UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
August 27, 1999
---------------
Date of Report (Date of earliest event reported)
COVOL TECHNOLOGIES, INC.
------------------------
(Exact name of Registrant as specified in its charter)
Delaware 0-27808 87-0547337
- --------------------------------- ------------------------- -------------------
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation) Identification No.)
3280 N. Frontage Road
Lehi, UT 84043
--------------
(Address of principal executive offices)
(Zip Code)
(801) 768-4481
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name or former address, if changed
since last report.)
<PAGE>
Certain statements in this Report constitute forward looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. As such,
actual results may vary materially from current expectations. For a discussion
of certain of the factors that could cause actual results to differ from
expectations, please see the information set forth under the caption entitled
"Forward Looking Statements" in PART I, ITEM 2 of Covol's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999. There can be no assurance that
Covol's results of operations will not be adversely affected by such factors.
Covol undertakes no obligation to revise or publicly release the results of any
revision to these forward-looking statements. Readers are cautioned not to place
undue reliance on these forward looking statements, which reflect management's
opinion only as of the date hereof.
Item 5. Other Events - Announcement of Sale of River Hill Facility
Covol announced on August 30, 1999 that it sold the Commonwealth/River Hill
synthetic fuel facility. Sale of the four Company-owned facilities has been the
primary focus of the Company's activities and the sale of the first of these
occurred on August 27, 1999. This sale was consummated under a non-binding
letter of intent Covol entered into on June 23, 1999 that was followed by an
announcement on that date and the subsequent filing of a Form 8-K on July 7,
1999. Covol is actively continuing its efforts to sell the remaining three
Company-owned facilities, either through consummation of the other non-binding
letter of intent entered into on June 23, 1999, as previously announced, or
through other possible transactions. The complete text of the August 30, 1999
announcement comprises the following four paragraphs and the last paragraph
summarizes the accounting for the sale.
"Covol Technologies, Inc. announced today that it has sold the
Commonwealth/River Hill synthetic fuel facility to an affiliate of a major U.S.
electric utility company. The sales price consisted of a cash payment to Covol
of $1,250,000, assumption and satisfaction of the facility debt, completion of
capital improvements to the facility, along with an eight-year royalty
arrangement with both Covol and the construction lender. The estimated total
aggregate value of the transaction under this initial arrangement, including the
present value of the projected royalty streams and the cost of expected
improvements to the facility which are part of the transaction, is approximately
$16 million.
Covol can both accelerate and increase its royalty interests upon obtaining firm
synthetic fuel "off-take" agreements in excess of 100,000 tons per year and
operating the facility at rated capacity for a ten-day period. Covol must
achieve these performance milestones by June 30, 2000. The maximum amount under
these provisions is achieved if "off-take" agreements to sell 360,000 tons per
year are put in place for the synthetic fuel production of the facility.
Further, Covol can receive an additional $4 million payment if the facility
operates at 115% of capacity for a three-month period in any consecutive three
months prior to December 31, 2001. If the Company achieves all of these
potential performance milestones, the estimated total value of the transaction
would be approximately $23 million.
Kirk A. Benson, Chief Executive Officer and Chairman of the Board, commented,
"We are extremely pleased to be able to announce the sale of the first of the
four Company owned facilities. We are aggressively pursuing a strategy of
marketing our remaining three facilities and maximizing the value of our royalty
interests."
The Company has entered into an agreement in which it will operate the
Commonwealth/River Hill facility on behalf of the buyer. Covol has also entered
into its standard supply agreements."
Covol has recognized a loss on the sale of approximately $1,750,000, which was
calculated by subtracting the facility cost of approximately $8,000,000 from the
initial sales proceeds of $6,250,000 ($1,250,000 cash plus debt assumption of
$5,800,000, less $800,000 for which Covol remains legally liable). Covol will
recognize revenue and a corresponding gain under the royalty arrangement upon
receipt of the royalty payments and for achievement of performance milestones.
If all milestones are met, the maximum transaction value of $23 million would be
achieved and Covol would recognize up to $11.8 million of revenue with a
corresponding gain in future periods.
2
<PAGE>
Item 7. Financial Statements and Exhibits
(c) The following exhibits are included herein:
10.61 Purchase Agreement dated as of August 27, 1999 relating to the
sale of the River Hill Project*
10.61.1 License and Binder Purchase Agreement dated as of August 27,
1999 relating to the River Hill Project*
10.61.2 Modification Agreement dated as of August 27, 1999 by and
between the Purchaser of the River Hill Project, Fun
Enterprises Pty Limited and Covol Technologies, Inc.*
* This exhibit contains confidential material which
has been omitted pursuant to a Confidential Treatment Request.
The omitted information has been filed separately with the
Securities and Exchange Commission
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COVOL TECHNOLOGIES, INC.
Registrant
Date: September 28, 1999 /s/ Kirk A. Benson
------------------------------
Kirk A. Benson
Chief Executive Officer and
Principal Executive Officer
4
RIVER HILL PROJECT
PURCHASE AGREEMENT
by and between
**
and
COVOL TECHNOLOGIES, INC.
August 27, 1999
** This exhibit contains confidential material which has been omitted
pursuant to a Confidential Treatment Request. The omitted information
has been filed separately with the Securities and Exchange Commission.
<PAGE>
TABLE OF CONTENTS
Page
RECITALS................................................................... 1
ARTICLE I DEFINITIONS.......................................................1
1.1. Affiliate.....................................................1
1.2. Agreement.....................................................1
1.3. As-Built Drawings.............................................2
1.4. Assets........................................................2
1.5. Assignment and Assumption Agreement...........................2
1.6. Assumed Liabilities...........................................2
1.7. Bill of Sale..................................................2
1.8. Books and Records.............................................2
1.9. Business......................................................2
1.10. Buyer's Closing Certificate..................................2
1.11. Closing......................................................2
1.12. Closing Date.................................................3
1.13. Code.........................................................3
1.14. Confidentiality Agreement....................................3
1.15. Construction Agreements......................................3
1.16. Contracts....................................................3
1.17. Covol Plant..................................................3
1.18. Covol Process................................................3
1.19. Effective Time...............................................3
1.20. Excluded Assets..............................................3
1.21. Facility.....................................................3
1.22. Fixed Assets.................................................3
1.23. Fun Enterprises..............................................4
1.24. Fun Indebtedness.............................................4
1.25. GAAP.........................................................4
1.26. Ground Lease.................................................4
1.27. HSR Act......................................................4
1.28. Improvements.................................................4
1.29. Improvements Deed............................................4
1.30. Inventory....................................................4
1.31. IRS..........................................................4
1.32. Knowledge of Buyer...........................................4
1.33. Knowledge of Seller..........................................4
1.34. Law..........................................................4
<PAGE>
Page
1.35. License and Binder Purchase Agreement........................4
1.36. Lien.........................................................5
1.37. Loss.........................................................5
1.38. Material Adverse Effect......................................5
1.39. Modification Agreement.......................................5
1.40. O&M Agreement................................................5
1.41. Opinion of Seller's Counsel..................................5
1.42. Performance Payments.........................................5
1.43. Performance Thresholds.......................................5
1.44. Permits......................................................5
1.45. Permitted Liens..............................................5
1.46. Plans and Specifications.....................................6
1.47. Product......................................................6
1.48. Purchase Consideration.......................................6
1.49. Real Property................................................6
1.50. Required Consents............................................6
1.51. Requirements Supply Agreement................................6
1.52. RHC..........................................................6
1.53. Sales Agency Agreement.......................................6
1.54. Section 29 Product...........................................6
1.55. Seller's Closing Certificate.................................6
1.56. Transaction Documents........................................6
ARTICLE II PURCHASE AND SALE................................................7
2.1. Purchase and Sale; Assignment and Assumption..................7
2.2. Payment of the Purchase Consideration.........................7
2.3. Deliveries at Closing.........................................7
2.4. Allocation of Purchase Price..................................8
2.5. No Assumption of Liabilities..................................8
2.6. Prorations....................................................8
2.7. Performance Payments..........................................8
2.8. Sales Tax Exemption...........................................9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER........................9
3.1. Corporate Standing............................................9
3.2. Authorizations; Binding Agreements............................9
3.3. No Actions Affecting Enforcement of the Agreement and
the other Transaction Documents..............................10
ii
<PAGE>
Page
3.4. Taxes........................................................10
3.5. Brokers or Finders Fees......................................10
3.6. No Imposition of Liens.......................................11
3.7. Applicable Contracts and Permits.............................11
3.8. Title to Assets..............................................11
3.9. Condition of Assets..........................................11
3.10. Inventory...................................................11
3.11. Pending Litigation..........................................11
3.12. Compliance with Laws........................................12
3.13. Status of Contracts.........................................12
3.14. Consents....................................................12
3.15. Ground Lease................................................12
3.16. No Fee Property.............................................12
3.17. Books and Records...........................................13
3.18. Environmental Conditions....................................13
3.19. Liabilities.................................................14
3.20. Agreements with Related Persons.............................14
3.21. Adequacy of the Purchased Assets............................14
3.22. Production Capacity.........................................14
3.23. Section 29 Issues...........................................14
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER.........................14
4.1. Organization and Standing....................................14
4.2. Authorizations; Binding Agreements...........................15
4.3. Brokers or Finders Fees......................................15
4.4. No Actions Affecting Enforcement of the Agreement
and the other Transaction Documents..........................15
ARTICLE V CERTAIN UNDERSTANDINGS AND AGREEMENTS............................16
5.1. Conduct of Seller Prior to Closing...........................16
5.2. Exclusivity..................................................16
5.3. Access to Information........................................16
5.4. Best Efforts.................................................17
5.5. Public Announcements.........................................17
5.6. Confidentiality..............................................17
5.7. Negative Covenants...........................................17
5.8. Taxes........................................................18
5.9. Private Letter Ruling........................................18
iii
<PAGE>
Page
ARTICLE VI CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER................19
6.1. Compliance with Agreement....................................19
6.2. Proceedings and Instruments Satisfactory.....................19
6.3. No Litigation................................................19
6.4. Representations and Warranties...............................19
6.5. Material Damage to Assets....................................20
6.6. Permits......................................................20
6.7. Consents.....................................................20
6.8. Lien Waivers and Estoppel Certificates.......................20
ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER..............20
7.1. Compliance with Agreement....................................20
7.2. Proceedings and Instruments Satisfactory.....................21
7.3. No Litigation................................................21
7.4. Representations and Warranties...............................21
7.5. Required Consents............................................21
ARTICLE VIII INDEMNITIES AND ADDITIONAL COVENANTS..........................21
8.1. Seller's Indemnity...........................................21
8.2. Buyer's Indemnity............................................23
8.3. Bulk Sales Compliance........................................24
8.4. Additional Instruments.......................................24
8.5. Access to Books, Records and Employees.......................24
ARTICLE IX TERMINATION.....................................................25
9.1. Termination..................................................25
9.2. Rights on Termination; Waiver................................25
ARTICLE X MISCELLANEOUS....................................................26
10.1. Entire Agreement; Amendment.................................26
10.2. Expenses....................................................26
10.3. Governing Law; Consent to Jurisdiction......................26
10.4. Assignment..................................................27
10.5. Notices.....................................................27
10.6. Counterparts; Headings......................................28
iv
<PAGE>
Page
10.7. Interpretation..............................................28
10.8. Severability................................................28
10.9. No Reliance.................................................28
10.10. Parties in Interest........................................29
10.11. Specific Performance.......................................29
v
<PAGE>
EXHIBITS AND SCHEDULES
SCHEDULE 1.6 Exclusions from Assumed Liabilities
SCHEDULE 1.16 Contracts
SCHEDULE 1.20 Excluded Assets
SCHEDULE 1.22 Fixed Assets
SCHEDULE 1.32 Knowledge of Buyer
SCHEDULE 1.33 Knowledge of Seller
SCHEDULE 1.41 Opinion of Seller's Counsel
SCHEDULE 1.44 Permits
SCHEDULE 1.45 Permitted Liens
SCHEDULE 1.49 Real Property
SCHEDULE 1.50 Required Consents
SCHEDULE 3.5 Brokers or Finders Fees of Seller
SCHEDULE 3.8 Title
SCHEDULE 3.11 Pending Litigation
SCHEDULE 3.15 Ground Lease Exceptions
SCHEDULE 3.18 Environmental Matters
SCHEDULE 3.20 Agreements with Related Persons
SCHEDULE 4.3 Brokers or Finders Fees of Buyer
SCHEDULE 5.9 Post-Closing Conditions
EXHIBIT A Assignment and Assumption Agreement
EXHIBIT B Bill of Sale
EXHIBIT C Buyer's Closing Certificate
EXHIBIT D [Reserved]
EXHIBIT E Improvements Deed
EXHIBIT F O&M Agreement
EXHIBIT G Performance Thresholds
EXHIBIT H Seller's Closing Certificate
EXHIBIT I License and Binder Purchase Agreement
EXHIBIT J Allocation of Purchase Price
EXHIBIT K Estoppel Certificate
EXHIBIT L Modification Agreement
vi
<PAGE>
PURCHASE AGREEMENT
PURCHASE AGREEMENT, made as of August 27, 1999, by and between
**, a Delaware limited liability company ("Buyer"), and COVOL TECHNOLOGIES,
INC., a Delaware corporation ("Seller").
RECITALS
WHEREAS, Seller has constructed and owns the Assets comprised
principally of a processing facility to produce solid synthetic fuel pellets
from coal fines located near Karthus, Clearfield County, Pennsylvania; and
WHEREAS, Seller desires to sell the Assets and the Contracts
to Buyer and Buyer desires to purchase the Assets from Seller, all on the terms
and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the Recitals and of the
mutual covenants, conditions and agreements set forth herein and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, it is hereby agreed that:
ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms shall have the
meanings specified:
1.1 Affiliate shall mean, as to any person, any other person or entity
that, directly or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with such person.
1.2. Agreement shall mean this Purchase Agreement, together with the
Exhibits and Schedules attached hereto, as the same may be amended from time to
time in accordance with the terms hereof.
