EXHIBIT 8.1
1300 I Street, N.W.
Suite 470 East
Washington, DC 20005
Telephone (202)737-7900
Breyer & Aguggia LLP Facsimile (202)737-7979
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ATTORNEYS AT LAW
October 20, 1998
Boards of Directors
First Federal Bank, A Federal Savings Bank
First Capital, Inc., M.H.C.
First Capital, Inc.
220 Federal Drive, N.W.
Corydon, Indiana 47112-0130
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 Agreement
and Plan of Reorganization dated June 18, 1998, between First Federal Bank, A
Federal Savings Bank (the "Savings Bank") and First Capital, Inc. (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 February 1993, the Savings Bank, a federally-chartered mutual 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 Savings Bank simultaneously sold
200,000 shares of the common stock (the "Savings Bank Common Stock") to
depositors of the Savings Bank, including directors, officers and employees of
the Savings Bank, and members of the general public. As of the date hereof, the
MHC and the other stockholders ("Public Stockholders") own an aggregate of 59.5%
and 40.5%, respectively, of the outstanding Savings Bank Common Stock.
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 Savings Bank. The second transaction, which is sometimes referred to
herein as "Merger 2," is the acquisition of the Savings Bank by First Capital,
Inc. (the "Holding
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Boards of Directors
First Federal Bank, A Federal Savings Bank
First Capital, Inc., M.H.C.
First Capital, Inc.
October 20, 1998
Page 2
Company"), a newly organized Indiana corporation, by means of the merger of the
Savings Bank with a federal interim stock savings institution (the "Interim
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 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) $4.0 million, which is equal to 100% of the retained
earnings of Savings Bank as of June 30, 1992, the date of the latest statement
of financial condition contained in the final offering circular utilized in the
formation of the MHC, or (2) 59.5% of the 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
$7.3 million is the amount that the liquidation account would have been if the
MHC formation had been a standard conversion not involving a mutual holding
company.
Upon consummation of Merger 1, the shares of Savings Bank Common Stock
held by the MHC will be canceled.
Upon consummation of Merger 2 (the "Effective Date"), all of the then
outstanding shares of 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 Stock").
The common stock of the Interim Savings Bank owned by the Holding Company prior
to Merger 2 will be converted into and become shares of common stock of the
Savings Bank on the Effective Date. The Holding Company Common Stock held by the
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 Offerings. The stockholders of the Holding Company will be
the Public Stockholders, plus
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Boards of Directors
First Federal Bank, A Federal Savings Bank
First Capital, Inc., M.H.C.
First Capital, Inc.
October 20, 1998
Page 3
those persons who purchase Holding Company Common Stock in the 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 Savings Bank will be merged with and
into the Savings Bank and Interim 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 Securities and Exchange Commission ("SEC"). The 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.
Federal Tax Opinion
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In connection with the opinion 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
Savings Bank, the MHC and the Holding Company in an affidavit dated October 20,
1998, attached hereto as Exhibit A, 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 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)
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Boards of Directors
First Federal Bank, A Federal Savings Bank
First Capital, Inc., M.H.C.
First Capital, Inc.
October 20, 1998
Page 4
because Holding Company Common Stock will be conveyed to the Savings
Bank's stockholders in exchange for their Savings Bank Common Stock.
2. No gain or loss will be recognized by the Interim Savings Bank upon
the transfer of its assets to the Savings Bank.
3. No gain or loss will be recognized by the Savings Bank upon the
receipt of the assets of Interim Savings Bank.
4. No gain or loss will be recognized by the Holding Company or Savings
Bank upon the exchange of Exchange Stock for Savings Bank Common
Stock.
5. No gain or loss will be recognized by the Public Stockholders upon
the receipt of the Exchange Stock solely in exchange for their
shares of Savings Bank Common Stock.
6. The basis of the Exchange Stock to be received by the Public
Stockholders will be the same as the basis of the 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 Stock to be received by the
Public Stockholders will include the holding period of the Savings
Bank Common Stock, provided that the 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 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
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 Keller &
Company, Inc. in its written opinion to Savings Bank (the
"Appraiser's Opinion") that the Subscription Rights 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).
