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EXHIBIT 8
Dear Xxxxx Companies, Inc., X.X. Xxxxx and Co., Geneva Rock Products Inc.,
Utah Service Inc. and Beehive Insurance Agency Inc. and the Stockholders of
all above-named corporations:
Pursuant to an Agreement and Plan of Merger (the "Agreement") by and among Xxxxx
Companies, Inc., ("Companies"), X.X. Xxxxx Reorganization Corporation ("CRC"),
Geneva Rock Reorganization Corporation ("GRRC"), Utah Service Reorganization
Corporation ("USRC"), Beehive Insurance Reorganization Corporation ("BIRC")
(CRC, GRRC, USRC and BIRC are hereafter collectively referred to as the "Merger
Cos."), WW. Xxxxx and Co., ("Xxxxx"), Geneva Rock Products Inc. ("Geneva"), Utah
Service Inc. ("Service") and Beehive Insurance Agency Inc. ("Beehive") (Clyde,
Geneva, Service and Beehive are hereafter collectively referred to as the
"Targets"), the Merger Cos. will be merged with and into the Targets (the
"Merger(s)").
Xxxxx Xxxxxxxx LLP (the "Firm") has been requested to provide an opinion (the
"Opinion") as to certain federal income tax consequences resulting from the
Mergers. Specifically, with respect to these matters, you have asked the Firm to
address the federal income tax consequences of the following questions:
1. Whether the Mergers will constitute "reorganizations" within the meaning
of Section 368(a)(1)(1) of the Code and/or transfers within the meaning of
Section 351?
2. Whether Companies and the Targets will each be a "party to the
reorganization" within the meaning of Section 368(b) of the Code?
3. Whether gain or loss will be recognized to the Shareholders (as defined
below) upon the receipt of Companies voting common stock solely in
exchange for common stock of the Targets?
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(1) All section references are to the Internal Revenue Code of 1986, as amended.
All regulation references are to the Income Tax Regulations thereunder.
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4. Whether the basis of the shares of Companies voting common stock received
by the Shareholders will be the same, in each instance, as the basis of
the shares of common stock of the Targets surrendered in exchange
therefor?
5. Whether the holding period of Companies voting common stock received by
the Shareholders will include, in each instance, the period during which
the common stock of the Targets surrendered in exchange therefor was held?
6. Whether the payment of cash in lieu of fractional share interests of
Companies will be treated as if the fractional shares were distributed as
part of the Merger and then redeemed by the Companies under the provisions
of Section 302 of the Code?
7. Whether the Distribution (as defined below) will result in the recognition
of gain?
In rendering the Opinion, representatives of the Firm have examined and relied
upon (i) the Agreement; (ii) a draft Form S-4 Registration Statement; and (iii)
a draft Stock Redemption Plan (these items are hereafter collectively referred
to as the "Documents").
Additionally, the Opinion is explicitly conditioned upon representations
contained in certain letters dated as of the date hereof from the Companies and
the Shareholders to the Firm, copies of which are attached to this opinion as
Exhibit A and Exhibit B (the "Representation Letters"). In that regard, the Firm
hereby incorporates by reference all of the statements of facts and factual
representations contained in the Documents and Representation Letters and, for
purposes of rendering the Opinion, the Firm has assumed (without attempting any
independent verification) that all of the statements of facts and factual
representations set forth in the Documents and Representation Letters are true
and complete.
I. OPINION
Based upon the foregoing facts, factual assumptions and representations set
forth in Sections II and III hereof, together with the Exhibits attached hereto
and incorporated by reference in each of such Sections, and the Code, Committee
Reports, legislative history and the relevant Internal Revenue Service and
judicial precedents as of the date hereof, the Firm is of the Opinion that:
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1. For federal income tax purposes, the Mergers in each instance will be
ignored under the step transaction doctrine discussed below and the
Restructuring (as defined below) will be considered a transfer by each of
the Shareholders of their respective stock of the Targets to Companies
solely in exchange for voting common stock (Rev. Rul. 67-448, 1967-2 C.B.
