THIS NOTE MAY ONLY BE SOLD, ASSIGNED OR OTHERWISE TRANSFERRED TO AN
"ACCREDITED INVESTOR," AS DEFINED 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.
SECURED DRAW DOWN PROMISSORY NOTE
Not to Exceed $4,000,000.00
Lehi, Utah
June 12, 1998
FOR VALUE RECEIVED, COVOL TECHNOLOGIES, INC., a Utah corporation (the
"Company"), hereby promises to pay to the order of TRANS PACIFIC STORES, LTD., a
Hawaiian corporation (the "Lender"), at 000 Xxxx Xxxxxx, Xxxxx 000, Xxxxxxxx, XX
00000, or at such other place as the Lender may designate in writing, in
accordance with Section 2 of this Note, the maximum principal amount of Four
Million Dollars ($4,000,000.00), or such lesser amount as is advanced, in lawful
money of the United States, with interest thereon to accrue pursuant to Section
of this Note.
1. Undefined Terms. All terms not defined in this Note are used as set
forth in the Security Agreement of even date between the parties.
2. Maturity Date. Interest on the outstanding principal balance shall
accrue at a rate equal to eighteen percent (18%) per annum (the "Interest
Rate"). Interest shall be calculated on the basis of a 365-day year and the
actual number of days elapsed. On the four-month anniversary of this Note, the
Interest Rate shall be adjusted to twenty-two percent (22%) per annum, until the
Loan, including all principal and interest has been paid in full. Interest shall
accrue on the unadvanced portion of the maximum principal amount, including
amounts paid by the Company as partial repayment of the Loan, at the rate of one
percent (1%) per annum until the Loan is paid in full. The unpaid principal
amount owing and any and all interest due hereunder shall be due and payable in
full on or before twelve months following execution of this Note. Interest shall
accrue on this Note as set forth in this Section until the principal is paid in
full.
3. Payment of Interest. Interest due hereunder shall be paid on a
quarterly basis.
4. Advances. Principal of this Note shall be increased incrementally as
advances are made following Draw Requests (as defined below) submitted pursuant
to the procedure set forth in the remainder of the section. The Company shall
request each advance of principal with respect to this Note by delivering to the
Lender a written draw request ("Draw Request") for advance, the form of which is
attached as Exhibit A, not less than two (2) business days prior to the date on
which the advance is requested to be made. No Draw Requests can be made by the
Company after the four-month anniversary of this Note. Each Draw Request shall
be signed by any one of the following officers of the Company: Xxxxx X. Xxxx,
Xxxxxxx X. Xxxxxxx, Xxxxxx X. Xxxxxxx, Xxxxx X. Xxxxxxxx or Xxxxxx X. Xxxxxxxx
or such other person as the Company may designate from time to time. Each such
request shall specify the proposed date of the advance and the amount thereof
and shall contain a certification (i) that the Company is not in default under
the Note or the Security Agreement and (ii) that no event which, with the
passage of time or the giving of notice, or both, would give rise to a default
has occurred and is continuing. The Lender shall fund, within such two (2) day
period, the amounts requested in such Draw Request unless an uncured Event of
Default exists. Each advance, the date thereof and the then outstanding
principal amount of the Note, as evidenced by the Lender's signature, shall be
recorded by the Lender in Schedule A attached hereto.
5. Prepayment. The Company shall have the right to prepay all or any
portion of the Note prior to maturity without the payment of any prepayment
penalty. Any payments made prior to the maturity date of the Note, as set forth
in Section 3, shall be credited first against the unpaid interest due, with no
payments being applied to principal until the accrued interest has been fully
paid.
6. Security. As security for the obligations under the Note, the
Company shall, pursuant to a separate Security Agreement, dated of even date
herewith, (the "Security Agreement"), by and between the Lender and the Company,
grant, convey, and assign to the Lender a security interest in the following:
(i) For $2,200,000 outstanding at any time, the Collateral is a continuing
interest in that certain promissory note as amended ("Promissory Note") dated
August 1996, between the Company and Xxxxxx X. Xxxxxx; and (ii) The Collateral
for amounts in excess of $2,200,000 up to an additional $1,800,000 is a
continuing interest in future cash flows payable to the Company pursuant to the
agreement between A.T. Xxxxxx ("Xxxxxx") and the Company dated December 4, 1997
for the construction, operation and sale of two 360,000 ton synthetic fuel
manufacturing facilities. The Company agrees to take any and all reasonable
steps required by the Lender, to protect, evidence, give effect to or give
notice of Xxxxxx's security interest, and shall pay all costs in connection
therewith. 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.
7. Usury Laws. Notwithstanding anything to the contrary contained
herein or in the 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 Utah. If any payments in the nature of interest,
additional interest, or other charges made hereunder or under the Security
Agreement are held to be in excess of the applicable limits imposed by the usury
laws of the State of Utah, 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 Utah, 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 agreements between the Company and Lender or
Xxxxxx's successors or assigns.
