EXHIBIT 8.1
Form of Federal Tax Opinion of Breyer & Aguggia
Form of Federal Tax Opinion
____________, 1996
Boards of Directors
Empire Federal Savings
and Loan Association
Empire Federal Bancorp, Inc.
123 S. Main Street
Livingston, Montana 59047-1099
Re: Certain Federal Income Tax Consequences Relating to
Proposed Holding Company Conversion of Empire Federal
Savings and Loan Association
Gentlemen:
In accordance with your request, set forth herein is the opinion of
this firm relating to certain federal income tax consequences of (i) the
proposed conversion of Empire Federal Savings and Loan Association (the
"Association") from a federally-chartered mutual savings and loan association to
a federally-chartered stock savings bank (the "Converted Savings Bank") (the
"Stock Conversion") and (ii) the concurrent acquisition of 100% of the
outstanding capital stock of the Converted Savings Bank by a parent holding
company formed at the direction of the Board of Directors of the Association and
to be known as Empire Federal Bancorp, Inc. (the "Holding Company").
For purposes of this opinion, we have examined such documents and
questions of law as we have considered necessary or appropriate, including but
not limited to, the Plan of Conversion as adopted by the Association's Board of
Directors on August 29, 1996 (the "Plan"); the federal mutual charter and bylaws
of the Association; the certificate of incorporation and bylaws of Holding
Company; the Affidavit of Representations dated __________, 1996 provided to us
by the Association and the Holding Company (the "Affidavit"), and the Prospectus
(the "Prospectus") included in the Registration Statement on Form SB-2 filed
with the Securities and Exchange Commission ("SEC") on _______, 1996 (the
"Registration Statement"). In such examination, we have assumed, and have not
independently verified, the genuineness of all signatures on original documents
where due execution and delivery are requirements to the effectiveness thereof.
Terms used but not defined herein, whether capitalized or not, shall have the
same meaning as defined in the Plan.
BACKGROUND
Based solely upon our review of such documents, and upon such
information as the Association has provided to us (which we have not attempted
to verify in any respect), and in reliance upon such documents and information,
we set forth herein a general summary of the relevant facts and proposed
transactions, qualified in its entirety by reference to the documents cited
above.
The Association is a federally-chartered mutual savings and loan
association which is in the process of converting to a federally-chartered stock
savings bank. The Association was initially organized in 1923. The Association
is also a member of the Federal Home Loan Bank System and its deposits are
federally insured under
Boards of Directors
Empire Federal Savings and
Loan Association
Empire Federal Bancorp, Inc.
_________, 1996
Page 2
the Savings Association Insurance Fund ("SAIF") of the Federal Deposit Insurance
Corporation. The Association operates out of its main office in Livingston,
Montana and two branch offices in neighboring communities.
The Association is primarily engaged in the business of attracting
deposits from the general public and originating permanent loans secured by
first mortgages on one- to four-family residential properties. At June 30, 1996,
the Association had total assets of $86.9 million, deposits of $68.6 million,
and total equity of $15.9 million.
As a federally-chartered mutual savings and loan association, the
Association has no authorized capital stock. Instead, the Association, in mutual
form, has a unique equity structure. A savings depositor of the Association is
entitled to payment of interest on his account balance as declared and paid by
the Association, but has no right to a distribution of any earnings of the
Association except for interest paid on his deposit. Rather, such earnings
become retained earnings of the Association.
However, a savings depositor does have a right to share pro rata, with
respect to the withdrawal value of his respective savings account, in any
liquidation proceeds distributed if the Association is ever liquidated. Savings
depositors and certain borrowers are members of the Association and thereby have
voting rights in the Association. Each savings depositor is entitled to cast
votes in proportion to the size of their account balances or fraction thereof
held in a withdrawable deposit account of the Association, and each borrower
member (hereinafter "borrower") is entitled to one vote in addition to the votes
(if any) to which such person is entitled in such borrower's capacity as a
savings depositor of the Association. All of the interests held by a savings
depositor in the Association cease when such depositor closes his accounts with
the Association.
The Holding Company was incorporated in September 1996 under the laws
of the State of Delaware as a general business corporation in order to act as a
savings institution holding company. The Holding Company has an authorized
capital structure of four million shares of common stock and 250,000 shares of
preferred stock.
PROPOSED TRANSACTION
Management of the Association believes that the Stock Conversion offers
a number of advantages which will be important to the future growth and
performance of the Converted Savings Bank in that it is intended to (i) provide
substantially increased capital for investment in its business to expand the
operations of the Converted Savings Bank; (ii) provide future access to capital
markets; (iii) enhance the ability to diversify its operations into new business
activities; and (iv) afford depositors and others the opportunity to become
stockholders of the Converted Savings Bank and thereby participate more directly
in any future growth of the Converted Savings Bank.
