20130312Blackfoot MOU.pdf

McDevitt & Miller LLP
Lawyers 2011 MAR H PM 3:50
420 West Bannock Street IDAH ° [phone] P.0. Box 2564-83701 ITtLfliE McDevitt
[phone] (Fax) Boise, Idaho 83702 Dean J. (Joe) Miller
Celeste K. Miller
March 11, 2013
Via Hand Deivexy
Ms. Tern Carlock
Accounting Section Supervisor
Idaho Public Utilities Commission
472 W. Washington St.
Boise, Idaho 83720
Re: Blackfoot Telecommunications MOU
Dear Tern:
Enclosed please find the Memorandum of Understanding (MOU) executed by Ted Otis on behalf
of Blackfoot.
Please note that Exhibit B is being filed as a confidential document subject to the Protective
Agreement previously executed.
Kindly sign a copy of the MOU and return for our files.
Very Truly Yours,
McDevitt & Miller LLP
grMiller
DJM/bh
cc: Jason Williams, Blackfoot Telecommunications Group
MEMORANDUM OF UNDERSTANDING
On November 28, 2012, Fremont Telcom Co. (Fremont) and Blackfoot
Telecommunications Group (Blackfoot) filed a Joint Notification with the Idaho Public
Utilities Commission (IPUC) notifying the IPUC that Blackfoot agreed to acquire from
FairPoint Communications (FairPoint), effective upon closing of the transaction, all of
the outstanding shares of capital stock of Fremont. Fremont would thereafter become a
wholly-owned subsidiary of BTC Holdings, Inc., whose ultimate parent company Is
Blackfoot Telephone Cooperative, Inc. The contemplated transaction closed on
January 31, 2013. The corporate organizational structure after closing of the stock
acquisition as it pertains to Fremont Is set forth in the organizational chart attached
hereto as Exhibit A.
Blackfoot and the Staff of the IPUC enter Into this Memorandum of
Understanding to more clearly delineate conditions to protect Fremont's Customers.
Blackfoot and the Staff of the IPUC each agree that this Memorandum of Understanding
Is entered into for the protection of Fremont's Customers, and that none of the
provisions hereof are Intended to conflict with Order No. 32170 or any other order of the
IPUC with respect to the approval by the IPUC of the terms of the Master Loan
Agreement and the First Supplement to Master Loan Agreement, each dated as of
January 31, 2013, and each among CoBank, ACB (uCoBankN), Blackfoot, Fremont and
certain other subsidiaries of Blackfoot, each as co-borrowers thereunder (the *Loon
Agreement*), or the Pledge and Security Agreement, dated as of January 31, 2013,
among Blackfoot, Fremont and certain other subsidiaries of Blackfoot as pledgors
thereunder. Blackfoot and the Staff of the IPUC agree that nothing In this MOU shall be
Interpreted In such a way nor require Blackfoot or Fremont to perform any act or
omission that would place Blackfoot or Fremont In breach, violation or default of the
Loan Agreement or the Pledge and Secuirty Agreement. By execution of this MOU,
Blackfoot and Fremont agree to perform all of the commitments as set forth herein
1. The following describes the manner In which Blackfoot has established Fremont as
a subsidiary:
20139121.2
a.Blackfoot used a combination of debt and equity to acquire Fremont from
FairPoint. Blackfoot and its subsidiaries, including Fremont, have entered Into
the Loan Agreement wherein Fremont is a co-borrower. Blackfoot has
allocated to Fremont a portion of the total CoBank debt in accordance with
the valuation of the Fremont assets. See Exhibit B (confidential).
b.In Order No. 32710, the IPUC authorized Blackfoot to pledge the assets of
Fremont as collateral for the CoBank debt.
c.On January 31, 2013, the common stock of Fremont was transferred to
[:1rJ
d.As a result of the transaction and as of January 31, 2013, Fremont has a
current debt-to-equity ratio of approximately 55% debt to 45% equity.
e.From an Idaho local ratemaking perspective, Fremont's debt will be paid and
maintained separate from the financial obligations of Btackfoot and Its
affiliates.
f.Except as already authorized by the IPUC, Fremont will not make loans to
Blackfoot or Its respective subsidiaries, or assume any obligation or liability as
guarantor, endorser, surety or otherwise for Blackfoot or its respective
subsidiaries without the specific approval of the Idaho Public Utilities
Commission. Blackfoot and Fremont will not pledge any of the assets of
Fremont as backing for any securities which Blackfoot or its respective
subsidiaries, but excluding Fremont, may issue without the specific approval
of the Idaho Public Utilities Commission.
2.Blackfoot will file a notification with the IPUC Staff within thirty days of the
permanent debt financing, as described in paragraph 1, is complete. Attached
as Exhibit B (confidential) and Exhibit C are the accounting details for the
permanent financing.
3.Fremont will maintain Its own accounting documentation and its financial books
and records, and state and federal utility regulatory filings and documents will be
available to the IPUC Staff upon request.
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4.Financial statements and other financial books and records of Fremont shall be
maintained Separate from the books and records of Blackfoot. The assóts of
Fremont will be accounted for separately from the assets of Blackfoot and its
other subsidiaries, divisions, and affiliates. This will not prevent the maintenance
of books and records of Fremont, Blackfoot, or their affiliates on or through a
common computer accounting platform or on a consolidated basis. This will also
not prevent the consolidated treatment or reporting of financial statements,
financial results, and other financial books and records of Fremont, Blackfoot, or
their subsidiaries and affiliates for financial reporting, tax, or other purposes.
