EXHIBIT 8.1
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
ATTORNEYS AT LAW
1301 K STREET, N.W.
SUITE 700 EAST
WASHINGTON, D.C. 20005
(202) 434-4660
FACSIMILE: (202) 434-4661
WRITER's DIRECT DIAL NUMBER
December 15, 1997
Board of Directors
Quitman Federal Savings Bank
100 W. Screven Street
Quitman, Georgia 31643-0592
Re: Federal Income Tax Opinion Relating to the Proposed Conversion of
Quitman Federal Savings Bank from a Federally-Chartered Mutual
Savings Bank to a Federally-Chartered Stock Savings Bank Pursuant
to Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as
amended
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Members of the Board:
In accordance with your request, set forth hereinbelow is the opinion
of this firm relating to certain federal income tax consequences of the proposed
conversion (the "Conversion") of Quitman Federal Savings Bank (the "Bank") from
a federally-chartered mutual savings bank to a federally-chartered capital stock
savings bank (the "Stock Bank"), and formation of a parent holding company (the
"Holding Company") which will simultaneously acquire all of the outstanding
stock of Stock Bank. As proposed, the Conversion will be implemented pursuant to
Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended (the
"Code").
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 Bank's Plan of Conversion adopted on October 14, 1997,
as amended (the "Plan of Conversion").
STATEMENT OF FACTS
------------------
Based solely upon our review of such documents, and upon such
information as the Bank has 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 Conversion to be as follows:
Board of Directors
Quitman Federal Savings Bank
December 15, 1997
Page 2
The Bank is a federally-chartered mutual savings bank. As a mutual
savings bank, the Bank has no authorized capital stock. Instead, the Bank, in
mutual form, has a unique equity structure. A savings depositor of the Bank is
entitled to interest income on his or her account balance as declared and paid
by the Bank. A savings depositor has no right to a distribution of any earnings
of the Bank, but rather these amounts become retained earnings of the Bank.
However, a savings depositor has a right to share pro rata, with respect to the
withdrawal value of his or her respective savings account, in any liquidation
proceeds distributed in the event the Bank is ever liquidated. Voting rights in
the Bank are held by its members. Each member is entitled to cast one vote for
each $100 or a fraction thereof of the withdrawal value of the member's account
and each borrower member is entitled to one vote. Each member shall have a
maximum of 1,000 votes. All of the interests held by a savings depositor in the
Bank cease when such depositor closes his or her account(s) with the Bank.
The Board of Directors of the Bank has decided that in order to promote
the growth and expansion of the Bank through the raising of additional capital,
it would be advantageous for the Bank to: (i) convert from a federally-chartered
mutual savings bank to a federally-chartered capital stock savings bank, and
(ii) arrange for the Holding Company to simultaneously acquire all of the Stock
Bank's stock. The Bank's Board of Directors has determined that in order to
provide greater flexibility in future operations of the Bank, including
diversification of business opportunities and acquisitions, it is advantageous
to have the Stock Bank's stock held by the Holding Company. Pursuant to the Plan
of Conversion, the Bank's certificate of incorporation to operate as a mutual
savings bank will be amended and a new certificate of incorporation will be
acquired to allow it to continue its operations in the form of a
federally-chartered capital stock savings bank. The Plan of Conversion provides
for the conversion of the Bank from mutual-to-stock form, and an appraisal of
the pro forma market value of the stock of the Stock Bank, which will be owned
solely by the Holding Company. The Plan of Conversion must be approved by the
Office of Thrift Supervision ("OTS"), and by an affirmative vote of at least a
majority of the total votes eligible to be cast at a special meeting of the
Bank's members called to vote on the Plan of Conversion.
The Holding Company is being formed under the laws of the State of
Georgia for the purpose of the proposed transaction described herein, to engage
in business as a savings and loan holding company and to hold all of the stock
of the Stock Bank. The Holding Company will issue shares of its voting common
stock ("Holding Company Stock") upon completion of the Conversion, as described
below, to persons purchasing such shares through a Subscription Offering and to
the general public in a Public Offering.
