LICENSE AGREEMENT
THIS LICENSE AND BINDER PURCHASE AGREEMENT (the "Agreement"), is made
and entered into as of December 4, 1997 by and between Appalachian Synfuel, LLC,
a West Virginia limited liability company (the "Licensee"), and Covol
Technologies, Inc., a Delaware corporation (the "Licensor").
WHEREAS Licensor entered into Design and Construction Agreements with a
Design/Builder for the construction of coal agglomeration facilities within the
United States;
WHEREAS Licensor assigned certain Design and Construction Agreements to
Licensee pursuant to an Assignment Agreement of even date herewith;
WHEREAS Licensee wishes to obtain and Licensor wishes to grant to
Licensee a license for the coal extruding and briquetting technology in
connection with a project to be constructed in proximity to the coal preparation
plant of Marfork Coal Company, Inc. in Raleigh County, West Virginia and
containing two Production Lines on the terms and conditions set forth in this
Agreement (the "Facility"), and Licensee wishes to obtain and Licensor wishes to
sell to Licensee the Proprietary Binder Material (as defined below) manufactured
by Licensor for use in applying Licensor's proprietary binding technology in the
operation of the Facility.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants and agreements hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Licensor and Licensee each agree as follows:
Section 1. Definitions.
"Coal Briquetting Technology" means all intellectual property,
patents (including but not limited to United States Patent Numbers 5,599,361,
5,487,764 and 5,453,103) and applications therefor, printed and unprinted
technical data, know-how, trade secrets, copyrights and other intellectual
property rights, inventions, discoveries, techniques, works, processes, methods,
plans, software, designs, drawings, schematics, specifications, communications
protocols, source and object code and modifications, test procedures, program
cards, tapes, disks, algorithms and all other scientific or technical
information in whatever form relating to, embodied in or used in the proprietary
process to produce synthetic coal fuel extrusions and briquettes from waste coal
dust, coal fines and other similar coal derivatives, including all such
information in
* Confidential material has been omitted from this Exhibit and filed with the
Securities and Exchanges Commission (the "Commission").
existence as of the date of this Agreement as well as related information later
developed by Licensor; provided however, that the defined term "Coal Briquetting
Technology" shall not include either (i) Licensee Technology or (ii) the
proprietary process developed by Licensor to produce synthetic coke extrusions
and briquettes from coke breeze, iron revert materials, or any technology for
other than the processing and production of synthetic coal fuel extrusions and
briquettes. Nothing in this Agreement is intended to grant to Licensee the right
to apply the Coal Briquetting Technology to produce anything other than
synthetic coal fuel extrusions and briquettes intended to qualify for tax
credits under Section 29(c)(1)(C) of the Code and then only at the Facility.
"Code" means the Internal Revenue Code of 1986, as amended.
"Developed Technology" means any inventions, "Improvement," or
new technology that Licensor may conceive, make, invent, or suggest in
connection with Licensor's disclosure to Licensee of the Coal Briquetting
Technology. "Developed Technology" also means any inventions, "Improvement," or
new technology directly related to the Coal Briquetting Technology that Licensor
may conceive, make, invent or suggest relating to the Coal Briquetting
Technology during the Term of this Agreement. "Improvement" means an alteration
or addition to an invention or discovery which enhances, to some extent,
performance or economics without changing or destroying a product's, device's or
method's basic identity and essential character. An Improvement may comprise
alterations or additions to either patented or unpatented inventions,
discoveries, technology or devices, and may or may not be patentable.
"Earned Royalty" has the meaning set forth in Section 3.4.
"Effective Date" means the date of this Agreement set forth
above.
"Extension Royalty" has the meaning set forth in Section 7.
"Facility" has the meaning set forth in the preamble.
"Fixed Royalty" has the meaning set forth in Section 3.3.
"Initial Royalty" has the meaning set forth in Section 3.2.
"IRS" means the Internal Revenue Service.
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"Licensee" has the meaning set forth in the preamble.
"Licensee Technology" means all intellectual property of any
kind or nature developed by Licensee or any affiliate or sublicensee of
Licensee, whether before or after the date of this Agreement and whether in
connection with the use of the Coal Briquetting Technology or otherwise,
including patents and applications therefor, printed and unprinted technical
data, know-how, trade secrets, copyrights, inventions, discoveries, techniques,
works, processes, methods, plans, software, designs, drawings, schematics,
specifications, communications protocols, source and object code and
modifications, test procedures, program cards, tapes, disks, and all other
scientific or technical information in whatever form, including any Improvement.
"Licensor" has the meaning set forth in the preamble.
"Production Line" means an arrangement of equipment designed
to use the Coal Briquetting Technology and having the capacity to produce
approximately 360,000 tons of synthetic coal fuel extrusions and briquettes per
year.
