MODIFICATION AND EXTENSION AGREEMENT
THIS MODIFICATION AND EXTENSION AGREEMENT is made and entered into as
of April 30, 2000 between COVOL TECHNOLOGIES, INC., a Delaware corporation
("Covol") and CHEROKEE ASSOCIATES LLC, a Colorado limited liability company
("Cherokee").
RECITALS
X. Xxxxx is a party to a Loan and Security Agreement dated as of June
12, 1998 (the "Security Agreement") in which Trans Pacific Stores, Ltd. ("TPS")
appears as the "Lender", together with the related Secured Draw Down Promissory
Note in the original principal amount of $4 Million (the "Note"). The Security
Agreement, the Note and the related Common Stock Purchase Warrants dated as of
October 12, 1998 to purchase 100,000 shares of Covol common stock are sometimes
referred to herein as the "Loan Documents". The Loan Documents have previously
been modified by a Letter Amendment dated May 6, 1999.
B. TPS has assigned all of its right, title and interest in the Loan
Documents to Cherokee.
C. As currently written, the principal balance of the Note is due and
payable on April 30, 2000. Covol and Cherokee desire to modify the Loan
Documents to provide for (i) the repayment of $2.0 Million of the principal
balance of the Note through the issuance of Covol common stock, (ii) the
extension of the maturity date of the remaining $1.0 Million principal balance
of the Note, and (iii) certain other changes as set forth herein.
NOW THEREFORE, in consideration of the premises, the covenants and
condition contained herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree to be
legally bound as follows:
1. Acknowledgment of Amounts Owed. Covol and Cherokee acknowledge and
agree that as of April 30, 2000 the total amount owed by Covol pursuant to the
Note and other Loan Documents is (i) the principal balance of $3.0 Million, plus
(ii) accrued interest for the month of April, 2000 in the amount of $34,520.55.
2. Modification of Note. Section 2 of the Note is hereby modified to
provide that (i) $2.0 Million of the principal balance shall be paid on the
effective date of this Agreement through the issuance of Covol common stock as
set forth in paragraph 4 below, (ii) the remaining $1.0 Million principal
balance shall be due and payable, together with any accrued but unpaid interest,
on April 30, 2001. Interest on the principal balance shall continue to bear
interest at 14% per annum, payable monthly in arrears. This Agreement, together
with the May 6, 1999 Letter Amendment referred to in the Recitals above, shall
be affixed to the original Note.
3. Payment of Accrued Interest. Cherokee agrees that, in full
satisfaction of accrued
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interest due under the Note through April 30, 2000, Covol shall pay (i)
$19,561.64 to TPS, representing interest accrued through April 17, 2000 and (ii)
$14,958.91 to Cherokee. Such payments shall be by Covol check.
4. Payment of Principal in Stock. Covol shall deliver to Cherokee, and
Cherokee shall accept from Covol, 1,185,818 shares of Covol's restricted common
stock, $.001 par value (the "Shares") in full payment and satisfaction of the
$2.0 Million of principal due on April 30, 2000.
5. Partial Release of Collateral. Cherokee hereby releases any and all
interest it may have pursuant to the Security Agreement or the other Loan
documents in and to the Promissory Note between Covol and Xxxxxx X. Xxxxxx dated
August, 1996 and referred to in paragraph 3.2 of the Security Agreement in the
original principal amount of $5,000,000.00. Cherokee shall deliver, or cause to
be delivered, to Covol the original of such Promissory Note, including the
related Guaranty of Xxxxxx X. Xxxxxx dated April 29, 1998, as soon as
practicable after the effective date of this Agreement, but in any event no
later than May 19, 2000.
6. Consideration for Modification. As additional consideration for
Cherokee's agreement to accept the Shares in payment of principal and modify the
Note as set forth herein, Covol shall issue to Cherokee Common Stock Purchase
Warrants (the "Warrants") entitling Cherokee to purchase up to 296,454 shares of
Covol restricted common stock (the "Warrant Shares") at an exercise price of
$2.10 per share. The Warrants will expire April 30, 2005. The Warrants will be
in substantially the form attached hereto as Exhibit "A".
