EXHIBIT 10.38
LOAN AGREEMENT DATED JANUARY 2, 1998 AND
FIRST AMENDMENT THERETO DATED JANUARY 31, 1998
BETWEEN THE COMPANY AND MPII, A TEXAS CORPORATION
LOAN AGREEMENT
This loan agreement ("Agreement") is entered into as of January 2, 1998 by
and between ONTRO, INC., a California corporation ("Borrower"), and MPII, a
Texas corporation, ("Lender"). Borrower and Lender agree as follows:
ARTICLE ONE
LOAN ADVANCE
1.1 Lender hereby lends to Borrower the sum of Four Hundred Thousand
Dollars ($400,000), (the "Loan").
1.2 NOTE. The Loan shall be evidenced by a promissory note (the "Note")
(a copy of which is attached as Exhibit "A") executed by Borrower, dated as of
the date the Loan is made, providing for the payment of interest at ten and one
half percent (101/2%) per annum, or the highest rate allowed by California law
whichever is less, compounded annually, and computed on the basis of a 365-day
year and actual days elapsed, without payments and with interest accruing until
the earlier to occur of: (i) five (5) business days from Borrowers completion of
the initial public offering of its common stock; or (ii) February 28, 1998
("Maturity Date"), at which time all then unpaid principal and accrued interest
shall be due and payable.
ARTICLE TWO
CONDITIONS PRECEDENT TO LENDER'S OBLIGATIONS
Lender's obligation to disburse the Loan is subject to the condition that,
on the date of disbursement (Closing Date), there shall have been delivered to
Lender, in form and substance satisfactory to Lender and its counsel:
2.1 AUTHORIZATION TO BORROW. A copy of a resolution or resolutions, in
form and substance satisfactory to Lender, passed by the board of directors of
Borrower, authorizing the borrowing provided for in this Agreement, and the
execution, delivery, and performance of this Agreement and the Note or other
instrument or agreement required under this Agreement.
2.2 NOTE. The Note substantially in the form attached hereto as Exhibit
A, fully executed by the President of the Borrower.
2.3 INCUMBENCY CERTIFICATE. A certificate, signed by the secretary or an
assistant secretary of Borrower and dated the Closing Date, certifying the
incumbency of the person or persons authorized to execute and deliver on behalf
of Borrower this Agreement and the Note or other instrument or agreement
required under this Agreement.
ARTICLE THREE
REPRESENTATIONS OF THE BORROWER
Borrower represents and warrants that:
3.1 ORGANIZATION. Borrower is a corporation duly organized and existing
under the laws of the State of California with its principal place of business
at 00000 Xxxxxxxxx Xxxxx, Xxxxx 000, Xxxxx, Xxxxxxxxxx 00000. It has the power
to own its property and to carry on its business as it is now being conducted.
It is duly qualified and authorized to do business and is in good standing in
every state, country, or other jurisdiction in which the nature of its business
and properties makes such qualification necessary;
3.2 SUBSIDIARIES AND AFFILIATES. Borrower does not own or control,
directly or indirectly, any interest or investment (whether equity or debt) in
any corporation, association, partnership, business, trust or other entity;
3.3 AUTHORITY. Borrower has full power and authority (corporate and
other) to borrow the sums provided for in this Agreement, to execute and deliver
this Agreement, to issue the Note and any other instrument or agreement required
under this Agreement, and to perform and observe the terms and provisions of
this Agreement and of all such other notes, instruments, and agreements;
3.4 CORPORATE ACTION. All corporate action by Borrower, its directors or
stockholders, necessary for the authorization, execution, delivery, and
performance of this Agreement, issuance of the Note and any other instrument or
agreement required under this Agreement has been duly taken;
3.5 INCUMBENCY AND AUTHORITY OF SIGNATORS. The officers of Borrower
executing this Agreement, the Note and any other instrument or agreement
required under this Agreement are duly and properly in office and fully
authorized to execute them;
3.6 DUE AND VALID EXECUTION. This Agreement has been duly authorized,
executed, and delivered by Borrower, and is a legal, valid, and binding
agreement of Borrower, enforceable against it in accordance with its terms and
the Note and any other instrument or agreement required under this Agreement has
been so authorized and, when executed and delivered, will be similarly valid,
binding, and enforceable;
3.7 NO VIOLATION. There is no charter, bylaw, or capital stock provision
of Borrower, and no provision of any indenture or agreement, written or oral, to
which Borrower is a party or under which Borrower is obligated, nor is there any
statute, rule, or regulation, or any judgment, decree,
or order of any court or agency binding on Borrower which would be
contravened by the execution and delivery of this Agreement, the Note or any
other instrument or agreement required under this Agreement, or by the
performance of any provision, condition, covenant, or other term of this
Agreement, the Note or any such other instrument or agreement;
3.8 LITIGATION PENDING. There is no litigation, tax claim, proceeding, or
dispute, pending, or, to the knowledge of Borrower, threatened, against or
affecting Borrower or its property, the adverse determination of which might
affect Borrower's financial condition or operations or impair Borrower's ability
to perform its obligations under this Agreement or under the Note or any other
instrument or agreement required by this Agreement;
3.9 EVENTS FOR DEFAULT. No event has occurred and is continuing or would
result from the making of the Loan which constitutes an Event of Default as
defined herein or which, on the lapse of time or notice or both, would become
such an Event of Default; and
3.10 All financial statements, as well as all other information, and data
furnished by Borrower to Lender are correct, and accurately and fairly represent
the financial condition and results of operations of Borrower as of that date.
