WILLIAMS LAW GROUP, P.A.
2503 W. Gardner Ct.
Tampa FL 33611
January 5, 2001
NetConnect Systems, Inc.
Tampa FL
Re: Federal Income Tax Consequences of Merger of On-Line Connecting Systems,
Inc. and NetConnect Systems, Inc.
Gentlemen:
As special counsel to NetConnect Systems, Inc., a Florida corporation
("NetConnect Systems"), we have been asked to advise you concerning the
anticipated federal income tax consequences of the merger pursuant to the
Agreement and Plan of Merger (the "Merger Agreement") of On-Line Connecting
Systems into NetConnect Systems in exchange for shares of NetConnect Systems's
Common Stock (the "Common Stock"). The transfer of the assets and liabilities in
exchange for the Common Stock (the "Merger") will be carried out pursuant to the
Merger Agreement, as described in the Registration Statement on Form S-4, as
amended, filed by NetConnect Systems, File No. 333-37930 (the "Registration
Statement"). Unless otherwise specified, all capitalized terms have the meaning
assigned to them in the Registration Statement.
In connection with the preparation of this opinion, we have examined such
documents concerning the Merger, including the Merger Agreement, as we deemed
necessary (the "Examined Documents"). In our review and examination we have
assumed, without independent investigation or examination, (a) the genuineness
of all signatures, the authenticity of all documents submitted to us, the
conformity to all original documents of all documents submitted to us as
certified or photostatic copies, and the authenticity of all such originals of
such latter documents; (b) the due execution, completion, acknowledgment and
public filing, where applicable, of any of the Examined Documents, as indicated
in such documents, and the delivery of all documents and instruments and the
consideration recited in such documents by all parties; (c) that all parties
have the necessary power and authority, corporate or otherwise, to execute and
deliver the Examined Documents, and documents attendant therewith, to which they
are a party and to perform their obligations under such documents, and that all
such actions have been duly and validly authorized by all necessary proceedings;
(d) that the Examined Documents and the documents attendant therewith,
constitute legal, valid and binding obligations to each party thereto
enforceable against each party in accordance with their respective terms, except
(i) as enforcement of such documents may be limited by applicable
bankruptcy, insolvency, reorganization, receivership,
moratorium, and other similar laws, both state and federal,
affecting the enforcement of creditors' rights or remedies in
general, from time to time in effect;
(ii) subject to general principles of equity, regardless of whether
such enforceability is considered in a proceeding in equity or
at law and the availability of equitable remedies; and
(iii) subject to implied covenants of good faith, fair dealing and
commercially reasonable conduct, judicial discretion and
instances of multiple or equitable remedies and applicable
public policies and laws.
In rendering our opinion, we have made the following factual assumptions:
1. The factual representations and warranties of the parties contained in
the Merger Agreement, which we may deem material to our opinion, are all true in
all respects as of the date of our opinion, except as may otherwise be set forth
in or contemplated by, any of the Examined Documents.
2. The factual representations and warranties, other than those matters
about which we specifically opine, of the parties contained in the Examined
Documents, which we may deem material to our opinion, are all true in all
respects as of the date hereof, except as may be otherwise set forth in or
contemplated by the Examined Documents.
3. The transaction contemplated by the Examined Documents and all the
transactions related thereto or contemplated thereby shall be consummated in
accordance with the terms and conditions of such documents, except as may be set
forth in and or contemplated by any closing document delivered by the parties at
the closing of the Merger.
4. Each document derived from a public authority is accurate, complete and
authentic and all official records (including their proper indexing and filing)
are accurate and complete.
5. There are no agreements or understandings among the parties, written or
oral, and there is no usage of trade or course of prior dealings among any of
the foregoing which would, in any case, define, supplement or qualify the terms
of the Examined Documents.
LIMITATIONS ON OUR OPINION
The following limitations shall apply with respect to our opinion:
1) Our opinion is based upon the various provisions of the Internal
Revenue Code of 1986, as amended, the Treasury Regulations promulgated
thereunder and the interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters as of the
date hereof, all of which are subject to change either prospectively or
retroactively. No opinion is rendered with respect to the effect, if
any, of any pending or future legislation, judicial or administrative
regulations or rulings, which may have a bearing on any of the
foregoing. We have not been asked to render an opinion with respect to
any federal income tax matters except those set forth below. Likewise,
we have not been asked to render any opinion with respect to any
foreign, local or state income tax consequences of the Merger. By
rendering our opinion, we undertake no responsibility to advise you of
any new developments in the application or interpretation of the
federal income tax laws. Accordingly, our opinion should not be
construed as applying in any manner to any aspect of the transactions
contemplated by the Examined Documents, other than as set forth below.
2) Our opinion does not consider the tax consequences of other
transactions effected prior to or after the Merger (whether or not such
transactions are consummated in connection with the Merger).
3) We have not discussed this opinion with representatives of the Internal
Revenue Service, and it is not binding on the Service. The Service is
not bound by and may not concur in the conclusions we have reached.
