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HomeMy WebLinkAboutCouncil Agenda - 2021-10-04 SSpecial Council Meeting Agenda Monday, October 4, 2021, 4:30 p.m. Electronic Meeting Due to COVID-19 and recommendations by Waterloo Region Public Health to exercise physical distancing, City Hall is open for select services. Members of the public are invited to participate in this meeting electronically by accessing the meeting live -stream video at kitchener.ca/watch now. While in-person delegation requests are not feasible at this time, members of the public are invited to submit written comments or participate electronically in the meeting by contacting delegation6jNtchener.ca. Please refer to the delegations section on the agenda below for registration deadlines. Written comments will be circulated prior to the meeting and will form part of the public record. *Accessible formats and communication supports are available upon request. If you require assistance to take part in a city meeting or event, please call 519-741-2345 or TTY 1-866-969-9994* Re: Special Council Meeting Notice is hereby given that Mayor B. Vrbanovic has called a special meeting of City Council to be held electronically to consider the following: Pages 1. Commencement The electronic meeting will begin with a Land Acknowledgement given by the Mayor. 2. Delegations Pursuant to Council's Procedural By-law, delegations are permitted to address the Committee for a maximum of five (5) minutes. Delegates must register by 2:30 p.m. on October 4, 2021, in order to participate electronically. 3. Staff Reports 3.1. FIN -2021-56 - Proposed Merger Between 30 r11 Kitchener Wilmot Hydro and Waterloo North Hydro That the Memorandum of Understanding regarding a proposed merger between Kitchener Wilmot Hydro and Waterloo North Hydro, attached as appendix B, be approved. 3.2. FIN -2021-54 - Q21-119 Dell Data Domain 5 rn Virtual Edition (DDVE) Licenses That Q21-119 Dell Data Domain Virtual Edition (DDVE) Licenses, be awarded to CDW Canada Corp., Toronto, Ontario, at their quoted price of $132,029.00, plus H.S.T. of $17,163.77 for a total of $149,192.77. 3.3. FIN -2021-55 - 2022 Budget Schedule Revision 5 rn - Update That November 30, 2021 be added to the 2022 Budget Meeting Schedule, as outlined in report FIN -2021-55. 4. In -camera Meeting Authorization Note: Any member of Council may question the appropriateness of a listed in - camera item. This may be done during the special Council meeting or at the beginning of the in -camera session. Council is asked to enact the following resolution to authorize an in -camera meeting: "That an in -camera meeting of City Council be held immediately following the special council meeting this date to consider a labour relations matter and a solicitor -client privilege matter as authorized by Section 239 (d) and (f) of the Municipal Act, 2001, respectively. Items for Consideration: 4.1. Vaccine Strategies for Third Parties accessing 30 m indoor areas of City facilities (Solicitor -Client Privilege - Section 239 (2) (f)) Staff will provide information and seek direction related to this matter. 4.2. Staffing Resources (Labour Relations - 30 in Section 239 (2) (d)) Staff will provide information and seek direction related to this matter. 5. By-laws 5.1. Three Readings 5.1.a. To confirm all actions and proceedings of the Council. 6. Adjournment 3 0 30 Page 2 of 31 StaffRepoit REPORT TO: Council DATE OF MEETING: Oct 4, 2021 SUBMITTED BY: Jonathan Lautenbach, Chief Financial Officer PREPARED BY: Jonathan Lautenbach, Chief Financial Officer WARD(S) INVOLVED: All Wards DATE OF REPORT: Oct 1, 2021 REPORT NO.: FIN -2021-56 www.kitchener, ca SUBJECT: Proposed Merger Between Kitchener Wilmot Hydro and Waterloo North Hydro RECOMMENDATION: That the Memorandum of Understanding regarding a proposed merger between Kitchener Wilmot Hydro and Waterloo North Hydro, attached as appendix B, be approved REPORT HIGHLIGHTS: • A proposed merger between Kitchener Wilmot Hydro and Waterloo North Hydro was announced on October 1, 2021 * The City of Kitchener is the majority shareholder of KWH and any proposed merger requires shareholder approval A Memorandum of Understanding has been prepared that outlines the main elements of a merger between the two utilities • The City of Kitchener would hold a 53.39% ownership share in the new entity under the proposed merger BACKGROUND: Kitchener Wilmot Hydro (KWH) and Waterloo North Hydro (WNH) have been in discussions regarding moving forward with a proposed merger of the two utilities. A public announcement regarding the proposed merger was made on October 1, 2021. The City of Kitchener is currently the majority shareholder of KWH with a 92.25% ownership share and as such, any merger involving KWH would require City of Kitchener approval. Under a proposed merger, the City of Kitchener would continue to be the majority shareholder of the larger newly formed entity with a 53.39% ownership share. A Memorandum of Understanding (MOU) has been developed between all parties that outlines the main elements of the proposed transaction. The MOU is a non-binding agreement that helps set the general understanding and expectations regarding the *** This information is available in accessible formats upon request. *** Please call 519-741-2345 or TTY 1-866-969-9994 for assistance. Page 3 of 31 proposed merger. Following approval of the MOU by municipal shareholders, a public engagement process will launch on October 5, 2021 giving the public an opportunity to learn more about the proposed merger and to provide feedback. It's anticipated that final approval from municipal shareholders to proceed with the proposed merger would be requested through a separate report that would come back to Council for consideration in December 2021. The Boards of the respective utilities support proceeding with a merger of the two utilities and approval of the MOU is being requested from the municipal shareholders of KWH and WNH. REPORT: The electricity distribution landscape in Ontario has been changing, with more mergers