As filed with the Securities and Exchange Commission on January ^ 22, 1999
Registration No. 333-64475
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
PRE-EFFECTIVE AMENDMENT NO. ^ 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
First Star Bancorp, Inc.
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(Exact name of Small Business Issuer as specified in charter)
Pennsylvania 6035 23-2753108
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(State or other jurisdiction (Primary SIC No.) (I.R.S. Employer
of incorporation or Identification No.)
organization)
418 West Broad Street, Bethlehem, Pennsylvania 18018
(610) 691-2233
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(Address, including zip code, and telephone number, including area code,
of principal executive offices and principal place of business)
Mr. Joseph T. Svetik
President
First Star Bancorp, Inc.
418 West Broad Street, Bethlehem, Pennsylvania 18018
(610) 691-2233
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(Name, address and telephone number of agent for service)
Please send copies of all communications to:
John J. Spidi, Esq.
Gregory A. Gehlmann, Esq.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
1301 K Street, N.W., Suite 700 East, Washington, D.C. 20005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE 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 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. [ ]
CALCULATION OF REGISTRATION FEE
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Title of Proposed Proposed Amount
Each Class of Shares Maximum Maximum Aggregate of
Securities to be Offering Price Offering Registration
To Be Registered Registered Per Unit Price(1) Fee(2)
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Common Stock,
$1.00 Par Value 65,730 $50.30 $3,306,250 $975.35
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(1) Estimated solely for purposes of calculating the registration fee.
(2) Previously paid.
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 said Section 8(a),
may determine.
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 26. Recent Sales of Unregistered Securities.
Not Applicable
Item 27. Exhibits:
The exhibits filed as part of this Registration Statement are
as follows:
2 Merger Conversion Agreement dated August 14, 1998
between First Bancorp, Inc., First Star Savings Bank
and Nesquehoning Savings Bank, including a Plan of
Conversion of Nesquehoning Savings Bank*
3(i) Articles of Incorporation of First Star Bancorp, Inc.*
3(ii) Bylaws of First Star Bancorp, Inc.*
4 Specimen Stock Certificate of First Star Bancorp, Inc.*
5.1 Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
regarding legality of securities registered*
5.2 Opinion of ^ Feldman Financial Advisors, Inc. as to the
value of subscription rights*
8.1 Federal Tax Opinion of Malizia, Spidi, Sloane & Fisch,
P.C.
^ 23.1 Consent of Malizia, Spidi, Sloane & Fisch, P.C.
(contained in its opinions filed as Exhibits 5.1
^ and ^ 8.1)
23.2 Consent of Deloitte & Touche, LLP*
23.3 Consent of Feldman Financial Advisors, Inc.*
24 Power of Attorney (reference is made to the signature
page)*
27 Financial Data Schedule*^
99.1 Stock Order Form*
99.2 Marketing Materials*
99.3 Proxy Statement - Nesquehoning Savings Bank*
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* Previously filed.
** Electronic filing only.
Item 28. Undertakings
The undersigned registrant hereby undertakes:
(1) To 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 of 1933 ("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.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
<PAGE>
price represent no more than a 20 percent change in the
maximum offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement.
(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.
(4) The undersigned registrant hereby undertakes to 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.
(5) Insofar as indemnification for liabilities arising under the
Securities 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 Securities 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 Securities Act and will be governed by the final
adjudication of such issue.
<PAGE>
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
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in Bethlehem,
Pennsylvania, on January ^ 22, 1999.
FIRST STAR BANCORP, INC.
By: /s/ Joseph T. Svetik
---------------------------------------
Joseph T. Svetik
President and Director
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated as of January ^ 22, 1998.
