Exhibit 10.7
SUBORDINATION AGREEMENT
This SUBORDINATION AGREEMENT ("Subordination Agreement") is made as of
January 28, 2005, by NATIONAL LAMPOON, INC., a Delaware corporation (hereinafter
called "Borrower"), and NATIONAL LAMPOON NETWORKS, INC., a Delaware corporation
(hereinafter called "Debtor"), in favor of X. XXXXXXXX FAMILY INVESTMENTS, L.P.,
an Arizona limited partnership (hereinafter called "Lender").
RECITALS
A. Debtor is indebted to Borrower, as successor by merger to J2
Communications, Inc., a California corporation, pursuant to that certain General
Security Agreement dated August, 2002 (the "Subordinate Security Agreement")
between Borrower and Debtor, as evidenced by that certain Demand Note in the
original principal amount of Two Hundred Thousand and No/100 Dollars
($200,000.00), made by Debtor payable to the order of Borrower, as successor by
merger to J2 Communications, Inc., a California corporation (the "Subordinate
Note").
B. Lender has agreed to extend credit (the "Loan") to Borrower to be
evidenced by that certain Secured Promissory Note of even date herewith in the
principal amount of Two Million Seven Hundred Thousand and No/100 Dollars
($2,700,000.00), by Borrower payable to the order of Lender (the "Senior Note"),
and secured by that certain Security Agreement of even date herewith by and
between Borrower, Debtor, and National Lampoon Tours, Inc., a California
corporation, as Grantors, and Lender, as Secured Party (the "Senior Security
Agreement").
C. It is a condition to the making of the Loan, that Borrower and
Debtor enter into this Subordination Agreement.
D. In order to induce Lender to enter into the Senior Security
Agreement, and to from time this time, or from time to time, at its option, make
loans or extend credit or other accommodations or benefits to or for the account
of Borrower, with or without security, or to purchase or extend credit upon any
instrument or writing in respect of which the Borrower may be liable in any
capacity in such manner and amount and upon terms and conditions as the Lender
may deem advisable, and in consideration of any such loan, renewal or extension
of credit which the Lender may make, the Borrower does hereby wholly
subordinate, as hereinafter provided, any and all present and future
indebtedness of Debtor to Borrower, absolute or contingent, and any instrument,
negotiable or otherwise, evidencing any such indebtedness, and all claims,
rights and remedies therefor, including, without limitation, the Subordinate
Security Agreement and the Subordinate Note (sometimes hereinafter referred to
as "Subordinated Indebtedness"), to any and all indebtedness of Borrower to
Lender, whether now existing or hereafter arising, direct or indirect, absolute
or contingent, joint and several, secured or unsecured, due or not due
(including, without limitation, all amounts due under the Senior Note, the
Senior Security Agreement, and any other documents, instruments, and agreements
executed in connection therewith), and whether arising directly between Borrower
and Lender, or acquired outright, conditionally or as collateral security from
another by the Lender, and any renewals, modifications or extensions thereof,
and any interest thereon, and all costs of collecting the same, including, but
not limited to attorneys' fees incurred by Lender (sometimes hereinafter
referred to as "Superior Indebtedness").
NOW THEREFORE, so long as Borrower is indebted to Lender on account of
Superior Indebtedness, the parties hereto undertake and agree as follows:
1. Subordinated Indebtedness shall, at all times and in all
respects, be wholly subordinate and inferior in claim and
right to the Superior Indebtedness, and all claims, rights and
remedies therefor are hereby subordinated and made subsequent
and inferior to the Superior Indebtedness and any claims,
rights and remedies arising out of, or in connection
therewith.
2. So long as no Event of Default (as defined in the Senior Note)
or event which with notice or lapse of time or both would
become an Event of Default has occurred and is continuing,
regularly scheduled payments of principal and interest on the
Subordinated Indebtedness may be made by Debtor and accepted
by Borrower as such payments become due.
3. During any period that an Event of Default, or an event which
with notice or lapse of time or both would become an Event of
Default, has occurred and is continuing, Debtor shall not make
and Borrower shall not accept any payments with respect to the
Subordinated Indebtedness.
