AMENDED AND RESTATED PROMISSORY NOTE U.S. $6,500,000 Dated as of May 25, 2000 FOR VALUE RECEIVED, the undersigned, Birmingham Syn Fuel, L.L.C., an Oregon limited liability company ("Debtor"), promises to pay to the joint order of Covol Technologies, Inc., a Delaware corporation ("Covol"), and Alabama Synfuel #1 Ltd., a Delaware limited partnership ("ASF"), the principal amount of Six Million Five Hundred Thousand Dollars ($6,500,000), together with interest thereon at the Interest Rate (as hereinafter defined) (collectively, the "Obligations") from the date hereof until paid in full, all in accordance with the terms of this Amended and Restated Promissory Note (the "Note"). This Note is delivered pursuant to that certain Settlement Agreement and Mutual Release ("Settlement Agreement"), dated as of May 25, 2000, by and among Covol and ASF (collectively, "Lender"), on the one hand, and Debtor, PacifiCorp Syn Fuel, L.L.C., an Oregon limited liability company, and PacifiCorp Financial Services, Inc., an Oregon corporation ("Financial"), on the other hand. For purposes of this Note, capitalized terms used but not otherwise defined herein shall have the meanings ascribed thereto in the Settlement Agreement. Interest shall accrue on the aggregate principal balance of this Note from the date hereof until the repayment in full of the Obligations at a rate of six percent (6%) per annum simple interest ("Interest Rate"). Interest shall be calculated based on a 365-day year calculated for the actual number of days elapsed and shall not compound. Accrued interest shall be due and payable quarterly in arrears on each March 31, June 30, September 30 and December 31 until final payment of the Obligations, with the first such interest payment due on June 30, 2000. All accrued and unpaid Obligations outstanding under this Note shall be due and payable on February 20, 2003. In addition to any rights of the Debtor under the Settlement Agreement, the Transaction Documents and applicable law, any amounts owing to Debtor from either the Lender or Covol under any of the Settlement Agreement or the Transaction Documents may be offset and applied toward the payment of the Obligations owing to the Lender, whether or not the Obligations, or any part thereof, shall be due and payable; provided, however, that Debtor shall give Lender ten (10) business days' written notice prior to exercising such right of offset. Subject to the immediately preceding paragraph, and upon thirty days written notice by Lender of (i) a failure by the Debtor to make payments required pursuant to the terms hereof, or (ii) an absolute and irrevocable abandonment of the Alabama Project, the Lender may declare this Note immediately due and payable without further presentment, demand, protest or notice of any kind, and thereafter interest shall continue to accrue at the Interest Rate.
In no contingency or event whatsoever shall the rate or amount of interest paid by the Debtor under this Note exceed the maximum amount permissible under the law, which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such court determines that Lender has received interest under this Note in excess of the maximum amount permitted by such law (i) Lender shall apply such excess to (A) first, the unpaid principal portion of the Obligations, and (B) second, to the accrued but unpaid interest portion of the Obligations, or (C) third, if the amount of such excess exceeds the Obligations, Lender shall promptly refund such excess interest to Debtor and (ii) the provisions of this Note shall be deemed amended to provide for such permissible rate. All sums paid, or agreed to be paid, by Debtor which are, or hereafter may be construed to be, compensation for the use, forbearance or detention of money shall, to the extent permitted by applicable law, be amortized, spread and allocated throughout the full term of such indebtedness until the indebtedness is paid in full. Both principal and interest are payable in United States Dollars in immediately available funds. This Note is subject to voluntary prepayment in whole or in part at the election of the Debtor.
In no contingency or event whatsoever shall the rate or amount of interest paid by the Debtor under this Note exceed the maximum amount permissible under the law, which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such court determines that Lender has received interest under this Note in excess of the maximum amount permitted by such law (i) Lender shall apply such excess to (A) first, the unpaid principal portion of the Obligations, and (B) second, to the accrued but unpaid interest portion of the Obligations, or (C) third, if the amount of such excess exceeds the Obligations, Lender shall promptly refund such excess interest to Debtor and (ii) the provisions of this Note shall be deemed amended to provide for such permissible rate. All sums paid, or agreed to be paid, by Debtor which are, or hereafter may be construed to be, compensation for the use, forbearance or detention of money shall, to the extent permitted by applicable law, be amortized, spread and allocated throughout the full term of such indebtedness until the indebtedness is paid in full. Both principal and interest are payable in United States Dollars in immediately available funds. This Note is subject to voluntary prepayment in whole or in part at the election of the Debtor. The payment of this Note is secured by a security interest in the Alabama Project, as more fully described in the Security Agreement, dated as of February 20, 1998, by and between Debtor and Lender as amended and restated by that Amended and Restated Security Agreement, dated the date hereof, by and between Debtor and Lender, and a Collateral Assignment of Sublease, dated as of February 20, 1998, delivered by Debtor for the benefit of the Lender, as amended and restated by that Amended and Restated Collateral Assignment of Lease, dated the date hereof, delivered by Debtor for the benefit of the Lender. This Note is assignable by Lender (any such assignment, other than a Pledge, as defined below, a "Sale"); provided, however, that in the event of a proposed Sale, Financial shall have the following limited right to purchase the Note: prior to: (i) offering the Note for Sale or (ii) accepting an offer for the Sale of the Note, Lender must offer (the "Sale Offer") in writing to sell the Note to Financial at the price and terms it expects to receive in the case of clause (i) or would receive in the case of clause (ii). The Sale Offer shall also state the date for the consummation of the sale of the Note to Financial (the "Financial Sale Consummation Date"); provided that the Financial Sale Consummation Date shall not be less than fifteen (15) days after Lender's receipt of Financial's written acceptance of the Sale Offer. Financial shall have thirty (30) days after the delivery to it of the Sale Offer in which to agree in writing to purchase the Note. If Lender receives written notice from Financial within thirty (30) days of Financial's receipt of the Sale Offer that Financial has agreed to purchase the Note on the Financial Sale Consummation Date at the price and terms set forth in the Offer, the parties shall close the sale on the Financial Sale Consummation Date. If Financial fails to exercise in 2
writing its right to purchase the Note within the time period specified above, Financial shall be deemed to have consented to the proposed Sale to a third party upon the same price and terms set forth in the Sale Offer. In the event that Financial has accepted the Sale Offer within thirty (30) days, but fails to complete the purchase on the Financial Sale Consummation Date (unless such failure is caused by Lender, Covol or any affiliate thereof), then, without limiting any other rights which Lender may have against Debtor, neither Debtor nor Financial shall have the right to purchase the Note with respect to any subsequent proposed Sale. In the event Financial elects not to purchase the Note as contemplated above, Lender shall have a three-month period in which it may sell the Note to any third party on the same or higher price and the same or less seller-friendly terms as presented to Financial. If a subsequent Sale is for a lower price or on terms otherwise more favorable to the purchaser than the terms and conditions presented to Financial, Lender shall be required to make a new offer to Financial on price and terms identical to such third party proposal. Notwithstanding the foregoing, Lender may pledge and grant a security interest with respect to this Note and the Lender's rights hereunder (a "Pledge") to any person or entity ("Outside Lender") in connection with a financing arrangement requiring a Pledge (any such arrangement, a "Loan"); provided, however, that in the event of a proposed Pledge, Financial shall have the following limited right to extend to Lender the Loan and, if Financial elects not to provide the Loan, the Outside Lender shall provide Financial a right of first refusal to purchase the Note in the event of a foreclosure. Prior to consummating the Loan, Lender must offer (the "Loan Offer") in writing to enter into the Loan with Financial on the same terms its expects to receive from the prospective Outside Lender. The Loan Offer shall also state the date for the consummation of the Loan with Financial (the "Financial Loan Consummation Date"); provided that the Financial
writing its right to purchase the Note within the time period specified above, Financial shall be deemed to have consented to the proposed Sale to a third party upon the same price and terms set forth in the Sale Offer. In the event that Financial has accepted the Sale Offer within thirty (30) days, but fails to complete the purchase on the Financial Sale Consummation Date (unless such failure is caused by Lender, Covol or any affiliate thereof), then, without limiting any other rights which Lender may have against Debtor, neither Debtor nor Financial shall have the right to purchase the Note with respect to any subsequent proposed Sale. In the event Financial elects not to purchase the Note as contemplated above, Lender shall have a three-month period in which it may sell the Note to any third party on the same or higher price and the same or less seller-friendly terms as presented to Financial. If a subsequent Sale is for a lower price or on terms otherwise more favorable to the purchaser than the terms and conditions presented to Financial, Lender shall be required to make a new offer to Financial on price and terms identical to such third party proposal. Notwithstanding the foregoing, Lender may pledge and grant a security interest with respect to this Note and the Lender's rights hereunder (a "Pledge") to any person or entity ("Outside Lender") in connection with a financing arrangement requiring a Pledge (any such arrangement, a "Loan"); provided, however, that in the event of a proposed Pledge, Financial shall have the following limited right to extend to Lender the Loan and, if Financial elects not to provide the Loan, the Outside Lender shall provide Financial a right of first refusal to purchase the Note in the event of a foreclosure. Prior to consummating the Loan, Lender must offer (the "Loan Offer") in writing to enter into the Loan with Financial on the same terms its expects to receive from the prospective Outside Lender. The Loan Offer shall also state the date for the consummation of the Loan with Financial (the "Financial Loan Consummation Date"); provided that the Financial Loan Consummation Date shall not be less than five (5) business days after Lender's receipt of Financial's written acceptance of the Loan Offer. Financial shall have fifteen (15) days after the delivery to it of the Loan Offer in which to agree in writing to enter into the Loan. If Lender receives written notice from Financial within fifteen (15) days of Financial's receipt of the Loan Offer that Financial has agreed to enter into the Loan on the Financial Loan Consummation Date on the terms set forth in the Loan Offer, the parties shall close the financing on the Financial Loan Consummation Date. If Financial fails to exercise in writing its right to enter into the Loan within the time period specified above, Financial shall be deemed to have consented to the proposed Loan with an Outside Lender upon the same terms set forth in the Loan Offer. In the event that Financial has accepted the Loan Offer within ten (10) days, but fails to close the financing on the Financial Loan Consummation Date (unless such failure is caused by Lender, Covol or any affiliate thereof), then, without limiting any other rights which Lender may have against Debtor, neither Debtor nor Financial shall have the right to extend a Loan with respect to any subsequent proposed Loan. In the event Financial elects not to enter into the Loan as contemplated above, Lender shall have a three-month period in which it may consummate a Loan with an Outside Lender on the same or less lender-friendly terms as presented to Financial. If a subsequent Loan is on terms more favorable to the Outside Lender than the terms and conditions presented to Financial, Lender shall be required to make a new offer to Financial on terms identical to such third party 3
proposal. In the event this Note is subject to a Pledge and a foreclosure proceeding is commenced, Financial shall be provided at least fifteen (15) days prior written notice of such sale and Financial shall be entitled to purchase the Note at the highest bonafide bid price at such sale. Any assignment of this Note without first complying with the notice and offer provisions set forth in this paragraph shall be void and of no force or effect. Without limiting the foregoing, unless Debtor receives notice of assignment of this Note, Debtor shall be entitled to deal solely with the Lender with respect to the subject matter of this Note. Notwithstanding anything to the contrary contained herein, Lender may assign this Note to any wholly-owned subsidiary of Covol or any entity owning, directly or through one or more wholly-owned entities, all of the outstanding capital stock of Covol; provided that Covol remains either a parent or subsidiary of assignee at all times until the Note is paid in full. Debtor hereby waives presentment for payment, demand, notice of dishonor and protest of this Note and further agrees that this Note shall be deemed to have been made under and shall be governed by the laws of the State of Utah in all respects, including matters of construction, validity and performance, and that none of its terms or provisions may be waived, altered, modified or amended except as Lender may consent thereto in writing duly signed by Lender or its authorized agent. No failure to exercise, and no delay in exercising, any rights hereunder on the part of the holder hereof shall operate as a waiver of such rights. This Note amends and restates the Original Note in its entirety. The Original Note is hereby terminated and of no further force or effect.
proposal. In the event this Note is subject to a Pledge and a foreclosure proceeding is commenced, Financial shall be provided at least fifteen (15) days prior written notice of such sale and Financial shall be entitled to purchase the Note at the highest bonafide bid price at such sale. Any assignment of this Note without first complying with the notice and offer provisions set forth in this paragraph shall be void and of no force or effect. Without limiting the foregoing, unless Debtor receives notice of assignment of this Note, Debtor shall be entitled to deal solely with the Lender with respect to the subject matter of this Note. Notwithstanding anything to the contrary contained herein, Lender may assign this Note to any wholly-owned subsidiary of Covol or any entity owning, directly or through one or more wholly-owned entities, all of the outstanding capital stock of Covol; provided that Covol remains either a parent or subsidiary of assignee at all times until the Note is paid in full. Debtor hereby waives presentment for payment, demand, notice of dishonor and protest of this Note and further agrees that this Note shall be deemed to have been made under and shall be governed by the laws of the State of Utah in all respects, including matters of construction, validity and performance, and that none of its terms or provisions may be waived, altered, modified or amended except as Lender may consent thereto in writing duly signed by Lender or its authorized agent. No failure to exercise, and no delay in exercising, any rights hereunder on the part of the holder hereof shall operate as a waiver of such rights. This Note amends and restates the Original Note in its entirety. The Original Note is hereby terminated and of no further force or effect. This Note shall be binding upon and inure to the benefit of the Lender and its respective heirs, executors, administrators, personal representatives and permitted successors and assigns. WAIVER OF JURY TRIAL: THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THE OBLIGATIONS, THE TRANSACTION DOCUMENTS, THE DEBTOR-CREDITOR RELATIONSHIP OF DEBTOR AND LENDER OR THE ACTIONS OF LENDER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF. 4
IN WITNESS WHEREOF, Debtor has caused this Note to be executed as of the date and year first above written. BIRMINGHAM SYN FUEL, L.L.C.
By: /s/ Craig Longfield Name: Craig Longfield Title: President
5
AMENDED AND RESTATED SECURITY AGREEMENT This Amended and Restated Security Agreement (the "Agreement") dated as of May 25, 2000, is entered into by and between COVOL TECHNOLOGIES, INC., a Delaware corporation ("Covol"), Alabama Synfuel #1 Ltd., a Delaware limited partnership ("Alabama Synfuel") (Covol and Alabama Synfuel are collectively referred to herein as "Secured Party"), and Birmingham Syn Fuel, LLC, an Oregon limited liability company (the "Debtor"). Debtor and Secured Party are parties to a Security Agreement dated as of February 20, 1998 (the "Original Agreement"), WITNESSETH WHEREAS Debtor delivered a promissory note dated February 20, 1998, as amended and restated this same
IN WITNESS WHEREOF, Debtor has caused this Note to be executed as of the date and year first above written. BIRMINGHAM SYN FUEL, L.L.C.
By: /s/ Craig Longfield Name: Craig Longfield Title: President
5
AMENDED AND RESTATED SECURITY AGREEMENT This Amended and Restated Security Agreement (the "Agreement") dated as of May 25, 2000, is entered into by and between COVOL TECHNOLOGIES, INC., a Delaware corporation ("Covol"), Alabama Synfuel #1 Ltd., a Delaware limited partnership ("Alabama Synfuel") (Covol and Alabama Synfuel are collectively referred to herein as "Secured Party"), and Birmingham Syn Fuel, LLC, an Oregon limited liability company (the "Debtor"). Debtor and Secured Party are parties to a Security Agreement dated as of February 20, 1998 (the "Original Agreement"), WITNESSETH WHEREAS Debtor delivered a promissory note dated February 20, 1998, as amended and restated this same date (the "Promissory Note"), in an aggregate principal amount of $6,500,000; and WHEREAS in order to secure the obligations of Debtor under this Agreement and the Promissory Note, the Debtor has agreed to grant a continuing first priority security interest in the Collateral (as defined herein) to the Secured Party; and WHEREAS, Debtor and Secured Party are among the parties to a Settlement Agreement and Mutual Release (the "Settlement Agreement") dated this same date, pursuant to which Debtor and Secured Party have agreed to amend and restate the Original Agreement. NOW, THEREFORE, Debtor and Secured Party hereby agree to amend and restate the Original Agreement in its entirety as follows: Section 1. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (which meanings shall be equally applicable to both the singular and plural forms of the terms defined); "Account" shall have the meaning given to that term in the Code. "Account Debtor" means any Person who is obligated on an Account. "Alabama Project" means the synthetic fuel manufacturing facility operated by Debtor and currently located at 2700 Powhatan Street, Mulga, Alabama. "Business Day" means any day other than a Saturday, a Sunday, a public or bank holiday under the laws of the State of Utah.
"Cash and Cash Equivalents" means the aggregate amount of (i) cash on hand, (ii) Dollar demand deposits maintained in the United States with any federally insured or state chartered financial institution, (iii) Dollar time deposits maintained in the United States with, or certificates of deposit issued by, any federally insured or state chartered financial institution, (iv) direct obligation of, or unconditionally guaranteed by, the United States and having a maturity of one year or less, and (v) readily marketable commercial paper having a maturity of one year
AMENDED AND RESTATED SECURITY AGREEMENT This Amended and Restated Security Agreement (the "Agreement") dated as of May 25, 2000, is entered into by and between COVOL TECHNOLOGIES, INC., a Delaware corporation ("Covol"), Alabama Synfuel #1 Ltd., a Delaware limited partnership ("Alabama Synfuel") (Covol and Alabama Synfuel are collectively referred to herein as "Secured Party"), and Birmingham Syn Fuel, LLC, an Oregon limited liability company (the "Debtor"). Debtor and Secured Party are parties to a Security Agreement dated as of February 20, 1998 (the "Original Agreement"), WITNESSETH WHEREAS Debtor delivered a promissory note dated February 20, 1998, as amended and restated this same date (the "Promissory Note"), in an aggregate principal amount of $6,500,000; and WHEREAS in order to secure the obligations of Debtor under this Agreement and the Promissory Note, the Debtor has agreed to grant a continuing first priority security interest in the Collateral (as defined herein) to the Secured Party; and WHEREAS, Debtor and Secured Party are among the parties to a Settlement Agreement and Mutual Release (the "Settlement Agreement") dated this same date, pursuant to which Debtor and Secured Party have agreed to amend and restate the Original Agreement. NOW, THEREFORE, Debtor and Secured Party hereby agree to amend and restate the Original Agreement in its entirety as follows: Section 1. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (which meanings shall be equally applicable to both the singular and plural forms of the terms defined); "Account" shall have the meaning given to that term in the Code. "Account Debtor" means any Person who is obligated on an Account. "Alabama Project" means the synthetic fuel manufacturing facility operated by Debtor and currently located at 2700 Powhatan Street, Mulga, Alabama. "Business Day" means any day other than a Saturday, a Sunday, a public or bank holiday under the laws of the State of Utah.
"Cash and Cash Equivalents" means the aggregate amount of (i) cash on hand, (ii) Dollar demand deposits maintained in the United States with any federally insured or state chartered financial institution, (iii) Dollar time deposits maintained in the United States with, or certificates of deposit issued by, any federally insured or state chartered financial institution, (iv) direct obligation of, or unconditionally guaranteed by, the United States and having a maturity of one year or less, and (v) readily marketable commercial paper having a maturity of one year or less, issued by any corporation organized and existing under the laws of the United States or any state thereof or the District of Columbia. "Code" means the Uniform Commercial Code as enacted in the State of Utah. "Collateral" means (a) all personal property assets of Debtor used or useful in connection with the Alabama Project, whether now existing or hereafter acquired or arising, and wherever located, tangible or intangible, including: (i) All Equipment used or useful in connection with the Alabama Project; (ii) All Computer Hardware and Software used or useful in connection with the Alabama Project;
"Cash and Cash Equivalents" means the aggregate amount of (i) cash on hand, (ii) Dollar demand deposits maintained in the United States with any federally insured or state chartered financial institution, (iii) Dollar time deposits maintained in the United States with, or certificates of deposit issued by, any federally insured or state chartered financial institution, (iv) direct obligation of, or unconditionally guaranteed by, the United States and having a maturity of one year or less, and (v) readily marketable commercial paper having a maturity of one year or less, issued by any corporation organized and existing under the laws of the United States or any state thereof or the District of Columbia. "Code" means the Uniform Commercial Code as enacted in the State of Utah. "Collateral" means (a) all personal property assets of Debtor used or useful in connection with the Alabama Project, whether now existing or hereafter acquired or arising, and wherever located, tangible or intangible, including: (i) All Equipment used or useful in connection with the Alabama Project; (ii) All Computer Hardware and Software used or useful in connection with the Alabama Project; (iii) All Accounts, contract rights, notes receivable, chattel paper, instruments, Intangibles, Cash and Cash Equivalents, stock and other equity securities, tax refunds and tax refund claims, trademarks, service marks, trade styles, trade names, licenses, franchises, copyrights, patents and other intellectual property of Debtor used or useful in connection with the Alabama Project, all depository accounts or deposits by Debtor in connection with the Alabama Project with any Person, documents, documents of title, and other property rights of any kind used or useful in connection with the Alabama Project, whether now or hereafter existing, wherever located, together with all rights now or hereafter existing in and to all security agreements, leases of personal property, leases of real property, and other contracts securing or otherwise relating to any such Accounts, contract rights, notes receivable, chattel paper, instruments, Intangibles, Cash and Cash Equivalents, stock and other equity securities, tax refunds and tax refund claims, trademarks, service marks, trade styles, trade names, licenses, franchises, copyrights, patents and other intellectual property of Debtor used or useful in connection with the Alabama Project; (iv) All Proceeds and products of any and all of the foregoing property and, to the extent not otherwise included, all payments under insurance (whether or not secured party is the loss payee thereof), and all claims, indemnities, warranties or guarantees, payable by reason of loss or damage to or otherwise with respect to any of the foregoing property, and all property of any type described above that is acquired with any cash proceeds of any of the foregoing property; 2
(v) All fixtures and other appurtenances to the Alabama Project and the real property owned by the Debtor. (b) all leasehold interests of Debtor in the real property covered by the Lease and all other real property assets (as described in Schedule 2 hereto) of Debtor used or useful in connection with the Alabama Project, and all rents, income, issues and profits thereof. "Collateral Assignment of Lease" means the Collateral Assignment of Lease, dated as of February 20, 1998, between Debtor, as assignor, and Secured Party, as assignee, as amended and restated this same date. "Computer Hardware and Software" means all of Debtor's right, title and interest, now owned or hereafter acquired, in computer equipment and hardware including all central processing units, terminals, disk drives, tape drives, electronic memory units, printers, keyboards, screens, peripherals (and other input/output devices), modems and other communication controllers, and any and all model conversions, accessions, parts and appurtenances thereto, substitutions therefor and replacements thereof, all intellectual property used by Debtor, at any time, in the operation of such computer equipment and hardware, including all software, all of Debtor's rights (to the extent assignable) under any licenses, options, warranties, service contracts, program services, test rights, maintenance rights, support rights, improvement rights, and renewal rights related to Debtor's use, at any time, of such computer equipment, hardware or software, and all leases pursuant to which Debtor leases any computer
(v) All fixtures and other appurtenances to the Alabama Project and the real property owned by the Debtor. (b) all leasehold interests of Debtor in the real property covered by the Lease and all other real property assets (as described in Schedule 2 hereto) of Debtor used or useful in connection with the Alabama Project, and all rents, income, issues and profits thereof. "Collateral Assignment of Lease" means the Collateral Assignment of Lease, dated as of February 20, 1998, between Debtor, as assignor, and Secured Party, as assignee, as amended and restated this same date. "Computer Hardware and Software" means all of Debtor's right, title and interest, now owned or hereafter acquired, in computer equipment and hardware including all central processing units, terminals, disk drives, tape drives, electronic memory units, printers, keyboards, screens, peripherals (and other input/output devices), modems and other communication controllers, and any and all model conversions, accessions, parts and appurtenances thereto, substitutions therefor and replacements thereof, all intellectual property used by Debtor, at any time, in the operation of such computer equipment and hardware, including all software, all of Debtor's rights (to the extent assignable) under any licenses, options, warranties, service contracts, program services, test rights, maintenance rights, support rights, improvement rights, and renewal rights related to Debtor's use, at any time, of such computer equipment, hardware or software, and all leases pursuant to which Debtor leases any computer equipment, hardware or software. "Equipment" means all equipment (as defined in the Code) of Debtor in all of its forms, wherever located, now or hereafter existing. "GAAP" means generally accepted United States accounting principles consistently applied as in effect from time to time. "Intangibles" means (i) goodwill, organizational expenses, research and development expenses, trademarks, trade names, copyrights, patents, patent applications, licenses, franchises, and rights in any thereof, and other similar intangibles, (ii) all unamortized debt discount and expense, (iii) all reserves carried and not deducted from assets, (iv) treasury stock and capital stock, obligations or other securities of, or capital contributions or investments in, any Related Person, (v) securities which are not readily marketable, (vi) cash held in a sinking or other analogous fund established for the purpose of redemption, retirement or prepayment of capital stock or debt, (vii) any writeup in the book value of any asset resulting from a revaluation thereof, and (viii) any items not included in clauses (i) through (vii) above which are treated as intangibles in conformity with GAAP. "Inventory" means all inventory (as defined in the Code) of Debtor, including without limitation all personal property held for sale, lease or demonstration, or to be furnished under 3
contracts of sale or service, in all forms, wherever located, now or hereafter existing, including (i) all inventory, raw materials, work in process, finished goods, materials and supplies used or to be consumed in Debtor's business, and all additions and accessions to such property, (ii) goods in which Debtor has an interest in mass or a joint or other interest or right of any kind, and (iii) goods which are returned to or repossessed by Debtor and all accessions thereto and products thereof. "Lease" means that Lease and Lease Option dated March 20, 1997 between Parker Towing Company, Inc. and Debtor. "Lien" means any mortgage, pledge, lien, claim, charge, encumbrance, security interest, conditional sale or title retention agreement, easement, use restriction, covenant or reservation against or with respect to any of Debtor's property or interest in property. "Person" means any natural person, corporation, limited liability company, partnership, sole proprietorship, firm, association, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity.
