Securities and Exchange Commission
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
March 3, 1998
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Date of Report (Date of earliest event reported):
COVOL TECHNOLOGIES, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 0-27803 87-0547337
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(State or Other Juris- (Commission File (IRS Employer Number)
diction of Incorpo Identification No.)
3280 North Frontage Road
Lehi, Utah, 84043
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(Address of Principal (Zip Code)
Executive Offices)
(801) 768-4481
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(Registrant's telephone number, including area code)
<PAGE>
This Current Report on Form 8-K/A amends the Current Report on Form 8-K dated
March 23, 1998.
Item 2. Acquisition or Disposition of Assets
General Description of the Disposition
On March 6, 1998, Covol Technologies, Inc. (the "Company"), and Alabama
Synfuel #1, Ltd., a Delaware limited partnership ("AS #1"), completed the sale
to Birmingham Syn Fuel, L.L.C. ("BSF"), a wholly-owned subsidiary of PacifiCorp
Financial Services, Inc. ("PacifiCorp"), of a synthetic fuel briquetting plant
in Birmingham, Alabama (the "Alabama Plant"). The Alabama Plant was constructed
by the Company and AS #1, which is a limited partnership formed by the Company
in which the Company retains an interest of approximately 74%. The sale of the
Alabama Plant was effected pursuant to that certain Alabama Project Purchase
Agreement, dated as of March 20, 1997, as amended by letter agreements dated
June 27, 1997, July 7, 1997, August 28, 1997, December 12, 1997, and February
20, 1998 (the "Alabama Purchase Agreement"), between the Company, AS #1 and BSF.
The terms of the sale included delivery of a Promissory Note executed
by BSF in favor of AS #1 in the amount of $6,500,000 (the "Note"). BSF's
obligation to repay the Note is secured by a security interest and lien on the
property comprising the Alabama Plant. The Note provides for interest at twelve
percent (12%) per annum, and quarterly payments of principal and interest,
subject to the provision that quarterly payments will not begin until the
Alabama Plant has reached prescribed production amounts, costs and sales. The
Note provides for final payment on February 20, 2003.
The sale of the Alabama Plant to PacifiCorp had no significant impact
on the Company's operations. The disposition resulted in the removal of
approximately $6,500,000 in fixed assets and the recognition of the Note as a
note receivable in the amount of $6,500,000.
There are a number of actions required to be taken by the Company and
AS #1 involving the completion of and modifications to the Alabama Plant within
specific periods provided in the Alabama Purchase Agreement. Failure to meet
such conditions will trigger penalties to the Company in the form of delay
payments, and will give rise to an option in BSF to return the parties to the
Alabama Purchase Agreement to their respective positions prior to the Closing.
Pursuant to that certain Amended and Restated License and Binder
Purchase Agreement dated December 12, 1997 (the "License Agreement"), between
BSF, the Company and AS #1, upon substantial completion of the Alabama Project a
fee of $250,000 was due to AS #1, and BSF was subsequently invoiced. In addtion,
BSF will pay quarterly royalty payments at a prescribed dollar amount per
British thermal unit ("Btu") in the briquettes produced and sold during the
calendar quarter. The prescribed dollar amount is subject to adjustment based
upon the "inflation adjustment factor" as set forth in Section 29(d)(2) of the
Internal Revenue Code of 1986, as amended (the "Code"). The amount to be paid is
subject to adjustment to the extent that BSF incurs an operating loss on the
production and sale of synthetic fuel (exclusive of the amount BSF pays as a
license fee for the use of the technology). The Company cannot predict with any
certainty the amount of ongoing fees that may be generated under the Licensing
Agreement.
<PAGE>
The Company has agreed to provide binder material to BSF for the
manufacture and production of synthetic fuel at an amount equal to the Company's
cost plus a prescribed mark-up subject to adjustment under certain
circumstances. The Company has provided to BSF warranties with respect to the
operation of a facility to produce the binder materials.
In connection with the sale of the Alabama Plant, BSF granted a call
option to the Company requiring BSF to sell all of the right, title and interest
of BSF in the Alabama Project at its then fair market value, exercisable during
the period beginning the first business day succeeding January 1, 2010 and
ending sixty (60) days thereafter.
Item 5. Other Events
Exercise of Conversion Right - PacifiCorp Financial Services, Inc.
On March 3, 1998 PacifiCorp Financial Services, Inc. ("PacifiCorp")
provided the Company notice of PacifiCorp's intent to convert the total amount
of principal outstanding under a loan made by PacifiCorp to the Company (the
"PacifiCorp Loan"), plus interest of $313,527, into shares of common stock at a
conversion price of approximately $7.00 per share. As of March 3, 1998, the
Company had borrowed $6,686,473 under the Pacificorp Loan.
On March 20, 1997, the Company and PacifiCorp entered into a
Convertible Loan and Security Agreement (the "Loan Agreement"), pursuant to
which PacifiCorp agreed to make the PacifiCorp Loan to the Company in an amount
up to $5,000,000. The proceeds of the PacifiCorp Loan were to be used by the
Company to: (i) complete construction of the Alabama Plant; (ii) finance the
purchase of coal fines for the Alabama Plant; (iii) fund the net working capital
needs of the Alabama Plant; (iv) finance the development and construction of a
wash plant for coal fines; and (v) other uses related to the Alabama Plant
approved by PacifiCorp. On December 12, 1997, the Company and PacifiCorp amended
the Loan Agreement to permit the Company to borrow up to $7,000,000. The Loan
Agreement, as amended, provides for the conversion, at the option of PacifiCorp,
of the PacifiCorp Loan into shares of the Company's common stock at a conversion
price of $7.00 per share, subject to certain adjustments.
Pursuant to PacifiCorp's exercise of its conversion right, the Company
issued 1,000,000 shares of its common stock to PacifiCorp on March 4, 1998. The
exact conversion price will be adjusted and additional shares will be issued
based on the anti-dilution provisions of the Loan Agreement, as amended. The
Company expects such additional shares to be less than 30,000 shares. PacifiCorp
has been granted certain registration rights with respect to the shares issued
and to be issued.
Director Resignation
On March 8, 1998 Vern May resigned as director. Mr. May's resignation
was tendered due to his acceptance of a call to serve a full-time mission for
the Church of Jesus Christ of Latter-day Saints. Such resignation was
subsequently accepted at a board of directors meeting held March 17, 1998, at
which the board expressed appreciation for Mr. May's service.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired.
Not applicable.
(b) Pro Forma Financial Information.
Included in narrative discussion under Item 2 in reliance upon Rule
11-02(b)(1) of Regulation S-X.
(c) Exhibits.
10.39.6 Letter Amendment dated February 20, 1998 to the Alabama
Project Purchase Agreement dated as of March 20, 1997, by and
among the Company, Alabama Synfuel #1 Ltd. ("AS #1"),
Birmingham Syn Fuel, L.L.C. ("BSF").*
10.39.7 Call Option Agreement dated February 20, 1998 between BSF and
the Company.
10.39.8 Letter Amendment dated February 20, 1998 to the Amended and
Restated License and Binder Purchase Agreement dated as of
December 12, 1997 by and among the Company, AS #1 and BSF.*
10.39.9 Non-negotiable Promissory Note dated February 20, 1998, in
favor of AS #1, executed by BSF as debtor.*
10.39.10 Security Agreement dated February 20, 1998 by and among the
Company, AS #1 and BSF.
- ----------------------------
* Exhibits 10.39.6, 10.39.8, 10.39.9, each contain confidential
information which has been omitted pursuant to a Confidential
Treatment Request and filed separately with the Securities and
Exchange Commision
<PAGE>
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 18, 1999 -------------------
By: Brent M. Cook
Title: Chief Executive Officer
and Principal Executive Officer
February 20, 1998
Alabama Synfuel #1, Ltd.
c/o Covol Technologies, Inc.
