-------------------------------------------------------------------------------
Page 1
-------------------------------------------------------------------------------
EXHIBIT 8.1
Quality Food Centers, Inc.
000 Xxxxxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
Re: Reorganization of Quality Food Centers, Inc. ("Company") and its
wholly owned subsidiaries.
Ladies and Gentlemen:
We have been asked, as counsel to Company, a Washington
corporation, to render this opinion regarding certain material U.S. federal
income tax consequences of the proposed reorganization of Company and its
wholly owned subsidiaries (the "Reorganization"), which is described below
under "Description of the Reorganization." Capitalized terms not otherwise
defined herein shall have the same meanings given to them in the Agreement
(defined below) and the Form S-4 Registration Statement.
In connection with this opinion, we have examined the originals,
photocopies or certified copies of the Agreement and all other documents that
we have deemed necessary or appropriate as a basis for the opinions
hereinafter set forth. In such examination and in connection with this tax
opinion, we have assumed: (i) the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
to the original documents of all documents submitted to us as photocopies or
certified copies; (ii) that each party to each document submitted to us has
all requisite power and authority (corporate and otherwise) to execute and
deliver, and to perform its obligations under, such document; (iii) that the
execution and delivery by the parties to each document, and the performance
by each such party of its obligations under each document, have been duly
authorized by all necessary corporate and other action; (iv) that each
document, instrument and certificate submitted to us has been duly executed
and delivered, pursuant to all requisite power and authority (corporate and
otherwise), by or on behalf of all persons and entities that are signatories
thereto; and (v) that each document constitutes a valid and binding
obligation of each party thereto, enforceable against each such party in
accordance with its terms.
With your permission, as to questions of fact material to our
opinions, we have relied solely upon statements and representations by
officers and representatives of Company, New Parent, Holding Company and
Merger Sub without independent verification, including those statements and
representations contained in that certain Tax Matters Certificate dated the
date hereof attached as EXHIBIT A (the "Tax Matters Certificate"), and upon
the
-------------------------------------------------------------------------------
Page 2
-------------------------------------------------------------------------------
assumptions contained herein. Without reliance on the Tax Matters
Certificate, we would not render this opinion.
This opinion does not discuss and no opinion is given with respect
to the impact of the Merger and the Reorganization, if any, on the tax
consequences to Company, New Parent, Holding Company, Merger Sub, KUA, Xxxxxx
or any holder of Company Common Stock arising from any prior or subsequent
transaction involving any of such entities or any predecessor(s) or
successor(s) thereto, except as discussed below with respect to possible
application of the step transaction doctrine. This opinion does not address
consequences peculiar to Company shareholders subject to special provisions
of federal income tax law, including, without limitation, tax-exempt
organizations, qualified retirement plans, individual retirement accounts and
other tax-deferred accounts, financial institutions, insurance companies,
real estate investment trusts, regulated investment companies,
broker-dealers, nonresident alien individuals and foreign entities. This
opinion is limited to shareholders who own Company Common Stock as capital
assets.
In rendering this opinion, we have considered the applicable
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury Regulations, published Internal Revenue Service ("IRS") rulings,
published administrative positions of the IRS and court decisions that are
currently applicable, any or all of which could be materially and adversely
changed, possibly on a retroactive basis, at any time. This opinion does not
consider the potential effects, both adverse and beneficial, of any recently
proposed legislation which, if enacted, could be applied, possibly on a
retroactive basis, at any time. All section references, unless otherwise
indicated, are to the Code.
DESCRIPTION OF THE REORGANIZATION
Our opinion is based upon the following facts as more fully
described in the Agreement and Plan of Merger dated as of August 21, 1997
(the "Agreement") and the Form S-4 Registration Statement. Company is the
100% owner of KU Acquisition Corporation, a Washington corporation ("KUA"),
and Xxxxxx Markets, Inc., a California corporation ("Xxxxxx"). The Company
recently organized three direct or indirect, wholly owned subsidiaries: (i)
New Parent, a wholly owned direct subsidiary of the Company, (ii) Holding
Company, a wholly owned subsidiary of New Parent, and (iii) Merger Sub, a
wholly owned subsidiary of Holding Company. Each of New Parent, Holding
Company and Merger Sub was created solely for the purpose of implementing the
Reorganization, and none of such corporations has conducted any business
(other than with respect to certain guarantees of indebtedness of the Company
entered into by New Parent and Holding Company in anticipation of the
Reorganization).
Merger Sub will merge with Company (the "Merger") pursuant to the
Agreement, with the Company as the Surviving Corporation. Each issued and
outstanding share of Merger Sub voting common stock will be converted into a
share of the voting common stock of the Surviving Corporation.
Pursuant to the terms of the Merger, each share of Company Common
-------------------------------------------------------------------------------
Page 3
-------------------------------------------------------------------------------
Stock outstanding immediately prior to the Effective Time of the Merger
(other than held by holders who have properly exercised dissenters' rights
under Washington law) will be converted into one share of issued and
outstanding voting stock of New Parent ("New Common Stock").
As a result of the Reorganization, (i) Holding Company will become
a wholly owned subsidiary of New Parent, (ii) each of Company, Xxxxxx and KUA
will become indirect subsidiaries of New Parent and (iii) Company will become
a wholly owned subsidiary of Holding Company. Following the Reorganization,
New Parent's operations will be conducted primarily through Company, Xxxxxx
and KUA as operating subsidiaries held indirectly by New Parent.
FACTUAL ASSUMPTIONS
For purposes of this opinion, we have assumed the following, based
upon representations and statements contained in the Agreement and the Tax
Matters Certificate:
1. The Merger is being undertaken by Company, New Parent and Holding
Company for reasons germane to their respective businesses.
2. The fair market value of the New Common Stock received by each
Company shareholder will be approximately equal to the fair market value of
the Company Common Stock surrendered in the Merger.
3. Except for the New Common Stock which is owned by Company prior to
the Merger and which will be canceled and retired in the Reorganization, New
Parent has no plan or intention to redeem or otherwise reacquire any of the
New Common Stock issued in the Merger. Holding Company has no plan or
intention to acquire any of the New Common Stock issued in the Merger.
4. There is no plan or intention by the Company shareholders to sell,
exchange or otherwise dispose of a number of shares of New Common Stock
received in the Merger that would reduce the Company shareholders' ownership
of New Common Stock to a number of shares having a value, as of the date of
the Merger, of less than 50% of the value of all of the formerly outstanding
Company Common Stock as of the same date. For purposes of this
representation, shares of Company Common Stock surrendered by dissenters will
be treated as outstanding Company Common Stock on the date of the Merger.
Moreover, shares of Company Common Stock and shares of New Common Stock held
by Company shareholders and otherwise sold, redeemed or disposed of prior or
subsequent to the Merger will be considered in making this representation.
5. After the Merger, Company will not issue additional shares of its
stock or other equity interest. After the Merger, Holding Company will not
issue additional shares of its stock or other equity interest.
