EXHIBIT 8
December , 1997
Board of Directors
Community Banks, Inc.
000 Xxxxxx Xxxxxx
P.O. Box 350
Millersburg, PA 17061
Board of Directors
The Peoples State Bank
000 Xxxx Xxxx Xxxxxx
Xxxx Xxxxxx, XX 00000
Re: Agreement and Plan of Reorganization of
The Peoples State Bank with and into
PSB Interim Bank,
A Wholly Owned Subsidiary of
Community Banks, Inc.
Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences of a proposed reorganization involving Community Banks, Inc.
("Community"), a Pennsylvania corporation; PSB Interim Bank ("Interim Bank"), a
newly formed Pennsylvania state chartered banking institution and wholly-owned
subsidiary of Community; and The Peoples State Bank ("Peoples"). The
reorganization is described in the Joint Proxy Statement/Prospectus dated
______________________, 199____ and in the Agreement and Plan of Reorganization
dated October 28, 1997 (the "Reorganization Agreement"). Community has one
class of stock outstanding, which is voting common stock. Peoples has only
voting common stock outstanding.
Pursuant to and in accordance with the Pennsylvania Banking Code, Peoples
will be merged into Interim Bank (the "Merger") and the resulting entity will
continue under the name "Peoples State Bank". As a result of the Merger,
Interim Bank will succeed to all of the assets of Peoples, subject to all of the
liabilities of Peoples.
Each share of common stock of Peoples will be exchanged for shares of
common stock of Community determined in accordance with the exchange ratio
provided in the Merger Agreement, except for shares of Peoples held by
shareholders who exercise their dissenters rights. Dissenting shareholders may
surrender their Peoples stock to Community and receive cash payments
representing the fair market value of such stock, subject to the provisions of
The Pennsylvania Banking Code.
Shareholders of Peoples who would have otherwise been entitled to a
fraction of a share of Community common stock will be paid an amount in cash
equal to such fraction multiplied by the "market value per share" as defined in
the Merger Agreement for one (1) whole share of Community common stock. The
cash received by dissenting shareholders and by shareholders who receive cash in
lieu of fractional shares will be provided by Community.
In connection with the proposed Merger and related transactions you have
made the following representations to us:
1. Original documents (including signatures) are authentic; documents
submitted to us as copies conform to the original documents, and there has been
(or will be by the date of the Merger) due execution and delivery of all
documents where due execution and delivery are prerequisites to the
effectiveness thereof.
2. The Merger will be effective under The Pennsylvania Banking Code.
3. The total fair market value of the Community common stock and cash
received by Peoples shareholders will be approximately equal to the fair market
value of the Peoples common stock surrendered in the Merger.
4. To the best knowledge of Peoples management, there is no plan or
intention on the part of Peoples shareholders to sell, exchange, or otherwise
dispose of a number of shares of Community common stock received in the Merger
that would reduce Peoples' shareholders' ownership of Community common stock to
a number of shares having a value, as of the date of the Merger of less than
eighty (80%) percent of the value of all of the formerly outstanding Peoples
stock as of the same date. For this purpose, shares of Peoples common stock
exchanged for cash in exercise of dissenters' rights or in lieu of fractional
shares of Community common stock are treated as outstanding Peoples stock on the
date of the Merger. Moreover, Peoples stock and Community stock held by Peoples
shareholders and otherwise sold, redeemed, or disposed of prior or subsequent to
the transaction have been taken into account in making this representation.
5. Community has no plan or intention to reacquire any of its stock issued
in the Merger or make any extraordinary distribution in respect of its stock.
6. Interim Bank has no plan or intention to sell or otherwise dispose of
any of its assets or the assets of Peoples acquired in the Merger, except for
dispositions made in the ordinary course of business.
7. The liabilities of Peoples were incurred by Peoples in the ordinary
course of its business.
8. Following the Merger, Interim Bank will continue its historic business
or use a significant portion of its historic business assets in a business.
