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EXHIBIT 8.1
May 24, 1999
PRIVATE & CONFIDENTIAL
The Board of Directors The Board of Directors
Mahaska Investment Company Midwest Bancshares, Inc.
Post Office Box 1104 3225 Division Street
222 First Avenue E. Burlington, IA 52601
Oskaloosa, IA 52577-1104
Board Members:
You have requested the opinion of KPMG LLP ("KPMG") regarding certain federal
and state income tax consequences resulting from the proposed merger of Midwest
Bancshares, Inc. (the "Company") with and into Mahaska Investment Company
("Mahaska") in exchange for common stock of Mahaska. Specifically, you have
requested us to opine that the form and substance of the merger of the Company
with and into Mahaska will constitute a reorganization under section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code")
(hereinafter, all section references are to the Code unless otherwise
indicated).
FACTS AND REPRESENTATIONS
Mahaska is an Iowa corporation and a registered bank holding company under the
Bank Holding Company Act of 1956, as amended with its principal office in
Oskaloosa, Iowa. At February 2, 1999, Mahaska had outstanding 3,636,345 shares
of Common Stock, par value $5.00 per share, and 171,156 shares of such Common
Stock are held in Mahaska's treasury. Mahaska has no other stock outstanding.
The Company is a Delaware corporation and a unitary savings and loan holding
company registered under the Home Owner's Loan Act and is subject to oversight
by the Office of Thrift Supervision (the "OTS"). At February 2, 1999 the
Company had outstanding 1,098,523 shares of Common Stock, par value $0.01 per
share, 0 shares of such Common Stock held in the Company's treasury, and 20,950
options to purchase shares of Company Common Stock. The Company has no other
stock outstanding. Hereinafter, holders of any Company stock shall be referred
to as "Company Shareholders."
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The Board of Directors
Mahaska Investment Company
May 24, 1999
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It has been represented to KPMG that, for valid corporate business purposes,
the Boards of Directors of Company and Mahaska have adopted an Agreement and
Plan of Merger (the "Merger") to combine their businesses. In order to reach
that result, the following transaction is proposed:
1. The Company will merge with and into the Mahaska in accordance with the
Merger entered into between the parties and in accordance with applicable
federal and state law. All assets and liabilities of the Company will
become assets and liabilities of Mahaska. The Merger is intended to qualify
as a reorganization under section 368(a)(1)(A) of the Code. As a result of
the Merger, the separate corporate existence of the Company will cease and
Mahaska will be the surviving entity.
2. On the Effective Date and pursuant to the Merger, the Company Shareholders
will, in exchange for the surrender and cancellation of their respective
stock interests in the Company, other than shares to which dissenters'
rights have been asserted and duly perfected in accordance with Delaware
law, receive solely one share of Mahaska common stock for each share of
Company Common Stock.
3. On the effective Date and pursuant to the Merger, any options to acquire
shares of Company Common Stock or securities convertible into, or
exchangeable for Company Common Stock, whether or not then exercisable shall
be converted into the right to acquire shares of Mahaska under the Mahaska
Investment Company 1996 Stock Incentive Plan (the "Mahaska Plan"), provided,
however, to the extent that the plan and agreements pursuant to which such
options were granted are more favorable than the "Mahaska Plan", then the
more favorable provisions of those will remain in effect.
4. Mahaska Stock described in (2) above shall comprise the sole Merger
consideration to be received by the Company Shareholders in exchange for
their Company Stock.
The following additional representations have been made by you to KPMG in
regard to the Merger:
a) The conversion rate at which the shares of the Company will be exchanged for
Mahaska Common Stock was determined pursuant to arm's-length negotiations
between the parties to the Merger, and it is the belief of the Board of
Directors of Mahaska and the Company that such conversion rate reflects the
fact that the fair market value of Mahaska Common Stock received by each the
Company shareholder will be equal to the fair market value of the stock of
the Company surrendered in the exchange. The exchange ratio is one share of
Mahaska Common Stock for one share of Company Common Stock.
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The Board of Directors
Mahaska Investment Company
May 24, 1999
Page 3
b) To the best of the knowledge of the Company's management, there is no plan
or intention by the shareholders of the Company who own 1 percent or more of
the Company stock, and there is no plan or intention on the part of the
remaining shareholders of the Company to sell, exchange, or otherwise
dispose of a number of shares of Mahaska Common Stock received in the Merger
that would reduce the Company Shareholders' ownership of Mahaska Common
Stock to a number of shares having a value, as of the date of the Merger, of
less than 50 percent of the value of all of the formerly outstanding stock
of the Company as of the same date. Moreover, shares of the Company Common
Stock and of Mahaska Common Stock held by the Company Shareholders and
otherwise sold, redeemed, or disposed of prior or subsequent to the Merger
will be considered in making this representation.
c) Mahaska has no plan or intention to reacquire any of its stock issued in the
Merger except in the normal course of its business.
d) Mahaska has no plan or intention to sell or otherwise dispose of any of the
assets of the Company acquired in the Merger, except for dispositions made
in the ordinary course of business.
e) The liabilities of the Company assumed by Mahaska and the liabilities, if
any, to which the transferred assets of the Company are subject were
incurred by the Company in the ordinary course of business.
f) Following the Merger, Mahaska will continue the historic business of the
Company or use a significant portion of the Company's historic business
assets in a business.
g) Mahaska, the Company and Company Shareholders will pay their respective
expenses, if any, incurred in connection with the Merger.
h) There is no intercorporate indebtedness existing between Mahaska and the
Company that was issued, acquired, or will be settled at a discount.
i) No two parties to the Merger are investment companies as defined in section
368(a)(2)(F)(iii) and (iv) of the Code.
j) The Company is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of section 368(a)(3)(A) of the Code.
