EXHIBIT 8.1
[LETTERHEAD OF SILVER, FREEDMAN & TAFF, L.L.P.]
March 15, 2000
Board of Directors
Community Bank of Central Texas, ssb
312 Main Street
Smithville, TX 78957-2035
RE: Federal Income Tax Opinion Relating To The Conversion Of Community Bank
of Central Texas ssb From A State-Chartered Mutual Savings and Loan
Association To A State-Chartered Stock Institution Under Section
368(a)(1)(F) of the Internal Revenue Code of 1986, As Amended
Gentlemen:
In accordance with your request set forth hereinbelow is the opinion of
this firm relating to the federal income tax consequences of the conversion of
Community Bank of Central Texas, ssb ("Mutual") from a state mutual to a state
stock institution pursuant to the provisions of Section 368(a)(1)(F) of the
Internal Revenue Code of 1986, as amended (the "Code").
Capitalized terms used herein which are not expressly defined herein
shall have the meaning ascribed to them in the Plan of Conversion dated December
4, 1999 (the "Plan").
The following assumptions have been made in connection with our
opinions hereinbelow:
1. The Conversion is implemented in accordance with the terms
of the Plan and all conditions precedent contained in the Plan shall be
performed or waived prior to the consummation of the Conversion.
Board of Directors
March 15, 2000
Page 2
2. No amount of the savings accounts and deposits of Mutual,
as of the Eligibility Record Date or the Supplemental Eligibility
Record Date, will be excluded from participating in the liquidation
account of Converted Bank. To the best of the knowledge of the
management of Mutual there is not now, nor will there be at the time of
the Conversion, any plan or intention, on the part of the depositors in
Mutual to withdraw their deposits following the Conversion. Deposits
withdrawn immediately prior to or immediately subsequent to the
Conversion (other than maturing deposits) are considered in making
these assumptions.
3. Holding Company and Converted Bank each have no plan or
intention to redeem or otherwise acquire any of the Holding Company
Conversion Stock to be issued in the proposed transaction.
4. Immediately following the consummation of the proposed
transaction, Converted Bank will possess the same assets and
liabilities as Mutual held immediately prior to the proposed
transaction, plus substantially all of the net proceeds from the sale
of its stock to Holding Company except for assets used to pay expenses
of the Conversion. The liabilities transferred to Converted Bank were
incurred by Mutual in the ordinary course of business.
5. No cash or property will be given to holders of Deposit
Accounts in lieu of Subscription Rights or an interest in the
liquidation account of Converted Bank.
6. Following the Conversion, Converted Bank will continue to
engage in its business in substantially the same manner as Mutual
engaged in business prior to the Conversion, and it has no plan or
intention to sell or otherwise dispose of any of its assets, except in
the ordinary course of business.
7. There is no plan or intention for Converted Bank to be
liquidated or merged with another corporation following the
consummation of the Conversion.
8. The fair market value of each Deposit Account plus an
interest in the liquidation account of Converted Bank will, in each
instance, be approximately equal to the fair market value of each
Deposit Account of Mutual plus the interest in the residual equity of
Mutual surrendered in exchange therefor.
9. Mutual, Converted Bank and Holding Company are each
corporations within the meaning of Section 7701(a)(3) of the Code.
10. Holding Company has no plan or intention to sell or
otherwise dispose of the stock of Converted Bank received by it in the
proposed transaction.
11. Both Converted Bank and Holding Company have no plan or
intention, either currently or at the time of Conversion, to issue
additional shares of common stock following the
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March 15, 2000
Page 3
proposed transaction, other than shares that may be issued to employees
and/or directors pursuant to certain stock option and stock incentive
plans or that may be issued to employee benefit plans.
12. If all of the net proceeds from the sale of Holding
Company Conversion Stock had been contributed by Holding Company to
Converted Bank in exchange for common stock of Converted Bank in the
transaction, as opposed to Holding Company retaining a portion of such
net proceeds (the "retained proceeds"), and Converted Bank immediately
thereafter made a distribution of the retained proceeds to Holding
Company, Converted Bank would have sufficient current and accumulated
earnings and profits for tax purposes such that the distribution would
not result in the recapture of any portion of its bad debt reserves of
Converted Bank for federal income tax reporting.
13. Assets used to pay expenses of the Conversion and all
distributions (except for regular, normal interest payments and other
payments in the normal course of business made by Mutual immediately
preceding the transaction) will in the aggregate constitute less than
1% of the net assets of Mutual and any such expenses and distributions
will be paid by Converted Bank from the proceeds of the sale of Holding
Company Conversion Stock.
14. All distributions to holders of Deposit Accounts in their
capacity as Deposit Account holders (except for regular, normal
interest payments made by Mutual), will, in the aggregate, constitute
less than 1% of the fair market value of the net assets of Mutual.
