MODIFICATION AGREEMENT
THIS MODIFICATION AGREEMENT, dated as of the 27 day of August, 1999,
between **, a Delaware limited liability company ("Borrower"), FUN ENTERPRISES
PTY LIMITED (ACN 056 689 304), a company incorporated in New South Wales,
Australia ("Lender"), and COVOL TECHNOLOGIES, INC., a Delaware corporation
("Covol").
RECITALS:
By Loan and Security Agreement dated as of March 20, 1998 (the "Loan
Agreement"), Lender agreed to make a loan of up to $5,800,000.00 (the "Loan") to
Covol to be used for the construction and financing of a synthetic fuel
production facility located at the River Hill Coal Company, Inc. coal mine
facilities near Karthus, Clearfield County, Pennsylvania (the "Project"). The
Loan was evidenced by a Secured Draw-down Promissory Note dated March 20, 1998
(the "Note") made by Covol, payable to the order of Lender, in the original
principal sum of up to $5,800,000.00, plus interest, and secured by the Security
Agreement comprising part of the Loan Agreement. As further compensation for the
Loan, Covol and the Lender entered into that certain Net Quarterly Production
Royalty Payment Agreement dated as of March 20, 1998 (the "Royalty Agreement')
whereby Covol agreed to pay certain additional contingent payments to Lender.
The Note, the Loan Agreement, the Royalty Agreement and all other documents and
instruments evidencing and securing the Loan are sometimes referred to herein as
the "Loan Documents."
Borrower and Covol have entered into that certain Purchase Agreement of
even date herewith (the "Purchase Agreement"), whereby Borrower has agreed to
purchase from Covol, and Covol has agreed to sell to Borrower, the Project and
related assets, pursuant to the terms contained in the Purchase Agreement. As a
condition to such transaction and as part of the consideration therefor,
Borrower has agreed to assume certain modified obligations of Covol under the
Loan. Borrower and Lender have agreed, simultaneous with such assumption and the
consummation of such purchase, and the early payment by Borrower to Lender of
$4,000,000.00 in partial satisfaction of the Loan, to modify the Loan and the
Loan Documents as set forth herein.
MODIFICATION AND ASSUMPTION AGREEMENT:
FOR and in consideration of the sum of $4,000,000.00 cash in hand paid
by Borrower to Lender in advance of the due date for the same and the assumption
of the obligations of Covol under the Loan Documents, as modified and amended
hereby, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Modification and Assumption of Loan Agreement.
(a) Upon satisfaction of the "Assumption Conditions" (as
hereinafter defined), the Loan Agreement is hereby
modified as follows:
** This exhibit contains confidential material which has been omitted
pursuant to a Confidential Treatment Request. The omitted information
has been filed separately with the Securities and Exchange Commission.
(i) The introductory paragraph, the Recitals and
Section 1 are hereby modified to reflect the
assumption of the obligations and
indebtedness (as modified hereby) of Covol
Technologies, Inc. by ** as the "Company"
under the terms thereof, and the principal
amount of the Loan, after the reduction
effectuated by the aforesaid $4,000,000.00
payment and this modification, to be
$945,892.00 bearing interest at a per annum
rate of 5.5 percent. No release of Covol
with respect to the obligations for the Loan
is hereby intended or effectuated and Covol
shall remain obligated under the Loan
Documents (excluding the Royalty Agreement),
as hereby modified and amended in accordance
with the terms described in Section 1(b)(ii)
hereof.
(ii) Section 3 and Section 4 are hereby deleted.
In lieu thereof Borrower and Lender make the
respective covenants, warranties and
representations set forth in APPENDIX A,
attached hereto and incorporated herein by
this reference.
(iii) Section 5.3.2 is hereby deleted .
(iv) The following new provision is hereby added
to the Loan Agreement:
Termination. Borrower acknowledges that the
security interest in the Collateral under the Loan
Agreement secures the obligations under the Note and
the payment of the $800,00.00 amount agreed to be
paid by Covol under that certain Agreement and
Assignment between Covol and Lender of even date
herewith. At such time as the Note is fully paid and
satisfied and Lender shall have received aggregate
payments of $800,000.00 from or on behalf of Covol
under the assignment of production-based payments
relating to its sale to Borrower of the Project, the
lien and security interest created under the Loan
Agreement, and, as to Borrower, the Loan Documents
and all further obligations of Borrower thereunder,
shall terminate and Lender shall promptly release the
Collateral from such security interest and execute,
deliver and record all documents and instruments
necessary to effect and evidence same.
