EXHIBIT 8.1
March 17, 1999
Board of Directors
Douglas Federal Bank
8458 Campbellton Street
Douglasville, Georgia 30134-1803
Re: Certain Federal Tax Consequences of the Conversion
of Douglas Federal Bank from a Federally Chartered
Mutual Savings Bank to a Federally Chartered Stock
Savings Bank and the Issuance of Common Stock of
Douglas Federal Bank, pursuant to a Plan of
Conversion, and the Sale of Holding Company Common
Stock
Dear Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the plan of conversion of Douglas Federal Bank, a Federal
Savings Bank (the "Bank") from a federally chartered mutual savings bank to a
federally chartered stock savings bank, the issuance of the Bank's capital stock
to First Deposit Bancshares, Inc., a Georgia corporation, (the "Company" or the
"Holding Company"), and the sale of Holding Company common stock pursuant to the
plan of conversion adopted by the Board of Directors on February 9, 1999
(collectively, the "Plan"or "Conversion").
The proposed transaction is described in the section of this letter
entitled "STATEMENT OF FACTS."
Our opinions are based on the STATEMENT OF FACTS, the representations
described in the section of the letter entitled "REPRESENTATIONS," and our
examination of such corporate records, certificates and other documents as we
have considered necessary or appropriate for this opinion. In such examination,
we have accepted, and not independently verified, the authenticity of all
original documents, the accuracy of all copies, and the genuineness of all
signatures. Unless otherwise noted, section references are to the Internal
Revenue Code of
Board of Directors
Douglas Federal Bank
March 17, 1999
Page 2
1986 as amended (the "Code") as in effect as of the date of this letter.
Capitalized terms not defined in this letter have the meanings assigned to them
in the Plan of Conversion.
STATEMENT OF FACTS
The Bank is a federally chartered mutual savings bank. As a mutual savings
and loan bank, the Bank has never been authorized to issue stock. Instead, the
proprietary interest in the reserves and undivided profits of the Bank belong to
the deposit account holders of the Bank, hereinafter sometimes referred to as
"depositors." A depositor of the Bank has a right to share, pro rata, with
respect to the withdrawal value of his respective deposit account in any
liquidation proceeds distributed in the event the Bank is ever liquidated. In
addition, a depositor of the Bank is entitled to interest on his account balance
as fixed and paid by the Bank.
In order to provide organizational and economic strength to the Bank, the
Board of Directors has adopted the Plan whereby the Bank will convert into a
federally chartered stock savings bank (the "Converted Bank"), the stock of
which will be held entirely by a newly created Holding Company, First Deposit
Bancshares, Inc. As part of the Conversion, the Bank will issue all its capital
stock to the Holding Company. Holding Company will issue and sell its common
stock ("the Conversion Stock") in accordance with the Plan. The aggregate sales
price of the Conversion Stock will be based on an independent appraiser's
valuation of the estimated pro forma market value of the Common Stock of the
Converted Bank held by Holding Company. The Conversion of the Bank and sale of
the Conversion Stock will be subject to approval by the Office of Thrift
Supervision and the approval of the Voting Members.
As part of the Conversion, the Bank will establish a liquidation account in
an amount equal to its net worth as of the latest practicable date prior to
Conversion. The liquidation account will be maintained by the Bank for the
benefit of the Eligible Account Holders and Supplemental Eligible Account
Holders who continue to maintain their savings accounts at the Bank. Each
Eligible Account Holder and Supplemental Eligible Account Holder will, with
respect to his savings account, hold a related inchoate interest in a portion of
the liquidation account balance, in relation to his savings account balance on
the Eligibility Record Date or the Supplemental Eligibility Record Date or to
such balance as it may be subsequently reduced.
In the unlikely event of a complete liquidation of the Bank (and only in
such event), following all liquidation payments to creditors (including those to
account holders to the extent of their savings accounts) each Eligible Account
Holder and Supplemental Eligible Account Holder shall be entitled to receive a
liquidating distribution from the liquidation account, in the amount of the then
adjusted sub-account balance for his savings account then held, before any
liquidation
Board of Directors
Douglas Federal Bank
March 17, 1999
Page 3
distribution may be made to any holders of the Bank's capital stock. No merger,
consolidation, purchase of bulk assets with assumption of savings accounts and
other liabilities, or similar transaction with an FDIC institution, in which the
Bank is not the surviving institution, shall be deemed to be a complete
liquidation for this purpose. In such transactions, the liquidation account
shall be assumed by the surviving institution.
