May 7, 1998
Mr. James G. Stathos
Executive Vice President
and Chief Financial Officer
Mid-State Bank
1026 Grand Avenue
Arroyo Grande, California 93420
Mr. F. Dean Fletcher
Executive Vice President
and Chief Financial Officer
2739 Santa Maria Way
Santa Maria, California 93401
Dear Jim and Dean:
This opinion is being furnished to you in connection with the Agreement to
Merge and Plan of Reorganization dated as of January 29, 1998 and First
Amendment thereto ("the Agreement to Merge") among Mid-State Bank, BSM
Bancorp and Bank of Santa Maria, which is expected to be completed in the
third quarter of 1998 ("the Effective Date" and "the Effective Time" as
defined in the Agreement to Merge). Our understanding of the merger (the
"Merger") is as follows:
A. At the Effective Date and Time, Bank of Santa Maria shall be merged with
and into Mid-State Bank and Mid-State Bank will continue as the
surviving bank. All assets, rights, franchises, titles and interests of
Bank of Santa Maria shall be transferred to and vested in Mid-State
Bank. Mid-State Bank shall be liable for all liabilities of Bank of
Santa Maria.
B. At the Effective Date and Time, all shares of the common stock of
Mid-State Bank shall be converted solely into shares of BSM Bancorp
common stock. The shareholders of Mid-State Bank will receive shares of
BSM Bancorp common stock proportionate in value based on the terms
contained in Section 2.3 and 1.1 of the Agreement to Merge. (i) If the
Average Closing Price of Mid-State Bank stock is not less than $26.25
but not more than $30.50, each share of Mid-State Bank stock will be
exchanged for the number of shares of BSM Bancorp stock equal to the
reciprocal of the number determined by dividing $29.37 by the average
closing price. (ii) If the Average Closing Price is greater than
$30.50, each share of Mid-State Bank stock will be exchanged for 1.0385
shares of BSM Bancorp stock. (iii) If the average closing price is less
than $26.25, each share of Mid-State Bank stock will be exchanged for
0.8938 shares of BSM Bancorp stock;
Mr. James G. Stathos
Mr. F. Dean Fletcher
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May 7, 1998
provided, however that, if the Average Closing Price is less than
$26.25, Bancorp has a right to terminate the Agreement. If Bancorp
elects to so terminate, Mid-State has the right, so long as the Average
Closing Price exceeds $22.00, to reinstate the Agreement by adjusting
the Exchange Ratio downward based on the formula in (i) above.
In lieu of issuing fractional shares of BSM Bancorp common stock as a
result of the merger, common shareholders of Mid-State Bank will be
entitled to receive a cash payment equal to the fair market value of any
fraction of a share of BSM Bancorp common stock to which such holder
would be entitled but for this provision.
C. Immediately after the Effective Time, the Charter Documents of BSM
Bancorp shall be amended to change its name to "Mid-State Bancshares."
D. At the Effective Time, the Mid-State Option Plan will terminate and the
BSM Option Plan will continue in effect. BSM Bancorp shall grant
substitute stock options pursuant to the BSM Option Plan to each and
every officer and employee of Mid-State Bank who has at the Effective
Time an outstanding option under the Mid-State Bank Option Plan to
purchase shares of Mid-State Bank stock.
E. Pursuant to the S-4, each and every substitute option so granted by BSM
Bancorp to replace a Mid-State Bank option shall retain the vesting
schedule in the respective option agreement, and shall be exercisable
for that whole number of shares equal to the product of (A) the number
of Mid-State shares that were purchasable under the option prior to the
merger by (B) the exchange ratio as outlined in the S-4, rounded down to
the nearest whole number of shares. Further, the substitute option
shall have an exercise price equal to the quotient determined by
dividing (A) the exercise price of the Mid-State Option by (B) the
exchange ratio.
In addition, no other provisions of the option agreements are to be
changed. Therefore, each employee is not receiving an option, which has
any additional benefits beyond those provided in the original option
agreement.
