EXHIBIT 8.1
XXXXX XXXX XXXXX CONSTANT XXXXXXXX & BILZIN
A PARTNERSHIP INCLUDING PROFESSIONAL ASSOCIATIONS
2500 FIRST UNION FINANCIAL CENTER [bullet] XXXXX, XXXXXXX 00000-0000
TELEPHONE: (000) 000-0000
FAX: (000) 000-0000 [bullet] BROWARD: (000) 000-0000
November 6, 1995
Added Value Electronics
Distribution, Inc.
14192 Xxxxxxxx
Xxxxxx, Xxxxxxxxxx 00000
- and -
A.V.E.D. - Rocky Mountain, Inc.
0000 Xxxxxxxxxx Xxxxxx
Xxxxx Xxxxx, Xxxxxxxx 00000
Gentlemen:
This opinion is being delivered to you in connection with the Merger
Purchase Agreement (the "Merger Agreement") among All American Semiconductor,
Inc., a Delaware corporation ("All American"), All American Added Value, Inc., a
California corporation ("California Subsidiary"), Added Value Electronics
Distribution, Inc., a California corporation ("California Target"), All American
A.V.E.D., Inc., a Colorado corporation ("Colorado Subsidiary") (the California
Subsidiary and the Colorado Subsidiary are sometimes collectively referred to as
the "Subsidiaries") and A.V.E.D.-Rocky Mountain, Inc., a Colorado corporation
("Colorado Target") (the California Target and the Colorado Target are sometimes
collectively referred to as the "Targets"), dated as of October 31, 1995, the
Guaranty and Agreement executed concurrently with the Merger Agreement by the
stockholders of Targets, the Agreement of Merger (with respect to the California
Merger) and Articles of Merger, together with the Plan of Merger pursuant to
which they will be filed (with respect to the Colorado Merger) (collectively the
"Merger Agreements"). Pursuant to the Merger Agreements, California Target will
merge with and into California Subsidiary (the "California Merger") and Colorado
Target will merge with and into Colorado Subsidiary (the "Colorado Merger") (the
California Merger and the Colorado Merger are sometimes collectively referred to
as the "Mergers"). Each of the California Subsidiary and the Colorado Subsidiary
is a wholly-owned subsidiary of All American.
Except as otherwise provided, capitalized terms used herein have the
meanings set forth in the Merger Agreement. All section references, unless
otherwise indicated, are to the Internal Revenue Code of 1986, as amended (the
"Code").
We have acted as legal counsel to All American in connection with the
Mergers. As such, and for the purpose of rendering this opinion, we have
examined and are relying upon (without any independent investigation or review
thereof) the truth and accuracy, at all relevant times, of the statements,
covenants, representations and warranties contained in the following documents:
1. The Merger Agreements (including all exhibits thereto);
2. Representations made to us by All American, California
Subsidiary and Colorado Subsidiary in a letter addressed to us and dated
November 6, 1995;
3. Representations made to us by California Target and Colorado
Target in letters addressed to us and dated November 6, 1995;
November 6, 1995
Page 2
4. The Registration Statement on Form S-4 filed with the
Securities and Exchange Commission in connection with the issuance of shares of
All American common stock in the Mergers (the "S-4 Registration Statement");
5. An opinion of counsel, received by All American from Xxxxx &
Perry, substantially identical in form and substance to this opinion (the "Xxxxx
& Xxxxx Tax Opinion");
6. Such other instruments and documents related to the formation,
organization and operation of All American, California Subsidiary, Colorado
Subsidiary, California Target and Colorado Target or to the consummation of the
transactions contemplated by the Merger Agreements as we have deemed
appropriate.
In connection with this opinion, we have assumed or obtained
representations (and are relying thereon, without any independent investigation
or review thereof) that:
1. The Mergers will be effected in accordance with the terms of
the Merger Agreements;
2. Original documents (including signatures) are authentic,
documents submitted to us as copies conform to the original documents, and there
has been due execution and delivery of all documents where due execution and
delivery are prerequisites to effectiveness thereof;
3. The California Merger will be effective under the laws of the
State of California and the Colorado Merger will be effective under the laws of
the State of Colorado;
4. The Target Stockholders do not, and will not on or before the Added
Value Effective Time or the Rocky Mountain Effective Time, have an existing plan
or intent to dispose of any amount of All American common stock to be received
in the Mergers (or to dispose of either Target's common stock in anticipation of
the Mergers);
5. As a result of the Mergers, California Target and Colorado Target
will transfer to California Subsidiary and Colorado Subsidiary, respectively, at
least ninety percent (90%) of the fair market value of their respective net
assets and at least seventy percent (70%) of the fair market value of their
respective gross assets held by it immediately prior to the Mergers;
6. No stock of either of the Subsidiaries will be issued in the
Mergers;
7. The Xxxxx & Xxxxx Tax Opinion has been delivered and not
withdrawn; and
8. The fair market value of a share of All American common stock
at the Closing of each Merger will be at least $2.25.
