EXHIBIT 8.1
FORM OF TAX OPINION
[Letterhead of Storey Armstrong Steger & Martin]
__________, 1996
Maxum Health Corp.
14850 Quorum Drive, Suite 400
Dallas, Texas 75240
Re: Insight Health Services Corp.
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Ladies and Gentlemen:
We are acting as special counsel to Maxum Health Corp., a Delaware
corporation ("Maxum"), in connection with the proposed transaction (the
"Transaction") whereby (i) Maxum and American Health Services Corp., a Delaware
corporation ("AHS"), will become wholly-owned subsidiaries of Insight Health
Services Corp., a newly formed Delaware corporation ("Newco"), and (ii)
immediately after the Transaction all of the issued and outstanding common stock
of Newco will be owned by persons who were Stockholders of AHS or Maxum
immediately before the Transaction. You have requested our opinion as to certain
federal income tax consequences of the Transaction to the current holders of AHS
Series B Preferred Stock (as hereinafter defined), AHS Common Stock (as
hereinafter defined) and Maxum Common Stock (as hereinafter defined), who will
exchange their shares of such stock in the Transaction for shares of Newco
Common Stock (as hereinafter defined) or, in the case of a dissenting
Stockholder, for cash. (Such holders of AHS Series
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B Preferred Stock and AHS Common Stock are sometimes hereinafter referred to as
Stockholders of AHS and such holders of Maxum Common Stock are sometimes
hereinafter referred to as Stockholders of Maxum.)
In this connection, we have reviewed the documents describing and governing
the proposed Transaction, including (i) the Agreement and Plan of Merger (the
"Merger Agreement") among AHS, Maxum, Newco, and two wholly-owned subsidiaries
of Newco -AHSC Acquisition Company, a Delaware corporation ("AHSC Acquisition"),
and MXHC Acquisition Company, a Delaware corporation ("MXHC Acquisition"), (ii)
the Registration Statement, as amended, declared effective with the Securities
and Exchange Commission on _______________________, 1996 (the "Registration
Statement"), and (iii) the Joint Proxy Statement/Prospectus, as amended (the
"Proxy Statement") provided to the Stockholders of AHS and the Stockholders of
Maxum to solicit their votes to approve the Merger Agreement. We have also
reviewed the documents governing certain related transactions, including (i) the
Master Debt Restructuring Agreement (the "Debt Agreement") among General
Electric Company, a New York corporation, acting through GE Medical Systems
("GEMS"), General Electric Capital Corporation, a New York corporation which is
a wholly owned second-tier subsidiary of GEMS ("GECC"), Newco, AHS and Maxum
(and certain Maxum subsidiaries), and (ii) the Preferred Stock Acquisition
Agreement (the "PSA Agreement") among Newco, AHS, Maxum and GEMS.
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For purposes of this letter (i) the transactions contemplated by the Debt
Agreement and the PSA Agreement are sometimes collectively referred to hereafter
as the "Refinancing", and (ii) the Merger Agreement, the Debt Agreement and the
PSA Agreement are sometimes collectively referred to hereafter as the
"Documents."
The respective managements of AHS and Maxum have represented that, to the
best of their knowledge, no persons who will be Stockholders of AHS or Maxum
immediately prior to the Transaction have (or will have at the time of the
Transaction) entered into binding contracts to dispose of the shares of Newco
stock they will receive in the merger. GEMS and GECC, as well as any person
owning 5% or more of the outstanding shares of AHS or Maxum have represented
that they have not (and at the time of the Transaction will not have) entered
into such a binding contract. In addition to the representations made in the
Documents, the respective managements of Newco, AHS and Maxum have further
represented that:
(i) Each of AHSC Acquisition and MXHC Acquisition will be a wholly owned
subsidiary of Newco formed solely for the purposes of effectuating the
Transaction;
(ii) Neither AHSC Acquisition nor MXHC Acquisition will engage in any
activities other than those necessary to effectuate their respective mergers
into AHS and Maxum;
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(iii) Neither AHSC Acquisition nor MXHC Acquisition will own any assets
prior to the effectuation of the Transaction (other than a de minimis amount of
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cash, representing their initial capitalization); and
(iv) Any cash held by AHSC Acquisition or MXHC Acquisition prior to the
effectuation of the Transaction will be transferred to the corporation into
which it merges by virtue of the consummation of the merger.
