Securities and Exchange Commission
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
March 10, 1997
Date of Report (Date of earliest event reported):
COVOL TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 0-27803 87-0547337
- ------------------------- ------------------ -----------------------
(State or Other Juris- (Commission File (IRS Employer
diction of Incorporation) Number) Identification No.)
3280 North Frontage Road
Lehi, Utah, 84043
----------------------------- -----------------
(Address of Principal (Zip Code)
Executive Offices)
(801) 768-4481
(Registrant's telephone number, including area code)
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Item 2. Acquisition or Disposition of Assets
General Description of the Disposition
On March 10, 1997, Covol Technologies, Inc. (the "Registrant"),
together with Utah Synfuel No. 1, Ltd, a majority owned Delaware limited
partnership ("Utah Synfuel"), finalized the sale of its synthetic fuel
briquetting facility located near Price, Utah (the "Utah Plant") for $3.5
Million, in the form of a nonrecourse promissory note (the "Note") all in
accordance with a Utah Project Purchase Agreement, dated as of March 7, 1997, by
and among the Registrant, Utah Synfuel and Coaltech (the "Purchase Agreement").
The aggregate principal balance of the Note accrues interest at a fixed interest
rate of 9.6552% per annum, and is to be repaid in forty-four (44) equal
consecutive quarterly installments of principal and interest in the amount of
$130,000, commencing on March 31, 1997. The Note is secured by a security
interest in the Utah Plant, and in the event of a default under the Note,
Registrant's and Utah Synfuel's sole right to recovery is limited to the Utah
Plant as pledged collateral without any recourse against Coaltech. Accordingly,
payments under the Note will be subject to the profitable production and sale of
Briquettes at the Utah Plant. If payments are made on the Note or the sublicense
agreement described below, the Registrant is only entitled to receive a
distribution, if any, in accordance with its percentage ownership of Utah
Synfuel. Currently, the Registrant has a 60% interest in Utah Synfuel.
The Utah Plant is expected to convert coal fines, which are small
particles of coal of 1/4" or smaller, into a solid synthetic fuel ("Briquettes")
using Registrant's patented briquetting technology (the "Briquetting
Technology"). As of the date of the sale of the Utah Plant, the Utah Plant has
not produced Briquettes at its anticipated full capacity.
The purchaser of the Utah Plant was Coaltech No.1, L.P., a Delaware
limited partnership ("Coaltech") consisting of AJG Financial Services, Inc., a
Delaware corporation, and Square D Company, a Delaware corporation, as limited
partners. The Registrant is a 1% general partner in Coaltech. Coaltech is a
single purpose limited partnership with no assets other than the Utah Plant and
the sublicense described below.
In connection with the sale transaction, Utah Synfuel sublicensed the
Registrant's Briquetting Technology to Coaltech for the production of
Briquettes. Utah Synfuel received $1.4 Million as an advance license fee for the
sublicense. The above summary of the sale of the Utah Plant and the sublicensing
of the Briquetting Technology to Coaltech is qualified in its entirety by the
more detailed description below and reference to the agreements attached hereto
as exhibits and available upon request to the Registrant.
Intermediate Transfer to Utah Synfuel
On March 10, 1997 the Registrant transferred the Utah Plant to Utah
Synfuel in accordance with an Original Utah Project Purchase Agreement, dated as
of March 7, 1997, by and between the Registrant and Utah Synfuel (the "Original
Purchase Agreement"). In connection with the execution and delivery of the
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Original Purchase Agreement, the Registrant also granted to Utah Synfuel a
non-exclusive license of the Briquetting Technology pursuant to an Original
Licensing Agreement, dated as of March 7, 1997, by and between the Registrant
and Utah Synfuel (the "Original License").
License Agreement
In connection with the execution and delivery of the Purchase Agreement
on March 10, 1997, Utah Synfuel also granted Coaltech a non-exclusive sublicense
of the Briquetting Technology all pursuant to a License Agreement, dated as of
March 7, 1997, by and among Utah Synfuel, as licensor, the Registrant, as
vendor, and Coaltech as licensee and vendee (the "License Agreement"). Under the
License Agreement, and as stated above, Utah Synfuel received an advance license
fee of $1.4 Million, and depending upon the amount of Briquettes that are
produced, sold and qualify as "qualified fuels" under Section 29 of the Internal
Revenue Code of 1986, as amended (the "Code"), Utah Synfuel may receive an
earned license fee payable quarterly. The earned license fee is based upon the
product of an established dollar amount multiplied by the MMBtu of the
extrusions and briquettes manufactured using the Briquetting Technology at the
Utah Plant. The established dollar amount is subject to annual adjustment based
upon an "inflation adjustment factor" as set forth in Section 29(d)(2) of the
Code. Utah Synfuel also has the opportunity to receive an additional $1.1
Million as a goal fee if (i) the Utah Plant during any consecutive seven (7) day
period produces and sells 7,140 tons of acceptable Briquettes, (ii) Registrant
completes the installation of additional equipment at the facility and (iii)
notice is given to Coaltech regarding such production and installation. The
Registrant cannot predict with any certainty the amount of ongoing fees that can
be generated under the Licensing Agreement.
Also under the License Agreement, the Registrant has agreed to sell
certain propriety binder material necessary to produce the Briquettes to
Coaltech at an established rate per ton subject to annual adjustment based upon
the producer price index. The License Agreement extends to the later of (i)
January 1, 2008 or (ii) the corresponding date after which tax credits may not
be accrued or otherwise available under Section 29 of the Code.
As part of the sale of the Utah Plant, the Registrant contracted with
Coaltech to act as operator of the facility for a quarterly fee based upon the
sale of Briquettes per year. The Registrant cannot predict with any certainty
the amount of quarterly fees that can be generated under its operation and
maintenance agreement with Coaltech. Moreover, the Registrant granted Coaltech a
put option to require the Registrant to purchase from Coaltech the Utah Project
if (i) all of the Coaltech limited partners are unable to utilize the federal
income tax credits under Section 29 of the Code, (ii) the economic benefits or
effects accruing to or experienced by all of the Coaltech limited partners shall
differ or (iii) there is a permanent force majeure or material damage or
destruction of the Utah Plant.
The Registrant will act as corporate general partner of Coaltech. The
Registrant and Utah Synfuel have no prior affiliation with Square D Company or
AJG Financial Services, Inc., except that AJG Financial Services, Inc. holds
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debentures issued by the Registrant. The Registrant issued a press release
announcing the sale of the Utah Plant on March 11, 1997, a copy of which is
attached hereto as Exhibit 99.1 and incorporated herein by reference.
Item 5. Other Events
Effective April 1, 1997, Max E. Sorensen will begin employment with
the Registrant as a Vice President. Set forth below is summary biographical
information with respect to Mr. Sorensen.
Max E. Sorensen, Age 47. Mr. Sorensen served as Senior Vice President
of Engineering and Technology of Geneva Steel until becoming a Vice President of
the Registrant as of April 1, 1997. Mr. Sorensen began his employment with
Geneva Steel in October 1989. During his employment with Geneva Steel, Mr.
Sorensen served as Manager of Research and Development for Raw Materials and
Primary Processes; Chief Engineer of Coke, Iron and Steel and Vice President of
Engineering. Mr. Sorensen obtained a B.S. in Metallurgical Engineering from the
University of Utah in 1973 and a Masters of Science Degree in Industrial
Management from Purdue University in 1978.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired.
Not applicable.
(b) Pro Forma Financial Information.
Not Applicable.
(c) Exhibits.
10.1 Utah Project Purchase Agreement, dated as of March 7, 1997, by
and among Registrant Utah Synfuel #1 Ltd., a Delaware limited
partnership, US #1 and Coaltech No. 1, L.P., a Delaware
limited partnership ("Coaltech").
10.33 License and Binder Purchase Agreement, dated as of March 7,
1997, by and among Registrant, US #1 and Coaltech.*
10.34 Operation and Maintenance Agreement, dated as of March 7,
1997, by and between Covol and Coaltech.*
10.35 Purchase and Supply Agreement, dated as of March 7, 1997, by
and among Covol, US #1 and Coaltech.*
10.36 Abandonment Option Agreement, dated as of March 7, 1997, by
and among Covol and the limited partners of Coaltech.
* Exhibits 10.34, 10.35, and 10.36 each contain confidential information which
has been omitted pursuant to a Confidential Treatment Request and filed
separately with the Commission.
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99.1 Press Release issued by Registrant on March 11, 1997.
99.2 Press Release issued by Registrant on March 21, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
COVOL TECHNOLOGIES, INC.
(Registrant)
/s/Brent M. Cook
-------------------------
Date: March 21, 1997 By: Brent M. Cook
Title: President
UTAH PROJECT PURCHASE AGREEMENT
Dated March 7, 1997
Covol Technologies, Inc.
and
Utah Synfuel #1 Ltd.
SELLERS
Coaltech No. 1 L.P.
BUYER
<PAGE>
ARTICLE I DEFINITIONS................................................ 1
1.1 Certain Definitions................................... 1
ARTICLE II AGREEMENT TO PURCHASE AND SELL; PURCHASE PRICE............. 7
2.1 Agreement to Purchase and Sell........................ 7
2.2 Purchase Price........................................ 7
ARTICLE III ASSETS AND LIABILITIES TO BE SOLD AND RETAINED............. 7
3.1 Assets to be Sold..................................... 7
3.2 Assets to be Retained................................. 7
3.3 Liabilities to be Assumed by Buyer.................... 7
3.4 Liabilities to be Retained by Sellers................. 8
ARTICLE IV REPRESENTATIONS AND WARRANTIES............................. 8
4.1 Representations and Warranties of Sellers............. 8
4.2 Changes Prior to Closing.............................. 13
4.3 Representations and Warranties of Buyer............... 13
4.4 Changes Prior to Closing.............................. 14
4.5 Joint Obligations..................................... 14
ARTICLE V CONDUCT OF BUSINESS ....................................... 14
5.1 Operations by Sellers................................. 14
5.2 Negative Covenants.................................... 15
ARTICLE VI DESTRUCTION OF ASSETS...................................... 16
ARTICLE VII CONDITIONS PRECEDENT TO CLOSING............................ 17
7.1 Conditions Precedent to the Obligations
of Buyer....................................... 17
7.2 Conditions Precedent to the Obligations
of Sellers.................................... 18
ARTICLE VIII CLOSING........................................ 19
8.1 Time and Place of Closing............................. 19
8.2 Actions at Closing.................................... 19
ARTICLE IX APPROVALS AND CONSENTS..................................... 20
ARTICLE X CROSS INDEMNIFICATION...................................... 20
10.1 Obligations of Sellers............................... 20
10.2 Obligations of Buyer................................. 21
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10.3 Indemnity Procedures................................. 21
ARTICLE XI SURVIVAL OF REPRESENTATIONS................................ 23
11.1 Survival of Representations.......................... 23
11.2 Procedure............................................ 23
ARTICLE XII MISCELLANEOUS.............................................. 24
12.1 Books, Records and Assistance by Personnel........... 24
12.2 Assignment........................................... 24
12.3 Notices.............................................. 24
12.4 Expenses and Fees.................................... 26
12.5 Successors and Assigns............................... 26
12.6 Waiver............................................... 26
12.7 Entire Agreement..................................... 26
12.8 Amendments, Supplements and Etc...................... 27
12.9 Applicable Law....................................... 27
12.10 Execution and Counterparts.......................... 27
12.11 Titles and Headings................................. 27
12.12 Third Parties....................................... 27
12.13 Further Assurances.................................. 27
ii
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THIS UTAH PROJECT PURCHASE AGREEMENT is made as of March 7, 1997
between Covol Technologies, Inc., a Delaware corporation ("Covol"), Utah Synfuel
#1 Ltd., a Delaware limited partnership ("Utah Synfuel," and together with
Covol, "Sellers") and Coaltech No. L.P., a Delaware limited partnership
("Buyer").
WHEREAS Covol has assigned to Utah Synfuel ownership of a coal
briquetting facility located at 4722 South 2000 EAST, Price, Utah (the "Utah
Project"), including certain contracts entered into by Covol and certain
third-parties in connection with the conduct of the construction, maintenance
and operation thereof.
WHEREAS Sellers desire to sell to Buyer, and Buyer desires to purchase
from Sellers, the Utah Project, all subject to the terms and conditions of 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,
Sellers and Buyer agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Definitions. In this Agreement, capitalized terms and
other defined terms described below shall have the meanings set forth or cross-
referenced below:
"Affiliate" means any person, partnership, joint venture,
corporation or other form of enterprise which directly or indirectly controls,
is controlled by, or is under common control with, a party hereto. For purposes
of the preceding sentence, "control" means possession, directly or indirectly,
of the power to direct or cause direction of management and policies through
ownership of voting securities, contract rights, voting trust, or otherwise.
"Agreement" means this Utah Project Purchase Agreement, the
Exhibits attached hereto, and the Schedules attached hereto (all of which
Exhibits and Schedules shall be deemed to be incorporated herein by reference
and made a part hereof as if set out in full herein).
"Assumed Liabilities" means those obligations and liabilities
of the Sellers arising under Contracts and the Permits set forth on Schedule 3.3
for which performance is due following the Closing Date.
"Briquettes" means extrusions of synthetic coal product, one
inch in diameter by one to four inches in length, formed by compressing a
mixture of coal fines and a chemical binder using substantially the technology
and the process described in, and which satisfy the chemical change conditions
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of, IRS Private Letter Rulings No. 9549025 and No. 9701041, dated respectively
September 8, 1995 and October 4, 1996, issued by the Internal Revenue Service in
order to constitute "qualified fuels" pursuant to section 29 of the 1986 Code
which is proprietary to the Sellers and which is being licensed to Buyer by the
Sellers contemporaneously herewith.
"Buyer" has the meaning given in the preamble of this
Agreement.
"Buyer's Disclosure List" has the meaning given in Section
4.4.
"Closing" means the closing of this transaction which is
described in more detail in Section 8.1.
"Closing Date" has the meaning given in Section 8.1.
"Contracts" means the contracts, leases, purchase orders, and
other agreements pertaining to the conduct of the construction, maintenance and
operation of the Utah Project expressly identified on Schedule 4.1(m).
"Effective Time" means 12:01 a.m., Mountain Time, on the
Closing Date.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA Plan" means, for any Person, an employee benefit plan
or other plan maintained for employees of such Person and covered by Title IV of
ERISA.
"Files and Records" means all files, reports, data and records
relating to the Purchased Assets and the conduct of the construction,
maintenance and operation of the Utah Project, including those relating to
engineering, permitting, maintenance, inventory and supply, property and excise
taxes, title, corporate accounting, market studies, coal fines purchases, coal
sales, income tax, Sellers' general files relating to the Utah Project, economic
analyses, and documents related to general policies and procedures of Sellers
with respect to the Purchased Assets and the conduct of the construction,
maintenance and operation of the Utah Project.
"GAAP" means generally accepted United States accounting
principles consistently applied, as in effect from time to time.
"Governmental Entity" means any Federal, state or local
government or any court, administrative or regulatory agency, whether domestic
or foreign.
"Hazardous Materials" means any (a) petroleum, (b) asbestos in
any form, (c) urea formaldehyde foam insulation, (d) polychlorinated byphenyls,
(e) radioactive materials, (f) radon gas, and (g) any chemical, material or
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substance defined as or included in the definition of "hazardous substances",
"hazardous wastes", "hazardous materials", "extremely hazardous waste",
"restricted hazardous waste", "toxic substances", "solid waste" or words of
similar import under any applicable Hazardous Materials Laws as in effect as of
the date of this Agreement.
"Hazardous Materials Claims" means any enforcement, cleanup,
removal, remedial or other governmental or regulatory demand, actions,
agreements or orders threatened, instituted, pending or completed by any
Governmental Entity pursuant to any Hazardous Materials Laws, together with any
claims made or threatened by any third party against either of the Sellers or
any Purchased Assets or in connection with the conduct of the construction,
maintenance and operation of the Utah Project relating to damage, contribution,
cost recovery, compensation, loss or injury resulting from the presence, release
or discharge of any Hazardous Materials.
"Hazardous Materials Laws" means all Federal, state and local
laws regulating Hazardous Materials, the environmental condition of air, water
or real property, pollution, contamination or cleanup, as in effect on the date
of this Agreement, including without limitation all of the following Federal
laws, and their implementing regulations, as well as any amendments to such
laws, and all State and local laws and ordinances which regulate the same
subject matter: (a) the Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA), 42 USC 9601 et seq.; (b) the Solid Waste Disposal Act,
42 USC 6901 et seq., including the Resource Conservation and Recovery Act (RCRA)
and the laws governing Underground Storage Tanks; (c) the Toxic Substances
Control Act (TSCA), 15 USC 2601 et seq., including those provisions governing
use and disposal of Polychlorinated Biphenyls (PCBs); (d) the Hazardous
Materials Transportation Act (HMTA), 49 USC 1801 et seq.; (e) the Federal
Insecticide, Fungicide and Rodenticide Act (FIFRA), 7 USC 136 et seq.; (f) those
portions of the Clean Air Act governing toxic air emissions, 42 USC 7401 et
seq.; (g) those portions of the Clean Water Act governing toxic water pollutants
and oil spills, 33 USC 1251 et seq.; (h) the Emergency Planning and Community
Right-to-know Act (EPCRA, SARA Title III), 42 USC 11001 et seq.; (i) those
portions of the Occupational Safety and Health Act (OSHA) governing worker
safety with respect to hazards from chemical substances and/or work related
hazards, including requirements for Material Safety Data Sheets, 29 USC 651 et
seq.; and (j) the Safe Drinking Water Act.
"Indemnitee" has the meaning given in Section 10.3(b).
"Indemnitor" has the meaning given in Section 10.3(b).
"Inventory" means all inventory (as defined in the UCC) of
Sellers held for sale, lease or demonstration, or to be furnished under
contracts of sale or service in connection with the Utah Project, 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
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consumed in connection with the conduct of the construction, maintenance and
operation of the Utah Project, and all additions and accessions to such
property, (ii) goods in which Sellers have 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 Sellers, and all accessions thereto and products thereof.
"Lease" means the Lease Agreement dated December 23, 1996, by
and between Covol and U.P.C., Inc.
"Leasehold Improvements" means all structures, improvements,
or buildings located on and attached to the Real Property and not becoming part
of the realty pursuant to the Lease.
"Lien" means any interest in property securing an obligation,
whether such interest is based on common law, statute or contract, and including
any restriction on the use, voting, transfer, receipt of income or other
exercise of any attributes of ownership, any security interest or lien arising
from a mortgage, claims, encumbrance, pledge, charge, easement, servitude,
security agreement, conditional sale or trust receipt or a lease, consignment or
bailment for security purposes. The term "Lien" shall also include reservations,
exceptions, covenants, conditions, restrictions, leases, subleases, licenses,
occupancy agreements, pledges, equities, charges, assessments, covenants,
reservations, defects in title, encroachments and other burdens, and other title
exceptions and encumbrances affecting property of any nature, whether accrued or
unaccrued, or absolute or contingent.
"1986 Code" means the Internal Revenue Code of 1986, as
amended.
"Party" or "Parties" means Buyer and Sellers and their
successors, as parties to this Agreement.
"Permitted Liens" means:
(i) Liens (but only to the extent not yet delinquent or (a)
which are being contested in good faith by appropriate proceedings with reserves
acceptable to Buyer having been set aside and maintained and (b) with respect to
tax liens on the Purchased Assets, as to which Sellers shall have paid the
undisputed amount) securing taxes, assessments or governmental charges or
levies, or arising in connection with workers' compensation, unemployment
insurance or social security obligations, or securing the claims or demands of
materialmen, mechanics, carriers, warehousemen, landlords and other like
Persons;
(ii) Liens in favor of AJG Financial Services, Inc., Square D
Company Buyer or its or their Affiliates;
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(iii) Liens disclosed on Schedule 4.1(q) attached hereto and
Liens affecting real property interests consisting of (a) zoning regulations,
(b) easements, (c) set-back lines, or (d) covenants, conditions or restrictions,
now existing or hereafter arising, which do not in the aggregate have a material
adverse effect on the construction, operation or maintenance of the Utah
Project; and
(iv) The Lease.
"Permits" means any existing permit, license, franchise,
authorization, variance, exemption, concession, lease, instrument, order or
approval of any Governmental Entity and any applications therefor appurtenant or
relating to the Purchased Assets or otherwise held by Sellers in connection with
the conduct of the construction, maintenance and operation of the Utah Project
as described on Schedule 4.1(n).
"Person" means any natural person, corporation, partnership,
sole proprietorship, firm, association, government, governmental agency or any
other entity, whether acting in an individual, fiduciary or other capacity.
"Personal Property" means all tangible personal property,
furniture, fixtures, machinery and equipment other than the Equipment (as
defined by the Sublease Agreement to be entered into by and between Covol and
Buyer pursuant to this Agreement) owned by Sellers necessary or useful for the
conduct of the maintenance and operation of the Utah Project as described on
Schedule 4.1(q).
"Promissory Note" has the meaning given in Section 2.2.
"Property Leases" means the real property leases,
rights-of-way, easements, licenses and agreements held by Sellers in connection
with the conduct of the construction, maintenance and operation of the Utah
Project as described on Schedule 4.1(o).
"Purchase Agreement Documents" means this Agreement, and any
and all other documents executed pursuant hereto, or contemplated hereby, as the
same may be modified, extended, renewed, amended or replaced from time to time.
"Purchase Price" has the meaning given in Section 2.2.
"Purchased Assets" means all of Sellers' right, title, and
interest in the Contracts, the Permits, the Files and Records, the Personal
Property and the Leasehold Improvements but specifically excluding all Retained
Assets.
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"Real Property" means the real property located in Carbon
County, Utah on which the Utah Project is built, as more particularly described
in Exhibit A to the Sublease Agreement to be entered into by Covol and Buyer
pursuant to this Agreement.
"Related Person" means (i) any shareholder who owns or
controls more than five percent (5%) of the voting or nonvoting securities of
either Seller, (ii) any officer or director of either Seller, 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, either Seller
or any Person identified in clauses (i) or (ii).
"Retained Assets" means those assets retained by the Sellers
as described in Section 3.2.
"Retained Liabilities" means those liabilities of the Sellers
not expressly assumed by Buyer pursuant to the terms hereof.
"Sellers" has the meaning given in the preamble of the
Agreement.
"Sellers' Disclosure List" has the meaning given in Section
4.2.
"Transaction Documents" means the Purchase Agreement
Documents.
"UCC" means the Uniform Commercial Code as enacted in the
State of Utah.
"Utah Project" has the meaning given in the preamble of this
Agreement.
ARTICLE II
AGREEMENT TO PURCHASE AND SELL; PURCHASE PRICE
2.1 Agreement to Purchase and Sell. Subject to the terms and conditions
of this Agreement, Sellers agree to sell to Buyer and Buyer agrees to purchase
from Sellers, the Purchased Assets, free and clear of all Liens other than the
Permitted Liens.
2.2 Purchase Price. The total consideration for the Purchased Assets
shall be the amount of Three Million Five Hundred Thousand Dollars ($3,500,000)
(the "Purchase Price"), payable by Buyer's delivery to the Sellers at the
Closing of a promissory note in the principal amount of Three Million Five
Hundred Thousand Dollars ($3,500,000) in the form attached hereto as Exhibit 2.2
(i) (the "Promissory Note"). The Promissory Note shall be secured by the
Security Agreement in the form attached hereto as Exhibit 2.2 (ii).
