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EXHIBIT 8
[Letterhead of Vorys, Sater, Seymour and Pease LLP]
(513) 723-4000
December 18, 1998
Board of Directors
Glenway Financial Corporation
5535 Glenway Avenue
Cincinnati, Ohio 45238
Gentlemen:
We have acted as special counsel to Glenway Financial Corporation, a
Delaware corporation ("GFCO"), in connection with the transactions described in
the Agreement of Merger dated as of September 28, 1998 (the "Agreement"), by and
among Fidelity Financial of Ohio, Inc., an Ohio corporation ("FFOH"), Fidelity
Acquisition Corporation, an Ohio corporation and a wholly-owned subsidiary of
FFOH ("Merger Corporation") and GFCO. As a condition to the closing of the
merger by and between GFCO and Merger Corporation pursuant to the terms of the
Agreement (the "Merger"), you have requested our opinion regarding certain of
the federal income tax consequences of the Merger. Unless otherwise specified,
all capitalized terms in this opinion have the meanings assigned to them in the
Agreement.
In rendering this opinion, we have examined the originals or certified,
conformed, or reproduction copies of, and have relied upon the accuracy of,
without independent verification or investigation, (1) the Agreement, (2) the
Glenway Financial Corporation Officer's Certificate dated as of September 28,
1998 and (3) the Fidelity Financial of Ohio, Inc. and Fidelity Acquisition
Corporation Officers' Certificate dated as of September 28, 1998.
In connection with our review of the Agreement and the officers'
certificates described above (collectively, the "Officers' Certificates"), we
have assumed the genuineness of all signatures, the authenticity of all items
submitted to us as originals, the uniformity with authentic originals of all
items submitted to us as copies, and the conformity to final versions of all
items submitted to us in draft version. We also have assumed, without
independent verification or investigation, that (1) we have been provided with
true, correct, and complete
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copies of all such documents, (2) none of such documents has been amended or
modified, (3) all such documents are in full force and effect in accordance with
the terms thereof, (4) there are no other documents which affect the opinions
hereinafter set forth, and (5) the documents reviewed by us reflect the entire
agreement of the parties thereto with respect to the subject matter thereof.
THE MERGER
The Agreement provides that the Merger will constitute a
merger, both under the DGCL and under the OGCL, of GFCO with and into Merger
Corporation. At the Effective Time of the Merger, GFCO's separate corporate
existence will cease, and Merger Corporation will be the surviving corporation.
Pursuant to Section 2.3 of the Agreement, the Merger will have
the following effects:
1. Subject to Section 2.9 of the Agreement (governing the
treatment of FFOH Dissenting Shares), each share of FFOH
Common Stock issued and outstanding immediately prior to the
Effective Time will be unchanged and will remain issued and
outstanding.
2. Each share of Merger Corporation common stock that is issued
and outstanding immediately prior to the Effective Time will
be unchanged and will remain issued and outstanding;
3. Each share of GFCO Common Stock that is issued and outstanding
immediately prior to the Effective Time will be converted into
the right to receive 1.50 shares of FFOH Common Stock (subject
to any adjustment to this Exchange Ratio by reason of any
reclassification, recapitalization, split-up, combination,
exchange of shares, readjustment or stock dividend); provided,
however, that any shares held by FFOH, GFCO or any of their
respective wholly-owned Subsidiaries (other than shares held
in a fiduciary capacity that are beneficially owned by third
parties or as a result of debts previously contracted) shall
be canceled and retired without consideration.
Notwithstanding the foregoing, no fractional shares of FFOH
Common Stock will be issued, and any shareholder who would
otherwise have received a fractional share of FFOH Common
Stock will have a right to receive an amount of cash (without
interest) equal to the product of such fraction and the
closing price of a share of FFOH Common Stock on the Nasdaq
Stock Market's National Market on the business day preceding
the Effective Time (as reported in THE WALL STREET
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December 18, 1998
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JOURNAL, or, if not reported therein, in another authoritative
source), rounded to the nearest whole cent; and
4. Each outstanding certificate theretofore representing shares
of GFCO Common Stock will be deemed, for all purposes, to
evidence only the right to receive, upon surrender of such
certificate, FFOH Common Stock into which such shares of GFCO
Common Stock are convertible.
