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EXHIBIT 8.1
BENESCH
FRIEDLANDER 2300 BP America Building
COPLAN 200 Public Square
& ARONOFF Cleveland, Ohio 44114-2378
ATTORNEYS AT LAW (216) 363-4500
Fax (216) 363-4588
April 13, 1995
Victoria Financial Corporation
5915 Landerbrook Drive
Cleveland, Ohio 44124-4058
Ladies and Gentlemen:
This letter is in response to your request for our opinion with respect to
certain federal income tax consequences of the proposed merger of Queensland,
Inc. ("Queensland"), a wholly owned subsidiary of USF&G Corporation ("USF&G"),
with and into Victoria Financial Corporation ("Victoria") pursuant to the
Amended and Restated Agreement and Plan of Merger dated as of December 18, 1994
and amended as of February 9, 1995, by and among USF&G, Queensland and Victoria
(the "Merger Agreement"). Unless otherwise specified, the terms used herein
are defined in the Proxy Statement/Prospectus of Victoria.
In connection with the proposed Merger, we understand the following:
(a) Pursuant to the laws of Delaware, Queensland will merge with and
into Victoria, which will be the surviving corporation;
(b) At the Effective Date, each outstanding share of Victoria Common
Stock will be converted into a right to receive the number of
shares of USF&G Common Stock equal to the Exchange Rate;
(c) At the Effective Date, each holder of Victoria Common Stock who
otherwise would have been entitled to a fractional share of USF&G
Common Stock will receive cash in lieu thereof;
(d) As soon as practicable on or after the Effective Date, the
Exchange Agent will distribute USF&G Common Stock and cash in
lieu of fractional shares to holders of Victoria Common Stock; and
(e) USF&G will cause Victoria to continue to conduct the historic
business of
Cleveland Columbus Cincinnati
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BENESCH, FRIEDLANDER, COPLAN & ARONOFF
Victoria Financial Corporation
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Victoria or use a significant portion of Victoria's historic
business assets in a business within the meaning of Treasury
Regulation Section 1.368-1(d).
In connection herewith, we have examined the Merger Agreement, the Registration
Statement on Form S-4 filed by USF&G with the Securities and Exchange
Commission (which contains a Proxy Statement/Prospectus of Victoria) and such
other information as we have deemed relevant. As to questions of fact material
to the opinions herein, we have relied upon representations of Victoria and
USF&G set forth in certificates executed by their respective officers, as well
as USF&G's covenant in the Merger Agreement that it will not take any action,
nor will it cause Victoria to take any action, following the Effective Date of
the Merger, that would jeopardize the characterization of the Merger as a
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Code. Moreover, we have assumed that the Merger will be completed in the
manner set forth in the Proxy Statement/Prospectus, and that the
representations and covenants made by the parties to the Merger are accurate
and complete and that such representations and covenants will continue to be
accurate and complete as of the Effective Date of the Merger. On the basis of
the foregoing and subject to the conditions, qualifications and limitations set
forth herein, we are of the opinion that for federal income tax purposes:
(a) The Merger will qualify as a tax-free reorganization
within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(E) of of the Internal Revenue Code 1986, as
amended (the "Code"), and Victoria and USF&G will each
be a party to the reorganization;
(b) No gain or loss will be recognized by Victoria as a result
of the Merger;
(c) No gain or loss will be recognized by a shareholder of
Victoria upon the exchange of shares of Victoria Common
Stock for USF&G Common Stock (including the USF&G
Rights), except that gain or loss will be recognized by
a shareholder of Victoria on the receipt of cash in lieu
of a fractional share interest in USF&G Common Stock;
(d) The adjusted tax basis of the USF&G Common Stock received
by a shareholder of Victoria pursuant to the Merger
(including fractional share interests deemed received)
will be the same as the adjusted tax basis of the shares
of Victoria Common Stock surrendered in exchange therefor;
(e) The holding period of the Victoria Common Stock received
by a shareholder of Victoria as a result of the Merger
(including fractional share interests deemed received)
will include the holding period of the shares of Victoria
Common Stock surrendered in exchange therefor, provided
that such Victoria Common Stock is held as a capital
asset by the Victoria shareholder at the consummation of
the Merger; and
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BENESCH, FRIEDLANDER, COPLAN & ARONOFF
Victoria Financial Corporation
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(f) Any cash payment received by a holder of Victoria Common
Stock in lieu of a fractional share of USF&G Common Stock
will be treated as if such fractional share of USF&G Common
Stock had been issued in the Merger and then redeemed by USF&G.