REPRESENTATIONS
You have provided the following representations concerning this transaction
which are or will be true and correct as of the effective date of the Plan and
thereafter where applicable:
(a) The fair market value of the withdrawable deposit accounts plus
interests in the liquidation account of the Converted Bank to be
received by Eligible Account Holders and Supplemental Eligible Account
Holders under the Plan of Conversion will be equal to the fair market
value of the withdrawable deposit accounts (plus the related interest
in the residual equity of the Bank) deemed to be surrendered in
exchange therefor.
(b) If an individual's total deposits in the Bank equal or exceed $50 as
of the Eligibility Record Date or Supplemental Eligibility Record
Date, then no amount of that individual's total deposits will be
excluded from participating in the liquidation account. The fair
market value of the deposit accounts of the Bank which have a balance
of less than $100 on the Eligibility Record Date or Supplemental
Eligibility Record Date will be less than 1% of the total fair market
value of all deposit accounts of the Bank.
(c) Immediately following the Conversion, the Eligible Account Holders and
Supplemental Eligible Account Holders of the Bank will own all of the
outstanding interests in the liquidation account and will own such
interest solely by reason of their ownership of deposits in the Bank
immediately before the Conversion.
(d) After the Conversion, the Converted Bank will continue the business of
the Bank in the same manner as prior to the Conversion. The Converted
Bank has no plan or intention and the Holding Company has no plan or
intention to cause the Converted Bank to sell its assets other than in
the ordinary course of business.
(e) The Holding Company has no plan or intention to sell, liquidate or
otherwise dispose of the stock of the Converted Bank.
Board of Directors
Douglas Federal Bank
March 17, 1999
Page 4
(f) The Holding Company and the Converted Bank have no current plan or
intention to redeem or otherwise acquire any of the Conversion Stock
issued in the Conversion transaction.
(g) Immediately after the Conversion, the Converted Bank will possess the
same assets and liabilities of the Bank immediately prior to the
Conversion, plus the net proceeds from the sale of the Converted
Bank's common stock to the Holding Company and any liability
associated with indebtedness incurred by the Employee Plans in the
acquisition of Common Stock by the Employee Plans.
(h) The Bank, Converted Bank and the Holding Company are corporations
within the meaning of section 7701(a)(3) of the Code.
(i) None of the shares of the Conversion Stock to be purchased by the
depositor-employees of the Bank in the Conversion will be issued or
acquired at a discount. However, shares may be given to certain
Directors and employees as incentive compensation through the Tax
Qualified Employee Stock Benefit Plan. Compensation to be paid to such
Directors and depositor-employees will be commensurate with amounts
paid to third parties bargaining at arm's length for similar services.
(j) The fair market value of the assets of the Bank, which will be
transferred to the Converted Bank in the Conversion, will equal or
exceed the sum of the liabilities of the Bank which will be assumed by
the Converted Bank and any liabilities to which the transferred assets
are subject. Bank has not incurred any liabilities other than in the
ordinary course of business.
(k) No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders, or others in lieu of (i)
nontransferable subscription rights, or (ii) an interest in the
liquidation account of the Converted Bank.
(l) Depositors will pay the expenses of the Conversion solely applicable
to them, if any. The Holding Company and the Bank will each pay
expenses of the transaction attributable to them and will not pay any
expenses solely attributable to the depositors or to the Holding
Company shareholders.
(m) The exercise price of the subscription rights received by the Bank's
Eligible Account Holders, Supplemental Eligible Account Holders, and
other holders of subscription
Board of Directors
Douglas Federal Bank
March 17, 1999
Page 5
rights to purchase Holding Company Common Stock will be equal to the
fair market value of the stock of the Holding Company at the time of
the completion of the Conversion as determined by an independent
appraisal.
(n) The Bank was not under the jurisdiction of the Court in any Title 11
or similar case within the meaning of (S) 368(a)(A) of the Internal
Revenue Code (the "Code") at the time of the Conversion.
(o) Compensation pay, if any, to depositor/employees was commensurate with
amounts paid to third parties bargaining at arm's length for similar
services.
(p) The Bank utilized a reserve for bad debts in accordance with Code (S)
593 and, following the Conversion, the Converted Bank shall likewise
utilize a reserve for bad debts in accordance with Code (S) 593
(q) The Holding Company is not an investment company as described in (S)
1.351(c) of the Treasury Regulations.
(r) The Eligible Account holders' proprietary interest in the Bank arose
solely by virtue of the fact that they were account holders in the
Bank.
