Exhibit 8.1
[LETTERHEAD OF LUSE LEHMAN GORMAN APPEARS HERE]
FORM OF FEDERAL TAX OPINION
_____________, 1998
Boards of Directors
Trenton Savings Bank, F.S.B.
Peoples Bancorp, Inc.
Peoples Bancorp, M.H.C.
134 Franklin Corner Road
Lawrenceville, New Jersey 08648-0950
Ladies and Gentlemen:
You have requested this firm's opinion regarding certain federal income
tax consequences which will result from the conversion of Peoples Bancorp,
M.H.C., from the two-tier holding company structure to the stock holding company
form, as effectuated pursuant to the three integrated transactions described
below. This Opinion Letter is governed by, and should be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the American Bar
Association Section of Business Law (1991). As a consequence, it is subject to a
number of qualifications, exceptions, definitions, limitations on coverage and
other limitations, all as more particularly described in the Accord. Our opinion
is based upon the existing provisions of the Internal Revenue Code of 1986, as
amended (the "Code) and regulations thereunder (the "Treasury Regulations"), and
upon current Internal Revenue Service ("IRS") published rulings and existing
court decisions, any of which could be changed at any time. Any such changes may
be retroactive and could significantly modify the statements and opinions
expressed herein. Similarly, any change in the facts and assumptions stated
below, upon which this opinion is based, could modify the conclusions. This
opinion is as of the date hereof, and we disclaim any obligation to advise you
of any change in any matter considered herein after the date hereof.
We, of course, opine only as to the matters we expressly set forth, and
no opinions should be inferred as to any other matters or as to the tax
treatment of the transactions that we do not specifically address. We express no
opinion as to other federal laws and regulations, or as to laws and regulations
of other jurisdictions, or as to factual or legal matters other than as set
forth herein.
We have made such other investigations as we have deemed relevant or
necessary for the purpose of this opinion. In our examination, we have assumed
the authenticity of original
Boards of Directors
Trenton Savings Bank, F.S.B.
Peoples Bancorp, Inc.
Peoples Bancorp, M.H.C.
_____________, 1998
Page 2
documents, the accuracy of copies and the genuineness of signatures. We have
further assumed the absence of adverse facts not apparent from the face of the
instruments and documents we examined and have relied upon the accuracy of the
factual matters set forth in the Plan of Conversion and Reorganization (the
"Plan") and the Registration Statement filed by Peoples Bancorp, Inc. (the
"Company") with the Securities and Exchange Commission ("SEC") under the
Securities Act of 1933, as amended, and the Application for Conversion on Form
AC filed with the office of thrift Supervision (the "OTS").
We specifically express no opinion concerning tax matters relating to
the Plan under state and local tax laws and under Federal income tax laws except
on the basis of the documents and assumptions described above. We note that in
December 1994, the IRS published Revenue Procedure 94-76 which states that the
IRS will not issue private letter rulings with respect to a transaction in which
one corporation owns stock in a second corporation, the first corporation is not
the 80 percent distributee of the second corporation and the two corporations
are merged. The IRS has assumed this "no-rule" position to study whether such
downstream mergers circumvent the purpose behind the repeal of General Utilities
& Operating Co. v. Helvering, 296 U.S. 200 (1935). If the IRS were to conclude
that such mergers circumvent the repeal of General Utilities, the IRS could
issue regulations which could have the effect of taxing to the merging
corporation, as of the effective time of the merger, the fair market value of
the assets of such corporation over its basis in such assets. Accordingly, the
issuance of such regulations could significantly modify the opinions expressed
herein.
For purposes of this opinion, we are relying on the opinion of FinPro
the appraiser of the Company, to the effect that the subscription rights
distributed to Eligible Account Holders and Supplemental Eligible Account
Holders have no value; and on the representations provided to us by the Mutual
Holding Company and the Bank as described in the Affidavit of the President of
the Mutual Holding Company and the Bank, incorporated herein by reference.