Based on the foregoing and subject to the assumptions, exceptions,
limitations and qualifications set forth herein, we are of the opinion that, for
federal income tax purposes, the California Merger and the Colorado Merger will
each be a "reorganization" as defined in Section 368(a) of the Code.
For the Mergers to qualify as reorganizations under Section 368(a) of
the Code, the Target Stockholders are required to maintain a continuity of
proprietary interest in the business enterprise after the Mergers. The Internal
Revenue Service has ruled that it considers a fifty (50%) percent continuity of
equity interest by value to be sufficient continuity. Rev. Rul. 66-224, 1966-2
C.B. 114 and Rev. Proc. 77-37, 1977-2 C.B. 568 (50% continuity of interest
required for advance ruling purposes). Based on the consideration to be
received
November 6, 1995
Page 3
at Closing by the Target Stockholders, the continuity of interest of the Target
Stockholders in each Merger (subject to the discussions regarding the Pledge
Agreement and Additional Consideration below) would be in excess of fifty (50%)
percent.
The Merger Agreement requires the Target Stockholders to enter into a
Stock Pledge Agreement under which the Target Stockholders will pledge all the
All American common stock received in connection with each reorganization for a
period of two (2) years and deliver such stock to the voting trustee of a voting
trust (the "Voting Trust") for a period of six (6) years. The pledge of All
American common stock by the Target Stockholders is being given to secure the
representations, warranties and covenants given by the Targets and the Target
Stockholders set forth in the Merger Agreements. None of the representations,
warranties and covenants relate to future performance or profitability of the
Targets, and all are customary representations, warranties and covenants given
by sellers in transactions of this nature.
Such pledge and voting trust raise the issue of whether the Target
Stockholders are receiving sufficient rights in All American's stock for such
stock to be considered owned by the Target Stockholders for continuity of
interest purposes. The Internal Revenue Service has issued Revenue Procedures
containing safe harbor guidelines for taxpayers seeking favorable reorganization
rulings with respect to escrow and contingent stock arrangements (note, the
Internal Revenue Service has discontinued giving rulings in connection with
reorganizations involving statutory mergers). Rev. Proc. 77-37, supra, modified
by Rev. Proc. 84-42, 1984-1 C.B. 521. One of such guidelines requires that the
maximum number of All American shares that may be issued under an escrow
arrangement cannot be more than fifty (50%) percent of the maximum number of
shares of common stock issued in the reorganization. Given that all of the All
American Common Stock issued in the reorganization will be subject to the Stock
Pledge Agreement and Voting Trust, the pledge arrangement does not come within
the safe harbor guidelines of the Revenue Procedures.
Although the Mergers do not come within the Internal Revenue Service
guidelines set forth in the Revenue Procedures, other precedents indicate that
based on (i) the Target Stockholders ability to receive current dividend
distributions (ii) their right under the Voting Trust to direct the vote of the
voting trustee in connection with a merger of All American, the sale of
substantially all of All American's assets, All American's dissolution and
amendments to All American's Certificate of Incorporation affecting All
American's capital structure, (iii) their right to substitute collateral for the
pledged stock, and (iv) the fact that the pledged stock will be issued and
outstanding on the books of All American and legally outstanding under the
applicable laws of the State of Delaware, the Target Stockholders should be
considered the owners of All American Common Stock from its date of issuance and
such pledged stock should be considered stock received in the reorganization for
continuity of interest purposes. Rev. Rul. 70-120, 1970-1 C.B. 124; Rev. Rul.
75-95, 1975-1 C.B. 114; XXXXXX V. XXXXXX XXXXXX, 000 F.Supp. 102 (1980). Should
the pledged stock not be deemed to be received as of the Added Value Effective
Time and the Rocky Mountain Effective Time, both Mergers would fail to satisfy
the continuity of interest requirement and, as such, not qualify as a
reorganization as defined in Section 368(a) of the Code.
