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EXHIBIT 10.31
Schedule II
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (this "AGREEMENT"), dated as of November
25, 1998, is entered into by and among MARKETSPAN CORPORATION d/b/a KEYSPAN
ENERGY CORP. ("SUBORDINATED CREDITOR"), THE HOUSTON EXPLORATION COMPANY
("DEBTOR") and CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, as agent ("AGENT") for
itself and each of the other banks or lending institutions (the "BANKS") that is
now or hereafter becomes a party to the Credit Agreement (hereinafter defined).
PRELIMINARY STATEMENTS:
A. The Debtor, the Agent and the Banks are parties to that certain
Credit Agreement dated as of July 2, 1996, as amended by a First Amendment to
Credit Agreement and Security Agreement dated as of August 30, 1996, a Second
Amendment to Credit Agreement dated as of August 4, 1997, a Third Amendment to
Credit Agreement dated as of February 12, 1998 (and as further amended from time
to time, the "CREDIT AGREEMENT") under the terms of which the Banks agreed to
make available to the Debtor a revolving line of credit not to exceed, in the
aggregate, $150,000,000.00 at any one time outstanding.
B. Debtor is indebted to Subordinated Creditor and/or may become
indebted to Subordinated Creditor. All indebtedness now owing, and all other
indebtedness, liabilities or obligations of Debtor to Subordinated Creditor, now
or hereafter existing (whether created directly or acquired by assignment or
otherwise; whether evidenced by a note or otherwise; whether absolute or
contingent; whether joint, several or independent; whether arising by operation
of law or otherwise), including, without limitation, that certain loan from
Subordinated Creditor to Debtor in the original principal amount of up to
$150,000,000.00, as same may be renewed, consolidated, amended, extended, or
otherwise modified plus interest and premiums, if any, thereon and other amounts
payable in respect thereof are hereinafter referred to as the "SUBORDINATED
DEBT" of Subordinated Creditor; and
WHEREAS, it is a condition precedent to the consent by the Banks to the
creation of the Subordinated Debt that Subordinated Creditor and Debtor shall
have executed and delivered this Agreement to Agent.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Banks to consent to the creation and existence of the Subordinated Debt,
Subordinated Creditor and Debtor hereby agree as follows:
SECTION 1. All capitalized terms used herein (including in the preliminary
statements hereof) and not otherwise defined shall have the meanings set forth
in the Credit Agreement.
SECTION 2. Agreement to Subordinate. Subordinated Creditor and Debtor agree that
the payment of the principal of, and interest on, and all other amounts owing in
respect of the Subordinated Debt is and shall be hereby expressly subordinated,
to the extent and in the manner hereinafter set forth, to the prior payment in
full of all indebtedness, liabilities and obligations of the Debtor arising
under or in conjunction with the Credit Agreement, Notes, Letter of Credit
Agreements or any other document or instrument executed in connection therewith
(collectively the "LOAN DOCUMENTS") whether now or hereafter existing, whether
for principal, interest (including without limitation interest accruing after
the commencement of any proceeding referred to in Section 3), or whether fees,
expenses or otherwise (all such obligations being the "SENIOR INDEBTEDNESS").
SECTION 3.A No Payment on the Subordinated Debt. (a) No payment shall be made by
Debtor, directly or indirectly, in respect of the principal of, or interest
(except as provided in 3.B) or premium on, or otherwise owing in respect of, the
Subordinated Debt, and Subordinated Creditor shall not ask, demand, xxx for,
take any action to enforce, take or receive, directly or indirectly, in cash or
other property, by sale, set-off or in any
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other manner whatsoever any amounts owing in respect of the Subordinated Debt,
unless and until all Senior Indebtedness has been paid in full and no commitment
is in existence to advance or create Senior Indebtedness; and (b) in the event
that, notwithstanding the provisions of the preceding subsection (a) of this
Section 3.A, Debtor shall make any payment on account of the principal of, or
interest on, or amounts otherwise owing in respect of, the Subordinated Debt
while Senior Indebtedness has not been paid in full or while a commitment is in
existence to advance or create any Senior Indebtedness, such payment shall be
segregated from other funds and property of Subordinated Creditor and held by
the Subordinated Creditor, in trust for the benefit of, and shall forthwith be
paid over and delivered to, Agent (with any necessary endorsement) for
application pro rata to the payment of all Senior Indebtedness remaining unpaid
to the extent necessary to pay all Senior Indebtedness or held as collateral in
the case of non cash property for the payment of the Senior Indebtedness. B.
