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EXHIBIT 99.3
SOUND FEDERAL SAVINGS AND LOAN ASSOCIATION
300 Mamaroneck Avenue
Mamaroneck, New York 10543
(914) 698-6400
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NOTICE OF SPECIAL MEETING OF MEMBERS
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Notice is hereby given that a Special Meeting of Members (the "Special
Meeting") of Sound Federal Savings and Loan Association (the "Association") will
be held at the main office of the Association, located at 300 Mamaroneck Avenue,
Mamaroneck, New York 10543, on ____________________, 1998 at _____ p.m., local
time. The purpose of this Special Meeting is to consider and vote upon:
1. A Plan of Reorganization from Mutual Savings Association to Mutual
Holding Company and Stock Issuance Plan providing for the
reorganization of the Association into the mutual holding company
structure. As part of the Plan the Association will convert to a
federally chartered stock savings association, which will be
wholly-owned by Sound Federal Bancorp (the "Company") a to be formed
federal corporation. Pursuant to the Plan, the Company will (i) issue
53% of its to-be-outstanding shares of common stock to Sound Federal,
MHC, a federal mutual holding company to be formed pursuant to the
Plan, (ii) offer for sale to certain depositors and borrowers 45% of
its to-be-, outstanding shares of common stock, and (iii) subject to
the receipt of member approval, contribute 2% of its to-be-outstanding
shares of Common Stock to the Sound Federal Savings and Loan
Association Charitable Foundation (the "Charitable Foundation");
2. The establishment of a tax exempt foundation, which will be a Delaware
chartered non-stock corporation dedicated to the promotion of
charitable purposes within the Association's market area; and
such other business as may properly come before this Special Meeting or any
adjournment thereof. Management is not aware of any such other business.
The members who shall be entitled to notice of and to vote at the
Special Meeting and any adjournment thereof are depositors at the close of
business on August ___, 1998. In the event there are insufficient votes for
approval of the Plan at the time of the Special Meeting, the Special Meeting may
be adjourned from time to time in order to permit further solicitation of
proxies.
BY ORDER OF THE BOARD OF DIRECTORS
Richard P. McStravick
President and Chief Executive Officer
Mamaroneck, New York
August ___, 1998
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YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
FOR APPROVAL OF THE PLAN AND THE ESTABLISHMENT
OF THE CHARITABLE FOUNDATION BY COMPLETING THE
ENCLOSED PROXY CARD AND RETURNING IT IN THE ENCLOSED
POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE.
YOUR VOTE IS VERY IMPORTANT
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SUMMARY OF PROPOSED REORGANIZATION
This summary does not purport to be complete and is qualified in its
entirety by the more detailed information contained in the remainder of this
Proxy Statement and the accompanying Prospectus.
Under its present mutual form of organization, the Association has no
stockholders. Its deposit account holders and certain of its borrowers are
members of the Association and have voting rights in that capacity. In the
unlikely event of liquidation, the Association's deposit account holders would
have the sole right to receive any assets of the Association remaining after
payment of its liabilities (including the claims of all deposit account holders
to the withdrawal value of their deposits). Under the Plan of Reorganization to
be voted on at the Special Meeting, the Association would reorganize into the
mutual holding company structure. In the Reorganization, the Association would
be converted into a federally chartered savings association organized in stock
form and all of the Association's common stock would be issued concurrently to
the Company. The Company will issue 53% of its to-be outstanding shares of
Common Stock to the Mutual Holding Company and offer and sell 45% of its to-be
outstanding shares of Common Stock in a subscription offering (1) to depositors
with an account balance of $50 or more as of March 31, 1997 ("Eligible Account
Holders"), (2) to tax-qualified employee plans of the Association
("Tax-Qualified Employee Plans"), (3) to depositors of the Association with an
account balance of $50 or more as of June 30, 1998 ("Supplemental Eligible
Account Holders"), and (4) to depositors of the Association as of __________,
1998 other than Eligible Account Holders or Supplemental Eligible Account
Holders, and borrowers as of __________, 1998 ("Other Members"). Subject to the
receipt of stockholder approval of Proposal II, the Company will contribute 2%
of its to-be outstanding shares of Common Stock to the Charitable Foundation.
The shares of Common Stock that are not owned by the Mutual Holding Company are
referred to as the Minority Ownership Interest. Notwithstanding the foregoing,
to the extent there is an increase in the maximum of the Estimated Valuation
Range, which will result in an increase in the maximum of the Offering Range (as
defined in the Prospectus), Tax-Qualified Employee Plans shall be given a first
priority to purchase shares sold above the maximum of the Offering Range. It is
anticipated that the Association's Employee Stock Ownership Plan (the "ESOP")
will purchase shares of Common Stock equal to 8% of the Minority Ownership
Interest.
At any time following commencement of the Subscription Offering, to the
extent sufficient shares of Common Stock are not sold to the persons in the
foregoing categories, the Company may offer Common Stock in the Community
Offering to members of the general public to whom a Prospectus has been
delivered, with first preference to natural persons residing in Westchester
County, New York. All depositors who have membership and liquidation rights with
respect to the Association immediately prior to the completion of the
Reorganization will continue to have such rights solely with respect to the
Mutual Holding Company as long as they maintain deposit accounts in the
Association after the completion of the Reorganization.
THE REORGANIZATION WILL NOT AFFECT THE BALANCE, INTEREST RATE OR
FEDERAL INSURANCE PROTECTION OF ANY SAVINGS DEPOSIT, AND NO PERSON WILL BE
OBLIGATED TO PURCHASE ANY STOCK IN THE OFFERING.
Business Purposes Net Offering proceeds are expected to increase the
for the Reorganization capital of the Association, which will support the
and Offering expansion of its financial services to the public.
The conversion to stock form and the use of a holding
company structure are also expected to enhance its
ability to expand through possible mergers and
acquisitions (although no such transactions are
contemplated at this time) and to diversify into
other financial services and will facilitate the
future access of the Company and the Association to
the capital markets.
Subscription and As part of the Reorganization, Common Stock is being
Community Offering offered for sale in the Subscription Offering, in the
priorities summarized below, to the Association's (1)
Eligible Account Holders, (2) Tax-Qualified Employee
Plans, including the ESOP, (3) Supplemental Eligible
Account Holders and (4) Other Members. In addition,
should a Community Offering be conducted, members of
the general public may purchase Common Stock to the
extent shares are available after satisfaction of
subscriptions in the Subscription Offering, with a
preference first to natural persons residing in
Westchester County, New York.
