EXHIBIT 8.1
1300 I Street, N.W.
Suite 470 East
Washington, D.C. 20005
Telephone (202) 737-7900
Breyer & Aguggia Facsimile (202) 737-7979
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ATTORNEYS AT LAW
January 16, 1998
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 September 22, 1997, as amended on December 22, 1997,
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 115,000 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 585,000 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 53% and 47%, respectively, of the outstanding Stock Savings Bank
Common Stock.
Boards of Directors
Perpetual Bank, A Federal Savings Bank
SouthBanc Shares, M.H.C.
SouthBanc Shares, Inc.
January 16, 1998
Page 2
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."
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) $12.9 million, which is equal to 100% of the
retained earnings of Savings Bank as of March 31, 1993, the date of the latest
statement of financial condition contained in the final offering circular
utilized in the formation of the MHC, or (2) 53% 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 $12.9 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.
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.
January 16, 1998
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.
January 16, 1998
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 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 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);
Helvering v. Minnesota Tea Co., 296 U.S. 378 (1935); John A Nelson Co. v.
Helvering, 296 U.S. 374 (1935); Southwest Natural Gas Co. v. Comm'r., 189 F.2d
332 (5th Cir. 1951), cert. denied, 342 U.S. 860 (1951). We believe that Merger 1
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
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.
January 16, 1998
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.
January 16, 1998
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
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, the MHC and the Holding Company in an affidavit dated
January 15, 1998 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.
January 16, 1998
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.
January 16, 1998
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. 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.
January 16, 1998
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,
/s/ Breyer & Aguggia
BREYER & AGUGGIA