September 8, 1995
Mr. Robert Hinsdale
Sand Creek Telephone Company
6525 Sand Creek Highway
P.O. Box 66
Sand Creek, MI 49279-0066
Re: Share Exchange -- Federal Income Tax Treatment
Dear Bob:
You have requested our opinion regarding the federal income tax
consequences to Sand Creek Communications Company, Sand Creek Telephone
Company, and the shareholders of Sand Creek Telephone Company of consummating
the Share Exchange pursuant to the Agreement and Plan of Share Exchange
("Agreement") between Sand Creek Communications Company and Sand Creek
Telephone Company.
The following opinion is based upon the existing provisions of the
Internal Revenue Code and Regulations thereunder (both final and proposed) and
upon current Internal Revenue Service published rulings and existing court
decisions, any of which could be changed at any time. Any such changes may be
retroactive and could significantly modify the statements and opinions
expressed herein. Similarly, any change in the facts and assumptions stated
below, upon which this opinion is based, could modify the conclusion.
We, of course, opine only as to matters expressly forth herein, and no
opinions should be inferred as to any other matters or as to the tax treatment
of this transaction that we do not specifically address. This opinion
expressly excludes advice as to the consequences under the tax laws of any
state or foreign nation regarding the Share Exchange.
This opinion represents our best judgment as to the probable outcome of
the tax issues discussed. It is not binding on the Internal Revenue Service.
Further, we can give no assurances the Internal Revenue Service will not
challenge our conclusions and prevail in the courts in such a matter so as to
cause adverse tax consequences to Sand Creek Communications Company, Sand
Creek Telephone Company and its shareholders.
The federal tax considerations discussed below are necessarily general as
to the various shareholders of Sand Creek Telephone Company, and their
applicability may vary depending upon the individual circumstances. The
following summary of the federal income tax consequences of the Share Exchange
is not intended as a substitute for careful tax planning on an individual
basis. Shareholders considering the Share Exchange are urged to consult their
tax advisor with specific reference to the effect of their own particular
facts and circumstances on the matters discussed herein.
This opinion is addressed to and for the benefit solely of Sand Creek
Communications Company, Sand Creek Telephone Company, and its shareholders.
All such persons and entities may reasonably rely on this opinion. No other
person or persons shall be entitled to rely on the contents herein without our
express written consent.
In rendering this opinion, we have examined and relied upon originals, or
copies certified or otherwise identified to our satisfaction, of such
documents, corporate records, certificate of public officials and officers of
Sand Creek Communications Company and Sand Creek Telephone Company and other
instruments as we have deemed necessary or advisable for purposes of this
opinion. In rendering the opinion, we have assumed that the documents
delivered to us were duly authorized, executed and delivered and that all
documents and copies of documents are true and accurate.
Based on the above, it is our understanding that Sand Creek Telephone
Company is a Michigan corporation with approximately 154 holders of its common
stock. We assume, but have not confirmed, that Sand Creek Telephone Company's
shareholders are citizens of the United States and hold their shares of Sand
Creek Telephone Company common stock as "capital assets". We understand that
Sand Creek Communications Company is a Michigan corporation. It has one (1)
share of common stock issued and outstanding, which is held by Sand Creek
Telephone Company. Sand Creek Communications Company's only asset is the
minimal capitalization amount of $1,000. Sand Creek Communications Company
currently has, and will not prior to the Share Exchange have, any other assets
or liabilities nor transact any business. Upon satisfaction (but not waiver)
of all of the conditions precedent to the Share Exchange set forth in the
Agreement, the Share Exchange will be consummated pursuant to the terms and
provisions of the Agreement. Upon consummation of the Share Exchange,
shareholders of Sand Creek Telephone Company who do not exercise dissenter's
rights will receive three shares of Sand Creek Communications Company common
stock for each share of Sand Creek Telephone Company common stock held by such
shareholder.
Although certainty is not possible, we are pleased to advise you that we
are of the opinion that 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 Telephone Company or Sand
Creek Communications Company as a result of the Share Exchange.
2. No gain or loss will be recognized by Sand Creek Telephone Company's or
Sand Creek Communications Company 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 Telephone Company or Sand Creek Communications Company.
4. The aggregate basis for tax purposes of the total number of shares of Sand
Creek Communications Company Common Stock received by a holder of Sand Creek
Telephone Company Common Stock pursuant to the Share Exchange will be the same
as the aggregate basis for such Shareholder's Sand Creek Telephone Company
Common Stock surrendered in exchange therefor.
5. A Sand Creek Telephone Company Shareholder's holding period with respect
to the shares of Sand Creek Communications Company 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 Telephone Company Common Stock
which were converted into such shares of Sand Creek Communications Company
Common Stock, provided that such shares of Sand Creek Telephone Company 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 Telephone Company shares exceed 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 Telephone Company 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 Telephone Company Common Stock must be
converted into an amount of Sand Creek Communications Company Common Stock
that at the Effective Time equals at least 80% of the aggregate value that all
of the Sand Creek Telephone Company 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 Telephone Company 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 Sand
Creek Communications Company Stock received by Sand Creek Telephone Company
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. Sand Creek Communications Company 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 Sand Creek Communications Company Common Stock on the Effective
Date. The disposition of Sand Creek Communications Company 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.
We hereby consent to this opinion being included in Sand Creek
Communications Company's Registration Statement under the Securities Act of
1933.
Very truly yours,
LOOMIS, EWERT, PARSLEY,
DAVIS & GOTTING, P.C.
/s/Ronald W. Bloomberg
Ronald W. Bloomberg
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