contracts of sale or service, in all forms, wherever located, now or hereafter existing, including (i) all inventory, raw materials, work in process, finished goods, materials and supplies used or to be consumed in Debtor's business, and all additions and accessions to such property, (ii) goods in which Debtor has an interest in mass or a joint or other interest or right of any kind, and (iii) goods which are returned to or repossessed by Debtor and all accessions thereto and products thereof. "Lease" means that Lease and Lease Option dated March 20, 1997 between Parker Towing Company, Inc. and Debtor. "Lien" means any mortgage, pledge, lien, claim, charge, encumbrance, security interest, conditional sale or title retention agreement, easement, use restriction, covenant or reservation against or with respect to any of Debtor's property or interest in property. "Person" means any natural person, corporation, limited liability company, partnership, sole proprietorship, firm, association, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. "Proceeds" shall have the meaning given to that term in the Code and shall include whatever is received upon the sale, exchange, collection or other disposition of Collateral. "Receiver" means any trustee, receiver, custodian, fiscal agent, liquidator or similar officer. "Related Person" means (i) any shareholder who owns or controls more than five percent (5%) of the voting securities of Debtor, (ii) any officer or director of Debtor, and (iii) any other Person that, directly or indirectly, controls, is controlled by or is under common control with or is related to, by blood or marriage, Debtor or any Person identified in clauses (i) or (ii). "Security Documents" means this Agreement, the Collateral Assignment Lease, any financing statements and all other documents and agreements given to secure the Obligations. "Transaction Documents" means the Settlement Agreement and the License and Binder Purchase Agreement dated this same dated between Debtor and Covol. Section 2. Security Interest and Collateral. To secure the full, prompt and complete payment and performance when due of all indebtedness evidenced by the Promissory Note executed by the Debtor, and any extension thereof or amendment thereto (the "Obligations"), the Debtor hereby irrevocably transfers, assigns, mortgages, sets over and grants to the Secured Party for security purposes, a continuing security interest (the "Security Interest") in and lien on all of the Debtor's right, title and interest in, to the Collateral, regardless of where located. Debtor further acknowledges and agrees that the Obligations are secured by security 4
interests in and liens upon all of the Collateral in accordance with the provisions set forth herein. Secured Party acknowledges and agrees that in addition to any rights of the Debtor under the Security Documents and applicable law, any amounts owing to Debtor from either Secured Party under any of the Transaction Documents may be offset and applied toward the payment of the Obligations, whether or not the Obligations, or any part thereof, shall be due and payable; provided, however, that Debtor shall give Secured Party ten (10) business days' written notice prior to exercising such right of offset. Section 3. Representations and Warranties of the Debtor. The Debtor hereby represents and warrants to the Secured Party (which representations and warranties shall survive for so long as any part of the Obligations is outstanding) as follows: (a) No Other Encumbrances; No Filings By Third Parties. There is no security agreement or chattel mortgage, other than this Agreement and the Original Agreement, in each case entered into by Debtor and covering the Collateral and no financing statements naming the Debtor as debtor covering the Collateral have been filed with the Secretary of State or corresponding agency for the state of Alabama other than those filed by the Secured
interests in and liens upon all of the Collateral in accordance with the provisions set forth herein. Secured Party acknowledges and agrees that in addition to any rights of the Debtor under the Security Documents and applicable law, any amounts owing to Debtor from either Secured Party under any of the Transaction Documents may be offset and applied toward the payment of the Obligations, whether or not the Obligations, or any part thereof, shall be due and payable; provided, however, that Debtor shall give Secured Party ten (10) business days' written notice prior to exercising such right of offset. Section 3. Representations and Warranties of the Debtor. The Debtor hereby represents and warrants to the Secured Party (which representations and warranties shall survive for so long as any part of the Obligations is outstanding) as follows: (a) No Other Encumbrances; No Filings By Third Parties. There is no security agreement or chattel mortgage, other than this Agreement and the Original Agreement, in each case entered into by Debtor and covering the Collateral and no financing statements naming the Debtor as debtor covering the Collateral have been filed with the Secretary of State or corresponding agency for the state of Alabama other than those filed by the Secured Party in connection with the Original Agreement. The Debtor will not execute any financing statement or other public notice or recording covering the Collateral (other than any financing statement or other public notice or recording naming Secured Party as the secured party therein or as otherwise permitted under this Agreement) so long as any of the Obligations are outstanding. (b) Corporate Authority. The Debtor has full right, power and authority to assign and grant a continuing security interest in the Collateral to the Secured Party. The making and performance of this Agreement are within the corporate powers of the Debtor and have been duly authorized by all necessary corporate action on the part of the Debtor. This Agreement constitutes a legal, valid and binding obligation of the Debtor enforceable against Debtor in accordance with its terms (subject, however, to the effects of bankruptcy, insolvency, reorganization, moratorium, and similar laws from time to time in effect relating to the rights and remedies of creditors as well as to general principles of equity). The Debtor's chief executive office within the meaning of the Code is located in Portland, Oregon. The Collateral is located in Birmingham, Alabama. (c) Security Interest. The grant of the security interest in the Collateral pursuant to this Agreement creates a valid security interest in the Collateral, enforceable against Debtor and securing payment of the Obligations (subject, however, to the effects of bankruptcy, insolvency, reorganization, moratorium, and similar laws from time to time in effect relating to the rights and remedies of creditors as well as to general principles of equity). 5
Section 4. Covenants of the Debtor. The Debtor hereby agrees as follows: (a) Ownership and Possession of the Collateral. (1) Except as provided in Section 4(e) below, title to and ownership of the Collateral shall be and remain exclusively in Debtor, Debtor shall not transfer the Collateral out of the State of Alabama without prior written notice to Secured Party. Debtor agrees that Collateral not in the location identified above shall nevertheless remain subject to Secured Party's first priority security interest. (2) Debtor agrees not to change the location of its chief executive offices without prior written notice to Secured Party. Upon request by Secured Party, Debtor shall confirm to Secured Party the location of the Collateral. (b) Change in Debtor's Name or Corporate Structure. Debtor will not change its name, identity or corporate structure (including, without limitation, any merger, consolidation or sale of substantially all of its assets) without notifying Secured Party of such change in writing at least thirty (30) days prior to the effective date of such change. (c) Documents; Collateral in Possession of Third Parties. If certificates of title or other documents evidencing ownership or possession of the Collateral are issued or outstanding, upon the request of the Secured Party, Debtor will cause the interest of Secured Party to be properly noted thereon and will, forthwith upon receipt, deliver same to Secured Party. If any Collateral is at any time in the possession or control of any warehouseman,
Section 4. Covenants of the Debtor. The Debtor hereby agrees as follows: (a) Ownership and Possession of the Collateral. (1) Except as provided in Section 4(e) below, title to and ownership of the Collateral shall be and remain exclusively in Debtor, Debtor shall not transfer the Collateral out of the State of Alabama without prior written notice to Secured Party. Debtor agrees that Collateral not in the location identified above shall nevertheless remain subject to Secured Party's first priority security interest. (2) Debtor agrees not to change the location of its chief executive offices without prior written notice to Secured Party. Upon request by Secured Party, Debtor shall confirm to Secured Party the location of the Collateral. (b) Change in Debtor's Name or Corporate Structure. Debtor will not change its name, identity or corporate structure (including, without limitation, any merger, consolidation or sale of substantially all of its assets) without notifying Secured Party of such change in writing at least thirty (30) days prior to the effective date of such change. (c) Documents; Collateral in Possession of Third Parties. If certificates of title or other documents evidencing ownership or possession of the Collateral are issued or outstanding, upon the request of the Secured Party, Debtor will cause the interest of Secured Party to be properly noted thereon and will, forthwith upon receipt, deliver same to Secured Party. If any Collateral is at any time in the possession or control of any warehouseman, bailee, agent or independent contractor, upon the request of the Secured Party, Debtor shall notify such person or entity of Secured Party's security interest in such Collateral. Upon Secured Party's request, Debtor shall instruct any such person or entity to hold all such Collateral for Secured Party's account subject to Debtor's instructions, or, if an Event of Default has occurred hereunder, shall have occurred and be continuing, subject to Secured Party's instructions. (d) Maintenance of Existence. Debtor will maintain Debtor's corporate existence and remain in good standing and qualified to do business in all jurisdictions pursuant to the laws of which it is so required. (e) Sale, Disposition or Encumbrance of Collateral. Without Secured Party's prior written consent, Debtor will not sell, assign, lend, rent, lease or otherwise dispose of or transfer Collateral to or in favor of any person or entity other than Secured Party except in Debtor's ordinary course of business; provided, however, that Debtor may sell or assign the Collateral in connection with the sale of all or substantially all of the Alabama Project without Secured Party's consent. In the event of such transfer, Debtor shall cause PacifiCorp Financial Services, Inc. ("PFS") to deliver to Secured Party a written undertaking to the effect that, if the transferee fails to make a payment on the Promissory Note within 30 days of the due date for any such payments, PFS shall pay Alabama Synfuel such unpaid amounts. (f) Maintenance. Debtor, at its own cost and expense, shall service, repair, maintain, overhaul, replace, test or cause the same to be done to each item of Equipment and Computer Hardware and Software used or useful in connection with the Alabama Project so as to keep such items in as good an operating condition, repair and appearance as it was on the date of the Original Agreement, ordinary wear and tear excepted. (g) Liability and Property Damage Insurance: General. During such period as the Obligations are outstanding, Debtor, at its own cost and expense, shall cause to be carried and maintained on and with respect to the Alabama Project and the Collateral, liability and property damage insurance in such amounts, against such risks (including liability, fire and other casualty), in such form and with such insurers (which shall be insurers of nationally recognized responsibility) as is customarily carried in lines of business similar to the Alabama Project. (h) Event of Loss with Respect to the Alabama Project and Collateral. Upon the occurrence of an event of loss with respect to the Alabama Project or the Collateral, Debtor shall forthwith (and in any event within ten (10) days after such occurrence) give Secured Party written notice of such event of loss. (i) Fees and Taxes. The Debtor shall pay when due all fees, taxes, recording fees and other governmental charges levied against the Alabama Project and the Collateral or incurred by the Secured Party in connection with the recording of this Agreement or otherwise perfecting the Security Interest.
Section 5. Application of Insurance Proceeds. All insurance proceeds (other than proceeds from policies carried by Secured Party which shall be paid directly to Secured Party or its assignees) received as the result of the occurrence of an event of loss with respect to the Alabama Project or Collateral will be applied at Debtor's option either (a) in reduction of Debtor's Obligations under the Promissory Note, or (b) to the replacement of Collateral or rebuilding of the Alabama Project, with any remaining balance to be paid to Debtor. Section 6. Other Insurance. Nothing shall prohibit Secured Party or any other additional insured from insuring the Alabama Project and the Collateral at its own expense. Section 7. Application of Payments from Governmental Authorities for Requisition of Title. Any payments (other than insurance proceeds) received at any time by Secured Party or Debtor from any governmental authority or other entity with respect to condemnation, confiscation, theft or seizure of, or requisition of title to or use of the Alabama Project or Collateral, shall be applied either (a) in reduction of Debtor's obligations under the Promissory Note, subject, however, to the Debtor's set off rights described in Section 2 hereof and in the Promissory Note or (b) to the replacement of Collateral or rebuilding of the Alabama Project, with any remaining balance to Debtor. Section 8. Inspection. The Secured Party may inspect the Alabama Project or the Collateral and the Debtor's books and records (and make copies thereof or extracts therefrom) concerning its financial condition at any reasonable time and upon reasonable notice from time to time during regular business hours, whether or not the Debtor is in default under the Agreement. Section 9. Default. Each of the following occurrences shall constitute an event of default under this Agreement (an "Event of Default"): (a) Debtor fails to pay any Obligations when due and payable; and such failure continues for ten (10) days after written notice from the Secured Party to the Debtor thereof; provided, however, that such failure to pay shall not constitute an Event of Default at any time the Secured Party (or any affiliate thereof) is in default of its obligations under any Transaction Document; (b) Failure of the Debtor to perform any of its covenants or agreements contained in this Agreement and such failure continues for thirty (30) days after written notice from the Secured Party to the Debtor; provided, however, that such failure to pay shall not constitute an Event of Default at any time the Secured Party (or any affiliate thereof) is in default of its obligations under any Transaction Document; or (c) Any representation or warranty by the Debtor set forth in this Agreement shall prove false or misleading in any material respect. The Debtor shall promptly notify the Secured Party in writing (i) upon becoming aware of the occurrence of an Event of Default or event that with notice or lapse of time or otherwise would become an Event of Default, and (ii) of any occurrence of which it becomes aware which might have a material adverse effect on its ability to perform its obligations under this Agreement or the Promissory Note. Section 10. Remedies. Upon the occurrence of any Event of Default and at any time thereafter, so long as the same shall be continuing, the Secured Party may exercise any one or more of the following rights or remedies: (a) exercise and enforce any and all rights and remedies available upon default to a secured party under the Uniform Commercial Code as in effect in the States of Utah and Alabama or any other applicable jurisdiction, and the Secured Party is hereby granted the right to enter upon any property of the Debtor, without a hearing or prior notice thereof, for the purpose of taking possession of the Collateral; or (b) exercise or enforce any and all other rights and remedies available to the Secured Party by law or agreement against the Collateral, against the Debtor or against any other Person or property. If notice to the Debtor of any intended disposition of the Collateral or any other intended action is required by law in a particular instance, such notice shall be deemed commercially reasonable if given (in the manner specified in this Agreement) at least ten (10) calendar days prior to the date of intended disposition or other action. The Secured Party may require the Debtor to return (at the Debtor's expense) the Collateral to any point within the United States designated by the Secured Party. Section 11. Cure Rights. If the Debtor at any time fails to perform or observe any agreement contained herein, and if such failure shall continue for a period of thirty (30) calendar days after the Secured Party gives the Debtor
written notice thereof, the Secured Party may, but shall not be obligated to, without further notice or demand on the Debtor, and without releasing the Debtor from any of the Obligations, perform or observe such agreement on behalf and in the name, place and stead of the Debtor (or, at the Secured Party's option, in the Secured Party's own name) and take any and all other actions which the Secured Party may deem necessary to cure or correct such failure, including the payment of taxes, the satisfaction of security interests, Liens, attachments or encumbrances, the procurement and maintenance of insurance, and the procurement of repairs or transportation. The Secured Party shall have the right to appear in and defend any action or proceeding purporting to affect the security interest or the rights or powers of the Secured Party hereunder. The Debtor shall indemnify and hold the Secured Party harmless from and against, any and all losses, liabilities, claims and causes of action arising from or in connection with the Secured Party's actions in the stead of the Debtor and the Debtor shall thereupon pay the Secured Party on demand the amount of all moneys expended and all reasonable costs and expenses (including attorneys' fees) incurred by the Secured Party in connection with or as a result of the Secured Party's performing or observing such agreements or taking such action, together with interest thereon from the date expended or incurred by the Secured Party at twelve percent (12%) per annum. Section 12. Secured Party's Costs and Expenses. In addition to other amounts payable hereunder, the Debtor will (whether or not legal proceedings are commenced) pay to the Secured Party, on demand, all reasonable costs and expenses (including attorneys' fees and legal expenses) paid or incurred by the Secured Party in connection with an Event of Default, including any suit to collect the Obligations. Section 13. Purchase Money Equipment Security Interest. Debtor and Secured Party agree and stipulate that this is a "purchase money security interest" as such term is used in the Code. Section 14. Successors; Governing Law. This Agreement shall be binding upon and inure to the benefit of the Debtor, the Secured Party and their respective successors and permitted assigns. This Agreement shall be governed by the substantive laws of the State of Utah, without giving effect to any choice of law or conflict of law provisions or rules that would cause the application of laws of any jurisdiction other than the State of Utah. Unless the context otherwise requires, all terms used herein which are defined in Articles 1 and 9 of the Uniform Commercial Code, as in effect in the State of Utah, shall have the meanings therein stated. If any provision or application of this Agreement is held unlawful or unenforceable in any respect, such illegality or unenforceability shall not affect other provisions or applications which can be given effect, and this Agreement shall be construed as if the unlawful or unenforceable provision or application had never been contained herein or prescribed hereby. All representations and warranties contained in this Agreement shall survive the execution, delivery and performance of this Agreement and the creation and payment of the Obligations. Section 15. Notices. All notices to the Secured Party and the Debtor shall be given in accordance with the notice provisions set forth in the Settlement Agreement. Section 16. Further Assurances. The Debtor will defend the security interest of the Secured Party against all Persons, other than the Secured Party, at its own expense and from time to time shall execute and deliver to the Secured Party, and file all such instruments and take all such actions as the Secured Party may reasonably request in order to preserve and protect such security interest, to effectuate the purpose of this Agreement or to carry out the terms hereof, including the execution and filing of financing statements or continuation statements under the Code. The Debtor hereby authorizes the Secured Party to file this Agreement or any such financing statements or continuation statements under the Code with respect to the Collateral with any appropriate governmental office in order to preserve, protect, perfect or continue the perfection of any and all security interests granted or created hereby. Section 17. Miscellaneous. This Agreement can be waived, modified, amended or terminated, and the security interest of the Secured Party can be released, only explicitly in a writing signed by the Secured Party and the Debtor. A waiver signed by the Secured Party shall be effective only in the specific instance and for the specific purpose given. Mere delay or failure to act shall not preclude the exercise or enforcement of any of the Secured Party's rights or remedies. All rights and remedies of the Secured Party shall be cumulative and may be exercised singularly or concurrently, at the Secured Party's option, and the exercise or enforcement of any one such right or remedy shall neither be a condition to nor bar the exercise or enforcement of any other right or remedy. The Secured Party shall not be obligated to realize on the Collateral at all or in any particular manner or order, or to apply any cash proceeds therefrom in any particular order of application. Section 18. Power of Attorney. The Debtor hereby irrevocably appoints the Secured Party as its true and lawful
attorney-in-fact upon the occurrence of an Event of Default with full power, in the name of the Debtor or otherwise, for the purpose of (i) taking any action that the Secured Party may deem necessary or appropriate to preserve, protect, perfect and continue the perfection of the Secured Party's security interest in the Collateral; and (ii) enabling the Secured Party to sell, assign, transfer or dispose of the Collateral, including, without limitation, executing and delivering all bills of sale, assignments and other instruments as the Secured Party may consider necessary or appropriate, with full power of substitution, upon an Event of Default. Section 19. Consent to Jurisdiction and Venue. Debtor and Secured Party consent to personal jurisdiction, waive any objection as to jurisdiction or venue and agree not to assert any defenses based on lack of jurisdiction or venue, in the County of Salt Lake, Utah. Service of process on Debtor or Secured Party in any action arising out of or relating to this Agreement shall be effective if mailed to such party at the address listed in the Settlement Agreement. Section 20. Mutual Waiver of Jury Trial. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT. Section 21. Pronouns and Certain Other Terms. All pronouns (and any variation) will be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the Person may require. The words "and" and "or" will include the conjunctive and disjunctive, as the context requires. The word "include" and derivatives of that word are used in an illustrative sense and not a limiting sense unless specifically indicated.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date set forth above. COVOL TECHNOLOGIES, INC.
/s/ Brent M. Cook By: Brent M. Cook Title: President
Attest: /s/ Harlan M. Hatfield By: Harlan M. Hatfield Title: Secretary
ALABAMA SYNFUEL #1 LTD. by its corporate general partner Covol Technologies, Inc.
/s/ Brent M. Cook By: Brent M. Cook Title: President of Covol Technologies, Inc., its general partner Attest: /s/ Harlan M. Hatfield By: Harlan M. Hatfield Title: Secretary
BIRMINGHAM SYN FUEL, L.L.C.
/s/ Craig Longfield By: Craig Longfield
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date set forth above. COVOL TECHNOLOGIES, INC.
/s/ Brent M. Cook By: Brent M. Cook Title: President
Attest: /s/ Harlan M. Hatfield By: Harlan M. Hatfield Title: Secretary
ALABAMA SYNFUEL #1 LTD. by its corporate general partner Covol Technologies, Inc.
/s/ Brent M. Cook By: Brent M. Cook Title: President of Covol Technologies, Inc., its general partner Attest: /s/ Harlan M. Hatfield By: Harlan M. Hatfield Title: Secretary
BIRMINGHAM SYN FUEL, L.L.C.
/s/ Craig Longfield By: Craig Longfield Title: President
Attest: By: Title:
STATE OF NEW YORK COUNTY OF NEW YORK
) ) ss: )
I, the undersigned authority, a Notary Public in and for said County, in said State, hereby certify that Craig Longfield, whose name as Chairman of Birmingham Syn Fuel, LLC, an Oregon limited liability company, is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the contents of the instrument, he, as such officer and with full authority, executed the same voluntarily for and as the act of said corporation. Given under my hand and official seal, this the 23rd day of May, 2000.
/s/ Thomas Meckl Notary Public STATE OF UTAH COUNTY OF SALT LAKE ) ) ss: )
I, the undersigned authority, a Notary Public in and for said County, in said State, hereby certify that Brent M. Cook, whose name as President of Alabama Synfuel #1, Ltd., a Delaware limited partnership, is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the
STATE OF NEW YORK COUNTY OF NEW YORK
) ) ss: )
I, the undersigned authority, a Notary Public in and for said County, in said State, hereby certify that Craig Longfield, whose name as Chairman of Birmingham Syn Fuel, LLC, an Oregon limited liability company, is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the contents of the instrument, he, as such officer and with full authority, executed the same voluntarily for and as the act of said corporation. Given under my hand and official seal, this the 23rd day of May, 2000.
/s/ Thomas Meckl Notary Public STATE OF UTAH COUNTY OF SALT LAKE ) ) ss: )
I, the undersigned authority, a Notary Public in and for said County, in said State, hereby certify that Brent M. Cook, whose name as President of Alabama Synfuel #1, Ltd., a Delaware limited partnership, is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the contents of the instrument, he, as such officer and with full authority, executed the same voluntarily for and as the act of said corporation. Given under my hand and official seal, this the 25th day of May, 2000.
/s/ Renee M. Esson Notary Public
STATE OF UTAH COUNTY OF SALT LAKE
) ) ss: )
I, the undersigned authority, a Notary Public in and for said County, in said State, hereby certify that Brent M. Cook, whose name as President of Covol Technologies, Inc., a Delaware corporation, is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the contents of the instrument, he, as such officer and with full authority, executed the same voluntarily for and as the act of said corporation. Given under my hand and official seal, this the 25th day of May, 2000.
/s/ Renee M. Esson Notary Public
LICENSE AND BINDER PURCHASE AGREEMENT THIS LICENSE AND BINDER PURCHASE AGREEMENT (the "Agreement"), is made and entered into as of May 25, 2000 by and between Birmingham Syn Fuel, L.L.C., an Oregon limited liability company ("BSF"), on the one hand, and Covol Technologies, Inc., a Delaware corporation ("Covol") and Alabama Synfuel #1 Ltd., a Delaware limited partnership ("ASF"), on the other hand.
STATE OF UTAH COUNTY OF SALT LAKE
) ) ss: )
I, the undersigned authority, a Notary Public in and for said County, in said State, hereby certify that Brent M. Cook, whose name as President of Covol Technologies, Inc., a Delaware corporation, is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the contents of the instrument, he, as such officer and with full authority, executed the same voluntarily for and as the act of said corporation. Given under my hand and official seal, this the 25th day of May, 2000.
/s/ Renee M. Esson Notary Public
LICENSE AND BINDER PURCHASE AGREEMENT THIS LICENSE AND BINDER PURCHASE AGREEMENT (the "Agreement"), is made and entered into as of May 25, 2000 by and between Birmingham Syn Fuel, L.L.C., an Oregon limited liability company ("BSF"), on the one hand, and Covol Technologies, Inc., a Delaware corporation ("Covol") and Alabama Synfuel #1 Ltd., a Delaware limited partnership ("ASF"), on the other hand. WHEREAS, PSF operates a synthetic fuel facility and currently located in Birmingport, Alabama (the "Facility"). WHEREAS, ASF and Covol granted to BSF a license for synthetic fuel technology in connection with the Facility on the terms and conditions set forth in the Amended and Restated License and Binder Purchase Agreement, dated as of December 12, 1997, which was amended February 20, 1997 (the "Original Agreement"), and Covol agreed to sell to BSF the proprietary binder material manufactured by Covol for use in the operation of the Facility. WHEREAS, Covol and ASF (collectively, the "Covol Parties") and BSF are among the parties to that Settlement Agreement and Mutual Release and related agreements (collectively, the "Transaction Documents"), dated this same date, pursuant to which, among other things, BSF and the Covol Parties have terminated the Original Agreement and are entering into this Agreement. NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants and agreements hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, BSF and the Covol Parties agree as follows: Section 1 Definitions. "ASF" has the meaning set forth in the preamble. "Coal Fuel Technology" means all intellectual property, inventor's certificates and applications therefor, printed and unprinted technical data, know-how, trade secrets, copyrights and other intellectual property rights, inventions, discoveries, techniques, works, processes, methods, plans, software, designs, drawings, schematics, ** 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. 1
specifications, communications protocols, source and object code and modifications, test procedures, program cards, tapes, disks, algorithms and all other scientific or technical information in whatever form relating to,
LICENSE AND BINDER PURCHASE AGREEMENT THIS LICENSE AND BINDER PURCHASE AGREEMENT (the "Agreement"), is made and entered into as of May 25, 2000 by and between Birmingham Syn Fuel, L.L.C., an Oregon limited liability company ("BSF"), on the one hand, and Covol Technologies, Inc., a Delaware corporation ("Covol") and Alabama Synfuel #1 Ltd., a Delaware limited partnership ("ASF"), on the other hand. WHEREAS, PSF operates a synthetic fuel facility and currently located in Birmingport, Alabama (the "Facility"). WHEREAS, ASF and Covol granted to BSF a license for synthetic fuel technology in connection with the Facility on the terms and conditions set forth in the Amended and Restated License and Binder Purchase Agreement, dated as of December 12, 1997, which was amended February 20, 1997 (the "Original Agreement"), and Covol agreed to sell to BSF the proprietary binder material manufactured by Covol for use in the operation of the Facility. WHEREAS, Covol and ASF (collectively, the "Covol Parties") and BSF are among the parties to that Settlement Agreement and Mutual Release and related agreements (collectively, the "Transaction Documents"), dated this same date, pursuant to which, among other things, BSF and the Covol Parties have terminated the Original Agreement and are entering into this Agreement. NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants and agreements hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, BSF and the Covol Parties agree as follows: Section 1 Definitions. "ASF" has the meaning set forth in the preamble. "Coal Fuel Technology" means all intellectual property, inventor's certificates and applications therefor, printed and unprinted technical data, know-how, trade secrets, copyrights and other intellectual property rights, inventions, discoveries, techniques, works, processes, methods, plans, software, designs, drawings, schematics, ** 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. 1
specifications, communications protocols, source and object code and modifications, test procedures, program cards, tapes, disks, algorithms and all other scientific or technical information in whatever form relating to, embodied in or used in the proprietary process to produce synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, and the proprietary binder material used in manufacturing synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, in each case owned or controlled by the Covol Parties, to include such information in existence as of the date of this Agreement as well as related information later developed by the Covol Parties; provided, however, that the defined term "Coal Fuel Technology" shall not include the proprietary process developed by the Covol Parties to produce synthetic coke extrusions and briquettes from coke breeze or any technology for other than the processing and production of synthetic coal fuel. "Commercial Use" means any usage of the Coal Fuel Technology for commercial exploitation and any other usage to which the Covol Parties grant prior written consent. "Covol" has the meaning set forth in the preamble. "Covol Parties" has the meaning set forth in the preamble. "Facility" has the meaning set forth in the preamble, provided that the term also shall refer to any location to which the Facility may be moved or relocated in the future.
specifications, communications protocols, source and object code and modifications, test procedures, program cards, tapes, disks, algorithms and all other scientific or technical information in whatever form relating to, embodied in or used in the proprietary process to produce synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, and the proprietary binder material used in manufacturing synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, in each case owned or controlled by the Covol Parties, to include such information in existence as of the date of this Agreement as well as related information later developed by the Covol Parties; provided, however, that the defined term "Coal Fuel Technology" shall not include the proprietary process developed by the Covol Parties to produce synthetic coke extrusions and briquettes from coke breeze or any technology for other than the processing and production of synthetic coal fuel. "Commercial Use" means any usage of the Coal Fuel Technology for commercial exploitation and any other usage to which the Covol Parties grant prior written consent. "Covol" has the meaning set forth in the preamble. "Covol Parties" has the meaning set forth in the preamble. "Facility" has the meaning set forth in the preamble, provided that the term also shall refer to any location to which the Facility may be moved or relocated in the future. "Facility Assignment" has the meaning set forth in Section 12 hereof. "Facility Sub License" has the meaning set forth in Section 12 hereof. "Improvements" has the meaning set forth in Section 2.3 hereof. "Maximum Royalty Tonnage" has the meaning set forth in Section 3 hereof. "Other Facilities" means the two synthetic fuel facilities owned by PSF and currently located in Pumpkin Center, Alabama and the synthetic fuel facility owned by PSF and currently located in Brookwood, Alabama. "PSF" means PacifiCorp Syn Fuel, L.L.C., an Oregon limited liability company. "Royalty" has the meaning set forth in Section 3.1 hereof. 2
Section 2 License Grant. 2.1 General; Agreement Concerning Exclusivity. Subject to the terms and conditions of this Agreement, the Covol Parties hereby grant and guarantee to BSF a license to use the Coal Fuel Technology at the Facility for Commercial Use, including a license to make, have made, use and sell or otherwise transfer products that embody, use or have been developed or manufactured with the Coal Fuel Technology. For the term of this Agreement and the License And Binder Purchase Agreements for the Other Facilities, PSF and BSF shall have the exclusive license to use the Coal Fuel Technology for Commercial Use within a one hundred (100) mile radius of the present location of the Facility, including to make, have made, use and sell or otherwise transfer products that embody, use or have been developed or manufactured with the Coal Fuel Technology. 2.2 Know-How and Assistance. To enable BSF to benefit fully from the license of the Coal Fuel Technology, the Covol Parties shall provide access to all relevant documentation, drawings, engineering specifications and other know-how in its possession, reasonable access to its employees or agents who are familiar with the Coal Fuel Technology, and Improvements to the Coal Fuel Technology, as defined in Section 2.3, and shall provide such technical advice with regard to the Coal Fuel Technology as is reasonably requested by BSF and relevant to the provisions of this Agreement. 2.3 Improvements. The Covol Parties shall notify BSF of any improvements, variations or modifications ("Improvements") made on or to the Coal Fuel Technology promptly after such Improvements are made by it.