"Proprietary Binder Material" means and refers to the binder
compound necessary for the production, by Licensee, of synthetic coal extrusions
and briquettes and which extrusions and briquettes are reasonably expected to
constitute "qualified fuels" pursuant to the terms of Section 29(c)(1)(C) of the
1986 Internal Revenue Code and with respect to which Section 29 is applicable
pursuant to Section 29(f) and 29(g) of the Code.
"Royalty" means the Initial Royalty, the Fixed Royalty, the
Earned Royalty and the Extension Royalty.
"Ruling" means a private letter ruling by the IRS that the
owner of the Facility will be entitled to claim Tax Credits for the production
and sale of synthetic coal fuel extrusions and briquettes.
"Tax Credits" mean the tax credits available under Section 29
of the Code with respect to the production of "qualified fuels" as defined
thereunder.
Section 2. License Grant.
2.1. General. Subject to the terms and conditions of this
Agreement, Licensor hereby grants to Licensee, for the full and entire term
hereof, a non-exclusive
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license to use the Coal Briquetting Technology for commercial exploitation (and
not for research development purposes), including the non-exclusive right to
make, have made or use at the Facility and to offer to sell, to sell or
otherwise transfer products which have been manufactured with the Coal
Briquetting Technology. Licensee hereby accepts the license on the terms hereof
and agrees to make and have made products using the Coal Briquetting Technology
at the Facility only under this License Agreement. Licensee shall not make or
have made products using the Coal Briquetting Technology except at the Facility,
but Licensee may use, sell and otherwise transfer at any other facility products
which have been manufactured at the Facility with the Coal Briquetting
Technology. Licensee shall have no obligation to commence or continue operation
of the Facility or to achieve any particular level of production at the
Facility, all such matters being within Licensee's sole discretion.
2.2. Developed Technology. Licensee shall have the right and
is hereby granted a non-exclusive license to use all Developed Technology
relating to the Coal Briquetting Technology at the Facility without payment of
any additional compensation to Licensor, throughout the term of this Agreement,
subject to the restrictions and limitations in this Section 2. All Developed
Technology shall become Licensor's absolute property. Licensee shall at any time
during the term of this Agreement and thereafter, at Licensor's reasonable
request, execute any patent papers covering such Developed Technology as well as
any other documents that Licensor may consider necessary or helpful in the
prosecution of applications for a patent thereon or in connection with any
litigation or controversy related thereto; provided, however, that all expenses
incident to the filing of such applications and the prosecution thereof and the
conduct of such litigation shall be borne by Licensor.
2.3. Licensee Technology. All Licensee Technology shall, as
between Licensor and Licensee, remain the sole property of Licensee, and nothing
in this Agreement or its performance shall grant to Licensor any right in the
Licensee Technology or restrict the ability of Licensee to use the Licensee
Technology as Licensee elects in its sole discretion.
2.4. Non-licensed Technology. Licensor retains the absolute
right to fully exploit its proprietary technology and processes, including but
not limited to the application of such technology embodied in the Coal
Briquetting Technology together with any improvements thereto, to produce,
market and use synthetic coke extrusions and briquettes from coke breeze, iron
revert materials and any other materials to which Licensor's technology can be
applied.
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2.5. Confidentiality. Each of the parties hereby agree to
maintain the Coal Briquetting Technology confidential and not to disclose the
Coal Briquetting Technology, or any aspect thereof, or the Improvements, or any
aspect thereof (collectively, the "Confidential Information"). Furthermore,
disclosure by the Licensee of the Proprietary Binder Material formula to its
personnel may be only on a bona fide need to know basis to persons who have
signed a written confidentiality agreement. Notwithstanding the foregoing,
information which (i) is or becomes generally available to the public other than
as a result of an unauthorized disclosure by the parties or their respective
agents, employees, directors or representatives, (ii) was available to the party
receiving disclosure on a non-confidential basis prior to its receiving
disclosure hereunder, or (iii) lawfully becomes available to the party receiving
disclosure on a non-confidential basis from a third party source (provided that
such source is not known by the party receiving disclosure or its agents,
employees, directors or representatives to be prohibited from transmitting the
information), shall not be subject to the terms of this Section 2.5. At the
termination of this Agreement, all copies of any Confidential Information
(including without limitation any reports or memoranda) shall be returned by the
party receiving disclosure, and the duties of confidentiality set forth above
shall continue for five years thereafter. Nothing in this Agreement shall
prohibit Licensee from disclosing the Confidential Information to others as may
be reasonably necessary for Licensee to exploit Licensee's rights under this
Agreement; provided that the recipient of any such Confidential Information
executes a Confidentiality Agreement restricting further disclosure of the
Confidential Information. Nothing in this Agreement shall prohibit Licensor from
licensing the Coal Briquetting Technology to third parties.
Section 3. License Fee and Royalty.
3.1. License Fee. Licensee shall pay the Initial Royalty, the
Fixed Royalty and Earned Royalty as a license fee to Licensor.