The Proposed Transactions
Based solely upon our review of the documents described above, and in
reliance upon such documents, we understand that the relevant facts are as
follows. On August 3, 1995, Trenton Savings Bank ("Trenton"), a federally
chartered mutual savings bank, reorganized into the mutual holding company form
of organization. To accomplish this transaction, Trenton organized Trenton
Savings Bank, F.S.B. (the "Bank") as a wholly-owned subsidiary. Trenton then
transferred virtually all of its assets and liabilities to the Bank in exchange
for __________ shares
Boards of Directors
Trenton Savings Bank, F.S.B.
Peoples Bancorp, Inc.
Peoples Bancorp, M.H.C.
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Page 3
of common stock, par value $.10 per share ("Bank Common Stock") of the Bank, and
reorganized itself into "Peoples Bancorp, M.H.C." (the "Mutual Holding
Company").
In connection with the foregoing transaction, the Bank raised
approximately $30 million by selling ________ shares of Bank Common Stock at
$10.00 per share to the public (the "Minority Stockholders"). After the
conclusion of the sale to Minority Stockholders, the Mutual Holding Company held
____% of the Bank's Common Stock outstanding. The shares of Bank Common Stock
that were sold to the Minority Stockholders constituted approximately ____% of
the issued and outstanding shares of the Bank Common Stock. The reorganization
of Trenton into the mutual holding company form of organization, and the sale to
the Minority Stockholders of stock in the Bank, are sometimes herein
collectively referred to as the "MHC Reorganization." On June 23, 1997 the Bank
reorganized into a two-tier holding company form of organization whereby Peoples
Bancorp, Inc., a federally-chartered stock holding company ("Mid-Tier Holding
Company") became the parent of the Bank and the Mid-Tier Holding Company became
the majority owned subsidiary of the Mutual Holding Company. To accomplish this
Transaction, the Bank chartered the Mid-Tier Holding Company as a wholly owned
subsidiary and the Mid-Tier Holding Company chartered an interim ("Interim")
federal stock savings bank as a wholly owned subsidiary. Interim then merged
into the Bank with the Bank's shareholders, including the Mutual Holding
Company, receiving shares of the Mid-Tier Holding Company in exchange for their
shares of Bank Common Stock. The shares of the Mid-Tier Holding Company owned by
the Bank were canceled.
Following the reorganization to the two-tier holding company form of
organization on August 27, 1997, the Mutual Holding Company adopted the Plan of
Conversion and Reorganization ("Plan") providing for the conversion of the
Mutual Holding Company into the capital stock form of organization (as
converted, the "Holding Company").
At the present time, three transactions referred to as the "MHC
Merger", the "Mid-Tier Merger", and the "Bank Merger" are being undertaken.
Pursuant to the Plan, the conversion ("Conversion") will be effected in the
following steps, each of which will be completed contemporaneously.
(i) The Bank will establish the Company as a first-tier Delaware
chartered stock holding company subsidiary.
(ii) The Company will charter an interim federal association ("Interim
Savings Bank").
Boards of Directors
Trenton Savings Bank, F.S.B.
Peoples Bancorp, Inc.
Peoples Bancorp, M.H.C.
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Page 4
(iii) The Mutual Holding Company will merge with and into the Mid-Tier
Holding Company (the "MHC Merger"), shares of Mid-Tier common
stock ("Mid-Tier Common Stock") held by the Mutual Holding
Company will be canceled and each Eligible Account Holder and
Supplemental Eligible Account Holder will receive an interest in
a liquidation account of the Mid-Tier Holding Company in exchange
for such person's interest in the Mutual Holding Company.
(iv) The Mid-Tier Holding Company will merge with and into the Bank
(the "Mid-Tier Merger") with the Bank as the resulting entity and
(i) Minority Stockholders will constructively receive shares of
Bank Common Stock in exchange for their Mid- Tier Common Stock
and (ii) each Eligible Account Holder and Supplemental Eligible
Account Holder will receive an interest in a liquidation account
("Liquidation Account") of the Bank in exchange for such person's
interest in the Mid-Tier Holding Company.
