[LETTERHEAD OF HOUSLEY KANTARIAN & BRONSTEIN, P.C.]
November 10, 1998
Board of Directors
Ogdensburg Federal Savings and
Loan Association
825 State Street
Ogdensburg, New York 13669
Re: Federal Income Tax Consequences Relating to Proposed
Holding Company Conversion
----------------------------------------------------
Gentlemen:
In accordance with your request, set forth hereinbelow is
the opinion of this firm relating to the material federal income
tax consequences of the proposed conversion of Ogdensburg
Federal Savings and Loan Association (the "Association") from a
federally chartered mutual savings association to a federally
chartered capital stock saving association with the name
"Ogdensburg Federal Savings and Loan Association" (the
"Converted Association") and the concurrent acquisition of 100%
of the outstanding capital stock of the Converted Association by
Peoples Bankcorp, Inc. (the "Company"), a New York corporation
formed at the direction of the Board of Directors of the
Association to become the parent holding company of the
Converted Association (the "Conversion").
For purposes of this opinion, we have examined such
documents and questions of law as we have considered necessary
or appropriate, including but not limited to the Plan of
Conversion as adopted on July 23, 1998 by the Board of Directors
of the Association (the "Plan"); the federal mutual charter and
bylaws of the Association, as amended; the federal stock charter
and bylaws of the Converted Association; the certificate of
incorporation and bylaws of the Company; the Affidavit of
Representations dated November 10,1998 provided to us by the
Association (the "Affidavit"), and the Prospectus (the
"Prospectus") included in the Company's Registration Statement
on Form SB-2, as amended, filed with the Securities and Exchange
Commission ("SEC") in connection with the Conversion (the
"Registration Statement"). In such examination, we have
assumed, and have not independently verified, the genuineness of
all signatures on original documents where due execution and
delivery are requirements to the effectiveness thereof.
Board of Directors
Ogdensburg Federal Savings
and Loan Association
November 10, 1998
Page 2
Terms used but not defined herein, whether capitalized or not,
shall have the same meaning as defined in the Plan.
BACKGROUND
----------
Based solely upon our review of such documents, and upon
such information as the Association has provided to us (which we
have not attempted to verify in any respect), and in reliance
upon such documents and information, we set forth hereinbelow a
general summary of the relevant facts and proposed transaction,
qualified in its entirety by reference to the documents cited
above.
The Association is a federally chartered mutual savings
association, which is in the process of converting to a
federally chartered capital stock savings association. The
Association was organized as a federally chartered mutual
savings institution in 1982 having originally been chartered as
a state chartered savings and loan association.
The Association is a member of the FHLB System, and the
deposits of the Association are insured by the Federal Deposit
Insurance Corporation ("FDIC") up to applicable limits. The
Association is subject to comprehensive regulation and
supervision by the Office of Thrift Supervision ("OTS") and to
examination by the OTS. The Association operates one office in
St. Lawrence County, New York.
The Association's principal business consists of
attracting deposits, primarily certificates of deposit, from the
general public and originating residential mortgage loans on
one- to four-family properties. The Association also offers
consumer loans and certain other types of loans. At June 30,
1998, the Association had total assets of $24.2 million,
deposits of $22.4 million and equity of $1.6 million.
As a federally chartered mutual savings association, the
Association has no authorized capital stock. Instead, the
Association, in mutual form, has a unique equity structure. A
savings depositor of the Association is entitled to payment of
interest on his account balance as declared and paid by the
Association, but has no right to a distribution of any earnings
of the Association except for interest paid on his deposit.
Rather, such earnings become retained income of the Association.
However, a savings depositor does have a right to share
pro rata, with respect to the withdrawal value of his respective
savings account, in any liquidation proceeds distributed if the
Association is ever liquidated. Further, savings depositors and
borrowers are members of the Association and thereby have voting
rights in the Association. Under the Association's federal
mutual charter, each depositor is entitled to cast one vote for
each $100 or fraction thereof held in a withdrawable deposit
account of the Association, and each borrower member
(hereinafter
Board of Directors
Ogdensburg Federal Savings
and Loan Association
November 10, 1998
Page 3
"borrower") is entitled to one vote in addition to the votes
(if any) to which such person is entitled in such borrower's
capacity as a savings depositor of the Association. All of the
interests held by a savings depositor in the Association cease
when such depositor closes his accounts with the Association.