Section 2 License Grant. 2.1 General; Agreement Concerning Exclusivity. Subject to the terms and conditions of this Agreement, the Covol Parties hereby grant and guarantee to BSF a license to use the Coal Fuel Technology at the Facility for Commercial Use, including a license to make, have made, use and sell or otherwise transfer products that embody, use or have been developed or manufactured with the Coal Fuel Technology. For the term of this Agreement and the License And Binder Purchase Agreements for the Other Facilities, PSF and BSF shall have the exclusive license to use the Coal Fuel Technology for Commercial Use within a one hundred (100) mile radius of the present location of the Facility, including to make, have made, use and sell or otherwise transfer products that embody, use or have been developed or manufactured with the Coal Fuel Technology. 2.2 Know-How and Assistance. To enable BSF to benefit fully from the license of the Coal Fuel Technology, the Covol Parties shall provide access to all relevant documentation, drawings, engineering specifications and other know-how in its possession, reasonable access to its employees or agents who are familiar with the Coal Fuel Technology, and Improvements to the Coal Fuel Technology, as defined in Section 2.3, and shall provide such technical advice with regard to the Coal Fuel Technology as is reasonably requested by BSF and relevant to the provisions of this Agreement. 2.3 Improvements. The Covol Parties shall notify BSF of any improvements, variations or modifications ("Improvements") made on or to the Coal Fuel Technology promptly after such Improvements are made by it. The term "Improvements" shall include changes that reduce production costs, improve performance, broaden applicability or increase marketability. The Covol Parties hereby grant to BSF a license (such license to become exclusive in accordance with Section 2.1 hereof) to utilize the Improvements made by it for Commercial Use, including to make, have made, use, and sell or otherwise transfer products that utilize any such Improvements subject to the terms of this Agreement. It is mutually understood and agreed that all Improvements provided to BSF by the Covol Parties shall remain the sole and exclusive property of the Covol Parties. This Agreement does not contemplate any jointly developed Improvements. All rights to any jointly developed Improvements shall be subject to the terms and conditions of a separate written agreement between BSF and the Covol Parties entered into prior to undertaking any joint development. 2.4 Confidentiality. BSF hereby agrees not to disclose the Coal Fuel Technology, except to its agents, employees, directors or representatives who have a need to know about such technology in connection with the operation and maintenance of the Facilities and the sale of synthetic coal fuel produced by the Facility; provided, however, information which (i) becomes generally available to the public other than as a result of a disclosure by BSF or its agents, employees, directors or representatives, (ii) was available to BSF on a non-confidential basis prior to its disclosure pursuant to the terms hereof, or 3
(iii) becomes available to BSF on a non-confidential basis from a source other than either of the Covol Parties, provided that such source is not known by BSF or its agents, employees, directors or representatives to be prohibited from transmitting the information to BSF by any confidentiality agreement with either of the Covol Parties or by any other contractual, legal or fiduciary obligation shall not be subject to the terms of this Section 2.4. Section 3 Royalty Amount. Within thirty (30) days following the end of each calendar quarter ending March 31, June 30, September 30 and December 31 from and after April 1, 2000, BSF shall pay to Covol quarterly royalty payments in an amount equal to (i) $** multiplied by (ii) the total dollar amount of tax credits under Section 29 of the Internal Revenue Code available to BSF as a result of sales of synthetic fuel produced by the Facility and sold by BSF during the calendar quarter just ended, regardless of whether BSF uses such tax credits; provided, however, royalty payments shall not be computed on, and no royalty payment shall be due with respect to, sales of synthetic fuel that are in excess of the "Maximum Annual Royalty Tonnage." For purposes of this Agreement, the "Maximum Annual Royalty Tonnage" is achieved in any calendar year whenever the aggregate amount of synthetic fuel produced and sold by the Facility and the Other Facilities in such calendar year equals 1,440,000 tons; provided, however, that if any of the Other Facilities is the subject of a Facility Sub License or Facility Assignment, then the Maximum Annual Royalty Tonnage shall be reduced by 360,000 tons per calendar year for each Other Facility that is the subject of a Facility Sub License or Facility Assignment; provided, further, that if
(iii) becomes available to BSF on a non-confidential basis from a source other than either of the Covol Parties, provided that such source is not known by BSF or its agents, employees, directors or representatives to be prohibited from transmitting the information to BSF by any confidentiality agreement with either of the Covol Parties or by any other contractual, legal or fiduciary obligation shall not be subject to the terms of this Section 2.4. Section 3 Royalty Amount. Within thirty (30) days following the end of each calendar quarter ending March 31, June 30, September 30 and December 31 from and after April 1, 2000, BSF shall pay to Covol quarterly royalty payments in an amount equal to (i) $** multiplied by (ii) the total dollar amount of tax credits under Section 29 of the Internal Revenue Code available to BSF as a result of sales of synthetic fuel produced by the Facility and sold by BSF during the calendar quarter just ended, regardless of whether BSF uses such tax credits; provided, however, royalty payments shall not be computed on, and no royalty payment shall be due with respect to, sales of synthetic fuel that are in excess of the "Maximum Annual Royalty Tonnage." For purposes of this Agreement, the "Maximum Annual Royalty Tonnage" is achieved in any calendar year whenever the aggregate amount of synthetic fuel produced and sold by the Facility and the Other Facilities in such calendar year equals 1,440,000 tons; provided, however, that if any of the Other Facilities is the subject of a Facility Sub License or Facility Assignment, then the Maximum Annual Royalty Tonnage shall be reduced by 360,000 tons per calendar year for each Other Facility that is the subject of a Facility Sub License or Facility Assignment; provided, further, that if the Facility is the subject of a Facility Sub License or Facility Assignment, royalty payments in any calendar year shall not be computed on, and no royalty payment shall be due with respect to, sales of synthetic fuel produced by the Facility in such calendar year in excess of 360,000 tons without regard to the volume of production and sale of synthetic fuel from the Other Facilities. Section 4 Binder. 4.1 Sales of Binder. 4.1.1 Sale and Purchase. BSF agrees to purchase from Covol, and Covol agrees to sell to BSF, all of BSF's requirements for proprietary binder to operate the Facility at full capacity. Covol shall deliver or cause to be delivered the proprietary binder to the Facility at such times and in such quantities as from time-to-time requested by PSF. Payments for proprietary binder delivered to BSF by Covol shall be due and payable to Covol within thirty (30) days of receipt of invoice. 4
4.1.2 Price. Effective from the date hereof, the price which BSF shall pay to Covol for the proprietary binder delivered by or on behalf of Covol with respect to the Facility during any calendar year shall be an amount equal to $** per pound (dry weight) plus an overhead charge of $** per pound (dry weight). Covol shall only increase the price per pound of the binder to the extent of actual increases in its production costs resulting from increases in the costs of binder components charged by Dow Chemical or any successor supplier. If BSF applies binder at the Facility at a concentration higher than two pounds of binder (dry weight) per 2,000 pounds of coal, no markup nor overhead will be charged for the higher concentration. 4.1.3 Specifications and Warranties. Covol represents and warrants that all proprietary binder shall be merchantable, free from defects, and shall conform to the specifications set forth on Exhibit A, which may be changed from time to time upon the written agreement of the parties hereto, except that Covol makes no warranty of fitness as applied to any potential feedstock due to the variability of feedstocks generally. At BSF's option, Covol shall replace, or refund the purchase price and cost of shipment of, all non-conforming proprietary binder ingredients. Covol will bear the risk of loss of the proprietary binder ingredients while it is in transit. 4.1.4 Acceptance and Rejection. All proprietary binder is subject to BSF's inspection and test before final acceptance. Acceptance and/or inspection by BSF shall not constitute a waiver of any latent defect or nonconformity. 4.2 Binder Formula. The Covol Parties represent and warrant that they delivered to a safety deposit box owned by BSF a written copy of the formula used by them to manufacture the proprietary binder material in sufficient quantities to operate the Facility up to full capacity, and the Covol Parties covenant to notify BSF of any
4.1.2 Price. Effective from the date hereof, the price which BSF shall pay to Covol for the proprietary binder delivered by or on behalf of Covol with respect to the Facility during any calendar year shall be an amount equal to $** per pound (dry weight) plus an overhead charge of $** per pound (dry weight). Covol shall only increase the price per pound of the binder to the extent of actual increases in its production costs resulting from increases in the costs of binder components charged by Dow Chemical or any successor supplier. If BSF applies binder at the Facility at a concentration higher than two pounds of binder (dry weight) per 2,000 pounds of coal, no markup nor overhead will be charged for the higher concentration. 4.1.3 Specifications and Warranties. Covol represents and warrants that all proprietary binder shall be merchantable, free from defects, and shall conform to the specifications set forth on Exhibit A, which may be changed from time to time upon the written agreement of the parties hereto, except that Covol makes no warranty of fitness as applied to any potential feedstock due to the variability of feedstocks generally. At BSF's option, Covol shall replace, or refund the purchase price and cost of shipment of, all non-conforming proprietary binder ingredients. Covol will bear the risk of loss of the proprietary binder ingredients while it is in transit. 4.1.4 Acceptance and Rejection. All proprietary binder is subject to BSF's inspection and test before final acceptance. Acceptance and/or inspection by BSF shall not constitute a waiver of any latent defect or nonconformity. 4.2 Binder Formula. The Covol Parties represent and warrant that they delivered to a safety deposit box owned by BSF a written copy of the formula used by them to manufacture the proprietary binder material in sufficient quantities to operate the Facility up to full capacity, and the Covol Parties covenant to notify BSF of any improvements, variations or modifications made on or to the formula used by them to manufacture the proprietary binder material promptly after such improvements, variations or modifications are made and to provide a copy of any such improved, varied or modified formula for placement in the safety deposit box. Section 5 Records; Inspection; Confidentiality. Each party hereto shall keep accurate records containing all data reasonably required for the computation and verification of the amounts to be paid by the respective parties under this Agreement, and shall permit each other party or an independent accounting firm designated by such other party to inspect and/or audit such records during normal business hours upon reasonable advance notice. All costs and expenses incurred by a party in connection with such inspection shall be borne by it. Each party agrees to hold confidential from all third parties all information contained in records examined by or on behalf of it pursuant to this Section 5. Section 6 Infringement. If during the term of this Agreement a third party has infringed any intellectual property rights associated with the Coal Fuel Technology or 5
otherwise misappropriated any Coal Fuel Technology, the Covol Parties shall, at their expense, institute and conduct legal actions against such third party or to enter into such agreements or accord in settlement as are deemed appropriate by the Covol Parties. BSF shall have the right to join the Covol Parties as plaintiffs in the prosecution of any infringement or misappropriation action affecting the Facility, provided that BSF shall bear up to fifty percent (50%) of all the costs and expenses of the action. If BSF and the Covol Parties have jointly conducted an infringement or misappropriation action, any sums recovered from the third party shall be distributed to BSF and the Covol Parties in accordance with the percentage of the costs and expenses borne by each, after each party has been reimbursed for costs and expenses incurred by it in prosecuting such action. BSF shall always have the right to be represented by counsel of its own selection in any action. In no event shall the Covol Parties enter into any agreement or settlement inconsistent with the terms of this Agreement. Section 7 Representations and Warranties. 7.1 Authority. Each of the Covol Parties and BSF represents and warrants that (i) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized on its behalf by all requisite action, corporate or otherwise, (ii) it has the full right, power and authority to enter into this Agreement and to carry out the terms of this Agreement, (iii) it has duly executed and delivered
otherwise misappropriated any Coal Fuel Technology, the Covol Parties shall, at their expense, institute and conduct legal actions against such third party or to enter into such agreements or accord in settlement as are deemed appropriate by the Covol Parties. BSF shall have the right to join the Covol Parties as plaintiffs in the prosecution of any infringement or misappropriation action affecting the Facility, provided that BSF shall bear up to fifty percent (50%) of all the costs and expenses of the action. If BSF and the Covol Parties have jointly conducted an infringement or misappropriation action, any sums recovered from the third party shall be distributed to BSF and the Covol Parties in accordance with the percentage of the costs and expenses borne by each, after each party has been reimbursed for costs and expenses incurred by it in prosecuting such action. BSF shall always have the right to be represented by counsel of its own selection in any action. In no event shall the Covol Parties enter into any agreement or settlement inconsistent with the terms of this Agreement. Section 7 Representations and Warranties. 7.1 Authority. Each of the Covol Parties and BSF represents and warrants that (i) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized on its behalf by all requisite action, corporate or otherwise, (ii) it has the full right, power and authority to enter into this Agreement and to carry out the terms of this Agreement, (iii) it has duly executed and delivered this Agreement, and (iv) this Agreement is a valid and binding obligation of it enforceable in accordance with its terms. 7.2 No Consent. Each of the Covol Parties and BSF represents and warrants that no approval, consent, authorization, order, designation or declaration of any court or regulatory authority or governmental body or any third-party is required to be obtained by it, nor is any filing or registration required to be made therewith by it for the consummation by it of the transactions contemplated under this Agreement. 7.3 Intellectual Property Matters. The Covol Parties warrant that they (i) own, free and clear of all liens and encumbrances, all intellectual property, inventor's certificates and applications therefor, printed and unprinted technical data, know-how, trade secrets, copyrights and other intellectual property rights, inventions, discoveries, techniques, works, processes, methods, plans, software, designs, drawings, schematics, specifications, communications protocols, source and object code and modifications, test procedures, program cards, tapes, disks, algorithms and all other scientific or technical information in whatever form relating to, embodied in or used in the proprietary process to produce synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, and, the proprietary binder material used in manufacturing synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, (ii) have the right and power to grant to BSF the licenses granted herein, (iii) have not made any agreement with another in conflict with the rights granted herein, and (iv) have no knowledge that the sale 6
or use of the licenses granted herein as contemplated by this Agreement would infringe any third-party's intellectual property rights. 7.4 Physical Properties. The Covol Parties represent and warrant that (i) the proprietary binder sold to BSF shall not be a hazardous material under, and delivery shall comply with, applicable environmental laws and regulations; and (ii) subject to the selection of suitable feedstock, application of the Coal Fuel Technology in the Facility will result in a chemical change similar in all material respects to the chemical change described in the IRS letter ruling received by the Covol Parties, dated September 8, 1995. Section 8 Term. This Agreement and the license granted hereunder shall be for the period from April 1, 2000 to and including January 1, 2008, or the corresponding date under Section 29 of the 1986 Code in the event of an extension of the tax credits available under Section 29 of the 1986 Code. Section 9 Waiver. The failure of any party to enforce at any time any provision of this Agreement shall not be construed as a waiver of such provision or the right thereafter to enforce each and every provision. No waiver by any party, either express or implied, of any breach of any of the provisions of this Agreement shall be construed as a waiver of any other breach of such term or condition.
or use of the licenses granted herein as contemplated by this Agreement would infringe any third-party's intellectual property rights. 7.4 Physical Properties. The Covol Parties represent and warrant that (i) the proprietary binder sold to BSF shall not be a hazardous material under, and delivery shall comply with, applicable environmental laws and regulations; and (ii) subject to the selection of suitable feedstock, application of the Coal Fuel Technology in the Facility will result in a chemical change similar in all material respects to the chemical change described in the IRS letter ruling received by the Covol Parties, dated September 8, 1995. Section 8 Term. This Agreement and the license granted hereunder shall be for the period from April 1, 2000 to and including January 1, 2008, or the corresponding date under Section 29 of the 1986 Code in the event of an extension of the tax credits available under Section 29 of the 1986 Code. Section 9 Waiver. The failure of any party to enforce at any time any provision of this Agreement shall not be construed as a waiver of such provision or the right thereafter to enforce each and every provision. No waiver by any party, either express or implied, of any breach of any of the provisions of this Agreement shall be construed as a waiver of any other breach of such term or condition. Section 10 Severability. If any provision of this Agreement shall be held by a court of competent jurisdiction to be invalid or unenforceable in any respect for any reason, the validity and enforceability of any such provision in any other respect and of the remaining provisions of this Agreement shall not be in any way impaired. Section 11 Notices. All notices, consents, and other communications under this Settlement Agreement will be in writing and will be deemed to have been sufficiently given or served when delivered in person, by telecopier, by registered or certified mail, charges prepaid, or by prepaid overnight delivery service. Notice shall be deemed given (a) at the time of delivery if given by hand, (b) two (2) business days after deposit in the mail, if given by registered mail, (c) upon confirmation, if given by telecopier (it being agreed that the burden of proving receipt will be on the sender and will not be met by a transmission report generated by the sender's facsimile machine), and (d) upon confirmation of delivery, if given by prepaid overnight delivery service. The addresses and telecopier numbers for the parties, at which all such deliveries can be made and Notices can be sent, are as follows: (A) If to the BSF, to: Birmingham Syn Fuel, L.L.C. c/o PacifiCorp Financial Services, Inc. 825 NE Multnomah Street, Suite 1900 Portland, OR 97232 7
Attention: Craig Longfield Telecopier No.: (503) 813-7213 With copies to: Stoel Rives LLP 900 SW Fifth Avenue, Suite 2600 Portland, Oregon 97204 Attn: Gary R. Barnum Telecopier No.: (503) 220-2480 (B) If to the Covol Parties, to: Covol Technologies, Inc. 3280 North Frontage Road Lehi, Utah 84043 Attention: Brent M. Cook Telecopier No.: (801) 768-4483 With copies to: Pillsbury Madison & Sutro LLP 50 Fremont Street San Francisco, CA 94105 Attention: T. V. Loran III Telecopier No.: (415) 983-1200
Attention: Craig Longfield Telecopier No.: (503) 813-7213 With copies to: Stoel Rives LLP 900 SW Fifth Avenue, Suite 2600 Portland, Oregon 97204 Attn: Gary R. Barnum Telecopier No.: (503) 220-2480 (B) If to the Covol Parties, to: Covol Technologies, Inc. 3280 North Frontage Road Lehi, Utah 84043 Attention: Brent M. Cook Telecopier No.: (801) 768-4483 With copies to: Pillsbury Madison & Sutro LLP 50 Fremont Street San Francisco, CA 94105 Attention: T. V. Loran III Telecopier No.: (415) 983-1200 Section 12 Assignment; Sublicenses; Obligation of PacifiCorp Financial Services, Inc. This Agreement may not be assigned by the Covol Parties. BSF may grant a sublicense to any person with respect to this Agreement (a "Facility Sub License") or assign its rights and obligations under this Agreement to any person (a "Facility Assignment"), except that any such sublicense or assignment may only be in connection with a transfer of the ownership and/or operation of the Facility. No such attempted sublicense or assignment by BSF shall be valid unless the putative transferee shall have agreed unqualifiedly to assume the obligations of BSF under this Agreement. In the event of a Facility Assignment, if the transferee fails to make (i) any royalty payment required by Sections 3 of this Agreement within 30 days of the due date therefor or (ii) any payment for the purchase of binder required by Section 4 of this Agreement within 30 days of the due date therefor, PacifiCorp Financial Services, Inc., an Oregon corporation ("PFS"), shall promptly pay Covol such unpaid amounts upon written demand therefor. Except as set forth in the immediately preceding sentence, PFS shall not be liable or responsible for any other obligations under this Agreement. 8
Section 13 Further Assurances. Each party agrees, at the request of the other party, at any time and from time to time, to execute and deliver all such further documents, and to take and forbear from all such action, as may be reasonably necessary or appropriate in order more effectively to carry out the provisions of this Agreement. The Covol Parties agree to use reasonable efforts to cooperate with PFS and BSF in marketing, selling or otherwise transferring the Facility. The Covol parties agree to cooperate with BSF in any defense of or response to any action, inquiry or investigation by the IRS relating to the matters addressed by the representation and warranty contained clause (ii) of Section 7.4 Section 14 Set Off. Any amounts owing to BSF from Covol hereunder may be offset and applied toward the payment of any amounts, or any part thereof, owing to Covol pursuant to Section 3 hereof, whether or not such amounts shall be due and payable; provided, however, that BSF shall give Covol and ASF ten (10) business days' written notice prior to exercising such right of offset. Section 15 Entire Agreement. This Agreement, together with the Transaction Documents, (i) constitutes the entire agreement of the parties relating to the subject matter hereof, (ii) is the complete and exclusive statement of the contracting parties' promises, terms, conditions, obligations, or warranties other than those contained herein, and (iii) supersedes all prior communications, representations, or agreements, verbal or written, among the contracting parties relating to the subject matter hereof. This Agreement may not be amended except in writing signed by the parties hereto. Section 16 Governing Law. This Agreement shall be governed in accordance with the laws of the State of Utah. Section 17 Counterparts. This Agreement may be executed in two or more counterparts, each which shall be
Section 13 Further Assurances. Each party agrees, at the request of the other party, at any time and from time to time, to execute and deliver all such further documents, and to take and forbear from all such action, as may be reasonably necessary or appropriate in order more effectively to carry out the provisions of this Agreement. The Covol Parties agree to use reasonable efforts to cooperate with PFS and BSF in marketing, selling or otherwise transferring the Facility. The Covol parties agree to cooperate with BSF in any defense of or response to any action, inquiry or investigation by the IRS relating to the matters addressed by the representation and warranty contained clause (ii) of Section 7.4 Section 14 Set Off. Any amounts owing to BSF from Covol hereunder may be offset and applied toward the payment of any amounts, or any part thereof, owing to Covol pursuant to Section 3 hereof, whether or not such amounts shall be due and payable; provided, however, that BSF shall give Covol and ASF ten (10) business days' written notice prior to exercising such right of offset. Section 15 Entire Agreement. This Agreement, together with the Transaction Documents, (i) constitutes the entire agreement of the parties relating to the subject matter hereof, (ii) is the complete and exclusive statement of the contracting parties' promises, terms, conditions, obligations, or warranties other than those contained herein, and (iii) supersedes all prior communications, representations, or agreements, verbal or written, among the contracting parties relating to the subject matter hereof. This Agreement may not be amended except in writing signed by the parties hereto. Section 16 Governing Law. This Agreement shall be governed in accordance with the laws of the State of Utah. Section 17 Counterparts. This Agreement may be executed in two or more counterparts, each which shall be deemed an original, but all of which together shall constitute one and the same agreement. 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized representatives the day and year first above written. COVOL TECHNOLOGIES, INC.
By: /s/ Brent M. Cook Name: Brent M. Cook Title: President
ALABAMA SYNFUEL #1 LTD.
By: /s/ Brent M. Cook Name: Brent M. Cook Title: President of Covol Technologies, Inc., its general partner
BIRMINGHAM SYN FUEL, LLC
By: /s/ Craig Longfield Name: Craig Longfield Title: President
PACIFICORP FINANCIAL SERVICES, INC.*
By: /s/ Craig Longfield Name: Craig Longfield
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized representatives the day and year first above written. COVOL TECHNOLOGIES, INC.
By: /s/ Brent M. Cook Name: Brent M. Cook Title: President
ALABAMA SYNFUEL #1 LTD.
By: /s/ Brent M. Cook Name: Brent M. Cook Title: President of Covol Technologies, Inc., its general partner
BIRMINGHAM SYN FUEL, LLC
By: /s/ Craig Longfield Name: Craig Longfield Title: President
PACIFICORP FINANCIAL SERVICES, INC.*
By: /s/ Craig Longfield Name: Craig Longfield Title: President
* Solely as to Section (12), above. 10
Exhibit A Specification of Proprietary Binder Material
I. Material Description Color: Odor: Appearance/Physical State: Description Note: White Typical Liquid with suspended solids Proprietary Carboxylated StyreneButadiene Polymer
II.
Governmental/Industry Standards: Non-food Contact
III.
Test Requirements
-------------------------------------------------------------------------------Test Item and Condition Limit Unit Method -------------------------------------------------------------------------------Solids 48.0 - 50.0 Wt % DOWM 100008 pH 5.5 - 6.5 DOWM 100429
Exhibit A Specification of Proprietary Binder Material
I. Material Description Color: Odor: Appearance/Physical State: Description Note: White Typical Liquid with suspended solids Proprietary Carboxylated StyreneButadiene Polymer
II.
Governmental/Industry Standards: Non-food Contact
III.
Test Requirements
-------------------------------------------------------------------------------Test Item and Condition Limit Unit Method -------------------------------------------------------------------------------Solids 48.0 - 50.0 Wt % DOWM 100008 pH 200 Mesh Residue, per 900 ml Polymerization Yield 5.5 - 6.5 0.05 Max 45.0 - 55.0 grams Wt % DOWM 100429 LTM 004 Oven Dry
Polymeric Test Polystyrene Formation Present/Absent FTIR
LICENSE AND BINDER PURCHASE AGREEMENT THIS LICENSE AND BINDER PURCHASE AGREEMENT (the "Agreement"), is made and entered into as of May 25, 2000 by and between PacifiCorp Syn Fuel, L.L.C., an Oregon limited liability company ("PSF"), on the one hand, and Covol Technologies, Inc., a Delaware corporation ("Covol") and Alabama Synfuel #1 Ltd., a Delaware limited partnership ("ASF"), on the other hand. WHEREAS, PSF operates a synthetic fuel facility and currently located in Brookwood, Alabama (the "Facility"). WHEREAS, ASF granted to PSF a license for synthetic fuel technology in connection with the Facility on the terms and conditions set forth in the Agreement Concerning Additional Facilities, dated as of December 31, 1996, which was amended and restated on July 7, 1997 and further amended and restated on December 12, 1997 (the "Original Agreement"), and Covol agreed to sell to PSF the proprietary binder material manufactured by Covol for use in the operation of the Facility. WHEREAS, Covol and ASF (collectively, the "Covol Parties") and PSF are among the parties to that Settlement Agreement and Mutual Release and related agreements (collectively, the "Transaction Documents"), dated this same date, pursuant to which, among other things, PSF and the Covol Parties have terminated the Original Agreement and are entering into this Agreement. NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants and agreements hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, PSF and the Covol Parties agree as follows: Section 1 Definitions. "ASF" has the meaning set forth in the preamble. "Birmingport Facility" means the synthetic fuel facility owned by BSF and currently located in Birmingport,
LICENSE AND BINDER PURCHASE AGREEMENT THIS LICENSE AND BINDER PURCHASE AGREEMENT (the "Agreement"), is made and entered into as of May 25, 2000 by and between PacifiCorp Syn Fuel, L.L.C., an Oregon limited liability company ("PSF"), on the one hand, and Covol Technologies, Inc., a Delaware corporation ("Covol") and Alabama Synfuel #1 Ltd., a Delaware limited partnership ("ASF"), on the other hand. WHEREAS, PSF operates a synthetic fuel facility and currently located in Brookwood, Alabama (the "Facility"). WHEREAS, ASF granted to PSF a license for synthetic fuel technology in connection with the Facility on the terms and conditions set forth in the Agreement Concerning Additional Facilities, dated as of December 31, 1996, which was amended and restated on July 7, 1997 and further amended and restated on December 12, 1997 (the "Original Agreement"), and Covol agreed to sell to PSF the proprietary binder material manufactured by Covol for use in the operation of the Facility. WHEREAS, Covol and ASF (collectively, the "Covol Parties") and PSF are among the parties to that Settlement Agreement and Mutual Release and related agreements (collectively, the "Transaction Documents"), dated this same date, pursuant to which, among other things, PSF and the Covol Parties have terminated the Original Agreement and are entering into this Agreement. NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants and agreements hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, PSF and the Covol Parties agree as follows: Section 1 Definitions. "ASF" has the meaning set forth in the preamble. "Birmingport Facility" means the synthetic fuel facility owned by BSF and currently located in Birmingport, Alabama. "BSF" means Birmingham Syn Fuel L.L.C., an Oregon limited liability company. ** 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. 1
"Coal Fuel Technology" means all intellectual property, inventor's certificates and applications therefor, printed and unprinted technical data, know-how, trade secrets, copyrights and other intellectual property rights, inventions, discoveries, techniques, works, processes, methods, plans, software, designs, drawings, schematics, specifications, communications protocols, source and object code and modifications, test procedures, program cards, tapes, disks, algorithms and all other scientific or technical information in whatever form relating to, embodied in or used in the proprietary process to produce synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, and the proprietary binder material used in manufacturing synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, in each case owned or controlled by the Covol Parties, to include such information in existence as of the date of this Agreement as well as related information later developed by the Covol Parties; provided, however, that the defined term "Coal Fuel Technology" shall not include the proprietary process developed by the Covol Parties to produce synthetic coke extrusions and briquettes from coke breeze or any technology for other than the processing and production of synthetic coal fuel. "Commercial Use" means any usage of the Coal Fuel Technology for commercial exploitation and any other usage to which the Covol Parties grant prior written consent. "Covol" has the meaning set forth in the preamble. "Covol Parties" has the meaning set forth in the preamble.
"Coal Fuel Technology" means all intellectual property, inventor's certificates and applications therefor, printed and unprinted technical data, know-how, trade secrets, copyrights and other intellectual property rights, inventions, discoveries, techniques, works, processes, methods, plans, software, designs, drawings, schematics, specifications, communications protocols, source and object code and modifications, test procedures, program cards, tapes, disks, algorithms and all other scientific or technical information in whatever form relating to, embodied in or used in the proprietary process to produce synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, and the proprietary binder material used in manufacturing synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, in each case owned or controlled by the Covol Parties, to include such information in existence as of the date of this Agreement as well as related information later developed by the Covol Parties; provided, however, that the defined term "Coal Fuel Technology" shall not include the proprietary process developed by the Covol Parties to produce synthetic coke extrusions and briquettes from coke breeze or any technology for other than the processing and production of synthetic coal fuel. "Commercial Use" means any usage of the Coal Fuel Technology for commercial exploitation and any other usage to which the Covol Parties grant prior written consent. "Covol" has the meaning set forth in the preamble. "Covol Parties" has the meaning set forth in the preamble. "Facility" has the meaning set forth in the preamble, provided that the term also shall refer to any location to which the Facility may be moved or relocated in the future. "Facility Assignment" has the meaning set forth in Section 12 hereof. "Facility Sub License" has the meaning set forth in Section 12 hereof. "Improvements" has the meaning set forth in Section 2.3 hereof. "Maximum Royalty Tonnage" has the meaning set forth in Section 3 hereof. "Other Facilities" means the two synthetic fuel facilities owned by PSF and currently located in Pumpkin Center, Alabama and the Birmingport Facility. 2
"PSF" has the meaning set forth in the preamble. "Royalty" has the meaning set forth in Section 3.1 hereof. Section 2 License Grant. 2.1 General; Agreement Concerning Exclusivity. Subject to the terms and conditions of this Agreement, the Covol Parties hereby grant and guarantee to PSF a license to use the Coal Fuel Technology at the Facility for Commercial Use, including a license to make, have made, use and sell or otherwise transfer products that embody, use or have been developed or manufactured with the Coal Fuel Technology. For the term of this Agreement and the License And Binder Purchase Agreements for the Other Facilities, PSF and BSF shall have the exclusive license to use the Coal Fuel Technology for Commercial Use within a one hundred (100) mile radius of the present location of the Birmingport Facility, including to make, have made, use and sell or otherwise transfer products that embody, use or have been developed or manufactured with the Coal Fuel Technology. 2.2 Know-How and Assistance. To enable PSF to benefit fully from the license of the Coal Fuel Technology, the Covol Parties shall provide access to all relevant documentation, drawings, engineering specifications and other know-how in its possession, reasonable access to its employees or agents who are familiar with the Coal Fuel Technology, and Improvements to the Coal Fuel Technology, as defined in Section 2.3, and shall provide such technical advice with regard to the Coal Fuel Technology as is reasonably requested by PSF and relevant to the provisions of this Agreement.