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Subscription Rights Each Eligible Account Holder has been given
of Eligible Account non-transferable rights to subscribe for an amount of
Holders shares equal to the greater of (i) $150,000 of the
Common Stock sold in the Offering; or (ii) 15 times
the product (rounded down to the whole next number)
obtained by multiplying the total number of shares to
be issued by a fraction of which the numerator is the
amount of qualifying deposits of such subscriber and
the denominator is the total qualifying deposits of
all account holders in this category on the
qualifying date.
Subscription Rights The Association's Tax-Qualified Employee Plans have
of Tax-Qualified been given non-transferable rights to subscribe for
Employee Plans up to 10% of the Minority Ownership Interest after
satisfaction of subscriptions of Eligible Account
Holders. Notwithstanding the foregoing, to the extent
there is an increase in the maximum of the Estimated
Valuation Range that results in an increase in the
maximum of the Offering Range (as defined in the
Prospectus), Tax-Qualified Employee Plans shall be
given a first priority to purchase shares sold above
the maximum of the Offering Range. It is anticipated
that the ESOP will purchase shares of Common Stock
equal to 8% of the Minority Ownership Interest.
Subscription Rights After satisfaction of subscriptions of Eligible
of Supplemental Account Holders and Tax-Qualified Employee Plans,
Eligible Account each Supplemental Eligible Account Holder (other than
Holders directors and officers of the Association and their
associates) has been given non-transferable rights to
subscribe for an amount of shares equal to the
greater of (i) $150,000 of the Common Stock sold in
the Offering; or (ii) 15 times the product (rounded
down to the whole next number) obtained by
multiplying the total number of shares to be issued
by a fraction of which the numerator is the amount of
qualifying deposits of such subscriber and the
denominator is the total qualifying deposits of all
account holders in this category on the qualifying
date. The subscription rights of each Supplemental
Eligible Account Holder shall be reduced to the
extent of such person's subscription rights as an
Eligible Account Holder.
Subscription Rights Each Other Member has been given non-transferable
of Other Members rights to subscribe for an amount of shares equal to
$150,000 of the Common Stock sold in the Offering;
after satisfaction of the subscriptions of the
Association's Eligible Account Holders, Tax-Qualified
Employee Plans and Supplemental Eligible Account
Holders.
Purchase No person or entity, together with associates, and
Limitations persons acting in concert, may purchase more than
$300,000 of the Common Stock offered in the Offering.
The Boards of Directors of the Company and the
Association may, in their sole discretion, increase
the maximum purchase limitation to up to 9.99% of the
shares sold, provided that orders for shares
exceeding 5% shall not exceed, in the aggregate, 10%
of the shares offered in the Subscription Offering.
Should the Association increase the maximum purchase
limitation above 5% of the Common Stock offered,
persons who previously subscribed for the maximum
number of shares will be given the opportunity to
subscribe for additional shares. The aggregate
purchases of directors and executive officers and
their associates may not exceed 30% of the total
number of shares offered in the Offering. These
purchase limitations do not apply to the
Association's Tax-Qualified Employee Plans.
Expiration Date of All subscriptions for Common Stock must be received
Subscription and by _____ _.m., local time on _______, 1998.
Community Offerings
How to Subscribe For information on how to subscribe for Common Stock
for Shares being offered in the Offering, please read the
Prospectus and the Stock Order Form and instructions
accompanying this Proxy Statement. Subscriptions will
not become effective until the Plan of Reorganization
has been approved by the Association's members and
all of the Common Stock offered in the Offering
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has been subscribed for or sold in the Offering or
through such other means as may be approved by the
OTS.
Price of Common All sales of Common Stock in the Offering will be
Stock made at $10.00 per share. See "The Reorganization and
Offering--Procedure for Purchasing Shares" in the
Prospectus.
Tax Consequences The Association has received an opinion from its
special counsel, Luse Lehman Gorman Pomerenk &
Schick, P.C., stating that the Reorganization is a
nontaxable reorganization under Section 368(a)(1)(F)
of the Internal Revenue Code of 1986, as amended (the
"Code"). The Association also has received an opinion
from KPMG Peat Marwick LLP stating that the Offering
will not be a taxable transaction for New York income
tax purposes.
Required Vote Approval of the Plan of Reorganization will require
the affirmative vote of a majority of all votes
eligible to be cast at the Special Meeting.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE ASSOCIATION RECOMMENDS THAT YOU VOTE TO
APPROVE THE PLAN OF REORGANIZATION.
The Association is currently organized in mutual rather than stock
form, meaning that it has no stockholders and no authority under its federal
mutual charter to issue capital stock. The Association's Board of Directors has
adopted the Plan of Reorganization providing for the Reorganization. The sale of
Common Stock of the Company, which will be formed to become the holding company
of the Association, will substantially increase the Association's net worth. The
Company will exchange a portion of the net proceeds from the sale of the Common
Stock for the common stock of the Association to be issued upon Reorganization.
The Company expects to retain the balance of the net proceeds (up to 50%), as
its initial capitalization and the Company intends to lend funds to the Employee
Stock Ownership Plan, a tax-qualified employee stock benefit plan of the
Association, to fund its purchase of Common Stock. This increased capital will
support the expansion of the Association's financial services to the public. The
Board of Directors of the Association also believes that the conversion to stock
form and the use of a holding company structure will enhance the Association's
ability to expand through possible mergers and acquisitions (although no such
transactions are contemplated at this time) and will facilitate its future
access to the capital markets.
The Board of Directors of the Association believes that the
Reorganization will further benefit the Association by enabling it to attract
and retain key personnel through prudent use of stock-related incentive
compensation and benefit plans. See "Management of the Association--Benefit
Plans" in the accompanying Prospectus.
Voting in favor of the Plan of Reorganization will not obligate any
person to purchase Common Stock.
THE OTS HAS APPROVED THE PLAN OF REORGANIZATION SUBJECT TO THE APPROVAL
OF THE ASSOCIATION'S MEMBERS AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS.
HOWEVER, SUCH APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF
THE PLAN OF REORGANIZATION BY THE OTS.
SUMMARY OF PROPOSED CHARITABLE FOUNDATION
This summary does not purport to be complete and is qualified in its
entirety by the more detailed information contained in the remainder of this
Proxy Statement and the accompanying Prospectus.
As a reflection of the Association's long-standing commitment to the
local community, the Company intends to establish the Charitable Foundation upon
the completion of the Reorganization, subject to member approval. The Charitable
Foundation will be incorporated in the State of Delaware. The Charitable
Foundation will be funded with
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a contribution consisting of shares of Common Stock equal to 2% of the shares
outstanding at the conclusion of the Reorganization.
