(513) 723-4000
August 14, 1996
Board of Directors
Market Financial Corporation
7522 Hamilton Avenue
Mt. Healthy, Ohio 45231
Board of Directors
The Market Building and Saving Company
7522 Hamilton Avenue
Mt. Healthy, Ohio 45231
Re: Conversion from a State Mutual Savings and Loan Association
to a State Stock Savings and Loan Association - Federal and
State Tax Matters
Gentlemen:
You have requested our opinion regarding certain federal income tax and
state tax consequences resulting from the proposed conversion (the
"Conversion") of The Market Building and Saving Company (the "Association"),
from a mutual savings and loan association incorporated under Ohio law to a
permanent capital stock savings and loan association under Ohio law (the
"Stock Association") and the simultaneous acquisition by Market Financial
Corporation, an Ohio corporation (the "Holding Company"), of all of the
capital stock to be issued by the Stock Association upon the Conversion.
We have reviewed the Plan of Conversion adopted by the Association's
Board of Directors on April 16, 1996 (the "Plan"), the Application for
Conversion on Form AC (the "Application") filed with the Office of Thrift
Supervision (the "OTS"), the Summary Proxy Statement, the Prospectus and
other solicitation materials included in the Application, and have examined
such other legal and factual matters we have considered appropriate. Unless
otherwise indicated, defined terms in this letter have the same meaning as in
the Plan and the Prospectus.
Board of Directors
August 14, 1996
Page 2
We have not requested on your behalf nor have we received any rulings
from the Internal Revenue Service ("IRS") in connection with the Conversion
or the attendant federal income tax consequences.
FACTS
A. THE MARKET BUILDING AND SAVING COMPANY
The Association is a mutual savings and loan association which was
incorporated in 1883 as an Ohio savings and loan association under the name "The
Court Street Market Building and Saving Company." In 1926, the Association
adopted its current name. In 1960, the Hilltop Savings and Loan Company of Mt.
Healthy, Ohio, was merged into the Association, and in 1994, the Cleves-North
Bend Building and Loan Company of North Bend, Ohio, was merged into the
Association. As an Ohio savings and loan association, the Association is
subject to supervision and regulation by the OTS and the Division of Financial
Institutions (the "Division"). The Association is a member of the Federal Home
Loan Association ("FHLB") of Cincinnati and the deposits of the Association are
insured up to applicable limits by the Savings Association Insurance Fund
("SAIF") administered by the Federal Deposit Insurance Corporation ("FDIC").
The Association is principally engaged in the business of originating
loans secured by first mortgages on one- to four-family residential real estate
located in the Association's primary market area. The Association also
originates a limited number of loans for the construction of residential real
estate and loans secured by multifamily real estate and nonresidential real
estate in its market area. In addition to real estate lending, the Association
originates a limited number of loans secured by deposits in the Association.
The Association also invests in mortgage-backed securities, U.S. Government
agency obligations, and deposits in other financial institutions. Funds for
lending and other investment activities are obtained primarily from savings
deposits, which are insured up to applicable limits by the FDIC, and principal
repayments on loans.
The Association conducts business from its main office located at 7522
Hamilton Avenue, Mt. Healthy, Ohio, and its branch office at 125 Miami Avenue
North Bend, Ohio. The Association's primary market area consists of Hamilton
County, Ohio.
Board of Directors
August 14, 1996
Page 3
MARKET FINANCIAL CORPORATION
The Holding Company was incorporated under Ohio law in April 1996 at
the direction of the Association for the purpose of becoming the holding company
of the Stock Association after the Conversion. The Holding Company has not
conducted and will not conduct any business other than business related to the
Conversion prior to the completion of the Conversion. The Holding Company has
applied to the OTS for approval to acquire the capital stock to be issued by the
Stock Association in the Conversion. Upon the consummation of the Conversion,
the Holding Company will be a unitary savings and loan holding company, and its
principal asset will be the capital stock of the Stock Association. As a
savings and loan holding company, the Holding Company will be required to
register with, and be subject to, examination and supervision by the OTS.