"PSF" has the meaning set forth in the preamble. "Royalty" has the meaning set forth in Section 3.1 hereof. Section 2 License Grant. 2.1 General; Agreement Concerning Exclusivity. Subject to the terms and conditions of this Agreement, the Covol Parties hereby grant and guarantee to PSF a license to use the Coal Fuel Technology at the Facility for Commercial Use, including a license to make, have made, use and sell or otherwise transfer products that embody, use or have been developed or manufactured with the Coal Fuel Technology. For the term of this Agreement and the License And Binder Purchase Agreements for the Other Facilities, PSF and BSF shall have the exclusive license to use the Coal Fuel Technology for Commercial Use within a one hundred (100) mile radius of the present location of the Birmingport Facility, including to make, have made, use and sell or otherwise transfer products that embody, use or have been developed or manufactured with the Coal Fuel Technology. 2.2 Know-How and Assistance. To enable PSF to benefit fully from the license of the Coal Fuel Technology, the Covol Parties shall provide access to all relevant documentation, drawings, engineering specifications and other know-how in its possession, reasonable access to its employees or agents who are familiar with the Coal Fuel Technology, and Improvements to the Coal Fuel Technology, as defined in Section 2.3, and shall provide such technical advice with regard to the Coal Fuel Technology as is reasonably requested by PSF and relevant to the provisions of this Agreement. 2.3 Improvements. The Covol Parties shall notify PSF of any improvements, variations or modifications ("Improvements") made on or to the Coal Fuel Technology promptly after such Improvements are made by it. The term "Improvements" shall include changes that reduce production costs, improve performance, broaden applicability or increase marketability. The Covol Parties hereby grant to PSF a license (such license to become exclusive in accordance with Section 2.1 hereof) to utilize the Improvements made by it for Commercial Use, including to make, have made, use, and sell or otherwise transfer products that utilize any such Improvements subject to the terms of this Agreement. It is mutually understood and agreed that all Improvements provided to PSF by the Covol Parties shall remain the sole and exclusive property of the Covol Parties. This Agreement does not contemplate any jointly developed Improvements. All rights to any jointly developed Improvements shall be subject to the terms and conditions of a separate written agreement between PSF and the Covol Parties entered into prior to undertaking any joint development. 2.4 Confidentiality. PSF hereby agrees not to disclose the Coal Fuel Technology, except to its agents, employees, directors or representatives who have a need 3
to know about such technology in connection with the operation and maintenance of the Facilities and the sale of synthetic coal fuel produced by the Facility; provided, however, information which (i) becomes generally available to the public other than as a result of a disclosure by PSF or its agents, employees, directors or representatives, (ii) was available to PSF on a non-confidential basis prior to its disclosure pursuant to the terms hereof, or (iii) becomes available to PSF on a non-confidential basis from a source other than either of the Covol Parties, provided that such source is not known by PSF or its agents, employees, directors or representatives to be prohibited from transmitting the information to PSF by any confidentiality agreement with either of the Covol Parties or by any other contractual, legal or fiduciary obligation shall not be subject to the terms of this Section 2.4. Section 3 Royalty Amount. Within thirty (30) days following the end of each calendar quarter ending March 31, June 30, September 30 and December 31 from and after April 1, 2000, PSF shall pay to Covol quarterly royalty payments in an amount equal to (i) $** multiplied by (ii) the total dollar amount of tax credits under Section 29 of the Internal Revenue Code available to PSF as a result of sales of synthetic fuel produced by the Facility and sold by PSF during the calendar quarter just ended, regardless of whether PSF uses such tax credits; provided, however, royalty payments shall not be computed on, and no royalty payment shall be due with respect to, sales of synthetic fuel that are in excess of the "Maximum Annual Royalty Tonnage." For purposes of this Agreement, the "Maximum Annual Royalty Tonnage" is achieved in any calendar year whenever the aggregate amount of
to know about such technology in connection with the operation and maintenance of the Facilities and the sale of synthetic coal fuel produced by the Facility; provided, however, information which (i) becomes generally available to the public other than as a result of a disclosure by PSF or its agents, employees, directors or representatives, (ii) was available to PSF on a non-confidential basis prior to its disclosure pursuant to the terms hereof, or (iii) becomes available to PSF on a non-confidential basis from a source other than either of the Covol Parties, provided that such source is not known by PSF or its agents, employees, directors or representatives to be prohibited from transmitting the information to PSF by any confidentiality agreement with either of the Covol Parties or by any other contractual, legal or fiduciary obligation shall not be subject to the terms of this Section 2.4. Section 3 Royalty Amount. Within thirty (30) days following the end of each calendar quarter ending March 31, June 30, September 30 and December 31 from and after April 1, 2000, PSF shall pay to Covol quarterly royalty payments in an amount equal to (i) $** multiplied by (ii) the total dollar amount of tax credits under Section 29 of the Internal Revenue Code available to PSF as a result of sales of synthetic fuel produced by the Facility and sold by PSF during the calendar quarter just ended, regardless of whether PSF uses such tax credits; provided, however, royalty payments shall not be computed on, and no royalty payment shall be due with respect to, sales of synthetic fuel that are in excess of the "Maximum Annual Royalty Tonnage." For purposes of this Agreement, the "Maximum Annual Royalty Tonnage" is achieved in any calendar year whenever the aggregate amount of synthetic fuel produced and sold by the Facility and the Other Facilities in such calendar year equals 1,440,000 tons; provided, however, that if any of the Other Facilities is the subject of a Facility Sub License or Facility Assignment, then the Maximum Annual Royalty Tonnage shall be reduced by 360,000 tons per calendar year for each Other Facility that is the subject of a Facility Sub License or Facility Assignment; provided, further, that if the Facility is the subject of a Facility Sub License or Facility Assignment, royalty payments in any calendar year shall not be computed on, and no royalty payment shall be due with respect to, sales of synthetic fuel produced by the Facility in such calendar year in excess of 360,000 tons without regard to the volume of production and sale of synthetic fuel from the Other Facilities. Section 4 Binder. 4.1 Sales of Binder. 4.1.1 Sale and Purchase. PSF agrees to purchase from Covol, and Covol agrees to sell to PSF, all of PSF's requirements for proprietary binder to operate the Facility at full capacity. Covol shall deliver or cause to be delivered the proprietary binder to the Facility at such times and in such quantities as from time-to-time requested by PSF. Payments for proprietary binder delivered to PSF by Covol shall be due and payable to Covol within thirty (30) days of receipt of invoice. 4
4.1.2 Price. Effective from the date hereof, the price which PSF shall pay to Covol for the proprietary binder delivered by or on behalf of Covol with respect to the Facility during any calendar year shall be an amount equal to $** per pound (dry weight) plus an overhead charge of $** per pound (dry weight). Covol shall only increase the price per pound of the binder to the extent of actual increases in its production costs resulting from increases in the costs of binder components charged by Dow Chemical or any successor supplier. If PSF applies binder at the Facility at a concentration higher than two pounds of binder (dry weight) per 2,000 pounds of coal, no markup nor overhead will be charged for the higher concentration. 4.1.3 Specifications and Warranties. Covol represents and warrants that all proprietary binder shall be merchantable, free from defects, and shall conform to the specifications set forth on Exhibit A, which may be changed from time to time upon the written agreement of the parties hereto, except that Covol makes no warranty of fitness as applied to any potential feedstock due to the variability of feedstocks generally. At PSF's option, Covol shall replace, or refund the purchase price and cost of shipment of, all non-conforming proprietary binder ingredients. Covol will bear the risk of loss of the proprietary binder ingredients while it is in transit. 4.1.4 Acceptance and Rejection. All proprietary binder is subject to PSF's inspection and test before final acceptance. Acceptance and/or inspection by PSF shall not constitute a waiver of any latent defect or nonconformity.
4.1.2 Price. Effective from the date hereof, the price which PSF shall pay to Covol for the proprietary binder delivered by or on behalf of Covol with respect to the Facility during any calendar year shall be an amount equal to $** per pound (dry weight) plus an overhead charge of $** per pound (dry weight). Covol shall only increase the price per pound of the binder to the extent of actual increases in its production costs resulting from increases in the costs of binder components charged by Dow Chemical or any successor supplier. If PSF applies binder at the Facility at a concentration higher than two pounds of binder (dry weight) per 2,000 pounds of coal, no markup nor overhead will be charged for the higher concentration. 4.1.3 Specifications and Warranties. Covol represents and warrants that all proprietary binder shall be merchantable, free from defects, and shall conform to the specifications set forth on Exhibit A, which may be changed from time to time upon the written agreement of the parties hereto, except that Covol makes no warranty of fitness as applied to any potential feedstock due to the variability of feedstocks generally. At PSF's option, Covol shall replace, or refund the purchase price and cost of shipment of, all non-conforming proprietary binder ingredients. Covol will bear the risk of loss of the proprietary binder ingredients while it is in transit. 4.1.4 Acceptance and Rejection. All proprietary binder is subject to PSF's inspection and test before final acceptance. Acceptance and/or inspection by PSF shall not constitute a waiver of any latent defect or nonconformity. 4.2 Binder Formula. The Covol Parties represent and warrant that they delivered to a safety deposit box owned by PSF a written copy of the formula used by them to manufacture the proprietary binder material in sufficient quantities to operate the Facility up to full capacity, and the Covol Parties covenant to notify PSF of any improvements, variations or modifications made on or to the formula used by them to manufacture the proprietary binder material promptly after such improvements, variations or modifications are made and to provide a copy of any such improved, varied or modified formula for placement in the safety deposit box. Section 5 Records; Inspection; Confidentiality. Each party hereto shall keep accurate records containing all data reasonably required for the computation and verification of the amounts to be paid by the respective parties under this Agreement, and shall permit each other party or an independent accounting firm designated by such other party to inspect and/or audit such records during normal business hours upon reasonable advance notice. All costs and expenses incurred by a party in connection with such inspection shall be borne by it. Each party agrees to hold confidential from all third parties all information contained in records examined by or on behalf of it pursuant to this Section 5. 5
Section 6 Infringement. If during the term of this Agreement a third party has infringed any intellectual property rights associated with the Coal Fuel Technology or otherwise misappropriated any Coal Fuel Technology, the Covol Parties shall, at their expense, institute and conduct legal actions against such third party or to enter into such agreements or accord in settlement as are deemed appropriate by the Covol Parties. PSF shall have the right to join the Covol Parties as plaintiffs in the prosecution of any infringement or misappropriation action affecting the Facility, provided that PSF shall bear up to fifty percent (50%) of all the costs and expenses of the action. If PSF and the Covol Parties have jointly conducted an infringement or misappropriation action, any sums recovered from the third party shall be distributed to PSF and the Covol Parties in accordance with the percentage of the costs and expenses borne by each, after each party has been reimbursed for costs and expenses incurred by it in prosecuting such action. PSF shall always have the right to be represented by counsel of its own selection in any action. In no event shall the Covol Parties enter into any agreement or settlement inconsistent with the terms of this Agreement. Section 7 Representations and Warranties. 7.1 Authority. Each of the Covol Parties and PSF represents and warrants that (i) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized on its behalf by all requisite action, corporate or otherwise, (ii) it has the full right, power and authority to enter into this Agreement and to carry out the terms of this Agreement, (iii) it has duly executed and delivered this Agreement, and (iv) this Agreement is a valid and binding obligation of it enforceable in accordance with its
Section 6 Infringement. If during the term of this Agreement a third party has infringed any intellectual property rights associated with the Coal Fuel Technology or otherwise misappropriated any Coal Fuel Technology, the Covol Parties shall, at their expense, institute and conduct legal actions against such third party or to enter into such agreements or accord in settlement as are deemed appropriate by the Covol Parties. PSF shall have the right to join the Covol Parties as plaintiffs in the prosecution of any infringement or misappropriation action affecting the Facility, provided that PSF shall bear up to fifty percent (50%) of all the costs and expenses of the action. If PSF and the Covol Parties have jointly conducted an infringement or misappropriation action, any sums recovered from the third party shall be distributed to PSF and the Covol Parties in accordance with the percentage of the costs and expenses borne by each, after each party has been reimbursed for costs and expenses incurred by it in prosecuting such action. PSF shall always have the right to be represented by counsel of its own selection in any action. In no event shall the Covol Parties enter into any agreement or settlement inconsistent with the terms of this Agreement. Section 7 Representations and Warranties. 7.1 Authority. Each of the Covol Parties and PSF represents and warrants that (i) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized on its behalf by all requisite action, corporate or otherwise, (ii) it has the full right, power and authority to enter into this Agreement and to carry out the terms of this Agreement, (iii) it has duly executed and delivered this Agreement, and (iv) this Agreement is a valid and binding obligation of it enforceable in accordance with its terms. 7.2 No Consent. Each of the Covol Parties and PSF represents and warrants that no approval, consent, authorization, order, designation or declaration of any court or regulatory authority or governmental body or any third-party is required to be obtained by it, nor is any filing or registration required to be made therewith by it for the consummation by it of the transactions contemplated under this Agreement. 7.3 Intellectual Property Matters. The Covol Parties warrant that they (i) own, free and clear of all liens and encumbrances, all intellectual property, inventor's certificates and applications therefor, printed and unprinted technical data, know-how, trade secrets, copyrights and other intellectual property rights, inventions, discoveries, techniques, works, processes, methods, plans, software, designs, drawings, schematics, specifications, communications protocols, source and object code and modifications, test procedures, program cards, tapes, disks, algorithms and all other scientific or technical information in whatever form relating to, embodied in or used in the proprietary process to produce synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, and, the proprietary binder material used in manufacturing synthetic coal fuel 6
from waste coal dust, coal fines and other similar coal derivatives, (ii) have the right and power to grant to PSF the licenses granted herein, (iii) have not made any agreement with another in conflict with the rights granted herein, and (iv) have no knowledge that the sale or use of the licenses granted herein as contemplated by this Agreement would infringe any third-party's intellectual property rights. 7.4 Physical Properties. The Covol Parties represent and warrant that (i) the proprietary binder sold to PSF shall not be a hazardous material under, and delivery shall comply with, applicable environmental laws and regulations; and (ii) subject to the selection of suitable feedstock, application of the Coal Fuel Technology in the Facility will result in a chemical change similar in all material respects to the chemical change described in the IRS letter ruling received by the Covol Parties, dated September 8, 1995. Section 8 Term. This Agreement and the license granted hereunder shall be for the period from April 1, 2000 to and including January 1, 2008, or the corresponding date under Section 29 of the 1986 Code in the event of an extension of the tax credits available under Section 29 of the 1986 Code. Section 9 Waiver. The failure of any party to enforce at any time any provision of this Agreement shall not be construed as a waiver of such provision or the right thereafter to enforce each and every provision. No waiver by any party, either express or implied, of any breach of any of the provisions of this Agreement shall be construed
from waste coal dust, coal fines and other similar coal derivatives, (ii) have the right and power to grant to PSF the licenses granted herein, (iii) have not made any agreement with another in conflict with the rights granted herein, and (iv) have no knowledge that the sale or use of the licenses granted herein as contemplated by this Agreement would infringe any third-party's intellectual property rights. 7.4 Physical Properties. The Covol Parties represent and warrant that (i) the proprietary binder sold to PSF shall not be a hazardous material under, and delivery shall comply with, applicable environmental laws and regulations; and (ii) subject to the selection of suitable feedstock, application of the Coal Fuel Technology in the Facility will result in a chemical change similar in all material respects to the chemical change described in the IRS letter ruling received by the Covol Parties, dated September 8, 1995. Section 8 Term. This Agreement and the license granted hereunder shall be for the period from April 1, 2000 to and including January 1, 2008, or the corresponding date under Section 29 of the 1986 Code in the event of an extension of the tax credits available under Section 29 of the 1986 Code. Section 9 Waiver. The failure of any party to enforce at any time any provision of this Agreement shall not be construed as a waiver of such provision or the right thereafter to enforce each and every provision. No waiver by any party, either express or implied, of any breach of any of the provisions of this Agreement shall be construed as a waiver of any other breach of such term or condition. Section 10 Severability. If any provision of this Agreement shall be held by a court of competent jurisdiction to be invalid or unenforceable in any respect for any reason, the validity and enforceability of any such provision in any other respect and of the remaining provisions of this Agreement shall not be in any way impaired. Section 11 Notices. All notices, consents, and other communications under this Settlement Agreement will be in writing and will be deemed to have been sufficiently given or served when delivered in person, by telecopier, by registered or certified mail, charges prepaid, or by prepaid overnight delivery service. Notice shall be deemed given (a) at the time of delivery if given by hand, (b) two (2) business days after deposit in the mail, if given by registered mail, (c) upon confirmation, if given by telecopier (it being agreed that the burden of proving receipt will be on the sender and will not be met by a transmission report generated by the sender's facsimile machine), and (d) upon confirmation of delivery, if given by prepaid overnight delivery service. The addresses and telecopier numbers for the parties, at which all such deliveries can be made and Notices can be sent, are as follows: 7
(A) If to the PSF, to: PacifiCorp Syn Fuel, L.L.C. c/o PacifiCorp Financial Services, Inc. 825 NE Multnomah Street, Suite 1900 Portland, OR 97232 Attention: Craig Longfield Telecopier No.: (503) 813-7213 With copies to: Stoel Rives LLP 900 SW Fifth Avenue, Suite 2600 Portland, Oregon 97204 Attn: Gary R. Barnum Telecopier No.: (503) 220-2480 (B) If to the Covol Parties, to: Covol Technologies, Inc. 3280 North Frontage Road Lehi, Utah 84043 Attention: Brent M. Cook Telecopier No.: (801) 768-4483 With copies to: Pillsbury Madison & Sutro LLP 50 Fremont Street
(A) If to the PSF, to: PacifiCorp Syn Fuel, L.L.C. c/o PacifiCorp Financial Services, Inc. 825 NE Multnomah Street, Suite 1900 Portland, OR 97232 Attention: Craig Longfield Telecopier No.: (503) 813-7213 With copies to: Stoel Rives LLP 900 SW Fifth Avenue, Suite 2600 Portland, Oregon 97204 Attn: Gary R. Barnum Telecopier No.: (503) 220-2480 (B) If to the Covol Parties, to: Covol Technologies, Inc. 3280 North Frontage Road Lehi, Utah 84043 Attention: Brent M. Cook Telecopier No.: (801) 768-4483 With copies to: Pillsbury Madison & Sutro LLP 50 Fremont Street San Francisco, CA 94105 Attention: T. V. Loran III Telecopier No.: (415) 983-1200 Section 12 Assignment; Sublicenses; Obligation of PacifiCorp Financial Services, Inc. This Agreement may not be assigned by the Covol Parties. PSF may grant a sublicense to any person with respect to this Agreement (a "Facility Sub License") or assign its rights and obligations under this Agreement to any person (a "Facility Assignment"), except that any such sublicense or assignment may only be in connection with a transfer of the ownership and/or operation of the Facility. No such attempted sublicense or assignment by PSF shall be valid unless the putative transferee shall have agreed unqualifiedly to assume the obligations of PSF under this Agreement. In the event of a Facility Assignment, if the transferee fails to make (i) any royalty payment required by Sections 3 of this 8
Agreement within 30 days of the due date therefor or (ii) any payment for the purchase of binder required by Section 4 of this Agreement within 30 days of the due date therefor, PacifiCorp Financial Services, Inc., an Oregon corporation ("PFS"), shall promptly pay Covol such unpaid amounts upon written demand therefor. Except as set forth in the immediately preceding sentence, PFS shall not be liable or responsible for any other obligations under this Agreement. Section 13 Further Assurances. Each party agrees, at the request of the other party, at any time and from time to time, to execute and deliver all such further documents, and to take and forbear from all such action, as may be reasonably necessary or appropriate in order more effectively to carry out the provisions of this Agreement. The Covol Parties agree to use reasonable efforts to cooperate with PFS and PSF in marketing, selling or otherwise transferring the Facility. The Covol parties agree to cooperate with PSF in any defense of or response to any action, inquiry or investigation by the IRS relating to the matters addressed by the representation and warranty contained clause (ii) of Section 7.4 Section 14 Set Off. Any amounts owing to PSF from Covol hereunder may be offset and applied toward the payment of any amounts, or any part thereof, owing to Covol pursuant to Section 3 hereof, whether or not such amounts shall be due and payable; provided, however, that PSF shall give Covol and ASF ten (10) business days' written notice prior to exercising such right of offset. Section 15 Entire Agreement. This Agreement, together with the Transaction Documents, (i) constitutes the entire agreement of the parties relating to the subject matter hereof, (ii) is the complete and exclusive statement of the contracting parties' promises, terms, conditions, obligations, or warranties other than those contained herein, and (iii) supersedes all prior communications, representations, or agreements, verbal or written, among the contracting
Agreement within 30 days of the due date therefor or (ii) any payment for the purchase of binder required by Section 4 of this Agreement within 30 days of the due date therefor, PacifiCorp Financial Services, Inc., an Oregon corporation ("PFS"), shall promptly pay Covol such unpaid amounts upon written demand therefor. Except as set forth in the immediately preceding sentence, PFS shall not be liable or responsible for any other obligations under this Agreement. Section 13 Further Assurances. Each party agrees, at the request of the other party, at any time and from time to time, to execute and deliver all such further documents, and to take and forbear from all such action, as may be reasonably necessary or appropriate in order more effectively to carry out the provisions of this Agreement. The Covol Parties agree to use reasonable efforts to cooperate with PFS and PSF in marketing, selling or otherwise transferring the Facility. The Covol parties agree to cooperate with PSF in any defense of or response to any action, inquiry or investigation by the IRS relating to the matters addressed by the representation and warranty contained clause (ii) of Section 7.4 Section 14 Set Off. Any amounts owing to PSF from Covol hereunder may be offset and applied toward the payment of any amounts, or any part thereof, owing to Covol pursuant to Section 3 hereof, whether or not such amounts shall be due and payable; provided, however, that PSF shall give Covol and ASF ten (10) business days' written notice prior to exercising such right of offset. Section 15 Entire Agreement. This Agreement, together with the Transaction Documents, (i) constitutes the entire agreement of the parties relating to the subject matter hereof, (ii) is the complete and exclusive statement of the contracting parties' promises, terms, conditions, obligations, or warranties other than those contained herein, and (iii) supersedes all prior communications, representations, or agreements, verbal or written, among the contracting parties relating to the subject matter hereof. This Agreement may not be amended except in writing signed by the parties hereto. Section 16 Governing Law. This Agreement shall be governed in accordance with the laws of the State of Utah. Section 17 Counterparts. This Agreement may be executed in two or more counterparts, each which shall be deemed an original, but all of which together shall constitute one and the same agreement. 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized representatives the day and year first above written. COVOL TECHNOLOGIES, INC.
By: /s/ Brent M. Cook Name: Brent M. Cook Title: President
ALABAMA SYNFUEL #1 LTD.
By: /s/ Brent M. Cook Name: Brent M. Cook Title: President of Covol Technologies, Inc., its general partner
PACIFICORP SYN FUEL, LLC
By: /s/ Craig Longfield Name: Craig Longfield Title: President
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized representatives the day and year first above written. COVOL TECHNOLOGIES, INC.
By: /s/ Brent M. Cook Name: Brent M. Cook Title: President
ALABAMA SYNFUEL #1 LTD.
By: /s/ Brent M. Cook Name: Brent M. Cook Title: President of Covol Technologies, Inc., its general partner
PACIFICORP SYN FUEL, LLC
By: /s/ Craig Longfield Name: Craig Longfield Title: President
PACIFICORP FINANCIAL SERVICES, INC.*
By: /s/ Craig Longfield Name: Craig Longfield Title: President
* Solely as to Section (12), above. 10
Exhibit A Specification of Proprietary Binder Material
I. Material Description Color: Odor: Appearance/Physical State: Description Note: White Typical Liquid with suspended solids Proprietary Carboxylated StyreneButadiene Polymer
II.
Governmental/Industry Standards: Non-food Contact
III.
Test Requirements
-------------------------------------------------------------------------------Test Item and Condition Limit Unit Method -------------------------------------------------------------------------------Solids 48.0 - 50.0 Wt % DOWM 100008 pH 5.5 - 6.5 DOWM 100429
Exhibit A Specification of Proprietary Binder Material
I. Material Description Color: Odor: Appearance/Physical State: Description Note: White Typical Liquid with suspended solids Proprietary Carboxylated StyreneButadiene Polymer
II.
Governmental/Industry Standards: Non-food Contact
III.
Test Requirements
-------------------------------------------------------------------------------Test Item and Condition Limit Unit Method -------------------------------------------------------------------------------Solids 48.0 - 50.0 Wt % DOWM 100008 pH 200 Mesh Residue, per 900 ml Polymerization Yield 5.5 - 6.5 0.05 Max 45.0 - 55.0 grams Wt % DOWM 100429 LTM 004 Oven Dry
Polymeric Test Polystyrene Formation Present/Absent FTIR
LICENSE AND BINDER PURCHASE AGREEMENT THIS LICENSE AND BINDER PURCHASE AGREEMENT (the "Agreement"), is made and entered into as of May 25, 2000 by and between PacifiCorp Syn Fuel, L.L.C., an Oregon limited liability company ("PSF"), on the one hand, and Covol Technologies, Inc., a Delaware corporation ("Covol") and Alabama Synfuel #1 Ltd., a Delaware limited partnership ("ASF"), on the other hand. WHEREAS, PSF operates a synthetic fuel facility and currently located in Pumpkin Center, Alabama, constructed purusant to contract PC-01 (the "Facility"). WHEREAS, ASF granted to PSF a license for synthetic fuel technology in connection with the Facility on the terms and conditions set forth in the Agreement Concerning Additional Facilities, dated as of December 31, 1996, which was amended and restated on July 7, 1997 and further amended and restated on December 12, 1997 (the "Original Agreement"), and Covol agreed to sell to PSF the proprietary binder material manufactured by Covol for use in the operation of the Facility. WHEREAS, Covol and ASF (collectively, the "Covol Parties") and PSF are among the parties to that Settlement Agreement and Mutual Release and related agreements (collectively, the "Transaction Documents"), dated this same date, pursuant to which, among other things, PSF and the Covol Parties have terminated the Original Agreement and are entering into this Agreement. NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants and agreements hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, PSF and the Covol Parties agree as follows: Section 1 Definitions. "ASF" has the meaning set forth in the preamble.
LICENSE AND BINDER PURCHASE AGREEMENT THIS LICENSE AND BINDER PURCHASE AGREEMENT (the "Agreement"), is made and entered into as of May 25, 2000 by and between PacifiCorp Syn Fuel, L.L.C., an Oregon limited liability company ("PSF"), on the one hand, and Covol Technologies, Inc., a Delaware corporation ("Covol") and Alabama Synfuel #1 Ltd., a Delaware limited partnership ("ASF"), on the other hand. WHEREAS, PSF operates a synthetic fuel facility and currently located in Pumpkin Center, Alabama, constructed purusant to contract PC-01 (the "Facility"). WHEREAS, ASF granted to PSF a license for synthetic fuel technology in connection with the Facility on the terms and conditions set forth in the Agreement Concerning Additional Facilities, dated as of December 31, 1996, which was amended and restated on July 7, 1997 and further amended and restated on December 12, 1997 (the "Original Agreement"), and Covol agreed to sell to PSF the proprietary binder material manufactured by Covol for use in the operation of the Facility. WHEREAS, Covol and ASF (collectively, the "Covol Parties") and PSF are among the parties to that Settlement Agreement and Mutual Release and related agreements (collectively, the "Transaction Documents"), dated this same date, pursuant to which, among other things, PSF and the Covol Parties have terminated the Original Agreement and are entering into this Agreement. NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants and agreements hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, PSF and the Covol Parties agree as follows: Section 1 Definitions. "ASF" has the meaning set forth in the preamble. "Birmingport Facility" means the synthetic fuel facility owned by BSF and currently located in Birmingport, Alabama. "BSF" means Birmingham Syn Fuel L.L.C., an Oregon limited liability company. ** 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. 1
"Coal Fuel Technology" means all intellectual property, inventor's certificates and applications therefor, printed and unprinted technical data, know-how, trade secrets, copyrights and other intellectual property rights, inventions, discoveries, techniques, works, processes, methods, plans, software, designs, drawings, schematics, specifications, communications protocols, source and object code and modifications, test procedures, program cards, tapes, disks, algorithms and all other scientific or technical information in whatever form relating to, embodied in or used in the proprietary process to produce synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, and the proprietary binder material used in manufacturing synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, in each case owned or controlled by the Covol Parties, to include such information in existence as of the date of this Agreement as well as related information later developed by the Covol Parties; provided, however, that the defined term "Coal Fuel Technology" shall not include the proprietary process developed by the Covol Parties to produce synthetic coke extrusions and briquettes from coke breeze or any technology for other than the processing and production of synthetic coal fuel. "Commercial Use" means any usage of the Coal Fuel Technology for commercial exploitation and any other usage to which the Covol Parties grant prior written consent. "Covol" has the meaning set forth in the preamble.
