MERGER OF NEW SECOND-TIER SUBSIDIARY INTO TARGET CORPORATION IS 'B' REORGANIZATION.

UIL Number(s) 0368.02-00

                                             Date: October 30, 1990

This is in reply to your letter of March 23, 1990, on behalf of the above-named taxpayers requesting rulings on the federal income tax consequences of a proposed transaction. You submitted additional information on April 18, October 5, October 11, and October 18, 1990. The information submitted for consideration is substantially as set forth below.

Parent is a registered savings and loan holding company and is the common parent of an affiliated group of corporations (hereinafter "the Parent Group") that files consolidated federal income tax returns on the calendar year basis. Parent's outstanding stock is publicly held and publicly traded.

Sub is a stock savings and loan association and is a wholly- owned subsidiary of Parent. As a member of the Parent Group, Sub joins in filing consolidated federal income tax returns on a calendar year basis with the other members of the Parent Group. Except for the common stock owned by Parent, Sub has no other outstanding capital stock. There are no outstanding warrants or options to purchase capital stock of Sub, and there are no outstanding securities or stock that are convertible into shares of Sub capital stock.

Sub 2 is a wholly-owned subsidiary of Sub and, as a member of the Parent Group, joins in filing consolidated federal income tax returns on a calendar year basis with the other members of the Parent Group. Except for the stock owned by Sub, Sub 2 has no other outstanding capital stock. There are no outstanding warrants or options to purchase capital stock of Sub 2, and there are no outstanding securities or stock that are convertible into shares of Sub 2 capital stock.

Sub 2 was formed for the sole purpose of acquiring and holding all of the issued and outstanding stock of Sub 3, which stock was acquired on or about Date A. At all times following that acquisition Sub 2's sole business activity has consisted of holding the stock of Sub 3, and it does not engage in any trades, businesses or other activities.

Sub 3 is a stock savings bank and is a wholly-owned subsidiary of Sub 2. As a member of the Parent Group, Sub 3 joins in filing consolidated federal income tax returns on a calendar year basis with the other members of the Parent Group. Sub 3 uses the accrual method of accounting for federal income tax purposes. Except for the stock owned by Sub 2, Sub 3 has no authorized and outstanding capital stock. There are no outstanding warrants or options to purchase capital stock of Sub 3, and there are no outstanding securities or stock that are convertible into shares of Sub 3 capital stock.

Target is a stock savings bank and is the common parent of an affiliated group of corporations (hereinafter "the Target Group") that files consolidated federal income tax returns on the calendar year basis using the accrual method of accounting. Target is a mutual savings bank for federal income tax purposes and maintains a reserve for bad debts under section 593 of the Internal Revenue Code.

As of December 31, 1989, there were approximately B shares of Target Common Stock reserved for issuance upon the exercise of outstanding incentive stock options and nonstatutory stock options issued to employees of Target and its subsidiaries. All Target options have tandem stock appreciation rights that are exercisable in connection with any change in control. With the exception of the stock options described in the preceding sentence, and the rights granted pursuant to the Plan of Reorganization (as described hereinafter), there are no outstanding contracts, agreements, rights, warrants or options to purchase any equity interest in Target. There are no outstanding securities or stock that are convertible into any equity interest in Target.

The parties represent that they have a business purpose for the proposed transaction. In order to achieve that business purpose, the parties will undertake the following steps:

(i) Pursuant to the Plan of Reorganization, Sub will cause Interim to be organized for the sole purpose of merging into Target. Sub will also form NewSub for the sole purpose of holding the stock of Target prior to the Merger. The merger of Interim into Target will be effected in accordance with the applicable state law. All holders of Target Common Stock, other than holders who have asserted dissenters' rights and have not withdrawn such assertion of rights in the manner provided therein, will have their shares of Target Common Stock converted automatically into the right to receive shares of Parent Common Stock, the exchange ratio to be determined at or about the time of the Exchange in the manner specified in the plan of Reorganization. The Exchange is being effected through the merger of Interim into Target solely to avoid the cost of complying with the tender offer rules of the Securities and Exchange Commission and to insure that Sub obtains all of the Common Stock of Target (other than shares redeemed by Target from dissenting shareholders). Upon consummation of the Exchange, each then outstanding incentive and nonstatutory option to acquire Target Common Stock and each stock appreciation right relating to an option shall automatically and without any action on the part of the holders thereof become a corresponding option to purchase shares of Parent Common Stock and a stock appreciation right relating to such option, covering the number of shares and having the other terms as provided for in the Plan of Reorganization. All payments under stock appreciation rights that are exercised prior to or simultaneously with the Exchange will be the obligation of, and made solely by, Target.