(v) The address and facsimile number for
purposes of notice on the signature page
shall read as follows:
Address: **
Facsimile: **
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The address and facsimile number for
Borrower for purposes of notice on the
signature page shall read as follows:
Address: Fun Enterprises Pty, Ltd.
ACN 056 689 304, Xxxxx 0,
000 Xxxxxxxxx Xx. Xxxxxx
XXX 0000 Xxxxxxxxx.
Facsimile: 00-0-0000-0000.
(b) The modification of the Loan Documents effectuated by this
Agreement shall be conditioned upon the completion, to the
satisfaction of the Lender) of the following conditions (the
"Assumption Conditions"):
(i) Payment to Lender by Covol, in connection with
the execution of this Agreement, of all accrued and unpaid
interest on the Note, together with all costs and expenses of
Lender (including reasonable attorneys' fees, travel costs,
lodging and food costs incurred by officers or principals of
the Lender) in any way associated with actions in anticipation
of the coming due of the Note or in connection with this
Agreement and the closing of the transactions contemplated
hereby (the said expense payment obligations not to exceed the
sum of $35,000);(ii) execution of the Purchase Agreement and
the License and Binder Purchase agreement (as defined in the
Purchase Agreement) and assignment by Covol to Lender of a
portion of the production-based payments thereunder pursuant
to terms and conditions (including duration, amount,
percentage and payment procedures) acceptable to Lender,
including Borrower's acknowledgment thereof and its
undertaking to make payments therefor directly to Lender on
behalf of Covol, together with the agreement and
acknowledgment of Covol (in form and substance satisfactory to
the Lender) of its continuing obligation under the Loan
Documents (as modified hereby) for the indebtedness evidenced
by the Replacement Note and the aforesaid production-based
payments, such obligation to be unconditional and continuing
regardless of any extension, modification or amendment of the
same (other than an increase in such obligations) and
regardless of the release, addition or other action with
respect to any collateral securing the same;
(iii) execution by Covol, in form and substance
satisfactory to the Lender, of an agreement providing for the
extension of those certain warrants for common stock of Covol
which are described in APPENDIX B which is attached hereto and
incorporated herein by this reference, such that the warrant
exercise date shall be June 30, 2000 instead of November 13,
1999;
(iv) execution by Covol, in form and substance
satisfactory to the Lender, of an agreement with respect to
the 95,238 $8.00 strike price warrants for the common stock of
Covol in favor of the Lender, which agreement shall (x) modify
the strike price by marking the same to market price of the
common stock of Covol on the date of the closing of the sale
of the Project under the Purchase Agreement and (y) extending
the exercise date of such warrants to June 30, 1999;
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(v) execution by Covol, in form and substance
satisfactory to the Lender, of an agreement with respect to
the 15,644 $8.00 strike price warrants for the common stock of
Covol in favor of Stamford Holdings, Ltd., which agreement
shall (x) modify the strike price by marking the same to
market price of the common stock of Covol on the date of the
closing of the sale of the Project under the Purchase
Agreement and (y) extending the exercise date of such warrants
to June 30, 1999;
(vi) execution and delivery by Borrower of UCC-3
modification or similar statements reflecting the addition of
the Borrower as a "debtor" under the originally filed UCC-1
financing statements and the execution and delivery of any
additional UCC-1 financing statements deemed necessary by
Lender's counsel by reason of the addition of the Borrower as
the debtor with respect to the security interests in the
Project; and
(vii) execution and delivery of a "landlord consent"
from River Hill Coal Company providing allowing Lender access
to the real property site upon which the Project is located
for purposes consistent with its rights as secured party
(including any successors or assigns or persons purchasing the
same in connection with a foreclosure of the security
interests or other similar exercise of remedies and rights
under the Loan Documents).
(c) Except as specifically modified hereby; the terms and
provisions set forth in the Loan Agreement are hereby ratified
and confirmed and remain in full force and effect. The Loan
Agreement, as modified hereby, continues to secure the
obligations of Borrower under the Loan, as modified pursuant
hereto, with the same lien priority as immediately prior to
the execution hereof.
2. Replacement of Note.
(a) The Note is hereby modified and restated in the form
set forth in Exhibit A attached hereto (the
"Replacement Note").
(b) After this Agreement has been fully executed and
delivered, the Lender shall deliver to Borrower the
Note marked as fully satisfied in exchange for the
Replacement Note executed and delivered by Borrower
to Lender.
3. Termination of the Royalty Agreement.
(a) The Royalty Agreement and that certain Assignment
dated the 6th day of November, 1998 between Covol and
the Lender (the "License Fee Assignment") is hereby
terminated and Borrower shall have no obligation to
Lender thereunder:
4. Consent of Lender. Lender executes this Agreement to evidence
its consent to the modification effected hereby; provided,
however, that such consent shall neither be nor be deemed to
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be a consent to, or a waiver of the necessity of obtaining the
consent of Lender to, any future modification.
