Jenkens & Gilchrist
A PROFESSIONAL CORPORATION AUSTIN, TEXAS
(512)499-3800
1445 ROSS AVENUE CHICAGO, ILLINOIS
Suite 3200 (312) 425-3900
Dallas, Texas 75202-2799 HOUSTON, TEXAS
(713) 951-3300
LOS ANGELES, CALIFORNIA
(214)855-4500 (310) 820-8800
FACSIMILE (214) 855-4300 NEW YORK, NEW YORK
(212) 704-6000
www.jenkens.com SAN ANTONIO, TEXAS
(210) 246-5000
WASHINGTON, D.C.
(202) 326-1500
January 14, 2004
Board of Directors
K-Fed Bancorp
Kaiser Federal Bank
1359 Grand Avenue
Covina, CA 91724
RE: CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE INITIAL PUBLIC STOCK
OFFERING OF K-FED BANCORP
Ladies and Gentlemen:
We have acted as counsel to Kaiser Federal Bank (the "Bank") and K-Fed
Bancorp (the "Company"), Covina, California in connection with the proposed
initial public stock offering by the Company pursuant to a Plan of Stock
Issuance (the "Plan"). In accordance with your request, set forth herein below
is the opinion of Jenkens & Gilchrist, A Professional Corporation, regarding the
federal income tax consequences of the Stock Offering under the Internal Revenue
Code of 1986, as amended (the "Code"), together with the statement of facts,
assumptions and documents upon which we have relied in rendering our opinion and
any limitations on our opinion. Capitalized terms used herein which are not
expressly defined herein shall have the meaning ascribed to them in the Plan.
A. STATEMENT OF FACTS
Pursuant to a Plan of Mutual Holding Reorganization the Bank reorganized
from a Federal mutual savings association to a Federal mutual holding company on
July 1, 2003. Pursuant to such reorganization plan, the Bank became a federal
stock savings association, which has all of its stock owned by the Company, a
federal stock holding company. The Company in turn is wholly owned by K-Fed
Mutual Holding Company (the "MHC"). Pursuant to the Plan, the Company proposes,
pursuant to the laws of the United States of America and the rules and
regulations of the Office of Thrift Supervision (the "OTS"), to conduct a stock
offering of up to but less than 50% of the aggregate of the total voting stock
of the Company (the "Stock Offering").
Jenkens & Gilchrist
A PROFESSIONAL CORPORATION
Board of Directors
January 14, 2004
Page 2
In adopting the Plan, the Board of Directors has determined that the Stock
Offering is advisable and in the best interest of the Bank, the Company, the
MHC, and its members. The Stock Offering will enable the Company and the Bank to
increase their capital through the issuance of capital stock without undertaking
a full conversion from a mutual to a stock form of organization. The Stock
Offering will not foreclose the opportunity to effect a conversion of MHC from a
mutual to a stock form of organization in the future. The Stock Offering will
significantly increase capital and enable the Bank to grow through internal
expansion, acquire other assets, branch offices, or financial institutions,
diversify into other related financial service activities and/or be used for
other business purposes. The Stock Offering will also enhance the Bank's ability
to render services to the public. The mutual holding company structure will
allow the Bank to minimize over-capitalization by providing the flexibility to
raise capital through the issuance of stock in a manner designed to meet the
Bank's growth needs, rather than in a single Stock Offering as required in a
standard mutual-to-stock conversion.
As required by OTS regulations, shares of Company common stock ("Company
Stock") will be offered for purchase pursuant to non-transferable subscription
rights on the basis of preference categories. The Company has established
various preference categories under which shares of Company Stock may be
purchased. The Company has also established Direct Community Offering and Public
Offering categories for the sale of shares not purchased under the preference
categories.
The first preference category is reserved for the Bank's Eligible Account
Holders. The Plan defines "Eligible Account Holder" as any person holding a
Qualifying Deposit. The Plan defines "Qualifying Deposit" as the aggregate
balance of all Deposit Accounts of an Eligible Account Holder in the Bank at the
close of business on October 31, 1999, which is at least equal to $50. If a
deposit account holder of the Bank qualifies as an Eligible Account Holder, he
or she will receive, without payment, non-transferable subscription rights to
purchase Company Stock in accordance with the Plan.
The second preference category is reserved for Tax-Qualified Employee Plans
of the Company or the Bank. The Plan defines Tax-Qualified Employee Plans as any
defined benefit plan or defined contribution plan, such as an employee stock
ownership plan, stock bonus plan, profit-sharing plan or other plan, which, with
its related trust meets the requirements to be "qualified" under Section 401 of
the Internal Revenue Code of 1986, as amended (the "Code"). Under the Plan, the
Company's and the Bank's tax-qualified employee stock benefit plans may
subscribe for up to 10% of the shares of Company Stock to be offered in the
Stock Offering.
