Exhibit 8.0
[LETTERHEAD OF MULDOON, MURPHY & FAUCETTE ATTORNEYS AT LAW APPEARS HERE]
May 7, 1996
Board of Directors
Ocean Federal Savings Bank
74 Brick Boulevard
Brick, New Jersey 08723
Board of Directors
Ocean Financial Corp.
74 Brick Boulevard
Brick, New Jersey 08723
Re: Certain Federal and State Tax Consequences of the Conversion of Ocean
Federal Savings Bank from a Federally Chartered Mutual Savings Bank to
a Federally Chartered Stock Savings Bank and the Offer and Sale of
Common Stock of Ocean Financial Corp. (the "Conversion")
Ladies and Gentlemen:
You have requested an opinion on certain federal income and state tax
consequences of the proposed conversion of Ocean Federal Savings Bank (the
"Bank") from a federally chartered mutual savings bank to a federally chartered
stock savings bank and the acquisition of the Bank's capital stock by Ocean
Financial Corp., a Delaware corporation (the "Holding Company"), pursuant to the
plan of conversion adopted on August 17, 1995, and amended on November 22, 1995,
March 20, 1996 and May 7, 1996 (the "Plan of Conversion"). This opinion
supercedes our previous opinion to the Bank and the Company dated March 21,
1996.
The proposed transaction is described in the section of this letter
entitled "STATEMENT OF FACTS," and the tax consequences of the proposed
transaction will be as set forth in the section of this letter entitled
"OPINION."
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 2
STATEMENT OF FACTS
------------------
Ocean Federal Savings Bank, with an administrative office in Brick, New
Jersey, is a federally chartered mutual savings bank. As a mutual savings 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 a plan of conversion (the "Plan of Conversion")
whereby the Bank will convert itself into a federally chartered stock savings
bank (the "Converted Bank"), the stock of which will be held entirely by Ocean
Financial Corp., a Delaware corporation (the "Holding Company"). The Holding
Company will acquire the stock of the Bank by purchase, using no less than
approximately 50% of the net proceeds received from the sale of its own stock
under the Plan of Conversion. The Holding Company will have authorized capital
consisting of 55 million shares of common stock ("Common Stock"), and 5 million
shares of preferred stock. In connection with the Conversion, the Holding
Company will issue shares of its Common Stock without par value in Subscription
and Community Offerings. It is anticipated that all such shares of Common Stock
not subscribed for in the Subscription and Community Offerings will be offered
to the general public in a Syndicated Community Offering (the "Syndicated
Community Offering"). The aggregate sales price of the Common Stock issued in
the Conversion will be based on an independent appraiser's valuation of the
estimated pro forma market value of the Common Stock of the Converted Bank. The
Conversion and sale of the Common Stock will be accomplished pursuant to the
rules and regulations and will be subject to the approval of the Office of
Thrift Supervision (the "OTS").
As part of the Conversion, the Company and the Bank intend to establish a
charitable foundation that will qualify as an exempt organization under Section
501(c)(3) of the Internal Revenue Code (the "Foundation") and to donate to the
Foundation up to 8.0% of the number of shares of common stock issued in the
Conversion. The establishment and funding of the Foundation as part of the
Conversion is subject to the approval of the voting members of the Bank at the
Special Meeting of Members.
A. Subscription Offering and Subscription Rights. In accordance with the
Plan of Conversion, rights to subscribe for the purchase of Common Stock have
been granted under the Plan of Conversion to the following persons in the
following order of priority: (1) holders of deposit accounts with a balance of
$50 or more as of the "Eligibility Record Date" of July 31, 1994 ("Eligible
Account Holders"); (2) the Bank's tax-qualified employee stock
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 3
benefit plans (the "Employee Plans"); (3) holders of deposit accounts with a
balance of $50 or more as of the "Supplemental Eligibility Record Date," meaning
the last day of the calendar quarter preceding the OTS approval of the
application for conversion ("Supplemental Eligible Account Holders"); and (4)
"Other Members" a term which is defined to mean any person, other than an
Eligible Account Holder or a Supplemental Eligible Account Holder, who is a
Member of the Bank as of the close of business on the date fixed by the Bank's
Directors in accordance with OTS regulations for determining eligibility to vote
at the Special Meeting of Members (the "Voting Record Date"). All subscriptions
received will be subject to the availability of Common Stock after satisfaction
of all subscriptions of all persons having prior rights in the Subscription
Offering and to the maximum and minimum purchase limitations set forth in the
Plan of Conversion as described below.
