EXHIBIT 8.1
_____________, 1997
Boards of Directors
Perpetual Bank, A Federal Savings Bank
SouthBanc Shares, M.H.C.
SouthBanc Shares, Inc.
907 N. Main Street
Anderson, South Carolina 29621-5526
Gentlemen:
In accordance with your request, set forth herein is our opinion relating
to the federal income tax consequences of the two integrated transactions
described herein. Capitalized terms used herein which are not expressly defined
herein shall have the meaning ascribed to them in the Plan of Conversion from
Mutual Holding Company to Stock Holding Company and Plan of Reorganization dated
__________ between Perpetual Bank, A Federal Savings Bank (the "Savings Bank")
and SouthBanc Shares, M.H.C. (the "MHC") (the "Plan").
The Proposed Transactions
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Based upon our review of the Plan, we understand that the relevant facts
are as follows.
In October 1993, Perpetual Bank, A Federal Savings Bank, a federally-
chartered mutual savings bank (the "Savings Bank"), reorganized into the mutual
holding company form of organization. In connection with the foregoing
transaction which resulted in the conversion of the Savings Bank to a stock
institution (the "Stock Savings Bank"), the Stock Savings Bank simultaneously
sold _______ shares of the common stock of the Stock Savings Bank (the "Stock
Savings Bank Common Stock") to depositors of the Stock Savings Bank, employee
stock benefit plans of the Stock Savings Bank, directors, officers and employees
of the Stock Savings Bank and members of the general public. In September 1996,
an additional ___ shares of Stock Savings Bank Common Stock were sold to the
same groups in an additional public offering. As of the date hereof, the MHC
and the other stockholders ("Public Stockholders") own an aggregate of _____%
and _____%, respectively, of the outstanding Stock Savings Bank Common Stock.
The reorganization of Savings Bank into the mutual holding company form of
organization, and the sale of Stock Savings Bank Common Stock are sometimes
hereinafter collectively referred to as the "MHC Transaction."
Boards of Directors
Perpetual Bank, A Federal Savings Bank
SouthBanc Shares, M.H.C.
SouthBanc Shares, Inc.
_____________, 1997
Page 2
At the present time, two transactions are being undertaken. The first
transaction, which is sometimes referred to herein as "Merger 1," is the
conversion of the MHC from the mutual form of organization to a federal interim
stock savings bank ("Interim") and the simultaneous merger of Interim with and
into the Stock Savings Bank. The second transaction, which is sometimes
referred to herein as "Merger 2," is the acquisition of the Stock Savings Bank
by SouthBanc Shares, Inc. (the "Holding Company"), a newly organized Delaware
corporation, by means of the merger of the Stock Savings Bank with a federal
interim stock savings institution (the "Interim Stock Savings Bank"), which will
be organized as a wholly-owned subsidiary of the Holding Company. Merger 1 and
Merger 2 are sometimes collectively referred to herein as the "Conversion and
Reorganization."
Merger 1 and Merger 2 are being accomplished pursuant to the Plan. The Plan
complies in all material respects with the provisions of Subpart A of 12 C.F.R.
Part 563b, the Office of Thrift Supervision ("OTS") regulations governing the
conversion of mutual institutions to stock form. The Plan also complies in all
material respects with the provisions of 12 C.F.R. Section 575.12(a), governing
the conversion of mutual holding companies to stock form. Because the proposed
transaction involves two mergers, the Plan also includes two related plans of
merger with language that complies in all material respects with 12 C.F.R.
Section 552.13, governing mergers involving federal stock associations.
