-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SE1MwF/tjKAs/BTsCPKDbsPThsD3roRTz0jv5RBxZ8POU1aTPIU9+fWQXB1GLhZ8 VPa4EBnDhDe7nmPFTisQTQ== 0000893877-97-000267.txt : 19970506 0000893877-97-000267.hdr.sgml : 19970506 ACCESSION NUMBER: 0000893877-97-000267 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19970505 SROS: NONE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: COVOL TECHNOLOGIES INC CENTRAL INDEX KEY: 0001003344 STANDARD INDUSTRIAL CLASSIFICATION: BITUMINOUS COAL & LIGNITE MINING [1220] IRS NUMBER: 870547337 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-50887 FILM NUMBER: 97595793 BUSINESS ADDRESS: STREET 1: 3280 N FRONTAGE RD CITY: LEHI STATE: UT ZIP: 84043 BUSINESS PHONE: 8017684481 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: PACIFICORP /OR/ CENTRAL INDEX KEY: 0000075594 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 930246090 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 700 NE MULTNOMAH STE 1600 CITY: PORTLAND STATE: OR ZIP: 97232 BUSINESS PHONE: 5037312000 FORMER COMPANY: FORMER CONFORMED NAME: PACIFICORP /ME/ DATE OF NAME CHANGE: 19890628 FORMER COMPANY: FORMER CONFORMED NAME: PC/UP&L MERGING CORP DATE OF NAME CHANGE: 19890628 SC 13D 1 SCHEDULE 13D UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 (Amendment No. __)* Covol Technologies, Inc. - -------------------------------------------------------------------------------- (Name of Issuer) Common Stock, $.001 par value - -------------------------------------------------------------------------------- (Title of Class of Securities) 223575 10 1 ------------------------------ (CUSIP Number) Michael C. Henderson PacifiCorp Holdings, Inc. 700 NE Multnomah, Suite 1600 Portland, Oregon 97232 Telephone: (503) 731-2133 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) April 24, 1997 ------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ]. NOTE: Six copies of this statement, including all exhibits, should be filed with the Commission. See Rule 13d-1(a) for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter the disclosures provided in a prior cover page. The information required in the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). 1 of 8 SCHEDULE 13D ------------ CUSIP No. 223575 10 1 Page 2 of 8 Pages 1) NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON PacifiCorp Holdings, Inc. 93-0866672 -------------------------------------------------------------------------- 2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] 3) SEC USE ONLY _____________________________________________________________ 4) SOURCE OF FUNDS WC -------------------------------------------------------------------------- 5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] 6) CITIZENSHIP OR PLACE OF ORGANIZATION Delaware -------------------------------------------------------------------------- 7) SOLE VOTING POWER NUMBER OF -------------------------------------------------- SHARES 8) SHARED VOTING POWER BENEFICIALLY 714,286 OWNED BY -------------------------------------------------- EACH 9) SOLE DISPOSITIVE POWER REPORTING -------------------------------------------------- PERSON 10) SHARED DISPOSITIVE POWER WITH 714,286 -------------------------------------------------- 11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 714,286 -------------------------------------------------------------------------- 12) CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] -------------------------------------------------------------------------- 13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 8.25% -------------------------------------------------------------------------- 14) TYPE OF REPORTING PERSON* CO -------------------------------------------------------------------------- 2 of 8 SCHEDULE 13D ------------ CUSIP No. 223575 10 1 Page 3 of 8 Pages 1) NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON PacifiCorp 93-0246090 -------------------------------------------------------------------------- 2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] 3) SEC USE ONLY _____________________________________________________________ 4) SOURCE OF FUNDS WC -------------------------------------------------------------------------- 5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] 6) CITIZENSHIP OR PLACE OF ORGANIZATION Oregon -------------------------------------------------------------------------- 7) SOLE VOTING POWER NUMBER OF -------------------------------------------------- SHARES 8) SHARED VOTING POWER BENEFICIALLY 714,286 OWNED BY -------------------------------------------------- EACH 9) SOLE DISPOSITIVE POWER REPORTING -------------------------------------------------- PERSON 10) SHARED DISPOSITIVE POWER WITH 714,286 -------------------------------------------------- 11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 714,286 -------------------------------------------------------------------------- 12) CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] -------------------------------------------------------------------------- 13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 8.25% -------------------------------------------------------------------------- 14) TYPE OF REPORTING PERSON* CO -------------------------------------------------------------------------- 3 of 8 SCHEDULE 13D ------------ CUSIP No. 223575 10 1 Page 4 of 8 Pages 1) NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON PacifiCorp Financial Services, Inc. 93-0369681 -------------------------------------------------------------------------- 2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] 3) SEC USE ONLY _____________________________________________________________ 4) SOURCE OF FUNDS WC -------------------------------------------------------------------------- 5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) [ ] 6) CITIZENSHIP OR PLACE OF ORGANIZATION Oregon -------------------------------------------------------------------------- 7) SOLE VOTING POWER NUMBER OF 714,286 -------------------------------------------------- SHARES 8) SHARED VOTING POWER BENEFICIALLY OWNED BY -------------------------------------------------- EACH 9) SOLE DISPOSITIVE POWER REPORTING 714,286 -------------------------------------------------- PERSON 10) SHARED DISPOSITIVE POWER WITH -------------------------------------------------- 11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 714,286 -------------------------------------------------------------------------- 12) CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] -------------------------------------------------------------------------- 13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 8.25% -------------------------------------------------------------------------- 14) TYPE OF REPORTING PERSON* CO -------------------------------------------------------------------------- 4 of 8 Item 1. Security and Issuer This Statement relates to shares of Common Stock ("Common Stock") of Covol Technologies, Inc., a corporation organized under the laws of Delaware ("Covol"). Covol's principal executive offices are located at 3280 N. Frontage Road, Lehi, Utah 84043. Item 2. Identity and Background This Statement is filed by (i) PacifiCorp, a corporation organized under the laws of Oregon ("PacifiCorp"), whose business address is 700 N.E. Multnomah, Suite 1600, Portland, Oregon, (ii) PacifiCorp Holdings, Inc., a corporation organized under the laws of Delaware and a wholly owned subsidiary of PacifiCorp ("PHI"), whose business address is 700 N.E. Multnomah, Suite 1600, Portland, Oregon, and (iii) PacifiCorp Financial Services, Inc., a corporation organized under the laws of Oregon and a wholly owned subsidiary of PHI ("PFS"), whose business address is 825 N.E. Multnomah, Suite 775, Portland, Oregon. PacifiCorp is an electric utility that conducts a retail electric utility business through Pacific Power & Light Company and Utah Power & Light Company, and engages in power production and sales on a wholesale basis under the name PacifiCorp. PacifiCorp is the indirect owner, through PHI of 100% of each of Powercor Australia Limited ("Powercor"), an Australian electric distribution company, and Pacific Telecom, Inc. ("PTI"), a leading provider of local telephone exchange service to rural and suburban markets, in addition to other investments. PacifiCorp furnishes electric service to approximately 1,400,000 customers in portions of seven western states: California, Idaho, Montana, Oregon, Utah, Washington and Wyoming. Powercor serves approximately 547,000 customers in suburban Melbourne and the western and central regions of the State of Victoria in southeast Australia. PTI, through its subsidiaries, provides local telephone service and access to the long-distance network in Alaska, seven other western states and three Midwestern states and provides cellular mobile telephone services in six states. PHI also has interests in the independent power and cogeneration business through its wholly owned subsidiary, Pacific Generation Company, and continues to liquidate portions of the loan, leasing and real estate investment portfolio of PFS. PFS expects to retain only its tax advantaged investments in leveraged lease assets (primarily aircraft) and affordable housing, and is limiting its pursuit of tax-advantaged investment opportunities to affordable housing and alternative fuels. During the past five years, neither PacifiCorp, PHI nor PFS has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors), nor has it been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. For a current list of the executive officers and directors of PacifiCorp and PHI, and of the directors and officers of PFS, along with the other information required to be furnished with respect to such executive officers and directors under this Item 2, see Exhibit 1, which is incorporated herein by reference. Item 3. Source and Amount of Funds or Other Consideration Pursuant to the Convertible Loan and Security Agreement, dated March 20, 1997 (the "Loan Agreement"), a copy of which is filed herewith as Exhibit 3 and incorporated by reference herein, PFS has committed to lend up to $5,000,000 to Covol, which amount is convertible into common stock of Covol at the rate of $7.00 per share, subject to adjustments set forth therein. The loans under the Loan Agreement are to be funded out of the working capital of PFS. 5 of 8 Item 4. Purpose of Transaction (a) Pursuant to the Loan Agreement, PFS has the right to simultaneously advance and convert any and all amounts outstanding either as loans or commitments under the Loan Agreement. PFS has committed to lend up to $5,000,000 to Covol, which amount is convertible into common stock of Covol at the rate of $7.00 per share, subject to adjustments set forth therein. (b) Not applicable. (c) Amounts under the Loan Agreement are to be used in connection with the construction and development by Covol of a coal briquetting facility (the "Alabama Project"), as set forth in Section 2.01 of the Loan Agreement. In connection with the execution and delivery of the Loan Agreement, an affiliate of PFS entered into the Alabama Project Purchase Agreement, dated as of March 20, 1997 ("Purchase Agreement"), a copy of which is filed herewith as Exhibit 4 and incorporated by reference herein, pursuant to which it has agreed to purchase the Alabama Project. (d)-(j) Not applicable. Item 5. Interest in Securities of the Issuer (a) - (c) Pursuant to the Loan Agreement, PFS has committed to lend up to $5,000,000 to Covol, which amount is convertible into common stock of Covol at the rate of $7.00 per share, subject to adjustments set forth therein. Pursuant to the Loan Agreement, PFS has the right to simultaneously advance and convert any and all amounts outstanding either as loans or commitments under the Loan Agreement. If PFS advanced and converted all amounts outstanding either as loans or commitments under the Loan Agreement it would receive 714,286 shares of common stock of Covol, subject to adjustments as provided in the Loan Agreement. The aggregate number of shares of common stock of Covol beneficially owned by the persons named in response to Item 2, and the number of shares of Common Stock with respect to which there is sole power to vote or to direct the vote, shared power to vote or to direct the vote, sole power to dispose or to direct the disposition, or shared power to dispose or to direct the disposition, are set forth on Exhibit 2, which is incorporated herein by reference. Except as described in this Schedule 13D, to the best knowledge of PacifiCorp, PHI and PFS, none of the persons named in response to Item 2 above beneficially owns any shares of Covol common stock. Except as described in this Schedule 13D, neither PacifiCorp, PHI, PFS, nor, to the best of their knowledge, any of the persons listed in Item 2 above has effected any transactions in Covol common stock during the past 60 days. (d) Not applicable. (e) Not applicable. Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer Pursuant to the Loan Agreement, PFS has committed to lend up to $5,000,000 to Covol, which amount is convertible pursuant to Section 10.01 of the Loan Agreement into common stock of Covol at the rate of $7.00 per share, subject to adjustments set forth in Section 10.04 of the Loan Agreement. 6 of 8 Pursuant to the Conditional Option Agreement, dated as of March 20, 1997 ("Option Agreement"), a copy of which is filed herewith as Exhibit 5 and incorporated by reference herein, Covol has agreed to purchase all of the right, title and interest of the PFS Parties in Buyer and all the interest of PFS in the Loan and the other Transaction Documents in the event the Alabama Project is not completed by June 30, 1997, a Letter Ruling is not received by June 30, 1997 or an Event of Default under the Loan Agreement has occurred, as described in Section 1 of the Option Agreement. (The capitalized terms used in this paragraph have the meaning set forth in the Option Agreement.) Pursuant to the Registration Rights Agreement, dated as of March 20, 1997 ("Registration Rights Agreement"), a copy of which is filed herewith as Exhibit 6 and incorporated by reference herein, Covol as granted to PFS certain "demand" and "piggyback" registration rights with respect to shares of common stock of PFS acquired pursuant to the Loan Agreement. Item 7. Material to be Filed as Exhibits Filed as exhibits hereto are the following: 1 Directors and Officers of PacifiCorp, PacifiCorp Holdings, Inc. and PacifiCorp Financial Services, Inc. 2 Interest in Securities of Covol Technologies, Inc. 3 Convertible Loan and Security Agreement, dated March 20, 1997 4 Alabama Project Purchase Agreement, dated as of March 20, 1997 5 Conditional Option Agreement, dated as of March 20, 1997 6 Registration Rights Agreement, dated as of March 20, 1997 7 of 8 Signature After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. PACIFICORP HOLDINGS, INC. By MICHAEL C. HENDERSON -------------------------------------- Michael C. Henderson, President and Chief Executive Officer PACIFICORP FINANCIAL SERVICES, INC. By MICHAEL C. HENDERSON -------------------------------------- Michael C. Henderson, President and Chief Executive Officer PACIFICORP By MICHAEL C. HENDERSON -------------------------------------- Michael C. Henderson, Vice President 8 of 8 EX-1 2 DIRECTORS AND OFFICERS Exhibit 1 DIRECTORS AND EXECUTIVE OFFICERS OF PACIFICORP HOLDINGS, INC., PACIFICORP AND PACIFICORP FINANCIAL SERVICES, INC. (Note: footnote (*) appears at end of this Exhibit 1) The directors and executive officers of PacifiCorp Holdings, Inc., PacifiCorp and PacifiCorp Financial Services, Inc. are as follows:
PacifiCorp Holdings, Inc. ------------------------- Name Title Principal Occupation - ---- ----- -------------------- Frederick W. Buckman Director President and Chief Executive Officer of PacifiCorp, an electric utility, 700 NE Multnomah, Suite 1600, Portland, Oregon 97232; Chairman of Board of PacifiCorp Holdings, Inc., 700 NE Multnomah, Suite 1600, Portland, Oregon 97232 C. Todd Conover Director President, The Vantage Company, 101 First Street, Suite 670, Los Altos, California 94022 Michael C. Henderson Director, President and Vice President of PacifiCorp*; Chief Executive Officer Director, President and Chief Executive Officer of PacifiCorp Holdings, Inc.*; Director, Chair, President and Chief Executive Officer of PacifiCorp Financial Services, Inc., a financial services company with offices at 825 NE Multnomah, Suite 775, Portland, Oregon 97232 Nolan E. Karras Director Owner of Investment Management & Research, Inc., an investment advisory firm with offices at 4695 South 1900 West #3, Roy, Utah 84067 Richard T. O'Brien Senior Vice President and Senior Vice President and Chief Chief Financial Officer Financial Officer of PacifiCorp*; Senior Vice President and Chief Financial Officer of PacifiCorp Holdings, Inc.*; Director and Senior Vice President of PacifiCorp Financial Services, Inc.* Verl R. Topham Senior Vice President and Director, Senior Vice President and General Counsel General Counsel of PacifiCorp; Senior Vice President and General Counsel of PacifiCorp Holdings, Inc.* Reynold Roeder Vice President, Finance Vice President, Finance of PacifiCorp Holdings, Inc.*, Vice President of PacifiCorp Financial Services, Inc.* William E. Peressini Treasurer Vice President and Treasurer of PacifiCorp*; Treasurer of PacifiCorp Holdings, Inc.*; Treasurer of PacifiCorp Financial Services, Inc. Sally A. Nofziger Secretary Vice President and Corporate Secretary of PacifiCorp*; Secretary of PacifiCorp Holdings, Inc.*, Secretary of PacifiCorp Financial Services, Inc.* Peter J. Craven Controller of Accounting Controller of Accounting Services Services of PacifiCorp Holdings, Inc.
All of the directors and executive officers of Pacific Holdings, Inc. are U.S. citizens. The business address of each individual listed above is the address shown for the individual's principal occupation. None of the individuals listed has been, during the last five years, (i) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors), or (ii) a party to a civil proceeding of a judicial or administrative body of competent jurisdiction which resulted in a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws.
PacifiCorp ---------- Name Title Principal Occupation - ---- ----- -------------------- W. Charles Armstrong Director Consultant, 14019 SE 35th Loop, Vancouver, Washington 98683 Kathryn A. Braun Director Executive Vice President, Western Digital Corporation, 8105 Irvine Center Drive, Irvine, CA 92718 Frederick W. Buckman Director, President and President and Chief Executive and Chief Executive Officer Officer of PacifiCorp* C. Todd Conover Director President and Chief Executive Officer of The Vantage Company, 101 First Street, Suite 670, Los Altos, California 94022 Nolan E. Karras Director Investment Advisor, Karras & Associates, Inc., an investment advisory firm with offices at 4695 South 1900 West #3, Roy, Utah 84067 Keith R. McKennon Director and Chairman Chairman of the Board of of the Board of Directors Directors of PacifiCorp* Robert G. Miller Director Chairman of the Board and Chief Executive Officer of Fred Meyer, Inc., a retail merchandising chain, with offices at 3800 SE 22nd, Portland, Oregon 97202 Alan K. Simpson Director Director of PacifiCorp, Senator Alan K. Simpson, c/o Laurie Rosen, 3301 Turner Lane, Chevy Chase, Maryland 20815 Verl R. Topham Director, Senior Vice Director, Senior Vice President and President and General General Counsel of PacifiCorp*; Counsel Senior Vice President and General Counsel of PacifiCorp Holdings, Inc.* Don M. Wheeler Director Chairman and Chief Executive Officer, ICM Equipment Company, a materials handling and rental services firm with offices at 4901 West 2100 South, Salt Lake City, Utah 84120 Nancy Wilgenbusch Director President, Marylhurst College, Marylhurst, Oregon, 97036 Peter I. Wold Director Partner, Wold Oil & Gas Company, an oil and gas exploration and production company, with offices at 139 West Second Street, Suite 200, Casper, Wyoming 82602 John A. Bohling Senior Vice President Senior Vice President of PacifiCorp* Shelley R. Faigle Senior Vice President Senior Vice President of PacifiCorp* Paul G. Lorenzini Senior Vice President Senior Vice President of of PacifiCorp PacifiCorp* Richard T. O'Brien Senior Vice President Senior Vice President and Chief and Chief Financial Officer Financial Officer of PacifiCorp*; Senior Vice President and Chief Financial Officer of PacifiCorp Holdings, Inc.* Daniel L. Spalding Senior Vice President Senior Vice President of PacifiCorp* Dennis P. Steinberg Senior Vice President Senior Vice President of PacifiCorp* William C. Brauer Senior Vice President Senior Vice President of PacifiCorp* Michael C. Henderson Vice President Vice President of PacifiCorp*; Director, President and Chief Executive Officer of PacifiCorp Holdings, Inc.*; Director, Chair, President and Chief Executive Officer of PacifiCorp Financial Services, Inc.* Thomas J. Imeson Vice President Vice President of PacifiCorp* Sally A. Nofziger Vice President and Vice President and Corporate Corporate Secretary Secretary of PacifiCorp*; Secretary of PacifiCorp Holdings, Inc.*; Secretary of PacifiCorp Financial Services, Inc. Michael J. Pittman Vice President Vice President of PacifiCorp William E. Peressini Vice President and Treasurer Vice President and Treasurer of PacifiCorp*; Treasurer of PacifiCorp Holdings, Inc.*; Treasurer of PacifiCorp Financial Services, Inc.
All of the directors and executive officers of PacifiCorp are U.S. citizens. The business address of each individual listed above is the address shown for the individual's principal occupation. None of the individuals listed has been, during the last five years, (i) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors), or (ii) a party to a civil proceeding of a judicial or administrative body of competent jurisdiction which resulted in a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws.