The opinions expressed above are based upon our opinion that the continuity of
interest requirement of Treasury Regulations Section 1.368-1(b) will be
satisfied. The continuity of interest requirement will be satisfied if
Victoria's shareholders receive in the Merger and retain USF&G Common Stock
equal in value, as of the Effective Date, to at least 50% of the value of all
of the formerly outstanding shares of Victoria Common Stock as of that date.
The Internal Revenue Service (the "Service") established in Revenue Procedure
77-37, as modified to the date hereof, ruling guidelines with respect to
satisfying the continuity of interest requirement. In order to satisfy those
guidelines in connection with a ruling request, a publicly traded company must
represent to the Service that there is no plan or intention by the company's
shareholders who own 5 percent or more of the company's stock, and to the best
of the knowledge of the management of the company, there is no plan or
intention on the part of the remaining shareholders of the company, to sell,
exchange, or otherwise dispose of a number of shares of the acquiring parent's
stock received in the transaction that would reduce the company's shareholders'
ownership of the acquiring parent's stock to a number of shares having a value,
as of the date of the transaction, of less than fifty percent of the value of
all of the formerly outstanding stock of the company as of the same date. The
Service has adopted a no-ruling policy with respect to transactions such as the
Merger, stating that it believes that the tax consequences of such transactions
are adequately addressed in the tax law, including but not limited to the
Revenue Procedure. Management of Victoria has represented to us, based upon
inquiry of its shareholders who own 5 percent or more of its stock and based
upon Victoria's absence of knowledge as to any plan or intention on the part of
the remaining shareholders, that there is no plan or intention by shareholders
of Victoria who own 5 percent or more of its stock and, to the best of
management's knowledge, there is no plan or intention on the part of the
remaining Victoria shareholders, to sell, exchange or otherwise dispose of such
number of shares of USF&G Common Stock received in the Merger that would result
in failure to satisfy the continuity of interest requirement as prescribed in
the Treasury Regulations and the Service ruling guidelines as set forth in
Revenue Procedure 77-37, as modified to the date hereof. Our opinion that the
continuity of interest requirement will be satisfied is based upon management's
representation to us, the ruling guidelines as set forth in Revenue Procedure
77-37 and on the expressed reasoning of the Service for its adoption of the
no-ruling policy.
The opinion with respect to the receipt of the USF&G Rights in subparagraph (c)
above is based upon the Service's current position set forth in Revenue Ruling
90-11 regarding the tax consequences of the distribution of such rights upon
their creation and several private letter rulings in which the Service has held
that the receipt of rights upon the exchange of shares in a merger which is a
tax-free reorganization does not give rise to the realization of gross income.
No assurance can be given that the Service will not change its current position
and assert that the receipt of rights in a tax-free merger results in the
realization of gross income, to the extent of the value of such rights, if any,
when received.
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BENESCH, FRIEDLANDER, COPLAN & ARONOFF
Victoria Financial Corporation
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This opinion does not relate to or purport to cover any matters other than the
ones expressly stated herein. The opinion expressed herein is limited to the
consequences of the Merger under current federal income tax law (including the
Code, the Treasury Regulations promulgated thereunder, and administrative and
judicial interpretations thereof) as of the date of this opinion letter. No
opinion is expressed with respect to state, local, foreign or other tax laws.
Moreover, this opinion does not apply to (i) holders of Victoria Common Stock
subject to special tax treatment under the federal income tax laws or (ii)
holders of Victoria Common Stock who acquired their stock pursuant to the
exercise of an employee stock option or otherwise as compensation or in
exchange for Victoria options. We assume no obligation to revise or supplement
this opinion should the present federal income tax laws be changed by any
legislation, judicial decisions, or otherwise.
This opinion is based upon existing law, regulations, administrative rulings
and judicial opinions. No assurance can be given that changes in law or
regulation or forthcoming opinions or decisions may not modify the conclusions
expressed in this opinion. Further, no assurance can be given that the Service
will not apply stricter standards than set forth in its advance ruling
guidelines or that it will not challenge the conclusions stated in this
opinion.
We hereby consent to the reference to us under "Certain Federal Income Tax
Consequences" in the Proxy Statement/Prospectus forming a part of the
Registration Statement and to the filing of a copy of this opinion as an
exhibit to the Registration Statement.
Very truly yours,
BENESCH, FRIEDLANDER,
COPLAN & ARONOFF