(v) Contemporaneously with the Mid-Tier Merger, Interim Savings Bank
will merge with and into the Bank with the Bank as the surviving
entity (the "Bank Merger"). Constructive shareholders of the Bank
(i.e., Minority Stockholders immediately prior to the Conversion)
will exchange the shares of Bank Common Stock that they
constructively received in the Mid-Tier Merger for Company common
stock ("Company Common Stock") pursuant to the exchange ratio
("Exchange Ratio").
(vi) Contemporaneously with the Bank Merger, the Company will sell
Company Common Stock in the Offering.
In the MHC Merger, a liquidation account is being established by the
Mid-tier Holding Company for the benefit of Eligible Account Holders and
Supplemental Account Holders. Pursuant to Section 19 of the Plan, the
liquidation account will be equal to the greater of (a) the sum of (i) the
percentage of the outstanding shares of the common stock of the Mid-Tier Holding
Company owned by the Mutual Holding Company multiplied by the Mid-Tier Holding
Company's total stockholders' equity as reflected in the latest statement of
financial condition contained in the final Prospectus utilized in the
Conversion, and (ii) the restricted retained earnings account that reflects
certain dividends waived by the Mutual Holding Company; or (b) the retained
earnings of the Bank at the time the Bank underwent its mutual holding company
reorganization. In the Mid-Tier Merger, the liquidation account established at
the Mid-Tier Holding Company will be reestablished and will become a part of the
Liquidation Account at the Bank.
Boards of Directors
Trenton Savings Bank, F.S.B.
Peoples Bancorp, Inc.
Peoples Bancorp, M.H.C.
_____________, 1998
Page 5
The Plan complies with the provisions of Subpart A of 12 C.F.R. Part
563b, which sets forth the OTS regulations for conversion of mutual institutions
to stock form. The Plan also complies with the provisions of 12 C.F.R. Section
575.12(a), which is the OTS regulation governing the conversion of mutual
holding companies to stock form.
Upon the date of consummation of the Bank Merger ("the Effective
Date"), Interim Savings Bank will be merged with and into the Bank and Interim
Savings Bank will cease to exist as a legal entity. All of the then outstanding
shares of Bank Common Stock will be converted into and become shares of Company
Common Stock pursuant to the Exchange Ratio that ensures that after the
Conversion and before giving effect to Minority Stockholders' purchases in the
Offering, receipt of cash in lieu of fractional shares, and shares for which
dissenters' rights have been exercised, Minority Stockholders will own the same
aggregate percentage of the Company's Common Stock as they currently own of the
Bank Common Stock. The common stock of the Interim Savings Bank owned by the
Company prior to the Bank Merger will be converted into and become shares of
common stock of the Bank on the Effective Date. The Company Common Stock held by
the Bank immediately prior to the Effective Date will be canceled on the
Effective Date. Immediately following the Bank Merger, additional shares of
Company Common Stock will be sold to depositors and former shareholders of the
Bank and to members of the public in the Offering.
As a result of the MHC Merger, the Mid-Tier Merger and the Bank Merger,
the Company will be a publicly held corporation, will register the Company
Common Stock under Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and will become subject to the rules and
regulations thereunder and file periodic reports and proxy statements with the
SEC. The Bank will become a wholly owned subsidiary of the Company and will
continue to carry on its business and activities as conducted immediately prior
to the Conversion.
The stockholders of the Company will be the former Minority
Stockholders of the Mid-Tier Holding Company immediately prior to the MHC Merger
(i.e., all stockholders of the Bank, excluding the Mutual Holding Company), plus
those persons who purchase shares of Company Common Stock in the Offering.
Nontransferable rights to subscribe for the Company Common Stock have been
granted, in order of priority, to depositors of the Bank who have account
balances of $50.00 or more as of the close of business on August 31, 1997
("Eligible Account Holders"), the Bank's tax-qualified employee plans ("Employee
Plans"), depositors of the Bank who have account balances of $50.00 or more as
of the close of business on ____________, 199_ ("Supplemental Eligible Account
Holders"), other members of the Bank (other than Eligible Account Holders and
Supplemental Eligible Account Holders) ("Other Members"), and owners
Boards of Directors
Trenton Savings Bank, F.S.B.
Peoples Bancorp, Inc.
Peoples Bancorp, M.H.C.
