February 20, 1996
Re: Merger of Carnegie Bancorp with
Regent Bancshares Corp.
Carnegie Bancorp Regent Bancshares Corp.
619 Alexander Road 1430 Walnut Street
Princeton, New Jersey 0854 Philadelphia, Pennsylvania 19120
Ladies and Gentlemen:
You have requested our opinion with respect to certain Federal tax
consequences of a proposed transaction involving (1) the proposed merger of
Regent Bancshares Corp., a New Jersey corporation and registered bank holding
company ("Regent"), with and into Carnegie Bancorp, a New Jersey corporation and
registered bank holding company ("Carnegie"), with Carnegie as the surviving
corporation (the "Merger") and (2) immediately after the Merger, the proposed
merger of Carnegie Bank, N.A., a national banking association which is a
wholly-owned subsidiary of
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Regent Bancshares
February 20, 1996
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Carnegie ("CBN"), with and into Regent National Bank, a national banking
association which is a wholly-owned subsidiary of Regent ("Bank"), with the Bank
as the surviving corporation (the "Bank Merger").
The proposed two-part transaction is described in the section of this
letter entitled "Statement of Facts," and our opinion as to certain Federal tax
consequences of the transaction are set forth in the section of this letter
entitled "Opinion."
STATEMENT OF FACTS
The Merger will be effected pursuant to the provisions of a certain
Agreement and Plan of Merger dated as of August 30, 1995, by and among Carnegie,
CBN, Regent and the Bank (the "Agreement"). Capitalized terms used herein not
otherwise defined shall have the meanings given to such terms in the Agreement.
Pursuant to the Agreement, the Bank and CBN shall execute and deliver a separate
merger agreement (the "Bank Merger Agreement") for delivery to the Comptroller
of the Currency ("OCC") for approval of the Bank Merger. This opinion is
delivered pursuant to Section 6.1(d) of the Agreement.
Subject to the terms and conditions of the Agreement, at the Effective
Time, Regent shall be merged with and into
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Carnegie in accordance with the provisions of the New Jersey Business
Corporation Act ("NJBCA"), with Carnegie as the surviving corporation of the
Merger. Also, immediately following the Effective Time, the Bank shall be merged
with and into CBN in accordance with the National Bank Act, as amended, with CBN
as the surviving corporation.
Pursuant to the Agreement, at the Effective Time, each issued and
outstanding share of Regent Common Stock (other than Dissenting Shares, as
defined below) shall be canceled and converted into the right to receive .75
shares of Carnegie Common Stock.
Pursuant to the Agreement, at the Effective Time, each issued and
outstanding share of Regent Series A Preferred Stock (other than Dissenting
Shares) shall be canceled and extinguished and be converted into the right to
receive one share of Carnegie Series A Convertible Preferred Stock, $.10 par
value per share ("Carnegie Series A Preferred Stock") with substantially the
same terms, rights and conditions as the Regent Series A Preferred Stock, except
that (i) each share of such Carnegie Series A Preferred Stock shall be
convertible into 75 shares of Carnegie Common Stock and
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February 20, 1996
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(ii) holders of Carnegie Series A Preferred Stock shall be entitled to receive
an annual dividend of 0.075 shares of Carnegie Common Stock for each share of
Carnegie Series A Preferred Stock held, in each case subject to adjustment as
provided in Carnegie's Certificate of Incorporation.
Pursuant to the Agreement, at the Effective Time, each outstanding
Organizer Option shall be canceled and extinguished and converted into New
Options each of which shall be exercisable for .637213 shares of Carnegie Common
Stock at an exercise price based upon the weighted average exercise price of all
outstanding options to purchase Carnegie Common Stock held by officers and
directors of Carnegie as of the date of the Agreement. Such New Options shall
otherwise have the same terms and conditions, including expiration dates, as
those certain options granted by Carnegie to its officers and directors on June
28, 1995 (the "June Options").
Pursuant to the Agreement, prior to the Effective Time, Regent shall
provide notice of redemption to the holders of its Series B, C, D and E
Preferred Stock in accordance with their respective terms and, prior to the
Effective Time, each issued and outstanding share of Regent Series B, C, D and E
Preferred
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Stock shall be redeemed at a price of $10.00 per share.
