PROSPECTUS SUPPLEMENT
Interests in
SOUND FEDERAL SAVINGS AND LOAN ASSOCIATION
401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST
and
Offering of Up to 230,281 Shares of
SOUND FEDERAL BANCORP
Common Stock
Sound Federal Bancorp is providing this prospectus supplement to
participants in the Sound Federal Savings and Loan Association 401(k) Savings
Plan in RSI Retirement Trust (the "Plan"). As a participant in this Plan, you
may direct the trustee of the Plan to purchase common stock of Sound Federal
Bancorp in its common stock offering, by transferring amounts currently
allocated to your account under the Plan to the Employer Stock Fund (other than
amounts you presently have invested in the Employer Stock Fund). If you cannot
acquire all the common stock you want in the offering due to an
oversubscription, the trustee will apply the amounts which were not used to
acquire common stock among the funds in which your Plan account is invested in
proportion to your current investment allocation percentages for new
contributions.
The prospectus of Sound Federal Bancorp, dated ___________ [ ], 2002,
which is attached to this prospectus supplement, includes detailed information
regarding the offering and the financial condition, results of operations and
business of Sound Federal Bancorp. You should read this prospectus supplement,
which provides information with respect to the Plan, together with the
prospectus.
--------------------------------
FOR A DISCUSSION OF RISKS THAT YOU SHOULD CONSIDER BEFORE MAKING AN
INVESTMENT DECISION, SEE "RISK FACTORS" BEGINNING ON PAGE __ OF THE PROSPECTUS.
The interests in the Plan and the offering of the common stock have not
been approved or disapproved by the Office of Thrift Supervision, the Securities
and Exchange Commission or any other Federal or state agency. Any representation
to the contrary is a criminal offense.
The securities offered in this prospectus supplement are not deposits or
accounts and are not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other Government agency.
This prospectus supplement may be used only in connection with offers and
sales by Sound Federal Bancorp of interests or shares of common stock pursuant
to the Plan. No one may use this prospectus supplement to reoffer or resell
interests or shares of common stock acquired through the Plan.
You should rely only on the information contained in this prospectus
supplement and the attached prospectus. Sound Federal Bancorp, Sound Federal
Savings and Loan Association and the Plan have not authorized anyone to provide
you with information that is different.
This prospectus supplement does not constitute an offer to sell or
solicitation of an offer to buy any securities in any jurisdiction to any person
to whom it is unlawful to make an offer or solicitation in that jurisdiction.
Neither the delivery of this prospectus supplement and the prospectus nor any
sale of common stock shall under any circumstances imply that there has been no
change in the affairs of Sound Federal Bancorp, Sound Federal Savings and Loan
Association or the Plan since the date of this prospectus supplement, or that
the information contained in this prospectus supplement or incorporated by
reference is correct as of any time after the date of this prospectus
supplement.
The date of this prospectus supplement is ________[ ], 2002.
TABLE OF CONTENTS
THE OFFERING..............................................................................i
SECURITIES OFFERED.....................................................................i
ELECTION TO PURCHASE COMMON STOCK IN THE OFFERING: PRIORITIES..........................i
VALUE OF THE PLAN ASSETS..............................................................ii
METHOD OF DIRECTING TRANSFER..........................................................ii
TIME FOR DIRECTING TRANSFER...........................................................ii
IRREVOCABILITY OF TRANSFER DIRECTION..................................................ii
DIRECTION TO PURCHASE COMMON STOCK AFTER THE OFFERING.................................iv
PURCHASE PRICE OF COMMON STOCK........................................................iv
NATURE OF A PARTICIPANT'S INTEREST IN THE COMMON STOCK................................iv
VOTING RIGHTS OF COMMON STOCK.........................................................iv
DESCRIPTION OF THE PLAN...................................................................1
INTRODUCTION...........................................................................1
ELIGIBILITY AND PARTICIPATION..........................................................1
CONTRIBUTIONS UNDER THE PLAN...........................................................2
LIMITATIONS ON CONTRIBUTIONS...........................................................2
BENEFITS UNDER THE PLAN................................................................3
INVESTMENT OF CONTRIBUTIONS............................................................3
PERFORMANCE HISTORY....................................................................4
WITHDRAWALS AND DISTRIBUTIONS FROM THE PLAN............................................6
ADMINISTRATION OF THE PLAN.............................................................7
THE TRUSTEE............................................................................7
PLAN ADMINISTRATOR.....................................................................8
REPORTS TO PLAN PARTICIPANTS...........................................................8
AMENDMENT AND TERMINATION..............................................................8
MERGER, CONSOLIDATION OR TRANSFER......................................................8
