EXHIBIT 8 OPINION RE TAX MATTERS
WATKINS LUDLAM WINTER & STENNIS, P.A. 633 North State Street (39202) Tel (601) 949-4900 Post Office Box 427 Fax (601) 949-4804 Jackson, Mississippi 39205 www.watkinsludlam.com MEMBER: MERITAS LAW FIRMS WORLDWIDE [ ], 2006 Board of Directors: The First Bancshares, Inc. 6480 U.S. Highway 98 Hattiesburg, Mississippi 39402 Board of Directors: First National Bank of Wiggins 124 Border Avenue Wiggins, Mississippi 39577 Re: The Federal Income Tax Consequences of Certain Matters Arising Under the Corporate Reorganization Provisions of the Internal Revenue Code of 1986, As Amended Gentlemen: You have requested our opinion regarding the federal income tax consequences of the proposed merger of First National Bank of Wiggins, Wiggins, Mississippi, a national banking association ("FNB Wiggins") with and into The First, A National Banking Association, Hattiesburg, Mississippi, ("The First") (the "Merger"). Unless otherwise noted, the capitalized terms herein shall have the same meaning ascribed to such terms in that certain Agreement and Plan of Merger by and among The First Bancshares Inc., Hattiesburg, Mississippi, a Mississippi corporation and registered bank holding company ("First Bancshares"), The First and FNB Wiggins, dated as of May 19, 2006 (the "Merger Agreement"). This opinion is rendered in satisfaction of the closing condition described in Section 9.1(e) of the Merger Agreement. We have examined and are familiar with the Merger Agreement regarding the proposed transactions, the Proxy Statement / Prospectus of First Bancshares and FNB Wiggins dated [ ], 2006, regarding the proposed transactions, certain financial statements of the parties to the proposed Merger, and such other documents as we have deemed sufficient to enable us to express our informed opinion. In our examination, we have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified, conformed or photostatic copies and the authenticity of the originals of such copies. In rendering this opinion we have relied not only on such documents but also on the representations and statements of the parties to the proposed Merger, some of which are stated in the Certificates, attached hereto as Exhibits "A" and "B", regarding certain matters addressed in this opinion, and the following factual information supplied by the parties to the proposed Merger Agreement. I. BACKGROUND FACTS CONCERNING CORPORATE PARTIES A. First Bancshares and The First First Bancshares is a bank holding company headquartered at 6480 U.S. Highway 98 West, Hattiesburg, Mississippi 39402. Its principal subsidiary is The First, a National Banking Association. The First serves the cities of Bay St. Louis, Hattiesburg, Laurel, Pascagoula, Picayune, Purvis, and the surrounding areas of Forrest, Hancock, Jackson, Jones, Lamar, and Pearl River Counties in Mississippi. As of June 30, 2006, First Bancshares had total assets of $300.4 million; total deposits of $247.4 million, total loans of $204.4 million, and shareholders' equity of $18.3 million.