144). As viewed above, the Restructuring with respect to each of the
Targets will qualify as a reorganization within the meaning of Section
368(a)(1)(B) of the Code and/or a transfer of property as described in
Section 351.
2. Companies and the Targets will each be a "party to the reorganization"
within the meaning of Section 368(b) of the Code. Section 368(b) of the
Code.
3. No gain or loss will be recognized to the Shareholders (except to the
extent of fractional share interest, if any,) upon the receipt of
Companies' voting common stock solely in exchange for the Targets common
stock. Section 354(a)(1) and Section 351(a) of the Code.
4. The basis of the shares of Companies voting common stock received
(including fractional share interests, if any,) by the Shareholder will be
the same, in each instance, as the basis of the common stock of the
Targets surrendered by such shareholder in exchange therefor. Section
358(a)(1) of the Code.
5. Provided the common stock of the Targets surrendered by the Shareholder
was held as a capital asset, the holding period of the Companies voting
common stock (including any fractional shares interest) received in
exchange therefor will include the period during which common stock of the
Targets surrendered by such shareholder in exchange therefor was held.
Section 1223(1) of the Code.
6. The payment of cash to any Shareholder made in lieu of a fractional
interest in a share of Companies' voting common stock to which such
Shareholder is entitled will be treated as a distribution in full payment
for such fractional interest. Rev. Proc. 77-41, 1977-2 C.B. 574. Provided
the fractional interest surrendered by the Shareholder was held as a
capital asset, any gain or loss recognized by the shareholder on receipt
of a payment of cash in exchange therefor will be taxable as a capital
gain or loss, long-term or short-term, depending on
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whether the Shareholder had held the share of Companies' common stock
giving rise thereto for more than 18 months before the Restructuring.
7. Any gain realized on the Distribution will not result in immediate
recognition but will be taken into income pursuant to the provisions of
Section 1.1502-13 of the Regulations.
II. FACTS
A. BACKGROUND
Companies is a Utah corporation that directly conducts no business activities
but acts as a holding company for a portion of the stock of the Targets.
Specifically, Companies holds 33.78% of the stock of Xxxxx, 21.67% of the stock
of Geneva, 31.37% of the stock of Service and 17.22% of the stock of Beehive.
Except for cash, the stock of the Targets is Companies only asset. The
shareholders of Companies and their direct percentage of stock holdings is
attached hereto as Exhibit C (these shareholders are hereafter collectively
referred to as the "Companies Shareholders"). In November 1997, the name of
Companies was changed from X.X. Xxxxx Investment Co.
Xxxxx is a Utah corporation that is directly engaged in various aspects of the
construction industry. The shareholders of Xxxxx and their direct percentage of
stock holdings is attached hereto as Exhibit D (these shareholders are hereafter
referred to as the "Xxxxx Shareholders"). Xxxxx currently holds 34.77% of the
stock of Geneva.
Geneva is a Utah corporation that is engaged in the ready-mix concrete business,
as well as other construction related activities. The shareholders of Geneva and
their direct percentage holdings is attached hereto as Exhibit E (these
shareholders are hereafter referred to as the "Geneva Shareholders").
Service is a Utah corporation that owns and operates a hardware store and
adjacent gasoline/convenience store. The shareholders of Service and their
direct percentage holdings is attached as Exhibit F (these shareholders are
hereafter collectively referred to as the "Service Shareholders").
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Beehive is a Utah corporation that operates as an independent insurance agency
providing all types of insurance coverage for the general public. The
shareholders of Beehive and their direct percentage holdings is attached as
Exhibit G (these shareholders are hereafter collectively referred to as the
"Beehive Shareholders"). (The Xxxxx Shareholders, the Geneva Shareholders, the
Service Shareholders and the Beehive Shareholders are hereafter referred to as
the "Shareholders".)
