HomeMy WebLinkAboutADMIN-17-99 THE CORPORATION OF THE MUNICIPALITY OF CLARINGTON REPORT #2
REPORT
Meeting: Council File #
Date: June 28, 1999 Res. #
Report #: ADMIN 17-99 FILE #: By-law #
Subject: HYDRO UTILITIES MERGER
Recommendations:
It is respectfully recommended that Council approve the following:
1 . THAT Report ADMIN. 17-99 be received;
2. THAT the attached By-Law approving the Merger Agreement, Article of
Incorporation and Shareholders' Agreement be passed; and
3. THAT any payment, dividends from the new utility company be placed in a
separate reserve fund account, and that the appropriate by-law be forwarded to
Council to establish the reserve fund.
REPORT:
1. On April 19 1999, Council approved the recommendations contained in Report
ADMIN. 7-99, consenting to the merger of the Clarington Hydro Commission with
the Hydro Commissions of Ajax, Pickering, Uxbridge and Brock. Councils of the
respective partner Municipalities, except the Township of Uxbridge and the
Township of Brock have also consented to the merger. The Township of Uxbridge
has declined, while the Township of Brock is still undecided. As time is of the
essence, the Hydro Steering Committee, with the agreement of the remaining three
hydro commissions and the three Mayors, decided to proceed.
2. The Hydro Steering Committee, with the assistance of the law firm of Borden and
Elliot has been working on finalizing all necessary documents leading up to the
incorporation of the new utility company on July 1, 1999 or a date thereafter. Prior
to the incorporation, the Merger Agreement and Shareholders' Agreement must be
executed by each Council. The Municipality's solicitor has reviewed the original
REPORT NO.: ADMIN. 17-99 PAGE 2
shareholders agreement and provided feedback to Borden and Elliot. The
agreements have been revised to reflect the deletion of Brock and Uxbridge. Copy
of the Shareholders' Agreement and the Merger Agreement were forwarded to
members of Council previously under separate cover.
3. Attached hereto is a by-law authorizing the incorporation of the new utility
company, as well as authorizing the law firm of Borden and Elliot to file articles of
incorporation. Forming part of the by-law is copy of the Merger Agreement and the
Shareholders' Agreement.
4. Under the terms of the Merger Agreement, each of the municipalities will receive
two special payments from the new utility company. Each payment equals to
$60,000 times the percentage equity of each municipality. In Clarington, the equity
is 15.8%, which amounts to a payment of $948,000. The first payment will be
made on the effective date of the Merger Agreement, scheduled for November 1,
1999, and the second payment due on September 1, 2000. The Treasurer advised
that this fund and any subsequent dividends should be placed in a separate reserve
fund account to be used for municipal purposes as Council may determine in the
future.
5. The Steering Committee has scheduled June 29 1999 for unveiling of the new utility
company and the first business meeting of the Board of Directors will be held on
July 20, 1999.
6. Between the time of incorporation (July 1 1999) and the effective date of the Merger
Agreement (November 1, 1999), the Municipality will be required to pass the
necessary transfer by-laws authorizing the transfer to the new company of the assets,
liabilities, and employees of Clarington Hydro. The transfer by-law represents the
last step of the amalgamation process. Staff will forward the transfer by-law to
Council in the fall.
Respectfully submitted,
Franklin Wu,
Chief Administrative Officer
Att.
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Attachment to Report ADMIN 17-99
THE CORPORATION OF THE MUNICIPALITY OF CLARINGTON
BY-LAW No. 99-86
Being a by-law to approve the merger of three Hydro-Electric
Commissions, the incorporation of a corporation and
Subsidiaries under the Business Corporations Act (Ontario)
pursuant to section 142 of the Electricity Act, 1998 and an
agreement of the shareholders of the foregoing parent corporation.