(ii) Sub will transfer the stock of Target to NewSub as a capital contribution (referred to as the "Contribution").

(iii) Following the satisfaction of the conditions to the Merger, Sub 3 will then merge with and into Target in accordance with, and pursuant to applicable state law. The Resulting Bank, as the surviving entity in the Merger, will acquire all of the assets and liabilities of Sub 3. The outstanding stock of Sub 3 immediately prior to the Merger will be converted by operation of law into Resulting Bank Common Stock and will continue to be owned by Sub 2. The number of shares of Resulting Bank Common Stock to be issued to Sub 2 in the Merger will be determined at the time of the Merger so that the fair market value of the Resulting Bank Common Stock received by Sub 2 will be approximately equal to the fair market value of the Sub 3 Common Stock exchanged therefor. Immediately following the Merger, Resulting Bank will continue the same business conducted by Sub 3 and by Target prior to the Merger, and will continue to operate under Target's charter, but will use the Sub 3 name.

(iv) Sub 2 will then merge with and into NewSub in accordance with, and pursuant to applicable state law. The Resulting Holding Company, as the surviving entity in the Holding Company Merger, will acquire all of the assets and liabilities of Sub 2. The outstanding stock of Sub 2 immediately prior to the Holding Company Merger will be converted by operation of law into Resulting Holding Company Common Stock and will continue to be owned by Sub. The number of shares of Resulting Holding Company Common Stock to be issued to Sub in the Holding Company Merger will be determined at the time of the Holding Company Merger so that the fair market value of the Resulting Holding Company Common Stock received by Sub will be approximately equal to the fair market value of the Sub 2 Common Stock exchanged therefor. Immediately following the Holding Company Merger, Resulting Holding Company will continue the same business conducted by Sub 2 and by NewSub prior to the Holding Company Merger, and will continue to operate under NewSub's charter, but will use the Sub 2 name.

In connection with the rulings requested, the parties make the following representations:

(a) The fair market value of the Parent Common Stock received by each Target shareholder in the Exchange plus the cash received in lieu of a fractional share of Parent Common Stock will be approximately equal to the fair market value of the Target Common Stock surrendered in the Exchange.

(b) There is no plan or intention by the shareholders of Target who own 5 percent or more of Target Common Stock, and, to the best of the knowledge of the management of Target, there is no plan or intention on the part of the remaining shareholders of Target, to sell, exchange or otherwise dispose of a number of shares of Parent Common Stock received in the transaction that would reduce the Target shareholders' ownership of Parent Common Stock to a number of shares having a value, as of the date of the transaction, of less than 50 percent of the value of all of the formerly outstanding shares of Target Common Stock as of the same date. For purposes of this representation, shares of Target Common Stock surrendered by dissenters or exchanged for cash in lieu of fractional shares of Parent Common Stock will be treated as outstanding shares of Target Common Stock on the date of the transaction. Moreover, shares of Target Common Stock and shares of Parent Common Stock held by Target shareholders and otherwise sold, redeemed, or disposed of prior or subsequent to the transaction will be considered in making this representation.

(c) Target has no plan or intention to issue additional shares of its stock that would result in NewSub losing control of Target within the meaning of section 368(c)(1) of the Code.

(d) NewSub has no plan or intention to issue additional shares of its stock that would result in Sub losing control of NewSub within the meaning of section 368(c)(1) of the Code.

(e) Sub has no plan or intention to issue additional shares of its stock that would result in Parent losing control of Sub within the meaning of section 368(c)(1) of the Code.