Pursuant to the Agreement, at the Effective Time, each issued and
outstanding Organizer Warrant shall be canceled and extinguished and
converted into the right to receive, upon surrender of the certificates
representing such Organizer Warrants, .24325 shares of Carnegie Common Stock.
Pursuant to the Agreement, at the Effective Time, each issued and
outstanding Underwriter Option shall be canceled and converted into the right to
receive, upon surrender of the certificates or instruments representing such
Underwriter Options, one share of Carnegie Common Stock for each 19.645 shares
of Regent Common Stock purchasable pursuant to the Underwriter Options and
purchasable upon exercise of the warrants purchasable pursuant to the
Underwriter Options.
Pursuant to the Agreement, at the Effective Time, each Regent Stock
Option, Public Warrant and Put Option Warrant issued and outstanding shall be
canceled and converted into the right to receive, upon the surrender of the
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Regent Bancshares
February 20, 1996
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certificates or instruments representing such options or warrants, one share of
Carnegie Common Stock for each 7.5 shares of Regent Common Stock theretofore
purchasable upon the exercise of such Regent Stock Option, Public Warrant or Put
Option Warrant.
Pursuant to the Agreement and the Bank Merger Agreement, the issued
and outstanding shares of the capital stock of the Bank shall be canceled and
extinguished as a consequence of the Bank Merger. No additional stock of CBN
will be issued pursuant to the Bank Merger.
No fractional shares of Carnegie Common Stock will be issued in the
Merger, and in lieu thereof, any holder of any Regent stock and/or security who
would otherwise be entitled to receive a fractional share of Carnegie Common
Stock will receive an amount in cash determined by multiplying such fractional
interest by the average closing price of Carnegie Common Stock on the NASDAQ
National Market System during the first ten (10) trading days of the fifteen
(15) days immediately preceding the Effective Time.
Any holder of Regent Common Stock, Regent Series A
Preferred Stock or Carnegie Common Stock has the right to dissent
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from the transactions contemplated by the Agreement in the manner provided in
Section 14A:11-2 of the NJBCA. Subject to such qualifications and requirements
described more fully in the Agreement, such dissenting stockholders are entitled
to receive payment equal to the fair value of their shares in accordance with
the provisions of Section 14A:11-3 of the NJBCA ("Dissenting Shares").
* * *
In providing the opinions set forth below, we have requested and
received certain specific representations from Carnegie and Regent regarding the
Merger and the Bank Merger and related aspects of these transactions, all of
which are set forth below. We have expressly relied on such representations in
rendering our opinion. The parties to the Merger and the Bank Merger understand
and acknowledge that any inaccuracy in such representations (which shall be
deemed made as of the date of this letter and shall continue in force and effect
through the Effective Time) may cause some portion or all of the opinion set
forth herein to be undeliverable or inaccurate or inapplicable to the Merger or
Bank Merger in whole or in part. Specifically, Carnegie and Regent have
represented that:
1. The fair market value of the Carnegie Common Stock to be received
by each holder of Regent Common Stock in connection with the Merger will be
approximately equal to the fair market value
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of the Regent Common Stock surrendered in the Merger. The fair market value of
the Carnegie Series A Preferred Stock to be received by each holder of Regent
Series A Preferred Stock in connection with the Merger will be approximately
equal to the fair market value of the Regent Series A Preferred Stock
surrendered in the Merger.
2. Taking all due account of the fact that (1) Carnegie shall have the
option to redeem the Carnegie Series A Preferred Stock issued in the Merger and
(2) the holders of Carnegie Series A Preferred Stock shall have the right to
convert such Carnegie Series A Preferred Stock into Carnegie Common Stock, the
owners of Regent Common Stock and Regent Series A Preferred Stock shall receive
in the Merger, solely by virtue of owning Regent Common Stock and/or Regent
Series A Preferred Stock, a number of shares of Carnegie Common Stock and
Carnegie Series A Preferred Stock having a value, as of the date of the Merger,
equal to or greater than (50%) of the value of all of the formerly outstanding
shares of capital stock of Regent as of the same date. The Carnegie Common Stock
and the Carnegie Series A Preferred Stock issued in exchange for the Regent
Common Stock and/or Regent Series A Preferred Stock will not be redeemable, by
Carnegie, except as provided above.
