SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (this "AGREEMENT") is made and entered
into effective this ___ day of October, 1999, by and among THE PRUDENTIAL
INSURANCE COMPANY OF AMERICA, a Delaware corporation ("Prudential"); MIDDLE BAY
OIL COMPANY, INC., an Alabama corporation (the "BORROWER") and COMPASS BANK, an
Alabama state chartered banking institution, as Agent for itself and BANK OF
OKLAHOMA, NATIONAL ASSOCIATION (collectively, the "LENDERS").
W I T N E S S E T H :
WHEREAS, pursuant to that certain Credit Agreement dated
March 27, 1998, by and between the Borrower and ENEX RESOURCES CORPORATION as
Borrowers and the Lenders as amended by various letter amendments, by First
Amendment dated August 27, 1999, and by Second Amendment of even date herewith
(as such agreement may be amended, modified, supplemented or restated from time
to time, the "CREDIT AGREEMENT"), the Lenders has agreed to make Loans to or for
the benefit of the Borrower;
WHEREAS, Prudential has or is obligated to advance certain funds to
the Borrower pursuant to that certain note dated October __, 1999, from the
Borrower to Prudential ( the "PRUDENTIAL NOTE"), in the amount of $__________
(the "DEBT");
WHEREAS, pursuant to the Credit Agreement and as an inducement to the
Lenders to extend credit to the Borrower under the Credit Agreement, Prudential
and the Borrower have agreed to execute this Agreement in favor of the Lenders;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.01 TERMS DEFINED ABOVE. As used in this Agreement, each of the
terms "AGREEMENT," "BORROWER," "CREDIT AGREEMENT," "DEBT," "LENDERS,"
"PRUDENTIAL," and the "PRUDENTIAL NOTE" shall have the meaning assigned to such
term hereinabove.
1.02 TERMS DEFINED IN CREDIT AGREEMENT. Each term defined in the
Credit Agreement and used herein without definition shall have the meaning
assigned to such term in the Credit Agreement.
1.03 OTHER DEFINITIONAL PROVISIONS.
(a) The words "hereby," "herein," "hereinafter," "hereinabove,"
"hereinbelow," "hereof," "hereunder," and words of similar import when used
in this Agreement shall refer to this Agreement as a whole and not to any
particular Article, Section or provision of this Agreement.
(b) Section references are to such Sections of this Agreement unless
otherwise specified.
(c) As used herein and in any certificate or other document made or
delivered pursuant hereto, accounting and financial terms not otherwise
defined shall be defined according to GAAP.
ARTICLE II
SUBORDINATION
2.01 SUBORDINATION OF PAYMENT. The payment of the Debt is hereby
expressly subordinated in right of payment to the prior payment in full of all
Obligations and all other indebtedness of the Borrower owed to the Lenders;
PROVIDED, HOWEVER, so long as no Event of Default has occurred and is continuing
for which (other than an event specified in Subsection 7.1(d) of the Credit
Agreement) the Lenders have given written notice of such Event of Default to the
Borrower (a "DEFAULT NOTICE"), the Borrower may pay only interest due on the
Debt according to its terms. At any time following the occurrence and during the
continuance of any Event of Default and provided that the Lenders have given a
Default Notice, Prudential will not request, accept or receive, and the Borrower
will not make, any payments, whether in cash or other Property, on or with
respect to the Debt unless and until (a) such Event of Default shall have been
cured or waived or shall have ceased to exist, or (b) such time as all
Obligations shall have been fully paid and performed and the obligation of the
Lenders to make Loans under the Credit Agreement shall have terminated.
Notwithstanding the above, if within ninety (90) days after the giving of such
Default Notice by the Lenders such Event of Default has not become the subject
of (a) judicial proceedings or (b) an acceleration notice by the Lenders, then
the Borrower shall (unless in such interval the provision of this Section 2.01
have again come into effect on account of any other Event of Default), resume
making any and all required payments in respect of the Debt in any manner
authorized under the terms governing such Debt until such time (if any) that
such judicial proceedings are instituted, such an acceleration notice is given
or a Default Notice (on account of any other Event of Default) is given and a
period of ninety (90) days shall not have elapsed since the giving of such
Default Notice as contemplated above. In the event any direct or indirect
payment or distribution, whether in cash or other Property, shall be received by
Prudential in contravention of the provisions hereof, such payment or
distribution shall be held in trust for, and shall be immediately paid over or
delivered to, the Lenders.
