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EXHIBIT 8.1
[HOUSLEY, KANTARIAN & BRONSTEIN, P.C. LETTERHEAD]
December 31, 1996
Board of Directors
Heartland Community Bank
237 Jackson Street
Camden, Arkansas 71701
Re: Certain Federal Income Tax Consequences Relating to Proposed Holding
Company Conversion
Ladies and Gentlemen:
In accordance with your request, set forth hereinbelow is the opinion
of this firm relating to certain federal income tax consequences of the
proposed conversion of Heartland Community Bank (the "Bank") from a federally
chartered mutual savings association to a federally chartered stock savings
association (the "Converted Bank") and the concurrent acquisition of 100% of the
outstanding capital stock of the Converted Bank by HCB Bancshares, Inc. (the
"Company"), an Oklahoma corporation formed at the direction of the Board of
Directors of the Bank to become the parent holding company of the Converted Bank
(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 on November 21, 1996 and
amended on December 19, 1996 by the Board of Directors of the Bank (the "Plan");
the federal mutual charter and bylaws of the Bank; the Certificate of
Incorporation and Bylaws of the Company; the Affidavit of representations dated
December 31, 1996 provided to us by the Bank (the "Affidavit"), and the
Prospectus (the "Prospectus") included in the Registration Statement on Form
SB-2 being filed with the Securities and Exchange Commission ("SEC") on or
about December 31, 1996 (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 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.
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Board of Directors
Heartland Community Bank
December 31, 1996
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BACKGROUND
Based solely upon our review of such documents, and upon such
information as the Bank has provided to us (which we have not attempted to
verify in any respect), and in reliance upon such documents and information, we
set forth hereinbelow a general summary of the relevant facts and proposed
transactions, qualified in its entirety by reference to the documents cited
above.
The Bank is a federally chartered mutual savings association, which is
in the process of converting to a federally chartered stock savings association.
The Bank was organized as a federally chartered mutual savings and loan
association under the name First Federal Savings and Loan Association of Camden
("First Federal") in 1933, and in 1934 it became a member of the Federal Home
Loan Bank ("FHLB") System and obtained federal deposit insurance.
In May 1996, First Federal acquired Heritage Bank, FSB ("Heritage"),
which retained its separate federal savings association charter and deposit
insurance, as a wholly owned subsidiary of the Bank, but whose business
operations were fully integrated with those of First Federal. In September
1996, First Federal and Heritage changed their names to Heartland Community
Bank and Heartland Community Bank, F.S.B., respectively. The Bank and its
subsidiary savings association are members of the FHLB System, and the
deposits of the Bank and its subsidiary savings association are insured by the
Federal Deposit Insurance Corporation ("FDIC") up to applicable limits. Both
savings institutions are subject to comprehensive regulation and supervision by
the Office of Thrift Supervision ("OTS") and to examination by the OTS. The Bank
is headquartered in Camden, Arkansas and, on a consolidated basis, operates
through six full service offices and one loan production office.
The Bank's principal business consists of attracting deposits from the
general public and investing those funds in loans secured by first mortgages on
existing owner-occupied single-family residences in the Bank's market area and,
to a lesser but growing extent, commercial and multi-family real estate loans
and consumer and commercial business loans. At September 30, 1996, the Bank had
total assets of $173.0 million, deposits of $147.2 million and retained earnings
of $13.4 million.
As a federally chartered mutual savings association, the Bank has no
authorized capital stock. Instead, the Bank, in mutual form, has a unique equity
structure. A savings depositor of the Bank is entitled to payment of interest on
his account balance as declared and paid by the
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Board of Directors
Heartland Community Bank
December 31, 1996
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Bank, but has no right to a distribution of any earnings of the Bank except for
interest paid on his deposit. Rather, such earnings become retained income of
the Bank.
However, a savings depositor does have a right to share pro rata, with
respect to the withdrawal value of his respective savings account, in any
liquidation proceeds distributed if the Bank is ever liquidated. Further,
savings depositors and borrowers are members of the Bank and thereby have voting
rights in the Bank. Under the Bank's federal mutual charter, savings depositors
are entitled to cast one vote for each $100 or fraction thereof held in a
withdrawable deposit account of the Bank, and each borrower member (hereinafter
"borrower") is entitled to one vote in addition to the votes (if any) to which
such person is entitled in such borrower's capacity as a savings depositor of
the Bank. Also under such mutual charter, no member is entitled to cast more
than 1,000 votes. All of the interests held by a savings depositor in the Bank
cease when such depositor closes his accounts with the Bank.
The Company was incorporated in December 1996 under the laws of the
State of Oklahoma to act as the holding company of the Converted Bank upon
consummation of the Conversion. Prior to consummation of the Conversion, the
Company has not engaged and is not expected to engage in any material
operations. After the Conversion, the Company's principal business will be
overseeing the business of the Converted Bank and its subsidiary savings
association. The Company has an authorized capital structure of 20,000,000
shares of common stock (the "Common Stock") and 5,000,000 shares of serial
preferred stock, par value $0.01 per share.
