1
EXHIBIT 8
[TRENAM, KEMKER, SCHARF, BARKIN, FRYE, O'NEILL & MULLIS LETTERHEAD]
December 31, 1998
Lamalie Associates, Inc.
Northdale Plaza, Suite 220E
3903 Northdale Blvd.
Tampa, FL 33624-1824
Re: Lamalie Associates Holding Company Reorganization
Our File No. 98-3653
-------------------------------------------------
Gentlemen:
You have requested our opinion with respect to certain federal income
tax consequences of an internal reorganization of Lamalie Associates, Inc.
("LAI") involving, among other things the implementation of a new holding
company structure for the Lamalie group of companies (the "Holding Company
Reorganization"). Our opinion is based upon (i) the Agreement and Plan of Merger
(the "Merger Agreement") dated December 31, 1998, among Lamalie, LAI Worldwide,
Inc. ("Holdingco") and LAI MergerSub, Inc. ("MergerSub"), (ii) the financial
statements and other information you furnished to us with respect to LAI and its
subsidiaries, (iii) the facts, representations, law and analysis hereinafter set
forth, and (iv) the written representations of officers of LAI, a copy of which
are attached hereto, and (v) current provisions of the Internal Revenue Code of
1986, as amended (the "Code"), existing regulations thereunder, current
administrative rulings of the Internal Revenue Service and court decisions. We
caution that statutes, regulations, judicial decisions and administrative
rulings and interpretations are subject to change at any time, and, in some
circumstances, with retroactive effect. A change in the authorities upon which
our opinion is based could affect our conclusions.
Capitalized terms used but not defined herein have the meanings
ascribed to them in the Merger Agreement.
As set forth in detail below, in our opinion, the Holding Company
Reorganization will constitute a tax-free Merger under section 368(a) of the
Code. As a result, no gain or loss will be recognized for United States federal
income tax purposes by LAI or the stockholders of LAI by reason of the Holding
Company Reorganization.
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FACTS
THE PARTIES
LAI. LAI is a Florida corporation with its principal office at
Northdale Plaza, Suite 220E, 3903 Northdale Blvd., Tampa, FL 33624-1824.
LAI maintains its books and records on an accrual basis of accounting
and its taxable year ends on the last day of February each year. LAI and its
wholly owned subsidiary, LAI Ward Howell, Inc., file consolidated federal income
tax returns. LAI's common stock is widely-held and traded on the Nasdaq National
Market System.
LAI's authorized capital stock consists of (i) 35,000,000 shares of
common stock, par value $.01 per share, of which 8,011,557 are shares were
issued and outstanding, as of December 30, 1998, and (ii) 3,000,000 shares of
preferred stock, par value $.01 per share, of which none is issued and
outstanding, a series of 500,000 shares of which have been designated Series A
Junior Participating Preferred Stock.
Holdingco. Holdingco is a wholly-owned subsidiary of LAI, incorporated
in Florida on December 18, 1998 for the purpose of acting as a holding company
for the LAI group of companies. Prior to the Holding Company Reorganization,
Holdingco will have no significant assets or liabilities. The authorized capital
stock of Holdingco consists of (i) 35,000,000 shares of common stock, par value
$.01 per share, of which 100 shares are issued and outstanding, all of which are
directly owned by LAI, and (ii) 3,000,000 shares of preferred stock, par value
$.01 per share, of which none is issued and outstanding, a series of 500,000
shares of which have been designated Series A Junior Participating Preferred
Stock.
MergerSub. MergerSub is a wholly-owned subsidiary of Holdingco,
incorporated in Florida on December 18, 1998 for the sole purpose of merging
with LAI in accordance with the Merger Agreement. Prior to the Holding Company
Reorganization, MergerSub will have no significant assets or liabilities and has
engaged in no business activities other than matters incident to its
organization and matters incident to the Merger Agreement. The issued and
outstanding capital stock of MergerSub consists of 10,000 shares of common
stock, par value $0.01 per share, all of which are directly owned by Holdingco.
