Pre-Effective Amendment to Registration of Securities Issued in a Business-Combination Transaction — Form S-4
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-4/A Huffy Corporation Form S-4/A 234 1.16M
2: EX-2.C Plan of Acquisition, Reorganization, Arrangement, 2 9K
Liquidation or Succession
3: EX-8.A Opinion re: Tax Matters 12 52K
4: EX-99.D Miscellaneous Exhibit 2 16K
5: EX-99.E Miscellaneous Exhibit 2 9K
6: EX-99.F Miscellaneous Exhibit 11 60K
EX-8.A — Opinion re: Tax Matters
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Exhibit 8.a
[KPMG Letterhead]
303 East Wacker Drive Telephone 312 665 1000
Chicago, IL 60601-5212 Fax 312 665 6000
July 25, 2002
PRIVATE AND CONFIDENTIAL
The Board of Directors
Huffy Corporation
225 Byers Road
Miamisburg, Ohio 45342
Dear Board of Directors:
You have requested the opinion of KPMG LLP and KPMG LLP (Canada) (collectively,
"KPMG") regarding certain United States and Canadian federal income tax
consequences resulting from a plan of statutory merger pursuant to which Gen-X
Sports Inc. ("Target"), a Delaware corporation, will merge (the "Merger") with
and into HSGC, Inc. ("Merger Subsidiary"), a Delaware corporation that is
directly and wholly owned by Huffy Corporation ("Parent"), an Ohio
corporation.(1) Unless otherwise indicated, all section references in this
opinion letter are to the Internal Revenue Code of 1986, as amended (the
"Code") and the regulations promulgated under the Code.
The opinions contained in this letter are based on the facts, assumptions, and
representations (as provided in separate letters from Parent and Target) stated
herein. Parent and Target have each represented to us that they have provided us
with all facts and circumstances that they know or have reason to know are
pertinent to this opinion letter. We have also relied upon certain documents
submitted for our consideration including an Agreement and Plan of Merger dated
June 5, 2002, as Amended, (the "Agreement"), among Parent, Merger Subsidiary,
and Target. If any of these facts, assumptions, or representations is not
entirely complete or accurate, it is imperative that we be informed immediately
in writing as the incompleteness or inaccuracy could cause us to change our
opinion.
FACTS
-----
The Corporate Parties
---------------------
Parent, the common parent of an affiliated group of corporations filing a
consolidated return for United States federal income tax purposes, is a
corporation duly organized, validly existing and in good standing under the laws
of the state of Ohio. Parent and its subsidiaries are engaged in the design,
manufacture and sale of wheeled products and basketball backboards and
accessories, and the assembly and repair of a variety of wheeled and other
products and merchandising services to retail customers. Parent's articles of
incorporation authorize the issuance of up to 60,000,000 shares
_______________________
(1) The Merger is conditioned upon Parent, through a Canadian subsidiary, also
purchasing the stock of Gen-X Sports, Inc. ("Target Affiliate"), an Ontario
corporation, in a separate but contemporaneous transaction, the tax consequences
of which are not addressed in this opinion.
THE BOARD OF DIRECTORS
HUFFY CORPORATION
July 25, 2002
Page 2 of 12
of common stock ("Parent Common Stock"), US$1.00 par value per share, and
1,000,000 shares of preferred stock, US$1.00 par value per share. Parent had
10,461,965 shares of Parent Common Stock and zero shares of preferred stock
issued and outstanding on June 30, 2002.
Merger Subsidiary is a newly organized corporation, validly existing, and in
good standing under the laws of the state of Delaware. Merger Subsidiary was
created by Parent solely for the purposes of effecting the Merger and is a
wholly owned, first-tier subsidiary of Parent. Merger Subsidiary has not
conducted and will not conduct any business during any period of its existence
prior to the Effective Time (as defined in the Agreement) of the Merger.