PROPOSED TRANSACTION
The Board of Directors of the Bank has decided that in order to attract
new capital to the Bank to increase its net worth, to support future savings
growth, to increase the amount of funds available for lending and investment, to
provide greater resources for the expansion of customer services, and to
facilitate future expansion, it would be advantageous for the Bank to convert
from a federally chartered mutual savings association to a federally chartered
stock savings association. In addition, the Board of Directors intends to
implement stock option plans and other stock benefit plans following the
Conversion in order to better attract and retain qualified directors and
officers. It is the further desire of the Board of Directors to reorganize the
Converted Bank as the wholly owned subsidiary of the Company to enhance
flexibility of operations, diversification of business opportunities and
financial capability for business and regulatory purposes and to enable the
Converted Bank to compete more effectively with other financial service
organizations.
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Board of Directors
Heartland Community Bank
December 31, 1996
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Accordingly, pursuant to the Plan, the Bank will undergo the Conversion
whereby it will be converted from a federally chartered mutual savings
association to a federally chartered stock savings association. The Converted
Bank will then issue to the Company 100,000 shares of the Converted Bank's
common stock, representing all of the shares of capital stock to be issued by
the Converted Bank in the Conversion, in exchange for payment by the Company to
the Converted Bank of at least 50% of the aggregate net proceeds realized by the
Company from the sale of the Common Stock under the Plan, after deducting the
amount necessary to fund a loan to an Employee Stock Option Plan being
established in connection with the Conversion, or such other portion of the
aggregate net proceeds as may be authorized or required by the OTS.
Also pursuant to the Plan, the Company will offer its shares of Common
Stock for sale in a Subscription Offering. Shares of Common Stock remaining, if
any, may then be offered to the general public in a Community Offering. Shares
of the Common Stock not otherwise subscribed for in the Subscription Offering
and Community Offering may be offered at the discretion of the Company to
certain members of the general public as part of a community offering on a best
efforts basis by a selling group of selected broker-dealers.
The purchase price per share and total number of shares of Common Stock
to be offered and sold pursuant to the Plan will be determined by the Boards of
Directors of the Bank and the Company, on the basis of the estimated pro forma
market value of the Converted Bank, as a subsidiary of the Company, which will
in turn be determined by an independent appraiser. The aggregate purchase price
for all shares of the Common Stock will be equal to such estimated pro forma
market value. Pursuant to the Plan, all such shares of Common Stock will be
issued and sold at a uniform price per share. The Conversion, including the sale
of newly issued shares of the stock of the Converted Bank to the Company, will
be deemed effective concurrently with the closing of the sale of the Common
Stock.
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;
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Board of Directors
Heartland Community Bank
December 31, 1996
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(3) Supplemental Eligible Account Holders;
(4) Other Members; and
(5) Certain depositors and borrowers of the Bank's subsidiary savings
association.
However, any shares of Common Stock sold in excess of the maximum of the
Valuation Range may be first sold to Tax-Qualified Employee Stock Benefit Plans
set forth in category (2) above. In the event of an oversubscription within any
of the remaining subscription priority categories, preference may be given
within such category to natural persons and trusts of natural persons who are
permanent Residents of the Local Community, if permitted by applicable law and
approved by the Bank's Board of Directors in its sole discretion.
Any shares of Common Stock not subscribed for in the Subscription
Offering may be offered in the Community Offering in the following order of
priority:
(a) Natural persons (including individual retirement and Keogh
retirement accounts and personal trusts in which such natural
persons have substantial interests) who are permanent Residents
of the Local Community; and
(b) The general public.
Shares not sold in the Subscription Offering and the Community Offering, if any,
may thereafter be offered for sale to certain members of the general public as
part of a community offering on a best efforts basis by a selling group of
selected broker-dealers. The sale of shares in the Subscription Offering,
Community Offering, and as sold through the selected broker-dealers would be
consummated at the same time.
The Plan also provides for the establishment of a Liquidation Account
by the Converted Bank for the benefit of all Eligible Account Holders and
Supplemental Eligible Account Holders in an amount equal to the regulatory
capital of the Bank as of the date of the latest statement of financial
condition contained in the final prospectus issued in connection with 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 Bank, except that the Converted Bank may not declare or pay cash
dividends on or repurchase any of its stock if the result thereof would be to
reduce its net worth below the amount required to maintain the Liquidation
Account. All such 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 Bank in
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Board of Directors
Heartland Community Bank
December 31, 1996
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event of liquidation prior to any liquidating distribution being made with
respect to capital stock. Under the Plan, the Conversion shall not be deemed to
be a liquidation of the Bank for purposes of distribution of the Liquidation
Account. Instead, upon consummation of the Conversion, the Liquidation Account,
together with the related rights and obligations of the Converted Bank, shall be
assumed by the Converted Bank.