Since that date there has been no material adverse change in Borrower's
financial condition or results of operations sufficient to impact Borrower's
ability to repay the Loan in accordance with the terms of this Agreement.
Borrower has no contingent obligations, liabilities for taxes, or other
outstanding financial obligations which are material in the aggregate, except as
disclosed in such statements, information, and data.
ARTICLE FOUR
REPRESENTATIONS OF LENDER
This Agreement is made with Lender in reliance upon Lender's
representations and warranties to the Company, which by Lender's execution of
this Agreement Lender hereby confirms that:
4.1 AUTHORIZATION. Lender is a Texas corporation, in good standing and
with full authority to make the loan referenced herein. This Agreement
constitutes Lender's valid and legally binding obligation, enforceable in
accordance with its terms.
4.2 INVESTMENT INTENT. The Note to be received by Lender will be acquired
for investment for Lender's or its designee's, own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that Lender has no present intention of selling, granting any participation
in, or otherwise distributing the same. By executing this Agreement, Lender
further represents that Lender and all of its officers, directors, shareholders,
employees, and affiliates do not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participation to such
person or to any third person with respect to the Note, or any other security of
the Borrower, and no other affiliation or agreement with the Lender, and all of
its officers, directors, shareholder, employees, and affiliates have no other
contractual or business agreement
with the Borrower or any of its affiliates or with Xxxxxx Xxxxxxx and
Associates, Inc. or any of its affiliates with regard to this transaction or
the Lender.
4.3 DISCLOSURE OF INFORMATION. Lender believes it has received all the
information it considers necessary or appropriate for deciding whether to
acquire the Note. Lender further represents that it has had an opportunity to
ask questions and receive answers from officers of the Company regarding the
Company, its business and the terms and conditions of the Note.
4.4 CONFIDENTIALITY. Lender hereby represents, warrants and covenants
that it shall maintain in confidence, and shall not use or disclose without the
prior written consent of the Company, any information identified as confidential
that is furnished to him by the Company in connection with this Agreement. This
obligation of confidentiality shall not apply, however, to any information (a)
in the public domain through no unauthorized act or failure to act by Lender, or
(b) lawfully disclosed to Lender by a third party who possessed such information
without any obligation of confidentiality. Lender further covenants that it
shall return to the Company all tangible materials containing such information
upon request by the Company.
4.5 INVESTMENT EXPERIENCE. Lender is an Lender in securities of
companies in the development stage and acknowledges it is able to fend for
itself, can bear the economic risk and complete loss of its investment and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Note.
4.6 RESTRICTED SECURITIES. Lender understands the Note it is acquiring is
characterized as "restricted securities" under the federal securities laws in as
much as it is being acquired from the Company in a transaction not involving a
public offering and that under such laws and applicable regulations such
securities may be resold without registration under the Securities Act of 1933,
as amended (the "Securities Act"), only in certain limited circumstances.
4.7 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting the
representations set forth above, Lender further agrees not to make any
assignment, transfer or disposition of all or any portion of the Note unless and
until:
4.7.1 There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
4.7.2 (i) Lender shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition and (ii) Lender shall
have the furnished the Company with an opinion of counsel, that such disposition
will not require registration of such shares under the Securities Act.
