Exhibit 8.1
Form of Opinion
---------------
May 12, 1998
EarthLink Network, Inc.
3100 New York Drive
Pasadena, California 91107
Strategic Alliance
between EarthLink Network, Inc.,
Sprint Corporation, and
Sprint Communications Company L.P.
Certain Federal Income Tax Matters
Ladies and Gentlemen:
We have acted as counsel to EarthLink Network, Inc. ("EarthLink"), a
Delaware corporation, in connection with the strategic alliance by and among
EarthLink, Sprint Corporation ("Sprint"), a Kansas corporation, and Sprint
Communications Company L.P. ("Sprint L.P."), a Delaware limited partnership.
The strategic alliance provides for (a) the merger (the "Merger") of Dolphin
Sub, Inc. ("Newco Sub"), a Delaware corporation, into EarthLink and a
resulting exchange of each share of EarthLink common stock into one share of
the common stock of Dolphin, Inc. ("Newco"), a Delaware corporation, (b) the
issuance by Newco of convertible preferred stock to Sprint L.P., (c) the
issuance of convertible notes to Sprint, and (d) amendments to agreements
governing options, warrants and rights to acquire EarthLink common stock.
By means of an offer to purchase (the "Offer") and a related letter of
transmittal dated February 18, 1998, Sprint has offered to purchase from
EarthLink stockholders 1,250,000 shares of EarthLink common stock at $45 per
share. Upon consummation of the Offer, Sprint will own approximately 11.1% of
the total number of issued and outstanding shares of EarthLink common stock.
The Offer is contingent upon there being validly tendered and not withdrawn
prior to the expiration date at least 1,250,000 shares of EarthLink stock and
the satisfaction or waiver of the conditions to the obligations of Sprint,
Sprint L.P., Newco, Newco Sub and EarthLink as provided by an investment
agreement (the "Investment Agreement") between the parties. The Investment
Agreement provides, among other things, that subject to the terms and
conditions set forth therein, immediately following consummation of the
Offer, (i) the Merger will be effected; (ii) Sprint L.P. will acquire Newco
convertible preferred stock and (iii) Sprint will provide Newco and
EarthLink, as co-borrowers, with convertible senior debt financing, such
indebtedness to be evidenced by one or more Newco convertible senior
promissory notes.
Immediately following the consummation of the Offer, EarthLink, Newco
and Newco Sub will effect the Merger whereby Newco Sub, a wholly-owned
subsidiary of Newco, will merge with and into EarthLink. All of the then
issued and outstanding shares of EarthLink common stock will be converted
into an equal number of shares of Newco common stock. Upon consummation of
the merger, EarthLink will be a wholly-owned subsidiary of Newco.
Concurrently with the Merger, Sprint L.P. will receive 4,102,941 shares
of Newco convertible preferred stock in exchange for $23,750,000 of cash, the
contribution to Newco of
EarthLink Network, Inc.
May 12, 1998
Page 2
the Sprint Internet Passport-SM- Subscribers and the consummation of a network
agreement between Sprint L.P., Newco, and EarthLink. The convertible
preferred stock will be initially convertible into 3,533,411 shares of Newco
common stock at the time of closing.
On or after the closing date Sprint will provide Newco and EarthLink, as
co-borrowers, with up to $25 million of convertible senior debt financing
with such amount to increase by $25 million on each of the first, second and
third anniversaries of the closing date for a total of $100 million of such
financing. This indebtedness is to be evidenced by one or more Newco
convertible senior promissory notes.
We have reviewed the Agreement and Plan of Merger among EarthLink,
Newco, and Newco Sub, the Investment Agreement, the Registration Statement on
Form S-4 under the Securities Act of 1933 relating to the Strategic Alliance
(the "Registration Statement"), and such other documents as we have
considered necessary in giving our opinion. In addition, we have assumed the
following:
1. The fair market value of the Newco common stock received by each
EarthLink stockholder in the Merger will be approximately equal to the fair
market value of the EarthLink stock surrendered in the Merger.
2. Following the Merger, EarthLink will hold (a) 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 EarthLink immediately before the
Merger and (b) 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
Newco Sub immediately before the Merger. For purposes of this assumption,
amounts paid by EarthLink or Newco Sub to stockholders who receive cash for
EarthLink common stock, amounts used by EarthLink or Newco Sub to pay
reorganization expenses, and all redemptions and distributions (except for
regular, normal dividends) made by EarthLink will be included as assets of
EarthLink or Newco Sub, respectively, immediately before the Merger, but
amounts transferred to Newco Sub by Newco in connection with the Merger will
not be taken into account.
3. EarthLink has no plan or intention to issue additional shares of its
stock that would result in Newco owning less than 80 percent of the total
combined voting power of all classes of EarthLink's voting stock or less than
80 percent of each class of EarthLink's nonvoting stock.
4. Newco has no plan or intention to reacquire any of its stock issued
in the Merger or to make any extraordinary distribution with respect to such
stock.
