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EXHIBIT 10.5
TAX REFUND AGREEMENT
TAX REFUND AGREEMENT (this "Agreement") dated as of May 17, 2000 among
ROME GROUP, INC., a Delaware corporation ("Parent"), RGCP ACQUISITION CORP., a
Delaware corporation ("Sub"), CONNECTIVITY PRODUCTS INCORPORATED, a Delaware
corporation (the "Company"), CONNECTIVITY TECHNOLOGIES INC., a Delaware
corporation ("CTI"), FLEET NATIONAL BANK, f/k/a BankBoston, N.A. ("Fleet") and
BANK ONE, MICHIGAN f/k/a NBD Bank ("Bank One", and, together with Fleet, the
"Lenders").
W I T N E S S E T H :
WHEREAS, since May 1996 the Company has been a majority owned
Subsidiary of CTI and a member of a consolidated group for Tax purposes of which
CTI is the common parent (the "Consolidated Group"); and
WHEREAS, the Company and the Lenders and Fleet, as agent, are parties
to a Second Amended and Restated Revolving Credit Agreement dated as of January
1, 1999, as amended (the "Credit Agreement"); and
WHEREAS, Parent, Sub, CTI and the Company have entered into an
Agreement and Plan of Merger dated as of May 19, 2000 (the "Merger Agreement"),
whereby Sub, a wholly-owned subsidiary of Parent, is to be merged with and into
the Company, with the result that the Company, as the Surviving Corporation,
will become a wholly-owned subsidiary of Parent (the "Merger"); and
WHEREAS, CTI, as parent of the Consolidated Group, has the authority to
file Tax Returns on behalf of the Consolidated Group with respect to Tax years
ending on or before the effective date of the Merger and has informed the other
parties to this Agreement of its belief that upon the filing of such Tax Returns
refunds of Taxes paid on behalf of the Consolidated Group with respect to such
Tax years ("Tax Refunds") will be due to the Consolidated Group; and
WHEREAS, in connection with the consummation of the Merger the Lenders
have agreed to certain settlement
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arrangements (the "Settlement") with respect to the repayment of the outstanding
Obligations under and as defined in the Credit Agreement, which include Parent's
issuance and the Lenders' acceptances of Parent's promissory notes each in the
principal amount of $500,000 substantially in the form of Exhibit A (the "Lender
Notes"), subject inter alia to the right of the Lenders to participate in the
proceeds of any Tax Refunds actually obtained in accordance with the terms of
this Agreement; and
WHEREAS, CTI shall be entitled to receive in the Merger (a) Parent's
promissory note in the principal amount of $1,750,000 substantially in the form
of Exhibit B (the "Merger Note") and (b) cash funds from the Surviving
Corporation of $250,000, and Parent has agreed to provide the Merger Note and
all or a portion of such cash funds to the extent that the Company, immediately
prior to the Merger, does not have sufficient cash resources (the portion of
such $250,000 which Parent provides, the "Parent Cash Portion"), subject inter
alia to Parent's right to participate in the proceeds of any Tax Refunds
actually obtained in accordance with the terms of this Agreement; and
WHEREAS, pursuant to Section 7.1(f) of the Merger Agreement, it is a
condition precedent to the respective obligations of Parent, Sub, CTI and the
Company to effect the Merger that this Agreement shall have been executed and
delivered by each of the parties hereto and that this Agreement shall be in full
force and effect,
NOW, THEREFORE, in consideration of the premises and agreements
contained herein, the parties hereto agree as follows:
1. CERTAIN DEFINED TERMS.
The terms defined in this Article 1, whenever used in this Agreement,
shall have the respective meanings indicated below for all purposes of this
Agreement.
"Applications" as defined in Section 3.1.
"Bank One" as defined in the first paragraph.
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"Closing Date" the date upon which the effectiveness of the Merger
occurs.
"Company" as defined in the first paragraph.
"Consolidated Group" as defined in the first Recital.
