REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(as revised by Amendment No. 2)
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 Section 230.457(f)(2)
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission acting
pursuant to said section 8(a), may determine.
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 8
4. Terms of Transaction 10-18
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 39, 50-51
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 48-51
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 22-48
18. Information if Proxies, Consents or
Authorizations are to be Solicited
in an Exchange Offer 9, 10, 19-22, 37
19. Information if Proxies, Consents or
Authorizations are not to be Solicited N/A
20. Indemnification of Directors and Officers 39, 50-51
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.
SHAREHOLDERS HAVE DISSENTERS RIGHTS. SHAREHOLDERS DESIRING TO EXERCISE
SUCH RIGHTS MUST FILE A WRITTEN NOTICE PRIOR TO THE SPECIAL MEETING AND
REFRAIN FROM VOTING THEIR SHARES IN FAVOR OF THE SHARE EXCHANGE. SEE
"DISSENTERS RIGHTS".
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. SCCC does not
plan on listing SCCC Common Stock for trading on any exchange or market system.
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 November 1, 1995.
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to Shareholders of Sand Creek on or about November 10,
1995.
You are advised to retain this Proxy Statement/Prospectus for future
reference.
[Prospectus, Cover Page]
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.
[Prospectus, 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. Twenty-five (25%) percent of the common stock issued
and outstanding by the record holders thereof, in person or by proxy, shall
constitute a quorum at any meeting of the Shareholders. 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.
[Prospectus, 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. Except for transactions
involving immediate family members, Shareholders desiring to sell Common
Stock shall first present it to Sand Creek for sale. Sand Creek has a 60-day
period to exercise its right of first refusal. If Sand Creek does not
exercise such right, the Shareholder may sell to any party meeting
Shareholder requirements established pursuant to the Bylaws. The
Board has adopted the following restrictions on eligible Shareholders: First
Priority: Residents of service area; Second Priority: Immediate family
members of residents of service area; Third Priority: Michigan residents
within 50 miles of Sand Creek service area; Fourth Priority: Exiting
Shareholder residing outside service area and other individuals outside
service area who have a legitimate interest in service area. 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
[Prospectus, page 4]
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 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
[Prospectus, page 5]
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".
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. The foregoing and
discussion below is based upon the opinion of counsel, Ronald W. Bloomberg,
Loomis, Ewert, Parsley, Davis & Gotting, P.C. 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. After the Share Exchange, MPSC approval, under existing
law, of dividends by Sand Creek is not required. Although the MPSC does not
directly regulate dividend levels, it may be able, after the Share Exchange,
to regulate dividends indirectly to the extent such dividends have any
effect on determining just and reasonable rates. 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
[Prospectus, page 6]
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 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
6 Months
Ended June 30
1994 1993 1992 1991 1990 1995 1994
(Audited) (Audited) (Audited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net operating revenue $ 462,643 $ 505,446 $ 369,892 $ 256,930 $258,450 $ 208,785 $ 200,418
Net income before
cumulative change in
accounting principle $ 354,758 $ 348,841 $ 206,019 $ 149,031 $114,482 $ 198,829 $ 153,906
Net income per share
before cumulative
effect of change in
accounting principle $ 8.58 $ 8.56 $ 5.08 $ 3.69 $ 2.75 $ 4.78 $ 3.74
Cumulative effect of
change in accounting
principle $ -0- $ 31,746 $ -0- $ -0- $ -0- $ -0- $ -0-
Cumulative effect per
share of change in
accounting principle $ -0- $ 0.78 $ -0- $ -0- $ -0- $ -0- $ -0-
Net income $ 354,758 $ 380,587 $ 206,019 $ 149,031 $ 114,482 $ 198,829 $ 153,906
Net income per share $ 8.58 $ 9.34 $ 5.08 $ 3.69 $ 2.75 $ 4.78 $ 3.74
Total Assets $2,653,999 $2,458,967 $2,164,697 $1,958,005 $1,805,852 $2,687,676 $2,465,464
Long-term debt $ -0- $ 63,889 $ 97,220 $ 127,945 $ 159,985 $ -0- $ 15,829
Dividends per share $ 2 $ 1 $ 1 $ 1 $ 1 $ 1 $ 1
[Prospectus, page 7]
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.