INTEREST ON SUBORDINATED DEBT PRIOR TO DEFAULT. NOTWITHSTANDING ANYTHING TO THE
CONTRARY CONTAINED IN 3.A SO LONG AS THERE SHALL EXIST NO DEFAULT UNDER THE
SENIOR INDEBTEDNESS OR EVENT OF DEFAULT AS DEFINED IN ANY OF THE LOAN DOCUMENTS,
DEBTOR MAY MAKE, AND SUBORDINATED CREDITOR MAY RECEIVE AND RETAIN FOR ITS OWN
ACCOUNT, REGULARLY SCHEDULED ACCRUED INTEREST PAYMENTS AS AND WHEN SUCH INTEREST
PAYMENTS ARE DUE ON THE SUBORDINATED NOTE, AND EACH OF DEBTOR AND SUBORDINATED
CREDITOR SHALL MAINTAIN RECORDS WITH RESPECT TO SUCH INTEREST PAYMENTS AND UPON
THE HAPPENING OF ANY EVENT OF DEFAULT AND DURING THE EXISTENCE OF ANY DEFAULT,
DEBTOR SHALL HAVE NO RIGHT TO MAKE, AND SUBORDINATED CREDITOR SHALL CEASE TO
HAVE THE RIGHT TO RECEIVE AND RETAIN SUCH INTEREST PAYMENTS.
SECTION 4. In Furtherance of Subordination. (a) Upon any distribution of all or
any of the assets of Debtor (whether in connection with the dissolution, winding
up, liquidation, arrangement, reorganization, adjustment, protection, relief or
composition of Debtor or its debts or whether in any bankruptcy, insolvency,
arrangement, reorganization, receivership, relief or similar proceedings or
whether upon an assignment for the benefit of creditors or otherwise) the
following provisions shall apply: (i) Agent shall first be entitled to receive
payment in full of the principal thereof, premium, if any, and interest
(including post-petition interest) due thereon before Subordinated Creditor or
the holder of the Subordinated Debt is entitled to receive any payment on
account of the principal of or interest on or any other amount owing in respect
of the Subordinated Debt; (ii) any payment, dividend or distribution of assets
of Debtor of any kind or character, whether in cash, property or securities to
which Subordinated Creditor or the holder of the Subordinated Debt would be
entitled except for the provisions of this Agreement, shall be paid by the
liquidating trustee or agent or other person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee
or other trustee or agent, directly to Agent, to the extent necessary to make
payment in full of all Senior Indebtedness remaining unpaid; (iii) in any such
proceeding, Agent is hereby irrevocably authorized and empowered (in the name of
Subordinated Creditor or otherwise), but shall have no obligation, to demand,
xxx for, collect and receive every payment or distribution referred to in
clauses (i) and (ii) of subsection (a) above and given acquittance therefor and
to file claims and proofs of claim and take such other action (including,
without limitation, voting the Subordinated Debt or enforcing any security
interest or other lien securing payment of the Subordinated Debt) as it may deem
necessary or advisable for the exercise or enforcement of any of the rights or
interests of Agent; (iv) in any proceeding, Subordinated Creditor shall duly and
promptly take such action to the extent, and only to the extent as Agent may
expressly request: (A) to collect the Subordinated Debt for the account of Agent
and to file appropriate claims or proofs of claim in respect of the Subordinated
Debt; (B) to execute and deliver to Agent such powers of attorney, assignments,
or other instruments as it may request in order to enable it to enforce any and
all claims with respect to, and any security interests and other liens securing
payment of, the Subordinated Debt; and (C) to collect and receive any and all
payments or distributions which may be payable or deliverable upon or with
respect to the Subordinated Debt; and (v) in any such proceeding, Subordinated
Creditor shall not have any right to setoff against the Subordinated Debt any
indebtedness owned by Subordinated Creditor to Debtor (including, without
limitation, any right of setoff under Section 553 of the Bankruptcy Code), and
Subordinated Creditor hereby irrevocably agrees, to the fullest extent permitted
by law, that it will not exercise (and herein waives) any right of setoff. If
the foregoing waivers are adjudicated unenforceable by a court of competent
jurisdiction, then Subordinated Creditor agrees that, in the event that
Subordinated Creditor exercises any right of setoff in any such proceeding,
Subordinated Creditor will pay directly to Agent, an amount equal to the amount
of Subordinated
