EXHIBIT 8.1
[LETTERHEAD OF LUSE LEHMAN GORMAN POMERENK & SCHICK]
September 14, 1998
Board of Directors
Provident Bank
400 Rella Boulevard
Montebello, NY 10901
RE: MHC FORMATION AND STOCK ISSUANCE
--------------------------------
Gentlemen:
We have been requested as special counsel to Provident Bank ("Bank") to
express our opinion concerning the Federal income tax consequences relating to
the proposed conversion of the Bank from a federally chartered mutual savings
association to a federally chartered stock savings association ("Stock Bank")
and the formation of Provident Bancorp, MHC, a federal MHC ("MHC") which will
acquire the outstanding stock of Stock Bank and subsequently contribute Stock
Bank's stock to Provident Bancorp, Inc. ("Holding Company").
In connection therewith, we have examined the Plan of Reorganization from a
Mutual Savings Bank to a Mutual Holding Company and Stock Issuance Plan, which
was adopted by the Board of Directors of the Bank on April 23, 1998 (the "Plan
of Reorganization"), and certain other documents of or relating to the
Reorganization (as defined below), some of which are described or referred to in
the Plan of Reorganization and which we deemed necessary to examine in order to
issue the opinions set forth below. Unless otherwise defined, all terms used
herein have the meanings given to such terms in the Plan of Reorganization.
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.
In issuing our opinions, we have assumed that the Plan of Reorganization
has been duly and validly authorized and has been approved and adopted by the
Board of Directors of the Bank at a meeting duly called and held; that the Bank
will comply with the terms and conditions of the Plan of Reorganization, and
that the various representations and warranties, which have been provided to us
by the Bank and which are set forth below, are accurate, complete, true and
correct. Accordingly, we express no opinion concerning the effect, if any, of
variations from the foregoing. We specifically express no opinion concerning tax
matters relating to the Plan of Reorganization
Board of Directors
Provident Bank
September 14, 1998
Page 2
under state and local tax laws and under Federal income tax laws except on the
basis of the documents and assumptions described above.
In issuing the opinions set forth below, we have referred solely to
existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed Treasury Regulations thereunder, current
administrative rulings, notices and procedures and court decisions. Such laws,
regulations, administrative rulings, notices and procedures and court decisions
are subject to change at any time. Any such change could affect the continuing
validity of the opinions set forth below. 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 hereof.
We emphasize that the outcome of litigation cannot be predicted with
certainty and, although we have attempted in good faith to opine as to the
probable outcome of the merits of each tax issue with respect to which an
opinion was requested, there can be no assurance that our conclusions are
correct or that they would be adopted by the IRS or a court.
PROPOSED TRANSACTION
--------------------
On April 23, 1998, the Board of Directors of the Bank adopted the Plan of
Reorganization. For what are represented to be valid business purposes, the
Bank's Board of Directors has decided to convert to a mutual holding company
structure pursuant to statutes. The following steps are proposed:
(i) The Bank will organize an interim stock savings Bank (Interim One) as
its wholly-owned subsidiary;
(ii) Interim One will organize a federal mid-tier holding company as its
wholly-owned subsidiary (Holding Company); and
(iii) Interim One will also organize another interim stock savings Bank
as its wholly-owned subsidiary (Interim Two).
The following transactions will occur simultaneously:
(iv) The Bank will exchange its charter for a federal stock savings Bank
charter and become a stock savings Bank that will constructively
issue its common stock to members of the Bank;
Board of Directors
Provident Bank
September 14, 1998
Page 3
(v) Interim One will cancel its outstanding stock and exchange its
charter for a federal MHC charter and thereby become the MHC;
(vi) Interim Two will merge with and into the Bank with the Bank as the
surviving entity, the former members of the Bank who constructively
hold stock in the Bank will exchange their stock in the Bank for
membership interests in the MHC; and
(vii) The MHC will contribute the Bank's stock to the Holding Company ,
a wholly-owned subsidiary of the MHC for additional shares of Bank
stock.
(viii) Contemporaneously, with the contribution set forth in "(vii)" the
Stock Holding Company will offer to sell up to 49% of its Common
Stock in the Subscription Offering and, if applicable, the Community
Offering.
