Common use of Treasury Reg Clause in Contracts

Treasury Reg. Sec.Sec.1.368-1(b), -2(a). First Banks America Common Stock qualifies as the type of consideration that will satisfy the foregoing test. With regard to whether the fair market value of the aggregate amount of First Banks America Common Stock to be exchanged pursuant to the Plan will be sufficient, the Service generally has required, as a condition to issuing a favorable advance ruling under Section 368(a)(1)(A), that the former stockholders of the target corporation receive stock in the acquiring corporation having a value on the effective date of the merger equal to at least 50 percent of the value of the formerly outstanding stock of the target corporation as of the same date, including, for purposes of determining shares outstanding, shares redeemed as part of the (or to facilitate the plan of) reorganization (the 50 percent continuity test). Rev. Proc. 77-37, 1977-2 C.B. 568; Rev. Proc. 86-42, 1986-2 C.B. 722. The 50 percent continuity test will be satisfied if the First Banks America Common Stock received by First Commercial stockholders in the Merger and retained by them following the Merger has a value at least equal to 50 percent of the aggregate fair market value of the issued and outstanding First Commercial Common Stock on the Effective Date. For the purpose of our opinions, we have assumed that the fair market value of the First Banks America Common Stock issued as consideration in the Merger will be in excess of 50 percent of the aggregate fair market value of the issued and outstanding First Commercial Common Stock on the Effective Date, and the structure of the pricing mechanism in the Plan supports this assumption. If this assumption is incorrect, or if First Commercial stockholders dispose of First Banks America Common Stock following the Merger so as to cause the retained First Banks America Common Stock to have a value less than 50 percent of the value of the issued and outstanding First Commercial Common Stock, the 50 percent continuity test will not be satisfied, and the merger may fail to qualify as a reorganization described in Section 368(a)(1)(A) of the Code. Existing judicial decisions suggest that a lesser percentage of continuity will satisfy the continuity of interest requirement. See, for example, Jo▇▇ ▇. ▇▇▇▇▇▇ ▇o. v. ▇▇▇▇▇▇▇▇▇, 29▇ ▇.▇. ▇▇▇ (1935). Thus, failure to meet the Service's advance ruling guidelines is not necessarily critical and does not necessarily render the reorganization taxable. We recommend, however, that the parties comply with the Service's advance ruling guideline so as to minimize the risk that the Service will challenge the reorganization for lack of continuity of proprietary interest. Federal Income Tax Consequences to the Parties A reorganization qualifying under Section 368(a)(1)(A) and Section 368(a)(1)(D) of the Code will result in the following federal income tax consequences: No Corporate Level Gain. Unless the liabilities of First Commercial which First Banks takes subject to or assumes in the Merger exceed the aggregate adjusted tax basis of First Commercial's assets (Code Section 357(c)) neither First Commercial nor First Banks America will recognize gain or loss as a result of the Merger. First Banks America will hold the assets it receives from First Commercial with their historical adjusted tax bases and their tax attributes, including their holding period, as if First Commercial continued to own the assets. Code Section 362(b).

Treasury Reg. Sec.Sec.1.368Sections 1.368-1(b), -2(a). First Banks America Common Stock qualifies as the type of consideration that will satisfy the foregoing test. With regard to whether the fair market value of the aggregate amount of First Banks America Common Stock to be exchanged pursuant to the Plan will be sufficient, the Service generally has required, as a condition to issuing a favorable advance ruling under Section 368(a)(1)(A), that the former stockholders of the target corporation receive stock in the acquiring corporation having a value on the effective date of the merger equal to at least 50 percent of the value of the formerly outstanding stock of the target corporation as of the same date, including, for purposes of determining shares outstanding, shares redeemed as part of the (or to facilitate the plan of) reorganization (the "50 percent continuity testPERCENT CONTINUITY TEST"). Rev. Proc. 77-37, 1977-2 C.B. 568; Rev. Proc. 86-42, 1986-2 C.B. 722. The 50 percent continuity test will be satisfied if the First Banks America Common Stock received by First Commercial stockholders in the Merger and retained by them following the Merger has a value at least equal to 50 percent of the aggregate fair market value of the issued and outstanding First Commercial Common Stock on the Effective Date. For the purpose of our opinions, we have assumed that the fair market value of the First Banks America Common Stock issued as consideration in the Merger will be in excess of 50 percent of the aggregate fair market value of the issued and outstanding First Commercial Common Stock on the Effective Date, and the structure of the pricing mechanism in the Plan supports this assumption. If this assumption is incorrect, or if First Commercial stockholders dispose of First Banks America Common Stock following the Merger so as to cause the retained First Banks America Common Stock to have a value less than 50 percent of the value of the issued and outstanding First Commercial Common Stock, the 50 percent continuity test will not be satisfied, and the merger may fail to qualify as a reorganization described in Section 368(a)(1)(A) of the Code. Existing judicial decisions suggest that a lesser percentage of continuity will satisfy the continuity of interest requirement. See, for example, Jo▇▇ ▇. ▇▇▇▇▇▇ ▇o. v. ▇▇▇▇▇▇▇▇▇, 29▇ ▇.▇. ▇▇▇ (1935). Thus, failure to meet the Service's advance ruling guidelines is not necessarily critical and does not necessarily render the reorganization taxable. We recommend, however, that the parties comply with the Service's advance ruling guideline so as to minimize the risk that the Service will challenge the reorganization for lack of continuity of proprietary interest. Federal Income Tax Consequences to the Parties FEDERAL INCOME TAX CONSEQUENCES TO THE PARTIES A reorganization qualifying under Section 368(a)(1)(A) and Section 368(a)(1)(D) of the Code will result in the following federal income tax consequences: No Corporate Level Gain. Unless the liabilities of First Commercial which First Banks takes subject to or assumes in the Merger exceed the aggregate adjusted tax basis of First Commercial's assets (Code Section 357(c)) neither First Commercial nor First Banks America will recognize gain or loss as a result of the Merger. First Banks America will hold the assets it receives from First Commercial with their historical adjusted tax bases and their tax attributes, including their holding period, as if First Commercial continued to own the assets. Code Section 362(b).