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November 5, 1996
Mr. Michael O. Gilles
Executive Vice President, CFO & Treasurer
Walden Bancorp, Inc.
125 Nagog Park
Acton, MA 01720
RE: Acquisition of Walden Bancorp Inc. by UST Corp.
Dear Gentlemen:
You have requested our opinion ("Tax Opinion") regarding certain
federal income tax consequences of the proposed merger ("Merger") of Mosaic
Corp. ("Mosaic"), a newly formed, wholly owned subsidiary of UST Corp. ("UST"),
with and into Walden Bancorp, Inc. ("Walden") with Walden surviving the Merger,
as more fully described below.
Scope of Tax Opinion
In rendering our opinion, we have relied on the facts described below,
the information contained in the documents listed on Exhibit A of this Tax
Opinion, the Agreement of Affiliation and Plan of Reorganization dated August
30, 1996 (the "Plan"), and the Representation Letters signed by officers of
Walden and UST and dated November 5, 1996. You have represented to us that we
have been provided with all of the facts related to the subject transaction;
however, we have not independently audited or otherwise verified any of these
facts.
Our opinion is expressed only with respect to certain federal income
tax consequences of the Merger that we consider to be material. Our opinion is
based on the Internal Revenue Code of 1986, as amended ("the Code"), the
regulations thereunder, reported judicial decisions, and the current position of
the Internal Revenue Service ("the Service") in such matters as reflected in
published and private rulings, procedures and announcements. However, federal
income tax laws and their interpretations are subject to change, which could
adversely affect this opinion. The opinion does not address any non-tax issues
such as state corporations laws and securities law, or any state or foreign
income tax issues. The opinion will not address the tax consequences particular
to special types of taxpayers, including, but not limited to, non-U.S.
shareholders and regulated investment companies.
Our opinion reflects what we regard to be the federal income tax
effects of the Merger as described herein; nevertheless, it is an opinion only
and should not be taken as an assurance of ultimate tax treatment. Moreover, we
express no opinion on the federal income tax consequences of any other event
occurring pursuant to the Plan. The Service, of course, is not bound by this
opinion; however, should the Service challenge the tax treatment of the Merger,
we believe the tax treatment set forth in our opinion would prevail.
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Walden Bancorp, Inc.
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November 5, 1996
If there is a change in the Code, the regulations and published rulings
thereunder, the current administrative rulings, or the prevailing judicial
interpretation of the foregoing, the opinion expressed herein would necessarily
have to be re-evaluated in light of any such changes. We have no responsibility
to update this opinion for events, transactions or circumstances occurring after
this date.
Proposed Transaction
UST and Walden entered into the Plan on August 30, 1996. UST is a
registered bank holding company that owns a number of banking subsidiaries.
These subsidiaries provide financial services to individuals and small- to
medium-sized companies. Walden is a registered bank holding company that owns
all of the stock of The Co-operative Bank of Concord and The Bank of Braintree,
respectively. Pursuant to the Plan, Walden will become a wholly owned subsidiary
of UST.
It is represented that UST wishes to acquire Walden so as to further
expand its share of the Boston area banking market. The Co-operative Bank of
Concord and The Bank of Braintree both operate in areas in which UST wishes to
expand its presence. By acquiring Walden, UST will have the opportunity to
expand into these markets. Moreover, UST believes that the acquisition will
benefit its employees, its shareholders, and the communities it serves due to
the enhanced strength and diversity of the combined company.
Prior to the formation of Walden, The Co-operative Bank of Concord had
pursued a strategy of growth and expansion through acquisitions. In pursuit of
this strategy, Walden was formed in 1995 and, as part of such formation,
acquired The Bank of Braintree in a tax-free reorganization under section
368(a)(1)(A) and (a)(2)(D).(1) Through the proposed business combination, Walden
will become a part of a larger and more diverse banking operation and will be
afforded the opportunity to expand its market share.
Pursuant to the Plan, the transaction will take place on or after
January 10, 1997, as follows:
1. UST will form a wholly owned subsidiary under Massachusetts
law (Mosaic).