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2.02 PRUDENTIAL DEBT SUBORDINATED TO PRIOR PAYMENT OF OBLIGATIONS ON
DISSOLUTION, LIQUIDATION OR REORGANIZATION OF THE BORROWER. Upon any
distribution of assets of the Borrower upon any voluntary or involuntary
dissolution, winding up, liquidation or reorganization of the Borrower (whether
in bankruptcy, insolvency or receivership proceedings or upon an assignment for
the benefit of creditors or otherwise):
(a) the Lenders shall first be entitled to receive payment in full
(or to have such payment duly provided for to their satisfaction) of the
principal thereof and interest due on the Obligations and other amounts due
in connection therewith before Prudential is entitled to receive any
payment on account of the principal of or interest on the Debt;
(b) any payment or distribution of assets of the Borrower of any
kind or character, whether in cash, property or securities, to which
Prudential 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 directly to the Lenders or its representative,
to the extent necessary to make payment in full of all Obligations
remaining unpaid, after giving effect to any concurrent payment or
distribution or provision therefor to the Lenders; and
(c) in the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Borrower of any kind or character, whether in
cash, property or securities, shall be received by Prudential on account of
principal of or interest on the Debt before all Obligations are paid in
full or provision made for their payment, such payment or distribution
(subject to the further provisions of this Article) shall be paid over to
the Lenders or their representative for application to the payment of all
Obligations remaining unpaid or unprovided for until all such Obligations
shall have been paid in full, after giving effect to any concurrent payment
or distribution or provision therefor to the Lenders.
2.03 SUBORDINATION OF LIENS. So long as any Obligation remains
outstanding or any obligation of the Lenders exists to make Loans under the
Credit Agreement, Prudential hereby subordinates all Liens, now existing or
hereafter created or arising, securing all or any portion of the Debt to all
Liens, now existing or hereafter created or arising, securing all or any portion
of the Obligations, notwithstanding any defect, deficiency, error or omission
which may be contained in any Loan Document creating or perfecting any such Lien
securing all or any portion of the Obligations. All Liens, now existing or
hereafter created or arising, securing all or any portion of the Debt shall at
all times remain subordinate, secondary and inferior to all Liens, now existing
or hereafter created or arising, securing all or any portion of the Obligations.
2.04 SUBORDINATION OF REMEDIES. So long as any Obligation remains
outstanding or any obligation of the Lenders exists to make Loans under the
Credit Agreement, Prudential shall not, without the prior written consent of the
Lenders, declare any Debt due or in default (other than to accelerate the Debt
and take such other actions as reasonably required to protect Prudential's
claims upon any bankruptcy, insolvency, or receivership proceeding with respect
to Borrower) or
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foreclose upon or exercise any power of sale with respect to any security for
all or any portion of the Debt or exercise any other right, power or remedy of
Prudential provided for in any document or instrument executed in connection
with the Debt or by law or initiate or join with any other creditor of the
Borrower in initiating any plan or proceeding pursuant to any bankruptcy,
insolvency or receivership proceedings or seeking an assignment for the benefit
of creditors or the marshalling of the assets and liabilities of the Borrower.
Upon any distribution of assets of the Borrower or the dissolution, winding up,
liquidation or reorganization (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors or the
marshalling of the assets and liabilities of the Borrower or otherwise), any
payment to which Prudential would otherwise be entitled with respect to the Debt
shall be held in trust for, and shall be immediately paid over or delivered to,
the Lenders for application to the Obligations until all Obligations shall have
been paid in full. Notwithstanding any provision of this Agreement (i) the
holder of the Prudential Note may convert the Prudential Note to shares of
common stock of Borrower at any time in accordance with the terms of the
Prudential Note; and (ii) Prudential may exercise any warrants for shares of
common stock of the Borrower in accordance with the terms of any such warrants.
