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EXHIBIT 8.1
[LUSE LEHMAN GORMAN POMERENK & SCHICK LETTERHEAD]
WRITER'S DIRECT DIAL NUMBER
June 18, 1998
Board of Directors
Sound Federal Savings and Loan Association
300 Mamaroneck Avenue
Mamaroneck, New York 10543-2647
RE: MUTUAL HOLDING COMPANY FORMATION AND STOCK ISSUANCE
Gentlemen:
We have been requested as special counsel to Sound Federal Savings and
Loan Association ("Association") to express our opinion concerning the Federal
income tax consequences relating to the proposed conversion of the Association
from a federally chartered mutual savings and loan association to a federally
chartered stock savings and loan association ("Stock Association") and the
formation of Sound Federal, MHC, a federal mutual holding company ("Mutual
Holding Company") which will acquire the outstanding stock of Stock Association
and subsequently contribute Stock Association's stock to Sound Federal Bancorp
("Stock Holding Company").
In connection therewith, we have examined the Plan of Reorganization (as
defined below) and certain other documents of or relating to the Reorganization
(as defined below), some of which are described or referred to in the Plan of
Reorganization and which we deemed necessary to examine in order to issue the
opinions set forth below. Unless otherwise defined, all terms used herein have
the meanings given to such terms in the Plan of Reorganization.
In our examination, we have assumed the authenticity of original
documents, the accuracy of copies and the genuineness of signatures. We have
further assumed the absence of adverse facts not apparent from the face of the
instruments and documents we examined.
In issuing our opinions, we have assumed that the Plan of Reorganization
has been duly and validly authorized and has been approved and adopted by the
board of directors of the Association at a meeting duly called and held; that
the Association will comply with the terms and conditions of the Plan of
Reorganization, and that the various representations and warranties which are
provided to us are accurate, complete, true and correct. Accordingly, we express
no opinion concerning the effect, if any, of variations from the foregoing. We
specifically express no opinion concerning tax matters relating to the Plan of
Reorganization under state and local tax laws and under Federal income tax laws
except on the basis of the documents and assumptions described above.
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LUSE LEHMAN GORMAN POMERENK & SCHICK
A PROFESSIONAL CORPORATION
Board of Directors
Sound Federal Savings and Loan Association
June 18, 1998
Page 2
For purposes of this opinion, we are relying on the representations
provided to us by the Association, which are incorporated herein by reference.
In issuing the opinions set forth below, we have referred solely to
existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed Treasury Regulations thereunder, current
administrative rulings, notices and procedures and court decisions. Such laws,
regulations, administrative rulings, notices and procedures and court decisions
are subject to change at any time. Any such change could affect the continuing
validity of the opinions set forth below. This opinion is as of the date hereof,
and we disclaim any obligation to advise you of any change in any matter
considered herein after the date hereof.
In rendering our opinions, we have assumed that the persons and entities
identified in the Plan of Reorganization will at all times comply with the
requirements of Code sections 368 and 351, the other applicable state and
Federal laws and the representations of the Association. In addition, we have
assumed that the activities of the persons and entities identified in the Plan
of Reorganization will be conducted strictly in accordance with the Plan of
Reorganization. Any variations may affect the opinions we are rendering.
We emphasize that the outcome of litigation cannot be predicted with
certainty and, although we have attempted in good faith to opine as to the
probable outcome of the merits of each tax issue with respect to which an
opinion was requested, there can be no assurance that our conclusions are
correct or that they would be adopted by the IRS or a court.
SUMMARY OF OPINIONS
Based on the facts, representations and assumptions set forth herein, we
are of the opinion that:
WITH RESPECT TO THE EXCHANGE OF THE ASSOCIATION'S CHARTER FOR A STOCK
CHARTER ("ASSOCIATION CONVERSION"):
1. Association's exchange of its charter for a federal stock savings
association charter is a mere change in identity and form and therefore
qualifies as a reorganization within the meaning of Section 368(a)(1)(F) of the
Internal Revenue Code ("Code").
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LUSE LEHMAN GORMAN POMERENK & SCHICK
A PROFESSIONAL CORPORATION
Board of Directors
Sound Federal Savings and Loan Association
June 18, 1998
Page 3
2. No gain or loss will be recognized by Association upon the transfer
of its assets to Stock Association solely in exchange for shares of Stock
Association stock and the assumption by Stock Association of the liabilities of
Association. (Code Sections 361(a) and 357(a)).
3. No gain or loss will be recognized by Stock Association upon the
receipt of the assets of Association in exchange for shares of Stock Association
common stock. (Code Section 1032(a)).
4. Stock Association's holding period in the assets received from
Association will include the period during which such assets were held by the
Association. (Code Section 1223(2)).
5. Stock Association's basis in the assets of Association will be the
same as the basis of such assets in the hands of Association immediately prior
to the proposed transaction. (Code Section 362(b)).
