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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
June 29, 1999
(Date of earliest event reported)
KFx Inc.
(Exact name of registrant as specified in its charter)
Delaware 0-23634 84-1079971
(State of Incorporation) (Commission File No.) (IRS Employer
Identification No.)
1999 Broadway, Suite 3200, Denver, Colorado USA 80202
(Address of principal executive offices)(Zip Code)
(303) 293-2992
(Registrant's telephone number, including area code)
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Item 5. Other Events.
On June 29, 1999, the Registrant and Kennecott Alternative Fuels, Inc.,
a Delaware corporation ("Kennecott"), entered into the First Amended Limited
Liability Company Agreement of K-Fuel, L.L.C. (the "Amended Agreement"),
amending the Limited Liability Company Agreement of K-Fuel, L.L.C. entered into
by and between the parties in April 1996 (the "Original Agreement"). Among other
things, the Amended Agreement modifies the structure of license fees and
royalties set forth under the Original Agreement and provides that on a going
forward basis jointly developed technology will be owned by K-Fuel, L.L.C.,
while separately developed technology will be owned by the developing party and
licensed to K-Fuel, L.L.C. As a result of the Amended Agreement, the Registrant
received a payment of $2 million from Kennecott $1 million of which is a non-
refundable prepaid license payment and $1 million of which, in accordance with
the terms of the Amended Agreement, the Registrant invested in K-Fuel, L.L.C. to
fund further development activities associated with the next phase of K-Fuel
(TM) commercialization. The Amended Agreement is attached hereto as Exhibit
10.01.
Item 7. Financial Statements and Exhibits.
(c) Exhibits
--------
Exhibit 10.01 First Amended Limited Liability Company Agreement of K-
Fuel, L.L.C. dated June 29, 1999.*
__________________________
*Certain portions of this Exhibit have been omitted based upon a request for
confidential treatment. The omitted portions have been separately filed with
the Securities and Exchange Commission.
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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, on this 13th day of August, 1999.
KFx Inc.
By: /s/ Seth L. Patterson
---------------------
Seth L. Patterson
Executive Vice President and Chief
Financial Officer
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Exhibit Index
-------------
Exhibit 10.01 First Amended Limited Liability Company Agreement of K-Fuel,
L.L.C. dated June 29, 1999.*
__________________________
*Certain portions of this Exhibit have been omitted based upon a request for
confidential treatment. The omitted portions have been separately filed with
the Securities and Exchange Commission.
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EXHIBIT 10.01
CONFIDENTIAL
FIRST AMENDED
LIMITED LIABILITY COMPANY AGREEMENT
OF
K-FUEL, L.L.C.
DATED: June 29, 1999
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TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
ARTICLE II
ORGANIZATION MATTERS
2.1. Name.............................................................. 2
2.2. Formation and Effectiveness....................................... 2
2.3. Company Business.................................................. 2
2.4. Other Business of the Members..................................... 2
2.5. Principal Office.................................................. 3
2.6. Duration.......................................................... 3
ARTICLE III
MANAGEMENT
3.1. General........................................................... 3
3.2. Members' Representatives.......................................... 4
3.3. Members: Duties, Powers and Authority............................. 5
3.4. Meetings of the Members........................................... 5
3.5. Compensation of Representatives................................... 6
3.6. Members Action.................................................... 6
3.7. Quorum............................................................ 6
3.8. Members Voting and Actions for which Majority Approval Necessary.. 7
3.9. Members Actions for which Unanimous Consent Necessary............. 7
ARTICLE IV
MANAGER
4.1. Authority of the Manager.......................................... 9
4.2. No Compensation................................................... 10
4.3. Confidential Information.......................................... 10
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ARTICLE V
EMPLOYEES
5.1. Loaned Employees................................................... 10
ARTICLE VI
MEMBER COVENANTS, REPRESENTATIONS AND RIGHTS
6.1. Nature of Member Obligations...................................... 11
6.2. Transactions with the Company and Project Entities................ 11
6.3. Membership Interest............................................... 12
6.4. Access to and Copies of Records and Documents..................... 12
6.5. Member Covenants.................................................. 12
6.6. Member Representations and Warranties............................. 15
6.7. Indemnification................................................... 20
6.8. Kennecott Guaranty................................................ 21
6.9. Confidentiality Agreement......................................... 21
ARTICLE VII
CAPITAL CONTRIBUTIONS
7.1. Initial Capital Contributions by Members.......................... 22
7.2. Additional Capital Contributions.................................. 22
7.3. No Withdrawal..................................................... 22
ARTICLE VIII
CAPITAL ACCOUNTS;
ALLOCATION OF NET INCOME AND NET LOSS
8.1. Definition of Members' Capital Accounts........................... 22
8.2. Net Income and Net Loss Computation............................... 23
8.3. Allocation Among Members.......................................... 24
8.4. Regulatory Allocations............................................ 24
8.5. Change in Members' Interests...................................... 26
8.6. Allocations for Tax Purposes...................................... 26
ARTICLE IX
DISTRIBUTIONS
9.1. Distributions..................................................... 27
9.2. Distributions Upon Liquidation.................................... 27
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ARTICLE X
TECHNOLOGY LICENSES; DEVELOPMENT
ACTIVITIES; COMMERCIAL PROJECTS
10.1. Technology Licenses............................................... 27
10.2. Initial Work Plan................................................. 30
10.3. Work Plans Other Than the Initial Work Plan....................... 30
10.4. Arbitration of Work Plan Disputes................................. 34
10.5 Commercial Projects............................................... 34
10.6 Utilities Fuel Projects........................................... 37
10.7 Licensing to Third Parties........................................ 38
10.8 Tax Advantaged Plants............................................. 38
10.9 Voluntary Contribution of Technology to the
Company........................................................... 39
ARTICLE XI
SUPPLY OF FEEDSTOCKS/SALE OF K-FUEL PRODUCTS
11.1. Supply of Feedstocks.............................................. 39
11.2. Marketing of K-Fuel Products...................................... 40
ARTICLE XII
TRANSFERABILITY OF INTERESTS; CERTIFICATES
12.1. Prohibition of Transfer........................................... 41
12.2. Certificates Evidencing Interests................................. 42
ARTICLE XIII
INCOME TAX MATTERS
13.1. Tax Matters Partner............................................... 43
13.2. Preparation of Tax Returns........................................ 44
13.3. Optional Adjustment to Basis...................................... 44
13.4. Organizational Expenses........................................... 44
13.5. Taxation as a Partnership......................................... 44
13.6. Examinations...................................................... 44
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ARTICLE XIV
ACCOUNTING PROCEDURE; ANNUAL OPERATING BUDGET;
REPORTS AND INFORMATION
14.1. Fiscal Year...................................................... 45
14.2. Annual Operating Budget.......................................... 45
14.3. Financial Records................................................ 46
14.4. Financial Reports................................................ 46
ARTICLE XV
DISSOLUTION, LIQUIDATION AND TERMINATION OF THE COMPANY
15.1. Dissolution...................................................... 46
15.2. Election to Continue the Business................................ 46
15.3. Winding-Up....................................................... 46
15.4. Liquidation...................................................... 47
15.5. Distributions in Kind............................................ 47
15.6. Return of Capital................................................ 48
15.7. Termination...................................................... 48
15.8. Effect of Termination............................................ 48
ARTICLE XVI
MISCELLANEOUS
16.1. Notices.......................................................... 49
16.2. Entire Agreement................................................. 50
16.3. Parties in Interest.............................................. 50
16.4. Further Assurances............................................... 50
16.5. Counterparts..................................................... 50
16.6. Severability..................................................... 50
16.7. Governing Law.................................................... 51
16.8. Extension Not a Waiver........................................... 51
16.9. Arbitration...................................................... 51
16.10. Expenses......................................................... 51
16.11. Headings......................................................... 51
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Exhibits
- --------
A Amended KFx License
B Amended Series A and B License
C Acknowledgment and Reaffirmation of Guaranty
D Amended Confidentiality Agreement
E KECC License
Schedules
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Schedule 1 Definitions
Schedule 3.2.3 Representatives and Alternates
Schedule 6.5(iii) Existing KECC Technology
Schedule 6.5(iv)(a) Exceptions to Access Rights
Schedule 6.5(iv)(b) Form of Thermo Consent
Schedule 6.6.1(v)(a) KFx Patents & Patent Applications (Intangible Assets)
Schedule 6.6.1(v)(b) Existing Technology Licenses
Schedule 6.6.1(v)(c) Related Agreements Currently in Effect
Schedule 6.6.1(vi) Exceptions to Intangible Assets
Schedule 10.1(i) Exceptions to Exclusivity
Schedule 10.1(ii)(A) Sublicense Terms
Schedule 10.1(ii)(B) Royalties/License Fee
Schedule 10.5(vi) Carried Interest Calculation
Schedule 11.1 Market Price Calculation
Schedule 16.9 Arbitration
Schedule D(1) Feasibility Study
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FIRST AMENDED
LIMITED LIABILITY COMPANY AGREEMENT
OF
K-FUEL, L.L.C.
______________________________
Organized under the Delaware Limited Liability Company Act
______________________________
WHEREAS, Kennecott Alternative Fuels, Inc., a Delaware corporation
("KECC") and KFx, Inc. a Delaware corporation ("KFx") formed a limited liability
company known as K-Fuel, L.L.C. (the "Company") and entered the Limited
Liability Company Agreement of K-Fuel, L.L.C. dated as of the 22/nd/ day of
April, 1996 (the "Original Agreement") for the purpose of conducting Company
Business (as defined in Section 2.3 below);
WHEREAS, KECC and KFx desire to amend the Original Agreement and
continue the Company Business of the Company under an amended agreement to be
effective on the date of execution of the amended agreement;
NOW, THEREFORE, in consideration of the premises, the contributions by
each Member to this Company as herein specified and other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
Members do hereby agree as of the 29th day of June, 1999 as follows:
ARTICLE I
DEFINITIONS.
The definitions of the capitalized defined terms used in this Amended Agreement,
including the Schedules hereto, and not elsewhere defined herein or therein, as
well as cross-references to all capitalized defined terms, are set forth in
Schedule 1 to this First Amended Limited Liability Company Agreement of K-Fuel,
L.L.C. (the "Amended Agreement").
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ARTICLE II
ORGANIZATION MATTERS.
2.1. Name. The name of the company shall be K-Fuel, L.L.C.. The Company's
business may be conducted under such name or any other name or names deemed
advisable by the Members acting by Unanimous Members Action. The Members will
comply or cause the Company to comply with all applicable laws and other
requirements relating to fictitious or assumed names.
2.2. Formation and Effectiveness. The Company was formed upon the filing of
the Company's Certificate of Formation (the "Certificate") with the Secretary of
the State of Delaware effective on April 19, 1996. The Company became duly
organized and formed under the Delaware Limited Liability Company Act (the
"Act") on such date.
2.3. Company Business. The business of the Company (the "Company Business")
shall be as follows: (i) to conduct certain research and development activities
involving the K-Fuel Technology with a goal toward identifying and developing
commercial opportunities using the K-Fuel Technology, (ii) to develop
Feasibility Studies for Commercial Projects, (iii) to license and sublicense K-
Fuel Technology in accordance with the provisions herein provided (but subject
to the restrictions set forth herein), (iv) to market K-Fuel Products
manufactured or produced by Commercial Projects, (v) to coordinate the
development of K-Fuel Technology and the transfer among KFx, KECC, the Company,
and sublicensees of the Company of Improvements, discovered, developed, or
otherwise acquired by KFx, KECC, the Company, or any sublicensees of K-Fuel
Technology from the Company, (vi) to provide consultation services to Project
Entities and sublicensees relating to the application of the K-Fuel Technology
to the development of and engineering design and operations for Commercial
Projects and (vii) to do all things necessary or incidental in connection with
the foregoing as are permitted under the Act (but not including any actual
construction of Commercial Projects, which will be undertaken by Project
Entities rather than the Company). While the Members agree to use all
reasonable efforts to achieve the foregoing goals, no Member warrants or
guarantees that its efforts will result in construction of a pilot plant or a
commercially viable plant or facility for production of K-Fuel Products or any
other successful commercial exploitation of the K-Fuel Technology. The Company
shall be strictly limited to the Company Business, and the Company Business
shall not be extended by implication or otherwise, except by express written
amendment to this Amended Agreement or by Unanimous Members Action pursuant to
Section 3.6.1.
2.4. Other Business of the Members. (i) Except as expressly provided herein
or in the Amended KFx License, the Amended Series A and B License, the KECC
License or the Amended Confidentiality Agreement, this Amended Agreement shall
not be deemed to restrict the ability of KECC, KFx, or any of their respective
officers, directors, partners, shareholders or Affiliates to conduct any
business or activity whatever and wherever without any duty to account to the
Company or the other Member, even if such business or activity competes with the
business of the
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Company or the Member, provided that all technical development, marketing,
licensing, sublicensing, and commercialization (including preparation of
Feasibility Studies) of the K-Fuel Technology and projects involving production
of K-Fuel Products undertaken by a Member or Members shall (subject to the terms
and provisions of this Amended Agreement) be undertaken in, by, and through the
Company. Nothing in this Amended Agreement, the Amended KFx License, the Amended
Series A and B License, the KECC License, the Amended Confidentiality Agreement,
the Kennecott Guaranty, nor the Exhibits or Schedules attached to these
documents, will be construed to grant ownership or control by the Company, KFx,
KECC, or their Affiliates of any Technology other than Technology relating to K-
Fuel Technology held, developed, or exploited by the other Member or its
Affiliates.
(ii) In the event that KFx becomes aware of identifiable commercial or
potential commercial applications for KFx Technology in any field other than the
production of K-Fuel Products or KECC becomes aware of identifiable commercial
or potential commercial applications for KECC Technology in any field other than
the production of K-Fuel Products, upon notice to the Company containing a
disclosure of the intended application including a technical description of the
intended application, KFx may proceed on a non-exclusive basis commercially to
exploit the KFx Technology, or KECC may proceed on a non-exclusive basis
commercially to exploit the KECC Technology, in any field other than the
production of K-Fuel Products without royalty or other consideration to the
Company or the other Member. Notwithstanding the requirement of ownership of
Technology above, the patents and other Technology that have been assigned to
KFx by KECC or any KECC Affiliate, including without limitation Rio Tinto, prior
to the Effective Date of the Amended Agreement may be exploited on a non-
exclusive basis in any field other than the production of K-Fuel Products by
either Member without royalty or other consideration to the Company or the other
Member.
2.5. Principal Office. The principal business office of the Company shall
initially be at 1999 Broadway, Denver, Colorado or such other place within the
continental United States as may be designated from time to time by the Manager.
The Members acknowledge that after the Project(s) Target is reached, it is
anticipated that KECC (in its capacity as Manager) may move the principal
business offices of the Company to a location within the continental United
States other than Denver, Colorado.
2.6. Duration. The Company shall commence on the Effective Date of the
Original Agreement and continue until dissolved as described in Section 15.1.
ARTICLE III
MANAGEMENT.
3.1. General.
3.1.1. Except for the limited authorization granted to the Manager in Article
IV hereof, the full
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and exclusive right, power and authority to manage the Company is hereby
retained by, and reserved to, the Members, acting through Members Action (as
defined below).
3.1.2. Except for the limited authorization granted to the Manager in Article
IV hereof, and as herein otherwise expressly provided, each Member agrees to
exercise its authority to manage the affairs of the Company only through the
conduct of a Members Action. Further, each Member agrees not to exercise, or
purport or attempt to exercise, its authority (notwithstanding that each Member
may have such authority pursuant to the Act) except through the conduct of a
Members Action or as otherwise herein expressly provided.
3.2. Members' Representatives.
3.2.1. Each Member shall act through its authorized representatives (the
"Representatives") in exercising its rights as a Member hereunder. Each Member
shall designate two Representatives. Representatives need not be residents of
the State of Delaware to qualify.
3.2.2. Each Member may designate one or more individuals ("Alternates") who (i)
shall be authorized, in the event a Representative is absent from any meeting of
the Members (and in the order of succession designated by the Member so
designating the Alternates), to attend such meeting in the place of, and as
substitute for such Representative and (ii) shall be vested with all the powers
to cast votes on behalf of such Member which the absent Representative could
have exercised at such meeting. The term "Representative," when used herein
with reference to any Representative who is absent from a meeting of the
Members, shall mean and refer to any Alternate attending such meeting in place
of such absent Representative.
3.2.3. The two persons to serve as each Member's initial Representatives and
the person or persons, if any, who are to serve as such Member's initial
Alternates are set forth on Schedule 3.2.3
3.2.4. Each Member may, by written notice delivered to the other Member at any
time or from time to time, remove or replace one or more of its Representatives
or change one or more of its Alternates. If a Representative or Alternate dies,
resigns, or becomes disabled or incapacitated, the Member that designated such
Representative or Alternate, as the case may be, shall promptly designate a
replacement. Each Representative and each Alternate shall serve until replaced
by the Member that designated such Representative or Alternate as the case may
be.
3.2.5. Copies of all written notices designating Representatives and Alternates
shall be delivered to the Manager of the Company and shall be placed in the
Company minute books, but the failure to deliver a copy of any such notice to
the Manager of the Company shall not affect the validity or effectiveness of
such notice or the designation described therein.
3.2.6. Each Representative shall be the agent of the Member that designated
such Representative. Accordingly, (i) each Representative shall act (or refrain
from acting) with respect to the business
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and affairs of the Company solely in accordance with the wishes of the Member
that designated such Representative and (ii) no Representative shall owe (or be
deemed to owe) any duty (fiduciary or otherwise) to the Company or to any Member
other than the Member that designated such Representative.
3.3. Members: Duties, Powers and Authority.
3.3.1. Except for the powers granted to the Manager in Article IV hereof or as
otherwise expressly provided in this Amended Agreement, the Members (acting
through a Members Action) shall have (i) the full authority to exercise all of
the powers of the Company and (ii) full control over the business, property and
affairs of the Company.
3.3.2. The Members (acting by Unanimous Members Action) shall adopt the
governing policies and procedures of the Company, not inconsistent with this
Amended Agreement or the Act, including, without limitation, financial and
accounting controls and legal compliance policies and procedures. Such policies
and procedures may be revised or revoked (in a manner consistent with this
Amended Agreement and the Act) from time to time as determined by the Members
(acting by Unanimous Members Action).
3.4. Meetings of the Members.
3.4.1. The Members shall meet at such times (no less frequently than annually)
and at such places (within the continental United States) as shall from time to
time be determined by Members Action. Regular meetings of the Members may be
called by the Manager delivering written notice to the Members at least ten (10)
Business Days before the time determined for such meeting. Each notice of a
regular meeting shall specify an agenda for such regular meeting and a
confirmation of the date, place and time of the meeting. Any and all business
of the Company may be transacted at any regular annual meeting of the Members at
which a quorum is present.
3.4.2. Special meetings of the Members may be called by any Member by
delivering written notice and a confirmation of the date, place and time of such
meeting to the other Member, or, in the case of a meeting called by the Manager,
each of the Members, at least ten (10) Business Days before such meeting. Each
notice of a special meeting shall specify, to a reasonable degree, the business
to be transacted at, or the purpose of, such meeting; provided, however, that
-----------------
additional business may be transacted at any special meeting as agreed by all
the Representatives present at such meeting. Special meetings of the Members
shall be held on such dates and at such times and places (within the continental
United States) as may be stated in the notice of such meeting or in a duly
executed waiver of notice thereof. Any Representative may waive notice of any
special meeting (whether before or after the time of such meeting) but only if
the waiver is in writing; provided, however, attendance of any Representative at
-----------------
any regular or special meeting shall constitute a waiver of notice of such
meeting by such Representative.
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3.4.3. One of the Representatives of the Member then having the greater
Percentage Interest shall chair each meeting (regular, annual and special) of
the Members.
3.4.4. Representatives may participate in or hold regular, annual or special
meetings of the Members by means of a telephone conference or any comparable
device or communications technology by which all individuals participating in
the meeting may hear each other, and participation in such a meeting shall
constitute attendance in person at such meeting.
3.4.5. Any Members Action required or permitted to be taken at a meeting of the
Members may be taken without a meeting if a written consent to such Members
Action, setting forth the action so taken, shall be signed by all of the
Members, and such consent shall have the same force and effect as a duly
conducted vote of the Members. A counterpart of each such consent to action
shall be delivered to the Manager of the Company for placement in the minute
books of the Company, but the failure to deliver a counterpart of any such
consent to action to the Manager of the Company shall not affect the validity or
effectiveness of such consent to action.
3.5. Compensation of Representatives. Representatives shall not receive from
the Company any compensation for their services or any reimbursement for
attendance at meetings of the Members.
3.6. Members Action.
3.6.1. The Members shall act exclusively by means of Members Action conducted
pursuant to this Section 3.6. As used in this Amended Agreement, "Members
Action" means any action which the Members are authorized and empowered to take
in accordance with this Amended Agreement and the Act. Members Action shall be
taken by the Members either (i) by affirmative votes cast in accordance with
Sections 3.8 and 3.9 below, at a meeting of the Members in which a quorum is
present in accordance with Section 3.7 below, duly called and held in accordance
with this Amended Agreement or (ii) by written consent of all of the Members
complying with the requirements of Section 3.4.5. In no event, except as may
otherwise be specifically provided in this Amended Agreement, shall the Members
be authorized to act other than by a Members Action, and any action or purported
action by a Member (including, without limitation, any authorization, consent,
approval, waiver, decision or vote) not constituting a Members Action shall be
null and void and of no force and effect.
3.6.2. Each decision of the Members made by Members Action shall be binding on
the Company.
3.7. Quorum. The presence of two or more Representatives (including any duly
present Alternates) that have the right to vote 51% or more of the Interests in
the Company (pursuant to Section 3.8 below) shall constitute a quorum of the
Members for the transaction of business and the taking of any Members Action
(other than a Unanimous Members Action) at any meeting, except that no quorum of
the Members will be deemed to exist (i) with respect to any regular annual
meeting of the Members unless a notice for such meeting is given to or waived by
each Member in
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accordance with Section 3.4.1 or (ii) with respect to any special meeting of the
Members unless a notice of such meeting is given to or waived by each Member in
accordance with Section 3.4.2. No Members Action may be taken at any meeting at
which a quorum is not present.
3.8. Members Voting and Actions for which Majority Approval Necessary. The
approval and disapproval of all actions by Members Action shall be determined by
vote of the Representatives. Collectively, the Members shall have 100 votes.
Each Member shall have that number of votes determined by multiplying the
Percentage Interest of such Member by 100. The Representatives of each Member
present at the meeting shall together and by joint action cast the votes of such
Member. Except as otherwise expressly provided in this Amended Agreement
including, without limitation, Section 3.9 below, the approval of
Representatives representing at least 51% of the total votes will be sufficient
for the Members to take any Members Action.