As to various questions of fact material to our opinion, we have relied
upon the Certificates of officers of each of Newco, Maxum, AHSC Acquisition and
MXHC Acquisition, and the certificates of public officials as well as any
representations in the Documents. We have conducted no independent
investigation of such matters, and have no knowledge that such officers'
certificates are inaccurate or incomplete.
Based on the information set forth in the Documents, the Registration
Statement, the Proxy Statement and the foregoing representations, and subject to
the qualifications, facts, limitations and assumptions set forth herein,
including the assumption that the Transaction is effected pursuant to, and on
the terms set forth in, the Merger Agreement, it is our opinion that, for
reasons hereinafter set forth, (i) the Transaction will be treated, for federal
income tax purposes, as a transaction described in Section 351 of the Internal
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Revenue Code of 1986, as amended (the "Code") and (ii) the tax consequences to
the Stockholders of AHS and Maxum will be as follows:
1. A Stockholder of AHS or Maxum will not recognize gain or loss on the
conversion of his shares of stock of AHS or of Maxum into shares of stock in
Newco.
2. A Stockholder of AHS or Maxum who receives cash in lieu of fractional
shares will recognize gain equal to the lesser of (a) the amount of cash
received or (b) the excess (i) of the sum of (A) the value of the Newco shares
received and (B) the cash received over (ii) the tax basis for his AHS or Maxum
shares surrendered. Assuming such Stockholder held his shares of AHS or Maxum
stock as a capital asset, such gain would be capital gain.
3. A Stockholder of AHS or Maxum who receives cash upon the exercise of
dissenter's appraisal rights will recognize gain or loss equal to the difference
between the amount of cash received and such Stockholder's tax basis for his
shares of AHS or Maxum stock. If the shares of AHS or Maxum stock were a capital
asset in the hands of such a dissenting Stockholder, the gain or loss recognized
would be a capital gain or loss.
4. The aggregate basis of shares of Newco stock received in the
Transaction by a Stockholder of AHS or Stockholder of Maxum will be the same as
such Stockholder's
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aggregate tax basis for his shares of AHS or Maxum stock surrendered in exchange
therefor decreased by the amount of any cash received and increased by any gain
recognized.
5. If a Stockholder of AHS or Maxum held his shares of AHS or Maxum stock
as a capital asset immediately prior to the Transaction, his holding period for
the shares of Newco Common Stock received in the Transaction will include the
period during which he held the shares of AHS or Maxum stock.
FACTS
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As of _________________, 1996, AHS had two classes of issued and
outstanding stock: (i) Series B Senior Convertible Preferred Stock, $0.03 par
value (the "AHS Series B Preferred Stock") and (ii) Common Stock, $0.03 par
value ("AHS Common Stock"). As described below, immediately prior to the
Transaction, AHS will, in connection with the Refinancing, issue shares of a
third class of stock, AHS Series C Preferred Stock, $0.03 par value ("AHS Series
C Preferred Stock").
Each share of AHS Series B Preferred Stock is convertible into 100 shares
of AHS Common Stock. The AHS Series B Preferred Stock is entitled to certain
preferences upon a liquidation of AHS. The AHS Series B Preferred Stock is
entitled to vote with the AHS
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Common Stock together as a class on any transaction with respect to which the
holders of AHS Common Stock are entitled to vote, except with respect to the
election of directors and other transactions that might affect the AHS Series B
Preferred Stock, upon which the holders of AHS Series B Preferred Stock vote
separately as a class. Each share of AHS Series B Preferred Stock is entitled
to 100 votes.