In Merger 1, a liquidation account is being established by the Stock
Savings Bank for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders. Pursuant to Section XIV of the Plan, the initial
balance of the liquidation account will equal the amount of any dividends waived
by the MHC plus the greater of (1) $___ million, which is equal to 100% of the
retained earnings of Savings Bank as of _____________, the date of the latest
statement of financial condition contained in the final offering circular
utilized in the formation of the MHC, or (2) _____% of the Stock Savings Bank's
total stockholders' equity as reflected in its latest statement of financial
condition contained in the final Prospectus to be utilized in the Conversion and
Reorganization. The $___ million is the amount that the liquidation account
would have been if the MHC Transaction had been a standard conversion not
involving a mutual holding company.
Under the above formula, the initial balance of the liquidation account
will be at least $____ million. At September 30, 1997, the total stockholders'
equity of the Stock Savings Bank amounted to $__ million, of which _____%
equaled $____ million.
Upon consummation of Merger 1, the shares of Stock Savings Bank Common
Stock held by the MHC will be canceled.
Boards of Directors
Perpetual Bank, A Federal Savings Bank
SouthBanc Shares, M.H.C.
SouthBanc Shares, Inc.
_____________, 1997
Page 3
Upon consummation of Merger 2 (the "Effective Date"), all of the then
outstanding shares of Stock Savings Bank Common Stock held by the Public
Stockholders will be converted into and become shares of common stock of the
Holding Company ("Holding Company Common Stock") at the Exchange Ratio (the
"Exchange Shares"). The common stock of the Interim Stock Savings Bank owned by
the Holding Company prior to Merger 2 will be converted into and become shares
of common stock of the Stock Savings Bank on the Effective Date. The Holding
Company Common Stock held by the Stock Savings Bank immediately prior to Merger
2 will be canceled on the Effective Date.
Immediately following Merger 2, Holding Company Common Stock will be sold
pursuant to the Conversion Offerings. The stockholders of the Holding Company
will be the Public Stockholders, plus those persons who purchase Holding Company
Common Stock in the Conversion Offerings. Nontransferable rights to subscribe
for Holding Company Common Stock will be granted to eligible depositors and
other persons in the priorities set forth in the Plan (the "Subscription
Rights").
Upon the Effective Date, Interim Stock Savings Bank will be merged with and
into the Stock Savings Bank and Interim Stock Savings Bank will cease to exist
as a legal entity. As a result, the Holding Company will be a publicly held
corporation, will register the Holding Company Common Stock under Section 12(g)
of the Securities Exchange Act of 1934, as amended, and will become subject to
the rules and regulations thereunder and file periodic reports and proxy
statements with the SEC. The Stock Savings Bank will become a wholly owned
subsidiary of the Holding Company and will continue to carry on its business and
activities as conducted immediately prior to Merger 2.
Analysis
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Section 368(a)(1)(A) of the Code defines the term "reorganization" to
include a "statutory merger or consolidation" of corporations such as Merger 1
and Merger 2. Section 368(a)(2)(E) of the Code provides that a transaction
otherwise qualifying as a merger under Section 368(a)(1)(A), such as Merger 2,
will not be disqualified by reason of the fact that common stock of a
corporation (referred to in the Code as the "controlling corporation") (i.e.,
the Holding Company) which before the merger was in control of the merged
corporation is used in the transaction if:
(i) after the transaction, the corporation surviving the merger (i.e.,
Stock Savings Bank) holds substantially all of its properties and the
properties of the merged corporation (i.e., Interim Stock Savings
Bank) (other than common stock of the
Boards of Directors
Perpetual Bank, A Federal Savings Bank
SouthBanc Shares, M.H.C.
SouthBanc Shares, Inc.
_____________, 1997
Page 4
controlling corporation (i.e., the Holding Company) distributed in
the transaction; and
(ii) in the transaction, former stockholders of the surviving corporation
(i.e., the Public Stockholders) exchanged, for an amount of voting
common stock of the controlling corporation, an amount of common
stock in the surviving corporation which constitutes control of such
corporation.
