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[Letterhead of Rosenman & Colin LLP]
July 31, 1996
Board of Directors
U.S. Drug Testing, Inc.
Rancho Cucamonga, CA 91730
Gentlemen:
You have requested our opinion as to the principal federal income tax effects to
the minority stockholders (the "Minority Stockholders") of U.S. Drug Testing,
Inc. ("U.S. Drug") upon consummation of the proposed merger (the "Merger") of
U.S. Drug with and into a wholly-owned subsidiary of U.S. Alcohol Testing of
America, Inc. ("USAT") as more fully described in the combined Consent
Solicitation Statement/Prospectus (the "Prospectus") filed with the Securities
and Exchange Commission on May 6, 1996 relating to the Merger, and as to certain
other matters. All capitalized terms used and not defined herein shall have the
meanings ascribed to them in the Prospectus.
In connection with your request, we have reviewed the following documents: (a)
the Agreement and Plan of Merger (the "Merger Agreement") dated April 23, 1996
by and among U.S. Drug, USAT and U.S. Drug Acquisition Corp. ("Acquisition
Corp."), a wholly-owned subsidiary of USAT; (b) the Prospectus and the exhibits
filed therewith; and (c) such other documents as we have deemed necessary or
appropriate to review in rendering this opinion.
In connection with our rendering of this opinion, USAT has represented to us
that:
(1) U.S. Drug and USAT are corporations formed and validly existing
under the laws of the State of Delaware.
(2) USAT formed Acquisition Corp. as a wholly-owned subsidiary under
the laws of the State of Delaware to effectuate the Merger.
(3) USAT currently owns, and will own immediately prior to the time
the Merger
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Board of Directors
July 31, 1996
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is consummated, approximately 67% of the stock of U.S. Drug.
(4) The Merger will be effectuated pursuant to the laws of the State
of Delaware in the form of a forward triangular merger, i.e., U.S.
Drug will merge with and into Acquisition Corp., with the Minority
Stockholders exchanging their stock in U.S. Drug for stock in USAT
and the Special Payment, and immediately after the Merger USAT
will continue to own 100% of the shares of Acquisition Corp.
(5) The liabilities of U.S. Drug assumed by Acquisition Corp. and the
liabilities to which the transferred assets of U.S. Drug are
subject were incurred by U.S. Drug in the ordinary course of its
business.
(6) The value of the Special Payment is too speculative to permit such
value to be ascertained at the time of the Merger because the
Special Payment is conditioned on a potential cash payment under a
marketing agreement with an undetermined third-party which has not
been executed and which may never be executed. In no event will
the amount of the Special Payment exceed the value of the USAT
stock received by the Minority Stockholders in the Merger.
(7) To the best knowledge of the management of USAT, there is no plan
or intention on the part of the Minority Stockholders to sell,
exchange or otherwise dispose of a number of shares of USAT stock
received in the transaction that would reduce the Minority
Stockholders' ownership of USAT stock to a number of shares having
a value, as of the date of the transaction, of less than 50
percent of the value of all the formerly outstanding stock of U.S.
Drug in the hands of the Minority Stockholders as of the same
date.
(8) Acquisition Corp. will acquire at least 90 percent of the fair
market value of the net assets and at least 70 percent of the fair
market value of the gross assets held by U.S. Drug immediately
prior to the transaction.
(9) Following the transaction, Acquisition Corp. will not issue
additional shares of its stock that would result in USAT owning
less the 80% of the total combined voting power of all classes of
Acquisition Corp. stock entitled to vote or less than 80% of the
total number of shares of all other classes of Acquisition Corp.
stock.
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Board of Directors
July 31, 1996
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(10) USAT has no plan or intention to reacquire any of its stock
issued in the transaction.
(11) USAT has no plan or intention to liquidate Acquisition Corp., to
merge Acquisition Corp. with and into another corporation, to
sell or otherwise dispose of the stock of Acquisition Corp., or
to cause Acquisition Corp. to sell or otherwise dispose of any of
the assets of U.S. Drug acquired in the transaction, except for
dispositions made in the ordinary course of business.
(12) Following the transaction, Acquisition Corp. will continue the
historic business of U.S. Drug or use a significant portion of
U.S. Drug's business assets in a business.
(13) USAT, Acquisition Corp., U.S. Drug and the shareholders of U.S.
Drug will pay their respective expenses, if any, incurred in
connection with the transaction.
(14) No stock of Acquisition Corp. will be issued in the transaction.
(15) The fair market value of the assets of U.S. Drug transferred to
Acquisition Corp. will equal or exceed the sum of liabilities
assumed by Acquisition Corp., plus the amount of liabilities, if
any, to which the transferred assets are subject.
(16) U.S. Drug is not under the jurisdiction of a court in a Title 11
or similar case.
Discussion
The Merger will meet the statutory requirements of a tax free reorganization
within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal
Revenue Code of 1986, as amended (the "Code"). The Merger will be effected
pursuant to Delaware law, USAT will "control" Acquisition Corp. within the
meaning of Code Section 368(c) as of the effective date of the Merger and
thereafter, Acquisition Corp. will acquire substantially all the assets of U.S.
Drug pursuant to the Merger, and no stock of Acquiring Corp. will be issued as
part of the Merger.
Conclusion
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Board of Directors
July 31, 1996
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On the basis of our review of the aforementioned documents, the representations
set forth above and on the basis of federal income tax law as currently in
effect, including the Code, existing judicial decisions and administrative
regulations, rulings, procedures and practice, it is our opinion that the Merger
will be treated as a reorganization within the meaning of Code Sections
368(a)(1)(A) and 368(a)(2)(D) with the following consequences:
(a) no gain or loss will be recognized by the Minority Stockholders
upon the receipt of the USAT Common Stock and the right to receive
the Special Payment in exchange for the U.S. Drug stock;
(b) any cash subsequently received by the Minority Stockholders in
accordance with the terms of the Special Payment will constitute
"boot" and will result in such Minority Stockholder recognizing
gain equal to the lesser of the amount of the cash payment
received or the gain realized on the overall Merger transaction;
(c) the tax basis of the USAT stock received by the Minority
Stockholders will be the same as the tax basis of the U.S. Drug
stock surrendered in the Merger, plus any gain realized on the
Merger transaction, less any cash received;
(d) the holding period, for federal income tax purposes, of the USAT
stock received by the Minority Stockholders will, in the hands of
such stockholders, include the holding period of the shares of
U.S. Drug stock exchanged therefor, provided that such stock was
held as a capital asset in the hands of such Minority Stockholders
on the effective date of the Merger; and
(e) a Minority Stockholder receiving cash in lieu of a fractional
share will realize a gain for federal income tax purposes to the
extent of the cash received in excess of the tax basis of the
fractional share.
In addition, we have reviewed the discussion under the heading "Certain Tax
Consequences" in the Prospectus. In our opinion, such discussion is accurate as
of the date hereof in all material respects insofar as it relates to the federal
income tax aspects of the Merger as they affect U.S. Drug and the Minority
Stockholders. We have not, however, independently verified any of the financial
statements or assumptions set forth in the Prospectus, and, accordingly, our
opinion is qualified to that extent.
We hereby consent to the use of this opinion as an exhibit to the Prospectus and
to the use of our name under the heading "Certain Tax Consequences."
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Board of Directors
July 31, 1996
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Very truly yours,
ROSENMAN & COLIN LLP
By: /s/ ROSENMAN & COLIN LLP
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