Category 1: Eligible Account Holders
Each Eligible Account Holder shall receive, as first priority and without
payment, nontransferable subscription rights to subscribe for shares of Common
Stock offered, equal to an amount up to the greater of: the amount permitted to
be subscribed for in the Community Offering which amount is equal to the greater
of .10% or $200,000 of the Common Stock offered, but which may be increased to
5% of the Common Stock offered without the further approval of members or
resolicitation of subscribers; one-tenth of one percent (.10%) of the total
offering of shares of Common Stock; or fifteen times the product (rounded down
to the next whole number) obtained by multiplying the total number of shares of
Common Stock to be issued by a fraction of which the numerator is the amount of
the Eligible Account Holder's deposit and the denominator is the total amount of
deposits of all Eligible Account Holders, in each case on the Eligibility Record
Date, subject to the maximum and minimum purchase limitations as described below
and exclusive of an increase in the total number of shares issued due to an
increase in the estimated price range of up to 15%.
In the event that Eligible Account Holders exercise subscription rights for
a number of shares of Common Stock in the Conversion in excess of the total
number of such shares eligible for subscription, the shares of Common Stock
shall be allocated among the subscribing Eligible Account Holders so as to
permit each subscribing Eligible Account Holder, to the extent possible, to
purchase a number of shares sufficient to make his or her total allocation of
Common Stock equal to the lesser of 100 shares or the number of shares
subscribed for by the Eligible Account Holder. Any shares remaining after that
allocation will be allocated among the subscribing Eligible Account Holders
whose subscriptions remain unsatisfied in the proportion that the amount of
their respective eligible deposits bears to the total amount of the eligible
deposits of all subscribing Eligible Account Holders whose subscriptions remain
unsatisfied. If the amount so allocated exceeds the amount subscribed for by
any one or more Eligible Account Holders, the excess shall be reallocated (one
or more times as necessary) among those Eligible Account Holders whose
subscriptions are still not
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 4
fully satisfied on the same principle until all available shares have been
allocated or all subscriptions satisfied.
Subscription rights as Eligible Account Holders received by Directors and
Officers and their Associates which are based on deposits made by such persons
during the twelve (12) months preceding the Eligibility Record Date shall be
subordinated to the subscription rights of all other Eligible Account Holders.
Category 2: Employee Plans
The Employee Plans shall receive as second priority and without payment
therefor, nontransferable subscription rights to purchase Common Stock in the
Conversion requested by such Employee Plans. If, after the filling of
subscriptions of Eligible Account Holders, a sufficient number of shares is not
available to fill the subscriptions by such Employee Plans, the subscription by
such Employee Plans shall be filled to the maximum extent possible, provided
however that in the event of an increase in the total number of shares issued
due to an increase in the Estimated Price Range of up to 15%, the additional
shares may be sold to the Employee Plans, subject to the purchase limitations
set forth below.
Category 3: Supplemental Eligible Account Holders
Each Supplemental Eligible Account Holder shall receive, as third priority
and without payment, nontransferable subscription rights to subscribe for shares
of Common Stock offered, equal to an amount up to the greater of: the amount
permitted to be subscribed for in the Community Offering which amount is the
greater of .10% or $200,000 of the Common Stock offered, but which may be
increased to 5% of the Common Stock offered, without the further approval of
members or resolicitation of subscribers; one-tenth of one percent (.10%) of the
total offering of Common Stock; or fifteen times the product (rounded down to
the next whole number) obtained by multiplying the total number of shares of
Common Stock to be issued by a fraction of which the numerator is the amount of
the eligible deposits of the Supplemental Eligible Account Holders and the
denominator is the total amount of the eligible deposits of all Supplemental
Eligible Account Holders in the Bank on the Supplemental Eligibility Record
Date, subject to the maximum and minimum purchase limitations as described below
and exclusive of an increase in the total number of shares issued due to an
increase in the estimated price range of up to 15%.
In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Common Stock in excess of the
total number of shares eligible for subscription, the shares of Common Stock
shall be allocated among the subscribing Supplemental Eligible Account Holders
so as to permit each subscribing Supplemental Eligible Account Holder, to the
extent possible, to purchase a number of shares sufficient to make his or her
total allocation of Common Stock equal to the lesser of 100 shares or the
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 5
number of shares subscribed for by the Supplemental Eligible Account Holder.