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The Board of Directors
Mahaska Investment Company
May 24, 1999
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k) The fair market value of the assets of the Company transferred to Mahaska
will equal or exceed the sum of the liabilities assumed by Mahaska plus the
amount of liabilities, if any, to which the transferred assets are subject.
l) None of the compensation received by any shareholders of the Company who are
employees of the Company or Mahaska ("Shareholder-Employees") will be
separate consideration for, or allocable to, any of their shares of the
Company stock; none of the shares of Mahaska Common Stock received by
Shareholder-Employees will be separate consideration for, or allocable to,
any employment agreement; and the compensation paid to any
Shareholder-Employees will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's-length
for similar services.
m) There have been no material changes in the ownership of the Company Stock
within the past two years, other than in the normal course of its business.
n) Immediately following the Merger, the former shareholders of the Company
will own, in the aggregate, less than 50 percent of the voting power and
value of the stock of Mahaska.
OPINION
Based solely on the FACTS AND REPRESENTATIONS, and the Merger, and as limited
by the SCOPE OF THE OPINION, it is the opinion of KPMG that under current
federal income tax law:
1) Provided that the Merger of the Company with and into Mahaska qualifies as a
statutory merger under applicable state and federal law, the Merger will
constitute a reorganization within the meaning of section 368(a)(1)(A) of
the Code.
2) With respect to the Merger, the Company and Mahaska will each be "a party to
a reorganization" within the meaning of section 368(b) of the Code.
3) The Company will recognize no gain or loss upon the transfer of its assets
to Mahaska pursuant to the Merger in exchange solely for Mahaska Common
Stock and the assumption by Mahaska of the liabilities of the Company.
Sections 357(a) and 361.
4) No gain or loss will be recognized by Mahaska upon the receipt of the assets
of the Company, subject to the liabilities of the Company, pursuant to the
Merger. Section 1032(a).
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The Board of Directors
Mahaska Investment Company
May 24, 1999
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5) The basis of the assets of the Company in the hands of Mahaska will be the
same as the basis of such assets in the hands of the Company immediately
prior to the Merger. Section 362(b).
6) The holding period of the assets of the Company in the hands of Mahaska will
include the holding period of such assets in the hands of the Company
immediately prior to the Merger. Section 1223(2).
7) No gain or loss will be recognized by the Company Shareholders on the
exchange of their Company stock pursuant to the Merger solely for Mahaska
Common Stock. Section 354(a)(1).
8) The basis of Mahaska Common Stock to be received by the Company Shareholders
will be, in each instance, the same as the basis of the Company Common Stock
surrendered in exchange therefore as of the Effective Date. Section
358(a)(1).
9) The holding period of the Mahaska Common Stock received pursuant to the
Merger by the Company Shareholders in exchange for the Company Common Stock
will include the holding period of the Company Common Stock for which it is
exchanged, provided that the shares of the Company Common Stock are capital
assets in the hands of the holder thereof at the Effective Date. Section
1223(1).
10)The tax attributes of the Company enumerated in section 381(c), including
any earnings and profits or a deficit in earnings and profits, will be taken
into account by Mahaska following the Merger. These tax attributes will be
subject to the limitations as provided in sections 381, 382, 383, and 384
and the regulations thereunder.
Under the Code of Iowa, both corporations and financial institutions compute
their net income using federal taxable income as a starting point. Federal
taxable income is properly computed for federal income tax purposes pursuant
to the Code, which is specifically cited in the Code of Iowa. Several
specific adjustments are enumerated in Section 422.61 of the Code of Iowa to
determine net income for Iowa franchise tax purposes.
The Iowa statute places strict reliance on the Code and, based solely on the
FACTS AND REPRESENTATIONS, and the Agreement and Plan of Merger, and as
limited by the SCOPE OF THE OPINION, it is the opinion of KPMG that under
current Iowa income tax law, all the provisions of the federal tax opinion
shall also apply on a similar basis.
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The Board of Directors
Mahaska Investment Company
May 24, 1999
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SCOPE OF THE OPINION
The opinions expressed above are rendered only with respect to the specific
matters discussed herein, and we express no opinion with respect to any other
federal or state income tax or legal aspect of the offering. If any of the
above-stated facts, circumstances, or assumptions are not entirely complete
or accurate, it is imperative that we be informed immediately, as the
inaccuracy or incompleteness could have a material effect on our
conclusions. In rendering our opinion, we are relying upon the relevant
provisions of 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 changes could also have an
effect on the validity of our opinion. 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 court.
KPMG LLP