the total combined voting power of all stock of an
employer), or (2) for the preceding Plan Year, received
Compensation from an employer in excess of $80,000 (in 1998), and
(if the employer elects for a Plan Year) was in the group
consisting of the top 20% of employees when ranked on the basis
of Compensation paid during the Plan Year. The dollar amounts
set forth above are adjusted annually to reflect increases in the
cost of living.
In order to prevent the disqualification of the Plan, any
amount contributed by Highly Compensated Employees that exceed
the ADP limitation in any Plan Year ("excess contributions"),
together with any income allocable thereto, must be distributed
to such Highly Compensated Employees before the close of the
following Plan Year. Moreover, the Association will be subject
to a 10% excise tax on any excess contributions unless such
excess contributions, together with any income allocable thereto,
either are re-characterized or are distributed before the close
of the first 2-1/2 months following the Plan Year to which such
excess contributions relate. In addition, in order to avoid
disqualification of the Plan, any contributions by Highly
Compensated Employees that exceed the average contribution
limitation in any Plan Year ("excess aggregate contributions")
together with any income allocable thereto, must be distributed
to such Highly Compensated Employees before the close of the
following Plan Year. However, the 10% excise tax will be imposed
on the Association with respect to any excess aggregate
contributions, unless such amounts, plus any income allocable
thereto, are distributed within 2-1/2 months following the close
of the Plan Year in which they arose.
Investment of Contributions and Account Balances
All amounts credited to Participants' accounts under the
Plan are held in the Plan Trust (the "Trust") which is
administered by the Trustee appointed by the Association's Board
of Directors.
Prior to the Offering, Participants have been provided the
opportunity to direct the investment of their accounts into one
of the following Plan Funds:
A. Core Equity Fund
B. Emerging Growth Equity Fund
C. Value Equity Fund
D. Actively Managed Bond Fund
E. Intermediate-Term Bond Fund
F. Short-Term Investment Fund
G. International Equity Fund
The Plan now provides that in addition to the funds
specified above, a Participant may direct the Trustee to invest
all or a portion of his account in the Employer Stock Fund. A
Participant may elect to have both past contributions (and
earnings), as well as future contributions to the Participant's
accounts invested in either the Employer Stock Fund or among the
Plan Funds listed above. Transfers of past contributions (and the
earnings thereon) do not affect the investment mix of future
contributions. The transfer of past contributions will be
effective on the effective date of the Participant's written
notice to the Plan Administrator, provided such notice is filed
with the Plan
<PAGE>
Administrator at least 10 days before it is to become effective.
The election to change the investment of future contributions
will be effective the first payroll period following the
Participant's written notice to the Plan Administrator, provided
such notice is filed with the Plan Administrator at least 10 days
before it is to become effective. Alternatively, a
Participant's investment elections will be effective if made in
any other manner deemed appropriate by the Plan Administrator if
such manner is communicated in writing to the Participants by the
Plan Administrator. Any amounts credited to a Participant's
accounts for which investment directions are not given will be
invested in the Short-Term Investment Fund.
The net gain (or loss) of the Plan Funds from investments
(including interest payments, dividends, realized and unrealized
gains and losses on securities, and expenses paid from the Trust)
will be allocated daily. For purposes of such allocations, all
assets of the Trust are valued at fair market value.
A. Previous Funds
Prior to the effective date of the Offering, contributions
under the Plan have been invested in the seven funds specified
above. The following table provides performance data with
respect to the investment funds available under the Plan, based
on information provided to the Company by RSI Retirement Trust.