Any shares remaining after that allocation will be allocated among the remaining
subscribing Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied in the proportion that the amount of the eligible deposit of each
remaining Supplemental Eligible Account Holder whose subscription remains
unsatisfied bears to the total amount of the eligible deposits of all remaining
Supplemental Eligible Account Holders whose subscriptions remain unsatisfied.
If the amount so allocated exceeds the amount subscribed for by one or more
remaining Supplemental Eligible Account Holders, the excess shall be reallocated
(one or more times as necessary) among those remaining Supplemental Eligible
Account Holders whose subscriptions are still not fully satisfied on the same
principle until all available shares have been allocated or all subscriptions
satisfied.
Subscription rights received by an Eligible Account Holder as described
above under "Category 1: Eligible Account Holders" shall be applied in partial
satisfaction of the subscription rights to be received as a Supplemental
Eligible Account Holder.
Category 4: Other Members
Each Other Member shall receive, without payment, as a fourth priority
after the filling of subscriptions of the Eligible Account Holders, Employee
Plans and Supplemental Eligible Account Holders, nontransferable subscription
rights to subscribe for shares of Common Stock equal to an amount up to the
greater of: the amount permitted to be subscribed for in the Community
Offering, which amount is the greater of .10% or $200,000 of the Common Stock
offered, but which may be increased to 5% of the Common Stock offered without
the further approval of members or resolicitation of subscribers; or one-tenth
of one percent (.10%) of the total offering of shares of Common Stock, subject
to the maximum and minimum purchase limitations as described below, and
exclusive of an increase in the total number of shares issued due to an increase
in the estimated price range of up to 15%.
In the event that Other Members exercise subscription rights for a number
of shares of Common Stock in excess of the total number of shares eligible for
subscription, but shares remain available for subscription, the shares of Common
Stock shall be allocated among the subscribing Other Members so as to permit
each subscribing Other Member, to the extent possible, to purchase a number of
shares sufficient to make his or her total allocation of Common Stock equal to
the lesser of 100 shares or the number of shares subscribed for by the Other
Member. Any shares remaining after that allocation will be allocated among the
subscribing Other Members whose subscriptions remain unsatisfied pro rata in the
same proportion that the number of votes of a subscribing Other Member on the
Voting Record Date bears to the total votes on the Voting Record Date of all
subscribing Other Members. If the amount so allocated exceeds the amount
subscribed for by any one or more remaining Other Members, the excess shall be
reallocated (one or more times as necessary) among those
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 6
remaining Other Members whose subscriptions are still not fully satisfied on the
same principle until all available shares have been allocated or all
subscriptions satisfied.
B. Community Offering. If less than the total number of shares of Common
Stock to be subscribed for in the Conversion are sold in the Subscription
Offering, it is expected that shares remaining unsubscribed for in the
Subscription Offering will be made available for purchase in the Community
Offering to certain members of the general public, who may subscribe together
with any associate or group of persons acting in concert for up to the greater
of .10% or $200,000 of the shares of Common Stock offered, subject to the
maximum and minimum purchase limitations as described below and exclusive of an
increase in the total number of shares issued due to an increase in the
estimated price range of up to 15%; provided, however, that the amount permitted
to be purchased in the Community Offering may be increased to 5% of the Common
Stock offered without the further approval of members or resolicitation of
subscribers. The shares may be made available in the Community Offering through
a direct community marketing program which may provide for utilization of a
broker, dealer, consultant or investment banking firm, experienced and expert in
the sale of savings institution securities. Such entities may be compensated on
a fixed fee basis or on a commission basis, or a combination thereof. Any
excess of shares and those not subscribed for by institutional investors will be
available for purchase by the general public with preference given to natural
persons residing in Ocean, Monmouth, and Middlesex Counties, New Jersey
("Preferred Subscribers"). The Bank shall make distribution of the Common Stock
to be sold in the Community Offering in such a manner as to promote a wide
distribution of the Common Stock. The Bank reserves the right to reject any or
all orders in whole or in part, which are received in the Community Offering.