6. After the Merger, Holding Company will own 100% of the outstanding
equity interests in Company (including any right to acquire an equity
interest). Holding Company has no plan or intention to liquidate Company, to
merge Company into another corporation, to cause Company to sell or otherwise
dispose of any of its assets, except in the ordinary course of business, to
sell, distribute or otherwise dispose of any of the Company Common Stock
acquired in the Merger, or to cause Company to issue additional stock or
other equity interests.
7. After the Merger, New Parent will own 100% of the outstanding equity
interests in Holding Company (including any right to acquire an equity
interest). New Parent has no plan or intention to liquidate Holding Company, to
merge Holding Company into another corporation, to cause Holding Company to sell
or otherwise dispose of any of its assets, except in the ordinary course of
business, or to sell, distribute or otherwise dispose of any of the shares of
stock of Holding Company or cause Holding Company to issue additional stock or
other equity interests.
-------------------------------------------------------------------------------
Page 4
-------------------------------------------------------------------------------
8. Holding Company will acquire Company Common Stock solely as a
result of the Merger. For purposes of this representation, Company
Common Stock redeemed for cash or other property furnished by New Parent or
Holding Company will be considered as acquired by Holding Company.
9. Except for Holding Company's becoming the borrower under the
Revolving Credit Facility and the Acquisition Facility, no liabilities of
Company will be assumed by New Parent or Holding Company or settled at a
discount. The New Credit Facility, Revolving Credit Facility and the
Acquisition Facility were incurred by Company in the ordinary course of
business. No liabilities of the Company shareholders will be assumed by New
Parent or Holding Company. Immediately after the effective time of the
Merger, no Company Common Stock will be subject to any liabilities.
10. Immediately after the effective time of the Merger, Company will
not have outstanding any warrants, options, convertible securities or any
other type of right pursuant to which any person could acquire any equity
interest in Company.
11. Immediately after the effective time of the Merger, Holding Company
will not have outstanding any warrants, options, convertible securities or
any other type of right pursuant to which any person could acquire any equity
interest in Holding Company.
12. None of New Parent, Holding Company or any member of a controlled
group within the meaning of Section 1563, determined without regard to
Section 1563(b)(2) ("Controlled Group") in which New Parent is also a member
("New Parent Controlled Group"), owns, or has owned, directly or indirectly,
during the past five years, any Company Common Stock.
13. Following the Merger, Company will continue its historic business
or use a significant portion of its historic business assets in a business as
a wholly-owned subsidiary of Holding Company.
14. Company will pay its dissenting shareholders the value of their
Company Common Stock out of its own funds. No funds will be supplied for that
purpose, directly or indirectly, by New Parent, Holding Company or Merger
Sub, nor will New Parent, Holding Company or Merger Sub directly or
indirectly reimburse Company for any payments to dissenters. Any cash
contributed to Merger Sub by Holding Company to satisfy initial
capitalization requirements will be returned to Holding Company following the
Merger. Nondissenting Company shareholders will receive no consideration
other than New Common Stock.
15. On the date of the Merger, the fair market value of the assets of
Company will exceed the sum of its liabilities plus the liabilities, if any,
to which the assets are subject.
16. At all times prior to the Merger, New Parent has owned all of the
outstanding equity interests of Holding Company (including rights to acquire
an equity interest in Holding Company, if any). Prior to the Merger, New
Parent will be in control of Holding Company within the meaning of Section
368(c). Holding Company formed Merger Sub solely for the purpose of
effectuating the Merger and at all times prior to the Merger, Merger Sub has
not and will not conduct any business or investment activities.
17. In connection with the Merger, no Company shareholder is acting on
behalf of, or as an agent for, New Parent or any New Parent Controlled Group
member.
18. No shares of Holding Company stock have been or will be used as
consideration or issued to the shareholders of Company in the Merger.
19. New Parent, Holding Company, Company, Merger Sub and the Company
shareholders will each pay separately its or their own expenses, if any,
incurred in connection with the Merger, except that all filing fees payable
to the Commission and fees incurred in connection with the Form S-4
Registration Statement and printing of documents distributed to Company
shareholders will be paid by Company.
20. Any compensation paid to Company shareholders who enter into an
employment, consulting or noncompetition agreement, if any, with New Parent,
Holding Company or Company (or any member of a Controlled Group in which New
Parent or Holding Company is also a member) will be for services actually
rendered or to be rendered and will be commensurate with amounts paid to
those parties bargaining at arm's length for similar services. None of such
compensation represents consideration for the exchange of Company Common
Stock for New Common Stock. None of the New Common Stock to be received by
Company shareholders in the Merger will be separate consideration for or
otherwise allocable to anything other than Company Common Stock, such as for
services or any covenant not to compete.
21. There is no intercorporate indebtedness existing between New Parent
and Company or between Holding Company and Company that was issued, acquired
or will be settled at a discount as a result of the Merger.
22. Company has no plan or intention to liquidate, to merge with or
into another corporation, to sell or otherwise dispose of any of its assets,
except in the ordinary course of business, or issue additional stock or other
equity interests.
23. For the tax period ending on or immediately prior to the Merger,
Company, New Parent, Holding Company and Merger Sub will constitute a
controlled group within the meaning of Section 1563, determined without
regard to Section 1563(b)(2), with Company as the common parent corporation,
and such controlled group will file a consolidated federal income tax return
for such tax period with Company as the common parent corporation.
-------------------------------------------------------------------------------
Page 5
-------------------------------------------------------------------------------
24. None of Company, New Parent, Holding Company or Merger Sub is an
investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the
Code or under Section 351(e)(1) and Treasury regulation 1.351-1(c)(1)(ii).
25. None of Company, New Parent, Holding Company or Merger Sub 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 and the New Common Stock
received by Company shareholders in the Merger will not be used to satisfy
any indebtedness of Company, New Parent, Holding Company or Merger Sub.
26. The information contained in the Form S-4 Registration Statement to
which this opinion is attached is true, accurate and complete in all respects.
27. The Merger will be consummated pursuant to the Agreement.
28. Except for guarantees by New Parent, Holding Company, Xxxxxx and KUA
with respect to the New Credit Facility, no Company shareholder or affiliate of
any Company shareholder has guaranteed, pledged collateral with respect to or
otherwise provided security for, any borrowing, liability or other obligation of
the Company, Xxxxxx or KUA. Except with respect to the Xxxxxx acquisition and
the KUI acquisition, no funds borrowed under the New Credit Facility has or will
be directly or indirectly distributed to or otherwise transferred to Company
shareholders.
29. No fractional shares of New Common Stock will be issued in the Merger.
30. No New Parent stock or securities will be issued for services
rendered or to be rendered to or for the direct or indirect benefit of New
Parent in connection with the Reorganization, and no stock or securities will
be issued for indebtedness of New Parent that is not evidenced by a security
or for interest on indebtedness of New Parent which accrued on or after the
beginning of the holding period of the Company shareholders for the debt.
31. None of the Company Common Stock to be converted into New Common
Stock in the Merger is "section 306 stock."
32. The Reorganization is not the result of the solicitation by a
promoter, broker, or investment house.
