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HomeMy WebLinkAboutCS 41/01 - REPORT TO COUNCIL FROM: Gillis A. Paterson Director, Corporate Services & Treasurer DATE: November 19, 2001 REPORT NUMBER: CS 41-01 SUBJECT: Veridian - Inter-Creditor Agreement RECOMMENDATION: 1. It is recommended that Report CS 41-01 of the Director, Corporate Services & Treasurer be received; 2. That the Mayor and Clerk be authorized to execute an Inter-Creditor Agreement in a form as attached hereto between the Bank of Nova Scotia, the Town of Ajax, the City of Belleville, the Municipality of Clarington, the City of Pickering, Veridian Corporation and Veridian Connections Inc. confirming the subordinated ranking of municipality held Promissory Notes to the senior debt financing to be issued by Veridian Corporation; 3. The Chief Administrative Officer and the Director, Corporate Services & Treasurer be authorized to undertake any discussions, negotiations or amendments to agreements necessary in order to put into effect the wishes of Council as expressed under these and previous Resolutions regarding this matter; and, .- 4. That appropriate officials of the City of Pickering be given authority to gIve effect thereto. ORIGIN: Director, Corporate Services & Treasurer AUTHORITY: Report CS 01-99 Resolution No. 226/99 FINANCIAL IMPLICATIONS: None beyond that indicated in the original Merger and Shareholder Agreements EXECUTIVE SUMMARY: The Promissory Notes held by the Shareholders are debt subordinated to any other debt held by Veridian Corporation and Veridian Connections Inc. Execution of this agreement between all parties recognizes the fact, in a way that makes the Bank of Nova Scotia a party to the subordination and ensures any amounts owing the Bank rank before such debt. .- -' - .-' Report to Council 41-01 Date: November 19,2001 Subject: Veridian - Inter-Creditor Agreement Page 2 ,-.. BACKGROUND: Veridian Corporation has arranged bank financing with the Bank of Nova Scotia. The five-year agreement with the Bank for up to $48 million in lines of credit and up to $45 million in guarantees provides re-financing for utility acquisitions, financing for capital expenditures and investments and guarantees to be posted with the. Independent Market Operator in support of electricity procurement. The Bank requires an Inter-Creditor Agreement so that it is party to the agreement with the municipal shareholders that the $60.8 million Promissory Notes held by the municipalities are subordinated in rank to this Bank senior debt. You will recall from the terms of the Promissory Notes recently passed by each Council, this subordination feature was included so that Veridian could obtain necessary financing. Municipal shareholder debt is protected by the Shareholders' Agreement. Veridian cannot place debt, including Subordinated Promissory Notes, in excess of 70% of the total capitalization of Veridian. Lending institutions deem this to be an acceptable debt to capitalization ratio. Veridian's legal counsel has reviewed the Inter-Creditor Agreement. It is requested by Veridian that the Council approve the Inter-Creditor Agreement and authorize the Mayor and Clerk to execute this agreement. ATTACHMENTS: 1. Inter-Creditor Agreement - Prepared! Approved! Endorsed By: ~/ ,- /- ~~ --- ~ '--dillis A. Paterson Director, Corporate Services & Treasurer GAP:vw Recommended for the consideration of Pickering City Council Thomas 1. Quinn, Chief Administrative Officer - -' - -' ATTACHMENT#L TO REPORT # C> "f1..O} .- INTER-CREDITOR AGREEMENT THIS AGREEMENT made as of the _ day of November, 2001. BETWEEN: THE BANK OF NOVA SCOTIA, a Canadian chartered bank (herein called the "Senior Creditor") - and - THE CORPORATION OF THE MUNICIPALITY OF CLARINGTON, a municipal corporation existing under the laws of the Province of Ontario (herein called "Clarington") - and - THE CORPORATION OF THE TOWN OF AJAX, a municipal corporation existing under the laws of the Province of Ontario ,..... (herein called "Ajax") - and - THE CORPORATION OF THE CITY OF PICKERING, a municipal corporation existing under the laws of the Province of Ontario (herein called "Pickering") - and - THE CORPORATION OF THE CITY OF BELLEVILLE, a municipal corporation existing under the laws of the Province of Ontario (herein called "Belleville") - and - VERIDIAN CORPORATION, a corporation amalgamated under the laws of the Province of Ontario (herein called the "Borrower") - - 2 - - and - VERIDIAN CONNECTIONS INC., a corporation amalgamated under the laws of the