PROJECT DEVELOPMENT AGREEMENT
THIS AGREEMENT is made and entered into this 30th day of December,
1996, by and between Covol Technologies, Inc., a Delaware corporation, whose
address is 3180 No. Frontage Road, Lehi, Utah 84043, ("Covol"), and CoBon
Energy, L.L.C., a Utah limited liability company, whose address is 1145 East
South Union Avenue, Midvale, Utah 84047, hereinafter referred to as ("CoBon").
Covol and CoBon are sometimes referred to herein as the "Parties."
WITNESSETH:
Whereas, Covol and CoBon are parties to that certain "License
Agreement" dated September 10, 1996, in which Covol agreed to grant to CoBon the
rights to develop up to 1.5 million tons of annual production capacity using
Covol's patented Coal Technology, a copy of which is attached as Exhibit "A"
hereto and incorporated by reference, and
Whereas, pursuant to the License Agreement, CoBon has identified and
developed a business relationship and specified projects with and has been
negotiating with Pace Carbon Fuels, L.L.C., its affiliates and assigns
(collectively "Pace") regarding the final aspects of a sub-license agreement
respecting Pace's development and operation of coal manufacturing, briquetting
or extruding facilities and related product marketing operations that will use
Covol's patented Coal Technology and CoBon believes it is prepared to and can
finalize a sub-license agreement with regard thereto (the "Pace Agreement,"
attached as Exhibit "B"), and
Whereas it is the intent of the Parties, in consideration hereof, that
CoBon will discontinue further negotiations regarding the Pace Agreement draft
and CoBon and Pace will cancel the Pace Agreement and supersede it with a
separate agreement between Covol and Pace, incorporating the terms hereof, and
Whereas, the Parties wish to "carve out" the Pace Agreement from the
License Agreement, whereby CoBon will relinquish the exclusive rights it had to
develop the Pace projects, provided, however, that CoBon shall be entitled to
receive the full value of the Pace Agreement with respect to the Qualified
Tonnage hereinafter defined, including without limitation, the fulfillment of
all Sub-License, Royalty and Tax Credit payment terms to have been performed by
Pace, as provided herein.
Now, therefore, in consideration of the mutual covenants and conditions
contained herein, and for other good and valuable consideration, the sufficiency
and receipt of which are hereby acknowledge, the Parties, intending to be
legally bound, hereby amend the License Agreement as follows:
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* Confidential material has been omitted from this exhibit and filed separately
with the Securities and Exchange Commission (the "Commission").
TERMS:
1. The amount of production capacity developed by Pace using Covol's
patented Coal Technology with respect to which CoBon will be entitled to
compensation (the "Qualifying Tonnage") shall be equal to the lesser of (a)
500,000 tons, or (b) 1.5 million tons less the annual aggregate capacity ("Total
Permitted Production") of all other projects developed by CoBon excluding Pace
("Other Projects").
For example, if CoBon develops an annual aggregate capacity of 1.1
million tons of qualifying fuel with Other Projects, CoBon will be entitled to
compensation for the first 400,000 tons of qualifying fuel produced each year by
Pace. If CoBon develops an annual aggregate capacity of 1.5 million tons of
qualifying fuel with Other Projects, CoBon will be entitled to no compensation
for any qualifying fuel produced each year by Pace. If CoBon develops an annual
aggregate capacity of less than 1.0 million tons of qualifying fuel with Other
Projects, CoBon will be entitled to compensation for the first 500,000 tons of
qualifying fuel produced each year by Pace.
2. With respect to the Qualifying Tonnage, Covol understands that CoBon
will be paid directly by Pace according to the terms of the Pace Agreement, the
material fee and payment terms of which are set forth in Exhibit "C" hereto, or
pursuant to an escrow arrangement to be arranged between Pace and CoBon
hereafter.
For example, if the Pace Agreement calls for Pace to pay directly to
CoBon Royalty Fee payments of * per ton and Tax Credit Fee payments * per * of
all Section 29 tax credits accruing to Pace per ton of qualifying fuel produced
by Pace, CoBon shall receive * per ton and * per * of all Section 29 tax credits
generated per ton of qualifying fuel produced each year by Pace, up to the
amount of the Qualifying Tonnage, for the duration of the Pace Agreement
including the Tax Credit term stated in the Pace Agreement. In no event will
CoBon receive compensation relating to the Pace projects for more than the
Qualifying Tonnage, nor will CoBon receive more compensation per ton than called
for in the Pace Agreement.
3. The production capacity developed by Pace will not apply against the
1.5 million tons of annual aggregate capacity to which CoBon is entitled under
Paragraph 3.1 of the License Agreement. However, to the extent Qualifying
Tonnage is claimed by CoBon, the Qualifying Tonnage will be included in the
calculation of the License Royalty Fee under Paragraph 4.2 of the License
Agreement. The Pace project will no longer be considered a CoBon project for
this or any other agreement. Nothing in this Agreement will be construed to
expand or diminish the annual aggregate capacity of 1.5 million tons to which
CoBon is entitled under the License Agreement.