/s/ Joseph T. Svetik /s/ Paul J. Sebastian
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Joseph T. Svetik Paul J. Sebastian
President, Chief Executive Officer Chairman of the Board and Director
and Director
(Principal Executive Officer)
/s/ Martin A. Marschang* /s/ Harold J. Suess*
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Martin A. Marschang Harold J. Suess
Director Director
/s/ Mark Parseghian, Jr.*
------------------------------------ ------------------------------
Mark Parseghian, Jr. Tighe J. Scott
Director Director
/s/ Michael Styer
------------------------------------
Michael Styer
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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* Pursuant to power of attorney
EXHIBIT 8.1 ^
<PAGE>
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
ATTORNEYS AT LAW
1301 K STREET, N.W.
SUITE 700 EAST
WASHINGTON, D.C. 20005
(202) 434-4660
FACSIMILE: (202) 434-4661
January 22, 1999
Board of Directors
First Star Bancorp, Inc.
418 West Broad Street
Bethlehem, Pennsylvania 18018
Board of Directors
Nesquehoning Savings Bank
301 West Catawissa Street
Nesquehoning, Pennsylvania 18240
RE: Federal Tax Opinion relating to the Statutory Merger of Nesquehoning
Savings Bank, a Pennsylvania-Chartered Mutual Savings Bank, with and
into First Star Savings Bank, a Pennsylvania-Chartered Stock Savings
Bank and wholly-owned subsidiary of First Star Bancorp, Inc., a
holding company, under Section 368(a)(1)(A)1
Gentlemen:
In accordance with your request, set forth below is the opinion of this
firm regarding the federal income tax consequences of the proposed transactions
whereby a Pennsylvania-chartered mutual savings bank, Nesquehoning Savings Bank
("Nesquehoning"), will merge with and into First Star Savings Bank ("First Star"
or "Savings Bank"), a Pennsylvania-chartered stock savings bank and the
wholly-owned subsidiary of First Star Bancorp, Inc. (the "Corporation"),
pursuant to the laws of the Commonwealth of Pennsylvania and the laws of the
United States and applicable federal regulations (the "Merger").
STATEMENT OF FACTS
------------------
The Corporation was incorporated under the laws of the Commonwealth of
Pennsylvania in 1993 at the direction of the Board of Directors of First Star
for the purpose of becoming the parent holding company of the Savings Bank.
First Star became a wholly-owned subsidiary of the Corporation in 1993. The
mutual-to-stock conversion of the Savings Bank and the
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1 All Section references are to the Internal Revenue Code of 1986, as
amended, unless otherwise indicated.
<PAGE>
Board of Directors
First Star Bancorp, Inc.
Board of Directors
Nesquehoning Savings Bank
January 22, 1999
Page 2
simultaneous acquisition of all of the stock of the Savings Bank by the
Corporation qualified as a tax-free reorganization under Section 368(a)(1)(F).
Since the acquisition of the stock of the Savings Bank, the Corporation's
business has been limited to that of the Savings Bank and its subsidiaries. At
September 30, 1998, the Corporation's and the Savings Bank's total consolidated
assets and shareholders' equity were $331.6 million and $16.0 million,
respectively.
Nesquehoning operates its business through one office in Pennsylvania.
As of September 30, 1998, Nesquehoning's total assets and retained earnings
totalled $16.8 million and $2.2 million, respectively.
The deposits of First Star and Nesquehoning are insured by the Federal
Deposit Insurance Corporation ("FDIC"), and First Star and Nesquehoning are
members of the Federal Home Loan Bank of Pittsburgh (the "FHLB of Pittsburgh").
They are subject to comprehensive examination, supervision and regulation by the
FDIC and the Pennsylvania Department of Banking ("Department").
As of December 31, 1998, the authorized capital stock of the
Corporation consists of 10,000,000 shares of Common Stock with a par value of
$1.00 per share and 2,500,000 shares of Preferred Stock with no par value. As of
September 30, 1998, there were 372,084 shares of Common Stock issued and
outstanding and 27,520 shares of Preferred Stock issued or outstanding.
