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EXHIBIT 8.1
OPINION OF TAX ADVISOR
KPMG
160 Fayetteville Street Mall
Suite 1200
Post Office Box 29543
Raleigh, NC 27626-0543
April 17, 2001
Board of Directors
Century Bancorp, Inc.
22 Winston Street
Thomasville, North Carolina 27360
Board of Directors
First Bancorp
341 North Main Street
Post Office Box 508
Troy, North Carolina 27371-0508
Gentlemen:
You have requested the opinion of KPMG LLP ("KPMG") regarding certain federal
and North Carolina income tax consequences resulting from two proposed
transactions. In the first proposed transaction, Century Bancorp, Inc. (the
"Company"), a savings bank holding company, will merge with and into First
Bancorp (the "Buyer"), a bank holding company, (the "Holding Company Merger"),
whereupon the separate existence of Company will cease. Company shareholders
will be permitted to elect to receive, subject to certain limitations described
in the Merger Agreement, either Buyer Common Stock or a specified amount of cash
with respect to each share of their Company Common Stock. In the second proposed
transaction, occurring as soon as reasonably practicable after the filing of the
Articles of Merger in respect of the Holding Company Merger, Home Savings, Inc.,
SSB, (the "Company Bank"), a wholly-owned savings bank subsidiary of Company,
will merge with and into First Bank ("Buyer Bank"), the wholly-owned bank
subsidiary of Buyer, (the "Bank Merger"), whereupon the separate existence of
Company Bank will cease.
You have submitted for our consideration:
- - certain representations as to the proposed transactions;
- - a copy of the Merger Agreement and the related Plan of Merger, dated
October 19, 2000 (collectively, the "Merger Agreement"); and,
- - a copy of the Form S-4 Registration Statement, as amended, filed with
the Securities and Exchange Commission ("SEC") on April 17, 2001 (the
Merger Agreement and the Form S-4 collectively being the "Documents").
We have not reviewed the legal documents necessary to effectuate the steps to be
undertaken and we assume that all steps will be effectuated under state and
federal law and will be consistent with the legal documentation and with the
description of the steps in the Documents.
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FACTS AND REPRESENTATIONS
Buyer is a registered one-bank holding company organized under the laws of the
State of North Carolina. Buyer's authorized capital stock consists of one class.
It has authorized 12,500,000 shares of Common Stock, no par value, of which
8,755,161 shares were issued and outstanding at April 16, 2001 (the "Buyer
Common Stock"). Buyer Bank, a North Carolina corporation, is a wholly-owned bank
subsidiary of Buyer.
Company is a registered savings bank holding company organized under the laws of
the State of North Carolina. Its authorized capital stock consists of two
classes. It has authorized 20,000,000 shares of Common Stock, no par value per
share, of which 1,105,019 shares were issued and outstanding at April 12, 2001
(the "Company Common Stock"). It also has 5,000,000 shares of Preferred Stock,
no par value per share, none of which were issued and outstanding at April 12,
2001 and none of which were redeemed in contemplation of the Holding Company
Merger. Company Bank, a North Carolina corporation, is a wholly-owned stock
savings bank subsidiary of Company.
For valid corporate business purposes, pursuant to the Merger Agreement and on
the Effective Time (as that term is defined in the Merger Agreement), Company
will merge with and into Buyer, with Buyer as the surviving entity. As soon as
reasonably practicable after the completion of the Holding Company Merger (as
described immediately above), Company Bank, a wholly-owned savings bank
subsidiary of Company, will merge with and into Buyer Bank, a wholly-owned bank
subsidiary of Buyer, with Buyer Bank as the surviving entity, thereby completing
the Bank Merger.
In the Holding Company Merger, the Merger Agreement provides that each Company
shareholder may elect to receive either Buyer Common Stock or cash with respect
to each share of his or her Company Common Stock. As provided in the Merger
Agreement, however, Buyer is not necessarily bound by the shareholders'
elections, but rather can allocate to the Company shareholders a different mix
of consideration.
