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EXHIBIT 8.1
[LETTERHEAD OF GOODWIN PROCTER LLP]
August 13, 2001
Inverness Medical Technology, Inc.
51 Sawyer Road, Suite 200
Waltham, MA 02453-3448
RE: DISTRIBUTION BY INVERNESS MEDICAL TECHNOLOGY, INC. OF STOCK OF INVERNESS
MEDICAL INNOVATIONS, INC., AND ACQUISITION OF INVERNESS MEDICAL TECHNOLOGY,
INC. BY JOHNSON & JOHNSON
Ladies and Gentlemen:
We have acted as counsel to Inverness Medical Technology, Inc., a Delaware
corporation (the "Company") in connection with (i) the Company's proposed pro
rata distribution to its stockholders of all of the outstanding shares of stock
of Inverness Medical Innovations, Inc. ("Newco") in redemption of a portion of
their shares of Company stock (the "Split-Off") pursuant to the Agreement and
Plan of Split-Off and Merger dated as of May 23, 2001 (the "Merger Agreement")
and described in the proxy statement/prospectus included as part of the
registration statements on Form S-4 filed with the Securities and Exchange
Commission on the date hereof (the "Registration Statements"), (ii) the merger
of Sunrise Acquisition Corp., a Delaware corporation ("Sub"), a wholly-owned
subsidiary of Johnson & Johnson, a New Jersey corporation ("Parent"), with and
into the Company (the "Merger") pursuant to the Merger Agreement, and (iii)
related transactions described in other Transaction Agreements (as that term is
defined in the Merger Agreement). The Company has requested our opinion as to
certain federal income tax consequences of the Split-off and Merger. Any
capitalized term used herein and not otherwise defined shall have the meaning
assigned in the Merger Agreement and other Transaction Agreements.
We have reviewed such documents and materials (including but not limited to
the Registration Statements and the Transaction Agreements) and have inquired
into such underlying facts as we considered to be relevant to the opinions
expressed herein. The opinions expressed herein are based on certain facts
relating to the Split-Off and Merger set forth in the Registration Statements
and in representation letters from Parent and the Company dated as of the date
hereof and furnished to us for our use in rendering this opinion letter (the
"Representation Letters"). We have assumed that the statements, representations
and warranties set forth in the Registration Statements, the Representation
Letters and the Transaction Agreements, together with all exhibits and annexes
thereto, are true, correct, complete and not breached and will continue to be so
through the Closing Date, that no actions that are inconsistent with such
statements, representations and warranties will be taken, and that all such
representations, statements and warranties that are made to "the best knowledge
of" any person or with similar qualification are and will be true, correct and
complete as if made without such qualification. We have also assumed (i) the
genuineness of all signatures; (ii) the authenticity of all documents submitted
to us as originals; (iii) the conformity to the original documents of all
documents submitted to us as copies; (iv) the conformity to the final documents
of all documents submitted to us as drafts; (v) the authority and capacity of
the individual or individuals who executed any such documents on behalf of any
person, and (vi) the accuracy and completeness of all documents and records made
available to us. In addition, we have assumed that (i) the transactions
described in the Transaction Agreements will occur in the manner described in
the Transaction Agreements, (ii) each of Parent, the Company and Newco will
comply with all reporting obligations with respect to the Split-Off and Merger
required under the Internal Revenue Code of 1986, as amended (the "Code"), and
the Treasury Regulations promulgated thereunder, and (iii) all of the
Transaction Agreements are valid and binding in accordance with their terms.
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Inverness Medical Technology, Inc.
August 13, 2001
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The discussion and conclusions set forth below are based on the Code, the
Treasury Regulations promulgated thereunder, and existing administrative and
judicial interpretations thereof, all of which are subject to change. No
assurance can be given that the federal income tax consequences described below
will not change in the future, including on or before the Closing Date, and we
do not assume responsibility to provide notice or advice to any person or entity
regarding future changes or altered tax consequences.
I. BACKGROUND
Parent (considered together with its subsidiaries) is a broad-based
manufacturer of health care products and a provider of related services. The
Company (considered together with its subsidiaries) manufactures and markets
products focused on diabetes self management. Also, the Company (considered
together with its subsidiaries) sells products for the women's health market,
the clinical diagnostics market, and the nutritional supplements market.