Target is a corporation duly organized, validly existing and in good standing
under the laws of the state of Delaware. Target designs, manufactures, markets
and distributes various branded sporting goods products, including golf
products, snowboards, various action sports equipment and skis, and is a
purchaser and reseller of sporting goods and athletic footwear inventories. The
authorized capital stock of Target consists of 50,000,000 shares of Common
Stock, US$.0001 par value per share, 3,960,000 shares of Series A 7% Redeemable
Preferred Stock, US$.0001 par value per share, 250,001 shares of Series B Junior
Participating Preferred Stock, US$.0001 par value per share, and 6,000,000
shares of Series C Non-Voting Preferred Stock, US$.0001 par value per share. As
of May 24, 2002, 5,369,029 shares of the Common Stock were outstanding,
2,970,000 shares of the Series A 7% Redeemable Preferred Stock were outstanding,
83,334 shares of the Series B Junior Participating Preferred Stock were
outstanding, and 5,452,363 shares of the Series C Non-voting Preferred Stock
were outstanding. There have been no issuances of shares of Target stock since
May 24, 2002.
The Merger
----------
For what have been represented to KPMG to be valid corporate business reasons,
the Boards of Directors of Parent and Target have determined that it would be in
the best interests of Parent and Target and their respective shareholders to
consummate the Merger. The Agreement provides that Target will merge with and
into Merger Subsidiary pursuant to the applicable laws of the state of Delaware.
In the Merger, Merger Subsidiary will be the surviving corporation and the
separate corporate existence of Target will cease. Merger Subsidiary will
succeed to and acquire all of the assets and will assume all of the liabilities
of Target as of the Effective Time of the Merger.
Pursuant to and as a result of the Merger, holders of Target Common Stock,
Series B Junior Participating Preferred Stock and Series C Non-Voting Preferred
Stock (other than persons who properly demand and perfect their rights to
dissent from the Merger) will be entitled to receive from Parent their allocable
share of the Merger Consideration, as defined in the Agreement. The Agreement
requires Parent to pay the following Merger Consideration on the Merger's
closing date:
(i) A number of shares of Parent Common Stock (the "STOCK
CONSIDERATION") equal to 5,000,000 minus (A) the number of
shares of Parent Common Stock issuable to holders
2
THE BOARD OF DIRECTORS
HUFFY CORPORATION
July 25, 2002
Page 3 of 12
of Target Options(2) pursuant to the Agreement, and (B) the
number of shares of Parent Common Stock issuable to holders of
stock options of Target Affiliate(3), and (C) the aggregate
number of shares of Parent Common Stock, rounded to the
nearest whole number, that would be issuable to Target
shareholders but for the application of the Agreement's
Fractional Shares provision, and (D) the Holdback Shares (as
defined in the Agreement), plus
(ii) An amount of cash (the "CASH CONSIDERATION") equal to
US$5,556,914 minus (A) any cash paid out to holders of Options
as options spread value pursuant to the Agreement, and (B) the
amount, if any, by which the total fees paid or payable by
Target and/or Target Affiliate to Sheffield Merchant Banking
Group exceeds US$1,000,000.
In addition to the above, Target Series A 7% Redeemable Preferred Stock (all of
which is owned by a single shareholder, DMJ Financial, Inc., which is
beneficially owned by James A. Salter and Kenneth Finkelstein) will be redeemed
by Merger Subsidiary (as if the shares were still in existence) at the Effective
Time of the Merger for an amount of cash equal to US$2,970,000.(4)
The term "Holdback Shares," as defined in the Agreement, means 838,710 shares
of Parent Common Stock that Parent will retain from the Stock Consideration.