RELIANCE ON CERTAIN FACTS, ASSUMPTIONS, AND REPRESENTATIONS
You have asked for our opinion on the federal income tax consequences to
Mid-State Bank, BSM Bancorp, Bank of Santa Maria, and the shareholders of
Mid-State Bank. In rendering our opinion, we have relied upon the accuracy
and completeness of the facts, assumptions, and information as contained
herein, in the Agreement to Merge (in each case, except as otherwise
Mr. James G. Stathos
Mr. F. Dean Fletcher
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May 7, 1998
provided, without regard to any limitations based on knowledge or belief),
including all exhibits attached thereto, the Registration Statement on Form
S-4, certain representations attached as Exhibit A, and all other related
documents. You have represented that such facts, assumptions, and
representations are true, correct, and complete. However, we have not
independently audited or otherwise verified any of these facts, assumptions,
or representations. A misstatement or omission of any fact or a change or
amendment in any of the facts, assumptions, or representations upon which we
have relied may require a modification of all or a part of this opinion. In
addition, our opinion is based on such facts, assumptions, and
representations as represented to us as of the date of this letter. Any
changes in the facts, assumptions, or representations upon which we have
relied between the date of this letter and the actual closing of the
transaction may require a modification of all or part of this opinion. If
needed, we will update our opinion as of the date of the Merger. However, we
will require a representation that none of the facts or representations have
changed between the date of this letter and the date of the Merger.
Otherwise, we have no responsibility to update this opinion for events,
transactions, circumstances, or changes in any of such facts, assumptions, or
representations occurring after this date.
PREMISE OF OPINION
Our opinion is based solely on our interpretation of the Internal Revenue
Code of 1986, as amended (the "Code"); U.S. federal income tax regulations
thereunder ("Treasury Regulations"; relevant judicial decisions; guidance
issued by the Internal Revenue Service (the "Service") including revenue
rulings and revenue procedures; and other authorities that we deemed
relevant; in each case as of the date of this opinion.
U.S. federal income tax laws and regulations, and the interpretations
thereof, are subject to change, which changes could adversely affect this
opinion. If there is a change in the Code, the regulations thereunder, the
administrative guidance issued thereunder, or in the prevailing judicial
interpretation of the foregoing, the opinion expressed herein would
necessarily have to be reevaluated in light of any such changes. If
requested, we will update our opinion as of the date of the Merger.
Otherwise, our opinion is as of the date of this letter and we have no
responsibility to update this opinion for changes in applicable law or
authorities occurring after this date.
Our opinion does not address the potential tax consequences of any
transactions, events, or circumstances other than the transaction as
described herein. In addition, our opinion is limited to the U.S. federal
income tax consequences set forth below. Our opinion does not address any
Mr. James G. Stathos
Mr. F. Dean Fletcher
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May 7, 1998
non-income, state, local, or foreign tax consequences of the transaction. We
also express no opinion on non-income tax issues, such as corporate law or
securities matters.
This opinion does not address the U.S. federal income tax consequences of the
transaction to any Mid-State Bank common shareholder that has a special
status, including (without limitation) insurance companies; financial
institutions; broker-dealers; foreign corporations; estates and trusts not
subject to U.S. federal income tax on their income regardless of source;
persons who are not citizens or residents of the United States; and persons
who acquired stock as the result of the exercise of a compensatory stock
option, pursuant to an employee stock purchase plan, or otherwise as
compensation.
Our opinion is not binding on the Service, and there can be no assurance that
the Service will not take positions contrary to such opinion or will not be
successful in sustaining such contrary positions. However, should the
Service challenge the U.S. federal income tax treatment of the matters
discussed below, our opinion reflects our assessment of the probable outcome
of litigation based solely on an analysis of the existing authorities
relating to such matters.
This opinion is solely for the benefit of Mid-State Bank, BSM Bancorp and
Bank of Santa Maria and their respective shareholders and is not intended to
be relied upon by anyone other than Mid-State Bank, BSM Bancorp and Bank of
Santa Maria and their respective shareholders. Due to the individual nature
of the tax consequences of the Merger, it is recommended that Mid-State Bank,
BSM Bancorp, and Bank of Santa Maria shareholders consult their own tax
advisor concerning the individual tax consequences to them. You do hereby
have our express consent to include copies of this letter as an exhibit to
the Agreement to Merge, as an exhibit in the Registration Statement on Form
S-4 for the proposed transaction and by making reference to us and our
opinion in the Proxy Statement-Prospectus forming a part of the Registration
Statement. Except to the extent expressly permitted hereby, and without the
prior written consent of this firm, this letter may not be quoted in whole or
in part or otherwise referred to in any documents or delivered to any other
person or entity.