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Debt which was so setoff, for application to such Senior Indebtedness until all
such Senior Indebtedness shall have been paid in full; (b) in the event that,
notwithstanding the foregoing provisions of this Section 4, any payment or
distribution of assets of Debtor of any kind or character, whether in cash,
property or securities, shall be received by Subordinated Creditor on account of
principal or interest on Subordinated Debt before all Senior Indebtedness is
paid in full, or effective provision shall have been made for its payment, such
payment or distribution shall be received shall be paid over to Agent, for
application to the payment of such Senior Indebtedness until all such Senior
Indebtedness shall have been paid in full; and (c) Agent is hereby authorized to
demand specific performance of this Agreement, whether or not Debtor shall have
complied with any of the provisions hereof applicable to it, at any time when
Subordinated Creditor shall have failed to comply with any of the provisions of
this Agreement applicable to it. Subordinated Creditor hereby irrevocably waives
any defense based on the adequacy of a remedy at law, which might be asserted as
a bar to such remedy of specific performance.
SECTION 5. Subordination of all Liens. Subordinated Creditor agrees that it will
not hold any lien or security interest in any real or personal property as
security for the Subordinated Debt unless the Agent has given its prior written
consent to the creation thereof. In the event any Subordinated Creditor shall
acquire any lien or security interest as security for Subordinated Debt,
regardless of whether such lien or security interest is permitted or prohibited
by this Agreement or the Loan Documents, the Subordinated Creditor will hold
such lien or security interest for the benefit of the Agent and shall enforce
such lien or security interest in accordance with the written instructions of
the Agent. Any cash or other property received on account of any lien or
security interest securing the Subordinated Debt shall be delivered to the Agent
and, in the case of cash, applied to, or, in the case of other property, held as
collateral for, the Senior Indebtedness. To the extent that any Subordinated
Debt is now or hereafter secured by a lien or security interest (a "SUBORDINATE
LIEN") against any real or personal property that is also subject to a lien or
security interest securing the Senior Indebtedness (a "SENIOR LIEN"), the
Subordinated Creditor agrees that such Subordinate Lien shall be second, junior
and subordinate to such Senior Lien and such Senior Lien shall be first and
prior to such Subordinate Lien. It is further agreed that the priorities
specified in the preceding sentence are applicable irrespective of the time or
order of attachment or perfection of liens and security interests, or the time
or order of filing of liens and security interests, or the time or order of
filing of financing statements, or the giving or failure to give notice of the
acquisition or expected acquisition of purchase money or other security
interests.
SECTION 6. No Commencement of Any Proceeding. Subordinated Creditor agrees that,
so long as any of the Senior Indebtedness shall remain unpaid, it will not
commence, or join with any creditor other than Agent in commencing, any
proceeding referred to in Section 3(a).
SECTION 7. Rights of Subrogation. Subordinated Creditor agrees that no payment
or distribution to Agent pursuant to the provisions of this Agreement shall
entitle Subordinated Creditor to exercise any rights of subrogation in respect
thereof until the Senior Indebtedness shall have been paid in full.
SECTION 8. Subordination Legend; Further Assurances. Subordinated Creditor and
Debtor will cause each instrument evidencing Subordinated Debt to be endorsed
with the following legend:
"The indebtedness evidenced by this instrument is subordinated to the
prior payment in full of the Senior Indebtedness (as defined in the
Subordination Agreement hereinafter referred to) pursuant to, and to
the extent provided in, the Subordination Agreement effective as of
November 25, 1998, by the maker hereof and payee named herein in favor
of the Agent referred to in such Subordination Agreement."