"Credit Agreement" as defined in the second Recital.
"CTI" as defined in the first paragraph.
"CTI's Representative" as defined in Section 3.1.
"Fleet" as defined in the first paragraph.
"Lender Notes" as defined in the fifth Recital.
"Lender Participations" as defined in Section 2.1.
"Lenders" as defined in the first paragraph.
"Lender's Representatives" as defined in Section 3.1.
"Merger" as defined in the third Recital.
"Merger Agreement" as defined in the third Recital.
"Merger Note" as defined in the sixth Recital.
"Parent" as defined in the first paragraph.
"Parent Cash Portion" as defined in the sixth Recital.
"Parent Participation" as defined in Section 2.1.
"Parent's Representatives" as defined in Section 3.1.
"Settlement" as defined in the fifth recital.
"Sub" as defined in the first paragraph.
"Surviving Corporation" the Company as the surviving corporation in the
Merger as and from the effective time thereof.
"Tax" or "Taxes" any federal, state, local or foreign net or gross
income, franchise, profits, gross receipts,
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license, payroll, employment, excise, severance, stamp, capital stock,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax, governmental fee or
assessment or charge of any kind whatsoever, including any interest, penalty or
addition thereto, whether disputed or not, imposed by any governmental authority
or arising under any tax law (including by reason of several and/or transferee
liability).
"Tax Refund Note" as defined in Section 2.3.
"Tax Refunds" as defined in the fourth Recital.
"Tax Return" any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto and any amendment thereof.
2. TAX REFUND PARTICIPATIONS.
2.1. Grant of Participations. In consideration of the Lenders'
agreements recited above in the fifth Recital with respect to the Settlement and
Parent's agreement recited above in the sixth Recital with respect to the Parent
Cash Portion, CTI hereby grants to each of the Lenders (whose interests shall be
equal) and Parent, respectively, participations in Tax Refunds receivable by CTI
on behalf of the Consolidated Group (the "Lender Participations" and "Parent
Participation", respectively), and agrees that any such Tax Refunds shall, when,
as and if received, be allocated and payable, as follows:
(a) First, until such time as the aggregate amount allocated and paid
to Parent pursuant to this Section 2.1(a) equals 100% of the Parent Cash
Portion, all such Tax Refunds shall be allocated and payable 50% to Parent and,
subject to the limitation set forth in Section 2.1(b), 50% to the Lenders;
(b) Second, until such time as the aggregate amount allocated and paid
to the Lenders pursuant to Section 2.1(a) and this Section 2.1(b), when added to
the aggregate amount of all other payments or prepayments of principal of the
Lender Notes prior to the time of determination, equals
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the aggregate of the sum of $1,000,000, all such Tax Refunds shall be allocated
and payable 100% to the Lenders;
(c) Thereafter, all such Tax Refunds shall be allocated 100% to CTI,
without any further right of participation therein on the part of Parent or the
Lenders.
Until such time as each of the Parent Participation and Lender
Participation shall have been paid in full in cash, the equitable interest of
CTI or any other member of the Consolidated Group in any such Tax Refunds
receivable shall be subordinate in right to the prior payment in full in cash of
the Parent Participation and Lender Participation, respectively. CTI agrees that
it will not sell, transfer, assign, pledge, hypothecate or otherwise dispose of
any rights to receive or interest in the Tax Refunds.
2.2. Application of Lender Participations to Lender Notes. Each amount
received in respect of a Lender Participation shall constitute an immediate and
automatic prepayment of principal of the applicable Lender Note by CTI on behalf
of Parent, and shall be so credited and applied by the applicable Lender upon
receipt thereof as hereafter provided.
