REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Sand Creek Communications Company
(Exact name of registrant as specified in its charter)
Michigan
(State or other jurisdiction of incorporation or organization)
4813
_
(Primary Standard Industrial Classification Code Number)
38-3249559
(I.R.S. Employer Identification No.)
6525 Sand Creek Highway, P.O. Box 66, Sand Creek, Michigan 49279-0066
(517) 436-3130
(Name, address, including ZIP Code, and telephone number,
including area code, of registrant's principal executive officers)
Margie M. Gallatin, 6525 Sand Creek Highway, P.O. Box 66, Sand
Creek, Michigan 49279-0066, (517) 436-3130
(Name, address, including ZIP Code,
and telephone number, of agent for service)
Approximate date of commencement of proposed sale of
the securities to the public: December 31, 1995.
If the securities being registered on this Form are
being offered in connection with the formation of a holding
company and there is compliances with General Instruction G,
check the following box. [ ]
Calculation of Registration Fee
Title of each Amount to Proposed Proposed Amount
class of be maximum maximum of
securities to registered offering aggregate registration
be registered price per offering fee
unit price
Common Stock 124,000 $19.44 $2,409,657 $830.92
The registration fee is calculated pursuant to 17 CFR 230.457(f)(2)
CROSS REFERENCE SHEET
Item No. Description Page of Printed Prospectus
1. Item 501 Outside front cover
2. Item 502 Inside front cover
3. Risk Factors 7
4. Terms of Transaction 10
5. Proforma Financials 19
6. Material Contracts with Company
Being Acquired N/A
7. Additional Information Required
by Persons Deemed Underwriters N/A
8. Interests of Named Experts and Counsel N/A
9. Disclosure of SEC Position on
Indemnification for Security
Liability Act 37, 40
10. Information with Respect to S-3
Registrants N/A
11. Incorporation of Certain Information
by Reference N/A
12. Information with Respect to
S-2 or S-3 Registrants N/A
13. Incorporation of Certain Information
by Reference N/A
14. Information with Respect to Registrants
Other Than S-2 or S-3 39-41
15. Information Respect to S-3 Companies N/A
16. Information with Respect to S-2 or
S-3 Companies N/A
17. Information with Respect to Companies
Other Than S-2 or S-3 Companies 22-39
18. Information if Proxies, Consents or
Authorizations are to be Solicited
in an Exchange Offer 9, 10, 19-22, 36
19. Information if Proxies, Consents or
Authorizations are not to be Solicited N/A
20. Indemnification of Directors and Officers 28, 35
21. Exhibits and Financial Disclosure
Schedule Exhibits
PROXY STATEMENT SAND CREEK TELEPHONE COMPANY
PROSPECTUS FOR SAND CREEK COMMUNICATIONS COMPANY COMMON STOCK
6525 Sand Creek Highway
P.O. Box 66
Sand Creek, MI 49279-0066
(517) 436-3130
This Proxy Statement/Prospectus ("Proxy
Statement/Prospectus") is being furnished to the holders of the
Common Stock ("Shareholders") of Sand Creek Telephone Company
("Sand Creek") in connection with the solicitation of proxies by
the Sand Creek Board of Directors ("Sand Creek Board") for use at
the Special Meeting of Sand Creek Shareholders (including any
adjournments or postponements thereof) to be held on Saturday,
December 2, 1995. At the Special Meeting, the Shareholders of
the Sand Creek Common Stock, $10 par value per share, ("Sand
Creek Common Stock"), will be asked to approve the Agreement and
Plan of Share Exchange, attached as Appendix A hereto ("Plan of
Share Exchange"). This Proxy Statement/Prospectus relates to the
proposed exchange of Sand Creek Common Stock for Common Stock of
Sand Creek Communications Company ("SCCC") pursuant to the Plan
of Share Exchange and certain transactions contemplated thereby
(the Plan of Share Exchange and contemplated transactions
together referred to as the "Share Exchange"). Upon the
effectiveness of the Share Exchange, each outstanding share of
Sand Creek Common Stock will be exchanged for three shares of
Common Stock of SCCC, no par value per share, ("SCCC Common
Stock") and Sand Creek will become a subsidiary of SCCC.
The Share Exchange will not take place unless approved by
the requisite vote of the Shareholders of Sand Creek. See "THE
SPECIAL MEETING - Vote Required." The Sand Creek Board believes
the proposed Share Exchange will provide substantial benefit to
Sand Creek and its Shareholders by providing flexibility for Sand
Creek and SCCC to deal with increased competition, facilitating
initiatives into new areas of business and providing additional
flexibility for financing. The Sand Creek Board recommends
approval of the Plan of Share Exchange.
A Registration Statement on Form S-4 has been filed with the
Securities and Exchange Commission covering the shares of the
SCCC Common Stock issuable in connection with the Share Exchange.
This Proxy Statement/Prospectus also constitutes a prospectus of
SCCC with respect to up to 124,000 shares of SCCC Common Stock
issuable to Shareholders of Sand Creek in the Share Exchange.
Upon consummation of the Share Exchange, each outstanding share
of Sand Creek Common Stock, except those as to which dissenters
rights are exercised, will be converted into three shares of SCCC
Common Stock. See "SHARE EXCHANGE - Consideration".
Neither Sand Creek's nor SCCC's Common Stock is actively
traded, and there is no established public trading market for
such shares.
SEE "RISK FACTORS" HEREIN FOR A DISCUSSION OF VARIOUS MATERIAL
RISKS RELATING TO THE SHARE EXCHANGE.
SAND CREEK COMMUNICATIONS COMPANY'S SECURITIES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is September 27,
1995.
This Proxy Statement/Prospectus and the accompanying form of
proxy are first being mailed to Shareholders of Sand Creek on or
about October 21, 1995.
You are advised to retain this Proxy Statement/Prospectus for
future reference.
[PROXY PAGE 1]
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
TO OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND PROXY STATEMENT IN CONNECTION WITH THE
OFFERING HEREBY MADE, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY SAND CREEK OR SCCC. THIS
PROSPECTUS/ PROXY STATEMENT DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OR THE SOLICITATION OF A PROXY IN ANY
JURISDICTION OR FROM ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF SCCC OR SAND CREEK SINCE THE DATE HEREOF OR
THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO SUCH DATE.
AVAILABLE INFORMATION
This Prospectus/Proxy Statement incorporates documents by
reference which are not presented herein or delivered herewith.
These documents are available from SCCC, and SCCC has filed with
the Securities and Exchange Commission (the "Commission"), a
registration Statement on Form S-4 (together with any exhibits
and amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with
respect to the SCCC Common Stock to be issued pursuant to the
Share Exchange. As permitted by the rules and regulations of the
Commission, this Proxy Statement/Prospectus does not contain all
the information set forth in the Registration Statement and the
exhibits thereto. Such additional information may be inspected
and copied at the Public Reference Section of the Commission at
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549,
at prescribed rates. Statements contained in this Proxy
Statement/Prospectus or in any document incorporated in this
Proxy Statement/Prospectus by reference as to the contents of any
contract or other document referred to herein or therein are not
necessarily complete and in each instance reference is made to
the copy of such contract or other document filed as an exhibit
to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference. For
such further information, reference is made to the Registration
Statement.
Neither Sand Creek nor SCCC is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended
and consequently do not file reports, proxy statements or other
information with the Commission. Sand Creek and SCCC will each
provide its Shareholders annual reports which contain financial
information that has been compiled, but not examined or reported
upon, by an independent or certified public accountant.
SCCC undertakes to provide without charge to each person,
including any beneficial owner to whom a copy of this
Prospectus/Proxy Statement has been delivered, on the written or
oral request of any such person, a copy of any or all of the
documents which have been or may be incorporated in this
Prospectus/Proxy Statement by reference, other than exhibits to
such documents. Requests for such copies should be directed to
Secretary, Sand Creek Communications Company, Inc., 6525 Sand
Creek Highway, P.O. Box 66, Sand Creek, Michigan 49279-0066,
telephone number (517) 436-3130.
In order to ensure timely delivery of copies of such
documents, any request should be made by November 24, 1995.
See back cover for Table of Contents.
[PROXY PAGE 2]
SUMMARY
The following is a summary of certain information contained
elsewhere in this Proxy Statement/Prospectus. As this summary is
necessarily incomplete, reference is made to, and this summary is
qualified in its entirety by, the more detailed information
contained or incorporated by reference in this Proxy
Statement/Prospectus and the Exhibits hereto. Shareholders are
urged to read this Proxy Statement/Prospectus and the Exhibits
hereto in their entirety. Certain capitalized terms which are
used but not defined in this summary are defined elsewhere in
this Proxy Statement/Prospectus.
I. THE SPECIAL MEETING
A. MEETING. A special meeting of the Shareholders of Sand
Creek will be held on Saturday, December 2, 1995 at Sand Creek
Community Church, East Street, Sand Creek, Michigan at 1:00 p.m.
(referred to hereafter as the "Special Meeting").
B. PURPOSE OF MEETING. The purpose of the Special Meeting
is to consider and vote upon a proposal to approve the Plan of
Share Exchange, attached as Appendix A, upon the effectiveness of
which SCCC will acquire all of the issued and outstanding Sand
Creek Common Stock, and each Shareholder of Sand Creek will
become a Shareholder of SCCC, the transactions contemplated
thereby, and such other matters as may properly be brought before
the Special Meeting. See "SPECIAL MEETING - Purpose of Special
Meeting".
C. RECORD DATE AND ELIGIBLE VOTERS. The Record Date for
the Sand Creek Special Meeting is November 12, 1995. Only
Shareholders of record of Sand Creek at the close of business on
such date are entitled to notice of, and to vote at, the Sand
Creek Special Meeting. As of the date hereof, there were 41,299
1/3 shares of Sand Creek Common Stock issued and outstanding and
154 Shareholders of record. See "SPECIAL MEETING - Eligible
Voters".
D. SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS. As of
the date hereof, directors and executive officers of Sand Creek
and their affiliates were beneficial owners of 3823.33 shares or
approximately 9.3% of the outstanding shares of Sand Creek Common
Stock. Such directors and executive officers have indicated that
they intend to vote such shares of Sand Creek Common Stock FOR
approval and adoption of the Plan of Share Exchange.
E. VOTING AND PROXIES. At the Special Meeting,
Shareholders of Sand Creek may vote either in person or by proxy.
Sand Creek is soliciting your proxy to vote in favor of the Plan
of Share Exchange. To vote by proxy, a proxy must be in writing
and filed with the Sand Creek Secretary prior to the Special
Meeting. A proposed proxy form is enclosed. For instructions on
voting by proxy, using the enclosed proxy form, and revoking a
proxy: see "SPECIAL MEETING - Voting and Proxies".
F. VOTE REQUIRED. To be approved, the Plan of Share
Exchange must be approved by the affirmative vote of the holders
of a majority of the outstanding shares of Sand Creek Common
Stock. Abstentions and non-votes will have the same effect as a
vote against approval of the Share Exchange. See "SPECIAL
MEETING - Vote Required".
G. OTHER BUSINESS. At the time this Proxy Statement went
to press, Sand Creek knew of no matters constituting a proper
subject for action by the Shareholders which would be presented
at the Special Meeting, other than the approval of the Plan of
Share Exchange. If any other matters are properly presented at
the Special Meeting, the persons named in the proxies will vote
upon them in accordance with their best judgment.
H. FUTURE SHAREHOLDER PROPOSALS. Any Shareholder
proposals intended for consideration at the 1996 Annual Meeting
of Shareholders must be received by Sand Creek (or, if the Share
Exchange shall have previously become effective, by SCCC) by
April 5, 1996.
[PROXY PAGE 3]
II. THE COMPANIES.
A. SAND CREEK. Sand Creek was organized under the laws of
the State of Michigan in 1907. Sand Creek is a public utility
which provides local exchange, long distance, directory
advertising, billing and collection, and access to toll networks
services in its Sand Creek Exchange located in portions of
Lenawee County in and around the municipality of Sand Creek,
Michigan. Sand Creek is now and after the Share Exchange will
continue to be subject to regulation by the Michigan Public
Service Commission ("MPSC"). Such restrictions impact, among
other things, the rates Sand Creek may charge its customers for
telephone service, and the rates of return Sand Creek may earn.
In addition, Sand Creek and its subsidiary, SCCC, are subject to
the MPSC regulations relating to transactions by a telephone
company and its affiliates. Sand Creek holds a 22.5% limited
partnership interest in Cass Cellular Limited Partnership, which
owns 55.62% of Michigan RSA #9 Limited Partnership, which
conducts cellular telephone operations. Cass Cellular Limited
Partnership's cellular telephone operations are not subject to
regulation under current law by the MPSC. Sand Creek's principal
executive offices are located at 6525 Sand Creek Highway, Sand
Creek, Michigan, and the telephone number at such address is
(517) 436-3130. See "SAND CREEK".
B. SAND CREEK COMMON STOCK. Sand Creek has authorized
only one class of common stock, all of which have equal dividend,
voting and liquidation rights. The Bylaws of Sand Creek and
Board resolutions have imposed some restrictions on the
transferability of such shares. There are some provisions in
Sand Creek Bylaws which limit any one person's ownership of
Common Stock to no more than 12.5% of such stock. See "SHARE
EXCHANGE - Comparison of SCCC and Sand Creek Common Stock."
C. SCCC. SCCC was incorporated as a Michigan corporation
in 1995 as a wholly-owned subsidiary of Sand Creek for the
purpose of becoming the new parent holding company if the Share
Exchange is approved and consummated. SCCC is authorized to
engage in any business permitted by Michigan law, and has not yet
engaged in any significant business activities. SCCC will not be
subject to MPSC regulation under current law. SCCC's principal
executive offices are located at 6525 Sand Creek Highway, Sand
Creek, Michigan, and the telephone number at such address is
(517) 436-3130. See "SCCC".
D. SCCC COMMON STOCK. SCCC has authorized only one class
of common stock, all of the shares of which have equal dividend,
voting rights and liquidation rights. The Bylaws of SCCC and
Board resolutions have imposed some restrictions on the
transferability of such shares, which restrictions are the same
as currently upon the holders of Sand Creek Common Stock, except
that there are provisions in SCCC Bylaws which limit any one
person's ownership of Common Stock to no more than 8% of such
stock. See "SHARE EXCHANGE - Comparison of SCCC and Sand Creek
Common Stock."
E. MARKET PRICES. Neither Sand Creek Common Stock nor
SCCC Common Stock is traded in any established public market.
SCCC shares, all of which are owned by Sand Creek, have never
traded. There is no established market and no public information
with respect to the market price of Sand Creek Common Stock.
There are occasional direct sales by Shareholders of which the
management of Sand Creek is aware. From December 31, 1992
through the date hereof there were, so far as management knows,
85 sales of the Common Stock of Sand Creek. These sales involved
5,707.33 shares. During this period, the highest reported price
paid for Sand Creek Common Stock was $58.00 per share, and the
lowest price was $36.66 per share.
III. AGREEMENT AND PLAN OF SHARE EXCHANGE.
A. BACKGROUND AND REASONS FOR SHARE EXCHANGE. Over the
past several years, Sand Creek has considered establishing a
holding company structure consisting of a holding company and one
or more operating subsidiaries. The reasons for establishing
such a corporate structure include the following: First, Sand
Creek is a public utility that provides telephone services
subject to the regulation of the MPSC. The activities of SCCC
and Cass Cellular Limited Partnership, however, are not subject
to regulation by the MPSC. Because SCCC is currently a
subsidiary of Sand Creek and the limited partnership interest in
Cass Cellular Limited Partnership is owned by Sand Creek,
distributions of SCCC and Cass Cellular Limited Partnership
earnings to individual Shareholders of Sand Creek must flow
through Sand Creek. In addition, the MPSC is able to review the
non-regulated activities of Sand Creek on a special basis as a
result of receiving a Special Report prepared for the MPSC by
Sand Creek. Consequently, the MPSC is able to
[PROXY PAGE 4]
indirectly
regulate the activities of SCCC and Cass Cellular Limited
Partnership through the regulation of Sand Creek. Since Sand
Creek is a regulated entity, the flow-through of earnings from
SCCC and Cass Cellular Limited Partnership to Sand Creek
Shareholders are subject to regulation by the MPSC. The Sand
Creek Board believes the Share Exchange will reduce the
regulation by the Michigan Public Service Commission of the
non-telephone company related assets and activities, reduce
administration and other expenses, provide flexibility to deal
with increased competition, facilitate diversification into
non-utility business and provide additional flexibility for
financing. In addition, Shareholders who receive SCCC Common
Stock in exchange for their Sand Creek Common Stock will, in
general, not recognize income on the exchange. A step in
establishing a holding company structure is a Share Exchange in
which SCCC, an existing subsidiary of Sand Creek, would become
the parent corporation, and Sand Creek would become a wholly-owned
subsidiary of SCCC. Later, additional subsidiaries of SCCC
could be created with respect to (i) any existing operation of
SCCC; or (ii) any new or additional businesses which SCCC
undertakes. See "SHARE EXCHANGE - Background".
B. FORM OF SHARE EXCHANGE. SCCC (the current subsidiary)
would become the parent corporation, and Sand Creek (the current
parent) would become a subsidiary of SCCC. Pursuant to the Plan
of Share Exchange, Sand Creek Shareholders who do not effectively
exercise dissenters' rights will exchange all of their Sand Creek
Common Stock for Common Stock of SCCC. The currently outstanding
share of SCCC Common Stock held by Sand Creek will be cancelled.
As a result of the Share Exchange, Sand Creek will become a
wholly owned subsidiary of SCCC. Sand Creek will continue to
operate as a separate telephone company in Sand Creek, Michigan,
with the same directors, officers and employees. See "SHARE
EXCHANGE - Form of Exchange."
C. CONSIDERATION. Upon consummation of the Share
Exchange, but subject to the provisions of the Plan of Share
Exchange with respect to shares for which dissenters' rights have
been perfected ("Dissenting Shares"), each outstanding share of
Sand Creek Common Stock will be exchanged for three (3) shares of
SCCC Common Stock. Each share of SCCC's Common Stock shall have
the same rights and be subject to the same provisions as every
other share of SCCC Common Stock. The increase in the number of
shares is designed to put a Shareholder's holdings in a more
convenient form for sale, transfer or gifting and to eliminate
fractional shares. Following the Share Exchange, the
Shareholders of Sand Creek immediately prior to the Share
Exchange who do not perfect dissenters' rights will own 100% of
the outstanding SCCC Common Stock, which in turn will own 100% of
the outstanding Sand Creek Common Stock. See "SHARE EXCHANGE -
Consideration".
D. RECOMMENDATION OF THE BOARD OF DIRECTORS OF SAND CREEK.
Sand Creek Board believes that the Share Exchange is in the best
interest of Sand Creek and its Shareholders. The Sand Creek
Board unanimously approved the Plan of Share Exchange and
recommends that Sand Creek Shareholders vote FOR the approval and
adoption of the Plan of Share Exchange. See "SHARE EXCHANGE -
The Sand Creek Board's Recommendation".
E. REGULATORY APPROVALS AND OTHER CLOSING CONDITIONS.
The obligations of Sand Creek and SCCC to consummate the Share
Exchange are subject to the approval of the Plan of Share
Exchange by Sand Creek's Shareholders. Sand Creek has received
the opinion of its legal counsel that no approval is required of
the Michigan Public Service Commission or any other governmental
body or administrative agency for consummation of the
transactions contemplated by the Plan of Share Exchange. The
obligation of Sand Creek and SCCC to consummate the Share
Exchange is also contingent on there being not more than 8,259
shares held by Sand Creek Shareholders who perfect dissenters'
rights with respect to the Plan of Share Exchange. See "SHARE
EXCHANGE - Regulatory Approvals and Other Closing Conditions".
F. EFFECTIVE TIME OF THE SHARE EXCHANGE. The Share
Exchange will become effective on the date of filing with the
Michigan Department of Commerce, Corporations and Securities
Bureau, the Certificate of Share Exchange to be submitted by Sand
Creek and SCCC (the "Effective Date"). Unless Sand Creek and SCCC
otherwise agree, the Share Exchange will be effective on the last
business day of the month in which the last of all of the
conditions to the Share Exchange have been satisfied or waived.
See "SHARE EXCHANGE - Effective Time".
[PROXY PAGE 5]
G. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The Share
Exchange is intended to be a "tax-free reorganization" for
federal income tax purposes, with the following principal federal
income tax consequences:
1. A holder of Sand Creek Common Stock who receives
SCCC Common Stock pursuant to the Share Exchange should not
recognize any gain or loss with respect to the transaction.
The basis of the Shareholder in the Sand Creek Common Stock
would carry through as the basis of such Shareholder in the
SCCC Common Stock received in the Share Exchange.
2. A holder of Sand Creek Common Stock who perfects
dissenters' rights under Michigan law will be treated as if
such Shareholder's shares were redeemed. Such Shareholder
will be taxed on any gain realized as a result of such
redemption and such gain should be treated as a capital
gain.
