EXHIBIT 8.1
October 5, 1994
Board of Directors
Oklahoma Savings, Inc.
601 S. Husband Street
Stillwater, OK 74076
Re: Federal and State of Oklahoma Income Tax
Opinion regarding the reorganization of Oklahoma Savings,
Inc. with Fourth Financial Corporation
Gentlemen:
This is in response to your request for our tax opinion on the proposed
merger ("Fourth Merger") of Oklahoma Savings, Inc. ("OSI") into Fourth
Financial Corporation ("Fourth") and the proposed merger ("Bank Merger")
of Stillwater Federal Savings Bank ("Savings Bank"), a wholly-owned
subsidiary of OSI, into Bank IV Oklahoma, National Association ("Bank
IV") a subsidiary owned partly by Fourth and partly by IV Commercial
Acquisition, Inc., a wholly owned subsidiary of Fourth. The conclusions
represented herein are premised on the facts and representations in the
Agreement and Plan of Reorganization by and between OSI and Fourth dated
as of July 21, 1994 ("Agreement"), the proxy statement-prospectus
contained in the registration statement (Form S-4) filed with the
Securities and Exchange Commission on October 5, 1994, the
representations of facts as set forth in Fourth's and OSI's letters of
representations dated October 4, 1994, and the law as it exists today.
FACTS
OSI, a corporation duly organized, validly existing, and in good
standing under the laws of the state of Delaware, was organized in 1993
to operate as a savings institution holding company. The authorized
capital stock of OSI consists of (i) 2,000,000 shares of common stock,
par value $.01 per share, of which 419,200 shares were issued and
outstanding as of the date of the Agreement, and (ii) 500,000 shares of
preferred stock, par value $.01 per share, none of which is issued and
outstanding. OSI is a savings and loan holding company duly registered
pursuant to the Home Owners Loan Act of 1933, as amended.
Savings Bank, a wholly-owned subsidiary of OSI, is a federally chartered
savings bank which was incorporated in 1920 as an Oklahoma chartered
mutual savings and loan association. In 1993, Savings Bank converted to
a federally-chartered mutual savings bank and changed its name from
"Stillwater Savings and Loan Association" to "Stillwater Federal Savings
Bank."
Pursuant to the Plan of Conversion ("Plan") adopted February 22, 1993,
Savings Bank's charter to operate as a mutual savings bank was amended
to permit it to continue its operations as a federally-chartered stock
savings bank. Under the Plan, OSI issued a specific number of shares of
common stock ("Conversion stock") prior to the consummation of the
conversion. The dollar amount for which all shares of Conversion stock
were sold was based on the estimated market value of OSI and Savings
Bank after the conversion.
Savings Bank serves its primary market area, Payne, Logan, and Noble
counties of Oklahoma, through four retail banking offices. Savings Bank
is a community-oriented financial institution offering a variety of
financial services. Savings Bank attracts deposits from the general
public and uses the funds to originate one- to four-family residential
mortgage loans. Savings Bank's earnings are primarily derived from
interest earned on its loans and mortgage-backed securities and interest
and dividends earned on its investment securities. Its chief expenses
include interest paid on savings deposits and borrowing and operating
expenses.
Fourth, a corporation duly organized, validly existing, and in good
standing under the laws of the state of Kansas is a bank holding
company. Fourth is authorized to issue (i) 50,000,000 shares of common
stock, par value $5 per share, of which 27,201,925 shares were issued
and 26,845,241 shares were outstanding on June 30, 1994, (ii) 250,000
shares of Class A 7% Cumulative Preferred Stock, par value $100 per
share, all of which are issued and outstanding, and (iii) 5,000,000
shares of Class B Preferred Stock, without par value, none of which have
been issued. All of Fourth's issued and outstanding equity securities
and the Fourth stock to be issued in the Fourth Merger are duly
registered under the Federal Securities Exchange Act of 1934, as
amended. Shares of Fourth stock are eligible for trading in the
National Market System of NASDAQ. Fourth is a bank holding company duly
registered pursuant to the Bank Holding Company Act.
Bank IV, a subsidiary partly owned by Fourth and partly by IV Commercial
Acquisition, Inc., a wholly owned subsidiary of Fourth, is the third
largest bank in Oklahoma. Bank IV is a banking association organized
under the laws of the United States.
THE TRANSACTION
In March 1994, OSI received an unsolicited offer to negotiate a merger
with Fourth. On April 15, 1994, OSI requested, and subsequently
received permission from the Office of Thrift Supervision to negotiate
with Fourth to enter into an agreement in principle and begin
negotiations toward a definitive agreement with Fourth. A period of
negotiations followed and on April 20, 1994, the companies jointly
announced an agreement in principle whereby OSI would be acquired by
Fourth and merge with Fourth. On July 21, 1994, the parties entered
into the Agreement whereby Fourth agreed to acquire OSI for
approximately $23.00 per share payable in Fourth shares.
Following the Reorganization, Savings Bank will be able to offer its
customers a wide variety of lending programs, trust, international, and
mutual fund investment services that Savings Bank does not offer
currently.
At the date and time on which the Mergers are effective, the Fourth
Merger and the Bank Merger shall occur simultaneously pursuant to the
Merger Agreements. The merger of OSI into Fourth with Fourth surviving
will be a statutory merger under the laws of the States of Kansas and
Delaware. As a result of the Fourth Merger, the separate existence of
OSI shall cease, and Fourth, as the surviving corporation, shall
continue its corporate existence under the laws of the state of Kansas.
