Exhibit 10.4
AMENDED AND RESTATED DEBT SUBORDINATION AGREEMENT
THIS AGREEMENT effective as of the 30th day of June, 2005, by and among
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, an individual (the "Creditor"), ARGAN, INC., a Delaware
corporation ("Argan"), SOUTHERN MARYLAND CABLE, INC., a Maryland corporation
("SMC" and together with Argan, the "Debtor") and BANK OF AMERICA, N.A., a
national banking association (the "Lender").
WHEREAS, reference is made to that certain Financing and Security
Agreement among the Debtor and the Lender dated as of August 19, 2003 (as the
same may be amended, supplemented or modified from time to time, the "FSA")
pursuant to which the Lender has extended to the Debtor certain loans as more
particularly described therein (collectively, the "Loans"); and
WHEREAS, ▇▇▇▇▇▇, the Debtor, Vitarich Laboratories, Inc., a Florida
corporation ("Vitarich-Florida") and Vitarich Laboratories, Inc., a Delaware
corporation (formerly known as AGAX/VLI Acquisition Corporation, and a wholly
owned subsidiary of the Debtor ("Vitarich") entered into an Agreement and Plan
of Merger dated as of August 31, 2004 (the "Merger Agreement") pursuant to which
Vitarich-Florida merged into Vitarich (the "Merger"); and
WHEREAS, prior to the Merger, ▇▇▇▇▇▇ was a shareholder of Vitarich; and
WHEREAS, the Lender consented to the Merger on the terms set forth in
the Merger Agreement; and
WHEREAS, pursuant to the Merger Agreement, ▇▇▇▇▇▇ is to receive the Merger
Consideration (as that term is defined in the Merger Agreement), including,
without limitation, certain Additional Cash Consideration (as defined in the
Merger Agreement, and hereinafter referred to as, the "Additional Cash
Consideration") which Additional Cash Consideration is due and payable thirty
(30) days following completion of (i) the Argan January 2005 Audit (as defined
in the Merger Agreement), and (ii) the February 28, 2005 Financial Statements
(as defined in the Merger Agreement); and
WHEREAS, the Debtor and the Creditor agreed to reconstitute the Additional
Cash Consideration as subordinated debt (the "Restructuring") and in furtherance
thereof the Debtor will execute and deliver to the Creditor a Subordinated
Promissory Note in the form of Exhibit A attached hereto (the "Subordinated
Note"); and
WHEREAS, the principal amount of the Subordinated Note will equal that
amount that would otherwise be due to the Creditor as Additional Cash
Consideration under the Merger Agreement (exclusive of the Reduced Earn-back
Amount or the Additional Earn-back Amount (as those terms are defined below)
which, if due and owing, shall be paid in accordance with the terms and
conditions of the Earn-back Subordinated Note (as defined below); and
WHEREAS, in connection with the Restructuring, which was agreed to by the
Lender, the Debtor, the Creditor and the Lender entered into a certain Debt
Subordination Agreement dated as of January 31, 2005 (the "Existing Debt
Subordination Agreement"); and
WHEREAS, the amount of Additional Consideration (as defined in the Merger
Agreement and hereinafter referred to as the "Additional Consideration") payable
to the Creditor under the Merger Agreement was reduced by $1,452,000 (the
"Earn-back Amount") as a result of a write-down of the value of certain Vitarich
inventory (the "Write-Down"); and
WHEREAS, in connection with the Write-Down, the Creditor, Argan and
Vitarich entered into a certain letter agreement dated as of the date hereof
(the "Letter Agreement"); and
WHEREAS, subject to the terms and conditions set forth in such Letter
Agreement, it was agreed that the Creditor was entitled to an amount (the
"Reduced Earn-back Amount") equal to the Earn-back Amount less $264,000, and
that Creditor will be given the opportunity to earn back the $264,000 (the
"Additional Earn-back Amount"), which amounts would then be deemed to be an
additional component of the Additional Consideration (the "Earn-back
Transaction"); and
WHEREAS, the Creditor has agreed that any right of the Creditor to
receive, and any obligation of Argan to pay, the Reduced Earn-back Amount and
any Additional Earn-back Amount shall constitute subordinated debt and, in
furtherance thereof, Argan has agreed that it will execute and deliver to the
Creditor a Subordinated Promissory Note (Earn-back Obligations) on the Earn-back
Date (as defined in the Letter Agreement) in the form of Exhibit B hereto (the
"Earn-back Subordinated Note"); and
WHEREAS, the principal amount of the Earn-back Subordinated Note will be