B. THE PLAN OF CONVERSION
On April 16, 1996, the Board of Directors of the Association
unanimously adopted the Plan and recommended that the voting members
of the Association approve the Plan at a special meeting of members of the
Association to be held after the Association receives approval of the
Application from the OTS (the "Special Meeting"). Under the Plan, (i) the
Association will be converted from a mutual savings and loan association
incorporated under Ohio law to a stock savings and loan association incorporated
under Ohio law, (ii) all of the capital stock of the Stock Association, which
will be one class of voting common shares, will be issued to the Holding
Company, and (iii) the Holding Company will offer for sale and issue common
shares of the Holding Company (the "Common Shares") to eligible persons in a
subscription offering (the "Subscription Offering") and to the general public in
a concurrent direct community offering (the "Community Offering").
The aggregate purchase price at which the Common Shares will be
offered and sold pursuant to the Plan will be based upon the estimated pro
form a market value of the Association, as determined by an independent
appraiser. Keller & Company, Inc. ("Keller"), a firm experienced in valuing
thrift institutions, has prepared an independent appraisal of the pro forma
market value of the Association. Keller's valuation of the estimated pro
forma market value of the Association, as converted, is $10,100,000 as of
August 2, 1996 (the "Pro Form a Value"). The Association will issue the
Common Shares at a fixed price of $10 per share and, by dividing the price
per share into the Pro Forma Value, will determine the number of Common
Shares to be issued. Applicable regulations require, however, that the
Association establish a range of 15% above and below the Pro Forma Value (the
"Valuation Range") to allow for fluctuations in the aggregate value of the
Common Shares due to changes in the market for bank and thrift shares and
other factors from the time of commencement of the Subscription Offering
until the completion of the Community Offering. Based on the Pro Forma Value
of the Association as of August 2, 1996, the Valuation Range is $8,585,000 to
$11,615,000, resulting in the sale of between
Board of Directors
August 14, 1996
Page 4
858,500 and 1,161,500 Common Shares at a purchase price of $10 per share. The
Holding Company may offer additional Common Shares up to 15% above the maximum
of the Valuation Range, resulting in a total offering of up to 1,335,725 Common
Shares.
C. LIQUIDATION ACCOUNT
In the event of a complete liquidation of the Association in its
present mutual form, each depositor in the Association would receive a pro rata
share of any assets of the Association remaining after payment of the claims of
all creditors, including the claims of all depositors to the withdrawable value
of their savings accounts. A depositor's pro rata share of such remaining
assets would be the same proportion of such assets as the value of such
depositor's savings deposits bears to the total aggregate value of all savings
deposits in the Association at the time of liquidation.
In the event of a complete liquidation of the Stock Association after
the Conversion, each depositor in the Stock Association would have a claim of
the same general priority as the claims of all other general creditors of the
Stock Association. Except as described below, each depositor's claim would be
solely in the amount of the balance in such depositor's savings account plus
accrued interest. The depositor would have no interest in the assets of the
Stock Association above that amount. Such assets would be distributed to the
Holding Company as the sole shareholder of the Stock Association.
For the purpose of granting a limited priority claim to the assets of
the Stock Association in the event of a complete liquidation thereof to Eligible
Account Holders and Supplemental Eligible Account Holders who continue to
maintain savings accounts at the Stock Association after the Conversion, the
Association will, at the time of the Conversion, establish the Liquidation
Account in an amount equal to the regulatory capital of the Association as of
the latest practicable date prior to the Conversion at which such regulatory
capital can be determined. The Liquidation Account will not operate to restrict
the use or application of any of the regulatory capital of the Stock
Association.
Each Eligible Account Holder and Supplemental Eligible Account Holder
will have a separate inchoate interest (the "Subaccount") in a portion of the
Liquidation Account for Qualifying Deposits held on December 30, 1994 (the
"Eligibility Record Date"), or the anticipated supplemental eligibility record
date of September 30, 1996 (the "Supplemental Eligibility Record Date"), as
applicable.