The Corporation, as sole stockholder of First Star, possesses all
voting rights and dividend rights and the residual equity of the Savings Bank in
the event of the Savings Bank's liquidation after all liquidation distributions
have been made pursuant to the liquidation account established by the Savings
Bank at the time of its mutual-to-stock conversion. The savings account
depositors of First Star receive a fixed rate of return; in the event of
liquidation they are only entitled to receive the face amount of their accounts
plus accrued interest. The savings account depositors do not possess voting
rights coincident with their depository accounts.
Nesquehoning, as a Pennsylvania-chartered mutual savings bank, has no
authorized capital stock. Instead, Nesquehoning, in mutual form, has a unique
equity structure, savings depositors of Nesquehoning are entitled to earn
interest on their account balances as declared and paid by Nesquehoning. A
savings depositor has no right to a distribution of any earnings of Nesquehoning
but rather these amounts become retained earnings of Nesquehoning. However, a
savings account depositor has a right to share pro rata, with respect to the
withdrawable value of his respective savings account, in any liquidation
proceeds distributed in the event that
<PAGE>
Board of Directors
First Star Bancorp, Inc.
Board of Directors
Nesquehoning Savings Bank
January 22, 1999
Page 3
Nesquehoning is ever liquidated. Voting rights in Nesquehoning are held by its
trustees, however FDIC regulations require depositor approval of any mutual to
stock conversion. All of the interests held by a savings depositor in
Nesquehoning cease when such depositor closes his accounts with that financial
institution.
First Star is primarily engaged in the business of attracting savings
deposits from the general public and originating loans secured by residential
and, to a lesser extent, commercial and other improved real estate, and
originating consumer loans. Nesquehoning is engaged in primarily the same
business as First Star. First Star, as the surviving institution after the
consummation of the merger, will also primarily be engaged in the same business.
The Boards of Directors of the Corporation, First Star and Nesquehoning
have entered into a Merger Conversion Agreement dated August 14, 1998
("Agreement"). The Agreement provides for the merger of Nesquehoning with and
into First Star. In connection with the Agreement, the Boards of Directors of
the Corporation, First Star and Nesquehoning have adopted a Plan of Conversion
dated August 14, 1998 ("Plan"), providing for the merger of Nesquehoning with
and into First Star.
Pursuant to the Agreement and the Plan, Nesquehoning will merge with
and into First Star pursuant to the applicable provisions of Pennsylvania law
and federal law and regulations. First Star will be the survivor of the merger
with Nesquehoning and will acquire all of the assets and assume all of the
liabilities of Nesquehoning. Thereafter, the corporate existence of Nesquehoning
will cease. All savings accounts in Nesquehoning shall be and become savings
accounts in First Star without a change in their respective terms, maturity,
minimum required balances or withdrawal value. Each savings account of
Nesquehoning shall, as of the date of consummation of the merger, be considered,
for purposes of interest paid by First Star thereafter, as if it had been a
savings account of First Star at the time said savings account was opened in
Nesquehoning and at all times thereafter until such account ceases to be a
savings account of First Star. All savings accounts of First Star prior to
consummation of the merger shall continue to be savings accounts in First Star
after consummation of the merger without any change whatsoever of any of the
provisions of such savings accounts, including, without limitation, their
respective terms, maturity, minimum required balances or withdrawal value. The
liquidation account of Nesquehoning to be established at the time of the merger
for the benefit of certain depositors of the institution shall be established
and maintained by First Star. First Star's name after the merger will remain
unchanged.
<PAGE>
Board of Directors
First Star Bancorp, Inc.
Board of Directors
Nesquehoning Savings Bank
January 22, 1999
Page 4
In order to merge Nesquehoning with and into First Star, Nesquehoning
must comply with the procedures required by federal regulations governing the
stock conversion of institutions through merger with a stock institution.
Although Nesquehoning will not convert to stock form as a separate step in the
merger transaction, the regulations will deem such a conversion to have occurred
simultaneously with the merger of Nesquehoning with and into First Star.
