1
Exhibit 8.1
DRAFT
September 11, 1998
Board of Directors
Security Savings Association of Hazleton
31 West Broad Street
Hazleton, Pennsylvania 18201
Board of Directors
Security of Pennsylvania Financial Corp.
31 West Broad Street
Hazleton, Pennsylvania 18201
Ladies and Gentlemen:
You have requested the opinion of Parente, Randolph, Orlando, Carey &
Associates ("PROC") as to certain state income tax ramifications to Security
Savings Association of Hazleton (the "Association"), Security of Pennsylvania
Financial Corp. (the "Holding Company"), and Eligible Account Holders or
Supplemental Eligible Account Holders of the Association, resulting from the
proposed reorganization and conversion of the Association from a state-chartered
mutual savings and loan association to a state-chartered capital stock savings
institution, in which the Association will issue all of its stock to Security of
Pennsylvania Financial Corp., a newly formed savings and loan holding company,
which will own all of the Association's capital stock (the "Conversion").
Our opinion relies on certain facts and representations which appear in
the Draft Prospectus for the Holding Company provided by Muldoon, Murphy &
Faucette, Attorneys at Law, the PLAN OF CONVERSION dated June 29, 1998, and the
facts and representations which are listed below under the titles "STATEMENT OF
FACTS" and "REPRESENTATIONS." If any fact or representation contained below is
not complete or accurate, it is important that we be notified immediately in
writing as this may cause us to change our opinion.
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Board of Directors
Security Savings Association of Hazleton
and
Security of Pennsylvania Financial Corp.
September 11, 1998
Page 2
STATEMENT OF FACTS
Security Savings Association of Hazleton, a state-chartered mutual
savings association organized and operated in the Commonwealth of Pennsylvania,
desires to convert to a state-chartered capital stock savings institution (the
"Converted Association") which, similarly, will be organized and operated under
the laws of the Commonwealth of Pennsylvania. The conversion will be
accomplished by the use of a holding company to purchase and hold the stock of
the Association. The Holding Company, a Delaware corporation, will offer for
sale, through a subscription offering and a syndicated community offering,
shares of its common stock. The Association, upon the amendment of its charter
to authorize and issue stock, will simultaneously sell its capital stock to the
Holding Company pursuant to a plan of conversion. The Holding Company will
authorize 5 million shares of common stock, with a par value of $.01 per share.
In addition, the Holding Company will authorize 1 million shares of preferred
stock, with a par value of $.01 per share (the "Preferred Stock"). Based upon
preliminary estimates provided by the Association, the Holding Company will
initially issue between 1,249,500 and 1,690,500 or up to an adjusted maximum of
1,944,075 of their authorized shares of common stock. The issued shares listed
above include the 5% of shares that will be contributed to the charitable
foundation.
The plan of conversion provides that nontransferable rights to
subscribe for the common stock of the Holding Company will be granted, in order
of priority: (1) holders of deposit accounts with a balance of $50 or more as of
March 31, 1997 ("Eligible Account Holders"); (2) the ESOP; (3) holders of
deposit accounts with a balance of $50 or more as of , 1998
("Supplemental Eligible Account Holders"); and (4) to certain other members of
the Association as of the close of business on the voting record date. The
Holding Company will offer its shares of common stock not subscribed for in the
above subscription offering for sale in a community offering or, if necessary,
in a syndicated community offering, to certain members of the general public.
Keller and Company, Inc. has issued an opinion stating that, pursuant
to its valuation, Keller is of the opinion that the subscription rights do not
have any value based on the fact that such rights are acquired by the recipients
without cost, are nontransferable and of short duration, and afford the
recipients the right only to purchase the common stock at a price equal to its
estimated fair market value, which will be the same price as the actual purchase
price for the shares of common stock sold in the community offering.
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Board of Directors
Security Savings Association of Hazleton
and
Security of Pennsylvania Financial Corp.
September 11, 1998
Page 3
In the unlikely event of a complete liquidation of the Association in
its present mutual form, each depositor would receive his pro rata share of any
assets of the Association remaining after payment of claims of all creditors
(including the claims of all depositors to the withdrawal value of their
accounts). Each depositor's pro rata share of such remaining assets would be in
the same proportion as the value of his deposit account was to the total value
of all deposit accounts in the Association at the time of liquidation. After the
Conversion, each depositor, in the event of a complete liquidation, would have a
claim as a creditor of the same general priority as the claims of all other
general creditors of the Association. However, except as described below, his
claim would be solely in the amount of the balance in his deposit account plus
accrued interest. He would not have an interest in the value or assets of the
Association above that amount.
