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
April 20, 1998
Boards of Directors
Peoples Building and
Loan Association, F.A.
PCB Holding Company
819 Main Street
Tell City, Indiana 47586
Re: Certain Federal Income Tax Consequences Relating to
Proposed Holding Company Conversion of Peoples
Building and Loan Association, F.A.
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To the Board of Directors:
In accordance with your request, set forth herein is the opinion of this
firm relating to certain federal income tax consequences of (i) the proposed
conversion of Peoples Building and Loan Association, F.A. (the "Association")
from a federally-chartered mutual savings and loan association to a
federally-chartered stock savings bank (the "Converted Association") (the "Stock
Conversion") and (ii) the concurrent acquisition of 100% of the outstanding
capital stock of the Converted Association by a parent holding company formed at
the direction of the Board of Directors of the Association and to be known as
PCB Holding Company (the "Holding Company").
For purposes of this opinion, we have examined such documents and questions
of law as we have considered necessary or appropriate, including but not limited
to, the Plan of Conversion as adopted by the Association's Board of Directors on
January 14, 1998, and subsequently amended on March 16, 1998 (the "Plan"); the
federal mutual charter and bylaws of the Association; the certificate of
incorporation and bylaws of Holding Company; the Affidavit of Representations
dated April 17, 1998 provided to us by the Association and the Holding Company
(the "Affidavit"), and the Prospectus (the "Prospectus") included in the
Registration Statement on Form SB-2 filed with the Securities and Exchange
Commission ("SEC") on March 18, 1998 (the "Registration Statement"). In such
examination, we have assumed, and have not independently verified, the
genuineness of all signatures on original documents where due execution and
delivery are
Boards of Directors
Peoples Building and
Loan Association, F.A.
PCB Holding Company
April 20, 1998
Page 2
requirements to the effectiveness thereof. Terms used but not defined herein,
whether capitalized or not, shall have the same meaning as defined in the Plan.
BACKGROUND
Based solely upon our review of such documents, and upon such information
as the Association has provided to us (which we have not attempted to verify in
any respect), and in reliance upon such documents and information, we set forth
herein a general summary of the relevant facts and proposed transactions,
qualified in its entirety by reference to the documents cited above.
The Association is a federally-chartered mutual savings and loan
association which is in the process of converting to a federally-chartered stock
savings bank. The Association was initially chartered in 1914 as an Indiana
mutual building and loan association. In 1998, the Association became a federal
mutual savings and loan assocation. The Association is also a member of the
Federal Home Loan Bank System and its deposits are federally insured under the
Savings Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation. The Association operates out of one office in Tell City, Indiana.
The Association's principal business is attracting retail deposits from the
general public and using those funds to originate residential mortgage loans. At
December 31, 1997, the Association had total assets of $22.0 million, deposits
of $19.8 million and total retained earnings of $2.1 million.
As a federally-chartered mutual savings and loan association, the
Association has no authorized capital stock. Instead, the Association, in mutual
form, has a unique equity structure. A savings depositor of the Association is
entitled to payment of interest on his account balance as declared and paid by
the Association, but has no right to a distribution of any earnings of the
Association except for interest paid on his deposit. Rather, such earnings
become retained earnings of the Association.
However, a savings depositor does have a right to share pro rata, with
respect to the withdrawal value of his respective savings account, in any
liquidation proceeds distributed if the Association is ever liquidated. Savings
depositors and certain borrowers are members of the Association and thereby have
voting rights in the Association. Each savings depositor is entitled to cast
votes in proportion to the size of their account balances or fraction thereof
held in a withdrawable deposit account of the Association, and each borrower
member (hereinafter "borrower") is entitled to one vote in addition to the votes
(if any) to which such person is entitled
Boards of Directors
Peoples Building and
Loan Association, F.A.
PCB Holding Company
April 20, 1998
Page 3
in such borrower's capacity as a savings depositor of the Association. All of
the interests held by a savings depositor in the Association cease when such
depositor closes his accounts with the Association.
The Holding Company was incorporated in March 1998 under the laws of the
State of Indiana as a general business corporation in order to act as a savings
institution holding company. The Holding Company has an authorized capital
structure of 5,000,000 shares of common stock and 1,000,000 shares of preferred
stock.
PROPOSED TRANSACTION
Management of the Association believes that the Stock Conversion offers a
number of advantages which will be important to the future growth and
performance of the Converted Association in that it is intended to (i) provide
substantially increased capital for investment in its business to expand the
operations of the Converted Association; (ii) provide future access to capital
markets; (iii) enhance the ability to diversify its operations into new business
activities; and (iv) afford depositors and others the opportunity to become
stockholders of the Converted Association and thereby participate more directly
in any future growth of the Converted Association.