5. Newco has no plan or intention to liquidate EarthLink, to merge
EarthLink with or into another entity, to sell or otherwise dispose of the
stock of EarthLink, or to cause EarthLink to sell or otherwise dispose of any
of its assets or of any of the assets acquired from Newco Sub, except for
dispositions made in the ordinary course of business.
6. The liabilities of Newco Sub to be assumed by EarthLink, if any, and
the liabilities to which the transferred assets of Newco Sub are subject, if
any, were incurred by Newco Sub in the ordinary course of business.
EarthLink Network, Inc.
May 12, 1998
Page 3
7. Following the Merger, EarthLink will continue its historic business
or use a significant portion of its historic business assets in a business.
8. Newco, Newco Sub, EarthLink, and the stockholders of each will pay
their respective expenses, if any, incurred in connection with the Merger.
9. There is no intercorporate indebtedness existing between (a) Newco
or Newco Sub and (b) EarthLink or any subsidiary of EarthLink.
10. Neither Newco nor Newco Sub owns, nor will it acquire in
anticipation of the Merger, any shares of EarthLink stock.
11. Neither Newco, Newco Sub, nor EarthLink is a regulated investment
company, a real estate investment trust, or a corporation 50 percent or more
of the value of whose total assets are stock and securities and 80 percent or
more of the value of whose total assets are assets held for investment. For
purposes of making the foregoing 50-percent and 80-percent determinations,
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.
12. On the date of the Merger, the fair market value of the assets of
EarthLink will exceed the sum of its liabilities plus the amount of the
liabilities to which its assets are subject.
13. No stock or securities will be issued for services rendered to or
for the benefit of Newco in connection with the transfer to Newco of (a) the
EarthLink stock by the EarthLink stockholders and (b) the cash and other
property by Sprint L.P.
14. The transfer to Newco of (a) the EarthLink stock by the EarthLink
stockholders and (b) the cash and other property by Sprint L.P. does not
involve a transfer to Newco of any receivables or an assumption by Newco of
any payables.
15. The transfer to Newco of (a) the EarthLink stock by the EarthLink
stockholders and (b) the cash and other property by Sprint L.P. is not the
result of solicitation by a promoter, broker or investment house.
16. The EarthLink stockholders and Sprint L.P. will not retain any
rights in the EarthLink stock transferred to Newco.
17. Taking into account any issuance of additional shares of Newco
stock; any issuance of stock for services; the exercise of any Newco stock
rights, warrants, or subscriptions; a public offering of Newco stock; and the
sale, exchange, transfer by gift, or other disposition of any Newco stock to
be received in the exchange, the EarthLink stockholders and Sprint L.P. will
in the aggregate own 80 percent or more of the total combined voting power of
all classes of Newco's voting stock and 80 percent or more of each class of
Newco's nonvoting stock.
18. Newco will not be an investment company within the meaning of
Section 351(e)(1) of the Code and Section 1.351-1(c)(1)(ii) of the Treasury
Regulations.
EarthLink Network, Inc.
May 12, 1998
Page 4
On the basis of the foregoing and assuming that (a) the Merger will be
consummated in accordance with the Agreement and Plan of Merger, (b) the
issuance of the convertible preferred stock and convertible senior promissory
notes will be consummated according to the Investment Agreement and (c) with
respect to stockholders who are nonresident aliens or foreign entities,
EarthLink will comply with all applicable statement and notification
requirements, if any, of Treasury Regulation Sections 1.897-2(g)&(h), we are
of the opinion that, under existing law, for federal income tax purposes:
1. The Merger will be a "reorganization" within the meaning of
Section 368(a)(2)(E) of the Code and/or an exchange of
property by holders of EarthLink common stock described in
Section 351 of the Code.
2. An EarthLink stockholder will not recognize gain or loss on
the exchange of EarthLink common stock solely for shares of
Newco common stock in the Merger.
3. The basis of the shares of Newco common stock received by an
EarthLink stockholder in the Merger will be the same as the
basis of the shares of the EarthLink common stock exchanged
therefor.
4. The holding period for the shares of Newco common stock
received by an EarthLink stockholder in the Merger will
include the holding period for the shares of the EarthLink
common stock exchanged therefor, if such shares of EarthLink
common stock are held as a capital asset at the effective time
of the Merger.
5. Neither Newco nor Newco Sub will recognize gain or loss on the
issuance of Newco common stock, the acquisition of EarthLink
common stock, or the transfer of Newco Sub's assets to
EarthLink in the Merger.
6. EarthLink will not recognize gain or loss (a) on the
acquisition of the assets of Newco Sub in the Merger or (b) on
the constructive distribution, if any, of Newco common stock
to EarthLink stockholders.
We are also of the opinion that the material federal income tax
consequences of the Merger are fairly summarized in the Registration
Statement under the heading "Certain Federal Income Tax Consequences." We
consent to the filing of this opinion as an exhibit to the Registration
Statement. In giving this consent, we do not admit that we are within the
category of persons whose consent is required by section 7 of the Securities
Act of 1933 or the rules and regulations promulgated thereunder by the
Securities and Exchange Commission.
Very truly yours,
/s/ Hunton & Williams