The Plan provides for the establishment, upon the completion of the
Conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in an amount equal to
the surplus and reserves of the Association as of the date of its latest balance
sheet contained in the final Prospectus used in connection with the Conversion.
Each Eligible Account Holder and Supplemental Eligible Account Holder, if he
were to continue to maintain his deposit account at the Association, would be
entitled, on a complete liquidation of the Association after the Conversion, to
an interest in the liquidation account prior to any payment to the stockholders
of the Association. Each Eligible Account Holder and Supplemental Eligible
Account Holder would have an initial interest in such liquidation account for
each deposit account, including regular accounts, transaction accounts such as
NOW accounts, money market deposit accounts, and certificates of deposit, with a
balance of $50 or more held in the Association on March 31, 1997 and ,
1998, respectively. Each Eligible Account Holder and Supplemental Eligible
Account Holder will have a pro rata interest in the total liquidation account
based on the proportion that the balance of his Qualifying Deposits on the
Eligibility Record Date or Supplemental Eligibility Record Date, respectively,
bore to the total amount of all Qualifying Deposits of all Eligible Account
Holders and Supplemental Eligible Account Holders in the Association. For
deposit accounts in existence at both dates, separate subaccounts shall be
determined on the basis of the Qualifying Deposits in such deposit accounts on
such respective record dates.
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Board of Directors
Security Savings Association of Hazleton
and
Security of Pennsylvania Financial Corp.
September 11, 1998
Page 4
If, however, on any annual closing date subsequent to the Eligibility
Record Date or Supplemental Eligibility Record Date, the amount of the
Qualifying Deposit of an Eligible Account Holder or Supplemental Eligible
Account Holder is less than the amount of the Qualifying Deposit of such
Eligible Account Holder or Supplemental Eligible Account Holder as of the
Eligibility Record Date or Supplemental Eligibility Record Date, respectively,
or less than the amount of the Qualifying Deposits as of the previous annual
closing date, then the interest in the liquidation account relating to such
Qualifying Deposit would be reduced from time to time by the proportion of any
such reduction, and such interest will cease to exist if such Qualifying Deposit
accounts are closed. In addition, no interest in the liquidation account would
ever be increased despite any subsequent increase in the related Qualifying
Deposit. Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders are satisfied would be
distributed to the Company as the sole stockholder of the Association.
REPRESENTATIONS
PROC is relying on the following representations in rendering the
opinions contained herein. It is understood that PROC has not independently
verified the accuracy of any of these representations:
(1) The fair market value of the withdrawable deposit accounts plus
interests in the liquidation account of the converted Association
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 Association) deemed to be surrendered in
exchange therefor.
(2) If an individual's total deposits in the Association equal or
exceed $50 as of the Eligibility Record Date or 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 Association which have a balance of less than $50
on the Eligibility Record Date or the Supplemental Eligibility
Record Date will be less than 1% of the total fair market value
of all deposit accounts of the Association.
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Board of Directors
Security Savings Association of Hazleton
and
Security of Pennsylvania Financial Corp.
September 11, 1998
Page 5
(3) Immediately following the Conversion, the Eligible Account
Holders and the Supplemental Eligible Account Holders of the
Association 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 Association immediately
before the Conversion.
(4) After the Conversion, the converted Association will continue the
business of the Association in the same manner as prior to the
Conversion. The converted Association has no plan or intention
and the Holding Company has no plan or intention to cause the
converted Association to sell its assets other than in the
ordinary course of business.
(5) The Holding Company has no plan or intention to sell, liquidate
or otherwise dispose of the stock of the converted Association
other than in the ordinary course of business.
(6) The Holding Company and the converted Association have no current
plan or intention to redeem or otherwise acquire any of the
common stock issued in the Conversion transaction.
(7) Immediately after the Conversion, the assets and liabilities of
the converted Association will be identical to the assets and
liabilities of the Association immediately prior to the
Conversion, plus the net proceeds from the sale of the converted
Association's common stock to the Holding Company and any
liability associated with indebtedness incurred by the Employee
Plans in the acquisition of the Holding Company common stock by
the Employee Plans.
(8) The Converted Association and the Holding Company are
corporations within the meaning of Section 7701(a)(3) of the
Internal Revenue Code.