Immediately before the Split-Off and Merger, the Company and its
subsidiaries will be restructured, as a result of which all of the assets
primarily associated with the Women's Health Business, the Nutritional
Supplements Business, and the Clinical Diagnostics Business will be transferred
to Newco or one or more of its subsidiaries (the "Newco Subsidiaries"), while
all of the assets primarily associated with the Diabetes Business will remain
with the Company and its subsidiaries other than Newco and the Newco
Subsidiaries.
The Merger Agreement provides that, at the Effective Time, Sub shall be
merged with and into the Company in accordance with the General Corporation Law
of the State of Delaware, with the Company continuing as the surviving
corporation. Each issued and outstanding share of capital stock of Sub shall be
converted into and become one validly issued, fully paid and nonassessable share
of common stock of the Company. Each issued and outstanding share of Company
stock shall be converted into the right to receive (x) from the Company, 0.20 of
a validly issued, fully paid and nonassessable shares of Newco Common Stock and
(y) from Parent, a number of validly issued, fully paid and nonassessable shares
of Parent Common Stock equal to the Parent Exchange Ratio. For purposes of the
Merger Agreement, "Parent Exchange Ratio" means, in general, the quotient
(rounded to the nearest 1/10,000) determined by dividing $35.00 by the average
(rounded to the nearest 1/10,000) of the volume weighted averages (rounded to
the nearest 1/10,000) of the trading prices of Parent Common Stock on the New
York Stock Exchange (as reported by Bloomberg Financial Markets (or such other
source as to which Parent and the Company may agree), for each of the 20
consecutive trading days ending with the third trading day immediately preceding
the Effective Time. Thus, each stockholder of the Company will have a part of
his shares of Company stock redeemed by the Company in exchange for Newco Common
Stock, and a part of his shares of Company stock will be exchanged for shares of
Parent Common Stock.
The Merger Agreement also states that, for federal income tax purposes, it
is intended (a) by the Company that the distribution of Newco Common Stock in
connection with the transactions contemplated by the Merger Agreement shall
qualify, as to the stockholders of the Company, as a transaction described in
Section 355 of the Code (it being understood and agreed that such qualification
is not a condition to the consummation of the transactions contemplated by the
Merger Agreement or the other Transaction Agreements and that Parent shall have
no obligation to cause such distribution to so qualify) and (b) by the parties
that (i) the Merger shall qualify as a "reorganization" within the meaning of
Section 368(a) of the Code and (ii) the Merger Agreement constitutes a plan of
reorganization.
The Tax Allocation Agreement states that, subject to certain conditions,
Parent, the Company and Newco agree to report the Split-Off, for federal income
tax purposes, as integrated with the Merger and as a redemption of shares of
Company stock, with such redemption qualifying, as to the stockholders of the
Company, as a transaction described in Section 355 of the Code.
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II. OPINIONS REGARDING SEPARATE TRANSACTIONS AND SECTION 368
Based upon and subject to the foregoing, as well as the limitations set
forth in part VI below, it is our opinion that:
(a) the redemption of a portion of the Company shares in exchange for
Newco stock in the Split-Off and the exchange of a portion of the Company
shares in the Merger will be two separate transactions for federal income
tax purposes;
(b) the Merger will be treated for United States federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Code; and
(c) Parent and the Company will each be a party to that reorganization
within the meaning of Section 368(b) of the Code.
III. SECTION 355 REQUIREMENTS
Under Section 355 of the Code, a corporation's distribution of the stock of
a controlled subsidiary will not be taxable to the distributing corporation's
shareholders if the following requirements are satisfied:
(1) Control. Immediately before the distribution, the distributing
corporation must "control" the corporation whose shares are distributed.
For these purposes, "control" is defined in Code Section 368(c) as
ownership of stock possessing at least 80% of the total combined voting
power and at least 80% of the total number of shares of all other classes
of stock.
(2) 5 Year Active Trade or Business. Immediately after the
distribution, the distributing and controlled corporations must each be
engaged in the active conduct of a trade or business. Each such trade or
business must have been actively conducted throughout the 5-year period
ending on the date of distribution.
(3) Distribution of All Stock and Securities. The distributing
corporation must generally distribute all of its stock and securities in
the controlled corporation.
(4) Business Purpose. The transaction must be motivated in whole or
in substantial part by one or more corporate business purposes.
(5) Device. The transaction must not be used principally as a device
for the distribution of earnings and profits.