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Boards of Directors
First Federal Bank, A Federal Savings Bank
First Capital, Inc., M.H.C.
First Capital, Inc.
October 20, 1998
Page 5
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 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 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 Savings Bank, or Holding Company
upon the issuance or distribution of Subscription Rights to
depositors of 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 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 Offerings will be the amount paid therefor, and the
holding period for such shares will begin on the date of
consummation of the Offerings if purchased through the exercise of
Subscription Rights. If purchased in the Direct 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 local,
foreign or other tax considerations. However, we believe our opinion addresses
all the material federal tax consequences of the Conversion and Reorganization.
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, 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.
Breyers & Aguggia LLP
=====================
Boards of Directors
First Federal Bank, A Federal Savings Bank
First Capital, Inc., M.H.C.
First Capital, Inc.
October 20, 1998
Page 6
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 Reorganization 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 --
Effects of Conversion on Depositors and Borrowers of the Bank -- Tax Effects"
and "LEGAL AND TAX OPINIONS."
Very truly yours,
/s/ Breyer & Aguggia LLP
BREYER & AGUGGIA LLP
EXHIBIT A
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Affidavit of Representations
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The following statements, representations, and declarations are made in
support of the federal tax opinion to be issued by Breyer & Aguggia, LLP
Washington, D.C., in connection with the transactions contemplated by the Plan
of Conversion and Agreement and Plan of Reorganization dated June 18, 1998
between First Federal Bank, A Federal Savings Bank and First Capital, Inc.,
M.H.C. (the AMHC@) whereby (i) the MHC will convert from a mutual holding
company to a federal interim savings bank and merge with and into the Savings
Bank and (ii) Savings Bank will be acquired by the Holding Company by means of
the merger of Savings Bank with Interim Savings Bank. All capitalized terms have
the same meaning as in the federal tax opinion, unless otherwise indicated.
1. The fair market value of the interest of each member who is an Eligible
Account Holder or Supplemental Eligible Account Holder in the Liquidation
Account established in the Savings Bank will be approximately equal to the
fair market value of the voting and liquidation rights surrendered by such
members in the exchange.
2. The Savings Bank has no plan or intention to reacquire any portion of the
Liquidation Account or the subscription rights transferred to the former MHC
members who are Eligible Account Holders and Supplemental Eligible Account
Holders in exchange for their voting and liquidation rights in the MHC.
3. The Savings Bank has no plan or intention to sell or otherwise dispose of
any of the assets of the MHC acquired in Merger 1, except for dispositions
made in the ordinary course of business or transfers described in IRC (S)
368(a)(2)(C).
4. The liabilities of the MHC assumed by the Savings Bank, if any, and the
liabilities to which the transferred assets of the MHC are subject, if any,
were incurred by the MHC in the ordinary course of business.
5. Following Merger 1, the Savings Bank will continue its historic business,
the historic business of the MHC or use a significant portion of the MHC's
historic business assets in the Savings Bank's business.
6. The Savings Bank, the MHC, and the shareholders of the Savings Bank and
members of the MHC will pay their respective expenses, if any, incurred in
connection with Merger 1.
7. There is no inter-corporate indebtedness existing between the MHC and the
Savings Bank that was issued, acquired or will be settled at a discount.
8. No parties to the transaction are investment companies as defined in IRC
(S)(S)368(a)(2)(F)(iii) and (iv).
9. The MHC is not under the jurisdiction of a court in a title 11 or similar
case within the meaning of IRC '368(a)(3)(A).
10. The fair market value of the assets of the MHC transferred to the Savings
Bank will equal or exceed the sum of the liabilities assumed by the Savings
Bank plus the amount of the liabilities, if any, to which the transferred
assets are subject.