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Page 6
of shares of Bank Common Stock other than the Mutual Holding Company ("Minority
Stockholders"). Subscription rights are nontransferable. The Company will also
offer shares of Company Common Stock not subscribed for in the subscription
offering, if any, for sale in a community offering to certain members of the
general public.
Opinions
Based on the foregoing description of the MHC Merger, the Mid-Tier
Merger and the Bank Merger, and subject to the qualifications and limitations
set forth in this letter, we are of the opinion that:
1. The MHC Merger qualifies as a tax-free reorganization within the
meaning of Section 368(a)(1)(A) of the Code. (Section 368(a)(1)(A) of the Code.)
2. The exchange of the members' equity interests in the Mutual Holding
Company for interests in a liquidation account established at the Mid-Tier
Holding Company in the MHC Merger will satisfy the continuity of interest
requirement of Section 1.368-1(b) of the Income Tax Regulations (cf. Rev. Rul.
69-3, 1969-1 C.B. 103, and Rev. Rul. 69-646, 1969-2 C.B. 54).
3. The Mutual Holding Company will not recognize any gain or loss on
the transfer of its assets to the Mid-Tier Holding Company in exchange for an
interest in a liquidation account established in the Mid-Tier Holding Company
for the benefit of the Mutual Holding Company's members who remain depositors of
the Bank. (Section 361 of the Code.)
4. No gain or loss will be recognized by the Mid-Tier Holding Company
upon the receipt of the assets of the Mutual Holding Company in the MHC Merger
in exchange for the transfer to the members of the Mutual Holding Company of an
interest in the liquidation account in the Mid-Tier Holding Company. (Section
1032(a) of the Code.)
5. The basis of the assets of Mutual Holding Company (other than stock
in the Mid- Tier Holding Company) to be received by Mid-Tier Holding Company
will be the same as the basis of such assets in the hands of the Mutual Holding
Company immediately prior to the transfer. (Section 362(b) of the Code.)
6. The holding period of the assets of the Mutual Holding Company
(other than stock in Mid-Tier Holding Company) to be received by Mid-Tier
Holding Company will include the
Boards of Directors
Trenton Savings Bank, F.S.B.
Peoples Bancorp, Inc.
Peoples Bancorp, M.H.C.
_____________, 1998
Page 7
holding period of those assets in the hands of the Mutual Holding Company.
(Section 1223(2) of the Code.)
7. Mutual Holding Company members will recognize no gain or loss upon
the receipt of an interest in the liquidation account in Mid-Tier Holding
Company for their membership interest in Mutual Holding Company. (Section 354(a)
of the Code.)
8. The Mid-Tier Merger qualifies as a tax-free reorganization within
the meaning of Section 368(a)(1)(A) of the Code. (Section 368(a)(1)(A) of the
Code.)
9. The exchange of the interest in the Mid-Tier Holding Company's
liquidation account for interests in a Liquidation Account established at the
Bank in the Mid-Tier Merger will satisfy the continuity of interest requirement
of Section 1.368-1(b) of the Income Tax Regulations (cf. Rev. Rul. 69-3, 1969-1
C.B. 103, and Rev. Rul. 69-646, 1969-2 C.B. 54).
10. The Mid-Tier Holding Company will not recognize any gain or loss on
the transfer of its assets to the Bank in exchange for an interest in a
Liquidation Account established in the Bank for the benefit of those persons who
remain depositors of the Bank and the Bank's assumption of the Mid-Tier Holding
Company's liabilities, if any. (Section 361 of the Code.)
11. No gain or loss will be recognized by the Bank upon the receipt of
the assets of the Mid-Tier Holding Company in the Mid-Tier Merger in exchange
for the transfer to Bank depositors with an interest in the liquidation account
of the Mid-Tier Holding Company of an interest in the Liquidation Account in the
Bank. (Section 1032(a) of the Code.)
12. The basis of the assets of the Mid-Tier Holding Company (other than
stock in the Bank) to be received by Bank will be the same as the basis of such
assets in the hands of the Mid- Tier Holding Company immediately prior to the
transfer. (Section 362(b) of the Code.)
