LAW OFFICES
LAW OFFICES
Silver, Xxxxxxxx &
Xxxx, L.L.P.
A LIMITED
LIABILITY PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
0000 X
XXXXXX XX, XXXXX 000
WASHINGTON,
D.C. 20007
PHONE:
(000) 000-0000
FAX: (000)
000-0000
XXX.XXXXXX.XXX
April __,
2008
MutualFirst Financial,
Inc.
000 X.
Xxxxxxx Xxxxxx
Muncie,
Indiana 47305
Re: Agreement
and Plan of Merger dated as of January 7, 2008 by and among
MutualFirst Financial, Inc.,
MutualFirst Acquisition Corp. and MFB Corp.
Ladies
and Gentlemen:
We have acted as counsel to MutualFirst Financial, Inc., (“MutualFirst”), a Maryland corporation, and
MutualFirst Acquisition Corp. (“Acquisition Corp.”), an Indiana corporation that
is a wholly owned, first tier subsidiary of MutualFirst, in connection with the proposed merger
(the "Merger") of MFB Corp. (“MFB”), an Indiana corporation, with and into
Acquisition Corp. The Merger will be consummated pursuant to the
Agreement and Plan of Merger, dated as of January 7, 2008, between MutualFirst, Acquisition Corp. and MFB (the "Merger
Agreement"). For purposes of this opinion, capitalized terms used and
not otherwise defined herein shall have the meaning ascribed thereto in the
Merger Agreement. This opinion is being rendered to you for use in
connection with Registration Statement being filed by you with the SEC pursuant
to Section 7.4 of the Merger Agreement.
In rendering such opinion, we have
assumed with your consent that (i) the Merger will be effected in accordance
with the Merger Agreement; (ii) the Merger will qualify as a statutory merger
under Indiana state law; (iii) the statements concerning the Merger set forth in
the Merger Agreement are true, complete and correct as of the date hereof and at
the Effective Time; (iv) the representations made by MutualFirst and MFB in the Merger Agreement and in
their respective letters delivered to us for purposes of this opinion (the
"Representation Letters") are true, complete and correct as of the date hereof
and at the Effective Time; and (v) any representations made in the
Representation Letters "to the best knowledge of" or similarly qualified are
true, correct and complete without such qualification. We have also
assumed that the parties have complied with and, if applicable, will continue to
comply with, the terms and conditions of the Merger
Agreement.
Page 2
Our
opinion is based solely upon applicable law and the factual information
contained in the above-mentioned documents. In rendering our opinion,
we have assumed the accuracy of all information contained in each of such
documents. We also have assumed the authenticity of all original
documents, the conformity of all copies to the original documents, and the
genuineness of all signatures. We have not attempted to verify
independently the accuracy of any information in any such document, and we have
assumed that such documents accurately and completely set forth all material
facts relevant to this opinion. All of our assumptions were made with
your consent. If any fact or assumption described herein is
incorrect, any or all of the federal income tax consequences described herein
may be inapplicable.
Subject
to the foregoing and the limitations expressed elsewhere herein, we are of the
opinion that for federal income tax purposes:
1. The
Merger will constitute a reorganization within the meaning of
section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended to
the date hereof (the “Code”), by virtue of the provisions of Section
368(a)(2)(D) of the Code. Each of MutualFirst, Acquisition Corp. and
MFB shall be party to the reorganization within the meaning of Code section
368(b).
2. No
gain or loss will be recognized by MutualFirst, Acquisition
Corp. or MFB as a result of the Merger.
3. Each
shareholder of MFB, who exchanges, in the Merger, shares of MFB Common Stock
solely for shares of MutualFirst Common
Stock:
(a) will
recognize no gain or loss, except with regard to cash received in lieu of a
fractional share, as discussed below (Code section 354(a)(1));
(b) will
have an aggregate basis for the shares of MutualFirst Common Stock
received (including any fractional share of MutualFirst Common Stock
deemed to be received, as described in paragraph 6 below) equal to the aggregate
basis of the shares of MFB Common Stock surrendered (Code section 358(a)(1));
and
(c) will
have a holding period for the shares of MutualFirst Common Stock
received (including any fractional share of MutualFirst Common Stock
deemed to be received, as described in paragraph 6 below) which includes the
period during which the shares of MFB Common Stock surrendered were held,
provided that the shares of MFB Common Stock surrendered were capital assets in
the hands of such holder at the time of the Merger (Code section
1223(1)).