The Transaction must be approved by the holders of a majority of the issued
and outstanding shares of AHS Series B Preferred Stock and the holders of the
majority of the issued and outstanding shares of the AHS Common Stock voting as
separate classes.
As of __________________, 1996, Maxum had a single class of issued and
outstanding stock, $0.01 par value (the "Maxum Common Stock"). As described
below, prior to the Transaction, Maxum will, in connection with the Refinancing,
issue shares of a second class of stock, Maxum Series B Preferred Stock, $0.01
par value ("Maxum Series B Preferred Stock").
AHS is indebted to GECC pursuant to (i) a loan and security agreement dated
June 1, 1993 and (ii) a note originally issued to Philips Credit Corporation in
March, 1989, and acquired by GECC on or about December 31, 1992. AHS is indebted
to GEMS pursuant to certain installment sales contracts, lease agreements,
financing agreements, service agreements, promissory notes and installment notes
entered into by AHS with GEMS.
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Maxum and certain of its subsidiaries are indebted to GEMS pursuant to an
agreement dated as of June 1, 1993 and certain installment sales contracts,
lease agreements, financing agreements, service agreements, promissory notes and
installment notes between Maxum (and certain of its subsidiaries) and GEMS.
In the Refinancing, (a) GECC and GEMS will reduce the amount by which AHS
is indebted to GECC and GEMS and make various concessions with respect to the
terms of the remaining AHS indebtedness to them in exchange for specified
consideration, including the issuance of AHS Series C Preferred Stock to GEMS
and (b) GEMS and GECC will reduce the amount by which Maxum (and certain of its
subsidiaries) are indebted to GEMS and GECC and make concessions with respect to
the conditions of the remaining Maxum indebtedness to them in exchange for
specified consideration, including the issuance of Maxum Series B Preferred
Stock to GEMS. Approval of the Transaction by the AHS Stockholders and the Maxum
Stockholders is a condition precedent to the Refinancing.
Each share of AHS Series C Preferred Stock will be convertible into one
share of AHS Common Stock. The aggregate number of shares of AHS Series C
Preferred Stock issued to GEMS will be convertible into a number of shares of
AHS Common Stock which would be equal to approximately 48% of the shares of
outstanding AHS Common Stock at the effective time of the merger. Each share of
AHS Series C Preferred Stock is entitled
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to the same dividend distribution as the Common Stock into which it could be
converted. In the event of a liquidation or dissolution or certain transactions
involving a change of control of AHS, each share of AHS Series C Preferred Stock
is entitled to a liquidation (or sales price) preference of a specified dollar
amount. Such liquidation preference will differ as to amount if the liquidation
preference arises by reason of a bankruptcy or similar event as opposed to any
other event.
Each share of Maxum Series B Preferred Stock will be convertible into one
share of Maxum Common Stock. The aggregate number of shares of Maxum Series B
Preferred Stock issued to GEMS will be convertible into a number of shares of
Maxum Common Stock which would be equal to approximately 48% of the shares of
Maxum Common Stock at the effective time of the Merger. Each share of Maxum
Series B Preferred Stock is entitled to the same dividend distribution as the
Common Stock into which it could be converted. In the event of a liquidation or
dissolution or certain transactions involving a change of control of Maxum, each
share of Maxum Series B Preferred Stock is entitled to a liquidation (or sales
price) preference of a specified dollar amount. Such liquidation preference
will differ as to amount if the liquidation preference arises by reason of a
bankruptcy or similar event as opposed to any other event.
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The Transaction will be accomplished by (i) the merger of AHSC Acquisition
into AHS with AHS being the surviving entity, and (ii) the merger of MXHC
Acquisition into Maxum with Maxum as the surviving entity in the merger.
Pursuant to the terms of the merger of AHSC Acquisition into AHS: (i) each
share of AHS Common Stock will be converted into 0.100 shares of Newco Common
Stock; (ii) each share of AHS Series B Preferred Stock will be converted into 10
shares of Newco Common Stock, and (iii) each share of AHS Series C Preferred
Stock will be converted into 1.25088 shares of Newco Series A Preferred Stock,
$0.001 par value ("Newco Series A Preferred Stock").