3.2. Initial Royalty. Upon the execution and delivery of this
Agreement, Licensee shall pay * to Licensor in immediately available funds (the
"Initial Royalty") as an initial royalty payment.
3.3. Fixed Royalty. Within ten (10) days after the later of
(i) the first shipment of product from the Facility to a customer ("Commercial
Production"), excluding any test shipments not to exceed 10,000 tons in the
aggregate, or (ii) Licensee's obtaining a Ruling or, if Licensee elects not to
pursue a Ruling, then the filing of any quarterly estimated tax payment by an
owner of the Facility that takes into
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* Confidential material omitted and filed separately with the Commission.
account Tax Credits with respect to product produced at the Facility, Licensee
shall pay to Licensor * as additional royalty (the "Fixed Royalty"). During the
pendency of a request for a Ruling or if such a Ruling has been refused or the
IRS has otherwise indicated, either formally or informally, its intention to
deny Tax Credits with respect to the Facility, and such adverse decision has not
been subsequently reversed, but the owner of the Facility elects to claim Tax
Credits notwithstanding the position of the IRS, the Fixed Royalty shall be paid
into escrow as described in Section 3.7 below.
3.4. Earned Royalty. After satisfaction of and pursuant to the
conditions for the payment of the Fixed Royalty, Licensee shall thereafter pay
to Licensor quarterly earned royalty payments ("Earned Royalty") in an amount
equal to * (subject to adjustment as set forth below) per million British
thermal units of heat content ("mmbtu") for the first * tons of product produced
and sold at the Facility during any contract year and * (subject to adjustment
as set forth below) per mmbtu with respect to product in excess of * tons up to
a maximum of * tons at the Facility during any contract year, minus * per ton of
product produced and sold up to * tons in any contract year and * per ton
thereafter, but in no event shall such deductions apply to more than * tons
during any contract year or * tons produced during any contract year. In no
event shall Licensee owe any royalty with respect to sales at the Facility
during any contract year * tons. An example of the Earned Royalty calculation is
attached hereto as Exhibit A. A "contract year" shall consist of the 12 calendar
months beginning on the first day of the month after the Facility begins
Commercial Production and each twelve month period thereafter. The royalty
amounts per mmbtu stated above shall be adjusted with respect to production in
calendar year 1998 by the increase or decrease in the inflation adjustment
factor (set forth in Code Section 29(d)(2)) applicable to calendar year 1998
over the inflation adjustment factor applicable to calendar year 1996, and shall
thereafter be adjusted annually to reflect further annual increases or decreases
in such inflation adjustment factor. For purposes of this section, the number of
btu with respect to which payment is due shall equal the btu reported by
Licensee to the IRS for purposes of claiming Tax Credits, including any
subsequent adjustments thereto, and the number of tons shall be conclusively
determined by railroad weights if the product is shipped unmixed with other
material and by belt scales at or adjacent to the Facility if the product is
mixed with other material before being shipped. Earned Royalty shall be
applicable to production at the Facility as to which Tax Credits are claimed
(subject to Section 3.7 below) regardless of whether such production resulted
from the use of the Coal Briquetting Technology or Licensee Technology or any
combination thereof.
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* Confidential material omitted and filed separtely with the Commission.
3.5. Payment Terms. Earned Royalty payments shall be due
within thirty (30) days after the end of each quarter, together with a report
showing tons shipped and btu content with respect to which Earned Royalty is
due. The parties acknowledge that the applicable inflation adjustment factor
will typically not be available at the time payment of Earned Royalty is due.
Therefore, Licensee shall pay initially the Earned Royalty calculated under the
latest inflation adjustment factor available, and then any subsequent adjustment
shall be reflected in the first quarterly Earned Royalty payment due after the
correct inflation adjustment factor becomes available. Similarly, the per ton
deductions described in Section 3.4 shall be taken against the first * tons (*
amount as Licensee estimates in good faith to be * expected production) of
production to which Earned Royalty is applicable during any contract year, and
any necessary subsequent adjustment shall be reflected in the Earned Royalty
payment for the final quarter of such contract year.
3.6. Royalty Buyout. After payment of the Initial Royalty and
the Fixed Royalty, in lieu of and notwithstanding Section 3.4 above, Licensee
shall have the option at any time during the term of this Agreement to
extinguish any obligation to pay further royalties to Licensor with respect to
production at the Facility by making a one-time payment equal to the present
value, based on a * annual discount rate, of future royalties expected with
respect to production at the Facility and assuming the following for purposes of
such calculation: (a) annual production of * tons, (b) Earned Royalty (in lieu
of any amount calculated under Section 3.4) of * per ton, without any adjustment
for inflation, (c) expiration of the Earned Royalty on December 31, 2007, if the
option is exercised before 2003, or expiration of the Earned Royalty on the date
set for expiration of all Tax Credits according to any Section 29 extension in
effect or proposed by a bill in Congress if the option is exercised during 2003
or thereafter, with the amount of the Earned Royalty applicable to such extended
term in the case only of a Section 29 extension actually enacted into law
increased or decreased proportionately to reflect any increase or decrease in
the Tax Credits applicable to such extended term, and (d) exercise by Licensee
of its option to extend the term of this Agreement and pay the annual royalty
provided therefor. Licensee shall be entitled to a one-time credit in the amount
of the Initial Royalty and Fixed Royalty paid by the Licensee against the amount
otherwise due with respect to the buyout of the royalty obligation at the
Facility.