THE HOLDING COMPANY REORGANIZATION
LAI conducts its executive search business both directly through the
LAI corporation and through its wholly owned subsidiary, LAI Ward Howell, Inc.,
a Connecticut corporation. Thus, LAI functions both as an operating company and
as a holding company. For the business reasons set forth below, management of
LAI has determined that it would be advisable and in the best interests of LAI
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and its subsidiaries to implement a new holding company structure. The holding
company structure will be accomplished as follows:
1. MergerSub will merge with and into LAI pursuant to the provisions
of the Florida Business Corporation Act (the "FBCA") hereinafter
described (the "LAI Merger") pursuant to which LAI would be the
surviving corporation, and
2. pursuant to the LAI Merger, each share of common stock of LAI,
$.01 par value, issued and outstanding immediately prior to the
Effective Time of the LAI Merger, together with the preferred
stock purchase right associated therewith under and pursuant to,
and as further described in, that certain Stockholder Rights
Agreement dated November 6, 1998 between LAI and ChaseMellon
Shareholder Services, L.L.C. as Rights Agent (collectively, the
"LAI Common Stock") will be converted into one share of common
stock of Holdingco, par value $.01 per share, together with one
preferred stock purchase right associated therewith under and
pursuant to, and as further described in, that certain
Stockholder Rights Agreement dated December 30, 1998 between
Holdingco and ChaseMellon Shareholder Services, L.L.C. as Rights
Agent (collectively, the "Holdingco Common Stock").
As a result of the LAI Merger, (i) each shareholder of LAI immediately
prior to the Effective Time of the LAI Merger will own, immediately after the
Effective Time of the LAI Merger, a number of shares of Holdingco Common Stock
exactly equal to the number of shares of LAI Common Stock held immediately prior
to the LAI Merger, and (ii) Holdingco will own all of the issued and outstanding
stock of LAI.
The LAI Merger will be accomplished pursuant to Section 607.11045 of
the FBCA which permits a Florida corporation to reorganize as a holding company
without stockholder approval. Section 607.11045 eliminates the requirement for a
stockholder vote on such a merger through several provisions designed to ensure
that the rights of stockholders are not changed by or as a result of the merger.
Appraisal rights are not available to dissenting stockholders in a merger that
qualifies under Section 607.11045.
Thus, in the LAI Merger (i) shareholder approval will not be sought nor
is it required under Section 607.11045 of the FBCA; (ii) LAI and MergerSub are
both Florida corporations and will be the only constituent corporations to the
LAI Merger, (iii) under Section 607.1301 of the FBCA, holders of LAI Common
Stock will not be entitled to dissenters' appraisal rights; (iv) the LAI Common
Stock will be automatically converted into Holdingco Common Stock evidencing the
same proportional interests in Holdingco; (v) the businesses conducted by LAI
and its affiliates will not change as a result of the LAI Merger; (vi) the board
of directors of Holdingco, after the effective time, will be identical to the
board of directors of LAI that existed immediately prior to the LAI Merger;
(vii) the rights, powers and preferences of the holders of Holdingco Common
Stock will be identical, in all material respects, as those of holders of LAI
Common Stock immediately prior to the LAI Merger; (viii) Holdingco will be a
newly-formed corporation and, immediately prior to the LAI
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Merger, will have no significant assets or liabilities; (ix) immediately
following consummation of the LAI Merger, the provisions of the articles of
incorporation and the provisions of the by-laws of Holdingco will be identical,
in all material respects, as the articles of incorporation and by-laws of LAI,
(x) immediately following consummation of the LAI Merger, on a consolidated
basis, Holdingco will have substantially the same assets and liabilities as LAI
had prior to consummation of the LAI Merger; (xi) immediately following
consummation of the LAI Merger, LAI will be a wholly owned subsidiary of
Holdingco, and (xii) the Holdingco Common Stock will be issued solely as part of
a merger of LAI effectuated to facilitate the implementation of a holding
company structure which is considered to be more appropriate under the
circumstances.
RELATED TRANSACTIONS
Following the consummation of the Holding Company Reorganization, LAI
may distribute cash to Holdingco. Following such distribution, Holdingco may
make a loan of an equivalent amount of cash to LAI.