Province of Ontario '-' (herein called "Connections") WHEREAS the Obligors are or may become indebted to each of the Creditors and the parties hereto desire to enter into this agreement in order to set out their respective rights and obligations, including the respective priorities of the Creditors in connection with the indebtedness of the Obligors to them; NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the mutual covenants herein contained and other good and valuable consideration, given by each of the parties hereto (the receipt and sufficiency of which are hereby acknowledged by all of the parties hereto), the parties hereto hereby agree with each other as follows: ARTICLE 1 INTERPRETATION 1.01 Definitions. The following defined terms shall for all purposes of this agreement, or any amendment hereto, have the following respective meanings unless the context otherwise specifies or requires or unless otherwise defined herein: "Business Day" means any day other than a Saturday or Sunday on which banks are generally open for business in Toronto, Ontario. -./ "Credit Agreement" means the credit agreement made as of ., 2001 between the Borrower and the Senior Creditor, as the same may be amended, modified, supplemented or replaced from time to time. "Creditors" means the Senior Creditor and the Subordinated Creditors and "Creditor" means any of the Creditors. "Default" means any of the events of default specified in any Loan Agreement entitling a Creditor to demand or accelerate payment of any Obligations. "Demand" means any notification by any of the Creditors to either Obligor of a demand for payment under any Loan Agreement. "Insolvency Legislation" means the Bankruptcy and Insolvency Act (Canada), the Companies' Creditors Arrangement Act (Canada), the Bankruptcy Code (United States) and any similar statute or law in any jurisdiction. "Loan Agreements" means the Senior Loan Agreements and the Subordinated Loan Agreements and "Loan Agreement" means anyone of the Loan Agreements. ~ - 3 - - "Obligations" means Senior Obligations and the Subordinated Obligations. "Obligors" means the Borrower and Connections. "Senior Loan Agreements" means all documents, instruments and agreements evidencing the Senior Obligations, including, without limitation, the Credit Agreement. "Senior Obligations" means all indebtedness, obligations and liabilities, present or future, direct or indirect, absolute or contingent, matured or not, at any time owing by the Borrower to the Senior Creditor or remaining unpaid by the Borrower to the Senior Creditor under or in connection with the Senior Loan Agreements. "Subordinated Creditors" means Clarington, Ajax, Pickering and Belleville. "Subordinated Loan Agreements" means any agreement entered into from time to time between either Obligor and any of the Subordinated Creditors evidencing any Subordinated Obligations, including, without limitation, the following: (a) the first amended and restated term promissory note in the principal amount of $5,966,000 dated September 28, 2001 and made by Connections in favour of Clarington; (b) the first amended and restated term promissory note in the principal amount of $5,588,000 dated September 28, 2001 and made by Connections in favour of Belleville; ,-... (c) the first amended and restated term promissory note in the principal amount of $14,060,000 dated September 28, 2001 and made by Connections in favour of Ajax; (d) the first amended and restated term promissory note in the principal amount of $17,974,000 dated September 28, 2001 and made by Connections in favour of Pickering; ( e) the first amended and restated term promissory note in the principal amount of $2,206,000 dated September 28, 2001 and made by the Borrower in favour of Belleville; (f) the first amended and restated term promissory note in the principal amount of $5,550,000 dated September 28, 2001 and made by the Borrower in favour of Ajax; (g) the first amended and restated term promissory note in the principal amount of $7,095,000 dated September 28, 2001 and made by the Borrower in favour of Pickering; and .- - 4 - (h) the first amended and restated term promissory note in the principal amount of $2,355,000 dated September 28, 2001 and made by the Borrower in favour of Clarington. ....." "Subordinated Obligations" means all indebtedness, obligations and liabilities, present or future, direct or indirect, absolute or contingent, matured or not, at any time owing by either Obligor to any of the Subordinated Creditors or remaining unpaid by either Obligor to any of the Subordinated Creditors under or in connection with the Subordinated Loan Agreements, but excluding any indebtedness in respect of municipal debentures of which $1,380,550.16 of principal is currently outstanding. 