[LETTERHEAD OF DARNALL, SIKES, KOLDER, FREDERICK & RAINEY]
June 21, 1996
Board of Directors
First Federal Savings and Loan Association
of Allen Parish
222 South 10th Street
Oakdale, Louisiana 71463
RE: Louisiana Corporate Income and Franchise Tax Consequences relating to the
Conversion of First Federal Savings and Loan Association of Allen Parish
(the Association) from a Federal Mutual Savings and Loan Association to a
Federal Stock Savings and Loan Association and the Acquisition of the Stock
Institution's Stock by a Stock Holding Company.
Gentlemen:
You have requested an opinion on the Louisiana Corporate Income and
Franchise Tax consequences of the proposed conversion ("Conversion") of First
Federal from a Federal Mutual Savings and Loan Association to a Federal Stock
Savings and Loan Association (The "Stock Association"), and the formation of a
holding company parent to be known as First Allen Parish Bancorp, Inc. (the
"Holding Company"), which will acquire all of the outstanding stock of the Stock
Association.
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 titled "Opinion".
STATEMENT OF FACTS
1. The Conversion is implemented in accordance with the terms of the Plan of
Conversion (the "Plan") and all conditions precedent contained in the Plan
shall be performed or waived prior to the consummation of the Conversion.
2. The fair market value of the withdrawable savings accounts plus interest in
the liquidation account ("Liquidation Account") of Stock Association to be
received under the Plan, in each instance, shall be equal to the fair
market value of the membership interest (i.e., withdrawable savings
accounts, voting and liquidation rights) in the Association surrendered in
exchange therefor.
Board of Directors
First Federal Savings and Loan Association
of Allen Parish
June 21, 1996
Page 2
3. Holding Company and Stock Association each have no plan or intention to
redeem or otherwise re-acquire any of the stock issued in the proposed
transaction.
4. To the best of the knowledge of the management of the Association, there is
no plan or intention by any member of the Association, who holds more than
1 percent of the qualifying deposits in the Association, and there is no
plan or intention on the part of the remaining members to dispose of their
withdrawable savings accounts in Stock Association that would reduce their
aggregate interest in the Liquidation Account as of the Effective Date of
the Conversion, to less than 50 percent of the value of their interest in
the Association as of the same date.
5. Immediately following the consummation of the proposed transaction, Stock
Association will possess the same assets and liabilities as the Association
held immediately prior to the proposed transaction, plus proceeds from the
sale of the stock of Stock Association to Holding Company.
6. Assets used to pay expenses of the Conversion (without reference to the
expenses of the Direct Community Offering) and all distributions (except
for regular normal interest payments and other payments in the normal
course of business made by the Association immediately preceding the
transaction) will in the aggregate constitute less than one percent (1%) of
the net assets of the Association.
7. Following the proposed transaction, Stock Association will continue the
historic business of the Association or use a significant portion of the
Association's historic business assets in a business.
8. Stock Association has no plan or intention to sell or otherwise dispose of
any of the assets of the Association acquired in the proposed transaction,
except for dispositions in the ordinary course of business.
9. There is no plan or intention for Stock Association to be liquidated or
merged with another corporation following the Conversion.
10. Both Stock Association and Holding Company have no plan or intention,
either currently or at the time of the Conversion, to issue additional
shares of stock following the proposed transaction, other than shares that
may be issued to employees and/or directors pursuant to certain stock
option and stock incentive plans or that may be issued to employee benefit
plans.
11. Stock Association has no plan or intention to reacquire any of its stock
issued in the proposed transaction.
Board of Directors
First Federal Savings and Loan Association
of Allen Parish
June 21, 1996
Page 3
12. The Association is not under the jurisdiction of a court in any Title 11 or
similar case within the meaning of Section 368(a)(3)(A). The proposed
transaction does not 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.
13. Compensation to be paid to depositor-employees of the Association, Stock
Association or Holding Company will be commensurate with amounts paid to
third parties bargaining at arm's length for similar services.