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2.3 Allocation of Purchase Price. The Purchase Price plus the Assumed
Liabilities shall be allocated among the Purchased Assets in accordance with
Schedule 2.3A. The Sellers and the Buyer each acknowledges that the allocation
was determined pursuant to arms-length negotiations regarding the fair market
value of the Purchased Assets in accordance with the provisions of Section 1060
of the Internal Revenue Code of 1986, as amended (the "Code") and the Treasury
Regulations promulgated thereunder. The Sellers and the Buyer each agree that
such allocation shall be binding on them for federal, state, local and foreign
income tax purposes, in connection with the purchase and sale of the Purchased
Assets and will be consistently reflected by them on any tax returns or reports
(including Internal Revenue Service Form 8594) they file or prepare. The Sellers
and the Buyer shall consult with each other with respect to all issues related
to such allocation in connection with any income tax audit and shall not
initiate any positions inconsistent with such allocation in connection with any
income tax audit.
ARTICLE III
ASSETS AND LIABILITIES TO BE SOLD AND RETAINED
3.1 Assets to be Sold. The assets to be sold are the Purchased Assets.
3.2 Assets to be Retained. The assets to be retained by Sellers are
all assets of the Sellers other than the Purchased Assets.
3.3 Liabilities to be Assumed by Buyer. Subject to the completion of
the Closing, Buyer covenants and agrees to assume, fulfill, perform, and in due
course discharge, indemnify, defend and hold harmless Sellers and its respective
directors, officers, agents, representatives, subsidiaries and Affiliates from
and against the Assumed Liabilities.
3.4 Liabilities to be Retained by Sellers. Subject to the completion of
the Closing, Sellers covenant and agree to fulfill, perform, and in due course
discharge, indemnify, defend and hold harmless Buyer and its directors,
officers, agents, representatives, subsidiaries and Affiliates from and against
the Retained Liabilities.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of Sellers. Except as set forth in
the schedules to this Agreement, Sellers jointly and severally represent and
warrant to Buyer that as of the date of this Agreement, and as of the Effective
Time as updated pursuant to Section 4.2, the facts set forth below in this
Section 4.1 are and shall be true:
(a) Organization Standing. Covol is a corporation duly
organized and validly existing and in good standing under the laws of the State
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of Delaware. Utah Synfuel is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of Delaware. Each
Seller has the power to own its property, and to execute, deliver and perform
this Agreement and each of the Transaction Documents, and to carry on its
business as now being conducted. Each Seller is duly qualified to do business in
and is in good standing as a foreign corporation or limited partnership, as the
case may be, authorized to do business under the laws of the State of Utah.
(b) Authorizations; Binding Agreements. The execution,
delivery and performance of this Agreement and the other Transaction Documents
by Sellers and each conveyance, assignment, agreement, and other document herein
contemplated to be executed by Sellers, has been duly authorized by all
necessary action. This Agreement and the other Transaction Documents and the
conveyances, assignments, agreements, and other documents herein contemplated to
be executed, delivered and performed by Sellers are, or will be upon execution,
legal, valid and binding obligations of Sellers, duly enforceable against
Sellers in accordance with their 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), do not and will not result in any violation of,
conflict with or default under the terms of Sellers' organizational documents
(nor, to the best of each Seller's knowledge after due inquiry, does there exist
any condition which upon the passage of time or the giving of notice would cause
such violation, conflict or default), and, subject only to such consents as are
set forth on Schedule 4.1(c) and the Permitted Liens, do not and will not result
in any violation of, conflict with or default under any material permit, lease,
venture, mortgage, agreement, contract, judgment, order or other obligation or
restriction to which Sellers, the Purchased Assets or the conduct of the
construction, maintenance and operation of the Utah Project may be bound or
encumbered (nor, to the best of each Seller's knowledge after due inquiry, does
there exist any condition which upon the passage of time or the giving of notice
would cause such violation, conflict or default).
(c) No Actions Affecting Enforcement of the Agreement and the
other Transaction Documents. There are no actions, suits, or proceedings
pending, or, to the best of either Seller's knowledge after due inquiry,
threatened, against either Seller in any court, or administrative governmental
body or agency which will affect in any adverse manner the ability of Sellers to
execute, deliver and perform this Agreement and the other Transaction Documents.
Subject only to such consents as are set forth on Schedule 4.1(c), and such
consents which the failure to obtain could not reasonably be expected to have a
material adverse effect on the Purchase Assets or the construction, maintenance
and operation of the Utah Project, Sellers have obtained all permits, licenses,
franchises, authorizations, variances, exemptions, concessions, leases,
instruments, orders, consents or approvals of Governmental Entities and third
parties necessary to construct, maintain and operate the Utah Project and to
execute, deliver and perform this Agreement and the other Transaction Documents.
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(d) Taxes. All tax returns and reports relating to the
Purchased Assets and the conduct of the construction, maintenance and operation
of the Utah Project required by law (including all federal, state, and local
property tax, severance and franchise tax laws) to be filed by Sellers prior to
the Closing have been timely filed or will be caused to be timely filed. All
taxes, assessments, fees, interest, penalties and other governmental charges
relating to the Purchased Assets and the conduct of the construction,
maintenance and operation of the Utah Project which are due and payable have
been paid when due and payable.
(e) Brokers or Finders Fees. Except as set forth on Schedule
4.1(e) and in Section 5.3(c), no obligation or liability, contingent or
otherwise, for brokers or finders fees created by Sellers with respect to the
matters provided for in this Agreement and the other Transaction Documents shall
be imposed upon Buyer or the Purchased Assets.
(f) No Imposition of Liens. The execution, delivery and
performance of this Agreement and the other Transaction Documents by Sellers
shall not result in the imposition of any Lien, other than Permitted Liens, upon
any of the Purchase Assets or by which the construction, maintenance and
operation of the Utah Project may be bound or encumbered.
(g) Completeness of Information. No information furnished by
or on behalf of Sellers to Buyer in connection with this Agreement and the other
Transaction Documents or on any such Schedule contains any untrue statement of a
material fact or omits to state a material fact necessary to make such
statements not misleading.
(h) Title to Purchased Assets. Sellers have, and at the
Closing shall convey to Buyer, marketable title to and possession of the
Purchased Assets free and clear of all Liens, other than Permitted Liens.
(i) Applicable Contracts and Permits. The Contracts, the
Permits and the Property Leases set forth on Schedules 4.1(m), 4.1(n) and
4.1(o)), respectively, are the only material agreements, contracts, leases,
permits, or licenses necessary for the construction, maintenance and operation
of the Utah Project.
(j) Pending Litigation. Except as disclosed on Schedule
4.1(j), there are no actions, suits, arbitrations, claims, grievances, or
proceedings currently pending or, to the best of Sellers' knowledge after due
inquiry, threatened against or affecting the Purchased Assets or the conduct of
the construction, maintenance and operation of the Utah Project. There are no
outstanding or unsatisfied judgments, orders or decrees to which either of the
Sellers or any of the Purchased Assets are bound.
(k) Compliance with Laws. Sellers are in compliance with all
orders, writs, injunctions, decrees, judgments, rulings, laws, rules or
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regulations of any Governmental Entity including, without limitation, OSHA, to
which Sellers, the Purchased Assets or the construction, maintenance and
operation of the Utah Project are subject.
(l) Hazardous Materials. Except for diesel fuel and
hydrochloric acid, no Hazardous Materials exist on, under or about any of the
Purchased Assets or the Utah Project. The construction, maintenance and
operation of the Utah Project is and has been in compliance with all Hazardous
Materials Laws. Neither Seller has received any notice of, and to the best
knowledge of each Seller after due inquiry, there are no existing or threatened
Hazardous Materials Claims. The construction, maintenance and operation of the
Utah Project do not generate any Hazardous Materials.
(m) Status of Contracts. Schedule 4.1(m) is a true, correct
and complete list of all the material contracts, leases, mortgages, credit
agreements, indentures, sales contracts, purchase orders, and other agreements
entered into by the Sellers relating directly or indirectly to the Purchased
Assets or the construction, maintenance and operation of the Utah Project. The
Contracts are valid and in good standing, and there is no violation of, conflict
with or default under the Contracts (nor, to the best of either Seller's
knowledge after due inquiry, does there exist any condition which upon the
passage of time or the giving of notice would cause such violation, conflict or
default). The Sellers have not received any notice from any party to any
Contract that such party intends to terminate, cancel or refuse to renew the
same or that such party intends to offset any amount due thereunder or assert
any defense to the enforceability thereof.
(n) Consents, Governmental Approvals, Licenses, Orders,
Agreements and Permits. Schedule 4.1(n) is a true, correct and complete list of
all material consents, permits, licenses, franchises, authorizations, variances,
exemptions, concessions, leases, instruments, orders or approvals of any third
party, including without limitation any Governmental Entity, necessary in
connection with the conduct of the construction, maintenance and operation of
the Utah Project. The Sellers have not received any notice from any party to any
Permit that such party intends to terminate, cancel or refuse to renew the same
or that such party intends to assert any defense to the enforceability thereof.
(o) Leases. Schedule 4.1(o) contains a true, correct and
complete list of the Property Leases. The Property Leases constitute all of the
real property interests necessary for the operation of the Utah Project. Except
as indicated on Schedule 4.1(o), there is no violation of, conflict with or
default under the Property Leases (nor, to the best of either Seller's knowledge
after due inquiry, does there exist any condition which upon the passage of time
or the giving of notice would cause such violation, conflict or default). The
Sellers have not received any notice from any party to any Property Lease that
such party intends to terminate, cancel or refuse to renew the same or that such
party intends to assert any defense to the enforceability thereof.
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(p) No Fee Property. Other than the Property Leases, no
interest in real property is held or used by the Sellers in connection with the
construction, maintenance and operation of the Utah Project.
(q) Personal Property. Schedule 4.1(q) is a true, correct and
complete list of the Personal Property. Sellers are the beneficial owners of and
have title to the Personal Property free and clear of all Liens, other than
Permitted Liens. All such Personal Property consisting of tangible personal
property (exclusive of Inventory) is in good working condition and repair,
ordinary wear and tear excepted. None of such Personal Property is held by the
Sellers on consignment, nor is any of the Personal Property in the possession of
others.
(r) Liabilities. Except for liabilities incurred by the
Sellers in the ordinary course of the operation of the Utah Project which are
appropriately reflected in the financial projections for the operation of the
Utah Project heretofore delivered to Buyer by the Sellers (which are attached as
Schedule 4.1(r)) and liabilities underlying any Permitted Lien, the Sellers have
no liabilities of any kind whatsoever, whether absolute or contingent and
whether or not currently determinable, which could affect the Purchased Assets
or the operations of the Utah Project following the Closing, nor has any
condition existed or any event occurred which could reasonably be expected to
give rise to any such liability.
(s) Leasehold Improvements. Sellers are the beneficial
owners of and have title to the Leasehold Improvements free and clear of all
Liens, other than the Permitted Liens.
(t) intentionally omitted
(u) ERISA and Labor Matters. Neither Seller has initiated any
ERISA Plans, nor is either Seller party to any collective bargaining agreements.
(v) Agreements with Related Persons. There are no contracts,
licenses, agreements or arrangements with any Related Person in connection with
the construction, maintenance and operation of the Utah Project, other than as
disclosed on Schedule 4.1(u).
(w) Adequacy of the Purchased Assets. The Purchased Assets,
together with (i) certain equipment being leased to Buyer by the Sellers at or
before the Closing, (ii) the technology and know-how being licensed to Buyer by
the Sellers at or before the Closing, and (iii) raw materials consisting of coal
fines and a chemical binder to be supplied to Buyer by Covol pursuant to
agreements being executed by Buyer and Covol at or before the Closing,
constitute all of the assets, technology and raw materials reasonably expected
to be necessary for the production by Buyer of Briquettes which satisfy the
conditions of chemical change of IRS Private Letter Rulings No. 9549025 and No.
9701041, dated respectively September 8, 1995 and October 4, 1996, in order to
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constitute "qualified fuels" pursuant to the terms of Section 29(c)(1)(C) of the
1986 Code and with respect to which Section 29 is applicable pursuant to the
terms of Sections 29(f) and 29(g) of the 1986 Code.
(x) Operation of Utah Project. The Utah Project has commenced
operations and has produced and sold at least 1,200 tons of Briquettes and has
an outstanding purchase order from Pacificorp to purchase an additional 3,800
tons of Briquettes.
(y) Production Capacity. The Utah Project is currently in
operation and, upon completion of oven replacement, is capable of producing, and
is reasonably expected to produce, Briquettes at the rate of 360,000 tons per
year, and is expected to be capable of maintaining such capacity through
December 31, 2007. Upon the completion of the expansion of the Utah Project
which is expected to be completed on or before June 30, 1997, the Utah Project
as expanded pursuant to the Centerline Engineering Construction Agreement is
reasonably expected to produce, Briquettes at the rate of 720,000 tons per year,
and is expected to be capable of maintaining such capacity through December 31,
2007.
4.2 Changes Prior to Closing. Prior to and at the Closing, Sellers
shall provide Buyer with a list ("Sellers' Disclosure List") of any knowledge
acquired or events occurring after the date hereof that cause Sellers'
representations and warranties in Section 4.1 to be untrue in any respect or are
reasonably likely to cause them to be untrue in any respect as of the Effective
Time.
4.3 Representations and Warranties of Buyer. Buyer represents and
warrants that as of the date hereof and as of the Effective Time, the facts set
forth below in this Section 4.3 are and shall be true:
(a) Organization and Standing. Buyer is a limited partnership
duly organized, validly existing, and in good standing under the laws of the
State of Delaware, has power to own its own property, and to execute, deliver
and perform this Agreement and each of the other Transaction Documents, and to
carry on its business as now being conducted. Buyer is qualified to do business
and is in good standing as a foreign limited partnership authorized to do
business under the laws of the State of Utah.
(b) Authorizations; Binding Agreements. The execution,
delivery, and performance of this Agreement and the other Transaction Documents
by Buyer and of each conveyance, assignment, agreement, and other document
herein contemplated to be executed by Buyer have been fully authorized by all
necessary partnership actions. This Agreement and the other Transaction
Documents and the conveyances, assignments, agreements, and other documents
herein contemplated to be executed, delivered and performed by Buyer are, or
will be upon execution, legal, valid and binding obligations of Buyer, duly
enforceable against Buyer in accordance with their terms (subject, however, to
the effects of bankruptcy, insolvency, reorganization, moratorium, and similar
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laws from time to time in effect relating to the rights and remedies of
creditors as well as to general principles of equity), do not and will not
result in any violation of, conflict with or default under the terms of Buyer's
organizational documents, and do not and will not result in any violation of,
conflict with or default under the terms of any permit, lease, venture,
indenture, mortgage, agreement, contract, judgment, order or other obligation or
restriction to which Buyer is bound (nor, to the best of Buyer's knowledge after
due inquiry, does there exist any condition which upon the passage of time or
the giving of notice would cause such violation, conflict or default).
(c) No Brokers or Finders Fees. Except as set forth in Section
5.3(c), no obligation or liability, contingent or otherwise, for brokers or
finders fees created by Buyer with respect to the matters provided for in this
Agreement shall be imposed upon Sellers.
(d) Single Purpose Entity. Buyer was formed for the purpose
of operating the Utah Project and does not and will not conduct any business
other than the operation of the Utah Project and business directly related to
the operation of the Utah Project.
(e) Eligibility for Tax Credit. As of the date hereof, each
of the limited partners of the Buyer is qualified and eligible to use the
credits generated pursuant to Section 29 of the 1986 Code.
4.4 Changes Prior to Closing. Prior to and at the Closing, Buyer shall
provide Sellers with a list ("Buyer's Disclosure List") of any knowledge
acquired or events occurring after the date hereof that cause Buyer's
representations and warranties in Section 4.3 to be untrue in any respect or is
reasonably likely to be untrue in any respect as of the Effective Time.
4.5 Joint Obligations. The following shall apply with equal force to
Sellers and Buyer:
(a) Buyer and Sellers shall each promptly give the other
written notice of the existence or occurrence of any item to be reflected on
Sellers' Disclosure Statement or Buyer's Disclosure Statement.
(b) Neither Party shall intentionally perform any act which,
if performed (or omit to perform any act which, if omitted to be performed)
would prevent or excuse the performance of this Agreement by either party hereto
or which, except as a result of the conduct of the business in the usual and
ordinary course, would result in any representation or warranty herein contained
being untrue in any respect if made on and as of the Closing.
ARTICLE V
CONDUCT OF BUSINESS
5.1 Operations by Sellers. During the period from the date hereof to
the Effective Time:
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(a) Sellers shall maintain the Purchased Assets and conduct
the construction, maintenance and operation of the Utah Project in compliance
with this Agreement and the other Transaction Documents, the Contracts, the
Property Leases and the Permits and each applicable order, writ, injunction,
decree, judgment, ruling, law, rule or regulation of any Governmental Entity,
and pay all fees, assessments and costs arising in connection with the
execution, delivery and performance of this Agreement and the Transaction
Documents and the construction, maintenance and operation of the Utah Project.
(b) Buyer and its duly authorized agents, employees, and
representatives, at their sole risk and expense, shall have access to the
Purchased Assets and the Utah Project for all proper purposes; provided,
however, that such access and observation does not unreasonably interfere with
or delay the conduct of construction, maintenance and operation of the Utah
Project. Sellers shall cooperate in orienting Buyer to the construction,
maintenance and operation of the Utah Project.
(c) Sellers shall use reasonable efforts to preserve intact
Sellers' relationships with suppliers, customers and others having business
dealings with respect to the Purchased Assets and the construction, maintenance
and operation of the Utah Project.
(d) Sellers shall take all necessary actions to maintain the
Purchased Assets in their present condition, quantity and state of repair,
reasonable wear and tear excepted.
(e) Sellers shall conduct the construction, maintenance and
operation of the Utah Project in the normal course in accordance with past
practice.
(f) Sellers shall continue to carry and maintain in full force
and effect the existing casualty and liability insurance through and including
the Effective Time.
5.2 Negative Covenants. During the period from the date hereof and the
Effective Time, Sellers shall:
(a) not sell, lease, assign, hypothecate or agree to sell,
lease, assign, hypothecate or otherwise transfer or dispose of, any of the
Purchased Assets, except as contemplated by the Permitted Liens;
(b) not enter into any lease, contract, agreement, commitment,
arrangement or transaction relating to the Purchased Assets or the Utah Project
except in the normal course of construction, maintenance and operation of the
Utah Project and in accordance with past practice, or terminate, cancel or
modify or in any way impair any of the Contracts, Property Leases or Permits
other than in the normal course of construction, maintenance and operation of
the Project;
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(c) not subject to any Lien, other than Permitted Liens, any
of the Purchased Assets, or permit or allow any of the Purchased Assets to
become subject to any Lien, other than Permitted Liens;
(d) not enter into any lease, contract, agreement, commitment,
arrangement or transaction or do any other act or omit to do any act that might
adversely affect the Purchased Assets or the construction, maintenance and
operation of the Utah Project or the consummation of the transactions
contemplated by this Agreement and the other Transaction Documents; and
5.3 Additional Covenants.
(a) During such time that any of the Transaction Documents are
in effect, Buyer shall (i) not engage in any other business other than the
operation and maintenance of the Utah Project, (ii) not transfer the Purchased
Assets or any assets acquired by Buyer pursuant to any Transaction Document or
to be used in connection with the operation and maintenance of the Utah Project,
and (iii) maintain in full force and effect hazard and liability insurance with
respect to the Utah Project, in such amounts as are commercially reasonable in
accordance with industry standards.
(b) Sellers shall have the right to make and use photographs,
videotapes and other promotional materials fairly and honestly displaying and/or
describing the Utah Project and its operations (the "Promotional Materials").
Sellers may distribute the Promotional Materials to prospective purchasers
and/or investors of either Seller or any affiliates of Sellers only after Buyer
shall have approved such Promotional Materials in writing, which approval will
not be unreasonably withheld or delayed. So long as Sellers do not interfere
with the normal operations of the Utah Project, Sellers may provide potential
purchasers and/or investors with guided tours of the Utah Project and may have
access to the Utah Project to produce the Promotional Materials.
(c) Sellers shall be responsible for and pay all fees due to
CoalCo. Corporation as a result of the transactions contemplated by this
Agreement. Buyer shall be responsible for and pay all fees due to Geocapital,
Inc. in connection with the transactions contemplated by this Agreement.
(d) Seller hereby grants to Buyer the right to acquire the
expanded facilities associated with the Utah Project as contemplated in the
Centerline Engineering Construction Agreement upon terms and conditions no less
favorable than those contained in the Transaction Documents and the parties
shall negotiate appropriate documentation in good faith in order to complete the
acquisition by Buyer of the expanded facilities by no later than June 30, 1997.
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ARTICLE VI
DESTRUCTION OF ASSETS
If, prior to the Closing, all or any material part of the Purchased
Assets shall be destroyed by fire, flood, or other casualty (including
condemnation), this Agreement shall remain in full force and effect and the
Closing, unless otherwise specified by Buyer, shall be postponed until the
Purchased Assets shall be restored which shall be completed by Sellers at
Sellers' sole expense as soon as practical. If Buyer shall so elect, the Closing
shall take place prior to the restoration of the Purchased Assets and the
Purchase Price shall be reduced by an amount equal to the amount of such
destruction measured by the costs of restoring such Purchased Assets as are
destroyed to their condition immediately prior to such destruction, less the
amount of any insurance proceeds paid or payable without contingency to Sellers
on account of such destruction (which insurance proceeds Sellers shall assign to
Buyer).
ARTICLE VII
CONDITIONS PRECEDENT TO CLOSING
7.1 Conditions Precedent to the Obligations of Buyer. All obligations
of Buyer under this Agreement are subject to the fulfillment on or before the
Closing Date of each of the following conditions:
(a) Correctness of Representations and Warranties. The
representations and warranties of Sellers contained in this Agreement and in the
related Exhibits and Schedules, to be delivered to Buyer pursuant hereto and in
connection herewith shall be true on the date hereof and on the Closing Date, as
updated pursuant to Section 4.2, as though such representations and warranties
were made on and as of the Closing Date.
(b) No Adverse Change in Purchased Assets and Utah Project.
The Purchased Assets and the Utah Project shall not be or shall not have been
threatened or affected, or interfered with, in a material adverse way, whether
or not covered by insurance, as a result of fire, explosion, earthquake,
disaster, accident, labor dispute, any action of the United States or other
governmental authority, riots, civil disturbances, uprising, activity of the
Armed Forces, or act of God or the public enemy.
(c) Compliance with Agreement. Sellers shall have performed
and complied in all material respects with all obligations under this Agreement
which are to be performed or complied with by them prior to the Closing Date.
(d) Absence of Litigation. No material suit, action or other
proceeding or investigation shall be threatened or pending before any court or
governmental agency to restrain or prohibit, or to obtain damages or other
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relief in connection with this Agreement or the other Transaction Documents, or
the consummation of the transactions contemplated by this Agreement or the
Transaction Documents.
(e) Consents. Sellers shall have obtained (and delivered
copies thereof to Buyer) all permits, licenses, franchises, authorizations,
variances, exemptions, concessions, leases, instruments, orders, consents or
approvals of Governmental Entities and third parties necessary to execute,
deliver and perform this Agreement and the other Transaction Documents as set
forth on Schedule 4.1(c).