These transactions are referred to herein collectively as the
"Reorganization."
Those persons who, as of the date of the Bank Conversion (the "Effective
Date"), hold depository rights with respect to the Bank will thereafter have
such rights solely with respect to the Stock Bank. Each deposit account with
the Bank at the time of the exchange will become a deposit account in the Stock
Bank in the same amount and upon the same terms and conditions. Following the
completion of the Reorganization, all depositors and borrowers who had
membership rights with respect to the Bank immediately prior to the
Reorganization will continue to have such rights solely with respect to the MHC
so long as they continue to hold deposit accounts or borrowings with the Stock
Bank. All new depositors of the Stock Bank after the completion of the
Reorganization will have ownership rights solely with respect to the MHC so long
as they continue to hold deposit accounts with the Stock Bank.
The shares of Interim Two common stock owned by the MHC prior to the
Reorganization shall be converted into and become shares of common stock of the
Stock Bank on the Effective Date. The shares of Stock Bank common stock
constructively received by the Stock Bank stockholders (formerly the members
holding liquidation rights of the Bank) will be transferred to the MHC by such
persons in exchange for liquidation rights in the MHC.
The Holding Company will have the power to issue shares of capital stock
(including common and preferred stock) to persons other than the MHC. So long
as the MHC is in existence, however, it must own a majority of the voting stock
of Holding Company. Holding Company may
Board of Directors
Provident Bank
September 14, 1998
Page 4
issue any amount of non-voting stock to persons other than MHC. No such non-
voting stock will be issued as of the date of the Reorganization.
The Bank has made the following representations to us concerning this
transaction:
1. The fair market value of the Stock Bank stock constructively received by
the depositors of the Bank in exchange for their equity interest in the
Bank will be approximately equal to the fair market value of the equity
interest in the Bank constructively surrendered in the exchange.
2. There is no plan or intention by the depositors of the Bank, to sell,
exchange, or otherwise dispose of any of the shares of Stock Bank stock
constructively received in the transaction, other than as described herein
(i.e., the transfer to MHC).
3. Immediately following the Bank Conversion, the depositors of the Bank will
own all of the outstanding Stock Bank stock and will own such stock solely
by reason of their ownership of all of the equity interests in Bank
immediately prior to the transaction.
4. Stock Bank has no present plan or intention to issue additional shares of
its stock following the Bank Conversion.
5. Immediately following Bank Conversion, Stock Bank will possess the same
assets and liabilities, except for assets used to pay expenses incurred in
connection with the transaction, as those possessed by Bank immediately
prior to the transaction. Depositors will not have dissenters rights in
connection with the Bank Conversion. Also there will be no property
distributed to any shareholder in connection with the Bank Conversion and
no distributions other than the regular distributions (i.e., interest
credited to accounts).
6. At the time of the Bank Conversion, Bank will not have outstanding any
warrants, options, convertible securities, or any other type of right
pursuant to which any person could acquire stock of Bank.
7. Stock Bank has no plan or intention to reacquire any of its stock issued in
the Bank Conversion.
Board of Directors
Provident Bank
September 14, 1998
Page 5
8. Stock Bank has no plan or intention to sell or otherwise dispose of any of
the assets of Bank acquired in the Bank Conversion, except for dispositions
made in the ordinary course of business.
9. The liabilities of Bank assumed by Stock Bank plus the liabilities, if any,
to which the transferred assets are subject were incurred by Bank in the
ordinary course of its business and are associated with the assets
transferred.
10. Following the Bank Conversion, Stock Bank will continue the historic
business of Bank or use a significant portion of Bank's historic business
assets in a business.
11. The shareholders will pay their respective expenses, if any, incurred in
connection with the Bank Conversion.
12. Bank 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 Internal Revenue Code.
13. No stock or securities will be issued for services rendered to or for the
benefit of the MHC in connection with the 351 Transaction, and no stock or
securities will be issued for indebtedness of the MHC that is not
evidenced by a security, or for interest on indebtedness of the MHC which
accrued on or after the beginning of the holding period for the debt.
14. None of the assets to be transferred were received by the Stock Bank
shareholders as part of a plan of liquidation of another corporation.