Following appropriate regulatory approval, the Plan of Conversion
provides for the issuance of shares of Holding Company Stock to eligible
depositors and borrowers of the Bank and others as described below and set forth
in the Plan of Conversion. The aggregate purchase price at which all shares of
Holding Company Stock will be offered and sold pursuant to the
Board of Directors
Quitman Federal Savings Bank
December 15, 1997
Page 3
Plan of Conversion will be equal to the estimated pro forma market value of the
Bank at the time of the Conversion as held as a subsidiary of the Holding
Company. The estimated pro forma market value will be determined by an
independent appraiser. Pursuant to the Plan of Conversion, all such shares of
Holding Company Stock will be issued and sold at a uniform price per share. The
Conversion and the sale of newly issued shares of the Stock Bank's stock to the
Holding Company will be deemed effective concurrently with the closing of the
sale of Holding Company Stock.
As required by OTS regulations, shares of Holding Company Stock will be
offered pursuant to non-transferable subscription rights on the basis of
preference categories. All shares must be sold and to the extent that Holding
Company Stock is available, no subscriber will be allowed to purchase less than
25 shares of Holding Company Stock, provided that the aggregate purchase price
does not exceed $500. The Bank has established various preference categories
under which shares of Holding Company Stock may be purchased 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 Conversion, 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 Conversion.
The first preference category is reserved for the Bank's Eligible
Account Holders. The Plan of Conversion defines "Eligible Account Holder" as any
person holding a Qualifying Deposit. The Plan of Conversion 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 December 31, 1995, 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 Holding 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 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 Holding 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 the Eligibility Record Date. Non-transferable subscription rights to
purchase Holding Company Stock received by officers and directors of the Bank
and their associates based on their increased deposits in the Bank in the one
year period
Board of Directors
Quitman Federal Savings Bank
December 15, 1997
Page 4
preceding the Eligibility Record Date shall be subordinated to all other
subscriptions involving the exercise of nontransferable subscription rights to
purchase shares of Holding Company Stock under the first preference category.
The second preference category is reserved for tax-qualified employee
stock benefit plans of the Stock Bank. The Plan of Conversion 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 Code. Under the Plan of
Conversion, the Stock Bank's tax-qualified employee stock benefit plans may
subscribe for up to 10% of the shares of Holding Company Stock to be offered in
the Conversion.
The third preference category is reserved for the Bank's Supplemental
Eligible Account Holders. The Plan of Conversion defines "Supplemental Eligible
Account Holder" as any person (other than officers or directors of the Bank and
their associates) holding a deposit in the Bank on the last day of the calendar
quarter preceding the approval of the Plan of Conversion 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 Conversion 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, nontransferable subscription rights to purchase
Holding Company Stock to the extent that such shares of Holding 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 Holding 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
Board of Directors
Quitman Federal Savings Bank
December 15, 1997
Page 5
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.
If there is no oversubscription of the Holding Company Stock in the
first, second, and third preference categories, the fourth preference category
becomes operable. In the fourth preference category, members of the Bank
entitled to vote at the special meeting of members to approve the Plan of
Conversion who are not Eligible Account Holders or Supplemental Eligible Account
Holders ("Other Members") will receive, without payment, non-transferable
subscription rights entitling them to purchase Holding Company Stock. Other
Members shall each receive subscription rights to purchase up to the maximum
purchase limitation established for the Public Offering or one-tenth of one
percent of the total offering of shares, to the extent that Holding Company
Stock is available. In the event of an oversubscription by Other Members,
Holding Company Stock will be allocated pro rata according to the number of
shares subscribed for by each Other Member.
The Plan of Conversion further provides for limitations upon purchases
of Holding Company Stock. Specifically, any person by himself or herself or with
an associate or a group of persons acting in concert may subscribe for not more
than $125,000 of Holding Company Stock offered pursuant to the Plan of
Conversion, except that Tax-Qualified Employee Stock Benefit Plans may purchase
up to 10% of the total shares of Holding 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 Holding 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 of Conversion.