4.8 LEGENDS. It is understood the Note may bear one or all of the
following legends:
4.8.1 "These securities have not been registered under the
Securities Act of 1933. They may not be sold, offered for sale, pledged or
hypothecated in the absence of a registration statement in effect with respect
to the securities under such Act or an opinion of counsel satisfactory to the
Company that such registration is not required or unless sold pursuant to Rule
144 of such Act."
4.8.2 Any legend required by the laws of the State of California
or other jurisdiction, including any legend required by the California
Department of Corporations and section 417 and 418 of the California
Corporations Code.
4.9 ACCREDITED INVESTOR. Lender is an accredited investor as defined in
CFR Section 230. 501(a) (Regulation D), as amended, of the SEC under the
Securities Act.
4.10 REMOVAL OF LEGENDS; FURTHER COVENANTS.
4.10.1 Any legend endorsed on a certificate pursuant to
Section 4.8 hereof shall be removed (i) if the Note shall have been effectively
registered under the Securities Act or otherwise lawfully sold in a public
transaction, (ii) if the Note may be transferred in compliance with Rule 144(k)
promulgated under the Securities Act, or (iii) if Lender shall have provided the
Company with an opinion of counsel, in form and substance acceptable to the
Company and its counsel and from attorneys reasonably acceptable to the Company
and its counsel, stating that a public sale, transfer or assignment of the Note
may be made without registration.
4.10.2 Any legend endorsed upon the Note pursuant to Section 4.8
hereof shall be removed if the Company receives an order of the appropriate
state authority authorizing such removal or if Lender provides the Company with
an opinion of counsel, in form and substance acceptable to the Company and its
counsel and from attorneys reasonably acceptable to the Company and its counsel,
stating that such state legend may be removed.
4.10.3 Lender further covenants that Lender will not transfer
the Note in violation of the Securities Act, the Securities and Exchange Act of
1934, as amended (the "Exchange Act"), or the rules of the Commission
promulgated thereunder, including Rule 144 under the Securities Act.
4.11 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE NOTE WHICH IS
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH NOTE OR THE
PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF NOTE IS EXEMPT FROM QUALIFICATION
BY SECTIONS 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE
RIGHTS OF ALL PARTIES TO
THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING
OBTAINED, UNLESS THE SALE IS SO EXEMPT.
ARTICLE FIVE
BORROWERS COVENANTS
5.1 BORROWER'S AFFIRMATIVE COVENANTS. Borrower covenants and agrees that
until the full and final payment of all indebtedness incurred under this
Agreement has been made, Borrower will, unless Lender waives compliance in
writing:
5.1.1 USE OF PROCEEDS. Use the proceeds of the Loan in connection
with the further financing of its operations and for general working capital;
5.1.2 PAYMENT. Repay principal of and interest on the Loan
according to the terms of this Agreement and the terms of the Note evidencing
the Loan;
5.1.3 NOTICE. Promptly give written notice to Lender of:
5.1.3.1 all litigation affecting Borrower when the amount
claimed is $100,000 or more;
5.1.3.2 any substantial dispute which may exist between
Borrower and any governmental regulatory body or law enforcement authority;
5.1.3.3 any labor controversy resulting in or threatening to
result in a strike against Borrower;
5.1.3.4 any proposal by any public authority to acquire
Borrower's assets or business or to engage in activities competitive with
Borrower;
5.1.3.5 any Event of Default or any event which, on a lapse of
time or notice or both, would become an Event of Default;
5.1.3.6 any other matter that has resulted or might result in a
material adverse change in Borrower's financial condition or operations; and
5.1.3.7 all written communications relating to the Initial Public
Offering and/or the listing or authorization for trading of the Borrower's
common stock from the U.S. Securities and Exchange Commission, the American
Stock Exchange or the National Association of Securities Dealers.
5.1.4 DOCUMENTS. Deliver to Lender, in form and detail
satisfactory to Lender, and in the number of copies Lender may reasonably
request:
5.1.4.1 as soon as available but no later than, 75 days after the
close of each fiscal year of Borrower, a complete copy of its audit report,
which shall include at least its balance sheet as of the close of such year, and
its income statement, reconciliation of capital accounts, and statement of
sources and uses of funds for that year, certified by an independent public
accountant selected by Borrower and satisfactory to Lender. The certificate
shall not be qualified or limited because of restricted or limited examination
by that accountant of any material portion of Borrower's records;
5.1.4.2 such other statement or statements, lists of property and
accounts, budgets, forecasts or reports regarding Borrower as Lender may
reasonably request.
