Exhibit 8.1
Federal Tax Opinion of Breyer & Aguggia
1300 I Street, N.W.
Suite 470 East
Washington, D.C. 20005
Telephone (202) 737-7900
Breyer & Aguggia Facsimile (202) 737-7979
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April 2, 1997
Boards of Directors
Security Bancorp, Inc.
Security Federal Savings
Bank of McMinnville, TN
306 W. Main Street
McMinnville, Tennessee 37110
Re: Certain Federal Income Tax Consequences Relating to Proposed
Holding Company Conversion of Security Federal Savings Bank of
McMinnville, TN and Subsequent Conversion to a Commercial Bank
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Gentlemen:
In accordance with your request, set forth herein is the opinion of
this firm relating to certain federal income tax consequences of (i) the
proposed conversion of Security Federal Savings Bank of McMinnville (the
"Savings Bank") from a federally-chartered mutual savings bank to a
federally-chartered stock savings bank (the "Converted Savings Bank") (the
"Stock Conversion"); (ii) the concurrent acquisition of 100% of the outstanding
capital stock of the Converted Savings Bank by a parent holding company formed
at the direction of the Board of Directors of the Savings Bank and to be known
as Security Bancorp, Inc. (the "Holding Company"); and, thereafter, (iii) the
conversion of the Converted Savings Bank to a Tennessee- chartered commercial
bank (the "Converted Bank") (the "Bank Conversion"). The Stock Conversion and
the Bank Conversion are referred to herein collectively as the "Conversion."
For purposes of this opinion, we have examined such documents and
questions of law as we have considered necessary or appropriate, including but
not limited to the Plan of Conversion as adopted by the Savings Bank's Board of
Directors as adopted on January 15, 1997 and subsequently amended on March 20,
1997 (the "Plan"); the federal mutual charter and bylaws of the Savings Bank;
the certificate of incorporation and bylaws of the Holding Company; the
Affidavit of Representations dated April 1, 1997 provided to us by the Savings
Bank (the "Affidavit"), and the Prospectus (the "Prospectus") included in the
Registration Statement on Form SB-2 filed with the Securities and Exchange
Commission ("SEC") on March 21, 1997 (the "Registration Statement"). In such
examination, we have assumed, and have not independently verified, the
genuineness of all signatures on original documents where due execution and
Boards of Directors
Security Bancorp, Inc.
Security Federal Savings
Bank of McMinnville, TN
April 2, 1997
Page 2
delivery are requirements to the effectiveness thereof. Terms used but not
defined herein, whether capitalized or not, shall have the same meaning as
defined in the Plan.
BACKGROUND
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Based solely upon our review of such documents, and upon such
information as the Savings Bank has provided to us (which we have not attempted
to verify in any respect), and in reliance upon such documents and information,
we set forth herein a general summary of the relevant facts and proposed
transactions, qualified in its entirety by reference to the documents cited
above.
The Savings Bank is a federally-chartered mutual savings bank which is
in the process of converting to a federally-chartered stock savings bank and,
thereafter, to a Tennessee-chartered commercial bank. The Savings Bank was
initially organized in 1960. The Savings Bank is also a member of the Federal
Home Loan Bank System and its deposits are federally insured under the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation. The Savings Bank operates from its main office located at 306 West
Main Street, McMinnville, Tennessee 37110, and from a recently opened branch
office located at 1017 New Smithville Highway, McMinnville, Tennessee.
The Savings Bank is primarily engaged in the business of attracting
deposits from the general public and originating permanent loans secured by
first mortgages on one- to four-family residential properties and, to an
increasing extent, consumer loans, loans secured by commercial real estate and
multi-family loans. At December 31, 1996, the Savings Bank had total assets of
$44.2 million, deposits of $35.8 million, and total equity of $2.5 million.
As a federally-chartered mutual savings bank, the Savings Bank has no
authorized capital stock. Instead, the Savings Bank, in mutual form, has a
unique equity structure. A savings depositor of the Savings Bank is entitled to
payment of interest on his account balance as declared and paid by the Savings
Bank, but has no right to a distribution of any earnings of the Savings Bank
except for interest paid on his deposit. Rather, such earnings become retained
earnings of the Savings Bank.
However, a savings depositor does have a right to share pro rata, with
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respect to the withdrawal value of his respective savings account, in any
liquidation proceeds distributed if the Savings Bank is ever liquidated. Savings
depositors and certain borrowers are members of the Savings Bank and thereby
have voting rights in the Savings Bank. Each savings depositor is entitled to
cast votes based on the balances of their withdrawable deposit account of the
Savings Bank, and each borrower member (hereinafter "borrower") is entitled to
one vote in addition to
Boards of Directors
Security Bancorp, Inc.