and acquisitions taking place involving Local Distribution Companies (LDCs) in recent years. Recent and proposed transactions include Veridian and Whitby Hydro, Guelph Hydro and Alectra, Peterborough Hydro and Hydro One, Orillia Power and Hydro One, Energy Plus and Brantford Power. This trend in mergers and acquisitions is a result new regulatory and policy changes that has made merger opportunities more attractive for LDCs. In addition, consolidation of LDCs has been encouraged by the Province in order to ensure stable and reliable energy distribution for communities across Ontario. KWH and WNH have been in discussions regarding a potential merger and the potential benefits that it could provide for the two utilities. Grant Thornton was engaged by the utilities to explore what a potential merger may look like and to better understand the benefits that it could provide, both from an individual utility and an existing shareholder perspective. Municipal shareholders were engaged early in the process as any merger involving both parties would require approval of municipal shareholders. The City of Kitchener is currently the majority shareholder of KWH with 92.25% ownership share. The Township of Wilmot is the minority shareholder with a 7.75% equity stake. The City of Waterloo is currently the majority shareholder of WNH with a 73.2% ownership share. The Township of Woolwich and Township of Wellesley own 20.2% and 6.6% equity stake respectively. Page 4 of 31 Under the proposed merger the ownership share for municipal shareholders would be adjusted as follows: Ak- WOOLWICH 'C*I h -F 3f"ic �i .10.8 . 2.78% u5 FLL. s ,Er -V+ Wllffdt 4.49% Kitchener will remain a majority shareholder of the new utility with a 53.39% ownership share. Making sure that the new entity continues to be locally owned is an important consideration. By merging with WNH now, it is expected that the new utility will remain responsive to community and customer needs. As indicated in the summary of comments provided by Grant Thornton (see Appendix A), a merger between KPC and WNH would result in the 7th largest LDC in Ontario. The MOU attached (see appendix B) outlines several objectives/benefits that the merger between KWH and WNH is expected to achieve: • Customers will enjoy ten-year distribution rate stability and distribution rates as low or lower than in a standalone alternative • Distribution rates of the former KWH and WNHI service territories will harmonize over time • Continued excellence in customer service • Total cost savings to be shared amongst the Municipal Shareholders and customers Stronger and more sustainable cash flow to Municipal Shareholders via interest and dividends • The ability to dedicate significant leadership and focus on innovation and growth A larger entity with a stronger balance sheet capable of supporting future growth • Improved service reliability leveraging best practices and capabilities of both LDCs A stronger energy and infrastructure partner for local businesses and communities • Alignment with provincial government policies encouraging consolidation in the electricity distribution sector • Increased ability to access financial and other resources available to invest in non- regulated energy services, businesses and solutions for customers From a shareholder perspective, the newly formed utility will provide additional dividends for Kitchener which are outlined in the financial implications section of this report. These additional dividends will be allocated through the City's annual budget process. Page 5 of 31 Proceeding with a merger between KWH and WNH will ensure that customers of both utilities continue to receive reliable service at competitive rates , both now and in the future. Jerry Van Ooteghem, CEO of KWH, and Jim Phillips, KPC Board Chair, will be in attendance to provide a presentation for Council and answer any questions that Council may have regarding the proposed merger. STRATEGIC PLAN ALIGNMENT: This report supports the delivery of core services. FINANCIAL IMPLICATIONS: The City of Kitchener currently receives approximately $6 million in annual dividends and interest from KWH. Under the proposed merger it is estimated that the City of Kitchener will receive incremental returns of $9.6M over a 20 -year timeframe. In addition to the incremental returns that are a direct result of a proposed merger, a dividend policy change that would be required to align with WNH's dividend policy will provide an increase of an estimated $28.9 million for Kitchener over a 20 -year timeframe. Dividends from ownership of the hydro utility are allocated through the City's annual budget process help address both the City's operating and capital need. COMMUNITY ENGAGEMENT: INFORM — This report has been posted to the City's website with the agenda in advance of the council / committee meeting. The approval of the MOU will start the public engagement process regarding the proposed merger. A website con nectinglocal power. ca has been set up for members of the community to learn more about the proposed merger and to provide their feedback. APPROVED BY: Dan Chapman, CAO ATTACHMENTS: Appendix A — Business Case - Summary Comments from Grant Thornton LLP Appendix B — Memorandum of Understanding Page 6 of 31 Business Case Proposed Merger between Kitchener Power Corp and Waterloo North Hydro Holding Corporation Summary Comments Prepared by: Grant Thornton LLP Date: September 16, 2021 Page 7 of 31 Project Background and Summary Kitchener Power Corporation (KPC) and Waterloo North Hydro Holding Corporation (WNHHC) (collectively, the Participants) have jointly retained Grant Thornton LLP (GT) to act as independent financial advisor for evaluating a potential merger between the two entities, which operate as holding companies for Kitchener -Wilmot Hydro Inc., and Waterloo North Hydro Inc. (the Proposed Merger). The senior management of both entities have been working together with GT to evaluate the financial as well as the business case benefits of merging the two utilities. These findings have been presented