In the Holding Company Merger, if Company shareholders elect to receive Buyer
Common Stock for each share of their Company Common Stock, each share of Company
Common Stock will be exchanged for 1.3333 shares of Buyer Common Stock. Thus,
the aggregate number of Buyer Common Stock to be issued in connection with the
Holding Company Merger shall be 586,411 (i.e., 439,819, which is the number of
shares of Company Common Stock to be exchanged for the stock merger
consideration, times the 1.3333 exchange ratio), unless a higher number is
required to qualify the merger as a tax-free reorganization.
Company shareholders that elect to receive cash consideration will receive
$20.00 for each share of their Company Common Stock. The Merger Agreement
provides that the aggregate number of Company Common Stock that shall be
exchanged for Buyer Common Stock as the Merger Consideration shall be 439,819
shares (subject to equitable adjustment for any stock dividend, stock split or
other stock payment by Company after the date hereof but prior to the Effective
Time), subject to adjustment so that the amount of the Merger Consideration paid
in shares of Buyer's Common Stock shall not be less than the amount (currently
40%) necessary to qualify the Holding Company Merger as a reorganization under
Section 368 of the Code, as determined by Company. In the event that Company
shareholders elect to receive either too much cash or stock merger
consideration, the cash and stock merger consideration will be allocated among
such shareholders as provided in the Merger Agreement.
Company may terminate the Merger Agreement if the trading price of Buyer's
Common Stock falls below certain levels. The Merger Agreement, however, also
provides that, under certain conditions, Buyer may elect to pay all of the
merger consideration in cash at a price of $20.00 per share to avoid the
termination of the Holding Company Merger by the Company (as described above),
in which case the Holding Company Merger would NOT qualify as a tax-free
reorganization. In this event, it is possible that two levels of tax may be
imposed on the Holding Company Merger; one level to Company and a second to its
shareholders. KPMG, however, has not been engaged to address any such tax matter
and, therefore, renders no opinion on such transaction.
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No fractional shares of Buyer Common Stock will be issued in connection with the
Holding Company Merger. Instead, each Company shareholder who would otherwise be
entitled to receive a fraction of a share of Buyer Common Stock shall receive
cash (without interest) in an amount equal to the fraction of a share of Buyer
Common Stock that otherwise would be received in the Holding Company Merger,
multiplied by the closing price of one share of Buyer Common Stock on the Nasdaq
National Market System on the last trading day before the Holding Company Merger
is completed.
Under Article 13 of the North Carolina Business Corporation Act, Company
shareholders will have dissenter's rights in connection with the Holding Company
Merger. Shareholders who properly exercise their dissenter's rights will be
entitled to receive a cash payment for the fair value of their shares from the
Company in accordance with Sections 55-13-20 through 55-13-28 of the North
Carolina General Statutes. Any such payment will be in lieu of the $20.00 cash
consideration per share of Company Common Stock and could be more than, the same
as, or less than such amount.
The Holding Company Merger has been approved by the Boards of Directors of
Company and Buyer and is subject to the receipt of regulatory approval from
appropriate parties, including the Board of Governors of the Federal Reserve
System. Additionally, the Bank Merger is also subject to the approval of the
Federal Reserve, the FDIC, the North Carolina Banking Commission, and the
Administrator of the Savings Institutions Division of the North Carolina
Department of Commerce.
On October 20, 2000, the Board of Directors of Buyer authorized Buyer to
repurchase shares of Buyer Common Stock up to the amount of shares that Buyer is
expected to issue to complete the Holding Company Merger. Pursuant to this
authorization, Buyer will purchase shares on the open market, but in no event
will there be privately negotiated transactions with shareholders of Company.
Subsequent to the date of the announcement and through December 31, 2000, Buyer
had repurchased, on the open market, approximately 125,000 shares at an average
per share cost of $15.68.
In addition to the foregoing statement of facts, the following representations
have been made by Buyer and/or Company, as applicable, to KPMG in connection
with the Holding Company Merger. KPMG has not independently verified the
completeness and accuracy of any of the following representations. KPMG is
relying on these representations in rendering the opinion contained herein.
With respect to the Holding Company Merger:
(a) The fair market value of Buyer Common Stock and other consideration
received by each shareholder of Company will be approximately equal to
the fair market value of Company Common Stock surrendered in the
exchange.
