THIS AMENDED AND RESTATED LICENSE AND BINDER PURCHASE AGREEMENT (the
"Agreement"), is made and entered into as of December 12, 1997 by and between
Birmingham Syn Fuel, L.L.C., an Oregon limited liability company (the
"Licensee"), and Covol Technologies, Inc., a Delaware corporation (the
"Vendor"), and Alabama Synfuel #1 Ltd., a Delaware limited partnership (the
"Licensor").
WHEREAS Vendor has represented that it has developed a proprietary
process to produce synthetic coal fuel extrusions and briquettes from waste coal
dust, coal fines and other coal derivatives, and that Vendor has granted
Licensor a license to such proprietary process pursuant to which Licensor is
entitled to license the coal extruding and Briquetting Technology to Licensee.
WHEREAS Licensor and Vendor have agreed to assign to the Licensee
ownership of a coal extruding and briquetting facility located in Birmingham,
Alabama (the "Alabama Project"), pursuant to the Alabama Project Purchase
Agreement, dated as of March 20, 1997, as amended by letter agreements dated as
of June 27, July 7, August 28, 1997 and December 12, 1997, respectively, as the
same may be further amended, supplemented or otherwise modified from time to
time (the "Purchase Agreement").
WHEREAS Licensee, Licensor and Vendor wish to amend and restate the
terms of the License and Binder Purchase Agreement, dated August 28, 1997, on
the terms and conditions set forth in this Agreement.
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, Licensee and Vendor agree as follows:
Section 1 Definitions. Capitalized terms used but not otherwise defined
herein shall have the meanings ascribed thereto in the Purchase Agreement.
"Alabama Project" has the meaning set forth in the preamble.
"Coal Briquetting Technology" means all intellectual property,
inventor's certificates and applications therefor, printed and unprinted
technical data, know-how, trade secrets, copyrights and other
intellectualproperty rights, inventions,
* Confidential material has been omitted from this Exhibit and filed separately
with the Securities and Exchange Commission (the "Commission").
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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, and the proprietary binder material used in
manufacturing synthetic coal fuel extrusions and briquettes from waste coal
dust, coal fines and other similar coal derivatives, in each case owned or
controlled by Vendor or Licensor, to include such information in existence as of
the date of this Agreement as well as related information later developed by
Vendor or Licensor; provided, however, that the defined term "Coal Briquetting
Technology" shall not include the proprietary process developed by Vendor to
produce synthetic coke extrusions and briquettes from coke breeze or any
technology for other than the processing and production of synthetic coal fuel
extrusions and briquettes.
"Commercial Use" means any usage of the Coal Briquetting
Technology for commercial exploitation and any other usage to which Vendor or
Licensor grants prior written consent.
"Effective Date" means the date of this Agreement set forth
above.
"Improvements" has the meaning set forth in the Section 2.3
hereof.
"Licensee" has the meaning set forth in the preamble.
"Licensor" has the meaning set forth in the preamble.
"Purchase Agreement" has the meaning set forth in the
preamble.
"Vendor" has the meaning set forth in the preamble.
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Section 2 Sublicense Grant.
2.1 General. Subject to the terms and conditions of this
Agreement, Licensor hereby grants to Licensee, and Vendor hereby consents to
such grant by the Licensor and guarantees to Licensee, an exclusive sublicense
to use the Coal Briquetting Technology for Commercial Use, in within a one
hundred (100) mile radius of the Alabama Project, including to make, have made,
use and sell or otherwise transfer products which embody, use or have been
developed or manufactured with the Coal Briquetting Technology.
2.2 Know-How and Assistance. To enable Licensee to benefit
fully from the license of the Coal Briquetting Technology, Licensor and Vendor
shall provide access to all documentation, drawings, engineering specifications
and other know-how in either Vendor's or Licensor's possession, reasonable
access to Vendor's and Licensor's employees or agents who are familiar with the
Coal Briquetting Technology, and Improvements to the Coal Briquetting
Technology, as defined in Section 2.3, and shall provide such technical advice
with regard to the Coal Briquetting Technology as is reasonably requested by
Licensee.
