WRITER'S DIRECT DIAL NUMBER
(202) 274-2000
January 31, 2005
Board of Directors
Ohio Central Savings
6033 Perimeter Drive
Dublin, Ohio 43017
RE: FEDERAL INCOME TAX CONSEQUENCES RELATING TO CONVERSION OF THE
ASSOCIATION FROM A SUBSIDIARY OF A MUTUAL HOLDING COMPANY TO A
FEDERAL STOCK SAVINGS ASSOCIATION AND THE ACQUISITION OF THE
STOCK INSTITUTION'S STOCK BY A STOCK HOLDING COMPANY
Gentlemen:
In accordance with your request, set forth herein is the opinion of this
firm relating to the federal income tax consequences of the proposed conversion
of Ohio Central Savings (the "Association") from a subsidiary of a mutual
holding company to a federal stock savings association (the "Stock
Association"), and the acquisition of the Stock Association's capital stock by
OC Financial, Inc. (the "Holding Company"), pursuant to the plan of conversion
and reorganization adopted by the Board of Directors on December 14, 2004 (the
"Plan of Conversion"). As part of the Plan of Conversion, the Association will
redeem its stock from TFS Financial Corporation ("TFS"), a subsidiary of Third
Federal Savings and Loan Association of Cleveland, MHC (the "MHC") a mutual
holding company, for agreed upon consideration as part of a Divestiture
Agreement ("Divestiture Agreement"), dated as of December 13, 2004, by and among
TFS, the MHC, and the Association. The Association will then remutualize.
Pursuant to the Plan of Conversion, the Holding Company will be formed and will
offer its common stock ("Common Stock") to depositors of the Association and
members of the public in a subscription and community offering, the Association
will convert to stock form and the Holding Company will transfer more than fifty
percent of the offering proceeds that it receives in the offering to the
Association in exchange for its common stock. As a result, the Association will
become a wholly-owned subsidiary of the Holding Company. The proposed
transactions are described in the Prospectus and the Plan of Conversion, and the
tax consequences of the proposed transaction will be as set forth in the section
of this letter entitled "OPINION."
For purposes of this opinion, we have examined such documents and
questions of law as we have considered necessary or appropriate.
Board of Directors
Ohio Central Savings
January 31, 2005
Page 2
In issuing our opinion, we have assumed that the Plan of Conversion has
been duly and validly authorized and has been approved and adopted by the board
of directors of the Association at a meeting duly called and held; that the
Association will comply with the terms and conditions of the Plan of Conversion,
and that the various representations and warranties which are provided to us are
accurate, complete, true and correct. We have further assumed the absence of
adverse facts not apparent from the face of the instruments and documents we
examined. Accordingly, we express no opinion concerning the effect, if any, of
variations from the foregoing. We specifically express no opinion concerning tax
matters relating to the Plan of Conversion under state and local tax laws and
under federal income tax laws except on the basis of the documents and
assumptions described above. Capitalized terms used herein but not defined
herein shall have the same meaning as set forth in the Plan of Conversion.
For purposes of this opinion, we are also relying on the representations
as to factual matters that were provided to us by the Association. In issuing
the opinion set forth below, we have relied solely on existing provisions of the
Internal Revenue Code of 1986, as amended (the "Code"); existing and proposed
Treasury Regulations (the "Regulations") thereunder; current administrative
rulings, notices and procedures; and court decisions. Such laws, regulations,
administrative rulings, notices and procedures and court decisions are subject
to change at any time. Any such change could affect the continuing validity of
the opinions set forth below. 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.
The Association, with its headquarters in Dublin, Ohio, is a
federally-chartered savings association that is a subsidiary of TFS, which in
turn is wholly-owned by the MHC. As a mutual holding company, the proprietary
interest in the reserves and undivided profits of the MHC belong to the deposit
account holders of the Association, hereinafter sometimes referred to as
"depositors," as well as the depositors of Third Federal Savings and Loan
Association of Cleveland, the MHC's other saving association subsidiary. A
depositor of the Association has a right to share, pro rata, with respect to the
withdrawal value of his respective deposit account in any liquidation proceeds
distributed in the event the MHC is ever liquidated. In addition, a depositor of
the Association is entitled to interest in his account balance as fixed and paid
by the Association. As discussed above, the Association will redeem its stock
from TFS for agreed upon consideration as part of a Divestiture Agreement and
will then remutualize.