5. No Default. As additional inducement to Borrower to assume the
obligations under the Loan Documents and to enter into this
Agreement, Lender hereby states, certifies and affirms that
the Loan Documents are in full force and have not been amended
or modified in any respect whatsoever except for the
amendments and modifications set forth herein, and constitutes
the complete agreement between the Lender and Covol with
respect to the Loan. There is no event of default nor any fact
or circumstance that, with the giving of notice or the passage
of time or both, would constitute an event of default under
the Loan Documents, and, subject to the $4,000,000.00 cash
payment referred to herein and the execution and delivery of
this Agreement and the Replacement Note, all obligations under
the Loan Documents have been fully paid and satisfied except
for those evidenced by the Replacement Note and the modified
terms of the Loan Agreement.
6. Consent of Covol. Covol executes this Agreement to evidence
its consent to the modification and assumption effected
hereby; and to acknowledge, consistent with Section 1(b)(ii),
its continuing obligations under the Loan Documents (as
modified hereby) and under the Replacement Note and the
aforesaid production-based payments regardless of any
extension, modification or amendment of the same (other than
an increase in such obligations) and regardless of the
release, addition or other action with respect to any
Collateral securing same, which extension, modification or
amendment (so long as such action does not increase Covol's
obligations) may be made by Borrower and Lender without the
consent of Covol or any requirement to obtain such consent.
7. Further Assurances. Borrower, Covol and Lender hereby covenant
and agree to execute and deliver, or cause to be executed and
delivered, and to do or make, or cause to be done or made,
upon the reasonable request of the other, any and all
instruments, papers, deeds, acts or things, supplemental,
confirmatory or otherwise, as may be reasonably required by
such party for the purpose of effecting the modification
described herein.
8. Completeness and Modification. This Agreement constitutes the
entire agreement between the parties hereto as to the
transactions contemplated hereby and supersedes all prior
discussions, understandings or agreements between the parties
hereto.
9. Successors and Assigns. This Agreement shall bind and inure to
the benefit of the parties hereto and their respective
successors and assigns.
10. Governing Law. This Agreement and all other instruments
referred to herein shall be governed by, and shall be
construed according to, the laws of the State of Utah.
11. Counterparts. To facilitate execution, this Agreement may be
executed in as many counterparts as may be required. It shall
not be necessary that the signature on behalf of the parties
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hereto appear on each counterpart hereof, and it shall be
sufficient that the signature on behalf of each party hereto
appear on one or more such counterparts.
All counterparts shall collectively constitute a single
agreement.
12. Incorporation by Reference. All of the Exhibits or Appendices
attached hereto or referred to herein and all documents in the
nature of such Exhibits or Appendices, if any, are by
reference incorporated herein and made a part of this
Agreement.
BORROWER
**
By _________________________
Its _____________________
COVOL
COVOL TECHNOLOGIES, INC.
By _________________________
Its _____________________
LENDER
FUN ENTERPRISES PTY LIMITED
By _________________________
Its _____________________
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EXHIBIT A
THIS NOTE MAY ONLY BE SOLD, ASSIGNED OR OTHERWISE TRANSFERRED TO AN
"ACCREDITED INVESTOR," AS DEFINIED IN RULE 501(a)(1), (2) OR (3) UNDER
REGULATION D OF THE SECURITIES ACT OF 1933. NOTWITHSTANDING ANYTHING
CONTAINED HEREIN TO THE CONTRARY, WITHOUT THE WRITTEN CONSENT OF THE
COMPANY, THIS NOTE SHALL NOT BE HYPOTHECATED OR BROKEN UP INTO MORE
THAN ONE NOTE AND THERE SHALL ONLY BE ONE NOTEHOLDER.
REPLACEMENT PROMISSORY NOTE
$945,892.00
**
August __, 1999
FOR VALUE RECEIVED, **, a Delaware limited liability company (the
"Company"), hereby promises to pay to the order of FUN ENTERPRISES PTY LIMITED
(ACN 056 689 304), a company incorporated in New South Wales, Australia (the
"Lender"), at Westpac Banking Corporation, 00 Xxxxx Xxxxxx, Xxxxxxxx, Xxx
Xxxxxxx, account number: **, account party: Fun Enterprises, or at such other
place as the Lender may designate in writing, the principal amount of Nine
Hundred Forty Five Thousand Eight Hundred Ninety Two Dollars ($945,892.00), in
lawful money of the United States, together with interest thereon at a per annum
rate of 5.5 percent, such principal and interest being payable in four equal
installments of principal and interest of $250,000, payable on April 30, 2000,
July 31, 2000, October 31, 2000 and January 31, 2001.