The Merger Cos. are each wholly-owned, newly-organized subsidiaries of Companies
formed solely for the purpose of participating in the proposed transaction
described below.
B. THE TRANSACTION
For what has been represented to be valid business reasons, the following
transactions (hereafter collectively referred to as the "Restructuring") will
occur:
1. Each outstanding share of Companies on November 13, 1997 at 5:00 p.m. was
converted into 40 shares.
2. All cash held by Companies other than an amount necessary to satisfy its
tax liability upon the consummation of the Restructuring will be
distributed to Companies Shareholders.
3. In anticipation of the Restructuring, Companies has adopted a stock
redemption plan (the "Plan") pursuant to which it is expected that
Companies will redeem a limited number of its shares each year at the
discretion of the Board of Directors of Companies.
4. The Merger Cos. will be formed as described above.
5. Pursuant to the terms of the Agreement, CRC, GRRC, USRC and BIRC will
merge with and into Clyde, Geneva, Service and Beehive, respectively. The
Mergers will be pursuant to the terms of the applicable state laws, with
the Targets being the surviving corporations. In accordance with
applicable state law and the merger agreement between Companies, the
Targets and the Merger Cos., the Mergers will occur sequentially on the
same date with CRC merging into Xxxxx (the "Xxxxx Merger") first,
thereafter BIRC merging into Beehive, and one hour thereafter GRRC merging
into Geneva
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6. Immediately after the Xxxxx Merger and approximately one hour prior to any
other Mergers, Xxxxx will distribute (the "Distribution") all of its stock
holdings in Geneva to Companies.
7. All of the outstanding stock of the Targets, except for shares held by
Companies, fractional share interests or shares held by dissenting
shareholders, if any, will be converted into solely voting common stock of
Companies.
8. As a result of the Mergers and Distribution, all of the outstanding stock
of the Targets will be held by Companies.
9. No fractional share interests of Companies' stock will be issued. In lieu
thereof, cash will be paid.
10. Pursuant to the terms of the applicable state laws, shareholders of the
Targets may dissent to the Mergers. Any cash paid to dissenting
shareholders will be provided by their respective Target corporation.
Companies will provide no funds directly or indirectly to dissenting
shareholders of the Targets.
11. All corporate expenses of the Restructuring will be paid by Companies from
dividends, received after the Mergers from the Targets. If the
Restructuring is not consumated, each of the Targets would pay its
proportionate share of the Restructuring expenses.
At the conclusion of the Restructuring, the Shareholders will hold at least 80%
of the outstanding stock of Companies and each of the Targets will be a
wholly-owned subsidiary of Companies.
III. REPRESENTATIONS
The following representations were made by the management of the Targets,
Companies, and certain Shareholders who individually and collectively understand
that these representations form an integral part of our opinion regarding the
Restructuring:
1. The fair market value of Companies' stock received as a result of the
Restructuring will in each instance be approximately equal to the fair
market value of the Targets' stock surrendered.
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2. The Targets have no plan or intention to issue additional shares of its
stock that would result in Companies losing control of any of the Targets
within the meaning of Section 368(c) of the Code.
3. Except as provided for in the Plan, Companies has no plan or intention to
reacquire any of its stock issued in the transaction.
4. Companies has no plan or intention to liquidate the Targets, to merge the
Targets with or into another corporation; to sell or otherwise dispose of
the stock of the Targets except for transfers of stock to corporations
controlled by Companies or the Targets; or to cause the Targets to sell or
otherwise dispose of any of its assets, except for dispositions made in
the ordinary course of business.
5. Following the Restructuring, each Target will continue its historic
business or use a significant portion of its historic business assets in a
business.
6. On the date of the Restructuring, the fair market value of the assets of
the Targets will in each instance exceed the sums of its liabilities, plus
the amount of liabilities, if any, to which the assets are subject.
7. The Targets 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.
8. None of the compensation received by any of the Shareholder will be
separate consideration for, or allocable to, any of their shares of
Targets' stock; none of the shares of Companies 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.
