LICENSE AND BINDER PURCHASE AGREEMENT
THIS LICENSE AND BINDER PURCHASE AGREEMENT (the "Agreement"), is made
and entered into as of May 25, 2000 by and between Birmingham Syn Fuel, L.L.C.,
an Oregon limited liability company ("BSF"), on the one hand, and Covol
Technologies, Inc., a Delaware corporation ("Covol") and Alabama Synfuel #1
Ltd., a Delaware limited partnership ("ASF"), on the other hand.
WHEREAS, PSF operates a synthetic fuel facility and currently located
in Birmingport, Alabama (the "Facility").
WHEREAS, ASF and Covol granted to BSF a license for synthetic fuel
technology in connection with the Facility on the terms and conditions set forth
in the Amended and Restated License and Binder Purchase Agreement, dated as of
December 12, 1997, which was amended February 20, 1997 (the "Original
Agreement"), and Covol agreed to sell to BSF the proprietary binder material
manufactured by Covol for use in the operation of the Facility.
WHEREAS, Covol and ASF (collectively, the "Covol Parties") and BSF are
among the parties to that Settlement Agreement and Mutual Release and related
agreements (collectively, the "Transaction Documents"), dated this same date,
pursuant to which, among other things, BSF and the Covol Parties have terminated
the Original Agreement and are entering into 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, BSF
and the Covol Parties agree as follows:
Section 1 Definitions.
"ASF" has the meaning set forth in the preamble.
"Coal Fuel Technology" means all intellectual property,
inventor's certificates 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,
** This exhibit contains confidential material which has been
omitted pursuant to a Confidential Treatment Request. The omitted information
has been filed separately with the Securities and Exchange Commission.
1
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 from waste
coal dust, coal fines and other similar coal derivatives, and the proprietary
binder material used in manufacturing synthetic coal fuel from waste coal dust,
coal fines and other similar coal derivatives, in each case owned or controlled
by the Covol Parties, to include such information in existence as of the date of
this Agreement as well as related information later developed by the Covol
Parties; provided, however, that the defined term "Coal Fuel Technology" shall
not include the proprietary process developed by the Covol Parties to produce
synthetic coke extrusions and briquettes from coke breeze or any technology for
other than the processing and production of synthetic coal fuel.
"Commercial Use" means any usage of the Coal Fuel Technology
for commercial exploitation and any other usage to which the Covol Parties grant
prior written consent.
"Covol" has the meaning set forth in the preamble.
"Covol Parties" has the meaning set forth in the preamble.
"Facility" has the meaning set forth in the preamble, provided
that the term also shall refer to any location to which the Facility may be
moved or relocated in the future.
"Facility Assignment" has the meaning set forth in Section 12
hereof.
"Facility Sub License" has the meaning set forth in Section 12
hereof.
"Improvements" has the meaning set forth in Section 2.3
hereof.
"Maximum Royalty Tonnage" has the meaning set forth in Section
3 hereof.
"Other Facilities" means the two synthetic fuel facilities
owned by PSF and currently located in Pumpkin Center, Alabama and the synthetic
fuel facility owned by PSF and currently located in Brookwood, Alabama.
"PSF" means PacifiCorp Syn Fuel, L.L.C., an Oregon limited
liability company.
"Royalty" has the meaning set forth in Section 3.1 hereof.
2
Section 2 License Grant.
2.1 General; Agreement Concerning Exclusivity. Subject to the
terms and conditions of this Agreement, the Covol Parties hereby grant and
guarantee to BSF a license to use the Coal Fuel Technology at the Facility for
Commercial Use, including a license to make, have made, use and sell or
otherwise transfer products that embody, use or have been developed or
manufactured with the Coal Fuel Technology. For the term of this Agreement and
the License And Binder Purchase Agreements for the Other Facilities, PSF and BSF
shall have the exclusive license to use the Coal Fuel Technology for Commercial
Use within a one hundred (100) mile radius of the present location of the
Facility, including to make, have made, use and sell or otherwise transfer
products that embody, use or have been developed or manufactured with the Coal
Fuel Technology.
2.2 Know-How and Assistance. To enable BSF to benefit fully
from the license of the Coal Fuel Technology, the Covol Parties shall provide
access to all relevant documentation, drawings, engineering specifications and
other know-how in its possession, reasonable access to its employees or agents
who are familiar with the Coal Fuel Technology, and Improvements to the Coal
Fuel Technology, as defined in Section 2.3, and shall provide such technical
advice with regard to the Coal Fuel Technology as is reasonably requested by BSF
and relevant to the provisions of this Agreement.