[ ], 2006 Page 2 The First is a national banking association headquartered at 6480 U.S. Highway 98 West, Hattiesburg, Mississippi 39402. The First also has branch offices located at: (1) 835 Hwy 90, Suite 4 in Bay St. Louis, Hancock County, Mississippi; (2) 631 Hwy 589 in Purvis, Lamar County, Mississippi; (3) 2702 Lincoln Road in Hattiesburg, Forrest County, Mississippi; (4) 3318 Hardy Street in Hattiesburg, Forrest County, Mississippi; (5) Hwy 15 North in Laurel, Jones County, Mississippi; (6) 1506-B Hwy 43 South in Picayune, Pearl River County, Mississippi; and (7) 1126 Jackson Avenue, Suite 101 in Pascagoula, Jackson County, Mississippi. The First provides a full complement of consumer and commercial banking services in south Mississippi. First Bancshares and The First each have the corporate power and authority to own, lease and operate their properties and assets and to carry on their businesses as they are now being conducted. First Bancshares has 10,000,000 shares of authorized Common Stock, $1.00 par value (the "First Bancshares Common Stock"), and authority to issue up to 10,000,000 shares of Preferred Stock, $1.00 par value, with such preferences, limitations, and relative rights as determined by the Board of Directors. No shares of preferred stock are currently issued and outstanding. As of the date of the Merger, [2,375,200] shares of First Bancshares Common Stock were issued and outstanding. The outstanding shares of First Bancshares Common Stock are validly issued and outstanding, fully paid and nonassessable. First Bancshares does not own, directly or indirectly, five percent (5%) or more of the outstanding capital stock or other voting securities of any corporation, bank, or other organization except The First. The presently authorized capital of The First consists solely of 10,000,000 shares of common stock of the par value of $5.00 each (the "The First Common Stock") and no preferred stock. As of the date hereof, [529,896] shares of The First Common Stock were issued and outstanding. The outstanding shares of The First Common Stock are validly issued and outstanding, fully paid and nonassessable and all (100%) of such shares are owned directly or indirectly by First Bancshares, free and clear of all liens, claims and encumbrances. The shares of First Bancshares Common Stock to be issued in connection with the Merger pursuant to the Merger Agreement have been duly authorized and, when issued in accordance with the terms of the Merger Agreement, will be validly issued, fully paid, and nonassessable. First Bancshares and The First are engaged only in the general banking business and activities closely related to banking, as authorized by the banking laws of the United States, the State of Mississippi, and the regulations issued pursuant thereto. The books of account of First Bancshares and The First are maintained on a calendar year basis and First Bancshares computes its income under the accrual method of accounting. First Bancshares is the parent of an affiliated group that, for federal income tax purposes, includes The First. B. FNB Wiggins FNB Wiggins is a national banking association headquartered at 124 Border Avenue, Wiggins, Mississippi 39577. FNB Wiggins provides various consumer and commercial banking services to Wiggins and Stone County, Mississippi. FNB Wiggins has the corporate power and authority to own, lease and operate its properties and assets and to carry on its business as it is now being conducted. The authorized capital of FNB Wiggins consists solely of 50,000 shares of common stock of the par value of $10.00 each (the "FNB Wiggins Common Stock") and no preferred stock. As of the date hereof, [23,728] shares of such authorized common stock were issued and outstanding. The outstanding shares of FNB Wiggins Common Stock are validly issued and outstanding, fully paid and nonassessable. There are no outstanding options, conversion rights, warrants, calls, rights, commitments or agreements to issue any form of stock or other security of FNB Wiggins. There are no outstanding obligations or commitments to purchase, redeem or otherwise acquire any outstanding shares of common stock of FNB Wiggins. FNB Wiggins does not own, directly or indirectly, five percent (5%) or more of the outstanding capital stock or other voting securities of any corporation, bank, or other organization.
