March 13, 2006
Mr. Mel L. Shultz
Manager
JDMD Investments, L.L.C.
2400 E. Arizona Biltmore Circle, Bldg. 2, Suite 1270
Phoenix, Arizona 85016
Re: Stratford American Corporation
Schedule 13E-3
Filed February 10, 2006
File No. 05-40361
Preliminary Proxy Statement on Schedule 14A
Filed February 10, 2006
File No. 0-17078
Form 10-KSB for the Fiscal Year Ended December 31, 2004
Filed March 31, 2005
Form 10-QSB for the Fiscal Quarters Ended September 30, 2005, June
30, 2005 and March 31, 2005
Filed November 14, 2005, August 15, 2005 and May 16,
2005
Dear Mr. Shultz:
We have reviewed your filings and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
General
1. Where comments on one document or section also relate to
disclosure in another document or section, please make parallel
changes to all affected disclosure. This will eliminate the need
for
us to repeat similar comments.
2. Update the documents to provide the latest available
information.
For example, disclose (1) which closing conditions have been
satisfied, (2) the status of any subsequent offers/ proposals that
you received, and (3) your stock price history. To the extent
that
you use brackets to reflect disclosure that will be updated as of
the
record date, such as the amount and percentage of shares your
officers and directors hold, please disclose the most current
information that you possess.
3. The safe harbor for forward-looking statements provided in the
Private Securities Litigation Reform Act of 1995 does not apply to
statements made in connection with a going private transaction.
See
Securities Act Section 27A(b)(1)(E) and Exchange Act Section
21E(b)(1)(E). Therefore, please do not cite the statutory safe
harbor in any communication you issue regarding the going private
transaction. For instance, we note that you cite to it in the
press
release you issued pertaining to the transaction on January 31,
2006.
Schedule 13E-3
General
4. Please tell us what consideration was given as to whether
Messrs.
Colangelo, Eaton, Jensen and Shultz, the Shultz Revocable Trust,
DCE
Investments LLC and KBKM Real Estate, LLC are affiliates engaged
in
the going private transaction and, accordingly, should be filing
persons. For help in making this determination, please review
Section II.D.3. of our Current Issues Outline, publicly available
at
our website at www.sec.gov. Please note that each filing person
is
required to comply with the filing, disclosure and dissemination
requirements of Schedule 13E-3, including the fairness
determination.
See Q&A No. 5 of Release No. 34-17719 (April 13, 1981). Further,
in
this regard, it does not appear that the 13E-3 contains this
information as it applies to JDMD, Stratford Holdings and
Stratford
Acquisition.
5. We note that JDMD acquired shares in a private purchase during
November of 2005. Please advise as to what consideration was
given
to whether this purchase was the first step in the going private
transaction.
Financial Information, page 11
6. It appears that you have not provided the information required
by
Item 1010(c)(4) of Regulation M-A. Revise or advise. In this
regard, your selected financial presentation of Stratford`s
financial
statements should disclose the ratio of earnings to fixed charges
in
a manner consistent with Item 503(d) of Regulation S-K. See Item
1010(c)(4) of Regulation M-A. We remind you that although we
understand that Item 503(d) of Regulation S-K refers to registered
debt securities or preference equity securities, the ratio of
earnings to fixed charges required by Item 1010(c)(4) is not
limited
to circumstances in which a company has registered debt securities
and/or preference equity securities. Rather, Item 1010(c)(4) of
Regulation M-A requires that you present Stratford`s ratio of
earnings to fixed charges "in a manner consistent with 503(d) of
Regulation S-K." The fixed charges referred to by the item
requirement are not limited to those associated with registered
debt
or preference equity securities and should be presented in all
circumstances in which the company has any fixed charges.
7. Although you may disseminate summary financial information to
comply with the requirements of Item 13 of Schedule 13E-3, you
must
disclose directly or incorporate by reference the information
required by Item 1010(a) of Regulation M-A. See Instruction 1 to
Item 13 of Schedule 13E-3. In this regard, we note that you
attempt
to incorporate by reference financial information that is
incorporated by reference in your proxy statement. Please revise
to
eliminate this "double incorporation" and specifically incorporate
the required financial information in your Schedule 13E-3. See
12b-
23(b) of the Exchange Act.