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.
[Prospectus, 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 November 10, 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, (except in cases in which the Proxy is
to be voted against the Share Exchange, in which case, the Proxy will
not be voted in favor of adjourning the Special Meeting). 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
[Prospectus, page 9]
meeting. The Michigan Business Corporation Act ("MBCA") requires that the
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.
VI. SPECIAL MEETING - FAILURE TO APPROVE SHARE EXCHANGE
If the Share Exchange is not approved, management intends that the current
corporate structure and business of Sand Creek will continue.
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
[Prospectus, page 10]
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 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.
[Prospectus, page 11]
Under the holding 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
EXCHANGE WILL NOT TAKE
[Prospectus, page 12]
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
[Prospectus,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, Ronald W. Bloomberg, Loomis,
Ewert, Parsley, Davis & Gotting, P.C., 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.
SAND CREEK SHAREHOLDERS SHOULD NOT RETURN THEIR STOCK CERTIFICATES WITH THE
ENCLOSED PROXY OR UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS.
[Prospectus, page 14]
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 ofSand 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 notintended 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, 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.
[Prospectus, page 15]
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. Sand Creek and SCCC can enforce
these Bylaws through exercise of their rights of first refusal on transfers
of Common Stock outside of immediate family members. Also in the event of a
transfer between immediate family members in violation of such Bylaws, the
Bylaws of both companies provide that the company shall purchase
such Common Stock. The Bylaws also permit the companies to issue additional
shares of Common Stock to remedy a violation.
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. See "Summary -II. The Companies - B. Sand Creek Common Stock", above.
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.
[Prospectus, 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
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.
[Prospectus, page 17]
The tax discussion set forth above is included for general information and
is based upon present law and the opinion of counsel, Ronald W. Bloomberg,
Loomis, Ewert, Parsley, Davis & Gotting, P.C., which opinion has been
delivered to SCCC and is an exhibit to the Registration Statement. 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.
[Prospectus, 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:
Paid-In Retained Total
# Of Shares Capital Stock Capital Earnings Equity
Sand Creek
Balance @ 06-30-95 41,405 1/3 414,053 34,570 1,961,034 2,409,657
2. Stock Redemption (41,405 1/3) (414,053) (34,570) 448,623 -0-
3. Stock Issuance 41,405 1/3 414,053 (414,053) -0-
Proforma
post-exchange 41,405 1/3 414,053 -0- 1,995,604 2,409,657
SCCC
Balance @ 06-30-95 1 1,000 -0- -0- 1,000
1. Stock Redemption (1) (1,000) (1,000)
2. Stock Issuance 124,216 1,242,160 (1,242,160) -0-
3. Stock Acquisition 2,409,657 2,409,657
Proforma
Post Exchange 124,216 1,242,160 -0- 1,167,497 2,409,657
1. Sand Creek redeems its share of stock in SCCC.
2. Sand Creek shareholders redeem each of their shares of Sand Creek stock in
exchange for 3 shares of SCCC stock.
3. Sand Creek issues 100% of its stock to SCCC.
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
[Prospectus, page 19]
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.
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
[Prospectus, page 20]
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.
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.
[Prospectus, page 21]
A PROXY OR VOTE AGAINST THE SHARE EXCHANGE WILL NOT, BY ITSELF, BE REGARDED
AS A WRITTEN OBJECTION FOR PURPOSES OF ASSERTING DISSENTERS' RIGHTS.
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. Sand Creek is not aware of any significant
dissatisfaction of its employees with their employment.
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 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.
[Prospectus, page 22]
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.
Currently, persons in and around the service area use long-distance toll
calls to access such services. The contemplated entity would facilitate
access without the necessity of a toll call. The service is projected to be
available by the end of the first quarter of 1996. Funds for such
investment will come from retained earnings, and the current timetable is
for the initial investment to be made in late 1995 or early 1996.
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
[Prospectus, 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.]
[Prospectus, 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.
[Prospectus, page 25]
Statements of Cash Flows
<CAPTIONS>
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.
[Prospectus, 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.
