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LOAN AND SECURITY AGREEMENT
By and Between
Covol Technologies, Inc.
and
Trans Pacific Stores, Ltd.
June 12, 1998
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TABLE OF CONTENTS
Section Page
1. Loan..................................................................1
2. Warrants..............................................................1
3. Security Agreement.................................................. 1
3.1. Security Interest.......................................... 1
3.2. Collateral. ............................................... 1
3.3. Cash Flow From Collateral. ................................ 2
3.4. Release of Collateral. .................................... 2
3.5. Remedies Upon Default...................................... 2
4. Representations, Warranties and Covenants of Borrower............... 2
4.1. Corporate Existence; Compliance with Law................... 2
4.2. Corporate Power; Authorization; Enforceable Obligations.... 3
4.3. Environmental Laws......................................... 3
4.4. Priority................................................... 3
5. Representations, Warranties, and Covenants of the Lender............ 3
5.1. Disclosure of Information.................................. 3
5.2. Accredited Investor........................................ 3
6. Miscellaneous....................................................... 3
6.1. Survival of Warranties..................................... 3
6.2. Successors and Assigns..................................... 4
6.3. Governing Law.............................................. 4
6.4. Counterparts............................................... 4
6.5. Titles and Subtitles....................................... 4
6.6. Notices.................................................... 4
6.7. Expenses................................................... 4
6.8. Amendments and Waivers..................................... 4
6.9. Severability............................................... 4
6.10. Waiver of Trial by Jury.................................... 4
6.11. Entire Agreement........................................... 5
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (the "Agreement") is entered into as
of the 12th day of June, 1998, by and between COVOL TECHNOLOGIES, INC., a Utah
corporation, (the "the Company"), and TRANS PACIFIC STORES, LTD., a Delaware
corporation ("Lender"), and evidences the obligation of Lender to loan the
Company up to Four Million Dollars ($4,000,000.00), and Lender's acceptance of a
Secured Draw Down Promissory Note of even date herewith (the "Note").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1 Loan. Subject to the terms and conditions of this Agreement and the
Secured Draw Down Promissory Note of even date herewith (the "Note"), Lender
agrees to lend, and the Company agrees to borrow, the principal amount of up to
Four Million Dollars ($4,000,000) (the "Loan"), such amounts to be advanced over
time, by wire transfer or check payable to the order of the Company within two
(2) business days of Lender's receipt of a draw request (a "Draw Request") in
the form attached to the Note. No Draw Requests can be made by the Company after
the four-month anniversary of the Note. The proceeds of the Loan shall be used
for operational and other expenses of the Company.
2 Warrants. As partial consideration for the Loan, the Company grants
to Lender warrants (the "Warrants") to purchase restricted common stock of the
Company at an exercise price equal to the closing bid price on the four-month
anniversary of the Loan ("Trigger Date"). The number of Warrants granted will be
equal to the principal amount of the Loan outstanding on the Trigger Date
divided by Four Million Dollars ($4,000,000) times 100,000. For example, if the
outstanding balance of the Loan is $2,000,000 on the Trigger Date, the Company
will grant to Lender 50,000 Warrants ($2,000,000/$4,000,000 x 100,000 = 50,000).
If the Loan has been paid in full by the Trigger Date, the number of Warrants
granted hereunder will be zero. Warrants granted, if any, may be exercised
within two years of the date of issuance of such Warrants. The Warrants if
unexercised will expire on the two-year anniversary of the date of issuance.
3 Security Agreement. Payment of the Loan shall be secured to the
extent described below:
3.1. Security Interest. the Company hereby grants to
Lender a security interest in the property and the proceeds described
in Section 3.2 herein to secure the Company's obligations under the
Loan (the "Security Interest").
3.2. Collateral. The property in which the Security Interest
is granted (the "Collateral") consists of 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 Gerald M. Larson; 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. Massey ("Massey") and the Company dated
December 4, 1997 for the construction, operation and sale of two
360,000 ton synthetic fuel manufacturing facilities. Upon execution of
this Agreement or at the time the Massey cash flows commence, the
Company shall execute and deliver to Lender any documents, notices or
instruments reasonably requested by Lender to protect, evidence, give
effect to or give notice of Lender's security interest, and shall pay
all costs in connection therewith.
3.3. Cash Flow From Collateral. If there is an outstanding
balance under this Agreement as of the four month anniversary of the
Agreement, the Company will assign payments to be paid thereafter under
the Collateral directly to Lender. Such payments will apply first to
interest and then to principal.
3.4. Release of Collateral. Notwithstanding anything in this
Agreement to the contrary, Lender will release the Promissory Note
Collateral any time the Loan amount is equal to or less than
$1,800,000, provided the Massey agreement continues to be held as
Collateral to maintain the Loan amount at less than or equal to
$1,800,000.
3.5. Remedies Upon Default. In the event of any Event of
Default under the Note, Lender may do any one or more of the following:
3.5.1. Declare any indebtedness under the Loan
immediately due and payable;
3.5.2. Enforce the security interest given in this
Agreement under the provisions of the Uniform
Commercial Code of the applicable state or any other
equivalent law (the "Uniform Commercial Code");
3.5.3. Exercise any other rights and remedies of a
secured party under the Uniform Commercial Code of
the applicable state or other applicable law, all of
which rights and remedies shall be cumulative and
non-exclusive, to the extent permitted by law.