The foregoing is not intended to be legal or tax advice. Each
Shareholder should consult with his or her own tax advisor
concerning the applicable federal, state and local tax
consequences of the Plan of Share Exchange. See "SHARE EXCHANGE
- - Certain Federal Income Tax Consequences."
H. EXPENSES. All fees and expenses incurred in connection
with the Share Exchange will be allocated between Sand Creek and
SCCC in accordance with generally accepted accounting principles,
consistently applied.
I. AMENDMENT, WAIVER AND TERMINATION. The Plan of Share
Exchange may be amended at any time before or after its approval
by Sand Creek's Shareholders, subject to applicable law. Subject
to certain exceptions, either party may waive compliance with,
among other things, any of its conditions to consummate the Share
Exchange. The Plan of Share Exchange may be terminated at any
time prior to the Effective Date by mutual consent of the
parties, or by either party if the Board of Directors of either
Sand Creek or SCCC determine that consummation of the Share
Exchange is not in the best interests of the respective
corporations. See "SHARE EXCHANGE - Termination."
J. PROCEDURES FOR OBTAINING SCCC STOCK CERTIFICATES.
Within a reasonable time after the Effective Date, SCCC will send
to each Sand Creek Shareholder a form of letter of transmittal
and instruction for use in effecting the exchange of their
certificates for shares of SCCC Common Stock. Sand Creek
Shareholders should NOT forward Sand Creek Stock certificates
with the enclosed proxy until they received transmittal forms.
See "SHARE EXCHANGE - Exchange of Stock Certificates".
K. DISSENTERS' RIGHTS. By complying with various pre- and
post-effective procedures that are required by Michigan law and
described under "Dissenting Shareholder's Rights", Shareholders
of Sand Creek will have the right to dissent to the Share
Exchange, in which event, if the Share Exchange is consummated,
they will be entitled to receive in cash the fair value of their
respective shares of Sand Creek Common Stock, as determined by a
judicial appraisal. The exercise of these rights may result in a
judicial determination that the fair value of a dissenting
Shareholder's shares is higher or lower than the value of the
consideration payable to the non-dissenting Shareholders in
connection with this transaction. See "SHARE EXCHANGE - Rights
of Dissenting Shareholders."
L. POST-EXCHANGE DIVIDEND POLICY. SCCC and Sand Creek
currently expect that after the Share Exchange, SCCC will pay
aggregate dividends on the SCCC Common Stock comparable to the
current dividends Sand Creek pays on the Sand Creek Common Stock,
although such future dividends will depend upon future financial
results and legal and regulatory requirements and there can be no
assurance as to any future dividends. SCCC will be a legal
entity separate and distinct from its various subsidiaries. As a
holding company with no significant operations of its own, the
principal sources of SCCC's funds will be dividends and other
distributions from its subsidiaries, borrowings, and sales of
equity. The rights of SCCC and consequently its shareholders, to
participate in any distribution of assets of any of its
subsidiaries is subject to prior claims of creditors, if any, of
such subsidiary (except to the extent claims of SCCC in its
capacity as a creditor are recognized.) SCCC does not expect
that any regulatory and/or contractual restrictions applicable to
SCCC or it subsidiaries will significantly affect the operations
of SCCC or its
[PROXY PAGE 6}
subsidiaries or impair the ability of SCCC to pay
dividends on SCCC Common Stock after the Share Exchange. See
"SHARE EXCHANGE - Post-Exchange Dividend Policy."
M. COMPARISON OF SAND CREEK AND SCCC COMMON STOCK. Upon
effectiveness of the Share Exchange, holders of Sand Creek Common
Stock will become holders of SCCC Common Stock. The rights of
holders of SCCC Common Stock will differ from the rights of
holder of Sand Creek Common Stock primarily in that SCCC will
have approximately 36,102 authorized and unissued shares of
Common Stock (approximately 27,402 shares more than the presently
authorized but unissued shares of Sand Creek Common Stock); and
the issuance of additional authorized shares of SCCC Common Stock
will not require MPSC approval. Also, the amount of shares of
SCCC Common Stock any shareholder may own has been reduced from
12.0% (for Sand Creek) to 8.0% (for SCCC). See "SHARE EXCHANGE
- -Comparison of Sand Creek and SCCC Common Stock".
N. SELECTED FINANCIAL INFORMATION. The following table
sets forth selected financial information with respect to Sand
Creek on a consolidated basis, which includes its wholly owned
subsidiary SCCC. If the Share Exchange is consummated, the
following table (except for the "dividend per share" line, which
does not reflect the additional shares of common stock to be
issued) would constitute the financial data for SCCC, on a
consolidated, pro forma, basis giving effect to the Share
exchange. Such financial information is derived from Sand
Creek's financial statements. See "INFORMATION ABOUT SAND CREEK
- - Financial Statements."
Sand Creek Telephone Company
Selected Financial Data
As of December 31,
1994 1993 1992 1991 1990
(Unaudited) (Unaudited)
Net operating revenue $ 462,643 $ 505,446 $ 369,892 $ 256,930 $ 258,450
Net income before
cumulative change in
accounting principle $ 354,758 $ 348,841 $ 206,019 $ 149,031 $ 114,482
Cumulative effect of
change in accounting
principle $ -0- $ 31,746 $ -0- $ -0- $ -0-
Net income $ 354,758 $ 380,587 $ 206,019 $ 149,031 $ 114,482
Net income per share $ 8.58 $ 9.34 $ 5.08 $ 3.69 $ 2.75
Total Assets $2,653,999 $2,458,967 $2,164,697 $1,958,005 $1,805,852
Long-term debt $ -0- $ 63,889 $ 97,220 $ 127,945 $ 159,985
Dividends per share $ 2 $ 1 $ 1 $ 1 $ 1
_____________________________
RISK FACTORS
Shareholders of Sand Creek should consider the following
factors in determining whether to vote in favor of the proposal
to approve the Plan of Share Exchange and to acquire the SCCC
Stock offered by this Proxy Statement/Prospectus.
[PROXY PAGE 7]
A. LIMITED HISTORY OF SCCC. Although Sand Creek has been
operating for over 80 years, SCCC was incorporated in 1995. SCCC
has no history of operating as a separate company. There can be
no assurances that SCCC will be able to operate profitably, since
its revenues will be derived from a combination of dividends from
Sand Creek and from other investments and/or operations,
currently principally relating to cellular operations. Because
of SCCC's limited history, it is difficult to anticipate future
operating results.
B. RESTRICTIONS ON TRANSFERABILITY. Resales of SCCC
Common Stock by affiliates of Sand Creek will be restricted under
the provision of the Securities Act of 1933, as amended
("Securities Act") and the regulations promulgated thereunder.
In addition, both Sand Creek and SCCC Common Stock are subject to
certain other restrictions on transfer set forth in their
respective bylaws. See "SHARE EXCHANGE - Resales of SCCC Common
Stock", for information on additional transfer restrictions.
C. ABSENCE OF MARKET FOR COMMON STOCK. There has not been
an active public market for the Common Stock of Sand Creek or
SCCC. The Common Stock of SCCC acquired in the Share Exchange
will not be listed for trading on any exchange; consequently, no
assurance can be given that there will be any active trading
market for the SCCC Common Stock.
D. DIVERSIFICATION. The proposed Share Exchange will
facilitate selective diversification into certain non-utility
businesses which will not be subject to regulation by state and
federal agencies regulating public utilities and which may
involve competitive and other factors not previously experienced
by Sand Creek. Diversification involves risks and there can be
no assurance that any new businesses will be successful or, if
unsuccessful, that they will not have a direct or indirect
adverse effect on SCCC. Losses incurred by any such businesses
will not be recoverable in utility rates.
E. REDUCED LEVEL OF REGULATORY OVERSIGHT. The MPSC
regulates significant portions of the business of Sand Creek,
including licensing, construction, operation, sale and
acquisition. Rates and rates of return are subject to
regulation. While the MPSC is moving toward reducing the level
of regulation relating to Local Exchange Carrier operation,
coincident with this movement is a movement to introduce and
encourage competition. In addition, regulatory initiatives have
explored reduction of certain support mechanisms designed to
ensure quality affordable basic local exchange service. There is
no assurance that the impact of these initiatives toward reduced
regulation and increased competition will not have a material
adverse effect on Sand Creek and its operations, and thus Sand
Creek's ability to pay dividends to SCCC. The consummation of
the Share Exchange will serve to remove regulatory oversight of
those assets and activities that are not related to the operation
of Sand Creek's regulated telephone business ("non-telephone
assets"). Consequently, Shareholders will not have the
assurances that they might otherwise have if those non-telephone
assets were subject to review by the MPSC. These assurances
include MPSC review of the use, sale, and transfer of the
non-telephone assets,
as well as review by the MPSC of an annual
report and financial records relating to the non-telephone
assets.
F. HOLDING COMPANY STRUCTURE. After the Share Exchange,
SCCC will be the holding company for Sand Creek, with no
significant operations of its own. Its principal source of funds
will be dividends from its subsidiaries. Consequently, any
regulatory restrictions imposed upon the subsidiaries' ability to
pay dividends to its shareholder would restrict SCCC's ability to
pay dividends to the holders of SCCC Common Stock. In addition,
the rights of SCCC, and consequently its Shareholders, to
participate in any distribution of assets of any of its
subsidiaries is subject to prior claims of creditors, if any, of
any such subsidiary.
G. ADDITIONAL AUTHORIZED SHARES. Following the Share
Exchange SCCC will have approximately 36,102 authorized and
unissued shares of Common Stock (27,402 shares more than the
presently authorized but unissued Sand Creek Common Stock). The
authorized but unissued SCCC Common Stock may be issued from time
to time upon such terms and for such consideration as may be
determined by the Board of Directors of SCCC and without further
action by the MPSC or by the Shareholders of SCCC. Such shares
may be issued for financing acquisitions, possible future
employee benefit plans, stock splits, stock dividends and other
purposes which could include action which may have the effect of
discouraging takeover proposals for SCCC.
[PROXY PAGE 8]
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to Sand
Creek Shareholders in connection with the solicitation of proxies
by the Sand Creek Board for use at the Special Meeting to be held
at the time and place specified in the accompanying Notice of
Special Meeting of Shareholders, and any adjournments or
postponements thereof. This Proxy Statement/Prospectus of
Special Meeting is first being mailed to Shareholders of Sand
Creek on or about October 21, 1995.
THE SPECIAL MEETING
I. SPECIAL MEETING - PURPOSE OF SPECIAL MEETING
The purpose of the Special Meeting, as set forth in the
attached Notice of Special Meeting, is to consider and vote on a
proposed Plan of Share Exchange between Sand Creek and SCCC,
attached as Appendix A hereto and more fully described herein,
and such other matters as may properly be brought before the
Special Meeting. The effect of approval of the Plan of Share
Exchange will be the exchange of each non-dissenting share of
Sand Creek Common Stock for three (3) shares of SCCC Common
Stock. Sand Creek would then continue to do business as a
wholly-owned subsidiary of SCCC.
II. SPECIAL MEETING - ELIGIBLE VOTERS
Only holders of record of Sand Creek Common Stock, at the
close of business on November 12, 1995, are entitled to notice of
and to vote at the Special Meeting. As of the date hereof, there
were 41,299 1/3 shares outstanding and 154 Shareholders of
Record. As of the date hereof, SCCC directors and executive
officers (who are also the directors and executive officers of
Sand Creek) and their affiliates were beneficial owners of 3,823
1/3 shares or approximately 9.3% of the outstanding shares of
Sand Creek Common Stock. Such directors and executive officers
have indicated that they intend to vote such shares of Sand Creek
Common Stock FOR approval and adoption of the Plan of Share
Exchange.
III. SPECIAL MEETING - VOTING AND PROXIES
Each record holder of Sand Creek Common Stock as of the
Record Date is entitled to vote in person or by proxy on all
matters properly to come before the Special Meeting. Any proxy
given to a person must be in writing and filed with Sand Creek's
Secretary prior to the Special Meeting.
A proxy, in the enclosed form, which is properly executed,
duly returned to the Secretary of Sand Creek and not revoked will
be voted in accordance with the instructions contained therein.
If no specification is indicated on the proxy, the shares
represented thereby will be voted FOR approval of the Plan of
Share Exchange. If any other matters are properly presented at
the Special Meeting for consideration, including, among other
things, consideration of a motion to adjourn the Special Meeting
to another time and/or place (including, without limitation, for
the purpose of soliciting additional proxies), the persons named
in the relevant form of proxy enclosed herewith and acting
thereunder will have discretion to vote on such matters in
accordance with their best judgment. Sand Creek does not have
any knowledge of any matters to be presented at the Special
Meeting other than those matters referred to and described
herein. Execution of a proxy given in response to this
solicitation will not affect a Shareholder's right to attend the
Meeting and to vote in person. Presence at the Meeting of a
Shareholder who has signed a proxy does not in itself revoke a
proxy. A Shareholder may revoke a proxy at any time prior to its
exercise by filing with Secretary of Sand Creek, 6525 Sand Creek
Highway, Sand Creek, Michigan, a duly executed revocation, or a
proxy bearing a later date, or by voting in person at the Special
Meeting.
IV. SPECIAL MEETING - VOTE REQUIRED
Sand Creek's bylaws provide that the holders of 25% of the
issued and outstanding Sand Creek Common Stock must attend the
Special Meeting in person or be duly represented by proxy for a
quorum to be properly constituted at such meeting. The Michigan
Business Corporation Act ("MBCA") requires that the
[PROXY PAGE 9]
Plan of Share
Exchange be approved by the affirmative vote of the holders of a
majority of the outstanding shares of Sand Creek Common Stock.
V. SPECIAL MEETING - SOLICITATION OF PROXIES
Sand Creek will bear the cost of the solicitation of proxies
from its Shareholders. In addition to solicitation by mail, the
directors, officers and employees of Sand Creek may solicit
proxies from Shareholders by telephone or telegram or in person.
Such persons will not be additionally compensated, but will be
reimbursed for reasonable out-of-pocket expenses incurred in
connection with such solicitation. Arrangements will also be
made with nominees, fiduciaries and other custodians, for the
forwarding of solicitation materials to the beneficial owners of
shares held of record by such persons.
THE SHARE EXCHANGE
Consummation of the Share Exchange will be effected in
accordance with the terms and conditions set forth in the Plan of
Share Exchange. The following brief description of the Share
Exchange does not purport to be complete, and is qualified in its
entirety by reference to the Plan of Share Exchange, a copy of
which is attached hereto as Appendix A, and is incorporated
herein by reference.
For a description of the rights of Shareholder to dissent
from the Plan of Share Exchange under Michigan law, see
"Dissenting Shareholders' Rights". Shareholders of Sand Creek
who perfect their dissenters' rights under Michigan law are
occasionally referred to as "Dissenting Shareholders" and all
other Shareholders are occasionally referred to as "Non-Dissenting
Shareholders".
I. SHARE EXCHANGE - BACKGROUND
Over the past several years, Sand Creek has considered
establishing a holding company structure consisting of a holding
company and one or more operating subsidiaries. A step in
establishing a holding company structure is a Share Exchange in
which SCCC, an existing subsidiary of Sand Creek, would become
the parent corporation, and Sand Creek would become a wholly-owned
subsidiary of SCCC. Later, additional subsidiaries could
be created with respect to (i) any existing operation of SCCC; or
(ii) any new or additional businesses which SCCC decided to
undertake. The issuance of SCCC Common Stock in connection with
the Share Exchange is not to raise any funds but to facilitate
formation of the holding company. Reasons for the establishment
of a holding company structure include the following:
A. REGULATORY SEPARATIONS. Sand Creek is a public utility
that provides telephone services subject to the regulation of the
MPSC in accordance with the provisions of Michigan law, including
the Michigan Telecommunications Act, 1991 PA 179 ("MTA"). Among
other things, Section 308 of the MTA grants the MPSC authority to
review the use, sale and transfer of a telecommunications
provider's assets used in the providing of basic local exchange
service. Section 308 is generally aimed at preventing cross-subsidies
between regulated and unregulated service.
Neither the activities of SCCC nor the Cass Cellular Limited
Partnership, however, are subject to direct regulation by the
MPSC. Because SCCC is currently a subsidiary of Sand Creek,
distributions of its earnings to individual Shareholders of Sand
Creek must flow through Sand Creek. In addition, the MPSC is
able to review the non-regulated activities of Sand Creek on an
special basis as a result of receiving a special report prepared
for the MPSC by Sand Creek. Consequently, the MPSC is able to
indirectly regulate the activities of SCCC through the regulation
of Sand Creek. Since Sand Creek is a regulated entity, Sand
Creek's holding of SCCC's stock and the flow-through of earnings
to Sand Creek Shareholders are subject to regulation by the MPSC.
Section 401 of the MTA explicitly provides that the MPSC
does not have authority over cellular services such as those
provided through Sand Creek's limited partnership interest in
Cass Cellular Limited Partnership, except as otherwise provided
by the MTA. However, because the limited partnership interest in
Cass Cellular Limited Partnership is in the name of Sand Creek,
distributions of earnings to individual Shareholders of Sand
Creek must flow through Sand Creek. In addition, the MPSC is
able to review the activities of Sand Creek related to Cass
Cellular Limited Partnership on an annual basis as a result of
[PROXY PAGE 10]
receiving an annual report prepared for the MPSC by Sand Creek.
Consequently, the MPSC is able to indirectly regulate the
cellular telephone activities through the regulation of Sand
Creek. Since Sand Creek is a regulated entity, Sand Creek's
holding of the limited partnership interest and the flow-through
of earnings to Sand Creek Shareholders are subject to regulation
by the MPSC.
The Share Exchange will facilitate the removal from MPSC
regulation of as much of the non-telephone company related
activities of SCCC and Cass Cellular Limited Partnership as
possible. This will provide a less direct connection between the
regulated activities of Sand Creek and the unregulated activities
of SCCC and Cass Cellular Limited Partnership.
B. INCREASED FLEXIBILITY AND DIVERSIFICATION. The
regulatory and business climate in which Sand Creek is operating
has undergone substantial change in the past several years.
Additional material changes can be anticipated. These industry
changes have included or may include changing technologies and
increased competition. The Sand Creek Board believes that Sand
Creek must protect its competitive position and enhance its
ability to pursue investment and business opportunities by
establishing a corporate structure able to adapt to the changing
competitive environment. The Sand Creek Board believes that
industry changes may require development of non-utility,
unregulated businesses. Although other than as set forth herein,
Sand Creek currently has no specific plans to establish other
non-utility, unregulated business, such business, if and when
developed, would also primarily be carried out by corporate
affiliates separate from Sand Creek.
The Sand Creek Board is of the view that a holding company
structure will better facilitate the deployment of any portion of
Sand Creek's earnings which are not required for reinvestment in
the utility business, as well as the deployment of capital which
might be raised by a non-utility holding company for non-utility
purposes. In the Board's view, the Share Exchange will increase
opportunities to diversify into businesses which will not be
regulated as public utilities. Financing alternatives may also
be enhanced as a result of engaging in a greater number of
businesses. Diversification that succeeds in promoting
employment and commerce in the areas served by Sand Creek may
benefit Sand Creek and its customers, as well as the
Shareholders, in other ways. Diversification does, however,
involve risks, and there can be no assurance that any new
businesses will be successful or, if unsuccessful, that they will
not have a direct or indirect adverse effect on the holding
company system as a whole despite the separations afforded by the
holding company structure. See "RISK FACTORS - Diversification"
above.
C. CORPORATE SEPARATION. The holding company structure
generally insulates the utility customers of Sand Creek and the
public holders of Sand Creek's securities from the risks of the
non-utility businesses by segregating the non-utility businesses
into separate corporations that will be direct or indirect
subsidiaries of the holding company and not of Sand Creek.
Because non-utility businesses of the holding company will be
conducted through separate subsidiaries, any liabilities incurred
by those subsidiaries will generally not constitute liabilities
of Sand Creek. The corporate separation also insures that all
costs of a particular non-utility subsidiary will be charged to
that subsidiary and not allocated to any utility subsidiary.
Thus, the corporate structure and the regulatory requirements
provide for the insulation of customers of Sand Creek from risks
of the non-utility businesses. Any benefits or detriments which
result from the Share Exchange and consequent segregation of the
utility and non-utility businesses will flow to the security
holders of SCCC. See "RISK FACTORS - Holding Company Structure"
above. After the Share Exchange, the separate financial
statements prepared for Sand Creek will not reflect the non-utility
businesses which may be owned by non-utility subsidiaries
of SCCC. The consolidated financial statements of SCCC will not
reflect the financial condition of any group of subsidiaries
taken separately but will reflect the overall operations of all
subsidiaries, including Sand Creek.
D. FINANCINGS. The holding company structure is intended
to afford additional flexibility for maintaining the capital
ratios of Sand Creek at levels determined to be appropriate by
regulatory authorities. This ability to adjust the components of
the capital structure of Sand Creek will help Sand Creek maintain
stable utility rates. One component of utility rates is cost of
capital. Equity capital is the most expensive type of capital
and if the equity component of a utility's capital structure is
too high it may result in increasing pressure to raise rates. If
the equity component is too low it may result in increases in the
cost of debt because of increased leverage and risk which will
also tend to increase rates. Under the holding
[PROXY PAGE 11]
company
structure, capital ratios of Sand Creek would be subject to
adjustment from time to time through dividends to, or equity
investments from, SCCC.