To the extent that there are shares remaining after all subscriptions by
institutional investors are filled, if the Preferred Subscribers in the
Community Offering, whose orders would otherwise be accepted, subscribe for more
shares than are available for purchase, the shares available to them will be
allocated among the Preferred Subscribers in the manner which permits each such
person, to the extent possible, to purchase the number of shares necessary to
make his total allocation of Common Stock equal to the lesser of 100 shares or
the number of shares subscribed for by such persons with preference given to
Preferred Subscribers. Thereafter, unallocated shares will be allocated among
the Preferred Subscribers in the Community Offering whose subscriptions remain
unsatisfied on a 100 shares per order basis until all such orders have been
filled or the remaining shares have been allocated. To the extent that there
are shares remaining after all subscriptions by Preferred Subscribers, any
remaining shares will be allocated among members of the general public using the
foregoing allocation as applied to Preferred Subscribers. The Bank may
establish all other terms and conditions of such offer. The Community Offering
may commence concurrently with the Subscription Offering. The Community
Offering must be completed within 45 days after the completion of the
Subscription Offering unless otherwise extended by the OTS.
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 7
C. Syndicated Community Offering. If feasible, all shares of Common Stock
in the Conversion not subscribed for in the Subscription and Community Offerings
may be sold in a Syndicated Community Offering, subject to such terms,
conditions and procedures as may be determined by the Bank, in a manner that
will achieve the widest distribution of the Common Stock subject to the right of
the Bank to accept or reject in whole or in part all subscriptions in the
Syndicated Community Offering. In the Syndicated Community Offering, any
person, together with any associate or group of persons acting in concert may
purchase up to the greater of .10% or $200,000 of the shares of Common Stock
offered, subject to the maximum and minimum purchase limitations as described
below, and exclusive of an increase in the total number of shares issued due to
an increase in the estimated price range of up to 15%; provided, however, that
this amount may be increased to 5% of the Common Stock offered without the
further approval of members. The shares purchased by any person, together with
any associate or group of persons acting in concert, shall be counted toward
meeting the maximum percentage of shares permitted to be purchased in the
Syndicated Community Offering. Provided that the Subscription Offering has
commenced, the Bank may commence the Syndicated Community Offering at any time
after the mailing to the members of the proxy statement to be used in connection
with the special meeting of members, provided that the completion of the offer
and sale of the Common Stock in the Conversion shall be conditioned upon the
approval of the Conversion by the members. If the Syndicated Community Offering
is not sooner commenced pursuant to the provisions of the preceding sentence,
the Syndicated Community Offering will be commenced as soon as practicable
following the date upon which the Subscription and Community Offerings
terminate.
Alternatively, if a Syndicated Community Offering is not held, the Bank
shall have the right to sell any shares of Common Stock remaining following the
Subscription and Community Offerings in an underwritten firm commitment public
offering. The maximum and minimum limitations on purchases described below
shall not be applicable to sales to underwriters for purposes of such an
offering but shall be applicable to the sales by the underwriters to the public.
The price to be paid by the underwriters in such an offering shall be equal to
the actual purchase price for the Common Stock, less an underwriting discount to
be negotiated among such underwriters and the Bank, which will in no event
exceed an amount deemed to be acceptable by the OTS.
If for any reason a Syndicated Community Offering or an underwritten firm
commitment public offering of shares of Common Stock not sold in the
Subscription and Community Offerings cannot be effected, or in the event that
any insignificant residue of shares of Common Stock is not sold in the
Subscription and Community Offerings or in the Syndicated Community Offering or
underwritten firm commitment public offering, other purchase arrangements will
be made by the Bank for the sale of unsubscribed shares, if possible. Such
other purchase arrangements will be subject to the approval of the OTS.
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 8
D. Limitations on Common Stock Purchases. The Plan of Conversion includes
the following limitations on the number of shares of Common Stock which may be
purchased during the Conversion:
1. The maximum number of shares of Common Stock which may be subscribed
for or purchased in all categories in the Conversion by any person or
participant together with any associate or group of persons acting in concert
shall not exceed 1.0% of the Common Stock offered except for the Employee Plans
which may subscribe for up to 10% of the Common Stock issued and except for
certain Eligible Account Holders and Supplemental Eligible Account Holders which
may subscribe for or purchase shares in accordance with their subscription
rights; provided, however, that in the event the maximum purchase limitation is
increased to more than 2.0% of the shares of Common Stock offered, orders for
Common Stock in the Community Offering and in the Syndicated Community Offering
(or, alternatively an underwritten firm commitment public offering), if any,
shall, as determined by the Bank, be filled to a maximum of 2.0% of the total
number of shares of Common Stock offered and thereafter remaining shares shall
be allocated on an equal number of shares basis per order until all orders have
been filled.