1.02 Other Usages. References to "this agreement", "the agreement", "hereof', "herein", "hereto" and like references refer to this Inter-Creditor Agreement and not to any particular Article, Section or other subdivision of this Inter-Creditor Agreement. Any references to "this agreement", "the agreement", "hereof', "herein", "hereto" and like references refer to this Inter- Creditor Agreement as amended, supplemented or otherwise modified from ti.me to time in accordance with the terms hereof. 1.03 Plural and Singular. Where the context so requires, words importing the singular number shall include the plural and vice versa. 1.04 Headings. The division of this agreement into Articles, Sections and the insertion of headings in this agreement are for convenience of reference only and shall not affect the construction or interpretation of this agreement. -' 1.05 Applicable Law. This agreement shall be governed by and construed and interpreted in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein. Any legal action or proceeding with respect to this agreement may be brought in the courts of the Province of Ontario and, by execution and delivery of this agreement, the parties hereby accept for themselves and in respect of their property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts. Each party irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to such party to the address prescribed by Section 6.10, such service to become effective five Business Days after such mailing. Nothing herein shall limit the right of any party to serve process in any manner permitted by law or to commence legal proceedings or otherwise proceed against any other party in any other jurisdiction. 1.06 Time of the Essence. Time shall in all respects be of the essence of this agreement. 1.07 Paramountcy. In the event of any conflict or inconsistency between the provisions of this agreement and the provisions of any other agreement which is referred to herein or delivered pursuant hereto, the provisions of this agreement shall prevail and be paramount. 1.08 No Rights Conferred on the Obligors. Nothing in this agreement shall be construed as conferring any rights upon the Obligors or any third party. The terms and conditions hereof are and shall be for the sole and exclusive benefit of the Creditors. -- - 5 - - ARTICLE 2 CONSENT 2.01 Consent of Creditors. Each Creditor consents to the incurring of the Obligations by the Obligors and waives any Default that the incurring of the Obligations may have constituted under the terms of the Loan Agreements. ARTICLE 3 PRIORITY OF OBLIGATIONS 3.01 Priority of Obligations. Except as otherwise expressly provided in Section 3.03, the Subordinated Obligations shall be and are hereby postponed and made subordinate in right of payment to the prior payment in full in cash of the Senior Obligations. 3.02 Prohibited Payments to Subordinated Creditors. Except as otherwise expressly provided in Section 3.03, the Obligors shall not make nor be entitled to make, and the Subordinated Creditors shall not accept and shall not be entitled to accept, any payment or prepayment of principal, interest or other amount under the Subordinated Loan Agreements, whether in the form of cash, securities or otherwise and whether by way of payment, set off or otherwise. 3.03 Permitted Payments to the Subordinated Creditors. The Obligors may make, and the Subordinated Creditors may receive, payments (but not prepayments) on account of interest "".... owing by the Obligors to the Subordinated Creditors in accordance with the terms of the Subordinated Loan Agreements at the maximum rate of 7.6 percent per annum, provided no Default under the Credit Agreement exists at the time of such payment and no Default would arise as a result of such payment. Notwithstanding the foregoing, the Senior Creditor acknowledges that certain prepayments of interest were previously made under the Subordinated Loan Agreements. 