In connection with the Merger, the Officers' Certificates set
forth the following representations:
1. The Merger is being effected for bona fide business reasons.
2. The fair market value of the FFOH Common Stock to be received
by the shareholders of GFCO will be approximately equal to the
fair market value of the GFCO Common Stock surrendered by each
such shareholder pursuant to the Merger.
3. To the best knowledge of the management of GFCO, there is no
plan or intention by the GFCO shareholders to sell, exchange,
or otherwise transfer a number of shares of FFOH Common Stock
received in the transaction to FFOH or a person related to
FFOH that would reduce the GFCO shareholders' ownership of
FFOH Common Stock to a number of shares having a value, as of
the date of the transaction, of less than fifty percent (50%)
of the value of all formerly outstanding stock of GFCO as of
the same date. For purposes of this representation, any shares
of GFCO Common Stock exchanged for cash in lieu of fractional
shares of FFOH Common Stock will be treated as outstanding on
the date of the transaction. Furthermore, any redemptions or
extraordinary distributions by GFCO, prior to and in
connection with the Merger, will be considered in making this
representation. Finally, any acquisitions of GFCO Common Stock
by a person related to GFCO, prior to and in connection with
the Merger, with consideration other than stock of either the
acquired corporation or the acquiring corporation, will be
considered in making this representation.
4. Merger Corporation will acquire at least 90 percent of the
fair market value of the net assets and at least 70 percent of
the fair market value of the gross assets held by GFCO
immediately prior to the Merger. For purposes of this
representation, assets of GFCO used to pay its expenses
attributable to the Merger, and all redemptions and
distributions (except for regular, normal dividends) made by
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GFCO immediately preceding the Merger, will be included as
assets of GFCO held immediately prior to the Merger.
5. No dividends or distributions will be made with respect to any
GFCO Common Stock prior to the Merger, with the exception of
normal quarterly dividends.
6. The liabilities of GFCO assumed by Merger Corporation and the
liabilities to which the transferred assets of GFCO are
subject were incurred by GFCO in the ordinary course of its
business.
7. Prior to the Merger, FFOH will be in control of Merger
Corporation within the meaning of Code Section 368(c).
8. Following the Merger, Merger Corporation will not issue
additional shares of its stock that would result in FFOH
losing control of Merger Corporation within the meaning of
Code Section 368(c).
9. Neither FFOH nor a related person has any plan or intention to
reacquire any shares of FFOH Common Stock issued in the
Merger.
10. FFOH has no plan or intention to (a) liquidate Merger
Corporation, (b) merge Merger Corporation with and into
another corporation, (c) sell or otherwise dispose of the
stock of Merger Corporation, or (d) cause Merger Corporation
to sell or otherwise dispose of any of the assets of GFCO
acquired in the Merger, except for dispositions made in the
ordinary course of business or transfers described in Code
Section 368(a)(2)(C).
11. Following the Merger, Merger Corporation will continue the
historic business of GFCO or use a significant portion of
GFCO's historic business assets in a business.
12. GFCO, the GFCO shareholders, FFOH, and Merger Corporation will
pay their respective expenses, if any, incurred in connection
with the Merger.
13. There is no intercorporate indebtedness existing between FFOH
and GFCO, or between Merger Corporation and GFCO, that was
issued, acquired, or will be settled at a discount.
14. No parties to the Merger are "investment companies" as defined
in Code Section 368(a)(2)(F)(iii) and (iv).
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15. GFCO is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Code Section 368(a)(3)(A).
16. The fair market value of the assets of GFCO transferred to
Merger Corporation will equal or exceed the sum of the
liabilities assumed by Merger Corporation, plus the amount of
liabilities, if any, to which the transferred assets are
subject.
17. No stock of Merger Corporation will be issued pursuant to the
Merger.