2.05 CONTINUING AGREEMENT. This Agreement shall continue in full
force and effect and the liabilities and obligations of the Borrower and
Prudential hereunder shall not be affected or impaired by any amendment,
modification or alteration of any Loan Document, except as may be expressly
provided in any such amendment, modification or alteration. This Agreement shall
continue to be effective or shall be reinstated, as the case may be, if at any
time any payment of any of the Obligations is rescinded or must otherwise be
returned by the Lenders upon the insolvency, bankruptcy or reorganization of the
Borrower or otherwise, all as though such payment had not been made.
2.06 LIABILITY NOT IMPAIRED. The liabilities and obligations of the
Borrower and Prudential hereunder shall not be affected or impaired by (a) the
failure of the Agent or the Lenders or any other Person to exercise diligence or
reasonable care in the preservation, protection or other handling or treatment
of all or any part of any Collateral for all or any portion of the Obligations,
(b) the failure of any Lien intended to be granted or created to secure all or
any part of the Obligations to be properly perfected or created or the
unenforceability of any such Lien for any other reason, or (c) the subordination
of any such Lien to any other Lien. The Lenders may at any time and from time to
time, without the consent of or notice to Prudential, and without incurring any
responsibility to Prudential, and without impairing or releasing or otherwise
affecting any of the obligations or agreements of Prudential hereunder, (a)
change the manner, place or terms of payment, or change or extend the time of
payment of, renew, or alter all or any portion of the Obligations, (b) exchange,
release, surrender, realize upon or otherwise deal with, in any manner and any
order, any Property at any time subject to any Lien in favor of the Lenders, (c)
exercise or refrain from exercising any rights against the Borrower or others,
and (d) sell, transfer, assign or grant participations in the Obligations or any
portion thereof.
2.07 WAIVERS. Prudential waives any right to require the Lenders to
(a) proceed against the Borrower or make any effort at the collection of the
Obligations from the Borrower or any other Person liable for all or any portion
of the Obligations, (b) proceed against or exhaust any Collateral securing all
or any portion of the Obligations, or (c) pursue any other remedy in the power
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of the Lenders. The liability and obligations of Prudential hereunder shall not
be affected or impaired by any action or inaction by the Lenders in regard to
any matter waived herein.
2.08 MODIFICATION OF PRUDENTIAL DEBT. Without the prior written
consent of the Lenders, none of the terms or provisions of the Prudential Note,
or the payment of the Debt evidenced thereby, shall be modified, amended,
accelerated, renewed or extended. Notwithstanding the foregoing, Borrower may,
without the consent of Lender (a) extend the date on which payments are required
on the Prudential Note, (b) reduce the interest rate applicable to the
Prudential Note, (c) waive compliance with the terms of the Prudential Note or
loan documents associated therewith or any default arising from non-compliance,
or (d) relax or make less restrictive any covenant in the Prudential Note or
loan documents associated therewith.
2.09 KNOWLEDGE OF PRUDENTIAL. Prudential shall not at any time be
charged with knowledge of the existence of any facts which would prohibit the
making of any payment to Prudential under the Prudential Note or the taking of
any action under the Prudential Note by Prudential unless and until Prudential
shall have received written notice thereof from the Borrower or the Agent or the
Lenders or from any trustee or representative therefor and, prior to the receipt
of any such written notice, shall be entitled in all respects conclusively to
assume that no such facts exist.
2.10 OBLIGATION OF THE BORROWER. Nothing contained in this Agreement
shall affect the obligation of the Borrower to make, or prevent the Borrower
from making, payment of the principal of or interest on the Debt, except as
otherwise provided in this Agreement and the Prudential Note.
ARTICLE III
MISCELLANEOUS
3.01 SURVIVAL OF COVENANTS AND AGREEMENTS. All covenants and
agreements of the Borrower and Prudential herein made shall survive the
execution and delivery hereof and shall remain in force and effect so long as
any Obligation remains outstanding or any obligation of the Lenders exists to
make Loans under the Credit Agreement.
