EXHIBIT 8.1
Exhibit 8.1
April 9, 1998
Alabama National BanCorporation
0000 Xxxxx Xxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxx 00000
Attention: Chairman and Chief Executive Officer
Public Bank Corporation
0000 00xx Xxxxxx
Xx. Xxxxx, XX 00000
Attention: Chief Executive Officer
Re: Agreement and Plan of Merger dated as of March 5, 1998
(the "Merger Agreement") between Public Bank
Corporation ("PBC"); and Alabama National
BanCorporation ("ANB"); which provides for the merger
of PBC with and into ANB
Gentlemen:
This letter is in response to your request that we provide you with our
opinion with respect to certain of the federal income tax consequences of
consummation of the transactions set forth in the Merger Agreement. In
rendering this opinion, we have relied upon the facts presented to us in (i) the
Merger Agreement and (ii) the Proxy Statement and Prospectus filed with the
Securities and Exchange Commission as part of ANB's Registration Statement on
Form S-4, including the exhibits thereto along with the amendments thereto.
Additionally, we have relied upon the representations of management of PBC and
management of ANB set forth in certificates of officers of those entities,
copies of which are attached hereto as Exhibits A and B, respectively. In the
aggregate, the facts relied upon are as set forth in the section of this letter
denominated "FACTS."
Alabama National BanCorporation
Public Bank Corporation
April 9, 1998
Page 2
In our examination of such documents, we have assumed, with your consent,
that all documents submitted to us as photocopies reproduce the originals
thereof, that such originals are authentic, that all such documents have been or
will be duly executed to the extent required, and that all statements set forth
in such documents are accurate.
We have assumed that the stockholders of PBC approve the Merger Agreement
in accordance with law of Florida, its state of incorporation. We have assumed
that the transactions contemplated by the Merger Agreement, will qualify as
statutory mergers under Delaware and Florida law.
FACTS
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ANB is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware with its principal executive office
located in Birmingham, Alabama. It presently has 10,000,000 authorized shares of
common capital stock, $1.00 par value per share ("ANB Common Stock"), of which
8,648,120 shares were issued and outstanding as of December 31, 1997.
Additionally, ANB has 100,000 authorized shares of preferred stock, $1.00 par
value per share, none of which were issued and outstanding as of December 31,
1997. Since December 31, 1997, there has been no change in the issued and
outstanding ANB Common Stock (except (i) as will be effected by the transactions
described herein, and (ii) for insignificant changes occurring in the ordinary
course of business), and none of the preferred shares have been issued.
PBC is a corporation duly organized, validly existing and in good standing
under the laws of the State of Florida with its principal executive offices
located in St. Cloud, Florida. As of December 31, 1997, PBC had 10,000,000
authorized shares of common capital stock, each of which had a par value of $.01
per share (the "PBC Common Stock"), of which 2,337,309 were issued and
outstanding as of December 31, 1997. Additionally, PBC has 30,000 authorized
shares of preferred stock, $100 par value per share, none of which were issued
and outstanding as of December 31, 1997.
PBC owns all the stock of Public Bank, a Florida state banking corporation
("Public Bank"). In addition to Public Bank, PBC is the parent of Public
Mortgage Corporation, an inactive corporation.
Numerous factors were considered by the Boards of Directors of PBC and ANB
in approving and recommending to their respective shareholders the terms of the
merger of PBC into ANB (the "Merger"). These included an analysis of the
financial structure; results of operations; prospects of ANB, the bank
subsidiaries of ANB, PBC and Public Bank; the
Alabama National BanCorporation
Public Bank Corporation
April 9, 1998
Page 3
composition of the businesses of the two organizations; the overall
compatibility of the management of the organizations; the outlook for both
organizations in the banking and financial services industry; and the opinion of
an investment banker as to the fairness of the terms of the Merger from a
financial point of view.
ANB's board of directors considered the information presented to the
directors by the management of ANB concerning (i) the business, operations,
earnings, asset quality, and financial condition of PBC, including the
composition of the earning asset portfolio of PBC, (ii) the financial terms of
the Merger, including the relationship of the value of the consideration
issuable in the Merger to the market value, tangible book value, and earnings
per share of PBC, (iii) the nonfinancial terms of the Merger, including the
treatment of the Merger as a tax-free exchange of PBC Common Stock for ANB
Common Stock for federal income tax purposes, (iv) the likelihood of the Merger
being approved by the applicable regulatory authorities without undue conditions
or delay, (v) the opportunity for reducing the non-interest expense of the
operations of PBC and the ability of the operations of PBC after the Merger to
contribute to the earnings of ANB, (vi) the attractiveness of the PBC franchise,
the market potential of PBC and each of the markets in which it operates, and
the combinability of the franchise of PBC in central Florida with the operation
of ANB in its market, and (vii) the compatibility of the community bank
orientation of the operations of PBC to that of ANB.