18. The payment of cash in lieu of fractional shares of FFOH is
solely for the purpose of avoiding the expense and the
inconvenience to FFOH of issuing fractional shares and does
not represent separately bargained for consideration. The
total cash that will be paid in the Merger to the shareholders
of GFCO instead of issuing fractional shares of FFOH Common
Stock will not exceed one percent (1%) of the total
consideration that will be issued in the Merger to the GFCO
shareholders in exchange for their shares of GFCO Common
Stock. The fractional share interests of each GFCO shareholder
will be aggregated, and no shareholder will receive cash in an
amount equal to or greater than the value of one full share of
FFOH Common Stock.
19. None of the compensation received by any shareholder who is an
employee of GFCO will be separate consideration for, or
allocable to, any of his shares of GFCO Common Stock. None of
the shares of FFOH Common Stock received by any shareholder
who is an employee of GFCO will be separate consideration for,
or allocable to, any employment agreement. Furthermore, the
compensation paid to any shareholder who is an employee of
GFCO will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at
arm's length for similar services.
20. The Merger will be effected in accordance with the applicable
provisions of the OGCL and the DGCL.
21. After the Merger, no dividends or distributions will be made
by FFOH to FFOH shareholders, other than regular or normal
dividend distributions made with regard to all shares of FFOH
Common Stock.
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DISCUSSION OF LEGAL AUTHORITIES
Code Section 368(a)(1)(A) defines a tax-free reorganization to
include a statutory merger. Code Section 368(a)(2)(D) further provides that:
The acquisition by one corporation, in exchange for stock of a
corporation [referred to as "controlling corporation"] which is
in control of the acquiring corporation, of substantially all
of the properties of another corporation shall not disqualify a
transaction under [Code Section 368(a)](1)(A) . . . if --
(i) no stock of the acquiring corporation is used in the
transaction, and (ii) in the case of a transaction under [Code
Section 368(a)](1)(A), such transaction would have qualified
under [Code Section 368(a)](1)(A) had the merger been into the
controlling corporation.
In accordance with the safe harbor provided by the Internal Revenue Service (the
"Service"), "substantially all" of the properties of a corporation means at
least 90 percent of the fair market value of the net assets and at least 70
percent of the fair market value of the gross assets of the acquired
corporation. Rev. Proc. 77-37, 1977-1 C.B. 568 (Section 3.01). The courts
generally have been less rigid in their application of the "substantially all"
test, instead focusing on the nature of the assets, if any, retained by the
acquired corporation. SEE, E.G., WESTERN INDUSTRIES CO. V. HELVERING, 82 F.2d
461 (D.C. Cir. 1936); THE SOUTHLAND ICE CO. V. COMMISSIONER, 5 T.C. 842 (1945),
ACQ., 1946-1 C.B. 4.
Other non-statutory requirements have been imposed by the
courts and by the Service in determining whether reorganizations are in
compliance with Code Section 368. These requirements are that (1) there be a
business purpose for the reorganization, (2) there be a continuity of the
business enterprise of the acquired corporation, and (3) the shareholders of the
acquired corporation emerge with a continuing proprietary interest in the entity
resulting from the merger.
Section 1.368-2(g) of the Treasury Regulations (the
"Regulations") provides that a reorganization must be undertaken for reasons
germane to the continuance of the business of a corporation which is a party to
the reorganization. As indicated in the Officers' Certificates, the Merger is
being effected for bona fide business reasons. Accordingly, the Merger satisfies
the business purpose requirement as set forth in the Regulations.
Regulations Section 1.368-1(b) provides that a continuity of
business enterprise is a prerequisite to a reorganization. Regulations Section
1.368-1(d) (as modified by T.D. 8760) provides that continuity of business
enterprise requires that the acquiring corporation or a related
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person either continue the acquired corporation's historic business or use a
significant portion of the acquired corporation's historic assets in a business.
Revenue Ruling 85-197, 1985-2 C.B. 120, provides that for purposes of the
continuity of business enterprise requirement, the historic business of a
holding company is the business of its operating subsidiary. Similarly, Revenue
Ruling 85-198, 1985-2 C.B. 120, held that the continuity of business enterprise
requirement was met where the business of a former subsidiary of the acquired
holding company was continued through a subsidiary of the acquiring corporation.