5.1.5 MAINTENANCE. Maintain and preserve its corporate existence
and all rights, privileges, and franchises now enjoyed, conduct its business in
an orderly, efficient, and customary manner, keep all its properties in good
working order and condition, and from time to time make all needed repairs to,
and renewals or replacements of, its properties so that the efficiency of those
properties shall be fully maintained and preserved;
5.1.6 OBLIGATIONS. Pay all obligations, including tax claims, at
maturity, unless the obligation to make such payment or payments is in good
faith being disputed or is being contested by appropriate proceedings with due
diligence;
5.1.7 INSURANCE. Maintain and keep in force in adequate amounts
(including use and occupancy), of fire, public liability, property damage, and
workers' compensation insurance;
5.1.8 BOOKS AND RECORDS. Maintain adequate books, accounts, and
records and prepare all financial statements required under this Agreement in
accordance with generally accepted accounting principles and practices
consistently applied, and in compliance with the regulations of any governmental
regulatory body having jurisdiction over them; and permit employees or agents of
Lender at any reasonable time to inspect Borrower's properties, and to examine
or audit Borrower's books, accounts, and records and make copies and memoranda
of them;
5.1.9 SALES PROCEEDS. Apply the proceeds of sales of its fixed or
capital assets in excess of a cumulative total of $500,000 at Lender's option,
to:
(1) the most remote principal installments of the Loan;
(2) replacement of the assets sold;
(3) a reserve for future purchase of fixed or capital assets; or
(4) working capital purposes.
5.2 BORROWER'S NEGATIVE COVENANTS. Borrower covenants and agrees that
until full and final payment of all indebtedness incurred under this Agreement
has been made, it will not, without the prior written consent of Lender:
5.2.1 DIVIDENDS. Declare or pay any dividends on any of its
shares except dividends payable in Borrower's capital stock;
5.2.2 REDEMPTIONS. Purchase, redeem, or otherwise acquire for
value, any of its shares, or create any sinking fund in relation to any of its
shares, except as part of restricted compensation or similar awards or issuances
to employees or consultants;
5.2.3 LIQUIDATION OR DISSOLUTION. Liquidate or dissolve, or enter
into any consolidation, merger, pool, joint venture, syndicate, or other
combination, or sell, lease, or dispose of its business or assets as a whole or
such part as in the reasonable opinion of Lender constitutes a substantial
portion of its business or assets;
5.2.4 FURTHER INDEBTEDNESS. Except as provided in this Agreement,
create or incur any indebtedness for borrowed money which would be senior in
repayment to the Loan, or become liable as a surety, guarantor, accommodation
endorser, or otherwise, for or on the obligation of any other person, firm, or
corporation which would provide a priority of repayment to the Loan; provided,
however, that this section shall not prohibit:
5.2.4.1 the acquisition of equipment, goods, supplies, or
merchandise on normal credit;
5.2.4.2 the execution of bonds, undertakings, or contracts in the
usual course of Borrower's business; or
5.2.4.3 the endorsement of negotiable instruments received in the
usual course of Borrower's business.
5.2.5 ENCUMBRANCES. Create, assume, or suffer to exist any
mortgage, encumbrance, or other lien (including a lien of attachment, judgment,
or execution), or security interest (including the interest of a conditional
seller of goods), securing a charge or obligation, on or of any of its property,
real or personal, whether now owned or hereafter acquired, except:
5.2.5.1 any lien or charge for current tax, assessment, or other
governmental charge, which is not delinquent or remains payable without any
penalty, or the validity of which is contested in good faith by appropriate
proceedings on stay of execution of the enforcement of the lien or charge;
5.2.5.2 deposits or pledges to secure (a) statutory obligations,
(b) surety or appeal bonds, (c) bonds for release of attachment, stay of
execution, or injunction, or (d) performance of bids, tenders, contracts (other
than for the repayment of borrowed money) or leases, or for purposes of like
general nature in the ordinary course of Borrower's business; and
5.2.5.3 purchase-money security interests in personal property
acquired after the date of this Agreement when the obligation secured does not
exceed one hundred percent of the cost of the property purchased.
5.2.6 ASSET DISPOSITIONS. Dispose of any of its assets except for
full, fair, and reasonable consideration, or enter into any sale and leaseback
agreement covering any of its fixed or capital assets, or dispose of its assets
as a whole or such part of its assets except in the regular course of conducting
its business.