4. For purposes of calculating the Qualifying Tonnage in Paragraph 1 of
this Agreement, CoBon shall project, within ninety (90) days following the
"Placed in Service" date for each facility from CoBon's Other Projects, the
annual production capacity of such facility. The quantity projected will
conclusively and permanently establish the annual production limit of such plant
and will become part of the Total Permitted Production which will then be
subtracted from the 1.5 million tons of
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* Confidential material has been omitted from this Exhibit and filed separately
with the Securities and Exchange Commission (the "Commission").
aggregated capacity to calculate the Qualifying Tonnage in Paragraph 1.
5. The Parties understand that it is in their best interest to market
all Section 29 related projects in an orderly and controlled manner. To that
end, the Parties agree that CoBon will coordinate with Covol with respect to the
submission of any Section 29 private letter ruling requests. Nothing herein
shall be construed, however, to limit CoBon or its sublicensees from processing
any Section 29 private letter ruling applications.
6. Covol acknowledges and agrees that nonperformance or breach by any
of CoBon's sub-licensees or assignees of any applicable provision of the License
Agreement, which is not cured within thirty (30) days following receipt of a
Notice of Default and results in the sub-licensee's loss of its right to use the
Coal Technology, shall not be grounds to terminate or restrict the License
Agreement as it pertains to any other sub-licensee of CoBon. Nothing herein
shall be construed as modifying paragraph 6.3 of the License Agreement.
7. To effectuate the Parties' intent regarding the payment to CoBon of
the compensation referenced in the Pace Agreement (including Exhibit "C"
excerpts) and based on the Qualifying Tonnage, the Parties agree as follows:
(a) Sub-License fees shall be paid to CoBon at the time and as such
payments are due under the Pace Agreement. CoBon will acknowledge receipt of
such payments, in writing, to Covol. CoBon will make any applicable payments
therefrom to Covol as required by Article 4 of the License Agreement.
(b) Royalty and Tax Credit Fees shall be paid to CoBon at the time and
as such payments are due under the Pace Agreement. To the extent that the Other
Projects' production schedules do not permit calculation of the Qualifying
Tonnage at the time the Pace Agreement payments are due, the Royalty and Tax
Credit Fees shall be paid into an escrow account in the name of CoBon. The
escrow funds shall be disbursed to CoBon, or alternatively to Covol, upon and in
accordance with CoBon's furnishing the escrow agent, to be designated by the
Parties, with CoBon's projection under Paragraph 4 of the annual production
capacity of the Other Projects.
8. All other provisions of the License Agreement will remain in full
force and effect as if repeated herein.
9. Notwithstanding CoBon's desire and the Parties' expectation that
Pace will make payments directly to CoBon of the compensation referenced herein
based upon the Qualifying Tonnage, Covol promises, immediately upon receipt
thereof, to make all such payments to CoBon, in accord with the Pace Agreement,
in the event Pace pays such compensation to Covol. To the extent CoBon obtains
Pace's acknowledgement and agreement to make the foregoing compensation payments
directly to CoBon, the foregoing guarantee shall be of no effect.
10. In consideration hereof, CoBon relinquishes the exclusive rights it
had to select and develop the Pace projects, and relinquishes any present, past
or future rights it may have for any compensation with respect to the Pace
projects, except as expressly provided in this Agreement,
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including its attachments.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by a duly authorized officer and the Agreement shall be effective as of
the date first above written.
COBON ENERGY, L.L.C. COVOL TECHNOLOGIES, INC.
By: /s/ Steven Nash By: /s/ Brent M. Cook
--------------------- -----------------------
Its: President Its: President
Date: 12/30/96 Date: 30 December, 1996
Acknowledgement
Pace Carbon Fuels, L.L.C. ("Pace") hereby acknowledges that the draft
Pace Agreement attached as Exhibit "C" and incorporated herein (i.e.,
Sub-License Agreement), including its payment terms (as excerpted in pertinent
part in Exhibit "C"), is true, correct and accurately reflects the status and
nature of the discussions and agreements to date between Pace and CoBon. Pace
further acknowledges its understanding of the foregoing terms regarding CoBon's
exclusive right to Sublicense the Coal Technology regarding the Pace projects
and CoBon's willingness to assign and relinquish such right in consideration of
the terms of this Project Development Agreement and License Addendum, including
Pace's obligation to pay compensation provided for in the Pace Agreement based
upon the Qualifying Tonnage directly to CoBon.
Dated this ____ day of December, 1996.
Pace Carbon Fuels, L.L.C.
By:_________________________________
Its:_________________________________
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