Accordingly, the continuity of business enterprise requirement is met with
regard to the Merger because Merger Corporation will continue the business
formerly conducted by GFCO.
Generally, the continuity of interest test requires the owners
of the acquired corporation to receive and maintain a meaningful equity in the
surviving entity. The Service has issued final and temporary regulations (T.D.
8760 and 8761) providing rules for satisfying the continuity of interest
requirement. These regulations substantially liberalize the historic rules,
generally providing that continuity of interest is satisfied if a substantial
part of the value of the proprietary interest in the acquired corporation is
preserved in the reorganization. In determining whether a substantial part of
the value of the proprietary interest is preserved, the following transactions,
in connection with the reorganization, are considered. First, under Regulations
Section 1.368-1, any acquisition by the acquiring corporation of acquired
corporation stock for consideration other than stock, or, in connection with the
reorganization, the redemption of acquiring corporation stock received by the
shareholders of the acquired corporation (or the purchase of such acquiring
corporation stock by a person related to the acquiring corporation), will be
considered in determining whether a substantial proprietary interest is
preserved. Second, under Regulations Section 1.368-1T, the acquisition by the
acquired corporation, prior to and in connection with the plan of
reorganization, of the stock of the acquired corporation with consideration
other than stock of the acquired corporation or an extraordinary distribution
made by the acquired corporation with respect to its stock, will be considered
in determining whether a substantial proprietary interest is preserved. Third,
under Regulations Section 1.368-1T, the acquisition by a person related to the
acquired corporation, prior to and in connection with the plan of
reorganization, of the stock of the acquired corporation with consideration
other than stock of the acquired corporation or stock of the acquiring
corporation, will be considered in determining whether a substantial proprietary
interest is preserved. Generally, two corporations are related persons either if
the corporations are members of the same affiliated group (without regard to the
exceptions in Code Section 1504(b)) or the purchase of stock of one corporation
by another corporation would result in the purchase being treated as a
redemption of stock of the first corporation under Code Section 304(a)(2)
(determined without regard to Regulations Section 1.1502-80(b)). Sales by the
shareholders of the acquired corporation of stock of the acquiring corporation
received in the transaction to unrelated persons occurring before or after a
reorganization are disregarded.
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The Merger will satisfy the continuity of interest
requirement. FFOH and Merger Corporation have represented that all the shares of
GFCO Common Stock outstanding immediately prior to the Merger will be exchanged
solely for shares of FFOH Common Stock, except for cash paid in lieu of
fractional shares. As a condition precedent to the obligations of the parties
under the Agreement, such cash paid in lieu of fractional shares or to FFOH
shareholders who have demanded the appraised value of their shares of FFOH
Common Stock will constitute, in the aggregate, less than ten percent (10%) of
the total consideration payable in connection with the Merger. FFOH and Merger
Corporation have represented further that neither FFOH nor a related person has
any plan or intention, in connection with the plan of reorganization, to
reacquire any shares of FFOH Common Stock issued in the Merger, other than to
acquire a small amount of shares of FFOH Common Stock in ordinary business
transactions (including, but not limited to, open market purchases in brokers'
transactions). In addition, GFCO has represented that neither GFCO nor a related
person has any plan or intention, prior to and in connection with the plan of
reorganization, to redeem, acquire, or make an extraordinary distribution with
respect to GFCO's Common Stock for consideration other than Common Stock of GFCO
(or in the case of a related person, for consideration other than GFCO Common
Stock FFOH Common Stock), that would cause a substantial part of the value of
the proprietary interest in the acquired corporation not to be preserved.
Even though a merger may qualify as a tax-free reorganization
under Code Sections 368(a)(1)(A) and 368(a)(2)(D), the acquired corporation's
shareholders receive tax free only the stock of the controlling corporation.
Code Section 354. Code Section 356(a)(1) provides that if a shareholder of the
acquired corporation receives "boot" (i.e., cash) in a reorganization as well as
nonrecognition property (i.e., stock of the controlling corporation), his gain,
if any, is to be recognized, but not in excess of the boot. In no event may the
shareholder recognize a loss. Code Section 356(c).