33. The Company shareholders will not retain any rights in the Company
Common Stock.
34. With respect to each Company shareholder, the adjusted basis and
the fair market value of the Company Common Stock converted into New Common
Stock in the Merger will, in each instance, be equal to or exceed the sum of
the liabilities of Company shareholders to be assumed by Holding Company and
New Parent plus any liabilities of Company shareholders to which such Company
Common Stock is subject.
35. There is no indebtedness between New Parent and the Company
shareholders or between the Holding Company and Company shareholders and
there will be no indebtedness created in favor of the Company shareholders,
New Parent or Holding Company as a result of the Reorganization.
36. No liabilities of the Company shareholders will be assumed by New
Parent or Holding Company in the Reorganization and the Company Common Stock to
be converted into New Common Stock will not be subject to any liabilities of
Company shareholders.
37. The Merger and Reorganization will occur under a plan agreed upon
before the Merger in which the rights of New Parent, Holding Company,
Company and Merger Sub are defined.
38. All the steps in the Reorganization will occur on approximately the
same date.
39. Taking into account any issuance of additional shares of New Common
Stock; any issuance of shares of New Common Stock for services; the exercise
of any New Common Stock rights, warrants, or subscriptions; a public offering
of New Common Stock; and the sale, exchange, transfer by gift, or other
disposition of any of the shares of New Common Stock to be received in the
exchange, immediately after the effective time of the Merger, the Company
shareholders (both including and excluding the former shareholders of KUI)
will be in "control" of New Parent within the meaning of section 368(c) of
the Code.
40. Each nondissenting Company shareholder will receive New Common Stock
approximately equal to the fair market value of his or her Company Common
Stock immediately prior to the effective time of the Merger.
41. New Parent will remain in existence after the Reorganization.
42. The Company shareholders are 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) and the shares of New Common Stock received in the exchange will
not be used to satisfy the indebtedness of such debtor.
43. New Parent will not be a "personal service corporation" within the
meaning of section 269A of the Code.
44. None of the shares of Company Common Stock to be converted into New
Common Stock under the Merger was received by the Company shareholders, or
shares of Company Common Stock acquired or held by Holding Company were
acquired, as part of the liquidation of another corporation affiliated with
New Parent, Holding Company, Company, Xxxxxx, KUA or KUI.
45. No stock or securities of Holding Company will be issued for services
rendered to or for the benefit of Holding Company in connection with the
Reorganization, and no stock or securities will be issued for indebtedness of
Holding Company that is not evidenced by a security or for interest on
indebtedness of Holding Company which accrued on or after the beginning of the
holding period of New Parent for the debt.
46. After the Merger, New Parent will not have any ownership or
creditor rights or right to acquire any ownership or creditor interest in any
Company Common Stock except for indirect rights arising from New Parent
holding shares of Holding Company stock.
47. There is no indebtedness between Holding Company and New Parent and
there will be no indebtedness created in favor of New Parent as a result of the
Reorganization.
48. There is no plan or intention on the part of Holding Company to redeem
or otherwise acquire any New Common Stock to be issued in the Merger or any
Holding Company stock.
49. Taking into account any issuance of additional shares of Holding
Company stock; any issuance of shares for services; the exercise of any
Holding Company stock rights, warrants, or subscriptions; a public offering
of Holding Company stock; and the sale, exchange, transfer by gift, or other
disposition of any of the stock of Holding Company, New Parent will be in
"control" of Holding Company within the meaning of section 368(c) of the
Code. In addition, no person or entity has or will have any option or other
right to acquire any equity interest in Holding Company.
50. New Parent will not receive additional shares of stock of Holding
Company as a result of the Reorganization because New Parent already owns all of
Holding Company's stock.
51. After the Reorganization, Holding Company will remain in existence
and retain the Company Common Stock received in the Merger.
52. There is no plan or intention by Holding Company to dispose of any
Company Common Stock.
53. Before and after the Reorganization, the only equity interests (as
determined for federal income tax purposes) in New Parent shall be the New
Common Stock. Before and after the Reorganization, the only equity interests
(as determined for federal income tax purposes) in Company shall be the
Company Common Stock. Before and after the Reorganization, the only equity
interests (as determined for federal income tax purposes) in Holding Company
shall be the common shares of Holding Company.
54. Holding Company will not be a "personal service corporation" within
the meaning of section 269A of the Code.
55. The former shareholders of KUI who participated in the KUI
acquisition received, in the aggregate, 10% or less of the outstanding
Company Common Stock (as determined at the time of the KUI acquisition) in
the KUI acquisition, currently hold, in the aggregate, 10% or less of the
outstanding Company Common Stock and, after the Reorganization, will hold 10%
or less of the outstanding New Common Stock.
56. No Company shareholder acquired Company Common Stock with the plan,
intent or purpose of participating in the Reorganization.
57. Such other matters set forth in the Tax Matters Certificate.
OPINIONS
Based on the Tax Matters Certificate and the factual assumptions
contained herein, and subject to the discussion below, while not entirely
free from doubt, we are of the opinion that for U.S. federal income tax
purposes:
1. It is more likely than not that the Merger will qualify as an
exchange under Section 351.
2. The Merger may qualify as a reorganization under Section 368(a).
3. It is more likely than not that no gain or loss will be recognized
by the holders of Company Common Stock on their exchange of Company Common
Stock solely for New Common Stock pursuant to the Merger.
4. It is more likely than not that (a) the tax basis of the New Common
Stock received by each holder pursuant to the Merger will be the same as the
holder's basis in Company Common Stock surrendered in the Merger, and (b) the
holding period of such New Common Stock will include the period during which
such holder held the Company Common Stock surrendered in the Merger, provided
that such Company Common Stock was held as a capital asset on the date of the
exchange.
5. It is more likely than not that no gain or loss will be recognized
by New Parent on the exchange of Company Common Stock solely for New Common
Stock pursuant to the Merger.
6. It is more likely than not that no gain or loss will be recognized
by Holding Company on the exchange of Company Common Stock solely for New
Common Stock pursuant to the Merger.
-------------------------------------------------------------------------------
Page 6
-------------------------------------------------------------------------------
7. Under the Reorganization, certain transactions involving the New
Credit Facility, Term Loan Facility, Revolving Credit Facility and
Acquisition Facility may result in one or more deferred intercompany gains or
losses to New Parent, Holding Company and/or Company, which deferred
intercompany gains or losses, if any, more likely than not will not be
recognized unless a subsequent recognition event occurs under the applicable
Treasury regulations and IRS rulings.
8. Dissenting holders of Company Common Stock who receive solely
cash in exchange for all of their shares of Company Common Stock (including
shares held directly, indirectly or through attribution) will recognize
gain or loss equal to the difference between (i) the cash received by such
holder (other than in respect of interest) pursuant to the Merger and (ii)
the adjusted tax basis of such shareholder in his shares of Company Common
Stock. Any amount received as interest income will be taxed as ordinary
income.