** This exhibit contains confidential material which has been omitted
pursuant to a Confidential Treatment Request. The omitted information
has been filed separately with the Securities and Exchange Commission.
<PAGE>
1.3. As-Built Drawings shall mean as-built drawings reflecting
necessary revisions on the original tracings of the Plans and Specifications and
related drawings relating to the Facility necessary to indicate such field
changes as may have been found necessary to suit conditions at the Real Property
and any other revisions made in the course of construction of the Facility.
1.4. Assets shall mean, collectively, all of the assets, other than the
Contracts and the Excluded Assets, owned by Seller and relating primarily to the
Business, and comprising, used in or necessary for the operation of the Facility
as of the Effective Time, including, without limitation, the Improvements, the
Books and Records, the Fixed Assets, and the Inventory, together with all
goodwill associated with the Facility.
1.5. Assignment and Assumption Agreement shall mean the Assignment and
Assumption Agreement between Seller and Buyer relating to the Contracts and the
Assumed Liabilities, in the form of Exhibit A attached hereto.
1.6. Assumed Liabilities shall mean the obligations to be assumed by
Seller pursuant to the Modification Agreement and those obligations of Seller,
if any, arising under the Contracts which, pursuant to the terms thereof, relate
to periods and become due from and after the Effective Time, other than
obligations under those Contracts listed in Schedule 1.6 attached hereto.
1.7. Bill of Sale shall mean the Bill of Sale from Seller to Buyer
relating to the Assets, in the form of Exhibit B attached hereto.
1.8. Books and Records shall mean original or true and complete copies
of all of the books, records, files, data and information of Seller relating to
the design, construction and operation of the Facility and operation of the
business prior to the Effective Time, which are relevant to Buyer's use of the
Assets, performance under the Contracts and operation of the Facility and the
Business after the Effective Time, including without limitation Plans and
Specifications, all original tracings of the related drawings and designs and
the As-Built Drawings.
1.9. Business shall mean the business conducted by Seller at the
Facility, which consists of the ownership, construction, moving, financing,
selling and operation of and otherwise dealing with the Facility and the
manufacture and sale of the Product.
1.10. Buyer's Closing Certificate shall mean the certificate of Buyer
substantially in the form of Exhibit C attached hereto.
1.11. Closing shall mean the meeting of the parties to be held at 9:00
a.m., local time, on the Closing Date, at the offices of Hunton & Williams,
Riverfront Plaza, East Tower, 951 East Byrd Street, Richmond, Virginia, or such
other time and place as the parties may mutually agree in writing.
2
<PAGE>
1.12. Closing Date shall mean five business days following the date on
which all conditions set forth in Articles VI and VII have been satisfied or
waived by the applicable parties, as the case may be, or such other date as the
parties may mutually agree in writing.
1.13. Code shall mean the Internal Revenue Code of 1986, as amended,
and the regulations thereunder.
1.14. Confidentiality Agreement shall mean the Letter Agreement, dated
April 27, 1999, between Seller and **.
1.15. Construction Agreements shall mean all construction agreements
relating to the Facility and the Improvements, or components thereof.
1.16. Contracts shall mean all contracts, agreements, leases, license
agreements, relationships, understandings, or commitments, whether written, oral
or implied, to which Seller is a party and which relate primarily to the
construction or operation of the Facility and the Business, all as listed on
Schedule 1.16 attached hereto or as otherwise agreed upon by Buyer prior to the
Closing Date, and including, without limitation, the Ground Lease, the
Requirements Supply Agreement and the Sales Agency Agreement, and excluding
those relating to the Fun Indebtedness.
1.17. Covol Plant shall mean the Facility that produces solid synthetic
fuel pellets from coal fines using the Covol Process in accordance with the
terms of the Technology License and Binder Supply Agreement.
1.18. Covol Process shall mean Seller's proprietary synthetic coal fuel
production process for manufacturing solid synthetic fuel from coal fines which
is defined in and is the subject of the Technology License and Binder Supply
Agreement.
1.19. Effective Time shall mean 12:01 a.m., Eastern Time, on the
Closing Date.
1.20. Excluded Assets shall mean the items listed on Schedule 1.20
attached hereto
1.21. Facility shall mean the solid synthetic fuel pellet manufacturing
facility and related support facilities owned or leased by Seller and located on
the Real Property.
1.22. Fixed Assets shall mean all tangible personal property located at
the Real Property which constitute part of, or are otherwise owned and used by
Seller in the operation of, the Facility as of the Effective Time and which are
listed on Schedule 1.22 attached hereto, including, but not limited to, all
fixed assets, chattels, machinery, equipment, leasehold improvements, computer
hardware, fixtures, furniture, furnishings, handling equipment, implements,
parts, tools and accessories of all kinds; provided, however, that Fixed Assets
shall exclude (i) leased items of tangible personal property that are the
subject of Contracts and (ii) the Excluded Assets.
3
<PAGE>
1.23. Fun Enterprises shall mean Fun Enterprises PTY (ACN 056 689 304),
a company incorporated in New South Wales, Australia.
1.24. Fun Indebtedness shall mean the indebtedness of Seller to Fun
Enterprises referenced in the Modification Agreement.
1.25. GAAP shall mean generally accepted accounting principles of the
United States as applied by Seller in a manner consistent with prior periods.
1.26. Ground Lease shall mean that certain Lease Agreement, dated as of
August 25, 1999, by and between Seller and RHC and relating to the Real
Property.
1.27. HSR Act shall mean the Hard-Scott-Rodino Antitrust Improvements
Act of 1976 (15 U.S.C.ss. 18a), as amended.
1.28. Improvements shall mean the structures, buildings and
improvements now standing or to be constructed on the Real Property, and
replacements thereof, including, without limitation, the following:
(a) the Covol Plant; and
(b) all other plant equipment, apparatus, machinery and
fixtures of every kind and nature forming a part of such facilities, buildings
and improvements.
1.29. Improvements Deed shall mean the Improvements Deed from Seller to
Buyer relating to the Improvements, in the form of Exhibit E attached hereto.
1.30. Inventory shall mean all inventories of raw materials and all
supplies held for use at the Facility by Seller as of the Effective Time.
1.31. IRS shall mean the Internal Revenue Service.
1.32. Knowledge of Buyer shall mean the actual knowledge, after due
inquiry, of any person listed on Schedule 1.32 attached hereto.
1.33. Knowledge of Seller shall mean the actual knowledge, after due
inquiry, of any person listed on Schedule 1.33 attached hereto.
1.34. Law shall mean any federal, state, local or other law or
governmental requirement of any kind, and the rules, regulations and orders
promulgated thereunder.
1.35. License and Binder Purchase Agreement shall mean that certain
License and Binder Purchase Agreement to be entered into by Buyer and Seller,
relating to the licensing by
4
<PAGE>
the Buyer of Seller's proprietary synthetic coal fuel extrusion, pellet and
briquette production process, and substantially in the form of Exhibit I
attached hereto.
1.36. Lien shall mean 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.
1.37. Loss shall have the meaning given to such term in Section
8.1((a)).
1.38. Material Adverse Effect shall mean a material adverse effect on
the Assets and Contracts, taken as a whole, the Business or the maintenance and
operation of the Facility.
1.39. Modification Agreement shall mean that certain Modification and
Assumption Agreement to be entered into by Seller, Buyer and Fun Enterprises
relating to the Fun Indebtedness, and substantially in the form of Exhibit L
attached hereto.
1.40. O&M Agreement shall mean that certain Operations and Maintenance
Agreement, of even date herewith, to be entered into by Buyer and Seller,
relating to the operation and maintenance of the Facility, substantially in the
form of Exhibit F attached hereto.
1.41. Opinion of Seller's Counsel shall mean the opinions of Pillsbury
Madison & Sutro, LLP, counsel to Seller, and Harlan Hatfield, General Counsel of
Seller, substantially in the forms of Schedules 1.41-A and 1.41-B, respectively.
1.42. Performance Payments shall mean those contingent payments of
additional Purchase Consideration to be paid to Seller by Buyer upon the
achievement by the Facility of the Performance Thresholds.
1.43. Performance Thresholds shall mean those levels of
production/sales of Section 29 Product meeting the quantities described on
Exhibit G attached hereto.
1.44. Permits shall mean all governmental approvals, authorizations,
registrations, permits and licenses necessary or required for the operation of
the Facility, including, without limitation, those Permits listed on Schedule
1.44 attached hereto.
1.45. Permitted Liens shall mean Liens (but only for amounts not yet
due and payable) securing taxes, assessments or governmental charges or levies,
Liens of an immaterial nature
5
<PAGE>
which could not reasonably be expected to have an adverse effect on the
maintenance and operation of the Facility or the good and marketable title of
the Assets or the enforceability of the Contracts, and Liens disclosed on
Schedule 1.45 attached hereto.
1.46. Plans and Specifications shall have the meaning given such terms
in the Construction Agreements.
1.47. Product shall mean the solid synthetic fuel pellet product
produced at the Facility using and pursuant to the Covol Process.
1.48. Purchase Consideration shall have the meaning given to such term
in Section 2.2 hereof.
1.49. Real Property shall mean that certain parcel of land located near
Karthus, Clearfield County, Pennsylvania and more particularly described on
Schedule 1.49 attached hereto.
1.50. Required Consents shall mean those consents, approvals and
waivers required from parties to the Contracts or from governmental authorities
or other third parties that are necessary or required in order to transfer the
Assets and Contracts to Buyer and otherwise give effect to the transactions
contemplated herein (other than such consents, the failure of which to obtain,
taken as a whole, could not reasonably be expected to have a Material Adverse
Effect) and that are specifically identified on Schedule 1.50 attached hereto.
1.51. Requirements Supply Agreement shall mean that certain Agreement
for Supply of Coal Fines dated as of August 25, 1999, entered into by Seller and
RHC, relating to the provision of feedstock to the Facility by RHC.
1.52. RHC shall mean River Hill Coal Company, Inc., a Pennsylvania
corporation.
1.53. Sales Agency Agreement shall mean that certain Agreement for the
Sale of Synthetic Fuel, dated as of August 25, 1999, entered into by Seller and
RHC, relating to the sale of the Product processed at the Facility.
1.54. Section 29 Product shall mean Product which is reasonably
expected to constitute "qualified fuels" pursuant to the terms of Section
29(c)(1)(C) of the Code and with respect to which Section 29 is applicable
pursuant to the terms of Sections 29(f) and 29(g) of the Code.
1.55. Seller's Closing Certificate shall mean the certificate of Seller
substantially in the form of Exhibit H attached hereto.
1.56. Transaction Documents shall mean this Agreement, the Bill of
Sale, the Assignment and Assumption Agreement, the Modification Agreement, the
Improvements Deed and those agreements and instruments to be executed and
delivered as provided in Section 2.3.
6
<PAGE>
ARTICLE II
PURCHASE AND SALE
2.1. Purchase and Sale; Assignment and Assumption.
(a) Buyer and Seller hereby agree that at the Closing, and
upon all of the terms and subject to all of the conditions of this Agreement,
Seller shall sell, convey, transfer and assign to Buyer, and Buyer shall
purchase and accept from Seller, all of the Assets, free and clear of all liens,
claims, mortgages or encumbrances.
(b) Buyer and Seller hereby agree that at the Closing, and
upon all of the terms and subject to all of the conditions of this Agreement,
Seller shall assign to Buyer the Contracts and all rights arising thereunder,
and Buyer shall assume from Seller all of Seller's obligations constituting the
Assumed Liabilities.
2.2. Payment of the Purchase Consideration.
In consideration of Seller's sale, conveyance, transfer,
delivery and assignment of the Assets and Contracts, Buyer shall (a) on the
Closing Date, make a cash payment to Seller in the amount of One Million Two
Hundred Fifty Thousand Dollars ($1,250,000.00), payable by wire transfer in
readily available funds to First Security Bank; Salt Lake City, Utah; 18A 124
000012; for the account of Covol Technology; Acct. **; (b) on the Closing Date,
make a cash payment, on behalf of Seller, to Fun Enterprises in the amount of
Four Million Dollars ($4,000,000.00), payable by wire transfer in accordance
with the Modification Agreement; (c) on the Closing Date and pursuant to the
Modification Agreement, execute and deliver a Replacement Promissory Note made
payable to the order of Fun Enterprises in the amount of Nine Hundred Forty-Five
Thousand Eight Hundred Ninety-Two Dollars ($945,892.00) and bearing interest at
a per annum rate of 5.5 percent; and (d) thereafter make the Performance
Payments, if any, when and as provided in Section 2.7, in the form of cash
payments to Seller, payable by wire transfer in readily available funds to First
Security Bank; Salt Lake City, Utah; 18A 124 000012; for the account of Covol
Technology; Acct. **, or pursuant to such other payment instructions delivered
by written notice given by Seller to Buyer pursuant to Section 10.5 hereof at
least two business days prior to the due date of any such payment (the payments
described in clauses (a), (b), (c) and (d) of this Section 2.2 shall
collectively be referred to herein as the "Purchase Consideration").
2.3. Deliveries at Closing.
(a) By Seller to Buyer. At the Closing, Seller shall deliver
the following items to Buyer, each properly executed and dated as of the Closing
Date by Seller and in form and substance reasonably acceptable to Buyer: (i) the
Assignment and Assumption Agreement, (ii) the Bill of Sale, (iii) the
Improvements Deed, (iv) the License and Binder Purchase Supply Agreement, (v)
the O&M Agreement, (vi) estoppel certificates as required by Section 6.9,
7
<PAGE>
(vii) all Permits as required by Section 6.6, (viii) all Required Consents
applicable to Seller, (ix) the Opinion of Seller's Counsel, (x) Seller's Closing
Certificate and (xi) a certificate of the corporate secretary of Seller as to
such matters as may reasonably be requested by Buyer.
