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Exhibit: 10.40FT
STOCK OPTION AND LOAN AGREEMENT
This Stock Option and Loan Agreement is made and entered into on the
date hereinafter set forth, by and between Xxxxxxxx X. Xxxxxx ("Lender") and
FUTECH EDUCATIONAL PRODUCTS, INC., an Arizona corporation (*Corporation").
RECITALS:
A. The corporation is a corporation organized and validly existing
under the laws of the State of Arizona and is authorized to issue up to a total
of seventy-five million shares of common capital stock without par value.
B. Lender has agreed to make a loan to corporation in the amount of
Three Hundred Fifty Thousand Dollars ($350,000.00) pursuant to the following
terms, which includes Lender's ability to convert all or any part of the loan
amount due Lender to shares of the Corporation's common stock.
AGREEMENT:
For valuable consideration, the parties hereby agree as follows:
1. RECITALS INCORPORATION. The Recitals set forth above are hereby
incorporated by reference.
2. PAYMENT. On or before 4/2/97, Leader shall loan to the
Corporation the sum of Three Hundred Fifty Thousand ($350,000.00). Upon receipt
of the funds, Corporation promises to pay to Lender the principal amount of
Three Hundred Fifty Thousand ($350,000.00) together with interest at the rate of
ten percent (10%) per annum from the date the funds are received until paid in
full. The loan must be paid in full no later than ninety (90) days after the
expiration of the Option Period plus interest. No payments of principal are due.
Quarterly interest payments are due within 15 days of the end of each calendar
quarter described as March 31, June 30, September 30 and December 31.
3. STOCK OPTION. In lieu of repayment of all or any part of the
outstanding principal and interest of the loan, at any time and from time to
time up until two years after the date the loan proceeds are received by
Corporation ("Option Period"), Lender may elect to receive up to a maximum
aggregate of Eight Hundred Forty thousand (840,000) shares ("Shares") of
Corporation common stock at the rate of 50/100 Dollars ($0.50) per share. Each
such Share the Lender elects to receive shall reduce the amount Corporation owes
Lender in like amount. For example, if Lender elects to receive 50,000 shares of
Corporation common stock at the rate of $0.50 per share, the outstanding balance
due Lender shall be reduced by $25,000 on the date the Shares are received by
Lender. In the event Lender does not exercise the option to acquire all Shares
at expiration of option period, then Lender will receive payment of the
outstanding principal loan balance if any. Upon receipt of the Shares, all
rights incidental thereto, including, but not limited to, voting rights, rights
to dividends and liquidation proceeds, shall pass unconditionally to Lender.
(a) The Corporation agrees that if further dilution from the currently
authorized 75 million shares of Corporation's common stock occurs, Lender will
be eligible to receive a proportionately higher number of shares equal to the
percentage increase in dilution. For example, if an additional 7.5 million
shares were authorized this would equal a further 10% dilution to the
shareholders. Lender would be eligible to convert his shares at Lender's current
maximum aggregate plus an additional 10% of the shares thereby keeping his
percentage of ownership equal.
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4. LEGEND. Any Shares acquired hereunder shall bear a conspicuous
legend stating that the Shares have not been registered under the Securities Act
of 1933, as amended ("Act"), and referring to certain restrictions on transfer
or encumbrance of the Shares.
5. REGISTRATION RIGHTS. The Corporation does not intend to file a
registration statement under the Act. Instead, the Corporation intends to
rely on the "private placement" exemption contained in Section 4(2) of the Act.
6. REPRESENTATIONS OF LENDER. Lender represents, warrants and covenants
as follows:
a. Lender is familiar with the business and affairs of the
Corporation and realizes an investment in the Shares involves a high degree of
risk.
b. Lender has been advised that there will be no public market
for the Shares, it may not be possible to readily liquidate his/her investment;
the shares have not been registered or qualified under Federal or State laws
governing the issuance of securities; and the Corporation has no intention of
registering the Shares or reporting under the Act or any comparable or related
Federal or State law.
c. Lender acknowledges that the issuance of stock hereunder is
a private transaction, and hereby waives all claim and causes of action of any
kind or nature relating to any subsequent assertion that this transaction is not
private.