FEDERAL INCOME TAX CONSEQUENCES........................................................8
ADDITIONAL EMPLOYEE RETIREMENT INCOME SECURITY ACT ("ERISA") CONSIDERATIONS...........10
SECURITIES AND EXCHANGE COMMISSION REPORTING AND SHORT-SWING PROFIT LIABILITY.........10
FINANCIAL INFORMATION REGARDING PLAN ASSETS...........................................11
LEGAL OPINION............................................................................11
Statement of Net Assets Available for Benefits...........................................12
Statement of Changes in Net Assets Available for Plan Benefits...........................13
THE OFFERING
SECURITIES OFFERED Sound Federal Bancorp is offering participants in the
Sound Federal Savings and Loan Association 401(k)
Savings Plan in RSI Retirement Trust (the "Plan") the
opportunity to use their participation interests to
elect to purchase shares of Sound Federal Bancorp's
common stock through the Plan. At July 1, 2002, there
were sufficient funds in the Plan to purchase up to
230,281 shares of Sound Federal Bancorp common stock in
the offering. This includes the new shares of Sound
Federal Bancorp which may be received in exchange for
all of the shares of Sound Federal Bancorp common stock
presently held in the Plan. The shares of common stock
currently held in the Plan will be exchanged for shares
of Sound Federal Bancorp pursuant to an exchange ratio,
as is more fully discussed in the "Conversion" section
of the prospectus. Only employees of Sound Federal
Savings and Loan Association or its subsidiaries may
become participants in the Plan. Your investment in the
common stock of Sound Federal Bancorp through the Plan
in the offering is subject to the priorities listed
below. Information with regard to the Plan is contained
in this prospectus supplement and information with
regard to the financial condition, results of operations
and business of Sound Federal Bancorp is contained in
the attached prospectus. The address of the principal
executive office of Sound Federal Savings and Loan
Association is 300 Mamaroneck Avenue, Mamaroneck, New
York 10543.
ELECTION TO PURCHASE In connection with the conversion and stock offering,
COMMON STOCK IN you may elect to transfer, in increments of $10.00, all
THE OFFERING: or part of your account balances in the Plan (other than
PRIORITIES the amounts you currently have invested in the Employer
Stock Fund) to the Employer Stock Fund, to be used to
purchase common stock issued in the offering. The
trustee of the Employer Stock Fund will purchase common
stock in accordance with your directions. However, such
directions are subject to purchase priorities in the
plan of conversion of Sound Federal Bancorp.
The shares of common stock are being offered in a
subscription offering and community offering. In the
subscription offering, the purchase priorities are as
follows:
(1) Depositors of Sound Federal Savings with $50 or
more as of May 31, 2001, get first priority.
(2) Sound Federal Savings' employee stock ownership
plan gets second priority.
(3) Depositors of Sound Federal Savings with $50 or
more on deposit as of September 30, 2002, get
third priority.
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(4) Depositors of Sound Federal Savings as of October
__, 2002, and borrowers of Sound Federal Savings
as of October 8, 1998, whose borrowings remain
outstanding as of ____________, 2002, get fourth
priority.
To the extent you fall into one of these categories, you
may use funds in your Plan account to pay for the common
stock you want to acquire in the stock offering, at
$10.00 per share. If you elect to transfer a dollar
amount from a particular fund and, at the time that the
transfer is made, you do not have a sufficient dollar
amount in that fund to process your entire election due
to market fluctuation, the trustee will withdraw up to
100% of your balance in that fund (rounded down to the
nearest $10 increment) and apply only the amount
withdrawn to the purchase of stock for your account.
No later than the closing date of the subscription
offering period, the amount that you elect to transfer
from your existing account balances for the purchase of
common stock in the offering will be removed from your
existing accounts and transferred to an interest bearing
account pending the closing of the offering. At the
close of the offering, and subject to a determination of
whether all or any portion of your order may be filled
(based on your purchase priority and whether the
offering is oversubscribed), all or a portion of the
amount that you have transferred to purchase stock in
the offering will be applied to the common stock
purchase. Common stock so purchased will be placed in
the Employer Stock Fund and allocated to your Plan
account.
In the event the offering is oversubscribed, I.E., there
are more orders for common stock than shares available
for sale in the offering, and the trustee is unable to
use the full amount allocated by you to purchase common
stock in the offering, the amount that cannot be
invested in common stock and any interest your account
earned pending investment will be reinvested in the
investment funds of the Plan in accordance with your
then existing investment allocation percentages for new
contributions.
If you fail to direct the investment of your account
balances towards the purchase of any shares in the
offering, your account balances will remain in the
investment funds of the Plan as previously directed by
you.
VALUE OF THE PLAN As of July 1, 2002, the market value of the assets of
ASSETS the Plan was approximately $2,302,815. The Plan
administrator informed each participant of the value of
his or her account balance under the Plan as of June 30,
2002.
