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EXHIBIT 8
April ____, 1998
CIBC Oppenheimer
Legg Mason Wood Walker, Incorporated
c/o CIBC Oppenheimer
CIBC Oppenheimer Tower
One World Financial Center
New York, New York 10281
Re: Series A ____% Capital Securities of
USBANCORP Capital Trust I
Ladies and Gentlemen:
We have acted as tax counsel for USBANCORP, Inc., a Pennsylvania
corporation (the "Company"), and USBANCORP Capital Trust I, a statutory business
trust organized under the Business Trust Act of the State of Delaware (12 Del.
Code Ann., tit. 12, Sections 3801, et seq.) (the "Trust" and, together
with the Company, the "Offerors"), in connection with the sale pursuant to an
Underwriting Agreement dated ________, 1998, among the Company, the Trust and
the purchasers (the "Purchasers") named therein (the "Underwriting Agreement"),
of 1,200,000 shares of Series A ____% Capital Securities (liquidation amount $25
per capital security) of the Trust (the "Series A Capital Securities"),
representing undivided beneficial interests in the assets of the Trust.
The Series A Capital Securities are guaranteed (the "Series A Capital
Securities Guarantee") by the Company with respect to distributions and payments
upon liquidation, redemption, and otherwise pursuant to the Series A Capital
Securities Guarantee Agreement, dated as of ________, 1998 (the "Series A
Capital Securities Guarantee Agreement"), between the
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Legg Mason Wood Walker, Incorporated
c/o CIBC Oppenheimer
________, 1998
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Company and The Bank of New York, as Guarantee Trustee, for the benefit of the
holders of the Series A Capital Securities.
In connection with the issuance of the Series A Capital Securities, the
Trust is also issuing 37,114 shares of its common securities (liquidation amount
of $25 per common security) (the "Common Securities"), representing undivided
beneficial interests in the assets of the Trust.
The entire proceeds from the sale of the Series A Capital Securities
and the Common Securities are to be used by the Trust to purchase an aggregate
principal amount of $30,927,850 of Series A ____% Junior Subordinated Deferrable
Interest Debentures due June 30, 2028 (the "Series A Subordinated Debentures"),
to be issued by the Company. The Series A Capital Securities and the Common
Securities are to be issued pursuant to the Amended and Restated Trust Agreement
dated as of April 15, 1998 (the "Trust Agreement"), among the Company, as
sponsor, The Bank of New York (Delaware), as Delaware trustee (the "Delaware
Trustee"), The Bank of New York, as property trustee (the "Property Trustee"),
and Terry K. Dunkle, Jeffrey A. Stopko and Anthony M. V. Eramo as administrative
trustees. The Series A Subordinated Debentures are to be issued pursuant to an
indenture, to be dated as of April 1, 1998 (the "Indenture"), between the
Company and The Bank of New York, as Debenture Trustee.
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Legg Mason Wood Walker, Incorporated
c/o CIBC Oppenheimer
________, 1998
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Capitalized terms used but not otherwise defined herein shall have the
respective meanings set forth in the Underwriting Agreement.
You have requested our opinion that (a) the Trust will be classified as
a grantor trust and not as an association taxable as a corporation for United
States federal income tax purposes, and (b) the Series A Subordinated Debentures
will be treated as indebtedness for United States federal income tax purposes.
In connection with this opinion, we have reviewed originals or copies, certified
or otherwise identified to our satisfaction, of: (i) the Prospectus; (ii) the
Certificate of Trust filed by the Property Trustee and the Delaware Trustee with
the Secretary of State of the State of Delaware as of ________, 1998; (iii) an
executed copy of the Trust Agreement, including the designation of the terms of
the Series A Capital Securities; (iv) the form of Series A Capital Securities
and a specimen certificate thereof; (v) an executed copy of the Series A Capital
Securities Guarantee Agreement; (vi) an executed copy of the Indenture; (vii)
the form of Series A Subordinated Debentures and a specimen certificate thereof;
(viii) the form of Common Securities and a specimen certificate thereof; (ix) an
executed copy of the Purchase Agreement; and (x) representations set forth in a
certificate from an officer of the Company dated ________, 1998.
