EXHIBIT 8.1 OPINION OF MULDOON, MURPHY & FAUCETTE RE: FEDERAL TAX MATTERS
[MULDOON, MURPHY & FAUCETTE LETTERHEAD]
July 31, 1998
Board of Directors
West Essex Bank, F.S.B.
417 Bloomfield Avenue
Caldwell, New Jersey 07006
Re: Certain Federal Tax Consequences of the Reorganization of West Essex
Bank, F.S.B. from a federally-chartered Mutual Savings Bank to a
federally-chartered Stock Savings Bank in the Federal Mutual Holding
Company Form of Organization
To the Members of the Board of Directors:
You have requested an opinion regarding certain federal tax consequences of
the proposed reorganization of West Essex Bank, F.S.B. (the "Mutual Savings
Bank" or the "Bank") from a federally-chartered mutual savings bank to a
federally-chartered stock savings bank in the federal mutual holding company
form of organization (the "Reorganization"). West Essex Bank (the "Stock Savings
Bank" or "West Essex") will be the stock savings bank successor to the Mutual
Savings Bank. The Reorganization will include the proposed sale of a minority
interest in the common stock of West Essex Bancorp, Inc. ("Bancorp" or the
"Company") and the establishment and funding of a charitable foundation with
approximately 1.8% of the then outstanding shares of common stock of Bancorp,
pursuant to the Plan of Mutual Holding Company Reorganization and Stock Issuance
of West Essex Bank, F.S.B. adopted by the Board of Directors of the Mutual
Savings Bank on March 18, 1998 (the "Plan of Reorganization"). The
Reorganization and its component and related transactions are described in the
Plan of Reorganization, and in the Offering Circular filed with the Office of
Thrift Supervision in connection with the Reorganization and proposed sale of
common stock (the "Offering Circular"). We are rendering this opinion pursuant
to Section III, C, Paragraph 6 of the Plan of Reorganization. As used in this
letter, "Mutual Savings Bank" refers to the Savings Bank before the
Reorganization and "Stock Savings Bank" refers to the Savings Bank after the
Reorganization. All other capitalized terms used but not defined in this letter
shall have the meaning assigned to them in the Plan of Reorganization or
Offering Circular.
Board of Directors
July 31, 1998
Page 2
The Reorganization will be effected, pursuant to the Plan of
Reorganization, as follows: (i) Mutual Savings Bank will organize an interim
federal stock savings bank as its wholly-owned subsidiary ("Interim One"); (ii)
Interim One will organize a stock corporation as a wholly-owned subsidiary
("Stock Holding Company"); and (iii) Interim One will organize an interim
federal stock savings bank as a wholly-owned subsidiary ("Interim Two"). The
following transactions will then occur sequentially: (iv) Mutual Savings Bank
will convert its charter to a federal stock savings bank charter and thereby
become Stock Savings Bank (the "Conversion") and Interim One will exchange its
charter for a federal mutual holding company charter and thereby become the
"Mutual Holding Company"; (v) Interim Two will merge with and into Stock Savings
Bank with Stock Savings Bank being the surviving institution and (vi) 100% of
the issued shares of common stock of Stock Savings Bank (which will be
constructively received by former Mutual Savings Bank depositors when Mutual
Savings Bank becomes Stock Savings Bank pursuant to step (iv)) will be
transferred to the Stock Holding Company in exchange for membership interests in
the Mutual Savings Bank which are conveyed constructively to the Mutual Holding
Company.
In the Conversion, depositor-members of the Mutual Savings Bank will
constructively receive common stock of the Stock Savings Bank in exchange for
their mutual interests in the Mutual Savings Bank. In connection with the
merger in step (v), the shares of Interim Two common stock owned by the Mutual
Holding Company prior to the merger shall be converted into and shall become
shares of Stock Savings Bank common stock, and the shares of the Stock Savings
Bank constructively received by the Stock Savings Bank stockholders (formerly
the depositor-members holding mutual interests in the Mutual Savings Bank) will
be transferred to the Mutual Holding Company by the depositor-members in
exchange for mutual interests in the Mutual Holding Company (the "Exchange").