BUSINESS PURPOSE FOR THE HOLDING COMPANY REORGANIZATION
We are advised that management of LAI believes that the full
implementation of a course of action that includes the Holding Company
Reorganization will provide numerous benefits to LAI and its subsidiaries, taken
as a whole, and that a number of valid business reasons for taking such actions
exist, among which are:
1. Creation of an organizational framework whereby the business
of LAI can more easily be divided up geographically on
structural parity (rather than utilizing different level
subsidiaries) and lines of responsibility and authority can be
clarified.
2. Creation of an organizational framework which tends to be more
conducive to future expansion and allows for flexibility in
effectuating future acquisitions and dispositions of operating
units/assets.
3. Clarification of the role of the ultimate parent company as
the provider of consolidated worldwide management, financing,
investor relations and certain other staff services to the
organization as a whole.
4. Creation of future opportunities for centralization of
international functions such as treasury management,
administration services and marketing.
5. Creation of an organizational framework that helps to
facilitate the tracking of the profitability of various
business units.
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6. Elimination of the need for the public board of directors to
take numerous actions of the nature required for the
operations of LAI, including its foreign branches, the effect
of which will allow the board of directors of the ultimate
parent to concentrate on high level policy and other
management issues while at the same time facilitating the day
to day operations of LAI through actions of a subsidiary
boards of directors.
7. Providing through Holdingco structural flexibility in planning
for, and structuring or restructuring of, the overall LAI
group of companies to meet business needs in present and
future years.
8. Providing expected improvement in financing alternatives by
facilitating planning of financings best suited to the varying
needs and circumstances of LAI and its subsidiaries.
9. Reduction of state franchise and income taxes on an ongoing
basis, estimated to result in as much as $600,000 annual
savings and provisions of structure more conducive to
opportunities for minimizing worldwide tax liability.
10. Reducing exposure of the stock of the subsidiaries to
liabilities of LAI.
11. Reducing exposure of LAI to liabilities of the subsidiaries.
REPRESENTATIONS
In connection with rendering this opinion, we have relied on the
following representations of LAI (each of which shall also be true as of the
date of the Holding Company Reorganization):
1. Immediately prior to the Holding Company Reorganization, no
indebtedness will exist between any of the subsidiaries and
LAI except for intercompany accounts which arise in the
ordinary course of business, with no such intercorporate
indebtedness having been issued, acquired, or to be settled at
a discount.
2. The Holding Company Reorganization is motivated and carried
out to accomplish real and substantial non-Federal tax
purposes germane to the business of LAI and its subsidiaries.
3. There is no plan or intention to liquidate either LAI or any
of its subsidiaries, except for possible liquidations into
another wholly owned member of the resulting consolidated
group, or to sell or otherwise dispose of the assets of either
LAI or any of its subsidiaries, except in the ordinary course
of business and except among wholly owned members of the
resulting consolidated group.
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4. Payments made in connection with all continuing transactions
between LAI and any of its subsidiaries will be for fair
market value based on terms and conditions that would be
arrived at by the parties if bargaining at arm's length.
5. To the best of the knowledge of the management of LAI, there
is no plan or intention on the part of any of the shareholders
of LAI to sell, exchange or otherwise dispose of a number of
shares of Holdingco Common Stock, prior to the Effective Time,
to be received in the LAI Merger that would reduce the LAI
shareholders' ownership of Holdingco Common Stock to a number
of shares having a value, as of the Effective Time, of less
than 50 percent of the value of all LAI Common Stock
outstanding immediately prior to the Effective Time.
6. LAI has no plan or intention to issue additional shares of its
stock that would result in Holdingco's owning less than 80
percent of the outstanding stock of LAI.
In addition to the facts and representations set forth above, our
opinion is conditioned upon our understanding that the transactions will be
carried out as described herein and that there are no other agreements,
arrangements, or understandings between any of LAI, MergerSub, LAI's
subsidiaries, or Holdingco other than those described or referenced herein.