to the Boards and Shareholders who have separately retained financial and legal advisors to undertake a financial Peer Review of the work performed by GT and legal due diligence of the Proposed Merger. Peer Review The PEER Review and financial due diligence activities began in early 2021 and were substantially completed in June 2021. The legal due diligence has significant work completed and is expected to be substantially complete by the end of 2021. The following is some of the key work undertaken during the PEER review and due diligence processes: • Develop a twenty-year model to assess valuation and shareholder cash flows taking into account growth rates in each respective region. Model and study customer rate harmonization. The independent financial advisors: Reviewed and scrutinized the financial business model; Checked assumptions for reasonableness, and tested the model for technical accuracy. • The independent legal advisors: Reviewed legal documents including: minute books, contracts, agreements, insurances, litigation and environmental obligations to determine any potential liabilities. Efficiencies and Synergies Management identified several opportunities across different functional areas of the business, which we would reasonably expect to generate significant efficiencies and cost savings. For the first 10 years (sit -out period), the merged utility would be able to pass on the cost savings to its shareholders. Beyond the 10 years, the cost savings will be passed on to customers. Cost savings are expected to be realized primarily through voluntary employee retirement and attrition over the first three years, as well as the elimination of duplicate work and systems such as administrative, financial, and billing and collection systems. Further synergies are expected in the consolidation of Control Rooms, IT Networks, and Call Centres and the adoption of best practices of each utility. Management was able to identify approximately $2.9 million of potential annual cost savings. Page 8 of 31 NewCo The table below provides key metrics for each standalone entity, as well as what would be the combined LDC ("NewCo"). Distribution Revenue' 42,982 34,940 77,922 # of customers' 99,026 58,438 157,464 kWH sold (000s)' 1,836,454 1,439,103 3,275,557 KM of lines' 1,993 1,654 3,847 Service area (sq. km)' 42�i 683 1,108 'Source: 2020 OEB Yearbook Elexicon Energy' 169,489 78,645 Utility Size A merger between the Participants would currently result in the seventh largest electricity distribution utility in Ontario by customer count and make it almost as large as Elexicon and London Hydro who rank fifth and sixth largest, respectively. An overview of Ontario LDCs, ranked by customer count, is presented in the chart below. (Source 2020 statistics from OEB Yearbook) Rank Entity Number of Customers Distribution Revenue ($CAD) i Hydro One' 1,361,102 $1,571,292 Alectra Utilities' 1,062,040 567,145 Toronto Hydro- Electric' 779,176 711,740 Hydro Ottawa Limited' 346,347 183,817 5 Elexicon Energy' 169,489 78,645 6 London Hydro Inc. 162,140 70,124 7 NewCo 157,464 77,922 3 Energy+ Inc. & Brantford Power Inez 107,965 53,394 10 EnWin Utilities Ltd. Oakville Hydro All Other LDCs combined 90,104 74,001 992,735 43,338 42,017 497,640 ' Denotes entities who have previously undergone consolidation 2 Assumes that a MAAD application for the proposed merger of Energy+ Inc. and Brantford Power Inc. is filed and approved by the OEB Page 9 of 31 Customer Benefits The Proposed Merger would result in the following benefits for customers: 1) Retaining Local Ownership By merging the two utilities, a strong local solution, with municipal ownership, will ensure local workers are employed and the company is well positioned to meet the challenges and opportunities of the future. 2) Cost Effectiveness Savings from reduced operating costs and an increased customer base can be used to ensure the local distribution system remains reliable, efficient and up- to-date. 3) Ten-year rate stability During the first ten -years (Sit -out Period), each utility would continue with its current rate zones which will grow at an annual inflationary rate established by the Ontario Energy Board (OEB). This provides rate stability to all customers. 4) Gradual phase-in to rate harmonization after Sit -out Period It is a key commitment that customer rates will be carefully harmonized to ensure that all customers benefit from a merger as compared to where they would have otherwise been had the LDCs utilities operated in the status quo. Innovation and Technology Developments By leveraging a stronger balance sheet, the merged utility will have the ability to dedicate significant resources, leadership, and focus towards innovation and future growth. This will allow the new utility to become a stronger energy and infrastructure partner for local businesses and communities. Shareholder Outcomes Our work looked at total Shareholder cash flows, and not just dividends. Shareholder cash flows are generated in the form of both interest income (received from shareholder loans) and dividends. Total Shareholder cash flows for all Shareholders are expected to increase under the Proposed Merger. Based on our model developed in collaboration with Management and subsequently reviewed by the financial advisors, the Proposed Merger shows increased cash flows to each shareholder which in turn are reinvested into each municipality. The estimated increase in cash flows to each Shareholder over the first 20 years post -merger are presented below: City of Kitchener $9,600,000 City of Waterloo $3,100,000 Township of Woolwich $1,200,000 Township of Wellesley $279,000 Township of Wilmot $806,000 Page 10 of 31 Valuations - Ownership The below chart shows the ownership for each shareholder based on relative valuations of the utilities and their respective holding companies. WOOLWICH 8.51% 'UT -5,F t aeric 30.83% 2.78% WELLESLEY 'VV wllffibt 4.49% Conclusion 53.39/o I NFR Based on the work undertaken by GT and the due diligence done by independent advisors, the business case outlines