WHEREAS pursuant to section 142(1) of the Electricity Act, 1998 the Council of
the Corporation of the Municipality of Clarington (the "Municipality") may
cause a corporation to be incorporated under the Business Corporations Act
("OBCA") for the purpose of generating, transmitting, distributing or retailing
electricity;
AND WHEREAS the Municipality transmits, distributes and retails electricity
through the Clarington Hydro Electric Commission (the "Commission");
AND WHEREAS pursuant to subsection 142(3) of the Electricity Act, 1998 two
or more municipal corporations may incorporate a single corporation for the
purpose of carrying on the business of generating, transmitting, distributing or
retailing electricity;
AND WHEREAS the Municipality together with the Councils of the Corporation
of the Town of Ajax and the Corporation of the Town of Pickering (collectively
the "Other Municipalities") have agreed to enter into a merger agreement (the
"Merger Agreement") to establish the terms and conditions upon which the
Municipality and the Other Municipalities will merge the businesses of the Ajax
Hydro-Electric Commission, Clarington Hydro-Electric Commission and
Pickering Hydro-Electric Commission (collectively the "Predecessor Utilities");
AND WHEREAS the Municipality together with the Other Municipalities have
authorized the incorporation of a corporation (the "Corporation") and certain
subsidiaries (the "Subsidiaries") (collectively the "Corporation and its
Subsidiaries") to be incorporated under the OBCA pursuant to section 142(1)
of the Electricity Act, 1998 for the purpose of generating, transmitting,
distributing or retailing electricity;
AND WHEREAS the Municipality and the Other Municipalities have agreed to
enter into a shareholders' agreement (the "Shareholders' Agreement") to
provide for the conduct of certain affairs of the Corporation and its
Subsidiaries, to provide for certain restrictions on the transfer and ownership
of shares in the capital of the Corporation and to govern the mutual rights and
obligations of the Municipality and the Other Municipalities with respect to the
Corporation and its Subsidiaries and each other;
The Council of the Corporation of the Municipality of Clarington enacts
as follows:
1. The Merger Agreement among the Municipality and the Other
Municipalities, in substantially the form attached hereto as Schedule "A",
forming part of this by-law is hereby authorized and approved.
By-law 99-86 Page 2
2. The incorporation, pursuant to section 142 of the Electricity Act, 1998 of
the Corporation under the OBCA on July 1, 1999 or such other date to
be determined by the Mayor and the Mayors of the Other Municipalities
is hereby authorized and approved, and Linda L. Bertoldi of the law firm
of Borden &Elliot is hereby authorized to act as the incorporator of the
Corporation and its Subsidiaries and to file articles of incorporation for
the Corporation on such date in the form annexed hereto as Schedule
"B". The incorporation of Subsidiaries is also hereby authorized and
approved. The registered office of the Corporation and its Subsidiaries
shall be the head office of the Pickering Hydro-Electric Commission until
otherwise determined by the Town and the Other Municipalities
pursuant to the OBCA and Shareholders'Agreement.
3. The Shareholders'Agreement among the Municipality, the Other
Municipalities, the Corporation, in substantially the form attached hereto
as Schedule "C", forming part of this by-law is hereby authorized and
approved.
4. The transfer of the assets, liabilities and employees of the Commission to
the Corporation and as appropriate, to one or more Subsidiaries shall be
authorized by Council pursuant to a transfer by-law in accordance with
the Electricity Act, 1998 to be submitted to Council for its consideration
and enacted prior to November 1, 1999 or such other date to be
determined by the Mayor and the Mayors of the Other Municipalities.
5. Any two of the Mayor, the Chief Administrative Officer, and the Clerk are
hereby authorized and directed, for and on behalf of the Municipality to
execute and deliver the Merger Agreement and Shareholders'Agreement
(the "Main Documents") with such alterations, additions and
amendments thereto as they may approve, the execution of the Main
Documents by such individuals being conclusive evidence of such
approval and to do all such acts and things and to execute and deliver all
such other documents, instruments and writings as may be necessary or
desirable to give effect to the provisions of this by-law and the Main
Documents.
Read a First and Second Time this 28th day of June, 1999
Read a Third Time and Finally Passed this 28th day of June, 1999
Mayor
Municipal Clerk
NOTE: Because of the length of
the attachments to the
by-law, the executive
summary has been provided.
For more detail, please
EXECUTIVE SC Y refer to the documents
which were previously
circulated.
