MALIZIA SPIDI & FISCH, PC
ATTORNEYS AT LAW
901 NEW YORK AVENUE, N.W. 1900 SOUTH ATHERTON STREET
SUITE 210 EAST SUITE 101
WASHINGTON, D.C. 20001 STATE COLLEGE, PENNSYLVANIA 16801
(202) 434-4660 (814) 272-3502
FACSIMILE: (202) 434-4661 FACSIMILE: (814) 272-3514
September 12, 2006
Board of Directors
Millington Savings Bank
MSB Financial Corp.
1902 Long Hill Road
Millington, NJ 07946
Re: Federal Income Tax Opinion
Relating to the Initial Stock Offering of
MSB Financial Corp.
-----------------------------------------
Members of the Board:
In accordance with your request, set forth herein below is the opinion
of this firm relating to the material federal income tax consequences of the
proposed initial public stock offering (the "Offering") of MSB Financial Corp.
(the "Company"), a federal stock holding company.
We have examined such corporate records, certificates and other
documents as we have considered necessary or appropriate for this opinion. In
such examination, we have accepted, and have not independently verified, the
authenticity of all original documents, the accuracy of all copies, and the
genuineness of all signatures. Further, the capitalized terms which are used in
this opinion and are not expressly defined herein shall have the meaning
ascribed to them in the Plan of Stock Issuance (the "Plan") adopted on July 17,
2006, by the Company, MSB Financial, MHC (the "MHC"), and Millington Savings
Bank (the "Bank").
STATEMENT OF FACTS
------------------
Pursuant to a Plan of Reorganization from a New Jersey State Mutual
Savings Bank to a Federal Mutual Holding Company dated April 14, 2003, the Bank
converted to the mutual holding company form of organization in February 2004
with no stock offering. Pursuant to the Mutual Holding Company Plan of
Reorganization, the Bank became a New Jersey stock savings bank, which has all
of its stock owned by the Company, a federal stock holding company, which has
all of its stock owned by the MHC, a federal mutual holding company. Pursuant to
the Plan, the Company proposes, pursuant to the laws of the United States of
America and the Rules and Regulations of the Office of Thrift Supervision
("OTS"), to conduct a stock offering of up to but less than 50% of the aggregate
of the total voting stock of the Company.
MALIZIA SPIDI & FISCH, PC
Board of Directors
Millington Savings Bank
MSB Financial Corp.
September 12, 2006
Page 2
In adopting the Plan, the Board of Directors has determined that the
Offering is advisable and in the best interest of the Bank, the Company, the MHC
and its members. The Offering will enable the Company and the Bank to increase
its capital through the issuance of capital stock without undertaking a full
conversion from the mutual to the stock form of organization. The Offering will
not foreclose the opportunity to effect a conversion of the MHC from the stock
form of organization in the future. The Offering will significantly increase
capital and enable the Bank to further grow through internal expansion, the
possible acquisition of other assets, branch offices, financial institutions,
possible diversification into other related financial service activities and
other purposes and will further enhance the Bank's ability to render services to
the public. The mutual holding company structure also will allow the Bank to
minimize over-capitalization by providing the flexibility to raise capital
through the issuance of stock in a manner designed to meet the Bank's growth
needs, rather than in a single stock offering as required in a standard
mutual-to-stock conversion.
Based solely upon our review of such documents, and upon such
information as the Bank and the Company have provided to us (which we have not
attempted to verify in any respect), and in reliance upon such documents and
information, we understand the relevant facts with respect to the Offering to be
as follows:
As required by OTS regulations, shares of Company common stock
("Company Stock") will be offered pursuant to non-transferable subscription
rights on the basis of preference categories. The Company has established
various preference categories under which shares of Company Stock may be
purchased and a Community Offering and a Public Offering category for the sale
of shares not purchased under the preference categories. If the third preference
category is determined to be inappropriate to the Offering, then there will only
be three preference categories consisting of the first, second and fourth
preference categories set forth below, and all references herein to Supplemental
Eligible Account Holder and the Supplemental Eligibility Record Date shall not
be applicable to the Offering. To the extent that Company Stock is available, no
subscriber will be allowed to purchase less than 25 shares of Company Stock,
unless the aggregate purchase price exceeds $500.