The existing articles of incorporation and bylaws of Fourth in effect at
the Effective Time shall be the articles of incorporation and bylaws of
the surviving corporation until further amended as provided by law. The
directors and officers of Fourth immediately preceding the Fourth Merger
shall be the directors and officers of the surviving corporation.
Fourth shall possess all rights, privileges, powers and franchises of
OSI. All property, real, personal, and mixed, and all rights of
creditors of OSI shall be vested in and belong to Fourth.
Within ten days from the Merger Effective Time, Fourth must mail to any
dissenting stockholder, written notice that the Fourth Merger has become
effective and include a copy of Section 262 of the Delaware General
Corporation Law. A dissenting stockholder who desires to pursue his or
her rights as a dissenting stockholder then has 20 days from the date
Fourth mails such notice in which to demand in writing from Fourth
payment of the value of his or her stock.
At the Merger Effective Time, upon consummation of the Fourth Merger,
each issued and outstanding share of OSI stock, except dissenting
stockholders' stock, shall cease to be an issued and existing share, and
each share shall automatically be converted into and exchanged for 0.84
shares of Fourth stock.
No fractional shares of Fourth stock will be issued. Instead, upon
surrender of OSI common stock certificates, Fourth will pay, or cause to
be paid, to the holder thereof the cash value of the fractional interest
to which the holder thereof would otherwise be entitled, based upon the
closing price of the Fourth stock on the trading day two trading days
prior to the Merger Effective Time as reported in The Wall Street
Journal.
The merger of Savings Bank with and into Bank IV will be a merger
pursuant to the laws of the United States. As a result of the Bank
Merger, the separate existence of Savings Bank shall cease and Bank IV,
as the surviving association, shall continue its corporate existence
under the laws of the United States. The existing articles of
association and bylaws of Bank IV shall be the articles of association
and bylaws of the merged bank. The directors and officers of Bank IV
immediately preceding the Bank Merger shall be the directors and
officers of the merged bank. Bank IV shall possess all the rights,
privileges, powers, and franchises of Savings Bank. All property, real,
personal, and mixed, and all rights of creditors and depositors of
Savings Bank shall be vested in and belong to Bank IV.
For purposes of granting a limited priority claim to the assets of
Savings Bank in the unlikely event (and only upon such event) of a
complete liquidation of Bank IV to persons who continue to maintain
savings accounts with Bank IV after the merger, and who, immediately
prior to the merger had a subaccount balance (as described in 12 C.F.R.
Sec. 563b.3(f)(4)) with respect to the liquidation account of Savings
Bank, Bank IV shall, at the time of the merger, establish a liquidation
account in an amount equal to the liquidation account of Savings Bank
immediately prior to the merger, which liquidation account shall
participate pari passu with any other liquidation accounts of Bank IV.
If the balance in any savings account to which a subaccount balance
relates at the close of business on the last day of any fiscal year of
Bank IV after the merger is effected is less than the balance in such
savings account at the effective time of the merger or at the close of
business on the last day of any other fiscal year of Bank IV after the
merger is effected, such subaccount balance shall be reduced in an
amount proportionate to the reduction in such savings account balance.
No subaccount balance shall be increased, notwithstanding any increase
in the balance of the related savings account. If such related savings
account is closed, such subaccount shall be reduced to zero upon such
closing. In the event of a complete liquidation of Bank IV, and only in
such event, the amount distributable to each account holder will be
determined in accordance with the applicable rules and regulations
pertaining to conversions by savings and loan associations from mutual
to stock form of organization, on the basis of such account holder's
subaccount balance with Bank IV at the time of its liquidation. No
merger, consolidation, purchase of bulk assets with assumption of
savings accounts and other liabilities, or similar transaction, whether
or not Bank IV is the surviving institution, will be deemed to be a
complete liquidation for this purpose, and, in any such transaction, the
liquidation account shall be assumed by the surviving institution.
At the Merger Effective Time, upon consummation of the Bank Merger, each
issued and outstanding share of Savings Bank stock shall automatically
be converted into and exchanged for .002 shares of capital stock of Bank
IV, par value $5.00.
REPRESENTATIONS
In order to determine the consequences of the Fourth Merger for federal
income tax purposes, Fourth has directed us to rely on the following
representations:
(1) The fair market value of the Fourth common stock to be received by
each shareholder of OSI will be approximately equal to the fair
market value of the OSI stocksurrendered in the exchange.
(2) Fourth has no plan or intention to reaquire any of its stock
issued to the shareholders of OSI in the proposed transaction.
(3) After the proposed transaction, Fourth will continue the historic
business of OSI or use a significant portion of OSI's historic
assets in Fourth's business, except that the management of OSI
will be consolidated with that of Fourth.
(4) Fourth is not an "investment company" as defined in Section
368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code of 1986
(as amended) (Code).
(5) There is no intercorporate indebtedness existing between OSI and
Fourth which was issued, acquired, or will be settled at a
discount.
(6) The payment of cash in lieu of fractional shares of Fourth stock
is solely for the purpose of avoiding the expense and
inconvenience to Fourth of issuing fractional shares and does not
represent separately bargained-for consideration. The total cash
consideration that will be paid in the transaction to the OSI
shareholders instead of issuing fractional shares of Fourth stock
will not exceed one percent of the total consideration that will
be issued in the transaction to the OSI shareholders in exchange
for their shares of OSI stock. The fractional share interests of
each OSI shareholder will be aggregated, and no OSI shareholder
will receive cash in an amount equal to or greater than the value
of one full share of Fourth stock.
(7) Fourth will pay its own expenses, if any, incurred in connection
with the transaction.