(b) Neither Buyer, Company, nor any subsidiary or related person has any plan
or intention to reacquire any of Buyer shares issued in the Holding
Company Merger or to acquire any share of Company prior to the Holding
Company Merger.
For purposes of this representation, two persons are "related" if the
persons are corporations and either immediately before or immediately
after a transaction are members of the same "affiliated group."
"Affiliated group" for these purposes generally means two or more
corporations currently linked or which pursuant to a plan will be linked
with a common parent company through ownership changes comprising at
least 80 percent of the voting power of each corporation and 80 percent
of the value of each corporation's shares. In addition, "related person"
includes two or more corporations for whom a purchase of the stock of one
corporation by another corporation would be treated as a distribution in
redemption of the stock of the first corporation. This treatment as a
distribution in redemption occurs (a) when a person holding any amount of
shares in a parent corporation or, (b) when a person in control of each
of two corporations sells shares of one controlled corporation to the
other corporation. For these purposes, "control" means the ownership of
shares possessing at least 50 percent of the value (or vote) of all
classes of shares. Ownership of shares is determined with reference to
constructive ownership provisions which attribute ownership between
corporations and their five-percent or more shareholders, partnerships
and their partners, and trusts and their
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beneficiaries, and between certain members of a family. In the case of an
acquisition by a partnership, each partner shall be treated as owning or
acquiring any stock owned or acquired, as the case may be, by the
partnership in accordance with that partner's interest in the
partnership.
(c) Buyer has no plan or intention to sell or otherwise dispose of any of the
assets of Company acquired in the transaction, except for dispositions
made in the ordinary course of business or transfers described in SECTION
368(A)(2)(C). (Unless otherwise stated, all "Section" and "Treas. Reg."
references herein are to the Internal Revenue Code of 1986, as amended,
and the regulations thereunder.)
(d) The liabilities of Company assumed by Buyer and the liabilities to which
the transferred assets of Company are subject were incurred by Company in
the ordinary course of its business.
(e) Following the Holding Company Merger, Buyer will continue the historical
business of Company or use a significant portion of the historic business
assets of Company in a business.
(f) Buyer, Company, and the shareholders of Company will pay their respective
expenses, if any, incurred in connection with the Holding Company Merger.
(g) There is no intercorporate indebtedness existing between Buyer and
Company that was issued, acquired, or will be settled at a discount.
(h) No two parties to the Holding Company Merger are investment companies as
defined in SECTION 368(A)(2)(F)(III) AND (IV).
(i) On the date of the Holding Company Merger, the fair market value of the
assets of Company transferred to Buyer will equal or exceed the sum of
the liabilities assumed by Buyer, plus the amount of liabilities, if any,
to which the transferred assets are subject.
(j) Company is not under the jurisdiction of a court in a Title 11 or similar
case within the meaning of SECTION 368(A)(3)(A).
(k) None of the compensation received by any shareholder-employees of Company
or Company Bank will be separate consideration for, or allocable to, any
of their shares of Company Common Stock; none of the shares of Buyer
Common Stock received by any shareholder-employee of Company or Company
Bank will be separate consideration for, or allocable to, any employment
agreement; and the compensation paid to any shareholder-employees of
Company or Company Bank will be for services actually rendered and will
be commensurate with amounts paid to third parties bargaining at arm's
length for similar services.
(l) The distribution of cash proceeds to Company shareholders in lieu of
fractional shares of Buyer will be made solely for the purpose of
avoiding the expense and inconvenience to Buyer of issuing fractional
shares and does not represent separately bargained for consideration. The
total cash consideration that will be paid in the transaction to Company
shareholders instead of issuing fractional shares of Buyer will not
exceed one percent of the total consideration that will be issued in the
transaction to Company shareholders in exchange for their shares of
Company. The fractional share interests of each Company shareholder will
be aggregated, and no Company shareholder will receive cash in an amount
equal to or greater than the value of one full share of Buyer Common
Stock.
(m) To the extent any shares of Buyer Common Stock are issued pursuant to the
Holding Company Merger, at least 40% of the value of the consideration
received by Company shareholders (including dissenters and cash in lieu
of fractional shares) will be Buyer Common Stock.
(n) The Holding Company Merger will qualify as a statutory merger under North
Carolina law.