Section 1.368-2(b)(1) of the Treasury Regulations provides that, in order
to qualify as a reorganization under Section 368(a)(1)(A), a transaction must be
a merger or consolidation effected pursuant to the corporate laws of the United
States or a state. The Plan provides that Mergers 1 and 2 will be accomplished
in accordance with applicable federal law.
Treasury Regulations and case law require that, in addition to the
existence of statutory authority for a merger, certain other conditions must be
satisfied in order to qualify a proposed transaction as a reorganization within
the meaning of Section 368(a)(1)(A) of the Code. The "business purpose test,"
which requires a proposed merger to have a bona fide business purpose, must be
satisfied. See 26 C.F.R. Section 1.368-1(c). We believe that Merger 1 and
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Merger 2 satisfy the business purpose test for the reasons set forth in the
Prospectus under the caption "THE CONVERSION AND REORGANIZATION -- Purposes of
the Conversion and Reorganization." The "continuity of business enterprise
test" requires an acquiring corporation either to continue an acquired
corporation's historic business or use a significant portion of its historic
assets in a business. See 26 C.F.R. Section 1.368-1(d). We believe that the
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continuity of business enterprise test is satisfied since the Plan provides that
the business conducted by Stock Savings Bank prior to Merger 1 and Merger 2 will
be unaffected by the transactions.
The "continuity of interest doctrine" requires that the continuing
common stock interest of the former owners of an acquired corporation,
considered in the aggregate, represent a "substantial part" of the value of
their former interest, and provide them with a "definite and substantial
interest" in the affairs of the acquiring corporation or a corporation in
control of the acquiring corporation. Paulsen v. Comm'r., 469 U.S. 131 (1985);
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Helvering v. Minnesota Tea Co., 296 U.S. 378 (1935); John A Nelson Co. v.
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Helvering, 296 U.S. 374 (1935); Southwest Natural Gas Co. v. Comm'r., 189 F.2d
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332 (5th Cir. 1951), cert. denied, 342 U.S. 860 (1951). We believe that Merger 1
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satisfies the continuity of interest doctrine based upon a series of private
letter rulings issued by the IRS in substantially identical transactions as the
Conversion and Reorganization and based upon the information set forth in the
Registration Statement. See e.g., PLRs 9510044 and 9437020. Specifically, the
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IRS has ruled in substantially identical transactions that:
Boards of Directors
Perpetual Bank, A Federal Savings Bank
SouthBanc Shares, M.H.C.
SouthBanc Shares, Inc.
_____________, 1997
Page 5
(1) The exchange of the members' equity interests in the MHC for interests
in a liquidation account established at the Stock Savings Bank in
Merger 1 will not violate the continuity of interest requirement of
Section 1.368-1(b) of the Treasury Regulations.
(2) Interests in the liquidation account established at the Stock Savings
Bank, and the shares of Stock Savings Bank Common Stock held by the
MHC prior to consummation of Merger 1, will be disregarded for the
purpose of determining whether an amount of stock in the Stock Savings
Bank which constitutes "control" of such corporation was acquired by
the Holding Company in exchange for shares of Holding Company Common
Stock pursuant to Merger 2.
(3) The exchange of shares of Holding Company Common Stock for the shares
of the Stock Savings Bank Common Stock in Merger 2, following
consummation of Merger 1, will satisfy the continuity of interest
requirement of Section 1.368-1(b) of the Treasury Regulations in
Merger 2.
Accordingly, we also believe that Merger 2 satisfies the continuity of
interest doctrine because those persons who are the Stock Savings Bank's
stockholders following Merger 1 will receive only Exchange Shares for their
shares of Stock Savings Bank Common Stock. In addition, we believe other
applicable requirements of the Treasury Regulations and case law which are
preconditions to qualification of Merger 1 and Merger 2 as a reorganization,
within the meaning of Section 368(a)(1)(A) and 368(a)(2)(E) of the Code, are
satisfied on the basis of the information contained in the Plan and the
Prospectus.