13. The holding period of the assets of the Mid-Tier Holding Company
(other than stock in Bank) to be received by Bank will include the holding
period of those assets in the hands of the Mid-Tier Holding Company immediately
prior to the transfer. (Section 1223(2) of the Code.)
14. Persons who have an interest in the liquidation account established
in the Mid -Tier Holding Company (i.e., former members of the Mutual Holding
Company) will recognize no gain or loss upon the receipt of an interest in the
Liquidation Account in the Bank and non-transferable
Boards of Directors
Trenton Savings Bank, F.S.B.
Peoples Bancorp, Inc.
Peoples Bancorp, M.H.C.
_____________, 1998
Page 8
subscription rights in exchange for their interest in the Mid-Tier Holding
Company liquidation account. (Section 354(a) of the Code).
15. The Mid-Tier Holding Company shareholders will not recognize any
gain or loss upon their constructive exchange of Mid-Tier Holding Company Common
Stock for Bank Common Stock.
In addition, we are of the opinion that, based on the foregoing:
16. The Bank Merger qualifies as a reorganization within the meaning of
Section 368(a)(1)(A) of the Code, pursuant to Section 368(a)(2)(E) of the Code.
For these purposes, each of the Bank, the Company and Interim Savings Bank are
"a party to the reorganization within the meaning of Section 368(b) of the Code.
17. Interests in the liquidation account established at the Bank, and
the shares of Bank Common Stock held by Mid -Tier Holding Company prior to
consummation of the Mid-Tier Merger, will be disregarded for the purpose of
determining that an amount of stock in the Bank which constitutes "control" of
such corporation was acquired by the Company in exchange for shares of common
stock of the Company pursuant to the Bank Merger (Code Section 368(c)).
18. The exchange of shares of Company Common Stock for the shares of
the Bank Common Stock in the Bank Merger, following consummation of the Mid-Tier
Merger, will satisfy the continuity of interest requirement of Income Tax
Regulation Section 1.368-1(b) in the Bank Merger.
19. Interim Savings Bank will not recognize any gain or loss on the
transfer of its assets to Bank in exchange for Bank Common Stock and the
assumption by Bank of the liabilities, if any, of Interim Savings Bank. (Section
361(a) and 357(a) of the Code.)
20. Bank will not recognize any gain or loss on the receipt of the
assets of Interim Savings Bank in exchange for Bank Common Stock. (Section
1032(a) of the Code.)
21. Bank's basis in the assets received from Interim Savings Bank in
the proposed transaction will, in each case, be the same as the basis of such
assets in the hands of Interim Savings Bank immediately prior to the
transaction. (Section 362(b) of the Code.)
Boards of Directors
Trenton Savings Bank, F.S.B.
Peoples Bancorp, Inc.
Peoples Bancorp, M.H.C.
_____________, 1998
Page 9
22. Bank's holding period for the assets received from Interim Savings
Bank in the proposed transaction will, in each instance, include the period
during which such assets were held by Interim Savings Bank. (Section 1223(2) of
the Code.)
23. The Company will not recognize any gain or loss upon its receipt of
Bank Common Stock in exchange for Interim Savings Bank stock. (Section 354(a) of
the Code.)
24. Bank shareholders will not recognize any gain or loss upon their
exchange of Bank Common Stock solely for shares of Company Common Stock.
(Section 354(a) of the Code.)
25. Each Bank shareholder's aggregate basis in his or her Company
Common Stock received in the exchange will be the same as the aggregate basis of
the Bank Common Stock surrendered in exchange therefor. (Section 358(a) of the
Code.)
26. Each Bank shareholder's holding period in his or her Company Common
Stock received in the exchange will include the period during which the Bank
Common Stock surrendered was held, provided that the Bank Common Stock
surrendered is a capital asset in the hands of the Bank shareholder on the date
of the exchange. (Section 1223(1) of the Code.)
27. No gain or loss will be recognized by Eligible Account Holders and
Supplemental Eligible Account Holders upon distribution to them of subscription
rights to purchase shares of Common Stock, provided that the amount to be paid
for the Common Stock is equal to the fair market value of the Common Stock.
