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Exhibit 8.1
LAW OFFICES
ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
12TH FLOOR
734 15TH STREET, N.W.
WASHINGTON, D.C. 20005
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TELEPHONE: (202) 347-0300
FACSIMILE: (202) 347-2172
WWW.EMTH.COM
June 21, 2001
Boards of Directors
PFS Bancorp, Inc.
Peoples Federal Savings Bank
Second & Bridgeway Streets
Aurora, Indiana 47001
Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences of the conversion (the "Conversion") of Peoples Federal Savings
Bank from a mutual savings bank to a stock savings bank (the "Bank," in its
mutual or stock form, as the sense of the context requires). In the Conversion,
all of the Bank's to-be-issued capital stock will be acquired by PFS Bancorp,
Inc. (the "Company"), a newly-organized Indiana-chartered corporation. For the
reasons set forth below and based on your factual representations set forth in a
letter dated June 20, 2001 (the "Representation Letter"), it is our opinion
that the proposed Conversion will qualify as a reorganization within the
meaning of Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as
amended (the "Code"). Our opinion also addresses certain other federal income
tax consequences which follow from this conclusion.
Our opinions herein are limited to the Code and the regulations
promulgated thereunder (the "Subject Laws"). We express no opinion in this
letter as to other federal laws and regulations or as to laws and regulations
of other jurisdictions or as to factual or legal matters other than as set
forth herein.
We have reviewed the Company's Registration Statement on Form SB-2
relating to the proposed issuance of up to 1,551,293 shares of common stock, par
value $.01 per share ("Common Stock"), the Prospectus contained therein, the
Articles of Incorporation and Bylaws of the Company, the existing mutual and
proposed federal stock charter of the Bank, the Plan of Conversion (as
hereinafter defined) of the Bank and such other corporate records and documents
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Boards of Directors
June 21, 2001
Page 2
as we have deemed relevant for the purposes of this opinion. In our examination
of documents, we have assumed the authenticity of those documents submitted to
us as certified, conformed or reproduced copies. As to matters of fact which are
material to this opinion, we have relied upon the accuracy of the factual
matters set forth in the Company's Registration Statement on Form SB-2 and the
Bank's Plan of Conversion. Capitalized terms used herein but not otherwise
defined herein shall have the meaning set forth in the Plan of Conversion.
FACTS
The Bank is a federally chartered mutual savings bank which conducts
business from its main office located in Aurora, Indiana. At March 31, 2001, the
Bank had total assets of $113.4 million, deposits of $95.8 million and retained
earnings of $13.6 million. The Bank is subject to regulation by the Office of
Thrift Supervision as its primary federal banking regulator and the Federal
Deposit Insurance Corporation. The Bank is a member of the Savings Association
Insurance Fund ("SAIF"). The Bank is also subject to certain reserve
requirements established by the Board of Governors of the Federal Reserve System
and is a member of the Federal Home Loan Bank of Indianapolis ("FHLB"), which is
one of the 12 regional banks comprising the FHLB System.
As a mutual savings bank, the Bank has no capital stock. Each depositor
has both a deposit account in the institution and a pro rata ownership interest
in the net worth of the institution based on the balance in his or her deposit
account. This ownership interest is tied directly to the depositor's deposit
account, and depositors ordinarily would be unable to realize the value of their
ownership, except in the unlikely event that the Bank were to be liquidated. In
such event, the depositors would share pro rata in any residual net worth after
other claims, including those of depositors for the amount of their deposits,
are paid.
The Company is a recently-formed Indiana corporation which will acquire
all of the to-be-outstanding capital stock of the Bank upon consummation of the
Conversion and, thereby, become the holding company of the Bank. The Company
shall purchase all of the capital stock of the Bank with a portion of the net
proceeds from the Conversion.
On May 11, 2001, the Board of Directors of the Bank adopted a Plan of
Conversion (the "Plan of Conversion"). The purpose of the Conversion is to
enable the Bank to issue and sell shares of its capital stock to the Company and
enhance both the equity capital base of the Bank and the Bank's capability to
meet the borrowing and other financial needs of the communities it serves. The
use of the holding company format will provide greater organizational
flexibility and the ability for possible diversification. Pursuant to the Plan
of Conversion, nontransferable rights to subscribe for shares of Common Stock
have been granted, in order of priority, to (i) depositors of the Bank with
account balances of $50.00 or more as of the close of business on December 31,
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Boards of Directors
June 21, 2001
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1999 ("Eligible Account Holders"), (ii) the Company's employee stock ownership
plan ("ESOP"), (iii) depositors of the Bank with account balances of $50.00 more
as of the close of business on June 30, 2001 ("Supplemental Eligible Account
Holders"), (iv) depositors and borrowers of the Bank as of the close of business
on a to be established voting record date ("Other Members"), and (v) officers,
directors and employees of the Bank, subject to the limitations described
therein (the "Subscription Offering"). In the event that there are any shares
which are not sold in the Subscription Offering, the Company anticipates that it
will offer any such shares for sale in a community offering (the "Community
Offering"). If necessary, any Conversion Shares (as hereinafter defined) not
subscribed for in the Subscription Offering or purchased in the Community
Offering will be offered to members of the general public, giving preference to
persons who reside in Dearborn, Ohio and Switzerland counties, Indiana, on a
best efforts basis by a selling group of broker-dealers managed in a syndicated
community offering (the "Syndicated Community Offering").