Officers and directors of the Bank and their associates may not purchase in the
aggregate more than 35% of the Holding Company Stock issued pursuant to the
Conversion. Directors of the Bank 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 Holding Company Stock purchased by
officers and directors will be subject to certain restrictions on sale for a
period of one year.
The Plan of Conversion provides that no person will be issued any
subscription rights or be permitted to purchase any Holding 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 of Conversion reside
in such state; (b) the issuance of subscription rights or the offer or sale of
the Holding Company Stock in such state, would require the Bank or the Holding
Company under the securities law of such state to register as a broker or dealer
or to register or otherwise qualify its securities for
Board of Directors
Quitman Federal Savings Bank
December 15, 1997
Page 6
sale in such state; and (c) such registration or qualification would be
impracticable for reasons of cost or otherwise.
The Plan of Conversion also provides for the establishment of a
Liquidation Account by the Stock Bank for the benefit of all Eligible Account
Holders and Supplemental Eligible Account Holders (if applicable). The
Liquidation Account will be equal in amount to the net worth of Bank as of the
time of 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 Stock Bank, except that the Stock Bank will not declare or pay cash
dividends on or repurchase any of its stock if the result thereof would be to
reduce its net worth below the amount required to maintain the Liquidation
Account. The Liquidation Account will be for the benefit of the Bank's Eligible
Account Holders and Supplemental Eligible Account Holders who maintain accounts
in the Bank at the time of the Conversion. All such account holders, including
those not entitled to subscription rights for reasons of foreign or out-of-state
residency (as described above), will have an interest in the Liquidation
Account. The interest an Eligible Account Holder and Supplemental Eligible
Account Holder will have a right to receive, in the event of a complete
liquidation of the Stock Bank, is a distribution from the Liquidation Account in
the amount of the then current adjusted subaccount balances for savings accounts
then held, which will be made prior to any liquidation distribution with respect
to the capital stock of the Stock Bank.
The initial subaccount balance for a savings account held by an
Eligible Account Holder and/or Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the Liquidation Account by a
fraction of which the numerator is the amount of the qualifying deposit in the
savings account, and the denominator is the total amount of qualifying deposits
of all Eligible Account Holders and Supplemental Eligible Account Holders in the
Stock Bank. The initial subaccount balance will never be increased, but may be
decreased if the deposit balance in any qualifying savings account of any
Eligible Account Holder or any savings account of any Supplemental Eligible
Account Holder on any annual closing date subsequent to the Eligibility Record
Date or Supplemental Eligibility Record Date, whichever is applicable, is less
than the lesser of (1) the deposit balance in the savings account at the close
of business on any other annual closing date subsequent to the Eligibility
Record Date or the Supplemental Eligibility Record Date, or (2) the amount of
the qualifying deposit in such savings account. In such event, the subaccount
balance for the savings account will be adjusted by reducing each subaccount
balance in an amount proportionate to the reduction in the savings account
balance. Once decreased, the Plan of Conversion provides that the subaccount
balance will never be subsequently increased, and if the savings account of an
Eligible Account Holder or Supplemental Eligible Account Holder is closed, the
related subaccount balance in the Liquidation Account will be reduced to zero.
The net proceeds from the sale of the shares of Holding Company Stock
will become the permanent capital of Holding Company, and the Holding Company
will in turn purchase 100%
Board of Directors
Quitman Federal Savings Bank
December 15, 1997
Page 7
of the stock issued by Stock Bank, in exchange for up to 50% of the Holding
Company's stock offering net proceeds or such other percentage as is approved by
the Board of Directors with the concurrence of the OTS.
Following the Conversion, voting rights in Stock Bank will rest
exclusively in the Holding Company. Voting rights in the Holding Company will
rest exclusively in the stockholders of the Holding Company. The Conversion will
not interrupt the business of the Bank, and its business will continue as usual
under the Stock Bank. Each depositor will retain a withdrawable savings account
or accounts equal in amount to the withdrawable account or accounts at the time
of the Conversion. Mortgage loans of the Bank will remain unchanged and retain
their same characteristics in the Stock Bank after the Conversion. The Stock
Bank will continue membership in the Federal Home Loan Bank System, and will
remain subject to the regulatory authority of the OTS. Deposits in Stock Bank
will continue to be insured by the Savings Association Insurance Fund
administered by the Federal Deposit Insurance Corporation up to applicable
limits of insurance coverage.
