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EXHIBIT 8.1
KING & SPALDING
191 Peachtree Street
Atlanta, Georgia 30303-1763
Telephone: 404/572-4600
Facsimile: 404/572-5100
Direct Dial: Direct Fax:
(404) 572-3353 (404) 572-5147
May 23, 1996
Medaphis Corporation
2700 Cumberland Parkway, Suite 300
Atlanta, Georgia 30339
Health Data Sciences Corporation
268 West Hospitality Lane #300
San Bernadino, California 92408
Re: Federal Income Tax Consequences of Merger of RAKSub, Inc.,
a Wholly Owned Subsidiary of Medaphis Corporation, with and
into Health Data Sciences Corporation
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Ladies and Gentlemen:
We have acted as tax counsel to Medaphis Corporation ("Medaphis") in
connection with the merger (the "Merger") of RAKSub, Inc. ("Newco"), a wholly
owned subsidiary of Medaphis, with and into Health Data Sciences Corporation
("HDSC"), pursuant to the Merger Agreement dated as of May 23, 1996 (the
"Agreement") by and between Medaphis, Newco, and HDSC. You have requested our
opinion, in our capacity as tax counsel to Medaphis, regarding certain of the
federal income tax consequences of the Merger.
We understand that our opinion will be referred to in the Proxy
Statement-Prospectus (the "Proxy Statement") that forms part of the Registration
Statement on Form S-4 to be filed with the Securities and Exchange Commission in
connection with the Merger. We hereby consent to such use of our opinion.
All capitalized terms used herein without definition have the respective
meanings specified in the Agreement.
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Health Data Sciences Corporation
May 23, 1996
Page 2
INFORMATION RELIED ON
In rendering the opinion expressed herein, we have examined such
documents as we have deemed appropriate, including the Agreement and the Proxy
Statement. In our examination of documents, we have assumed, with your consent,
that all documents submitted to us as photocopies or telecopies faithfully
reproduce the originals thereof, that such originals are authentic, that all
such documents have been or will be duly executed to the extent required, and
that all statements set forth in such documents are accurate. We also have
obtained such additional information and representations as we have deemed
relevant and necessary through consultation with various representatives of
Medaphis and HDSC. However, we have not yet obtained written certificates from
Medaphis and HDSC or any shareholder of HDSC to verify certain relevant facts
that have been represented to us or that we have assumed in rendering this
opinion. We will require such written certificates prior to rendering our
final opinion on the tax consequences of the Merger, which opinion is to be
delivered as a condition to the closing of the Merger.
Based upon the aforementioned consultations, we have assumed that the
following statements are true on the date hereof and will be true at the time
of the Merger:
(1) The Merger will be consummated in compliance with the material
terms of the Agreement and none of the material terms and conditions therein
have been waived or modified and neither Medaphis nor HDSC has any plan or
intention to waive or modify any such material term or condition.
(2) The fair market value of the Medaphis Common Stock and other
consideration received by each HDSC shareholder will be approximately equal to
the fair market value of the HDSC Common Stock surrendered in the Merger.
(3) There is no plan or intention by the shareholders of HDSC who own
five percent or more of the HDSC Common Stock, and to the best of the knowledge
of the management of HDSC, there is no plan or intention on the part of the
remaining shareholders of HDSC to sell, exchange, or otherwise dispose of a
number of shares of Medaphis Common Stock received in the Merger that would
reduce the HDSC shareholders' ownership of Medaphis Common Stock to a number of
shares having a value, as of the date of the Merger, of less than 50 percent of
the value of all of the formerly outstanding HDSC Common Stock as of the same
date. For purposes of this representation, shares of HDSC Common Stock
exchanged for cash or other property, surrendered by dissenters, or exchanged
for cash in lieu of fractional shares of Medaphis Common Stock will be treated
as outstanding HDSC Common Stock on the date of the Merger. Moreover, shares
of HDSC Common Stock and shares of Medaphis Common Stock held by
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Health Data Sciences Corporation
May 23, 1996
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HDSC shareholders and otherwise sold, redeemed, or disposed of prior or
subsequent to the Merger will be considered in making this representation.