In order to provide organizational and economic strength to the
Association, the Board of Directors has adopted the Plan of Conversion whereby
the Association will, following its remutualization, convert itself into a
federally-chartered stock savings association, the stock of which will be held
entirely by the Holding Company. The Holding Company will acquire the stock of
the Stock Association by purchase, in exchange for a portion of the proceeds
Board of Directors
Ohio Central Savings
January 31, 2005
Page 3
from the Conversion. The Holding Company will apply to the Office of Thrift
Supervision ("OTS") to retain up to 50% of the net proceeds received from the
Conversion. The aggregate sales price of the Common Stock will be based on an
independent appraiser's valuation of the estimated pro forma market value of the
Holding Company and the Stock Association. The Conversion and sale of the Common
Stock will be subject to the applicable regulatory approval and the approval by
the affirmative vote of a majority of the votes eligible to be cast by the
depositors (also referred to as "Members") of the Association.
The Association will establish at the time of Conversion a liquidation
account in an amount equal to its net worth as of the latest practicable date
prior to Conversion. The liquidation account will be maintained by the Stock
Association for the benefit of the Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain their deposit accounts at the
Stock Association. Each Eligible Account Holder and Supplemental Eligible
Account Holder shall, with respect to his Deposit Account, hold a related
inchoate interest in a portion of the liquidation account balance in relation to
his Deposit Account balance on the Eligibility Record Date and/or Supplemental
Eligibility Record Date or to such balance as it may be subsequently reduced, as
provided in the Plan of Conversion.
In the unlikely event of a complete liquidation of the Stock Association
(and only in such event), following all liquidation payments to creditors
(including those to account holders to the extent of their deposit accounts),
each Eligible Account Holder and Supplemental Eligible Account Holder will be
entitled to receive a liquidating distribution from the liquidation account, in
the amount of the then adjusted subaccount balance for his Deposit Accounts then
held, before any liquidation distribution may be made to any holders of the
Stock Association's capital stock. No merger, consolidation, purchase of bulk
assets with assumption of Deposit Accounts and other liabilities, or similar
transaction with a Federal Deposit Insurance Corporation ("FDIC") institution,
in which the Stock Association is not the surviving institution, shall be deemed
to be a complete liquidation for this purpose. In such transactions, the
liquidation account shall be assumed by the surviving institution.
Following the Conversion, voting rights in the Stock Association will
rest exclusively with the sole stockholder of the Stock Association, which will
be the Holding Company. Voting rights in the Holding Company will rest
exclusively with the holders of its capital stock. 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 the Conversion, except to the extent funds or deposits are used to pay for
Holding Company Common Stock. All loans of the Association will remain unchanged
and retain their same characteristics in the Stock Association after the
Conversion. Following the Conversion, the Stock Association will continue to
engage in the same business as the Association immediately
Board of Directors
Ohio Central Savings
January 31, 2005
Page 4
prior to the Conversion, and the Stock Association will continue to have its
savings accounts insured by the Federal Deposit Insurance Corporation up to
applicable limits.
Immediately prior to the Conversion, the Association will have a
positive net worth determined in accordance with generally accepted accounting
principles.
LIMITATIONS ON OPINION
Our opinions expressed herein are based upon current provisions of the
Internal Revenue Code of 1986, as amended ("Code"), including applicable
regulations thereunder and current judicial and administrative authority. Any
future amendments to the Code or applicable regulations, or new judicial
decisions or administrative interpretations, any of which could be retroactive
in effect, could cause us to modify our opinion. No opinion is expressed herein
with regard to the state or city tax consequences of the Conversion.
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 Conversion:
1. The distribution by the Association of $792,000 in redemption of
all of its outstanding stock from TFS within the meaning of
Section 302 of the Code, will result in no gain or loss to be
recognized by the Association on such distribution. No opinion
is rendered herein as to the tax consequences of the redemption
to TFS. The complete redemption of all Association's stock will
result in deconsolidation from the MHC consolidated group. Such
deconsolidation will result in acceleration of deferred
inter-company transactions, if any. The redemption will result
in remutualization of the Association.
2. Contemporaneously with the redemption, the Association will
remutualize by constructively converting its charter to a mutual
charter in a reorganization that qualifies as a recapitalization
under Section 368(a)(1)(E) of the Code. (CF. Rev. Rul. 2003-48,
2003-19 I.R.B. 863)
3. Pursuant to the Conversion, the re-conversion of the Association
from a mutual entity to a stock savings association is also a
tax-free reorganization since it is (i) a recapitalization
within the meaning of Section 368(a)(1)(E) of the Code (see Rev.
Rul. 2003-48, 2003-19 I.R.B. 863 quoting Helvering v. Southwest
Consol. Corp., 315 U.S. 194, 202 (1942)); and (ii) a mere change
in identity, form or place
Board of Directors
Ohio Central Savings
January 31, 2005
Page 5
of organization within the meaning of Section 368(a)(1)(F) of
the Code (see Rev. Rul. 80-105, 1980-1 C.B. 78). Neither the
Association nor the Stock Association shall recognize gain or
loss as a result of the Conversion. The Association and the
Stock Association shall each be "a party to a reorganization"
within the meaning of Section 368(b) of the Code.
