XXXXXX & BIRD LLP
One Atlantic Center
0000 Xxxx Xxxxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxx 00000-0000
000-000-0000
Fax: 000-000-0000
xxx.xxxxxx.xxx
Pinney X. Xxxxx Direct Dial 000-000-0000
November 4, 1997
FAC Realty Trust, Inc.
00000 Xxxxxxx Xxxxxxx
Xxxxx 000
Xxxx, Xxxxx Xxxxxxxx 00000
Re: Proposed Agreement and Plan of Merger by and between FAC Realty, Inc.
and FAC Realty Trust, Inc.
We have acted as counsel to FAC Realty Trust, Inc. ("FAC"), a
corporation organized and existing under the laws of the State of Maryland, in
connection with the proposed merger of FAC Realty, Inc. ("FAC Realty"), a
corporation organized and existing under the laws of the State of Delaware, with
and into FAC, with FAC as the Surviving Entity (the "Merger"). The Merger will
be effected pursuant to the proposed Agreement and Plan of Merger by and between
FAC Realty and FAC in the form attached as Exhibit A to the registration
statement on Form S-4 filed by FAC on November 4, 1997, (the "Registration
Statement") with the Securities and Exchange Commission under the Securities
Exchange Act of 1933, as amended, including the Proxy Statement/Prospectus for
the special meeting of the stockholders of FAC Realty (the "Agreement"). In our
capacity as counsel to FAC, our opinion has been requested with respect to
certain of the federal income tax consequences of the proposed Merger.
In rendering this opinion, we have examined (i) the Internal Revenue
Code of 1986, as amended (the "Code") and Treasury Regulations, (ii) the
legislative history of applicable sections of the Code, and (iii) appropriate
Internal Revenue Service and court decisional authority. In addition, we have
relied upon certain information made known to us as more fully described below.
All capitalized terms used herein without definition shall have the respective
meanings specified in the Agreement and, unless otherwise specified, all section
references herein are to the Code.
0000 Xxxx Xxxxxxxx Xxxxxx 0000 Xxxxxxxx Xxxxxx 000 Xxxxxxxxxxxx Xxxxxx, X.X.
X. X. Drawer 34009 P. O. Drawer 00000 Xxxxx Xxxxxxxx, Xxxxx 000
Xxxxxxxxx, XX 00000-4009 Raleigh, NC 27622-1107 Washington, DC 20004-2601
000-000-0000 000-000-0000 000-000-0000
Fax: 000-000-0000 Fax: 000-000-0000 Fax: 000-000-0000
FAC Realty Trust, Inc.
November 4, 1997
Page 2
INFORMATION RELIED UPON
In rendering the opinions expressed herein, we have examined such
documents as we have deemed appropriate, including:
(1) the Agreement;
(2) the Registration Statement; and
(3) such additional documents as we have considered relevant.
In our examination of such documents, we have assumed, with your
consent, that all documents submitted to us as photocopies faithfully reproduce
the originals thereof, that such originals are authentic, that all such
documents have been or will be duly executed to the extent required, and that
all statements set forth in such documents are accurate.
We also have obtained such additional information and representations
as we have deemed relevant and necessary through consultation with various
officers and representatives of FAC and FAC Realty and through certificates
provided by the management of FAC and the management of FAC Realty.
You have advised us that the proposed transaction is in the best
interests of the parties and will enable the Surviving Entity to realize certain
economic efficiencies. To achieve these goals, the following will occur pursuant
to the Agreement:
(1) Subject to the terms and conditions of the Agreement, at
the Effective Time, FAC Realty shall be merged with and into FAC and the
separate corporate existence of FAC Realty shall thereupon cease. FAC shall be
the Surviving Entity in the Merger and shall continue to be governed by the laws
of the State of Maryland, and the separate existence of FAC with all rights,
privileges, immunities, powers, and franchises shall continue unaffected by the
Merger. The Merger shall have the effects specified in the DGCL and the MGCL.
(2) The Articles of Incorporation of FAC in effect at the
Effective Time shall be the Articles of Incorporation of the Surviving Entity,
until duly amended in accordance with the terms thereof and the MGCL.
FAC Realty Trust, Inc.
November 4, 1997
Page 3
(3) The Bylaws of FAC in effect at the Effective Time shall be
the Bylaws of the Surviving Entity, until duly amended in accordance with the
terms thereof and the MGCL.
(4) The directors and officers of FAC Realty at the Effective
Time shall, from and after the Effective Time, be the directors and officers,
respectively, of the Surviving Entity until their successors have been duly
elected or appointed and qualified or until their earlier death, resignation, or
removal in accordance with the Surviving Entity's Articles of Incorporation and
Bylaws.
