HomeMy WebLinkAbout20090720Revised Letter of Information.pdfGIVE SLEY LLP
LAW OFFICES
601 W. Bannock Street
PO Box 2720, Boise, Idaho 83701
TELEPHONE: 208 388-1200
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Cynthia A. Melilo
Direct Dial: (208) 388-1273
E-Mail: camC!givenspursley.com
Gary G. Allen
Peter G. Barton
Christopher J. Beeson
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Erik J. Bolinder
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Willam C. Cole
Michaei C. Creamer
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Elizabeth M. Donick
Kristin Bjorkman Dunn
Thomas E. Dvorak
Jeffrey C. Fereday
Justin C. Fredin
Martin C. Hendrickson
Steven J. Hippler
Donald E. Knickrehm
Debora K. Kristensen
Anne C. Kunkel
Jeremy G. Ladle
Michael P. Lawrence
Franklin G. Lee
David R. Lombardi
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Kelly Greene McConnell
Cynthia A. Melillo
Christopher H. Meyer
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Patrick J. Miler
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Deborah E. Neison
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W. Hugh O'Riordan, LL.M.
Angela M. Reed
Justin A. Steiner
Scott A. Tschirgi, LL.M.
J. Will Varin
Conley E. Ward
Robert B. White
July 17, 2009
RETIRED
Kenneth L. Pursley
Ja~ A. McClure
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VIA ELECTRONIC MAIL and US MAIL aean.jeweIlCãuc.idaho.gov)
Jean Jewell, Secretary
Idaho Public Utilities Commission
472 W. Washington
P.O. Box 83720
Boise, 1083720-0074
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Re: Revised Letter of Information regarding Midvale Telephone ESOP Conversion
Our File: 1614-87
Dear Ms. Jewell:
On February 20, 2009, I wrote to the Idaho Public Utilties Commission (the
"Commission") requesting verification from the Commission that no approvals would be required
in connection with Midvale Telephone Exchange, Incorporated's plan to convert ownership of
Midvale Telephone Exchange, Incorporated ("Midvale") to an Employee Stock Ownership Plan
("ESOP"). I have attached a copy of that letter hereto. By Order 30765, dated April 3, 2009, the
Commission determined that no approvals would be required. A copy of that Order is also
attached hereto.
I am writing at this time because Midvale desires to change the proposed structure of the
ESOP transaction, and i would again like to verify that no Commission approvals wil be
required for the revised structure. At the time of my last letter, we proposed that Midvale would
adopt an ESOP and create the ESOP trust. Then Midvale would create a holding company that
would be a parent company of Midvale, organized to own all of the issued and outstanding
shares of Midvale stock. This parent company would exchange parent company shares for all
of the shares of Midvale held by Lane Wiliams, the estate of Shirley Archer and the ESOP so
that the parent company would own all of the issued and outstanding shares of Midvale stock.
Lane Willams and the estate of Shirley Archer would then own shares of parent company stock.
The ESOP would then purchase all of the shares of the parent company held by Lane Willams
Jean Jewell
July 17, 2009
Page 2
and the estate of Shirley Archer, using the annual contribution made by Midvale to the ESOP.
At the completion of the transaction, Midvale would be wholly owned by the new parent
company and the new parent company would be wholly owned by the ESOP trust, in trust for all
eligible employees.