4. No gain or loss shall be recognized by the Stock Association or
the Holding Company on the receipt by the Stock Association of
money from the Holding Company in exchange for shares of the
Stock Association's capital stock or by the Holding Company upon
the receipt of money from the sale of its Common Stock (Section
1032(a) of the Code).
5. The basis of the assets of the Association in the hands of the
Stock Association shall be the same as the basis of such assets
in the hands of the Association immediately prior to the
Conversion (Section 362(b) of the Code).
6. The holding period of the assets of the Association in the hands
of the Stock Association shall include the period during which
the Association held the assets (Section 1223(2) of the Code).
7. No gain or loss shall be recognized by the Eligible Account
Holders and the Supplemental Eligible Account Holders of the
Association on the issuance to them of withdrawable deposit
accounts in the Stock Association plus interests in the
liquidation account of the Stock Association in exchange for
their deposit accounts in the Association or to the other
depositors on the issuance to them of withdrawable deposit
accounts (Section 354(a) of the Code).
8. It is more likely than not that the nontransferable subscription
rights to purchase Common Stock have no value, based on the fact
that these rights are acquired by the recipients without cost,
are nontransfereable and of short duration, and afford the
recipients the right only to purchase the Common Stock at a
price equal to its estimated fair market value, which will be
the same price as the subscription price for the shares of
Common Stock in the offering. Accordingly, no gain or loss will
be recognized by Eligible Account Holders and Supplemental
Eligible Account Holders upon the distribution to them of the
nontransferable subscription rights to purchase shares of Common
Stock in the Holding Company, provided that the amount to be
paid for Common Stock is equal to the fair market value of the
Common Stock. (Section 356(a)). Eligible Account Holders and
Supplemental Eligible Account Holders will not realize any
taxable income as a result of the exercise by them of the
nontransferable subscription rights (Rev. Rul. 56-572, 1956-2
C.B. 182).
Board of Directors
Ohio Central Savings
January 31, 2005
Page 6
9. The basis of the deposit accounts in the Stock Association to be
received by the Eligible Account Holders, Supplemental Eligible
Account Holders and other depositors of the Association will be
the same as the basis of their deposit accounts in the
Association surrendered in exchange therefor (Section 358(a)(1)
of the Code). The basis of the interests in the liquidation
account of the Stock Association to be received by the Eligible
Account Holders and Supplemental Eligible Account Holders of the
Association shall be zero (Rev. Rul. 71-233, 1971-1 C.B. 113).
10. It is more likely than not that the basis of the Holding Company
Common Stock to its stockholders will be the purchase price
thereof (Section 1012 of the Code). The holding period of the
Common Stock purchased pursuant to the exercise of subscription
rights shall commence on the date on which the right to acquire
such stock was exercised (Section 1223(6) of the Code).
Our opinion under paragraph 8 above is predicated on the representation
that no person shall receive any payment, whether in money or property, in lieu
of the issuance of subscription rights. Our opinion under paragraphs 8 and 10 is
based on the position that the subscription rights to purchase shares of Common
Stock received by Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members have a fair market value of zero. We understand 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 Common Stock at the same price to be
paid by members of the general public in any Community Offering. We also note
that the Internal Revenue Service has not in the past concluded that
subscription rights have value. Based on the foregoing, we believe it is more
likely than not that the nontransferable subscription rights to purchase Common
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 Holding
Company and/or the Stock Association may be taxable on the distribution of the
subscription rights.
Board of Directors
Ohio Central Savings
January 31, 2005
Page 7
CONSENT
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form SB-2 and as amended ("Registration Statement") of
the Holding Company filed with the Securities and Exchange Commission with
respect to the Conversion and as an exhibit to the Application for Conversion on
Form AC and as amended ("Form AC") of the Association filed with the OTS with
respect to the Conversion. We also hereby consent to the references to this firm
in the prospectus which is a part of both the Registration Statement and the
Form AC.
USE OF OPINION
This opinion is rendered for the benefit of the Holding Company, the
Association, the Members and purchasers of the Holding Company Conversion Stock
in the Conversion and is not to be relied upon or used for any other purpose
without our prior written consent. We undertake an obligation to advise you of
changes that may occur after the date of this opinion.
Very truly yours,
/s/ LUSE GORMAN POMERENK & SCHICK
LUSE GORMAN POMERENK & SCHICK
A Professional Corporation