Generally, in an exchange under Section 351, the transferors
directly transfer property to a corporation in exchange for shares of stock
in such corporation. Under the Merger, instead of a direct transfer of the
Company Common Stock by the Company shareholders to New Parent in exchange
for New Common Stock, the Company shareholders will exchange Company Common
Stock for New Common Stock as part of the Merger of Merger Sub into Company.
In three Private Letter Rulings the IRS has ruled that transactions similar
to the Merger qualified as exchanges under Section 351. See Priv. Ltr. Ruls.
9151032 (9/24/91), 9033037 (5/21/90) and 8635048 (6/3/86).
In Private Letter Ruling 9151032, Parent, a publicly traded
company, held all of the outstanding stock of Holding, Holding held all of
the outstanding stock of Holding Sub and Holding Sub held all of the
outstanding stock of Merger Subsidiary. Pursuant to a merger agreement,
Merger Subsidiary merged with and into Parent, with Parent as the surviving
entity. As a result of the merger, Parent became a second tier subsidiary of
Holding and a first tier subsidiary of Holding Sub. Merger Subsidiary was
formed solely for the purpose of participating in the merger. The IRS ruled
that although the transaction was structured as a merger of Merger Subsidiary
into Parent, the substance of the transaction was an exchange by the
nondissenting shareholders of Parent of their Parent stock for Holding stock,
followed by the immediate transfer of the Parent stock by Holding to Holding
Sub. Under this recharacterization of the merger, the IRS ruled that the
transaction qualified as an exchange by the nondissenting shareholders of
Parent of Parent stock for Holding stock under Section 351.
Private Letter Rulings may only be relied upon by the taxpayers who
requested such rulings. However, Private Letter Rulings are a good indication
of the manner in which the IRS would rule in similar transactions. The merger
transaction in Private Letter Ruling 9151032 is substantially similar to the
Merger. Thus, we believe that the IRS more likely than not will apply the same
analysis to the Merger. However, there can be no assurances that the IRS would
not apply a different analysis to the Merger and the Reorganization and hold
that the Merger does not qualify as an exchange under Section 351.
If the Merger fails to qualify as an exchange under Section 351 of
the Code and a reorganization under Section 368(a) of the Code: (i) each
Company shareholder will recognize a gain or loss equal to the difference, if
any, between the fair market value of the New Common Stock received in the
Merger (determined as of the Effective Time) and such shareholder's adjusted
tax basis in the Company Common Stock exchanged therefor and (ii) Holding
Company (or Company as successor to Merger Sub) will recognize a gain equal to
the fair market value of the New Common Stock issued in the Merger (determined
as of the Effective Time).
Although it is more likely than not that gain or loss will not be
recognized by holders of Company Common Stock on their exchange of such stock
solely for New Common Stock in the Merger, the Reorganization could effect the
tax characterization of the KUI Transactions (as defined below) and the tax
consequences of the KUI Transactions to KUI, KUA and the former shareholders of
KUI. The Reorganization could have such an effect because a fundamental
principle of U.S. federal income tax law is that taxation should be based on the
substance, and not the form, of the transactions consummated by the parties
thereto. One aspect of the "substance over form" doctrine is the "step
transaction" doctrine under which courts and the IRS may, in certain
circumstances, amalgamate a series of formally separate transactions and
treat them as a single transaction if the transactions are in substance
integrated and focused toward a particular result. See Xxxxxx v.
Commissioner, 88 T.C. 1415 (1987); Xxxxxxx & Xxxxxxx, Federal Income Taxation
of Corporations and Shareholders, Para. 12.61[3] (6th ed.). In applying the
step transaction doctrine, courts may also examine the proximity of one
transaction to another. Xxxxxx v. Commissioner, T.C. Memo 1986-58, n.19.
Thus, the step transaction doctrine is potentially applicable whenever a
series of transactions occurs close in time or may be viewed as part of an
overall plan.
We understand that on December 18, 1996, the Company entered into
an agreement to acquire certain assets of Xxxxx Xxxxxxxxx, Inc. ("KUI")
through a merger of KUI into a wholly owned subsidiary of the Company, KUA.
KUA, which was formed for the sole purpose of effecting the acquisition, was
the surviving corporation in the merger (the "KUI acquisition"). The KUI
acquisition was completed on February 14, 1997 and was intended to qualify as
a reorganization under Section 368(a)(1). Prior to the KUI acquisition, KUI
caused a Washington corporation ("Spin-Off Co.") to be incorporated and
transferred certain property to Spin-Off Co. in exchange for the issuance of
all of the shares of Spin-Off Co. capital stock to KUI, which capital stock
KUI then distributed to its shareholders in a transaction intended to qualify
as a spin-off under Section 355 (the "Spin-Off"). The KUI acquisition and
the Spin-Off are referred to collectively as the "KUI Transactions." We
understand that at the time Company was considering the KUI Transactions,
Company also intended to undertake the Reorganization after obtaining the
approval of the Company's shareholders.
The step transaction doctrine applies to transactions such as the
Reorganization and to transactions such as the KUI Transactions. Because the
Reorganization and the KUI Transactions would occur close in time and because
the Company was considering the Reorganization at the time of the KUI
Transactions, the Reorganization and the KUI Transactions could be viewed
under the
-------------------------------------------------------------------------------
Page 7
-------------------------------------------------------------------------------
step transaction doctrine as integrated transactions that were part of an
overall plan. If the step transaction doctrine was applied to the
Reorganization and the KUI Transactions, one possible characterization of the
transaction is that it qualified as one or more transactions under Section
351 and/or Section 368(a). The application of the step transaction doctrine,
however, could also result in the KUI Transactions being characterized as
fully taxable transactions to KUI and the former shareholders of KUI who
exchanged their KUI shares for shares of Company Common Stock, subjecting
KUI, KUA and such former shareholders of KUI to tax, interest and, possibly,
penalties.
If the IRS were to successfully assert the step transaction
doctrine in a manner which results in the KUI Transactions being fully
taxable transactions: (1) each former shareholder of KUI who participated in
the KUI Transactions will recognize (a) gain or loss equal to the difference,
if any, between the fair market value of the Company Common Stock and cash
received in the KUI acquisition (determined as of the date such Company
Common Stock was received) and such shareholder's adjusted tax basis in the
KUI shares exchanged therefor, and (b) a dividend equal to the fair market
value of any assets of KUI directly or indirectly received in the KUI
Spin-Off (determined as of the date such KUI assets were received) and (2)
KUI and KUA, as the successor to KUI, will recognize gain or loss equal to the
difference, if any, between the fair market value of the assets of KUI (as
determined as of the date of the KUI Transactions) and KUI's adjusted tax
basis in its assets (as determined as of the date of the KUI Transactions).
In addition, the tax attributes of KUI would not be acquired by KUA as part
of the KUI acquisition.