3.7. Royalty Escrow and Repayment. If the IRS rules that
either the product to be produced at the Facility does not qualify for Tax
Credits or that the Tax Credits are unavailable to Licensee as the owner of the
Facility, whether by declining to issue a Ruling, issuing an adverse ruling, or
by disallowing Tax Credits claimed by
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* Confidential material omitted and filed separately with the Commission.
the owner(s) of the Facility (an "Adverse Decision"), the obligation of Licensee
to pay Royalty hereunder shall immediately cease pending exhaustion of
Licensee's right to appeal the Adverse Decision. Licensee shall have the
absolute right, in its sole discretion, to elect whether and in what manner to
appeal an Adverse Decision and on what terms any such Adverse Decision or its
appeal shall be settled. If, notwithstanding the position of the IRS, Licensee
elects to claim Tax Credits, the Royalty otherwise payable hereunder shall be
deposited in escrow into an interest bearing account with a financial
institution reasonably acceptable to Licensor. If an Adverse Decision is
reversed on appeal, Licensee's obligation to pay Royalty shall resume, including
Royalty previously placed in escrow, together with the amount, if any, by which
the accumulated interest on such funds exceeds Licensee's costs incurred in
contesting the Adverse Decision. If an Adverse Decision becomes final without
any further right of appeal, then (a) Royalty previously placed in escrow shall
be released from such escrow to Licensee, and (b) Licensor shall refund to
Licensee within thirty (30) days thereafter any Royalty previously paid
hereunder, together with interest thereon at the prime rate, if the Adverse
Decision is caused, in whole or in part, by (i) the failure of the Coal
Briquetting Technology to produce a synthetic fuel qualified under Section 29 or
(ii) any breach by Licensor of any representation, warranty or covenant
contained herein. Notwithstanding any other provision of this Agreement,
although the obligation to refund Royalty already paid to Licensor is subject to
the conditions set forth in the preceding sentence, in no event shall any Earned
Royalty be due or payable with respect to any production as to which Licensee
has not claimed Tax Credits (other than as a result of a lack of income tax
liability against which to apply the Tax Credits) or such Tax Credits have been
disallowed for any reason whatever. It is understood that the Royalty is not
contingent upon Licensee's ability to use the Tax Credits, but rather solely on
the availability of the Tax Credits to Licensee. In no event shall Licensee have
any liability to Licensor by reason of the failure by Licensee for any reason to
obtain the Tax Credits as available for its use. In the event of an Adverse
Decision, Licensee shall have the option to retain the right to use the Coal
Briquetting Technology throughout the term of this Agreement in return for the
payment of an annual royalty of One Hundred Thousand Dollars ($100,000), pro
rated for any partial contract years.
3.8. Royalty Setoff. If any person (a "Claimant") asserts a
claim that all or any part of the Coal Briquetting Technology is not the
property of Licensor and is instead the property of Claimant, Licensee may,
pending resolution of such claim, withhold from Royalty otherwise due Licensor
hereunder amounts equal to such license fees as the Claimant may demand for the
use by Licensee of the Coal Briquetting Technology allegedly owned by Claimant.
Any amounts so withheld will be placed in
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escrow by Licensee. Upon entrance of a final non-appealable order by a court of
competent jurisdiction that the Coal Briquetting Technology is the property of
Licensor or upon receipt of a release of Licensee from liability by the
Claimant, Licensee shall pay to Licensor any amounts withheld pursuant to this
Section 3.8. If a court of competent jurisdiction enters a final non-appealable
order that all or any portion of the Coal Briquetting Technology is the property
of Claimant, Licensee may pay to Claimant a reasonable license fee and set off
any amounts so paid against any amount withheld pursuant to this Section 3.8
and/or any other Royalty otherwise due Licensor without any further liability
with respect thereto. Nothing in this Section 3.8 shall be construed as limiting
in any respect Licensee's rights and remedies related to a breach by Licensor of
the representations and warranties contained in Section 6.3.
Section 4. Sale of Binder.
4.1. Sale and Purchase. Licensor shall sell to Licensee, and
Licensee shall purchase from Licensor, Licensee's requirements of Proprietary
Binder Material required to operate the Facility. Licensor shall deliver the
Proprietary Binder Material at such times and in such amounts as requested by
Licensee. Payments for Proprietary Binder Material delivered by Licensor during
any calendar month shall be due and payable to Licensor on the tenth Business
Day of the immediately succeeding month.