The balance of each initial Subaccount shall be an amount determined
by multiplying the amount in the Liquidation Account by a fraction, the
numerator of which is the closing balance in the account holder's account as of
the close of business on the Eligibility Record Date or the Supplemental
Eligibility Record Date, as applicable, and the denominator of which is the
total
Board of Directors
August 14, 1996
Page 5
amount of all Qualifying Deposits of Eligible Account Holders or Supplemental
Eligible Account Holders on the Eligibility Record Date or the Supplemental
Eligibility Record Date, as applicable. The balance of each Subaccount may be
decreased but will never be increased. If, at the close of business on the last
day of any fiscal year subsequent to the Eligibility Record Date or the
Supplemental Eligibility Record Date, as applicable, the deposit balance in the
account to which a Subaccount relates is less than the lesser of (i) the deposit
balance in such deposit account at the close of business on any other annual
closing date subsequent to the Eligibility Record Date or the Supplemental
Eligibility Record Date, as applicable, or (ii) the amount of the Qualifying
Deposit as of the Eligibility Record Date or the Supplemental Eligibility Record
Date, as applicable, the balance of the Subaccount for such deposit account
shall be adjusted proportionately to the reduction in such deposit account
balance. In the event of any such downward adjustment, such Subaccount balance
shall not be subsequently increased not- withstanding any increase in the
deposit balance of the related savings account. If any savings account is
closed, its related Subaccount shall be reduced to zero upon such closing.
In the event of a complete liquidation of the Stock Association (and
only in such event), each Eligible Account Holder and Supplemental Eligible
Account Holder shall receive from the Liquidation Account a distribution equal
to the current balance in each of such account holder's Subaccounts before any
liquidation distribution may be made to the shareholder of the Stock
Association. Any assets remaining after satisfaction of such liquidation rights
and the claims of the Association's creditors would be distributed to the
Holding Company as the sole shareholder of the Association. No merger,
consolidation, purchase of bulk assets or similar combination or transaction
with another financial institution, the deposits of which are insured by the
SAIF, 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.
D. ISSUANCE OF SHARES
1. SUBSCRIPTION OFFERING.
Nontransferable subscription rights to purchase Common Shares will be
issued at no cost to all eligible persons and entities in accordance with the
preference categories established by the Plan, as described below. Each
subscription right may be exercised only by the person to whom it is issued and
only for his or her own account. Each person subscribing for Common Shares
must represent to the Association that he or she is purchasing such shares for
his or her own account and that he or she has no agreement or understanding with
any other person for the sale or transfer of such Common Shares
The number of Common Shares which a person who has subscription rights
may purchase will be determined, in part, by the total number of Common Shares
to be issued and the availability of such shares for purchase under the
preference categories set forth in the Plan and
Board of Directors
August 14, 1996
Page 6
certain other limitations. The sale of any Common Shares pursuant to
subscriptions received is contingent upon approval of the Plan by the voting
members of the Association at the Special Meeting.
The preference categories and the preliminary purchase
limitations which have been established by the Plan, in accordance with
applicable regulations, for the allocation of Common Shares are as follows:
CATEGORY 1. Each Eligible Account Holder will receive, without
payment therefor, a nontransferable subscription right to purchase a number of
Common Shares equal to up to the greater of (i) 2% of the total number of Common
Shares to be sold in the Conversion or (ii) 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of Common
Shares sold in connection with the Conversion by a fraction of which the
numerator is the amount of the Eligible Account Holder's Qualifying Deposit and
the denominator of which is the total amount of Qualifying Deposits of all
Eligible Account Holders, in each case on the Eligibility Record Date, subject
to the limitation that no person, together with such person's Associates and
other persons acting in concert with such person, may purchase more than 4% of
the Common Shares sold in connection with the Conversion and subject to
adjustments by the Board of Directors of the Holding Company and the
Association, as set forth in the Plan.
If the exercise of subscription rights in Category 1 results in an
over-subscription, the Common Shares available for purchase will be allocated
among the subscribing Eligible Account Holders in a manner by which each
subscribing Eligible Account Holder, to the extent possible, will be permitted
to subscribe to a number of shares sufficient to make such Eligible Account
Holder's total allocation of Common Shares equal to the lesser of (i) 100 shares
or (ii) the number of shares subscribed for by such Eligible Account Holder.