14. No shares of Holding Company Conversion Stock will be issued to or
purchased by depositor-employees of the Association, Stock Association or
Holding Company at a discount or as compensation in the proposed
transaction.
15. No cash or other property will be given to Eligible Account Holders or
others in lieu of (a) non-transferable subscription rights or (b) an
interest in the Liquidation Account of the Stock Association.
16. Association utilizes a reserve for bad debts in accordance with Section 593
of the Internal Revenue Code of 1986, as amended (the "Code") and,
following the conversion, Stock Association shall likewise utilize a
reserve for bad debts in accordance with Section 593 of the Code.
17. At the time of the proposed transaction, the fair market value of the
assets of the Association on a going concern basis will equal or exceed the
amount of its liabilities to be assumed plus the amount of liabilities to
which the transferred assets are subject. Association will have a positive
regulatory net worth at the time of the Conversion.
18. Association, Stock Association and Holding Company are corporations within
the meaning of Section 7701(a)(3) of the Code. Association and Stock
Association are domestic building and loan associations within the meaning
of Section 7701(a)(19)(C) of the Code.
19. Neither Association nor Stock Association is an investment company as
defined in Sections 368(a)(2)(F)(iii) and (iv) of the Code.
20. The exercise price of the subscription rights received by the Association's
Eligible Account Holders and Supplemental Eligible Account Holders to
purchase Holding Company Stock will be equal to the fair market value of
the Holding Company Conversion Stock at the time of the completion of the
proposed transaction as determined by an independent appraisal.
Board of Directors
First Federal Savings and Loan Association
of Allen Parish
June 21, 1996
Page 4
21. The Association has received or will receive an opinion from Ferguson & Co.
LLP ("Appraiser's Opinion"), which concludes that the 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, since they are acquired by the recipients without cost, are
nontransferable and of short duration, and afford the recipients a right
only to purchase Holding Company Conversion Stock at a price equal to its
estimated fair market value, which will be the same price as the Public
offering Price for unsubscribed shares of Holding Company Conversion Stock.
22. The Association's savings depositors will pay expenses of the conversion
solely attributable to them, if any. Holding Company and the Association
will pay their own expenses for the transaction and will not pay any
expenses solely attributable to the savings depositors or to the Holding
Company stockholders. The stockholders of Holding Company will pay the
expenses incurred by themselves in connection with the proposed
transaction.
23. The Eligible Account Holders', Supplemental Eligible Account Holders', and
Other Members' proprietary interest in the Association arise solely by
virtue of the fact that they are account holders in the Association.
24. No creditors of the Association or the depositors in their role as
creditors, have taken any steps to enforce their claims against the
Association by instituting Bankruptcy or other legal proceedings, in either
a court or appropriate regulatory agency, that would eliminate the
proprietary interests of the members prior to the Conversion of the
Association including depositors as equity holders of the Association.
25. The liabilities of the Association assumed by Stock Association plus the
liabilities, if any, to which the transferred assets are subject were
incurred by the Association in the ordinary course of its business and are
associated with the assets transferred.
26. Holding Company has no plan or intention to sell or otherwise dispose of
the stock of Stock Association received by it in the proposed transaction.
27. No amount of savings accounts or deposits as of the Eligibility Record Date
will be excluded from participation in the Liquidation Account.
28. The Association will not have any net operating losses, capital loss
carryovers or built-in losses at the time of the Conversion.
29. The Association has received an opinion letter from the law firm of Luse,
Lehman, Gorman, Pomerenk & Schick substantially in the form of the attached
regarding the federal income tax consequences of the Conversion ("Federal
Tax Opinion").
Board of Directors
First Federal Savings and Loan Association
of Allen Parish
June 21, 1996
Page 5
STATEMENT OF LOUISIANA LAW
Louisiana net income, as defined by Louisiana Revised Statute 47:287.67,
means net income which is earned within or derived from sources within the State
of Louisiana after adjustments permitted under Louisiana law including a federal
income tax deduction and an allowance for net operating losses, if any.