that merging the two utilities gains considerable benefits (both qualitative and quantitative) for customers and shareholders. Page 11 of 31 MEMORANDUM OF UNDERSTANDING THIS MEMORANDUM OF UNDERSTANDING ("MOU") made as of the _ day of .2021 BETWEEN: THE CORPORATION OF THE CITY OF KITCHENER a corporation incorporated under the laws of the Province of Ontario, Canada ("Kitchener") and — THE CORPORATION OF THE CITY OF WATERLOO a corporation incorporated under the laws of the Province of Ontario, Canada ("Waterloo") -and- THE CORPORATION OF THE TOWNSHIP OF WELLESLEY a corporation incorporated under the laws of the Province of Ontario, Canada ("Wellesley") -and- THE CORPORATION OF THE TOWNSHIP OF WILMOT a corporation incorporated under the laws of the Province of Ontario, Canada ("Wilmot") -and- THE CORPORATION OF THE TOWNSHIP OF WOOLWICH a corporation incorporated under the laws of the Province of Ontario, Canada ("Woolwich") -and- K0563638\ACTIVE CA\ 47134923\7 Page 12 of 31 KITCHENER POWER CORPORATION a corporation incorporated under the laws of the Province of Ontario, Canada ("Y&C-) and - WATERLOO NORTH HYDRO HOLDING CORPORATION a corporation incorporated under the laws of the Province of Ontario, Canada ("WNH") (each a "Party" and collectively, the "Parties") WHEREAS KPC owns all of the issued and outstanding shares in the capital of Kitchener - Wilmot Hydro Inc. ("KWH") (an OEB-regulated electricity distributor) and Kitchener Energy Services Inc. ("KESI" ), and has minority interest in Grand River Energy Solutions Inc.; AND WHEREAS WNH owns all of the issued and outstanding shares in the capital of Waterloo North Hydro Inc. ("WNHI") (an OEB-regulated electricity distributor) (together with KWH the "LDCs") and Alliance Metering Solutions Inc. ("AMS"), (together with KESI, the ("Unregulated Affiliates") and has a minority interest in Grand River Energy Solutions Inc. and Eyedro Green Solutions Inc.; AND WHEREAS KPC and WNH have taken into account factors including distribution electricity rate mitigation, cost savings, sustainable cash flows, promotion of innovation, growth and sound longer-term strategic planning, customer service, promotion of local businesses and communities, and the policies of the Government of Ontario to encourage consolidation of distribution utilities in assessing strategic alternatives; AND WHEREAS KPC and WNH have developed a business case for, and carried out due diligence in respect of, their potential merger and the potential merger of the LDCs (together, the "Transactions") that has been presented to Kitchener and Wilmot (in the case of KPC) and to Waterloo, Wellesley and Woolwich (in the case of WM) (Kitchener, Wilmot, Waterloo, Wellesley and Woolwich are collectively referred to as the "Municipal Shareholders"); AND WHEREAS the Municipal Shareholders of KPC have directed KPC and the Municipal Shareholders of WNH have directed WNH to proceed with discussions relating to the Transactions on the basis of the business case; AND WHEREAS the Parties wish to set out, on a non -legally binding basis (except as otherwise expressly provided herein), the principles, objectives, processes and documentation that the _2v K0563638\ACTIVE_CA\ 47134923\7 Page 13 of 31 Parties intend to pursue and prepare in connection with the evaluation and, subject to approval by the boards of directors of KPC and WNH and by the municipal councils of each of the Municipal Shareholders, in their sole and absolute discretions, commitment to and implementation of the Transactions. NOW THEREFORE this MOU sets out certain understandings and agreements between the Parties. i. Transaction Structure The Parties will negotiate, and if acceptable, execute and deliver a definitive merger participation agreement between the Parties and the LDCs (the "Merger Participation Agreement"), with a form of unanimous shareholders' agreement (the "Shareholders' Agreement") with respect to Holdco Mergeco (as defined below) scheduled thereto, to be executed immediately following the Transactions. WNH and KPC, on the one hand, and the LDCs, on the other hand, will be amalgamated pursuant to the provisions of the Business Corporations Act (Ontario). The Transactions are intended to create a single holding corporation ("Holdco Mergeco") and a single corporation licensed by the OEB to distribute electricity ("LDC Mergeco"), which would be wholly owned by Holdco Mergeco. 2. Merger Objectives The Transactions would result in an entity or entities able to achieve the following objectives: (a) Customers will enjoy ten year distribution rate stability and distribution rates as low or lower than in a standalone alternative; (b) Distribution rates of the former KWH and WNHI service territories will harmonize over time; c) Continued excellence in customer service; (d) Total cost savings to be shared amongst the Municipal Shareholders and customers; (e) Stronger and more sustainable cash flow to Municipal Shareholders via interest and dividends; (f) The ability to dedicate significant leadership and focus on innovation and growth; (g) A larger entity with a stronger balance sheet capable of supporting future growth; (fir) Improved service reliability leveraging best practices and capabilities of both LDCs; (i) A stronger energy and infrastructure partner for local businesses and communities; K0563638\ACTIVE_CA\ 47134923\7 Page 14 of 31 (j) Alignment with provincial government policies encouraging consolidation in the electricity distribution sector; and (k) Increased ability to access financial and other resources available to invest in non- regulated energy services, businesses and solutions for customers. 