[KRIEG DeVAULT ALEXANDER & CAPEHART LETTERHEAD]
March 24, 1998
Board of Directors Board of Directors
Environmental Test Systems, Inc. Hach Company
23575 County Road 106 5600 Lindbergh Drive
Elkhart, Indiana 46514 Loveland, Colorado 80538
RE: Merger of Environmental Test Systems, Inc. into Hach
Acquisition Corp.
Ladies and Gentlemen:
The respective Boards of Directors of Environmental Test Systems,
Inc. ("ETS") and Hach Company ("Hach") have requested our opinion as to
certain federal income tax consequences of a reorganization involving
Hach, Hach Acquisition Corp. ("Mergerco") and ETS.
In summary, the proposed transaction involves the merger of ETS
with and into Mergerco ("Merger"), with Mergerco as the surviving entity
("Surviving Entity"). In consideration of the proposed Merger,
non-dissenting ETS Class A Common Stock shareholders will receive Class
A Common Merger Consideration (as hereinafter defined) and cash for any
fractional share interest of Hach Common Stocks (as hereinafter defined)
to be received in the exchange and the non-dissenting ETS Class B Common
Stock shareholders will receive Class B Common Merger Consideration (as
hereinafter defined) and cash for any fractional share interest of Hach
Common Stocks to be received in the exchange. Upon and after
consummation of the proposed transaction, Mergerco will continue as a
wholly-owned subsidiary of Hach.
FACTS
In connection with the Merger, the following facts have been
provided to us, and we have relied upon them for purposes of this
opinion:
A. HACH COMPANY
Hach maintains its principal office at 5600 Lindbergh Drive,
Loveland, Colorado 80538. Hach is a corporation duly incorporated and
existing under the laws of the State of Delaware. As of March 2, 1998,
Hach had 25,000,000 shares of voting, $1.00 par value, common stock
authorized, of which approximately 8,257,897 shares were issued and
outstanding ("Hach Common Stock"), and 20,000,000 shares of voting, no
par value Class
Environmental Test Systems, Inc.
Hach Company
March 24, 1998
Page 2
A common stock, of which approximately 8,243,137 shares were issued and
outstanding ("Hach Class A Common Stock") (collectively, the Hach Common
Stock and the Hach Class A Common Stock are hereinafter referred to as
the "Hach Common Stocks"). The Hach Common Stocks are traded in the
over-the-counter market and stock prices are reported on the Nasdaq
National Market System.
The following table sets forth, as of March 2, 1998, the number and
percentage of outstanding shares beneficially owned by each person known
by Hach to own beneficially more than 5% of the outstanding shares of
the Hach Common Stocks, by each director and named executive officer of
Hach, and by all the directors and executive officers of Hack as a
group.
NAME HACH COMMON STOCK HACH CLASS A COMMON STOCK
---- ----------------- -------------------------
Number of Number of
Shares Percent Shares Percent
Kathryn C. Hach-Darrow ....... 4,573,891(1)(2) 54.46% 4,573,891(1)(2) 54.56
Hach Company Employee Stock
Ownership Plan and Trust ..... 702,762(3) 8.37 702,762(3) 8.38
Bruce J. Hach ................ 166,148(2)(4)(5) 1.98 166,148(2)(4)(5) 1.98
Gary R. Dreher ............... 40,925(2)(4)(6) * 166,148(2)(4)(6) *
Joseph V. Schwan ............. 28,326(2)(4) * 28,326(2)(4) *
Fred W. Wenninger ............ 11,089(2)(4) * 11,089(2)(4) *
John N. McConnell ............ 18,545(2)(4) * 19,423(2)(4) *
Linda O. Doty ................ 19,432(2)(4) * 19,423(2)(4) *
All current executive officers
and directors as a group ..... 5,037,467(2)(4)(7) 59.98 5,039,275(2)(4)(7) 60.11
* Less than 1%
Environmental Test Systems, Inc.
Hach Company
March 24, 1998
Page 3
(1) The shares listed in the table above opposite Kathryn
Hach-Darrow's name include 927,281 shares held in Mrs.