3.9. Members Actions for which Unanimous Consent Necessary. Neither the
Manager nor any Member may undertake any action referenced in this Section 3.9
on behalf of or with the intent of binding the Company without the unanimous
approval of the Members ("Unanimous Members Action") at a meeting of the Members
or by written consent as provided in Section 3.4.5. No Members Action will be
deemed for any purpose to have been taken at any meeting of the Members unless
and until 100 votes (constituting all the outstanding votes) are duly cast at
such meeting in favor of such Members Action which would cause or permit the
Company (or any Person acting in the name or on behalf of the Company), directly
or indirectly, to take (or commit to take) any of the actions described below in
this Section 3.9 (whether in a single transaction or series of related
transactions):
(i) to engage, participate or invest in any business outside the scope of the
Company Business;
(ii) to make any acquisition or divestiture of any other entity or of any
material line of business or business unit, or to merge or consolidate the
Company with any other entity;
(iii) to amend, alter, revoke or withdraw any provision of this Amended
Agreement or the Certificate of Formation;
(iv) to issue, redeem or acquire any Interests (or rights to acquire, or any
securities convertible into, Interests) in the Company;
(v) to engage in financing activities, including, without limitation, (a) the
borrowing of money or the grant or use of credit, (b) the pledge of any assets
or the granting of a security interest in any asset, (c) the granting of any
process guaranty or performance guaranty or any guaranty or surety of
indebtedness or (d) the entering into any agreement, or adopting any policy, to
provide for the indemnification of any Person;
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(vi) to file a petition in bankruptcy or to seek any reorganization,
liquidation or similar relief on behalf of the Company, or to consent to the
filing of a petition in bankruptcy against the Company or to consent to the
appointment of a receiver, custodian, liquidator or trustee for the Company for
all or any substantial portion of its property;
(vii) to make distributions of Distributable Funds other than as expressly
provided for in Article IX;
(viii) subject to the provisions of Section 10.5 (iv) hereof, to enter into,
amend, terminate or modify any license agreement or sublicense agreement
respecting the licensing of the K-Fuel Technology to any Project Entity or other
Person;
(ix) to enter into any agreement (other than as part of a Work Plan which will
be governed by Article X below) pursuant to which the Company's commitments can
reasonably be expected to exceed $100,000 over the term of such agreement or to
amend or modify such an agreement in any material respect;
(x) to commence or settle any litigation or arbitration proceeding by or on
behalf of, or in the name or right of, the Company involving any claims for
payments in excess of $100,000;
(xi) to delegate to any committee powers or authority to take any action that
would otherwise require unanimous approval by the Members, or to delegate to any
Member or the Manager powers or authority to take any action that would
otherwise require Members Action;
(xii) to enter into, materially amend or terminate any employee benefit plan of
the Company;
(xiii) to fix the salary and other compensation (including, without limitation,
employee benefits and bonus) of any employee of the Company to the extent such
compensation is in excess of $100,000 per annum;
(xiv) to adopt or effect any material change in the Company's accounting
policies or practices;
(xv) to approve or amend or modify the Annual Operating Budget pursuant to
Section 14.2 hereof;
(xvi) to sell, transfer or otherwise dispose of all or substantially all of the
Company's assets;
(xvii) to make any demand for additional capital contributions from the Members
(provided nothing herein shall restrict the Manager from making funding requests
of the Members with respect to and in accordance with the terms of approved Work
Plans and the Annual Operating Budget);
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(xviii) to amend or modify in any respect the Amended KFx License, the Amended
Series A and B License or the KECC License; or
(xix) to conduct any other activity which by the express terms of this Amended
Agreement requires the unanimous approval of the Members.
ARTICLE IV
MANAGER.
4.1. Authority of the Manager. (i) The Company shall have a Manager which
shall be responsible for administering, managing and overseeing the day-to-day
activities and operations of the Company. The Manager prior to the attainment of
the Project(s) Target shall be KFx and after the attainment of the Project(s)
Target shall be KECC. The Manager shall not be a "manager" as such term is used
under the Act but shall be a manager for the limited purposes and with only the
specific rights and authority set forth herein. The Manager shall have full
power and authority to do all things reasonably necessary or desirable by it to
conduct the day-to-day business of the Company (in a manner consistent with the
Principal Objective and within the Annual Operating Budget) including, without
limitation:
(a) to administer and carry out Work Plans as are approved under Section
10.3 hereof;
(b) subject to Sections 3.9(viii) and 10.5(iv) hereof, to administer
licensing and sublicensing activities and manage the LLC Technology on behalf of
the Company;
(c) to distribute Distributable Funds in accordance with the provisions of
Section 9.1 hereof;
(d) subject to other provisions of this Amended Agreement, to select and
dismiss and determine the compensation and other terms of employment or hiring
of employees and outside attorneys, accountants, consultants and contractors;
(e) to maintain such insurance for the benefit of the Company and Members as
it deems necessary; and
(f) notwithstanding the restrictions upon borrowing money and granting of
credit set forth in Section 3.9(v)(a) hereof, to administer and implement the
Annual Operating Budget including incurring trade debt on behalf of and in the
name of the Company in the ordinary course of business as required to manage and
administer such Annual Operating Budget.
(ii) In performing its duties hereunder, the Manager shall fairly
consider the interests of all Members and perform its duties hereunder with the
same degree of care as a reasonably prudent manager would exercise in the
management of the day-to-day activities of the Company.
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(iii) Notwithstanding any other provision of this Amended Agreement, the
Manager (and any marketing manager under Section 11.2) shall not have the power
or authority, without specific authorization from the Members acting by
Unanimous Members Action, to undertake any of the following:
(a) to do any act which contravenes (or otherwise is inconsistent with) this
Amended Agreement, the Amended KFx License, the Amended Series A and B License,
the KECC License, or the Amended Confidentiality Agreement or which would make
it impossible to carry on the Company Business;
(b) to confess a judgment against the Company;
(c) to possess Company property other than in the ordinary conduct of the
Company Business; or
(d) to take, or cause to be taken, any of the actions described in Section
3.9.
4.2. No Compensation. Except as otherwise established by Unanimous Members
Action, the Manager shall not receive any compensation from the Company for
serving in the capacity of Manager and performing the obligations of the Manager
hereunder.
4.3. Confidential Information. The Manager shall not be deemed to be a
"manager" (as defined in the Act) for purposes of Section 18-305 of the Act and
as such will not be authorized to restrict a Member's access to information
pursuant to Section 18-305 of the Act. More specifically, each Member hereby
acknowledges and agrees that subsections (b) and (c) of Section 18-305 of the
Act shall not be applicable to the operations of the Company.
ARTICLE V
EMPLOYEES.
5.1. Loaned Employees. Except as provided in Section 11.2, the selection of a
Member's (or its Affiliate's) employee to fill a job position of the Company's
and all of the terms of such selection and the nominated employee's service (i)
shall be subject to the approval and control of the Manager, (ii) shall be
subject to the applicable provisions of Section 3.9 hereof and (iii) shall
require a written agreement between the Company and the Member. It is
anticipated that such employees shall continue to participate in the
compensation and benefit plans of the nominating Member.
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ARTICLE VI
MEMBER COVENANTS, REPRESENTATIONS AND RIGHTS.
6.1. Nature of Member Obligations. (i) Each Member represents and warrants to
the Company and the other Member that (directly or through its Affiliates) it is
a sophisticated party possessing extensive knowledge of any experience relating
to, and is actively engaged in, numerous businesses, has been represented by
legal counsel, is capable of evaluating and has thoroughly considered the
merits, risks and consequences of the provisions of this Amended Agreement and
is agreeing to such provisions knowingly and advisedly.
(ii) Except for the administration of licensing and sublicensing
activities and the management of the LLC Technology on behalf of the Company
pursuant to Section 4.1(b), nothing contained in this Amended Agreement shall be
deemed to create any fiduciary or other similar duties between the Members, or
any fiduciary or other similar duties to the other Member or to the Company that
may be imposed by law upon a Member by virtue of its status as a "member" (as
such term is used in the Act) of a Delaware limited liability company. Without
limiting the obligation of a Member to comply with the express obligations of
such Member set forth in this Amended Agreement, the liability of a Member
(including any liability of its Affiliates or its and their respective officers,
directors and employees) to the Company for any act or omission by the Member in
its capacity as a Member of the Company that is imposed solely by virtue of such
Member's status as a "member" (as such term is used in the Act) of a Delaware
limited liability company shall be, and hereby is, eliminated, waived and
limited to the fullest extent permitted by law.
(iii) Nothing contained in this Amended Agreement shall be deemed to
create for any purpose whatsoever any fiduciary or similar duties between the
Manager or a marketing manager (pursuant to Section 11.2 hereof) on the one
hand, and the Members on the other hand, it being agreed by the Members that the
standard of care to be exercised by the Manager or marketing manager, as the
case may be, shall be the standard reflected in Sections 4.1(ii) and 11.2(i)
hereof, respectively.
6.2. Transactions with the Company and Project Entities. (i) Subject to any
required approval by Members Action and all other applicable provisions hereof,
each Member and its Affiliates shall be entitled to enter into contracts and
transactions with the Company and Project Entities. All contracts and
transactions between the Company or any Project Entity and any Member or its
Affiliates shall be on an Arm's-Length Basis. For purposes of this Amended
Agreement, "Arm's-Length Basis" means that a contract or transaction between the
Company or a Project Entity, on the one hand, and a Member or its Affiliate, on
the other hand, shall be upon terms and conditions (including, without
limitation, terms and conditions relating to prices and costs) under which an
independent, qualified, bona fide third party would enter into a particular
transaction in a competitive market.
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(ii) Upon receipt of approval by Unanimous Members Action, a contract
or transaction between the Company or a Project Entity and a Member or its
Affiliates shall be deemed to have been negotiated and entered into on an Arm's-
Length Basis. The terms of each license or sublicense of the K-Fuel Technology
(including any amendment thereto made in accordance with the terms of this
Amended Agreement) issued to a Project Entity as provided herein, the terms of
each Carried Interest Agreement (including any amendment thereto made in
accordance with the terms of this Amended Agreement), shall be deemed to have
been negotiated and entered into on an Arm's-Length Basis.
(iii) Each Member agrees to deliver to the other Member a copy of any
proposed contract or agreement between the Company or any Project Entity, on the
other hand, and such Member or its Affiliate, on the other hand, by written
notice to such Member at least ten (10) days prior to entering into such
contract or agreement. Any disputes relating to whether any such contract or
transaction is on an Arm's-Length Basis shall be submitted to arbitration
pursuant to Section 16.9 hereof.
6.3. Membership Interest. All assets contributed to or acquired by the
Company shall be owned by the Company. Each Member shall have a right only to
its "membership interest" (as such term is used in the Act) in the Company (an
"Interest"), and to the maximum extent permitted by applicable law each Member
waives any rights to partition of the Company's assets and agrees that it will
not seek or be entitled to partition of any such assets, whether by way of
physical partition, judicial sale or otherwise, prior to the termination of the
Company.
6.4. Access to and Copies of Records and Documents. Notwithstanding any
provision of the Act, but subject to the provisions of the Amended
Confidentiality Agreement:
(i) Either Member may examine and copy, in person or by
representative, at any reasonable time, all records, contracts, sublicense,
documents and other information of the Company.
(ii) Upon request by either Member, the Company shall provide without
charge true copies of the Certification of Formation, this Amended Agreement,
all amendments or restatements to such Certification of Formation and this
Amended Agreement, and copies of all federal, state, and local income tax
returns or information for each of the Company's six most recent tax years.
6.5. Member Covenants. (i) Except as otherwise expressly permitted in Article
X of this Amended Agreement, each Member covenants and agrees with the Company
and with the other Member as follows:
(a) it shall not (1) withdraw, retire, resign, or assert that it has
been expelled from the Company, (2) dissolve or enter into any proceeding
seeking dissolution or (3) make any application for judicial dissolution of the
Company;
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(b) it shall not do any act that would make it impossible or
impracticable to carry on the Company Business; and
(c) it shall not act or purport or attempt to act in the conduct of
Company Business in a manner inconsistent with any Members Action or in a manner
contrary to the agreements of the Members set forth in this Amended Agreement.
(ii) The Manager and each Member covenants and agrees to refrain
from offering, paying, returning or transferring any payment or other thing of
value, directly or indirectly, to or for the benefit of any government official
(including any officer or employee of a foreign government or any department,
agency or instrumentality thereof and any person acting in any official capacity
for or on behalf of any such government, department, agency or instrumentality),
any foreign political party or official thereof, or any candidate for any
foreign political office for the purpose of improperly or unlawfully influencing
any official action or decision of such recipient or beneficiary or inducing any
recipient or beneficiary to use his influence with a foreign government,
department, agency or instrumentality thereof or any foreign political party.
(iii) KECC represents and warrants that (a) as of the date of this
Amended Agreement neither KECC nor any affiliate of KECC has ownership of or any
license to use any Technology relating to KFx Technology, and (b) there are no
licenses or other agreements to which KECC or any of its Affiliates is a party
or by which any of them is bound pursuant to which any third Person claiming by
or through KECC may obtain any right, title or interest in or to the KFx
Technology as a consequence of the execution and delivery of this Amended
Agreement or the consummation of the transactions contemplated hereby. KFx
acknowledges and agrees that the Technologies described in Schedule 6.5(iii)
hereto shall not be required to be transferred, licensed or otherwise made
available by KECC or any KECC Affiliate to the Company and will not otherwise be
subject to the terms of this Amended Agreement. In the event that KECC or any
KECC Affiliate hereafter develops or acquires in any manner other than the one
identified in Section 10.3(iii)(a) hereto any right, title or interest in any
Technology relating to KFx Technology, it will cause such Technology and related
Improvements to be licensed to the Company on an exclusive, worldwide, fully
paid, royalty-free basis (with rights to sublicense as provided below and with
rights to modify); provided that (a) legal title to such Technology and any
--------
related Improvements shall not be required to be transferred to the Company, KFx
or any other Person by KECC or the KECC Affiliate and (b) if such Technology is
burdened by any royalty, burden or other concession then the Company or any
sublicensee shall take such license subject to the existing royalty, burden or
concession. In the event that any royalty, burden or concession burdening such
KECC Technology would require the Company to pay any royalties or fees in the
absence of production of K-Fuel Products, KFx shall have the right to cause the
Company not to accept the license of such KECC Technology. If the Company
rejects such KECC Technology, then KECC will have the unrestricted right to use
such KECC Technology in any manner and for
13
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any purpose other than the production of K-Fuel Products , including the right
to issue sublicenses thereof. Each license for such KECC Technology shall be on
the terms of the KECC License to be entered into concomitant with the execution
and delivery of this Amended Agreement and on such other terms as may then be
agreed upon by KECC and KFx including the amount of royalties and license fees
owed to any third party and the procedures for payment of such royalties and
fees. In the event of termination and liquidation of the Company, or the
occurrence of any other event which results in KECC no longer being a Member,
such license shall no longer be exclusive but shall be limited to a nonexclusive
license to the Company or, in the event the Company shall be terminated or
liquidated and not continued as provided in Section 15.2, to KFx, as may be
necessary for the Company or KFx to continue to serve Commercial Projects
whether in operation or Approved for Construction as required by outstanding
sublicenses. The provisions of this Section 6.5(iii) shall not be deemed to
limit or waive the rights of KFx under any other provision of this Amended
Agreement (including, without limitation, Sections 10.1(iv) or 10.3(iii) hereof)
under the Amended KFx License or the Amended Confidentiality Agreement, or
otherwise with respect to the KFx Technology and any related Improvements under
applicable law, or to limit or waive the rights of Heartland Fuels Corporation
under the Series A and B License or the Amended Confidentiality Agreement or
otherwise with respect to the Series A and B Technology and any related
Improvements under applicable law.
(iv) KFx covenants and agrees that, subject to the provisions of
this Amended Agreement and the provisions of the Amended KFx License, the
Amended Series A and B License, and the Amended Confidentiality Agreement,
and to the exceptions set forth on Schedule 6.5(iv)(a), the Company will
(through the Amended KFx License and the Amended Series A and B License)
have access to and right to use (a) all KFx Technology conceived,
discovered, developed or otherwise acquired by or on behalf of any Person
who has prior to the Effective Date of the Original Agreement owned the KFx
Technology or who are licensees of the KFx Technology under licenses to use
the KFx Technology that are currently in effect and that grant such access
and right to use to KFx or its Affiliates as licensors, and (b) all
engineering and construction design, procedures and operational and
technical information relating to the K-Fuel facility located at the Fort
Union site in Gillette, Wyoming. KFx represents and warrants that, except
as set forth on Schedule 6.5(iv), no provision of the licenses and other
agreements which grant KFx Technology to third Persons including those
agreements listed on Schedule 10.1(i) hereto restricts the ability of KFx
to provide to the Company access to and the right to use the above
referenced Technology and related improvements and information pursuant to
the terms of this Amended Agreement, the Amended KFx License, the Amended
Series A and B License, and the Amended Confidentiality Agreement without
any requirement of payment or compensation to such third Persons.
(v) KECC represents and warrants that all Technology relating to
KFx Technology which was conceived, discovered, developed or otherwise acquired
during the execution of the Initial Work Plan by KECC or any of its Affiliates,
including without limitation Rio Tinto, has already been assigned to KFx.
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(vi) KFx represents and warrants that all Technology relating to
KFx Technology which was conceived, discovered, developed or otherwise acquired
prior to this Amended Agreement is included in KFx Technology.
(vii) KFx and KECC covenant and agree that they will not use,
exploit, license, sublicense, or otherwise transfer the KFx Technology, KECC
Technology, or LLC Technology outside of the Company as part of any Technology
that is based on the production of K-Fuel Products.
6.6. Member Representations and Warranties.
6.6.1. By KFx. As of the Effective Date of the Amended Agreement, KFx
represents and warrants to KECC as follows:
(i) Organization and Existence. (a) KFx is a corporation duly
--------------------------
organized, validly existing and in good standing under the laws of Delaware and
has full corporate power and authority to own or lease all of its properties and
assets and to carry on its business. KFx further has full corporate power and
authority to execute and deliver this Amended Agreement, to grant to the Company
the Amended KFx License and to consummate the transactions contemplated by this
Amended Agreement. The execution and delivery of this Amended Agreement and the
Amended KFx License and the consummation of the transactions contemplated hereby
and thereby have been duly and validly authorized by all necessary corporate
action on the part of KFx and each of this Amended Agreement and the Amended KFx
License is a valid and binding obligation of KFx enforceable in accordance with
its terms subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting or relating to enforcement of creditors' rights
generally, and general equitable principles.
(b) Heartland Fuels Corporation is a corporation duly organized,
validly existing and in good standing under the laws of Wisconsin and has full
corporate power and authority to own or lease all of its properties and assets
and to carry on its business. Heartland Fuels Corporation is owned 85 percent by
KFx, 5 percent by the Koppelman Marital Trust and the Koppelman Survivors Trust,
and 10 percent by KSA. Heartland Fuels Corporation further has full corporate
power and authority to execute and deliver and grant to the Company the Amended
Series A and B License. The execution and delivery of the Amended Series A and B
License and the consummation of the transactions contemplated thereby and hereby
have been duly and validly authorized by all necessary corporate action on the
part of Heartland Fuels Corporation and the Amended Series A and B License is a
valid and binding obligation of Heartland Fuels Corporation, enforceable in
accordance with its terms subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to enforcement of
creditors' rights generally, and general equitable principles.
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(ii) Violation of Agreements; Consents. The execution and delivery
---------------------------------
of this Amended Agreement, the Amended KFx License and the Amended Series A and
B License by KFx and Heartland Fuels Corporation, as the case may be, does not,
and the fulfillment of the terms, compliance with the provisions hereof, and the
consummation of the transactions contemplated hereby will not (a) conflict with
or result in a breach of or default under, or in an occurrence which with the
lapse of time or action by a third party could result in a default under, or
give rise to any right of termination, cancellation or acceleration with respect
to, any of the terms, conditions or provisions of any contract, lease or
agreement to which KFx, Heartland Fuels Corporation or any of their respective
Affiliates is a party or by which it is bound, (b) violate any order, writ,
injunction or decree applicable to KFx, Heartland Fuels Corporation or any of
their respective Affiliates or (c) conflict with or result in a default under
any provision of the charter or bylaws of KFx, Heartland Fuels Corporation or
any of their respective Affiliates. No consent or approval by, or filing with,
any governmental authority or third Person which shall not have been obtained on
or prior to the Effective Date of the Amended Agreement is required in
connection with the execution and delivery by KFx of this Amended Agreement or
the Amended KFx License or by Heartland Fuels Corporation of the Amended Series
A and B License or for the consummation by KFx or Heartland Fuels Corporation of
the transactions contemplated hereby.
(iii) Litigation. There is no legal action, suit or any civil,
----------
criminal, administrative, or judicial arbitration or other such proceeding or
governmental investigation pending or, to the knowledge of KFx, threatened
against KFx, Heartland Fuels Corporation or any of their Affiliates which could
have a material adverse effect on the Company, or an adverse effect on KFx's
rights to the KFx Technology or on Heartland Fuels Corporation's rights to the
Series A and B Technology or to the Company's rights under the Amended KFx
License or the Amended Series A and B License.
(iv) Violation of Laws. None of KFx, Heartland Fuels Corporation or
-----------------
any of their respective Affiliates are in violation of or in default with
respect to any applicable law or any applicable rule, regulation, order,
ordinance, writ or decree of any court or any governmental commission, board,
bureau, agency or instrumentality, or delinquent with respect to any report
required to be filed with any governmental commission, board, bureau, agency or
instrumentality, the penalty for which would have a material adverse effect on
the Company or an adverse effect, on KFx's rights to the KFx Technology or on
Heartland Fuels Corporation's rights to the Series A and B Technology or on the
Company's rights under the Amended KFx License or the Amended Series A and B
License.
(v) KFx Intangible Assets. Schedule 6.6.1(v) hereto sets forth: (a)
---------------------
all patents, patent applications, trademarks, trademark registrations,
applications for trademark registrations, trade names and copyrights included in
the KFx Technology and the Series A and B Technology (1) which KFx, Heartland
Fuels Corporation or any of their respective Affiliates or predecessors owns or
in which KFx, Heartland Fuels Corporation or any of their respective Affiliates
has any rights or proprietary interest and (2) which are used or useful in the
manufacture or production of
16
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K-Fuel Products, (b) all license agreements currently in effect involving KFx
Technology and/or the Series A and B Technology, as to which KFx or any KFx
Affiliate or any predecessor is licensor or licensee and (c) a listing of all
agreements currently in effect relating in any way to KFx's, Heartland Fuels
Corporation's and their respective Affiliates' rights in and to the KFx
Technology and Series A and B Technology and the right to grant the Amended KFx
License and the Amended Series A and B License and to perform their obligations
hereunder and thereunder with respect to the KFx Technology and the Series A and
B Technology including, without limitation, such agreements that affect use or
disclosure of the KFx Technology.
