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MINUTES - Special Council - 20050322 TOWN OF AURORA SPECIAL COUNCIL MEETING MINUTES NO. 05-11 Council Chambers Aurora Town Hall Tuesday, March 22, 2005 ATTENDANCE COUNCIL MEMBERS Mayor Jones in the Chair; Councillors Buck, Gaertner, Kean, Morris, Vrancic, Wallace and West. MEMBERS ABSENT Councillor Hogg was absent. OTHER ATTENDEES Chief Administrative Officer, Director of Corporate Services/Town Clerk, Director of Building, Director of Leisure Services, Director of Planning, Director of Public Works, Deputy Treasurer, Town Solicitor and Council/Committee Secretary. Mayor Jones called the meeting to order at 7:00 p.m. I DECLARATIONS OF PECUNIARY INTEREST There were no declarations of pecuniary interest under the Municipal Conflict of Interest Act. II APPROVAL OF AGENDA Moved by Councillor Wallace Seconded by Councillor Kean THAT the content of the Agenda as circulated by the Corporate Services Department be approved. CARRIED Mayor Jones advised that the Committee will be making a motion to go In-Camera to consider an additional offer to purchase Aurora Hydro Connections Limited, which was provided to the CAO in the afternoon of March 22, 2005. III IN-CAMERA Legal Matters Moved by Councillor West Seconded by Councillor Kean THAT Council proceed In-Camera to address legal matters. CARRIED At 7:07 p.m. Council convened into In-Camera session. The meeting reconvened in public session at 8:30 p.m. Special Council Meeting No. 05-11 Page 2 of 8 Tuesday, March 22, 2005 IV DELEGATION Mr. Scott Somerville, CAO, Town of Aurora Re: Possible Sale of Aurora Hydro Connections Limited Mr. Somerville provided a brief overview of the implications regarding the sale option of Aurora Hydro Connections Limited. Mr. Somerville advised that comments from the public would be encouraged this evening to allow the Council to fully consider all viewpoints pertaining to this issue. Mr. Somerville provided a brief outline of the background of events leading up to the current proposals before Council and summarized the positive and negative factors associated with the venture of selling Aurora Hydro Connections Limited OPPORTUNITY FOR THE PUBLIC TO ADDRESS COUNCIL ON THIS MATTER. Ms Jane Murray, Director of Borealis Hydro Electric Holdings Inc. read the following certified resolution passed by the Borealis Hydro Electric Holdings Inc. Board of Directors at its special meeting held on March 22, 2005: BOREALIS HYDRO ELECTRIC HOLDINGS INC. (the “Corporation”) CERTIFIED RESOLUTION OF THE BOARD OF DIRECTORS Sale of Aurora Hydro Connections Limited WHEREAS the Corporation is the sole shareholder of Aurora Hydro Connections Limited (“Aurora Hydro”); AND WHEREAS the Municipality of the Town of Aurora (the “Town”) is the sole shareholder of the Corporation; AND WHEREAS the Town directed the Board of Directors of the Corporation to investigate, review and make recommendations on the potential merger of Aurora Hydro with the corporation (“Newmarket Hydro”) carrying on the electricity distribution business in and around the Municipality of the Town of Newmarket (“Newmarket”); AND WHEREAS the Board of Directors of the Corporation retained experts and conducted such a review and recommended to the Town that a merger of Aurora with Newmarket Hydro be pursued; AND WHEREAS the Town determined that it was advisable to enter into negotiations with Newmarket to pursue such a merger; AND WHEREAS representatives of the Town, the Corporation and Hydro have been jointly negotiating with the Town of Newmarket for the merger of Aurora Hydro and Newmarket Hydro for over six months; AND WHEREAS the Town of Aurora and the Town of Newmarket have been negotiating the amalgamation of Aurora Hydro and Newmarket Hydro with a view to coming to a definitive agreement prior to March 24, 2005 on the assumption that the deadline for completing an agreement and filing the necessary Mergers, Acquisitions, Amalgamations and Divestitures application with the Ontario Energy Board to avoid transfer tax will expire on or about that date; AND WHEREAS the Board of Directors after all due consideration and consultation with experts has passed a resolution recommending the amalgamation of Newmarket Hydro and Aurora Hydro on terms set out in draft documents presented by the negotiating committee comprised of representatives of the Town, the Corporation and Aurora Hydro, subject only to a favourable report of KPMG, valuation experts recently retained by the Town, confirming the valuation methodology used by the negotiating Special Council Meeting No. 05-11 Page 3 of 8 Tuesday, March 22, 2005 committee to arrive at the relative shareholdings of the Town and Newmarket; AND WHEREAS the Town called an In-Camera meeting of Council to be held on Thursday, March 17, 2005 to receive a presentation from the Corporation on the merits of the amalgamation of Aurora Hydro