STRUCTURAL PURPOSE OF THE CHARITABLE FOUNDATION. The purpose of the
Charitable Foundation is to provide funding to support charitable purposes
within the communities in which the Association operates. The Association has
long emphasized community lending and community development activities and
currently has a satisfactory rating under the Community Reinvestment Act
("CRA"). The Charitable Foundation is being formed as a complement to the
Association's existing community activities, not as a replacement for such
activities. The Charitable Foundation may be able to support community
charitable activities even in periods when the Association or the Company would
not be in a position to do so.
The Charitable Foundation will be a private foundation under the Code.
As a tax-exempt private foundation, the Charitable Foundation will be required
to distribute annually in grants or donations at least 5% of its net investment
assets. The Charitable Foundation will be dedicated to the promotion of
charitable purposes within the communities in which the Association operates,
including, but not limited to, providing grants or donations to support housing
assistance, not-for-profit medical facilities, community groups and other types
of organizations or projects. While the Charitable Foundation is authorized to
engage directly in charitable activities, in order to limit overhead costs, it
is currently anticipated that the Charitable Foundation's primary activity will
consist of making grants to other charitable organizations.
FUNDING OF THE CHARITABLE FOUNDATION. The Charitable Foundation will be
initially funded with shares of Common Stock equal to 2% of the shares
outstanding at the conclusion of the Reorganization. Future contributions to the
Charitable Foundation may be made either in cash or Common Stock. The amount of
such future contributions, if any, will be determined based on, among other
factors, an assessment of the Company's then current financial condition,
operations and prospects and of the need for charitable donations in the
Company's market area. Any such additional contribution swill reduce earnings
and may have a material impact on the Company's earnings for such quarter and
for the year. The Company does not anticipate making any contributions to the
Charitable Foundation that will not be tax deductible.
TAX CONSIDERATIONS. The Company has been advised that an organization
created for the above purposes will qualify as a 501(c)(3) exempt organization
under the Code, and will be classified as a private foundation rather than a
public charity. A private foundation typically receives its support from one
person or one corporation whereas a public charity receives its support from the
public. The Charitable Foundation will submit a request to the IRS to be
recognized as an exempt organization after approval of the Charitable Foundation
by the Association's members at the Special Meeting. So long as the Charitable
Foundation files its application for tax-exempt status within 15 months from the
date of its organization, and provided the IRS approves the application, the
effective date of the Charitable Foundation's status as a Section 501(c)(3)
organization will be the date of its organization.
REGULATORY CONDITIONS IMPOSED ON THE CHARITABLE FOUNDATION.
Establishment of the Charitable Foundation is subject to the following
conditions imposed by the OTS: (i) the Charitable Foundation will be subject to
examination by the OTS, at the Charitable Foundation's own expense; (ii) the
Charitable Foundation must comply with supervisory directives imposed by the
OTS; (iii) the Charitable Foundation will provide annual reports to the OTS
describing grants made and grant recipients; (iv) the Charitable Foundation will
operate in accordance with written policies adopted by the board of directors,
including a conflict of interest policy; (v) unless required by another
condition imposed by the OTS, the Charitable Foundation will not engage in
self-dealing and will comply with all laws necessary to maintain its tax-exempt
status; and (vi) any shares of Common Stock of the Company held by the
Charitable Foundation must be voted in the same ratio as all other shares of the
Company's Common Stock on all proposals considered by stockholders of the
Company.
REQUIRED VOTE. Approval of the Charitable Foundation will require the
affirmative vote of a majority of all votes eligible to be cast at the Special
Meeting.
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RECOMMENDATION OF THE BOARD OF DIRECTORS
YOUR BOARD OF DIRECTORS URGES YOU TO VOTE FOR THE CHARITABLE FOUNDATION.
DIRECTORS AND OFFICERS OF THE ASSOCIATION
Set forth below are the names, ages and present occupations of the
Associations directors and executive officers.
AGE AT
NAME MARCH 31, 1998 POSITION DIRECTOR SINCE CURRENT TERM EXPIRES
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Bruno J. Gioffre 63 Chairman of the Board 1975 1999
Richard P. McStravick 49 President, Chief 1996 1999
Executive Officer and
Director
Joseph Dinolfo 64 Director 1985 2001
Donald H. Heithaus 63 Director 1978 2000
Robert P. Joyce 69 Director 1980 2001
Joseph A. Lanza 51 Director 1998 2000
Arthur C. Phillips, Jr. 74 Director 1976 2001
James Staudt 45 Director 1987 1999
Stephen P. Milliot 50 Treasurer
William H. Morel 65 Senior Vice President
and Secretary
The business experience for the past five years for each of the
Association's directors and officers is as follows:
BRUNO J. GIOFFRE is the Chairman of the Board of Directors and has been
so since December 1997. Mr. Gioffre is also general counsel to the Association.
Mr. Gioffre is a principal of the law firm Gioffre & Gioffre and the Senior
Justice for the Town of Rye, New York.
RICHARD P. MCSTRAVICK is President and Chief Executive Officer of the
Association. Mr. McStravick has been employed by the Association in various
capacities since 1977. Mr. McStravick was appointed to the Board of Directors in
1996.
JOSEPH DINOLFO is the President of the Dinolfo Wilson Agency, Inc. and
insurance agency located in Mamaroneck, New York.
DONALD H. HEITHAUS is the President and Chief Executive Officer of the
Happiness Laundry Service, Inc. in Mamaroneck, New York.
ROBERT P. JOYCE is retired. Prior to his retirement, Mr. Joyce was the
President of Joyce Marketing Corporation.
JOSEPH A. LANZA is the Mayor of the Village of Mamaroneck. Mr. Lanza is
the President of Lanza Electric, a private electrical contractor.
JAMES STAUDT is an attorney practicing with the firm of McCullough,
Goldberger & Staudt.
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ARTHUR C. PHILLIPS, JR. is the Pension and Welfare Funds Manager for
the Industry and Local 338 Pension and Welfare Fund.
STEPHEN P. MILLIOT has been the Treasurer and Chief Financial Officer
since 1996. Prior to that time, Mr. Milliot was the Association's internal
auditor.
WILLIAM H. MOREL is the Association's Senior Vice President, Chief
Lending Officer and Corporate Secretary.
INFORMATION RELATING TO VOTING AT THE SPECIAL MEETING
The Board of Directors of the Association has fixed __________, 1998 as
the voting record date ("Voting Record Date") for the determination of members
entitled to notice of the Special Meeting. All Association depositors are
members of the Association under its current charter. All Association members of
record as of the close of business on the Voting Record Date will be entitled to
vote at the Special Meeting or any adjournment thereof.
Each depositor (including IRA and Keogh account beneficiaries) will be
entitled at the Special Meeting to cast one vote for each $100, or fraction
thereof, of the aggregate withdrawal value of all of such depositor's accounts
in the Association as of the Voting Record Date, up to a maximum of 1,000 votes.
