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EXHIBIT 10.4
SUBORDINATION AGREEMENT
SUBORDINATION AGREEMENT (this "Agreement"), dated as of May 19, 2000,
between FLEET NATIONAL BANK (f/k/a Bank Boston, N.A.), a national banking
association having an office in Boston, Massachusetts ("Fleet"), BANK ONE,
MICHIGAN (f/k/a NBD BANK), a national banking association having an office in
Chicago, Illinois ("Bank One" and together with Fleet, the "Banks") CONNECTIVITY
TECHNOLOGIES, INC., a Delaware corporation (the "Subordinating Creditor"), and
ROME GROUP, INC., a Delaware corporation ("Rome").
WHEREAS, pursuant to that certain Second Amended and Restated Revolving
Credit Agreement dated as of January 1, 1999 (as amended and in effect from time
to time, the "Credit Agreement"), among the Banks, Fleet, as agent for the Banks
and Connectivity Products Incorporated, a Delaware corporation (the "Borrower"),
the Banks have upon the terms and subject to the conditions contained therein
made loans and otherwise extended credit to the Borrower;
WHEREAS, Rome has agreed to acquire all of the capital stock of the
Borrower (the "Acquisition") pursuant to that certain Agreement and Plan of
Merger, dated as of May 19, 2000, by and among Rome, the Subordinating Creditor,
RGCP Acquisition Corp. and the Borrower (the "Merger Agreement");
WHEREAS, in connection with the Acquisition, the Borrower has
requested, and the Banks have agreed subject to certain term and conditions set
forth in the letter dated March 14, 2000, from the Banks to the Borrower, to
certain settlement arrangements (the "Settlement") with respect to the repayment
of the outstanding Obligations under and as defined in the Credit Agreement;
WHEREAS, as part of the Settlement and simultaneous with the
consummation of the Acquisition, each Bank has agreed, inter alia, to accept
from Rome a promissory note in the principal amount of $500,000 issued by Rome
to such Bank (each a "Bank Note" and collectively, the "Bank Notes");
WHEREAS, in connection with the Acquisition and as partial
consideration for the transaction described in the Merger Agreement, Rome has
issued to the Subordinating Creditor a note in the principal amount of
$1,750,000 (the "CTI Note"), a copy of which is attached hereto as Exhibit A;
WHEREAS, in connection with certain payments that are or may become due
under that certain Tax Refund Agreement, dated as of May 19,
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2000, by and among Rome, the Subordinating Creditor and the Banks (collectively,
the "Tax Refund Agreement") Rome shall issue to the Subordinated Creditor one or
more Notes (the "Tax Refund Note"), in the form which is attached hereto as
Exhibit B, which Tax Refund Note shall be in the amount of any tax refunds that,
pursuant to the Tax Refund Agreement, would be applied directly to pay the Bank
Notes instead of being paid to the Subordinating Creditor;
WHEREAS, it is a condition precedent to the Banks' willingness to enter
into the arrangements contemplated by the Settlement that the Subordinating
Creditor and Rome enter into this Agreement with the Banks; and
WHEREAS, in order to induce the Banks to enter into the arrangements
contemplated by the Settlement, the Subordinating Creditor and Rome have agreed
to enter into this Agreement with each of the Banks;
NOW, THEREFORE, in consideration of the foregoing, the mutual
agreements herein contained and other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. DEFINITIONS. Terms not otherwise defined herein have the same
respective meanings given to them in the Bank Notes. In addition, the following
terms shall have the following meanings:
Senior Debt. All principal, interest, fees, costs, enforcement expenses
(including legal fees and disbursements), collateral protection expenses and
other reimbursement or indemnity obligations created or evidenced by the Bank
Notes or any subsequent notes, instruments or agreements of indebtedness,
liabilities or obligations of any type or form whatsoever relating thereto in
favor of each of the Banks. Senior Debt shall expressly include any and all
interest accruing or out of pocket costs or expenses incurred after the date of
any filing by or against Rome of any petition under the federal Bankruptcy Code
or any other bankruptcy, insolvency or reorganization act regardless of whether
each Bank's claim therefor is allowed or allowable in the case or proceeding
relating thereto.