Pursuant to the terms of the merger of MXHC Acquisition into Maxum: (i)
each share of Maxum Common Stock will be converted into 0.598 shares of Newco
Common Stock, and (ii) each share of Maxum Series B Preferred Stock will be
converted into 83.392 shares of Newco Series A Preferred Stock.
The terms of the Newco Series A Preferred Stock are identical to those of
the AHS Series C Preferred Stock and the Maxum Series B Preferred Stock, except
that the conversion rights, preferential liquidation rights and dividend rights
are determined by reference to the Newco Common Stock.
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Each of AHSC Acquisition and MXHC Acquisition is a wholly owned subsidiary
of Newco formed solely for the purposes of effectuating the Transaction. Neither
AHSC Acquisition nor MXHC Acquisition will engage in any activities other than
those necessary to effectuate their respective mergers into AHS and Maxum.
Neither AHSC Acquisition nor MXHC Acquisition will own any assets prior to the
effectuation of the Transaction (other than a de minimis amount of cash,
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representing their initial capitalization). Any cash held by AHSC Acquisition or
MXHC Acquisition prior to the effectuation of the Transaction will be
transferred to the corporation into which it merges by virtue of the
consummation of the merger.
ANALYSIS
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Immediately prior to the merger, AHS and Maxum will each have a class of
nonvoting stock outstanding, the AHS Series C Preferred Stock and the Maxum
Series B Preferred Stock, respectively. In each merger, the nonvoting preferred
stock of the target (AHS or Maxum) will be converted into nonvoting preferred
stock of Newco, the parent corporation of the entity merged out of existence in
the merger. Accordingly, the mergers will not result in Newco acquiring control
(within the meaning of Section 368(c) of the Code) solely for voting stock of
Newco. Therefore, neither the merger of AHSC Acquisition into AHS nor the merger
of MXHC Acquisition into Maxum should qualify as a reorganization within the
meaning of Section 368(a) of the Code. Specifically, neither
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merger is described in paragraph (C), (D), (E), (F) or (G) of Section 368(a) (1)
or in paragraph (D) of Section 368(a) (2). Further, the Transaction is not one
which qualifies as a reorganization described in paragraph (A) of Section 368(a)
(1) by reason of being described in paragraph (E) of Section 368(a) (2), because
368(a) (2) (E) would require Newco to acquire control (within the meaning of
Section 368(c)) of the target corporation solely for voting stock of Newco. A
similar acquisition of control of the target corporation by Newco would be
required to qualify as a reorganization described in Section 368(a) (1) (B).
Because AHSC Acquisition and MXHC Acquisition are special purpose
transitory corporations, their existence will be ignored for federal income tax
purposes. Rev. Rul. 79-272, 1979-2 C.B. 124; and Rev. Rul. 67-448, 1967-2 C.B.
144. Thus, for federal income tax purposes, the Transaction must be analyzed as
though Newco issued the shares of its Newco Series A Preferred Stock directly to
GEMS in exchange for the AHS Series C Preferred Stock and the Maxum Series B
Preferred Stock and issued the shares of its common stock to the holders of the
Maxum Common Stock, the AHS Common Stock and the AHS Series B Preferred Stock.
Section 351(a) of the Code provides that:
No gain or loss shall be recognized if property is transferred to a
corporation by one or more persons solely in exchange for stock in such
corporation and
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immediately after the exchange such person or persons are in control (as
defined in section 368(c)) of the corporation./1/
As defined in Section 368(c), control means ownership of 80% of the voting
stock of a corporation and 80% of each class of nonvoting stock of the
corporation.
In the Transaction, property (stock of AHS and stock of Maxum) will be
deemed transferred to Newco by the holders of (i) the AHS Series C Preferred
Stock, (ii) the AHS Series B Preferred Stock, (iii) the AHS Common Stock, (iv)
the Maxum Series B Preferred Stock, and (v) the Maxum Common Stock. Immediately
following the Transaction, the persons deemed to transfer property to Newco will
own all of the issued and outstanding voting and nonvoting stock of Newco.