and Newmarket Hydro and to receive the report of KPMG; AND WHEREAS two days prior to the In-Camera meeting of Council the Town advised the Corporation that it had received an unsolicited offer from PowerStream Corporation (“PowerStream”), the corporation holding the electricity distribution assets that distribute electricity in the municipalities of Vaughan, Richmond Hill and Markham, to purchase all of the shares of Aurora Hydro from the Corporation, which would preclude an amalgamation of Aurora Hydro and Newmarket Hydro and would permanently transfer the assets of Aurora Hydro out of the control of the Town; AND WHEREAS the Town advised the Corporation that the Council would receive a presentation from PowerStream as well as the report of KPMG at the In-Camera meeting of Council to be held Thursday March 17, 2005; AND WHEREAS prior to such In-Camera session of Council, the Board of Directors of the Corporation, communicated with the Town through its Chairman its desire to attend the In-Camera session of Council to assist the Town in assessing the unsolicited offer from PowerStream, assessing the report of KPMG, and comparing the offer from PowerStream with the proposed amalgamation of Aurora Hydro and Newmarket Hydro; AND WHEREAS immediately prior to the commencement of the In-Camera meeting the Board of Directors was advised by the Town that the board could be present at the In-Camera meeting to make representations as to the merits of the amalgamation of Aurora Hydro and Newmarket Hydro, but would have to withdraw and not be present for the presentation by PowerStream and the report of KPMG; AND WHEREAS the staff of Aurora Hydro and the Board of Directors were not consulted by KPMG with respect to the facts and assumptions used to prepare their report and staff and the Board of Directors have not been permitted to view the PowerStream offer or the KPMG report or be told of the contents of the offer or the report; AND WHEREAS after the conclusion of the In-Camera meeting, staff of Aurora Hydro were advised that the Town was actively pursuing the PowerStream offer to purchase Aurora Hydro from the Corporation and that a public meeting would be held to consider the PowerStream offer; AND WHEREAS the Board of Directors has not played any role in reviewing the PowerStream offer or the report on valuation of KPMG notwithstanding its offer to the Town to assist the Town in such endeavours; AND WHEREAS the Corporation has retained its standing lawyer of record, Mark Rodger, a nationally recognized expert in the amalgamation, purchase, leasing and sale of electricity distribution companies and assets who is co- chair of the electrical energy practice at Borden Ladner Gervais to provide advice to the Board of Directors of the Corporation in the context of the proposed merger of Aurora Hydro with Newmarket Hydro, and now, with respect to the proposed sale of substantially all of the Corporation’s assets; AND WHEREAS it appears that the Town does not propose to solicit other offers for Aurora Hydro; Special Council Meeting No. 05-11 Page 4 of 8 Tuesday, March 22, 2005 AND WHEREAS the Board of Directors has received advice from Mark Rodger as well as other experts in the field that (i) most other municipalities that have determined to sell their electricity distribution companies or assets have created an auction process by soliciting offers through an RFP process and have received multiple offers almost all of which contained a large premium to the value obtained by typical discounted cash flow valuation methods for companies as a going concern, (ii) that most municipalities that elected to sell their distribution companies or assets through an RFP process eventually completed a sale that realized a significant premium over the value of such companies or assets based on normal valuation methods, and (iii) the Minister of Energy and his representatives have recently indicated publicly that the Province of Ontario may introduce another transfer tax exemption period which would extend the deadline for completing sales and amalgamations beyond the March 24, 2005 effective deadline, including removing the restrictions against Hydro One purchasing or selling distribution businesses and assets such that it is likely that the Town can delay the decision to sell Aurora Hydro until it has had the opportunity to conduct an RFP process and solicit multiple offers for Aurora Hydro without undue risk of attracting a transfer tax to the sale; AND WHEREAS the Board of Directors is of the opinion that barring unforeseen changes in the regulatory environment which would affect the income of Aurora Hydro, the value of Aurora Hydro should increase over the next several years as a result of the recovery of regulatory assets and reasonably anticipated favourable rulings from its regulator to correct historical anomalies which have a direct effect on the income