8. 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 and interest on this Note to be immediately due and payable:
(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 material garnishment, attachment or levy is issued
against the Collateral by any party other than Lender; or
(c) Any default occurs in payment or performance of any
obligations of the Company, or any breach of a representation
or warranty of the Company, under the provisions of this Note
or the Security Agreement, executed in connection herewith;
provided, however, that any such default shall not be deemed
an Event of Default until the Company receives written notice
of such event and the Company fails to cure such default
within thirty (30) days after receipt of such notice.
9. Acceleration, Waiver. Upon the occurrence of an uncured Event of
Default, the Lender may declare this Note immediately due and payable.
10. Immunity of Officers, Directors and Employees. No recourse shall be
had for the payment of the principal or interest on this Note or for any claim
based thereon or otherwise in any manner in respect thereof, to or against any
officer, director or employee of the Company, either directly or through the
Company, whether by virtue of any constitutional provision or statute or rule of
law, or by the enforcement of any assessment or penalty, or in any other manner,
all such liability being expressly waived and released by the acceptance of this
Note and as part of the consideration for the issue thereof.
11. 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 and all of its equity owners are "accredited
investors" within the meaning of Regulation D of the Act and that the Lender has
reviewed the public filings with the Securities and Exchange Commission ("SEC")
of the Company, and has otherwise had the opportunity to ask questions of the
Company regarding its business activities.
12. Notices. All notices required to be given under this Note shall be
in writing and shall be personally delivered or sent by regular, express or
certified first-class mail or express mail, or by express courier, charges
prepaid or incurred for the account of the sender. Such notices shall be
addressed to the addresses as set forth in the Security Agreement.
13. Necessary Documents. Each of the parties agrees to execute and
provide, at the request of the other parties, any and all other documents or
other necessary written instruments as may be reasonable necessary to effectuate
the purposes of this Note.
14. 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 Utah.
IN WITNESS WHEREOF, the Company has executed this Note as of the date
first written above.
COVOL TECHNOLOGIES, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
---------------------------
Title: CFO
Address:
0000 X. Xxxxxxxx Xxxx
Xxxx, Xxxx 00000
(000) 000-0000
ATTEST:
By:/s/ Xxxxx X. Xxxxxxxx, Xx.
-----------------------------
Name: Xxxxx X. Xxxxxxxx, Xx.
Title: Secretary
SCHEDULE A
Draw Record
====================== ================ ===================== ==================
Outstanding
Principal
Amount of Advance(1) Date of Advance Signature of Lender Amount ($)
---------------------- ---------------- --------------------- ------------------
---------------------- ---------------- --------------------- ------------------
---------------------- ---------------- --------------------- ------------------
---------------------- ---------------- --------------------- ------------------
---------------------- ---------------- --------------------- ------------------
---------------------- ---------------- --------------------- ------------------
---------------------- ---------------- --------------------- ------------------
---------------------- ---------------- --------------------- ------------------
---------------------- ---------------- --------------------- ------------------
---------------------- ---------------- --------------------- ------------------
---------------------- ---------------- --------------------- ------------------
---------------------- ---------------- --------------------- ------------------
---------------------- ---------------- --------------------- ------------------
---------------------- ---------------- --------------------- ------------------
---------------------- ---------------- --------------------- ------------------
---------------------- ---------------- --------------------- ------------------
---------------------- ---------------- --------------------- ------------------
---------------------- ---------------- --------------------- ------------------
---------------------- ---------------- --------------------- ------------------
---------------------- ---------------- --------------------- ------------------
====================== ================ ===================== ==================
EXHIBIT "A"
DRAW REQUEST NO. ___
NOT TO EXCEED $4,000,000.00
TO: TRANS PACIFIC STORES, LTD. (the "Lender")
This Draw Request is made pursuant to Section 3 of that certain Secured
Draw Down Promissory Note dated June 12, 1998 (the "Note"). Lender is hereby
directed to advance funds for payment of the expenses and capital costs of the
Company as defined in that certain Security Agreement dated June 12, 1998
between Lender and the undersigned (the "Security Agreement") as follows:
------------------- -------------------------- --------------------------------
Company/Payee Purpose of Payment Amount
------------------- -------------------------- --------------------------------
------------------- -------------------------- --------------------------------
------------------- -------------------------- --------------------------------
------------------- -------------------------- --------------------------------
------------------- -------------------------- --------------------------------
------------------- -------------------------- --------------------------------
------------------- -------------------------- --------------------------------
------------------- -------------------------- --------------------------------
TOTAL
------------------- -------------------------- --------------------------------
The obligation for which such payment is requested was properly
incurred, is a proper expense or capital cost of the Company and has not been
the basis of a previous advance. Covol Technologies, Inc., is not on the date
hereof in default of any of its representations, warranties and covenants
contained in the Note or in the Security Agreement.
COVOL TECHNOLOGIES, INC.
Dated: __________, 1998 By:______________________________