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With respect to the Bank Merger:
(o) In the Bank Merger, Company Bank will merge with and into Buyer Bank,
with Buyer Bank being the survivor. At the time of the Bank Merger, Buyer
will be the sole shareholder of both Company Bank and Buyer Bank. As the
sole shareholder, Buyer will be indifferent as to whether it receives
actual shares of Buyer Bank Common Stock in exchange for its stock in
Company Bank as a result of the Bank Merger, as it will continue to be
the sole shareholder of Buyer Bank. For this reason, Buyer Bank will not
actually issue additional shares of its Common Stock in consideration for
the assets of Company Bank in the Bank Merger as such an issuance would
be a meaningless gesture.
(p) Neither Buyer, Buyer Bank, nor any related person has any plan or
intention to acquire any share of Company Bank prior to the Bank Merger.
For purposes of this representation, two persons are "related" if the
persons are corporations and either immediately before or immediately
after a transaction are members of the same "affiliated group."
"Affiliated group" for these purposes generally means two or more
corporations currently linked or which pursuant to a plan will be linked
with a common parent company through ownership changes comprising at
least 80 percent of the voting power of each corporation and 80 percent
of the value of each corporation's shares. In addition, "related person"
includes two or more corporations for whom a purchase of the stock of one
corporation by another corporation would be treated as a distribution in
redemption of the stock of the first corporation. This treatment as a
distribution in redemption occurs (a) when a person holding any amount of
shares in a parent corporation or, (b) when a person in control of each
of two corporations sells shares of one controlled corporation to the
other corporation. For these purposes, "control" means the ownership of
shares possessing at least 50 percent of the value (or vote) of all
classes of shares. Ownership of shares is determined with reference to
constructive ownership provisions which attribute ownership between
corporations and their five-percent or more shareholders, partnerships
and their partners, and trusts and their beneficiaries, and between
certain members of a family. In the case of an acquisition by a
partnership, each partner shall be treated as owning or acquiring any
stock owned or acquired, as the case may be, by the partnership in
accordance with that partner's interest in the partnership.
(q) Buyer Bank has no plan or intention to sell or otherwise dispose of any
of the assets of Company Bank acquired in the Bank Merger, except for
dispositions made in the ordinary course of business or transfers
described in SECTION 368(A)(2)(C).
(r) The liabilities of Company Bank assumed by Buyer Bank and the liabilities
to which the transferred assets of Company Bank are subject were incurred
by Company Bank in the ordinary course of its business.
(s) Following the Bank Merger, Buyer Bank will continue the historical
business of Company Bank or use a significant portion of the historic
business assets of Company Bank in a business.
(t) Buyer Bank, Company Bank, and the shareholders of Company Bank will pay
their respective expenses, if any, incurred in connection with the Bank
Merger.
(u) There is no intercorporate indebtedness existing between Buyer Bank and
Company Bank that was issued, acquired, or will be settled at a discount.
(v) No two parties to the Bank Merger are investment companies as defined in
SECTION 368(A)(2)(F)(III) AND (IV).
(w) On the date of the Bank Merger, the fair market value of the assets of
Company Bank transferred to Buyer Bank will equal or exceed the sum of
the liabilities assumed by Buyer Bank, plus the amount of liabilities, if
any, to which the transferred assets are subject.
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(x) Company Bank is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of SECTION 368(A)(3)(A).
(y) The total adjusted tax basis of the assets of Company Bank transferred to
Buyer Bank will equal or exceed the sum of the liabilities assumed by
Buyer Bank, plus the amount of liabilities, if any, to which the
transferred assets are subject.
(z) The Bank Merger will qualify as a statutory merger under North Carolina
law.
With respect to the stock repurchase program:
(aa) There is a corporate business purpose for the stock repurchases.
(bb) Buyer will not engage in privately negotiated stock repurchase
transactions with any Company shareholders, but rather will implement its
stock repurchase program only through purchases on the open market.
OPINIONS
Based solely on the Documents, the above FACTS AND REPRESENTATIONS and subject
to the SCOPE OF THE OPINIONS below, it is the opinion of KPMG that:
Federal Income Tax Consequences:
(1) The Holding Company Merger will constitute a tax-free reorganization
within the meaning of SECTION 368(A).