The Company has filed the Registration Statement on Form SB-2 to
register its Common Stock under the Securities Act of 1933 pursuant to which it
will offer for sale shares of its Common Stock. The Common Stock will be offered
for sale in a Subscription Offering pursuant to subscription rights which will
be nontransferable and will be issued without payment therefor. The recipients
will not be entitled to receive cash or other property in lieu of such rights.
It is anticipated that any shares of Common Stock remaining unsold after the
Subscription Offering will be sold through a Community Offering, and, if
necessary, a Syndicated Community Offering. All shares of Common Stock will be
sold at a uniform price based upon an independent valuation. The Registration
Statement registers the shares of Common Stock to be sold for cash pursuant to
the Plan of Conversion to Eligible Account Holders, the ESOP, Supplemental
Eligible Account Holders, Other Members and others in the Subscription Offering
and the Community Offering and Syndicated Community Offering, if necessary
(collectively, the "Conversion Shares").
The Conversion will be effected only upon completion of the sale of all
shares of Common Stock of the Company to be issued pursuant to the Plan of
Conversion. The Company has no plan or intention to dispose of any shares of the
capital stock of the Bank, to cause the Bank to be merged with any other
corporation, or to liquidate the Bank.
The Conversion will not affect the business of the Bank. Mortgages and
other loans from the Bank will remain unchanged and retain their same
characteristics after the Conversion. There is no plan or intention for the Bank
to sell or otherwise dispose of any of its assets following the Conversion,
except for dispositions in the ordinary course of business.
Each deposit account in the Bank at the time of the consummation of the
Conversion shall become, without any action by the account holder, a deposit
account in the converted Bank equivalent in withdrawable amount, and subject to
the same terms and conditions (except as to
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Boards of Directors
June 21, 2001
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voting and liquidation rights), as the deposit account in the Bank immediately
prior to the Conversion. In addition, at the time of the Conversion, the Bank
shall establish a liquidation account in an amount equal to the Bank's net worth
as reflected in the final prospectus utilized in the Conversion. The liquidation
account will be maintained for the benefit of all Eligible Account Holders and
Supplemental Eligible Account Holders who maintain their deposit accounts in the
Bank after the Conversion. Each such account holder will, with respect to each
deposit account, have an inchoate interest in a portion of the liquidation
account which is the account holder's subaccount balance. An account holder's
subaccount balance in the liquidation account will be determined at the time of
the Conversion and can never increase thereafter. It will, however, be decreased
to reflect subsequent withdrawals that reduce, as of annual closing dates, the
amount in each depositor's account below the amount in the account as of the
specified record date. In the event of a complete liquidation of the Bank, each
Eligible Account Holder and Supplemental Eligible Account Holder will be
entitled to receive a liquidation distribution in the amount of the balance of
his or her subaccount in the liquidation account before any distribution may be
made with respect to the capital stock of the Bank.
LAW AND ANALYSIS
Section 368(a)(1)(F) of the Code provides that a mere change in the
identity, form or place of organization of one corporation, however effected, is
a reorganization ("Type F" reorganization). If a transaction qualifies as a Type
F reorganization, it will generally be nontaxable to the corporation and its
stockholders under related provisions of the Code.
In Rev. Rul. 80-105, 1980-1 C.B. 78, the Internal Revenue Service
considered the federal income tax consequences of the conversion of a federal
mutual savings and loan association into a state stock savings and loan
association. The ruling concluded that the conversion qualified as a mere change
in identity, form or place of organization within the meaning of Section
368(a)(1)(F). The rationale for this conclusion is not clearly expressed in the
ruling, but two factors are stressed. First, the changes at the corporate level
other than the place of organization and form of organization were regarded as
insubstantial. The converted association continued its business in the same
manner and it had the same savings accounts and loans. The converted association
continued its membership in the Federal Savings and Loan Insurance Corporation
(replaced subsequently by the SAIF) and remained subject to the regulations of
the Federal Home Loan Bank Board (which was replaced subsequently by the Office
of Thrift Supervision). Second, the ruling states that the ownership rights of
the depositors in the mutual company are "more nominal than real." Although the
ruling does not explain the significance of this statement, subsequent
administrative interpretations have indicated that the Internal Revenue Service
believes these nominal rights are preserved in the liquidation account that is
typically established for the depositors' benefit. This approach enables the
Internal Revenue Service to distinguish the tax treatment of conversion
transactions from the tax treatment of acquisitive transactions in which
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Boards of Directors
June 21, 2001
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mutual companies acquire stock companies. SEE PAULSEN V. COM'R, 469 U.S. 131
(1985); Rev. Rul. 69-6, 1969-1 C.B. 104.