(9) None of the shares of the Holding Company common stock to be
purchased by the depositor-employees of the Association 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.
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Board of Directors
Security Savings Association of Hazleton
and
Security of Pennsylvania Financial Corp.
September 11, 1998
Page 6
(10) The fair market value of the assets of the Association, which
will be transferred to the converted Association in the
Conversion, will equal or exceed the sum of the liabilities of
the Association which will be assumed by the converted
Association and any liabilities to which the transferred assets
are subject.
(11) The Association 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.
(12) Upon the completion of the Conversion, the Holding Company will
own and hold 100% of the issued and outstanding capital stock of
the converted Association and no other shares of capital stock of
the converted Association will be issued and/or outstanding. None
of the shares of the Company's authorized Preferred Stock will be
issued in the Conversion. Such stock may be issued with such
preferences and designations as the Board of Directors may from
time to time determine.
(13) 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 Association,
nor will there be any securities outstanding which are
convertible into the capital stock of the converted Association.
(14) 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 Association.
(15) The Association currently maintains a reserve for bad debts in
accordance with Section 585 of the Internal Revenue Code (the
"Code") and, following the Conversion, to the extent allowed
under the Code, the converted Association shall maintain a
reserve for bad debts in accordance with the applicable
provisions of the Code.
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Board of Directors
Security Savings Association of Hazleton
and
Security of Pennsylvania Financial Corp.
September 11, 1998
Page 7
(16) Depositors will pay the expense of the Conversion solely
applicable to them, if any. The Holding Company and the
Association 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.
(17) The exercise price of the subscription rights received by the
Association'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.
(18) The proprietary interests of the Eligible Account Holders and the
Supplemental Eligible Account Holders in the Association arise
solely by virtue of the fact that they are account holders in the
Association.
(19) There is no plan or intention for the converted Association to be
liquidated or merged with another corporation following this
proposed transaction.
(20) The liabilities of the Association assumed by the converted
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.
(21) External legal counsel (Muldoon, Murphy & Faucette) has opined
that for federal income tax purposes, no gain or loss will be
recognized as a result of the proposed Conversion by either the
Association or the Holding Company, and that the proposed
conversion of the Association from a mutual savings association
to a stock savings association qualifies as a tax-free
reorganization for federal income tax purposes pursuant to
Section 368(a)(1)(F) of the Internal Revenue Code.
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Board of Directors
Security Savings Association of Hazleton
and
Security of Pennsylvania Financial Corp.
September 11, 1998
Page 8
(22) External legal counsel has opined that for federal income tax
purposes, no gain or loss will be recognized by Eligible Account
Holders and Supplemental Eligible Account Holders of the
Association on the issuance to them of withdrawable deposit
accounts in the converted Association plus interests in the
liquidation account of the converted Association in exchange for
deposit accounts in the Association and their related interest in
the residual equity of the Association or to the other depositors
on the issuance to them of withdrawable deposit accounts.
(23) External legal counsel has opined that for federal income tax
purposes, no gain or loss will be recognized by Eligible Account
Holders and Supplemental Eligible Account Holders of the
Association upon the distribution to them of the nontransferable
subscription rights to purchase shares of stock in the Holding
Company, provided that the amount paid for the Holding Company
common stock is equal to the fair market value of such stock.
Gain realized, if any, by the Eligible Account Holders and
Supplemental Eligible Account Holders of the Association on the
distribution to them of nontransferable subscription rights to
purchase the Holding Company stock will be recognized, but only
in an amount not in excess of the fair market value of such
subscription rights. Eligible Account Holders and Supplemental
Eligible Account Holders of the Association will not realize any
taxable income for federal income tax purposes as a result of the
exercise by them of the nontransferable subscription rights.
(24) Based on the opinion of Keller and Company, Inc., the
nontransferable subscription rights do not have any value.
(25) No gain or loss will be recognized by the Association under
Generally Accepted Accounting Principles (GAAP) as a result of
the Conversion, and the purchase accounting method will not be
used by the Association to account for the transaction in
accordance with GAAP.
(26) The Association is a state-chartered savings institution. The
Association is neither incorporated nor currently conducting
business in the State of Delaware.
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Board of Directors
Security Savings Association of Hazleton
and
Security of Pennsylvania Financial Corp.