In our review, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the
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Legg Mason Wood Walker, Incorporated
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________, 1998
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conformity to original documents of all documents submitted to us as certified,
conformed or photostatic copies, and the authenticity of the originals of such
latter documents. In making our review of documents executed, or to be executed
by parties other than the Trust, we have assumed that such parties had, or will
have, the power, corporate or other, to enter into and perform all obligations
thereunder and have also assumed the due authorization by all requisite action,
corporate or other, and execution and delivery by such parties of such documents
and that such documents constitute, or will constitute, valid and binding
obligations of such parties. As to any facts material to the opinions expressed
herein which were not independently established or verified, we have relied upon
oral or written statements and representations of officers, trustees and other
representatives of the Company, the Trust and others. Our opinion is conditioned
on, among other things, the initial and continuing accuracy of the facts,
assumptions, information, covenants, and representations set forth in the
documents referred to above and the statements and representations made by the
Company and the Trust and others referenced above.
In providing our opinion, we have considered the provisions of the
Internal Revenue Code of 1986, as amended, Treasury regulations (proposed,
temporary and final) promulgated thereunder, judicial decisions and Internal
Revenue Service rulings, all as of the date hereof, and all of which are subject
to change, which changes may be retroactively applied. A change in the
authorities upon which our opinion is based could affect
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Legg Mason Wood Walker, Incorporated
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our conclusions. Moreover, there can be no assurance that the Internal Revenue
Service will not challenge the opinions expressed herein or that a court would
not sustain such a challenge. Nevertheless, we are of the view that, if
challenged, the opinions expressed herein would be sustained by a court with
jurisdiction in a properly presented case.
Based solely upon the foregoing and upon the assumptions set forth
herein, and subject to the qualifications and caveats set forth herein, we are
of the opinion that, under present law, for United States federal income tax
purposes:
1. The Trust will be classified as a grantor trust and not as an
association taxable as a corporation. Accordingly, for United
States federal income tax purposes, each holder of Series A
Capital Securities will generally be considered the owner of
an undivided interest in the Series A Subordinated Debentures;
2. Subject to the discussion set forth below under the
heading "SERIES A SUBORDINATED DEBENTURES," the
Series A Subordinated Debentures will be classified as
indebtedness for United States federal income tax
purposes; and
3. Although the discussion set forth in the Prospectus
under the heading "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES" does not purport to discuss all possible
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Legg Mason Wood Walker, Incorporated
c/o CIBC Oppenheimer
________, 1998
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United States federal income tax consequences of the
purchase, ownership, and disposition of the Series A
Capital Securities, in our opinion such discussion
constitutes, in all material respects, a fair and accurate
summary of the relevant United States federal income tax
consequences of the purchase, ownership, and disposition of
Series A Capital Securities under
current law.
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SERIES A SUBORDINATED DEBENTURES
Generally, the characterization of an instrument as debt or equity for
United States federal income tax purposes depends on all the facts and
circumstances surrounding the issuance and operation of a particular instrument,
and no single factor or characteristic is considered to be controlling. See,
e.g., John Kelley Co. v. Commissioner, 326 U.S. 521 (1946). The taxpayer has the
burden of proving that a particular instrument is debt or equity. See White v.
United States, 305 U.S. 281, 292 (1938); Smith v. Commissioner, 370 F.2d 178,
180 (6th Cir. 1966).
In determining whether a particular instrument evidences a
debtor-creditor or equity relationship, different courts have identified a
number of factors that must be evaluated and have weighed the relative
importance of such factors in light of the particular facts and circumstances of
the instrument under examination. See Fin Hay Realty Co. v. United States, 398
F.2d
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Legg Mason Wood Walker, Incorporated
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694, 696 (3d Cir. 1968); Tyler v. Tomlinson, 414 F.2d 844, 848 (5th Cir. 1969).
In cases where a purported debt instrument is not held proportionately with
shareholding, the factors which appear to be the most important are those that
distinguish the rights and remedies of creditors from those of stockholders.
See, Federal Express Corp. v. United States, 645 F. Supp. 1281 (W.D. Tenn.
1986). In such cases, the most relevant factors are (i) a definite maturity date
and certainty of payment, (ii) the ability to force repayment in the event of a
default, (iii) subordination, (iv) adequacy and unconditionality with respect to
the payment of interest, (v) participation in the success of the issuer's
business, and (vi) participation in the management of the issuer. See
Scriptomatic, Inc. v. United States, 555 F.2d 364 (3d Cir. 1977); Federal
Express, supra, at 1290-91.