9. Immediately after the Restructuring, the Targets will not have outstanding
any warrants, options, convertible securities or any other type of right
pursuant to which any person could acquire stock that will cause Companies
not to control the Targets within the meaning of Section 368(c) of the
Code.
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10. There are valid business purposes for the Restructuring.
11. To the best of the knowledge of the management of the Companies,
shareholders of the Targets who hold less than 2% of the stock have no
plan or intention to sell, exchange or otherwise dispose of any of the
Companies' stock received in the proposed transaction except as provided
under the stock redemption plan of Companies effective as of January 1,
1999.
12. Except as set forth immediately below any Shareholder holding 2% or more
of Companies' stock has no plan or intention to sell, exchange or
otherwise dispose of any of Companies stock received in the proposed
transactions. While none of the Shareholders has a current plan to do so,
a Shareholder may, if circumstances require, exercise his or her rights
pursuant to the stock redemption plan of Companies effective as of January
1, 1999.
13. No liabilities will be assumed by Companies or the Targets as part of the
transaction. The stock of the Targets is not subject to any liabilities.
14. The payment of cash in lieu of fractional shares Companies stock is solely
for the purpose of avoiding the expense and inconvenience to Companies of
issuing fractional shares and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in the
transaction to the Shareholders instead of issuing fraction shares of
Companies stock will not exceed one percent of the total consideration
that will be issued in the transaction to the Shareholders in exchange for
their shares of the Targets' stock. The fractional share interests of each
Shareholder will be aggregated, and no Shareholder will receive cash in an
amount equal to or greater than the value of one full share of Companies
stock.
15. Companies has not acquired any of the stock of the Targets during the last
five years.
16. Companies will file a federal consolidated tax return for the year that
includes the Distribution.
17. Except as set forth below, Companies and the Shareholders will pay their
own expenses incurred in the Restructuring. Companies will pay expenses
that are solely and directly
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related to the transaction in accordance with the guidances established in
Rev. Rul. 73-54, 1973-1 C.B. 187.
18. The facts and factual representations set forth in Section II above,
together with the Exhibits attached hereto and incorporated herein by
reference thereto and in this Section III, are true, correct and complete
as of the date thereof.
19. There are no facts relevant to the transactions described in Section IIB
or issues addressed in this letter that have not been supplied to the
Firm.
IV. DISCUSSION
In order to be tax-free, the Restructuring has to satisfy both the statutory
requirements set forth in the Code and several judicially-created concepts that
in certain instances are elaborated upon in the regulations and by the Internal
Revenue Service in administrative pronouncements such as revenue rulings and
procedures. Among these judicially-created concepts are continuity of interest,
continuity of business enterprise, the step transaction doctrine and business
purpose.
1. THE STATUTE
Section 368(a)(1)(B) of the Code defines the term reorganization to mean the
acquisition of the stock of a corporation (T) solely in exchange for voting
stock of another corporation (P) if immediately after the transaction P controls
T.
Section 351 of the Internal Revenue Code provides that no gain or loss will be
recognized if property is transferred to a corporation by one or more persons
solely in exchange for stock of the transferee corporation provided that
immediately after the exchange the person or persons who transferred the
property are in control of the transferee. While neither the Code nor Internal
Revenue Service regulations define the term "property," stock of a corporation
undoubtedly satisfies the requirement.
As defined in Section 368(c) of the Code, the term control means the ownership
of stock possessing at least 80% of the total combined voting power of all
classes of stock entitled to vote and at least 80% of the total number of shares
of all other classes of stock.