11. Following Merger 2, the Savings Bank will hold at least 90% of the fair
market value of its net assets and at least 70% of the fair market value of
its gross assets and at least 90% of the fair market value of Interim
Savings Bank's net assets (other than stock of Holding Company distributed
to Savings Bank's shareholders in the transaction) and are least 70% of the
fair market value of Interim Savings Bank's gross assets (other than stock
of Holding Company distributed to Savings Bank's shareholders in Merger 2)
held immediately prior to Merger 2. For purposes of this representation,
amounts paid by the Savings Bank or Interim Savings Bank to dissenters,
amounts paid by the Savings Bank or Interim Savings Bank to shareholder who
receive cash or other property, amounts used by the Savings Bank or interim
II to pay reorganization expenses, and all redemptions and distributions
(except for regular, normal dividends) made by the Savings Bank will be
included as assets of the Savings Bank or Interim Savings Bank,
respectively, immediately prior to Merger 2.
12. The Savings Bank has no plan or intention to sell or otherwise dispose of
any of the assets of Interim Savings Bank acquired in Merger 2, except for
disposition made in the ordinary course of business or transferred described
in IRC (S)368(a)(2)(C).
13. The Savings Bank has no plan or intention to issue additional shares of its
stock that would result in the Holding Company losing control of the Savings
Bank within the meaning of IRC (S)368(c).
14. The Holding Company has no plan or intention to reacquire any of its stock
issued in Merger 2.
15. The Holding Company has no plan or intention to liquidate the Savings Bank;
to merge the Savings Bank with or into another corporation, to sell or
otherwise dispose of the stock of the Savings Bank, except for transfers of
stock to corporations controlled by Holding Company; or to cause the Savings
Bank to sell or otherwise dispose of any of its assets or any of the assets
acquired from Interim Savings Bank, except for dispositions made in the
ordinary course of business or transfers of assets to a corporation
controlled by the Savings Bank.
16. Interim Savings Bank will have no liabilities to be assumed by the Savings
Bank, and will not transfer to the Savings Bank any assets subject to
liabilities in Merger 2.
A-2
17. Following Merger 2, the Savings Bank will continue its historic business or
use a significant portion of its historic business assets in a business.
18. The Holding Company, Interim Savings Bank, the Savings Bank, and the
shareholders of the Savings Bank will pay their respective expenses, if
any, incurred in connection with Merger 2.
19. There is no inter-corporate indebtedness existing between the Holding
Company and the Savings Bank or between Interim Savings Bank and the
Savings Bank that was issued, acquired, or will be settled at a discount.
20. In Merger 2, shares of Savings Bank stock representing control of the
Savings Bank, as defined in IRC (S)368(c), will be exchanged solely for
voting stock of the Holding Company. For purposes of this representation,
shares of Savings Bank stock exchanged for cash or other property
originating with the Holding Company will be treated as outstanding Savings
Bank stock on the date of Merger 2.
21. At the time of the Savings Bank merger, the Savings Bank will not have
outstanding any warrants, options, convertible securities, or any other
type of right pursuant to which any person could acquire stock in the
Savings Bank that, if exercised or converted, would affect the Holding
Company's acquisition or retention of control of the Savings Bank, as
defined in IRC (S)368(c).
22. The Holding Company does not own, nor has it owned during the past five
years, any shares of stock of the Savings Bank.
23. No parties to Merger 2 are investment companies as defined in IRC
(S)(S)368(a)(2)(F)(iii) and (iv).
24. On the date of Merger 2, the fair market value of the assets of the Savings
Bank will exceed the sum of its liabilities, plus the amount of
liabilities, if any to which the assets are subject.
25. The Savings Bank is not under the jurisdiction of an court in a title 11 or
similar case within the meaning of IRC (S)368(a)(3)(A).
26. The fair market value of Holding Company voting common stock to be received
by each Savings Bank shareholder will be approximately equal to the fair
market value of Savings Bank stock surrendered in the exchange.
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This Affidavit of Representations was executed by a duly-authorized
officer of the undersigned entities on this 20th day of October 1998.
FIRST FEDERAL BANK, A FEDERAL SAVINGS BANK
By: /s/ James G. Pendleton
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Chief Executive Officer
FIRST CAPITAL, INC., M.H.C.
By: /s/ James G. Pendleton
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Chief Executive Officer
FIRST CAPITAL, INC.
By: /s/ James G. Pendleton
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Chief Executive Officer
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