Accordingly, pursuant to the Plan, the Association will undergo the Stock
Conversion whereby it will be converted from a federally-chartered mutual
savings and loan association to a federally-chartered stock savings bank to be
known as Peoples Community Bank. As part of the Stock Conversion, the
Association will amend its existing mutual savings and loan association charter
and bylaws to read in the form of a Federal Stock Charter and Bylaws. The
Converted Association will then issue to the Holding Company shares of the
Converted Association's common stock, representing all of the shares of capital
stock to be issued by the Converted Association in the Conversion, in exchange
for payment by the Holding Company of 50% of the net proceeds realized by the
Holding Company from such sale of its Common Stock, or such other percentage as
the Office of Thrift Supervision ("OTS") may authorize or require.
Also pursuant to the Plan, the Holding Company will offer its shares of
Common Stock for sale in a Subscription Offering and, if necessary, a Direct
Community Offering. The aggregate purchase price at which all shares of Common
Stock will be offered and sold pursuant to the Plan and the total number of
shares of Common Stock to be offered in the Conversion will be determined by the
Boards of Directors of the Association and the Holding Company on the basis of
the estimated pro forma market value of the Converted Association as a
subsidiary of the Holding Company. The estimated pro forma market value will be
determined by an independent appraiser.
Boards of Directors
Peoples Building and
Loan Association, F.A.
PCB Holding Company
April 20, 1998
Page 4
Pursuant to the Plan, all such shares will be issued and sold at a uniform price
per share. The Stock Conversion, including the sale of newly issued shares of
the stock of the Converted Association to the Holding Company, will be deemed
effective concurrently with the closing of the sale of the Common Stock.
Under the Plan and in accordance with regulations of the OTS, the shares of
Common Stock will first be offered through the Subscription Offering pursuant to
nontransferable subscription rights on the basis of preference categories in the
following order of priority:
(1) Eligible Account Holders;
(2) Supplemental Eligible Account Holders; and
(3) Other Members.
Any shares of Common Stock not subscribed for in the Subscription Offering
may be offered in the Direct Community Offering in the following order of
priority:
(a) Natural persons and trust of natural persons who are residing in the
Local Community, consisting of Perry County, Indiana; and
(b) The general public.
Any shares of Common Stock not subscribed for in the Direct Community
Offering may be offered to certain members of the general public on a best
efforts basis by a selling group of broker dealers in a Syndicated Community
Offering.
The Plan also provides for the establishment of a Liquidation Account by
the Converted Association for the benefit of all Eligible Account Holders and
any Supplemental Eligible Account Holders in an amount equal to the net worth of
the Association as of the date of the latest statement of financial condition
contained in the final prospectus issued in connection with the Conversion. The
establishment of the Liquidation Account will not operate to restrict the use or
application of any of the net worth accounts of the Converted Association. The
account holders will have an inchoate interest in a proportionate amount of the
Liquidation Account with respect to each savings account held and will be paid
by the Converted Association in event of liquidation prior to any liquidation
distribution being made with respect to capital stock.
Boards of Directors
Peoples Building and
Loan Association, F.A.
PCB Holding Company
April 20, 1998
Page 5
Following the Stock Conversion, voting rights in the Converted
Association shall be vested in the sole holder of stock in the Converted
Association, which will be the Holding Company. Voting rights in the Holding
Company after the Stock Conversion will be vested in the holders of the Common
Stock.
The Stock Conversion will not interrupt the business of the Association.
The Converted Association will continue to engage in the same business as the
Association immediately prior to the Stock Conversion, and the Converted
Association will continue to have its savings accounts insured by the SAIF. Each
depositor will retain a withdrawable savings account or accounts equal in dollar
amount to, and on the same terms and conditions as, the withdrawable account or
accounts at the time of Stock Conversion except to the extent funds on deposit
are used to pay for Common Stock purchased in the Stock Conversion. All loans of
the Association will remain unchanged and retain their same characteristics in
the Converted Association.
The Plan must be approved by the OTS and by an affirmative vote of at least
a majority of the total votes eligible to be cast at a meeting of the
Association's members called to vote on the Plan.
Immediately prior to the Conversion, the Association will have a positive
net worth determined in accordance with generally accepted accounting
principles.
OPINION
Based on the foregoing and in reliance thereon, and subject to the
conditions stated herein, it is our opinion that the following federal income
tax consequences will result from the proposed transaction.