Analysis
Section 368(a)(1)(A) of the Code defines the term "reorganization" to
include a "statutory merger or consolidation" of corporations such as the MHC
Merger and the Mid-Tier Merger. Section 368(a)(2)(E) of the Code provides that a
transaction otherwise qualifying as a merger under Section 368(a)(1)(A), such as
the Bank Merger, shall not be disqualified by reason of the fact that common
stock of a corporation (referred to in the Code as the "controlling
corporation") (i.e., the Company) which before the merger was in control of the
merged corporation is used in the transaction if:
(i) after the transaction, the corporation surviving the merger (the
Bank) holds substantially all of its properties and the
properties of the merged corporation
Boards of Directors
Trenton Savings Bank, F.S.B.
Peoples Bancorp, Inc.
Peoples Bancorp, M.H.C.
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(Interim Savings Bank) (other than common stock of the
controlling corporation (the Company) distributed in the
transaction); and
(ii) in the transaction, former stockholders of the surviving
corporation (the Bank stockholders) exchanged, for an amount of
voting common stock of the controlling corporation, an amount of
common stock in the surviving corporation which constitutes
control of such corporation.
Section 1.368-2(b)(1) of the Treasury Regulations provides that, in
order to qualify as a reorganization under Section 368(a)(1)(A), a transaction
must be a merger or consolidation effected pursuant to the corporation laws of
the United States or a state. The Plan provides that the MHC Merger, the
Mid-Tier Merger and the Bank Merger will be accomplished in accordance with
applicable state and federal law.
Treasury Regulations and case law require that, in addition to the
existence of statutory authority for a merger, certain other conditions must be
satisfied in order to qualify a proposed transaction as a reorganization within
the meaning of Section 368(a)(1)(A) of the Code. The "business purpose test,"
which requires a proposed merger to have a bona fide business purpose, must be
satisfied. See 26 C.F.R. Section 1.368-1(c). We believe that the MHC Merger, the
Mid- tier Merger and the Bank Merger satisfy the business purpose test for the
reasons set forth in the Prospectus under the caption "The Conversion--Reasons
for the Conversion." The "continuity of business enterprise test" requires an
acquiring corporation either to continue an acquired corporation's historic
business or use a significant portion of its historic assets in a business. See
26 C.F.R. Section 1.368-1(d). We believe that the business conducted by the Bank
prior to the MHC Merger, the Mid-Tier Merger and the Bank Merger will be
unaffected by the transactions.
The "continuity of interest doctrine" requires that the continuing
common stock interest of the former owners of an acquired corporation,
considered in the aggregate, represent a "substantial part" of the value of
their former interest, and provide them with a "definite and substantial
interest" in the affairs of the acquiring corporation or a corporation in
control of the acquiring corporation. Paulsen v. Comm'r., 469 U.S. 131 (1985);
Helvering v. Minnesota Tea Co., 296 U.S. 378 (1935); John A. Nelson Co. v.
Helvering, 296 U.S. 374 (1935); Southwest Natural Gas Co. v. Comm'r., 189 F.2d
332 (5th Cir. 1951), cert. denied, 342 U.S. 860 (1951). We believe that the MHC
Merger satisfies the continuity of interest doctrine based on the information
set forth in the Company's Registration Statement and based on Revenue Rulings
69- 646, 1969-2 C.B. 54 and 69-3, 1965-1 C.B. 103. We believe that the Mid-Tier
Merger satisfies the continuity of interest doctrine based on representations
received from the Bank in connection
Boards of Directors
Trenton Savings Bank, F.S.B.
Peoples Bancorp, Inc.
Peoples Bancorp, M.H.C.