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METHOD OF DIRECTING You will receive a special election form on which you
TRANSFER can elect to transfer all or a portion of your account
balance in the Plan to the Employer Stock Fund for the
purchase of stock in the offering (other than amounts
you currently have invested in such fund). If you wish
to use all or part of your account balance in the Plan
to purchase common stock issued in the offering (other
than amounts you currently have invested in the Employer
Stock Fund), you should indicate that decision on the
investment allocation form. If you do not wish to
purchase Sound Federal Bancorp stock in the offering
through the Plan, you need not complete the special
election form.
TIME FOR DIRECTING If you wish to purchase common stock with your Plan
TRANSFER account balances, your special election form must be
received by ___________________, a representative of the
Plan administrator, Sound Federal Savings and Loan
Association, 300 Mamaroneck Avenue, Mamaroneck, New York
10543, no later than __________ p.m. on ______________
__, 2002.
IRREVOCABILITY OF YOU MAY NOT REVOKE YOUR SPECIAL ELECTION TO TRANSFER
TRANSFER DIRECTION AMOUNTS CREDITED TO YOUR ACCOUNT IN THE PLAN TO THE
EMPLOYER STOCK FUND FOR THE PURCHASE OF STOCK IN THE
OFFERING. You will, however, continue to have the
ability to transfer amounts not directed towards the
purchase of stock in the offering amongst all of the
other investment funds, including the Employer Stock
Fund, on a daily basis.
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DIRECTION TO PURCHASE Whether you choose to purchase stock in the offering, or
COMMON STOCK attempt to purchase AFTER THE OFFERING stock in the
offering but are unable to do so because the offering is
oversubscribed, you will also be able to purchase stock
AFTER the offering through your investment in the
Employer Stock Fund. After the offering, you may direct
that a certain percentage of your account balance 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. After the offering, you
may change your investment allocation on a daily basis.
Special restrictions may apply to transfers directed to
and from the Employer Stock Fund by the participants who
are subject to the provisions of section 16(b) of the
Securities Exchange Act of 1934, as amended, relating to
the purchase and sale of securities by officers,
directors and principal shareholders of Sound Federal
Bancorp.
PURCHASE PRICE OF The trustee will use the funds transferred to the
COMMON STOCK Employer Stock Fund to purchase common stock in the
offering, subject to your ability to purchase shares in
accordance with the priorities listed on page ___ of
this prospectus supplement and, except in the event of
an oversubscription, as discussed above. The trustee
will pay $10.00 per share, which will be the same price
paid by all other persons in the offering. No sales
commission will be charged for shares purchased in the
offering.
After the offering, the trustee will acquire common
stock in open market transactions at the prevailing
price. The trustee will pay transaction fees, if any,
associated with the purchase, sale or transfer of the
common stock after the offering.
NATURE OF A The trustee will hold the common stock, in trust, for
PARTICIPANT'S INTEREST the participants of the Plan. Shares of common stock
IN THE COMMON STOCK acquired by the trustee at your direction will be
allocated to your account. Therefore, investment
decisions of other participants should not affect the
earnings allocated to your account.
VOTING RIGHTS OF The trustee will exercise voting rights attributable to
COMMON STOCK all common stock held by the Employer Stock Fund.
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DESCRIPTION OF THE PLAN
INTRODUCTION
Sound Federal Savings and Loan Association adopted the Sound Federal
Savings and Loan Association Tax Deferral Savings Plan (the "Prior Plan")
effective January 1, 1987. The Prior Plan was amended and restated in its
entirety effective as of January 1, 1992, as the Sound Federal Savings and Loan
Association 401(k) Savings Plan in RSI Retirement Trust (the "Plan") and RSI
Retirement Trust was named as trustee. The Plan was again amended and restated,
effective as of January 1, 1997, and further amended through July 31, 2001, to
include employees formerly employed by First Federal Savings Bank as the result
of the merger of First Federal Savings Bank with Sound Federal Savings and Loan
Association. The Plan constitutes a profit sharing plan within the meaning of
section 401(a) of the Internal Revenue Code ("Code") and incorporates a cash or
deferred feature under section 401(k) of the Code whereby participants can make
pre-tax contributions to their accounts. Sound Federal Savings and Loan
Association intends that the Plan, in operation, will comply with the
requirements under the Internal Revenue Code and the Employee Retirement Income
Security Act ("ERISA"). As a plan subject to ERISA, Federal law provides you
with various rights and protections as a plan participant. However, your
benefits under the Plan are not guaranteed and are not required to be guaranteed
by the Pension Benefit Guaranty Corporation.
Sound Federal Savings and Loan Association may amend the Plan from time to
time in the future to ensure continued compliance with all applicable laws.
REFERENCE TO FULL TEXT OF PLAN. The following portions of this prospectus
supplement summarize certain provisions of the Plan. Sound Federal Savings and
Loan Association qualifies these summaries in their entirety by the full text of
the Plan, which shall have priority. You may obtain copies of the Plan document
by sending a request to the Plan administrator of Sound Federal Savings and Loan
Association 401(k) Savings Plan in RSI Retirement Trust, Sound Federal Savings
and Loan Association, 300 Mamaroneck Avenue, Mamaroneck, New York 10543. You
should carefully read the full text of the Plan document and your summary plan
description to understand your rights and obligations under the Plan.