Hack-Darrow's name. The shares listed above also include
2,014,400 shares which are held in three trusts created by the
late Clifford C. Hach and which Mrs. Hack-Darrow has the power
as trustee to vote and dispose of, namely, Kathryn C. Hach
Marital Trust, the Clifford C. Hach Generation Skipping Trust,
and the Clifford C. Hach Family Trust, all three of which
Trusts were created under an agreement dated August 30, 1998,
by Clifford C. Hach. Mrs. Hach-Darrow has the power to vote
and dispose of the shares held in the Marital, Generation
Skipping and Family Trusts. In addition, the shares listed
above opposite Mrs. Hach-Darrow's name include 1,511,415
shares owned by C&K Enterprises, Ltd., as to which Mrs.
Hach-Darrow and the Kathryn C. Hach Marital Trust have voting
and investment powers, 120,782 shares owned by the Hach
Scientific Foundation, a charitable foundation, and 3 shares
allocated to Mrs. Hach-Darrow's account under the Employee
Stock Ownership Plan (the "Hach ESOP"). Mrs. Hach-Darrow is
President and a co-trustee of the Foundation and shares voting
and investment powers with respect to the shares held by the
Foundation. The business address of Mrs. Hach-Darrow is 5600
Lindbergh Drive, Loveland, Colorado 80537.
(2) Excludes 147,979 shares owned by the Hach Company 401(k)
Plan. Hach through its board of directors has the power to
vote such shares. In addition, the co-trustees of the 401(k)
Plan share investment power with respect to those shares.
Also excludes shares of the Hach ESOP, as to which the Company
through its Board of Directors, and the ESOP's co-trustees,
have investment power. The co-trustees of each of the 401(k)
Plan and the ESOP are Randall A. Petersen, Gary R. Dreher and
Loel J. Sirovy. The Hach ESOP as of March 2, 1998 held a
total of 702,762 shares, all of which were allocated to the
accounts of plan participants. Shares accrued to the
individual accounts of Bruce J. Hach and Gary R. Dreher are
reflected in the table above and the amounts of the shares
being held in said individual accounts are given in footnotes
5 and 6 to the above table. See footnote 3 to the above table
with reference to the power to vote ESOP shares.
(3) These shares are allocated to the accounts of the individual employees
of Hach Company who are participants in the Hach ESOP, and who have
the power to vote the shares. The Trustees and Hach have investment
power over the stock held in the
Environmental Test Systems, Inc.
Hach Company
March 24, 1998
Page 4
Plan. The business address of the ESOP is 5600 Lindbergh Drive,
Loveland, Colorado 80537.
(4) The shares reported in the above table include shares of
Existing Common Stock which can be acquired within 60 days of
March 2, 1998 through the exercise of options: Mr. Hach -
10,666 Common, 10,666 Class A; Mr. Dreher - 20,666 Common,
20,666 Class A; Mr. Schwan - 11,089 Common, 11,089 Class A;
Ms. Doty - 11,089 Common, 11,089 Class A; Mr. McConnell -
11,089 Common, 11,089 Class A; and Mr. Wenninger - 11,089
Common, 11,089 Class A; and Directors and executive officers
as a group - 140,270 Common, 140,270 Class A. Each individual
option shares are also included in the number of shares of the
Company issued and outstanding for purposes of calculating the
percentage ownership of each individual in accordance with the
rules and regulations of the Securities Exchange Act of 1934,
as amended. These persons also have options not exercisable
within 60 days of March 2, 1998 by which they can acquire the
following additional shares of Existing Common Stock: Mr.
Hach - 9,334 Common, 27,334 Class A; Mr. Dreher - 9,334
Common, 27,334 Class A; and Directors and executive officers
as a group - 57,337 Common, 164,337 Class A. These shares are
not included in the above table or in the percentage ownership
calculations.