As a result of these transactions, (a) Stock Savings Bank will be a
wholly-owned subsidiary of the Stock Holding Company, which will be a wholly-
owned subsidiary of the Mutual Holding Company until a minority interest in
shares of common stock of the Stock Holding Company are sold pursuant to the
Stock Issuance Plan, at which time the Stock Savings Bank will remain the
wholly-owned subsidiary of the Stock Holding Company, which will be a majority-
owned subsidiary of the Mutual Holding Company, and (b) the former depositors of
Mutual Savings Bank will own membership rights and interests in the Mutual
Holding Company.
Simultaneously with the Reorganization, as noted above, the Stock Holding
Company will offer to sell additional shares of its common stock pursuant to the
Stock Issuance Plan, with priority subscription rights granted (in descending
order) to certain depositors in Mutual Savings
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July 31, 1998
Page 3
Bank, to certain employee stock benefit plans of Mutual Savings Bank, to
Supplemental Eligible Account Holders of Mutual Savings Bank, to Other Members
of Mutual Savings Bank, and to certain members of the community/general public.
In connection with the opinions expressed herein, we have examined and
relied upon originals, or copies certified or otherwise identified to our
satisfaction, of the Plan of Reorganization and the Offering Circular, and of
such corporate records of the parties to the Reorganization as we have deemed
appropriate. We have also received and relied upon, without independent
verification, the representations of Mutual Savings Bank concerning the Mutual
Savings Bank itself as well as the other parties to the transaction and the
Reorganization transaction itself ("Representations"). We have assumed that such
Representations are true and that the parties to the Reorganization will act in
accordance with the Plan of Reorganization. In addition, we have made such
investigations of law as we have deemed appropriate to form a basis for the
opinions expressed below.
The opinions contained herein are not binding on the Internal Revenue
Service ("IRS") or any court. No assurance can be given that the IRS will not
take a different view of these transactions and that view may be ultimately
sustained by a court.
The opinions expressed herein are rendered only with respect to the issues
specified herein. We express no opinion with respect to any other Federal,
state or local tax or other legal aspect of the transaction. If any of the
above referenced facts or Representations are not entirely true, correct and
complete, that could cause us to change our opinion. In issuing our opinion, we
are relying on the provisions of the Internal Revenue Code of 1986, as amended
(the "Code") cited herein, all of which are subject to change, which change can
be retroactive in effect. Any such change could have an effect on the validity
of our opinions.
Based on and subject to the foregoing, the facts as referenced in this
opinion and subject to the limitations referenced herein, it is our opinion that
for federal income tax purposes, under the current law -
(1) the Bank's conversion of its charter to stock form (the "Bank
Conversion") will qualify as a tax-free reorganization under Section
368(a)(1)(F) of the Internal Revenue Code;
Board of Directors
July 31, 1998
Page 4
(2) the conversion of the Bank's wholly-owned subsidiary ("Interim One")
into the Mutual Holding Company will qualify as a tax-free
reorganization under Section 368(a)(1)(F) of the Code;
(3) the merger of the wholly-owned subsidiary of Interim One ("Interim
Two") into the Stock Savings Bank with the Stock Savings Bank as the
survivor will qualify as a tax-free reorganization under Code Section
368(a)(1)(A);
(4) no gain or loss will be recognized by the Bank (in either its status
as Mutual Savings Bank or Stock Savings Bank) in the Conversion;
(5) neither the Stock Savings Bank nor the Mutual Holding Company will
recognize gain or loss upon the receipt by the Stock Savings Bank of
substantially all of the assets of the Mutual Savings Bank in exchange
for equity interests in the Mutual Holding Company and the Stock
Savings Bank's assumption of the Mutual Savings Bank's liabilities;
(6) the Mutual Holding Company's basis in the stock of the Stock Savings
Bank will increase by an amount equal to the Mutual Savings Bank's net
basis in the property transferred to the Stock Savings Bank;