The third preference category is reserved for the Bank's Supplemental
Eligible Account Holders. The Plan defines "Supplemental Eligible Account
Holder" as any person (other than the officers or directors of the Company and
their associates) holding a deposit in the Bank on the last day of the calendar
quarter preceding the approval of the Plan by the OTS
Jenkens & Gilchrist
A PROFESSIONAL CORPORATION
Board of Directors
January 14, 2004
Page 3
("Supplemental Eligibility Record Date"). The third preference category provides
that each Supplemental Eligible Account Holder will receive, without payment,
non-transferable subscription rights to purchase Company Stock in accordance
with the Plan to the extent that such shares of Company Stock are available
after satisfying subscriptions for shares in the first and second preference
categories above.
The Plan provides for limitations upon the purchase of Company Stock.
Specifically, any person by himself or herself may not purchase or subscribe
more than $150,000 of Company Stock. In addition, any person with an associate
or a group of persons acting in concert may purchase or subscribe for not more
than 5% of Company Stock sold pursuant to the Plan. However, Tax-Qualified
Employee Plans may purchase up to 10% of the total share of Company Stock
issued. Subject to any required regulatory approval and the requirements of
applicable laws and regulations, the Company may increase or decrease any of the
purchase limitations set forth herein at any time.
The Company will take not less than 50% of the net proceeds from the sale
of Company Stock and contribute it as a capital contribution to the Bank. The
Bank will pay expenses of the Stock Offering solely attributable to it, if any.
Further, the Company will pay its own expenses of the Stock Offering and will
not pay any expenses solely attributable to the purchasers of Company Stock.
B. DOCUMENTS REVIEWED
In connection with the opinions rendered below, we have reviewed and relied
upon the following documents:
1. the Registration Statement on Form S-1 filed by the Company;
2. the Application for Approval of Minority Stock Issuance on Form
MHC-2 filed by the Company;
3. the Plan; and
4. such other documents as we have deemed necessary or appropriate
for purposes of this opinion.
Jenkens & Gilchrist
A PROFESSIONAL CORPORATION
Board of Directors
January 14, 2004
Page 4
C. ASSUMPTIONS
The following assumptions have been made in connection with the opinions
rendered below:
1. The Stock Offering will be implemented in accordance with the
terms of the Plan and all conditions precedent contained in the Plan shall be
performed prior to the consummation of the Stock Offering, without waiver of any
material provision thereof.
2. The Bank, the Company, and the MHC are not currently in
bankruptcy or involved in a bankruptcy proceeding. The proposed transaction does
not involve a receivership, foreclosure, or similar proceeding before a federal
or state agency involving a financial institution.
3. The Company, the MHC and the Bank will pay their own expenses of
the Stock Offering and will not pay any expenses solely attributable to the
Company stockholders.
4. There will be no purchase price advantage for the Bank's deposit
account holders who purchase Company Stock in the Stock Offering.
5. No creditors of the Bank have taken any steps to enforce their
claims against the Bank by instituting bankruptcy or other legal proceeding, in
either a court or appropriate regulatory agency, that would eliminate the
proprietary interests of the members of the Company prior to the Stock Offering.
6. On a per share basis, the purchase price of the Company Stock in
the Stock Offering will be equal to the fair market value of such stock at the
time of the completion of the proposed transaction.
7. No cash or property will be given to any member of the Bank in
lieu of subscription rights.
8. The factual representations in the Registration Statement are
true and correct as of the date hereof and will continue to be true and correct
as of the effective date of the Stock Offering.
9. All signatures on all documents reviewed by us are genuine, all
documents submitted to us as originals are authentic, all documents submitted to
us as copies are accurate, all information submitted to us is accurate and
complete, and all persons executing and
Jenkens & Gilchrist
A PROFESSIONAL CORPORATION
Board of Directors
January 14, 2004
Page 5
delivering originals or copies of documents examined by us are competent to
execute and deliver such documents.
D. OPINION
Based solely on the facts and assumptions set forth herein above and our
analysis and examination of applicable federal income tax laws, rulings,
regulations, and judicial precedents, we are of the opinion that if the
transaction is undertaken in accordance with the above assumptions:
1. The Company will recognize no gain or loss upon its receipt of
money in exchange for the issuance of shares of Company Stock. (Section 1032(a)
of the Code).