(8) The merger of OSI with and into Fourth, with Fourth surviving,
will qualify as a statutory merger under the laws of the States of
Kansas and Delaware.
In order to determine the consequences of the Fourth Merger for federal
income tax purposes, OSI has directed us to rely on the following
representations:
(1) The fair market value of the Fourth common stock to be received by
each shareholder of OSI will be approximately equal to the fair
market value of the OSI stock surrendered in the exchange.
(2) There is no plan or intention by the shareholders of OSI who own 5
percent or more of the OSI stock, and, to the best of the
knowledge of the management of OSI, there is no plan or intention
on the part of the remaining shareholders of OSI to sell, exchange
or otherwise dispose of a number of shares of Fourth common stock
received in the Merger that would reduce the OSI shareholders'
ownership of Fourth common stock to a number of shares having a
value, as of the date of the merger, of less than 50 percent of
the value of all of the formerly outstanding stock of OSI as of
the same date. For purposes of this representation, shares of OSI
stock surrendered by dissenters or exchanged for cash in lieu of
fractional shares of Fourth common stock will be treated as
outstanding OSI stock at the Merger Effective Time. Moreover,
shares of OSI's stock and shares of Fourth common stock held by
OSI shareholders and otherwise sold, redeemed, or disposed of
prior or subsequent to the transaction will be considered in
making this representation.
(3) OSI is not under the jurisdiction of a court in a Title 11 or
similar case (within the meaning of Section 368(a)(3)(A) of the
Code).
(4) The liabilities of OSI to be assumed by Fourth and the liabilities
to which the transferred assets of OSI are subject were incurred
by OSI and Savings Bank in the ordinary course of business and are
associated with the assets to be transferred.
(5) The fair market value of the assets of OSI transferred to Fourth
will exceed the sum of the liabilities to be assumed by Fourth,
plus the amount of liabilities, if any, to which the transferred
assets are subject.
(6) OSI is not an "investment company" as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(7) There is no intercorporate indebtedness existing between OSI and
Fourth which was issued, acquired, or will be settled at a
discount.
(8) OSI and the shareholders of OSI will each pay their own expenses,
if any, incurred in connection with the transaction.
(9) The adjusted basis of the assets of OSI transferred to Fourth will
exceed the sum of the liabilities to be assumed by Fourth, plus
the liabilities, if any, to which the transferred assets are
subject.
(10) None of the compensation received by any shareholder-employees of
OSI will be separate consideration for, or allocable to, any of
their shares of OSI stock; none of the shares of Fourth stock
received by any shareholder-employee will be separate
consideration for, or allocable to, any employment agreement; and
the compensation paid to any shareholder-employees will be for
services actually rendered and will be commensurate with amounts
paid to third parties bargaining at arm's length for similar
services.
(11) The merger of OSI with and into Fourth, with Fourth surviving,
will qualify as a statutory merger under the laws of the States of
Kansas and Delaware.
(12) The conversion of Savings Bank from a mutual to a stock savings
bank was a separate and distinct transaction from the Fourth
Merger. OSI had no discussion with Fourth or any other party
prior to the conversion and this merger or any other merger was
not contemplated at the time of the conversion.
In order to determine the consequences of the Bank Merger for federal
income tax purposes, Fourth has directed us to rely on the following
representations:
(1) The fair market value of the Bank IV common stock to be received
by Fourth will be approximately equal to the fair market value of
the Savings Bank stock surrendered in the exchange.
(2) After the proposed transaction, Bank IV will continue the historic
business of Savings Bank and use a significant portion of Savings
Bank's business assets in Bank IV's business, except that the
management of Savings Bank will be consolidated with that of Bank
IV.
(3) Bank IV has no plan or intention to reaquire any of its stock
issued to Fourth in the proposed transaction.
(4) Fourth has no plan or intention to sell or otherwise dispose of
the Bank IV stock received in the transaction.
(5) Bank IV will pay its own expenses, if any, incurred in connection
with the transaction.
(6) Bank IV is not an "investment company" as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(7) There is no intercorporate indebtedness existing between Savings
Bank and Bank IV which was issued, acquired, or will be settled at
a discount.
(8) The merger of Savings Bank with and into Bank IV, with Bank IV
surviving, will qualify as a merger pursuant to the corporation
laws of the United States.
In order to determine the consequences of the Bank Merger for federal
income tax purposes, OSI has directed us to rely on the following
representations:
(1) The fair market value of the Bank IV common stock to be received
by Fourth will be approximately equal to the fair market value of
the Savings Bank stock surrendered in the exchange.
(2) Savings Bank is not under the jurisdiction of a court in a Title
11 or similar case (within the meaning of Section 368(a)(3)(A) of
the Code).
(3) The liabilities of Savings Bank to be assumed by Bank IV and the
liabilities to which the transferred assets of Savings Bank are
subject were incurred by Savings Bank in the ordinary course of
business and are associated with the assets to be transferred.
(4) The fair market value of the assets of Savings Bank transferred to
Bank IV will exceed the sum of the liabilities to be assumed by
Bank IV, plus the amount of liabilities, if any, to which the
transferred assets are subject.
(5) Savings Bank is not an "investment company" as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(6) There is no intercorporate indebtedness existing between Savings
Bank and Bank IV which was issued, acquired, or will be settled at
a discount.
(7) The adjusted basis of the assets of Savings Bank transferred to
Bank IV will exceed the sum of the liabilities to be assumed by
Bank IV, plus the liabilities, if any, to which the transferred
assets are subject.
(8) Savings Bank will pay its own expenses, if any, incurred in
connection with the transaction.