(f) Opinion of Counsel. Buyer shall have received an opinion
of the Sellers' legal counsel, Ballard Spahr Andrews & Ingersoll, reasonably
acceptable to Buyer, regarding the due organization, good standing and authority
of each of the Sellers.
(g) Further Assurances. Buyer shall have received such further
instruments and documents as it may reasonably require to carry out effectively
the transactions contemplated by this Agreement and the Transaction Documents
and to evidence the fulfillment of the agreements contained in this Agreement
and the Transaction Documents and the performance of all conditions to the
consummation of such transactions.
(h) Other Deliveries. The other deliveries referred to in
Section 8.2 shall be made at Closing.
7.2 Conditions Precedent to the Obligations of Sellers. All obligations
of Sellers under this Agreement are subject to fulfillment on or before the
Closing Date of each of the following conditions:
(a) Correctness of Warranties and Representations. In all
material respects, the representations and warranties of Buyer contained in this
Agreement and in the related Exhibits and Schedules to be delivered to Sellers
pursuant hereto and in connection herewith shall be true on the date hereof and
on the Closing Date as though such representations and warranties were made on
and as of the Closing Date.
(b) Compliance with Agreement. Buyer shall have performed and
complied in all material respects with all obligations under this Agreement
which are to be performed or complied with by it prior to the Closing Date.
(c) Absence of Litigation. No suit, action or other proceeding
or investigation shall be threatened or pending before any court or governmental
agency to restrain or prohibit, or to obtain damages or other relief in
connection with this Agreement or the Transaction Documents, or the consummation
of the transactions contemplated by this Agreement or the Transaction Documents.
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(d) Other Deliveries. The other deliveries referred to in
Section 8.2 shall be made at Closing.
(e) Opinion of Counsel. Sellers shall have received an opinion
of Buyer's legal counsel, Rudnick & Wolfe, reasonably acceptable to the Sellers,
regarding the due organization, good standing and authority of Buyer.
(f) Further Assurances. Sellers shall have received such
further instruments and documents as it may reasonably require to carry out
effectively the transactions contemplated by this Agreement and the other
Transaction Documents and to evidence the fulfillment of the agreements
contained in this Agreement and the other Transaction Documents and the
performance of all conditions to the consummation of such transactions.
ARTICLE VIII
CLOSING
8.1 Time and Place of Closing. The closing of the transaction
contemplated by this Agreement (the "Closing") shall be at 9:00 a.m., Central
Time, on such date as the parties shall mutually agree, not later than March 7,
1997 (the "Closing Date"), at the offices of Rudnick & Wolfe, 203 North LaSalle
Street, Suite 1800, Chicago, Illinois 60601, or at such other time or place as
the parties shall mutually agree.
8.2 Actions at Closing. At the Closing, the following events shall
occur, each being a condition precedent to the other and each being declared to
have occurred simultaneously with the other:
(a) Buyer shall pay to Sellers the Purchase Price by delivery
of the Promissory Note.
(b) Sellers shall execute, acknowledge and deliver to Buyer
the bills of sale, assignments and other documents necessary to transfer all of
Sellers' right, title, and interest in and to the Purchased Assets to Buyer.
(c) The Parties shall execute, acknowledge and deliver to each
other the Operation and Maintenance Agreement substantially in the form attached
hereto as Exhibit 8.2(c).
(d) The Parties shall execute, acknowledge and deliver to each
other the License and Binder Purchase Agreement substantially in the form
attached hereto as Exhibit 8.2(d) and Buyer shall pay the Initial Fee due
thereunder.
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(e) The Parties shall execute, acknowledge and deliver to each
other the Promissory Note and the Security Agreement in the form attached as
Exhibit 8.2(e).
(f) The Parties shall execute, acknowledge and deliver to each
other the Sublease Agreement in the form attached as Exhibit 8.2(f).
(g) The Parties shall execute, acknowledge and deliver to each
other the Supply and Purchase Agreement in the form attached as Exhibit 8.2(g).
(h) The Parties shall execute, acknowledge and deliver to each
other the Abandonment Option Agreement in the form of Exhibit 8.2(h).
(i) The Parties shall execute, acknowledge and deliver to each
other the Repurchase Option Agreement in the form of Exhibit 8.2(i).
(j) Sellers shall take all steps necessary to put Buyer in
actual possession and control of the Purchased Assets and the Utah Project.
(k) Sellers shall deliver to Buyer, at agreed locations, the
Files and Records.
ARTICLE IX
APPROVALS AND CONSENTS
Sellers, at their sole expense, shall make every reasonable effort
prior to the Closing to obtain all required permits, licenses, franchises,
authorizations, variances, exemptions, concessions, leases, instruments, orders,
consents and approvals of Governmental Entities and third parties necessary to
execute, deliver and perform this Agreement and the Transaction Documents as set
forth on Schedule 4.1(c) and to construct, maintain and operate the Utah
Project. Buyer shall make every reasonable effort to cooperate in connection
with obtaining all required permits, licenses, franchises, authorizations,
variances, exemptions, concessions, leases, instruments, orders, consents and
approvals of Governmental Entities and third parties necessary to execute,
deliver and perform this Agreement and the Transaction Documents as set forth on
Schedule 4.1(c) and to construct, maintain and operate the Utah Project;
provided, however, that Buyer shall not be obligated to incur any cost or
expense associated with such transfer or application.
ARTICLE X
CROSS INDEMNIFICATION
10.1 Obligations of Sellers. Sellers shall indemnify, defend and hold
harmless Buyer and its directors, officers, agents, representatives,
subsidiaries and Affiliates from and against any and all claims, demands or
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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
excluding losses, liabilities, damages, obligations, payments, costs and
expenses relating to the lack of availability of tax credits which would have
been available to Buyer from the production and sale of Briquettes at the Utah
Facility resulting solely from the closure of the Utah Facility or the reduction
of production capacity at the Utah Facility related to a breach as described in
sub-paragraph (a) below resulting from, relating to, arising out of, or incurred
in connection with any of the following:
(a) Any breach by either Seller of any of Sellers'
representations, warranties and covenants contained in this Agreement;
and
(b) Failure of Sellers to discharge any of the Retained
Liabilities when and as same fall due.
(c) Sellers' failure to pay any brokers fees required to be
paid by Sellers pursuant to Section 5.3(c) of this Agreement.
10.2 Obligations of Buyer. Buyer shall indemnify, defend, and hold
harmless Sellers, and their respective directors, officers, agents,
representatives, subsidiaries and Affiliates, 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 original costs of defending any and all actions, suits,
proceedings, demands and assessment which shall include reasonable attorneys'
fees and court costs) resulting from, relating to, arising out of or incurred in
connection with any of the following:
(a) Any breach by Buyer of any of Buyer's representations,
warranties and covenants contained in this Agreement; and
(b) Buyer's failure to discharge any of the Assumed
Liabilities when and as the same shall fall due.
(c) Buyer's failure to pay any brokers fees required to be
paid by Buyers pursuant to Section 5.3(c) of this Agreement.
10.3 Indemnity Procedures.
(a) Notwithstanding any provision to the contrary included in
this Article X, each party hereto waives the right, for itself and its
respective Affiliates, to be indemnified by the other party hereto to
the extent of any insurance proceeds or other recovery it receives with
respect to the liabilities for which indemnification would otherwise be
required hereunder.
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(b) A party claiming indemnification under this Article X (the
"Indemnitee") shall notify in writing the party from whom
indemnification is claimed (the "Indemnitor") in reasonable detail of
the nature, basis and estimated amount of the claim within a reasonable
time after discovery by the Indemnitee of the basis therefor or the
assertion thereof by a third party against the Indemnitee. Notice of a
claim filed in any court or administrative agency, or submitted to
arbitration, shall be given the Indemnitor within ten (10) days of the
Indemnitee's receipt of knowledge of such filing but failure to provide
notice within the 10 days shall not result in forfeiture of
indemnification rights except to the extent that the ability of the
Indemnitor to defend against the claim is materially impaired. In the
event of such notice by the Indemnitee to the Indemnitor of a third
party claim, the Indemnitor shall have twenty (20) days after receipt
thereof in which to admit or deny responsibility for indemnification of
the Indemnitee by written notice to the Indemnitee, and
(i) as to claims with respect to which the Indemnitee
and the Indemnitor may share responsibility, each party may
elect to participate in the defense of the claim through
counsel of its choice and at its expense, and neither party
shall settle or compromise the claim without the consent of
the other;
(ii) if the Indemnitor denies responsibility or fails
to admit or deny responsibility for a claim within twenty (20)
days of the notice, the Indemnitee shall have the sole option
and right to defend the claim, including the right to settle
or compromise the claim without consent of the Indemnitor, by
counsel of its choice; and
(iii) except with respect to a claim as to which the
Indemnitee and the Indemnitor share responsibility, if the
Indemnitor admits responsibility for indemnification, the
Indemnitor may at the same time elect to control the defense
of the claim by counsel of its choice and at its expense,
which counsel shall consult with the Indemnitee or its counsel
at the Indemnitee's expense, and except as limited herein
shall in such case have the right to settle or compromise the
claim as the Indemnitor deems fit, and the Indemnitee shall
cooperate in such defense and agree to and accept any money
settlement or compromise approved by the Indemnitor. If the
Indemnitor does not so elect to control the defense, the
Indemnitee shall appear and defend the claim by counsel of its
choice, and the Indemnitor may participate in such defense by
counsel of its choice at its expense, which counsel shall be
consulted by and shall assist counsel for the Indemnitee, in
which case the Indemnitor shall reimburse the Indemnitee for
its reasonable legal fees and expenses on a monthly basis.
10.4 Limitations on Indemnity. Neither Buyer nor the Sellers shall be
obligated to make any indemnification payment respecting representations and
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warranties pursuant to the terms of this Article X until such time as the
aggregate of such indemnification claims against Buyer or the Sellers, as the
case may be, shall exceed One Hundred Thousand Dollars ($100,000.00), whereupon
Buyer or the Sellers, as the case may be, shall be obligated to make
indemnification payments equal to the full amount of such claims subject to the
limitations of Section 10.1 above. With respect to indemnification payment for
breach of a covenant hereunder, Buyer or the Sellers, as the case may be, shall
be obligated to make indemnification payments equal to the full amount of such
claims, subject to the limitations of Section 10.1 above.
ARTICLE XI
SURVIVAL OF REPRESENTATIONS
11.1 Survival of Representations. Except as expressly provided, the
representations and warranties of the parties hereto contained in this Agreement
and in any certificates or documents delivered at Closing in connection with the
transactions contemplated hereby shall survive Closing of this transaction, for
a period of five (5) years; provided however: (x) the indemnification
obligations of Sellers with respect to Section 10.1(a) (solely as to the
representations of Sections 4.1(d), (e), (h), (l) and (u)) and with respect to
Sections 10.1(b) and (c) shall survive indefinitely; and (y) the indemnification
obligation of Buyer with respect to Sections 10.2(b) and 10.2(c) shall survive
indefinitely.
11.2 Procedure. Notice of any claim of a breach of a representation or
warranty shall be given by a party (for purposes of this Article XI the
"claiming party")to the other party (for purposes of this Article XI the
"defaulting party") as soon as reasonably practicable after the claiming party
becomes aware thereof and, if the claim in question is as a result of or in
connection with a liability to or from, or a dispute with, any other third
party, the claiming party shall take reasonable steps in connection with such
liability or dispute so as to recover or minimize or resolve such liability or
dispute. The claiming party shall give to the defaulting party full facilities
to investigate the subject matter of the claim and, at the request of the
defaulting party, to allow it at its own expense to participate in, or have the
conduct of (as it may elect), all proceedings of whatsoever nature against the
relevant third party arising out of, or in connection with, such liability or
dispute, in the name of the claiming party as it may consider necessary in order
to mitigate any such claim. The claiming party shall not accept or pay or
compromise any such liability or claim without providing the defaulting party a
reasonable opportunity to dispute the same.
ARTICLE XII
MISCELLANEOUS
12.1 Books, Records and Assistance by Personnel.
(a) Buyer and Sellers shall each use their respective best
efforts to cooperate with the other as requested from time to time and make
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their employees available to the other at requesting party's expense (including
the fully allocated costs and out-of-pocket expenses of the party of whom
cooperation is being requested) to the extent that the requesting party may
reasonably require for its corporate or partnership purposes including
attendance at depositions or legal proceedings, or audits requested by the
requesting party to be performed by their employees or independent accountants
relating to any period through or including the Closing.
(b) Each party shall provide the other party with reasonable
access to all relevant documents, data and other information which may be
required by the other party for the purpose of preparing tax returns and
responding to any audit by any taxing jurisdiction. Each party shall cooperate
with all reasonable requests of the other party made in connection with
contesting the imposition of taxes. Notwithstanding anything to the contrary in
this Agreement, neither party to this Agreement shall be required at any time to
disclose to the other party any tax return or other confidential tax
information.
12.2 Assignment. This Agreement shall not be assigned in whole or in
part by Sellers without the prior written consent of Buyer, or assigned in whole
or in part by Buyer without the prior written consent of Sellers.
12.3 Notices. All notices required or permitted to be given under this
Agreement shall be in writing. Notices may be served by certified or registered
mail, postage paid with return receipt requested; by private courier, prepaid;
by telex, facsimile, or other telecommunication device capable of transmitting
or creating a written record; or personally. Mailed notices shall be deemed
delivered five days after mailing, property addressed. Couriered notices shall
be deemed delivered when delivered as addressed, or if the addressee refuses
delivery, when presented for delivery notwithstanding such refusal. Telex or
telecommunicated notices shall be deemed delivered when receipt is either
confirmed by confirming transmission equipment or acknowledged by the addressee
or its office. Personal delivery shall be effective when accomplished. Unless a
party changes its address by giving notice to the other party as provided
herein, notices shall be delivered to the parties at the following addresses:
Sellers: Covol Technologies, Inc.
3280 North Frontage Road
Lehi, Utah 84043
Telephone: (801)768-4481
Telecopier: (801)768-4483
Attn.: Asael T. Sorensen, Esq.
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And: Utah Synfuel #1 Ltd.
c/o Covol Technologies, Inc.
3280 North Frontage Road
Lehi, Utah 84043
Telephone: (801)768-4481
Telecopier: (801)768-4483
Attn.: Asael T. Sorensen, Esq.
With a copy Ballard Spahr Andrews & Ingersoll
to: 201 South Main Street, Suite 1200
Salt Lake City, Utah 84111
Telephone: 801-531-3000
Telecopier: 801-531-3001
Attn.: Richard T. Beard, Esq.
Buyer: Coaltech No. 1 L.P.
3280 North Frontage Road
Lehi, Utah 84043
Telephone: (801)768-4481
Telecopier: (801)768-4483
Attn.: Asael T. Sorensen, Esq.
With a copy AJG Financial Services, Inc.
to: c/o Arthur J. Gallagher & Co.
Two Pierce Place
Itasca, Illinois 60143-3141
Telephone: (630) 285-3457
Telecopier: (630) 285-3483
Attn: John C. Rosengren, Esq.
With a copy Square D Company
to: 1415 S. Roselle Road
Palatine, Illinois 60067
Telephone: (847) 397-2600
Telecopier: (847) 925-7509
Attn: Vincent A. Inendino and
Howard E. Japlon, Esq.
With a copy Rudnick & Wolfe
to: 203 North LaSalle Street
Chicago, Illinois 60601
Telephone: (312) 368-4050
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Telecopier: (312) 236-7516
Attn: Stephen A. Landsman, Esq.
12.4 Expenses and Fees. Each party hereto agrees to pay, without right
of reimbursement from the other, the costs incurred by it incident to the
preparation of this Agreement, and the fees and disbursements of counsel,
accountants and consultants employed by it in connection with the negotiation of
this Agreement and the consummation of the transaction contemplated herein.
12.5 Successors and Assigns. Except as otherwise provided herein, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns.
12.6 Waiver. Buyer or Sellers, by written notice to the other, may: (i)
extend a time for performance of any of the obligations or other actions of the
other such party under this Agreement; (ii) waive by express written waiver any
inaccuracy in the representations or warranties of the other such party
contained in this Agreement or any document delivered pursuant to this
Agreement; (iii) waive by express written waiver any compliance with the
conditions or covenants of the other such party contained in this Agreement; or
(iv) waive or modify by express written waiver or agreement performance of any
of the obligations of the other such party performed under this Agreement;
provided, however, that neither such party may without the consent of the other
grant such extension of time, waiver of inaccuracies or compliance or waiver or
modification of warranties, conditions or covenants hereunder. Except as
provided in this section, no action taken pursuant to this Agreement (including
without limitation the acts taken at the Closing) shall be deemed to constitute
a waiver of compliance with any representations, warranties or covenants
contained in this Agreement and shall not operate or be construed as a waiver of
any subsequent breach of a similar or dissimilar nature.
12.7 Entire Agreement. This Agreement, together with the other
Transaction Documents, constitutes the entire agreement of the parties relating
to the subject matter hereof. There are no promises, terms, conditions,
obligations, or warranties other than those contained herein and/or in the
Transaction Documents. The Transaction documents supersede all prior
communications, representations, or agreements, verbal or written, among the
parties relating to the subject matter hereof.
12.8 Amendments, Supplements and Etc. This Agreement may be amended
or supplemented at any time only by an additional written agreement executed by
the parties hereto.
12.9 Applicable Law. This Agreement and the legal relations among the
parties hereto shall be governed by and construed in accordance with the
substantive laws of the State of Utah without giving effect to the principles of
conflict of laws thereof.
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12.10 Execution and 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.
12.11 Titles and Headings. Titles and headings to paragraphs herein are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement.
12.12 Third Parties. Nothing herein expressed or implied is intended or
shall be construed to confer upon or give any person or entity other than the
parties hereto and their successors and assigns any right or remedies by reason
of this Agreement as a third party beneficiary or otherwise.
12.13 Further Assurances. The parties agree from time to time to
execute such additional documents as are necessary to effect the intent of the
parties as manifested by this Agreement.
12.14 Dispute Resolution. If a controversy, claim or dispute arising
out of or relating to this Agreement or the breach of this Agreement occurs, the
Parties shall meet and exert reasonable efforts to reach an amicable settlement.
Failing agreement, Sellers and Buyer agree to submit the matter under dispute to
arbitration under the Rules and Procedures of the American Arbitration
Association by a panel of three arbitrators. A Party desiring arbitration may
select one arbitrator and shall then notify the other Party in writing of the
identity of the arbitrator. The second Party shall then, within ten (10) days,
notify the first Party of the identity of the second Party's arbitrator. The two
arbitrators shall pick the third arbitrator. All arbitrators selected under this
Section 12.14 shall have experience in the operation of coal production
facilities. The decision of the arbitrators shall be final and binding upon the
Parties. The expenses of such arbitration, excluding attorneys' fees, shall be
equally divided among the Parties, and may be enforced in any court having
jurisdiction over the Party against which enforcement is sought. The arbitration
shall be held in Salt Lake City, Utah, or any other place as the Parties may
mutually agree upon. The arbitrators shall initiate the hearings as promptly and
expeditiously as possible after their selections (and the Parties shall
cooperate to this end) and shall conclude the hearings within thirty (30) days
of their commencement unless the arbitrators expressly find that additional time
is necessary for completion of the hearings for reasons in the best interest of
the Parties.
The award of the arbitrators shall be made no later than thirty (30)
days from the date of the closing of the hearings. Arbitration under this
Agreement shall be governed by the provisions of the Federal Arbitration Act
and, if applicable, the laws of the State of Utah relating to arbitration, as
the same are in effect at the time that such arbitration is initiated.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives the day and year first above written.
SELLERS:
COVOL TECHNOLOGIES, INC.
By: /s/Brent M. Cook__________________________
Name: Brent M. Cook
Title: CEO/President
UTAH SYNFUEL #1 LTD.
By: /s/ Brent M. Cook_________________________
Name: Brent M. Cook
Title: President of Covol Technologies, Inc.
Its General Partner
BUYER:
COALTECH NO. 1 L.P.
By: /s/ Alan D. Ayers _____________________
Name: Alan D. Ayers
Title: C.O.O. of Covol Technologies, Inc.
Its General Partner
27
CONFIDENTIAL TREATMENT REQUESTED
Utah Project
Purchase Agreement
THIS LICENSE AND BINDER PURCHASE AGREEMENT (the "Agreement"), is made
and entered into as of March 7, 1997 by and between Coaltech No. 1 L.P., a
Delaware limited partnership (the "Licensee"), and Covol Technologies, Inc., a
Delaware corporation (the "Vendor"), and Utah Synfuel #1 Ltd., a Delaware
limited partnership (the "Licensor").
WHEREAS Vendor has represented that it has developed a proprietary
process to produce synthetic coal fuel extrusions and briquettes from waste coal
dust, coal fines and other coal derivatives, and that Vendor and Licensor
jointly have sufficient rights to such proprietary process pursuant to which
Licensor and Vendor are entitled to license the coal extruding and briquetting
technology to Licensee;
WHEREAS Licensor and Vendor have assigned to the Licensee ownership of
a coal extruding and briquetting facility (the "Utah Facility") located near
Price, Utah (the "Utah Project"), pursuant to the Utah Project Purchase
Agreement, dated as of March 7, 1997, as the same may be amended, supplemented
or otherwise modified from time to time (the "Purchase Agreement"); and
WHEREAS Licensee wishes to obtain and Licensor and Vendor wish to grant
to Licensee a license for the coal extruding and briquetting technology in
connection with the Utah Project on the terms and conditions set forth in this
Agreement, and Licensee wishes to obtain and Vendor wishes to sell to Licensee
the Proprietary Binder Material (as defined below) manufactured by Vendor for
use in the operation of the Utah Project.
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,
Licensor, Vendor and Licensee each agree as follows:
Section 1 Definitions. Capitalized terms used but not otherwise defined
herein shall have the meanings ascribed thereto in the Purchase Agreement.
"Closing Fee" has the meaning set forth in Section 3.2.1.
* This Exhibit contains confidential material which has been omitted pursuant to
a Confidential Treatment Request and replaced by asterisks. The omitted
information has been filed separately with the Commission.
<PAGE>
"Coal Briquetting Technology" means all intellectual property,
patents (including but not limited to United States Patent Numbers 5,487,764 and
5,453,103) 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 extrusions and briquettes 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 Vendor
or Licensor; provided, however, that the defined term "Coal Briquetting
Technology" shall not include the proprietary process developed by Vendor 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 extrusions and briquettes.
"Commercial Use" means any usage of the Coal Briquetting
Technology for commercial exploitation (and not for research development
purposes) and any other usage to which Vendor or Licensor grants prior written
consent.
"Earned License Fee" has the meaning set forth in Section
3.2.2.
"Effective Date" means the date of this Agreement set forth
above.
"Goal Fee" has the meaning set forth in Section 3.2.1.
"Improvements" has the meaning set forth in the Section 2.3
hereof.
"Initial License Fee" has the meaning set forth in Section
3.2.
"Licensed Products" means extrusions of synthetic coal product
which embody, use or have been formed with the Coal Briquetting Technology.
"Licensee" has the meaning set forth in the preamble.
"License Fee" means the Earned License Fee and the Initial
License Fee.
"Licensor" has the meaning set forth in the preamble.
"Manufacturing Zone" means a twenty-five (25) mile radius of
the site of the Utah Facility and, in the event that, Licensor and/or Vendor
shall permit Licensee to move the manufacturing facility or expand, a
twenty-five (25) mile radius of any successor or further manufacturing site.