OPINION
Based upon all of the foregoing, including representations of the management
of Mid-State Bank, BSM Bancorp and Bank of Santa Maria, it is our opinion
with respect to the Merger that:
Mr. James G. Stathos
Mr. F. Dean Fletcher
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May 7, 1998
a) The Merger will qualify as a reorganization under Code Section 368 and
Mid-State Bank, BSM Bancorp and Bank of Santa Maria each will be a
"party to a reorganization" within the meaning of Code Section 368(b).
b) No gain or loss will be recognized by Mid-State Bank, BSM Bancorp, or
Bank of Santa Maria as a result of the Merger.
c) No gain or loss will be recognized by a shareholder of Mid-State Bank on
the receipt solely of BSM Bancorp common stock in exchange for
his/her/its shares of Mid-State Bank common stock.
d) The tax basis of the assets in Mid-State Bank after the Merger will be
the same as the tax basis of the assets held by Mid-State Bank and Bank
of Santa Maria immediately before the Merger.
e) The tax basis of the shares of BSM Bancorp common stock to be received
by shareholders of Mid-State Bank pursuant to the Merger will be the
same as the basis of the shares of Mid-State Bank common stock
surrendered in exchange therefor, decreased by the amount of basis
allocated to any cash received in lieu of fractional shares that are
hypothetically received by the Mid-State Bank shareholders and redeemed
for cash.
f) The holding period of the shares of BSM Bancorp common stock to be
received by shareholders of Mid-State Bank pursuant to the Merger will
include the holding period of shares of Mid-State Bank common stock
exchanged therefor, provided that the shares of Mid-State Bank common
stock are held as capital assets on the effective date of the Merger.
g) The payment of cash to shareholders of Mid-State Bank in lieu of
fractional share interests of BSM Bancorp common stock will be treated
as if the fractional shares were distributed as part of the exchange and
then redeemed by BSM Bancorp. These cash payments will be treated as
having been received as a distribution in redemption of that fractional
share interest subject to the conditions and limitations of Code Section
302. If a fractional share of BSM Bancorp common stock would have
constituted a capital asset in the hands of a redeeming shareholder, and
the actual receipt and redemption of such fractional interest would have
qualified for sale or exchange treatment, any resulting gain or loss
will be characterized as capital gain or loss in accordance with the
provisions and limitations of Subchapter P of Chapter 1 of the Code.
Mr. James G. Stathos
Mr. F. Dean Fletcher
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May 7, 1998
h) No gain or loss will be recognized for federal income tax purposes by
the holders of outstanding stock options granted under Mid-State Bank's
stock option plan as a result of the granting, pursuant to the Merger,
of substitute options pursuant to BSM Bancorp's stock plan.
i) The granting of any substitute stock option, under the BSM Option Plan,
to a holder of a Mid-State Bank stock option, under the Mid-State Option
Plan, pursuant to the Merger under the provisions discussed above, will
not be deemed a "modification" of any Mid-State Bank existing incentive
stock option under Code Section 424(h)(3).
As a result of the complexity of the tax laws, and because the tax
consequences to any particular shareholder may be affected by matters not
discussed herein, it is recommended that each shareholder of Mid-State Bank
consult his/her/its personal tax advisor concerning the applicable federal,
state and local income tax consequences of the Merger.
We express no opinion on the impact, if any, on any other sections of the
Code, other than that as stated immediately above, and neither this opinion
nor any prior statements are intended to imply or to be an opinion on any
other matters.
/s/ Arthur Andersen LLP
May 7, 1998
Mr. James G. Stathos
Mr. F. Dean Fletcher
Page 7
May 7, 1998
EXHIBIT A
Representations
Representatives of Mid-State Bank have made the following representations to
us:
a) The fair market value of the BSM Bancorp stock and other consideration
received by each Mid-State Bank shareholder will be approximately equal
to the fair market value of the Mid-State Bank stock surrendered in the
exchange.
b) Following the Merger, Mid-State Bank will hold at least 90 percent of
the fair market value of the net assets and at least 70 percent of the
fair market value of the gross assets held by Mid-State Bank immediately
before the Merger. Following the Merger, Mid-State Bank will hold at
least 90% of the fair market value of the net assets and at least 70% of
the fair market value of the gross assets held by Bank of Santa Maria
immediately prior to the Merger. For purposes of this representation,
amounts paid by Mid-State Bank or Bank of Santa Maria to dissenters,
amounts paid by Mid-State Bank or Bank of Santa Maria to shareholders
who receive cash or other property, amounts used by Mid-State Bank or
Bank of Santa Maria to pay reorganization expenses, and all redemptions
and distributions (except for regular, normal dividends) made by
Mid-State Bank or Bank of Santa Maria immediately preceding the Merger,
will be included as assets of Mid-State Bank or Bank of Santa Maria,
respectively, immediately prior to the Merger.