Further, in accordance with Louisiana law and with the tax return used to
compute the Louisiana Corporate income tax, federal net income is the starting
point in computing Louisiana net income for corporate income tax purposes. The
Holding Company will be subject to Louisiana Corporate Income Tax subject to
certain exclusions. Louisiana Revised Statute 47:287.71, paragraph (6), states
that amounts received as dividend income from capital stock associations whose
stock is subject to ad valorem taxation are excluded from Louisiana corporate
income tax. As a result, the Holding Company will be subject to Louisiana
corporate income tax, except that dividend income from the Association is
excluded from taxable income.
The Louisiana franchise tax is imposed on every domestic corporation and
every foreign corporation, exercising its charter, or qualified to do business
or actually doing business in the State of Louisiana, or owning or using any
part or all of its capital, plant, and any other property in the State of
Louisiana. The Louisiana franchise tax is computed based on the amount of the
corporation's issued and outstanding common stock, surplus, undivided profits
and borrowed capital. Louisiana Revised Statute 47:602 allows an exclusion for
the franchise tax base for any corporation having as a subsidiary, a banking
corporation. The Holding Company is allowed to deduct from its capital stock,
surplus, undivided profits and borrowed capital, its investments in and advances
to such subsidiary banking corporation to the extent that such investments and
advances exceed the difference between the total assets and the capital stock,
surplus, undivided profits and borrowed capital of the holding corporation.
First Federal will also be subject to the Louisiana Shares Tax which is
imposed on the assessed value of its stock. The formula for deriving the
assessed value is to calculate 15 percent of the sum of (a) 20 percent of the
Corporation's capitalized earnings, plus (b) 80 percent of the Association's
taxable stockholders' equity and to subtract from that figure 50 percent of the
Association's real and personal property assessment. Various items may also be
subtracted in calculating the Association's capitalized earnings.
Board of Directors
First Federal Savings and Loan Association
of Allen Parish
June 21, 1996
Page 6
OPINION
Based solely upon the facts and representations stated herein, the
Appraiser's Opinion and in reliance upon the Federal Tax Opinion, and assuming
the transaction occurs in accordance with the Plan of Conversion, it is our
opinion that, for Louisiana Corporate Income and Franchise tax purposes:
1. The change in the form of operation of the Association from a federal
mutual savings and loan association to a federal stock savings loan
association, as described above, will constitute a reorganization within
the meaning of Section 368(a)(1)(F) of the Internal Revenue Code of 1986,
as amended ("Code"), and no gain or loss will be recognized to either the
Association or to the Stock Association as a result of such conversation.
(See Rev. Rul. 80-105, 1980-1 C.B. 78). The Association and the Stock
Association 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 Association on the receipt
of money from the Holding Company in exchange for shares of common stock of
the Stock Association. (Section 1032(a) of the Code).
3. The Holding Company will recognize no gain or loss upon receipt of money
from stockholders in exchange for shares of Holding Company Conversion
Stock. (Section 1032(a) of the Code).
4. The assets of the Association will have the same basis in the hands of the
Stock Association as in the hands of the Association immediately prior to
the Conversion. (Section 362(b) of the Code).
5. The holding period of the assets of the Association to be received by the
Stock Association will include the period during which the assets were held
by the Association prior to the Conversion. (Section 1223(2) of the Code).
6. No gain or loss will be recognized by the depositors of the Association
upon the issuance to them of withdrawable savings accounts in the Stock
Association in the same dollar amount as their savings accounts in the
Association plus an interest in the Liquidation Account of the Stock
Association, as described above, in exchange for their savings accounts in
the Association. (Section 354(a) of the Code).
7. The basis of the depositors' savings accounts in the Stock Association
received by the depositor's of the Association will be the same as the
basis of their savings accounts in the Association surrendered in exchange
Board of Directors
First Federal Savings and Loan Association
of Allen Parish
June 21, 1996
Page 7
therefor. The basis of each account holder's interest in the Liquidation
Account of the Stock Association received by the depositors will be zero,
that being the cost of such property. 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 rights is equal to the fair
market value of such stock. The basis of the Holding Company Conversion
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 stockholder's holding period will commence upon the exercise
of the subscription rights. (Section 1223(6) of the Code).