3.04 Certain Covenants of Subordinated Creditors. The Subordinated Creditors shall not and shall not be entitled to: (a) accelerate the time for payment of any of the Subordinated Obligations or otherwise enforce or take any action to enforce payment of all or any part of the Subordinated Obligations, whether by way of set off or otherwise, unless and until all indebtedness of the Borrower to the Senior Creditor under or in connection with the Credit Agreement has become immediately due and payable pursuant to the terms thereof; (b) petition either of the Obligors into bankruptcy or initiate any similar proceeding under any applicable Insolvency Legislation or, unless and until the Senior Creditor or any other person files a petition in bankruptcy against the Borrower and such petition is not stayed or dismissed within 60 days of such filing, participate in such. bankruptcy or any similar proceeding under any applicable Insolvency Legislation. For certainty, in no event shall any Subordinated Creditor vote in any proceedings under any applicable Insolvency Legislation except as directed in writing by the Senior Creditor; "".... - 6 - ( c) amend, alter or otherwise modify the Subordinated Loan Agreements; or (d) hold or obtain any security from the Obligors or any person on their behalf, for payment or performance of the Subordinated Obligations. - 3.05 Distributions. (a) To the extent not otherwise permitted under the Credit Agreement, the Obligors shall not make nor be entitled to make, and the Subordinated Creditors shall not accept nor be entitled to accept the payment of any dividends or other distribution on or in respect of any shares in the capital of the Obligors. (b) The Obligors shall not make nor be entitled to make, and th(;~ Subordinated Creditors shall not accept nor be entitled to accept the redemption, retraction, purchase, retirement or other acquisition, in whole or in part, of any shares in the capital of the Obligors or any securities, instruments or contractual rights capable of being converted into, exchanged or exercised for shares in the capital of the Obligors, including, without limitation, options, warrants, conversion or exchange privileges and similar rights. Notwithstanding the foregoing, the Subordinated Creditors shall be entitled to convert their interest under the Subordinated Loan Agreements as provided for therein. 3.06 Effect of Non-Compliance. (a) In the event any prepayments or other payments are made to or received by the Subordinated Creditors in contravention of this agreement, the Subordinated Creditors shall hold such prepayments or payments in trust for the Senior Creditor and shall not commingle such proceeds with any of their own funds and shall forthwith pay such prepayments or payments to the Senior Creditor for application to the payment or prepayment of the Senior Obligations as the Senior Creditor sees fit. -- (b) Any action taken or thing done by any Subordinated Creditors in contravention of this agreement shall be null and void and of no effect. ARTICLE 4 REMEDIES 4.01 Remedies. The Obligors and the Subordinated Creditors hereby agree that all covenants, provisions and restrictions contained herein are necessary and fundamental in order to establish the respective priorities of the Creditors in connection with the Obligations, and that a breach by any of the Obligors or the Subordinated Creditors of any such covenant, provision or restriction would result in damages to the Senior Creditor that could not adequately be compensated by monetary award. Accordingly, it is expressly agreed by the Obligors and the Subordinated Creditors that in addition to all other remedies available to it including, without limitation, any action for damages, the Senior Creditor shall be entitled to the immediate remedy of a restraining order, interim injunction, injunction or other form of injunctive or other relief as may be decreed or issued by any court of competent jurisdiction to restrain or enjoin the Obligors or the Subordinated Creditors from breaching any such covenant, provision or restIiction. - - 7 - - 4.02 Default Notice. Each Creditor agrees to give written notice to each other Creditor simultaneously with or immediately after the delivery to either of the Obligors of any written notice of a Demand or a Default. Failure of a Creditor to give notice as provided in this Section 4.02 shall not affect the priorities established or other agreements provided for herein, nor shall such Creditor be liable for failure to give any such notice nor shall any such failure in any way limit or derogate from the obligations of the other Creditors. ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE SUBORDINATED CREDITORS 5.01 Representations and Warranties of the Subordinated Creditors. Each of the Subordinated Creditors hereby represents and warrants to the Senior Creditor as follows and acknowledges and confirms that the Senior Creditor is relying upon such representations and warranties in extending credit to the Borrower under the Senior Loan Agreements: (a) Each Subordinated Creditor is a municipal corporation duly incorporated and organized and validly subsisting under the laws of its jurisdiction of incorporation. Each Subordinated Creditor has all requisite corporate capacity, power and authority to enter into, and carry out the transactions contemplated by, this agreement. (b) All necessary action, corporate or otherwise, has been taken to authorize the execution, delivery and performance of this agreement by each Subordinated Creditor and each Subordinated Creditor has duly executed and delivered this agreement. This agreement is a legal, valid and binding obligation of the Subordinated Creditor, enforceable against each Subordinated Creditor by the Senior Creditor in accordance with its terms. - ARTICLE 6 MISCELLANEOUS 6.01 Consent of the Obligors. Each Obligor, by its execution hereof, hereby agrees to be bound by, and shall act in accordance with, the terms, provisions and intent of this agreement. 6.02 Information Exchange. Each Creditor agrees to disclose to each other Creditor upon reasonable request from time to time the aggregate amounts then owing by the Obligors to it and whether it has any actual knowledge or' any Default. Each Obligor hereby consents to each Creditor providing the other Creditor with such information, [mancial or otherwise, regarding the Obligors and the Creditors' respective Obligations as may be deemed advisable by the Creditors from time to time. - 6.03 Non-Impairment oqhe Senior Creditors' Rights. No right of the Senior Creditor to enforce its rights hereunder shall at any time or in any way be prejudiced or impaired by any act or failure to act on the part of the Obligors or by any act or failure to act by the Senior Creditor, or by any non-compliance by the Obligors or the Subordinated Creditors with the terms of this agreement, regardless of any knowledge thereof which the Senior Creditor may have or be otherwise charged with. Without the Subordinated Creditors' consent, the Senior Creditor may extend, renew, modify, or increase the Senior Obligations or amend or waive the terms of the - 8 - Senior Loan Agreements and otherwise deal freely with the Borrower, all without affecting the liabilities and obligations of the Obligors and the Subordinated Creditors hereunder and without causing or constituting a breach of or default under any of the Subordinated Obligations. .....,,; 6.04 Waivers and Amendments. No failure or delay by the Senior Creditor in exercising any right hereunder shall operate as a waiver of such right nor shall any single or partial exercise of any power or right preclude its further exercise or the exercise of any other power or right. Any term, covenant, condition or obligation of this agreement may only be amended with the written consent of all of the parties hereto or compliance therewith may only be waived (either generally or in a particular instance and either retroactively or prospectively) by the Senior Creditor in writing and in any such event the failure to observe, perform or discharge any such term, covenant, condition or obligation, so amended or waived (whether such amendment is executed or such consent or waiver is given before or after such failure), shall not be construed as a breach of such term, covenant, condition or obligation. 6.05 Severability. Each provision of this agreement is intended to be severable and if any provision is illegal, invalid or unenforceable, such illegality, unenforceability or invalidity shall not affect the validity of this agreement or the remaining provisions. 6.06 Counterparts. This agreement may be executed in any number of counterparts, all of which shall be deemed to be an original and such counterparts taken together shall constitute one agreement, and any of the parties hereto may execute this agreement by signing any such counterpart. 6.07 Further Assurances. The parties hereto agree to execute and deliver such further and --" other documents and perform and cause to be performed such further and other acts and things as may be necessary or desirable in order to give full effect to this agreement and every part thereof. No party to this agreement shall take any action whereby the priorities and rankings set out in this agreement might be impaired or defeated. 