(b) By Buyer to Seller. At the Closing, Buyer shall deliver
the Purchase Consideration and the following items to Seller, each properly
executed and dated as of the Closing Date by Buyer and in form and substance
reasonably acceptable to Seller: (i) the Assignment and Assumption Agreement,
(ii) the License and Binder Purchase Agreement, (iii) the O&M Agreement, (iv)
the Modification Agreement, (v) all Required Consents applicable to Buyer, (vi)
Buyer's Closing Certificate and (vii) a certificate of the corporate secretary
(or equivalent official) of Buyer as to such matters as may reasonably be
requested by Seller.
2.4. Allocation of Purchase Price.
On the Closing Date, or at a later time agreed to by the
parties, not to exceed 30 days following the Closing Date, the purchase price
shall be allocated among the Assets and Contracts in accordance with ExhibitJ
attached hereto. Such allocation shall be intended to comply with the
requirements of Section 1060 of the Code, and no party shall take any position
inconsistent with such allocation for income tax purposes, except that Buyer's
cost for the Assets and Contracts may differ from the amount so allocated to the
extent necessary to reflect Buyer's capitalized acquisition costs other than the
amount realized by Seller.
2.5. No Assumption of Liabilities.
Except as specifically set forth herein with respect to the
Assumed Liabilities, Buyer does not and will not assume any liability or
obligation of any kind of Seller, or any obligation relating to the use of the
Assets or performance by Seller under the Contracts prior to the Effective Time,
whether absolute or contingent, accrued or unaccrued, asserted or unasserted,
known or unknown, or otherwise.
2.6. Prorations.
As of the Closing Date, any personal property taxes,
assessments, water, gas, electricity and other utility charges, lease payments
and other expenses relating to the Business shall be prorated as of the
Effective Time. Such prorations may be estimated as necessary and final
settlement shall be made within sixty (60) days of the Closing Date.
2.7. Performance Payments.
Within 30 days following the date that the Facility achieves
the Performance Thresholds set forth on Exhibit G attached hereto, the Buyer
shall pay to Seller, as provided in Section 2.2, amounts equal to the applicable
Performance Payment set forth on Exhibit G attached hereto.
8
<PAGE>
2.8. Sales Tax Exemption.
To the extent applicable, at the Closing, Buyer will deliver
to Seller appropriate and customary sales tax exemption certificates relating to
the transfer of the Assets and the assignment and assumption of the Contracts
contemplated hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF SELLER
Seller represents and warrants to Buyer that:
3.1 Corporate Standing.
Seller is a corporation duly organized and validly existing
and in good standing under the laws of the State of Delaware. Seller has the
power to own its property, and to execute, deliver and perform this Agreement
and each of the Transaction Documents applicable to it, and to carry on its
business as now being conducted. Seller is duly qualified to do business in and
is in good standing as a foreign corporation, authorized to do business under
the laws of the States of Utah and Pennsylvania.
3.2. Authorizations; Binding Agreements.
The execution, delivery and performance of this Agreement and
the other Transaction Documents by Seller and each conveyance, assignment,
agreement, and other document herein contemplated to be executed by Seller, has
been duly authorized by all necessary corporate 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
Seller are, or will be upon execution, legal, valid and binding obligations of
Seller, duly enforceable against Seller 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). This Agreement and the
other Transaction Documents and the conveyances, assignments, agreements, and
other documents herein contemplated to be executed, delivered and performed by
Seller (i) do not and will not result in any violation of, conflict with or
default under the terms of any of Seller's organizational documents (nor, to the
Knowledge of Seller, does there exist any condition which upon the passage of
time or the giving of notice would cause such violation, conflict or default),
and (ii) subject only to the Required Consents, do not and will not result in
any violation of, conflict with or default under any Contract or any other
material permit, lease, venture, indenture, mortgage, agreement, contract,
judgment, order or other obligation or restriction to which Seller, the Assets,
the Contracts or the conduct of the maintenance and operation of the Facility
may be bound or encumbered (nor, to the Knowledge
9
<PAGE>
of Seller, does there exist any condition which upon the passage of time or the
giving of notice would cause such violation, conflict or default).
3.3. No Actions Affecting Enforcement of the Agreement and the
other Transaction Documents.
There are no actions, suits, or proceedings pending, or, to
the Knowledge of Seller, threatened, against Seller in any court, or
administrative governmental body or agency which will affect in any adverse
manner the ability of Seller to execute, deliver and perform this Agreement and
the other Transaction Documents. Subject only to the Required Consents and such
consents which the failure to obtain could not reasonably be expected to have a
Material Adverse Effect, Seller has 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 Facility and to execute, deliver and perform
this Agreement and the other Transaction Documents.
3.4. Taxes.
All tax returns and reports relating to the Assets, the
Contracts and the conduct of the construction, maintenance and operation of the
Facility required by law (including all federal, state, and local property tax,
severance and franchise tax laws) to be filed by Seller prior to the Closing
have been timely filed or will be caused to be timely filed, including those tax
returns relating to periods prior to Closing that are not yet due, except for
such returns and reports which the failure to file could not reasonably be
expected to have a material adverse effect on the Assets, the Contracts or the
maintenance and operation of the Facility. All taxes, assessments, fees,
interest, penalties and other governmental charges relating to the Assets, the
Contracts or the conduct of the construction, maintenance and operation of the
Facility prior to Closing have been paid when due and payable or payment has
been provided for, except for such taxes, assessments, fees, interest, penalties
and other governmental charges which the failure to pay could not reasonably be
expected to have a material adverse effect on the Assets, the Contracts or the
construction, maintenance and operation of the Facility.
3.5. Brokers or Finders Fees.
Except as set forth in Schedule 3.5, there are no obligation
or liability, contingent or otherwise, for brokers or finders fees created by
Seller with respect to the matters provided for in this Agreement and the other
Transaction Documents. No obligation or liability for brokers or finders fees
created by Seller with respect to the matters provided for in this Agreement and
the other Transaction Documents shall be imposed upon Buyer, the Assets or the
Contracts.
10
<PAGE>
3.6. No Imposition of Liens.
The execution, delivery and performance of this Agreement and
the other Transaction Documents by Seller shall not result in the imposition of
any Lien, other than Permitted Liens, upon any of the Assets, the Contracts or
by which the maintenance and operation of the Facility may be bound or
encumbered.
3.7. Applicable Contracts and Permits.
The Contracts listed on Schedule 1.16 and the Permits listed
on Schedule 1.41 are the only material agreements, contracts, leases, permits,
or licenses necessary for the ownership, maintenance and operation of the
Facility and the Business after the Effective Time.
3.8. Title to Assets.
Except as set forth on Schedule 3.8, as of the date hereof,
Seller owns, and as of the Effective Time, Seller will own, good, valid and
marketable title to all of the Assets, free and clear of any and all Liens,
except for Permitted Liens. As of the Effective Time and upon Buyer's payment of
the Purchase Consideration pursuant hereto, good, valid and marketable title to
the Assets, free and clear of all Liens, except for Permitted Liens, shall pass
to Buyer.
3.9. Condition of Assets.
Except as set forth on Schedule 3.9, as of the Closing Date,
the Fixed Assets, taken as a whole, will be in good operating condition and
repair and substantially fit for the production of Section 29 Product at a rate
of 360,0000 tons per year, and the Facility has been constructed in conformance
with that degree of skill and judgment normally exercised by recognized
engineering and construction firms of similar size and experience to that of the
contractors under the Construction Agreements, and the Assets comprising the
Facility conform to the standards of material and workmanship prevailing in
applicable industries and are free from material defects in design, material and
workmanship and are of good quality.
3.10. Inventory.
As of the Closing Date, the Inventory will not include any
material amount of damaged, defective or obsolete items or materials and will be
useable or salable by Buyer in the ordinary course of business.
3.11. Pending Litigation.
Except as disclosed on Schedule 3.11, there are no actions,
suits, arbitrations or proceedings currently pending or, to the Knowledge of
Seller, threatened against the Assets or the Contracts. There are no outstanding
or unsatisfied judgments, orders or decrees to which Seller is bound.
11
<PAGE>
3.12. Compliance with Laws.
To the Knowledge of Seller, Seller is in compliance with all
orders, writs, injunctions, decrees, judgments, rulings, laws, rules or
regulations of any governmental entity to which Seller, the Assets or the
Contracts are subject, the violation of which could reasonably be expected to
have a Material Adverse Effect.
3.13. Status of Contracts.
Schedule 1.16 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 Seller relating
primarily to the Business or the Assets. Except as described in the Schedule
3.11, the Contracts are valid and in good standing, and there is no violation
of, conflict with or default under the Contracts, the consequence of which could
reasonably be expected to have a Material Adverse Effect. Seller has 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.
3.14. Consents.
Schedule 1.50 is a true, correct and complete list of all
Required Consents. Seller has 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.
3.15. Ground Lease.
The Ground Lease constitutes all of the real property
interests necessary for the Business and the operation of the Facility during
the term of such Ground Lease. Except as indicated on Schedule 3.15, there is no
violation of, conflict with or default under the Ground Lease, except for such
violations, conflicts and defaults the consequences of which could not
reasonably be expected to have a Material Adverse Effect. Seller has not
received any notice from any party to the Ground 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.
3.16. No Fee Property.
Other than the Ground Lease, no interest in real property is
held or used by Seller in connection with the construction, maintenance,
ownership and operation of the Facility.
12
<PAGE>
3.17. Books and Records.
As of the Closing Date, the Books and Records shall be
complete and correct in all material respects.
3.18. Environmental Conditions.
(a) Definitions. When used in this Section 3.18:
(i) "Environmental Laws" shall mean all applicable
laws (including common law), rules, orders, regulations, statutes, ordinances,
codes, decrees and requirements of any Governmental Authority regulating,
relating to or imposing liability standards of conduct concerning any Hazardous
Materials or environmental protection.
(ii) "Governmental Authority" shall mean any federal,
state, local, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, or any court, in each case having
jurisdiction over the applicable matter.
(iii) "Hazardous Materials" shall mean any solid
waste, petroleum or petroleum product, hazardous material, hazardous waste,
infectious medical waste, or hazardous or toxic substance defined or regulated
as such in any Environmental Law.
(b) Environmental Representations and Warranties. Except as
set forth on Schedule 3.18 attached hereto:
(i) Seller has not operated the Facility or conducted
business or other activities at or from the Facility, in connection with the
construction of the Facility or otherwise, in a manner that constituted or
constitutes a violation of any applicable Environmental Law;
(ii) There has been no off-site shipment or release
of any Hazardous Materials by the Seller on, under, at, from or in any way
affecting the Facility or any part thereof, which off-site shipment or release
gives rise to liabilities or obligations under applicable Environmental Laws;
(iii) Seller has not received any notices or claims
that it is a responsible party in connection with any claim or notice asserted
pursuant to 42 U.S.C. Section 9601 et seq., or any state superfund law, in
connection with the Facility; and
(iv) Seller has received all Permits as may be
required under applicable Environmental Laws to operate the Facility as of the
Effective Time, and Seller is in compliance in all material respects with the
terms and conditions of each such Permit. Such Permits shall be transferable to
Buyer and will be effective immediately after the Closing.
13
<PAGE>
3.19. Liabilities.
Except for liabilities underlying any Permitted Liens and
Assumed Liabilities, the Seller has no liabilities which could reasonably be
expected to have a Material Adverse Effect following the Closing, nor has any
condition existed or any event occurred which could reasonably be expected to
give rise to any such liability.
3.20. Agreements with Related Persons.
There are no contracts, licenses, agreements or arrangements
with any Affiliate of Seller in connection with the construction, maintenance,
ownership and operation of the Facility, or ownership and operation of the
Business other than as disclosed on Schedule 3.20.
3.21. Adequacy of the Purchased Assets.
Except as described in Schedule 3.9, the Assets and the
Contracts, together with (i) the technology and know-how being licensed to Buyer
by Seller under the License and Binder Purchase Agreement, and (ii) the chemical
binder to be supplied to Buyer by Seller under the License and Binder Purchase
Agreement, constitute all of the assets, technology, raw materials (other than
feedstock raw materials) and rights reasonably expected to be necessary for the
production by Buyer of Section 29 Product at the rate of 360,000 tons per year.
3.22. Production Capacity.
The Facility has a rated capacity to produce Product at the
rate of 360,000 tons per year.
3.23. Section 29 Issues.
The Facility was placed "in service" for purposes of the Code
prior to July 1, 1998 pursuant to a binding contract entered into prior to
January 1, 1997 and effective at all times thereafter through completion of
construction..
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller that:
4.1 Organization and Standing.
Buyer is a limited liability company duly organized, validly
existing, and in good standing under the laws of the State of Delaware and has
the power to own its own property, and to execute, deliver and perform this
Agreement and each of the Transaction Documents, and to
14
<PAGE>
carry on its business as now being conducted. Buyer is qualified to do business
in and is in good standing as a foreign limited liability company authorized to
do business under the laws of the State of Pennsylvania.
4.2. 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 limited liability company 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 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 laws from time to time in effect
relating to the rights and remedies of creditors as well as to general
principles of equity). 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 (i) do not and
will not result in any violation of, conflict with or default under the terms of
Buyer's organizational documents, and (ii) subject only to the Required
Consents, do not and will not result in any violation of, conflict with or
default under any material permit, lease, venture, indenture, mortgage,
agreement, contract, judgment, order or other obligation or restriction to which
Buyer is bound (nor, to the Knowledge of Buyer, does there exist any condition
which upon the passage of time or the giving of notice would cause such
violation, conflict or default).
4.3. Brokers or Finders Fees.
Except as set forth on Schedule 4.3, 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
Seller.
4.4. No Actions Affecting Enforcement of the Agreement and the
other Transaction Documents.
There are no actions, suits, or proceedings pending, or, to
the Knowledge of Buyer, threatened, against Buyer in any court, or
administrative governmental body or agency which will affect in any adverse
manner the ability of Buyer to execute, deliver and perform this Agreement and
the other Transaction Documents.