3. Valuation and Share Allocation Upon completion of the Transactions, each of the Municipal Shareholders would receive shares in the capital of Holdco Mergeco based on the current valuation of KPC and WNH and their Subsidiaries, including the LDCs and the Unregulated Affiliates, as follows (rounded): City of Kitchener 53.4% City of Waterloo 30.8% Township of Woolwich 8.5% Township of Wilmot 4.5% Township of Wellesley 2.8% The above ownership percentages are based on the valuation and financial model developed jointly by KPC and WNH as at the date hereof and are intended to be incorporated into the Merger Participation Agreement and the Unanimous Shareholders' Agreement as fixed ownership percentages. Any adjustments based on (a) completion of due diligence; (b) the occurrence of one or more events occurring from the date hereof to the date of the Transaction and resulting, individually or in the aggregate, in a positive or negative material change in the business, condition (financial or otherwise), operations, performance, properties or prospects of KPC or WNH, together with their respective Subsidiaries such that it would result in a material change of the valuation of KPC or WNH and the ownership percentages noted above; and/or (c) typical post - closing adjustments based on the financial condition of KPC and WNH at the closing of the Transactions; will be made by way of cash payment. 4, Governance The Shareholders' Agreement will provide for a governance structure whereby each Municipal Shareholder has the right to nominate (and have elected) a number of directors of Holdco Mergeco approximately proportional to its share ownership percentage in Holdco Mergeco. Certain directors will be required to be "independent" i.e. not councillors or employees of the appointing Municipal Shareholder. Of its nominee directors, each Municipal Shareholder may nominate a maximum number of non -independent directors. The Townships of Woolwich, Wilmot and Wellesley (collectively, the "Townships") will nominate two directors. Therefore, the board of directors of Mergeco Holdco would consist of thirteen directors, elected on the basis of the following: -4- K05636MACTIVE_CA\ 47134923\7 Page 15 of 31 Number of Directors Nominated by Kitchener 4 Waterloo 2 Townships Max. Non -Independent Directors 2 The LDC Mergeco board of directors would consist of nine directors, five of which would be nominated by Holdco Mergeco and the remainder nominated by the Municipal Shareholders, as follows: Number of Directors Nominated by 5 Holdco Mergeco 2 Kitchener Waterloo 1 Townships Max. Non -Independent Directors 0 2 l 1 In addition, the Townships will be entitled to two non-voting observer positions on the boards of Holdco Mergeco and LDC Mergeco, on rotation. Due Diligence (a) KPC and its financial, legal and other advisors, as it considers reasonably necessary, (the "KPC Parties") have undertaken and may continue to undertake due diligence investigations with respect to WNH, WNHI and AMS in relation to the Transactions and WNH and its financial, legal and other advisors, as it considers reasonably necessary, (the "WNH Parties") have undertaken and may continue to undertake due diligence investigations with respect to KPC, KWH and KESI in relation to the Transactions. ) Due diligence has included or may include matters customary to such transactions including, financial, tax, legal, environmental, employment and labour, regulatory, and real estate issues and the condition of the distribution system and such other matters as determined by the Parties, acting reasonably, that are material to the Transactions. (c) KPC agrees to continue to provide, and shall cause its Subsidiaries to continue to provide, reasonable access to the WNH Parties to their premises, employees and books and records as the WNH Parties may reasonably require to conduct such due diligence. K0563638\ACTIVE_CA\ 47134923\7 Page 16 of 31 (d) WNH agrees to continue to provide, and shall cause its Subsidiaries to continue to provide, reasonable access to the KPC Parties to their premises, employees and books and records as the KPC Parties may reasonably require to conduct such due diligence. (e) Any information obtained by any Party as a result of due diligence conducted in relation to the Transactions will be maintained by each Party in confidence subject to the terms of the Confidentiality Agreement. The Parties will cooperate to complete due diligence expeditiously. 6. Condition Precedent to Merger Participation Agreement The execution and delivery by the Parties of the Merger Participation Agreement (and the form of Shareholders' Agreement scheduled thereto) will be subject to the prior approval of the boards of directors of WNH, VRH , KPC, and KWH and the councils of the Municipal Shareholders, which approval in each case may be withheld or granted in the sole and absolute discretion of each board or council, as the case may be. 7. Merger Participation Agreement and Shareholders' Agreement All of the terms and conditions of the proposed Transactions shall be provided in the Merger Participation Agreement and the Shareholders' Agreement and related principal agreements to be negotiated, agreed, executed and delivered by the Parties. The Merger Participation Agreement will contain such representations, warranties and covenants regarding the parties thereto and their respective businesses, such conditions to closing the Transactions, and such indemnities from the Municipal Shareholders as are customary for transactions such as the Transactions. . Employees and Labour Relations The Merger Participation Agreement will provide that any reduction in employment as in connection with the Transactions are primarily to be carried out on a voluntary basis, including retirement and attrition and each of KPC and WNH will cause their respective subsidiaries to work diligently to resolve in a timely manner any outstanding labour relations matters to be addressed in connection with the proposed Transactions under the applicable collective bargaining agreements or otherwise. 