LAW AND ANALYSIS
THE HOLDING COMPANY REORGANIZATION UNDER SECTION 368(a)(1)(A)
A. Statutory Requirements
Section 368(a)(1)(A) of the Code provides that the term
"reorganization" means a statutory merger or consolidation.
Section 368(a)(2)(E) of the Code provides that a transaction which
otherwise qualifies under Section 368(a)(1)(A) shall not be disqualified by
reason of the fact that stock of a corporation which before the merger was in
control of the acquired corporation is used in the transaction so long as (1)
after the transaction, the surviving corporation in the merger holds
substantially all of its own properties and substantially all of the properties
of the acquired corporation (other than the stock of the controlling corporation
which is distributed pursuant to the merger) and (2) in the transaction, the
former shareholders of the surviving corporation exchanged, for an amount of
voting stock in the controlling corporation, an amount of stock in the surviving
corporation which constitutes control of such surviving corporation.
Section 368(b) of the Code provides that the term "a party to a
reorganization" includes both corporations, in the case of a reorganization
resulting from the acquisition by one corporation of stock or properties of
another, and that in the case of a reorganization in which the acquisition
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consideration is the stock of a corporation which controls the acquiring
corporation such as one qualifying under Section 368(a)(2)(E), also includes the
controlling corporation. For purposes of Section 368(a)(2)(E) of the Code, the
term "control" is defined in Section 368(c) as 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. Pursuant to the terms of the Merger
Agreement, prior to the merger of MergerSub with and into LAI, Holdingco will
own all of the issued and outstanding stock of MergerSub. Consequently,
Holdingco will be in control of LAI and, therefore, will be the "controlling
corporation" within the meaning of Section 368(a)(2)(E).
Treas. Reg. Section 1.368-2(j)(3)(iii) of the Income Tax Regulations
("Regulations" or "Treas. Reg.") provides that for purposes of Section
368(a)(2)(E)(i) of the Code, the term "substantially all" has the same meaning
as under Section 368(a)(1)(C). Rev. Proc. 77-37, 1977-2 C.B. 568, provides that,
for advance ruling purposes, the "substantially all" requirement of Section
368(a)(2)(E)(i) is satisfied if there is a retention of assets representing 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 the surviving
corporation immediately prior to the transfer. These same percentages of assets
of the merged corporation must also be transferred to and retained by the
surviving corporation. Management of LAI has represented that, after the LAI
Merger, LAI will hold assets representing at least 90 percent of the fair market
value of the net assets and at least 70 percent of the gross assets of both LAI
and MergerSub. Based on this representation, it can be concluded that the
"substantially all" requirement will be met.
Finally, as discussed above, "control" for purposes of Section
368(a)(2)(E) is defined in Section 368(c) as 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 terms of the Merger Agreement
provide that, the existing shareholders of LAI will exchange LAI stock
possessing more than 80% of the voting power of all classes of LAI voting stock
(which constitutes all of LAI's outstanding stock) solely for voting stock of
Holdingco. Accordingly, the amount of LAI stock that is converted into Holdingco
stock upon the merger of MergerSub with and into LAI will constitute control of
LAI immediately before the LAI Merger within the meaning of Section
368(a)(2)(E)(ii).
The IRS has published a ruling which analyzes the applicability of
Section 368(a)(2)(E) of the Code to a situation similar to the Merger. In Rev.
Rul. 77-428, 1977-2 C.B. 117, corporation P formed a subsidiary corporation, S1,
which in turn formed subsidiary corporation S2. Pursuant to a plan of merger, S2
merged with and into P, with P being the surviving corporation. On the date of
the merger all outstanding shares of P stock not held by S1 were exchanged for
shares of S1 stock. Thus, P became a wholly owned subsidiary of S1 and the
former P shareholders became the shareholders of S1. The IRS held that the above
described merger qualified as a tax-free reorganization under Section
368(a)(2)(E), even though the two subsidiaries were newly organized corporations
and a related corporation was acquired in the transaction. As noted, this is
similar to
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the plan contemplated by the parties to the LAI Merger, with LAI being the party
comparable to P, Holdingco being the party comparable to S1, and MergerSub being
the party comparable to S2.