Net Investment Performance for Periods Ended June 30, 1998
<TABLE>
Quarter Quarter Annualized
Ended Ended
Fund 6/30/98 3/31/98 12 Months 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C> <C> <C>
A. Core Equity Fund 0.02% 15.45% 22.50% 26.57% 21.09% 17.02%
B. Emerging Growth Equity Fund -6.05 11.19 9.43 19.37 19.96 16.31
C. Value Equity Fund 0.73 11.53 25.18 28.79 20.42 14.62
D. Actively Managed Bond Fund 2.80 1.55 11.53 7.73 6.45 8.61
E. Intermediate-Term Bond Fund 1.87 1.43 7.79 6.31 5.39 7.62
F. Short-Term Investment Fund 1.24 1.21 5.01 4.91 4.42 5.29
G. International Equity Fund 2.03 13.06 3.17 13.25 10.73 7.69
</TABLE>
The following is a description of each of the Plan's seven
investment funds:
Account A (Core Equity Fund). This fund seeks capital
appreciation and income and invests in a broadly diversified
group of high quality, large capitalization companies exhibiting
sustainable growth in earnings and dividends.
Account B (Emerging Growth Equity Fund). This fund seeks
capital appreciation and income by investing primarily in stocks
of smaller companies with higher-than-average earnings and
dividend growth potential. The fund will generally have a higher
degree of risk and price volatility than the portfolios of the
Core Equity Fund and the Value Equity Fund.
<PAGE>
Account C (Value Equity Fund). This fund seeks capital
appreciation and income and invests heavily in out-of-favor
stocks of financially sound companies that are selling at
unjustifiably low market valuations based on price/earnings
ratios, price-to-book ratios.
Account D (Active Managed Bond Fund). This fund invests in
high quality fixed income securities and seeks both principal
appreciation and income. The maturity structure of this fund is
expected to vary substantially based on the perceived relative
attractiveness of different areas of the fixed income market. At
least 65% of its assets must be invested in securities issued or
backed by the United States government, or its agencies or
instrumentalities.
Account E (Intermediate-Term Bond Fund). This fund seeks
principal appreciation and income and invests in high quality
fixed-income vehicles that mature within 10 years or have
expected average lives of 10 years or less. At least 65% of its
assets must be invested in securities issued or backed by the
United States government, or its agencies or instrumentalities.
Account F (Short-Term Investment Fund). This fund is
invested in high quality, money market instruments with a maximum
average maturity of one year. This fund focuses on preservation
of principal while producing a competitive money market return.
Account G (International Equity Fund). This fund seeks
capital appreciation and income by investing in stocks of
companies headquartered in foreign countries. Each selection is
based on companies whose current prices do not reflect the true
earnings potential and therefore, are selling at "undervalued"
prices.
B. The Employer Stock Fund
The Employer Stock Fund will consist of investments in
Common Stock made on and after the completion of the Offering and
Reorganization. After the Offering, the Trustee will, to the
extent practicable, use all amounts held by it in the Employer
Stock Fund, including cash dividends paid on Common Stock held in
the Employer Stock Fund, to purchase shares of Common Stock of
the Company. All purchases will be made at prevailing market
prices. Under certain circumstances, the Trustee may be required
to limit the daily volume of shares purchased. Pending investment
in Common Stock, assets held in the Employer Stock Fund may be
placed in the Association deposits and other short-term
investments.
The expenses of managing each Plan Fund, including
investment management fees, commissions, and other transaction
costs, are charged against the assets of the total applicable
Fund. A Participant's account will be adjusted to reflect
changes in the value of shares of Common Stock resulting from
stock dividends, stock splits and similar changes.
As of the date of this Prospectus Supplement, none of the
shares of Common Stock have been issued or are outstanding and
there is no established market for the Common Stock.
Accordingly, there is no record of the historical performance of
the Employer Stock Fund. Performance will be
<PAGE>
dependent upon a number of factors, including the financial
condition and profitability of the Company and the Association
and market conditions for the Common Stock generally.
INVESTMENT IN THE EMPLOYER STOCK FUND MAY INVOLVE CERTAIN
SPECIAL RISKS IN INVESTMENT IN COMMON STOCK OF THE COMPANY. FOR
A DISCUSSION OF THESE RISKS FACTORS, SEE THE PROSPECTUS. NEITHER
THE ASSOCIATION NOR THE PLAN GUARANTEE THE PERFORMANCE OF THE
EMPLOYER STOCK FUND NOR ARE THE AMOUNTS IN THE EMPLOYER STOCK
FUND OR ANY OF THE PLAN FUNDS INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION.