Prepared For: The Town of Ajax,
Municipality of Clarington, and
The Town of Pickering
By: Borden & Elliot
Dated: June 18, 1999
Re: Merger Agreement, Shareholders' Agreement and Merger Bylaw
1. Mersey Agreement
The Merger Agreement will be dated June 29, 1999 and sets out the relationship among Ajax,
Clarington, and Pickering concerning the merger of the three Commissions as follows:
+ Municipalities will incorporate HoldCo effective July 1, 1999(the"Incorporation Date")
and as appropriate, one or more subsidiary corporations (the "Subsidiaries")
+ Municipalities to designate Commissioners as the Board of Directors (the "Board") of
HoldCo from the Incorporation Date to December 31, 2000 (the "Initial Period")
• Municipalities will enter into Shareholders' Agreement on the Incorporation Date
• Municipalities will pass a Transfer Bylaw and Transfer Agreement authorizing on
November 1, 1999 the transfer of the assets, liabilities, and employees of each
Commission to HoldCo and as appropriate,the Subsidiaries
• Each Municipality has right to retain surplus parcels of land
• Assets of each Commission to be valued at the book value
+ Equity of each Municipality in HoldCo to be determined based on value of assets and
liabilities transferred to HoldCo and as appropriate,the Subsidiaries
+ Each Commission to pay pro rata.share of$100,000 for start up
+ HoldCo will make two special payments to each Municipality in the aggregate amount
of$12 million
First payment of$6 million to be made on November 1, 1999
Second payment of$6 million to be made on September 1, 2000
2. Shareholders'Agreement
Business of HoldCo and$ubsidaaries
+ Business activities permitted by Ontario Energy Board Act, 1998 including:
Distributing and transmitting electricity
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Owning and/or operating an electricity generation facility
Retailing electricity
Distributing or retailing any other energy product carried through pipes or wires
Other business activities related and/or complimentary to the provision of energy
or energy efficiency services
+ Standards of service to be maintained at levels at least equivalent to existing levels and to
be harmonized in each of the three Municipalities so that each service area will enjoy
common standards.
Corporate Govermance
• After the Initial Period, Board to consist of 12 directors
• Mayor or Mayor's designate to be member of the Board
+ Qualifications of candidates for the Board should include the following:
business experience, time availability, financial skills, marketing skills, industry
knowledge,independence of judgement,integrity,knowledge of relevant public
policy issues, environmental matters, labour relations and occupational health
and safety issues
* Members of each Council may be appointed to the Board but may not comprise a
majority of each Municipalities' nominees to the Board
+ Persons acquiring shares from Municipalities entitled to nominate members to the Board
in accordance with formula
• Following the Initial Period,the Board will serve for a term of three years(members may
serve successive terms)
• Board will meet at least once every calendar quarter
• Board committees to be established as follows:
Executive (12 directors for the Initial Period and 6 directors thereafter)
Finance and Human Resource (6 directors for the Initial Period and 3 directors
thereafter)
Nominating (3 directors while Municipalities remain only Shareholders.
Otherwise Board discretion).
responsible for making recommendations concerning candidates for the
Board,compensation for the members of the Board,the Chair,Vice Chair
and Board Committee members, and chair persons
bC�'d -iuiol
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• Shareholders will meet at least annually
• Decisions of Shareholders require the approval of at least 2/3 of the votes cast
4 Each Mayor designated as the legal representative of the Municipality
• The following special matters will require approval of the Shareholders:
amendments to the cQnstating documents
any issue, agreement to issue, conversion, redemption,purchase for cancellation
or other matters relating to the transfer or composition of sham
any sale,disposition or grant of any interest in all or substantially all of the assets
changing the debt/equity ratio to greater than 60%debt
entering into any amalgamation or other form of consolidation
Transfer of Shares
• General restriction on any transfer of shares for a two year hold period beginning on the
Incorporation Date except with special approval of the Shareholders.
• Following the hold period,the Shareholders'.Agreement contains the following rights in
order to provide each of the Municipalities with an equal opportunity to sell its interest
or to acquire the interest of a selling Shareholder:
each Shareholder free to sell its Shares subject to each other Shareholder's right
of first refusal to purchase seller's Shares on the terms offered by third party
if a sale would result in one buyer owning more than 49% of the Shares of
HoldCo, the other Shareholders have the right to sell on the same basis
if buyer is a competitor, other Shareholders must approve the sale
Sale of Surplus Assets
• Each Municipality has a right to purchase surplus assets within its boundaries at fair
market value
3. Alerger Bylaw for Each Municipal Council
° Approves the Merger Agreement
• Approves the incorporation of HoldCo and authorizes Linda L. Bertoldi of Border? &
Elliot to act as incQrp.orator
4 Approves the location of the head office of HoldCo at Pickering
• Approves the Shareholders' Agreement
Designates the signing authorities for the Shareholders' Agreement, Merger Agreement
and any related documents
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