Financing alternatives are expected to be improved by the
holding company structure in that the planning of financings best
suited to the particular needs and circumstances of the separate
businesses should be facilitated. It is contemplated that in the
normal course SCCC, in addition to receiving dividends from its
subsidiaries, will obtain funds though debt or equity financings,
that Sand Creek will obtain funds through its own financings
(which may include the issuance of additional debt such as first
mortgage bonds or preferred stock, as well as the issuance of
additional shares of Sand Creek Common Stock to SCCC, the
businesses owned by non-utility affiliates, or from their own
outside financings). Any financings will depend on the financial
and other conditions of the entities involved and on market
conditions.
The Sand Creek Board intends that the utility operations of
Sand Creek will continue to constitute the predominant activity
of the holding company system for the foreseeable future and that
there be no capital impairment of Sand Creek and no adverse
effect on Sand Creek's levels of service as a result of the Share
Exchange.
E. REDUCED ADMINISTRATIVE EXPENSES. The Share Exchange
will result in reduced administrative expenses. The MPSC's
review of Sand Creek's financial records will no longer require
Sand Creek to provide the MPSC with information concerning
subsidiaries and limited partnership interests. The holding
company structure will also make clearer the separation between
rate-base and non-rate base assets. Consequently, it is
anticipated that Sand Creek will be able to avoid legal and
accounting fees in dealing with the MPSC, and will reduce
administrative delay and expense with regard to unregulated
activities.
F. RATE REGULATION. The MPSC possesses statutory
authority to determine whether Sand Creek's rates are just and
reasonable. In doing so, the MPSC asserts that a company's
earnings can be considered for rate-making purposes. Thus, under
the present corporate structure, the profitability of SCCC and
Cass Cellular Limited Partnership increases Sand Creek's
regulatory burden in rate cases. The proposed restructuring will
create a structure that will clearly separate regulated from
unregulated activities and enhance Sand Creek's ability to
respond to regulatory oversight. The MTA regulates transactions
between a regulated provider and its affiliates only to the
extent that such transactions have an impact on regulated
activities. Since SCCC is engaged in non- MPSC regulated
activities, the MTA exempts them from MPSC oversight when they
are not subsidiaries of Sand Creek.
G. LACK OF MATERIAL NEGATIVE IMPACTS. The Sand Creek
Board believes that there are no material negative impacts of
elimination of MPSC regulatory oversight of the non- telephone
business operations of SCCC. The Board believes that there will
be no material adverse effect of the reorganization other than
the elimination of MPSC oversight of non-regulated activities.
The Board believes that Sand Creek will continue to qualify for
commercial financing, if outside financing is required, after the
Share Exchange.
H. TAX-FREE REORGANIZATION. The expectation is the Share
Exchange will be a tax-free transaction to the Shareholders and
the two companies.
II. SHARE EXCHANGE - THE SAND CREEK BOARD'S RECOMMENDATION.
The Board of Directors of Sand Creek has unanimously
determined that a Share Exchange is in the best interests of the
Shareholders of Sand Creek, and has approved the Plan of Share
Exchange and the transactions contemplated thereby. In reaching
their determination, the Sand Creek Board consulted with its
legal counsel with respect to the legal duties of the Board. The
Sand Creek Board also consulted with its outside independent
accountants with respect to regulatory matters, the general
terms, the timing, reporting and cost considerations of the Share
Exchange, the Plan of Share Exchange and issues related thereto,
and with its senior management. The Board considered a number of
factors, including the ones discussed above but did not assign
any specific nor relative weight to any particular factor.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST A MAJORITY
OF THE OUTSTANDING COMMON STOCK OF SAND CREEK IS REQUIRED FOR THE
APPROVAL OF THE PLAN OF SHARE EXCHANGE. THE PLAN WILL NOT BECOME
EFFECTIVE, AND THE SHARE
[PROXY PAGE 12]
EXCHANGE WILL NOT TAKE PLACE UNLESS SUCH
APPROVAL IS OBTAINED. ABSTENTIONS AND NON-VOTES WILL HAVE THE
SAME EFFECT AS VOTES AGAINST APPROVAL OF THE PLAN.
THE BOARD RECOMMENDS APPROVAL OF THE PLAN AND URGES EACH
HOLDER OF SAND CREEK COMMON STOCK TO VOTE "FOR" APPROVAL OF THE
PLAN. PROXIES WHICH ARE EXECUTED BUT DO NOT INDICATE HOW THE
PROXIES ARE TO BE VOTED ON THE PLAN WILL BE VOTED "FOR" APPROVAL
OF THE PLAN.
III. SHARE EXCHANGE - FORM OF EXCHANGE.
SCCC is currently a wholly-owned subsidiary of Sand Creek.
Sand Creek and SCCC have entered into a Plan of Share Exchange,
subject to Shareholder approval. The Share Exchange will be
three (3) shares of Common Stock (no par value) of SCCC for every
one (1) share of Common Stock ($10 par value) of Sand Creek.
Following the consummation of the Plan of Share Exchange, the
share of Common Stock of SCCC owned by Sand Creek will be
cancelled. As a result of the foregoing, SCCC will hold all of
the outstanding Common Stock of Sand Creek, and Sand Creek will
become a wholly-owned subsidiary of SCCC. Assuming redemption of
no more than a nominal number of shares of unaffiliated persons
who dissent, there will be no material change in Sand Creek's
Shareholder's relative equity ownership interest in the
underlying Sand Creek assets. After the Share Exchange, Sand
Creek will continue to do business as a separate telephone
company under its corporate charter, and under the name of Sand
Creek.
A diagram of the steps involved is set forth below.
STEP 1: CURRENT ORGANIZATION
Shareholders
Sand Creek Telephone Company
Cass Cellular Sand Creek
Limited Partnership* Communications Company
[Entities shown in boxes; vertical lines show ownership]
STEP 2: SHARE EXCHANGE BETWEEN SAND CREEK SHAREHOLDERS AND SCCC
Shareholder
Sand Creek Telephone Company
Shares of Sand Shares of Sand
Creek Telephone Creek Communications
Co. Common Stock Co. Common Stock
Cass Cellular Sand Ceek
Limited Partnership* Communications Company
[Entities shown in boxes; vertical lines show ownership. Arrows drawn
to show (i) shares of Sand Creek Communications Company Common Stock going
from SCCC to "Shareholders" and (ii) shares of Sand Creek Telephone Company
Common Stock going froom "Shareholders" to Sand Creek Communications Company.]
STEP 3: FINAL STRUCTURE
Shareholders
Sand Creek Communications Company
Sand Creek Telephone Company
Cass Cellular
Limited Partnership*
[Entities shown in boxes; vertical lines show ownership]
* Sand Creek owns a 22.5% limited partnership interest in Cass
Cellular Limited Partnership
[PROXY PAGE 13]
IV. SHARE EXCHANGE - CONSIDERATION
Upon consummation of the Share Exchange, each outstanding
share of Sand Creek Common Stock will be exchanged (subject to
the provisions with respect to shares for which dissenters'
rights have been perfected, described under "Rights of Dissenting
Shareholders" below) into three (3) shares of SCCC Common Stock.
The Shareholders of Sand Creek will own 100% of the
outstanding SCCC Common Stock following consummation of the Share
Exchange.
V. SHARE EXCHANGE - REGULATORY APPROVALS AND OTHER CLOSING
CONDITIONS.
The obligation of Sand Creek and SCCC to consummate the Plan
of Share Exchange is conditioned upon (i) the affirmative vote of
Shareholders owning at least a majority of the shares of Sand
Creek Common Stock, and (ii) Dissenting Shareholders holding
fewer than 8,281 of the issued and outstanding shares of Sand
Creek. MPSC approval of the Share Exchange is not required. The
MPSC possesses the authority to approve the issuance of
securities by Sand Creek pursuant to the Uniform Utilities
Securities Act, MCL 460.301, et seq., and the MPSC's Rules of
Practice and Procedure, Rules 603 and 605. This transaction,
however, does not require Sand Creek to issue new securities,
but, rather, involves the exchange of securities.
The MTA contains no provision explicitly giving the MPSC
approval power over this type of transaction. The MPSC will
likely investigate and may otherwise regulate aspects of the
transaction. In light of past MPSC practice, the MPSC staff will
expect to be notified of the transaction and may even believe
that notification is required under Section 308(3) of the MTA.
It is the opinion of Sand Creek counsel that the MPSC has no
jurisdiction or authority to approve or disapprove the Share
Exchange. Counsel's opinion is based on its review of the
provisions of the Michigan Telecommunications Act ("MTA") and the
September 11, 1992 MPSC Order in Case No. U-10123. In that case,
GTE applied for authority to transfer certain assets to
facilitate a corporate reorganization affecting its operations.
The MPSC held that the law did not require approval, but merely
required notification of asset transfers under Section 308(3).
In the spirit of cooperation, Sand Creek intends to notify the
MPSC of the Share Exchange when it takes place. If Section
308(3) were applicable, it would require notification only when
transfer take place and would not require prior notification.
Thus, after approval of the Share Exchange by Shareholders, Sand
Creek will notify the MPSC as a matter of courtesy.
Sand Creek has also reserved the right to abandon the Share
Exchange if it deems the Plan of Share Exchange to not be in the
best interest of its Shareholders. Among the conditions to
closing is a determination by the Board of Directors that the
claims of Dissenting Shareholders would not have an adverse
impact on Sand Creek or SCCC.
VI. SHARE EXCHANGE - EFFECTIVE TIME.
The Share Exchange will become effective on the date of
filing with the Michigan Department of Commerce, Corporations and
Securities Bureau, of the Certificate of Share Exchange to be
submitted by Sand Creek and SCCC. Unless the Sand Creek Board
determine a different time, the closing of the Share Exchange
will take place on the last day of the month in which all
conditions precedent to the Share Exchange have been satisfied or
waived.
VII. SHARE EXCHANGE - EXCHANGE OF STOCK CERTIFICATES.
With a reasonable time after the Effective Time, SCCC will
send to each Sand Creek Shareholder a form of letter of
transmittal (which will specify that delivery will be effected,
and risk of loss and title to certificates for shares of Sand
Creek Common Stock will pass, only upon proper delivery of such
certificates to SCCC) and instructions for use in effecting the
exchange of the certificates for shares of SCCC Common Stock.
[PROXY PAGE 14]
SAND CREEK SHAREHOLDERS SHOULD NOT RETURN THEIR STOCK
CERTIFICATES WITH THE ENCLOSED PROXY OR UNTIL THEY HAVE RECEIVED
TRANSMITTAL FORMS.
Until the certificates representing Sand Creek Common Stock
are surrendered for exchange after the consummation of the Share
Exchange, holders of such certificates will not be paid dividends
or other distributions with respect to the shares of SCCC Common
Stock with which such shares of Sand Creek Common Stock are being
exchanged. When such certificates are surrendered, any such
unpaid dividends or other distributions will be paid (without
interest) with respect to the number of shares of SCCC Common
Stock represented by such certificates. Holders of unsurrendered
certificates shall not be entitled to vote after the Effective
Time at any meeting of SCCC Shareholders until they have
exchanged their certificates.
VIII. SHARE EXCHANGE - COMPARISON OF SCCC AND SAND CREEK
COMMON STOCK.
A. GENERAL. In the event the Share Exchange is
consummated and Sand Creek becomes a wholly-owned subsidiary of
SCCC, Shareholders of Sand Creek whose shares of Sand Creek
Common Stock are exchanged for shares of SCCC Common Stock will
become Shareholders of SCCC. The rights of SCCC Shareholders are
governed by the SCCC Articles of Incorporation and Bylaws
(collectively, SCCC Charter Documents") and the Michigan Business
Corporation Act, as amended ("MBCA"). Currently, the rights of
Sand Creek Shareholders are governed by the Articles of
Incorporation and Bylaws of Sand Creek (collectively, "Sand Creek
Charter Documents") the Telephone Act of 1913, as amended
("Telephone Act"), the Uniform Utilities Securities Act, as
amended ("UUSA") and the MBCA.
There are minor differences between the SCCC Charter
Documents and the Sand Creek Charter Documents which affect
Shareholders' rights. Certain differences between the rights of
holders of SCCC Common Stock and the rights of holders of Sand
Creek Common Stock are described and summarized below. The
following discussion is not intended to be relied upon as an
exhaustive list or a detailed description of such differences and
is not intended to constitute a detailed comparison or
description of the provisions of the SCCC Charter Documents, the
Sand Creek Charter Documents, the MBCA, the Telephone Act or the
UUSA. The following discussion is qualified in its entirety be
reference to the SCCC Charter Documents, the Sand Creek Charter
Documents, the MBCA, the Telephone Act and the UUSA, and holders
of Sand Creek Common Stock are referred to the complete text of
such documents, agreements and laws.
B. AUTHORIZED STOCK. The SCCC Articles of Incorporation
authorize 160,000 shares of SCCC Common Stock without par value.
As of August 31, 1995, one (1) shares of SCCC Common Stock was
issued, outstanding and fully paid. The holders of SCCC Common
Stock are entitled to receive, ratably, all dividends and
distributions. No right of redemption or conversion exists with
respect to the SCCC Common Stock. Shareholders of SCCC do not
have any preemptive rights with respect to any of the authorized
but unissued shares of SCCC Common Stock. No options to purchase
SCCC Common Stock are outstanding or to be created in connection
with the Share Exchange. After the Share Exchange, SCCC will
have approximately 36,102 authorized but unissued shares of
Common Stock (approximately 27,402 shares more than the
authorized but unissued shares of Sand Creek Common Stock).
Authorized but unissued shares of SCCC Common Stock may be issued
from time to time upon such terms and for such consideration as
may be determined by the SCCC Board of Directors. Although there
are no plans for SCCC to issue additional SCCC Common Stock
subsequent to the completion of the Share Exchange, the SCCC
Board believes that it is in the best interest of SCCC to have
additional shares of SCCC Common Stock available to be issued
without further Shareholder action, if, at some time in the
future, it is deemed to be desirable to issue additional shares
for financing, acquisitions, possible future employee benefit
plans, stock splits, stock dividends and other purposes.
The Sand Creek Articles of Incorporation authorize 50,000
shares of $10.00 par value Common Stock, of which 41,299 1/3 were
outstanding as of September 15, 1995. Currently, no shares are
issuable pursuant to the exercise of warrants or options or in
conversion of any other securities. The holders of Sand Creek
Common Stock are entitled to receive, ratably, all dividends and
distributions. Sand Creek Shareholders have no preemptive,
redemption or conversion rights except as may be provided by law.
C. UUSA. Sand Creek is subject to the UUSA, which
regulates the issuance of stocks, bonds and other evidences of
indebtedness by public utilities, including telephone companies.
Under the UUSA,
[PROXY PAGE 15]
Sand Creek must obtain the approval of the MPSC
before issuing its stocks, bonds or other evidences of
indebtedness. SCCC is not subject to the restrictions on the
issuance of stocks and bonds imposed by the UUSA.
D. ANTI-TAKEOVER PROVISIONS. Sand Creek is currently
subject to the Michigan "Fair Price" statute (Chapter 7A of the
MBCA). After the Share Exchange, SCCC will be subject to Chapter
7A, but not Sand Creek. This is due to the fact that only
corporations with more than 100 shareholders are subject to
Chapter 7A. Chapter 7A applies to certain "business
combinations," such as mergers, sales of assets, issuance of
equity securities and a liquidation, recapitalization or
reorganization, involving an "interested shareholder" (generally,
the holder of 10% or more of a class of a corporation's voting
stock). The approval of holders of 90% of each class of the
corporations' outstanding voting stock and the approval of the
holder of two-thirds of the outstanding stock of each such class
other than shares beneficially owned by the interested
shareholder is required to approve a business combination that
meets certain price, form of consideration and procedural
requirements designed to make the transaction fair to all
shareholder or to a transaction that the Board of Directors has
approved with respect to a particular interested shareholder
prior to the interested shareholder becoming an interested
shareholder.
Sand Creek is subject to the Michigan "Control Share
Acquisition" statute (Chapter 7B of the MBCA). After the Share
Exchange, SCCC will be subject to Chapter 7B, but not Sand Creek.
This is due to the fact that only corporations with more than 100
shareholders are subject to Chapter 7B. Chapter 7B does not
apply to the Share Exchange because reorganizations, such as the
Share Exchange, effected pursuant to the MBCA are exempt from
Chapter 7B. Generally, Chapter 7B provides that a person or an
entity that acquires "control shares" in a control share
acquisition may vote the control shares on any matter only if a
majority of all shares entitled to vote thereon and of all
non-"interested shares" entitled to vote thereon approve such voting
rights. "Interested shares" are defined generally as those
shares beneficially owned by officers of the corporation,
employee directors of the corporation and the person or entity
making the control share acquisition. "Control shares" are
defined generally as shares that when added to shares already
owned by a person or entity would give the person or entity
voting power in the election of directors within any of the three
thresholds: one-fifth, one-third or a majority of all voting
power. The effect of the statute is to condition the acquisition
of voting control of a Michigan corporation on the approval of a
majority of its disinterested shareholders.
The foregoing provisions of Chapter 7A and 7B of the MBCA
that will apply to SCCC after the Share Exchange may have a
depressive effect on the market price of SCCC's Common Stock
because they may render more difficult an attempt to take control
of SCCC. If SCCC does not wish to be subject to Chapter 7A, the
board of directors of SCCC may, by resolution, exempt a business
combination involving a particular interested shareholder, at any
time prior to the time the interested shareholder attained the
status. Similarly, SCCC may "opt-out" of Chapter 7B by amending
its articles or bylaws to provide that Chapter 7B shall not apply
to control share acquisitions of the company.
E. RESTRICTIONS ON OWNERSHIP AND TRANSFER. The Bylaws of
Sand Creek restrict any Shareholder from owning more than 12.5%
of the outstanding Common Stock. The Bylaws of SCCC restrict any
one person from owning more than 8% of its outstanding Common
Stock. The Bylaws of both Sand Creek and SCCC authorize the
Boards of Directors to set limits on the persons and corporations
to whom stock can be sold. The Sand Creek Board and SCCC Board
have adopted policies pursuant to such Bylaws. These policies
are identical with the exception that the Common Stock Transfer
Policies of SCCC include current directors, officers and
employees of SCCC in the same category as persons residing in
Sand Creek's service area. Also, both the SCCC and Sand Creek
Bylaws provide SCCC and Sand Creek, respectively, a right of
first refusal in connection with potential sales of Common Stock
other than transactions involving immediate family members.
IX. SHARE EXCHANGE - ACCOUNTING TREATMENT.
Upon approval of the Plan of Share Exchange, any amounts
paid to dissenting shareholders, as stipulated in section
450.761-450.774 of the Michigan Business Corporation Act, will be
charged to corporate equity. Each remaining share of Sand Creek
will be exchanged for three new shares of SCCC. Concurrently,
the current outstanding share of SCCC, owned by Sand Creek, will
be retired.
[PROXY PAGE 16]
X. SHARE EXCHANGE - CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
The following summary describes the material federal income
tax consequences of the Share Exchange to the Sand Creek
Shareholders who are citizens or residents of the United States
and who held their shares of Sand Creek Common Stock as capital
assets. It does not discuss all the tax consequences that may be
relevant to Sand Creek Shareholders entitled to special treatment
under the Internal Revenue Code of 1986, as amended (the "Code")
(including, without limitation, insurance companies, dealers in
securities, certain retirement plans, financial institutions, tax
exempt organizations or foreign persons). In addition, the
summary does not address the state, local or foreign tax
consequences of the Share Exchange.
The Share Exchange is intended to be a "tax free
reorganization" for Federal income tax purposes under the Code.
The following will be the principal federal income tax
consequences of the Share Exchange assuming it is treated as a
"tax free reorganization":
1. No gain or loss will be recognized by Sand Creek
or SCCC as a result of the Share Exchange.
2. No gain or loss will be recognized by Sand Creek's
or SCCC's Shareholders as a result of the Share
Exchange, except as described in paragraph 6
below.
3. The Share Exchange will not result in a change in
the basis of the assets of either Sand Creek or
SCCC.
4. The basis for tax purposes of the shares of SCCC
Common Stock received by a holder of Sand Creek
Common Stock pursuant to the Share Exchange will
be the same as the basis for such Shareholder's
Sand Creek Common Stock surrendered in exchange
therefor.
5. A Sand Creek Shareholder's holding period with
respect to the shares of SCCC Common Stock
received by such Shareholder as a result of the
Share Exchange will include the period for which
he or she held the shares of Sand Creek Common
Stock which were converted into such shares of
SCCC Common Stock, provided that such shares of
Sand Creek Common Stock were held as a capital
asset on the Effective Date.