PBC's board of directors considered whether the Merger would enhance
shareholder value while protecting the need of its current customer and
determine during the course of negotiations that the merger would satisfy both
of those criteria.
In reaching this conclusion the Board of PBC considered a number of factors
and criteria regarding the potential benefit of the merger. Among these factors
were (i) ANB's ability to provide financial services to the customers of Public
Bank, (ii) ANB's ability, due to its superior capitalization, to facilitate
Public Bank's addition of bank branches which would increase customer
convenience, (iii) the impact of ANB's reputation as an owner and operator of
community banks on Public Bank's image as a community bank, (iv) ANB's
experience in owning and operating community banks and the value thereof to the
St. Cloud/Kissimmee communities, (v) ANB's commitment to use PBC as a platform
to create a central Florida network of community banks as an opportunity for the
growth and enhancement of the St. Cloud/Kissimmee communities, (vi) ANB's
reputation for maintaining continuity of qualified, local personnel in acquired
banks, (vii) the marketability and liquidity of ANB's securities, (viii) the
ability of ANB's growth potential to enhance shareholder value, and (ix) the
overall ability of the Merger to enhance shareholder value.
Alabama National BanCorporation
Public Bank Corporation
April 9, 1998
Page 4
Additionally PBC's board of directors engaged Xxxx Xxxxxxxxxx & Co.
Investment Banking, to provide its opinion with respect to the fairness of the
consideration to be received by PBC's shareholders in connection with the Merger
and related matters. As of March 5, 1998 Sheshunoff rendered its written
opinion that, as of such date, the consideration to be received in the Merger
Agreement was fair from a financial point of view to the holders of PBC common
stock.
Prior to the Merger, no PBC Common Stock will be held by PBC or any
subsidiary thereof or by ANB, any subsidiary thereof or any director or
executive officer thereof, other than in a fiduciary capacity and, in the case
of PBC, as treasury stock. Upon consummation of the Merger, each share of PBC
Common Stock issued and outstanding immediately prior to the Merger (excluding
shares held by PBC shareholders who perfect their dissenter's rights) shall
cease to be outstanding and shall be converted into .2353134 newly issued shares
of ANB Common Stock. The ANB Common Stock to be issued in the Merger will have
been registered with the Securities and Exchange Commission under the Securities
Act of 1933. The ratio for the exchange of shares of PBC Common Stock for ANB
Common Stock was negotiated through arm's-length bargaining. Accordingly, the
fair market value of the ANB Common Stock and cash consideration, in the case of
fractional shares, will be approximately equal to the fair market value of the
PBC Common Stock surrendered in exchange therefor.
Each share of ANB Common Stock issued and outstanding immediately prior to
the effective time of the Merger shall remain issued and outstanding from and
after the effective time.
As contemplated in the Agreement, PBC will be merged into and become a part
of ANB, which will be the surviving corporation. PBC's separate corporate
existence will cease to exist upon consummation of the Merger. The Merger will
be effected pursuant to the laws of the States of Florida and Delaware. ANB, as
the successor corporation, will acquire all of the assets of PBC (both net and
gross) and assume all of PBC's liabilities. Both the fair market value and
adjusted basis of the assets of PBC to be transferred to ANB will equal or
exceed the sum of liabilities to be assumed by ANB, plus the amount of
liabilities, if any, to which the transferred assets are subject. The
liabilities of PBC to be assumed by ANB and the liabilities to which transferred
assets of PBC are subject were incurred by PBC in the ordinary course of its
business. PBC does not have any indebtedness of ANB or any subsidiary or
affiliate of ANB that was issued, acquired or will be settled at a discount, or
that was issued or acquired in connection with this transaction. Nor does ANB
have any indebtedness of PBC or any subsidiary or affiliate of PBC that was
issued, acquired or will be settled at a discount, or that was issued or
acquired in connection with this transaction.
Alabama National BanCorporation
Public Bank Corporation
April 9, 1998
Page 5
ANB has no plan or intention to sell or otherwise dispose of any of the
assets of PBC acquired in the transaction, except for dispositions made, or to
be made, in the ordinary course of business. Following the Merger, ANB will
continue the historic business of PBC and use a significant portion of PBC's
assets in such business, including the operation of the banking business of PBC
conducted through Public Bank. ANB has no plan or intention to liquidate Public
Bank, to merge Public Bank into another corporation, or to cause Public Bank to
sell or otherwise dispose of any of the assets of Public Bank, except for
dispositions made in the ordinary course of business.