(9) The merger of Savings Bank with and into Bank IV, with Bank IV
surviving, will qualify as a merger pursuant to the corporation
laws of the United States.
(10) The conversion of Savings Bank from a mutual to a stock savings
bank was a separate and distinct transaction from the Fourth
Merger. Savings Bank had no discussion with Bank IV or any other
party prior to the conversion and this merger or any other merger
was not contemplated at the time of the conversion.
APPLICABLE LAW
Section 368(a)(1)(A) of the Code provides that the term
"reorganization" means a statutory merger or consolidation. Under
Section 1.368-2(b)(1) of the Income Tax Regulations (Regulations),
in order to qualify as a reorganization under Section 368(a)(1)(A),
the transaction must be a merger or consolidation effected pursuant
to the corporation laws of the United States or a State or
Territory or the District of Columbia. It has been represented
that the merger of OSI with and into Fourth will qualify as a
statutory merger under the laws of the States of Delaware and
Kansas. It has been represented that the merger of Savings Bank
with and into Bank IV will qualify as a merger pursuant to the
corporation laws of the United States.
In addition to the requirements set forth in the statute, in order
for a transaction to be a tax-free reorganization, certain
requirements set forth in the regulations under Section 368 of the
Code must also be met. Section 1.368-1(b) of the Regulations
provides that the purpose of the reorganization provisions of the
Code is to except from the general rule of taxability certain
specifically described exchanges incident to such readjustments of
corporate structures made in one of the particular ways specified
in the Code, as are required by business exigencies and which
effect only a readjustment of continuing interest in property under
modified corporate forms. Requisite to a reorganization under the
Code are a continuity of the business enterprise under the modified
corporate form, and (except as provided in section 368(a)(1)(D)) a
continuity of interest therein on the part of those persons who,
directly or indirectly, were the owners of the enterprise prior to
the reorganization.
To be treated as a reorganization described in Section 368(a)(1)(A)
of the Code, the transaction must be planned and carried out for a
genuine business purpose. This transaction is being entered into
in order for Fourth to expand its business operations into Payne,
Logan and Noble counties of Oklahoma while benefiting from the
addition of Savings Bank's personnel, deposit taking and loan
origination market share and loan portfolio. Fourth and OSI
believe Savings Bank should be in an enhanced competitive position
with respect to other financial institutions in the area. Savings
Bank should be able to offer its customers a wide variety of
lending programs, trust, international, and mutual fund investment
services that Savings Bank does not currently offer. This should
satisfy the business purpose requirement for both the Fourth Merger
and the Bank Merger.
Section 1.368-1(d) of the Regulations provide that continuity of
business enterprise requires that the acquiring corporations either
(i) continue the acquired corporation's historic business or (ii)
use a significant portion of the acquired corporation's historic
business assets in a business. It has been represented that after
the proposed transaction, Fourth will continue the historic
business of OSI or use a significant portion of OSI's business
assets in Fourth's business, except that the management of OSI will
be consolidated with that of Fourth. It has also been represented
that after the proposed transaction, Bank IV will continue the
historic business of Savings Bank or use a significant portion of
Savings Bank's business assets in Bank IV's business, except that
the management of Savings Bank will be consolidated with that of
Bank IV. According to Rev. Rul. 85-198, 1985-2 C.B. 120 the
continuity of business enterprise requirement of Sec. 1.368-1(d) of
the regulations is satisfied when the business of a former
subsidiary of a merged bank holding company is carried on in the
same manner and form indirectly, through a second tier subsidiary,
of the surviving bank holding company. Accordingly, the continuity
of business enterprise requirement should be met for both the
Fourth Merger and the Bank Merger.
Under Section 1.368-1(b) of the Regulations, the continuity of
interest doctrine requires that in a reorganization there must be a
continuity of interest therein on the part of those persons who,
directly or indirectly, were the owners of the enterprise prior to
the reorganization. Rev. Proc. 77-37, 1977-2 CB 568 provides that
the "continuity of interest" requirement of section 1.368-1(b) of
the Regulations is satisfied if there is continuing interest
through stock ownership in the acquiring or transferee corporation
(or a corporation in "control" thereof within the meaning of
section 368(c) of the Code) on the part of the former shareholders
of the acquired or transferor corporation which is equal in value,
as of the effective date of the reorganization, to at least 50
percent of the value of all of the formerly outstanding stock of
the acquired or transferor corporation as of the same date. It is
not necessary that each shareholder of the acquired or transferor
corporation receive in the exchange stock of the acquiring or
transferee corporation, or a corporation in "control" thereof,
which is equal in value to at least 50 percent of the value of his
former stock interest in the acquired or transferor corporation, so
long as one or more of the shareholders of the acquired or
transferor corporation have a continuing interest through stock
ownership in the acquiring or transferee corporation (or a
corporation in "control" thereof) which is, in the aggregate, equal
in value to at least 50 percent of the value of all of the formerly
outstanding stock of the acquired or transferor corporation.
Sales, redemptions, and other dispositions of stock occurring prior
or subsequent to the exchange which are part of the plan of
reorganization will be considered in determining whether there is a
50 percent continuing interest through stock ownership as of the
effective date of the reorganization.
