PROMISSORY NOTE
Borrower: Covol Technologies, Inc.
3280 North Frontage Road
Lehi, UT 84043
Lender: Zions First National Bank
Head Office/Commercial Banking
#1 South Main Street
Salt Lake City, UT 84125
--------------------------------------------------------------------------------
Principal Amount: $4,000,000.00 Date of Note: May 31, 2000
PROMISE TO PAY. COVOL TECHNOLOGIES, INC. ("Borrower") promises to pay to ZIONS
FIRST NATIONAL BANK ("Lender"), or order, in lawful money of the United States
of America, the principal amount of Four Million & 00/100 Dollars
($4,000,000.00), together with interest on the unpaid principal balance from May
31, 2000, until paid in full.
PAYMENT. Subject to any payment changes resulting from changes in the Index,
Borrower will pay this loan in accordance with the following payment schedule:
4 consecutive quarterly principal payments of $1,000,000.00 each,
beginning August 1, 2000, with subsequent payments due November 1,
2000, February 1, 2001, and final payment due May 1, 2001, plus
interest calculated on the unpaid principal balances at an interest
rate of 2.000 percentage points over the Index described below.
The annual interest rate for this Note is computed on a 365/360 basis; that is,
by applying the ratio of the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by the actual number
of days the principal balance is outstanding. Borrower will pay Lender at
Lender's address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments will be
applied first to any unpaid collection costs and any late charges, then to any
unpaid interest, and any remaining amount to principal. VARIABLE INTEREST RATE.
The interest rate on this Note is subject to change from time to time based on
changes in an index which is the ZIONS FIRST NATIONAL BANK PRIME RATE (the
"Index"). "PRIME RATE" MEANS AN INDEX WHICH IS DETERMINED DAILY BY THE PUBLISHED
COMMERCIAL LOAN VARIABLE RATE INDEX HELD BY ANY TWO OF THE FOLLOWING BANKS:
CHASE MANHATTAN BANK, WELLS FARGO BANK N.A., AND BANK OF AMERICA, N.A. IN THE
EVENT NO TWO OF THE ABOVE BANKS HAVE THE SAME PUBLISHED RATE, THE BANK HAVING
THE MEDIAN RATE WILL ESTABLISH LENDERS' PRIME RATE. IF, FOR ANY REASON BEYOND
THE CONTROL OF LENDER, ANY OF THE AFOREMENTIONED BANKS BECOMES UNACCEPTABLE AS A
REFERENCE FOR THE PURPOSE OF DETERMINING THE PRIME RATE USED HEREIN, LENDER MAY,
FIVE DAYS AFTER POSTING NOTICE IN LENDERS OFFICES, SUBSTITUTE ANOTHER COMPARABLE
BANK FOR THE ONE DETERMINED UNACCEPTABLE. AS USED IN THIS PARAGRAPH, "COMPARABLE
BANK" SHALL MEAN ONE OF THE TEN LARGEST COMMERCIAL BANKS HEADQUARTERED IN THE
UNITED STATES OF AMERICA. THIS DEFINITION OF PRIME RATE IS TO BE STRICTLY
INTERPRETED AND IS NOT INTENDED TO SERVE ANY PURPOSE OTHER THAN PROVIDING AN
INDEX TO DETERMINE THE VARIABLE INTEREST RATE USED HEREIN. IT IS NOT THE LOWEST
RATE AT WHICH LENDER MAY MAKE
<PAGE>
LOANS TO ANY OF ITS CUSTOMERS, EITHER NOW OR IN THE FUTURE.. Lender will tell
Borrower the current Index rate upon Borrower's request. Borrower understands
that Lender may make loans based on other rates as well. The interest rate
change will not occur more often than each DAY. The Index currently is 9.500%
per annum. The interest rate or rates to be applied to the unpaid principal
balance of this Note will be the rate or rates set forth above in the "Payment"
section. NOTICE: Under no circumstances will the interest rate on this Note be
more than the maximum rate allowed by applicable law. Whenever increases occur
in the interest rate, Lender, at its option, may do one or more of the
following: (a) increase Borrower's payments to ensure Borrower's loan will pay
off by its original final maturity date, (b) increase Borrower's payments to
cover accruing interest, (c) increase the number of Borrower's payments, and (d)
continue Borrower's payments at the same amount and increase Borrower's final
payment.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges
are earned fully as of the date of the loan and will not be subject to refund
upon early payment (whether voluntary or as a result of default), except as
otherwise required by law. Except for the foregoing, Borrower may pay without
penalty all or a portion of the amount owed earlier than it is due. Early
payments will not, unless agreed to by Lender in writing, relieve Borrower of
Borrower's obligation to continue to make payments under the payment schedule.