2.3. Treatment of Lender Participations as Between CTI and Parent. As
further consideration to CTI's grant of the Lender Participations and for the
application thereof to prepayment of the Lender Notes, Parent hereby (a)
acknowledges that each payment by CTI in respect of either Lender Participation
shall be treated as a loan by CTI to Parent and (b) agrees to repay CTI the
principal of each such loan plus interest thereon in accordance with this
Section. Parent's repayment obligation in respect of each such loan shall be
evidenced by Parent's promissory note payable to CTI in the principal amount
thereof (each a "Tax Refund Note"). Each Tax Refund Note shall be in form
substantially identical to the Merger Note except as to principal amount, date
of issue (which shall be as hereafter provided), dates and amounts of principal
installment payments and interest accrual and payment dates. Such dates of
principal payment shall be due on the next scheduled installment payment date
provided for in the Merger Note following the date of issuance of such Tax
Refund Note, continue on each subsequent scheduled installment payment date so
provided for and conclude with
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the maturity date of the Merger Note. The amount of each installment shall equal
the quotient obtained by dividing the original principal amount of such Tax
Refund Note by the number of installment payment dates called for in the
sentence immediately preceding. Interest will accrue from the date the Lender
receives the payment in respect of the Lender Participations which gives rise to
such Tax Refund Note and will be due and payable monthly, in arrears, on the
first business day of each calendar month, commencing with the month immediately
following the month in which such payment is received by such Lender as
aforesaid. In connection with the Merger Note and Tax Refund Notes the Lenders,
CTI and Parent are executing and delivering, simultaneously with the execution
and delivery of this Agreement, a Subordination Agreement of even date herewith.
Notwithstanding the foregoing, no principal of or interest on any Tax Refund
Note shall be payable until such time as the outstanding principal amount of
each Lender Note is less than or equal to $125,000.
2.4. Receipts, Payments and Notices.
(a) Upon receipt of any payment representing all or any portion of a
Tax Refund, CTI will hold such payment in trust for the benefit of Parent and
the Lenders according to their respective interests therein as provided for in
Section 2.1. CTI will (i) notify Parent and each of the Lenders in writing of
the date and amount of such receipt not later than two (2) business days
following the date of receipt of such payment and (ii) wire transfer to Parent
and each Lender, in immediately available funds to the accounts set forth in
Schedule 2.4 (or such other accounts as Parent or the Lenders shall designate to
CTI in writing from time to time, respectively), amounts equal to the respective
interests in such payment evidenced by the unpaid portions of the Parent
Participation and Lender Participations within four (4) business days after such
date of receipt. Receipt by a Lender of such wire transfer shall constitute
payment to such Lender in respect of the Lender Participation of such Lender. In
making such payments, CTI shall be entitled to rely upon the most recent
notifications received by it from the Lenders, respectively, pursuant to Section
2.4(b).
(b) (i) CTI will notify Parent in writing of the date and amount of
each payment or prepayment of principal made by it in respect of Lender Note,
including each receipt of
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a payment made by CTI pursuant to Section 2.4(a), and (ii) upon the written
request of CTI or Parent to Lenders, each Lender shall notify CTI and the Parent
of the unpaid principal balance of its Lender Note after giving effect to any
such payment or prepayment, within two business days following the date of its
receipt of the request therefore. Such notification shall clearly indicate
whether any given prepayment was by reason of a payment pursuant to Section
2.4(a).
(c) Parent will (i) upon receipt of notice from the Lender pursuant to
Section 2.4(b)(ii), prepare, execute and deliver (by overnight courier) to CTI a
Tax Refund Note, conforming to the terms of Section 2.3, with respect to each
prepayment of a Lender Note by reason of the applicable Lender's receipt of a
payment pursuant to Section 2.4(a) and (ii) deliver a copy of such Tax Refund
Note to each Lender. In performing its obligations under this Section 2.4(c)
Parent shall be entitled to rely upon such notification. Such Tax Refund Note
shall be deemed issued as of the date of such Lender's receipt of payment
recited in such notification and shall be dated such date by Parent.
(d) CTI will notify Parent and each Lender of its receipt of each Tax
Refund Note within three business days of such receipt.