PacifiCorp Financial Services, Inc. ----------------------------------- Name Title Principal Occupation - ---- ----- -------------------- Michael C. Henderson Director, Chair, President Vice President of PacifiCorp, and Chief Executive Officer Director, President and Chief Executive Officer of PacifiCorp Holdings, Inc.*; Director, Chair, President and Chief Executive Officer of PacifiCorp Financial Services, Inc.* Craig N. Longfield Director, Senior Vice President Director, Senior Vice President and Chief Operating Officer and Chief Operating Officer of PacifiCorp Financial Services, Inc.* Richard T. O'Brien Director and Senior Vice Senior Vice President and Chief President Financial Officer of PacifiCorp*; Senior Vice President and Chief Financial Officer of PacifiCorp Holdings, Inc.*; Director and Senior Vice President of PacifiCorp Financial Services, Inc.* Reynold Roeder Vice President Vice President, Finance, of PacifiCorp Holdings, Inc.*; Vice President of PacifiCorp Financial Services, Inc. William E. Peressini Treasurer Vice President and Treasurer of PacifiCorp*; Treasurer of PacifiCorp Holdings, Inc.*; Treasurer of PacifiCorp Financial Services, Inc.; Sally A. Nofziger Secretary Vice President and Corporate Secretary of PacifiCorp*; Secretary of PacifiCorp Holdings, Inc.*; Secretary of PacifiCorp Financial Services, Inc. Name Title Principal Occupation - ---- ----- -------------------- Peter J. Craven Controller Controller of Accounting Services of PacifiCorp Holdings, Inc.*; Controller of PacifiCorp Financial Services, Inc.*
All of the directors and executive officers of PacifiCorp Financial Services, Inc. are U.S. citizens. The business address of each individual listed above is the address shown for the individual's principal occupation. None of the individuals listed has been, during the last five years, (i) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors), or (ii) a party to a civil proceeding of a judicial or administrative body of competent jurisdiction which resulted in a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. - -------------- * The principal business and address of the corporation or other organization for which the listed individual's principal occupation is conducted is set forth at the first place at which the name of such corporation or other organization appears in this Exhibit 1. EX-2 3 INTERESTS IN SECURITIES OF COVOL TECHNOLOGIES Exhibit 2 INTERESTS IN SECURITIES OF COVOL TECHNOLOGIES, INC. The beneficial ownership interests of PHI, PFS and PacifiCorp and the directors and officers of each of them are described below:
PacifiCorp Holdings, Inc. ------------------------- Nature of Number of Percent of Total Number Ownership Shares of Outstanding Shares --------- ------ --------------------- Sole Power to Vote or 0 0% Direct the Vote Shared Power to Vote 714,286 8.25%* or Direct the Vote Sole Power to Dispose 0 0% or to Direct the Disposition Shared Power to 714,286 8.25%* Dispose or to Direct the Disposal ======= ====== Total 714,286 8.25%* Beneficially Owned - -------------- * Calculated using a denominator equal to 8,659,156 (based on the number of shares of Common Stock outstanding at March 31, 1997).
PacifiCorp ---------- Nature of Number of Percent of Total Number Ownership Shares of Outstanding Shares --------- ------ --------------------- Sole Power to Vote or 0 0% Direct the Vote Shared Power to Vote 714,286 8.25%* or Direct the Vote Sole Power to Dispose 0 0% or to Direct the Disposition Shared Power to 714,286 8.25%* Dispose or to Direct the Disposal ======= ====== Total 714,286 8.25%* Beneficially Owned - -------------- * Calculated using a denominator equal to 8,659,156 (based on the number of shares of Common Stock outstanding at March 31, 1997).
PacifiCorp Financial Services, Inc. ----------------------------------- Nature of Number of Percent of Total Number Ownership Shares of Outstanding Shares --------- ------ --------------------- Sole Power to Vote or 714,286 8.25%* Direct the Vote Shared Power to Vote 0 0% or Direct the Vote Sole Power to Dispose 714,286 8.25%* or to Direct the Disposition Shared Power to 0 0% Dispose or to Direct the Disposal ======= ====== Total 714,286 8.25%* Beneficially Owned - -------------- * Calculated using a denominator equal to 8,659,156 (based on the number of shares of Common Stock outstanding at March 31, 1997).
EX-3 4 CONVERTIBLE LOAN AND SECURITY AGREEMENT Exhibit 3 - -------------------------------------------------------------------------------- CONVERTIBLE LOAN AND SECURITY AGREEMENT between COVOL TECHNOLOGIES, INC. and PACIFICORP FINANCIAL SERVICES, INC. Dated as of March 20, 1997 - -------------------------------------------------------------------------------- TABLE OF CONTENTS Page ---- RECITALS...................................................................... 1 ARTICLE I - DEFINITIONS............. ......................................... 1 SECTION 1.01. Certain Defined Terms...................................... 1 SECTION 1.02. Accounting Terms...........................................10 SECTION 1.03. Other Terms................................................10 ARTICLE II - THE INDEBTEDNESS.................................................11 SECTION 2.01. The Commitment and the Term loans; Note....................11 SECTION 2.02. Repayment..................................................13 SECTION 2.03. Payments and Computations..................................13 SECTION 2.04. Taxes.... .................................................14 SECTION 2.05. Late Payments..............................................15 ARTICLE III - ACKNOWLEDGMENT AND CREATION OF SECURITY INTEREST.............................................................16 SECTION 3.01. Acknowledgment and Creation of Security Interest........................................16 SECTION 3.02. Duty of Care...............................................16 SECTION 3.03. Release of Liens and Security Interests................................................16 SECTION 3.04. Continuation of Liens and Security.........................17 SECTION 3.05. Insurance Proceeds.........................................17 ARTICLE IV - REPRESENTATIONS AND WARRANTIES...................................18 SECTION 4.01. Corporation in Good Standing...............................18 SECTION 4.02. Due Authorization..........................................18 SECTION 4.03. Pending and Threatened Actions.............................18 SECTION 4.04. Disclosure.................................................18 SECTION 4.05. Valid and Binding Obligations..............................19 SECTION 4.06. Payment of Taxes...........................................19 SECTION 4.07. Title to Collateral and Liens..............................19 SECTION 4.08. Defaults...................................................19 SECTION 4.09. Permits.. .................................................19 SECTION 4.10. Principal Place of Business: Jurisdictions Where Doing Business: Fiscal Year..............................................19 SECTION 4.11. ERISA.... .................................................20 SECTION 4.12. Subordination..............................................20 i SECTION 4.13 Government Approval........................................20 SECTION 4.14 Securities and Exchange Act; Investment Company Act...................................20 SECTION 4.15 Regulation U...............................................20 SECTION 4.16 Strikes, Etc...............................................20 SECTION 4.17 Adverse Agreements.........................................20 SECTION 4.18 Trade Names and Intellectual Property......................21 SECTION 4.19 Location of Collateral.....................................21 SECTION 4.20 Possession of Collateral...................................21 SECTION 4.21 Validity and Priority of Security Interests................................................21 SECTION 4.22 Accounts ..................................................21 SECTION 4.23 Agreements with Related Persons............................21 ARTICLE V - COVENANTS OF BORROWERS............................................22 SECTION 5.01. Affirmative Covenants......................................22 SECTION 5.02. Negative Covenants.........................................27 SECTION 5.03. Collateral.................................................30 ARTICLE VI - DEFAULT................ .........................................32 SECTION 6.01. Events of Default..........................................32 ARTICLE VII - RIGHTS, POWERS AND REMEDIES UPON DEFAULT........................35 SECTION 7.01. Remedies...................................................35 SECTION 7.02. Protection and Preservation of Collateral and Rights; Protective Advances......................................37 SECTION 7.03. Election...................................................37 SECTION 7.04. Waiver... .................................................37 SECTION 7.05. Power of Attorney..........................................38 SECTION 7.06. Entry Upon Premises........................................38 SECTION 7.07. Notification of Customers..................................39 SECTION 7.08. Failure to Pay.............................................39 SECTION 7.09. Application of Collateral Proceeds.........................39 SECTION 7.10. Enforcement of Borrower's Rights...........................39 SECTION 7.11. Exercise of Remedies.......................................40 SECTION 7.12. Equitable Remedies.........................................40 ARTICLE XIII GENERAL PROVISIONS...............................................40 SECTION 8.01. Survival of Terms..........................................40 SECTION 8.02. Presentment................................................41 SECTION 8.03. Successors and Assigns.....................................41 SECTION 8.04. Number... .................................................41 ii SECTION 8.05. Governing Law..............................................41 SECTION 8.06. Notices and Addresses; Payments............................42 SECTION 8.07. Severability; Independence of Covenants....................42 SECTION 8.08. Time..... .................................................42 SECTION 8.09. Necessity of Writing.......................................42 SECTION 8.10. Integration................................................43 SECTION 8.11. Captions...................................................43 SECTION 8.12. Lender's Expenses and Attorneys' Fees......................43 SECTION 8.13. Indemnification............................................44 SECTION 8.14. Agreement Governs..........................................45 SECTION 8.15. Third Party Beneficiaries..................................45 SECTION 8.16. Jurisdiction...............................................45 SECTION 8.17. Consent to Loan Participation..............................43 SECTION 8.18. Waiver of Jury Trial.......................................46 SECTION 8.19. Execution in Counterparts..................................47 ARTICLE IX - ENVIRONMENTAL PROVISIONS.........................................47 SECTION 9.01. Definitions................................................47 SECTION 9.02. Representations and Warranties.............................48 SECTION 9.03. Covenants..................................................48 SECTION 9.04. Borrower's Remedial Work...................................49 SECTION 9.05. Indemnity..................................................50 SECTION 9.06. Remedies Upon Default......................................51 SECTION 9.07. Continuing Obligations.....................................52 SECTION 9.08. Other Laws.................................................52 SECTION 9.09. Security Interest..........................................52 ARTICLE X - CONVERSION RIGHTS.................................................52 SECTION 10.01. Conversion.................................................52 SECTION 10.02. Mechanics of Conversion....................................53 SECTION 10.03. Current Conversion Price...................................54 SECTION 10.04. Adjustment of Conversion Price.............................55 SECTION 10.05. Issuer's Consolidation or Merger...........................61 SECTION 10.06. Notice to Lender...........................................62 Exhibit l.01.TN - Note Exhibit 5.01.R - Opinion of Counsel iii CONVERTIBLE LOAN AND SECURITY AGREEMENT THIS CONVERTIBLE LOAN AND SECURITY AGREEMENT (this "Agreement") is made as of March 20, 1997, by and between COVOL TECHNOLOGIES, INC., a Delaware corporation ("Borrower"), and PACIFICORP FINANCIAL SERVICES, INC., an Oregon corporation ("Lender"). RECITALS Borrower desires to borrow up to $5,000,000 (i) to complete construction by Borrower of the coal briquetting facility to be located in Birmingham, Alabama, known as Alabama Synfuel #1 Ltd. (the "Alabama Project"), (ii) to finance the acquisition by Borrower for the benefit of the Alabama Project of up to 100,000 tons of coal fines to be stored at the Port Hodder site, (iii) for funding of net working capital needs of the Alabama Project, as approved by Lender, (iv) to finance the development and construction of a wash plant for coal fines, at a location, price and with specifications approved by Lender, and (v) other uses by Borrower, as approved by the Lender in its sole discretion. In addition, the parties wish to provide that Lender may elect to convert all or any portion of the then outstanding principal and interest owing under this Agreement into shares of common stock, par value $.001 per share ("Borrower Common Stock"), of Borrower. Upon the terms and subject to the conditions set forth in this Agreement, and in consideration of the mutual covenants and agreements exchanged herein, Borrower and Lender agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (which meanings shall be equally applicable to both the singular and plural forms of the terms defined): "Account" shall have the meaning given to that term in the Code. "Account Debtor" means any Person who is obligated on an Account. "Accounts Payable" means the accounts payable of Borrower. "Additional Common Stock" is defined in Section 10.04.C. "Alabama Project" is defined in the Recitals. "Alabama Project Purchase Agreement" means the Alabama Project Purchase Agreement, dated as of the date hereof, between Borrower and Alabama Synfuel #1 Ltd., and Birmingham Syn Fuel, L.L.C. "Attorneys' Fees" means the reasonable fees (and all costs and expenses related thereto) for the services of the attorneys (and all paralegals and other staff employed by such attorneys) employed by Lender from time to time (i) in connection with or arising out of any bankruptcy case, receivership proceeding, or similar proceeding involving Borrower; (ii) to commence, defend or intervene in any court proceeding (whether at the trial or appellate level) or arbitration proceeding, or to file a petition, complaint, answer, motion or other pleading, or to take any other action in or with respect to any case, suit or proceeding (bankruptcy or otherwise) relating to the Transaction Documents, the Collateral, the Obligations, or any other agreement, document or instrument in any way relating to the Transaction Documents or the relationship between Borrower and Lender; (iii) after the occurrence and during the continuance of a Default or Event of Default, to advise Lender with respect to the Transaction Documents or any other agreement, document or instrument in any way relating thereto or the relationship between Borrower and Lender; (iv) to protect, collect, lease, sell, take possession of, or liquidate any of the Collateral and any other property, rights or interests owned or held by Lender to secure the payment and performance of the Obligations, to enforce or to attempt to enforce any security interest in any of the Collateral and any other property, rights or interests owned or held by Lender to secure the payment and performance of the Obligations, or to give any advice with respect to such enforcement; and (v) to enforce any of Lender's rights to collect any of the Obligations. "Borrower Common Stock" is defined in the Recitals. "Business Day" means any day other than a Saturday, a Sunday, a public or bank holiday under the laws of the State of Utah. "Cash and Cash Equivalents" means the aggregate amount of (i) cash on hand, (ii) Dollar demand deposits maintained in the United States with any federally insured or state chartered financial institution, (iii) Dollar time deposits maintained in the United States with, or certificates 2 of deposit issued by, any federally insured or state chartered financial institution, (iv) direct obligations of, or unconditionally guaranteed by, the United States and having a maturity of one year or less, and (v) readily marketable commercial paper having a maturity of one year or less, issued by any corporation organized and existing under the laws of the United States or any state thereof or the District of Columbia. "Code" means the Uniform Commercial Code as enacted in the State of Utah. "Collateral" means (a) all personal property assets of Borrower used or useful in connection with the Alabama Project, whether now existing or hereafter acquired or arising, and wherever located, tangible or intangible, including: (i) All Equipment used or useful in connection with the Alabama Project; (ii) All Inventory produced by, and used or useful in connection with, the Alabama Project; (iii) All Computer Hardware and Software used or useful in connection with the Alabama Project; (iv) All Accounts, contract rights, notes receivable, chattel paper, instruments, Intangibles, Cash and Cash Equivalents, stock and other equity securities, tax refunds and tax refund claims, trademarks, service marks, trade styles, trade names, copyrights, patents and other intellectual property of Borrower used or useful in connection with the Alabama Project, all depository accounts or deposits by Borrower in connection with the Alabama Project with any Person, documents, documents of title, and other property rights of any kind used or useful in connection with the Alabama Project, whether now or hereafter existing, wherever located, together with all rights now or hereafter existing in and to all security agreements, leases of personal property, leases of real property, and other contracts securing or otherwise relating to any such Accounts, contract rights, notes receivable, chattel paper, instruments, Intangibles, Cash and Cash Equivalents, stock and other equity securities, tax refunds and tax refund claims, trademarks, service marks, trade styles, trade names, copyrights, patents and other intellectual property of Borrower used or useful in connection with the Alabama Project; (v) All Proceeds and products of any and all of the foregoing property and, to the extent not otherwise included, all payments under insurance (whether or not Lender is the loss payee thereof), and all claims, indemnities, 3 warranties or guarantees, payable by reason of loss or damage to or otherwise with respect to any of the foregoing property, and all property of any type described above that is acquired with any cash proceeds of any of the foregoing property; and (b) all interests of Borrower in the real property covered by the Collateral Assignment of Lease and all other real property assets of Borrower used or useful in connection with the Alabama Project, and all rents, income, issues and profits thereof. "Collateral Assignment of Lease" means a Collateral Assignment of Lease executed and delivered by Borrower and Lender, securing the Obligations hereunder, together with the Consent of Parker towing Company, Inc., in form and substance reasonably satisfactory to Lender. "Commitment" is defined in Section 2.01.A hereof. "Commitment Period" is defined in Section 2.01.A hereof. "Computer Hardware and Software" means all of Borrower's right, title and interest, now owned or hereafter acquired, in computer equipment and hardware including all central processing units, terminals, disk drives, tape drives, electronic memory units, printers, keyboards, screens, peripherals (and other input/output devices), modems and other communication controllers, and any and all model conversions, accessions, parts and appurtenances thereto, substitutions therefor and replacements thereof, all intellectual property used by Borrower, at any time, in the operation of such computer equipment and hardware, including all software, all of Borrower's rights (to the extent assignable) under any licenses, options, warranties, service contracts, program services, test rights, maintenance rights, support rights, improvement rights, and renewal rights related to Borrower's use, at any time, of such computer equipment, hardware or software, and all leases pursuant to which Borrower leases any computer equipment, hardware or software. "Construction Assignment Agreement" means a Collateral Assignment of Construction Agreement to be executed and delivered by Borrower, Alabama Synfuel #1, Ltd. and Lender, securing the Obligations hereunder, together with a Consent and Agreement executed and delivered by TIC The Industrial Company, in form and substance reasonably satisfactory to Lender. "Conversion" is defined in Section 10.01.B hereof. 4 "Conversion Price" is defined in Section 10.03 hereof. "Current Conversion Price" is defined in Section 10.03 hereof. "Current Liabilities" means for Borrower, on a consolidated basis in accordance with GAAP, (i) all Debt which by its terms is payable on demand or matures within one year from the date of determination (excluding any Debt renewable or extendable, at the option of the debtor, to a date more than one year from such date or arising under a revolving credit or similar agreement which obligates the lender or lenders to extend credit during a period of more than one year from such date) and (ii) all other items (including taxes accrued as estimated) which in accordance with GAAP would be included as current liabilities. "Debt" means, for any Person, (i) all indebtedness or other obligations of such Person for borrowed money or for the deferred purchase price of property or services, (ii) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (iii) all obligations under leases which shall have been or should be, in accordance with GAAP, recorded as capital leases in respect of which such Person is liable as lessee, (iv) liabilities in respect of unfunded vested benefits under any ERISA Plan, (v) all Guaranteed Indebtedness, and (vi) (to the extent not otherwise covered by clauses (i), (ii) or (iii) above) all Debt of the type referred to in clauses (i), (ii) or (iii) above secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any lien, security interest or other charge or encumbrance upon or in property owned by such Person, even though such Person has not assumed or become liable for the payment of such debt. "Default" means the occurrence of an act, event or condition which would constitute an Event of Default under this Agreement but for the requirement that notice be given or time elapse or both. "Default Interest Rate" means, for any day, a rate per annum equal to the lesser of (a) the highest rate allowed by law, or (b) the sum of (i) the rate of interest publicly announced by Morgan Guaranty Trust Company of New York in New York City from time to time as its "prime rate", and (ii) five percent (5%) per annum. 5 "Distributions on Common Stock" is defined in Section 10.04.B hereof. "Dollars" and the sign "$" each means lawful money of the United States. "Early Termination Date" is defined in Section 2.01(D) hereof. "Employee Group" shall include any Person who was, has been or becomes an officer or director of Borrower at any time on or after the Effective Date. The Employee Group as of the date of this Agreement is identified on Schedule 1.01.EG attached hereto. "Environmental Report" means the Phase I Environmental Site Assessment, dated as of September 18, 1996, prepared by Lockwood Greene Technologies, Inc. "Equipment" means all equipment (as defined in the Code) of Borrower in all of its forms, wherever located, now or hereafter existing. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Plan" means, for any Person, an employee benefit plan or other plan maintained for employees of such Person and covered by Title IV of ERISA. "Event of Default" is defined in Section 6.01 hereof. "GAAP" means generally accepted United States accounting principles consistently applied, as in effect from time to time. "Good Faith" means honesty in fact in the conduct or transaction concerned, without regard to whether standards which might be deemed commercially reasonable have been observed. "Guaranteed Indebtedness" of any Person means all Debt referred to in clause (i), (ii) or (iii) of the definition of "Debt" in this Section 1.01 of any other Person guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through agreement (i) to pay or purchase such Debt or to advance or supply funds for the payment or purchase of such Debt, or (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payments of such Debt or to assure 6 the holder of such Debt against loss, or (iii) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether or not such property is received or such services are rendered) or (iv) otherwise to assure a creditor against loss. "Intangibles" means (i) goodwill, organizational expenses, research and development expenses, trademarks, trade names, copyrights, patents, patent applications, licenses and rights in any thereof, and other similar intangibles, (ii) all unamortized debt discount and expense, (iii) all reserves carried and not deducted from assets, (iv) treasury stock and capital stock, obligations or other securities of, or capital contributions to or investments in, any Related Person, (v) securities which are not readily marketable, (vi) cash held in a sinking or other analogous fund established for the purpose of redemption, retirement or prepayment of capital stock or Debt, (vii) any write-up in the book value of any asset resulting from a revaluation thereof, and (viii) any items not included in clauses (i) through (vii) above which are treated as intangibles in conformity with GAAP. "Inventory" means all inventory (as defined in the Code) of Borrower, including without limitation all personal property held for sale, lease or demonstration, or to be furnished under contracts of sale or service, in all forms, wherever located, now or hereafter existing, including (i) all inventory, raw materials, work in process, finished goods, materials and supplies used or to be consumed in Borrower's business, and all additions and accessions to such property, (ii) goods in which Borrower has an interest in mass or a joint or other interest or right of any kind, and (iii) goods which are returned to or repossessed by Borrower, and all accessions thereto and products thereof. "issuances" is defined in Section 10.04I hereof. "Letter Ruling" means a letter ruling from the Internal Revenue Service setting forth the specific terms of the proposed transaction and confirming to the satisfaction of Lender, among other things, (a) the availability and calculation of the credit available under Section 29 of the Internal Revenue Code of 1986, as amended (the "1986 Code"), (b) that the construction contract for the Alabama Project satisfies the requirements of the Section 29 of the 1986 Code, and (c) that the allocation of the Section 29 Credits to the various members of the buyer is valid under the 1986 Code. "Lien" means any mortgage, pledge, lien, claim, charge, encumbrance, security interest, conditional sale or title retention agreement, easement, use restriction, covenant 7 or reservation against or with respect to any of Borrower's property or interest in property. "Loan Documents" means this Agreement, the Note, the Security Documents, and any and all other documents executed pursuant hereto or thereto, or contemplated hereby or thereby (other than the Purchase Agreement Documents), as the same may be modified, extended, renewed, amended or replaced from time to time. "Material Adverse Change" means any material and adverse change in (a) Borrower's business, properties, condition (financial or otherwise), or operations or results thereof since the date of the most recent financial statement given to Lender with respect to Borrower, (b) Borrower's ability to pay and perform the Obligations, with respect to the development, construction or operation of the Alabama Project or (d) the Collateral, Lender's Liens on the Collateral or the priority of Lender's Liens on a material portion of the Collateral. "Note" means the promissory note of or about even date herewith executed by Borrower in the principal amount of the Term Loan, in substantially the form attached hereto as Exhibit l.01.TN, as the same may be amended, modified, renewed, extended, or replaced from time to time. "Obligations" means any and all indebtedness and other obligations of Borrower to Lender, both monetary and non-monetary, whether now existing or hereafter arising and however acquired, and whether arising under this Agreement, the Note, the other Transaction Documents or otherwise. "Other Taxes" is defined in Section 2.04.B hereof. "Permitted Liens" means: (i) Liens (but only to the extent not yet delinquent or (a) which are being contested in good faith by appropriate proceedings with reserves acceptable to Lender having been set aside and maintained and (b) with respect to tax liens on the Collateral, as to which Borrower shall have paid the undisputed amount) securing taxes, assessments or governmental charges or levies, or arising in connection with workers' compensation, unemployment insurance or social security obligations, or securing the claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons; (ii) Attachment, judgment or similar liens arising in connection with court proceedings (a) which are 8 discharged or stayed pending appeal within thirty (30) days of attachment or levy, and, if so stayed, the stay remains in effect or (b) payment of which is covered in full (subject only to customary and reasonable deductibles) by insurance or surety bonds; (iii) Liens in favor of Lender under the Loan Documents; (iv) Existing Liens disclosed on Schedule 1.01.PL attached hereto and Liens affecting real property interests consisting of (a) zoning regulations, (b) easements, (c) set-back lines, or (d) covenants, conditions or restrictions, now existing or hereafter arising, which do not in the aggregate have a material adverse effect on Borrower's use and enjoyment of such real property interests; and (v) The rights of Alabama Synfuel #1, Ltd. in the Alabama Project specifically set forth in Schedule 1.01.PL. "Person" means any natural person, corporation, limited liability company, partnership, sole proprietorship, firm, association, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. "Port Hodder Site" means the 15 acre leased parcel operated by Port Hodder, Inc., located in the City of Birmingham, Alabama, fronting the Locust Fork of the Black Warrior River at river mile 399.0 and located at latitude 33.5876 and longitude 87.1048. "Proceeds" shall have the meaning given to that term in the Code and shall include whatever is received upon the sale, exchange, collection or other disposition of Collateral. "Purchase Agreement Documents" means the Alabama Project Purchase Agreement, and any and all other documents executed pursuant thereto, or contemplated thereby (other than the Loan Documents), as the same may be modified, extended, renewed, amended or replaced from time to time. "Receiver" means any trustee, receiver, custodian, fiscal agent, liquidator or similar officer. "Related Person" means (i) any shareholder who owns or controls more than five percent (5%) of the voting securities of Borrower, (ii) any officer or director of Borrower, (iii) any other Person that, directly or indirectly, controls, is controlled by or is under common control with or 9 is related to, by blood or marriage, Borrower or any Person identified in clauses (i) or (ii), and (iv) any member of the Employee Group and any Person who is related, by blood or marriage, to any member of the Employee Group. "Responsible Officer" means each of the Chief Executive Officers, President, each Vice President, the Treasurer, the Chief Financial Officer and the Chief Accounting Officer of Borrower, or any other Person, howsoever designated, performing substantially similar roles for Borrower. "SEC Filings" means: Borrower's Registration Statement on Form 10/A Amendment No. 2; and Borrower's Annual Report on Form 10-K for the fiscal year ended September 30, 1996, and any subsequent filing made by Borrower with the Securities and Exchange Commissioner. "Security Documents" means this Agreement, the Collateral Assignment of Lease, the Construction Assignment Agreement and any financing statements or other documents or agreements reasonably requested by Lender to secure the Obligations hereunder. "Shares" is defined in Section 10.01.A hereof. "Taxes" is defined in Section 2.04.A hereof. "Termination Date" means the first anniversary of the date hereof. "Term Loans" is defined in Section 2.01.A. "Transaction Documents" means this Agreement, the Loan Documents and the Purchase Agreement Documents. SECTION 1.02. Accounting Terms. Any accounting term used in this Agreement which is not specifically defined herein shall have the meaning customarily given to it under GAAP as consistently applied by Borrower as promulgated in (i) the documents of Rule 203 of the Code of Professional Conduct of the American Institute of Certified Public Accountants, (ii) Statement of Accounting Standards No. 43 "Omnibus Statement on Auditing Standards" of the Auditing Standards Board of the American Institute of Certified Public Accountants and (iii) any superseding or supplemental documentation of equal authority promulgating generally accepted accounting principles and practices, all as in effect from time to time. SECTION 1.03. Other Terms. All other terms contained in this Agreement which are not defined herein shall, unless the 10 context indicates otherwise, have the meanings provided for by the Code to the extent such terms are defined therein. ARTICLE II THE INDEBTEDNESS SECTION 2.01. The Commitment and the Term Loans; the Note. A. Subject to the terms and conditions hereof, during the period up to but not including September 30, 1997 (the "Commitment Period"), Lender shall make loans to the Borrower in such amounts as Borrower may from time to time request ("Term Loans") but not exceeding in aggregate principal amount at any one time outstanding $5,000,000 (the "Commitment"); provided, however, that, prior to obtaining a satisfactory Letter Ruling, Lender shall not be obligated to make Term Loans in an aggregate amount exceeding $1,900,000 provided, further, that any amounts drawn under any letters of credit arranged by Lender or any or its Affiliates for the purposes described in Section 2.01.B below shall be deemed "Term Loans" for the purposes of this Section 2.01.A; provided further; that any payments with respect to the Construction Contract (as defined in the Alabama Project Purchase Agreement) shall be paid directly by Lender to the Contractor and shall be deemed "Term Loans" for the purposes of this Section 2.01.A. B. The Term Loans shall be available in the following amounts and for the following purposes: (i) up to $25,000 to repay the Demand Promissory Note, dated as of February 24, 1997, of Borrower in favor of Lender, (ii) up to $100,000 to be used as a "good faith" deposit pursuant to the Amended and Restated Supply Agreement, dated as of the date hereof, (iii) up to $3,200,000 to complete construction by Borrower of the Alabama Project, (iv) up to $1,640,000 to finance the acquisition by Borrower for the benefit of the Alabama Project of up to 60,000 tons of coal fines to be stored at the Port Hodder Site, and (v) up to an amount equal to $5,000,000 minus such amounts as are borrowed pursuant to clauses (i) and (iv) above, to fund the net working capital needs of the plant operations of the Alabama Project; provided, however, that the determination of the amount of such net working capital needs shall be subject to the approval of Lender in its sole discretion; provided, further, that any amounts available to be drawn under any letters of credit arranged by Lender or any of its Affiliates for the purposes described in this Section 2.01.B shall not be available to be drawn as Term Loans hereunder. 11 C. Term Loans shall be made upon the written request of Borrower against invoices for the purposes contemplated in paragraph B above; provided, however, except in connection with Term Loans pursuant to clauses (i) and (ii) of Section 2.01.B above, the Lender shall have no obligation to make any Term Loan hereunder until completion of each of the following: (i) delivery of the opinions of counsel of Ballard Spahr Andrews & Ingersoll and Lange, Simpson Robinson & Somerville, in substantially the forms attached hereto as Exhibit 5.01.R, (ii) execution and delivery of a Lease and Lease Option between Borrower and Parker Towing Company, Inc., in form and substance reasonably satisfactory to Lender, (iii) delivery of a certificate of an executive officer of the Borrower certifying that (a) the representations and warranties of the Borrower and Alabama Synfuel #1 Ltd. in each of the Transaction Documents are true and complete on and as of the date of such certification as though such representations and warranties were made on and as of the date of such certificate, and (b) each of Borrower and Alabama Synfuel #1 Ltd. is in compliance with the terms of each of the Transaction Documents and no event of default has occurred under any of the Transaction Documents, (iv) delivery to Lender of evidence of the release of the lien of AJG Financial Services, Inc. on the apron drying oven being manufactured by National Dryer Company for use in the Alabama project, (v) execution and delivery of any Transaction Documents not previously delivered to Lender, including the Security Documents, (vi) receipt of confirmation of filing of the Security Documents in the respective jurisdictions identified by Lender, and (vii) delivery of a certificate of insurance by Borrower in form and substance reasonably satisfactory to Lender. D. Subject to Section 10.01 hereof, at any time prior to the termination of the Commitment Period, by written notice to Lender no later than 11:00 A.M. Portland, Oregon time sixty (60) days prior to such termination (such period from and after notice to the termination, the "Early Termination Period"), Borrower may permanently terminate the Commitment. Such notice shall be in writing or by telephonic communication confirmed by telecopy or other facsimile transmission on the same day as such notice. E. Lender may terminate the Commitment to make further Term Loans at any time Lender determines (in the case of clause (ii), in its sole discretion, and in the case of each of clause (i), in its reasonable discretion) that (i) a favorable Letter Ruling will not be obtained, or (ii) an Event of Default has occurred and is continuing under any of the Transaction Documents. 12 F. In the event that no Term Loans have been made prior to the termination of the Commitment Period (and no simultaneous advances and conversions contemplated under Article X hereof shall have been made prior to such time), this Agreement shall automatically terminate as of the end of the Commitment Period. SECTION 2.02. Repayment. A. Obligation to Repay. Subject to Section 10.01 hereof, Borrower shall repay the principal amount of the Term Loan, together with interest thereon, in accordance with the terms of this Agreement and the Note. Except where the time for payment has been set forth in this Section 2.02 or in the Note, Borrower shall pay all Obligations to Lender immediately upon demand. B. Repayment of Protective Advances. Notwithstanding anything to the contrary contained in this Agreement or the other Transaction Documents, until those amounts which from time to time shall be payable by Borrower pursuant to the provisions of Section 7.02 hereof ("Protective Advances") shall have been paid in full, any and all sums (i) paid by Borrower to Lender, or (ii) otherwise received by Lender for application to payment of any Obligations, may, at Lender's option, be applied (in lieu of any other application thereof) to pay Protective Advances. C. Prepayments. (i) Optional Prepayments. Subject to Section 10.01 hereof, by written notice to Lender no later than 11:00 A.M. Portland, Oregon time, sixty (60) days prior to such prepayment, Borrower may prepay, at any time without premium or penalty, all Obligations outstanding under the Note. (ii) Termination of Commitment. Subject to Section 10.01 hereof, prepayment under this Section 2.02.C shall cause the Commitment to be immediately and automatically terminated. SECTION 2.03. Payments and Computations. A. Borrower shall make each payment hereunder and under the Note not later than 12:30 p.m. (Portland, Oregon time) on the day when due in U.S. Dollars to Lender at the address for payments set forth in Section 8.06 hereof in same day funds, and any funds received after that hour shall be deemed to have been received by Lender on the next succeeding Business Day. Whenever any payment hereunder or under the Note shall be stated to be due on a day which is not a Business Day, 13 such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be. B. Lender shall record in its records, or at its option on a schedule attached to the Note, the date and amount of each repayment of the Term Loan. The aggregate unpaid principal amount so recorded shall be presumed to be correct and binding on Borrower absent manifest error. The failure to so record any such amount, or any error in so recording any such amount, shall not, however, limit or otherwise affect Borrower's obligations hereunder or under the Note to repay the principal amount of the Term Loan, together with all interest accruing thereon. SECTION 2.04. Taxes. A. Any and all payments by Borrower hereunder or under the Note shall be made, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities, penalties and interest with respect thereto, excluding, in the case of Lender, (x) withholding taxes that are creditable against taxes payable by Lender, (y) periodic taxes upon or with respect to the value of the interest of Lender in the Note or this Agreement, and (z) taxes imposed on or measured by Lender's income or receipts and franchise and doing business taxes imposed on Lender (all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings, liabilities, penalties and interest being hereinafter referred to as "Taxes"). If Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under the Note to Lender, (i) the sum payable shall be increased as may be necessary so that after making all required deductions Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrower shall make such deductions and (iii) Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. B. In addition, Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made under any of the Transaction Documents or from the execution, delivery or registration of, or otherwise with respect to, any of the Transaction Documents, excluding, in the case of Lender, (x) taxes, charges and similar levies imposed as a result of a voluntary or involuntary transfer or other disposition of all or any portion of its respective equitable or legal interests in the Note or this Agreement and (y) taxes 14 imposed on or measured by its income or receipts and franchise and doing business taxes imposed on it (all such non-excluded taxes, charges and levies being hereinafter referred to as "Other Taxes"). C. Borrower shall, within thirty (30) days from the date Lender makes written demand therefor, indemnify Lender for the full amount of Taxes or Other Taxes to the extent such taxes are either due and payable or have been paid by Lender. D. Within thirty (30) days after the date of any payment of Taxes, Borrower will furnish to Lender the original or a certified copy of a receipt evidencing payment thereof. E. The provisions of Sections 2.04.A and 2.04.B hereof shall not extend to any of the following: (i) Taxes or Other Taxes imposed on Lender as a result of a voluntary or involuntary transfer or disposition of all or any portion of its equitable or legal interest in the Note or this Agreement; (ii) Taxes or Other Taxes imposed on Lender to the extent such Taxes or Other Taxes result from the failure of Lender to accurately prepare and file timely and properly any return or form, certificate or other document; or (iii) Taxes or Other Taxes imposed on Lender by any jurisdiction as a result of activities or presence in such jurisdiction unrelated to the transactions contemplated by this Agreement and agreements contemplated hereby. F. In the event that Lender transfers or assigns any of its rights, interest or obligations under the Note or this Agreement, Borrower's obligations under this Section 2.04 shall in no case exceed the amount of Borrower's obligations had said rights, interest or obligations not been transferred or assigned. SECTION 2.05. Late Payments. If any sums owing by Borrower to Lender, whether principal, interest or otherwise, are not paid on the due date (whether as a result of scheduled maturity, acceleration or demand), after giving effect to any applicable grace period, then (i) Borrower shall pay to Lender a late charge equal to five percent (5%) of such sum(s) and (ii) the interest rate payable under the Note shall be increased to the Default Interest Rate until such unpaid sum(s) are paid to Lender. Borrower acknowledges that the actual expenses incurred by Lender in attending to late payments and the cost of the loss of use of funds are difficult to ascertain, and agree that the late charge and the increase in 15 the rate of interest as set forth above together constitute a reasonable estimate of these additional losses, expenses and costs to Lender resulting from such late payments. ARTICLE III ACKNOWLEDGMENT AND CREATION OF SECURITY INTEREST SECTION 3.01. Acknowledgment and Creation of Security Interest. To secure payment and performance of the Obligations, Borrower hereby assigns, transfers and grants to Lender a continuing first priority security interest in and lien on all of the Collateral (subject only to the Permitted Liens). Borrower further acknowledges and agrees that the Obligations are secured by security interests in and liens upon all of the Collateral in accordance with the provisions set forth herein and in the other Loan Documents. SECTION 3.02. Duty of Care. Lender shall have no duty of care with respect to the Collateral, except that Lender shall exercise reasonable care with respect to the Collateral in Lender's custody, but shall be deemed to have exercised reasonable care if such property is accorded treatment substantially equal to that which Lender accords its own property, or if Lender takes such action with respect to the Collateral as Borrower shall request in writing, provided, that no failure to comply with any such request nor any omission to do any such act requested by Borrower shall be deemed a failure to exercise reasonable care. Lender's failure to take steps to preserve rights against any parties or property shall not be deemed to be a failure to exercise reasonable care with respect to the Collateral in Lender's custody. SECTION 3.03. Release of Liens and Security Interests. A. Except as expressly required by the terms of this Agreement or applicable law, Lender shall not be obligated to release its liens and security interests in any portion of the Collateral so long as any Obligations remain outstanding; provided, however, that any release by Lender of its liens and security interests in any portion of the Collateral shall apply only to such of the Collateral as is specifically described in the release given by Lender and shall not in any way constitute a release by Lender of its liens and security interests in the Proceeds, products or accessions of such Collateral in existence at the time of such release or of any other Collateral. B. So long as no Default or Event of Default has occurred and is continuing or would, as a result of or after 16 giving effect to the sale, exist or be continuing, (i) Borrower may, in the ordinary course of business, sell to third parties synthetic coal products; and (ii) Borrower may, in the ordinary course of business, sell or otherwise dispose of obsolete or excess Equipment used or useful in connection with the Alabama Project of an aggregate value not exceeding Five Thousand Dollars ($5,000) during the term of hereof, and Lender shall, if requested by Borrower, release its security interest in and Lien upon such Equipment. C. Lender shall release its liens and security interest in the Collateral upon the first of the following to occur: (i) the termination of the Commitments and the satisfaction in full of all Obligations under the Loan Documents; (ii) the closing of the purchase by Birmingham Syn Fuel, L.L.C. of the Alabama Project pursuant to the Alabama Project Purchase Agreement, or (iii) the conversion of all of the outstanding Term Loans and Commitments into Shares pursuant to Article X hereof. SECTION 3.04. Continuation of Liens and Security Interests. All of Lender's rights with respect to the liens and security interests hereunder and under the other Security Documents shall continue unimpaired, and Borrower shall be and remain obligated in accordance with the terms hereof and thereof, notwithstanding the release or substitution of any Collateral at any time(s), or of any rights or interests therein, or any delay, extension of time, renewal, compromise, accommodation or other indulgence granted by Lender with respect to Borrower, any other Person or any of the Obligations, or any promissory note, draft, bill of exchange or other instrument given in connection therewith. SECTION 3.05. Insurance Proceeds. Proceeds of any insurance on the Collateral shall be paid directly to Lender pursuant to the Lender's loss payable endorsement to Borrower's casualty insurance policies. Lender may deal directly with the insurance company to adjust or settle the loss: So long as (i) no Default or Event of Default has occurred and is continuing; and (ii) the proceeds from insurance and, if needed, additional funds provided by Borrower are, in the reasonable judgment of Lender, sufficient, Borrower may require the proceeds be used to rebuild, repair or replace any damaged Collateral. Borrower shall obtain the prior written consent of Lender to the method of such rebuild, repair and/or replacement, including, if necessary, approval to any changes to the plans and specifications approved under the Alabama Project Purchase Agreement, which approval shall not be unreasonably withheld. Lender shall respond to any written request for approval from Borrower within ten (10) Business 17 Days of receipt thereof, indicating approval or setting forth the reasons for disapproval, as applicable. ARTICLE IV REPRESENTATIONS AND WARRANTIES Subject to the specific exceptions set forth in the Schedules referenced in this Article IV, Borrower makes the following representations and warranties to Lender, which representations and warranties shall survive the execution of this Agreement and remain in full force and effect until Borrower has satisfied and discharged all Obligations under the Loan Documents. The representations and warranties shall be deemed repeated as of the date of each advance of a Term Loan; provided, however, that from and after the closing of the transfer of the Alabama Project pursuant to the Alabama Project Purchase Agreement, the representations and warranties contained in Sections 4.07, 4.08 (in so far as it relates to Collateral) and 4.19-4.22 shall not be brought down. SECTION 4.01. Corporation in Good Standing. Borrower has complied in all material respects with all laws necessary to conduct its business as presently conducted and Borrower is a corporation (i) duly organized, validly existing and in good standing in Delaware, (ii) in good standing and qualified to do business in the jurisdiction where such Borrower's principal place of business is located and (iii) in good standing and qualified to do business in all other jurisdictions to the extent necessary for Borrower to conduct its business as presently conducted in such jurisdictions. SECTION 4.02. Due Authorization. Borrower has the authority, and has completed all proceedings and obtained all approvals and consents necessary, to execute, deliver and perform this Agreement and the transactions contemplated hereby. Such execution, delivery and performance will not contravene or constitute a default under or result in or require the creation of a lien, security interest, or other charge or encumbrance upon any assets of Borrower (except the liens created by this Agreement or the other Loan Documents in favor of Lender) pursuant to any applicable law or regulation, any charter document of Borrower, or any contract, agreement, judgment, order, decree, or other instrument binding upon or affecting Borrower. SECTION 4.03. Pending and Threatened Actions. There is no action, suit or proceeding pending or, to the best of Borrower's knowledge after due inquiry, threatened against Borrower where an adverse result could cause a Material Adverse Change, other than as set forth on Schedule 4.03 hereto. 