Subordinated Debt. All principal, interest, fees, costs, enforcement
expenses (including legal fees and disbursements), collateral protection
expenses and other reimbursement and indemnity obligations created or evidenced
by the CTI Note or the Tax Refund Note or any prior, concurrent or subsequent
notes, instruments or agreements of indebtedness, liabilities or obligations of
any type or form whatsoever relating thereto in favor of the Subordinating
Creditor.
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Subordinated Documents. Collectively, the CTI Note and the Tax Refund
Note, and any further promissory notes executed in connection therewith and any
and all guaranties and security interests, mortgages and other liens directly or
indirectly guarantying or securing any of the Subordinated Debt, and any and all
other documents or instruments evidencing or further guarantying or securing
directly or indirectly any of the Subordinated Debt, whether now existing or
hereafter created.
2. GENERAL. The Subordinated Debt and any and all Subordinated
Documents shall be and hereby are subordinated and the payment thereof is
deferred until the full and final payment in cash of the Senior Debt, whether
now or hereafter incurred or owed by Rome. Notwithstanding the immediately
preceding sentence, Rome shall be permitted to pay, and the Subordinating
Creditor shall be permitted to receive, so long as at the time of such payment,
or after giving effect thereto, no default or Event of Default has occurred and
is continuing under either Bank Note or would occur after giving effect thereto:
(i) any regularly scheduled payment of interest on the CTI Note from May 1, 2000
through April 30, 2001; (ii) any regularly scheduled payment of interest or
principal on the CTI Note on or after May 1, 2001; and (iii) any regularly
scheduled payment of interest or principal on the Tax Refund Note, provided that
no such payments shall be made on the Tax Refund Note until such time as the
outstanding principal under each Bank Note has been reduced to $125,000.
3. ENFORCEMENT. The Subordinating Creditor will not take or omit to
take any action or assert any claim with respect to the Subordinated Debt or
otherwise which is inconsistent with the provisions of this Agreement. Without
limiting the foregoing, the Subordinating Creditor will not assert, collect or
enforce the Subordinated Debt or any part thereof or take any action to
foreclose or realize upon the Subordinated Debt or any part thereof or enforce
any of the Subordinated Documents except (a) in each such case as necessary, so
long as no default or Event of Default has occurred and is then continuing under
either Bank Note or would occur after giving effect thereto, to collect any sums
expressly permitted to be paid by Rome pursuant to Section 2, or (b) to the
extent (but only to such extent) that the commencement of a legal action may be
required to toll the running of any applicable statute of limitation. Until the
Senior Debt has been finally paid in full in cash, the Subordinating Creditor
shall not have any right of subrogation, reimbursement, restitution,
contribution or indemnity whatsoever from any assets of Rome or any guarantor of
or provider of collateral security for the Senior Debt. The Subordinating
Creditor further waives any and all rights with respect to marshalling.
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4. PAYMENTS HELD IN TRUST. The Subordinating Creditor will hold in
trust and immediately pay over to the Banks, in the same form of payment
received, with appropriate endorsements, for application to the Senior Debt any
cash amount that Rome pays to the Subordinating Creditor with respect to the
Subordinated Debt, or as collateral for the Senior Debt any other assets of Rome
that the Subordinating Creditor may receive with respect to the Subordinated
Debt, in each case except with respect to payments expressly permitted pursuant
to Section 2.
5. DEFENSE TO ENFORCEMENT. If the Subordinating Creditor, in
contravention of the terms of this Agreement, shall commence, prosecute or
participate in any suit, action or proceeding against Rome, then Rome may
interpose as a defense or plea the making of this Agreement, and the Banks may
intervene and interpose such defense or plea in its name or in the name of Rome.
If the Subordinating Creditor, in contravention of the terms of this Agreement,
shall attempt to collect any of the Subordinated Debt or enforce any of the
Subordinated Documents, then the Banks or Rome may, by virtue of this Agreement,
restrain the enforcement thereof in the name of either Bank or in the name of
Rome. If the Subordinating Creditor, in contravention of the terms of this
Agreement, obtains any cash or other assets of Rome as a result of any
administrative, legal or equitable actions, or otherwise, the Subordinating
Creditor agrees forthwith to pay, deliver and assign to the Banks, with
appropriate endorsements, any such cash for application to the Senior Debt and
any such other assets as collateral for the Senior Debt.