earning capacity of Aurora Hydro and as such it is not prudent to proceed with a sale unless this anticipated increase in income earning capacity is recognized in any offer to purchase; AND WHEREAS it is unclear to the Board of Directors as a result of the Board being denied timely access to the PowerStream offer or the report of KPMG whether the PowerStream offer has recognized this anticipated increase in value of Aurora Hydro, or included a premium on the value of Aurora Hydro consistent with premiums paid by other recent purchasers of municipally owned distribution companies and assets; AND WHEREAS the Board of Directors is of the view that selling Aurora Hydro without conducting an RFP auction process and negotiating terms favourable to Aurora consistent with recently completed sales would be imprudent; NOW THEREFORE BE IT RESOLVED THAT: 1. The shares or assets, as the case may be, of Aurora Hydro and/or the Corporation, as the case may be, not be sold until such time as the Town or the Corporation conducts a request for proposal auction process to solicit multiple offers for the shares or assets, as the case may be, and until such time as the Town, or the Corporation, as the case may be, has had the opportunity to review the types of terms and conditions for such a sale as may be consistent with recent, and reasonably anticipated future, industry practice; and 2. Any director is hereby authorized to present this resolution to the Town and to the public meeting to be held by the Town to consider the PowerStream offer and to represent that it has been passed by the Board of Directors of the Corporation. Special Council Meeting No. 05-11 Page 5 of 8 Tuesday, March 22, 2005 Certificate I, John Sanderson, duly appointed President of Borealis Hydro Electric Holdings Inc. hereby certify that the foregoing resolution is a resolution of the Board of Directors of Borealis Hydro Electric Holdings Inc. passed at duly held meeting of directors held on March 22, 2005 and that such resolution is still in effect and unamended as of the date hereof. Ms Murray expressed concern regarding Aurora’s opportunity to make an informed and confident decision on such an important issue, due to the time limit associated with the transfer tax exemption and the lack of notice and last minute information to be evaluated and processed. Ms Murray urged Council to wait and see if the Province will be extending the transfer tax exemption window and to initiate a Request for Proposal to allow an opportunity for all interested parties to present themselves equally. Mr. Norm Weller expressed the concern that the Town of Aurora could lose a consistent source of revenue by selling Aurora Hydro Connections Limited and suggested that Council resolve to continue to maintain the Company on a stand alone basis. Mr. Weller expressed the opinion that this course of action would be the best thing for the residents of the Town of Aurora as well as the Corporation. Ms Rebecca Beaton expressed concern regarding the lack of information which has been made available to the public on this issue. Ms Beaton inquired as to when a resolution was passed to investigate the sale of Aurora Hydro Connections Limited, and requested that copies of the following documents be provided to the public: - Offers to purchase Aurora Hydro Connections Limited, from The Town of Newmarket and PowerStream Inc. - KPMG report; and - All financial statements for the involved companies, The Town of Aurora, the Town of Newmarket and PowerStream Inc. Ms Arlene Strange advised that the deregulation of Hydro in Ontario in 2002 changed the face of the hydro industry and allowed Aurora to be the sole shareholder of Aurora Hydro. Ms Strange expressed the belief that the Town of Aurora could continue to run this company on a stand alone basis and continue serving the Town and benefit from the rate of return, interest payments and rental income and still have some involvement in policy and distribution rates. Ms Strange suggested that the Town could also benefit from merging with another Local Distribution Centre to possibly increase its value and continue to receive a rate of return and have input in the policy and distribution rates. Ms. Strange advised that over the past few months the Town of Newmarket and the Town of Aurora have been working together toward a merger of hydro companies and that staff and Board members have been anticipating this agreement. Ms Strange advised that the news of a possible sale of Aurora Hydro Connections Limited was a shock to the parties involved in the merger process and that the staff of Aurora Hydro are concerned for their future. Ms Strange expressed concern that Council did not release information about the possibility of taking this direction at an earlier stage in the merger negotiations, and asked Council to consider the dedicated service of the Board and staff at Aurora