September 11, 1998
Page 9
(27) The Holding Company is a domestic Delaware corporation, organized
at the direction of the Association to become a savings and loan
holding company and own all of the Association's capital stock to
be issued upon its conversion from mutual form to stock form. The
Holding Company does not maintain any physical presence in nor
conduct any business in the State of Delaware. The Holding
Company conducts its business activities in the State of
Pennsylvania.
INCOME TAX OPINION -
STATE OF PENNSYLVANIA
Pennsylvania Corporate Net Income Tax
Statement of Facts, Representations and Discussions:
Pennsylvania corporate net income tax ("CNI") is imposed on domestic
and foreign corporations, and business trusts for the privilege of doing
business, carrying on activities, having capital or property employed or used,
or owning property in Pennsylvania (72 P.S. Section 7402, Act of March 4, 1971,
P.L. 6). Certain entities are specifically excluded from the tax including
building and loan associations, banks, bank and trust companies, national banks,
savings institutions, trust companies, insurance and surety companies, and
Pennsylvania S corporations (72 P.S. Section 7401(1)). The Holding Company is
not exempt from CNI taxation under any of the above listed exceptions.
Accordingly, the Holding Company is subject to CNI taxation.
Pennsylvania taxable income begins with federal taxable income before
net operating loss deduction and special deductions, reported on federal Form
1120 (72 P.S. Section 7401(3)1(a) & 61 Pa. Code Section 153.11(a)). Certain
adjustments are made to federal taxable income to arrive at Pennsylvania taxable
income.
Adjustments that would increase Pennsylvania taxable income include:
- certain tax preference items under the federal alternative
minimum taxation system that are not deductible for
Pennsylvania CNI purposes (72 P.S. Section 7401(3)1(d));
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Board of Directors
Security Savings Association of Hazleton
and
Security of Pennsylvania Financial Corp.
September 11, 1998
Page 10
- foreign and state income taxes (72 P.S. Section 7401(3)1(o));
- employment incentive payments (Section 491(a), Act of June 13,
1967, P.L. 31); and
- expenses related to interest on federal obligations (72
P.S. Section 7401(3)1(b.1)).
Adjustments that would decrease Pennsylvania taxable income include:
- the dividends received deduction (72 P.S. Section
7401(3)1(b));
- interest on federal obligations (72 P.S. Section
7401(3)1(b.1));
- wages related to federal tax credits (72
P.S. Section 7401(3)1(c) & 61 Pa. Code Section 153.12);
- foreign dividend gross up (72 P.S. Section 7401(3)1(b));
- additional capital loss or contribution deductions for
corporations participating in a federal consolidated return
filing (72 P.S. Section 7404);
- depreciation adjustments (72 P.S. Section 7401(3)1(h) & 61 Pa.
Code Section 153.14(3)&(4)); and
- Pennsylvania net operating loss deductions (72
P.S. Section 7401(3)4(a)).
External legal counsel (Muldoon, Murphy & Faucette) has opined that for
federal income tax purposes, no gain or loss will be recognized in the proposed
Conversion by the Holding Company. Also, the transaction does not give rise to
any adjustments (positive or negative) required to be made for Pennsylvania CNI
purposes.
Opinion:
Based solely on the Statement of Facts, Representations, and
Discussions set forth in this opinion letter, it is our opinion that no
Pennsylvania corporate net income tax will arise to the Holding Company as a
result of the Conversion.
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Board of Directors
Security Savings Association of Hazleton
and
Security of Pennsylvania Financial Corp.
September 11, 1998
Page 11
Pennsylvania Mutual Thrift Institutions Tax ("MTIT")
Statement of Facts, Representations and Discussions:
Section 1501 of the Pennsylvania Mutual Thrift Institutions Tax Act (72
P.S. Section 8501) (the "Act") defines a mutual thrift institution as every:
(1) savings bank without capital stock;
(2) building and loan association;
(3) savings and loan association; and
(4) savings institutions having capital stock.
The Association has represented that it qualifies as a savings
institution with capital stock and is therefore subject to the MTIT.
The Act provides for a mutual thrift institution to compute its tax
based on separate company net income computed in accordance with Generally
Accepted Accounting Principles (GAAP), subject to certain defined exceptions (72
P.S. Section 8502(c)).
One of the exceptions, as provided in the Act (72 P.S. Section
8502(c)(3)) provides that:
In the case of a business combination entered into after December 31,
1986, which is treated as a reorganization for purposes of Section 368
of the Internal Revenue Code of 1986, or a similar successor provision,
and accounted for under the purchase accounting method, net income or
net loss shall be determined as though the acquisition has been
accounted for under the pooling of interest method.