[ ], 2006 Page 3 FNB Wiggins is engaged only in the general banking business and activities closely related to banking, as authorized by the banking laws of the United States of America and the regulations issued pursuant thereto. The books of account of FNB Wiggins are maintained on a calendar year basis and FNB Wiggins computes its income under the accrual method of accounting. II. BUSINESS REASONS FOR AND DESCRIPTION OF THE PROPOSED MERGER A. Reasons for the Merger In reaching its determination that the Merger and Merger Agreement are fair to and in the best interests of FNB Wiggins and its shareholders, the FNB Wiggins Board consulted with its legal and financial advisors, as well as with FNB Wiggins' management, and considered a number of factors, including, without limitation, the following: (a) the enhanced opportunities for operating efficiencies (particularly in terms of integration of operations, data processing and support functions, although the FNB Wiggins Board did not quantify such anticipated operating efficiencies) that could result from the Merger, the enhanced opportunities for growth that the Merger would make possible, and the respective contributions the parties would bring to a combined institution; (b) that upon consummation of the Merger, First Bancshares and its banking subsidiary would continue to be well capitalized institutions, the financial positions of which would be in excess of all applicable regulatory capital requirements; (c) the fact that the value assigned under the terms of the Merger Agreement to the shares of First Bancshares Common Stock which will be received by holders of FNB Wiggins Common Stock is $19.00, while the actual trading price of shares of First Bancshares Common Stock on the NASDAQ stock exchange on the date of the Merger Agreement was [$21.60]; (d) First Bancshares and The First were the most attractive choice as a long-term affiliation partner of FNB Wiggins; (e) the expectation that the Merger will generally be a tax-free transaction of FNB Wiggins and its shareholders to the extent such shareholders receive shares of First Bancshares Common Stock; (f) the current and prospective economic and regulatory environment and competitive constraints facing FNB Wiggins and the banking and financial institutions in FNB Wiggins' market area; (g) the fact that inquiries of five other financial institutions regarding a potential business combination did not result in a more favorable proposal than the First Bancshares proposal; (h) the recent business combinations involving financial institutions, either announced or completed, during the past year in the United States, the State of Mississippi and contiguous states and the effect of such combinations on competitive conditions in FNB Wiggins' market area; and (i) the terms of the Consent Order and, based on historical efforts of FNB Wiggins since the issuance of the Consent Order, the reasonable likelihood that FNB Wiggins would not reach a more favorable solution to resolve the sell, merge, or liquidate requirements under the Consent Order. Based on the foregoing, the FNB Wiggins board approved the Merger Agreement and unanimously recommended that the holders of FNB Wiggins Common Stock vote "for" approval of the Merger Agreement.
[ ], 2006 Page 4 The boards of directors of First Bancshares and The First believe that by expanding the customer base of The First into the FNB Wiggins service territory, the Merger should enhance the earnings capacity of First Bancshares and The First by enabling The First to deliver products and provide services to that enlarged customer base, and by permitting cost savings through consolidation of operations. In addition, the boards of directors of First Bancshares and The First believe that the combination of The First and FNB Wiggins will allow The First and FNB Wiggins to increase overall efficiency and take advantage of economies of scale in several areas. In evaluating the Merger, the boards of directors of The First and First Bancshares considered a variety of factors, including the respective results of operations, financial condition and prospects of First Bancshares, The First, and FNB Wiggins; the compatibility and complementary nature of the respective businesses and managerial philosophies of First Bancshares, The First, and FNB Wiggins; and the relative prices paid in recent acquisitions of financial institutions. As a result of the greater economic strength flowing from the Merger, the resulting bank will be able to render increased banking services to the banking public in the respective relevant geographic markets of each of the banks party to this transaction. The merger will further the economic progress and development of the market areas currently served by The First in Mississippi and of the market areas currently served by FNB Wiggins in Mississippi. B. Description of Proposed Merger The proposed Merger will be structured in accordance with the preceding statements of background facts, the Merger Agreement, the laws of the State of Mississippi and the United States, the representations of the parties to the transactions, and the following descriptions: Upon consummation of the Merger, FNB Wiggins will be merged with and into The First and the FNB Wiggins Common Stock issued and outstanding at the Effective Date (other than holders of Dissenting Shares) will be converted into the right to receive and be exchangeable for cash and shares of First Bancshares Common Stock in the amount of the Merger Consideration. Upon completion of the Merger, FNB Wiggins shareholders will receive in