9. Location of Facilities The Merger Participation Agreement and the Unanimous Shareholders' Agreement will provide that: (a) Holdco Mergeco will cause LDC Mergeco to continue to have a substantial physical and functional presence in each of the two historic service areas of KWHI and WNHI; (b) Holdco Mergeco and LDC Mergeco will maintain their head offices at the current head office of KPC located at 301 Victoria Street South, Kitchener, Ontario N2M 3A2 for an indefinite period from the date of closing of the Transactions or at such other location within the City of Kitchener as may be approved by Kitchener; and (c) Holdco Mergeco will cause LDC Mergeco to maintain a second office at the current head office of WNH, located at 526 Country Squire Road, Waterloo, Ontario N2J 4G8, at which activities will include leading innovation and new technology -6- K0563638\ACTIVE_CA\ 47134923\7 Page 17 of 31 development, for an indefinite period from the date of closing of the Transactions, or at such other location within the municipalities of Waterloo, Woolwich or Wellesley area as may be approved by Waterloo, Woolwich and Wellesley. 10. Timetable The Parties will assess the potential Transactions and, subject to Section 5, if the Transactions are considered acceptable and desirable, endeavour to enter into the Merger Participation Agreement by no later than December 31, 2021 and satisfy or cause to be satisfied all conditions precedent to and complete the Transactions on or before a date that is not later than six months following Ontario Energy Board approval of the amalgamation of the LDCs. The Merger Participation Agreement will establish the obligations of the Parties with respect to timing and deliverables to the completion of the Transactions. 11. Exclusivity and Conduct of Business (a) Each Party acknowledges that pursuit of the Transactions will involve the expenditure of substantial time and money by the Parties. Subject to all the terms of this Section 11, each Party agrees that commencing on the date hereof to and including the date of termination of this MOU pursuant to Section 12 it will not, without the prior written consent of the other Party, directly or indirectly (including through any Affiliate, employee, officer, director, shareholder, agent or other person acting on its behalf or at its direction) have, initiate or continue any communications, discussion or negotiations of any nature, or respond to any proposal or request for information relating to the purchase, sale or other transfer, whether in one transaction or a series of transactions, of the whole or any part of the business or non -surplus assets of the Party or its OEB-regulated or unregulated Subsidiaries, or of any third party. (b) Each Party shall be responsible for any breach of this Section 11 by its Affiliates, employees, officers, directors, shareholders, agents or other persons acting on its behalf or at its direction. The Parties agree that monetary damages may not be a sufficient remedy for any breach of this Section 11 and that the non -breaching Parties shall be entitled to equitable relief, including injunction and specific performance, as a remedy for any such breach. Such remedies shall not be deemed to be the exclusive remedies for a breach of this Section 11 but shall be in addition to all other remedies available at law or equity, including, in the event of litigation, recovery of reasonable legal fees and expenses by the prevailing party (as determined by a court of competent jurisdiction in a final, non -appealable order). (c} It is the intent of the Parties that, during the period beginning on the date hereof and ending at the date of the Merger Participation Agreement or such earlier date as this MOLT may terminate in accordance with Section 12, the businesses of KPC and WNHI and their respective Subsidiaries be carried on in the ordinary course and in a manner that minimizes the likelihood of such events and changes as _7_ K0563638\ACTIVE_CA\ 47134923\7 Page 18 of 31 would materially affect and cause changes to the valuations and share percentages set out in Section 3. 12. Termination (a) This MOU will terminate upon the earlier of: (i) the execution of the Merger Participation Agreement; (ii) the mutual written agreement of the Parties; (iii) written notice from KPC (if it and its Municipal Shareholders are the non - breaching Parties) or WNH (if it and its Municipal Shareholders are the non - breaching Parties) to the other Parties if WNH or its Municipal Shareholders or KPC or its Municipal Shareholders breaches any of their respective obligations under Section 11(a) or (b); or (iv) seven (7) days' written notice by KPC or WNH to the other Parties. (b) Except with respect to any liabilities that may be incurred or suffered by a Party in connection with a breach by another Party of any provision referenced in Section 15, termination of this MOU prior to full execution and delivery of the Merger Participation Agreement shall be without liability and no Party will be entitled to any form of relief whatsoever, including injunctive relief or damages. 13. Transaction Expenses Expenses of the Parties incidental to this MOU, the Shareholders' Agreement, the Merger Participation Agreement and otherwise to the Transactions (the "Transaction Expenses") will be borne by the Party incurring them. 14. Notices Any notice or communication to be made or given hereunder shall be in writing and may be made or given by personal delivery or email addressed to the respective Party at the below address or such other address or email as a Party may from time to time notify the other Party. To: Kitchener The Corporation of the City of Kitchener 200 King Street West Kitchener, ON N2G 497 Attention: Dan Chapman, Chief Administrative Officer Email: dan.chapman@kitchener.ca -8- K0563638\ACTIVE_CA\ 47134923\7 Page 19 of 31 And to: Waterloo The Corporation of the City of Waterloo 100 Regina Street South Waterloo, ON N2J 4A8 Attention: Tim Anderson, Chief Administrative Officer Email: Tim.Anderson@waterloo.ca And to: Wellesley Township of Wellesley 4639 Lobsinger Line St. Clements, ON NOB 2M0 Attention: Rik Louwagie, Chief Administrative Officer Email: rlouwagie@wellesley.ca And to: Woolwich Township of Woolwich 24 Church Street West Elmira, ON N3B 2Z6 Attention: David Brenneman, Chief Administrative Officer Email: dbrenneman@woolwich.ca And to: Wilmot Township of Wilmot 60 Snyder's Road West Baden, ON N3A lAl Attention: Sandy Jackson, Acting Chief