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Board of Directors
Security Savings Association of Hazleton
and
Security of Pennsylvania Financial Corp.
September 11, 1998
Page 12
It has been represented to PROC that upon the Conversion, no gain or
loss will be recognized by the Association under Generally Accepted Accounting
Principles (GAAP) as a result of the Conversion, and the purchase accounting
method will not be used by the Association to account for the transaction in
accordance with GAAP.
Opinion:
Based solely on the Statement of Facts, Representations and Discussions
set forth in this letter, it is our opinion that the following Pennsylvania
mutual thrift institutions tax consequences will occur as a result of the above
Conversion:
(1) The Association will not recognize any gain or loss as a
result of the proposed Conversion.
(2) The Association will continue to file a Pennsylvania Mutual
Thrift Institution Tax Return, with the basis of the
Association's taxable income to be determined under GAAP. The
purchase accounting method will not be used to account for the
transaction.
Pennsylvania Personal Income Tax
Statement of Facts, Representations and Discussions:
External legal counsel (Muldoon, Murphy & Faucette) has opined that for
federal income tax purposes, no gain or loss will be recognized by Eligible
Account Holders and Supplemental Eligible Account Holders of the Association on
the issuance to them of withdrawable deposit accounts in the Association plus
interests in the liquidation account of the Converted Association in exchange
for their deposit accounts in the Association and their related interest in the
residual equity of the Association or to other depositors on the issuance to
them of withdrawable deposit accounts.
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Board of Directors
Security Savings Association of Hazleton
and
Security of Pennsylvania Financial Corp.
September 11, 1998
Page 13
External legal counsel has opined that for federal income tax purposes,
no gain or loss will be recognized by Eligible Account Holders and Supplemental
Eligible Account Holders of the Association upon the distribution to them of the
nontransferable subscription rights to purchase shares of stock in the Holding
Company, provided that the amount paid for the Holding Company common stock is
equal to the fair market value of such stock. Gain realized, if any, by the
Eligible Account Holders and Supplemental Eligible Account Holders of the
Association on the distribution to them of nontransferable subscription rights
to purchase the Holding Company stock will be recognized but only in an amount
not in excess of the fair market value of such subscription rights. Eligible
Account Holders and Supplemental Eligible Account Holders of the Association
will not realize any taxable income for federal income tax purposes as a result
of the exercise by them of the nontransferable subscription rights.
In addition, Keller and Company, Inc. has issued an opinion stating
that, pursuant to its valuation, the subscription rights have no value based on
the fact that such rights are acquired by the recipients without cost, are
nontransferable and of short duration, and afford the recipients the right only
to purchase the Holding Company stock at a price equal to its estimated fair
market value, which will be the same price as the actual purchase price for any
unsubscribed shares of Holding Company stock.
Pennsylvania personal income tax is imposed on eight specified
categories of income received by individuals. Income is taxable if it emanates
from one of the following classes (72 P.S. Section 7303(a)):
(1) Compensation;
(2) Net profits;
(3) Net gains or income from disposition of property;
(4) Net gains or income derived from or in the form of rents,
royalties, patents and copyrights;
(5) Dividends;
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Board of Directors
Security Savings Association of Hazleton
and
Security of Pennsylvania Financial Corp.
September 11, 1998
Page 14
(6) Interest;
(7) Gambling and lottery winnings other than prizes of the
Pennsylvania State Lottery; and
(8) Net gains or interest obtained through estates and trusts.
Eligible Account Holders and Supplemental Eligible Account Holders of
the Association will be receiving withdrawable deposit accounts in the
Association plus interests in the liquidation account of the converted
Association in exchange for their deposit accounts and their related interest in
the residual equity of the Association, along with nontransferable subscription
rights to purchase shares of stock in the Holding Company.
Consistent with federal treatment, Pennsylvania affords similar
tax-free treatment with respect to tax-free reorganizations pursuant to Section
368(a)(1)(F) of the Internal Revenue Code (72 P.S. Section 7303(a)(3)).
Accordingly, the Conversion would not give rise to any income that would emanate
from any one of the above eight classes.