4.2. Price. The price which Licensee shall pay for the
Proprietary Binder Material delivered by Licensor during the first contract year
(the "Binder Base Price") shall be an amount equal to (i) Licensor's direct and
actual costs (direct material, labor and transportation costs) incurred in
connection with the manufacture and sale of the Proprietary Binder Material plus
(ii) * of the amount determined pursuant to clause (i) exclusive of
transportation costs, but in no event shall the Binder Base Price for such first
contract year exceed * per ton of product produced at the Facilities. The Binder
Base Price shall be subject to adjustment annually to reflect any actual
increase in Licensor's cost, but no such annual adjustment shall exceed *. If
Licensor elects to have such binder material produced by a third party, Licensee
shall have the right to contact such third party directly to monitor the
appropriateness of reported costs. If Licensee can obtain binder material from a
third party at a cost less than Licensor's cost plus * of Licensor's
non-transportation costs, Licensee shall have the right to do so, but Licensee
shall pay Licensor * of Licensee's cost (exclusive of transportation costs) from
such third party supplier. Notwithstanding anything herein to the contrary,
Licensor shall have no obligation to sell binder material to Licensee at a price
below Licensor's actual out-of-pocket cost, provided that Licensor uses its best
reasonable efforts to minimize
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* Confidential material omitted and filed separately with the Commission.
such costs.
4.3. Representations and Warranties. Licensor represents and
warrants as follows:
(a) Licensor shall convey to Licensee good title to all
Proprietary Binder Material purchased by Licensee from Licensor
hereunder, free and clear of any and all liens, claims and encumbrances
of any type whatsoever.
(b) No Proprietary Binder Material shall contain any hazardous
material in violation of currently applicable laws and governmental
regulations.
(c) At Licensee's option, Licensor shall replace, or refund
the purchase of, all non-conforming Proprietary Binder Material.
4.4. Order Procedure. Licensee shall deliver all purchase
orders for Proprietary Binder Materials at least thirty (30) days in advance of
the first day of the month in which delivery of such Proprietary Binder Material
is required under such purchase order, and all such purchase orders received by
Licensor during the term of this Agreement shall be deemed to have been accepted
by Licensor. (For example, Licensee shall deliver a purchase order for December
delivery by no later than November 1st). Each such purchase order shall be
delivered either (i) in writing, or (ii) orally by telephone by an authorized
agent of Licensee (subject to the condition that it is followed by a written
purchase order within 24 hours). Such purchase orders shall be sent to Licensor
at such address as Licensor shall direct.
4.5. Delivery and Acceptance. All Proprietary Binder Material
purchased hereunder shall be delivered F.O.B. the Facility. Licensor shall
arrange for transportation of the Proprietary Binder Material to the Facility.
Licensee shall bear the expense of unloading the trucks or railroad cars. The
weight of Proprietary Binder Material in each delivery shall be determined by a
comparison of the weight, on Licensee's scales, of the delivery truck
immediately prior to unloading and its weight, on Licensee's scales, immediately
following unloading, as reflected in customary weighing certificates. Licensee
represents that it will use its best efforts to maintain its scales correctly
calibrated. At Licensor's request and expense from time to time, Licensor shall
have the right to inspect Licensee's scales for accuracy. Licensee shall have a
reasonable opportunity to sample Proprietary Binder Material delivered to it
hereunder to confirm that such Proprietary Binder Material conforms to the terms
and requirements hereof, and Licensee shall not be deemed or required to accept
any such
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Proprietary Binder Material prior to the completion of such sampling.
4.6. Binder Technology License. If Licensor's ability to
deliver the Proprietary Binder Material to Licensee will be interrupted or
terminated for any reason, Licensor shall give not less than ninety (90) days
notice to Licensee. Subject to giving notice of its inability to deliver the
Proprietary Binder Material to Licensee (or, in the absence of such notice, the
actual failure to deliver the Proprietary Binder Material for at least ten days
after Licensee gives written notice of non-delivery to Licensor). Licensor
hereby grants to Licensee a non-exclusive license for the term of this Agreement
(or such shorter period as provided in the proviso hereto) to use the technology
used to manufacture the Proprietary Binder Material to manufacture the
Proprietary Binder Material in sufficient quantities to operate the Facility up
to full capacity, and such technology shall be deemed "Coal Briquetting
Technology" for the purposes of this Agreement; provided, however, that the
license granted to the Licensee under this section shall end and sales of
Proprietary Binder Material under the terms of this Agreement shall be
reinstated, so long as Licensor gives notice of reinstatement no longer than 90
days after the interruption or termination of delivery, together with reasonable
evidence that Licensor is able to resume delivery in accordance with this
Agreement and Licensor agrees to reimburse Licensee for any increased cost of
the Proprietary Binder Material to Licensee during the period it was not
provided by Licenesor. No additional fee or royalty shall be payable to Licensor
in connection with the license granted pursuant to this Section and Licensee
shall be responsible for its own direct out-of-pocket operating costs incurred
in connection with the production of Proprietary Binder Material pursuant to
this Section.