(7) the Stock Savings Bank's basis in the property received from the
Mutual Savings Bank will be the same as the basis of such property in
the hands of the Mutual Savings Bank immediately prior to the
Reorganization and Offering;
(8) the Stock Savings Bank's holding period for the property received from
the Mutual Savings Bank will include the period during which such
property received from the Mutual Savings Bank was held by the Mutual
Savings Bank;
(9) subject to the conditions and limitations set forth in Code Sections
381, 382, 383 and 384 and the Treasury Regulations promulgated
thereunder, the Stock Bank will succeed to and take into account the
tax attributes of the Mutual Savings Bank described in Code Section
381(c);
(10) no gain or loss will be recognized by the depositors of the Mutual
Savings Bank on the receipt of equity interests with respect to the
Mutual Holding Company in
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July 31, 1998
Page 5
exchange for their equity interests in the Mutual Savings Bank
constructively surrendered therefor in the Exchange;
(11) the exchange of stock by depositors in exchange for equity interests
in the Mutual Holding Company will constitute a tax-free exchange of
property solely for voting "stock" pursuant to Code Section 351;
(12) each Mutual Savings Bank depositor's aggregate basis, if any, in the
Mutual Holding Company equity interest received in the Exchange will
equal the aggregate basis, if any, of each depositor's equity interest
in the Mutual Savings Bank;
(13) the holding period of the Mutual Holding Company equity interests
received by the depositors of Mutual Savings Bank will include the
period during which the Mutual Savings Bank equity interest
surrendered in exchange therefor were held;
(14) the Mutual Holding Company will recognize no gain or loss upon the
transfer of the Stock Savings Bank stock to Bancorp in exchange for
Common Stock pursuant to Code Section 351;
(15) Bancorp will recognize no gain or loss upon its receipt of Stock
Savings Bank stock from the Mutual Holding Company in exchange for
Common Stock;
(16) the Mutual Holding Company will increase its basis in its shares of
the common Stock by the Mutual Holding Company's basis in its Stock
Savings Bank stock;
(17) Bancorp will recognize no gain or loss upon the receipt of money in
exchange for shares of Common Stock;
(18) no gain or loss will be recognized by the Mutual Savings Bank's
account holders upon the issuance to them of accounts in the Stock
Savings Bank immediately after the Reorganization and Offering, in the
same dollar amounts and on the same terms and conditions as their
accounts at the Mutual Savings Bank immediately prior to the
Reorganization and Offering;
(19) the tax basis of the Common Stock purchased in the Reorganization and
Offering will be equal to the amount paid therefor increased, in the
case of the Common
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July 31, 1998
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Stock acquired to the exercise of Subscription Rights, by the fair
market value, if any, of the Subscription Rights exercised;
(20) the holding period for the Common Stock purchased in the
Reorganization and Offering will commence upon the exercise of such
holder's Subscription Rights and otherwise on the day following the
date of such purchase;
(21) gain or loss will be recognized to account holders upon the receipt
or exercise of Subscription Rights in the Reorganization and Offering,
but only to the extent such Subscription Rights are deemed to have
value.
In rendering our opinion in (19) above, regarding the tax basis of shares
of Stock Holding Company common stock, we have relied, without independent
verification, on the opinion of FinPro, Inc that the nontransferable
subscription rights have no value.
This opinion is given solely for the benefit of the parties to the Plan of
Reorganization, and the Eligible Account Holders, Supplemental Eligible Account
Holders and other investors who purchase shares pursuant to the Stock Issuance
Plan, and may not be relied upon by any other party or entity or referred to in
any document without our express written consent. We consent to the filing of
this opinion as an exhibit to the Form MHC-1 and MHC-2 to be filed with the
Office of Thrift Supervision and to the references to this opinion in the
Offering Circular.
Very truly yours,
MULDOON, MURPHY & FAUCETTE
/s/ MULDOON, MURPHY & FAUCETTE