ELIGIBILITY AND PARTICIPATION
You are eligible to become a participant in the Plan upon completion of
one year of service in which you have completed at least 1,000 hours of service,
provided you have reached age 21 at such time and are a salaried employee. Any
employee who was a participant in the Prior Plan immediately prior to the Plan's
restatement date will continue to be a participant on the restatement date. Any
former employee of First Federal Savings Bank who was a participant in the First
Federal Savings Bank Savings and Investment Plan in RSI Retirement Trust on July
10, 2000, and became an employee of Sound Federal Savings and Loan Association
became a participant in the Plan on January 1, 2001.
As of December 31, 2001, approximately 33 out of 67 then eligible
employees had elected to participate in the Plan.
CONTRIBUTIONS UNDER THE PLAN
EMPLOYEE BEFORE-TAX CONTRIBUTIONS. You are permitted, as a participant in
the Plan, to defer any whole percentage (not less than 1% nor more than 10%) of
your compensation (as defined in the Plan) and to have that amount contributed
to the Plan on your behalf. The Internal Revenue Code limits your before-tax
contributions to the Plan and similar plans to $11,000 in 2002. This amount may
be adjusted annually by law, based on changes in the cost of living.
You may elect to modify the amount contributed to the Plan by filing a new
compensation reduction agreement with the Plan administrator at least 10 days
prior to the first payroll period that includes the first day of March.
EMPLOYER MATCHING CONTRIBUTIONS. Sound Federal Savings and Loan
Association does not currently make employer matching contributions. Such
contributions may resume, at a future date, at the discretion of Sound Federal
Savings and Loan Association's Board of Directors.
SPECIAL CONTRIBUTIONS. Sound Federal Savings and Loan Association may make
special contributions on behalf of non-highly compensated employees equal to a
percentage of each eligible employee's compensation, to be determined each year
by Sound Federal Savings and Loan Association.
LIMITATIONS ON CONTRIBUTIONS
LIMITATIONS ON EMPLOYEE BEFORE-TAX CONTRIBUTIONS. For the plan year
beginning January 1, 2002, the amount of your before-tax contributions may not
exceed $11,000 per calendar year. This amount is increased in $1,000 increments
through 2006 and thereafter may be adjusted periodically by law, based on
changes in the cost of living. Contributions in excess of this limit are known
as excess deferrals. If you defer amounts in excess of this limitation, your
gross income for Federal income tax purposes will include the excess in the year
of the deferral. In addition, unless the excess deferral is distributed before
April 15 of the following year, it will be taxed again in the year distributed.
Income on the excess deferral distributed by April 15 of the immediately
succeeding year will be treated, for Federal income tax purposes, as earned and
received by the participant in the tax year in which the contribution is made.
If you also participate in the ESOP and annual additions to your accounts
in both plans exceed the maximum permissible amount, the Plan administrator will
reduce the contributions allocated to you under the Plan first, so that the
total annual additions do not exceed the maximum permissible amount. If employer
contributions and employee before-tax contributions are both made to the Plan in
the year that the excess occurs, employer contributions will be reduced before
employee before-tax contributions.
LIMITATION ON PLAN CONTRIBUTIONS FOR HIGHLY COMPENSATED EMPLOYEES. Special
provisions of the Internal Revenue Code limit the amount of employee before-tax
contributions and employer matching contributions that may be made to the Plan
in any year on behalf of highly compensated employees, in relation to the amount
of employee before-tax contributions and employer matching contributions made by
or on behalf of all other employees eligible to participate in the Plan. A
highly compensated employee includes any employee who (1) was a
2
5% owner of Sound Federal Bancorp at any time during the current or preceding
year, or (2) had compensation for the preceding year of more than $85,000 and,
if Sound Federal Savings and Loan Association so elects, was in the top 20% of
employees by compensation for the preceding year. The dollar amounts in the
foregoing sentence may be adjusted annually to reflect increases in the cost of
living. For any year, the percentage of highly compensated employee before-tax
contributions will be limited so that the average actual before-tax contribution
percentage of highly compensated employees does not exceed the average actual
before-tax contribution percentage of non-highly compensated employees by more
than the greater of (i) 125% or (ii) 200% but not more than two points. If these
limitations are exceeded, the level of before-tax contributions by highly
compensated employees will be adjusted.
BENEFITS UNDER THE PLAN
At all times, you have a fully vested, nonforfeitable interest in your
before-tax contribution account, you matching contribution account and your
rollover contribution account.
INVESTMENT OF CONTRIBUTIONS
All amounts credited to your accounts under the Plan are held in trust.