Subordinated Creditor and Debtor each will further xxxx its books of account in
such a manner as shall be effective to give proper notice of the effect of this
Agreement and will, in the case of any Subordinated Debt which is not evidenced
by any instrument, upon Agent's reasonable request, cause such Subordinated Debt
to be evidenced by an appropriate instrument or instruments endorsed with the
above legend. Subordinated Creditor and Debtor each will, at its expense and at
any time and from time to time, promptly execute and deliver all further
instruments and documents, and take all further actions, that may be necessary
or desirable,
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or that Agent may reasonably request, in order to protect any right or interest
granted or purported to be granted hereby or to enable Agent to exercise and
enforce its rights and remedies hereunder.
SECTION 9. No Change in or Disposition of Subordinated Debt. Subordinated
Creditor shall not: (a) Cancel or otherwise discharge any of the Subordinated
Debt or subordinate any of the Subordinated Debt to any indebtedness of Debtor
other than the Senior Indebtedness; (b) Sell, assign, pledge, encumber or
otherwise dispose of any of the Subordinated Debt (and any attempted action in
violation of this paragraph (b) shall be void); or (c) Permit the terms of any
of the Subordinated Debt to be changed in such a manner as to have an adverse
effect upon the rights or interests of the Agent.
SECTION 10. Agreement by the Debtor. Debtor agrees that it will not make any
payment of any of the Subordinated Debt, nor take any other action, in
contravention of the provisions of this Agreement.
SECTION 11. Senior Indebtedness Hereunder Not Affected. All rights and interests
of Agent and the Banks, and all agreements and obligations of Subordinated
Creditor and Debtor under this Agreement, shall remain in full force and effect
irrespective of: (i) any lack of validity or enforceability of all or any
portion of this Agreement; (ii) any change in the amount of interest rate
accruing on, time, manner or place of payment of, or in any other term of, all
or any of the Senior Indebtedness, or any other amendment or waiver of any
consent to departure from any of the Loan Documents, including, without
limitation, changes in the terms of disbursement of the proceeds of the Loans or
repayment thereof, modifications, extensions or renewals of payment dates,
changes in interest rate or the advancement of additional funds by the Banks in
their discretion; (iii) any exchange, release or non-perfection of any
collateral or any release or amendment or waiver of or consent to departure from
any guaranty, for all or any of the Senior Indebtedness; or (iv) any other
circumstance in respect of this Agreement which might otherwise constitute a
defense available to, or a discharge of, Debtor or any guarantor of or in
respect of the Senior Indebtedness or the Subordinated Creditor.
SECTION 12. Reinstatement. This Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of the Senior
Indebtedness is rescinded or must otherwise be returned by Agent upon the
insolvency, bankruptcy or reorganization of Debtor or otherwise, all as though
such payment had not been made.
SECTION 13. Waivers. Subordinated Creditor hereby waives promptness, diligence,
notice of acceptance, notice of intention to accelerate, notice of acceleration
and any other notice with respect to any of the Senior Indebtedness and this
Agreement and any requirement that Agent protect, secure, perfect or insure any
security interest or lien or any property subject thereto or exhaust any right
or take any action against Debtor or any other person or entity or any
collateral. Subordinated Creditor waives any right or benefit of any notice of
any action, event or circumstance relating to the Senior Indebtedness, including
but not limited to the incurrence, modification, default, exercise of remedies,
compromise or release of or with respect to Senior Indebtedness.
SECTION 14. Representations and Warranties. (a) Debtor hereby represents and
warrants as follows: (i) the Subordinated Debt now outstanding (true and
complete copies of any instruments evidencing which having been furnished to the
Agent) has been duly authorized by Debtor, has not been amended or otherwise
modified and constitutes the legal, valid and binding obligation of Debtor
enforceable against Debtor in accordance with its terms; (ii) there exists no
default in respect of any such Subordinated Debt; (iii) Debtor is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation as set forth on the first page hereof; and
Debtor has all requisite corporate power and authority to execute, deliver and
perform this Agreement; and (iv) The execution, delivery and performance by
Debtor of this Agreement have been duly authorized by all necessary corporate
action and do not and will not contravene its articles, charter or bylaws; and
(b) Subordinated Creditor hereby represents and warrants as follows: (i)
Subordinated Creditor owns the Subordinated Debt now outstanding free and clear
of any lien, security interest, charge or encumbrance or any rights of others;
(ii) The execution, delivery and performance by Subordinated Creditor of this
Agreement do not and will not contravene any law or governmental regulation or
any contractual restriction binding on or affecting Subordinated Creditor or any
of its properties,
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and do not and will not result in or require the creation of any lien, security
interest or other charge or encumbrance upon or with respect to any of its
properties; (iii) This Agreement is a legal, valid and binding obligation of
Subordinated Creditor, enforceable against Subordinated Creditor in accordance
with its terms except as limited by bankruptcy, insolvency or other laws of
general application relating to the enforcement of creditors' rights and by
general equitable principles; and (iv) There exists no default in respect of any
Subordinated Debt.