At this time we are proposing that instead of creating a parent company, Midvale would
create a wholly owned subsidiary. Midvale would then transfer all of its assets and liabilties to
this operating subsidiary ("Midvale Subsidiary") in a tax-free Section 351 capitalization. As a
result of this transaction, all of the existing Midvale employees wil become employees of
Midvale Subsidiary. After the transaction, Midvale will have no assets other than 100% of the
stock of Midvale Subsidiary. Midvale Subsidiary would then adopt the ESOP and create the
ESOP trust. The ESOP would purchase $400,000 of Midvale stock from Lane Willams and the
Estate of Shirley Archer on a pro rata basis. Coincident with the ESOP purchase, Midvale will
redeem all of the remaining Midvale stock owned by Lane Willams and the Estate of Shirley
Archer. The purchase price for the redemption wil be made on an installment basis
("Redemption Notes"). Each year during the term of the Redemption Notes, Midvale Subsidiary
wil make contributions to the ESOP. The ESOP wil use the contributions to subscribe for and
purchase stock of Midvale. At the end of the day, Midvale wil have no operating liabilities or
assets, only the Redemption Notes to the current shareholders. The ESOP wil be the owner of
Midvale. Midvale wil be the sole owner of Midvale Subsidiary, which is the operating entity
holding all current assets and liabilties of Midvale (but no additional debt as a result of the
ESOP). i have attached an ESOP ownership structuring chart to ilustrate how this transaction
will be structured.
At this time, we request that the Commission provide Midvale with some
acknowledgement that the Commission wil not require any official approval of this transaction
and that Midvale may proceed as discussed above. If that will not be the case, Midvale wil
appreciate receiving instructions regarding any information or documentation the Commission
will need, or any procedures the Commission wil require in order to provide its approvaL.
I look forward to hearing from you soon. If you have any questions or need any
additional information with regard to this matter, please feel free to contact me.
Sincerely,
C0taø
Cynthia A. Melillo
CAM
cc: Lane Williams (via Electronic Mail)
P.J. Carstens (via Electronic Mail)
Terri Carlock (via Electronic Mail- terri.carlock(âpuc.idaho.gov)
Enclosures
614967 _1.DOC
GIVE&pSLEY l.tl'
LAW OFFICES
601 W. Bannock Street
PO Box 2720, Boise, tdaM 83701
TELEPHONE: 208 388-1200
FACSIMILE: 208 388-1300
WEBSITE, www.givensplIsley.com
Gary G. Allen
Peter G. Bartoo
Ch (is,opher' J. BeesQn
Clint R. Bôlinder
E,ik J. Bo~nder
Jeremy C. Chou
William C. Cole
Michael C. Creamer
Amber N. Dina
Elizabelh M. Ooick
Krislin Bjorkman l)Jr1l
Thomas E. Dvorak
Jeffrey C. Fered.y
Justin C. Fredin
M. ,lin C. Hendricksoo
Cynthia A. Melilo
Direct Dial: (208) 388.1273
E-Mail: £!!!l'ß!(le!JP..in~.Y&Q!
February 20, 2009
Steven J. Hippler
Debo'. K. KlilenSGI\
Anne C. Kunkel
Jeterny G. Ladle
Michael P. l'aVo/erne
Franklin G. I.ee
Daiiíd R. Lombarcli
John M. Marshall
Kennelh R. McClure
Keny Greene McConneß
Cynlllia A. Melillo
Chrjslopher H. Meyer
L. Edward Min.,
PalriCk J. Mille'
J\Jdson B. Montgomery
VIA ELECTRONIC MAIL and US MAIL (jean.jewell~uc.idaho.gov)
Jean Jewell, Secretary
Idaho Public Utilities Commission
472 W. Washington
P.O. Box 83720
Boise, Idaho 83720-0074
Deborah E. Nelson
Kelsey J. Nunez
W. Hugl, OHiordan. ~L.M.
Angela M. Reed
Justin A. Steiner
SCali A Tschir9i, LL.M.
J. Will Varin
Conley E. Ward
Robert B. Wl,ile
RETIRED
Kenneth L. Pursley
James A. McClure
Raymond O. Givens (1917-2000)
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Re: Letter of Information regarding Midvale Telephone ESOP Conversion
Our File: 1614.87
Dear Ms, Jewell:
i am writing to provide information to the Idaho Public Utilities Commission (the
"Commission") regarding Midvale Telephone Exchange, Incorporated ("Midvale"), an entity
regulated by the Commission, with regard to its adoption of an Employee Stock Ownership Plan
("ESOP"). Midvale is currently owned by two shareholders: Lane Williams and Shirley Archer.