Immediately prior to the Conversion, the Bank will have a positive net
worth in accordance with generally accepted accounting principles. The savings
account holders of the Bank will pay expenses of the Conversion solely
attributable to them, if any. Further, the Bank will pay its own expenses of the
Conversion and will not pay any expenses solely attributable to the Bank's
savings account holders or to the purchasers of Holding Company Stock.
REPRESENTATIONS BY MANAGEMENT
-----------------------------
In connection with the Conversion, the following statements,
representations and declarations have been made to us by management of the Bank:
1. The Conversion will be implemented in accordance with the terms of
the Plan of Conversion and all conditions precedent contained in the Plan of
Conversion shall be performed prior to the consummation of the Conversion.
2. The fair market value of the withdrawable savings accounts plus
interests in the Liquidation Account to be constructively received under the
Plan of Conversion will in each instance be equal to the fair market value of
each savings account of the Bank plus the interest in the residual equity of the
Bank surrendered in exchange therefor. All proprietary rights in the Bank form
an integral part of the withdrawable savings accounts being surrendered in the
Conversion.
3. The Holding Company and the Stock Bank each have no plan or
intention to redeem or otherwise acquire any of the Holding Company Stock issued
in the proposed transaction.
Board of Directors
Quitman Federal Savings Bank
December 15, 1997
Page 8
4. To the best of the knowledge of the management of the Bank, there is
not now nor will there be at the time of the Conversion, any plan or intention,
on the part of the depositors in the Bank to withdraw their deposits following
the Conversion. Deposits withdrawn immediately prior to or immediately
subsequent to the Conversion (other than maturing deposits) are considered in
making these assumptions.
5. Immediately following the consummation of the proposed transaction,
the Stock Bank will possess the same assets and liabilities as the Bank held
immediately prior to the proposed transaction, plus substantially all of the net
proceeds from the sale of its stock to the Holding Company (except for assets
used to pay expenses in the Conversion). Assets used to pay expenses of the
Conversion (without reference to the expenses of the Subscription Offering and
the Public Offering) and all distributions (except for regular normal interest
payments made by the Bank immediately preceding the transaction) will in the
aggregate constitute less than one percent (1%) of the assets of the Bank, net
of liabilities associated with such assets, and will be paid by the Bank and the
Holding Company from the proceeds of the Subscription Offering and Public
Offering.
6. Following the Conversion, the Stock Bank will continue to engage in
its business in substantially the same manner as engaged in by the Bank prior to
the Conversion. The Stock Bank has no plan or intention to sell or otherwise
dispose of any of its assets, except in the ordinary course of business.
7. No cash or property will be given to any member of the Bank in lieu
of subscription rights or an interest in the Liquidation Account of the Stock
Bank.
8. None of the compensation to be received by any deposit account
holder-employees of the Bank or the Holding Company will be separate
consideration for, or allocable to, any of their deposits in the Bank. No
interest in the Liquidation Account of the Stock Bank will be received by any
deposit account holder-employees as separate consideration for, or will
otherwise be allocable to, any employment agreement, and the compensation paid
to each deposit account holder-employee, during the twelve month period
preceding or subsequent to the Conversion, will be for services actually
rendered and will be commensurate with amounts paid to third parties bargaining
at arm's length for similar services. No shares of Holding Company Stock will be
issued to or purchased by any deposit account holder-employee of the Bank or the
Holding Company at a discount or as compensation in the Conversion.
9. The aggregate fair market value of the Qualifying Deposits held by
Eligible Account Holders or Supplemental Eligible Account Holders (if
applicable) as of the close of business on the Eligibility Record Date or
Supplemental Eligibility Record Date (if applicable) entitled to interests in
the Liquidation Account to be established by Stock Bank equalled or
Board of Directors
Quitman Federal Savings Bank
December 15, 1997
Page 9
exceeded 99% of the aggregate fair market value of all savings accounts
(including those accounts of less than $50.00) in the Bank as of the close of
business on such date.