2. The maximum number of shares of Common Stock which may be purchased in
all categories in the Conversion by Officers and Directors of the Bank and their
associates in the aggregate shall not exceed 25% of the total number of shares
of Common Stock issued.
3. A minimum of 25 shares of Common Stock must be purchased by each
person purchasing shares in the Conversion to the extent those shares are
available; provided, however, that in the event the minimum number of shares of
Common Stock purchased times the price per share exceeds $500, then such minimum
purchase requirement shall be reduced to such number of shares of Common Stock
which when multiplied by the price per share shall not exceed $500, as
determined by the Board.
If the number of shares of Common Stock otherwise allocable to any person
or that person's associates would be in excess of the maximum number of shares
permitted as set forth above, the number of shares of Common Stock allocated to
each such person shall be reduced to the lowest limitation applicable to that
person, and then the number of shares allocated to each group consisting of a
person and that person's associates shall be reduced so that the aggregate
allocation to that person and his or her associates complies with the above
maximums, and such maximum number of shares shall be reallocated among that
person and his or her associates as they may agree, or in the absence of an
agreement, in proportion to the shares subscribed by each (after first applying
the maximums applicable to each person, separately).
Depending upon market or financial or other conditions, the Boards of
Directors of the Bank and of the Holding Company, without further approval of
the members, may decrease or
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 9
increase the purchase limitations in the Plan of Conversion, provided that the
maximum purchase limitations may not be decreased below 1% or increased to a
percentage in excess of 5%. Notwithstanding the foregoing, the maximum purchase
limitation may be increased up to 9.99% provided that orders for Common Stock
exceeding 5% of the shares being offered shall not exceed, in the aggregate, 10%
of the total offering. If the Bank or the Holding Company, as the case may be,
increases the maximum purchase limitations, the Bank or the Holding Company, as
the case may be, is only required to resolicit persons who subscribed for the
maximum purchase amount and may, in the sole discretion of the Bank or the
Holding Company, as the case may be, resolicit certain other large subscribers.
In the event there is an increase in the total number of shares of Common
Stock offered due to an increase in the estimated price range of up to 15% (the
"Adjusted Maximum"), such shares will be allocated in the following order of
priority: (i) to fill the Employee Plans' subscription to the Adjusted Maximum;
(ii) in the event that there is an oversubscription at the Eligible Account
Holder level, to fill unfulfilled subscriptions of Eligible Account Holders
exclusive of the Adjusted Maximum; (iii) in the event that there is an
oversubscription at the Supplemental Eligible Account Holder level, to fill
unfulfilled subscriptions of Supplemental Eligible Account Holders exclusive of
the Adjusted Maximum; (iv) in the event that there is an oversubscription at the
Other Member level, to fill unfulfilled subscriptions of Other Members exclusive
of the Adjusted Maximum; and (v) to fill unfulfilled subscriptions in the
Community Offering exclusive of the Adjusted Maximum.
The Directors of the Bank and the Holding Company shall not be deemed to be
associates or a group affiliated with each other or otherwise acting in concert
solely as a result of their being Directors of the Bank or the Holding Company.
Each person purchasing Common Stock in the Conversion shall be deemed to
confirm that such purchase does not conflict with the above purchase
limitations.
For a period of three years following the Conversion, no Officer, Director
or their associates shall purchase, without the prior written approval of the
OTS, any outstanding shares of Common Stock, except from a broker-dealer
registered with the Securities and Exchange Commission (the "SEC"). This
provision shall not apply to negotiated transactions involving more than one
percent of the outstanding shares of Common Stock, the exercise of any options
pursuant to a stock option plan or purchases of Common Stock, made by or held by
any tax-qualified employee stock benefit plan or non-tax-qualified employee
stock benefit plan of the Holding Company (including the Employee Plans) which
may be attributable to any Officer or Director. As used herein, the term
"negotiated transaction" means a transaction in which the securities are offered
and the terms and arrangements relating to any sale are arrived at through
direct communications between the seller or any person acting on its behalf and
the purchaser or his investment representative. The term "investment
representative" shall
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 10
mean a professional investment advisor acting as agent for the purchaser and
independent of the seller and not acting on behalf of the seller in connection
with the transaction.