2.5. Tax Refund Escrow. CTI has received a Tax Refund of $582,848 which
it has placed in an escrow account. On the date hereof, the proceeds of such Tax
Refund, plus the earnings thereon, shall be released from escrow and disbursed
in accordance with the terms of this Article 2.
3. PROCEDURES FOR PURSUIT OF TAX REFUNDS.
3.1. Tax Representatives. CTI has employed Ernst & Young LLP ("CTI's
Representative") to engage in the activities described herein with respect to
pursuing Tax Refunds. Parent and each Lender shall designate to CTI and each
other the persons or entities selected by each of them from time to time (who
may be internally employed individuals or outside accountants or attorneys) to
represent each of them in connection with such activities (respectively,
"Parent's Representatives" and each "Lender's Representatives").
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3.2. Applications. CTI has filed with the Internal Revenue Service a
Corporation Application for Tentative Refund on Form 1139, prepared by CTI's
Representative, relating to a net operating loss carryback from the calendar
year 1999 and CTI will cause CTI's Representative to prepare a second
application for a Tax Refund which will refer to a larger net operating loss
carryback from the calendar year 1999 than that reflected on the aforesaid Form
1139, and will file such second application with the Internal Revenue Service
and thereby request an additional Tax Refund (such application together with any
other applications for Tax Refunds, the "Applications").
3.3. Pursuit of Applications. CTI shall, and shall cause CTI's
Representative to, use all reasonable efforts to diligently and expeditiously
pursue all proposed claims for Tax Refunds as set forth in the Applications,
including causing all necessary Tax Returns and other materials to be filed, and
complying with all inquiries and requests for additional information by the
relevant taxing authorities. CTI shall permit Parent, each Lender, Parent's
Representatives and each Lender's Representatives reasonable opportunity to
consult with CTI and CTI's Representative concerning any proposed Tax Refund and
give reasonable consideration to the recommendations of Parent's Representatives
and each Lender's Representatives in connection therewith. CTI shall cause CTI's
Representative to (a) inform Parent's Representatives and the each Lender's
Representatives on a reasonably current basis of all significant developments in
administrative or judicial proceedings relating to any claim for Tax Refund and
(b) provide Parent's Representatives and each Lender's Representatives copies of
all materials filed with taxing authorities or otherwise submitted in connection
therewith and all correspondence to and from such taxing authorities. As to
issues concerning adverse determinations of taxing authorities, CTI shall give,
and cause CTI's Representative to give, all due consideration to the comments
and recommendations on whether to adjust, settle or appeal (administratively or
judicially), but the parties agree that final authority in all decisions
relating to any claim for Tax Refunds shall remain with CTI.
3.4. Cooperation of Surviving Corporation. The Surviving Corporation
shall, and Parent shall cause the Surviving Corporation to, furnish all
necessary Tax information to CTI's Representative for inclusion in all
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Tax Returns and other materials called for in Section 3.3 and shall cause the
Surviving Corporation's accounting personnel to provide such additional
assistance to CTI's Representative as it may reasonably request in connection
with the preparation of such Tax Returns and other materials and prosecution of
the claims for Tax Refunds.
4. MISCELLANEOUS.
4.1. Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
4.2. Waiver. The parties hereto may waive compliance with any of the
agreements contained herein. Any agreement on the part of a party hereto to any
such waiver shall be valid only if set forth in a written instrument signed on
behalf of such party.
4.3. Entire Agreement. This Agreement (with its Schedules and Exhibits)
contains, and is intended as, a complete statement of all of the terms of the
arrangements between the parties with respect to the matters provided for
herein, supersedes any previous agreements and understandings between the
parties with respect to those matters and cannot be changed or terminated
orally.
4.4. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to agreements
made and to be performed in New York without regard to principles thereof
regarding choice of law.
