LUSE GORMAN POMERENK & SCHICK
A PROFESSIONAL CORPORATION
ATTORNEYS AT LAW
5335 WISCONSIN AVENUE, N.W., SUITE 400
WASHINGTON, D.C. 20015
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TELEPHONE (202) 274-2000
FACSIMILE (202) 362-2902
WWW.LUSELAW.COM
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WRITER'S DIRECT DIAL NUMBER
(202) 274-2000
July 24, 2002
Board of Directors
Atlantic Liberty Savings, F.A.
186 Montague Street
Brooklyn, New York 11202-3601
RE: FEDERAL INCOME TAX CONSEQUENCES RELATING TO CONVERSION OF THE
ASSOCIATION FROM A FEDERAL MUTUAL SAVINGS AND LOAN ASSOCIATION TO A
FEDERAL STOCK SAVINGS AND LOAN ASSOCIATION AND THE ACQUISITION OF THE
STOCK INSTITUTION'S STOCK BY A STOCK HOLDING COMPANY
Gentlemen:
In accordance with your request, set forth herein is the opinion of this
firm relating to the federal income tax consequences of the proposed conversion
of Atlantic Liberty Savings, F.A. (the "Association") from a federal mutual
savings and loan association to a federal stock savings and loan association
(the "Stock Association"), and the acquisition of the Stock Association's
capital stock by Atlantic Liberty Financial Corp. (the "Holding Company"),
pursuant to the plan of conversion adopted by the Board of Directors on April
17, 2002, and as amended on July 17, 2002 (the "Plan of Conversion"). The
proposed transaction is described in the Prospectus and the Plan of Conversion,
and the tax consequences of the proposed transaction will be as set forth in the
section of this letter entitled "OPINION."
For purposes of this opinion, we have examined such documents and questions
of law as we have considered necessary or appropriate.
In issuing our opinion, we have assumed that the Plan of Conversion has
been duly and validly authorized and has been approved and adopted by the board
of directors of the Association at a meeting duly called and held; that the
Association will comply with the terms and conditions of the Plan of Conversion,
and that the various representations and warranties which are provided to us are
accurate, complete, true and correct. Accordingly, we express no opinion
concerning the effect, if any, of variations from the foregoing. We specifically
express no opinion concerning tax matters relating to the Plan of Conversion
under state and local tax laws and under federal income tax laws except on the
basis of the documents and assumptions
Board of Directors
Atlantic Liberty Savings, F.A.
July 24, 2002
Page 2
described above. Capitalized terms used herein but not defined herein shall have
the same meaning as set forth in the Plan of Conversion.
For purposes of this opinion, we are also relying on the representations as
to factual matters that were provided to us by the Association. In issuing the
opinion set forth below, we have relied solely on existing provisions of the
Internal Revenue Code of 1986, as amended (the "Code"); existing and proposed
Treasury Regulations (the "Regulations") thereunder; current administrative
rulings, notices and procedures; and court decisions. Such laws, regulations,
administrative rulings, notices and procedures and court decisions are subject
to change at any time. Any such change could affect the continuing validity of
the opinions set forth below. This opinion is as of the date hereof, and we
disclaim any obligation to advise you of any change in any matter considered
herein after the date hereof.
The Association, with its headquarters in Brooklyn, New York, is a
federally-chartered mutual savings and loan association. As a mutual savings and
loan association, the Association has never been authorized to issue stock.
Instead, the proprietary interest in the reserves and undivided profits of the
Association belong to the deposit account holders of the Association,
hereinafter sometimes referred to as "depositors." A depositor of the
Association has a right to share, pro rata, with respect to the withdrawal value
of his respective deposit account in any liquidation proceeds distributed in the
event the Association is ever liquidated. In addition, a depositor of the
Association is entitled to interest in his account balance as fixed and paid by
the Association.