(4) Following the Merger, HDSC will hold at least 90 percent of the
fair market value of its net assets and at least 70 percent of the fair market
value of its gross assets and at least 90 percent of the fair market value of
Newco's net assets and at least 70 percent of the fair market value of Newco's
gross assets held immediately prior to the Merger. For purposes of this
representation, amounts paid by HDSC or Newco to dissenters, amounts paid by
HDSC or Newco to shareholders who receive cash or other property, amounts used
by HDSC or Newco to pay reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by HDSC or Newco will
be included as assets of HDSC or Newco, respectively, held immediately prior to
the Merger.
(5) Prior to Merger, Medaphis will directly own all of the outstanding
shares of stock of Newco.
(6) HDSC has no plan or intention to issue additional shares of its
stock that would result in Medaphis acquiring or owning after the Merger less
than 80 percent of the total combined voting power of all classes of HDSC stock
entitled to vote and at least 80 percent of the total number of shares of all
other classes of HDSC stock.
(7) Medaphis has no plan or intention to cause HDSC to issue
additional shares of HDSC stock that would result in Medaphis (or a wholly owned
subsidiary of Medaphis) owning after the Merger less than 80 percent of the
total combined voting power of all classes of HDSC stock entitled to vote and at
least 80 percent of the total number of shares of all other classes of HDSC
stock.
(8) Medaphis has no plan or intention to reacquire any of the shares
of Medaphis Common Stock issued in the Merger.
(9) Medaphis has no plan or intention to liquidate HDSC; to merge HDSC
with or into another corporation; to sell or otherwise dispose of any of the
HDSC Common Stock, except for transfers of stock to corporations controlled by
Medaphis; or to cause HDSC to sell or otherwise dispose of any of its assets or
any of the assets acquired from Newco, except for dispositions made in the
ordinary course of business.
(10) Newco will have no liabilities at the time of the Merger, and will
not transfer to HDSC any assets subject to liabilities in the transaction.
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(11) Following the Merger, HDSC will continue its historic
business or use a significant portion of its historic business assets in a
business.
(12) Medaphis, Newco, HDSC, and the shareholders of HDSC will
pay their respective expenses, if any, incurred in connection with the Merger,
except that the shareholders of HDSC will pay the fees, costs and expenses of
HDSC in excess of a certain amount specified in the Agreement.
(13) There is no intercorporate indebtedness existing
between Medaphis and HDSC or between Newco and HDSC that was or will be issued,
acquired, or settled at a discount.
(14) In the Merger, Medaphis will acquire shares of HDSC
Common Stock representing at least 80 percent of the total combined voting power
of all classes of HDSC stock entitled to vote and at least 80 percent of the
total number of shares of all other classes of HDSC stock, solely in exchange
for voting stock of Medaphis. For purposes of this representation, shares of
HDSC Common Stock exchanged for cash or other property originating with Medaphis
will be treated as outstanding HDSC Common Stock on the date of the Merger.
(15) At the time of the Merger, HDSC will not have
outstanding any warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire stock in HDSC that, if
exercised or converted, would affect Medaphis's acquisition or retention of HDSC
Common Stock representing at least 80 percent of the total combined voting
power of all classes of HDSC stock entitled to vote and at least 80 percent of
the total number of shares of all other classes of HDSC stock.
(16) Neither Medaphis nor any subsidiary of Medaphis owns,
directly or indirectly, nor has any such corporation owned during the past five
years, directly or indirectly, any capital stock of HDSC.