4. Each
shareholder of MFB who receives solely cash in exchange for MFB Common Stock
pursuant to the Merger will recognize gain or loss (determined separately as to
each block of MFB Common Stock exchanged) in an amount equal to the difference
between (x) the amount of cash received by such shareholder and (y) such
shareholder's basis for the shares of MFB Common Stock surrendered, provided
that the cash payment does not have the effect of
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the
distribution of a dividend (Code sections 1001 and 302(a)). Such gain
or loss will be capital gain or loss if the shares of MFB Common Stock
surrendered were capital assets in the hands of the individual holder, and
long-term or short-term depending on the individual holder's holding period for
each block of MFB Common Stock surrendered (Code section
1222). Generally, an individual shareholder’s capital gain will be
long-term if the holder has held the shares of MFB Common Stock for more than
one year. However, if the cash payment does have the effect of the
distribution of a dividend, such shareholder will recognize income in the amount
of the cash received (without regard to such shareholder's basis in the MFB
Common Stock surrendered), which generally will be taxable as dividend income
(Code sections 302(d) and 301). Any long-term capital gain or
dividend income recognized in the Merger by an individual MFB shareholder
generally will be subject to a maximum federal income tax rate of 15%; provided
in the case of dividend income it is qualified dividend income and the
individual shareholder held the shares giving rise to such income for more than
61 days during the 121 day period beginning 60 days before the closing
date.
The determination of whether a cash
payment has the effect of the distribution of a dividend will be made pursuant
to the provisions and limitations of Code section 302, taking into account the
stock ownership attribution rules of Code section 318. Because such
determination generally will depend on the facts and circumstances of each MFB
shareholder, we express no opinion as to whether the cash payments discussed in
this paragraph 4 will be treated as having the effect of the distribution of a
dividend.
A cash payment will be considered not
to have the effect of the distribution of a dividend under Code section 302 only
if the cash payment (i) results in a "complete redemption" of such shareholder's
actual and constructive stock interest, (ii) qualifies as a "substantially
disproportionate" reduction in such shareholder's actual and constructive stock
interest, or (iii) is not "essentially equivalent to a dividend" (Code sections
302(b)(1), (2) and (3)).
A cash payment will result in a
"complete redemption" of a shareholder's stock interest if such shareholder does
not actually or constructively own any stock after the Merger. A
reduction in a shareholder's stock interest will be "substantially
disproportionate" if (i) the percentage of outstanding shares actually and
constructively owned by such shareholder after the receipt of the cash payment
is less than four-fifths (80%) of the percentage of outstanding shares actually
and constructively owned by such shareholder immediately prior to the receipt of
the cash payment, and (ii) such shareholder actually and constructively owns
less than fifty percent (50%) of the number of shares outstanding after the
receipt of the cash payment (Code section 302(b)(2)). The cash
payment will not be "essentially equivalent to a dividend" if there has been a
"meaningful reduction" (as the quoted term has been interpreted by judicial
authorities and by rulings of the Internal Revenue Service (the "Service")) of
the shareholder's actual and constructive ownership interest (Code section
302(b)(1); United
States x. Xxxxx, 397 U.S. 301 (1970); see, e.g., Rev. Rul.
76-385, 1976-2 C.B. 92; Rev. Rul. 76-364, 1976-2 C.B. 91).
Under the traditional analysis (which
apparently continues to be used by the Service), Code section 302 will apply as
though the distribution of cash were made by MFB in a hypothetical redemption of
MFB Common Stock immediately prior to, and in a transaction separate from, the
Merger (the "deemed MFB redemption"). Thus, under the traditional
analysis,
Page 4
the
determination of whether a cash payment results in a complete redemption of
interest, qualifies as a substantially disproportionate reduction of interest,
or is not essentially equivalent to a dividend will be made by comparing (x) the
shareholder's actual and constructive stock interest in MFB before the deemed
MFB redemption, with (y) such shareholder's actual and constructive stock
interest in MFB after the deemed MFB redemption (but before the
Merger). Nevertheless, in view of Commissioner x.
Xxxxx, 489 U.S. 726 (1989), many tax practitioners believe that the
continuing validity of the traditional analysis is open to question and that, in
a transaction such as the Merger, the receipt of solely cash in exchange for
stock actually owned should be treated in accordance with the principles of
Commissioner x.
Xxxxx, supra, as if the MFB
Common Stock exchanged for cash in the Merger had instead been exchanged in the
Merger for shares of MutualFirst Common Stock
followed immediately by a redemption of such shares by MutualFirst for the cash
payment (the "deemed MutualFirst
redemption"). Under this analysis, the determination of whether a
cash payment satisfies any of the foregoing tests would be made by comparing (i)
the shareholder's actual and constructive stock interest in MutualFirst before the deemed
MutualFirst redemption
(determined as if such shareholder had received solely MutualFirst Common Stock in
the Merger), with (ii) such shareholder's actual and constructive stock interest
in MutualFirst after
the deemed MutualFirst
redemption. Because this analysis is more likely to result in capital
gain treatment than the traditional analysis, each MFB shareholder who receives
solely cash in exchange for all of the MFB Common Stock he or she actually owns
should consult his or her own tax advisor with regard to the proper treatment of
such cash.
