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HomeMy WebLinkAbout20090923Application.pdf-Jii.2-(!)-C:o Cynthia A. Melilo, ISB #5819 Michael C. Creamer, ISB #4030 GIVENS PURSLEY LLP 601 W. Bannock St. Post Ofce Box 2720 Boise, Idaho 83701-2720 Telephone: 208-388-1200 Facsimile: 208-388-1300 637_ 4.DOC RECE.\VED iUUq SE,P 22 PM 4: 23 "nO pUBUX,,"0hl\t¡"'\t::C: t,t"IMMbvlv' " \Jl\U \ ~". V\... Attorneys for Petitioners/Applicants: Midvale Telephone Exchange, Incorporated and Midvale Telephone Company BEFORE THE IDAHO PUBLIC UnLinES COMMISSION IN THE MATTER OF MIDVALE TELEPHONE EXCHANGE, INC.'S PETITION FOR DECLARATORY RULING APPROVING TRANSJ;&R. .OJ;.. ASSETS AND ... LIABIL.ln&S TO AWHOLLY..OWNED SUBSIDIARY; CREATION OF AN EMPLOYEE STOCK OWNERSHIP PLAN; AND APPLICAnON FOR TRSFER OF CERnFICATE OF PUBLIC CONVENIENCE AND NECESSITY CASE NO: ttt: - 't - 09 -03 " PETlnON AND APPLICATION Midvale Telephone. £Exchange; Incorporated; an Idaho corporation ("Midvale") and Midvale ..Telephone Company, an.' Idaho.. corporation .rMTC"), by and . through their;..attmeys, GivensPursleyLL.P,andpursuantito IDAPA 31.01.01.101 respectfully petition the Idaho Public Utilities Øommission '("Commission") for. a"' decaratory ruling' approving: (1)thetransferof'all assets and Jiabilities.ofiMidvale.to.MTC; (2) theproposed.contnbutionsby.MTCto an employe stocownership..plan("ESOP"); and (3)the acquisition by the ESOP of authorzed and'unissued shares.of;Midvalestook, Pursuant to IDAPA' 31.01.01;112, Midvale . and MTC furter apply for th trnsfer of Midvale's certcate of public convenience and necssity to MTC. Midvale and MTC request that the Comission use modif proedure in th considerti of this Petition/Applcation. PETTION AND APICATION Pagø1 BACKGROUND Midvale is a regulated local exchange carner holding a certificate of Public Convenience and Necessity issued by the Commission ("Certificate") to provide facilties-based local exchange services within the State of Idaho. A copy of Midvale's certificate is attached hereto as Exhibit A. Midvale is an Idaho corpration with its pnncipal offce in Midvale, Idaho. All of Midvale's issued and outstanding shares of stock currently are owned by Lane Willams (fift percent (50%)) and fifty percent (50%) by the Estate of Shirley Archer ("Archer"). Since Shirley Archer's death, Mr. Wiliams has been exploring options to ensure Midvale's continuing existence and ongoing operations with the least impact on its customers, servces and employees. Options considered include the sale of Mr. Wiliams' and Archer's stock to Midvale's employees' or to a third part, the redemption of Mr. Wiliams' and Archer's stock by Midvale, the transfer of stock to Midvale's employees through the use of an ESOP or a sale of the assets of Midvale to a qualified third party and the discontinuance of servce by Midvale. Mr. Willams and Midvale's current, board. of directors have.. determined' thatdhEf transfer, of: Midvaie. ownérship to its employees. through an IiSOP' is the best. way to ensure Midvale's' continued' eXlstenceand ongoing operations with theleastimpacton its customer, services and employes. MTC is.. a newly-formed.. Idaho corpration, with its pnncipal offce in Midvale, Idaho. Upon obtaining the apprvals, requested herein, all ofMTC's issued and outstanding shares of stoc will be held by Midvale. To transfer ownership to its employees through an ESOP, and also satisfy all reuirements of, Midvale's lenders and regulators, Midvale proposes the. followng .' strcture: First, effece as of December 22, 2008, Midvale adopted an ESOP plan and trust. Send, effecve .as of August 27, 200, Midvale incorprated Midvale Telephone Copany, an Idaho coratin. Third, upon obtaining a favorable decaratory ruling as reuested herein, Midvale wold trnsfer to MTC all of Midvale's assets and liabilities (including all operating assts, all PETTION AND APPLICATION Pag 2 debt, all public licenses and the Certificate) in exchange for all of the issued and outstanding MTC shares of stock. Fourth, following the transfer of all Midvale assets and liabilties to MTC, the ESOP would acquire a portion' of the Midvale stock held by Mr. Willams and Archer; and fifth, Midvale would redeem the remainder of