Administrative Officer Email: sandy.jackson@wilmot.ca Kitchener Power Corporation 301 Victoria Street South, -9- K0563638WCTIVE_CA\ 47134923\7 Page 20 of 31 Kitchener, ON N2G 4L2 Attention: Jerry Van Ooteghem, President and CEO Email: jvanooteghem@kwhydro.ca • TI MNi% i� Waterloo North Hydro Holding Corporation 526 Country Squire Road, Waterloo, ON N2J 4G8 Attention: Rene Gatien, President and CEO Dual']: rgatien@wnhydro.com 15. Binding Effect This MOU is not intended to constitute a legally binding agreement, nor is it to be relied upon as constituting a final agreement for the transactions contemplated herein. This MOU is written with the understanding that no Parry will be bound by any of its terms until negotiations have been concluded and definitive agreements have been executed and delivered. Notwithstanding the foregoing, the Parties agree that the following provisions are legally binding and enforceable against each of them: Sections 5 (Due Diligence), 8 (Labour Relations), 9 (Location of Facilities), 11(a) and (b) (Exclusivity and Conduct of Business), 12 (Termination), 13 (Transaction Expenses), 14 (Notices), 15 (Binding Effect), 16 (Interpretation), 17 (Governing Law), 18 (Successors and Assigns), 19 (Invalidity) and 20 (Entire Agreement). 16. Interpretation Capitalized terms have the meanings given to such terms in Schedule 1 attached to and forming part of this MOU. Each reference in this MOU to a statute is deemed to be a reference to such statute as amended, re-enacted or replaced from time to time. In this MOU, unless otherwise expressly provided herein or unless the context otherwise requires, words importing the singular number include the plural and vice versa. 17. Governing Law This MOU shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein. The Parties hereto irrevocably attorn to the exclusive jurisdiction of the courts of the Province of Ontario to resolve any dispute which may arise among them concerning this MOU and the subject matters hereof. _10 K0563638WCTIVE_CA\ 47134923\7 Page 21 of 31 18. Successors and Assigns All covenants and agreements of each Party in this MOU shall bind its permitted successors and permitted assigns. 19. Invalidity Each of the provisions contained in this MOU is distinct and severable and a declaration of invalidity, illegality or unenforceability of any such provision or part thereof by a court of competent jurisdiction shall not affect the validity or enforceability of any other provision of this MOU. 20. Entire Agreement This MOU constitutes the entire agreement among the Parties with respect to the matters contemplated herein and supersede any prior negotiations, understandings or agreements with respect thereto. 21. Execution and Delivery This MOU may be executed in one or more counterparts and delivered in an original form, by facsimile, or by email (.PDP format), each of which shall be deemed an original, and all which together shall constitute one and the same instrument. [remainder of page intentionally left blank] K0563638\ACTIVE_CA\ 47134923\7 Page 22 of 31 The Parties have executed this MOU as of the date first written above. THE CORPORATION OF THE CITY OF KITCHENER Per: _ Name: Title: Per: Name: Title: THE CORPORATION OF THE CITY OF WATERLOO Per: Name: Title: Per: Name: Title: THE CORPORATION OF THE TOWNSHIP OF WELLESLEY Per: Name: Title: Per: Name: Title: -12- K0563638\ACTIVE_CA\ 47134923\7 Page 23 of 31 THE CORPORATION OF THE TOWNSHIP OF WILMOT Per: Name: Title: Per: Title: THE CORPORATION OF THE TOWNSHIP OF WOOLWICH Per: Name: Title: Per: Title: KITCHENER POWER CORPORATION Per: Name: Title: Per: Name: Title: WATERLOO NORTH HYDRO HOLDING CORPORATION Per: Name: Title: Per: Name: I+ K0563638\ACTIVE_CA\ 47134923\7 Page 24 of 31 Title: l4- K0563638\ACTIVE_CA\ 47134923\7 Page 25 of 31 SCHEDULE I DEFINITIONS "Affiliate" has the meaning given to it in the OBCA. "including" means including without limitation. "LDCs" has the meaning given to it in the Recitals hereto. "OEB" means the Ontario Energy Board. "Party" and "Parties" have the meanings given to them in the Recitals hereto. "Transactions" has the meaning given to it in the Recitals hereto. "Unregulated Affiliate" has the meaning given to it in the Recitals hereto. 45786198.4 45874609.3 K0563638\ACTIVE_CA\ 47134923\7 Page 26 of 31 StaffRepott Financial Services Giepartment REPORT TO: Special Council DATE OF MEETING: 2021-10-04 www.kitchener: ca SUBMITTED BY: Ryan Scott, Manager, Procurement, 519-741-2200 ext. 7214 PREPARED BY: Brad Kowaleski, Procurement Specialist, 519-741-2200 ext. 7063 WARD(S) INVOLVED: N/A DATE OF REPORT: 2021-09-27 REPORT NO.: FIN -2021-54 SUBJECT: Q21-119 Dell Data Domain Virtual Edition (DDVE) Licenses RECOMMENDATION: That Q21-119 Dell Data Domain Virtual Edition (DDVE) Licenses, be awarded to CDW Canada Corp., Toronto, Ontario, at their quoted price of $132,029.00, plus H.S.T. of $17,163.77 for a total of $149,192.77. REPORT HIGHLIGHTS: The purpose of this report is to obtain approval to proceed with an award as per Purchasing By-law 2017-106; ■ The reason this report is coming forward is that only one (1) bid was received in response to this solicitation; This report supports the delivery of core services. BACKGROUND: The Technology Innovation and Services department has initiated a project to modernize its backup system. As part of this modernization project, the plan is to store backup data in the cloud. The City currently uses Dell Data domain as the backup system and it stores long term backups on tapes. Moving the backup system to cloud achieves several benefits including, instant data recovery, security, scalability, verification, and disaster recovery. The City currently stores the backup tapes at KOF. In case of a city wide disaster, it is possible that the tapes stored at KOF may become unusable. With the proposed system, backups will be stored across various Microsoft Azure datacenters in Toronto. This ensures that data will be available when needed. *** This information is available in accessible formats upon request. *** Please call 