PRIMARY AGREEMENT
This Primary Agreement ("Agreement") is made and entered into at Salt Lake City,
Utah this 6th day of November 1996 by and between Covol Technologies Inc., a
Delaware corporation ("Covol") and Savage Industries Inc., a Utah corporation
("Savage").
RECITALS:
A. Covol has approached Savage about the possibility of Covol and
Savage entering into a business relationship and Savage is
interested in pursuing the possibility of a business
relationship with Covol.
B. Covol has developed a process to bind coal fines (the "Covol Process")
and produce usable coal briquettes (the "Briquettes") and usable coal
extrusions (the "Extrusions") using a binder (the "Covol Binder")
developed by Covol.
C. Covol has applied for and received multiple United States
patents (the "Patents") covering the Covol Process using the
Covol Binder.
D. Covol has received a private letter ruling (the "Covol Private
Letter Ruling") from the Internal Revenue Service (the "IRS")
dated September 8, 1995 to the effect that (i) Covol, using
the Covol Process with the Covol Binder, is able to produce a
"qualified fuel" within the meaning of Section 29(c)(1)(C) of
the United States tax code (the "Code"), and (ii) the sale of
the "qualified fuel" will qualify for energy tax credits in
the year of the sale (the "Tax Credits") pursuant to Section
29(a) of the Code.
E. As a part of their business relationship, Covol and Savage, or
a third party entity formed by them, intends to enter into not
to exceed two (2) written contracts (the "Contract(s)") with
a qualified third party contractor or contractors (the
"Contractor(s)") whereby the Contractor will agree to design,
construct' start-up and certify up to two (2) separate coal
fines agglomeration facilities (collectively, the
"Facilities", with each such facility referred to herein as
the "Facility") using the Covol Process and the Covol Binder
to produce Extrusions.
AGREEMENT AND UNDERSTANDING:
1. Representations and Covenants
1.1 Covol represents to and covenants with Savage as follows:
a. Environmental Technologies Group International, a
Nevada corporation, merged with Covol with Covol
being the surviving corporation. Covol is qualified
and in good standing to do business in the State of
Utah;
b. Covol is the lawful holder of the Patents and the
Patents are valid, in good standing and
enforceable pursuant to the United States patent
laws and regulations. Copies of the Patents
received to date by Covol have been provided by
Covol to Savage;
c. The Covol Private Letter Ruling has not been
modified or rescinded and Covol has no reason to
believe that such a modification or rescission will
occur. A copy of the Covol Private Letter Ruling
has been provided by COVOL to Savage;
d. To the best knowledge and understanding of Covol,
the Covol Private Letter Ruling (i) will, with
respect to Covol, apply to (a) each of the
Facilities to be constructed by the Contractor, (b)
the Extrusions produced by each of the Facilities,
and (c) the sale of the Extrusions produced by each
of the Facilities and (ii) will result in (x) the
Extrusions produced by each of the Facilities being
a "qualified fuel" pursuant to Section 29(c)(1)(C)
of the Code and (y) will result in the sale of
Extrusions produced by each of the Facilities
qualifying, in the year of such sale, for Tax
Credits pursuant to Section 29(a) of the Code;
e. Covol has the expertise, personnel and financial
ability to perform as required by the terms and
provisions of this Contract and all other documents
contemplated herein;
f. To the best knowledge and understanding of Covol, the
Tax Credits will be available to any third party who
obtains an interest in the production and sale of
Extrusions produced, using the Covol Process and
Covol Binder, by either of the Facilities constructed
by the Contractor pursuant to any of the Contracts;
and
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g. The execution and delivery of this Agreement and
the documents contemplated herein (i) have been or
will be duly executed by Covol, (ii) when executed,
will be valid, binding and enforceable against
Covol pursuant to the terms thereof, (iii) and the
performance of Covol hereunder, will not violate or
constitute an event of default under the terms and
provisions of any agreement to which Covol is a
party and (iv) do not require the consent of any
third party (except as otherwise provided in this
Agreement) or any governmental entity.
1.2 Savage represents to and covenants with Covol as follows:
a. Savage is a Utah Corporation, qualified and in good
standing in the State of Utah;
b. Savage has the expertise, personnel and financial
ability to perform as required by the terms and
provisions of this Agreement and all other
documents contemplated herein; and
c. The execution and delivery of this Agreement and
the documents contemplated herein (i) have been or
will be duly executed by Savage, (ii) when
executed, will be valid, binding and enforceable
against Savage pursuant to the terms thereof, (iii)
and the performance of Savage hereunder, will not
violate or constitute an event of default under the
terms and provisions of any agreement to which
Savage is a party and (iv) do not require the
consent of any third party (except as otherwise
provided in this Agreement) or any governmental
entity.
2. Conditions Precedent
2.1 The parties will jointly work together in clarifying the
criteria and other factors for the design, component parts,
layout and production capabilities of each of the Facilities
to be constructed by the Contractor.
2.2 The parties will jointly work together in obtaining an
informal position of the IRS as to (i) whether or not the
Tax Credits would be available to Savage and/or a limited
liability company (the "LLC") established by Savage in
conjunction with Covol with respect to the sale of
Extrusions produced, using the Covol Process and Covol
Binder, by the Facility or Facilities constructed by the
Contractor and (ii) whether or not the Contracts will
qualify for the "binding contract rule" of Section
29(g)(i)(A) of the Code.
