[Letterhead of Ernst & Young LLP]
August 2, 1996
Board of Directors Board of Directors
Axion Inc. and Axion HealthCare Inc. Bristol-Myers Squibb Company
1111 Bayhill Drive, Suite 125 345 Park Avenue
San Bruno, California 94066 New York, New York 10154
Dear Board Members:
This letter sets forth our opinion concerning certain Federal income tax
consequences that would arise from the pro rata distribution by Axion Inc.
("Distributing") to its shareholders of the stock of Axion HealthCare Inc.
("Controlled"), followed by the acquisition of the stock of Distributing by
Bristol-Myers Squibb Company ("Acquiring") solely in exchange for Acquiring
stock (the "Acquisition"). Such transactions, along with the other transactions
described herein, are hereinafter referred to as the "Proposed Transaction."
In rendering this opinion, we have relied upon the facts, summarized below, as
they have been presented to us orally and in the following documents (the
"Documents"):
1. The representation letter provided by the managements of Distributing and
Controlled dated August 2, 1996, attached hereto as Exhibit A.
2. The representation letter provided by the management of Acquiring, dated
August 2, 1996, attached hereto as Exhibit B.
3. The Agreement and Plan of Merger dated as of August 2, 1996 among
Acquiring, OTN Acquisition Sub Inc., and Distributing (the "Merger
Agreement") and the agreements set forth in Section 3.01 thereof (the
"Ancillary Agreements").
4. The Joint Proxy Statement/Prospectus and the Required AHC Documents, as
defined in Section 4.01(d)(ii) of the Merger Agreement.
5. The Form S-4 Registration Statement under the Securities Act of 1933 filed
by Acquiring in connection with the transaction contemplated by the Merger
Agreement (the "Form S-4").
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August 2, 1996
6. Internal Revenue Service Revenue Procedure 96-30 Checklist Questionnaire.
7. Representation letters received from various shareholders of Distributing
in the form attached hereto as Exhibit C (relating to their intention with
respect to the holding of stock of Controlled and Acquiring.)
You have advised us that the facts contained in the Documents, and as set forth
below, provide an accurate and complete description of the facts and
circumstances concerning the proposed transactions. We have made no independent
determination regarding such facts and circumstances and, therefore, have relied
upon the Documents for purposes of this letter. Any changes to the facts or to
the Documents may affect the conclusions stated herein, perhaps in an adverse
manner.
We understand that you will include references to Ernst & Young LLP and our
opinion in the Form S-4 and will include a copy of our opinion as an exhibit
thereto. Subject to our prior review and approval, we consent to the inclusion
of such references and a copy of our opinion.
STATEMENT OF FACTS
Axion Inc. ("Distributing") was incorporated under Delaware law in 1987, as
Access Biotechnology, Inc., and changed its name to Axion in 1994. Through
subsidiaries, Distributing is engaged in the Clinical/Disease Management and
Distribution Businesses, described more fully below.
The Clinical/Disease Management Business
The Clinical/Disease Management Business is a collection of related
cancer-focused healthcare activities designed to promote provision of the
highest quality cost-effective cancer care by office-based oncologists. This
business began upon Distributing's incorporation in 1987 through its clinical
studies activity. This activity, which continues to the present, consists of
coordinating the study of emerging cancer drugs and treatments developed by
pharmaceutical
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August 2, 1996
and biotechnology companies. A significant contribution of Distributing in this
area is its ability, through its relationships with the Southwest Oncology Group
and others, to facilitate these studies on patients in doctor's offices.
Depending on the particular item, the company will help develop the parameters
of the study, negotiate the contract, act as project manager, provide logistical
support (such as ordering, receiving, tracking and disbursing drug shipments,
and tracking patient sign-ups and responses), receive and disburse payments,
collect and analyze the data, and prepare a report of the results. The drug
utilization data developed is likely the most comprehensive available in the
industry. Revenues are derived from contracts with drug companies and practice
groups.
The information and relationships developed in the clinical studies activity
have resulted in the provision of other services, largely to office-based
oncologists, including reimbursement assistance, preparation of Federal Drug
Administration applications, practice management, and (through OPUS Health
Systems, described below), inventory management. Moreover, its knowledge and
experience have enabled the company to develop cancer drug protocols and
treatment guidelines which serve as integral parts of its disease management
program. In this activity, began in 1993, the company negotiates with payers to
manage the delivery of cancer care. In this regard, the company has developed a
network of physicians through which such care is provided using the protocols
and guidelines described above, and the computer resources described below, all
with a view to providing the highest quality, cost-effective cancer treatment.
At the end of 1994, the assets and liabilities of the Clinical/Disease
Management Business were contributed to a newly-formed wholly-owned subsidiary,
formerly OnCare Health Inc. (presently named Axion HealthCare Inc.)
("Controlled"), which conducts all of the foregoing activities.
The Distribution Business
In September 1990, Distributing began to distribute oncology pharmaceuticals and
related supplies to office-based oncology practices (the "Distribution
Business"). The Distribution Business provides these practices with next-day
delivery (compared with days or weeks when the drugs are ordered from the
manufacturer), thereby reducing inventory requirements and pharmaceutical
expiration.
Board of Directors Page 4
August 2, 1996
Distributing directly conducted both the Clinical/Disease Management and the
Distribution Businesses until 1993. In July 1993, Distributing entered into a
series of agreements with Bristol-Myers Squibb Company ("Acquiring") to form the
Oncology Therapeutics Network Joint Venture, L.P., a Delaware limited
partnership ("OTNJV"). Distributing formed a wholly-owned subsidiary, Oncology
Therapeutics Network Corporation ("OTNC"), to act as the general partner of
OTNJV. A wholly-owned subsidiary of Acquiring ("BMS Partner Sub") is the limited
partner. Distributing contributed the assets of its Distribution Business to
OTNC, which, in turn, contributed those assets to OTNJV. In addition,
Distributing agreed to provide all administrative, operational, and other
services necessary to support the joint venture, subject to reimbursement for
its costs by OTNJV. Acquiring appointed OTNJV as its exclusive sales agent for
Acquiring's oncology products for office-based practices.
In addition to the Clinical/Disease Management and Distribution Businesses,
Distributing conducts an Information Management Business and previously
conducted a Physicians Practice Management Business.
The Information Management Business
The Information Management Business, which provides inventory and information
management systems to oncology practices, is conducted through OPUS Health
Systems, Inc. formerly OnCare Systems Inc. ("OPUS"), a wholly-owned subsidiary
of Distributing. OPUS provides oncologists with state-of-the-art technology in
inventory management and drug utilization. The information provided by the
Information Management Business allows oncologists to use the most appropriate
pharmaceuticals (including generics), and then only when needed, thereby
reducing inventory carrying costs.
Included in OPUS' Information Management Business is the OPUS Station activity
("OPUS Station"). OPUS Station is an automated drug dispensing and inventory
tracking activity, specifically tailored for use in the outpatient setting.
Located in the doctor's office, the OPUS Station equipment links the local
oncology practice with OTN.
OPUS also owns and operates the OPUS Matrix, a Windows-based application, that
generates recommended treatment procedures from patient diagnoses and treatment
regimens. As part of the disease management activity, OPUS Matrix provides
office-based oncology practices with
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August 2, 1996
access to a central database containing drug and treatment information.
The Physician Practice Business
OnCare Inc., previously a more-than-80-percent-owned subsidiary of Distributing,
is an oncology-specific physician practice management company, which acquires
and manages local oncology practices (the "Physician Practice Business"). The
oncologists who were the former owners of the acquired practices work as
professional service providers to the company. OnCare Inc.'s providers (who
employ the OnCare treatment guidelines in their practice) are represented to
health plans as part of a select managed cancer care network that can offer
documented proof of high-quality, cost-effective care. All of Distributing's
common stock of OnCare Inc. was distributed to its shareholders on December 31,
1995.