The Holdback Shares will be eligible for distribution to the Target
shareholders and Option holders on two release dates. The first release date is
within five business days of the final determination of Target's Consolidated
2002 EBITDA (earnings before interest expense, taxes, depreciation and
amortization) and the amount of the distribution depends upon the achievement
of certain financial results.(5) The second release date is within five
business days of the expiration of an Indemnity Period (as defined in the
Agreement) and the amount of the distribution depends upon the amount, if any,
due to Indemnified Parties (as defined in the Agreement), pursuant to an
indemnification obligation of certain Target shareholders and Option
holders.(6)
Parent will not issue any fractional shares of Parent Common Stock in the
Merger. All shares of Parent Common Stock received by a holder of shares of
Target Common Stock, Series B Junior
_____________________________
(2) The Agreement defines the term "Options" to mean all options, warrants and
similar securities or rights enabling the holder thereof to purchase or acquire
shares of any capital stock of either Target or Target Affiliate, including all
Options issued pursuant to the Target Employee Stock Plan and the Target
Non-Employee Stock Plan.
(3) It is our understanding that (i) the stock options of Target Affiliate are
Options, (ii) all Options are issued by Target and each Option entitles the
holder to acquire a stock unit comprising one share of Target Common Stock, one
share of Target Series C Non-Voting Preferred Stock and one share of Target
Affiliate Common Stock, and (iii) the reference to stock options of Target
Affiliate refers to the portion of the Option entitling the holder to one share
of Target Affiliate common stock.
(4) DMJ Financial, Inc. also owns a significant amount of the Target Common
Stock and Series C Non-Voting Preferred Stock.
(5) The first release date could occur within the first six months after the
closing date of the Merger and, in any event, will occur within one year of the
closing date of the Merger.
(6)The Indemnity Period expires no earlier than the first anniversary of the
closing date of the Merger.
3
THE BOARD OF DIRECTORS
HUFFY CORPORATION
July 25, 2002
Page 4 of 12
Participating Preferred Stock and Series C Non-Voting Preferred Stock in
connection with the Merger will be aggregated. If a holder of such shares of
Target stock is entitled to receive a fractional share of Parent Common Stock as
a result of such aggregation then, in lieu of the issuance of any such
fractional shares, Parent will pay such shareholder a cash adjustment equal in
value to any such fractional share.
Holders of shares of Target Common Stock, Series B Junior Participating
Preferred Stock and Series C Non-Voting Preferred Stock that are issued and
outstanding immediately prior to the Effective Time of the Merger and who
properly demand and perfect their rights to dissent from the Merger will be
entitled only to such rights as are granted by Section 262 of the Delaware
General Corporate Law. In general, these rights entitle dissenting shareholders
to receive cash equal to the fair value of their Target stock.
REPRESENTATIONS
---------------
The following representations have been made in connection with the Merger:
1. The Merger will be consummated in compliance with the corporate
laws of a State of the United States and the material terms of the
Agreement. None of the material terms and conditions therein has
been waived or modified and neither Parent nor Merger Subsidiary
has any plan or intention to waive or modify any such material
term or condition.
2. There is a valid business purpose for the Merger.
3. With respect to the separate, but concurrent, acquisition of
Target Affiliate, the cash consideration to be paid for all the
issued and outstanding stock (common and preferred) of Target
Affiliate will be approximately equal to the fair market value of
Target Affiliate.
4. The fair market value of the Parent Common Stock and other
consideration to be paid to the Target shareholders and Option
holders in connection with the Merger will be approximately equal
to the fair market value of the Target stock and Options
outstanding immediately before the Merger. No amount of such stock
or other consideration will be disguised consideration for the
acquisition of Target Affiliate, and no amount of cash
consideration paid for the stock of Target Affiliate will be
disguised consideration for the acquisition of Target stock or
Options.
5. The fair market value of the Parent Common Stock and other
consideration received by each Target shareholder in the Merger
will be approximately equal to the fair market value of the Target
stock surrendered in exchange therefor. Target stock, for purposes
of this representation, means only Target Common Stock, Series B
Junior Participating Preferred Stock and Series C Non-Voting
Preferred Stock.