6. Under current IRS rulings, any Dissenting
Shareholder will be treated as if such
Shareholder's shares were redeemed. Under current
IRS rulings, such Dissenting Shareholder should
recognize gain to the extent that the cash the
Shareholder receives for the Sand Creek shares
exceeds the tax basis (or loss to the extent the
tax basis exceeds the amount received), and such
gain (or loss) should be a capital gain (or loss),
provided that the Sand Creek shares were held as a
capital asset by the Dissenting Shareholder.
However, if a redemption fails to qualify for
exchange treatment under Section 302(b) of the
Code (considering the attribution rules of Section
318 thereof) because the Shareholder's interest is
not sufficiently reduced, a risk exists that some
or all of the cash received by a Dissenting
Shareholder will be treated as a taxable dividend
to such Shareholder.
Under the Code, in order for the Share Exchange to
constitute a tax-free reorganization, the Sand Creek Common Stock
must be converted into an amount of SCCC Common Stock that at the
Effective Time equals at least 80% of the aggregate value that
all of the Sand Creek Shareholders receive. Thus, the tax-free
reorganization may be jeopardized if the cash payable to
Dissenting Shareholders would exceed 20% of the aggregate value
of the total consideration that all of the Sand Creek
Shareholders receive at the Effective Time. For IRS ruling
purposes, in order for the Share Exchange to constitute a
tax-free reorganization, the amount of SCCC Stock received by Sand
Creek Shareholders in connection with the Share Exchange must be
at least 50% of the aggregate value of the consideration paid to
all Shareholders in connection with the share exchange. SCCC
Common Stock received in the Share Exchange will not be counted
toward the 50% threshold if the recipient disposes of such stock
and such recipient had an intention to dispose of SCCC
[PROXY PAGE 17]
Common
Stock on the Effective Date. The disposition of SCCC Common
Stock within two years of the Effective Date may evidence that
the Shareholder had an intention to dispose of such stock on the
Effective Date.
The tax discussion set forth above is included for general
information and is based upon present law. The tax consequences
of the Share Exchange will depend in large part on the facts and
circumstances applicable to each Shareholder and upon an
evaluation of facts and events that will occur in the future. As
a result, the particular tax consequences to a Shareholder cannot
be predicted with certainty and all the foregoing is subject to
change and any such changes could affect the continuing validity
of this discussion. Therefore, each Shareholder is urged to
consult with his or her own tax advisor regarding the tax
consequences of the Share Exchange. With regard to the tax
consequences under the laws of states or local governments or of
any other jurisdiction, no information or opinion is provided
herein, and Shareholders are urged to consult, and should rely
upon, their own tax advisors.
XI. SHARE EXCHANGE - MANAGEMENT AND OPERATIONS AFTER THE SHARE
EXCHANGE.
After the Share Exchange, Sand Creek will be a wholly owned
subsidiary of SCCC and will have a Board of Directors consisting
of those persons serving as directors of Sand Creek immediately
prior to the Share Exchange. SCCC will continue to operate with
its current Board of Directors, which is identical to the Board
of Directors of Sand Creek. After the Share Exchange, it is
anticipated that (i) SCCC, as the parent company, will operate
with SCCC's current executive officers (although some changes may
be made to take account of the new holding company structure),
and (ii) Sand Creek will operate with its current executive
officers and employees.
XII. SHARE EXCHANGE - RESALE OF SCCC COMMON STOCK; RESTRICTIONS
ON TRANSFER.
The shares of SCCC Common Stock to be issued in the Share
Exchange will be registered under the Securities Act and will be
transferable under the Securities Act, except for shares issued
to any Shareholder who may be deemed to be an "affiliate" of Sand
Creek for purposes of Rule 145 under the Securities Act.
Affiliates may not sell their shares of SCCC Common Stock
acquired in connection with the Share Exchange except pursuant to
an effective registration statement under the Securities Act
covering such shares or in compliance with Rule 145 or another
applicable exemption from the registration requirements of the
Securities Act. Persons who may be deemed to be affiliates of
Sand Creek generally include individuals or entities that
control, are controlled by or under common control with Sand
Creek, and may include certain officers and directors of Sand
Creek as well as principal Shareholders of Sand Creek.
XIII. SHARE EXCHANGE - EXPENSES
Regardless of whether the Plan of Share Exchange is
consummated, the fees and expenses in connection with the Plan
will be paid by Sand Creek.
XIV. SHARE EXCHANGE - POST SHARE EXCHANGE DIVIDEND POLICY.
SCCC and Sand Creek currently expect that after the Share
Exchange, SCCC will pay dividends on the SCCC Common Stock
comparable to the current dividends Sand Creek pays on the Sand
Creek Common Stock, although such future dividends will depend
upon future financial results and legal and regulatory
requirements and there can be no assurance as to any future
dividends. SCCC will be a legal entity separate and distinct
from its various subsidiaries. As a holding company with no
significant operations of its own, the principal sources of SCCC
's funds will be dividends and other distributions from its
subsidiaries, borrowings and sales of equity. The rights of SCCC
and consequently its Shareholders, to participate in any
distribution of assets of any of its subsidiaries is subject to
prior claims of creditors, if any, of such subsidiary (except to
the extent claims of SCCC in its capacity as a creditor are
recognized). SCCC does not expect that any regulatory and/or
contractual restrictions applicable to SCCC or its subsidiaries
will significantly affect the operations of SCCC or its
subsidiaries or impair the ability of SCCC to pay dividends on
SCCC Common Stock after the Share Exchange.
[PROXY PAGE 18]
XV. CAPITALIZATION
The historical capitalization of Sand Creek and SCCC and the
pro forma capitalization of Sand Creek and SCCC after giving
effect to the proposed Share Exchange (assuming no dissenters
rights exercised) are summarized as follows:
June 30, 1995 PRO FORMA
POST EXCHANGE
(assuming no dissenter rights
exercised)
Sand Creek Sand Creek
Telephone Company SCCC TelephoneCompany SCCC
Common Stock $ 414,053 $1,000 $ 414,053 $1,242,159
Additional Paid
in Capital 34,570 -0- -0- -0-
Retained Earnings 1,961.034 -0- 1,995,604 1,167,498
Total
Shareholders'
Equity $2,409,657 $1,000 $2,409,657 $2,409,657
The above schedule shows the effect of exchanging one share
of Sand Creek Common Stock for three shares of SCCC Common Stock.
DISSENTING SHAREHOLDERS' RIGHTS
Each Shareholder of Sand Creek has the right to dissent from
the Share Exchange and receive the fair value of such shares of
Sand Creek Common Stock in cash if the Shareholder follows the
procedures required under Section 450.761-450.774 of the Michigan
Business Corporation Act ("MBCA") set forth in Appendix B, the
material provisions of which are summarized below.
The MCBA provides that a Shareholder of Sand Creek who does
not vote in favor of the Plan of Share Exchange and who has given
notice in writing to Sand Creek before the vote is taken that the
Shareholder dissents from the Plan of Share Exchange and intends
to demand payment for his or her shares, and who then takes the
steps necessary to perfect dissenters' rights, shall be entitled
to receive in cash the fair value of all shares of Sand Creek
Common Stock held by such Shareholder if and when the Share
Exchange is consummated. Set forth below is a summary of the
procedures relating to the exercise of Dissenting Shareholders'
rights provided by the MCBA. This summary does not purport to be
complete, and is qualified in its entirety by reference to
Sections 761 through 774 of the MCBA, which have been attached
hereto as Appendix B.
I. DISSENTERS' RIGHTS - Procedure to Perfect
Each Sand Creek Shareholder who follows the procedures set
forth in Section 761 through 774 of the MCBA may receive a cash
payment equal to the fair value of his or her shares of Sand
Creek Common Stock determined as of the day immediately preceding
the Special Meeting, excluding any depreciation or appreciation
in anticipation of the Share Exchange, unless such exclusion
would be inequitable. Unless a Shareholder follows all of the
procedures set forth in Sections 761 through 774, he or she will
forfeit the right to dissent. To assert dissenters' rights, a
Shareholder must:
A. Prior to the Special Meeting, deliver to Sand Creek a
written objection to the Plan of Share Exchange,
including a statement of the Shareholder's intent to
demand payment for his or her shares if the Share
Exchange is consummated.
[PROXY PAGE 19]
B. Refrain from voting the shares owned by the Shareholder
in favor of the Plan of Share Exchange.
C. Demand payment and deposit his or her shares prior to
the Due Date described below (not more than 60 days nor
less than 30 days after the dissenter's notice is sent
by Sand Creek).
Written objections must be signed by the Shareholder of
record and include the Shareholder's present address to which
notice of approval of the Plan of Share Exchange will be
delivered. Any Shareholder not filing a written objection as
required will forfeit his or her right to dissent; a vote against
the Plan of Share Exchange is not a substitute for filing the
written objection with Sand Creek.
If the Plan of Share Exchange is approved, Sand Creek will
send a written dissenter's notice within 10 days after the
Special Meeting to all Shareholders who satisfied the initial
requirements described above. This notice will (i) state where
the payment demand must be sent and where and when the stock
certificates representing the Sand Creek Common Stock must be
deposited; (ii) inform Shareholders without certificates to what
extent transfers of Sand Creek Common Stock will be restricted
after the payment demand is received; (iii) supply a form of
payment demand, which date must be not less than thirty nor more
than sixty days after the date the dissent notice was delivered
to the Shareholder; and (iv) establish a due date (the "Due
Date") by which Sand Creek must receive the payment demand.
Before the Due Date, a Dissenting Shareholder must deliver the
payment demand, certify whether he or she acquired beneficial
ownership of the shares before November 12, 1995 and deposit the
stock certificates representing his or her shares of Sand Creek
Common Stock in accordance with the Notice (the "Response
Requirements"). A Dissenting Shareholder who demands payment and
deposits his or her stock certificates as required retains all
other rights of a Shareholder until such rights are cancelled or
modified by the Share Exchange. If a Dissenting Shareholder
fails to comply with the Response Requirements prior to the Due
Date, the Shareholder forfeits his or her right to dissent. A
Shareholder may not dissent as to less of all of his or her
beneficially owned shares and a nominee or fiduciary may not
dissent on behalf of a beneficial owner as to less than all of
the shares of Sand Creek Common Stock held by such nominee or
fiduciary for such beneficial owner.
Except for "after acquired shares", which are discussed
below, as soon as the Share Exchange is completed or upon receipt
of a payment demand, Sand Creek will pay each dissenting
Shareholder who complied with the Response Requirements the
amount Sand Creek estimates to be the fair market value of the
Sand Creek Common Stock, plus accrued interest. Such amount may
be more or less than the value of the consideration received by
the Non-Dissenting Shareholders in the Share Exchange. The
payment will be accompanied by (i) Sand Creek's most recent
annual and interim financial statements; (ii) a Statement of Sand
Creek's estimate of the fair value of the Sand Creek Common
Stock; (iii) an explanation of how the interest is calculated:
and (iv) a statement of the Dissenting Shareholder's right to
demand payment under Section 772 of the MBCA (described below).
Sand Creek may elect to withhold payment from Dissenting
Shareholders who acquired their shares after November 12, 1995
and instead, estimate the fair value of such shares, plus accrued
interest, and offer to pay this amount to each Dissenting
Shareholder who agrees to accept it in full satisfaction of his
or her demand. Sand Creek will send with an offer, a statement
of its estimate of the fair value of the shares, an explanation
of how interest is calculated, and a statement of the dissenting
Shareholders right to demand payment under Section 772 of the
MBCA.
Sand Creek Common Stock acquired after the date of the first
announcement to the news media or Sand Creek Shareholders of the
terms of the Share Exchange still qualify for dissenters' rights,
but the holder of these shares may receive different and somewhat
less favorable treatment than those shares acquired before such
announcements. Sand Creek, at its election, may withhold payment
from a dissenter who holds "after-acquired" shares, at a time
when payment to other Shareholders is required. Should Sand
Creek elect to withhold payment, Sand Creek, after the Closing
Date, will estimate the fair market value of the dissenter's
shares plus accrued interest and offer to pay this amount to each
dissenter who agrees to accept it in full satisfaction. Along
with its offer, Sand Creek will send a statement of its estimate
of the fair value of the shares, an explanation of how accrued
interest was calculated, and a statement of the dissenter's right
to make a supplemental demand for payment if dissatisfied with
the offer.
[PROXY PAGE 20]
Under Section 772 of the MBCA, a Dissenting Shareholder may
notify Sand Creek in writing of the Shareholder's own estimate of
the fair value of his or her Sand Creek Common Stock, and the
amount of interest due, and demand payment of this estimate (less
any payment made by Sand Creek to such Shareholder) or reject
Sand Creek's offer of payment and demand payment of the fair
value of his or her Sand Creek Common Stock, with interest, if
(i) the Dissenting Shareholder believes the amount paid or
offered is less than the value of his Sand Creek Common Stock or
that the interest is improperly calculated, (ii) Sand Creek fails
to make payment to a Dissenting Shareholder who held his or her
Sand Creek Common Stock prior to November 12, 1995 within 60 days
of the Due Date; or (iii) Sand Creek, having failed to consummate
the Share Exchange, fails to return the deposited stock
certificates within 60 days after the Due Date. The Dissenting
Shareholder will lose his right to demand payment unless the
demand is submitted in writing within 30 days after Sand Creek
pays or offers payment for the shares to the Dissenting
Shareholder.
II. DISSENTERS RIGHTS - Court Proceedings
If the amount of payment remains unsettled, Sand Creek will,
within 60 days after receiving the Dissenting Shareholder's
estimate of "fair value", commence a proceeding in the Circuit
Court for Lenawee County to determine the fair value of the
Dissenting Shareholder's Sand Creek Stock and accrued interest.
During the proceeding, the court may appoint an appraiser, whose
rights will be governed by the order of appointment, to receive
evidence and recommend a decision on the fair value of the Sand
Creek Common Stock. All parties to the proceeding will be bound
by the Court's judgment as to the fair value of the Sand Creek
Common Stock. Each dissenter made a party to the proceeding is
entitled to judgment for the amount by which the court determined
fair value of the shares plus accrued interest exceeds the amount
paid by SCCC or, in the case of after-acquired shares for which
payment was not made, the total amount of the fair value plus
accrued interest. If Sand Creek does not timely file the
proceeding, it must pay the amount demanded to each Dissenting
Shareholder whose demand remains unsettled.
The Court will determine the costs of an appraisal
proceeding and will assess such costs against Sand Creek, except
that the Court may assess any portion of such costs against any
Dissenting Shareholder who has acted arbitrarily, vexatiously, or
not in good faith in demanding payment. The expenses may include
reasonable compensation and expenses of experts and attorneys for
the respective parties.
Pursuant to an agreement of the parties, the Court may
alternatively appoint a referee to determine the fair value. The
referee's compensation shall be agreed upon by the parties and
allocated by the court between the parties at the end of the
proceeding. In addition to having the power to examine the books
and records of Sand Creek, the referee will allow the parties to
introduce evidence as to the value of the Sand Creek Common
Stock. The referee will then prepare and file a written report
for the fair value of the Sand Creek Common Stock held by the
Dissenting Shareholders (the "Referee's Report"). Within 45 days
of being served a notice of the filing of the Referee's Report,
any party may serve written objections to the Referee's Report
upon the other party. The court may then hear motions on the
Referee's Report and may receive further evidence or adopt,
modify, or recommit it to the referee for instructions. Upon
adoption of the Referee's Report, judgment will be entered in the
same manner as if the action had been tried by a court and will
be subject to review in the same manner as any other judgment of
the Court.
The exercise of dissenters' rights under the MBCA may result
in a judicial determination that the fair value of a Dissenting
Shareholder's Sand Creek Common Stock is higher or lower than the
consideration payable to the non-dissenting Shareholders in
connection with the Share Exchange.
III. DISSENTER'S RIGHTS - Other Considerations
The MBCA provides that, in the absence of fraud or
illegality, the right to dissent is the only remedy provided to a
Shareholder objecting to the Share Exchange. Sand Creek's
obligation to consummate the Share Exchange is subject to the
condition that the number of shares of Sand Creek Common Stock
held by Dissenting Shareholders will not exceed 8,259 shares.
A PROXY OR VOTE AGAINST THE SHARE EXCHANGE WILL NOT, BY
ITSELF, BE REGARDED AS A WRITTEN OBJECTION FOR PURPOSES OF
ASSERTING DISSENTERS' RIGHTS.
[PROXY PAGE 21}
THE ABOVE SUMMARY OF THE PROVISIONS REGARDING DISSENTERS'
RIGHTS UNDER THE MBCA IS QUALIFIED IN ITS ENTIRETY BY THE TEXT OF
SECTIONS 450.761-450.774 OF THE MBCA. THE TEXT OF SECTION
450.761-450.774 IS ATTACHED HERETO AS APPENDIX B.
SHAREHOLDERS OF SAND CREEK INTENDING TO EXERCISE DISSENTERS'
RIGHTS ARE URGED TO SEEK THE ADVICE OF COUNSEL. FAILURE TO
COMPLY WITH ALL REQUIREMENTS OF SECTIONS 450.761-450.774 OF THE
MBCA WILL RESULT IN THE LOSS OF DISSENTERS' RIGHTS.
INFORMATION ABOUT SAND CREEK
Sand Creek is a local exchange telephone company located in
Sand Creek, Michigan. Sand Creek was incorporated in 1907
pursuant to Act 129 of Public Acts of 1883 of the State of
Michigan. Sand Creek has 4 full-time employees and 1 part-time
employee.
I. DESCRIPTION OF SAND CREEK'S BUSINESS
A. LOCAL TELEPHONE OPERATIONS. Sand Creek is primarily
engaged in providing (i) local exchange services; (ii) intra-Local
Area Transport Area ("intra-LATA") access services; and
(iii) network access services to residential and business
customers in Sand Creek's franchise service area in and around
Sand Creek, Michigan. Sand Creek operates approximately 1,117
access lines in its Sand Creek Exchange. Sand Creek offers
equal access service, which enables customers to access the
primary long distance carrier of their choice. Sand Creek serves
approximately 1,117 subscribers. Over 90% of the lines are
residential lines.
Sand Creek holds required licenses and franchises to conduct
such operations, which licenses and franchises do not have an
expiration date. The MPSC has authority to revoke the franchise
under Michigan Public Act 179 of 1991, but such revocation would
likely be in violation of federal law unless: (i) the MPSC could
show very substantial wrongdoing; or (ii) Sand Creek was fully
compensated for the fair market value of the franchise rights.
Sand Creek's local and intrastate operations are regulated
by the MPSC. These regulations cover, among other things, local
rates, intrastate access charges billed to interexchange and
intra-LATA carriers, encumbrance and disposition of utility
properties, financing, and various accounting matters. Due to
recent changes in statutory law, the MPSC has recently ceased
routine regulation of depreciation rates; however, the MPSC may
include depreciation rates in any rate decision. The FCC
regulates various matters relating to interstate telephone
service, including interstate access charges paid by
interexchange carriers to the National Exchange Carrier
Association ("NECA") access pool, to which Sand Creek belongs.
Sand Creek intends to continue to provide local telephone
services in the future.
B. OTHER OPERATIONS. Cass Cellular Limited Partnership
was formed in 1990 to manage and account for the interests of
Deerfield Telephone Company, Ogden Telephone Company, Sand Creek
and Waldron Telephone Company in the cellular operations of Rural
Service Area (RSA) #9. Deerfield Telephone Company transferred
its interest in Cass Cellular Limited Partnership to its holding
company, D & P Communications, Inc. D & P Communications, Inc.,
is the sole general partner, and a 22.5% limited partner in Cass
Cellular Limited Partnership. RSA #9 is comprised principally of
the non-urban southern counties of Michigan. The cellular
franchise rights to RSA #9 were awarded to the RSA #9 Limited
Partnership by the Federal Communications Commission in 1990.
Cass Cellular owns 56% of the partnership interests of RSA #9
Limited Partnership, Century Telephone owns 43% and Ameritech
owns the remaining 1%. Cass Cellular's 56% interest in RSA #9 is
as a general partner.
Cass Cellular Limited Partnership usually meets three or
four times a year to discuss and approve proposed operational and
construction budgets. The partnership does not have any
employees, property or activities other than described above.
The partnership currently has a $1,600,000 limit of borrowing
from St. Paul Bank for Cooperatives. Based upon current budgets,
the partnership will draw the remaining amount
[PROXY PAGE 22]
during 1995 to
fund its share of proposed construction. The partnership
believes that additional lines of borrowing are available at
comparable rates and terms, if necessary.
Substantially all of the assets of Cass Cellular Limited
Partnership are represented by the investment in Michigan RSA #9.
This investment amounted to $1,146,013 and $1,956,177 at December
31, 1993 and 1994, respectively. Revenues of the partnership
consist solely of earnings from Michigan RSA #9 and patronage
related to the loan from St. Paul Bank for Cooperatives.
Expenses consist primarily of loan interest and operational
charges for legal and audit fees.