RSI Retirement Trust has been appointed by the Board of Directors of Sound
Federal Savings and Loan Association to administer the trust.
As of June 30, 2002, the Plan offers the following investment choices for
your accounts under the Plan:
1. RSI Retirement Trust Core Equity Fund.
2. RSI Retirement Trust Emerging Growth Equity Fund.
3. RSI Retirement Trust International Equity Fund.
4. RSI Retirement Trust Actively Managed Bond Fund.
5. Intermediate Term Bond Fund.
6. Short-Term Investment Fund.
7. Employer Stock Fund.
You may elect to have both past contributions and earnings, as well as
future contributions to your account invested among the funds listed above.
Transfers of past contributions and the earnings thereon do not affect the
investment mix of future contributions. You may change your investment
directions at any time. This may be done either by filing a notice at least ten
days prior to the effective date of such direction or by telephone or other
electronic medium. You may also redirect the investment of your investment
accounts such that a percentage of any one or more investment accounts may be
transferred to any one or more other investment accounts either by filing a
notice at least ten days prior to the effective date of such change or by
telephone or other electronic medium.
3
PERFORMANCE HISTORY
The following table provides performance data with respect to the investment
funds available under the Plan:
NET INVESTMENT PERFORMANCE FOR PERIODS ENDED JUNE 30, 2002
ANNUALIZED
-------------------------------------------------------- INCEPTION INVESTMENT
QTR. 1 YEAR 3 YEARS 5 YEARS 10 YEARS 15 YEARS DATE OBJECTIVE
---- ------ ------- ------- -------- -------- ---- ---------
INVESTMENT OPTIONS
RSI Retirement Tr. Core Equity Fund -16.96% -22.28% -13.11% 0.39% 9.79% 9.08% 12/31/1982 Growth
RSI Retirement Tr. Emerg. Growth
Equity Fund........................... -18.60% -29.03% -5.24% -0.60% 11.78% 9.35% 12/31/1982 Growth
RSI Retirement Tr. Intl Equity Fund... -2.49% -9.80% -4.74% -1.70% 4.99% 3.83% 05/01/1984 Growth
RSI Retirement Tr. Activ. Managed Bond Income &
Fund.................................. 4.62% 9.89% 8.54% 7.95% 7.41% 8.00% 12/31/1982 Growth
Intermediate-Term Bond Fund........... 2.31% 5.97% 6.72% 6.25% 6.01% 7.16% 12/31/1982 Income
Cap.
Short-Term Investment Fund............ 0.73% 2.30% 4.46% 4.58% 4.26% 5.17% 12/31/1982 Preservation
Growth &
Employer Stock Fund................... 50.65% 101.37% N/A N/A N/A 10/08/1998 Income
- ---------------------
The following is a description of each of the Plan's investment funds:
RSI RETIREMENT TRUST CORE EQUITY FUND. This fund seeks capital
appreciation over the long term by investing in stocks of a broadly
diversified group of high-quality, medium-to-large sized companies with
attractive earnings potential and valuations. The fund is appropriate for
investors with a long-term investment horizon. Stocks require a long
investment period because their higher historical returns relative to
other types of investments have been accompanied by greater price
fluctuations. An investment in the fund is not insured or guaranteed by
the FDIC or any other Government agency. It is possible to lose money by
investing in the fund.
RSI RETIREMENT TRUST EMERGING GROWTH EQUITY FUND. This fund seeks capital
appreciation by investing in quality growth stocks of small, relatively
new companies that demonstrate higher than average potential for earnings
growth. The fund is appropriate for investors with a long-term investment
horizon who are willing to accept greater short-term changes in value for
the potential of a higher long-term return. Small company equities require
a longer investment period because their higher historical returns
relative to equities of larger companies have been accompanied by greater
price fluctuations. An investment in the fund is not insured or guaranteed
by the FDIC or any other Government agency. It is possible to lose money
by investing in the fund.
4
RSI RETIREMENT TRUST INTERNATIONAL EQUITY FUND. This fund seeks capital
appreciation by investing primarily in stocks of companies that are
headquartered in foreign countries. The fund is appropriate for investors
with a long-term investment horizon. There are special risks associated
with an investment in this fund, including fluctuations on exchange rates
and political uncertainty. An investment in the fund is not insured or
guaranteed by the FDIC or any other Government agency. It is possible to
lose money by investing in the fund.
RSI RETIREMENT TRUST ACTIVELY MANAGED BOND FUND. This fund seeks principal
appreciation and income return over time by investing in high-quality
fixed income securities. The fund is appropriate for investors whose goals
include greater stability of principal or higher current income than can
be expected from investing only in common stocks. Historically, the price
of bonds has fluctuated less than the price of common stocks. An
investment in the fund is not insured or guaranteed by the FDIC or any
other Government agency. It is possible to lose money by investing in the
fund.