(6) Continuity of Shareholder Interest. There must be a continuity of
shareholder interest in each of the distributing corporation and the
controlled corporation.
(7) Continuity of Business Enterprise. There must be a continuity of
business enterprise in each of the distributing corporation and the
controlled corporation.
IV. SECTION 355 ANALYSIS
Control. Immediately before the distribution, the Company will control
Newco within the meaning of Section 368(c) because the Company will own over 80%
of the single class of outstanding Newco stock. Therefore, the control
requirement will be satisfied.
5-Year Active trade or business. With respect to the requirement that
Newco be engaged in the active conduct of a 5-year trade or business after the
Split-Off, the Restructuring Agreement provides that Inverness Medical, Inc.
("IMI") shall transfer to Newco all of the assets held by IMI that are used or
held for use primarily in the operation or conduct of the Women's Health
Business. Further, the Company has represented that: (i) the Company was
directly, continuously and actively engaged in the Women's
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August 13, 2001
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Health Business from before 1996 through the end of 1998, at which point the
Women's Health Business being conducted by the Company was transferred to IMI,
its wholly-owned subsidiary (the "Transfer"); (ii) IMI has been directly,
continuously and actively engaged in the Women's Health Business since the
Transfer; and (iii) the gross assets associated with the Women's Health Business
that IMI will transfer to Newco pursuant to the Restructuring Agreement will,
immediately after the Split-Off, have a fair market value that is at least 10%
of the total fair market value of Newco's gross assets. Therefore, the Women's
Health Business constitutes a 5-year active trade or business for purposes of
Code Section 355 which Newco will directly engage in after the Split-Off.
With respect to the requirement that the Company be engaged in the active
conduct of a 5-year trade or business after the Split-Off, the Restructuring
Agreement provides that Inverness Medical Europe GmbH ("IME") and Inverness
Medical Benelux Bvba ("IMB") will each file, on United States Treasury Form
8832, Entity Classification Election, an election to be disregarded as a
separate entity, effective on a date that is on or prior to the Closing Date.
Further, the Company has represented that (i) IMB is a wholly owned subsidiary
of IME, and IME is a wholly owned subsidiary of the Company, and (ii) IME has
directly, continuously and actively engaged in the marketing of diabetes test
strips and related products (the "IME Sunrise Business") since before 1996.
Also, both Parent and the Company have represented that they plan and intend for
the Company (i) to continue the active conduct of the IME Sunrise Business
received by the Company pursuant to the entity classification elections
described above, and (ii) to operate the IME Sunrise Business such that it will
be treated for federal tax purposes as operating such business directly (and not
through any corporate subsidiary or partnership). We understand from the Company
that the gross assets of the IME Sunrise Business held directly by IME and IMB
(the "IME Gross Sunrise Assets") will, immediately after the Split-Off, have a
fair market value that is less than 5% of the fair market value of the total
gross assets held by the Company (the "Company Gross Assets"), and that it is
possible that the IME Gross Sunrise Assets will, immediately after the
Split-Off, have a fair market value that is less than 1% of the fair market
value of the Company Gross Assets. However, the Company has represented that:
(i) IME has had 10 or more employees at all times since before 1996, (ii) IME's
employees have, in the aggregate, devoted the following approximate percentages
of their working time to the active conduct of the IME Sunrise Business: 32% in
1996, 10% in 1997, 51% in 1998, 63% in 1999, 74% in 2000, and over 74% in the
first half of 2001, and (iii) the IME Sunrise Business generated gross revenue
in the following approximate amounts (in Euros): E198,700 in 1996, E130,000 in
1997, E1,400,000 in 1998, E3,346,259 in 1999, E5,633,540 in 2000, and over
E2,500,000 in the first half of 2001. In addition, the Company has represented
that the gross assets held directly or indirectly by the Company that are used
or held for use primarily in the active conduct of the Diabetes Business
(including those used in businesses less than 5 years old) will, immediately
after the Split-Off, have a fair market value that is at least 90% of the
Company Gross Assets.
Neither the Code nor the Treasury Regulations specify a minimum percentage
of assets necessary to qualify a business as an active trade or business for
purposes of Code Section 355(b). Moreover, Rev. Rul. 73-44, 1973-1 C.B. 182,
announces that "there is no requirement under Section 355(b) that a specific
percentage of the corporation's assets be devoted to the active conduct of a
trade or business."(1) However, that ruling involved a business "the assets of
which represented a substantial portion of the value [controlled corporation]'s
total assets but less than half of such value," and we know of no legal
precedent approving a Code Section 355 distribution where the purported active
trade or business of a distributed or controlled corporation constituted less
than 1% of the value of such corporation.(2) In addition, Rev. Proc.