The Company was incorporated on September 17, 1998 under
the laws of the State of New York to act as the savings and loan
holding company of the Converted Association upon consummation
of the Conversion. Prior to consummation of the Conversion, the
Company has not been engaged in and is not expected to engage in
any material operations. After the Conversion, the Company's
principal business will be overseeing the business of the
Converted Association. The Company has authorized capital stock
of 3,000,000 shares of common stock (the "Common Stock"), par
value $.01 per share, and 500,000 shares of serial preferred
stock, par value $.01 per share.
PROPOSED TRANSACTION
--------------------
The Board of Directors of the Association has decided that
in order to attract new capital to the Converted Association to
increase its net worth, to support future savings growth, to
increase the amount of funds available for lending and
investment, to provide greater resources for the expansion of
customer services, and to facilitate future expansion, it would
be advantageous for the Association to convert from a federally
chartered mutual savings association to a federally chartered
capital stock savings association. In addition, the Board of
Directors intends to implement stock option plans and other
stock benefit plans following the Conversion in order to better
attract and retain qualified directors and officers. It is the
further desire of the Board of Directors to reorganize the
Converted Association as the wholly owned subsidiary of the
Company to enhance flexibility of operations, diversification of
business opportunities and financial capability for business and
regulatory purposes and to enable the Converted Association to
compete more effectively with other financial service
organizations.
Accordingly, pursuant to the Plan, the Association will
undergo the Conversion whereby it will be converted from a
federally chartered mutual savings association to a federally
chartered capital stock savings association. The Converted
Association will then issue to the Company 100,000 shares of the
Converted Association's common stock, representing all of the
shares of capital stock to be issued by the Converted
Association in the Conversion, and the Company will make payment
to the Converted Association in an amount equal to at least 50%
of the aggregate net proceeds realized by the Company from the
sale of its Common Stock sold pursuant to the Plan, after
deducting the amount necessary to fund a loan to an Employee
Stock Ownership Plan being established in connection with the
Conversion, or such other portion of the aggregate net proceeds
as may be authorized or required by the OTS. Pursuant to the
Prospectus, the Company currently anticipates making such
payment to the Converted Association of an amount equal to 50%
of the aggregate net proceeds from the sale of the Common Stock.
Board of Directors
Ogdensburg Federal Savings
and Loan Association
November 10, 1998
Page 4
Also pursuant to the Plan, the Company will offer its
shares of Common Stock for sale in a Subscription Offering.
Shares of Common Stock remaining, if any, may then be offered to
the general public in a Community Offering. Shares of the
Common Stock not otherwise subscribed for in the Subscription
Offering and Community Offering may be offered at the discretion
of the Company to certain members of the general public as part
of a community offering on a best efforts basis by a selling
group of selected broker-dealers.
The purchase price per share and total number of shares of
Common Stock to be offered and sold pursuant to the Plan will be
determined by the Boards of Directors of the Association and the
Company, on the basis of the estimated pro forma market value of
the Converted Association, as a subsidiary of the Company, which
will in turn be determined by an independent appraiser. The
aggregate purchase price for all shares of the Common Stock will
be equal to such estimated pro forma market value. Pursuant to
the Plan, all such shares of Common Stock will be issued and
sold at a uniform price per share. The Conversion, including
the sale of newly issued shares of the stock of the Converted
Association to the Company, will be deemed effective
concurrently with the closing of the sale of the Common Stock.
Under the Plan and in accordance with regulations of the
OTS, the shares of Common Stock will first be offered through
the Subscription Offering pursuant to non-transferable
subscription rights on the basis of preference categories in the
following order of priority:
(1) Eligible Account Holders;
(2) Tax-Qualified Employee Stock Benefit Plans (i.e. the
ESOP);
(3) Supplemental Eligible Account Holders; and
(4) Other Members.
However, any shares of Common Stock sold in excess of the
high-end of the Valuation Range may first be sold to
Tax-Qualified Employee Stock Benefit Plans set forth in category
(2) above.
Any shares of Common Stock not subscribed for in the
Subscription Offering will be offered in the Community Offering
in the following order of priority:
(a) Natural persons and trusts of natural persons
(including individual retirement and Keogh
retirement accounts and personal trusts in which
such natural persons have substantial interests) who
are permanent Residents of the Association's Local
Community, St. Lawrence County, New York; and
Board of Directors
Ogdensburg Federal Savings
and Loan Association
November 10, 1998
Page 5
(b) The general public.
