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Exhibit: 10.61FT
SUBORDINATION, PRIORITY
AND
SECURITY AGREEMENT
THIS AGREEMENT is made as of December 3, 1998, by and among Futech
Interactive Products, Inc., an Arizona corporation ("Futech"), Vincent W. Goett
("Goett"), and F. Keith Withycombe and Patricia A. Withycombe, husband and wife
("Withycombe").
R E C I T A L S:
A. Bank of America ("Lender") and Futech entered into a loan dated
December 3, 1998 (the "Financing Agreement").
B. Goett and Withycombe executed a Guaranty, dated December 3, 1998
(the "Guaranty"), in favor of Lender in connection with the Financing Agreement.
Goett and Withycombe are sometimes hereinafter collectively referred to as the
"Guarantors." In the Guaranty, the Guarantors guaranteed certain debts of Futech
owing to Lender.
C. The parties hereto desire to set out in writing their agreement
regarding the Guaranty, the Financing Agreement, and certain related matters.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
T E R M S:
1. FUTECH'S OBLIGATION: SECURITY AGREEMENT. Futech hereby agrees to
indemnify, defend and hold Guarantors harmless from and against any and all
claims, of any type or nature, including but not limited to attorneys' fees and
costs, incurred by Guarantors in connection with the Guaranty.
As collateral security for said obligation, Futech hereby grants to
each Guarantor a security interest in any and all assets now owned or hereafter
acquired by Futech. In the event of default by Futech of its obligations under
this Section, Guarantors shall have all rights with respect to such collateral
as are available to a secured party under the Uniform Commercial Code in the
State of Arizona, or in any other state as necessary or appropriate in
connection with the collateral held, as the same may from time to time be
changed. Futech agrees to execute and deliver to Guarantors and pay the costs of
filing and/or recording financing statements evidencing this security agreement,
and any other documents necessary or appropriate to perfect this security
interest.
2. PRIORITY. Notwithstanding any other provision of this Agreement, or
any other document to which the parties hereto are bound, the parties agree that
the following priority shall apply to the security interests described below
encumbering Futech's assets, as of the date of this Agreement:
(a) The first priority shall be the lien of Lender.
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(b) The second priority shall be the liens of Guarantors
described herein. Proceeds to the Guarantors shall be paid to and shared between
the Guarantors in proportion to the amounts paid by the Guarantors on the
guaranteed debt. For example, if Goett pays $200,000.00 on the Guaranty and
Withycombe pays $100,000.00 on the Guaranty, then amounts collected by
Guarantors in reimbursement of obligations paid under the Guaranty shall be for
the benefit of Goett and Withycombe 2/3 and 1/3, respectively, until the full
$300,000.00 is repaid to Guarantors.
(c) The third priority shall be for other security interests
of Goett against Futech's assets existing as of the date of this Agreement.
Each party to this Agreement hereby unconditionally subordinates said
party's lien to the other liens identified above as being prior to said lien, to
the extent necessary to accomplish the priority of liens as described above.
3. EQUAL CONTRIBUTIONS BY GUARANTORS. Guarantors hereby agree that
should either Guarantor be obligated to pay any amount or incur any expense in
connection with the Guaranty, then the Guarantors shall share equally in payment
of said amount, including but not limited to attorneys' fees and costs.
4. WARRANTS.
(a) Withycombe-$6,000,000 Working Capital Loan. As part of the
consideration for Withycombe executing that portion of the Guaranty relating to
the $6,000,000.00 working capital loan, effective immediately and automatically
upon execution by Withycombe of the Guaranty, Futech shall be obligated to issue
to Withycombe, as soon as is practicable, warrants in the form of Exhibit "A"
attached hereto and hereby made a part hereof, for Withycombe to acquire
18,000,000 shares of common stock of Futech at a price of $.05 per share. The
common stock acquired by Withycombe under this provision shall contain all of
the rights and restrictions applicable to the common stock of Futech. Futech
makes and has made no representation or warranty as to the value of Futech's
stock, such value being Withycombe's risk.
(b) Goett-$6,000,000 Working Capital Loan. As part of the
consideration for Goett executing that portion of the Guaranty relating to the
$6,000,000.00 working capital loan, effective immediately and automatically upon
execution by Goett of the Guaranty, Futech shall be obligated to issue to Goett,
as soon as is practicable, warrants in the form of Exhibit "A" attached hereto
and hereby made a part hereof, for Goett to acquire 18,000,000 shares of common
stock of Futech at a price of $.05 per share. The common stock acquired by Goett
under this provision shall contain all of the rights and restrictions applicable
to the common stock of Futech. Futech makes and has made no representation or
warranty as to the value of Futech's stock, such value being Goett's risk.