(vi) Except as set forth in Schedule 6.6.1(vi) hereto:
(a) KFx owns good and valid title to the KFx Technology
(including, without limitation, the related patents) free and clear of all
liens, claims or encumbrances of any kind or character other than the license
issued by KFx to Heartland Fuels Corporation respecting the use of Series A and
B Technology as it relates to the beneficiation or restructuring of coal or coal
related feedstocks. Heartland Fuels Corporation is the exclusive licensee of the
Series A and B Technology as it relates to coal or coal related feedstock
applications and all of its rights thereto are free and clear of all liens,
claims or encumbrances of any kind or character;
(b) There are no pending or, to the knowledge of KFx, threatened
infringement claims against KFx, Heartland Fuels Corporation or any of their
respective Affiliates by any Person with respect to any of the foregoing items
nor has any such item been declared invalid or been limited by any court or
agreement;
(c) The licenses granted by KFx and Heartland Fuels Corporation to
the Company will afford the Company at all times after the Effective Date of the
Original Agreement the exclusive rights (subject only to the limited exceptions
to exclusivity set forth in Schedule 10.1(i) hereto) to use the KFx Technology
and the nonexclusive rights to use all trademarks, copyrights, tradenames and
servicemarks owned by KFx, Heartland Fuels Corporation or their respective
Affiliates necessary for the conduct of the business of the Company;
(d) In those countries in which KFx has patents or in which
patents have been applied for and would be given subject to the laws of the
applicable jurisdiction, the use of the KFx Technology as contemplated by this
Amended Agreement in research and development activities, the preparation of
Feasibility Studies and in the construction and operation of Commercial Projects
does not and will not infringe on the rights of any other Person;
(e) All renewals and all fees and payments which are due on or
before the date of this Amended Agreement for all of the foregoing items have
been met or paid, and none of such items is the subject of any pending
interference, reexamination, opposition, cancellation or other protest
proceeding; and
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(f) To the knowledge of KFx, there is no foreign or domestic
protest which could be expected to restrict the Company from practicing,
licensing or otherwise exploiting the KFx Technology. Furthermore, KFx is not
aware of any use of any Technology by a third Person which could constitute an
infringement or violation of the rights of KFx in and to the KFx Technology.
6.6.2. By KECC. As of the Effective Date of the Amended Agreement, KECC
represents and warrants to KFx as follows:
(i) Organization and Existence. KECC is a corporation duly
--------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to own or lease all of its
properties and assets and to carry on its business. KECC further has full
corporate power and authority to execute and deliver this Amended Agreement, and
to consummate the transactions contemplated by this Amended Agreement. The
execution and delivery of this Amended Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of KECC and this Amended Agreement is a
valid and binding obligation of KECC, enforceable in accordance with their terms
subject to bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting or relating to enforcement of creditors' rights generally, and
general equitable principles.
(ii) Violation of Agreements; Consents. The execution and delivery
---------------------------------
of this Amended Agreement by KECC do not, the fulfillment of the terms and
compliance with the provisions hereof will not, and the consummation of the
transactions contemplated hereby will not (a) conflict with or result in a
breach of or default under, or in an occurrence which with the lapse of time or
action by a third party could result in a default under, or give rise to any
right of termination, cancellation or acceleration with respect to any of the
terms, conditions or provisions of any contract, lease or agreement to which
KECC or any of its Affiliates is a party or by which it is bound, (b) violate
any order, writ, injunction or decree applicable to KECC or any of its
Affiliates or (c) conflict with or result in a default under any provision of
the charter or bylaws of KECC or any of its Affiliates. No consent or approval
by, or filing with, any governmental authority or third Person which shall not
have been obtained on or prior to the Effective Date of the Amended Agreement is
required in connection with the execution and delivery by KECC of this Amended
Agreement or for the consummation by KECC of the transactions contemplated
hereby.
(iii) Litigation. There is no legal action, suit or any civil,
----------
criminal, administrative, or judicial arbitration or other such proceeding or
governmental investigation pending or, to the knowledge of KECC, threatened
against KECC or any of its Affiliates which would have a material adverse effect
on the Company.
(iv) Violation of Laws. Neither KECC nor any of its Affiliates is
-----------------
in violation of or in default with respect to any applicable law or any
applicable rule, regulation or order,
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ordinance, writ or decree of any court or any governmental commission, board,
bureau, agency or instrumentally, or delinquent with respect to any report
required to be filed with any governmental commission, board, bureau, agency or
instrumentally, the penalty for which would have a material adverse effect on
the Company.
(v) KECC Intangible Assets. Schedule 6.6.2(v) hereto sets forth:
(a) all patents, patent applications and copyrights included in the KECC
Technology (1) which KECC or any of their respective Affiliates or predecessors
owns or in which KECC has any rights or proprietary interest and (2) which are
used or useful in the manufacture or production of K-Fuel Products, (b) all
license agreements currently in effect involving KECC Technology, as to which
KECC or any KECC Affiliate or any predecessor is licensor or licensee and (c) a
listing of all agreements currently in effect relating in any way to KECC's and
its respective Affiliates' rights in and to the KECC Technology and the right to
grant the KECC License and to perform their obligations hereunder and thereunder
with respect to the KECC Technology including, without limitation, such
agreements that affect use or disclosure of any patents of KECC Technology.
(vi) Except as set forth in Schedule 6.6.2(vi) hereto:
(a) KECC owns good and valid title to the KECC Technology
which is licensed to the Company pursuant to the KECC License (including,
without limitation, the related patents) free and clear of all liens, claims or
encumbrances of any kind or character;
(b) There are no pending or, to the knowledge of KECC,
threatened infringement claims against KECC or any of their respective
Affiliates by any Person with respect to any of the foregoing items nor has any
such item been declared invalid or been limited by any court or agreement;
(c) The licenses granted by KECC to the Company will afford
the Company at all times after the Effective Date of the Original Agreement the
exclusive rights to use the KECC Technology which is licensed to the Company
pursuant to the KECC License;
(d) In those countries in which KECC has patents or in which
patents have been applied for and would be given subject to the laws of the
applicable jurisdiction, the use of the KECC Technology as contemplated by this
Amended Agreement in research and development activities, the preparation of
Feasibility Studies and in the construction and operation of Commercial Projects
does not and will not infringe on the rights of any other Person;
(e) All renewals and all fees and payments which are due on
or before the date of this Amended Agreement for all of the foregoing items have
been met or paid, and none of such items is the subject of any pending
interference, reexamination, opposition, cancellation or other protest
proceeding; and
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(f) To the knowledge of KECC, there is no foreign or domestic
protest which could be expected to restrict the Company from practicing,
licensing or otherwise exploiting the KECC Technology which is licensed to the
Company pursuant to the KECC License. Furthermore, KECC is not aware of any use
of any Technology by a third Person which could constitute an infringement or
violation of the rights of KECC in and to the KECC Technology which is licensed
to the Company pursuant to the KECC License.
6.6.3. Survival. The representations and warranties made by KECC and KFx,
respectively, shall survive the execution of this Amended Agreement.
6.7. Indemnification.
6.7.1. Each Member hereby agrees to indemnify and hold harmless the Company and
the other Member, its Affiliates and each director, officer and employee of such
other Member, its Affiliates and the Company without duplication from and
against any and all losses, claims, damages, expenses and liabilities arising
out of or in connection with the business or affairs of the Company
(collectively, "Indemnified Losses"), which arise out of any breach by such
Member of any provision of this Amended Agreement or the Amended Confidentiality
Agreement including, without limitation, a breach of any representation or
warranty made by such Member in this Article VI.
6.7.2. Promptly after receipt by a Person entitled to indemnification under
Section 6.7.1 (an "Indemnified Party") of notice of any pending or threatened
claim against it (an "Action"), such Indemnified Party shall give notice to the
party to whom the Indemnified Party is entitled to look for indemnification (the
"Indemnifying Party") of the commencement thereof, but the failure to so notify
the Indemnifying Party shall not relieve it of any liability that it may have to
any Indemnified Party except to the extent the Indemnifying Party demonstrates
that it is prejudiced thereby. In case any Action that is subject to
indemnification under Section 6.7.1 shall be brought against an Indemnified
Party and it shall give notice to the Indemnifying Party of the commencement
thereof, the Indemnifying Party shall be entitled to participate therein and, to
the extent that it shall wish, to assume the defense thereof with counsel
reasonably satisfactory to such Indemnified Party. Following notice to the
Indemnified Party by the Indemnifying Party of its election to assume the
defense thereof, the Indemnifying Party shall not be liable to such Indemnified
Party under this Section for any fees of other counsel or any other expenses, in
each case subsequently incurred by such Indemnified Party in connection with the
defense thereof, other than reasonable costs of investigation. Notwithstanding
an Indemnifying Party's election to assume the defense of any such Action that
is subject to indemnification under Section 6.7.1, the Indemnified Party shall
have the right to employ separate counsel and to participate in the defense of
such Action, and the Indemnifying Party shall bear the reasonable fees, costs
and expenses of such separate counsel if (i) the use of counsel chosen by the
Indemnifying Party to represent the Indemnified Party, would present such
counsel with a conflict of interest, (ii) the actual or potential defendants
in, or targets of, any such action include both the Indemnifying Party and the
Indemnified Party, and the
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Indemnified Party shall have reasonably concluded that there may be defenses
available to it which are different from or additional to those available to the
Indemnifying Party in which case the Indemnifying Party shall not have the right
to assume the defense of such action on the Indemnified Party's behalf, (iii)
the Indemnifying Party shall not have employed counsel reasonably satisfactory
to the Indemnified Party to represent the Indemnified Party within a reasonable
time after notice of the institution of such Action, or (iv) the Indemnifying
Party shall authorize the Indemnified Party to employ separate counsel at the
Indemnifying Party's expense. If an Indemnifying Party assumes the defense of
such action, (a) no compromise or settlement thereof may be effected by the
Indemnifying party without the Indemnified Party's consent (which shall not be
unreasonably withheld) unless (1) there is no finding or admission of any
violation of law or any violation of the rights of any Person and no effect on
any other claims that may be made by or against the Indemnified Party and (2)
the sole relief provided is monetary damages that are paid in full by the
Indemnifying Party and (b) the Indemnified Party shall have no liability with
respect to any compromise or settlement thereof effected without its consent
(which shall not be unreasonably withheld).
6.7.3. No Indemnifying Party shall be liable to the other under this Section
6.7 for any Indemnified Loss until the aggregate amount otherwise required to be
paid by such Indemnifying Party to all Indemnified Parties under this Section
6.7 exceeds a cumulative total of $100,000, whereupon such Indemnified Party
shall become liable for the entire amount required to be paid under this Section
6.7 (including, without limitation, such $100,000 amount).
6.7.4. The indemnities contained in this Section 6.7 shall survive the
termination and liquidation of the Company for a period of four years following
such termination and liquidation.
6.8. Kennecott Guaranty. On the Effective Date of the Original Agreement,
KECC caused Kennecott Energy and Coal Company to execute and deliver to KFx a
guarantee in the form of Exhibit C attached to the Original Agreement ("the
Kennecott Guaranty"). On the Effective Date of the Amended Agreement, KECC
shall cause Kennecott Energy and Coal Company to execute and deliver to KFx an
Acknowledgment and Reaffirmation of Guaranty in the form of Exhibit C hereto.
6.9. Confidentiality Agreement. On the Effective Date of the Amended
Agreement, each Member shall execute and deliver to the Company and the other
Member an amended confidentiality agreement in form satisfactory to each of the
Members (the "Amended Confidentiality Agreement"). The Members agree that the
Amended Confidentiality Agreement shall govern the disclosure of proprietary or
confidential information by the Members and by the Company. Each of the Members
agrees that it and each of its Affiliates will hold all K-Fuel Technology in
strict confidence and treat it as proprietary information and not use the K-Fuel
Technology (for itself or the benefit of any third Person) except for the
conduct of the Company Business under this Amended Agreement as set forth in the
Amended Confidentiality Agreement.
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ARTICLE VII
CAPITAL CONTRIBUTIONS.
7.1. Initial Capital Contributions by Members. On the Effective Date of the
Original Agreement, KECC made a cash contribution to the Company of One Million
One Thousand Dollars ($1,001,000) and KFx made a cash contribution of One
Thousand Dollars ($1,000).
7.2. Additional Capital Contributions. Without limiting the provisions of
Article X, no additional contributions of cash or other property shall be
required of any Member except by Unanimous Members Action.
7.3. No Withdrawal. A Member shall not be entitled to withdraw any part of
his Capital Contribution or his Capital Account or to receive any distribution
from the Company, except as provided in Article IX and Article XV hereof.
ARTICLE VIII
CAPITAL ACCOUNTS;
ALLOCATION OF NET INCOME AND NET LOSS.
8.1. Definition of Members' Capital Accounts. The term "Capital Account,"
when used in respect of any Member, shall mean the Capital Account maintained
for such Member hereunder which shall have an initial balance equal to the cash
amount or Net Agreed Value of such Member's Capital Contribution and which shall
be adjusted as follows:
8.1.1. Increased by
(i) The amount of Net Income and other items of income and gain computed as
provided in Section 8.2 and allocated to such Member pursuant to Sections 8.3
and 8.4 hereof, and
(ii) The cash amount or Net Agreed Value of any additional Capital
Contributions made by such Member;
8.1.2. Decreased by
(i) The amount of Net Loss and other items of loss and deduction computed as
provided in Section 8.2 and allocated to such Member pursuant to Sections 8.3
and 8.4 hereof,
(ii) The amount of cash and the Net Agreed Value of any property distributed
to such Member; and
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8.1.3. Increased or decreased to reflect other items not taken into account
under Section 8.1.1 or 8.1.2 above as necessary to comply with the requirements
of Treasury Regulation Section 1.704-1(b)(2)(iv) (or any successor provision
thereto).
8.1.4. (i) Consistent with the provisions of Treasury Regulation Section
1.704-1(b)(2)(iv)(f), on a contribution of cash or property to the Company after
the issuance of the initial Member Interests, the Capital Accounts of all
Members and the Carrying Value of each item of Company property shall,
immediately prior to any such contribution, be adjusted upward or downward to
reflect any Unrealized Gain or Unrealized Loss attributable to such Company
property, as if such Unrealized Gain or Unrealized Loss had been recognized as
gain or loss on an actual sale of each such property immediately prior to such
contribution and had been allocated to the Members at such time as provided in
Section 8.3.
(ii) Consistent with the provisions of Treasury Regulation Section
1.704-1(b)(2)(iv)(f), immediately prior to any distribution to a Member of any
Company property (other than a distribution of cash that is not in redemption or
retirement of a Member's Interest), the Capital Accounts of all Members and the
Carrying Value of each item of Company property shall, immediately prior to any
such distribution, be adjusted upward or downward to reflect any Unrealized Gain
or Unrealized Loss attributable to such Company property, as if such Unrealized
Gain or Unrealized Loss had been recognized as gain or loss on an actual sale of
each such property immediately prior to such distribution and had been allocated
to the Members at such time as provided in Section 8.3.
8.1.5. No Interest on Capital Accounts. No Member shall receive interest on
the amount credited to such Member's Capital Account.
8.1.6. Transferees. A transferee of an Interest in the Company shall succeed to
the Capital Account attributable to the Interest, and there shall be no
adjustment to the Capital Accounts as a result of the transfer.
8.2. Net Income and Net Loss Computation. Net Income and Net Loss for each
tax year shall be determined in accordance with Section 703(a) of the Code (for
this purpose, all items of income, gain, loss, or deduction required to be
stated separately pursuant to Section 703(a) (1) of the Code shall be included
in taxable income or loss), with the adjustments set forth herein.
8.2.1. Any income of the Company that is exempt from federal income tax shall
be added to such taxable income or loss.
8.2.2. All fees and other expenses incurred by the Company to promote the sale
of (or to sell) an interest that can neither be deducted nor amortized under
Section 709 of the Code, if any, shall, for purposes of Capital Account
maintenance, be treated as an item of deduction at the time such fees and other
expenses are incurred.
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8.2.3. Except as otherwise provided in Treasury Regulation Section 1.704-
1(b)(2)(iv)(m), the computation of all items of income, gain, loss and deduction
shall be made without regard to any election under Section 754 of the Code which
may be made by the Company and, as to those items described in Section
705(a)(1)(B) or 705(a)(2)(B) of the Code, without regard to the fact that such
items are not includable in gross income or are neither currently deductible nor
capitalized for federal income tax purposes.
8.2.4. In accordance with Treasury Regulation (S)1.704-1(b)(2)(iv)(g), any
income, gain or loss attributable to the taxable disposition of any Company
property shall be determined as if the adjusted basis of such property as of
such date of disposition were equal in amount to the Company's Carrying Value
with respect to such property as of such date.
8.2.5. Any depreciation, amortization, depletion, or other cost recovery
deductions for such tax year or part thereof shall be determined using the same
method of depreciation as used for federal income as if the adjusted basis of
the property were equal in amount to the Company's Carrying Value with respect
to such property. The amount of depreciation, depletion or other cost recovery
deduction shall be computed under the rules set forth in Treasury Regulation
(S)1.704-1(b)(2)(iv)(g) and, if applicable, in Treasury Regulation (S)1.704-
3(d)(2).
8.2.6. Such Net Income or Net Loss shall be deemed not to include any
income, gain, loss, deduction, or other item thereof allocated pursuant to
Section 8.6.
8.3. Allocation Among Members. Subject to the provisions of Section
8.6.2., Net Income and Net Loss shall be allocated among the Members in
proportion to their Percentage Interests; provided that all items of loss,
deduction and credits resulting from the expenditure by the Company of the
$1,000,000 payment to KFx pursuant to Section 10.1(iii) hereof and the
expenditure by the Company of the amounts contributed by KECC to the Company to
fund Research and Development Costs under the Initial Work Plan shall be
allocated 100% to KECC. All items of loss, deduction and credits resulting from
the expenditure by the Company of the $1,000,000 contribution by KFx to the
Company pursuant to Section 10.1(iii) shall be allocated 100% to KECC. Further,
all items of loss, deduction and credits resulting from contributions to the
Company to fund Work Plans undertaken and funded by only one Member pursuant to
Section 10.3(ii) shall be allocated 100% to that Member.
8.4. Regulatory Allocations. Prior to making any allocations provided in
Section 8.3, the following mandatory allocations shall be made:
8.4.1 Limitation on Loss Allocations. The Net Loss allocated to any Member
pursuant to Section 8.3 with respect to any tax year shall not exceed the
maximum amount of Net Loss that can be so allocated without causing such Member
to have an Adjusted Capital Account Deficit at the end of such tax year. All
Net Losses in excess of the limitation set forth in this Section 8.4.1 shall be
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allocated (i) first, to those Members who will not be subject to this
limitation, in the ratio their Interests bear to each other, and (ii) second,
any remaining amount to the Members in the manner required by the Code and the
Treasury Regulations.
8.4.2. Qualified Income Offset. Except as provided in Section 8.4.3 hereof,
in the event any Member unexpectedly receives any adjustments, allocations or
distributions described in Treasury Regulations (S)(S)1.704-1(b)(2)(ii)(d)(4),
1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6) which causes or increases an
Adjusted Capital Account Deficit, items of Company income and gains shall be
specially allocated as quickly as possible to such Member in an amount and
manner sufficient to eliminate, to the extent required by the Allocation
Regulations, the Adjusted Capital Account Deficit created or increased by such
adjustments, allocations or distributions.
8.4.3. Nonrecourse Debt Allocations. Notwithstanding any other provision of
this Section 8.4, each Member shall be allocated items of Company income and
gain in each fiscal year as necessary to comply with the Allocation Regulations
and Treasury Regulation Section 1.704-2 relating to nonrecourse debt (i.e.,
nonrecourse liabilities as defined in Treasury Regulation Section 1.752-2 and
partner nonrecourse debt as defined in Treasury Regulation Section 1.704-2(b)).
This Section 8.4.3 is intended to comply with the minimum gain chargeback
requirements of Treasury Regulations (S)(S)1.704-2(f) and 1.704-2(i)(4) and
shall be interpreted consistently therewith.
8.4.4. Curative Allocations. The special allocations set forth in Section
8.4.1 through Section 8.4.3 (the "Regulatory Allocations") are intended to
comply with the Allocation Regulations and Treasury Regulation Sections 1.704-2
and 1.752-1 through 1.752-5. Notwithstanding any other provisions of this
Section 8.4, the Regulatory Allocations shall be taken into account in
allocating Net Income, Net Loss and other items of income, gain, loss and
deduction among the Members such that, to the extent possible, the net amount of
such allocations of Net Income, Net Loss and other items and the Regulatory
Allocations to each member shall be equal to the net amount that would have been
allocated to each member if the Regulatory Allocations had not occurred.
8.4.5. Code Section 754 Adjustments. To the extent an adjustment to the
adjusted tax basis of any Company asset pursuant to Section 734(b) or 743(b) of
the Code is required pursuant to the Allocation Regulations to be taken into
account in determining Capital Accounts, the amount of such adjustment to the
Capital Accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases such
basis), and such item of gain or loss shall be specially allocated to the
Members in a manner consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to the Allocation Regulations.
8.4.6. Change in Regulations. If the Treasury Regulations incorporating the
Regulatory Allocations are hereafter changed or if new Treasury Regulations are
hereafter adopted, and such changed or new Regulations, in the opinion of
independent tax counsel for the Company, make it necessary to revise the
Regulatory Allocations or provide further special allocation rules in order to
avoid a significant risk that a material portion of any allocation set forth in
this Article VIII would
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not be respected for federal income tax purposes, the Members shall make such
reasonable amendments to this Amended Agreement as, in the opinion of such
counsel, are necessary or desirable, taking into account the interests of the
Members as a whole and all other relevant factors, to avoid or reduce
significantly such risk to the extent possible without materially changing the
amounts allocable and distributable to any Member pursuant to these Regulations.
8.4.7. Gross Income Allocations. In the event any Member has an Adjusted
Capital Account Deficit; such Member shall be specially allocated items of
Company gross income and gain in the amount of such excess as quickly as
possible.