15
<PAGE>
ARTICLE V
CERTAIN UNDERSTANDINGS AND AGREEMENTS
5.1. Conduct of Seller Prior to Closing.
From the date hereof through the Closing Date, Seller shall
operate the Facility in the ordinary course and shall not take any action
inconsistent therewith, except as otherwise permitted by this Agreement or
consented to by Buyer in writing. In connection therewith, Seller shall operate
the Fixed Assets and systems comprising the Facility in a safe manner, using
qualified, competent, and, if necessary, licensed personnel. Without limiting
the generality of the foregoing, Seller shall: (a) keep full and complete Books
and Records in all material respects; (b) maintain in full force and effect
adequate insurance policies covering property, casualty, and general liability
on the Assets; (c) take such commercially reasonable action as may be necessary
to preserve the Facility and the Assets in good condition, normal wear and tear
excepted; (d) use its commercially reasonable efforts to preserve the Facility
and the Assets intact, and to preserve for Buyer the goodwill of the suppliers,
customers and others having business relations with Seller in connection with
the Facility; and (e) comply in all material respects with all Laws applicable
to Seller in the ownership and operation of the Facility.
5.2. Exclusivity.
From the date hereof through the Closing Date, none of Seller
or any Affiliate shall, directly or indirectly, through any officer or director
of Seller or any Affiliate, any agent or otherwise, with respect to the Assets
and the Contracts: (a) solicit, initiate, encourage the submission of, respond
to or discuss inquiries, proposals or offers from any person relating to any
acquisition or purchase of any of the Assets or Contracts, or any exchange
offer, merger, consolidation, business combination or sale of substantial
assets, sale of securities, or similar transactions involving the Assets (a
"Competing Transaction"); (b) enter into or participate in any discussions or
negotiations regarding a Competing Transaction, or furnish to any other person
any information with respect to the Assets or Contracts, except for disclosures
which are required under federal securities laws or required to meet Seller's
obligations hereunder; or (c) otherwise cooperate in any way with, or assist or
participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek a Competing Transaction. Seller shall immediately notify
Buyer of any proposal relating to a Competing Transaction or if any inquiry or
contact with any person with respect thereto is made and shall immediately
deliver to Buyer copies of any such written proposal or offer and any
communications made in response thereto. It is agreed that a sale in any form of
Seller's remaining assets not associated with the Facility, including a sale of
equity in Seller, shall not be a Competing Transaction.
5.3. Access to Information.
Between the date of this Agreement and the Effective Time,
Seller will give Buyer and its authorized representatives reasonable access
during normal business hours to all
16
<PAGE>
information, facilities and books and records relating to the Facility and the
Business, permit Buyer to make such inspections as it may reasonably require and
cause its officers to furnish Buyer with such financial and operating data and
other information with respect to the Facility and the Business as Buyer may
from time to time reasonably request, and, further, Seller shall make available
to Buyer for examination the originals or the true and correct copies of all
documents which Buyer may reasonably request in connection with the transactions
contemplated by this Agreement; provided, however, that all such activities
shall be conducted during normal business hours with a view towards minimizing
any disruption of the day-to-day business of Seller.
5.4. Best Efforts.
Subject to the terms and conditions herein provided, each of
the parties hereto agrees to use its commercially reasonable efforts to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper and advisable under applicable Law, and to obtain the Required
Consents, necessary to consummate and make effective the transactions
contemplated by this Agreement. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall take all such necessary action. Buyer and Seller will execute any
additional instruments necessary to consummate the transactions contemplated
hereby.
5.5. Public Announcements.
Buyer and Seller will consult with each other before issuing
any press release or otherwise making any public statement with respect to this
Agreement and the transactions contemplated herein, and shall not issue any such
press release or make any such public statement prior to such consultation or as
to which the other party reasonably objects, except as may be required by Law or
by obligations pursuant to any listing agreement with any national securities
exchange or inter-dealer quotation system.
5.6. Confidentiality.
Notwithstanding the execution of this Agreement, the
confidentiality provisions of the Confidentiality Agreement shall remain in full
force and effect and shall survive the Closing.
5.7. Negative Covenants.
During the period from the date hereof and the Effective Time,
Seller shall:
(a) not sell, lease, assign, hypothecate or agree to sell,
lease, assign, hypothecate or otherwise transfer or dispose of, any material
component of the Assets, except as contemplated by the Permitted Liens;
17
<PAGE>
(b) not enter into any lease, contract, agreement, commitment,
arrangement or transaction relating to the Assets or the Facility except in the
normal course of operation of the Facility and in accordance with past practice,
or terminate, cancel or modify or in any way impair any of the Contracts or
Permits other than in the normal course of operation of the Facility;
(c) not subject to any Lien, other than Permitted Liens, any
of the Assets, and shall use commercially reasonable efforts not to permit or
allow any of the Assets to become subject to any Lien, other than Permitted
Liens; and
(d) not enter into any lease, contract, agreement, commitment,
arrangement or transaction or do any other act or omit to do any commercially
reasonable act that might reasonably be expected to adversely affect the Assets
or the construction, maintenance and operation of the Facility or the
consummation of the transactions contemplated by this Agreement and the other
Transaction Documents.
5.8. Taxes.
Following Closing, Seller shall timely file all tax returns
and reports relating to the Assets, the Contracts and the conduct of the
construction, maintenance and operation of the Facility prior to Closing which
have not been filed or were not yet due to be filed prior to Closing, and Seller
shall timely pay all taxes, assessments, fees, interest, penalties and
governmental charges relating to the Assets, the Contracts or the conduct of the
construction, maintenance and operation of the Facility prior to Closing which
have not been paid or were not yet due and payable prior to Closing.
5.9. Private Letter Ruling.
(a) Following Closing, Buyer plans to seek a Private Letter
Ruling from the IRS as to matters relating to the Facility and Section 29 of the
Code. Seller shall cooperate with and assist Buyer, as reasonably requested by
Buyer, in connection with seeking such Private Letter Ruling. In the event that
Buyer does seek such a Private Letter Ruling and the IRS refuses or fails to
issue it in a form that is satisfactory in the sole and absolute discretion of
Buyer, Buyer shall be entitled to elect (by giving written notice to Seller to
such effect) to terminate the obligation to make further royalty payments under
Section 3 of the License and Binder Purchase Agreement and, in such event,
Seller shall have the option to purchase, within one year following such notice,
the Assets and Contracts (and assume obligations under the Contracts) from Buyer
at the greater of (i) the amount of Purchase Consideration theretofore paid by
Buyer plus the amount of any capital expenditures made by Buyer in connection
with the Facility and Assets plus any obligations of Buyer in respect of the
Facility and the Assets and Contracts, or (ii) the fair market value of such
Assets and Contracts.
(b) Notwithstanding anything to the contrary contained in this
Agreement or the License and Binder Purchase Agreement, Buyer shall not be
obligated to make any payments
18
<PAGE>
after the Effective Time in respect of the Purchase Consideration or royalties
until the conditions set forth in Schedule 5.9 are satisfied, other than any
such condition, the failure of which to obtain could not reasonably be expected
to have a Material Adverse Effect on the ownership and operation of the Assets,
Contracts, Facility and Business after the Effective Time.
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
Each and every obligation of Buyer to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of the following
express conditions precedent:
6.1 Compliance with Agreement.
Seller shall have performed and complied in all material
respects with all of its obligations under this Agreement which are to be
performed or complied with by it prior to or on the Closing Date.
6.2. Proceedings and Instruments Satisfactory.
All proceedings, corporate or other, to be taken by Seller in
connection with the transactions contemplated by this Agreement, and all
documents incident thereto, shall be reasonably satisfactory in form and
substance to Buyer.
6.3. No Litigation.
No investigation, suit, action or other proceedings shall be
threatened or pending before any court or governmental agency that seeks
restraint, prohibition, damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby.
6.4. Representations and Warranties.
The representations and warranties made by Seller in this
Agreement shall be true and correct in all respects (as to representations and
warranties qualified or limited by the term "Material Adverse Effect," the word
"material," or phrases of like import), and in all material respects (as to
representations and warranties not so qualified or limited) as of the Closing
Date with the same force and effect as though said representations and
warranties had been made on the Closing Date.
19
<PAGE>
6.5. Material Damage to Assets.
Between the date of this Agreement and the Closing Date, the
Assets shall not have been materially and adversely affected by reason of any
loss, taking, condemnation, destruction or physical damage, whether or not
insured against.
6.6. Permits.
All Permits required to operate the Facility as contemplated
hereby shall have been obtained by, or transferred to Buyer, other than (i) such
Permits, the failure of which to obtain could not reasonably be expected to have
a Material Adverse Effect and, (ii) a non-temporary Pennsylvania Air Quality
Permit as referenced in Section 1.41.
6.7. Consents.
All Required Consents applicable to Seller shall have been
obtained.
6.8. Lien Waivers and Estoppel Certificates.
Seller shall have delivered to Buyer: (a) waivers of any
statutory landlord or lessor liens with respect to the Real Property and any
material item of leased tangible personal property; and (b) estoppel
certificates, substantially in the form of Exhibit K attached hereto or
otherwise reasonably satisfactory in form and substance to Buyer, from the
landlord of the Real Property and the lessor of each material item of leased
tangible personal property.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER
Each and every obligation of Seller to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of the following
express conditions precedent:
7.1 Compliance with Agreement.
Buyer shall have performed and complied in all material
respects with all of its obligations under this Agreement which are to be
performed or complied with by it prior to or on the Closing Date.
20
<PAGE>
7.2. Proceedings and Instruments Satisfactory.
All proceedings, corporate or other, to be taken by Buyer in
connection with the transactions contemplated by this Agreement, and all
documents incident thereto, shall be reasonably satisfactory in form and
substance to Seller.
7.3. No Litigation.
No investigation, suit, action or other proceeding shall be
threatened or pending before any court or governmental agency that seeks
restraint, prohibition, damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby.
7.4. Representations and Warranties.
The representations and warranties made by Buyer in this
Agreement shall be true and correct in all respects (as to representations and
warranties qualified or limited by the term "Material Adverse Effect," the word
"material," or phrases of like import), and in all material respects (as to
representations and warranties not so qualified or limited) as of the Closing
Date with the same force and effect as though such representations and
warranties had been made on the Closing Date.
7.5. Required Consents.
All Required Consents applicable to Buyer shall have been
obtained.
ARTICLE VIII
INDEMNITIES AND ADDITIONAL COVENANTS
8.1. Seller's Indemnity.
(a) Seller hereby indemnifies and holds Buyer harmless from
and against, and agrees to defend promptly Buyer from, and reimburse Buyer for,
any and all losses, damages, costs, expenses, liabilities, obligations and
claims of any kind, including, without limitation, environmental liabilities
(whether involving personal injury or property damage), reasonable attorneys'
fees and other legal costs and expenses (hereinafter referred to collectively as
"Losses"), that Buyer and any Affiliate of Buyer may at any time suffer or
incur, or become subject to, as a result of or in connection with: (i) any
breach or inaccuracy of any of the representations and warranties made by Seller
in this Agreement or any other agreement or instrument delivered by Seller
pursuant hereto; (ii) any failure of Seller to carry out, perform, satisfy and
discharge any of its covenants, agreements, undertakings, liabilities or
obligations under this Agreement or under any of the agreements and instruments
delivered by Seller pursuant to this Agreement; (iii) claims by third parties
(including governmental authorities)
21
<PAGE>
against Buyer relating to the construction, operation and ownership by Seller of
the Assets and the performance by Seller under the Contracts in each case under
this clause (iii) for the period prior to the Effective Time; (iv) any of the
matters referenced in Schedules 3.5 and 3.11; (v) any violations of, or failure
to operate in accordance with, necessary Permits prior to the effective time;
(vi) failure by Seller to satisfy and perform any of the obligations set forth
in Schedule 5.9 and any cost incurred to satisfy and perform any such obligation
or resulting from any additional or modified terms under any Contracts (or
substitute contracts) required for or resulting from the satisfaction and
performance of such obligations; and (vii) any and all liabilities and
obligations of Seller which are not expressly assumed by Buyer as Assumed
Liabilities pursuant hereto;
(b) In the event a claim against Buyer arises that Buyer
reasonably believes is covered by the indemnity provisions of Section 8.1((a))
of this Agreement, notice shall be given promptly by Buyer to Seller containing
detail reasonably sufficient for Seller to identify the nature and basis of the
claim. Provided that Seller admits in writing to Buyer that such claim is
covered by the indemnity provisions of Section 8.1((a)) hereof, Seller shall
have the right to contest and defend by all appropriate legal proceedings such
claim and to control all settlements (unless Buyer agrees to assume the cost of
settlement and to forgo such indemnity) and to select lead counsel to defend any
and all such claims at the sole cost and expense of Seller; provided, however,
that Seller may not effect any settlement that could result in any cost, expense
or liability to Buyer unless Buyer consents in writing to such settlement and
Seller agrees to indemnify Buyer therefor. Buyer may select counsel to
participate with Seller's counsel in any such defense, in which event Buyer's
counsel shall be at its own sole cost and expense. In connection with any such
claim, action or proceeding, the parties shall cooperate with each other and
provide each other with access to relevant books and records in their
possession.
(c) Seller shall not be required to indemnify and hold
harmless Buyer pursuant to Section 8.1((a))(i) hereof in respect of the
representations and warranties made by Seller herein unless such right to
indemnification is asserted by Buyer (whether or not such Losses have actually
been incurred) by notice to Seller within 12 months after the Closing Date, with
the exception of (i) the representations and warranties set forth in Sections
3.4 and 3.23, which must be asserted by Buyer within the applicable statute of
limitations or any extensions thereof required by any applicable authority
relating to the taxes or assessments giving rise to the Loss, plus 60 days, (ii)
the representations and warranties set forth in Section 3.12, which must be
asserted by Buyer within the applicable statute of limitations for the violation
of the underlying law that forms the basis of such claim, plus 60 days, (iii)
the representations and warranties set forth in Sections 3.1, 3.2, and 3.8,
which shall be without time limitation, and (iv) the representations and
warranties set forth in Section 3.18 hereof, which must be asserted within 24
months after the Closing Date.