B. Nonstatutory Requirements
Treas. Reg. Sections 1.368-1(b) and 1.368-2(g) provide that the
following additional requirements must be met for a transaction to qualify as a
reorganization within the meaning of Section 368:
1. "Continuity of interest" must be present;
2. "Continuity of business enterprise" (as described in Treas. Reg.
Section 1.368-1(d) must exist; and
3. The transaction must be undertaken for reasons pertaining to the
continuance of the business of a corporation which is a party to
the transaction.
Continuity of Interest. As a result of regulations adopted earlier this
year by the Internal Revenue Service, the historic rules relating to satisfying
the continuity of interest requirement were substantially liberalized. In
general, these regulations provide that continuity of interest is satisfied if a
substantial part of the value of the proprietary interests in the acquired
corporation is preserved in the reorganization. Treas. Reg. Section 1.368-1(e).
Rev. Proc. 77-37, 1977-2 C.B. 568, provides that the "continuity of interest"
requirement of Section 1.368-1(b) of the Regulations is satisfied in a
transaction described in Section 368(a)(1)(A) of the Code by reason of Section
368(a)(2)(E) if there is continuing interest through stock ownership in the
controlling corporation on the part of the former shareholders of the surviving
corporation which is equal in value, as of the effective date of the
reorganization, to at least 50 percent of the value of all of the formerly
outstanding stock of the surviving corporation as of that date. Sales,
redemptions, and other dispositions of stock occurring prior 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. Prior to the revised regulations,
there was a further requirement that there not be an intent on behalf of the
holders of the stock of the acquired corporation to dispose of the stock
received from the acquiring corporation. The revised regulations have eliminated
that requirement, at least as to third parties, and permit holders of acquired
company stock to sell the stock received from the acquiring company, other than
for sales to the acquiring company. Management of LAI has represented that the
50 percent continuity of interest test of Rev. Proc. 77-37 will be met in the
LAI Merger. Based on this representation, it can be concluded that the LAI
Merger will satisfy the continuity of interest requirement.
Continuity of Business Enterprise. The regulations concerning
"continuity of business enterprise" were also modified earlier this year. Treas.
Reg. Section 1.368-1(d) provides that continuity of business enterprise requires
that the acquiring corporation either (i) continue the historic business of the
acquired corporation or (ii) use a significant portion of the acquired
corporation's
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historic business assets in a business, and that the continuity of business
enterprise requirement is satisfied if the acquiring corporation continues the
acquired corporation's historic business. Management of LAI has represented that
LAI will continue to be engaged in the same business following the LAI Merger.
Based on this representation, it can be concluded that the LAI Merger will
satisfy the continuity of business enterprise requirement.
Business Purpose. Treas. Reg. Section 1.368-2(g) provides that a
reorganization must be undertaken for reasons germane to the continuance of the
business of a corporation, a party to the reorganization. Management of LAI has
represented that the LAI Merger will substantially benefit the business of LAI
in various ways (see above). Based upon such representations, it can be
concluded that the LAI Merger will satisfy the business purpose requirements of
Treas. Reg. Section 1.368-2(g) of the Regulations.
C. Additional Statutory and Regulatory Provisions
Section 354(a)(1) of the Code 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.
Section 358(a)(1) of the Code provides that in the case of an exchange
to which section 354 applies, the basis of the property permitted to be received
under such section without the recognition of gain or loss shall be the same as
that of the property exchanged.
Section 1223(1) of the Code provides in part that in determining the
period for which the taxpayer has held property received in an exchange, there
shall be included the period for which he held the property exchanged if the
property has, for the purpose of determining gain or loss from a sale or
exchange, the same basis in whole or in part in his hands as the property
exchanged and the property exchanged at the time of such exchange was a capital
asset as defined in section 1221 of the Code.