8.5. Change in Members' Interests. If there is a change in any Member's
share of the Net Income or Net Loss or other items of the Company during any tax
year, allocations among the Members shall be made in accordance with their
Interests in the Company from time to time during such tax year in accordance
with Section 706 of the Code, using the closing-of-the-books method, except that
depreciation shall be deemed to accrue ratably on a daily basis over the entire
tax year during which the corresponding asset is owned by the Company if such
asset is placed in service prior to or during the tax year.
8.6. Allocations for Tax Purposes. Except as otherwise provided herein, for
federal income tax purposes, each item of income, gain, loss, deduction and
credit which is recognized by the Company shall be allocated for federal income
tax purposes among the Members in the same manner as its correlative item of
"book" income, gain, loss or deduction is allocated pursuant to Sections 8.3 and
8.4 hereof.
8.6.1. Elimination of Book/Tax Disparities. In determining a Member's
allocable share of Company taxable income, the Member's allocable share of items
of Net Income and Net Loss shall be properly adjusted to reflect the difference
between such Member's share of the adjusted tax basis and the Carrying Value of
Company assets. Items of gain, income, deduction, or loss shall be allocated to
the Members in a manner designed to eliminate, to the maximum extent and as
quickly as possible, book/tax disparities in contributed property or property
revalued under Treasury Regulation (S)1.704-1(b)(2)(iv)(f) resulting from the
application of the "ceiling" limitation (under Section 704(c) of the Code or
Section 704(c) principles) to the allocations provided under this Section.
8.6.2. Allocation of Items Among Members. (i) Except as otherwise provided
in Section 8.6.1, each item of income, gain, loss and deduction and all other
items governed by Section 702(a) of the Code shall be allocated among the
Members pro rata in proportion to the allocation of Net Income, Net Loss, and
other items to the Members hereunder, provided that any gain recognized from any
disposition of a Company asset that is treated as ordinary income because it is
attributable to the recapture of any depreciation or amortization shall be
allocated among the Members in the same ratio as the prior allocations of Net
Income, Net Loss, or other items that included such depreciation or
amortization, but not in excess of the gain otherwise allocable to each Member.
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8.6.3. Section 754 Elections. All items of income, gain, loss, deduction,
credit and basis allocation recognized by the Company for federal income tax
purposes and allocated to the Members in accordance with the provisions hereof
shall be determined without regard to any election under Section 754 of the Code
that may be made by the Company; provided that such allocations, once made,
--------
shall be adjusted as necessary or appropriate to take into account the
adjustments permitted by Sections 734 and 743 of the Code.
8.6.4. Credits. Credits shall be allocated among the Members in accordance
with the allocation of Section 8.3 unless Treasury Regulation Section 1.704-
1(b)(4)(ii) shall otherwise require.
8.6.5. Excess Nonrecourse Liabilities. Excess Nonrecourse Liabilities shall
be allocated in a manner mutually agreed to by the Members, to the extent
permissible under Treasury Regulation (S)1.752-3(a)(3).
8.6.6. Conformity of Reporting. The Members are aware of the income tax
consequences of the allocations made by this Section 8.6 and hereby agree to be
bound by the provisions of this Section 8.6 in reporting their share of Company
profits, gains, income, losses, deductions, credits and other items for income
tax purposes.
ARTICLE IX
DISTRIBUTIONS.
9.1. Distributions. Distributable Funds will be distributed to the Members
in accordance with their respective Percentage Interests. The Manager shall
cause the Company to make distributions of Distributable Funds at such intervals
of time as the Members may agree by Unanimous Members Action.
9.2. Distributions Upon Liquidation. On the winding up of the Company
pursuant to Section 15.1 hereby, all assets of the Company shall be distributed
in accordance with Sections 15.3 and 15.4.
ARTICLE X
TECHNOLOGY LICENSES; DEVELOPMENT
ACTIVITIES; COMMERCIAL PROJECTS.
10.1. Technology Licenses. (i) Amended licenses and new licenses will be
required under the Amended Agreement as follows:
(a) Pursuant to the Original Agreement, KFx executed and
delivered to the Company an exclusive (as against KFx and all others except for
the limited exceptions to exclusivity set forth in Schedule 10.1(i) hereto)
fully-paid, royalty free right and license to use the
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KFx Technology, the Series A and B Technology (except to the extent it pertains
to the beneficiation or restructuring of coal or coal related feedstocks) and
any related Improvements thereto anywhere in the world, in substantially the
form of the license agreement attached to the Original Agreement as Exhibit A.
On the Effective Date of the Amended Agreement, KFx will execute and deliver to
the Company an exclusive (as against KFx and all others except for the limited
exceptions to exclusivity set forth in Schedule 10.1(i) hereto and in Section
2.4(ii) of this Amended Agreement) fully-paid, royalty free right and license to
use the KFx Technology, the Series A and B Technology (except to the extent it
pertains to the beneficiation or restructuring of coal or coal related
feedstocks) and any related Improvements thereto anywhere in the world, in
substantially the form of the amended license agreement attached to this Amended
Agreement as Exhibit A (the "Amended KFx License").
(b) Pursuant to the Original Agreement, KFx caused Heartland
Fuels Corporation to execute and deliver to the Company an exclusive (as against
Heartland Fuels Corporation and all others except for the limited exceptions to
exclusively set forth in Schedule 10.1(i) hereto) fully-paid, royalty free right
and license to use the Series A and B Technology as it pertains to the
beneficiation or restructuring of coal or coal related feedstocks and related
Improvements anywhere in the world, in substantially the form of the license
agreement attached to the Original Agreement as Exhibit B. On the Effective Date
of the Amended Agreement, KFx will cause Heartland Fuels Corporation to execute
and deliver to the Company an exclusive (as against Heartland Fuels Corporation
and all others except for the limited exceptions to exclusivity set forth in
Schedule 10.1(i) hereto and in Section 2.4(ii) of this Amended Agreement) fully-
paid, royalty free right and license to use the Series A and B Technology as it
pertains to the beneficiation or restructuring of coal or coal related
feedstocks and related Improvements anywhere in the world, in substantially the
form of the amended license agreement attached to this Amended Agreement as
Exhibit B (the "Amended Series A and B License").
(c) On the Effective Date of the Amended Agreement, KECC will
execute and deliver to the Company an exclusive (as against KECC and all others
except for the limited exception to exclusivity set forth in Section 2.4(ii) of
this Amended Agreement) fully-paid, royalty free right and license to use any
KECC Technology and related Improvements as they pertain to the production of K-
Fuel Products anywhere in the world, in substantially the form of the license
agreement attached to this Amended Agreement as Exhibit E (the "KECC License").
(ii) The Company shall have the right and authority to grant and
enter into licenses and sublicenses of K-Fuel Technology (including the KECC
Technology licensed to the Company pursuant to Section 10.3(iii)(a), the KFx
Technology licensed to the Company pursuant to Section 10.3(iii)(a), and the LLC
Technology) to Project Entities and to Persons other than Project Entities
pursuant to the provisions and subject to the limitations set forth in this
Amended Agreement (including, without limitation, Section 3.9 (viii) hereof) and
in the Amended KFx License, the Amended Series A and B License, and the KECC
License; provided, that each such license or sublicense shall contain at least
the terms and provisions set forth on Schedule 10.1(ii)(A)
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attached hereto and shall provide for payment to KFx of the royalties, license
fees, and carried interest set forth on Schedule 10.1(ii)(B) attached hereto.
(iii) KECC acknowledges its understanding and agreement that
$1,000,000 of the initial capital contribution which was to be made by KECC to
the Company, pursuant to Section 7.1 of the Original Agreement, was to be paid
by the Company to KFx in consideration for KFx entering into the Original
Agreement and providing to KECC the opportunity to become a Member of the
Company. In this connection, the Company paid to KFx such $1,000,000
consideration on the Effective Date of the Original Agreement. On the Effective
Date of this Amended Agreement, KECC shall pay to KFx the sum of $2,000,000 by
wire transfer (or as otherwise directed by KFx), $1,000,000 of which is in
consideration for KFx entering into this Amended Agreement. The remaining
$1,000,000 of the payment from KECC to KFx will be treated as an initial license
fee to KFx under Section 10.1(ii) and under the Amended KFx License for a
Commercial Project with a capacity in excess of 666,667 tons of annual rated
production capacity to be constructed at a location of KECC's choice inside or
outside the United States. If the Commercial Project is to be constructed inside
the United States, KECC shall give 30 days notice of the location to KFx. The
$1,000,000 payment will be applied against the license fee to KFx with respect
to the first 666,667 tons of annual rated production capacity of such Commercial
Project. This $1,000,000 initial license fee shall not be refunded or offset
against any other amounts payable by KECC or any of its Affiliates to KFx or any
of its Affiliates, even if KECC does not elect to form a Project Entity to
construct a Commercial Project. On the date of this Amended Agreement, KFx shall
contribute to the Company $1,000,000 to fund a Work Plan to be conducted by KECC
or a KECC Affiliate. Any Technology relating to KFx Technology that is developed
through the Work Plan funded by KFx's $1,000,000 contribution shall be KECC
Technology, provided that KECC will have the same obligation to license the KECC
Technology to the Company on the same terms as if KECC had developed the
Technology through a Work Plan undertaken and funded solely by KECC pursuant to
Section 10.3(ii) of this Amended Agreement and licensed the Technology to the
Company pursuant to Section 10.3(iii)(a) of this Amended Agreement. Payments to
be made under the Work Plan will be approved and countersigned by both Members.
(iv) KFx shall retain legal title and ownership to the K-Fuel
Technology (other than the KECC Technology and the LLC Technology). The legal
title and ownership of Improvements to any K-Fuel Technology shall be determined
in accordance with the provisions of this Amended Agreement.
(v) Except for the limited exceptions to exclusivity set forth in
Schedule 10.1(i) hereto, none of KFx, Heartland Fuels Corporation or any of
their respective Affiliates will have any right to and KFx and Heartland Fuels
Corporation agree not to (and to cause their respective Affiliates not to)
utilize, license or make available to any third Person, the K-Fuel Technology or
any Improvements during the term of this Amended Agreement except as expressly
permitted in this Amended Agreement or in the Amended Confidentiality Agreement.
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(vi) KFx and KECC agree that in the event the Company is not
taking necessary action to enforce or preserve the Company's rights in any K-
Fuel Technology, including the Company's rights to LLC Technology and the
Company's rights under the Amended KFx License, the Amended Series A and B
License, or the KECC License, then KFx or KECC may provide written notice to the
Company requesting that such action be taken. If such action is not taken by the
Company within thirty (30) days following receipt by the Company of such notice
(or a shorter period if required to avoid the loss or impairment of the
Company's rights under such license), the Member issuing the notice shall
(without the requirement of any Members Action) have the authority on behalf of
the Company, and at the Company's expense, to take all actions as may be
necessary to enforce the Company's rights in any K-Fuel Technology. The Company
and the Member not issuing the notice will, at the Company's expense, cooperate
and join in such action if necessary to maintain standing upon the request of
the Member issuing the notice.
(vii) The Company shall not have any right to construct
Commercial Projects under the Amended KFx License, the Amended Series A and B
License and the KECC License but rather its rights shall be limited to the right
to use the K-Fuel Technology for Company Business and to grant sublicenses in
accordance with the terms of this Amended Agreement. Neither the Company nor
any other Person acting on behalf of the Company or pursuant to such licenses
shall have any right to build Commercial Projects or to make, sell, or have made
or sold K-Fuel Products or to use the K-Fuel Technology except (a) for purposes
of conducting Company Business and (b) pursuant to licenses or sublicenses
granted by the Company under the provisions of such licenses and of this Amended
Agreement.
(viii) No Member shall be entitled to any claim on, access to,
interest in or other right to any Technology which is the subject matter of this
Amended Agreement and title to which is held by another Member, except as
expressly and specifically provided in this Amended Agreement, the Amended KFx
License, the Amended Series A and B License, the KECC License, any license to
LLC Technology granted by the Company, any sublicense granted by the Company as
provided in this Amended Agreement, or as is expressly and specifically granted
in writing by the titled Member.
10.2. Initial Work Plan. The Initial Work Plan was defined in Section 10.2
of the Original Agreement. KFx and KECC agree that all requirements and tasks
of the Initial Work Plan (IWP) are deemed to have been completed as of the date
of this Amended Agreement. This agreement by the Members to completion of the
Initial Work Plan is in lieu of, and is in all respects equivalent to, Unanimous
Member Action pursuant to Section 3.9 of this Amended Agreement.
10.3. Work Plans (i) If either Member desires that the Company or any
Member undertake any research and development activities related to K-Fuel
Technology or any Feasibility Study preparation then such Member (independently
or with the cooperation and participation of the other Member), prior to
undertaking any such research and development activities or Feasibility Study
preparation, will prepare and submit to the Members for their consideration in
accordance with
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Section 10.3 a Work Plan which sets forth in reasonable detail (a) the research
and development activities or Feasibility Study preparation which are being
proposed that the Company undertake, (b) the estimated time for completion of
each component of such research and development activities or Feasibility Study
preparation, (c) the estimated Research and Development Costs projected for
completion of each component of such research and development activities or
Feasibility Study preparation and (d) a maximum funding amount to be required
from the Members under such Work Plan. The Company will be the sole vehicle and
entity through which all research and development activities, and Feasibility
Study preparation involving the K-Fuel Technology and K-Fuel Products is
conducted.
(ii) If a Work Plan submitted to the Members pursuant to this Section 10.3 is
approved by Unanimous Members Action within thirty (30) days of submission then
the Work Plan will be undertaken by the Company and all Research and Development
Costs which are incurred by the Company in the conduct of the research and
development activities or Feasibility Study preparation specified in such Work
Plan shall be funded by the Members in accordance with their relative Percentage
Interests up to the maximum funding obligation agreed for such Work Plan. Such
amounts will be funded through the Company and constitute capital contributions
to the Company by the Members. Each Member agrees that at the time it approves
or otherwise elects to participate in a Work Plan, it will be required to and
will deliver to the Company such amount of monies as is required to fund such
Member's proportionate share of the Research and Development Costs projected to
be necessary to complete such Work Plan or such other amount as the Members may
agree upon by Unanimous Members Action. In the event that a Work Plan is not
approved by Unanimous Members Action within thirty (30) days of submission, then
the Member approving such Work Plan shall be entitled to undertake (for the
benefit of the Company) the research and development activities or Feasibility
Study preparation set forth in such Work Plan provided that (a) such Member
funds 100% of the Research and Development Costs required to undertake such Work
Plan including, without limitation, the labor, overhead and other direct or
indirect costs, associated with the implementation of such Work Plan (which
shall be an expense of such Member and shall not constitute a capital
contribution by such Member to the Company), (b) such Work Plan can be
undertaken without adversely impacting the Company Business or the Company's
efforts to reach the Principal Objective and (c) the research and development
activities or Feasibility Study preparation specified in such Work Plan do not
require the Company to reallocate its resources or efforts in such a manner that
materially interferes with performing approved Work Plans which at such time are
being conducted by the Company. The Members acknowledge and agree that a Member
which elects not to participate in a particular Work Plan may, at any time prior
to the date such Work Plan is completed, elect to participate in such Work Plan
by providing written notice to the other Member pursuant to which such
nonparticipating Member agrees (a) to reimburse the participating Member for the
portion of the expenses theretofore incurred by the participating Member for
Research and Development Costs under such Work Plan equal to the percentage of
the nonparticipating Member's Percentage Interest in the Company plus a Return
on Capital on such reimbursement amount and (b) agrees to pay a proportionate
amount of the future Research and Development Costs which arise under such Work
Plan, if applicable. KFx and
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KECC agree that, notwithstanding the provisions of Section 10.3(iv) hereof, the
Member administering such Work Plan shall continue to administer the Work Plan
after the Member which initially did not participate in such Work Plan exercises
its right to participate in such Work Plan. For avoidance of doubt, KFx shall
have no obligation to reimburse KECC for any portion of the amounts contributed
to the Company by KECC to fund the Initial Work Plan pursuant to Section 10.2
(i) of the Original Agreement as a condition to participation in any Commercial
Project.
(iii) After the date of this Amended Agreement, title to Technology and
Improvements shall be determined as follows:
(a) Title to Technology relating to KFx Technology and Improvements developed
after the date of this Amended Agreement pursuant to each Work Plan undertaken
and funded by only one Member pursuant to Section 10.3(ii) shall be vested in
that Member and become part of that Member's Technology (KFx Technology or KECC
Technology, as applicable), and shall be licensed to the Company on an
exclusive, world-wide, fully paid, royalty free basis with the right for the
Company to sublicense such Technology pursuant to Section 10.1(ii) of this
Amended Agreement and with rights to modify; provided that, if the other Member
shall reimburse the funding Member as provided in Section 10.5(ii)(b), such
Technology and Improvements shall be the property of the Company and become LLC
Technology.
(b) Title to Technology and Improvements developed after the date of this
Amended Agreement pursuant to each Work Plan undertaken by the Company pursuant
to Section 10.3(ii) and funded by the Members in accordance with their
Percentage Interest shall be vested in the Company and become LLC Technology,
and the Company shall have the right to license the LLC Technology pursuant to
Section 10.1(ii) of this Amended Agreement.
(iv) The Manager shall have responsibility for administering all Work Plans
which are approved by Unanimous Members Action. The Manager shall from time to
time submit to the Members a written request for funding of Research and
Development Costs under each such Work Plan. Each such request shall include a
certification from the Manager that such Research and Development Costs are (a)
for research or development activities or a Feasibility Study preparation which
are within the scope of the Work Plan and (b) within the applicable budgeted
amounts set forth in the Work Plan for such activities. Upon receipt of such
requests, each Member will forward payment to the Company for all properly
submitted amounts within ten (10) days of such request from the Manager. Within
thirty (30) days following the end of each calendar month, the Manager shall
deliver to the Members a written status report which shall set forth (a) the
descriptions of the research and development activities and Feasibility Study
preparation performed under each Work Plan administered by the Manager during
such month and (b) the Research and Development Costs incurred by the Company
(or any Member as the case may be) in connection with such Work Plan. At the end
of each identifiable task or segment of the Work Plan, the Manager will deliver
to the Members a reasonably detailed written report setting forth (a) the work
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performed to complete such task or segment (b) the Research and Development
Costs incurred in connection with such task or segment and (c) the conclusions
resulting from such work.
(v) Work Plans which are conducted by and funded by only one Member (on
behalf of the Company) pursuant to Section 10.3(ii) shall be administered by
such Member. Within thirty (30) days following the end of each calendar month,
any Member which is independently conducting a Work Plan under Section 10.3(ii)
shall deliver to the Members a written status report which shall set forth (a)
the descriptions of the research and development activities or Feasibility Study
preparation performed under such Work Plan during such month and (b) the
Research and Development Costs incurred by such Member in connection with such
Work Plan. At the end of each identifiable task or segment of the Work Plan, the
Member conducting such Work Plan will deliver to the Members a reasonably
detailed written report setting forth (a) the work performed to complete such
task or segment, (b) the Research and Development Costs incurred in connection
with such task or segment and (c) the conclusions resulting from such work.
(vi) Each Work Plan undertaken by and funded by only one Member pursuant to
Section 10.3(ii) shall be conducted on behalf of the Company and shall be
conducted for the exclusive use and benefit of the Company, except for
applications identified in Section 2.4(ii) of this Amended Agreement, and any
Technology relating to K-Fuel Technology or Improvements generated under any
such Work Plans shall be licensed to the Company on an exclusive, worldwide,
fully paid, royalty-free basis with rights to modify and rights to sublicense as
provided in Section 10.1(ii) of this Amended Agreement. Although title to such
Technology or Improvements shall be vested in the funding Member as provided in
Section 10.3(iii)(a), through the license identified in this Section 10.3(vi)
and in Section 10.3(iii)(a), the Company will have the rights to use such
Technology or Improvements to the same extent as if the Work Plan had been
funded by both Members.
(vii) Each Member acknowledges and agrees that it is the intention of the
Members to commercialize the K-Fuel Technology as quickly as possible, to
develop Commercial Projects (other than the commercial projects subject to the
agreements referenced in Schedule 10.1 (i) hereof) and to cooperate in good
faith to locate such Commercial Projects on sites owned or occupied by KECC or
its Affiliates where Feedstocks are available from KECC or a KECC Affiliate in
accordance with the provisions of Section 11.1 hereof (a "Kennecott Site").
Accordingly, each Member agrees that, in preparing any Feasibility Study for a
Commercial Project under a Work Plan, such Member shall include in such proposal
a fair and reasonable evaluation of placing such Commercial Project at a
Kennecott Site and using KECC or its Affiliates as the source of Feedstocks for
the Commercial Project. In the event that a Member pursuant to Section 10.3(ii)
hereof undertakes a Work Plan involving a Feasibility Study, which Work Plan
shall have been submitted to the Members but shall not have been approved by
Unanimous Member Action, then the Member undertaking the Work Plan as a part of
the process of preparing such Feasibility Study may make inquiries of third
party site owners and feedstock suppliers reasonably necessary to complete such
Feasibility Study. If a Work Plan shall have received Unanimous Members
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Approval, but shall not have been completed by a date later than the date six
(6) months after the date set forth in such Work Plan (as so approved) for its
completion as a result of a Member failing to meet its obligations with respect
to such Work Plan, then that Work Plan may be considered by the other Member as
if it had not received Unanimous Members Approval and may be pursued by such
other Member (for the benefit of the Company) pursuant to the provisions of this
Section.
(viii) Each Member acknowledges that neither Member may undertake a
Feasibility Study in concert with a third Person as a potential equity investor
or otherwise solicit equity investors for a Commercial Project, prior to the
time that the Commercial Project which is the subject of such Feasibility Study
has been submitted to the Members for consideration and has failed to receive
Unanimous Members Approval. Accordingly, Confidential Information may not be
disclosed to third Persons by a Member in connection with a proposed Work Plan
except that each Member may disclose Confidential Information to any third
Person during or in connection with preparation of any Feasibility Study which
is the subject of a Work Plan which was submitted to but failed to receive the
approval of the other Member, provided, that the Member proposing to disclose
such Confidential Information takes measures reasonably satisfactory to the
other Member to protect the confidentiality of such Confidential Information or
otherwise obtains the prior written consent of the other Member of such
disclosure, such consent not to be withheld unreasonably.
10.4. Arbitration of Work Plan Disputes. Any disputes relating to the
completion of tasks or technical requirements under or other interpretations of
the Initial Work Plan or other Work Plans shall be submitted by KECC or KFx, as
the case may be, to arbitration in accordance with the provisions of Section
16.9 hereof. A Member shall not be deemed to be in default for nonpayment of
Research and Development Costs under this Section 10.4 to the extent that such
payments are being contested in good faith under the arbitration provisions set
forth in Section 16.9 provided that the Member shall pay such amounts within
three days of any arbitration decision which provides that the Research and
Development Costs were properly payable by the Member under this Article X.