(d) Notwithstanding the foregoing, Seller shall not be
required to indemnify Buyer under Section 8.1((a))(i) in respect of the
representations and warranties made by Seller unless the amount of all Losses
for which indemnification is sought by Buyer under Section 8.1((a))(i) exceeds,
in the aggregate, $250,000, in which event, Seller's indemnity obligation
22
<PAGE>
hereunder would apply to all such Losses. Seller's aggregate indemnification
obligation pursuant to Section 8.1((a))(i) shall in no event exceed the Purchase
Consideration described in Section 2.2((a)), together with that portion of the
Purchase Consideration described in Section 2.2((b)) which ultimately is
released to Seller.
(e) The indemnification provided in this Section 8.1,
including the limitations with respect thereto, shall be the exclusive remedy
for Buyer with respect to Losses as a result of or in connection with the
matters described in Section 8.1((a))(i), notwithstanding any provisions in this
Agreement or any other such agreement or instrument to the contrary.
8.2. Buyer's Indemnity.
(a) Buyer hereby indemnifies and holds Seller harmless from
and against, and agrees to defend promptly Seller from and reimburse Seller for,
any and all Losses that Seller may at any time suffer or incur, or become
subject to, as a result of or in connection with: (i) any breach or inaccuracy
of any of the representations and warranties made by Buyer in this Agreement or
any other agreement or instrument delivered by Buyer pursuant hereto; (ii) any
failure by Buyer to carry out, perform, satisfy and discharge any of its
covenants, agreements, undertakings, liabilities or obligations under this
Agreement or under any of the agreements and instruments delivered by Buyer
pursuant to this Agreement; and (iii) claims by third parties (including
governmental authorities) against Seller relating to the operation and ownership
by Buyer of the Assets and the performance by Buyer under the Contracts in each
case under this clause (iii) for the period following the Effective Time.
(b) In the event a claim against Seller arises that is covered
by the indemnity provisions of Section 8.2.((a)) of this Agreement, notice shall
be given promptly by Seller to Buyer containing detail reasonably sufficient for
Buyer to identify the nature and basis of the claim. Provided that Buyer admits
in writing to Seller that such claim is covered by the indemnity provisions of
Section 8.2.((a)) hereof, Buyer shall have the right to contest and defend by
all appropriate legal proceedings such claim and to control all settlements
(unless Seller agrees to assume the cost of settlement and to forgo such
indemnity) and to select lead counsel to defend any and all such claims at the
sole cost and expense of Buyer; provided, however, that Buyer may not effect any
settlement that could result in any cost, expense or liability to Seller unless
Seller consents in writing to such settlement and Buyer agrees to indemnify
Seller therefor. Seller may select counsel to participate with Buyer's counsel
in any such defense, in which event Seller's counsel shall be at the sole cost
and expense of Seller. In connection with any such claim, action or proceeding,
the parties shall cooperate with each other and provide each other with access
to relevant books and records in their possession.
(c) Buyer shall not be required to indemnify and hold harmless
Seller pursuant to Section 8.2.((a))(i) hereof in respect of the representations
and warranties made by Buyer herein unless such right to indemnification is
asserted by Seller (whether or not such Losses have actually been incurred) by
notice to the Buyer within 12 months after the Closing Date, with the
23
<PAGE>
exception of the representations and warranties set forth in Sections 4.1 and
4.2 hereof, which shall be without time limitation.
(d) Notwithstanding the foregoing, Buyer shall not be required
to indemnify Seller under Section 8.2.((a))(i) in respect of the representations
and warranties made by Buyer unless the amount of all Losses for which
indemnification is sought by Seller under Section 8.2.((a))(i) exceeds, in the
aggregate, $250,000, in which event, Buyer's indemnity obligation hereunder
would apply to all such Losses.
(e) The indemnification provided in this Section 8.2,
including the limitations with respect thereto, shall be the exclusive remedy
for Seller with respect to Losses as a result of or in connection with the
matters described in Section 8.2((a))(i), notwithstanding any provisions in this
Agreement or any other such agreement or instrument to the contrary.
8.3. Bulk Sales Compliance.
To the extent applicable, Buyer hereby waives compliance by
Seller with the provisions of the bulk sales law of any U.S. jurisdiction, and
in any event, Seller covenants and agrees to pay and discharge when due all
claims of any governmental entities and creditors of Seller and its subsidiaries
that could be asserted against Buyer by reason of such non-compliance. Seller
agrees to indemnify and hold Buyer harmless from and against and shall on demand
reimburse Buyer for any and all Losses suffered by Buyer by reason of Seller's
failure to pay and discharge any such claims.
8.4. Additional Instruments.
At any time and from time to time after the Closing, at either
party's request and without further consideration, Seller or Buyer, as the case
may be, shall execute and deliver such other instruments of sale, transfer,
conveyance, assignment and confirmation and take such other action as Seller or
Buyer may reasonably deem necessary or desirable in order to more effectively
transfer, convey, and assign to Buyer, and confirm Buyer's title to and interest
in and responsibility and liability for, the Assets and Contracts and the
consummation of the transactions contemplated herein. Without limiting the
generality of the foregoing, Seller will cooperate with and assist Buyer in
renewing, or transferring, into Buyer's name those Permits for which Buyer
requests such assistance and cooperation at the appropriate time for such
renewal or transfer as determined by Buyer.
8.5. Access to Books, Records and Employees.
From and after the Closing Date, Buyer will authorize and
permit Seller and its respective representatives to have access during normal
business hours, upon reasonable notice and for reasonable purposes and in such
manner as will not unreasonably interfere with the conduct of Buyer's business,
to Books and Records within the control of Buyer that relate to the
24
<PAGE>
Facility. From and after the Closing Date, Seller will authorize and permit
Buyer and its representatives to have access during normal business hours, upon
reasonable notice and for reasonable purposes and in such manner as will not
unreasonably interfere with the conduct of Seller's business, to all books and
records, files, documents and other correspondence related to the Facility prior
to the Effective Time, which are not included among the Books and Records. Buyer
and Seller agree to maintain all books, records, files, documents and other
correspondence related to the Facility prior to the Effective Time in accordance
with their respective normal document retention practices after the Closing
Date.
ARTICLE IX
TERMINATION
9.1. Termination.
This Agreement may be terminated and the transactions
contemplated hereby may be abandoned as follows: (a) at any time prior to the
Closing Date by mutual written agreement of Seller and Buyer; or (b) by either
Seller or Buyer if the Effective Time shall not have occurred on or before
August 31, 1999, provided, however, that the right to terminate this Agreement
pursuant to this clause (b) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been the cause of, or resulted
in, the failure of the Effective Time to occur prior to such date.
9.2. Rights on Termination; Waiver.
(a) If this Agreement is terminated pursuant to Section 9.1,
all further obligations of the parties under or pursuant to this Agreement shall
terminate.
(b) If any of the conditions set forth in Article VI of this
Agreement have not been satisfied, Buyer may nevertheless elect to waive such
conditions and proceed with the consummation of the transactions contemplated
hereby. If any of the conditions set forth in Article VII of this Agreement have
not been satisfied, Seller may nevertheless elect to waive such conditions and
proceed with the consummation of the transactions contemplated hereby. The
election by Buyer or Seller to terminate this Agreement pursuant to Section
9.1(b) shall not in any way affect the rights of such party against the other
party for any breach or default under this Agreement.
25
<PAGE>
ARTICLE X
MISCELLANEOUS
10.1. Entire Agreement; Amendment.
This Agreement and the documents referred to herein and to be
delivered pursuant hereto constitute the entire agreement between the parties
pertaining to the subject matter hereof, and supersede all prior and
contemporaneous agreements, understandings, negotiations and discussions of the
parties, whether oral or written, and there are no warranties, representations
or other agreements between the parties in connection with the subject matter
hereof, except as specifically set forth herein or therein. No amendment,
supplement, modification, waiver or termination of this Agreement shall be
binding unless executed in writing by the party to be bound thereby. No waiver
of any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provision of this Agreement, whether or not similar, nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided. The representations and warranties of each party hereto shall be
deemed to be material and to have been relied upon by the other party. The
representations, warranties, covenants and agreements of Seller and Buyer
contained herein shall survive the execution and delivery of this Agreement and
consummation of the transactions contemplated hereby and, as to the
representations and warranties, shall be effective until the relevant time
limitation for making any indemnity claim with respect to such representations
and warranties under Sections 8.1 and 8.2. shall have been reached and no
longer.
10.2. Expenses.
Except as otherwise specifically provided herein, each of the
parties hereto shall pay the fees and expenses of their respective counsel,
accountants and other experts and the other expenses incident to the negotiation
and preparation of this Agreement and consummation of the transactions
contemplated hereby.
10.3. Governing Law; Consent to Jurisdiction.
This Agreement shall be construed and interpreted according to
the laws of the State of New York, without regard to the conflicts of law rules
thereof; provided, however, that Section 5-1401 of the New York General
Obligations Law shall apply to this Agreement. Each of the parties hereto, in
respect of itself and its properties, agrees to be subject to (and hereby
irrevocably submits to) the nonexclusive jurisdiction of the United States
federal court for the Southern District of New York or New York state court
sitting in the Borough of Manhattan, New York, in respect of any suit, action or
proceeding arising out of or relating to this Agreement or the transactions
contemplated herein, and irrevocably agrees that all claims in respect of any
such suit, action or proceeding may be heard and determined in any such court.
Each of the parties hereto irrevocably waives, to the fullest extent it may
effectively do so under applicable
26
<PAGE>
Law, any objection to the laying of the venue of any such suit, action or
proceeding brought in any such court and any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum.
Either party hereto may make service on the other party by sending or delivering
a copy of the process to the party to be served at the address and in the manner
provided for the giving of notices in Section 10.5 hereof. Nothing in this
Section 10.3, however, shall affect the right of any party to bring any action
or proceeding arising out of or relating to this Agreement in any other court or
to serve legal process in any other manner permitted by law or in equity.
10.4. Assignment.
This Agreement and each party's respective rights hereunder
may not be assigned, by operation of law or otherwise, without the prior written
consent of the other party.
10.5. Notices.
All communications, notices and disclosures required or
permitted by this Agreement shall be in writing and shall be deemed to have been
given at the earlier of the date (a) when delivered personally or by messenger
or by overnight delivery service to an officer of the other party, (b) five days
after being mailed by registered or certified United States mail, postage
prepaid, return receipt requested, or (c) when received via telecopy, telex or
other electronic transmission, in all cases addressed to the person for whom it
is intended at his address set forth below or to such other address as a party
shall have designated by notice in writing to the other party in the manner
provided by this Section:
If to Buyer: **
Fax: **
Attn: **
and:
With a copy to: ** Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219
Fax: ** Fax: (804) 788-8218
Attn: General Counsel. Attn: Kenneth J. Alcott, Esq.
27
<PAGE>
If to Seller: Covol Technologies, Inc.
3280 North Frontage Road
Lehi, Utah 84043
Fax: (801) 768-4483
Attn: Brent M. Cook
and:
With a copy to: Covol Technologies, Inc. Pillsbury Madison & Sutro LLP
3280 North Frontage Road 235 Montgomery Street
Lehi, Utah 84043 San Francisco, CA 94104
Fax: (801) 768-4483 Fax: (415) 983-1200
Attn: Harlan Hatfield, Esq. Attn: Nathaniel M. Cartmell III,
Esq.
10.6. Counterparts; Headings.
This Agreement may be executed in several counterparts, each
of which shall be deemed an original, but such counterparts shall together
constitute but one and the same Agreement. The Table of Contents and Article and
Section headings in this Agreement are inserted for convenience of reference
only and shall not constitute a part hereof.
10.7. Interpretation.
Unless the context requires otherwise, all words used in this
Agreement in the singular number shall extend to and include the plural, all
words in the plural number shall extend to and include the singular and all
words in any gender shall extend to and include all genders. All references to
contracts, agreements, leases or other understandings or arrangements shall
refer to oral as well as written matters. The specificity of any representation
or warranty contained herein shall not be deemed to limit the generality of any
other representation or warranty contained herein.
10.8. Severability.
If any provision, clause or part of this Agreement, or the
application thereof under certain circumstances, is held invalid, the remainder
of this Agreement, or the application of such provision, clause or part under
other circumstances, shall not be affected thereby.
10.9. No Reliance.
No third party is entitled to rely on any of the
representations, warranties and agreements contained in this Agreement. Buyer
and Seller assume no liability to any third party because of any reliance on the
representations, warranties and agreements of Buyer or Seller contained in this
Agreement. Nothing contained in this Agreement shall be construed as creating
28
<PAGE>
a partnership or joint venture or any agency relationship between the parties
hereto, or any other relationship other than buyer and seller as provided
herein.
10.10. Parties in Interest.
This Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and nothing in this Agreement, express or implied,
is intended to or shall confer upon any other person any rights, benefits or
remedies of any nature whatsoever under or by reason of this Agreement.
10.11. Specific Performance.
The parties hereto agree that irreparable damage would occur
in the event any of the provisions of this Agreement were not performed in
accordance with the terms hereof and that the parties shall be entitled to
specific performance of the terms hereof, in addition to any other remedy at law
or equity.
[Remainder of this page intentionally left blank]
29
<PAGE>
IN WITNESS WHEREOF, each party hereto has caused this Purchase
Agreement to be executed in its name by a duly authorized officer as of the day
and year first above written.
**
By: **
Its: Vice President and Chief
Financial Officer
COVOL TECHNOLOGIES, INC.
---------------------------------
By: Kirk A. Benson
Its: Chairman and Chief Executive
Officer
30
LICENSE AND BINDER PURCHASE AGREEMENT
THIS LICENSE AND BINDER PURCHASE AGREEMENT (the "Agreement"), is made
and entered into as of August 27, 1999 by and between **, a Delaware limited
liability company (the "Licensee"), and Covol Technologies, Inc., a Delaware
corporation (the "Licensor").