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In Rev. Rul. 67-448, 1967-2 C.B. 144, the Internal Revenue Service (the
"Service") determined that a transaction could constitute a reorganization
within the meaning of Section 368(a)(1)(B) if a corporation, P, gained control
of another corporation, T, solely in exchange for its voting stock through a
merger of a newly-formed transitory subsidiary of P with and into T. The
existence of the subsidiary and its merger into T are ignored for federal income
tax purposes. The transaction is treated as a direct acquisition by P of the T
stock solely in exchange for voting stock. This same principal applies to ignore
the existence of the Subsidiary and treat the transaction as a transfer of
property pursuant to Section 351. In Rev. Rul. 69-585, 1969-2 C.B. 56, the
Service determined that both the control and solely for voting stock requirement
of Section 368(a)(1)(B) were satisfied when P received 25% of the stock of T as
a dividend from its wholly-owned subsidiary.
The structure of the Mergers is consistent with the transaction described in
Rev. Rul. 67-448. Companies formation of Merger Cos. will be accomplished solely
to effectuate the Mergers. Except for minimal capital, the Merger Cos. will have
no assets and will conduct no business activities. As a result of the Merger and
Distribution, the Targets will become a wholly-owned subsidiaries of Companies
with its shareholders receiving solely voting common stock of Companies. Thus
for federal income tax purposes, the Merger should be ignored. Companies should
be treated as transferring solely its voting common stock to the Shareholders in
exchange for their stock. Immediately after the Restructuring, Companies will
hold all of the stock of the Target and will thus control the Targets within the
meaning of Section 368(c). Representations have been obtained indicating
Companies will not undertake a transaction that will result in the loss of
control of the Targets and result in the Shareholders receiving non-Companies
voting stock consideration for their stock. Consequently, the Restructuring
meets the definition of a reorganization as defined in Section 368(a)(1)(B).
Additionally, since the facts indicate that the shareholders hold at least 80%
of the outstanding stock of Companies immediately after the Restructuring, it
meets the definition of a transfer within the meaning of Section 351 of the
Code.
A party to the reorganization is defined in Section 368(b) of the Code to
include both corporations in the case of reorganization resulting from the
acquisition by one corporation of the stock or properties of another. Since the
Restructuring qualifies as a reorganization within the meaning of Section
368(a)(1)(B), Companies and each of the Targets will each be a party to the
reorganization.
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Section 354(a)(1) of the Code provides that neither gain nor loss will be
recognized if the stock in a corporation that is a party to reorganization is
exchanged pursuant to a plan of reorganization solely for stock of another
corporation that is a party to the reorganization. Under Section 356(a)(1), if
property or money is received in addition to the stock, gain, if any, to the
recipient will be recognized but in an amount not in excess of the sum of the
money or the fair market value of any other property. Pursuant to Section
356(a)(2), if the receipt of money or other property has the effect of a
dividend distribution (determined using the attribution rules of Section 318),
then it will be treated as a dividend distribution to the extent of each
distributees ratable share of earnings and profits. The remainder of any gain
will be treated as gain from the exchange of property.
The Shareholders will receive solely Companies voting common stock in the
Restructuring. Consequently, pursuant to Section 354(a)(1), no gain or loss
should be recognized to the Shareholders on the receipt of Companies stock in
exchange for stock of the Targets. Similarly, since the Restructuring satisfies
the requirements of Section 351, no gain or loss is also recognized under that
provision.
Section 351(e) of the Code provided that the general non-recognition rule of
Section 351(a) does not apply to transfers of property to an investment company.
As part of the Taxpayer Relief Act of 1997, Congress provided guidance in
Section 351(e)(1) in determining when a company is to be considered an
investment company. The Firm has reviewed Section 351(e)(1) and examined its
legislative history. It is the Firm's opinion that Companies is not an
investment company within the meaning of Section 351(e).
Additionally, a transaction cannot qualify as a reorganization within the
meaning of Section 368(a) if any two parties to the transaction are investment
companies within the meaning of Section 368(a)(2)(F) of the Code. The Firm is of
the opinion that no two parties to the Restructuring are investment companies
within the meaning of Section 368(a)(2)(F).