[Prospectus,page 27]
Statement of Changes in Stockholders' Equity
For the Years Ended December 31, 1992, 1993, and 1994
Additional Total
Number of Capital Paid In Retained Stockholders'
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
Number of Capital Paid In Retained Stockholders'
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.
[Prospectus, 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.
[Prospectus, page 29]
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 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
[Prospectus, page 30]
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
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.
[Prospectus, page 31]
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
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
These unaudited interim financial statements as of June 30, 1995 and 1994
and for the six months ended June 30, 1995 and 1994 reflect all adjustments
which are,in the opinion of management, necessary to provide a fair
statement of the results for the interim periods presented. All adjustments
made are of a normal and recurring nature.
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.
[Prospectus, page 32]
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 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, primarily due to a decrease of
approximately $2,300 in interest income..
Operating Revenues and Expenses. Local service revenues increased by
approximately $9,000 primarily due to higher levels of deregulated sales in
1995 (e.g.telephones and related equipment). Rates charged for local service
regulated by the MPSC did not change. Access revenue is based on a rate of
return for the cost of providing access to the toll network. The final
settlement amounts take several years to finalize. In the interim, estimates
are booked and true-ups recorded based upon a change in estimate or the final
access revenue settlement. 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. Based on information available, management
anticipates any such adjustments will be a reduction in revenues of less than
$10,000. 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. The Company is currently in the process of conducting
a study of the remaining service lives of their property, plant and
equipment. As a result of this study new estimated depreciation rates will
be implemented in either late 1995 or January 1, 1996. It is currently
[Prospectus, page 33]
projected that when the new depreciation rates are implemented that annual
depreciation expense will increase approximately $30,000.
Taxes. Operating taxes are down due to a reduction in state property tax of
approximately $7,500, as well as, adjustments of approximately $10,000 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 investment in Cass Cellular
Limited Partnership. The Company holds a 22.5% limited partnership interest
in Cass Cellular Limited Partnership. Cass Cellular provides cellular
telephone service in an area along the Southern border of Michigan. This is a
key traffic corridor experiencing substantial roaming traffic. It is
anticipated that Cass Cellular will experience continued growth in revenue
and profits. However, Cass Cellular is subject to competition from other
cellular providers and the emergence of personal communications services as
a viable technology.
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, principally an increase fo approximately $2,000 in
interest income plus approximately 6,000 gain on the sale of land, less
interest and other expenses, was 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.
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 (e.g. telephones and related equipment). Rates
for local service regulated by the MPSC did not change. Access revenue is
based on a rate of return for the cost of providing access to the toll
network. The final settlement amounts take several years to finalize. In
the interim, estimates are booked andtrue-ups recorded based upon a change
in estimate or the final access revenue settlement. Access revenues increased
$12,000 in 1994 compared to 1993 due to increased revenues of approximately
$6,000 from true-ups of prior years' settlements and increased minutes of
use resulting in increased revenues of approximately $6,000 from 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. The Company is currently in the process of conducting a study of
the remaining service lives of their property, plant and
[Prospectus, page 34]
equipment. As a
result of this study new estimated depreciation rates will be implemented in
either late 1995 or January 1, 1996. It is currently projected that, when
the new depreciation rates are implemented, annual depreciation expense
will increase approximately $30,000.
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 increased taxes of approximately $18,000 due to
higher levels of taxable income and approximately $30,000 of 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.
Sand Creek's known capital expenditures for the next 12 months and beyond are
approximately $191,500 and the expected source of future capital for such
expenditures is retained earnings. Management believes that Sand Creek's
liquidity is adequate to meet its projected capital and other needs for the
next twelve months and beyond. There is currently no projected need for
cash that would require borrowing from outside sources.
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.
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.
[Prospectus, page 35]
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 (telephones and related equipment).
Rates for local service regulated by the MPSC did not change. Access and toll
revenues increased $166,000 in 1993 compared to 1992 primarily due to an
$98,000 adjustment to estimated prior years settlements and increased minutes
of use resulting in an increase of approximately $68,000 in settlements from
both the interstate and intrastate access pools. Access revenue is
based on a rate of return for the cost of providing access to the toll
network. The final settlement amounts take several years to finalize. In the
interim, estimates are booked and true-ups recorded based upon a change in
estimate or the final access revenue settlement. 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 $12,000 of additional customer service cost and
$8,000 of additional accounting cost.