2. Mosaic will merge with and into Walden in a transaction
qualifying as a statutory merger under Massachusetts law, with
Walden surviving the Merger.
3. Pursuant to the Merger and by operation of Massachusetts law,
each share of Walden common stock held by a Walden shareholder
will be converted solely into the right to receive 1.9 shares
of UST voting common -- i.e., the Walden shareholders will
exchange their stock in Walden for voting common stock of UST.
In addition, as with the current
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(1) All section references are to the Internal Revenue Code of 1986, as amended,
and underlying regulations.
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Walden Bancorp, Inc.
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November 5, 1996
UST shareholders, the Walden shareholders will receive the
right to purchase preferred shares of UST upon the occurrence
of certain events such as a hostile takeover attempt.
4. Each share of Mosaic held by UST will be converted to one
share of Walden common stock as a result of the Merger; thus,
Walden will become a wholly owned subsidiary of UST.
5. UST will assume no liabilities of Walden or acquire any Walden
assets from Walden.
Tax Opinion Regarding Federal Income Tax Consequences of the Merger
In our opinion, the Merger will constitute a tax-free reorganization as
defined in sections 368(a)(1)(A) and 368(a)(2)(E). Thus, UST, Mosaic, and Walden
will each be a party to the reorganization. Section 368(b).
As a consequence of the Merger qualifying as a tax free reorganization,
it follows that:
1. No gain or loss will be recognized by the stockholders of
Walden upon the exchange of their Common Stock of Walden
solely for UST Common Stock. Section 354(a); Rev. Rul.
90-11.(2)
2. The tax basis of the shares of UST Common Stock received in
the Merger by the Walden stockholders will be the same as the
tax basis of the Walden Common Stock surrendered in the
exchange. Section 358(a).
3. The holding period of the shares of UST Common Stock received
in the Merger by the Walden stockholders will include the
period during which the shares of
Walden common stock surrendered in exchange were held by the
Walden shareholders, provided that such shares of Walden stock
were held as capital assets. Section 1223(1).
4. No gain or loss will be recognized by Walden as a result of
the Merger. Sections 1032 and 361(c).
5. Stockholders of Walden who exercise their dissenters'
appraisal rights and receive cash in exchange for their shares
of the Common Stock of the Bank will recognize taxable income
or gain or loss for federal income tax purposes in connection
with the transaction. The amount of that income or gain or
loss and the character of that income or gain or loss (that
is, whether it constitutes ordinary income, short-term capital
gain or loss or long-term capital gain or loss) will turn upon
a number of factual considerations
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(2) Rev. Rul. 90-11, 1990-1 C.B. 10
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peculiar to the individual stockholder. Therefore, dissenting
shareholders are strongly encouraged to consult their tax
advisor in connection with this transaction.
6. A Walden shareholder receiving cash in lieu of fractional
share interests of UST stock in the exchange will be treated
as if he, she, or it actually received such fractional share
interests which were subsequently redeemed by UST. Therefore,
the cash the UST shareholders receive will be treated as
having been received as full payment in exchange for stock
redeemed as provided in section 302(a) of the Code. Rev. Rul.
66-365 and Rev. Proc. 77- 41.(3)
Our opinions expressed above address only those federal income tax
aspects relating to the Merger that, in our judgment are material to Walden and
its stockholders. No opinion is expressed about the tax treatment of the Merger
under any other provisions of the Code and the Regulations or about the tax
treatment of any conditions existing at the time of, or effects resulting from,
the Merger that are not specifically covered by the above opinion. These
opinions are solely for your benefit and your shareholders and are not intended
to be relied upon by anyone other than you and your shareholders. Any other
party receiving a copy of this letter must consult and rely upon the advice of
his/her/its own counsel, accountant, or other advisor.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement of UST Corp. on Form S-4 and to the references to this
Firm in the Registration Statement and the related Joint Proxy Statement
Prospectus.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
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(3) Rev. Rul. 66-365, 1966-2 C.B. 116; Rev. Proc. 77-41, 1977-2 C.B. 574
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EXHIBIT A
- - Agreement of Affiliation and Plan of Reorganization dated August 30,
1996.
- - Representation letters dated November 5, 1996.