6. Association members will recognize no gain or loss upon the
constructive receipt of Stock Association common stock solely in exchange for
their membership interests in Association. (Code Section 354(a)(1)).
7. The basis of the Stock Association common stock to be constructively
received by the Association's members (which basis is -0-) will be the same as
their basis in their membership interests in the Association surrendered in
exchange therefor. (Code Section 358(a)(1)).
8. The holding period of the Stock Association common stock
constructively received by the members of the Association will include the
period during which the Association members held their membership interests,
provided that the membership interests were held as capital assets on the date
of the exchange. (Code Section 1223(1)).
9. The Stock Association will succeed to and take into account the
Association's earnings and profits or deficit in earnings and profits, as of the
date of the proposed transaction. (Code Section 381).
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LUSE LEHMAN GORMAN POMERENK & SCHICK
A PROFESSIONAL CORPORATION
Board of Directors
Sound Federal Savings and Loan Association
June 18, 1998
Page 4
WITH RESPECT TO THE TRANSFER OF STOCK ASSOCIATION STOCK TO MUTUAL HOLDING
COMPANY FOR MEMBERSHIP INTERESTS (THE "351 TRANSACTION"):
10. The exchange of stock by the Stock Association stockholders in
exchange for membership interests in the Mutual Holding Company will constitute
a tax-free exchange of property solely for "stock" pursuant to Section 351 of
the Internal Revenue Code.
11. Stock Association's stockholders will recognize no gain or loss
upon the transfer of the Stock Association stock they constructively received in
the Association conversion to the Mutual Holding Company solely in exchange for
membership interests in the Mutual Holding Company. (Code Section 351).
12. Stock Association stockholder's basis in the Mutual Holding Company
membership interests received in the transaction (which basis is -0-) will be
the same as the basis of the property transferred in exchange therefor, reduced
by the sum of the liabilities assumed by Mutual Holding Company or to which
assets transferred are taken subject. (Code Section 358(a)(1)).
13. Stock Association stockholder's holding period for the membership
interests in Mutual Holding Company received in the transaction will include the
period during which the property exchanged was held by Stock Association
stockholders, provided that such property was a capital asset on the date of the
exchange. (Code Section 1223(1)).
14. Mutual Holding Company will recognize no gain or loss upon the
receipt of property from Stock Association stockholders in exchange for
membership interests in the Mutual Holding Company. (Code Section 1032(a)).
15. Mutual Holding Company's basis in the property received from Stock
Association stockholders (which basis is -0-) will be the same as the basis of
such property in the hands of Stock Association stockholders immediately prior
to the transaction. (Code Section 362(a)).
16. Mutual Holding Company's holding period for the property received
from Stock Association's stockholders will include the period during which such
property was held by Stock Association stockholders. (Code Section 1223(2)).
17. Stock Association depositors will recognize no gain or loss solely
by reason of the transaction.
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LUSE LEHMAN GORMAN POMERENK & SCHICK
A PROFESSIONAL CORPORATION
Board of Directors
Sound Federal Savings and Loan Association
June 18, 1998
Page 5
WITH RESPECT TO THE TRANSFERS TO THE STOCK HOLDING COMPANY IN EXCHANGE FOR
COMMON STOCK IN THE STOCK HOLDING COMPANY
18. The Mutual Holding Company and the persons who purchased Common
Stock of the Stock Holding Company in the Subscription and Community Offering
("Minority Stockholders") will recognize no gain or loss upon the transfer of
Stock Association stock and cash, respectively, to the Stock Holding Company in
exchange for stock in the Stock Holding Company. Code Sections 351(a).
19. Stock Holding Company will recognize no gain or loss on its receipt
of Stock Association stock and cash in exchange for Stock Holding Company Stock.
(Code Section 1032(a)).
20. The basis of the Stock Holding Company Common Stock to the Minority
Stockholders will be the actual purchase price thereof, and a shareholders
holding period for Common Stock acquired through the exercise of subscription
rights will begin on the date the rights are exercised.
PROPOSED TRANSACTION
On May 13, 1998, the board of directors of the Association adopted that
certain Plan of Reorganization From Mutual Savings Association to Mutual Holding
Company and Stock Issuance Plan (the "Plan of Reorganization"). For what are
represented to be valid business purposes, the Association's board of directors
has decided to convert to a mutual holding company structure pursuant to
statutes. The following steps are proposed:
(i) The Association will organize an interim stock savings association
(Interim One) as its wholly-owned subsidiary;
(ii) Interim One will organize a federal mid-tier holding company as its
wholly-owned subsidiary (Stock Holding Company); and
(iii) Interim One will also organize another interim stock savings
association as its wholly-owned subsidiary (Interim Two).