Section 5. Records: Inspection: Confidentiality. Each party hereto
shall keep accurate records containing all data reasonably required for the
computation and verification of the amounts to be paid by the respective parties
under this Agreement, and shall permit each other party or an independent
accounting firm designated by such other party to inspect and/or audit such
records during normal business hours upon reasonable advance notice. All costs
and expenses incurred by a party in connection with such inspection shall be
borne by it. Each party agrees to hold confidential from all third parties all
information contained in records examined by or on behalf of it pursuant to this
Section 5 and Section 3.5 above.
Section 6. Representations and Warranties.
6.1. Authority. Each of Licensee and Licensor represents and
warrants that (i) the execution, delivery and performance of this Agreement and
the
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consummation of the transactions contemplated hereby have been duly authorized
on its behalf by all requisite action, corporate or otherwise, (ii) it has the
full right, power and authority to enter into this Agreement and to carry out
the terms of this Agreement, (iii) it has duly executed and delivered this
Agreement, and (iv) this Agreement is a valid and binding obligation of it
enforceable in accordance with its terms.
6.2. No consent. Each of Licensee and Licensor represents and
warrants that no approval, consent, authorization, order, designation or
declaration of any court or regulatory authority or governmental body or any
third party is required to be obtained by it, nor is any filing or registration
required to be made therewith by it for the consummation by it of the
transactions contemplated under this Agreement.
6.3. Intellectual Property Matters. Licensor warrants that (i)
to its best knowledge and good faith belief, it owns, free and clear of all
liens and encumbrances, intellectual property, patents (including but not
limited to United States Patent Numbers 5,599,361, 5,487,764 and 5,453,103) and
applications therefor, printed and unprinted technical data, know-how, trade
secrets copyrights and other intellectual property rights and all other
scientific or technical information in whatever form relating to, embodied in or
used in the proprietary process to produce synthetic coal fuel extrusions and
briquettes from waste coal dust, coal fines and other similar coal derivatives,
and the right to freely use, sell and exploit Proprietary Binder Material used
in manufacturing synthetic coal fuel extrusions and briquettes from waste coal
dust, coal fines and other similar coal derivatives, (ii) has the right and
power to grant to Licensee the licenses granted herein, (iii) has not made and
will not make any agreement with another in conflict with the rights granted
herein, and (iv) has no knowledge that the sale or use of the rights,
Proprietary Binder Material and/or licenses granted herein as contemplated by
this Agreement would infringe any third party's intellectual property rights.
6.4. Tax Matters. Licensor warrants that (i) the Coal
Briquetting Technology licensed hereunder is substantially the same technology
described in Private Letter Ruling 103439-97 issued on August 26, 1997, and the
related facts and circumstances provided therein remain accurate and complete,
(ii) the contracts with Centerline Engineering Corporation dated December 20,
1996, Nos. CL-004JW and CL-005JW to construct the Facility are, in all material
respects, substantially the same as the The Industrial Company contract dated
December 20, 1996 cited in Private Letter Ruling 103439-97 issued on August 26,
1997, and are "binding written contracts" for purposes of Section 29(g)(1)(A) of
the Code, and (iii) all information supplied by Licensor to Licensee in
connection with Licensee's request for a Ruling shall, to Licensor's best
knowledge and good faith belief, be accurate and not
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misleading and shall not fail to include any information necessary to prevent
the information supplied from being misleading.
6.5. Indemnification. Licensor shall indemnify, defend and
hold harmless Licensee and its partners, directors, officers, agents,
representatives, subsidiaries and affiliates from and against any and all
claims, demands or suits (by any party, including any governmental entity),
losses, liabilities, damages, obligations, payments, costs and expenses
(including the costs and expenses of defending any and all actions, suits,
proceedings, demands and assessments which shall include reasonable attorneys'
fees and court costs) resulting from, relating to, arising out of, or incurred
in connection with any breach by Licensor of any of the representations,
warranties and/or covenants contained in this Agreement. Licensee shall
indemnify, defend and hold harmless Licensor and its partners, directors,
officers, agents, representatives, subsidiaries and affiliates from and against
any and all claims, demands or suits (by any party, including any governmental
entity), losses, liabilities, damages, obligations, payments, costs and expenses
(including the costs and expenses of defending any and all actions, suits,
proceedings, demands and assessments which shall include reasonable attorneys'
fees and court costs) resulting from, relating to, arising out of, or incurred
in connection with any breach by Licensee of any of the representations,
warranties and/or covenants contained in this Agreement.
