<PAGE> 1
As filed with the Securities and Exchange Commission on November 12, 1998
Registration No. 333-63271
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 3 TO THE
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SECURITY OF PENNSYLVANIA FINANCIAL CORP.
( NAME OF SMALL BUSINESS ISSUER IN ITS CERTIFICATE OF INCORPORATION)
DELAWARE 6036 BEING APPLIED FOR
(State or Other Jurisdiction of (Primary Standard Industrial (IRS Employer
Incorporation or Organization) Classification Code Number) Identification No.)
SECURITY SAVINGS ASSOCIATION OF HAZLETON
31 W. BROAD STREET 31 W. BROAD STREET
HAZLETON, PENNSYLVANIA 18201 HAZLETON, PENNSYLVANIA 18201
(717) 454-0824 (717) 454-0824
(Address and Telephone Number of (Address of Principal Place of Business
Principal Executive Offices) or Intended Principal Place of Business)
RICHARD C. LAUBACH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SECURITY SAVINGS ASSOCIATION OF HAZLETON
31 W. BROAD STREET
HAZLETON, PENNSYLVANIA 18201
(717) 454-0824
(Name, Address and Telephone Number of Agent for Service)
Copies to:
DOUGLAS P. FAUCETTE, ESQUIRE
THOMAS J. HAGGERTY, ESQUIRE
SCOTT A. BROWN, ESQUIRE
MULDOON, MURPHY & FAUCETTE
5101 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20016
(202) 362-0840
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: As soon as practicable after
this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act Registration Statement number of the earlier
effective Registration Statement for the same offering. / /
--
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. /___/
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. /___/
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /___/
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=====================================================================================================
Title of each Class of Amount to Proposed Maximum Proposed Maximum Amount of
Securities to be Registered be Registered Offering Price Aggregate Offering Registration Fee
Per Unit Price (1)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 1,944,075
$.01 par Value Shares(2) $10.00 $19,440,750 (3)
=====================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes shares to be issued to Security Savings Charitable Foundation,
a privately-formed charitable foundation.
(3) The Registration fee of $5,736 was previously paid upon the initial filing
of the Form SB-2 on September 11, 1998.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
<PAGE> 2
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with the General Corporation Law of the State of Delaware (being
Chapter 1 of Title 8 of the Delaware Code), Articles 10 and 11 of the
Registrant's Certificate of Incorporation provide as follows:
TENTH:
A. Each person who was or is made a party or is threatened to be made a party to
or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent, or in any other capacity while serving as a Director,
Officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment), against all expense, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered by
such indemnitee in connection therewith; provided, however, that, except as
provided in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
B. The right to indemnification conferred in Section A of this Article TENTH
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a Director or Officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, services to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article TENTH shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
Director, Officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid in full by
the Corporation within sixty days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an
<PAGE> 3
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses under this Article TENTH, or otherwise shall be on the
Corporation.
D. The rights to indemnification and to the advancement of expenses conferred in
this Article TENTH shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, the Corporation's Certificate
of Incorporation, Bylaws, agreement, vote of stockholders or Disinterested
Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect itself and
any Director, Officer, employee or agent of the Corporation or subsidiary or
Affiliate or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the Board
of Directors, grant rights to indemnification and to the advancement of expenses
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
ELEVENTH:
A Director of this Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
Director, except for liability: (i) for any breach of the Director's duty of
loyalty to the Corporation or its stockholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law; (iii) under Section 174 of the Delaware General Corporation Law; or (iv)
for any transaction from which the Director derived an improper personal
benefit. If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
Directors, then the liability of a Director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of the
Corporation shall not adversely affect any right or protection of a Director of
the Corporation existing at the time of such repeal or modification.