Pursuant to the Plan, the Corporation will issue shares of its authorized and
unissued voting common stock, par value $1.00, which may be offered to eligible
account holders, supplemental eligible account holders (if applicable), other
depositors, Tax-Qualified Employee Stock Benefit Plans of First Star or the
Corporation, and existing stockholders of the Corporation through a subscription
offering and to the general public in a direct community offering, as described
below.
The Plan and the proposed transactions are subject to the approval of
the Corporation as the sole stockholder of First Star and the members of
Nesquehoning, as well as the approval and/or the non-objection of federal and
state governmental agencies with jurisdiction over the transactions (e.g.,
Department, FDIC, Antitrust Division of the Department of Justice, and the
Federal Trade Commission.)
Pursuant to the Plan and applicable laws and regulations, the
Corporation will offer for sale authorized but unissued shares of its common
stock ("New Shares") in the aggregate in an amount equal to the estimated
increase in the pro forma market value of the Corporation as a result of the
merger of Nesquehoning with and into First Star as determined by an independent
appraisal. All of the New Shares must be subscribed for prior to the
consummation of the proposed transactions and, as described above and required
by federal regulations, New Shares of the Corporation will first be offered
pursuant to non-transferable subscription rights on the basis of preference
categories. The New Shares will be offered at a 10% discount to the market price
of the common stock of the Corporation as determined by the Agreement.
The first preference category ("Eligible Account Holders") will consist
of all persons who held deposits in Nesquehoning having account balances of not
less than $50 at the close of business on July 31, 1997 ("Eligibility Record
Date"). In the event that the Eligibility Record Date is more than 15 months
prior to the latest amendment to the application for approval filed with the
Department, a second preference category ("Supplemental Eligible Account
Holders") will be reserved for those persons holding deposits in Nesquehoning
having account balances of not less than $50 on the last day of the calendar
quarter preceding approval of the Plan by the Department ("Supplemental
Eligibility Record Date"). If there is any stock remaining, shares will be
offered to the third preference category, which consists of all depositors of
Nesquehoning
<PAGE>
Board of Directors
First Star Bancorp, Inc.
Board of Directors
Nesquehoning Savings Bank
January 22, 1999
Page 5
as of the voting record date for the special meeting to approve the Plan other
than Eligible Account Holders and Supplemental Eligible Account Holders ("Other
Depositors"). Any remaining shares of the New Shares will be offered to the
fourth preference category, consisting of Tax-Qualified Employee Stock Benefit
Plans of First Star or the Corporation. The fifth preference category shall
consist of existing stockholders of the Corporation as of the date immediately
prior to the commencement of the Subscription Offering. Any remaining balance of
unsubscribed for stock will thereafter be offered for sale to the general public
in a direct community offering.
As described above and required by applicable regulations, the Plan
provides for the establishment by First Star of a separate liquidation account
on behalf of Nesquehoning in an amount equal to the net worth of Nesquehoning as
of the date of the latest statement of financial condition set forth in the
prospectus utilized for the sale of stock in the merger. The establishment of
the liquidation account will not operate to restrict the use or application of
any of the capital accounts of First Star, except that applicable regulations
require that First Star not declare or pay cash dividends on or repurchase any
of its stock if the result thereof would be to reduce its capital below the
amount required to maintain the liquidation account. The liquidation account
will be for the benefit of each of the respective Nesquehoning Eligible Account
Holders and Supplemental Eligible Account Holders who maintain accounts in
Nesquehoning at the time of the merger. All such account holders, including
those not entitled to subscription rights for reasons of foreign or out-of-state
residency, will have an interest in the liquidation account. The interest that
the Eligible Account Holders and Supplemental Eligible Account Holders of
Nesquehoning will have is a right to receive, in the event of a complete
liquidation of First Star, a liquidation distribution from the liquidation
account in the amount of the then current adjusted subaccount balances for
savings accounts then held, prior to any liquidation distribution being made
with respect to the capital stock of First Star.