Section 354 of the Code provides that no gain or loss shall be recognized
by stockholders who exchange common stock in a corporation, such as the Stock
Savings Bank, which is a party to a reorganization, solely for common stock in
another corporation which is a party to the reorganization, such as the Holding
Company. Section 356 of the Code provides that stockholders shall recognize
gain to the extent they receive money as part of a reorganization, such as cash
received in lieu of fractional shares. Section 358 of the Code provides that,
with certain adjustments for money received in reorganization, such as cash
received in lieu of fractional shares, a stockholders' basis in the common stock
he or she receives in a reorganization shall equal the basis of the common stock
which he or she surrendered, he or she shall be deemed to have held the property
received for the same period as the property exchange, provided that the
property exchanged had been held as a capital asset.
Boards of Directors
Perpetual Bank, A Federal Savings Bank
SouthBanc Shares, M.H.C.
SouthBanc Shares, Inc.
_____________, 1997
Page 6
Section 361 of the Code provides that no gain or loss shall be recognized
to a corporation such as the Interim Stock Savings Bank which is a party to a
reorganization on any transfer of property pursuant to a plan of reorganization
such as the Plan. Section 362 of the Code provides that if property is acquired
by a corporation such as the Stock Savings Bank in connection with a
reorganization, then the basis of such property shall be the same as it would be
in the hands of the transferor immediately prior to the transfer. Section
1223(s) of the Code states that where a corporation such as the Stock Savings
Bank will have a carryover basis in property received from another corporation
which is a party to a reorganization, the holding period of such assets in the
hands of the acquiring corporation shall include the period for which such
assets were held by the transferor, provided that the property transferred had
been held as a capital asset. Section 1032 of the Code states that no gain or
loss shall be recognized to a corporation, such as the Holding Company of the
receipt of property in exchange for common stock.
Opinions
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In connection with the opinions expressed herein below, we have relied upon
the assumption that the representations required for advance rulings outlined in
Rev. Proc. 86-42, 1986-2 C.B. 722, are true and correct as it applies to the
Conversion and Reorganization.
Based on the foregoing assumptions and the description of Merger 1 and
Merger 2, the representations which have been made to us by management of the
Stock Savings Bank and the Holding Company, and subject to the qualifications
and limitations set forth in this letter, we are of the opinion that, if Merger
1 were to be consummated as described above as of the date hereof, then:
1. Merger 1 qualifies as a reorganization within the meaning of Section
368(a)(1)(A) of the Code.
2. No gain or loss will be recognized by the Stock Savings Bank upon the
receipt of the assets of the MHC in Merger 1.
In addition, we are of the opinion that, if Merger 2 were to be consummated
as described above as of the date hereof, then:
1. Merger 2 qualifies as a reorganization within the meaning of Section
368(a)(1)(A) of the Code. Pursuant to Section 368(a)(2)(E) of the
Code, Merger 2 is not disqualified from qualifying as a reorganization
within the meaning of Section 368(a)(1)(A) because Holding Company
Common Stock will be conveyed to the
Boards of Directors
Perpetual Bank, A Federal Savings Bank
SouthBanc Shares, M.H.C.
SouthBanc Shares, Inc.
_____________, 1997
Page 7
Stock Savings Bank's stockholders in exchange for their Stock Savings
Bank Common Stock.
2. No gain or loss will be recognized by the Interim Stock Savings Bank
upon the transfer of its assets to the Stock Savings Bank.
3. No gain or loss will be recognized by the Stock Savings Bank upon the
receipt of the assets of Interim Stock Savings Bank.
4. No gain or loss will be recognized by the Holding Company on Stock
Savings Bank upon the exchange of Exchange Shares for Stock Savings
Bank Common Stock.
5. No gain or loss will be recognized by the Public Stockholders upon the
receipt of the Exchange Shares solely in exchange for their shares of
Stock Savings Bank Common Stock.