The following transactions will occur simultaneously:
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LUSE LEHMAN GORMAN POMERENK & SCHICK
A PROFESSIONAL CORPORATION
Board of Directors
Sound Federal Savings and Loan Association
June 18, 1998
Page 6
(iv) The Association will exchange its charter for a federal stock
savings association charter and become a stock savings association
that will constructively issue its common stock to members of the
Association;
(v) Interim One will cancel its outstanding stock and exchange its
charter for a federal mutual holding company charter and thereby
become the Mutual Holding Company;
(vi) Interim Two will merge with and into the Association with the
Association as the surviving entity, the former members of the
Association who constructively hold stock in the Association will
exchange their stock in the Association for membership interests in
the Mutual Holding Company; and
(vii) The Mutual Holding Company will contribute the Association's stock
to the Stock Holding Company, a wholly-owned subsidiary of the
Mutual Holding Company for additional shares of Association stock.
(viii) Contemporaneously, with the contribution set forth in "(vii)" the
Stock Holding Company will offer to sell up to 49.9% of its Common
Stock in the Subscription Offering and, if applicable, the
Community Offering.
These transactions are referred to herein collectively as the
"Reorganization."
Those persons who, as of the date of the Association Conversion (the
"Effective Date"), hold depository rights with respect to the Association will
thereafter have such rights solely with respect to the Stock Association. Each
deposit account with the Association at the time of the exchange will become a
deposit account in the Stock Association in the same amount and upon the same
terms and conditions. Following the completion of the Reorganization, all
depositors and borrowers who had membership rights with respect to the
Association immediately prior to the Reorganization will continue to have such
rights solely with respect to the Mutual Holding Company so long as they
continue to hold deposit accounts or borrowings with the Stock Association. All
new depositors of the Stock Association after the completion of the
Reorganization will have ownership rights solely with respect to the Mutual
Holding Company so long as they continue to hold deposit accounts with the Stock
Association.
The shares of Interim Two common stock owned by the Mutual Holding Company
prior to the Reorganization shall be converted into and become shares of common
stock of the Stock
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LUSE LEHMAN GORMAN POMERENK & SCHICK
A PROFESSIONAL CORPORATION
Board of Directors
Sound Federal Savings and Loan Association
June 18, 1998
Page 7
Association on the Effective Date. The shares of Stock Association common stock
constructively received by the Stock Association stockholders (formerly the
members holding liquidation rights of the Association) will be transferred to
the Mutual Holding Company by such persons in exchange for liquidation rights in
the Mutual Holding Company.
The Stock Holding Company will have the power to issue shares of capital
stock (including common and preferred stock) to persons other than the Mutual
Holding Company. So long as the Mutual Holding Company is in existence, however,
it must own a majority of the voting stock of Stock Holding Company. Stock
Holding Company may issue any amount of non-voting stock to persons other than
Mutual Holding Company. No such non-voting stock will be issued as of the date
of the Reorganization.
* * *
The opinions set forth above represent our conclusions as to the
application of existing Federal income tax law to the facts of the instant
transaction, and we can give no assurance that changes in such law, or in the
interpretation thereof, will not affect the opinions expressed by us. Moreover,
there can be no assurance that contrary positions may not be taken by the IRS,
or that a court considering the issues would not hold contrary to such opinions.
All of the opinions set forth above are qualified to the extent that the
validity of any provision of any agreement may be subject to or affected by
applicable Associationruptcy, insolvency, reorganization, moratorium or similar
laws affecting the rights of creditors generally. We do not express any opinion
as to the availability of any equitable or specific remedy upon any breach of
any of the covenants, warranties or other provisions contained in any agreement.
We have not examined, and we express no opinion with respect to the
applicability of, or liability under, any Federal, state or local law,
ordinance, or regulation governing or pertaining to environmental matters,
hazardous wastes, toxic substances, asbestos, or the like.
It is expressly understood that the opinions set forth above represent our
conclusions based upon the documents reviewed by us and the facts presented to
us. Any material amendments to such documents or changes in any significant fact
would affect the opinions expressed herein.
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LUSE LEHMAN GORMAN POMERENK & SCHICK
A PROFESSIONAL CORPORATION
Board of Directors
Sound Federal Savings and Loan Association
June 18, 1998
Page 8
We have not been asked to, and we do not, render any opinion with respect
to any matters other than those expressly set forth above.
We hereby consent to the filing of the opinion as an exhibit to the
Association's combined Form MHC-1/MHC-2 Notice of Mutual Holding Company
Reorganization and Application for Approval of a Minority Stock Issuance by a
Subsidiary of Mutual Holding Company as filed with the OTS and to the Stock
Holding Company's Registration Statement on Form SB-1 as filed with the SEC. We
also consent to the references to our firm in the Prospectus contained in the
Forms MHC-1/MHC-2 and SB-1 under the captions "The Reorganization and Offering -
Tax Effects of the Reorganization" and "Legal and Tax Matters," and to the
summarization of our opinion in such Prospectus.
Very truly yours,
/s/ LUSE LEHMAN GORMAN POMERENK & SCHICK
LUSE LEHMAN GORMAN POMERENK & SCHICK
A Professional Corporation