Joint accounts shall be entitled to no more than 1,000 votes, and any owner may
cast all the votes unless notified in writing. In general, accounts held in
different ownership capacities will be treated as separate memberships for
purposes of applying the 1,000 vote limitation. For example, if two persons hold
a $100,000 account in their joint names and each of the persons also holds a
separate account for $100,000 in his own name, each person would be entitled to
1,000 votes for each separate account and they would together be entitled to
cast 1,000 votes on the basis of the joint account. Where no proxies are
received from IRA and Keogh account beneficiaries, after due notification, the
Association, as trustee of these accounts, is entitled to vote these accounts in
favor of the Plan of Conversion and the establishment of the Charitable
Foundation.
Approval of both the Plan of Reorganization and the establishment of
the Charitable Foundation requires the affirmative vote of a majority of the
total outstanding votes of the Association's members eligible to be cast at the
Special Meeting. As of ____________, 1998, the Association had ______ members
who were entitled to cast a total of ______ votes at the Special Meeting.
Association members may vote at the Special Meeting or any adjournment
thereof in person or by proxy. Any member giving a proxy will have the right to
revoke the proxy at any time before it is voted by giving written notice to the
Secretary of the Association, provided that such written notice is received by
the Secretary prior to the Special Meeting or any adjournment thereof, or upon
request if the member is present and chooses to vote in person.
All properly executed proxies received by the Board of Directors of the
Association will be voted in accordance with the instructions indicated thereon
by the members giving such proxies. IF NO INSTRUCTIONS ARE GIVEN, SUCH PROXIES
WILL BE VOTED IN FAVOR OF THE PLAN OF REORGANIZATION AND IN FAVOR OF
ESTABLISHING THE CHARITABLE FOUNDATION. If any other matters are properly
presented at the Special Meeting and may properly be voted on, the proxies
solicited hereby will be voted on such matters in accordance with the best
judgment of the proxy holders named thereon. Management is not aware of any
other business to be presented at the Special Meeting.
If a proxy is not executed and is returned or the member does not vote
in person, the Association is prohibited by OTS regulations from using a
previously executed proxy to vote for the Reorganization and establishing the
Charitable Foundation. AS A RESULT, FAILURE TO VOTE MAY HAVE THE SAME EFFECT AS
A VOTE AGAINST THE PLAN OF REORGANIZATION AND THE ESTABLISHMENT OF THE
CHARITABLE FOUNDATION.
To the extent necessary to permit approval of the Plan of
Reorganization, proxies may be solicited by officers, directors or regular
employees of the Association, in person, by telephone or through other forms of
communication and, if necessary, the Special Meeting may be adjourned to a later
date. Such persons will be reimbursed by the
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Association for their expenses incurred in connection with such solicitation.
The Association will bear all costs of this solicitation. The proxies solicited
hereby will be used only at the Special Meeting and at any adjournment thereof.
PRINCIPAL EFFECTS OF REORGANIZATION
DEPOSITORS. The Reorganization will not change the amount, interest
rate, withdrawal rights or federal insurance protection of deposit accounts, or
affect deposit accounts in any way other than with respect to voting and
liquidation rights as discussed below.
BORROWERS. The rights and obligations of borrowers under their loan
agreements with the Association will remain unchanged by the Reorganization. The
principal amount, interest rate and maturity date of loans will remain as they
were contractually fixed prior to the Reorganization.
VOTING RIGHTS OF MEMBERS. Currently in the Association's mutual form,
members have voting rights and may vote for the election of directors. Following
the Reorganization, members will cease to have voting rights in the Association,
but will have voting rights in the Mutual Holding Company. All voting rights in
the Association will be vested in the Company as the Association's sole
shareholder. Voting rights in the Company will be vested exclusively in its
shareholders, with one vote for each share of Common Stock. The Mutual Holding
Company will at all times own a majority of the Common Stock.
THE ASSOCIATION. Under federal law, the stock savings bank resulting
from the Reorganization will be deemed to be a continuation of the mutual
savings bank rather than a new entity and will continue to have all of the
rights, privileges, properties, assets and liabilities of the Association prior
to the Reorganization. The Reorganization will enable the Association to issue
capital stock, but will not change the general objectives, purposes or types of
business currently conducted by the Association, and no assets of the
Association will be distributed in order to effect the Reorganization, other
than to pay the expenses incident thereto. After the Reorganization, the
Association will remain subject to examination and regulation by the OTS and
will continue to be a member of the Federal Home Loan Bank System. The
Reorganization will not cause any change in the executive officers or directors
of the Association.
TAX CONSEQUENCES. The Association intends to proceed with the
Reorganization on the basis of an opinion from Luse Lehman Gorman Pomerenk &
Schick, P.C., Washington, D.C., as to certain tax matters that are material to
the Reorganization. The opinion is based, among other things, on certain
representations made by the Association. See the section of the Prospectus
entitled "The Reorganization and Offering--Federal and State Tax Consequences of
the Reorganization" which is incorporated herein by reference.
With respect to New York taxation, the Association has received an
opinion from KPMG Peat Marwick LLP to the effect that, assuming the
Reorganization does not result in any federal taxable income, gain or loss to
the Association in its mutual or stock form, the Company, the account holders,
borrowers, officers, directors and employees and Tax-Qualified Employee Plans of
the Association, the Offering should not result in any New York income tax
liability to such entities or persons.
APPROVAL, INTERPRETATION, AMENDMENT AND TERMINATION
Under the Plan of Reorganization, the letter from the OTS giving
approval thereto, and applicable regulations, consummation of the Reorganization
is subject to the satisfaction of the following conditions: (a) approval of the
Plan of Reorganization by members of the Association casting at least a majority
of the votes eligible to be cast at the Special Meeting; (b) sale of all of the
Common Stock to be offered in the Offering; and (c) receipt of favorable rulings
or opinions of counsel as to the federal and New York tax consequences of the
Reorganization.
The Plan of Reorganization may be substantively amended by the Boards
of Directors of the Association and the Company with the concurrence of the OTS.
If the Plan of Reorganization is amended, proxies which have been received prior
to such amendment will not be resolicited unless otherwise required by the OTS.
Also, as required by the federal regulations, the Plan of Reorganization
provides that the transactions contemplated thereby may be
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terminated by the Board of Directors of the Association alone at any time prior
to the Special Meeting and may be terminated by the Board of Directors of the
Association at any time thereafter with the concurrence of the OTS,
notwithstanding approval of the Plan of Reorganization by the members of the
Association at the Special Meeting. All interpretations by the Association and
the Company of the Plan of Reorganization and of the Stock Order Forms and
related materials for the Offering will be final, except as regards or affects
the OTS.