6. BANKRUPTCY, ETC.
6.1. PAYMENTS RELATING TO SUBORDINATED DEBT. At any meeting of
creditors of Rome or in the event of any case or proceeding, voluntary
or involuntary, for the distribution, division or application of all or
part of the assets of Rome or the proceeds thereof, whether such case
or proceeding be for the liquidation, dissolution or winding up of Rome
or its business, a receivership, insolvency or bankruptcy case or
proceeding, an assignment for the benefit of creditors or a proceeding
by or against Rome for relief under the federal Bankruptcy Code or any
other bankruptcy, reorganization or insolvency law or any other law
relating to the relief of debtors, readjustment of indebtedness,
reorganization, arrangement, composition or extension or marshalling of
assets or otherwise, each Bank is hereby singly and irrevocably
authorized at any such meeting or in any such proceeding to receive or
collect any cash or other assets of Rome distributed, divided or
applied by way of dividend or payment, or any securities issued on
account of any Subordinated Debt, and apply such cash to or to hold
such other
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assets or securities as collateral for the Senior Debt, and to apply to
the Senior Debt any cash proceeds of any realization upon such other
assets or securities that such Bank in its discretion elects to effect,
until all of the Senior Debt shall have been paid in full in cash,
rendering to the Subordinating Creditor any surplus to which the
Subordinating Creditor is then entitled.
6.2. SUBORDINATED DEBT VOTING RIGHTS. At any such meeting of
creditors or in the event of any such case or proceeding, the
Subordinating Creditor shall retain the right to vote and otherwise act
with respect to the Subordinated Debt (including, without limitation,
the right to vote to accept or reject any plan of partial or complete
liquidation, reorganization, arrangement, composition or extension),
provided that the Subordinating Creditor shall not vote with respect to
any such plan or take any other action in any way so as to contest (i)
the validity of any Senior Debt or any collateral therefor or
guaranties thereof, (ii) the relative rights and duties of any holders
of any Senior Debt established in any instruments or agreements
creating or evidencing any of the Senior Debt with respect to any of
such collateral or guaranties or (iii) the Subordinating Creditor's
obligations and agreements set forth in this Agreement.
7. SUBORDINATION. The Senior Debt, the Bank Notes and any and all other
documents and instruments evidencing or creating the Senior Debt and all
guaranties, mortgages, security agreements, pledges and other collateral
guarantying or securing the Senior Debt from time to time or any part thereof
shall be senior to the Subordinated Debt and all of the Subordinated Documents
irrespective of the time of the execution, delivery or issuance of any thereof
or the filing or recording for perfection of any thereof. The Subordinating
Creditor hereby acknowledges and agrees, that the Subordinated Debt is
unsecured, is not guaranteed by any Person, the terms of such Subordinated Debt
Documents do not provide for such Subordinated Debt to be secured or guaranteed,
and the Subordinating Creditor will not accept any security or guarantees of the
Subordinated Debt without the prior written consent of the Banks. The Banks
acknowledge that the Subordinated Debt is also subject to a Subordination
Agreement of even date herewith in favor of Fleet Capital Corporation, as Agent
and lenders (the "Lenders") named therein under which the Subordinated Debt has
been assigned to the Lenders. In addition, the Subordinated Debt is subject to
certain rights of set-off in favor of Rome. The exercise by either the Lenders
or Rome of their rights shall not constitute a breach of this Subordination
Agreement by Subordinating Creditor.
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8. BANKS' FREEDOM OF DEALING. The Subordinating Creditor agrees, with
respect to the Senior Debt and any and all collateral therefor or guaranties
thereof, that Rome and the Banks may agree to increase the amount of the Senior
Debt or otherwise modify the terms of any of the Senior Debt, and the Banks may
grant extensions of the time of payment or performance to and make compromises,
including releases of collateral or guaranties, and settlements with Rome and
all other persons, in each case without the consent of the Subordinating
Creditor or Rome and without affecting the agreements of the Subordinating
Creditor or Rome contained in this Agreement; provided, however, that nothing
contained in this Section 8 shall constitute a waiver of the right of Rome
itself to agree or consent to a settlement or compromise of a claim which the
Banks may have against Rome.