It has been represented that there is no plan or intention by the
shareholders of OSI who own 5 percent or more of OSI stock, and to
the best of the knowledge of the management of OSI, there is no
plan or intention on the part of remaining shareholders of OSI to
sell, exchange, or otherwise dispose of a number of shares of
Fourth common stock received in the merger that will reduce the OSI
shareholders' ownership of Fourth common stock to a number of
shares having a value, as of the date of the merger, of less than
50 percent of the value of all the formerly outstanding stock of
OSI as of the same date. For purposes of this representation,
shares of OSI stock surrendered by dissenters or exchanged for cash
in lieu of fractional shares of Fourth common stock will be treated
as outstanding OSI stock at the Merger Effective Time. Moreover,
shares of OSI's stock and shares of Fourth common stock held by OSI
shareholders and otherwise sold, redeemed, or disposed of prior or
subsequent to the transaction will be considered in making this
representation. It has also been represented that Fourth has no
plan or intention to sell or otherwise dispose of the Bank IV stock
received in the transaction. Pursuant to the Merger agreement for
the Bank Merger, Bank IV shall, at the time of the merger,
establish a liquidation account in an amount equal to the
liquidation account of Savings Bank immediately prior to the merger
in accordance with the rules and regulations pertaining to
conversions by savings and loan associations from mutual to stock
form of organization. Accordingly, the continuity of interest
requirement should be met for both the Fourth Merger and the Bank
Merger.
Based on the analysis set forth above, the merger of OSI with and
into Fourth, with Fourth surviving, and the merger of Savings Bank
with and into Bank IV, with Bank IV surviving, should qualify as
reorganizations described in Section 368(a)(1)(A) of the Code.
Section 361(a) of the Code provides that no gain or loss shall be
recognized to a corporation if such corporation is a party to a
reorganization and exchanges property, in pursuance of the plan of
reorganization, solely for stock or securities in another
corporation a party to the reorganization.
Section 361(b) of the Code provides that if Section 361(a) would
apply to an exchange but for the fact that the property received in
exchange consists not only of stock or securities permitted by
Section 361(a) to be received without recognition of gain, but also
of other property or money, then
(A) Property distributed - If the corporation receiving such
other property or money distributes it in pursuance of the
plan of reorganization, no gain to the corporation shall be
recognized from the exchange, but
(B) Property not distributed - If the corporation receiving such
other property or money does not distribute it in pursuance
of the plan or reorganization, the gain,if any, to the
corporation shall be recognized.
Section 357(a) of the Code provides that if the taxpayer receives
property which would be permitted to be received under section 361
without the recognition of gain if it were the sole consideration,
and as part of the consideration, another party to the exchange
assumes a liability of the taxpayer, or acquires from the taxpayer
property subject to a liability, then such assumption or
acquisition shall not be treated as money or other property, and
shall not prevent the exchange from being within the provisions of
section 361.
Section 368(b)(2) of the Code provides the term " a party to a
reorganization" includes both corporations, in the case of a
reorganization resulting from the acquisition by one corporation of
stock or properties of another.
Since OSI and Fourth are each a party to a reorganization and the
exchange is for Fourth common stock and cash only to the extent
there are dissenters no gain or loss should be recognized to OSI on
the transfer of its property to Fourth in accordance with the
Agreement. Since Bank IV and Savings Bank are each a party to a
reorganization and the exchange is solely for Bank IV common stock,
no gain or loss should be recognized to Savings Bank on the
transfer of its property to Bank IV in accordance with the
Agreement.
Section 1032(a) of the Code provides that no gain or loss shall be
recognized to a corporation on the receipt of money or other
property in exchange for stock (including treasury stock) of such
corporation. OSI will merge with and into Fourth in accordance
with the Agreement. Accordingly, Fourth should not recognize any
gain or loss as a result of the exchange of its stock for the
property of OSI. Savings Bank will merge with and into Bank IV.
Accordingly, Bank IV should not recognize any gain or loss as a
result of the exchange of its stock for the property of Savings
Bank.
Section 362(b) of the Code provides that if property was acquired
by a corporation in connection with a reorganization to which this
part applies, then the basis shall be the same as it would be in
the hands of the transferor, increased in the amount of gain
recognized to the transferor on such transfer. Since Fourth will
receive property (i.e., the assets) from OSI in connection with a
reorganization within the meaning of Section 368(a)(1)(A) and OSI
will recognize no gain or loss on the transfer, the basis of the
assets to be received by Fourth should be the same as the basis of
those assets in the hands of OSI immediately prior to the transfer.
Since Bank IV will receive property (i.e., the assets) from Savings
Bank in connection with a reorganization within the meaning of
Section 368(a)(1)(A) and Savings Bank will recognize no gain or
loss on the transfer, the basis of the assets to be received by
Bank IV should be the same as the basis of those assets in the
hands of Savings Bank immediately prior to the transfer.
Section 1223(2) of the Code provides that, in determining the
period for which the taxpayer has held property however acquired
there shall be included the period for which such property was held
by any other person, if under this chapter such property has, for
the purpose of determining gain or loss from a sale or exchange,
the same basis in whole or in part in his hands as it would have in
the hands of such other person. Because the basis of the assets to
be received by Fourth from OSI should be the same as the basis of
those assets in the hands of OSI immediately prior to the transfer,
the holding period for the assets of OSI to be received by Fourth
should include the period during which such assets were held by
OSI. Because the basis of the assets to be received by Bank IV
from Savings Bank should be the same as the basis of those assets
in the hands of Savings Bank immediately prior to the transfer, the
holding period for the assets of Savings Bank to be received by
Bank IV should include the period during which such assets were
held by Savings Bank.