2.3 Improvements. The Covol Parties shall notify BSF of any
improvements, variations or modifications ("Improvements") made on or to the
Coal Fuel 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. The Covol Parties
hereby grant to BSF a license (such license to become exclusive in accordance
with Section 2.1 hereof) to utilize the Improvements made by it for Commercial
Use, 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 BSF by the
Covol Parties shall remain the sole and exclusive property of the Covol Parties.
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 BSF and the Covol Parties
entered into prior to undertaking any joint development.
2.4 Confidentiality. BSF hereby agrees not to disclose the
Coal Fuel 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 Facilities and the sale of synthetic coal
fuel produced by the Facility; provided, however, information which (i) becomes
generally available to the public other than as a result of a disclosure by BSF
or its agents, employees, directors or representatives, (ii) was available to
BSF on a non-confidential basis prior to its disclosure pursuant to the terms
hereof, or
3
(iii) becomes available to BSF on a non-confidential basis from a source other
than either of the Covol Parties, provided that such source is not known by BSF
or its agents, employees, directors or representatives to be prohibited from
transmitting the information to BSF by any confidentiality agreement with either
of the Covol Parties or by any other contractual, legal or fiduciary obligation
shall not be subject to the terms of this Section 2.4.
Section 3 Royalty Amount. Within thirty (30) days following the end of
each calendar quarter ending March 31, June 30, September 30 and December 31
from and after April 1, 2000, BSF shall pay to Covol quarterly royalty payments
in an amount equal to (i) $** multiplied by (ii) the total dollar amount of tax
credits under Section 29 of the Internal Revenue Code available to BSF as a
result of sales of synthetic fuel produced by the Facility and sold by BSF
during the calendar quarter just ended, regardless of whether BSF uses such tax
credits; provided, however, royalty payments shall not be computed on, and no
royalty payment shall be due with respect to, sales of synthetic fuel that are
in excess of the "Maximum Annual Royalty Tonnage." For purposes of this
Agreement, the "Maximum Annual Royalty Tonnage" is achieved in any calendar year
whenever the aggregate amount of synthetic fuel produced and sold by the
Facility and the Other Facilities in such calendar year equals 1,440,000 tons;
provided, however, that if any of the Other Facilities is the subject of a
Facility Sub License or Facility Assignment, then the Maximum Annual Royalty
Tonnage shall be reduced by 360,000 tons per calendar year for each Other
Facility that is the subject of a Facility Sub License or Facility Assignment;
provided, further, that if the Facility is the subject of a Facility Sub License
or Facility Assignment, royalty payments in any calendar year shall not be
computed on, and no royalty payment shall be due with respect to, sales of
synthetic fuel produced by the Facility in such calendar year in excess of
360,000 tons without regard to the volume of production and sale of synthetic
fuel from the Other Facilities.
Section 4 Binder.
4.1 Sales of Binder.
4.1.1 Sale and Purchase. BSF agrees to purchase from
Covol, and Covol agrees to sell to BSF, all of BSF's requirements for
proprietary binder to operate the Facility at full capacity. Covol shall deliver
or cause to be delivered the proprietary binder to the Facility at such times
and in such quantities as from time-to-time requested by PSF. Payments for
proprietary binder delivered to BSF by Covol shall be due and payable to Covol
within thirty (30) days of receipt of invoice.
4
4.1.2 Price. Effective from the date hereof, the
price which BSF shall pay to Covol for the proprietary binder delivered by or on
behalf of Covol with respect to the Facility during any calendar year shall be
an amount equal to $** per pound (dry weight) plus an overhead charge of $** per
pound (dry weight). Covol shall only increase the price per pound of the binder
to the extent of actual increases in its production costs resulting from
increases in the costs of binder components charged by Dow Chemical or any
successor supplier. If BSF applies binder at the Facility at a concentration
higher than two pounds of binder (dry weight) per 2,000 pounds of coal, no
markup nor overhead will be charged for the higher concentration.
4.1.3 Specifications and Warranties. Covol represents
and warrants that all proprietary binder shall be merchantable, free from
defects, and shall conform to the specifications set forth on Exhibit A, which
may be changed from time to time upon the written agreement of the parties
hereto, except that Covol makes no warranty of fitness as applied to any
potential feedstock due to the variability of feedstocks generally. At BSF's
option, Covol shall replace, or refund the purchase price and cost of shipment
of, all non-conforming proprietary binder ingredients. Covol 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 is subject to BSF's inspection and test before final acceptance.