4 Representations, Warranties and Covenants of the Company. The Company
hereby represents, warrants, and covenants to Lender that:
4.1. Existence; Compliance with Law. The Company (i) is a
corporation duly organized, validly existing, and in good standing
under the laws of the State of Delaware; (ii) is duly qualified as a
foreign corporation and in good standing under the laws of each
jurisdiction where its ownership or lease of property or the conduct of
its business requires such qualification; (iii) has the requisite power
and authority and the legal right under the laws of the state of Utah
to own, pledge, mortgage, or otherwise encumber and operate its
properties, to lease the property it operates under lease, and to
conduct its business as now, heretofore and proposed to be conducted;
(iv) has all material licenses, permits, consents, or approvals from or
by, and has or will have made all material filings with, and has or
will have given all material notices to, all
governmental authorities having jurisdiction, to the extent required
for such ownership, operation, and conduct; and (v) is in compliance
with its articles of incorporation.
4.2. Power; Authorization; Enforceable Obligations. The
execution, delivery, and performance by the Company of this Agreement
and the Note (i) are within the Company's power under the laws of the
state of Utah; (ii) have been duly authorized by all necessary or
proper action under the laws of the state of Utah; (iii) are not in
contravention of any provision of the Company articles of
incorporation; (iv) to the Company's knowledge will not violate any law
or regulation, or any order or decree of any court or governmental
instrumentality; (v) will not conflict with or result in the breach or
termination of, constitute a default under, or accelerate any
performance required by, any indenture, mortgage, deed of trust, lease,
agreement, or other instrument to which the Company is a party or by
which the Company or any of its property is bound (except such
conflict, breach, termination, default, or acceleration as could not
reasonably be expected to have a material adverse effect on the
business of the Company); (vi) will not result in the creation or
imposition of any lien upon any of the property of the Company other
than those in favor of the Lender; and (vii) do not require the consent
or approval of any governmental body, agency, authority or any other
person. At or prior to the funding of each Draw Request, each of the
documents to be delivered at such time shall have been duly executed
and delivered by or on behalf of the Company, and each shall then
constitute a legal, valid, and binding obligation of the Company to the
extent it is a party thereto, enforceable against it in accordance with
its terms, subject to the effects of laws governing creditors rights
generally and general principles of equity.
4.3. Environmental Laws. All premises and facilities owned,
leased, used, or operated by the Company or, to the knowledge of any
officer of the Company after a reasonable investigation, any
predecessor in interest, have been, and continue to be, owned, leased,
used, or operated in compliance in all material respects with all
applicable environmental laws.
4.4. Priority. The Company has not granted a security interest
in the Collateral which is on a parity or superior to the Security
Interest of Lender.
5 Representations, Warranties, and Covenants of the Lender. Lender
hereby represents, and warrants that:
5.1. Disclosure of Information. Lender has received all the
information it considers necessary or appropriate for deciding whether
to grant the Loan. Lender further represents that it has had an
opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the Loan.
5.2. Accredited Investor. Lender is an "accredited investor"
within the definition set forth in Rule 501(a) under the Act.
6 Miscellaneous.
6.1. Survival of Warranties. The warranties, representations,
and covenants of the Company and the Lender contained in or made
pursuant to this Agreement shall survive the execution and delivery of
this Agreement and the funding of any Draw Request and shall in no way
be affected by any investigation of the subject matter thereof made by
or on behalf of Lender or the Company.
6.2. Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of
the parties.
6.3. Governing Law. This Agreement shall be governed by and
construed under the laws of the State of Utah without regard to choice
of law principles.
6.4. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
6.5. Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.
6.6. Notices. Unless otherwise provided, any notice required
or permitted under this Agreement shall be given in writing and shall
be deemed effectively given upon personal delivery to the party to be
notified or upon deposit with a reputable overnight courier or with the
United States Post Office, by registered or certified mail, postage
prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days advance written
notice to the other parties.
6.7. Expenses. Each party shall bear its own expenses in
connection with the transactions contemplated by this Agreement.
6.8. Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived
only with the written consent of the Company and the Lender.
6.9. Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall
be excluded from this Agreement and the balance of the Agreement shall
be interpreted as if such provision were so excluded and shall be
enforceable in accordance with its terms.
6.10. Waiver of Trial by Jury. BORROWER AND THE LENDER HEREBY
WAIVE TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF
ANY KIND DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR THE LOAN OR ANY ACT OR OMISSION WHICH EITHER PARTY ASSERTS
RESULTED IN ANY LIABILITY TO BORROWER, THE LENDER OR THEIR RESPECTIVE
OFFICERS,
DIRECTORS, STOCKHOLDERS, PARTNERS, EMPLOYEES, OR AGENTS, TO THE FULL
EXTENT PERMITTED BY LAW.
6.11. Entire Agreement. This Agreement, the Note and other
documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the
subjects hereof and thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
Address: 3280 North Frontage Road COVOL TECHNOLOGIES, INC.
Lehi, Utah 84043
By: /s/Stanley M. Kimball
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Name: Stanley M. Kimball
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Title: CFO
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Address: 555 Zang Street, Suite 300 TRANS PACIFIC STORES, LTD.
Lakewood, CO 80228
By: /s/John P. Hill, Jr.
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Name: John P. Hill, Jr.
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Title: President
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