Based on the factors identified above, the following features of the
Series A Subordinated Debentures (hereinafter, the "SASD") are the most relevant
to the determination of whether they should be classified as indebtedness of the
Company:
1. Term. The term of the SASD is approximately thirty
(30) years, and the SASD are payable in cash upon
maturity.
2. Interest. The Company is obligated to pay interest on the SASD
without regard to the Company's earnings; and, while the
Company has the right at any time during the term of the SASD
to defer payment of interest on the SASD for up to twenty (20)
consecutive quarterly interest payment periods (each an
"Extension Period"), this interest payment deferral option
(the "Deferral
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Legg Mason Wood Walker, Incorporated
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Option") is clearly limited and the Trustees of the Trust can
sue to compel payment of the amounts then due if the Company
exceeds the scope of the Deferral Option. In addition,
interest will compound quarterly at the coupon rate
("Additional Interest") on any deferred interest to the extent
permitted by law.
3. Default. Any default in the payment of interest (other
than a deferral permitted pursuant to the Deferral
Option) or other amounts results in a legally
enforceable right of Trustees of the Trust against the
Company to accelerate the SASD and obtain full payment.
4. Subordination. The SASD are subordinate and junior in
right of payment to all Senior Debt to the extent
provided in the Indenture, but are pari passu with the
general unsecured creditors of the Company and senior
to all classes of equity of the Company.
5. Management. Neither the Trust nor the holders of the
Series A Capital Securities (the "Holders") are entitled to
vote or otherwise participate in the management of the
Company.
6. Non-Tax Characterization. The SASD, the Trust and the
Series A Capital Securities are designed to enable the
Company to receive more favorable treatment for its
senior debt than it would receive if the Company issued
senior debt to the public rather than issuing the SASD
to the Trust. In addition, for accounting purposes,
the Series A Capital Securities and the SASD are
expected to be reflected in the Company's consolidated
financial statements as "Guaranteed Preferred
Beneficial Interests in Corporation's Junior
Subordinated Deferrable Interest Debentures, Series A."
The Trust, the Company and the Holders will, however,
treat the SASD as indebtedness of the Company for all
purposes related to United States federal income
taxation.
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Legg Mason Wood Walker, Incorporated
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The SASD, therefore, have indicia typical of debt, and essentially all
of their attributes are characteristic of debt instruments. Arguably, only to
the extent that (i) a thirty (30) year maturity may be considered unreasonable,
(ii) the Company may receive more favorable treatment for its senior debt from
independent credit rating agencies and regulatory authorities than it would
receive if the Company instead issued senior debt to the public, and (iii)
interest may be deferred pursuant to the Deferral Option, could the SASD be seen
as having any material equity-like characteristics. As discussed below, these
features of the SASD either should not constitute equity-like characteristics,
or they should not undermine the classification of the SASD as indebtedness of
the Company.
A. The Term.
No particular period constitutes a per se reasonable maturity
date in all situations. The line between debt and equity is not determined
solely by the term of the instrument. Instruments with maturities ranging from
50 to 99 years have been found to qualify as debt when the borrower's business
is expected to continue for that period or there is a contractual obligation
that is reasonably likely to be satisfied on or prior to a definite date. See
Monon Railroad v. Commissioner, 55 T.C. 345, 359 (1970) (50 year debt); Ruspyn
Corporation v. Commissioner, 18 T.C. 769 (1952) (89 year debt); Mayerson v.
Commissioner, 47 T.C. 340 (1966) (99 year debt). In contrast, if the term of the
instrument is expected to extend beyond the expected life of an
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Legg Mason Wood Walker, Incorporated
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issuer's assets, equity classification is more likely. See Swoby Corporation v.
Commissioner, 9 T.C. 887, 894 (1947) (99 year instrument not debt).
The term of the SASD will be approximately thirty (30) years.
This term should be viewed as a reasonable maturity for the Company, inasmuch as
the Company has a sound credit rating for the Series A Capital Securities, as
evidenced by the "BBB-" investment grade rating assigned to the Series A Capital
Securities by Thomson Bank Watch, and the Company expects, and has represented
to us that it expects, to have future cash flow or access to financing
sufficient to support the payments that will become due on the SASD. Moreover,
in the unlikely event that a thirty (30) year term is considered excessive for
the Company, the term is but one factor leaning towards equity characterization,
and this factor should be outweighed by other factors inherent in the SASD that
are indicative of debt classification.