that amount equal to: (i) 50% of the Reduced Earn-back Amount (with the other
50% of the Reduced Earn-back Amount to be paid through the issuance of Argan
capital stock); and (ii) 50% of the Additional Earn-back Amount, if earned,
pursuant to the terms of the Letter Agreement (with the other 50% of the
Additional Earn-back Amount, if any, to be paid through the issuance of Argan
capital stock); and
WHEREAS, the Debtor has requested the Lender: (a) to agree to the
Earn-back Transaction and to the issuance of the Earn-back Subordinated Note;
and (b) to amend and restate the Existing Debt Subordination Agreement to
reflect the addition of the Earn-back Subordinated Note as "Junior Debt" as
defined therein; and
WHEREAS, the Lender has so agreed to such Earn-back Transaction; issuance
of the Earn-back Subordinated Note; and amendment and restatement of the
Existing Debt Subordination Agreement subject to the execution and delivery by
the Debtor and the Creditor of this Agreement; and
WHEREAS, capitalized terms used herein and not defined herein shall have
the meanings assigned to such terms in the FSA; and
NOW, THEREFORE, for value received and in consideration of the mutual
benefits to be derived from this Agreement, the parties hereto agree as follows:
1. Definitions.
(a) "Junior Debt" means all of the present and future indebtedness
(principal, interest (including, without limitation, default interest and
interest accruing after the commencement of a bankruptcy proceeding by or
against the Debtor), fees, charges, collection and other costs (including,
without limitation, attorney's fees) and expenses and other amounts),
liabilities and obligations of the Debtor to the Creditor, all whether fixed or
contingent, matured or unmatured, and liquidated or unliquidated and whether
arising under contract, in tort or otherwise, including without limitation, the
indebtedness arising under the Subordinated Note and the Earn-back Subordinated
Note, and all increases, extensions, modifications, refinancings, assignments
and renewals thereof.
(b) "Superior Debt" means all of the present and future indebtedness
(principal, interest (including, without limitation, default interest and
interest accruing after the commencement of a bankruptcy proceeding by or
against the Debtor), fees, charges, collection and other costs (including,
without limitation, attorney's fees) and expenses and other amounts),
liabilities and obligations (including, without limitation, letter of credit
reimbursement obligations, protective advances permitted under the FSA and the
other Financing Documents for unpaid taxes, insurance, etc., and yield
maintenance and other indemnification amounts) of the Debtor to the Lender
including any such indebtedness under the FSA or any of the other Financing
Documents, all whether fixed or contingent, matured or unmatured, liquidated or
unliquidated, and whether arising under contract, in tort or otherwise, and all
increases, extensions, modifications, refinancings, assignments and/or renewals
thereof.
2. Subordination.
(a) Creditor hereby postpones and subordinates all of the Junior
Debt to the full and final payment of all of the Superior Debt to the extent and
in the manner set forth herein, provided that so long as (i) no Default or Event
of Default has occurred and is continuing under or within the meaning of the FSA
or any of the other Financing Documents and after giving effect to such payment
no Default or Event of Default would occur (including, without limitation, any
default of any financial covenant set forth in the FSA or any of the other
Financing Documents), and (ii) no event or condition has occurred which would
constitute such a Default or Event of Default but for the giving of notice or
passage of time, or both (including, without limitation, any event or condition
that would cause a default of any financial covenant set forth in the FSA or any
of the other Financing Documents), Lender agrees that for purposes of the FSA
and the other Financing Agreement Debtor is permitted to, and may make, and
Creditor is permitted to, and may accept: (A) regularly scheduled payments of
principal and interest under the Junior Debt; and (B) mandatory and optional
prepayments of the Junior Debt including, without limitation, any Mandatory
Prepayment, the Additional Mandatory Prepayment or any other optional prepayment
allowed under the Junior Debt, but only to the extent such prepayments do not
otherwise violate the prohibitions in clauses (i) and (ii) above.