APPROVAL OF THE CHARITABLE FOUNDATION
ESTABLISHMENT OF THE CHARITABLE FOUNDATION
GENERAL. In furtherance of our commitment to the communities that the
Association serves, the Board of Directors has determined to establish the
Charitable Foundation, which will be incorporated under Delaware law as a
non-stock corporation. The Charitable Foundation will be funded with a
contribution of 2% of the shares of Common Stock to be issued and outstanding
following the Reorganization or 117,682 shares of Common Stock at the mid-point
of the Offering. By further enhancing the Association's visibility and
reputation in the communities that it serves, the Board believes that the
Charitable Foundation will enhance the long-term value of the Association's
community banking franchise. The Charitable Foundation will be dedicated
exclusively to charitable purposes within the communities served by the
Association, including community development activities.
PURPOSE OF THE CHARITABLE FOUNDATION. The purpose of the Charitable
Foundation is to provide funding to support charitable and not-for-profit causes
and community development activities. The Charitable Foundation is being formed
as a complement to the Association's existing community activities, not as a
replacement for such services. While the Association intends to continue to
emphasize community lending and community development activities following the
Reorganization, such activities are not the Association's sole corporate
purpose. The Charitable Foundation, conversely, will be completely dedicated to
community activities and the promotion of charitable and not-for-profit causes,
and may be able to support such activities in ways that are not currently
available to the Association. The Charitable Foundation will enhance the
Association's current activities under the CRA. In this regard, the Board of
Directors of the Association believes the establishment of the Charitable
Foundation is consistent with the Association's commitment to community service.
The Board further believes that the funding of the Charitable Foundation with
Common Stock is a means of enabling the communities served by the Association to
share in the growth and success of the Company long after completion of the
Reorganization. The Charitable Foundation will accomplish that goal by providing
for continued ties between the Charitable Foundation and the Association,
thereby forming a partnership with the Association's community. Charitable
foundations have been formed by other financial institutions for this purpose,
among others. The Association, however, does not expect the contribution to the
Charitable Foundation to take the place of the Association's traditional
community lending activities.
STRUCTURE OF THE CHARITABLE FOUNDATION. The Charitable Foundation will
be incorporated under Delaware law as a non-stock corporation. Pursuant to the
Charitable Foundation's Bylaws, the Charitable Foundation's initial board of
directors will be comprised of two members of the Company's and the
Association's Board of Directors and one person who is unaffiliated with the
Association. Other individuals may be selected as board members (there is no
present intention to expand the board of directors of the Charitable
Foundation). A nominating committee of the Charitable Foundation's Board will
nominate individuals eligible for election to the Board of Directors. The
members of the Charitable Foundation, who are comprised of its Board members,
will elect the directors at the annual meeting of the Charitable Foundation from
those nominated by the nominating committee. Only persons serving as directors
of the Charitable Foundation qualify as members of the Charitable Foundation,
with voting authority. Directors will be elected annually. The certificate of
incorporation of the Charitable Foundation provides that the corporation is
organized exclusively for charitable purposes, including community development,
as set forth in Section 501(c)(3) of the Code. The Charitable Foundation's
certificate of incorporation further provides that no part of the net earnings
of the Charitable Foundation will inure to the benefit of, or be distributable
to its directors, officers or members.
The authority for the affairs of the Charitable Foundation will be
vested in the Board of Directors of the Charitable Foundation. The Directors of
the Charitable Foundation will be responsible for establishing the policies
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of the Charitable Foundation with respect to grants or donations by the
Charitable Foundation, consistent with the purposes for which the Charitable
Foundation was established. Although no formal policy governing Charitable
Foundation grants exists at this time, the Charitable Foundation's Board of
Directors will adopt such a policy upon establishment of the Charitable
Foundation. As directors of a nonprofit corporation, directors of the Charitable
Foundation will at all times be bound by their fiduciary duty to advance the
Charitable Foundation's charitable goals, to protect the assets of the
Charitable Foundation and to act in a manner consistent with the charitable
purpose for which the Charitable Foundation is established. The Directors of the
Charitable Foundation will also be responsible for directing the activities of
the Charitable Foundation, including the management of the Common Stock of the
Company held by the Charitable Foundation. However, it is expected that as a
condition to receiving OTS approved of the Reorganization, that the Charitable
Foundation will be required to commit to the OTS that all shares of Common Stock
held by the Charitable Foundation will be voted in the same ratio as all other
shares of Common Stock on all proposals considered by stockholders of the
Company; provided, however, that, consistent with such expected condition, the
OTS would waive this voting restriction under certain circumstances if
compliance with the voting restriction would: (i) cause a violation of the law
of the State of Delaware and the OTS determines that federal law would not
preempt the application of the laws of Delaware to the Charitable Foundation;
(ii) cause the Charitable Foundation to lose its tax-exempt status, or cause the
Internal Revenue Service to deny the Charitable Foundation's request for a
determination that it is an exempt organization or otherwise have a material and
adverse tax consequence on the Charitable Foundation; or (iii) cause the
Charitable Foundation to be subject to an excise tax under Section 4941 of the
Code. In order for the OTS to waive such voting restriction, the Company's or
the Charitable Foundation's legal counsel would be required to render an opinion
satisfactory to the OTS that compliance with the voting requirement would have
the effect described in clauses (i), (ii) or (iii) above. Under those
circumstances, the OTS would grant a waiver of the voting restriction upon
submission of such legal opinion(s) by the Company or the Charitable Foundation
that are satisfactory to the OTS. In the event that the OTS were to waive the
voting requirement, the directors would direct the voting of the Common Stock
held by the Charitable Foundation.
The Charitable Foundation's place of business will be located at the
Association's main office and initially the Charitable Foundation is expected to
have no employees but will utilize the members of the staff of the Company. The
Board of Directors of the Charitable Foundation will appoint such officers as
may be necessary to manage the operations of the Charitable Foundation. In this
regard, it is expected that the Association will be required to provide the OTS
with a commitment that, to the extent applicable, the Association will comply
with the affiliate restrictions set forth in Sections 23A and 23B of the Federal
Reserve Act with respect to any transactions between the Association and the
Charitable Foundation.
The Company and the Association determined to fund the Charitable
Foundation with Common Stock rather than cash because Common Stock will provide
the Charitable Foundation with a potentially larger endowment if the Common
Stock appreciates in value. The contribution of Common Stock to the Charitable
Foundation may reduce the amount of cash that the Company would have to
contribute to the Charitable Foundation in future years in order to maintain a
level amount of charitable grants and donations.
The Charitable Foundation will receive working capital from any
dividends that may be paid on the Common Stock from loans collateralized by the
Common Stock subject to applicable federal and state laws or from the proceeds
of the sale of any of the Common Stock in the open market from time to time. As
a private Charitable Foundation under Section 501(c)(3) of the Code, the
Charitable Foundation will be required to distribute annually in grants or
donations, a minimum of 5% of the average fair market value of its net
investment assets.