10.5. Commercial Projects. (i) Separate entities in which one or more
Members or their Affiliates will have an equity interest will be formed (the
"Project Entities") to own, develop and operate each Commercial Project. Upon
approval of the Commercial Project by Unanimous Members Action, each Project
Entity will receive a license and sublicense from the Company for all K-Fuel
Technology required for the Commercial Project to be undertaken by such Project
Entity, such license and sublicense to contain at least the terms and provisions
set forth in Section 10.1(ii) or, to the extent consistent with the Amended KFx
License, the Amended Series A and B License and the KECC License, as otherwise
established by the Members pursuant to Section 3.9 (viii).
(ii) (a) Either Member shall, prior to undertaking a Commercial Project and
following completion of a Feasibility Study for a Commercial Project, submit a
written proposal to the Members seeking approval for such Commercial Project by
Unanimous Members Action. Such
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proposal shall specify the terms of such Commercial Project in reasonable detail
so as to allow the Members an adequate opportunity to evaluate the economic and
technical feasibility of the proposed Commercial Project. In this connection,
such proposal shall include (i) a description of the Commercial Project (ii) a
completed Feasibility Study respecting the project, and (iii) the principal
terms and conditions of the project contracts and other arrangements required to
develop, construct, manage, own, operate and maintain the Commercial Project
(including without limitation, terms and conditions relating to costs, supply
and transportation of feedstocks, marketing, transportation and sales of K-Fuel
Products and sublicensing of the K-Fuel Technology.
(b) The Members acknowledge and agree that if a proposal for a Commercial
Project is submitted to the Members for approval pursuant to this Section 10.5,
and an essential component of such proposal is Improvements developed under a
Work Plan (other than the Initial Work Plan) in which only one Member
participated, then as a condition to the non-participating Member being
permitted to participate in such Commercial Project, such Member shall within
ninety (90) days after submission of such proposal to the Members for approval
commit to reimburse the participating Member for the portion of the expenses
theretofore incurred by the participating Member for Research and Development
Costs under such Work Plan equal to the percentage of the non-participating
Member's Percentage Interest in the Company plus a Return on Capital on such
reimbursement amount. For avoidance of doubt, KFx shall have no obligation to
reimburse KECC for any portion of the amounts contributed to the Company by KECC
to fund the Initial Work Plan pursuant to Section 10.2(i) of the Original
Agreement as a condition to participation in any Commercial Project.
(c) The capital requirements for each Commercial Project of a Project
Entity in which both Members have an equity participation shall be provided by
the Members and such Project Entity shall not incur debt or grant liens on its
assets or properties with respect to such capital funding by the Members
participating in the equity of such Commercial Project, unless the participating
Members otherwise mutually agree. A Member participating as an equity
participant in a Project Entity in which both Members have an equity
participation may pledge its ownership interest in such Project Entity to a
Person providing financing for such Member for its equity investment in such
Project Entity provided such assignment shall be on terms which include a right
of first refusal or similar protective provisions in favor of the other Member
which provisions are in form reasonably satisfactory to such other Member.
(iii) Subject to the provisions of this Section 10.5 (iii) and Section 10.5
(iv), KECC will have the first right to fund the capital requirements of any
Commercial Project which is presented to the Members pursuant to this Section
10.5. KECC agrees that (subject to the right of KFx to participate in the
funding of a Commercial Project as provided in the next succeeding sentence of
this Section 10.5(iii)), KECC will fund 100% of all of the capital requirements
for each Commercial Project which is approved by KECC. KFx will have the
option, exercisable by written notice to KECC within one hundred twenty (120)
days of submission to the Members of a proposal for a Commercial Project
pursuant to this Section 10.5 to commit to fund up to 50% of the capital
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requirements of such Commercial Project provided such participation shall be on
the same economic terms as the terms on which KECC is participating in such
Commercial Project; provided, further, that (i) any difference in the form in
-------- -------
which or terms or conditions on which any participating Member raises its
portion of such cash or capital requirement shall not be considered a different
term and (ii) the Members will agree to negotiate in good faith to permit KFx to
consolidate on its books its ownership interest in a number of Commercial
Projects to be agreed provided that in no event shall KECC or any KECC Affiliate
be required to relinquish, restrict or otherwise impair any other rights granted
in this Amended Agreement including, without limitation, the rights set forth in
Section 10.5 (v) hereof. At the time of any election of KECC to fund a
Commercial Project or the exercise by KFx of its option to fund up to 50% of the
capital requirements of such Commercial Project, KECC or KFx, as the case may
be, shall provide reasonable assurances of the commercial ability and firm
availability of monies to fund such financial commitment which assurances must
be in form reasonably satisfactory to the other Member.
(iv) Each Member must within ninety (90) days following submission to the
Members of a proposal for a Commercial Project pursuant to this Section 10.5
elect to approve or elect not to approve such proposal. Any failure by a Member
to make such election within said ninety (90) day period shall be deemed to be
an election by the Member not to approve such proposal. Any such approval by
KECC may be conditioned upon KECC obtaining an Approval for Construction for
such Commercial Project. If the Commercial Project has not been Approved for
Construction by KECC on or prior to the date which is ninety (90) days following
the decision of KFx to exercise or not to exercise its option pursuant to
Section 10.5(iii) to participate as an equity participant in such Commercial
Project then KECC shall be deemed to have rejected such proposal. In the event
that a proposal for a Commercial Project does not receive approval by Unanimous
Members Action, then the Member voting to approve such Commercial Project, may,
without any further requirement of Members Action, undertake such Commercial
Project for its own benefit or with third parties (including, without
limitation, its Affiliates) and may cause the Company to enter into a license
and sublicense of the K-Fuel Technology with the Project Entity formed to
develop such Commercial Project. Each such license and sublicense will contain
at least the terms and provisions set forth in Schedules 10.1(ii)(A) and
10.1(ii)(B). The Member electing to proceed with such proposal shall provide
written notice to the other Member of all proposals made to or by third Persons
with respect to a Commercial Project. If the Equity Terms (as defined below),
upon which such Member and such a third Person (including, without limitation,
such Member's Affiliates other than Affiliates which are wholly-owned by such
Member and Affiliates which, directly or indirectly through their wholly-owned
subsidiaries, own 100% of such Member) propose to form a Project Entity and
construct a Commercial Project, are more favorable than the Equity Terms which
were last proposed to the other Member, then the Member desiring to undertake
such Commercial Project shall give written notice to the other Member of such
changes (along with such details, documents and materials as may be reasonably
necessary for such Member to evaluate the changes in the Equity Terms), and the
other Member shall have an additional sixty (60) days to accept and approve such
Commercial Project on such changed Equity Terms as if Section 10.5(iii) were
again
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applicable. For purposes hereof, "Equity Terms" shall mean the allocation of the
proportionate share of aggregate economic benefits associated with a Commercial
Project among the equity participants in the Project Entity which will undertake
such Commercial Project, including, without limitation, the division of
ownership and the relative sharing of profits, sublicensing fees and the Carried
Interest. A change solely in the financing terms or conditions on which the
capital requirements of a Commercial Project may be raised shall not be
considered a more favorable term or condition or a change thereto provided that
it does not change the Equity Terms. Each proposal for a Commercial Project
delivered to a third Person by a Member shall also be delivered to the other
Member contemporaneously with such disclosure to the third Person and shall be
subject to provisions of the Amended Confidentiality Agreement.
(v) KECC or a KECC Affiliate shall be the project manager of each Commercial
Project in which KECC or any KECC Affiliate is an equity investor and, in such
capacity, will have the authority to determine and direct all engineering,
design, construction and operating decisions relating to such Commercial
Project. The management contract pursuant to which KECC or any KECC Affiliate
receives compensation and acts as project manager shall be on an Arm's-Length
Basis.
(vi) In the event that KFx proposes to the Members for approval pursuant to
Section 10.5 a Commercial Project to be located on a site other than a Kennecott
Site, and KECC approves such Commercial Project pursuant to the terms of Section
10.5, then KECC, pursuant to the provisions of Section 11.1, may,
notwithstanding the other provisions of Section 10.3(vii), require that the
Commercial Project be constructed at a Kennecott Site provided that KECC
establishes that the Kennecott Site is commercially equivalent to the site
proposed by KFx.
(vii) KFx will be entitled to and will receive a Carried Interest in each of
the Commercial Projects, equal to 10% of the excess of (1) annual cash revenue
from the project, over (2) annual pre-tax cash operating cost plus an annual
capital charge, equal to 15% multiplied by the capital invested in the project.
The carried interest shall be computed annually on a cumulative basis over the
project life. Attached at Schedule 10.5(vii) is a sample calculation of this
Carried Interest. The Parties agree that the specific rules outlined in the
notes to the sample calculation will be incorporated as part of each Carried
Interest Agreement.
10.6. Utilities Fuel Projects. (i) KFx acknowledges and agrees that any plants
or facilities constructed and placed in commercial service by American Electric
Power, Indiana Michigan Power Company, Ohio Valley Electric Corporation or any
of their respective Affiliates or designees ("AEP") pursuant to or in connection
with the rights of AEP set forth in any of the agreements involving or relating
to AEP referenced in Schedule 10.1(i) hereof (the "AEP Plants") shall, if KECC
or its Affiliate is an equity participant (under the terms of this Amended
Agreement) in such Commercial Project pursuant to Section 10.5, hereof be deemed
to be Commercial Projects constructed by KECC for all purposes under this
Amended Agreement including, without limitation, the determination of whether
the Project(s) Target has been obtained. The Members
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acknowledge and agree that if an AEP project is offered to the Members in a
manner in which KECC would not be provided the opportunity to fund 100% of the
capital requirements of such project, then KECC will be in compliance with its
obligations under Section 10.5 if it agrees to fund 100% of the capital
participation which is made available to KECC in such proposal.
(ii) In the event that KECC has not as of December 31, 2006, Approved for
Construction Commercial Projects in which KECC will have an equity interest
having a Rated Design Capacity of at least 1,000,000 tons of K-Fuel Products per
annum, then KFx may by notice to KECC within sixty (60) days following December
31, 2006, elect to acquire KECC's Interest from KECC for a purchase price * and
other costs set forth in an Annual Operating Budget and for amounts paid under
Section 10.1(iii) through the purchase date; plus a Return on Capital on all
such amounts. For purposes of this Section 10.6(ii), the computation of the
amount to be paid by KFx to acquire KECC's interest shall include *. If such
purchase right is timely exercised by KFx, KFx must complete the purchase of
KECC's Interest within thirty (30) days of such election. Following the exercise
by KFx of such purchase option, KECC will no longer have any interest in the
Company (other than KECC Technology and related Improvements and an undivided
interest in the LLC Technology equivalent to the percentage of KECC's Member
Interest at the time of the KFx purchase) or in the KFx Technology, provided
that such purchase by KFx shall have no effect on sublicenses of K-Fuel
Technology theretofore issued to Project Entities with respect to Commercial
Projects in which KECC or a KECC Affiliate is an equity participant and which
are either then in operation or which are Approved for Construction, and further
provided that KECC shall retain a non-exclusive license to the K-Fuel
Technology, subject to the payment of royalties identified on Schedule
10.1(ii)(B) attached hereto. KECC will continue to be entitled to receive its
percentage share of royalties from licenses and sublicenses received by the
Company or by KFx after the date of a purchase by KFx pursuant to this Section
10.6 (ii) as though no purchase had occurred.
10.7 Licensing to Third Parties. The Company may license and sublicense the K-
Fuels Technology pursuant to the provisions of Section 10.1(ii) of this Amended
Agreement.
10.8 Tax Advantaged Plants. A separate agreement outside the Company and the
provisions of this Agreement will be negotiated with regard to sharing of
ownership and tax credits associated with any Commercial Project which qualifies
for tax credits under Section 29 of the Code, including any successor provisions
thereto or any other Code provision providing a tax credit with respect to the
production of synthetic fuels from coal ("Section 29 Projects"). This sharing
agreement will be designed to provide KECC or its Affiliates with very
attractive economic returns which are commensurate with ownership of a Section
29 tax-advantaged facility. Notwithstanding
_____________________
* This information has been omitted based upon a request for confidential
treatment. The omitted information has been separately filed with the
Securities and Exchange Commission.
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the other provisions of this Amended Agreement, the Amended KFx License, the
Amended Series A and B License, the KECC License, or the Amended Confidentiality
Agreement the right to license Section 29 Projects up to an aggregate 1 million
tons per year of Rated Design Capacity will be vested solely in KFx and the
license agreement from KFx to the Project Entity will be mutually negotiated and
agreed upon between KECC and KFx. Without limiting other licensing terms that
may be agreed, the license terms for each Section 29 Project will include a one
time charge to the sublicensee at commencement of operations of $1 per ton of
installed capacity. Neither KFx nor any KFx Affiliate will have the right to
construct or to grant a license to any Person to construct a Section 29 Project
unless KECC shall be an equity participant in such project on terms acceptable
to KECC. Section 29 Projects in excess of the initial 1 million tons per year of
Rated Design Capacity referenced above will be subject to the terms and
provisions of and must be submitted to the Members pursuant to this Amended
Agreement provided that each such Section 29 Project will include the $1 per ton
charge referenced above.
10.9 Voluntary Contribution of Technology to the Company. Either Member may
voluntarily contribute Technology to the Company which is not required to be
assigned or licensed to the Company pursuant to this Amended Agreement on such
terms and conditions as the parties may agree at the time of the contribution of
such Technology.
ARTICLE XI
SUPPLY OF FEEDSTOCKS/SALE OF K-FUEL PRODUCTS.
11.1. Supply of Feedstocks. (i) The Members acknowledge and agree that the
intent of the Members is to commercialize the K-Fuel Technology as quickly as
possible, to develop Commercial Projects (other than commercial projects subject
to the agreements referenced in Schedule 10.1(i)), and to cooperate in good
faith to locate such Commercial Projects on Kennecott Sites. If a Commercial
Project is developed on a Kennecott Site, KECC or KECC Affiliates will have the
exclusive right to supply all coal and coal related feedstocks ("Feedstocks") to
such Commercial Project. The price at which Feedstocks are supplied by KECC or
KECC Affiliates at such Kennecott Site shall be equal to or less than the Market
Price as defined below.
(ii) Without limiting the provisions of Section 10.5(vi), if Commercial
Projects are developed at sites not owned or operated by KECC or KECC
Affiliates, KECC or KECC Affiliates will have the first right to supply all coal
and other coal related Feedstocks to such Commercial Project(s). KECC's first
right will allow it to match or better any third party offer (as reflected in
the Feasibility Study applicable to the Commercial Project) on a delivered basis
for Feedstocks required to produce K-Fuel Products for the Commercial Project(s)
regardless of the location of said Commercial Project(s). KECC or KECC
Affiliates will have thirty (30) days following submission of a proposal for the
Commercial Project to the Members for approval under Section 10.5(ii) to notify
the Company of its election to match or better the third party's price for
Feedstocks in order to exercise its first right. Notwithstanding the foregoing,
KECC agrees that it
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will not have the right to replace the Feedstock source in the situation where a
utility or an equity investor (which is not a coal company or company in the
business of mining, distributing or marketing coal), in a Commercial Project in
which KECC is not an equity participant, has proposed a Commercial Project and
has conditioned its participation in such Commercial Project upon the Project
Entity using a supply of Feedstocks pursuant to such Utilities' or equity
investors' existing long-term Feedstock supply.
(iii) For purposes of this agreement, the Market Price shall be defined as
follows:
(a) *
(b) *
11.2. Marketing of K-Fuel Products. (i) The Company will retain the exclusive
right to market all K-Fuel Products produced by each Commercial Project. The
Manager will be responsible for administering and will have authority to act on
behalf of the Company with respect to such marketing activities of the Company
provided that prior to the Project(s) Target, KECC will be the Member
responsible for administering and will have authority to act on behalf of the
Company with respect to all marketing activities of the Company involving (a)
Commercial Projects of a Project Entity in which KECC or a KECC Affiliate is an
equity participant and (b) subject to the provisions of Section 10.3(i) which
permit the Member which initially pursues a Work Plan to continue to administer
such Work Plan following a subsequent election by the other Member to
participate, Feasibility Studies in which KECC is a participant. The Manager and
KECC (as the case may be) will use all reasonable efforts to optimize the sales
price and volume of K-Fuel Products. The Company may enter into a product
marketing agreement with KECC or a KECC Affiliate or a third Person in order to
obtain marketing related services for the Company. All contracts and
transactions for marketing services shall be on an Arm's-Length Basis. If the
participating Members are unable to agree on the terms of such marketing
agreements, the dispute will be submitted to arbitration as provided in Section
16.9. It is contemplated that the Company will engage a person as an employee of
the Company to coordinate the marketing activities of the Company, such person
to be approved by Unanimous Members Action. Each Member will have full and
unrestricted access to information respecting the marketing activities conducted
by the Manager or KECC in its capacity as a marketing manager under this Section
11.2 including, without limitation, (i) marketing strategies (ii) K-Fuel Product
sales information and (iii) pricing information. In addition, the Company
employee in charge of coordinating the marketing activities of the Company will
have access to the foregoing information and will have the right, upon request,
to attend marketing strategy meetings, meetings with Project Entities respecting
marketing of K-Fuel Products and meetings with purchasers or potential
purchasers of K-Fuel Products. If a conflict of interest arises between KECC's
role as a marketing manager hereunder and its coal business activities which are
outside of the Company, KECC shall take such action as is fair and
___________________
* This information has been omitted based upon a request for confidential
treatment. The omitted information has been separately filed with the
Securities and Exchange Commission.
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reasonable to the Members and their respective Affiliates, considering, in each
case, the relative interests of each party and benefits and burdens relating to
such interests. KFx acknowledges and agrees that in no event will KECC be
required or expected to displace coal sales to accommodate the marketing of K-
Fuel Products.
(ii) In the event KFx determines, in good faith, that the sales price
(FOB the Project Entity's plant or facility) at which KECC proposes to market K-
Fuel Products is below market and KFx locates a bonafide third party that is
ready, willing and able to purchase K-Fuel Products or substantially the same
terms and conditions but at a higher price (FOB the Project Entity's plant or
facility), then KFx will be entitled to cause the Company to sell the K-Fuel
Products to such bona fide third party on such terms and at the higher price.
ARTICLE XII
TRANSFERABILITY OF INTERESTS; CERTIFICATES.
12.1. Prohibition of Transfer. Except as described in this Article XII, a Member
shall not, in any transaction or series of transactions, directly or indirectly,
(i) sell, assign or otherwise in any manner dispose of all or any part of its
Interest whether by act, deed, merger or otherwise (any of the foregoing, as
referred to in this Article XII, a "transfer"), or (ii) mortgage, pledge or
create a lien or security interest upon all or any part of its Interest,
provided, however, that a Member may transfer all or part of its Interest if the
non-transferring Member consents to such transfer after receiving 30 days notice
of the complete, material proposed terms and conditions of such transfer, which
consent shall not be unreasonably withheld. In the event that the non-
transferring party opposes the transfer for any reason, its sole remedy will be
the right to acquire the Interest proposed to be transferred for the same
consideration and on terms and conditions no less favorable to the transferring
party than those offered by the proposed offeree. To give effect to this right
of first refusal, the non-transferring party shall give notice to the
transferring party of its intent to purchase (together with a proposed purchase
contract) within 10 business days of the expiration of the 30 day notice of
proposed terms and conditions required above, and the resulting transaction
shall close within 30 days thereafter, provided, that failure by the non-
transferring party to give the notice of intent to purchase within 10 business
days shall be deemed to be an election by the non-transferring party not to
exercise the right to acquire the Interest. In the event that regulatory
approval is required for the close of the transaction, the non-transferring
party shall have taken all actions required to obtain approval of such closing
within the second 30 day period including the submittal of all necessary
applications, and the second 30 day period shall be extended for the period of
time necessary to obtain final and non-appealable approvals. The assigning
Member shall not be released from its obligations hereunder unless such release
is agreed upon by the other Member in writing. Any attempt by a Member to
transfer all or a portion of its Interest in violation of this Amended Agreement
shall be void ab initio and shall not be effective to transfer such Interest or
-- ------
any portion thereof.
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12.1.1. Notwithstanding the provisions of Section 12.1, no transfer of an
Interest or any part thereof may be made by a Member if the transfer in question
would:
(i) result in the violation of the Securities Act of 1933 or any other
applicable federal or state laws of the order of any court having jurisdiction
over the Company or any Commercial Project; or
(ii) be a breach or violation of or an event of default under, or give rise
to a right to accelerate any indebtedness of the Company; or
(iii) result in or create a prohibited transaction under, or cause the Company
to become a "party in interest" as defined in Section 3(14) of ERISA, or
otherwise result in the holder of an Interest or the assets of the Company being
subject to the provisions of such statute; or
(iv) except for transfers to a non-transferring Member, result, directly or
indirectly, in the termination of the Company under section 708 of the Code; or
(v) except for transfers to a non-transferring Member, cause the Company to
be classified as an entity other than a partnership for purposes of the Code.
12.1.2. No transfer may be made unless the transferor or transferee pays to the
Company all direct out-of-pocket costs reasonably incurred by the Company as a
result of such transfer, and indemnifies the Company (in a manner which is
reasonably satisfactory to the non-transferring Member) for any such costs to be
reasonably incurred by it thereafter as a result of such transfer.
12.2. Certificates Evidencing Interests.
12.2.1. Interests in the Company shall be represented by certificates in such
form or forms as the Members may approve, provided that such form or forms shall
comply with all applicable requirements of law and of this Amended Agreement.
The certificates shall be consecutively numbered, and, as they are issued, a
record of such issuance shall be entered in the books of the Company.
12.2.2. The Manager of the Company shall maintain, among other records, a
Members register, which shall set forth the names and addresses of the Members
in the Company, the dates of issue of such certificates, and whether such
certificates originate from original issue or from transfer of Interests. The
names and addresses of Members as they appear on the Members register shall be
and constitute the official list of Members of record of the Company for all
purposes. Except as otherwise expressly provided in this Amended Agreement, the
Members shall be entitled to treat the holder of record of any Interest as the
Member thereof for all purposes, and, except as required by law, shall not be
bound to recognize any equitable or other claim to, or interest in, such
Interest or any rights deriving from such Interest on the part of any other
Person, including a purchaser, assignee or transferee, whether or not the
Company shall have either actual or constructive notice of
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the Interest of such other Person, unless and until such other Person becomes
the holder of record of such Interest. Each Member shall promptly notify the
Manager of the Company, at the Company's principal business office, by written
notice of any change in name or address of such Member from that which appears
upon the Members register. Upon receipt of such written notice, the Manager of
the Company shall enter such changes into all affected Company records,
including the Members register.