The first preference category is reserved for the Company's Eligible
Account Holders. The Plan defines "Eligible Account Holder" as any person
holding a Qualifying Deposit. The Plan defines "Qualifying Deposit" as the
aggregate balance of all savings accounts of an Eligible Account Holder in the
Bank at the close of business on June 30, 2005, which is at least equal to
$50.00. If a savings account holder of the Bank qualifies as an Eligible Account
Holder, he or she will receive, without payment, non-transferable subscription
rights to purchase Company Stock. The number of shares that each Eligible
Account Holder may subscribe to is equal to the greater of (a) the maximum
purchase limitation established for the Community Offering or the Public
Offering; (b) one tenth of one percent of the total offering of shares; or (c)
fifteen times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Company Stock to be issued by a
fraction of which the numerator is the amount of the Qualifying Deposit of the
Eligible Account Holder and the denominator is the total amount of the
Qualifying Deposits of all Eligible Account Holders. If there is an
oversubscription, shares will be allocated among subscribing Eligible Account
Holders so as to permit each account holder, to the extent possible, to purchase
a number of shares sufficient to make his or her total allocation equal to 100
shares. Any shares not then allocated shall be allocated among the subscribing
Eligible Account Holders on an equitable basis, related to the amounts of their
respective deposits as compared to the total deposits of Eligible Account
Holders on
MALIZIA SPIDI & FISCH, PC
Board of Directors
Millington Savings Bank
MSB Financial Corp.
September 12, 2006
Page 3
the Eligibility Record Date. Non-transferable subscription rights to purchase
Company Stock received by officers and directors of the Company and their
associates based on their increased deposits in the Company in the one year
period preceding the Eligibility Record Date shall be subordinated to all other
subscriptions involving the exercise of non-transferable subscription rights to
purchase shares of Company Stock under the first preference category.
The second preference category is reserved for tax-qualified employee
stock benefit plans of the Bank. The Plan defines "tax qualified employee stock
benefit plans" as any defined benefit plan or defined contribution plan, such as
an employee stock ownership plan, stock bonus plan, profit-sharing plan or other
plan, which, with its related trust meets the requirements to be "qualified"
under Section 401 of the Internal Revenue Code of 1986, as amended (the "Code").
Under the Plan, the Bank's tax-qualified employee stock benefit plans may
subscribe for up to 8% of the shares of Company Stock to be offered in the
Offering.
The third preference category is reserved for the Bank's Supplemental
Eligible Account Holders. The Plan defines "Supplemental Eligible Account
Holder" as any person (other than officers or directors of the Company and their
associates) holding a deposit in the Bank on the last day of the calendar
quarter preceding the approval of the Plan by the OTS ("Supplemental Eligibility
Record Date"). This third preference category will only be used in the event
that the Eligibility Record Date is more than 15 months prior to the date of the
latest amendment to the Application for Approval of Offering on Form AC filed
prior to approval by the OTS. The third preference category provides that each
Supplemental Eligible Account Holder will receive, without payment,
non-transferable subscription rights to purchase Company Stock to the extent
that such shares of Company Stock are available after satisfying subscriptions
for shares in the first and second preference categories above. The number of
shares to which a Supplemental Eligible Account Holder may subscribe to is the
greater of (a) the maximum purchase limitation established for the Community
Offering; (b) one-tenth of one percent of the total offering of shares; or (c)
fifteen times the product (rounded down to the next whole number) obtained by
multiplying the total number of the shares of Company Stock to be issued by a
fraction of which the numerator is the amount of the deposit of the Supplemental
Eligible Account Holder and the denominator is the total amount of the deposits
of all Supplemental Eligible Account Holders on the Supplemental Eligibility
Record Date. Subscription rights received pursuant to the third preference
category shall be subordinated to all rights under the first and second
preference categories. Non-transferable subscription rights to be received by a
Supplemental Eligible Account Holder in the third preference category shall be
reduced by the subscription rights received by such account holder as an
Eligible Account Holder under the first and second preference categories. In the
event of an oversubscription, shares will be allocated so as to enable each
Supplemental Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his total allocation, including shares
previously allocated in the first and second preference categories, equal to 100
shares or the total amount of his subscription, whichever is less. Any shares
not then allocated shall be allocated among the subscribing Supplemental
Eligible Account Holders on an equitable basis related to the amount of their
respective deposits as compared to the total deposits of Supplemental Eligible
Account Holders on the Supplemental Eligibility Record Date.