3280 North Frontage Road
Lehi, Utah 84043
Covol Technologies, Inc.
3280 North Frontage Road
Lehi, Utah 84043
Re: Letter Amendment
Gentlemen:
Reference is made to the Alabama Purchase Agreement, dated as of March
20, 1997, as amended by letter agreements dated June 27, 1997, July 7, 1997,
August 28, 1997 and December 12, 1997 (the "Project Purchase Agreement"), by and
among Alabama Synfuel #1, Ltd. and Covol Technologies, Inc., as sellers, and
Birmingham Syn Fuel, LLC, as buyer.
The parties to the Project Purchase Agreement hereby amend the Project
Purchase Agreement as follows:
a. deleting the language "Three Million Four Hundred Thousand Dollars
($4,800,000)" and replacing it with "Six Million Five Hundred Thousand Dollars
($6,500,000)" in Section 2.2.
b. adding to the end of Section 3.3 the language "provided, further, that Buyer
shall enter into a Security Agreement with Alabama Power Company to replace that
Security Agreement between Covol and Alabama Power Company dated as of January
28, 1998 ("Alabama Power Agreement") promptly after the Closing Date and execute
and cause to be filed UCC Financing Statements and take any other actions
necessary to ensure that Alabama Power Company maintains a first priority
perfected security interest in the Collateral (as defined in the Alabama Power
Agreement)."
c. deleting the language "February 27, 1998" in Section 5.3 (c) thereof and
inserting "the Closing Date" in place thereof.
d. inserting the language "except for the City of Birmingham occupancy permit"
at the end of Section 7.1 (f).
e. deleting Section 7.1 (h) in its entirety.
* 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 Securities and Exchange
Comission.
<PAGE>
f. amending and restating the title of Article VIII to read in its entirety
"CLOSING; CONDITIONS SUBSEQUENT".
g. deleting the language "February 24, 1998" in Section 8.1 thereof and
inserting "February 20, 1998" in place thereof.
h. inserting the language "except for the City of Birmingham occupancy permit"
at the end of Section 8.2 (f).
i. After Section 8.2, inserting the following language:
"8.3 Conditions Subsequent to Obligations of Buyer. At Buyer's sole
discretion and direction, the parties to this Agreement shall be returned to
their respective positions prior to the Closing Date if the following conditions
are not fulfilled within the time specified:
[(a) Opinion of Counsel. Buyer shall receive from counsel to
Sellers opinions of counsel to the Sellers, dated as of the Closing Date, in
form and substance reasonably satisfactory to Buyer and its counsel within two
weeks of the Closing Date.]
(b) Items under the Construction Contract. Sellers, at their
sole cost and expense, shall perform the actions specified on Schedule 8.3
within 30 days of the Closing Date. Sellers shall also perform, at their sole
cost and expense, any other actions necessary to bring the Alabama Project to
Substantial Completion (as defined in the Construction Contract).
(c) Other Items. Sellers, at their sole cost and expense,
shall perform the following actions within 30 days of the Closing Date:
(i) with respect to the barge loadout: install a
tailpiece for the belt, repair the hopper over the tailpiece, repair the belt
structure, replace the belting, and perform all work necessary to ensure that
the barge facility complies with OSHA; and
(ii) with respect to the scales: relocate the
scales and scalehouse to the roadway and perform the associated cut and fill
work.
In the event that the items specified in Section 8.3 are not completed
within 30 days of the Closing Date, Sellers shall pay Buyer a delay payment in
the amount of $*. If such items are not completed within 60 days of the Closing
Date, and if at such time Buyer has not yet exercised its option to return the
parties to their respective positions prior to the Closing Date, in addition to
all other rights and remedies under the Purchase Agreement Documents, Sellers
shall pay Buyer a delay payment in the amount of $*. Notwithstanding any
provisions of this paragraph, each of the delay payments provided for in this
paragraph shall not apply until 45 and 75 days of the Closing Date,
respectively, to the installation of the nitric acid tank or the installation of
the water tank and associated fire system.
* 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 Securities and Exchange
Comission.
<PAGE>
j. deleting the number "4,800,000" above the first paragraph of Exhibit A-1
thereto and inserting "6,500,000" in place thereof;
k. deleting the number "*" in the third paragraph of Exhibit A-1 thereto and
inserting "*" in place thereof.
l. deleting the language "Four Million Eight Hundred Thousand Dollars
($4,800,000)" in the first paragraph of Exhibit A-1 thereto and inserting "Six
Million Five Hundred Thousand Dollars ($6,500,000)" in place thereof.
m. deleting the number "4,800,000" in the first paragraph of Exhibit A-2 thereto
and inserting "6,500,000" in place thereof.
n. replacing Schedules 2.1 and 4.1(c) thereto and replacing them with the
Schedules 2.1 and 4.1(c) attached hereto in place thereof.
This letter agreement may be executed in one or more counterparts, all
of which shall be considered one and the same letter agreement.
Very truly yours,
BIRMINGHAM SYN FUEL, LLC
By: /s/ Reynold Roeder
Name: Reynold Roeder
Title: Vice President
ACCEPTED AND AGREED TO
AS OF THE DATE FIRST SET
FORTH ABOVE:
ALABAMA SYNFUEL #1, LTD.
By: /s/ Brent M. Cook
Name: Brent M. Cook
Title: President
COVOL TECHNOLOGIES, INC.
By: /s/ Brent M. Cook
Name: Brent M. Cook
Title: President
* 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 Securities and Exchange
Comission.
<PAGE>
EXHIBIT 8.3
Feed Hopper (C-1 Conveyor)
Adjust Height of feed hopper to proper height for loader feeding.
Install chute at the dumping point onto C-2 conveyor Install wiper on
the C-1 feed belt.
C-2 Conveyor
Install belt on the motor and speed reducer. Complete ends of the
catwalk.
Install dust collector.
Install chute at the dumping point.
Install wiper.
Install pull cord.
C-3 Conveyor
Install chute at discharge into Even Flow Feeder
Install wiper
Move all grease fittings on belt idlers to the catwalk side
Complete catwalk
Install magnet
Even Flow Feeder and Screw Conveyor
Install handrails around top of bin
Install handrails around base of screw conveyor on two sides.
Install chute where screw conveyor discharges onto C-4 conveyor.
C-4 Conveyor
Move impact idlers to where screw conveyor discharges onto C-4. Install
chute at the discharge into int pug mixer.
Install belt on motor and speed reducer.
Install wiper.
Move all grease fittings on belt idlers to the catwalk side.
Install moisture sensor.
Replace or repair hub on discharge roller.
Wire metal detector.
Complete scales.
Complete handrails at the discharge.
* 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 Securities and Exchange
Comission.
<PAGE>
Pug Sealer and Extruder
Install two additional locking handles on the lid.
Relocate vacuum gauge so that it does not interfere with the locking
handles.
Install extra filter and plumbing on vacuum line so one filter can be
serviced while equipment is operating.
Install backstop at floor level in front of extruder.
Install drive belts for extruder.
Install 1 1/2" vacuum relief valve.
C-5 Conveyor
Install proper number of bolts on bottom rollers and roller frame.
Align bearing on drive roller.
Install legs of correct size on drive end of conveyor system.
Bolt legs to the floor
Install wiper
Relocate grease fittings on idlers to offside of extruder.
Install snub rollers on each end of the conveyor.
C-6 Conveyor
Bolt down the top idlers.
Install wiper.