ARTICLE SIX
EVENTS AND CONSEQUENCES OF DEFAULT
6.1 DEFAULT SHARES OF COMMON STOCK. In the event Borrower fails to pay
the Note on or before the Maturity Date, and the currently proposed initial
public offering of the Company's securities pursuant to a registration statement
on Form SB-2 filed with the United States Securities and Exchange Commission as
File No. 333-39253 as amended has not been consummated due to the withdrawal or
termination of the offering by either the Company or its underwriter for any
reason then in that event, Borrower shall issue One Hundred Thousand (100,000)
shares of its common stock (the "Default Shares") to Lender for each calendar
month or portion thereof during which the Loan remains unpaid. Borrower shall
issue Default Shares to Lender on the first business day after the Maturity Date
which the loan remains unpaid, and on the first day of each month following upon
which the loan remains unpaid. Concurrently with the first issuance of Default
Shares, Borrower agrees to negotiate in good faith with the lender the terms of
and to enter into a registration rights agreement with Lender, granting Lender
"piggyback" registration rights for the Default Shares effective as of the date
of issuance of the Default Shares.
6.1.2 In the event Borrower fails to pay the Note on or before the
Maturity Date, the interest rate shall be increased retroactively from the date
hereof to the lower of (i) 20% or (ii) the highest rate allowed by California
law.
6.2 OTHER EVENTS OF DEFAULT. The occurrence of any of the other events set
out below ("Events of Default") shall at the option of Lender, make all interest
and principal remaining on the Loan immediately due and payable, without regard
to any requirement to issue Default Shares, and without notice of default,
presentment or demand for payment, protest or notice of nonpayment or dishonor,
or other notices or demands of any kind, except as specified in this Agreement:
6.2.1 PAYMENTS Borrower shall fail to pay, within 10 days after
the date when due, any installment of interest or principal in accordance with
the terms of this Agreement or of the Note evidencing the Loan;
6.2.2 REPRESENTATIONS AND WARRANTIES. Any representation or
warranty by Borrower in this Agreement or in any agreement, instrument, or
certificate executed under this Agreement or in connection with any transaction
contemplated by this Agreement shall prove to have been false or misleading in
any material respect when made;
6.2.3 LIENS. An involuntary lien or liens in the aggregate sum of
$75,000 or more, of any kind, shall attach to the assets or property of
Borrower, except for taxes due but not in default, or for taxes that are being
contested; provided, however, that no lien shall be considered for the purpose
of this section if:
6.2.3.1 such lien is removed without expenditure of funds by
Borrower other than the costs of appropriate proceedings; or
6.2.3.2 Borrower, in the reasonable opinion of its counsel, has
the right to and is diligently proceeding to have such lien removed without
unreasonable expenditure of funds by Borrower other than the costs of
appropriate proceedings, and such opinion of counsel is furnished to Lender
within ten days after written request for it.
6.2.4 JUDGMENTS. A judgment or judgments shall be entered against
Borrower in the aggregate amount of $75,000 or more on a claim or claims not
covered by insurance; provided, however, that no judgment shall be considered
for the purpose of this section if:
6.2.4.1 such judgment is vacated without unreasonable expenditure
of funds by Borrower other than the costs of appropriate proceedings; or
6.2.4.2 Borrower, in the opinion of its counsel, has the right to
and is diligently proceeding to have such judgment vacated without unreasonable
expenditure of funds by Borrower other than the costs of appropriate
proceedings, and such opinion of counsel is furnished to Lender within ten days
after written request for it;
6.2.5 BANKRUPTCY. Borrower shall file any petition or action for
relief under any Bankruptcy, arrangement, reorganization, insolvency, or
moratorium law, or any other law or laws for the relief of or relating to
debtors, or shall, with respect to any involuntary petition or action for relief
under such law or laws, consent or fail to timely object to the relief requested
in such petition;
6.2.6 INVOLUNTARY BANKRUPTCY. An involuntary petition shall be
filed under any bankruptcy statute against Borrower, or a receiver, trustee,
custodian, or similar officer of the court shall be appointed to take possession
of all or any substantial part of Borrower's properties, unless such petition or
appointment is dismissed or withdrawn or ceases to be in effect within 90 days
from the date of the filing or appointment;
6.2.7 OTHER DEFAULT. Any material default shall occur under any
other agreement pertaining to the borrowing of money or the advance of credit to
which Borrower may be a part as borrower, if that default gives to the holder of
the obligations concerned the right to accelerate the indebtedness;
6.2.8 BREACH. Borrower shall breach or default under any term,
condition, provision, representation, or warranty in this Agreement if that
breach or default shall continue for
ten days after its occurrence, or, if Lender has received notice of the
breach or default within that ten-day period, after notice of the breach or
default to Borrower from Lender, whichever is later.