4
THE BOARD OF DIRECTORS
HUFFY CORPORATION
July 25, 2002
Page 5 of 12
6. The amount of cash received by each Target shareholder in complete
redemption of the Target Series A 7% Redeemable Preferred Stock
will be approximately equal to the value of the Target Series A 7%
Redeemable Preferred Stock surrendered in exchange therefor.
7. For valid business reasons, Parent will retain a portion of the
Parent Common Stock (the Holdback Shares) constituting less than
20 percent of the total number of shares which may be issued in
the Merger. The right to receive solely the Holdback Shares is
non-transferable (or not evidenced by negotiable certificates and
not readily marketable). The Holdback Shares to be issued will be
issued within five years of the date of the Merger.(7) The first
release of Holdback Shares will be based solely upon the actual
2002 financial performance of Target. The second release of
Holdback Shares will be based upon the extent to which Target
breaches any of its representations and warranties during the
specified Indemnity Period. The occurrence or nonoccurrence of the
release of the Holdback Shares or the amount of the Holdback
Shares released is not within the control of the Target
shareholders.
8. Target will transfer to and Merger Subsidiary will acquire 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 Target immediately prior to the Merger. For purposes of this
representation, amounts paid by Target to dissenters, amounts paid
by Target to shareholders who receive cash or other property,
amounts paid by Target to shareholders and individuals entitled to
payment under Target's Stock Option Plans (employee and
non-employee plans) who receive cash or other property, Target
assets used to pay its reorganization expenses, and all
redemptions and distributions (except for regular, normal
dividends) made by Target immediately preceding the Merger, will
be included as assets of Target held immediately prior to the
Merger.
9. Prior to the Merger, Parent will be in control of Merger
Subsidiary within the meaning of Code Section 368(c).
10. Following the Merger, Merger Subsidiary will not issue additional
shares of its stock that would result in Parent losing control of
Merger Subsidiary within the meaning of Code Section 368(c).
11. Neither Parent nor any person related to Parent or acting as an
agent of Parent will own any shares of Target stock immediately
before the Merger.
12. There is no plan or intention for Parent (the issuing corporation
as defined in Treas. Reg. Section 1.368-1(b)), or any person
related (as defined in Treas. Reg. Section 1.368-1(e)(3)) to
Parent, to acquire or redeem any of the Parent Common Stock
issued in the Merger, either directly or through any transaction,
agreement, or arrangement with any
_______________________
(7) Pursuant to the Agreement, the Merger will occur at the Effective Time.
5
THE BOARD OF DIRECTORS
HUFFY CORPORATION
July 25, 2002
Page 6 of 12
other person, excluding purchases on the open market made in an
ongoing stock repurchase program.
13. There is no plan or intention by the shareholders of Target who
own 1 percent or more of the Target stock, and to the best of the
knowledge of the management of Target, there is no plan or
intention on the part of the remaining shareholders of Target to
sell, exchange, or otherwise dispose of, to Parent or any person
related (as defined in Treas. Reg. Section 1.368-1(e)(3)) to
Parent, any of the Parent Common Stock issued in the Merger,
either directly or through any transaction, agreement, or
arrangement with any other person.
14. Target will not have acquired any of its stock during the
five-year period ending on the date of the Merger.
15. During the five-year period beginning on the date of the Merger,
there is no plan or intention for Parent or Merger Subsidiary, or
any person related (as defined in Treas. Reg. Section
1.368-1(e)(3)) to Parent or Merger Subsidiary, to acquire, with
consideration other than Parent stock, Parent Common Stock
furnished in exchange for a proprietary interest in Target in the
Merger, either directly or through any transaction, agreement, or
arrangement with any other person, except for cash in lieu of
fractional shares distributed to Target shareholders in the
Merger. In addition, during the five-year period ending on the
date of the Merger, no distributions will have been made with
respect to Target stock (other than ordinary, normal, regular,
dividend distributions made pursuant to Target's historic
dividend paying practice), either directly or through any
transaction, agreement, or arrangement with any other person.