Benefits Under the Plan
Vesting. A Participant, at all times, has a fully vested,
nonforfeitable interest in his or her account under the Plan.
Withdrawals and Distributions From the Plan
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE
SUBSTANTIAL RESTRICTIONS ON THE RIGHT OF A PLAN PARTICIPANT TO
WITHDRAW AMOUNTS HELD FOR HIS OR HER BENEFIT UNDER THE PLAN PRIOR
TO THE PARTICIPANT'S TERMINATION OF EMPLOYMENT WITH THE
ASSOCIATION. A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE
IMPOSED ON WITHDRAWALS MADE PRIOR TO THE PARTICIPANT'S ATTAINMENT
OF AGE 59-1/2, REGARDLESS OF WHETHER SUCH A WITHDRAWAL OCCURS
DURING HIS OR HER EMPLOYMENT WITH THE ASSOCIATION OR AFTER
TERMINATION OF EMPLOYMENT.
Withdrawals Prior to Termination of Employment. A
Participant may make a withdrawal from his or her accounts after
age 59-1/2 for any reason. A Participant may make a withdrawal
from his or her accounts prior to termination of employment
before age 59-1/2 only in the event of financial hardship,
subject to the hardship distribution rules under the Plan. These
requirements insure that Participants have a true financial need
before a withdrawal may be made.
Distribution Upon Retirement or Disability. Payment of
benefits to a Participant who retires, incurs a disability, or
otherwise terminates employment shall be made in a lump-sum
payment. Benefit payments ordinarily shall commence as soon as
practicable after age 65 (normal retirement age) following: (i)
retirement on or after attainment of normal retirement age; (ii)
retirement before attainment of normal retirement age; or (iii)
termination of service due to disability. Alternatively, at the
Participant's election, a Participant may receive a distribution
of his accounts after he has terminated employment. With respect
to a 5% owner, benefit payments must commence no later than April
1 following the calendar year in which the Participant attains
age 70-1/2.
<PAGE>
Distribution Upon Death. If a Participant dies prior to
receipt of the entire value of his or her Plan accounts, payment
will be made to the beneficiary or contingent beneficiary in a
single cash payment generally as soon as possible following the
Participant's death. Payment will be deferred if the Participant
had previously elected a later payment date. However, a
Participant who has designated his or her surviving spouse as
beneficiary and the Participant dies prior to age 70-1,2, payment
to his or her spouse will be made no later than the date the
Participant would have attained age 70-1/2. If the Participant
dies after age 70-1/2, payment to the spouse will be made as soon
as possible after the date of death. If the beneficiary is not
the Participant's spouse, payment will be made within one year of
the date of death.
Distribution Upon Termination for Any Other Reason.
Distribution of benefits to a Participant with a Plan account
value exceeding $3,500, who terminates employment for any other
reason, will not be made to the Participant at the time of
termination but shall be made upon the Participant's attainment
of normal retirement age. Alternatively, at the Participant's
election, a Participant may receive a distribution of his
accounts after he has terminated employment.
Nonalienation of Benefits. Except with respect to federal
income tax withholding and as provided with respect to a
qualified domestic relations order (as defined in the Code),
benefits payable under the Plan shall not be subject in any
manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, charge, garnishment, execution, or levy of
any kind, either voluntary or involuntary, and any attempt to
anticipate, alienate, sell, transfer, assign, pledge, encumber,
charge or otherwise dispose of any rights to benefits payable
under the Plan shall be void.
Administration of the Plan
The trustee with respect to the Plan is the named fiduciary of
the Plan for purposes of Section 402 of ERISA.