(b) Creditor agrees that so long as Debtor is indebted to the Lender
under or in connection with the FSA and the other Financing Documents, Creditor
shall promptly provide Lender (or its successors or assigns, as the case may be)
with a copy of all notices which the Creditor from time to time may serve upon
Debtor in connection with the Junior Debt.
3. Collateral for Superior Debt. In furtherance of and for the sole
purposes of enforcing, exercising and securing the rights of the Lender under
Section 7 herein relating to the Lender's authority to act as Creditor's
attorney-in-fact in connection with a bankruptcy or similar proceeding against
the Creditor, Creditor hereby transfers and assigns to Lender, its successors
and assigns, all of its right, title and interest in and to, and grants to the
Lender, its successors and assign, a security interest in, the Junior Debt.
Creditor agrees to execute and deliver to Lender any additional assignments and
instruments deemed necessary by Lender to effect or confirm such assignment and
transfer and to effect collection of any and all payments which may be made at
any time on account of the Junior Debt.
4. Warranties and Representations of Creditor and Debtor. Creditor and
Debtor hereby represent and warrant: (a) that Creditor has not relied and will
not rely on any representation or information of any nature made by or received
from Lender relative to the Debtor in deciding to execute this Agreement or to
permit it to continue in effect; (b) that Creditor is or will be the lawful
owner of the Junior Debt and no part thereof is subject to any defense, offset
or counterclaim; (c) that Creditor has not heretofore assigned or transferred
any Junior Debt or any interest therein; and (d) that Creditor has not
heretofore given any subordination in respect of the Junior Debt.
5. Negative Covenants. Except to the extent otherwise permitted under
Section 2 hereof, until all of the Superior Debt has been fully and finally paid
and any obligations of the Lender to extend further Superior Debt is terminated:
(a) Debtor shall not, directly or indirectly, make any payment on account of the
Junior Debt and shall not grant any security interest in, mortgage, pledge,
assign or transfer any of their respective assets to secure or satisfy all or
any part of the Junior Debt; (b) Creditor shall not demand or accept from Debtor
or any other person any such payment of, or collateral for the Junior Debt, nor
shall Creditor enforce any part of the Junior Debt; (c) Creditor shall not
hereafter give any subordination in respect of the Junior Debt, or transfer or
assign any of the Junior Debt to any person other than the Lender; (d) Debtor
will not hereafter issue any instrument, security or other writing evidencing
any part of the Junior Debt, and Creditor will not receive any such writing,
except upon the prior written approval of the Lender or at the request of and in
the manner requested by the Lender; (e) Creditor will not commence or join with
any other creditors of the Debtor in commencing any bankruptcy, reorganization,
receivership or insolvency proceeding against the Debtor; and (f) neither
Creditor nor Debtor shall otherwise take or permit any action prejudicial to or
inconsistent with the provisions of this Agreement.
6. Turnover of Prohibited Transfers. If any payment on account of or any
collateral for any part of the Junior Debt is received by Creditor in violation
of the terms of this Agreement, such payment or collateral shall be delivered
within one (1) business day by Creditor to Lender for application to the
Superior Debt, in the form received, except for the addition of any endorsement
or assignment necessary to effect a transfer of all rights therein to Lender.
Lender is irrevocably authorized to supply any required endorsement or
assignment which may have been omitted. Until so delivered, any such payment or
collateral shall be held by Creditor in trust for Lender and shall not be
commingled with other funds or property of Creditor.