3.02 PARTIES IN INTEREST. All covenants and agreements herein
contained by or on behalf of the Borrower, Prudential or the Lenders shall be
binding upon and inure to the benefit of the Borrower, Prudential, or the
Lenders, as the case may be, and their respective legal representatives,
successors and assigns.
3.03 RIGHTS OF THIRD PARTIES. All provisions herein are imposed
solely and exclusively for the benefit of the Borrower, Prudential, and the
Lenders. No other Person shall have any right, benefit, priority or interest
hereunder or as a result hereof or have standing to require satisfaction of
provisions hereof in accordance with their terms; and any or all of such
provisions
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may be freely waived in whole or in part by the Lenders at any time if in their
sole discretion it deems it advisable to do so.
3.04 ARTICLES AND SECTIONS. This Agreement, for convenience only, has
been divided into Articles and Sections; and it is understood and agreed that
the rights and other legal relations of the parties hereto shall be determined
from this Agreement as an entirety and without regard to the aforesaid division
into Articles and Sections and without regard to headings prefixed to such
Articles or Sections.
3.05 NUMBER AND GENDER. Whenever the context requires, reference
herein made to the single number shall be understood to include the plural; and
likewise, the plural shall be understood to include the singular. Definitions of
terms defined in the singular or plural shall be equally applicable to the
plural or singular, as the case may be, unless otherwise indicated. Words
denoting sex shall be construed to include the masculine, feminine and neuter,
when such construction is appropriate; and specific enumeration shall not
exclude the general but shall be construed as cumulative.
3.06 NO WAIVER; RIGHTS CUMULATIVE. No course of dealing on the part
of the Lenders, their officers or employees, nor any failure or delay by the
Lenders with respect to exercising any of its rights hereunder or under any Loan
Document shall operate as a waiver of any of the rights of the Lenders hereunder
or under such Loan Document. The rights of the Lenders hereunder and under the
Loan Documents shall be cumulative, and the exercise or partial exercise of any
such right shall not preclude the exercise of any other right.
3.07 SURVIVAL UPON UNENFORCEABILITY. In the event any one or more of
the provisions contained herein or executed in connection herewith shall, for
any reason, be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof or of any such other instrument.
3.08 AMENDMENTS OR MODIFICATIONS. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated orally, but
only by an instrument in writing signed by the party against whom enforcement of
the change, waiver, discharge or termination is sought.
3.09 GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT
MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF TEXAS.
3.10 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT
TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO OR
FROM THIS AGREEMENT MAY BE LITIGATED, AT THE SOLE DISCRETION AND ELECTION OF THE
LENDERS, IN COURTS HAVING SITUS IN HOUSTON, XXXXXX COUNTY, TEXAS. EACH OF THE
BORROWER AND PRUDENTIAL HEREBY SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE
OR FEDERAL COURT LOCATED IN HOUSTON, XXXXXX COUNTY, TEXAS, AND HEREBY
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WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF
ANY LITIGATION BROUGHT AGAINST IT BY THE LENDERS IN ACCORDANCE WITH THIS
SECTION.
3.11 ENTIRE AGREEMENT. THIS AGREEMENT CONSTITUTES THE ENTIRE
AGREEMENT AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND SHALL
SUPERSEDE ANY PRIOR AGREEMENT AMONG THE PARTIES HERETO, WHETHER WRITTEN OR ORAL,
RELATING TO THE SUBJECT HEREOF. THIS AGREEMENT AND THE OTHER WRITTEN LOAN
DOCUMENTS REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONG THE PARTIES THERETO
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG
SUCH PARTIES.
IN WITNESS WHEREOF, this Agreement is deemed executed effective as of
the date first above written.
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By:
-------------------------------------
Printed Name:
---------------------------
Title:
----------------------------------
MIDDLE BAY OIL COMPANY, INC.
By:
-------------------------------------
Xxxx X. Xxxxxxx
President
LENDER AND AGENT:
COMPASS BANK
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By:
-------------------------------------
Xxxxxxx Xxxxxxxx Xxxxxx
Senior Vice President
LENDER:
BANK OF OKLAHOMA, NATIONAL
ASSOCIATION
By:
-------------------------------------
Xxxxxxx X. Xxxxx
Senior Vice President
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