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EXHIBIT 8.0 OPINION OF MULDOON, MURPHY & FAUCETTE
RE: FEDERAL TAX MATTERS
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[LETTERHEAD OF MULDOON, MURPHY & FAUCETTE APPEARS HERE]
November 9, 1998
Board of Directors
Security Savings Association of Hazleton
31 W. Broad Street
Hazleton, Pennsylvania 18201-0770
Board of Directors
Security of Pennsylvania Financial Corp.
31 W. Broad Street
Hazleton, Pennsylvania 18201-0770
Re: Certain Federal Tax Consequences of the Conversion of Security
Savings Association of Hazleton from a Pennsylvania-chartered Mutual
Savings and Loan Association to a Pennsylvania-chartered Capital
Stock Savings Association and the Offer and Sale of Common Stock of
Security of Pennsylvania Financial Corp. (the "Conversion")
Gentlemen:
You have requested an opinion on certain material federal income tax
consequences of the proposed conversion of Security Savings Association of
Hazleton (the "Association") from a Pennsylvania-chartered mutual savings and
loan association to a Pennsylvania-chartered capital stock savings association
and the acquisition of the Association's capital stock by Security of
Pennsylvania Financial Corp., a Delaware corporation (the "Holding Company"),
pursuant to the plan of conversion adopted by the Board of Directors on June 26,
1998, and as amended on September 8, 1998 (the "Plan of Conversion").
The proposed transaction is described in the Prospectus and the Plan of
Conversion, and the tax consequences of the proposed transaction will be as set
forth in the section of this letter entitled "FEDERAL TAX OPINION."
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November 9, 1998
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We have made such inquiries and have examined such documents and records
as we have deemed appropriate for the purpose of this opinion. In rendering this
opinion, we have received certain standard factual representations of the
Holding Company and the Association concerning the Holding Company and the
Association as well as the transaction ("Representations"). These
Representations are required to be furnished prior to the execution of this
letter and again prior to the closing of the Conversion. We will rely upon the
accuracy of the Representations of the Holding Company and the Association and
the statements of facts contained in the examined documents, particularly the
Plan of Conversion. We have also assumed the authenticity of all signatures, the
legal capacity of all natural persons and the conformity to the originals of all
documents submitted to us as copies. Each capitalized term used herein, unless
otherwise defined, has the meaning set forth in the Plan of Conversion. We have
assumed that the Conversion will be consummated strictly in accordance with the
terms of the Plan of Conversion.
The Plan of Conversion and the Prospectus contain a detailed description
of the Conversion. These documents as well as the Representations to be provided
by the Holding Company and the Association are incorporated in this letter as
part of the statement of the facts.
Security Savings Association of Hazleton, with its headquarters office in
Hazleton, Pennsylvania, is a Pennsylvania-chartered mutual savings and loan
association. As a mutual savings and loan association, the Association has never
been authorized to issue stock. Instead, the proprietary interest in the
reserves and undivided profits of the Association belong to the deposit account
holders of the Association, hereinafter sometimes referred to as "depositors." A
depositor of the Association has a right to share, pro rata, with respect to the
withdrawal value of his respective deposit account in any liquidation proceeds
distributed in the event the Association is ever liquidated. In addition, a
depositor of the Association is entitled to interest on his account balance as
fixed and paid by the Association.
In order to provide organizational and economic strength to the
Association, the Board of Directors has adopted the Plan of Conversion whereby
the Association will convert itself into a Pennsylvania-chartered capital stock
savings association (the "Converted Association"), the stock of which will be
held entirely by the Holding Company. Assuming that the Holding Company form of
organization is utilized, the Holding Company will acquire the stock of the
Association by purchase, in exchange for the Conversion proceeds that are not
permitted to be retained by the Holding Company. The Holding Company will apply
to the Office of Thrift Supervision ("OTS") to retain up to 50% of the proceeds
received from the Conversion. The aggregate sales price of the Common Stock
issued in the Conversion will be based on an independent appraiser's valuation
of the estimated pro forma market value of the Common Stock of the Converted
Association. The Conversion and sale of the Common Stock will be subject to
approval by the OTS, the Pennsylvania Department of Banking and the approval of
the Voting Members.
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Board of Directors
November 9, 1998
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ESTABLISHMENT OF LIQUIDATION ACCOUNT. The Association shall establish at
the time of Conversion a liquidation account in an amount equal to its net worth
as of the latest practicable date prior to Conversion. The liquidation account
will be maintained by the Association for the benefit of the Eligible Account
Holders and Supplemental Eligible Account Holders who continue to maintain their
Savings Accounts at the Association. Each Eligible Account Holder and
Supplemental Eligible Account Holder shall, with respect to his Savings Account,
hold a related inchoate interest in a portion of the liquidation account
balance, in relation to his Savings Account balance on the Eligibility Record
Date and/or Supplemental Eligibility Record Date or to such balance as it may be
subsequently reduced, as provided in the Plan of Conversion.
