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EXHIBIT 8.1
FORM OF
FEDERAL TAX OPINION
February 9, 1998
Boards of Directors
Atlantic Liberty Savings, F.A.
Brooklyn Heights Bancorp
Atlantic Liberty, MHC
186 Montague Street
New York, NY 11201-3601
RE: MUTUAL HOLDING COMPANY FORMATION AND STOCK ISSUANCE
Ladies and Gentlemen:
We have been requested as special counsel to Atlantic Liberty Savings,
F.A., a federally-chartered mutual savings association (the "Bank" or the
"Stock Bank", as the context requires), Atlantic Liberty, MHC, a
federally-chartered mutual holding company ("Mutual Holding Company") and
Brooklyn Heights Bancorp, a federally-chartered savings and loan holding
company ("Stock Holding Company"), to express our opinion concerning certain
Federal income tax matters relating to the Plan of Reorganization (as defined
herein).
In connection therewith, we have examined 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 are
provided to us 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
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Boards of Directors
Atlantic Liberty Savings, F.A.
Brooklyn Heights Bancorp
Atlantic Liberty, MHC
February 9, 1998
Page 2
relating to the Plan of Reorganization under state and local tax laws and under
Federal income tax laws except on the basis of the documents and assumptions
described above.
For purposes of this opinion, we are relying on the representations
provided to us by the Bank, which are incorporated herein by reference.
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.
In rendering our opinions, we have assumed that the persons and
entities identified in the Plan of Reorganization will at all times comply with
the requirements of Code sections 368 and 351, the other applicable state and
Federal laws and the representations of the Bank. In addition, we have assumed
that the activities of the persons and entities identified in the Plan of
Reorganization will be conducted strictly in accordance with the Plan of
Reorganization. Any variations may affect the opinions we are rendering.
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.
SUMMARY OF OPINIONS
Based on the facts, representations and assumptions set forth herein,
we are of the opinion that:
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Boards of Directors
Atlantic Liberty Savings, F.A.
Brooklyn Heights Bancorp
Atlantic Liberty, MHC
February 9, 1998
Page 3
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.
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 proposed
transaction. (Code Section 362(b)).
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 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 suceed 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).
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Boards of Directors
Atlantic Liberty Savings, F.A.
Brooklyn Heights Bancorp
Atlantic Liberty, MHC
February 9, 1998
Page 4
WITH RESPECT TO THE TRANSFER OF STOCK BANK STOCK TO MUTUAL HOLDING
COMPANY FOR MEMBERSHIP INTERESTS (THE "351 TRANSACTION"):
10. The exchange of stock by the Stock Bank stockholders in
exchange for membership interests in the Mutual Holding Company 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 stockholders will recognize no gain or loss upon
the transfer of the Stock Bank stock they constructively received in the Bank
conversion to the Mutual Holding Company solely in exchange for membership
interests in the Mutual Holding Company. (Code Section 351).
12. Stock Bank stockholder's basis in the Mutual Holding Company
membership interests received in the transaction will be the same as the basis
of the property transferred in exchange therefor, reduced by the sum of the
liabilities assumed by Mutual Holding Company or to which assets transferred
are taken subject. (Code Section 358(a)(1)).
13. Stock Bank stockholder's holding period for the membership
interests in Mutual Holding Company received in the transaction will include
the period during which the property exchanged was held by Stock Bank
stockholders, provided that such property was a capital asset on the date of
the exchange. (Code Section 1223(1)).
14. Mutual Holding Company will recognize no gain or loss upon the
receipt of property from Stock Bank stockholders in exchange for membership
interests in the Mutual Holding Company. (Code Section 1032(a)).
15. Mutual Holding Company's basis in the property received from
Stock Bank stockholders will be the same as the basis of such property in the
hands of Stock Bank stockholders immediately prior to the transaction. (Code
Section 362(a)).