Repair belt to run as designed.
C-7 Conveyor
Install proper number of bolts on bottom rollers and the roller frame.
Relocate grease fittings on idlers offside from conduit.
Install wiper.
Relocate pull cord switches toward to tail roller so they can be
reached form the floor.
Oscillitating Conveyor
Weld positive stops on base.
Dryers and Controls
Complete grounding wiring on underside of dryer.
Complete topside piping, wiring, control valves, and regulators.
Complete wiring on control panel.
Install fines collection apparatus underneath the feed end of the
dryer.
C-8A Conveyor
Install grease fittings on three top idlers under dryer discharge.
Install wiper.
Install dust collection system.
* 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 Securities and Exchange
Comission.
<PAGE>
C-8 Conveyor
Affix bottom idler to brackets.
Install three bottom idlers at take up area.
Install bolts on top idlers. Tighten nuts where legs are bolted to
concrete.
Install wiper.
Install pull cords and pull cord switches.
Install belt cover.
C-9 Conveyor (Radial Stacker)
Install top idler in front of skirts.
Weld bottom stip in catwalk.
Install pull cord switch.
Tighten bolts on top idlers.
Install wiper
Install cover
Install rut-resistant surface on area where tacker drive wheels roll.
C-10 Conveyor
Complete installation on C-10 Conveyor.
MCC and Binder Plant Complete wiring.
Install wiring to instruments.
Install wiring on main PLC.
Install wiring on transfer pump.
Install and wire air conditioners.
Install wiring on air compressor.
Complete air system.
Nitric Acid Tank (Stainless)
Deliver Nitric Acid Tank.
Holding Tank for Wash Down
Repair or replace tank if it has a leak.
Water
Install three inch water line from Highway 269 to the plant for process
water.
Install tank and associated fire water system.
Office and Bath Facilities
Install bath facilities.
* 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 Securities and Exchange
Comission.
THIS CALL OPTION AGREEMENT (this "Agreement"), dated as of
February 20 1998, between Birmingham Syn Fuel, L.L.C., an Oregon limited
liability company ("Birmingham"), on the one hand, and Covol Technologies, Inc.,
a Delaware corporation ("Covol"), on the other hand.
WHEREAS, Reference is made to that certain Alabama Project
Purchase Agreement, dated as of March 20, 1997 as amended by letter agreements
dated June 27, 1997, July 7, 1997, August 28, 1997, December 12, 1997 and
February 20, 1998 (the "Purchase Agreement") by and between Covol and Alabama
Synfuel #1 Ltd., a Delaware limited partnership ("Alabama Synfuel"), as Sellers,
on the one hand, and Birmingham, 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 Alabama 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 Call Option. Birmingham hereby grants to Covol a call
option to require Birmingham to sell all of the right, title and interest of
Birmingham in the Alabama Project and in all the Transaction Documents
(excluding (i) any Shares (as such term is defined in the Loan Agreement)
received pursuant to the exercise of conversion rights under the Loan Agreement,
and (ii) all rights under the Registration Rights Agreement (as such term is
defined in the Loan Agreement; such non-excluded interests collectively referred
to as the "Interest") on the following terms and conditions:
(a) The call option granted hereby (the "Option") may only be
exercised during the Option Period (as defined below); provided, however, that
the Option may not be exercised at any time there has occurred and is continuing
any Default or Event of Default with respect to the payment of money by Covol or
any Affiliate of Covol (including, without limitation, Alabama Synfuel #1, Ltd.,
a Delaware limited partnership) to any of the PFS Parties under any of the
Transaction Documents (unless such Default or Event of Default has been waived
<PAGE>
by the PFS Parties; it being acknowledged by the parties hereto that any such
waiver shall be in the sole discretion of the PFS Parties).
(b) For purposes hereof, the period beginning the first
Business Day immediately succeeding January 1, 2010 and ending sixty (60) days
thereafter shall be the "Option Period".
(c) The Option shall be exercisable by irrevocable written
notice (the "Option Notice") given to Birmingham by Covol at any time during the
Option Period. The Option Price (defined below) shall be payable in immediately
available U.S. funds on the closing date, which shall be a date, selected by
Covol, not more than the later of (i) sixty (60) days after the receipt by
Birmingham of the Option Notice or (ii) ten (10) Business Days after receipt of
the appraisal contemplated under subclause (d) below.
(d) The "Option Price" for the Interest shall be equal to the
fair market value of the Interest, which shall be set by mutual agreement of the
parties hereto; provided, however, that in the event that at the time of the
exercise of the option hereunder there is an outstanding Event of Default under
any of the Transaction Documents, the occurrence of which adversely effects the
fair market value of the Interest, the fair market value of the Interest shall
be determined as if such Event of Default had not occur; provided, further,
that, if the parties cannot agree on the Option Price within fifteen (15)
Business Days after the receipt by Birmingham of the Option Notice, the Option
Price shall be determined as follows:
(i) Subject to subclause (ii) hereof, the fair market value
shall be determined by an independent appraiser(s) experienced in
appraising similar projects in the Southeastern United States, who
shall be mutually agreed to by Birmingham and Covol; provided, however,
if they cannot agree within ten (10) Business Days after the Option
Notice, then Birmingham, 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 Interest; provided, further, that if either
Birmingham, 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 Interest 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 Birmingham, on the one hand, or Covol, on the other hand, may
<PAGE>
apply to the Salt Lake City Office of the American Arbitration
Association to make such appointment, and Birmingham and Covol shall be
bound by any appointment so made;
(B) If three appraisers shall be appointed as contemplated under
subclause (A) 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 Birmingham and Covol; otherwise, the average of all
three determinations shall be final and binding upon Birmingham and Covol;
(C) The expenses of the appraisal procedure shall be borne by
Covol.
2. Releases. Upon payment of the Option Price, each of the parties
hereto(and any Affiliate of any such parties) shall be automatically released
from any further obligations under the Transaction Documents (except for the
obligations under this Agreement and obligations and liabilities arising out of
an outstanding Event of Default under any of the Transaction Documents arising
prior to the exercise by Covol of the option hereunder).
3. Delivery of Interests; AS-IS. Upon payment in full of the Option Price,
Birmingham shall transfer to Covol all of its Interest. Birmingham shall only be
required to represent that it is transferring its entire Interest, that it has
made no prior transfers with respect to its Interest and that it has not
encumbered its Interest with any Liens. EXCEPT AS EXPRESSLY SET FORTH IN THE
IMMEDIATELY PRECEDING SENTENCE, THE TRANSFER OF THE INTEREST SHALL BE MADE "AS
IS," AND NEITHER BIRMINGHAM NOR ANY AFFILIATE THEREOF SHALL BE DEEMED TO HAVE
MADE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, NOW OR HEREAFTER AS TO
ANY OTHER MATTER RELATING TO THE INTERESTS, INCLUDING, WITHOUT LIMITATION, (A)
AS TO THE VALUE OF THE INTERESTS, OR THE VALUE, CONDITION, DESIGN, OPERATION,
MERCHANTABILITY, QUALITY OF MATERIAL OR WORKMANSHIP, FITNESS FOR USE OR FOR A
PARTICULAR PURPOSE, MAINTENANCE, OR MARKETABILITY OF THE ALABAMA PROJECT, (B) AS
TO THE CREDITWORTHINESS OF ANY OBLIGOR UNDER ANY DOCUMENT, OR (C) AS TO THE
ENFORCEABILITY OF ANY TRANSACTION DOCUMENT.
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.
<PAGE>
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) Ambiguities. The parties acknowledge that each party and its
counsel has materially participated in the drafting of this Agreement and the
other Transaction Documents; consequently, the rule of contract interpretation,
that ambiguities, if any, in a writing be construed against the drafter, shall
not apply.