the aggregate cash and stock of First Bancshares having a combined value of approximately $4,152,400 ("Merger Consideration"). This approximate value is based upon the terms of the Merger Agreement, which states that FNB Wiggins shareholders will receive approximately $175.00 in value (in the form of cash and/or First Bancshares Common Stock as described below) for each share of FNB Wiggins Common Stock they own. For purposes of the Merger Consideration, the Merger Agreement states that First Bancshares Common Stock will be valued at $19.00. Shares of First Bancshares Common Stock were trading for [$21.60] on the NASDAQ stock exchange on day prior to the date of this letter, and said shares have traded on that same exchange for prices ranging from [$12.50 to $32.00] between the date of the Merger Agreement and the day prior to the date of this letter. Under the terms of the Merger Agreement, FNB Wiggins shareholders will be entitled to receive the Merger Consideration, consisting of $87.50 per share in cash ("Cash Element") and 4.605 shares of First Bancshares Common Stock ("Stock Element"), in exchange for each share of FNB Wiggins Common Stock owned by them, representing approximately 50% cash and 50% stock as consideration for their shares. As a result of the Merger and subject to certain limitations provided for within the Merger Agreement, shares of FNB Wiggins Common Stock issued and outstanding immediately prior to the Effective Date, other than Dissenting Shares, shall by virtue of the Merger be converted into and represent the right to receive the Stock Element, the cash payable in lieu of fractional shares, and the Cash Element less a pro rata share of Seven Hundred and Eighty Thousand Dollars ($780,000) in Consideration Deductions (which represents $32.873 per share of outstanding FNB Wiggins Common Stock), which are defined as follows: (i) Two Hundred and Eighty Thousand Dollars ($280,000) which represents a maximum of 50% of the cost of cancellation of FNB Wiggins' data processing contract with Brasfield Technology, LLC; (ii) Two Hundred Thousand Dollars ($200,000) which represents a potential payment under that certain Confidential Term Sheet between FNB Wiggins and Richton Bank & Trust Company dated January 20, 2006 ("Richton Letter of Intent"); and (iii) Three Hundred Thousand Dollars ($300,000) to account for potential losses related to the Mortgage Loan Purchase and Sale Agreements dated October 31, 2005 and December 16, 2005.
[ ], 2006 Page 5 On the Effective Date, First Bancshares shall deposit into an escrow account cash in the amount of the Consideration Deductions (the "Escrow Fund") in accordance with the terms of the escrow agreement which is attached to the Merger Agreement as Exhibit E ("Escrow Agreement"). A distribution to the holders of FNB Wiggins Common Stock (other than holders of dissenting shares) of certain portions of the Escrow Fund remaining after the payment of any Actual Loss (as defined in the Escrow Agreement) shall be made in accordance with the methods stated in the Escrow Agreement and upon the occurrence of each of the following events: (a) the date of the execution of a settlement and release or the entering of a final judgment with regards to any amounts owed by FNB Wiggins to Brasfield Technology, LLC, for termination fees related to the termination of the data processing agreement between FNB Wiggins and Brasfield Technology, LLC; (b) the date of the execution of a settlement and release or the entering of a final judgment with regards to the suit brought by Richton Bank & Trust Company against FNB Wiggins for breach of the Richton Letter of Intent; and (3) December 16, 2006, with regards to any amounts paid according to that certain Mortgage Loan Purchase and Sale Agreements whereby FNB Wiggins sold certain assets with recourse to SNGC, LLC. Notwithstanding the foregoing, on May 19, 2009, or upon the earlier termination of the Escrow Agreement, whichever occurs first, the balance remaining in the Escrow Fund shall be distributed to the holders of FNB Wiggins Common Stock (other than holders of dissenting shares) in accordance with the terms of the Escrow Agreement. If prior to the Effective Date the outstanding shares of First Bancshares Common Stock shall be increased, decreased, changed into or exchanged for a different number or class of shares by reason of any reclassification, recapitalization, stock split or reverse stock split, split-up or if a stock dividend thereon shall be declared with a record date within such period, or by reason of a combination or exchange of shares in a transaction in which First Bancshares is effectively acquired, or other like changes in First Bancshares' capitalization shall have occurred, then the Merger Consideration shall be adjusted accordingly. The Merger Consideration was determined by a process of arm's length negotiations involving the managements of FNB Wiggins, The First, and First Bancshares and their respective advisors. The