519-741-2345 or TTY 1-866-969-9994 for assistance. Page 27 of 31 This Request for Quotation was issued to request pricing for the Dell Data Domain Virtual Edition (DDVE), software -only storage appliance licenses and its associated components which will be required to move our backup storage from tapes to the cloud. REPORT: As per clause 170.7.3 of the Purchasing By-law 2017-106, it states, "Regardless of Procurement Value, the Manager of Procurement shall submit a report to Council recommending award of a purchase greater than $100,000 if any one or more of the following conditions apply: d. only one Bid was received in response to a Solicitation". Quotations were advertised publicly on the City of Kitchener website. Documents were downloaded by two (2) interested parties and by closing date of Wednesday September 18, 2021, one (1) quotation had been received. The following Quotation were received: Bid Price CDW Canada Corp. Toronto, ON $ 149,192.77 The quotation was reviewed by C. Hassarajani, Manager of Digital Infrastructure and Support, who concurs with the above recommendation. STRATEGIC PLAN ALIGNMENT: This report supports the delivery of core services. Page 28 of 31 FINANCIAL IMPLICATIONS: The net cost for this Quotation (A), is fair and reasonable for a purchase of this scope and the upset limit is within the budget allowance provided within the budget (B). Funding for this purchase is included within the approved capital budgets. The estimated surplus (D) will remain within the reserve account to fund future upgrades/purchases. Q21-119 Dell Data Domain Virtual Edition (DDVE) Licenses Estimated Cost for this Quotation Dell Data Domain Virtual Edition (DDVE) Licenses $149,192.77 less: HST rebate on Quotation (14,340.06�_ Net Cost Being Awarded 134,352.71 A Projected Additional Costs - Total Estimated Cost for this Quotation 134,352.71 C Budget for this Quotation Technology Infrastructure reserve (Computer Equip Purch & Replacements) $357,000.00 Total Budget for this Quotation 357,000.00 B Estimated Surplus/(Deficit) for this Quotation (B - C) 222,647.29 D PREVIOUS REPORTS/AUTHORITIES: There are no previous reports/authorities related to this matter. APPROVED BY: Jonathan Lautenbach, Chief Financial Officer, Financial Services Department Page 29 of 31 Staff Repott REPORT TO: Council DATE OF MEETING: October 4, 2021 www.kitchenerca SUBMITTED BY: Ryan Hagey, Director of Financial Planning & Reporting PREPARED BY: Debbie Andrade, Manager of Budgets WARD(S) INVOLVED: All Wards DATE OF REPORT: September 10, 2021 REPORT NO.: FIN -2021-55 SUBJECT: 2022 Budget Schedule Revision - Update RECOMMENDATION: That November 30, 2021 be added to the 2022 Budget Meeting Schedule, as outlined in report FIN -2021-55. REPORT HIGHLIGHTS: • The purpose of this report is to finalize the 2022 budget schedule, by adding November 30, 2021 as a date for budget meetings. • This report supports the delivery of core services. BACKGROUND: Each year the City establishes its financial priorities and sets rates (e.g. tax, utility, user fee) through the annual budget process. This includes a series of reports/presentations providing information and recommendations on user fees, operating budgets, and capital budgets, as well as an opportunity for the public to provide their input on the proposed budget and associated rate changes. REPORT: In setting the budget dates as part of a previous report, Council identified some potential conflicts with the City's budget meetings scheduled for November 29. A number of alternatives were briefly discussed, but there was not consensus as each of the alternatives created a different scheduling conflict. Based on the conversation during the meeting, staff have developed an alternative schedule that splits the November 29 meetings over two dates as follows. November 29 Capital Budget Presentation from 9:30 —12:30 This meeting includes the presentation of the proposed capital budget, including a review of planned projects as well as capital funding sources such as debt, reserves, and development charges. For context, the 2021 capital meeting took 2 hours and 20 minutes. *** This information is available in accessible formats upon request. *** Please call 519-741-2345 or TTY 1-866-969-9994 for assistance. Page 30 of 31 November 30 Public Input Part 2 (tentative) from 1:00 — 2:00 A public input session is already planned for November 15. During the discussion about the budget schedule, there was a suggestion that the City plan a second session in case the number of delegates is large. This second session would be held only if there were too many delegates to be accommodated on the November 15 session. WIP Utility Rates and Gas Utility Rate Approval from 2:00 — 3:00 Approval of the Water Infrastructure Program (WIP) utility rates (water, sanitary and stormwater) and the Natural Gas utility would occur on November 30. This allows enough time to notify customers and update software to start charging the new rates on January 1, 2022. The revised budget schedule, including the proposed changes (dates marked with a *), is shown in the table below. November 8 November 15 November 15 November 22 November 29* November 30* November 30* December 16 Revised 2022 Budget Meeting Schedule Monday (day) User fee presentation Monday (day) Operating Budget presentation Monday (night) Public Input Monday (night) _User fees approval Monday (day) Capital Budget presentation Tuesday (day) Public Input (tentative) Tuesday (day) WIP Utility rates & Gas rates approval Thursday (day) Final Budget approval STRATEGIC PLAN ALIGNMENT: This report supports the delivery of core services. FINANCIAL IMPLICATIONS: None. FCSC FCSC (Special)_ FCSC (Special) Council FCSC (Special) FCSC (Special) Council (Special) FCSC (Special) & Council (Special) COMMUNITY ENGAGEMENT: INFORM — This report has been posted to the City's website with the agenda in advance of the council / committee meeting. PREVIOUS REPORTS/AUTHORITIES: • FIN -2021-53 2022 Budget Schedule Revision APPROVED BY: Jonathan Lautenbach, Chief Financial Officer Page 31 of 31