Preliminary Proxy Statement on Schedule 14A
General
8. As is currently drafted, it does not appear that the proxy
statement complies with Item 1013 of Regulation M-A as required by
Item 7 of Schedule 13E-3. Each Schedule 13E-3 filing person must
state the purpose(s) and reason(s) for engaging in the going
private
transaction. This requirement is distinct from any disclosure
supporting a fairness determination. For instance, the Background
of
Merger subsection does not adequately address why each filing
person
proposes that Stratford go private and why it is doing so now.
Similarly, the alternatives considered by each filing person are
not
adequately disclosed. Nor are the effects upon all filing persons
- -
such as the ownership level each will have in the company if the
merger occurs, and their particular tax consequences as a result
of
the transaction - clearly conveyed. Revise accordingly. We may
have
further comment.
9. Confirm that you will file with the Commission all materials
used
to aid in the solicitation of proxies, such as any scripts that
will
be read to investors who vote by telephone, and any internet or
other
materials, including instructions and forms of proxy, that will be
made available to telephone and internet voters and that you have
not
already filed as an exhibit to this registration statement. See
Rule
14a-6(c) of the Proxy Rules.
10. Provide us with a copy of any diagrams, pictures or graphic
information that you wish to include in this document. We may
have
additional comments.
11. Continue to monitor the requirement to update your financial
statements, as indicated in Rule 3-12 of Regulation S-X.
12. We note that you issued a press release pertaining to the
transaction on January 31, 2006, and filed it under cover of Form
8-
K. In the future, please consider the application of Rule 14a-12
with respect to any written communications regarding matters that
are
or may be subject to proxy solicitation.
Summary Term Sheet
13. Your summary term sheet is 6 pages long. You should revise it
to
comply with Item 1001 of Regulation M-A and the Instructions to
that
Item, as required by Item 1 of Schedule 13E-3. The summary term
sheet should address all of the most material terms of the
transaction and should begin on the first or second page of the
disclosure document provided to security holders. In this
regard,
we note that you additionally address several of the material
terms
of the transaction in the form of a Q&A. Note that your summary
term
sheet should replace this section, as all of these terms should be
addressed briefly in one section at the front of the document,
rather
than having two sections of your preliminary proxy statement with
substantially similar information. See Part II.F.2.a of SEC
Release
No. 33-7760 (October 22, 1999) for a discussion of the items that
should be discussed in the summary term sheet.
14. Present JDMD as a separate participant, prior to the
discussion
of Stratford Holdings Investment, L.L.C. Indicate clearly their
preexisting affiliations with the company. This comment applies
to
"The Participants" on page 17 as well.
15. Where appropriate, we suggest that you provide a chart
diagramming the current ownership structure of the merging parties
and the eventual structure of the combined company.
16. Please consider placing information that directly affects
shareholders toward the beginning of your summary term sheet. For
example, we note that your discussion of important federal tax
consequences does not appear until after your discussion of
required
regulatory approval, other conditions to closing, and termination
of
the merger agreement.
17. Please disclose the expected time period between the vote and
closing.
18. Please disclose the deadline for receipt of proxies and
instructions cards to vote with respect to the merger.
Revocation of Proxies, page 2
19. We note that written revocations must be received prior to the
time the stockholders of record vote at the special meeting.
Please
clarify whether notices of revocation will be received all the way
up
until the time of the special meeting, or whether such revocations
will not be accepted after a certain date and/or time.
Interests of Certain Persons in the Merger, page 3
20. Provide enhanced detail. For example, if new employment
agreements provide improved terms or new benefits for any of the
directors and officers who will remain in their respective
positions
with the surviving corporation, discuss those provisions. Also,
if
change of control or similar payments will be received by your
directors and/or executive officers, please revise to disclose and
quantify. Further, add a cross-reference to the more detailed
discussion of conflicts that appears later in the text whenever
you
state the board`s recommendation. We may have additional
comments.
Merger Financing, page 4
21. We note that JDMD intends to finance the merger through use of
your cash reserves and other cash available to it. Please clarify
the source(s) of JDMD`s "other cash" and specify whether the
$250,000
it has deposited on a non-refundable basis in a segregated account
is
associated with this "other cash."
Conditions to the Merger, page 4
22. Disclose which conditions have been satisfied and update the
status of others as appropriate.