The Internal Revenue Service has extended the holding of Rev. Rul.
80-105 to transactions similar to the one contemplated by the Bank and the
Company, in which a conversion from mutual to stock form occurs simultaneously
with the creation of a holding company. SEE e.g. private letter rulings numbered
9140014 and 9144031. While these rulings have no precedential value, they do
indicate the current views of the Internal Revenue Service on the issues
presented. HANOVER BANK V. U.S., 369 U.S. 672, 686 (1962).
In our opinion and based on your Representation Letter, the conversion
of the Bank from a mutual savings bank to a stock savings bank, and the sale of
its capital stock to the Company, will constitute a reorganization within the
meaning of Section 368(a)(1)(F) of the Code because the transaction represents a
mere change in the form of organization of a single corporation. There will be
no change in the Bank's business or operations, nor in its loans and deposits,
all of which will become loans and deposits of the converted Bank. The only
significant difference between the assets of the Bank before and after the
Conversion will be the infusion of new capital. An infusion of capital occurs in
all conversion transactions, however, and had no effect upon the Internal
Revenue Service's analysis in Rev. Rul. 80-105. The ownership rights of the
depositors of the mutual Bank, which have nominal value, will be preserved
through their interests in the liquidation account in the converted Bank. This
account will be substantially the same as the liquidation account described in
Rev. Rul. 80-105.
Because the Bank's change in form from mutual to stock ownership will
constitute a reorganization under Section 368(a)(1)(F) of the Code and neither
the Bank nor the Company will recognize any gain or loss as a result of the
conversion pursuant to Section 361 of the Code and Rev. Rul. 80-105, it is also
our opinion that (i) no gain or loss will be recognized by the Company upon its
receipt of money in exchange for shares of Common Stock issued pursuant to the
Plan of Conversion; (ii) no gain or loss will be recognized by the Bank or the
Company upon the purchase of the Bank's capital stock by the Company; (iii) no
gain or loss will be recognized by Eligible Account Holders and Supplemental
Eligible Account Holders upon the issuance to them of deposit accounts in the
Bank in its stock form plus their interests in the liquidation account in
exchange for their deposit accounts in the Bank in its mutual form; (iv)
assuming the nontransferable subscription rights to purchase Common Stock have
no value, the tax basis of the depositors' deposit accounts in the Bank
immediately after the Conversion will be the same as the basis of their deposit
accounts immediately prior to the Conversion; (v) assuming the nontransferable
subscription rights to purchase Common Stock have no value, the tax basis of
each Eligible Account Holder's and Supplemental Eligible Account Holder's
interest in the liquidation account will be zero; (vi) the tax basis to the
stockholders of the Common Stock of the Company purchased in the Conversion will
be the amount paid therefor; and (vii) the holding period for such
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Boards of Directors
June 21, 2001
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shares will begin on the date of the exercise of the subscription right and on
the day after the date of purchase if purchased in the Community Offering or
Syndicated Community Offering.
It is further our opinion that the Eligible Account Holders and
Supplemental Eligible Account Holders will recognize gain, if any, upon the
issuance to them of withdrawable savings accounts in the Bank following the
Conversion, interests in the liquidation account and non-transferable
subscription rights to purchase Company Common Stock in exchange for their
savings accounts and proprietary interests in the Bank, but only to the extent
of the value, if any, of the subscription rights.
The opinions expressed above are limited to the income tax consequences
of the Conversion under the Subject Laws. Further, our opinions are based on
research of the Code, applicable Treasury Regulations, current published
administrative decisions of the Internal Revenue Service, existing judicial
decisions as of the date hereof, and your Representation Letter. No assurance
can be given that legislative, administrative or judicial decisions or
interpretations may not be forthcoming that will significantly change the
opinions set forth herein. We express no opinions other than those stated
immediately above as our opinions. We hereby consent to the filing of this
opinion as an exhibit to the Registration Statement and the Application for
Conversion.
Sincerely,
ELIAS, MATZ, TIERNAN & HERRICK L.L.P.
By: /s/ KEVIN M. HOULIHAN
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Kevin M. Houlihan, a Partner