4. In the event of any distribution, division, or application,
partial or complete, voluntary or involuntary, by operation of
law or otherwise, of all or any part of the assets of Debtor,
or the proceeds thereof, to creditors of Debtor, by reason of
the liquidation, dissolution, or other winding up of Debtor's
business, or in the event of any sale, receivership,
insolvency or bankruptcy proceedings by or against Debtor, or
assignment for the benefit of creditors, or of any proceedings
by or against Debtor for any relief under any bankruptcy or
insolvency laws, or relating to the relief of debtors,
readjustment of indebtedness, reorganizations, arrangements,
compositions or extensions, or of any other event whereby it
becomes necessary or desirable to file or present claims
against Debtor for the purpose of receiving payment thereof,
or on account thereof, then and in any such event, any payment
or distribution of any kind or character, either in cash or
other property, which shall be made or shall be payable with
respect to any Subordinated Indebtedness shall be paid over to
Lender for application to the payment of the Superior
Indebtedness, whether due or not due, and no payments shall be
made upon or in respect of Subordinated Indebtedness unless
and until the Superior Indebtedness shall have been paid and
satisfied in full. In any such event, all claims of the Lender
and all claims of the Borrower shall, at the option of the
Lender, forthwith become due and payable without demand or
notice.
5. In order to protect and enable Lender to enforce its rights
hereunder, or otherwise, Borrower hereby assigns to Lender all
of the Subordinated Indebtedness, and all of the claims of
Borrower against Debtor subordinated hereby, together with any
security interest of Borrower securing the payment of
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Subordinated Indebtedness. Lender shall not be under any duty
to take any action in connection with any of said instruments
delivered or claims or security therefor assigned to it, and
shall not be responsible in any respect in connection
therewith for action it may take or refrain from taking, or
otherwise, except for willful malfeasance.
6. Borrower irrevocably authorizes and empowers Lender, or any
person Lender may designate, to act as attorney for Borrower
with full power and authority in the name of Borrower, or
otherwise, to make and present such claims or proofs of claims
against Debtor on account of the Subordinated Indebtedness as
Lender, or its appointee, may deem expedient and proper and,
if necessary, to vote such claims in any proceedings and to
receive and collect any and all dividends or other payments
and disbursements made thereon in whatever form they may be
paid or issued, and to give acquittance therefor and to apply
same to the Superior Indebtedness, and Borrower hereby agrees,
from time to time and upon request, to make, execute and
deliver to Lender such powers of attorney, assignments,
endorsements, proofs of claim, pleadings, verifications,
affidavits, consents, agreements or other instruments as may
be requested by Lender in order to enable the Lender to
enforce any and all claims upon, or with respect to, the
Subordinated Indebtedness, and to collect and receive any and
all payments or distributions which may be payable or
deliverable at any time upon or with respect to the
Subordinated Indebtedness.
7. Should any payment or distribution or security or proceeds
thereof, other than the payments of principal and interest
permitted pursuant to Paragraph 2 hereof, be received by
Borrower upon or with respect to the Subordinated Indebtedness
prior to the satisfaction of the Superior Indebtedness,
Borrower will forthwith deliver the same to Lender in
precisely the form as received except for the endorsement or
assignment of Borrower where necessary for application on the
Superior Indebtedness, whether due or not due, and until so
delivered the same shall be held in trust by Borrower as
property of the Lender. In the event of the failure of
Borrower to make any such endorsement or assignment, the
Lender, or any of its officers or employees, on behalf of the
Lender, is hereby irrevocably authorized to make the same.
8. No renewal, modification or extension of time of payment of
the Superior Indebtedness, and no release or surrender of any
security for the Superior Indebtedness, or the obligations of
any endorsers, sureties or guarantors thereof, or release from
the terms of this or any other subordination agreement of any
claims subordinated, and no delay or omission in exercising
any right or power on account of or in connection with the
Superior Indebtedness, or under this Subordination Agreement,
shall, in any manner, impair or affect the rights and duties
of Lender, Debtor, and Borrower. Lender, in its uncontrolled
discretion, may waive or release any right or option under
this Subordination Agreement without the consent of Borrower
or Debtor, and without otherwise in any way affecting the
obligations of Borrower and Debtor hereunder. Debtor hereby
waives notice of the creation, existence, renewal, or
modification or extension of the time of payment, of the
Superior Indebtedness.