c) There is no intercorporate indebtedness existing between Mid-State Bank,
on the one hand, and BSM Bancorp and Bank of Santa Maria, on the other
hand (or any member of their respective federal income tax consolidated
groups).
d) The Merger will qualify as a merger under applicable state law.
e) Upon merger of Bank of Santa Maria into Mid-State Bank, all assets,
obligations and liabilities of Bank of Santa Maria will be transferred
to Mid-State Bank. All Mid-State Bank shareholders will become
shareholders of BSM Bancorp.
Mr. James G. Stathos
Mr. F. Dean Fletcher
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May 7, 1998
f) Mid-State Bank intends that the Merger will qualify as a tax-free
reorganization within the meaning of Code Section 368(a)(1)(A) and Code
Section 368(a)(2)(E) and will report it as such in accordance with
Treasury Regulation Section 1.368-3.
g) The payment of cash in lieu of fractional shares of BSM Bancorp stock is
solely for the purpose of avoiding the expense and inconvenience to BSM
Bancorp of issuing fractional shares, and does not represent separately
bargained-for consideration. The total cash consideration that will be
paid in the transaction to the Mid-State Bank shareholders instead of
issuing fractional shares of BSM Bancorp stock will not exceed one
percent of the total consideration that will be issued in the
transaction to the Mid-State Bank shareholders in exchange for their
shares of stock. The fractional share interests of each Mid-State Bank
shareholder will be aggregated, and no Mid-State Bank shareholder will
receive cash in an amount greater than the value of one full share of
BSM Bancorp stock.
h) None of the compensation received by any shareholder-employees of
Mid-State Bank will be separate consideration for, or allocable to, any
of their shares of Mid-State Bank stock; none of the shares of BSM
Bancorp stock received by any 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.
i) Mid-State Bank understands and intends that Arthur Andersen LLP will
rely on these facts and representations and assume them to be accurate
as of the date hereof, without further inquiry on its part, in rendering
its opinion with respect to the Merger and that the inaccuracy of any of
these representations may adversely affect these opinions.
j) BSM Bancorp will issue its stock directly to the Mid-State Bank
shareholders as consideration in the Merger.
k) There is no plan or intention by the shareholders of Mid-State Bank who
own 5 percent or more of Mid-State Bank's stock, and to the best of the
knowledge of the management of Mid-State Bank, there is no plan or
intention on the part of the remaining shareholders of Mid-State Bank,
to sell, exchange, or otherwise dispose of a number of shares of BSM
Bancorp stock received in the Merger that would reduce Mid-State Bank
shareholders' ownership of BSM Bancorp stock to a number of shares
having a value, as of the Effective Date of the Merger, of less than 50
percent of the value of all of the formerly outstanding stock of
Mid-State Bank as of the same date. For purposes of this
representation, shares of
Mr. James G. Stathos
Mr. F. Dean Fletcher
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May 7, 1998
Mid-State Bank stock surrendered by dissenters or exchanged for cash in
lieu of fractional shares of BSM Bancorp stock will be treated as
outstanding Mid-State Bank stock on the date of the transaction.
Moreover, shares of Mid-State Bank stock and shares of BSM Bancorp stock
held by Mid-State Bank shareholders and otherwise sold, redeemed, or
disposed of prior or subsequent to the transaction will be considered in
making this representation. Finally, for purposes of this
representation, extraordinary distributions (i.e., distributions with
respect to stock other than regular, normal dividends), prior to or in
connection with the transaction, will be taken into account. The
preceding representation with respect to Mid-State Bank shareholders who
own 5 percent or more of Mid-State Bank stock is based on
representations that Mid-State Bank has received from such shareholders.
l) Mid-State Bank has no plan or intention to issue additional shares of
its stock that would result in BSM Bancorp losing control of Mid-State
Bank within the meaning of Code Section 368(c).
m) Mid-State Bank and the shareholders of Mid-State Bank will pay their
respective expenses, if any, incurred in connection with the Merger.