Hydro Connections Limited and Borealis Hydro Electric Holdings Inc. when making this important decision. Another resident advised that he did not support the energy de-regulation initiative as set out by the Ontario Government and that he does not support the sale or merger of Aurora Hydro Connections Limited. Special Council Meeting No. 05-11 Page 6 of 8 Tuesday, March 22, 2005 The public portion of the meeting closed at 9:00 p.m. and Council’s deliberations began. Moved by Councillor Vrancic Seconded by Councillor West THAT all of the items listed on the General Committee public agenda this evening be deferred to the next Council meeting to be held on March 29, 2005. CARRIED IN-CAMERA Legal Matters Moved by Councillor Buck Seconded by Councillor Kean THAT Council proceed In-Camera to discuss the comments from the public meeting; and THAT representatives from the Town of Newmarket be invited to present their offer to Council during the In-Camera session. CARRIED At 9:05 p.m. Council recessed into In-Camera. The meeting reconvened at 11:50 p.m. Moved by Councillor Vrancic Seconded by Councillor Kean THAT Council reconvene from in-camera and resume the meeting; and THAT the Procedural By-law be waived to extend the hour in order to address the remaining items on the agenda. CARRIED Mayor Jones advised that due to the nature of the various documents being considered by Council this evening, Council are bound by various confidentiality clauses within the offers and therefore Council are not at liberty to discuss the content of these documents. Mayor Jones advised that following whatever decision results from this meeting, Council will seek to get permission to disclose the details of the approved document(s) publicly from the corresponding party(ies). V ITEM FOR DISCUSSION 1. ADM05-007 - Sale of Aurora Hydro Connections Limited to PowerStream Inc. Moved by Councillor Buck Seconded by Councillor Kean THAT the Town of Aurora accept the offer from PowerStream Inc. to purchase Aurora Hydro Connections Limited. CARRIED Special Council Meeting No. 05-11 Page 7 of 8 Tuesday, March 22, 2005 Moved by Councillor Kean Seconded by Councillor Wallace THAT the Mayor and Clerk be authorized to execute a share purchase agreement, on terms substantially similar to the share purchase agreement attached hereto, as amended by Council to remove regulatory rate risk, between the Corporation of the Town of Aurora, Borealis Hydro Electric Holdings Inc. and PowerStream Inc., for the purchase of all of the shares of Aurora Hydro Connections Limited (the “Transaction Agreement”), and to execute and deliver all other ancillary agreements and documents necessary to give effect thereto; and THAT Council hereby directs Borealis Hydro Electric Holdings Inc. and, where required, Aurora Hydro Connections Limited to execute and deliver the Transaction Agreement and to execute and deliver all other ancillary agreements and documents necessary to give effect thereto and that the Mayor, any member of Council or any proper Town official be hereby authorized to direct or deliver such notices to Borealis Hydro Electric Holdings Inc. and Aurora Hydro Connections Limited to do so; and THAT Council authorizes the submission of all necessary applications to all Ministries, Boards and Government Agencies, including the Ontario Energy Board, to obtain approval of the transaction (the “Applications”). Council hereby directs Borealis Hydro Electric Holdings Inc. and Aurora Hydro Connections Limited to assist with, execute and deliver the Applications, any amendments to the Applications and any responses to the Applications required by such Ministries, Boards, Government Agencies and the Ontario Energy Board and to execute and deliver all other ancillary agreements and documents necessary to give effect thereto and that the Mayor, any member of Council or any proper Town official be hereby authorized to direct or deliver such notices to Borealis Hydro Electric Holdings Inc. and Aurora Hydro Connections Limited to do so. CARRIED VI READING OF BY-LAWS Moved by Councillor Vrancic Seconded by Councillor Buck THAT the following listed by-laws be given 1st, 2nd and 3rd readings, and enacted: 4650.05.L BEING A BY-LAW to authorize the actions and proceedings of Council at its special meeting held on the 22nd day of March, 2005 (Sale of Aurora Hydro Connections Limited) 4653.05.C BEING A BY-LAW to confirm actions by Council resulting from the meeting of March 22, 2005. CARRIED Special Council Meeting No. 05-11 Page 8 of 8 Tuesday, March 22, 2005 VII IN-CAMERA Personnel Matters Moved by Councillor West Seconded by Councillor Kean THAT Council proceed In-Camera to address personnel matters. CARRIED VIII ADJOURNMENT Moved by Councillor West THAT the meeting be adjourned at 12:30 a.m. CARRIED _________________________________ _____________________________ T. JONES, MAYOR B. PANIZZA, TOWN CLERK