(f) NewSub has no plan or intention to liquidate Target; to merge Target into another corporation; to cause Target to sell or otherwise dispose of any of its assets, except for dispositions made in the ordinary course of business; or to sell or otherwise dispose of any of the Target Common Stock acquired in the transaction, except for transfers described in section 368(a)(2)(C) of the Code.

(g) Sub has no plan or intention to liquidate NewSub; to merge NewSub into another corporation; to cause NewSub to sell or otherwise dispose of any of its assets, except for dispositions made in the ordinary course of business; or to sell or otherwise dispose of any of the NewSub Common Stock acquired in the transaction, except for transfers described in section 368(a)(2)(C) of the Code.

(h) Parent has no plan or intention to liquidate Sub; to merge Sub into another corporation; to cause Sub to sell or otherwise dispose of any of its assets, except for dispositions made in the ordinary course of business; or to sell or otherwise dispose of any of the Sub Common Stock acquired in the transaction, except for transfers described in section 368(a)(2)(C) of the Code.

(i) Except for fractional share interests, Parent has no plan or intention to redeem or otherwise reacquire any of the Parent Common Stock to be issued in the transaction.

(j) Parent, Sub, Target, and the shareholders of Target, will pay their respective expenses, if any, incurred in connection with the transaction.

(k) Sub will acquire Target Common Stock solely in exchange for Parent voting stock. For purposes of this representation, Target Common Stock redeemed for cash or other property furnished by Parent or Sub will be considered as acquired by Sub. Further, no liabilities of Target or the Target shareholders will be assumed by Parent or Sub, nor will any of the Target Stock be subject to any liabilities.

(l) At the time of the transaction Target will not have outstanding any warrants, options, convertible securities, or any other type of right pursuant to which any person could acquire stock in Target that, if exercised or converted, would affect NewSub's acquisition or retention of control of Target, as defined in section 368(c)(1) of the Code.

(m) At the time of the transaction NewSub will not have outstanding any warrants, options, convertible securities, or any other type of right pursuant to which any person could acquire stock in NewSub that, if exercised or converted, would affect Sub's acquisition or retention of control of NewSub, as defined in section 368(c)(1) of the Code.

(n) At the time of the transaction Sub will not have outstanding any warrants, options, convertible securities, or any other type of right pursuant to which any person could acquire stock in Sub that, if exercised or converted, would affect Parent's acquisition or retention of control of Sub, as defined in section 368(c)(1) of the Code.

(o) Neither Parent, Sub, Sub 2 nor Sub 3 currently owns, directly or indirectly, nor have they owned within the preceding five years, any stock of Target, except in a fiduciary capacity.

(p) Following the transaction, Target will continue its historic business or will use a significant portion of its historic assets in a business.

(q) None of the parties to the transaction are investment companies as defined in sections 368(a)(2)(F)(iii) and (iv) of the Code.

(r) Target will pay its dissenting shareholders the value of their Common Stock out of its own funds. No funds will be supplied for that purpose, directly or indirectly, by Parent or Sub, nor will Parent or Sub directly or indirectly reimburse Target for any payments to dissenters.

(s) On the date of the transaction, the fair market value of the assets of Target will exceed the sum of its liabilities plus the liabilities, if any, to which the assets are subject.

(t) The payment of cash in lieu of fractional shares of Parent Common Stock is solely for the purpose of avoiding the expense and inconvenience to Parent of issuing fractional shares and does not represent separately bargained-for consideration. The total cash consideration that will be paid in the transaction to the Target shareholders instead of issuing fractional shares of Parent Common Stock will not exceed one percent of the total consideration that will be issued in the transaction to the Target shareholders in exchange for their shares of Target Common Stock. The fractional share interest of each Target shareholder will be aggregated, and no Target shareholder will receive cash in an amount equal to or greater than the value of one full share of Parent Common Stock.