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(1)See also GCM 34238 (December 15, 1969); TAM 8308007 (October 29, 1982).
Although these pronouncements cannot be relied on as precedent, they are
nonetheless indicative of the government's position as of the date issued.
(2)The 5-year active business assets in the actual case that served as the basis
for Rev. Rul. 73-44 were apparently around 5% of the net book value of the
total assets. See GCM 34238.
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2001-3, 2001-1 I.R.B. 111, provides that the Internal Revenue Service (the
"Service") will ordinarily not issue a ruling or determination letter --
[regarding w]hether the active business requirement of Section
355(b) is met when the gross assets of the trades or businesses
relied on to satisfy that requirement will have a fair market
value that is less than 5 percent of the total fair market value
of the gross assets of the corporation directly conducting the
trades or businesses. The Service may rule that the trades or
businesses satisfy the active trade or business requirement of
Section 355(b) if it can be established that, based upon all
relevant facts and circumstances, the trades or businesses are
not de minimis compared with the other assets or activities of
the corporation and its subsidiaries.
Nevertheless, Revenue Ruling 73-44 states that --
the percentage of [the controlled corporation]'s assets that are
devoted to the active conduct of a trade or business is a
relevant factor to be considered along with all the other facts
and circumstances in determining whether the transaction is used
principally as a device to distribute earnings and profits."
Similarly, Treasury Regulations Section 1.355-2(d)(iv)(b) states that the
existence of assets that are not used in a trade or business that meets the
requirements of Section 355(b) is evidence of device. This suggests that the
active trade or business requirement and the device requirement (discussed
below) operate to effectuate the same underlying policy and, once the statutory
requirement of a trade or business meeting the requirements of Section 355(b) is
met, regardless of its relative size, the device test is the appropriate
policing mechanism for differentiating between those transactions that are being
used principally as a device for the bail-out of corporate earnings and profits
at capital gains rates, and those that are not being so used.
Therefore, the compelling case for nondevice, which we believe is present in the
Split-Off, should mitigate the effect of the relatively small value of the
business being relied on to satisfy the active trade or business requirement.
Accordingly, we conclude that, more likely than not, the IME Sunrise Business,
which the Company will directly engage in after the Split-Off, constitutes a
5-year active trade or business for purposes of Code Section 355.
Distribution of all stock and securities. In the Split-Off, the Company
will distribute all of its Newco stock and securities. Consequently, the
distribution of all stock and securities requirement will be satisfied.
Business Purpose. Under applicable regulations, a requisite business
purpose for the Split-Off will exist only if the Split-Off is motivated by a
real and substantial non-federal tax corporate (rather than stockholder)
business purpose that is germane to the business of the Company or Newco. The
Service and courts have consistently recognized that facilitating a tax-free
reorganization involving the distributing corporation constitutes a valid
corporate business purpose.(3)
The Company has represented (i) that the Split-Off is motivated, in whole
or substantial part, by the corporate business purpose of facilitating the
Merger and (ii) that the Merger will not be completed unless the Split-Off also
occurs. Accordingly, the business purpose test is satisfied.
Device. 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
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(3)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).
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determination of whether a transaction has been employed principally as a device
is based on all of the facts and circumstances.
Under the Merger Agreement and the Restructuring Agreement, Newco will have
cash and marketable securities immediately after the Merger and Split-Off
totaling at least $40 million. Treasury Regulations Section 1.355-2(d)(2)(iv)(B)
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,
constitutes evidence of a device. However, the Company has represented that
Newco's cash and liquid assets after the Split-Off will be related to the
reasonable needs of the Newco Business and will generally be used to expand the
Newco Business.
With respect to the Company, its small percentage of assets used in a trade
or business meeting the requirements of Section 355(b) may be evidence of a
device.(4) We believe that such evidence of a device is overcome in the present
case. First, a strong corporate business purpose for the transaction is
countervailing evidence of nondevices.(5) Second, most of the assets held by the
Company that do not meet the requirements of Section 355(b) are nonetheless
active business assets, or stock of subsidiaries holding active business assets
that were acquired in substantial part through internal growth of the Company's
historical Diabetes Business. Finally, Treasury Regulations Section
1.355-2(d)(5)(iv) provides that --
notwithstanding the presence of any device factors . . . . [a]
distribution is ordinarily considered not to have been used
principally as a device if, in the absence of Code Section 355,
with respect to each shareholder distributee, the distribution
would be a redemption to which section 302(a) applied.