(5) Excludes 64,644 shares held by Robert O. Case and Bruce
J. Hach as co-trustees of eight irrevocable trusts for the
benefit of the grandchildren of Kathryn Hach-Darrow. Robert
O. Case and Bruce J. Hach have shared investment and voting
powers with respect to those shares. Three of the
beneficiaries of the trusts are the children of Bruce J. Hach.
Also excludes 206,400 shares held in separate shares in an
irrevocable trust for the benefit of the grandchildren of
Kathryn Hach-Darrow by Bank One - Loveland under an agreement
dated June 30, 1975, between Kathryn Hach-Darrow and the late
Clifford C. Hach as settlors, and The Northern Trust Company,
as initial trustee. The Trust is being held for the benefit
of the grandchildren of Kathryn Hach-Darrow and the late
Clifford C. Hach, three of whom are the children of Bruce J.
Hach. Also excludes 87,047 shares held by a partnership
composed of the children of Kathryn Hach-Darrow and their
spouses. Includes 5,612 shares held by the Hach ESOP which
are accrued to the account of Bruce J. Hach and which he has
the right to direct the Plan trustee to vote.
Environmental Test Systems, Inc.
Hach Company
March 24, 1998
Page 5
(6) Includes 3,926 shares held by the Hach ESOP which are
accrued to the account of Mr. Dreher and which he has the
right to direct the Plan trustee to vote. Excludes an
additional 698,836 shares owned by the Hach ESOP, for which
Mr. Dreher as a co-trustee of the ESOP shares investment power.
(7) Includes the shares listed in the table above opposite
Kathryn Hach-Darrow's name. Excludes (i) 144,300 shares held
by the Hach's 401(k) Plan for the individual accounts of
employees, other than executive officers and directors of
Hach, (ii) 678,700 shares held by the Hach ESOP, which are
allocated to the individual accounts of employees other than
executive officers or directors of the Company, (iii) 271,044
shares referred to in footnote 5 to the table above, and (iv)
87,047 shares held by a partnership composed of the children
of Kathryn Hach-Darrow and the late Clifford C. Hach and their
spouses, as to which Bruce J. Hach, the President and a
Director of the Company, is a partner. If all the shares
referred to in the preceding sentence were included, the
shares beneficially owned by officers and directors as a group
would be 6,220,366 Common and 6,221,866 Class A, and the
percent of each class would be 74.05% and 74.20% respectively.
Hach maintains its accounting on a fiscal year basis, with an April
30 year end, and computes its income under the accrual method of
accounting. Hach is the parent corporation of an affiliated group of
subsidiaries ("Hach Group"). The Hach Group files a consolidated federal
income tax return and will continue to file consolidated federal income
tax returns after the effective time of the Merger.
B. HACH ACQUISITION CORP.
Mergerco will have its principal office at 5600 Lindbergh Drive,
Loveland, Colorado 80538. Mergerco will be a corporation duly
incorporated and existing under the laws of the State of Delaware.
Mergerco will not own or operate any subsidiaries. Mergerco will have
1,000 shares of voting, no par value, common stock authorized, all of
which will be issued and outstanding and held by Hach.
Environmental Test Systems, Inc.
Hach Company
March 24, 1998
Page 6
Mergerco will maintain its accounting on a fiscal year basis, with
an April 30 year end, and computes its income under the accrual method
of accounting. Mergerco will file as a member of the Hach Group's
consolidated federal income tax return.
C. ENVIRONMENTAL TEST SYSTEMS, INC.
ETS maintains its principal office at 23575 County Road 106,
Elkhart, Indiana 46514. ETS is a corporation duly incorporated and
existing under the laws of the State of Indiana. As of December 31,
1997, ETS had 300,000 shares of voting, no par value, Class A common
stock authorized, of which approximately 231,304 shares were issued and
outstanding ("ETS Class A Common Stock"), and 1,000,000 shares of
voting, no par value Class B common stock, of which approximately
692,228 shares were issued and outstanding ("ETS Class B Common Stock")
(collectively, the ETS Class A Common Stock and the ETS Class B Class
Common Stock are hereinafter referred to as the "ETS Common Stocks").