The current market for cellular services is expected to grow
and to generate additional earnings and cash flow for the
partnership. However, the partnership does not plan to
distribute any earnings in 1995 because of the need to fund debt
payments and additional construction. In addition, the
partnership is subject to competition from other cellular
providers (principally Cellular One) and the emergence of
"personal communications services" (PCS) as a viable technology.
The principal methods of competition are price and quality of
service. It is expected that these competitive forces will
continue to make cellular service price sensitive and thereby
reduce the ability of Michigan RSA #9 to raise prices.
Sand Creek is also considering an investment in an entity
which will provide Internet access to persons in and around Sand
Creek's service area.
C. PHYSICAL PROPERTY AND FACILITIES. Sand Creek owns
facilities for offices, equipment and remote line switches in and
around Sand Creek, Michigan. Sand Creek has approximately 160
route miles of line, serving approximately 60 square miles.
During 1994-95, Sand Creek acquired and constructed its office
building at 6525 Sand Creek Highway, Sand Creek, Michigan. Sand
Creek does not lease any real property or buildings. Currently,
there is no material amount of idle or unused property. Sand
Creek believes that its central office (switching) and outside
plant are in accordance with current industry standards and in
good condition. Sand Creek has sufficient capacity to serve its
current and potential customers.
D. FINANCIAL INFORMATION.
Independent Auditor's Report
We have audited the accompanying balance sheets of Sand
Creek Telephone Company, as of December 31, 1994 and 1993, and
the statements of income, changes in stockholders' equity, and
cash flows for the years ended December 31, 1994, 1993 and 1992.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statements presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Sand Creek Telephone Company as of December 31, 1994 and 1993,
and the results of its operations and its cash flows for the
years ended December 31, 1994, 1993 and 1992, in conformity with
generally accepted accounting principles.
As discussed in Note 4 to the financial statements, Sand
Creek Telephone Company changed its method of accounting for
income taxes in 1993.
McCartney and McIntyre, P.C.
June 21, 1995
Okemos, MI
[PROXY PAGE 23]
Sand Creek Telephone Company
Sand Creek, Michigan
Consolidated Balance Sheets
Unaudited Unaudited
December 31, December 31, June 30, June 30,
1994 1993 1995
1994
ASSETS
Current Assets
Cash and Cash
Equivalents $ 598,156 $ 828,223 $ 293,923 $ 549,022
Due from sub-
scribers, net
of reserve for
uncollectibles 14,443 22,961 13,739 25,454
Accounts Receivable
Primarily inter-
exchange carriers 68,008 66,312 68,218 91,602
Note Receivable 50,000 -0- -0- -0-
Material and supplies
Inventory 6,491 10,920 9,620 18,556
Equipment held for
Resale 9,101 7,466 7,983 7,550
Prepaid taxes 5,956 -0- 137,864 8,862
Prepaid expenses 2,840 4,021 8,019 9,703
TOTAL CURRENT ASSETS $ 754,995 $ 939,903 $ 539,366 $ 710,749
Investments $ 270,678 $ 190,824 $ 369,253 $ 248,278
Plant, Property
and Equipment
Plant in Service $1,730,133 $2,054,025 $2,115,780 $2,057,819
Plant under
Construction 179,119 6,720 -0- 246,246
$1,909,252 $2,060,745 $2,115,780 $2,304,065
Less:
Accumulated
Depreciation 280,926 732,505 336,723 797,628
Net Plant,
Property and
Equipment $1,628,326 $1,328,240 $1,779,057 $1,506,437
TOTAL ASSETS $2,653,999 $2,458,967 $2,687,676 $2,465,464
[The rest of this page is intentionally left blank.]
[PROXY PAGE 24]
Unaudited Unaudited
December 31, December 31, June 30, June 30,
1994 1993 1995 1994
LIABILITIES AND
STOCKHOLDER'S
EQUITY
Current Liabilities
Accounts Payable
Primarily inter-
exchange carriers $ 63,521 $ 120,561 $ 33,795 $ 128,038
Customer Deposits 3,939 3,961 4,089 4,692
Current Maturities
of long-term debt -0- 32,040 -0- 32,040
Income tax accrued 97,403 90,160 -0- 19,802
Other current
liabilities 1,915 3,660 4,708 2,740
TOTAL CURRENT
LIABILITIES $ 166,778 $ 250,382 $ 42,592 $ 187,312
Long-term Debt $ -0- $ 31,849 $ -0- $ 15,829
Deferred Taxes $ 218,088 $ 184,671 $ 235,427 $ 172,299
TOTAL LIABILITIES $ 384,866 $ 466,902 $ 278,019 $ 375,440
Shareholder's Equity
Capital Stock
$10 Par Value
Authorized 50,000
Shares; issued and
Outstanding:
12/31/94= 41,743 1/3 Shares
12/31/93= 41,611 2/3 Shares
06/30/95= 41,405 1/3 Shares
06/30/94= 41,343 1/3 Shares
$ 417,433 $ 416,117 $ 414,053 $ 413,433
Additional Paid-in
Capital 48,090 43,889 34,570 32,090
Retained Earnings 1,803,610 1,532,059 1,961,034 1,644,501
Total Stockholder's
Equity $2,269,133 $1,992,065 $2,409,657 $2,090,024
TOTAL LIABILITIES
AND STOCKHOLDER'S
EQUITY $2,653,999 $2,458,967 $2,687,676 $2,465,464
The accompanying notes are an integral part of these financial
statements.
[PROXY PAGE 25]
Statements of Cash Flows
Unaudited
For the Six Months
For the Years Ended December Ended June 30
1994 1993 1992 1995 1994
Operating Activities
Net Income $ 354,758 $ 380,587 $ 206,019 $ 198,829 $ 153,906
Adjustments to reconcile net
income to net cash flows from
operating activities:
Provision for losses on accounts
receivable (2,714) 2,602 (509) -0- -0-
Depreciation 130,685 128,152 101,517 55,797 65,123
Investment tax credit (5,988) (6,041) (6,058) (2,920) (2,994)
Cumulative effect of change
in accounting principle -0- (31,746) -0- -0- -0-
Provision for deferred
taxes 39,405 (15,148) -0- 20,259 (9,378)
Gain on sale of land (5,730) -0- -0- -0- -0-
Partnership earnings (129,354) (37,822) -0- (94,075) (57,454)
Changes in Operating
Assets and Liabilities:
Due from subscribers/
customers 11,232 (1,935) 1,679 704 (2,493)
Accounts receivable (1,696) (20,905) (7,452) (210) (25,290)
Inventories 2,794 7,187 (16,223) (2,011) (7,720)
Prepaid taxes (5,956) -0- 8,312 (131,908) (8,862)
Prepaid expenses 1,181 (422) 1,094 (5,179) (5,682)
Accounts payable (57,040) (57,200) 18,933 (29,726) 7,477
Customer deposits (22) 934 622 150 731
Income taxes accrued 7,243 54,967 35,193 (97,403) (70,358)
Other current liabilities (1,745) 1,944 (164) 2,793 (920)
Net Cash Provided By (Used In)
Operating Activities $ 337,053 $ 405,154 $ 342,963 $ (84,900) 36,086
Investing Activities
Purchase of property,
plant and equipment $(480,969)$ (65,809)$ (2,049)$(206,528)$(239,248)
Proceeds from sale of
property 10,000 -0- -0- -0- -0-
Proceeds from note
receivable -0- -0- -0- 50,000 -0-
Investment in partnership -0- (5,660) (2,250) (4,500) -0-
Distribution from
partnership 49,500 -0- -0- -0- -0-
Net Cash Used in
Investing Activities $(421,469) $ (71,469)$ (4,299)$(161,028)$(239,248)
Financing Activities
Principal payments on
long-term debt $ (63,889) $ (33,331)$ (32,040)$ -0- $ (16,020)
Payment of cash dividends (83,207) (40,920) (41,029) (41,405) (41,464)
Proceeds from issuance
of stock 59,115 68,366 62,207 -0- 29,115
Payment for retirement of
stock (57,670) (28,143) (61,975) (16,900) (47,670)
Net Cash Used in Financing
Activities $(145,651) $ (34,028)$ (72,837)$ (58,305)$(76,039)
Increase (Decrease) in Cash and
Cash Equivalents $(230,067) $ 299,657 $ 265,827 $ 304,233)$(279,201)
Cash and Cash Equivalents -
Beginning 828,223 528,566 262,739 598,156 828,223
Cash and Cash Equivalents -
Ending $ 598,156 $ 828,223 $ 528,566 $ 293,923 $ 549,022
The accompanying notes are an integral part of these financial
statements.
[PROXY PAGE 26]
Statements of Income
Unaudited
For the Six Months
For the Years Ended December Ended June 30
1994 1993 1992 1995 1994
Operating Revenues
Local Services $ 255,639 $ 273,464 $ 224,152 $135,940 $ 126,412
Access Revenue 639,483 627,405 461,020 270,688 276,639
Miscellaneous 61,688 83,380 58,493 38,245 23,201
Total Operating Revenues $ 956,810 $ 984,249 $ 743,665 $444,873 $ 426,252
Operating Expenses
Plant Specific $ 132,573 $ 149,118 $ 98,716 $ 68,855 $ 60,193
Plant Non-Specific:
Network and other 4,266 2,805 3,277 1,777 1,446
Depreciation 130,685 128,152 101,517 55,797 65,123
Customer Operations 119,247 97,708 90,777 56,253 56,428
Corporate Operations 107,396 101,020 79,486 53,406 42,644
Total Operating Expenses $ 494,167 $ 478,803 $ 373,773 $236,088 $ 225,834
Net Operating Revenue $ 462,643 $ 505,446 $ 369,892 $208,785 $ 200,418
Operating Taxes
Investment Tax Credits - Net $ (5,988)$ (6,041)$ (6,058)$ (2,920)$ (2,994)
Federal Income Taxes - Current 139,531 160,367 89,320 31,261 62,558
Federal Income Taxes - Deferred 21,338 (15,148) 27,563 20,259 (9,378)
Other Operating Taxes 47,916 44,833 40,278 25,050 38,346
Total Operating Taxes $ 202,797 $ 184,011 $ 151,103 $ 73,650 $ 88,532
Net Operating Income $ 259,846 $ 321,435 $ 218,789 $135,135 $ 111,886
Other Income and Expense
Interest Income 13,754 11,616 6,740 4,467 6,725
Special Charges (2,449) (200) (6,901) (1,137) 773
Gain on Sale of Land 5,730 -0- -0- -0- -0-
Partnership Earnings 129,354 37,822 -0- 94,075 57,454
Federal Income Taxes - Non-Operating (48,657) (16,809) (2,292) (33,504) (22,084)
Interest and Related Charges (2,820) (5,023) (10,317) (207) (848)
Net Income Before Change in Accounting
Principle $ 354,758$ 348,841 $ 206,019 $198,829 $ 153,906
Cumulative Effect of Change in Accounting
Principle -0- 31,746 -0- -0- -0-
Net Income $ 354,758 $380,587 $ 206,019 $198,829 $ 153,906
Earnings per common share:
Net income before cumulative effect
of change in accounting principle $ 8.58 $ 8.56 $ 5.08 $ 4.78 $ 3.74
Cumulative Effect of Change in
Accounting Principle -0- .78 -0- -0- -0-
Net Income Per Common Share $ 8.58 $ 9.34 $ 5.08 $ 4.78 $ 3.74
The accompanying notes are an integral part of these financial
statements.
[PROXY PAGE 27]
Statement of Changes in Stockholders' Equity
For the Years Ended December 31, 1992, 1993, and 1994
Additional Total Stock-
Number of Capital Paid In Retained holders'
Shares Stock Capital Earnings Equity
Balance January 1, 1992 40,578 2/3 $ 405,787 $ 13,764 $ 1,027,402 $ 1,446,953
Net Income 206,019 206,019
Capital stock dividend -
Cash ($1.00 per share) (41,029) (41,029)
Capital stock redeemed (1,690) (16,900) (45,075) (61,975)
Capital stock issued 1,698 16,980 45,227 62,207
Balance December 31, 1992 40,586 2/3 $ 405,867 $ 13,916 $ 1,192,392 $1,612,175
Net Income 380,587 380,587
Capital stock dividend -
Cash ($1.00 per share) (40,920) (40,920)
Capital stock redeemed (740) (7,400) (20,743) (28,143)
Capital stock issued 1,765 17,650 50,716 68,366
Balance December 31, 1993 41,611 2/3 $ 416,117 $ 43,889 $ 1,532,059 $1,992,065
Net Income 354,758 354,758
Capital stock dividend -
Cash ($2.00 per share) (83,207) (83,207)
Capital stock redeemed (1,283 1/3) (12,834) (44,836) (57,670)
Capital stock issued 1,415 14,150 49,037 63,187
Balance December 31, 1994 41,743 1/3 $ 417,433 $ 48,090 $ 1,803,610 $2,269,133
Statements of Changes in Stockholders' Equity
For the Six Months Ended June 30, 1995 and 1994
Additional Total Stock-
Number of Capital Paid In Retained holders'
Shares Stock Capital Earnings Equity
Balance January 1, 1995 41,743 1/3 $ 417,433 $ 48,090 $ 1,803,610 $ 2,269,133
Net Income 198,829 198,829
Capital stock dividend -
Cash ($1.00 per share) (41,405) (41,405)
Capital stock redeemed (338) (3,380) (13,520) (16,900)
Balance at June 30, 1995 41,405 1/3 $ 414,053 $ 34,570 $ 1,961,034 $ 2,409,657
Balance at January 1, 1994 41,611 2/3 $ 416,117 $ 43,889 $ 1,532,059 $ 1,992,065
Net Income 153,906 153,906
Capital stock dividend -
Cash ($1.00 per share) (41,464) (41,464)
Capital stock redeemed (1,143 1/3) (11,434) (36,236) (47,670)
Capital stock issued 875 8,750 24,437 33,187
Balance at June 30, 1994 41,343 1/3 $ 413,433 $ 32,090 $ 1,644,501 $ 2,090,024
The accompanying notes are an integral part of these financial
statements.
[PROXY PAGE 28]
Notes to Financial Statements For the Years
Ended December 31, 1994, 1993 and 1992
1. Summary of Significant Accounting Policies
Sand Creek Telephone Company ("Company") is located in
Lenawee County, in the State of Michigan. The Company provides
local exchange service and access to the toll network. The
Company grants credit to customers, substantially all of whom are
local residents. The Company also grants credit to Interexchange
Carriers for access to the toll network.
The Company does not require collateral from either the
customers or telecommunications providers. Accordingly, failure
to collect on these accounts would result in a direct loss of the
amounts uncollected. However, a portion of these losses would be
recoverable through the settlement process described below. The
Company generally does not hold financial investments with off
balance sheet credit risk.
The accounting records of the Company are maintained in
accordance with the Uniform System of Accounts for Class A and B
Telephone Companies prescribed by the Michigan Public Service
Commission, which conform to generally accepted accounting
principles.
The reserve for uncollectible accounts was $5,276 for 1994
and $7,990 for 1993, respectively.
Inventory consists of materials and supplies for additions
and maintenance of the telephone plant and telephone equipment
held for resale. Inventory is priced at the lower of cost or
market on a first-in first-out basis.
Cash and cash equivalents includes cash and short-term,
highly-liquid investments with original maturities of three
months or less.
The Company paid, on a cash basis, interest in the amount of
$3,951, $6,230 and $10,317 and income taxes in the amount of
$165,000, $125,079 and $52,000 in 1994, 1993 and 1992,
respectively. The Company also exchanged land for stock in the
amount of $4,072 in 1994. Other 1994 non-cash investing
activities include trade in of equipment for $25,000 and a note
receivable from a related party for $50,000 for the sale of land
and a building.
The Company's cash accounts are subject to the FDIC
insurance limit of $100,000. In the normal course of business,
the Company's cash accounts may exceed this limit. At December
31, 1994, cash account balances exceeded this limit by
approximately $50,000.
The Company provides access services to common (long
distance) carriers to access the exchange of the Company. The
Company receives settlements for providing access service from
the Michigan Exchange Carriers Association (Intrastate) and the
National Exchange Carrier Association (Interstate).
Both access revenues and local service revenues are
recognized when earned, regardless of the period in which they
are billed.
The Company recorded true-ups of prior years' estimated
access settlements that increased income by $110,806 and $94,205
for 1994 and 1993, respectively, and decreased income by $3,645
in 1992.
2. Plant, Property and Equipment
Additions to telephone plant and replacements of significant
units of property are capitalized at their original cost. When
telephone plant is retired, its cost is removed from the asset
account and charged against the depreciation reserve together
with any related salvage and removal costs. No gains or losses
are recognized in connection with routine retirements of
depreciable telephone property.
Depreciation is provided under the straight-line method for
accounting purposes by the application of rates, based on the
estimated service lives of the various classes of depreciable
telephone property. Such
[PROXY PAGE 29]
provisions were equivalent to an annual
rate of 7.6%, 6.2% and 5.0% of the average cost of depreciable
telephone plant in service for 1994, 1993 and 1992, respectively.
Depreciation expense recorded in 1994, 1993 and 1992 was
$130,685, $128,152 and $101,517, respectively.
The balances of the major classes of plant in service as of
December 31 are as follows:
1994 1993
Land $ 19,683 $ 2,405
Vehicles 24,987 24,987
Work equipment 57,876 58,397
Building 42,832 108,817
Office furniture and
equipment 8,695 14,768
Computers 24,272 31,444
Central office
equipment 461,636 734,840
Paystations 3,627 3,627
Buried cable
and drops 1,086,525 1,074,740
Total $1,730,133 $2,054,025
3. Long-Term Debt
The Company had a note payable to the Adrian State Bank for
a 15-year term at an interest rate of 7.0% at December 31, 1993.
At December 31, 1993, the balance on this note was $63,889. This
balance was repaid in full during 1994.
4. Income Taxes
For financial reporting purposes, the Company computes
federal income tax by applying the statutory rate to all its
taxable income.
Total income tax expense for the years ended December 31,
1994, 1993 and 1992 was allocated as follows:
1994 1993 1992
Income tax expense before
cumulative effect of change
in accounting principle $203,538 $155,987 $113,117
Cumulative effect of change
in accounting principle -0- (31,746) -0-
Total income tax expense in
the statement of income $203,538 $124,241 $113,117
Income tax expense attributable to income before the
cumulative effect of a change in accounting principle is composed
of the following:
1994 1993 1992
Federal
Current $182,200 $171,135 $ 85,554
Deferred 21,338 (15,148) 27,563
$203,538 $155,987 $113,117
[PROXY PAGE 30]
For the years ended December 31, 1994, 1993 and 1992,
deferred taxes were provided for certain temporary differences
between the book basis and tax basis of assets and liabilities
(principally property, plant and equipment due to depreciation
differences). Investment tax credits resulting from investments
in telephone plant and equipment prior to January 1, 1986, have
been deferred and amortized to income over the service lives of
the related property.
The following table reconciles the statutory federal income
tax expense to the effective federal income tax benefit.
1994 1993 1992
Federal income tax expense at
statutory rate of 34% $189,821 $171,642 $108,506
Amortization of investment tax credits (5,988) (6,041) (6,058)
Other, net 19,705 (9,614) 10,669
$203,538 $155,987 $113,117
The detail of the net deferred tax liability is as follows:
1994 1993
Depreciation $150,553 $111,148
Investment tax credits 67,535 73,523
Total deferred tax liabilities $218,088 $184,671
In 1993, the Company elected to adopt Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting
for Income Taxes." SFAS 109 requires an asset and liability
approach for financial accounting and reporting of income taxes.
The cumulative effect of this change in accounting principle is
$31,746 and is presented separately in the statement of income.
5. Investments
Investments of $270,678, $190,824 at 1994 and 1993, consist
of the Company's basis in Cass Cellular Limited Partnership.
This investment represents a 22.5% limited partner interest which
is recorded on the equity method. Cass Cellular, in turn, owns
approximately 56% of the limited partnership which has the
cellular rights for RSA #9, an area along the southern border of
Michigan. The difference between the carrying value and the
underlying equity in the net assets of Cass Cellular of $141,556
is due primarily to the Company's initial cost to acquire the
cellular rights for RSA #9. There is not a readily determinable
market price for this investment. However, management believes
its value to be at least equivalent to book value based upon
historical sales of other cellular properties.
Summarized information of Cass Cellular is as follows:
1994 1993 1992
Total Assets $2,197,232 $1,175,806 $756,715
Investment in RSA #9 1,956,177 1,146,013 743,307
Total Liabilities 1,623,361 963,590 709,095
Bank Loans 1,232,077 943,293 693,328
Partners' Equity 573,871 212,216 47,620
Net Income 574,905 154,096 50,432
Total Revenues 684,707 227,522 109,291
Equity in Earnings of
Investee Partnership 671,114 219,160 108,348
Total Expenses 109,802 73,426 58,859
Interest Expense 92,841 62,772 44,239
[PROXY PAGE 31]
6. Retirement Plan
During 1994 the Company established a cash or deferred
arrangement (401(K) plan) which is available to all employees of
the Company. During 1994 the Company contributed 10% of each
employee's salary to the plan which amounted to $15,108. During
1993 and 1992 the Company contributed an amount equal to 10% of
each employees wages into an Individual Retirement Account (IRA)
for the employee. The amount of expense recognized for the years
ended December 31, 1993 and 1992, under this arrangement was
$12,355 and $10,992, respectively.