ARTICLE SEVEN
MISCELLANEOUS
7.1 NOTICES. Any communications between the parties or notices provided
for in this Agreement may be given by mailing them, first class, postage
prepaid, to Lender at:
MPII Inc.
X.X. Xxx 00000
Xxx Xxxxxxx, Xxxxx
and to Borrower at
Ontro, Inc.
00000 Xxxxxxxxx Xxxxx, Xxxxx 000
Xxxxx, Xx. 00000
Attn: Xxxxx X. Xxxxxxx
with a copy to:
Xxxxxx Xxxxxxx LLP
0000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xx Xxxxx, XX. 92037-1483
Attn: Xxxxx X. Xxxxxx
or to such other address as either party may indicate to the other in writing
after the date of this Agreement.
7.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the
benefit of the parties and their respective successors and assigns; provided,
however, that Borrower shall not assign this Agreement or any of the rights,
duties, or obligations of Borrower under this Agreement without the prior
written consent of Lender.
7.3 DELAY AND WAIVERS. No delay or omission to exercise any right, power,
or remedy accruing to Lender on any breach or default of Borrower under this
Agreement shall impair any such right, power, or remedy of Lender, nor shall it
be construed to be a waiver of any such breach or default, or an acquiescence in
such breach or default, or waiver of or acquiescence in any similar breach or
default occurring later; nor shall any waiver of any single breach or default be
considered a waiver of any other prior or subsequent breach or default. Any
waiver, permit, consent, or approval of any kind by Lender of any breach or
default under this Agreement, or any waiver by Lender of any provision or
condition of this Agreement, must be in writing and shall be effective
only to the extent specifically set forth in that writing. All remedies,
either under this Agreement or by law or otherwise afforded to Lender, shall
be cumulative and not alternative.
7.4 ATTORNEYS FEES. In the event of any legal action or suit in relation
to this Agreement or any note or other instrument or agreement required under
this Agreement, or in the event that Lender incurs any legal expense in
protecting its rights under this Agreement or under any security agreement in
any legal proceeding, Borrower, in addition to all other sums which Borrower may
be called on to pay, will pay to Lender the amount of such legal expense and
will, if Lender prevails in such action, pay to Lender a reasonable sum for its
attorney's fees and all other costs and expenses.
7.5 SEVERABILITY. In the event any sentence or paragraph of this
Agreement is declared void by a court of competent jurisdiction, said sentence
or paragraph shall be deemed severed from the remainder of this Agreement, and
the balance of this Agreement shall remain in effect.
7.6. TITLES, CAPTIONS AND PARAGRAPH HEADINGS. Paragraph and subparagraph
titles and captions contained in this Agreement are inserted only as a matter of
convenience for reference. Such titles, captions, and paragraph headings in no
way define, limit, extend or describe the scope of this Agreement or the intent
of any provisions hereof.
7.7 NUMBER AND GENDER. Whenever a singular number is used in this
Agreement or where required by context, the same shall include plural.
Masculine gender shall include feminine and neuter genders and the word "person"
shall include corporation, firm, partnership, or other forms of association.
7.8. ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement
between all parties herein and supersedes all prior Agreements and
understandings, oral or written, between the parties hereto with respect to the
subject matter hereof, and shall not be modified or amended except in writing,
executed by all parties herein.
7.9. COUNTERPARTS. This Agreement may be executed in several counterparts,
and as so executed shall constitute an Agreement, binding to all parties herein.
7.10 NON-WAIVER. No delay or omission on the part of any party herein in
exercising any rights or remedies herein shall operate as a waiver of such
rights or remedies. No waiver of any default shall constitute a waiver of any
other default, whether of the same or any other covenant or condition. No
waiver, benefit, privilege or service voluntarily given or performed by any
party herein shall give the other parties any contractual right by custom,
estoppel or otherwise. Any waiver by any party herein must be executed in
writing, expressly specifying the subject and extent of the waiver.
7.11 GOVERNING LAW AND VENUE. This Agreement and all amendments thereto
shall be governed, construed, and enforced in accordance with the laws of the
State of California, and venue for any legal action arising out of this
Agreement shall be in San Diego County, California.