7. Cherokee Representations and Warranties. Cherokee represents and
warrants to Covol as follows:
a. Cherokee acknowledges receipt of the summary of risk
factors (the "Risk Factors") attached as Exhibit "B" to this Agreement
and has access to and has reviewed the publicly filed reports (the
"Public Filings") of Covol listed on Exhibit "C" to this Agreement.
Cherokee further acknowledges that it has read carefully and
understands the Risk Factors and the Public Filings, and has had the
opportunity to meet with officers of Covol to ask questions and, prior
to its execution of this Agreement, was given full access to all
information which Covol possesses or can acquire without unreasonable
effort or expense that is necessary to verify the accuracy of
information furnished to Cherokee, and all such questions, if asked,
have been answered satisfactorily and such documents, if examined, have
been found to be fully satisfactory. Cherokee further acknowledges
that, in making its investment decision, it is relying upon its own
investment judgment and the Risk Factors and Public Filings. No other
representations have been made to, or authorized to be made to,
Cherokee. Cherokee agrees to keep confidential and not to disclose to
third parties any non-public information concerning Covol that it
receives in connection with the purchase of the Shares and Warrants.
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b. The Shares and Warrants are being acquired by Cherokee for
its own account, for investment only and not presently with a view
toward resale or distribution in a manner which would require
registration of such securities under the Securities Act of 1933 (the
"Securities Act").
c. Cherokee is authorized and otherwise duly qualified to
purchase and hold the Shares and Warrants. Cherokee certifies that all
of its equity owners are "accredited investors" as defined in Rule 501
promulgated under the Securities Act. Upon request of Covol. Cherokee
will provide a list of its equity owners and questionnaires or other
proof of the accredited investor status of each. Cherokee was not
formed for the specific purpose of acquiring the Note, Shares or
Warrants.
d. Cherokee understands that the Shares, the Warrants and the
Warrant Shares have not been registered under the Securities Act.
Cherokee is fully aware of the restrictions on sale, transferability
and assignment of the Shares, Warrants and Warrant Shares as set forth
in this Agreement and the certificates of such securities, and that
Cherokee must bear the economic risk of Cherokee's investment in Covol
for an indefinite period of time because the offering has not been
registered under the Securities Act, and, therefore, the securities
cannot be offered or sold unless they are subsequently registered under
the Securities Act or an exemption from such registration is available.
Cherokee further understands that the Shares, Warrants and Warrant
Shares will bear an appropriate legend to this effect.
e. Cherokee is aware of the following:
i. The Shares, Warrants and Warrant Shares are
speculative investments which involve a high degree of risk, including
those risks outlined in Exhibit "B" and Exhibit "C"; and
ii. There are substantial restrictions on the
transferability of the securities. The Shares, Warrants and Warrant
Shares have not been, and except as set forth in this Agreement
shareholders have no rights to require that such securities be,
registered under the Securities Act and it may not be possible for
Cherokee to liquidate Cherokee's investment in Covol. Cherokee further
agrees to be responsible for compliance with all conditions on transfer
imposed by any state blue sky or securities law.
f. Cherokee warrants and represents that it has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of an investment in Covol and the
Shares, Warrants and Warrant Shares, and that Cherokee is able to bear
the economic risks of the investment for an indefinite period of time
and at the present time could afford a complete loss of such
investment.
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g. Cherokee originally acquired the Note from TPS in a private
transaction between related entities which did not involve any public
offering, general advertising or general solicitation.
8. Covol Representations and Warranties. Covol represents and warrants
to Cherokee as follows:
x. Xxxxx is a corporation duly incorporated and in good
standing under the laws of the State of Delaware.
x. Xxxxx'x execution of this Agreement and the issuance of the
Shares and Warrants have been duly authorized. The Shares will be, when
issued as set forth herein, duly issued, fully paid and non-assessable.
When the Warrants are exercised and the full exercise price paid as
provided therein, the Warrant Shares issued on exercise of the Warrants
will be duly issued, fully paid and non-assessable.
x. Xxxxx has completed the sale of its Mountaineer synfuel
facility. Except as set forth herein, there has not been a material
adverse change to the business or financial condition of Covol since
the date of the most recent Public Filing described on Exhibit "C".