23. We note your disclosure that completion of the merger depends
upon "other closing conditions" that are described elsewhere in
the
proxy statement. Please be sure that the summary includes all of
the
material conditions to consummation of the merger. In addition,
please disclose which, if any, of the closing conditions are
likely
to be waived by either party. You also should state that the
companies will recirculate revised proxy materials and resolicit
proxies if there are any material changes in the terms of the
merger,
including those that result from waivers. If applicable, make
corresponding changes with respect to your disclosure under the
headings "Conditions to Completing the Merger" and "Amendments and
Termination of the Merger Agreement" on page 39.
Federal Income Tax Consequences, page 6
24. Revise your statement that the reader "should" consult with
his/her own tax advisor as the term "should" suggests obligation.
You may replace the admonition with language to the effect that
you
recommend or encourage that consultation.
Questions and Answers about the Merger, page 7
Who can vote on the merger agreement?, page 8
25. Please indicate whether shareholders may vote their proxies by
telephone and/or internet. If so, please state the phone number
and/or web address where shareholders may vote their proxies.
Also,
clarify whether internet and telephone voters must use the same
procedure to revoke or change their votes as they used to cast
their
original votes.
What happens if I do not return a proxy card?, page 9
26. Revise to clarify the effect of the failure to vote with
respect
to the special meeting. For instance, if a quorum is not present,
disclose whether there will be a reduction in the number of votes
required to approve the proposal based on the number of
shareholders
who fail to vote in person or by proxy and whether such reduction
would be on a one-for-one basis.
Cautionary Statement Concerning Forward-Looking Information, page
10
27. We note your statement that you assume no obligation to update
any forward-looking statements made in the proxy statement or
elsewhere. As you know, Rule 13e-3(d)(2) imposes an obligation to
amend the disclosure document in a going private transaction to
reflect any material changes to the information previously
reported.
Please revise your disclaimer to more clearly state when you
intend
to update or amend the filing to reflect changes to forward-
looking
information you have disclosed.
Information Concerning the Special Meeting, page 13
Adjournments and Postponements, page 16
28. We note your disclosure that the special meeting may be
adjourned
or postponed for the purpose of soliciting additional proxies. As
you know, a proposal to adjourn the meeting to enable you to
solicit
additional votes to ensure passage of a proposal is not an action
on
which proxies may be voted in reliance upon the discretionary
authority permitted by Rule 14a-4(d). You may wish to expand the
proxy statement and proxy card to include a proposal to adjourn
the
meeting if you anticipate difficulties in obtaining a quorum or in
gathering sufficient votes to pass any of the proposed matters.
Please revise your disclosure elsewhere in the registration
statement
consistent with this comment.
Special Factors, page 18
Background of the Merger, page 18
29. Provide a more detailed description of the merger background.
While you identify each meeting that occurred and the
participants,
you cite the topic discussed but provide little description as to
the
substance of those discussions of that meeting. For example,
please:
* disclose when the directors and management of Stratford began
discussing the future directions of Stratford`s business.
* revise to better explain the financial situation of the company,
and in particular, any financial difficulties, so that investors
may
further understand why you are engaging in this transaction at
this
time. See Item 1013(c) of Regulation M-A.
* specify the details of the proposals made by JDMD and others,
such
as explaining why JDMD increased its offer to $0.80 per share,
* provide a brief description of the types of "questions" asked
during meetings or discussions with any financial advisors,
* clarify the nature of any material, non-public information
provided
to third parties during these negotiations and provide us with
copies
of such,
* identify the person(s) who represented the company in its
discussions with the eight bidders prior to the discussions with
JDMD.
The above examples and additional comments which follow on
specific
meetings should not be viewed as exhaustive on this matter.
30. You disclose that Stratford engaged Meagher on November 8,
2004.
However, we note that it wasn`t until early February 2005 that
Meagher sent solicitations of interest to potential buyers.
Please
revise your background to disclose any board actions, discussions
or
meetings, conducted with or without Meagher, that occurred between
November 8, 2004 and February of 2005. If no actions, discussions
or
meetings took place, please explain why.
31. Please file all reports, opinions and appraisals materially
related to the transaction, written or oral, that the companies or
their boards received from any third party as exhibits to the
Schedule 13E-3 pursuant to Item 1016(c) of Regulation M-A. Among
other items, the materials could include analyses, talking papers,
drafts, summaries or outlines. This would also include
preliminary
and final reports. For example, it appears that the studies
conducted by Meagher that address the market value of Stratford`s
properties should be filed as exhibits to the 13E-3. Also, in
accordance with Item 1015(b) or Regulation M-A, your disclosure
should include a materially complete description of Meagher`s most
recent reports. To the extent material differences exist between
Meagher`s preliminary report(s) and its most recent report, your
proxy statement should summarize the differences.