Courts have formulated three tests to determine whether separate
transactions should be treated as a single integrated transaction under the
step transaction doctrine. One test is the "interdependence" test under
which separate transactions are stepped together if the transactions were so
interdependent that the action would have been fruitless without completing
all of the steps. McDonald's Restaurants of Illinois, Inc. v. Commissioner,
688 F.2d 520, 540 (7th Cir. 1982). A second, and the most restrictive, test
is the "binding commitment" test under which separate steps are treated as a
single transaction if, after the final step in a transaction is taken, there
is a binding commitment to complete the later steps. Commissioner x. Xxxxxx,
391 U.S. 83 (1968); McDonald's Restaurants of Illinois, 688 F.2d at 525. The
most far-reaching of the tests is the "end result" test under which the step
transaction doctrine is invoked if it appears that a series of formally
separate steps are really prearranged parts of a single transaction intended
from the beginning to reach the ultimate result. Xxxxxx, 88 T.C. at 1429.
The end result test focuses on the parties' actual intent to determine what
end result the parties sought. Xxxxxx v. Commissioner, T.C. Memo 1986-58.
An example of the application of the step transaction doctrine is
the case of King Enterprises, Inc. v. United States, 418 F.2d 511 (Ct. Cl.
1969). In that case, the court applied the step transaction doctrine to treat
an acquisition of a target corporation's stock by an acquiring corporation
and the subsequent merger of the target
-------------------------------------------------------------------------------
Page 8
-------------------------------------------------------------------------------
into the acquiring corporation as a single transaction. The court concluded
that the merger was the intended result of the transaction from the outset
and that the initial acquisition of the target's stock by the acquiring
corporation was "a mere transitory step." In reaching this conclusion, the
court relied on the fact that (a) officers of the acquiring corporation
considered merging its existing subsidiaries into the acquiring corporation
before the initial agreement to acquire the target's stock; (b) the acquiring
corporation instituted steps to consummate the merger of the target into the
acquiring corporation shortly after the acquisition of the target's stock;
and (c) the merger was motivated primarily by a desire to avoid additional
income tax and to obtain other tax advantages.
As noted above, the application of the step transaction doctrine to
the Reorganization and the KUI Transactions could be supported by the fact
that the Reorganization and the KUI Transactions would occur close in time
and that Company was considering the Reorganization at the time of the KUI
Transactions. However, the time interval between transactions is not, by
itself, the decisive factor in determining the application of the step
transaction doctrine. Xxxxx and Xxxxx, Step Transactions in Corporate
Reorganizations, 12 N.Y.U. Inst. On Fed. Tax'n, 247, 249 (1954) (citing
cases); Xxxx and Xxxxx, Selected Studies in Federal Taxation, Step
Transactions, 200, 226-227 (1938) (citing cases). In addition, even if the
Reorganization and the KUI Transactions could be viewed as part of a single
plan, the existence of an overall plan does not alone justify application of
the step transaction doctrine. Esmark, Inc. & Affiliated Companies v.
Commissioner, 90 T.C. 171, 195 (1988), aff'd without published opinion, 886
F.2d 1318 (7th Cir. 1989). Moreover, unlike the facts in the King
Enterprises, Inc. case discussed above, the Reorganization does not involve a
transfer of the assets of KUI which were acquired by KUA in the KUI
acquisition. In addition, the Company has represented below that the
Reorganization is not being undertaken to avoid federal income taxes, to
obtain any specific tax advantages, or to effect a transfer of the assets of
KUI which were acquired by KUA in the KUI acquisition.
In addition, the IRS has stated that threshold steps will not be
disregarded under the step transaction doctrine if such steps result in "a
permanent alteration of a previous bona fide business relationship" and that
the substance of each step will be recognized and the step transaction
doctrine will not apply, if each such step "demonstrates independent economic
significance, is not subject to attack as a sham, and was undertaken for
valid business purposes and not mere avoidance of taxes." Rev. Rul. 79-250,
1979-2 C.B. 156; Rev. Rul. 78-330, 1978-2 C.B. 147. The step transaction
doctrine, therefore, generally combines a series of "individually
meaningless" or "unnecessary" steps into a single transaction. Esmark, Inc.,
90 T.C. at 195.
Company has represented and, for the purposes of this opinion,
we have assumed the following:
1. Company is not obligated to undertake the Reorganization
by the terms or provisions of the KUI Transactions or by any other agreement
between Company and KUI or the former shareholders of KUI.
-------------------------------------------------------------------------------
Page 9
-------------------------------------------------------------------------------
2. The KUI Transactions were not dependent upon Company's
initiating or consummating the Reorganization and will not be affected, in
any manner, by the consummation or failure to consummate the Reorganization.
3. Company intended to undertake the Reorganization regardless of
whether the KUI Transactions were consummated and the proposal of the
Reorganization by Company and the consummation of the Reorganization were not
dependent upon the consummation of the KUI acquisition.
4. No negotiations have taken place between Company and KUI or
the former shareholders of KUI regarding the implementation, terms or
provisions of the Reorganization.
5. The KUI Transactions were undertaken for business reasons that
were unrelated to the Reorganization.
6. The Reorganization was first considered by Company and is
being proposed for business reasons that are unrelated to the KUI
Transactions.
7. The Reorganization is not being undertaken to avoid federal
income taxes, to obtain any tax advantages or to effect a transfer of the
assets of KUI which were acquired by KUA in the KUI Transactions.
The application of the step transaction doctrine is based on an
analysis of the particular facts and circumstances of each series of
transactions. There are no controlling Treasury regulations, published
rulings or judicial decisions involving the possible application of the step
transaction doctrine to transactions such as the Reorganization and the KUI
Transactions. There are facts and circumstances which both do not support and
do support the application of the step transaction doctrine to the
Reorganization and the KUI Transactions. The foregoing analysis and opinion
of Xxxxx & Xxxxx, P.L.L.C. with respect to the possible application of the
step transaction doctrine are based upon all of the facts and circumstances
and upon administrative pronouncements and judicial decisions involving
situations that are considered to be relevant to the Reorganization and the
KUI Transactions. While not entirely free from dobut, based on the above
representations and the foregoing analysis, in our opinion the better
reasoned analysis is that the Reorganization and the KUI Transactions not be
treated as a single integrated transaction under the step transaction
doctrine.
Because application of the step transaction doctrine is based on an
analysis of the facts and circumstances of a particular series of
transactions and because the successful application of the doctrine to the
Reorganization and the KUI Transactions by the IRS may result in a
significant tax liability, interest and, possibly, penalties to KUI, KUA and
the former shareholders of KUI, Company, KUA and the former KUI shareholders
may have to pursue their position regarding the non-application of the step
transaction doctrine through administrative and court proceedings. If the
application of the step transaction doctrine is litigated in court, no
assurance can be given that the courts will not disagree with the opinions
and analysis set forth herein and make a contrary ruling. We caution that
our opinion is based on the federal income tax laws as they exist on the date
of this opinion. This opinion does not address and should not be
-------------------------------------------------------------------------------
Page 10
-------------------------------------------------------------------------------
interpreted as making any statement regarding the viability of any potential
cause of action against New Parent, Holding Company, Company or KUA
relating to or arising out of the Reorganization and/or the KUI Transactions.