B. Non-Tax Characterization.
The Internal Revenue Service has taken the position that the
characterization of an instrument for non-tax purposes, including accounting,
regulatory or rating agency purposes, is a relevant factor in classifying an
instrument as debt or equity. Notice 94-47, 1994-19 I.R.B. 9 (May 9, 1994).
Courts, however, have placed less importance on the treatment of an instrument
for non-tax purposes and have stated that such treatment is, at most,
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Legg Mason Wood Walker, Incorporated
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one factor to consider and is certainly not controlling for United States
federal income tax purposes. See, e.g., Cottage Savings Association v.
Commissioner, 499 U.S. 554 (1991); Thor Power Tool Co. v. Commissioner, 439 U.S.
522, 538-44 (1979).
The SASD, the Trust and the Series A Capital Securities are
designed to enable the Company to receive more favorable treatment for its
senior debt than it would receive if the Company had issued additional senior
debt to the public rather than issuing the SASD to the Trust. For example, it is
our understanding that the funds received through the issuance of the Series A
capital Securities will, generally, constitute "Tier 1 Capital" for bank holding
companies subject to regulation by the Federal Reserve. In addition, for
financial accounting purposes, the Series A Capital Securities and the SASD are
expected to be reflected in the Company's consolidated financial statements as
"Guaranteed Preferred Beneficial Interests in Corporation's Junior Subordinated
Deferrable Interest Debentures, Series A." Such categorization will, however,
still cause the Series A Capital Securities to constitute a liability of the
Company for financial accounting purposes.
Under the view espoused by the Internal Revenue Service, these non-tax
characteristics of the SASD may be viewed as equity-like features of the SASD.
Nevertheless, the Internal Revenue Service does not treat this factor as
conclusive, but rather treats it as one of the many factors that must be weighed
in reaching a determination. In addition, it is unclear whether
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Legg Mason Wood Walker, Incorporated
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the courts would place any material weight on the treatment of the SASD for
these non-tax purposes. Moreover, the treatment of the SASD for accounting,
regulatory and credit rating agency purposes does not affect the Company's
obligations under the SASD, or the Company's ability to meet it's principal and
interest obligations on the SASD or undermine the creditor rights inherent in
the SASD. Therefore, the characterization of the SASD by regulatory authorities
and independent credit rating agencies, and their status for financial
accounting and regulatory purposes, should not jeopardize their status as
indebtedness of the Company. At worst, such non-tax characterizations could be
viewed as relatively minor equity-like features of the SASD that should not
jeopardize their status as indebtedness of the Company.
C. Interest Deferral Option.
The ability to forego making periodic payments provided for
under the terms of an instrument, such as the Deferral Option, may also be
viewed as an equity-like feature. Nevertheless, and even though the Deferral
Option is a valuable rights to the Company, the mere ability to defer interest
on the SASD should not have a material effect on the classification of the SASD
as debt, since (i) interest will compound quarterly at the coupon rate on any
deferred interest to the extent permitted by law, and (ii) exercise of the
Deferral Option only converts the SASD into a partial zero coupon bond with the
same yield to maturity. Moreover, the Deferral Option does not undermine the
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Trust's right to enforce the payment of principal and interest on schedule,
since the Deferral Option is, in effect, part of the interest payment schedule.
Therefore, the Deferral Option should not have an adverse impact on the
classification of the SASD as indebtedness of the Company.
D. Conclusion.
Although the issue is not entirely free from doubt, based on
all of the foregoing and assuming that the "BBB-" investment grade rating of the
Series A Capital Securities by Thomson Bank Watch is persuasive evidence that
(i) the Company, as borrower, is adequately capitalized, and (ii) there is a
reasonable expectation that the Company will be able to service the SASD and
make all payments of principal and interest as and when due under the terms of
the SASD, and subject to all other assumptions, qualifications and caveats set
forth herein, we are of the opinion that, under present law, the SASD will be
classified as indebtedness of the Company for United States federal income tax
purposes.
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Except as set forth above, we express no opinion to any party as to the
tax consequences, whether federal, state, local or foreign, of the issuance of
the Series A Subordinated Debentures, the Series A Capital Securities, the
Common Securities or any transactions related to or contemplated by such
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issuance. This opinion may not be relied upon by any party other than the
addressees hereof.
The opinion is expressed as of the date hereof unless otherwise
expressly stated, and we disclaim any undertaking to advise you of changes of
the facts stated or assumed herein or any subsequent changes in applicable law.
Very truly yours,