<PAGE> 4
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
SEC filing(1).....................................................$ 5,735
OTS filing fee......................................................14,400
Pennsylvania filing fees.............................................2,052
NASD filing fee(1)...................................................2,445
Stock Market listing fee(2).........................................15,000
Printing, postage and mailing......................................150,000
Legal fees and expenses (including underwriter's
counsel)......................................................200,000
Accounting fees and expenses........................................65,000
Appraisers' fees and expenses (including
business plan).................................................28,000
Marketing fees and selling commissions(2)..........................262,500
Underwriter's expenses..............................................10,000
Conversion agent fees and expenses..................................20,000
Transfer agent fees and expenses....................................10,000
Certificate printing.................................................5,000
Telephone, temporary help and other equipment.......................10,000
Miscellaneous.......................................................32,368
--------
TOTAL.............................................................$832,500
========
- ----------------------
(1) Unless otherwise noted, based upon the previous registration and issuance of
1,944,075 shares at $10.00 per share.
(2) Based upon the issuance of 1,511,617 shares at $10.00 per share.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
None.
<PAGE> 5
ITEM 27. EXHIBITS.
The exhibits filed as a part of this Registration Statement are as follows:
(a) List of Exhibits (filed herewith unless otherwise noted)
1.1 Engagement Letter between Security Savings Association of Hazleton and
Sandler O'Neill & Partners, L.P.*
1.2 Draft Form of Agency Agreement*
2.1 Amended Plan of Conversion (including the Stock Articles of Incorporation
and Bylaws of Security Savings Association of Hazleton)*
3.1 Certificate of Incorporation of Security of Pennsylvania Financial Corp.*
3.2 Bylaws of Security of Pennsylvania Financial Corp.*
3.3 Stock Articles of Incorporation and Bylaws of Security Savings
Association of Hazleton (See Exhibit 2.1 hereto)*
4.0 Draft Stock Certificate of Security of Pennsylvania Financial Corp.*
5.0 Opinion of Muldoon, Murphy & Faucette re: legality*
5.1 Opinion of Morris, Nichols, Arsht & Tunnell re: legality*
8.0 Opinion of Muldoon, Murphy & Faucette re: Federal Tax Matters
8.1 Opinion of Parente, Randolph, Orlando, Carey & Associates re: State Tax
Matters*
10.1 Form of Security Savings Association of Hazleton Trust Agreement *
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents *
10.3 Form of Security Savings Association of Hazleton Employment Agreement *
10.4 Form of Security of Pennsylvania Financial Corp. Employment Agreement *
10.5 Form of Security Savings Association of Hazleton Change in Control
Agreement *
10.6 Form of Security Savings Association of Hazleton Supplemental Executive
Retirement Plan *
10.7 Form of Security Savings Association of Hazleton Employee Severance
Compensation Plan *
23.1 Consent of Parente, Randolph, Orlando, Carey & Associates*
23.2 Consent of Muldoon, Murphy & Faucette*
23.3 Consent of Morris, Nichols, Arsht & Tunnell *
23.4 Consent and Subscription Rights Opinion of Keller & Company, Inc.*
24.1 Powers of Attorney *
27.0 Financial Data Schedule *
99.1 Appraisal Report of Keller & Company, Inc.(P)
99.2 Amended form of Security Savings Charitable Foundation Gift Instrument*
____________________
*Previously filed
(P) Previously filed pursuant to Rule 202 of Regulation S-T.
<PAGE> 6
ITEM 28. UNDERTAKINGS.
The small business issuer will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time
to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
The small business issuer will provide to the underwriter at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
<PAGE> 7
CONFORMED
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Hazleton, Commonwealth of Pennsylvania, on November 12, 1998.
Security of Pennsylvania Financial Corp.
By: /s/ Richard C. Laubach
-----------------------------------------------
Richard C. Laubach
President, Chief Executive Officer and Director
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
Name Title Date
---- ----- ----
/s/ Richard C. Laubach President, Chief Executive November 12, 1998
- ------------------------------ Officer and Director
Richard C. Laubach (principal executive
officer)
* Chief Financial Officer
- ------------------------------ and Treasurer
David P. Marchetti, Sr. (principal accounting and
financial officer)
* Director
- ------------------------------
Vincent L. Marusak
* Director
- ------------------------------
Frederick L. Barletta
* Director
- ------------------------------
Peter B. Deisroth
* Director
- ------------------------------
George J. Hayden
* Director
- ------------------------------
Joseph E. Lundy
* Director
- ------------------------------
John J. Raynock
* Director
- ------------------------------
Anthony P. Sidari
<PAGE> 8
*Pursuant to the Power of Attorney filed as Exhibit 24.1 to the Registration
Statement on Form SB-2 for Security of Pennsylvania Financial Corp. on September
11, 1998.