n) At the time of the Merger, Mid-State Bank will not have outstanding any
warrants, options, convertible securities, or any other type of right
pursuant to which any person could acquire stock in Mid-State Bank that,
if exercised or converted, would affect BSM Bancorp's acquisition or
retention of control of Mid-State Bank, as defined in Code Section
368(c).
o) Mid-State Bank is not an investment company as defined in Code Section
368(a)(2)(F)(iii) and Code Section 368(a)(2)(F)(iv).
p) On the date of the Merger, the fair market value of the assets of
Mid-State Bank will exceed the sum of its liabilities, plus the amount
of liabilities, if any, to which the assets are subject.
q) Mid-State Bank is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Code 368(a)(3)(A).
r) Following the Merger, Mid-State Bank will continue its historic
businesses or use a significant portion of its historic business assets
in a business.
s) In the Merger, shares of Mid-State Bank stock representing control of
Mid-State Bank, as defined in Code Section 368(c), will be exchanged
solely for voting stock of BSM Bancorp. For purposes of this
representation, shares of Mid-State Bank exchanged for cash or other
Mr. James G. Stathos
Mr. F. Dean Fletcher
Page 10
May 7, 1998
property originating with BSM Bancorp will be treated as outstanding
Mid-State Bank stock on the date of the transaction.
t) The Merger is being undertaken for reasons germane to the continuance of
the business of BSM Bancorp, Bank of Santa Maria, and Mid-State Bank.
u) BSM Bancorp will change its name to Mid-State Bancshares immediately
after the Effective Time.
v) BSM Bancorp will not change its name to Mid-State Bancshares unless the
Merger is consummated.
Representatives of BSM Bancorp have made the following representations to us:
a) The fair market value of the BSM Bancorp stock and other consideration
received by each Mid-State Bank shareholder will be approximately equal
to the fair market value of the Mid-State Bank stock surrendered in the
exchange.
b) Following the Merger, Mid-State Bank will hold at least 90 percent of
the fair market value of the net assets and at least 70 percent of the
fair market value of the gross assets held by Mid-State Bank immediately
before the Merger. Following the Merger, Mid-State Bank will hold at
least 90% of the fair market value of the net assets and at least 70% of
the fair market value of the gross assets held by Bank of Santa Maria
immediately prior to the Merger. For purposes of this representation,
amounts paid by Mid-State Bank or Bank of Santa Maria to dissenters,
amounts paid by Mid-State Bank or Bank of Santa Maria to shareholders
who receive cash or other property, amounts used by Mid-State Bank or
Bank of Santa Maria to pay reorganization expenses, and all redemptions
and distributions (except for regular, normal dividends) made by
Mid-State Bank or Bank of Santa Maria immediately preceding the Merger,
will be included as assets of Mid-State Bank or Bank of Santa Maria,
respectively, immediately prior to the Merger.
c) There is no intercorporate indebtedness existing between Mid-State Bank,
on the one hand, and BSM Bancorp and Bank of Santa Maria, on the other
hand (or any member of their respective federal income tax consolidated
groups).
d) The Merger will qualify as a merger under applicable state law.
Mr. James G. Stathos
Mr. F. Dean Fletcher
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May 7, 1998
e) Upon merger of Bank of Santa Maria into Mid-State Bank, all assets,
obligations and liabilities of Bank of Santa Maria will be transferred
to Mid-State Bank. All Mid-State Bank shareholders will become
shareholders of BSM Bancorp.
f) BSM Bancorp and Bank of Santa Maria intend that the Merger will qualify
as a tax-free reorganization within the meaning of Code Section
368(a)(1)(A) and Code Section 368(a)(2)(E) and will report it as such in
accordance with Treasury Regulation Section 1.368-3.
g) The payment of cash in lieu of fractional shares of BSM Bancorp stock is
solely for the purpose of avoiding the expense and inconvenience to BSM
Bancorp of issuing fractional shares, and does not represent separately
bargained-for consideration. The total cash consideration that will be
paid in the transaction to the Mid-State Bank shareholders instead of
issuing fractional shares of BSM Bancorp stock will not exceed one
percent of the total consideration that will be issued in the
transaction to the Mid-State Bank shareholders in exchange for their
shares of stock. The fractional share interests of each Mid-State Bank
shareholder will be aggregated, and no Mid-State Bank shareholder will
receive cash in an amount greater than the value of one full share of
BSM Bancorp stock.