6.08 Assignment. This agreement shall enure to the benefit of and shall be binding upon the. respective successors (including, without limitation, any trustee in bankruptcy or liquidator) and permitted assigns of the parties hereto. The Subordinated Creditors shall not assign any of their rights and obligations hereunder or under the Subordinated Loan Agreements. The rights and the obligations of the Senior Creditor hereunder may be assigned by the Senior Creditor in whole or in part without the consent of the other parties hereto but only in connection with or as part of an assignment by the Senior Creditor of its rights under the Credit Agreement. 6.09 Entire Agreement. This agreement contains the entire understanding of the parties with respect to the priority of the Obligations and supersedes any prior agreements, undertakings, declarations, representations and understandings, both written and verbal, in respect of the priority of the Obligations. There are no restrictions, agreements, promises, warranties, covenants or undertakings relating to the priority of the Obligations other than those set forth in this agreement. 6.10 Notices. Except as otherwise provided herein, all notices and other communications provided for herein shall be in writing and shall be personally delivered to an officer or other ~ - 9 - responsible employee of the addressee or sent by telefacsimile, charges prepaid, at or to the applicable addresses or telefacsimile numbers, as the case may be, set out opposite the relevant party's name below or at or to such other address or addresses, telefacsimile number or numbers as any party hereto may from time to time designate to the other parties in such manner. Any communication which is personally delivered as aforesaid shall be deemed to have been validly and effectively given on the date of such delivery if such date is a Business Day and such delivery was made during normal business hours of the recipient; otherwise, it shall be deemed to have been validly and effectively given on the Business Day next following such date of delivery. Any communication which is transmitted by telefacsimile as aforesaid shall be deemed to have been validly and effectively given on the date of transmission if such date is a Business Day and such transmission was made during normal business hours of the recipient; otherwise, it shall be deemed to have been validly and effectively given on the Business Day next following such date of transmission. In the case of the Senior Creditor: The Bank of Nova Scotia Corporate Banking 44 King Street West, 16th Floor Toronto, Ontario M5H IHl Attention: Telefax: Director, Corporate Banking (416) 933-7399 Veridian CorporationIV eridian Connections Inc. 55 Taunton Road East Ajax, Ontario LIT 3V3 In the case of the Obligors: -- Attention: Telefax: In the case of Clarington: Vice President, Corporate Affairs and Secretary Treasurer (905) 619-0210 The Corporation of the Municipality of CIa ring ton 40 Temperance Street Bowmanville, Ontario LIC 3A6 Attention: Telefax: In the case of Ajax: Mayor (905) 623-5717 The Corporation ofthe Town of Ajax 65 Harwood Avenue South Aj ax, Ontario L 1 S 2H9 Attention: Telefax: - Mayor (905) 683-1061 - 10 - In the case of Pickering: The Corporation of the City of Pickering 1 The Esplanade Pickering, Ontario L 1 V 3P4 """" Attention: Te1efax: Mayor (905) 420-9695 In the case of Belleville: The Corporation of the City of Belleville 459 Sidney Street Belleville, Ontario K8N 2Y7 Attention: Telefax: Mayor (613) 967-3209 6.11 Termination of Agreement. This agreement shall terminate and shall be of no further force or effect upon the earlier to occur of: (a) all Senior Obligations being repaid in full and all commitments of the Senior Creditor under the Senior Loan Documents having been terminated; and (b) the written agreement of the Senior Creditor to such effect. IN WITNESS WHEREOF the parties hereto have executed this agreement. '-'" THE BANK OF NOVA SCOTIA By: Name: Title: By: Name: Title: THE CORPORATION OF THE MUNICIPALITY OF CLAIUNGTON By: John Mutton Mayor By: Patti Barrie Clerk -- - 11 - - - - THE CORPORATION OF THE TOWN OF AJAX By: By: Steve Parish Mayor Marty de Rond Clerk THE CORPORATION OF THE CITY OF PICKERING By: By: Wayne Arthurs Mayor Bruce Taylor Clerk THE CORPORATION OF THE CITY OF BELLEVILLE By: By: George Zegouras Mayor J ary Plamondon Clerk VERIDIAN CORPORATION By: By: John Wiersma President James I Mason Director - 12 - ::ODMA \PCDOCS\DOCS\ 1093447\3 VERIDIAN CONNECTIONS INC. By: By: ......, John Wiersma President James 1. Mason Director - -