(u) None of the compensation received by any shareholder- employees of Target will be separate consideration for, or allocable to, any of their shares of Target Common Stock; none of the shares of Parent Common Stock received by any shareholder-employees will be separate consideration for, or allocable to, any employment agreements; and the compensation paid to any such shareholder-employees will be for services actually rendered and will be commensurate with amounts paid to third parties bargaining at arms-length for similar services.

(v) The fair market value of the Resulting Bank stock received by Sub 2 will be approximately equal to the fair market value of the Sub 3 stock surrendered in the exchange.

(w) There is no plan or intention by Sub 2 to sell, exchange, or otherwise dispose of a number of shares of Resulting Bank stock received in the transaction that would reduce Sub 2's ownership of Resulting Bank Stock to a number of shares having a value, as of the date of the transaction, of less than 50 percent of the value of all of the formerly outstanding stock of Sub 3 as of the same date. No shares of Sub 3 stock will be disposed of prior to the transaction, or will be exchanged for cash or other property or exchanged for cash in lieu of fractional shares of Resulting Bank stock in connection with the transaction.

(x) Resulting Bank has no plan or intention to reacquire any of its stock issued in the transaction.

(y) Resulting Bank has no plan or intention to sell or otherwise dispose of any of the assets of Sub 3 acquired in the transaction, except for dispositions made in the ordinary course of business.

(z) The liabilities of Sub 3 assumed by Resulting Bank and the liabilities to which the transferred assets of Sub 3 are subject were incurred by Sub 3 in the ordinary course of its business.

(aa) Following the transaction, Resulting Bank will continue the historic business of Sub 3 or use a significant portion of Sub 3's historic business assets in a business.

(bb) Resulting Bank, Sub 3, Sub 2 and NewSub will pay their respective expenses, if any, incurred in connection with the transaction.

(cc) There is no intercorporate indebtedness existing between Sub 3 and Resulting Bank that was issued, acquired, or will be settled at a discount.

(dd) No two parties to the transaction are investment companies as defined in section 368(a)(2)(F)(iii) and (iv) of the Code.

(ee) Sub 3 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.

(ff) The fair market value of the assets of Sub 3 transferred to Resulting Bank will equal or exceed the sum of the liabilities assumed by Resulting Bank plus the amount of liabilities, if any, to which the transferred assets are subject.

(gg) The total adjusted basis of the assets of Sub 3 transferred to Resulting Bank will equal or exceed the sum of the liabilities assumed by Resulting Bank, plus the amount of liabilities, if any, to which the transferred assets are subject.

(hh) The fair market value of the Resulting Holding Company stock received by Sub will be approximately equal to the fair market value of the Sub 2 stock surrendered in the exchange.

(ii) There is no plan or intention by Sub to sell, exchange, or otherwise dispose of a number of shares of Resulting Holding Company stock received in the transaction that would reduce Sub's ownership of Resulting Holding Company Stock to a number of shares having a value, as of the date of the transaction, of less than 50 percent of the value of all of the formerly outstanding stock of Sub 2 as of the same date. No shares of Sub 2 stock will be disposed of prior to the transaction, or will be exchanged for cash or other property or exchanged for cash in lieu of fractional shares of Resulting Holding Company stock in connection with the transaction.

(jj) Resulting Holding Company has no plan or intention to reacquire any of its stock issued in the transaction.

(kk) Resulting Holding Company has no plan or intention to sell or otherwise dispose of any of the assets of Sub 2 acquired in the transaction, except for dispositions made in the ordinary course of business.

(ll) The liabilities of Sub 2 assumed by Resulting Holding Company and the liabilities to which the transferred assets of Sub 2 are subject were incurred by Sub 2 in the ordinary course of its business.

(mm) Following the transaction, Resulting Holding Company will continue the historic business of Sub 2 or use a significant portion of Sub 2's historic business assets in a business.

(nn) Resulting Holding Company, Sub 2, NewSub, and Sub will pay their respective expenses, if any, incurred in connection with the transaction.

(oo) There is no intercorporate indebtedness existing between Sub 2 and Resulting Holding Company that was issued, acquired, or will be settled at a discount.

(pp) No two parties to the transaction are investment companies as defined in section 368(a)(2)(F)(iii) and (iv) of the Code.