No fractional shares will be issued in connection with the Merger. In the
event that a fractional share is computed, the shareholder will receive cash in
lieu thereof. The cash payment in lieu of fractional shares is solely for the
purpose of avoiding the expense and inconvenience to ANB of issuing fractional
shares and does not represent separately bargained-for consideration. No one
holder of PBC Common Stock will receive cash greater than the average sales
price of one full share of ANB Common Stock reported on the NASDAQ National
Market during the twenty trading days ending on the fifth business day prior to
the effective date of the Merger, and in the aggregate the maximum amount of
cash consideration that will be paid in the transaction to the holders of PBC
Common Stock in lieu of fractional shares will not exceed the product of (i) the
number of holders of PBC Common Stock on the effective date of the Merger, times
(ii) the value of one full share of ANB Common Stock calculated as set forth
above. The total cash consideration that will be paid in the Merger instead of
issuing fractional shares is not expected to exceed one percent of the total
consideration to be received. Any holder of PBC Common Stock who perfects his
statutory dissenter's rights shall be entitled to receive the value of such
shares in cash, as determined pursuant to the Florida Business Corporation Act.
In the event that Shareholders owning in excess of 7% of the outstanding shares
of PBC Common Stock properly assert their dissenter's rights, ANB's Board of
Directors may terminate the Merger Agreement.
All ANB Common Stock to be received by PBC shareholders will be freely
transferable, except for ANB Common Stock received by persons deemed to be
"affiliates" of PBC who, under Rule 145 of the Securities Act of 1933, will be
restricted as to future sales. As of the effective date of the Merger, each
such affiliate will have entered into an agreement restricting resale of the ANB
Common Stock.
To the best knowledge of management of PBC, no PBC shareholders sold,
exchanged, or otherwise dispose of any of such person's PBC Common Stock to ANB
or a person related to ANB in anticipation of the Merger. ANB has no plan or
intention to reacquire directly or indirectly through a related party any ANB
Common Stock issued in the transaction.
Alabama National BanCorporation
Public Bank Corporation
April 9, 1998
Page 6
None of the present directors of PBC will be elected to the Board of
Directors of ANB. No shareholder-employee of PBC will receive any consideration
for the PBC Common Stock owned by such shareholder-employee in the form of
compensation for services rendered or to be rendered, and all compensation to
such shareholder-employees for services rendered or to be rendered will be
commensurate with amounts paid to third parties bargaining at arm's length for
similar services.
ANB and PBC will each bear and pay costs and expenses incurred by it, or on
its behalf, in connection with the Merger, including expenses of their
respective accountants and counsel; provided that ANB has agreed to pay all
expenses relating to filing, registration, printing and mailing fees associated
with the Proxy Statement and Prospectus and all application fees relating to the
regulatory applications. Any costs and expenses incurred by a holder of PBC
Common Stock will be for his own account and will not be paid by ANB or PBC.
Neither ANB nor PBC are under the jurisdiction of a court in a Title 11 or
similar case.
As of December 31, 1997, the total assets of PBC, exclusive of cash, cash
items (including receivables other than loans in the ordinary course of
business) and Government securities, were $32,641,850. Of this amount, the total
value of the assets held for investment constitutes $398,921, of which $398,921
consisted of stock and securities. As of the date hereof, there has been no
substantial change in PBC's total assets, that portion of PBC's total assets
held for investment or that portion represented by stock and securities.
As of December 31, 1997, the total assets of ANB, exclusive of cash, cash
items (including receivables) and Government securities, were $1,056,057,000.
Of this amount, the total value of the assets held for investment constitutes
$213,267,000 of which $40,333,000 consisted of stock and securities. As of
the date hereof, there has been no substantial change in ANB's total assets,
that portion of ANB's total assets held for investment or that portion
represented by stock and securities.
Alabama National BanCorporation
Public Bank Corporation
April 9, 1998
Page 7
LEGAL ANALYSIS
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Section 354(a)(1) of the Internal Revenue Code of 1986 (the "Code")/1/
provides that gain or loss will not be recognized to a transferor stockholder if
stock or securities in a corporation that is a "party to a reorganization" are,
pursuant to a "plan of reorganization," exchanged solely for stock or securities
in another corporation that is also a "party to the reorganization." The
exchange to which section 354(a)(1) applies must be pursuant to a "plan of
reorganization" and the stock and securities surrendered and received must be
the stock and securities of corporations each of which is a "party to a
reorganization" as those terms are defined in section 368. Treas. Reg.
(S)1.354-1(a). Section 354(a)(2)(A) provides that the non-recognition rule of
section 354(a)(1) will not apply if either (i) the principal amount of the
securities received by the transferor exceeds the principal amount of the
securities surrendered by the transferor, or (ii) securities are received by the
transferor but no securities are surrendered by the transferor.