32. We note that Stratford paid an initial retainer to Meagher and
is
obligated to pay commission based upon the cumulative sales price
of
the oil and gas properties. Please revise to quantify. See Item
1015(b)(4) of Regulation M-A.
33. You disclose that on December 29, 2005 Mel Shultz and David
Eaton, on behalf of JDMD, submitted a buyout proposal to the board
of
directors of Stratford. Please revise to disclose the steps that
led
to JDMD making this proposal. In view of the fact that Meagher
continued to market the property, what led JDMD to be formed and
to
submit a buyout proposal to the board?
34. Please clarify all of the alternatives considered at each
stage
of the discussions. For instance, when your board of directors
and
management began discussing the future direction of your business,
please explicitly state each alternative considered. See Item
1013(b) of Regulation M-A.
35. We note that bids for the entire package of properties ranged
from $1.75 million to $2.925 million. Please revise to disclose
the
range of implied per share value of the company that would result
from a sale price in that range and explain how the value was
derived. Similarly, please revise to also disclose the implied
per
share value based upon the engineering studies conducted by
Meagher.
For example, what is the implied per share value of Stratford
based
on Meagher`s studies that resulted in the properties having a
value
of $4.5 million. Did the board consider this when determining if
the
transaction is fair to its unaffiliated security holders?
36. Discuss the substance and timing of all material offers and
counteroffers during the course of the negotiations with JDMD.
37. Expand the first full paragraph on page 19 to explain in more
detail why "none of the bids was acceptable." In this regard, you
should expand your disclosure to include a materially complete
discussion of why management did not pursue any of the bids. See
Item 1014(f) of Regulation M-A.
38. On pages 19 and 27, you indicate that Meagher is continuing to
"market the properties on its website" and that "process will
continue through the shareholder vote and possibly thereafter."
Explain the impact of any such sales on the consideration to be
received by the disinterested shareholders. Clarify whether the
amounts that might be received might exceed the consideration that
is
being paid by JDMD and, if so, the impact of occurrence upon the
Board`s fairness determination.
39. Expand the fourth full paragraph to indicate the total price
being paid by JDMD, not simply the per share price. Also, revise
to
disclose how the $0.75 and the $0.80 per share was derived by
JDMD.
Is the per share price based exclusively on the value of the oil
and
gas properties of Stratford that it was attempting to sell or the
oil
and gas properties and the cash proceeds that primarily make up
your
assets?
40. In the same paragraph, indicate the market price of your
common
stock at the time that JDMD made their offer.
41. Summarize in the proxy statement all material non-public
information, including projections and potential synergies,
exchanged
among and relied upon by the parties. Also provide us with copies
of
the materials exchanged.
42. You disclose that the board unanimously adopted resolutions
approving and adopting the merger agreement between Stratford and
JDMD. Please revise to disclose
Purpose of the Merger, page 20
43. Describe the current business conditions in the industries in
which Stratford and JDMD operate and how these conditions weigh in
favor or against the merger.
Recommendations of the Board of Directors; Reasons for
Recommending...,page 22
44. The factors considered in determining fairness must be
explained
in enough detail for investors to understand them. Conclusory
statements or listing of generalized areas of consideration, such
as
"inability to attract analyst coverage, market attention and
institutional shareholder investment" and "inability to increase
shareholder value, despite [Stratford`s] active marketing of the
oil
and gas properties" are not acceptable. Revise this section and
each
section addressing each filing persons` fairness determination to
explain how each of the factors listed supports or does not
support
the fairness of the merger, to the extent you have not done so.
Quantify these factors to the extent practicable. We remind you
to
specifically address each of the factors set forth in Instruction
2
to Item 1014 of Regulation M-A. For example, it does not appear
that
you address the going concern value of Stratford as set forth in
Instruction (2)(iv) to Item 1014 of Regulation M-A.
In this regard, we also remind you that each filing person must
expressly indicate and discuss whether they believe the
transaction
is fair to unaffiliated shareholders. Refer to Item 8 of Schedule
13E-3 and Q&A No. 5 in Exchange Act Release No. 34-17719 (April
13,
1981). The fairness determination here does not clearly reflect
that
standard.