Section 354(a)(1) of the Code provides that no gain or loss shall be
recognized if stock or securities in a corporation a party to a
reorganization are, in pursuance of the plan of reorganization,
exchanged solely for stock or securities in such corporation or in
another corporation a party to the reorganization. Since the stock
of OSI is being exchanged for Fourth common stock and cash, only to
the extent there are dissenters no gain or loss shall be recognized
by the OSI shareholders on the exchange of their OSI stock for Fourth
common stock (including fractional share interests that they might
otherwise be entitled to receive). Since the stock of Savings Bank
is being exchanged solely for Bank IV common stock, no gain or loss
shall be recognized by the Savings Bank shareholder on the exchange
of its Savings Bank stock for Bank IV common stock
Section 358(a)(1)of the Code provides that in the case of an exchange
to which Section 354 applies, the basis of the property to be
received without the recognition of gain or loss shall be the same as
that of the property exchanged. Since a shareholder of OSI will
receive solely Fourth stock in the exchange, the basis of the Fourth
common stock (including fractional share interests that they might
otherwise be entitled to receive) in the hands of the former OSI
shareholders should be the same, in each instance, as the basis of
the OSI common stock surrendered in exchange therefore. Since Fourth
will receive solely Bank IV stock in the exchange the basis of the
Bank IV common stock, in the hands of Fourth should be the same as
the basis of the Savings Bank common stock surrendered in exchange
therefore.
Section 1223(1) of the Code provides that, in determining the period
for which the taxpayer has held property received in an exchange,
there shall be included the period for which the taxpayer held the
property exchanged if, under this chapter, the property has, for the
purpose of determining gain or loss from a sale or exchange, the same
basis in whole or in part in his hands as the property exchanged,
and, in the case of such exchanges after March 1, 1954, the property
exchanged, at the time of such exchange, was a capital asset as
defined in section 1221 or property described in section 1231. Since
the basis of the Fourth common stock held by the OSI shareholders
should have the same basis as the OSI common stock exchanged, the
holding period of the Fourth common stock (including fractional share
interests that they might otherwise be entitled to receive) should
include the period for which the OSI common stock was held, provided
that such stock was a capital asset on the date of the exchange.
Since the basis of the Bank IV common stock held by Fourth should
have the same basis as the Savings Bank common stock exchanged, the
holding period of the Bank IV common stock should include the period
for which the Savings Bank common stock was held, provided that such
stock was a capital asset on the date of the exchange.
Rev. Rul. 66-365, 1966-1 C.B. 116, provides that cash received by a
target shareholder as part of a plan of reorganization under Section
368(a)(1)(A) of the Code, when the target shareholder is otherwise
entitled to receive a fractional share of stock of the acquiring
corporation in exchange for the target stock, will be treated as if
the fractional shares were distributed as part of the exchange and
then were redeemed by the acquirer. These cash payments will be
treated as having been received as distributions in full payment in
exchange for the stock redeemed as provided in Section 302(a),
provided the redemption is not essentially equivalent to a dividend.
Thus, the receipt of cash will result in gain or loss measured by the
difference between the basis of such fractional share interest and
the cash received, and such gain or loss will be capital gain or loss
to the target shareholder, provided the target stock was a capital
asset in the shareholder's hands and, as such, would be subject to
the provisions and limitations of Subchapter P of Chapter 1 of the
Code.
Rev. Proc. 77-41, 1977-2, C.B. 574, provides that the Service will
issue an advance ruling under Section 302(a) of the Code that cash to
be distributed to shareholders in lieu of fractional share interest
arising in corporate reorganizations will be treated as having been
received in part or full payment in exchange for the stock redeemed
if the cash distribution is undertaken solely for the purpose of
saving the corporation the expense and inconvenience of issuing and
transferring fractional shares, and is not separately bargained for
consideration. The purpose of the transaction giving rise to the
fractional share interest, the maximum amount of cash that may be
received by any one shareholder, and the percentage of the total
consideration that will be cash are among the factors that will be
considered in determining whether a ruling is to be issued.
It has been represented that the payment of cash in lieu of
fractional shares of Fourth stock is solely for the purpose of
avoiding the expense and inconvenience to Fourth of issuing
fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in the
transaction to the OSI shareholders instead of issuing fractional
shares of Fourth common stock will not exceed one percent of the
total consideration that will be issued in the transaction to the OSI
shareholders in exchange for their shares of OSI stock. The
fractional share interests of each OSI shareholder will be
aggregated, and no OSI shareholder will receive cash in an amount
equal to or greater than the value of one full share of Fourth common
stock.
Accordingly, cash received by a shareholder of OSI otherwise entitled
to receive a fractional share of Fourth common stock in the exchange
for OSI common stock will be treated as if the fractional shares were
distributed as part of the exchange and then were redeemed by Fourth.
These cash payments will be treated as having been received as
distributions in full payment in exchange for the stock redeemed as
provided in Section 302(a) of the Code. This receipt of cash will
result in gain or loss measured by the difference between the basis
of such fractional share interest and the cash received. Such gain
or loss will be capital gain or loss to an OSI shareholder, provided
the OSI common stock was a capital asset in the shareholder's hands
and, as such, would be subject to the provisions and limitations of
Subchapter P of Chapter 1 of the Code.
Section 302(b)(3) of the Code provides that if a redemption is in
complete redemption of all of the stock of a corporation owned by a
shareholder, such redemption shall be treated as a distribution in
part or full payment in exchange for such stock. Because of the
operation of Section 302, where cash is received by a dissenting OSI
shareholder, such cash will be treated as received by the OSI
shareholder as a distribution in redemption of his stock subject to
the provisions and limitations of Section 302.
Section 381(a)(2) of the Code provides that in the case of the
acquisition of the assets of another corporation in a transfer to
which section 361 applies, but only if the transfer is in connection
with a reorganization described in subparagraph (A), (C), (D), (F),
or (G) of section 368(a)(1), the acquiring corporation shall succeed
to and take into account, as of the close of the day of distribution
or transfer, the items described in subsection (c) of the distributor
or transferor corporation, subject to the conditions and limitations
specified in subsections (b) and (c).