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*** Missing information may be available upon request to the Company
2.3 Subject to receiving a positive informal position from
the IRS pursuant to Section 2.2, the parties will jointly
work together in obtaining a private letter ruling from
the IRS (the "Savage Private Letter Ruling") to the
effect that the Tax Credits (i) will be available in
accordance with the informal position obtained from the
IRS and (ii) will be equally applicable to the sale of
Extrusions produced, using the Covol Process and Covol
Binder, by the Facility and/or the Facilities.
2.4 If, at any time, either party is not satisfied, in its sole
discretion, with the results, progress or the timing of any of
the matters above set forth in Sections 2.1 through 2.3, such
party (the "Giving Party") may give written notice to the
other party (the "Receiving Party") of such dissatisfaction
and in such event, the Receiving Party shall either elect (i)
to terminate this Agreement or (ii) solely proceed with the
remaining terms and provisions of this Agreement hereinafter
commencing with Article 3.
2.5 If the Receiving Party elects to terminate this Agreement
pursuant to Section 2.4(i), then neither party shall have any
further rights, claims, duties or obligations to the other
party on account of this Agreement.
2.6 If the Receiving Party elects to proceed with this
Agreement pursuant to Section 2.4(ii), then the Receiving
Party shall (i) reimburse the Giving Party for the actual
out of pocket expenses incurred by the Giving Party in
its performance of the matters above set forth in
Sections 2.1 through 2.4, (ii) be entitled to receive all
technological information concerning the Covol Binder and
the Covol Process, all test results, studies, and
information received, gained and/or possessed by the
Giving Party, (iii) defend, indemnify and hold the Giving
Party harmless on account of this Agreement and all of
the matters set forth herein or contemplated hereby, (iv)
be entitled to proceed as provided in Section 2.4(ii)
with the cooperation, but not at the expense, of the
Giving Party, and (v) if the Giving Party is Covol, be
entitled to receive from Covol (a) *** to the
Receiving Party a license to use the Covol Process, Covol
Binder and Patents and (b) receive from Covol, the Covol
Binder required to produce Extrusions from the Facilities
at *** cost to the Receiving Party equal to *** (10%) to
produce the Covol Binder and at *** to deliver the Covol
Binder to the Facilities.
2.7 Until such time as notice is given or received pursuant to
Section 2.4, the parties shall continue to exert all
reasonable efforts to timely perform as required by Sections
2.1 through 2.3.
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*** Missing informaiton may be available upon request to the Company
2.8 The parties shall not commence performance of the
remaining terms and provisions of this Agreement,
commencing with Article 3, unless the parties (i) are
satisfied with each of the matters contemplated by
Sections 2.1 through 2.3, or (ii) have waived the right
to be satisfied with any of the matters contemplated by
Section 2.4(i) and (iii) in any event, have agreed in
writing to proceed with such remaining terms and
provisions (the "Proceed Notice").
2.9 Each of the parties shall be responsible for its own out
of pockets associated with their individual performances
pursuant to Article 2.
3. Duties, Rights and Obligations
3.1 The parties shall form up to two (2) LLC(s) to be owned ***
by Savage and *** by Covol, which LLC shall have the right
to own up to a *** percent (100%) interest in one or both of
the Contracts.
3.2 All costs and profits or losses of the LLC, to the extent
associated with Contracts and the Facilities constructed by
the Contractor shall be borne, distributed and/or allocated
*** to Savage and *** to Covol.
3.3 Savage shall have the right, but not the duty to operate
(i) either or both of the Facilities, upon terms and
conditions, reasonably and in good faith, acceptable to
each of the parties and (ii) to provide transportation of
(a) raw coal materials to either of both of the
Facilities and (b) Extrusions produced by the either of
both of the Facilities.
3.4 Covol, ***, will license the use of the Covol Process,
Covol Binder and Patents with respect to the Facilities.
3.5 Covol will provide the Covol Binder required to produce
Extrusions from the Facilities at *** to produce the Covol
Binder and *** to deliver the Covol Binder to the Facilities.
3.6 The parties contemplate that each will have the right to sell
to third parties any or all of its interest in either or both
of the L.L.C.'s.
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4. Time of the Essence
4.1 Time is of the essence for all matters set forth in this
Agreement and subject to the terms and conditions hereof, each
party agrees to proceed with dispatch and exert all reasonable
efforts to perform as herein required.
5. Applicable Law
5.1 This Agreement shall be construed and interpreted
pursuant to the laws of the State of Utah.
5.2 The parties agree to resort only to (i) the Utah state
district court or the United States district court sitting in
Salt Lake City, Utah, or (ii) such other entity or mechanism
as the parties may mutually agree, to decide any controversy
arising hereunder between the parties.
6. Initial Agreement
6.1 The Initial Agreement between the parties dated March 19, 1996
is terminated and neither party shall have any right, claim,
duty or obligation to the other on account thereof.
7. Mohave Agreement
7.1 Concurrently with the execution of this Agreement, the parties
have executed a written agreement (the "Mohave Agreement").
8. Miscellaneous Provisions
8.1 Each of the parties, and their respective counsel, have
participated in the negotiation and preparation of this
Agreement.
8.2 This Agreement contains the entire understanding and agreement
between the parties concerning the subject matter set forth
herein and supersedes all prior communications, understandings
and agreements of the parties.
8.3 No part of this Agreement shall be amended except in
writing signed by each of the parties.
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Executed in duplicate as of the date first above set forth.
Covol Technologies Inc.
/s/ Brent M. Cook
Its CEO & President
Savage Industries, Inc.
/s/ H. Benson Lewis
Its Executive Vice President
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