Accordingly, such persons will be in control of Newco immediately following the
Transaction and the Transaction will be one described in Section 351 of the
Code.
Because the Transaction is one described in Section 351 of the Code:
1. A Stockholder of AHS or Maxum will not recognize gain or loss on the
conversion of his shares of stock of AHS or Maxum into shares of stock in Newco.
Section 351(a).
___________________
/1/Section 351(a) does not apply to a transfer of property to a
corporation which is an investment company. Section 351(e). Newco will not
be an investment company. See Treas. Reg. (S)1.351-1(c).
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2. The aggregate basis of shares of Newco stock received in the
Transaction by a Stockholder of AHS or Maxum stock will be the same as such
Stockholder's aggregate tax basis for his shares of AHS or Maxum stock
surrendered in exchange therefor decreased by the amount of any cash received
and increased by any gain recognized. Section 358(a).
3. If a Stockholder of AHS or Maxum held his shares of AHS or Maxum stock
as a capital asset immediately prior to the Transaction, his holding period for
the shares of Newco stock received in the Transaction will include the period
during which he held the shares of AHS or Maxum stock. Section 1223(1).
4. A Stockholder of AHS or Maxum who receives cash in lieu of fractional
shares will recognize gain equal to the lesser of (a) the amount of cash
received or (b) the excess of (i) the sum of (A) the value of the Newco shares
received and (B) the cash received over (ii) the tax basis for his AHS or Maxum
shares surrendered. Section 351(b). Assuming such Stockholder held his shares of
AHS or Maxum stock as a capital asset, such gain will be capital gain. (Because
Newco is acquiring both AHS and Maxum, the indirect ownership of the AHS
Stockholders in AHS and of the Maxum Stockholders in Maxum will be substantially
reduced. Accordingly, notwithstanding the possible application of Section 304 of
the Code, any distribution will not be substantially equivalent to a dividend.)
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5. A Stockholder of AHS or Maxum who receives cash upon the exercise of
dissenter's appraisal rights will recognize gain or loss equal to the difference
between the amount of cash received and such Stockholder's tax basis for his
shares of AHS or Maxum stock. If the shares of AHS or Maxum stock were a capital
asset in the hands of such a dissenting Stockholder, the gain or loss recognized
will be a capital gain or loss. (The dissenter will not be a party to the
Section 351 transaction. Further, if the dissenter is deemed to own Newco shares
as a result of attribution from a related party, the Transaction will (for the
reasons given in 4 above) result in the recognition of gain or loss on a
redemption of stock, rather than the receipt of a dividend.)
Inasmuch as the issuance of the AHS Series C Preferred Stock and the Maxum
Series B Preferred Stock are conditioned on the approval of the Transaction by
the AHS Stockholders and the Maxum Stockholders, it is possible that the
Internal Revenue Service will take the position that the issuance of the AHS
Series C Preferred Stock and the Maxum Series B Preferred Stock should be
ignored for federal income tax purposes. In such event, the Transaction would
have to be analyzed, for federal income tax purposes, as though GEMS (or GECC)
had received the Newco Series A Preferred Stock from Newco in exchange for the
reduction of and modifications to the AHS and Maxum liabilities in the
Refinancing. In such an event, it is likely that one or both of the mergers
would be a reorganization described in Section 368(a) (1) (A) as a result of
being described in Section 368(a)(2) (E).
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For the reasons given below:
1. If both of the mergers are treated as reorganizations within the
meaning of Section 368(a), the federal income tax consequences of the
Transaction to the holders of the AHS Series B Preferred Stock, the AHS Common
Stock and the Maxum Common Stock will be governed by the rules related to
reorganizations. Insofar as relevant to the holders of AHS Series B Preferred
Stock, AHS Common Stock or Maxum Common Stock, the federal income tax
consequences under the reorganization rules are substantially identical to those
applicable to a Section 351 transaction.