Section 356(a)(1) provides that if the non-recognition rule of section
354(a)(1) would apply to an exchange except that money or "other property" is
received by the transferor in addition to stock or securities in a corporation
that is a "party to a reorganization," then gain will be recognized by the
transferor to the extent of the money and fair market value of the "other
property" received. If such an exchange has the effect of the distribution of a
dividend, then each transferor that receives money or "other property" will have
the gain to be recognized treated as a dividend to the extent of such
transferor's ratable share of the earnings and profits of the corporation in
which the transferor held stock. Code, (S) 356(a)(2). Whether a distribution
----
has the effect of a dividend will be determined based upon principles developed
under sections 356(a)(2) and 302 for determining dividend equivalency. Rev.
Rul. 74-515, 1974-2 C.B. 118. In applying those principles in the context of
section 356, one compares the interest the shareholder actually received in the
acquiring corporation in the reorganization with the interest the shareholder
would have received in the acquiring corporation if solely stock had been
received. Commissioner x. Xxxxx, 000 X.X. 000 (1989); Rev. Rul. 93-61, 1993-2
C.B. 118.
The phrase "other property" does not include "securities" if such
securities would be permitted to be received without the recognition of gain
under the provisions of section 354. Code, (S) 356(d)(2)(A). Further, if
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securities of a corporation that is "a party to a reorganization" are
surrendered and securities of a corporation that is "a party to a
reorganization" are received which exceed the principal amount of the securities
surrendered, the term "other property" includes only the fair market value of
the excess principal amount. Code, (S)356(d)(2)(B).
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________________________
/1/ Statutory references are to the Code.
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Alabama National BanCorporation
Public Bank Corporation
April 9, 1998
Page 8
In a "reorganization" where cash is paid by the acquiring corporation
that is not separately bargained for but is in lieu of fractional share
interests to which shareholders are entitled, such cash payment will be treated
under section 302(a) as a redemption of the fractional share interest which will
be treated as a distribution in exchange, provided that the redemption is not
essentially equivalent to a dividend. Rev. Rul. 66-365, 1966-2 C.B. 116
amplified Rev. Rul. 81-18, 1981-1 C.B. 122; Rev. Rul. 69-34, 1969-1 C.B. 105.
See also, PLR 9703019. The Internal Revenue Service (the "Service") will
normally rule that a cash distribution in lieu of fractional share interests
arising in a "reorganization" will be in part or full payment in exchange for
the stock redeemed if the cash distribution is undertaken solely for the purpose
of saving the corporation the expense and inconvenience of issuing and
transferring fractional shares and is not separately bargained-for
consideration. Rev. Proc. 77-41, 1977-2 C.B. 574. See e.g. PLR 9701020.
The term "reorganization" is defined in Section 368(a) and includes
under Section 368(a)(1)(A) a statutory merger or what is commonly referred to as
an "A reorganization." See also, Treas. Reg. (S) 1.368-2(b)(1).
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In the present matter, PBC will merge into ANB in a statutory merger
under the laws of the States of Florida and Delaware. PBC shareholders will
exchange their shares for ANB Common Stock. Only in the instance where a
fractional share is computed will a PBC shareholder receive cash in lieu of a
fractional share of ANB Common Stock. The distribution of cash, as opposed to
the distribution of a fractional share of ANB Common Stock, is solely for the
purpose of saving ANB the expense and inconvenience of issuing and transferring
fractional shares of ANB Common Stock and is not separately bargained-for
consideration.
In the case of an exchange to which section 354 applies, the basis of
the stock or securities received by the transferor, without the recognition of
gain or loss, shall be the same as that of the stock or securities exchanged,
decreased by (i) the fair market value of any "other property" and money
received by the transferor and (ii) the amount of loss recognized by the
taxpayer on the exchange, and increased by (x) the amount treated as a dividend
and (y) the amount of gain recognized on the exchange, exclusive of the portion
treated as a dividend. Code, (S) 358(a)(1).
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The holding period of stock of a corporation "a party to a
reorganization" received by a transferor includes the period of time that the
transferor held the stock of the other corporation "a party to the
reorganization" if such stock constitutes a capital asset in the hands of the
transferor. Code, (S) 1223(1). Additionally, for this rule to apply the stock
----
received must have the same basis, in whole or in part, as the stock exchanged.
Generally, a capital asset will
Alabama National BanCorporation
Public Bank Corporation
April 9, 1998
Page 9
include all property held by a taxpayer exclusive of (i) stock in trade of a
taxpayer or (ii) other property of a kind which would be properly includible in
inventory. Code, (S) 1221(1).
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In the present matter, a PBC shareholder will have a basis in the ANB
Common Stock received equal to such holder's basis in the PBC Common Stock
surrendered, decreased by the amount of any cash received in lieu of a
fractional share of ANB Common Stock and increased by the amount of gain
recognized as a result of receiving cash in lieu of a fractional share. Such
PBC shareholder will include in the holding period of ANB Common Stock the
holding period of such PBC shareholder unless the PBC Common Stock was not
considered as a capital asset in the hands of such holder.