18 SECTION 4.04. Disclosure. No written statement made by Borrower to Lender in connection with this Agreement contains any untrue statement of a material fact or omits a material fact necessary to make such statement accurate. SECTION 4.05. Valid and Binding Obligations. All of the Transaction Documents are valid and binding obligations of Borrower, fully enforceable in accordance with their respective terms. SECTION 4.06. Payment of Taxes. All tax returns and reports of Borrower required to be filed have been timely filed, and all taxes, assessments, fees, interest, penalties and other governmental charges upon Borrower and its properties, assets, income and franchises which are due and payable have been paid when due and payable except where such taxes, assessments, fees, interest, penalties or other governmental charges are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and where reserves or other appropriate provisions, if any, as required in accordance with GAAP, have been made and are being maintained therefor. SECTION 4.07. Title to Collateral and Liens. Borrower has good and marketable title to all of the Collateral and, except for the Permitted Liens, all of the Collateral is free of any and all liens, charges, security interests, encumbrances and adverse claims. SECTION 4.08. Defaults. There are (i) no defaults in the payment of any Debt (other than defaults with respect to trade payables incurred in the ordinary course of business, the occurrence of which could not cause a Material Adverse Change) or, (ii) no defaults in the performance of any obligations, including obligations to deliver synthetic coal product under long-term contracts or with respect to Debt secured by any of the Permitted Liens against the Collateral which are or may be senior to any lien thereon or other security interest therein in favor of Lender, by assignment or otherwise, which, in the case of any event under this clause (ii), could cause a Material Adverse Change. SECTION 4.09. Permits. Borrower possesses, and will hereafter possess, all material permits, memberships, franchises, contracts, patents and licenses required, and fictitious name rights necessary, to enable it to conduct the business in which it is now engaged in each jurisdiction where such business is now being conducted. SECTION 4.10. Principal Place of Business; Jurisdictions Where Doing Business; Fiscal Year. Borrower's principal place 19 of business, the offices where Borrower keeps its records and the states where Collateral is located are set forth on Schedule 4.10 attached hereto. The end of the Borrower's fiscal year is September 30. SECTION 4.11. ERISA. Borrower does not maintain any ERISA Plan. SECTION 4.12. Subordination. None of the Obligations are subordinated in right of payment to any obligations of Borrower to any other Person, including any Debt of Borrower to any Related Persons. Except as set forth on Schedule 4.12 attached hereto, Borrower is not currently indebted, directly or indirectly, to any Related Persons. SECTION 4.13. Government Approval. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by Borrower of any of the Transaction Documents. SECTION 4.14. Securities and Exchange Act; Investment Company Act. No proceeds of the Term Loan have been used to acquire any security in any transaction which is subject to Sections 13 and 14 of the Securities Exchange Act of 1934. Borrower is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 4.15. Regulation U. Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of the Term Loan have been or will be used to purchase or carry any margin stock, to extend credit to others for the purpose of purchasing or carrying any margin stock, or for any other purpose not permitted by Regulations G, U, V or X of the Federal Reserve Board. SECTION 4.16. Strikes Etc. Neither the business nor the properties of Borrower currently are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or other casualty (whether or not covered by insurance), materially adversely affecting such business or properties or the operations of Borrower. SECTION 4.17. Adverse Agreements. Borrower is not party to any indenture, loan or credit agreement or lease or other agreement or instrument or subject to any charter or corporation restriction which, if performance or compliance 20 therewith is effected for its intended purpose by the parties thereto, would cause a Material Adverse Change in Borrower's business, properties, assets, operations or condition, financial or otherwise, or on the ability of Borrower to carry out its obligations under any of the Transaction Documents. SECTION 4.18. Trade Names and Intellectual Property. Schedule 4.18 attached hereto contains a complete list of all of Borrower's trade names, trademarks, trademark applications, patents, patent applications, copyrights and copyright applications included in the Collateral, and Borrower is not operating or doing business under any other trade name or utilizing any other trademarks, patents or copyrights in the conduct of the Alabama Project. SECTION 4.19. Location of Collateral. All of the items, whether tangible or intangible, comprising the Collateral are located at the places specified (detailing account numbers and other information sufficient to permit Lender to readily locate and identify the Collateral) in Schedule 4.19 attached hereto. SECTION 4.20. Possession of Collateral. Borrower has exclusive possession and control of the Collateral, except where (i) Lender is in possession or control of the Collateral pursuant to the terms of this Agreement, and (ii) another Person is in possession and control of the Collateral to the extent necessary to give effect to the Permitted Liens. SECTION 4.21. Validity and Priority of Security Interests. Except where a Permitted Lien is senior in priority to Lender's security interest in the Collateral, this Agreement creates a valid first priority security interest in the Collateral SECTION 4.22. Accounts. Unless otherwise disclosed by Borrower to Lender in writing, each Account listed or referred to on any trial balance, balance sheet or the books and records of Borrower, or referred to in any report to Lender, is and will be free and clear of Liens in favor of any Person other than Lender, will cover a bona fide sale or lease and delivery of goods usually dealt with by Borrower in the ordinary course of Borrower's business or will cover the rendition of services by Borrower to customers of a kind ordinarily rendered in the ordinary course of Borrower's business, and will be for a liquidated amount from a customer competent to contract therefor and maturing as stated by Borrower. SECTION 4.23 Agreements with Related Persons. There are no contracts, licenses, agreements, arrangements or limitations on the use by Borrower of any property, tangible or intangible, or assets used or utilizable in the business of 21 Borrower with any Related Person other than as disclosed on Schedule 4.23 attached hereto. ARTICLE V COVENANTS OF BORROWER SECTION 5.01. Affirmative Covenants. Until Borrower has satisfied and discharged all Obligations under the Loan Documents, subject to the provisions of Section 8.01 hereof, Borrower will: A. Performance of Obligations. Punctually pay and perform each of the Obligations in accordance with the terms of the Transaction Documents. B. Financial Statements and Reports. Furnish Lender: (i) not later than one hundred (120) days after the end of each fiscal year of Borrower, consolidated financial statements prepared by Borrower in accordance with GAAP and audited by independent certified public accountants as of and for the fiscal year then ended, certified by such independent certified public accountants in a manner reasonably acceptable to Lender and including a balance sheet, a statement of operations, a statement of cash flows, a statement of stockholders' equity, in each case, consistent with the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission; (ii) not later than forty-five (45) days after the end of each fiscal quarter of Borrower (other than the fiscal quarter which is Borrower's fiscal year end), consolidated financial statements prepared by Borrower in accordance with GAAP as of and for the quarter then ended, to include a balance sheet, a statement of operations, and a statement of cash flows, in each case, consistent with the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission; (iii) promptly (in any event within five (5) Business Days), a copy of any monthly management reports; (iv) at the time of delivery of the financial statements referred to in Sections 5.01.B(i), and (ii)hereof, a letter addressed to Lender signed by the Chief Executive Officer, Chief Financial Officer or the Chief Accounting Officer of Borrower, certifying that no condition, act or event has occurred and is continuing which constitutes a Default or an Event of Default under this Agreement; 22 (v) not later than ten (10) Business Days after Lender's request therefor, copies of all annual federal and state tax returns for taxes based on Borrower's income, all exhibits and schedules thereto and any additional tax returns (whether for income or any other taxes and whether filed with state, federal or other taxing authorities), exhibits and schedules of Borrower; (vii) at such times and from time to time as Lender may request of Borrower, such other reports concerning the Collateral or Borrower's operations as Lender may reasonably request; (viii) within five (5) days after the filing thereof, all forms, statements, reports, notices or other filings filed or made by Borrower with the Securities and Exchange Commission; and (ix) promptly upon receipt, copies of all management letters, internal control evaluations and reports and other material letters, memoranda or reports submitted by Borrower's independent certified public accountants or consultants with respect to any matter concerning the audits, financial statement presentation or other accounting matters. C. Accounting Records. Maintain adequate books and accounts and permit any representative of Lender, during normal business hours, to inspect, audit, copy and examine such books and accounts and inspect the properties of Borrower and to interview Borrower's independent accountants regarding operating results and financial condition. D. Collateral Records. Keep accurate and complete records of Accounts, allow Lender or any of Lender's agents, including consultants hired by Lender, to call at any of Borrower's places of business (a) prior to the occurrence of a Default or an Event of Default, on at least one Business Day's advance notice and (b) after the occurrence of a Default or an Event of Default, without prior appointment, at intervals determined by Lender (without hindrance or delay) to inspect the Collateral and to inspect, examine, check and make extracts from the books, records, journals, order receipts, correspondence and any other data relating to the Collateral or operations of the Alabama Project or any transactions (y) between Borrower and Lender, or (z) affecting Lender's rights under this Agreement, the expenses of which shall be borne by Borrower. If any such records are held by a third party, Borrower hereby authorizes Lender to contact such third party and direct such third party to provide access to such documents to Lender as if such documents were in Borrower's possession. Lender may retain one or more consultants in 23 connection with the foregoing, the expenses of which shall be borne by Borrower. Borrower further agrees to provide Lender with such information as Lender may from time to time request with respect to the location of any of the Collateral. In addition, Borrower shall notify Lender promptly in writing of any change(s) in location of any office where records concerning any of the Accounts are maintained, of any change(s) in location of Borrower's places of business and of any change(s) in the location of any of the Collateral. E. Additional Information; Board of Director Meetings. Provide such additional information regarding the business affairs and financial condition of Borrower as Lender may from time to time request, and provide Lender prompt notice of, and admittance to, all meetings of the Board of Directors of Borrower. F. Maintenance of Property. Keep all of Borrower's properties useful or necessary to Borrower's business in good repair and condition, reasonable wear and tear excepted, and from time to time make necessary repairs, renewals and replacements thereto so that such property shall be fully and efficiently preserved and maintained, except to the extent it would not cause a Material Adverse Change. G. Maintenance of Business. Preserve and maintain Borrower's corporate existence and all of its licenses, permits, trade names, trade styles, governmental approvals, rights, privileges and franchises reasonably necessary to conduct its business; conduct its business in an orderly and regular manner; comply with the provisions of all documents pursuant to which Borrower is organized and/or which govern Borrower's continued existence; and comply with the requirements of all applicable laws, rules, regulations and orders of any governmental authority and requirements reasonably necessary for the maintenance of Borrower's insurance, licenses, permits, trade names, trade styles, governmental approvals, rights, privileges and franchises reasonably necessary for the continued business of Borrower as currently constituted, except to the extent it would not cause a Material Adverse Change. H. Statements Regarding Collateral. Furnish to Lender promptly upon request therefor statements of the terms, conditions and status of payments on all Accounts and other instruments, documents and agreements which at the time of the request constitute a part of the Collateral. Lender may, from time to time, either before or after an Event of Default, by reasonable means, verify, in its own name or such other name as Lender may choose, the validity, amount and any other matters relating to Accounts and other instruments, documents and 24 agreements by means of mail, telephone or otherwise, and Borrower shall use its best efforts to assist Lender in verifying such matters promptly upon Lender's request therefor. I. Annual Collateral Report. Provide to Lender as soon as possible, but in any event within one hundred twenty (120) days after the end of each fiscal year of Borrower, an asset register update setting forth in reasonable detail an inventory of all Collateral and such information with respect thereto as Lender reasonably may request. J. Litigation. Promptly give notice in writing to Lender of (i) any litigation pending or instituted against Borrower potentially involving Fifty Thousand Dollars ($50,000) or more, (ii) any litigation overtly threatened against Borrower potentially involving Fifty Thousand Dollars ($50,000) or more, (iii) any litigation involving or affecting the Alabama Project or any of the Transaction Documents, or (iv) any litigation pending, instituted or overtly threatened involving a claim for injunctive relief. Not later than one hundred twenty (120) days after the end of each fiscal year of Borrower, deliver to Lender a report of all litigation pending or overtly threatened against Borrower, or to which Borrower is otherwise a party or which involves the Alabama Project or any of the Transaction Documents, in such detail as Lender may reasonably request. K. Taxes and Other Liabilities. Pay and discharge when due any and all Debt, obligations, assessments and taxes, real and personal, including federal and state income taxes, except such as Borrower may in good faith contest by appropriate proceedings promptly instituted and diligently conducted and if such reserve or other appropriate provisions, if any, as are proper in accordance with GAAP shall have been made therefor and maintained. L. Notice to Lender. Promptly, but in no event more than five (5) days after becoming aware of the occurrence of each such event or matter give notice in writing to Lender of (i) the occurrence of any Event of Default or any Default, (ii) any change in name, identity or corporate structure of Borrower or (iii) any loss through fire, theft, liability, property damage or other casualty in excess of an aggregate of Fifty Thousand Dollars ($50,000). M. Insurance. (i) Obtain, maintain and keep in force insurance of the types and in amounts customarily carried in lines of business similar to Borrower including fire, hazard insurance, extended coverage, public liability, property 25 damage, extra expense and business interruption and worker's compensation, carried with companies, as required by law and pursuant to each contract or agreement entered into by Borrower in connection with the Alabama Project and in amounts satisfactory to Lender in its reasonable discretion, and obtain, maintain and keep in force such other insurance as Lender may reasonably request from time to time, and at all times maintain insurance upon the Collateral covering such risks and in such amounts as shall be necessary to prevent Borrower from being a co-insurer; and (ii) On or about the date of this Agreement and at the time of issuance or renewal of any insurance policy of Borrower, deliver to Lender certificates of such insurance, each of which such certificates shall name Lender as a lender's loss payee or additional insured, as appropriate, in a form satisfactory to Lender and shall prohibit cancellation or modification except upon thirty (30) days' prior written notice to Lender. N. Stock Powers. Grant Lender appropriate stock powers to the extent any securities become part of the Collateral. O. Subordination. Immediately notify Lender of the creation of any Debt or other obligations in favor of any of Borrower's officers, directors or Related Persons, and immediately cause all such Debt and obligations to be subordinated, pursuant to subordination agreements in form and substance reasonably satisfactory to Lender, to the Obligations. P. Defense of Actions. (i) At Borrower's sole cost and expense, appear in and defend any action or proceeding which may adversely affect Lender's interest in the Obligations or the Transaction Documents or Lender's security interest in and liens upon the Collateral; and (ii) At Borrower's sole cost and expense, appear in and defend any action or proceeding which may adversely affect Borrower's title to any Collateral. Q. Collateral. At Borrower's sole cost and expense, at all times maintain or cause to be maintained, as the case may be, in favor of Lender valid, continuing and perfected first priority security interests (subject only to the Permitted Liens relating thereto) in all of the Collateral, take such actions as Lender deems reasonably necessary and appropriate to protect Lender's security interests in such 26 Collateral, and provide to Lender such assurances as Lender may reasonably require as to Borrower's compliance herewith. R. Opinion of Counsel. Promptly following execution and delivery of this Agreement, deliver to Lender an opinion of counsel in the form of Exhibit 5.01.R hereto. SECTION 5.02. Negative Covenants. Until Borrower has satisfied and discharged all of the Obligations under the Loan Documents, subject to the provisions of Section 8.01 hereof, Borrower will not, without the prior written consent of Lender (which shall not be unreasonably withheld): A. Use of Proceeds. Use the proceeds of the Term Loans except as contemplated by Section 2.02. B. Other Debt. Create, incur or permit to exist any Debt, except (i) the liabilities of Borrower to Lender, (ii) accrued expenses, accrued liabilities and Accounts Payable that are in each case also Current Liabilities incurred in the ordinary course of Borrower's business, (iii) taxes payable, (iv) the Debt described on Schedule 5.02.B,(v) debt incurred or created to fund the acquisition, development, building, management and/or maintenance of coal briquetting facilities and related expenditures, whether the facilities are intended to be developed by the Borrower or affiliated entities or sold to third party entities (provided that, except for Liens with respect to the specific facility or equipment related to such specific facility, such Debt shall be unsecured), (vi) Debt created or incurred to fund working capital needs or obligations in aggregate outstanding amount not to exceed $1,000,000, and (vii) Debt created or incurred solely to refinance existing Debt of Borrower (which Debt was otherwise permitted pursuant to the foregoing clauses (i) through (vi). C. Merger, Consolidation, Pledge of Assets. Make any substantial change in the nature of Borrower's business; merge into or consolidate with any Person; pledge, encumber, allow the creation of any Lien (other than Permitted Liens) or grant any security interest in or to any of its assets other than security interests on specific coal briquetting facilities or equipment related to such specific facilities to secure the Debt allowed under Section 5.02B; or do business in any corporate, trade or fictitious name other than as listed on Schedule 4.18, except for any name used by an affiliated entity formed to facilitate the financing, acquisition, development, building, management and/or maintenance of coal briquetting facilities. D. Sale of Assets. Sell, lease, assign, transfer or otherwise dispose of a substantial portion of Borrower's 27 property, real or personal, outside of the ordinary course of Borrower's business, except as contemplated by the Transaction Documents, the sale of coal briquetting facilities or the licensing of technology related to the coal briquetting facilities, or the sale of equity in an affiliated entity formed to facilitate the financing, acquisition, development, building, management and/or maintenance of coal briquetting facilities E. Guarantees. Guarantee or become liable in any way, as surety, endorser (other than as endorser of negotiable instruments in the ordinary course of business), accommodation endorser or otherwise for the Debts or obligations of any other Person (other than a subsidiary or other affiliate controlled by Borrower to the extent such Debt is permitted under Section 5.02.B), including without limitation any Hazardous Materials Claims (as defined in Article IX hereof), except as to any Obligation. F. Auditor. Permit the replacement of Coopers & Lybrand as Borrower's independent certified public accountants, except by independent certified accountants satisfactory to Lender in its sole discretion. G. Loans, Advances, Investments. Make any loans or advances to, or investments in, any Person, other than (i) credit terms offered to customers and advances to suppliers in the ordinary course of Borrower's business, (ii) deposits (other than certificates of deposit) held by federally-insured banks, (iii) investments in commercial paper maturing in two hundred-seventy (270) days or less from the date of issuance which is rated Al or better by Standard & Poor's Corporation or P1 or better by Moody's Investors Services, Inc., (iv) investments in direct obligations of the United States of America or obligations of any agency thereof which are guaranteed by the United States of America, provided that such obligations mature within twelve months of the date of acquisition thereof, (v) investments in certificates of deposit maturing within one year from the date of acquisition thereof, issued by a bank or trust company organized under the laws of the United States or any state thereof, having capital, surplus and undivided profits aggregating at least One Hundred Million Dollars ($100,000,000) and the long-term deposits of which are rated A or better by Moody's Investors Services, Inc. or equivalent by Standard & Poor's Corporation, (vi) investments in