The Creation of Mapleturn Utilities, Inc.
Previously Summit City Utilities, performance as a utility was extremely poor, both operationally and financially. There were raw sewage overflows, the drinking water provided by the utility was often dirty looking and undrinkable, and there were frequent unannounced service interruptions. Summit’s treatment plants and equipment were poorly maintained and improperly operated, and failed to meet health, safety and engineering standards. There were hundreds of consumer complaints to government agencies and Summit City, which made little effort to take corrective action. The utility was financially mismanaged, it failed to reinvest in needed equipment it recovered through rates, and Summit failed to secure Commission authority to incur long-term debt.
By 1987, a number of legal proceedings were pending against Summit City and John Fewell. Foxcliff North Residents filed a complaint with the Commission seeking a determination to the fact that Summit City services was inadequate and unsafe, revocation of Summit’s operating authority and a refund of overcharges.
Summit sought Commission approval to sell its stock and assets to an entity called Farren, Inc., but the buyer subsequently withdrew. In addition, the North Association filed a lawsuit against Summit in the Morgan Superior Court, Newcorp sued Summit in the Marion Superior Court and Merchants sued Fewell in the Marion Superior Court.
In settlement of the various proceedings, the parties negotiated two agreements under which Summit would sell its utility property and cease providing service, and a new not-for- profit company organized by Foxcliff residents would buy Summit’s assets and pursuant to the first agreement (the “Newcorp Agreement”), Summit was to sell all of its property to Newcorp; second, pursuant to a separate agreement (the “Mapleturn Agreement”), the new not-for-profit company was to purchase Summit’s assets from Newcorp. The parties to the Newcorp Agreement were Summit, Fewell, Merchants Bank, Newcorp and the North Association. The parties to the Mapleturn Agreement were Merchants, Newcorp, the North Association and Foxcliff Estates South Association.
The two agreements provided for a comprehensive series of financial transactions relating to the asset transfers and the outstanding liabilities. Under the Newcorp Agreement, the purchase price for Summit’s property was set at a payment of which was divided into three parts: Newcorp was to pay $167,500 to Summit, less deductions for defined liens and encumbrances; Fewell personally was to receive $100,000 of the purchase price; and Newcorp was to pay the remaining $130,000 to itself in satisfaction of Summit and Fewell debts to Foxcliff South, Inc. Under the Mapleturn Agreement, a purchase price of $387,500 for Summit’s assets was to be paid to Newcorp an additional $30,000 was to be paid to the North Association in connection with the Morgan County suit and the commission proceedings and the new utility was to borrow $417,500 form Merchants to fund those payment and obtain a $100,000 line of credit for system repairs and improvements.
The net result of the transactions was Merchants would loan $417,000 to the new utility, secured by a first mortgage on all utility property, to be fully repaid with interest on specified term, and the new utility would use those funds to purchase Summit’s assets and pay the North Association in settlement of the pending litigation. Fewell would receive $100,000 payment, and Summit (of which Fewell was the sole shareholder) would receive and an additional $167,500, less any deduction for liens and encumbrances. Newcorp finally would receive $378,500 from the new utility and pay out a total of $267,500 to and Fewell, less deductions, for a gain to Newcorp of at least $120,000 in satisfaction of Summit and Fewell liabilities.
Pursuant to the Mapleturn Agreement, the North and South Association formed Mapleturn Utilities, Inc. in September 1987. Mapleturn was created as a consumer-owned, not-for-profit company to provide water and sewer utility service to residents in Foxcliff area.