Exhibit 8.1
__________, 1997
Board of Directors
Newport Federal Savings Bank
200 Olivia Drive
Newport, Arkansas 72112
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 Newport Federal Savings Bank (the "Bank") from a federally
chartered mutual savings bank to a federally chartered capital stock savings
bank (the "Converted Bank") and the concurrent acquisition of 100% of the
outstanding capital stock of the Converted Bank by North Arkansas Bancshares,
Inc. (the "Company"), a Tennessee corporation formed at the direction of the
Board of Directors of the Bank to become the parent holding company of the
Converted Bank (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 on May 29, 1997 by the Board of
Directors of the Bank (the "Plan"); the federal mutual charter and bylaws of the
Bank, as amended; the charter and bylaws of the Company; the Affidavit of
representations dated September __,1997 provided to us by the Bank (the
"Affidavit"), and the Prospectus (the "Prospectus") included in the Company's
Registration Statement on Form SB-2
Board of Directors
Newport Federal Savings Bank
____________, 1997
Page 2
being filed with the Securities and Exchange Commission ("SEC") in connection
with the Conversion, on or about September __, 1997 (the "Registration
Statement"). 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.
BACKGROUND
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Based solely upon our review of such documents, and upon such
information as the Bank 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 Bank is a federally chartered mutual savings bank, which is in the
process of converting to a federally chartered capital stock savings bank. The
Bank was organized as a federally chartered mutual savings and loan association
under the name "Newport Federal Savings and Loan Association" in 1934 and became
a member of the Federal Home Loan Bank ("FHLB") System and obtained federal
deposit insurance. In 1995 the Bank changed its name to Newport Federal Savings
Bank.
The Bank is a member of the FHLB System, and the deposits of the Bank
are insured by the Federal Deposit Insurance Corporation ("FDIC") up to
applicable limits. The Bank is subject to comprehensive regulation and
supervision by the Office of Thrift Supervision ("OTS") and to examination by
the OTS. The Bank operates one office in Newport, Arkansas.
The Bank's principal business consists of attracting deposits from the
general public and investing those funds in loans secured by first mortgages on
existing owner-occupied single-family residences in the Bank's market area and,
to a lesser but growing extent, commercial and multi-family real estate loans
and consumer and commercial business loans. [Confirm] At June 30, 1997, the Bank
had total assets of $_____ million, deposits of $_____ million and retained
earnings of $____ million.
Board of Directors
Newport Federal Savings Bank
____________, 1997
Page 3
As a federally chartered mutual savings bank, the Bank has no
authorized capital stock. Instead, the Bank, in mutual form, has a unique equity
structure. A savings depositor of the Bank is entitled to payment of interest on
his account balance as declared and paid by the Bank, but has no right to a
distribution of any earnings of the Bank except for interest paid on his
deposit. Rather, such earnings become retained income of the Bank.
However, a savings depositor does have a right to share pro rata, with
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respect to the withdrawal value of his respective savings account, in any
liquidation proceeds distributed if the Bank is ever liquidated. Further,
savings depositors and borrowers are members of the Bank and thereby have voting
rights in the Bank. Under the Bank's federal mutual charter, as amended, each
depositor is entitled to cast one vote for each $100 or fraction thereof held in
a withdrawable deposit account of the Bank, and each borrower member
(hereinafter "borrower") is entitled to one vote in addition to the votes (if
any) to which such person is entitled in such borrower's capacity as a savings
depositor of the Bank. 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 Bank cease when such depositor closes his accounts with the
Bank.
The Company was incorporated in September, 1997 under the laws of the
State of Tennessee to act as the savings and loan holding company of the
Converted Bank upon consummation of the Conversion. Prior to consummation of the
Conversion, the Company has not been engaged in and is not expected to engage in
any material operations. After the Conversion, the Company's principal business
will be overseeing the business of the Converted Bank. The Company has an
authorized capital structure of 9,000,000 shares of common stock (the "Common
Stock"), par value $.01 per share, and 3,000,000 shares of serial preferred
stock, par value $.01 per share.
PROPOSED TRANSACTION
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The Board of Directors of the Bank has decided that in order to attract
new capital to the Converted Bank to increase its net worth, to support future
savings growth, to increase the amount of funds available for lending and
investment, to provide greater resources for the expansion of customer services,
and to facilitate future expansion, it would be advantageous for the Bank to
convert from a federally chartered mutual savings bank to a federally chartered
capital stock savings bank. In addition, the Board of Directors intends to
implement stock option plans and
Board of Directors
Newport Federal Savings Bank
____________, 1997
Page 4
other stock benefit plans following the Conversion in order to better attract
and retain qualified directors and officers. It is the further desire of the
Board of Directors to reorganize the Converted Bank as the wholly owned
subsidiary of the Company to enhance flexibility of operations, diversification
of business opportunities and financial capability for business and regulatory
purposes and to enable the Converted Bank to compete more effectively with other
financial service organizations.