12.2.3. Without limiting the preceding provisions of this Section 12, Interests
in the Company are transferable only on the Members register of the Company by
the holder of record thereof, or by its duly authorized attorney or other legal
representative, upon surrender of the certificate representing such Interest,
properly endorsed or assigned. The Members may by Unanimous Members Action make
such rules and regulations concerning the issue, transfer, registration and
replacement of certificates representing Interests in the Company as it deems
appropriate.
12.2.4. The Company may issue a new certificate representing an Interest in the
Company in the place of any certificate theretofore issued that has been lost,
stolen or destroyed.
12.2.5. Each Member agrees that all certificates representing Interests, whether
currently owned or hereafter acquired, shall carry the following legend, which
legend the Company and each Member agrees to cause to be placed thereon and to
cause to remain thereon as long as such Interests are subject to the
restrictions of this Section 12:
THE SALE, ASSIGNMENT, PLEDGE OR OTHER TRANSFER OR HYPOTHECATION OF THE INTEREST
IN THE COMPANY REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO CERTAIN
RESTRICTIONS PURSUANT TO WHICH ANY SUCH SALE, ASSIGNMENT, PLEDGE OR OTHER
TRANSFER OR HYPOTHECATION MAY NOT BE EFFECTED EXCEPT IN ACCORDANCE WITH THE
PROVISIONS OF AN AGREEMENT BINDING UPON THE ISSUER AND THE MEMBER OF THE
INTEREST REPRESENTED HEREBY. THE MEMBER OR THE ISSUER WILL FURNISH A COPY OF
SUCH AGREEMENT TO ANY PROPOSED TRANSFEREE OR PLEDGEE WITHOUT CHARGE UPON
REQUEST.
ARTICLE XIII
INCOME TAX MATTERS.
13.1. Tax Matters Partner. The Manager shall be the "tax matters partner"
as defined in Section 6231(a)(7) of the Code. The tax matters partner shall not
agree to any extension of the statute of limitations for making assessments of
tax on behalf of the Members without first obtaining the written consent of the
Members. The tax matters partner may not and shall not (i) bind a Member to a
settlement agreement in respect of taxes without obtaining the written consent
of all the Members or (ii) in its capacity as tax matters partner, file a
petition under Code Sections 6226, 6228 or any other Code Section with respect
to any Company items, or other tax matters involving the Company, without the
consent of both Members.
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13.2. Preparation of Tax Returns. The Manager shall arrange for the
preparation and timely filing of all returns of Company income and expenses
necessary for income tax purposes and will cause copies of such returns or all
pertinent information contained therein to be furnished to the Members within
one hundred twenty (120) days of the close of the fiscal year. Within ninety
(90) days following the end of each fiscal year of the Company, the Manager
shall furnish to the Members all information relating to the Company's
operations for such fiscal year as is reasonably required by the Members for the
completion of their respective federal, state and other income tax returns.
13.3. Optional Adjustment to Basis. In the event of the transfer of an
Interest or in the event of a distribution of Company property to any Member
pursuant hereto, and if any Member affected by the transaction giving rise to
the right to make an election requests, the Manager shall file on behalf of the
Company an election in accordance with applicable Treasury Regulations to cause
the basis for the Company property to be adjusted for federal income tax
purposes as provided by Sections 734, 743 and 754 of the Code. Such election,
as filed by the Manager, shall be binding on all Members.
13.4. Organizational Expenses. The Company shall elect to deduct expenses
incurred in organizing the Company ratably over a 60-month period as provided in
Section 709 of the Code.
13.5. Taxation as a Partnership. No election shall be made by the Company, or
any Member, to be excluded from the application of any of the provisions of
Subchapter K, Chapter 1 of Subtitle A of the Code, or from any similar
provisions of any state tax laws.
13.6. Examinations. The tax matters partner shall (i) monitor any governmental
tax authority in any audit that such authority may conduct of the Company's
books and records or other documents; (ii) give notice to all Members as
follows:
(a) within ten (10) days after it receives notice from the IRS of any
administrative proceeding with respect to an examination of, or a proposed
adjustment to, any item of income, gain, loss, deduction or credit of the
Company,
(b) from time to time, of the current status of such administrative
proceeding,
(c) within ten (10) days of the final outcome of such administrative
proceeding, as to such outcome, and
(d) at least five (5) days prior to submitting a request for administrative
adjudgment on behalf of the Company;
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and (iii) promptly send to each Member a copy of all nonministerial notices or
communications received by the Company from, or sent by the Company to, the IRS.
Any Member shall have the right to participate in any administrative proceedings
relating to the determination of Company items at the Company level. The tax
matters partner shall cooperate in good faith with any Member that so elects to
participate in any such proceedings. Each member that elects to participate in
such proceedings shall be responsible for any expenses incurred by such Member
in connection with such participation and for any additional cots and expenses
incurred by the Company due to such participation. This provision is not
intended to alter the rights and obligations of the tax matters partner provided
elsewhere in the Amended Agreement or to authorize the tax matters partner to
take any action that is left to the determination of an individual Member under
Sections 6222 through 6233 of the Code, nor does it constitute a waiver by the
Members of any right provided in such Code sections.
ARTICLE XIV
ACCOUNTING PROCEDURE; ANNUAL OPERATING BUDGET;
REPORTS AND INFORMATION.
14.1. Fiscal Year. The fiscal year of the Company shall be the calendar year.
14.2. Annual Operating Budget. Without limiting the provisions of Article X,
the operations of the Company other than activities covered by a Work Plan shall
be conducted pursuant to the terms of an annual operating budget which shall be
approved by Unanimous Members Action (the "Annual Operating Budget"). The Annual
Operating Budget shall set forth, among other things, an estimate of (a) general
operating costs and cash requirements of the Company for such year and (b)
capital expenditures of the Company for such year. Prior to October 1 of each
fiscal year, the Manager shall prepare and submit to the Members for approval an
Annual Operating Budget for the ensuing fiscal year and on or prior to December
1, the Members shall approve, with such modifications as it considers
appropriate, each such Annual Operating Budget.
(b) If the Members do not approve the Annual Operating Budget for the
next fiscal year by December 1, pending approval of such budget by Unanimous
Members Action, the preceding fiscal year's Annual Operating Budget shall, to
the extent practical, guide the operations of the Company. Each Member will, in
such instance, continue to be responsible for its portion (based on its
Percentage Interest) of the costs and expenses under such Annual Operating
Budget.
(c) The Annual Operating Budget shall be funded by operating cash flows
and by additional contributions by the Members, if and to the extent mutually
agreed upon by express written agreement of the Members. If additional
contributions by the Members are required to fund the Annual Operating Budget,
the Members agree to fund their proportionate share of such contributions within
ten (10) days of the approval of such Annual Operating Budget (or upon the
effective date of such Annual Operating Budget if the Annual Operating Budget is
established pursuant to Section 14.2(b) hereof).
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(d) The Manager will administer the Annual Operating Budget and will
have authority to make any expenditures specifically identified within such
budget.
14.3. Financial Records. The financial books and records of the Company may be
kept on a cash basis or an accrual basis, whichever the Members may select. The
Company's books and records shall be maintained at the Company's principal place
of business and shall be available for inspection by each Member or its
representative (at such Members' own expense) at all reasonable times. The
Company shall maintain proper books of account necessary to enable the Company
to file all required tax returns and reports referenced under this Amended
Agreement. The Company shall maintain such books and records as are required by
the Act.
14.4. Financial Reports. Within ninety (90) days following the end of each
fiscal year of the Company, the Manager shall furnish to each Member an annual
report, including a statement of the Member's accounts for and as at the end of
such fiscal year (containing an audited balance sheet and statement of income)
prepared on a GAAP basis.
ARTICLE XV
DISSOLUTION, LIQUIDATION AND TERMINATION OF THE
COMPANY.
15.1. Dissolution. The Company shall be dissolved upon the occurrence of any
one of the following events (each such event referred to as an "Event of
Dissolution"):
(i) the unanimous vote in writing by the Members to dissolve the Company,
(ii) any other event that forces a dissolution of the Company pursuant to the
Governing Law.
15.2. Election to Continue the Business. The Company shall not be dissolved
pursuant to an Event of Dissolution specified in Section 15.1(ii) or (v),
(except as otherwise provided in the Act), if, within sixty (60) days of such
Event of Dissolution, the remaining Member agrees in writing to continue the
business of the Company. In the event there is only one remaining Member, that
Member shall have the right to admit another Member to the Company for the
purpose of effecting the continuation of the businesses of the Company.
15.3. Winding-Up. Upon dissolution of the Company, a third Person selected by
the Members or, if such agreement cannot be reached, a third Person selected by
a court of competent jurisdiction shall serve as the liquidator. The liquidator
shall be entitled to receive reasonable compensation for its services. Upon
dissolution, removal or resignation of the liquidator, a successor and
substitute liquidator (who shall have and succeed to all rights, powers and
duties of the original liquidator) shall, within 30 days thereafter, be selected
by the Members, or, if there be none, by a court of competent jurisdiction. The
right to appoint a successor or substitute liquidator in the manner
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provided herein shall be recurring and continuing for so long as the functions
and services of the liquidator are authorized to continue under the provisions
hereof, and every reference herein to the liquidator shall be deemed to refer
also to any such successor or substitute liquidator appointed in the manner
herein provided. Except as expressly provided in this Article XV, the liquidator
appointed in the manner provided herein shall have and may exercise, without
further authorization or consent of any of the parties hereto, (i) those powers
granted to the liquidator under the Governing Law and (ii) all of the powers
conferred upon the Members under the terms of this Amended Agreement (but
subject to all of the applicable limitations, contractual and otherwise, upon
the exercise of such powers) to the extent necessary or desirable in the good
faith judgment of the liquidator to carry out the duties and functions of the
liquidator hereunder for and during such period of time as shall be reasonably
required in the good faith judgment of the liquidator to complete the winding up
and liquidation of the Company as provided for herein. The liquidator shall as
soon as commercially reasonable liquidate the assets of the Company, and apply
and distribute the proceeds of such liquidation in the order of priority set
forth in Section 15.4 hereof.
15.4. Liquidation. Upon liquidation, proceeds or other assets of the Company
shall be distributed in the manner set forth below:
(i) first, for the payment of debts and liabilities of the Company to
creditors other than Members in the order of priority provided by law,
(ii) then, for the establishment of reserves for the payment of creditors of
the Company other than the Members, in the order of priority provided by law;
(iii) then, to the Members that are creditors of the Company;
(iv) then, to all Members having positive Capital Accounts in proportion to
their respective Capital Accounts after taking into account adjustments to such
Capital Accounts to reflect the allocations made pursuant to Section 8.7 of this
Amended Agreement until their capital accounts equal zero; and
(v) finally, to the Members in accordance with their Percentage Interests.
15.5. Distributions in Kind. Subject to Section 15.8, if the liquidator
determines that it is not feasible to liquidate all of the assets of the
Company, then the liquidator shall determine the fair market value of the assets
not so liquidated. Such assets shall be retained or distributed by the
liquidator as follows:
(i) the Liquidating Agent shall retain assets having a fair market
value, net of any liability related thereto, equal to the amount by which the
net proceeds of liquidated assets are insufficient to satisfy the requirements
of subparagraphs (i) and (ii) of Section 15.4; and
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(ii) the remaining assets shall be distributed to the Members in the
manner specified in subparagraphs (iii), (iv), and (v) of Section 15.4.
If the liquidator deems it not feasible or desirable to distribute to each
Member an undivided interest in an asset, the liquidator may allocate and
distribute specific assets to one or more Members, individually or as tenants-
in-common, as the liquidator shall determine to be fair and equitable, taking
into consideration inter alia, the fair market value of the asset, the liens, if
any, to which such property may be subject, and the tax consequences of the
proposed distribution to each of the Members (including both distributees and
others, if any).
15.6. Return of Capital. No Member shall be personally liable for the return of
the Capital Contributions of any other Member, or any portion thereof, it being
expressly understood that any such return shall be made solely from Company
assets.
15.7. Termination. Within one hundred and twenty (120) days after the date of
the final distribution to the Members of the proceeds of liquidation, the
liquidator shall furnish each Member with a statement audited by independent
certified public accountants of regionally recognized standing chosen by the
liquidator showing the profits and losses of the Company from the date of the
last annual statement, to the date of such final distribution. Such statement
shall show the manner in which the proceeds of liquidation of the Company have
been set forth in Sections 15.3 and 15.4 hereof, the Company shall cease to
exist as a partnership, and the liquidator shall execute, acknowledge and cause
to be filed an appropriate certificate evidencing dissolution and termination of
the Company.
15.8. Effect of Termination. Assuming that the purchase rights under Section
10.6 have not been exercised by KFx, that KFx and KECC or their permitted
successors under this Amended Agreement are still Members, and notwithstanding
the provisions of Section 15.5, if the Company is terminated, then the following
assets will be divided as follows:
A. The LLC Technology will be transferred, subject to any and all
licenses issued by the Company prior to the date of termination, to KFx and
KECC, as joint owners, as tenants in common, so that the LLC Technology will
continue to be available for use in making the K-Fuel process effective, with no
duty to account, except as set forth in Section C below. The Members shall
contribute on an equal basis to the prosecution of patents on the LLC Technology
and the enforcement of the LLC Technology against infringers; provided that (i)
if a Member wishes not to contribute to the prosecution or maintenance of any
such patent, and the other Member proceeds alone, the non-contributing party
shall forfeit its rights under such patent (but not to any counterparts thereof,
unless such Member also fails to contribute to the prosecution and maintenance
of such counterpart) but shall retain a non-exclusive, royalty free, world-wide
perpetual license thereunder, and (ii) if a Member wishes not to join in any
action to enforce the LLC Technology against infringers and contribute its equal
share of the cost of such action, it shall forfeit its rights to any recovery in
respect of such infringement.
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B. The licenses (and sublicenses) issued by the Company prior to the
date of termination to Project Entities and other Persons shall continue in
effect and shall be assigned to KFx and KECC, jointly and severally, and each of
KECC and KFx shall be deemed to be the direct licensor thereunder with respect
to its own Technology and the LLC Technology.
C. Notwithstanding Section B, the Member who was the manager of the LLC
at time of termination, shall act as the Manager under the licenses and
sublicenses issued by the Company prior to the date of termination to Project
Entities and other Persons and shall perform, on behalf of both parties, the
licensor's obligations thereunder including, but not limited to, the collection
of royalties under such licenses and sublicenses, which shall be distributed to
the Members in accordance with the Amended Agreement as if the Company had
continued its existence. The Manager shall be entitled to a management fee of
1.5% royalties and fees collected under such licenses and sublicenses for
performing such obligations, which shall be paid out of the royalties collected,
equally by both parties, prior to the distribution of the balance, as
contemplated above.
D. The KFx License, the KECC License, and the Series A and B License
shall be terminated effective as of the date of the termination of the Company.
KECC and KFx each appoint each other as the non-exclusive licensing agent, with
the ability to bind the principal, to issue new licenses on behalf of KECC to
the KECC Technology and related Improvements made during the term of this
Amended Agreement, and on behalf of KFx to the KFx Technology and related
Improvements made during the term of this Amended Agreement and to issue new
licenses of the LLC Technology. Any such licenses shall be on the terms and
conditions as provided in the Amended Agreement with respect to licenses of K-
Fuel Technology. and the Members shall share in the royalty income payable under
any such licenses under the terms of the Amended Agreement, as if the Company
had continued in existence. Copies of any and all licenses which are executed
pursuant to this agency shall be delivered to the principal promptly after the
execution thereof and the principal shall be an express third-party beneficiary
of any such license.
ARTICLE XVI
MISCELLANEOUS.
16.1. Notices. Any and all notices, demands, consents, approvals, requests or
other communications that any of the parties to this Amended Agreement may
desire or be required to give hereunder (collectively, "Notices") shall be in
writing and shall be either (i) given by U.S. registered or certified mail,
return receipt requested, with postage prepaid (except in the event of a postal
disruption, by strike or otherwise, in the United States) or (ii) sent by
facsimile transmission or telex (with receipt confirmed by telephone) or by
personal delivery by a reputable courier service for next day delivery,
addressed, if to the Company, to the address of its principal office, and if to
a Member, to the address set forth under such Member's name on the signature
page hereof.
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Any Member may designate another addressee (and/or change its address)
for Notices hereunder by a Notice given pursuant to this Section. A Notice sent
in compliance with the provisions of this Section shall be deemed given next
succeeding business day, if delivered in person by overnight courier (with
receipt confirmed) or when confirmed, if sent by facsimile transmission (with
receipt confirmed by telephone or by automatic transmission report) or by telex
(with receipt confirmed by telephone) or on the third business day after being
sent by registered or certified mail. Rejection or other refusal to accept or
the inability to deliver because of a changed address or addressee of which no
Notice was given as provided in this Section shall be deemed to be receipt of
the Notice sent.
16.2. Entire Agreement. This Amended Agreement, the Amended KFx License, the
Amended Series A and B License, the KECC License, the Kennecott Guaranty, and
the Amended Confidentiality Agreement including, without limitation, any
exhibits and schedules attached hereto and thereto, constitute the entire
agreement between the parties hereto pertaining to the subject matter hereof,
and fully supersedes any and all prior agreements or understandings between the
parties hereto pertaining to the subject matter hereof, except that the Original
Agreement shall remain in full force and effect to define the rights of the
parties and the performance of the Original Agreement from the Effective Date of
the Original Agreement to the Effective Date of the Amended Agreement unless the
Original Agreement is specifically contradicted by the terms of this Amended
Agreement, in which case this Amended Agreement controls.
16.3. Parties in Interest. Except as expressly provided to the contrary herein,
this Amended Agreement shall be binding upon each successor to and permitted
assign of the parties and inure to the benefit of each successor to and
permitted assign of the parties.
16.4. Further Assurances. Each of the parties hereto does hereby covenant and
agree on behalf of itself, its successors and its assigns, without further
consideration, to prepare, execute, acknowledge, file, record, publish and
deliver such other instruments, documents and statements, and to take such other
action, as may be required by law or necessary to effectively carry out the
purposes of this Amended Agreement.
16.5. Counterparts. This Amended Agreement may be executed in several
counterparts and all such executed counterparts shall constitute a single
agreement, binding on all of the parties hereto, their successors and their
assigns, notwithstanding that all of the parties hereto are not signatories to
the original or to the same counterpart.
16.6. Severability. Any provisions of this Amended Agreement which may be
prohibited by law or otherwise held invalid shall be ineffective only to the
extent of such prohibition or invalidity and shall not invalidate or otherwise
render ineffective the remaining provisions of this Amended Agreement.
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16.7. Governing Law. This Amended Agreement, including its existence, validity,
construction and operating effect, and the rights of each of the parties hereto,
shall be governed by and construed in accordance with the internal law of
Delaware.
16.8. Extension Not a Waiver. No delay or omission in the exercise of any
power, remedy or right herein provided or otherwise available to a Member or the
Company shall impair or affect the right of such Member or the Company
thereafter to exercise the same. Any extension of time or other indulgence
granted to a Member hereunder shall not otherwise alter or affect any power,
remedy or right of any other Member or of the Company, or the obligations of the
Member to whom such extension or indulgence is granted.
16.9. Arbitration. If any Arbitrable Dispute (as defined below) shall not have
been resolved within thirty (30) days after a Member shall have given written
notice to the other Member stating in reasonable detail the amount or matter in
dispute and the particulars thereof, either Member may apply to the American
Arbitration Association ("AAA") in San Francisco, California, and such
Arbitrable Dispute thereupon shall be resolved by binding arbitration in
accordance with the terms of the arbitration provisions contained on Schedule
16.9 attached hereto and incorporated herein for all purposes. An " Arbitrable
Dispute" shall include any dispute, claim or controversy (i) relating to an
interpretation of a Work Plan including, without limitation, interpretation
respecting completion of a technical plan or task, (ii) arising under Section
11.1(iii)(a) and (b), or (iii) which can be submitted to arbitration pursuant to
the express provisions of this Amended Agreement. Any party to this Amended
Agreement may, by summary proceedings (e.g., a plea in abatement or motion to
stay further proceedings), bring any action in court to compel arbitration of
any Arbitrable Dispute. Any party who fails or refuses to submit to binding
arbitration following a lawful demand by the opposing party shall bear all costs
and expenses incurred by the opposing party in compelling arbitration of any
Arbitrable Dispute.
16.10. Expenses. Each party agrees to bear its own expenses and costs incurred
in the preparation and negotiation of this Amended Agreement, the Amended KFx
License, the Amended Series A and B License, and all agreements, documents and
instruments referenced herein and therein.
16.11. Headings. Headings used herein are for convenience only and shall not in
any way affect the construction of, or be taken into consideration in
interpreting this Amended Agreement.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Amended
Agreement effective for all purposes as of the date herein above written.
"MEMBERS"
KFx Inc.
By: /s/ Theodore Venners
_____________________________________
Name: Theodore Venners
__________________________________
Title: Chairman
_________________________________
Address: 1999 Broadway
Denver, Colorado 80202
Kennecott Alternative Fuels, Inc.
By: /s/ Kent H. Goates
____________________________________
Name: Kent H. Goates
__________________________________
Title: V.P. & CFO
_________________________________
Address: 505 S. Gillette Avenue
Box 3009
Gillette, Wyoming 82717-3009
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SCHEDULE 1
When used in the Amended Agreement, the following terms shall have the
respective meanings assigned to them in this Schedule 1 or in the Sections of
the Amended Agreement referenced below:
"Act" means the Delaware Limited Liability Company Act, as amended
from time to time.
"Action" shall have the meaning specified in Section 6.7.2.
"Adjusted Capital Account Deficit" means, with respect to any Member,
the deficit balance, if any, in such Member's Capital Account as of the end of
the relevant taxable year, after giving effect to the following adjustments:
(i) increases in such Capital Account by any amounts which such Member is
obligated to restore pursuant to this Amended Agreement or deemed obligated to
restore under any relevant provision of the Allocation Regulations, and (ii)
decreases in the Capital Account by the amount of any items described in
Treasury Regulations (S)(S)1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and
1.704-1(b)(2)(ii)(d)(6). The foregoing definition of Adjusted Capital Account
Deficit is intended to comply with the provisions of Treasury Regulation
(S)1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
"Adjusted Property" means any property the Carrying Value of which has
been adjusted pursuant to Section 8.6.1.
"AEP" shall have the meaning specified in Section 10.6 (ii).
"AEP Plants" shall have the meaning specified in Section 10.6 (ii).