2. If only one of the mergers is a reorganization within the meaning of
Section 368(a), the tax consequences to the holders (other than GEMS or GECC) of
stock in the target corporation which was party to the merger treated as a
reorganization will be determined under the rules related to reorganizations.
The Transaction will be one described in Section 351(a) with respect to the
Stockholders of the other target corporation and GEMS.
If as part of an integrated transaction, (i) a corporation acquires (A)
some property in a transaction which is a reorganization within the meaning of
Section 368(a) and (B) other property in an exchange which is not a
reorganization within the meaning of Section
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368(a) and (ii) immediately following the integrated transaction, the
transferors control (within the meaning of Section 368(c)) the acquiring
corporation, the transaction qualifying as a reorganization will, for purposes
of determining the tax consequences to the transferors in the direct exchange of
property for stock, be treated as though it were a direct exchange of property
for stock of the acquiring corporation. Rev. Rul. 68-357, 1968-2 C.B. 144; Rev.
Rul. 76-123, 1976-2 C.B. 95; and LTR 9143025 (July 24, 1991).
If GEMS or GEMS and GECC are treated as having reduced the AHS and Maxum
debt in exchange for the Newco Series A Preferred Stock, GEMS (or GEMS and GECC)
will be treated as having transferred property (a portion of the AHS and Maxum
debt) to Newco in exchange for the Newco Series A Preferred Stock./2/
Accordingly, if the issuance of the AHS Series C Preferred Stock and Maxum
Series B Preferred Stock were ignored and one or both of the mergers treated as
a reorganization within the meaning of Section 368(b), the Stockholders of the
target corporation, if any, whose merger did not constitute a reorganization
would be treated as having engaged in a Section 351 transaction.
_____________________
/2/If GECC is treated as one of the transferors, it must also be
treated as having distributed the Newco Series A Preferred Stock it
received to GEMS. Such a transfer of stock received in a Section 351
transaction to a shareholder (i.e., a transfer by GECC to GEMS) does not
violate the requirement that the transferors control the transferee
corporation immediately following the transaction. Section 351(c).
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The opinions expressed in this letter are limited solely to federal income
tax law. No opinion has been sought and none has been given concerning the tax
consequences of the Transaction under the laws of any state, local or foreign
jurisdiction. We express no opinion on the applicability of any other laws to
the Transaction. Moreover, we express no opinion as to the federal income tax
consequences of the Transaction to GEMS or GECC. This opinion constitutes this
firm's professional legal opinion as to certain legal consequences of, and the
applicability of certain laws to, the transactions contemplated by the
Documents. This firm does not, by rendering such opinion, become a guarantor of
the matters addressed herein.
You should be aware that the above opinions and the discussion contained in
the Proxy under the caption "Federal Income Tax Considerations" and in this
letter represent our conclusions as to the application of existing law,
including the Code, the Treasury Regulations promulgated thereunder, the
legislative history thereof and rulings and pronouncements of the Internal
Revenue Service relevant to the transaction described above. There can be no
assurance that contrary positions will not be taken by the Internal Revenue
Service or that the law will not change. Our opinions are based on present
laws, including any available interpretations and legislative history thereof,
and on existing regulations. No assurance can be given that the Transaction
will comply with any subsequent regulations or administrative interpretations.
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The opinions rendered herein are as of the date hereof. We assume no
obligation to update or supplement these opinions to reflect any facts which may
hereafter come to our attention or any changes in law which may hereafter occur.
Based upon the foregoing, we are of the opinion that the statements and
legal conclusions contained in the Proxy Statement under the caption "Federal
Income Tax Consideration" are correct and the discussion thereunder does not
omit any material provision with respect to the matters covered.
The opinions expressed herein are solely for the benefit of the addressee
and its stockholders for the evaluation of the transactions described herein and
may not be relied upon for any other purpose.
Very truly yours,
STOREY ARMSTRONG STEGER & MARTIN, P.C.