With respect to the tax treatment of a corporation that is "a party to
a reorganization" which issues stock to a transferor of stock or securities in
another corporation that is a "party to a reorganization," the basis of the
property acquired shall be the same as the basis in the property surrendered
increased by the amount of gain recognized by the transferor on such transfer.
Code, (S) 362(b).
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The term "party to a reorganization" is defined in sections 368(a) and
368(b). The term "plan of reorganization" is defined in the regulations
promulgated under the authority of section 368.
Two additional requirements for a "reorganization" are a "continuity
of business enterprise" and a "continuity of interest" therein on the part of
those persons who, directly or indirectly, were the owners of the enterprise
prior to the reorganization. Treas. Reg. (S) 1.368-1(b).
On January 3, 1997 the Service published a notice of proposed
rulemaking relating to the "continuity of business enterprise" requirement. On
January 23, 1998 the Service issued Treasury Decision 8760 modifying and making
final new continuity of business enterprise regulations. These regulations are
effective for transactions occurring after January 28, 1998. The "continuity of
business enterprise" requirement is satisfied if the acquiring corporation
either (i) continues the acquired corporation's historic business, or (ii) uses
a significant portion of the acquired corporation's historic business assets in
a business. Treas. Reg. (S) 1.368-1(d)(2). With respect to continuing the
historic business of the acquired corporation, the fact that the acquiring
corporation is in the same line of business as the acquired corporation tends to
establish the requisite business continuity. The acquired corporation's
historic business is generally the business it has most recently conducted. If
the acquired corporation has more than one line of business, continuity of
business enterprise requires that only a significant line of business be
Alabama National BanCorporation
Public Bank Corporation
April 9, 1998
Page 10
conducted. Treas. Reg. (S) 1.368-1(d)(3). With respect to the alternative of
historic business assets continuity, it generally will be satisfied if the
acquiring corporation utilizes a significant portion of the acquired
corporation's historic business assets in a business. An acquired corporation's
historic business assets are those assets used in its historic business.
Whether a "significant" portion of the historic assets are used in a business is
based upon the relative importance of the assets to the operation of the
business. Treas. Reg. (S) 1.368-1(d)(4).
On December 23, 1996, the Service published a notice of proposed
rulemaking relating to the "continuity of interest" requirement. By virtue of
the same Treasury Decision, the revised regulations became effective for
transactions occurring after January 28, 1998. The "continuity of interest"
requirement is satisfied if there exists among the holders of the stock and
securities of either (i) the acquired corporation or (ii) acquiring corporation,
the requisite continuity of interest in the acquiring corporation. Treas. Reg.
(S) 1.368-1(b). For ruling purposes, the Service has stated that the continuity
of interest requirement will be satisfied if one or more shareholders of the
acquired corporation acquire stock of the acquiring corporation, or a
corporation controlling the acquiring corporation, that is equal in value to at
least 50% of the value of all the outstanding stock of the acquired corporation
on the date of the reorganization. Rev. Proc. 77-37, 1977-2 C.B. 568. See,
---
X.X. Xxxxxxx Corp. v. Commissioner, 104 TC 100 (1995) (discussion of judicial
authority for less than 50%). Prior to the revised regulations, there was the
further requirement that there not be an intent on behalf of the holders of the
stock of acquired corporations to dispose of the stock received from the
acquiring corporation. The revised regulation has eliminated that requirement
at least as to third parties and permits holders of acquired company stock to
sell the stock received from the acquiring company, other than for sales to the
acquiring company.
In the present matter, ANB will both continue PBC's historic business
and use a significant portion of PBC's historic business assets in such
business. Additionally, former PBC shareholders will acquire in the aggregate
ANB Common Stock equal in value to at least 50% of the value of all of the
outstanding PBC Common Stock on the date of the reorganization, and there is no
known intent to dispose of any ANB Common Stock to ANB or a party related to
ANB.
Additionally, for a transaction to qualify as a reorganization by
virtue of a statutory merger, there must be a business purpose for the
transaction. Treas. Reg. (S)(S) 1.368-1(b); 1.368-2(b)(2). Whether a
transaction has a business purpose is eventually a factual question with no
mathematical safe-harbor available.
Alabama National BanCorporation
Public Bank Corporation
April 9, 1998
Page 11
In the present matter, ANB should be able by virtue of its size to
realize certain economies of scale and be more competitive with regional and
national providers of financial services. Additionally, holders of PBC Common
Stock will receive in exchange for such shares a security registered under the
Securities Act of 1933 issued by a company that reports under the Securities
Exchange Act of 1934. Based upon similar facts, the Service has ruled in the
past that a reorganization has occurred.
Assuming that a "reorganization" occurs, a "party to a reorganization"
includes both corporations in a transaction qualifying as a reorganization when
one corporation acquires properties of another corporation and, in the case of a
corporation controlling the acquiring corporation, such corporation where its
stock is used in the acquisition. Treas. Reg. (S) 1.368-2(f). A "plan of
reorganization" is a consummated transaction specifically defined as a
reorganization and is not itself a broadening of the term "reorganization."