The initial subaccount balance for a savings account held by an
Eligible Account Holder and/or Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the liquidation account by a
fraction of which the numerator is the amount of the qualifying deposit in the
savings account, and the denominator is the total amount of qualifying deposits
of all Eligible Account Holders and Supplemental Eligible Account Holders in
Nesquehoning. The initial subaccount balance will never be increased, but may be
decreased if the deposit balance in any qualifying savings account of any
Eligible Account Holder or any savings account of any Supplemental Eligible
Account Holder on any annual closing date subsequent to the Eligibility Record
Date or Supplemental Eligibility Record Date, whichever is applicable, is less
than the lesser of (1) the deposit balance in the savings account at the close
<PAGE>
Board of Directors
First Star Bancorp, Inc.
Board of Directors
Nesquehoning Savings Bank
January 22, 1999
Page 6
of business on any other annual closing date subsequent to the Eligibility
Record Date or the Supplemental Eligibility Record Date, or (2) the amount of
the qualifying deposit in such savings account. In such event, the subaccount
balance for the savings account will be adjusted by reducing each subaccount
balance in an amount proportionate to the reduction in the savings account
balance. Once decreased, the Plan provides that the subaccount balance will
never be subsequently increased, and if the savings account of an Eligible
Account Holder or Supplemental Eligible Account Holder is closed, the related
subaccount balance in the liquidation account will be reduced to zero.
Following the merger, voting rights in First Star will remain
exclusively in its sole stockholder, the Corporation. Voting rights in the
Corporation will rest exclusively in its stockholders. The merger will not
interrupt the business of Nesquehoning and its business will continue as usual.
Each depositor of Nesquehoning will retain a withdrawable savings account or
accounts in First Star equal in amount to the withdrawable account immediately
prior to the merger. All loans of Nesquehoning will remain unchanged and retain
their same characteristics with First Star after the merger. Deposits held by
First Star will continue to be insured by the FDIC. First Star will continue its
membership in the FHLB of Pittsburgh, and will remain subject to the regulatory
authority of the FDIC and the Department. Following the transactions, First Star
will continue to engage in its business in the same manner as it engaged in
prior to the merger and First Star has no plan or intention to sell or otherwise
dispose of any of its assets or the assets of Nesquehoning other than in the
ordinary course of its business. Furthermore, immediately prior to the merger,
Nesquehoning will have a positive net worth calculated in accordance with
generally accepted accounting principles.
Management of Nesquehoning has no knowledge of any plan or intention on
the part of Nesquehoning savings account holders to withdraw their savings
accounts subsequent to the proposed merger which would reduce their interests in
the liquidation account received to an amount having, in the aggregate, a value
at the time of the proposed merger of less than 50 percent of the aggregate
interests which members of Nesquehoning had prior to the proposed transactions.
OPINION OF COUNSEL
------------------
Based solely on the information described above and on the statements,
representations and declarations of the management of the Corporation, First
Star and Nesquehoning set forth in the attached affidavits and incorporated by
reference herein, we render the following opinion:
<PAGE>
Board of Directors
First Star Bancorp, Inc.
Board of Directors
Nesquehoning Savings Bank
January 22, 1999
Page 7
(1) Provided that the merger of Nesquehoning with and into First
Star qualifies as a statutory merger under applicable law and
regulation, such merger will constitute a reorganization
within the meaning of Section 368(a)(1)(A). First Star and
Nesquehoning will each be "a party to a reorganization" within
the meaning of Section 368(b).
(2) No gain or loss will be recognized to Nesquehoning on the
transfer of its assets to First Star in exchange for First
Star savings accounts, liquidation accounts, and
non-transferable subscription rights to purchase the
Corporation stock, and the assumption by First Star of the
liabilities of Nesquehoning (Sections 361(a) and 357(a)).