h) None of the compensation received by any shareholder-employees of
Mid-State Bank will be separate consideration for, or allocable to, any
of their shares of Mid-State Bank stock; none of the shares of BSM
Bancorp stock received by any 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.
i) BSM Bancorp and Bank of Santa Maria understand and intend that Arthur
Andersen LLP will rely on these facts and representations and assume
them to be accurate as of the date hereof, without further inquiry on
its part, in rendering its opinion with respect to the Merger and that
the inaccuracy of any of these representations may adversely affect
these opinions.
j) BSM Bancorp will issue its stock directly to the Mid-State Bank
shareholders as consideration in the merger.
k) BSM Bancorp and Bank of Santa Maria will pay their respective expenses,
if any, incurred in connection with the Merger.
Mr. James G. Stathos
Mr. F. Dean Fletcher
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May 7, 1998
l) Prior to the Merger, BSM Bancorp will be in control of Bank of Santa
Maria within the meaning of Code Section 368(c) (i.e., own stock
possessing at least 80 percent of the total combined voting power of all
classes of stock entitled to vote, and own at least 80 percent of the
total number of shares of all other classes of stock of the
corporation).
m) Neither BSM Bancorp nor any related party has any plan or intention to
reacquire any of its stock issued in the Merger. For purposes of this
opinion, a "related party" includes any corporation (i) that is a member
of any affiliated group, as defined in Code Section 1504 (determined
without regard to Code Section 1504(b)), of which BSM Bancorp is a
member, or (ii) whose purchase of BSM Bancorp stock would be treated as
a distribution in redemption of stock of BSM Bancorp under Code Section
304(a)(2) (determined without regard to Treasury Regulation Section
1.1502-80).
n) The liabilities of Bank of Santa Maria assumed by Mid-State Bank and the
liabilities to which the transferred assets of Bank of Santa Maria are
subject were incurred by Bank of Santa Maria in the ordinary course of
its business, and the principal purpose of such assumption is not the
avoidance of federal income tax.
o) BSM Bancorp has no plan or intention to liquidate Mid-State Bank; to
merge Mid-State Bank with or into another corporation; to sell or
otherwise dispose of the stock of Mid-State Bank, except for transfers
of stock to corporations controlled by BSM Bancorp; or to cause
Mid-State Bank to sell or otherwise dispose of any of its own assets or
any of the assets acquired from Bank of Santa Maria, except for
disposition made in the ordinary course of business or transfers of
assets to a corporation controlled by Mid-State Bank (within the meaning
of Code Section 368(a)(2)(C)).
p) BSM Bancorp does not own, nor has it owned during the past five years,
any shares of the stock of Mid-State Bank.
q) BSM Bancorp and Bank of Santa Maria are not investment companies as
defined in Code Sections 368(a)(2)(F)(iii) and 368(a)(2)(F)(iv).
r) Except for restrictions imposed by (i) SEC Rule 145 and (ii) agreements
in place that restrict certain current Mid-State Bank shareholders from
selling BSM Bancorp shares received in the Merger, the Mid-State Bank
common shareholders will have unrestricted rights of ownership of BSM
Bancorp stock received in the transaction, and their ability to retain
the BSM Bancorp common stock received in the Merger will not be limited
in any way.
Mr. James G. Stathos
Mr. F. Dean Fletcher
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May 7, 1998
s) It is our belief that following the Merger, Mid-State Bank will continue
its historic businesses or use a significant portion of its historic
business assets in a business.
t) In the Merger, shares of Mid-State Bank stock representing control of
Mid-State Bank, as defined in Code Section 368(c), will be exchanged
solely for voting stock of BSM Bancorp. For purposes of determining
whether or not BSM Bancorp has acquired control of Mid-State Bank under
Section 368(c) of the Code, it is necessary to determine the total
number of Mid-State Bank shares outstanding prior to the Merger. In
determining the total number of outstanding shares, any Mid-State Bank
shares that are exchanged for cash or other property will be treated as
outstanding prior to the Merger.
u) The Merger is being undertaken for business reasons relating to the
continuance of the overall banking business of BSM Bancorp, Bank of
Santa Maria, and Mid-State Bank.
v) BSM Bancorp will change its name to Mid-State Bancshares immediately
after the Effective Time.
w) BSM Bancorp will not change its name to Mid-State Bancshares unless the
Merger is consummated.