7. Authority to Act for Creditor. For so long as any of the Superior Debt
shall remain unpaid, Lender shall have the right to act as Creditor's
attorney-in-fact for the purposes specified herein and Creditor hereby
irrevocably appoints Lender its true and lawful attorney, with full power of
substitution, in the name of Creditor or in the name of Lender, for the use and
benefit of Lender, without notice to Creditor or any of its successors or
assigns, to perform the following acts, at Lender's option, at any meeting of
creditors of Debtor or in connection with any case or proceeding, whether
voluntary or involuntary, for the distribution, division or application of the
assets of Debtor or the proceeds thereof, regardless of whether such case or
proceeding is for the liquidation, dissolution, winding up of affairs,
reorganization or arrangement of Debtor, or for the composition of the creditors
of Debtor, in bankruptcy or in connection with a receivership, or under an
assignment for the benefit of creditors of Debtor or otherwise:
(a) To enforce claims comprising the Junior Debt, either in its own
name or in the name of Creditor, by proof of debt, proof of claim, suit or
otherwise;
(b) To collect any assets of Debtor distributed, divided or applied
by way of dividend or payment on account of the Junior Debt, or any securities
issued on account of the Junior Debt and to apply the same, or the proceeds of
any realization upon the same that Lender in its discretion elects to effect, to
the Superior Debt until all of the Superior Debt (including, without limitation,
all interest accruing on the Superior Debt after the commencement of any
bankruptcy case) has been paid in full, rendering any surplus to the Creditor if
and to the extent permitted by law;
(c) To vote claims comprising the Junior Debt to accept or reject
any plan of partial or complete liquidation, reorganization, arrangement,
composition or extension; and
(d) To take generally any action in connection with any such
meeting, case or proceeding that Creditor would be authorized to take but for
this Agreement.
In no event shall Lender be liable to Creditor for any failure to prove
the Junior Debt, to exercise any right with respect thereto or to collect any
sums payable thereon.
8. Waivers, Etc.
(a) Creditor and Debtor hereby waive any defense based on the
adequacy of a remedy at law which might be asserted as a bar to the remedy of
specific performance of this Agreement in any action brought therefor by Lender.
To the fullest extent permitted by law, Creditor and Debtor each hereby further
waives: presentment, demand, protest, notice of protest, notice of default or
dishonor, notice of payment or nonpayment and any and all other notices and
demands of any kind in connection with instruments, documents and agreements
evidencing, securing or relating in any way to all or any portion of the
Superior Debt or the Junior Debt to which the Creditor or Debtor may be a party;
notice of the acceptance of this Agreement by Lender; notice of any loans made,
extensions granted or other action taken by Lender in reliance hereon, including
without limitation: (i) granting time or other indulgences to Debtor, (ii)
renewing, extending, modifying or compromising any of the Superior Debt, (iii)
possessing, substituting, modifying, waiving or releasing any collateral held as
security for any of the Superior Debt, or (iv) adding or releasing any person
primarily or secondarily liable thereon; and all other demands and notices of
every kind in connection with this Agreement, the Superior Debt or Junior Debt,
and no such action taken by Lender shall affect the subordination or other
provisions herein in any manner.
(b) In the event of any sale, assignment, disposition or other
transfer of the Junior Debt, Creditor shall cause the transferee thereof to
execute and deliver to Lender an agreement (substantially identical with this
Agreement or otherwise in form and substance satisfactory to Lender) providing
for the continued subordination of the Junior Debt to the Superior Debt as
provided herein and for the continued effectiveness of all of the rights arising
under this Agreement.
9. Indulgences Not Waivers. Neither the failure nor any delay on the part
of the Lender to exercise any right, remedy, power or privilege hereunder or
under any instruments, documents or agreements evidencing or relating to the
Superior Debt shall operate as a waiver thereof or give rise to an estoppel, nor
be construed as an agreement to modify the terms of this Agreement, nor shall
any single or partial exercise of any right, remedy, power or privilege with
respect to any occurrence be construed as a waiver of such right, remedy, power
or privilege with respect to any other occurrence. No consent or waiver by a
party hereunder shall be effective unless it is in writing and signed by the
party making such consent or waiver, and then only to the extent specifically
stated in such writing.