5.Blackfoot and Fremont consistent with Idaho Code, Title 61, Chapter 4, will
provide the Commission access to all books of account, as well as all
documents, data, and records of their affiliated Interests, which pertain to
transactions between Fremont and Its affiliated Interests or which are otherwise
reasonably calculated to lead to discoverable information regarding Fremont.
6.Blackfoot and Fremont will provide the Commission access to those portions of
corporate minutes including Board of Directors' minutes, all committee and
subcommittee minutes, along with any related reports and source documents
that may lead to relevant information regarding Frernont's business.
7.Fremont will not own or hold shares of any parent entity, Blackfoot or any other
parent entity that may be formed.
8.Fremont or Blackfoot will notify the Commission subsequent to BIaCkfOOt board
approval and as soon as practicable following any public announcement of: (1)
any acquisition of a regulated or unregulated business representing 10 percent or
more of the capitalization of Blackfoot; or (2) the change in effective control or
acquisition of any material part or all of Fremont by any other firm, whether by
merger, combination, transfer of stock or assets.
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9.Fremont will provide the IPUC and Staff with notification of all publicly announced
proposals for divestiture, spin-off, or sale of Fremont utility assets.
10.Fremont and Blackfoot commit that Fremont shall maintain a Total Adjusted
Consolidated Capital ratio of at least 35% equity (using a purchased accounting
approach). Fremont's Total Adjusted Consolidated Capital is defined as the
common equity, preferred equity and long-term debt of Fremont. Fremont shall
provide the Commission notice in the event that Its equity ratio drops beneath
35% equity.
11.Fremont will provide notice to the Commission, when the dividend payment
increases by 10% or more than one-fourth of the dividends paid over the
previous 12 months.
12.Cost allocations between Fremont and Blackfoot, including Its utility divisions and
subsidiaries will be based on generally accepted accounting standards; that is:
(a) Costs incurred specifically for a party will be directly assigned to that party; (b)
Costs that are impractical to assign directly but for which a cost/benefit
relationship can be reasonably identified between the service provided and the
recipient, will be assigned based on a practical allocation method that allocates
the costs equitably and consistently to the recipient party based on cost driving
factors; and (C) Costs that are Incurred for the general benefit of the entire utilities
group for which direct assignment are not practical, will be allocated to the
parties using an allocation methodology that Is established and used consistently
from year to year. See Exhibit C.
13.Fremont will provide the Staff with notification of all affiliate transactions,
excluding administrative cross charges between Fremont and Blackfoot and Its
subsidiaries, if the transaction Involves a cost of more than $500,000,
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14.Blackfoot will use its best efforts to maintain continuity in the operations of
Fremont while looking for opportunities to improve customer service and to
increase efficiencies through the sharing of "best practices" and the consolidation
of certain corporate and administrative functions. Fremont will maintain
adequate staffing consistent with the provision of safe and reliable service and
cost-effective operations.
15.The premium paid by Blackfoot for Fremont (Goodwill or Acquisition Premium)
Will be excluded from the utility accounts of Fremont for ratemaking purposes.
Further, Fremont will not request rate recovery of the transaction costs
associated with the acquisition nor will it seek recovery of the purchase premium
from rate payers.
16.Nothing In this Memorandum of Understanding shall be Interpreted as a waiver of
Fremont's or Blackfoot's right to request confidential treatment for information
that is subject to this memorandum.
17.Blackfoot and Freemont will periodically review and abide by all Commission
Rules and Regulations and in particular at the time of closing, Rule 107 relating
to Records of Deposits Telephone Customer Relations Rules (IDAPA 31.41.01).
18.Nothing in this Memorandum shall be construed so as to subject Blackfoot Or its
affiliates other than Fremont to regulation as a public utility within the meaning of
Title 61, Idaho Code.
Dated this IJ day of March, 2013.
Idaho Public Utilities Commission Staff
By:~2TW11
Tern Carlock
Deputy Administrator, Utilities Division
Blackfoot T ecommunicatlons Group
By: bj5;-.-
Theodore P. Otis
Vice President, Chief Financial Officer
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Blackfoot Telecommunications Group
Organizational Chart
Fremont Tetcom Co. has been designated as the Manager of Fretel Communications, LLC
Exhibit C
Regulated cost allocations.
As a rate-of-return regulated ILEC, Freemont is subject to FCC Parts 64, Part 36, and Part 69 accounting.
In compliance with FCC Parts 64 and 36 regulations, Blackfoot maintains a Cost Allocation Manual (CAM)
dictating the allocation of cost among regulated and non-regulated operations, as well as among
companies.
Blackfoot has three Study Areas (two for Blackfoot Telephone Cooperative, Inc.'s service territory and
one for Fremont), all of which participate in the NECA Traffic Sensitive Pool. As such, FCC Part 36 (and
Part 69) studies are prepared for each Study Area. Presently, Part 36 studies are prepared using
consulting resources (Moss Adams). The studies are prepared in compliance with FCC Part 36 (and Part
69) regulations and subject to rigorous auditing review by multiple parties (including NECA, annually,
and USAC and GAO, periodically).
Annually Blackfoot is subject to independent accounting auditing. For calendar year 2012, Moss Adams
has completed field auditing and will be producing audit reporting, including financial statements in
March 2013, in compliance with the Government Auditing Standards. Moss Adams has been "engaged"
for calendar year 2013 auditing.