SECTION 15. Amendments, Etc. No amendment or waiver of any provision of this
Agreement nor consent to any departure by Subordinated Creditor or Debtor
therefrom shall in any event be effective unless the same shall be in writing
and signed by Agent, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
SECTION 16. Expenses. DEBTOR AGREES TO pay, upon demand, to Agent the amount of
any and all reasonable expenses, including the reasonable fees and expenses of
its counsel, which Agent may incur in connection with the exercise or
enforcement of any of the rights or interests of the holders of Senior
Indebtedness hereunder.
SECTION 17. Addresses for Notices. All communications from any party to any
other shall be in writing (including telegraphic and telecopy communication).
Communications to any party shall be delivered to another party by certified or
registered mail, return receipt requested, or sent by private overnight courier
or telegraphed, or telecopied, addressed to it at the address of such party
specified next to its signature in this Agreement. Any party may designate a
different address for receipt of communications by written notice to the other
parties. All communications shall be effective when received and if receipt is
refused, either three (3) business days after deposit in the mail or the date of
attempted delivery as confirmed by private courier service, telegraph company or
telecopy operator.
SECTION 18. No Waiver, Remedies. No failure on the part of Agent to exercise,
and no delay in exercising, any right hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
SECTION 19. Continuing Agreement; Transfer of Notes. All warranties,
representations and covenants made by Subordinated Creditor or Debtor herein or
in any certificate or other instrument delivered by it or on its behalf shall be
considered to have been relied upon by Agent and shall survive execution and
delivery of the Loan Documents regardless of any investigation by or on behalf
of any thereof. This Agreement is a continuing agreement and shall:(i) remain in
full force and effect until the Senior Indebtedness shall have been paid in
full; (ii) be binding upon Subordinated Creditor, Debtor and its successors and
assigns and any subsequent holder of Subordinated Debt; and (iii) inure to the
benefit of and be enforceable by Agent and its successors, transferees and
assigns. Without limiting the generality of the foregoing clause (iii), any Bank
may assign or otherwise transfer its Note or any other evidence of any Senior
Indebtedness held by it to any other person or entity, and such other person or
entity shall thereupon become vested with all the rights in respect thereof
granted to such Bank herein or otherwise.
SECTION 20. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
SECTION 21. Counterparts. This Agreement may be separately executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to constitute one and the same
Agreement.
SECTION 22. Section Headings. Headings are for convenience only and shall be
given no substantive meaning or significance in construing this Agreement.
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SECTION 23. THIS AGREEMENT EMBODIES THE ENTIRE AGREEMENT AND UNDERSTANDING
BETWEEN AND AMONG THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND
SUPERSEDES ALL PRIOR AGREEMENTS CONSENTS AND UNDERSTANDINGS RELATING TO SUCH
SUBJECT MATTER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, Debtor and Subordinated Creditor have caused this
Agreement to be duly executed and delivered by their officers thereunto duly
authorized as of the date first above written.
SUBORDINATED CREDITOR
KEYSPAN ENERGY CORP.
By: /s/ Xxxxxx X. Xxxxxxxxx
-----------------------------------------------
Name: Xxxxxx X. Xxxxxxxxx
Title: Vice President, Secretary and Treasurer
Address: Xxx XxxxxXxxx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000-0000
DEBTOR
THE HOUSTON EXPLORATION COMPANY
By: /s/ Xxxxxx X. Xxxxxx
-----------------------------------------------
Xxxxxx X. Xxxxxx, Senior Vice President
Address: 0000 Xxxxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
AGENT
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION
By: /s/ Xxxx X. Xxxxx,
-----------------------------------------------
Xxxx X. Xxxxx, Vice President
Address: 000 Xxxx Xxxxxx,
Xxxxxxx, Xxxxx 00000
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