September 25, 2000
Community Financial Shares, Inc.
357 Roosevelt Road
Glen Ellyn, Illinois 60137
Ladies and Gentlemen:
We are acting as special securities and tax counsel to Community
Financial Shares, Inc. (the "Company"), in connection with the Merger Agreement
(the "Merger Agreement") dated August 16, 2000, by and among Community Bank -
Wheaton/Glen Ellyn (the "Bank") and COMMBANK-WGE (the "Interim Bank") and joined
in by the Company. Pursuant to the Merger Agreement, the Company will form the
Interim Bank. Bank will be merged with and into Interim Bank (the "Merger"), and
Interim Bank will be the surviving entity in the Merger, (the "Surviving Bank").
You have requested our opinion regarding certain United States federal
income tax consequences of the Merger. In delivering this opinion, we have
reviewed and relied upon (without any independent investigation) a copy of the
Merger Agreement and such other documents pertaining to the Merger as we have
deemed necessary or appropriate. We have also been advised by the parties that:
a. The principal reasons for undertaking the Merger is to provide
opportunities for diversification by the Company into other banking-related
business ventures, to provide flexibility for meeting future financing needs of
the Bank and any future subsidiaries of the Company, and to allow the Company to
redeem its shares it is so desires.
b. The Company stock received by each shareholder of Bank and issued
in the Merger will have a fair market value approximately equal to that of the
stock of Bank stock exchanged therefor.
c. After consummation of the Merger, the Surviving Bank will hold
assets representing at least 90% of the fair market value of the net assets and
70% of the fair market value of the gross assets owned by the Bank and the
Interim Bank, considered separately, immediately before such consummation. For
this purpose, the following are considered to be made from assets owned by the
Bank immediately prior to consummation of the Merger: (1) all payments made by
the Bank to any stockholders of the Bank who exercise dissenters' rights, (2)
all redemptions of Bank stock and dividends and distributions with respect
thereto (except for regular periodic divided distributions) made by the Bank in
anticipation of the Merger and (3) all
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payments made by the Bank of expenses incurred in connection with its change in
corporate structure effected by the Merger.
d. Prior to the Merger the Company will be in control of the Interim
Bank within the meaning of Section 368(c)(1) of the Internal Revenue Code of
1986, as amended (the "Code").
e. The Surviving Bank has no plan or intention, following consummation
of the Merger, to issue additional shares of Surviving Bank stock or to create
any new classes of capital stock.
f. Neither the Company nor any person related to the Company, within
the meaning of Treas. Reg. Section 1.368-1(e)(3), has a plan or intention to
redeem or otherwise acquire any shares of Company stock to be issued in the
Merger.
g. The Company has no plan or intention, following consummation of the
Merger, to liquidate the Surviving Bank, to cause the Surviving Bank to be
merged with any other bank or corporation, to sell or otherwise dispose of the
Company's shares of Surviving Bank stock or to cause the Surviving Bank to sell
or otherwise dispose of any of its assets, except for sales or other
dispositions made in the ordinary course of business.
h. The liabilities of the Bank assumed by the Interim Bank and the
liabilities to which the Bank's assets are subject were incurred by the Bank in
the ordinary course of its business.
i. Following consummation of the Merger, the Surviving Bank will
continue the present business of the Bank or use a significant portion of the
Bank's business assets in its business.
j. The Company, the Bank, the Interim Bank and the stockholders of the
Bank, respectively, will pay their own expenses incurred in connection with the
Merger.
k. There is no intercorporate debtedness existing between the Company
and Interim Bank or between Interim Bank and Bank that was issued, acquired, or
will be settled at a discount.
l. Neither the Company, the Interim Bank nor the Bank are investment
companies as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
m. The Bank 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.
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n. The fair market value of the assets of the Bank transferred to
Interim Bank will equal or exceed the sum of the liabilities assumed by Interim
Bank plus the amount of liabilities, if any, to which the transferred assets are
subject.
o. No stock of Interim Bank will be issued in the Merger.
p. The Company does not now own and will not own at any time prior to
consummation of the Merger any shares of Bank stock.
q. There are no warrants, options or other rights obligating the Bank
to issue any additional shares of capital stock, nor are there any securities
which are convertible into shares of capital stock of the Bank.