INTERMEDIATE-TERM BOND FUND. This fund seeks to achieve its objective by
realizing a high level of current income, with consideration also given to
safety of principal through investment in fixed-income securities either
maturing within ten years or having an expected average life of under ten
years. The fund is managed within an average portfolio maturity between 2
1/2 to 5 years and an average modified duration between 2 1/2 to 4 years.
Investment emphasis is placed upon securing a stable rate of return
through investment in a diversified portfolio of debt securities. An
investment in the fund is not insured or guaranteed by the FDIC or any
other Government agency. An investment in the fund is not insured or
guaranteed by the FDIC or any other Government agency. It is possible to
lose money by investing in the fund.
SHORT-TERM INVESTMENT FUND. This fund purchases only instruments which are
callable on demand or with a remaining maturity of one year or less,
except debt obligations issued or guaranteed by the United States
Government or its agencies or instrumentalities, which may have a
remaining maturity of up to 2 years. The fund will maintain a dollar
weighted average portfolio maturity of twelve months or less. The fund may
invest in obligations issued by or guaranteed by the United States
Government, its agencies or instrumentalities, bank obligations issued by
United States banks and foreign banks, commercial paper and master demand
notes issued by U.S. corporations, and bonds, debentures or notes issued
by U.S. corporations. The fund may invest up to 10% of its total assets in
securities of foreign issuers. An investment in the fund is not insured or
guaranteed by the FDIC or any other Government agency. It is possible to
lose money by investing in the fund.
EMPLOYER STOCK FUND. The Employer Stock Fund consists primarily of
investments in common stock of Sound Federal Bancorp. Sound Federal
Bancorp is a federally-chartered majority owned subsidiary of Sound
Federal, MHC, a mutual holding company. Following the offering Sound
Federal Bancorp, a Delaware corporation, will be 100% owned by its public
shareholders, including Sound Federal Bancorp's tax-qualified plans.
Shares of Sound Federal Bancorp which were held in the Employer Stock Fund
prior to
5
the conversion and common stock offering will be converted into shares of
common stock of Sound Federal Bancorp, in accordance with the exchange
ratio. The trustee will use all amounts reallocated to the Employer Stock
Fund in the special election to acquire shares in the conversion and
common stock offering. 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 Sound Federal Bancorp. It is
expected that 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,
amounts allocated towards the purchase of shares in the offering will be
held in the Employer Stock Fund in an interest-bearing account. In the
event of an oversubscription, any earnings that result therefrom will be
reinvested among the other funds of the Plan in accordance with your then
existing investment election (in proportion to your investment direction
allocation percentages).
The historical performance of the Employer Stock Fund is set forth on page
5. Performance of the Employer Stock Fund will be dependent upon a number of
factors, including the financial condition and profitability of Sound Federal
Bancorp and Sound Federal Savings and Loan Association and market conditions for
the common stock generally. An investment in the fund is not insured or
guaranteed by the FDIC or any other government agency. It is possible to lose
money by investing in the fund.
FOR A DISCUSSION OF MATERIAL RISKS, YOU SHOULD CONSIDER SEE "RISK FACTORS"
BEGINNING ON PAGE __ OF THE ATTACHED PROSPECTUS.
WITHDRAWALS AND DISTRIBUTIONS FROM THE PLAN
Federal law requires the Plan to impose substantial restrictions on your
right to withdraw amounts held for your benefit under the Plan prior to your
termination of employment with Sound Federal Savings and Loan Association. A
Federal tax penalty equal to 10% of the withdrawal, over and above the normal
Federal and state income tax, may also be imposed on withdrawals made prior to
your attainment of age 59 1/2, regardless of whether the withdrawals occur
during your employment with Sound Federal Savings and Loan Association or after
termination of employment.
WITHDRAWALS PRIOR TO TERMINATION OF EMPLOYMENT. You may withdraw your
employee elective deferral contributions (not including earnings) and rollover
contributions prior to termination of employment in the event of financial
hardship, subject to the hardship distribution rules under the Plan. These
requirements insure that you have a true financial need before you make a
withdrawal.
In additions, once you attain age 59 1/2, you may withdraw all or any
portion of your account.
DISTRIBUTION UPON NORMAL OR POSTPONED RETIREMENT. Payment of your benefits
upon your normal or postponed retirement (as defined under the Plan) shall be
made in a single
6
lump-sum payment. Alternatively, your benefit may be transferred to another
qualified employee benefit plan or individual retirement account if it is
eligible for rollover distribution.
DISTRIBUTION UPON EARLY RETIREMENT OR DISABILITY. In the event of
termination of service due to early retirement or disability, your benefits will
be paid in a lump-sum distribution once the trustee receives documentation
indicating that you would have attained your normal retirement date if you were
still employed by Sound Federal Savings and Loan Association. Alternatively, you
may elect to receive your distribution of benefits at a date prior to your
normal retirement date.