As of June 30, 1996, Distributing had one class of common stock, and several
classes of preferred stock, issued and outstanding. Distributing also has
outstanding certain warrants and employee options with respect to its common
stock. The common stock consists of 15 million authorized shares, of which
approximately 1.6 million are issued and outstanding. Preferred stock consists
of 10 million authorized shares, of which approximately 6.7 million are issued
and outstanding. The preferred stock is divided into Classes A - F; each class
is convertible into common stock. No dividends are in arrears on any class of
preferred stock. Distributing also has outstanding certain employee stock
options.
Distributing uses the accrual method of accounting for Federal income tax
purposes and files its consolidated Federal income tax return on a calendar year
basis.
BUSINESS PURPOSE
The Acquisition is being undertaken to secure a number of strategic objectives
for Distributing and Acquiring, including (a) elimination of a conflict
perceived by the customers of the Distribution Business between that business
and the clinical/disease management and physician practice activities; (b) the
opportunity to increase sales to office-based oncology practices; and (c)
allowing Acquiring to expand the quality of services provided to such practices.
Board of Directors Page 6
August 2, 1996
Distributing must separate the Distribution Business from the rest of
Distributing's activities in order to permit the Acquisition to occur. Acquiring
has stated that it has no interest in acquiring from Distributing any assets
other than (i) 100 percent of OTN's interest in OTNJV, and (ii) the OPUS Station
activities (collectively referred to as the "Wanted Assets"). Accordingly, as a
condition to the acquisition of the stock of Distributing, Acquiring will
require that Distributing divest all assets and liabilities other than the
Wanted Assets (and related liabilities) prior to Acquiring's acquisition of that
stock. Further, separation of the Distribution Business from its other
activities is integral to Distributing's decision to undertake the Acquisition.
PROPOSED TRANSACTION
The following transactions have been proposed for the business reasons described
above.
1. OTNJV will distribute to OTN, cash representing a preference payment
to which OTN is entitled for periods ending June 30, 1996. OTN will
distribute that cash to Distributing.
2. OPUS will transfer to a newly created corporation, OPUS Sub, the
assets related to the OPUS Matrix activity. OPUS Sub will assume all
related liabilities.
3. OPUS will distribute the stock of OPUS Sub to Distributing.
4. Distributing will contribute to Controlled all assets other than the
Wanted Assets. Controlled will assume all liabilities other than those
related to the Wanted Assets and those previously assumed by OPUS Sub.
5. All of Distributing's preferred stock will be converted into common
stock by vote of the preferred shareholders and previously nonvested
Distributing options will become vested. All options will be exercised
or cancelled. Distributing will provide loans to facilitate exercise.
6. Controlled will be recapitalized through the exchange by Distributing
of all of its shares of Controlled common stock for a number of shares
of Controlled preferred
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stock equal to the number of shares of Distributing stock outstanding.
7. Distributing will distribute all of the stock of Controlled to its
shareholders on a share-for-share basis.
8. Acquiring will cause a newly formed wholly-owned subsidiary, OTN
Acquisition Sub Inc., to merge into Distributing. In the merger,
Distributing's shareholders will receive solely stock of Acquiring in
exchange for their Distributing stock. Cash will be paid in lieu of
fractional shares.
MEMORANDUM OF AUTHORITIES
The Distribution of Controlled Stock
Section 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the
"Code") provides in part that a reorganization includes a transfer by a
corporation of part of its assets to another corporation if, immediately after
the transfer, the shareholders of the transferor are in "control" (as defined
below) of the transferee, and, pursuant to the plan, stock or securities of the
transferee are distributed in a transaction which qualifies under Section 355 of
the Code.
Section 355 provides for the tax free distribution of the stock of a controlled
subsidiary. In general, to meet the requirements of Section 355 --
(i) Immediately before the distribution, the distributing corporation must
"control" the corporation whose shares are being distributed. The term
"control" is defined by Section 368(c) to mean stock possessing at least 80
percent of the total combined voting power and at least 80 percent of the
total number of shares of all other classes of stock. Section 355(a)(1)(A);
(ii) Immediately after the distribution, both the distributing and controlled
corporations must be engaged in the active conduct of a trade or business.
Section 355(a)(1)(C) and (b). This active conduct of a trade or business
requirement is satisfied only if the trade or business was actively
conducted throughout the five-year period ending on the date of
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August 2, 1996
distribution, and that business (or control of a corporation conducting
that business) was not acquired within that period in a transaction in
which gain or loss was recognized.
Section 355(b)(2);
(iii)The distributing corporation must distribute all of its stock and
securities in the controlled corporation or distribute enough stock to
constitute control and establish to the satisfaction of the Treasury that
the retention of stock in the controlled corporation is not part of a tax
avoidance plan. Section 355(a)(1)(D);
(iv) The transaction must not be used principally as a device for the
distribution of earnings and profits. Section 355(a)(1)(B);
(v) There must be a corporate business purpose for the transaction and a
continuity of interest. Section 1.355-2(b) and (c) of the Income Tax
Regulations (the "Regulations"); and
(vi) The transaction must not constitute a "disqualified distribution" as
defined in Section 355(d)(2) of the Code.
Control Immediately Before the Distribution
With regard to the Section 355 requirements above, the test described in (i) is
satisfied because Distributing will own 100 percent of the stock of Controlled
immediately before the distribution.
Active Conduct of a Trade or Business
The active trade or business requirement of Section 355(b) has several
components: (i) the distributing and controlled corporations must be engaged in
the active conduct of a trade or business immediately after the distribution;
(ii) the business(es) must have been actively conducted for the five-year period
before the distribution; and (iii) neither the active business nor the stock of
the controlled corporation may have been acquired in a taxable transaction
during the five-year period preceding the distribution. Sections 355(b)(1) and
(2).
The five-year active business requirement is satisfied if the businesses have
been actively
Board of Directors Page 9
August 2, 1996
conducted by the distributing or controlled corporations for five years before
the distribution. Corporations are considered actively engaged in the conduct of
a trade or business if they carry on a specific group of activities, generally
including the collection of income, for the purpose of earning a profit and the
payment of expenses. Section 1.355-3(b)(2)(ii) of the Regulations. A corporation
is engaged in the active conduct of a trade business if it is directly so
engaged, or if "substantially all" of its assets consist of stock of one or more
corporations which are so engaged. Section 355(b)(2)(A). A corporation will meet
this "substantially all" requirement if 90 percent of the fair market value of
its gross assets consists of stock of qualifying corporations. Rev. Proc. 77-37,
1977-2 C.B. 568.
Generally, a trade or business is considered to be actively conducted if the
corporation itself performs active and substantial management and operational
functions. Although activities performed on behalf of the corporation by
independent contractors and other parties outside the corporation are not
considered as performed by the corporation, the active conduct requirement may
be satisfied even though some activities are performed by others. Section
1.355(b)(2)(iii) of the Regulations.
Distributing has been directly engaged in the Clinical/Disease Management
Business from 1987 to 1994, and indirectly engaged in the Clinical/Disease
Management Business through its wholly-owned subsidiary Controlled from 1995 to
the present. The activities of Controlled that relate to the Clinical/Disease
Management Business include the full process of earning income or profit, as
described in Section 1.355-3(b)(2)(ii) of the Regulations.