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3. There is no plan or intention on the part of the shareholders of
Regent, who individually or collectively, own one percent (1%) or more of the
stock of Regent and, to the best knowledge of the management of Regent, there is
no plan or intention on the part of the remaining shareholders of Regent, to
sell, exchange, grant an option to buy, or otherwise dispose of a number of
shares of Carnegie Common Stock and/or Carnegie Series A Preferred Stock to be
received in the Merger that would cause the remaining shares of Carnegie Common
Stock and Carnegie Series A Preferred Stock owned by the former shareholders
of Regent to have a value, as of the date of the Merger, of less than fifty
percent (50%) of the value of all of the formerly outstanding shares of stock of
Regent as of the same date. For purposes of this representation, Dissenting
Shares or shares of Regent Common Stock or Regent Series A Preferred Stock
exchanged for cash in lieu of fractional shares of Carnegie Common Stock are
treated as outstanding stock of Regent on the date of the Merger. Moreover,
shares of Regent capital stock and shares of Carnegie capital stock held by
shareholders of Regent and otherwise sold, redeemed or disposed of prior to or
subsequent to the Merger are taken into account in making this representation.
4. Immediately prior to the Merger, Regent shall own and hold one
hundred percent (100%) of the issued and outstanding shares of the capital
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February 20, 1996
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stock of the Bank and no other shares of the capital stock of the Bank shall be
issued and/or outstanding.
5. Upon the completion of the Merger, Carnegie shall momentarily own
and hold 100% of the issued and outstanding shares of the capital stock of the
Bank and no other shares of the capital stock of the Bank shall be issued and/or
outstanding.
6. Upon the completion of the Merger, there will be no outstanding
rights, options, warrants, contracts, agreements, commitments or understandings
with respect to the capital stock of the Bank, nor will there be any securities
outstanding shall be convertible into the capital stock of the Bank.
7. Immediately prior to and after completion of the Merger and the
Bank Merger, Carnegie shall own and hold one hundred percent (100%) of the
issued and outstanding shares of the capital stock of CBN and no other shares of
the capital stock of CBN shall be issued and/or outstanding.
8. There is no plan or intention on the part of Carnegie to sell,
exchange, grant an option to buy, or otherwise dispose of a number of shares of
the stock of the Bank received
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Regent Bancshares
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in the Merger that would reduce Carnegie's ownership of the stock of the Bank to
a number of shares having a value, as of the time of the Bank Merger, of less
than fifty percent (50%) of the value of all of the formerly outstanding shares
of stock of the Bank as of the same time.
9. Carnegie has no plan or intention to sell or otherwise dispose of
any of the assets of Regent it acquires in the Merger, except for dispositions
appropriate in the ordinary course of business. CBN has no plan or intention to
sell or otherwise dispose of any of the assets of the Bank it acquires in the
Bank Merger, except for dispositions appropriate in the ordinary course of
business.
10. The payment of cash in lieu of fractional shares of Carnegie
Common Stock is solely for the purpose of avoiding the expense and inconvenience
to Carnegie of issuing fractional shares of Carnegie Common Stock and does not
represent separately bargained for consideration. The total cash consideration
that will be paid in the Merger to Regent shareholders in lieu of fractional
shares of Carnegie Common Stock will not exceed one percent (1%) of the
aggregate consideration that will be issued to all Regent shareholders with
respect to their Regent capital stock surrendered in the transaction.
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11. The liabilities of Regent to be assumed by Carnegie (if any) in
the Merger and the liabilities to which the transferred assets of Regent are
subject (if any) were incurred by Regent in the ordinary course of its business.
12. The liabilities of the Bank to be assumed by CBN (if any) in the
Bank Merger and the liabilities to which the transferred assets of the Bank are
subject (if any) were incurred by the Bank in the ordinary course of its
business.