banker's acceptances maturing within five (5) days from the date of acquisition thereof, issued by a bank which meets the criteria set forth in clause (v) of this Section 5.02.G, (vii) investments in or loans and advances to an Affiliate of Borrower formed to facilitate the financing, acquisition, development, building, management and/or maintenance of coal 28 briquetting facilities, or (viii) agreements with a third party to purchase a coal briquetting facility from the Borrower or an affiliate of Borrower on an installment basis. H. Salaries and Other Compensation and Perquisites; Payments to Related Persons. Make any payments to a Related Person, other than pay compensation in any fiscal year of Borrower in the amounts and to the Persons listed on Schedule 5.02.H. I. Pension Plans. Create an ERISA Plan. J. No Material Adverse Change. Permit any Material Adverse Change to occur or enter into any transaction, contract or agreement or make any material change in or to any of Borrower's business objectives, purposes or operations which in any respect may reasonably be expected to cause a Material Adverse Change. K. Removal, Storage and Preparation of Records. Either (i) remove any of Borrower's records from the locations set forth on Schedule 4.10 attached hereto, other than in the ordinary course of business or (ii) enter into, modify or terminate any agreement with an accounting firm or service bureau for the preparation or maintenance of Borrower's accounting records. L. Stock Transactions. Distribute, sell, issue or convey any shares of Borrower's capital stock except in compliance with all applicable state and federal securities laws. M. Fiscal Year. Change the fiscal year end of Borrower from September 30. N. Assignment of Rents. Assign, as lessor or sublessor as the case may be, the rents, royalties or income of the Collateral or any part thereof (other than to Lender or as a consequence of the grant of Permitted Liens). O. Acquisitions. Purchase or otherwise acquire (i) all or substantially all of the assets of or (ii) any class of stock of or (iii) any partnership or joint venture interest in or with, any Person, except in connection with the construction, financing, maintenance, operation or sale of a briquetting facility in the ordinary course of Borrower's business. P. Affiliate Transactions. Enter into, or be a party to, any transaction with any of Borrower's Related Persons, except in the ordinary course of business pursuant to 29 the reasonable requirements of Borrower's business and upon fair and reasonable terms which were fully disclosed in writing to Lender and are no less favorable to Borrower than Borrower could obtain in a comparable arm's length transaction with a Person who is not a Related Person. Q. Sales. Back date, post date or redate any Account, invoice or sale. R. Prepayments. Voluntarily prepay any Debt prior to the stated maturity thereof. SECTION 5.03. Collateral. Borrower further agrees and covenants to: A. Promptly deliver possession to Lender, and assign for security purposes to Lender, all chattel paper, instruments, certificated securities and documents necessary for the perfection of Lender's senior security interests in the Collateral, subject to Permitted Liens; provided, however, that until the occurrence of an Event of Default or the occurrence and continuance of a Default, Lender will, upon Borrower's request, return possession of such chattel paper, instruments and documents to Borrower, as Lender's bailee or agent, but only to the extent reasonably necessary for Borrower to enforce or collect the goods or obligations evidenced by such chattel paper, instruments and documents. B. If Lender requests, (i) promptly execute and deliver to Lender any notice, financing or continuation statement, instrument, document, agreement or other papers (including any assignment of claim form under or pursuant to the federal Assignment of Claims Act, 31 USC ss. 3726, or any successor or amended version thereof, or any regulation promulgated under or pursuant to any version thereof), (ii) stamp on its records concerning the Collateral (and/or enter in its computer records concerning the Collateral) and add on all chattel paper constituting a portion of the Collateral a notation, in form satisfactory to Lender, of Lender's security interest hereunder and/or (iii) perform any act reasonably requested by Lender that may be necessary or that Lender may deem advisable to create, perfect, preserve, validate or otherwise protect any of Lender's security interests in the Collateral, subject to Permitted Liens, or to enable Lender to exercise and enforce Lender's rights hereunder or with respect to any such security interests. C. Refrain from signing or filing or authorizing the signing or filing of any financing statement(s) under the Uniform Commercial Code of any jurisdiction with respect to the Collateral or any portion thereof in which Borrower is named as 30 debtor, except as herein provided or in connection with Permitted Liens, and refrain from delivering possession of any of Borrower's assets to any Person, except as herein provided or in the ordinary course of Borrower's business. D. Provide Lender with ten (10) Business Days' prior written notice of any proposed transfer or change in any of Borrower's sites or facilities from the jurisdictions set forth in Schedule 4.10 hereof, and/or the addition or creation of new sites, facilities or places of business in jurisdictions other than those set forth in Schedule 4.10, in each case, wherein any Collateral is to be located for any period of time whatsoever. In addition, Borrower agrees to provide Lender with ten (10) Business Days' prior written notice if any Collateral is or will be removed from the jurisdictions set forth in Schedule 4.10 for a period of more than one (1) month. Borrower further agrees (i) to execute and deliver to Lender, prior to (A) any such change in jurisdiction, (B) the use or operation of any such site, facility or place of business by or on behalf of Borrower, or (C) such removal of any such Collateral, all instruments, documents and other agreements (including financing statements and/or amendments thereto or documents or certificates of title) as Lender may require to perfect, or assure the continued perfection of, a first priority lien and/or security interest in all such Collateral (except for Permitted Liens), and (ii) to pay to Lender, upon demand, all reasonable costs and expenses (including Attorneys' Fees and disbursements) incurred by Lender in connection with the preparation, execution and delivery of such documents. E. Promptly notify Lender in writing if Borrower acquires an item of Collateral worth in excess of Fifty Thousand Dollars ($50,000) that is covered by a document or certificate of title or similar document or instrument. F. Cause the Collateral to be maintained and preserved in the same condition, repair and working order as when acquired by Borrower, ordinary wear and tear excepted, and forthwith, or in the case of any loss or damage to any of the Collateral, promptly after the occurrence thereof, make or cause to be made all repairs, replacements, and other improvements in connection therewith which are necessary or desirable to such end and which are economically reasonable, and not permit any material item of Collateral to become a fixture to real estate or an accession to any personal property which is not part of the Collateral. G. Pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Collateral, except to the extent the 31 validity thereof is being contested by appropriate proceedings, promptly initiated and conducted in good faith and with due diligence and so long as Lender's interest in the Collateral is not impaired or jeopardized. H. Until Lender exercises its rights to collect Accounts, collect with diligence all of Borrower's Accounts. ARTICLE VI DEFAULT SECTION 6.01. Events of Default. The occurrence of any of the following acts, events or conditions shall, without any notice, grace or right to cure except as expressly provided in this Agreement, constitute an event of default ("Event of Default") hereunder: A. Borrower shall fail to pay (i) without demand, any principal or interest due for any of the Obligations owing to Lender (whether under this Agreement, the Note) which failure continues for three (3) days from when due, or (ii) within ten (10) days following demand, any other amounts owing to Lender (whether under this Agreement, the Note, or any other of the Loan Documents) not referred to in clause (i) due for any of the Obligations or any other fees or other amounts not referred to in clause (i). B. Borrower shall fail to perform or observe any covenant set forth in Sections 5.01.C, or Section 5.02.A, 5.02.B, 5.02.C, 5.02.D, 5.02.E, 5.02.F, or 5.02R hereof. C. Borrower shall fail to perform or observe any term, covenant or condition (i) set forth in Sections 5.01.B, or 5.01.J within fifteen (15) days after a Responsible Officer has knowledge thereof, or (ii) otherwise contained herein and not specified in clauses (A), (B) or (C)(i) of this Section 6.01, which continues for fifteen (15) days after written notice thereof to Borrower; provided, however, that if such failure is curable and a delay in exercising Lender's rights under Article VII will not materially and adversely affect the Collateral or the rights of Lender, so long as Borrower is diligently pursuing such cure, Borrower shall have an additional period after the initial written notice to cure such failure, not to exceed seventy-five (75) days; provided, further however, that Borrower shall not be entitled to any notice or opportunity to cure under this Section 6.01.C if Lender has, on two (2) occasions in the previous six (6) month period, given Borrower notice under this Section 6.01.C. 32 D. Any representation or warranty hereunder or under any of the other Transaction Documents shall have been untrue or misleading in any material respect when made. E. A default shall occur under any agreement, document or instrument (other than the Transaction Documents), to which Borrower is a party, the consequences of which would have an adverse effect potentially involving Fifty Thousand Dollars ($50,000) or more relating to the business of Borrower, on the Collateral, relating to Lender's interest in the Collateral, or relating to Borrower's ability to pay or perform the Obligations. F. The entry of an order for relief under Title 11 of the United States Code as to Borrower or the determination of such Borrower as insolvent or bankrupt pursuant to the provisions of any state insolvency or bankruptcy laws; the commencement by Borrower of any case, proceeding or other action seeking any reorganization, arrangement, composition, adjustment, liquidation, dissolution or similar relief for itself under any present or future statute, law or regulation relating to bankruptcy, insolvency, reorganization or other relief for debtors; Borrower's consent to, acquiescence in or attempt to secure the appointment of any Receiver of all or any part of its properties or of the Collateral; Borrower shall generally not pay its debts as they become due or shall admit in writing its inability to pay its debts or shall make a general assignment for the benefit of creditors; or Borrower (including the board of directors of Borrower) shall take any corporate action to authorize any of the acts set forth above in this paragraph. G. Any case, proceeding or other action against Borrower shall be commenced seeking to have an order for relief entered against it as a debtor or seeking any reorganization, arrangement, composition, adjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation relating to bankruptcy, insolvency, reorganization or other relief for debtors, or seeking appointment of any Receiver for Borrower or for all or any substantial part of its property, and such case, proceeding or other action is not dismissed within sixty (60) days after it is filed. H. The filing of any claim or Lien (other than Permitted Liens) against the Collateral or any part thereof, and the continued maintenance of such claim or Lien for a period of thirty (30) days without discharge, satisfaction or adequate bonding thereof, or the sale, hypothecation, conveyance or other disposition of any of the Collateral other than within the ordinary course of Borrower's business. 33 I. Any of the Transaction Documents, at any time after their respective execution and delivery and for any reason, shall cease to be in full force and effect as executed and delivered in their entirety or be declared null and void, or the validity or enforceability thereof shall be contested by Borrower or any stockholder of Borrower, or Borrower shall deny any liability or obligation ascribed to it under any of the Transaction Documents. J. Any of the Security Documents, at any time after their respective execution and delivery and for any reason, shall cease to constitute valid and subsisting liens and/or valid and perfected security interests in and to the property purported to be subject thereto. K. A judgment, order or decree has been entered or otherwise made effective against Borrower in an amount equal to or greater than Fifty Thousand Dollars ($50,000) and either (i) such judgment, order or decree is not vacated or stayed pending appeal within thirty (30) days after the date of entry or the effective date thereof, or (ii) if so stayed, the stay is lifted or the appeal is unsuccessful, or (iii) such judgment is not paid, settled or otherwise discharged or satisfied within thirty (30) days. L. Lender declares an Event of Default pursuant to Section 9.06 hereof. M. Any (i) event of default (howsoever designated) shall occur under any other Transaction Document which permits Lender or any of its Affiliates to accelerate the Obligations or terminate such Transaction Document, or (ii) other default (howsoever designated) shall occur under any other Transaction Document and such default shall continue after any applicable grace and notice periods applicable thereto, or, if no grace or notice period is provided, such default is not remedied within thirty (30) days after written notice thereof. N. Borrower shall fail to pay any amount of principal on any Debt (but excluding Debt evidenced by the Note) of Borrower in an aggregate amount of more than Fifty Thousand Dollars ($50,000), or any interest or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any default under any agreement or instrument relating to any such Debt, or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such default or event is to accelerate, or to permit the acceleration of, the 34 maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof. P. Any Person or related group of Persons acquires, or obtains the right to acquire, whether pursuant to options, warrants or otherwise, more than fifty percent (50%) of any class of the then outstanding voting common stock of Borrower (calculated, in the case of any options, warrants or similar rights, as if such Person's or group's right to acquire voting stock, and no other unrelated Person's rights, were exercised). ARTICLE VII RIGHTS, POWERS AND REMEDIES UPON DEFAULT SECTION 7.01. Remedies. If any Event of Default shall occur and continue, Lender may, at its election, and without demand or notice of any kind, do any one or more of the following: (i) Declare all of Borrower's Obligations to Lender to be immediately due and payable, whereupon all unpaid principal, interest and fees in respect of such Obligations, together with all of Lender's costs, expenses and Attorneys' Fees related thereto, whether under the terms of this Agreement, the other Transaction Documents or otherwise, shall be immediately due and payable; (ii) Exercise any and all rights and remedies available to Lender under any applicable law, including without limitation all remedies of a secured party under the Code (whether or not the Code applies to the affected Collateral) and also (a) require Borrower, at Borrower's sole expense, to promptly assemble all or part of the Collateral as directed by Lender and make it available to Lender at a place or places to be designated by Lender (which may include Borrower's place of business, where the Collateral may be stored at Borrower's expense), and (b) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at Borrower's place of business, at any of Lender's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as Lender may deem commercially reasonable; provided, that (a) to the extent notice of such sales shall be required by law, at least ten (10) day's notice to Borrower of the times and places of any public sale or the time after which any private sale is to be made shall constitute reasonable notification, (b) Lender shall not be obligated to make any sale of Collateral regardless of notice of sale having been given and, (c) Lender may adjourn 35 any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned; (iii) Exercise any and all rights and remedies granted to Lender under the terms of this Agreement or any of the other Transaction Documents; (iv) Instruct any warehouseman then in possession or custody of any of the Collateral to act thenceforth only on instructions of Lender; (v) Foreclose or otherwise enforce any or all of Lender's security interests in any manner permitted by law, or provided for in this Agreement or the other Loan Documents or in any security agreement entered into by Lender and Borrower, in such order as Lender in its sole and absolute discretion may determine; (vi) Exercise, to the extent permitted by applicable law, the following rights and remedies regarding the appointment of a Receiver: (a) Lender may have a Receiver appointed as a matter of right; (b) the Receiver may be an employee of Lender and may serve without bond; and (c) all fees of the Receiver and his or her attorney shall become part of the Obligations and shall be payable on demand, with interest at the Default Interest Rate from date of expenditure until repaid; (vii) At any time, without prior notice to Borrower, collect Collateral Proceeds and give notice of Lender's security interest to any and all Persons, and Borrower does hereby irrevocably make, constitute and appoint Lender its true and lawful attorney-in-fact, coupled with an interest and with power of substitution, with power: to receive, open and dispose of all mail addressed to Borrower; to endorse the names of Borrower upon any checks or other evidences of payment that may come into the possession of Lender upon the Collateral or as proceeds of Collateral; to endorse on behalf of Borrower any document or instrument constituting or relating to the Collateral; in Borrower's name or otherwise, to demand, sue for, collect and give acquittance for, any and all moneys due or to become due upon the Collateral; to compromise, prosecute or defend any action, claim or proceeding with respect thereto; and to do any and all things necessary and proper to carry out the purpose herein contemplated; at any time in Lender's discretion, transfer any Collateral into its own name or that of its nominee and receive the payments, rents, income, and revenues therefrom, hold the same as security for the Obligations and, at Lender's option or upon Borrower's written 36 request, apply it to payment of the Obligations in such order of preference as Lender may determine; and insofar as the Collateral consists of Intangibles, insurance policies, instruments, chattel paper, choses in action, or similar property, Lender may demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender may in Good Faith determine, whether or not any Obligations are then due; and (viii) apply any proceeds of insurance toward payment of the Obligations, whether or not due, in such order of application as Lender may determine. SECTION 7.02. Protection and Preservation of Collateral and Rights; Protective Advances. Upon the occurrence and during the continuance of any Default or upon the occurrence and during the continuance of an Event of Default, if Borrower shall fail to make any payment or perform any act provided in this Agreement or any of the other Transaction Documents, Lender may, but shall not be obligated to, without notice to or demand upon Borrower, make any such payment or perform any such act, and further may pay, purchase, contest or compromise any Lien on any of the Collateral that in the reasonable judgment of Lender appears to affect said property. Borrower hereby irrevocably appoints Lender as its true and lawful attorney-in-fact, coupled with an interest and with power of substitution, to make any such payment and/or perform any such act. In exercising any of said powers, Lender may, but shall not be obligated to, incur any liabilities and expend whatever amounts which Lender in Good Faith may deem necessary therefor. All sums so incurred or expended by Lender shall be part of the Obligations and shall be due and payable by Borrower to Lender, together with interest thereon from the date of expenditure at the Default Interest Rate, together with all costs and expenses, including Attorneys' Fees, incurred by Lender in connection with the exercise of its rights hereunder, immediately on demand by Lender. SECTION 7.03. Election. Lender shall have the right to enforce one or more remedies hereunder, successively or concurrently, and such action shall not operate as an election of remedies or otherwise operate to estop or prevent Lender from pursuing any further remedies which it may have. SECTION 7.04. Waiver. No failure or delay on the part of Lender, or of any holder of any instrument delivered to Lender in connection with this Agreement, in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise of any other power, right or privilege. All rights and remedies 37 existing under this Agreement or any other agreement, document or instrument executed and delivered by Borrower to Lender are cumulative to, and not exclusive of, any rights or remedies otherwise available under any applicable law. SECTION 7.05. Power of Attorney. Borrower hereby irrevocably appoints Lender as its true and lawful attorney-in-fact, coupled with an interest and with power of substitution, to do any and all of the following after the occurrence and during the continuance of an Event of Default: to take control in any manner of any cash and noncash items of payment or Proceeds of Collateral which come into Lender's possession; to endorse the name of Borrower on any notes, acceptances, checks, drafts, money orders, chattel paper or other evidences of payment that may come into Lender's possession; to sign Borrower's name on any invoice or document relating to any Collateral, on drafts against customers, and on notices to customers; to notify the post office authorities to change the address for delivery of Borrower's mail to an address designated by Lender; to receive, open and process all mail addressed to Borrower; and to do all things necessary to preserve or protect the Collateral and to otherwise carry out this Agreement. Provided Lender acts in Good Faith, Borrower ratifies and approves all acts of such attorney, and neither Lender nor the attorney shall be liable for any acts or omissions nor for any error of judgment or mistake of fact or law absent gross negligence or willful misconduct by Lender. All checks or other forms of remittance so received by Lender shall be endorsed in such manner as Lender may designate. Borrower's signature or name, as may be appropriate, may be inserted by Lender in longhand, in typewriting or by rubber stamp. Every such endorsement, however signed or made, shall be deemed to be the valid endorsement of Borrower. Borrower further hereby irrevocably appoints Lender as its true and lawful attorney-in-fact, coupled with an interest and with power of substitution, for the purpose, at any time or times, of executing for Borrower, and in Borrower's name, financing statements and amendments thereto with respect to any of the Collateral and filing any of the same. Borrower further agrees that a copy of this Agreement may be filed as a financing statement. SECTION 7.06. Entry Upon Premises. Upon the occurrence and during the continuance of a Default or upon the occurrence and during the continuance of an Event of Default, Lender shall have the right to enter upon the premises of Borrower and upon any premises where Collateral located or believed to be located and to receive and open all mail directed to Borrower; provided, however, that Lender shall use reasonable efforts to turn over to Borrower all such mail which does not relate to the Collateral. Lender shall have the right to obtain access 38 to Borrower's data processing equipment, computer hardware and computer software relating to or containing information regarding the Collateral and to use all of the foregoing and the information contained therein in any manner Lender in Good Faith deems appropriate. Lender is hereby granted a license and right to use, without charge, until the Obligations are fully and finally paid in cash, Borrower's labels, patents, copyrights and rights of use of any name, trade secrets, trade names, trademarks, service marks, advertising material or any property of a similar nature in completing the production, advertising for sale and sale of any Collateral. SECTION 7.07. Notification of Customers. At any time or times after the occurrence and during the continuance of any Event of Default, Lender shall have the right to contact any Person obligated to Borrower on any Account or other right to payment and to instruct such Account Debtor or other person to deliver all payments directly to Lender. SECTION 7.08. Failure to Pay. If Borrower fails to make any payment or deposit, furnish the required proof or take the required action, as provided in this Agreement or any of