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EXHIBIT 8.0
[LETTERHEAD OF MULDOON, MURPHY & FAUCETTE]
November 2, 1998
Board of Directors
Security Savings Association of Hazleton
31 W. Broad Street
Hazleton, Pennsylvania 18201-0770
Board of Directors
Security of Pennsylvania Financial Corp.
31 W. Broad Street
Hazleton, Pennsylvania 18201-0770
Re: Certain Federal Tax Consequences of the Conversion of
Security Savings Association of Hazleton from a
Pennsylvania-chartered Mutual Savings and Loan
Association to a Pennsylvania-chartered Capital Stock
Savings Association and the Offer and Sale of Common
Stock of Security of Pennsylvania Financial Corp.
(the "Conversion")
Ladies and Gentlemen:
You have requested an opinion on certain material federal income tax
consequences of the proposed conversion of Security Savings Association of
Hazleton (the "Association") from a Pennsylvania-chartered mutual savings and
loan association to a Pennsylvania-chartered capital stock savings association
and the acquisition of the Association's capital stock by Security of
Pennsylvania Financial Corp., a Delaware corporation (the "Holding Company"),
pursuant to the plan of conversion adopted by the Board of Directors on June
26, 1998, and as amended on September 8, 1998, (the "Plan of Conversion").
The proposed transaction is described in the Prospectus and the Plan of
Conversion, and the tax consequences of the proposed transaction will be as set
forth in the section of this letter entitled "FEDERAL TAX OPINION."
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November 2, 1998
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We have made such inquiries and have examined such documents and records
as we have deemed appropriate for the purpose of this opinion. In rendering
this opinion, we have received certain standard factual representations of the
Holding Company and the Association concerning the Holding Company and the
Association as well as the transaction ("Representations"). These
Representations are required to be furnished prior to the execution of this
letter and again prior to the closing of the Conversion. We will rely upon the
accuracy of the Representations of the Holding Company and the Association and
the statements of facts contained in the examined documents, particularly the
Plan of Conversion. We have also assumed the authenticity of all signatures,
the legal capacity of all natural persons and the conformity to the originals of
all documents submitted to us as copies. Each capitalized term used herein,
unless otherwise defined, has the meaning set forth in the Plan of Conversion.
We have assumed that the Conversion will be consummated strictly in accordance
with the terms of the Plan of Conversion.
The Plan of Conversion and the Prospectus contain a detailed
description of the Conversion. These documents as well as the Representations
to be provided by the Holding Company and the Association are incorporated in
this letter as part of the statement of the facts.
Security Savings Association of Hazleton, with its headquarters office
in Hazleton, Pennsylvania, is a Pennsylvania-chartered mutual savings and loan
association. As a mutual savings and loan association, the Association has
never been authorized to issue stock. Instead, the proprietary interest in
the reserves and undivided profits of the Association belong to the deposit
account holders of the Association, hereinafter sometimes referred to as
"depositors." A depositor of the Association has a right to share, pro rata,
with respect to the withdrawal value of his respective deposit account in any
liquidation proceeds distributed in the event the Association is ever
liquidated. In addition, a depositor of the Association is entitled to
interest on his account balance as fixed and paid by the Association.
In order to provide organizational and economic strength to the
Association, the Board of Directors has adopted the Plan of Conversion whereby
the Association will convert itself into a Pennsylvania-chartered capital stock
savings association (the "Converted Association"), the stock of which will be
held entirely by the Holding Company. Assuming that the Holding Company form
of organization is utilized, the Holding Company will acquire the stock of the
Association by purchase, in exchange for the Conversion proceeds that are not
permitted to be retained by the Holding Company. The Holding Company will
apply to the Office of Thrift Supervision ("OTS") to retain up to 50% of the
proceeds received from the Conversion. The aggregate sales price of the Common
Stock issued in the Conversion will be based on an independent appraiser's
valuation of the estimated pro forma market value of the Common Stock of the
Converted Association. The Conversion and sale of the Common Stock will be
subject to approval by the OTS, the Pennsylvania Department of Banking and the
approval of the Voting Members.
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November 2, 1998
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ESTABLISHMENT OF LIQUIDATION ACCOUNT. The Association shall establish
at the time of Conversion a liquidation account in an amount equal to its net
worth as of the latest practicable date prior to Conversion. The liquidation
account will be maintained by the Association for the benefit of the Eligible
Account Holders and Supplemental Eligible Account Holders who continue to
maintain their Savings Accounts at the Association. Each Eligible Account
Holder and Supplemental Eligible Account Holder shall, with respect to his
Savings Account, hold a related inchoate interest in a portion of the
liquidation account balance, in relation to his Savings Account balance on the
Eligibility Record Date and/or Supplemental Eligibility Record Date or to such
balance as it may be subsequently reduced, as provided in the Plan of
Conversion.