(qq) Sub 2 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.

(rr) The fair market value of the assets of Sub 2 transferred to Resulting Holding Company will equal or exceed the sum of the liabilities assumed by Resulting Holding Company plus the amount of liabilities, if any, to which the transferred assets are subject.

(ss) The total adjusted basis of the assets of Sub 2 transferred to Resulting Holding Company will equal or exceed the sum of the liabilities assumed by Resulting Holding Company, plus the amount of liabilities, if any, to which the transferred assets are subject.

Based on the facts and representations set forth herein, we rule that:

1. For federal income tax purposes the formation of Interim and its merger into Target, as described above, will be viewed as the acquisition by Sub of all of the outstanding Target voting stock in exchange solely for shares of Parent Common Stock, and will constitute a reorganization within the meaning of section 368(a)(1)(B) of the Code. (See Rev. Rul. 67-448, 1967-2 C.B. 144). The reorganization will not be disqualified by reason of the fact that all of the Target stock acquired will immediately be transferred to NewSub, a corporation controlled by Sub (section 368(a)(2)(C) of the Code). Parent, Sub and Target will each be a "party to a reorganization" within the meaning of section 368(b).

2. No gain or loss will be recognized to Sub on the receipt of Target Common Stock solely in exchange for voting stock of Parent (section 1032 of the Code).

3. No gain or loss will be recognized to the shareholders of Target upon the receipt of Parent Common Stock (including any fractional share interests to which they may be entitled) solely in exchange for their shares of Target Common Stock (section 354(a)(1) of the Code).

4. The basis of the Parent Common Stock to be received by the Target shareholders (including any fractional share interests to which they may be entitled) will be the same as the basis of the Target Common Stock surrendered in the exchange (section 358 of the Code).

5. The holding period of the shares of Parent Common Stock (including any fractional share interests to which they may be entitled) received by the shareholders of Target will include the period during which the Target Common Stock surrendered in exchange therefor was held, provided that the shares of Target Common Stock were held as capital assets on the date of the exchange (section 1223(a) of the Code).

6. Shareholders of Target who exercise dissenter's rights, and as a result receive only cash in the Exchange, will be treated as having received that cash as a distribution in redemption of their Target stock subject to the provisions and limitations of section 302 of the Code. Those shareholders who hold no Parent Common Stock, directly or through the application of section 318(a), shall be treated as having a complete termination of interest within the meaning of section 302(b)(3), and the cash will be treated as a distribution in full payment in exchange for Target Common Stock as provided in section 302(a). As provided in section 1001, gain will be realized and recognized to such shareholders measured by the difference between the redemption price and the adjusted basis of the Target shares surrendered as determined under section 1011 ( Rev. Rul. 74-515, 1974-2 C.B. 118). Provided the Target Common Stock is a capital asset in the hands of such shareholders, the gain, if any, will constitute capital gain subject to the provisions and limitations of Subchapter P of Chapter 1.

7. The payment of cash to a Target shareholder in lieu of issuing a fractional share interest in Parent Common Stock will be treated for federal income tax purposes as if the fractional share was distributed as part of the Exchange and then was redeemed by Parent. This cash payment will be treated as having been received as a distribution in full payment in exchange for the stock redeemed as provided in section 302(a) of the Code (Rev. Rul. 66-365, 1966-2 C.B. 116, and Rev. Proc. 77-41, 1977-2 C.B. 574).

8. The basis of the Target Common Stock to be received by Sub will be the same as the basis of such stock in the hands of the Target shareholders immediately prior to the Exchange (section 362(b) of the Code).

9. The holding period of the Target Common Stock to be received by Sub will include the period during which such stock was held by the Target shareholders (section 1223(2) of the Code).

10. Provided the Merger of Sub 3 with and into Target qualifies as a statutory merger under the applicable state law, the Merger will be a reorganization within the meaning of section 368(a)(1)(A) of the Code and Sub 3 and Target will each be "a party to a reorganization" within the meaning of section 368(b) of the Code.