If your services is terminated due to retirement or disability, you may
also elect to defer the receipt of your benefit beyond you normal retirement
date or postponed retirement date.
DISTRIBUTION UPON TERMINATION FOR REASONS OTHER THAN RETIREMENT OR
DISABILITY. In the event of termination of service for reasons other than
retirement or disability, your benefits will be paid in a lump sum distribution.
Alternatively, your benefit may be transferred to another qualified employee
benefit plan or individual retirement account if it is eligible for rollover
distribution.
DISTRIBUTION UPON DEATH. If you die before receiving the value of your
Plan account, your benefits will be paid to your surviving spouse or properly
designated beneficiary in a lump sum.
DISTRIBUTIONS FROM THE EMPLOYER STOCK FUND. Distributions from the
Employer Stock Fund will be made in cash unless the participant elects to
receive distribution wholly or partially in shares.
COMMENCEMENT OF BENEFITS. The payment of your benefits will generally
commence within 60 days of the close of the Plan year in which the latest of the
following events occurs: (i) attainment of your normal retirement age; (ii)
tenth anniversary of the year in which you commenced participation in the Plan
(or a predecessor plan)); or (iii) your termination of employment.
NONALIENATION OF BENEFITS. Except for Federal income tax withholding or a
qualified domestic relations order, your benefits payable under the Plan cannot
be alienated. Examples of alienation include transferring your benefits
voluntarily and a creditor placing a lien on your benefits. Any attempt to
alienate your benefits, whether voluntary or involuntary, shall be void.
ADMINISTRATION OF THE PLAN
THE TRUSTEE
The trustee of the Plan is RSI Retirement Trust. The trustee receives,
holds and invests the contributions to the Plan in trust and distributes them to
you and your 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.
7
PLAN ADMINISTRATOR
Sound Federal Savings and Loan Association is the Plan administrator. 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, preparation and filing
of all returns and reports relating to the Plan which are required to be filed
and for all disclosures required to be made to participants, beneficiaries and
others.
REPORTS TO PLAN PARTICIPANTS
The Plan administrator will furnish you a statement at least quarterly
showing the balance in your account as of the end of that period, the amount of
contributions allocated to your account for that period, and any adjustments to
your account to reflect earnings or losses.
AMENDMENT AND TERMINATION
Sound Federal Savings and Loan 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, you will have a fully vested interest in your account.
Sound Federal Savings and Loan Association reserves the right to make 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 Sound Federal
Savings and Loan Association may make any amendment it determines necessary or
desirable, with or without retroactive effect, to comply with the Employee
Retirement Income Security Act.
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 you
would, if either the Plan or the other plan terminates, receive a benefit
immediately after the merger, consolidation or transfer which is equal to or
greater than the benefit you would have been entitled to receive immediately
before the merger, consolidation or transfer if the Plan had then terminated.
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the material Federal income tax
aspects of the Plan. You should not rely on this summary as a complete or
definitive description of the material Federal income tax consequences relating
to the Plan. Statutory provisions change, as do 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. Please consult your tax advisor with respect to any
distribution from the Plan and transactions involving the Plan.
8
As a "tax-qualified retirement plan," the Internal Revenue Code affords
the Plan special tax treatment, including:
(1) the sponsoring employer 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
employer on their behalf; and
(3) earnings of the Plan are tax-deferred, thereby permitting the
tax-free accumulation of income and gains on investments.
LUMP-SUM DISTRIBUTION. A distribution from the Plan to a participant or
the beneficiary of a participant will qualify as a lump-sum distribution if it
is made within one taxable year, on account of the participant's death,
disability or separation from service, or after the participant attains age 59
1/2; and consists of the balance credited to participants under the Plan and all
other profit sharing plans, if any, maintained by Sound Federal Savings and Loan
Association. The portion of any lump-sum distribution required to be included in
your taxable income for Federal income tax purposes consists of the entire
amount of the lump-sum distribution, less the amount of after-tax contributions,
if any, you have made to this Plan and any other profit sharing plans maintained
by Sound Federal Savings and Loan Association, which is included in the
distribution.
SOUND FEDERAL BANCORP COMMON STOCK INCLUDED IN LUMP-SUM DISTRIBUTION. If a
lump-sum distribution includes Sound Federal Bancorp common stock, the
distribution generally will be taxed in the manner described above, except that
the total taxable amount may be reduced by the amount of any net unrealized
appreciation with respect to Sound Federal Bancorp common stock; that is, the
excess of the value of Sound Federal Bancorp common stock at the time of the
distribution over its cost or other basis of the securities to the trust. The
tax basis of Sound Federal Bancorp common stock, for purposes of computing gain
or loss on its subsequent sale, equals the value of Sound Federal Bancorp 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
Sound Federal Bancorp common stock, to the extent of the amount of net
unrealized appreciation at the time of distribution, will constitute long-term
capital gain, regardless of the holding period of Sound Federal Bancorp common
stock. Any gain on a subsequent sale or other taxable disposition of Sound
Federal Bancorp common stock, in excess of the amount of net unrealized
appreciation at the time of distribution, will be considered long-term capital
gain. The recipient of a distribution may elect to include the amount of any net
unrealized appreciation in the total taxable amount of the distribution, to the
extent allowed by regulations to be issued by the Internal Revenue Service.