_____________, 1998
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with the preparation of this opinion, to the effect that, to the best knowledge
of the management of the Mid-Tier Holding Company and the Bank, former
shareholders of the Mid-Tier Holding Company (disregarding the Mutual Holding
Company) owning 50% or more of all the outstanding stock of the Mid-Tier Holding
Company immediately prior to the Mid-Tier Merger, would continue to own shares
of the Bank immediately after the Mid-Tier Merger. We also believe that the Bank
Merger satisfies the continuity of interest doctrine based on representations
received from the Bank in connection with the preparation of this opinion to the
effect that, to the best knowledge of the management of the Bank, former
shareholders of the Bank owning 50% or more of all of the outstanding stock of
the Bank immediately prior to the Conversion, disregarding shares held by the
Mutual Holding Company that were canceled in the MHC Merger, would continue to
own shares of the Company immediately after the Bank Merger. In addition, we
believe other applicable requirements of the Treasury Regulations and case law
which are preconditions to qualification of the MHC Merger, the Mid-Tier Merger
and the Bank Merger as a reorganization, within the meaning of Sections
368(a)(1)(A) and 368(a)(2)(E) of the Code, are satisfied on the basis of the
information contained in the Plan and the Prospectus.
As noted above, in December 1994, the IRS published Revenue Procedure
94-76 which states that the IRS will not issue private letter rulings with
respect to a transaction in which one corporation owns stock in a second
corporation, the first corporation is not the 80 percent distributee of the
second corporation and the two corporations are merged. The IRS has assumed this
"no-rule" position to study whether such downstream mergers circumvent the
purpose behind the repeal of General Utilities & Operating Co. v. Helvering, 296
U.S. 200 (1935). Although the IRS has assumed a "no-rule" position to study the
issues associated with such mergers, the IRS has not specifically rescinded its
prior position with respect to such mergers, and therefore, at the time that
this transaction is consummated, the law prior to the publication of Rev. Proc.
94-76, as reflected in the Code, Treasury Regulations, case law and rulings,
continues to control the transaction. Under such law, we believe that the MHC
Merger qualifies as a tax-free reorganization within the meaning of Section
368(a)(1)(A) of the Code. Moreover, there is no indication that the IRS position
will change as the result of its study. If the IRS does change its position with
respect to the downstream merger of one corporation into its less than 80
percent owned distributee, there is no reason to believe that any such change
will have retroactive effect.
Section 354 of the Code provides that no gain or loss shall be
recognized by stockholders who exchange common stock in a corporation, which is
a party to a reorganization, solely for common stock in another corporation
which is a party to the reorganization. Section 356 of the Code provides that
stockholders shall recognize gain to the extent they receive money as part of a
reorganization, such as cash received in lieu of fractional shares. Section 358
of the Code
Boards of Directors
Trenton Savings Bank, F.S.B.
Peoples Bancorp, Inc.
Peoples Bancorp, M.H.C.
_____________, 1998
Page 12
provides that, with certain adjustments for money received in a reorganization,
such as cash received in lieu of fractional shares, a stockholder's basis in the
common stock he or she receives in a reorganization shall equal the basis of the
common stock which he or she surrendered in the transaction. Section 1223(1)
states that, where a stockholder receives property in an exchange which has the
same basis as the property surrendered, he or she shall be deemed to have held
the property received for the same period as the property exchanged, provided
that the property exchanged had been held as a capital asset.
Section 361 of the Code provides that no gain or loss shall be
recognized to a corporation which is a party to a reorganization on any transfer
of property pursuant to a plan of reorganization such as the Plan. Section 362
of the Code provides that if property is acquired by a corporation in connection
with a reorganization, then the basis of such property shall be the same as it
would be in the hands of the transferor immediately prior to the transfer.
Section 1223(2) of the Code states that where a corporation will have a
carryover basis in property received from another corporation which is a party
to a reorganization, the holding period of such assets in the hands of the
acquiring corporation shall include the period for which such assets were held
by the transferor, provided that the property transferred had been held as a
capital asset. Section 1032 of the Code states that no gain or loss shall be
recognizes to a corporation on the receipt of property in exchange for common
stock.
We hereby consent to the filing of the opinion as an exhibit to the
MHC's Application for Approval for Conversion filed with the Commissioner and to
the Company's Registration Statement on Form S-1 as filed with the SEC. We also
consent to the references to our firm in the Prospectus contained in the
Application for Approval of Conversion and S-1 under the captions "The
Conversion-Tax Aspects" and "Legal Opinions."
Very truly yours,
LUSE LEHMAN GORMAN POMERENK
& SCHICK, A PROFESSIONAL CORPORATION
By: _______________________________