8. Provided that the amount to be paid for Holding Company Stock pursuant to
the exercise of the subscription rights is equal to the fair market value
of such Common Stock, no gain or loss will be recognized by depositors
under the Plan upon the distribution to them of non-transferable
subscription rights to purchase shares of Holding Company Conversion Stock.
(Rev. Rul. 56-572, 1956-2 C.B. 234).
9. For purposes of Section 381 of the Code, the Stock Association will be
treated as if there had been no reorganization. Accordingly, the taxable
year of the Association will not end on the effective date of the
Conversion merely because of the transfer of assets of the Association to
the Stock Association, and the tax attributes of the Association will be
taken into account by the Stock Association as if there had been no
reorganization. (Treas. Reg. (S)1.381(b)-(1)(a)(2)).
10. The part of the taxable year of the Association before the reorganization
and the part of the taxable year of the Stock Association after the
reorganization will constitute a single taxable year of the Stock
Association. (Treas. Reg. (S)1.381(b)-1(a)(2); Rev. Rul. 57-276, 1957-1
C.B. 126).
11. Pursuant to the provisions of Section 381(c)(4) of the Code and Treas. Reg.
Section 1.381(c)(4)-1(a)(1)(ii), the Stock Association will succeed to and
take into account, immediately after the reorganization, those accounts of
the Association which represent bad debt reserves in respect of which the
Association has taken a bad debt deduction for taxable years ending on or
before the date of the transfer. The bad debt reserves will not be
required to be restored to the gross income of either the Association or
the Stock Association for the taxable year of the transfer, and such bad
debt reserves will have the same character in the hands of the Stock
Association as they would have had in the hands of the Association if no
distribution or transfer had occurred. (Section 593(e) of the Code).
Board of Directors
First Federal Savings and Loan Association
of Allen Parish
June 21, 1996
Page 8
12. Regardless of any book entries that are made for the establishment of the
Liquidation Account, the Conversion, as described above, will not diminish
the accumulated earnings and profits of the Stock Association available for
the subsequent distribution of dividends within the meaning of Section 316
of the Code. (Treas. Reg. (S)1.312-11(b) and (c)). The creation of the
Liquidation Account on the records of the Stock Association will have no
effect on its taxable income, deductions for additions to reserves for bad
debts under Section 593 of the Code, or distributions to stockholders under
Section 593(e) of the Code. (Rev. Rul. 68-475, 1968-2 C.B. 259).
13. A shareholder's holding period for Holding Company Conversion Stock
acquired through the exercise of the Subscription Rights shall begin on the
date on which the Subscription Rights are exercised. (Section 1223(6) of
the Code.) The holding period for the Holding Company Conversion Stock
purchased pursuant to the Community Offering or 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).
Our opinion under paragraph (6) and (7) above are predicated on the
representation that no person shall receive any payment in lieu of the issuance
of Subscription Rights as well as the assumption that based on the Appraiser's
opinion, such Rights have no fair market value.
LIMITATIONS ON OPINION
Our opinions contained herein are expressly limited to the Louisiana
Corporate Income and Franchise Tax discussed above and are specifically
predicated upon the Federal Tax Opinion being correct, and because the federal
tax rules are the starting point for Louisiana purposes we are assuming the
Federal Tax Opinion is correct. No opinion, either express or implied, is given
on any matter not expressly discussed above.
Our opinions expressed herein are based solely upon current provisions of
the Louisiana Revised Statutes, as amended, including applicable regulations
thereunder and current judicial and administrative authority. Any future
amendments of the Louisiana Revised Statutes, 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 any federal tax matter or state tax consequences
of the Conversion under any section of the Louisiana Revised Statutes except if
and to the extent specifically addressed.
Board of Directors
First Federal Savings and Loan Association
of Allen Parish
June 21, 1996
Page 9
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.
Sincerely,
DARNALL, SIKES, KOLDER, FREDERICK & RAINEY
(A Corporation of Certified Public
Accountants)
Conrad Chapman, CPA
CC/kbl