d. Lender acknowledges that his/her overall commitment to
investments which are not readily marketable is not disproportionate to his/her
net worth, and his/her investment in the Shares will not cause such overall
commitment to become excessive; that Lender has adequate means of providing for
his/her current needs and personal contingencies, and has no need for liquidity
of this investment; that Lender has evaluated the risk of investing in the
Corporation; that Lender is aware of the financial risks and possible financial
hazards of purchasing the Shares and he/she has carefully considered these risks
and hazards; and that Lender is able to bear the economic risk of the
investment, including the possibility of a complete loss thereof
e. The Shares are being acquired solely for the purpose of
investment; are not being purchased for distribution, subdivision, sale or
fractionalization thereof to the public generally; Lend has no contract,
undertaking, agreement or arrangement with any person to sell, transfer or
pledge to anyone else the Shares or any part the Lender has no present plans to
enter into such contract, undertaking, agreement or arrangement, and Lender is
the sole party in interest of the Shares and as such is vested with all legal
and equitable rights in such shares.
f. Lender agrees the Corporation will restrict the
transferability of the Shares and will cause the certificate evidencing the
Shares to bear a legend stating such reasonable and agreed upon restrictions
against transfer. In this regard, Lender will notify the Corporation within
thirty days of any sale or transfer of the Shares and will cause the purchaser
to execute a Stock Agreement in form acceptable to Corporation prior to any sale
or transfer.
g. Lender acknowledges that all documents, records and books
pertaining to this investment have been made available for inspection by Lender,
his or her attorney, accountant and/or agent for purchase. Lender and/or his/her
representative have had the opportunity to ask questions of, and receive answers
from, the officers of the Corporation concerning the operation of the
Corporation's business, and to obtain any additional information which the
officers of the Corporation possess or can acquire without unreasonable effort
or expense which is necessary to verify the accuracy of the information
requested and given to Lender. Lender is purchasing the Shares without being
furnished any offering literature or prospectus.
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h. Lender acknowledges that he/she has obtained disclosure of
the financial information of the Corporation, that he/she is aware of the fact
that the debts of the Corporation currently exceed his/her investment, that
lawsuits have been threatened and commenced regarding alleged outstanding
liabilities.
i. Lender has been advised that this is a start-up corporation
in its early stages of development and marketing. Further, Lender has been
advised that he/she should retain an attorney to represent his/her individual
interest and provide proper counseling as to the risks and proper analysis of
the investment. Lender acknowledges that he/she is not relying on the law firm
of Ridenour, Swenson, Xxxxxx & Xxxxx, P.C. for advice or counsel in this matter
and that said law firm is merely documenting the acquisition of the Shares.
7. CONSTRUCTION. Where the context of this Agreement requires, the
singular shall be construed as masculine and feminine pronouns, and vice versa.
This Agreement shall be construed according to its fair meaning and neither for
nor against any party hereto.
8. GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its
rights or remedies under this Note without losing them. This Agreement has been
delivered to Lender and accepted by Lender in the State of Arizona. If there is
a lawsuit, both parties agree to submit to the jurisdiction of the courts of
Maricopa County, the State of Arizona. This Agreement shall be governed by and
construed in accordance with Arizona law. The prevailing party in any action to
enforce the terms of this Agreement shall be entitled to recover its reasonable
attorneys' fees and court costs.
DATED TO BE EFFECTIVE 4/2/97, 1997.
By: /s/ Xxxxxxxx X. Xxxxxx
Its:
Xxxxxxxx X. Xxxxxx
00 Xxxxxxxx Xxxxx Xxxx
Xxxxx Xxxxx XX 00000
"Lender"
FUTECH EDUCATIONAL PRODUCTS, INC.
an Arizona corporation
By: Xxxxxxx X. Xxxxx
Its: CEO
"Corporation"
Amendment
The Corporation agrees to inform Lender of all pending stock sales on a timely
basis from the date of execution of this Stock Option and Loan Agreement.
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Rod & Xxxxx
Outstanding Optional Option Shares Option Shares Interest Rod & Xxxxx
Loan Shares Exercised at $0.50 Received Cash Flow
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Opening Balance 350,000 840,000 -- -- -- (350,000)
1. End Year 1 Transaction 140,000 420,000 420,000 (210,000) 70,000 (350,000)
2. End Year 2 Transaction -- -- 420,000 (210,000) 70,000 (350,000)
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TOTAL - 840,000 SHARES AT $350,000 CASH COST OR $0.42 PER SHARE
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2a. End Year 2 40,000 0 200,000 (100,000) 70,000 (350,000)
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TOTALS - 620,000 SHARES AT $350,000 ($40,000)=$310,000 AT $0.50 PER SHARE
1. Presume 420,000 shares exercised at $0.50 year ending 1st year.
2. Presume 420,000 shares exercised at $0.50 year ending 2nd year.
2a. Presume 200,000 shares exercised at $0.50 year ending 2nd year.
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