15. The property to be transferred to the MHC will not include accounts
receivable, loans receivable, or commissions. Solely stock of Stock Bank
will be transferred.
16. None of the stock to be transferred is "Section 306 stock" within the
meaning of Section 306(c) of the Code.
17. The Stock Bank depositors did not incur any acquisition indebtedness with
respect to stock of Stock Bank that is part of the property being
transferred to the MHC.
18. The transfer is not the result of the solicitation by a promoter, broker,
or investment firm.
Board of Directors
Provident Bank
September 14, 1998
Page 6
19. The Stock Bank depositors will not retain any right or continuing interest
in the property being transferred to the MHC.
20. The adjusted basis and the fair market value of the assets to be
transferred to MHC by Stock Bank depositors will, in each instance, equal
or exceed the sum of the liabilities to be assumed by MHC plus the
liabilities to which the transferred assets are subject.
21. The MHC will assume no liabilities of the Stock Bank shareholders in
connection with the 351 Transaction.
22. There is no indebtedness between the MHC and Stock Bank depositors, and
there will be no indebtedness created as a result of the 351 Transaction.
23. The transfers and exchanges will occur pursuant to the Plan which was
agreed upon before the 351 Transaction and under which the rights of the
parties are defined.
24. All exchanges will occur on approximately the same date.
25. There is no plan or intention on the part of the MHC to redeem or
otherwise reacquire any stock or securities to be issued in the 351
Transaction.
26. Taking into account any issuance of additional shares of MHC's equity, any
issuance of stock for services, the exercise of any stock rights, warrants
or subscriptions; a public offering of stock; and the sale, exchange,
transfer by gift, or other disposition of any equity of the MHC to be
received in the 351 Transaction, the Stock Bank depositors will be in
"control" of MHC within the meaning of Section 368(c) of the Code.
27. The Stock Bank depositors will receive ownership interests in the MHC
approximately equal to the fair market value of the property transferred to
the MHC.
28. MHC will remain in existence and retain and use the property transferred
to it in a trade or business.
29. There is no plan or intention by MHC to dispose of the transferred
property other than in the normal course of business operations.
Board of Directors
Provident Bank
September 14, 1998
Page 7
30. Each of the parties to the 351 Transaction will pay its own expenses, if
any, incurred in connection with the proposed transaction.
31. MHC will not be an investment company within the meaning of Section
351(e)(1) and Section 1.351-1(c)(1)(ii) of the Income Tax Regulations.
32. MHC will not be a "personal service corporation" within the meaning of
Section 269A of the Code.
33. The Bank is not a "loss corporation" within the meaning of Section 382(k)
of the Code.
34. No stock or securities will be issued for services rendered to or for the
benefit of the Holding Company in connection with the transfer of Stock
Bank stock in the Secondary 351 transaction and cash by the MHC and
Minority Stockholders (the "Transferor Group"), and no stock or securities
will be issued for indebtedness of the Holding Company that is not
evidenced by a security, or for interest on indebtedness of the Holding
Company which accrued on or after the beginning of the holding period for
the debt.
35. None of the assets to be transferred in the Secondary 351 Transaction were
received by the MHC as part of a plan of liquidation of another
corporation.
36. The property to be transferred to the Holding Company in the Secondary 351
Transaction will not include accounts receivable, loans receivable, or
commissions. Solely stock of Stock Bank and cash will be transferred.
37. None of the stock to be transferred is "Section 306 stock" within the
meaning of Section 306(c) of the Code.
38. The transfer in the Secondary 351 Transaction is not the result of the
solicitation by a promoter, broker, or investment firm.
39. The Transferor Group will not retain any right or continuing interest in
the property being transferred to the Holding Company.
40. The adjusted basis and the fair market value of the assets to be
transferred to Holding Company by the Transferor Group will, in each
instance, equal or exceed the sum of the liabilities to be assumed by
Holding Company plus the liabilities to which the transferred assets are
subject.
Board of Directors
Provident Bank
September 14, 1998
Page 8
41. The Holding Company will assume no liabilities of any member of the
Transferor Group in connection with the Secondary 351 Transaction.