15. At the time of the proposed transaction, the fair market
value of the assets of Mutual on a going concern basis (including
intangibles) will equal or exceed the amount of its liabilities plus
the amount of liabilities to which such assets are subject. Mutual will
have a positive regulatory net worth at the time of the Conversion.
16. Mutual is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A) of the
Code. The proposed transaction does not involve a receivership,
foreclosure, or similar proceeding before a federal or state agency
involving a financial institution to which Section 585 of the Code
applies.
17. Mutual's Eligible Account Holders and Supplemental
Eligible Account Holders will pay expenses of the Conversion solely
attributable to them, if any.
18. The liabilities of Mutual assumed by Converted Bank plus
the liabilities, if any, to which the transferred assets are subject
were incurred by Mutual in the ordinary course of its business and are
associated with the assets being transferred.
19. There will be no purchase price advantage for Mutual's
Deposit Account holders who purchase Holding Company Conversion Stock.
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March 15, 2000
Page 4
20. Neither Mutual nor Converted Bank is an investment company
as defined in Sections 368(a)(2)(F)(iii) and (iv) of the Code.
21. None of the compensation to be received by any Deposit
Account holder-employees of Mutual or Holding Company will be separate
consideration for, or allocable to, any of their deposits in Mutual. No
interest in the liquidation account of Converted Bank will be received
by any Deposit Account holder-employees as separate consideration for,
or will otherwise be allocable to, any employment agreement, and the
compensation paid to each Deposit Account holder-employee, during the
twelve-month period preceding or subsequent to the Conversion, will be
for services actually rendered and will be commensurate with amounts
paid to the third parties bargaining at arm's-length for similar
services. No shares of Holding Company Conversion Stock will be issued
to or purchased by any Deposit Account holder-employee of Mutual or
Holding Company at a discount or as compensation in the proposed
transaction.
22. No creditors of Mutual or the depositors in their role as
creditors, have taken any steps to enforce their claims against Mutual
by instituting bankruptcy or other legal proceedings, in either a court
or appropriate regulatory agency, that would eliminate the proprietary
interests of the Members prior to the Conversion of Mutual including
depositors as the equity holders of Mutual.
23. The proposed transaction does not involve the payment to
Converted Bank or Mutual of financial assistance from federal agencies
within the meaning of Notice 89-102, 1989-40 C.B. 1.
24. On a per share basis, the purchase price of Holding
Company Conversion Stock will be equal to the fair market value of such
stock at the time of the completion of the proposed transaction.
25. Mutual has received or will receive an opinion from
Ferguson and Company ("Appraiser's Opinion"), which concludes that the
Subscription Rights to be received by Eligible Account Holders,
Supplemental Eligible Account Holders and other eligible subscribers do
not have any ascertainable fair market value, since they are acquired
by the recipients without cost, are non-transferable and of short
duration, and afford the recipients a right only to purchase Holding
Company Conversion Stock at a price equal to its estimated fair market
value, which will be the same price paid for unsubscribed shares of
Holding Company Conversion Stock in the Direct Community Offering, if
any, or Public Offering, if any.
26. Mutual will not have any net operating losses, capital
loss carryovers or built-in losses at the time of the Conversion.
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March 15, 2000
Page 5
OPINION
Based solely on the assumptions set forth hereinabove and our analysis
and examination of applicable federal income tax laws, rulings, regulations,
judicial precedents and the Appraiser's Opinion, we are of the opinion that if
the transaction is undertaken in accordance with the above assumptions:
(1) The Conversion will constitute a reorganization within the meaning of
Section 368(a)(1)(F) of the Code. Neither Mutual nor Converted Bank
will recognize any gain or loss as a result of the transaction (Rev.
Rul. 80-105, 1980-1 C.B. 78). Mutual and Converted Bank will each be a
party to a reorganization within the meaning of Section 368(b) of the
Code.
(2) Converted Bank will recognize no gain or loss upon the receipt of money
and other property, if any, in the Conversion, in exchange for its
shares. (Section 1032(a) of the Code.)
(3) No gain or loss will be recognized by Holding Company upon the receipt
of money for Holding Company Conversion Stock. (Section 1032(a) of the
Code.)
(4) The basis of Mutual's assets in the hands of Converted Bank will be the
same as the basis of those assets in the hands of Mutual immediately
prior to the transaction. (Section 362(b) of the Code.)
(5) Converted Bank's holding period of the assets of Mutual will include
the period during which such assets were held by Mutual prior to the
Conversion. (Section 1223(2) of the Code.)