In this regard, we note that the disease management activity began in 1993. It
is unclear whether this activity is a part of a single business, or is a
separate business activity. Section 1.355-3(b)(3)(ii) of the Regulations
provides that:
"[I]f a corporation engaged in the active conduct of one trade or business
during that five-year period purchased, created, or otherwise acquired
another trade or business in the same line of business, then the
acquisition of that other business is ordinarily treated as an expansion of
the original business, all of which is treated as having been actively
conducted during that five-year period, unless that purchase, creation, or
other acquisition effects a change of such a character as to constitute the
acquisition of a new or different business."
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August 2, 1996
As explained supra, in light of the fact that the disease management activities
evolved out of, and use the information developed by, the corporation's other
cancer focused healthcare activities, an argument can be made that these are all
part of single business activity. Even if, however, the disease management
activity is viewed to be a separate business, Controlled will nonetheless
satisfy the 5-year active business test by virtue of its remaining activities.
In addition, the proposed transactions contemplate that Controlled will have a
substantial amount of cash and similar assets. Assuming arguendo that these
assets are not viewed as active business assets (see below), nonetheless, the
Internal Revenue Service (the "Service") has held that a corporation may meet
the active business test even though a small percentage of its assets is
directly utilized in the active business activity. See Rev. Rul. 73-44, 1973-1
C.B. 182; GCM 34238 (where the active business assets amount to 5 percent of the
total assets).(1) See also, TAM 8308007 (October 29, 1982). Instead, as
described more fully below, the existence of cash is analyzed under the "device"
rules.
Distributing has been directly engaged in the Distribution Business from 1990 to
1993, and indirectly engaged in the Distribution Business from 1993 to the
present through its wholly-owned subsidiary OTN (which owns a 50 percent general
partnership interest in OTNJV). The conduct of the Distribution Business
includes the full process of earning income or profit, as described in Section
1.355-3(b)(2)(ii) of the Regulations.
We believe that the formation of OTNJV and the transfer of assets to it in 1993
does not cause the Distribution Business previously conducted by Distributing to
fail to satisfy the 5-year active business test. In this regard, we note that
OTN actively manages the operations of OTNJV. Accordingly, applicable
authorities indicate that it is still actively engaged in the Distribution
Business begun by Distributing.
In Rev. Rul. 79-394, 1979-2 C.B. 141, amplified by Rev. Rul. 80-181, 1980-2 C.B.
121, the
____________________
(1) Pursuant to Section 6110(j)(3) of the Code, private letter rulings,
technical advice memorandums, and GCMs are not cited as precedent, but to
illustrate a consistent position by the Service.
Board of Directors Page 11
August 2, 1996
Service concluded that operational activities relating to corporation X, that
were conducted by another member of the affiliated group of which X was a
member, could be taken together with the management activities conducted by the
officers of X to satisfy the active trade or business requirement of Section
355. Similarly, in Rev. Rul. 92-17, 1992-1 C.B. 142, a limited partnership
("LP") owned certain real estate that it operated for more than 5 years. D
corporation had been a 20 percent general partner in LP for more than 5 years.
D's officers performed active and substantial management functions for the
business conducted by LP, including supervising LP's employees. The Service
concluded that management activities conducted by D in support of the
operational activities conducted by LP satisfied the active trade or business
requirements of Section 355. See also, PLR 9510005 (December 5, 1994) in which
the Service applied Rev. Rul. 92-17 and found that a corporation met the active
trade or business requirement of Section 355 where that corporation was the
managing general partner of a partnership that conducted a business meeting that
requirement. Furthermore, we understand that the day-to-day operations of the
Distribution Business changed very little (if at all) after the formation of the
partnership, and are now conducted largely by employees of OTN. Accordingly, we
believe that Distributing (through OTN) should be viewed as continuing its
Distribution Business.
Thus, for the foregoing reasons, we believe that the active trade or business
requirement for both Distributing and Controlled should be satisfied in this
case.
Distribution of Control
The requirement in (iii) will be satisfied in the proposed transaction because
Distributing will distribute 100 percent of the stock of Controlled to its
shareholders in the distribution.
Device to Distribute Earnings and Profits
As noted, Section 355(a)(1)(B) of the Code and Section 1.355-2(d) of the
Regulations provide that Section 355 does not apply to a transaction used
principally as a device for the distribution of the earnings and profits of the
distributing corporation, the controlled corporation, or both. The Regulations
provide that, generally, the determination of whether a transaction was used
principally as a device will be made from all of the facts and circumstances,
including, but not limited to, the presence or absence of certain factors
described therein. Section 1.355-2(d) of
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August 2, 1996
the Regulations.
Section 1.355-2(d)(2)(iii) of the Regulations provides that a sale or exchange
of the stock of the distributing or controlled corporation is evidence of a
device. Section 1.355-2(d)(2)(iii)(E) further provides, however, that if stock
is exchanged for stock in pursuance of a plan of reorganization in which no gain
or loss (or an insubstantial amount of gain) is recognized, the exchange is not
treated as evidence of device, and the device rules will be applied by reference
to the stock received. In the present case, the exchange of the stock of
Distributing after the spin-off will be effected pursuant to a transaction
qualifying as a tax-free reorganization described in Section 368(a)(1)(B) of the
Code. Accordingly, such exchange will not result in the transaction being
considered to have been used principally as a device. Further, it has been
represented that certain shareholders of Distributing have no plan or intention,
and the management of Distributing knows of no plan or intention on the part of
the remaining Distributing shareholders, to sell or exchange stock of Controlled
or Acquiring after the Acquisition.
In general, Section 1.355-2(d)(2)(iv)(B) of the Regulations provides that the
existence of assets not used in a trade or business (including cash and liquid
assets not related to the reasonable needs of the business) is evidence that the
transaction is being used principally as a device to distribute earnings and
profits. The strength of this evidence depends on all the facts and
circumstances, including the ratio for each corporation of the value of assets
not used in a trade or business to the value of assets that satisfy the active
trade or business requirement of Section 355. Section 1.355-2(d)(3)(ii) of the
Regulations provides that the existence of a corporate business purpose for the
transfer or retention of assets not used in a trade or business can outweigh the
evidence of device presented by such transfer or retention.
In the present case, cash and other liquid assets will be transferred by
Distributing to Controlled as part of the transaction. Management of
Distributing has indicated that the disease management activity of Controlled
(which, as noted, evolved from the clinical operations) will require substantial
funds beyond expected operating profits to maintain and expand its data base and
to market its services throughout the oncology community. We further understand
that, because these activities are in their initial stages, it would be very
difficult for Controlled to obtain lending from outside sources. Similarly,
management of Distributing and Controlled have represented that the cash and
other liquid assets will only be used in the business activities
Board of Directors Page 13
August 2, 1996
retained by Controlled or to satisfy obligations under agreements relating to
the Proposed Transaction. Further, we understand that Acquiring and Distributing
never considered that these assets would be retained in the Distribution
Business or otherwise included in the Acquisition. Therefore, arguably, the cash
and other liquid assets are related to the reasonable needs of Controlled's
business; in any event, there is a business purpose for the transfer.
The Service has ruled that a contribution to a controlled corporation, in
anticipation of a spin- off, made to allow the controlled corporation to expand
its business, is not indicative that the transaction is used principally as a
device to distribute earnings and profits. In Rev. Rul. 83- 114, 1983-2 C.B. 66,
immediately prior to the spin-off, the distributing corporation canceled
indebtedness owed by a controlled corporation in order to enable the latter to
expand its business with operating proceeds and investment capital. The
cancellation resulted in more than a 100- percent increase in the controlled
corporation's net worth. Rev. Rul. 83-114 concluded that, in light of the
business purpose for the contribution, the distribution was not used principally
as a device to distribute earnings and profits.