Shares not sold in the Subscription Offering and the
Community Offering, if any, may thereafter be offered for sale
to certain members of the general public as part of a community
offering on a best efforts basis by a selling group of selected
broker-dealers. The sale of shares in the Subscription Offering,
Community Offering, and as sold through the selected
broker-dealers would be consummated at the same time.
The Plan also provides for the establishment of a
Liquidation Account by the Converted Association for the benefit
of all Eligible Account Holders and Supplemental Eligible
Account Holders in an amount equal to the regulatory capital of
the Association as of the date of the latest statement of
financial condition contained in the final prospectus issued in
connection with the Conversion. The establishment of the
Liquidation Account will not operate to restrict the use or
application of any of the net worth accounts of the Converted
Association, except that the Converted Association may not
declare or pay cash dividends on or repurchase any of its stock
if the result thereof would be to reduce its regulatory capital
below the amount required to maintain the Liquidation Account.
All such account holders will have an inchoate interest in a
proportionate amount of the Liquidation Account with respect to
each savings account held and will be paid by the Converted
Association in event of liquidation prior to any liquidating
distribution being made with respect to capital stock. Under
the Plan, the Conversion shall not be deemed to be a liquidation
of the Association for purposes of distribution of the
Liquidation Account. Instead, upon consummation of the
Conversion, the Liquidation Account, together with the related
rights and obligations of the Converted Association, shall be
assumed by the Converted Association.
The Conversion will not interrupt the business of the
Association. The Converted Association will, after the
Conversion, engage in the same business as that of the
Association immediately prior to the Conversion, and will
continue to be subject to regulation and supervision by the OTS.
Further, the deposits of the Converted Association will continue
to be insured by the FDIC. Each depositor will retain a
withdrawable savings account or accounts equal in dollar amount
to, and on the same terms and conditions as, the withdrawable
account or accounts at the time of Conversion except to the
extent funds on deposit are used to pay for Common Stock
purchased in connection with the Conversion. All loans of the
Association will remain unchanged and retain their same
characteristics in the Converted Association immediately
following the Conversion.
Following the Conversion, voting rights in the Converted
Association will rest exclusively with the sole holder of stock
in the Converted Association, which will be the Company. Voting
rights in the Company will rest exclusively in the holders of
the Common Stock.
Board of Directors
Ogdensburg Federal Savings
and Loan Association
November 10, 1998
Page 6
The Plan must be approved by the OTS and by an affirmative
vote of at least a majority of the total votes eligible to be
cast at a meeting of the Association's members called to vote on
the Plan. Immediately prior to the Conversion, the Association
will have a positive net worth determined in accordance with
generally accepted accounting principles.
OPINION
-------
Based on the foregoing and in reliance thereon, and
subject to the conditions stated herein, it is our opinion that
the following federal income tax consequences will result from
the proposed transaction.
1. The Conversion will constitute a reorganization
within the meaning of Section 368(a)(1)(F) of the
Internal Revenue Code of 1986, as amended (the
"Code"), and no gain or loss will be recognized to
either the Association or the Converted Association
as a result of the Conversion (see Rev. Rul. 80-105,
1980-1 C.B. 78).
2. The assets of the Association will have the same
basis in the hands of the Converted Association as
in the hands of the Association immediately prior to
the Conversion (Section 362(b) of the Code).
3. The holding period of the assets of the Association
to be received by the Converted Association will
include the period during which the assets were held
by the Association prior to the Conversion (Section
1223(2) of the Code).
4. No gain or loss will be recognized by the Converted
Association upon its receipt of money from the
Company in exchange for shares of common stock of
the Converted Association (Section 1032(a) of the
Code). The Company will be transferring solely cash
to the Converted Association in exchange for all the
outstanding capital stock of the Converted
Association and therefore will not recognize any
gain or loss upon such transfer. (Section 351(a) of
the Code; see Rev. Rul. 69-357, 1969-1 C.B. 101).
5. No gain or loss will be recognized by the Company
upon its receipt of money in exchange for shares of
the Common Stock (Section 1032(a) of the Code).
6. No gain or loss will be recognized by the Eligible
Account Holders, Supplemental Eligible Account
Holders, or Other Members of the Association upon
the issuance to them of deposit accounts in the
Converted Association in the same dollar amount and
on the same terms and conditions in exchange for
their deposit accounts in the Association held
immediately prior to the Conversion. (Section
1001(a) of the Code; Treas. Reg. Subsection
1.1001-1(a)).