7.12. LEGAL REPRESENTATION. The law firm of Xxxxxx Xxxxxxx LLP has
prepared this Agreement solely on behalf of the Borrower based on instructions
received. The Lender has been advised to seek and obtain separate legal
counsel with respect to the preparation and execution of this Agreement, and
he/she has had an opportunity to do so, has access to qualified independent
counsel and has sought and obtained such advice and counsel to the extent
desired.
7.13. CONSTRUCTION. This Agreement has been negotiated between the
parties and their advisors, and shall not be construed against the party
preparing it, but shall be construed as if all parties jointly prepared this
Agreement and any uncertainty and ambiguity shall not be interpreted against any
one party.
7.14 NO OTHER INDUCEMENT. The making, execution and delivery of this
Agreement by the parties hereto has been induced by no representations,
statements, warranties or agreements other than those expressed herein.
IN WITNESS WHEREOF, the parties to this Agreement have executed this Loan
Agreement by their duly authorized officers effective as of the day and year
first above written.
ONTRO, INC.
a California corporation
By: /s/ Xxxxx X. Xxxxxxx
---------------------------
Xxxxx X. Xxxxxxx, President
LENDER:
/s/ XX Xxxxxx, Secty
--------------------------------
Signature
Xxxx Xx Xxxxxx
--------------------------------
Name Printed
Exhibit "A"
PROMISSORY NOTE
$400,000 Poway, California January 2, 1998
ONTRO, INC., a California corporation (the "Company" or "Borrower"), for
value received, hereby promises to pay to MPII, a Texas corporation
("Lender"), on the date which is the earlier to occur of (i) five (5)
business days from the completion of the an initial public offering of the
Company's common stock; or (ii) February 28, 1998 (the "Maturity Date"), the
principal amount of Four Hundred Thousand Dollars ($400,000 ) and to pay
interest (computed on the basis of a 365-day year and actual days elapsed) on
the principal amount from time to time remaining unpaid hereon at the rate of
Ten and One Half (101/2%) per annum, compounded annually, from the date
hereof until the Maturity Date, or the highest rate allowed by California
law, whichever is less. Both the principal hereof and any accrued but unpaid
interest hereon are due on the Maturity Date, payable at the principal office
of the Company in Poway, California in currency of the United States of
America which at the time of payment shall be legal tender for payment of
public and private debts.
This Note is made pursuant to a Loan Agreement of even date herewith.
All capitalized terms not otherwise defined herein shall have the meaning
attributed to them in the Loan Agreement. Any conflict between the Loan
Agreement and this Note shall be determined by the Loan Agreement.
The unpaid principal amount of this Note, together with accrued interest
hereon, and any other sums due or to become due hereunder, shall, at the
election of the Lender hereof, mature and become immediately due and payable
without presentment or demand for payment, dishonor or notice of dishonor,
protest or notice of protest or other formality, all of which are hereby
expressly waived, upon the happening of any one or more of the following
events of default:
(a) If Borrower shall fail to make full payment of this Note within ten
(10) days of the Maturity Date; or
(b) If an event of default occurs pursuant to Article Six of the Loan
Agreement.
The Borrower hereby consents to renewals and extensions of time before or
after the maturity hereof, and agrees that no failure on the part of the Lender
to exercise any power, right or privilege hereunder, or to insist upon prompt
compliance with the terms hereof, shall constitute a waiver thereof.
Borrower promises to pay costs of collection, including attorney's fees,
whether or not suit is filed, upon the non-performance by Borrower of any
obligation arising out of this Note.
The Lender shall not be deemed, by any act of omission or commission, to
have waived any of their rights or remedies hereunder unless such waiver is in
writing and signed by the Lender, and then only to the extent specifically set
forth in writing. A waiver with reference to one event shall not be construed
and continuing or as a bar to or waiver of any right or remedy as to a
subsequent event. No delay or omission of the Lender to exercise any right,
whether before or after an event of default or a default thereunder, shall
impair any such right or shall be construed to be a waiver of any right or
default, and the acceptance at any time by the Lender of any past due amounts
shall not be deemed to be a waiver of the right to require prompt payment when
due of any other amounts then or thereafter due and payable.
The remedies of the Lender in this Note or at law or in equity, shall be
cumulative and concurrent, and may be pursued singly, successively or together
at the sole discretion of the Lender, and may be exercised as often as occasion
therefor shall occur; and the failure to exercise any such right or remedy shall
in no event be construed as a waiver or release thereof.