(6) Converted Bank, for purposes of Section 381 of the Code, will be
treated as if there had been no reorganization. The tax attributes of
Mutual enumerated in Section 381(a) of the Code will be taken into
account by Converted Bank as if there had been no reorganization.
Accordingly, the tax year of Mutual will not end on the effective date
of the Conversion. The part of the tax year of Mutual before the
Conversion will be includible in the tax year of Converted Bank after
the Conversion. Therefore, Mutual will not have to file a federal
income tax return for the portion of the tax year prior to the
Conversion. (Rev. Rul. 57-276, 1957-1 C.B. 126.)
(7) Depositors will realize gain, if any, upon the constructive issuance to
them of withdrawable deposit accounts of Converted Bank, Subscription
Rights and/or interests in the liquidation account of Converted Bank.
Any gain resulting therefrom will be recognized, but only in an amount
not in excess of the fair market value of the liquidation accounts
and/or Subscription Rights received. The liquidation accounts will have
nominal, if any, fair market value. Based solely on the accuracy of the
conclusion reached in the Appraiser's Opinion, and our reliance on such
opinion, that the Subscription Rights have no value at the time of
distribution or exercise, no gain or loss will be required to be
recognized by depositors upon receipt or distribution of Subscription
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March 15, 2000
Page 6
Rights. (Section 1001 of the Code.) See Paulsen v. Commissioner, 469
U.S. 131,139 (1985). Likewise, based solely on the accuracy of the
aforesaid conclusion reached in the Appraiser's Opinion, and our
reliance thereon, we give the following opinions: (a) no taxable income
will be recognized by the borrowers, directors, officers and employees
of Mutual upon the distribution to them of Subscription Rights or upon
the exercise or lapse of the Subscription Rights to acquire Holding
Company Conversion Stock at fair market value; (b) no taxable income
will be realized by the depositors of Mutual as a result of the
exercise or lapse of the Subscription Rights to purchase Holding
Company Conversion Stock at fair market value. Rev. Rul. 56-572, 1956-2
C.B. 182; and (c) no taxable income will be realized by Mutual,
Converted Bank or Holding Company on the issuance or distribution of
Subscription Rights to depositors of Mutual to purchase shares of
Holding Company Conversion Stock at fair market value. (Section 311 of
the Code.)
Notwithstanding the Appraiser's Opinion, if the Subscription
Rights are subsequently found to have a fair market value, income may
be recognized by various recipients of the Subscription Rights (in
certain cases, whether or not the rights are exercised) and Holding
Company and/or Converted Bank may be taxable on the distribution of the
Subscription Rights. (Section 311 of the Code.) In this regard, the
Subscription Rights may be taxed partially or entirely at ordinary
income tax rates.
(8) The creation of the liquidation account on the records of Converted
Bank will have no effect on Mutual's or Converted Bank's taxable
income, deductions, or tax bad debt reserve.
(9) A depositor's basis in the Deposit Accounts of Converted Bank will be
the same as the basis of his Deposit Accounts in Mutual. (Section 1012
of the Code.) Based upon the Appraiser's Opinion, the basis of the
Subscription Rights will be zero. The basis of the interest in the
liquidation account of Converted Bank received by Eligible Account
Holders and Supplemental Eligible Account Holders will be equal to the
cost of such property, i.e., the fair market value of the proprietary
interest in Mutual, which in this transaction we assume to be zero.
(10) The basis of Holding Company Conversion Stock to its shareholders will
be the purchase price thereof. (Section 1012 of the Code.)
(11) A shareholder's holding period for Holding Company Conversion Stock
acquired through the exercise of the Subscription Rights shall begin on
the date on which the Subscription Rights are exercised. (Section
1223(6) of the Code.) The holding period for the Holding Company
Conversion Stock purchased pursuant to the Direct Community Offering,
Public Offering or under other purchase arrangements will commence on
the date following the date on which such stock is purchased. (Rev.
Rul. 70-598, 1970-2 C.B. 168).
(12) Regardless of any book entries that are made for the establishment of a
liquidation account, the reorganization will not diminish the
accumulated earnings and profits of Mutual available for the subsequent
distribution of dividends, within the meaning of Section 316 of
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March 15, 2000
Page 7
the Code. Section 1.312-11(b) and (c) of the Regulations. Converted
Bank will succeed to and take into account the earnings and profits or
deficit in earnings and profits of Mutual as of the date of Conversion.
The above opinions are effective to the extent that Mutual is solvent.
No opinion is expressed about the tax treatment of the transaction if Mutual is
insolvent. Whether or not Mutual is solvent will be determined at the end of the
taxable year in which the transaction is consummated.
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 Income Tax
Regulations which may also be applicable thereto, 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 opinions set forth above.
Respectfully submitted,
SILVER, FREEDMAN & TAFF