number of shares of First Bancshares Common Stock which will be issued upon consummation of the Merger [109,274 shares] will constitute approximately [4.40%] of the shares of First Bancshares Common Stock outstanding immediately after the Effective Date. These calculations do not make any adjustment for fractional shares or Dissenting Shares and are based upon the number of shares of FNB Wiggins Common Stock and First Bancshares Common Stock outstanding on the Record Date. No fractional shares of First Bancshares Common Stock will be issued in the Merger. Any FNB Wiggins shareholder otherwise entitled to receive a fractional share of First Bancshares Common Stock will be paid a cash amount in lieu of any such fractional share determined by multiplying (i) the Merger Agreement Price of First Bancshares Common Stock ($19.00), by (ii) the fraction of a share of First Bancshares Common Stock to which such holder would otherwise be entitled. After the Merger, First Bancshares and The First will continue their historic businesses in a substantially unchanged manner and in their current corporate form. III. DISCUSSION OF APPLICABLE REORGANIZATION PROVISIONS In form, the Merger satisfies the requirements for treatment as a tax-free reorganization under Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code"). These Code sections describe a statutory merger or consolidation under state law using stock of a parent corporation as consideration for the merger. In the transactions contemplated within the Merger Agreement, FNB Wiggins will merge under state law with and into The First with The First surviving the transaction. The aggregate fair market value of the First Bancshares Common Stock portion of the Merger Consideration will, on the Effective Date of the Merger, constitute at least fifty percent (50%) of the total fair market value of the Merger Consideration exchanged in the Merger No consideration other than cash and First Bancshares Common Stock will be issued as Merger Consideration. All of the outstanding shares of FNB Wiggins Common Stock shall be retired in the transaction and The First shall continue to be a wholly-owned subsidiary of First Bancshares. Following the transactions, The First will continue to conduct its and FNB Wiggins's historic banking businesses using substantially all, if not all, of the companies' historic assets. No less than 90% of the existing FNB Wiggins shareholders will continue to own, indirectly through their ownership of First Bancshares Common Stock, the stock of FNB Wiggins. Accordingly, the Merger should constitute a tax-free "A" reorganization as set forth in Code Section 368(a)(1)(A) and Code Section 368(a)(2)(D).
[ ], 2006 Page 6 IV. OPINION In reliance upon the foregoing facts and the representations of the parties to the Merger transactions, and based upon our review of such documents and consideration of such legal matters as we have deemed relevant and sufficient to enable us to render an informed opinion, we are of the opinion that the federal income tax consequences of the proposed Merger will be as follows: 1. Provided the proposed merger of FNB Wiggins with and into The First qualifies as a statutory merger under applicable state or federal law, the acquisition by The First of all of the assets of FNB Wiggins solely in exchange for the First Bancshares Common Stock and cash, wherein the First Bancshares Common Stock constitutes at least 50% of the total fair market value of all Merger Consideration, will constitute a reorganization within the meaning of Code Section 368(a)(1)(A). First Bancshares, The First and FNB Wiggins will each be "a party to a reorganization" within the meaning of Code Section 368(b). 2. No gain or loss will be recognized to FNB Wiggins on the transfer of all of its assets to The First, and the assumption by The First of the liabilities of FNB Wiggins and the liabilities to which the transferred assets are subject (Code Sections 361(b)(1)(A) and 357(a)). 3. No gain or loss will be recognized to The First upon the receipt by The First of all of the assets of FNB Wiggins and the assumption by The First of the liabilities of FNB Wiggins and the liabilities to which the transferred assets are subject (Rev. Rul. 57-278, 1957-1 C.B. 124). 5. The basis of the assets of FNB Wiggins in the hands of The First will be, in each instance, the same as the basis of those assets in the hands of FNB Wiggins immediately prior to the Merger (Code Section 362(b)). 6. The holding period of FNB Wiggins' assets in the hands of The First will, in each instance, include the period during which such assets were held by FNB Wiggins (Code Section 1223(2)). 