Malizia Spidi & Fisch, PC
ATTORNEYS AT LAW
1100 NEW YORK AVENUE, N.W. 637 KENNARD ROAD
SUITE 340 WEST STATE COLLEGE, PENNSYLVANIA 16801
WASHINGTON, D.C. 20005 (814) 466-6625
(202) 434-4660 FACSIMILE: (814) 466-6703
FACSIMILE: (202) 434-4661
[^] July 29, 2002
Board of Directors
Synergy Bank
310 North Avenue East
Cranford, New Jersey 07016-0130
Re: Federal Income Tax Opinion
Relating to the Initial Stock Offering of
Synergy Financial Group, Inc.
------------------------------------------
Members of the Board:
In accordance with your request, set forth hereinbelow is the opinion of
this firm relating to the material federal income tax consequences of the
proposed initial public stock offering (the "Offering") of Synergy Financial
Group, Inc. (the "Company").
We have examined such corporate records, certificates and other documents
as we have considered necessary or appropriate for this opinion. In such
examination, we have accepted, and have not independently verified, the
authenticity of all original documents, the accuracy of all copies, and the
genuineness of all signatures. Further, the capitalized terms which are used in
this opinion and are not expressly defined herein shall have the meaning
ascribed to them in the Plan of Stock Issuance adopted on May 1, 2002, by the
Company, Synergy, MHC (the "MHC") and Synergy Bank (the "Bank").
STATEMENT OF FACTS
Pursuant to a Plan of Reorganization from a Federal Mutual Savings Bank to
a Federal Mutual Holding Company dated July 12, 2000, the Bank (formerly Synergy
Federal Savings Bank) converted to the mutual holding company form of
organization in March 2001 with no stock offering. Pursuant to the Mutual
Holding Company Plan of Reorganization, the Bank became a federal stock savings
bank, which has all of its stock owned by the Company, a federal stock holding
company, which has all of its stock owned by the MHC, a federal mutual holding
company. Pursuant to the Plan, the Company proposes, pursuant to the laws of the
United States of America and the Rules and Regulations of the Office of Thrift
Supervision ("OTS"), to conduct a stock offering of up to but less than 50% of
the aggregate of the total voting stock of the Company.
MALIZIA SPIDI & FISCH, PC
Board of Directors
Synergy Bank
July 29, 2002
Page 2
In adopting the Plan, the Board of Directors has determined that the
Offering is advisable and in the best interest of the Bank, the Company, the MHC
and its members. The Offering will enable the Company and the Bank to increase
its capital through the issuance of capital stock without undertaking a full
conversion from the mutual to the stock form of organization. The Offering will
not foreclose the opportunity to effect a conversion of the MHC from the stock
form of organization in the future. The Offering will significantly increase
capital and enable the Bank to further grow through internal expansion, the
possible acquisition of other assets, branch offices, financial institutions,
possible diversification into other related financial service activities and
other purposes and will further enhance the Bank's ability to render services to
the public. The mutual holding company structure also will allow the Bank to
minimize over-capitalization by providing the flexibility to raise capital
through the issuance of stock in a manner designed to meet the Bank's growth
needs, rather than in a single stock offering as required in a standard
mutual-to-stock conversion.
Based solely upon our review of such documents, and upon such information
as the Bank and the Company have provided to us (which we have not attempted to
verify in any respect), and in reliance upon such documents and information, we
understand the relevant facts with respect to the Offering to be as follows:
As required by OTS regulations, shares of Company common stock ("Company
Stock") will be offered pursuant to non-transferable subscription rights on the
basis of preference categories. The Company has established various preference
categories under which shares of Company Stock may be purchased and a Community
Offering and a Public Offering category for the sale of shares not purchased
under the preference categories. If the third preference category is determined
to be inappropriate to the Offering, then there will only be two preference
categories consisting of the first and second preference categories set forth
below, and all references herein to Supplemental Eligible Account Holder and the
Supplemental Eligibility Record Date shall not be applicable to the Offering. To
the extent that Company Stock is available, no subscriber will be allowed to
purchase less than 25 shares of Company Stock, unless the aggregate purchase
price exceeds $500.