IMPACT ON EARNINGS. The contribution of Common Stock to the Charitable
Foundation will have an adverse impact on the Company's earnings in the year in
which the contribution is made. The Company will recognize the full expense in
the amount of the contribution of common stock to the Charitable Foundation in
the quarter in which the contribution occurs, which is expected to be the
quarter ended December 31, 1998. The contribution expense will be partially
offset by the tax benefit related to the expense. We have been advised that the
contribution to the Charitable Foundation will be tax deductible, subject to an
annual limitation based on 10% of the Company's annual taxable income. The
Association estimates that there will be a net after tax expense of $________.
If the Charitable Foundation had been established at March 31, 1998, the
Association would have reported net income of $________,
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rather than reporting net income of $_____ for the year ended March 31, 1998.
The Association and the Company do not currently anticipate making additional
contributions to the Charitable Foundation within the first five years following
the initial contribution.
TAX CONSIDERATIONS. The Association has been advised that an
organization created and operated for the above charitable purposes would
general qualify as a Section 501(c)(3) exempt organization under the Code, and
further that such an organization would likely be classified as a private
foundation. This opinion presumes that the Charitable Foundation will submit a
timely request to the IRS to be recognized as an exempt organization. As long as
the Charitable Foundation files its application for recognition of tax-exempt
status within 15 months from the date of its organization, and provided the IRS
approves the application, the effective date of the Charitable Foundation's
status as a Section 501(c)(3) organization will be the date of its organization.
The Association's tax advisor, however, has not rendered any advice on the
condition to the contribution to be agreed to by the Charitable Foundation which
requires that all shares of Common Stock of the Company held by the Charitable
Foundation must be voted in the same ratio as all other outstanding shares of
Common Stock on all proposals considered by stockholders of the Company.
Consistent with the expected condition, in the event that the Company or the
Charitable Foundation receives an opinion of its legal counsel that compliance
with this voting restriction would have the effect of causing the Charitable
Foundation to lose its tax-exempt status or otherwise have a material and
adverse tax consequence on the Charitable Foundation, or subject the Charitable
Foundation to an excise tax under Section 4941 of the Code, it is expected that
the OTS would waive such voting restriction upon submission of a legal
opinion(s) by the Company or the Charitable Foundation satisfactory to the OTS.
Under the Code, the Company is generally allowed a deduction for
charitable contributions made to qualifying donees within the taxable year of up
to 10% of its taxable income (with certain modifications) for such year.
Charitable contributions made by the Company in excess of the annual deductible
amount will be deductible over each of the five succeeding taxable years,
subject to certain limitations. The Board of Directors believes that the
Reorganization presents a unique opportunity to establish and fund a Charitable
Foundation given the substantial amount of additional capital being raised in
the Offering. In making such a determination, the Board of Directors considered
the impact on earnings of the contribution of Common Stock to the Charitable
Foundation. Based on such consideration, the Company and the Association believe
that the contribution to the Charitable Foundation in excess of the 10% annual
deduction limitation is justified given the Association's capital position and
its earnings, the substantial additional capital being raised in the Offering
and the potential benefits of the Charitable Foundation to the communities
served by the Association. In this regard, and assuming the sale of the Common
Stock at the midpoint of the Estimated Valuation Range, the Company would have
pro forma stockholders' equity of $54.6 million or 19.68% of pro forma
consolidated assets and the Association's pro forma tangible, core and total
risk-based capital ratios would be 15.65%, 15.65% and 42.72%, respectively. See
"Pro Forma Data--Historical and Pro Forma Regulatory Capital Compliance," and
"Capitalization," in the Prospectus. Thus, the amount of the contribution will
not adversely impact the Association's financial condition and management
believes that the amount of the charitable contribution is reasonable given the
Association's pro forma capital positions. As such, management believes that the
contribution does not raise safety and soundness concerns.
The Association has received an opinion of its tax advisors that the
Company's contribution of its own stock to the Charitable Foundation would not
constitute an act of self-dealing, and that the Company will be entitled to a
deduction in the amount of the fair market value of the stock at the time of the
contribution, subject to the annual deduction limitation described above. The
Company, however, would be able to carry forward any unused portion of the
deduction for five years following the contribution, subject to certain
limitations. The Association's tax advisor, however, has not rendered advice as
to fair market value for purposes of determining the amount of the tax
deduction. If the Charitable Foundation would have been established in the year
ended March 31, 1998, the Company would have received a current tax benefit of
approximately $________ (based on the Association's taxable income for that
period). The Association is permitted under the Code to carry over the excess
contribution over the five-year period following the contribution to the
Charitable Foundation. The Association estimates that all of the contribution
should be deductible over the six-year period. Neither the Company nor the
Association expect to make any further contributions to the Charitable
Foundation within the first five years following the initial contribution. After
that time, the Association and the Company may consider future contributions to
the Charitable Foundation. Any such decisions
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would be based on an assessment of, among other factors, our financial
condition, the interests of stockholders of the Company, and the financial
condition and operations of the Charitable Foundation.
Although the Association has received an opinion that the Company will
be entitled to a deduction for the charitable contribution, there can be no
assurances that the IRS will recognize the Charitable Foundation as a Section
501(c)(3) exempt organization or that a deduction for the charitable
contribution will be allowed. In such event, the tax benefit related to the
contribution to the Charitable Foundation would be expensed without tax benefit,
resulting in a reduction in earnings in the year in which the IRS makes such a
determination.
The Charitable Foundation will be required to make an annual filing
with the IRS within four and one-half months after the close of the Charitable
Foundation's fiscal year to maintain its tax-exempt status. The Charitable
Foundation will be required to publish a notice that the annual information
return will be available for public inspection for a period of 180 days after
the date of such public notice. The information return for a private foundation
must include, among other things, an itemized list of all grants made or
approved, showing the amount of each grant, the recipient, any relationship
between a grant recipient and the Charitable Foundation's managers and a concise
statement of the purpose of each grant.