Any shares remaining after such allocation will be allocated among the
subscribing Eligible Account Holders whose subscriptions remain unsatisfied in
the proportion which the amount of each Eligible Account Holder's Qualifying
Deposit bears to the total of the Qualifying Deposits of all subscribing
Eligible Account Holders; provided, however, that subscription rights held by
Eligible Account Holders who are also officers and directors of the Holding
Company or the Association, and their Associates, to the extent that they are
attributable to increased deposits during the one-year period preceding the
Eligibility Record Date, will be subordinated to the subscription rights of all
other Eligible Account Holders. No fractional shares will be issued in
connection with the Conversion.
The subscription rights of the Eligible Account Holders are
subordinate to the limited priority right of the Market Financial Corporation
Employee Stock Ownership Plan (the "ESOP") in Category 2.
Board of Directors
August 14, 1996
Page 7
CATEGORY 2. The ESOP will receive a non-transferable subscription
right to purchase up to 10% of the Common Shares offered in connection with the
Conversion. The subscription rights of the ESOP are subordinate to the
subscription rights in Category 1, except that if the final Pro Forma Value of
the Association exceeds the maximum of the Valuation Range, the ESOP shall have
first priority with respect to the amount of Common Shares sold in excess of the
maximum of the Valuation Range.
CATEGORY 3. Each Supplemental Eligible Account Holder will receive,
without payment therefor, a nontransferable subscription right to purchase a
number of Common Shares equal to up to the greater of (i) 2% of the total number
of Common Shares to be sold in the commission or (ii) 15 times the product
(rounded down to the next whole number) obtained by multiplying the total number
of Common Shares sold in connection with the Conversion by a fraction of which
the numerator is the amount of the Supplemental Eligible Account Holder's
Qualifying Deposit and the denominator of which is the total amount of
Qualifying Deposits of all Supplemental Eligible Account Holders, in each case
on the Supplemental Eligibility Record Date, subject to the limitation that no
person, together with such person's Associates and other persons acting in
concert with such person, may purchase more than 4% of the Common Shares sold in
connection with the Conversion and subject to adjustments by the Board of
Directors of the Holding Company and the Association, as set forth in the Plan.
If the exercise of subscription rights in Category 3 results in an
over-subscription, the Common Shares available for purchase will be allocated
among the subscribing Supplemental Eligible Account Holders in a manner by which
each subscribing Supplemental Eligible Account Holder, to the extent possible,
will be permitted to subscribe to a number of Common Shares sufficient to make
such Supplemental Eligible Account Holder's total allocation of Common Shares
equal to the lesser of (i) 100 shares or (ii) the number of Common Shares
subscribed for by such Supplemental Eligible Account Holder. Any Common Shares
remaining after such allocation will be allocated among the subscribing
Supplemental Eligible Account Holders whose subscriptions remain unsatisfied in
the proportion which the amount of each such Supplemental Eligible Account
Holder's Qualifying Deposit bears to the total amount of the Qualifying Deposits
of all such subscribing Supplemental Eligible Account Holders. No fractional
shares will be issued in connection with the Conversion.
Subscription rights received in Category 3 will be subordinate to the
subscription rights in Categories 1 and 2.
CATEGORY 4. Each Other Eligible Member, other than an Eligible
Account Holder or a Supplemental Eligible Account Holder, will receive, without
payment therefor a nontransferable subscription right to purchase a number of
Common Shares equal to up to 2% of the total number of Common Shares to be sold
in the Conversion, subject to the limitation that no person, together with such
person's Associates and other persons acting in concert with such person, may
purchase
Board of Directors
August 14, 1996
Page 8
more than 4% of the Common Shares sold in connection with the Conversion and
subject to adjustments by the Board of Directors of the Holding Company and the
Association, as set forth in the Plan.
In the event of an oversubscription in Category 4, the Common Shares
available for purchase will be allocated among the Other Eligible Members from
whom subscriptions are received in the same proportion that their respective
subscriptions bear to the total subscriptions of all Other Eligible Members;
provided, however, that, to the extent sufficient Common Shares are available,
each subscribing Other Eligible Member shall receive 25 Common Shares before the
remaining available Common Shares are allocated.
