8.1
[LETTERHEAD OF HOUSLEY KANTARIAN & BRONSTEIN, P.C. APPEARS HERE]
August 21, 1997
Board of Directors
Salida Building and Loan Association
130 W. 2nd Street
Salida, Colorado 81201-0309
Re: Certain Federal Income Tax Consequences Relating
to Proposed Holding Company Conversion
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Gentlemen:
In accordance with your request, set forth hereinbelow is the opinion
of this firm relating to certain federal income tax consequences of the proposed
conversion of Salida Building and Loan Association (the "Association") from a
federally chartered mutual savings and loan association to a federally chartered
stock savings and loan association (the "Stock Association") and the concurrent
acquisition of 100% of the outstanding capital stock of the Stock Association by
High Country Bancorp, Inc. (the "Holding Company"), a Colorado corporation
formed at the direction of the Board of Directors of the Association to become
the parent holding company of the Stock Association (the "Conversion").
For purposes of this opinion, we have examined such documents and
questions of law as we have considered necessary or appropriate, including but
not limited to the Plan of Conversion as adopted by the Association's Board of
Directors on May 15, 1997 (the "Plan"); the federal mutual charter and bylaws of
the Association; the articles of incorporation and bylaws of the Holding
Company; and the affidavit of the President of the Association supporting this
federal tax opinion. In such examination, we have assumed, and have not
independently verified, the genuineness of all signatures on original documents
where due execution and delivery are requirements to the effectiveness thereof.
Terms used but not defined herein, whether capitalized or not, shall have the
same meaning as defined in the Plan.
Board of Directors
Salida Building and Loan Association
August 21, 1997
Page 2
BACKGROUND
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Based solely upon our review of such documents, and upon such
information as the Association has provided to us (which we have not attempted
to verify in any respect), and in reliance upon such documents and information,
we set forth hereinbelow a general summary of the relevant facts and proposed
transaction, qualified in its entirety by reference to the documents cited
above.
The Association is a federally chartered mutual savings and loan
association which was chartered as a federal savings and loan association in
1993 and is in the process of converting to a federally chartered stock savings
and loan association. It is currently a member of the Federal Home Loan Bank
system and its deposits are insured by the Federal Deposit Insurance Corporation
("FDIC") up to the applicable limits. The Association is subject to
comprehensive regulation and supervision by the FDIC and the Office of Thrift
Supervision ("OTS"), and to examination by the OTS. The Association operates
through offices located in Salida, Buena Vista and Leadville, Colorado.
The principal business of the Association historically has consisted of
attracting deposits from the general public and investing these deposits in
loans secured by first mortgages on single-family residences in the
Association's market area. The Association derives its income principally from
interest earned on loans and, to a lesser extent, interest earned on
mortgage-backed securities and investment securities and noninterest income.
Funds for these activities are provided principally by operating revenues,
deposits and repayments of outstanding loans and investment securities and
mortgage-backed securities. At June 30, 1997, the Association had total assets
of $76.3 million, deposits of $56.2 million, and equity (substantially
restricted) of $6.0 million.
As a federally chartered mutual savings and loan association, the
Association has no authorized capital stock. Instead, the Association, in mutual
form, has a unique equity structure. A savings depositor of the Association is
entitled to payment of interest on his or her account balance as declared and
paid by the Association, but has no right to a distribution of any earnings of
the Association except for interest paid on his deposit. Rather, such earnings
become retained earnings (or equity) of the Association. However, a savings
depositor does have a right to share pro rata, with respect to the withdrawal
value of his respective savings account, in any liquidation proceeds distributed
if the Association is ever liquidated.
Further, savings depositors and certain borrowers are members of the
Association and thereby have voting rights in the Association. Under the
Association's federal mutual charter, as amended, each savings depositor is
entitled to cast one vote for each $100 or fraction thereof held
Board of Directors
Salida Building and Loan Association
August 21, 1997
Page 3
in a withdrawable deposit account of the Association, and each borrower member
(hereinafter "borrower") is entitled to one vote in addition to the votes (if
any) to which such person is otherwise entitled in such borrower's capacity as a
savings depositor of the Association. Also under such federal mutual charter, no
member is entitled to cast more than 1,000 votes. All of the interests held by a
savings depositor in the Association cease when such depositor closes his or her
accounts with the Association.