(2) Company and Buyer will each be a party to the reorganization within the
meaning of SECTION 368(B).
(3) No gain or loss will be recognized by Buyer upon the receipt of the
assets of Company, a party to the reorganization, subject to its
liabilities, in exchange for cash and its common stock in the Holding
Company Merger. SECTION 1032(A); TREAS. REG. SECTION 1.1032-1.
(4) No gain or loss will be recognized by shareholders of Company upon the
receipt of solely Buyer Common Stock (including any fractional share
interests to which they may be entitled) in exchange for their shares of
Company Common Stock. SECTION 354(A)(1).
(5) Gain, if any, will be recognized by Company shareholders who receive
Buyer Common Stock and cash in exchange for their Company Common Stock
pursuant to the Holding Company Merger. Such gain will be limited to an
amount not in excess of the amount of cash received. SECTION 356(A). If
the exchange has the effect of the distribution of a dividend (determined
with the application of SECTION 318(A)), then the amount of gain
recognized that is not in excess of the shareholder's ratable amount of
undistributed earnings and profits will be treated as a dividend, but the
excess, if any, will continue to be treated as gain from the exchange of
property. SECTION 356(A)(2). The determination of whether the exchange
has the effect of the distribution of a dividend will be made on a
shareholder-by-shareholder basis in accordance with the principles set
forth in COMMISSIONER V. CLARK, 489 U.S. 726 (1989). REV. RUL. 93-61,
1993-2 C.B. 118. Loss, if any, will not be recognized by Company
shareholders who receive Buyer Common Stock and cash in exchange for
their Company Common Stock pursuant to the Holding Company Merger.
SECTION 356(C).
(6) The basis of a share of Buyer Common Stock received by a shareholder of
Company (including any fractional share interests to which they may be
entitled) will be the same as the basis in the Company Common Stock
surrendered in the exchange therefore decreased by the amount of
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money received and increased by the amount of any gain recognized
(including gain treated as a dividend). SECTION 358(A)(1).
(7) The holding period of a share of Buyer Common Stock received by a
shareholder of Company (including any fractional share interests to which
they may be entitled) will include the shareholder's holding period of
the Company Common Stock surrendered in exchange therefor, provided that
the Company Common Stock is held as a capital asset in the hands of the
shareholder of Company on the date of the Merger. SECTION 1223(1).
(8) The payment of cash in lieu of fractional share interests of Buyer Common
Stock will be treated as if the fractional share interests of Buyer
Common Stock were distributed as part of the Holding Company Merger to
the Company shareholder and then redeemed by Buyer. The cash payments
will be treated as having been received as distributions in full payment
for the fractional share interests redeemed as provided in SECTION
302(A). REV. RUL. 66-365, 1966-2 C.B. 116 and REV. PROC. 77-41, 1977-2
C.B. 574.
(9) Company shareholders who receive solely cash for their Company Common
Stock, or receive cash by exercising their dissenter's rights, will be
treated as having received the cash as a distribution in redemption of
their Company Common Stock. SECTIONS 302 and 1001.
(10) No gain or loss will be recognized by Company upon the transfer of its
assets, subject to its liabilities, to Buyer in the Holding Company
Merger. SECTIONS 357(A) and 361(A).
(11) The basis of the assets of Company in the hands of Buyer will be the
same, in each instance, as the basis of such assets in the hands of
Company immediately prior to the Holding Company Merger. SECTION 362(B).
(12) The holding period of the assets of Company in the hands of Buyer will
include, in each instance, the period during which such assets were held
by Company immediately prior to the Holding Company Merger. SECTION
1223(2).
(13) For purposes of SECTION 381, Buyer will be the acquiring corporation in
the Holding Company Merger. TREAS. REG. SECTION 1.381(A)-1(B)(2). Thus,
subject to the conditions and limitations specified in SECTIONS 381, 382,
383, AND 384, AND THE REGULATIONS THEREUNDER, Buyer will succeed to and
take into account the items of Company described in SECTION 381(C).
SECTION 381(A) AND TREAS. REG. SECTION 1.381(A)-1.