The first preference category is reserved for the Company's Eligible
Account Holders. The Plan defines "Eligible Account Holder" as any person
holding a Qualifying Deposit. The Plan defines "Qualifying Deposit" as the
aggregate balance of all savings accounts of an Eligible Account Holder in the
Bank at the close of business on April 30, 2001, which is at least equal to
$50.00. If a savings account holder of the Bank qualifies as an Eligible Account
Holder, he or she will receive, without payment, non-transferable subscription
rights to purchase Company Stock. The number of shares that each Eligible
Account Holder may subscribe to is equal to the greater of (a) the maximum
purchase limitation established for the Community Offering or the Public
Offering; (b) one tenth of one percent of the total offering of shares; or (c)
fifteen times the
MALIZIA SPIDI & FISCH, PC
Board of Directors
Synergy Bank
July 29, 2002
Page 3
product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Company Stock to be issued by a fraction of which the
numerator is the amount of the Qualifying Deposit of the Eligible Account Holder
and the denominator is the total amount of the Qualifying Deposits of all
Eligible Account Holders. If there is an oversubscription, shares will be
allocated among subscribing Eligible Account Holders so as to permit each
account holder, to the extent possible, to purchase a number of shares
sufficient to make his or her total allocation equal to 100 shares. Any shares
not then allocated shall be allocated among the subscribing Eligible Account
Holders on an equitable basis, related to the amounts of their respective
deposits as compared to the total deposits of Eligible Account Holders on the
Eligibility Record Date. Non-transferable subscription rights to purchase
Company Stock received by officers and directors of the Company and their
associates based on their increased deposits in the Company in the one year
period preceding the Eligibility Record Date shall be subordinated to all other
subscriptions involving the exercise of non-transferable subscription rights to
purchase shares of Company Stock under the first preference category.
The second preference category is reserved for tax-qualified employee stock
benefit plans of the Bank. The Plan defines "tax qualified employee stock
benefit plans" as any defined benefit plan or defined contribution plan, such as
an employee stock ownership plan, stock bonus plan, profit-sharing plan or other
plan, which, with its related trust meets the requirements to be "qualified"
under Section 401 of the Internal Revenue Code of 1986, as amended (the "Code").
Under the Plan, the Bank's tax-qualified employee stock benefit plans may
subscribe for up to 10% of the shares of Company Stock to be offered in the
Offering.
The third preference category is reserved for the Bank's Supplemental
Eligible Account Holders. The Plan defines "Supplemental Eligible Account
Holder" as any person (other than officers or directors of the Company and their
associates) holding a deposit in the Bank on the last day of the calendar
quarter preceding the approval of the Plan by the OTS ("Supplemental Eligibility
Record Date"). This third preference category will only be used in the event
that the Eligibility Record Date is more than 15 months prior to the date of the
latest amendment to the Application for Approval of Offering on Form AC filed
prior to approval by the OTS. The third preference category provides that each
Supplemental Eligible Account Holder will receive, without payment,
non-transferable subscription rights to purchase Company Stock to the extent
that such shares of Company Stock are available after satisfying subscriptions
for shares in the first and second preference categories above. The number of
shares to which a Supplemental Eligible Account Holder may subscribe to is the
greater of (a) the maximum purchase limitation established for the Community
Offering; (b) one-tenth of one percent of the total offering of shares; or (c)
fifteen times the product (rounded down to the next whole number) obtained by
multiplying the total number of the shares of Company Stock to be issued by a
fraction of which the numerator is the amount of the deposit of the Supplemental
Eligible Account Holder and the denominator is the total amount of the deposits
of all Supplemental Eligible Account Holders on the Supplemental
MALIZIA SPIDI & FISCH, PC
Board of Directors
Synergy Bank
July 29, 2002
Page 4
Eligibility Record Date. Subscription rights received pursuant to the third
preference category shall be subordinated to all rights under the first and
second preference categories. Non-transferable subscription rights to be
received by a Supplemental Eligible Account Holder in the third preference
category shall be reduced by the subscription rights received by such account
holder as an Eligible Account Holder under the first and second preference
categories. In the event of an oversubscription, shares will be allocated so as
to enable each Supplemental Eligible Account Holder, to the extent possible, to
purchase a number of shares sufficient to make his total allocation, including
shares previously allocated in the first and second preference categories, equal
to 100 shares or the total amount of his subscription, whichever is less. Any
shares not then allocated shall be allocated among the subscribing Supplemental
Eligible Account Holders on an equitable basis related to the amount of their
respective deposits as compared to the total deposits of Supplemental Eligible
Account Holders on the Supplemental Eligibility Record Date.