"Coal Fuel Technology" means all intellectual property, inventor's certificates and applications therefor, printed and unprinted technical data, know-how, trade secrets, copyrights and other intellectual property rights, inventions, discoveries, techniques, works, processes, methods, plans, software, designs, drawings, schematics, specifications, communications protocols, source and object code and modifications, test procedures, program cards, tapes, disks, algorithms and all other scientific or technical information in whatever form relating to, embodied in or used in the proprietary process to produce synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, and the proprietary binder material used in manufacturing synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, in each case owned or controlled by the Covol Parties, to include such information in existence as of the date of this Agreement as well as related information later developed by the Covol Parties; provided, however, that the defined term "Coal Fuel Technology" shall not include the proprietary process developed by the Covol Parties to produce synthetic coke extrusions and briquettes from coke breeze or any technology for other than the processing and production of synthetic coal fuel. "Commercial Use" means any usage of the Coal Fuel Technology for commercial exploitation and any other usage to which the Covol Parties grant prior written consent. "Covol" has the meaning set forth in the preamble. "Covol Parties" has the meaning set forth in the preamble. "Facility" has the meaning set forth in the preamble, provided that the term also shall refer to any location to which the Facility may be moved or relocated in the future. "Facility Assignment" has the meaning set forth in Section 12 hereof. "Facility Sub License" has the meaning set forth in Section 12 hereof. "Improvements" has the meaning set forth in Section 2.3 hereof. "Maximum Royalty Tonnage" has the meaning set forth in Section 3 hereof. "Other Facilities" means the synthetic fuel facility owned by PSF and currently located in Pumpkin Center, Alabama that is not the Facility, the synthetic fuel facility owned by PSF and currently located in Brookwood, Alabama and the Birmingport Facility. 2
"PSF" has the meaning set forth in the preamble. "Royalty" has the meaning set forth in Section 3.1 hereof. Section 2 License Grant. 2.1 General; Agreement Concerning Exclusivity. Subject to the terms and conditions of this Agreement, the Covol Parties hereby grant and guarantee to PSF a license to use the Coal Fuel Technology at the Facility for Commercial Use, including a license to make, have made, use and sell or otherwise transfer products that embody, use or have been developed or manufactured with the Coal Fuel Technology. For the term of this Agreement and the License And Binder Purchase Agreements for the Other Facilities, PSF and BSF shall have the exclusive license to use the Coal Fuel Technology for Commercial Use within a one hundred (100) mile radius of the present location of the Birmingport Facility, including to make, have made, use and sell or otherwise transfer products that embody, use or have been developed or manufactured with the Coal Fuel Technology. 2.2 Know-How and Assistance. To enable PSF to benefit fully from the license of the Coal Fuel Technology, the Covol Parties shall provide access to all relevant documentation, drawings, engineering specifications and other know-how in its possession, reasonable access to its employees or agents who are familiar with the Coal Fuel Technology, and Improvements to the Coal Fuel Technology, as defined in Section 2.3, and shall provide such technical advice with regard to the Coal Fuel Technology as is reasonably requested by PSF and relevant to the
"PSF" has the meaning set forth in the preamble. "Royalty" has the meaning set forth in Section 3.1 hereof. Section 2 License Grant. 2.1 General; Agreement Concerning Exclusivity. Subject to the terms and conditions of this Agreement, the Covol Parties hereby grant and guarantee to PSF a license to use the Coal Fuel Technology at the Facility for Commercial Use, including a license to make, have made, use and sell or otherwise transfer products that embody, use or have been developed or manufactured with the Coal Fuel Technology. For the term of this Agreement and the License And Binder Purchase Agreements for the Other Facilities, PSF and BSF shall have the exclusive license to use the Coal Fuel Technology for Commercial Use within a one hundred (100) mile radius of the present location of the Birmingport Facility, including to make, have made, use and sell or otherwise transfer products that embody, use or have been developed or manufactured with the Coal Fuel Technology. 2.2 Know-How and Assistance. To enable PSF to benefit fully from the license of the Coal Fuel Technology, the Covol Parties shall provide access to all relevant documentation, drawings, engineering specifications and other know-how in its possession, reasonable access to its employees or agents who are familiar with the Coal Fuel Technology, and Improvements to the Coal Fuel Technology, as defined in Section 2.3, and shall provide such technical advice with regard to the Coal Fuel Technology as is reasonably requested by PSF and relevant to the provisions of this Agreement. 2.3 Improvements. The Covol Parties shall notify PSF of any improvements, variations or modifications ("Improvements") made on or to the Coal Fuel Technology promptly after such Improvements are made by it. The term "Improvements" shall include changes that reduce production costs, improve performance, broaden applicability or increase marketability. The Covol Parties hereby grant to PSF a license (such license to become exclusive in accordance with Section 2.1 hereof) to utilize the Improvements made by it for Commercial Use, including to make, have made, use, and sell or otherwise transfer products that utilize any such Improvements subject to the terms of this Agreement. It is mutually understood and agreed that all Improvements provided to PSF by the Covol Parties shall remain the sole and exclusive property of the Covol Parties. This Agreement does not contemplate any jointly developed Improvements. All rights to any jointly developed Improvements shall be subject to the terms and conditions of a separate written agreement between PSF and the Covol Parties entered into prior to undertaking any joint development. 2.4 Confidentiality. PSF hereby agrees not to disclose the Coal Fuel Technology, except to its agents, employees, directors or representatives who have a need 3
to know about such technology in connection with the operation and maintenance of the Facilities and the sale of synthetic coal fuel produced by the Facility; provided, however, information which (i) becomes generally available to the public other than as a result of a disclosure by PSF or its agents, employees, directors or representatives, (ii) was available to PSF on a non-confidential basis prior to its disclosure pursuant to the terms hereof, or (iii) becomes available to PSF on a non-confidential basis from a source other than either of the Covol Parties, provided that such source is not known by PSF or its agents, employees, directors or representatives to be prohibited from transmitting the information to PSF by any confidentiality agreement with either of the Covol Parties or by any other contractual, legal or fiduciary obligation shall not be subject to the terms of this Section 2.4. Section 3 Royalty Amount. Within thirty (30) days following the end of each calendar quarter ending March 31, June 30, September 30 and December 31 from and after April 1, 2000, PSF shall pay to Covol quarterly royalty payments in an amount equal to (i) $** multiplied by (ii) the total dollar amount of tax credits under Section 29 of the Internal Revenue Code available to PSF as a result of sales of synthetic fuel produced by the Facility and sold by PSF during the calendar quarter just ended, regardless of whether PSF uses such tax credits; provided, however, royalty payments shall not be computed on, and no royalty payment shall be due with respect to, sales of synthetic fuel that are in excess of the "Maximum Annual Royalty Tonnage." For purposes of this Agreement, the "Maximum Annual Royalty Tonnage" is achieved in any calendar year whenever the aggregate amount of
to know about such technology in connection with the operation and maintenance of the Facilities and the sale of synthetic coal fuel produced by the Facility; provided, however, information which (i) becomes generally available to the public other than as a result of a disclosure by PSF or its agents, employees, directors or representatives, (ii) was available to PSF on a non-confidential basis prior to its disclosure pursuant to the terms hereof, or (iii) becomes available to PSF on a non-confidential basis from a source other than either of the Covol Parties, provided that such source is not known by PSF or its agents, employees, directors or representatives to be prohibited from transmitting the information to PSF by any confidentiality agreement with either of the Covol Parties or by any other contractual, legal or fiduciary obligation shall not be subject to the terms of this Section 2.4. Section 3 Royalty Amount. Within thirty (30) days following the end of each calendar quarter ending March 31, June 30, September 30 and December 31 from and after April 1, 2000, PSF shall pay to Covol quarterly royalty payments in an amount equal to (i) $** multiplied by (ii) the total dollar amount of tax credits under Section 29 of the Internal Revenue Code available to PSF as a result of sales of synthetic fuel produced by the Facility and sold by PSF during the calendar quarter just ended, regardless of whether PSF uses such tax credits; provided, however, royalty payments shall not be computed on, and no royalty payment shall be due with respect to, sales of synthetic fuel that are in excess of the "Maximum Annual Royalty Tonnage." For purposes of this Agreement, the "Maximum Annual Royalty Tonnage" is achieved in any calendar year whenever the aggregate amount of synthetic fuel produced and sold by the Facility and the Other Facilities in such calendar year equals 1,440,000 tons; provided, however, that if any of the Other Facilities is the subject of a Facility Sub License or Facility Assignment, then the Maximum Annual Royalty Tonnage shall be reduced by 360,000 tons per calendar year for each Other Facility that is the subject of a Facility Sub License or Facility Assignment; provided, further, that if the Facility is the subject of a Facility Sub License or Facility Assignment, royalty payments in any calendar year shall not be computed on, and no royalty payment shall be due with respect to, sales of synthetic fuel produced by the Facility in such calendar year in excess of 360,000 tons without regard to the volume of production and sale of synthetic fuel from the Other Facilities. Section 4 Binder. 4.1 Sales of Binder. 4.1.1 Sale and Purchase. PSF agrees to purchase from Covol, and Covol agrees to sell to PSF, all of PSF's requirements for proprietary binder to operate the Facility at full capacity. Covol shall deliver or cause to be delivered the proprietary binder to the Facility at such times and in such quantities as from time-to-time requested by PSF. Payments for proprietary binder delivered to PSF by Covol shall be due and payable to Covol within thirty (30) days of receipt of invoice. 4
4.1.2 Price. Effective from the date hereof, the price which PSF shall pay to Covol for the proprietary binder delivered by or on behalf of Covol with respect to the Facility during any calendar year shall be an amount equal to $** per pound (dry weight) plus an overhead charge of $** per pound (dry weight). Covol shall only increase the price per pound of the binder to the extent of actual increases in its production costs resulting from increases in the costs of binder components charged by Dow Chemical or any successor supplier. If PSF applies binder at the Facility at a concentration higher than two pounds of binder (dry weight) per 2,000 pounds of coal, no markup nor overhead will be charged for the higher concentration. 4.1.3 Specifications and Warranties. Covol represents and warrants that all proprietary binder shall be merchantable, free from defects, and shall conform to the specifications set forth on Exhibit A, which may be changed from time to time upon the written agreement of the parties hereto, except that Covol makes no warranty of fitness as applied to any potential feedstock due to the variability of feedstocks generally. At PSF's option, Covol shall replace, or refund the purchase price and cost of shipment of, all non-conforming proprietary binder ingredients. Covol will bear the risk of loss of the proprietary binder ingredients while it is in transit. 4.1.4 Acceptance and Rejection. All proprietary binder is subject to PSF's inspection and test before final acceptance. Acceptance and/or inspection by PSF shall not constitute a waiver of any latent defect or nonconformity.
4.1.2 Price. Effective from the date hereof, the price which PSF shall pay to Covol for the proprietary binder delivered by or on behalf of Covol with respect to the Facility during any calendar year shall be an amount equal to $** per pound (dry weight) plus an overhead charge of $** per pound (dry weight). Covol shall only increase the price per pound of the binder to the extent of actual increases in its production costs resulting from increases in the costs of binder components charged by Dow Chemical or any successor supplier. If PSF applies binder at the Facility at a concentration higher than two pounds of binder (dry weight) per 2,000 pounds of coal, no markup nor overhead will be charged for the higher concentration. 4.1.3 Specifications and Warranties. Covol represents and warrants that all proprietary binder shall be merchantable, free from defects, and shall conform to the specifications set forth on Exhibit A, which may be changed from time to time upon the written agreement of the parties hereto, except that Covol makes no warranty of fitness as applied to any potential feedstock due to the variability of feedstocks generally. At PSF's option, Covol shall replace, or refund the purchase price and cost of shipment of, all non-conforming proprietary binder ingredients. Covol will bear the risk of loss of the proprietary binder ingredients while it is in transit. 4.1.4 Acceptance and Rejection. All proprietary binder is subject to PSF's inspection and test before final acceptance. Acceptance and/or inspection by PSF shall not constitute a waiver of any latent defect or nonconformity. 4.2 Binder Formula. The Covol Parties represent and warrant that they delivered to a safety deposit box owned by PSF a written copy of the formula used by them to manufacture the proprietary binder material in sufficient quantities to operate the Facility up to full capacity, and the Covol Parties covenant to notify PSF of any improvements, variations or modifications made on or to the formula used by them to manufacture the proprietary binder material promptly after such improvements, variations or modifications are made and to provide a copy of any such improved, varied or modified formula for placement in the safety deposit box. Section 5 Records; Inspection; Confidentiality. Each party hereto shall keep accurate records containing all data reasonably required for the computation and verification of the amounts to be paid by the respective parties under this Agreement, and shall permit each other party or an independent accounting firm designated by such other party to inspect and/or audit such records during normal business hours upon reasonable advance notice. All costs and expenses incurred by a party in connection with such inspection shall be borne by it. Each party agrees to hold confidential from all third parties all information contained in records examined by or on behalf of it pursuant to this Section 5. Section 6 Infringement. If during the term of this Agreement a third party has infringed any intellectual property rights associated with the Coal Fuel Technology or 5
otherwise misappropriated any Coal Fuel Technology, the Covol Parties shall, at their expense, institute and conduct legal actions against such third party or to enter into such agreements or accord in settlement as are deemed appropriate by the Covol Parties. PSF shall have the right to join the Covol Parties as plaintiffs in the prosecution of any infringement or misappropriation action affecting the Facility, provided that PSF shall bear up to fifty percent (50%) of all the costs and expenses of the action. If PSF and the Covol Parties have jointly conducted an infringement or misappropriation action, any sums recovered from the third party shall be distributed to PSF and the Covol Parties in accordance with the percentage of the costs and expenses borne by each, after each party has been reimbursed for costs and expenses incurred by it in prosecuting such action. PSF shall always have the right to be represented by counsel of its own selection in any action. In no event shall the Covol Parties enter into any agreement or settlement inconsistent with the terms of this Agreement. Section 7 Representations and Warranties. 7.1 Authority. Each of the Covol Parties and PSF represents and warrants that (i) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized on its behalf by all requisite action, corporate or otherwise, (ii) it has the full right, power and authority to enter into this Agreement and to carry out the terms of this Agreement, (iii) it has duly executed and delivered
otherwise misappropriated any Coal Fuel Technology, the Covol Parties shall, at their expense, institute and conduct legal actions against such third party or to enter into such agreements or accord in settlement as are deemed appropriate by the Covol Parties. PSF shall have the right to join the Covol Parties as plaintiffs in the prosecution of any infringement or misappropriation action affecting the Facility, provided that PSF shall bear up to fifty percent (50%) of all the costs and expenses of the action. If PSF and the Covol Parties have jointly conducted an infringement or misappropriation action, any sums recovered from the third party shall be distributed to PSF and the Covol Parties in accordance with the percentage of the costs and expenses borne by each, after each party has been reimbursed for costs and expenses incurred by it in prosecuting such action. PSF shall always have the right to be represented by counsel of its own selection in any action. In no event shall the Covol Parties enter into any agreement or settlement inconsistent with the terms of this Agreement. Section 7 Representations and Warranties. 7.1 Authority. Each of the Covol Parties and PSF represents and warrants that (i) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized on its behalf by all requisite action, corporate or otherwise, (ii) it has the full right, power and authority to enter into this Agreement and to carry out the terms of this Agreement, (iii) it has duly executed and delivered this Agreement, and (iv) this Agreement is a valid and binding obligation of it enforceable in accordance with its terms. 7.2 No Consent. Each of the Covol Parties and PSF represents and warrants that no approval, consent, authorization, order, designation or declaration of any court or regulatory authority or governmental body or any third-party is required to be obtained by it, nor is any filing or registration required to be made therewith by it for the consummation by it of the transactions contemplated under this Agreement. 7.3 Intellectual Property Matters. The Covol Parties warrant that they (i) own, free and clear of all liens and encumbrances, all intellectual property, inventor's certificates and applications therefor, printed and unprinted technical data, know-how, trade secrets, copyrights and other intellectual property rights, inventions, discoveries, techniques, works, processes, methods, plans, software, designs, drawings, schematics, specifications, communications protocols, source and object code and modifications, test procedures, program cards, tapes, disks, algorithms and all other scientific or technical information in whatever form relating to, embodied in or used in the proprietary process to produce synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, and, the proprietary binder material used in manufacturing synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, (ii) have the right and power to grant to PSF the licenses granted herein, (iii) have not made any agreement with another in conflict with the rights granted herein, and (iv) have no knowledge that the sale 6
or use of the licenses granted herein as contemplated by this Agreement would infringe any third-party's intellectual property rights. 7.4 Physical Properties. The Covol Parties represent and warrant that (i) the proprietary binder sold to PSF shall not be a hazardous material under, and delivery shall comply with, applicable environmental laws and regulations; and (ii) subject to the selection of suitable feedstock, application of the Coal Fuel Technology in the Facility will result in a chemical change similar in all material respects to the chemical change described in the IRS letter ruling
or use of the licenses granted herein as contemplated by this Agreement would infringe any third-party's intellectual property rights. 7.4 Physical Properties. The Covol Parties represent and warrant that (i) the proprietary binder sold to PSF shall not be a hazardous material under, and delivery shall comply with, applicable environmental laws and regulations; and (ii) subject to the selection of suitable feedstock, application of the Coal Fuel Technology in the Facility will result in a chemical change similar in all material respects to the chemical change described in the IRS letter ruling received by the Covol Parties, dated September 8, 1995. Section 8 Term. This Agreement and the license granted hereunder shall be for the period from April 1, 2000 to and including January 1, 2008, or the corresponding date under Section 29 of the 1986 Code in the event of an extension of the tax credits available under Section 29 of the 1986 Code. Section 9 Waiver. The failure of any party to enforce at any time any provision of this Agreement shall not be construed as a waiver of such provision or the right thereafter to enforce each and every provision. No waiver by any party, either express or implied, of any breach of any of the provisions of this Agreement shall be construed as a waiver of any other breach of such term or condition. Section 10 Severability. If any provision of this Agreement shall be held by a court of competent jurisdiction to be invalid or unenforceable in any respect for any reason, the validity and enforceability of any such provision in any other respect and of the remaining provisions of this Agreement shall not be in any way impaired. Section 11 Notices. All notices, consents, and other communications under this Settlement Agreement will be in writing and will be deemed to have been sufficiently given or served when delivered in person, by telecopier, by registered or certified mail, charges prepaid, or by prepaid overnight delivery service. Notice shall be deemed given (a) at the time of delivery if given by hand, (b) two (2) business days after deposit in the mail, if given by registered mail, (c) upon confirmation, if given by telecopier (it being agreed that the burden of proving receipt will be on the sender and will not be met by a transmission report generated by the sender's facsimile machine), and (d) upon confirmation of delivery, if given by prepaid overnight delivery service. The addresses and telecopier numbers for the parties, at which all such deliveries can be made and Notices can be sent, are as follows: (A) If to the PSF, to: PacifiCorp Syn Fuel, L.L.C. c/o PacifiCorp Financial Services, Inc. 7
825 NE Multnomah Street, Suite 1900 Portland, OR 97232 Attention: Craig Longfield Telecopier No.: (503) 813-7213 With copies to: Stoel Rives LLP 900 SW Fifth Avenue, Suite 2600 Portland, Oregon 97204 Attn: Gary R. Barnum Telecopier No.: (503) 220-2480 (B) If to the Covol Parties, to: Covol Technologies, Inc. 3280 North Frontage Road Lehi, Utah 84043 Attention: Brent M. Cook Telecopier No.: (801) 768-4483 With copies to: Pillsbury Madison & Sutro LLP 50 Fremont Street San Francisco, CA 94105 Attention: T. V. Loran III Telecopier No.: (415) 983-1200
825 NE Multnomah Street, Suite 1900 Portland, OR 97232 Attention: Craig Longfield Telecopier No.: (503) 813-7213 With copies to: Stoel Rives LLP 900 SW Fifth Avenue, Suite 2600 Portland, Oregon 97204 Attn: Gary R. Barnum Telecopier No.: (503) 220-2480 (B) If to the Covol Parties, to: Covol Technologies, Inc. 3280 North Frontage Road Lehi, Utah 84043 Attention: Brent M. Cook Telecopier No.: (801) 768-4483 With copies to: Pillsbury Madison & Sutro LLP 50 Fremont Street San Francisco, CA 94105 Attention: T. V. Loran III Telecopier No.: (415) 983-1200 Section 12 Assignment; Sublicenses; Obligation of PacifiCorp Financial Services, Inc. This Agreement may not be assigned by the Covol Parties. PSF may grant a sublicense to any person with respect to this Agreement (a "Facility Sub License") or assign its rights and obligations under this Agreement to any person (a "Facility Assignment"), except that any such sublicense or assignment may only be in connection with a transfer of the ownership and/or operation of the Facility. No such attempted sublicense or assignment by PSF shall be valid unless the putative transferee shall have agreed unqualifiedly to assume the obligations of PSF under this Agreement. In the event of a Facility Assignment, if the transferee fails to make (i) any royalty payment required by Sections 3 of this Agreement within 30 days of the due date therefor or (ii) any payment for the purchase of binder required by Section 4 of this Agreement within 30 days of the due date therefor, PacifiCorp Financial Services, Inc., an Oregon corporation ("PFS"), shall promptly pay Covol such unpaid amounts upon written demand therefor. Except as set forth in the 8
immediately preceding sentence, PFS shall not be liable or responsible for any other obligations under this Agreement. Section 13 Further Assurances. Each party agrees, at the request of the other party, at any time and from time to time, to execute and deliver all such further documents, and to take and forbear from all such action, as may be reasonably necessary or appropriate in order more effectively to carry out the provisions of this Agreement. The Covol Parties agree to use reasonable efforts to cooperate with PFS and PSF in marketing, selling or otherwise transferring the Facility. The Covol parties agree to cooperate with PSF in any defense of or response to any action, inquiry or investigation by the IRS relating to the matters addressed by the representation and warranty contained clause (ii) of Section 7.4 Section 14 Set Off. Any amounts owing to PSF from Covol hereunder may be offset and applied toward the payment of any amounts, or any part thereof, owing to Covol pursuant to Section 3 hereof, whether or not such amounts shall be due and payable; provided, however, that PSF shall give Covol and ASF ten (10) business days' written notice prior to exercising such right of offset. Section 15 Entire Agreement. This Agreement, together with the Transaction Documents, (i) constitutes the entire agreement of the parties relating to the subject matter hereof, (ii) is the complete and exclusive statement of the contracting parties' promises, terms, conditions, obligations, or warranties other than those contained herein, and (iii) supersedes all prior communications, representations, or agreements, verbal or written, among the contracting parties relating to the subject matter hereof. This Agreement may not be amended except in writing signed by the parties hereto.
immediately preceding sentence, PFS shall not be liable or responsible for any other obligations under this Agreement. Section 13 Further Assurances. Each party agrees, at the request of the other party, at any time and from time to time, to execute and deliver all such further documents, and to take and forbear from all such action, as may be reasonably necessary or appropriate in order more effectively to carry out the provisions of this Agreement. The Covol Parties agree to use reasonable efforts to cooperate with PFS and PSF in marketing, selling or otherwise transferring the Facility. The Covol parties agree to cooperate with PSF in any defense of or response to any action, inquiry or investigation by the IRS relating to the matters addressed by the representation and warranty contained clause (ii) of Section 7.4 Section 14 Set Off. Any amounts owing to PSF from Covol hereunder may be offset and applied toward the payment of any amounts, or any part thereof, owing to Covol pursuant to Section 3 hereof, whether or not such amounts shall be due and payable; provided, however, that PSF shall give Covol and ASF ten (10) business days' written notice prior to exercising such right of offset. Section 15 Entire Agreement. This Agreement, together with the Transaction Documents, (i) constitutes the entire agreement of the parties relating to the subject matter hereof, (ii) is the complete and exclusive statement of the contracting parties' promises, terms, conditions, obligations, or warranties other than those contained herein, and (iii) supersedes all prior communications, representations, or agreements, verbal or written, among the contracting parties relating to the subject matter hereof. This Agreement may not be amended except in writing signed by the parties hereto. Section 16 Governing Law. This Agreement shall be governed in accordance with the laws of the State of Utah. Section 17 Counterparts. This Agreement may be executed in two or more counterparts, each which shall be deemed an original, but all of which together shall constitute one and the same agreement. 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized representatives the day and year first above written. COVOL TECHNOLOGIES, INC.
By: /s/ Brent M. Cook Name: Brent M. Cook Title: President
ALABAMA SYNFUEL #1 LTD.
By: /s/ Brent M. Cook Name: Brent M. Cook Title:President of Covol Technologies, Inc., its general partner
PACIFICORP SYN FUEL, LLC
By: /s/ Craig Longfield Name: Craig Longfield Title: President
PACIFICORP FINANCIAL SERVICES, INC.*
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized representatives the day and year first above written. COVOL TECHNOLOGIES, INC.
By: /s/ Brent M. Cook Name: Brent M. Cook Title: President
ALABAMA SYNFUEL #1 LTD.
By: /s/ Brent M. Cook Name: Brent M. Cook Title:President of Covol Technologies, Inc., its general partner
PACIFICORP SYN FUEL, LLC
By: /s/ Craig Longfield Name: Craig Longfield Title: President
PACIFICORP FINANCIAL SERVICES, INC.*
By: /s/ Craig Longfield Name: Craig Longfield Title: President
* Solely as to Section (12), above. 10
Exhibit A Specification of Proprietary Binder Material
I. Material Description Color: Odor: Appearance/Physical State: Description Note: White Typical Liquid with suspended solids Proprietary Carboxylated StyreneButadiene Polymer
II.
Governmental/Industry Standards: Non-food Contact
III.
Test Requirements
-------------------------------------------------------------------------------Test Item and Condition Limit Unit Method -------------------------------------------------------------------------------Solids 48.0 - 50.0 Wt % DOWM 100008 pH 5.5 - 6.5 DOWM 100429
Exhibit A Specification of Proprietary Binder Material
I. Material Description Color: Odor: Appearance/Physical State: Description Note: White Typical Liquid with suspended solids Proprietary Carboxylated StyreneButadiene Polymer
II.
Governmental/Industry Standards: Non-food Contact
III.
Test Requirements
-------------------------------------------------------------------------------Test Item and Condition Limit Unit Method -------------------------------------------------------------------------------Solids 48.0 - 50.0 Wt % DOWM 100008 pH 200 Mesh Residue, per 900 ml Polymerization Yield 5.5 - 6.5 0.05 Max 45.0 - 55.0 grams Wt % DOWM 100429 LTM 004 Oven Dry
Polymeric Test Polystyrene Formation Present/Absent FTIR
LICENSE AND BINDER PURCHASE AGREEMENT THIS LICENSE AND BINDER PURCHASE AGREEMENT (the "Agreement"), is made and entered into as of May 25, 2000 by and between PacifiCorp Syn Fuel, L.L.C., an Oregon limited liability company ("PSF"), on the one hand, and Covol Technologies, Inc., a Delaware corporation ("Covol") and Alabama Synfuel #1 Ltd., a Delaware limited partnership ("ASF"), on the other hand. WHEREAS, PSF operates a synthetic fuel facility and currently located in Pumpkin Center, Alabama, constructed pursuant to contract PC-02 (the "Facility"). WHEREAS, ASF granted to PSF a license for synthetic fuel technology in connection with the Facility on the terms and conditions set forth in the Agreement Concerning Additional Facilities, dated as of December 31, 1996, which was amended and restated on July 7, 1997 and further amended and restated on December 12, 1997 (the "Original Agreement"), and Covol agreed to sell to PSF the proprietary binder material manufactured by Covol for use in the operation of the Facility. WHEREAS, Covol and ASF (collectively, the "Covol Parties") and PSF are among the parties to that Settlement Agreement and Mutual Release and related agreements (collectively, the "Transaction Documents"), dated this same date, pursuant to which, among other things, PSF and the Covol Parties have terminated the Original Agreement and are entering into this Agreement. NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants and agreements hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, PSF and the Covol Parties agree as follows: Section 1 Definitions. "ASF" has the meaning set forth in the preamble.
LICENSE AND BINDER PURCHASE AGREEMENT THIS LICENSE AND BINDER PURCHASE AGREEMENT (the "Agreement"), is made and entered into as of May 25, 2000 by and between PacifiCorp Syn Fuel, L.L.C., an Oregon limited liability company ("PSF"), on the one hand, and Covol Technologies, Inc., a Delaware corporation ("Covol") and Alabama Synfuel #1 Ltd., a Delaware limited partnership ("ASF"), on the other hand. WHEREAS, PSF operates a synthetic fuel facility and currently located in Pumpkin Center, Alabama, constructed pursuant to contract PC-02 (the "Facility"). WHEREAS, ASF granted to PSF a license for synthetic fuel technology in connection with the Facility on the terms and conditions set forth in the Agreement Concerning Additional Facilities, dated as of December 31, 1996, which was amended and restated on July 7, 1997 and further amended and restated on December 12, 1997 (the "Original Agreement"), and Covol agreed to sell to PSF the proprietary binder material manufactured by Covol for use in the operation of the Facility. WHEREAS, Covol and ASF (collectively, the "Covol Parties") and PSF are among the parties to that Settlement Agreement and Mutual Release and related agreements (collectively, the "Transaction Documents"), dated this same date, pursuant to which, among other things, PSF and the Covol Parties have terminated the Original Agreement and are entering into this Agreement. NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants and agreements hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, PSF and the Covol Parties agree as follows: Section 1 Definitions. "ASF" has the meaning set forth in the preamble. "Birmingport Facility" means the synthetic fuel facility owned by BSF and currently located in Birmingport, Alabama. "BSF" means Birmingham Syn Fuel L.L.C., an Oregon limited liability company. ** 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. 1
"Coal Fuel Technology" means all intellectual property, inventor's certificates and applications therefor, printed and unprinted technical data, know-how, trade secrets, copyrights and other intellectual property rights, inventions, discoveries, techniques, works, processes, methods, plans, software, designs, drawings, schematics, specifications, communications protocols, source and object code and modifications, test procedures, program cards, tapes, disks, algorithms and all other scientific or technical information in whatever form relating to, embodied in or used in the proprietary process to produce synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, and the proprietary binder material used in manufacturing synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, in each case owned or controlled by the Covol Parties, to include such information in existence as of the date of this Agreement as well as related information later developed by the Covol Parties; provided, however, that the defined term "Coal Fuel Technology" shall not include the proprietary process developed by the Covol Parties to produce synthetic coke extrusions and briquettes from coke breeze or any technology for other than the processing and production of synthetic coal fuel. "Commercial Use" means any usage of the Coal Fuel Technology for commercial exploitation and any other usage to which the Covol Parties grant prior written consent. "Covol" has the meaning set forth in the preamble.