13. Following the Merger, Carnegie will continue the historic business
of Regent and use a significant portion of Regent's historic business assets in
a business. Following the Bank Merger, CBN will continue the historic business
of the Bank and use a significant portion of the Bank's historic business assets
in a business.
14. Carnegie, Regent, CBN, the Bank and the shareholders of Regent
will pay their own respective expenses, if any, incurred in connection with the
Merger and/or the Bank Merger.
15. There is no intercorporate indebtedness existing between Regent
and Carnegie on one hand or the Bank and CBN on
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the other hand that was issued, acquired, or will be settled at a discount in
connection with the Merger and/or the Bank Merger.
16. No parties to the Merger or Bank Merger are investment companies
as defined in Code Section 368(a)(2)(F)(iii) of the Internal Revenue Code of
1986, as amended (the "Code").
17. Neither Regent nor the Bank are under the jurisdiction of a court
in a Title 11 or similar case within the meaning of Code Section 368(a)(3)(A).
18. The fair market value of the assets of Regent to be transferred to
Carnegie in the Merger will be equal to or will exceed the sum of the
liabilities to be assumed by Carnegie pursuant to the Merger, as increased by
any liabilities to which the transferred assets are subject. The fair market
value of the assets of the Bank to be transferred to CBN in the Merger will be
equal to or will exceed the sum of the liabilities to be assumed by CBN pursuant
to the Merger, as increased by any liabilities to which the transferred assets
are subject.
19. The Merger is based on valid business purposes
unrelated to the avoidance of Federal income tax and will
constitute a statutory merger under the laws of the states of
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incorporation and the applicable jurisdictions of the corporations involved in
the Merger. The Bank Merger is based on valid business purposes unrelated to the
avoidance of Federal income tax and will constitute a statutory merger under the
laws of the states of incorporation and the applicable jurisdictions of the
corporations involved in the Bank Merger.
20. Pursuant to the Merger, Carnegie will acquire ninety percent (90%)
or more of the fair market value of the net assets and seventy percent (70%) or
more of the fair market value of the gross assets owned and held by Regent
immediately prior to the Merger. For purposes of this representation, amounts
paid by Regent to dissenting shareholders of Regent, with respect to Dissenting
Shares, assets of Regent used to pay its reorganizational expenses and all cash
paid with respect to redemptions and distributions (except for regular
dividends) undertaken by Regent immediately prior to the Merger are included as
assets of Regent held immediately prior to the Merger.
21. Pursuant to the Bank Merger, CBN will acquire ninety percent (90%)
or more of the fair market value of the net assets and seventy percent (70%) of
the fair market value of the gross assets owned and held by the Bank immediately
prior to the Bank Merger. For purposes of this representation, assets of the
Bank
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used to pay its reorganizational expenses and all cash paid with respect to
redemptions and distributions (except for regular dividends) undertaken by the
Bank immediately prior to the Bank Merger are included as assets of the Bank
held immediately prior to the Bank Merger.
22. None of the compensation received by any shareholder of Regent
who is also an employee of Regent or the bank shall be separate consideration
for, or allocable to, any of his or her shares of Regent capital stock acquired
by Carnegie in the Merger; none of the shares of Carnegie capital stock issued
in the merger shall constitute separate consideration for, or be allocable to,
any employment agreement; and the compensation paid to any shareholder who is
also an employee of Regent or the Bank shall be for services actually rendered
and will be commensurate with amounts paid to third parties bargaining at arm's
length for similar services.
23. No stock of CBN will be issued in the Bank Merger and Carnegie and
CBN have no plan or intention to grant any options to buy stock of CBN.
LIMITATIONS ON OPINION
Our opinion expressed herein is based solely upon the facts and
representations set forth above and in the
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Agreement, the Bank Merger Agreement and in the Registration Statement/Form S-4
prepared by Carnegie. To the extent any of the facts or representations relied
on by us are not truthful or are inaccurate to any extent, the opinion contained
herein would necessarily have to be modified in whole or in part or may be
rendered undeliverable.