The Merger Agreements (pursuant to a stock price guarantee provision)
provide for the contingent payment of Additional Consideration of up to
$1,900,000.00 in the aggregate to the Target Stockholders. Such Additional
Consideration may consist, in the discretion of All American, of all All
American common stock , all cash, or a combination of All American common stock
and cash provided, however, that the Merger Agreements require All American to
pay such Additional Consideration in common stock to the extent necessary to
cause the total Merger Consideration and Additional Consideration received by
the Target Stockholders with respect to each Merger to consist of at least fifty
percent
November 6, 1995
Page 4
(50%) All American common stock. The rights of the Target Stockholders to
receive Additional Consideration are not assignable. The Internal Revenue
Service has ruled that the nonassignable (non-negotiable) contingent right to
receive future distributions of stock pursuant to a reorganization agreement
ordinarily cannot be considered property as of the time of the initial
reorganization exchange. Rev. Rul. 66-112, 1966-1 C.B. 68; Rev. Rul. 57-586,
1957-2 C.B. 249. As a consequence, at Closing, only the stock or other assets
actually distributed and not the nonassignable contingent right to receive stock
should be taken into account in determining whether the transaction for
continuity of interest purposes qualifies as a reorganization as defined in
Section 368(a) of the Code. However, since the Additional Consideration
potentially consists of cash as well as common stock, and assuming in this
circumstance the determination of continuity of interest properly would remain
open to be retested when the Additional Consideration is received, it is not a
settled question of law as to whether the entire contingent arrangement would
constitute nonqualified property for continuity of interest purposes (i.e.,
boot), or whether the non-stock portion alone would constitute boot. If only the
non-stock element is treated as boot, then the stock initially received and the
stock given as Additional Consideration should both count towards continuity of
interest. However, if the entire contingent right is deemed to be boot, the
total value of the right would have to be compared to the total stock and other
boot distributed initially to determine whether sufficient continuity of
interest exists. Assuming still that the Additional Consideration is not treated
as property at the time of the initial reorganization exchange, a further issue
arises as to which stock values should be used in testing for continuity of
interest, the value of the right to Additional Consideration at the time of the
original exchange or the value of the right to the Additional Consideration at
the time such Additional Consideration is paid. If all such Additional
Consideration was deemed to be boot (excluding imputed interest) and even if the
value at the time the Additional Consideration is paid is determinative, which
should be in excess of its value on the date of the original exchange, the
percentage of stock received in each of the Mergers would be in excess of fifty
percent (50%), thus meeting the Internal Revenue Service's advance ruling
requirement. Also, it appears well established that requisite continuity of
interest is present, notwithstanding the Internal Revenue Service's announced
ruling position of fifty percent (50%), if at least thirty-eight percent (38%)
of the consideration received by the Target Stockholders is in common stock.
XXXX X. XXXXXX CO. X. XXXXXXXXX, 000 X.X. 000 (1935).
In addition to the assumptions set forth above, this opinion is subject
to the exceptions, limitations and qualifications set forth below.
1. This opinion is as of the date hereof, and we expressly disclaim any
duty to update this opinion in the future in the event there are any changes in
fact or law that may affect the issues addressed herein. Our opinion is based
upon statutory laws and judicial decisions in effect at the date hereof, and we
do not opine with respect to any law, regulations, rule, or governmental policy
that may be enacted or adopted after the date hereof, nor assume any
responsibility to advise you of future changes in our opinion.
2. This opinion addresses only the classification of the Mergers as
reorganizations under Section 368(a) of the Code and does not address any other
federal, or any state, local or foreign, tax consequences that may result from
the Mergers or any other transaction. In particular, we express no opinion
regarding (i) whether and the extent to which any Target Stockholder who has
provided or will provide services to All American, California Subsidiary or
Colorado Subsidiary will have compensation income under any provisions of the
Code; (ii) the effects of such compensation income, including but not limited to
the effect upon the basis and holding period of the All American common stock
received by any such stockholder in the Mergers; (iii) the corporate level tax
consequences of the Mergers to All American, Targets or Subsidiaries, including
without limitation the recognition of any gain and the survival and/or
November 6, 1995
Page 5
availability, after the Mergers, of any of the federal income tax attributes or
elections of Targets, after application of any provision of the Code, as well as
the regulations promulgated thereunder and judicial interpretations thereof; and
(iv) the tax consequences of the Mergers (including the opinion set forth above)
as applied to specific stockholders of the Targets and/or holders of options or
warrants for Targets' stock such as dealers in securities, corporate
shareholders subject to the alternative minimum tax, foreign persons, and
holders of shares acquired upon exercise of stock options or in other
compensatory transactions.
3. No opinion is expressed as to any transaction other than the Mergers
as described in the Merger Agreements or to any transaction whatsoever,
including the Mergers, if all the transactions described in the Merger
Agreements are not consummated in accordance with the terms of such Merger
Agreements and without waiver or breach of any material provision thereof or if
all of the representations, warranties, statements and assumptions upon which we
relied are not true and accurate at all relevant times. In the event any one of
the statements, representations, warranties or assumptions upon which we have
relied to issue this opinion is incorrect, our opinion might be adversely
affected and may not be relied upon.
4. This opinion is furnished by us solely for your benefit and may not
be relied on in any manner or for any purpose by any other person or entity
(other than your legal counsel Xxxxx & Perry) without our prior written consent.
We hereby consent, however, to the use of this opinion as an exhibit to the S-4
Registration Statement and further consent to the use of our name whenever
appearing in the S-4 Registration Statement, including the Prospectus/Proxy
statement constituting a part thereof, and any amendments thereto.
Very truly yours,
/s/ XXXXX XXXX XXXXX CONSTANT XXXXXXXX & BILZIN
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XXXXX XXXX XXXXX CONSTANT XXXXXXXX & BILZIN