(3) No gain or loss will be recognized by First Star upon the
receipt of the assets of Nesquehoning in exchange for First
Star's savings accounts, liquidation accounts and subscription
rights and assumption by First Star of all of the liabilities
of Nesquehoning (Section 1032(a)).
(4) Corporation will recognize no gain or loss on the sale of its
common stock in the subscription offering or in the direct
community offering or through the exercise of subscription
rights (Section 1032(a)).
ANALYSIS AND AUTHORITIES
------------------------
A tax-free reorganization includes a statutory merger or consolidation
effected under applicable State or federal law. (Section 368(a)(1)(A), Section
1.368-2(b)(1) of the Treasury Regs.) It has been represented and is undisputed
that the merger of Nesquehoning will be effected as authorized by applicable
law. However, in addition to compliance with applicable law, a transaction must
satisfy certain judicially imposed requirements in order to qualify as a
"reorganization" under Section 368, including: (i) the reorganization must have
a valid business purpose, (ii) there must be a "continuity of ownership
interest" on the part of those persons who owned the acquired enterprise prior
to the merger, and (iii) there must be a continuity of the business enterprise
of the acquired company.
In order to qualify for reorganization treatment, a taxpayer must
demonstrate that a legitimate and bona fide business purpose is intended to be
served by the "reorganization." Gregory v. Helvering, 293 U.S. 465 (1935),
Sections 1.368-1(b), (c) of the Treasury Regs. The management and Boards of
Directors of the Corporation, First Star and Nesquehoning believe
<PAGE>
Board of Directors
First Star Bancorp, Inc.
Board of Directors
Nesquehoning Savings Bank
January 22, 1999
Page 8
that a combination of Nesquehoning and First Star will produce substantial
business benefits for each. Among other things, the merger will increase the net
worth of First Star by the net proceeds of the stock to be sold in the
transaction, broaden the range of customer services offered by the merged
entities, spread investment risk, improve the competitive position of the merged
entity, and provide greater flexibility for diversification of business
activities and geographic operations.
There is an additional judicially created requirement that there be a
"continuity of ownership interest" on the part of those persons who owned the
acquired enterprise prior to the merger. Section 1.368-1 (b) of the Treasury
Regs.; LeTulle v. Scofield, 308 U.S. 415 (1940). In order to satisfy the
continuity of ownership interest requirement, the owners of the acquired or
disappearing corporation (i.e., Nesquehoning) must receive a proprietary
interest in the modified enterprise resulting from the reorganization (i.e.,
First Star). The issue presented in the proposed transaction is whether the
members of Nesquehoning will receive a sufficient proprietary or equity interest
in First Star to satisfy the requirement.
In Rev. Rul. 69-3 (1969-1 C.B. 103), the IRS held that the statutory
merger of two federal mutual savings and loan associations constituted a
reorganization under Section 368(a)(1)(A). Recognizing the dual relationship of
the members of a mutual association that of owners and that of holders of
withdrawable savings accounts the Service concluded that the continuity of
proprietary interest test was satisfied and the merger qualified as an "A"
reorganization.
In Rev. Rul. 80-105 (1980-1 C.B. 78), the IRS, reaffirming the view
initially set out in Rev. Rul. 54-193, held that the conversion of a mutual
association into a stock association constituted a tax-free reorganization under
Section 368(a)(1)(F). Significantly, while the account holders of the mutual
association in Rev. Rul. 80-105 gave up voting rights, unlike the account
holders in Rev. Rul. 54-193, they received none in return unless they purchased
stock. However, as in Rev. Rul. 54-193, the account holders received a pro rata
share in a liquidation account equal to their share of the net worth of the
association prior to conversion.
Rev. Rul. 80-105 recognized, in the context of a stock conversion, that
a sufficient continuity of interest on the part of the savings members of the
disappearing mutual association existed in the resulting stock association by
giving them savings accounts in the stock association of an equal amount, the
first right to subscribe to the stock of the resulting association and a pro
rata share in a liquidation account equal to each savings members' respective
share in the net
<PAGE>
Board of Directors
First Star Bancorp, Inc.