In addition, the IRS and the courts may successfully apply the step
transaction doctrine to the Reorganization and the KUI Transactions in a
manner which causes the Merger to fail to qualify as a reorganization under
Section 368. However, in our opinion, the IRS more likely than not will not
be able to successfully apply the step transaction doctrine to the
Reorganization and the KUI Transactions in a manner which causes the Merger
to fail to qualify as an exchange under Section 351. However, if the IRS were
to successfully apply the step transaction doctrine to the Merger in a manner
which causes the Merger to fail to qualify as an exchange under Section 351
and a reorganization under Section 368, the Company shareholders would
recognize gain or loss equal to the difference between the fair market value
of the New Common Stock (as determined at the time of the Merger) and cash
received in the Merger, and their adjusted tax basis in the Company Common
Stock exchanged therefor.
It is our understanding that Company will not request a ruling from
the IRS regarding the Reorganization and the application of the step
transaction doctrine to the Reorganization and the KUI Transactions. You
should be aware that our opinion is not binding on the IRS and the courts and
that there can be no assurances that the IRS and the courts will not disagree
with the opinions and analysis set forth herein and the IRS will not
successfully assert a contrary position. This opinion, therefore, does not
constitute a guarantee that the IRS will not successfully challenge the tax
treatment of the Reorganization or the KUI Transactions. No assurance can be
given that future legislative or administrative changes or court decisions
will not significantly modify the statements and opinions expressed herein.
Any such changes may be retroactive with respect to transactions completed
prior to the effective dates of such changes. Changes in the Code, the
regulations or rulings, or court decisions after the date of this letter may
alter the anticipated tax treatment discussed herein.
Our opinion is limited to the specific matters described above with
respect to the Merger. Except as otherwise described above, no opinion is
given regarding the tax consequences of transactions other than the Merger or
the tax impact of the Merger on other transactions. We give no opinion with
respect to other tax matters, whether federal, state or local, that may
relate to the Reorganization, or to any transaction whatsoever, including the
Merger and the Reorganization, if all the transactions described in the Form
S-4 Registration Statement are not consummated as described in the Form S-4
Registration Statement and in accordance with the terms of the Agreement and
without waiver or breach of any material provision thereof or if all the
representations, warranties, statements and assumptions upon which we relied
are not true and accurate at all relevant times. Specifically and without
limiting the generality of the foregoing, no opinion is given regarding the
tax consequences of the New Credit Facility, Term Loan Facility, Revolving
Credit Facility, Acquisition Facility, Holding Company becoming the borrower
under the Revolving Credit Facility and the Acquisition Facility, the Notes,
the Exchange Notes, any stock option plan, any stock unit plan, any other
employee compensation plan and any employee benefit plan.
This opinion is furnished to you solely in connection with the
Reorganization and the preparation and filing of the Registration Statement
on Form S-4 (Registration No. 333-31945) by New Parent. The opinions
expressed in this letter may not be used for any other purpose. Except for
inclusion in the Registration Statement, this opinion may not be quoted or
reproduced, in whole or in part, without our prior written consent. We
disclaim any obligation to update this letter or otherwise to advise you of
any matters (including, but not limited to, any subsequently enacted,
published or reported laws, rules, regulations or judicial decisions having
retroactive effect) which may come to our attention after the date of this
letter and which affect any of the opinions expressed in this letter;
provided, however, upon written request of the addressee prior to the
Effective Time, we may update this opinion. In addition, the opinions set
forth herein are based solely on the documents we have examined, the
information contained in the Tax Matters Certificate, the factual assumptions
set forth above, and the representations that have been made to us, and this
opinion letter cannot be relied upon if any of the facts contained in such
documents, the Tax Matters Certificate, such factual assumptions, or if such
additional information is, or later becomes, inaccurate, or if any of the
representations made to us is, or later becomes, inaccurate. We hereby
consent to the filing of this opinion as an exhibit to the Form S-4
Registration Statement and to the use of our name under the headings "The
Reorganization--Certain Federal Income Tax Consequences; Accounting
Treatment" and "Tax Opinion." In giving this consent, we do not thereby
admit that we are in
-------------------------------------------------------------------------------
Page 11
-------------------------------------------------------------------------------
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
XXXXX & GATES
-------------------------------------------------------------------------------
Page 1
-------------------------------------------------------------------------------
EXHIBIT A
TAX MATTERS CERTIFICATE
OF
QUALITY FOOD CENTERS, INC. AND AFFILIATES
The representations set forth below are provided by the undersigned
parties in connection with the Form S-4 Registration Statement initially
filed with the Securities and Exchange Commission on July 24, 1997
(Registration No. 333-31945) (the "Registration Statement") and the Agreement
and Plan of Merger dated as of August 21, 1997 (the "Agreement"), by and
among Quality Food Centers, Inc. ("Company"), Quality Food, Inc. ("New
Parent"), and QFC Sub, Inc. ("Merger Sub"). Each of the individuals who
signs below hereby declares that he or she is an officer of the company under
whose name he or she has signed and has the title set forth below and has
knowledge of the facts that are the subject matter of the following
representations. Each of the undersigned understands that this certificate
will be relied upon by Xxxxx & Xxxxx P.L.L.C. in connection with its opinion
to be attached as an exhibit to the Registration Statement and will be
discussed therein under the heading "Certain Federal Income Tax Consequences;
Accounting Treatment." Capitalized terms used but not defined herein have
the meanings given to them in the Agreement and the Registration Statement.
The terms "equity," "equity interest," "borrowings," "loan," "debt,"
"indebtedness," "liability" and similar terms shall have the meanings given
to them under applicable federal income tax law. The undersigned recognizes
that to the extent representations are made to the knowledge or best
knowledge of any person(s) or entity(ies), Xxxxx & Gates P.L.L.C. will be
relying in its opinion on the accuracy of the underlying statements as if
represented without such qualification.
1. The Merger is being undertaken by Company, New Parent and Holding
Company for reasons germane to their respective businesses.
2. The fair market value of the New Common Stock received by each
Company shareholder will be approximately equal to the fair market value of
the Company Common Stock surrendered in the Merger.
3. Except for the New Common Stock which is owned by Company prior to
the Merger and which will be canceled and retired in the Reorganization, New
Parent has no plan or intention to redeem or otherwise reacquire any of the
New Common Stock issued in the Merger. Holding Company has no plan or
intention to acquire any of the New Common Stock issued in the Merger.
4. To the knowledge of New Parent, Holding Company, Company and Merger
Sub, there is no plan or intention by the Company shareholders who own five
percent of more of the Company Common Stock and there is no plan or intention
on the part of the remaining Company shareholders to sell, exchange or
otherwise dispose of a number of shares of New Common Stock received in the
Merger that would reduce the Company shareholders' ownership of New Common
Stock to a number of shares having a value, as of the date of the Merger, of
less than 50% of the value of all of the formerly outstanding Company Common
Stock as of the same date. For purposes of this representation, shares of
Company Common Stock surrendered by dissenters will be treated as outstanding
Company Common Stock on the date of the Merger. Moreover, shares of Company
Common Stock and shares of New Common Stock held by Company shareholders and
otherwise sold, redeemed or disposed of prior or subsequent to the Merger
will be considered in making this representation.