In order to provide organizational and economic strength to the
Association, the Board of Directors has adopted the Plan of Conversion whereby
the Association will convert itself into a federally-chartered stock savings and
loan association, the stock of which will be held entirely by the Holding
Company. The Holding Company will acquire the stock of the Stock Association by
purchase, in exchange for a portion of the proceeds from the Conversion. The
Holding Company will apply to the Office of Thrift Supervision ("OTS") to retain
up to 50% of the net proceeds received from the Conversion. The aggregate sales
price of the Conversion Stock will be based on an independent appraiser's
valuation of the estimated pro forma market value of the Holding Company and the
Stock Association. The Conversion and sale of the Conversion Stock will be
subject to the applicable regulatory approval and the approval by the
affirmative vote of a majority of the depositors (also referred to as "Members")
of the Association.
The Association will establish at the time of Conversion a liquidation
account in an amount equal to its net worth as of the latest practicable date
prior to Conversion. The liquidation account will be maintained by the Stock
Association for the benefit of the Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain their deposit accounts at the
Stock Association. Each Eligible Account Holder and Supplemental Eligible
Account Holder shall, with respect to his Deposit Account, hold a related
inchoate
Board of Directors
Atlantic Liberty Savings, F.A.
July 24, 2002
Page 3
interest in a portion of the liquidation account balance in relation to his
Deposit Account balance on the Eligibility Record Date and/or Supplemental
Eligibility Record Date or to such balance as it may be subsequently reduced, as
provided in the Plan of Conversion.
In the unlikely event of a complete liquidation of the Stock Association
(and only in such event), following all liquidation payments to creditors
(including those to account holders to the extent of their deposit accounts),
each Eligible Account Holder and Supplemental Eligible Account Holder will be
entitled to receive a liquidating distribution from the liquidation account, in
the amount of the then adjusted subaccount balance for his Deposit Accounts then
held, before any liquidation distribution may be made to any holders of the
Stock Association's capital stock. No merger, consolidation, purchase of bulk
assets with assumption of Deposit Accounts and other liabilities, or similar
transaction with a Federal Deposit Insurance Corporation ("FDIC") institution,
in which the Stock Association is not the surviving institution, shall be deemed
to be a complete liquidation for this purpose. In such transactions, the
liquidation account shall be assumed by the surviving institution.
Following the Conversion, voting rights in the Stock Association will rest
exclusively with the sole stockholder of the Stock Association, which will be
the Holding Company. Voting rights in the Holding Company will rest exclusively
with the holders of its capital stock. Each depositor will retain a withdrawable
savings account or accounts equal in dollar amount to, and on the same terms and
conditions as, the withdrawable account or accounts at the time of the
Conversion, except to the extent funds or deposits are used to pay for Holding
Company Conversion Stock. All loans of the Association will remain unchanged and
retain their same characteristics in the Stock Association after the Conversion.
Following the Conversion, the Stock Association will continue to engage in the
same business as the Association immediately prior to the Conversion, and the
Stock Association will continue to have its savings accounts insured by the
Federal Deposit Insurance Corporation up to applicable limits.
Immediately prior to the Conversion, the Association will have a positive
net worth determined in accordance with generally accepted accounting
principles.
LIMITATIONS ON OPINION
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Our opinions expressed herein are based upon current provisions of the
Internal Revenue Code of 1986, as amended ("Code"), including applicable
regulations thereunder and current judicial and administrative authority. Any
future amendments to the Code or applicable regulations, or new judicial
decisions or administrative interpretations, any of which could be retroactive
in effect, could cause us to modify our opinion. No opinion is expressed herein
with regard to the state or city tax consequences of the Conversion under any
section of the Code.
Board of Directors
Atlantic Liberty Savings, F.A.
July 24, 2002
Page 4
OPINION
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Based on the foregoing, and in reliance thereon, and subject to the
conditions stated herein, it is our opinion that the following federal income
tax consequences will result from the proposed Conversion:
1. Pursuant to the Conversion, the changes at the corporate level other
than changes in the form of organization will be insubstantial. Based
upon that fact and the fact that the equity interest of a
depositor/member of a mutual savings association is more nominal than
real, unlike that of a shareholder of a corporation, the conversion of
the Association from a mutual entity to a stock savings bank is a
tax-free reorganization since it is a mere change in identity, form or
place of organization within the meaning of Section 368(a)(1)(F) of
the Code (see Rev. Rul. 80-105, 1980-1 C.B. 78). Neither the
Association nor the Stock Association shall recognize gain or loss as
a result of the Conversion. The Association and the Stock Association
shall each be "a party to a reorganization" within the meaning of
Section 368(b) of the Code.