2
<PAGE>
"Operation and Maintenance Agreement" means the Operation and
Maintenance Agreement, dated as of the date hereof, by and between Licensor and
Licensee.
"Production Goal Date" means the date during the term of this
Agreement when (i) the Utah Facility has, during any consecutive seven (7)-day
period, produced and sold 7,140 tons of conforming Licensed Products; and (ii)
Vendor has caused the completion of installation of the new drier machine at the
Utah Facility; and (iii) Vendor has given Licensee notice that the
above-referenced production target has been met and the above-referenced
installation has been completed.
"Proprietary Binder Material" means and refers to the binder
compound necessary for the production, by Licensee, of synthetic coal extrusions
and briquettes as contemplated under the Purchase Agreement and/or the Operation
and Maintenance Agreement and which extrusions and briquettes satisfy the
chemical change conditions of IRS private letter rulings No. 9701041 and No.
9549025 in order to constitute "qualified fuels" pursuant to the terms of
Section 29(c)1(C) of the 1986 Internal Revenue Code and with respect to which
Section 29 is applicable pursuant to Section 29(f) and 29(g) of the 1986 Code
("Qualified Fuels").
"Purchase Agreement" has the meaning set forth in the
preamble.
"Utah Project" has the meaning set forth in the preamble.
"Vendor" has the meaning set forth in the preamble.
Section 2 Grant.
2.1 General. Subject to the terms and conditions of this
Agreement, Licensor and Vendor hereby grant to Licensee, for the full and entire
term hereof, a license to use the Coal Briquetting Technology for Commercial
Use, including (i) the exclusive right in the Manufacturing Zone to use the Coal
Briquetting Technology and to make and have made Licensed Products, except that
such license shall be non-exclusive as to Pacific Corp. and Sunnyside Co. - Gen
facility, each of which is a prospective licensee of Licensor, and (ii) the
non-exclusive right in the Manufacturing Zone and elsewhere to use, sell, and/or
otherwise transfer Licensed Products. Licensee hereby accepts the license on the
terms hereof and agrees to make and have made Licensed Products only within the
Manufacturing Zone. Licensee shall not make or have made Licensed Products
outside the Manufacturing Zone, but Licensee may use, sell and otherwise
transfer Licensed Products made in the Manufacturing Zone anywhere.
2.2 Know-How and Assistance. To enable Licensee to benefit
fully from the license of the Coal Briquetting Technology, Licensor and Vendor
shall provide at Licensor's and/or Vendor's expense (i) access to all technical
information, relevant documentation, drawings, engineering specifications and
3
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other know-how in either Vendor's or Licensor's possession and (ii) reasonable
access to Vendor's and Licensor's employees or agents who are familiar with the
Coal Briquetting Technology, and Improvements to the Coal Briquetting
Technology, as defined in Section 2.3. Licensor and Vendor shall further provide
to Licensee all technical advice necessary to exploit the Coal Briquetting
Technology as is reasonably requested by Licensee and relevant to the provisions
of this Agreement and Licensee shall reimburse Licensor and Vendor for its
reasonable out-of-pocket expenses associated therewith. The provisions of this
paragraph shall not limit the obligations of Licensor or Vendor under the
Operation and Maintenance Agreement and Licensee reserves all rights under the
Operation and Maintenance Agreement.
2.3 Improvements. Each of Licensor and Vendor shall notify
Licensee of any improvements, variations or modifications ("Improvements") made
by it on or to the Coal Briquetting Technology promptly after such Improvements
are made. The term "Improvements" shall include changes in the Coal Briquetting
Technology that reduce production costs, improve performance, broaden
applicability or increase marketability, but shall not include changes that do
not relate to the production process using the Coal Briquetting Technology
(i.e., changes relating solely to administrative and marketing practices and
procedures). Improvements made by Vendor, Licensor and/or Licensee shall be
owned by Vendor and shall be considered a part of the Coal Briquetting
Technology licensed hereunder and each of Vendor and Licensor hereby grants to
Licensee (without further 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 Coal Briquetting Technology is licensed to Licensee hereunder.
2.4 Confidentiality. Each of the parties hereby agree to
maintain the Coal Briquetting Technology confidential and not to disclose the
Coal Briquetting Technology, or any aspect thereof, or the Improvements, or any
aspect thereof (collectively, the "Confidential Information"). 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 a non-confidential basis prior to
its receiving disclosure hereunder, or (iii) lawfully becomes available to the
party receiving disclosure on a non-confidential basis from a 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
2.4. At the termination of this Agreement, all copies of any Confidential
Information (including without limitation any reports or memoranda) shall be
returned by the party receiving disclosure. Nothing in this Agreement shall
prohibit Licensee from disclosing the Confidential Information to others as may
be reasonably necessary for Licensee to exploit Licensee's rights under the
Purchase Agreement, the Operation and Maintenance Agreement (as defined above),
and/or this Agreement; provided that the recipient of any such Confidential
Information executes a Confidentiality Agreement restricting further disclosure
of the Confidential Information.
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****Confidential Treatment Requested
Section 3 License Fee.
3.1 License Fee. Licensee shall pay the Initial License Fee
nd Earned License Fee (as defined in Section 3.2) as a license fee to Licensor.
3.2.1 Initial License Fee. Concurrently herewith,
Licensee shall jointly pay to Licensor and Vendor in immediately
available funds the sum of One Million Four Hundred Thousand Dollars
($1,400,000) (the "Closing Fee"). Fourteen (14) days following the
Production Goal Date, Licensee shall jointly pay to Licensor and Vendor
in immediately available funds the sum of One Million One Hundred
Thousand Dollars ($1,100,000) (the "Goal Fee"). The Closing Fee paid by
Licensee together with any Goal Fee paid (if any) shall collectively
constitute the Initial License Fee. Upon payment of the Closing Fee and
the Goal Fee (if any), Licensee shall have the right to produce
Licensed Products without the payment to Vendor or Licensor of any
further Initial License Fee.
3.2.2 Earned License Fee. Licensee shall jointly pay
to Licensor and Vendor quarterly earned license payments ("Earned
License Fee") in an amount equal to the product of (i) $****, as
adjusted by the Inflation Adjustment Factor described in Section 3.2.3
below, multiplied by (ii) the MM Btu of the Licensed Products that are
Qualified Fuels manufactured and sold in each calendar quarter in
excess of **** MM Btu's of such Licensed Products (the "Base
Quantity"). If the production of Licensed Products that are Qualified
Fuels shall be less than the Base Quantity in any calendar quarter, the
difference between the Base Quantity and actual production for the
quarter shall be carried over and added to the Base Quantity for the
succeeding quarter for purpose of determining the amount of such
Licensed Products to which the Earned License Fee shall be applied.
3.2.3 Inflation Adjustment Factor. On each
anniversary date of this Agreement, commencing with first anniversary,
the amount set forth in clause (i) shall be adjusted by the percentage
equal to percentage that (y) the "inflation adjustment factor" (as set
forth in Section 29(d)(2) of the 1986 Code) calculated for the
immediately preceding year bears to (z) the "inflation adjustment
factor" calculated for the penultimate year.
3.2.4 Payment Terms. Any Earned License Fee payable
for any calendar quarter shall be due on the last day of the month
following the end of that calendar quarter. Payments shall be made by
Licensee to Licensor and shall be deemed to be received on behalf of
both Licensor and Vendor.
3.2.5 Reduction of Earned License Fee. Upon the
expiration of the last to expire of the patents licensed hereunder as a
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****Confidential Treatment Requested
part of the Coal Briquetting Technology, the parties shall negotiate
a reduction in the Earned License Fee amount set forth in subpart (i)
of Section 3.2.2 hereof; but, in the event that the parties are unable
to agree on the amount of such reduction, Licensee has the right to
terminate the license granted under this Agreement or to continue such
license under all the same terms (payment and otherwise) as existed
prior to the termination of such patent.
Section 4 Sales of Binder.
4.1 Sale and Purchase. Vendor shall sell to Licensee, and
Licensee shall purchase from Vendor, Licensee's requirements of Proprietary
Binder Material required to operate the Utah Project. Vendor shall deliver the
Proprietary Binder Material at such times and in such amounts as requested by
Licensee. Payments for Proprietary Binder Material delivered by Vendor during
any calendar month shall be due and payable to Vendor on the tenth Business Day
of the immediately succeeding month.
4.2 Price. The price which Licensee shall pay for the
Proprietary Binder Material delivered by Vendor during any calendar year shall
be **** per ton of output provided, however, that on each anniversary date,
commencing with the first anniversary, the **** per ton amount shall be adjusted
by the percentage equal to the percentage that (y) the producer price index for
all commodities calculated for the immediately preceding year bears to (z) the
producer price index for all commodities calculated for the penultimate year.
4.3 Representations and Warranties. Each of Vendor and
Licensor represent and warrant as follows:
(a) Vendor shall convey to Licensee good title to all
Proprietary Binder Material purchased by Licensee from Vendor
hereunder, free and clear of any and all liens, claims and
encumbrances of any type whatsoever.
(b) All Proprietary Binder Material purchased by
Licensee from Vendor hereunder shall be of such quality and
nature as to be suitable for processing at the Utah Facility
using the Coal Briquetting Technology so as to produce
synthetic coal extrusions and briquettes which satisfies the
chemical change conditions of IRS private letter ruling No.
9701041 and No. 9549025 in order to constitute "qualified
fuel" for purposes of Section 29 of the Internal Revenue Code
of 1986 in quantities and at costs which are substantially in
accordance with the financial and operating projections
attached to this Agreement as its Exhibit "A."
(c) No Proprietary Binder Material shall contain any
Hazardous Material and all Proprietary Binder Material shall
meet all applicable laws and governmental regulations.
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(d) At Licensee's option, Vendor shall replace, or
refund the purchase of, all non-conforming Proprietary Binder
Material.
(e) Vendor shall carry liability insurance with
respect to the Proprietary Binder Material in amounts and
coverages deemed satisfactory by Licensee and shall name
Licensee as an additional insured.
4.4 Order Procedure. Licensee shall deliver all purchase
orders for Proprietary Binder Materials at least thirty (30) days in advance of
the first day of the month in which delivery of such Proprietary Binder Material
is required under such purchase order, and all such purchase orders received by
Vendor during the term of this Agreement shall be deemed to have been accepted
by Vendor. (For example, Licensee shall deliver a purchase order for December
delivery by no later than November 1st). Each such purchase order shall be
delivered either (i) in writing, or (ii) orally by telephone by an authorized
agent of Licensee (subject to the condition that it is followed by a written
purchase order within 24 hours). Such purchase orders shall be sent to Vendor at
such address as Vendor shall direct.
4.5 Delivery and Acceptance. All Proprietary Binder Material
purchased hereunder shall be delivered F.O.B. the Utah Facility. Vendor shall
provide trucks or otherwise arrange for transportation of the Proprietary Binder
Material to the Utah Facility. Vendor shall bear the expenses of loading and
tarping such trucks. Licensee shall bear the expense of unloading the trucks.
The weight of Proprietary Binder Material in each delivery shall be determined
by a comparison of the weight, on Utah Facility scales, of the delivery truck
immediately prior to unloading and its weight, on Utah Facility's scales,
immediately following unloading, as reflected in customary weighing
certificates. At Vendor's request and expense from time to time, Vendor shall
have the right to inspect Licensee's scales for accuracy. Licensee shall have a
reasonable opportunity to sample Proprietary Binder Material delivered to it
hereunder to confirm that such Proprietary Binder Material conforms to the terms
and requirements hereof, and Licensee shall not be deemed or required to accept
any such Proprietary Binder Material prior to the completion of such sampling.
Licensee may obtain Proprietary Binder Material from other sources if Vendor is
not able to supply Licensee's requirements.
4.6 Binder Technology License. If Vendor's ability to deliver
the Proprietary Binder Material to Licensee will be interrupted or terminated
for any reason, Vendor shall give not less than ninety (90) days' notice to
Licensee. Subject to giving notice of its inability to deliver the Proprietary
Binder Material to Licensee (or, in the absence of such notice, the actual
failure to deliver the Proprietary Binder Material for at least twenty (20)
days), Vendor hereby grants to Licensee a nonexclusive license for the term of
this Agreement (or such shorter period as provided in the proviso hereto) to use
the technology used to manufacture the Proprietary Binder Material to
manufacture the Proprietary Binder Material in sufficient quantities to operate
the Utah Project up to full capacity, and such technology shall be deemed "Coal
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Briquetting Technology" for the purposes of this Agreement; provided, however,
that the license granted to Licensor under this Section shall cease (subject to
reinstatement upon the reoccurrence of the events contemplated above) and sales
of Proprietary Binder Material under the terms of this Agreement shall be
reinstated, in each case, on a date not less than ninety (90) days after Vendor
gives notice to Licensee, together with evidence reasonably satisfactory to
Licensee that Vendor is able to deliver the Proprietary Binder Material in
accordance with this Agreement. No additional fee or royalty shall be payable to
Vendor in connection with the license granted pursuant to this Section.
Licensee's decision to obtain Proprietary Binder Material shall not constitute a
waiver of Licensee's rights to seek relief for Licensor's failure to supply
Licensee's requirements of Proprietary Binder or otherwise and shall not
constitute an election of remedies.
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
Briquetting Technology or otherwise misappropriated any Coal Briquetting
Technology, Vendor and/or Licensor shall, at Vendor's and/or Licensor's 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 Vendor and
Licensor, in which case Vendor shall be entitled to any sums recovered from
third parties. If Vendor or Licensor do not take any action, Licensee shall have
the right to take action as a plaintiff in the prosecution of any infringement
or misappropriation action affecting the Utah Project, and Licensee shall be
entitled to any sums recovered from the third party. If Licensee and Vendor
(and/or Licensor) have jointly conducted an infringement or misappropriation
action, after each party has been reimbursed for costs and expenses incurred by
it in prosecuting the action, any sums recovered from the third party shall be
distributed to Licensee and Vendor (i) in accordance with the percentage of the
costs and expenses borne by each if Vendor is contractually obligated to
purchase the output of the Utah Project or (ii) based on the proportionate
amount of damages suffered by Licensee and Vendor as a result of the actions by
the third party from whom damages were recovered. Licensee shall always have the
right to be represented at its expense by counsel of its own selection in any
action. In no event shall Vendor enter into any agreement or settlement
inconsistent with the terms of this Agreement.
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Section 7 Representations and Warranties.
7.1 Authority. Each of Vendor, Licensee and Licensor
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 Vendor, Licensee and Licensor
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.
7.3.1 Representations of Vendor. Vendor 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 and 5,453,103) 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 extrusions and briquettes from waste coal dust, coal fines
and other similar coal derivatives, and, the right to freely use, sell
and exploit Proprietary Binder Material used in manufacturing synthetic
coal fuel extrusions and briquettes from waste coal dust, coal fines
and other similar coal derivatives, (ii) has the right and power to
grant to Licensee 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, Proprietary Binder Material and/or licenses granted herein as
contemplated by this Agreement would infringe any third-party's
intellectual property rights. Vendor agrees to take all steps necessary
to maintain all of the patents hereunder at Vendor's sole expense.
7.3.2 Representations of Licensor. Licensor 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 and 5,453,103) 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
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coal fuel extrusions and briquettes from waste coal dust, coal fines
and other similar coal derivatives, and, sufficient rights to use
and exploit Proprietary Binder Material used in manufacturing synthetic
coal fuel extrusions and briquettes from waste coal dust, coal fines
and other similar coal derivatives, (ii) has the right and power to
grant to Licensee 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, Proprietary Binder Material and/or licenses granted herein as
contemplated by this Agreement would infringe any third-party's
intellectual property rights.
7.4 Guaranty of License. Each Vendor and Licensor hereby
represent and warrant that they have sufficient rights in the Coal Briquetting
Technology and the Proprietary Binder Material to make the license granted by
this Agreement. Licensor and Vendor agree that both Licensor and Vendor and each
of them is a "licensor" under Section 365(n) of the United States Bankruptcy
Code.
7.5 Indemnification. Each of Vendor and Licensor shall
indemnify, defend and hold harmless Licensee and its partners, directors,
officers, agents, representatives, subsidiaries and Affiliates 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 either Vendor or Licensor of any of the
representations, warranties and/or covenants contained in this Agreement.
Section 8 Term. This Agreement and the license granted hereunder shall
be for the period from the Closing Date to and including the last of (i) January
1, 2008, and (ii) the corresponding date after which tax credits may not be
accrued or otherwise be available 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.
The parties acknowledge that the term of this Agreement and the licenses granted
hereunder are independent of the Operation and Maintenance Agreement.
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.
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Section 11 Notices. All notices required or authorized by this
Agreement shall be given to the parties hereto at the addresses, and in
accordance with the procedures, set forth in Section 12.3 of the Purchase
Agreement.
Section 12 Remedies Cumulative. Remedies provided under this Agreement
shall be cumulative and in addition to other remedies provided by law or in
equity.
Section 13 Entire Agreement. This Agreement, together with the other
Transaction Documents, constitutes the entire agreement of the parties relating
to the subject matter hereof. There are no promises, terms, conditions,
obligations, or warranties other than those contained herein and/or in the
Transaction Documents. The Transaction Documents supersede all prior
communications, representations, or agreements, verbal or written, among the
parties relating to the subject matter hereof. This Agreement may not be amended
except in writing signed by the parties hereto.
Section 14 Governing Law. This Agreement shall be governed in
accordance with the laws of the State of Utah, exclusive of its conflict of laws
rules.
Section 15 Assignment. This Agreement may not be assigned, in whole or
in part, by any party without the written consent of each of the other parties,
which consent may be withheld by any party for any reason or for no reason in
its sole discretion, except that (i) Vendor and/or Licensor shall have the right
to assign its rights and obligations under this Agreement to any entity which is
controlled by Vendor and of which Vendor owns, directly or indirectly, at least
eighty percent (80%) of each class of its outstanding securities, provided that
no such assignment shall release Vendor and/or Licensor from its obligations
hereunder, and (ii) Licensee shall have the right to assign its rights and
obligations to Vendor in connection with any sale by Licensee to Vendor of
substantially all of the assets of the Utah Project.
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Executed by the duly authorized representative of the parties on the
date and year first above written.
COVOL TECHNOLOGIES, INC.
By:/s/ Brent M. Cook_______________
Name: Brent M. Cook
Title: CEO/President
UTAH SYNFUEL #1 LTD.
By: /s/ Brent M. Cook_____________
Name: Brent M. Cook
Title: President of Covol Technologies, Inc.
Its: General Partner
COALTECH NO. 1 L.P.
By: /s/ Alan D. Ayers_______________
Name: Alan D. Ayers
Title: C.O.O. of Covol Technologies, Inc.
Its: General Partner
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A-1
CONFIDENTIAL TREATMENT REQUESTED
Utah Project
Purchase Agreement
OPERATION AND MAINTENANCE AGREEMENT
By and Between
COALTECH NO. 1, LP,
a Delaware limited partnership
and
Covol Technologies, Inc.,
a Delaware corporation
Dated as of March 7, 1997
* This Exhibit contains confidential material which has been omitted pursuant to
a Confidential Treatment Request and replaced by asterisks. The omitted
information has been filed separately with the Commission.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I AGREEMENT; RELATIONSHIP OF THE PARTIES..................... 2
ARTICLE II DEFINITIONS................................................ 3
ARTICLE III SERVICES................................................... 12
3.1. Responsibilities of Operator............................... 12
3.2. Personnel Standards........................................ 14
3.3. Compliance with Transaction Documents...................... 16
3.4. Licenses and Permits....................................... 16
3.5. Operating Records And Reports.............................. 17
ARTICLE IV ITEMS TO BE FURNISHED BY COMPANY........................... 18
4.1. General.................................................... 18
4.2. Information................................................ 18
4.3. Utah Project............................................... 19
4.4. Licenses and Permits....................................... 19
4.5. Repairs, Maintenance and Capital Improvements.............. 19
ARTICLE V PROCEDURES, PLANS AND REPORTING; ACCOUNTS.................. 21
5.1. Representatives............................................ 21
5.2. Expenditures............................................... 22
5.3. Reports.................................................... 22
5.4. Officers' Certificate...................................... 25
5.5. Annual Operational Audit................................... 25
5.6. Other Information.......................................... 25
5.7. Utah Project Account....................................... 26
5.8. Operating Account.......................................... 26
5.9. Monthly Draw Procedures; Operator to Act as Paying Agent;
Payment of Costs........................................... 27
ARTICLE VI LIMITATIONS ON AUTHORITY................................... 28
6.1. General Limitations........................................ 28
6.2. Execution of Documents..................................... 30
ARTICLE VII COMPENSATION AND PAYMENT................................... 30
7.1. Quarterly Fees and Payments................................ 30
7.2. Adjustment to Quarterly Fee................................ 31
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7.3. Payment of Fees............................................ 31
ARTICLE VIII TERM............................................ 32
8.1. Term....................................................... 32
8.2. Termination by Company for Cause........................... 32
8.3. Termination by Operator for Cause.......................... 36
8.4. Termination upon Agreement................................. 36
8.5. Utah Project Condition at End of Term...................... 37
8.6. Termination Payment........................................ 37
8.7. Continuation and Cooperation............................... 38
8.8. Force Majeure.............................................. 38
8.9. Damage or Destruction...................................... 40
ARTICLE IX INSURANCE.................................................. 41
9.1. Company Policies........................................... 41
9.2. Operator Policies.......................................... 41
9.3. Waiver of Subrogation...................................... 42
ARTICLE X INDEMNIFICATION............................................ 43
10.1. Company's Indemnity........................................ 43
10.2. Operator's Indemnity....................................... 44
10.3. Contribution............................................... 44
ARTICLE XI [Intentionally Omitted].................................... 46
ARTICLE XII DISPUTE RESOLUTION......................................... 46
ARTICLE XIII TITLE, DOCUMENTS AND DATA....................... 48
13.1. Materials and Equipment.................................... 48
13.2. Documents.................................................. 48
ARTICLE XIV MISCELLANEOUS PROVISIONS........................ 49
14.1. Assignment................................................. 49
14.2. Access..................................................... 49
14.3. Notices and Other Communications........................... 50
14.4. Rights, Duties And Obligations Complete.................... 50
14.5. Integration; Amendment..................................... 50
14.6. Severability............................................... 50
14.7. Governing Law.............................................. 51
14.8. Multiple Counterparts...................................... 51
14.9. No Third Party Beneficiary Rights.......................... 51
14.10. Representations and Warranties............................. 52
3
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4
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OPERATION AND MAINTENANCE AGREEMENT
This OPERATION AND MAINTENANCE AGREEMENT (hereinafter this "Agreement")
is made and entered into March 7, 1997 by and between COALTECH NO 1, LP, a
Delaware limited partnership (the "Company"), and COVOL TECHNOLOGIES, INC., a
Delaware corporation ("Operator"). Company and Operator may sometimes be
referred to in this Agreement individually as a "Party" or collectively as the
"Parties."
WHEREAS Operator and Utah Synfuel #1, Ltd. ("Utah Synfuel") have
assigned to the Company ownership of a coal briquetting facility located in
Price, Utah pursuant to the Utah Project Purchase Agreement, dated as of March
7, 1997 (as the same may be amended, supplemented or otherwise modified from
time to time, the "Purchase Agreement").