We have examined the Agreement, the Bank Merger Agreement and the
Registration Statement/Form S-4 prepared by Carnegie. In such examination, we
have assumed the genuineness of all signatures and the authenticity of all
documents submitted to us. As to any facts material to our opinion expressed
herein, we have relied on the documents described above and the representations
of the parties to the Merger and the Bank Merger set forth above without
undertaking to verify any such facts by independent investigation.
Our opinion is based on our analysis of the Code, the applicable
United States Treasury Department Regulations promulgated or proposed thereunder
(the "Regulations"), current positions of the Internal Revenue Service (the
"Service") contained in published revenue rulings and revenue procedures,
current administrative positions of the Service and existing judicial decisions,
all of which are subject to change or modification at any time. Any future
amendment or
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amendments to the Code, the Regulations or new Federal judicial decisions or
administrative interpretations, any of which could be retroactive in effect,
could cause the opinion set forth herein to require modification or could render
such opinion undeliverable. No opinion is expressed herein with regard to the
Federal tax consequences of the Merger and/or the Bank Merger under any sections
of the Code except if and to the extent such section is specifically referenced
below.
OPINION
Based solely upon the forgoing facts and representations, assuming the
proposed two-part transaction occurs in accordance with the Agreement and the
Bank Merger Agreement (and taking into consideration the limitations set forth
above and at the end of this opinion), it is our opinion that under current
Federal tax law:
1. The Merger will qualify as a "reorganization" within
the meaning of Code Section 368(a)(1)(A). The Bank Merger
will qualify as a "reorganization" within the meaning of Code
Section 368(a)(1)(A).
2. No gain or loss will be recognized for Federal
income tax purposes by Regent on the transfer of its assets to
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Carnegie and the assumption by Carnegie of Regent's liabilities pursuant to the
Merger. Code Sections 361(a) and 357(a).
3. Carnegie will recognize no gain or loss for Federal income tax
purposes upon the receipt by Carnegie of Regent's assets in exchange for
Carnegie Common Stock and Carnegie Series A Preferred Stock, the assumption by
Carnegie of the liabilities of Regent, and payments by Carnegie to shareholders
of Regent in lieu of fractional shares, all in accordance with and pursuant to
the Merger. Code Section 1032.
4. No gain or loss will be recognized for Federal income tax purposes
by the Bank on the transfer of its assets to CBN and the assumption by CBN of
the Bank's liabilities pursuant to the Bank Merger. Code Sections 361(a) and
357(a).
5. Neither Carnegie nor CBN will recognize any gain or loss for
Federal income tax purposes upon the receipt by CBN of the Bank's assets and the
assumption by CBN of the Bank's liabilities in accordance with and pursuant to
the Bank Merger. Code Section 1032 and Proposed Regulation Section 1.1032-2.
6. No gain or loss will be recognized for Federal
income tax purposes by the holders of Regent Common Stock who,
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pursuant to the Merger, receive no consideration for such Regent Common Stock
other than Carnegie Common Stock (except to the extent holders of Regent Common
Stock receive cash in lieu of fractional shares of Carnegie Common Stock in
connection with the Merger pursuant to the Agreement). No gain or loss will be
recognized for Federal income tax purposes by holders of Regent Series A
Preferred Stock who, pursuant to the Merger, receive no consideration for such
Regent Series A Preferred Stock other than Carnegie Series A Preferred Stock.
Code Section 354(a).
7. Holders of Regent Common Stock receiving cash in lieu of fractional
shares of Carnegie Common Stock will be treated for Federal income tax purposes
as if such fractional shares of Carnegie Common Stock had been issued by
Carnegie and then subsequently redeemed by Carnegie and will be taxed on any
gain recognized in such deemed redemption in an amount which shall not exceed
the amount of cash received. Code Section 356(a). Whether the cash received by a
holder of Regent Common Stock in lieu of fractional shares of Carnegie Common
Stock is characterized as a dividend (taxable as ordinary income) or as payment
in exchange for Carnegie Common Stock (taxable as capital gain) will depend on
whether such distribution of cash, when viewed as part of the Merger as a whole
and as the proceeds of a redemption by Carnegie, more closely resembles or
represents a dividend distribution or, alternatively, a payment
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in exchange for Carnegie Common Stock under principles analogous to those set
forth in Code Section 302(b).