The Holding Company was incorporated in August 1997 under the laws of
the State of Colorado to act as the savings and loan holding company of the
Stock Association upon consummation of the Conversion. Prior to consummation of
the Conversion, the Holding Company has not been engaged in, and is not expected
to engage in, any material operations. After the Conversion, the Holding
Company's principal business will be the business of the Stock Association. The
Holding Company has an authorized capital structure of 3,000,000 shares of
common stock (the "Common Stock") and 1,000,000 shares of serial preferred
stock, par value $0.01 per share.
PROPOSED TRANSACTION
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The Association's Board of Directors has determined that the Conversion
will be beneficial to the communities within its primary market area and persons
residing within those communities. The Conversion will provide those persons
with an opportunity to be an equity owner of the Association through ownership
in the Holding Company. The Association believes that, by combining quality
service and products with a local ownership base, its customers and community
members who become stockholders will be more inclined to do business with the
Association. This is consistent with the Association's objective of being a
locally owned financial institution servicing local needs. The Board of
Directors also believes that equity ownership will enable local stockholders to
participate in the Association's success and profitability through possible
capital appreciation and dividends. In addition, the Board of Directors of the
Association has decided that in order to attract new capital to the Association
to increase its net worth, to support future savings growth, to increase the
amount of funds available for other lending and investment, to provide greater
resources for the expansion of customer services and to facilitate future
expansion, it would be advantageous for the Association to undertake the
Conversion.
Further, the Board of Directors of the Association has determined that
in order to enhance flexibility of operations, diversification of business
activities and geographic operations, financial capability for business and
regulatory purposes, and to enable the Stock Association to more effectively
compete with other types of financial services organizations, it would be
advantageous to have the stock of Stock Association held by a parent holding
company. The Board of Directors
Board of Directors
Salida Building and Loan Association
August 21, 1997
Page 4
has also determined that the Conversion would enhance the future access of the
Holding Company and the Stock Association to the capital markets.
Accordingly, pursuant to the Plan, the Association will be converted
from a federally chartered mutual savings and loan association to a federally
chartered stock savings and loan association. The Stock Association will then
issue to the Holding Company 100,000 shares of the Stock Association's common
stock, representing all of the shares of capital stock to be issued by the Stock
Association in the Conversion, and the Holding Company will make payment to the
Stock Association of an amount equal to at least 50% of the aggregate net
proceeds realized by the Holding Company from the sale of its Common Stock sold
pursuant to the Plan (after deducting the amount necessary to fund a loan to an
Employee Stock Ownership Plan being established in connection with the
Conversion), or such other portion of the aggregate net proceeds as may be
authorized or required by the OTS. The Holding Company currently anticipates
making such payment to the Stock Association of an amount equal to 50% of the
aggregate net proceeds from the sale of the Common Stock.
Also pursuant to the Plan, the Holding Company will offer its shares of
Common Stock for sale in a Subscription Offering. Shares of Common Stock
remaining, if any, may then be offered to the general public in a Community
Offering. Shares of the Common Stock not otherwise subscribed for in the
Subscription Offering and Community Offering may be offered at the discretion of
the Holding Company to certain members of the general public as part of a
community offering on a best efforts basis by a selling group of selected
broker-dealers.
The purchase price per share and total number of shares of Common Stock
to be offered and sold pursuant to the Plan will be determined by the Boards of
Directors of the Association and the Holding Company, on the basis of the
estimated pro forma market value of the Stock Association, as a subsidiary of
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the Holding Company, which will in turn be determined by an independent
appraiser. The aggregate purchase price for all shares of the Common Stock will
be equal to such estimated pro forma market value. Pursuant to the Plan, all
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such shares of Common Stock will be issued and sold at a uniform price per
share. The Conversion, including the sale of newly issued shares of the stock of
the Stock Association to the Holding Company, will be deemed effective
concurrently with the closing of the sale of the Common Stock.
Under the Plan and in accordance with regulations of the OTS, the
shares of Common Stock will first be offered through the Subscription Offering
pursuant to non-transferable subscription rights on the basis of preference
categories in the following order of priority:
Board of Directors
Salida Building and Loan Association
August 21, 1997
Page 5
(1) Eligible Account Holders;
(2) Tax-Qualified Employee Stock Benefit Plans (i.e., the ESOP);
(3) Supplemental Eligible Account Holders; and
(4) Other Members.