10. There is no plan or intention for the Stock Bank to be liquidated
or merged with another corporation following the consummation of the Conversion.
11. For taxable years prior to January 1, 1996, the Bank had utilized
the reserve method of accounting for bad debts in accordance with Section 593 of
the Code. Pursuant to the Small Business Job Protection Act of 1996, the Bank
began to utilize (for taxable years ending after January 1, 1996) the reserve
method of accounting for bad debts in accordance with Section 585 of the Code.
Following the Conversion, the Stock Bank will continue to utilize a reserve for
bad debts in accordance with Section 585 of the Code.
12. The Bank and the Stock Bank are corporations within the meaning of
Section 7701(a)(3) of the Code.
13. The Holding Company has no plan or intention to sell or otherwise
dispose of the stock of the Stock Bank received by it in the proposed
transaction.
14. Both the Stock Bank and the Holding Company have no plan or
intention, either currently or at the time of the Conversion, to issue
additional shares of common stock following the proposed transaction, other than
shares that may be issued to employees or directors pursuant to certain stock
option and stock incentive plans or that may be issued to employee benefit
plans.
15. If all of the net proceeds from the sale of Holding Company Stock
had been contributed by the Holding Company to the Stock Bank in exchange for
common stock of the Stock Bank in the Conversion, as opposed to the Holding
Company retaining a portion of such net proceeds ("retained proceeds"), and if
the Stock Bank immediately thereafter made a distribution of the retained
proceeds to the Holding Company, the Stock Bank would have sufficient current
and accumulated earnings and profits for tax purposes such that the distribution
would not result in the recapture of any portion of the bad debt reserves of the
Stock Bank under Section 593(e) of the Code.
16. At the time of the proposed transaction, the fair market value of
the assets of the Bank on a going concern basis (including intangibles) will
equal or exceed the amount of its liabilities plus the amount of liability to
which such assets are subject. The Bank will have a positive regulatory net
worth at the time of the Conversion.
17. The Bank is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code. The
proposed transaction does not
Board of Directors
Quitman Federal Savings Bank
December 15, 1997
Page 10
involve a receivership, foreclosure, or similar proceeding before a federal or
state agency involving a financial institution to which Section 585 or 593 of
the Code applies.
18. The Bank's savings depositors will pay expenses of the Conversion
solely attributable to them, if any. The Holding Company, the Stock Bank, and
the Bank will pay their own expenses of the Conversion and will not pay any
expenses solely attributable to the savings depositors or to the Holding Company
stockholders.
19. The liabilities of the Bank assumed by the Stock Bank plus the
liabilities, if any, to which the transferred assets are subject were incurred
by the Bank in the ordinary course of its business and are associated with the
assets transferred.
20. There will be no purchase price advantage for the Bank's deposit
account holders who purchase Holding Company Stock in the Conversion.
21. Neither the Bank nor the Stock Bank is an investment company as
defined in Sections 368(a)(2)(F)(iii) and (iv) of the Code.
22. 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 Bank prior to the Conversion.
23. The proposed transaction does not involve the payment to the Stock
Bank or the Bank of financial assistance from federal agencies within the
meaning of Notice 89-102, 1989-40 C.B. 1.
24. The Eligible Account Holders' and Supplemental Eligible Account
Holders' proprietary interest in the Bank arise solely by virtue of the fact
that they are account holders in the Bank.
25. At the time of the Conversion, the Bank will not have outstanding
any warrants, options, convertible securities, or any other type of right
pursuant to which any person could acquire an equity interest in the Holding
Company or the Stock Bank.
26. The Stock Bank has no plan or intention to sell or otherwise
dispose of any of the assets of the Bank acquired in the transaction (except for
dispositions, including deposit withdrawals, made in the ordinary course of
business).