Security Federal Savings
Bank of McMinnville, TN
April 2, 1997
Page 3
the votes (if any) to which such person is entitled in such borrower's capacity
as a savings depositor of the Savings Bank. All of the interests held by a
savings depositor in the Savings Bank cease when such depositor closes his
accounts with the Savings Bank.
The Holding Company was incorporated in March 1997 under the laws of
the State of Tennessee as a general business corporation in order to act as a
savings institution holding company and a bank holding company. The Holding
Company has an authorized capital structure of 3,000,000 shares of common stock
and 250,000 shares of preferred stock.
PROPOSED TRANSACTION
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The Board of Directors of the Savings Bank has decided that in order to
increase the Savings Bank's net worth, support future growth, increase the
amount of funds available for lending and investment, provide greater resources
for the expansion of customer services, and facilitate future expansion through
a greater emphasis on commercial lending, it would be advantageous for the
Savings Bank to convert from a federally-chartered mutual savings bank to a
federally-chartered stock savings bank and, thereafter, to convert to a
state-chartered commercial bank. Further, the Board of Directors of the Savings
Bank has determined that in order to expand the financial services currently
offered through the Savings Bank and enhance flexibility of operations for
diversification of business opportunities, it would be advantageous to have the
stock of the Converted Savings Bank (and, after the Bank Conversion, the stock
of the Converted Bank) held by a parent holding company.
The Savings Bank presently intends to consummate the Bank Conversion
following receipt of all necessary regulatory approvals. However, a period of
time may elapse between the consummation of the Stock Conversion and the
consummation of the Bank Conversion.
Accordingly, pursuant to the Plan, the Savings Bank will undergo the
Stock Conversion whereby it will be converted from a federally-chartered mutual
savings bank to a federally-chartered stock savings bank. As part of the Stock
Conversion, the Savings Bank will amend its existing mutual savings bank charter
and bylaws to read in the form of a Federal Stock Charter and Bylaws. The
Converted Savings Bank will then issue to the Holding Company shares of the
Converted Savings Bank's common stock, representing all of the shares of capital
stock to be issued by the Converted Savings Bank in the Conversion, in exchange
for payment by the Holding Company of 50% of the net proceeds realized by the
Holding Company from such sale of its Common Stock, less amounts necessary to
fund the Employee Stock Ownership Plan of the Savings Bank, or such other
percentage as the Office of Thrift Supervision ("OTS") may authorize or require.
Boards of Directors
Security Bancorp, Inc.
Security Federal Savings
Bank of McMinnville, TN
April 2, 1997
Page 4
Also pursuant to the Plan, the Holding Company will offer its shares of
Common Stock for sale in a Subscription Offering and Direct Community Offering.
The aggregate purchase price at which all shares of Common Stock will be offered
and sold pursuant to the Plan and the total number of shares of Common Stock to
be offered in the Conversion will be determined by the Boards of Directors of
the Savings Bank and the Holding Company on the basis of the estimated pro forma
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market value of the Converted Bank as a subsidiary of the Holding Company. The
estimated pro forma market value will be determined by an independent appraiser.
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Pursuant to the Plan, all such shares will be issued and sold at a uniform price
per share. The Stock Conversion, including the sale of newly issued shares of
the stock of the Converted Savings Bank to the Holding Company, will be deemed
effective concurrently with the closing of the sale of the Common Stock. The
Bank Conversion will be consummated immediately following the consummation of
the Stock Conversion.
Under the Plan and in accordance with regulations of the OTS, the
shares of Common Stock will first be offered through the Subscription Offering
pursuant to non-transferable subscription rights on the basis of preference
categories in the following order of priority:
(1) Eligible Account Holders;
(2) Tax-Qualified Employee Stock Benefit Plans of the Savings
Bank;
(3) Supplemental Eligible Account Holders; and
(4) Other Members.
Any shares of Common Stock not subscribed for in the Subscription
Offering will be offered in the Direct Community Offering in the following order
of priority:
(a) Natural persons residing in Warren County, Tennessee; and
(b) The general public.
Any shares of Common Stock not subscribed for in the Community Offering
will be offered to certain members of the general public on a best efforts basis
by a selling group of broker dealers in a Syndicated Community Offering.
The Plan also provides for the establishment of a Liquidation Account
by the Converted Savings Bank for the benefit of all Eligible Account Holders
and any Supplemental Eligible Account Holders in an amount equal to the net
worth of the Savings Bank as of the date of the latest statement of financial
condition contained in the final prospectus issued in connection with
Boards of Directors
Security Bancorp, Inc.