In the unlikely event of a complete liquidation of the Association (and
only in such event), following all liquidation payments to creditors (including
those to Account Holders to the extent of their Savings Accounts) each Eligible
Account Holder and Supplemental Eligible Account Holder shall be entitled to
receive a liquidating distribution from the liquidation account, in the amount
of the then adjusted subaccount balance for his Savings Account then held,
before any liquidation distribution may be made to any holders of the
Association's capital stock. No merger, consolidation, purchase of bulk assets
with assumption of Savings Accounts and other liabilities, or similar
transaction with an FDIC institution, in which the Association is not the
surviving institution, shall be deemed to be a complete liquidation for this
purpose. In such transactions, the liquidation account shall be assumed by the
surviving institution.
ESTABLISHMENT OF FOUNDATION. As part of the Conversion, the Company and
the Association intend to establish a charitable foundation (the "Foundation")
that will qualify as an exempt organization under Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended (the "Code") and to donate to the
Foundation up to 8.0% of the number of shares of Common Stock sold in the
Conversion. The establishment and funding of the Foundation as part of the
Conversion is subject to the approval of the Voting Members of the Association
at the Special Meeting of Members. In the event that the Foundation does not
receive the prerequisite approval, the Association may determine to complete the
Conversion without the Foundation.
The Plan of Conversion provides that the Foundation is being formed to
further the Converted Association's long term commitment to its community. The
Plan of Conversion states that the Foundation is intended to complement the
Association's existing community reinvestment activities so as to allow the
local community to share in the growth and profitability of the Holding Company
and the Converted Association over the long term.
The Foundation will be dedicated to the promotion of charitable and
educational purposes within the Association's Local Community, including, but
not limited to, grants or donations to support housing assistance, scholarships,
local education, not-for-profit medical facilities, not-
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November 9, 1998
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for-profit community groups and other types of organizations or civic minded
projects. The Foundation will annually distribute total grants and donations to
assist charitable organizations or to fund projects within its local community
of not less than 5% of the average fair value of the Foundation assets each
year.
* * *
You have provided the following factual Representations concerning this
transaction:
(a) The fair market value of the withdrawable deposit accounts plus
interests in the liquidation account of the Converted Association to
be constructively received under the Plan of Conversion will, in
each instance, be equal to the fair market value of the withdrawable
deposit accounts (plus the related interest in the residual equity
of the Association) deemed to be surrendered in exchange therefor.
(b) If an individual's total deposits in the Association equal or exceed
$50 as of the Eligibility Record Date or the Supplemental
Eligibility Record Date, then no amount of that individual's total
deposits will be excluded from participating in the liquidation
account. The fair market value of the deposit accounts of the
Association which have a balance of less than $50 on the Eligibility
Record Date or the Supplemental Eligibility Record Date will be less
than 1% of the total fair market value of all deposit accounts of
the Association.
(c) Immediately following the Conversion, the Eligible Account Holders
and the Supplemental Eligible Account Holders of the Association
will own all of the outstanding interests in the liquidation account
and will own such interest solely by reason of their ownership of
deposits in the Association immediately before the Conversion.
(d) After the Conversion, the Converted Association will continue the
business of the Association in the same manner as prior to the
Conversion. The Converted Association has no plan or intention and
the Holding Company has no plan or intention to cause the Converted
Association to sell its assets other than in the ordinary course of
business.
(e) The Holding Company has no plan or intention to sell, liquidate or
otherwise dispose of the stock of the Converted Association other
than in the ordinary course of business.
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November 9, 1998
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(f) The Holding Company and the Converted Association have no current
plan or intention to redeem or otherwise acquire any of the Common
Stock issued in the Conversion transaction.
(g) Immediately after the Conversion, the assets and liabilities of the
Converted Association will be identical to the assets and
liabilities of the Association immediately prior to the Conversion,
plus the net proceeds from the sale of the Converted Association's
common stock to the Holding Company and any liability associated
with indebtedness incurred by the Employee Plans in the acquisition
of Common Stock by the Employee Plans.
(h) The Association is a Pennsylvania-chartered a mutual savings and
loan association. The Converted Association will receive a
Pennsylvania stock charter as a stock savings association. The
Holding Company is incorporated under the laws of the state of
Delaware.
(i) None of the shares of the Common Stock to be purchased by the
depositor-employees of the Association in the Conversion will be
issued or acquired at a discount. However, shares may be given to
certain Directors and employees as compensation by means of the
Employee Plans. Compensation to be paid to such Directors and
depositor-employees will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
(j) The fair market value of the assets of the Association, which will
be transferred to the Converted Association in the Conversion, will
equal or exceed the sum of the liabilities of the Association which
will be assumed by the Converted Association and any liabilities to
which the transferred assets are subject.