Rather, they will reduce the principal balance due and may result in Borrower
making fewer payments.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries
to take any of Borrower's property on or in which Lender has a lien or security
interest. This includes a garnishment of any of Borrower's accounts with Lender.
(g) Any guarantor dies or any of the other events described in this default
section occurs with respect to any guarantor of this Note. (h) A material
adverse change occurs in Borrower's financial condition, or Lender believes the
prospect of payment or performance of the Indebtedness is impaired. (i) Lender
in good faith deems itself insecure.
If any default, other than a default in payment, is curable, it may be cured
(and no event of default will have occurred) if Borrower, after receiving
written notice from Lender demanding cure of such default: (a) cures the default
within thirty (30) days; or (b) if the cure requires more than thirty (30) days,
immediately initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, increase the variable interest rate on this Note by 3.000
percentage points. The interest rate will not exceed the maximum rate permitted
by applicable law. Lender may
<PAGE>
hire or pay someone else to help collect this Note if Borrower does not pay.
Borrower also will pay Lender that amount. This includes, subject to any limits
under applicable law, Lender's reasonable attorneys' fees and Lender's legal
expenses whether or not there is a lawsuit, including reasonable attorneys' fees
and legal expenses for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. If not prohibited by applicable law, Borrower
also will pay any court costs, in addition to all other sums provided by law.
This Note has been delivered to Lender and accepted by Lender in the State of
Utah. If there is a lawsuit, Borrower agrees upon Lender's request to submit to
the jurisdiction of the courts of SALT LAKE County, the State of Utah. Subject
to the provisions on arbitration, this Note shall be governed by and construed
in accordance with the laws of the State of Utah.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
in the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on this Note against any and all such accounts.
ARBITRATION DISCLOSURES:
1.
ARBITRATION IS FINAL AND BINDING ON THE PARTIES AND SUBJECT TO ONLY
VERY LIMITED REVIEW BY A COURT.
2.
IN ARBITRATION THE PARTIES ARE WAIVING THEIR RIGHT TO LITIGATE IN
COURT, INCLUDING THEIR RIGHT TO A JURY TRIAL.
3.
DISCOVERY IN ARBITRATION IS MORE LIMITED THAN DISCOVERY IN COURT.
4.
ARBITRATORS ARE NOT REQUIRED TO INCLUDE FACTUAL FINDINGS OR LEGAL
REASONING IN THEIR AWARDS. THE RIGHT TO APPEAL OR TO SEEK MODIFICATION OF
ARBITRATORS' RULINGS IS VERY LIMITED.
5.
A PANEL OF ARBITRATORS MIGHT INCLUDE AN ARBITRATOR WHO IS OR WAS
AFFILIATED WITH THE BANKING INDUSTRY.
6.
IF YOU HAVE QUESTIONS ABOUT ARBITRATION, CONSULT YOUR ATTORNEY OR THE
AMERICAN ARBITRATION ASSOCIATION.
(a) Any claim or controversy ("Dispute") between or among the parties and
their assigns, including but not limited to Disputes arising out of or
relating to this agreement, this arbitration provision ("arbitration
clause"), or any related agreements or instruments relating hereto or
delivered in
<PAGE>
connection herewith ("Related Documents"), and including but not limited to
a Dispute based on or arising from an alleged tort, shall at the request of
any party be resolved by binding arbitration in accordance with the
applicable arbitration rules of the American Arbitration Association (the
"Administrator"). The provisions of this arbitration clause shall survive
any termination, amendment, or expiration of this agreement or Related
Documents. The provisions of this arbitration clause shall supersede any
prior arbitration agreement between or among the parties. If any provision
of this arbitration clause should be determined to be unenforceable, all
other provisions of this arbitration clause shall remain in full force and
effect.
(b) The arbitration proceedings shall be conducted in Salt Lake City, Utah,
at a place to be determined by the Administrator. The Administrator and the
arbitrator(s) shall have the authority to the extent practicable to take any
action to require the arbitration proceeding to be completed and the
arbitrator(s)' award issued within one hundred fifty (150) days of the
filing of the Dispute with the Administrator. The arbitrator(s) shall have
the authority to impose sanctions on any party that fails to comply with
time periods imposed by the Administrator or the arbitrator(s), including
the sanction of summarily dismissing any Dispute or defense with prejudice.
