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
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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.
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.
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
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