WHEREAS Company wishes to engage Operator for the purpose of operating,
managing and maintaining the Utah Project pursuant to the terms of 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,
Company and Operator agree as follows:
ARTICLE I
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AGREEMENT; RELATIONSHIP OF THE PARTIES
Company hereby engages Operator as an independent contractor to
maintain, manage and operate the Utah Project according to the terms of this
Agreement. This Agreement together with the other Transaction Documents (as
defined in the Purchase Agreement) contains the entire agreement between the
Parties with respect to the subject matter of this Agreement and supersedes all
prior agreements that governed the subject matter of this Agreement. Nothing in
this Agreement or the arrangement for which it is written shall constitute or
create a joint venture, partnership, or any other similar arrangement between
Company and Operator. Neither Party is authorized to act as agent for the other
Party, except as stated in this Agreement.
ARTICLE II
DEFINITIONS
Unless otherwise required by the context in which any defined term
appears, the following defined terms shall have the meanings specified in this
Article II. The singular will include the plural and the masculine will include
the feminine and neuter, as the context requires. Capitalized terms used but not
otherwise defined herein shall have the meanings ascribed thereto in the
Purchase Agreement.
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"Agreement" means this Operation and Maintenance Agreement, as it may
be amended, restated, supplemented or modified from time to time according to
the provisions of this Agreement.
"Annual Operational Audit" has the meaning stated in Section 5.5.
"Article" means an article of this Agreement, unless specifically
stated otherwise.
"Business Day" means any day other than a Saturday, Sunday, or other
day on which banks are closed in Salt Lake City, Utah.
"Company" has the meaning stated in the Preamble.
"Company Representative" has the meaning stated in Section 5.1.
"Costs" means the following costs and expenses incurred by Operator, as
agent for the Company, or by Company after the date of this Agreement in the
start up, operation, management and maintenance of the Utah Project:
(a) the reasonable cost of purchasing or leasing all parts,
tools, and equipment, necessary or useful in the performance of the
Services;
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(b) the reasonable cost of maintaining, repairing and
replacing all parts, tools, and equipment, necessary or useful in the
performance of the Services;
(c) all reasonable costs associated with consultants,
subcontractors, auditors and other outside services reasonably
necessary for the performance of the Services and the operation of the
Utah Project;
(d) the reasonable cost of purchasing all materials,
consumables, and supplies used or consumed in the performance of the
Services;
(e) all reasonable costs of modifications, improvements or
non-routine repairs;
(f) all reasonable costs of utilities provided to the Utah
Project or used in connection with the performance of the Services;
(g) the reasonable cost of all insurance maintained by the
Company and Operator with respect to the Utah Project;
(h) the reasonable cost, including an allocable portion of
Operator's overhead, of maintaining accounting books, records and data
with respect to the Utah Project;
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(i) the reasonable wages of employees and costs of training
and benefits, if any, of the Operator directly engaged in the operation
of the Utah Project, allocated on the basis of the time such employees
performed Services hereunder as reflected in the timekeeping records of
the Operator;
(j) all ad valorem taxes imposed by any political or taxing
subdivision thereof with respect to the Utah Project or any equipment
owned or leased by Company and used in connection therewith;
(k) rents for real estate or equipment payable under the
Sublease or otherwise;
(l) Expenditures which are in replacement of equipment or
leasehold improvements originally a part of the Utah Project or
additions to the Utah project shall be included in Costs hereunder if
such expenditure is less than Ten Thousand Dollars ($10,000) for each
single item it being understood and agreed that each single item in
excess of Ten Thousand Dollars ($10,000) which is not in replacement
shall be treated as a capital item. Further, the sum of Eighty Five
Thousand Dollars ($85,000) per annum shall be set aside in a separate
fund (the "Fund") from the cash flow of the operations (or contributed
by the Company if such cash flow is inadequate) and shall, irrespective
of customary accounting treatment, be included as Costs hereunder;
provided however at no time shall the aggregate in the Fund be more
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than Three Hundred Forty Thousand Dollars ($340,000) and the annual
payments into the Fund shall not exceed the lesser of Eighty Five
Thousand Dollars ($85,000) or the amount necessary to bring the Fund
to Three Hundred orty Thousand Dollars ($340,000). The Fund shall be
utilized to pay for replacements consisting of single items in excess
of Ten Thousand Dollars ($10,000) of equipment or leasehold
improvements originally a part of the Utah Project. Any balance in the
Fund at the termination or expiration of the Agreement shall be paid to
the Company;
(m) the reasonable costs of obtaining and/or maintaining
any necessary permits, approval, or consents in connection with the
Services; and
(n) the reasonable costs incurred in connection with the
testing required under Section 3.1(i).
All Services performed by Affiliates or Related Persons of the Operator
on behalf of the Operator shall be invoiced at rates and total charges no higher
than those charged in arms length bargaining between unaffiliated parties, and
the Company reserves the right to cause the Operator to discontinue on the
demand of the Company the subcontracting of Services to Affiliates or Related
Persons of the Operator. Any items specifically agreed to by the parties shall
be presumed to be reasonable.
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It is the intention of the Parties that all costs incurred by Operator
or any of its Affiliates or Related Persons in providing services under this
Agreement are not, except as expressly set forth herein and those reasonable
expenses incurred directly for operation and maintenance of the Utah Project in
accordance with this Agreement, intended to be Costs hereunder.
"CPI" means the Consumer Price Index for Urban Wage Earners and
Clerical Workers (CPI-W) south urban size class C, not seasonally adjusted, as
published by the United States Department of Labor, Bureau of Labor Statistics
(or if such index is no longer published, an equivalent index mutually agreed to
by the Parties).
"Day" or "days" shall mean a calendar day or days.
"Disposal Fee" has the meaning described in Article VII.
"General Contractor" means Lockwood Greene or one of its subsidiaries.
"Housekeeping Standards" means normal and customary industry standards
for industrial facilities similar to the Utah Project for cleanliness, neatness
and the like.
"1986 Code" means the Internal Revenue Code of 1986, as amended.
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"Non-Recourse Persons" has the meaning stated in Article XI.
"Operating Account" has the meaning stated in Section 5.8.
"Operating Year" means each calendar year commencing on January 1, 1997
through the end of the term of this Agreement.
"Operations and Maintenance Procedures Manual" means the manual
prepared by Operator providing operations and maintenance procedures (which are
in all respects consistent with manufacturer and General Contractor operation
and maintenance procedures), a copy of which is attached hereto as Schedule B.
These procedures include information regarding:
(a) equipment operating procedures;
(b) maintenance programs;
(c) safety and OSHA programs;
(d) environmental compliance and mitigation programs;
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(e) programs for complying with reporting requirements
contained in this Agreement;
(f) license and permit operating and reporting requirements;
(g) standards applied to determine the caloric content of coal
product produced by the Utah Project satisfies the chemical conditions
of IRS Private Letter Rulings No. 9549025 and No. 9701041 dated
September 8, 1995 and October 4, 1996, respectively in order to
constitute "qualified fuels" pursuant to the terms of Section
29(c)(1)(C) of the 1986 Internal Revenue Code; and
(h) other regulatory reporting requirements.
"Operator" has the meaning stated in the Preamble.
"Operator Representative" has the meaning stated in Section 5.1.
"Parties" means the Company and the Operator.
"Party" means the Company or the Operator.
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"Quarterly Fee" has the meaning described in Article VII.
"Regulatory Fines" means any final, nonappealable environmental or
regulatory fine imposed by any Governmental Entity which (i) either (A) relates
to Operator's operation of the Utah Project or (B) arises by reason of
Operator's conduct and (ii) is levied against Company or Operator.
"Revenues" means, for any designated period, the gross revenues
received by Company for that designated period from all sales of coal briquettes
produced by the Utah Project.
"Section" means a section of this Agreement, unless specifically stated
otherwise.
"Services" means the services to be rendered by the Operator under this
Agreement.
"Supply and Purchase Contract" means the Supply and Purchase Agreement
for the Supply of Coal Fines and the Purchase of Coal Products by and among the
Company, Operator and Utah Synfuel.
"Utah Project" has the meaning stated in the Preamble.
"Utah Project Account" has the meaning stated in Section 5.7.
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ARTICLE III
SERVICES
3.1. Responsibilities of Operator. Operator shall:
(a) operate and maintain the Utah Project in a clean, safe and
efficient manner, consistent with Housekeeping Standards, the operating
and maintenance manuals for the Utah Project, all manufacturer's
warranties, the Operation and Maintenance Procedures Manual and all
applicable laws, regulations, codes, permits, licenses, and standards
and in compliance with loss prevention recommendations of the Utah
Project's property insurer;
(b) perform the Services in all material respects in an
efficient manner and in accordance with the Transaction Documents and
this Agreement;
(c) perform the Services in a manner seeking to maximize
Revenues and minimize expenditures and notify the Company at any time
that Operator reasonably anticipates that annual expenses could
reasonably be expected to have a material adverse effect on the
operating cash flows of the Utah Project;
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(d) except as otherwise specified in this Agreement, obtain
all licenses, permits and approvals required to allow Operator to do
business in the jurisdictions where the Services are to be performed;
(e) use generally accepted practices (including accepted
practices regarding the safety of personnel and equipment) and
technology with the objective of protecting workers, maximizing
Company's economic returns and preserving the useful life of the Utah
Project, while satisfying the chemical change conditions of IRS Private
Letter Rulings No. 9549025 and No. 9701041 dated September 8, 1995 and
October 4, 1996, respectively in order to constitute "qualified fuels"
pursuant to the terms of Section 29(c)(1)(C) of the 1986 Internal
Revenue Code;
(f) furnish to Company information relating to the Utah
Project requested by Company;
(g) operate the Utah Project in material compliance with its
permits and Hazardous Materials Laws and report to the Company
immediately any violations of Hazardous Materials Laws or the existence
of any conditions known to it that may lead to such violation;
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(h) minimize the occurrence of lost time events; provided,
however, that Operator shall make a diligent effort to have no down
time events; and
(i) cause monthly testing of the Briquettes by a reputable
independent third party to determine the occurrence of a chemical
change satisfying the chemical change conditions of IRS Private Letter
Rulings No. 9549025 and No. 9701041 dated September 8, 1995 and October
4, 1996, respectively in order to constitute "qualified fuels" pursuant
to the terms of Section 29(c)(1)(C) of the 1986 Internal Revenue Code.
3.2. Personnel Standards. Operator shall employ and train, as required,
all labor and professional, supervisory, and managerial personnel necessary to
perform the Services. Such personnel shall be qualified to perform the duties to
which they are assigned. All individuals employed by Operator to assist in the
performance of the Services shall, to the extent reasonably practicable, be
employees of Operator or its Affiliates. Operator may, in its discretion,
appoint subcontractors to perform Services. No appointment of subcontractors
pursuant to the immediately preceding sentence will relieve Operator of any of
its duties, liabilities or obligations under this Agreement. Operator shall
comply with all applicable federal, state and local labor and employment laws
including, without limitation, federal OSHA and similar state and local laws,
rules, ordinances and regulations, and shall exercise control over labor
relations in a reasonable manner consistent with the intent and purpose of this
Agreement. Operator will have sole authority, control, and responsibility with
respect to labor matters in connection with the performance of the Services and
shall seek to maintain good relations with employees.
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Notwithstanding the foregoing, Operator acknowledges and agrees that it does not
have the authority to enter into any contracts or collective bargaining
agreements with respect to labor matters which purport to obligate Company as
owner or successor, and Operator shall seek the advice of Company in the event
it is notified of any effort to establish collective bargaining or labor
representation at the Utah Project. The Company shall not be required to employ
any personnel to assist in performing the Services.
3.3. Compliance with Transaction Documents. Operator acknowledges
that it has reviewed the Transaction Documents and in addition to its other
obligations hereunder shall abide by all terms of the Transaction Documents
applicable to the operation and maintenance of the Utah Project while performing
the Services.
3.4. Licenses and Permits. In connection with the operation and
maintenance of the Utah Project, Operator shall:
(a) comply with all federal, state and local laws and
regulations containing or establishing compliance requirements for the
Utah Project;
(b) secure and comply with, and thereafter maintain, as
appropriate, all permits, licenses and approvals (and renewals of the
same) necessary to perform the Services,
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including those relating to water and sewer use, chemicals and waste
(including Hazardous Materials) storage and disposal, and emissions
testing and safety;
(c) initiate and maintain procedures necessary to comply with
applicable provisions of all federal, state and local laws, codes,
permits, licenses, regulations, ordinances or other requirements,
including Hazardous Materials Laws; and
(d) prepare and deliver to the applicable Governmental Entity
all reports required by the permits for the Utah Project; provided,
however, that Operator shall not be deemed in violation of Section
3.4(a) or (b) above unless an event of noncompliance is not remedied or
a plan for remediation has not been accepted by the relevant government
agency within thirty (30) days of the occurrence of such event.
3.5. Operating Records And Reports. Operator shall maintain operating
logs, records, reports (documenting the operation and maintenance of the Utah
Project), consistent with industry standards and as required to operate and
maintain the Utah Project and sufficient to comply in all material respects with
any recordkeeping requirements of Section 29 of the Code including but not
limited to results of independent third party testing evidencing the chemical
change satisfying the chemical change conditions of IRS Private Letter Rulings
No. 9549025 and No. 9701041 dated September 8, 1995 and October 4, 1996,
respectively in order to constitute "qualified fuels" pursuant to the terms of
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Section 29(c)(1)(C) of the 1986 Internal Revenue Code. Company shall have title
to the originals of such operating logs, records and reports, as provided in
Section 13.2 and shall have the right at any time to obtain the originals, or if
acceptable to Company, a photocopy of all of same.
ARTICLE IV
ITEMS TO BE FURNISHED BY COMPANY
4.1. General. Company shall furnish to Operator, at Company's
expense, the information, services, materials and other items described below in
this Article IV. All such items shall be made available at the times and in the
manner reasonably required for the expeditious and orderly performance of the
Services by Operator.
4.2. Information. Company shall provide in a timely manner any
technical, operational, and other information relating to the Utah Project
reasonably available to Company and necessary for the performance of the
Services, if any. Operator will maintain the confidentiality of all information
prepared by the Company and, with respect to information prepared by Operator
relating to the Utah Project, all financial, sales and production information,
which in each case is marked or is indicated to be confidential; provided,
however, that such agreement to maintain the confidentiality of information
shall be inoperative as to particular information if such information (i)
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becomes generally available to the public other than as a result of any
unauthorized disclosure by Operator or an Affiliate thereof or their respective
agents, advisors or representatives, (ii) was available to Operator on a
non-confidential basis prior to its disclosure to Operator by Company or its
agents, advisors or representatives, or (iii) was or becomes available to
Operator on a non-confidential basis from a source other than Company or its
agents, advisors or representatives when such source was or is entitled to make
the disclosure to Operator. The Company acknowledges that the Operator and its
affiliates may use any such information in its planning, construction and
operation of other iron and coal briquetting facilities, including but not
limited to coal, iron and coke briquetting facilities.
4.3. Utah Project. On the date of this Agreement, Company shall
transfer complete operating control of the Utah Project to Operator.
4.4. Licenses and Permits. Company shall cooperate with Operator
in securing all licenses, permits and approvals necessary for the operation of
the Utah Project.
4.5. Repairs, Maintenance and Capital Improvements. The cost of all
necessary modification or improvement of the Utah Project and all non-routine
repairs, maintenance and capital improvements for the Utah Project shall be paid
by the Company in accordance with this Agreement. Company shall cause to be
installed those items set forth in Schedule 4.5A and Operator shall cooperate
with Company in coordinating its Services to facilitate the expeditious
completion thereof. If Operator determines that non-routine repairs or capital
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improvements are necessary, Operator shall notify Company in writing of the need
for any such repairs, maintenance or the need for additions or replacement or
overhaul of capital improvements, make written recommendations and assist
Company in effectuating the required work. Operator shall cause the Company to
at all times maintain a reasonable spare parts inventory as described on
Schedule 4.5B attached hereto. The initial spare parts inventory the cost of
which shall not exceed $135,000.00 shall be paid for by the Company by
depositing of such amount in the Operating Account on which Operator shall draw
checks in payment of vendor invoices therefor.
ARTICLE V
PROCEDURES, PLANS AND REPORTING; ACCOUNTS
5.1. Representatives.
(a) Operator Representative. Operator shall appoint an
individual representative ("Operator Representative") coincident with
the execution of this Agreement, who shall be authorized to act for
Operator on all matters concerning this Agreement and the Services.
Operator shall be bound by the written communications, directions,
requests, and decisions made by the Operator Representative. Operator
shall notify Company in writing in advance of employment of the
Operator Representative, informing the Company of his identity and his
qualifications to operate the Utah Project. Until
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Company receives notice of removal of Operator Representative and
appointment of a new Operator Representative, Company may treat the
appointed Operator Representative as the authorized Operator
Representative.
(b) Company Representative. Company shall appoint an
individual representative ("Company Representative") coincident with
the execution of this Agreement, who shall be authorized to act for
Company on all matters concerning this Agreement and the Services.
Company shall be bound by the written communications, directions,
requests, and decisions made by the Company Representative. Company
shall notify Operator in writing in advance of employment of the
Company Representative, informing the Operator of his identity. Until
Operator receives notice of removal of Company Representative and
appointment of a new Company Representative, Operator may treat the
appointed Company Representative as the authorized Company
Representative.
5.2. Expenditures. Expenditures not in the ordinary course of
business and which exceed Eighty Five Thousand Dollars ($85,000.00) shall not be
incurred by Operator except after consultation with the Company.
5.3. Reports. Operator shall furnish or cause to be furnished to
Company the following reports, in form and substance reasonably acceptable to
Company, concerning the operations of the Utah Project.
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(a) Monthly and Quarterly Reports. Within fifteen (15) and
thirty (30) days after the end of each calendar month and each calendar
quarter, respectively, Operator shall submit to Company an operations
and financial report, in reasonable detail, covering operations and
maintenance conducted during such calendar month and calendar quarter,
respectively, as well as the results of the testimony provided for in
Section 3.1(i) hereof.
(b) Interim Reporting. Promptly following an executive officer
of Operator obtaining knowledge thereof, Operator will notify Company,
in writing, of:
(i) any litigation or any material claims,
disputes or actions, threatened or filed, concerning the Utah
Project or the Services;
(ii) any refusal of any Governmental Entity or
third party to grant, renew, or extend any license, permit,
approval, authorization or consent;
(iii)any significant dispute with any
Governmental Entity;
(iv) any material damage to or destruction of the
Utah Project;
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(v) death or serious injury to any employee or
other person at the Utah Project;
(vi) any material production disruptions at the
Utah Project;
(vii) any material equipment failure at the Utah
Project;
(viii) three (3) successive days of production
which is fifty percent (50%) or less than targeted levels;
(ix) any release or threatened release of any
Hazardous Materials the release or threatened release of which
would violate applicable law (including Hazardous Materials
Laws) or any permit maintained by Company or Operator in
connection with the Utah Project or subject the Company or
Operator to any Hazardous Materials Claims;
(x) knowledge of events leading to failure to
comply with Section 29 of the 1986 Code; and
(xi) any decrease in BTU content below 9600
BTU's per pound or any material diminution in product quality.
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(c) Annual financial statements of Coaltech accompanied by
the unqualified opinion of a certified public accountant.
5.4. Officers' Certificate. In connection with the delivery of the
annual and quarterly reports by Operator as provided in Sections 5.2 and 5.3,
Operator shall deliver a letter addressed to Company signed by the chief
financial officer of Operator, certifying as to whether any condition, act or
event has occurred and is continuing which constitutes a violation, breach or
default under this Agreement or any other Transaction Document, to his or her
best knowledge and belief after due inquiry.
5.5. Annual Operational Audit. At the Company's option, Company at its
expense may annually conduct an operational audit of the operations of the Utah
Project and of the Operator's performance under this Agreement (the "Annual
Operational Audit"). Generally, such audit shall review operating, accounting,
safety, and personnel matters related to the Utah Project and Operator's
compliance with, and level of performance under this Agreement.
5.6. Other Information. Operator shall promptly submit to Company any
material information concerning new or significant aspects of the operations of
the Utah Project and, upon Company's reasonable request, shall promptly submit
any other information concerning the Utah Project or the Services. Operator
shall permit representatives of the Company to have full access to the records
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relating to the Utah Project during normal business hours and after reasonable
notice. Any review of such records shall be conducted in such a manner as to
cause minimum interference with Operator's activities.
5.7. Utah Project Account. Company has established and will maintain
separate records with respect to all Revenues received by Company or Operator
with respect to the Utah Project. All Revenues received by the Company or
Operator with respect to the Utah Project will be deposited in a bank account
designated by the Company (the "Utah Project Account").
5.8. Operating Account. Company has established and will maintain a
bank account (the "Operating Account") from which the payment of Costs and the
Quarterly Fee will be made. Subject to such reasonable controls as Company and
Operator mutually agree, the Operator Representative and any other party
designated by the Operator Representative shall have the authority to sign
checks and make payments from the Operating Account, so long as such payments
are made in accordance with Section 5.9. The Operating Account shall be funded
and maintained in accordance with Section 5.9.
5.9. Monthly Draw Procedures; Operator to Act as Paying Agent; Payment
of Costs. On or before the twentieth day of each month after the execution of
this Agreement, Operator shall submit to the Company a monthly draw request to
pay (i) Costs expended and not previously reimbursed, (ii) invoiced amounts due
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and payable and (iii) budgeted and other Costs anticipated to become payable
prior to the next following monthly draw, including the payment of any Quarterly
Fee then payable to Operator. Operator shall act as the paying agent of Company.
As paying agent, Operator shall receive, examine, and approve of all invoices
for costs relating to the operation and maintenance of the Utah Project. If
Operator determines that amounts shown on these invoices are Costs and that
these amounts are then due and payable (or will become due and payable prior to
the next payment of funds by Company to Operator), Operator will submit such
invoices in the next monthly draw request and prepare checks for and make
payment of these amounts from the Operating Account.
Each draw request shall provide a reconciliation of the estimated
expenditures set forth in the previous month's draw request with actual
expenditures, and any unexpended funds shall be a credit against the current
draw request. With each monthly draw request, Operator shall certify to Company
that all Costs for which Company has previously furnished funds for payment
pursuant to this Section 5.9 have been paid to the appropriate parties or, if
any such costs are not then due, a statement to that effect.
Company shall deposit current funds into the Operating Account from the
Utah Project Account in the amount of the draw request (less any items
improperly billed or requested) on or before the first Business Day of the next
following month. Upon deposit of funds into the Operating Account from the Utah
Project Account, Operator shall forward the appropriate checks to the
appropriate parties.
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ARTICLE VI
LIMITATIONS ON AUTHORITY
6.1. General Limitations. Operator is not empowered to take the
following actions unless it has received the prior written approval of Company
or except in the ordinary and normal course of business:
(a) Disposition of Assets. The sale, lease, pledge, mortgage,
conveyance, license, exchange or other transfer or disposition of any
property or assets of Company, including any tangible personal property
acquired by Operator under this Agreement, except for cash expenditures
under Section 5.9, and the consumption of supplies or the sale of
product in the ordinary course of business.
(b) Contracting. Making, entering into, executing, amending,
waiving any rights under, modifying or supplementing any contract or
agreement on behalf of, binding upon, or in the name of Company, except
for contracts relating to Costs to be incurred or expenditures provided
for herein.