In addition, the Service has held that a transfer of cash to a controlled
corporation made to equalize values in a split-off transaction will not be
considered as evidence that the transaction is being used principally as a
device for the distribution of earnings and profits. See Rev. Rul. 64-102,
1964-1 C.B. 136 (capital contribution more than doubled the value of the
controlled corporation); Rev. Rul. 71-383, 1971-2 C.B. 180; Section
1.355-2(d)(3)(iv)(B) of the Regulations. Compare Rev. Rul. 86-4, 1986-1 C.B. 174
(transfer of investment assets by distributing to the controlled corporation
immediately prior to a pro-rata spin-off was a factor to be considered, along
with other factors, in determining whether the transaction was a device); cf.
Rev. Rul. 59-400, 1959-2 C.B. 114, (shift in earnings from a hotel business to a
rental real estate business approximately one year prior to a pro rata spin-off
resulted in nonqualification under Section 355 in light of the fact that rental
real estate was involved).
Accordingly, based on the facts and circumstances, cash and other liquid assets
can be contributed to a controlled corporation in anticipation of a distribution
without the transaction being considered to have been used principally as a
device to distribute earnings and profits. The instant transaction appears to
present such a case. Thus, in this case, there is an important business reason
for the distribution of the stock of Controlled, i.e., to facilitate the
acquisition by Acquiring. Further, as stated above, there is an important
business reason for the
Board of Directors Page 14
August 2, 1996
contribution of cash and similar assets--i.e., to fund the continued development
and expansion of the disease management activities. Moreover, these assets are
not to be included in the Acquisition. Accordingly, while not free from doubt,
we believe that the transaction should not be considered to have been used
principally as a device for the distribution of earnings and profits.
Business Purpose
Section 1.355-2(b) of the Regulations provides that Section 355 applies to a
transaction only if it is carried out for one or more corporate business
purposes. A transaction is carried out for a corporate business purpose if it is
motivated, in whole or substantial part, by one or more corporate business
purposes. A corporate business purpose is a real and substantial non-Federal tax
purpose germane to the business of the distributing corporation, the controlled
corporation, or the affiliated group (as defined in Section 1.355-3(b)(4)(iv) of
the Regulations) to which the distributing corporation belongs.
The business purpose test described in (vi) above should be satisfied because
the business purpose for the transaction is to facilitate a tax-free
reorganization. In order to complete the Acquisition under the facts of this
case, Acquiring is requiring Distributing to divest the assets described above.
The Service has long and consistently recognized that a spin-off made in order
to permit a tax-free reorganization involving the distributing corporation is
supported by a business purpose. See Rev. Rul. 68-603, 1968-2 C.B. 148, Rev.
Rul. 70-434, 1970-2 C.B. 83, and Rev. Rul. 78-251, 1978-1 C.B. 89. See also
Commissioner v. Morris Trust, 367 F. 2d 794 (4th Cir. 1966).
There are no other tax-free alternatives to accomplishing this business
objective. Thus, Acquiring cannot simply acquire the stock of OTN directly from
Distributing, as such an acquisition would subject Distributing to
characterization as an "investment company" as that term is defined under the
Investment Company Act of 1940, 15 U.S.C. ss. 80a-1 et seq. (the "1940 Act"). If
Distributing were an investment company it would be required to register with
the Securities and Exchange Commission (the "SEC"), and would become subject to
the 1940 Act's pervasive regulatory framework. Failure to register would subject
Distributing and its management to administrative and judicial penalties,
including the possible voiding of any contracts entered into by the company and,
possibly, criminal conviction of its management.
Board of Directors Page 15
August 2, 1996
Once a company registers with the SEC as an investment company, the company and
its directors, officers, substantial shareholders and other related persons are
subject to a broad set of regulatory restrictions administered by the SEC over a
great many areas, including the composition of the board of directors, incentive
compensation, issuances of stock, capital structure, asset composition and
transactions with affiliates.
In addition, Distributing's management believes that if it held a large amount
of its assets in the form of Acquiring stock, Controlled's disease management
activity would be severely adversely affected. Thus, one of the objectives of
this activity is to provide the most cost-effective care, including use of
pharmaceuticals. Further, Controlled's relationship with the oncology community
(including payers) is based upon this cost containment premise. Management
believes that Controlled's credibility, and consequently its ability to
function, would be seriously undermined if it held as the bulk of its assets an
interest in a large pharmaceutical company devoted to maximizing profits on
pharmaceutical sales. It has been a long-standing position of the Service that a
customer's reluctance to purchase products from a corporation (or one of its
group members) because of other business activity of the group is a valid
business purpose under Section 355 of the Code. See Rev. Rul. 56-450, 1956-2
C.B. 201; Rev. Rul. 59-197, 1959-1 C.B. 77; PLRs 9539006 (June 27, 1995);
9524009 (March 15, 1995); 9438026 (June 28, 1994); and 9331062 (February 17,
1993).
Continuity of Interest
Similarly, the continuity of interest requirement for a Section 355 distribution
will be satisfied because 100 percent of the stock of Controlled will be owned
by the shareholders of Distributing. After the Acquisition, the historic
shareholders of Distributing will continue their interest in the business of
Distributing through their stock ownership of Acquiring. See, Rev. Rul. 68-603,
1968-2 C.B. 148, and Commissioner v. Morris Trust, 367 F.2d 794 (4th Cir. 1966).
Disqualified Distribution
Section 355 (d) of the Code provides that, in the case of a "disqualified
distribution," the distributing corporation will recognize the gain (if any)
realized on the distribution of the stock of the controlled corporation. A
"disqualified distribution" is defined as any distribution
Board of Directors Page 16
August 2, 1996
otherwise qualifying under Section 355 if, immediately after the distribution,
any person holds "disqualified stock" in the distributing or controlled
corporation which constitutes a 50-percent or greater interest in either
corporation. "Disqualified stock" is defined in Section 355(d)(3) as any stock
of the distributing corporation acquired by purchase during the 5-year period
ending on the date of the distribution, and any stock of the controlled
corporation either acquired by purchase during this 5-year period, or
attributable to purchased distributing stock.
In the present case, no person has acquired a 50-percent or greater interest in
the stock of Distributing or Controlled within the 5-year period ending on the
date of the distribution. Therefore, Section 355(d) will not apply to cause gain
recognition.
The Acquisition of Distributing's Stock by Acquiring.
Section 368(a)(1)(B) of the Code provides that the term "reorganization" (a Type
B Reorganization) includes the acquisition by one corporation, in exchange
solely for all or part of its voting stock, of stock of another corporation if,
immediately after the acquisition, the acquiring corporation has control of such
other corporation. Section 368(c) provides that, for this purpose, the term
"control" means the ownership of stock possessing at least 80 percent of the
total combined voting power of all classes of stock entitled to vote and at
least 80 percent of the total number of shares of all other classes of stock of
the corporation.
The control requirement will be met in this case, since, after the Acquisition,
Acquiring will own all of the stock of Distributing. Similarly, the "solely for
voting stock" requirement will be satisfied, as we understand that Acquiring
will acquire that Distributing stock solely for its own voting stock. The fact
that the transaction will be accomplished through a merger of a newly-created
subsidiary into Distributing does not prevent the transaction from qualifying as
a Type B Reorganization. See Rev. Rul. 67-448, 1967-2 C.B. 144. The fact that
some of the Acquiring stock will be placed in escrow will not prevent
satisfaction of the applicable requirements. Rev. Proc. 77-37, 1977-2 C.B. 568
as amplified by Rev. Proc. 84-42, 1984-1 C.B. 521.