The arbitrator(s) shall have the authority to resolve any Dispute regarding
the terms of this agreement, this arbitration clause or Related Documents,
including any claim or controversy regarding the arbitrability of any
Dispute. All limitations periods applicable to any Dispute or defense,
whether by statute or agreement, shall apply to any arbitration proceeding
hereunder and the arbitrator(s) shall have the authority to decide whether
any Dispute or defense is barred by a limitations period and, if so, to
summarily enter an award dismissing any Dispute or defense on that basis.
The doctrines of compulsory counterclaim, res judicata, and collateral
estoppel shall apply to any arbitration proceeding hereunder so that a party
must state as a counterclaim in the arbitration proceeding any claim or
controversy which arises out of the transaction or occurrence that is the
subject matter of the Dispute. The arbitrator(s) may in the arbitrator(s)'
discretion and at the request of any party: (1) consolidate in a single
arbitration proceeding any other claim or controversy involving another
party that is substantially related to the Dispute where that other party is
bound by an arbitration clause with the Lender, such as borrowers,
guarantors, sureties, and owners of collateral; (2) consolidate in a single
arbitration proceeding any other claim or controversy that is substantially
similar to the Dispute; and (3) administer multiple arbitration claims or
controversies as class actions in accordance with the provisions of Rule 23
of the Federal Rules of Civil Procedure.
(c) The arbitrator(s) shall be selected in accordance with the rules of the
Administrator from panels maintained by the Administrator. A single
arbitrator shall have expertise in the subject matter of the Dispute. Where
three arbitrators conduct an arbitration proceeding, the Dispute shall be
decided by a majority vote of the three arbitrators, at least one of whom
must have expertise in the subject matter of the Dispute and at least one of
whom must be a practicing attorney. The arbitrator(s) shall award to the
prevailing party recovery of all costs and fees (including attorneys' fees
and costs, arbitration administration fees and costs, and arbitrator(s)'
fees). The arbitrator(s), either during the pendency of the arbitration
proceeding or as part of the arbitration award, also may grant provisional
or ancillary remedies, including but not limited to an award of injunctive
relief, foreclosure, sequestration, attachment, replevin, garnishment, or
the appointment of a receiver.
(d) Judgment upon an arbitration award may be entered in any court having
jurisdiction, subject to the following limitation: the arbitration award is
binding upon the parties only if the amount does not exceed Four Million
Dollars ($4,000,000.00); if the award exceeds that limit, either party may
demand the right to a court trial. Such a demand must be filed with the
Administrator within thirty (30) days following the date of the arbitration
award; if such a demand is not made within that time period, the amount of
the arbitration award shall be binding. The computation of the total amount
of an arbitration award shall include amounts awarded for attorneys' fees
and costs, arbitration administration fees and costs, and arbitrator(s)'
fees.
(e) No provision of this arbitration clause, nor the exercise of any rights
hereunder, shall limit the right of any party to: (1) judicially or
non-judicially foreclose against any real or personal property
<PAGE>
collateral or other security; (2) exercise self-help remedies, including but
not limited to repossession and setoff rights; or (3) obtain from a court
having jurisdiction thereover any provisional or ancillary remedies,
including but not limited to injunctive relief, foreclosure, sequestration,
attachment, replevin, garnishment, or the appointment of a receiver. Such
rights can be exercised at any time, before or during initiation of an
arbitration proceeding, except to the extent such action is contrary to the
arbitration award. The exercise of such rights shall not constitute a waiver
of the right to submit any Dispute to arbitration, and any claim or
controversy related to the exercise of such rights shall be a Dispute to be
resolved under the provisions of this arbitration clause. Any party may
initiate arbitration with the Administrator; however, if any party initiates
litigation and another party disputes any allegation in that litigation, the
disputing party--upon the request of the initiating party--must file a
demand for arbitration with the Administrator and pay the Administrator's
filing fee. The parties may serve by mail a notice of an initial motion for
an order of arbitration. (f) Notwithstanding the applicability of any other
law to this agreement, the arbitration clause, or Related Documents between
or among the parties, the Federal Arbitration Act, 9 U.S.C. Section 1 et
seq., shall apply to the construction and interpretation of this arbitration
clause.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
COVOL TECHNOLOGIES, INC.
By: /s/ Kirk A. Benson
-------------------------------
KIRK A. BENSON, CHAIRMAN & CEO