(c) Lawsuits and Settlements. The settling, compromising,
assigning, pledging, transferring, releasing, or consenting to the
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same, of any claim, suit, debt, demand or judgment against or due by,
Company or Operator on behalf of Company, or submitting any such
material claim, dispute or controversy to arbitration or judicial
process, or stipulating to a judgement, or consent to do the same,
to the extent that such action by Operator could reasonably be
expected to have a material adverse effect on the operation and
maintenance of the Utah Project. Operator agrees that Company shall
retain control of any such claim, suit, debt, or demand
and any other litigation regarding the Utah Project, except as to
Operator's individual liability.
(d) Transactions on Behalf of Company. Engaging in any other
transaction on behalf of Company other than as specifically set forth
in this Agreement.
(e) Governmental Licenses or Permits. Agreeing to waive
compliance with any governmental license or permit or agreeing to any
penalty for violation of any governmental license or permit which
waiver or penalty has or could reasonably be expected to have a
material adverse effect on the operations or maintenance of the Utah
Project.
6.2. Execution of Documents. Any agreement, contract, notice,
approval, or other document which is permitted under this Agreement to be
executed by Operator for Company shall be executed by the Operator
Representative, or by an individual or individuals appointed in writing by the
Operator Representative, which appointment shall be approved in writing by
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**** Confidential Treatment Requested
Company, not to be unreasonably withheld or delayed. No other employee,
representative or agent of Operator shall have signature authority for purposes
of binding Company pursuant to this Agreement.
ARTICLE VII
COMPENSATION AND PAYMENT
7.1. Quarterly Fees and Payments. As set forth below, as compensation
to Operator for performance of the Services, Company is required to pay Operator
a Quarterly Fee equal to **** for each calendar quarter during the term of this
Agreement (the "Quarterly Fee"). On each anniversary date, commencing with the
first anniversary of this Agreement, the amount of the Quarterly Fee shall be
adjusted proportionately with the relative change between (y) the "inflation
adjustment factor" (as set forth in Section 29(d)(2) of the 1986 Code)
calculated for the immediately preceding year and (z) the "inflation adjustment
factor" calculated for the penultimate year.
7.2. Adjustment to Quarterly Fee. The Quarterly Fee is based on the
sale of 360,000 tons of coal briquettes per year (the "Estimated Output"). To
the extent that more or less than one-quarter of Estimated Output is sold in any
calendar quarter, the Quarterly Fee payable with respect to that calendar
quarter, will be increased or decreased by the product of (a) **** (to
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**** Confidential Treatment Requested
be adjusted annually as described in Section 7.1 above) multiplied by (b) the
difference between the number of tons of coal briquettes sold in that calendar
quarter and ****.
7.3. Payment of Fees. The Company shall deposit current funds into the
Operating Account from the Utah Project Account in the amount of the Quarterly
Fee for the immediately preceding quarter on or before each January 31, April
30, July 31, and October 31. The initial payment will be prorated so that it is
payment for only the days from the date of this Agreement to the end of the
quarter in which this Agreement is executed.
ARTICLE VIII
TERM
8.1. Term. The Term of this Agreement begins on the date of execution
and delivery of this Agreement and will continue (unless terminated according to
the terms and conditions of this Agreement) until January 1, 2008 and may
thereafter be extended upon six (6) months prior written notice by Company on
the same terms and conditions for such additional periods of time during which
credits are available under Section 29 of the Code.
8.2. Termination by Company for Cause. Company may terminate this
Agreement for cause upon ninety (90) days prior written notice to Operator:
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(a) if Operator violates or allows a violation of any law,
statute, regulation, rule, ordinance, permit, license or regulatory
order of any governmental agency, applicable to the Services or the
Utah Project, which violation is continuing and has or could reasonably
be expected to have a material adverse effect on the operations or
maintenance of the Utah Project, and Operator does not cure such
violation within thirty (30) days of an executive officer of the
Operator acquiring knowledge of such violation (or, in the event such
violation is curable and the delay does not, and could not reasonably
be expected to, have a material adverse effect on the operations or
maintenance of the Utah Project, within such period of time as is
reasonably necessary to accomplish such cure, if it cannot be
reasonably accomplished in the thirty (30) day period and Operator
diligently commences and continues such cure in such period);
(b) if Operator fails to perform the Services according to the
requirements of this Agreement, and Operator does not cure such failure
within thirty (30) days from the date of receipt of a notice from
Company to Operator demanding cure (or, in the event such failure is
curable and the delay does not, and could not reasonably be expected
to, have a material adverse effect on the operations or maintenance of
the Utah Project, within such period of time as is reasonably necessary
to cure such failure, if it cannot be reasonably cured in said thirty
(30) day period and Operator diligently commences and continues such
cure in such period);
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(c) if Operator shall:
(i) become insolvent or generally fail to pay, or
admit in writing its inability or unwillingness to pay, debts
as they become due;
(ii) apply for, consent to, or acquiesce in, the
appointment of a trustee, receiver, sequestrator or other
custodian for it or any of its property, or make a general
assignment for the benefit of creditors;
(iii) in the absence of such application, consent
or acquiescence, permit or suffer to exist the appointment of
a trustee, receiver, sequestrator or other custodian for it or
a substantial portion of its property, and such trustee,
receiver, sequestrator or other custodian shall not be
discharged within sixty (60) days;
(iv) permit or suffer to exist the commencement
of any bankruptcy, reorganization, debt arrangement or other
case or proceeding under any bankruptcy or insolvency law, or
any dissolution, winding up or liquidation proceeding, in
respect of it, and, if any such case or proceeding is not-
commenced by it, such case or proceeding shall be consented to
or acquiesced in
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by it or shall result in the entry of an order for relief
or shall remain for sixty (60) days undismissed;
(v) take any corporate action authorizing, or in
furtherance of, any of the foregoing; or
(vi) permit or suffer to exist a violation,
default or breach under any agreement, document or instrument,
including the Transaction Documents, to which Operator or its
affiliates is a party, the consequences of which could
reasonably be expected to have a material adverse effect on
the operations or maintenance of the Utah Project, and
Operator does not cure such violation, default or breach
within (A) thirty (30) days of notice of such violation,
default or breach.
(d) if either the Repurchase Option Agreement or the
Abandonment Option Agreement is exercised or if the Supply and Purchase
Contract is terminated for any reason.
8.3. Termination by Operator for Cause. Operator may terminate this
Agreement for cause upon ninety (90) days prior written notice to Company:
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(a) if Company fails to perform in a timely manner any
material obligation required to be performed by Company by this
Agreement and does not cure or cause to be cured the failure within
thirty (30) days of the date of receipt of a notice from Operator to
Company demanding such cure (or, in the event such failure is curable
and the delay does not, and could not reasonably be expected to, have a
material adverse effect on the operations or maintenance of the Utah
Project, within such period of time as is reasonably necessary to
accomplish such cure, if it cannot be reasonably accomplished in the
thirty (30) day period and Company diligently commences and continues
such cure in such period); or
(b) if the Supply and Purchase Contract is terminated for any
reason.
8.4. Termination upon Agreement. This Agreement may be terminated
at any time, without cause, upon mutual written agreement of the Parties.
8.5. Utah Project Condition at End of Term. Upon expiration or
termination of this Agreement, Operator shall remove its personnel from the Utah
Project and leave the Utah Project in a broom-clean condition. Operator shall
not be responsible for normal wear and tear. All special tools, improvements,
inventory of supplies, spare parts, safety equipment, operating and maintenance
manuals, including the original copies of the records and documents of the Utah
Project pursuant to Section 13.2, and the Operations and Maintenance Procedures
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Manual and any other items for which Company paid Operator pursuant to Section
5.9 will become or remain the property of Company without additional charge.
Company will also have the right, in its sole discretion, to directly assume and
become liable for any contracts or obligations that Operator may have undertaken
with third parties in connection with the Services, and Operator, shall execute
all documents and take all other reasonable steps requested by Company which may
be required to assign to and vest in Company all rights, benefits, interests and
title in connection with such contracts or obligations.
8.6. Termination Payment. Subject to Article XI, in the event of a
termination of this Agreement by either party for cause, such terminating party
shall be entitled to recover any damages, fines or penalties it suffers or
incurs as a result of such breach or violation. The Quarterly Fee shall be
prorated to the date of Termination of this Agreement on the basis of tons of
product produced in any partial final calendar quarter in the event that this
Agreement is terminated for any reason.
8.7. Continuation and Cooperation. Operator shall cooperate fully with
Company and any new Operator appointed by Company during the transition period
from a termination notice given hereunder and the termination of this Agreement,
including training any new Operator appointed by the Company. All reasonable
out-of-pocket expenses incurred in this regard will be reimbursed to Operator
upon the final termination date. Operator shall also continue performing its
duties hereunder after the termination date and until a new Operator assumes its
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duties to operate the Utah Project; provided, however, that Operator first
receives adequate assurances of payment from the Company that its fees will be
paid through such period.
8.8. Force Majeure. "Force Majeure" as used herein shall mean a cause
reasonably beyond the control of Operator which, wholly or in substantial part,
prevents the performance of the Services. Examples (without limitation) of force
majeure are the following: acts of God; acts of the public enemy; insurrections;
riots, strikes; labor disputes; work stoppages; fires; explosions; floods;
electric power failures, breakdowns of or damage to generating or preparation
plants; interruptions to or contingencies of transportation, including (but not
limited to) force majeure as defined in the applicable tariff rail contract;
embargoes; and orders or acts of civil or military authority (including, without
limitation, a city or county ordinance, an act of a state legislature, or an act
of the United States Congress); provided, however, for the purposes of this
Agreement, force majeure shall not include, and neither party hereto shall be
excused from performance because of, the development or existence of economic
conditions which may adversely affect the anticipated profitability of such
party's activities hereunder, acts or omissions of such party which constitute
mismanagement or fraud on the part of such party, or reduced productivity of
labor employed by such party in its activity hereunder.
If, because of a Force Majeure, Operator is unable to carry out its
obligations under this Agreement, and if Operator gives the Company notice of
such force majeure, the obligations and liabilities of Operator and the
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corresponding obligations of the Company shall be suspended to the extent made
necessary by and during the continuance of such force majeure; provided,
however, that the disabling effects of such force majeure shall be eliminated as
soon as and to the extent possible (except that either party may settle any of
its own labor disputes, strikes, or terminate any of its own lockouts in its
sole discretion).
It is agreed that in the event that any valid act, law, ordinance, rule
or regulation of a municipality, county, state or the United States government,
or final judicial decision, judgment or order, is adopted or passed after
January 1, 1997, which prohibits performance of the Services, then the existence
and implementation of such act, law, ordinance, rule, regulation, decision,
judgment or order shall constitute an event of permanent force majeure whereupon
this Agreement may be terminated by the party so affected upon notice to the
other party.
Section 8.9. Damage or Destruction. In the event that any part of the
Utah Project is damaged or destroyed, outside the scope of ordinary wear and
tear, the Company shall cause such damage or destruction to be repaired or
rebuilt within a reasonable period. In the event that such damage or destruction
makes the Utah Project inoperable or reduces the production capacity of the Utah
Project to a level that Operator reasonably deems to be inefficient for further
production, then Operator shall be released from its obligations to perform the
Services and the Company shall be released from its obligation to pay the
Quarterly Fee until such time as the damage is repaired or the Utah Project is
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rebuilt. Operator shall cooperate with and assist the Company to effect the
repair or rebuilding of the Utah Project, provided that Operator is reimbursed
by the Company for its reasonable costs in providing that cooperation and
assistance.
ARTICLE IX
INSURANCE
9.1. Company Policies. Company shall obtain, maintain and keep in force
insurance of the types and in amounts customarily carried in lines of business
similar to the Utah Project with respect to the Utah Project. All policies of
insurance shall be in form and with insurers recognized as adequate by prudent
business persons.
9.2. Operator Policies. Operator shall obtain, on its own behalf,
and keep in force during the term of this Agreement, at least the following
types and amounts of insurance:
(a) Comprehensive General Liability Insurance policy including per
occurrence blanket Contractual Liability Insurance with limits
of at least $1,000,000.00
(b) Auto Liability Insurance for any autos owned, leased or hired
and used in the performance of this agreement with limits of
at least $1,000,000.00 per occurrence
(c) Worker's Compensation Insurance in compliance with Utah law
with respect to Operator's employees employed at the Utah
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Project and naming Coaltech No.l 1 L.P. and its partners as
alternate employers under Operator's Worker's Compensation
policy.
(d) Employers' Liability Insurance with limits of at least
$100,000 per occurrence. Operator shall insure that each
subcontractor also meets these minimum insurance requirements.
Operator has delivered to the Company a certificate of
insurance evidencing the existence of such insurance and, upon
request, the original or certified copy of each policy of
insurance, an evidence of payment of all premiums therefor.
The certificate of insurance shall provide that the insurance
may not be canceled without thirty (30) days prior written
notice to the Company.
9.3. Waiver of Subrogation. All insurance policies maintained by the
Parties, pursuant to Article IX, shall expressly waive any right on the part of
any insurer to assert any claims against the other Party. The Parties agree that
all policies will include such waiver clause or endorsement, and each Party
waives any claims against the other Party for perils to be insured against by
such insurance policies, including any deductible amounts.
ARTICLE X
INDEMNIFICATION
10.1. Company's Indemnity. Company shall defend, indemnify and hold
harmless Operator (including its officers, directors, employees, agents,
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contractors, and partners, and the respective officers, directors, employees,
agents, or contractors of said partners) from and against any and all liability
(including third party liabilities), claims, injuries (including death resulting
from injuries), property damage, fine, penalty or assessment by any public
agency (insofar as not prohibited by law), cost or expense (including costs of
defense, settlement and reasonable attorneys' fees), which (i) are directly or
indirectly caused solely by an act or omission (if it is required to act) of
Company, its agents, employees or contractors (other than Operator) associated
with, or arising from Company's performance or nonperformance of its obligations
under this Agreement, or (ii) are caused jointly by any such act or omission (if
it is required to act) by Company, its agents, employees or contractors (other
than Operator) and any such act or omission (if it is required to act) by any
third party or parties (other than the agents, employees or contractors (other
than Operator) of Company), but only to the extent of the fault of Company, its
agents, employees or contractors (other than Operator) relative to the fault of
the Operator or such third party or parties.
10.2. Operator's Indemnity. Operator shall defend, indemnify and hold
harmless Company (including its officers, directors, employees, agents,
contractors, and partners, and the respective officers, directors, employees,
agents, or contractors of said partners) from and against any and all
liabilities (including third party liabilities relating to the Utah Project),
claims, injuries (including death resulting from injuries), property damage,
fine, penalty or assessment by any public agency (insofar as not prohibited by
law), cost or expense (including costs of defense, settlement and reasonable
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attorneys' fees), which (i) are directly or indirectly caused solely by any act
or omission (if it is required to act) of Operator, its officers, directors,
employees, agents, contractors, or partners or the respective officers,
directors, employees, agents, or contractors of said partners associated with,
or arising from Operator's performance or nonperformance of its obligations
under, this Agreement, or (ii) are caused jointly by any such act or omission
(if it is required to act) by Operator, its officers, directors, employees,
agents, or contractors and any such act or omission by any third party or
parties (other than the officers, directors, employees, agents or contractors of
Operator), but only to the extent of the fault of Operator, its agents,
employees or contractors relative to the fault of such third party or parties.
10.3. Contribution. Where acts or omissions of the nature referred to
in Sections 10.1 and 10.2 by both Company and Operator (including their
respective officers, directors, employees, agents, contractors or partners or
the respective officers, directors, employees, agents, or contractors of said
partners) have caused any liabilities, damages, fines, penalties, costs, claims,
demands and expenses, whether or not a third party's acts or omissions also were
causal, Company and Operator shall contribute to their common liability
(including attorneys' fees and defense costs) a pro rata share based upon the
relative degree of fault of each. In such a case, the Parties shall share all
costs equally (including attorneys' fees and other costs of defense, if the
Parties choose common counsel; but if either Party selects its own counsel, that
Party shall bear its own attorneys' fees and cost of defense, subject to
reimbursement by the other Party pursuant to the last sentence of this Section)
39
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until (i) there is a final court judgment allocating fault between the Parties,
or (ii) the Parties agree to such an allocation. If neither of the circumstances
specified in clauses (i) or (ii) of the immediately preceding sentence occurs
within one (1) year of the date on which Company or Operator first incurs such
costs (or within such other period to which the Parties agree in writing), then
either Party may require submission of the issue of allocation to arbitration
pursuant to Article XII. If it is determined that one Party (the "Receiving
Party") has paid a disproportionate amount of costs, the other Party shall
reimburse the Receiving Party for the amount of costs (including costs of
defense and attorneys' fees for either common counsel or individual counsel)
paid by the Receiving Party which exceeds the Receiving Party's allocation. The
Parties shall share the cost of any arbitration and any future costs according
to the allocation.
ARTICLE XI
[Intentionally Omitted]
ARTICLE XII
DISPUTE RESOLUTION
If a controversy, claim or dispute arising out of or relating to this
Agreement or the breach of this Agreement occurs, the Parties shall meet and
exert reasonable efforts to reach an amicable settlement. Failing agreement,
Operator and Company agree to submit the matter
40
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under dispute to arbitration under the Rules and Procedures of the American
Arbitration Association by a panel of three arbitrators. A Party desiring
arbitration may select one arbitrator and shall then notify the other Party in
writing of the identity of the arbitrator. The second Party shall then, within
ten (10) days, notify the first Party of the identity of the second Party's
arbitrator. The two arbitrators shall pick the third arbitrator. All arbitrators
selected under this Article XII shall have experience in the operation of coal
production facilities. The decision of the arbitrators shall be final and
binding upon the Parties. The expenses of such arbitration, excluding attorneys'
fees, shall be equally divided among the Parties, and may be enforced in any
court having jurisdiction over the Party against which enforcement is sought.
The arbitration shall be held in Salt Lake City, Utah, or any other place as the
Parties may mutually agree upon. The arbitrators shall initiate the hearings as
promptly and expeditiously as possible after their selections (and the Parties
shall cooperate to this end) and shall conclude the hearings within thirty (30)
days of their commencement unless the arbitrators expressly find that additional
time is necessary for completion of the hearings for reasons in the best
interest of the Parties.
The award of the arbitrators shall be made no later than thirty (30)
days from the date of the closing of the hearings. Arbitration under this
Agreement shall be governed by the provisions of the Federal Arbitration Act
and, if applicable, the laws of the State of Utah relating to arbitration, as
the same are in effect at the time that such arbitration is initiated.
41
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ARTICLE XIII
TITLE, DOCUMENTS AND DATA
13.1. Materials and Equipment. Title to all materials, equipment,
supplies, consumables, spare parts and other items purchased or obtained by
Operator for which Company is obligated to pay Operator pursuant to Section 5.9
shall pass immediately to and vest in Company upon the passage of title from the
vendor or supplier thereof; provided, however, that such transfer of title shall
in no way affect Operator's obligations as set forth in the other provisions of
this Agreement.
13.2. Documents. All materials and documents prepared or developed by
Operator or its employees, representatives or contractors in connection with the
Utah Project or the performance of the Services, including all manuals, data,
designs, drawings, plans, specifications, reports, and accounts, will
automatically become the property of Company when prepared. All these materials
and documents, together with any materials and documents furnished to Operator
or to its contractors by Company, shall be delivered to Company upon expiration
or termination of this Agreement and before final payment is made to Operator;
provided that Operator may retain copies of all such materials and documents.
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ARTICLE XIV
MISCELLANEOUS PROVISIONS
14.1. Assignment. Neither party may assign its interest in this
Agreement without the prior written consent of the other party; provided,
however, Operator may assign its interest in this Agreement to an entity which
is at least eighty percent (80%) owned, directly or indirectly, by Operator;
provided that no such assignment shall release Operator from its obligations
hereunder.
14.2. Access. Company and its representatives shall have access to the
Utah Project, at all reasonable times and with reasonable notice, and any
documents, materials, records and accounts relating to the Utah Project
operations for purposes of inspection and review. During any such inspection or
review of the Utah Project, Company and its representatives shall comply with
all of Operator's safety and security procedures, and Company and its
representatives shall conduct such inspections and reviews in such a manner as
to cause minimum interference with Operator's activities. Operator shall
cooperate with Company in allowing other visitors access to the Utah Project
under conditions mutually agreeable to the parties.
14.3. Notices and Other Communications. All notices and other
communications required or authorized by this Agreement shall be given to the
parties hereto at the addresses, and in accordance with the procedures set for,
in Section 12.3 of the Purchase Agreement.
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14.4. Rights, Duties And Obligations Complete. The Parties agree that
the rights, duties, and obligations expressed in this Agreement (including its
attachments) are complete, comprehensive and exclusive with respect to the
obligations of the Parties under this Agreement.
14.5. Integration; Amendment. This Agreement, together with the other
Transaction Documents, constitutes the entire agreement of the parties relating
to the subject matter hereof. There are no promises, terms, conditions,
obligations, or warranties other than those contained herein and/or in the
Transaction Documents. The Transaction Documents supersede all prior
communications, representations, or agreements, verbal or written, among the
parties relating to the subject matter hereof. This Agreement may not be amended
except in writing signed by the parties hereto.
14.6. Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
14.7. Governing Law. This Agreement shall in all respects be governed
and construed in accordance with the laws of the State of Utah, including all
matters of construction, validity and performance.
44
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14.8. Multiple Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, and it will not be
necessary in making proof of this Agreement or the terms of this Agreement to
produce or account for more than one of these counterparts, provided that the
counterpart produced bears the signature of the party sought to be bound.
14.9. No Third Party Beneficiary Rights. Nothing in this Agreement
shall be deemed to grant any third party beneficiary or similar rights to any
person or entity not a signatory to or contemplated by this Agreement.
14.10. Representations and Warranties.
(a) Operator represents that it is a corporation organized and
validly existing in good standing under the laws of Delaware with full
power and authority to enter into this Agreement.
(b) Operator represents that the person executing and
delivering this Agreement on Operator's behalf is acting pursuant to
proper authorization and that this Agreement is the valid and binding
obligation of Operator and is enforceable in accordance with its terms.
45
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(c) Company represents that it is a limited partnership
organized and validly existing in good standing under the laws of
Delaware with full power and authority to enter into this Agreement.
(d) Company represents that the person executing and
delivering this Agreement on Company's behalf is acting pursuant to
proper authorization and that this Agreement is the valid and binding
obligation of Company and is enforceable in accordance with its terms.
46
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Executed by the duly authorized representative of the Parties on the
date and year first above written.
COVOL TECHNOLOGIES, INC.
a Delaware corporation
By:/s/ Brent M. Cook
Name: Brent M. Cook
Title: CEO/President
COALTECH NO 1 LP, a Delaware limited
partnership
By: /s/ Alan D. Ayers
Name: Alan D. Ayers
Title: C.O.O. Covol Technologies, Inc.
Its: General Partner
47
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Schedule B
Operation and
Maintenance Agreement
OPERATIONS AND MAINTENANCE
PROCEDURES MANUALS
To be delivered separately to Company
48
Exhibit 8.2(g)
Utah Project
Purchase Agreement
- --------------------------------------------------------------------------------
SUPPLY AND PURCHASE AGREEMENT
FOR THE SUPPLY OF COAL FINES
AND THE PURCHASE OF COAL PRODUCT
DATED MARCH 7, 1997
BY AND AMONG
COVOL TECHNOLOGIES, INC.