Section 1.368-1(b) of the Regulations imposes the following additional
requirements which must be met for a transaction to qualify as a reorganization
within the meaning of Section 368: (i) "continuity of interest" must be present,
(ii) "continuity of business enterprise" must exist, and
Board of Directors Page 17
August 2, 1996
(iii) an appropriate business purpose must be present.
Rev. Proc. 77-37, 1977-2 C.B. 568 provides that the "continuity of interest"
requirement is satisfied if there is continuing interest through stock ownership
in the acquiring corporation on the part of the former shareholders of the
acquired corporation which is equal in value, as of the effective date of the
reorganization, to at least 50 percent of all of the formerly outstanding stock
of the acquired corporation as of that date. Sales, redemptions, and other
dispositions of stock occurring prior or subsequent to the exchange which are
part of the plan of reorganization will be considered in determining whether
there is a 50 percent continuing interest through stock ownership as of the
effective date of the reorganization. In the proposed transaction, based on the
representations received, former shareholders of Distributing will receive and
retain stock of Acquiring with a value (as of the effective date of the
reorganization) to 100 percent of the value of all formerly outstanding stock of
Distributing. Therefore, the continuity of interest guideline of Rev. Proc.
77-37 will be met.
Section 1.368-1(b) of the Regulations provides that a continuity of business
enterprise (as described in Section 1.368-1(d) of the Regulations) is a
requisite to a reorganization. Section 1.368-1(d) of the Regulations provides
that continuity of business enterprise requires that the acquiring corporation
either continue the acquired corporation's historic business or use a
significant portion of the acquired corporation's historic assets in a business.
The proposed transaction will meet the continuity of business enterprise
requirement as it has been represented that, after the transaction, Distributing
will be engaged through OTNC in its historic Distribution Business. See Rev.
Rul. 85-198, 1985-2 C.B. 121. The fact that all partnership assets and
liabilities will now be held directly by OTNC should not change this result.
Section 1.368-2(g) of the Regulations provides that a reorganization must be
undertaken for reasons germane to the continuance of the business of a
corporation a party to the reorganization. As described above, the Acquisition
will be undertaken for substantial business reasons. Thus, the proposed
transaction will be motivated by a valid business purpose in accordance with the
Regulations.
Section 368(b) of the Code defines the term "a party to a reorganization" to
include a corporation resulting from a reorganization, and both corporations, in
the case of a reorganization resulting from the acquisition by one corporation
of stock or properties of
Board of Directors Page 18
August 2, 1996
another.
Section 354(a)(1) provides that no gain or loss shall be recognized if stock or
securities in a corporation a party to a reorganization are, in pursuance of the
plan of reorganization, exchanged solely for stock or securities in such
corporation or in another corporation a party to the reorganization.
FEDERAL INCOME TAX CONSEQUENCES
Based solely upon the facts and information presented in the Documents, and on
the information set forth in this opinion letter and subject to the "SCOPE OF
OPINION," described below, it is our opinion that the following Federal income
tax consequences should result from the Proposed Transaction described above:
(1) The transfer by Distributing to Controlled of the assets other than the
Wanted Assets solely in constructive exchange for additional stock of
Controlled and the assumption of certain liabilities, as described above,
followed by the distribution of the Controlled stock pro rata to the
shareholders of Distributing should qualify as a reorganization within the
meaning of Section 368(a)(1)(D) of the Code. Distributing and Controlled
should each be "a party to a reorganization" within the meaning of Section
368(b).
(2) No gain or loss will be recognized to Distributing upon the transfer of the
assets, subject to liabilities, to Controlled in constructive exchange for
Controlled stock (Sections 351(a), 361(a) and 357(a)).
(3) No gain or loss will be recognized by Controlled upon the receipt of assets
in constructive exchange for Controlled stock (Section 1032(a)).
(4) The basis of the assets received by Controlled will be the same as the
basis of such assets in the hands of Distributing immediately prior to the
Proposed Transaction (Section
Board of Directors Page 19
August 2, 1996
362(b)).
(5) The holding period of the Distributing assets received by Controlled will
include the period during which such assets were held by Distributing
(Section 1223(2)).
(6) No gain or loss should be recognized to (and no amount should be included
in the income of) the shareholders of Distributing upon the receipt of the
Controlled stock (Section 355(a)(1)).
(7) No gain or loss should be recognized to Distributing upon the distribution
of the Controlled stock pro rata to the shareholders of Distributing
(Section 361(c)(1)).
(8) The basis of the Controlled and Distributing stock in the hands of the
shareholders of Distributing should be the same as the basis of the
Distributing stock held by the shareholders of Distributing immediately
before the distribution, allocated in proportion to the fair market value
of each in accordance with Section 1.358-2(a)(2) of the Regulations
(Section 358(b)(1)).
(9) As provided in Section 312(h) of the Code, proper allocation of earnings
and profits between Distributing and Controlled should be made in
accordance with Section 1.312-10(a) of the Regulations.
(10) Provided the Distributing stock was held as a capital asset on the date of
the distribution of the Controlled stock, the holding period of the
Controlled stock received by the shareholders of Distributing should
include the holding period of the Distributing stock with respect to which
the distribution was made (Section 1223(1)).
(11) The acquisition by Acquiring of all the stock of Distributing solely in
exchange for Acquiring stock, as described above, will qualify as a
reorganization under Section 368(a)(1)(B) of the Code. Distributing and
Acquiring will each be "a party to a reorganization" within the meaning of
Section 368(b).
(12) No gain or loss will be recognized by the Distributing shareholders upon
the receipt of Acquiring stock solely in exchange for Distributing stock
(Section 354(a)(1)).
Board of Directors Page 20
August 2, 1996
(13) The basis of the Acquiring stock received by Distributing's shareholders in
exchange for Distributing stock will be the same as the basis of the
Distributing stock surrendered in exchange therefor (Section 358(a)(1)).
(14) The holding period of the Acquiring stock received by the Distributing
shareholders in the Exchange will include the holding period of the
Distributing stock surrendered in exchange therefor, provided the
Distributing stock is held as a capital asset in the hands of the
Distributing shareholders on the date of the exchange (Section 1223(1)).
SCOPE OF OPINION
The scope of this opinion is expressly limited to the Federal income tax issues
specifically addressed in (1) through (14) in the section entitled "FEDERAL
INCOME TAX CONSEQUENCES" above. We have made no determination, nor expressed any
opinion as to any limitations, including those which may be imposed under
Section 382, on the availability of net operating loss carryovers (or built-in
losses), if any, after the Proposed Transaction, the application (if any) of the
alternative minimum tax to the Proposed Transaction, or on any consolidated
return, employee benefit, or foreign tax issues which may arise as a result of
the Proposed Transaction. Similarly, we have made no determination nor expressed
any opinion regarding the consequences to Distributing shareholders entitled to
special treatment under the Code (such as insurance companies, dealers in
securities, or tax exempt organizations) or to Distributing shareholders who
acquired their shares of Distributing stock pursuant to the exercise of employee
stock options or otherwise in compensatory transactions. In addition, we have
expressed no opinion on the conversion of the Distributing preferred into common
stock, on the exercise of the Distributing options, the recapitalization of
Controlled, the transfer of assets or liabilities to Distributing or any of its
direct or indirect subsidiaries in anticipation of, or as part of, the Proposed
Transaction (other than as described in (1) above), or on the effect of any
arrangements between Acquiring or its subsidiaries and Controlled or its
subsidiaries subsequent to the Acquisition. Furthermore, our opinion has not
been requested, and none is expressed, with respect to any foreign, state or
local tax consequences to Distributing, Controlled, or the shareholders of
Distributing.
