EXHIBIT 8.1
October 9, 2001
Board of Directors
Catawba Valley Bancshares, Inc.
1039 Second Street, NE
Hickory, North Carolina 28601-3843
Board of Directors
First Gaston Bank of North Carolina
804 South New Hope Road
Gastonia, North Carolina 28054
Gentlemen:
You have requested the opinion of Dixon Odom PLLC ("Dixon Odom") regarding
certain federal and North Carolina income tax consequences resulting from the
share exchange by which Catawba Valley Bancshares, Inc. (the "Company"), a bank
holding company, will become the holding company for First Gaston Bank of North
Carolina (the "Bank"), a North Carolina commercial bank. Bank shareholders will
receive, subject to certain limitations described in the Agreement and Plan of
Share Exchange, Company Common Stock with respect to each share of their Bank
Common Stock.
You have submitted for our consideration:
- certain representations as to the share exchange;
- a copy of the Agreement and Plan of Share Exchange, dated June 29, 2001;
and
- a copy of the Form S-4 Registration Statement, filed with the Securities
and Exchange Commission ("SEC") on August 10, 2001 (the Agreement and
Plan of Share Exchange 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.
FACTS AND REPRESENTATIONS
Catawba Valley Bancshares, Inc. is a registered bank holding company organized
under the laws of the State of North Carolina. The Company's authorized capital
stock consists of two classes. It has authorized 9,000,000 shares of common
stock, $1.00 par value, of which
October 9, 2001
Page 2
1,644,886 shares were issued and outstanding at May 31, 2001 (the "Company
Common Stock"). It also has 1,000,000 shares of preferred stock, no par value
per share, none of which were issued and outstanding at May 31, 2001. The
Company has one wholly owned subsidiary, Catawba Valley Bank ("Catawba"), a
North Carolina commercial bank. Catawba has one wholly owned subsidiary, Valley
Financial Services, Inc., an investment services firm.
Bank is a commercial bank organized under the laws of the State of North
Carolina. Its authorized capital stock consists of one class. It has authorized
20,000,000 shares of Common Stock, $5.00 par value per share, of which 1,262,350
shares were issued and outstanding at May 31, 2001 (the "Bank Common Stock").
For valid corporate business purposes, pursuant to the Agreement and Plan of
Share Exchange and on the Effective Time (as that term is defined in the
Agreement and Plan of Share Exchange), Company will acquire all of the stock of
Bank by a share exchange. Bank will continue to operate as a wholly-owned
subsidiary of Company.
The Agreement and Plan of Share Exchange provides that each Bank shareholder
will receive Company Common Stock with respect to each share of his or her Bank
Common Stock. Each share of Bank Common Stock will be exchanged for .8934 newly
issued shares of Company Common Stock rounded to the nearest whole share. No
fractional shares of Company Common Stock will be issued in connection with the
share exchange. Thus, the aggregate number of Company Common Stock to be issued
in connection with the share exchange shall be 1,127,783 (i.e., 1,262,350, which
is the number of shares of Bank Common Stock to be exchanged for the Share
Exchange consideration, times the .8934 exchange ratio).
Under Article 13 of the North Carolina Business Corporation Act, Bank
shareholders will have dissenter's rights in connection with the Share Exchange.
Shareholders who properly exercise their dissenter's rights will be entitled to
receive a cash payment for the fair value of their shares from an escrow fund 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 exchange of Bank Common Stock
for Company Common Stock.
The Share Exchange has been approved by the Boards of Directors of Bank and
Company and is subject to the receipt of regulatory approval from the Federal
Reserve Board.
In addition to the foregoing statement of facts, the following representations
have been made by Company and/or Bank, as applicable, to Dixon Odom in
connection with the Share Exchange. Dixon Odom has not independently verified
the completeness and accuracy of any of the following representations. Dixon
Odom is relying on these representations in rendering the opinion contained
herein.
With respect to the Share Exchange:
(a) The fair market value of Company Common Stock received by each
shareholder of Bank will be approximately equal to the fair market value
of Bank Common Stock surrendered in the exchange.
(b) Neither Company, Bank, nor any subsidiary or related person has any plan
or intention to reacquire any of Company shares issued in the Share
Exchange or to acquire any share of Bank prior to the Share Exchange.
October 9, 2001
Page 3
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.
(c) Company has no plan or intention to sell or otherwise dispose of any
of the assets of Bank 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) Following the Share Exchange, Company will continue the historical
business of Bank or use a significant portion of the historic business
assets of Bank in a business.
(e) Company, Bank, and the shareholders of Bank will pay their respective
expenses, if any, incurred in connection with the Share Exchange.
(f) There is no intercorporate indebtedness existing between Company and
Bank that was issued, acquired, or will be settled at a discount.
(g) No two parties to the Share Exchange are investment companies as
defined in SECTION 368(a)(2)(F).
(h) 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).
(i) None of the compensation received by any shareholder-employees of Bank
will be separate consideration for, or allocable to, any of their
shares of Bank Common Stock; none of the shares of Company Common
Stock received by any shareholder-employee of Bank will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employees of 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.
October 9, 2001
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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 Dixon Odom that:
Federal Income Tax Consequences:
(1) The Share Exchange will constitute a tax-free reorganization within the
meaning of SECTION 368(a)(1)(B).
(2) Company and Bank will each be a party to the reorganization within the
meaning of SECTION 368(b).
(3) No gain or loss will be recognized by Company upon the receipt of Bank
Common Stock in exchange for Company Common Stock in the Share Exchange.
SECTION 1032(a); TREAS. REG. SECTION 1.1032-1.
(4) No gain or loss will be recognized by shareholders of Bank upon the
receipt of solely Company Common Stock in exchange for their shares of
Bank Common Stock. SECTION 354(a)(1).
(5) The basis of a share of Company Common Stock received by a shareholder of
Bank will be the same as the basis in the Bank Common Stock surrendered.
SECTION 358(a)(1).
(6) The holding period of a share of Company Common Stock received by a
shareholder of Bank will include the shareholder's holding period of the
Bank Common Stock surrendered in exchange therefore, provided that the
Bank Common Stock is held as a capital asset in the hands of the
shareholder of Bank on the date of the Share Exchange. SECTION 1223(1).
(7) Bank shareholders who receive cash by exercising their dissenter's
rights, will be treated as having received the cash as a distribution in
redemption of their Bank Common Stock. SECTIONS 302 and 1001.
(8) No gain or loss will be recognized by Bank upon the transfer of its
stock by Bank shareholders to Company in the Share Exchange.
(9) The basis of the stock of Bank in the hands of Company will be the same,
in each instance, as the basis of such stock in the hands of Bank
shareholders immediately prior to the Share Exchange. SECTION 362(b).
(10) The holding period of the stock of Bank in the hands of Company will
include, in each instance, the period during which such stock was held by
Bank shareholders immediately prior to the Share Exchange. SECTION
1223(2).
October 9, 2001
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North Carolina Income Tax Consequences:
It is our opinion that the State of North Carolina for income tax purposes will
treat the Share Exchange 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 Share Exchange. 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. Dixon Odom 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/ Dixon Odom PLLC