"Coal Fuel Technology" means all intellectual property, inventor's certificates and applications therefor, printed and unprinted technical data, know-how, trade secrets, copyrights and other intellectual property rights, inventions, discoveries, techniques, works, processes, methods, plans, software, designs, drawings, schematics, specifications, communications protocols, source and object code and modifications, test procedures, program cards, tapes, disks, algorithms and all other scientific or technical information in whatever form relating to, embodied in or used in the proprietary process to produce synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, and the proprietary binder material used in manufacturing synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, in each case owned or controlled by the Covol Parties, to include such information in existence as of the date of this Agreement as well as related information later developed by the Covol Parties; provided, however, that the defined term "Coal Fuel Technology" shall not include the proprietary process developed by the Covol Parties to produce synthetic coke extrusions and briquettes from coke breeze or any technology for other than the processing and production of synthetic coal fuel. "Commercial Use" means any usage of the Coal Fuel Technology for commercial exploitation and any other usage to which the Covol Parties grant prior written consent. "Covol" has the meaning set forth in the preamble. "Covol Parties" has the meaning set forth in the preamble. "Facility" has the meaning set forth in the preamble, provided that the term also shall refer to any location to which the Facility may be moved or relocated in the future. "Facility Assignment" has the meaning set forth in Section 12 hereof. "Facility Sub License" has the meaning set forth in Section 12 hereof. "Improvements" has the meaning set forth in Section 2.3 hereof. "Maximum Royalty Tonnage" has the meaning set forth in Section 3 hereof. "Other Facilities" means the synthetic fuel facility owned by PSF and currently located in Pumpkin Center, Alabama that is not the Facility, the synthetic fuel facility owned by PSF and currently located in Brookwood, Alabama and the Birmingport Facility. 2
"PSF" has the meaning set forth in the preamble. "Royalty" has the meaning set forth in Section 3.1 hereof. Section 2 License Grant. 2.1 General; Agreement Concerning Exclusivity. Subject to the terms and conditions of this Agreement, the Covol Parties hereby grant and guarantee to PSF a license to use the Coal Fuel Technology at the Facility for Commercial Use, including a license to make, have made, use and sell or otherwise transfer products that embody, use or have been developed or manufactured with the Coal Fuel Technology. For the term of this Agreement and the License And Binder Purchase Agreements for the Other Facilities, PSF and BSF shall have the exclusive license to use the Coal Fuel Technology for Commercial Use within a one hundred (100) mile radius of the present location of the Birmingport Facility, including to make, have made, use and sell or otherwise transfer products that embody, use or have been developed or manufactured with the Coal Fuel Technology. 2.2 Know-How and Assistance. To enable PSF to benefit fully from the license of the Coal Fuel Technology, the Covol Parties shall provide access to all relevant documentation, drawings, engineering specifications and other know-how in its possession, reasonable access to its employees or agents who are familiar with the Coal Fuel Technology, and Improvements to the Coal Fuel Technology, as defined in Section 2.3, and shall provide such technical advice with regard to the Coal Fuel Technology as is reasonably requested by PSF and relevant to the
"PSF" has the meaning set forth in the preamble. "Royalty" has the meaning set forth in Section 3.1 hereof. Section 2 License Grant. 2.1 General; Agreement Concerning Exclusivity. Subject to the terms and conditions of this Agreement, the Covol Parties hereby grant and guarantee to PSF a license to use the Coal Fuel Technology at the Facility for Commercial Use, including a license to make, have made, use and sell or otherwise transfer products that embody, use or have been developed or manufactured with the Coal Fuel Technology. For the term of this Agreement and the License And Binder Purchase Agreements for the Other Facilities, PSF and BSF shall have the exclusive license to use the Coal Fuel Technology for Commercial Use within a one hundred (100) mile radius of the present location of the Birmingport Facility, including to make, have made, use and sell or otherwise transfer products that embody, use or have been developed or manufactured with the Coal Fuel Technology. 2.2 Know-How and Assistance. To enable PSF to benefit fully from the license of the Coal Fuel Technology, the Covol Parties shall provide access to all relevant documentation, drawings, engineering specifications and other know-how in its possession, reasonable access to its employees or agents who are familiar with the Coal Fuel Technology, and Improvements to the Coal Fuel Technology, as defined in Section 2.3, and shall provide such technical advice with regard to the Coal Fuel Technology as is reasonably requested by PSF and relevant to the provisions of this Agreement. 2.3 Improvements. The Covol Parties shall notify PSF of any improvements, variations or modifications ("Improvements") made on or to the Coal Fuel Technology promptly after such Improvements are made by it. The term "Improvements" shall include changes that reduce production costs, improve performance, broaden applicability or increase marketability. The Covol Parties hereby grant to PSF a license (such license to become exclusive in accordance with Section 2.1 hereof) to utilize the Improvements made by it for Commercial Use, including to make, have made, use, and sell or otherwise transfer products that utilize any such Improvements subject to the terms of this Agreement. It is mutually understood and agreed that all Improvements provided to PSF by the Covol Parties shall remain the sole and exclusive property of the Covol Parties. This Agreement does not contemplate any jointly developed Improvements. All rights to any jointly developed Improvements shall be subject to the terms and conditions of a separate written agreement between PSF and the Covol Parties entered into prior to undertaking any joint development. 2.4 Confidentiality. PSF hereby agrees not to disclose the Coal Fuel Technology, except to its agents, employees, directors or representatives who have a need 3
to know about such technology in connection with the operation and maintenance of the Facilities and the sale of synthetic coal fuel produced by the Facility; provided, however, information which (i) becomes generally available to the public other than as a result of a disclosure by PSF or its agents, employees, directors or representatives, (ii) was available to PSF on a non-confidential basis prior to its disclosure pursuant to the terms hereof, or (iii) becomes available to PSF on a non-confidential basis from a source other than either of the Covol Parties, provided that such source is not known by PSF or its agents, employees, directors or representatives to be prohibited from transmitting the information to PSF by any confidentiality agreement with either of the Covol Parties or by any other contractual, legal or fiduciary obligation shall not be subject to the terms of this Section 2.4. Section 3 Royalty Amount. Within thirty (30) days following the end of each calendar quarter ending March 31, June 30, September 30 and December 31 from and after April 1, 2000, PSF shall pay to Covol quarterly royalty payments in an amount equal to (i) $** multiplied by (ii) the total dollar amount of tax credits under Section 29 of the Internal Revenue Code available to PSF as a result of sales of synthetic fuel produced by the Facility and sold by PSF during the calendar quarter just ended, regardless of whether PSF uses such tax credits; provided, however, royalty payments shall not be computed on, and no royalty payment shall be due with respect to, sales of synthetic fuel that are in excess of the "Maximum Annual Royalty Tonnage." For purposes of this Agreement, the "Maximum Annual Royalty Tonnage" is achieved in any calendar year whenever the aggregate amount of
to know about such technology in connection with the operation and maintenance of the Facilities and the sale of synthetic coal fuel produced by the Facility; provided, however, information which (i) becomes generally available to the public other than as a result of a disclosure by PSF or its agents, employees, directors or representatives, (ii) was available to PSF on a non-confidential basis prior to its disclosure pursuant to the terms hereof, or (iii) becomes available to PSF on a non-confidential basis from a source other than either of the Covol Parties, provided that such source is not known by PSF or its agents, employees, directors or representatives to be prohibited from transmitting the information to PSF by any confidentiality agreement with either of the Covol Parties or by any other contractual, legal or fiduciary obligation shall not be subject to the terms of this Section 2.4. Section 3 Royalty Amount. Within thirty (30) days following the end of each calendar quarter ending March 31, June 30, September 30 and December 31 from and after April 1, 2000, PSF shall pay to Covol quarterly royalty payments in an amount equal to (i) $** multiplied by (ii) the total dollar amount of tax credits under Section 29 of the Internal Revenue Code available to PSF as a result of sales of synthetic fuel produced by the Facility and sold by PSF during the calendar quarter just ended, regardless of whether PSF uses such tax credits; provided, however, royalty payments shall not be computed on, and no royalty payment shall be due with respect to, sales of synthetic fuel that are in excess of the "Maximum Annual Royalty Tonnage." For purposes of this Agreement, the "Maximum Annual Royalty Tonnage" is achieved in any calendar year whenever the aggregate amount of synthetic fuel produced and sold by the Facility and the Other Facilities in such calendar year equals 1,440,000 tons; provided, however, that if any of the Other Facilities is the subject of a Facility Sub License or Facility Assignment, then the Maximum Annual Royalty Tonnage shall be reduced by 360,000 tons per calendar year for each Other Facility that is the subject of a Facility Sub License or Facility Assignment; provided, further, that if the Facility is the subject of a Facility Sub License or Facility Assignment, royalty payments in any calendar year shall not be computed on, and no royalty payment shall be due with respect to, sales of synthetic fuel produced by the Facility in such calendar year in excess of 360,000 tons without regard to the volume of production and sale of synthetic fuel from the Other Facilities. Section 4 Binder. 4.1 Sales of Binder. 4.1.1 Sale and Purchase. PSF agrees to purchase from Covol, and Covol agrees to sell to PSF, all of PSF's requirements for proprietary binder to operate the Facility at full capacity. Covol shall deliver or cause to be delivered the proprietary binder to the Facility at such times and in such quantities as from time-to-time requested by PSF. Payments for proprietary binder delivered to PSF by Covol shall be due and payable to Covol within thirty (30) days of receipt of invoice. 4
4.1.2 Price. Effective from the date hereof, the price which PSF shall pay to Covol for the proprietary binder delivered by or on behalf of Covol with respect to the Facility during any calendar year shall be an amount equal to $** per pound (dry weight) plus an overhead charge of $** per pound (dry weight). Covol shall only increase the price per pound of the binder to the extent of actual increases in its production costs resulting from increases in the costs of binder components charged by Dow Chemical or any successor supplier. If PSF applies binder at the Facility at a concentration higher than two pounds of binder (dry weight) per 2,000 pounds of coal, no markup nor overhead will be charged for the higher concentration. 4.1.3 Specifications and Warranties. Covol represents and warrants that all proprietary binder shall be merchantable, free from defects, and shall conform to the specifications set forth on Exhibit A, which may be changed from time to time upon the written agreement of the parties hereto, except that Covol makes no warranty of fitness as applied to any potential feedstock due to the variability of feedstocks generally. At PSF's option, Covol shall replace, or refund the purchase price and cost of shipment of, all non-conforming proprietary binder ingredients. Covol will bear the risk of loss of the proprietary binder ingredients while it is in transit. 4.1.4 Acceptance and Rejection. All proprietary binder is subject to PSF's inspection and test before final acceptance. Acceptance and/or inspection by PSF shall not constitute a waiver of any latent defect or nonconformity.
4.1.2 Price. Effective from the date hereof, the price which PSF shall pay to Covol for the proprietary binder delivered by or on behalf of Covol with respect to the Facility during any calendar year shall be an amount equal to $** per pound (dry weight) plus an overhead charge of $** per pound (dry weight). Covol shall only increase the price per pound of the binder to the extent of actual increases in its production costs resulting from increases in the costs of binder components charged by Dow Chemical or any successor supplier. If PSF applies binder at the Facility at a concentration higher than two pounds of binder (dry weight) per 2,000 pounds of coal, no markup nor overhead will be charged for the higher concentration. 4.1.3 Specifications and Warranties. Covol represents and warrants that all proprietary binder shall be merchantable, free from defects, and shall conform to the specifications set forth on Exhibit A, which may be changed from time to time upon the written agreement of the parties hereto, except that Covol makes no warranty of fitness as applied to any potential feedstock due to the variability of feedstocks generally. At PSF's option, Covol shall replace, or refund the purchase price and cost of shipment of, all non-conforming proprietary binder ingredients. Covol will bear the risk of loss of the proprietary binder ingredients while it is in transit. 4.1.4 Acceptance and Rejection. All proprietary binder is subject to PSF's inspection and test before final acceptance. Acceptance and/or inspection by PSF shall not constitute a waiver of any latent defect or nonconformity. 4.2 Binder Formula. The Covol Parties represent and warrant that they delivered to a safety deposit box owned by PSF a written copy of the formula used by them to manufacture the proprietary binder material in sufficient quantities to operate the Facility up to full capacity, and the Covol Parties covenant to notify PSF of any improvements, variations or modifications made on or to the formula used by them to manufacture the proprietary binder material promptly after such improvements, variations or modifications are made and to provide a copy of any such improved, varied or modified formula for placement in the safety deposit box. Section 5 Records; Inspection; Confidentiality. Each party hereto shall keep accurate records containing all data reasonably required for the computation and verification of the amounts to be paid by the respective parties under this Agreement, and shall permit each other party or an independent accounting firm designated by such other party to inspect and/or audit such records during normal business hours upon reasonable advance notice. All costs and expenses incurred by a party in connection with such inspection shall be borne by it. Each party agrees to hold confidential from all third parties all information contained in records examined by or on behalf of it pursuant to this Section 5. Section 6 Infringement. If during the term of this Agreement a third party has infringed any intellectual property rights associated with the Coal Fuel Technology or 5
otherwise misappropriated any Coal Fuel Technology, the Covol Parties shall, at their expense, institute and conduct legal actions against such third party or to enter into such agreements or accord in settlement as are deemed appropriate by the Covol Parties. PSF shall have the right to join the Covol Parties as plaintiffs in the prosecution of any infringement or misappropriation action affecting the Facility, provided that PSF shall bear up to fifty percent (50%) of all the costs and expenses of the action. If PSF and the Covol Parties have jointly conducted an infringement or misappropriation action, any sums recovered from the third party shall be distributed to PSF and the Covol Parties in accordance with the percentage of the costs and expenses borne by each, after each party has been reimbursed for costs and expenses incurred by it in prosecuting such action. PSF shall always have the right to be represented by counsel of its own selection in any action. In no event shall the Covol Parties enter into any agreement or settlement inconsistent with the terms of this Agreement. Section 7 Representations and Warranties. 7.1 Authority. Each of the Covol Parties and PSF represents and warrants that (i) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized on its behalf by all requisite action, corporate or otherwise, (ii) it has the full right, power and authority to enter into this Agreement and to carry out the terms of this Agreement, (iii) it has duly executed and delivered
otherwise misappropriated any Coal Fuel Technology, the Covol Parties shall, at their expense, institute and conduct legal actions against such third party or to enter into such agreements or accord in settlement as are deemed appropriate by the Covol Parties. PSF shall have the right to join the Covol Parties as plaintiffs in the prosecution of any infringement or misappropriation action affecting the Facility, provided that PSF shall bear up to fifty percent (50%) of all the costs and expenses of the action. If PSF and the Covol Parties have jointly conducted an infringement or misappropriation action, any sums recovered from the third party shall be distributed to PSF and the Covol Parties in accordance with the percentage of the costs and expenses borne by each, after each party has been reimbursed for costs and expenses incurred by it in prosecuting such action. PSF shall always have the right to be represented by counsel of its own selection in any action. In no event shall the Covol Parties enter into any agreement or settlement inconsistent with the terms of this Agreement. Section 7 Representations and Warranties. 7.1 Authority. Each of the Covol Parties and PSF represents and warrants that (i) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized on its behalf by all requisite action, corporate or otherwise, (ii) it has the full right, power and authority to enter into this Agreement and to carry out the terms of this Agreement, (iii) it has duly executed and delivered this Agreement, and (iv) this Agreement is a valid and binding obligation of it enforceable in accordance with its terms. 7.2 No Consent. Each of the Covol Parties and PSF represents and warrants that no approval, consent, authorization, order, designation or declaration of any court or regulatory authority or governmental body or any third-party is required to be obtained by it, nor is any filing or registration required to be made therewith by it for the consummation by it of the transactions contemplated under this Agreement. 7.3 Intellectual Property Matters. The Covol Parties warrant that they (i) own, free and clear of all liens and encumbrances, all intellectual property, inventor's certificates and applications therefor, printed and unprinted technical data, know-how, trade secrets, copyrights and other intellectual property rights, inventions, discoveries, techniques, works, processes, methods, plans, software, designs, drawings, schematics, specifications, communications protocols, source and object code and modifications, test procedures, program cards, tapes, disks, algorithms and all other scientific or technical information in whatever form relating to, embodied in or used in the proprietary process to produce synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, and, the proprietary binder material used in manufacturing synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, (ii) have the right and power to grant to PSF the licenses granted herein, (iii) have not made any agreement with another in conflict with the rights granted herein, and (iv) have no knowledge that the sale 6
or use of the licenses granted herein as contemplated by this Agreement would infringe any third-party's intellectual property rights. 7.4 Physical Properties. The Covol Parties represent and warrant that (i) the proprietary binder sold to PSF shall not be a hazardous material under, and delivery shall comply with, applicable environmental laws and regulations; and (ii) subject to the selection of suitable feedstock, application of the Coal Fuel Technology in the Facility will result in a chemical change similar in all material respects to the chemical change described in the IRS letter ruling received by the Covol Parties, dated September 8, 1995. Section 8 Term. This Agreement and the license granted hereunder shall be for the period from April 1, 2000 to and including January 1, 2008, or the corresponding date under Section 29 of the 1986 Code in the event of an extension of the tax credits available under Section 29 of the 1986 Code. Section 9 Waiver. The failure of any party to enforce at any time any provision of this Agreement shall not be construed as a waiver of such provision or the right thereafter to enforce each and every provision. No waiver by any party, either express or implied, of any breach of any of the provisions of this Agreement shall be construed as a waiver of any other breach of such term or condition.
or use of the licenses granted herein as contemplated by this Agreement would infringe any third-party's intellectual property rights. 7.4 Physical Properties. The Covol Parties represent and warrant that (i) the proprietary binder sold to PSF shall not be a hazardous material under, and delivery shall comply with, applicable environmental laws and regulations; and (ii) subject to the selection of suitable feedstock, application of the Coal Fuel Technology in the Facility will result in a chemical change similar in all material respects to the chemical change described in the IRS letter ruling received by the Covol Parties, dated September 8, 1995. Section 8 Term. This Agreement and the license granted hereunder shall be for the period from April 1, 2000 to and including January 1, 2008, or the corresponding date under Section 29 of the 1986 Code in the event of an extension of the tax credits available under Section 29 of the 1986 Code. Section 9 Waiver. The failure of any party to enforce at any time any provision of this Agreement shall not be construed as a waiver of such provision or the right thereafter to enforce each and every provision. No waiver by any party, either express or implied, of any breach of any of the provisions of this Agreement shall be construed as a waiver of any other breach of such term or condition. Section 10 Severability. If any provision of this Agreement shall be held by a court of competent jurisdiction to be invalid or unenforceable in any respect for any reason, the validity and enforceability of any such provision in any other respect and of the remaining provisions of this Agreement shall not be in any way impaired. Section 11 Notices. All notices, consents, and other communications under this Settlement Agreement will be in writing and will be deemed to have been sufficiently given or served when delivered in person, by telecopier, by registered or certified mail, charges prepaid, or by prepaid overnight delivery service. Notice shall be deemed given (a) at the time of delivery if given by hand, (b) two (2) business days after deposit in the mail, if given by registered mail, (c) upon confirmation, if given by telecopier (it being agreed that the burden of proving receipt will be on the sender and will not be met by a transmission report generated by the sender's facsimile machine), and (d) upon confirmation of delivery, if given by prepaid overnight delivery service. The addresses and telecopier numbers for the parties, at which all such deliveries can be made and Notices can be sent, are as follows: (A) If to the PSF, to: PacifiCorp Syn Fuel, L.L.C. c/o PacifiCorp Financial Services, Inc. 7
825 NE Multnomah Street, Suite 1900 Portland, OR 97232 Attention: Craig Longfield Telecopier No.: (503) 813-7213 With copies to: Stoel Rives LLP 900 SW Fifth Avenue, Suite 2600 Portland, Oregon 97204 Attn: Gary R. Barnum Telecopier No.: (503) 220-2480 (B) If to the Covol Parties, to: Covol Technologies, Inc. 3280 North Frontage Road Lehi, Utah 84043 Attention: Brent M. Cook Telecopier No.: (801) 768-4483 With copies to: Pillsbury Madison & Sutro LLP 50 Fremont Street San Francisco, CA 94105 Attention: T. V. Loran III Telecopier No.: (415) 983-1200
825 NE Multnomah Street, Suite 1900 Portland, OR 97232 Attention: Craig Longfield Telecopier No.: (503) 813-7213 With copies to: Stoel Rives LLP 900 SW Fifth Avenue, Suite 2600 Portland, Oregon 97204 Attn: Gary R. Barnum Telecopier No.: (503) 220-2480 (B) If to the Covol Parties, to: Covol Technologies, Inc. 3280 North Frontage Road Lehi, Utah 84043 Attention: Brent M. Cook Telecopier No.: (801) 768-4483 With copies to: Pillsbury Madison & Sutro LLP 50 Fremont Street San Francisco, CA 94105 Attention: T. V. Loran III Telecopier No.: (415) 983-1200 Section 12 Assignment; Sublicenses; Obligation of PacifiCorp Financial Services, Inc. This Agreement may not be assigned by the Covol Parties. PSF may grant a sublicense to any person with respect to this Agreement (a "Facility Sub License") or assign its rights and obligations under this Agreement to any person (a "Facility Assignment"), except that any such sublicense or assignment may only be in connection with a transfer of the ownership and/or operation of the Facility. No such attempted sublicense or assignment by PSF shall be valid unless the putative transferee shall have agreed unqualifiedly to assume the obligations of PSF under this Agreement. In the event of a Facility Assignment, if the transferee fails to make (i) any royalty payment required by Sections 3 of this Agreement within 30 days of the due date therefor or (ii) any payment for the purchase of binder required by Section 4 of this Agreement within 30 days of the due date therefor, PacifiCorp Financial Services, Inc., an Oregon corporation ("PFS"), shall promptly pay Covol such unpaid amounts upon written demand therefor. Except as set forth in the 8
immediately preceding sentence, PFS shall not be liable or responsible for any other obligations under this Agreement. Section 13 Further Assurances. Each party agrees, at the request of the other party, at any time and from time to time, to execute and deliver all such further documents, and to take and forbear from all such action, as may be reasonably necessary or appropriate in order more effectively to carry out the provisions of this Agreement. The Covol Parties agree to use reasonable efforts to cooperate with PFS and PSF in marketing, selling or otherwise transferring the Facility. The Covol parties agree to cooperate with PSF in any defense of or response to any action, inquiry or investigation by the IRS relating to the matters addressed by the representation and warranty contained clause (ii) of Section 7.4 Section 14 Set Off. Any amounts owing to PSF from Covol hereunder may be offset and applied toward the payment of any amounts, or any part thereof, owing to Covol pursuant to Section 3 hereof, whether or not such amounts shall be due and payable; provided, however, that PSF shall give Covol and ASF ten (10) business days' written notice prior to exercising such right of offset. Section 15 Entire Agreement. This Agreement, together with the Transaction Documents, (i) constitutes the entire agreement of the parties relating to the subject matter hereof, (ii) is the complete and exclusive statement of the contracting parties' promises, terms, conditions, obligations, or warranties other than those contained herein, and (iii) supersedes all prior communications, representations, or agreements, verbal or written, among the contracting parties relating to the subject matter hereof. This Agreement may not be amended except in writing signed by the parties hereto.
immediately preceding sentence, PFS shall not be liable or responsible for any other obligations under this Agreement. Section 13 Further Assurances. Each party agrees, at the request of the other party, at any time and from time to time, to execute and deliver all such further documents, and to take and forbear from all such action, as may be reasonably necessary or appropriate in order more effectively to carry out the provisions of this Agreement. The Covol Parties agree to use reasonable efforts to cooperate with PFS and PSF in marketing, selling or otherwise transferring the Facility. The Covol parties agree to cooperate with PSF in any defense of or response to any action, inquiry or investigation by the IRS relating to the matters addressed by the representation and warranty contained clause (ii) of Section 7.4 Section 14 Set Off. Any amounts owing to PSF from Covol hereunder may be offset and applied toward the payment of any amounts, or any part thereof, owing to Covol pursuant to Section 3 hereof, whether or not such amounts shall be due and payable; provided, however, that PSF shall give Covol and ASF ten (10) business days' written notice prior to exercising such right of offset. Section 15 Entire Agreement. This Agreement, together with the Transaction Documents, (i) constitutes the entire agreement of the parties relating to the subject matter hereof, (ii) is the complete and exclusive statement of the contracting parties' promises, terms, conditions, obligations, or warranties other than those contained herein, and (iii) supersedes all prior communications, representations, or agreements, verbal or written, among the contracting parties relating to the subject matter hereof. This Agreement may not be amended except in writing signed by the parties hereto. Section 16 Governing Law. This Agreement shall be governed in accordance with the laws of the State of Utah. Section 17 Counterparts. This Agreement may be executed in two or more counterparts, each which shall be deemed an original, but all of which together shall constitute one and the same agreement. 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized representatives the day and year first above written. COVOL TECHNOLOGIES, INC.
By: /s/ Brent M. Cook Name: Brent M. Cook Title: President
ALABAMA SYNFUEL #1 LTD.
By: /s/ Brent M. Cook Name: Brent M. Cook Title:President of Covol Technologies, Inc., its general partner
PACIFICORP SYN FUEL, LLC
By: /s/ Craig Longfield Name: Craig Longfield Title: President
PACIFICORP FINANCIAL SERVICES, INC.*
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized representatives the day and year first above written. COVOL TECHNOLOGIES, INC.
By: /s/ Brent M. Cook Name: Brent M. Cook Title: President
ALABAMA SYNFUEL #1 LTD.
By: /s/ Brent M. Cook Name: Brent M. Cook Title:President of Covol Technologies, Inc., its general partner
PACIFICORP SYN FUEL, LLC
By: /s/ Craig Longfield Name: Craig Longfield Title: President
PACIFICORP FINANCIAL SERVICES, INC.*
By: /s/ Craig Longfield Name: Craig Longfield Title: President
* Solely as to Section (12), above. 10
Exhibit A Specification of Proprietary Binder Material
I. Material Description Color: Odor: Appearance/Physical State: Description Note: White Typical Liquid with suspended solids Proprietary Carboxylated StyreneButadiene Polymer
II.
Governmental/Industry Standards: Non-food Contact
III.
Test Requirements
-------------------------------------------------------------------------------Test Item and Condition Limit Unit Method -------------------------------------------------------------------------------Solids 48.0 - 50.0 Wt % DOWM 100008 pH 5.5 - 6.5 DOWM 100429
Exhibit A Specification of Proprietary Binder Material
I. Material Description Color: Odor: Appearance/Physical State: Description Note: White Typical Liquid with suspended solids Proprietary Carboxylated StyreneButadiene Polymer
II.
Governmental/Industry Standards: Non-food Contact
III.