Subscription rights received under this Category 4 will be subordinate
to the subscription rights under Categories 1 through 3.
2. COMMUNITY OFFERING.
Concurrently with the Subscription Offering, the Association expects
to offer Common Shares in the Community Offering to the extent such shares
remain available after the satisfaction of all subscriptions received in the
Subscription Offering. All sales of Common Shares in the Community Offering
will be at the same price as in the Subscription Offering.
If subscriptions are received in the Subscription Offering for up to
833,000 Common Shares, Common Shares may not be available in the Community
Offering. In the event shares are available for the Community Offering, each
person, together with any Associates or groups of persons acting in concert, may
purchase in the Community Offering up to 2% of the Common Shares sold in
connection with the Conversion. If an insufficient number of Common Shares is
available to fill all of the orders received in the Community Offering, the
available Common Shares will be allocated in a manner to be determined by the
Boards of Directors of MFC and the Association, subject to the following:
(i) Preference will be given to natural persons who are
residents of Hamilton County, Ohio, the county in which the offices of the
Association are located;
(ii) Orders received in the Community Offering will first be
filled up to 2% of the total number of Common Shares offered, with any remaining
shares allocated on an equal number of shares per order basis until all orders
have been filled; and
(iii) The right of any person to purchase Common Shares in
the Community Offering is subject to the right of MFC and the Association to
accept or reject such purchases in whole or in part.
Board of Directors
August 14, 1996
Page 9
E. RESULTS OF CONVERSION
Depositors who are members of the Association will have no voting
rights in the Stock Association and will not participate, therefore, in the
election of directors or otherwise control the Stock Association's affairs.
After the Conversion, voting rights in the Stock Association will be vested
exclusively in the Holding Company as the sole shareholder of the Association.
Each holder of Common Shares will be entitled to one vote for each share owned
on any matter to be considered by the shareholders of the Holding Company.
The Conversion will not interrupt the business of the Association.
During and upon completion of the Conversion, the Association will continue to
provide the services presently offered to depositors and borrowers, will
maintain its existing offices and will retain its existing management and
employees. All deposit accounts in the Stock Association will be equivalent in
amount, interest rate and other terms to the present deposit accounts in the
Association, and the existing FDIC insurance on such deposits will not be
affected by the Conversion. The Conversion will not affect the terms of loan
accounts or the rights and obligations of borrowers under their individual
contractual arrangements with the Association.
ADDITIONAL REPRESENTATIONS
You have made the following additional representations upon which we
have relied:
(1) The Holding Company and the Association have no current plan or
intention to redeem or otherwise acquire any of the Common Shares to be issued
in connection with the Conversion.
(2) Immediately following the consummation of the Conversion, the
Stock Association will possess the same assets and liabilities as the
Association held immediately prior to the Conversion, plus proceeds from the
sale of the Common Shares to the Holding Company in exchange for approximately
50% of the net proceeds of the Conversion. Assets used to pay expenses of the
Conversion and all distributions (except for regular, normal interest payments
made by the Association immediately preceding the Conversion) will, in the
aggregate, constitute less than one percent of the net assets of the Association
and any such expenses and distributions will be paid by the Association and the
Holding Company from the proceeds of the Subscription Offering.
(3) Following the Conversion, the Stock Association will continue to
engage in its business in substantially the same manner as engaged in by the
Association prior to the Conversion, and it has no plan or intention to sell or
otherwise dispose of any of its assets except in the ordinary course of
business.
Board of Directors
August 14, 1996
Page 10
(4) The Association is not under the jurisdiction of a court in any
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the
Internal Revenue Code of 1986, as amended (the "Code").
(5) The aggregate fair market value of the Qualifying Deposits held
by Eligible Account Holders and Supplemental Eligible Account Holders as of the
close of business on the Eligibility Record Date and the Supplemental
Eligibility Record Date, respectively, will equal or exceed ninety-nine percent
(99%) of the aggregate fair market value of all deposit accounts (including
those accounts with less than $50) in the Association as of the close of
business on such dates. No Common Shares will be issued directly to or
purchased by depositor-employees at a discount.