10. Duration and Termination. This Agreement shall constitute a continuing
agreement of subordination and shall terminate only upon the full and final
payment of the Superior Debt and termination of any obligation of the Lender to
extend any further Superior Debt. Neither the dissolution nor the bankruptcy of
Creditor shall effect a termination hereof.
11. Administration by Lender. In the administration of the Superior Debt,
either before or after a demand or default, Creditor acknowledges and agrees
that Lender may proceed in its sole discretion, including without limitation,
raising or lowering loan advances, interest rates or fees, charging additional
fees, declining to make further advances, extending additional loans or other
financing accommodations to Debtor, increasing the dollar amounts of Debtor's
credit limits, extending credit terms and maturities, compromising claims and
exchanging and releasing collateral or obligors; all with no duty to Creditor,
and no such action shall affect the subordination or other provisions herein in
any manner.
12. Notices. All notices, requests, demands and other communications
required or permitted under this Agreement or by law shall be in writing and
shall be deemed to have been duly given, made and received only when delivered
against receipt or when deposited in the United States mails, certified mail,
return receipt requested, postage prepaid, or when delivered by next day express
delivery service, addressed as set forth below:
(a) If to Lender: Bank of America, N.A.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Senior Vice President
(b) If to Creditor: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
(c) If to Debtor: Argan, Inc.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Senior Vice President and CFO
Any addressee may alter the address to which communications are to be sent
by giving notice of such change of address in conformity with the provisions of
this Paragraph 12 for the giving of notice.
13. Lender's Duties Limited. The rights granted to Lender in this
Agreement are solely for its protection and nothing herein contained imposes on
Lender any duties with respect to any property of Creditor or of Debtor
heretofore or hereafter received by Lender. Lender has no duty to preserve
rights against prior parties on any instrument or chattel paper received from
the Debtor as collateral security for the Superior Debt or any portion thereof.
14. Effect on Creditor and Debtor. This Agreement is being entered into
solely for the benefit of Lender, its successors and assigns, and is not
intended to give any rights, benefits or privileges to the Creditor or Debtor.
15. Authority. Creditor and Debtor represent and warrant that they have
the legal power, capacity and authority to enter into this Agreement and that
the person signing for the Creditor and Debtor is authorized and directed to do
so.
16. Entire Agreement, Amendment. This Agreement constitutes and expresses
the entire understanding between the parties hereto with respect to the subject
matter hereof, and supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions, whether express or implied, oral or
written. Neither this Agreement nor any portion or provision hereof may be
amended orally or in any manner other than by an agreement in writing signed by
Lender, Creditor and Debtor.
17. Additional Documentation. Each of the Creditor and the Debtor shall
execute and deliver to Lender such further instruments and shall take such
further action as Lender may at any time or times request in order to carry out
the provisions and intent of this Agreement.
18. Successors and Assigns. This Agreement shall inure to the benefit of
Lender, its successors and assigns, and shall be binding upon the Creditor and
Debtor and their respective heirs, personal representatives, successors and
assigns.
19. Defects Waived. This Agreement is effective notwithstanding any defect
in the validity or enforceability of any instrument or document evidencing the
Superior Debt.
20. Governing Law. The validity, construction and enforcement of this
Agreement shall be governed by the internal laws of the State of Connecticut.
21. Severability. The provisions of this Agreement are independent of and
separable from each other. If any provision hereof shall for any reason be held
invalid or unenforceable, it is the intent of the parties that such invalidity
or unenforceability shall not affect the validity or enforceability of any other
provision hereof, and that this Agreement shall be construed as if such invalid
or unenforceable provision had never been contained herein.
22. Amendment and Restatement. This Agreement amends, restates, supercedes
and replaces in its entirety the Existing Debt Subordination Agreement.
THE NEXT PAGE IS A SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed, sealed and delivered, as of the 5th day of July, 2005, effective as of
the 30th day of June, 2005.
WITNESSES:
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇
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BANK OF AMERICA, N.A.
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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Its Senior Vice President
ARGAN, INC.
By /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: EVP
SOUTHERN MARYLAND CABLE, INC.
By /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: VP/CFO