Acceptance and/or inspection by BSF shall not constitute a waiver of any latent
defect or nonconformity.
4.2 Binder Formula. The Covol Parties represent and warrant
that they delivered to a safety deposit box owned by BSF a written copy of the
formula used by them to manufacture the proprietary binder material in
sufficient quantities to operate the Facility up to full capacity, and the Covol
Parties covenant to notify BSF of any improvements, variations or modifications
made on or to the formula used by them to manufacture the proprietary binder
material promptly after such improvements, variations or modifications are made
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 a third
party has infringed any intellectual property rights associated with the Coal
Fuel Technology or
5
otherwise misappropriated any Coal Fuel Technology, the Covol Parties shall, at
their expense, institute and conduct legal actions against such third party or
to enter into such agreements or accord in settlement as are deemed appropriate
by the Covol Parties. BSF shall have the right to join the Covol Parties as
plaintiffs in the prosecution of any infringement or misappropriation action
affecting the Facility, provided that BSF shall bear up to fifty percent (50%)
of all the costs and expenses of the action. If BSF and the Covol Parties have
jointly conducted an infringement or misappropriation action, any sums recovered
from the third party shall be distributed to BSF and the Covol Parties 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 such action. BSF shall always have the right to be represented by
counsel of its own selection in any action. In no event shall the Covol Parties
enter into any agreement or settlement inconsistent with the terms of this
Agreement.
Section 7 Representations and Warranties.
7.1 Authority. Each of the Covol Parties and BSF 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 the Covol Parties and BSF 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. The Covol Parties warrant
that they (i) own, free and clear of all liens and encumbrances, all
intellectual property, inventor's certificates 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 from waste
coal dust, coal fines and other similar coal derivatives, and, the proprietary
binder material used in manufacturing synthetic coal fuel from waste coal dust,
coal fines and other similar coal derivatives, (ii) have the right and power to
grant to BSF the licenses granted herein, (iii) have not made any agreement with
another in conflict with the rights granted herein, and (iv) have no knowledge
that the sale
6
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. The Covol Parties represent and
warrant that (i) the proprietary binder sold to BSF shall not be a hazardous
material under, and delivery shall comply with, applicable environmental laws
and regulations; and (ii) subject to the selection of suitable feedstock,
application of the Coal Fuel Technology in the Facility will result in a
chemical change similar in all material respects to the chemical change
described in the IRS letter ruling received by the Covol Parties, dated
September 8, 1995.
Section 8 Term. This Agreement and the license granted hereunder shall
be for the period from April 1, 2000 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 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, consents, and other communications
under this Settlement Agreement will be in writing and will be deemed to have
been sufficiently given or served when delivered in person, by telecopier, by
registered or certified mail, charges prepaid, or by prepaid overnight delivery
service. Notice shall be deemed given (a) at the time of delivery if given by
hand, (b) two (2) business days after deposit in the mail, if given by
registered mail, (c) upon confirmation, if given by telecopier (it being agreed
that the burden of proving receipt will be on the sender and will not be met by
a transmission report generated by the sender's facsimile machine), and (d) upon
confirmation of delivery, if given by prepaid overnight delivery service. The
addresses and telecopier numbers for the parties, at which all such deliveries
can be made and Notices can be sent, are as follows:
(A) If to the BSF, to:
Birmingham Syn Fuel, L.L.C.
c/o PacifiCorp Financial Services, Inc.
000 XX Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxx, XX 00000
7
Attention: Xxxxx Xxxxxxxxx
Telecopier No.: (000) 000-0000
With copies to:
Stoel Rives LLP
000 XX Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxx, Xxxxxx 00000
Attn: Xxxx X. Xxxxxx
Telecopier No.: (000) 000-0000
(B) If to the Covol Parties, to:
Covol Technologies, Inc.
