(202)
274-2000
May
1,
2007
Boards
of
Directors
FSB
Community Bankshares, MHC
FSB
Community Bankshares, Inc.
45
South
Main Street
Fairport,
NY 14450
Gentlemen:
You
have
requested this firm’s opinion regarding the material United States federal
income tax consequences that will result from a stock offering (the “Offering”)
of the shares of common stock of FSB Community Bankshares, Inc., a federal
mid-tier holding company (the “Company”) and the wholly owned subsidiary of FSB
Community Bankshares, MHC, a federal mutual holding company (the “Mutual Holding
Company”). The Company owns all of the outstanding common stock of Fairport
Savings Bank, a federally chartered stock savings bank (the “Bank”).
In
connection therewith, we have made such investigations as we have deemed
relevant or necessary for the purpose of this opinion. In our examination,
we
have assumed the authenticity of original documents, the accuracy of copies
and
the genuineness of signatures. We have further assumed the absence of adverse
facts not apparent from the face of the instruments and documents we examined
and have relied upon the accuracy of the factual matters set forth in the
FSB
Community Bankshares, Inc. Stock Issuance Plan (the “Stock Issuance Plan”) and
the Registration Statement filed on Form SB-2 by the Company with the Securities
and Exchange Commission (“SEC”) under the Securities Act of 1933.
Our
opinion is based upon the existing provisions of the Internal Revenue Code
of
1986, as amended (the “Code”), and regulations thereunder (the “Treasury
Regulations”), and upon current Internal Revenue Service (“IRS”) published
rulings and existing court decisions, any of which could be changed at any
time.
Any such changes may be retroactive and could significantly modify the
statements and opinions expressed herein. Similarly, any change in the facts
and
assumptions stated below, upon which this opinion is based, could modify
the
conclusions. This opinion is as of the date hereof, and we disclaim any
obligation to advise you of any change in any matter considered herein after
the
date the Registration Statement is declared effective by the SEC.
We
opine
only as to the matters we expressly set forth, and no opinions should be
inferred as to any other matters or as to the tax treatment of the transactions
that we do not specifically address. We express no opinion as to other federal
laws and regulations, or as to laws and regulations of other jurisdictions,
or
as to factual or legal matters other than as set forth herein.
Boards
of
Directors
FSB
Community Bankshares, MHC
FSB
Community Bankshares, Inc.
May
1,
2007
Page
2
For
purposes of this opinion, we rely on the representations as to certain factual
matters provided to us by the Company, as set forth in the affidavit of its
authorized officer. Capitalized terms used but not defined herein shall have
the
same meaning as set forth in the Stock Issuance Plan.
Description
of Proposed Transactions
Based
solely upon our review of the documents described above, and in reliance
upon
such documents, we understand that the relevant facts are as follows.
In
January 2005, pursuant to the Plan of Reorganization of Fairport Savings
Bank
From a Mutual Savings Bank to a Mutual Holding Company, the Bank reorganized
from a federally chartered mutual savings bank into the mutual holding company
structure (the “Reorganization”). As part of the Reorganization, the Bank became
a federally chartered stock savings bank wholly owned by the Company.
Simultaneously, the Company became wholly owned by the Mutual Holding
Company.
The
Company currently has 100 shares of common stock (“Common Stock”) outstanding,
which are 100% owned by the Mutual Holding Company. It is contemplated that
in
connection with the Offering, and based on the estimated valuation range
and the
purchase price of $10.00 per share, the Company will, immediately prior to
the
closing date of the Offering, issue to the Mutual Holding Company, in the
form
of a stock dividend, a number of additional shares of Company common stock
that,
when added to the 100 shares currently held, will range from 946,050 shares
to
1,279,950 shares (subject to adjustment to 1,471,942). The 100 shares of
Company
common stock now held by the Mutual Holding Company will remain
outstanding.
On
January 24, 2007, the Board of Directors of the Company adopted the Stock
Issuance Plan which provides for the offer and sale of up to 49.9% of the
shares
of Common Stock to qualified depositors and borrowers, the Bank’s tax-qualified
employee plans (“Employee Plans”) and, to the extent shares remain available,
members of the public in a community offering (“Community Offering”) or a
syndicated community offering (“Syndicated Community Offering”), or a
combination thereof.
The
Company is offering from 838,950 shares up to 1,135,050 shares of its Common
Stock for sale in the Offering (with a midpoint of 987,000 shares), which
represent 47% of the shares of Common Stock of the Company that will be
outstanding following the Offering. All shares of Common Stock sold in the
Offering will be issued from authorized but unissued shares
Boards
of
Directors
FSB
Community Bankshares, MHC
FSB
Community Bankshares, Inc.