the other Transaction Documents, Lender may, in its sole and absolute discretion after notice to Borrower, make payment of the same or part thereof or take the required action. Lender may conclusively rely on the usual statements of the amount owing or other official statements issued by the appropriate governmental agency. Each amount so paid by Lender and cost or expense incurred by Lender shall be part of the Obligations and shall be due and payable by Borrower to Lender, together with interest thereon from the date of expenditure at the Default Interest Rate, together with all costs and expenses, including Attorneys' Fees, incurred by Lender in connection with the exercise of its rights hereunder, immediately on demand by Lender. No payment made by Lender or cost or expense incurred by Lender shall constitute (i) an agreement by it to make similar payments or incur any similar cost or expense in the future, or (ii) a waiver by Lender of any Default or Event of Default under this Agreement. Lender need not inquire as to, or contest the validity of, any expense, tax, security interest, encumbrance or Lien, and receipt of the usual official notice of the payment thereof shall be conclusive evidence that the same was validly due and owing. SECTION 7.09. Application of Collateral Proceeds. After the occurrence and during the continuance of an Event of Default, Borrower hereby grants to Lender the right to, and upon Borrower's written request Lender shall, apply any and all Proceeds from the sale or disposition of the Collateral towards the payment of the Obligations in such order as Lender from time to time may elect. Lender shall have no obligation to 39 reconvey any of the Collateral unless and until all of the Obligations have been satisfied and discharged in full. SECTION 7.10. Enforcement of Borrower's Rights. Lender shall have no obligation to take any action to enforce any rights running to the benefit of Borrower in respect of any items of Collateral, to preserve any rights in or to the Collateral against any Person, to make any demand upon or pursue or exhaust any rights or remedies against Borrower or others with respect to payment of the Obligations, to pursue or exhaust any rights or remedies with respect to any of the Collateral or any other security for the Obligations, or to marshall any assets in favor of Borrower or any other Person against or in payment of any or all of the Obligations. To the extent that Borrower makes a payment to Lender or Lender enforces a security interest or exercises its rights of set off and such payment or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, avoided and/or required to be repaid under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such recovery, the Obligations or part thereof originally intended to be satisfied shall be revived and continued in full force and effect with all Collateral as security therefor, as if such payment had not been made or such enforcement or setoff had not occurred. SECTION 7.11. Exercise of Remedies. Borrower acknowledges that portions of the Collateral may be difficult to preserve and dispose of and may be subject to complex maintenance and management; accordingly, Borrower agrees that Lender shall have the widest possible latitude in the method and manner of the exercise of its rights, powers and remedies under this Agreement. SECTION 7.12. Equitable Remedies. Borrower recognizes that if it fails to perform, observe or discharge of its obligations or liabilities under this Agreement, any remedy at law may prove to be inadequate relief to Lender. Therefore, Borrower agrees that Lender, if Lender so requests, shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving, but without waiving, actual damages. ARTICLE XIII GENERAL PROVISIONS SECTION 8.01. Survival of Terms. The warranties, representations, covenants and agreements set forth herein and in any other Loan Documents executed in conjunction herewith or contemplated hereby shall be cumulative and in addition to any 40 and all warranties, representations, covenants and agreements which Borrower may give, or cause to be given, to Lender hereafter, and shall remain effective until the first of the following to occur: (i) the termination of the Commitments and the satisfaction in full of all of the Obligations under the Loan Documents, or (ii) the conversion of all of the outstanding Term Loans and Commitments into Shares pursuant to Article X hereof; provided, however, that the Registration Rights Agreement and all of the Purchase Agreement Documents shall survive; provided, further, that the obligations under Section 8.13 and Article IX shall survive. Notwithstanding the foregoing, from and after the closing of the transfer of the Alabama Project pursuant to the Alabama Project Purchase Agreement, the covenants contained in Sections 5.01.D, 5.01.H, 5.01.I, 5.01.M and 5.03 shall terminate. SECTION 8.02. Presentment. Lender shall not be required to make presentment, demand or protest or, except as may otherwise be expressly provided in this Agreement or in any other agreements, documents and instruments executed in conjunction herewith or contemplated hereby, give any notice or take any action to preserve rights against Borrower or any other Person or the Collateral in connection with any provision of the Loan Documents. SECTION 8.03. Successors and Assigns. This Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties; provided, however, that neither party may assign this Agreement or any rights hereunder without the other party's prior written consent, and any prohibited assignment shall be absolutely void; provided, further, that such prohibition on assignment shall in no event apply to the transfer of Shares after Conversion pursuant to Article X hereof, which shall remain in the sole control and discretion of Lender (subject to the representations and warranties contained in Article XI hereof); provided, further, that such prohibition on assignment shall in no event apply to the assignment by Lender of all or any portion of its rights hereunder after the occurrence of an Event of Default. All references to "Lender" herein shall be deemed to refer to and include Lender's respective successors and assigns. No consent to any assignment by Lender shall release Borrower of any of the Obligations. SECTION 8.04. Number. The singular includes the plural and the plural includes the singular, if the context so requires. SECTION 8.05. Governing Law. Without regard to principles of conflicts of law, the Transaction Documents, including without limitation this Agreement, shall be construed 41 in accordance with and governed by the laws of the State of Utah, and all matters or disputes directly or indirectly relating to or arising in connection with the Transaction Documents, or otherwise relating to the debtor-creditor relationship between Borrower and Lender, shall be governed by the laws of the State of Utah; provided, however, that where applicable (and except as otherwise defined herein), terms used herein shall have the meanings given them in the Code; provided further, that with respect to enforcement by Lender of remedies against any Collateral which is real property, nothing in this paragraph shall bar application of the law of the jurisdiction where such real property Collateral is situated. SECTION 8.06. Notices and Addresses; Payments. A. All notices required or permitted to be given under this Agreement shall be in writing. Notices may be served by certified or registered mail, postage paid with return receipt requested; by private courier, prepaid; by telex, 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. Telex or 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 addresses set forth in Schedule 8.06. B. All payments provided for in this Agreement or the other Transaction Documents shall be delivered, in the manner set forth in such documents, to Lender by wire transfer in accordance with the instructions set forth in Schedule 8.06. SECTION 8.07. Severability; Independence of Covenants. Each provision of this Agreement shall be severable from each other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. All covenants under this Agreement shall be given independent effect so that if a particular action, event or condition is not permitted by any of such covenants, then the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken, event occurs, or condition exists. 42 SECTION 8.08. Time. Time is of the essence of this Agreement and the other Transaction Documents. SECTION 8.09. Necessity of Writing. Any consent, modification, amendment, notice or waiver hereof or hereunder must be in writing and signed by an authorized officer of Lender to be effective and enforceable against Lender, and this Agreement cannot be changed orally or by conduct of the parties. SECTION 8.10. Integration. This Agreement, together with the Schedules and Exhibits referred to herein and the other Transaction Documents, is intended by the parties as a final expression of their agreement, as a complete and exclusive statement of the terms and conditions thereof, and fully to integrate the parties' agreement. No prior understandings, proposals or agreements not contained herein or in the Transaction Documents shall be binding upon or enforceable against the parties. Acceptance of or acquiescence in a course of performance under the Transaction Documents shall not be relevant in determining the meaning of the Transaction Documents, even though the accepting or acquiescing party had knowledge of the nature of the performance and opportunity for objection. The rule of law that ambiguities in a document are to be construed against the drafter shall not apply to the interpretation of this Agreement or the Transaction Documents. SECTION 8.11. Captions. The captions in this Agreement and on the Exhibits hereto are for convenience of reference only and shall not modify or alter the operative provisions hereof. SECTION 8.12. Lender's Expenses and Attorneys' Fees. A. Following any Event of Default or Default, Borrower shall pay to Lender, promptly on demand therefor, all of Lender's costs and expenses resulting from such Default or Event of Default. Without limiting the generality of the foregoing, such sums shall include all Attorneys' Fees and reasonable consultants' fees or accountants' fees incurred by Lender following such Default or Event of Default in exercising, supervising, enforcing or defending any of its rights, powers or remedies provided by this Agreement, by any of the other Transaction Documents, or by law, whether or not suit is filed. Borrower agrees that neither any of Borrower's obligations hereunder nor any payments made by them hereunder shall result in any waiver by Lender of its attorney-client privilege or any other of its privileges with respect to the legal representation for which reimbursement is to be made pursuant hereto. 43 B. All sums so incurred or expended by Lender pursuant to subsection A of this Section 8.12 shall be part of the Obligations and shall be due and payable by Borrower to Lender, together with interest thereon from the date of expenditure at the Default Interest Rate, immediately on demand by Lender. SECTION 8.13. Indemnification. A. Borrower hereby agrees to indemnify and defend Lender and the officers, directors, employees and agents of Lender (herein collectively called the "Indemnitees" and individually each called an "Indemnitee") from, and hold the Indemnitees harmless against, any and all losses, liabilities, claims, damages or expenses, including attorneys' fees and disbursements (all of the foregoing being herein collectively called the "Indemnified Liabilities") incurred by any Indemnitee in connection with any investigation, litigation or proceedings arising out of, or relating to, the Term Loan; provided, however, that the foregoing indemnity shall not apply to any litigation brought by an Indemnitee against Borrower which is determined adversely to such Indemnitee or to losses, liabilities, claims, damages or expenses arising out of any violation by an Indemnitee of a statutory duty or the gross negligence or willful misconduct of such Indemnitee. If and to the extent that the foregoing indemnity may be unenforceable for any reason, Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. B. Lender hereby agrees to indemnify and defend Borrower and the officers, directors, employees and agents of Borrower (herein collectively called the "Borrower Indemnitees" and individually each called a "Borrower Indemnitee") from, and hold the Borrower Indemnitees harmless against, any and all losses, liabilities, claims, damages or expenses, including attorneys' fees and disbursements (all of the foregoing being herein collectively called the "Indemnified Liabilities") incurred by any Borrower Indemnitee in connection with any investigation, litigation or proceedings arising out of a breach of the representations of Lender under Section 11.1 hereof; provided, however, that the foregoing indemnity shall not apply to any litigation brought by any Borrower Indemnitee against Borrower which is determined adversely to such Borrower Indemnitee or to losses, liabilities, claims, damages or expenses arising out of any violation by a Borrower Indemnitee of a statutory duty or the gross negligence or willful misconduct of such Borrower Indemnitee. If and to the extent that the foregoing indemnity may be unenforceable for any reason, Borrower hereby agrees to make the maximum contribution 44 to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. C. All obligations provided for in this Section 8.13 shall survive any termination of this Agreement. SECTION 8.14. Agreement Governs. In the event of any inconsistency between the provisions of this Agreement and any other Transaction Documents other than the Note, the provisions of this Agreement shall govern and control. In the event of any inconsistency between the provisions of this Agreement and the provisions of the Note, the provisions of the Note shall govern and control. SECTION 8.15. Third Party Beneficiaries. This Agreement is made and entered into for the sole protection and benefit of the parties hereto and their permitted successors and assigns, and neither this Agreement nor any of the other Transaction Documents is intended to operate as, directly or indirectly, nor shall be construed as effecting in any way, directly or indirectly, a waiver, estoppel, discharge, release, or other modification of the parties' rights against any Person, nor shall any other Person have any right of action hereunder or be entitled to rely hereon or on the existence hereof or claim any rights or benefits hereunder. SECTION 8.16. Jurisdiction. A. Borrower hereby irrevocably agrees that any legal action, suit, or proceedings against any of them with respect to any of the Obligations or any other matter under or arising out of or in connection with this Agreement, the Note or the other Transaction Documents or for recognition or enforcement of any judgment rendered in any such action, suit or proceedings may be brought in the United States Courts sitting in the State of Utah, or in the courts of the State of Utah, as Lender may elect, and, by execution and delivery of this Agreement, Borrower hereby irrevocably accepts and submits to the non-exclusive jurisdiction of the aforesaid courts in personam generally and unconditionally with respect to any such action, suit, or proceeding for itself and in respect to of any of its property. B. Borrower further agrees that final judgment against it in any action, suit, or proceeding referred to herein shall be conclusive and may be enforced in any other jurisdiction, within or outside the United States of America, by suit on the judgment, a certified or exemplified copy of which shall be conclusive evidence of the fact and of the amount of Borrower's obligations and liabilities. Borrower hereby irrevocably appoints the Person so designated on 45 Schedule 8.06 hereto as its agent for service of process in any action, suit or proceeding referred to herein. Should the Person designated by Borrower under this Section 8.16.B cease to be available for service of process, Borrower will forthwith irrevocably designate a designee, appointee and agent within the City of Salt Lake City, State of Utah, which shall irrevocably consent to act as such, with the powers and for the purposes specified in this subsection. C. Borrower further irrevocably consents and agrees to the service of any and all legal process, summons, notices, and documents out of any of the aforesaid courts in any such action, suit or proceeding by mailing copies thereof by registered or certified mail, postage prepaid, to the Borrower at its address referred to in Section 8.06 hereof, or to any other address of which Borrower shall have given notice pursuant to said Section 8.06 hereof, or to its then designee, appointee and agent for service. Borrower agrees that service upon Borrower or any such designee, appointee and agent as provided for herein shall constitute valid and effective personal service upon Borrower and that the failure of any such designee, appointee and agent to give any notice of such service to Borrower shall not impair or affect in any way the validity of such service or any judgment rendered in any action or proceeding based thereon. D. Nothing in this Section 8.16 shall, or shall be construed so as to, limit the right of Lender to bring actions, suits or proceedings with respect to the Obligations of Borrower under, or any other matter arising out of or in connection with, this Agreement, the Note or the other Transaction Documents, or for recognition or enforcement of any judgment rendered in any such action, suit or proceeding, in the courts of whatever jurisdiction in which the office of Lender may be located or the property of Borrower may be found or as otherwise shall to Lender seem appropriate, or to affect the right to service of process in any jurisdiction in any other manner permitted by law. E. In addition, Borrower hereby irrevocably and unconditionally waives any objection which Borrower may now or hereafter have to the laying of venue of any of the aforesaid action, suits or proceedings arising out of or in connection with this Agreement, the Note, or the other Transaction Documents brought in any of the aforesaid courts, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. 46 SECTION 8.17. WAIVER OF JURY TRIAL. EACH OF BORROWER AND LENDER HEREBY IRREVOCABLY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THE OBLIGATIONS, THE TRANSACTION DOCUMENTS, THE DEBTOR-CREDITOR RELATIONSHIP OF BORROWER AND LENDER OR THE ACTIONS OF LENDER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF. SECTION 8.18. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. ARTICLE IX ENVIRONMENTAL PROVISIONS SECTION 9.01. Definitions. For the purposes of this Article IX, the following terms shall have the following meanings: "Business" is defined as the business and operations conducted by Borrower in connection with the Real Property Collateral. "Environmental Obligations" is defined in Section 9.07 hereof. "Expenses" is defined in Section 9.05 hereof. "Hazardous Materials" means any (a) asbestos in any form, urea formaldehyde foam insulation, transformers or other equipment which contain dielectric fluid containing levels of polychlorinated byphenyls or radon gas; (c) any chemical, material or substance defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous waste", "restricted hazardous waste", "toxic substances" or words of similar import under any applicable Hazardous Materials Laws. "Hazardous Materials Claims" means any enforcement, cleanup, removal, remedial or other governmental or regulatory demand, actions, agreements or orders threatened, instituted, pending or completed pursuant to any Hazardous Materials Laws, together with any claims made or threatened by any third party against any of Borrower, Lender or any Collateral relating to damage, contribution, cost recovery, compensation, loss or injury resulting from the presence, release or discharge of any Hazardous Materials. 47 "Hazardous Materials Laws" means the following Federal laws, and their implementing regulations, as well as any amendments to such laws, and all State and local laws and ordinances which apply to the Real Property Collateral and which regulate the same subject matter: (a) the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), 42 USC 9601 et seq.; (b) the Solid Waste Disposal Act, 42 USC 6901 et seq., including the Resource Conservation and Recovery Act (RCRA) and the laws governing Underground Storage Tanks; (c) the Toxic Substances Control Act (TSCA), 15 USC 2601 et seq., including those provisions governing use and disposal of Polychlorinated Biphenyls (PCBs); (d) the Hazardous Materials Transportation Act (HMTA), 49 USC 1801, et seq.; (e) the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA), 7 USC 136 et seq.; (f) those portions of the Clean Air Act governing toxic air emissions, 42 USC 7401 et seq.; (g) those portions of the Clean Water Act governing toxic water pollutants and oil spills, 33 USC 1251 et seq.; (h) the Emergency Planning and Community Right-to-know Act (EPCRA, SARA Title III), 42 USC 11001 et seq.; and (i) those portions of the Occupational Safety and Health Act (OSHA) governing worker safety with respect to hazards from chemical substances, including requirements for Material Safety Data Sheets, 29 USC 651, et seq. "Remedial Work" is defined in Section 9.04 hereof. "Tenant" means any tenant under any lease or occupancy agreement affecting any part of the Real Property Collateral. SECTION 9.02. Representations and Warranties. Borrower hereby represents and warrants that, to the best of its knowledge after due inquiry, except as otherwise specifically disclosed to Lender in a writing dated the date hereof: (a) except as described on Schedule 9.02 hereto, no Hazardous Materials exist on, under or about any of the Collateral or Borrower's business premises in violation of any Hazardous Materials Laws, to the satisfaction of the relevant government agency that enforces such laws, (b) the Business is and has been in compliance with all Hazardous Materials Laws, to the satsifaction of the relevant government agency that enforces such laws, (c) Borrower has not received any notice of, and to the best knowledge of Borrower after due investigation, there are no existing or threatened Hazardous Materials Claims, (d) all Hazardous Materials generated in connection with the Business are and have been transported and disposed of on or off-site in compliance with all Hazardous Materials Laws, to the satsifaction of the relevant government agency that enforces such laws, and (e) no storage tanks are or have been located on or under the Collateral within the last five years. 