4) We have addressed this opinion to most of the typical shareholders of
companies such as On-Line Connecting Systems. However, some special
categories of shareholders listed below will have special tax
considerations that need to be addressed by their individual tax
advisors:
o Dealers in securities
o Banks
o Insurance companies
o Foreign persons
o Tax-exempt entities
o Taxpayers holding stock as part of a conversion, straddle, hedge or
other risk reduction transaction
o Taxpayers who acquired their shares in connection with stock option or
stock purchase plans or in other compensatory transactions
5) We also do not address the tax consequences of the merger under
foreign, state or local tax laws.
6) Neither NetConnect Systems nor On-Line Connecting Systems has
requested, or will request, a ruling from the Internal Revenue Service,
IRS, with regard to any of the federal income tax consequences of the
merger. The tax opinions will not be binding on the IRS or preclude the
IRS from adopting a contrary position.
OPINION
It is the opinion of Williams Law Group, P.A., counsel to NetConnect Systems ,
that the merger will constitute a reorganization under Section 368(a) of the
code. As a result of the merger's qualifying as a reorganization, the following
federal income tax consequences will, under currently applicable law, result:
o No gain or loss will be recognized for federal income tax purposes by
the holders of On-Line Connecting Systems common stock upon the receipt
of NetConnect Systems common stock solely in exchange for On-Line
Connecting Systems common stock in the merger, except to the extent
that cash is received by the exercise of dissenters' rights.
o The aggregate tax basis of the NetConnect Systems common stock received
by On-Line Connecting Systems shareholders in the merger will be the
same as the aggregate tax basis of the On-Line Connecting Systems
common stock surrendered in merger.
o The holding period of the NetConnect Systems common stock received by
each On-Line Connecting Systems shareholder in the merger will include
the period for which the On-Line Connecting Systems common stock
surrendered in merger was considered to be held, provided that the
On-Line Connecting Systems common stock so surrendered is held as a
capital asset at the closing of the merger.
o A holder of On-Line Connecting Systems common stock who exercises
dissenters' rights for the On-Line Connecting Systems common stock and
receives a cash payment for the shares generally will recognize capital
gain or loss, if the share was held as a capital asset at the closing
of the merger, measured by the difference between the shareholder's
basis in the share and the amount of cash received, provided that the
payment is not essentially equivalent to a dividend within the meaning
of Section 302 of the code or does not have the effect of a
distribution of a dividend within the meaning of Section 356(a)(2) of
the code after giving effect to the constructive ownership rules of the
code.
o Neither NetConnect Systems nor On-Line Connecting Systems will
recognize gain solely as a result of the merger.
o There is a continuity of interest for IRS purposes with respect to the
business of On-Line Connecting Systems. This is because shareholders of
On-Line Connecting Systems have represented to us that they will not,
under a plan or intent existing at or prior to the closing of the
merger of the merger, dispose of so much of their On-Line Connecting
Systems common stock in anticipation of the merger, plus the NetConnect
Systems common stock received in the merger that the On-Line Connecting
Systems shareholders, as a group, would no longer have a significant
equity interest in the On-Line Connecting Systems business being
conducted by NetConnect Systems after the merger. Our opinion is based
upon IRS ruling guidelines that require eighty percent continuity,
although the guidelines do not purport to represent the applicable
substantive law.
A successful IRS challenge to the reorganization status of the merger would
result in significant tax consequences. For example,
o On-Line Connecting Systems would recognize a corporate level gain
or loss on the deemed sale of all of its assets equal to the
difference between
o the sum of the fair market value, as of the closing of the
merger, of the NetConnect Systems common stock issued in
the merger plus the amount of the liabilities of On-Line
Connecting Systems assumed by NetConnect Systems
and
o On-Line Connecting Systems' basis in the assets
o On-Line Connecting Systems shareholders would recognize
gain or loss with respect to each share of On-Line
Connecting Systems common stock surrendered equal to the
difference between the shareholder's basis in the share
and the fair market value, as of the closing of the
merger, of the NetConnect Systems common stock received in
merger therefore.
In this event, a shareholder's aggregate basis in the NetConnect Systems common
stock so received would equal its fair market value and the shareholder's
holding period for this stock would begin the day after the merger is
consummated.
Even if the merger qualifies as a reorganization, a recipient of NetConnect
Systems common stock would recognize income to the extent if, among other
reasons any shares were determined to have been received in merger for services,
to satisfy obligations or in consideration for anything other than the On-Line
Connecting Systems common stock surrendered. Generally, income is taxable as
ordinary income upon receipt. In addition, to the extent that On-Line Connecting
Systems shareholders were treated as receiving, directly or indirectly,
consideration other than NetConnect Systems common stock in merger for On-Line
Connecting Systems' shareholder's common stock, gain or loss would have to be
recognized.
Sincerely,
Michael T. Williams, Esq.