6. The basis of the Exchange Shares to be received by the Public
Stockholders will be the same as the basis of the Stock Savings Bank
Common Stock surrendered in exchange therefor, before giving effect to
any payment of cash in lieu of fractional shares.
7. The holding period of the Exchange Shares to be received by the Public
Stockholders will include the holding period of the Stock Savings Bank
Common Stock, provided that the Stock Savings Bank Common Stock was
held as a capital asset on the date of the exchange.
8. No gain or loss will be recognized by the Holding Company upon the
sale of Holding Company Common Stock in the Conversion Offerings.
9. Eligible Account Holders and Supplemental Eligible Accounts Holders
will realize gain, if any, upon the constructive issuance to them of
Subscription Rights and/or interest in the liquidation account of
Stock Savings Bank. Any gain resulting therefrom will be recognized,
but only in an amount not in excess of the fair market value of the
liquidation accounts and/or Subscription Rights received. The
liquidation account will have normal, if any, fair market value.
Based solely on the accuracy of the conclusion reached by RP
Financial, LC. in its written opinion to Stock Savings Bank (the
"Appraiser's Opinion") that the Subscription Rights
Boards of Directors
Perpetual Bank, A Federal Savings Bank
SouthBanc Shares, M.H.C.
SouthBanc Shares, Inc.
_____________, 1997
Page 8
have no value at the time of distribution or exercise and our reliance
thereon, no gain or loss will be required to be recognized by
depositors upon receipt or distribution of Subscription Rights.
(Section 1001 of the Code.) See Paulsen v. Commissioner, 469 U.S.
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131,139 (1985).
Based solely on the accuracy of the conclusions reached in the
Appraiser's Opinion, and our reliance thereon, we are of the opinion
that: (a) no taxable income will be recognized by the borrowers,
directors, officers and employees of Stock Savings Bank upon the
distribution to them of Subscription Rights or upon the exercise or
lapse of the Subscription Rights to acquire Holding Company Common
Stock at fair market value; (b) no taxable income will be realized by
the depositors of Stock Savings Bank as result of the exercise of
lapse of the Subscription Rights to purchase Holding Company Common
Stock at fair market value. Rev. Rul. 56-572, 1956-2 C.B. 182; and
(c) no taxable income will be realized by Stock Savings Bank, or
Holding Company upon the issuance or distribution of Subscription
Rights to depositors of Stock Savings Bank to purchase shares of
Holding Company Common Stock at fair market value. (Section 311 of the
Code.)
Notwithstanding the Appraiser's Opinion, 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 Stock Savings Bank may be taxable on the distribution
of the Subscription Rights. (Section 311 of the Code.) In this
regard, the Subscription Rights may be taxed partially or entirely at
ordinary income tax rates.
10. The tax basis to the holders of the Holding Company Common Stock
purchased in the Conversion Offerings will be the amount paid
therefor, and the holding period for such shares will begin on the
date of consummation of the Conversion Offerings if purchased through
the exercise of Subscription Rights. If purchased in the Community
Offering or Syndicated Community Offering, the holding period for such
stock will begin on the day after the date of purchase.
Our opinion is limited to the federal income tax matters described above
and does not address any other federal income tax considerations or any federal,
state, local, foreign or other 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.
Boards of Directors
Perpetual Bank, A Federal Savings Bank
SouthBanc Shares, M.H.C.
SouthBanc Shares, Inc.
_____________, 1997
Page 9
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. 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.
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 Holding 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 the Savings Bank's Application
for Conversion on Form AC ("Form AC"), respectively, and the reference on our
firm in the Prospectus, which is a part of both the Registration Statement and
the Form AC, under the headings "THE CONVERSION --AND REORGANIZATION -- Effects
of Conversion and Reorganization on Depositors and Borrowers of the Savings Bank
- -- Tax Effects" and "LEGAL AND TAX OPINIONS."
Very truly yours,
BREYER & AGUGGIA