Furthermore, Code Section 356(a)(2) prescribes rules for
determining whether any such recognized gain will be taxed as a dividend or as
capital gain. Specifically, if the exchange has the "effect of the distribution
of a dividend" to a shareholder of the acquired corporation, the recognized gain
of such shareholder must be treated as a dividend (and, therefore, as ordinary
income and without any offset for such shareholder's adjusted basis in his
shares), to the extent of such shareholder's ratable share of earnings and
profits.
Where the payment of cash to a shareholder of the acquired
corporation in lieu of fractional share interests in the controlling corporation
is solely for the purpose of avoiding the expense and inconvenience of issuing
fractional shares and does not represent separately bargained-for consideration,
the cash payment will be treated as having been received as a distribution
subject to the provisions of Code Section 302. Rev. Rul. 66-365, 1966-2 C.B.
116. Where, as a result of such distribution, a shareholder owns no shares of
the controlling
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corporation, either directly or through the application of the constructive
ownership rules of Code Section 318, the redemption will be a "complete
termination" of the shareholder's interest within the meaning of Section Code
302(b)(3), resulting in capital gain or loss equal to the difference between the
cash received and such shareholder's adjusted basis in his shares.
OPINIONS
Therefore, based on the description of the Merger in the
Agreement, the representations set forth in the Officers' Certificates, the
foregoing legal authorities, and the assumptions stated above, it is our opinion
that:
1. The Merger constitutes a "reorganization" within the
meaning of Code Sections 368(a)(1)(A) and
368(a)(2)(D). GFCO, FFOH, and Merger Corporation each
is a "party to the reorganization" within the meaning
of Code Section 368(b).
2. No gain or loss will be recognized (a) to GFCO on the
transfer of substantially all of its properties to
Merger Corporation in exchange for FFOH Common Stock,
or (b) to either FFOH or Merger Corporation upon
Merger Corporation's receipt of substantially all of
the properties of GFCO in exchange for FFOH Common
Stock.
3. The adjusted basis of the properties of GFCO in the
hands of Merger Corporation will be the same as the
adjusted basis of such properties in the hands of
GFCO immediately prior to the Merger. The holding
period of the properties of GFCO to be received by
Merger Corporation will include the period during
which such properties were held by GFCO.
4. Payment of cash to a GFCO shareholder in lieu of
fractional share interests in FFOH should be treated
as having been received by such shareholder as a
distribution subject to the provisions of Code
Section 302.
5. The adjusted basis of the FFOH Common Stock to be
received by the GFCO shareholders will be the same as
the adjusted basis of GFCO Common Stock surrendered
in
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exchange therefor, decreased by the amount of cash received
and increased by the amount of gain, if any, recognized on the
exchange. The holding period of FFOH Common Stock to be
received by the GFCO shareholders will be the same as the
holding period of the GFCO Common Stock surrendered in
exchange therefor.
This opinion is not binding on the Service and no ruling has
been, or will be, requested from the Service as to any federal income tax
consequence described above. Although this opinion is based upon our best
interpretation of current provisions of the Code and the Regulations promulgated
thereunder, as well as existing court decisions and administrative rulings and
procedures, and sets forth the conclusions we believe would be reached by a
court if the issues were properly briefed and presented to it, no assurance can
be provided that a court in fact would agree with our interpretation. Further,
no assurance can be provided that the applicable law will not change in a manner
that will adversely affect these consequences, and any such adverse change could
be retroactive.
No opinion is expressed as to any federal income tax
consequence other than as specifically set forth herein, and no opinion is
expressed with respect to the federal income tax consequences to any particular
shareholder. Further, no opinion is expressed with respect to any tax issue
arising under state, local, or foreign tax provisions. Finally, any change in
the facts as set forth herein or in the Agreement or the Officers' Certificates
could affect this opinion, and possibly in an adverse manner.
The opinion expressed herein is furnished specifically for the
benefit of the GFCO shareholders, and may not be relied upon, assigned, quoted,
or otherwise used in any manner or for any purpose by any other person or entity
without our specific prior written consent.
Very truly yours,
/s/ Vorys, Sater, Seymour and Pease LLP
Vorys, Sater, Seymour and Pease LLP