0000 Xxxxx Xxxxxxxx Xxxx
Xxxx, Xxxx 00000
Attention: Xxxxx X. Xxxx
Telecopier No.: (000) 000-0000
With copies to:
Pillsbury Madison & Sutro LLP
00 Xxxxxxx Xxxxxx
Xxx Xxxxxxxxx, XX 00000
Attention: T. V. Xxxxx III
Telecopier No.: (000) 000-0000
Section 12 Assignment; Sublicenses; Obligation of PacifiCorp Financial
Services, Inc. This Agreement may not be assigned by the Covol Parties. BSF may
grant a sublicense to any person with respect to this Agreement (a "Facility Sub
License") or assign its rights and obligations under this Agreement to any
person (a "Facility Assignment"), except that any such sublicense or assignment
may only be in connection with a transfer of the ownership and/or operation of
the Facility. No such attempted sublicense or assignment by BSF shall be valid
unless the putative transferee shall have agreed unqualifiedly to assume the
obligations of BSF under this Agreement. In the event of a Facility Assignment,
if the transferee fails to make (i) any royalty payment required by Sections 3
of this Agreement within 30 days of the due date therefor or (ii) any payment
for the purchase of binder required by Section 4 of this Agreement within 30
days of the due date therefor, PacifiCorp Financial Services, Inc., an Oregon
corporation ("PFS"), shall promptly pay Covol such unpaid amounts upon written
demand therefor. Except as set forth in the immediately preceding sentence, PFS
shall not be liable or responsible for any other obligations under this
Agreement.
8
Section 13 Further Assurances. Each party agrees, at the request of the
other party, at any time and from time to time, to execute and deliver all such
further documents, and to take and forbear from all such action, as may be
reasonably necessary or appropriate in order more effectively to carry out the
provisions of this Agreement. The Covol Parties agree to use reasonable efforts
to cooperate with PFS and BSF in marketing, selling or otherwise transferring
the Facility. The Covol parties agree to cooperate with BSF in any defense of or
response to any action, inquiry or investigation by the IRS relating to the
matters addressed by the representation and warranty contained clause (ii) of
Section 7.4
Section 14 Set Off. Any amounts owing to BSF from Covol hereunder may
be offset and applied toward the payment of any amounts, or any part thereof,
owing to Covol pursuant to Section 3 hereof, whether or not such amounts shall
be due and payable; provided, however, that BSF shall give Covol and ASF ten
(10) business days' written notice prior to exercising such right of offset.
Section 15 Entire Agreement. This Agreement, together with the
Transaction Documents, (i) constitutes the entire agreement of the parties
relating to the subject matter hereof, (ii) is the complete and exclusive
statement of the contracting parties' promises, terms, conditions, obligations,
or warranties other than those contained herein, and (iii) supersedes all prior
communications, representations, or agreements, verbal or written, among the
contracting parties relating to the subject matter hereof. This Agreement may
not be amended except in writing signed by the parties hereto.
Section 16 Governing Law. This Agreement shall be governed in
accordance with the laws of the State of Utah.
Section 17 Counterparts. This Agreement may be executed in two or more
counterparts, each which shall be deemed an original, but all of which together
shall constitute one and the same agreement.
9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives the day and year first above written.
COVOL TECHNOLOGIES, INC.
By: /s/ Xxxxx X. Xxxx
Name: Xxxxx X. Xxxx
Title: President
ALABAMA SYNFUEL #1 LTD.
By: /s/ Xxxxx X. Xxxx
Name: Xxxxx X. Xxxx
Title: President of Covol
Technologies, Inc.,
its general partner
BIRMINGHAM SYN FUEL, LLC
By: /s/ Xxxxx Xxxxxxxxx
Name: Xxxxx Xxxxxxxxx
Title: President
PACIFICORP FINANCIAL SERVICES, INC.*
By: /s/ Xxxxx Xxxxxxxxx
Name: Xxxxx Xxxxxxxxx
Title: President
_____________________________________
* Solely as to Section (12), above.
10
Exhibit A
Specification of Proprietary Binder Material
I. Material Description
Color: White
Odor: Typical
Appearance/Physical State: Liquid with suspended solids
Description Note: Proprietary Carboxylated Styrene-
Butadiene Polymer
II. Governmental/Industry Standards:
Non-food Contact
III. Test Requirements
--------------------------------------------------------------------------------
Test Item and Condition Limit Unit Method
--------------------------------------------------------------------------------
Solids 48.0 - 50.0 Wt % DOWM 100008
pH 5.5 - 6.5 DOWM 100429
200 Mesh Residue, per 900 ml 0.05 Max grams LTM 004
Polymerization Yield 45.0 - 55.0 Wt % Oven Dry
Polymeric Test Polystyrene Formation Present/Absent FTIR