48 SECTION 9.03. Covenants. Until it has satisfied and discharged all Obligations, Borrower shall (or shall cause its Affiliates to, as the case may be): A. Compliance with Laws. Comply with all Hazardous Materials Laws, to the satisfaction of the relevant government agency that enforces such laws. B. Presence of Materials. Without limiting the generality of Section 9.02 hereof, except where done in compliance with all applicable Hazardous Materials Laws, not install, use, generate, manufacture, store, release or dispose of, nor permit the installation, use, generation, storage, release or disposal of Hazardous Materials on, under or about any Collateral or Borrower's business premises, nor transport or permit the transportation of Hazardous Materials to or from any Collateral or Borrower's business premises. C. Notification. Promptly advise Lender in writing of (i) any and all Hazardous Materials Claims, (ii) Borrower's discovery of any release, discharge or disposal of any Hazardous Materials on, under or about any Collateral, (iii) Remedial Work taken by Borrower in response to any Hazardous Materials on, under or about any Collateral or to any Hazardous Materials Claims, (iv) Borrower's discovery of any release, discharge or disposal of any Hazardous Materials on, under or about any real property adjoining or in the vicinity of any Collateral, or (v) Borrower's discovery of any occurrence or condition on any Collateral or any real property adjoining or in the vicinity of any Collateral that could cause any Collateral to be subject to any restrictions on the ownership, occupancy, transferability or use under any Hazardous Materials Laws. D. Environmental Condition. Promptly provide Lender with copies of all reports, analyses, notices, licenses, permits, approvals, orders, correspondences or other written materials relating to the environmental condition of any Collateral or Hazardous Materials Claims promptly upon receipt, completion or delivery of such materials. F. Tanks. Not install or allow to be installed any additional underground tanks on any Collateral. G. Liens. Not create or permit to continue in existence any lien upon any Collateral imposed pursuant to any Hazardous Materials Laws. SECTION 9.04. Borrower's Remedial Work. Borrower shall undertake any and all remedial work ("Remedial Work") (i) required by any governmental authority(ties) in connection 49 with any Hazardous Materials Claims instituted or completed by such governmental authority(ies) or (ii) reasonably required to respond to any other Hazardous Materials Claims; provided however, that Borrower shall undertake such Remedial Work in good faith so as to minimize any impairment to Lender's security under the Loan Documents. All Remedial Work shall be conducted (a) in a diligent and timely fashion; (b) pursuant to a detailed written plan for the Remedial Work approved by any public or private agencies or persons from which such approval is required; (c) with such insurance coverage pertaining to liabilities arising out of the Remedial Work as is then customarily maintained by companies similarly situated to Borrower with respect to such activities; and (d) only following receipt of any required permits, licenses or approvals. Borrower shall submit to Lender, promptly upon receipt or preparation, copies of any and all reports, studies, analyses, correspondence, governmental comments or approvals, proposed removal or other Remedial Work contracts and similar information prepared or received by Borrower in connection with any Remedial Work or Hazardous Materials relating to any Property Collateral. All costs and expenses of such Remedial Work shall be paid by Borrower, including the charges of the Remedial Work contractors and any consulting environmental engineer, any taxes or penalties assessed in connection with the Remedial Work and Lender's reasonable fees and costs (including Attorneys' Fees and consultant fees) incurred in connection with monitoring or review of such Remedial Work. Lender shall have the right, but not the obligation, to join and participate in, as a party if Lender so elects, any legal proceedings or actions initiated in connection with any Hazardous Materials Claims. SECTION 9.05. Indemnity. Borrower shall protect, defend, indemnify and hold Lender, and its directors, officers, employees and agents, and any successors to any of Lender's interests in the Obligations or any portion thereof or any interest therein, and any Person who acquires any Collateral at a foreclosure sale or otherwise through the exercise of Lender's rights and remedies under the Transaction Documents, and any successors to any such Person, and all directors, officers, employees and agents of all of the aforementioned indemnified parties, harmless from and against any and all claims, liabilities, obligations, damages, losses, fines, penalties, judgments, awards, costs and expenses (including attorneys' fees and costs and expenses of investigation) which arise out of or relate in any way to any Hazardous Materials Claims or any use, handling, production, transportation, disposal, release or storage of any Hazardous Materials in, under or on any Collateral or Borrower's business premises, whether by Borrower or by any Tenant or any other Person, including (a) all foreseeable and all unforeseeable 50 consequential damages directly or indirectly arising out of (i) Hazardous Materials Claims or the use, generation, storage, discharge or disposal of Hazardous Materials by any Borrower, any prior owner or operator of any Collateral or Borrower's business premises, or the business or operations of Borrower, or any Person on or about any Collateral or Borrower's business premises; (ii) any residual contamination affecting any natural resource or the environment; (iii) any exercise by Lender of any of its rights and remedies hereunder; and (iv) Lender's reliance on any representation or warranty made herein or in any certificate delivered after the date hereof pursuant hereto, if such representation or warranty proves to be materially false or misleading; and (b) the costs of any required or necessary repair, cleanup, closure or detoxification of any Collateral or Borrower's business premises and the preparation of any closure or other required plans. All such costs, damages, claims and expenses heretofore described and/or referred to in this Section 9.05 are hereinafter referred to as "Expenses". In the event any Hazardous Material is caused to be removed from any of the Collateral or Borrower's business premises by Borrower, Lender or any other Person, the number assigned by the Environmental Protection Agency to such Hazardous Material or any similar identification shall be solely in the name of Borrower, and Borrower shall assume any and all liability for such removed Hazardous Material. SECTION 9.06. Remedies Upon Default. In addition to any other rights or remedies Lender may have under this Agreement, at law or in equity, in the event that: (i) Borrower shall fail timely to comply with any of the provisions of this Article IX; (ii) any representation or warranty made herein or in any certificate delivered after the date hereof pursuant hereto proves to be materially false or misleading; or (iii) Borrower changes or alters the present use of any Collateral or Borrower's business premises in a manner which will result in the presence of Hazardous Materials on any Collateral or Borrower's business premises at a level which may increase the potential liability for Hazardous Materials Claims, then, in such event Lender may, after (a) delivering written notice to Borrower, which notice specifically states that Borrower have failed to comply with the provisions of this Article IX and (b) the expiration of the earlier to occur of (x) the thirty (30) day period after giving of such notice or, if Borrower commences cure during such thirty (30) day period, such longer period as is reasonably required by Borrower to effect such cure using reasonable diligence, but in any event no longer than one hundred and twenty (120) days, or (y) the cure period, if any, permitted under the applicable law, rule, regulation or order with which Borrower shall have failed to comply, (i) declare an Event of Default under this Agreement 51 and exercise any and all remedies provided for therein, and/or (ii) do or cause to be done whatever is necessary to cause the Collateral or Borrower's business premises to comply with all Hazardous Materials Laws and other applicable law, rule, regulation or order and the cost thereof shall constitute an Expense hereunder and shall become immediately due and payable without notice and with interest thereon at the Default Interest Rate until paid. Borrower shall give Lender and its agents and employees access to the Collateral or Borrower's business premises for the purpose of effecting such compliance and hereby specifically grant to Lender a license, effective upon expiration of the applicable cure period, if any, to do whatever is necessary to cause the Collateral or Borrower's business premises to so comply, including to enter the Collateral or Borrower's business premises and remove therefrom any Hazardous Materials. SECTION 9.07. Continuing Obligations. The obligations set forth in this Article IX, including Borrower's obligation to pay Expenses hereunder (collectively, the "Environmental Obligations"), are secured by the Collateral. Notwithstanding any term or provision contained herein or in the Transaction Documents, the Environmental Obligations shall not be limited to the original principal amount of the Term Loan. The Environmental Obligations shall survive the termination of this Agreement, the repayment of the Obligations and any foreclosure, deed in lieu of foreclosure or similar proceedings by or through which Lender or any successors or assigns or any other Person bidding at a foreclosure sale may obtain title to the Collateral or any portion thereof. SECTION 9.08. Other Laws. Nothing in this Article IX, and no exercise by Lender of its rights or remedies under this Article IX or this Agreement, shall impair, constitute a waiver of, or in any way affect Lender's rights and remedies with respect to Borrower under any Hazardous Materials Laws, including without limitation, contribution provisions or private right of action provisions under such Hazardous Materials Laws. SECTION 9.09. Security Interest. The parties acknowledge that if any indicia of title is held by Lender under the Loan Documents, it is held by Lender solely to protect Lender's liens and security interests. 52 ARTICLE X CONVERSION RIGHTS SECTION 10.01. Conversion. A. Lender shall have the right, subject to the terms and provisions of this ARTICLE X, at the option of the Lender, (i) at any time, to convert, the unpaid principal amount of the Term Loans or any portion thereof, and any accrued and unpaid interest on such Term Loans, and (ii) at any time prior to the Termination Date, to simultaneously advance and convert all or any portion of the remaining Commitment, or after the Commitment Period, to simultaneously advance and convert an amount equal to the amount of the Commitment, if any, which was not advanced as a Term Loan during the Commitment Period (it being acknowledged that this does not extend the Commitment Period), into fully paid and non-assessable shares of Borrower Common Stock or any capital stock or other securities into which such Borrower Common Stock shall have been changed or any capital stock or other securities resulting from a reclassification thereof ("Shares"). Such conversion of Term Loans and simultaneous advance and conversion of the Commitment to Shares shall be made at an amount per Share which is equal to the then Current Conversion Price, as further described below. The Term Loans and Commitment shall continue to be convertible, in whole or in part, even though Borrower may have given notice of prepayment of the Term Loans or termination of the Commitment pursuant to Sections 2.01.D and 2.02.C, so long as Lender's notice of election to convert has been delivered to Borrower within the Early Termination period. B. For convenience, the conversion pursuant to this Article X of all or a portion of the principal amount of Term Loans (and/or of accrued and unpaid interest if elected by Lender) and/or Commitment into Shares is herein sometimes referred to as the "conversion" of the Term Loans/Commitment. SECTION 10.02. Mechanics of Conversion. A. Election and Payment. The then unpaid principal amount of the Term Loans/Commitment (and/or, in the event of a conversion of any Term Loan, any accrued and unpaid interest on such Term Loan) may be converted by Lender, in whole or in part, during normal business hours on any Business Day during the period such election can be made by written notice of Lender's election to convert the Term Loans/Commitment or portion thereof, to Borrower at its office designated pursuant to Section 8.06 hereof. Payment of the Conversion Price for the Shares specified in such election shall be made by applying an aggregate amount of unpaid principal of the Term 53 Loans/Commitment (and/or, in the event of a conversion of any Term Loan, any accrued and unpaid interest on such Term Loan) equal to the amount obtained by multiplying (i) the number of Shares specified in such election by (ii) the then Current Conversion Price. Lender shall thereupon be entitled to receive the number of Shares specified in such election (plus cash in lieu of any fractional share as provided in Section 10.02.C hereof). B. Effective Date. Each conversion of the Term Loans/Commitment (and/or, in the event of a conversion of any Term Loan, any accrued and unpaid interest on such Term Loan) pursuant to Section 10.02.A hereof shall be deemed to have been effected immediately prior to the close of business on the Business Day on which notice of Lender's election to convert the Term Loans/Commitment shall have been given to Borrower as provided in Section 10.02.A hereof, and such conversion shall be at the Current Conversion Price in effect at such time. On each such day that the conversion of the Term Loans/Commitment (and/or, in the event of a conversion of any Term Loan, any accrued and unpaid interest on such Term Loan) is deemed effected, Lender shall be deemed to have become the holder of record of such Shares. C. Share Certificates and Cash for Fractional Shares. As promptly as practicable after the conversion of the Term Loans/Commitment (and/or, in the event of a conversion of any Term Loan, any accrued and unpaid interest on such Term Loan), and in any event within five (5) Business Days thereafter, Borrower at its expense (including the payment by it of any applicable issue, stamp or other taxes, other than any income taxes) will cause to be issued in the name of and delivered to Lender or as Lender may direct, a certificate or certificates for the number of Shares to which Lender shall be entitled upon such conversion plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash in an amount equal to the same fraction of the Conversion Price. Lender shall return to Borrower the original promissory note on conversion of all Term Loans and termination of the Commitment. D. Payment of Accrued Interest. Within five (5) Business Days after receipt of notice of Lender's election to convert all or a portion of the principal amount of any Term Loan under Section 10.02.A hereof, Borrower will pay to Lender any unpaid interest, accrued to the date of conversion of the Term Loan, on the principal amount so converted, except to the extent that the amount of such interest has also been converted into Shares. 54 SECTION 10.03. Current Conversion Price. The term "Conversion Price" shall mean initially $7.00 per Share, subject to adjustment as set forth in Section 10.04 hereof. The term "Current Conversion Price" as used herein shall mean the Conversion Price, as the same may be adjusted from time to time as hereinafter provided, in effect at any given time. In determining the Current Conversion Price, the result shall be expressed to the nearest $0.01, but any such lesser amount shall be carried forward and shall be considered at the time of (and together with) the next subsequent adjustment which, together with any adjustments to be carried forward, shall amount to $0.01 per Share or more. SECTION 10.04. Adjustment of Conversion Price. The Conversion Price shall be subject to adjustment, from time to time, as follows: A. Adjustments for Stock Dividends, Recapitali zations, Etc. In case Borrower shall, after August 26, 1996, (i) pay a stock dividend or make a distribution (on or in respect of its Borrower Common Stock) in shares of its Borrower Common Stock, (ii) subdivide the outstanding shares of its Borrower Common Stock, (iii) combine the outstanding shares of its Borrower Common Stock into a smaller number of shares, or (iv) issue by reclassification of shares of its Borrower Common Stock, any shares of capital stock of Borrower, then, in any such case, the Current Conversion Price in effect immediately prior to such action shall be adjusted to a price such that if Lender were to convert the Term Loans/Obligations in full immediately after such action, Lender would be entitled to receive the number of shares of capital stock of Borrower, which Lender would have owned immediately following such action had such Term Loans/Obligations been converted immediately prior thereto (with any record date requirement being deemed to have been satisfied), and, in any such case, such Conversion Price shall thereafter be subject to further adjustments under this Article X. An adjustment made pursuant to this subsection (a) shall become effective retroactively immediately after the record date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification. B. Adjustments for Certain Other Distributions. In case Borrower shall, after August 26, 1996 fix a record date for the making of a distribution to holders of its Borrower Common Stock (including any such distribution made in connection with a consolidation or merger in which Borrower is the continuing corporation) of (i) assets, (ii) evidences of indebtedness or other securities (except for its Borrower Common Stock) of Borrower or of any entity other than Borrower, 55 or (iii) subscription rights, options or warrants to purchase any of the foregoing assets or securities, whether or not such rights, options or warrants are immediately exercisable (all such distributions referred to in clauses (i), (ii) and (iii) being hereinafter collectively referred to as "Distributions on Common Stock"), Borrower shall set aside in an escrow reasonably acceptable to Lender, and suitably invested for the benefit of Lender, the Distribution on Common Stock to which Lender would have been entitled if Lender had converted all of the Term Loans/Commitment for the Borrower Common Stock immediately prior to the record date for the purpose of determining stockholders entitled to receive such Distribution on Common Stock and any such Distribution on Common Stock (together with any earnings while escrowed) shall thereafter be distributed from out of such escrow to Lender (immediately upon conversion) to the extent such Distribution on Common Stock relates to the portion of the Term Loans/Commitment then being converted. C. Adjustments for Issuances of Additional Stock. Subject to the exceptions referred to in Section 10.04.E hereof, in case Borrower shall at any time or from time to time after the date hereof issue any additional shares of the Borrower Common Stock ("Additional Common Stock"), for a consideration per share either (i) less than the then Current Conversion Price per share of the Borrower Common Stock immediately prior to the issuance of such Additional Common Stock, or (ii) without consideration, then (in the case of either clause (i) or (ii)), and thereafter successively upon each such issuance, the Current Conversion Price shall forthwith be reduced to a price equal to the price determined by multiplying such Current Conversion Price by a fraction, of which (1) the numerator shall be (i) the number of shares of the Borrower Common Stock outstanding when the then Current Conversion Price became effective plus (ii) the number of shares of the Borrower Common Stock which the aggregate amount of consideration, if any, received by Borrower upon all issuances of the Borrower Common Stock, since the Current Conversion Price became effective (including the consideration, if any, received for such Additional Common Stock) would purchase at the then Current Conversion Price per share of the Borrower Common Stock, and (2) the denominator shall be (i) the number of shares of the Borrower Common Stock outstanding when the Current Conversion Price became effective plus (ii) the number of shares of the Borrower Common Stock issued since the Current Conversion Price 56 became effective (including the number of shares of such Additional Common Stock. provided, however, that such adjustment shall be made only if such adjustment results in a Current Conversion Price less than the Current Conversion Price in effect immediately prior to the issuance of such Additional Common Stock. Borrower may, but shall not be required to, make any adjustment of the Current Conversion Price if the amount of such adjustment shall be less than one percent (1%) of the Current Conversion Price immediately prior to such adjustment, but any adjustment that would otherwise be required then to be made which is not so made shall be carried forward and shall be made at the time of (and together with) the next subsequent adjustment which, together with any adjustments so carried forward, shall amount to not less than one percent (1%) of the Current Conversion Price immediately prior to such adjustment. D. Certain Rules in Applying the Adjustment for Additional Stock Issuances. For purposes of any adjustment as provided in Section 10.04.C hereof, the following provisions shall also be applicable: (i) Cash Consideration. In case of the issuance of Additional Common Stock for cash, the consideration received by Borrower therefor shall be deemed to be the net cash proceeds received by Borrower for such Additional Common Stock after deducting any commissions or other expenses paid or incurred by Borrower for any underwriting of, or otherwise in connection with the issuance of, such Additional Common Stock. (ii) Non-Cash Consideration. In case of the issuance of Additional Common Stock for a consideration other than cash, or a consideration a part of which shall be other than cash, (A) if value of Additional Common Stock to be issued for such consideration is less than Fifty Thousand Dollars ($50,000), the amount of the consideration other than cash so received or to be received by Borrower shall be deemed to be the value of such consideration at the time of its receipt by Borrower as determined in good faith by the Board of Directors of Borrower, and (B) if value of Additional Common Stock to be issued for such consideration is equal to or greater than Fifty Thousand Dollars ($50,000), the amount of the consideration other than cash so received or to be received by Borrower shall be deemed to be the value of such consideration at the time of its receipt by Borrower as determined in good faith by an independent appraiser approved by the Lender; provided, however, that where the non-cash consideration consists of the cancellation, surrender or exchange of outstanding obligations of Borrower (or where such obligations are otherwise converted 57 into shares of the Borrower Common Stock), the value of the non-cash consideration shall be deemed to be the principal and unpaid interest amount of the obligations canceled, surrendered, satisfied, exchanged or converted. If Borrower receives consideration, part or all of which consists of publicly traded securities (i.e., in lieu of cash), the value of such non-cash consideration shall be the aggregate market value of such securities (based on the latest reported sale price, standard settlement) as of the close of the day immediately preceding the date of its receipt by Borrower. (iii) Options, Warrants, Convertibles, Etc. In case of the issuance, whether by distribution or sale to holders of Borrower Common Stock or to others, by Borrower of (i) any security that is convertible into Borrower Common Stock or (ii) any rights, options or warrants to purchase the Borrower Common Stock (except as stated in Section 10.04.E hereof), if inclusion thereof in calculating adjustments under this Section 10.04 would result in a Current Conversion Price lower than if excluded, Borrower shall be deemed to have issued, for the consideration described below, the number of shares of the Borrower Common Stock into which such convertible security may be converted when first convertible, or the number of shares of the Borrower Common Stock deliverable upon the exercise of such rights, options or warrants when first exercisable, as the case may be (and such shares shall be deemed to be Additional Common Stock for purposes of Section 10.04.C hereof). The consideration deemed to be received by the Borrower at the time of the issuance of such convertible securities or such rights, options or warrants shall be the consideration so received determined as provided in Section 10.04.D(i) and (ii) hereof after deducting any commissions or other expenses paid or incurred by Borrower for any underwriting of, or otherwise in connection with, the issuance of such convertible securities or rights, options or warrants, plus (x) any consideration or adjustment payment to be received by Borrower in connection with such conversion or, as applicable, (y) the aggregate price at which shares of the Borrower Common Stock are to be delivered upon the exercise of such rights, options or warrants when first exercisable (or, if no price is specified and such shares are to be delivered at an option price related to the market value of the subject Borrower Common Stock an aggregate option price bearing the same relation to the market value of the subject Borrower Common Stock at the time such rights, options or warrants were granted). If, subsequently, such convertible security, rights, options or warrants is converted or exercised or the Term Loans/Commitment is converted hereunder (1) such number of shares into which such convertible security is convertible, or which are deliverable upon the exercise of such rights, options or warrants, is increased or (2) the conversion or exercise 58 price of such convertible security, rights, options or warrants is decreased, then the calculations under the preceding two sentences (and any resulting adjustment to the Current Conversion Price under Section 10.04.C hereof) with respect to such convertible security, rights, options or warrants, as the case may be, shall be recalculated as of the time of such exercise or conversion but giving effect to such changes (but any such recalculation shall not result in the Current Conversion Price being higher than that which would be calculated without regard to such issuance). On the expiration or termination of such rights, options or warrants, or rights to convert, the Conversion Price hereunder shall be readjusted (up or down as the case may be) to such Current Conversion Price as would have been obtained had the adjustments made with respect to the issuance of such rights, options, warrants or convertible securities been made upon the basis of the delivery of only the number of shares of the Borrower Common Stock actually delivered upon the exercise of such rights, options or warrants or upon the conversion of any such securities and at the actual exercise or Conversion Prices (but any such recalculation shall not result in the Current Conversion Price being higher than that which would be calculated without regard to such issuance). (iv) Number of Shares Outstanding. The number of shares of the Borrower Common Stock has at the time outstanding shall exclude all shares of the Borrower Common Stock then owned or held by or for the account of Borrower but shall include the aggregate number of shares of Borrower Common Stock at the time deliverable in respect of the convertible securities, rights, options and warrants referred to in Section 10.04.D(iii) and 10.04.E hereof; provided, that to the extent that such rights, options, warrants or conversion privileges are not exercised, such shares of Borrower Common Stock shall be deemed to be outstanding only until the expiration dates of the rights, warrants, options or conversion privileges or the prior cancellation thereof. E. Exclusions from the Adjustment for Additional Stock Issuances. No adjustment of the Current Conversion Price under Section 10.04.C hereof shall be made as a result of or in