(b) Headings. 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) Governing Law. The parties intend that this Agreement shall be
governed by and construed in accordance with the laws of the State of Utah
applicable to contracts made and wholly performed within Utah by persons
domiciled in Utah (without regard to choice of law rules).
(d) Calculation of Time Periods. 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) Severability. 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. Furthermore, in lieu of each such invalid or
unenforceable provision, there shall be added automatically as a part of this
Agreement a provision as similar in terms to such invalid or unenforceable
provision as may be possible and be valid and enforceable.
7. 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.
<PAGE>
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; Sales Taxes; Attorneys' Fees.
(a) Expenses. Covol shall pay to Birmingham on demand all
reasonable out-of-pocket costs and expenses incurred by Birmingham (including
the fees and charges of counsel) in connection with the preparation, execution
and delivery of any documentation required to effect the provisions of this
Agreement.
(b) Sales Taxes. Covol shall be responsible for and shall
indemnify, reimburse, and hold Birmingham harmless against all sales, use,
transfer or similar taxes which may be imposed by any Federal, State or local
authority in connection with the exercise of the Option and the transfer of the
Interests hereunder.
(c) Attorneys' Fees. 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.
10. Late Payments. Any amount payable by any party hereunder not paid
when due shall bear interest at the lesser of the maximum rate permitted by
applicable law or the "Default Interest Rate" (as such term is defined in the
Loan Agreement) payable on demand, from the date when due until paid in full.
11. Binding Effect; Termination. 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. In the event that the Option Period
has elapsed and the Option has not been exercised, then this Agreement shall
terminate and be of no further force and effect.
12. 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.
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.
<PAGE>
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:President
BIRMINGHAM SYN FUEL, L.L.C.
By: /s/ Reynold Roeder
---------------------
Name: Reynold Roeder
Title:Vice President
February 20, 1997
Alabama Synfuel #1, Ltd.
c/o Covol Technologies, Inc.
3280 North Frontage Road
Lehi, Utah 84043
Covol Technologies, Inc.
3280 North Frontage Road
Lehi, Utah 84043
Re: Letter Amendment
Gentlemen:
Reference is made to the Amended and Restated License and Binder
Purchase Agreement, dated as of December 12, 1997 (the "License and Binder
Agreement"), by and among Alabama Synfuel #1, Ltd., as licensor, Covol
Technologies, Inc., as vendor, and Birmingham Syn Fuel, LLC, as licensee.
The parties to the License and Binder Agreement hereby amend the
License and Binder Agreement as follows:
1. Deleting the language "after consummation of the transactions under the
Purchase Agreement upon "Substantial Completion" of the Alabama Project
as defined in the Construction Contract" in Section 3.1 and replacing
such language with "after Licensee has sold an aggregate of * tons of
coal briquettes/extrusions."
2. Deleting the number "*" in all places it appears in Section 3.2 and
replacing all such references with "*."
This letter agreement may be executed in one or more counterparts, all
of which shall be considered one and the same letter agreement.
Very truly yours,
BIRMINGHAM SYN FUEL, LLC
By: /s/ Reynold Roeder
---------------------
Name: Reynold Roeder
Title: Vice President
* 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 Securities and Exchange
Comission.
<PAGE>
ACCEPTED AND AGREED TO
AS OF THE DATE FIRST SET
FORTH ABOVE:
ALABAMA SYNFUEL #1, LTD.
By: /s/ Brent M. Cook
-------------------------------------
Name: Brent M. Cook
Title: President if Its General Partner
COVOL TECHNOLOGIES, INC.
By: /s/ Brent M. Cook
------------------------
Name: Brent M. Cook
Title: President
* 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 Securities and Exchange
Comission.
NON-NEGOTIABLE PROMISSORY NOTE
U.S. $6,500,000 Dated as of February 20, 1998
FOR VALUE RECEIVED, the undersigned, Birmingham Syn Fuel,
L.L.C., an Oregon limited liability company ("Debtor"), promises to pay to the
order of Alabama Synfuel #1 Ltd., a Delaware limited partnership ("Lender"), the
principal amount of Six Million Five Hundred Thousand Dollars ($6,500,000),
together with interest thereon at the Interest Rate (as hereinafter defined)
(collectively, the "Obligation") from the date hereof until paid in full, all in
accordance with the terms of this Note.
For purposes of this Note, capitalized terms used but not
otherwise defined herein shall have the meanings ascribed thereto in the Alabama
Project Purchase Agreement dated as of March 20, 1997, by and among Debtor,
Lender and Covol Technologies, Inc., as the same may be amended, supplemented or
otherwise modified from time to time ("Purchase Agreement").
Debtor shall pay interest on the aggregate principal balance
of this Note from the date hereof until the repayment in full thereof at twelve
percent (12%) per annum ("Interest Rate"). Interest shall be calculated based on
a 365-day year calculated for the actual number of days elapsed, and shall be
compounded monthly. Interest on the aggregate principal balance of this Note
shall be due and payable quarterly in arrears on each March 31, June 30,
September 30 and December 31 until final payment; provided, however, that prior
to the commencement of principal payments pursuant to the immediately succeeding
sentence, the Debtor shall have no obligation to make interest payments on the
aggregate principal balance of this Note; provided, further, that all interest
payments on the aggregate principal balance of this Note that accrue prior to
the commencement of principal payments pursuant to the immediately succeeding
sentence shall be deemed principal and included in the calculation of the
aggregate principal balance of this Note. The aggregate principal balance of
this Note shall be repaid in equal consecutive quarterly installments of
principal, commencing on and calculated as of, the first March 31, June 30,
September 30 or December 31 after certification by the Lender to Debtor
(together with such other evidence as Debtor requests) to the effect that the
Alabama Project has achieved a production level of * (*) tons per month of
first-quality commercial coal extrusions or briquettes at an average cost of
less than $* per ton, and has maintained that production/cost level for thirty
(30) consecutive days. Notwithstanding anything herein to the contrary, the
obligation of Debtor to make payments of principal and interest with respect to
this Note in any quarter shall be limited to an amount equal to the lesser of
(i) the net operating cash flow of the Debtor (which amount shall include the
funding of replacement and operating reserves for the Alabama Project), or (ii)
* 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 Securities and Exchange
Comission.
<PAGE>
2
the product of (A) $*, as adjusted pursuant to the immediately succeeding
proviso, multiplied by (B) the MM Btu of the briquettes sold by the Debtor
during the immediately preceding quarter; provided, however, that on each
February 20, commencing on February 20, 1999, the amount set forth in clause (A)
shall be adjusted by an amount equal to * (*) of the relative change between (y)
the "inflation adjustment factor" (as set forth in Section 29(d)(2) of the Code)
calculated for the immediately preceding year and (z) the "inflation adjustment
factor" calculated for the penultimate year; provided, further, that the amount
of all principal and interest due and payable but for the application of this
sentence shall be included in the calculation of the aggregate principal balance
of this Note; provided, further, that all accrued and unpaid Obligations
outstanding under this Note shall be due and payable on February 20, 2003.
In addition to any rights of the Debtor under the Transaction
Documents and applicable law, any amounts owing to Debtor from either the Lender
or Covol under any of the Transaction Documents may be offset and applied toward
the payment of the Obligations owing to the Lender, whether or not the
Obligations, or any part thereof, shall be due and payable.
Subject to the immediately preceding paragraph, and upon
thirty days written notice by Lender of (i) a failure by the Debtor to make
payments required pursuant to the terms hereof, or (ii) an absolute and
irrevocable abandonment of the Alabama Project, the Lender may declare this Note
immediately due and payable without further presentment, demand, protest or
notice of any kind, and thereafter interest shall continue to accrue at the
Interest Rate.