Security Federal Savings
Bank of McMinnville, TN
April 2, 1997
Page 5
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
Converted Savings Bank. The account holders will have an inchoate interest in a
proportionate amount of the Liquidation Account with respect to each savings
account held and will be paid by the Converted Savings Bank in event of
liquidation prior to any liquidation distribution being made with respect to
capital stock. Under the Plan, the Bank Conversion shall not be deemed to be a
liquidation of the Converted Savings Bank for purposes of distribution of the
Liquidation Account. Upon consummation of the Bank Conversion, the Liquidation
Account, together with the related rights and obligations of the Converted
Savings Bank, shall be assumed by the Converted Bank.
Following the Stock Conversion, voting rights in the Converted Savings
Bank shall be vested in the sole holder of stock in the Converted Savings Bank,
which will be the Holding Company. Following the Bank Conversion, voting rights
in the Converted Bank will similarly be vested in the Holding Company. Voting
rights in the Holding Company, both after the Stock Conversion and after the
Bank Conversion, will be vested in the holders of the Common Stock.
The Stock Conversion will not interrupt the business of the Savings
Bank. The Converted Savings Bank will continue to engage in the same business as
the Savings Bank immediately prior to the Stock Conversion, and the Converted
Savings Bank will continue to have its savings accounts insured by the SAIF.
Each depositor will retain a withdrawable savings account or accounts equal in
dollar amount to, and on the same terms and conditions as, the withdrawable
account or accounts at the time of Stock Conversion except to the extent funds
on deposit are used to pay for Common Stock purchased in the Stock Conversion.
All loans of the Savings Bank will remain unchanged and retain their same
characteristics in the Converted Savings Bank.
Similarly, the Bank Conversion is not expected to interrupt the
business of the Converted Savings Bank. Management of the Savings Bank expects
that, after the Conversion, the Converted Bank will initially continue to
conduct business in substantially the same manner as the Savings Bank prior to
the Conversion. Over time, the Converted Bank will continue the Savings Bank's
diversification of its loan portfolio into commercial loans. Further, the Bank
Conversion is expected to allow the Savings Bank to enhance its ability to
structure its banking services to respond to prevailing market conditions. The
Converted Bank will also continue to have its savings accounts insured by the
SAIF. Each depositor will retain a withdrawable savings account or accounts
equal in dollar amount to, and on the same terms and conditions as, the
withdrawable account or accounts at the time of Bank Conversion. All loans of
the Converted Savings Bank will remain unchanged and retain their same
characteristics in the Converted Bank.
The Plan must be approved by the OTS and by an affirmative vote of at
least a majority of the total votes eligible to be cast at a meeting of the
Savings Bank's members called to vote
Boards of Directors BREYER & AGUGGIA
Security Bancorp, Inc.
Security Federal Savings
Bank of McMinnville, TN
April 2, 1997
Page 6
on the Plan. The Bank Conversion is also subject to approval of the Board of
Governors of the Federal Reserve Board and the Tennessee Department of Financial
Institutions.
Immediately prior to the Conversion, the Savings Bank will have a
positive net worth determined in accordance with generally accepted accounting
principles.
OPINION
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Based on the foregoing and in reliance thereon, and subject to the
conditions stated herein, it is our opinion that the following federal income
tax consequences will result from the proposed transaction.
1. The Stock Conversion will constitute a reorganization within the
meaning of Section 368(a)(1)(F) of the Internal Revenue Code of
1986, as amended (the "Code"), and no gain or loss will be
recognized to either the Savings Bank or the Converted Savings Bank
as a result of the Stock Conversion (see Rev. Rul. 80-105, 1980-1
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C.B. 78).
2. The assets of the Savings Bank will have the same basis in the
hands of the Converted Savings Bank as in the hands of the Savings
Bank immediately prior to the Stock Conversion (Section 362(b) of
the Code).
3. The holding period of the assets of the Savings Bank to be received
by the Converted Savings Bank will include the period during which
the assets were held by the Savings Bank prior to the Stock
Conversion (Section 1223(2) of the Code).
4. No gain or loss will be recognized by the Converted Savings Bank on
the receipt of money from the Holding Company in exchange for
shares of common stock of the Converted Savings Bank (Section
1032(a) of the Code). The Holding Company will be transferring
solely cash to the Converted Savings Bank in exchange for all the
outstanding capital stock of the Converted Savings Bank and,
therefore, will not recognize any gain or loss upon such transfer.
(Section 351(a) of the Code; see Rev. Rul. 69-357, 1969-1 C.B.
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101).
5. No gain or loss will be recognized by the Holding Company upon
receipt of money from stockholders in exchange for shares of
Common Stock (Section 1032(a) of the Code).
Boards of Directors BREYER AGUGGIA
Security Bancorp, Inc.
Security Federal Savings
Bank of McMinnville, TN
April 2, 1997
Page 7
6. No gain or loss will be recognized by the Eligible Account Holders
and Supplemental Eligible Account Holders of the Savings Bank upon
the issuance of them of deposit accounts in the Converted Savings
Bank in the same dollar amount and on the same terms and conditions
in exchange for their deposit accounts in the Savings Bank held
immediately prior to the Stock Conversion (Section 1001(a) of the
Code; Treas. Reg. Section .1.1001-1(a)).