May
1,
2007
Page
3
of
the
Company. Pursuant to the terms set forth herein, the Company will offer shares
of Common Stock to Eligible Account Holders, the Employee Plans, Supplemental
Eligible Account Holders and Other Members in the respective priorities set
forth in the Stock Issuance Plan. Any shares of Common Stock not subscribed
for
by the foregoing classes of persons may be offered for sale to certain members
of the general public, with preference first given to natural persons residing
in the New York counties of Livingston, Monroe, Ontario, Orleans or Wayne.
Any
shares of Common Stock not purchased in the Community Offering may be offered
for sale to the general public in a Syndicated Community Offering. The Offering
will have no impact on depositors, borrowers or other customers of the Bank.
The
Offering will be effected as follows, or in any other manner approved by
the
Office of Thrift Supervision (“OTS”). Each of the steps shall be deemed to occur
in such order as is necessary to consummate the Offering pursuant to the
Stock
Issuance Plan and the intent of the Board of Directors of the
Company.
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1.
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In
connection with the Offering, the Company will issue to the Mutual
Holding
Company between 946,050 shares and 1,279,950 shares of its Common
Stock,
in exchange for the 100 shares of Company Common Stock that the
Mutual
Holding Company presently holds.
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2.
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All
shares sold in the Offering will be issued by the Company from
authorized
but unissued shares of Common Stock. All Common Stock will be offered
for
sale in the Offering on a priority basis as set forth in the Stock
Issuance Plan.
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Opinions
Based
on
the foregoing description of the Offering, and subject to the qualifications
and
limitations set forth in this letter, we are of the opinion that the following
are the material federal income tax consequences of the Offering:
1. Neither
Mutual Holding Company nor Company will recognize gain or loss upon the exchange
by Mutual Holding Company of 100 shares of Company Common Stock it presently
holds for the shares of Company Common Stock issued in connection with the
Offering. See Section 1036 of the Code.
2. It
is
more likely than not that the fair market value of the non-transferable
subscription rights to purchase Company Common Stock will be zero. Accordingly,
no gain or loss will be recognized by Eligible Account Holders, Supplemental
Eligible Account Holders or Other Members upon the distribution to them of
the
nontransferable subscription rights to purchase Company Common Stock. No
taxable
income will be realized by the Eligible Account Holders, Supplemental Eligible
Account Holders or Other Members as a result of the exercise of the
nontransferable subscription rights. Rev. Rul. 56-572, 1956-2 C.B. 182.
Boards
of
Directors
FSB
Community Bankshares, MHC
FSB
Community Bankshares, Inc.
May
1,
2007
Page
4
3. It
is
more likely than not that the basis of the Company Common Stock to persons
who
purchase in the Offering will be the purchase price thereof. Section 1012
of the
Code. The holding period of a stockholder who purchases shares in the Offering
will commence upon the consummation of the sale of such Common Stock to such
stockholder pursuant to the exercise of the subscription rights. Section
1223(5)
of the Code.
4. No
gain
or loss will be recognized by Company on the receipt of money in exchange
for
Company Common Stock sold in the Offering. Section 1032 of the
Code.
Our
opinion under 2 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 opinions under 2 and 3 are based on the assumption
that
nontransferable subscription rights do not have any economic value at the
time
of distribution or the time the subscription rights are exercised. In this
regard, we note that the subscription rights will be granted at no cost to
the
recipients, will be legally non-transferable and of short duration, and will
provide the recipient with the right only to purchase shares of common stock
at
the same price to be paid by the general public in the Offering. We also
note
that the IRS has not in the past concluded that the subscription rights have
value. Based on the foregoing, we believe that it is more likely than not
that
the nontransferable subscription rights to purchase common stock have no
value.
However, the issue of whether or not the subscription rights have value is
based
on all the facts and circumstances. If the nontransferable subscription rights
are subsequently found to have an ascertainable value greater than zero,
income
may be recognized by various recipients of the nontransferable subscription
rights (in certain cases, whether or not the rights are exercised) and the
Company could recognize gain on the distribution of the nontransferable
subscription rights. Unlike private rulings, an opinion of Luse Gorman Pomerenk
& Schick, A Professional Corporation, is not binding on the IRS and the IRS
could disagree with the conclusions reached herein.
Boards
of
Directors
FSB
Community Bankshares, MHC
FSB
Community Bankshares, Inc.
May
1,
2007
Page
5
We
hereby
consent to the filing of this opinion as an exhibit to the Company’s
Registration Statement on Form SB-2 as filed with the SEC and the Company’s Form
MHC-2 Application for Approval of a Minority Stock Issuance by a Subsidiary
of a
Mutual Holding Company as filed with the OTS. We also consent to the references
to our firm in the Prospectus contained in the Form SB-2 and the Form MHC-2
under the caption “Legal and Tax Matters.”
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Very
truly yours,
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LUSE
GORMAN POMERENK & SCHICK,
A
PROFESSIONAL CORPORATION
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By:
/s/ Luse Gorman Pomerenk & Schick, P.C.
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