Section 7. Term. The initial term of this Agreement is for the period
commencing on the effective date of this Agreement and ending on December 31,
2007. Licensee shall have the option to extend the term of the Agreement until
December 31, 2015 or for the full life of the last U. S. Patents to expire which
disclose and claim Licensor's proprietary Coal Briquetting Technology, defined
above, whichever date is earlier. During any such extended term, if Tax Credits
under Section 29 are applicable to production at the Facility, Licensee shall
continue to pay to Licensor the Earned Royalty described in Section 3.4, except
that the Earned Royalty shall be adjusted proportionately to reflect any
increase or decrease in the Tax Credits applicable to such extended term. During
any such extended term, if Tax Credits under Section 29 are not applicable to
production at the Facility, Licensee shall pay to Licensor, in lieu of the
Earned Royalty described in Section 3.4, an annual royalty (the "Extension
Royalty") of * for the use of the Coal Briquetting Technology at the Facility.
Notice of Licensee's intent to effect such extension of this Agreement must be
in writing and given prior to December 31, 2007.
Section 8. Termination. This Agreement shall terminate upon the
termination date set forth in Section 7, unless the Agreement is terminated
sooner pursuant to this
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* Confidential material omitted and filed separately with the Commission.
Section 8.
8.1. Termination for Cause. Either party may terminate this
Agreement for cause (i.e., in the event either party commits a material breach
of any provision of this Agreement) at any time by giving the other party at
least sixty (60) days prior written notice of such termination unless such
default or breach is cured within said sixty (60) days. Solely for purposes of
this Section 8.1, a material breach of this Agreement by Licensee shall be
deemed to consist solely of a failure to pay Royalty as to which no good faith
dispute exists. A good faith dispute concerning the amount of Royalty due shall
not excuse the failure of Licensee to pay in a timely manner any Royalty as to
which no such good faith dispute exists. If Licensor terminates this Agreement
pursuant to this Section 8, Licensee shall promptly return and cause all agents
of Licensee to promptly return to Licensor all Confidential Information and all
Coal Briquetting Technology then in Licensee's possession, and Licensee shall
not thereafter use for its own commercial benefit or disclose to any third party
any Confidential Information or Coal Briquetting Technology during the period
ending five (5) years from the date of such termination.
8.2. Noticed Termination. This Agreement may be terminated
upon thirty days written notice, if not cured, if:
(a) Licensee is unable to pay its debts as they fall due
continuously for ninety (90) days or longer, seeks
protection voluntarily or involuntarily under any law
relating to bankruptcy, receivership, insolvency,
administration, liquidation, dissolution or similar
law or any jurisdiction (other than for the purposes
of a reorganization with a view to continuing the
business as a going concern under relevant bankruptcy
or insolvency proceedings) or enters into a general
assignment or arrangement or a composition with or
for the benefit of its creditors; or
(b) Licensee takes any step (including the filing or
presentation of a petition, the convening of a
meeting or the filing of an application or consent)
in any jurisdiction for, or with a view to, the
appointment of an administrator, liquidator,
receiver, trustee, custodian or similar official
(other than for the purposes of a reorganization with
a view to continuing the business as a going concern
under relevant bankruptcy or insolvency proceedings)
for Licensee and/or the whole or any part of the
business, undertaking,
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property, assets, receiver or uncalled capital of
Licensee or any such person is appointed.
8.3. Effect of Termination. Upon termination of this
Agreement, all rights granted to and obligations of the parties shall
immediately cease; however, termination shall not relieve either party of its
obligations accrued during the Term of this Agreement (including any
pre-termination obligation Licensee may have to pay Licensor) which has not been
fulfilled, and all representations, warranties, obligations and confidentiality
agreements made herein shall survive termination of this Agreement.
Section 9. Waiver. The failure of any party to enforce at any time any
provision of this Agreement shall not be construed as a waiver of such provision
or the right thereafter to enforce each and every provision. No waiver by any
party, either express or implied, of any breach of any of the provisions of this
Agreement shall be construed as a waiver of any other breach of such term or
condition.
Section 10. Severability. If any provision of this Agreement shall be
held by a court of competent jurisdiction to be invalid or unenforceable in any
respect for any reason, the validity and enforceability of any such provision in
any other respect and of the remaining provisions of this Agreement shall not be
in any way impaired.
Section 11. Notices. All notices required or authorized by this
Agreement shall be given in writing. Notices may be served by certified or
registered mail, postage paid with return receipt requested; by private courier,
prepaid; by facsimile or other telecommunication device capable of transmitting
or creating a written record; or personally. Mailed notices shall be deemed
delivered five days after mailing, properly addressed. Couriered notices shall
be deemed delivered when delivered as addressed, or if the addressee refuses
delivery, when presented for delivery notwithstanding such refusal.