9. MODIFICATION OR SALE OF THE SUBORDINATED DEBT. The Subordinating
Creditor will not, at any time while this Agreement is in effect, modify any of
the terms of any of the Subordinated Debt or any of the Subordinated Documents;
nor will the Subordinating Creditor sell, transfer, pledge, assign, hypothecate
or otherwise dispose of any or all of the Subordinated Debt to any person other
than a person who agrees in a writing, satisfactory in form and substance to
each of the Banks, to become a party hereto and to succeed to the rights and to
bound by all of the obligations of the Subordinating Creditor hereunder. In the
case of any such disposition by the Subordinating Creditor, the Subordinating
Creditor will notify each of the Banks at least ten (10) days prior to the date
of any of such intended disposition.
10. DEBTOR'S OBLIGATIONS ABSOLUTE. Nothing contained in this Agreement
shall impair, as between Rome and the Subordinating Creditor, the obligation of
Rome to pay to the Subordinating Creditor all amounts payable in respect of the
Subordinated Debt as and when the same shall become due and payable in
accordance with the terms thereof, or prevent the Subordinating Creditor (except
as expressly otherwise provided in Section 3 or Section 6) from exercising all
rights, powers and remedies otherwise permitted by Subordinated Documents and by
applicable law upon a default in the payment of the Subordinated Debt or under
any Subordinated Document, all, however, subject to the rights of the Banks as
set forth in this Agreement.
11. TERMINATION OF SUBORDINATION. This Agreement shall continue in full
force and effect, and the obligations and agreements of the Subordinating
Creditor and Rome hereunder shall continue to be fully operative, until all of
the Senior Debt shall have been paid and satisfied in full in cash and such full
payment and satisfaction shall be final and not avoidable. To the extent that
Rome or any guarantor of or provider of collateral for the Senior Debt makes any
payment on the Senior Debt that is subsequently invalidated,
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declared to be fraudulent or preferential or set aside or is required to be
repaid to a trustee, receiver or any other party under any bankruptcy,
insolvency or reorganization act, state or federal law, common law or equitable
cause (such payment being hereinafter referred to as a "Voided Payment"), then
to the extent of such Voided Payment, that portion of the Senior Debt that had
been previously satisfied by such Voided Payment shall be revived and continue
in full force and effect as if such Voided Payment had never been made. In the
event that a Voided Payment is recovered from either of the Banks, an Event of
Default shall be deemed to have existed and to be continuing under both of the
Bank Notes from the date of such Bank's initial receipt of such Voided Payment
until the full amount of such Voided Payment is restored to each of the Banks.
During any continuance of any such Event of Default, this Agreement shall be in
full force and effect with respect to the Subordinated Debt. To the extent that
the Subordinating Creditor has received any payments with respect to the
Subordinated Debt subsequent to the date of either Bank's initial receipt of
such Voided Payment and such payments have not been invalidated, declared to be
fraudulent or preferential or set aside or are required to be repaid to a
trustee, receiver, or any other party under any bankruptcy act, state or federal
law, common law or equitable cause, the Subordinating Creditor shall be
obligated and hereby agrees that any such payment so made or received shall be
deemed to have been received in trust for the benefit of the Banks, and the
Subordinating Creditor hereby agrees to pay to the Banks, upon demand, the full
amount so received by the Subordinating Creditor during such period of time to
the extent necessary fully to restore to the Banks the amount of such Voided
Payment. Upon the payment and satisfaction in full in cash of all of the Senior
Debt, which payment shall be final and not avoidable, this Agreement will
automatically terminate without any additional action by any party hereto.
12. NOTICES. All notices and other communications which are required
and may be given pursuant to the terms of this Agreement shall be in writing and
shall be sufficient and effective in all respects if given in writing or
telecopied, delivered or mailed by registered or certified mail, postage
prepaid, as follows:
If to Fleet:
Fleet National Bank
000 Xxxxxxx Xxxxxx
Xxxxxx, XX 00000
Fax: 000-000-0000
Attention: Xxxxxxx X. Xxxxxx, Vice President
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with a copy to: Xxxxxxx Xxxx LLP
000 Xxxxxxx Xxxxxx
Xxxxxx, XX 00000
Fax: 000-000-0000
Attention: Xxxxx X. Xxxxxx, Esq.