Section 1.381(a)-1(a) of the Regulations provides that a corporation
which acquires the assets of another corporation in certain
liquidations and reorganizations shall succeed to, and take into
account, as of the close of the date of distribution or transfer, the
items described in section 381(c) of the distributor or transferor
corporation. These items shall be taken into account by the acquiring
corporation subject to the conditions and limitations specified in
sections 381, 382(b), and 383 and the regulations thereunder.
Because the Fourth Merger is a transaction to which Section 361 and
368(a)(1)(A) apply, Fourth should succeed to and take into account
the items of OSI described in Section 381(c), subject to the
conditions and limitations specified in Sections 381(b) and (c).
Because the Bank Merger is a transaction to which Section 361 and
368(a)(1)(A) apply, Bank IV should succeed to and take into account
the items of Savings Bank described in Section 381 (c), subject to
the conditions and limitations specified in Sections 381 (b) and (c).
Sec. 381(c)(2) of the Code and Section 1.381(c)(2)-1 of the
Regulations provide that in the case of a distribution or transfer
described in subsection (a) the earnings and profits or deficit in
earnings and profits, as the case may be, of the distributor or
transferor corporation shall, subject to subparagraph (B), be deemed
to have been received or incurred by the acquiring corporation as of
the close of the date of the distribution or transfer; and a deficit
in earnings and profits of the distributor, transferor, or acquiring
corporation shall be used only to offset earnings and profits
accumulated after the date of transfer. Because the Fourth Merger
should be a transfer described in Section 381(a), the earnings and
profits, or deficit in earning and profits, of OSI should be deemed
to have been received or incurred by Fourth as of the close of the
date of transfer, except that any deficit in earnings and profits of
OSI, on the one hand, or Fourth on the other hand, should be used
only to offset earnings and profits accumulated after the date of the
transfer. Because the Bank Merger should be a transfer described in
Section 381(a) the earnings and profits, or deficit in earning and
profits, of Savings Bank should be deemed to have been received or
incurred by Bank IV as of the close of the date of transfer, except
that any deficit in earnings and profits of Savings Bank, on the one
hand, or Bank IV on the other hand, should be used only to offset
earnings and profits accumulated after the date of the transfer.
The Oklahoma Income Tax Act, which is Article 23 of Title 68 of the
Oklahoma Statutes of 1991, provides in Section 2353 that any terms
used in the Oklahoma Income Tax Act shall have the same meaning as
when used in a comparable context in the Code, unless a different
meaning is clearly required. This Section also provides that the tax
status and all elections for all taxpayers shall be the same for all
purposes as they are for federal income tax purposes except when the
Oklahoma Income Tax Act specifically provides otherwise. Oklahoma
taxable income is defined in Section 2353 to be taxable income as
reported to the federal government adjusted for items specifically
set forth in Section 2358 which is entitled "Adjustments to arrive at
Oklahoma taxable income and Oklahoma Adjusted gross income".
The Oklahoma Income Tax Act does not contain specific Sections which
are comparable to the Code but merely adopts the entire Code and then
makes specific adjustments thereto. Therefore, the income tax
treatment of any transaction is the same for Oklahoma purposes as it
is for federal purposes unless there is a specific provision in the
Oklahoma Income Tax Act which changes the income tax treatment. No
specific adjustments came to our attention relative to the Fourth
Merger or the Bank Merger.
OPINION
Based on the facts set forth above and in the Agreement, the proxy
statement-prospectus contained in the registration statement (Form S-4)
filed with the Securities and Exchange Commission on October 5, 1994,
the representations of facts as set forth in Fourth's and OSI's letters
of representations dated October 4, 1994, it is our opinion that the
federal and Oklahoma income tax consequences of the proposed merger of
OSI with and into Fourth, with Fourth surviving, and the proposed merger
of Savings Bank with and into Bank IV, with Bank IV surviving, are as
follows:
Fourth Merger:
The merger of OSI with and into Fourth, with Fourth surviving,
should qualify as a reorganization under Section 368 (a)(1)(A) of
the Code. Fourth and OSI should both be "a party to a
reorganization" within the meaning of Section 368(b).
No gain or loss should be recognized by OSI upon the transfer of its
assets to Fourth in exchange for Fourth common stock or cash for
dissenters, if any, and the assumption by Fourth of the liabilities
of OSI, by reason of the application of Sections 361(a), 361(b) and
357(a) of the Code.
No gain or loss should be recognized by Fourth on the receipt of
OSI's assets in exchange for Fourth common stock and cash for
dissenters, if any, and the assumption by Fourth of OSI's
liabilities, by reason of the application of Section 1032(a).
The basis of the assets of OSI in the hands of Fourth should be the
same as the basis of such assets in the hands of OSI immediately
prior to the reorganization, by reason of the application of Section
362(b) of the Code.
The holding period of the property acquired by Fourth from OSI
should include the holding period of such property in the hands of
OSI immediately prior to the reorganization, by reason of the
application of Section 1223(2) of the Code.
No gain or loss should be recognized by OSI shareholders upon the
exchange of their OSI common stock (including fractional share
interests that they might otherwise be entitled to receive) solely
for Fourth common stock, by reason of the application of Section
354(a)(1) of the Code.
The basis of the Fourth common stock (including fractional share
interest that they might otherwise be entitled to receive) received
by the shareholders of OSI should be the same as the basis of the
OSI stock exchanged therefore, by reason of the application of
Section 358(a)(1) of the Code.