/s/ Richard C. Laubach President, Chief Executive November 12, 1998
- ------------------------------ Officer and Director
Richard C. Laubach
<PAGE> 9
As filed with the Securities and Exchange Commission on November 12, 1998
Registration No. 333-63271
===================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
EXHIBITS
TO THE
PRE-EFFECTIVE AMENDMENT NO. 3
TO THE
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------------
SECURITY OF PENNSYLVANIA FINANCIAL CORP.
(Exact name of registrant as specified in its certificate of incorporation)
===================================================
<PAGE> 10
TABLE OF CONTENTS
LIST OF EXHIBITS (FILED HEREWITH UNLESS OTHERWISE NOTED)
The exhibits filed as a part of this Registration Statement are as follows:
(a) List of Exhibits (filed herewith unless otherwise noted)
1.1 Engagement Letter between Security Savings Association of Hazleton and
Sandler O'Neill & Partners, L.P.*
1.2 Draft Form of Agency Agreement*
2.1 Amended Plan of Conversion (including the Stock Articles of Incorporation
and Bylaws of Security Savings Association of Hazleton)*
3.1 Certificate of Incorporation of Security of Pennsylvania Financial Corp.*
3.2 Bylaws of Security of Pennsylvania Financial Corp.*
3.3 Stock Articles of Incorporation and Bylaws of Security Savings
Association of Hazleton (See Exhibit 2.1 hereto)*
4.0 Draft Stock Certificate of Security of Pennsylvania Financial Corp.*
5.0 Opinion of Muldoon, Murphy & Faucette re: legality*
5.1 Opinion of Morris, Nichols, Arsht & Tunnell re: legality*
8.0 Opinion of Muldoon, Murphy & Faucette re: Federal Tax Matters
8.1 Opinion of Parente, Randolph, Orlando, Carey & Associates re: State Tax
Matters*
10.1 Form of Security Savings Association of Hazleton Trust Agreement *
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents *
10.3 Form of Security Savings Association of Hazleton Employment Agreement *
10.4 Form of Security of Pennsylvania Financial Corp. Employment Agreement *
10.5 Form of Security Savings Association of Hazleton Change in Control
Agreement *
10.6 Form of Security Savings Association of Hazleton Supplemental Executive
Retirement Plan *
10.7 Form of Security Savings Association of Hazleton Employee Severance
Compensation Plan *
23.1 Consent of Parente, Randolph, Orlando, Carey & Associates*
23.2 Consent of Muldoon, Murphy & Faucette*
23.3 Consent of Morris, Nichols, Arsht & Tunnell *
23.4 Consent and Subscription Rights Opinion of Keller & Company, Inc.*
24.1 Powers of Attorney *
27.0 Financial Data Schedule *
99.1 Appraisal Report of Keller & Company, Inc.(P)
99.2 Amended form of Security Savings Charitable Foundation Gift Instrument*
____________________
*Previously filed
(P) Previously filed pursuant to Rule 202 of Regulation S-T.
<PAGE> 1
EXHIBIT 8.0 OPINION OF MULDOON, MURPHY & FAUCETTE
RE: FEDERAL TAX MATTERS
<PAGE> 2
[LETTERHEAD OF MULDOON, MURPHY & FAUCETTE APPEARS HERE]
November 9, 1998
Board of Directors
Security Savings Association of Hazleton
31 W. Broad Street
Hazleton, Pennsylvania 18201-0770
Board of Directors
Security of Pennsylvania Financial Corp.