4.5. Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if (a) delivered
personally, (b) mailed by first-class, registered or certified mail, return
receipt requested, postage prepaid, (c) sent by next-day or overnight mail or
delivery, or (d) sent by telecopy:
(i) if to CTI or the Company
(prior to the Closing Date) to:
Connectivity Technologies Inc.
c/x Xxxxxx River Capital LLC
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000 Xxxxxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Att'n: Xxxxxxx X. Xxxxxxxx
Fax No.: (000) 000-0000
(ii) if to Parent, Sub or the
Surviving Corporation to:
Rome Group, Inc.
000 Xxxxx Xxxxxx
Xxxx Xxxxxx Xxx 00
Xxxx, Xxx Xxxx 00000-0000
Att'n: Xxxxx X. Xxxxxx
Chairman and Chief Executive Officer
Fax No.: (000) 000-0000
(iii) if to Fleet to:
Fleet National Bank
000 Xxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Att'n: Xxxxxxx X. Xxxxxx
Vice President
Fax No.: (000) 000-0000
(iv) if to Bank One to:
Bank One, Michigan
1 Bank One Plaza - 17th Floor
Mail Code: IL1-0631
Xxxxxxx, Xxxxxxxx 00000-0000
Att'n: Xxxxxx Xxxxxxx
First Vice President
Fax No.: (000) 000-0000
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
All such notices, requests, demands, waivers and other
communications shall be deemed to have been received (A) if by personal delivery
on the date of such delivery, (B) if by certified or registered mail, on the
seventh Business Day after the mailing thereof, (C) if by next-day
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or overnight mail or delivery, on the day delivered, (D) if by telecopy, on the
next day following the day on which such telecopy was sent.
4.6. Termination of Agreement. This Agreement shall terminate upon the
earlier to occur of (a) the payment in full of the Parent Participation and each
Lender Participation or (b) the delivery to Parent and each Lender of a letter
of CTI's Representative addressed to each of Parent and each Lender representing
that, in the reasonable judgment of CTI's Representative, all means for
obtaining any further Tax Refunds have been exhausted.
4.7. Parties Bound. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
4.8. No Third Party Beneficiaries. Nothing in this Agreement shall
confer any rights upon any person or entity other than the parties hereto and
their respective heirs, successors and permitted assigns.
4.9. Interpretation. When a reference is made in this Agreement to an
Article, Section, Exhibit, Schedule, Recital or paragraph, such reference shall
be to an Article, Section, Exhibit, Schedule, Recital or paragraph of or to this
Agreement unless otherwise indicated. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation". Whenever from the context it appears
appropriate, each term stated in either the singular or the plural shall include
the singular and the plural, and pronouns stated in the masculine, the feminine
or the neuter gender shall include the masculine, the feminine and the neuter.
4.10. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each of
the parties hereto and delivered to each of the other parties hereto.
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IN WITNESS WHEREOF, the undersigned have entered into this Agreement as
of the date first written above.
PARENT:
ROME GROUP, INC.
By: /s/ Xxxxx X. Xxxxxx
-----------------------------------
Name: Xxxxx X. Xxxxxx
Title: Chairman and Chief
Executive Officer
SUB:
RGCP ACQUISITION CORP.
By: /s/ Xxxxx X. Xxxxxx
-----------------------------------
Name: Xxxxx X. Xxxxxx
Title: Chairman and Chief
Executive Officer
COMPANY:
CONNECTIVITY PRODUCTS INCORPORATED
By: /s/ Xxxxx X. Xxxxxxx
-----------------------------------
Name: Xxxxx X. Xxxxxxx
Title: President and Chief
Executive Officer
CTI:
CONNECTIVITY TECHNOLOGIES INC.
By: /s/ Xxxxx X. Xxxxxxx
-----------------------------------
Name: Xxxxx X. Xxxxxxx
Title: President and Chief
Executive Officer
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FLEET:
FLEET NATIONAL BANK
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Vice President
BANK ONE:
BANK ONE, MICHIGAN
By: /s/ Xxxxxx Xxxxxxx
-----------------------------------
Name: Xxxxxx Xxxxxxx
Title: First Vice President
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