(14) The Bank Merger will constitute a reorganization within the meaning of
SECTION 368(A).
(15) Buyer Bank and Company Bank will be a party to the reorganization within
the meaning of SECTION 368(B).
(16) No gain or loss will be recognized by Company Bank upon the transfer of
its assets, subject to its liabilities, to Buyer Bank in the Bank Merger.
SECTIONS 357(A) and 361(A).
(17) No gain or loss will be recognized by Buyer Bank upon the receipt of the
assets of Company Bank, a party to the reorganization, subject to its
liabilities, in constructive exchange for its Common Stock in the Bank
Merger. SECTION 1032(A); TREAS. REG. SECTION 1.1032-1.
(18) The basis of the assets of Company Bank in the hands of Buyer Bank will
be the same, in each instance, as the basis of such assets in the hands
of Company Bank immediately prior to the Bank Merger. SECTION 362(B).
(19) The holding period of the assets of Company Bank in the hands of Buyer
Bank will include, in each instance, the period during which such assets
were held by Company Bank immediately prior to the Bank Merger. SECTION
1223(2).
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(20) No gain or loss will be recognized by Buyer upon the constructive receipt
of Buyer Bank Common Stock in exchange for its Company Bank Common Stock
as a result of the Bank Merger. SECTION 354(A)(1).
(21) For purposes of SECTION 381, Buyer Bank will be the acquiring corporation
in the Bank Merger. TREAS. REG. SECTION 1.381(A)-1(B)(2). Thus, subject
to the conditions and limitations specified in SECTIONS 381, 382, 383,
AND 384, AND THE REGULATIONS THEREUNDER, Buyer Bank will succeed to and
take into account the items of Company Bank described in SECTION 381(C).
SECTION 381(A) AND TREAS. REG. SECTION 1.381(A)-1.
North Carolina Income Tax Consequences:
It is our opinion that the State of North Carolina for income tax purposes will
treat the Holding Company Merger and the Bank Merger in the same manner as
treated by the Internal Revenue Service for federal income tax purposes. N.C.
GEN. STAT. SS. SS.105-130.2, 105-130.3, 105-130.5, 105-134.1, 105-134.2,
105-134.5, 105-134.6, AND 105-134.7.
In certain circumstances, North Carolina may apply a more stringent test in
determining the availability of certain net economic losses (equivalent to a net
operating loss) subsequent to a merger. BELLSOUTH TELECOMMUNICATIONS, INC. V.
NORTH CAROLINA DEPARTMENT OF REVENUE, 485 S.E.2D 333 (N.C. CT. APP. 1997),
REVIEW DENIED 492 S.E.2D 18 (N.C. SEPT. 4, 1997).
SCOPE OF THE OPINIONS
The opinions contained herein are based upon the facts, assumptions and
representations set forth in this letter, as well as the information contained
in the Documents. You represented to us that you have provided us with all facts
and circumstances that you know or have reason to know are pertinent to this
opinion letter. If any of these facts, assumptions or representations is not
entirely complete or accurate, it is imperative that we be informed immediately
in writing because the incompleteness or inaccuracy could cause us to change our
opinions.
Our advice in this opinion letter is limited to the conclusions specifically set
forth herein under the heading OPINIONS. KPMG expresses no opinion with respect
to any other federal, state, local, or foreign tax or legal aspect of the
transactions described herein. No inference should be drawn on any matter not
specifically opined on above.
In rendering our opinions, we are relying upon the relevant provisions of the
Internal Revenue Code of 1986, as amended, the North Carolina Code, the
regulations thereunder, and judicial and administrative interpretations thereof,
all as in effect on the date of this letter. These authorities are subject to
change or modification retroactively and/or prospectively and any such changes
could affect the validity or correctness of our opinion. We will not update our
advice for subsequent changes or modifications to the law and regulations or to
the judicial and administrative interpretations thereof, unless you separately
engage us to do so in writing after such subsequent change or modification.
These opinions are not binding on the Internal Revenue Service, any other tax
authority, or any court, and no assurance can be given that a position contrary
to that expressed herein will not be asserted by a tax authority and ultimately
sustained by a court.
Sincerely,
/s/ KPMG LLP