DISTRIBUTIONS: ROLLOVERS AND DIRECT TRANSFERS TO ANOTHER QUALIFIED PLAN OR
TO AN IRA. You may roll over virtually all distributions from the Plan to
another qualified plan or to an individual retirement account in accordance with
the terms of the other plan or account.
9
ADDITIONAL EMPLOYEE RETIREMENT INCOME SECURITY ACT ("ERISA") CONSIDERATIONS
As noted above, the Plan is subject to certain provisions of ERISA,
including special provisions relating to control over the Plan's assets by
participants and beneficiaries. The Plan's feature that allows you to direct the
investment of your account balances is intended to satisfy the requirements of
section 404(c) of ERISA relating to control over plan assets by a participant or
beneficiary. The effect of this is two-fold. First, you will not be deemed a
"fiduciary" because of your exercise of investment discretion. Second, no person
who otherwise is a fiduciary, such as 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 Sound Federal Bancorp common stock, the regulations under
section 404(c) of the 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 common stock be conducted in a way that ensures the
confidentiality of your exercise of these rights.
SECURITIES AND EXCHANGE COMMISSION REPORTING AND SHORT-SWING PROFIT LIABILITY
Section 16 of the Securities Exchange Act of 1934 imposes reporting and
liability requirements on officers, directors, and persons beneficially owning
more than 10% of public companies such as Sound Federal Bancorp. Section 16(a)
of the Securities Exchange Act of 1934 requires the filing of reports of
beneficial ownership. Within 10 days of becoming an officer, director or person
beneficially owning more than 10% of the shares of Sound Federal Bancorp, a Form
3 reporting initial beneficial ownership must be filed with the Securities and
Exchange Commission. Changes in beneficial ownership, such as purchases, sales
and gifts generally must be reported periodically, either on a Form 4 within 2
business days after the date on which a transactions is executed, or annually on
a Form 5 within 45 days after the close of Sound Federal Bancorp's fiscal year.
Discretionary transactions in connection with employee benefit plans, such as
intra-plan transfers of previously invested assets or a cash-out from such a
plan are excepted from this requirement, but only if the insider does not
determine the date of the transaction. If the exception applies, discretionary
transactions must be reported on a Form 4 filed within two business days from
the date the reporting person receives notice of the transaction, so long as the
notification date is not later than the third business day following the
transaction. Transactions under tax-qualified plans, other than discretionary
transactions remain exempt from Section 16(a) reporting.
In addition to the reporting requirements described above, section 16(b)
of the Securities Exchange Act of 1934 provides for the recovery by Sound
Federal Bancorp of profits realized by an officer, director or any person
beneficially owning more than 10% of Sound Federal Bancorp's common stock
resulting from non-exempt purchases and sales of Sound Federal Bancorp common
stock within any six-month period.
10
The Securities and Exchange Commission has adopted rules that provide
exemptions from the profit recovery provisions of section 16(b) for all
transactions in employer securities within an employee benefit 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.
Except for distributions of common stock due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order, persons affected by section 16(b) 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 information representing a statement of net assets available for
Plan benefits and statement of changes in net assets available for Plan benefits
and at December 31, 2001, are attached to this prospectus supplement.
LEGAL OPINION
The validity of the issuance of the common stock will be passed upon by
Luse Gorman Pomerenk & Schick, P.C., Washington, D.C., which firm acted as
special counsel to Sound Federal Savings and Loan Association in connection with
Sound Federal Bancorp's stock offering.
11
Sound Federal Savings & Loan Association
401(k) Savings Plan
Statement of Net Assets Available for Benefits as of December 31, 2001
DECEMBER 31, 2001
Beginning End
of Year of Year
Assets
- --------
Investments $1,112855 $1,728,467
Liabilities $ -0- $ -0-
--------- ----------
Net Assets Available for
Plan Benefits $1,112855 $1,728,467
12
Sound Federal Savings & Loan Association
401(k) Savings Plan
Statement of Changes in Net Assets Available For Plan Benefits
DECEMBER 31, 2001
Investment Income $108,968
Investment Expense $ - 0 -
--------
Net Investment Income $108,968
Contributions $ 91,950
Transfer (First Federal 401k plan merger) $650,015
-------
Total Additions $850,933
Benefits paid:
Withdrawals $(235,321)
----------
Increase in Net Assets $615,612
- -----------------------------------------------------------------------------
Net Assets Available for Plan
Benefits: Beginning of Year $1,112,855
End of Year $1,728,467