Trustee. The trustee is appointed by the Board of Directors
of the Association to serve at its pleasure. The trustees of the
RSI Retirement Trust are the trustees of the Plan, other than of
the Employer Stock Fund, for which First Bankers Trust Company,
N.A. serves as the Employee Stock Fund Trustee. The trustees are
referred to collectively herein as the Trustee.
The Trustee receives and holds the contributions to the Plan
in trust and distributes the account balances to Participants and
beneficiaries in accordance with the terms of the Plan and the
directions of the Plan Administrator. The Trustee is responsible
for investment of the assets of the Trust.
<PAGE>
Reports to Plan Participants
The Trustee will furnish to each Participant a statement
quarterly showing (i) the balance in the Participant's accounts
as of the end of that period, (ii) the amount of contributions
allocated to such Participant's accounts for that period, and
(iii) the adjustments to such Participant's accounts to reflect
earnings or losses (if any).
Plan Administrator
Pursuant to the terms of the Plan, the Plan is administered
by the plan administrator (the "Plan Administrator"). The
Association is the Plan Administrator and has designated Richard
P. McStravick, the Association's President and Chief Executive
Officer, to supervise its responsibilities as such. The address
and telephone number of the Plan Administrator is c/o Sound
Federal Savings and Loan Association, 300 Mamaroneck Avenue,
Mamaroneck, NY 10543, telephone number (914) 698-6400. The Plan
Administrator is responsible for the administration of the Plan,
interpretation of the provisions of the Plan, prescribing
procedures for filing applications for benefits, preparation and
distribution of information explaining the Plan, maintenance of
Plan records, books of account and all other data necessary for
the proper administration of the Plan, and preparation and filing
of all returns and reports relating to the Plan which are
required to be filed with the U.S. Department of Labor and the
IRS, and for all disclosures required to be made to Participants,
beneficiaries, and others under Sections 104 and 105 of ERISA.
Amendment and Termination
It is the intention of the Association to continue the Plan
indefinitely. Nevertheless, the Association may terminate the
Plan at any time. If the Plan is terminated in whole or in part,
then regardless of other provisions in the Plan, each employee
affected by such termination shall have a fully vested interest
in his or her accounts. The Association reserves the right to
make, from time to time, any amendment or amendments to the Plan
which do not cause any part of the Trust to be used for, or
diverted to, any purpose other than the exclusive benefit of
Participants or their beneficiaries; provided, however, that the
Association may make any amendment it determines necessary or
desirable, with or without retroactive effect, to comply with
ERISA.
Merger, Consolidation or Transfer
In the event of the merger or consolidation of the Plan with
another plan, or the transfer of the Trust assets to another
plan, the Plan requires that each Participant would (if either
the Plan or the other plan then terminated) receive a benefit
immediately after the merger, consolidation or transfer which is
equal to or greater than the benefit he or she would have been
entitled to receive immediately before the merger, consolidation
or transfer (if the Plan had then terminated).
<PAGE>
Federal Income Tax Consequences
The following is only a brief summary of certain federal
income tax aspects of the Plan which are of general application
under the Code and is not intended to be a complete or definitive
description of the federal income tax consequences of
participating in or receiving distributions from the Plan. The
summary is necessarily general in nature and does not purport to
be complete. Moreover, statutory provisions are subject to
change, as are their interpretations, and their application may
vary in individual circumstances. Finally, the consequences under
applicable state and local income tax laws may not be the same as
under the federal income tax laws. Participants are urged to
consult their tax advisors with respect to any distribution from
the Plan and transactions involving the Plan.
The Plan is qualified under Section 401(a) and 401(k) of the
Code and the related Trust is exempt from tax under Section
501(a) of the Code. A plan that is qualified under these sections
of the Code is afforded special tax treatment which include the
following: (1) the Association is allowed an immediate tax
deduction for the amount contributed to the Plan each year; (2)
Participants pay no current income tax on amounts contributed by
the Association on their behalf; and (3) Earnings of the plan are
tax-exempt thereby permitting the tax-free accumulation of income
and gains on investments. The Plan will be administered to comply
in operation with the requirements of the Code as of the
applicable effective date of any change in the law. The
Association expects to timely adopt any amendments to the Plan
that may be necessary to maintain the qualified status of the
Plan under the Code.