(c) Withycombe-$1,000,000 Letters of Credit. As part of the
consideration for Withycombe executing that portion of the Guaranty relating to
the issuance of documentary letters of credit, effective immediately and
automatically upon execution by Withycombe of the Guaranty, Futech shall be
obligated to issue to Withycombe, as soon as is practicable, warrants in the
form of Exhibit "A" attached hereto and hereby made a part hereof, for
Withycombe to acquire 3,000,000 shares of common stock of Futech at a price of
$.05 per share. The common stock acquired by Withycombe under this provision
shall contain all of the rights and restrictions applicable to the
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common stock of Futech. Futech makes and has made no representation or warranty
as to the value of Futech's stock, such value being Withycombe's risk.
(d) Goett-$1,000,000 Letters of Credit. As part of the
consideration for Goett executing that portion of the Guaranty relating to the
issuance of documentary letters of credit, effective immediately and
automatically upon execution by Goett of the Guaranty, Futech shall be obligated
to issue to Goett, as soon as is practicable, warrants in the form of Exhibit
"A" attached hereto and hereby made a part hereof, for Goett to acquire
3,000,000 shares of common stock of Futech at a price of $.05 per share. The
common stock acquired by Goett under this provision shall contain all of the
rights and restrictions applicable to the common stock of Futech. Futech makes
and has made no representation or warranty as to the value of Futech's stock,
such value being Goett's risk.
(e) Rosepink-Facilitation Fee. As the consideration for
Robert Rosepink ("Rosepink") facilitating the Bank of America loan transaction,
effective immediately and automatically at the closing of the Bank of America
loan transaction, Futech shall be obligated to issue to Rosepink, as soon as is
practicable, warrants in the form of Exhibit "A" attached hereto and hereby made
a part hereof, for Rosepink to acquire 4,000,000 shares of common stock of
Futech at a price of $.05 per share. The common stock acquired by Rosepink under
this provision shall contain all of the rights and restrictions applicable to
the common stock of Futech. Futech makes and has made no representation or
warranty as to the value of Futech's stock, such value being Rosepink's risk.
(f) Withycombe-Representations and Warranties. Withycombe
hereby makes the representations and warranties set out on Exhibit "B" attached
hereto and hereby made a part hereof. On said Exhibit "B," Withycombe is
referred as the "Subscriber," Futech is referred to as the "Company," and the
warrants described herein and the Futech stock to be acquired by Withycombe
under this Agreement are referred to as the "Shares."
Withycombe acknowledges and understands the meaning and legal
consequences of the representations and warranties contained herein and agrees
to indemnify and defend and hold harmless Futech, and Futech's directors,
officers, agents, employees and attorneys, from and against any and all claims,
loss, damage, liability, cost or expense, including attorneys' fees and courts
costs, due to or arising out of or connected directly or indirectly with or to
any breach of any such representation or warranty made by Withycombe.
Withycombe's representations and warranties appearing herein
are made as of the date hereof and as of the date of exercise of the warrants.
Withycombe's act of exercising the warrants shall constitute Withycombe's
confirmation of the representations and warranties appearing herein as of the
date of the exercise.
(g) Goett-Representations and Warranties. Goett hereby makes
the representations and warranties set out on Exhibit "B" attached hereto and
hereby made a part hereof. On said Exhibit "B," Goett is referred as the
"Subscriber," Futech is referred to as the "Company," and the warrants described
herein and the Futech stock to be acquired by Goett under this Agreement are
referred to as the "Shares."
Goett acknowledges and understands the meaning and legal
consequences of the representations and warranties contained herein and agrees
to indemnify and defend and hold
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harmless Futech, and Futech's directors, officers, agents, employees and
attorneys, from and against any and all claims, loss, damage, liability, cost or
expense, including attorneys' fees and courts costs, due to or arising out of or
connected directly or indirectly with or to any breach of any such
representation or warranty made by Goett.
Goett's representations and warranties appearing herein are
made as of the date hereof and as of the date of exercise of the warrants.
