EXHIBIT 8
OPINION OF SHUMAKER WILLIAMS, P.C.
OF CAMP HILL, PENNSYLVANIA,
SPECIAL COUNSEL TO REGISTRANT, DATED , 1999,
AS TO THE TAX TREATMENT OF PROPOSED TRANSACTIONS
___________, 1999
The Board of Directors The Board of Directors
FIDELITY D & D BANCORP, INC. THE FIDELITY DEPOSIT AND
Blakely and Drinker Streets DISCOUNT BANK
Dunmore, Pennsylvania 18512 Blakely and Drinker Streets
Dunmore, Pennsylvania 18512
Re: Merger of The Fidelity Deposit and Discount Interim Bank,
a Subsidiary of Fidelity D & D Bancorp, Inc. with and into
The Fidelity Deposit and Discount Bank
Dear Members of the Boards:
You have asked for our opinion regarding certain federal income tax
consequences of the merger of The Fidelity Deposit and Discount Interim Bank
(the "Interim Bank") with and into The Fidelity Deposit and Discount Bank (the
"Bank") pursuant to which the shareholders of the Bank on the effective date of
the merger will receive voting common stock of the Interim Bank's parent,
Fidelity D & D Bancorp, Inc. (the "Holding Company").
In rendering our opinion, we have examined and relied upon the accuracy
and completeness of the facts, information, covenants, and representations
contained in originals or copies, certified or otherwise identified to our
satisfaction, of the Plan of Reorganization, dated _______________, 1999, among
the Holding Company, the Bank and the Interim Bank, the Plan of Merger, dated
_______________, 1999, by and between the Bank and the Interim Bank, the
Registration Statement of Fidelity D & D Bancorp, Inc. on Form S-4, filed with
the SEC on _________, 1999, and such other documents as we have deemed necessary
or appropriate as a basis for the opinion set forth below. In addition, we have
relied upon the facts contained in certain statements and representations
previously made by executives of the Holding Company and the Bank, including
facts contained in certain statements and representations made in letters
received by us from Fidelity D & D Bancorp, Inc. and The Fidelity Deposit and
Discount Bank dated as of the date of this opinion. The transactions under the
Plan of Reorganization and the Plan of Merger are hereinafter collectively
referred to as the "merger transaction."
In rendering our opinion, we have assumed: (a) that all parties have the
legal right, power, capacity and authority to enter into and perform all
obligations under the Plan of Reorganization and the Plan of Merger; (b) the due
and proper execution and delivery of all relevant or necessary instruments and
documents; (c) the receipt of all federal and state regulatory approvals
necessary to consummate the merger transaction; and (d) the satisfaction or
proper waiver of any other conditions under the Plan of Reorganization and the
Plan of Merger so that the merger transaction may be
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consummated. All statements in this letter regarding the federal income tax
consequences of this merger transaction are based upon the Internal Revenue Code
of 1986, as amended (the "Code"), the Treasury Regulations promulgated by the
United States Department of Treasury (the "Regulations"), current positions of
the Internal Revenue Service (the "IRS") as contained in published Revenue
Rulings and Procedures, current published administrative positions of the IRS,
and existing court decisions, all as in effect as of this date and each of which
is subject to change at any time.
Our opinion is based upon and assumes the following factual background and
assumptions relating to the merger transaction:
I. Factual Background
A. The Bank is a Pennsylvania-chartered bank and trust company. The
Bank is a full-service commercial bank which commenced operations
in 1903. In 1997 the Pennsylvania Department of Banking granted the
Bank trust powers. Its principal place of business is located at
Blakely and Drinker Streets, Dunmore, Pennsylvania 18512. The Bank
is authorized to issue 5,000,000 shares of common stock, par value
$1.5625 per share, of which on September 30, 1999, 897,736.20888
shares were issued and outstanding (the "Bank Common Stock"). The
Bank Common Stock is the only class of security, authorized or
outstanding, of the Bank. The Bank has approximately 1,219
shareholders. The Bank Common Stock is publicly traded in the local
over-the-counter market, and price quotes are not readily available.
Recent sales of the Bank Common Stock have occurred solely between
individuals in limited over-the-counter transactions and in direct,
privately negotiated transactions. The most recent sale prior to the
public announcement of the merger on October 18, 1999, as to which
management of the Bank is aware of the sales price, occurred on
October 5, 1999, at a price of Sixty-Nine Dollars and Fifty Cents
($69.50) per share.