(5) At the Effective Time, by virtue of the Merger and without
any action on the part of the holder of any capital stock of FAC Realty:
(a) Each share of the common stock, par value $0.01
per share, of FAC Realty (the "FAC Realty Common Shares") issued and outstanding
immediately prior to the Effective Time shall be converted into one validly
issued, fully paid, and nonassessable share of common stock, par value $0.01 per
share, of FAC (the "FAC Common Shares"). Each share of the Series A preferred
stock of FAC Realty (the "FAC Realty Preferred Shares" and, together with the
FAC Realty Common Shares, the "FAC Realty Shares") issued and outstanding
immediately prior to the Effective Time shall be converted into one validly
issued, fully paid and nonassessable share of Series A preferred stock of FAC
(the "FAC Preferred Shares" and, together with the FAC Common Shares, the "FAC
Shares"). All FAC Realty Shares shall no longer be outstanding and shall be
canceled and retired and shall cease to exist.
(b) Each FAC Realty Share issued and held in FAC
Realty's treasury at the Effective Time, shall by virtue of the Merger and
without any action on the part of the holder thereof, cease to be outstanding,
shall be canceled and retired without payment of any consideration therefor and
shall cease to exist.
(c) At the Effective Time, each FAC Share issued and
outstanding immediately prior to the Effective Time shall, virtue of the Merger
and without any action on the part of FAC or the holder of such shares, be
canceled and retired without payment of any consideration therefor.
(d) Each option or other right to purchase or
otherwise acquire FAC Realty Shares pursuant to stock option or other
stock-based plans of FAC Realty granted and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder of such option or right, be converted into and become a right to
purchase or otherwise acquire the same number of
FAC Realty Trust, Inc.
November 4, 1997
Page 4
FAC Shares at the same price per share and upon the same terms and subject to
the same conditions as applicable to such options or other rights immediately
prior to the Effective Time.
We also have assumed that the following statements are true on the date
hereof and will be true on the date on which the Merger is consummated:
(1) The fair market value of FAC Shares received by each FAC Realty
shareholder will be, in each instance, approximately equal to the fair market
value of FAC Realty Shares surrendered in the exchange.
(2) To the best of the knowledge of management of FAC Realty, there is
no plan or intention by any of the shareholders of FAC Realty to sell, exchange,
or otherwise dispose of any of the FAC Shares received in the transaction, other
than ordinary purchase and sale transactions in public securities markets of a
nature and volume consistent with prior market activity in the stock of FAC
Realty, which FAC Realty would expect to continue following the transaction.
(3) Immediately following consummation of the transaction, the
shareholders of FAC Realty will own all of the outstanding FAC Shares and will
own such stock solely by reason of their ownership of FAC Realty Shares
immediately prior to the transaction.
(4) FAC has no plan or intention to issue additional shares of its
stock following the transaction other than in connection with the stock options
or other stock-based plans of FAC Realty that were converted into identical
rights to acquire FAC Shares as a result of the Merger.
(5) Immediately following consummation of the transaction, FAC will
possess the same assets and liabilities as those possessed by FAC Realty
immediately prior to the transaction.
(6) All of the FAC Realty warrants, options, convertible securities,
and other types of right pursuant to which any person could acquire stock in FAC
Realty will be converted into and become a corresponding right of FAC with no
other change of the terms thereof.
(7) FAC has no plan or intention to redeem or otherwise reacquire one
percent of more of its stock outstanding as of the date of the transaction.
FAC Realty Trust, Inc.
November 4, 1997
Page 5
(8) FAC has no plan or intention to sell or otherwise dispose of any of
the assets of FAC Realty acquired in the transaction, except for dispositions
made in the ordinary course of business.
(9) The liabilities of FAC Realty assumed by FAC plus the liabilities,
if any, to which the transferred assets are subject were incurred by FAC Realty
in the ordinary course of its business and are associated with the assets
transferred.
(10) The fair market value of the assets of FAC Realty equals or
exceeds the sum of its liabilities.
(11) Following the transaction, FAC will continue the historic business
of FAC Realty or use a significant portion of FAC Realty's historic business
assets in a business.
(12) FAC, FAC Realty, and the shareholders of FAC Realty will each pay
their own expenses, if any, incurred in connection with the transaction.
(13) FAC Realty is not under the jurisdiction of a court in a case
under Title 11 of the United States Code or a receivership, foreclosure, or
similar proceeding in a federal or state court.