2. JUDICIAL GLOSS
a) Continuity of Interest
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It is well established that a reorganization under Section 368(a)(1) must also
meet the continuity of interest doctrine. See Pinellas Ice & Cold Storage Co. v.
Commissioner, S. Ct., 3 USTC P. 1023, 287 US 462 (1933) and Section 1.368-1(b)
of the Regulations. The purpose of this doctrine is to ensure that the
shareholders of the acquired corporation ("Target") maintain, if only
indirectly, a substantial part of the equity investment in Target following the
reorganization through holding of the acquiring corporation's stock. If the
Target shareholders do not satisfy this requirement, the transaction becomes a
taxable stock or asset acquisition. See Helvering v. Minnesota Tea Co., S. Ct.,
36-1 USTC Paragraph 9015, 296 US 378. In the case of the Restructuring, if it
was a taxable event, the Shareholders would be considered to have sold their
stock to Companies.
In ascertaining whether sufficient continuity is present, the Internal Revenue
Service and the courts look to the historic (old and cold) shareholders of
Target. See Superior Coach of Florida Inc., 80 TC 895 (1983) and Yoc Heating
Co., 61 TC 168 (1973). These historic shareholders must receive a substantial
part of the consideration in stock of the acquiring corporation. It is generally
accepted that 40% is sufficient continuity. See Xxxxxx x. Xxxxxxxxx, S. Ct.,
36-1 USTC Paragraph 9019. In the Restructuring, the Shareholders, are receiving
solely voting of Companies.
Continuity of interest must also be maintained by the historic shareholders of
Target for a period of time after the reorganization . It is clear that the
Internal Revenue Service takes post-reorganization sales undertaken as part of
the plan of reorganization into account in measuring continuity of interest. See
Section 3.02 of Rev. Proc. 77-37, 1977-2 C.B. 568. To satisfy
post-reorganization continuity, case law and IRS pronouncements, while not
completely consistent or clear, appear to require that at the time of
reorganization, Target's shareholders had no intention, or perhaps fixed
intention, to dispose of the stock of the acquiring corporation. See McDonalds
Restaurants of Illinois v. Commissioner, 82-2 USTC Paragraph 9581 (1982); Estate
of Christian, 57 TCM 1231, Dec. 45296 (M), TC Memo 1989-413; and X.X. Xxxxxx, 88
TC 1415 (1987). Generally, the actual ownership of the stock of the acquiring
corporation for some period of time following the transaction establishes the
requisite continuity. See Rev. Rul. 66-23, 1966-1 C.B. 67 and Rev. Rul. 78-142,
1978-1 C.B. 111.
Nothing in the Documents or the facts as the Firm understands them indicates
that the Shareholders, who will participate in the Restructuring, are not its
historic shareholders for
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purposes of continuity of interest. Additionally, it has been represented that,
except as might occur under the Plan, to the best of management's knowledge the
Shareholders of the Targets who hold less than 2% of their stock will not
dispose of any amount of Companies stock after the Restructuring. Additionally,
except as might occur under the Plan, Shareholders of the Targets who hold 2% or
more of their stock have no plan or intention to dispose of any amount of their
shares. Consequently, it is our opinion that continuity of interest should be
satisfied in the Restructuring.
b) Continuity of Business Enterprise
A transaction constitutes a tax-free reorganization only if there is a
"continuity of the business enterprise under the modified corporate form." Reg.
Section 1.368-1(b). This means that the acquiring corporation must either (1)
continue Target's historic business or (2) use a significant portion of Target's
historic business assets in a business. Reg. Section 1.368-1(d)(2); and Xxxxxx
X. Xxxxx x. Commissioner, CA-6, 81-2 USTC Paragraph 9517, aff'g, rev'g, and
rem'g TC, 653 F.2d 253. In determining whether a line of business or a portion
of Target's historic business assets is "significant," all relevant facts and
circumstances are considered. Reg. Section 1.368-1(d)(3), (4).