Lender shall not become or be deemed a partner or joint venturer with the
Borrower by reason of any provisions of this Note.
If any amount of principal or interest on or in respect of this Note
becomes due and payable on any date which is not a Business Day, such amount
shall be payable on the next preceding Business Day. "Business Day" means any
day other than a Saturday, Sunday, statutory holiday or other day on which banks
in the State of California are required by law to close or are customarily
closed.
If any of the provisions of this Note or the application thereof to any
persons or circumstances shall, to any extent, be held to be invalid or
unenforceable, the remainder of this Note by the application of such provision
or provisions to persons or circumstances other than those as for whom or of
which it is held invalid or unenforceable shall not be affected thereby, and
every provision of this Note shall be valid and enforceable to the fullest
extent permitted by law.
The terms of this Note shall apply to, inure to the benefit of, and bind
all parties hereto, their heirs, legatees, devisees, administrators, executors,
successors and assigns.
Time is of the essence of this Note and the performance of all provisions
hereof.
This Note is registered on the books of the Company and is transferable
only by surrender thereof at the principal office of the Company duly endorsed
or accompanied by a written instrument of transfer duly executed by the
registered Lender of this Note or its attorney duly authorized in writing, and
in accordance with the Loan Agreement. Payment of or on account of principal
and interest on this Note shall be made only to or upon the order in writing of
the registered Lender.
This Note and said Loan Agreement are governed by and construed in
accordance with the laws of the State of California.
Page 2 of 3
Borrower:
ONTRO, INC.
a California corporation
By: /s/ Xxxxx X. Xxxxxxx
---------------------------
Xxxxx X. Xxxxxxx, President
THE SECURITIES REPRESENTED IN PART BY THIS NOTE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 NOR REGISTERED NOR QUALIFIED UNDER ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
DELIVERED AFTER SALE, TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS QUALIFIED
AND REGISTERED UNDER APPLICABLE STATE AND FEDERAL SECURITIES LAWS OR UNLESS,
IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL, SUCH
QUALIFICATION AND REGISTRATION IS NOT REQUIRED. ANY TRANSFER OF THE
SECURITIES REPRE- SENTED BY THIS NOTE IS FURTHER SUBJECT TO OTHER
RESTRICTIONS, TERMS AND CONDITIONS WHICH ARE SET FORTH IN THE LOAN AGREEMENT.
Page 3 of 3
FIRST AMENDMENT TO
LOAN AGREEMENT AND NOTE
This First Amendment to Loan Agreement and Note amends that certain Loan
Agreement and Note dated January 2, 1998 (the "Agreement") by and between ONTRO,
INC. ("Ontro") and MPII, A TEXAS CORPORATION is made effective this 31st day of
January, 1998.
For good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties have agreed to amend the above referenced
Loan Agreement and Promissory Note as follows:
1. The maturity date set forth in Section 1.2 of the Agreement is hereby
amended to extend the maturity date from February 28, 1998 to May 1, 1998 so
that Section 1.2 would be amended to read in its entirety as follows:
1.2 NOTE. The Loan shall be evidenced by a promissory note (the
"Note") (a copy of which is attached as Exhibit "A") executed by
Borrower, dated as of the date the Loan is made, providing for the
payment of interest at ten and one half percent (101/2%) per annum, or
the highest rate allowed by California law whichever is less,
compounded annually, and computed on the basis of a 365-day year and
actual days elapsed, without payments and with interest accruing until
the earlier to occur of: (i) five (5) business days from Borrowers
completion of the initial public offering of its common stock; or (ii)
April 1, 1998 ("Maturity Date"), at which time all then unpaid
principal and accrued interest shall be due and payable.
2. Section 6.1, DEFAULT SHARES OF COMMON STOCK is hereby deleted in its
entirety.
3. Section 6.1.2 shall be renumbered Section 6.1.
4. The Promissory Note attached to the Loan Agreement as Exhibit "A" is hereby
amended to reflect the amended terms as set forth herein.
5. All remaining terms in the Agreement shall remain in full force and effect.
ONTRO, INC.
a California corporation
By: /s/ Xxxxx X. Xxxxxxx
---------------------------
Xxxxx X. Xxxxxxx, President
MPII, A TEXAS CORPORATION
By: /s/ Xxxxxx X. Tips
----------------------------
Name: Xxxxxx X. Tips
Title: President