Depreciation increased approximately $27,000 primarily as a result of
increased plant in service. The Company is currently in the process of
conducting a study of the remaining service lives of their property, plant
and equipment. As a result of this study, new estimated depreciation rates
will be implemented in either late 1995 or January 1, 1996. It is currently
projected that, when the new depreciation rates are implemented, annual
depreciation expense will increase approximately $30,000.
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, of which $63,000
is due principally to higher levels of taxable income, which was offest by
approximately $20,000 of reductions 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.
[Prospectus, page 36]
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.
[Prospectus, page 37]
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/Director 1993 -0- 1,250 1,250
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 Manager 1993 31,871 4,615 36,486
1992 30,354 4,300 34,654
[Prospectus, page 38]
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 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.
[Prospectus, page 39]
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*
* 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
VIII - CASS CELLULAR LIMITED PARTNERSHIP FINANCIAL STATEMENTS:
Sand Creek has a limited partnership interest in Cass Cellular Limited
Partnership. The following are the audited financial statements for Cass
Cellular Limited Partnership.
General and Limited Partners
Cass Cellular Limited Partnership
Petersburg, Michigan.
Independent Auditor's Report
We have audited the accompanying balance sheets of Cass Cellular Limited
Partnership as of December 31, 1994 and 1993, and the related statements of
income, partner's capital and cash flows for the years ended December 31,
1994, 1993, and 1992. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express the opinion
of these financial statements based upon 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
[Prospectus, page 40]
management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
The Partnership has recorded its investments in Michigan RSA #9 Limited
Partnership on the equity method of accounting. Statement of Financial
Accounting Standards No. 94 requires the consolidation of all majority-owned
enterprises. Cass Cellular Limited Partnership owns 55.62% of Michigan
RSA #9 Limited Partnership as a general partner. If Michigan RSA #9 Limited
Partnership had been consolidated, assets and liabilities would have
increased by $2,242,000, $1,322,000, and $819,000 at December 31, 1994,
1993, and 1992, respectively.
In our opinion, except for the effects of not consolidating Michigan RSA #9
as discussed in the preceding paragraph, the financial statements referred
to above present fairly, in all material respects, the financial position of
Cass Cellular Limited Partnership at December 31, 1994, 1993 and 1992 and
the results of its operations and cash flows for the years then ended in
conformity with generally accepted accounting principles.
McCartney and McIntyre, P.C.
March 13, 1995
Okemos, Michigan
[Prospectus, page 41]
Cass Cellular Limited Partnership
Balance Sheet
As of December 31, 1994 and 1993
ASSETS
1994 1993
Current Assets
Cash and Cash Equivalents $ 198,741 $ 7,725
Total Current Assets $ 198,741 $ 7,725
Noncurrent Assets
Investments in RSA #9 $1,956,177 $1,146,013
St. Paul Bank - Class
C Stock 26,285 15,554
Allocated Patronage - St.
Paul Bank 16,029 6,514
Total Noncurrent Assets $1,998,491 $1,168,081
Total Assets $2,197,232 $1,175,806
LIABILITIES AND PARTNERS' EQUITY
1994 1993
Current Liabilities
Accounts Payable $ 3,382 $ 2,375
Accrued Expenses 31,902 17,922
Current Portion - Bank Loan 356,000 -0-
Total Current Liabilities $ 391,284 $ 20,297
Noncurrent Liabilities
Bank Loan, net of Current
Portion $1,232,077 $ 943,293
Total Liabilities $1,623,361 $ 963,590
Partners' Equity $ 573,871 $ 212,216
Total Liabilities And
Partners' Equity $2,197,232 $1,175,806
The accompanying notes are an integral part of these financial
statements.
[Prospectus, page 42]
Cass Cellular Limited Partnership
Statements of Income
As of December 31, 1994, 1993 and 1992
1994 1993 1992
Revenues
RSA #9 Operations $ 671,114 $ 219,160 $ 108,348
Patronage 13,593 8,362 943
Total Revenues $ 684,707 $ 227,522 $ 109,291
Expenses
Interest Expense $ 92,841 $ 62,772 $ 44,239
Legal and Accounting 14,786 9,218 13,659
Other 2,175 1,436 961
Total Expenses $ 109,802 $ 73,426 $ 58,859
Net Income $ 574,905 $ 154,096 $ 50,432
The accompanying notes are an integral part of these financial
statements.