Goett's act of exercising the warrants shall constitute Goett's confirmation of
the representations and warranties appearing herein as of the date of the
exercise.
5. DIRECTOR'S SEAT. Simultaneously with the execution of this
Agreement, Futech will deliver to Withycombe a Voting Agreement in the form of
Exhibit "C" attached hereto and hereby made a part hereof.
6. MISCELLANEOUS. This Agreement constitutes the entire understanding
and agreement of the parties as to the matters set forth in this Agreement. No
alteration or amendment of this Agreement shall be effective unless made in
writing and signed by all of the parties hereto. If arbitration or other legal
action is instituted under this Agreement, then the prevailing party in such
action shall be entitled to recover from the other party(s) to the action
reasonable attorneys' fees and costs. The titles and headings of the Sections of
this Agreement are for the convenience of reference only, and shall not affect a
construction of any provision of this Agreement. There are no oral promises,
conditions, representations, understandings, interpretations, or terms of any
kind as conditions or inducements to the execution hereof, or otherwise in
effect among the parties, except as may otherwise expressly be provided for
herein. If any provision of this Agreement shall be held to any extent to be
invalid or unenforceable, then the remaining terms and conditions of this
Agreement shall be valid and shall be enforceable to the fullest extent
permitted by law. The courts of the State of Arizona shall have the sole and
exclusive jurisdiction and venue in any case or controversy arising under this
Agreement or by reason of this Agreement. The parties agree that any litigation
or arbitration arising from the interpretation or enforcement of this Agreement
shall be only in either Maricopa County Superior Court or in the United States
Federal District Court for the District of Arizona, and for this purpose each
party to this Agreement (and each person who shall become a party) hereby
expressly and irrevocably consents to the jurisdiction and venue of such courts.
This Agreement may be executed by the parties in one or more counterparts, and
any number of counterparts signed in the aggregate by the parties shall
constitute a single instrument. The parties authorize and agree to accept
facsimile signatures in counterparts to this Agreement, and that said facsimile
signatures shall for all purposes be binding upon the parties as if the same
were original signatures. Any modification or waiver of any term of this
Agreement, including a modification or waiver of this term, must be in writing
and signed by the party(s) to be bound by the modification or waiver. Any rule
of construction to the effect that ambiguities are to be resolved against the
drafting party shall not apply to the interpretation of this Agreement or any
amendment hereto. This Agreement has been reached by negotiation and shall
therefore not be construed against the drafting party. No waiver of any
agreement or provision contained herein shall be deemed a waiver of any
preceding or succeeding breach thereof or of any other agreement or provision
herein contained.
DATED the date first hereinabove written.
FUTECH: Futech Interactive Products, Inc.,
an Arizona corporation
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BY: /s/ Vincent W. Goett
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Vincent W. Goett, CEO
GOETT: /s/ Vincent W. Goett
-----------------------------------
Vincent W. Goett
WITHYCOMBE: /s/ F. Keith Withycombe
-----------------------------------
F. Keith Withycombe
/s/ Patricia A. Withycombe
-----------------------------------
Patricia A. Withycombe
Rosepink Representations and Warranties:
Rosepink hereby makes the representations and warranties set out on
Exhibit "B" attached hereto and hereby made a part hereof. On said Exhibit "B,"
Rosepink is referred as the "Subscriber," Futech is referred to as the
"Company," and the warrants described herein and the Futech stock to be acquired
by Rosepink under this Agreement are referred to as the "Shares."
Rosepink acknowledges and understands the meaning and legal
consequences of the representations and warranties contained herein and agrees
to indemnify and defend and hold harmless Futech, and Futech's directors,
officers, agents, employees and attorneys, from and against any and all claims,
loss, damage, liability, cost or expense, including attorneys' fees and courts
costs, due to or arising out of or connected directly or indirectly with or to
any breach of any such representation or warranty made by Rosepink.
Rosepink's representations and warranties appearing herein are made as
of the date hereof and as of the date of exercise of the warrants. Rosepink's
act of exercising the warrants shall constitute Rosepink's confirmation of the
representations and warranties appearing herein as of the date of the exercise.