31 W. Broad Street
Hazleton, Pennsylvania 18201-0770
Re: Federal Tax Consequences of the Conversion of Security Savings
Association of Hazleton from a Pennsylvania-chartered Mutual
Savings and Loan Association to a Pennsylvania-chartered Capital
Stock Savings Association and the Offer and Sale of Common Stock of
Security of Pennsylvania Financial Corp. (the "Conversion")
Gentlemen:
You have requested an opinion on material federal income tax consequences
of the proposed conversion of Security Savings Association of Hazleton (the
"Association") from a Pennsylvania-chartered mutual savings and loan association
to a Pennsylvania-chartered capital stock savings association and the
acquisition of the Association's capital stock by Security of Pennsylvania
Financial Corp., a Delaware corporation (the "Holding Company"), pursuant to the
plan of conversion adopted by the Board of Directors on June 26, 1998, and as
amended on September 8, 1998 (the "Plan of Conversion").
The proposed transaction is 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 "FEDERAL TAX OPINION."
<PAGE> 3
Board of Directors
November 9, 1998
Page 2
We have made such inquiries and have examined such documents and records
as we have deemed appropriate for the purpose of this opinion. In rendering this
opinion, we have received certain standard factual representations of the
Holding Company and the Association concerning the Holding Company and the
Association as well as the transaction ("Representations"). These
Representations are required to be furnished prior to the execution of this
letter and again prior to the closing of the Conversion. We will rely upon the
accuracy of the Representations of the Holding Company and the Association and
the statements of facts contained in the examined documents, particularly the
Plan of Conversion. We have also assumed the authenticity of all signatures, the
legal capacity of all natural persons and the conformity to the originals of all
documents submitted to us as copies. Each capitalized term used herein, unless
otherwise defined, has the meaning set forth in the Plan of Conversion. We have
assumed that the Conversion will be consummated strictly in accordance with the
terms of the Plan of Conversion.
The Plan of Conversion and the Prospectus contain a detailed description
of the Conversion. These documents as well as the Representations to be provided
by the Holding Company and the Association are incorporated in this letter as
part of the statement of the facts.
Security Savings Association of Hazleton, with its headquarters office in
Hazleton, Pennsylvania, is a Pennsylvania-chartered mutual savings and loan
association. As a mutual savings and loan association, the Association has never
been authorized to issue stock. Instead, the proprietary interest in the
reserves and undivided profits of the Association belong to the deposit account
holders of the Association, hereinafter sometimes referred to as "depositors." 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 Association is ever liquidated. In addition, a
depositor of the Association is entitled to interest on his account balance as
fixed and paid by the Association.
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 convert itself into a Pennsylvania-chartered capital stock
savings association (the "Converted Association"), the stock of which will be
held entirely by the Holding Company. Assuming that the Holding Company form of
organization is utilized, the Holding Company will acquire the stock of the
Association by purchase, in exchange for the Conversion proceeds that are not
permitted to be retained by the Holding Company. The Holding Company will apply
to the Office of Thrift Supervision ("OTS") to retain up to 50% of the proceeds
received from the Conversion. The aggregate sales price of the Common Stock
issued in the Conversion will be based on an independent appraiser's valuation
of the estimated pro forma market value of the Common Stock of the Converted
Association. The Conversion and sale of the Common Stock will be subject to
approval by the OTS, the Pennsylvania Department of Banking and the approval of
the Voting Members.
<PAGE> 4
Board of Directors
November 9, 1998
Page 3
ESTABLISHMENT OF LIQUIDATION ACCOUNT. The Association shall 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 Association for the benefit of the Eligible Account
Holders and Supplemental Eligible Account Holders who continue to maintain their
Savings Accounts at the Association. Each Eligible Account Holder and
Supplemental Eligible Account Holder shall, with respect to his Savings Account,
hold a related inchoate interest in a portion of the liquidation account
balance, in relation to his Savings 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 Association (and
only in such event), following all liquidation payments to creditors (including
those to Account Holders to the extent of their Savings Accounts) each Eligible
Account Holder and Supplemental Eligible Account Holder shall be entitled to
receive a liquidating distribution from the liquidation account, in the amount
of the then adjusted subaccount balance for his Savings Account then held,
before any liquidation distribution may be made to any holders of the
Association's capital stock. No merger, consolidation, purchase of bulk assets
with assumption of Savings Accounts and other liabilities, or similar
transaction with an FDIC institution, in which the 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.
