Exhibit 8.1
[SILVER, FREEDMAN & TAFF LETTERHEAD]
February 3, 1998
Board of Directors
Gloversville Federal Savings &
Loan Association
52 North Main Street
Gloversville, NY 12078-3084
RE: Federal Income Tax Opinion Relating To The Conversion Of
Gloversville Federal Savings & Loan Association From A Federally-
Chartered Mutual Savings and Loan Association To A Federally-
Chartered Stock Institution Under Section 368(a)(1)(F) of the Internal
Revenue Code of 1986, As Amended
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Gentlemen:
In accordance with your request set forth hereinbelow is the opinion of
this firm relating to the federal income tax consequences of the conversion of
Gloversville Federal Savings & Loan Association ("Mutual") from a federal mutual
to a federal stock institution pursuant to the provisions of Section
368(a)(1)(F) of the Internal Revenue Code of 1986, as amended (the "Code").
Capitalized terms used herein which are not expressly defined herein
shall have the meaning ascribed to them in the Plan of Conversion dated November
19, 1997 (the "Plan").
The following assumptions have been made in connection with our
opinions hereinbelow:
Board of Directors
December 30, 1997
Page 2
1. The Conversion is implemented in accordance with the terms of the
Plan and all conditions precedent contained in the Plan shall be performed or
waived prior to the consummation of the Conversion.
2. No amount of the savings accounts and deposits of Mutual, as of the
Eligibility Record Date or the Supplemental Eligibility Record Date, will be
excluded from participating in the liquidation account of Converted Bank. To the
best of the knowledge of the management of Mutual there is not now, nor will
there be at the time of the Conversion, any plan or intention, on the part of
the depositors in Mutual to withdraw their deposits following the Conversion.
Deposits withdrawn immediately prior to or immediately subsequent to the
Conversion (other than maturing deposits) are considered in making these
assumptions.
3. Holding Company and Converted Bank each have no plan or intention to
redeem or otherwise acquire any of the Holding Company Conversion Stock to be
issued in the proposed transaction.
4. Immediately following the consummation of the proposed transaction,
Converted Bank will possess the same assets and liabilities as Mutual held
immediately prior to the proposed transaction, plus substantially all of the net
proceeds from the sale of its stock to Holding Company except for assets used to
pay expenses of the Conversion. The liabilities transferred to Converted Bank
were incurred by Mutual in the ordinary course of business.
5. No cash or property will be given to deposit account holders in lieu
of Subscription Rights or an interest in the liquidation account of Converted
Bank.
6. Following the Conversion, Converted Bank will continue to engage in
its business in substantially the same manner as Mutual engaged in business
prior to the Conversion, and it has no plan or intention to sell or otherwise
dispose of any of its assets, except in the ordinary course of business.
7. There is no plan or intention for Converted Bank to be liquidated or
merged with another corporation following the consummation of the Conversion.
8. The fair market value of each savings account plus an interest in
the liquidation account of Converted Bank will, in each instance, be
approximately equal to the fair market value of each savings account of Mutual
plus the interest in the residual equity of Mutual surrendered in exchange
therefor.
9. Mutual, Converted Bank and Holding Company are each corporations
within the meaning of Section 7701(a)(3) of the Code.
Board of Directors
December 30, 1997
Page 3
10. Holding Company has no plan or intention to sell or otherwise
dispose of the stock of Converted Bank received by it in the proposed
transaction.
11. Both Converted Bank and Holding Company have no plan or intention,
either currently or at the time of Conversion, to issue additional shares of
common stock following the proposed transaction, other than shares that may be
issued to employees and/or directors pursuant to certain stock option and stock
incentive plans or that may be issued to employee benefit plans.
12. If all of the net proceeds from the sale of Holding Company
Conversion Stock had been contributed by Holding Company to Converted Bank in
exchange for common stock of Converted Bank in the transaction, as opposed to
Holding Company retaining a portion of such net proceeds (the "retained
proceeds"), and Converted Bank immediately thereafter made a distribution of the
retained proceeds to Holding Company, Converted Bank would have sufficient
current and accumulated earnings and profits for tax purposes such that the
distribution would not result in the recapture of any portion of its bad debt
reserves of Converted Bank for federal income tax reporting.
13. Assets used to pay expenses of the Conversion and all distributions
(except for regular, normal interest payments and other payments in the normal
course of business made by Mutual immediately preceding the transaction) will in
the aggregate constitute less than 1% of the net assets of Mutual and any such
expenses and distributions will be paid by Converted Bank from the proceeds of
the sale of Holding Company Conversion Stock.
14. All distributions to deposit account holders in their capacity as
deposit account holders (except for regular, normal interest payments made by
Mutual), will, in the aggregate, constitute less than 1% of the fair market
value of the net assets of Mutual.