(k) The Association is not under the jurisdiction of a bankruptcy or
similar court in any Title 11 or similar case within the meaning of
section 368(a)(3)(A) of the Code.
(l) Upon the completion of the Conversion, the Holding Company will own
and hold 100% of the issued and outstanding capital stock of the
Converted Association and no other shares of capital stock of the
Converted Association will be issued and/or outstanding. At the time
of the Conversion, the Converted Association does not have any plan
or intention to issue additional shares of its stock following the
transaction. Further, no shares of preferred stock of the Converted
Association will be issued and/or outstanding.
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(m) Upon the completion of the Conversion, there will be no rights,
warrants, contracts, agreements, commitments or understandings with
respect to the capital stock of the Converted Association, nor will
there be any securities outstanding which are convertible into the
capital stock of the Converted Association.
(n) No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders, or others in lieu of (a)
nontransferable subscription rights, or (b) an interest in the
liquidation account of the Converted Association.
(o) The Association has utilized a reserve for bad debts in accordance
with section 593 and, following the Conversion, to the extent
allowed under the Code, the Converted Association shall maintain a
reserve for bad debts in accordance with the applicable provisions
of the Code.
(p) In preparing its federal income tax return for the past 3 taxable
years, the Association has analyzed its assets by reference to
whether 60% of its total assets consists of the items listed below
and has satisfied this test in each of the preceding 3 tax years. In
each of the 3 preceding tax years, at least 60% of the amount of the
total assets at the close of the year consisted of the following
items: (i) cash, (ii) obligations of the U.S., of a State or
political subdivision of a State, obligations of a corporation which
is an instrumentality of the U.S. or of a State (but excluding
tax-exempt obligations), (iii) certificates of deposit in, or
obligations of a corporation organized under a State law which
specifically authorizes such corporation to insure the deposits or
share accounts, (iv) loans secured by a deposit or share of a
member, (v) loans secured by an interest in real property which is
residential real property or used primarily for church purposes,
loans made for the improvement of residential or church property,
(vi) loans secured by an interest in educational, health, or welfare
institutions or facilities, including structures designed to be used
for residential purposes, (vii) property acquired through the
liquidation of defaulted loans described in (v) or (vi) above,
(viii) loans made for the repayment of expenses of college or
university education or vocational training, (ix) property used by
the Association in the conduct of the business of acquiring the
savings of the public and investing in loans, and (x) any regular or
residual interest in a REMIC, but only in the proportion of the
assets of the REMIC which consists of property described in (i)
through (ix) above.
(q) Depositors will pay the expenses of the Conversion solely applicable
to them, if any. The Holding Company and the Association will each
pay expenses of the
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November 9, 1998
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transaction attributable to them and will not pay any expenses
solely attributable to the depositors or to the Holding Company
shareholders.
(r) The exercise price of the subscription rights received by the
Association's Eligible Account Holders, Supplemental Eligible
Account Holders, and other holders of subscription rights to
purchase Holding Company Common Stock will be equal to the fair
market value of the stock of the Holding Company at the time of the
completion of the Conversion as determined by an independent
appraisal.
(s) The proprietary interests of the Eligible Account Holders and the
Supplemental Eligible Account Holders in the Association arise
solely by virtue of the fact that they are account holders in the
Association.
(t) There is no plan or intention for the Converted Association to be
liquidated or merged with another corporation following this
proposed transaction.
(u) The liabilities of the Association assumed by the Converted
Association plus the liabilities, if any, to which the transferred
assets are subject were incurred by the Association in the ordinary
course of its business and are associated with the assets
transferred.
(v) The Association currently has no net operating losses for federal
tax purposes, and has no such losses available for carryover to
future tax years. The Association has neither generated nor carried
forward a net operating loss for federal tax purposes in the past
ten tax years.
LIMITATIONS ON OPINION
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Our opinions expressed herein are based solely upon current provisions of
the Internal Revenue Code of 1986, as amended, including applicable regulations
thereunder and current judicial and administrative authority. Any future
amendments to the Code or applicable regulations, or new judicial decisions or
administrative interpretations, any of which could be retroactive in effect,
could cause us to modify our opinion. No opinion is expressed herein with regard
to the federal, state, or city tax consequences of the Conversion under any
section of the Code except if and to the extent specifically addressed.
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November 9, 1998
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FEDERAL TAX OPINION
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Based solely upon the foregoing Representations and information and
assuming the transaction occurs in accordance with the Plan of Conversion, and
taking into consideration the limitations noted throughout this opinion, it is
our opinion that under current federal income tax law the material tax
consequences of this transaction are as follows:
(1) Pursuant to the Conversion, the changes at the corporate level other
than changes in the form of organization will be insubstantial.