The presumption of nondevice applies here because the Split-Off, if it did not
meet the requirements of Section 355, would qualify as a redemption to which
Section 302(a) would apply with respect to all of the Company shareholders.(6)
Based upon the foregoing, we believe that the Split-Off should not be treated as
principally a device for the distribution of earnings and profits.
Continuity of Shareholder Interest. Immediately after the Split-Off and
Merger, the Company will be a wholly owned subsidiary of Parent, and the
historic shareholders of the Company will have continuing proprietary interests
in Newco and Parent.(7) In addition, the management of the Company is not aware
of any plan or intention on the part of any shareholder of the Company to sell
or otherwise dispose of any of their stock in either Parent or Newco after the
Split-Off and Merger. Accordingly, the continuity of shareholder interest
requirement will be satisfied.
Continuity of Business Enterprise. Parent has represented that it plans
and intends to cause the Company (i) to continue the active conduct of the
Sunrise business received from IME (i.e., the marketing of diabetes test strips
and related products) pursuant to the elections described in Section 4.1 of the
Restructuring Agreement for IME and IMB to be disregarded as separate entities
for federal tax
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(4)Treasury Regulations Section 1.355-2(d)(2)(iv)(b); Rev. Rul. 73-44, 1973-1
C.B. 182.
(5)See Treasury Regulations Section 1.355-2(d)(3)(ii); and Rev. Rul. 73-44,
1973-1 C.B. 182
(6)Code Section 302(a) applies if a redemption is in complete redemption of all
of the stock of the corporation owned by a shareholder. After the Split-Off
and Merger, the shareholders of the Company will hold no Company stock, and
the Company will be a wholly owned subsidiary of Parent. Code Section
302(b)(3); Zenz v. Quinlivan, 213 F.2d 914 (6th Cir. 1954). Although a
shareholder would be treated as holding stock of the Company if such
shareholder owned (directly, indirectly or constructively) 50% or more in
value of the stock of Parent, we assume that will not be the case.
(7)See Rev. Rul. 68-603, 1968-2 C.B. 148; Commissioner v. Morris Trust, 367 F.2d
794 (4th Cir. 1966).
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August 13, 2001
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purposes (the "IME Sunrise Business"), and (ii) to operate the IME Sunrise
Business such that it will be treated for federal tax purposes as operating the
IME Sunrise Business directly (and not through any corporate subsidiary or
partnership). The Company has represented that, following the Split-Off and
Merger, it is planned and intended that Newco will continue the active conduct
of the Women's Health Business, the Nutritional Supplements Business, and the
Clinical Diagnostics Business. Accordingly, the continuity of business
enterprise requirement is satisfied.
V. SECTION 355 OPINION
Although there is no legal precedent that directly addresses whether the
fair market value of the gross assets of an active trade or business that
comprise less than 1% of the fair market value of a corporation's total gross
assets can satisfy the active trade or business requirement and the issue is
therefore not free from doubt, it is our opinion, based upon and subject to the
foregoing, that it is more likely than not that the Split-Off will qualify, as
to the stockholders of the Company, as a transaction described in Section 355 of
the Code.
VI. ADDITIONAL LIMITATIONS
No opinion is expressed as to any matter not specifically addressed above.
Also, no opinion is expressed as to the tax consequences of Split-Off or the
Merger under any foreign, state, or local tax law. Moreover, you should
recognize that our opinions are not binding on the Service or the courts. There
can be no assurance that the Service will agree with the conclusions set forth
herein, and it is possible that the Service or another tax authority could adopt
a position contrary to the conclusions contained herein and that a court could
sustain that contrary position.
This opinion letter has been issued to and may be relied upon by the
Company in connection with the Split-Off and Merger. We hereby consent to the
filing of this opinion letter as an exhibit to the Registration Statements, and
to the use of our name under the heading "Material United States Federal Income
Tax Consequences of the Split-Off and Merger."
Very truly yours,
/s/ Goodwin Procter LLP
Goodwin Procter LLP