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EXHIBIT 8
January , 2001
Board of Directors
Community Banks, Inc.
150 Market Square
P. O. Box 350
Millersburg, PA 17061
Board of Directors
The Glen Rock State Bank
57-59 Main Street
Glen Rock, PA 17327
Re: Agreement and Plan of Merger of
The Glen Rock State Bank with and into
The Peoples State 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; The Peoples State Bank ("Peoples"), a
Pennsylvania state chartered banking institution and wholly-owned subsidiary of
Community; and The Glen Rock State Bank ("Glen Rock"). The reorganization is
described in the Proxy Statement/Prospectus dated _____________, 2001 and in the
Agreement and Plan of Merger dated November 7, 2000 (the "Agreement"). Community
has one class of stock outstanding, which is voting common stock. Glen Rock also
has only voting common stock outstanding.
Pursuant to and in accordance with the Pennsylvania Banking Code, Glen Rock
will be merged into Peoples (the "Merger") and the resulting entity will
continue under the names "Peoples State Bank" and, for limited purposes and
time, "The Glen Rock State Bank, a division of The Peoples State Bank". As a
result of the Merger, Peoples will succeed to all of the assets of Glen Rock,
subject to all of the liabilities of Glen Rock.
Each share of common stock of Glen Rock 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 Glen Rock held by
shareholders who exercise their dissenters' rights. Dissenting shareholders may
surrender their Glen Rock 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 Glen Rock 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
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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 Glen Rock shareholders will be approximately equal to the fair
market value of the Glen Rock common stock surrendered in the Merger.
4. To the best knowledge of Glen Rock management, there is no plan or
intention on the part of Glen Rock shareholders to sell, exchange, or otherwise
dispose of a number of shares of Community common stock received in the Merger
that would reduce Glen Rock's 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 Glen Rock
stock as of the same date. For this purpose, shares of Glen Rock common stock
exchanged for cash in exercise of dissenters' rights or in lieu of fractional
shares of Community common stock are treated as outstanding Glen Rock stock on
the date of the Merger. Moreover, Glen Rock stock and Community stock held by
Glen Rock 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. Peoples has no plan or intention to sell or otherwise dispose of any of
its assets or the assets of Glen Rock acquired in the Merger, except for
dispositions made in the ordinary course of business.
7. The liabilities of Glen Rock were incurred by Glen Rock in the ordinary
course of its business.
8. Following the Merger, Peoples will continue its historic business or use
a significant portion of its historic business assets in a business.
9. Community, Glen Rock, and the Glen Rock shareholders will pay their
respective expenses, if any, incurred in connection with the transaction (other
than expenses of Glen Rock assumed by Peoples pursuant to the Merger).
10. There is no intercorporate indebtedness existing between Glen Rock and
Community or its subsidiaries that was issued, acquired, or will be settled at a
discount.
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11. Neither Community nor Glen Rock 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 Glen Rock 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. Glen Rock 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.ss.1.368-1(b) and as interpreted
in certain Internal Revenue Service rulings and federal judicial decisions.
14. After the Merger, Peoples will continue to hold "substantially all" of
Glen Rock's 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 Glen Rock
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 Glen Rock stock; the compensation to be paid to any Glen Rock
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 Glen Rock 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 Glen Rock shareholders.
18. Glen Rock 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
Glen Rock 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 Glen Rock with and into Peoples in accordance with the
Merger Agreement will constitute a reorganization within the meaning
of Section 368(a) of the Code, and each of Glen Rock, Peoples, 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 Glen Rock, Peoples, or Community
as a result of the Merger;
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(iii) except for cash received in lieu of fractional shares, no gain or
loss will be recognized by the shareholders of Glen Rock who receive
solely Community common stock upon the exchange of their shares of
Glen Rock common stock for shares of Community common stock;
(iv) the basis of the Community common stock to be received by the Glen
Rock shareholders will be, in each instance, the same as the basis
of the Glen Rock common stock surrendered in exchange therefor;
(v) to the extent that Glen Rock stock is held as a capital asset, the
holding period of the Community common stock received by the
shareholders of Glen Rock receiving Community common stock will
include the period during which the Glen Rock common stock
surrendered in exchange therefor was held;
(vi) to the extent that they hold their Glen Rock common stock as capital
assets, cash received by Glen Rock 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,
James A. Ulsh