Board of Directors
Ogdensburg Federal Savings
and Loan Association
November 10, 1998
Page 7
7. The tax basis of the savings accounts of the
Eligible Account Holders, Supplemental Eligible
Account Holders, and Other Members in the Converted
Association received as part of the Conversion will
equal the tax basis of such account holders'
corresponding deposit accounts in the Association
surrendered in exchange therefor (Section 1012 of
the Code).
8. Each depositor of the Association will recognize
gain upon the receipt of his or her respective
interest in the Liquidation Account established by
the Converted Association pursuant to the Plan and
the receipt of his or her subscription rights deemed
to have been received for federal income tax
purposes, but only to the extent of the excess of
the combined fair market value of a depositor's
interest in such Liquidation Account and
subscription rights over the depositor's basis in
the former interests in the Association other than
deposit accounts. Persons who subscribe in the
Conversion but who are not depositors of the
Association will recognize gain upon the receipt of
subscription rights deemed to have been received for
federal income tax purposes, but only to the extent
of the excess of the fair market value of such
subscription rights over such person's former
interests in the Association, if any. Any such gain
realized in the Conversion would be subject to
immediate recognition.
9. The basis of each account holder's interest in the
Liquidation Account received in the Conversion and
to be established by the Converted Association
pursuant to the Conversion will be equal to the
value, if any, of that interest.
10. No gain or loss will be recognized upon the exercise
of a subscription right in the Conversion. (Rev.
Rul. 56-572, 1956-2 C.B.182).
11. The basis of the shares of Common Stock acquired in
the Conversion will be equal to the purchase price
of such shares, increased, in the case of such
shares acquired pursuant to the exercise of
subscription rights, by the fair market value, if
any, of the subscription rights exercised (Section
1012 of the Code).
12. The holding period of the Common Stock acquired in
the Conversion pursuant to the exercise of
subscription rights will commence on the date on
which the subscription rights are exercised (Section
1223(6) of the Code). The holding period of the
Common Stock acquired in the Community Offering will
commence on the date following the date on which
such stock is purchased (Rev. Rul. 70-598, 1970-2
C.B. 168; Rev. Rul. 66-97, 1966-1 C.B. 190).
Board of Directors
Ogdensburg Federal Savings
and Loan Association
November 10, 1998
Page 8
SCOPE OF OPINION
----------------
Our opinion is limited to the federal income tax matters
described above and does not address any other federal income
tax considerations or any state, local, foreign or other federal
tax considerations. If any of the information upon which we
have relied is incorrect, or if changes in the relevant facts
occur after the date hereof, our opinion could be affected
thereby. Moreover, our opinion is based on the case law, Code,
Treasury Regulations thereunder and Internal Revenue Service
rulings as they now exist. These authorities are all subject to
change, and such change may be made with retroactive effect. We
can give no assurance that, after such change, our opinion would
not be different. We undertake no responsibility to update or
supplement our opinion subsequent to consummation of the
Conversion. Prior to that time, we undertake to update or
supplement our opinion in the event of a material change in the
federal income tax consequences set forth above and to file such
revised opinion as an exhibit to the Registration Statement and
the Association's Application for Conversion on Form AC ("Form
AC"). This opinion is not binding on the Internal Revenue
Service and there can be no assurance, and none is hereby given,
that the Internal Revenue Service will not take a position
contrary to one or more of the positions reflected in the
foregoing opinion, or that our opinion will be upheld by the
courts if challenged by the Internal Revenue Service.
CONSENTS
--------
We hereby consent to the filing of this opinion with the
OTS as an exhibit to the Application H-(e)1-S filed by the
Company with the OTS in connection with the Conversion and the
reference to our firm in the Application H-(e)1-S under Item
110.55 therein.
We also hereby consent to the filing of this opinion with
the SEC and the OTS as exhibits to the Registration Statement
and Form AC, respectively, and the references to our firm in the
Prospectus, which is a part of the Registration Statement and
Form AC, under the headings "The Conversion -- Effect of
Conversion to Stock Form on Depositors and Borrowers of
Ogdensburg Federal Savings and Loan Association -- Tax Effects"
and "Legal and Tax Matters."
Very truly yours,
HOUSLEY KANTARIAN & BRONSTEIN, P.C.
By: /s/ Gary R. Bronstein
----------------------------
Gary R. Bronstein