5. After the Merger, Company will not issue additional shares of its
stock or other equity interest. After the Merger, Holding Company will not
issue additional shares of its stock or other equity interest.
6. After the Merger, Holding Company will own 100% of the outstanding
equity interests in Company (including any right to acquire an equity
interest). Holding Company has no plan or intention to liquidate Company, to
merge Company into another corporation, to cause Company to sell or otherwise
dispose of any of its assets, except in the ordinary course of business, to
sell, distribute or otherwise dispose of any of the Company Common Stock
acquired in the Merger, or to cause Company to issue additional stock or
other equity interests.
-------------------------------------------------------------------------------
Page 2
-------------------------------------------------------------------------------
7. After the Merger, New Parent will own 100% of the outstanding equity
interests in Holding Company (including any right to acquire an equity
interest). New Parent has no plan or intention to liquidate Holding Company, to
merge Holding Company into another corporation, to cause Holding Company to sell
or otherwise dispose of any of its assets, except in the ordinary course of
business, or to sell, distribute or otherwise dispose of any of the shares of
stock of Holding Company or cause Holding Company to issue additional stock or
other equity interests.
8. Holding Company will acquire Company Common Stock solely as a
result of the Merger. For purposes of this representation, Company Common
Stock redeemed for cash or other property furnished by New Parent or Holding
Company will be considered as acquired by Holding Company.
9. Except for Holding Company's becoming the borrower under the
Revolving Credit Facility and the Acquisition Facility, no liabilities of
Company will be assumed by New Parent or Holding Company or settled at a
discount. The New Credit Facility, Revolving Credit Facility and the
Acquisition Facility were incurred by Company in the ordinary course of
business. No liabilities of the Company shareholders will be assumed by New
Parent or Holding Company. Immediately after the effective time of the
Merger, no Company Common Stock will be subject to any liabilities.
10. Immediately after the effective time of the Merger, Company will
not have outstanding any warrants, options, convertible securities or any
other type of right pursuant to which any person could acquire any equity
interest in Company.
11. Immediately after the effective time of the Merger, Holding Company
will not have outstanding any warrants, options, convertible securities or
any other type of right pursuant to which any person could acquire any equity
interest in Holding Company.
12. None of New Parent, Holding Company or any member of a controlled
group within the meaning of Section 1563, determined without regard to
Section 1563(b)(2) ("Controlled Group") in which New Parent is also a member
("New Parent Controlled Group"), owns, or has owned, directly or indirectly,
during the past five years, any Company Common Stock.
13. Following the Merger, Company will continue its historic business
or use a significant portion of its historic business assets in a business as
a wholly owned subsidiary of Holding Company.
14. Company will pay its dissenting shareholders the value of their
Company Common Stock out of its own funds. No funds will be supplied for that
purpose, directly or indirectly, by New Parent, Holding Company or Merger
Sub, nor will New Parent, Holding Company or Merger Sub directly or
indirectly reimburse Company for any payments to dissenters. Any cash
contributed to Merger Sub by Holding Company to satisfy initial
capitalization requirements will be returned to Holding Company following the
Merger. Nondissenting Company shareholders will receive no consideration
other than New Common Stock.
15. On the date of the Merger, the fair market value of the assets of
Company will exceed the sum of its liabilities plus the liabilities, if any,
to which the assets are subject.
16. At all times prior to the Merger, New Parent has owned all of the
outstanding equity interests of Holding Company (including rights to acquire
an equity interest in Holding Company, if any). Prior to the Merger, New
Parent will be in control of Holding Company within the meaning of Section
368(c). Holding Company formed Merger Sub solely for the purpose of
effectuating the Merger and at all times prior to the Merger, Merger Sub has
not and will not conduct any business or investment activities.
-------------------------------------------------------------------------------
Page 3
-------------------------------------------------------------------------------
17. In connection with the Merger, no Company shareholder is acting on
behalf of, or as an agent for, New Parent or any New Parent Controlled Group
member.
18. No shares of Holding Company stock have been or will be used as
consideration or issued to the shareholders of Company in the Merger.
19. New Parent, Holding Company, Company, Merger Sub and the Company
shareholders will each pay separately its or their own expenses, if any,
incurred in connection with the Merger, except that all filing fees payable
to the Commission and fees incurred in connection with the Form S-4
Registration Statement and printing of documents distributed to Company
shareholders will be paid by Company.
20. Any compensation paid to Company shareholders who enter into an
employment, consulting or noncompetition agreement, if any, with New Parent,
Holding Company or Company (or any member of a Controlled Group in which New
Parent or Holding Company is also a member) will be for services actually
rendered or to be rendered and will be commensurate with amounts paid to
those parties bargaining at arm's length for similar services. None of such
compensation represents consideration for the exchange of Company Common
Stock for New Common Stock. None of the New Common Stock to be received by
Company shareholders in the Merger will be separate consideration for or
otherwise allocable to anything other than Company Common Stock, such as for
services or any covenant not to compete.
21. There is no intercorporate indebtedness existing between New Parent
and Company or between Holding Company and Company that was issued, acquired
or will be settled at a discount as a result of the Merger.
22. Company has no plan or intention to liquidate, to merge with or
into another corporation, to sell or otherwise dispose of any of its assets,
except in the ordinary course of business, or issue additional stock or other
equity interests.
23. For the tax period ending on or immediately prior to the Merger,
Company, New Parent, Holding Company and Merger Sub will constitute a
controlled group within the meaning of Section 1563, determined without
regard to Section 1563(b)(2), with Company as the common parent corporation,
and such controlled group will file a consolidated federal income tax return
for such tax period with Company as the common parent corporation.
24. None of Company, New Parent, Holding Company or Merger Sub is an
investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the
Code or under Section 351(e)(1) and Treasury regulation 1.351-1(c)(1)(ii).
25. None of Company, New Parent, Holding Company or Merger Sub 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 and the New Common Stock received by
Company shareholders in the Merger will not be used to satisfy any
indebtedness of Company, New Parent, Holding Company or Merger Sub.
26. To the knowledge of New Parent, Holding Company, Company and Merger
Sub, the information contained in the Registration Statement is true,
accurate and complete in all respects.
27. The Merger will be consummated pursuant to the Agreement.
28. Company is not obligated to undertake the Reorganization by the
terms or provisions of the KUI Transactions or by any other agreement between
the Company and KUI or the former shareholders of KUI.
29. The KUI Transactions were not dependent upon Company initiating or
consummating the Reorganization and will not be affected, in any manner, by
the consummation or failure to consummate the Reorganization.
30. Company intended to undertake the Reorganization regardless of
whether the KUI Transactions were consummated and the proposal of the
Reorganization by Company and the consummation of the Reorganization were not
dependent upon the consummation of the KUI acquisition.
31. No negotiations have taken place between Company and KUI or the
former shareholders of KUI regarding the implementation, terms or provisions
of the Reorganization.