B. The Interim Bank is a Pennsylvania-chartered banking institution.
The Interim Bank is being organized solely to engage in the merger
transaction. The Interim Bank is authorized to issue 5,000,000
shares of common stock, par value Two Dollars ($2.00) per share (the
"Interim Bank Common Stock"). The Interim Bank Common Stock is the
only class of security, authorized or outstanding, of the Interim
Bank. In accordance with the Pennsylvania Banking Code of 1965, as
amended, ten organizers of the Interim Bank each have subscribed to
purchase 500 shares of Interim Bank Common Stock for Three Dollars
and Ten Cents ($3.10) per share. The organizers have executed a
Stock Repurchase Agreement which requires that, at consummation of
the merger transaction, the Holding Company will purchase the 5,000
shares held or to be purchased by these ten organizers for Three
Dollars and Ten Cents ($3.10) per share. In addition, the Holding
Company will purchase 45,000 shares of Interim Bank Common Stock for
Three Dollars and Ten Cents ($3.10) per share.
C. The Holding Company is a business corporation organized on August
10, 1999, under the laws of the Commonwealth of Pennsylvania. The
Holding Company is
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solely organized to engage in the business and activities associated
with bank holding companies. The Holding Company is authorized to
issue 10,000,000 shares of common stock, without par value (the
"Holding Company Common Stock") and 5,000,000 shares of preferred
stock, without par value. The Board of Directors has the authority
to issue preferred stock without prior shareholder approval and to
determine the rights, qualifications, limitations and restrictions
on each series of preferred stock at the time of issuance. If the
reorganization had occurred as of September 30, 1999, the Holding
Company would have issued approximately 1,795,472 shares of Holding
Company Common Stock to be exchanged for approximately 897,736
outstanding shares of Bank Common Stock on a 2 to 1 basis in
connection with the merger transaction pursuant to Section 2.2 of
the Plan of Merger. The five incorporators of the holding company
have each purchased one share of Holding Company Common Stock for
One Dollar ($1.00) per share. The five incorporators have executed a
Stock Repurchase Agreement which requires that, at consummation of
the merger transaction, the Holding Company will purchase the 5
shares held by these five incorporators for One Dollar ($1.00) per
share. After the consummation of the merger transaction, the holding
company will have approximately 1,219 shareholders of record, less
any dissenting shareholders who exercise their rights of appraisal
and payment in cash for their stock pursuant to the Pennsylvania
Banking Code of 1965, as amended, and the Pennsylvania Business
Corporation Law of 1988, as amended.
D. In order to comply with minimum capitalization requirements under
state banking laws, the Interim Bank will be initially capitalized
as follows: One Hundred Thousand Dollars ($100,000.00) in capital
stock and Fifty-Five Thousand Dollars ($55,000.00) in surplus, which
amount shall include an expense fund of Five Thousand Dollars
($5,000.00). In order to provide the Interim Bank with this required
minimum capitalization at the time of the consummation of the merger
transaction, the holding company temporarily will borrow One Hundred
Fifty-Five Thousand Dollars ($155,000.00) from a non-affiliated
Pennsylvania bank. The Holding Company will then purchase 45,000
shares of Interim Bank Common Stock for Three Dollars and Ten Cents
($3.10) per share. Under the Stock Repurchase Agreement, the
organizers of the Interim Bank may transfer their subscription
rights for 5,000 shares of Interim Bank Common Stock to the Holding
Company prior to the effective date of the merger transaction so
that the Holding Company can purchase such shares for Fifteen
Thousand Five Hundred Dollars ($15,500.00), or Three Dollars and Ten
Cents ($3.10) per share.
E. In accordance with the Banking Code of 1965, the Interim Bank will
merge with and into the Bank. Upon the effective date of the merger:
(a) the separate corporate existence of the Interim Bank will
terminate; (b) the Bank will survive and acquire all of the assets
and assume all of the liabilities of the Interim Bank; (c) the
surviving bank will continue to operate under the name, "The
Fidelity Deposit and Discount Bank"; and (c) the surviving bank will
continue to carry on the Bank's banking
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business at the same principal offices. The approval of shareholders
owning at least two-thirds of the outstanding stock of both the Bank
and the Interim Bank are required by law to approve the merger.
F. The shareholders of the Bank will be entitled to receive 2 shares of
Holding Company Common Stock in exchange for each whole share of the
Bank Common Stock held by the shareholder on the effective date of
the merger. Pursuant to Section 2.2 of the Plan of Merger, each
outstanding whole share of the Bank will be deemed to be exchanged
for 2 shares of the Holding Company Common Stock without any action
on the part of the shareholder, and the outstanding certificates
representing shares of stock of the Bank will thereafter represent
shares of stock of the Holding Company at the one-to-two exchange
ratio.