Ms. Archer recently passed away and the shares are being held by her estate. To ensure the
ongoing operations of Midvale, Mr. Williams has pursued the option of creating an ESOP so
Midvale can be owned by those who have devoted and continue to devote their time to
operating the business, and to ensure that Midvale wil continue in its current form rather than
ultimately being sold to a third party.
We are not aware of any statutes, rules or regulations governing the Commission's
relationship with Midvale that require approval of the proposed change of ownership of the stock
of Midvale, but we wanted to inform the Commission of such change and to verify that no
approvals are needed. Midvale's proposed plan to convert to an ESOP does not create any
changes (other than ownership) with regard to Midvale's operations. Midvale remains the
owner of all of its operating assets, it retains all of its current debt obligations and it does not
take on any new debt obligations which require the approval of the Commission. I have
Jean Jewell
February 20, 2009
Page 2
attached an ESOP ownership structuring chart to illustrate how this transaction wil be
structured, but in a nutshell, this is what Midvale is proposing:
First, Midvale would adopt an ESOP and create the ESOP trust Essentially, the ESOP
trust is a benefit/retirement fund for Midvale's employees. Midvale would make a contribution
every year to this retirement fund. The amount that can be contributed is governed by federal
regulations both with respect to Midvale's existing loans with the Rural UtHities Service ("RUS")
and also under the laws governing ESOPs. This contribution is no different than any other
company contribution to an employee benefit plan and is treated the same way for all practical
purposes. The contribution in the first year would likely be in the form of Midvale stock.
Second, we would create a holding company that would be a parent company of Midvale,
organized to own all of the issued and outstanding shares of Midvale stock. This parent
company would exchange parent conipany shares for all of the shares of Midvale held by Lane
Williams, the estate of Shirley Archer and the ESOP so that the parent company would own all
of the issued and outstanding shares of Midvale stock. Lane Williams and the estate of Shirley
Archer would then own shares of parent company stock. The ESOP would then purchase all of
the shares of the parent company held by Lane Williams and the estate of Shirley Archer, using
the annual contribution made by Midvale to the ESOP. At the completion of the transaction,
Midvale would be wholly owned by the new parent company and the new parent company
would be wholly owned by the ESOP trust, in trust for all eligible employees.
Under this proposed structure, Midvale will take on no new debt, nor will it transfer any of
its operating assets. Midvale would continue to be the operating company, owning and using its
assets to provide the services it currently provides. The only "obligation" Midvale has is to make
annual contributions to the ESOP, the amount of which is governed under ESOP rules as well
as RUS rules.
At this time, we request that the Commission provide Midvale with some
acknowledgement that the Commission will not require any official approval of this transaction
and that Midvale may proceed as discussed above. If that wîl not be the case, Midvale will
appreciate receiving instructions regarding any information or documentation the Commission
will need, or any procedures the Commission will require to provide its approval.
I look forward to hearing from you soon. If you have any questions or need any
additional information with regard to this matter, please feel free to contact me.
Sincerely,
¡2 JI. / Ai
vt /' ¡"IAf-f/ii)
Cynthia A. Melillo
CAM
cc: Lane Williams (via Electronic Mail)
Terri Carlock (via Electronic Mail - (terri.carlock(gpuc.idaho.gov)
Enclosure
S\CUENfS\1614\8/\Lelter of Information to IPUCDOC
Esop TRANSACTION STRUCTURE
Current shareholders of Midvale Telephone Exchange, Incorporated ("MTE")
wil contribute all of their shares to Midvale Holding Company in exchange for
an equal number of shares in Midvale Holding Company.
ESOP to purchase from
Lane Wiliams and Estate of
Shirley Archer all of their
shares in Midvale Holding
Company.
Midvale
Holding Company
(new parent company)
I t
ESOP to contribute MTE Stock to Holding
Company for Holding Company stock.Stock
Plan
(ESOP)
t
Midvale to make
contribution to reUrement
plan every year. First
year contribution in MTE
slock.