The holding period of the Fourth common stock (including fractional
interests that they might otherwise be entitled to receive) received
by the OSI shareholders should include the holding period of the OSI
shares surrendered in the exchange, provided the OSI stock was held
as a capital asset on the date of the exchange, by reason of the
application of Section 1223(1) of the Code.
As provided in Section 381(a)(2) of the Code and Section 1.381(a)-
1(a) of the Regulations, Fourth should succeed to and take into
account as of the close of the day of transfer the items of OSI
described in Section 381(c) subject to the conditions and
limitations specified in Sections 381(b) and 381(c).
As provided in Section 381(c)(2) of the Code and Section
1.381(c)(2)-1 of the Regulations, Fourth should succeed to and take
into account the earnings and profits, or deficit in earnings and
profits, of OSI as of the date or dates of transfer. Any deficit in
earnings and profits of either Fourth or OSI should be used only to
offset earnings and profits accumulated after the date or dates of
transfer.
Cash received by a shareholder of OSI otherwise entitled to receive
a fractional share of Fourth common stock in exchange for his OSI
stock should be treated as if the fractional shares were distributed
as part of the exchange and then were redeemed by Fourth. These
cash payments should be treated as having been received as
distributions in full payment in exchange for the stock redeemed as
provided in Section 302(a) of the Code. This receipt of cash should
result in gain or loss measured by the difference between the basis
of such fractional share interest and the cash received. Such gain
or loss should be capital gain or loss to the OSI shareholder,
provided the OSI stock was a capital asset in such shareholder's
hands and as such, will be subject to the provisions and limitations
of Subchapter P of Chapter 1 of the Code (Rev. Rul. 66-365 and Rev.
Proc. 77-41).
Where cash is received by a dissenting OSI shareholder, such cash
should be treated as received by the OSI shareholder as a
distribution in redemption of his stock, subject to the provisions
and limitations of Section 302 of the Code.
Bank Merger:
The merger of Savings Bank with and into Bank IV, with Bank IV
surviving, should qualify as a reorganization under Section 368
(a)(1)(A) of the Code. Bank IV and Savings Bank should both be "a
party to a reorganization" within the meaning of Section 368(b).
No gain or loss should be recognized by Savings Bank upon the
transfer of its assets to Bank IV in accordance with the Agreement
and the assumption by Bank IV of the liabilities of Saving Bank, by
reason of the application of Sections 361(a) and 357(a) of the Code.
No gain or loss should be recognized by Bank IV on the receipt of
Savings Bank's assets in exchange for Bank IV common stock and the
assumption by Bank IV of Savings Bank's liabilities, by reason of
the application of Section 1032(a).
The basis of the assets of Savings Bank in the hands of Bank IV
should be the same as the basis of such assets in the hands of
Saving Bank immediately prior to the reorganization, by reason of
the application of Section 362(b) of the Code.
The holding period of the property acquired by Bank IV from Savings
Bank should include the holding period of such property in the hands
of Savings Bank immediately prior to the reorganization, by reason
of the application of Section 1223(2) of the Code.
No gain or loss should be recognized by Fourth upon the exchange of
their Savings Bank common stock solely for Bank IV common stock, by
reason of the application of Section 354(a)(1) of the Code.
The basis of the Bank IV common stock received by Fourth should be
the same as the basis of the Savings Bank stock exchanged therefore,
by reason of the application of Section 358(a)(1) of the Code.
The holding period of the Bank IV common stock received by Fourth
should include the holding period of the Savings Bank shares
surrendered in the exchange, provided the Savings Bank stock was
held as a capital asset on the date of the exchange, by reason of
the application of Section 1223(1) of the Code.
As provided in Section 381(a)(2) of the Code and Section 1.381(a)-
1(a) of the Regulations, Bank IV should succeed to and take into
account as of the close of the day of transfer the items of Savings
Bank described in Section 381(c), subject to the conditions and
limitations specified in Sections 381(b) and 381(c).
As provided in Section 381(c)(2) of the Code and Section
1.381(c)(2)-1 of the Regulations, Bank IV, as the deemed survivor,
should succeed to and take into account the earnings and profits, or
deficit in earnings and profits, of Savings Bank as of the date or
dates of transfer. Any deficit in earnings and profits of either
Bank IV or Savings Bank should be used only to offset earnings and
profits accumulated after the date or dates of transfer.
State of Oklahoma Law:
During the course of our review, no specific provisions in the
Oklahoma Income Tax Act came to our attention which would treat the
Fourth Merger or the Bank Merger differently for Oklahoma purposes
than for federal purposes.
This opinion is based solely upon:
a. The representations, information, documents, and facts
("representations") that we have included or referenced in this
opinion letter;
b. Our assumptions (without independent investigation or review) that
all of the representations and all of the original, copies, and
signatures of documents are accurate, true and authentic;
c. Our assumption (without independent investigation or review) that
there will be timely execution and delivery of, and performance as
required by the representations and documents;
d. The understanding that only the issues and tax consequences opined
upon herein are covered by this tax opinion; and
e. The law, regulations, cases, rulings and other tax authority in
effect as of the date of this letter.
If there are any significant change of the foregoing tax authorities
(for which we have no responsibility to advise you), it may result in
our opinion being rendered invalid, or necessitate (upon your request) a
reconsideration of the opinion.
While this opinion letter represents our considered judgment as to the
proper tax treatment to the parties involved, it is not binding on the
IRS or the courts.
Deloitte & Touche LLP
Certified Public Accountants
October 5, 1994
Oklahoma City, Oklahoma