A representation has been given that indicates continuity of business will be
satisfied. The facts support this representation. Given the above, it is our
opinion continuity of business enterprise will be satisfied in the
Restructuring.
c) Step Transaction
The step transaction doctrine permits a series of formally separate steps to be
amalgamated and treated as a single transaction if the steps are in substance
integrated, interdependent and focused toward a particular result. See Xxxxxx,
p. 1428 and Rev. Rul. 79-250, 1979-2 C.B. 156.
A review of case law indicates the step transaction doctrine is a very nebulous
concept. While courts generally speak in terms of end result, binding commitment
or interdependence in applying the step transaction doctrine, the key to its
application, regardless of the test the court
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allegedly applies, appears to be intent and temporal proximity. See Xxxxxx; X.
Xxxxxxxx, 15 TC 312 (195)); Cal-Maine Foods Inc. v. Commissioner, 93 TC 181
(1989); and Private Letter Ruling 8742033 (July 20, 1987).
If it can be demonstrated that at the time of the first in a series of
transactions the taxpayer had no intent to effectuate the subsequent
transactions, the series of transactions generally will not be stepped together.
See Xxxxxx; Estate of Christian, 57 TCM 1231, Dec. 45926 (M) TCM 1989-413 and
IRS Technical Advice Memorandum 8646002 (July 18, 1989). Courts rarely rely on
the word of the taxpayer in discerning intent but rather look at all of the
facts and circumstances. Unanticipated, material changes in circumstances beyond
the taxpayer's control are critical in establishing the lack of intent.
The amount of time that elapses between the first and subsequent transaction
often is significant in determining whether to step the transactions together.
The shorter the period of time between the transactions, the greater the
likelihood of stepping the transactions together. See Private Letter Ruling
8742033 (July 20, 1987) [two transactions four months apart were not viewed as
independent].
The step transaction doctrine applies to the Restructuring in the sense that the
Merger of Merger Cos. with and into the respective Targets will be ignored. The
substance of the Mergers is a direct acquisition of the Targets stock by
Companies solely in exchange for its voting stock.
Additionally, the step transaction doctrine could apply to negate the control
immediately after requirement of Section 351 if the Shareholders as part of the
Restructuring dispose of an amount of Companies' stock sufficient to result in
the loss of control as defined in Section 368(c). Nothing in the Documents or
facts as the Firm understands them indicates that this will occur. The only
possible sale of stock might occur through the operation of the Plan. The Firm
is of the opinion that any such sale, based on the facts and representations
given, should be treated as a transaction separate from the Restructuring and
thus have no impact on the Restructuring.
d) Business Purpose
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There must be a valid business purpose for a reorganization. Xxxxxxx x.
Xxxxxxxxx, 293 US 465 (1935) and Section 1.368-1(b), Section 1.368-1(c) and
Section 1.368-2(g) of the Regulations. Companies and the Targets Boards of
Directors believe there are numerous valid business reasons for the
Restructuring. Nothing in the Documents or facts contradict this. Thus, the Firm
is of the opinion that a valid business reason exists for the Restructuring.
3. CASH RECEIVED IN LIEU OF FRACTIONAL SHARES
No fractional shares of Companies voting common stock will be issued in the
Restructuring. A Targets shareholder who receives cash in lieu of a fractional
share would generally be treated as having received such fractional share
pursuant to the Mergers and then as having exchanged such fractional share for
cash in a redemption by Companies subject to Section 302(a) of the Code,
provided that such redemption is "substantially disproportionate" with respect
to such Targets shareholder or is "not essentially equivalent to a dividend." If
the Companies common stock represents a capital asset in the hands of the
shareholder, then the shareholder will generally recognize capital gain on such
a deemed redemption of the fractional share in an amount equal to the excess of
the amount of cash received for such fractional share over the shareholder's tax
basis in the fractional share, or capital loss in an amount equal to the excess
of the shareholder's tax basis in the fractional share over the amount of cash
received for such fractional share. Any such capital gain or loss will be
long-term if the Targets' common stock exchanged was held for more than 18
months.