9. Registration Rights Under Securities Act.
x. Xxxxx agrees to use its best reasonable efforts to file at
its expense, no later than 15 days following the date hereof, a
registration statement on Form S-3 including the Shares and Warrant
Shares for resale. Covol will use its best reasonable efforts to cause
such registration statement to become effective as soon as practicable,
and will take all other reasonable action necessary under any Federal
or state law or regulation of any governmental authority to permit all
such Shares and Warrant Shares which it has included in such
registration statement to be sold or otherwise disposed of, and will
use its best reasonable efforts to maintain such compliance with each
such Federal and state law and regulation of any governmental authority
for the earlier of (A) twelve months from the date of effectiveness of
such registration statement under the Securities Act and (B) the date
upon which Cherokee has completed the sale or other disposition of all
of the Shares. Covol may include securities being sold by other
stockholders in such registration statement. Cherokee shall be
responsible for the costs of any separate counsel retained by it and
for any underwriting discounts or commissions incurred by it.
b. Cherokee shall promptly provide Covol with such information
regarding Cherokee and Cherokee's plan of distribution as Covol may
reasonably request in order to prepare the registration statement.
Covol's obligation to obtain and maintain the effectiveness of any
registration statement is conditioned on Covol's continued ability to
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utilize Form S-3 (or any successor short form registration statement)
for secondary offerings. If Covol determines in good faith that it is
necessary or in Covol's best interest to amend any effective
registration statement, it shall so notify Cherokee and Cherokee shall
suspend all sales under the registration statement until Covol has
either amended the registration statement or notified Cherokee that
sales can resume. The twelve month period referred to in paragraph 9.a
shall be extended by any period for which sales were so suspended.
c. If Covol fails or is unable to file and obtain
effectiveness of the Form S-3 registration statement as provided in
paragraph described 9.a, Covol shall grant Cherokee, as Cherokee's sole
and exclusive remedy, the piggy-back registration rights as provided in
Exhibit "D" attached hereto, subject to the existing registration
rights previously granted by Covol to other persons.
d. In connection with any registration statement including the
Shares or Warrant Shares, Covol shall (i) furnish to Cherokee and any
underwriter designated by Cherokee, such copies of the prospectus,
including the preliminary prospectus, conforming to the Securities Act
(and such other documents as Cherokee or each such underwriter may
reasonably request) in order to facilitate the sale or distribution of
the Shares or Warrant Shares, (ii) use its best reasonable efforts to
register or qualify the Shares and Warrant Shares under the blue sky
laws (to the extent applicable) of such jurisdiction or jurisdictions
as Cherokee and any appointed underwriter shall reasonably request and
(iii) take such other actions as may be reasonably necessary or
advisable to enable Cherokee and such underwriters to consummate the
sale or distribution in such jurisdiction or jurisdictions in which
Cherokee shall have reasonably requested.
10. Notice Addresses. For purposes of this Agreement and the Loan
Documents, the notice address of Cherokee is 000 Xxxx Xx., Xxxxx 000, Xxxxxxxx,
Xxxxxxxx 00000. Covol's notice address remains 0000 X. Xxxxxxxx Xxxx, Xxxx, Xxxx
00000.
11. Continued Validity. Except as modified herein and as necessary to
reflect the assignment by TPS to Cherokee, the Loan Documents shall remain in
full force and effect.
12. Further Assurances. Covol and Cherokee 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.
13. Merger. This Agreement and the Loan Documents constitute 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.
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14. Successors and Assigns. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns.
15. 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.
16. 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 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.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date and year first above written.
Cherokee: CHEROKEE ASSOCIATES LLC
By /s/ Xxxx X. Xxxx, Xx.
-----------------------------
Xxxx X. Xxxx, Xx.
Its Manager
Covol: COVOL TECHNOLOGIES, INC.
By /s/ Xxxxxx X. Xxxxxxx
-----------------------------
Xxxxxx X. Xxxxxxx
Its: Chief Financial Officer
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