G. Shareholders of the Bank who dissent to the merger, if any, will
receive cash for their shares of stock in the Bank, pursuant to the
Pennsylvania Business Corporation Law of 1988.
H. After the consummation of the merger transaction, the Bank and the
Holding Company will file a consolidated return for federal income
tax purposes.
II. Assumptions
A. The operation of the Bank, via the merger with the Interim Bank and
as a subsidiary of the Holding Company, will provide greater
flexibility in financing, in engaging in non-banking activities, in
protecting against an unfriendly takeover, and in responding to
changes in Pennsylvania and federal law that provide for expanded
branching and multi-bank holding companies.
B. The fair market value of the Holding Company Common Stock and other
consideration received by each shareholder of the Bank will be
approximately equal to the fair market value of the Bank Common
Stock surrendered in exchange.
C. There is no plan or intention by the shareholders of Bank to sell,
exchange or otherwise dispose of a number of shares of Holding
Company Common Stock received in the transaction that would reduce
the Bank shareholders' ownership of Holding Company Common Stock to
a number of shares having a value, as of the effective date of the
merger transaction, of less than fifty percent (50%) of the value of
all of the formerly outstanding Bank Common Stock as of the same
date. In addition, there have not been to date any transfers of Bank
Common Stock by any shareholders thereof which have been made in
contemplation of the merger transaction.
D. The Bank will acquire at least ninety percent (90%) of the fair
market value of the net assets and at least seventy percent (70%) of
the fair market value of the gross
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assets held by the Interim Bank immediately prior to the merger
transaction. For the purposes of this assumption, amounts paid by
the Bank to shareholders who receive cash or other property, assets
of the Bank used to pay its reorganization expenses, and all
redemptions and distributions (except for regular, normal dividends)
made by the Bank immediately preceding the merger transaction, are
and will be included as assets of the Bank held immediately prior to
the merger transaction. The Bank has not redeemed any Bank Common
Stock, has not made any distribution with respect to any Bank Common
Stock, and has not disposed of any of its assets in anticipation of
or as a part of a plan for the acquisition of the Interim Bank by
the Bank.
E. The Holding Company has no plan or intention to redeem or otherwise
reacquire any of its stock to be issued in the merger transaction.
F. The assumption by the Bank of the liabilities of Interim Bank
pursuant to the merger transaction will be for a bona fide business
purpose and the principal purpose of any such assumption will not be
the avoidance of federal income tax on the transfer of assets of the
Interim Bank to the Bank pursuant to the merger transaction.
G. The liabilities of the Interim Bank assumed by the Bank and the
liabilities to which the transferred assets of the Interim Bank are
subject will be incurred by the Bank in the ordinary course of its
business, and will be associated with the assets to be transferred.
No liabilities of any person other than Interim Bank will be assumed
by the Bank or Holding Company in the merger transaction, and none
of the shares of Bank to be surrendered in exchange for Holding
Company Common Stock in the merger transaction will be subject to
any liabilities.
H. Following the merger transaction, the Bank will continue the
historic business of the Bank or use a significant portion of the
Bank's business assets in a business.
I. The Holding Company, the Interim Bank, the Bank and the shareholders
of the Bank will pay their respective expenses, if any, incurred in
connection with the merger transaction.
J. There is no intercorporate indebtedness existing between the Holding
Company and the Interim Bank or between the Bank and the Interim
Bank that was issued or acquired, or will be settled at a discount.
K. The Bank is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Code Section 368(a)(3)(A).
L. On the date of the Merger, the fair market value of the assets of
the Interim Bank will exceed the sum of its liabilities (including
any liabilities to which its assets are subject).
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M. No stock of the Bank will be issued to any of the shareholders of
the Bank in the merger transaction.
N. There is no larger integrated transaction of which the merger
transaction constitutes only one step.
O. The expenses of the merger transaction and the amount to be paid to
dissenters, if any, will not exceed ten percent (10%) of the fair
market value of the net assets of the bank.
P. No fractional shares will be issued or redeemed in the merger
transaction. Holders of fractional interests in Bank Common Stock
will receive cash in lieu thereof.
Q. The payment of cash in lieu of fractional shares of stock of Bank
was not separately bargained for consideration and is being made for
the purpose of saving Holding Company the expense and inconvenience
of issuing fractional shares.