Board of Directors
Quitman Federal Savings Bank
December 15, 1997
Page 11
27. On a per share basis, the purchase price of the Holding Company
Stock in the Conversion will be equal to the fair market value of such stock at
the time of the completion of the proposed transaction.
28. The Bank has received or will receive an opinion from FinPro, Inc.
("Appraiser's Opinion"), which concludes that subscription rights to be received
by Eligible Account Holders, Supplemental Eligible Account Holders, and other
eligible subscribers do not have any ascertainable fair market value, because
they are acquired by the recipients without cost, are non-transferable, exist
for such a short duration, and merely afford the recipients a right only to
purchase Holding Company Stock at a price equal to its estimated fair market
value, which will be the same price used in the Public Offering for unsubscribed
shares of Holding Company Stock.
29. The Bank will not have any net operating losses, capital loss
carryovers, or built-in losses at the time of the Conversion.
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 the Appraiser's Opinion, and provided the Conversion is
undertaken in accordance with the above assumptions, we render the following
opinion of counsel:
1. The change in the form of operation of the Bank from a
federally-chartered mutual savings bank to a federally chartered capital stock
savings bank, as described above, will constitute a reorganization within the
meaning of Section 368(a)(1)(F) of the Code, and no gain or loss will be
recognized to either the Bank or to the Stock Bank as a result of such
Conversion. (See Rev. Rul. 80-105, 1980-1 C.B. 78). The Bank and the Stock Bank
will each be a party to a reorganization within the meaning of Section 368(b) of
the Code. (Rev. Rul. 72-206, 1972-1 C.B. 104).
2. No gain or loss will be recognized by the Stock Bank on the receipt
of money in exchange for shares of Stock Bank stock. (Section 1032(a) of the
Code).
3. The Holding Company will recognize no gain or loss upon its receipt
of money in exchange for shares of Holding Company Stock. (Section 1032(a) of
the Code).
4. The assets of the Bank will have the same basis in the hands of the
Stock Bank as in the hands of the Bank immediately prior to the Conversion.
(Section 362(b) of the Code).
Board of Directors
Quitman Federal Savings Bank
December 15, 1997
Page 12
5. The holding period of the assets of the Bank to be received by the
Stock Bank will include the period during which the assets were held by the Bank
prior to the Conversion. (Section 1223(2) of the Code).
6. Depositors will realize gain, if any, upon the issuance to them of
(i) withdrawable deposit accounts of the Stock Bank, (ii) subscription rights in
connection with the Conversion, and/or (iii) interests in the Liquidation
Account of the Stock 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 Accounts will have
nominal, if any, fair market value. Based solely on the accuracy of the
conclusion reached in the Appraiser's Opinion, and our reliance on such opinion,
that the subscription rights have no value at the time of distribution or
exercise, 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).
Likewise, based solely on the accuracy of the aforesaid conclusion
reached in the Appraiser's Opinion, and our reliance thereon, we give the
following opinions: (a) no taxable income will be recognized by the borrowers,
directors, officers, and employees of the Bank upon distribution to them of
subscription rights or upon the exercise or lapse of the subscription rights to
acquire Holding Company Stock at fair market value; (b) no taxable income will
be realized by the depositors of the Bank as a result of the exercise or lapse
of the subscription rights to purchase Holding Company Stock at fair market
value (Rev. Rul. 56-572, 1956-2 C.B. 182); and (c) no taxable income will be
realized by the Bank, the Stock Bank, or the Holding Company on the issuance or
distribution of subscription rights to depositors of the Bank to purchase shares
of Holding Company 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 greater than zero, income may be
recognized by various recipients of the subscription rights (in certain cases,
whether or not the rights are exercised) and the Holding Company and/or the
Stock 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.
7. The basis of the savings accounts in the Stock Bank received by the
account holders of the Bank will be the same as the basis of their savings
accounts in the Bank surrendered in exchange therefor (Section 358(a)(1)). The
basis of the interests in the Liquidation Account of the Stock Bank received by
the Eligible Account Holders and Supplemental Eligible Account Holders will be
zero, that being the cost of such property. (Paulsen v. Commissioner, 469 U.S.