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9. The Debtor and Borrower agree to make and maintain in their
books of account notations satisfactory to Lender of the
rights and priorities of Lender hereunder, and from time to
time, upon request, to furnish Lender with financial
statements certified by the chief financial officer. Lender
may inspect the books of account and any records of the
Borrower and Debtor at any time during business hours. Upon
the request of Lender, Borrower and Debtor agree to cause all
Subordinated Indebtedness to be evidenced by the note or notes
of Borrower with such maturity date or dates as Lender may
request. Such note or notes, together with any previously
existing notes or other instruments evidencing Subordinated
Indebtedness, shall be delivered to Lender and, at the option
of Lender, may be held by Lender or returned to Borrower
marked with a specific statement that the indebtedness thereby
evidenced is subject to the provisions of this Subordination
Agreement.
10. This Subordination Agreement shall be a continuing agreement
and Lender may continue, without notice to Borrower or Debtor,
to lend monies, extend credit and make other accommodations to
or for the account of Borrower on the faith hereof and until a
written revocation, signed by Borrower, is received by Lender.
Such revocation, however, shall not affect this Subordination
Agreement with respect to any obligations or liabilities of
Borrower then existing in connection with Superior
Indebtedness and, as to such obligations and liabilities, such
revocation shall not become effective unless and until such
obligations and liabilities of Borrower to Lender shall have
been paid in full. If Debtor or Borrower is a partnership, no
change in the respective partnership shall affect the terms
hereof.
11. Borrower and Debtor agree that Lender, at any time and from
time to time, either before or after any such notice of
revocation, may enter into such agreement or agreements with
Borrower, as Lender may deem proper, extending the time of
payment or renewing or otherwise altering the terms of all or
any of the obligations of Borrower to Lender, or affecting any
security underlying any or all of such obligations, or may
exchange, sell or surrender or otherwise deal with any such
security, or may release any balance of funds of Borrower with
Lender, without notice to Borrower or Debtor and without in
any way impairing or affecting this Subordination Agreement.
12. Borrower and Debtor consent and agree that all Superior
Indebtedness shall be deemed to have been made or incurred at
the request of Borrower and Debtor and in reliance upon this
Subordination Agreement.
13. No waiver shall be deemed to be made by Lender of any of its
rights hereunder unless the same shall be in writing signed on
behalf of the Lender, and each such waiver, if any, shall be a
waiver only with respect to the specific matter or matters to
which the waiver relates and shall in no way impair the rights
of the Lender or the obligations of Borrower or Debtor to
Lender in any other respect at any other time.
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14. This Subordination Agreement shall inure to the benefit of
Lender and the successors and assigns of Lender, and any
financing institution joining in making said loan(s) or
extending said line(s) of credit, or committing itself to make
any advances in connection therewith, or which may now, or
hereafter, participate therein. Notice of acceptance of this
Subordination Agreement is hereby waived and this
Subordination Agreement shall be binding upon the Borrower and
Debtor, their respective heirs, personal representatives,
successors and assigns, as the case may be, it being
understood, however, that no assignment of the Subordinated
Indebtedness due Borrower from Debtor, or any part thereof,
shall be made to one not a party hereto without the written
consent of the Lender first had and obtained, as hereinabove
provided.
15. Borrower agrees not to commence or join with any other
creditor of Debtor in commencing any bankruptcy,
reorganization or insolvency proceedings against Debtor.
16. This Subordination Agreement shall be deemed to have been
executed, delivered and performed in California, and construed
according to the laws of the State of California. Debtor and
Borrower waive notice of acceptance hereof and all other
notices or demands whatsoever.
17. In the event of a breach of any covenant or agreement made
herein by either Debtor or Borrower, Lender may, at its
option, declare all of the Superior Indebtedness and/or
Subordinated Indebtedness immediately due and payable.
18. The words "Debtor" and "Borrower" as herein used shall include
the plural as well as the singular and, if Debtor or Borrower
includes two (2) or more, they shall be jointly and severally
bound hereby.
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IN WITNESS WHEREOF, this Subordination Agreement has been duly executed
as of the date first written above.
NATIONAL LAMPOON, INC., a Delaware
corporation
By:
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Name:
---------------------------------
Title:
--------------------------------
"Borrower"
NATIONAL LAMPOON NETWORKS, INC., a
Delaware corporation
By:
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Name:
---------------------------------
Title:
--------------------------------
"Debtor"
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