The ETS Common Stocks are not actively traded and there has never
been an established public trading market for ETS's stock. ETS has no
class or series of capital stock authorized other than the ETS Common
Stocks. There are no options, warrants, commitments, calls, puts,
agreements, understandings, arrangements or subscription rights relating
to any shares of ETS Common Stocks, or any securities convertible into
or representing the right to purchase or otherwise acquire any common
stock or debt securities of ETS, by which ETS is or may become bound.
The following table sets forth certain information as of March 1,
1998 as to the beneficial ownership of the outstanding ETS Common Stocks
by each person known by ETS to own beneficially more than 5% of the
outstanding shares of each class of ETS Common Stocks, by each director
and named executive officer of ETS and by all current directors and
executive officers of ETS as a group:
NAME ETS CLASS A COMMON STOCK ETS CLASS B COMMON STOCK
---- ------------------------ ------------------------
Number of Percent Number of Percent
Shares Shares
Environmental Test Systems, Inc.
Hach Company
March 24, 1998
Page 7
Harry T. Stephenson (1) .............. - - - - 476,756 68.87%
Environmental Test Systems Inc.
Employee Stock
Ownership Plan and Trust(1) ........ 231,304 100% - - - -
John R. Gildea(1) .................... - - - - 125,472 18.13%
Robert C. Boguslaski(1) .............. - - - - 90,000 13.00%
Mark J. Stephenson ................... - - - - - - - -
John P. Simon(2) ..................... 227 * - - - -
Kenneth A. Blake(2) 245 * - - - -
David A.N. Morris - - - - - - - -
All current executive officers and
directors as a group 775 * 602,228 87.00%
* less than 1%
(1) The business address for each of Harry T. Stephenson, the ETS ESOP and
John Gildea is c/o Environmental Test Systems, Inc. 23575 County Road,
106, P.O. Box 4659, Elkhart, Indiana 46514-0659. The business
address for Robert C. Boguslaski is c/o Serim Research Corporation,
23565 Reedy Drive, Elkhart, Indiana 46514.
(2) Represents shares allocated under the ETS ESOP in 1996. Allocations
for 1997 are not calculable at this time.
ETS maintains its accounting on a calendar year basis, and computes
its income under the accrual method of accounting. ETS is the parent
corporation of one (1) subsidiary (collectively, the "ETS Group"). The ETS
Group files a consolidated federal income tax return.
Environmental Test Systems, Inc.
Hach Company
March 24, 1998
Page 8
BUSINESS PURPOSES
The shareholders of Hach and the shareholders of ETS desire to
reorganize their stock interests to accomplish the following business
objectives:
1. To obtain greater financial and managerial strength for future
growth and to achieve economies of scale and other operational benefits.
2. To allow Hach and ETS to compete more effectively with other
environmental services providers and to enable ETS to provide new or
broader services to its customers.
3. To provide the shareholders of ETS an interest in a more widely
held enterprise that is potentially more liquid than the ETS Common Stocks.
4. To allow Hach greater access to the environmental services
market in the Elkhart, Indiana area.
PROPOSED TRANSACTION
As used herein, "Code" refers to the Internal Revenue Code of 1986,
as amended, and "Regulations" refers to regulations promulgated
thereunder by the Secretary of the Treasury, all as in effect as of the
date of this opinion.
To accomplish the objectives specified above, Hach, Mergerco and
ETS have entered into an Agreement and Plan of Merger, dated January
21, 1998 ("Agreement"). Pursuant to the Agreement, the Merger will
involve the merger of ETS with and into Mergerco, with Mergerco as the
surviving entity. Mergerco will continue as a wholly-owned subsidiary
of Hach.
At the Effective Time, by virtue of the Merger and without any
action on the part of Hach, Mergerco, ETS or the holder of any of the
following securities:
Environmental Test Systems, Inc.