If to Bank One:
Bank One, Michigan
1 Bank One Plaza, 17th Floor
Mailcode: IL1-0631
Xxxxxxx, XX 00000
Attention: Xxxxxx Xxxxxxx
First Vice President
If to the Subordinating Creditor:
Connectivity Technologies, Inc.
c/o High Gate Capital
0000 Xxxxxxxxxx Xxxxxx
Xxxxx Xxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxx
with a copy to: Xxxxx and Xxxxxxxx, P.C.
Federal Reserve Plaza
000 Xxxxxxxx Xxxxxx
Xxxxxx, XX 00000
Fax: 000-000-0000
Attention: Xxxxxxx X. Xxxxxxxx
If to Rome: Rome Group, Inc.
000 Xxxxx Xxxxxx
X.X. Xxx 00
Xxxx, XX 00000
Fax: 000-000-0000
Attention: Xxxxx X. Xxxxxx, Chairman and CEO
or such other address or addresses as any party hereto shall have designated by
written notice to the other parties hereto. Notices shall be deemed given
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and effective upon the earlier to occur of (i) the third day following deposit
thereof in the U.S. mail or (ii) receipt by the party to whom such notice is
directed.
13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED
IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL BE A
SEALED INSTRUMENT UNDER SUCH LAWS.
14. WAIVER OF JURY TRIAL. THE SUBORDINATING CREDITOR AND ROME EACH
HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM
ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, ANY RIGHTS OR
OBLIGATIONS HEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. EXCEPT
AS PROHIBITED BY LAW, EACH OF THE SUBORDINATING CREDITOR AND ROME HEREBY WAIVES
ANY RIGHT WHICH IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN
THE PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES
OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. EACH OF THE
SUBORDINATING CREDITOR AND ROME (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF EITHER OF THE BANKS HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH BANK WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVERS AND (B) ACKNOWLEDGES THAT EACH OF THE BANKS HAS BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE WAIVERS AND CERTIFICATIONS
CONTAINED HEREIN.
15. MISCELLANEOUS. This Agreement may be executed in several
counterparts and by each party on a separate counterpart, each of which when so
executed and delivered shall be an original, and all of which together shall
constitute one instrument. In proving this Agreement, it shall not be necessary
to produce or account for more than one such counterpart signed by the party
against which enforcement is sought. Each of the Banks may, in its sole and
absolute discretion, waive any provisions of this Agreement benefiting such
Bank; provided, however, that such waiver shall be effective only if in writing
and signed by such Bank and shall be limited to the specific provision or
provisions expressly so waived. This Agreement shall be binding upon the
successors and assigns of the Subordinating Creditor and Rome and shall inure to
the benefit of each of the Banks, such Bank's successors and assigns, any lender
or lenders refunding or refinancing any of the Senior
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Debt and their respective successors and assigns, but shall not otherwise create
any rights or benefits for any third party. In the event that any lender or
lenders refund or refinance any of the Senior Debt, the terms "Bank Notes",
"Event of Default" and the like shall refer mutatis mutandis to the agreements
and instruments in favor of such lender or lenders and to the related
definitions contained therein.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
BANKS: FLEET NATIONAL BANK
/s/ Xxxxxxx X. Xxxxxx
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By: Xxxxxxx X. Xxxxxx
Title: Vice President
BANK ONE, MICHIGAN
/s/ Xxxxxx Xxxxxxx
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By: Xxxxxx Xxxxxxx
Title: First Vice President
SUBORDINATING CREDITOR: CONNECTIVITY
TECHNOLOGIES, INC.
/s/ Xxxxx X. Xxxxxxx
------------------------------
By: Xxxxx X. Xxxxxxx
Title: President
DEBTOR: ROME GROUP, INC.
/s/ Xxxx Xxxxx
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By:
------------------------
Title:
---------------------
00
XXXXXXXXXXXX XX XXXXXXXXXXXXX
Xxxxxxx, ss May 19, 2000
Then personally appeared the above-named Xxxxx X. Xxxxxxx, President of
CONNECTIVITY TECHNOLOGIES, INC. and acknowledged the foregoing instrument to be
his free act and deed and the free act and deed of CONNECTIVITY TECHNOLOGIES,
INC.
Before me, /s/ Xxxxxxxxxxx Xxxxxx
Notary Public
My Commission expires: 01/07/05