Board of Directors
Nesquehoning Savings Bank
January 22, 1999
Page 9
worth of the association prior to conversion. These same factors are present and
provide continuity of interest in the proposed merger involving an "A"
reorganization.
Rev. Rul. 80-105 has established that a sufficient continuity of
ownership interest on the part of the savings members of a disappearing mutual
association exists in a resulting stock association to constitute a tax-free
reorganization under Section 368(a)(1)(F). The mutual savings members of the
disappearing association will receive subscription rights to purchase the
Corporation common stock and a pro rata interest in a liquidation account of the
resulting stock association. We believe that a mutual association merging into a
stock association in accordance with the Department's amended conversion
regulations qualifies as a tax-free reorganization under Section 368(a)(1)(A),
even though the savings account holders of the disappearing mutual institution
will not receive voting rights unless they purchase stock. Rev. Rul. 80-105
recognized the nominal interest that a savings account holder has in the equity
of a mutual savings and loan association. This minimal equity interest of the
savings members of Nesquehoning is adequately continued in First Star through
their receipt of: (i) savings accounts in First Star of an equal amount, (ii)
subscription rights to purchase Corporation common stock to be issued in the
merger, and (iii) an interest in a liquidation account equal to their share of
the net worth of Nesquehoning immediately prior to the merger.
The third and final requirement to qualify the reorganization as a
tax-free "reorganization", in addition to compliance with applicable law, is the
requirement of a continuity of business enterprise. In December 1980, the
Treasury Department adopted Reg. Section 1.368-1(d) to provide that a
transaction constitutes a tax-free reorganization only if the continuity of
business enterprise requirement is satisfied, which means that First Star must
either: (i) continue the business of Nesquehoning, or (ii) use a significant
portion of the assets of Nesquehoning in its business. (Section 1.368-1(d)(2) of
the Treasury Regs.) Pursuant to the Plan and Agreement, First Star will acquire
all of the assets and assume all of the liabilities of Nesquehoning. In essence,
First Star will continue the historical business of Nesquehoning which is
similar, if not identical, to the historical business of First Star.
Furthermore, First Star has no intention of disposing of the assets of
Nesquehoning after completion of the merger other than in the ordinary course of
business. As a result, the continuity of business requirement is satisfied in
this case.
SCOPE OF OPINION
----------------
In rendering our opinion, we have considered the applicable provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), applicable
regulations, judicial authority,
<PAGE>
Board of Directors
First Star Bancorp, Inc.
Board of Directors
Nesquehoning Savings Bank
January 22, 1999
Page 10
interpretive rulings of the Internal Revenue Service and such other authorities
as we have deemed relevant. If there is any change in applicable law, any or all
of the opinions expressed herein may become inapplicable.
No opinion is expressed as to the tax treatment of the transaction
under the provisions of any of the other sections of the Code and Treasury
Regulations which may also be applicable thereto, or under any state law, or to
the tax treatment of any conditions existing at the time of, or effects
resulting from, the transaction which are not specifically covered by the items
set forth above.
CONSENT
-------
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form SB-2 filed on behalf of First Star Bancorp, Inc.
with the Securities and Exchange commission and on behalf of Nesquehoning a
Notice with the Department and the FDIC, and to the references to our firm under
the heading "The Merger Conversion -- Effects of Merger Conversion on Depositors
and Borrowers of Nesquehoning Savings Bank -- Tax Effects" in the Prospectus
constituting a part of such Registration Statement and Notice.
USE OF OPINION
--------------
This opinion is rendered solely for the benefit of the Corporation,
First Star and Nesquehoning in connection with the proposed transaction and is
not to be relied upon or used for any other purpose without our prior written
consent.
Respectfully submitted,
/s/ Malizia, Spidi, Sloane & Fisch, P.C.
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Malizia, Spidi, Sloane & Fisch, P.C.