ESOP TRANSACTION STRUCTURE ~ 1
S:ICLIENTSI1614187\Ownership Chart (2-3-09).DOC
Offce of the Secretary
Service Date
April 3, 2009
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF MIDVALE
TELEPHONE EXCHANGE'S LETTER
PETITION FOR A DECLARATORY ORDER
REGARDING MIDVALE'S ADOPTION OF
AN EMPLOYEE STOCK OWNERSHIP
PLAN
)
) CASE NO. MID-T-09-01
)
)
) ORDER NO. 30765
)
)
On February 20, 2009, Midvale Telephone Exchange, Inc. fied a "Letter Petition"
advising the Commission that Midvale proposes to adopt an Employee Stock Ownership Plan
(ESOP) and create an ESOP Trust for Midvale's employees. Midvale states that it does not
believe that the Commission is required to approve the proposed ESOP transaction. However, in
an abundance of caution, Midvale requests the Commission issue an Order affirming that the
Commission does not need to approve the transaction. Midvale is generally subject to our
regulatory authority under Title 61 of the Idaho Code. See Idaho Code §§ 61-121 and 61-129.
Based upon the Letter Petition and the Commission Staffs review,' we find that
Midvale's adoption of an ESOP in this instance does not require Commission approvaL.
However, we shall direct Midvale to fie the final ESOP documents with the Commission.
THE LETTER PETITION
Midvale asserts in its Letter Petition that it is currently owned by two shareholders:
Lane Willams and Shirley Archer. Ms. Archer recently passed away and her shares are being
held by her estate. "To ensure the ongoing operations of Midvale" Telephone, Mr. Wiliams is
pursing the adoption of an ESOP to ensure that the Company can be owned by employees who
have and are operating the Company. Adoption of an ESOP would ensure that the Company's
operations continue in the current form rather than ultimately being sold to a third party.
Other than ownership of the shares, Midvale asserts that the plan to adopt an ESOP
does not create any changes with regard to Midvale's operations. "Midvale remains the owner of
all of its operating assets, it retains all of its debt obligations and it does not take on any new debt
obligations which require the approval of the Commission." Letter Petition at 1.
Midvale proposes to first adopt an ESOP and then create the ESOP Trust. The ESOP
Trust "is a benefit/retirement fund for Midvale's employees. Midvale would make a contribution
ORDER NO. 30765
every year to this retirement fund." Id. at 2. Midvale asserts that the annual contribution to the
ESOP Trust is governed by federal regulations regarding Midvale's existing loans with the Rural
Utilties Service (RUS) and federal laws governing ESOPs. The Company maintains that the
contributions to the ESOP Trust are no different than any other company contribution to an
employee benefit plan. Midvale states that the contributions in the first year will likely be in the
form of Midvale stock. Id. at 2.
Following the adoption of the ESOP and creation of the ESOP Trust, Midvale will
then create a holding company that wil be a parent company of Midvale. The parent company
wil be organized to own all of the issued and outstanding shares of the Midvale stock. The
parent company wil exchange parent shares for "all of the shares of Midvale held by Lane
Wiliams, the estate of Shirley Archer and the ESOP so that the parent company would own all
of the issued and outstanding shares of Midvale stock." Id. The ESOP will then purchase all of
the shares of the parent company held by Lane Wiliams and Ms. Archer's estate, using the
annual contributions made by Midvale to the ESOP. "At the completion of the transaction,
Midvale would be wholly owned by the new parent company and the new parent company
would be wholly owned by the ESOP Trust, in trust for all eligible employees." ¡d.
Under the proposed structure and transaction, Midvale wil not take on any new debt
nor will it transfer any of its operating assets. Midvale will continue to be the operating
company, utilizing its assets to provide telecommunications services. "The only · obligation'
Midvale (wil have) is to make annual contributions to the ESOP, the amount which is governed
under ESOP rules as well as RUS rules." ¡d.