COMPARISON OF VALUATION AND OTHER FACTORS ASSUMING THE CHARITABLE
FOUNDATION IS NOT ESTABLISHED AS PART OF THE REORGANIZATION. The establishment
of the Charitable Foundation was taken into account by FinPro in determining the
estimated pro forma market value of the Common Stock. The aggregate price of the
shares of Common Stock being offered in the Offering is based upon the
independent appraisal conducted by FinPro of the estimated pro forma market
value of the Common Stock. The pro forma aggregate price of the Common Stock
being offered for sale in the Offering is currently estimated to be between
$22.5 million and $35.1 million, with a midpoint of $26.5 million. The pro forma
price to book ratio and the pro forma price to earnings ratio, at and for the
year ended March 31, 1998, are 107.87% and 16.67x, respectively, at the midpoint
of the Estimated Valuation Range. In the event that the Reorganization did not
include the Charitable Foundation, FinPro has estimated that the estimated pro
forma market value of the Common Stock being offered for sale in the Offering
would be $27.7 million at the midpoint based on a pro forma price to book ratio
and the pro forma price to earnings ratio that of 111.23% and 17.24x,
respectively. The amount of Common Stock being offered for sale in the Offering
at the midpoint of the Estimated Valuation Range is approximately $1.2 million
less than the estimated amount of Common Stock that would be sold in the
Offering without the Charitable Foundation based on the estimate provided by
FinPro. Accordingly, persons who subscribe to purchase Common Stock in the
Offering would receive fewer shares depending on the size of a subscriber's
stock order and the amount of his or her qualifying deposits in the Association
and the overall level of subscriptions. See "Comparison of Valuation and Pro
Forma Information Without Charitable Foundation" in the Prospectus. This
estimate by FinPro was prepared solely for purposes of providing subscribers
with information with which to make an informed decision on the Reorganization
and Offering.
The decrease in the amount of Common Stock being offered for sale as a
result of the contribution of Common Stock to the Charitable Foundation will not
have a significant effect on the Company or the Association's capital position.
The Association's regulatory capital is significantly in excess of its
regulatory capital requirements and will further exceed such requirements
following the Reorganization. The Association's leverage and risk-based capital
ratios at March 31, 1998 were 12.5% and 34.9%, respectively. Assuming the sale
of shares at the midpoint of the Estimated Valuation Range, the Bank's pro forma
leverage and risk-based capital ratios at March 31, 1998 would be 15.65% and
42.72%, respectively. On a consolidated basis, the Company's pro forma
stockholders' equity would be $54.6 million, or approximately 19.68% of pro
forma consolidated assets, assuming the sale of shares at the midpoint of the
Estimated Price Range. Pro forma stockholders' equity per share and pro forma
net income per share would be $_______ and $_______, respectively. If the
Charitable Foundation was not being established in the Reorganization, based on
the FinPro estimate, the Company's pro forma stockholders' equity would be
approximately $55.3 million, or approximately 19.88% of pro forma consolidated
assets at the midpoint of the estimated value, and pro forma stockholder's
equity per share and pro forma net income per share would be higher with the
Charitable Foundation as without the establishment of the Charitable Foundation.
See "Comparison of Valuation and Pro Forma Information Without Charitable
Foundation" in the Prospectus.
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REGULATORY CONDITIONS IMPOSED ON THE CHARITABLE FOUNDATION.
Establishment of the Charitable Foundation is expected to be subject to the
following conditions being agreed to by the Charitable Foundation in writing as
a condition to receiving OTS approval of the Reorganization and Offering: (i)
the Charitable Foundation will be subject to examination by the OTS; (ii) the
Charitable Foundation must comply with supervisory directives imposed by the
OTS; (iii) the Charitable Foundation will operate in accordance with written
policies adopted by its board of directors, including a conflict of interest
policy; (iv) any shares of Common Stock held by the Charitable Foundation must
be voted in the same ratio as all other outstanding shares of Common Stock on
all proposals considered by stockholders of the Company; provided, however,
that, consistent with the condition, the OTS may waive this voting restriction
under certain circumstances if compliance with the voting restriction would: (a)
cause a violation of the law of the State of Delaware and the OTS determines
that federal law would not preempt the application of the laws of Delaware to
the Charitable Foundation; (b) would cause the Charitable Foundation to lose its
tax-exempt status or otherwise have a material and adverse tax consequence on
the Charitable Foundation; or (c) would cause the Charitable Foundation to be
subject to an excise tax under Section 4941 of the Code; and (v) any shares of
Common Stock subsequently purchased by the Charitable Foundation will be
aggregated with any shares repurchased by the Company or the Association for
purposes of calculating the number of shares which may be repurchased during the
three-year period subsequent to the Reorganization. In order for the OTS to
waive such voting restriction, the Company's or the Charitable Foundation's
legal counsel would be required to render an opinion satisfactory to the OTS.
While there is no current intention for the Company or the Charitable Foundation
to seek a waiver from the OTS from such restrictions, there can be no assurances
that a legal opinion addressing these issues could be rendered, or if rendered,
that the OTS would grant an unconditional waiver of the voting restriction. In
no event would the voting restriction survive the sale of shares of the Common
Stock held by the Charitable Foundation.
Various OTS regulations may be deemed to apply to the Charitable
Foundation including regulations regarding (i) transactions with affiliates,
(ii) conflicts of interest, (iii) capital distributions and (iv) repurchases of
capital stock within the three-year period subsequent to a mutual-to-stock
conversion. Because only two of the eight directors of the Company and the
Association are expected to serve as directors of the Charitable Foundation, the
Company and the Association do not believe that the Charitable Foundation should
be deemed an affiliate of the Association. The Company and the Association
anticipate that the Charitable Foundation's affairs will be conducted in a
manner consistent with the OTS' conflict of interest regulations. The
Association has provided information to the OTS demonstrating that the initial
contribution of common stock to the Charitable Foundation would be within the
amount which the Association would be permitted to make as a capital
distribution assuming such contribution is deemed to have been made by the
Association.
POTENTIAL CHALLENGES. To date, there has been limited precedent with
respect to the establishment and funding of a foundation as part of the
reorganization of a mutual savings institution to stock form. In addition,
establishment and funding of the Charitable Foundation will require the OTS to
grant the Association and the Company waivers from its mutual-to-stock
conversion regulations and mutual holding company regulations. As such, the
Charitable Foundation and the OTS's non-objection to the Reorganization may be
subject to potential challenges with respect to, among other things, the
Company's and the Association's ability to establish the Charitable Foundation,
notwithstanding that the Board of Directors have carefully considered the
various factors involved in the establishment of the Charitable Foundation in
reaching its determination to establish the Charitable Foundation as part of the
Reorganization, and/or with respect to the OTS' authority to grant the waivers
necessary to establish the Charitable Foundation. If challenges were to be
instituted seeking management to terminate the establishment of the Charitable
Foundation no assurances could be made that the resolution of such challenges
would not result in a delay in the consummation of the Reorganization or that
any objecting persons would not be ultimately successful in obtaining such
relief.