(6) No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders or Other Eligible Members in lieu of (a)
nontransferable subscription rights, or (b) an interest in the Liquidation
Account of the Association.
(7) The Association utilizes a reserve for bad debts in accordance
with Section 593 of the Code and, following the Conversion, the Stock
Association shall likewise utilize a reserve for bad debts in accordance with
Section 593 of the Code.
(8) The Holding Company has no plan or intention to sell or otherwise
dispose of the shares of the Stock Association purchased by it in the
Conversion.
(9) The Association's depositors will pay the expenses of the
Conversion solely attributable to them, if any. The Holding Company will pay
the expenses of the transaction and will not pay any expenses solely
attributable to the depositors or to the Holding Company's shareholders.
(10) No Qualifying Deposits as of the Eligibility Record Date or the
Supplemental Eligibility Record Date will be excluded from participation in the
Liquidation Account.
(11) The fair market value of the withdrawable deposit accounts plus
interests in the Liquidation Account of the Stock Association to be
constructively received under the Plan will in each instance be equal to the
fair market value of the withdrawable deposit accounts of the Association
surrendered in exchange therefore. All proprietary rights in the Association
form an integral part of the withdrawable deposit accounts being surrendered in
the exchange.
(12) The Board, as defined in Section 368(a)(3)(D)(iii) of the Code,
has not made the certification described in Section 368(a)(3)(D)(ii), nor will
such certification be made prior to or otherwise in connection with the
Conversion.
Board of Directors
August 14, 1996
Page 11
STATEMENT OF LAW
In Revenue Ruling 80-105, 1980-1 C.B. 78, the IRS ruled that a
conversion of a federal mutual savings and loan association into a state stock
savings and loan association constituted a tax-free reorganization under Section
368(a)(1)(F) of the Code. Subsequently, the IRS consistently issued private
letter rulings that conversions of savings and loans qualify as tax-free
reorganizations under the code, with the attendant tax consequences to the
depositors and shareholders that follow from such transactions. Although
private letter rulings may not be relied upon by taxpayers other than those to
whom the ruling is directed, such rulings do indicate the administrative
position of the Service.
OPINION OF COUNSEL
Based upon both our understanding of the facts and your
representations set forth above, and in reliance thereon, we are of the opinion
that for federal income tax purposes:
(1) The Conversion of the Association from a mutual savings and loan
association incorporated under the laws of the State of Ohio to a stock and loan
association incorporated under the laws of the State of Ohio constitutes a
reorganization within the meaning of Section 368(a)(1)(F) of the Code, and no
gain or loss will be recognized to the Association or the Stock Association as a
result of the Conversion. The Association and the Stock Association will each
be a "party to a reorganization" within the meaning of Section 368(b) of the
Code.
(2) No gain or loss will be recognized to the Stock Association upon
the receipt of money from the Holding Company in exchange for shares of the
Stock Association.
(3) The assets of the Stock Association will have the same basis in
its hands immediately after the Conversion as they had in the hands of the
Association immediately prior to the Conversion, and the holding period of the
assets of the Stock Association after the Conversion will include the period
during which the assets were held by the Association before the Conversion.
(4) No gain or loss will be recognized to the deposit account holders
upon the issuance to them, in exchange for their respective withdrawable deposit
accounts in the Association immediately prior to the Conversion, of withdrawable
deposit accounts in the Stock Association immediately after the Conversion, in
the same dollar amount as their withdrawable deposit accounts in the Association
immediately prior to the Conversion, plus, in the case of
Board of Directors
August 14, 1996
Page 12
Eligible Account Holders and Supplemental Eligible Account Holders, the
interests in the Liquidation Account of the Stock Association, as described
above.
(5) The basis of the withdrawable deposit accounts in the Stock
Association held by its deposit account holders immediately after the Conversion
will be the same as the basis of their deposit accounts in the Association
immediately prior to the Conversion. The basis of the interests in the
Liquidation Account received by the Eligible Account Holders and Supplemental
Eligible Account Holders will be zero. The basis of the nontransferable
subscription rights received by Eligible Account Holders, Supplemental Eligible
Account Holders and Other Eligible Members will be zero (assuming that at
distribution such rights have no ascertainable fair market value).