42. There is no indebtedness between the Holding Company and the Transferor
Group, and there will be no indebtedness created as a result of the
Secondary 351 Transaction.
43. The transfers and exchanges will occur pursuant to the Plan which was
agreed upon before the Secondary 351 Transaction and under which the rights
of the parties are defined.
44. All exchanges will occur on approximately the same date.
45. There is no plan or intention on the part of the Holding Company to redeem
or otherwise reacquire any stock or securities to be issued in the
Secondary 351 Transaction.
46. Taking into account any issuance of additional shares of Holding Company 's
equity, any issuance of stock for services, the exercise of any stock
rights, warrants or subscriptions; a public offering of stock; and the
sale, exchange, transfer by gift, or other disposition of any equity of the
Holding Company to be received in the Secondary 351 Transaction, the
Transferor Group will be in "control" of Holding Company within the
meaning of Section 368(c) of the Code.
47. Holding Company will remain in existence and retain and use the property
transferred to it in a trade or business.
48. There is no plan or intention by Holding Company to dispose of the
transferred property other than in the normal course of business
operations.
49. Each member of the Transferor Group will pay its own expenses, if any,
incurred in connection with the Secondary 351 Transaction.
50. Holding Company will not be an investment company within the meaning of
Section 351(e)(1) and Section 1.351-1(c)(1)(ii) of the Income Tax
Regulations.
Board of Directors
Provident Bank
September 14, 1998
Page 9
51. The MHC 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) and the
equity interests in Holding Company received in the Exchange will not be
used to satisfy any indebtedness.
52. Holding Company will not be a "personal service corporation" within the
meaning of Section 269A of the Code.
53. The Stock Bank is not a "loss corporation" within the meaning of Section
382(k) of the Code.
SUMMARY OF OPINIONS
-------------------
Based on the facts, representations and assumptions set forth above, we are
of the opinion that:
WITH RESPECT TO THE EXCHANGE OF THE BANK'S CHARTER FOR A STOCK CHARTER
("BANK CONVERSION"):
1. Bank's exchange of its charter for a federal stock savings association
charter is a mere change in identity and form and therefore qualifies as a
reorganization within the meaning of Section 368(a)(1)(F) of the Internal
Revenue Code ("Code").
2. No gain or loss will be recognized by Bank upon the transfer of its
assets to Stock Bank solely in exchange for shares of Stock Bank stock and the
assumption by Stock Bank of the liabilities of Bank. (Code Sections 361(a) and
357(a)).
3. No gain or loss will be recognized by Stock Bank upon the receipt of
the assets of Bank in exchange for shares of Stock Bank common stock. (Code
Section 1032(a)).
4. Stock Bank's holding period in the assets received from Bank will
include the period during which such assets were held by the Bank. (Code
Section 1223(2)).
5. Stock Bank's basis in the assets of Bank will be the same as the basis
of such assets in the hands of Bank immediately prior to the Bank Conversion.
(Code Section 362(b)).
Board of Directors
Provident Bank
September 14, 1998
Page 10
6. Bank members will recognize no gain or loss upon the constructive
receipt of Stock Bank common stock solely in exchange for their membership
interests in Bank. (Code Section 354(a)(1)).
7. The basis of the Stock Bank common stock to be constructively received
by the Bank's members (which basis is -0-) will be the same as their basis in
their membership interests in the Bank surrendered in exchange therefor. (Code
Section 358(a)(1)).
8. The holding period of the Stock Bank common stock constructively
received by the members of the Bank will include the period during which the
Bank members held their membership interests, provided that the membership
interests were held as capital assets on the date of the exchange. (Code
Section 1223(1)).
9. The Stock Bank will succeed to and take into account the Bank's
earnings and profits or deficit in earnings and profits, as of the date of the
proposed transaction. (Code Section 381).
WITH RESPECT TO THE TRANSFER OF STOCK BANK STOCK TO MHC FOR MEMBERSHIP
INTERESTS (THE "351 TRANSACTION"):
10. The exchange of Stock Bank stock by the Stock Bank depositors in
exchange for membership interests in the MHC will constitute a tax-free exchange
of property solely for voting "stock" pursuant to Section 351 of the Internal
Revenue Code.