1. Undefined Terms. All terms not defined in this Note are used as set forth
in the Loan and Security Agreement of even date between the parties.
2. Prepayment. The Company shall have the right to prepay all or any portion
of the Loan prior to maturity without the payment of any prepayment
penalty.
3. Security. As security for the obligations under the Note, the Company
shall, pursuant to the Loan and Security Agreement, dated March 20, 1998,
as modified pursuant to that certain Modification Agreement of even date
herewith (such Loan and Security Agreement as so modified being referred to
herein as the "Loan and Security Agreement"), by and between the Lender and
the Company, grant, convey, and assign to the Lender a security interest in
the Collateral. The Company agrees to take any and all reasonable steps
required by the Lender, including without limitation the execution and
filing of appropriate UCC-1 financing statement(s), and UCC-2 financing
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statement change form(s) to perfect and maintain perfection of the Lender's
continuing security interest in the Collateral. Notwithstanding the
foregoing, recourse by the Lender against the Company is not limited to the
Collateral, and the Company will be responsible for the entire Loan
obligation, including principal and interest.
4. Usury Laws. Notwithstanding anything to the contrary contained herein or
in the Loan and Security Agreement, all agreements between the Company and
the Lender are hereby expressly limited so that in no contingency or event
whatsoever shall the total liability for payments in the nature of
interest, additional interest, and other charges exceed the applicable
limits imposed by the usury laws of the State of ** or any other applicable
jurisdiction. If any payments in the nature of interest, additional
interest, or other charges made hereunder or under the Loan and Security
Agreement are held to be in excess of the applicable limits imposed by the
usury laws of the State of **, or any other applicable jurisdiction, it is
agreed that any such amount held to be in excess shall be considered
payment of principal hereunder, and the indebtedness evidenced hereby shall
ipso facto be reduced by such amount so that the total liability for
payments in the nature of interest, additional interest, and other charges
shall not exceed the applicable limits imposed by the usury laws of the
State of **, or any other applicable jurisdiction, in compliance with the
desires of the Company and the Lender. This provision shall never be
superseded or waived and shall control every other provision of this Note
and all related agreements (as set forth in Section 5.3 of the Loan and
Security Agreement), between the Company and Lender or their respective
successors or the Lender's assigns.
5. Default. For purposes of this Note, the occurrence of the following shall
constitute an "Event of Default" which shall permit the Lender to declare
all principal of this Note to be immediately due and payable and to also
exercise the other rights provided in the Loan Agreement:
(a) Any petition is filed by or against the Company under any law
pertaining to reorganization , insolvency or rescheduling of debts
which is not dismissed within thirty (30) days, or the Company makes an
assignment for the benefit of creditors or admits in writing its
inability to pay its debts generally as they become due;
(b) Any garnishment, attachment or levy is issued against the Collateral by
any party other than Lender which is not removed within thirty (30)
days of such action;
(c) Any default occurs in payment under the provisions of this Note, or
under any other agreement, contract, instrument or document evidencing
or related to the Loan including, but not limited to the Loan and
Security Agreement;
(d) Any default occurs in the performance of any obligations of the
Company, under the provisions of this Note or the Loan and Security
Agreement other than the payment provisions referenced in (c) above;
provided, however, that any such default shall not be deemed an Event
of Default until the Company receives written notice of such event, and
if curable, the Company fails to cure such default within thirty (30)
days after receipt of such notice.
6. Acceleration, Waiver. Upon the occurrence of an Event of Default, the
Lender in its sole, absolute and unfettered discretion, may declare this
Note immediately due and payable.
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7. Securities Laws. This Note has not been registered under the Securities Act
of 1933, as amended (the "Act"), or registered or otherwise qualified for
sale under the securities laws of any state. The Lender by receipt of this
Note acknowledges that it is an "accredited investor" within the meaning of
Regulation D of the Act and that the Lender has had the opportunity to ask
questions of the Company regarding its business activities and its
activities relating to the Plant.
8. Notices. Notices under this Note shall be given and governed by the
provisions of Section 5.7 of the Loan and Security Agreement.
9. Necessary Documents. Each party agrees to execute and provide, at the
request of the other party, any and all other documents or other necessary
written instruments as may be reasonably necessary to effectuate the
purposes of this Note.
10. Governing Law. This Note shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the laws of the
State of **.
IN WITNESS WHEREOF, the Company has executed this Note as of the date
first written above.
**
By: ____________________________
Title: _________________________
Address:
**
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