[Form of Opinion]
___________, 1999
Board of Directors
Catawba Valley Bank
0000 0xx Xxxxxx XX
Xxxxxxx, XX 00000-0000
RE: Agreement and Plan of Reorganization and Share Exchange Dated as of
February 16, 1999 By and Between Catawba Valley Bank and Catawba
Valley Bancshares, Inc.
Gentlemen:
You have asked for our opinion in connection with the proposed exchange (the
"Exchange") of shares of the $1.00 par value common stock of Catawba Valley
Bancshares, Inc., a North Carolina corporation, for the shares of $5 par value
common stock of Catawba Valley Bank, a North Carolina-chartered bank, pursuant
to the terms of the Agreement and Plan of Reorganization and Share Exchange
dated as of February 16, 1999 by and between Catawba Valley Bank and the Catawba
Valley Bancshares, Inc. (the "Exchange Agreement"). All capitalized terms,
unless otherwise specified, have the meaning assigned to them in the Exchange
Agreement.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
the Exchange Agreement, the Registration Statement filed with the Securities and
Exchange Commission on March 25, 1999 and such other documents as we have deemed
necessary or appropriate in order to enable us to render the opinion expressed
below. In our examination, we have assumed the genuineness of all signatures,
the legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such copies.
In rendering the opinions set forth below, we have relied, with your permission,
upon certain written factual representations of Catawba Valley Bank and Catawba
Valley Bancshares, Inc. dated as of the date of this letter. We have assumed
that any representation or statement made in connection with such
representations that is made "to the best of knowledge" or similarly qualified
is correct without such qualification. We have also assumed that when a person
or entity making a representation has represented that such person or entity
either is not a party to or does not have, or is not aware of, any plan or
intention, understanding or agreement as to a particular matter, there is in
fact no such plan, intention, understanding or agreement. We also
have assumed that all such written representations will be true as of the
Effective Time of the Exchange.
In rendering our opinion, we have considered the applicable provisions of the
Code, the Treasury Regulations, pertinent judicial authorities, interpretive
rulings of the Internal Revenue Service and such other authorities as we have
considered relevant, all as of the date hereof. All of such authorities are
subject to change, possibly with retroactive effect. Any such change could
affect the opinions rendered below. Our opinion does not address the federal
income tax consequences of the Exchange to Catawba Valley Bank shareholders in
special circumstances, including insurance companies, tax-exempt organizations,
financial institutions and broker-dealers, persons who do not hold Catawba
Valley Bank Common Stock as capital assets, individuals who received Catawba
Valley Bank Common Stock pursuant to the exercise of employee stock options or
otherwise as compensation, and non-U.S. persons.
Based upon and subject to the foregoing, and subject to the discussions of the
continuity of interest requirement and the applicability of Section 351 which
follow, we are of the opinion that:
(i) The Exchange will constitute a tax-free reorganization under Section
368(a)(1)(B) of the Code, and Catawba Valley Bank and Catawba Valley
Bancshares, Inc. will each be a party to the reorganization within the
meaning of Section 368(b) of the Code.
(ii) Catawba Valley Bank's shareholders will not recognize any gain or loss on
the receipt of the Catawba Valley Bancshares, Inc. Common Stock in
exchange for their Catawba Valley Bank Common Stock.
(iii) The basis of each Catawba Valley Bank shareholder in Catawba Valley
Bancshares, Inc.'s Common Stock received by such shareholder will be the
same as the basis of such shareholder in the Catawba Valley Bank Common
Stock surrendered in exchange therefor.
(iv) The holding period of Catawba Valley Bancshares, Inc.'s Common Stock
received by each Catawba Valley Bank shareholder in the Exchange will
include the holding period of the Catawba Valley Bank Common Stock
surrendered in exchange therefor, provided that the Catawba Valley Bank
Common Stock is held as a capital asset at the Effective Time of the
Exchange.
(v) If a Catawba Valley Bank shareholder dissents from the Exchange and
receives cash for his Catawba Valley Bank Common Stock, the receipt of
such cash will be a taxable transaction and will be treated as a
distribution and redemption of his shares, subject to the provisions and
limitations of Sections 301 and 302 of the Code.
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Continuity of Interest Requirement
In order for the Exchange to qualify as a reorganization, among other
requirements, the Catawba Valley Bank shareholders must exchange a substantial
portion of the proprietary interests in Catawba Valley Bank for a proprietary
interest in Catawba Valley Bancshares, Inc.. The IRS takes the position for
advance ruling purposes that this "continuity of interest" requirement is
satisfied in a potential reorganization if the value of the acquiring
corporation's stock received in the reorganization by the acquired corporation's
shareholders equals or exceeds 50% of the total consideration paid for the stock
of the acquired corporation in the potential reorganization.
Based on the foregoing, the continuity of interest requirement will be satisfied
in the Exchange if, at the Effective Time of the Exchange, the value of the
Catawba Valley Bancshares, Inc. Common Stock issued in the Exchange equals or
exceeds the amount of any cash and the fair market value of any other property
received by dissenting Catawba Valley Bank shareholders in exchange for their
Catawba Valley Bank Common Stock. For purposes of this opinion, we have
therefore assumed that the cash and the fair market value of any property paid
to dissenting Catawba Valley Bank shareholders will not exceed the fair market
value at the Effective Time of the Exchange of the Catawba Valley Bancshares,
Inc. Common Stock issued in the Exchange.
Our opinion expressed in this letter is based on current law and upon facts and
assumptions as of the date of this letter. Our opinion is subject to change in
the event of a change in the applicable law, a change in the interpretation of
the applicable law by the courts or by the Internal Revenue Service or a change
in any of the facts or assumptions upon which the opinion is based. There is no
assurance that legislative, regulatory, administrative or judicial developments
may not be forthcoming which would significantly modify the statements or
opinion expressed in this letter. Any such developments may or may not be
retroactive. This opinion represents our best legal judgment but has no binding
effect or official status of any kind. As a result, no assurance can be given
that the opinion expressed in this letter will be sustained by a court if
contested. No ruling will be obtained from the Internal Revenue Service with
respect to the Exchange.
Except as set forth above, we express no opinion as to the tax consequences to
any party, whether Federal, state, local or foreign, of the Exchange or of any
transactions related to the Exchange or contemplated by the Exchange Agreement.
This opinion is being furnished only to you in connection with the Exchange and
solely for your benefit in connection therewith and may not be used or relied
upon for any other purpose and may not be circulated, quoted or otherwise
referred to for any other purpose without or express written consent. We hereby
consent to the filing of this opinion as an exhibit to the Registration
Statement with the Securities and Exchange Commission.
Very truly yours,
XXXXX & XXX XXXXX, PLLC
Xxxxxxx Xxxxx, Xx.
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