Accordingly, pursuant to the Plan, the Bank will undergo the Conversion
whereby it will be converted from a federally chartered mutual savings bank to a
federally chartered capital stock savings bank. The Converted Bank will then
issue to the Company 100,000 shares of the Converted Bank's common stock,
representing all of the shares of capital stock to be issued by the Converted
Bank in the Conversion, and the Company will make payment to the Converted Bank
in an amount equal to at least 50% of the aggregate net proceeds realized by the
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.
Pursuant to the Prospectus, the Company currently anticipates making such
payment to the Converted Bank of an amount equal to 50% of the aggregate net
proceeds from the sale of the Common Stock.
Also pursuant to the Plan, the 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 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 Bank and the Company, on the basis of the estimated pro forma
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market value of the Converted Bank, as a subsidiary of the 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
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market value. Pursuant to the Plan, all 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
Board of Directors
Newport Federal Savings Bank
____________, 1997
Page 5
the stock of the Converted Bank to the 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:
(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 first be 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 (including
individual retirement and Keogh retirement accounts and
personal trusts in which such natural persons have substantial
interests) who are permanent Residents of the Bank'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.
Board of Directors
Newport Federal Savings Bank
____________, 1997
Page 6
The Plan also provides for the establishment of a Liquidation Account
by the Converted Bank for the benefit of all Eligible Account Holders and
Supplemental Eligible Account Holders in an amount equal to the regulatory
capital of the Bank 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
Converted Bank, except that the Converted Bank may not declare or pay cash
dividends on or repurchase any of its stock if the result thereof would be to
reduce its regulatory capital 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 Converted Bank 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
Bank for purposes of distribution of the Liquidation Account. Instead, upon
consummation of the Conversion, the Liquidation Account, together with the
related rights and obligations of the Converted Bank, shall be assumed by the
Converted Bank.
The Conversion will not interrupt the business of the Bank. The
Converted Bank will, after the Conversion, engage in the same business as that
of the Bank 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 Converted Bank 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 Bank
will remain unchanged and retain their same characteristics in the Converted
Bank immediately following the Conversion.
Following the Conversion, voting rights in the Converted Bank will rest
exclusively with the sole holder of stock in the Converted Bank, which will be
the Company. Voting rights in the Company will rest exclusively in the holders
of the Common Stock.
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
Bank's members called to vote on the Plan. Immediately prior to the Conversion,
the Bank will have a positive net worth determined in accordance with generally
accepted accounting principles.
Board of Directors
Newport Federal Savings Bank
____________, 1997
Page 7
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 Bank or the Converted Bank as a
result of the Conversion (see Rev. Rul. 80-105, 1980-1 C.B.
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78).
2. The assets of the Bank will have the same basis in the hands
of the Converted Bank as in the hands of the Bank immediately
prior to the Conversion (Section 362(b) of the Code).
3. The holding period of the assets of the Bank to be received by
the Converted Bank will include the period during which the
assets were held by the Bank prior to the Conversion (Section
1223(2) of the Code).
4. No gain or loss will be recognized by the Converted Bank upon
its receipt of money from the Company in exchange for shares
of common stock of the Converted Bank (Section 1032(a) of the
Code). The Company will be transferring solely cash to the
Converted Bank in exchange for all the outstanding capital
stock of the Converted Bank 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).
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5. No gain or loss will be recognized by the 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 Bank upon the issuance to them of deposit
accounts in the Converted Bank in the same dollar amount and
on the same terms and conditions in exchange for their deposit
accounts in the Bank
Board of Directors
Newport Federal Savings Bank
____________, 1997
Page 8
held immediately prior to the Conversion. (Section 1001(a) of
the Code; Treas. Reg. (S).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 Converted Bank received as part of the
Conversion will equal the tax basis of such account holders'
corresponding deposit accounts in the Bank surrendered in
exchange therefor (Section 1012 of the Code).
8. Each depositor of the Bank will recognize gain upon the
receipt of his or her respective interest in the Liquidation
Account established by the Converted Bank 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 Bank other than deposit accounts. Persons who
subscribe in the Conversion but who are not depositors of the
Bank 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 Bank, if any. 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 Converted Bank 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).
Board of Directors
Newport Federal Savings Bank
____________, 1997
Page 9
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
Bank'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 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
Board of Directors
Newport Federal Savings Bank
____________, 1997
Page 10
Prospectus, which is a part of the Registration Statement and Form AC, under the
headings "The Conversion -- Effect of Conversion to Stock Form on Depositors and
Borrowers of Newport Federal Savings Bank -- Tax Effects" and "Legal and Tax
Matters."
Very truly yours,
HOUSLEY KANTARIAN & BRONSTEIN, P.C.
By:
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Gary R. Bronstein