We note that any variation or differences in the facts or representations
recited herein, for any
Board of Directors Page 21
August 2, 1996
reason, might affect our conclusions, perhaps in an adverse manner, and may make
them inapplicable. Further, our opinions are based upon the analysis of the
Code, the Regulations thereunder, current case law, and published rulings. The
foregoing are subject to change, and such change may be retroactively effective.
If so, our views, as set forth above, may be affected and may not be relied
upon. We have undertaken no obligation to update these opinions for changes in
facts or law occurring subsequent to the date thereof. We do note that on March
19, 1996, the Clinton Administration sent to the Congress a proposal (the
"Proposal") to require gain recognition on certain Section 355 distributions
when at least 50 percent of the stock of the distributing or the controlled
corporation is not held at all times during the four year period commencing two
years before and ending two years after the distribution by the direct and
indirect shareholders of the distributing corporation. If the Proposal were
applicable to the instant transaction, Distributing would be required to
recognize gain (if any) realized on the distribution of the Controlled stock
since the shareholders of Distributing will own less than 50 percent of the
stock of Acquiring. The Proposal would not, however, change the treatment of
Distributing's shareholders, described above. While the Proposal stated that the
provisions would generally be effective for distributions after March 19, 1996,
a statement by Senator Roth and Congressman Archer issued on March 29, 1996,
indicated that "it is intended that the effective date. . . will be no earlier
than the date of appropriate Congressional action." We express no opinion
regarding whether the Proposal will or will not be applicable to the proposed
transaction.
This letter is not intended to be, and should not be, distributed or relied upon
by any entities or persons other than Distributing, Controlled and
Distributing's shareholders. In addition, except as expressly set forth above,
this letter should not be quoted or otherwise referred to in any documents or
filed with or furnished to any agency (other than with the Service upon
examination) without the express written consent of Ernst & Young LLP.
Board of Directors Page 22
August 2, 1996
This letter is an opinion of our firm as to the interpretation of existing law
and, as such, is not binding on the Service or the courts.
Very truly yours,
\s\ Ernst & Young LLP
Attachments
Exhibit A to
Exhibit 8.3
[Letterhead of]
[BRISTOL-MYERS SQUIBB COMPANY]
August 2, 1996
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
600 Hansen Way, Second Floor
Palo Alto, CA 94304
Ernst & Young, LLP
1225 Connecticut Avenue, N.W.
Washington, D.C. 20036
Ladies and Gentlemen:
In connection with the opinions to be delivered by you pursuant the
Agreement and Plan of Merger dated as of August 2, 1996 (the "Merger
Agreement"), among Bristol-Myers Squibb Company ("BMS"), a Delaware corporation,
OTN Acquisition Sub Inc., a Delaware corporation ("BMS Sub"), and Axion Inc.
("Axion"), a Delaware corporation, I certify to the best of my knowledge and
belief, after due inquiry and investigation, as follows:
1. The facts relating to the contemplated merger of BMS Sub with and into
Axion (the "Merger") pursuant to the Merger Agreement, the documents described
in Section 3.01 of the Merger Agreement and the Form S-4 Registration Statement
under the Securities Act of 1933, filed by BMS in connection with the Merger
are, insofar as such facts pertain to BMS or BMS Sub, true, correct and complete
in all material respects.
2. Except with respect to (i) payments of cash to Axion shareholders in
lieu of fractional shares of the voting common stock, par value $.10 per share,
of BMS ("BMS Common Stock") and (ii) shares of Axion stock cancelled pursuant to
Section 2.01(a) of the Merger Agreement, one hundred percent (100%) of the Axion
common stock outstanding
2
immediately prior to the Merger will be exchanged solely for BMS Common Stock.
Thus, except as set forth in the preceding sentence, BMS and BMS Sub intend that
no consideration be paid or received (directly or indirectly, actually or
constructively) for Axion common stock other than BMS Common Stock.
3. Except as described below, BMS has no plan or intention to liquidate
Axion; to merge Axion into another corporation (other than pursuant to the
Merger Agreement); to cause Axion to sell or otherwise dispose of any of its
assets, except for dispositions made in the ordinary course of business or
payments of amounts pursuant to the Merger Agreement or the Documents described
in Section 3.01 of the Merger Agreement; to sell or otherwise dispose of any of
the Axion Stock acquired in the Merger, except for transfers described in
Section 368(a)(2)(C) of the Internal Revenue Code of 1986, as amended (the
"Code"); or to cause Axion to issue additional shares of its stock that would
result in BMS losing control of Axion within the meaning of 368(c) of the Code.
BMS plans, after the Merger, to cause the following steps to be taken to
simplify the ownership structure of the Oncology Therapeutics Network business:
First, BMS will contribute to Axion all the stock of Bristol-Myers Oncology
Therapeutic Network, Inc. ("BMS Partner Sub"), which is the wholly-owned
subsidiary of BMS that is a 50% limited partner in Oncology Therapeutics Network
Joint Venture, L.P. ("OTN L.P."). Second, BMS Partner Sub will merge into
Oncology Therapeutics Network Corporation, a Delaware corporation ("OTNC"), with
OTNC surviving the merger. Third, as a result of that merger, OTNC will own all
the interests in Oncology Therapeutics Network Joint Venture L.P., ("OTN L.P.")
which will transfer its assets and liabilities to OTNC.
4. Except as described below, BMS has no plan or intention to reacquire any
of its stock issued in the Merger, other than the possible reacquisition of
shares pursuant to the Escrow Agreement. BMS will not acquire, pursuant to its
share repurchase plan, any shares of BMS Common Stock issued in the Merger from
former shareholders of Axion common stock who received such shares in the
Merger.
5. BMS will pay the expenses, if any, incurred by BMS and BMS Sub in
connection with the Merger.
3
6. To the best knowledge of BMS, except in the Merger, neither BMS nor any
direct or indirect subsidiary of BMS has acquired or will acquire, or has owned
during the past five years, any stock of Axion.
7. BMS intends to cause the assets and liabilities of OTN L.P. to be
transferred to OTNC, as described above, and intends to cause OTNC to conduct
directly the business formerly conducted by OTN L.P.
8. Neither BMS nor BMS Sub are investment companies as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
9. There will be no dissenters to the Merger.
10. The payment of cash, if any, in lieu of fractional shares of BMS Common
Stock is solely for the purpose of avoiding the expense and inconvenience to BMS
of issuing and administering fractional shares. The total cash consideration
that will be paid in the transaction to Axion's shareholders instead of issuing
fractional shares of BMS will not exceed one percent of the total consideration
that will be issued in the transaction to Axion's shareholders. The fractional
share interest of each Axion shareholder will be aggregated and no shareholder
will receive cash in an amount equal to the greater than the value of one full
share of BMS common stock.
11. None of the compensation received by any shareholder-employees of Axion
will be separate consideration for, or allocable to, any of their shares of
Axion stock; and none of the shares of BMS Common Stock received by any
shareholder-employees will be separate consideration for, or allocable to, any
employment agreement. The compensation paid to any shareholder-employees will be
for services actually rendered and will be determined by arm's-length
bargaining.
12. The Merger Agreement and the documents referred to in Section 3.01 of
the Merger Agreement represent the entire understanding of BMS, Axion and BMS
Sub with respect to the Merger.
13. Immediately after the Merger, BMS will own all the capital stock of
Axion.
4
14. Unless required by a "determination" (as defined in Section 1313 of the
Code) or as otherwise required by applicable law, neither BMS nor BMS Sub will
(or will, following the Merger, cause Axion to) take any position on any tax
returns or any other action or reporting position which is inconsistent with the
qualification of the Merger as a reorganization under Section 368(a)(1) of the
Code or which is inconsistent with any of the representations in this letter.