Treas. Reg. (S) 1.368-2(g).
Although not directly applicable to the present matter, the Service
has held that the "solely for voting stock" requirement of Sections 368(a)(1)(B)
and 368(a)(1)(C) will not be violated if the acquiring corporation pays expenses
of the acquired corporation that are solely and directly related to the
reorganization, but will be violated if the acquiring corporation pays the
individual expenses of the stockholders of the acquired corporation. Rev. Rul.
73-54, 1973-1 C.B. 187; PLR 9701020. Even in statutory mergers, for ruling
purposes, the Service required a representation that each party to the merger
and the stockholders of the acquired corporation will pay their respective
expenses, if any, incurred in connection with the transaction. Rev. Proc. 86-
42, 1986-2 C.B. 722. The Service has stopped ruling on these types of
transactions. Rev. Proc. 98-3, 1998-I.R.B. __ (Section 3.01(24)).
Even though a transaction would otherwise meet all of the requirements
for a "reorganization" as described before, a transaction will not be considered
a "reorganization" if two or more parties to the transaction are "investment
companies," at least as with respect to such "investment company." Code, (S)
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368(a)(2)(F)(i). For this purpose, the term "investment company" means a
"regulated investment company," a "real estate investment trust," or a
corporation 50% or more of the value of whose total assets are stock and
securities and 80% or more of the value of whose total assets are assets held
for investment. In making this calculation, stock and securities in any
subsidiary are disregarded and the parent corporation is deemed to own its
ratable share of the subsidiary assets, considering for this purpose a
corporation as being a subsidiary if another corporation owns 50% or more of the
combined voting power of all classes of stock entitled to vote, or 50% or more
of the total value of shares of all classes of stock outstanding. Code, (S)
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368(a)(2)(F)(iii). Additionally, in determining total
Alabama National BanCorporation
Public Bank Corporation
April 9, 1998
Page 12
assets, there is excluded cash and cash items (including receivables),
government securities and in certain instances other assets acquired. Code, (S)
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368(a)(2)(F)(iv). Assets are held for investment if (i) they are held primarily
for gain from appreciation in value, production of passive income or both and
(ii) are not held primarily for sale to customers. Prop. Treas. Reg. (S) 1.368-
4(d)(1). Passive income includes interest income if such interest constitutes
passive income for purposes of S corporation taxation. Prop. Treas. Reg. (S)
1.368-4(d)(2). Interest income directly derived in the ordinary course of a
trade or business of lending or financing does not constitute passive income.
Treas. Reg. (S) 1.1362-2(c)(5)(iii)(B). Among the requirements to constitute a
"regulated investment company," is that the company files with its return for
the taxable year an election to be a "regulated investment company" or has made
such election for a previous taxable year. Code, (S) 851(d)(1). A similar
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requirement is provided to constitute a "real estate investment trust." Code,
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(S) 856(c)(1).
In the present matter, neither ANB nor PBC has made an election to be
taxed as a regulated investment company or a real estate investment trust.
Accordingly, such entities can constitute an "investment company" only if 50% or
more of the value of their respective assets are stocks and securities and 80%
or more of the value of the total assets are held for investment. In making
these calculations, cash, cash items (including receivables) and Government
securities are excluded and stock and securities in a 50%-owned subsidiary are
disregarded with the parent being deemed to own its ratable share of such
subsidiaries' assets. Otherwise, a "security" includes obligations of state and
local governments, commodity futures contracts, shares of regulated investment
companies, real estate investment trusts and other investments constituting a
security within the meaning of the Investment Company Act of 1940. In the
present matter, neither ANB nor PBC meet the definition of an "investment
company."
With respect to PBC shareholders who elect to exercise their right to
dissent to the Merger, cash received with respect to a dissenter's PBC Common
Stock will be treated as received by the PBC shareholder in redemption of their
PBC Common Stock, subject to the provisions and limitations of Section 302 of
the Code.
OPINION
-------
Based upon the facts set forth herein and assuming that the Merger
will take place as described in the Merger Agreement and that the
representations made by ANB and PBC are true and correct at the time of
consummation of the Merger, it is our opinion that:
Alabama National BanCorporation
Public Bank Corporation
April 9, 1998
Page 13
(i) the Merger will constitute a reorganization within the meaning
of Section 368 of the Code;
(ii) ANB and PBC will each be a "party to a reorganization" within
the meaning of (S) 368(b) of the Code;
(iii) no gain or loss will be recognized by ANB or PBC in the Merger;
(iv) no gain or loss will be recognized by a PBC shareholder upon
the exchange in the Merger of PBC Common Stock solely for shares of ANB
Common Stock;
(v) the basis of ANB Common Stock to be received in the Merger by a
PBC shareholder will be the same as such person's basis in the PBC Common
Stock exchanged therefor;
(vi) the holding period of ANB Common Stock to be received in the
Merger by a PBC shareholder will include the period during which such
person held the PBC Common Stock exchanged therefor, provided that such PBC
Common Stock was held as a capital asset immediately prior to the
consummation of the Merger;
(vii) the receipt of cash in exchange for a fractional share interest
in a share of ANB Common Stock will be treated as received in exchange for
such fractional share interest;
(viii) no gain or loss will be recognized by ANB or PBC in connection
with the reorganization; and
(ix) the receipt of cash by a PBC shareholder, who exercises his or
her rights to dissent, will be treated as received in exchange for such PBC
Common Stock.