The Conversion will not interrupt the business of the Bank. The
Converted Bank will, after the Conversion, engage in the same business as that
of the Bank immediately prior to the Conversion, and will continue to be subject
to regulation and supervision by the OTS and FDIC. Further, the deposits of the
Converted Bank and those of the Bank's subsidiary savings association will
continue to be insured by the FDIC. 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 Conversion
except to the extent funds on deposit are used to pay for Common Stock purchased
in connection with the Conversion. All loans of the Bank will remain unchanged
and retain their same characteristics in the Converted Bank immediately
following the Conversion.
Following the Conversion, voting rights in the Converted Bank will rest
exclusively with the sole holder of stock in the Converted Bank, which will be
the Company. Voting rights in the Company will rest exclusively in the holders
of the Common Stock.
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
Bank's members called to vote on the Plan.
Immediately prior to the Conversion, the Bank will have a positive net
worth determined in accordance with generally accepted accounting principles.
OPINION
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 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 Bank or the Converted Bank as a result
of the Conversion (see Rev. Rul. 80-105, 1980-1 C.B. 78).
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Heartland Community Bank
December 31, 1996
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2. The assets of the Bank will have the same basis in the hands of
the Converted Bank as in the hands of the Bank immediately prior
to the Conversion (Section 362(b) of the Code).
3. The holding period of the assets of the Bank to be received by
the Converted Bank will include the period during which the
assets were held by the Bank prior to the Conversion (Section
1223(2) of the Code).
4. No gain or loss will be recognized by the Converted Bank upon its
receipt of money from the Company in exchange for shares of
common stock of the Converted Bank (Section 1032(a) of the Code).
The Company will be transferring solely cash to the Converted
Bank in exchange for all the outstanding capital stock of the
Converted 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. 101).
5. No gain or loss will be recognized by the Company upon its
receipt of money in exchange for shares of the Common Stock
(Section 1032(a) of the Code).
6. No gain or loss will be recognized by the Eligible Account
Holders, Supplemental Eligible Account Holders or Other Members
of the Bank upon the issuance to them of deposit accounts in the
Converted Bank in the same dollar amount and on the same terms
and conditions in exchange for their deposit accounts in the Bank
held immediately prior to the Conversion. (Section 1001(a) of the
Code; Treas. Reg. Section 1.1001-1(a)).
7. The tax basis of the savings accounts of the Eligible Account
Holders, Supplemental Eligible Account Holders, and Other Members
in the Converted Bank received as part of the Conversion will
equal the tax basis of such account holders' corresponding
deposit accounts in the Bank surrendered in exchange therefor
(Section 1012 of the Code).
8. Each depositor of the Bank will recognize gain upon the receipt
of his or her respective interest in the Liquidation Account
established by the Converted Bank pursuant to the Plan and the
receipt of his or her subscription rights deemed to have been
received for federal income tax purposes, but only to the extent
of the excess of the combined fair market value of a depositor's
interest in such Liquidation Account and subscription rights over
the depositor's basis in the former interests in the Bank other
than deposit accounts. Persons who subscribe
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Heartland Community Bank
December 31, 1996
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in the Conversion but who are not depositors of the Bank will
recognize gain upon the receipt of subscription rights deemed to
have been received for federal income tax purposes, but only to
the extent of the excess of the fair market value of such
subscription rights over such person's former interests in the
Bank, if any. Any such gain realized in the Conversion would be
subject to immediate recognition.
9. The basis of each account holder's interest in the Liquidation
Account received in the Conversion and to be established by the
Converted Bank pursuant to the 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 Conversion. (Rev. Rul. 56-572, 1956-2
C.B.182).
11. The basis of the shares of Common Stock acquired in the
Conversion will be equal to the purchase price of such shares,
increased, in the case of such shares 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 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 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).
SCOPE OF OPINION
Our opinion is limited to the federal income tax matters described
above and does not address any other federal income tax considerations or any
state, local, foreign or other federal 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 subsequent to consummation of the Conversion. Prior to
that time, we undertake to update or supplement our opinion in the event of a
material change in the federal
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Board of Directors
Heartland Community Bank
December 31, 1996
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income tax consequences set forth above and to file such revised opinion as an
exhibit to the Registration Statement and the Bank's Application for Conversion
on Form AC ("Form AC"). 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
We hereby consent to the filing of this opinion with the OTS as an
exhibit to the Application H-(e)2 filed by the Company with the OTS in
connection with the Conversion and the reference to our firm in the Application
H-(e)2 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 Form AC, respectively, and
the references to our firm in the Prospectus, which is a part of the
Registration Statement and Form AC, under the headings "The Conversion -- Effect
of Conversion to Stock Form on Depositors and Borrowers of the Bank -- Tax
Effects" and "Legal Matters."
Very truly yours,
HOUSLEY KANTARIAN & BRONSTEIN, P.C.
By:/s/ Leonard S. Volin
____________________
Leonard S. Volin