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balance of approximately $4.28 million as of March 31, 2017. The parties agreed that the reserve would be distributed according to the following steps: 1. Payment to PGS of any deficit due it under the current collection agreement. 2. Pre-payment of the depreciation expense of PGS and CART assets that were purchased under the old agreement but will continue to be used in the new agreement ($1,171,302). 3. Payment for the audit of financial operations between April 1 and June 30, 2018. 4. The remainder of the reserves, after step 2, up to $2.0 Million (PGS has represented that it is reasonable to believe that the reserve after item 2 will be not less than $2 million dollars) to be transferred to the City to prepay 0.5 percent of the 4.0% franchise fee (3.5% will be paid annually by PGS). 5. An equal sharing of any remaining amount, after step 4, up to $260,000 to compensate PGS for its unrealized profit on the pre-paid depreciation of $130,000. 6. Any remaining amount after step 5 goes to City to increase the franchise fee or mitigate future rate increases under the new Collection Agreement. Next Steps Next steps include efforts on two concurrent tracks: • The first track includes the setting of rates based on the terms of the new franchise agreement including a 13.3 percent reduction in overall costs to the City in advance of the July 1, 2018 start date; • The second track includes the procurement for services to process organics and recyclables material and adjusting rates a second time to reflect those contracts. The following list of tasks integrates these two tracks in general chronological order: 1. Complete Initial Rate Schedule. Staff and HF&H will meet with the Subcommittee and work to set rates to reflect the terms of the new agreement in a manner that best meets the City's overall refuse and recycling goals and regional obligations, and that is comparable with regional rate structures. As such, it is anticipated that adjustments may not be equal across the board but rather adjusted to more accurately reflect PGS's agreed upon compensation, City goals and regional rate surveys. (It should be noted that it is likely that the results of the new bids on organics and recycling processing and negotiation with PGS on how these services will affect PGS operations and costs, will not be accomplished in advance of the July 1, 2018 start of the new franchise agreement. Assuming that is the case, initial rates will be determined using existing PGS services and costs.) Meetings with the Subcommittee would commence in early April, and initial rates would be brought to City Council for review and approval in late May or June of 2018 to be in place for the commencement of service under the new agreement on July 1, 2018. 2. Negotiate New Processing Contract(s) with Service Providers for Organics and Recycling. This will occur in May and June of 2018. Staff will bring the new contracts to the Subcommittee and the City Council for review and approval in June or July of 2018. Page 5 of 6