/s/ Robert J. Rosepink
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Robert J. Rosepink
List of Exhibits
Form of Warrant "A"
Representations and Warranties "B"
Voting Agreement "C"
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EXHIBIT "B"
Subscriber hereby represents, warrants and acknowledges to the
Company as follows:
1. The Shares will be acquired by Subscriber for Subscriber's own
account and not with the view to, or for resale in connection with, any
distribution, public offering or transfer thereof within the meaning of the
Securities Act of 1933, as amended (the "1933 Act"), and Subscriber is not,
directly or indirectly, participating in an underwriting of any such
distribution, offering, or transfer.
2. Subscriber understands that the Shares have not been registered
under the 1933 Act by reason of issuance in transactions exempt from the
registration and prospectus delivery requirements of the 1933 Act pursuant to
Section 4(2) thereof.
3. Subscriber understands that the Shares have not been registered
under the 1933 Act or any state securities laws, that they are "restricted
securities" in the hands of Subscriber with the meaning of the Act, and that any
future sale of the Shares will be regulated by the Act and applicable state
securities laws. Subscriber understands that the Shares may not be sold,
transferred or otherwise disposed of without registration under the 1933 Act or
an exemption therefrom, and that in the absence of an effective registration
statement covering the Shares, or an available exemption from registration under
the 1933 Act, the Shares must be held indefinitely.
4. Subscriber will not sell or otherwise transfer or dispose of any of
the Shares: (A) except in strict compliance with (1) the provisions of the
Agreement to which this Exhibit is attached, and (2) the restrictions on
transfer described herein, and (B) unless such securities are (X) registered
under the 1933 Act, and any applicable state securities laws, or (Y) Subscriber
represents that such securities may be sold in reliance on an exemption from
such registration requirements.
5. No federal or state agency, including the Securities and Exchange
Commission or the securities regulatory agency of any state, has approved or
disapproved the Shares, passed upon or endorsed the merits of the Shares, or
made any finding or determination as to the fairness of the Shares for private
investment.
6. The investment in the Shares is being made in reliance on specific
exemptions from the registration requirements of federal and state securities
laws, and the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgements and understandings set
forth herein in order to establish such exemptions.
7. Subscriber agrees to deliver to the Company, if requested by the
Company, an investment letter in customary form.
8. Based on personal knowledge and experience in financial and business
matters in general, Subscriber understands the nature of this investment, is
fully aware of
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and familiar with the business operations of the Company, and is able to
evaluate the merits and risks of an investments in the Shares.
9. Subscriber has been given the opportunity to ask questions about the
Company and has been granted access to all information, financial and otherwise,
with respect to the Company which has been requested, has examined such
information, and is satisfied with respect to the same.
10. Subscriber has been encouraged to rely upon the advice of
Subscriber's legal counsel and accountants or other financial advisors with
respect to the tax and other considerations relating to the acquisition of the
Shares.
11. Subscriber, in determining to acquire the Shares, has relied solely
upon: (A) the advice of Subscriber's legal counsel and accountants or other
financial advisers with respect to the tax, economic and other consequences
involved in acquiring the Shares, and (B) Subscriber's own independent
evaluation of the business, operations and prospects of the Company and the
merits and risks of the acquisition of the Shares.
12. Subscriber has been advised and understands that this investment
is, by its nature, very speculative.
13. Subscriber has sufficient income and net worth such that Subscriber
does not contemplate being required to dispose of any portion of the investment
in the Shares to satisfy any existing or expected undertaking or indebtedness.
Subscriber is able to bear the economic risks of an investment in the Shares,
including, without limiting the generality of the foregoing, the risk of losing
all or any part of the investment and probable inability to sell or transfer the
Shares for an indefinite period of time.
14. Subscriber is an "accredited investor" within the meaning of Rule
501 of Regulation D promulgated by the Securities and Exchange Commission, as
presently in effect.
15. The investment in the Shares has been privately proposed to
Subscriber without the use of general solicitation or advertising.
16. Subscriber understands that the certificates representing the
Shares may bear restrictive legends as to the restricted nature of such
securities and may bear a legend substantially in the following form, and agrees
to will hold the Shares subject thereto:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY PORTION HEREOF OR
INTEREST HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF UNLESS THE SAME IS REGISTERED UNDER SAID ACT AND
APPLICABLE STATE
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SECURITIES LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE AND THE COMPANY SHALL HAVE RECEIVED, AT THE EXPENSE OF THE
HOLDER HEREOF, EVIDENCE OF SUCH EXEMPTION REASONABLY SATISFACTORY TO
THE COMPANY (WHICH MAY INCLUDE, AMONG OTHER THINGS, AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY).
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