11. No gain or loss will be recognized to Sub 3 upon the transfer of its assets to Target in exchange for Target Common Stock and the assumption by Target of the liabilities of Sub 3 (sections 361(a) and 357(a) of the Code).

12. No gain or loss will be recognized to Target on receipt of the Sub 3 assets in exchange for Target Common Stock (section 1032(a) of the Code).

13. The basis of the assets of Sub 3 in the hands of Target will be the same as the basis of such assets in the hands of Sub 3 immediately prior to the transaction (section 362(b) of the Code).

14. The holding period of the assets of Sub 3 received by Target will include the period during which such assets were held by Sub 3 (section 1223(2) of the Code).

15. No gain or loss will be recognized to Sub 2 upon its receipt of Target Common Stock in exchange for its Sub 3 common stock (section 354(a)(1) of the Code).

16. The basis of the Target Common Stock to be received by Sub 2 will be the same as the basis of the Sub 3 shares surrendered in exchange therefor (section 358(a)(1) of the Code).

17. Target will succeed to and take into account those items of Sub 3 described in section 381(c) of the Code (section 381(a) and section 1.381(c)(2)-1 of the regulations). These items will be taken into account subject to any applicable provisions of the Code or Treasury Regulations.

18. As provided in section 381(c)(2) of the Code and section 1.381(c)(2)-1 of the regulations, Target will succeed to and take into account the earnings and profits, or deficit in earnings and profits, of Sub 3 as of the effective date of the Merger. Any deficit in earnings and profits of either Target or Sub 3 will be used only to offset earnings and profits accumulated after the effective date of the Merger.

19. Provided the Holding Company Merger of Sub 2 with and into NewSub qualifies as a statutory merger under the applicable state law, the Holding Company Merger will be a reorganization within the meaning of section 368(a)(1)(A) of the Code and Sub 2 and NewSub will each be "a party to a reorganization" within the meaning of section 368(b) of the Code.

20. No gain or loss will be recognized to Sub 2 upon the transfer of its assets to NewSub in exchange for New Sub Common Stock and the assumption by NewSub of the liabilities of Sub 2 (sections 361(a) and 357(a) of the Code).

21. No gain or loss will be recognized to NewSub on receipt of the Sub 2 assets in exchange for New Sub Common Stock (section 1032(a) of the Code).

22. The basis of the assets of Sub 2 in the hands of NewSub will be the same as the basis of such assets in the hands of Sub 2 immediately prior to the transaction (section 362(b) of the Code).

23. The holding period of the assets of Sub 2 received by NewSub will include the period during which such assets were held by Sub 2 (section 1223(2) of the Code).

24. No gain or loss will be recognized to Sub upon its receipt of NewSub Common Stock in exchange for its Sub 2 common stock (section 354(a)(1) of the Code).

25. The basis of the NewSub Common Stock to be received by Sub will be the same as the basis of the Sub 2 shares surrendered in exchange therefor (section 358(a)(1) of the Code).

26. NewSub will succeed to and take into account those items of Sub 2 described in section 381(c) of the Code (section 381(a) and section 1.381(c)(2)-1 of the regulations). These items will be taken into account subject to any applicable provisions of the Code or Treasury Regulations.

27. As provided in section 381(c)(2) of the Code and section 1.381(c)(2)-1 of the regulations, NewSub will succeed to and take into account the earnings and profits, or deficit in earnings and profits, of Sub 2 as of the effective date of the Merger. Any deficit in earnings and profits of either NewSub or Sub 2 will be used only to offset earnings and profits accumulated after the effective date of the Holding Company Merger.

No opinion is expressed about the tax treatment of the transaction under other provisions of the Code and regulations or about the tax treatment of any conditions existing at the time of, or effects resulting from, the transaction that are not specifically covered by the above rulings.

This ruling is directed only to the taxpayer who requested it. Section 6110(j)(3) of the Code provides that it may not be used or cited as precedent.

A copy of this letter should be attached to the federal income tax returns of the taxpayers involved for the taxable year in which the transaction covered by this ruling letter is consummated.

                                   Sincerely yours,