In the unlikely event of a complete liquidation of the Association (and
only in such event), following all liquidation payments to creditors (including
those to Account Holders to the extent of their Savings Accounts) each Eligible
Account Holder and Supplemental Eligible Account Holder shall be entitled to
receive a liquidating distribution from the liquidation account, in the amount
of the then adjusted subaccount balance for his Savings Account then held,
before any liquidation distribution may be made to any holders of the
Association's capital stock. No merger, consolidation, purchase of bulk assets
with assumption of Savings Accounts and other liabilities, or similar
transaction with an FDIC institution, in which the Association is not the
surviving institution, shall be deemed to be a complete liquidation for this
purpose. In such transactions, the liquidation account shall be assumed by the
surviving institution.
ESTABLISHMENT OF FOUNDATION. As part of the Conversion, the Company
and the Association intend to establish a charitable foundation (the
"Foundation") that will qualify as an exempt organization under Section
501(c)(3) of the Internal Revenue Code of 1986, as amended (the "Code") and to
donate to the Foundation up to 8.0% of the number of shares of Common Stock
sold in the Conversion. The establishment and funding of the Foundation as
part of the Conversion is subject to the approval of the Voting Members of the
Association at the Special Meeting of Members. In the event that the
Foundation does not receive the prerequisite approval, the Association may
determine to complete the Conversion without the Foundation.
The Plan of Conversion provides that the Foundation is being formed to
further the Converted Association's long term commitment to its community. The
Plan of Conversion states that the Foundation is intended to complement the
Association's existing community reinvestment activities so as to allow the
local community to share in the growth and profitability of the Holding Company
and the Converted Association over the long term.
The Foundation will be dedicated to the promotion of charitable and
educational purposes within the Association's Local Community, including, but
not limited to, grants or donations to support housing assistance,
scholarships, local education, not-for-profit medical facilities, not-
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November 2, 1998
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for-profit community groups and other types of organizations or civic minded
projects. The Foundation will annually distribute total grants and donations
to assist charitable organizations or to fund projects within its local
community of not less than 5% of the average fair value of the Foundation
assets each year.
* * *
You have provided the following factual Representations concerning this
transaction:
(a) 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.
(b) If an individual's total deposits in the Association equal or
exceed $50 as of the Eligibility Record Date or the
Supplemental Eligibility Record Date, then no amount of that
individual's total deposits will be excluded from
participating in the liquidation account. The fair market
value of the deposit accounts of the 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.
(c) 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.
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(d) 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.
(e) 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.
(f) 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.
(g) 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 Common Stock by the
Employee Plans.
(h) The Association, the Converted Association and the Holding
Company are corporations within the meaning of section
7701(a)(3) of the Internal Revenue Code of 1986, as amended.
(i) None of the shares of the 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.
(j) 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.
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(k) 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.
(l) Upon the completion of the Conversion, the Holding Company
will own and hold 100% of the issued and outstanding capital
stock of the Converted Association and no other shares of
capital stock of the Converted Association will be issued
and/or outstanding. At the time of the Conversion, the
Converted Association does not have any plan or intention to
issue additional shares of its stock following the
transaction. Further, no shares of preferred stock of the
Converted Association will be issued and/or outstanding.
(m) Upon the completion of the Conversion, there will be no
rights, warrants, contracts, agreements, commitments or
understandings with respect to the capital stock of the
Converted Association, nor will there be any securities
outstanding which are convertible into the capital stock of
the Converted Association.
(n) No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders, or others in lieu of
(a) nontransferable subscription rights, or (b) an interest in
the liquidation account of the Converted Association.
(o) The Association has utilized a reserve for bad debts in
accordance with section 593 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.
(p) The Association currently satisfies the 60% "qualified assets"
test of section 7701(a)(19) of the Code. Management expects
the Converted Association to be able to continue to satisfy
the test in the future. The Converted Association will also
satisfy the "qualified thrift lender" tests set out in
sections 301 and 303 of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989.
(q) Depositors will pay the expenses 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.
(r) The exercise price of the subscription rights received by the
Association's Eligible Account Holders, Supplemental Eligible
Account Holders, and other holders of
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subscription rights to purchase Holding Company Common Stock
will be equal to the fair market value of the stock of the
Holding Company at the time of the completion of the
Conversion as determined by an independent appraisal.
(s) The proprietary interests of the Eligible Account Holders and
the Supplemental Eligible Account Holders in the Association
arise solely by virtue of the fact that they are account
holders in the Association.
(t) There is no plan or intention for the Converted Association to
be liquidated or merged with another corporation following
this proposed transaction.
(u) 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.
(v) The Association currently has no net operating losses for
federal tax purposes, and has no such losses available for
carryover to future tax years. The Association has neither
generated nor carried forward a net operating loss for federal
tax purposes in the past ten tax years.
LIMITATIONS ON OPINION
Our opinions expressed herein are based solely upon current provisions
of the Internal Revenue Code of 1986, as amended, including applicable
regulations thereunder and current judicial and administrative authority. Any
future amendments to the Code or applicable regulations, or new judicial
decisions or administrative interpretations, any of which could be retroactive
in effect, could cause us to modify our opinion. No opinion is expressed
herein with regard to the federal, state, or city tax consequences of the
Conversion under any section of the Code except if and to the extent
specifically addressed.