Assuming that the Plan is administered in accordance with
the requirements of the Code, participation in the Plan under
existing federal income tax laws will have the following effects:
(a) Amounts contributed to a Participant's account and the
investment earnings on the account are not includable in a
Participant's federal taxable income until such contributions or
earnings are actually distributed or withdrawn from the Plan.
Special tax treatment may apply to the taxable portion of any
distribution that includes Common Stock or qualifies as a Lump
Sum Distribution (as described below).
(b) Income earned on assets held by the Trust will not be
taxable to the Trust.
Lump Sum Distribution. A distribution from the Plan to a
Participant or the beneficiary of a Participant will qualify as a
lump sum distribution ("Lump Sum Distribution") if it is made:
(i) within one taxable year of the Participant or beneficiary;
(ii) on account of the Participant's death, disability or
separation from service, or after the Participant attains age 59-
1/2; and (ii) consists of the balance to the credit of the
Participant under this Plan and all other profit sharing plans,
if any, maintained by the Association. The portion of any Lump
Sum Distribution that is required to be included in the
Participant's or beneficiary's taxable income for federal income
tax purposes (the"total taxable amount") consists of the entire
amount of such Lump Sum Distribution less the
<PAGE>
amount of after-tax contributions, if any, made by the
Participant to any other profit sharing plan maintained by the
Association which is included in such distribution.
Averaging Rules. The portion of the total taxable amount of
a Lump Sum Distribution that is attributable to participation
after 1973 in the Plan or in any other profit-sharing plan
maintained by the Association (the "ordinary income portion")
will be taxable generally as ordinary income for federal income
tax purposes. However, a Participant who has completed at least
five years of participation in the Plan before the taxable year
in which the distribution is made, or a beneficiary who receives
a Lump Sum Distribution on account of the Participant's death
(regardless of the period of the Participant's participation in
the Plan or any other profit-sharing plan maintained by the
Association), may elect to have the ordinary income portion of
such Lump Sum Distribution taxed according to a special averaging
rule ("five-year averaging"). The election of the special
averaging rules may apply only to one Lump Sum Distribution
received by the Participant or beneficiary, provided such amount
is received on or after the Participant turns 59-1/2 and the
recipient elects to have any other Lump Sum Distribution from a
qualified plan received in the same taxable year taxed under the
special averaging rule. Under a special grandfather rule,
individuals who turned 50 by 1985 may elect to have their Lump
Sum Distribution taxed under either the five-year averaging rule
or under the prior law ten-year averaging rule.
Common Stock Included in Lump Sum Distribution. If a Lump
Sum Distribution includes Common Stock, the distribution
generally will be taxed in the manner described above, except
that the total taxable amount will be reduced by the amount of
any net unrealized appreciation with respect to such Common
Stock, i.e., the excess of the value of such Common Stock at the
time of the distribution over its cost to the Plan. The tax basis
of such Common Stock to the Participant or beneficiary for
purposes of computing gain or loss on its subsequent sale will be
the value of the Common Stock at the time of distribution less
the amount of net unrealized appreciation. Any gain on a
subsequent sale or other taxable disposition of such Common
Stock, to the extent of the amount of net unrealized appreciation
at the time of distribution, will be considered long-term capital
gain regardless of the holding period of such Common Stock. Any
gain on a subsequent or other taxable disposition of the Common
Stock in excess of the amount of net unrealized appreciation at
the time of distribution will be considered either short-term
capital gain or long-term capital gain depending upon the length
of the holding period of the Common Stock. The recipient of a
distribution may elect to include the amount of any net
unrealized appreciation in the total taxable amount of such
distribution to the extent allowed by the regulations to be
issued by the IRS.