16. Mutual Holding Company's holding period for the property
received from Stock Bank's stockholders will include the period during which
such property was held by Stock Bank stockholders. (Code Section 1223(2)).
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Boards of Directors
Atlantic Liberty Savings, F.A.
Brooklyn Heights Bancorp
Atlantic Liberty, MHC
February 9, 1998
Page 5
17. Stock Bank depositors will recognize no gain or loss solely by
reason of the transaction.
WITH RESPECT TO THE TRANSFERS TO THE STOCK HOLDING COMPANY IN EXCHANGE
FOR COMMON STOCK IN THE STOCK HOLDING COMPANY
18. The Mutual Holding Company and the persons who purchased
Common Stock of the Stock 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 Stock Holding
Company in exchange for stock in the Stock Holding Company. Code Sections
351(a) and 357(a).
19. Stock Holding Company will recognize no gain or loss on its
receipt of Stock Bank stock and cash in exchange for Stock Holding Company
Stock. (Code Section 1032(a)).
20. The basis of the Stock 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.
PROPOSED TRANSACTION
On August 19, 1997, the board of directors of the Bank adopted that
certain Plan of Reorganization From A Mutual Savings Association to A Mutual
Holding Company (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 federal 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 (Stock Holding
Company); and
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Boards of Directors
Atlantic Liberty Savings, F.A.
Brooklyn Heights Bancorp
Atlantic Liberty, MHC
February 9, 1998
Page 6
(iii) Interim One will also organize another interim federal
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;
(v) Interim One will cancel its outstanding stock and
exchange its charter for a federal mutual holding company
charter and thereby become the Mutual Holding Company;
(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 Mutual Holding Company; and
(vii) The Mutual Holding Company will contribute the Bank's
stock to the Stock Holding Company, a wholly-owned
subsidiary of the Mutual Holding Company 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 49.9% of its Common Stock in the Subscription Offering
and, if applicable, the Direct 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 Mutual Holding Company 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
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Boards of Directors
Atlantic Liberty Savings, F.A.
Brooklyn Heights Bancorp
Atlantic Liberty, MHC
February 9, 1998
Page 7
Reorganization will have ownership rights solely with respect to the Mutual
Holding Company so long as they continue to hold deposit accounts with the
Stock Bank.
The shares of Interim Two common stock owned by the Mutual Holding
Company 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 Mutual Holding Company by such persons in exchange for
liquidation rights in the Mutual Holding Company.
The Stock Holding Company will have the power to issue shares of
capital stock (including common and preferred stock) to persons other than the
Mutual Holding Company. So long as the Mutual Holding Company is in existence,
however, it must own a majority of the voting stock of Stock Holding Company.
Stock Holding Company may issue any amount of non-voting stock to persons
other than Mutual Holding Company. No such non-voting stock will be issued as
of the date of the Reorganization.
* * *
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 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.
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Boards of Directors
Atlantic Liberty Savings, F.A.
Brooklyn Heights Bancorp
Atlantic Liberty, MHC
February 9, 1998
Page 8
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. This opinion
is rendered for your use in connection with the Stock Holding Company's
Registration Statement on Form SB-2 (the "SB-2") filed with the Securities and
Exchange Commission (the "SEC"), the Stock Holding Company's Application
H-(e)1-s filed with the Office of Thrift Supervision (the "OTS"), and the
Association's Combined Form MHC-1/MHC-2 Notice of Mutual Holding Company
Reorganization and Application for Approval of a Minority Stock Issuance by a
Subsidiary of a Mutual Holding Company. We hereby consent to the filing of this
opinion in the SB-2. We also consent to the references to our firm in the Stock
Holding Company's Prospectus under the headings "The Reorganization and Offering
- -- Tax Effects of the Reorganization" and "Legal and Tax Matters."
Very truly yours,
/s/ LUSE LEHMAN GORMAN POMERENK & SCHICK
LUSE LEHMAN GORMAN POMERENK & SCHICK
A Professional Corporation