The opinions expressed herein are based upon existing statutory,
regulatory, and judicial authority, any of which may be changed at any time with
retroactive effect. In addition, our opinions are based solely on the documents
that we have examined, the additional information that we have obtained, and the
statements set out therein, which we have assumed and you have confirmed to be
true on the date hereof and will be true on the date on which the proposed
Alabama National BanCorporation
Public Bank Corporation
April 9, 1998
Page 14
transaction is consummated. Our opinions cannot be relied upon if any of the
facts contained in such documents or if such additional information is, or later
becomes, inaccurate, or if any of the statements set out herein is, or later
becomes, inaccurate. Finally, our opinions are limited to the tax matters
specifically covered thereby, and we have not been asked to address, nor have we
addressed, any other tax consequences of the proposed transaction.
We consent to the use of this opinion as an exhibit to the Registration
Statement (Registration No. _____________) filed by ANB relating to the proposed
Merger and to the reference to us under the headings "RISK FACTORS - Tax
Considerations," "THE MERGER -Federal Income Tax Consequences" and "LEGAL
MATTERS" in the Proxy Statement and Prospectus included in the Registration
Statement. This opinion is being provided solely for the use of ANB. No other
person or party shall be entitled to rely on this opinion.
Very truly yours,
/s/ Xxxxxxx, Xxxxxx & Xxxx, P.C.
EXHIBIT A
---------
STATEMENT OF FACTS AND REPRESENTATIONS
--------------------------------------
This Statement of Facts and Representations is made on behalf of Public
Bank Corporation ("PBC") to Xxxxxxx, Xxxxxx & Xxxx, P.C., and is intended to be
relied upon in the issuance of an opinion as to certain federal tax consequences
arising from consummation of the transactions described in the Merger Agreement
and Plan of Merger dated March 5, 1998, by and between PBC and Alabama National
BanCorporation ("ANB"). Capitalized terms shall have the meaning assigned to
them in the opinion of Xxxxxxx, Xxxxxx & Xxxx, P.C. dated April 9, 1998, to ANB
and.
1. Both the fair market value and adjusted basis of assets of PBC to be
transferred to ANB will equal or exceed the sum of liabilities to be assumed by
ANB, plus the amount of liabilities, if any, to which the transferred assets are
subject.
2. The ratio for the exchange of shares of PBC Common Stock for ANB
Common Stock was negotiated through arm's-length bargaining. The fair market
value of the ANB Common Stock and cash consideration, in the case of fractional
shares, will be approximately equal to the fair market value of the PBC Common
Stock surrendered in exchange therefor.
3. The liabilities of PBC to be assumed by ANB and the liabilities to
which transferred assets of PBC are subject were incurred by PBC in the ordinary
course of its business.
4. To the best knowledge of management of PBC, there is no plan or
intention by any PBC shareholder to sell, exchange, or otherwise dispose of such
person's PBC Common Stock to ANB or a person related to ANB in anticipation of
the Merger.
5. PBC does not have any indebtedness of ANB or any subsidiary of ANB
that was issued, acquired or will be settled at a discount, or that was issued
or acquired in connection with this transaction.
6. Any cost or expense incurred by a PBC shareholder will be for his own
account and will not be paid by PBC.
7. The payment of cash in lieu of fractional shares of ANB Common Stock
is not an accommodation to, or requested by PBC, but it is the understanding of
PBC that is solely for the purpose of avoiding the expense and inconvenience to
ANB of issuing fractional shares and does not represent separately bargained for
consideration. The total cash consideration that will be paid in the transaction
to PBC shareholders instead of issuing fractional shares of ANB Common Stock
will not exceed one percent (1%) of the total consideration that will be issued
in the transaction to the holders of PBC in exchange for their shares of PBC
Common Stock.
A-1
8. No shareholder-employee of PBC will receive any consideration for the
PBC Common Stock owned by such shareholder-employee in the form of compensation
for services rendered or to be rendered and all compensation to such
shareholder-employee for services rendered or to be rendered will be
commensurate with amounts paid to third parties bargaining at arm's-length for
similar services.
9. PBC is not under the jurisdiction of a court in a Title 11 or similar
case.