16. Parent has no pla n or intention to liquidate Merger Subsidiary;
to merge Merger Subsidiary with and into another corporation; to
sell or otherwise dispose of the stock of Merger Subsidiary; or
to cause Merger Subsidiary to sell or otherwise dispose of any of
the assets of Target acquired in the Merger, except for
dispositions made in the ordinary course of business or transfers
described in Code Section 368(a)(2)(C) or Treas. Reg. Section
1.368-2(k).
17. Following the Merger, Merger Subsidiary will continue the
historic business of Target or use a significant portion of
Target's business assets in a business.
18. Parent will pay or assume only those expenses of Target that are
solely and directly related to the transaction in accordance with
the guidelines established in Rev. Rul. 73-54, 1973-1 C.B. 187.
Otherwise, Parent, Merger Subsidiary, Target, the shareholders of
Target, and participants in Target's Stock Option Plans will pay
their respective expenses, if any, incurred in connection with
the Merger.
19. There is no intercorporate indebtedness existing between Parent
and Target or between Merger Subsidiary and Target that was
issued, acquired, or will be settled at a discount.
6
THE BOARD OF DIRECTORS
HUFFY CORPORATION
July 25, 2002
Page 7 of 12
20. None of Parent, Merger Subsidiary, or Target is an investment
company as defined in Code Sections 368(a)(2)(F)(iii) and (iv).
21. Target is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Code Section 368(a)(3)(A).
22. The fair market value of the assets of Target transferred to
Merger Subsidiary will equal or exceed the sum of the liabilities
assumed by Merger Subsidiary, plus the amount of liabilities, if
any, to which the transferred assets are subject.
23. The liabilities of Target assumed by Merger Subsidiary and any
liabilities to which the transferred assets are subject were
incurred by Target in the ordinary course of its business.
24. No stock of Merger Subsidiary will be issued in the Merger.
25. The payment of cash in lieu of fractional shares of Parent Common
Stock is solely for the purpose of avoiding the expense and
inconvenience to Parent 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 Target
shareholders instead of issuing fractional shares of Parent
Common Stock will not exceed one percent of the total
consideration that will be issued in the Merger to the Target
shareholders in exchange for their shares of Target stock. The
fractional share interests of each Target shareholder will be
aggregated, and no Target shareholder will receive cash in an
amount equal to or greater than the value of one full share of
Parent Common Stock.
26. As of the date of the Agreement, the total value of the Parent
Common Stock to be issued by Parent to Target shareholders
pursuant to the Merger, in the aggregate, represented at least 75
percent of the total fair market value of the aggregate
consideration to be issued to all persons who are Target
shareholders immediately before the Merger.
27. At the Effective Time of the Merger, each Option, whether or not
vested, that has an exercise price that is equal to or greater
than US$8.88 per share will be cancelled, without any payment or
other consideration therefor.
28. Each Option, whether or not vested, that has an exercise price
that is le ss than US$8.88 per share will be cancelled and, each
holder of such an option will have a right to receive (if the
holder elects), as soon as reasonably practicable after the
Effective Time of the Merger, a combination of Parent Common
Stock and other consideration. The fair market value of Parent
Common Stock and other consideration paid to the holders of such
an Option will be approximately equal to the fair market value of
the Option.
7
THE BOARD OF DIRECTORS
HUFFY CORPORATION
July 25, 2002
Page 8 of 12
29. None of the compensation received by any shareholder-employee of
Target will be separate consideration for, or allocable to, any
of the shareholder-employee's shares of Target stock; and the
compensation paid to any shareholder-employee will be for
services actually rendered and will be commensurate with amounts
paid to third parties bargaining at arm's-length for similar
services.