STAFF REVIEW
Staff first recommended that the letter request be treated as a Petition for a
Declaratory Order pursuant to Rule 101. IDAPA 31.01.01.101 (persons seeking a declaratory
ruling from the Commission must file a Petition for Declaratory Order). After reviewing
Midvale's Letter Petition, Staff concluded that the proposed ESOP transaction does not require
Commission approval under Idaho Code § 61-901. Section 61-901 requires that the Commission
approve "instruments of security" pertaining to utility assets. Based upon Midvale's assertion
that operation of the Company wil be unchanged and adoption of the ESOP Trust wil not
impair the Company's assets, Staff maintained that the securities provisions of the Public
Utilities Laws would not apply. Idaho Code §§ 61-901 el seq. Based upon the circumstances
ORDER NO. 30765 2
outlined in Midvale's Petition, Staff viewed the proposed ESOP as essentially a personal estate
planning transaction. As such, "the anual contributions to the ESOP trst should not be
included in the revenue requirement for Midvale in its next rate case. To verify that the final
ESOP structure and plan is consistent with the proposal, Staff recommends that aU
Documentation of the final ESOP structure and legal documents be fied with the Commission."
Staff Recommendations at 2.
DISCUSSION AND FINDINGS
Based upon our review of the Letter Petition and Staffs recommendation, the
Commission finds it appropriate to treat Midvale's letter as a Petition for Declaratory Order.
Rule 101, IDAPA 31.01.01.101. We further find that Midvale has provided suffcient
information for us to decide the request. Based upon our review, the Commission finds that
adoption and creation of an ESOP Trust, as set out in the Letter Petition, does not require
Commission approval. As Midvale asserted, and Staff endorsed, the utility assets wil continue
to be owned and operated by Midvale. Midvale shall also retain all of its current debt obligations
and wil not be required to take on new debt by creation of an ESOP.
The Commission also adopts Staffs recommendation that Midvale file the final
ESOP documents with the Commission. The Commission makes no findings regarding the
ratemaking treatment of annual contributions to the ESOP.
ORDER
IT is HEREBY ORDERED that Midvale Telephone Exchange, Inc.'s letter be
treated as a Petition for Declaratory Order pursuant to Rule 101.
IT is FURTHER ORDERED that Midvale's plan to adopt an ESOP and create an
ESOP Trust does not require Commission approval under Idaho Code § 6 i -90 I et seq. At such
time as Midvale completes its ESOP transaction, it shall fie a copy of the final ESOP documents
with the Commission.
IT is FURTHER ORDERED that the Commission makes no finding regarding the
applicable ratemaking treatment for Midvale's annual contributions to the ESOP.
THIS is A FINAL ORDER. Any person interested in this Order (or in issues finally
decided by this Order) or in interlocutory Orders previously issued in this Case No. MID-T-09-
01 may petition for reconsideration within twenty-one (21) days of the service date of this Order
with regard to any matter decided in this Order or in interlocutory Orders previously issued in
ORDER NO. 30765 3
this case. Within seven (7) days after any person has petitioned for reconsideration, any other
person may cross-petition for reconsideration. See Idaho Code § 61 ~626.
DONE by Order of the Idaho Public Utilties Commission at Boise, Idaho this :3 r/
day of April 2009.
~~~
MACK A. RED ~'IDENT
~d~
MARSHA H. SMITH, COMMISSIONER
ATTEST:
rjilt &i 110d£1
ie D. Jewell
Co mission Secretary
bls/O:MID-T-09-01 _ dh
ORDER NO. 30765 4
REVISED
Esop TRANSACTION STRUCTURE
Midvale Telephone Exchange, Incorporated ("MTE") will redeem all of the
shares of the current shareholders (less those purchased by ESOP) in
exchange for Redemption Notes to be paid over time.
ESOP to purchase from
Lane Wiliams and Estate of
Shirley Archer $400,000
worth of their shares in MTE.
I ESOP to p",cI""e 1 StL 00 '"""" ,,,.
MTE to transfer all existing
assets and liabilties to
Midvale Subsidiary in
exchange for Midvale
S"bs~;'l Sloo t
Midvale Subsidiary to
make contribution to
retirement plan every
year.
REVISED ESOP TRANSACTION STRUCTURE - 1
615400_1