WHEREAS Licensor has developed a proprietary process to produce
synthetic coal fuel extrusions, pellets, and briquettes (collectively referred
to herein as "briquettes") from waste coal dust, coal fines and other coal
derivatives, and Licensor is entitled to license the synthetic Coal Briquetting
Technology (as defined below) to Licensee;
WHEREAS Licensor has constructed a synthetic fuel manufacturing plant
(the "Facility") located near Karthus, Clearfield County, Pennsylvania, on
property leased from River Hill Coal Company, Inc. and Licensee has or will
acquire the Facility from Licensor as contemplated by that certain Purchase
Agreement dated as of August 27, 1999, by and between Licensor and Licensee (the
"Purchase Agreement");
WHEREAS Licensee wishes to obtain and Licensor wishes to grant to
Licensee a license for the synthetic Coal Briquetting Technology to be used in
connection with the Facility on the terms and conditions set forth in this
Agreement, and Licensee wishes to obtain and Licensor wishes to sell to Licensee
the Proprietary Binder Material (as defined below) for use in the operation of
the Facility.
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 and Licensee each agree as follows:
Section 1. Definitions.
"Coal Briquetting Technology" means all intellectual property, patents
(including but not limited to United States Patent Numbers 5,599,361; 5,487,764;
and 5,453,103) and applications therefor, printed and not printed 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
** This exhibit contains confidential material which has been omitted
pursuant to a Confidential Treatment Request. The omitted information
has been filed separately with the Securities and Exchange Commission.
1
<PAGE>
protocols, source and object code and modifications, test procedures, program
cards, tapes, disks, algorithms and all other scientific or technical
information in whatever form including "Developed Technology" and "Improvements"
relating to, embodied in or used in the process to produce synthetic coal fuel
briquettes from waste coal dust, coal fines, run of mine coal, 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 Licensor;
provided, however, that the defined term "Coal Briquetting Technology" shall not
include the proprietary process/method or other binder material or composition
developed by Licensor to produce synthetic coke briquettes from coke breeze,
iron revert materials, or any technology used in any application other than the
processing and production of synthetic coal fuel briquettes. Nothing in this
Agreement is intended to grant to Licensee the right to apply the Coal
Briquetting Technology to produce anything other than synthetic coal fuel
intended to qualify for tax credits under Section 29(c)(1)(C) of the Internal
Revenue Code.
"Code" means the Internal Revenue Code of 1986, as amended.
"Developed Technology" means any inventions, "Improvement," or
technology that Licensor may conceive, make, invent, or suggest in connection
with Licensor's disclosure to Licensee of the Coal Briquetting Technology, all
of which the parties hereto acknowledge and agree constitutes the sole and
exclusive property of Licensor. "Developed Technology" also means any
inventions, "Improvement," or new technology directly related to the Coal
Briquetting Technology that Licensor or Licensee may conceive, make, invent or
suggest relating to the Coal Briquetting Technology during the Term of this
Agreement; provided, however, that "Developed Technology" shall not include coal
fines recovery, coal fines washing, material handling, or product marketing
techniques or technologies conceived, made, invented, or suggested by Licensee
that are generally applicable to the coal industry but which are used at the
Facility in connection with the Coal Briquetting Technology.
"Effective Date" means the date of this Agreement set forth above.
"Facility" has the meaning set forth in the preamble.
"Improvement" means an alteration or addition to an invention or
discovery which may enhance performance or economics while maintaining a
product's, device's, or method's essential identity and character. An
Improvement may comprise alterations or additions to either patented or
unpatented inventions, discoveries, technology, or devices, and may or may not
be patentable; provided, however, that "Improvement" shall not include coal
fines recovery, coal fines washing, material handling, or product marketing
techniques or technologies conceived, made, invented, or suggested by Licensee
that are generally applicable to the coal industry but which are used at the
Facility in connection with the Coal Briquetting Technology.
"Licensee" has the meaning set forth in the preamble.
"Licensor" has the meaning set forth in the preamble.
"Proprietary Binder Material" means and refers to the binder compound
necessary for the production, by Licensee, of synthetic coal briquettes as
contemplated under the Purchase Agreement and which briquettes are reasonably
expected to constitute "qualified fuels" pursuant
2
<PAGE>
to the terms of Section 29(c)(1)(C) of the Code and with respect to which
Section 29 is applicable pursuant to Section 29(f) and 29(g) of the Code.
"Purchase Agreement" has the meaning set forth in the preamble.
"Royalty" has the meaning set forth in Section 3.
Section 2. License Grant.
2.1 General. Licensor hereby grants to Licensee a non-exclusive license
to use the Coal Briquetting Technology, including Developed Technology and/or
Improvements relating to the Coal Briquetting Technology, throughout the term of
this Agreement, for the purpose of commercial exploitation, including the
non-exclusive right to make, have made or use at the Facility and to offer to
sell and to sell or otherwise transfer products that have been manufactured with
the Coal Briquetting Technology, subject to the terms and conditions of this
Agreement. Licensee hereby accepts the license on the terms hereof. Licensee
shall not have the right to sublicense the Coal Briquetting Technology.
2.2 Licensor's Ownership of Developed Technology. All Developed
Technology and/or Improvements are and shall become Licensor's absolute
property, subject to the terms of this Agreement. Licensee shall at any time
during the Term of this Agreement and thereafter, at Licensor's reasonable
request, execute any patent papers covering such Developed Technology and/or
Improvements as well as any other documents that Licensor may consider necessary
or helpful in the prosecution of applications for a patent thereon or in
connection with any litigation or controversy related thereto; provided,
however, that all expenses incident to the filing of such applications and the
prosecution thereof and the conduct of such litigation shall be borne by
Licensor.
2.3 Exclusive Technology. Licensee agrees to use only the Coal
Briquetting Technology at the Facility and not to use any other technology at
the Facility, except to the extent other or additional technology is necessary.
Licensee shall not use any process or methodology that is not part of the Coal
Briquetting Technology, except to the extent that other or additional technology
is necessary, and shall not use any materials in the production of Synthetic
Fuel at the Facility that are not Proprietary Binder Material as determined and
approved by Licensor. Licensee (i) shall not make or have made products using
the Coal Briquetting Technology or similar technology except at the Facility and
(ii) shall only make and have made products using the Coal Briquetting
Technology at the Facility under this License Agreement, except to the extent
other or additional technology is necessary. Licensee further agrees to use the
Coal Briquetting Technology only under authority of this License Agreement with
Licensor.
2.4 Non-licensed Technology. Licensor retains the absolute right to
fully exploit its technologies including, but not limited to, the application of
such technology embodied in the Coal Briquetting Technology to produce, market
and use synthetic coke briquettes from coke breeze, iron revert materials, and
any other materials to which Licensor's technology can be applied.
3
<PAGE>
2.5 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, including the Developed
Technology or Improvements (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, (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), or (iv) a party is compelled by legal process by
any court or other authority to disclose shall not be subject to the terms of
this Section 2.5. In the case of (iv) above, the compelled party shall give the
other party prompt written notice of such legal process in order that an
appropriate protective order can be sought and each party agrees not to oppose
the other party's efforts to prevent the disclosure of Confidential Information.
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, and/or this Agreement; provided that the recipient of any
such Confidential Information executes a Confidentiality Agreement restricting
further disclosure of the Confidential Information.
2.6 Know-How and Assistance. To enable Licensee to benefit fully from
the license of the Coal Briquetting Technology, Licensor shall provide access to
all relevant documentation, drawings, engineering specifications and other
know-how in its possession, reasonable access to its employees or agents who are
familiar with the Coal Briquetting Technology, Developed Technology, and
Improvements and shall provide such technical assistance and training as is
requested by Licensee. If Licensor does not have responsibility for the
operation of the Facility, Licensee shall reimburse Licensor for reasonable
travel and other similar out-of-pocket expenses of Licensor in performing
services under this Section 2.6; provided however, that Licensor shall obtain
the prior approval of Licensee for any expenditures in excess of $5,000.
Section 3. Royalty.
3.1 Royalty Payments. Subject to adjustment as described below, during
the term of this Agreement, Licensee shall pay to Licensor a royalty in an
amount equal to ** per ton of Section 29 Product (as defined in the Purchase
Agreement) produced at the Facility and sold during the period commencing on the
effective date hereof and ending on December 31, 2000, and a royalty in an
amount equal to ** per ton of Section 29 Product produced at the Facility and
sold during the period commencing on January 1, 2001 and ending upon the
expiration of the term (or earlier termination) of this Agreement. Such royalty
shall be paid quarterly on the last day of January, April, July and October of
each year for the Section 29 Product sold during the previous calendar quarter.
3.2 Royalty Advance Payment Option. At any time prior to July 1, 2000
at which Licensor demonstrates to Licensee's reasonable satisfaction that
Purchase Commitments (as defined below) for Section 29 Product (whether
delivered as a blended product or otherwise) are
4
<PAGE>
in place for minimum annual tonnage in excess of ** tons, Licensor shall be
entitled to exercise an option (the "Option") to receive an advance lump-sum
payment of a portion of the royalties provided in Section 3.1 (the "Lump-Sum
Royalty Payment") as provided herein. For purposes hereof, "Purchase Commitment"
shall mean a binding contract whereby the customer is required to purchase
Section 29 Product (whether delivered as a blended product or otherwise), which
contract has a duration of at least three years, and contains force majeure and
other terms, conditions and product specifications that are industry-standard
and customary for coal purchase contracts in the central Pennsylvania region and
which can reasonably be expected to be met by the product produced at the
Facility, when blended with River Hill Coal Company supplied coal, if applicable
all as determined by Licensee to its reasonable satisfaction. The Option may be
exercised more than once but must be exercised, if at all, by written notice
given by Licensor to Licensee of such exercise, together with such supporting
evidence and necessary documentation, on or before June 30, 2000. The maximum
amount of the Lump-Sum Royalty Payment available upon exercise of the Option
shall be (i) **, to the extent that Licensor demonstrates to Licensee's
satisfaction (pursuant to testing and operating procedures or protocols agreed
to by the parties) production of 10,000 tons of Section 29 Product at the
Facility within any ten consecutive day period (the "Ten Day Threshold"), less
(ii) an amount equal to ** times the aggregate number of tons of Section 29
Product produced at the Facility prior to the initial exercise of the Option,
for which royalties were previously paid pursuant to Section 3.1 hereof. The
maximum Lump-Sum Royalty Payment available upon exercise of the Option prior to
achieving the Ten Day Threshold shall be ** (the "Initial Cap"). At any time the
Option is exercised, the Lump-Sum Royalty Payment will equal (i) the product of
(X) ** reduced by ** times the aggregate number of tons of Section 29 Product
produced at the Facility prior to the initial exercise of the Option, for which
royalties were previously paid pursuant to Section 3.1 hereof and (Y) a
fraction, the numerator of which is the aggregate amount by which Purchase
Commitments exceed ** tons and the denominator of which is **; less (ii) the
aggregate amount already paid in respect of any previous exercise of the Option;
provided, however, that such aggregate amounts shall not exceed the Initial Cap,
if applicable. Upon achievement of the Ten Day Threshold, the Cap shall be
eliminated as to the calculation of the Lump-Sum Royalty Payment for any
exercise of the Option following such achievement, and the portion of the
Lump-Sum Royalty Payment not previously paid by reason of the Initial Cap shall
then become payable. Upon initial exercise of the Option, the royalty payments
provided for in Section 3.1 shall be reduced to ** per ton for the period
commencing on the effective date hereof and ending on December 31, 2000 and **
per ton for the period commencing on January 1, 2001 ending upon the expiration
of the term (or earlier termination) of this Agreement.
3.3 Termination by Licensee. Licensees' obligations to pay royalties
under this Section 3 are subject to the terms of Section 5.9 of the Purchase
Agreement.
Section 4. Sales of Binder.
4.1 Sale and Purchase. Licensor shall sell to Licensee, and Licensee
shall purchase from Licensor, all of Licensee's requirements of Proprietary
Binder Material required to operate the Facility. Licensor shall deliver the
Proprietary Binder Material at such times and in such amounts as requested by
Licensee. Licensor shall invoice Licensee for Proprietary Binder Material
monthly. Payments for Proprietary Binder Material delivered by Licensor during
any
5
<PAGE>
calendar month shall be due and payable to Licensor 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 Licensor shall be an amount equal to (i) Licensor's
direct and actual costs (including, but not limited to, material, labor, and
transportation costs) and a percentage of the total overhead costs of Licensor
reasonably reflecting the ratio of the administrative costs incurred in
connection with the manufacture and sale of the Proprietary Binder Material
(estimated at the date hereof to be ** per unit of Proprietary Binder Material
necessary to create one (1) ton of synthetic fuel product), payable within 30
days of receipt of an invoice therefor, plus (ii) ** per unit of Proprietary
Binder Material necessary to create one (1) ton of synthetic fuel product,
payable for the preceding calendar quarter on the last day of January, April,
July and October of each year.
4.3 Licensor Representations and Warranties. Licensor represents,
warrants and covenants as follows:
(a) Licensor shall convey to Licensee good title to all
Proprietary Binder Material purchased by Licensee from Licensor
hereunder, free and clear of any and all liens, claims and encumbrances
of any type whatsoever.
(b) No Proprietary Binder Material shall contain any hazardous
material in violation of applicable laws and governmental regulations.
(c) At Licensee's reasonable request, Licensor shall replace,
or refund the purchase price of, all non-conforming Proprietary Binding
Material.
(d) Proper use of the Coal Briquetting Technology, including
use at an adequate, qualified facility and with adequate feedstocks and
other raw materials, will enable Licensor to produce a product which is
reasonably expected to constitute "qualified fuels" pursuant to the
terms of Section 29(c)(1)(C) of the Code.
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. (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 (including by fax), 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 Licensor at such address as Licensor shall
direct.
4.5 Delivery and Acceptance. All Proprietary Binder Material purchased
hereunder shall be delivered F.O.B. the Facility. Licensor shall arrange for any
necessary transportation of the Proprietary Binder Material to the Facility.