The Plan further provides for limitations upon purchases of Company
Stock. Specifically, any person by himself or herself may not purchase or
subscribe more than $200,000 of Company Stock. In addition, any person with an
associate or a group of persons acting in concert may purchase or subscribe for
not more than the lesser of $250,000. However, Tax-Qualified Employee Stock
Benefit Plans may purchase
MALIZIA SPIDI & FISCH, PC
Board of Directors
Millington Savings Bank
MSB Financial Corp.
September 12, 2006
Page 4
up to 8% of the total shares of Company Stock issued. Subject to any required
regulatory approval and the requirements of applicable laws and regulations, the
Bank may increase or decrease any of the purchase limitations set forth herein
at any time. The Board of Directors of the Bank may, in its sole discretion,
increase the maximum purchase limitation up to 5.0%. Requests to purchase
additional shares of Company Stock under this provision will be allocated by the
Board of Directors on a pro rata basis giving priority in accordance with the
priority rights set forth in the Plan. Officers and directors of the Company and
their associates may not purchase in the aggregate more than 30% of the Company
Stock issued pursuant to the Offering. Directors of the Company will not be
deemed associates or a group acting in concert solely as a result of their
membership on the Board of Directors of the Bank. All of the shares of Company
Stock purchased by officers and directors will be subject to certain
restrictions on sale for a period of one year.
The Plan provides that no person will be issued any subscription rights
or be permitted to purchase any Company Stock if such person resides in a
foreign country or in a state of the United States with respect to which all of
the following apply: (a) a small number of persons otherwise eligible to
subscribe for shares under the Plan reside in such state; (b) the issuance of
subscription rights or the offer or sale of the Company Stock in such state,
would require the Company or the Company under the securities laws of such state
to register as a broker or dealer or to register or otherwise qualify its
securities for sale in such state; and (c) such registration or qualification
would be impracticable for reasons of cost or otherwise.
The Company will take 50% of the net proceeds from the sale of Company
Stock and contribute it as a capital contribution to the Bank. The Bank will pay
expenses of the Offering solely attributable to them, if any. Further, the
Company will pay its own expenses of the Offering and will not pay any expenses
solely attributable to the purchasers of Company Stock.
REPRESENTATIONS BY MANAGEMENT
-----------------------------
In connection with the Offering, the following statements,
representations and declarations as to matters of fact have been made to us by
management of the Company:
1. The Offering will be implemented in accordance with the terms of the
Plan and all conditions precedent contained in the Plan shall be performed prior
to the consummation of the Offering.
2. The Bank, the Company and the MHC are not currently in bankruptcy or
involved in a bankruptcy proceeding. The proposed transaction does not involve a
receivership, foreclosure, or similar proceeding before a federal or state
agency involving a financial institution.
3. The Company, the MHC and the Bank will pay their own expenses of the
Offering and will not pay any expenses solely attributable to the Company
stockholders.
4. There will be no purchase price advantage for the Bank's deposit
account holders who purchase Company Stock in the Offering.
MALIZIA SPIDI & FISCH, PC
Board of Directors
Millington Savings Bank
MSB Financial Corp.
September 12, 2006
Page 5
5. No creditors of the Bank have taken any steps to enforce their
claims against the Bank by instituting bankruptcy or other legal proceedings, in
either a court or appropriate regulatory agency, that would eliminate the
proprietary interests of the members of the Company prior to the Offering.