30. Any Parent Common Stock received by any shareholder-employee as
separate consideration for, or allocable to, any employment
agreement will be treated as separate from the Merger and the
fair market value of the stock will be taken into income, as
appropriate, under rules applicable to the receipt of property in
connection with the performance of services.
31. Target will take necessary actions to ensure all equity based
plans maintained with respect to Target stock will terminate as
of the Effective Time of the Merger.
32. We have made available to you all related records and data.
33. We have advised you of all actions taken at meetings of
shareholders, board of directors, and committees of the board of
directors (or other similar bodies as applicable) that may affect
the transaction.
34. We have responded fully to all inquiries made to us by you during
your engagement.
35. We have communicated to you all known tax matters with respect to
this transaction.
36. Your opinio n letter is intended solely for use by us, and the
other specified users, and is not intended for use by those who
have not received your written permission to rely upon this
opinion.
37. We understand that you will be relying on the applicable
provisions of the Internal Revenue Code of 1986, as amended, the
regulations thereunder, and judicial and administrative
interpretations thereof - all in effect on the date of the
opinion. We also understand that these authorities are subject to
change or modification retroactively and/or prospectively and any
such changes could affect the validity or correctness of your
opinion. Also, you will not update your opinion for subsequent
changes or modifications to the law and regulations or to the
judicial and administrative interpretations thereof, unless we
separately engage you to do so in writing after such subsequent
changes or modifications.
ASSUMPTIONS
-----------
In issuing our opinion, we assume the Merger will occur in accordance with the
Agreement. In addition, our opinion on the Canadian tax consequences assumes the
following:
8
THE BOARD OF DIRECTORS
HUFFY CORPORATION
July 25, 2002
Page 9 of 12
1. The Target shareholders are, for the purposes of the Income Tax
Act (Canada) RSC 1985, c. 1 (5th Supp.), as amended (the "Act"),
and at all relevant times, resident in Canada;
2. The Target shareholders hold their Target Common Stock, Series A
7% Redeemable Preferred Stock, Series B Junior Participating
Preferred Stock and Series C Non-Voting Preferred Stock, and will
hold their shares of Parent Common Stock, as capital property;
3. The Target shareholders deal at arm's-length with Parent and
Target;
4. The Target shareholders are not affiliated with Parent or Target;
5. The Target shareholders are not a "specified financial
institution" or "financial institution" as those terms are
defined in the Act;
6. Target is not a "foreign affiliate," as that term is defined in
the Act, of any of the Target shareholders;
7. The Target Option holders acquired their Target Options in the
course of, or by virtue of, employment with Target, or a person
that does not deal at arm's-length with Target; and
8. The Target Option holders did not give any consideration for the
acquisition of their Target Options.
SCOPE OF THE OPINION
--------------------
Our opinions in this letter are limited to those specifically set forth herein
under the heading OPINIONS. The opinions are rendered only with respect to the
specific facts and representations set forth herein. KPMG expresses no opinion
with respect to any other federal, state, local, or foreign tax or any legal
aspect of the transaction described herein. Specifically, KPMG does not express
any opinion, and none was requested, as to whether the Merger results in a Code
Section 382 or 383 limitation with respect to any tax attribute of Target or
Parent (including any net operating loss) and the tax effect of any separate
return limitation year restriction imposed under Treas. Reg. Section 1.1502-21
or -22. In addition, KPMG does not express any opinion, and none was requested,
as to the United States federal tax consequences to the holders of Options
resulting from the transactions described herein. Because of the uncertainty
regarding the date on which the first release of Holdback Shares will occur,
KPMG expresses no opinion as to the tax consequences of any issuance of Holdback
Shares pursuant to the Agreement. Each recipient of the Holdback Shares should
consult their individual tax advisor as to the portion of the Holdback Shares
that will be treated as interest, how to allocate basis among the Holdback
Shares upon receipt, and the effect of the Holdback Shares on the basis of the
Parent Common Stock received in the Merger during the
9
THE BOARD OF DIRECTORS
HUFFY CORPORATION
July 25, 2002
Page 10 of 12
period after the Merger and before the receipt of the Holdback Shares. No
inference should be drawn regarding any matter not specifically opined on below.