Licensee shall bear the expense of unloading of Proprietary Binder Material from
the trucks. 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
6
<PAGE>
deemed or required to accept any such Proprietary Binder Material prior to the
completion of such sampling.
4.6 Delivery Of Binder Material. If Licensor's ability to deliver the
Proprietary Binder Material to Licensee will be interrupted or terminated for
any reason, Licensor 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
after Licensee gives written notice of non-delivery to Licensor), Licensor
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, and the copy of the Formula
delivered in escrow pursuant to Section 4.7, to manufacture the Proprietary
Binder Material in sufficient quantities to operate the Facility to full
capacity, and such technology shall be deemed "Coal Briquetting Technology" for
the purposes of this Agreement; provided, however, that the license granted to
Licensee under this Section 4.6 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 Licensor gives notice to Licensee,
together with evidence reasonably satisfactory to Licensee that Licensor is able
to deliver the Proprietary Binder Material in accordance with this Agreement. No
additional fee or royalty shall be payable to Licensor in connection with the
License granted pursuant to this Section and Licensor shall be responsible for
any additional out-of-pocket costs incurred by Licensee in connection with the
production of Proprietary Binder Material pursuant to this Section.
4.7 Escrow of Binder Material Formula.
As a material inducement for Licensee entering into this Agreement and
for the Buyer under the Purchase Agreement entering into the Purchase Agreement,
and in order to provide assurance to Licensee of access to and adequate and
continuing supply of the Proprietary Binder Material during the term of this
Agreement, Licensor agrees to place in escrow with Licensee the formula and
technology used to manufacture the Proprietary Binder Material (the "Formula")
as provided herein. In connection therewith, Licensor agrees to deposit with
Licensee, within ten (10) days of the date of this Agreement, a copy of the
Formula. During the term of this Agreement, Licensor shall keep the Formula in
escrow fully current by depositing all updates and revisions thereto and related
materials, as the Formula may be updated or revised from time to time. Such
supplemental deposits will be completed no later than ten (10) days after the
date of use of such revised Formula by Licensor. Title to the Formula shall
remain in Licensor, but title to the copy thereof to be deposited in escrow
hereunder shall, in the event the Formula shall be released for use to Licensee
as provided in Section 4.6, pass to and vest in Licensee. Licensee shall hold
such copy of the Formula and any supplements in a safe-deposit box at a
financial institution located in the ** region designated by Licensee and
reasonably approved by Licensor. Notwithstanding its ownership of a copy of the
Formula in such event, Licensee's use of the Formula shall remain subject to the
terms of this Agreement.
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
7
<PAGE>
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; provided, however, that 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, (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), or (iv) a party is compelled by legal process by any court or
other authority to disclose shall not be subject to the terms of this Section 5.
In the case of (iv) above, the compelled party shall give the other party prompt
written notice of such legal process in order that an appropriate protective
order can be sought and each party agrees not to oppose the other party's
efforts to prevent the disclosure of such information. At the termination of
this Agreement, all copies of such information (including, without limitation,
any reports or memoranda) shall be returned by the party receiving disclosure.
Section 6. Enforcement Of Proprietary Rights. Licensee shall cooperate
in good faith, with Licensor's efforts to enforce its proprietary patent and
trade secret rights.
Section 7. General Representations and Warranties.
7.1 Authority. Each of 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 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. Licensor represents and warrants
that (i) it owns, free and clear of all liens and encumbrances, patents related
to the Coal Briquetting Technology (including, but not limited to, United States
Patent Numbers 5,599,361, 5,487,764 and 5,453,103) and has developed the Coal
Briquetting Technology, including, but not limited to, printed and not printed
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 process to produce synthetic coal
fuel briquettes from waste coal dust, coal fines, run of mine coal and other
similar coal derivatives, and, the right to freely make, use, sell and exploit
Proprietary Binder Material used in manufacturing synthetic coal fuel briquettes
from waste coal dust, coal fines and other similar coal derivatives, (ii) it has
the right and power
8
<PAGE>
to grant to Licensee the licenses granted herein, and (iii) the sale or use of
the rights, Proprietary Binder Material and/or licenses granted herein as
contemplated by this Agreement will not infringe any third-party's intellectual
property rights.
7.4 Indemnification. Each party agrees to indemnify, defend and hold
harmless the other party and its partners, directors, officers, members, 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 enforcing this indemnification and
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 of any of
the representations, warranties and/or covenants contained in this Agreement.
Section 8. Term. The term of this Agreement is (a) for the period
commencing on the Effective Date of this Agreement and ending on 31 December
2007, (b) for the full term of Section 29 of the Code, or (c) for the full life
of the last to expire of the U.S. patents in existence at the effective date of
this Agreement that disclose and claim Covol's proprietary Coal Briquetting
Technology as defined herein, whichever date is later. Any extension of this
Agreement must be in writing, signed by both parties.
Section 9. Termination. This Agreement shall terminate upon the
termination date set forth in Section 8, unless the Agreement is terminated
sooner pursuant to this Section 9.
9.1 Termination for Cause. In addition to any other remedies that may
exist, either party may terminate this Agreement for cause in the event the
other party commits a material breach of any provision of this Agreement by
giving the other party at least sixty (60) days prior written notice of such
termination, unless such default or breach is cured within said sixty (60) days.
If either party terminates this Agreement pursuant to this Section 9, Licensee
shall promptly return and cause all agents of Licensee to promptly return to
Licensor all Confidential Information and all Coal Briquetting Technology then
in Licensee's possession, and Licensee shall not thereafter use for its own
commercial benefit or disclose to any third person any Confidential Information
or Coal Briquetting Technology during the period ending three (3) years from the
date of such termination. 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 Licensee or its respective members, agents,
employees, directors or representatives, (ii) was available to the Licensee on a
non-confidential basis prior to its receiving disclosure hereunder, (iii)
lawfully becomes available to the Licensee on a non-confidential basis from a
third party source (provided that such source is not known by the Licensee or
its members, agents, employees, directors or representatives to be prohibited
from transmitting the information), or (iv) the Licensee is compelled by legal
process by any court or other authority to disclose shall not be subject to the
terms of the duty to protect Confidential Information set forth in this section.
In the case of (iv) above, the Licensee shall give the Licensor prompt written
notice of such legal process in order that an appropriate protective order can
be sought and Licensee agrees not to oppose Licensor's efforts to prevent the
disclosure of Confidential Information.
9.2 Termination for Insolvency or Ceasing Business. This Agreement may
be terminated by Licensor if:
9
<PAGE>
(a) Licensee becomes insolvent or is unable to pay its debts
as they fall due, seeks protection voluntarily or involuntarily under
any law relating to bankruptcy, receivership, insolvency,
administration, liquidation, dissolution or similar law of any
jurisdiction (other than for the purposes of a reorganization with a
view to continuing the business as a going concern under relevant
bankruptcy or insolvency proceedings) or enters into a general
assignment or arrangement or a composition with or for the benefit of
its creditors; or
(b) Licensee takes any step (including the filing or
presentation of a petition, the convening of a meeting or the filing of
an application or consent) in any jurisdiction for, or with a view to,
the appointment of an administrator, liquidator, receiver, trustee,
custodian or similar official (other than for the purposes of a
reorganization with a view to continuing the business as a going
concern under relevant bankruptcy or insolvency proceedings) for
Licensee and/or the whole or any part of the business, undertaking,
property, assets, receiver or uncalled capital of Licensee or any such
person is appointed.
9.3 Effect of Termination. Upon termination of this Agreement, all
rights granted to and future obligations of the parties shall immediately cease;
however termination shall not relieve either party of its obligations accrued
during the term of this Agreement (including any pre-termination obligation
Licensee may have to pay Licensor) which has not been fulfilled, and all
representations, warranties, indemnification obligations and confidentiality
agreements made herein shall survive termination of this Agreement.
Section 10. 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 11. Severability. If any provision of this Agreement shall be
held by a court of competent jurisdiction to be invalid or unenforceable in any
respect for any reason, the validity and enforceability of any such provision in
any other respect and of the remaining provisions of this Agreement shall not be
in any way impaired.
Section 12. Notices. All notices required or authorized by this
Agreement shall be effective upon receipt and given to the parties in writing by
fax, mail, or courier as follows:
To Licensor: Brent M. Cook, President
Covol Technologies, Inc.
3280 North Frontage Road
Lehi, UT 84043
Fax: (801) 768-4481
To Licensee: **
Fax: **
Attn: **
10
<PAGE>
With a copy to: **
Fax: **
Attn: General Counsel
Section 13. Remedies Cumulative. Remedies provided under this Agreement
shall be cumulative and in addition to other remedies provided by law or in
equity.
Section 14. Entire Agreement. This Agreement, together with the
Transaction Documents (as defined in the Purchase 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 therein. This Agreement and the Transaction Documents
supersede any and all prior communications, representations, or agreements,
verbal or written, between the parties relating to the subject matter hereof.
This Agreement may not be amended except in writing signed by the parties
hereto.
Section 15. Governing Law. This Agreement shall be governed in
accordance with the laws of the State of New York, exclusive of its conflict of
laws rules.
Section 16. Assignment. This Agreement may not be assigned, in whole or
in part, by any party without the written consent of the other party, which
consent shall not be unreasonably withheld, except that Licensor and Licensee
shall have the right to assign their respective rights and obligations under
this Agreement to any entity which is controlled by Licensor or Licensee, as the
case may be, and of which Licensor or Licensee, as the case may be, owns,
directly or indirectly, at least fifty percent (50%) of each class of its
outstanding securities, provided that no such assignment shall release Licensor
or Licensee, as the case may be, from their respective obligations hereunder.
Executed by the duly authorized representative of the parties on the
date and year first above written.
11
<PAGE>
COVOL TECHNOLOGIES, INC. **
By: ________________________________ By: ________________________________
Name: Name:
Title: Title:
12
MODIFICATION AGREEMENT
THIS MODIFICATION AGREEMENT, dated as of the 27 day of August, 1999,
between **, a Delaware limited liability company ("Borrower"), FUN ENTERPRISES
PTY LIMITED (ACN 056 689 304), a company incorporated in New South Wales,
Australia ("Lender"), and COVOL TECHNOLOGIES, INC., a Delaware corporation
("Covol").
RECITALS:
By Loan and Security Agreement dated as of March 20, 1998 (the "Loan
Agreement"), Lender agreed to make a loan of up to $5,800,000.00 (the "Loan") to
Covol to be used for the construction and financing of a synthetic fuel
production facility located at the River Hill Coal Company, Inc. coal mine
facilities near Karthus, Clearfield County, Pennsylvania (the "Project"). The
Loan was evidenced by a Secured Draw-down Promissory Note dated March 20, 1998
(the "Note") made by Covol, payable to the order of Lender, in the original
principal sum of up to $5,800,000.00, plus interest, and secured by the Security
Agreement comprising part of the Loan Agreement. As further compensation for the
Loan, Covol and the Lender entered into that certain Net Quarterly Production
Royalty Payment Agreement dated as of March 20, 1998 (the "Royalty Agreement')
whereby Covol agreed to pay certain additional contingent payments to Lender.
The Note, the Loan Agreement, the Royalty Agreement and all other documents and
instruments evidencing and securing the Loan are sometimes referred to herein as
the "Loan Documents."
Borrower and Covol have entered into that certain Purchase Agreement of
even date herewith (the "Purchase Agreement"), whereby Borrower has agreed to
purchase from Covol, and Covol has agreed to sell to Borrower, the Project and
related assets, pursuant to the terms contained in the Purchase Agreement. As a
condition to such transaction and as part of the consideration therefor,
Borrower has agreed to assume certain modified obligations of Covol under the
Loan. Borrower and Lender have agreed, simultaneous with such assumption and the
consummation of such purchase, and the early payment by Borrower to Lender of
$4,000,000.00 in partial satisfaction of the Loan, to modify the Loan and the
Loan Documents as set forth herein.
MODIFICATION AND ASSUMPTION AGREEMENT:
FOR and in consideration of the sum of $4,000,000.00 cash in hand paid
by Borrower to Lender in advance of the due date for the same and the assumption
of the obligations of Covol under the Loan Documents, as modified and amended
hereby, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Modification and Assumption of Loan Agreement.
(a) Upon satisfaction of the "Assumption Conditions" (as
hereinafter defined), the Loan Agreement is hereby
modified as follows:
** This exhibit contains confidential material which has been omitted
pursuant to a Confidential Treatment Request. The omitted information
has been filed separately with the Securities and Exchange Commission.
<PAGE>
(i) The introductory paragraph, the Recitals and
Section 1 are hereby modified to reflect the
assumption of the obligations and
indebtedness (as modified hereby) of Covol
Technologies, Inc. by ** as the "Company"
under the terms thereof, and the principal
amount of the Loan, after the reduction
effectuated by the aforesaid $4,000,000.00
payment and this modification, to be
$945,892.00 bearing interest at a per annum
rate of 5.5 percent. No release of Covol
with respect to the obligations for the Loan
is hereby intended or effectuated and Covol
shall remain obligated under the Loan
Documents (excluding the Royalty Agreement),
as hereby modified and amended in accordance
with the terms described in Section 1(b)(ii)
hereof.
(ii) Section 3 and Section 4 are hereby deleted.
In lieu thereof Borrower and Lender make the
respective covenants, warranties and
representations set forth in APPENDIX A,
attached hereto and incorporated herein by
this reference.
(iii) Section 5.3.2 is hereby deleted .
(iv) The following new provision is hereby added
to the Loan Agreement:
Termination. Borrower acknowledges that the
security interest in the Collateral under the Loan
Agreement secures the obligations under the Note and
the payment of the $800,00.00 amount agreed to be
paid by Covol under that certain Agreement and
Assignment between Covol and Lender of even date
herewith. At such time as the Note is fully paid and
satisfied and Lender shall have received aggregate
payments of $800,000.00 from or on behalf of Covol
under the assignment of production-based payments
relating to its sale to Borrower of the Project, the
lien and security interest created under the Loan
Agreement, and, as to Borrower, the Loan Documents
and all further obligations of Borrower thereunder,
shall terminate and Lender shall promptly release the
Collateral from such security interest and execute,
deliver and record all documents and instruments
necessary to effect and evidence same.