Hach Company
March 24, 1998
Page 9
(i) each share of ETS Class A Common Stock issued and
outstanding immediately prior to the Effective Time (as defined in
the Agreement) shall be converted into and become a right to
receive per share (A) at Closing (as defined in the Agreement) that
number of shares of Hach Common Stock as shall have an aggregate
value equal to $17.465651, with each share of Hach Common Stock
valued at the average of its daily closing prices on the Nasdaq
National Market over a 20 day period ending five business days
prior to the Effective Time and (B) a proportionate share of the
consideration delivered into escrow at Closing, subject to the
terms of the escrow (collectively, the "Class A Merger
Consideration"); and
(ii) each share of ETS Class B Common Stock issued and
outstanding immediately prior to the Effective Time shall be
converted into and become a right to receive per share (A) at
Closing (1) cash, (2) that number of shares of Hach Common Stock
and (3) that number of shares of Hach Class A Common Stock, as
shall have an aggregate value equal to $14.749656, with each of the
Hach Common Stocks valued at the average of its daily closing
prices on the Nasdaq National Market over a 20 day period ending
five business days prior to the Effective Time and (B) a
proportionate share of the consideration delivered into escrow at
Closing, subject to the terms of the escrow (collectively, the
"Class B Merger Consideration"). Hach shall have the right, in its
sole discretion, to determine the allocation of the components of
the consideration to be paid to the holders of ETS Class B Common
Stock; provided that (x) the aggregate values of the Hach Class A
Common Stock issued upon the Merger and Hach Common Stock shall be
equal and (y) the cash to be paid will not be less than $6,878,400
or greater than $7,343,875.
In order to provide for the payment and satisfaction of certain
indemnification obligations contained in the Agreement, cash and
Hach Common Stocks with an aggregate value of $1,750,000 (allocated
among the ETS shareholders in the same proportion as the
consideration delivered to ETS shareholders at Closing) will be
held in escrow by an escrow agent, pursuant to the terms and
considers of an escrow agreement to be signed and delivered at
Closing. Subject to the satisfaction of the indemnification
obligations secured by the escrow, the cash and shares of Hach
Common Stocks will be released from the escrow on the third
anniversary of the Effective Time. Dividends and distributions
with respect to the Hach Common Stocks held in escrow will be paid
to the escrow agent and held as part of the
Environmental Test Systems, Inc.
Hach Company
March 24, 1998
Page 10
escrow deposit, subject to release from time to time on terms and
conditions as described in the escrow agreement.
No fractional shares of the Hach Common Stocks will be issued
with respect to fractional share interests arising from the
exchange ratio specified above. Rather, any shareholder of ETS
entitled to a fractional share interest of the Hach Common Stocks
will receive cash in lieu thereof in an amount equal to such
fraction multiplied by the Average Price Per Share (as defined in
the Agreement) of the Hach Common Stocks. The payment of cash in
lieu of fractional share interests of the Hach Common Stocks is
solely for the purpose of avoiding the expense and inconvenience to
Hach of issuing fractional shares and does not represent separately
bargained-for consideration.
No cash or other property, except for Merger consideration as
described above and cash paid in lieu of fractional shares, will be
allocated to the shareholders of ETS. Shareholders of ETS who
properly exercise and perfect statutory dissenters' rights shall
have the rights accorded to dissenting shareholders under Indiana
Business Corporation Law, as amended.
The Agreement will be submitted to the shareholders of ETS for
approval at a meeting called and held in accordance with applicable
law and the Articles of Incorporation and By-Laws of ETS.
Approval of the Merger by the shareholders of Hach is not
contemplated or required. The Merger requires approval by the
Boards of Directors of Hach and ETS.
The proposed Merger is subject to approval by the Federal
Trade Commission. The above-referenced regulatory agency has
approved the Merger.
The shares of the Hach Common Stocks will, when issued to
non-dissenting shareholders of ETS in accordance with the
Agreement, be validly issued, fully paid and nonassessable and
registered under the Securities Act of 1933, as amended.
Environmental Test Systems, Inc.
Hach Company
March 24, 1998
Page 11
ASSUMPTIONS
In connection with the Merger, we have relied upon the
following assumptions for the purpose of issuing this opinion:
1. As Hach owns one hundred percent (100%) of the capital
stock of Mergerco, no additional Mergerco capital stock is being
issued or exchanged in the Merger.