ESTABLISHMENT OF FOUNDATION. As part of the Conversion, the Company and
the Association intend to establish a charitable foundation (the "Foundation")
that will qualify as an exempt organization under Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended (the "Code") and to donate to the
Foundation up to 8.0% of the number of shares of Common Stock sold in the
Conversion. The establishment and funding of the Foundation as part of the
Conversion is subject to the approval of the Voting Members of the Association
at the Special Meeting of Members. In the event that the Foundation does not
receive the prerequisite approval, the Association may determine to complete the
Conversion without the Foundation.
The Plan of Conversion provides that the Foundation is being formed to
further the Converted Association's long term commitment to its community. The
Plan of Conversion states that the Foundation is intended to complement the
Association's existing community reinvestment activities so as to allow the
local community to share in the growth and profitability of the Holding Company
and the Converted Association over the long term.
The Foundation will be dedicated to the promotion of charitable and
educational purposes within the Association's Local Community, including, but
not limited to, grants or donations to support housing assistance, scholarships,
local education, not-for-profit medical facilities, not-
<PAGE> 5
Board of Directors
November 9, 1998
Page 4
for-profit community groups and other types of organizations or civic minded
projects. The Foundation will annually distribute total grants and donations to
assist charitable organizations or to fund projects within its local community
of not less than 5% of the average fair value of the Foundation assets each
year.
* * *
You have provided the following factual Representations concerning this
transaction:
(a) The fair market value of the withdrawable deposit accounts plus
interests in the liquidation account of the Converted Association to
be constructively received under the Plan of Conversion will, in
each instance, be equal to the fair market value of the withdrawable
deposit accounts (plus the related interest in the residual equity
of the Association) deemed to be surrendered in exchange therefor.
(b) If an individual's total deposits in the Association equal or exceed
$50 as of the Eligibility Record Date or the Supplemental
Eligibility Record Date, then no amount of that individual's total
deposits will be excluded from participating in the liquidation
account. The fair market value of the deposit accounts of the
Association which have a balance of less than $50 on the Eligibility
Record Date or the Supplemental Eligibility Record Date will be less
than 1% of the total fair market value of all deposit accounts of
the Association.
(c) Immediately following the Conversion, the Eligible Account Holders
and the Supplemental Eligible Account Holders of the Association
will own all of the outstanding interests in the liquidation account
and will own such interest solely by reason of their ownership of
deposits in the Association immediately before the Conversion.
(d) After the Conversion, the Converted Association will continue the
business of the Association in the same manner as prior to the
Conversion. The Converted Association has no plan or intention and
the Holding Company has no plan or intention to cause the Converted
Association to sell its assets other than in the ordinary course of
business.
(e) The Holding Company has no plan or intention to sell, liquidate or
otherwise dispose of the stock of the Converted Association other
than in the ordinary course of business.
<PAGE> 6
Board of Directors
November 9, 1998
Page 5
(f) The Holding Company and the Converted Association have no current
plan or intention to redeem or otherwise acquire any of the Common
Stock issued in the Conversion transaction.
(g) Immediately after the Conversion, the assets and liabilities of the
Converted Association will be identical to the assets and
liabilities of the Association immediately prior to the Conversion,
plus the net proceeds from the sale of the Converted Association's
common stock to the Holding Company and any liability associated
with indebtedness incurred by the Employee Plans in the acquisition
of Common Stock by the Employee Plans.
(h) The Association is a Pennsylvania-chartered a mutual savings and
loan association. The Converted Association will receive a
Pennsylvania stock charter as a stock savings association. The
Holding Company is incorporated under the laws of the state of
Delaware.
(i) None of the shares of the Common Stock to be purchased by the
depositor-employees of the Association in the Conversion will be
issued or acquired at a discount. However, shares may be given to
certain Directors and employees as compensation by means of the
Employee Plans. Compensation to be paid to such Directors and
depositor-employees will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services.