"Affiliate" means, with respect to a specified Person, any Person
directly or indirectly controlling, controlled by, or under common control with,
the specified Person. As used in the definition of "Affiliate," the term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through ownership of voting securities, by contract or otherwise. The Company
shall not be considered an "Affiliate" of either Party for purposes of this
Amended Agreement.
1
<PAGE>
"Allocation Regulations" means Treasury Regulations (S)(S)1.704-1,
1-704-2 and 1.704-3 (including any temporary regulations) as such regulations
may be amended and in effect from time to time and any corresponding provisions
of succeeding regulations.
"Alternates" shall have the meaning specified in Section 3.2.2.
"Amended Agreement" shall have the meaning specified in Article I.
"Amended Confidentiality Agreement" shall have the meaning set forth
in Section 6.9 hereof.
"Amended KFx License" means the license granted to the Company by KFx
pursuant to Section 10.1(i)(a).
"Amended Series A and B License" means the license granted to the
Company by Heartland Fuels Corporation pursuant to Section 10.1(i)(b).
"Annual Operating Budget" shall have the meaning specified in Section
14.2.
"Approved for Construction" means Commercial Projects in which (i) the
Project Entity has been formed and has entered into a sublicense agreement with
the Company, (ii) the Project Entity has paid the initial installment due under
the Amended KFx License or the Amended Series A and B License, (iii) the board
of directors of KECC, if KECC or a KECC Affiliate is participating in the
project, or the board of directors of KFx, if KFx or a KFx Affiliate is
participating in the project, shall have given final approval for the initial
funding necessary for construction of the Commercial Project by resolution or by
written consent and (iv) where a formal public announcement pursuant to such
board approval has been made by KECC or KFx, as the case may be, of the decision
to proceed with such project.
"Arbitrable Dispute" shall have the meaning specified in Section 16.9.
"Arm's-Length Basis" shall have the meaning specified in Section 6.2.
"Biomass" means any organic source of energy that is renewable, and it
includes vegetation (e.g., wood), agricultural products and waste (e.g., corn,
garbage ensilage), algae and other marine plants, metabolic wastes (e.g.,
manure, sewage), and cellulosic urban wastes (e.g., litter).
2
<PAGE>
"Business Day" means Monday through Friday of each week, except that a
legal holiday recognized as such by the government of the United States or the
States of Delaware or Wyoming shall not be regarded as a business day.
"Capital Account" means the account established and maintained for
each Member in the manner described in Section 8.1.
"Capital Contribution" means the amount specified in Article VII.
"Carrying Value" means with respect to a Company property, initially,
the adjusted basis of such property for federal income tax purposes. The
Carrying Value of any property shall be adjusted from time to time in accordance
with Section 8.1.4 hereof.
"Coal" means a natural, solid combustible material formed from
prehistoric plant life, and it includes all ranks from peat through anthracite.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commercial Project" means a project which involves the construction
of a plant or facility to produce K-Fuel Products on a commercial basis.
"Company" means K-Fuel, L.L.C., a limited liability company organized
under the laws of the State of Delaware.
"Contributed Property" means each property or other asset contributed
to the Company. Once the Carrying Value of a Contributed Property is adjusted
pursuant to Section 8.1.4, such property shall no longer constitute a
Contributed Property for purposes of Section 8.6, but shall be deemed an
Adjusted Property for such purposes.
"Distributable Funds" means the funds provided from Company
operations, interest on Company cash and short-term investments, and proceeds of
the sale of any Company interest or other assets, without deduction for non-cash
expenses (such as depreciation and amortization or imputed interest), but after
deducting cash funds used to pay, royalties, license fees, and all other
expenses, to make debt payments, and to establish or to restore any Reserves.
"Equity Terms" shall have the meaning set forth in Section 10.5(iv)
hereof.
"Effective Date of the Amended Agreement" means June 29, 1999.
3
<PAGE>
"Effective Date of the Original Agreement" means April 22, 1996.
"Event of Dissolution" shall have the meaning set forth in Section
15.1 hereof.
"Feasibility Study" shall mean a detailed feasibility study for a
Commercial Project in a form which includes, without limitation, the type of
detailed information referenced on Schedule D(1) attached hereto.
"Feedstocks" shall have the meaning specified in Section 11.1.
"Governing Law" means the governing law specified in Section 16.7
hereof.
"Improvements" means any Technology that constitutes a modification to
(i) the KFx Technology, (ii) the KECC Technology, or (iii) the LLC Technology,
regardless of whether or not any such modification is patentable.
"Indemnified Losses" shall have the meaning in Section 6.7.1.
"Indemnified Party" shall have the meaning specified in Section 6.7.2.
"Indemnifying Party" shall have the meaning specified in Section
6.7.2.
"Initial Work" shall have the meaning specified in Section 10.2 of the
Original Agreement.
"Initial Work Plan" shall have the meaning specified in Section 10.2
of the Original Agreement..
"Interest" shall have the meaning specified in Section 6.3.
"KECC License" means the license granted to the Company by KECC
pursuant to Section 10.1(i)(c).
"KECC Technology" means Technology, other than that Technology
identified on Schedule 6.5(iii), that is owned or controlled by KECC or a KECC
Affiliate and which directly relates to KFx Technology. Technology "owned or
controlled" by KECC or a KECC Affiliate includes, without limitation, all
Technology as to which KECC or a KECC Affiliate has the right to grant or cause
to be granted sublicenses or immunity from suit.
"Kennecott Guaranty" shall have the meaning set forth in Section 6.8
hereof.
"Kennecott Site" shall have the meaning set forth in Section
10.3(vii).
"K-Fuel Products" means any fuel products which are produced by using
the K-Fuel Technology.
"K-Fuel Technology" means (i) the KFx Technology, (ii) the KECC
Technology, (iii) any LLC Technology relating to KFx Technology, (iv) any and
all Improvements, and (v) any other Technology conceived,
4
<PAGE>
developed, discovered or otherwise acquired by the Company and designated as K-
Fuel Technology pursuant to Unanimous Member Action, support for such
designation by each Member not to be unreasonably withheld.
"KFx Technology" means the Technology owned or controlled by KFx or a
KFx Affiliate all as claimed and described in the foreign and United States
patents and patent applications identified on Schedule 6.6.1(v)(a) attached
hereto, and all Technology owned or controlled as of the Effective Date of the
Amended Agreement by KFx or a KFx Affiliate relating to said patents or patent
applications. Technology "owned or controlled" by KFx includes, without
limitation, all Technology as to which KFx or a KFx Affiliate has the right to
grant, or cause to be granted, sublicenses or immunity from suit.
"LLC Technology" means (i) Technology conceived, developed, discovered
or otherwise acquired under a Work Plan by the Company pursuant to Section
10.3(ii) which is funded by the Members in accordance with their Percentage
Interest which directly relates to KFx Technology; (ii) Technology conceived,
developed, discovered or otherwise acquired under a Feasibility Study or by the
Company in any other manner which directly relates to KFx Technology; (iii)
Technology conceived, developed, discovered or otherwise acquired by licensees
and sublicensees of any K-Fuel Technology which directly relates to KFx
Technology, and (iv) Technology conceived, developed, discovered or otherwise
acquired under a Work Plan or Feasibility Study that is not directly related to
KFx Technology but which is designated as LLC Technology by Unanimous Member
Action, support for such designation by each Member not to be unreasonably
withheld.
"Manager" means the person specified as the manager of the Company in
accordance with Article IV of this Amended Agreement.
"Member" means a person who holds an Interest in the Company and has
become a member of the Company in accordance with this Amended Agreement.
"Members Action" shall have the meaning set forth in Section 3.6.1.
"Net Agreed Value" means (i) in the case of any property contributed
to the Company, the fair market value of such property reduced by any
indebtedness either assumed by the Company upon such contribution or to which
such property is subject when contributed and (ii) in the case of any property
distributed to a Member, the fair
5
<PAGE>
market value of such property at the time of such distribution reduced by any
indebtedness either assumed by such Member upon such distribution or to which
such property is subject at the time of distribution.
"Net Income" shall mean, for any accounting period, the excess, if
any, of the gross income and gain of the Company for such period over all items
of expense, loss or deduction for such period, as such items are determined in
accordance with Section 8.2 hereof, after adjustment for the allocations
provided in Section 8.4.
"Net Loss" shall mean, for any accounting period, the excess, if any,
of (i) all items of expense, loss or deduction for such period over (ii) the
gross income and gain of the Company for such period, as such items are
determined in accordance with Section 8.2 hereof, after adjustment for the
allocations provided in Section 8.4.
"Notices" shall have the meaning set forth in Section 16.1 hereof.
"Original Agreement" means the Limited Liability Company Agreement of
K-Fuel, L.L.C. dated as of the 22nd day of April, 1996 by and between KECC and
KFx.
"Percentage Interest" means (i) 51% for KFx and 49% for KECC until
such time as the Project(s) Target has been met and (ii) 49% for KFx and 51% for
KECC after the Project(s) Target has been met.
"Person" means an individual, partnership, limited partnership,
foreign limited partnership, trust, estate, corporation, custodian, trustee,
executor, administrator, nominee or entity in its own or a representative
capacity.
"Principal Objective" means developing Feasibility Studies for the
construction of Utilities Fuel Projects within the most expedient possible time
frame.
"Project Entities" shall have the meaning specified in Section 10.5 .
"Project(s) Target" means the point in time that Project Entities in
which KECC is an equity participant have constructed and placed into commercial
service one or more Commercial Projects with a collective design capacity equal
to or in excess of 3 million tons of K-Fuel Products per annum.
"Rated Design Capacity" shall mean 85% of the applicable nameplate
design capacity.
"Representatives" shall have the meaning specified in Section 3.2.2.
"Regulatory Allocations" shall have the meaning specified in Section
8.4.
6
<PAGE>
"Research and Development Costs" means the costs, fees and out-of-
pocket or other expenses incurred by the Company or Members in the course of
performing research and development activities or a Feasibility Study as
specified in a Work Plan.
"Reserves" means such cash reserves as are reasonably necessary or
appropriate for the Company's business as reasonably determined by the Manager.
"Residual Gain" or "Residual Loss" means any items of gain or loss as
the case may be, of the Company recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of a Contributed or
Adjusted Property, to the extent such item of gain or loss is not allocated
pursuant to Sections 8.6.1 to eliminate book-tax disparities.
"Return on Capital" shall mean an amount equal to the product of the
amounts actually expended or incurred by a Member times an annual interest
factor equal to 2% over the prime rate charged by Citibank, N.A. to its best
commercial customers from the date such amounts were expended or incurred.
"Series A and B Technology" means all Technology of any kind or
character, owned or controlled by KFx or any KFx Affiliate as of the date hereof
(including, without limitation, Technology licensed by KFx or any KFx Affiliate
as of the date hereof (including, without limitation, Technology licensed by KFx
or any KFx Affiliate to Heartland Fuels Corporation), which relate to the
apparatuses and methods for upgrading carbonaceous material disclosed in or
contemplated by any of the applicable patents and all foreign counterparts and
patent applications identified on Schedule A attached hereto and any reissue,
re-examination, division, continuation, continuation in part or extension
thereof. Technology "owned or controlled" includes Technology as to which KFx
has the right to grant, or cause to be granted, sublicenses or immunity from
suit.
"Technology" means ideas, information, methods, processes or products,
regardless of form, physical embodiment, or legal status, and the intellectual
rights associated therewith.
"Ton(s) or ton(s)" means a unit of weight measurement equivalent to
2,000 pounds avoirdupois.
"Unanimous Members Action" shall have the meaning specified in Section
3.9.
"Unrealized Gain" attributable to any item of Company property means,
as of any date of determination, the excess, if any, of (a) the fair market
value of such property as of such date, over (b) the Carrying
7
<PAGE>
Value of such property as of such date (prior to any adjustment to be made
pursuant to Section 8.2.4 hereof) as of such date. In determining such
Unrealized Gain, the value of all Company assets (including cash or cash
equivalents) shall be determined by the tax matters partner; provided, that in
arriving at such valuation, full account shall be taken (to the extent
appropriate under the regulations promulgated under Section 704 of the Code) of
the liabilities of the Company and the fair market value of the Members'
Interests as reasonably determined by the Manager immediately prior to the
admission of additional Members.
"Unrealized Loss" attributable any item of Company property means, as
of any date of determination, the excess, if any, of (a) the Carrying Value of
such property as of such date (prior to any adjustment to be made pursuant to
Section 8.2.4 hereof) as of such date, over (b) the fair market value of such
property as of such date. In determining such Unrealized Loss, the value of all
Company assets (including cash or cash equivalents) shall be determined by the
tax matters partner; provided, that, in arriving at such valuation, full account
shall be taken (to the extent appropriate under the regulations promulgated
under Section 704 of the Code) of the liabilities of the Company and the fair
market value of the Members' Interests as determined immediately prior to the
admission of additional Members.
"U.S." means the United States of America.
"Utilities Fuel Project" means a Commercial Project which involves the
construction, expansion or modification of a plant or facility to produce K-Fuel
Products for principal use as fuel by utilities or large industrial boilers.
"Winding-Up" means the period during which the affairs of the Company
are terminated and the liquidation and sale of the assets of the Company is
accomplished in accordance with Section 15.4 hereof.
"Work Plan" means the Initial Work Plan and any other written work
plan and budget proposal pursuant to Article X hereof which shall be designed
and intended to further and enhance K-Fuel Technology, and which sets forth
certain research and development activities or Feasibility Study preparation to
be undertaken and a budget of the projected Research and Development Costs
associated with such development activities or Feasibility Study preparation.
Each Work Plan will include, among other things, reasonably detailed
descriptions of the tasks and work to be performed, the resources required to
accomplish the work and the estimated costs associated with the proposed work.
8
<PAGE>
SCHEDULE 3.2.3
I. KECC
----
1) Initial Representatives:
Gregory H. Boyce
Kent W. Goates
2) Alternates:
Patricia A. Britton
James Berson
II. KFx
---
1) Initial Representatives:
Theodore Venners
Jack C. Pester
2) Alternates:
Rudy G. Swenson
Sheldon Schultz
<PAGE>
SCHEDULE 6.5(iii)
1. Spent Potline Recycling
2. HISmelt Technology
<PAGE>
SCHEDULE 6.5(iv)(a)
The following sections of the Prior Agreements contain provisions which
could be interpreted to restrict the ability of KFx to provide the Company with
access to and the right to use Technology and related Improvements.
KFPLP Partnership Agreement: Sections 10.8(i) and (k), 10.9, 10.17, 10.18,
---------------------------
10.20, 10.21, 10.22 and 10.23 and related definitions.
KFPLP License Agreement: Sections 1.3, 4.3, 5.4, 5.5 and Article VII and
-----------------------
related definitions.
Indemnity Agreement: Sections 2, 3, 4(a)(X), and 9 and related definitions.
-------------------
As of the Effective Date of the Original Agreement, KFx obtained a letter
agreement in the form of 6.5(iv)(b) with respect to such access right, right to
use Technology and other matters.
<PAGE>
SCHEDULE 6.5(iv)(b)
April 19, 1996
Brian Holt
Thermo ECOtek Corporation
81 Wyman Street
Waltham, MA 02254-9046
Richard J. Meli
Kennecott Energy and Coal Company
10 East South Temple
Salt Lake City, Utah 84147
Re: Kennecott Transaction
---------------------
Dear Brian and Rich:
As you know, KFx is in the process of finalizing a joint venture
arrangement with a subsidiary of Kennecott Energy and Coal Company ("KECC") to
further develop and commercialize the K-Fuel technology, under the terms of the
Limited Liability Company Agreement of K-Fuel, L.L.C. (together with the
exhibits and schedules attached thereto, the "LLC Agreement"). KFxW is also a
partner with EFI and TCK in KFx Fuel Partners, L.P. under the terms of the First
Plant Agreements listed on Annex A (capitalized terms used but not defined
herein having the meaning used in the First Plant Agreements). In conjunction
with the finalization of the LLC Agreement, certain clarifications concerning
provisions in the First Plant Agreements are desirable in an effort to ensure
that the requirements under both sets of agreements are consistent.
Notwithstanding the provisions of the First Plant Agreements or any other
agreement between Thermo ECOtek and its Affiliates, on the one hand, and KFx and
its Affiliates, on the other hand, Thermo ECOtek (for itself, the Partnership,
and its other Affiliates) agrees that
(i) KFx, KFxW and their Affiliates shall be, and hereby are, in accordance
with the provisions of the LLC Agreement and without the requirement for
any recipient to enter into a non-circumvention and non-competition
agreement or other agreement (other than a confidentiality agreement or
sublicense to the extent either or both may be required by the LLC
Agreement), authorized to disclose Proprietary Information (as defined in
the First Plant Agreements) to K-Fuel, L.L.C., its Members, their
Affiliates, and its sublicensees;
(ii) the Partnership will provide reasonable physical access to the Project
and the Project site and access to proprietary and other information
regarding the design, construction and operation of the Project, to K-Fuel,
L.L.C., its Members, their Affiliates, and its sublicensees; and
<PAGE>
Brian Holt
Richard J. Meli
April 19, 1996
Page Two
(iii) K-Fuel, L.L.C., its Members, their Affiliates, and its sublicensees
shall not be restricted from building, constructing, operating, and having
interests in Commercial Projects (as defined in the LLC Agreement) and
undertaking the other transactions contemplated in the LLC Agreement.
In return for such agreement, KFx and KECC agree that (and the LLC
Agreement will provide that) neither K-Fuel, L.L.C., its Members, their
Affiliates, or its sublicensees will sell (including committing to sell or
entering into contracts to sell), or otherwise dispose of any K-Fuel Products
(as defined in the LLC Agreement) pursuant to the LLC Agreement to purchasers in
the United States, Canada or Mexico until the earlier of (i) December 31, 2001;
(ii) the date on which the Partnership has entered into contracts for the sale
of a minimum of 70 percent of the output of the Project for a term of at least
through December 31, 2001; (iii) the date on which the combined Partnership
Interests of EFI and TCKF total less than 50.1 percent; provided, that beginning
on the date on which KECC or a KECC Affiliate shall have entered into the
contract described on Annex B with respect to the output of the Project. K-Fuel,
L.L.C., its Members, or their Affiliates may, as provided in the LLC Agreement,
sell or otherwise dispose of the K-Fuel Product. Such marketing, sales or other
disposal shall serve as the basis for KECC or its Affiliate to evaluate whether
or not such Commercial Project will be Approved for Construction (as defined in
the LLC Agreement) by KECC or its Affiliate as set forth in the LLC Agreement.
Both before and after exercising the option described on Annex B, K-Fuel, L.L.C.
or its Members or their Affiliates shall be permitted to conduct market research
or have preliminary discussions with customers or potential customers or take
such other reasonable actions for the purpose of collecting information
sufficient to prepare a Feasibility Study (as defined in the LLC Agreement) for
a Commercial Project as contemplated by the LLC Agreement.
Additionally, each of us agrees that Improvements to the KFx Technology
(each as defined in the LLC Agreement) will be licensed and made available to
the Partnership subject to the confidentiality obligations imposed on the
Partnership under and subject to the limited use set forth in its existing
License Agreement, provided that the Partnership enters into a confidentiality
agreement in the form satisfactory to KFx and KECC.
Further, each of us agrees that, within 60 days of the Effective Date (as
defined in the LLC Agreement), KECC will notify the Partnership in writing if
KECC or its Affiliate desires to be the marketing agent for Product produced by
the Project. If KECC delivers such written notice, KECC or its Affiliate and the
Partnership will make reasonable efforts to negotiate a marketing contract on
terms acceptable to all parties.
By execution hereby, each of us acknowledges that each other party is
relying upon our agreements set forth herein. Accordingly, no amendments to the
foregoing or the corresponding provisions of the LLC Agreement or the First
Plant Agreements shall be made without the written consent of each party hereto.
<PAGE>
Brian Holt
Richard J. Meli
April 19, 1996
Page Three
If you agree with the above, please indicate your agreement by signing and
returning a counterpart of this letter to me.
Sincerely,
Theodore Venners
Chairman
ACKNOWLEDGED AND AGREED
THIS ____ DAY OF APRIL, 1996:
THERMO ECOTEK CORPORATION
By: ________________________________
Name:_______________________________
Title:______________________________
KENNECOTT ENERGY AND COAL
COMPANY
By: ________________________________
Name:_______________________________
Title:______________________________
<PAGE>
ANNEX A
AGREEMENTS
----------
1. Limited Partnership Agreement of KFx Fuel Partners, L.P. (the
"Partnership") dated as of August 18, 1995, by and among Eco Fuels, Inc.
("EFI"), KFx Wyoming, Inc. ("KFxW") and TCK Fuels, Inc. ("TCKF") (the
"Partnership Agreement").
2. License Agreement, dated as of August 17, 1995, by and between Ed
Koppelman and the Partnership (the "License Agreement").
3. Indemnity Agreement, dated as of August 18, 1995, by and between KFx
Inc. ("KFx") and Thermo ECOtek Corporation ("Thermo ECOtek") (the "Indemnity
Agreement", and together with the Partnership Agreement and the License
Agreement, the "First Plant Agreements").
<PAGE>
ANNEX B
OPTION
------
*
__________________
* This information has been omitted based on a request for confidential
treatment. The omitted portions have been separately filed with the Securities
and Exchange Commission.
<PAGE>
Schedule 6.6.1(v)(a) - KFx Patents & Patent Applications (Intangible Assets)
- ----------------------------------------------------------------------------
Page 1 of 10
Unexpired United States Patents;
- --------------------------------
Series A Patents
- ----------------
A-1. United States Patent No. 4,477,257, filed 12/31/82, granted 10/16/84
APPARATUS AND PROCESS FOR THERMAL TREATMENT OF ORGANIC CARBONACEOUS
MATERIALS
*
A-2. United States Patent No. 4,626,258, filed 12/19/84, granted 12/02/86
MULTIPLE HEARTH APPARATUS AND PROCESS FOR THERMAL TREATMENT OF
CARBONACEOUS MATERIALS
*
__________________
* This information has been omitted based on a request for confidential
treatment. The omitted portions have been separately filed with the Securities
and Exchange Commission.
<PAGE>
Schedule 6.6.1(v)(a) - KFx Patents & Patent Applications (Intangible Assets)
- ----------------------------------------------------------------------------
Page 2 of 10
Unexpired United States Patents:
- --------------------------------
Series A Patents
- ----------------
*
A-3. United States Patent No. 4,728,339, filed 11/17/86, granted 3/01/88
(Continuation in part of United States Patent No. 4,626,258)
MULTIPLE HEARTH APPARATUS AND PROCESS FOR THERMAL TREATMENT OF
CARBONACEOUS MATERIALS
*
____________________
* This information has been omitted based on a request for confidential
treatment. The omitted portions have been separately filed with the Securities
and Exchange Commission.