However, any shares of Common Stock sold in excess of the high end of the
Valuation Range may be first sold to Tax-Qualified Employee Stock Benefit Plans
set forth in category (2) above.
Any shares of Common Stock not subscribed for in the Subscription
Offering will be offered in the Community Offering in the following order of
priority:
(a) Natural persons and trusts of natural persons who are
permanent Residents of the Association's Local Community; and
(b) The general public.
Shares not sold in the Subscription Offering and the Community
Offering, if any, may thereafter be offered for sale to certain members of the
general public as part of a community offering on a best efforts basis by a
selling group of selected broker-dealers. The sale of shares in the Subscription
Offering, Community Offering, and as sold through the selected broker-dealers
would be consummated at the same time.
The Plan also provides for the establishment of a Liquidation Account
by the Stock Association for the benefit of all Eligible Account Holders and
Supplemental Eligible Account Holders in an amount equal to the net worth (or
regulatory capital) of the Association as of the date of the latest statement of
financial condition contained in the final prospectus issued in connection with
the Conversion. The establishment of the Liquidation Account will not operate to
restrict the use or application of any of the net worth accounts of the Stock
Association, except that the Stock Association may not declare or pay cash
dividends on or repurchase any of its stock if the result thereof would be to
reduce its net worth below the amount required to maintain the Liquidation
Account. All such account holders will have an inchoate interest in a
proportionate amount of the Liquidation Account with respect to each savings
account held and will be paid by the Stock Association in event of liquidation
prior to any liquidating distribution being made with respect to capital stock.
Under the Plan, the Conversion shall not be deemed to be a liquidation of the
Association for purposes of distribution of the Liquidation Account. Instead,
upon
Board of Directors
Salida Building and Loan Association
August 21, 1997
Page 6
consummation of the Conversion, the Liquidation Account, together with the
related rights and obligations of the Stock Association, shall be assumed by the
Stock Association.
Following the Conversion, voting rights in the Stock Association will
rest exclusively with the sole holder of stock in the Stock Association, which
will be the Holding Company. Voting rights in the Holding Company will rest
exclusively in the holders of the Common Stock. The Conversion will not
interrupt the business of the Association. The Stock Association will, after the
Conversion, engage in the same business as that of the Association immediately
prior to the Conversion, and will continue to be subject to regulation and
supervision by the OTS and the FDIC. Further, the deposits of the Stock
Association will continue to be insured by the FDIC. Each depositor will retain
a withdrawable savings account or accounts equal in dollar amount to, and on the
same terms and conditions as, the withdrawable account or accounts at the time
of Conversion except to the extent funds on deposit are used to pay for Common
Stock purchased in connection with the Conversion. All loans of the Association
will remain unchanged and retain their same characteristics in the Stock
Association immediately following the Conversion.
The Plan must be approved by the OTS and by an affirmative vote of at
least a majority of the total votes eligible to be cast at a meeting of the
Association's members called to vote on the Plan.
Immediately prior to the Conversion, the Association will have a
positive net worth determined in accordance with generally accepted accounting
principles.
OPINION
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Based on the foregoing and in reliance thereon, and subject to the
conditions stated herein, it is our opinion that the following federal income
tax consequences will result from the proposed transaction.
1. The Conversion will constitute a reorganization within the
meaning of Section 368(a)(1)(F) of the Internal Revenue Code
of 1986, as amended (the "Code"), and no gain or loss will be
recognized to either the Association or to the Stock
Association as a result of the Conversion (see Rev. Rul. 80-
105, 1980-1 C.B. 78).
2. The assets of the Association will have the same basis in the
hands of the Stock Association as in the hands of the
Association immediately prior to the Conversion (Section
362(b) of the Code).
Board of Directors
Salida Building and Loan Association
August 21, 1997
Page 7
3. The holding period of the assets of the Association to be
received by the Stock Association will include the period
during which the assets were held by the Association prior to
the Conversion (Section 1223(2) of the Code).
4. No gain or loss will be recognized by the Stock Association
upon its receipt of money from the Holding Company in exchange
for shares of common stock of Stock Association (Section
1032(a) of the Code). The Holding Company will be transferring
solely cash to the Stock Association in exchange for all the
outstanding capital stock of the Stock Association and
therefore will not recognize any gain or loss upon such
transfer. (Section 351(a) of the Code; see Rev. Rul. 69-357,
1969-1 C.B. 101).