7. Gain, if any, will be realized by the FNB Wiggins shareholders who receive First Bancshares Common Stock and cash in exchange for their FNB Wiggins Common Stock. Such gain will be recognized, but not in excess, in each instance, of the sum of such cash received (Code Section 356(a)(1)). If the exchange has the effect of the distribution of a dividend (determined with the application of Code Section 318(a)), then the amount of the gain recognized that is not in excess of the FNB Wiggins shareholder's ratable share of undistributed earnings and profits will be treated as a dividend (Code Section 356(a)(2)). The determination of whether the exchange has the effect of the distribution of a dividend must be made on a shareholder-by-shareholder basis in accordance with the principles set forth in Commissioner v. Clark, 489 U.S. 726 (1989), Rev. Rul. 93-61, 1993-2 C.B. 118, and United States v. Davis, 397 U.S. 301 (1970). The remainder, if any, of the gain recognized will be treated as gain from the exchange of property. No loss will be recognized on the exchange of FNB Wiggins Common Stock for the First Bancshares Common Stock and cash (Code Section 356(c)). 8. No gain or loss will be recognized by First Bancshares or The First as a result of the cancellation of the FNB Wiggins Common Stock. 9. The basis of the First Bancshares Common Stock to be received by the FNB Wiggins shareholders (including any fractional share interests to which they may be entitled) will be, in each instance, the same as the basis of the FNB Wiggins Common Stock surrendered in exchange therefor, decreased by the amount of cash received, and increased by (i) the amount that is treated as a dividend, and (ii) any gain recognized on the exchange (not including any portion of the gain that is treated as a dividend) (Code Section 358(a)(1)).
[ ], 2006 Page 7 10. The holding period of the First Bancshares Common Stock to be received by the FNB Wiggins shareholders (including any fractional share interests to which they may be entitled) will include, in each case, the period during which the FNB Wiggins Common Stock surrendered in exchange therefor was held, provided that the FNB Wiggins Common Stock is held as a capital asset in the hands of the FNB Wiggins shareholder on the date of the Merger (Code Section 1223(1)). 11. The payment of cash to FNB Wiggins shareholders in lieu of fractional shares of First Bancshares Common Stock will be treated for federal income tax purposes as if the fractional shares were distributed as part of the reorganization exchange and then redeemed by First Bancshares. The cash payments will be treated as having been received as distributions in redemption of such stock, subject to the provisions and limitations of Code Section 302 (Rev. Rul. 66-365, 1966-2 C.B. 116; Rev. Proc. 77-41, 1977-2 C.B. 574). We have qualified our opinions by reference to the Code, the Treasury Regulations promulgated thereunder, and existing judicial and administrative interpretations thereof. In so opining, we have relied upon the foregoing facts and representations and have reviewed such documents and have considered such legal matters as we have deemed relevant and sufficient to enable us to render an informed opinion. We have also relied, to some extent, on the oral representations and statements of representatives of the parties with respect to the foregoing factual determinations. While we have not been requested nor have we undertaken to make independent investigations to verify such representations and statements, based upon our discussions with representatives of the parties and our limited review of certain background material, we believe that it is reasonable for us to rely on such representations and statements. Our opinion is limited to the specific opinions expressed above, and no other opinions are intended nor should they be inferred. An opinion of counsel has no binding effect upon the Service and no assurances can be given that the conclusions reached in any opinion will not be contested by the Service, or if contested, will be sustained by a court. The opinions we have expressed above are based on the facts and representations outlined herein being correct in all material respects as of the dates indicated or at the time of the proposed transactions as the case may be. In the event that one or more of the facts or representations are incorrect for any such time, our opinion would likely be substantially different than that expressed above. Moreover, by rendering this opinion, we do not obligate ourselves to update our opinion due to subsequent events which may arise after the date of this opinion. We note that the Certificates attached hereto as Exhibits are an integral part of this opinion letter. The opinion expressed herein is for the sole benefit of First Bancshares, The First and FNB Wiggins, together with their respective shareholders, and is not to be delivered to or relied upon by any other party without our prior written consent. Notwithstanding the foregoing, we hereby consent to the use of this draft form of opinion as an exhibit to the Registration Statement and to the reference to our firm under the caption "Legal Matters" in the Prospectus contained in the Registration Statement. Very truly yours, WATKINS LUDLAM WINTER & STENNIS, P.A.