15. At the time of the proposed transaction, the fair market value of
the assets of Mutual on a going concern basis (including intangibles) will equal
or exceed the amount of its liabilities plus the amount of liabilities to which
such assets are subject. Mutual will have a positive regulatory net worth at the
time of the Conversion.
16. Mutual is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code. The
proposed transaction does not involve a receivership, foreclosure, or similar
proceeding before a federal or state agency involving a financial institution to
which Section 585 of the Code applies.
17. Mutual's Eligible Account Holders and Supplemental Eligible Account
Holders will pay expenses of the Conversion solely attributable to them, if any.
Board of Directors
December 30, 1997
Page 4
18. The liabilities of Mutual assumed by Converted Bank plus the
liabilities, if any, to which the transferred assets are subject were incurred
by Mutual in the ordinary course of its business and are associated with the
assets being transferred.
19. There will be no purchase price advantage for Mutual's deposit
account holders who purchase Holding Company Conversion Stock.
20. Neither Mutual nor Converted Bank is an investment company as
defined in Sections 368(a)(2)(F)(iii) and (iv) of the Code.
21. None of the compensation to be received by any deposit account
holder-employees of Mutual or Holding Company will be separate consideration
for, or allocable to, any of their deposits in Mutual. No interest in the
liquidation account of Converted Bank will be received by any deposit account
holder-employees as separate consideration for, or will otherwise be allocable
to, any employment agreement, and the compensation paid to each deposit account
holder-employee, during the twelve-month period preceding or subsequent to the
Conversion, will be for services actually rendered and will be commensurate with
amounts paid to the third parties bargaining at arm's-length for similar
services. No shares of Holding Company Conversion Stock will be issued to or
purchased by any deposit account holder-employee of Mutual or Holding Company at
a discount or as compensation in the proposed transaction.
22. No creditors of Mutual or the depositors in their role as
creditors, have taken any steps to enforce their claims against Mutual by
instituting bankruptcy or other legal proceedings, in either a court or
appropriate regulatory agency, that would eliminate the proprietary interests of
the Members prior to the Conversion of Mutual including depositors as the equity
holders of Mutual.
23. The proposed transaction does not involve the payment to Converted
Bank or Mutual of financial assistance from federal agencies within the meaning
of Notice 89-102, 1989-40 C.B. 1.
24. On a per share basis, the purchase price of Holding Company
Conversion Stock will be equal to the fair market value of such stock at the
time of the completion of the proposed transaction.
25. Mutual has received or will receive an opinion from RP Financial,
Inc. ("Appraiser's Opinion"), which concludes that the Subscription Rights to be
received by Eligible Account Holders, Supplemental Eligible Account Holders and
other eligible subscribers do not have any ascertainable fair market value,
since they are acquired by the recipients without cost,
Board of Directors
December 30, 1997
Page 5
are non-transferable and of short duration, and afford the recipients a right
only to purchase Holding Company Conversion Stock at a price equal to its
estimated fair market value, which will be the same price as the Public Offering
Price for unsubscribed shares of Holding Company Conversion Stock.
26. Mutual will not have any net operating losses, capital loss
carryovers or built-in losses at the time of the Conversion.
OPINION
Based solely on the assumptions set forth hereinabove and our analysis
and examination of applicable federal income tax laws, rulings, regulations,
judicial precedents and the Appraiser's Opinion, we are of the opinion that if
the transaction is undertaken in accordance with the above assumptions:
(1) The Conversion will constitute a reorganization within the meaning
of Section 368(a)(1)(F) of the Code. Neither Mutual nor Converted Bank will
recognize any gain or loss as a result of the transaction (Rev. Rul. 80-105,
1980-1 C.B. 78). Mutual and Converted Bank will each be a party to a
reorganization within the meaning of Section 368(b) of the Code.
(2) Converted Bank will recognize no gain or loss upon the receipt of
money and other property, if any, in the Conversion, in exchange for its shares.
(Section 1032(a) of the Code.)
(3) No gain or loss will be recognized by Holding Company upon the
receipt of money for Holding Company Conversion Stock. (Section 1032(a) of the
Code.)
(4) The basis of Mutual's assets in the hands of Converted Bank will be
the same as the basis of those assets in the hands of Mutual immediately prior
to the transaction. (Section 362(b) of the Code.)
(5) Converted Bank's holding period of the assets of Mutual will
include the period during which such assets were held by Mutual prior to the
Conversion. (Section 1223(2) of the Code.)