8. The basis of the Carnegie Common Stock and/or the Carnegie Series A
Preferred Stock received (as the case may be) by the holders of Regent Common
Stock and/or Regent Series A Preferred Stock and exchanged for such stock
pursuant to the Merger will be, in each instance, the same as the adjusted basis
of the Regent Common Stock and/or Regent Series A Preferred Stock (as the case
may be) surrendered in exchange therefor. Code Section 358(a).
9. The holding period of the Carnegie Common Stock and/or Carnegie
Series A Preferred Stock received by the holders of Regent Common Stock and/or
Regent Series A Preferred Stock and exchanged for such Regent capital stock
pursuant to the Merger will include the period during which such holders of
Regent Common Stock and Regent Series A Preferred Stock held such Regent capital
stock, provided that the Regent Common Stock and/or Regent Series A Preferred
Stock (as the case may be) to be surrendered in the Merger is held as a
capital asset by the holders thereof. Code Section 1223(1).
10. Carnegie's tax basis in the assets of Regent received by Carnegie
pursuant to the Merger will be, in each instance, the same as the adjusted tax
basis of Regent in
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such assets immediately prior to the Merger. Code Section
362(b).
11. CBN's tax basis in the assets of the Bank received by CBN in
connection with the Bank Merger will be, in each instance, the same as the
adjusted tax basis of the Bank in such assets immediately prior to the Bank
Merger. Code Section 362(b).
12. The holding period of the assets of Regent
received by Carnegie in connection with the Merger shall include
the period during which Regent held such assets. Code Section
1223(2).
13. The holding period of the assets of the Bank
received by CBN in connection with the Bank Merger shall include
the period during which the Bank held such assets. Code Section
1223(2).
We express no opinion with regard to the Federal tax consequences that
can be anticipated by the holders of Regent Series B, C, D and E Preferred
Stock, or by holders of Organizer Options, Organizer Warrants,
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Underwriter Options, Regent Stock Options, Public Warrants or Put Options
Warrants or that can be anticipated by Carnegie or Regent as a result of the
redemption, cancellation and/or conversion of Regent Series B, C, D and E
Preferred Stock, Organizer Options, Organizer Warrants, Underwriter Options,
Regent Stock Options, Public Warrants or Put Option Warrants pursuant to the
Merger, the Bank Merger or any related transactions.
The foregoing opinion provides only a summary of certain Federal
income tax consequences of the Merger and the Bank Merger and does not purport
to be a complete analysis or listing of all potential tax effects.
Since this letter is being provided in advance of the Effective Time
and prior to the consummation of the Merger and Bank Merger, we have
assumed that the Merger and the Bank Merger will be consummated in accordance
with the Agreement and the Bank Merger Agreement, and that the facts and
representations on which we have relied will remain unchanged from the date of
this letter through the Effective Time. Any change in the terms or provisions of
the Merger or Bank Merger or in any related fact, circumstance, representation
or transaction may necessitate the modification or withdrawal of our opinion.
In the event any such change occurs, we will have no obligation to modify our
opinion as set forth herein unless we are requested to do so in writing by you
and are advised of any and all such changes. This opinion represents our views
as to the interpretation of existing law and cannot be taken as an assurance
as to the manner in which the law will subsequently develop. Accordingly, no
assurance can be given that the Service
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will not alter its present positions as they relate to our opinion either
prospectively, or retrospectively, or will not adopt new positions with regard
to any of the matters upon which we are rendering an opinion, nor can any
assurance be given that the Service will not audit Carnegie, Regent, CBN or the
Bank and/or question or challenge any portion or aspect of the opinion expressed
herein. The Service is not bound in any way by the opinion expressed herein.
We consent to the inclusion of this opinion as an exhibit to the
Registration Statement/Form S-4 of Carnegie and to the references to and the
summary of this opinion in such Registration Statement/Form S-4.
Except as provided above, this opinion is delivered solely for the
benefit of Carnegie, Regent, and the shareholders of Carnegie and Regent and may
not be relied upon by, nor may copies be delivered to, any other person without
our prior written consent.
Very truly yours,
McCarter & English