In rendering our opinions, we are relying upon the relevant provisions of the
internal revenue laws, including the Code, the Treasury Regulations thereunder,
and judicial and administrative interpretations thereof, the Act, the Income Tax
Regulations (the "Regulations"), applicable judicial decisions reported prior to
the date hereof and our understanding of the current administrative practice
published by the Canada Customs and Revenue Agency with respect thereto all as
of the date of this letter. The discussion of Canadian tax cons iderations is
based upon advice provided by KPMG LLP (Canada) and on the relevant tax
authorities in Canada. Our opinion takes into account the specific proposals to
amend the Act and the Regulations publicly announced prior to the date hereof
(the "Tax Proposals"), and assumes that all Tax Proposals will be enacted in the
form proposed. These authorities are subject to change or modification
retroactively and/or prospectively and any such change could affect the validity
or correctness of our opinions. We also considered U.S. income tax treaties,
their technical explanations, and judicial and administrative interpretations
thereof, as appropriate. We will not update our advice for subsequent changes or
modifications to the law and regulations or to the judicial and administrative
interpretations thereof, unless you separately engage us to do so in writing
after such subsequent change or modification.
These opinions are not binding on the Internal Revenue Service, any other tax
authority, or any court, and no assurance can be given that a position contrary
to that expressed herein will not be asserted by a tax authority and ultimately
sustained by a court.
OPINIONS
--------
Based solely upon the information contained in the Agreement and the FACTS,
ASSUMPTIONS and REPRESENTATIONS as stated herein, and subject to the conditions
and limitations described in the SCOPE OF THE OPINION above, it is the opinion
of KPMG that the following United States and Canadian federal income tax
consequences will result from the Merger:
1. Provided the Merger of Target with and into Merger Subsidiary
qualifies as a statutory merger under Delaware law and provided at
least 50 percent of the total Merger Consideration (taking into
account amounts paid to dissenting shareholders, holders of
Options, and the Target Series A 7% Redeemable Preferred Stock)
constitutes Parent Common Stock, the Merger will constitute a
reorganization within the meaning of Code Section 368(a)(1)(A) by
reason of Code Section 368(a)(2)(D). Target, Parent, and Merger
Subsidiary will each be "a party to a reorganization" within the
meaning of Code Section 368(b).
2. No gain or loss will be recognized by Target on the transfer of
substantially all of its assets to Merger Subsidiary in exchange
solely for Parent Common Stock, cash, and the assumption by Merger
Subsidiary of Target's liabilities (Code Sections 361(a) and (b)
and 357(a)). (The transfer described in representation 8 will
constitute "substantially all" for purposes of this opinion 2 and
opinion 3.)
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THE BOARD OF DIRECTORS
HUFFY CORPORATION
July 25, 2002
Page 11 of 12
3. No gain or loss will be recognized by either Parent or Merger
Subsidiary upon the acquisition by Merger Subsidiary of
substantially all of the assets of Target in exchange for Parent
Common Stock, cash, and the assumption by Merger Subsidiary of
Target's liabilities (Code Section 1032 and Treas. Reg. Section
1.1032-2(b)).
4. The basis of each Target asset acquired by Merger Subsidiary
pursuant to the Merger will be the same as the basis of the asset
in the hands of Target immediately prior to the Merger (Code
Section 362(b)).
5. The basis of the stock of Merger Subsidiary in the hands of Parent
immediately after the Merger will be an amount equal to Parent's
historical basis in the Merger Subsidiary (determined by excluding
any cash transferred to Merger Subsidiary that is transferred out
in connection with the Merger) plus the gross adjusted tax basis
of Target's assets in the hands of Target immediately before the
Merger decreased by the sum of the amount of the liabilities of
Target assumed by Merger Subsidiary and the amount of the
liabilities to which the assets of Target are subject (Treas. Reg.