The Plan further provides for limitations upon purchases of Company Stock.
Specifically, any person by himself or herself may not purchase or subscribe
more than $250,000 of Company Stock. In addition, any person with an associate
or a group of persons acting in concert may purchase or subscribe for not more
than $300,000 of Company Stock offered pursuant to the Plan. However,
Tax-Qualified Employee Stock Benefit Plans may purchase up to 10% of the total
shares of Company Stock issued. Subject to any required regulatory approval and
the requirements of applicable laws and regulations, the Bank may increase or
decrease any of the purchase limitations set forth herein at any time. The Board
of Directors of the Bank may, in its sole discretion, increase the maximum
purchase limitation up to 5.0%. Requests to purchase additional shares of
Company Stock under this provision will be allocated by the Board of Directors
on a pro rata basis giving priority in accordance with the priority rights set
forth in the Plan. Officers and directors of the Company and their associates
may not purchase in the aggregate more than 31% of the Company Stock issued
pursuant to the Offering. Directors of the Company will not be deemed associates
or a group acting in concert solely as a result of their membership on the Board
of Directors of the Bank. All of the shares of Company Stock purchased by
officers and directors will be subject to certain restrictions on sale for a
period of one year.
The Plan provides that no person will be issued any subscription rights or
be permitted to purchase any Company Stock if such person resides in a foreign
country or in a state of the United States with respect to which all of the
following apply: (a) a small number of persons otherwise eligible to subscribe
for shares under the Plan reside in such state; (b) the issuance of subscription
rights or the offer or sale of the Company Stock in such state, would require
the Company or the Company under the securities laws of such state to register
as a broker or dealer or to register or otherwise qualify its securities for
sale in such state; and (c) such registration or qualification would be
impracticable for reasons of cost or otherwise.
MALIZIA SPIDI & FISCH, PC
Board of Directors
Synergy Bank
July 29, 2002
Page 5
The Company will take 50% of the net proceeds from the sale of Company
Stock and contribute it as a capital contribution to the Bank. The Bank will pay
expenses of the Offering solely attributable to them, if any. Further, the
Company will pay its own expenses of the Offering and will not pay any expenses
solely attributable to the purchasers of Company Stock.
REPRESENTATIONS BY MANAGEMENT
In connection with the Offering, the following statements, representations
and declarations as to matters of fact have been made to us by management of the
Company:
1. The Offering will be implemented in accordance with the terms of the
Plan and all conditions precedent contained in the Plan shall be performed prior
to the consummation of the Offering.
2. The Bank, the Company and the MHC are not currently in bankruptcy or
involved in a bankruptcy proceeding. The proposed transaction does not involve a
receivership, foreclosure, or similar proceeding before a federal or state
agency involving a financial institution.
3. The Company, the MHC and the Bank will pay their own expenses of the
Offering and will not pay any expenses solely attributable to the Company
stockholders.
4. There will be no purchase price advantage for the Bank's deposit account
holders who purchase Company Stock in the Offering.
5. No creditors of the Bank have taken any steps to enforce their claims
against the Bank by instituting bankruptcy or other legal proceedings, in either
a court or appropriate regulatory agency, that would eliminate the proprietary
interests of the members of the Company prior to the Offering.