(v) The address and facsimile number for
purposes of notice on the signature page
shall read as follows:
Address: **
Facsimile: **
2
<PAGE>
The address and facsimile number for
Borrower for purposes of notice on the
signature page shall read as follows:
Address: Fun Enterprises Pty, Ltd.
ACN 056 689 304, Level 9,
131 Macquarie St. Sydney
NSW 2000 Australia.
Facsimile: 61-2-9247-3144.
(b) The modification of the Loan Documents effectuated by this
Agreement shall be conditioned upon the completion, to the
satisfaction of the Lender) of the following conditions (the
"Assumption Conditions"):
(i) Payment to Lender by Covol, in connection with
the execution of this Agreement, of all accrued and unpaid
interest on the Note, together with all costs and expenses of
Lender (including reasonable attorneys' fees, travel costs,
lodging and food costs incurred by officers or principals of
the Lender) in any way associated with actions in anticipation
of the coming due of the Note or in connection with this
Agreement and the closing of the transactions contemplated
hereby (the said expense payment obligations not to exceed the
sum of $35,000);(ii) execution of the Purchase Agreement and
the License and Binder Purchase agreement (as defined in the
Purchase Agreement) and assignment by Covol to Lender of a
portion of the production-based payments thereunder pursuant
to terms and conditions (including duration, amount,
percentage and payment procedures) acceptable to Lender,
including Borrower's acknowledgment thereof and its
undertaking to make payments therefor directly to Lender on
behalf of Covol, together with the agreement and
acknowledgment of Covol (in form and substance satisfactory to
the Lender) of its continuing obligation under the Loan
Documents (as modified hereby) for the indebtedness evidenced
by the Replacement Note and the aforesaid production-based
payments, such obligation to be unconditional and continuing
regardless of any extension, modification or amendment of the
same (other than an increase in such obligations) and
regardless of the release, addition or other action with
respect to any collateral securing the same;
(iii) execution by Covol, in form and substance
satisfactory to the Lender, of an agreement providing for the
extension of those certain warrants for common stock of Covol
which are described in APPENDIX B which is attached hereto and
incorporated herein by this reference, such that the warrant
exercise date shall be June 30, 2000 instead of November 13,
1999;
(iv) execution by Covol, in form and substance
satisfactory to the Lender, of an agreement with respect to
the 95,238 $8.00 strike price warrants for the common stock of
Covol in favor of the Lender, which agreement shall (x) modify
the strike price by marking the same to market price of the
common stock of Covol on the date of the closing of the sale
of the Project under the Purchase Agreement and (y) extending
the exercise date of such warrants to June 30, 1999;
3
<PAGE>
(v) execution by Covol, in form and substance
satisfactory to the Lender, of an agreement with respect to
the 15,644 $8.00 strike price warrants for the common stock of
Covol in favor of Stamford Holdings, Ltd., which agreement
shall (x) modify the strike price by marking the same to
market price of the common stock of Covol on the date of the
closing of the sale of the Project under the Purchase
Agreement and (y) extending the exercise date of such warrants
to June 30, 1999;
(vi) execution and delivery by Borrower of UCC-3
modification or similar statements reflecting the addition of
the Borrower as a "debtor" under the originally filed UCC-1
financing statements and the execution and delivery of any
additional UCC-1 financing statements deemed necessary by
Lender's counsel by reason of the addition of the Borrower as
the debtor with respect to the security interests in the
Project; and
(vii) execution and delivery of a "landlord consent"
from River Hill Coal Company providing allowing Lender access
to the real property site upon which the Project is located
for purposes consistent with its rights as secured party
(including any successors or assigns or persons purchasing the
same in connection with a foreclosure of the security
interests or other similar exercise of remedies and rights
under the Loan Documents).
(c) Except as specifically modified hereby; the terms and
provisions set forth in the Loan Agreement are hereby ratified
and confirmed and remain in full force and effect. The Loan
Agreement, as modified hereby, continues to secure the
obligations of Borrower under the Loan, as modified pursuant
hereto, with the same lien priority as immediately prior to
the execution hereof.
2. Replacement of Note.
(a) The Note is hereby modified and restated in the form
set forth in Exhibit A attached hereto (the
"Replacement Note").
(b) After this Agreement has been fully executed and
delivered, the Lender shall deliver to Borrower the
Note marked as fully satisfied in exchange for the
Replacement Note executed and delivered by Borrower
to Lender.
3. Termination of the Royalty Agreement.
(a) The Royalty Agreement and that certain Assignment
dated the 6th day of November, 1998 between Covol and
the Lender (the "License Fee Assignment") is hereby
terminated and Borrower shall have no obligation to
Lender thereunder:
4. Consent of Lender. Lender executes this Agreement to evidence
its consent to the modification effected hereby; provided,
however, that such consent shall neither be nor be deemed to
4
<PAGE>
be a consent to, or a waiver of the necessity of obtaining the
consent of Lender to, any future modification.
5. No Default. As additional inducement to Borrower to assume the
obligations under the Loan Documents and to enter into this
Agreement, Lender hereby states, certifies and affirms that
the Loan Documents are in full force and have not been amended
or modified in any respect whatsoever except for the
amendments and modifications set forth herein, and constitutes
the complete agreement between the Lender and Covol with
respect to the Loan. There is no event of default nor any fact
or circumstance that, with the giving of notice or the passage
of time or both, would constitute an event of default under
the Loan Documents, and, subject to the $4,000,000.00 cash
payment referred to herein and the execution and delivery of
this Agreement and the Replacement Note, all obligations under
the Loan Documents have been fully paid and satisfied except
for those evidenced by the Replacement Note and the modified
terms of the Loan Agreement.
6. Consent of Covol. Covol executes this Agreement to evidence
its consent to the modification and assumption effected
hereby; and to acknowledge, consistent with Section 1(b)(ii),
its continuing obligations under the Loan Documents (as
modified hereby) and under the Replacement Note and the
aforesaid production-based payments regardless of any
extension, modification or amendment of the same (other than
an increase in such obligations) and regardless of the
release, addition or other action with respect to any
Collateral securing same, which extension, modification or
amendment (so long as such action does not increase Covol's
obligations) may be made by Borrower and Lender without the
consent of Covol or any requirement to obtain such consent.
7. Further Assurances. Borrower, Covol and Lender hereby covenant
and agree to execute and deliver, or cause to be executed and
delivered, and to do or make, or cause to be done or made,
upon the reasonable request of the other, any and all
instruments, papers, deeds, acts or things, supplemental,
confirmatory or otherwise, as may be reasonably required by
such party for the purpose of effecting the modification
described herein.
8. Completeness and Modification. This Agreement constitutes the
entire agreement between the parties hereto as to the
transactions contemplated hereby and supersedes all prior
discussions, understandings or agreements between the parties
hereto.
9. Successors and Assigns. This Agreement shall bind and inure to
the benefit of the parties hereto and their respective
successors and assigns.
10. Governing Law. This Agreement and all other instruments
referred to herein shall be governed by, and shall be
construed according to, the laws of the State of Utah.
11. Counterparts. To facilitate execution, this Agreement may be
executed in as many counterparts as may be required. It shall
not be necessary that the signature on behalf of the parties
5
<PAGE>
hereto appear on each counterpart hereof, and it shall be
sufficient that the signature on behalf of each party hereto
appear on one or more such counterparts.
All counterparts shall collectively constitute a single
agreement.
12. Incorporation by Reference. All of the Exhibits or Appendices
attached hereto or referred to herein and all documents in the
nature of such Exhibits or Appendices, if any, are by
reference incorporated herein and made a part of this
Agreement.
BORROWER
**
By _________________________
Its _____________________
COVOL
COVOL TECHNOLOGIES, INC.
By _________________________
Its _____________________
LENDER
FUN ENTERPRISES PTY LIMITED
By _________________________
Its _____________________
6
<PAGE>
EXHIBIT A
THIS NOTE MAY ONLY BE SOLD, ASSIGNED OR OTHERWISE TRANSFERRED TO AN
"ACCREDITED INVESTOR," AS DEFINIED IN RULE 501(a)(1), (2) OR (3) UNDER
REGULATION D OF THE SECURITIES ACT OF 1933. NOTWITHSTANDING ANYTHING
CONTAINED HEREIN TO THE CONTRARY, WITHOUT THE WRITTEN CONSENT OF THE
COMPANY, THIS NOTE SHALL NOT BE HYPOTHECATED OR BROKEN UP INTO MORE
THAN ONE NOTE AND THERE SHALL ONLY BE ONE NOTEHOLDER.
REPLACEMENT PROMISSORY NOTE
$945,892.00
**
August __, 1999
FOR VALUE RECEIVED, **, a Delaware limited liability company (the
"Company"), hereby promises to pay to the order of FUN ENTERPRISES PTY LIMITED
(ACN 056 689 304), a company incorporated in New South Wales, Australia (the
"Lender"), at Westpac Banking Corporation, 79 Queen Street, Auckland, New
Zealand, account number: **, account party: Fun Enterprises, or at such other
place as the Lender may designate in writing, the principal amount of Nine
Hundred Forty Five Thousand Eight Hundred Ninety Two Dollars ($945,892.00), in
lawful money of the United States, together with interest thereon at a per annum
rate of 5.5 percent, such principal and interest being payable in four equal
installments of principal and interest of $250,000, payable on April 30, 2000,
July 31, 2000, October 31, 2000 and January 31, 2001.
1. Undefined Terms. All terms not defined in this Note are used as set forth
in the Loan and Security Agreement of even date between the parties.
2. Prepayment. The Company shall have the right to prepay all or any portion
of the Loan prior to maturity without the payment of any prepayment
penalty.
3. Security. As security for the obligations under the Note, the Company
shall, pursuant to the Loan and Security Agreement, dated March 20, 1998,
as modified pursuant to that certain Modification Agreement of even date
herewith (such Loan and Security Agreement as so modified being referred to
herein as the "Loan and Security Agreement"), by and between the Lender and
the Company, grant, convey, and assign to the Lender a security interest in
the Collateral. The Company agrees to take any and all reasonable steps
required by the Lender, including without limitation the execution and
filing of appropriate UCC-1 financing statement(s), and UCC-2 financing
A-1
<PAGE>
statement change form(s) to perfect and maintain perfection of the Lender's
continuing security interest in the Collateral. Notwithstanding the
foregoing, recourse by the Lender against the Company is not limited to the
Collateral, and the Company will be responsible for the entire Loan
obligation, including principal and interest.
4. Usury Laws. Notwithstanding anything to the contrary contained herein or
in the Loan and Security Agreement, all agreements between the Company and
the Lender are hereby expressly limited so that in no contingency or event
whatsoever shall the total liability for payments in the nature of
interest, additional interest, and other charges exceed the applicable
limits imposed by the usury laws of the State of ** or any other applicable
jurisdiction. If any payments in the nature of interest, additional
interest, or other charges made hereunder or under the Loan and Security
Agreement are held to be in excess of the applicable limits imposed by the
usury laws of the State of **, or any other applicable jurisdiction, it is
agreed that any such amount held to be in excess shall be considered
payment of principal hereunder, and the indebtedness evidenced hereby shall
ipso facto be reduced by such amount so that the total liability for
payments in the nature of interest, additional interest, and other charges
shall not exceed the applicable limits imposed by the usury laws of the
State of **, or any other applicable jurisdiction, in compliance with the
desires of the Company and the Lender. This provision shall never be
superseded or waived and shall control every other provision of this Note
and all related agreements (as set forth in Section 5.3 of the Loan and
Security Agreement), between the Company and Lender or their respective
successors or the Lender's assigns.
5. Default. For purposes of this Note, the occurrence of the following shall
constitute an "Event of Default" which shall permit the Lender to declare
all principal of this Note to be immediately due and payable and to also
exercise the other rights provided in the Loan Agreement:
(a) Any petition is filed by or against the Company under any law
pertaining to reorganization , insolvency or rescheduling of debts
which is not dismissed within thirty (30) days, or the Company makes an
assignment for the benefit of creditors or admits in writing its
inability to pay its debts generally as they become due;
(b) Any garnishment, attachment or levy is issued against the Collateral by
any party other than Lender which is not removed within thirty (30)
days of such action;
(c) Any default occurs in payment under the provisions of this Note, or
under any other agreement, contract, instrument or document evidencing
or related to the Loan including, but not limited to the Loan and
Security Agreement;
(d) Any default occurs in the performance of any obligations of the
Company, under the provisions of this Note or the Loan and Security
Agreement other than the payment provisions referenced in (c) above;
provided, however, that any such default shall not be deemed an Event
of Default until the Company receives written notice of such event, and
if curable, the Company fails to cure such default within thirty (30)
days after receipt of such notice.
6. Acceleration, Waiver. Upon the occurrence of an Event of Default, the
Lender in its sole, absolute and unfettered discretion, may declare this
Note immediately due and payable.
A-2
<PAGE>
7. Securities Laws. This Note has not been registered under the Securities Act
of 1933, as amended (the "Act"), or registered or otherwise qualified for
sale under the securities laws of any state. The Lender by receipt of this
Note acknowledges that it is an "accredited investor" within the meaning of
Regulation D of the Act and that the Lender has had the opportunity to ask
questions of the Company regarding its business activities and its
activities relating to the Plant.
8. Notices. Notices under this Note shall be given and governed by the
provisions of Section 5.7 of the Loan and Security Agreement.
9. Necessary Documents. Each party agrees to execute and provide, at the
request of the other party, any and all other documents or other necessary
written instruments as may be reasonably necessary to effectuate the
purposes of this Note.
10. Governing Law. This Note shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the laws of the
State of **.
IN WITNESS WHEREOF, the Company has executed this Note as of the date
first written above.
**
By: ____________________________
Title: _________________________
Address:
**
A-3