Administratively, however, the Internal Revenue Service has concluded in Rev.
Proc. 77-41 that cash in lieu of fractional shares will be treated as received
in an exchange subject to Section 302(a) of the Code if the cash distribution is
undertaken solely for the purpose of saving the corporation the expense and
inconvenience of issuing and transferring a fractional share interest, and it is
not separately bargained for consideration. Additionally, certain information
such as the maximum amount of cash that can be received by any shareholder and
the percentage of total cash consideration will be considered in determining
whether the transaction is governed by Section 302(a). A representation has been
made that the sole purpose of issuing cash in lieu of fractional share interests
in Companies is to save Companies the expense and inconvenience of issuing such
an interest and that this does not represent separately bargained for
consideration. An additional
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representation has been made with respect to the minimal amount of cash an
individual shareholder of a Target can receive in exchange for a fractional
share interest as well as to the amount of total cash being issued in exchange
for fractional shares. Accordingly, any cash issued in lieu of fractional shares
should be treated as a sale or exchange under Section 302(a).
The Service has also determined that the payment of cash in lieu of fractional
share interests by the acquiring corporation does not violate the solely for
requirement of Section 368(a)(1)(B) if the cash is not separately bargained for
consideration. Rev. Rul. 66-365, 1966-2 C.B. 116. A representation to this
effect has been given to the Firm. Consequently, any cash provided by Companies
in lieu of any fractional share interests will not be treated as non-stock
consideration for purposes of Section 368(a)(1)(B).
V. CAVEATS AND LIMITATIONS
This opinion is subject to the receipt of all Representation Letters and the
consummation of the Restructuring as described herein.
It is assumed for the purpose of this Opinion that the management of Companies
and the Targets are not aware of any facts inconsistent with those set forth
above and in the Documents. Also, it is assumed that the Documents accurately
reflect all consummated and proposed transactions. The existence of inconsistent
facts and/or consummated or proposed transactions not set forth in the Documents
could materially alter our opinions.
Additionally, the opinions expressed herein are based upon the provisions of the
Code, Treasury regulations (both current and proposed) promulgated thereunder,
judicial decisions, revenue rulings and procedures and related authorities
issued to, and in effect on, the date of this opinion.
Furthermore, no assurance can be given that the Internal Revenue Service or the
courts will not alter their present views, either prospectively or
retroactively, or adopt new views in respect of our opinions. In that event, the
opinions expressed herein would necessarily have to be
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reevaluated in light of any change in such views. We assume no obligation to
advise you of any change in any such provisions or views which would affect our
opinions set forth herein.
Our opinion is based solely upon the facts, representations and assumptions
contained herein, and we have not undertaken an independent investigation of any
such facts or representations. Our opinion would require reevaluation in the
event of any change in any such fact or representation.
The opinions expressed in this opinion reflect what we believe to be the federal
income tax consequences of the transactions described herein. Nevertheless, they
are only opinions, and no assurance can be given that the Internal Revenue
Service will not challenge any position taken in such opinions. Furthermore, it
should be noted that we express no opinion regarding tax consequences under the
laws of any state or local jurisdiction.
VI. SUBSTANTIAL AUTHORITY
Without limiting the foregoing, providing the facts, assumptions, and
representations contained herein are correct, substantial authority, within the
meaning of Section 6662 of the Code, exists to each of the conclusions made in
this opinion.
If you have questions, please feel free to call either Xxxxx Xxxxx at
801/373-3654 or Xxxxxx X. Xxxxx at 202/861-4151.
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VII. CONSENT
We hereby consent to the references contained in the Form S-4 Registration
Statement of Companies ("Form S-4") to the Firm's Opinion and to the inclusion
of the Opinion as an exhibit to the Form S-4.
Sincerely,
/s/ Xxxxx Xxxxxxxx LLP
Xxxxx Xxxxxxxx LLP
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