7. Commitments
The Company has a purchase commitment of approximately
$179,000 for the construction of a new office building.
Construction on this building was completed in March of 1995.
8. Reclassification
Certain account balances have been reclassified to conform
to current account classifications.
Notes to Financial Statements for Six-Month
Periods Ending June 30, 1994 and June 30, 1995
1. General
It is the opinion of management that these unaudited
financial statements, as of June 30, 1995 and 1994, and for the
six months ended June 30, 1995, and 1994, include all required,
material adjustments. All material intercompany items have been
eliminated.
2. Accounting Changes
SFAS 106, "Employer's Accounting for Postretirement
Benefits Other Than Pensions", became effective during the first
quarter of 1995. SFAS 106 requires the accrual of certain
postretirement benefits during the years that the employee
performs service rather than a "pay-as-you-go" approach. The
effect of this statement is not material to Sand Creek's
financial statements. Therefore, no adjustment has been
recorded.
II. SAND CREEK'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis of Sand Creek Telephone
Company's financial condition and results of operations should be
read in conjunction with the financial statements of Sand Creek
Telephone Company included above.
Background
As shown in the statements above, Sand Creek derives its revenues
from providing (i) local telephone service, (ii) network access
services, and (iii) other related services. Local service
revenues are derived from providing regulated local exchange
telephone services in Sand Creek's licensed service area and
other deregulated customer services. Network access revenues
relate to services provided by Sand Creek to interexchange
carriers (which provide intrastate and interstate long-distance
services) in connection with the completion of long-distance
telephone calls. Interstate network access revenues are received
by Sand Creek through a pooling arrangement administered by the
National Exchange Carrier Association (NECA), which receives
access charges billed by Sand Creek and other participating local
exchange carriers to interstate long-distance carriers for their
use of the local network to complete long-distance calls. The
charges to the long-distance carriers are based on tariffed
access rates that are filed by NECA on behalf of Sand Creek and
other participating local exchange carriers and that are subject
to FCC approval. Sand Creek derives intrastate network access
revenues through a pooling arrangement administered by the
Michigan Exchange Carriers
[PROXY PAGE 32]
Association (MECA). Sand Creek's
other revenues primarily consist of billing and collection
services for interexchange carriers and directory revenues.
Six Months Ended June 30, 1995 Compared to Six Months Ended June
30, 1994
Results of Operations
Net income for the six months ended June 30, 1995, increased
approximately $45,000 from net income for the six months ended
June 30, 1994. An increase in operating revenue of $18,000 was
offset by an increase in operating expenses of $10,000 resulting
in an $8,000 increase in net operating revenue. The decrease in
operating taxes of approximately $15,000 was offset by the
increase in non-operating taxes of $11,000. Additionally, net
income was enhanced by increased partnership earnings of $37,000
and reduced by a decrease in other income and expense of $4,000.
Operating Revenues and Expenses. Local service revenues
increased by approximately $9,000 primarily due to higher levels
of deregulated sales in 1995. An increase in interstate access
revenues of approximately $18,000 in 1995 was offset by decreased
intrastate access settlements of $10,000, the result of a
decreased rate of return, and access revenue reductions due to a
decrease in prior period true-ups of approximately $14,000. It
should be noted that the interstate pool is experiencing excess
earnings which may require adjustments to revenues which have
been received to date. Miscellaneous revenues for the six months
ended June 30, 1994, included adjustments to previous accruals
which reduced revenue by approximately $12,000. Additionally, an
increase in billing and collection revenue of $2,000 and a
reduction of uncollectible revenue of $2,000 was offset by a
reduction of directory advertising revenue of $1,000.
Operating expenses increased by approximately $10,000. This is
the result of increased payroll expense mainly affecting plant
specific and corporate operations of approximately $19,000. This
increase was offset by a decrease in depreciation expense of
$9,000 due to the retirement of the old switching equipment in
late 1994.
Taxes. Operating taxes are down due to a reduction in state
property tax, as well as, adjustments of prior federal income tax
accruals. Additionally, the difference in the allocation between
current and deferred federal income tax expense is due to the
addition of the new switch in late 1994 and the new building in
1995. Adjustments to prior federal tax accruals are the primary
reconciling factor between the statutory and the effective
federal tax rates. Non-operating federal income tax is up due to
higher levels of partnership earnings.
Partnership Earnings. Partnership earnings increased by
approximately $37,000 due to improved performance of Sand Creek's
cellular partnership.
Interest Expense. The reduction in interest expense is due to
the pay-off of the bank loan.
Year Ended December 31, 1994 Compared to Year Ended December 31,
1993
Results of Operations
Net income before cumulative effect of a change in accounting
principle during 1994 increased $6,000 to $355,000 from $349,000
in 1993. Net operating revenue was down $43,000 while federal
income taxes and other operating taxes were up $51,000. This was
offset by partnership earnings that were up $92,000 and other
income, less interest and other expenses were up $8,000.
Net income for the year ended December 31, 1993 includes
approximately $32,000 that represents the cumulative effect of a
change in accounting principle related to the adoption of
Statement of Financial Accounting Standards No. 109("SFAS 109"),
"Accounting for Income Taxes." SFAS 109 required a change from
the deferred accounting method required under Accounting
Principles Board Opinion No. 11 to an asset and liability
approach for financial accounting and reporting for income taxes.
[PROXY PAGE 33]
Operating Revenues and Expenses. Revenues decreased
approximately $27,000 in 1994 compared to 1993. Local service
revenue decreased $18,000 due to less sales of deregulated items.
Access revenues increased $12,000 in 1994 compared to 1993 due to
true-ups of prior years' settlements and increased minutes of use
resulting in larger settlements from both the interstate and
intrastate access pools. Miscellaneous revenue decreased $21,000
from 1994 to 1993 due to $6,000 less directory advertising,
$5,000 less billing and collection revenue and $10,000 less other
operating revenue.
Operating expenses increased approximately $15,000 for the year
ended December 31, 1994 compared to the year ended December 31,
1993. This increase was primarily the result of a $15,000
decrease in plant specific which is primarily the cost of plant
maintenance and a $28,000 increase in customer and corporate
operations costs due to more time spent and an increase in
payroll costs.
Depreciation increased approximately $3,000 from $128,000 to
$131,000. Depreciation rates used in 1993 and 1994 remained
constant and there was only a minor change in the balance in
plant in service until the fourth quarter of 1994.
Interest Expense. Interest expense decreased by $2,000 in 1994
compared to 1993 as a result of reduced amounts in average debt
outstanding.
Federal Income Tax Expense. Federal income tax expense, without
consideration of the cumulative effect of the implementation of
SFAS 109, increased $48,000. This is due principally to higher
levels of taxable income and adjustments to previously booked
income tax accruals.
See previous discussion regarding the implementation of SFAS 109
for additional information on this accounting change.
Inflation. The effects of increased costs are mitigated by the
ability to recover such costs through the rate-making process for
local services or through recovery from NECA or MECA through the
pooling process. Although the State of Michigan no longer
monitors rate of return, a process does exist that would permit
Sand Creek to apply for rate increases if this was deemed
necessary.
Liquidity and Capital Resources
During 1994 and 1993, Sand Creek's primary source of funds were
cash flows provided by operating activities.
Net cash provided by operating activities for 1994 and 1993 were
$337,000 and $405,000 respectively. For additional information,
see "Results of Operations."
Net cash used in investing activities was $421,000 in 1994
compared to $71,000 in 1993. The majority of this increase of
$350,000 was due to an increase in expenditures for plant, land
and equipment of $415,000, net of a $50,000 distribution from the
Company's interest in Cass Cellular Limited Partnership.
Net cash used in financing activities increased $112,000 in 1994
to $146,000 from $34,000 in 1993. This increase resulted from a
decrease in net cash provided by stock sales of $39,000 augmented
by an increase in principal payments on long-term debt of
$31,000 and an increase of $42,000 in the amount of dividends
paid.
Accounting Changes. SFAS 106, "Employer's Accounting for
Postretirement Benefits Other than Pensions" became effective for
Sand Creek during the first quarter of 1995. SFAS 106 requires
the accrual of certain benefits during the years that the
employee performs the service rather than a "pay-as-you-go"
approach. The effect of this statement was not material to Sand
Creek's financial statements.
[PROXY PAGE 34]
Year Ended December 31, 1993 Compared to Year Ended December 31,
1992
Results of Operations
Net income before cumulative effect of a change in accounting
principle during 1993 increased $143,000 to $349,000 from
$206,000 in 1992. An increase in net operating revenue of
$135,000 was recorded while federal income taxes and other
operating taxes were up $47,000. This was offset by partnership
earnings of $38,000 and an increase in other income, less
interest and other expenses of $17,000.
Operating Revenues and Expenses. Revenues increased
approximately $241,000 in 1993 compared to 1992. Local service
revenue increased $50,000 primarily due to increased sales of
deregulated equipment. Access and toll revenues increased
$166,000 in 1993 compared to 1992 primarily due to an adjustment
to estimated prior years settlements and increased minutes of use
resulting in larger settlements from both the interstate and
intrastate access pools. Miscellaneous revenue increased $25,000
due primarily to increased billing and collection revenue.
Operating expenses, exclusive of depreciation, increased
approximately $78,000 for the year ended December 31, 1993
compared to the year ended December 31, 1992. This increase was
primarily the result of $58,000 of additional deregulated expense
and $20,000 of additional customer service cost and accounting
cost.
Depreciation increased approximately $27,000 primarily as a
result of increased plant in service.
Interest Expense. Interest expense decreased by $5,000 to $5,000
in 1993 as a result of reduced amounts in debt outstanding.
Income Tax Expense. Income tax expense increased $43,000. This
is due principally to higher levels of taxable income and
adjustments of prior years tax accruals.
Inflation. The effects of increased costs are mitigated by the
ability to recover such costs through the rate-making process for
local services or through recovery from NECA or MECA through the
pooling process. Although the State of Michigan no longer
monitors rate of return, a process does exist that would permit
Sand Creek to apply for rate increases if this was deemed
necessary.
Liquidity and Capital Resources
During 1993 and 1992, Sand Creek's primary source of funds were
cash flows provided by operating activities.
Net cash provided by operating activities for 1993 and 1992 was
$405,000 and $343,000 respectively. For additional information,
see "Results of Operations."
Net cash used in investing activities was $71,000 in 1993
compared to $4,000 in 1992. This increase of $67,000 was due
primarily to an increase in expenditures for property, plant and
equipment.
Net cash used in financing activities decreased $39,000 in 1993
to $34,000 from $73,000 in 1992. This decrease resulted
primarily from a decrease in net cash provided by stock sales.
Accounting Changes. See "Year Ended December 31, 1994 Compared
to Year Ended December 31, 1993 - Accounting Changes."
This discussion and analysis of Sand Creek's financial
condition and results of operations should be read in conjunction
with the financial statements of Sand Creek included elsewhere
herein.
[PROXY PAGE 35]
III. SECURITY OWNERSHIP OF CERTAIN OWNERS AND MANAGEMENT.
As of the date hereof, there were outstanding 41,299 1/3
shares of Sand Creek Common Stock, $10 par value, the only class
of capital stock of Sand Creek. The following table shows the
number of shares of Sand Creek Common Stock owned of record or
beneficially as of the date hereof by (i) each person known by
Sand Creek to own beneficially 5% or more of the outstanding Sand
Creek Common Stock; (ii) each of Sand Creek's directors and
executive officers; and (iii) all directors and executive
officers of Sand Creek as a group. Beneficial ownership has been
determined in accordance with Rule 13d-3 promulgated under the
Exchange Act.
Amount and Nature
Name of of Beneficial
Beneficial Owner* Address Ownership Percent
Irene M. or Douglas 708 N. Main St. 3,200 7.7%
Clapper Adrian, MI
Robert E. Hinsdale 4732 Livesay Road 1,494 3.6
Sand Creek, MI
Gustav A. Leu 6254 Demings Lake Road 780 1.9
Sand Creek, MI
Lawrence Wilt 2545 Harwood Road 680 1.6
Sand Creek, MI
Richard Simpkins 5475 Bryant Road 130 0.3
Sand Creek, MI
Harvey Souders** 3464 W. Carleton Road 520 1.3
Adrian, MI
Margie M. Gallatin P.O. Box 24 219.33 0.5
Sand Creek, MI
Directors and Executive 3,823.33 9.3%
Officers as a Group
_______________________
* The shares shown in the table include all shares the named
shareholders may be deemed to own beneficially, including shares
held by spouses, minor children, relatives sharing the home of
such shareholder, entities controlled by such shareholder, or
trusts of which such persons are trustees or beneficiaries.
** Deemed pursuant to Rule 13d-3 of the Exchange Act of 1934
to be the beneficial owner of shares owned by Sand Creek
Community Church.
IV. MANAGEMENT
The names, addresses, ages and principal occupations of the
directors and executive officers of Sand Creek are as follows:
Robert E. Hinsdale, 4732 Livesay Road, Sand Creek,
Michigan, 71, has been a Director since 1953. His current term
ends in 1998. He is retired. He has since 1986 been and
currently is the President of Sand Creek, and the President and a
Director of SCCC, and an officer of Sand Creek Community Church.
[PROXY PAGE 36]
Gustav Leu, 6254 Demings Lake Road, Clayton, Michigan, 76,
has been a Director since 1977. His current term ends in 1997.
He is a retired printer. He has since 1990
been and currently is the Secretary of Sand Creek. He is a
Director and Secretary of SCCC.
Lawrence A. Wilt, 2545 Harwood Road, Sand Creek, Michigan,
56, has been a Director since 1984. His current term ends in
1997. He is a farmer/dairy operator. He has since 1986 been and
currently is the Vice President of Sand Creek. He is a Director
and Vice President of SCCC.
Richard Simpkins, 5475 Bryant Road, Sand Creek, Michigan,
43, has been a Director since 1991. His current term ends in
1996. He is a farmer and a mechanic. He is also a Director of
SCCC.
Harvey F. Souders, 3464 W. Carleton Road, Adrian, Michigan,
52, has been a Director since 1995. His current term ends in
1998. He is a Vice President of Bank of Lenawee. He is also a
Director of SCCC and the President of Sand Creek Community
School.
Margie M. Gallatin, P.O. Box 24, Sand Creek, Michigan, 51,
has since 1991 been and currently is the Treasurer of Sand Creek.
She is the General Office Manager for Sand Creek. She is the
Treasurer of SCCC.
Each Director was paid fees of $1,250.00 during 1994.
SUMMARY COMPENSATION TABLE
Other Annual Total
Name/Position Year Salary Compensation Compensation
Robert E. Hinsdale 1994 $ 4,158 $ 1,250 $ 5,408
President/Director 1993 4,158 1,250 5,408
1992 4,158 1,250 5,408
Gustav Leu 1994 $ 4,158 $ 1,250 $ 5,408
Secretary/Director 1993 4,158 1,250 5,408
1992 4,158 1,250 5,408
Lawrence A. Wilt 1994 $ -0- $ 1,250 $ 1,250
Vice President/ 1993 -0- 1,250 1,250
Director 1992 -0- 1,250 1,250
Margie Gallatin 1994 $42,587 $ -0- $42,587
Treasurer 1993 31,871 4,515 36,386
1992 30,354 4,300 34,654
Neil Pearcy 1994 $47,525 $ -0- $47,525
Plant Manager 1993 40,233 5,699 45,923
1992 38,317 5,428 43,715
John Griffith 1994 $37,648 $ -0- $37,648
Assistant Plant 1993 31,871 4,615 36,486
Manager 1992 30,354 4,300 34,654
V. LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The MBCA permits Michigan corporations to limit the
personal liability of directors for the breach of their fiduciary
duty. Sand Creek's Articles of Incorporation provide, consistent
with the MCBA, that a
[PROXY PAGE 37]
director of Sand Creek shall not be
personally liable to Sand Creek or its Shareholders for monetary
damages for breach of the director's fiduciary duty. However, it
does not eliminate or limit the liability of a director for any
of the following: (1) a breach of the director's duty of loyalty
to Sand Creek or its Shareholders; (2) acts or omissions not in
good faith or that involve intentional misconduct or a knowing
violation of law; (3) unlawful loans to directors, officers and
employees; (4) a transaction from which the director derives an
improper personal benefit; and (5) an act or omission occurring
before the effective date of the provision limiting liability.
As a result of the inclusion of such a provision, Shareholders of
Sand Creek may be unable to recover monetary damages against
directors for actions taken by them which constitute negligence
or gross negligence or which are in violation of their fiduciary
duties, although it may be possible to obtain injunctive or other
equitable relief with respect to such actions. If equitable
remedies are found not to be available to Shareholders in any
particular case, Shareholders may not have any effective remedy
against the challenged conduct. The MBCA also permits Michigan
corporations to indemnify directors and officers for expenses
incurred as a result of a proceeding brought against a person by
reason of the fact that such person is or was an officer and/or
director, provided that specified standards are satisfied. Sand
Creek Bylaws authorize indemnification of officers and directors.
Sand Creek believes that such indemnification will assist Sand
Creek in continuing to attract and retain talented directors and
officers in light of the growing risk of litigation directed
against directors and officers of corporations.
Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers or
person controlling Sand Creek pursuant to the foregoing
provisions, Sand Creek has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore
unenforceable.
VI. LEGAL PROCEEDINGS
Other than ordinary, routine litigation incidental to its
business, Sand Creek is not involved any material pending
litigation.
VII. DIVIDENDS ON AND MARKET PRICES OF SAND CREEK COMMON STOCK
No established trading market exists with respect to shares
of Sand Creek Common Stock. As of the date hereof, there were
154 holders of Sand Creek Common Stock. There are occasional
direct sales by Sand Creek Shareholders of which the management
of Sand Creek is aware. From January 1, 1993 through the date
hereof there were, so far as Sand Creek management knows, 85
sales of the Common Stock of Sand Creek. These sales involved
5,707.33 shares. The prices were reported to management in each
of these transactions. During this period, the highest reported
price paid for Sand Creek stock was $58.00 per share, and the
lowest price was $36.66 per share. The following is a summary of
all known transfers by sale since January 1, 1993.
Number of Number of High Low
Date Sales Shares Price Price
1993:
First Quarter 2 390 $36.66 $36.66
Second Quarter 20 963 $36.66 $36.66
Third Quarter -0- -0- $ -0- $ -0-
Fourth Quarter 35 1,152 $40.72 $40.72
1994:
First Quarter 8 1,473.33 $40.72 $40.72
Second Quarter 8 485 $40.72 $40.72
Third Quarter 9 800 $50.00 $50.00
Fourth Quarter -0- -0- -0- -0-
1995:
First Quarter 1 230 $50.00 $50.00
Second Quarter 1 108 $50.00 $50.00
Third Quarter 1 106 $58.00 $58.00
Latest Available Information: $58.00* $58.00*
[PROXY PAGE 38]
* Price set by Board of Directors for purchases and sales by
Sand Creek after June 30, 1995, pursuant to Sand Creek Common
Stock Transfer Policies.
Sand Creek declared and paid per share cash dividends with
respect to Sand Creek Stock as follows since December 31, 1992:
Date Amount per Share
June 1, 1993 $1.00
June 1, 1994 $1.00
December 20, 1994 $1.00
June 1, 1995 $1.00
INFORMATION ABOUT SCCC
I. DESCRIPTION OF SCCC BUSINESS
A. HOLDING COMPANY OPERATIONS. SCCC is a for-profit
corporation, incorporated in 1995 under the laws of the state of
Michigan to engage in various business activities. The
incorporator was Ronald W. Bloomberg. SCCC has not actively
engaged in the transaction of any business but was incorporated
for the purpose of establishing a holding company. The mailing
address and telephone number of the principal executive offices
is 6525 Sand Creek Highway, P.O. Box 66, Sand Creek, Michigan
49279-0066, (517)436-3130. SCCC does not have any employees and
does not intend as of this time to have employees other than
officers necessary for it to function as a holding company.
B. PHYSICAL PROPERTY AND FACILITIES. Currently SCCC does
not own or utilize any physical property or facilities.
C. FINANCIAL INFORMATION.
The following is the financial data for SCCC. No income or
cash flow statement is included because SCCC is an inactive
company without an operating history:
Unaudited
Sand Creek Communications Company
Balance Sheet
As of June 30, 1995
Assets
Cash $ 1,000
Total Current Assets $ 1,000
Stockholders' Equity
Common stock, 160,000
shares authorized,
issued and outstanding,
1 share $ 1,000
Total Stockholders'
Equity $ 1,000
[PROXY PAGE 39]
II. SCCC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AS A RESULT OF OPERATIONS.
This discussion and analysis of SCCC's financial condition
and results of operations should be read in conjunction with the
financial statements of SCCC included elsewhere herein.