In no contingency or event whatsoever shall the rate or amount
of interest paid by the Debtor under this Note exceed the maximum amount
permissible under the law which a court of competent jurisdiction shall, in a
final determination, deem applicable hereto. In the event that such court
determines that Lender has received interest under this Note in excess of the
maximum amount permitted by such law (i) Lender shall apply such excess to any
unpaid principal owed by Debtor to Lender or, if the amount of such excess
exceeds the unpaid balance of such principal, Lender shall promptly refund such
excess interest to Debtor and (ii) the provisions of this Note shall be deemed
amended to provide for such permissible rate. All sums paid, or agreed to be
paid, by Debtor which are, or hereafter may be construed to be, compensation for
the use, forbearance or detention of money shall, to the extent permitted by
applicable law, be amortized, spread and allocated throughout the full term of
such indebtedness until the indebtedness is paid in full.
Both principal and interest are payable in United States
Dollars in immediately available funds.
This Note is subject to voluntary prepayment in whole or in
part at the election of the Debtor.
* 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 Securities and Exchange
Comission.
<PAGE>
3
The payment of this Note is secured by a security interest in
the Alabama Project, as more fully described in the Security Agreement, dated as
of the date hereof, by and between Debtor and Lender, and a Collateral
Assignment of Sublease, dated as of the date hereof, delivered by Debtor for the
benefit of the Lender.
This Note is not assignable without the prior written consent
of the Debtor, and Debtor shall be entitled to deal solely with the Lender with
respect to the subject matter of this Note.
Debtor hereby waives presentment for payment, demand, notice
of dishonor and protest of this Note and further agrees that this Note shall be
deemed to have been made under and shall be governed by the laws of the State of
Utah in all respects, including matters of construction, validity and
performance, and that none of its terms or provisions may be waived, altered,
modified or amended except as Lender may consent thereto in writing duly signed
by Lender or its authorized agent. No failure to exercise, and no delay in
exercising, any rights hereunder on the part of the holder hereof shall operate
as a waiver of such rights.
This Note shall be binding upon and inure to the benefit of
the Lender and its respective heirs, executors, administrators, personal
representatives and permitted successors and assigns.
WAIVER OF JURY TRIAL: THE UNDERSIGNED HEREBY IRREVOCABLY
WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THE OBLIGATIONS, THE TRANSACTION DOCUMENTS, THE DEBTOR-CREDITOR RELATIONSHIP OF
DEBTOR AND LENDER OR THE ACTIONS OF LENDER IN THE NEGOTIATION, ADMINISTRATION,
PERFORMANCE OR ENFORCEMENT THEREOF.
IN WITNESS WHEREOF, Debtor has caused this Note to be executed as of
the date and year first above written.
BIRMINGHAM SYN FUEL, L.L.C.
By: /s/ Reynold Roeder
-----------------------
Name: Reynold Roeder
Title: Vice President
* 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 Securities and Exchange
Comission.
SECURITY AGREEMENT
This Security Agreement (the "Agreement") dated as of February
20, 1998, is entered into by and between COVOL TECHNOLOGIES, INC., a Delaware
corporation ("Covol"), Alabama Synfuel #1 Ltd., a Delaware limited partnership
("Alabama Synfuel") (Covol and Alabama Synfuel are collectively referred to
herein as "Sellers" and "Secured Party"), and Birmingham Syn Fuel, LLC, an
Oregon limited liability company (the "Buyer" and "Debtor"), pursuant to that
certain Alabama Project Purchase Agreement dated as of March 20, 1997 by and
between the Secured Party and the Debtor (the "Purchase Agreement"). All
capitalized terms used in this Agreement and not otherwise defined herein shall
have the meanings set forth in the Purchase Agreement for all purposes of this
Agreement.
WITNESSETH
WHEREAS pursuant to Section 2.2 of the Purchase Agreement the
Buyer is required to deliver a promissory note (the "Promissory Note"), in an
aggregate principal amount of six million five hundred thousand dollars
($6,500,000) to the Sellers representing the purchase price for the Purchased
Assets; and
WHEREAS in order to secure the obligations of Buyer under the
Purchase Agreement Documents, this Agreement and the Promissory Note, the Buyer,
as Debtor, has agreed to grant a continuing first priority security interest in
the Collateral (as defined herein) to the Sellers, as Secured Party; and
WHEREAS, the execution, delivery and filing of this Agreement
is a condition precedent to the Sellers' obligation to consummate the
transactions contemplated by the Purchase Agreement.
NOW, THEREFORE, to induce the Secured Party to enter into the
Purchase Agreement, and to consummate the transactions contemplated thereby, the
Debtor hereby agrees as follows:
Section 1. Certain Defined Terms. As used in this Agreement,
the following terms shall have the following meanings (which meanings shall be
equally applicable to both the singular and plural forms of the terms defined);
"Account" shall have the meaning given to that term in the
Code.
"Account Debtor" means any Person who is obligated on an
Account.
<PAGE>
"Business Day" means any day other than a Saturday, a Sunday,
a public or bank holiday under the laws of the State of Utah.
"Cash and Cash Equivalents" means the aggregate amount of (i)
cash on hand, (ii) Dollar demand deposits maintained in the United States with
any federally insured or state chartered financial institution, (iii) Dollar
time deposits maintained in the United States with, or certificates of deposit
issued by, any federally insured or state chartered financial institution, (iv)
direct obligation of, or unconditionally guaranteed by, the United States and
having a maturity of one year or less, and (v) readily marketable commercial
paper having a maturity of one year or less, issued by any corporation organized
and existing under the laws of the United States or any state thereof or the
District of Columbia.
"Code" means the Uniform Commercial Code as enacted in the
State of Utah.
"Collateral" means (a) all personal property assets of Debtor
used or useful in connection with the Alabama Project, whether now existing or
hereafter acquired or arising, and wherever located, tangible or intangible,
including:
(i) All Equipment used or usefu in
connection with the Alabama Project;
(ii) All Computer Hardware and Software
used or useful in connection with the Alabama Project;
(iii) All Accounts, contract rights, notes
receivable, chattel paper, instruments, Intangibles, Cash and
Cash Equivalents, stock and other equity securities, tax
refunds and tax refund claims, trademarks, service marks,
trade styles, trade names, licenses, franchises, copyrights,
patents and other intellectual property of Debtor used or
useful in connection with the Alabama Project, all depository
accounts or deposits by Debtor in connection with the Alabama
Project with any Person, documents, documents of title, and
other property rights of any kind used or useful in connection
with the Alabama Project, whether now or hereafter existing,
wherever located, together with all rights now or hereafter
existing in and to all security agreements, leases of personal
property, leases of real property, and other contracts
securing or otherwise relating to any such Accounts, contract
rights, notes receivable, chattel paper, instruments,
Intangibles, Cash and Cash Equivalents, stock and other equity
securities, tax refunds and tax refund claims, trademarks,
service marks, trade styles, trade names, licenses,
franchises, copyrights, patents and other intellectual
property of Debtor used or useful in connection with the
Alabama Project;
2
<PAGE>
(iv) All Proceeds and products of any and
all of the foregoing property and, to the extent not otherwise
included, all payments under insurance (whether or not secured
party is the loss payee thereof), and all claims, indemnities,
warranties or guarantees, payable by reason of loss or damage
to or otherwise with respect to any of the foregoing property,
and all property of any type described above that is acquired
with any cash proceeds of any of the foregoing property;
(v) All fixtures and other appurtenances
to the Alabama Project and the real property owned by the
Debtor.