6. On a per share basis, the purchase price of the Company Stock in the
Offering will be equal to the fair market value of such stock at the time of the
completion of the proposed transaction.
7. No cash or property will be given to any member of the Bank in lieu of
subscription rights.
MALIZIA SPIDI & FISCH, PC
Board of Directors
Synergy Bank
July 29, 2002
Page 6
OPINION OF COUNSEL
Based solely upon the foregoing information and our analysis and
examination of current applicable federal income tax laws, rulings, regulations,
judicial precedents and provided the Offering is undertaken in accordance with
the above assumptions, we render the following opinion of counsel:
1. The Company will recognize no gain or loss upon its receipt of money in
exchange for shares of Company Stock. (Section 1032(a) of the Code).
2. It is more likely than not that the fair market value of the
subscription rights to purchase Company Stock is zero. Accordingly, no gain or
loss will be recognized by Eligible Account Holders and Supplemental Eligible
Account Holders upon the distribution to them of the nontransferable
subscription rights to purchase shares of Company Stock. Gain realized, if any,
by the Eligible Account Holders and Supplemental Eligible Account Holders on the
distribution to them of nontransferable subscription rights to purchase shares
of Company Stock will be recognized but only in an amount not in excess of the
fair market value of such subscription rights (Code Section 356(a)). Eligible
Account Holders and Supplemental Eligible Account Holders will not realize any
taxable income as a result of the exercise by them of the nontransferable
subscription rights (Rev. Rul. 56-572, 1956-2 C.B. 182).
Our opinion under paragraph 2 above is predicated on the representation
that no person shall receive any payment, whether in money or property, in lieu
of the issuance of subscription rights. Our opinion under paragraph 2 is based
on the position that the subscription rights to purchase shares of Company Stock
received by Eligible Account Holders and Supplemental Eligible Account Holders
have a fair market value of zero. We note that the subscription rights will be
granted at no cost to the recipients, will be legally non-transferable and of
short duration, and will provide the recipient with the right only to purchase
shares of Company Stock at the same price to be paid by members of the general
public in any Community Offering. Based on the foregoing, we believe it is more
likely than not that the nontransferable subscription rights to purchase Company
Stock have no value.
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 the Company
and/or the Bank may be taxable on the distribution of the subscription rights.
MALIZIA SPIDI & FISCH, PC
Board of Directors
Synergy Bank
July 29, 2002
Page 7
SCOPE OF OPINION
Our opinion is limited to the material federal income tax matters described
above and does not address any other material federal income tax considerations
or any state, local, foreign, or other tax considerations. If any of the
information on which we have relied is incorrect, or if changes in the relevant
facts occur after the date hereof, our opinion could be affected thereby.
Moreover, our opinion is based on the Code, applicable Treasury regulations
promulgated thereunder, and Internal Revenue Service rulings, procedures, and
other pronouncements published by the Internal Revenue Service. These
authorities are all subject to change, and such change may be made with
retroactive effect. We can give no assurance that, after such change, our
opinion would not be different. We undertake no responsibility to update or
supplement our opinion. This opinion is not binding on the Internal Revenue
Service, and there can be no assurance, and none is hereby given, that the
Internal Revenue Service will not take a position contrary to one or more of the
positions reflected in the foregoing opinion, or that our opinion will be upheld
by the courts if challenged by the Internal Revenue Service.
USE OF OPINION
This opinion is given solely for the benefit of the parties to the Plan,
the Eligible Account Holders and Supplemental Eligible Account Holders and those
who purchase stock pursuant to the Plan, and may not be relied upon by any other
party or entity or referred to in any document without our express written
consent.
CONSENT
We hereby consent to the filing of this opinion as an exhibit to the Form
MHC-2 of the Bank filed with the OTS, and the Registration Statement on Form
SB-2 of the Company filed under the Securities Act of 1933, as amended, and to
the reference of our firm in the prospectus related to this opinion.
Very truly yours,
/s/ Malizia Spidi & Fisch, PC
MALIZIA SPIDI & FISCH, PC