Currently, and pending the Share Exchange, SCCC has a
minimum level of liquid capital and capital resources and no
material commitments for capital expenditures. Following the
Share Exchange, as a holding company with no significant
operations of its own, the principal source of SCCC's funds will
be dividends and other distributions from its subsidiaries,
borrowings and sales of equity. It is contemplated that in the
normal course SCCC, in addition to receiving dividends from its
subsidiaries, will obtain funds though debt or equity financings.
Any financings will depend on the financial and other conditions
of SCCC and on market conditions.
III. SECURITY OWNERSHIP OF CERTAIN OWNERS AND MANAGEMENT.
SCCC Common Stock is the only class of capital stock of
SCCC. SCCC has 160,000 authorized shares of Common Stock. As of
the date hereof, there was outstanding one (1) share of SCCC
Common Stock, which is owned by Sand Creek and fully paid.
Following the effective date of the Share Exchange, the then
holders, as of the Record Date, of Sand Creek Common Stock which
do not perfect dissenters' rights will become holders of SCCC
Common Stock. Their respective ownership interests may change in
light of the number of Sand Creek Shareholders who perfect
dissenter's rights. If no Shareholder perfects his right to
dissent, the ownership interests in SCCC Common Stock will be the
same as the ownership interests of Sand Creek discussed above.
IV. MANAGEMENT.
The Directors and Executive Officers of SCCC are the same
as the Directors and Executive Officers as Sand Creek.
Information as to their addresses, ages, principal occupations
and terms are set forth above with regard to Sand Creek. The
term of each director for SCCC expires at the same time as his
term as director of Sand Creek. SCCC has not paid any
compensation or fees to its directors or officers.
V. LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The MBCA permits Michigan corporations to limit the
personal liability of directors for the breach of their fiduciary
duty. SCCC's Articles of Incorporation provide, consistent with
the MCBA, that a director of SCCC shall not be personally liable
to SCCC or its Shareholders for monetary damages for breach of
the director's fiduciary duty. However, it does not eliminate or
limit the liability of a director for any of the following: (1)
a breach of the director's duty of loyalty to SCCC or its
Shareholders; (2) acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law; (3)
unlawful loans to directors, officers and employees; (4) a
transaction from which the director derives an improper personal
benefit; and (5) an act or omission occurring before the
effective date of the provision limiting liability. As a result
of the inclusion of such a provision, Shareholders of SCCC may be
unable to recover monetary damages against directors for actions
taken by them which constitute negligence or gross negligence or
which are in violation of their fiduciary duties, although it may
be possible to obtain injunctive or other equitable relief with
respect to such actions. If equitable remedies are found not to
be available to Shareholders in any particular case, Shareholders
may not have any effective remedy against the challenged conduct.
The MBCA also permits Michigan corporations to indemnify
directors and officers for expenses incurred as a result of a
proceeding brought against a person by reason of the fact that
such person is or was an officer and/or director, provided that
specified standards are satisfied. SCCC Bylaws authorize
indemnification of officers and directors, in the same manner as
the Bylaws of Sand Creek. SCCC believes that such
indemnification will assist SCCC in continuing to attract and
retain talented directors and officers in light of the growing
risk of litigation directed against directors and officers of
corporations.
Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers or
person controlling SCCC pursuant to the foregoing provisions,
SCCC has been informed
[PROXY PAGE 40]
that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy
as expressed in the Act and is therefore unenforceable.
VI. LEGAL PROCEEDINGS
Other than ordinary routine litigation incidental to the
business of SCCC, there is not any material pending litigation.
VII. DIVIDENDS ON AND MARKET PRICES OF SCCC COMMON STOCK.
No established trading market exists with respect to shares
of SCCC Common Stock. As of the date hereof, there was one
holder (i.e. Sand Creek) of SCCC Common Stock. No dividends have
been declared or paid with respect to SCCC Common Stock.
LEGAL MATTERS
Certain legal matters including the legality of the
issuance of SCCC Common Stock, in connection with the
transactions contemplated by the Share Exchange have been passed
upon by Loomis, Ewert, Parsley, Davis & Gotting, P.C., 232 S.
Capitol Avenue, Suite 1000, Lansing, Michigan.
EXPERTS
The consolidated financial statements and related schedules
of Sand Creek and SCCC included herein have been based upon the
reports of McCartney & McIntyre, P.C., independent certified
public accountants, Okemos, Michigan and upon the authority of
such firm as experts in accounting and auditing.
[PROXY PAGE 41]
[PROXY BEGIN APPENDIX A]
AGREEMENT AND PLAN OF SHARE EXCHANGE
THIS AGREEMENT AND PLAN OF SHARE EXCHANGE ("Agreement") is
dated as of ________, 1995 by and between SAND CREEK TELEPHONE COMPANY
("Sand Creek"), a Michigan corporation and SAND CREEK COMMUNICATIONS
COMPANY ("SCCC"), a Michigan corporation.
W I T N E S E T H
WHEREAS, Sand Creek is a Michigan corporation, and has an
authorized capitalization consisting of 50,000 shares of common stock,
$10.00 par value, of which 41,299 1/3 shares are issued and
outstanding on the date hereof; and
WHEREAS, SCCC is a Michigan corporation, and has an
authorized capitalization consisting of 160,000 shares of Common
Stock, no par value, of which one (1) share is issued and outstanding
on the date hereof; and
WHEREAS, SCCC is presently a wholly-owned subsidiary of Sand
Creek; and
WHEREAS, the Boards of Directors of Sand Creek and SCCC deem
it advisable for SCCC to acquire all of the issued and outstanding
stock of Sand Creek in a Share Exchange under the provisions of the
Michigan Business Corporation Act, such that Sand Creek will become a
wholly-owned subsidiary of SCCC, and each of the current shareholders
of Sand Creek, (except those perfecting dissenters' rights) will
become a shareholder of SCCC; and
WHEREAS, the Share Exchange, to be effective, must be
approved by the affirmative vote of the holders of a majority of the
issued and outstanding stock of Sand Creek;
WHEREAS, the respective Boards of Directors of Sand Creek
and SCCC have, by resolutions duly adopted, approved this Agreement
and directed that it be executed by the undersigned officers and that
it be submitted to a vote of their respective shareholders;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the
parties hereto agree that SCCC shall acquire in a Share Exchange all
of the issued and outstanding stock of Sand Creek, and that the terms
and conditions of such Share Exchange, the mode of carrying it out,
and the manner of converting and exchanging shares shall be as
follows:
1. THE SHARE EXCHANGE
1.1 Effective Time. Subject to, and in accordance with the
provisions of this Agreement, upon the satisfaction of all
conditions precedent to the consummation of the transactions
contemplated by the Share Exchange, Sand Creek and SCCC
shall sign and file with the Michigan Department of
Commerce, Corporations and Securities Bureau, a Certificate
of Share Exchange. The Share Exchange shall become
effective as of the close of business on the effective date
of said Certificate of Share Exchange. ("Effective Time").
1.2 Actions of Sand Creek and SCCC. Prior to and after the
Effective Time, Sand Creek and SCCC shall take all such
actions as may be necessary or appropriate to effect the
Share Exchange. In this connection, SCCC shall issue the
shares of SCCC stock to which the holders of Sand Creek
stock shall be entitled to receive as provided in Article 2
hereof. In case at any time after the Effective Time, any
further action is necessary or desirable to carry out the
purposes of this Agreement, the Officers and Directors of
Sand Creek and SCCC shall take all such further action.
[PROXY APPENDIX A, PAGE 1]
2. TERMS OF EXCHANGE OF SHARES
2.1 Exchange and Conversion of Sand Creek Shares. At the
Effective Time, each share of common stock of Sand Creek
issued and outstanding, excluding Dissenting Shares, shall
be automatically by virtue of the exchange, exchanged for
and converted into three (3) fully paid and nonassessable
shares of common stock of SCCC, which shall thereupon be
validly issued, fully paid and nonassessable, except as
otherwise required by law. Each such share of Sand Creek
stock will thereupon be owned by SCCC.
2.2 Cancellation of SCCC Shares. Each share of common stock of
SCCC issued and outstanding immediately prior to the
Effective Time shall be cancelled.
2.3 Surrender and Exchange of Sand Creek Certificates.
Following the Effective Time, each holder of an outstanding
certificate theretofore representing shares of Sand Creek
common stock, excluding Dissenting Shares, shall surrender
the same to SCCC for cancellation or transfer, and each such
holder or transferee of such surrendered shares shall be
entitled to receive a certificate representing three (3)
shares of SCCC common stock for each one (1) share of Sand
Creek common stock represented by the stock certificate
surrendered. The stock transfer books for Sand Creek common
stock shall be deemed to be closed on the Effective Time,
and no transfer of shares of Sand Creek common stock
outstanding immediately prior to the Effective Time shall
thereafter be made on such books. Following the Effective
Time, the holders of certificates representing Sand Creek
common stock outstanding immediately before the Effective
Time shall cease to have any rights with respect to stock of
Sand Creek, and their sole rights shall be with respect to
the SCCC common stock to which their shares of Sand Creek
common stock shall have been converted in the Share
Exchange. Within a reasonable time after the Effective
Time, SCCC will send to each Sand Creek Shareholder a form
of letter of transmittal (which will specify that delivery
will be effected, and risk of loss and title to certificates
for shares of Sand Creek Common Stock will pass, only upon
proper delivery of such certificates to SCCC) and
instructions for use in effecting the exchange of the
certificates for shares of SCCC Common Stock. Until the
certificates representing Sand Creek Common Stock are
surrendered for exchange after the consummation of the Share
Exchange, holders of such certificates will not be paid
dividends or other distributions with respect to the shares
of SCCC Common Stock with which such shares of Sand Creek
Common Stock are being exchanged. When such certificates
are surrendered, any such unpaid dividends or other
distributions will be paid (without interest) with respect
to the number of shares of SCCC Common Stock represented by
such certificates. Holders of unsurrendered certificates
shall not be entitled to vote after the Effective Time at
any meeting of SCCC until they have exchanged their
certificates. All shares of SCCC Common Stock issued upon
exchange of shares of Sand Creek Common Stock shall be
deemed to have been issued in full satisfaction of all
rights pertaining to such shares of Sand Creek Common Stock.
If any certificate representing shares of SCCC Common Stock
is to be issued in a name other than that of the registered
holder of the certificate formerly representing shares of
Sand Creek Common Stock presented for transfer, it shall be
a condition of issuance that (i) the certificate so
surrendered shall be properly endorsed or accompanied by a
stock power and shall otherwise be in proper form for
transfer and (ii) the person requesting such issuance shall
pay to SCCC any transfer or other taxes required by reason
of issuance of certificates representing SCCC Common Stock
in a name other than that of the registered holder of the
certificate presented, or establish to the satisfaction of
SCCC that such taxes have been paid or are not applicable.
2.4 No fractional shares of SCCC shall be issued as part of the
Share Exchange.
3. ARTICLES OF INCORPORATION AND BYLAWS
3.1 Continued Effectiveness. From and after the Effective Time,
and until thereafter amended as provided by law, the
Articles of Incorporation and Bylaws of Sand Creek, as
amended, and
[PROXY APPENDIX A,PAGE 2]
the Articles of Incorporation and Bylaws of
SCCC, as amended, shall continue to be effective.
3.2 Continued Corporate Existence. From and after the Effective
Time, Sand Creek and SCCC shall continue their separate
corporate existence and identity, and nothing in this
Agreement shall be construed as effecting any transfer of
any asset or liability, nor as effecting any merger or
consolidation of Sand Creek and SCCC.
4. DIRECTORS AND OFFICERS
4.1 Sand Creek Directors and Officers. The persons who are
directors and officers of Sand Creek immediately prior to
the Effective Time shall continue as directors and officers
of Sand Creek for the remainder of their terms. If, at or
following the Effective Time, a vacancy should occur in the
Board of Directors or in the position of any officer of Sand
Creek, such vacancy may be filled in the manner provided in
the Bylaws of Sand Creek.
4.2 SCCC Directors and Officers. The persons who are directors
and officers of SCCC immediately prior to the Effective Time
shall continue as directors and officers of SCCC for the
remainder of their terms. If, at or following the Effective
Time, a vacancy should occur in the Board of Directors or in
the position of any officer of SCCC, such vacancy may be
filled in the manner provided in the Bylaws of SCCC.
5. DISSENTER'S RIGHTS
5.1 Statutory Rights. Shareholders who dissent from the
Agreement and Plan of Share Exchange have the Dissenters'
Rights as provided in Sections 761-774 of the Michigan
Business Corporation Act.
5.2 Restriction on Transfer of Dissenting Shares Without
Certificates. No transfer of shares without certificate
shall be permitted with respect to any shares as to which
payment demand is received until the plan of share exchange
is consummated or the transfer restrictions are released
pursuant to Section 770 of the Michigan Business Corporation
Act.
5.3 Time for Payment Demand. The date by which Sand Creek must
receive any payment demand shall be thirty (30) days after
the Dissenter's Notice is delivered.
6. CONDITIONS TO THE SHARE EXCHANGE
6.1 Conditions Precedent. Consummation of the Share Exchange is
subject to the satisfaction or waiver by both parties of the
following conditions:
6.1.1 Shareholder Approval. This Agreement and Plan of
Share Exchange shall have received the approval of
shareholders representing a majority of the issued
and outstanding shares of common stock of Sand
Creek, to the extent required by the Michigan
Business Corporation Act and by the Articles of
Incorporation and Bylaws of Sand Creek.
6.1.2 Lack of Dissent. In addition to the majority
approval required by Section 6.1.1, Shareholders
representing not more than twenty percent (20%) of
the issued and outstanding shares of common stock
of Sand Creek shall have delivered to Sand Creek
before the vote is taken written notice of their
intention to demand payment for their shares if
the Agreement and Plan of Share Exchange is
approved.
6.1.3 Registration Statement. A registration statement
or registration statements relating to the shares
of SCCC Common Stock to be issued as a result of
the Exchange shall be effective under the
Securities Act of 1933, as amended, and shall not
be the subject of any "Stop order".
[PROXY APPENDIX A, PAGE 3]
6.1.4 Consents and Approvals. Sand Creek and SCCC shall
have received any and all consents, approvals and
withholding of objections that are necessary for
the closing of the transactions contemplated by
this Agreement in form and substance satisfactory
to Sand Creek and SCCC.
6.1.5 Legal Opinions. Sand Creek and SCCC shall have
received legal opinions in form and substance
satisfactory to Sand Creek and SCCC that are
necessary or appropriate for the consummation of
the Share Exchange and all other transactions
contemplated thereby.
6.1.6 Litigation. There shall be no litigation,
proceedings or actions pending or threatened
concerning the Share Exchange which, in the
judgment of the Boards of Directors of Sand Creek
or SCCC renders consummation of the Share Exchange
inadvisable.
6.2 Certificate of Share Exchange After all conditions
precedent to the closing of the transactions contemplated by
the Share Exchange have occurred, Sand Creek and SCCC shall
execute and file a Certificate of Share Exchange.
7. TERMINATION
7.1 Termination This Agreement may be terminated and the Share
Exchange and other transactions herein provided for
abandoned at any time before the Effective Time, whether
before or after approval of this Agreement by the
shareholders of Sand Creek, by the parties hereto, by mutual
consent of their respective Boards of Directors, if such
Boards of Directors determine for any reason that the
consummation of the transaction provided for herein would
for any reason be inadvisable, or that any regulatory or
other consents or approvals deemed necessary or advisable by
such Boards of Directors have not been obtained within a
reasonable time after approval by the shareholders.
8. MISCELLANEOUS
8.1 Amendment, Modification and Waiver. The parties hereto, by
mutual consent of their respective Boards of Directors, may
amend, modify or supplement this Agreement or waive any
condition set forth in Article 6 hereof, in such manner as
may be agreed upon by them in writing, at any time before or
after approval of this Agreement by the common shareholders
of Sand Creek; Provided, however, that no such amendment,
modification or waiver shall, in the sole judgement of the
Board of Directors of Sand Creek, materially and adversely
affect the rights of the shareholders of Sand Creek.
8.2 Deferral of Effective Time. Consummation of the Share
Exchange may be deferred by the Board of Directors of Sand
Creek or any authorized officer of Sand Creek for a
reasonable period, if the Board or officer determines that
such deferral would be in the best interests of Sand Creek
or its Shareholders.
8.3 Counterparts. This Agreement may be executed in
counterparts, each of which when so executed shall be deemed
to be an original, and such counterparts shall constitute
but one and the same instrument.
8.4 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of
Michigan.
[PROXY APPENDIX A, PAGE 4]
IN WITNESS WHEREOF, the Parties have executed this Agreement
on the date first recited above pursuant to due authorization.
SAND CREEK TELEPHONE COMPANY
By:/s/
/s/
Witness Robert E. Hinsdale
Its: President
SAND CREEK COMMUNICATIONS COMPANY
By: /s/
/s/
Witness Lawrence Wilt
Its: Vice President
[PROXY APPENDIX A, PAGE 5]
[PROXY BEGIN APPENDIX B]
MICHIGAN BUSINESS CORPORATION ACT
CHAPTER 7
SUBCHAPTER A
MCLA 450.1761 As used in sections 762 to 774:
(a) "Beneficial shareholder" means the person who is a
beneficial owner of shares held by a nominee as the record
shareholder.
(b) "Corporation" means the issuer of the shares held by a
dissenter before the corporate action, or the surviving
corporation by merger of that issuer.
(c) "Dissenter" means a shareholder who is entitled to
dissent from corporate action under section 762 and who
exercises that right when and in the manner required by
sections 764 through 772.
(d) "Fair value", with respect to a dissenter's shares, means
the value of the share immediately before the effectuation of
the corporate action to which the dissenter objects, excluding
any appreciation or depreciation in anticipation of the
corporate action unless exclusion would be inequitable.
(e) "Interest" means interest from the effective date of the
corporate action until the date of payment, at the average
rate currently paid by the corporation on its principal bank
loans or, if none, at a rate that is fair and equitable under
all the circumstances.
(f) "Record shareholder" means the person in whose name
shares are registered in the records of a corporation or the
beneficial owner of shares to the extent of the rights granted
by a nominee certificate on file with a corporation.
(g) "Shareholder" means the record or beneficial shareholder.
MCLA 450.1762
(1) A shareholder is entitled to dissent from, and obtain payment
of the fair value of his or her shares in the event of, any of the
following corporate actions:
(a) Consummation of a plan of merger to which the corporation
is a party if shareholder approval is required for the merger
by section 703a or the articles of incorporation and the
shareholder is entitled to vote on the merger, or the
corporation is a subsidiary that is merged with its parent
under section 711.
(b) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired, if the shareholder is entitled to vote on the plan.
(c) Consummation of a sale or exchange of all, or
substantially all, of the property of the corporation other
than in the usual and regular course of business, if the
shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution but not including a sale
pursuant to court order.
(d) An amendment of the articles giving rise to a right to
dissent pursuant to section 621.
(e) A transaction giving rise to a right to dissent pursuant
to section 754.
(f) Any corporate action taken pursuant to a shareholder vote
to the extent the articles, bylaws, or a resolution of the
board provides that voting or nonvoting shareholders are
entitled to dissent and obtain payment for their shares.
(g) The approval of a control share acquisition giving rise
to a right to dissent pursuant to section 799.
(2) Unless otherwise provided in the articles, bylaws, or a
resolution of the board, a shareholder may not dissent from any of the
following:
(a) Any corporate action set forth in subsection (1)(a) to
(e) as to shares which are listed on a national securities
exchange or held of record by not less than 2,000 persons on
the record date fixed to determine the shareholders entitled
to receive notice of and to vote at the meeting of
shareholders at which the corporate action is to be acted
upon.
(b) A transaction described in subsection (1)(a) in which
shareholders receive cash or shares that satisfy the
requirements of subdivision (a) or any combination thereof.
(c) A transaction described in subsection (1)(b) in which
shareholders receive cash or shares that satisfy the
requirements of subdivision (a) or any combination thereof.
[PRXY APPENDIX B, PAGE 1]
(d) A transaction described in subsection (1)(c) which is
conducted pursuant to a plan of dissolution providing for
distribution of substantially all of the corporation's net
assets to shareholders in accordance with their respective
interests within 1 year after the date of transaction, where
the transaction is for cash or shares that satisfy the
requirements of subdivision (a) or any combination thereof.
(3) A shareholder entitled to dissent and obtain payment for his
or her shares pursuant to subsection (1)(a) to (e) may not challenge the
corporate action creating his or her entitlement unless the action is
unlawful or fraudulent with respect to the shareholder or the
corporation.
(4) A shareholder who exercises his or her right to dissent and
seek payment for his or her shares pursuant to subsection (1)(f) may not
challenge the corporate action creating his or her entitlement unless
the action is unlawful or fraudulent with respect to the shareholder or
the corporation.