(17) Neither HDSC, Medaphis, nor Newco is a regulated
investment company, a real estate investment trust, or a corporation 50 percent
of more of the value of whose total assets (excluding cash, cash items,
receivables and U.S. government securities) are stock or securities and 80
percent or more of the value of whose total assets are assets held for
investment. For purposes of the 50 percent and 80 percent determinations under
the preceding sentence, stock and securities in any subsidiary corporation shall
be disregarded, and the parent corporation shall be deemed to own its ratable
share of the subsidiary's assets. A corporation shall be considered a
subsidiary for purposes of this paragraph if the parent owns 50 percent or more
of the combined
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May 23, 1996
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voting power of all classes of stock entitled to vote, or 50 percent or more of
the total value of shares of all classes of stock outstanding.
(18) On the date of the Merger, the fair market value of the
assets of HDSC will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
(19) HDSC is not under the jurisdiction of a court in a case
under Title 11 of the United States Code or a receivership, foreclosure, or
similar proceeding in a federal or state court.
(20) None of the compensation received by any
shareholder-employees of HDSC in contemplation of or as a result of the Merger
will be separate consideration for, or allocable to, any of their shares of HDSC
Common Stock; none of the shares of Medaphis Common Stock received by any
shareholder-employees of HDSC in exchange for HDSC Common Stock in the Merger
will be separate consideration for, or allocable to, any employment agreement;
and the compensation paid to any shareholder-employees pursuant to the Merger
will be for services actually rendered and will be commensurate with amounts
paid to third parties bargaining at arm's length for similar services.
(21) The payment of cash in lieu of fractional shares of
Medaphis Common Stock is solely for the purpose of avoiding the expense and
inconvenience to Medaphis of issuing fractional shares and does not represent
separately bargained-for consideration. The total cash consideration that will
be paid in the Merger to the HDSC shareholders instead of issuing fractional
shares of Medaphis Common Stock will not exceed one percent of the total
consideration that will be issued in the Merger to the HDSC shareholders in
exchange for their shares of HDSC Common Stock. The fractional share interests
of each HDSC shareholder will be aggregated and no HDSC shareholder will receive
cash in an amount equal to or greater than the value of one full share of
Medaphis Common Stock.
OPINION
Based on the foregoing, it is our opinion that:
(1) The Merger will constitute a "reorganization" within the
meaning of Sections 368(a)(1)(A) and (a)(2)(E) of the Code;
(2) The exchange in the Merger of HDSC Common Stock for
Medaphis Common Stock will not give rise to gain or loss to the HDSC
shareholders;
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(3) The tax basis of the Medaphis Common Stock received in the
Merger by an HDSC shareholder (including any fractional share interest) will be
the same as the tax basis of the HDSC Common Stock exchanged for such Medaphis
Common Stock;
(4) The holding period for the Medaphis Common Stock received
in the Merger by an HDSC shareholder will include the holding period of such
shareholder in the HDSC Common Stock exchanged for such Medaphis Common Stock,
provided that the HDSC Common Stock is held as a capital asset at the Effective
Time of the Merger;
(5) An HDSC shareholder who receives cash in lieu of a
fractional share of Medaphis Common Stock will recognize gain or loss equal to
the difference between such cash amount and the shareholder's basis in the
fractional share interest; and
(6) The Proxy Statement accurately describes the material
federal income tax consequences of the Merger to the HDSC shareholders.
The opinion expressed herein is based upon existing statutory,
regulatory, and judicial authority, any of which may be changed at any time with
retroactive effect. In addition, our opinion is based solely on the documents
that we have examined, the additional information that we have obtained, and the
statements set out herein that we have assumed to be true on the day hereof and
at the time of the Merger. Our opinion cannot be relied upon if any of the
material facts contained in such documents or in any such additional information
are, or later become, inaccurate or if any of the material statements set out
herein are, or later become, inaccurate. Finally, our opinion is limited to the
tax matters specifically covered thereby, and we have not been asked to address
herein, nor have we addressed herein, any other tax consequences of the Merger.
Very truly yours,
/s/ King & Spalding
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KING & SPALDING