UTAH SYNFUEL #1, LTD.
AND
COALTECH NO. 1 L.P.
- --------------------------------------------------------------------------------
* This Exhibit contains confidential material which has been omitted pursuant to
a Request for Confidential Treatment and replaced by asterisks. The omitted
information has been filed separately with the Commission.
14
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TABLE OF CONTENTS
PAGE
ARTICLE I. DEFINITIONS........................................... 1
Section 1.01 Definitions................................... 1
ARTICLE II. MUTUAL OBLIGATIONS.................................... 2
Section 2.01 Purchase of Fines............................. 2
Section 2.02 Sale of Covol Coal Products................... 2
ARTICLE III. TERM OF AGREEMENT..................................... 3
Section 3.01 Term Of Agreement............................. 3
Section 3.02 Termination by Covol or Utah Synfuel for
Cause......................................... 3
Section 3.03 Termination by Plant Owner for Cause.......... 4
Section 3.04 Termination upon Agreement.................... 5
ARTICLE IV. PURCHASE OF COAL FINES................................ 6
Section 4.01 Purchase of Fines............................. 6
Section 4.02 Purchase Price................................ 6
Section 4.03 Covol's Covenants and Warranties.............. 6
Section 4.04 Plant Owner's Obligation to Operate the
Utah Project.................................. 6
Section 4.05 Order Procedure............................... 6
Section 4.06 Deliver and Acceptance........................ 7
Section 4.07 Payment Terms................................. 7
Section 4.08 Disposal Fees................................. 7
ARTICLE V. SALE OF COVOL COAL PRODUCT............................ 8
Section 5.01 Sale of Covol Coal Product.................... 8
Section 5.02 Notice to Take................................ 8
Section 5.03 Purchase Price................................ 8
Section 5.04 Governmental Impositions...................... 8
Section 5.05 Delivery; Billing and Payment................. 8
Section 5.06 Weighing...................................... 8
Section 5.07 Intentionally Omitted......................... 9
Section 5.08 Force Majeure................................. 9
ARTICLE VI. MISCELLANEOUS PROVISIONS.............................. 10
Section 6.01 Independent Contractor............................ 10
Section 6.02 Binding Effect.................................... 10
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Section 6.03 Assignments....................................... 10
Section 6.04 Accounting and Audit.............................. 10
Section 6.05 Site Visits....................................... 11
Section 6.06 Waiver............................................ 11
Section 6.07 Remedies Cumulative............................... 11
Section 6.08 Captions.......................................... 11
Section 6.09 Applicable Law.................................... 11
Section 6.10 Compliance with Laws and Regulations.............. 12
Section 6.11 Notices........................................... 12
Section 6.12 Integration; Amendment............................ 12
Section 6.13 Contract Terms Binding on Parties' Employees,
Suppliers and Sub-Contractors................ 12
ii
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CONFIDENTIAL TREATMENT REQUESTED
SUPPLY AND PURCHASE AGREEMENT
FOR THE SUPPLY OF COAL FINES
AND THE PURCHASE OF COAL PRODUCT
This Supply and Purchase Agreement (the "Agreement") is made and
entered into this 7th day of March 1997 by and among COVOL TECHNOLOGIES, INC., a
Delaware corporation ("Covol"), UTAH SYNFUEL #1, L.P., a Delaware limited
partnership ("Utah Synfuel") and COALTECH NO. 1 L.P., a Delaware limited
partnership (the "Plant Owner").
WHEREAS, Reference is made to that certain Utah Project Purchase
Agreement, dated as of March 7, 1997 (the "Purchase Agreement") by and between
Covol and Utah Synfuel, as Sellers, on the one hand, and Plant Owner, as Buyer
on the other hand. Capitalized terms used herein and not otherwise defined shall
have the meanings ascribed to such terms in the Purchase Agreement.
WHEREAS, the parties are mutually unwilling to close the transfer of
the Utah Project under the Purchase Agreement unless each of the parties hereto
executes and delivers, and agrees to be bound by the terms of this Agreement.
NOW THEREFORE, in consideration of the foregoing and the mutual
promises and undertakings in this Agreement and the other Transaction Documents,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01 Definitions. All terms defined in the Purchase Agreement,
unless the context otherwise requires, shall have the same meaning in this
Agreement. In addition, unless the context otherwise requires, the terms defined
in this Article I shall, for all purposes of this Agreement, have the meaning
herein specified.
(a) "Covol Coal Product" is a coal briquette produced utilizing the
Coal Briquetting Technology at the Utah Project.
(b) "Coal Briquetting Technology" shall have the meaning assigned to
that term in the License and Binder Purchase Agreement entered into between
Covol, Utah Synfuel and Plant Owner and entered into in connection with the
Purchase Agreement.
(c) "Fines" shall have the meaning set forth in Section 2.01.
<PAGE>
(d) "Governmental Imposition" shall mean any tax, assessment, fee or
other charge imposed on the production, sale or purchase of CCP by any
governmental body.
(e) "License and Binder Purchase Agreement" means the License and
Binder Purchase Agreement entered into between Covol, Utah Synfuel and Plant
Owner and entered into in connection with the Purchase Agreement.
(f) "Operation and Maintenance Agreement" means the Operation and
Maintenance Agreement entered into between Covol, Utah Synfuel and Plant Owner
and entered into in connection with the Purchase Agreement.
(g) "Ton" or "ton" shall mean two thousand pounds avoirdupois weight.
ARTICLE II.
MUTUAL OBLIGATIONS
Section 2.01 Purchase of Fines. Throughout the term of this Agreement,
Plant Owner shall purchase all of its requirements of coal fines (the "Fines")
for the operation of the Utah Project from Covol, and Covol shall sell to Plant
Owner on a continuous basis all the Fines required by Plant Owner for the
operation of the Utah Project, on the terms and conditions set forth herein;
provided however, that if the term of the Agreement shall be extended beyond
December 31, 2007, Covol shall only be required to utilize its best efforts to
supply Fines. During the initial term of this Agreement (ending December 31,
2007), in the event that Covol is unable from time to time to provide sufficient
Fines to satisfy Plant Owner's requirements in order to maintain desired levels
and quality of production, Plant Owner may purchase suitable Fines from other
sources and Covol shall reimburse Plant Owner for the amount the purchase price
of such other Fines exceeds the price to be charged by Covol under this
Agreement.
Section 2.02 Sale of Covol Coal Products. Throughout the term of this
Agreement, (i) Plant Owner shall use its best efforts to operate the Utah
Project at not less than targeted capacity as described in the Financial
Projections attached as Exhibit 2.02 and for the exclusive purpose of processing
Fines into Covol Coal Product and, except as otherwise expressly provided in
this Section 2.02 or in Section 5.02 below, shall sell all such Covol Coal
Product output from the Utah Project exclusively to Utah Synfuel, and (ii)
except as otherwise expressly provided in this Section 2.02 or in Section 5.02
below, Utah Synfuel shall purchase from Plant Owner all such Covol Coal Product
output from the Utah Project, on the terms and conditions set forth herein.
Notwithstanding the immediately preceding sentence, the Plant Owner shall have
the right to sell Covol Coal Product to any one or more third parties at any
time and from time to time at a price which is greater than the price which
would then be applicable for a sale of such Covol Coal Product to Utah Synfuel
hereunder, subject to Utah Synfuel's right of first refusal to purchase such
Covol Coal Products as follows:
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(a) If Plant Owner shall desire to sell any Covol Coal Product
to any third party, Plant Owner shall deliver to Utah Synfuel at least
four (4) calendar days advance written notice thereof, specifying the
price at which Plant Owner proposes to sell such Covol Coal Product to
such third party (the "Third Party Price"), which notice shall
constitute an offer by Plant Owner to sell such Covol Coal Product to
Utah Synfuel at the Third Party Price and, in all other respects, in
accordance with the terms and conditions hereof.
(b) If Utah Synfuel desires to accept an offer described in
Section 2.02(a) above, then Utah Synfuel shall deliver to Plant Owner a
written acceptance of such offer within three (3) calendar days
following Utah Synfuel's receipt of such offer.
(c) If Utah Synfuel shall not have accepted an offer described
in Section 2.02(a) above within the acceptance period described in
Section 2.02(b) above, then Plant Owner shall have the right to sell
such Covol Coal Product to such third party for the Third Party Price
specified in such offer.
ARTICLE III.
TERM OF AGREEMENT
Section 3.01 Term Of Agreement. The term of this Agreement shall
commence on the date of this Agreement and shall expire on the Expiration Date
(as defined below), unless earlier terminated or extended according to the
provisions of this Agreement. As used herein, the term "Expiration Date" shall
mean the later of (i) December 31, 2007, or (ii) the date on which, as a result
of one or more amendments to the Internal Revenue Code of 1986 (the "1986
Code"), Covol Coal Product produced at the Utah Project shall cease to
constitute "qualified fuels" with respect to which Plant Owner shall be entitled
to claim federal income tax credits pursuant to Section 29 of the 1986 Code.
Section 3.02 Termination by Covol or Utah Synfuel for Cause. The term
of this Agreement may be terminated by Covol or Utah Synfuel upon the occurrence
of any of the following events:
(a) If Plant Owner fails to perform any of its material
obligations under this Agreement, and if Plant Owner does not cure such
failure within thirty (30) days from the date of its receipt of a
written notice from Covol or Utah Synfuel clearly describing such
failure and demanding cure, then this Agreement shall terminate without
further notice upon the expiration of such thirty (30) day period.
(b) Plant Owner shall:
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(i) Become insolvent or generally unable to pay its
debts as they become due;
(ii) Apply for, consent to, or acquiesce in, the
appointment of a trustee, receiver, sequestrator or other
custodian for it or any of its property, or make a general
assignment for the benefit of its creditors;
(iii) In the absence of any such application, consent
or acquiescence, permit or suffer to exist the appointment of
a trustee, receiver, sequestrator or other custodian for it or
a substantial portion of its property, and such trustee,
receiver, sequestrator or other custodian shall not be
discharged within sixty (60) days;
(iv) Permit or suffer to exist the commencement of
any bankruptcy, reorganization, debt arrangement or other case
or proceeding under any bankruptcy or insolvency law, or any
dissolution, winding up or liquidation proceeding, in respect
of it, and, if any such case or proceeding is not commenced by
it, such case or proceeding shall be consented to or
acquiesced in by it or shall result in the entry of an order
for relief or shall remain for sixty (60) days undismissed;
(v) Take any formal action authorizing, or in
furtherance of, any of the foregoing; or
(vi) Permit or suffer to exist a violation, default
or breach by Plant Owner under any material agreement,
document or instrument, including the Transaction Documents,
to which Plant Owner or its affiliates is a party, the
consequences of which could reasonably be expected to have a
material adverse effect on Covol or Utah Synfuel and does not
cure, or commence to cure, such violation, default or breach
within (A) thirty (30) days of written notice of such
violation, default or breach or (B) within the period allowed
by the Transaction Document.
Section 3.03 Termination by Plant Owner for Cause. The term of
this Agreement may be terminated by Plant Owner upon the occurrence of any of
the following events:
(a) If either Utah Synfuel or Covol fails to perform in a
timely manner any material obligation required to be performed by it
under this Agreement, and if it does not cure such failure within
thirty (30) days of the date of its receipt of a written notice from
Plant Owner clearly describing such failure and demanding cure, then
this Agreement shall terminate without further notice upon the
expiration of such thirty (30) day period; or.
4
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(b) Either Covol or Utah Synfuel shall:
(i) Become insolvent or generally unable to pay its
debts as they become due;
(ii) Apply for, consent to, or acquiesce in, the
appointment of a trustee, receiver, sequestrator or other
custodian for it or any of its property, or make a general
assignment for the benefit of its creditors;
(iii) In the absence of any such application, consent
or acquiescence, permit or suffer to exist the appointment of
a trustee, receiver, sequestrator or other custodian for it or
a substantial portion of its property, and such trustee,
receiver, sequestrator or other custodian shall not be
discharged within sixty (60) days;
(iv) Permit or suffer to exist the commencement of
any bankruptcy, reorganization, debt arrangement or other case
or proceeding under any bankruptcy or insolvency law, or any
dissolution, winding up or liquidation proceeding, in respect
of it, and, if any such case or proceeding is not commenced by
it, such case or proceeding shall be consented to or
acquiesced in by it or shall result in the entry of an order
for relief or shall remain for sixty (60) days undismissed; or
(v) Permit or suffer to exist a violation, default or
breach by Utah Synfuel or Covol under any material agreement,
document or instrument, including the Transaction Documents,
to which Utah Synfuel or Covol or their affiliates is a party,
the consequences of which could reasonably be expected to have
a material adverse effect on Plant Owner, and Covol or Utah
Synfuel, as the case may be, does not cure, or commence to
cure, such violation, default or breach within (A) thirty (30)
days of written notice of such violation, default or breach or
(B) within the period allowed by the Transaction Document.
(vi) Take any formal action authorizing, or in
furtherance of, any of the foregoing.
Section 3.04 Termination upon Agreement. This Agreement may be
terminated at any time, without cause, upon mutual written agreement of all of
the parties hereto.
5
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ARTICLE IV.
PURCHASE OF COAL FINES
Section 4.01 Purchase of Fines. The Fines purchased by Plant Owner from
Covol pursuant to the terms of Section 2.01 above shall be purchased and sold in
accordance with the terms of this Article IV.
Section 4.02 Purchase Price. The purchase price for each Ton of Fines
purchased by Plant Owner from Covol hereunder shall be equal to the sum of (a) a
reasonable fee for the washing of the Fines determined by reference to fees
customarily paid in the coal industry for such services received from an
independent party, (b) the cost to Covol of such Fines and (c) the reasonable
costs of transportation of the Fines to the Plant.
Section 4.03 Covol's Covenants and Warranties. Covol covenants,
represents and warrants to Plant Owner as follows:
(a) Covol shall convey to Plant Owner good title to all Fines
purchased by Plant Owner from Covol hereunder, free and clear of any
and all liens, claims and encumbrances of any type whatsoever.
(b) To the extent necessary, Covol shall wash all Fines
purchased by Plant Owner hereunder. Such services shall be performed by
Covol at the Utah Project in a commercially reasonable manner.
(c) All Fines purchased by Plant Owner from Covol hereunder
shall be of such quality and nature (including without limitation
moisture content and the types and levels of ash and other impurities
therein) as to be suitable for processing at the Utah Project using the
Coal Briquetting Technology so as to produce Covol Coal Product which
satisfies the chemical change conditions of the IRS Private Letter
Rulings No. 9549025 and No. 9701041, dated September 8, 1995 and
October 4, 1996, respectively in order for the Covol Coal Product to
constitute "qualified fuel" for purposes of Section 29 of the Internal
Revenue Code of 1986.
Section 4.04 Plant Owner's Obligation to Operate the Utah Project. The
Plant Owner shall in good faith use its best efforts to keep the Utah Project in
operation and to operate the Utah Project such that it can consistently and
substantially use Fines and produce the Covol Coal Product using the Coal
Briquetting Technology and improvements on the terms and conditions set forth in
the License and Binder Purchase Agreement.
Section 4.05 Order Procedure. Plant Owner shall deliver all purchase
orders for Fines to Covol at least thirty (30) days in advance of the first day
of the month in which delivery of such Fines is required under such purchase
6
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order, and all such purchase orders received by Covol during the term of this
Agreement shall be deemed to have been accepted by Covol. (For example, Plant
Owner shall deliver a purchase order for December delivery by no later than
November 1st). Each such purchase order shall be delivered either (i) in
writing, or (ii) orally by telephone by an authorized agent of Plant Owner
(subject to the condition that it is followed by a written purchase order within
24 hours). Such purchase orders shall be sent to Covol at such address as Covol
shall direct.
Section 4.06 Deliver and Acceptance. All Fines purchased hereunder
shall be delivered F.O.B. the Utah Project at which time and upon acceptance
thereof title to the Fines shall pass to Plant Owner. Covol shall provide trucks
or otherwise arrange for transportation of the Fines to the Utah Project. Covol
shall bear the expenses of loading and tarping such trucks, and all such
shipments of Fines shall be subject to Covol guidelines for transportation.
Plant Owner shall bear the expense of unloading the trucks. The weight of Fines
in each delivery shall be determined by a comparison of the weight, on Covol's
scales, of the delivery truck immediately prior to unloading and its weight, on
Covol's scales, immediately following unloading, as reflected in customary
weighing certificates. At Plant Owner's request and expense from time to time,
Plant Owner shall have the right to inspect Covol's scales for accuracy, and any
necessary adjustments to the quantities of Fines sold hereunder shall be made to
reflect any inaccuracies in such scales which may be identified. Plant Owner
shall have a reasonable opportunity to sample Fines delivered to it hereunder to
confirm that such Fines conform to the terms and requirements hereof, and Plant
Owner shall not be deemed or required to accept any such Fines prior to the
completion of such sampling. Covol shall have no risk of loss after title to the
Fines has passed to Plant Owner.
Section 4.07 Payment Terms. Payment of the purchase price for Fines
hereunder is due on or before the fourteenth (14th) day following receipt by
Plant Owner of an invoice that conforms to the terms of this Agreement. Invoices
shall be submitted no more than weekly and may be submitted at any time at or
following delivery of the Fines to which they relate. All invoices submitted by
Covol to Plant Owner shall state the date, tonnage weight and BTU content of
each shipment of Fines covered by the invoice. Plant Owner will pay a late fee
of 1.5% per month for invoices delinquent thirty (30) days or longer. Payment
shall be sent to Covol at such address as Covol shall direct in the invoices.
Section 4.08 Disposal Fees. Throughout the term of this Agreement,
Covol shall arrange for and shall effect the prompt and efficient disposal of
all ash materials resulting from the washing of the Fines (the "Ash Materials")
in strict compliance with all applicable Hazardous Materials Laws. In
consideration of the services provided by Covol pursuant to this Section 4.08,
Plant Owner shall pay to Covol a fee (the "Disposal Fee") equal to a reasonable
amount determined by reference to fees customarily paid in the coal industry for
such services received from an independent party. Such Disposal Fee shall be
paid monthly, within thirty (30) days of receipt of an invoice from Covol.
7
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**** Confidential Treatment Requested
ARTICLE V.
SALE OF COVOL COAL PRODUCT
Section 5.01 Sale of Covol Coal Product. The Covol Coal Product sold by
Plant Owner to Utah Synfuel pursuant to the terms of Section 2.02 above shall be
sold in accordance with the terms of this Article V.
Section 5.02 Notice to Take. Plant Owner shall deliver to Utah Synfuel
no less than fourteen (14) days advance notice of each delivery of Covol Coal
Product which Plant Owner proposes to make to Utah Synfuel in accordance with
the terms hereof, designating the proposed quantity of such Covol Coal Product
and the proposed delivery date (a "Take Notice"). Utah Synfuel shall be
obligated to accept the quantity of Covol Coal Product specified in such Take
Notice on the proposed delivery date.
Section 5.03 Purchase Price. The purchase price for Covol Coal Product
sold by Plant Owner to Utah Synfuel hereunder shall be the sum of (i) the cost
to Plant Owner of the Fines used to manufacture such Covol Coal Product, (ii)
the cost to Plant Owner of the Proprietary Binder Material used pursuant to the
License and Binder Purchase Agreement to produce such Covol Coal Product, (iii)
the Disposal Fee relating to such Covol Coal Product, (iv) the Costs incurred by
Plant Owner under the Operation and Maintenance Agreement relating to such Covol
Coal Product, and (v) **** per ton of such Covol Coal Product (the "Coal Product
Price").
Section 5.04 Governmental Impositions. Subject to the terms of Section
5.03 above, the cost of any and all Government Impositions relating to Covol
Coal Product sold by Plant Owner to Utah Synfuel hereunder shall be the sole
responsibility of Plant Owner.
Section 5.05 Delivery; Billing and Payment. All deliveries of Covol
Coal Product hereunder shall be made to Utah Synfuel F.O.B. the Utah Project at
which time title to the Covol Coal Product shall pass to Utah Synfuel, and Utah
Synfuel shall make all necessary arrangements for the shipment of such Covol
Coal Product from the Utah Project. Plant Owner shall provide Utah Synfuel with
a multiple copy delivery notice that accurately describes each such shipment of
Covol Coal Product, reflecting Plant Owner's name, delivery date, weight and any
other applicable data which may be requested including BTU content. One copy of
such notice shall be retained by Plant Owner and the remaining copies shall be
delivered to Utah Synfuel. Payment of the purchase price for Covol Coal Product
sold to Utah Synfuel hereunder shall be due within fourteen (14) days of the
receipt of an invoice from such Covol Coal Product delivered to Utah Synfuel.
Any amounts not paid by Utah Synfuel when due hereunder shall bear interest from
such due date at the rate of 1.5% per month until paid.
Section 5.06 Weighing. The weight of Covol Coal Product sold by Plant
Owner to Utah Synfuel hereunder shall be determined by a comparison of the
weight, on Covol's scales, of the transporting vehicle immediately prior to
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loading and its weight, on Covol's scales, immediately following loading, as
reflected in customary weighing certificates. At Plant Owner's request and
expense from time to time, Plant Owner shall have the right to inspect Covol's
scales for accuracy, and any necessary adjustments to the quantities of Covol
Coal Product sold hereunder will be made to reflect any inaccuracies in such
scales that may be identified.
Section 5.07 Intentionally Omitted.
Section 5.08 Force Majeure. "Plant Owner's Force Majeure" as used
herein shall mean a cause reasonably beyond the control of Plant Owner which,
wholly or in substantial part, prevents the processing, loading or delivery of
Covol Coal Product. "Covol Force Majeure" or "Utah Synfuel's Force Majeure" as
used herein shall mean a cause reasonably beyond the control of Covol or Utah
Synfuel which, wholly or in substantial part, directly or indirectly prevents or
restricts the delivery of Fines by Covol or the unloading, storing or burning of
Covol Coal Product by Utah Synfuel's third-party purchasers at their facilities.
Examples (without limitation) of force majeure are the following: acts of God;
acts of the public enemy; insurrections; riots; strikes; labor disputes; work
stoppages; fires; explosions; floods; electric power failures, breakdowns of or
damage to generating or preparation plants; interruptions to or contingencies of
transportation, including (but not limited to) force majeure as defined in the
applicable tariff rail contract; embargoes; and orders or acts of civil or
military authority (including, without limitation, a city or county ordinance,
an act of a state legislature, or an act of the United States Congress);
provided, however, for the purposes of this Agreement, force majeure shall not
include, and neither party hereto shall be excused from performance because of,
the development or existence of economic conditions which may adversely affect
the anticipated profitability of such party's activities hereunder, acts or
omissions of such party which constitute mismanagement or fraud on the part of
such party, or reduced productivity of labor employed by such party in its
activity hereunder.
If, because of a Covol Force Majeure or Utah Synfuel's Force Majeure,
Covol or Utah Synfuel is unable to carry out its obligations under this
Agreement, and if Covol or Utah Synfuel gives Plant Owner notice of such force
majeure, the obligations and liabilities of Covol or Utah Synfuel and the
corresponding obligations of Plant Owner shall be suspended to the extent made
necessary by and during the continuance of such force majeure; provided,
however, that the disabling effects of such force majeure shall be eliminated as
soon as and to the extent possible (except that either party may settle any of
its own labor disputes, strikes, or terminate any of its own lockouts in its
sole discretion).