(b) all leasehold interests of Debtor in the real property covered by
the Lease and all other real property assets (as described in Schedule 2 hereto)
of Debtor used or useful in connection with the Alabama Project, and all rents,
income, issues and profits thereof.
"Collateral Assignment of Lease" means the Collateral
Assignment of Lease, dated as of February 20, 1998, between Debtor, as assignor,
and Secured Party, as assignee.
"Computer Hardware and Software" means all of Debtor's right,
title and interest, now owned or hereafter acquired, in computer equipment and
hardware including all central processing units, terminals, disk drives, tape
drives, electronic memory units, printers, keyboards, screens, peripherals (and
other input/output devices), modems and other communication controllers, and any
and all model conversions, accessions, parts and appurtenances thereto,
substitutions therefor and replacements thereof, all intellectual property used
by Debtor, at any time, in the operation of such computer equipment and
hardware, including all software, all of Debtor's rights (to the extent
assignable) under any licenses, options, warranties, service contracts, program
services, test rights, maintenance rights, support rights, improvement rights,
and renewal rights related to Debtor's use, at any time, of such computer
equipment, hardware or software, and all leases pursuant to which Debtor leases
any computer equipment, hardware or software.
"Equipment" means all equipment (as defined in the Code) of
Debtor in all of its forms, wherever located, now or hereafter existing.
"GAAP" means generally accepted United States accounting
principles consistently applied as in effect from time to time.
"Intangibles" means (i) goodwill, organizational expenses,
research and development expenses, trademarks, trade names, copyrights, patents,
patent applications, licenses, franchises, and rights in any thereof, and other
similar intangibles, (ii) all unamortized debt discount and expense, (iii) all
reserves carried and not deducted from assets, (iv) treasury stock and capital
stock, obligations or other securities of, or capital contributions or
3
<PAGE>
investments in, any Related Person, (v) securities which are not readily
marketable, (vi) cash held in a sinking or other analogous fund established for
the purpose of redemption, retirement or prepayment of capital stock or debt,
(vii) any write-up in the book value of any asset resulting from a revaluation
thereof, and (viii) any items not included in clauses (i) through (vii) above
which are treated as intangibles in conformity with GAAP.
"Inventory" means all inventory (as defined in the Code) of
Debtor, including without limitation all personal property held for sale, lease
or demonstration, or to be furnished under contracts of sale or service, in all
forms, wherever located, now or hereafter existing, including (i) all inventory,
raw materials, work in process, finished goods, materials and supplies used or
to be consumed in Debtor's business, and all additions and accessions to such
property, (ii) goods in which Debtor has an interest in mass or a joint or other
interest or right of any kind, and (iii) goods which are returned to or
repossessed by Debtor and all accessions thereto and products thereof.
"Lien" means any mortgage, pledge, lien, claim, charge,
encumbrance, security interest, conditional sale or title retention agreement,
easement, use restriction, covenant or reservation against or with respect to
any of Debtor's property or interest in property.
"Person" means any natural person, corporation, limited
liability company, partnership, sole proprietorship, firm, association,
government, governmental agency or any other entity, whether acting in an
individual, fiduciary or other capacity.
"Proceeds" shall have the meaning given to that term in the
Code and shall include whatever is received upon the sale, exchange, collection
or other disposition of Collateral.
"Receiver" means any trustee, receiver, custodian, fiscal
agent, liquidator or similar officer.
"Related Person" means (i) any shareholder who owns or
controls more than five percent (5%) of the voting securities of Debtor, (ii)
any officer or director of Debtor, and (iii) any other Person that, directly or
indirectly, controls, is controlled by or is under common control with or is
related to, by blood or marriage, Debtor or any Person identified in clauses (i)
or (ii).
"Security Documents" means this Agreement, the Collateral
Assignment Lease, any financing statements and all other documents and
agreements given to secure the Obligations.
Section 2. Security Interest and Collateral. To secure the
full, prompt and complete payment and performance when due of all indebtedness
evidenced by that certain Promissory Note of even date herewith executed by the
4
<PAGE>
Debtor, and any extension thereof or amendment thereto (collectively, the
"Obligations"), the Debtor hereby irrevocably transfers, assigns, mortgages,
sets over and grants to the Secured Party for security purposes, a continuing
security interest (the "Security Interest") in and lien on all of the Debtor's
right, title and interest in, to the Collateral, regardless of where located.
Debtor further acknowledges and agrees that the Obligations are secured by
security interests in and liens upon all of the Collateral in accordance with
the provisions set forth herein and in the other Purchase Agreement Documents.
Secured Party acknowledges and agrees that in addition to any rights of the
Debtor under the Transaction Documents and applicable law, any amounts owing to
Debtor from either of the Sellers under any of the Transaction Documents may be
offset and applied toward the payment of the Obligations, whether or not the
Obligations, or any part thereof, shall be due and payable.
Section 3. Representations and Warranties of the Debtor. The
Debtor hereby represents and warrants to the Secured Party (which
representations and warranties shall survive for so long as any part of the
Obligations is outstanding) as follows:
(a) No Other Encumbrances; No Filings By Third Parties.
There is no security agreement or chattel mortgage, other than this Agreement,
in each case entered into by Debtor and covering the Collateral and no financing
statements naming the Debtor as debtor covering the Collateral have been filed
with the Secretary of State or corresponding agency for the state of Alabama.
The Debtor will not execute any financing statement or other public notice or
recording covering the Collateral (other than any financing statement or other
public notice or recording naming Secured Party as the secured party therein or
as otherwise permitted under this Agreement) so long as any of the Obligations
are outstanding.
(b) Corporate Authority. The Debtor has full right,
power and authority to assign and grant a continuing security interest in the
Collateral to the Secured Party. The making and performance of this Agreement
are within the corporate powers of the Debtor and have been duly authorized by
all necessary corporate action on the part of the Debtor. This Agreement
constitutes a legal, valid and binding obligation of the Debtor enforceable
against Debtor in accordance with its terms (subject, however, to the effects of
bankruptcy, insolvency, reorganization, moratorium, and similar laws from time
to time in effect relating to the rights and remedies of creditors as well as to
general principles of equity). The Debtor's chief executive office within the
meaning of the Code is located in Portland, Oregon. The Collateral is located in
Birmingham, Alabama.
(c) Security Interest. The grant of the security interest
in the Collateral pursuant to this Agreement creates a valid security interest
in the Collateral, enforceable against Debtor and securing payment of the
Obligations (subject, however, to the effects of bankruptcy, insolvency,
reorganization, moratorium, and similar laws from time to time in effect
relating to the rights and remedies of creditors as well as to general
principles of equity).
5
<PAGE>
Section 4. Covenants of the Debtor. The Debtor hereby agrees
as follows:
(a) Ownership and Possession of the Collateral.
(1) Title to and ownership of the Collateral
shall be and remain exclusively in Debtor and Debtor shall not transfer
the Collateral out of the State of Alabama without prior written notice
to Secured Party. Debtor agrees that Collateral not in the location
identified above shall nevertheless remain subject to Secured Party's
first priority security interest.
(2) Debtor agrees not to change the location of
its chief executive offices without prior written notice to Secured
Party. Upon request by Secured Party, Debtor shall confirm to Secured
Party the location of the Collateral.
(b) Change in Debtor's Name or Corporate Structure.
Debtor will not change its name, identity or corporate structure (including,
without limitation, any merger, consolidation or sale of substantially all of
its assets) without notifying Secured Party of such change in writing at least
thirty (30) days prior to the effective date of such change.
(c) Documents; Collateral in Possession of Third Parties.