The determination of ownership for
purposes of the foregoing tests will be made by taking into account both shares
actually owned by such shareholder and shares constructively owned by such
shareholder pursuant to Code section 318 (Code section 302(c)). Under
Code section 318, a shareholder will be deemed to own stock that is owned or
deemed to be owned by certain members of his or her family (spouse, children,
grandchildren, and parents) and other related parties including, for example,
certain entities in which such shareholder has a direct or indirect interest
(including partnerships, estates, trust and corporations), as well as shares of
stock that such shareholder (or a related person) has the right to acquire upon
exercise of an option or conversion right. Code section 302(c)(2)
provides certain exceptions to the family attribution rules for the purpose of
determining whether a complete redemption of a shareholder's interest has
occurred for purposes of Code section 302.
5. Each
shareholder of MFB, who exchanges, in the Merger, shares of MFB Common Stock
solely for shares of MutualFirst Common Stock and
cash:
(a) will
not recognize any loss (determined separately as to each block of MFB Common
Stock exchanged), except with regard to cash received in lieu of a fractional
share, as discussed below (Code section 356(c));
(b) will
realize gain (determined as to each block of MFB Common Stock exchanged) if (i)
the sum of the amount of cash and the fair market value of the shares of MutualFirst Common Stock
received (including any fractional share of MutualFirst Common Stock
deemed to be received, as described in paragraph 6 below) exceeds (ii) the tax
basis of the MFB Common Stock surrendered in exchange therefor, and
xxxx
Xxxx 5
recognize
such gain, if any, up to but not in excess of the amount of cash received
(excluding cash received in lieu of a fractional share) (Code sections 1001 and
356(a));
(c) will
have an aggregate basis for the shares of MutualFirst Common Stock
received (including any fractional share of MutualFirst Common Stock
deemed to be received, as described in paragraph 6 below) equal to the basis of
the shares of MFB Common Stock surrendered, increased by the amount of gain, if
any, recognized by such holder and decreased by the amount of any cash received
(excluding cash received in lieu of a fractional share) (Code section 358(a));
and
(d) will
have a holding period for the shares of MutualFirst Common Stock
received (including any fractional share of MutualFirst Common Stock
deemed to be received, as described in paragraph 6 below) which includes the
period during which the shares of MFB Common Stock surrendered were held,
provided that the shares of MFB Common Stock surrendered were capital assets in
the hands of such holder (Code section 1223(1)).
No opinion is expressed as to whether
the recognized gain described in subparagraph (b) of this paragraph 5 will be
capital gain or will be treated as the receipt of a taxable
dividend. Provided that the receipt of the cash by the MFB
shareholder does not have the effect of the distribution of a dividend, such
gain will be capital gain to an individual shareholder if the shares of MFB
Common Stock exchanged were capital assets in the hands of the holder, and
long-term or short-term depending on the holder's holding period for each block
of MFB Common Stock surrendered (Code section 1222). Generally, an
individual shareholder’s gain will be long-term capital if the holder has held
the shares of MFB Common Stock for more than one year. However, if
the cash payment does have the effect of the distribution of a dividend, such
gain generally will be taxable as dividend income (Code section
356(a)). Any long-term capital gain or dividend income recognized in
the Merger by an individual MFB shareholder generally will be subject to a
maximum federal income tax rate of 15%; provided in the case of dividend income
it is a qualified dividend and the individual shareholder held the shares giving
rise to such income for more than 61 days during the 121 day period beginning 60
days before the closing date.
Under Code section 356, the
determination of whether a cash payment has the effect of the distribution of a
dividend will be made generally in accordance with the principles of Code
section 302, taking into account the stock ownership attribution rules of Code
section 318. Because this determination generally will depend on the
facts and circumstances of each MFB shareholder, we express no opinion as to
whether the cash payments discussed in this paragraph 5 will be treated as
having the effect of the distribution of a dividend.
A cash payment will be considered not
to have the effect of the distribution of a dividend under section 302 only if
the cash payment (i) results in a "substantially disproportionate" reduction in
such shareholder's actual and constructive stock interest, or (ii) is not
"essentially equivalent to a dividend" (Code sections 302(b)(1) and
(2)). These two tests will be applied as if all MFB Common Stock
exchanged for cash in the Merger had instead been exchanged in the Merger solely
for shares of MutualFirst Common Stock, and
such shares of MutualFirst
Page 6
Common
Stock were then redeemed by MutualFirst in return for the
cash payments. Accordingly, the determination of whether a cash
payment to a MFB shareholder satisfies either of the foregoing tests will be
made by comparing (i) such shareholder's actual and constructive stock interest
in MutualFirst before
the deemed MutualFirst
redemption (determined as if such shareholder had received solely MutualFirst Common Stock in
the Merger), with (ii) such shareholder's actual and constructive stock interest
in MutualFirst after
the deemed MutualFirst
redemption. Commissioner x.