the Willams and Archer shares by deliver to Mr. Wiliams and Archer of a promissory note for the full value of their remaining Midvale shares (the "Redemption Notes"). The Redemption Notes would be secured only by the shares purchased thereby. Upon obtaining a favorable declaratory ruling as requested herein, MTC would adopt the ESOP plan and trust and contribute funds to the ESOP annually as a retirement fund contribution for its employees. The amount of the contribution wil depend upon various factors, including MTC's financial health and anyrestnctions that may be placed upon MTC by its lenders. The ESOP would use MTC's annual contributions to purchase from Midvale the balance of its authorzed and unissued shares. Ultimately, the ESOP, in trust for all of the MTC employees, would own all of the issued and outstanding Midvale shares and Midvale would own all ofthe.issuedandout$tandingMTCshares. In connection.. with' the.. contemplated' transactions descnbed '. above, Midvalé' and". MTC respectfully requestfrom the Commission a declaratory ruling approving: (1) the transfer of all Midvale assets. and liabiltiés' to MTC; (2) MTC's contributions to the. ESOP; and (3) thé acquisition by thé ESOP of Midvale's. unissued stock. Midvale. and MTC also reuest Commission approval for the transfer of Midvale's Cérteateto MTC: THEC()MMISSION~SRu~eS.A..i.()WF()R.P&nTlONlAPpi.ICATlON BYMIDVALEANDMTC .FORTHEMATTIRS'SET'FORTHHEREIN This Petition/Application is filed pursuant to IOAPA 31.01.01.101 and IDAPA 31.01.01.112. PETTION AND APPLICATION Pag 3 REQUEST FOR DECLARATORY RULING APPROVING THE TRANSFER OF ALL ASSETS, LIABILITIES AND THE CERnFICATE OF MIDVALE TO MTC The Commission has the authonty to make the requested declaratory ruling pursuant to IOAPA 31.01.01.101. The above-descnbed transaction contemplates the transfer of all of Midvale's assets and liabilties to MTC in a tax-free Section 351 capitalization in exchange for all of the issued and outstanding shares of MTC stock. As a result of this transaction, Midvale's existing employees and subscnbers wil become employees and subscnbers, respectively, of MTC. Upon completion of the transactions, Midvale wil have no assets other than a 100% ownership interest in MTC and wil have no liabilities other than obligation for payments due under the Redemption Notes. Because MTC would own and oper~te all of the operating assets to provide telecommunications services to Midvale's customerssubscribers and upon approval by the Commission as requested below, MTC would need to become the holder of the Certificate and be subject to Commission regulation. Thereafter, MTC also would hold all of the debt currently held, by. Midvale, with., the Rural'. Utilties' Sef\ieeand- the, Rural. 'Fe1ephone ¡riAaAGeCOOperative~ but it would have no additional debt,obligations:asa .resulroHhis,transaction: REQUeSTFOR,DECLARATOR'YRULINGAPPROVINGMTC'SCONTRIBUTlONS' TO.THE'ESOPAND T'HEiESOP'SACQUISlnON .OP MIDVALE STOCK Upon obtaining a .fàvorable declàratory ruling as requested herein, MTC wouldadopmhe ESOP plan and trst already adopted by Midvale: MTC would contribute funds to the ESOP on · an annualbasi$. asa retirement: fund . contnbutionfor its employeés; SObject'to'theJactors discssed previusly, MTC's. intent is to contrbute approximately. $400,000 per year. to the ESOP. The ESOP, in tum, wil use these contrbutions to purchase Midvale's remaining authonzed but unissued shares. The first contrbution (which already has been paid by Midvale but held in trst by th ESOP pending approvals) will be use by the ESOP to purchase Midvale stoc direy from Willams and Archer on a pro rata basis. PETION AN APPICATION Pag 4 APPLICATION FOR APPROVAL OF THE TRANSFER OF MIDVALE'S CERnFICATE TO MTC Following completion of all the transactions contemplated herein, Midvale wil no longer own any operating assets providing telecommunications servces in Idaho. MTC would own these assets and would provide all telecommunications servces currently provided by Midvale within the scope of Midvale's existing Certificate. Thus, it would be appropriate that Midvale transfer its Certificate to MTC, and that the Commission thereafter regulate the activities of MTC from and after the