Contribution to Another Qualified Plan or to an IRA. A
Participant may defer federal income taxation of all or any
portion of the total taxable amount of a Lump Sum Distribution
(including the proceeds from the sale of any Common Stock
included in the Lump Sum Distribution) to the extent that such
amount, or a portion thereof, is contributed, within 60 days
after the date of its receipt by the Participant, to another
qualified plan or to an individual retirement account ("IRA"). If
less than the total taxable amount of a Lump Sum Distribution is
contributed to another qualified plan or to an IRA within the
applicable 60-day period, the amount not so contributed must be
included in the Participant's income for federal income tax
purposes and will not be eligible for the special averaging
<PAGE>
rules or for capital gains treatment. Additionally, a Participant
may defer the federal income taxation of any portion of an amount
distributed from the Plan on account of the Participant's
disability or separation from service, generally, if the amount
is distributed within one taxable year of the Participant, and
such amount is contributed, within 60 days after the date of its
receipt by the Participant, to an IRA. Prior to 1993, following
the partial distribution of a Participant's account, any
remaining balance under the Plan (and the balance to the credit
of the Participant under any other profit sharing plan sponsored
by the Association) would not be eligible for the special
averaging rules or for capital gains treatment. For these
purposes, a "partial distribution" is a distribution within one
taxable year of the Participant equal to at least 50% of the
balance of a Participant's account ("Partial Distribution").
Pursuant to a change in the law, effective January 1, 1993,
virtually all distributions from the Plan may be rolled over to
another qualified Plan or to an IRA without regard to whether the
distribution is a Lump Sum Distribution or a Partial
Distribution. Effective January 1, 1993, Participants have the
right to elect to have the Trustee transfer all or any portion of
an "eligible rollover distribution" directly to another plan
qualified under Section 401(a) of the Code or to an IRA. If the
Participant does not elect to have an "eligible rollover
distribution" transferred directly to another qualified plan or
to an IRA, the distribution will be subject to a mandatory
federal withholding tax equal to 20% of the taxable distribution.
An "eligible rollover distribution" means any amount distributed
from the Plan except: (1) a distribution that is (a) one of a
series of substantially equal periodic payments made (not less
frequently than annually ) over the Participant's life or the
joint life of the Participant and the Participant's designated
beneficiary, or (b) for a specified period of ten years or more;
(2) any amount that is required to be distributed under the
minimum distribution rules; and (3) any other distributions
excepted under applicable federal law.
The beneficiary of a Participant who is the Participant's
surviving spouse also may defer federal income taxation of all or
any portion of a distribution from the Plan to the extent that
such amount, or a portion thereof, is contributed within 60 days
after the date of its receipt by the surviving spouse, to an IRA.
If all or any portion of the total taxable amount of a Lump Sum
Distribution is contributed by the surviving spouse of a
Participant to an IRA within the applicable 60-day period, any
subsequent distribution from the IRA will not be eligible for the
special averaging rules or for capital gains treatment. Any
amount received by the Participant's surviving spouse that is not
contributed to another qualified plan or to an IRA within the
applicable 60-day period, and any amount received by a nonspouse
beneficiary will be included in such beneficiary's income for
federal tax purposes in the year in which it is received.
Additional Tax on Early Distributions. A Participant who
receives a distribution from the Plan prior to attaining age 59-
1/2 will be subject to an additional income tax equal to 10% of
the taxable amount of the distribution. The 10% additional income
tax will not apply, however, to the extent the distribution is
rolled over into an IRA or another qualified plan or the
distribution is (i) made to a beneficiary (or to the estate or a
Participant) on or after the death of the Participant, (ii)
attributable to the Participant's being disabled within the
meaning of Section 72(m)(7) of the Code, (iii) part of a series
of substantially equal periodic payments (not less frequently
than annually) made for the life
<PAGE>
(or life expectancy) of the Participant or the joint lives (or
joint life expectancies) of the Participant and his beneficiary,
(iv) made to the Participant after separation from service on
account of early retirement under the Plan after attainment of
age 55, (v) made to pay medical expenses to the extent deductible
for federal income tax purposes, (vi) payments made to an
alternate payee pursuant to a qualified domestic relations order,
or (vii) made to effect the distribution of excess contributions
or excess deferrals.