Xxxxx, 489 U.S. 726 (1989).
A cash payment will result in a
"substantially disproportionate" reduction in a shareholder's stock interest if
(i) the percentage of outstanding MutualFirst Common Stock
actually and constructively owned by such shareholder after the deemed MutualFirst redemption is
less than four-fifths (80%) of the percentage of outstanding MutualFirst Common Stock
actually and constructively owned by such shareholder immediately prior to the
deemed MutualFirst
redemption (determined as if such shareholder had received solely MutualFirst Common Stock in
the Merger), and (ii) such shareholder actually and constructively owns less
than fifty percent (50%) of the number of shares outstanding after the deemed
MutualFirst redemption
(Code section 302(2)). The cash payment will not be "essentially
equivalent to a dividend" if the deemed MutualFirst redemption
results in a "meaningful reduction" (as the quoted term has been interpreted by
judicial authorities and by rulings of the Service) of the shareholder's actual
and constructive ownership interest (Code section 302(b)(1); United States x.
Xxxxx, 397 U.S. 301 (1970); see, e.g., Rev. Rul.
76-385, 1976-2 C.B. 92; Rev. Rul. 76-364, 1976-2 C.B. 91).
The determination of ownership for
purposes of each of the foregoing tests will be made by taking into account both
shares of MutualFirst
Common Stock actually owned by such shareholder and shares of MutualFirst Common Stock
constructively owned by such shareholder pursuant to Code section 318 (Code
section 356(a)). Under Code section 318, a shareholder will be deemed
to own stock that is owned or deemed to be owned by certain members of his or
her family (spouse, children, grandchildren, and parents) and other related
parties including, for example, certain entities in which such shareholder has a
direct or indirect interest (including partnerships, estates, trusts and
corporations), as well as shares of stock that such shareholder (or a related
person) has the right to acquire upon exercise of an option or conversion
right.
6. Each
shareholder of MFB who receives cash in lieu of a fractional share of MutualFirst Common Stock will
be treated as if the fractional share had been received in the Merger and then
redeemed by MutualFirst. Provided
that the shares of MFB Common Stock surrendered were capital assets in the hands
of such holder, the receipt of such cash will cause the individual recipient to
recognize capital gain or loss, equal to the difference between the amount of
cash received and the portion of such holder's adjusted tax basis in the shares
of MutualFirst Common
Stock allocable to the fractional share interest (Code sections 1001 and 1222;
Rev. Rul. 66-365, 1966-2 C.B. 116; Rev. Proc. 77-41, 1977-2 C.B.
574).
* * * * *
* * * * * * *
We express no opinion with regard to
(1) the federal income tax consequences of the Merger not addressed expressly by
this opinion, including without limitation, (i) the tax consequences, if any, to
those shareholders of MFB who acquired shares of MFB Common
Page 7
Stock
pursuant to the exercise of stock options or otherwise as compensation, and (ii)
the tax consequences to special classes of shareholders, if any, including
without limitation, foreign persons, financial institutions, insurance
companies, tax-exempt entities, retirement plans, dealers or brokers in
securities, and persons that hold MFB Common Stock as part of a straddle, a
hedge against currency risk, a constructive sale or conversion transaction; and
(2) federal, state, local, or foreign taxes (or any other federal, state, local,
or foreign laws) not specifically referred to and discussed
herein. Further, our opinion is based upon the Code, Treasury
Regulations proposed or promulgated thereunder, and administrative
interpretations and judicial precedents relating thereto, all of which are
subject to change at any time, possibly with retroactive effect, and we assume
no obligation to advise you of any subsequent change thereto. If
there is any change in the applicable law or regulations, or if there is any new
administrative or judicial interpretation of the applicable law or regulations,
any or all of the federal income tax consequences herein may become
inapplicable. We do not undertake to advise you as to any changes
after the date hereof in applicable law or regulations or changes in the
interpretation of existing laws and regulations that may affect our
opinions.
The foregoing opinion reflects our
legal judgment solely on the issues presented and discussed
herein. This opinion has no official status or binding effect of any
kind. Accordingly, we cannot assure you that the Service or any court
of competent jurisdiction will agree with this opinion.
This opinion is furnished to you for
use by you in connection with the Registration Statement. We hereby
consent to the filing of this opinion as an exhibit to the Registration
Statement. We also consent to being named in the Registration
Statement as your tax counsel with respect to the above-mentioned
matters. In giving such consents, we do not thereby admit that we are
in the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the SEC thereunder.
Very truly yours,
SILVER, XXXXXXXX & XXXX,
L.L.P.