transactions contemplated herein. IMPACT OF TRANSACnONS UPON MIDVALE SUBSCRIBERS The transactions set forth above are contemplated to be implemented so as to have only minimal, if any, impact upon the current Midvale subscnbers. The customers wil continue to receive the same servicesaHhe same prices (subject to adjUstments only as or when MTC bnngs a rate case). There will be no interrption in servces. or change in biling or customer servce practices. The MTC employees providing the services will be the same as prior to the transaetionj and, M,.C management~at¡ least,forthe immediatefUture¡ wil'be.the.same.asthat;of Midvale,. MTCwil ;not,immediately.takeonanyliabiltiesnot;currently held by Midvale. The ultimate transfer of ownership of Midvale stock to Midvale's/MTC's. employees through' an 'ESOP structure ( rather than through adirect"purchase oHhe shares of Mr. Willams and Archer: by .currenremployeesorthird . partes or aredemptlønby,Midvale ,withouVtheIiSOP) provides a muoh more .favorable purchase and sale . structure to Mr, Willams andArer andthé employee purchasers, with little to no impaotto the bottom line of Midvaleor,MTC, as discussed below. The ESOP structure proposed by Midvale offer substantiai tax advantages over an outnht purchase by Midvale's employes or an outnght purchase by any unrelated third part purchasers. Folloing the implementatin of the ESOP strcture proposed by Midvale neither Midvale nor MTC will pay federl or state income taxes. This means that Midvale andor MTC PETITION AND APICATION PageS wil only have to earn $1.00 to pay each pnncipal dollar of the purchase pnce. All other structures considered would result in the purchaser needing to earn on a pre-tax basis between $1.51 and $1.70 to pay each dollar of the pnncipal portion of the purchase pnce. The proposed structure should promote a stable rate structure for Midvale and MTC's customers. The proposed structure also should promote business stabilty by transfernng business ownership to Midvale's current employees. Midvale's redemption of its shares held by Mr. Willams and Archer wil have minimal, if any, impact upon Midvale customerssubscnbers. When the shares are redeemed, Midvale no longer will hold the operating assets or provide any servces to the customers/subscnbers, so the debt liability owed by Midvale to Mr. Wiliams and Archer wil not affect the rates charged to customerssubscnbers, nor affect the assets used to deliver the service to the customerssubscnbers. Because the Redemption Notes would be secured only by the redeemed shares, if Midvale fails to pay its payment obligations under the Redemption Notes, Mr. Wiliams and Archer simply would regain ownership of the shares. The.annual contributions by..'MTC,.;to.ttte.E:SOPwill".have,.minimal, if any, impactionthe customers/subscnbers'of:Midvale; The 'proposed structure is clearlybenéficial.to Midvale/MTC from a financial point of view. The tax/advantages of the proposed structure wil minimize or eliminate the need to raise rates to generate income to paythétransaction purchase pnce. The only potential disadvantage to Midvale/MTCistheadmittéd coplexity of the ESOP structure itself: Midvale' has.' empioyed.. profesionals with ESOp., exprience to help it.. in' identifying and minimizing these eoplexities. REQUeST'F'ORiMODIFIED P.ROCEDURE Midvale requests that th Comission use modified procure in the consideration of this Petitin/Application. IOAPA 31.01.01.201. Modified procedure is appropriate when th Comission préliminarilyfinds that the public interest may not require ahesring to consier the issues preseted in the prceing: Here, Midvale is essetially seeking approval for a chnge PETITION AND APICATION Pag 6 of ownership that wil not affect the manner in which it provides servces or the scope of its services. Midvale's customers will not be negatively impacted by the proposed transactions, nor wil any other servce provider. (signature page follows) PEITON AND APICATION Page 7 DATED this 2200 day of September 2009. GIVENS PURSLEY LLP By. t-~k a lf~/Ic)l1î A. Melilo ~ Attorneys for Petitioners! Applicants, Midvale Telephone Exchange, Incorporated and Midvale Telephone Company PETION AND APPLICATION Page 8 CERTIFICATE OF SERVICE I hereby certify that on the 22nd day of September 2009, a true and correct copy of the foregoing was served upon the following individual(s) by the means indicated: Original and Seven Copies Filed: Jean D. Jewell, Secretary Idaho Public Utilities Commission 472 West Washington Street Boise, Idaho 83720-0074 oo~oo U.S. Mail, postage prepaid Express Mail Hand Delivery Facsimile Electronic Mail t_t:lx a lIcynt~ A. Melillo PETITON AND APPliCATION Page 9 EXHIBIT A Certificae of Public Convenience and Necessit (see attached) EXHIBIT A /.- BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION IN THE MATTER OF THE APPLICATION ) . OF THE MIDVALE TELEPHONE EXCHANGE, ) INC., FOR A CERTIFICATE OF PUBLIC ) CONVENIENCE AND NECESSITY. ) ) CASE NO. U-1018-7 CERTIFICATE NO.251l IT IS HEREBY CERTIFIED' that .the present and future public convenience and necessity requires and will require the Midvale Tele- phone Exchange, Inc., a corporation,. its successors and assigns, to own, hold, construct, or otherwise acquire and to maintain and oper- ate facilities for the transmission to or for the public use of telephone messages .and for the transmission of intelligence by elec- trici ty, to the inhabitants of the area as set forth and described below; to exercise all rights and privileges which have been granted to said Midvale Telephone Exchange, Inc., i ~s successors and assigns, by any franchise or permit conferred or hereafter conferred upon said Midvale Telephone Exchange, Inc., its successors and assigns, by any ci ty or village ~ or by any county t or by the State of Idaho, or by any political subdivision thereof in the area hereinafter. set .forth: All of TllN, R1E, Sections 5, 6, 7, 8, 17, 18, 19, 20, 29, 30, 31 and. 32, and thatportion. of Sections 1l, 9, 16, 21, 28, 33 lying within Washington County. All of Tl1N, R1W. All of T11N, R2W. All of T1lN, R3W, Sections .1, 2, 11, 12, 13, 1IJ, 23.21l, 25,26,35 and 36. All of T12N, R1E, Sections IJ, 5, 6,7, 8, 9, 17, 18, 19, 20, 29, 30, 31; 32 and that portion of Sections 3. la, 15, i6, 21, 28 and 33 lying within Washing- ton County. All of T12N, R1W. All of T12N, R2W. All of T12N, Raw, Sections 1 through 6,7 through 12,13 through 16, 21 .through 21l, 25 through 28, and 33 through 36. All of Tl2N, RIJW, Sections 1, 2, 11 and 12. JUl. or '.l .L~.I, lt.L.i, ;:ec"tl.ons"¿ I i:nrougn ~ l;, oJ J. LU",'UI.~U 33, and that portion of Sections 19, 20, 21, 22, 23, 26, 34 and 35 lying within Washington County. All of Tl3N, RlW, Sections 11, lS, 19 through 22 , 25 through ,30 , 31 through 36, and. that portion of Sections 6, 7, S, 9, 15, 16, 23 and 24 'lying within Washington County. All of T13N, R2W, Sections. 2 through 6,7 through 12, 13 through. IS , 19 through 24. 25 through 30, 31 through 36 , and that' portion of Section 1 lying withinWashington. County. All of T13N, R3W. All of T13N,R4W,Sections 1 through 6,7 through 12, 13 through 18,19 through 24,25,26,35 and 36. All of T13N,R5W,Sections 1 through .6,7 through 12. All of T13N,R6W,Sections.1 through 6,7 through 12. All of Tl3N, R7W, Sections 1 through 4, 9 through 12, and that portion of Sections 5, 7 and 8 lying wi thin the State of Idaho in Washington County. All of TlIN,R2W,The southerly one-half of Sections 31 through 34. All .of T14N,R3W,Sections 19 through 21, 27 through30,31 through 36,and that. portion of Section 22 lying west of theWeiser River,and the. westerly one- half of Section 26. AU of T14N,R4W,Sections 6,7 and is,19 through 24, 25 through .30,31 through .36. All of T14N,R5W. All of T14N,R6W. All of T14N,R7W,Sections 13,2ll ,25,34 ,35,36 and that portion of Sections 1,11,12, 14,23,26,27,28 and 33 lyingwithintheStateofIdahoinWashing- ton County. THIS CERTIFICATE 'is' predicated upon and issued pursuant to the Findings and Order of the Commission, the same being Order No. . 9082, in the above entitled matter made and entered on the 7th day of August, 1968, to which said Order reference is hereby made. - 2 - . DONE by Order of the. Idaho 'Public Utili ties Commission at Boise, Idaho,. this 7th day. of Augu,st,.1968. s/ Ralph H. Wickberg.Presi.dent s/ Harry L. .Nock .COmmssi.oner . s/ J. Burns Beal . . CommIssi.oner ((SEAL) ) ATTEST: s/ Marilyn BournerSecretary jr - 3 - ..