Opinion:
Based solely on the Statement of Facts, Representations and Discussions
set forth in this opinion letter, it is the opinion of PROC that for
Pennsylvania personal income tax purposes:
(1) No gain or loss will be recognized by Eligible Account Holders
and Supplemental Eligible Account Holders of the Association
on the issuance to them of withdrawable deposit accounts in
the Association plus interests in the liquidation account of
the converted Association in exchange for their deposit
accounts and their related interest in the residual equity of
the Association, or to the other depositors on the issuance to
them of withdrawable deposit accounts.
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Board of Directors
Security Savings Association of Hazleton
and
Security of Pennsylvania Financial Corp.
September 11, 1998
Page 15
(2) No gain or loss will be recognized by Eligible Account Holders
and Supplemental Eligible Account Holders of the Association
upon the distribution to them of the nontransferable
subscription rights to purchase shares of stock in the Holding
Company, provided that the amount paid for the Holding Company
common stock is equal to the fair market value of such stock.
Gain realized, if any, by the Eligible Account Holders and
Supplemental Eligible Account Holders of the Association on
the distribution to them of nontransferable subscription
rights to purchase the Holding Company stock will be
recognized but only in an amount not in excess of the fair
market value of such subscription rights. Eligible Account
Holders and Supplemental Eligible Account Holders of the
Association will not realize any taxable income for state
income tax purposes as a result of the exercise by them of the
nontransferable subscription rights.
Delaware Corporate Income Tax
Statement of Facts, Representations and Discussions:
The Association is neither incorporated nor currently conducting
business in the State of Delaware. Accordingly, no Delaware corporate income tax
will arise to the Association as a result of the Conversion.
The Holding Company is a domestic Delaware corporation, organized at
the direction of the Association to become a savings and loan holding company
and own all of the Association's capital stock to be issued upon its conversion
from mutual form to stock form. The Holding Company does not maintain any
physical presence in nor conduct any business in the State of Delaware.
Delaware tax law Section 1902(b)(6) exempts an entity from Delaware
corporation income tax if the corporation maintains a statutory corporate office
in Delaware but is not doing business in Delaware. Thus, if a company has no
physical presence in Delaware and derives no income from Delaware activities, it
should be exempt from Delaware corporate income taxation.
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Board of Directors
Security Savings Association of Hazleton
and
Security of Pennsylvania Financial Corp.
September 11, 1998
Page 16
Opinion:
Based solely on the Statement of Facts, Representations and Discussions
set forth in this opinion letter, it is the opinion of PROC that the following
Delaware corporate income tax consequences will occur as a result of the above
Conversion:
(1) The Association will not be subject to Delaware taxation as it
is not organized under Delaware law, and it does not have any
physical presence or conduct any business in Delaware.
(2) Although the Holding Company will be organized in Delaware, it
should not be subject to Delaware corporation income tax if it
does not maintain any physical presence in Delaware nor
conduct any business within Delaware.
* * * * * * * * * *
The opinions rendered above are issued in regard to the specific
matters discussed herein, and PROC expresses no opinion with respect to any
other federal or state income tax, including Pennsylvania corporate net income
tax and Pennsylvania capital stock tax that would occur subsequent to the time
of conversion, or other state and local taxes, or legal aspect of the merger.
Our opinions are based on the completeness and accuracy of the above-stated
facts and representations. If any of the foregoing are not entirely complete or
accurate, PROC must be notified immediately in writing, as the inaccuracy or
incompleteness could have a material effect on our conclusions. We are relying
upon the relevant provisions of Article III, Article IV, and Article XV of the
Pennsylvania Tax Reform Code of 1971, Act of March 4, 1971, P.L. 6; Title 30 of
Delaware State Tax Law; the Internal Revenue Code of 1986, as amended, the
regulations thereunder, and judicial and administrative interpretations thereof,
which are subject to change or modification by subsequent legislative,
regulatory, administrative, or judicial decisions. Any such modification or
change could also have an effect on the validity of our opinions. The opinions
contained herein are not binding upon the Internal Revenue Service, any other
tax authority or any court, and no assurance can be given that a position
contrary to that expressed herein will not be asserted by a tax authority and
ultimately sustained by a
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Board of Directors
Security Savings Association of Hazleton
and
Security of Pennsylvania Financial Corp.
September 11, 1998
Page 17
court. Unless specifically requested by you, these opinions will not be updated
for subsequent changes or modifications to the law and regulations, or to the
judicial and administrative interpretations thereof.
Very truly yours,
PARENTE, RANDOLPH, ORLANDO,
CAREY & ASSOCIATES