2. It is more likely than not that the fair market value of the
subscription rights to purchase Company Stock is zero. Accordingly, no gain or
loss will be recognized by Eligible Account Holders, Supplemental Eligible
Account Holders and Directors, Officers and Employees upon the distribution to
them of the nontransferable subscription rights to purchase shares of Company
Stock. Gain realized, if any, by such persons on the distribution to them of
nontransferable subscription rights to purchase shares of Company Stock will be
recognized but only in an amount not in excess of the fair market value of such
subscription rights. (Code Section 356(a)). Such persons will not realize any
taxable income as a result of the exercise by them of the nontransferable
subscription rights.
Our opinion under paragraph 2 above is predicated on the assumption that no
person shall receive any payment, whether in money or property, in lieu of the
issuance of subscription rights. Our opinion under paragraph 2 is based on the
position that it is more likely than not that the subscription rights to
purchase shares of Company Stock received by such persons have a fair market
value of zero. We note that the subscription rights will be granted at no cost
to the recipients, will be legally non-transferable and of short duration, and
will provide the recipient with the right only to purchase shares of Company
Stock at the same price to be paid by members of the general public in any
Direct Community Offering. Based on the foregoing, we believe it is more likely
than not that the nontransferable subscription rights to purchase Company Stock
have no value.
If the subscription rights are subsequently found to have a fair market
value, income may be recognized by various recipients of the subscription rights
(in certain cases, whether or not the rights are exercised) and the Company
and/or the Bank may be taxable on the distribution of the subscription rights.
Jenkens & Gilchrist
A PROFESSIONAL CORPORATION
Board of Directors
January 14, 2004
Page 6
E. LIMITATIONS
1. Except as otherwise indicated, the opinions expressed in Section
D of this letter are based upon the Code and its legislative history, the
Treasury regulations promulgated thereunder (the "Regulations"), judicial
decisions, and current administrative rulings and practices of the Internal
Revenue Service, all as in effect on the date of this letter. These authorities
may be amended or revoked at any time. Any such changes may or may not be
retroactive with respect to transactions entered into or contemplated prior to
the effective date thereof and could significantly alter the conclusions reached
in this letter. There is no assurance that legislative, judicial, or
administrative changes will not occur in the future. We assume no obligation to
update or modify this letter to reflect any developments that may occur after
the date of this letter.
2. The opinions expressed herein represents counsel's best legal
judgment and is not binding upon the Internal Revenue Service or the courts and
is dependent upon the accuracy and completeness of the documents we have
reviewed under the circumstances, the assumptions made and the factual
representations set forth above. We have made no independent investigation of
the facts contained in the documents and assumptions set forth above, the
factual representations set forth in the Plan or the Registration Statement. No
facts have come to our attention, however, that would cause us to question the
accuracy and completeness of such facts or documents in a material way. Any
material inaccuracy or incompleteness in these documents, assumptions or factual
representations could adversely affect the opinion stated herein.
3. We are expressing an opinion only as to those matters expressly
set forth in Section D above. No opinion should be inferred as to any other
matters. This opinion does not address the various state, local or foreign tax
consequences that may result from the Stock Offering or the other transactions
contemplated by the Plan. In addition, no opinion is expressed as to any federal
income tax consequence of the Stock Offering or the other transactions
contemplated by the Plan except as specifically set forth herein, and this
opinion may not be relied upon except with respect to the consequences
specifically discussed herein.
4. This opinion letter is issued solely for the benefit of the
parties to the Plan, the Eligible Account Holders and Supplemental Eligible
Account Holders and those who purchase Company Stock pursuant to the Plan,
including in the Direct Community Offering and the Syndicated Community
Offering, and no other person or entity may rely hereon without our express
written consent. This opinion letter may be filed as an exhibit to the
Application for Approval of a Minority Stock Issuance on Form MHC-2 of the
Company filed with the OTS, and the Registration Statement on Form S-1 of the
Company filed under the Securities Act of 1933, as amended. Furthermore, we
consent to the reference to Jenkens & Gilchrist, a Professional Corporation,
under the captions "Legal and Tax Opinions" and "Tax Effects of the Stock
Jenkens & Gilchrist
A PROFESSIONAL CORPORATION
Board of Directors
January 14, 2004
Page 7
Offering." In giving this consent, we do not thereby admit that we are within
the category of persons whose consent is required under section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Commission promulgated thereunder.
Respectfully submitted,
JENKENS & GILCHRIST
A Professional Corporation
By: /s/ Jeffry M. Blair
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Jeffry M. Blair, Authorized Signatory