7. The tax basis of the Eligible Account Holders' and Supplemental
Eligible Account Holders' savings accounts in the Converted Savings
Bank received as part of the Stock Conversion will equal the tax
basis of such account holders' corresponding deposit accounts in
the Savings Bank surrendered in exchange therefor (Section 1012 of
the Code).
8. Gain or loss, if any, will be realized by the deposit account
holders of the Savings Bank upon the constructive receipt of their
interest in the liquidation account of the Converted Savings Bank
and on the nontransferable subscription rights to purchase stock of
the Holding Company in exchange for their proprietary rights in the
Savings Bank. Any such gain will be recognized by the Savings Bank
deposit account holders, but only in an amount non in excess of the
fair market value of the liquidation account and subscription
rights received. (Section 1001 of the Code; Paulsen v.
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Commissioner, 469 U.S. 131 (1985); Rev. Rul. 69-646,
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1969-2 C.B. 54.)
9. The basis of each account holder's interest in the Liquidation
Account received in the Stock Conversion and to be established by
the Converted Savings Bank pursuant to the Stock Conversion will be
equal to the value, if any, of that interest.
10. No gain or loss will be recognized upon the exercise of a
subscription right in the Stock Conversion. (Rev. Rul. 56-572,
1956-2 C.B. 182).
11. The basis of the Common Stock acquired in the Stock Conversion will
be equal to the purchase price of such stock, increased, in the
case of such stock acquired pursuant to the exercise of
subscription rights, by the fair market value, if any, of the
subscription rights exercised (Section 1012 of the Code).
12. The holding period of the Common Stock acquired in the Stock
Conversion pursuant to the exercise of subscription rights will
commence on the date on which the subscription rights are exercised
(Section 1223(6) of the Code). The
Boards of Directors BREYER & AGUGGIA
Security Bancorp, Inc.
Security Federal Savings
Bank of McMinnville, TN
April 2, 1997
Page 8
holding period of the Common Stock acquired in the Community
Offering will commence on the date following the date on which such
stock is purchased (Rev. Rul. 70-598, 1970-2 C.B. 168; Rev. Rul.
66-97, 1966-1 C.B. 190).
13. The Bank Conversion will constitute a reorganization within the
meaning of Section 368(a)(1)(F) of the Code (see Rev. Rul. 80-105,
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1980-1 C.B. 78).
14. The assets of the Converted Savings Bank will have the same basis
in the hands of the Converted Bank as in the hands of the Converted
Savings Bank immediately prior to the Bank Conversion (Section
362(b) of the Code).
15. The holding period of the assets of the Converted Savings Bank to
be received by the Converted Bank will include the period during
which the assets were held by the Converted Savings Bank prior to
the Bank Conversion (Section 1223(2) of the Code).
SCOPE OF OPINION
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Our opinion is limited to the federal income tax matters described
above and does not address any other federal income tax considerations or any
federal, state, local, foreign or other tax considerations. If any of the
information upon which we have relied is incorrect, or if changes in the
relevant facts occur after the date hereof, our opinion could be affected
thereby. Moreover, our opinion is based on the case law, Code, Treasury
Regulations thereunder and Internal Revenue Service rulings as they now exist.
These authorities are all subject to change, and such change may be made with
retroactive effect. We can give no assurance that, after such change, our
opinion would not be different. We undertake no responsibility to update or
supplement our opinion. This opinion is not binding on the Internal Revenue
Service and there can be no assurance, and none is hereby given, that the
Internal Revenue Service will not take a position contrary to one or more of the
positions reflected in the foregoing opinion, or that our opinion will be upheld
by the courts if challenged by the Internal Revenue Service.
CONSENTS
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We hereby consent to the filing of this opinion with the OTS as an
exhibit to the Application H-(e)1-S filed by the Holding Company with the OTS in
connection with the Conversion and the reference to our firm in the Application
H-(e)1-S under Item 110.55 therein.
We also hereby consent to the filing of this opinion with the SEC and
the OTS as exhibits to the Registration Statement and the Bank's Application for
Conversion on Form AC ("Form
Boards of Directors
Security Bancorp, Inc.
Security Federal Savings
Bank of McMinnville, TN
April 2, 1997
Page 9
AC"), respectively, and the reference on our firm in the Prospectus, which is a
part of both the Registration Statement and the Form AC, under the headings "THE
CONVERSION -- Effect of Conversion to Stock Form on Depositors and Borrowers of
the Savings Bank -- Tax Effects" and "LEGAL OPINIONS."
Very truly yours,
/s/ Breyer & Aguggia
BREYER & AGUGGIA