Section 1032(a) of the Code generally provides that no gain or loss
shall be recognized to a corporation on the receipt of money or other property
in exchange for stock (including treasury stock) of such corporation. Also,
Section 361(a) of the Code provides that no gain or loss shall be recognized to
a corporation if such corporation is a party to a reorganization and exchanges
property, in pursuance of the plan of reorganization, solely for stock or
securities in another corporation a party to the reorganization.
Section 362 of the Code provides that the acquiring corporation's basis
of property acquired in a reorganization equals the basis of such property in
the hand of the transferor immediately prior to the reorganization. Treas. Reg.
Section 1.1502-31, however, provides that where a corporation acquires stock of
a "common parent" in a reorganization that constitutes a "group structure
change," the acquiring corporation's basis in the stock of the acquired
corporation is determined by reference
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to the "net asset basis" of the common parent rather than under section 362. A
"group structure change" is defined in Treas. Reg. Section 1.1502-33(f)(1) to
include a transaction such as the LAI Merger where a new corporation succeeds
another corporation as the common parent of a consolidated group.
CONCLUSIONS
Based upon the facts, representations, law and analysis set forth
above, and conditioned upon our understanding that the transactions contemplated
by the Merger Agreement will be carried out strictly in accordance with the
terms of the Merger Agreement, in our opinion:
1. The LAI Merger will constitute a reorganization within the
meaning of sections 368(a)(1)(A) and 368(a)(2)(E) of the
Code(*) so long as the continuity of interest, continuity of
business enterprise, and business purpose requirements are
satisfied, and LAI, MergerSub, and Holdingco will each be a
party to the reorganization within the meaning of section
368(b) of the Code.
2. No gain or loss will be recognized by LAI, MergerSub or
Holdingco for federal income tax purposes by reason of the
Holding Company Reorganization (which includes the LAI
Merger). Section 361(a) of the Code.
3. No gain or loss will be recognized by the holders of LAI
Common Stock upon the receipt of shares of Holdingco Common
Stock pursuant to the Holding Company Reorganization (which
includes the LAI Merger). Section 354(a)(1) of the Code.
4. No gain or loss will be recognized by Holdingco, as the holder
of the stock of MergerSub. upon the receipt of shares of LAI
Common Stock pursuant to the Holding Company Reorganization
(which includes the LAI Merger). Section 354(a)(1) of the
Code.
5. The tax basis of the shares of Holdingco Common Stock treated
as received by a holder of LAI Common Stock, pursuant to the
LAI Merger will be the same as the tax basis of the shares of
LAI Common Stock treated as exchanged therefor. Section
358(a)(1) of the Code.
6. The holding period of the shares of Holdingco Common Stock
received or treated as received by a holder of LAI Common
Stock pursuant to the LAI Merger would
- - ----------------------
(*) In addition to satisfying the requirements of Section 368(a)(2)(E),
(i) there appear to be good arguments that the Merger will constitute a
reorganization described in Section 368(a)(1)(B), and (ii) for reorganization
treatment under Section 351(a).
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include the holding period of the shares of LAI Common Stock
exchanged therefor or treated as exchanged therefor, provided
the LAI Common Stock is held as a capital asset by such holder
at the time of the Holding Company Reorganization (which
includes the LAI Merger). Section 1223(1) of the Code.
7. The tax basis of the LAI Common Stock in the hands of
Holdingco will be determined by reference to the "net asset
basis" of LAI immediately prior to the Holding Company
Reorganization and the LAI Merger under the principles of
Treas. Reg. Section 1.1502-31.
We express no opinion as to the tax treatment of the transactions
contemplated by the Holding Company Reorganization and the LAI Merger under the
provisions of any other sections of the Code or the regulations under the Code
that also may be applicable thereto that are not specifically addressed in the
foregoing opinion.
This opinion is given to you by us solely for your use and is not to be
quoted or otherwise referred to or furnished to any governmental agency (other
than the Service in connection with an examination of the transactions
contemplated by the Holding Company Reorganization and the LAI Merger) or to
other persons without our prior written consent.
Very truly yours,
TRENAM, KEMKER, SCHARF, BARKIN,
FRYE, O'NEILL & MULLIS
Professional Association
By: /s/ Gary I. Teblum
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Gary I. Teblum