131, 139 (1985)). The basis of the non-transferable subscription rights will be
zero, provided that such subscription rights are not deemed to have a fair
market value and that the subscription price of such stock issuable upon
exercise of such
Board of Directors
Quitman Federal Savings Bank
December 15, 1997
Page 13
rights is equal to the fair market value of such stock. The basis of the Holding
Company Stock to its stockholders will be the purchase price thereof, increased
by the basis, if any, of the subscription rights exercised (Section 1012 of the
Code). The holding period of Holding Company Stock will commence upon the
effective date of exercise of the subscription rights (Section 1223(6) of the
Code). The holding period for the Holding Company Stock purchased pursuant to
the direct community offering, public offering or under other purchase
arrangements will commence on the date following the date on which such stock is
purchased. (Rev. Rul. 70- 598, 1970-2 C.B. 168).
8. The part of the taxable year of the Bank before the Conversion and
the part of the taxable year of the Stock Bank after the Conversion will
constitute a single taxable year of the Stock Bank. (See Rev. Rul. 57-276,
1957-1 C.B. 126). Consequently, the Bank will not be required to file a federal
income tax return for any portion of such taxable year (Section 1.381(b)-1(a)(2)
of the Treasury Regulations).
9. As provided by Section 381(c)(2) of the Code and Section
1.381(c)(2)-1 of the Treasury Regulations, the Stock Bank will succeed to and
take into account the earnings and profits or deficit in earnings and profits of
the Bank as of the date or dates of transfer.
10. Pursuant to the provisions of Section 381(c)(4) of the Code and
Section 1.381(c)(4)-1(a)(1)(ii) of the Treasury Regulations, the Stock Bank will
succeed to and take into account, immediately after the reorganization, those
accounts of the Bank which represent bad debt reserves in respect of which the
Bank has taken a bad debt deduction for taxable years ending on or before the
date of the reorganization. The bad debt reserves will not be required to be
restored to the gross income of either the Bank or the Stock Bank for the
taxable year of the reorganization, and such bad debt reserves will have the
same character in the hands of the Stock Bank as they would have had in the
hands of the Bank if no distribution or transfer had occurred. No opinion is
being expressed as to whether the bad debt reserves will be required to be
restored to the gross income of either the Bank or the Stock Bank for the
taxable year of the reorganization.
11. Regardless of book entries made for the creation of the Liquidation
Account, the Conversion, as described above, will not diminish the accumulated
earnings and profits of the Stock Bank available for the subsequent distribution
of dividends within the meaning of Section 316 of the Code. (Section 1.312-11(b)
and (c) of the Treasury Regulations).
12. For purposes of Section 381 of the Code, the Stock Bank will be
treated the same as the Bank would have been had there been no reorganization.
Accordingly, the taxable year of the Bank will not end on the effective date of
the proposed transaction merely because of the transfer of assets of the Bank to
the Stock Bank and the tax attributes of the Bank enumerated
Board of Directors
Quitman Federal Savings Bank
December 15, 1997
Page 14
in Section 381(c) will be taken into account by the Stock Bank as if there had
been no reorganization (Section 1.381(b)-1(a)(2)) of the Treasury Regulations).
No opinion is expressed as to the tax treatment of the Conversion under
the provisions of any of the other sections of the Code and Treasury Regulations
which may also be applicable thereto, or under federal law, or to the tax
treatment of any conditions existing at the time of, or effects resulting from,
the transactions which are not specifically covered by the items set forth
above. Notwithstanding any reference to Section 381 above, no opinion is
expressed or intended to be expressed herein as to the effect, if any, of this
transaction on the continued existence of, the carryover or carryback of, or the
limitation on, any net operating losses of the Bank or its successor, the Stock
Bank, under the Code.
We hereby consent to the filing of this opinion as an exhibit to the
Application for Conversion on Form AC of the Bank filed with the OTS, the
Application H-(e)(1)-S of the Holding Company filed with the OTS, and the
Registration Statement on Form SB-2 of the Holding 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, Sloane & Fisch, P.C.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.