15. BMS has no interest in acquiring from Axion any assets, or assuming any
liabilities, other than (i) 100 percent of OTNC's interest in OTN L.P., and (ii)
Axion's OPUS Station automated drug dispensing business (collectively referred
to as the "Wanted Assets"). BMS understands that Axion desires to accomplish the
transaction through the acquisition by BMS of the stock of Axion. Accordingly,
as a condition to the acquisition of the stock of Axion, BMS will require that
Axion divest all assets and liabilities, other than the Wanted Assets, prior to
BMS's acquisition of that stock.
16. In connection with the escrow being established pursuant to the Escrow
Agreement (the "Escrow Fund") (as defined in the Merger Agreement),
(i) the Escrow Fund is being established for good and valid business
reasons;
(ii) the BMS Common Stock held in the Escrow Fund (the "Escrowed
Stock") will appear as issued and outstanding on the balance sheet of BMS
and will be legally outstanding under applicable state law;
(iii) all voting rights of the Escrowed Stock will be exercisable by or
on behalf of the former Axion Shareholders or their authorized agents;
(iv) no shares of the Escrowed Stock will be subject to restrictions
requiring their return to BMS because of death, failure to continue
employment or similar restrictions;
(v) all Escrowed Stock will be released from the Escrow Fund within 5
years from the Effective Time of the Merger (except where there is a
Pending Claim (as defined in the Escrow Agreement));
5
(vi) at least 50% of the number of shares of each class of stock to be
issued initially to the Axion shareholders will not be Escrowed Stock; and
(vii) the mechanism for the calculation of the number of shares of stock
to be returned is objective and readily ascertainable.
17. There is no intercorporate indebtedness existing between BMS or BMS Sub
and Axion that was issued, acquired or will be settled at a discount as a result
of the Merger, and BMS will assume no liabilities of Axion or any Axion
Shareholder in connection with the Merger, other than Axion expenses solely and
directly related to the Merger in accordance with Rev. Rul. 73-54, 1973-1 C.B.
187.
18. BMS Sub is a newly-formed corporation that was created for the sole
purpose of effecting the Merger, and it has conducted no business activities and
taken no other actions except as required to effect the Merger.
BRISTOL-MYERS SQUIBB COMPANY
by _____________________________________
[Title]
Exhibit B to
Exhibit 8.3
[Letterhead of]
AXION INC.
AXION HEALTHCARE INC.
August 2, 1996
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, N.Y. 10019-7475
Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
600 Hansen Way, Second Floor
Palo Alto, CA 94304
Ernst & Young LLP
1225 Connecticut Avenue, N.W.
Washington, D.C. 20036
Ladies and Gentlemen:
In connection with the opinions to be delivered by you pursuant to the
Agreement and Plan of Merger dated as of August 2, 1996 (the "Merger
Agreement"), among Bristol-Myers Squibb Company ("BMS"), a Delaware corporation,
OTN Acquisition Sub Inc., a Delaware corporation ("BMS Sub"), and Axion Inc.
("Axion"), a Delaware corporation, each of the undersigned hereby certifies, to
the best of its knowledge and belief, after due inquiry and investigation, as
set forth below. Capitalized terms used herein and not otherwise defined shall
have the meanings set forth in the Merger Agreement and the documents described
in Section 3.01 of the Merger Agreement.
1. The facts relating to the contemplated merger of BMS Sub with and into
Axion (the "Merger"), the distribution of stock of Axion Healthcare Inc. and all
related transactions undertaken pursuant to or described in the Merger
Agreement, the documents set forth in Section 3.01 of the Merger Agreement or
the Form S-4 Registration Statement under the Securities Act of 1933 filed by
BMS in connection with the Merger ("Form S-4") are, insofar as such facts
pertain to Axion or any of its
2
subsidiaries on or prior to the effective time of the Merger, true, correct and
complete in all material respects and represent the entire agreement with
respect to the proposed transactions.
2. Except with respect to (i) payments of cash to Axion shareholders in
lieu of fractional shares of the voting common stock, par value $.10 per share,
of BMS ("BMS Common Stock") and (ii) shares of Axion stock ("Axion Stock")
cancelled pursuant to Section 2.01(a) of the Merger Agreement, if any, one
hundred percent (100%) of the Axion Stock outstanding immediately prior to the
Merger will be exchanged solely for BMS Common Stock. Thus, except as set forth
in the preceding sentence, Axion intends that no consideration be paid or
received (directly or indirectly, actually or constructively) for Axion Stock
other than BMS Common Stock.
3. Other than in satisfaction of the Axion Options (as defined in Section
6.06 of the Merger Agreement), neither Axion nor any of its subsidiaries has
issued or acquired any shares of Axion Stock in contemplation of the Merger, or
otherwise as part of a plan of which the Merger is a part.
4. To the best of knowledge of the management of Axion and Axion HealthCare
Inc. ("AHC") there is no plan or intention on the part of any shareholders of
Axion to sell, exchange or otherwise dispose of, reduce the risk of loss (by
short sale or otherwise) of the holding of, enter into any contract or other
arrangement with respect to, or consent to the sale or other disposition of
(each of the foregoing, a "disposition"), any interest in the shares of BMS
Common Stock received in the Merger or any shares of AHC Preferred Stock
received in the Distribution other than the receipt of cash in lieu of
fractional shares of BMS Common Stock received in the Merger. In addition, to
the best knowledge of the Management of Axion and AHC, (i) there has been no
"disposition" of shares of Axion Stock in anticipation of the Merger and (ii)
there is no plan or intention on the part of any shareholders of Axion to effect
a disposition of shares of Axion Stock in anticipation of the Merger.
5. Axion has no present plan or intention to issue additional shares of its
stock that would result in BMS losing control of Axion within the meaning of
Section 368(c)(1) of the Internal Revenue Code.
3
6. Axion, AHC and the shareholders of Axion will pay their respective
expenses, if any, incurred in connection with the Merger, the Distribution and
all related transactions; provided that all such expenses of Axion and AHC shall
be paid at the Effective Time by funds supplied by or on behalf of BMS except
that the amount of cash that would otherwise be contributed to AHC pursuant to
the Distribution shall be reduced to the extent such expenses exceed $2,000,000.
7. At the time of the Merger, Axion will not have outstanding any warrants,
options, convertible securities, or any other type of right pursuant to which
any person could acquire stock in Axion that, if exercised or converted, would
affect BMS's acquisition or retention of control of Axion, as defined in Section
368(c)(1) of the Internal Revenue Code of 1986, as amended (the "Code").
8. Axion is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
9. To the knowledge of Axion and AHC, none of the compensation received by
any shareholder-employees of Axion will be separate consideration for, or
allocable to, any of their shares of Axion stock; and none of the shares of BMS
Common Stock received by any shareholder-employees will be separate
consideration for, or allocable to, any employment agreement. To the knowledge
of Axion and AHC, the compensation paid to any shareholder-employees will be for
services actually rendered and will be determined by arm's-length bargaining.
10. Unless required by a "determination" (as defined in Section 1313 of the
Code) or as otherwise required by applicable law, Axion will not take, and Axion
is not aware of any plan or intention of Axion shareholders to take, any
position on any tax returns or any other action or reporting position which is
inconsistent with the qualification of the Merger as a reorganization under
Section 368(a)(1) of the Code or which is inconsistent with any of the
representations in this letter.