2. No gain or loss shall be recognized by the Stock Association or the
Holding Company on the receipt by the Stock Association of money from
the Holding Company in exchange for shares of the Stock Association's
capital stock or by the Holding Company upon the receipt of money from
the sale of its Common Stock (Section 1032(a) of the Code).
3. The basis of the assets of the Association in the hands of the Stock
Association shall be the same as the basis of such assets in the hands
of the Association immediately prior to the Conversion (Section 362(b)
of the Code).
4. The holding period of the assets of the Association in the hands of
the Stock Association shall include the period during which the
Association held the assets (Section 1223(2) of the Code).
5. No gain or loss shall be recognized by the Eligible Account Holders
and the Supplemental Eligible Account Holders of the Association on
the issuance to them of withdrawable deposit accounts in the Stock
Association plus interests in the liquidation account of the Stock
Association in exchange for their deposit accounts in the Association
or to the other depositors on the issuance to them of withdrawable
deposit accounts (Section 354(a) of the Code).
6. It is more likely than not that the fair market value of the
nontransferable subscription rights to purchase Common Stock is zero.
Accordingly, no gain or
Board of Directors
Atlantic Liberty Savings, F.A.
July 24, 2002
Page 5
loss will be recognized by Eligible Account Holders and Supplemental
Eligible Account Holders upon the distribution to them of the
nontransferable subscription rights to purchase shares of Common Stock
in the Holding Company (Section 356(a)). Eligible Account Holders and
Supplemental Eligible Account Holders will not realize any taxable
income as a result of the exercise by them of the nontransferable
subscription rights (Rev. Rul. 56-572, 1956-2 C.B. 182).
7. The basis of the deposit accounts in the Stock Association to be
received by the Eligible Account Holders, Supplemental Eligible
Account Holders and other depositors of the Association will be the
same as the basis of their deposit accounts in the Association
surrendered in exchange therefor (Section 358(a)(1) of the Code). The
basis of the interests in the liquidation account of the Stock
Association to be received by the Eligible Account Holders and
Supplemental Eligible Account Holders of the Association shall be zero
(Rev. Rul. 71-233, 1971-1 C.B. 113).
8. It is more likely than not that the basis of the Holding Company
Common Stock to its stockholders will be the purchase price thereof
(Section 1012 of the Code). The holding period of the Common Stock
purchased pursuant to the exercise of subscription rights shall
commence on the date on which the right to acquire such stock was
exercised (Section 1223(6) of the Code).
Our opinion under paragraph 6 above is predicated on the representation
that no person shall receive any payment, whether in money or property, in lieu
of the issuance of subscription rights. Our opinion under paragraphs 6 and 7 is
based on the position that the subscription rights to purchase shares of Common
Stock received by Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members have a fair market value of zero. We understand that
the subscription rights will be granted at no cost to the recipients, will be
legally non-transferable and of short duration, and will provide the recipient
with the right only to purchase shares of Common Stock at the same price to be
paid by members of the general public in any Community Offering. We also note
that the Internal Revenue Service has not in the past concluded that
subscription rights have value. Based on the foregoing, we believe it is more
likely than not that the nontransferable subscription rights to purchase Common
Stock have no value.
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 the Holding
Company and/or the Stock Association may be taxable on the distribution of the
subscription rights.
Board of Directors
Atlantic Liberty Savings, F.A.
July 24, 2002
Page 6
CONSENT
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We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form SB-2 ("Registration Statement") of the Holding
Company filed with the Securities and Exchange Commission with respect to the
Conversion and as an exhibit to the Application for Conversion on Form AC ("Form
AC") of the Association filed with the OTS with respect to the Conversion. We
also hereby consent to the references to this firm in the prospectus which is a
part of both the Registration Statement and the Form AC.
USE OF OPINION
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This opinion is rendered for the benefit of the Holding Company, the
Association and purchasers of the Holding Company Conversion Stock in the
Conversion and is not to be relied upon or used for any other purpose without
our prior written consent.
Very truly yours,
/s/ Luse Gorman Pomerenk & Schick
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LUSE GORMAN POMERENK & SCHICK
A Professional Corporation