10. As of December 31, 1997, the total assets of PBC, exclusive of cash,
cash items (including receivables other than loans in the ordinary course of
business) and Government securities was $32,641,850. Of this amount, the total
value of the assets held for investments constitutes $398,921, of which $398,921
consists of stock and securities. See Computation Schedule attached hereto for
derivation of these numbers.
11. As of the date hereof, there has been no substantial change from
December 31, 1997 in PBC's total assets or that portion of PBC's total assets
represented by investment securities. Please note that as of March 31, 1998
Public Bank's total assets have grown in the ordinary course of business by more
than $2,000,000 but less than $2,500,000.
12. Except as will be effected by the Merger, there has been no change in
the issued and outstanding PBC Common Stock since December 31, 1997.
13. PBC has not elected to be taxed as a regulated investment company or a
real estate investment trust.
PUBLIC BANK CORPORATION
By: /s/ B. Xxxxxx Xxxxxx
-----------------------------------
Its: Vice Chairman
A-2
EXHIBIT B
---------
STATEMENT OF FACTS AND REPRESENTATIONS
--------------------------------------
This Statement of Facts and Representations is made on behalf of Alabama
National BanCorporation ("ANB"), to Xxxxxxx, Xxxxxx & Xxxx, P.C., and is
intended to be relied upon in the issuance of an opinion as to certain federal
tax consequences arising from consummation of the transactions described in the
Merger Agreement and Plan of Merger dated March 5, 1998, by and between Public
Bank Corporation ("PBC") and ANB. Capitalized terms shall have the meaning
assigned to them in the opinion of Xxxxxxx, Xxxxxx & Xxxx, P.C. dated April 9,
1998, to ANB.
1. The ratio for the exchange of shares of PBC Common Stock for ANB
Common Stock was negotiated through arm's-length bargaining. The fair market
value of the ANB Common Stock and cash consideration in the case of fractional
shares will be approximately equal to the fair market value of the PBC Common
Stock surrendered in exchange therefor.
2. Each share of ANB common stock (excluding shares held by stockholders
who perfect their dissenter's right of appraisal as provided in the Merger
Agreement) issued and outstanding immediately prior to the effective time of the
Merger shall remain issued and outstanding from and after the effective time.
3. ANB does not have any indebtedness of PBC or any subsidiary of PBC
that was issued, acquired or will be settled at a discount, or that was issued
or acquired in connection with this transaction.
4. ANB has no plan or intention to sell or otherwise dispose of any of
the assets of PBC acquired in the transaction, except for dispositions made, or
to be made, in the ordinary course of business or for transfers to another
corporation controlled by ANB. Following the Merger, ANB will continue the
historic business of PBC and use a significant portion of PBC's assets in such
business, including the operation of the banking business of PBC conducted
through First Bank.
5. ANB has no plan or intention to reacquire any ANB Common Stock issued
in this transaction, and ANB has not acquired any PBC Common Stock prior to the
Merger in anticipation of the Merger.
6. None of ANB, its subsidiaries (other than in a fiduciary capacity),
directors and executive officers owned on December 31, 1997 any PBC Common
Stock.
7. The payment of cash in lieu of fractional shares of ANB Common Stock
is solely for the purpose of avoiding the expense and inconvenience to ANB of
issuing fractional shares and does not represent separately bargained for
consideration. The total cash consideration that will be paid in the
transaction to PBC shareholders instead of issuing fractional shares of ANB
B-1
Common Stock will not exceed one percent (1%) of the total consideration that
will be issued in the transaction to the holders of PBC in exchange for their
shares of PBC Common Stock. The fractional share interests of each PBC Common
Stock will be aggregated, and no PBC shareholder will receive cash in an amount
greater than the book value of one full share of ANB Common Stock determined as
of the month-end immediately preceding the effective date of the Merger.
8. As of December 31, 1997, the total assets of ANB, exclusive of cash,
cash items (including receivables) and Government securities were
$1,056,057,000. Of this amount, the total value of the assets held for
investment constitutes $213,267,000, of which $40,333,000 consists of
stock and securities. As of the date hereof, there has been no substantial
change in ANB's total assets, the portion of ANB's total assets held for
investment, or that portion represented by stock and securities.
9. ANB is not under the jurisdiction of a court in a Title 11 or similar
case.
10. ANB has no plan or intention to liquidate Public Bank, to merge Public
Bank into another corporation, or to cause Public Bank to sell or otherwise
dispose of any of the assets of Public Bank, except for dispositions made in the
ordinary course of business.
11. ANB has not elected to be taxed as a regulated investment company or a
real estate investment trust.
ALABAMA NATIONAL
BANCORPORATION
By: /s/ Xxxxx X. Xxxxx, Xx.
----------------------------------------
Its: Senior Vice President-Finance,
Controller and Treasurer
B-2