Accordingly, pursuant to the Plan, the Association will undergo the
Stock Conversion whereby it will be converted from a federally-chartered mutual
savings and loan association to a federally-chartered stock savings bank. As
part of the Stock Conversion, the Association will amend its existing mutual
savings bank charter and bylaws to read in the form of a Federal Stock Charter
and Bylaws. The Converted Savings Bank will then issue to the Holding Company
shares of the Converted Savings Bank's common stock, representing all of the
shares of capital stock to be issued by the Converted Savings Bank in the
Conversion, in exchange for payment by the Holding Company of 50% of the net
proceeds realized by the Holding Company from such sale of its Common Stock,
less amounts necessary to fund the Employee Stock Ownership Plan of the
Association, or such other percentage as the Office of Thrift Supervision
("OTS") may authorize or require.
Boards of Directors
Empire Federal Savings and
Loan Association
Empire Federal Bancorp, Inc.
_________, 1996
Page 3
Also pursuant to the Plan, the Holding Company will offer its shares of
Common Stock for sale in a Subscription Offering and, if necessary, a Direct
Community Offering. The aggregate purchase price at which all shares of Common
Stock will be offered and sold pursuant to the Plan and the total number of
shares of Common Stock to be offered in the Conversion will be determined by the
Boards of Directors of the Association and the Holding Company on the basis of
the estimated pro forma market value of the Converted Savings Bank as a
subsidiary of the Holding Company. The estimated pro forma market value will be
determined by an independent appraiser. Pursuant to the Plan, all such shares
will be issued and sold at a uniform price per share. The Stock Conversion,
including the sale of newly issued shares of the stock of the Converted Savings
Bank to the Holding Company, will be deemed effective concurrently with the
closing of the sale of the Common Stock.
Under the Plan and in accordance with regulations of the OTS, the
shares of Common Stock will first be offered through the Subscription Offering
pursuant to nontransferable subscription rights on the basis of preference
categories in the following order of priority:
(1) Eligible Account Holders;
(2) Tax-Qualified Employee Stock Benefit Plans of the Association;
(3) Supplemental Eligible Account Holders; and
(4) Other Members.
Any shares of Common Stock not subscribed for in the Subscription
Offering may be offered in the Direct Community Offering in the following order
of priority:
(a) Natural persons who are permanent residents of Park, Gallatin or
Sweet Grass Counties, Montana; and
(b) The general public.
Any shares of Common Stock not subscribed for in the Direct Community
Offering may be offered to certain members of the general public on a best
efforts basis by a selling group of broker dealers in a Syndicated Community
Offering.
The Plan also provides for the establishment of a Liquidation Account
by the Converted Savings Bank for the benefit of all Eligible Account Holders
and any Supplemental Eligible Account Holders in an amount equal to the net
worth of the Association as of the date of the latest statement of financial
condition contained in the final prospectus issued in connection with the
Conversion. The establishment of the Liquidation Account will not operate to
restrict the use or application of any of the net worth accounts of the
Converted Savings Bank. The account holders will have an inchoate interest in a
proportionate amount of the Liquidation Account with respect to each savings
account held and will be paid by the Converted Savings Bank in event of
liquidation prior to any liquidation distribution being made with respect to
capital stock.
Following the Stock Conversion, voting rights in the Converted Savings
Bank shall be vested in the sole holder of stock in the Converted Savings Bank,
which will be the Holding Company. Voting rights in the Holding Company after
the Stock Conversion will be vested in the holders of the Common Stock.
Boards of Directors
Empire Federal Savings and
Loan Association
Empire Federal Bancorp, Inc.
_________, 1996
Page 4
The Stock Conversion will not interrupt the business of the
Association. The Converted Savings Bank will continue to engage in the same
business as the Association immediately prior to the Stock Conversion, and the
Converted Savings Bank will continue to have its savings accounts insured by the
SAIF. Each depositor will retain a withdrawable savings account or accounts
equal in dollar amount to, and on the same terms and conditions as, the
withdrawable account or accounts at the time of Stock Conversion except to the
extent funds on deposit are used to pay for Common Stock purchased in the Stock
Conversion. All loans of the Association will remain unchanged and retain their
same characteristics in the Converted Savings Bank.
The Plan must be approved by the OTS and by an affirmative vote of at
least a majority of the total votes eligible to be cast at a meeting of the
Association's members called to vote on the Plan.
Immediately prior to the Conversion, the Association will have a
positive net worth determined in accordance with generally accepted accounting
principles.
OPINION
Based on the foregoing and in reliance thereon, and subject to the
conditions stated herein, it is our opinion that the following federal income
tax consequences will result from the proposed transaction.
1. The Stock Conversion will constitute a reorganization within
the meaning of Section 368(a)(1)(F) of the Internal Revenue
Code of 1986, as amended (the "Code"), and no gain or loss
will be recognized to either the Association or the
Converted Savings Bank as a result of the Stock Conversion
(see Rev. Rul. 80-105, 1980-1 C.B. 78).
2. The assets of the Association will have the same basis in
the hands of the Converted Savings Bank as in the hands of
the Association immediately prior to the Stock Conversion
(Section 362(b) of the Code).