[Prospectus, page 43]
CASS CELLULAR LIMITED PARTNERSHIP
Statement of Partners' Equity
For The Years Ended December 31, 1993 and 1992
Gen. Ptr. Limited Partners
Sand
Ogden Creek Waldron
D & P D & P Telephone Telephone Telephone
Total Comm. Comm. Company Company Company
100% 10% 22 1/2% 22 1/2% 22 1/2% 22 1/2%
Balance at
January 1,
1992 $(26,433) $ (2,645) $ (5,947) $ (5,947) $ (5,947) $ (5,947)
Contributions 25,871 2,587 5,821 5,821 5,821 5,821
Contributions
Receivable (2,250) (2,250)
Allocation
of Partnership
Income 50,432 5,044 11,347 11,347 11,347 11,347
Balance at
December 31,
1992 $ 47,620 $ 4,986 $ 11,221 $ 11,221 $ 8,971 $ 11,221
Contributions 17,250 1,500 3,375 3,375 5,625 3,375
Contributions
Receivable (6,750) (3,375) (3,375)
Allocation of
Partnership
Income 154,096 15,408 34,672 34,672 34,672 34,672
Balance at
December 31,
1993 $212,216 $ 21,894 $ 49,268 $ 49,268 $ 45,893 $ 45,893
The accompanying notes are an integral part of these financial
statements.
[Prospecus, page 44]
CASS CELLULAR LIMITED PARTNERSHIP
Statement of Partners' Equity
For The Years Ended December 31, 1994 and 1993
Gen. Ptr. Limited Partners
Sand
Ogden Creek Waldron
D & P D & P Telephone Telephone Telephone
Total Comm. Comm. Company Company Company
100% 10% 22 1/2% 22 1/2% 22 1/2% 22 1/2%
Balance at
January 1,
1993 $ 47,620 $ 4,986 $ 11,221 $ 11,221 $ 8,971 $ 11,221
Contributions 17,250 1,500 3,375 3,375 5,625 3 ,375
Contributions
Receivable (6,750) (3,375) (3,375)
Allocation of
Partnership
Income 154,096 15,408 34,672 34,672 34,672 34,672
Balance at
December 31,
1993 $212,216 $ 21,894 $ 49,268 $ 49,268 $ 45,893 $ 45,893
Contributions 6,750 3,375 3,375
Distributions (220,000) (22,000) (49,500) (49,500) (49,500) (49,500)
Allocation of
Partnership
Income 574,905 57,489 129,354 129,354 129,354 129,354
Balance at
December 31,
1994 $573,871 $ 57,383 $129,122 $129,122 $129,122 $129,122
The accompanying notes are an integral part of these financial
statements.
[Prospectus, page 45]
Cass Cellular Limited Partnership
Statements of Cash Flows
As of December 31, 1994, 1993 and 1992
1994 1993 1992
Operations:
Net Income $ 574,905 $ 154,096 $ 50,432
Non-Cash Items:
RSA #9 Earnings (671,114) (219,160) (108,348)
Allocated Patronage (9,515) (5,854) (660)
Operating Accounts:
Accounts Payable 1,007 629 1,746
Accrued Expenses 13,980 3,901 8,758
Cash Used in Operations $ (90,737) $ (66,388) $ (48,072)
Investing:
Investment in RSA #9 $ (556,200) $(183,546) $(186,883)
Distributions from RSA #9 417,150 -0- -0-
Investment in Class C Stock (10,731) (8,176) (6,378)
Cash Used in Investing
Activities $ (149,781) $(191,722) $(193,261)
Financing:
Loan Proceeds $ 644,784 $ 249,965 $ 221,227
Partner Distributions (220,000) -0- -0-
Partner Contributions 6,750 10,500 23,621
Cash Provided By
Financing Activities $ 431,534 $ 260,465 $ 244,848
Increase in Cash $ 191,016 $ 2,355 $ 3,515
Cash and Cash Equivalents
Beginning of Year 7,725 5,370 1,855
Cash and Cash Equivalents
End of Year $ 198,741 $ 7,725 $ 5,370
The accompanying notes are an integral part of these financial
statements.