6. On a per share basis, the purchase price of the Company Stock in the
Offering will be equal to the fair market value of such stock at the time of the
completion of the proposed transaction.
7. No cash or property will be given to any member of the Bank in lieu
of subscription rights.
OPINION OF COUNSEL
------------------
Based solely upon the foregoing information and our analysis and
examination of current applicable federal income tax laws, rulings, regulations,
judicial precedents and provided the Offering is undertaken in accordance with
the above assumptions, we render the following opinion of counsel:
1. The Company will recognize no gain or loss upon its receipt of money
in exchange for shares of Company Stock. (Section 1032(a) of the Code).
2. It is more likely than not that the fair market value of the
subscription rights to purchase Company Stock is zero. Accordingly, no gain or
loss will be recognized by Eligible Account Holders and Supplemental Eligible
Account Holders, upon the distribution to them of the nontransferable
subscription rights to purchase shares of Company Stock. Gain realized, if any,
by the Eligible Account Holders and Supplemental Eligible Account Holders on the
distribution to them of nontransferable subscription rights to purchase shares
of Company Stock will be recognized but only in an amount not in excess of the
fair market value of such subscription rights (Code Section 356(a)). 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).
Our opinion under paragraph 2 above is predicated on the representation
that no person shall receive any payment, whether in money or property, in lieu
of the issuance of subscription rights. Our opinion under paragraph 2 is based
on the conclusion that the subscription rights to purchase shares of Company
Stock received by Eligible Account Holders and Supplemental Eligible Account
Holders have a fair market value of zero. We note that the subscription rights
will be granted at no cost to the recipients, will be legally non- transferable
and of short duration, and will provide the recipient with the right only to
purchase shares of Company Stock at the same price to be paid by members of the
general public in any Community Offering. We note that we are not aware of the
Internal Revenue Service claiming in any similar transaction that subscription
rights have any market value. In that there are no judicial opinions or official
Internal Revenue Service positions on this issue, however, our opinion related
to subscription rights comes to a reasoned conclusion instead of an absolute
conclusion on these issues. Our conclusion is supported by a letter from RP
Financial, LC, which states that the subscription rights do not have any value
when they are distributed or exercised. If the Internal Revenue Service
disagrees with this valuation of subscription rights and determines that such
subscription rights have value, income may be recognized by recipients of these
rights, in certain cases whether or not the rights are exercised. This income
may be capital gain or ordinary income, and the Company could recognize gain on
the distribution of these rights. Based on the foregoing, we believe it is more
likely than not that the nontransferable subscription rights to purchase Company
Stock have no value.
MALIZIA SPIDI & FISCH, PC
Board of Directors
Millington Savings Bank
MSB Financial Corp.
September 12, 2006
Page 6
SCOPE OF OPINION
----------------
Our opinion is limited to the material federal income tax matters of
the transaction proposed as it relates to the Company and the recipients of
subscription rights to purchase the Company Stock as described above and does
not address any other federal income tax considerations or any state, local,
foreign, or other tax considerations. If any of the information on 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 Code, applicable Treasury regulations promulgated thereunder, and Internal
Revenue Service rulings, procedures, and other pronouncements published by the
Internal Revenue Service. 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.
USE OF OPINION
--------------
This opinion is given solely for the benefit of the parties to the
Plan, the Eligible Account Holders and Supplemental Eligible Account Holders and
those who purchase stock pursuant to the Plan, and may not be relied upon by any
other party or entity or referred to in any document without our express written
consent.
CONSENT
-------
We hereby consent to the filing of this opinion as an exhibit to the
Form MHC-2 of the Bank filed with the OTS, and the Registration Statement on
Form S-1 of the Company filed under the Securities Act of 1933, as amended, and
to the reference of our firm in the prospectus related to this opinion.
Very truly yours,
/s/MALIZIA SPIDI & FISCH, PC
MALIZIA SPIDI & FISCH, PC