(j) The fair market value of the assets of the Association, which will
be transferred to the Converted Association in the Conversion, will
equal or exceed the sum of the liabilities of the Association which
will be assumed by the Converted Association and any liabilities to
which the transferred assets are subject.
(k) The Association is not insolvent and is not under the jurisdiction
of a bankruptcy or similar court, a receivership, foreclosure, or
similar proceeding in a Federal or State Court.
(l) Upon the completion of the Conversion, the Holding Company will own
and hold 100% of the issued and outstanding capital stock of the
Converted Association and no other shares of capital stock of the
Converted Association will be issued and/or outstanding. At the time
of the Conversion, the Converted Association does not have any plan
or intention to issue additional shares of its stock following the
transaction. Further, no shares of preferred stock of the Converted
Association will be issued and/or outstanding.
<PAGE> 7
Board of Directors
November 9, 1998
Page 6
(m) Upon the completion of the Conversion, there will be no rights,
warrants, contracts, agreements, commitments or understandings with
respect to the capital stock of the Converted Association, nor will
there be any securities outstanding which are convertible into the
capital stock of the Converted Association.
(n) No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders, or others in lieu of (a)
nontransferable subscription rights, or (b) an interest in the
liquidation account of the Converted Association.
(o) The Association has utilized the reserve method of accounting for
bad debts in filing its federal income tax return for the past 3 tax
years. For the past two (2) tax years, the Association used the
percentage of taxable income method of calculating its addition to
the bad debt reserve. Following the Conversion, the Converted
Association will maintain a tax reserve for bad debts to the extent
allowable under the Internal Revenue Code.
(p) In preparing its federal income tax return for the past 3 taxable
years, the Association has analyzed its assets by reference to
whether 60% of its total assets consists of the items listed below
and has satisfied this test in each of the preceding 3 tax years. In
each of the 3 preceding tax years, at least 60% of the amount of the
total assets at the close of the year consisted of the following
items: (i) cash, (ii) obligations of the U.S., of a State or
political subdivision of a State, obligations of a corporation which
is an instrumentality of the U.S. or of a State (but excluding
tax-exempt obligations), (iii) certificates of deposit in, or
obligations of a corporation organized under a State law which
specifically authorizes such corporation to insure the deposits or
share accounts, (iv) loans secured by a deposit or share of a
member, (v) loans secured by an interest in real property which is
residential real property or used primarily for church purposes,
loans made for the improvement of residential or church property,
(vi) loans secured by an interest in educational, health, or welfare
institutions or facilities, including structures designed to be used
for residential purposes, (vii) property acquired through the
liquidation of defaulted loans described in (v) or (vi) above,
(viii) loans made for the repayment of expenses of college or
university education or vocational training, (ix) property used by
the Association in the conduct of the business of acquiring the
savings of the public and investing in loans, and (x) any regular or
residual interest in a REMIC, but only in the proportion of the
assets of the REMIC which consists of property described in (i)
through (ix) above.
<PAGE> 8
Board of Directors
November 9, 1998
Page 7
(q) Depositors will pay the expenses of the Conversion solely applicable
to them, if any. The Holding Company and the Association will each
pay expenses of the transaction attributable to them and will not
pay any expenses solely attributable to the depositors or to the
Holding Company shareholders.
(r) The exercise price of the subscription rights received by the
Association's Eligible Account Holders, Supplemental Eligible
Account Holders, and other holders of subscription rights to
purchase Holding Company Common Stock will be equal to the fair
market value of the stock of the Holding Company at the time of the
completion of the Conversion as determined by an independent
appraisal.
(s) The proprietary interests of the Eligible Account Holders and the
Supplemental Eligible Account Holders in the Association arise
solely by virtue of the fact that they are account holders in the
Association.
(t) There is no plan or intention for the Converted Association to be
liquidated or merged with another corporation following this
proposed transaction.