[Prospectus, page 46]
Cass Cellular Limited Partnership
Notes to Financial Statements
1. Summary of Accounting Policies
General:
Cash Cellular Limited Partnership was formed to invest in and manage the
cellular rights of its partners in the Rural Service Area (RSA) #9 cellular
territory, which consists primarily of the lower tier of counties within the
State of Michigan.
The partnership members are as follows:
D & P Communications, Inc.
As General Partner 10.0%
As Limited Partner 22.5%
Ogden Telephone Company - As Limited Partner 22.5%
Sand Creek Telephone Company - As Limited Partner 22.5%
Waldron Telephone Company - As Limited Partner 22.5%
Total 100.0%
Investment in RSA #9
The Partnership records its investment in Michigan RSA #9 Limited Partnership
on the equity method of accounting. Accordingly, the investment account is
increased for contributions to and earnings from Michigan RSA #9 Limited
Partnership and decreased for distributions and losses received.
Income Taxes:
No federal income effects of partnership activities are reflected in the
financial statements because such taxes are the responsibility of the
individual partners of Cass Cellular.
Cash Flows:
For cash flow purposes, cash consists of demand deposits and items with
maturities of less than three months. For the years ended December 31,
1994, 1993, and 1992, Cass Cellular Limited Partnership paid cash for
interest of $78,861, $59,739, and $30,218, respectfully.
2. Investment in Michigan RSA #9
The Partnership owns 55.62% of Michigan RSA #9 Limited Partnership (RSA #9).
RSA #9 provides cellular service within the service area determined by the
Federal Communications Commission. RSA #9 is operated by Century Cellunet,
Inc., a wholly-owned subsidiary of Century Telephone Enterprises, Inc. Century
Cellunet also owns 43.38% of RSA #9. The remaining 1% is owned by Ameritech.
Currently, there are nine sites operational within the cellular service area.
In addition, the members of RSA #9 have approved additional sites to be
constructed during 1995. The construction costs for these sites along with
additional equipment for existing sites are expected to approximate
$2,485,000. Cass Cellular's portion of these costs would be approximately
$1,382,000. These amounts will be funded principally through additional
borrowings.
[Prospectus, page 47]
3. Class C Stock
Class C stock represents amounts purchased from The St. Paul Bank for
Cooperatives as a condition of obtaining financing (see Note 4). The stock
is recorded at cost. There is no established market value for the stock;
however, management believes that based upon an evaluation of the underlying
assets, that the redemption value is at least equal to cost. This stock is
not redeemable during the life of the loan and is, therefore, classified as
noncurrent.
4. Loans Payable
Loans payable represent amounts advanced by The St. Paul Bank for Cooperatives
under a $1,600,000 note. Unadvanced funds under this note are approximately
$11,923 at December 31, 1994. This note bears interest at a variable rate
(9.7% at December 31, 1994).
In March of 1995, Cass Cellular Limited Partnership negotiated an increase in
this loan of $2,500,000, for a total loan of $4,100,000. Payments are
scheduled to begin quarterly in 1995. The loan matures on December 31, 2001,
with any unpaid principal due at that time. Principal payments for the next
five years, adjusted for the additional borrowing described above, are
approximately as follows:
1995 $356,000
1996 391,000
1997 430,000
1998 473,000
1999 521,000
The loan contains covenants which, among other things, restricts distributions
to the partners and mandates certain financial ratios. In addition,
substantially all assets of the Partnership are pledged as collateral for
the loans.
5. Concentration of Cash
At December 31, 1994, the Partnership had cash balances of $98,741, on deposit
with a local bank, in excess of Federal insurance limits.
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:
[Prospectus, page, 48]
Independent Auditor's Report
We have audited the accompanying balance sheet of Sand Creek Communications
Company, as of June 30, 1995. This financial statement is the responsibility
of the Company's management. Our responsibility is to express an opinion on
this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the balance sheet.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the balance
sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Sand Creek Communications
Company as of June 30,1995, in conformity with generally accepted accounting
principles.