The term "Associate" of a person is defined to mean: (i) any corporation or
organization (other than the Bank, or a majority-owned subsidiary of the Bank)
of which such person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10 percent or more of any class of equity securities, (ii)
any trust or other estate in which such person has a substantial beneficial
interest or as to which such person serves as trustee or in a similar fiduciary
capacity except that the term "Associate" does not include any non-tax-qualified
employee stock benefit plan or any tax-qualified employee stock benefit plan in
which a person has a substantial beneficial interest or serves as a trustee or
in a similar fiduciary capacity, and except that, for purposes of aggregating
total shares that may be held by Officers and Directors the term "Associate"
does not include any tax-qualified employee stock benefit plan, and (iii) any
relative or spouse of such person, or any relative of such spouse, who has the
same home as such person or who is a Director or Officer of the Holding Company,
or any of its parents or subsidiaries.
E. Characteristics of Deposit Accounts. The Conversion will not affect
the Bank's deposit accounts, individual account balances (except to the extent
that a depositor uses funds in his account to purchase stock), or the existing
FDIC insurance coverage, nor will it affect the Bank's loan accounts, loan
account balances or the obligations of the borrowers to the Bank. Upon
Conversion, voting rights with respect to the Bank's corporate matters shall
vest exclusively in the Holding Company, which will be the sole shareholder of
the Converted Bank.
The Converted Bank will continue, after completion of the Conversion, to
provide existing services to depositors and borrowers pursuant to existing
policies and will maintain its existing office, management and employees. The
Converted Bank will continue to be insured by the FDIC up to applicable limits.
The affairs of the Converted Bank will be directed by the existing Board of
Directors of the Bank who will become directors of the Converted Bank. The
Bank's depositors will pay expenses of the Conversion solely attributable to
them, if any; the Bank and the Holding Company will each pay their own expenses
of the Conversion and will not pay any expenses solely attributable to the
shareholders of the Holding Company.
The proposed Conversion of the Bank does not involve a receivership,
foreclosure or similar proceeding before a federal or state agency involving a
financial institution.
F. Liquidation Account. The Bank shall establish at the time of
Conversion 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
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 11
maintain their savings accounts at the Bank. Each Eligible Account Holder and
Supplemental Eligible Account Holder shall, 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 and/or Supplemental Eligibility Record Date or to such balance as it may be
subsequently reduced, as hereinafter provided.
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 subaccount balance for his savings account then held, before any
liquidation 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.
The initial subaccount balance for a savings account held by an Eligible
Account Holder and Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the liquidation account by a fraction, the
numerator of which is the amount of such Eligible Account Holder's and/or
Supplemental Eligible Account Holder's eligible deposits and the denominator of
which is the total amount of all eligible deposits of all Eligible Account
Holders and Supplemental Eligible Account Holders in the Bank. Such initial
subaccount balance shall not be increased, but shall be subject to downward
adjustment as described below.
If, at the close of business on any annual closing date, commencing on or
after the effective date of Conversion, the deposit balance in the savings
account of an Eligible Account Holder or Supplemental Eligible Account Holder is
less than the lesser of (i) the balance in the savings account at the close of
business on any other annual closing date subsequent to the Eligibility Record
Date or Supplemental Eligibility Record Date, or (ii) the amount of the eligible
deposits in such savings account, the subaccount balance for such savings
account shall be adjusted by reducing such subaccount balance in an amount
proportionate to the reduction in such deposit balance. In the event of such
downward adjustment, the subaccount balance shall not be subsequently increased,
notwithstanding any subsequent increase in the deposit balance of the related
savings account. If any such savings account is closed, the related subaccount
shall be reduced to zero.
The creation and maintenance of the liquidation account shall not operate
to restrict the use or application of any of the net worth accounts of the Bank,
except that the Bank shall not declare or pay a cash dividend on, or repurchase
any of, its capital stock if the effect
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 12
thereof would cause its regulatory capital to be reduced below the amount
required for the liquidation account.
G. Transfer of Assets and Liabilities. The assets and liabilities,
including deposits, of the Bank shall become the assets and liabilities of the
Converted Bank. All account balances at the termination of operations under the
Bank charter will be transferred by operation of law intact to the Converted
Bank.
H. Establishment of Foundation. To further the Converted Bank's long
term commitment to its community, as part of the Conversion, the Bank has
provided for the establishment of the Foundation. The Plan provides that the
Foundation is intended to complement the Bank's existing community reinvestment
activities so as to allow the local community to share in the growth and
profitability of the Holding Company and the Converted Bank over the long term.