5. No gain or loss will be recognized by the Holding Company upon
its receipt of money in exchange for shares of the Common
Stock (Section 1032(a) of the Code).
6. No gain or loss will be recognized by the Eligible Account
Holders, Supplemental Eligible Account Holders or Other
Members of the Association upon the issuance to them of
deposit accounts in the Stock Association in the same dollar
amount and on the same terms and conditions in exchange for
their deposit accounts in the Association held immediately
prior to the Conversion. (Section 1001(a) of the Code; Treas.
Reg. ss.1.1001-1(a)).
7. The tax basis of the savings accounts of the Eligible Account
Holders, Supplemental Eligible Account Holders, and Other
Members in the Stock Association received as part of the
Conversion will equal the tax basis of such account holders'
corresponding deposit accounts in the Association surrendered
in exchange therefor (Section 1012 of the Code).
8. Each depositor of the Association will recognize gain upon the
receipt of his or her respective interest in the Liquidation
Account established by the Stock Association pursuant to the
Plan and the receipt of his or her subscription rights deemed
to have been received for federal income tax purposes, but
only to the extent of the excess of the combined fair market
value of a depositor's interest in such Liquidation Account
and subscription rights over the depositor's basis in the
former interests in the Association other than deposit
accounts. Persons who subscribe in the Conversion but who are
not depositors of the Association will recognize gain upon the
receipt of subscription rights deemed to have been received
for federal income tax purposes, but only to the extent of the
excess of the fair market value of such subscription rights
over such person's former interests in the Association, if
any.
Board of Directors
Salida Building and Loan Association
August 21, 1997
Page 8
Any such gain realized in the Conversion would be subject to
immediate recognition.
9. The basis of each account holder's interest in the Liquidation
Account received in the Conversion and to be established by
the Stock Association pursuant to the Conversion will be equal
to the value, if any, of that interest.
10. No gain or loss will be recognized upon the exercise of a
subscription right in the Conversion. (Rev. Rul. 56-572, 1956-
2 C.B.182).
11. The basis of the shares of Common Stock acquired in the
Conversion will be equal to the purchase price of such shares,
increased, in the case of such shares acquired pursuant to the
exercise of subscription rights, by the fair market value, if
any, of the subscription rights exercised (Section 1012 of the
Code).
12. The holding period of the Common Stock acquired in the
Conversion pursuant to the exercise of subscription rights
will commence on the date on which the subscription rights are
exercised (Section 1223(6) of the Code). The holding period of
the Common Stock acquired in the Community Offering will
commence on the date following the date on which such stock is
purchased (Rev. Rul. 70-598, 1970-2 C.B. 168; Rev. Rul. 66-97,
1966-1 C.B. 190).
SCOPE OF OPINION
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Our opinion is limited to the federal income tax matters described
above and does not address any other federal income tax considerations or any
state, local, foreign, or other federal tax considerations. If any of the
information upon 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 case law, Code, Treasury
Regulations thereunder and Internal Revenue Service rulings as they now exist.
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 subsequent to consummation of the Conversion. Prior to
that time, we undertake to update or supplement our opinion in the event of a
material change in the federal income tax consequences set forth above and to
file such revised opinion as an exhibit to the Registration Statement and the
Association's Application for Conversion on Form AC ("Form AC"). 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
Board of Directors
Salida Building and Loan Association
August 21, 1997
Page 9
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.
CONSENTS
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We hereby consent to the filing of this opinion with the OTS as an
exhibit to the Application H-(e)1-S filed by the Company with the OTS in
connection with the Conversion and the reference to our firm in the Application
H-(e)1-S under Item 110.55 therein.
We also hereby consent to the filing of this opinion with the SEC and
the OTS as exhibits to the Registration Statement and Form AC, respectively, and
the references to our firm in the Prospectus, which is a part of both the
Registration Statement and Form AC, under the headings "The Conversion -- Effect
of Conversion to Stock Form on Depositors and Borrowers of the Association --
Tax Effects" and "Tax Opinion."
Very truly yours,
HOUSLEY KANTARIAN & BRONSTEIN, P.C.
By: /s/ Howard S. Parris
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Howard S. Parris