(u) The liabilities of the Association assumed by the Converted
Association plus the liabilities, if any, to which the transferred
assets are subject were incurred by the Association in the ordinary
course of its business and are associated with the assets
transferred.
(v) The Association currently has no net operating losses for federal
tax purposes, and has no such losses available for carryover to
future tax years. The Association has neither generated nor carried
forward a net operating loss for federal tax purposes in the past
ten tax years.
LIMITATIONS ON OPINION
----------------------
Our opinions expressed herein are based solely upon current provisions of
the Internal Revenue Code of 1986, as amended, 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 federal, state, or city tax consequences of the Conversion under any
section of the Code except if and to the extent specifically addressed.
<PAGE> 9
Board of Directors
November 9, 1998
Page 8
FEDERAL TAX OPINION
-------------------
Based solely upon the foregoing Representations and information and
assuming the transaction occurs in accordance with the Plan of Conversion, and
taking into consideration the limitations noted throughout this opinion, it is
our opinion that under current federal income tax law the material tax
consequences of this transaction are as follows:
(1) Pursuant to the Conversion, the changes at the corporate level other
than changes in the form of organization will be insubstantial.
Based upon that fact and the fact that the equity interest of a
depositor in a mutual savings and loan association is more nominal
than real, unlike that of a shareholder of a corporation, the
Conversion of the Association from a mutual savings and loan
association to a stock savings Association is a tax-free
reorganization since it is a mere change in identity, form or place
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 Converted Association shall recognize gain or loss as a
result of the Conversion. The Association and the Converted
Association shall each be "a party to a reorganization" within the
meaning of section 368(b) of the Code.
(2) No gain or loss shall be recognized by the Converted Association or
the Holding Company on the receipt by the Converted Association of
money from the Holding Company in exchange for shares of the
Converted 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).
(3) The basis of the assets of the Association in the hands of the
Converted 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).
(4) The holding period of the assets of the Association in the hands of
the Converted Association shall include the period during which the
Association held the assets (Section 1223(2) of the Code).
(5) 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
Converted Association plus interests in the liquidation account of
the Converted 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).
<PAGE> 10
Board of Directors
November 9, 1998
Page 9
(6) Provided that the amount to be paid for such stock pursuant to the
subscription rights is equal to the fair market value of the stock,
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
stock in the Holding Company (Section 356(a)). Gain realized, if
any, by the Eligible Account Holders and Supplemental Eligible
Account Holders on the distribution to them of nontransferable
subscription rights to purchase shares of Common Stock will be
recognized but only in an amount not in excess of the fair market
value of such subscription rights (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).
(7) The basis of the deposit accounts in the Converted 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
Converted Association to be received by the Eligible Account Holders
of the Association shall be zero (Rev. Rul. 71-233, 1971-1 C.B.
113). The basis of the Holding Company Common Stock to its
stockholders will be the purchase price thereof plus the basis, if
any, of nontransferable subscription rights (Section 1012 of the
Code). Accordingly, assuming the nontransferable subscription rights
have no value, the basis of the Common Stock to the Eligible Account
Holders and Supplemental Eligible Account Holders will be the amount
paid therefor. 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 (6) 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 (6) and (7)
above assumes 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 you have
received a letter from Keller & Company, Inc. that the subscription rights do
not have any value. We express no view regarding the valuation of the
subscription rights.
<PAGE> 11
Board of Directors
November 9, 1998
Page 10
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 Holding Company
and/or the Converted Association may be taxable on the distribution of the
subscription rights.
* * *
Since this letter is rendered in advance of the closing of this
transaction, we have assumed that the transaction will be consummated in
accordance with the Plan of Conversion as well as all the information and
Representations referred to herein. Any change in the transaction could cause us
to modify our opinion.
We consent to the inclusion of this opinion as an exhibit to the Form AC
and Form SB-2 Registration Statement of Security of Pennsylvania Financial Corp.
and the references to and summary of this opinion in such Form AC and Form SB-2
Registration Statement.
Sincerely,
/s/ MULDOON, MURPHY & FAUCETTE
MULDOON, MURPHY & FAUCETTE