APPROVAL OF MEMBERS. Establishment of the Charitable Foundation is
subject to the approval of a majority of the total outstanding votes of the
Association's members eligible to be cast at the Special Meeting. The Charitable
Foundation will be considered as a separate matter from approval of the Plan. If
the members approve the Plan, but not the establishment of the Charitable
Foundation, the Association intends to complete the Reorganization without
establishing of the Charitable Foundation. Failure to approve the Charitable
Foundation may materially increase the pro forma market value of the Common
Stock being offered for sale in the Offering because the Estimated Valuation
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Range takes into account the proposed contribution to the Charitable Foundation.
If the pro forma market value of the Company without the Charitable Foundation
is either greater than $67.7 million or less than $50.1 million, or if the OTS
otherwise requires a resolicitation of subscribers, the Association will
establish a new Estimated Valuation Range and resolicit subscribers (i.e.,
subscribers will be permitted to continue their orders, in which case they will
need to affirmatively reconfirm their subscriptions prior to the expiration of
the resolicitation offering or their subscription funds will be promptly
refunded with interest). Any change in the Estimated Valuation Range must be
approved by the OTS. See "--Stock Pricing and Number of Shares to be Issued."
Further, if the Mutual Holding Company were to undertake a Conversion
Transaction, and in connection with such a transaction additional shares of
stock of the Company or its successor were contributed to the Charitable
Foundation, such contribution of additional shares of Common Stock to the
Charitable Foundation would be voted on as a separate matters and would require
the approval of: (i) a majority of the total outstanding vote of the members of
the Mutual Holding Company eligible to be cast; and (ii) a majority vote of the
total outstanding shares of Common Stock held by stockholders other than the
Mutual Holding Company and the Charitable Foundation.
JUDICIAL REVIEW
Section 5(i)(2)(B) of the Home Owners' Loan Act, as amended, 12 U.S.C.
Section 1464(i)(2)(B) and Section 563b.8(u) of the Rules and Regulations
promulgated thereunder (12 C.F.R. Section 563b.8(u)) provide: (i) that persons
aggrieved by a final action of the OTS which approves, with or without
conditions, or disapproves a plan of reorganization, may obtain review of such
final action only by filing a written petition in the United States Court of
Appeals for the circuit in which the principal office or residence of such
person is located, or in the United States Court of Appeals for the District of
Columbia, requesting that the final action of the OTS be modified, terminated or
set aside, and (ii) that such petition must be filed within 30 days after
publication of notice of such final action in the Federal Register, or 30 days
after the date of mailing of the notice and proxy statement for the meeting of
the converting institution's members at which the conversion is to be voted on,
whichever is later. The notice of the Special Meeting of the Bank's members to
vote on the Plan of Reorganization described herein is included at the beginning
of this Proxy Statement. The statute and regulation referred to above should be
consulted for further information.
ADDITIONAL INFORMATION
The information contained in the accompanying Prospectus, including a
more detailed description of the Plan of Reorganization, financial statements of
the Association and a description of the capitalization and business of the
Association and the Company, including the Association's directors and executive
officers and their compensation, the anticipated use of the net proceeds from
the sale of the Common Stock, the establishment of the Charitable Foundation and
a description of the Common Stock, is intended to help you evaluate the
Reorganization and is incorporated herein by this reference.
YOUR VOTE IS VERY IMPORTANT TO US. PLEASE TAKE A MOMENT NOW TO COMPLETE
AND RETURN YOUR PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED. YOU MAY STILL
ATTEND THE SPECIAL MEETING AND VOTE IN PERSON EVEN THOUGH YOU HAVE VOTED YOUR
PROXY. FAILURE TO SUBMIT A PROXY WILL HAVE THE SAME EFFECT AS VOTING AGAINST THE
REORGANIZATION AND THE ESTABLISHMENT OF THE CHARITABLE FOUNDATION.
If you have any questions, please call our Stock Conversion Center at
(914) _______.
IMPORTANT: YOU MAY BE ENTITLED TO VOTE IN MORE THAN ONE CAPACITY.
PLEASE SIGN, DATE AND PROMPTLY RETURN EACH PROXY CARD YOU RECEIVE.
-------------------
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS.
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REVOCABLE PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
SOUND FEDERAL SAVINGS AND LOAN ASSOCIATION
FOR A SPECIAL MEETING OF MEMBERS
TO BE HELD ON ___________, 1998
The undersigned member of Sound Federal Savings and Loan Association
(the "Association"), hereby appoints the full Board of Directors, with full
powers of substitution, as attorneys-in-fact and agents for and in the name of
the undersigned, to vote such votes as the undersigned may be entitled to vote
at the Special Meeting of Members of the Association, to be held at the main
office of the Association, located at ___________________________________ on
_________________, at ______ .m., local time, and at any and all adjournments
thereof. They are authorized to cast all votes to which the undersigned is
entitled as follows:
FOR AGAINST
--- -------
1. A Plan of Reorganization from Mutual Savings / / / /
Association to Mutual Holding Company and
Stock Issuance Plan providing for the
reorganization of the Association into the
mutual holding company structure. As part of
the Plan the Association will convert to a
federally chartered stock savings association,
which will be wholly-owned by Sound Federal
Bancorp (the "Company") a to be formed federal
corporation. Pursuant to the Plan, the Company
will (i) issue 53% of its to-be-outstanding
shares of common stock to Sound Federal, MHC,
a federal mutual holding company to be formed
pursuant to the Plan, (ii) offer for sale to
certain depositors and borrowers 45% of its
to-be-outstanding shares of common stock, and
(iii) subject to the receipt of member
approval, contribute 2% of its
to-be-outstanding shares of Common Stock to
the Sound Federal Savings and Loan Association
Charitable Foundation;
FOR AGAINST
--- -------
2. The establishment of a tax exempt foundation, / / / /
which will be a Delaware chartered non-stock
corporation dedicated to the promotion of
charitable purposes within the Association's
market area; and
3. Such other matters as may properly come before
the Special Meeting.
NOTE: The Board of Directors is not aware of any
other matter that may come before the
Special Meeting of Members.
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THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE PROPOSITIONS STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT THE MEETING, THIS PROXY WILL BE VOTED BY A MAJORITY OF THE BOARD OF
DIRECTORS IN THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS
KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
- --------------------------------------------------------------------------------
Votes will be cast in accordance with the Proxy. Should the undersigned
be present and elect to vote at the Special Meeting or at any adjournment
thereof and after notification to the Secretary of the Association at said
Meeting
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of the member's decision to terminate this Proxy, then the power of said
attorney-in-fact or agents shall be deemed terminated and of no further force
and effect.
The undersigned acknowledges receipt of a Notice of Special Meeting of
Members and a Proxy Statement dated _____________, 1998, prior to the execution
of this Proxy.
____________________________________
Date
____________________________________
Signature
NOTE: Only one signature is required
in the case of a joint account.
________________________________________________________________________________
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN
THE ENCLOSED ENVELOPE.
________________________________________________________________________________