1. The Stock Conversion will constitute a reorganization within the
meaning of Section 368(a)(1)(F) of the Internal Revenue Code of 1986,
as amended (the "Code"), and no gain or loss will be recognized to
either the Association or the Converted Association as a result of the
Stock Conversion (see Rev. Rul. 80-105, 1980-1 C.B. 78).
2. The assets of the Association will have the same basis in the hands of
the Converted Association as in the hands of the Association
immediately prior to the Stock Conversion (Section 362(b) of the
Code).
Boards of Directors
Peoples Building and
Loan Association, F.A.
PCB Holding Company
April 20, 1998
Page 6
3. The holding period of the assets of the Association to be received by
the Converted Association will include the period during which the
assets were held by the Association prior to the Stock Conversion
(Section 1223(2) of the Code).
4. No gain or loss will be recognized by the Converted Association on the
receipt of money from the Holding Company in exchange for shares of
common stock of the Converted Association (Section 1032(a) of the
Code). The Holding Company will be transferring solely cash to the
Converted Association in exchange for all the outstanding capital
stock of the Converted Association and therefore will not recognize
any gain or loss upon such transfer. (Section 351(a) of the Code; see
Rev. Rul. 69-357, 1969-1 C.B. 101).
5. No gain or loss will be recognized by the Holding Company upon receipt
of money from stockholders in exchange for shares of Common Stock
(Section 1032(a) of the Code).
6. No gain or loss will be recognized by the Eligible Account Holders and
Supplemental Eligible Account Holders of the Association upon the
issuance to them of deposit accounts in the Converted Association in
the same dollar amount and on the same terms and conditions in
exchange for their deposit accounts in the Association held
immediately prior to the Stock Conversion (Section 1001(a) of the
Code; Treas. Reg. ss.1.1001-1(a)).
7. The tax basis of the Eligible Account Holders' and Supplemental
Eligible Account Holders' savings accounts in the Converted
Association received as part of the Stock Conversion will equal the
tax basis of such account holders' corresponding deposit accounts in
the Association surrendered in exchange therefor (Section 1012 of the
Code).
8. Gain or loss, if any, will be realized by the deposit account holders
of the Association upon the constructive receipt of their interest in
the liquidation account of the Converted Association and on the
nontransferable subscription rights to purchase stock of the Holding
Company in exchange for their proprietary rights in the Association.
Any such gain will be recognized by the Association deposit account
holders, but only in an amount not in excess of the fair market value
of the liquidation account and subscription rights received. (Section
1001 of the Code; Paulsen v. Commissioner, 469 U.S. 131 (1985); Rev.
Rul. 69-646, 1969-2 C.B. 54.)
Boards of Directors
Peoples Building and
Loan Association, F.A.
PCB Holding Company
April 20, 1998
Page 7
9. The basis of each account holder's interest in the Liquidation Account
received in the Stock Conversion and to be established by the
Converted Association pursuant to the Stock Conversion will be equal
to the value, if any, of that interest.
10. No gain or loss will be recognized upon the exercise of a subscription
right in the Stock Conversion. (Rev. Rul. 56-572, 1956-2 C.B. 182).
11. The basis of the Common Stock acquired in the Stock Conversion will be
equal to the purchase price of such stock, increased, in the case of
such stock acquired pursuant to the exercise of subscription rights,
by the fair market value, if any, of the subscription rights exercised
(Section 1012 of the Code).
12. The holding period of the Common Stock acquired in the Stock
Conversion pursuant to the exercise of subscription rights will
commence on the date on which the subscription rights are exercised
(Section 1223(6) of the Code). The holding period of the Common Stock
acquired in the Community Offering will commence on the date following
the date on which such stock is purchased (Rev. Rul. 70-598, 1970- 2
C.B. 168; Rev. Rul. 66-97, 1966-1 C.B. 190).
SCOPE OF OPINION
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. 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.
Regarding the valuation of subscription rights, we understand that the
Association has received an opinion of Capital Resources Group, Inc. to the
effect that the subscription rights have
Boards of Directors
Peoples Building and
Loan Association, F.A.
PCB Holding Company
April 20, 1998
Page 8
no ascertainable market value. We express no opinion regarding the valuation of
the subscription rights.
CONSENTS
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 Association'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 -- Effect of Conversion to Stock
Form on Depositors and Borrowers of the Association -- Tax Effects" and "LEGAL
AND TAX OPINIONS."
Very truly yours,
/s/ Breyer & Aguggia
BREYER & AGUGGIA