McCartney and McIntyre, P.C.
Okemos, Michigan
October 30, 1995
Sand Creek Communications Company
Balance Sheet
As Of June 30, 1995
Assets
Cash $1,000
Total Current Assets: $1,000
Stockholder's Equity
Common Stock, 160,000 shares
authorized, issued and oustanding,
1 share $1,000
Total Stockholder's Equity: $1,000
The accompanying notes are an integral part of this financial statement.
Notes to June 30, 1995 Balance Sheet
1. Sand Creek Communications Company (SCCC) is a wholly-owned subsidiary of
Sand Creek Telephone Company and was formed in 1995. To date, the Company
has not conducted any operations.
2. The accounting records of SCCC are maintained in accordance with generally
accepted accounting principles.
[Prospectus, page 49]
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.
[Prospectus, page 51]
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 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 balance sheets of Sand Creek 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 have been audited by
McCartney and McIntyre, P.C., Okemos, Michigan, and their report was dated
on June 21, 1995.
The balance sheets of Cass Cellular Limited Partnership as of December 31,
1994 and 1993, and the statements of income, changes in partners' equity, and
cash flows for the years ended December 31, 1994, 1993 and 1992 have been
audited by McCartney and McIntyre, P.C. and their report was dated on March
13, 1995.
The balance sheets of Sand Creek as of June 30, 1995 and 1994, and the
statements of income, changes in stockholders' equity, and cash flows for
the six months ended June 30, 1995 and 1994 have been compiled by McCartney
and McIntyre, P.C. without audit or review and they do not express an opinion
on their report dated August 14, 1995.
The balance sheet of Sand Creek Communications Company as of June 30, 1995
has been audited by McCartney and McIntyre, P.C. and their report was dated
on October 30, 1995.
[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.................................................... 8
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
VI. SPECIAL MEETING - FAILURE TO APPROVE SHARE EXCHANGE....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.. 33
III. SECURITY OWNERSHIP OF CERTAIN OWNERS AND
MANAGEMENT........................................ 37
IV. MANAGEMENT.......................................... 37
V. LIABILITY AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS........................................... 39
VI. LEGAL PROCEEDINGS................................ 39
VII. DIVIDENDS ON AND MARKET PRICES OF SAND CREEK COMMON
STOCK............................................ 39
VIII.CASS CELLULAR LIMITED PARTNERSHIP FINANCIAL
STATEMENTS....................................... 40
INFORMATION ABOUT SCCC........................................ 48
I. DESCRIPTION OF SCCC BUSINESS......................... 48
II. SCCC MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AS A RESULT OF OPERATIONS............... 50
III. SECURITY OWNERSHIP OF CERTAIN OWNERS AND
MANAGEMENT........................................ 50
IV. MANAGEMENT.......................................... 50
V. LIABILITY AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS.......................................... 50
VI. LEGAL PROCEEDINGS................................. 51
VII. DIVIDENDS ON AND MARKET PRICES OF SCCC COMMON
STOCK........................................... 51
LEGAL MATTERS.............................................. 51
EXPERTS...................................................... 51
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 amended registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Sand
Creek, State of Michigan, on November 1, 1995.
Sand Creek Communications Company
By: /S/ Robert hinsdale
Robert Hinsdale, President
Pursuant to the requirements of the Securities Act of 1933, this
amended registration statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/Robert Hinsdale Date: November 1, 1995
Robert Hinsdale
Director, Sand Creek Communications Company
/s/ Gustav Leu Date: November 1, 1995
Gustav Leu
Secretary/Director, Sand Creek Communications Company
/s/ Lawrence Wilt Date: November 1, 1995
Lawrence Witt
Vice President/Director, Sand Creek Communications Company
/s/ Richard Simpkins Date: November 1, 1995
Richard Simpkins
Director, Sand Creek Communications Company
/s/ Harvey Souders Date: November 1, 1995
Harvey Souders
Director, Sand Creek Communications Company
/s/ Margie M. Gallatin Date:November 1, 1995
Margie M. Gallatin
Treasurer, Sand Creek Communications Company
Sand Creek Telephone Company
By: /s/ Robert Hinsdale Date:November 1, 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 ----------