2.3 Improvements. Each of Licensor and Vendor shall notify
Licensee of any improvements, variations or modifications ("Improvements") made
on or to the Coal Briquetting Technology promptly after such Improvements are
made by it. The term "Improvements" shall include changes that reduce production
costs, improve performance, broaden applicability or increase marketability.
Each of Vendor and Licensor hereby grants to Licensee an exclusive license to
utilize the Improvements made by it for Commercial Use, within a one hundred
(100) mile radius of the Alabama Project, including to make, have made, use, and
sell or otherwise transfer products that utilize any such Improvements subject
to the terms of this Agreement. It is mutually understood and agreed that all
Improvements provided to Licensee by either Vendor or Licensor shall remain the
sole and exclusive property of Vendor. This Agreement does not contemplate any
jointly developed Improvements. All rights to any jointly developed Improvements
shall be subject to the terms and conditions of a separate written agreement
between Licensee and Vendor and Licensor entered into prior to undertaking any
joint development.
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2.4 Confidentiality. Licensee hereby agrees not to disclose
the Coal Briquetting Technology, except to its agents, employees, directors or
representatives who have a need to know about such technology in connection with
the operation and maintenance of the Alabama Project and the sale of coal
briquettes/extrusions produced by the Alabama Project; provided, however,
information which (i) becomes generally available to the public other than as a
result of a disclosure by Licensee or its agents, employees, directors or
representatives, (ii) was available to Licensee on a non-confidential basis
prior to its disclosure pursuant to the terms hereof, or (iii) becomes available
to Licensee on a non-confidential basis from a source other than Licensor or
Vendee, provided that such source is not known by Licensee or its agents,
employees, directors or representatives to be prohibited from transmitting the
information to Licensee by any confidentiality agreement with Licensor or Vendor
or by any other contractual, legal or fiduciary obligation shall not be subject
to the terms of this Section 2.4.
Section 3 License Fee and Royalty.
3.1 License Fee. Licensee shall owe a base license fee to
Licensor equal to $500,000 in the event of, and $250,000 of the base license fee
shall be due and payable within five (5) Business Days of, (i) the Licensee
receives a Letter Ruling satisfactory to it (as contemplated under Section
7.1(i) of the Purchase Agreement), or (ii) the option of PacifiCorp Financial
Services, Inc. under the Conditional Option Agreement is terminated unexercised;
provided, however, that the remaining $250,000 of the base license fee shall not
be due and payable until five (5) Business Days after consummation of the
transactions under the Purchase Agreement upon "Substantial Completion" of the
Alabama Project as defined in the Construction Contract.
3.2 Royalty Amount. On or before each January 31, April 30,
July 31, and October 31 from and after the commencement of the payment of
principal pursuant to the Promissory Note, Licensee shall pay to Licensor
quarterly royalty payments ("Royalty") in an amount equal to the product of (i)
*, as adjusted pursuant to the immediately succeeding proviso, multiplied by
(ii) the MM Btu of the extrusions and briquettes produced by the Alabama Project
and sold by the Licensee during the immediately preceding quarter; provided,
however, that on each anniversary date, commencing
* Confidential material omitted and filed separately with the Commission.
5
January 1, 1997, the amount set forth in clause (i) shall be adjusted by an
amount equal to thirty percent (30%) of the relative change between (y) the
"inflation adjustment factor" (as set forth in Section 29(d)(2) of the 1986
Code) calculated for the immediately preceding year and (z) the "inflation
adjustment factor" calculated for the penultimate year; provided, further, that
for any Royalty paid from and after the time the Promissory Note has been paid
in full, the royalty shall be determined by replacing the number "*" set forth
in clause (i) with "*."
Notwithstanding anything contained herein to the contrary, the
obligation of Licensee to make payments of Royalties to Licensor in any quarter
shall be limited to an amount equal to the net operating cash flow of the
Licensee (which amount shall include the funding of replacement and operating
reserves for the Alabama Project).
Section 4 Binder.