2. There is no plan or intention by the shareholders of ETS
who own one percent (1%) or more of the shares of the ETS Common
Stocks, and there is no plan or intention on the part of the
remaining shareholders of ETS, to sell, exchange or otherwise
dispose of a number of shares of the Hach Common Stocks received in
the Merger that would reduce the ETS shareholders' ownership of the
Hach Common Stocks to a number of shares having a value, as of the
effective time of the Merger, of less than fifty percent (50%) of
the value of all of the formerly outstanding shares of the ETS
Common Stocks as of the same date. For purposes of this
assumption, shares of the ETS Common Stocks exchanged for cash or
other property, surrendered by dissenters or exchanged for cash in
lieu of fractional shares of the Hach Common Stocks will be treated
as outstanding the ETS Common Stocks as of the effective time of
the Merger. Moreover, shares of The ETS Common Stocks and shares
of The Hach Common Stocks held by ETS shareholders and otherwise
sold, redeemed, or disposed of prior or subsequent to the effective
time of the Merger will be considered in making this assumption. No
ETS shareholders will exercise their dissenter's rights.
3. Mergerco will acquire at least ninety percent (90%) of
the fair market value of the net assets and at least seventy
percent (70%) of the fair market value of the gross assets held by
ETS immediately prior to the Merger. For purposes of this
assumption, amounts paid by ETS to dissenters, amounts paid by ETS
to shareholders who receive cash or other property, amounts of ETS
assets used to pay its reorganization expenses, and amounts of all
redemptions and distributions (except for regular, normal
dividends) made by ETS immediately preceding the transfer, will be
included as assets of ETS held immediately prior to the effective
time of the Merger.
4. Prior to the Merger, Hach will be in control of Mergerco
within the meaning of Section 368(c) of the Code.
Environmental Test Systems, Inc.
Hach Company
March 24, 1998
Page 12
5. Following the Merger, Mergerco will not issue additional
shares of its common stock that would result in Hach losing control
of Mergerco within the meaning of Section 368(c) of the Code.
6. Mergerco has no plan or intention to reacquire any of its
common stock constructively issued in the Merger. Hach has no plan
or intention to reacquire any of its common stock issued in the
Merger other than through unrelated periodic purchases on an
anonymous basis on the open market at open market prices.
7. Hach has no plan or intention to liquidate Mergerco; to
merge Mergerco with and into another corporation; to sell or
otherwise dispose of the common stock of Mergerco; or to cause
Mergerco to sell or otherwise dispose of any of the assets of ETS
acquired in the Merger, except for dispositions made in the
ordinary course of business or transfers described in Section
368(a)(2)(C) of the Code.
8. The liabilities of ETS assumed by Mergerco and the
liabilities to which the transferred assets of ETS are subject were
incurred by ETS in the ordinary course of its business.
9. The fair market value of the Hach Common Stocks and other
consideration received by each ETS shareholder will be
approximately equal to the fair market value of the ETS Common
Stocks surrendered in the exchange.
10. Following the Merger, Mergerco will continue the historic
business of ETS or use a significant portion of ETS's historic
business assets in a business.
11. Hach, Mergerco, ETS and the shareholders of ETS will pay
their respective expenses, if any, incurred in connection with the
Merger.
12. There is no intercorporate indebtedness existing between
Hach and ETS or between Mergerco and ETS that was issued, acquired
or will be settled at a discount.
13. No two parties to the Merger are investment companies as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
Environmental Test Systems, Inc.
Hach Company
March 24, 1998
Page 13
14. ETS is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A) of
the Code.
15. The fair market value of the assets of ETS transferred to
Mergerco will equal or exceed the sum of the liabilities assumed by
Mergerco plus the amount of liabilities, if any, to which the
transferred assets are subject.