9. Community, Peoples, and the Peoples shareholders will pay their
respective expenses, if any, incurred in connection with the transaction (other
than expenses of Peoples assumed by Interim Bank pursuant to the Merger).
10. There is no intercorporate indebtedness existing between Peoples and
Community or its subsidiaries that was issued, acquired, or will be settled at a
discount.
11. Neither Community nor Interim Bank is an investment company as defined
in Section 368(a)(2)(F)(iii) and (iv) of the Internal Revenue Code of 1986 as
amended (the "Code").
12. Neither Community nor Peoples is 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.
13. Peoples shareholders will receive and retain a meaningful continuing
equity ownership in Community that is sufficient to satisfy the continuity of
interest requirement as specified in Treas. Reg. (S)1.368-1(b) and as
interpreted in certain Internal Revenue Service rulings and federal judicial
decisions.
14. After the Merger, Interim Bank will continue to hold "substantially
all" of Peoples' properties acquired in the Merger within the meaning of Section
368(a)(2)(E) of the Code and the regulations promulgated thereunder.
15. None of the compensation to be received by any Peoples shareholder-
employee pursuant to any employment agreement or any covenants not to compete
will be separate consideration for, or allocable to, any of their shares of
Community stock; the compensation to be paid to any Peoples shareholder-
employees will be for services actually rendered and will be commensurate with
amounts paid to third parties bargaining at arm's length for similar services.
16. No distributions will have been made by Peoples with respect to its
stock preceding the proposed transaction other than distributions consistent in
amount and in effect with prior dividend policy.
17. The issuance of cash in lieu of fractional shares merely represents
the mechanical rounding off of the fractional share interests. It is undertaken
solely for the purpose of saving Community the expense and inconvenience of
issuing and transferring fractional shares, and is not separately bargained for
consideration. The aggregate amount of cash to be issued in lieu of fractional
shares is anticipated to be less than one (1%) percent of the total value of
Community common stock received by Peoples shareholders.
18. Peoples has not redeemed any of its capital stock within the last
three (3) years.
19. The common stock of Community to be received by the shareholders of
Peoples is not subject to put or call options.
Based on our understanding of the pertinent facts as set forth above and
applicable law, as enacted and construed on the date hereof, it is our opinion
that:
(i) the Merger of Peoples with and into Interim Bank in accordance with
the Reorganization Agreement will constitute a reorganization
within the meaning of Section 368(a) of the Code, and each of
Peoples, Interim Bank, and Community will be a "party to a
reorganization" within the meaning of Section 368(b) of the Code;
(ii) no gain or loss will be recognized by Peoples, Interim Bank, or
Community as a result of the Merger;
(iii) except for cash received in lieu of fractional shares, no gain or
loss will be recognized by the shareholders of Peoples who receive
solely Community common stock upon the exchange of their shares of
Peoples common stock for shares of Community common stock;
(iv) the basis of the Community common stock to be received by the
Peoples shareholders will be, in each instance, the same as the
basis of the Peoples common stock surrendered in exchange therefor;
(v) to the extent that Peoples stock is held as capital asset, the
holding period of the Community common stock received by the
shareholders of Peoples receiving Community common stock will
include the period during which the Peoples common stock
surrendered in exchange therefor was held;
(vi) to the extent that they hold their Peoples common stock as capital
assets, cash received by Peoples shareholders in lieu of a
fractional share interest in Community common stock will be treated
as having been received as a distribution in full payment for such
fractional share interest in Community common stock, subject to the
provisions of Section 302(a) of the Code.
We are pleased to offer this opinion based on the federal income tax laws
as of this date. No assurances can be provided as to future changes in
administrative or judicial interpretations of these laws. No opinion is
expressed with respect to state and local taxes, federal, or state securities
law and other federal or state law not expressly referred herein.
We hereby consent to the filing of this opinion as an Exhibit to the
aforementioned Registration Statement. In giving this opinion, we do not
thereby admit that we are acting within the category of persons whose consent is
required under Section 7 of the Act or the rules or regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
Xxxxx X. Xxxx