4.1 Sales of Binder.
4.1.1 Sale and Purchase. Upon the request of Licensee,
from time-to-time, Vendor shall sell to Licensee a sufficient quantity of
proprietary binder ingredients as is required to operate the Alabama Project up
to full capacity. Vendor shall deliver, or cause to be delivered, the
proprietary binder ingredients to the Alabama Project, at such times and in such
amounts as requested by Licensee. Payments for proprietary binder ingredients
delivered by Vendor during any calender month shall be due and payable to Vendor
on the last Business Day of the immediately succeeding month.
4.1.2 Price. The price which Licensee shall pay to
Vendor for the proprietary binder ingredients delivered by or on behalf of
Vendor during any calender year shall be an amount equal to (i) the Vendor's
direct and actual costs (direct material, shipping and labor costs, third-party
manufacturing and transportation costs, binder plant warranty expense, and a
percentage of the total overhead costs of Vendor reasonably reflecting the ratio
of the administrative costs incurred in connection with the delivery and sale of
the proprietary binder ingredients to the total overhead costs of Vendor)
reasonably incurred to deliver the proprietary binder ingredients during the
immediately preceding calender year,
* Confidential material omitted and filed separately with the Commission.
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plus (ii) * of the amount determined pursuant to clause (i).
4.1.3 Specifications and Warranties. Vendor represents
and warrants that all proprietary binder ingredients shall be merchantable, free
from defects, and shall conform to any other agreed to specifications. At
Licensee's option, Vendor shall replace, or refund the purchase price and cost
of shipment of, all non-conforming proprietary binder ingredients. Vendor will
bear the risk of loss of the proprietary binder ingredients while it is in
transit.
4.1.4 Acceptance and Rejection. All proprietary binder
ingredients are subject to Licensee's inspection and test before final
acceptance. Acceptance and/or inspection by Licensee shall not constitute a
waiver of any latent defect or nonconformity.
4.2 Binder Technology License. Vendor represents and warrants
that it has delivered to a safety deposit box owned by Licensee a written copy
of the formula used by it to manufacture the proprietary binder material in
sufficient quantities to operate the Alabama Project up to full capacity, and
Vendor covenants to notify Licensee of any improvements, variations or
modifications made on or to the formula used by it to manufacture the
proprietary binder material promptly after such improvements, variations or
modifications are made by it and to provide a copy of any such improved, varied
or modified formula for placement in the safety deposit box.
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.
Section 6 Infringement. If during the term of this Agreement it appears
that a third party has infringed any intellectual property rights associated
with the Coal
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Briquetting Technology or otherwise misappropriated any Coal Briquetting
Technology, Vendor shall, at Vendor's expense, institute and conduct legal
actions against such third party or to enter into such agreements oraccord in
settlement as are deemed appropriate by Vendor. Licensee shall have the right to
join Vendor as a plaintiff in the prosecution of any infringement or
misappropriation action affecting the Alabama Project, provided that Licensee
shall bear up to fifty percent (50%) of all the costs and expenses of the
action. If Licensee and Vendor have jointly conducted an infringement or
misappropriation action, any sums recovered from the third party shall be
distributed to Licensee and Vendor in accordance with the percentage of the
costs and expenses borne by each, after each party has been reimbursed for costs
and expenses incurred by it in prosecuting the action. Licensee shall always
have the right to be represented by counsel of its own selection in any action.
In no event shall Vendor enter into any agreement or settlement inconsistent
with the terms of this Agreement.
Section 7 Representations and Warranties.
7.1 Authority. Each of Vendor, Licensee and Licensor
represents and warrants that (i) the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized on its behalf by all requisite action, corporate or otherwise,
(ii) it has the full right, power and authority to enter into this Agreement and
to carry out the terms of this Agreement, (iii) it has duly executed and
delivered this Agreement, and (iv) this Agreement is a valid and binding
obligation of it enforceable in accordance with its terms.
7.2 No Consent. Each of Vendor, Licensee and Licensor
represents and warrants that no approval, consent, authorization, order,
designation or declaration of any court or regulatory authority or governmental
body or any third-party is required to be obtained by it, nor is any filing or
registration required to be made therewith by it for the consummation by it of
the transactions contemplated under this Agreement.