In connection with rendering this opinion, we have also assumed
(without any independent investigation) that:
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 Effective Time) due execution and delivery of all documents
where due execution and delivery are prerequisites to effectiveness thereof;
2. Any representation or statement referred to above made "to the
knowledge of," "to the best of the knowledge" or otherwise similarly qualified
is correct without such qualification. As to all matters in which a person or
entity making a representation referred to above has represented that such
person or entity either is not a party to, does not have, or is not aware of,
any plan, intention, understanding or agreement, there is in fact no such plan,
intention, understanding or agreement;
3. All statements, descriptions and representations contained in any
of the documents referred to herein or otherwise made to us are true and correct
in all material respects and no actions have been (or will be) taken which are
inconsistent with such representations;
4. The Merger will be reported by the parties on their respective
federal income tax returns in a manner consistent with the opinion set forth
below; and
5. The Merger will be consummated in accordance with the Merger
Agreement (and without any waiver, breach or amendment of any of the provisions
thereof) and will be effective under the applicable state law.
Based upon the foregoing and our examination of such matters of law as
we have deemed necessary, we are of the opinion that:
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1. The Merger of the Bank with Interim Bank will constitute a tax-free
reorganization within the meaning of Section 368(a)(1) of the Internal Revenue
Code of 1986, as amended (the "Code"). The Company and Bank will each be a
"party to the reorganization" within the meaning of Section 368(b) of the Code;
2. No gain or loss will be recognized to the stockholders of the Bank
upon the transfer of its assets to, and the assumption of its liabilities by,
the Continuing Bank in the Merger. No gain or loss will be recognized by the
Company upon its acquisition of shares of Bank common stock in the Merger;
3. No gain or loss will be recognized to the stockholders of the Bank
upon receipt of shares of common stock of the Company solely in exchange for
common stock of the Bank;
4. The tax basis of the shares of common stock of the Company to be
received by the stockholders of the Bank in exchange for common stock of the
Bank will be the same as the tax basis of the shares of common stock of the Bank
exchanged therefor; and
5. The holding period of the shares of common stock of the Company
received by stockholders of the Bank in the reorganization will include the
holding period of the shares of common stock of the Bank exchanged therefor,
provided that such Bank stock is held as a capital asset in the hands of the
Bank shareholder on the date of the consummation of the Merger.
Stockholders who perfect their dissenters' rights and receive cash from the Bank
for the value of their shares of the Bank in lieu of common stock of the
Company, will recognize gain or loss upon receipt of such cash. Such gain or
loss may be long- or short-term, depending on the facts or circumstances.
This opinion represents and is based upon our best judgment regarding
the application of federal income tax laws arising under the Code, existing
judicial decisions, administrative regulations and published rulings and
procedures. Our opinion is not binding on the Internal Revenue Service or the
courts, and there is no assurance that the Internal Revenue Service will not
successfully assert a contrary position. Furthermore, no assurance can be given
that future legislative, judicial or administrative changes, on either a
prospective or retroactive basis, would not adversely affect the accuracy of the
conclusions stated herein. Nevertheless, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
This opinion addresses only the classification of the Merger as a
reorganization under Section 368(a) of the Code and does not address any other
federal, state, local or foreign tax consequences that may result from the
Merger or any other transaction (including any transaction undertaken in
connection with the Merger).
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No opinion is expressed as to any transaction other than the Merger as
described in the Merger Agreement or to any transaction whatsoever, including
the Merger, if all the transactions described in the Merger Agreement are not
consummated in accordance with the terms of such Merger Agreement and without
waiver or breach of any material provision thereof or if all of the
representations upon which we have relied to issue this opinion is incorrect,
our opinion might be adversely affected and may not be relied upon.
We consent to the inclusion of this opinion as an exhibit to the S-4
Registration Statement of Community Financial Shares, Inc., and the references
to and summary of this opinion in such S-4 Registration Statement.
Very truly yours,
CHAPMAN AND CUTLER
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