Sections 1.1502-30(b) and 1.358-6(c)(1)).
6. The holding period of each asset of Target received by Merger
Subsidiary, pursuant to the Merger, will, in each instance,
include the period during which such asset was held by Target
(Code Section 1223(2)).
7. The gain, if any, realized by a Target shareholder upon receipt of
Parent Common Stock and cash (including the cash received by a
Target shareholder in redemption of its Series A 7% Redeemable
Preferred Stock) in exchange for Target Common Stock, Series B
Junior Participating Preferred Stock and Series C Non-Voting
Preferred Stock, will be recognized but in an amount not in excess
of the cash received. (Code Section 356(a)(1)). If the exchange
has the effect of a distribution of a dividend (determined with
the application of Code Section 318(a)), then the amount of the
gain recognized that is not in excess of the shareholder's ratable
share of the undistributed earnings and profits will be treated as
a dividend. (Code Section 356(a)(2)). The determination of whether
the exchange has the effect of a distribution of a dividend will
be made in accordance with the principles set forth in
Commissioner v. Clark, 489 U.S. 726 (1989). No loss will be
recognized by a Target shareholder pursuant to Code Section
356(c).
8. The basis in the Parent Common Stock received by a Target
shareholder in exchange for Target Common Stock, Series B Junior
Participating Preferred Stock and Series C Non-Voting Preferred
Stock will be the same as the basis of the Target stock that was
exchanged therefor, decreased by the amount of cash received, and
increased by any gain recognized on the exchange or any amount
treated as a dividend (Code Section 358(a)(1)).
9. The holding period of the Parent Common Stock received by a Target
shareholder will include the period during which Target Common
Stock, Series B Junior Participating Preferred Stock and/or Series
C Non-Voting Preferred Stock surrendered in exchange
11
THE BOARD OF DIRECTORS
HUFFY CORPORATION
July 25, 2002
Page 12 of 12
therefor was held by the Target shareholder, provided that the
Target stock surrendered was a capital asset in the hands of the
Target shareholder on the date of the Merger (Code Section
1223(1)).
10. Pursuant to Code Section 381(a) and Treas. Reg. Section
1.381(a)-1, Merger Subsidiary will succeed to and take into
account as of the date of the proposed transfer, as defined in
Treas. Reg. Section 1.381(b)-1(b), the items of Target described
in Code Section 381(c), subject to the conditions and limitations
of other applicable provisions (i.e., Code Sections 381, 382, 383,
384, etc.).
11. On the merger of Target and Merger Subsidiary, Canadian resident
holders of Target Common Stock, Series B Junior Participating
Preferred Stock and Series C Non-Voting Preferred Stock should
realize gain or loss for Canadian federal income tax purposes.
12. On the merger of Target and Merger Subsidiary, Canadian resident
holders of Target Series A 7% Redeemable Preferred Stock should
realize gain or loss on the redemption of that stock immediately
after the Merger for Canadian federal income tax purposes.
13. On the merger of Target and Merger Subsidiary, Canadian resident
holders of Target Options should be taxable on the disposition of
their Target Options for Parent Common Stock and cash for Canadian
federal income tax purposes.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Sincerely,
KPMG LLP
/s/ KPMG LLP
12
Dates Referenced Herein and Documents Incorporated by Reference
| Referenced-On Page |
|---|
| This ‘S-4/A’ Filing | | Date | | First | | Last | | | Other Filings |
|---|
| |  |
| Filed on: | | 7/29/02 |
| | 7/25/02 | | 1 | | 12 | | | 10-Q |
| | 6/30/02 | | 2 |
| | 6/5/02 | | 1 |
| | 5/24/02 | | 2 |
| List all Filings |
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