If, because of Plant Owner's Force Majeure, Plant Owner is unable to
carry out its obligations under this Agreement, and if Plant Owner gives Covol
and Utah Synfuel notice of such force majeure, the obligations and liabilities
of Plant Owner and the corresponding obligations of Covol and Utah Synfuel shall
be suspended to the extent made necessary by and during the continuance of such
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force majeure; provided, however, that the disabling effects of such force
majeure shall be eliminated as soon as and to the extent possible (except that
either party may settle any of its own labor disputes, strikes, or terminate any
of its own lockouts in its own sole discretion).
It is agreed that (i) no force majeure hereunder shall restrict the
exercise of Plant Owner's rights under that certain Abandonment Option Agreement
executed by and between Plant Owner and Covol in connection with the Purchase
Agreement, and (ii) in the event that any valid act, law, ordinance, rule or
regulation of a municipality, county, state or the United States government, or
final judicial decision, judgment or order, is adopted or passed after January
1, 1997, which either (a) directly prohibits the processing contemplated
hereunder or (b) directly or indirectly imposes significant burdens or
restrictions upon the delivery of Fines by Covol or the unloading, storage or
burning of such Covol Coal Product by Utah Synfuel or its third-party
purchasers, then the existence and implementation of such act, law, ordinance,
rule, regulation, decision, judgment or order shall constitute an event of
permanent force majeure whereupon this Agreement may be terminated by the party
so affected upon notice to the other party.
ARTICLE VI.
MISCELLANEOUS PROVISIONS
Section 6.01 Independent Contractor. This Agreement is a contract for
the (i) sale of Fines by Covol to Plant Owner, and (ii) the sale of Covol Coal
Product by Plant Owner to Utah Synfuel. The parties recognize and agree that
Plant Owner is neither an agent or employee of Covol or Utah Synfuel nor an
affiliate of Covol or Utah Synfuel, and that Plant Owner is free to perform, by
such means and in such manner as Plant Owner may choose, all work in pursuance
of commitments hereunder.
Section 6.02 Binding Effect. This Agreement shall bind and inure to the
benefit of the parties and their successors and assigns, as permitted under
Section 6.03.
Section 6.03 Assignments. No party hereto may assign its rights under
this Agreement without the prior written approval of each other party hereto,
which approval may be withheld by any party for any reason or for no reason in
its sole discretion, except that (i) Covol shall have the right to assign its
rights and obligations under this Agreement to any entity which is controlled by
Covol and of which Covol owns, directly or indirectly, at least eighty percent
(80%) of each class of its outstanding securities (a "Covol Subsidiary"),
provided that no such assignment shall release Covol from its obligations
hereunder, and (ii) Plant Owner shall have the right to assign its rights and
obligations under this Agreement to Covol in connection with any sale by Plant
Owner to Covol of substantially all of the assets of the Utah Project.
Section 6.04 Accounting and Audit. Plant Owner shall keep full and
complete books and records relating to its purchase and receipt of Fines and its
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sale and delivery of Covol Coal Product under this Agreement. Such books and
records shall be kept in accordance with generally accepted accounting
principles consistently applied, and Plant Owner shall retain such books and
records for at least seven (7) years after this Agreement is terminated or
expires. Plant Owner shall make such records available to Covol and Utah
Synfuel, their accountants, auditors or other authorized representatives, who
shall, at their own expense and after giving adequate notice, be afforded access
to and be permitted to examine such records at all reasonable times during
normal business hours. Covol (and its Affiliates) shall retain for a period of
seven (7) years and make available for inspection or copying to Plant Operator,
its accountants, auditors or other representatives, all invoices and other
documentation whereby Utah Synfuel shall resell the Covol Coal Product which
specifies the Btu content of such Covol Coal Product. It is expressly understood
and agreed that the provisions of this Section shall survive the termination or
expiration of this Agreement.
Section 6.05 Site Visits. Utah Synfuel or its designated agent shall
have the right at all reasonable times and during normal business hours, at its
sole risk and expense, to enter upon the Plant Owner's property and/or other
appropriate locations, whether such entry is announced or unannounced, for any
of the following purposes: (a) to observe and examine the method, equipment and
manner of mining, producing, storing, washing, blending, crushing, loading,
unloading, transporting, sampling, weighing, analyzing, and other handling of
Covol Coal Product to be sold and delivered under this Agreement; (b) to take
samples of Covol Coal Product for Utah Synfuel's analyses; or (c) in connection
with any accounting, audit, or examination of Plant Owner's records. Utah
Synfuel's representative shall check in with the appropriate personnel at the
entrance to Plant Owner's facility prior to entering onto Plant Owner's
property. No observation or examination by Utah Synfuel shall be deemed as a
waiver of any of Utah Synfuel's rights or relieve Plant Owner of any obligation
of this Agreement.
Section 6.06 Waiver. The failure of either party to insist on strict
performance of any provision of this Agreement, or to take advantage of any
right hereunder, shall not be construed as a waiver of such provision or right.
Time is of the essence of this Agreement.
Section 6.07 Remedies Cumulative. Except as otherwise provided herein,
remedies provided under this Agreement shall be cumulative and in addition to
other remedies provided at law or in equity. All such remedies shall survive the
termination or expiration of this Agreement.
Section 6.08 Captions. The captions to sections hereof are for
convenience only and shall not be considered in construing the intent of the
parties.
Section 6.09 Applicable 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 Utah and not just the Utah
laws regarding conflicts of laws.
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Section 6.10 Compliance with Laws and Regulations. In connection with
the performance of this Agreement, each party hereto agrees to comply in all
material respects with applicable governmental laws and regulations. Each party
hereto agrees and warrants that it or its agent will acquire and maintain, in a
timely manner, all licenses and permits required by governmental authorities to
perform its obligations under this Agreement.
Section 6.11 Notices. All notices to or demands or requests of the
parties hereto shall be given pursuant to the terms of the Purchase Agreement.
Section 6.12 Integration; Amendment. This Agreement, together with the
other Transaction Documents, constitutes the entire agreement of the parties
relating to the subject matter hereof. There are no promises, terms, conditions,
obligations, or warranties other than those contained herein and/or in the
Transaction Documents. The Transaction Documents supersede all prior
communications, representations, or agreements, verbal or written, among the
parties relating to the subject matter hereof.
Section 6.13 Contract Terms Binding on Parties' Employees, Suppliers
and SubContractors. Each party shall require each of its employees, suppliers,
and sub-contractors performing obligations under the Agreement or having access
to the Agreement in the performance of duties for such party to be bound by the
terms and conditions of the Agreement, including without limitation the terms
containing obligations and responsibilities respecting the Coal Briquetting
Technology and confidentiality of information.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers duly authorized thereunto.
UTAH SYNFUEL #1, LTD.:
By: Covol Technologies, Inc.
Its: General Partner
By: /s/ Brent M. Cook
Name: Brent M. Cook
Title: President of Covol Technologies, Inc.
Its: General Partner
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COALTECH NO. 1 L.P.:
By: Covol Technologies, Inc.
Its: General Partner
By: /s/ Alan D. Ayers
Name: Alan D. Ayers
Title: C.O.O. of Covol Technologies
COVOL TECHNOLOGIES, INC.
By: /s/ Brent M. Cook
Name: Brent M. Cook
Title: CEO/President
13
ABANDONMENT OPTION AGREEMENT
UTAH PROJECT
THIS ABANDONMENT OPTION AGREEMENT (this "Agreement"), dated as of March
7, 1997, between AJG Financial Services, Inc., a Delaware corporation and Square
D Company, a Delaware corporation (not individually but collectively, "Option
Holders"), on the one hand, and Covol Technologies, Inc., a Delaware corporation
("Covol"), on the other hand.
WHEREAS, Option Holders are the limited partners of Coaltech No. 1
L.P., a Delaware limited partnership ("Coaltech").
WHEREAS, Reference is made to that certain Utah Project Purchase
Agreement, dated March 7, 1997, (the "Purchase Agreement") by and between Covol
and Utah Synfuel, as Sellers, on the one hand, and Coaltech, as Buyer on the
other hand. Capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to such terms in the Purchase Agreement.
WHEREAS, the parties are mutually unwilling to close the transfer of
the Utah Project under the Purchase Agreement unless each of the parties hereto
executes and delivers, and agrees to be bound by the terms of this Agreement.
WHEREAS, each party hereto has received and will receive material,
direct or indirect benefits, by virtue of the execution, delivery and
performance by the other parties of the obligations under the Purchase Agreement
and the other Transaction Documents, it being acknowledged by each party hereto
that this Agreement is given in consideration of, among other things, such
benefits received and to be received by each party hereto and is not gratuitous.
NOW THEREFORE, in consideration of the foregoing and the mutual
promises and undertakings in this Agreement and the other Transaction Documents,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Grant of Put Option. Covol hereby grants to Option Holders a put
option (the "Option") to require Covol to purchase and acquire from Option
Holders, for the purchase price (the "Option Price") and on the terms and
conditions hereinafter set forth, all (but not less than all) of the limited
partnership interests ("Interests") owned by Option Holders in Coaltech at the
time of the closing of the transaction contemplated hereby ("Abandonment Option
Closing"):
2. Exercise of Put Option. The Option may only be exercised as follows:
(a) The Option may only be exercised during an Option Period
(as defined below) after the occurrence of a Put Event (as defined
below).
<PAGE>
(b) For purposes hereof, the occurrence of any of the
following shall constitute a "Put Event":
(i) All of the Option Holders shall be unable to
utilize all of the federal income tax credits under Section 29
of the 1986 Code which are contemplated to be allocated to
such limited partner pursuant to Section 4.1(a) of the
Agreement of Limited Partnership of Coaltech No. 1 L.P. dated
March 7, 1997, by and among the partners of Coaltech (the
"Partnership Agreement") and as in effect on the date hereof,
including without limitation any such credits attributable to
any period after December 31, 2007 for which, as a result of
one or more amendments to the 1986 Code, such credits are
available (the "Intended Allocation");
(ii) The economic benefits or effects (required
capital contributions, imposition of liability, allocations of
profits, losses, deductions or credits, tax characterizations
of any such items, and distributions of cash or other
property) accruing to or experienced by all of Coaltech's
limited partners shall differ, in any material respect adverse
to all of the limited partners, from the economic benefits or
effects projected for all of the limited partners (or their
predecessor in interest) as set forth on the financial
projections attached hereto as Exhibit A and/or as reasonably
contemplated based on the letter agreement dated November 13,
1996 by and between Covol and Arthur J. Gallagher & Co.; or
(iii) There shall be a permanent force majeure as set
forth in Section 8.8 of the Operation and Maintenance
Agreement or a material damage or destruction as set forth in
Section 8.9 of the Operation and Maintenance Agreement.
(c) For purposes hereof, the term "Option Period" shall mean,
with respect to any particular Put Event, the period beginning on the
first Business Day immediately succeeding the date on which Coaltech's
limited partners shall have actual knowledge of such Put Event and
ending 180 days thereafter.
(d) The Option shall be exercisable by irrevocable written
notice (the "Option Notice") given by the Option Holders to Covol at
any time during the Option Period. The closing date (the "Closing
Date") shall be a date, selected by Covol, not more than the later of
(i) either (A) six months after receipt by Covol of the Option Notice
or (B) three months after receipt by Covol of the Option Notice if the
closing of the purchase of the expansion production line has previously
occurred as contemplated under the Purchase Agreement or (ii) ten (10)
Business Days after receipt of the appraisal contemplated under
subclause (e) below.
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(e) If the Option is exercised prior to the third anniversary
of the date of this Agreement, then the Option Price shall be equal to
the fair market value of the Interests calculated on a going concern
basis, which shall be set by mutual agreement of the parties hereto;
provided, however, that, if the parties cannot agree on the Option
Price within fifteen (15) Business Days after the receipt by Covol of
the Option Notice, then the Option Price shall be determined as
follows:
(i) Subject to subclause (ii) hereof, the fair market
value of the Interests calculated on a going concern basis
shall be determined by an independent appraiser(s) experienced
in appraising similar projects in the United States, who shall
be mutually agreed to by the Option Holders and Covol;
provided, however, if they cannot agree within ten (10)
Business Days after the Option Notice, then the Option
Holders, on the one hand, and Covol, on the other hand, shall
each appoint an appraiser within the next succeeding ten (10)
Business Days and such appraisers shall jointly determine the
fair market value of the Interests calculated on a going
concern basis; provided, further, that if either the Option
Holders, on the one hand, or Covol, on the other hand, shall
fail to appoint an appraiser within such 10-Business Day
period, the determination of fair market value of the
Interests calculated on a going concern basis by the single
appraiser appointed shall be final; provided, further, that if
two appraisers shall be appointed and within twenty (20)
Business Days after the appointment of the latter of such two
appraisers, such two appraisers cannot agree upon such amount,
such two appraisers shall, within 5 Business Days after such
20-Business Day period, appoint a third appraiser and such
amount shall be determined by such three appraisers, who shall
make their separate appraisals within ten (10) Business Days
following the appointment of third appraiser, and any
determination so made shall be final; provided, further, that,
if no such third appraiser is appointed within such 5-Business
Day period, either the Option Holders, on the one hand, or
Covol, on the other hand, may apply to the Salt Lake City
Office of the American Arbitration Association to make such
appointment, and the Option Holders and Covol shall be bound
by any appointment so made;
(ii) If three appraisers shall be appointed as
contemplated under subclause (i) and the difference between
the determination which is farther from the middle
determination and the middle determination is more than 125%
of the difference between the middle determination and the
third determination, then such farther determination shall be
excluded, the remaining two determinations shall be averaged
and such average shall be final and binding upon the Option
Holders and Covol; otherwise, the average of all three
determinations shall be final and binding upon the Option
Holders and Covol;
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(iii) The expenses of the appraisal procedure shall
be borne equally by Covol and the Option Holders.
Provided, however, the Option Price under this Section 2(e) in no event
exceed 50% of the Capital Contributions made by the Option Holders to
Coaltech pursuant to Section 3.2(a) and Section 3.2(b) of this
Partnership Agreement exclusive of Capital Contributions necessary to
fund the payments under the Non-Negotiable, Non-Recourse Promissory
Note, the Earned License Fee under the License and Binder Purchase
Agreement and the payments of to Geocapital, Inc.
(f) If the Option is exercised on or after the third
anniversary of the date of this Agreement, then the Option Price shall
be Ten Dollars ($10) and the Option Holders will not be entitled to any
further payment hereunder.
(g) On the Closing Date, Covol shall pay to the Option
Holders the Option Price.
3. Delivery of Interests. Upon payment in full of the Option
Price the Option Holders shall transfer to Covol all of the Interests by
appropriate assignment.
4. Further Assurances. Each party agrees, at the request of the other
party, at any time and from time to time after the exercise of the Option, 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 perfect the transfers of rights contemplated herein or otherwise
to confirm or carry out the provisions of this Agreement.
5. Notices. All notices to or demands or requests of the parties
hereto shall be given pursuant to the terms of the Purchase Agreement.
6. Interpretation.
(a) The parties acknowledge that each party and its counsel
has materially participated in the drafting of this Agreement and the
Transaction Documents; consequently, the rule of contract
interpretation, that ambiguities, if any, in a writing be construed
against the drafter, shall not apply.
(b) The section headings in this Agreement are included for
convenience only; they do not give full notice of the terms of any
portion of this Agreement and are not relevant to the interpretation of
any provision of this Agreement.
(c) The parties intend that this Agreement shall be governed
by and construed in accordance with the laws of the State of Utah
4
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applicable to contracts made and wholly performed within Utah by
persons domiciled in Utah (without regard to choice of law rules).
(d) In the computation of any period of time provided for in
this Agreement, the day of the act or event from which the period of
time runs shall be excluded, and the last day of the period shall be
included, unless it is a Saturday, Sunday, or bank holiday under
federal or Utah law, in which case the period shall be deemed to run
until the end of the next day that is not a Saturday, Sunday, or bank
holiday under federal or Utah law.
(e) Any provision of this Agreement that is deemed invalid or
unenforceable shall be ineffective to the extent of such invalidity or
unenforceability, without rendering invalid or unenforceable the
remaining provisions of this Agreement.
7. Integration; Amendment. This Agreement constitutes the entire
agreement of the parties relating to the subject matter hereof. There are no
promises, terms, conditions, obligations, or warranties other than those
contained herein and/or in the Utah Transaction Documents expressly referred to
herein. This Agreement supersedes all prior communications, representations, or
agreements, verbal or written, among the parties relating to the subject matter
hereof. This Agreement may not be amended except in writing signed by the
parties hereto.
8. Waiver. No provision of this Agreement shall be deemed to have been
waived unless such waiver is in writing signed by the waiving party. No failure
by any party to insist upon the strict performance of any provision of this
Agreement, or to exercise any right or remedy consequent upon a breach thereof,
shall constitute a waiver of any such breach, of such provision or of any other
provision. No waiver of any provision of this Agreement shall be deemed a waiver
of any other provision of this Agreement or a waiver of such provision with
respect to any subsequent breach, unless expressly provided in writing.
9. Expenses; Attorneys' Fees.
(a) Each party shall bear its own expenses in connection
with the transactions contemplated by this Agreement.
(b) If any suit or action arising out of or related to the
this Agreement is brought by any party to any such document, the
prevailing party or parties shall be entitled to recover the costs and
fees (including without limitation reasonable attorneys' fees, the fees
and costs of experts and consultants, copying, courier and
telecommunication costs, and deposition costs and all other costs of
discovery) incurred by such party or parties in such suit or action,
including without limitation any post-trial or appellate proceeding.
5
<PAGE>
10. Binding Effect. This Agreement shall bind and inure to the benefit
of, and be enforceable by, the parties hereto and their respective successors,
heirs, and permitted assigns.
11. Third-Party Beneficiary Rights. No person not a party to this
Agreement is an intended beneficiary of this Agreement, and no person not a
party to this Agreement shall have any right to enforce any term of this
Agreement.
12. Assignment. Neither party may assign its interest in this Agreement
without the prior written consent of the other party except that: (i) Covol may
assign its interest in this Agreement to a subsidiary at least eighty percent
(80%) owned by Covol, provided such assignment will not release Covol of its
obligations hereunder, and (ii) the Option Holders (or either of them) may
assign its interest hereunder in connection with a transfer of all or part of
its respective Interests made in accordance with the Partnership Agreement.
13. Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one agreement
binding on all the parties, notwithstanding that all parties are not signatories
to the same counterpart.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
COVOL TECHNOLOGIES, INC.
By: /s/ Brent M. Cook_____________
Name: Brent M. Cook
Title: CEO/President
AJG FINANCIAL SERVICES, INC.
By: /s/ David R. Long_____________
Name: David R. Long
Title: Vice President
6
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SQUARE D COMPANY
By: /s/ William P. Brink__________
Name: William P. Brink
Title: Vice President and Chief Financial
Officer
7
FOR IMMEDIATE RELEASE
Date: March 11, 1997
OTC Bulletin Board Symbol: CVOL
Covol Investor Contact: Alan Ayers (801) 768-4481
(801) 768-4483 FAX
COVOL Technologies, Inc., announces the closing of the sale of Utah Synfuel #1
to Coaltech, a limited partnership consisting of AJG Financial Services, Inc.,
Square D Company and Covol Technologies, Inc.
Covol Technologies, Inc., -- March 11, 1997 -- (CVOL), today announced that it
has finalized the sale of the Utah Synfuel #1 synthetic coal briquetting
facility. The facility converts coal fines, which are small particles of coal
1/4" or smaller, into a solid synthetic fuel using Covol's patented technology.
The purchaser is Coaltech No. 1, L.P., a limited partnership consisting of Covol
Technologies, Inc. as general partner (holding a 1% interest), AJG Financial
Services, Inc. and Square D Company. AJG Financial Services, Inc. is a
wholly-owned subsidiary of Arthur J. Gallagher & Co., an international insurance
brokerage and risk management services company. Square D Company is the
market-leading North American supplier of electrical distribution, automation
and industrial control products for the distribution, application and control of
electrical energy. Square D is a brand of Groupe Schneider-North America.
The transaction includes the sale of the synthetic coal production facility for
$3.5 million and the granting of a license to use Covol's patented coal
briquetting technology. Payments for the technology license fee will be: $1.4
million as an "initial license fee" (paid at closing), $1.1 million as a
"production goal fee" to be paid once the facility achieves a designated
production level and quarterly payments of an "earned license fee" based on
production. If the facility operates at projected production levels, the earned
license fee should be approximately $7 million per year. In addition, Covol will
operate the plant for a designated fee per ton. Finally, the transaction
provides for the option for Coaltech to purchase a second production line to be
constructed by Covol at the same Utah location. The second 360,000 ton per year
line is expected to be placed in service before June 30, 1997.
Brent Cook, Covol's President and CEO stated, "This transaction is a high water
mark for Covol - the commercialization of Covol's patented coal technology. We
are extremely pleased to have forged strategic alliances with companies like
Gallagher and Square D, who are not only committed to using innovative
technologies but also improving the environment and extending the nation's fuel
reserves."
Covol Technologies, Inc. is a technology development company focused on
recycling yesterday's waste into tomorrow's resources.
7
<PAGE>
Forward looking statements in this release involve a number of risks and
uncertainties including, but not limited to, product demand, market acceptance,
changing economic conditions, risks in product and technology development, the
effect of the company's accounting policies and other risk factors detailed in
the company's SEC filings.
8
COVOL TECHNOLOGIES, INC.
Announces Max E. Sorenson as Vice President and new member
of its senior management team
Lehi, Utah--Covol Technologies, Inc., (CVOL), today announced that Max E.
Sorenson, former Senior Vice President of Engineering and Technology of Geneva
Steel has been hired as a Vice President and member of Covol's Senior Management
Team. Mr. Sorenson has more than 24 years of experience in technology,
operations engineering, quality control and construction in the steel industry.
His unique combination of strong management skills, technical understanding and
sense of business have enabled him to supervise the engineering and construction
of Geneva Steel's recently completed $350 million modernization effort.
Subsequently, Max was also instrumental in leading significant operational
improvement efforts as Senior Vice President of Manufacturing, Engineering and
Technology at Geneva Steel. Mr. Sorenson received his B.S. degree from the
University of Utah's College of Mines and Mineral Industries Metallurgical
Engineering program where he graduated Magna Cum Laude in 1973. After
graduating, Mr. Sorenson worked for Inland Steel in East Chicago for 16 years in
various operations, technology and R&D positions. He also completed a Master's
degree in Industrial Management from Purdue University in 1979.
"I am pleased and excited to join Covol Technologies at this point in the
Company's growth," stated Mr. Sorenson. "The market potential for new and
innovative technologies like those being developed at Covol is greatly needed in
coal mining, steel making and other raw materials intensive industries. I am
looking forward to assisting Covol in bringing these innovative technologies
together with the market needs."
Brent M. Cook, Covol's President and CEO, also stated, "We welcome Max to
Covol's management team. His vast experience in the steel industry, and most
importantly, his background in operations and technology development are all key
elements in Covol's achieving its vigorous business plan. The addition of Max to
our management team is consistent with all of the other strategic personnel
changes that Covol has made over the last few months."
Covol Technologies, Inc., is a technology development company focused on
recycling yesterday's waste into tomorrow's resources.
Forward looking statements in this release involve a number of risks and
uncertainties including, but not limited to, product demand, market acceptance,
changing economic conditions, risks in product and technology development, the
effect of the company's accounting policies and other risk factors detailed in
the company's SEC filings.
9