ERISA and Other Qualifications
As noted above, the Plan is subject to certain provisions of
the ERISA and has received a favorable determination that it is
qualified under Section 401(a) of the Code.
The foregoing is only a brief summary of certain federal
income tax aspects of the Plan which are of general application
under the Code and is not intended to be a complete or definitive
description of the federal income tax consequences of
participating in or receiving distributions from the Plan.
Accordingly, each Participant is urged to consult a tax advisor
concerning the federal, state and local tax consequences of
participating in and receiving distributions from the Plan.
SEC Reporting and Short-Swing Profit Liability
Section 16 of the 1934 Act imposes reporting and liability
requirements on officers, directors, and persons beneficially
owning more than 10% of the equity securities (such as the Common
Stock) of public companies. Section 16(a) of the 1934 Act
requires the filing of reports of beneficial ownership. Within 10
days of becoming a person subject to the reporting requirements
of Section 16(a), a Form 3 reporting initial beneficial ownership
must be filed with the Securities and Exchange Commission ("SEC")
. Certain changes in beneficial ownership, such as purchases,
sales and gifts must be reported periodically, either on a Form 4
within 10 days after the end of the month in which a change
occurs, or annually on a Form 5 within 45 days after the close of
the Company's fiscal year. Certain discretionary transactions in
and beneficial ownership of the Common Stock through the Employer
Stock Fund of the Plan by officers, directors and persons
beneficially owning more than 10% of the Common Stock must be
reported to the SEC by such individuals.
In addition to the reporting requirements described above,
Section 16(b) of the 1934 Act provides for the recovery by the
Company of profits realized by an officer, director or any person
beneficially owning more than 10% of the Common Stock ("Section
16(b) Persons") resulting from non-exempt purchases and sales of
the Common Stock within any six-month period.
The SEC has adopted rules that provide exemption from the
profit recovery provisions of Section 16(b) for participant-
directed employer security transactions within an employee
benefit plan, such as the Plan, provided certain requirements are
met. These requirements generally involve restrictions upon the
timing of elections to acquire or dispose of employer securities
for the accounts of Section 16(b) Persons.
<PAGE>
Except for distributions of Common Stock due to death,
disability, retirement, termination of employment or under a
qualified domestic relations order, under the Plan, Section 16(b)
Persons are required to hold shares of Common Stock distributed
from the Plan for six months following such distribution and are
prohibited from directing additional purchases of units within
the Employer Stock Fund for six months after receiving such a
distribution.
Financial Information Regarding Plan Assets
Financial statements representing the net assets available
for Plan benefits at December 31, 1997 are attached to this
Prospectus Supplement.
LEGAL OPINION
The validity of the issuance of the Common Stock will be
passed upon by Luse Lehman Gorman Pomerenk & Schick, A
Professional Corporation, Washington, D.C., which firm acted as
special counsel to the Association in connection with the
Association's Reorganization into the mutual holding company form
of ownership.
<PAGE>
SOUND FEDERAL SAVINGS AND LOAN ASSOCIATION
401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS(1)
<TABLE>
December 31,
1997 1996
<S> <C> <C>
Assets
Investments
RSI Retirement Trust 758,863.30 643,167.54
Outstanding Loans Receivable 0 0
Forfeiture Account 0 0
---------- ----------
Total Assets 758,863.30 643,167.54
Liabilities 0 0
---------- ----------
Net Assets Available for
Plan Benefits 758,863.30 758,863.30
</TABLE>
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(1)Source, Retirement System Group, Inc.
