SUBORDINATION AGREEMENT
EXHIBIT 10.26.1
THIS
SUBORDINATION AGREEMENT (this “Agreement”) is made and entered into effective this
29th day
of June, 2006, by and among PRIME OFFSHORE L.L.C. (the
“Borrower”). PRIMEENERGY
CORPORATION (the “Subordinated Party”) and
GUARANTY BANK, FSB, a federal savings bank (the
“Agent”
and a “Lender”).
W I T N E S S E T H:
WHEREAS, pursuant to that certain Credit Agreement dated June 29, 2006, by and between the
Borrower and the Agent and Lender (as such agreement may be amended, modified, supplemented or
restated from time to time, the “Credit Agreement”), the Lender has agreed to make Loans to or for
the benefit of the Borrower;
WHEREAS, Subordinated Party (“SP”) has advanced certain funds to the Borrower pursuant to a
Credit Agreement effective August 22, 2005 between Borrower and SP, with a Convertible Note in the
amount of $40,000,000 and has advanced approximately $32,000,000 as of the date of this Agreement
and may advance other funds to the Borrower subsequent to the date of this Agreement (all of which
are referred to as the “Debt”):
WHEREAS, pursuant to the Credit Agreement and as an inducement to the Lender to extend credit
to the Borrower under the Credit Agreement, SP and the Borrower have agreed to execute this
Agreement in favor of the Lender;
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,”
“Lender,” and “SP,” 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 Lender; provided, however, so long as
no Default or
Event of Default has occurred and is continuing for which the Lender has given written notice
of
such Default or Event of Default to the Borrower (a “Default
Notice”), and the payment of
interest and/or principal will not result in a Default or an Event of Default, the Borrower
may pay
interest and/or principal on the Debt. At any time following the occurrence and during the
continuance of any Default or Event of Default and provided that the Lender has given a
Default
Notice, SP 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
Default
or 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
Lender
to make Loans under the Credit Agreement shall have terminated. Notwithstanding the above, if
within one hundred eighty (180) days after the giving of such Default Notice by the Lender
such
Default or Event of Default has not become the subject of (a) judicial proceedings or (b) an
acceleration notice by the Lender, then the Borrower may, at its option (unless in such
interval
the provision of this Section 2.01 have again come into effect on account of any other Default
or
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
is
given and a period of one hundred eighty (180) days shall not have elapsed since the giving of
such Default Notice as contemplated above. If any direct or indirect payment or
distribution,
whether in cash or other Property, shall be received by SP 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 Lender for application to the Obligations until all Obligations shall
have been
paid in full.
2.02 SP 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 Lender shall first be entitled to receive payment in full (or to have such
payment duly provided for to its satisfaction) of the principal thereof and interest due on
the Obligations and other amounts due in connection therewith before SP is entitled to
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receive any payment on account of the principal of or interest on the Debt and SP
agrees not to contest any proceeding which allows such payment to the Lender in full even
if SP does not receive the full payment of 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 SP 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 Lender 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 Lender; and
(c) if, 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 SP 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 immediately paid over to the Lender
or
its 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 Lender.
2.03
Subordination of Remedies. So long as any Obligation remains outstanding or any
obligation of the Lender exists to make Loans under the Credit Agreement, SP shall not, without the
prior written consent of the Lender, declare any Debt due or in default or 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 SP provided for in any document or instrument executed
in connection with the Debt or by law, individually or with any other creditor of the Borrower
initiate or take any action in any bankruptcy, insolvency or receivership proceedings of the
Borrower or seek 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 SP 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 Lender for application to the Obligations until all Obligations shall have been paid in full.
2.04 Continuing Agreement. This Agreement shall continue in full force and effect and
the liabilities and obligations of the Borrower and SP 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 Lender upon the insolvency,
bankruptcy or reorganization of the Borrower or otherwise, all as though such payment had not been
made.
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2.05 Liability Not Impaired. The liabilities and obligations of the
Borrower and SP hereunder shall not be affected or impaired by (a) the failure of the Lender 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 Lender
may at any time and from time to time, without the consent of or notice to SP, and without
incurring any responsibility to SP, and without impairing or releasing or otherwise affecting any
of the obligations or agreements of SP 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 Lender, (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.
2.06 Waivers. SP waives any right to require the Lender 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 of the Lender. The liability and obligations of SP hereunder shall not be affected or
impaired by any action or inaction by the Lender in regard to any matter waived herein.
ARTICLE III
MISCELLANEOUS
3.01 Survival of Covenants and Agreements. All covenants and agreements of the
Borrower and SP 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 Lender
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, SP or the Lender shall be binding upon and inure to the benefit of the Borrower,
SP, or the Lender, 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, SP, and the Lender. 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
may be freely waived in whole or in part by the Lender at any time if in its 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
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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 Lender, its
officers or employees, nor any failure or delay by the Lender 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
Lender hereunder or under such Loan Document. The rights of the Lender 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. If 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 LENDER, IN COURTS HAVING
SITUS IN DALLAS, DALLAS COUNTY, TEXAS. EACH OF THE BORROWER AND SP HEREBY SUBMIT TO THE
JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED IN DALLAS, DALLAS COUNTY, TEXAS, AND
HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF ANY
LITIGATION BROUGHT AGAINST IT BY THE LENDER 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
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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 and may be executed in multiple counterparts, each deemed to be an original.
| BORROWER: PRIME OFFSHORE L.L.C. |
||||
| By: | /s/ Xxx X. Xxxxx | |||
| Xxx X. Xxxxx | ||||
| President and Chief Financial Officer | ||||
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| LENDER: GUARANTY BANK, FSB , AS AGENT |
||||
| By: | /s/ Xxxxx X. Xxxxxx, III | |||
| Xxxxx X. Xxxxxx, III | ||||
| Senior Vice President | ||||
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| SUBORDINATED PARTY: PRIMEENERGY CORPORATION |
||||
| By: | /s/ Xxxxxxx X. Xxxxxxxx | |||
| Xxxxxxx X. Xxxxxxxx | ||||
| Executive Vice President, Treasurer and Chief Financial Officer |
||||
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