The Plan of Conversion provides that the Holding Company intends to donate up to
$13.4 million of its authorized but unissued common stock (or up to 8% of the
number of shares of common stock issued in the Conversion) to the Foundation.
In the event that the Foundation does not receive the prerequisite approval, the
Bank may determine to complete the Conversion without the Foundation.
The Foundation will be dedicated to the promotion of charitable and
educational purposes within Ocean County, New Jersey and its neighboring
communities, including, but not limited to, grants or donations to support
housing assistance, scholarships, local education, not-for-profit medical
facilities, not-for-profit community groups and other types of organizations or
civic minded projects. The Foundation will annually distribute total grants and
donations to assist charitable organizations or to fund projects within its
local community of not less than 5% of the average fair value of the Foundation
assets each year.
* * *
You have also provided the following representations concerning this
transaction:
(a) The fair market value of the withdrawable deposit accounts plus
interests in the liquidation account of the Converted Bank to be
constructively received under the Plan of Conversion will, in each
instance, 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 the 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 $50 on the Eligibility Record Date or
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 13
the 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
the 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 other than in the
ordinary course of business.
(f) The Holding Company and the Converted Bank have no current plan or
intention to redeem or otherwise acquire any of the Common Stock
issued in the Conversion transaction.
(g) Immediately after the Conversion, the assets and liabilities of the
Converted Bank will be identical to the 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 Internal Revenue Code
of 1986, as amended (the "Code").
(i) None of the shares of the Common 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 compensation by means of the Employee
Plans. 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.
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 14
(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.
(k) The Bank is not under the jurisdiction of a bankruptcy or similar
court in any Title 11 or similar case within the meaning of section
368(a)(3)(A) of the Code.
(l) Upon the completion of the Conversion, the Holding Company will own
and hold 100% of the issued and outstanding capital stock of the
Converted Bank and no other shares of capital stock of the Converted
Bank will be issued and/or outstanding. At the time of the
Conversion, the Converted Bank does not have any plan or intention to
issue additional shares of its stock following the transaction.
Further, no shares of preferred stock of the Converted Bank will be
issued and/or outstanding.
(m) Upon the completion of the Conversion, there will be no rights,
warrants, contracts, agreements, commitments or understandings with
respect to the capital stock of the Converted Bank, nor will there be
any securities outstanding which are convertible into the capital
stock of the Converted Bank.
(n) No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders, or others in lieu of (a)
nontransferable subscription rights, or (b) an interest in the
liquidation account of the Converted Bank.
(o) The Bank utilizes a reserve for bad debts in accordance with section
593 and, following the Conversion, the Converted Bank shall likewise
utilize a reserve for bad debts in accordance with section 593.
(p) The Bank currently satisfies the 60% "qualified assets" test of
section 7701(a)(19) of the Code. Management expects the Converted
Bank to be able to continue to satisfy the test in the future. The
Converted Bank will also satisfy the "qualified thrift lender" tests
set out in sections 301 and 303 of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA").
(q) 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.
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 15
(r) The exercise price of the subscription rights received by the Bank's
Eligible Account Holders, Supplemental Eligible Account Holders, and
other holders of subscription 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.
(s) The proprietary interests of the Eligible Account Holders and the
Supplemental Eligible Account Holders in the Bank arise solely by
virtue of the fact that they are account holders in the Bank.
(t) There is no plan or intention for the Converted Bank to be liquidated
or merged with another corporation following this proposed
transaction.
(u) The liabilities of the Bank assumed by the Converted 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.
(v) The Bank currently has no net operating losses for federal tax
purposes, and has no such losses available for carryover to future tax
years. The Bank has neither generated nor carried forward a net
operating loss for federal tax purposes in the past ten tax years.
LIMITATIONS ON OPINION
----------------------
Our opinions expressed herein are based solely upon current provisions of
the Internal Revenue Code of 1986, as amended, including applicable regulations
thereunder and current judicial and administrative authority. Any future
amendments to the Code or applicable regulations, or new judicial decisions or
administrative interpretations, any of which could be retroactive in effect,
could cause us to modify our opinion. No opinion is expressed herein with
regard to the federal, state, or city tax consequences of the Conversion under
any section of the Code except if and to the extent specifically addressed.