(s) The Holding Company has no plan or intention to sell or otherwise
dispose of the stock of the Converted Bank received by it in the
transaction.
(t) The transaction did not involve a receivership, foreclosure or similar
proceeding before a federal or state agency involving a financial
institution to which Code (S) 585 or 593 apply.
OPINION
Based solely on the foregoing representations and information and assuming
the Plan occurs in accordance with the Plan, it is our opinion that:
(1) The Conversion of the Bank from a mutual savings and loan bank to a
stock savings and loan bank will be a tax-free reorganization within
the meaning of section 368(a)(1)(F) of the Code (Rev. Rul. 80-105,
1980-1 C.B. 78). Neither the Bank nor the Converted Bank will
recognize gain or loss as a result of the Conversion. The
Board of Directors
Douglas Federal Bank
March 17, 1999
Page 6
Bank and the Converted Bank shall 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 by the Converted Bank or the
Holding Company on the receipt by the Converted Bank of money from the
Holding Company in exchange for shares of the Converted Bank's capital
stock or by the Holding Company upon the receipt of money from the
sale of its Common Stock (section 1032(a)).
(3) The basis of the deposit accounts in the Converted Bank to be received
by the Eligible Account Holders and Supplemental Eligible Account
Holders will be the same as the basis of their deposit accounts in the
Bank surrendered in exchange therefor (section 1012).
(4) The basis of each Eligible Account Holder's or Supplemental Account
Holder's interest in the liquidation account of the Converted Bank
will be zero (Rev. Rul. 71-233, 1971-1 C.B. 113).
(5) No gain or loss will be recognized by an Eligible Account Holder or
Supplemental Eligible Account Holder on the receipt of an interest in
the liquidation account and/or nontransferable subscription rights to
purchase shares of stock in the Holding Company to the extent the
interest in the liquidation account and the nontransferable
subscription rights received have no fair market value. (We understand
that you have received a letter from Ferguson & Company, Inc.
indicating that the subscription rights have no fair market value. In
various private letter rulings, the Internal Revenue Service has
stated that interests similar to interests in the liquidation account
have no fair market value. Neither the Ferguson & Company letter nor
private letter rulings issued to other taxpayers are binding on the
Service. We express no legal opinion on the fair market value of
liquidation accounts or nontransferable subscription rights or on
whether gain will be recognized if the interests in the liquidation
account or nontransferable subscription rights have value).
(6) Eligible Account Holders and Supplemental Eligible Account Holders
will not realize any taxable income as a result of the exercise by
them of the nontransferable subscription rights (Rev. Rul. 56-572,
1956-2 C.B. 182).
(7) The basis to the stockholders of the Holding Company Common Stock
purchased in the Conversion will be the purchase price paid therefor
(section 1012).
Board of Directors
Douglas Federal Bank
March 17, 1999
Page 7
SCOPE OF OPINION
Since this letter is rendered in advance of the closing of this
transaction, we have assumed that the transaction will be consummated in
accordance with the Plan, as well as all the information and representations
referred to herein. Any changes in the transaction could cause us to modify our
opinion.
The opinions contained herein are rendered only with respect to the
specific matters discussed herein and we express no opinion with respect to any
other legal, federal, state, local or foreign aspect of these transactions. 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. In particular, if the subscription rights are subsequently found to
have a fair market value, income may be recognized by various recipients of the
subscription rights and the Company and/or the Bank may be taxable on the
distribution of the subscription rights.
Moreover, our opinion is based on case law, the Code, Treasury Regulations
thereunder, and Internal Revenue Service rulings and other administrative
guidance 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 express no opinion as to any state or local income tax consequences of
the Conversion or federal, state, or local income tax consequences of the
formation of the foundation. We understand that the accounting firm of Mauldin &
Jenkins, LLC will be addressing the state tax consequences of the Conversion in
a separate letter.
Board of Directors
Douglas Federal Bank
March 17, 1999
Page 8
CONSENT
We consent to the inclusion of this opinion as an exhibit to the Form AC
and Form SB-2 Registration Statement of Holding Company and the references to
the summary of this opinion in such Form AC and Form SB-2 Registration
Statement. In addition, we consent to Mauldin & Jenkins, LLC's reliance on this
letter solely for the purpose of issuing an opinion on the Georgia tax
consequences of the Conversion.
Sincerely,
WOMBLE CARLYLE SANDRIDGE & RICE
A Professional Limited Liability Company
By: /s/ Steven B. Drucker
---------------------------
Steven B. Drucker