R. None of the compensation received by any shareholder-employees of
the Bank will be separate consideration for, or allocable to, any of
their shares of the Bank Common Stock; none of the shares of the
Holding Company Common Stock received by any shareholder-employees
will be separate consideration for, or allocable to, any employment
agreement; and the compensation paid to any 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.
S. There is no present plan or intention to issue any of the authorized
common stock of the Holding Company in excess of the amounts
described in this letter in the merger transaction, nor is there any
present plan or intention to issue any of the authorized preferred
stock of the Holding Company.
T. Prior to the effective date of the merger transaction, neither the
Holding Company nor the Interim Bank will hold either directly or
indirectly any stock or securities in the Bank.
U. The Interim Bank has no liabilities.
V. Holding Company, Interim Bank and Bank will pay their respective
expenses, if any, incurred in connection with the Merger. None of
Holding Company, Interim Bank, and Bank will pay any of the expenses
of the shareholders of Bank incurred in connection with the Merger.
W. Interim Bank has not done business prior to the Merger.
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Based on the foregoing and subject to and specifically relying upon the
aforesaid factual background and assumptions and other matters herein referred
to, and to the extent that this factual background and these assumptions remain
unchanged between the date of this opinion and the date of the merger, it is our
opinion that:
1. No gain or loss will be recognized to either the Holding Company,
the Bank or the Interim Bank on the transfer of substantially all of
the Interim Bank's assets to the Bank in exchange for the Holding
Company Common Stock and the assumption by the Bank of all of the
liabilities of the Interim Bank plus the liabilities to which the
acquired assets of the Interim Bank may be subject.
2. No gain or loss will be recognized to the shareholders of the Bank
upon the exchange of their Bank Common Stock solely for the Holding
Company Common Stock pursuant to the Plan of Reorganization and Plan
of Merger, except for that gain or loss which is recognized due to
the receipt of cash which is received in lieu of the issuance of
fractional shares of Holding Company Common Stock.
3. The shareholders of the Bank who dissent to the merger, if any, and
who receive cash for their shares of Bank Common Stock will
recognize gain or loss to the extent of the difference between the
amount the cash received and the adjusted tax basis of such shares,
provided that the surrender of Bank Common Stock is treated as a
redemption of stock to which Section 302(a) of the Code applies. It
is possible, however, that the provisions of Section 302(a) will not
apply to a particular dissenting shareholder due to Code rules that
require that certain shareholders be treated as owning shares
actually owned by other individuals and entities (i.e., certain
individuals related to the shareholder and certain partnerships,
estates, trusts and corporations in which the shareholder has an
interest); if so, the amounts paid to the dissenting shareholder may
be taxable as dividends because they would be treated as
distributions to which Code Section 301 applies and not as a
redemption under Code Section 302(a).
4. The basis of the shares of the Holding Company Common Stock to be
received by the shareholders of the Bank will be the same as the
basis of the shares of Bank Common Stock exchanged therefor.
5. The holding period of the shares of the Holding Company Common Stock
to be received by the shareholders of the Bank will include the
period during which the Bank Common Stock, surrendered in exchange
therefor, was held by the shareholders of the Bank, provided the
Bank Common Stock was held as a capital asset in the hands of the
shareholders of the Bank at the time of the exchange.
6. Subject to limitations under Code Sections 381 and 382 and certain
U. S. Treasury Regulations promulgated under Code Section 1502,
where applicable, the Bank, as the surviving bank to the merger,
will carry-over and take into account all accounting
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items and tax attributes, and tax basis and holding periods of the
assets of the Interim Bank.
The opinions set forth in this letter are given and based upon the factual
background and the existence of the assumed facts as hereinabove set forth, all
as of the date of this letter. Should any facts or assumptions be otherwise than
as hereinabove set forth or change after the date of this letter, no opinion is
made or expressed with respect thereto or as to the legal, tax or other
consequences thereof. We make no and disclaim any opinion as to any facts
occurring after the date of this letter or as to the legal, tax or other
consequences thereof. We assume no obligation to investigate, research or
determine any facts or laws, rules or regulations occurring, existing or in
effect after the date hereof, or to update or supplement any of the opinions
herein expressed to reflect any facts or circumstances or changes in law that
hereafter may occur or come to our attention.
The Holding Company, the Interim Bank, the Bank and their respective
shareholders may rely upon this opinion letter. No other person, whether natural
or otherwise, may rely upon this opinion letter, and it may not be disclosed to
any other persons without our prior written consent. The opinions set forth in
this opinion letter are not binding on the Internal Revenue Service.
Sincerely,
____________________________
SHUMAKER WILLIAMS, P.C.
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