32. The KUI Transactions were undertaken for business reasons that were
unrelated to the Reorganization.
-------------------------------------------------------------------------------
Page 4
-------------------------------------------------------------------------------
33. The Reorganization was first considered by Company and is being
proposed for business reasons that are unrelated to the KUI Transactions.
34. The Reorganization is not being undertaken to avoid federal income
taxes, to obtain any tax advantages or to effect a transfer of the assets of
KUI which were acquired by KUA in the KUI Transactions.
35. Except for guarantees by New Parent, Holding Company, Xxxxxx and
KUA with respect to the New Credit Facility, no Company shareholder or
affiliate of any Company shareholder has guaranteed, pledged collateral with
respect to or otherwise provided security for, any borrowing, liability or
other obligation of Company, Xxxxxx or KUA. No funds borrowed under the New
Credit Facility has or will be directly or indirectly distributed to or
otherwise transferred to Company shareholders.
36. No fractional shares of New Common Stock will be issued in the Merger.
37. No New Parent stock or securities will be issued for services
rendered or to be rendered to or for the direct or indirect benefit of New
Parent in connection with the Reorganization, and no stock or securities will
be issued for indebtedness of New Parent that is not evidenced by a security
or for interest on indebtedness of New Parent which accrued on or after the
beginning of the holding period of the Company shareholders for the debt.
38. None of the Company Common Stock to be converted into New Common
Stock in the Merger is "section 306 Stock."
39. The Reorganization is not the result of the solicitation by a
promoter, broker, or investment house.
40. The Company shareholders will not retain any rights in the Company
Common Stock of Company shareholders.
41. With respect to each Company shareholder, the adjusted basis and
the fair market value of the Company Common Stock converted into New Common
Stock in the Merger will, in each instance, be equal to or exceed the sum of
the liabilities of Company shareholders to be assumed by Holding Company and
New Parent plus any liabilities of Company shareholders to which such Company
Common Stock is subject.
42. There is no indebtedness between New Parent and the Company
shareholders or between the Holding Company and Company shareholders and
there will be no indebtedness created in favor of the Company shareholders,
New Parent or Holding Company as a result of the Reorganization.
43. No liabilities of the Company shareholders will be assumed by New
Parent or Holding Company in the Reorganization and the Company Common Stock
to be converted into New Common Stock will not be subject to any liabilities
of Company shareholders.
44. The Merger and Reorganization will occur under a plan agreed upon
before the Merger in which the rights of New Parent, Holding Company,
Company and Merger Sub are defined.
45. All the steps in the Reorganization will occur on approximately the
same date.
46. Taking into account any issuance of additional shares of New
Common Stock; any issuance of shares of New Common Stock for services; the
exercise of any New Common Stock rights, warrants, or subscriptions; a public
offering of New Common Stock; and the sale, exchange, transfer by gift, or
other disposition of any of the stock of New Common Stock, immediately after
the effective time of the Merger, the Company shareholders (both including
and excluding the former shareholders of KUI) will be in "control" of New
Parent within the meaning of section 368(c) of the Code.
47. Each nondissenting Company shareholder will receive New Common
Stock approximately equal to the fair market value of his or her Company
Common Stock immediately prior to the effective time of the Merger.
48. New Parent will remain in existence after the Reorganization.
49. To the best of the knowledge of the management of Company, the
Company shareholders are 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) and
the shares of New Common Stock received in the exchange will not be used to
satisfy the indebtedness of such debtor.
50. New Parent will not be a "personal service corporation" within the
meaning of section 269A of the Code.
51. None of the shares of Company Common Stock to be converted into New
Common Stock under the Merger was received by the Company shareholders or
shares of Company Common Stock acquired by or held by Holding Company were
acquired, as part of the liquidation of another corporation affiliated with
New Parent, Holding Company, Company, Xxxxxx, KUA or KUI.
52. No stock or securities of Holding Company will be issued for services
rendered to or for the benefit of Holding Company in connection with the
Reorganization, and no stock or securities will be issued for indebtedness of
Holding Company that is not evidenced by a security or for interest on
indebtedness of Holding Company which accrued on or after the beginning of
the holding period of New Parent for the debt.
53. After the Merger, New Parent will not have any ownership or creditor
rights or right to acquire any ownership or creditor interest in any Company
Common Stock except for indirect rights arising from New Parent holding
shares of Holding Company stock.
54. There is no indebtedness between Holding Company and New Parent and
there will be no indebtedness created in favor of New Parent as a result of
the Reorganization.
55. There is no plan or intention on the part of Holding Company to
redeem or otherwise acquire any New Common Stock to be issued in the Merger
or any Holding Company stock.
56. Taking into account any issuance of additional shares of Holding
Company stock; any issuance of shares for services; the exercise of any
Holding Company stock rights, warrants, or subscriptions; a public offering
of Holding Company stock; and the sale, exchange, transfer by gift, or other
disposition of any of the stock of Holding Company, New Parent will be in
"control" of Holding Company within the meaning of section 368(c) of the
Code. In addition, no person or entity has or will have any option or other
right to acquire any equity interest in Holding Company.
57. New Parent will not receive additional shares of stock of Holding
Company as a result of the Reorganization because New Parent already owns all
of Holding Company's stock.
58. After the Reorganization, Holding Company will remain in existence
and retain the Company Common Stock received in the Merger.
59. There is no plan or intention by Holding Company to dispose of any
Company Common Stock.
60. Before and after the Reorganization, the only equity interests in New
Parent shall be the New Common Stock. Before and after the Reorganization,
the only equity interests in Company shall be the Company Common Stock.
Before and after the Reorganization, the only equity interests in Holding
Company shall be the common shares of Holding Company.
61. Holding Company will not be a "personal service corporation" within
the meaning of section 269A of the Code.
62. The former shareholders of KUI who participated in the KUI
acquisition received, in the aggregate, 10% or less of the outstanding
Company Common Stock (as determined at the time of the KUI acquisition) in
the KUI acquisition, currently hold, in the aggregate, 10% or less of the
outstanding Company Common Stock and, after the Reorganization, will hold, in
the aggregate, 10% or less of the outstanding New Common Stock.
63. To the knowledge of New Parent, Holding Company, Company and Merger
Sub, no Company shareholder acquired Company Common Stock with the plan,
intent or purpose of participating in the Reorganization.
September 4, 1997
QUALITY FOOD CENTERS, INC.
By: XXXXXXXXXXX X. XXXXXXXX
------------------------------
Name: Xxxxxxxxxxx X. Xxxxxxxx
QUALITY FOOD, INC.
By: XXXXXXXXXXX X. XXXXXXXX
------------------------------
Name: Xxxxxxxxxxx X. Xxxxxxxx
QUALITY FOOD HOLDINGS, INC.
By: XXXXXXXXXXX X. XXXXXXXX
------------------------------
Name: Xxxxxxxxxxx X. Xxxxxxxx
QFC SUB, INC.
By: XXXXXXXXXXX X. XXXXXXXX
------------------------------
Name: Xxxxxxxxxxx X. Xxxxxxxx