Telecommunicated notices shall be deemed delivered when receipt is either
confirmed by confirming transmission equipment or acknowledged by the addressee
or its office. Personal delivery shall be effective when accomplished. Unless a
party changes its address by giving notice to the other party as provided
herein, notices shall be delivered to the parties at the following addresses:
Licensor: Mr. Brent M. Cook
Covol Technologies, Inc.
3280 North Frontage Road
Lehi, UT 84043
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Telephone: (801) 768-4481
Facsimile: (801) 768-4483
With a copy to: Mr. William Marsh
Ballard Spahr Andrews & Ingersoll
201 South Main Street, Suite 1200
Salt Lake City, UT 84111-2215
Telephone: (801) 531-3000
Facsimile: (801) 531-3001
Licensee: Appalachian Synfuel, LLC
c/o Fluor Daniel, Inc.
3353 Michelson Drive
Irvine, California 92698
Attn: General Counsel
Telephone: (714) 975-6995
Facsimile: (714) 975-5454
Section 12. Remedies Cumulative. Remedies provided under this
Agreement shall be cumulative and in addition to other remedies provided by law
or in equity.
Section 13. Entire Agreement. This Agreement constitutes the entire
agreement of the parties relating to the subject matter hereof. There are no
promises, terms, conditions, obligations or warranties other than those
contained herein. This Agreement supersedes all prior communications,
representations or agreements, verbal or written, among the parties relating to
the subject matter hereof. This Agreement may not be amended except in writing
signed by the parties hereto.
Section 14. Governing Law. This Agreement shall be governed in
accordance with the laws of the State of Delaware, exclusive of its conflict of
laws rules.
Section 15. Assignment. This Agreement may not be assigned, in whole or
in part, by any party without the written consent of each of the other parties,
which consent may not be unreasonably withheld, except that (i) Licensor and/or
Licensee shall have the right to assign its rights and obligations under this
Agreement to any entity which is controlled by Licensor and/or Licensee and of
which Licensor and/or Licensee owns, directly or indirectly, at least fifty
percent (50%) of each class of its outstanding securities or any entity which is
wholly owned by Licensee's parent corporation, (ii) Licensee shall have the
right to assign its rights and obligations to
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Licensor in connection with any sale by Licensee to Licensor of substantially
all of the assets of the Facility and (iii) Licensee shall have the right at any
time to assign any portion of its rights and/or obligations under this Agreement
and sublicense the Coal Briquetting Technology to one or more third parties,
whether or not affiliated with Licensee, in connection with the acquisition of
an ownership interest in the Facility or in an entity having an ownership
interest in the Facility. No such assignment and/or sublicense permitted
hereunder shall release the assigning or sublicensing party of its obligations
hereunder.
Section 16. Cooperation. Licensor recognizes that Licensee and/or its
sublicensee(s) intend to request a Ruling by the IRS with respect to the
Facility. Licensor agrees to cooperate as reasonably requested in efforts to
obtain the Ruling, including any appeals of an Adverse Decision. Licensor
further recognizes that it is critically important that the Facility be placed
in service no later than June 30, 1998 in order to qualify for the Tax Credits.
Licensor agrees to use its best efforts to cooperate with Licensee to make
possible the construction and operation of the Facility by that date, including
without limitation assisting as reasonably requested in equipment procurement,
permitting, sampling and testing of feedstock, and test runs of material through
Licensor prototypes of the Coal Briquetting Technology.
Section 17. Relocation of Facility. Licensee shall have the right to
relocate the Facility to any location of its choosing in Boone, Raleigh, Logan,
Mingo, Nicholas or McDowell counties, West Virginia or Pike or Martin counties,
Kentucky, or any other site with respect to which Licensor has not previously
conveyed a conflicting exclusive territorial license to a third party. Royalty
shall continue to be due under this Agreement after such relocation on the same
terms as if such relocation had not occurred. The Binder Base Price shall be
adjusted to reflect any increase or decrease in the cost of transporting
Proprietary Binder Material to the new location as compared to the Marfork
Facility.
Section 18. Right of First Refusal. In the event Licensee elects to
discontinue using the Coal Briquetting Technology and sell the equipment used in
the Facility (other than to an assignee or sublicensee of Licensee), Licensor
shall have the right to purchase the equipment proposed to be sold by agreeing
to match the proposed purchase price from a third party. Licensor shall have
thirty (30) days after notice of such a proposed sale to exercise its rights
hereunder. If Licensor elects to purchase such equipment, Licensor shall be
responsible for the costs of relocation.
Section 19. Counterparts. This License Agreement may be executed in
two or
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more original counterparts, and all such counterparts shall constitute
one and the same instrument.
Executed by the duly authorized representatives of the parties as of
the date and year first above written.
COVOL TECHNOLOGIES, INC. APPALACHIAN SYNFUEL, LLC
By Fluor Daniel, Inc. as its
sole member
By: /s/ Stanley M. Kimball By: /s/ James O. Rollans
-------------------------- ---------------------------
Its: CFO Its: Chief Administrative Officer
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