16. The payment of cash in lieu of fractional shares of the
Hach Common Stocks resulting from the Merger exchange ratio under
the Agreement is solely for the purpose of avoiding the expense and
inconvenience to Hach of issuing fractional shares of the Hach
Common Stocks and does not represent separately bargained-for
consideration. The total cash consideration that will be paid in
the Merger to ETS shareholders instead of issuing fractional shares
of the Hach Common Stocks will not exceed one percent (1%) of the
total consideration that will be issued in the Merger to the ETS
shareholders in exchange for their shares of the ETS Common Stocks.
The fractional share interests of each ETS shareholder will be
aggregated, and no ETS shareholder will receive cash in an amount
equal to or greater than the value of one (1) full share of the
Hach Common Stocks.
17. None of the compensation received by any
shareholder-employee of ETS will be separate consideration for, or
allocable to, any of their shares of the ETS Common Stocks; none of
the shares of the Hach Common Stocks received by any
shareholder-employee of ETS will be separate consideration for, or
allocable to, any employment agreement; and the compensation paid
to any shareholder-employee of ETS will be for services actually
rendered and will be commensurate with amounts paid to third
parties bargaining at arm's-length for similar services.
OPINION
Based solely upon the facts, assumptions and other information
set forth herein, and so long as such facts, assumptions and other
information are true and correct on the date of consummation of the
Merger, it is our opinion with respect to the Merger that:
1. Provided that the merger of ETS with and into Mergerco qualifies
as a statutory merger under applicable law, and, following the
Merger, Mergerco
Environmental Test Systems, Inc.
Hach Company
March 24, 1998
Page 14
will hold substantially all of its assets and the assets of
ETS, and, in the Merger the shareholders of ETS will
constructively exchange an amount of stock constituting
control of ETS (within the meaning of Section 368(c) of
the Code) solely for voting Hach Common Stocks, the proposed
merger will constitute a reorganization within the meaning
of Section 368(a)(1)(A) and Section 368(a)(2)(D) of
the Code. The reorganization will not be disqualified by
reason of the fact that voting stock of Hach is being used
in the merger. For purposes of this opinion, "substantially
all" means at least ninety percent (90%) of the fair market
value of the net assets and at least seventy percent (70%)
of the fair market value of the gross assets of ETS. Hach,
Mergerco and ETS will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized by ETS on the transfer of
substantially all of its assets to Mergerco and the assumption by
Mergerco of the liabilities of ETS.
3. No gain or loss will be recognized by Hach or Mergerco on the
receipt by Mergerco of substantially all of the assets of ETS in
constructive exchange for the Hach Common Stocks and the
assumption by Mergerco of ETS's liabilities.
4. No gain or loss will be recognized by the shareholders of ETS
upon the deemed exchange of the ETS Common Stocks solely for the
Hach Common Stocks.
The opinions expressed herein represent our conclusions as to
the application of existing federal income tax law to the facts as
presented to us relating to the Merger, and we give no assurance
that changes in such law or any interpretation thereof will not
affect the opinions expressed by us. Moreover, there can be no
assurance that these opinions will not be challenged by the
Internal Revenue Service or that a court considering the issues
will not hold contrary to such opinions. We express no opinion on
the treatment of the Merger under the income tax laws of any state
or other taxing jurisdiction. We assume no obligation to advise
you of any changes concerning the above, whether or not deemed
material, which
Environmental Test Systems, Inc.
Hach Company
March 24, 1998
Page 15
may hereafter come or be brought to our attention. The opinions
expressed herein are a matter of professional judgment and are not
a guarantee of result.
This opinion letter is addressed to you and is solely for your
use in connection with the Merger and your role as members of your
respective Boards of Directors. We assume no professional
responsibility to any other person or entity whatsoever, including,
without limitation, any shareholder of Hach or any shareholder of
ETS. Accordingly, the opinions expressed herein are not to be
utilized or quoted by, or delivered or disclosed to, in whole or in
part, any other person, corporation, entity or governmental
authority without, in each instance, our prior written consent.
Very truly yours,
/s/KRIEG DeVAULT ALEXANDER & CAPEHART
KRIEG DeVAULT ALEXANDER & CAPEHART