3. The holding period of the assets of the Association to be
received by the Converted Savings Bank will include the
period during which the assets were held by the Association
prior to the Stock Conversion (Section 1223(2) of the Code).
4. No gain or loss will be recognized by the Converted Savings
Bank on the receipt of money from the Holding Company in
exchange for shares of common stock of the Converted Savings
Bank (Section 1032(a) of the Code). The Holding Company will
be transferring solely cash to the Converted Savings Bank in
exchange for all the outstanding capital stock of the
Converted Savings Bank and therefore will not recognize any
gain or loss upon such transfer. (Section 351(a) of the
Code; see Rev. Rul. 69-357, 1969-1 C.B. 101).
5. No gain or loss will be recognized by the Holding Company
upon receipt of money from stockholders in exchange for
shares of Common Stock (Section 1032(a) of the Code).
6. No gain or loss will be recognized by the Eligible Account
Holders and Supplemental Eligible Account Holders of the
Association upon the issuance of them of deposit accounts in
the Converted Savings Bank in the same dollar amount and on
the same terms and conditions in exchange for
Boards of Directors
Empire Federal Savings and
Loan Association
Empire Federal Bancorp, Inc.
_________, 1996
Page 5
their deposit accounts in the Association held immediately
prior to the Stock Conversion (Section 1001(a) of the Code;
Treas. Reg. ss.1.1001-1(a)).
7. The tax basis of the Eligible Account Holders' and
Supplemental Eligible Account Holders' savings accounts in
the Converted Savings Bank received as part of the Stock
Conversion will equal the tax basis of such account holders'
corresponding deposit accounts in the Association
surrendered in exchange therefor (Section 1012 of the Code).
8. Gain or loss, if any, will be realized by the deposit
account holders of the Association upon the constructive
receipt of their interest in the liquidation account of the
Converted Savings Bank and on the nontransferable
subscription rights to purchase stock of the Holding Company
in exchange for their proprietary rights in the Association.
Any such gain will be recognized by the Association deposit
account holders, but only in an amount not in excess of the
fair market value of the liquidation account and
subscription rights received. (Section 1001 of the Code;
Paulsen v. Commissioner, 469 U.S. 131 (1985); Rev. Rul.
69-646, 1969-2 C.B. 54.)
9. The basis of each account holder's interest in the
Liquidation Account received in the Stock Conversion and to
be established by the Converted Savings Bank pursuant to the
Stock Conversion will be equal to the value, if any, of that
interest.
10. No gain or loss will be recognized upon the exercise of a
subscription right in the Stock Conversion. (Rev. Rul.
56-572, 1956-2 C.B. 182).
11. The basis of the Common Stock acquired in the Stock
Conversion will be equal to the purchase price of such
stock, increased, in the case of such stock acquired
pursuant to the exercise of subscription rights, by the fair
market value, if any, of the subscription rights exercised
(Section 1012 of the Code).
12. The holding period of the Common Stock acquired in the Stock
Conversion pursuant to the exercise of subscription rights
will commence on the date on which the subscription rights
are exercised (Section 1223(6) of the Code). The holding
period of the Common Stock acquired in the Community
Offering will commence on the date following the date on
which such stock is purchased (Rev. Rul. 70-598, 1970-2 C.B.
168; Rev. Rul. 66-97, 1966-1 C.B. 190).
SCOPE OF OPINION
Our opinion is limited to the federal income tax matters described
above and does not address any other federal income tax considerations or any
federal, state, local, foreign or other tax considerations. If any of the
information upon which we have relied is incorrect, or if changes in the
relevant facts occur after the date hereof, our opinion could be affected
thereby. Moreover, our opinion is based on the case law, Code, Treasury
Regulations thereunder and Internal Revenue Service rulings as they now exist.
These authorities are all subject to change, and such change may be made with
retroactive effect. We can give no assurance that, after such change, our
opinion would not be different. We undertake no responsibility to update or
supplement our opinion. This opinion is not binding on the Internal Revenue
Service and there can be no assurance, and none is hereby given, that the
Internal Revenue Service will not take a position contrary to one or more of the
positions reflected in the foregoing opinion, or that our opinion will be upheld
by the courts if challenged by the Internal Revenue Service.
Boards of Directors
Empire Federal Savings and
Loan Association
Empire Federal Bancorp, Inc.
_________, 1996
Page 6
CONSENTS
We hereby consent to the filing of this opinion with the OTS as an
exhibit to the Application H-(e)1-S filed by the Holding Company with the OTS in
connection with the Conversion and the reference to our firm in the Application
H-(e)1-S under Item 110.55 therein.
We also hereby consent to the filing of this opinion with the SEC and
the OTS as exhibits to the Registration Statement and the Association's
Application for Conversion on Form AC ("Form AC"), respectively, and the
reference on our firm in the Prospectus, which is a part of both the
Registration Statement and the Form AC, under the headings "THE CONVERSION --
Effect of Conversion to Stock Form on Depositors and Borrowers of the
Association -- Tax Effects" and "LEGAL AND TAX OPINIONS."
Very truly yours,
BREYER & AGUGGIA