(6) Converted Bank, for purposes of Section 381 of the Code, will be
treated as if there had been no reorganization. The tax attributes of Mutual
enumerated in Section 381(a) of the Code will be taken into account by Converted
Bank as if there had been no reorganization. Accordingly, the tax year of Mutual
will not end on the effective date of the Conversion. The part of the tax year
of Mutual before the Conversion will be includible in the tax year of Converted
Board of Directors
December 30, 1997
Page 6
Bank after the Conversion. Therefore, Mutual will not have to file a federal
income tax return for the portion of the tax year prior to the Conversion. (Rev.
Rul. 57-276, 1957-1 C.B. 126.)
(7) Depositors will realize gain, if any, upon the constructive
issuance to them of withdrawable deposit accounts of Converted Bank,
Subscription Rights and/or interests in the liquidation account of Converted
Bank. Any gain resulting therefrom will be recognized, but only in an amount not
in excess of the fair market value of the liquidation accounts and/or
Subscription Rights received. The liquidation accounts will have nominal, if
any, fair market value. Based solely on the accuracy of the conclusion reached
in the Appraiser's Opinion, and our reliance on such opinion, that the
Subscription Rights have no value at the time of distribution or exercise, no
gain or loss will be required to be recognized by depositors upon receipt or
distribution of Subscription Rights. (Section 1001 of the Code.) See Paulsen v.
Commissioner, 469 U.S. 131,139 (1985). Likewise, based solely on the accuracy of
the aforesaid conclusion reached in the Appraiser's Opinion, and our reliance
thereon, we give the following opinions: (a) no taxable income will be
recognized by the borrowers, directors, officers and employees of Mutual upon
the distribution to them of Subscription Rights or upon the exercise or lapse of
the Subscription Rights to acquire Holding Company Conversion Stock at fair
market value; (b) no taxable income will be realized by the depositors of Mutual
as a result of the exercise or lapse of the Subscription Rights to purchase
Holding Company Conversion Stock at fair market value. Rev. Rul. 56-572, 1956-2
C.B. 182; and (c) no taxable income will be realized by Mutual, Converted Bank
or Holding Company on the issuance or distribution of Subscription Rights to
depositors of Mutual to purchase shares of Holding Company Conversion Stock at
fair market value. (Section 311 of the Code.)
Notwithstanding the Appraiser's Opinion, if the Subscription Rights are
subsequently found to have a fair market value, income may be recognized by
various recipients of the Subscription Rights (in certain cases, whether or not
the rights are exercised) and Holding Company and/or Converted Bank may be
taxable on the distribution of the Subscription Rights. (Section 311 of the
Code.) In this regard, the Subscription Rights may be taxed partially or
entirely at ordinary income tax rates.
(8) The creation of the liquidation account on the records of Converted
Bank will have no effect on Mutual's or Converted Bank's taxable income,
deductions, or tax bad debt reserve.
(9) A depositor's basis in the savings deposits of Converted Bank will
be the same as the basis of his savings deposits in Mutual. (Section 1012 of the
Code.) Based upon the Appraiser's Opinion, the basis of the Subscription Rights
will be zero. The basis of the interest in the liquidation account of Converted
Bank received by Eligible Account Holders and
Board of Directors
December 30, 1997
Page 7
Supplemental Eligible Account Holders will be equal to the cost of such
property, i.e., the fair market value of the proprietary interest in Mutual,
which in this transaction we assume to be zero.
(10) The basis of Holding Company Conversion Stock to its shareholders
will be the purchase price thereof. (Section 1012 of the Code.)
(11) A shareholder's holding period for Holding Company Conversion
Stock acquired through the exercise of the Subscription Rights shall begin on
the date on which the Subscription Rights are exercised. (Section 1223(6) of the
Code.) The holding period for the Holding Company Conversion Stock purchase
pursuant to the Direct Community Offering, Public Offering or under other
purchase arrangements will commence on the date following the date on which such
stock is purchased. (Rev. Rul. 70-598, 1970-2 C.B. 168).
(12) Regardless of any book entries that are made for the establishment
of a liquidation account, the reorganization will not diminish the accumulated
earnings and profits of Mutual available for the subsequent distribution of
dividends, within the meaning of Section 316 of the Code. Section 1.312-11(b)
and (c) of the Regulations. Converted Bank will succeed to and take into account
the earnings and profits or deficit in earnings and profits of Mutual as of the
date of Conversion.
The above opinions are effective to the extent that Mutual is solvent.
No opinion is expressed about the tax treatment of the transaction if Mutual is
insolvent. Whether or not Mutual is solvent will be determined at the end of the
taxable year in which the transaction is consummated.
No opinion is expressed as to the tax treatment of the transaction
under the provisions of any of the other sections of the Code and Income Tax
Regulations which may also be applicable thereto, or to the tax treatment of any
conditions existing at the time of, or effects resulting from, the transaction
which are not specifically covered by the opinions set forth above.
Respectfully submitted,
SILVER, FREEDMAN & TAFF
/s/ Barry P. Taff
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