FEDERAL TAX OPINION
-------------------
Based solely upon the foregoing representations and information and
assuming the transaction occurs in accordance with the Plan of Conversion (and
taking into consideration the limitations at the end of this opinion), it is our
opinion that under current federal income tax law:
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 16
(1) Pursuant to the Conversion, the changes at the corporate level other
than changes in the form of organization will be insubstantial. Based
upon that fact and the fact that the equity interest of a depositor in
a mutual savings bank is more nominal than real, unlike that of a
shareholder of a corporation, the Conversion of the Bank from a mutual
savings bank to a stock savings bank is a tax-free reorganization
since it is a mere change in identity, form or place of organization
within the meaning of section 368(a)(1)(F) of the Code (see Rev. Rul.
80-105, 1980-1 C.B. 78). Neither the Bank nor the Converted Bank
shall recognize gain or loss as a result of the Conversion. The 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 shall 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) of the Code).
(3) The basis of the assets of the Bank in the hands of the Converted Bank
shall be the same as the basis of such assets in the hands of the Bank
immediately prior to the Conversion (Section 362(b) of the Code).
(4) The holding period of the assets of the Bank in the hands of the
Converted Bank shall include the period during which the Bank held the
assets (Section 1223(2) of the Code).
(5) No gain or loss shall be recognized by the Eligible Account Holders
and the Supplemental Eligible Account Holders of the Bank on the
issuance to them of withdrawable deposit accounts in the Converted
Bank plus interests in the liquidation account of the Converted Bank
in exchange for their deposit accounts in the Bank or to the other
depositors on the issuance to them of withdrawable deposit accounts
(Section 354(a) of the Code).
(6) Provided that the amount to be paid for such stock pursuant to the
subscription rights is equal to the fair market value of the stock, 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 stock in
the Holding Company (Section 356(a)). 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 Common Stock will be recognized but only in an
amount not in excess of the fair market value of such subscription
rights
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 17
(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).
(7) The basis of the deposit accounts in the Converted Bank to be received
by the Eligible Account Holders, Supplemental Eligible Account Holders
and other depositors of the Bank will be the same as the basis of
their deposit accounts in the Bank surrendered in exchange therefor
(Section 358(a)(1) of the Code). The basis of the interests in the
liquidation account of the Converted Bank to be received by the
Eligible Account Holders of the Bank shall be zero (Rev. Rul. 71-233,
1971-1 C.B. 113). The basis of the Holding Company Common Stock to
its stockholders will be the purchase price thereof plus the basis, if
any, of nontransferable subscription rights (Section 1012 of the
Code). Accordingly, assuming the nontransferable subscription rights
have no value, the basis of the Common Stock to the Eligible Account
Holders and Supplemental Eligible Account Holders will be the amount
paid therefor. The holding period of the Common Stock purchased
pursuant to the exercise of subscription rights shall commence on the
date on which the right to acquire such stock was exercised (Section
1223(6) of the Code).
Our opinion under paragraph (6) 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 paragraphs (6) and
(7) above assumes that the subscription rights to purchase shares of Common
Stock received by Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members have a fair market value of zero. We understand that
you have received a letter from RP Financial, Inc. that the subscription rights
do not have any value. We express no view regarding the valuation of the
subscription rights.
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 the Converted Bank may be taxable on the distribution of the subscription
rights.
* * *
NEW JERSEY STATE TAX OPINION
----------------------------
We express no opinion as to the laws of any jurisdiction other than those
of the State of New Jersey. We express no opinion as to any laws within that
jurisdiction other than those specifically discussed below. Based on and
subject to the foregoing, it is our opinion that under New Jersey State Tax Law:
MULDOON, MURPHY & FAUCETTE
Board of Directors
May 7, 1996
Page 18
(1) No gain or loss will be recognized by the Bank under the New Jersey
Corporation Business Tax Act.
(2) No gain or loss will be recognized by the Bank or the Stock Bank under
the New Jersey Savings Institution Tax Act.
(3) Provided that the amount to be paid for such stock pursuant to the
subscription rights is equal to the fair market value of the stock, no
gain or loss will be recognized by depositors under the New Jersey
Gross Income Tax Act.
* * *
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 of Conversion as well as all the information and
representations referred to herein. Any change in the transaction could cause
us to modify our opinion.
We consent to the inclusion of this opinion as an exhibit to the Form AC
and Form S-1 Registration Statement of Ocean Financial Corp. and the references
to and summary of this opinion in such Form AC and Form S-1 Registration
Statement.
Sincerely,
/s/ Muldoon, Murphy & Faucette
MULDOON, MURPHY & FAUCETTE