If certificates of title or other documents evidencing ownership or possession
of the Collateral are issued or outstanding, upon the request of the Secured
Party, Debtor will cause the interest of Secured Party to be properly noted
thereon and will, forthwith upon receipt, deliver same to Secured Party. If any
Collateral is at any time in the possession or control of any warehouseman,
bailee, agent or independent contractor, upon the request of the Secured Party,
Debtor shall notify such person or entity of Secured Party's security interest
in such Collateral. Upon Secured Party's request, Debtor shall instruct any such
person or entity to hold all such Collateral for Secured Party's account subject
to Debtor's instructions, or, if an Event of Default has occurred hereunder,
shall have occurred and be continuing, subject to Secured Party's instructions.
(d) Maintenance of Existence. Debtor will maintain
Debtor's corporate existence and remain in good standing and qualified to do
business in all jurisdictions pursuant to the laws of which it is so required.
(e) Sale, Disposition or Encumbrance of Collateral.
Without Secured Party's prior written consent, Debtor will not sell, assign,
lend, rent, lease or otherwise dispose of or transfer Collateral to or in favor
of any person or entity other than Secured Party except in Debtor's ordinary
course of business.
(f) Maintenance. Debtor, at its own cost and expense,
shall service, repair, maintain, overhaul, replace, test or cause the same to be
done to each item of Equipment and Computer Hardware and Software used or useful
6
<PAGE>
in connection with the Alabama Project so as to keep such items in as good an
operating condition, repair and appearance as it was on the date of this
Agreement, ordinary wear and tear excepted.
(g) Event of Loss with Respect to the Alabama Project and
Collateral. Upon the occurrence of an event of loss with respect to the Alabama
Project or the Collateral, Debtor shall forthwith (and in any event within ten
(10) days after such occurrence) give Secured Party written notice of such event
of loss.
(h) Fees and Taxes. The Debtor shall pay when due all
fees, taxes, recording fees and other governmental charges levied against the
Alabama Project and the Collateral or incurred by the Secured Party in
connection with the recording of this Agreement or otherwise perfecting the
Security Interest.
Section 5. Application of Insurance Proceeds. All insurance
proceeds (other than proceeds from policies carried by Secured Party which shall
be paid directly to Secured Party or its assignees) received as the result of
the occurrence of an event of loss with respect to the Alabama Project or
Collateral will be applied at Debtor's option either (a) in reduction of
Debtor's Obligations under the Promissory Note and the Transaction Documents,
subject, however, to the Debtor's set off rights described in Section 2 hereof
and in the Promissory Note, or (b) to the replacement of Collateral or
rebuilding of the Alabama Project, with any remaining balance to be paid to
Debtor.
Section 6. Other Insurance. Nothing shall prohibit Secured
Party or any other Additional Insured from insuring the Alabama Project and the
Collateral at its own expense.
Section 7. Application of Payments from Governmental
Authorities for Requisition of Title. Any payments (other than insurance
proceeds) received at any time by Secured Party or Debtor from any governmental
authority or other entity with respect to condemnation, confiscation, theft or
seizure of, or requisition of title to or use of the Alabama Project or
Collateral, shall be applied either (a) in reduction of Debtor's obligations
under the Promissory Note, subject, however, to the Debtor's set off rights
described in Section 2 hereof and in the Promissory Note or (b) to the
replacement of Collateral or rebuilding of the Alabama Project, with any
remaining balance to Debtor.
Section 8. Inspection. The Secured Party may inspect the
Alabama Project or the Collateral and the Debtor's books and records (and make
copies thereof or extracts therefrom) concerning its financial condition at any
reasonable time and upon reasonable notice from time to time during regular
business hours, whether or not the Debtor is in default under the Agreement.
Section 9. Default. Each of the following occurrences shall
constitute an event of default under this Agreement (an "Event of Default"):
7
<PAGE>
(a) Debtor fails to pay any Obligations when due and
payable; and such failure continues for thirty (30) days after written notice
from the Secured Party to the Debtor thereof; provided, however, that such
failure to pay shall not constitute an Event of Default at any time that it
results from at any time the Secured Party (or any affiliate thereof) is in
default of its obligations under other Transaction Document, the withholding or
application in set off of any amount otherwise due and payable with respect to
the Obligations by the Debtor against amounts owed by the Secured Party (or any
affiliate thereof) under any other Transaction Document;
(b) Failure of the Debtor to perform any of its covenants
or agreements contained in this Agreement and such failure continues for thirty
(30) days after written notice from the Secured Party to the Debtor; provided,
however, that such failure to pay shall not constitute an Event of Default at
any time that it results from at any time the Secured Party (or any affiliate
thereof) is in default of its obligations under other Transaction Document, the
withholding or application in set off of any amount otherwise due and payable
with respect to the Obligations by the Debtor against amounts owed by the
Secured Party (or any affiliate thereof) under any other Transaction Document;
or
(c) Any representation or warranty by the Debtor set
forth in this Agreement shall prove false or misleading in any material respect.
The Debtor shall promptly notify the Secured Party in writing (i) upon becoming
aware of the occurrence of an Event of Default or event that with notice or
lapse of time or otherwise would become an Event of Default, and (ii) of any
occurrence of which it becomes aware which might have a material adverse effect
on its ability to perform its obligations under this Agreement, the Purchase
Agreement Documents or the Promissory Note.
Section 10. Remedies. Upon the occurrence of any Event of
Default and at any time thereafter, so long as the same shall be continuing, the
Secured Party may exercise any one or more of the following rights or remedies:
(a) exercise and enforce any and all rights and remedies available upon default
pursuant to the Purchase Agreement Documents; (b) exercise and enforce any and
all rights and remedies available upon default to a secured party under the
Uniform Commercial Code as in effect in the States of Utah and Alabama or any
other applicable jurisdiction, and the Secured Party is hereby granted the right
to enter upon any property of the Debtor, without a hearing or prior notice
thereof, for the purpose of taking possession of the Collateral; or (c) exercise
or enforce any and all other rights and remedies available to the Secured Party
by law or agreement against the Collateral, against the Debtor or against any
other Person or property. If notice to the Debtor of any intended disposition of
the Collateral or any other intended action is required by law in a particular
instance, such notice shall be deemed commercially reasonable if given (in the
manner specified in this Agreement) at least ten (10) calendar days prior to the
date of intended disposition or other action. The Secured Party may require the
Debtor to return (at the Debtor's expense) the Collateral to any point within
the United States designated by the Secured Party.
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Section 11. Cure Rights. If the Debtor at any time fails to
perform or observe any agreement contained herein, and if such failure shall
continue for a period of thirty (30) calendar days after the Secured Party gives
the Debtor written notice thereof, the Secured Party may, but shall not be
obligated to, without further notice or demand on the Debtor, and without
releasing the Debtor from any of the Obligations, perform or observe such
agreement on behalf and in the name, place and stead of the Debtor (or, at the
Secured Party's option, in the Secured Party's own name) and take any and all
other actions which the Secured Party may deem necessary to cure or correct such
failure, including the payment of taxes, the satisfaction of security interests,
Liens, attachments or encumbrances, the procurement and maintenance of
insurance, and the procurement of repairs or transportation, subject, however,
to the terms of the other Transaction Documents. The Secured Party shall have
the right to appear in and defend any action or proceeding purporting to affect
the security interest or the rights or powers of the Secured Party hereunder and
in the Purchase Agreement Documents. The Debtor shall indemnify and hold the
Secured Party harmless from and against, any and all losses, liabilities, claims
and causes of action arising from or in connection with the Secured Party's
actions in the stead of the Debtor and the Debtor shall thereupon pay the
Secured Party on demand the amount of all moneys expended and all reasonable
costs and expenses (including attorneys' fees) incurred by the Secured Party in
connection with or as a result of the Secured Party's performing or observing
such agreements or taking such action, together with interest thereon from the
date expended or incurred by the Secured Party at twelve percent (12%) per
annum.