MCLA 450.1763
(1) A record shareholder may assert dissenter's rights as to fewer
than all the shares registered in his or her name only if he or she
dissents with respect to all shares beneficially owned by any 1 person
and notifies the corporation in writing of the name and address of each
person on whose behalf he or she asserts dissenters' rights. The rights
of a partial dissenter under this subsection are determined as if the
shares as to which he or she dissents and his or her other shares were
registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to
shares held on his or her behalf only if all of the following apply:
(a) He or she submits to the corporation the record
shareholder's written consent to the dissent not later than
the time the beneficial shareholder asserts dissenters'
rights.
(b) He or she does so with respect to all shares of which he
or she is the beneficial shareholder or over which he or she
has power to direct the vote.
MCLA 450.1764
(1) If proposed corporate action creating dissenters' rights under
section 762 is submitted to a vote at a shareholders' meeting, the
meeting notice must state that shareholders are or may be entitled to
assert dissenters' rights under this act and shall be accompanied by a
copy of sections 761 to 774.
(2) If corporate action creating dissenters' rights under section
762 is taken without a vote of shareholders, the corporation shall
notify in writing all shareholders entitled to assert dissenters' rights
that the action was taken and send them the dissenters' notice described
in section 766. A shareholder who consents to the corporate action is
not entitled to assert dissenters' rights.
MCLA 450.1765
(1) If proposed corporate action creating dissenters' rights under
section 762 is submitted to a vote at a shareholders' meeting, a
shareholder who wishes to assert dissenters' rights must deliver to the
corporation before the vote is taken written notice of his or her intent
to demand payment for his or her shares if the proposed action is
effectuated and must not vote his or her shares in favor of the proposed
action.
(2) A shareholder who does not satisfy the requirements of
subsection (1) is not entitled to payment for his or her shares under
this act.
MCLA 450.1766
(1) If proposed corporate action creating dissenters' rights under
section 762 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who
satisfied the requirements of section 765.
(2) The dissenters' notice must be sent no later than 10 days
after the corporate action was taken, and must provide all of the
following:
[PROXY APPENDIX B, PAGE 2]
(a) State where the payment demand must be sent and where and
when certificates for shares represented by certificates must
be deposited.
(b) Inform holders of shares without certificates to what
extent transfer of the shares will be restricted after the
payment demand is received.
(c) Supply a form for the payment demand that includes the
date of the first announcement to news media or to
shareholders of the terms of the proposed corporate action and
requires that the person asserting dissenters' rights certify
whether he or she acquired beneficial ownership of the shares
before the date.
(d) Set a date by which the corporation must receive the
payment demand, which date may not be fewer than 30 nor more
than 60 days after the date the subsection (1) notice is
delivered.
MCLA 450.1767
(1) A shareholder sent a dissenter's notice described in section
766 must demand payment, certify whether he or she acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters' notice pursuant to section 766(2)(c), and deposit his or her
certificates in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits his or her
share certificates under subsection (1) retains all other rights of a
shareholder until these rights are canceled or modified by the taking of
the proposed corporate action.
(3) A shareholder who does not demand payment or deposit his or
her share certificates where required, each by the date set in the
dissenters' notice, is not entitled to payment for his or her shares
under this act.
MCLA 450.1768
(1) The corporation may restrict the transfer of shares without
certificates from the date the demand for their payment is received
until the proposed corporate action is taken or the restrictions
released under section 770.
(2) The person for whom dissenters' rights are asserted as to
shares without certificates retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the
proposed corporation action.
MCLA 450.1769
(1) Except as provided in section 771, within 7 days after the
proposed corporate action is taken or a payment demand is received,
whichever occurs later, the corporation shall pay each dissenter who
complied with section 767 the amount the corporation estimates to be the
fair value of his or her shares, plus accrued interest.
(2) The payment must be accompanied by all of the following:
(a) The corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of
payment, an income statement for that year, a statement of
changes in shareholders' equity for that year, and if
available the latest interim financial statements.
(b) A statement of the corporation's estimate of the fair
value of the shares.
(c) An explanation of how the interest was calculated.
(d) A statement of the dissenter's right to demand payment
under section 772.
MCLA 450.1770
(1) If the corporation does not take the proposed action within 60
days after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates
and release the transfer restrictions imposed on shares without
certificates.
[PROXY APPENDIX B, PAGE 3]
(2) If after returning deposited certificates and releasing
transfer restrictions, the corporation takes the proposed action, it
must send a new dissenters' notice under section 766 and repeat the
payment demand procedure.
MCLA 450.1771
(1) A corporation may elect to withhold payment required by
section 769 from a dissenter unless he or she was the beneficial owner
of the shares before the date set forth in the dissenters' notice
pursuant to section 766(2)(c).
(2) To the extent the corporation elects to withhold payment under
subsection (12), after taking the proposed corporate action, it shall
estimate the fair value of the shares, plus accrued interest, and shall
offer to pay this amount to each dissenter who shall agree to accept it
in full satisfaction of his or her demand. The corporation shall send
with its offer a statement of its estimate of the fair value of the
shares, an explanation of how the interest was calculated, and a
statement of the dissenter's right to demand payment under section 772.
MCLA 450.1772
(1) A dissenter may notify the corporation in writing of his or
her own estimate of the fair value of his or her shares and amount of
interest due, and demand payment of his or her estimate, less any
payment under section 769, or reject the corporation's offer under
section 771 and demand payment of the fair value of his or her shares
and interest due, if any 1 of the following applies:
(a) The dissenter believes that the amount paid under section
769 or offered under section 771 is less than the fair value
of his or her shares or that the interest due is incorrectly
calculated.
(b) The corporation fails to make payment under section 769
within 650 days after the date set for demanding payment.
(c) The corporation, having failed to take the proposed
action, does not return the deposited certificates or release
the transfer restrictions imposed on shares without
certificates within 60 days after the date set for demanding
payment.
(2) A dissenter waives his or her right to demand payment under
this section unless he or she notifies the corporation of his or her
demand in writing under subsection (1) within 30 days after the
corporation made or offered payment for his or her shares.
MCLA 450.1773
(1) If a demand for payment under section 772 remains unsettled,
the corporation shall commence a proceeding within 60 days after
receiving the payment demand and petition the court to determine the
fair value of the shares and accrued interest. If the corporation does
not commence the proceeding within the 60-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
(2) The corporation shall commence the proceeding in the circuit
court of the county in which the corporation's principal place of
business or registered office is located. If the corporation is a
foreign corporation without a registered office or principal place of
business in this state, it shall commence the proceeding in the county
in this state where the principal place of business or registered office
of the domestic corporation whose shares are to be valued was located.
(3) The corporation shall make all dissenters, whether or not
residents of this state, whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties shall be
served with a copy of the petition. Nonresidents may be served by
registered or certified mail or by publication as provided by law.
(4) The jurisdiction of the court in which the proceeding is
commenced under subsection (2) is plenary and exclusive. The court may
appoint 1 or more persons as appraisers to receive evidence and
recommend decision on the question of fair value. The appraisers have
the powers described in the order appointing them, or in any amendment
to it. The dissenters are entitled to the same discovery rights as
parties in other civil proceedings.
[PROXY APPENDIX B, PAGE 4]
(5) Each dissenter made a party to the proceeding is entitled to
judgment for the amount, if any, by which the court finds the fair value
of his or her shares, plus interest, exceeds the amount paid by the
corporation or for the fair value, plus accrued interest, of his or her
after-acquired shares for which the corporation elected to withhold
payment under section 771.
MCLA 450.1773a
(1) In a proceeding brought pursuant to section 773, the court
may, pursuant to the agreement of the parties, appoint a referee
selected by the parties and subject to the approval of the court. The
referee may conduct proceedings within the state, or outside the state
by stipulation of the parties with the referee's consent, and pursuant
to the Michigan court rules. The referee shall have powers that
include, but are not limited to, the following:
(a) To hear all pretrial motions and submit proposed orders
to the court. In ruling on the pretrial motion and proposed
orders, the court shall consider only those documents,
pleadings, and arguments that were presented to the referee.
(b) To require the production of evidence, including the
production of all books, papers, documents, and writings
applicable to the proceeding, and to permit entry upon
designated land or other property in the possession or control
of the corporation.
(c) To rule upon the admissibility of evidence pursuant to
the Michigan rules of evidence.
(d) To place witnesses under oath and to examine witnesses.
(e) To provide for the taking of testimony by deposition.
(f) To regulate the course of the proceeding.
(g) To issue subpoenas, when a written request is made by any
of the parties, requiring the attendance and testimony of any
witness and the production of evidence including books,
records, correspondence, and documents in the possession of
the witness or under his or her control, at a hearing before
the referee or at a deposition convened pursuant to
subdivision (e). In case of a refusal to comply with a
subpoena, the party on whose behalf the subpoena was issued
may file a petition in the court for an order requiring
compliance.
(2) The amount and manner of payment of the referee's compensation
shall be determined by agreement between the referee and the parties,
subject to the court's allocation of compensation between the parties at
the end of the proceeding pursuant to equitable principles,
notwithstanding section 774.
(3) The referee shall do all of the following:
(a) Made a report and reporter's transcript of the
proceeding.
(b) Prepare a report, including proposed findings of fact and
conclusions of law, and a recommended judgment.
(c) File the report with the court, together with all
original exhibits and the reporter's transcript of the
proceeding.
(4) Unless the court provides for a longer period, not more than
45 days after being served with notice of the filing of the report
described in subsection (3), any party may serve written objections to
the report upon the other party. Application to the court for action
upon the report and objections to the report shall be made by motion
upon notice. The court, after hearing, may adopt the report, may
receive further evidence, may modify the report, or may recommit the
report to the referee with instructions. Upon adoption of the report,
judgment shall be entered in the same manner as if the action had been
tried by the court and shall be subject to review in the same manner as
any other judgment of the court.
MCLA 450.1774
(1) The court in an appraisal proceeding commenced under section
773 shall determine all costs of the proceeding, including the
reasonable compensation and expenses of appraisers appointed by the
court. The court shall assess the costs against the corporation, except
that the court may assess costs against all or some of the dissenters,
in amounts the court finds equitable, to the extent the court finds the
dissenters acted arbitrarily, vexatiously, or not in good faith in
demanding payment under section 772.
[PROXY APPENDIX B, PAGE 5]
(2) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable
in the following manner:
(a) Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not
substantially comply with the requirements of sections 764
through 772.
(b) Against either the corporation or a dissenter, in favor
of any other party, if the court finds that the party against
whom the fees and expenses are assessed acted arbitrarily,
vexatiously, or not in good faith with respect to the rights
provided by this act.
(3) If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters similarly
situated, and that the fees for those services should not be assessed
against the corporation, the court may award to those counsel reasonable
fees paid out of the amounts awarded the dissenters who were benefited.
[PROXY APPENDIX B, PAGE 6]
[PROXY BEGIN BACK COVER]
TABLE OF CONTENTS
PROSPECTUS PAGE
AVAILABLE INFORMATION........................................... 2
SUMMARY....................................................... 3
I. THE SPECIAL MEETING...................................... 3
II. THE COMPANIES..............................................4
III. AGREEMENT AND PLAN OF SHARE EXCHANGE................ 4
RISK FACTORS.................................................... 7
A. LIMITED HISTORY OF SCCC.......................... 8
B. RESTRICTIONS ON TRANSFERABILITY..................... 8
C. ABSENCE OF MARKET FOR COMMON STOCK.............. 8
D. DIVERSIFICATION....................................... 8
E. REDUCED LEVEL OF REGULATORY OVERSIGHT........... 8
F. HOLDING COMPANY STRUCTURE....................... 8
G. ADDITIONAL AUTHORIZED SHARES........................ 8
INTRODUCTION......................................................9
THE SPECIAL MEETING........................................... 9
I. SPECIAL MEETING - PURPOSE OF SPECIAL MEETING........ 9
II. SPECIAL MEETING - ELIGIBLE VOTERS................ 9
III. SPECIAL MEETING - VOTING AND PROXIES................ 9
IV. SPECIAL MEETING - VOTE REQUIRED...................... 9
V. SPECIAL MEETING - SOLICITATION OF PROXIES............ 10
THE SHARE EXCHANGE............................................. 10
I. SHARE EXCHANGE - BACKGROUND........................ 10
II. SHARE EXCHANGE - THE SAND CREEK BOARD'S
RECOMMENDATION................................... 12
III. SHARE EXCHANGE - FORM OF EXCHANGE.................... 13
IV. SHARE EXCHANGE - CONSIDERATION...................... 14
V. SHARE EXCHANGE - REGULATORY APPROVALS AND OTHER
CLOSING CONDITIONS.............................. 14
VI. SHARE EXCHANGE - EFFECTIVE TIME..................... 14
VII. SHARE EXCHANGE - EXCHANGE OF STOCK CERTIFICATES...... 14
VIII.SHARE EXCHANGE - COMPARISON OF SCCC AND SAND CREEK
COMMON STOCK................................... 15
IX. SHARE EXCHANGE - ACCOUNTING TREATMENT............. 16
X. SHARE EXCHANGE - CERTAIN FEDERAL INCOME TAX
CONSEQUENCES.................................... 17
XI. SHARE EXCHANGE - MANAGEMENT AND OPERATIONS AFTER
THE SHARE EXCHANGE............................. 18
XII. SHARE EXCHANGE - RESALE OF SCCC COMMON STOCK;
RESTRICTIONS ON TRANSFER....................... 18
XIII.SHARE EXCHANGE -EXPENSES............................. 18
XIV. SHARE EXCHANGE - POST SHARE EXCHANGE DIVIDEND
POLICY........................................... 18
XV. CAPITALIZATION........................................ 19
DISSENTING SHAREHOLDERS' RIGHTS............................ 19
INFORMATION ABOUT SAND CREEK................................... 22
I. DESCRIPTION OF SAND CREEK'S BUSINESS............... 22
II. SAND CREEK'S MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.. 32
III. SECURITY OWNERSHIP OF CERTAIN OWNERS AND
MANAGEMENT........................................ 36
IV. MANAGEMENT.......................................... 36
V. LIABILITY AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS........................................... 37
VI. LEGAL PROCEEDINGS................................ 38
VII. DIVIDENDS ON AND MARKET PRICES OF SAND CREEK COMMON
STOCK............................................ 38
INFORMATION ABOUT SCCC........................................ 39
I. DESCRIPTION OF SCCC BUSINESS......................... 39
II. SCCC MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AS A RESULT OF OPERATIONS............... 40
III. SECURITY OWNERSHIP OF CERTAIN OWNERS AND
MANAGEMENT........................................ 40
IV. MANAGEMENT.......................................... 40
V. LIABILITY AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS.......................................... 40
VI. LEGAL PROCEEDINGS................................. 41
VII. DIVIDENDS ON AND MARKET PRICES OF SCCC COMMON
STOCK........................................... 41
LEGAL MATTERS.............................................. 41
EXPERTS...................................................... 41
AGREEMENT AND PLAN OF SHARE EXCHANGE.........................APPENDIX A
MICHIGAN BUSINESS CORPORATION ACT PROVISIONS.................APPENDIX B
[END OF PROXY]
REGISTRATION STATEMENT PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20: INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to MCL 450.1209 and the Articles of Incorporation of Sand Creek
Telephone Company ("Sand Creek") and Sand Creek Communications Company
("SCCC"), a director of Sand Creek and SCCC is not personally liable to
the respective corporation or its shareholders for monetary damages for
a breach of a director's fiduciary duties except for:
(i) a breach of the director's duty of loyalty;
(ii) acts or omissions not in good faith or that involve intentional
misconduct or knowing violation of law;
(iii) a violation of MCL 450.1551(1);
(iv) a transaction from which the director derives an improper personal
benefit.
Pursuant to the Michigan Business Corporation Act and the bylaws of
Sand Creek and SCCC, an officer or director of Sand Creek and SCCC,
respectively, is entitled to indemnification against expenses (including
attorney fees) actually and reasonably incurred by him/her in connection
with a successful defense on the merits or otherwise of any action,
suit, or proceeding by reason of the fact that he/she is or was a
director or officer of the corporation. Each corporation is required to
indemnify any person who was or is a party or is threatened to be made
a party in any threatened, pending, or completed action, suit or
proceeding, whether civil, criminal, or otherwise by reason of the fact
that he/she is or was a director or officer of the corporation against
expenses (including attorney fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred if he/she acted in good
faith and in a manner he/she reasonably believed to be in or not opposed
to the best interests of the corporation or its shareholders, and with
respect to any criminal action or proceeding, had no reasonable cause to
believe his/her conduct was unlawful, except that in an action by or in
the right of the corporation, no indemnification shall be made if he/she
is adjudged liable for negligence and/or misconduct in performance of
his/her duties to the corporation unless a court determines he/she is
fairly and reasonably entitled to indemnification. Each corporation is
authorized by statute and bylaw, but not required, to purchase and
maintain insurance covering such expenses and liability. Each
corporation is authorized, but not required, to pay the expenses above
in advance of a final disposition of such action, suit, or proceeding if
(i) the person furnishes the corporation a written affirmation of
his/her good faith belief that he/she has met the applicable standard of
conduct set forth above; (ii) the person furnishes the corporation a
written undertaking, executed personally or on his/her behalf, to repay
the advance if it is ultimately determined that he or she did not meet
the standard of conduct, which undertaking is an unlimited general
obligation of such person; and (iii) a determination is made that the
facts then known to those making the determination would not preclude
indemnification.
ITEM 21: Exhibits and Financial Statements Schedules.
See Exhibits hereto.
ITEM 22: Undertakings.
(a) The undersigned registrant hereby undertakes as follows: That
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who
may be deemed underwriters, in addition to the information called for by
any other item of the applicable form.
The undersigned registrant undertakes that every prospectus (i)
that is filed pursuant to paragraph (h)(1) immediately proceeding, or
(ii) that purports to meet the requirements of section 10(a), (3) of the
Act and is used in conjunction with an offering of security subject to
Rule 415 (230.415 of this chapter), will be filed as part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any
liability under Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be an initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within
one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through
the date of responding to the request.
(c) The undersigned registrant hereby undertakes the supply by
means of a post-effective amendment all information concerning a
transaction, and the company being acquired therein, that was not the
subject of or included in the registration statement when it became
effective.
Signatures.
Pursuant to the requirement of the Securities Act, the registrant
has duly caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Sand
Creek, State of Michigan, on September 25, 1995.
Sand Creek Communications Company
By: /S/ Robert hinsdale
Robert Hinsdale, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/Robert Hinsdale Date: September 25, 1995
Robert Hinsdale
Director, Sand Creek Communications Company
/s/ Gustav Leu Date: September 25, 1995
Gustav Leu
Secretary/Director, Sand Creek Communications Company
/s/ Lawrence Wilt Date: September 25, 1995
Lawrence Witt
Vice President/Director, Sand Creek Communications Company
/s/ Richard Simpkins Date: September 25, 1995
Richard Simpkins
Director, Sand Creek Communications Company
/s/ Harvey Souders Date: September 25, 1995
Harvey Souders
Director, Sand Creek Communications Company
/s/ Margie M. Gallatin Date: September 25, 1995
Margie M. Gallatin
Treasurer, Sand Creek Communications Company
Sand Creek Telephone Company
By: /s/ Robert Hinsdale Date: September 25, 1995
Robert Hinsdale
President/Director
EXHIBIT INDEX
Exhibit No. Description Page
1 Underwriting Agreement Not Applicable
2 Agreement and Plan of Share Exchange Prospectus, Appendix A
3 (i) Articles of Incorporation ----------
(ii) Bylaws ----------
4 Instrument Defining the Rights of Security
Holders Including Indentures ----------
5 Opinion re: Legality ----------
6 Description Opinion re: Discount of
Capital Shares Not Applicable
7 Opinion on liquidation preference Not Applicable
8 Description Opinion re: Tax Matters ----------
9 Description Voting Trust Agreement Not Applicable
10 Description Material Contract ----------
(i) Cass Cellular Limited Partnership
Agreement ----------
(ii) First Amended to Cass Cellular Limited
Partnership Agreement ----------
11 Statement re: Computation of Per Share Earnings----------
12 Description Statement re: Computation of
Ratios Not Applicable
13 Annual Reports of Security Holders Not Applicable
14 Material Foreign Patents Not Applicable
15 Description Letter re: Unaudited Interim
Financial Statements See Exhibit 23
16 Letter re: Changes in Certifying Accountant Not Applicable
17 Letter re: Director Resignation Not Applicable
18 Letter re: Change in Accounting Principle Not Applicable
19 Report furnished to Security Holders Not Applicable
20 Other Documents or Statements to
Security Holders Not Applicable
21 Subsidiaries of the Registrant Not Applicable
22 Published Reports Regarding Matters
Submitted to Vote of Security Holders Not Applicable
23 Consent of Experts and Counsel ----------
24 Power of Attorney Not Applicable
25 Statement of Eligibility of Truste Not Applicable
26 Invitation for Competitive Bids Not Applicable
27 Financial Status Schedule ----------
28 Information from Reports Furnished to
State Insurance Regulatory Authorities Not Applicable
99 Form of Proxy ----------
Form of Notice of Meeting ----------
Financial Schedule 210.12-09 ----------