Based upon that fact and the fact that the equity interest of a
depositor in a mutual savings and loan association is more nominal
than real, unlike that of a shareholder of a corporation, the
Conversion of the Association from a mutual savings and loan
association to a stock savings Association is a tax-free
reorganization since it is a mere change in identity, form or place
of organization within the meaning of section 368(a)(1)(F) of the
Code (see Rev. Rul. 80-105, 1980-1 C.B. 78). Neither the Association
nor the Converted Association shall recognize gain or loss as a
result of the Conversion. The Association and the Converted
Association shall each be "a party to a reorganization" within the
meaning of section 368(b) of the Code.
(2) No gain or loss shall be recognized by the Converted Association or
the Holding Company on the receipt by the Converted Association of
money from the Holding Company in exchange for shares of the
Converted Association's capital stock or by the Holding Company upon
the receipt of money from the sale of its Common Stock (Section
1032(a) of the Code).
(3) The basis of the assets of the Association in the hands of the
Converted Association shall be the same as the basis of such assets
in the hands of the Association immediately prior to the Conversion
(Section 362(b) of the Code).
(4) The holding period of the assets of the Association in the hands of
the Converted Association shall include the period during which the
Association held the assets (Section 1223(2) of the Code).
(5) No gain or loss shall be recognized by the Eligible Account Holders
and the Supplemental Eligible Account Holders of the Association on
the issuance to them of withdrawable deposit accounts in the
Converted Association plus interests in the liquidation account of
the Converted Association in exchange for their deposit accounts in
the Association or to the other depositors on the issuance to them
of withdrawable deposit accounts (Section 354(a) of the Code).
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(6) Provided that the amount to be paid for such stock pursuant to the
subscription rights is equal to the fair market value of the stock,
no gain or loss will be recognized by Eligible Account Holders and
Supplemental Eligible Account Holders upon the distribution to them
of the nontransferable subscription rights to purchase shares of
stock in the Holding Company (Section 356(a)). Gain realized, if
any, by the Eligible Account Holders and Supplemental Eligible
Account Holders on the distribution to them of nontransferable
subscription rights to purchase shares of Common Stock will be
recognized but only in an amount not in excess of the fair market
value of such subscription rights (Section 356(a)). Eligible Account
Holders and Supplemental Eligible Account Holders will not realize
any taxable income as a result of the exercise by them of the
nontransferable subscription rights (Rev. Rul. 56-572, 1956-2 C.B.
182).
(7) The basis of the deposit accounts in the Converted Association to be
received by the Eligible Account Holders, Supplemental Eligible
Account Holders and other depositors of the Association will be the
same as the basis of their deposit accounts in the Association
surrendered in exchange therefor (Section 358(a)(1) of the Code).
The basis of the interests in the liquidation account of the
Converted Association to be received by the Eligible Account Holders
of the Association shall be zero (Rev. Rul. 71-233, 1971-1 C.B.
113). The basis of the Holding Company Common Stock to its
stockholders will be the purchase price thereof plus the basis, if
any, of nontransferable subscription rights (Section 1012 of the
Code). Accordingly, assuming the nontransferable subscription rights
have no value, the basis of the Common Stock to the Eligible Account
Holders and Supplemental Eligible Account Holders will be the amount
paid therefor. The holding period of the Common Stock purchased
pursuant to the exercise of subscription rights shall commence on
the date on which the right to acquire such stock was exercised
(Section 1223(6) of the Code).
Our opinion under paragraph (6) above is predicated on the Representation
that no person shall receive any payment, whether in money or property, in lieu
of the issuance of subscription rights. Our opinion under paragraphs (6) and (7)
above assumes that the subscription rights to purchase shares of Common Stock
received by Eligible Account Holders, Supplemental Eligible Account Holders and
Other Members have a fair market value of zero. We understand that you have
received a letter from Keller & Company, Inc. that the subscription rights do
not have any value. We express no view regarding the valuation of the
subscription rights.
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If the subscription rights are subsequently found to have a fair market
value, income may be recognized by various recipients of the subscription rights
(in certain cases, whether or not the rights are exercised) and Holding Company
and/or the Converted Association may be taxable on the distribution of the
subscription rights.
* * *
Since this letter is rendered in advance of the closing of this
transaction, we have assumed that the transaction will be consummated in
accordance with the Plan of Conversion as well as all the information and
Representations referred to herein. Any change in the transaction could cause us
to modify our opinion.
We consent to the inclusion of this opinion as an exhibit to the Form AC
and Form SB-2 Registration Statement of Security of Pennsylvania Financial Corp.
and the references to and summary of this opinion in such Form AC and Form SB-2
Registration Statement.
Sincerely,
/s/ MULDOON, MURPHY & FAUCETTE
MULDOON, MURPHY & FAUCETTE