Section 12. Secured Party's Costs and Expenses. In addition to
other amounts payable hereunder, the Debtor will (whether or not legal
proceedings are commenced) pay to the Secured Party, on demand, all reasonable
costs and expenses (including attorneys' fees and legal expenses) paid or
incurred by the Secured Party in connection with an Event of Default, including
any suit to collect the Obligations.
Section 13. Purchase Money Equipment Security Interest. Debtor
and Secured Party agree and stipulate that this is a "purchase money security
interest" as such term is used in the Code.
Section 14. Successors; Governing Law. This Agreement shall be
binding upon and inure to the benefit of the Debtor, the Secured Party and their
respective successors and permitted assigns. This Agreement shall be governed by
the substantive laws of the State of Utah, without giving effect to any choice
of law or conflict of law provisions or rules that would cause the application
of laws of any jurisdiction other than the State of Utah. Unless the context
otherwise requires, all terms used herein which are defined in Articles 1 and 9
of the Uniform Commercial Code, as in effect in the State of Utah, shall have
the meanings therein stated. If any provision or application of this Agreement
is held unlawful or unenforceable in any respect, such illegality or
unenforceability shall not affect other provisions or applications which can be
given effect, and this Agreement shall be construed as if the unlawful or
unenforceable provision or application had never been contained herein or
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prescribed hereby. All representations and warranties contained in this
Agreement shall survive the execution, delivery and performance of this
Agreement and the creation and payment of the Obligations.
Section 15. Notices. All notices to the Secured Party and
the Debtor shall be given in accordance with the notice provisions set forth in
the Purchase Agreement.
Section 16. Further Assurances. The Debtor will defend the
security interest of the Secured Party against all Persons, other than the
Secured Party, at its own expense and from time to time shall execute and
deliver to the Secured Party, and file all such instruments and take all such
actions as the Secured Party may reasonably request in order to preserve and
protect such security interest, to effectuate the purpose of this Agreement and
the Purchase Agreement Documents or to carry out the terms hereof, including the
execution and filing of financing statements or continuation statements under
the Code. The Debtor hereby authorizes the Secured Party to file this Agreement
or any such financing statements or continuation statements under the Code with
respect to the Collateral with any appropriate governmental office in order to
preserve, protect, perfect or continue the perfection of any and all security
interests granted or created hereby.
Section 17. Miscellaneous. This Agreement can be waived,
modified, amended or terminated, and the security interest of the Secured Party
can be released, only explicitly in a writing signed by the Secured Party and
the Debtor. A waiver signed by the Secured Party shall be effective only in the
specific instance and for the specific purpose given. Mere delay or failure to
act shall not preclude the exercise or enforcement of any of the Secured Party's
rights or remedies. All rights and remedies of the Secured Party shall be
cumulative and may be exercised singularly or concurrently, at the Secured
Party's option, and the exercise or enforcement of any one such right or remedy
shall neither be a condition to nor bar the exercise or enforcement of any other
right or remedy. The Secured Party shall not be obligated to realize on the
Collateral at all or in any particular manner or order, or to apply any cash
proceeds therefrom in any particular order of application.
Section 18. Power of Attorney. The Debtor hereby irrevocably
appoints the Secured Party as its true and lawful attorney-in-fact upon the
occurrence of an Event of Default with full power, in the name of the Debtor or
otherwise, for the purpose of (i) taking any action that the Secured Party may
deem necessary or appropriate to preserve, protect, perfect and continue the
perfection of the Secured Party's security interest in the Collateral; and (ii)
enabling the Secured Party to sell, assign, transfer or dispose of the
Collateral, including, without limitation, executing and delivering all bills of
sale, assignments and other instruments as the Secured Party may consider
necessary or appropriate, with full power of substitution, upon an Event of
Default.
Section 19. Consent to Jurisdiction and Venue. Debtor and
Secured Party consent to personal jurisdiction, waive any objection as to
jurisdiction or venue and agree not to assert any defenses based on lack of
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jurisdiction or venue, in the County of Salt Lake, Utah. Service of process on
Debtor or Secured Party in any action arising out of or relating to this
Agreement shall be effective if mailed to such party at the address listed in
the Purchase Agreement.
Section 20. Mutual Waiver of Jury Trial. BECAUSE DISPUTES
ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND
ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH
APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE
PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES
UNDER THIS AGREEMENT.
Section 21. Pronouns and Certain Other Terms. All pronouns
(and any variation) will be deemed to refer to the masculine, feminine, neuter,
singular or plural as the identity of the Person may require. The words "and"
and "or" will include the conjunctive and disjunctive, as the context requires.
The word "include" and derivatives of that word are used in an illustrative
sense and not a limiting sense unless specifically indicated.
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IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the date set forth above.
COVOL TECHNOLOGIES, INC.
/s/ Brent M. Cook
By: Brent M. Cook
Attest: Title: President
/s/ C. Parkinson Lloyd
By: C. Parkinson Lloyd
Title: Attorney, Ballard Spahr Andrews & Ingersoll, LLP
ALABAMA SYNFUEL #1 LTD. by its
corporate general partner
----------------------------
/s/ Brent M. Cook
By: Brent M. Cook
Attest: Title: President - Covol Technologies
/s/ C. Parkinson Lloyd
By: C. Parkinson Llyod
Title: Attorney, Ballard Spahr Andrews & Ingersoll, LLP
BIRMINGHAM SYNFUEL, L.L.C.
/s/ Reynold Roeder
By: Reynold Roeder
Attest: Title: Vice President
/s/ Gary R. Barnum
By: Gary R. Barnum
Title: Stoel Rives
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STATE OF UTAH )
)ss:
COUNTY OF SALT LAKE )
I, the undersigned authority, a Notary Public in and for said County,
in said State, hereby certify that Reynold Roder, whose name as Vice President
of Birmingham Syn Fuel, LLC, an Oregon limited liability company, is signed to
the foregoing instrument, and who is known to me, acknowledged before me on this
day that, being informed of the contents of the instrument, he, as such officer
and with full authority, executed the same voluntarily for and as the act of
said corporation.
Given under my hand and official seal, this the 20th day of February,
1998.
/s/ Stacey A. Kamaya
Notary Public
STATE OF UTAH )
)ss:
COUNTY OF SALT LAKE )
I, the undersigned authority, a Notary Public in and for said County,
in said State, hereby certify that Brent M. Cook, whose name as President (of
Its General Partner) of Alabama Synfuel #1, Ltd., a Delaware limited
partnership, is signed to the foregoing instrument, and who is known to me,
acknowledged before me on this day that, being informed of the contents of the
instrument, he, as such officer and with full authority, executed the same
voluntarily for and as the act of said corporation.
Given under my hand and official seal, this the 20th day of February,
1998.
/s/ Stacey A. Kamaya
Notary Public
13
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STATE OF UTAH )
)ss:
COUNTY OF SALT LAKE )
I, the undersigned authority, a Notary Public in and for said County,
in said State, hereby certify that Brent M. Cook, whose name as President of
Covol Technologies, Inc., a Delaware corporation, is signed to the foregoing
instrument, and who is known to me, acknowledged before me on this day that,
being informed of the contents of the instrument, he, as such officer and with
full authority, executed the same voluntarily for and as the act of said
corporation.
Given under my hand and official seal, this the 20th day of February,
1998.
/s/ Stacey A. Kamaya
Notary Public
14