7.3 Intellectual Property Matters. Each of Vendor and Licensor
warrants that it (i) owns, free and clear of all liens and encumbrances, all
intellectual property, inventor's certificates and applications therefor,
printed and unprinted
8
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, and, the 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 any agreement with another in conflict with the rights granted herein,
and (iv) has no knowledge that the sale or use of the licenses granted herein as
contemplated by this Agreement would infringe any third-party's intellectual
property rights.
7.4 Physical Properties. Each of Vendor and Licensor
represents and warrants that (i) as of the date hereof, based on the current
information available to Vendor and Licensor, the cost per ton of producing coal
extrusions and briquettes at the Alabama Project, using the Coal Briquetting
Technology and the proprietary binder ingredients provided hereunder, but not
including the cost of the waste coal dust, coal fines and other coal derivatives
utilized, is approximately *; (ii) the moisture content loss occurring in the
manufacture of the coal briquettes and extrusions using the Coal Briquetting
Technology, assuming that the waste coal dust, coal fines and other coal
derivatives utilized in connection therewith has an initial moisture content of
ten percent (10%) or less, is two percent (2%) or less, as measured over the
course of a calendar year; (iii) no waste, noxious fumes or other byproducts
result from the manufacture of the coal briquettes and extrusions using the Coal
Briquetting Technology, other than waste water, packaging materials and similar
items, none of which is noxious or designated as a "hazardous waste" under any
Federal, state or local law and all of which will be disposed of in accordance
with applicable Federal, state and local law; and (iv) application of the Coal
Briquetting Technology in the Alabama Project will result in a chemical change
similar in all material respects to the chemical change described in the IRS
letter ruling received by Vendor, dated September 8, 1995.
* Confidential material omitted and filed separately with the Commission.
9
Section 8 Term. This Agreement and the license granted hereunder shall
be for the period from the Effective Date to and including January 1, 2008, or
the corresponding date under Section 29 of the 1986 Code in the event of an
extension of the tax credits available under Section 29 of the 1986 Code.
Section 9 Subordination; Set off. Payments hereunder shall be
subordinate in right of payment to amounts due under the Promissory Note. In
addition to any rights of the Licensee under the Transaction Documents and
applicable law, any amounts owing to Licensee from either Licensor or Vendor
under any of the Transaction Documents may be offset and applied toward the
payment of any amounts, or any part thereof, owing to the Licensor or Vendor,
whether or not such amounts shall be due and payable.
Section 10 Waiver. The failure of any party to enforce at any time any
provision of this Agreement shall not be construed as a waiver of such provision
or the right thereafter to enforce each and every provision. No waiver by any
party, either express or implied, of any breach of any of the provisions of this
Agreement shall be construed as a waiver of any other breach of such term or
condition.
Section 11 Severability. If any provision of this Agreement shall be
held by a court of competent jurisdiction to be invalid or unenforceable in any
respect for any reason, the validity and enforceability of any such provision in
any other respect and of the remaining provisions of this Agreement shall not be
in any way impaired.
Section 12 Notices. All notices required or authorized by this
Agreement shall be given to the parties hereto at the addresses, and in
accordance with the procedures, set forth in Section 12.3 of the Purchase
Agreement.
Section 13 Entire Agreement. This Agreement, together with the other
Transaction Documents, constitutes the entire agreement of the parties relating
to the subject matter hereof. There are no promises, terms, conditions,
obligations, or warranties other than those contained herein and/or in the
Transaction Documents. The Transaction Documents supersede 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.
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Section 14 Governing Law. This Agreement shall be governed in
accordance with the laws of the State of Utah.
Executed by the duly authorized representative of the parties on the
date and year first above written.
COVOL TECHNOLOGIES, INC.
By: /s/ Brent M. Cook
------------------
Name: Brent M. Cook
Title: President
ALABAMA SYN FUEL #1 LTD.
By: /s/ Brent M. Cook
--------------------------------
Name: Brent M. Cook
Title: Pres., Covol Tech., Inc. G.P.
BIRMINGHAM SYN FUEL, L.L.C.
By: /s/ Reynold Roeder
----------------------
Name: Reynold Roeder
Title: Vice President