<PAGE>
Schedule 6.6.1(v)(a) - KFx Patents & Patent Applications (Intangible Assets)
- ----------------------------------------------------------------------------
Page 3 of 10
Unexpired United States Patents:
- --------------------------------
Series A Patents
- ----------------
*
Related Expired United States Patents:
- --------------------------------------
1. United States Patent No. 4,069,107, filed 5/03/76, granted 1/17/78
CONTINUOUS THERMAL REACTOR SYSTEM AND METHOD
2. United States Patent No. 4,052,168, filed 5/03/76, granted 10/4/77
PROCESS FOR UPGRADING LIGNITIC TYPE COAL AS A FUEL
3. United States Patent No. 4,129,420, filed 9/07/77, granted 12/12/78
PROCESS FOR MAKING COKE FROM CELLULOSIC MATERIALS AND FUELS THEREFROM
4. United States Patent No. 4,127,391, filed 9/07/77, granted 11/28/78
(Continuation in party of United States Patent No. 4,052,168)
PROCESS FOR MAKING COKE FROM BITUMINOUS FINES AND FUELS PRODUCED
THEREFROM
5. United States Paten No. 4,126,519, filed 9/12/77, granted 11/21/78
APPARATUS AND METHOD FOR THERMAL TREATMENT OF ORGANIC CARBONACEOUS
MATERIAL
6. United States Patent No. 4,106,999, filed 11/07/77, granted 8/15/78
(Continuation in part of United States Patent No. 4,069,107)
CONTINUOUS THERMAL REACTOR SYSTEM AND METHOD
____________________
* This information has been omitted based on a request for confidential
treatment. The omitted portions have been separately filed with the Securities
and Exchange Commission.
<PAGE>
Schedule 6.6.1(v)(a) - KFx Patents & Patent Applications (Intangible Assets)
- ----------------------------------------------------------------------------
Page 4 of 10
Unexpired United States Patents:
- --------------------------------
Series B Patents:
B-1. United States Patent No. 5,071,447, filed 10/31/89, granted 12/10/91
APPARATUS AND PROCESS FOR STEAM TREATING CARBONACEOUS MATERIAL
*
Related Expired United States Patent:
- -------------------------------------
1. United States Patent No. 4,330,032, filed 3/12/81, granted 5/18/82
SELF-CLEANING SCREW CONVEYOR
____________________
* This information has been omitted based on a request for confidential
treatment. The omitted portions have been separately filed with the Securities
and Exchange Commission.
<PAGE>
Schedule 6.6.1(v)(a) - KFx Patents & Patent Applications (Intangible Assets)
- ----------------------------------------------------------------------------
Page 5 of 10
Unexpired United States Patents:
- --------------------------------
Series C Patents:
C-1. United States Patent No. 5,290,523, filed 9/18/92, granted 3/01/94
METHOD AND APPARATUS FOR UPGRADING CARBONACEOUS FUEL
*
___________________
* This information has been omitted based on a request for confidential
treatment. The omitted portions have been separately filed with the Securities
and Exchange Commission.
<PAGE>
Schedule 6.6.1(v)(a) - KFx Patents & Patent Applications (Intangible Assets)
- ----------------------------------------------------------------------------
Page 6 of 10
Unexpired United States Patents:
- --------------------------------
Series C Patents:
*
Other U.S. Patents and Patent Applications
- ------------------------------------------
O-1. United States Patent No. 5,769,908, filed April 1, 1997, granted June 23,
1998.
METHOD AND APPARATUS FOR REDUCING THE BY-PRODUCT CONTENT OF
CARBONACEOUS MATERIALS
*
_______________________
* This information has been omitted based on a request for confidential
treatment. The omitted portions have been separately filed with the Securities
and Exchange Commission.
<PAGE>
Schedule 6.6.1(v)(a) - KFx Patents & Patent Applications (Intangible Assets)
- ----------------------------------------------------------------------------
Page 7 of 10
Unexpired United States Patents:
- --------------------------------
Other Patents:
*
O-2. United States Patent No. 5,746,787, filed October 28, 1996, granted May 5,
1998.
PROCESS FOR TREATING CARBONACEOUS MATERIALS
*
_______________________
* This information has been omitted based on a request for confidential
treatment. The omitted portions have been separately filed with the Securities
and Exchange Commission.
<PAGE>
Schedule 6.6.1(v)(a) - KFx Patents & Patent Applications (Intangible Assets)
- ----------------------------------------------------------------------------
Page 8 of 10
Unexpired United States Patents:
- --------------------------------
O-3. United States Patent Application Serial No. 09/050,393, filed March 30,
1998
STACKABLE HEAT EXCHANGER FOR PROCESSING CARBONACEOUS MATERIALS
*
Trademark
- ---------
1. United States Trademark Registration No. 1,180,787, registered 12/08/81,
covering the mark "K-Fuel."
*
_____________________
* This information has been omitted based on a request for confidential
treatment. The omitted portions have been separately filed with the Securities
and Exchange Commission.
<PAGE>
Schedule 6.6.1(v)(a) - KFx Patents & Patent Applications (Intangible Assets)
- ----------------------------------------------------------------------------
Page 9 of 10
*
_____________________________
* This information has been omitted based on a request for confidential
treatment. The omitted portions have been separately filed with the Securities
and Exchange Commission.
<PAGE>
Schedule 6.6.1(v)(a) - KFx Patents & Patent Applications (Intangible Assets)
- ----------------------------------------------------------------------------
Page 10 of 10
Unexpired Australian Patents:
- -----------------------------
*
____________________
* This information has been omitted based on a request for confidential
treatment. The omitted portions have been separately filed with the Securities
and Exchange Commission.
<PAGE>
Schedule 6.6.1(v)(b) - Existing Technology Licenses
- ---------------------------------------------------
1. License Agreement between Edward Koppelman and K-Fuel Partners, L.P. dated
August 17, 1995.
2. Fuel Option Agreement between Ohio Valley Electric Corporation and KFx Inc.
dated August 17, 1995.
3. Fuel Option Agreement between Indiana Michigan Power Company and KFx Inc.
dated August 17, 1995.
4. License Agreement between KFx Inc. and Heartland Fuels Corporation dated
April 19, 1996.
<PAGE>
Schedule 6.6.1(v)(c) - Related Agreements Currently in Effect
- -------------------------------------------------------------
Page 1 of 1
Amendments to Agreements between Theodore Venners, S.A. Wilson, KFDC and
the Koppelman Group dated December 29, 1992
Assignment of U.S. Patents by KFLP to KFx Inc. dated July 23, 1993
Assignment of U.S. Trademark Registration by KFLP to KFx Inc. dated July
23, 1993
Royalty Agreement dated December 29, 1992 between KFx Inc. and the
Koppelman Group
Agreement dated December 19, 1991 among KFP, Edward Koppelman, KFLP and
KSA, Inc.
Stipulation and Agreement dated February 28, 1994 between EBTI, State of
Wyoming, KFx Inc., Theodore Venners, Edward Koppelman and Energy Brothers
Holding, Inc.
Internal Revenue Service Private Letter Ruling dated March 20, 1995
Limited Partnership Agreement of KFX Fuel Partners, L.P., dated August 18,
1995
Indemnity Agreement dated August 18, 1995 between KFx Inc. and Thermo
Ecotek Corporation
Letter of Agreement dated August 15, 1995 between KFx Inc. and Edward
Koppelman
Assignment dated August 29, 1995 executed by Edward Koppelman in favor of
KFx Inc.
Patent and Technology License dated August 17, 1995 between Edward
Koppelman and KFX Fuel Partners, L.P.
Letter Agreement dated February 28, 1995 between RCG Development and KFx
Inc.
Agreement to Amend dated June 3, 1996 between Ted Venners, KFx Inc., and
Edward Koppelman
Amendment to Royalty Agreement dated August 6, 1997 between Ted Venners,
KFx Inc., and Edward Koppelman
<PAGE>
Schedule 6.6.1(vi) - Exceptions to Intangible Assets
- ----------------------------------------------------
Page 1. of 1
*
_________________________
* This information has been omitted based on a request for confidential
treatment. The omitted portions have been separately filed with the Securities
and Exchange Commission.
<PAGE>
SCHEDULE 10.1(i)
The parties acknowledge that the exclusivity of the KFx License and Series
A and B License and the other provisions of the LLC Agreement, the KFx License,
the Series A and B License, and the Confidentiality Agreement with respect to
such exclusivity are qualified in that KFx and KFx Affiliates have heretofore
granted or agreed to grant certain Technology licenses and rights to Technology
to third Persons as follows: (i) the Limited Partnership Agreement of KFx Fuel
Partners, L.P., dated as of August 18, 1995, by and among Eco Fuels, Inc., KFx
Wyoming, Inc. and TCK Fuels, Inc. (the "KFPLP Partnership Agreement"); (ii) the
License Agreement, dated as of August 17, 1995, by and between Edward Koppelman
and KFx Fuel Partners LP, with respect to which the applicable patents were
subsequently assigned by Edward Koppelman to KFx pursuant to an Assignment dated
August 29, 1995 (the "KFPLP License Agreement"); (iii) the Fuel Option
Agreement, dated as of August 17, 1995, between Ohio Valley Electric Corporation
("OVEC") and KFx, Inc. (the "OVEC Agreement"); (iv) the Fuel Option Agreement,
dated as of August 17, 1995, by and between Indiana Michigan Power Company
("I&M") and KFx, Inc. (the "I&M Agreement"); (v) the Indemnity Agreement dated
as of August 18, 1995, by and between KFx, Inc. and Thermo ECOTek Corporation
(the "Indemnity Agreement"); (vi) the letter agreement, dated as of April 19,
1996, by and among KFx, Kennecott Energy and Coal Company, and Thermo ECOTek
Corporation; and (vii) the Agreement described in Section 10.8 of the LLC
Agreement (the "Tax Credit Letter") (collectively the "Prior Agreements").
Without limiting the generality of the foregoing, the parties acknowledge
and agree that:
(i) if OVEC or I&M, respectively, shall exercise its rights to require
KFx to construct plants to supply Fuel (as defined in the OVEC
Agreement or the I&M Agreement), as applicable, such proposed plants
shall be submitted to the Members as provided in Article X of the LLC
Agreement upon the procedures set forth therein except (to the extent
such procedures cannot be followed consistent with KFx's obligations
under the OVEC Agreement or the I&M Agreement, as applicable unless
the Members mutually agree to modify the provisions of the LLC
Agreement to make them consistent with KFx's obligations under the
OVEC Agreement or the I&M Agreement, respectively);
(ii) the provisions of Article XI of the LLC Agreement shall not apply to
such plants to the extent that (a) such provisions are not consistent
with the obligations of KFx under the OVEC Agreement or the I&M
Agreement, as applicable (unless the Members mutually agree to modify
the provisions of the LLC Agreement to make them consistent), or (b)
OVEC or I&M are able to and desire to provide or to cause to be
provided the feedstock supply or transportation services or marketing
services to be provided by KECC or its Affiliates under Article XI on
terms and conditions at least as favorable as the terms and
conditions under which KECC or its Affiliates would provide such
services;
(iii) KFx shall have the right to grant to I&M or OVEC the license rights
required to be granted by KFx under the OVEC Agreement or the I&M
Agreement, as applicable;
<PAGE>
(iv) KFx shall have the right to issue the license rights required to be
granted by KFx under the Tax Credit Letter, as set forth therein;
(v) neither KFx nor any of its Affiliates will amend, modify, alter or
any provision of any of the Prior Agreements to the extent the
effect of such amendment, modification, alteration or supplement
would be to expand the rights of any third Person party to such
Agreements or its Affiliates to use the KFx Technology or any
related Improvements;
(vi) in no event shall the Company or KECC or any KECC Affiliate be
liable for any of the obligations, responsibilities or liabilities
of KFx or any Affiliate of KFx under the prior Agreements;
(vii) neither the Company, its Members, their Affiliates, or its
sublicensees will sell (including committing to sell or entering
into contracts to sell), or otherwise dispose of any K-Fuel Products
pursuant to the LLC Agreement to purchasers in the United States,
Canada or Mexico until the earlier of (i) December 31, 2001; (ii)
the date on which the KFx Fuel Partners, L.P. (the "Partnership")
has entered into contracts for the sale of a minimum of 70 percent
of the output of the project being constructed by the Partnership
near Gillette, Wyoming (the "First Plant") for a term of at least
through December 31, 2001; (iii) the date on which the combined
Partnership Interests (as defined in the KFPLP Partnership
Agreement) of EFI and TCKF total less than 50.1 percent; provided,
that beginning on the date on which KECC or a KECC Affiliate shall
have entered into the contract described on Annex B to the Thermo
consent letter attached as Schedule 6.5(iv)(b) ("Thermo Letter")
with respect to the output of the First Plant, the Company, its
Members, or their Affiliates may, as provided in the LLC Agreement,
sell or otherwise dispose of the K-Fuel Product. Such marketing,
sales or other disposal shall, among other things, serve as the
basis for KECC or its Affiliate to evaluate whether or not such
Commercial Project will be Approved for Construction by KECC as set
forth in the LLC Agreement. Both before and after exercising the
option described on Annex B to the Thermo Letter, the Company or its
Members or their Affiliates shall be permitted to conduct market
research or have preliminary discussions with customers or potential
customers or take such other reasonable actions for the purpose of
collecting information sufficient to prepare a Feasibility Study for
a Commercial Project as contemplated by the LLC Agreement.
(viii) Improvements to the KFx Technology will be licensed and made
available to the Partnership subject to the confidentiality
obligations imposed on the Partnership under and subject to the
limited use set forth in its existing License Agreement, provided
that the Partnership enters into a confidentiality agreement in form
satisfactory to KFx and KECC.
<PAGE>
SCHEDULE 10.1(ii)(A)
--------------------
Each sublicense granted by the Company shall provide, at a minimum, that:
. the sublicensee shall pay (i) directly to KFx the license fees and
royalties specified in the KFx License, or (ii) directly to Heartland Fuels
Corporation the license fees and royalties specified in the Series A and B
License and (iii) directly to KECC the license fees and royalties specified
in the KECC License, as applicable
. the sublicense shall be limited to a specific capacity at a specific plant
site
. the sublicense shall be nonexclusive
. with respect to all material and Technology which is the subject of the
license, the sublicensee shall be subject to obligations of confidentiality
at least as restrictive as those set forth in the KFx License, the Series A
and B License, the KECC License or the Confidentiality Agreement, as
applicable
. the rights of the sublicensee under each sublicense shall be no greater
than the rights of the Company under the KFx License, the Series A and B
License, or the KECC License, as applicable, and otherwise shall be
consistent with such license agreements
. all Improvements conceived, discovered, developed or acquired by KFx, KECC
or the Company, shall be owned by KFx, KECC, or the Company, as applicable,
and shall be licensed to the Company (and may be sublicensed to the
sublicensee) under the terms of the KFx License, the Series A and B
License, or the KECC License, as applicable; all Improvements conceived,
discovered, developed or acquired by the sublicensee shall be assigned or
licensed to the Company
. the sublicensee shall not assign, sell or otherwise transfer the sublicense
or its rights thereunder, and shall have no right to grant further
sublicenses
. all payments to KFx, Heartland Fuels Corporation or KECC, as the case may
be, shall be made by wire transfer in immediately available funds in U.S.
dollars
. Each sublicensee will keep books, records, and accounts in accordance with
generally accepted accounting practices, consistently applied, covering its
operations under its sublicense, and containing all information necessary
for the accurate determination of amounts payable thereunder. Each
sublicensee also shall permit representatives of KFx, Heartland or KECC, as
applicable, to inspect, upon prior reasonable request, at reasonable
intervals and during regular business hours, such books, records, and
accounts and all or any part of the sublicensee's activities as may be
necessary to determine the completeness and accuracy of such accounting
records and reports, and to determine the sufficiency and accuracy of
reporting and assignment or licensing of Improvements to the Company
. Each sublicensee will deliver to KFx, Heartland or KECC, as applicable,
within forty-five (45) days after termination of each calendar quarter, a
written report showing the amount and
<PAGE>
weight of K-Fuel products produced, sold or used by or on behalf of the
sublicense during such calendar quarter and reporting and disclosing any
Improvements to the Technology initiated, continued or completed during
that period, such report to be made whether or not the sublicensee has
engaged in any such activity during such quarter.
<PAGE>
SCHEDULE 10.1(ii)(B)
ROYALTIES/LICENSE FEE
---------------------
*
_______________________
* This information has been omitted based on a request for confidential
treatment. The omitted portions have been separately filed with the Securities
and Exchange Commission.
<PAGE>
SCHEDULE 10.5(vi)
*
__________________________
* This information has been omitted based on a request for confidential
treatment. The omitted portions have been separately filed with the Securities
and Exchange Commission.
<PAGE>
SCHEDULE 11.1
*
__________________________
* This information has been omitted based on a request for confidential
treatment. The omitted portions have been separately filed with the Securities
and Exchange Commission.
<PAGE>
SCHEDULE 16.9
Arbitration Provisions
----------------------
(a) All Arbitrable Disputes between the parties submitted to
arbitration shall be resolved by binding arbitration administered by the
AAA in accordance with, and in the following order of priority: (i) the
terms of these arbitration provisions; (ii) the Commercial Arbitration
Rules of the AAA; (iii) the Federal Arbitration Act (Title 9 of the United
States Code); and (iv) to the extent the foregoing are inapplicable,
unenforceable or invalid, the laws of the State of Delaware. The validity
and enforceability of these arbitration provisions shall be determined in
accordance with this same order of priority. In the event of any
inconsistency between these arbitration provisions and such rules and
statutes, these arbitration provisions shall control. Judgment upon any
award rendered hereunder shall be entered in any court having jurisdiction.
(b) A panel of three independent neutral arbitrators (the
"Arbitrators") shall be chosen by the AAA and shall resolve the Arbitrable
Dispute. Arbitrators are empowered to resolve Arbitrable Disputes by
summary rulings substantially similar to summary judgments and motions to
dismiss. Arbitrators shall resolve all Arbitrable Disputes in accordance
with the applicable substantive law. Any arbitrator selected shall be
required to be experienced and knowledgeable in the substantive laws
applicable to the subject matter of the Arbitrable Dispute. In such case,
the Arbitrator(s) shall be required to make specific, written findings of
fact, and shall have authority to render an award. The Arbitrators may
grant any remedy or relief deemed just and equitable and within the scope
of these arbitration provisions and may also grant such ancillary relief as
is necessary to make effective any award. The determination of an
Arbitrator(s) shall be binding on all parties and shall not be subject to
further review or appeal.
(c) To the maximum extent practicable, the AAA, the Arbitrator(s) and
the parties shall take any action necessary to require that an arbitration
proceeding hereunder shall be concluded within thirty (30) days of filing
with the AAA. Arbitration proceedings hereunder shall be conducted at one
of the following locations in the State of California agreed to in writing
by the parties or, in the absence of such agreement, selected by the AAA:
San Francisco, California. With respect to any Arbitrable Dispute, each
party agrees that all discovery activities shall be expressly limited to
matters directly relevant to the Dispute and any Arbitrator, and the AAA
shall be required to fully enforce this requirement. The provisions of
these arbitration provisions shall survive any termination, amendment or
expiration of the Agreement, unless the parties otherwise expressly agree
in writing. To the extent permitted by applicable law, the Arbitrator(s)
shall have the power to award recovery of all costs and fees (including
attorneys' fees, administrative fees and arbitrators' fees) to the
prevailing party or, if no clear prevailing party, as the Arbitrator(s)
shall deem just and equitable.
(d) Each party agrees to keep all Arbitrable Disputes and arbitration
proceedings strictly confidential, as provided in the Confidentiality
Agreement.
<PAGE>
SCHEDULE D-1
FEASIBILITY STUDY
Section
1. Introduction
1.1 Project Summary
1.2 Scope of Study
1.3 Recommendations
2. Description of Project
2.1 Proposed Site
2.2 K-Fuel Facility
2.3 Offsite Facilities
3. Permitting and Environmental
3.1 Status of Permits
3.2 Plant Effluents
3.3 West Water Disposal
3.4 Air Emissions
4. Capital Costs
4.1 Summary
4.2 Estimate Basis
4.3 Cost Summaries
4.4 Expenditure Schedule
5. Feedstock Supply
5.1 Summary
5.2 Description of Mine and of Reserves
5.3 Characteristics of Coal Feedstock
5.4 Results of Tests on Coal
5.5 Details of Likely Supply Contract
5.6 Projection of Feedstock Costs
6. Market Outlook
6.1 Executive Summary
(I) Background and Study Approach
(II) Overview of Potential Markets for K-Fuel Product
(III) Competitive Factors Affecting K-Fuel Product
(IV) Potential Demand for K-Fuel Product
(V) K-Fuel Price Outlook
6.2 Competitive Factors
(I) Price Trends in Coal Industry
(A) Productivity Trends
<PAGE>
(B) Coal Quality Impact
(II) Scrubber Costs and Operational Considerations
(III) Natural Gas Prices and New Plan Economics
(IV) Transportation Rates
(V) Utility Boiler Configurations
(VI) Price-Elasticity
6.3 Potential Utility Demand
(I) Summary of Demand
(II) Consideration of Environmental Constraints of Utilities
6.4 Industrial Markets
(I) Analysis of Competitive Factors Affecting Use of K-Fuel
6.5 The Export Coal Market (if applicable)
(I) Overview of the International Coal Market
(II) Possible Markets for K-Fuel Product
(III) The Outlook for the Future
6.6 Price Projections
(I) Summary of Potential Demand
(II) Price Projections at Varying Demand and Competitive
Price Levels
7. Project Execution
7.1 Scope of Services
7.2 Project Management
7.3 Engineering
7.4 Procurement
7.5 Construction
7.6 Project Controls
8. Commission
8.1 General
8.2 Estimate Basis and Qualifications
8.3 Cost Summary
9. Financial Projections
9.1 Summary of Projected Returns
9.2 Sensitivity Analysis
Supporting Documentation
1. Simplified Flow Diagram
2. Project Organization
3. Staffing Requirements
<PAGE>
4. Objective Schedule
5. Milestone Summary Schedule
6. Supporting Market Information
(A) Mine Productivity
(B) Competitive Factors
(C) Transportation
(D) Utility Demand and Trends
(E) Industrial Markets
(F) Export Markets
(G) Sensitivity Analysis
7. Financial Projections
9. Contractual Relationships
(A) Engineering
(B) Construction
(C) Operation
(D) Marketing
(E) Feedstock
(F) Services