FEDERAL TAX OPINION
Based solely upon the foregoing Representations and information and
assuming the transaction occurs in accordance with the Plan of Conversion, and
taking into consideration the limitations noted throughout this opinion, it is
our opinion that under current federal income tax law the material tax
consequences of this transaction are as follows:
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(1) Pursuant to the Conversion, the changes at the corporate level
other than changes in the form of organization will be
insubstantial. Based upon that fact and the fact that the
equity interest of a depositor in a mutual savings and loan
association is more nominal than real, unlike that of a
shareholder of a corporation, the Conversion of the
Association from a mutual savings and loan association to a
stock savings Association is a tax-free reorganization since
it is a mere change in identity, form or place of organization
within the meaning of section 368(a)(1)(F) of the Code (see
Rev. Rul. 80-105, 1980-1 C.B. 78). Neither the Association
nor the Converted Association shall recognize gain or loss as
a result of the Conversion. The Association and the Converted
Association shall each be "a party to a reorganization" within
the meaning of section 368(b) of the Code.
(2) No gain or loss shall be recognized by the Converted
Association or the Holding Company on the receipt by the
Converted Association of money from the Holding Company in
exchange for shares of the Converted Association's capital
stock or by the Holding Company upon the receipt of money from
the sale of its Common Stock (Section 1032(a) of the Code).
(3) The basis of the assets of the Association in the hands of the
Converted Association shall be the same as the basis of such
assets in the hands of the Association immediately prior to
the Conversion (Section 362(b) of the Code).
(4) The holding period of the assets of the Association in the
hands of the Converted Association shall include the period
during which the Association held the assets (Section 1223(2)
of the Code).
(5) No gain or loss shall be recognized by the Eligible Account
Holders and the Supplemental Eligible Account Holders of the
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 their deposit accounts in the Association or to the other
depositors on the issuance to them of withdrawable deposit
accounts (Section 354(a) of the Code).
(6) Provided that the amount to be paid for such stock pursuant to
the subscription rights is equal to the fair market value of
the stock, no gain or loss will be recognized by Eligible
Account Holders and Supplemental Eligible Account Holders upon
the distribution to them of the nontransferable subscription
rights to purchase shares of stock in the Holding Company
(Section 356(a)). Gain realized, if any, by the Eligible
Account Holders and Supplemental Eligible Account
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Holders on the distribution to them of nontransferable
subscription rights to purchase shares of Common Stock will be
recognized but only in an amount not in excess of the fair
market value of such subscription rights (Section 356(a)).
Eligible Account Holders and Supplemental Eligible Account
Holders will not realize any taxable income as a result of the
exercise by them of the nontransferable subscription rights
(Rev. Rul. 56-572, 1956-2 C.B. 182).
(7) The basis of the deposit accounts in the Converted Association
to be received by the Eligible Account Holders, Supplemental
Eligible Account Holders and other depositors of the
Association will be the same as the basis of their deposit
accounts in the Association surrendered in exchange therefor
(Section 358(a)(1) of the Code). The basis of the interests
in the liquidation account of the Converted Association to be
received by the Eligible Account Holders of the Association
shall be zero (Rev. Rul. 71-233, 1971-1 C.B. 113). The basis
of the Holding Company Common Stock to its stockholders will
be the purchase price thereof plus the basis, if any, of
nontransferable subscription rights (Section 1012 of the
Code). Accordingly, assuming the nontransferable subscription
rights have no value, the basis of the Common Stock to the
Eligible Account Holders and Supplemental Eligible Account
Holders will be the amount paid therefor. The holding period
of the Common Stock purchased pursuant to the exercise of
subscription rights shall commence on the date on which the
right to acquire such stock was exercised (Section 1223(6) of
the Code).
Our opinion under paragraph (6) above is predicated on the
Representation that no person shall receive any payment, whether in money or
property, in lieu of the issuance of subscription rights. Our opinion under
paragraphs (6) and (7) above assumes that the subscription rights to purchase
shares of Common Stock received by Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members have a fair market value of zero. We
understand that you have received a letter from Keller & Company, Inc. that the
subscription rights do not have any value. We express no view regarding the
valuation of the subscription rights.
If the subscription rights are subsequently found to have a fair market
value, income may be recognized by various recipients of the subscription
rights (in certain cases, whether or not the rights are exercised) and Holding
Company and/or the Converted Association may be taxable on the distribution of
the subscription rights.
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* * *
Since this letter is rendered in advance of the closing of this
transaction, we have assumed that the transaction will be consummated in
accordance with the Plan of Conversion as well as all the information and
Representations referred to herein. Any change in the transaction could cause
us to modify our opinion.
We consent to the inclusion of this opinion as an exhibit to the Form
AC and Form SB-2 Registration Statement of Security of Pennsylvania Financial
Corp. and the references to and summary of this opinion in such Form AC and
Form SB-2 Registration Statement.
Sincerely,
/s/ MULDOON, MURPHY & FAUCETTE
MULDOON, MURPHY & FAUCETTE