Test Requirements
-------------------------------------------------------------------------------Test Item and Condition Limit Unit Method -------------------------------------------------------------------------------Solids 48.0 - 50.0 Wt % DOWM 100008 pH 200 Mesh Residue, per 900 ml Polymerization Yield 5.5 - 6.5 0.05 Max 45.0 - 55.0 grams Wt % DOWM 100429 LTM 004 Oven Dry
Polymeric Test Polystyrene Formation Present/Absent FTIR
SETTLEMENT AGREEMENT AND RELEASE THIS SETTLEMENT AGREEMENT AND RELEASE ("Agreement") is entered into this 26th day of June, 2000, by and among COVOL TECHNOLOGIES, INC., a Delaware corporation ("Covol"), UTAH SYNFUEL #1 LTD., a Delaware limited partnership ("Utah Synfuel"), COALTECH NO. 1 L.P., a Delaware limited partnership ("Coaltech"), AJG FINANCIAL SERVICES, INC., a Delaware corporation ("AJG") and SQUARE D COMPANY, a Delaware corporation ("Square D"). PREAMBLES WHEREAS, Covol, Utah Synfuel, AJG, Square D and Coaltech (collectively, the "Parties") have entered into various interrelated agreements respecting Coaltech's synthetic fuel operations in Price, Utah (the "Utah Project"), including the following agreements (collectively, the "Transaction Documents"): a. Utah Project Purchase Agreement, dated March 7, 1997, by and among Covol, Utah Synfuel and Coaltech (the "Purchase Agreement"); b. Operation and Maintenance Agreement, dated March 7, 1997, by and between Coaltech and Covol (the "Operation and Maintenance Agreement"); c. License and Binder Purchase Agreement, dated March 7, 1997, by and among Coaltech, Covol and Utah Synfuel; d. Sublease Agreement, dated March 7, 1997, by and between Coaltech and Covol (the "Sublease"); e. Supply and Purchase Agreement for the Supply of Coal Fines and the Purchase of Coal Product, dated March 7, 1997, by and among Covol, Utah Synfuel, and Coaltech (the "Supply and Purchase Agreement"); f. Abandonment Option Agreement, dated March 7, 1997, by and among AJG and Square D, as Option
SETTLEMENT AGREEMENT AND RELEASE THIS SETTLEMENT AGREEMENT AND RELEASE ("Agreement") is entered into this 26th day of June, 2000, by and among COVOL TECHNOLOGIES, INC., a Delaware corporation ("Covol"), UTAH SYNFUEL #1 LTD., a Delaware limited partnership ("Utah Synfuel"), COALTECH NO. 1 L.P., a Delaware limited partnership ("Coaltech"), AJG FINANCIAL SERVICES, INC., a Delaware corporation ("AJG") and SQUARE D COMPANY, a Delaware corporation ("Square D"). PREAMBLES WHEREAS, Covol, Utah Synfuel, AJG, Square D and Coaltech (collectively, the "Parties") have entered into various interrelated agreements respecting Coaltech's synthetic fuel operations in Price, Utah (the "Utah Project"), including the following agreements (collectively, the "Transaction Documents"): a. Utah Project Purchase Agreement, dated March 7, 1997, by and among Covol, Utah Synfuel and Coaltech (the "Purchase Agreement"); b. Operation and Maintenance Agreement, dated March 7, 1997, by and between Coaltech and Covol (the "Operation and Maintenance Agreement"); c. License and Binder Purchase Agreement, dated March 7, 1997, by and among Coaltech, Covol and Utah Synfuel; d. Sublease Agreement, dated March 7, 1997, by and between Coaltech and Covol (the "Sublease"); e. Supply and Purchase Agreement for the Supply of Coal Fines and the Purchase of Coal Product, dated March 7, 1997, by and among Covol, Utah Synfuel, and Coaltech (the "Supply and Purchase Agreement"); f. Abandonment Option Agreement, dated March 7, 1997, by and among AJG and Square D, as Option Holders, and Covol; and g. Repurchase Option Agreement, dated March 7, 1997, by and among Coaltech, Covol and Utah Synfuel. ** 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.
WHEREAS, Covol, AJG and Square D also have entered into that certain Agreement of Limited Partnership of Coaltech No. 1, L.P., dated March 7, 1997, by and among Covol as General Partner and AJG and Square D as limited partners (the "Partnership Agreement"); WHEREAS, various issues have arisen between the Parties pertaining to the Utah Project and the Parties' respective rights and obligations under the Transaction Documents and the Partnership Agreement, including, but not limited to, the limited partners' forced retirement of Covol as General Partner of Coaltech on October 29, 1999 and the ownership and operation of the synthetic fuel facility currently located in Price, Utah and any location to which the facility may be moved or relocated in the future (the "Facility"); WHEREAS, Covol, Utah Synfuel, AJG and Coaltech have entered into that certain Assignment and Amendment Agreement, dated January 26, 2000, a copy of which is attached hereto as Exhibit A; WHEREAS, simultaneous with the signing of this Agreement, Coaltech, Covol and Utah Synfuel are entering into that certain License and Binder Supply Agreement dated the date hereof, a copy of which is attached hereto as Exhibit B (the "Binder Agreement"); and WHEREAS, the Parties wish to resolve remaining issues and agree to settle such issues on the conditions set forth herein.
WHEREAS, Covol, AJG and Square D also have entered into that certain Agreement of Limited Partnership of Coaltech No. 1, L.P., dated March 7, 1997, by and among Covol as General Partner and AJG and Square D as limited partners (the "Partnership Agreement"); WHEREAS, various issues have arisen between the Parties pertaining to the Utah Project and the Parties' respective rights and obligations under the Transaction Documents and the Partnership Agreement, including, but not limited to, the limited partners' forced retirement of Covol as General Partner of Coaltech on October 29, 1999 and the ownership and operation of the synthetic fuel facility currently located in Price, Utah and any location to which the facility may be moved or relocated in the future (the "Facility"); WHEREAS, Covol, Utah Synfuel, AJG and Coaltech have entered into that certain Assignment and Amendment Agreement, dated January 26, 2000, a copy of which is attached hereto as Exhibit A; WHEREAS, simultaneous with the signing of this Agreement, Coaltech, Covol and Utah Synfuel are entering into that certain License and Binder Supply Agreement dated the date hereof, a copy of which is attached hereto as Exhibit B (the "Binder Agreement"); and WHEREAS, the Parties wish to resolve remaining issues and agree to settle such issues on the conditions set forth herein. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties do hereby agree as follows: 1. Termination. The Parties agree that each of the Transaction Documents is terminated and is of no further force or effect, subject to and in accordance with the terms and conditions set forth herein. 2. Accounting and Settlement Payments. a. Accounting. The Parties agree that an accounting has been rendered of all financial obligations and sums owed under the Partnership Agreement and the Transaction Documents by PriceWaterhouseCoopers for the period commencing March 7,1997 and ending September 30, 1999 (Exhibit C) and by Covol for the period commencing October 1, 1999 and ending April 29, 2000 (Exhibit D). Exhibit C and Exhibit D will be collectively referred to hereafter as the "Accounting." The cost of the accounting by PriceWaterhouseCoopers shall be split equally between Covol and Coaltech. b. Settlement Payments. Pursuant to the Accounting, Coaltech shall pay Covol $** upon the execution of this Agreement. 2
c. Site Termination Costs. Coaltech shall pay Covol $** to be applied to the costs of Covol in terminating (i) the obligation to make monthly payments to the landlord of the Premises under the lease dated December 23, 1996 (the "Lease"); and (ii) the Gas Gathering, Purchase and Sale Agreement dated June 4, 1997 with the Drunkards Wash Owners. Covol shall pay the costs of any Premises restoration and environmental remediation. 3. Representations and Warranties. Covol and Utah Synfuel jointly and severally represent and warrant to Coaltech, AJG and Square D that as of the date of this Agreement, the following are true: a. Title. At the closing on March 7, 1997, Covol and Utah Synfuel conveyed to Coaltech, marketable title to and possession of the Purchased Assets (as defined in the Purchase Agreement) free and clear of all Liens (as defined in the Purchase Agreement), other than Permitted Liens (as defined in the Purchase Agreement). During the period commencing March 7, 1997 ending October 29, 1999, Covol, as General Partner of Coaltech, except as set forth on Schedule 1 attached hereto, has not (i) sold, leased, assigned, hypothecated or agreed to sell, lease, assign, hypothecate or otherwise transferred or disposed of, or agreed to transfer or dispose of any of the Purchased Assets; or (ii) permitted or allowed any of the Purchased Assets to be subject to any liens other than pursuant to the
c. Site Termination Costs. Coaltech shall pay Covol $** to be applied to the costs of Covol in terminating (i) the obligation to make monthly payments to the landlord of the Premises under the lease dated December 23, 1996 (the "Lease"); and (ii) the Gas Gathering, Purchase and Sale Agreement dated June 4, 1997 with the Drunkards Wash Owners. Covol shall pay the costs of any Premises restoration and environmental remediation. 3. Representations and Warranties. Covol and Utah Synfuel jointly and severally represent and warrant to Coaltech, AJG and Square D that as of the date of this Agreement, the following are true: a. Title. At the closing on March 7, 1997, Covol and Utah Synfuel conveyed to Coaltech, marketable title to and possession of the Purchased Assets (as defined in the Purchase Agreement) free and clear of all Liens (as defined in the Purchase Agreement), other than Permitted Liens (as defined in the Purchase Agreement). During the period commencing March 7, 1997 ending October 29, 1999, Covol, as General Partner of Coaltech, except as set forth on Schedule 1 attached hereto, has not (i) sold, leased, assigned, hypothecated or agreed to sell, lease, assign, hypothecate or otherwise transferred or disposed of, or agreed to transfer or dispose of any of the Purchased Assets; or (ii) permitted or allowed any of the Purchased Assets to be subject to any liens other than pursuant to the Security Agreement (as defined in the Purchase Agreement). During the period commencing October 29, 1999 through the date hereof, to the knowledge of Covol and/or Utah Synfuel, Covol, except as set forth on Schedule 1 hereto, has not (i) sold, leased, assigned, hypothecated or agreed to sell, lease, assign, hypothecate or otherwise transferred or disposed of, or agreed to transfer or dispose of any of the Purchased Assets; or (ii) permitted or allowed any of the Purchased Assets to be subject to any liens other than pursuant to the Security Agreement (as defined in the Purchase Agreement). b. Condition of Purchased Assets. As of October 29, 1999, the Purchased Assets were in good operating condition and repair, subject only to normal wear and tear. As of the date hereof, to the knowledge of Covol and/or Utah Synfuel, the Purchased Assets are in good operating condition and repair, subject to only normal wear and tear. c. Proprietary Property. In the event Coaltech and/or any of its agents or affiliates uses the Purchased Assets to produce synthetic fuel any time after the date hereof, without use of the Synthetic Fuel Technology (as defined in the Binder Agreement) or other proprietary information from Covol and Utah Synfuel pursuant to the Binder Agreement, the sole obligations of Coaltech, AJG and Square D to Covol and Utah Synfuel shall be the payment obligations under Section 4(d) hereof and under the Binder Agreement. 4. Covenants. 3
a. Access to the Premises. Covol agrees that Coaltech, AJG and Square D (and any of their agents) shall continue to have access to the Premises (as defined in the Sublease) for a period commencing the date hereof ending July 31, 2000 for the purposes of removing and relocating, at Coaltech's expense, all of the Purchased Assets. Covol and Utah Synfuel shall cooperate with AJG, Coaltech and Square D during such period in arranging security, maintenance and other services for the Facility. b. Payments to Geocapital. Coaltech agrees that it will continue to pay all fees due to Geocapital pursuant to Section 5.3(c) of the Purchase Agreement and that certain Letter Agreement between Coaltech and Geocapital, Inc., dated March 7, 1997, for coal produced using the Purchased Assets (as defined in the Purchase Agreement) until December 31, 2007. c. Payments to Coalco Corporation. Covol and Utah Synfuel agree that it will continue to make all payments due to CoalCo. Corporation as a result of the transactions contemplated by the Transaction Documents pursuant to Section 5.3(c) of the Purchase Agreement. d. Payments to Covol by AJG and Square D. AJG and Square D severally agree to pay Covol ** percent (**%) of the "Net Benefit" derived by AJG and Square D or any of their affiliates arising from or related to the Purchased Assets for the period commencing the date hereof and ending December 31, 2007. For the purpose of this Section
a. Access to the Premises. Covol agrees that Coaltech, AJG and Square D (and any of their agents) shall continue to have access to the Premises (as defined in the Sublease) for a period commencing the date hereof ending July 31, 2000 for the purposes of removing and relocating, at Coaltech's expense, all of the Purchased Assets. Covol and Utah Synfuel shall cooperate with AJG, Coaltech and Square D during such period in arranging security, maintenance and other services for the Facility. b. Payments to Geocapital. Coaltech agrees that it will continue to pay all fees due to Geocapital pursuant to Section 5.3(c) of the Purchase Agreement and that certain Letter Agreement between Coaltech and Geocapital, Inc., dated March 7, 1997, for coal produced using the Purchased Assets (as defined in the Purchase Agreement) until December 31, 2007. c. Payments to Coalco Corporation. Covol and Utah Synfuel agree that it will continue to make all payments due to CoalCo. Corporation as a result of the transactions contemplated by the Transaction Documents pursuant to Section 5.3(c) of the Purchase Agreement. d. Payments to Covol by AJG and Square D. AJG and Square D severally agree to pay Covol ** percent (**%) of the "Net Benefit" derived by AJG and Square D or any of their affiliates arising from or related to the Purchased Assets for the period commencing the date hereof and ending December 31, 2007. For the purpose of this Section 4(d), the term "Net Benefit" shall include, but not limited to (i) sale proceeds, lease payments, partnership distributions or other benefits that may be derived upon the sale, lease, assignment, or other transfer involving the Purchased Assets, if any, (ii) in any calendar quarter, the positive difference available to AJG and Square D, if any, between (1) the sum of the value of the tax credits and gross sales revenues generated by the sale of synthetic fuel, less (2) the costs of producing and selling synthetic fuel; and (iii) any other economic benefit received by AJG or Square D arising from or related to the Purchased Assets; provided that no economic benefit of AJG or Square D shall be included more than once for purposes of calculating the "Net Benefit." 5. Indemnification. 4
a. Indemnification of Coaltech, AJG and Square D. Covol and Utah Synfuel jointly and severally agree to indemnify, defend, and hold Coaltech, AJG and Square D and their officers, directors, shareholders, partners, employees, representatives and agents and their respective successors and assigns (the "Coaltech Group"), harmless from and against any and all costs, expenses, losses, direct or indirect damages, fines, penalties or liabilities (including, without limitation, interest which may be imposed by a court in connection therewith), court costs, litigation expenses, reasonable attorneys' and paralegals' fees and accounting fees (collectively, the "Damages") suffered, sustained or incurred by any member of the Coaltech Group with respect to, arising from or in connection with, or alleged to result from, arise out of or in connection with: i. a breach by Covol or Utah Synfuel of, or the inaccuracy of, any representation or warranty made by Covol or Utah Synfuel and contained in this Agreement or the Binder Agreement; ii. a breach or nonperformance by Covol or Utah Synfuel of any covenant, restriction or agreement made by Covol or Utah Synfuel and contained in this Agreement or the Binder Agreement; or iii. any claims, suits, action or cause of action or proceeding brought by any person other than a member of the Coaltech Group that arises out of or is based upon (A) a breach by Covol and/or Utah Synfuel of the Partnership Agreement or any of the Transaction Documents or (B) Covol's operation of the Utah Project. b. Indemnification of Covol and Utah Synfuel. Coaltech, AJG and Square D, severally (solely as to its own breaches) agree to indemnify, defend, and hold Covol and Utah Synfuel and their officers, directors, shareholders, employees, partners, representatives and agents and their respective successors and assigns (the ACovol Group@) harmless from and against any and all Damages suffered, sustained or incurred by any member of the Covol Group with respect to, arising from or in connection with or alleged to result from, arise out of or in connection with:
a. Indemnification of Coaltech, AJG and Square D. Covol and Utah Synfuel jointly and severally agree to indemnify, defend, and hold Coaltech, AJG and Square D and their officers, directors, shareholders, partners, employees, representatives and agents and their respective successors and assigns (the "Coaltech Group"), harmless from and against any and all costs, expenses, losses, direct or indirect damages, fines, penalties or liabilities (including, without limitation, interest which may be imposed by a court in connection therewith), court costs, litigation expenses, reasonable attorneys' and paralegals' fees and accounting fees (collectively, the "Damages") suffered, sustained or incurred by any member of the Coaltech Group with respect to, arising from or in connection with, or alleged to result from, arise out of or in connection with: i. a breach by Covol or Utah Synfuel of, or the inaccuracy of, any representation or warranty made by Covol or Utah Synfuel and contained in this Agreement or the Binder Agreement; ii. a breach or nonperformance by Covol or Utah Synfuel of any covenant, restriction or agreement made by Covol or Utah Synfuel and contained in this Agreement or the Binder Agreement; or iii. any claims, suits, action or cause of action or proceeding brought by any person other than a member of the Coaltech Group that arises out of or is based upon (A) a breach by Covol and/or Utah Synfuel of the Partnership Agreement or any of the Transaction Documents or (B) Covol's operation of the Utah Project. b. Indemnification of Covol and Utah Synfuel. Coaltech, AJG and Square D, severally (solely as to its own breaches) agree to indemnify, defend, and hold Covol and Utah Synfuel and their officers, directors, shareholders, employees, partners, representatives and agents and their respective successors and assigns (the ACovol Group@) harmless from and against any and all Damages suffered, sustained or incurred by any member of the Covol Group with respect to, arising from or in connection with or alleged to result from, arise out of or in connection with: i. a breach by Coaltech, AJG or Square D of, or the inaccuracy of, any representation or warranty made by Coaltech and contained in this Agreement or the Binder Agreement; ii. a breach or nonperformance by Coaltech, AJG or Square D of any covenant, restriction or agreement made by Coaltech, AJG or Square D and contained in this Agreement or the Binder Agreement; or iii. any claim, suit, action or cause of action or proceeding brought by any person other than a member of the Covol Group that arises out of or is based upon (A) the breach by AJG and/or Square D of the Partnership Agreement or any of the Transaction Documents or (B) the continuation of the Coaltech business from and after October 29, 1999 (unless such claim, suit, action or cause of action or proceeding resulted from an act or omission by Covol and/or Utah Synfuel). 6. Release. 5
a. Release by Covol and Utah Synfuel. Except for (i) the obligations of Coaltech, AJG and Square D under this Agreement, Binder Agreement and the Assignment and Amendment Agreement and (ii) the Excluded Claims (as defined below), Covol and Utah Synfuel, on behalf of the Covol Group, hereby release, covenant not to sue, and forever discharge the Coaltech Group and each member thereof, from and against any and all claims, demands, liabilities, causes of action and damages of any and every kind, nature, character, known and unknown, which any member of the Covol Group has, had or may have against the Coaltech Group or any member thereof relating to the Transaction Documents and/or the Partnership Agreement. b. Release by Coaltech, AJG and Square D. Except for (i) the obligations of Covol and Utah Synfuel under this Agreement, the Binder Agreement and the Assignment and Amendment Agreement and (ii) the Excluded Claims (as defined below), Coaltech, AJG and Square D, on behalf of the Coaltech Group, hereby release, covenant not to sue, and forever discharge the Covol Group and any member thereof, from and against any and all claims, demands, liabilities, causes of action and damages of any and every kind, nature, character, known and unknown, which any member of the Coaltech Group has, had or may have against them arising from, relating to the Transaction Documents and/or the Partnership Agreement.
a. Release by Covol and Utah Synfuel. Except for (i) the obligations of Coaltech, AJG and Square D under this Agreement, Binder Agreement and the Assignment and Amendment Agreement and (ii) the Excluded Claims (as defined below), Covol and Utah Synfuel, on behalf of the Covol Group, hereby release, covenant not to sue, and forever discharge the Coaltech Group and each member thereof, from and against any and all claims, demands, liabilities, causes of action and damages of any and every kind, nature, character, known and unknown, which any member of the Covol Group has, had or may have against the Coaltech Group or any member thereof relating to the Transaction Documents and/or the Partnership Agreement. b. Release by Coaltech, AJG and Square D. Except for (i) the obligations of Covol and Utah Synfuel under this Agreement, the Binder Agreement and the Assignment and Amendment Agreement and (ii) the Excluded Claims (as defined below), Coaltech, AJG and Square D, on behalf of the Coaltech Group, hereby release, covenant not to sue, and forever discharge the Covol Group and any member thereof, from and against any and all claims, demands, liabilities, causes of action and damages of any and every kind, nature, character, known and unknown, which any member of the Coaltech Group has, had or may have against them arising from, relating to the Transaction Documents and/or the Partnership Agreement. The Parties acknowledge that certain members of the Covol Group are parties to written agreements with certain members of the Coaltech Group besides the Partnership Agreement and the Transaction Documents, including, without limitation, the Debenture (as that term is defined in the Assignment and Amendment Agreement), that certain written contract styled Agreement Concerning Additional Facilities effective December 27, 1996 between Covol and AJG and that certain letter agreement dated October 27, 1997 between Covol and AJG. For purposes of this Agreement, "Excluded Claims" shall mean any and all rights and obligations of any of the Parties pursuant to any other agreements between any member of the Coaltech Group and its affiliates and any member of the Covol Group and its affiliates besides the Partnership Agreement and the Transaction Documents, which rights and obligations shall continue in full force and effect notwithstanding the mutual releases given pursuant to this Section 6 of this Agreement. 7. No Admission. The Parties agree that the Agreement does not represent any admission of guilt or liability by any of the Parties. 8. Represented by Counsel. In entering the Agreement, the Parties represent that they have relied upon the advice of their respective attorneys, who are the attorneys of their own choice, and the terms of this Agreement have been interpreted, completely read and explained to them by their attorneys, and that those terms are fully understood and voluntarily accepted. 9. Successors and Assigns. This Agreement shall bind and inure to the benefit of the Parties hereto and their successors and assigns. 6
10. Waiver. No waiver of any provision hereof shall operate as a waiver of such provision or any other provision on a future occasion. This Agreement may not be modified except pursuant to the written agreement of the party against whom enforcement is sought. 11. Headings. The headings used herein are for convenience only and shall not be used to aid in the interpretation of any provision of the Agreement. 12. Integration Clause. This Agreement, the Binder Agreement and the Assignment and Amendment Agreement contain the entire agreement between the Parties concerning the subject matter of this Agreement and supersedes all prior negotiations, proposed agreements or understandings, except as set forth herein. 13. Contract Execution. This Agreement may be executed in duplicate counterparts, each of which shall be considered and have the full force and effect as an original. 14. Rules of Construction. No rule of construction requiring interpretation against the draftsman hereof shall apply in the interpretation of this Agreement.
10. Waiver. No waiver of any provision hereof shall operate as a waiver of such provision or any other provision on a future occasion. This Agreement may not be modified except pursuant to the written agreement of the party against whom enforcement is sought. 11. Headings. The headings used herein are for convenience only and shall not be used to aid in the interpretation of any provision of the Agreement. 12. Integration Clause. This Agreement, the Binder Agreement and the Assignment and Amendment Agreement contain the entire agreement between the Parties concerning the subject matter of this Agreement and supersedes all prior negotiations, proposed agreements or understandings, except as set forth herein. 13. Contract Execution. This Agreement may be executed in duplicate counterparts, each of which shall be considered and have the full force and effect as an original. 14. Rules of Construction. No rule of construction requiring interpretation against the draftsman hereof shall apply in the interpretation of this Agreement. 15. Governing Law. This Agreement shall be governed by the laws of the State of Delaware, without regard to its conflicts of laws principles. 7
IN WITNESS WHEREOF, the undersigned have executed and delivered this Settlement Agreement and Release on the day and year first written above.
COVOL TECHNOLOGIES, INC., a Delaware corporation UTAH SYNFUEL #1 LTD., a Delaware limited partnership
By: /s/ Harlan M. Hatfield ----------------------------Its: V.P.
By: /s/ Harlan M. Hatfield, V.P. ---------------------------------Its: Covol Technologies, Inc., G.P.
COALTECH NO. 1 L.P., a Delaware limited partnership
AJG FINANCIAL SERVICES, INC., a Delaware corporation
By: /s/ David S. O'Neill ----------------------------Its: Manager of the General Partner
By: /s/ John C. Rosengren --------------------------Its: V-P
SQUARE D COMPANY, a Delaware corporation
By: /s/ Dick O'Shanna Its: V.P., Treasurer
8
Schedule 1 None. 9
IN WITNESS WHEREOF, the undersigned have executed and delivered this Settlement Agreement and Release on the day and year first written above.
COVOL TECHNOLOGIES, INC., a Delaware corporation UTAH SYNFUEL #1 LTD., a Delaware limited partnership
By: /s/ Harlan M. Hatfield ----------------------------Its: V.P.
By: /s/ Harlan M. Hatfield, V.P. ---------------------------------Its: Covol Technologies, Inc., G.P.
COALTECH NO. 1 L.P., a Delaware limited partnership
AJG FINANCIAL SERVICES, INC., a Delaware corporation
By: /s/ David S. O'Neill ----------------------------Its: Manager of the General Partner
By: /s/ John C. Rosengren --------------------------Its: V-P
SQUARE D COMPANY, a Delaware corporation
By: /s/ Dick O'Shanna Its: V.P., Treasurer
8
Schedule 1 None. 9
EXHIBIT B LICENSE AND BINDER SUPPLY AGREEMENT THIS LICENSE AND BINDER SUPPLY AGREEMENT ("Agreement"), is made and entered into as of June 26, 2000 by and among COALTECH NO. 1 L.P., a Delaware limited partnership ("Coaltech"), UTAH SYNFUEL #1 LTD. ("Utah Synfuel") - and COVOL TECHNOLOGIES, INC., a Delaware corporation ("Covol"). WHEREAS, Coaltech and Covol entered into various interelated agreements relating to Covol's synthetic fuel operations in Utah (the "Utah Project"); WHEREAS, various disputes and claims have arisen between the parties pertaining to the Utah Project and the synthetic fuel manufacturing facility currently located in Price, Utah and any location to which the facility may be moved or relocated in the future (the "Facility"); and WHEREAS, simultaneously with the execution of this Agreement, the parties are entering into that certain Settlement Agreement and Release dated as of the date hereof by and among Covol, Utah Synfuel, Coaltech, AJG Financial Services, Inc. and Square D Company (the "Settlement Agreement"). NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants and agreements hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which is hereby
Schedule 1 None. 9
EXHIBIT B LICENSE AND BINDER SUPPLY AGREEMENT THIS LICENSE AND BINDER SUPPLY AGREEMENT ("Agreement"), is made and entered into as of June 26, 2000 by and among COALTECH NO. 1 L.P., a Delaware limited partnership ("Coaltech"), UTAH SYNFUEL #1 LTD. ("Utah Synfuel") - and COVOL TECHNOLOGIES, INC., a Delaware corporation ("Covol"). WHEREAS, Coaltech and Covol entered into various interelated agreements relating to Covol's synthetic fuel operations in Utah (the "Utah Project"); WHEREAS, various disputes and claims have arisen between the parties pertaining to the Utah Project and the synthetic fuel manufacturing facility currently located in Price, Utah and any location to which the facility may be moved or relocated in the future (the "Facility"); and WHEREAS, simultaneously with the execution of this Agreement, the parties are entering into that certain Settlement Agreement and Release dated as of the date hereof by and among Covol, Utah Synfuel, Coaltech, AJG Financial Services, Inc. and Square D Company (the "Settlement Agreement"). NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants and agreements hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: ARTICLE I. SUPPLY AND PURCHASE OF BINDER Section I.1 Definition of Binder. As used herein, the term "Binder" means and refers to the binder compound necessary for the production, by Coaltech, of synthetic coal fuel that is reasonably expected to constitute "qualified fuels" pursuant to the terms of Section 29(c)1(C) of the 1986 Internal Revenue Code, as amended (the "1986 Code") and with respect to which Section 29 is applicable pursuant to Sections 29(f) and 29(g) of the 1986 Code.
Section I.2 Sale and Purchase. Covol agrees to supply to Coaltech, at Coaltech's sole discretion, such quantity of Binder as Coaltech may request pursuant to Section 1.5 hereof. On or before the fifteenth (15th) day of each calendar month immediately following the delivery of Binder to Coaltech hereunder, Covol shall deliver an invoice to Coaltech for the Binder delivered to Coaltech during the immediately preceding calendar month. Payments for Binder delivered by Covol to Coaltech during any calendar month shall be due and payable to Covol on the tenth (10th) business day after the date upon which Coaltech receives an invoice for such delivered Binder. Notwithstanding anything in this Agreement to the contrary, Covol acknowledges and agrees that Coaltech has no obligation to purchase any minimum quantity of Binder from Covol and that, in addition, Coaltech has the unrestricted right to purchase and use binders obtained from any third party in lieu of the Binder supplied by Covol. Section I.3 Price. The price which Coaltech shall pay for the Binder delivered to Coaltech by Covol during any calendar month shall be an amount equal to Covol's direct and actual costs of such Binder (including, but not limited to, material, labor, and transportation costs, with overhead or administrative costs or charges not to exceed $** per ton) plus ** ($**) per ton of synthetic fuel produced. To the extent that the Facility produces synthetic fuel without use of the Binder, Coaltech shall nevertheless pay to Covol ** ($**) per ton of synthetic
EXHIBIT B LICENSE AND BINDER SUPPLY AGREEMENT THIS LICENSE AND BINDER SUPPLY AGREEMENT ("Agreement"), is made and entered into as of June 26, 2000 by and among COALTECH NO. 1 L.P., a Delaware limited partnership ("Coaltech"), UTAH SYNFUEL #1 LTD. ("Utah Synfuel") - and COVOL TECHNOLOGIES, INC., a Delaware corporation ("Covol"). WHEREAS, Coaltech and Covol entered into various interelated agreements relating to Covol's synthetic fuel operations in Utah (the "Utah Project"); WHEREAS, various disputes and claims have arisen between the parties pertaining to the Utah Project and the synthetic fuel manufacturing facility currently located in Price, Utah and any location to which the facility may be moved or relocated in the future (the "Facility"); and WHEREAS, simultaneously with the execution of this Agreement, the parties are entering into that certain Settlement Agreement and Release dated as of the date hereof by and among Covol, Utah Synfuel, Coaltech, AJG Financial Services, Inc. and Square D Company (the "Settlement Agreement"). NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants and agreements hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: ARTICLE I. SUPPLY AND PURCHASE OF BINDER Section I.1 Definition of Binder. As used herein, the term "Binder" means and refers to the binder compound necessary for the production, by Coaltech, of synthetic coal fuel that is reasonably expected to constitute "qualified fuels" pursuant to the terms of Section 29(c)1(C) of the 1986 Internal Revenue Code, as amended (the "1986 Code") and with respect to which Section 29 is applicable pursuant to Sections 29(f) and 29(g) of the 1986 Code.