11. In connection with the escrow being established pursuant to the Escrow
Agreement (the "Escrow Fund"):
(i) the Escrow Fund is being established for good and valid business
reasons;
4
(ii) all voting rights of the BMS Common Stock held in the Escrow Fund
(the "Escrowed Stock") will be exercisable by or on behalf of the former
Axion Shareholders or their authorized agents;
(iii) no shares of the Escrowed Stock will be subject to restrictions
requiring their return to BMS because of death, failure to continue
employment or similar restrictions;
(iv) all Escrowed Stock will be released from the Escrow Fund within 5
years from the Effective Time of the Merger (except where there is a
Pending Claim (as defined in the Escrow Agreement));
(v) at least 50% of the number of shares of each class of stock to be
issued initially to the Axion shareholders will not be Escrowed Stock; and
(vi) the mechanism for the calculation of the number of shares of
stock to be returned is objective and readily ascertainable.
12. There is no intercorporate indebtedness existing between BMS, or its
subsidiaries on the one hand, and Axion or its subsidiaries that was issued,
acquired or, to the knowledge of AHC and Axion, will be settled at a discount as
a result of the Merger, and to the knowledge of Axion and AHC, BMS will assume
no liabilities of Axion or any Axion Shareholder in connection with the Merger,
other than Axion expenses solely and directly related to the Merger in
accordance with Rev. Rul. 73-54, 1973-1 C.B. 187.
13. Axion is 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.
14. The total adjusted basis and the fair market value of the assets to be
transferred to AHC by Axion will each equal or exceed the sum of the liabilities
to be assumed by AHC plus any liabilities to which the transferred assets are
subject.
15. The liabilities to be assumed by AHC and the liabilities to which the
transferred assets are subject were incurred in the ordinary course of business
or in connection with the transactions contemplated by the Documents.
5
16. Axion neither accumulated its receivables nor made extraordinary
payment of its payables in anticipation of the transactions contemplated by the
Documents.
17. No assets being transferred between Axion and AHC include property for
which an investment tax credit was taken in prior years.
18. Immediately after the distribution of the stock of AHC, at least 90
percent of the fair market value of the gross assets of Axion will consist of
the stock of OTNC.
19. Following the transactions contemplated by the Documents, AHC will
continue the active conduct of its business independently and with its own
separate employees.
20. No intercorporate debt will exist between Axion and AHC immediately
following the proposed transactions other than certain indemnification
arrangements and other arrangements with respect to liabilities as set forth in
the Documents.
21. The five years of financial information submitted on behalf of Axion,
OTN and AHC is representative of each corporation's present operations, and
there have been no substantial changes since the date of the last financial
statements included in the Form S-4.
22. After the Merger all continuing transactions between BMS or its
subsidiaries, on the one hand, and AHC or its subsidiaries, on the other hand,
will be for fair market value based on terms and conditions arrived at by the
parties bargaining at arm's length.
23. No part of the AHC stock to be distributed by Axion will be received by
a shareholder as a creditor, employee, or in any capacity other than that of the
shareholder of Axion.
24. Axion's holdly of the BMS Common Stock to be supplied in the Merger
would seriously, adversely affect Axion and its Subsidiaries' Conduct of the
clinical/disease Management Activity.
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25. AHC intends that all of the cash and similar assets to be received by
AHC from Axion pursuant to the Distribution Agreement (including the Cash
proceeds from redemption of the Oncare Preferred Stocks received from Axion and
the proceeds from payments of any promissory notes received from Axion) will, to
the extent not placed into escrow pursuant to the Documents or otherwise used to
satisfy obligations under the Documents, be retained by AHC and used in AHC's
(or its subsidiaries') business activities.
26. There is no plan or intention to liquidate AHC or to merge AHC with any
other corporation, or to sell, exchange, or otherwise dispose of the assets of
AHC or any of its subsidiaries subsequent to the transactions contemplated in
the Documents except in the ordinary course of business.
27. Notwithstanding anything herein to the contrary, the undersigned make
no representations regarding any actions or conduct of Axion or its subsidiaries
pursuant to BMS's exercise of control over Axion or its subsidiaries after the
Merger.
AXION CORPORATION
by _____________________________________
[Title]
AXION HEALTHCARE INC.
by _____________________________________
[Title]
Exhibit C to
Exhibit 8.3
, 1996
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, N.Y. 10019-7475
Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
600 Hansen Way, Second Floor
Palo Alto, CA 94304
Ernst & Young, LLP
1225 Connecticut Avenue, N.W.
Washington, D.C. 20036
Ladies and Gentlemen:
In connection with the opinions to be delivered by you relating to the tax
consequences of the Distribution or the tax consequences of the Merger (each as
defined in the Agreement and Plan of Merger dated as of July , 1996 (the "Merger
Agreement"), among Bristol-Myers Squibb Company ("BMS"), a Delaware corporation,
OTN Acquisition Sub Inc., a Delaware corporation, and Axion Inc. ("Axion"), a
Delaware corporation), the undersigned certifies, after due inquiry and
investigation, as follows:
1. The undersigned has no present plan or intention to sell, exchange or
otherwise dispose of (including by way of a distribution by a partnership or a
corporation to its partners or shareholders, respectively), reduce the risk of
loss (by short sale or otherwise) of the holding of, enter into any contract or
other arrangement with respect to, or consent to the sale, exchange or other
disposition of (each of the foregoing, a "disposition"), any interest in any of
the shares of common stock, par value $0.0001 per share, of Axion Healthcare,
Inc. ("AHC Common Stock") received in the Distribution. In addition, the
undersigned has not effected, and has no plan or intent to effect, a
"disposition" of Axion capital stock (other than in exchange for BMS Common
Stock pursuant to the Merger, but including the exercise of dissenters' rights)
in contemplation of the Distribution or as part of a plan therewith.
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2. The undersigned has no present plan or intention to sell, exchange or
otherwise dispose of (including by way of a distribution by a partnership or a
corporation to its partners or shareholders, respectively), reduce the risk of
loss (by short sale or otherwise) of the holding of, enter into any contract or
other arrangement with respect to, or consent to the sale, exchange or other
disposition of (each of the foregoing, a "disposition"), any interest in any of
the shares of voting common stock of BMS ("BMS Common Stock") received in the
Merger. In addition, the undersigned has not effected, and has no plan or intent
to effect, a "disposition" of Axion capital stock (other than in exchange for
BMS Common Stock pursuant to the Merger, but including the exercise of
dissenters' rights) in contemplation of the Merger or as part of a plan
therewith.
3. The undersigned will not take any position on any Federal, state or
local tax return, or take any other action or reporting position, which is
inconsistent with the qualification of the Distribution as a tax-free
distribution under Section 355 of the Code, with the Merger as a reorganization
under Section 368(a)(1) of the Internal Revenue Code of 1986, as amended, or
which is inconsistent with the representations made in this letter, in each case
unless required pursuant to a "determination" (as defined in Section 1313 of the
Code).
4. Notwithstanding the foregoing, the undersigned acknowledges that the
undersigned will hold the BMS Common Stock received in the Merger with an
investment intent and, therefore, in the event of a change in circumstances
(including a change in personal or financial circumstances or a change in the
value of the BMS Common Stock), the undersigned may at some time in the future
effect a "disposition" of shares of the BMS Common Stock received in the Merger.
5. The undersigned shall immediately notify each of the Chief Financial
Officers of Axion or BMS, respectively, in writing via facsimile, of any
"disposition" of shares of Axion Capital Stock prior to the Merger or any
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change, on or prior to the Merger, of the plans or intentions of the undersigned
as set forth above.] [In lieu of second rep. letter.
NAME OF LARGE SHAREHOLDER
by _____________________________________
[Title]