(6) No gain or loss will be recognized to Eligible Account Holders,
Supplemental Eligible Account Holders or Other Eligible Members upon the
distribution to them of nontransferable subscription rights to purchase Common
Shares (assuming that at distribution such rights have no readily ascertainable
fair market value), and no taxable income will be realized by such Eligible
Account Holders, Supplemental Eligible Account Holders and Other Eligible
Members as a result of their exercise of such nontransferable subscription
rights.
(7) The basis of the Common Shares purchased by Eligible Account
Holders, Supplemental Eligible Account Holders and Other Eligible Members
pursuant to the exercise of subscription rights will be the purchase price
thereof (assuming that such rights have no ascertainable fair market value and
that the purchase price is not less than the fair market value of the shares on
the date of such exercise), and the holding period of such Common Shares will
commence on the date of such exercise. The basis of the Common Shares purchased
in the Community Offering will be the purchase price thereof and the holding
period of such shares will commence on the day after the date of the purchase.
(8) For purposes of Section 381 of the Code, the Association will be
treated as if there had been no reorganization. The taxable year of the
Association will not end on the effective date of the Conversion and,
immediately after the Conversion, the Stock Association will succeed to and take
into account the tax attributes of the Association immediately prior to the
Conversion, including the Association's earnings and profits or deficit in
earnings and profits.
(9) The bad debt reserves of the Association immediately prior to the
Conversion will not be required to be restored to the gross income of the Stock
Association as a result of the Conversion, and immediately after the Conversion
such bad debt reserves will have the same character in the hands of the Stock
Association that they would have had if there had been no Conversion. The Stock
Association will succeed to and take into account the dollar amounts of
Board of Directors
August 14, 1996
Page 13
those accounts of the Association which represent bad debt reserves in respect
of which the Association has taken a bad debt deduction for taxable years ending
on or before the Conversion.
(10) Regardless of book entries made for the creation of the
Liquidation Account, the Conversion will not diminish the accumulated earnings
and profits of the Stock Association available for the subsequent distribution
of dividends within the meaning of Section 316 of the Code. The creation of the
Liquidation Account on the records of the Stock Association will have no effect
on its taxable income, deductions for additions to reserves for bad debts under
Section 593 of the Code or distribution to shareholders under Section 593(e) of
the Code.
For Ohio Tax Purposes, we are of the opinion that:
(1) The Association is a "financial institution" for State of Ohio
tax purposes, and the Conversion will not change such status.
(2) The Association is subject to the Ohio corporate franchise tax on
"financial institutions," which is currently imposed annually at a rate of 1.5%
of the Association's equity capital determined in accordance with generally
accepted accounting principles ("GAAP"), and the Conversion will not change such
status.
(3) As a "financial institution," the Association is not subject to
any tax based upon net income or net profit imposed by the State of Ohio, and
the Conversion will not change such status.
(4) The Conversion will not be a taxable transaction to the
Association or the Stock Association for purposes of the Ohio corporate
franchise tax; however, as a consequence of the Conversion, the annual Ohio
corporate franchise tax liability of the Association will increase if the
taxable net worth of the Association (i.e., book net worth computed in
accordance with GAAP at the close of the Association's taxable year for federal
income purposes) increases thereby.
(5) The Conversion will not be a taxable transaction to any deposit
account holder or borrower member of the Association or the Stock Association
for purposes of the Ohio corporate franchise tax and the Ohio personal income
tax.
Board of Directors
August 14, 1996
Page 14
Unlike private rulings, an opinion of counsel is not binding on the
IRS, and the IRS could disagree with the conclusions reached in this opinion.
In the event of such disagreement, there can be no assurance that the IRS would
not prevail in a judicial proceeding, although counsel believes that the
positions expressed in its opinion should prevail if the matters are
litigated.
Very truly yours,
Vorys, Sater, Seymour and Pease