Section I.2 Sale and Purchase. Covol agrees to supply to Coaltech, at Coaltech's sole discretion, such quantity of Binder as Coaltech may request pursuant to Section 1.5 hereof. On or before the fifteenth (15th) day of each calendar month immediately following the delivery of Binder to Coaltech hereunder, Covol shall deliver an invoice to Coaltech for the Binder delivered to Coaltech during the immediately preceding calendar month. Payments for Binder delivered by Covol to Coaltech during any calendar month shall be due and payable to Covol on the tenth (10th) business day after the date upon which Coaltech receives an invoice for such delivered Binder. Notwithstanding anything in this Agreement to the contrary, Covol acknowledges and agrees that Coaltech has no obligation to purchase any minimum quantity of Binder from Covol and that, in addition, Coaltech has the unrestricted right to purchase and use binders obtained from any third party in lieu of the Binder supplied by Covol. Section I.3 Price. The price which Coaltech shall pay for the Binder delivered to Coaltech by Covol during any calendar month shall be an amount equal to Covol's direct and actual costs of such Binder (including, but not limited to, material, labor, and transportation costs, with overhead or administrative costs or charges not to exceed $** per ton) plus ** ($**) per ton of synthetic fuel produced. To the extent that the Facility produces synthetic fuel without use of the Binder, Coaltech shall nevertheless pay to Covol ** ($**) per ton of synthetic fuel produced by the Facility. Coaltech shall have the right, directly or through its authorized representatives, at any time during normal business hours, to inspect the books and records of Covol to verify the direct and actual costs of the Binder, and to make copies or extracts of such books and records relating to such costs. Section I.4 Covenants of Covol and Utah Synfuel. Covol and Utah Synfuel jointly and severally covenant and agree to and with Coaltech as follows:
Section I.2 Sale and Purchase. Covol agrees to supply to Coaltech, at Coaltech's sole discretion, such quantity of Binder as Coaltech may request pursuant to Section 1.5 hereof. On or before the fifteenth (15th) day of each calendar month immediately following the delivery of Binder to Coaltech hereunder, Covol shall deliver an invoice to Coaltech for the Binder delivered to Coaltech during the immediately preceding calendar month. Payments for Binder delivered by Covol to Coaltech during any calendar month shall be due and payable to Covol on the tenth (10th) business day after the date upon which Coaltech receives an invoice for such delivered Binder. Notwithstanding anything in this Agreement to the contrary, Covol acknowledges and agrees that Coaltech has no obligation to purchase any minimum quantity of Binder from Covol and that, in addition, Coaltech has the unrestricted right to purchase and use binders obtained from any third party in lieu of the Binder supplied by Covol. Section I.3 Price. The price which Coaltech shall pay for the Binder delivered to Coaltech by Covol during any calendar month shall be an amount equal to Covol's direct and actual costs of such Binder (including, but not limited to, material, labor, and transportation costs, with overhead or administrative costs or charges not to exceed $** per ton) plus ** ($**) per ton of synthetic fuel produced. To the extent that the Facility produces synthetic fuel without use of the Binder, Coaltech shall nevertheless pay to Covol ** ($**) per ton of synthetic fuel produced by the Facility. Coaltech shall have the right, directly or through its authorized representatives, at any time during normal business hours, to inspect the books and records of Covol to verify the direct and actual costs of the Binder, and to make copies or extracts of such books and records relating to such costs. Section I.4 Covenants of Covol and Utah Synfuel. Covol and Utah Synfuel jointly and severally covenant and agree to and with Coaltech as follows: I.4.1 Covol shall convey to Coaltech good title to all Binder supplied to Coaltech by Covol hereunder, free and clear of any and all liens, claims, security interests, equities and encumbrances of any type whatsoever. I.4.2 All Binder supplied by Covol to Coaltech hereunder shall be of such quality and nature as to be suitable for processing so as to produce synthetic coal fuel which constitutes "qualified fuel" for purposes of Section 29 of the 1986 Code. I.4.3 The Binder shall not contain any hazardous material and all Binder shall meet all applicable laws and governmental rules, rulings, ordinances, requirements and regulations. 2
I.4.4 Covol, at its cost and expense, shall carry from a reputable insurer at all times during the term of this Agreement general third party liability insurance, including product liability coverage with a ten million dollar ($10,000,000) coverage limit which may be comprised of primary and umbrella policies. Any policy providing such insurance shall name Coaltech as an additional insured thereunder and shall provide that Coaltech shall be given written notice of the cancellation of such policy, or the reduction of any amounts or coverages thereunder, not less than ten (10) business days prior to the effective date thereof. Upon the request of Coaltech, Covol shall provide Coaltech with a certificate of insurance confirming the foregoing. Section I.5 Order Procedure and Delivery. Coaltech shall deliver all orders for the Binder to Covol at least thirty (30) days in advance of the first day of the month in which delivery of such Binder is required under such order, and all such orders received by Covol from Coaltech during the term of this Agreement shall be deemed to have been accepted by Covol. (For example, Coaltech shall deliver an order for December delivery by no later than the immediately preceding November 1st). Each such order shall be delivered either (i) in writing, or (ii) orally by telephone by an authorized agent of Coaltech (subject to the condition that it is followed by a written purchase order within 24 hours). Such orders shall be sent to Covol at such address as Covol shall direct or, in the absence of such direction, at 3280 North Frontage Road, Lehi, Utah 84043; facsimile (801) 768-4483. Covol acknowledges that time is of the essence, and Covol agrees to deliver the Binder so ordered no later than the delivery date specified in such order. ARTICLE II. GRANT OF LICENSE
I.4.4 Covol, at its cost and expense, shall carry from a reputable insurer at all times during the term of this Agreement general third party liability insurance, including product liability coverage with a ten million dollar ($10,000,000) coverage limit which may be comprised of primary and umbrella policies. Any policy providing such insurance shall name Coaltech as an additional insured thereunder and shall provide that Coaltech shall be given written notice of the cancellation of such policy, or the reduction of any amounts or coverages thereunder, not less than ten (10) business days prior to the effective date thereof. Upon the request of Coaltech, Covol shall provide Coaltech with a certificate of insurance confirming the foregoing. Section I.5 Order Procedure and Delivery. Coaltech shall deliver all orders for the Binder to Covol at least thirty (30) days in advance of the first day of the month in which delivery of such Binder is required under such order, and all such orders received by Covol from Coaltech during the term of this Agreement shall be deemed to have been accepted by Covol. (For example, Coaltech shall deliver an order for December delivery by no later than the immediately preceding November 1st). Each such order shall be delivered either (i) in writing, or (ii) orally by telephone by an authorized agent of Coaltech (subject to the condition that it is followed by a written purchase order within 24 hours). Such orders shall be sent to Covol at such address as Covol shall direct or, in the absence of such direction, at 3280 North Frontage Road, Lehi, Utah 84043; facsimile (801) 768-4483. Covol acknowledges that time is of the essence, and Covol agrees to deliver the Binder so ordered no later than the delivery date specified in such order. ARTICLE II. GRANT OF LICENSE Section II.1 Definition of Synthetic Fuel Technology. As used herein, the term "Synthetic Fuel Technology" means all intellectual property, patents (including, but not limited to, United States Patent Numbers 5,487,764, 5,453,103, and 5,599,361) and applications therefor, printed and unprinted technical data, know-how, trade secrets, copyrights and other intellectual property rights, inventions, discoveries, techniques, works, processes, methods, plans, software, designs, drawings, schematics, specifications, communications protocols, source and object code and modifications, test procedures, program cards, tapes, discs, algorithms, and all other scientific or technical information in whatever form relating to, embodied in or used in the proprietary process to produce synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, including all such information in existence as of the date of this Agreement as well as related information later developed by Covol or Utah Synfuel; provided, however, that the defined term "Synthetic Fuel Technology" shall not include the proprietary process developed by Covol to produce synthetic coke extrusions and briquettes from coke breeze, iron revert materials, or any technology for other than the processing and production of synthetic coal fuel. Section II.2 License. Subject to the terms and conditions of this Agreement, Covol and Utah Synfuel hereby grant to Coaltech, for the full and entire term hereof, a license to use the Synthetic Fuel Technology for commercial use in connection with Coaltech's production of synthetic fuel, which license shall be paid for pursuant to section 4(d) of the Settlement Agreement. This license does not extend to the State of Alabama. 3
Section II.3 Know-How and Assistance. To enable Coaltech to benefit fully from the license of the Synthetic Fuel Technology, Covol and Utah Synfuel, promptly upon the request of Coaltech, shall provide at Covol and/or Utah Synfuel's expense (i) access to all technical information, relevant documentation, drawings, engineering specifications and other know-how in either Utah Synfuel's or Covol's possession and (ii) reasonable access to Utah Synfuel's and Covol's employees or agents who are familiar with the Synthetic Fuel Technology, and any Improvements (as defined below) to the Synthetic Fuel Technology. Covol and Utah Synfuel shall further provide to Coaltech, promptly upon the request of Coaltech, all technical advice necessary to exploit the Synthetic Fuel Technology as is reasonably requested by Coaltech and relevant to the provisions of this Agreement and Coaltech shall reimburse Covol and Utah Synfuel for its reasonable out of pocket expenses associated therewith (exclusive of compensation, employment taxes, benefits costs and overhead or administrative costs) within 30 days of invoice supported by appropriate documentation. Section II.4 Improvements. Each of Covol and Utah Synfuel shall notify Coaltech of any improvements, variations or modifications ("Improvements") made by it (or any of its affiliates or independent contractors or other parties retained for such purpose) on or to the Synthetic Fuel Technology promptly after such
Section II.3 Know-How and Assistance. To enable Coaltech to benefit fully from the license of the Synthetic Fuel Technology, Covol and Utah Synfuel, promptly upon the request of Coaltech, shall provide at Covol and/or Utah Synfuel's expense (i) access to all technical information, relevant documentation, drawings, engineering specifications and other know-how in either Utah Synfuel's or Covol's possession and (ii) reasonable access to Utah Synfuel's and Covol's employees or agents who are familiar with the Synthetic Fuel Technology, and any Improvements (as defined below) to the Synthetic Fuel Technology. Covol and Utah Synfuel shall further provide to Coaltech, promptly upon the request of Coaltech, all technical advice necessary to exploit the Synthetic Fuel Technology as is reasonably requested by Coaltech and relevant to the provisions of this Agreement and Coaltech shall reimburse Covol and Utah Synfuel for its reasonable out of pocket expenses associated therewith (exclusive of compensation, employment taxes, benefits costs and overhead or administrative costs) within 30 days of invoice supported by appropriate documentation. Section II.4 Improvements. Each of Covol and Utah Synfuel shall notify Coaltech of any improvements, variations or modifications ("Improvements") made by it (or any of its affiliates or independent contractors or other parties retained for such purpose) on or to the Synthetic Fuel Technology promptly after such Improvements are made (including a detailed description of such improvements, variations or modifications and the technical assistance required to implement same in connection with Coaltech's operations). The term "Improvements" shall include changes in the Synthetic Fuel Technology that reduce production costs, improved performance, broaden applicability or increase marketability, but shall not include changes that do not relate to the production process using the Synthetic Fuel Technology (i..e., changes relating solely to administrative and marketing practices and procedures). Improvements made by or on behalf of Covol or Utah Synfuel (or any of their respective affiliates) shall be owned by Covol and shall be considered a part of the Synthetic Fuel Technology licensed hereunder and each of Covol and Utah Synfuel hereby grants to Coaltech (without royalty or payment) a non-exclusive license to utilize the Improvements made by any of the parties on the same terms and conditions as the Synthetic Fuel Technology is licensed to Coaltech hereunder. 4
Section II.5 Confidentiality. Each of the parties hereby agree to maintain the Synthetic Fuel Technology confidential and not to disclose the Synthetic Fuel Technology, or any aspect thereof, or the Improvements, or any aspect thereof (collectively, "Confidential Information"), except as provided in this Agreement. Notwithstanding the foregoing, information which (i) is or becomes generally available to the public other than as a result of an unauthorized disclosure by the parties or their respective agents, employees, directors or representatives, (ii)was available to the party receiving disclosure on the non-confidential basis prior to its receiving disclosure hereunder, or (iii) lawfully becomes available to the party receiving disclosure on a nonconfidential basis from the third party source (provided that such source is not known by the party receiving disclosure or its agents, employees, directors or representatives to be prohibited from transmitting the information), shall not be subject to the terms of this Section 2.5. At the termination of this Agreement, the party receiving disclosure shall return all copies of any Confidential Information shall be returned by the party receiving disclosure. Nothing in this Agreement shall prohibit Coaltech from disclosing the Confidential Information to others as may be reasonably necessary for Coaltech to produce synthetic fuel using the Binder or to relocate any of the equipment Covol and Utah Synfuel sold to Coaltech in connection with the Facility. ARTICLE III. REPRESENTATIONS, WARRANTIES AND INDEMNITIES Section III.1 Authority. Covol, Utah Synfuel and Coaltech represent and warrant to one another that (i) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized on its behalf by all requisite action, corporate or otherwise, (ii) it has the full right, power and authority to enter into this Agreement and to carry out the terms of this Agreement, (iii) it has duly executed and delivered this Agreement, and (iv) this Agreement is a valid and binding obligation of it enforceable in accordance with its terms. Section III.2 No Consent. Covol, Utah Synfuel and Coaltech represent and warrant to one another that no approval, consent, authorization, order, designation or declaration of any court or regulatory authority or governmental body or any third-party is required to be obtained by it, nor is any filing or registration required to be made therewith by it for the consummation by it of any of the transactions contemplated under this Agreement.
Section II.5 Confidentiality. Each of the parties hereby agree to maintain the Synthetic Fuel Technology confidential and not to disclose the Synthetic Fuel Technology, or any aspect thereof, or the Improvements, or any aspect thereof (collectively, "Confidential Information"), except as provided in this Agreement. Notwithstanding the foregoing, information which (i) is or becomes generally available to the public other than as a result of an unauthorized disclosure by the parties or their respective agents, employees, directors or representatives, (ii)was available to the party receiving disclosure on the non-confidential basis prior to its receiving disclosure hereunder, or (iii) lawfully becomes available to the party receiving disclosure on a nonconfidential basis from the third party source (provided that such source is not known by the party receiving disclosure or its agents, employees, directors or representatives to be prohibited from transmitting the information), shall not be subject to the terms of this Section 2.5. At the termination of this Agreement, the party receiving disclosure shall return all copies of any Confidential Information shall be returned by the party receiving disclosure. Nothing in this Agreement shall prohibit Coaltech from disclosing the Confidential Information to others as may be reasonably necessary for Coaltech to produce synthetic fuel using the Binder or to relocate any of the equipment Covol and Utah Synfuel sold to Coaltech in connection with the Facility. ARTICLE III. REPRESENTATIONS, WARRANTIES AND INDEMNITIES Section III.1 Authority. Covol, Utah Synfuel and Coaltech represent and warrant to one another that (i) the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized on its behalf by all requisite action, corporate or otherwise, (ii) it has the full right, power and authority to enter into this Agreement and to carry out the terms of this Agreement, (iii) it has duly executed and delivered this Agreement, and (iv) this Agreement is a valid and binding obligation of it enforceable in accordance with its terms. Section III.2 No Consent. Covol, Utah Synfuel and Coaltech represent and warrant to one another that no approval, consent, authorization, order, designation or declaration of any court or regulatory authority or governmental body or any third-party is required to be obtained by it, nor is any filing or registration required to be made therewith by it for the consummation by it of any of the transactions contemplated under this Agreement. Section III.3 Intellectual Property Matters. III.3.1 Representations of Covol. Covol represents and warrants that it (i) owns, free and clear of all liens and encumbrances, all intellectual property, patents (including but not limited to United States Patent Numbers 5,487,764, 5,453,103, and 5,599,361) and applications therefor, printed and unprinted technical data, knowhow, trade secrets, copyrights and other intellectual property rights and all other scientific or technical information in whatever form relating to, embodied in or used in the proprietary process to produce synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, and, the right to freely use, sell and exploit the Binder used in manufacturing synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, (ii) has the right and power to grant to Coaltech the licenses granted herein, (iii) has not made and will not make any agreement with another in conflict with the rights granted herein, and (iv) has no knowledge that the sale or use of the rights, Binder and/or licenses granted herein as contemplated by this Agreement would infringe any third-party's intellectual property rights. Covol agrees to take all steps necessary to maintain all of the patents hereunder at Covol's sole expense. 5
III.3.2 Representations of Utah Synfuel. Utah Synfuel represents and warrants that it (i) has sufficient rights, free and clear of all liens and encumbrances, to all intellectual property, patents (including but not limited to United States Patent Numbers 5,487,764, 5,453,103, and 5,599,361) and applications therefor, printed and unprinted technical data, know-how, trade secrets, copyrights and other intellectual property rights and all other scientific or technical information in whatever form relating to, embodied in or used in the proprietary process to produce synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, and, sufficient rights to use and exploit Binder used in manufacturing synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, (ii) has the right and power to grant to Coaltech the licenses granted herein, (iii) has not made and will not make any agreement with another in conflict with the rights granted herein, and (iv) has no knowledge that the sale or use of the rights, Binder and/or licenses granted herein as contemplated by
III.3.2 Representations of Utah Synfuel. Utah Synfuel represents and warrants that it (i) has sufficient rights, free and clear of all liens and encumbrances, to all intellectual property, patents (including but not limited to United States Patent Numbers 5,487,764, 5,453,103, and 5,599,361) and applications therefor, printed and unprinted technical data, know-how, trade secrets, copyrights and other intellectual property rights and all other scientific or technical information in whatever form relating to, embodied in or used in the proprietary process to produce synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, and, sufficient rights to use and exploit Binder used in manufacturing synthetic coal fuel from waste coal dust, coal fines and other similar coal derivatives, (ii) has the right and power to grant to Coaltech the licenses granted herein, (iii) has not made and will not make any agreement with another in conflict with the rights granted herein, and (iv) has no knowledge that the sale or use of the rights, Binder and/or licenses granted herein as contemplated by this Agreement would infringe any third-party's intellectual property rights. Section III.3.3 Guaranty of License. Each of Covol and Utah Synfuel hereby represent and warrant that they have sufficient rights in the Synthetic Fuel Technology and the Binder to make the license granted by this Agreement. Covol and Utah Synfuel agree that both Covol and Utah Synfuel and each of them is a "licensor" under Section 365(n) of the United States Bankruptcy Code. Section III.3.4 Covol Indemnification. Covol and Utah Synfuel, jointly and severally, shall indemnify, defend and hold harmless Coaltech and its affiliates and their partners, directors, officers, agents, representatives, successors and assigns from and against any and all claims, demands or suits (by any party, including any governmental entity), losses, liabilities, damages, obligations, payments, costs and expenses (including the costs and expenses of defending any and all actions, suits, proceedings, demands and assessments which shall include reasonable attorneys' fees and court costs) resulting from, relating to, arising out of, or incurred in connection with any breach by Covol or Utah Synfuel of any of the representations, warranties and/or covenants or agreements of Covol and/or Utah Synfuel contained in this Agreement, including, without limitation, any and all charges of patent infringement or violation of other property rights. Section III.3.5 Coaltech Indemnification. Coaltech shall indemnify, defend and hold harmless Covol and Utah Synfuel and their affiliates, partners, directors, officers, agents, representatives, successors and assigns from and against any and all claims, demands or suits (by any party, including any governmental entity), losses, liabilities, damages, obligations, payments, costs and expenses (including the costs and expenses of defending any and all actions, suits, proceedings, demands and assessments which shall include reasonable attorneys' fees and court costs) resulting from, relating to, arising out of, or incurred in connection with any breach by Coaltech of any of the representations, warranties and/or covenants or agreements of Coaltech contained in this Agreement. 6
ARTICLE IV. MISCELLANEOUS PROVISIONS Section IV.1 Term. This Agreement shall be for the period from the date hereof to the later of December 31, 2007 or the end of the term of Section 29 of the 1986 Code, as the same may be amended. Section IV.2 Waiver. The failure of any party to enforce at any time any provision of this Agreement shall not be construed as a waiver of such provision or the right thereafter to enforce each and every provision. No waiver by any party, either express or implied, of any breach of any of the provisions of this Agreement shall be construed as a waiver of any other breach of such term or condition. Section IV.3 Severability. If any provision of this Agreement shall be held by a court of competent jurisdiction to be invalid or unenforceable in any respect for any reason, the validity and enforceability of any such provision in any other respect and of the remaining provisions of this Agreement shall not be in any way impaired. Section IV.4 Notices. Any notice, statement or bill provided under this Agreement, or any notice or communication required, contemplated or permitted by this Agreement by either party, shall be in writing and shall be duly delivered by personal delivery, telegram, telecopy (provided receipt thereof is confirmed in writing on the date of receipt by the recipient thereof), private courier service, postage prepaid, return receipt request, certified or registered mail or first class mail, to the party to whom intended at the following address:
ARTICLE IV. MISCELLANEOUS PROVISIONS Section IV.1 Term. This Agreement shall be for the period from the date hereof to the later of December 31, 2007 or the end of the term of Section 29 of the 1986 Code, as the same may be amended. Section IV.2 Waiver. The failure of any party to enforce at any time any provision of this Agreement shall not be construed as a waiver of such provision or the right thereafter to enforce each and every provision. No waiver by any party, either express or implied, of any breach of any of the provisions of this Agreement shall be construed as a waiver of any other breach of such term or condition. Section IV.3 Severability. If any provision of this Agreement shall be held by a court of competent jurisdiction to be invalid or unenforceable in any respect for any reason, the validity and enforceability of any such provision in any other respect and of the remaining provisions of this Agreement shall not be in any way impaired. Section IV.4 Notices. Any notice, statement or bill provided under this Agreement, or any notice or communication required, contemplated or permitted by this Agreement by either party, shall be in writing and shall be duly delivered by personal delivery, telegram, telecopy (provided receipt thereof is confirmed in writing on the date of receipt by the recipient thereof), private courier service, postage prepaid, return receipt request, certified or registered mail or first class mail, to the party to whom intended at the following address:
If to Covol: 3280 North Frontage Road Lehi, Utah 84043 Attn: President Facsimile: (801) 768-4483 C/O of Covol Technologies, Inc. 3280 North Frontage Road Lehi, Utah 84043 Attn: President 7
If to Utah Synfuel #1 Ltd.:
If to Coaltech:
C/O David O'Neill 5487 North Milwaukee Avenue Chicago, Illinois 60630
with a copy of such notice to be provided to:
AJG Financial Services, Inc. The Gallagher Center Two Pierce Place Itasca, Illinois 60143 Attn: John C. Rosengren, Esq. Facsimile: (630) 285-3457
Section IV.5 Remedies Cumulative. Remedies provided under this Agreement shall be cumulative and in addition to other remedies provided by law or in equity. Section IV.6 Entire Agreement. This Agreement constitutes the entire agreement of the parties relating to the subject matter hereof, and, together with the Settlement Agreement, hereby supercedes and cancels that certain License and Binder Purchase Agreement dated as of March 7, 1997. There are no promises, terms, conditions, obligations, or warranties other than those contained herein and in the Settlement Agreement. This Agreement may not be amended except in writing signed by the parties hereto. Section IV.7 Governing Law. All questions concerning the execution, construction, performance, breach or enforcement of this Agreement shall be construed under the substantive laws of the State of Delaware and not just the Delaware laws regarding conflicts of laws. Section IV.8 Coaltech Assignment; Sublicense. Covol agrees to use reasonable efforts to cooperate with Coaltech in marketing, selling, or otherwise transferring the Facility. Coaltech may grant a sublicense to any
If to Coaltech:
C/O David O'Neill 5487 North Milwaukee Avenue Chicago, Illinois 60630
with a copy of such notice to be provided to:
AJG Financial Services, Inc. The Gallagher Center Two Pierce Place Itasca, Illinois 60143 Attn: John C. Rosengren, Esq. Facsimile: (630) 285-3457
Section IV.5 Remedies Cumulative. Remedies provided under this Agreement shall be cumulative and in addition to other remedies provided by law or in equity. Section IV.6 Entire Agreement. This Agreement constitutes the entire agreement of the parties relating to the subject matter hereof, and, together with the Settlement Agreement, hereby supercedes and cancels that certain License and Binder Purchase Agreement dated as of March 7, 1997. There are no promises, terms, conditions, obligations, or warranties other than those contained herein and in the Settlement Agreement. This Agreement may not be amended except in writing signed by the parties hereto. Section IV.7 Governing Law. All questions concerning the execution, construction, performance, breach or enforcement of this Agreement shall be construed under the substantive laws of the State of Delaware and not just the Delaware laws regarding conflicts of laws. Section IV.8 Coaltech Assignment; Sublicense. Covol agrees to use reasonable efforts to cooperate with Coaltech in marketing, selling, or otherwise transferring the Facility. Coaltech may grant a sublicense to any person with respect to this Agreement (a "Facility Sub License") or assign its rights and obligations under this Agreement to an person (a "Facility Assignment"), except that any such sublicense or assignment must be limited solely to the ownership and/or operation of the Facility. No such attempted sublicense or assignment by Coaltech shall be valid unless the putative transferee shall have agreed unqualifiedly to assume the obligations of Coaltech under this Agreement and Covol shall have consented to such sublicense or assignment in writing, which consent shall not be unreasonably withheld. In the event of a Facility Assignment, if the transferee fails to make (i) any payment for the purchase of Binder required by Section 1.3 of this Agreement within 15 days of the due date therefor, or (ii) any license payment required by Section 2.2 of this Agreement and Section 4(d) of the Settlement Agreement within 15 days of the due date therefor, then AJG Financial Services, Inc., a Delaware corporation, and Square D Company, a Delaware corporation, jointly and severally agree to promptly pay Covol such unpaid amounts upon written demand therefor. 8
Section IV.9 Covol Assignment. Covol may not assign this Agreement without the written consent of the other party, which consent shall not be unreasonably withheld, except that Covol shall have the right to assign its rights and obligations under this Agreement to any entity of which Covol or its partners and affiliates together own, directly or indirectly, at least eighty percent (80%) of each class of the entity's outstanding securities. Executed by the duly authorized representative of the parties on the date and year first above written. COALTECH NO. 1 L.P.
By: /s/ David S. O'Neill Name: David S. O'Neill Title: Manager of the General Partner
UTAH SYNFUEL #1 LTD.
By: /s/ Harlan M. Hatfield Name: Harlan M. Hatfield Title: V.P. Covol Technologies, Inc.
Section IV.9 Covol Assignment. Covol may not assign this Agreement without the written consent of the other party, which consent shall not be unreasonably withheld, except that Covol shall have the right to assign its rights and obligations under this Agreement to any entity of which Covol or its partners and affiliates together own, directly or indirectly, at least eighty percent (80%) of each class of the entity's outstanding securities. Executed by the duly authorized representative of the parties on the date and year first above written. COALTECH NO. 1 L.P.
By: /s/ David S. O'Neill Name: David S. O'Neill Title: Manager of the General Partner
UTAH SYNFUEL #1 LTD.
By: /s/ Harlan M. Hatfield Name: Harlan M. Hatfield Title: V.P. Covol Technologies, Inc.
COVOL TECHNOLOGIES, INC.
By: /s/ Harlan M. Hatfield Name: Harlan M. Hatfield Title: V.P.
AJG FINANCIAL SERVICES, INC.*
By: /s/ John C. Rosengren Name: John C. Rosengren Title: Vice President
SQUARE D COMPANY*
By: /s/ Dick O'Shanna Name: Dick O'Shanna Title: V.P., Treasurer
*Solely as to Section 4.8 above. 9
ARTICLE 5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTHS ENDED JUNE 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
PERIOD TYPE FISCAL YEAR END PERIOD START PERIOD END CASH SECURITIES RECEIVABLES ALLOWANCES
9 MOS SEP 30 2000 OCT 01 1999 JUN 30 2000 11,326 0 5,558 0
ARTICLE 5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTHS ENDED JUNE 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
PERIOD TYPE FISCAL YEAR END PERIOD START PERIOD END CASH SECURITIES RECEIVABLES ALLOWANCES INVENTORY CURRENT ASSETS PP&E DEPRECIATION TOTAL ASSETS CURRENT LIABILITIES BONDS PREFERRED MANDATORY PREFERRED COMMON OTHER SE TOTAL LIABILITY AND EQUITY SALES TOTAL REVENUES CGS TOTAL COSTS OTHER EXPENSES LOSS PROVISION INTEREST EXPENSE INCOME PRETAX INCOME TAX INCOME CONTINUING DISCONTINUED EXTRAORDINARY CHANGES NET INCOME EPS BASIC EPS DILUTED
9 MOS SEP 30 2000 OCT 01 1999 JUN 30 2000 11,326 0 5,558 0 0 18,776 6,201 3,329 33,903 13,335 251 0 1 23 9,665 33,903 5,945 33,949 4,088 4,088 14,702 0 4,716 5,470 (3,000) 8,470 0 (7,860) 0 610 0.01 0.01