11. Stock Bank's depositors will recognize no gain or loss upon the
transfer of the Stock Bank stock they constructively received in the Bank
conversion to the MHC solely in exchange for membership interests in the MHC.
(Code Section 351).
12. Stock Bank depositor's basis in the MHC membership interests received
in the transaction (which basis is -0-) will be the same as the basis of the
property transferred in exchange therefor. (Code Section 358(a)(1)).
13. Stock Bank depositor's holding period for the membership interests in
MHC received in the 351 Transaction will include the period during which the
property exchanged was held by Stock Bank depositors, provided that such
property was a capital asset on the date of the exchange. (Code Section
1223(1)).
Board of Directors
Provident Bank
September 14, 1998
Page 11
14. MHC will recognize no gain or loss upon the receipt of property from
Stock Bank depositors in exchange for membership interests in the MHC. (Code
Section 1032(a)).
15. MHC's basis in the property received from Stock Bank depositors (which
basis is -0-) will be the same as the basis of such property in the hands of
Stock Bank depositors immediately prior to the transaction. (Code Section
362(a)).
16. MHC's holding period for the property received from Stock Bank's
depositors will include the period during which such property was held by Stock
Bank depositors. (Code Section 1223(2)).
WITH RESPECT TO THE TRANSFERS TO THE HOLDING COMPANY IN EXCHANGE FOR
COMMON STOCK IN THE HOLDING COMPANY (THE "SECONDARY 351 TRANSACTION"):
17. The MHC and the persons who purchased Common Stock of the Holding
Company in the Subscription and Community Offering ("Minority Stockholders")
will recognize no gain or loss upon the transfer of Stock Bank stock and cash,
respectively, to the Holding Company in exchange for stock in the Holding
Company. Code Sections 351(a).
18. Holding Company will recognize no gain or loss on its receipt of Stock
Bank stock and cash in exchange for Holding Company Stock. (Code Section
1032(a)).
19. The basis of the Holding Company Common Stock to the Minority
Stockholders will be the actual purchase price thereof, and a shareholders
holding period for Common Stock acquired through the exercise of subscription
rights will begin on the date the rights are exercised.
* * * * *
The opinions set forth above represent our conclusions as to the
application of existing Federal income tax law to the facts of the instant
transaction, and we can give no assurance that changes in such law, or in the
interpretation thereof, will not affect the opinions expressed by us. Moreover,
there can be no assurance that contrary positions may not be taken by the IRS,
or that a court considering the issues would not hold contrary to such opinions.
All of the opinions set forth above are qualified to the extent that the
validity of any provision of any agreement may be subject to or affected by
applicable Bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally. We do not
Board of Directors
Provident Bank
September 14, 1998
Page 12
express any opinion as to the availability of any equitable or specific remedy
upon any breach of any of the covenants, warranties or other provisions
contained in any agreement. We have not examined, and we express no opinion with
respect to the applicability of, or liability under, any Federal, state or local
law, ordinance, or regulation governing or pertaining to environmental matters,
hazardous wastes, toxic substances, asbestos, or the like.
It is expressly understood that the opinions set forth above represent our
conclusions based upon the documents reviewed by us and the facts presented to
us. Any material amendments to such documents or changes in any significant
fact would affect the opinions expressed herein.
We have not been asked to, and we do not, render any opinion with respect
to any matters other than those expressly set forth above.
We hereby consent to the filing of the opinion as an exhibit to the Bank's
combined Form MHC-1/MHC-2 Notice of MHC Reorganization and Application for
Approval of a Minority Stock Issuance by a Subsidiary of MHC as filed with the
OTS and to the Holding Company's Registration Statement on Form S-1 as filed
with the SEC. We also consent to the references to our firm in the Prospectus
contained in the Forms MHC-1/MHC-2 and S-1 under the captions "The
Reorganization and Offering - Tax Effects of the Reorganization" and "Legal and
Tax Matters," and to the summarization of our opinion in such Prospectus.
Very truly yours,
\s\ LUSE LEHMAN GORMAN POMERENK & SCHICK
LUSE LEHMAN GORMAN POMERENK & SCHICK
A Professional Corporation