45. Please note that to the extent any filing person is relying on
Stratford`s analysis to satisfy its Item 1014 requirements, that
filing person must specifically adopt the analysis as its own.
See
Item 1014(b) of Regulation M-A and Q&A Nos. 5 and 21 in Exchange
Act
Release No. 34-17719.
46. With a view toward clarified disclosure, please indicate
whether
the board unanimously in favor of the transaction. If not, state
the
number of directors who voted in favor of the transaction.
47. Absent disclosure to the contrary, it appears that all members
of
the Board participated in the vote to accept the JDMD offer and in
the fairness recommendation. Given that at least four of the
Board
members are affiliates of JDMD, explain how the Board was able to
make a fairness determination. Address what consideration was
given
to establishing a committee of independent or disinterested
directors
to make a fairness determination. Similarly, did the board
consider
an unaffiliated representative to act solely on behalf of
unaffiliated security holders? If not, please explain why the
board
concluded that these additional safeguards were not necessary to
determine the fairness of this transaction to the unaffiliated
security holders. See Item 1014(d) of Regulation M-A.
48. Define the meaning of disinterested shareholders. Revise
throughout the document to ensure that any determination of
fairness
relates to the unaffiliated shareholders.
49. We note the board`s consideration of the tax effects of the
transaction on cashed-out shareholders. Revise to clarify the
board`s consideration of the tax effects of the transaction on the
participants of the merger and remaining affiliates.
Effects of the Merger, page 26
50. Please expand this section to ensure that you include a
thorough
discussion of the detriments of this transaction on unaffiliated
security holders. See Instruction 2 to Item 1013 of Regulation M-
A.
For example, but without limitation, it appears that one of the
adverse effects of this transaction will be that unaffiliated
security holders will be required to surrender their shares
involuntarily in exchange for a cash price determined by Stratford
and JDMD and that shareholders will not have the right to
liquidate
their shares at a time and for a price of their choosing. See
Item
1013(d) of Regulation M-A.
The Merger Agreement, page 33
Fees and Expenses, page 40
51. We note that only Stratford is potentially liable for
termination
fees in an amount not to exceed $200,000. Disclose in the
background
section why Stratford`s board did not insist on a comparable
termination fee provision that could require payment by JDMD.
Where Shareholders Can Find More Information, page 43
52. Given that you have a market capitalization of $3,169,000 as
of
your most recent Form 10-KSB, tell us why you believe that you are
eligible to incorporate by reference. See Note E to Schedule 14A.
Exhibits
Form of Proxy
53. When you file the next version of the revised materials,
please
label the form of proxy as "preliminary." You may remove this
"preliminary" label once you have filed in definitive form. See
Rule
14a-6(e)(1) of the Exchange Act.
Form 10-KSB for the Fiscal Year Ended December 31, 2004
Controls and Procedures
54. We note your statement that your disclosure controls and
procedures were effective to ensure that the information you are
required to disclose is "recorded, processed, summarized and
reported
within the time periods specified in Securities and Exchange
Commission rules and forms." Please confirm, if true, that your
certifying officers concluded that your disclosure controls and
procedures are also effective to ensure that information required
to
be disclosed in the reports that you file or submit under the
Exchange Act is accumulated and communicated to your management,
including your chief executive officer and chief financial
officer,
to allow timely decisions regarding required disclosure. See
Exchange Act Rule 13a-15(e). Also confirm this for each Form 10-
QSB
cited above and ensure to include such language in the future.
Closing Comments
As appropriate, please amend your filings and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. You may wish to provide us with marked copies of
the amendment to expedite our review. Please furnish a cover
letter
with your amendment that keys your responses to our comments and
provides any requested supplemental information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of Enforcement
has
access to all information you provide to the staff of the Division
of
Corporation Finance in our review of your filing or in response to
our comments on your filing.
Please contact Jason Wynn at (202) 551-3756 or, in his
absence,
me at (202) 551-3740 with any questions. Direct all
correspondence
to the following ZIP code: 20549-7010.
Sincerely,
H. Roger Schwall
Assistant Director
cc: J. Wynn
via facsimile
Karen McConnell, Esq.
Fennemore Craig, P.C.
(602) 916-5507
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Mr. Mel L. Shultz
Stratford American Corporation
March 13, 2006
page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DIVISION OF CORPORATION FINANCE
MAIL STOP 7010