(14) The directors of FAC Realty and the directors and officers of FAC
have no plan or intention to liquidate FAC or to merge FAC with another
corporation.
(15) There is no intercorporate indebtedness existing between FAC
Realty and FAC that was issued, acquired, or will be settled at a discount.
(16) FAC Realty is organized and operated as a real estate investment
trust and, therefore, is an "investment company." FAC Realty, however, does not
have, and will not have at the Effective Time, more than 25 percent of the value
of its total assets invested in the stock and securities of any one issuer and
does not have more than 50 percent of the value of its total assets invested in
the stock or securities of five or fewer issuers. For purposes of this
represenation, an "investment company" is a corporation that is a regulated
investment company, a real estate investment trust, or a corporation fifty
percent (50%) or more of the value of whose total assets are stock and
securities and eighty (80%) or more of the value of whose total assets are
assets held for investment.
(17) FAC does not have, and will not have at the Effective Time, more
than 25 percent of the value of its total assets invested in the stock and
securities of any one issuer and does not have more than 50 percent of the value
of its total assets invested in the
FAC Realty Trust, Inc.
November 4, 1997
Page 6
stock or securities of five or fewer issuers. Immediately, after the proposed
transaction, FAC will be organized and operated as a real estate investment
trust.
(18) The Agreement represents the entire understanding of FAC Realty
and FAC with respect to the Merger.
OPINION
Based solely on the information submitted and the representations set
forth above, we are of the opinion that:
(1) The proposed Merger of FAC Realty with and into FAC, as described
above, will constitute a mere change in form and place of organization and,
therefore, will qualify as a reorganization within the meaning of Section
368(a)(1)(F). FAC Realty and FAC will each be "a party to a reorganization"
within the meaning of Section 368(b).
(2) No gain or loss will be recognized by FAC Realty on the transfer of
its assets to FAC solely in exchange for FAC Shares and the assumption by FAC of
the liabilities of FAC Realty. Sections 361(a) and 357(a).
(3) No gain or loss will be recognized by FAC upon the receipt of the
assets of FAC Realty in exchange for FAC Shares. Section 1032(a).
(4) The basis of the assets of FAC Realty in the hands of FAC will be
the same as the basis of such assets in the hands of FAC Realty immediately
prior to the exchange. Section 362(b).
(5) The holding period of the assets of FAC Realty acquired by FAC will
include the period during which such assets were held by FAC Realty immediately
prior to the exchange. Section 1223(2).
(6) No gain or loss will be recognized by the shareholders of FAC
Realty upon the receipt of FAC's Shares solely in exchange for FAC Realty
Shares. Section 354(a)(1).
(7) The basis of FAC Shares to be received by the shareholders of FAC
Realty will be, in each instance, the same as the basis of the FAC Realty Shares
surrendered in exchange therefor. Section 358(a)(1).
FAC Realty Trust, Inc.
November 4,1997
Page 7
(8) The holding period of FAC Shares to be received by the shareholders
of FAC Realty will include the holding period of FAC Realty Shares surrendered
in exchange therefor, provided the shares of stock were held as a capital asset
on the date of the exchange. Section 1223(1).
In addition, we have participated in the preparation of the material
under the caption "Federal Income Tax Considerations" of the Registration
Statement and, based solely on the facts and assumptions set forth in such
Registration Statement and applicable provisions of governing law, we are of the
opinion that the federal income tax treatment described therein is accurate in
all material respects.
The opinions expressed herein are based upon existing statutory,
regulatory, and judicial authority, any of which may be changed at any time with
retroactive effect. In addition, our opinions are based solely on the documents
that we have examined, the additional information obtained, and the statements
set out herein, which we have assumed and you have confirmed to be true on the
date hereof and will be true on the date that the proposed Merger is
consummated. Our opinions cannot be relied upon if any of the facts contained in
such documents or if such additional information is, or later becomes,
inaccurate. Finally, our opinions are limited to the tax matters specifically
covered thereby, and we have not been asked to address, nor have we addressed,
any other tax consequences of the proposed Merger, including, but not limited
to, any state or local tax consequences.
This opinion is being provided solely for the use of FAC.
We hereby consent to the use of this opinion and to the references made
to the firm under the caption "Federal Income Tax Considerations" in the
Proxy/Prospectus constituting part of the Registration Statement on Form S-4 of
FAC.
Very truly yours,
Xxxxxx & Bird
By: /s/ Xxxxxx L. Xxxxx
Xxxxxx X. Xxxxx