connection with: (i) the issuance of Shares upon conversion of the Term Loans/Commitment; (ii) the issuance of Borrower Common Stock to officers and employees of Borrower or any Subsidiary, or the grant to or exercise by any such persons of options to purchase Borrower Common Stock, all pursuant to the Borrower's stock 59 option and stock purchase plans described on Schedule 10.04.E hereto; or (iii) the issuance of Borrower Common Stock pursuant to any convertible securities described on Schedule 10.04.E hereto. To the extent that the issuance (or deemed issuance) of Borrower Common Stock shall not result in any adjustment of the Current Conversion Price pursuant to the provisions of this Section 10.04.E then such Borrower Common Stock shall not be taken into account for purposes of determining any adjustment under clause (B) of Section 10.04.C hereof. F. Officer's Certification. Whenever the Current Conversion Price is adjusted as provided in this Section 10.04, Borrower will promptly deliver to Lender a certificate of its Chief Accounting Officer or Chief Financial Officer setting forth the Current Conversion Price as so adjusted, the computation of such adjustment and a brief statement of the facts accounting for such adjustment. Upon the request of Lender, Borrower shall promptly (in any event, within thirty (30) days of such request) obtain a certificate of a firm of independent public accountants of recognized national standing selected by the Board of Directors of Borrower (who may be the regular auditors of Borrower) (the "Accountant Certificate") setting forth the Current Conversion Price as so adjusted, the computation of such adjustment and a brief statement of the facts accounting for such adjustment, and will mail to Lender a copy of such Accountant Certificate. The determination set forth in the Accountant Certificate shall be final and binding on both parties. If there is no change in the amount of the original proposed adjustment or if the change (whether increased or decreased) is less than five percent (5%) of the original proposed adjustment, the cost of such Accountant Certificate shall be for the account of Lender. In all other events, the cost of such Accountant Certificate shall be for the account of Borrower. G. Antidilution Adjustments under other Securities. Without limiting any other rights available hereunder to Lender, if there is an antidilution adjustment (x) under any security which is convertible into Borrower Common Stock whether issued prior to or after the date hereof or (y) under any right, option or warrant to purchase Borrower Common Stock whether issued prior to or after the date hereof which (in the case of clause (x) or (y)) results in a reduction in the exercise or purchase price with respect to such security, right, option or warrant or results in an increase in the number of shares obtainable under such security, right, option or warrant, then an adjustment shall be made under this 60 Section 10.04.G to the Current Conversion Price hereunder. Any such adjustment under this Section 10.04.G shall be whichever of the following results in a lower Current Conversion Price: (A) a reduction in the Current Conversion Price equal to the percentage reduction in such exercise or purchase price with respect to such security, right, option or warrant or (B) a reduction in the Current Conversion Price which will result in the same percentage increase in the number of Shares available under this Article X as the percentage increase in the number of shares available under such security, right, option or warrant. Any such adjustment under this Section 10.04.G shall only be made if it would result in a lower Current Conversion Price than that which would be determined pursuant to any other antidilution adjustment otherwise required under this Article X as a result of the event or circumstance which triggered the adjustment to the security, right, option or warrant described in clause (x) or (y) above (and if any such adjustment is so made under this Section 10.04.G, then such other antidilution adjustment otherwise required under this Article X shall not be made as a result of such event or circumstance). H. Other Adjustments. In case any event shall occur as to which any of the provisions of this Section 10.04 are not strictly applicable but the failure to make any adjustment would not fairly protect the conversion rights represented hereby in accordance with the essential intent and principles of this Section 10.04, then, in each such case, Borrower shall make an adjustment consistent with the intent and principles of this Section 10.04, provided, however, that any such adjustment under this Section 10.04.H shall only be made if it would result in a lower Current Conversion Price. Upon the request of Lender, Borrower shall promptly (in any event, within thirty (30) days of such request) appoint a firm of independent public accountants of recognized national standing selected by the Board of Directors of Borrower (who may be the regular auditors of Borrower), which shall give their opinion upon the adjustment, if any, on a basis consistent with the essential intent and principles established in this Section 10.04, necessary to preserve, without dilution, the conversion rights represented hereby. Upon receipt of such opinion, Borrower will promptly mail copies thereof to Lender and shall make the adjustments described therein. If there is no change in the amount of the original proposed adjustment or if the change (whether increased or decreased) is less than five percent (5%) of the original proposed adjustment, the cost of such opinion shall be for the account of Lender. In all other events, the cost of such Accountant Certificate shall be for the account of Borrower. I. Meaning of "Issuance". References in this Agreement to "issuances" of stock by Borrower include issuances 61 by Borrower of previously unissued shares and issuances or other transfers by Borrower of treasury stock not specifically identified on Schedule 10.04(E). SECTION 10.05. Issuer's Consolidation or Merger. Without limiting Section 5.02 hereof, if Borrower shall at any time consolidate with or merge into another corporation (where Borrower is not the continuing corporation after such merger or consolidation), or Borrower shall sell, transfer or lease all or substantially all of its assets, or Borrower shall change its Shares into property other than capital stock, then, in any such case, Lender shall thereupon (and thereafter) be entitled to receive, upon the conversion of the Term loans/Commitment, the securities or other property to which (and upon the same terms and with the same rights as) Lender would have been entitled if such conversion had occurred immediately prior to such consolidation or merger, such sale of assets or such change (with any record date requirement being deemed to have been satisfied), and such conversion rights shall thereafter continue to be subject to further adjustments under this Article X. Borrower shall take such steps in connection with such consolidation or merger, such sale of assets or such change as may be necessary to assure Lender that the provisions hereof shall thereafter be applicable in relation to any securities or property thereafter deliverable upon the conversion of the Term Loans/Commitment, including obtaining a written obligation to supply such securities or property upon such conversion and to be so bound hereby. SECTION 10.06. Notice to Lender. In case at any time (i) Borrower shall take any action which would require an adjustment in the Current Conversion Price pursuant to Section 10.04.A, C or G; or (ii) Borrower shall authorize the granting to the holders of Borrower Common Stock of any Distributions on Common Stock as set forth in Section 10.04.B; or (iii) there shall be any reorganization, reclassification or change of Borrower Common Stock, or any consolidation or merger to which Borrower is a party and for which approval of any stockholders of Borrower is required, or any sale, transfer or lease of all or substantially all of the assets of Borrower; or (iv) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of Borrower; 62 then, in any one or more of such cases, Borrower shall give written notice to Lender, not less than twenty (20) days before any record date or other date set for definitive action, of the date on which such action, distribution, reorganization, reclassification, change, sale, transfer, lease, consolidation, merger, dissolution, liquidation or winding-up shall take place, as the case may be. Such notice shall also set forth such facts as shall indicate the effect of any such action (to the extent such effect may be known at the date of such notice) on the Current Conversion Price and the kind and amount of the shares and other securities and property deliverable upon conversion of the Term Loans/Commitment. Such notice shall also specify any date as of which the holders of Borrower Common Stock of record shall be entitled to exchange their Borrower Common Stock for securities or other property deliverable upon any such reorganization, reclassification, change, sale, transfer, lease, consolidation, merger, dissolution, liquidation or winding-up, as the case may be. ARTICLE XI REPRESENTATIONS OF LENDER SECTION 11.01. Representations of Lender. Lender hereby represents and warrants to Borrower as follows: A. Lender is an Accredited Investor as defined under the Securities Act of 1933, as amended (the "Act"). Lender has been provided with and reviewed the SEC Filings and has made its own independent due diligence investigation of Borrower; provided, however, that such investigation shall not impact in any manner Borrower's responsibility for the representations and warranties made hereunder. Lender is qualified to analyze the merits of an investment in Borrower. B. Lender acknowledges that the Term Loans and any Shares received by it upon conversion of the Term Loans and/or Commitments have not been registered under the Act and may not be transferred, assigned or resold unless registered pursuant to the Act or pursuant to an exemption under the Act; provided, however, that the foregoing shall not impact in any manner Borrower's obligations under the Act. C. Lender has entered into this Agreement, issued the Commitments to make the Term Loans and acquired the Conversion rights hereunder without a view towards sale or distribution thereof; provided, however, that, as set forth in Section 8.03 hereof, the distribution of any Shares acquired after Conversion of the Term Loans and/or Commitments shall be in the sole control and discretion of Lender. 63 D. On each date of Conversion of the Term Loans and/or Commitments pursuant to Article X hereof, the representations and warranties of Lender contained in this Article XI shall be deemed repeated. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. COVOL TECHNOLOGIES, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- PACIFICORP FINANCIAL SERVICES, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 64 Exhibit 1.01.TN PROMISSORY NOTE U.S. $5,000,0000 Dated as of March 20, 1997 or such amount thereof as has been advanced FOR VALUE RECEIVED, the undersigned, COVOL TECHNOLOGIES, INC., a Delaware corporation ("Borrower"), PROMISES TO PAY to the order of PACIFICORP FINANCIAL SERVICES, INC., an Oregon corporation ("Lender"), the principal amount of Five Million Dollars ($5,000,000), or such amount thereof as has been advanced, together with interest thereon at the Interest Rate (as hereinafter defined) (collectively, the "Term Loan") from the date hereof until paid in full, all in accordance with the terms of the Loan Agreement (as hereinafter defined) and this Note. For purposes of this Note, the following terms shall have the meanings set forth below. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed thereto in the Loan Agreement. "Default Interest Rate" means a rate per annum equal to the lesser of (a) the highest rate allowed by law, or (b) the sum of the Interest Rate plus three percent (3%). "Interest Rate" means, for any day, a rate per annum equal to the lesser of (a) the highest rate allowed by law, or (b) the sum of (i) the rate of interest publicly announced by Morgan Guaranty Trust Company of New York in New York City from time to time as its "prime rate" and (ii) two percent (2%) per annum. "Loan Agreement" means the Loan and Security Agreement dated as of even date herewith by and between Borrower and Lender, as the same may be amended, supplemented or otherwise modified from time to time. Borrower shall pay interest on the unpaid principal balance of this Note from the date hereof until the repayment in full thereof at the Interest Rate. Interest shall be calculated based on a 365/366-day year and the actual number of days elapsed, and shall be compounded monthly. Principal and accrued and unpaid interest thereon, shall be due and payable on the Termination Date, or on such earlier date as such sum shall become due and payable hereunder or under the Loan Documents by virtue of acceleration in accordance with the provisions hereof or of the Loan Agreement. 1 In no contingency or event whatsoever shall the rate or amount of interest paid by the Borrower under this Note exceed the maximum amount permissible under the law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such court determines that Lender has received interest under this Note in excess of the maximum amount permitted by such law (i) Lender shall apply such excess to any unpaid principal owed by Borrower to Lender or, if the amount of such excess exceeds the unpaid balance of such principal, Lender shall promptly refund such excess interest to Borrower and (ii) the provisions of this Note shall be deemed amended to provide for such permissible rate. All sums paid, or agreed to be paid, by Borrower which are, or hereafter may be construed to be, compensation for the use, forbearance or detention of money shall, to the extent permitted by applicable law, be amortized, spread and allocated throughout the full term of such indebtedness until the indebtedness is paid in full. Both principal and interest are payable in United States Dollars in immediately available funds. All principal, interest and late charges shall be paid to Lender pursuant to the payment provisions in the Loan Agreement. The terms and provisions of the Loan Agreement are hereby incorporated herein by this reference, and reference is made to the Loan Agreement for the basic terms of the Term Loan. The Loan Agreement, among other things, contains provisions for (i) acceleration of the maturity hereof upon the happening of certain stated events and (ii) prepayments on account of principal hereof prior to the maturity hereof upon the terms and conditions therein specified, which prepayments shall be applied by Lender to payment of principal on the Term Loan in inverse order of maturity. Time is of the essence hereof, and upon the occurrence of an Event of Default then this Note and any note(s) or other instrument(s) that may be taken in renewal or extension of all or any part of the indebtedness evidenced hereby or in replacement of this Note shall, at Lender's option, become immediately due and payable without any further presentment, demand, protest or notice of any kind, and thereafter interest shall continue to accrue at the Default Interest Rate. Furthermore, upon the occurrence of an Event of Default, Lender shall have all of the rights and remedies granted to Lender under the Loan Agreement and under all other Loan Documents, and notwithstanding anything to the contrary contained herein, any amount of principal which is not paid when due (whether at stated maturity, by acceleration or 2 otherwise) shall bear interest at the Default Interest Rate from the date due until paid. This Note shall bind and inure to the benefit of the Lender's successors and permitted assigns; provided, however, that Lender may not assign this Note without Borrower's prior written consent, and any prohibited assignment shall be absolutely void; provided, further, that such prohibition on assignment shall in no event apply to the assignment by Lender of all or any portion of its rights hereunder after the occurrence of an Event of Default. Borrower hereby waives presentment for payment, demand, notice of dishonor and protest of this Note and further agrees that this Note shall be deemed to have been made under and shall be governed by the laws of the State of Oregon in all respects, including matters of construction, validity and performance, and that none of its terms or provisions may be waived, altered, modified or amended except as Lender may consent thereto in writing duly signed by Lender or its authorized agent. No failure to exercise, and no delay in exercising, any rights hereunder on the part of the holder hereof shall operate as a waiver of such rights. This Note is secured by the Collateral under the terms of the Loan Agreement and is subject to the terms and conditions and entitled to the benefits of the Loan Agreement and the other Loan Documents. This Note shall be binding upon and inure to the benefit of the Lender and its respective heirs, executors, administrators, personal representatives and permitted successors and assigns. WAIVER OF JURY TRIAL: THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THE OBLIGATIONS, THE TRANSACTION DOCUMENTS, THE DEBTOR-CREDITOR RELATIONSHIP OF BORROWER AND LENDER OR THE ACTIONS OF LENDER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF. IN WITNESS WHEREOF, Borrower has caused this Note to be executed as of the date and year first above written. COVOL TECHNOLOGIES, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 3 EX-4 5 ALABAMA PROJECT PURCHASE AGREEMENT Exhibit 4 ALABAMA PROJECT PURCHASE AGREEMENT Dated as of March 20, 1997 Covol Technologies, Inc. and Alabama Synfuel #1 Ltd. SELLERS Birmingham Syn Fuel, L.L.C. BUYER ARTICLE I DEFINITIONS............................................................... 1 1.1 Certain Definitions................................................ 1 ARTICLE II AGREEMENT TO PURCHASE AND SELL; PURCHASE PRICE............................ 7 2.1 Agreement to Purchase and Sell..................................... 7 2.2 Purchase Price..................................................... 7 ARTICLE III ASSETS AND LIABILITIES TO BE SOLD AND RETAINED............................ 8 3.1 Assets to be Sold.................................................. 8 3.2 Assets to be Retained.............................................. 8 3.3 Liabilities to be Assumed by Buyer................................. 8 3.4 Liabilities to be Retained by Sellers.............................. 8 ARTICLE IV REPRESENTATIONS AND WARRANTIES............................................ 9 4.1 Representations and Warranties of Sellers.......................... 9 4.2 Changes Prior to Closing...........................................15 4.3 Representations and Warranties of Buyer............................15 4.4 Changes Prior to Closing...........................................16 4.5 Joint Obligations..................................................16 ARTICLE V CONDUCT OF BUSINESS ......................................................17 5.1 Operations by Sellers..............................................17 5.2 Negative Covenants.................................................18 5.3 Additional Covenants...............................................18 ARTICLE VI DESTRUCTION OF ASSETS.....................................................20 ARTICLE VII CONDITIONS PRECEDENT TO CLOSING; TERMINATION..............................20 7.1 Conditions Precedent to the Obligations of Buyer...........................................................20 7.2 Conditions Precedent to the Obligations of Sellers.........................................................22 7.3 Termination........................................................23 ARTICLE VIII CLOSING...................................................................24 8.1 Time and Place of Closing..........................................24 8.2 Actions at Closing.................................................25 ARTICLE IX APPROVALS AND CONSENTS....................................................26 ARTICLE X CROSS INDEMNIFICATION.....................................................26 10.1 Obligations of Sellers.............................................26 10.2 Obligations of Buyer...............................................27 10.3 Indemnity Procedures...............................................27 ARTICLE XI REMEDIES AND SURVIVAL.....................................................28 11.1 Survival of Representations, etc...................................28 11.2 Procedure..........................................................29 ARTICLE XII MISCELLANEOUS.............................................................30 12.1 Books, Records and Assistance by Personnel.........................30 12.2 Assignment.........................................................31 12.3 Notices............................................................31 12.4 Expenses and Fees..................................................32 12.5 Successors and Assigns.............................................32 12.6 Waiver.............................................................32 12.7 Entire Agreement...................................................33 12.8 Amendments, Supplements and Etc....................................33 12.9 Applicable Law.....................................................33 12.10 Execution and Counterparts.........................................33 12.11 Titles and Headings................................................33 12.12 Third Parties......................................................33 12.13 Further Assurances.................................................34 THIS ALABAMA PROJECT PURCHASE AGREEMENT is made as of March 20, 1997 between Covol Technologies, Inc., a Utah corporation ("Covol"), Alabama Synfuel #1 Ltd., a Delaware limited partnership ("Alabama Synfuel," and together with Covol, "Sellers"); Birmingham Syn Fuel, L.L.C., an Oregon limited liability company ("Buyer"). WHEREAS Covol has assigned to Alabama Synfuel ownership of a coal briquetting facility to be located in Birmingham, Alabama (the "Alabama Project"), including certain contracts entered into by Covol and certain third-parties in connection with the conduct of the construction, maintenance and operation thereof. WHEREAS Sellers desire to sell to Buyer, and Buyer desires to purchase from Sellers, the Alabama Project, all subject to the terms and conditions of 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, Sellers and Buyer agree as follows: ARTICLE I DEFINITIONS 1.1 Certain Definitions. In this Agreement, capitalized terms and other defined terms described below shall have the meanings set forth or cross-referenced below: "Affiliate" means any person, partnership, joint venture, corporation or other form of enterprise which directly or indirectly controls, is controlled by, or is under common control with, a party hereto. For purposes of the preceding sentence, "control" means possession, directly or indirectly, of the power to direct or cause direction of management and policies through ownership of voting securities, contract rights, voting trust, or otherwise. "Agreement" means this Alabama Project Purchase Agreement, the Exhibits, and the Schedules attached hereto (all of which Exhibits and Schedules shall be deemed to be incorporated herein by reference and made a part hereof as if set 2 out in full herein), and all agreements or instruments executed in connection herewith or delivered pursuant hereto. "Alabama Project" has the meaning given in the preamble of this Agreement. "Buyer" has the meaning given in the preamble of this Agreement. "Buyer's Disclosure List" has the meaning given in Section 4.4. "Closing" means the closing of this transaction which is described in more detail in Section 8.1. "Closing Date" has the meaning given in Section 8.1. "Construction Contract" means the Standard Form of Agreement between Owner and Contractor, dated as of December 26, 1996, by and between Covol Technologies, Inc. and TIC The Industrial Company. "Contracts" means the contracts, leases, purchase orders, and other agreements pertaining to the conduct of the construction, maintenance and operation of the Alabama Project as described on Schedule 4.1(m), including the Construction Contract. "Effective Time" means 12:01 a.m., Mountain Time, on the Closing Date. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Plan" means, for any Person, an employee benefit plan or other plan maintained for employees of such Person and covered by Title IV of ERISA. "Files and Records" means all files, reports, data and records relating to the Purchased Assets and the conduct of the construction, maintenance and operation of the Alabama Project, including those relating to engineering, permitting, maintenance, inventory and supply, property and excise taxes, title, corporate accounting, market studies, coal fines purchases, coal sales, income tax, Sellers' general files relating to the Alabama Project, economic analyses, and documents related to general 3 policies and procedures of Sellers with respect to the Purchased Assets and the conduct of the construction, maintenance and operation of the Alabama Project. "GAAP" means generally accepted United States accounting principles consistently applied, as in effect from time to time. "Governmental Entity" means any Federal, state or local government or any court, administrative or regulatory agency, whether domestic or foreign. "Hazardous Materials" means any (a) asbestos in any form, urea formaldehyde foam insulation, transformers or other equipment which contain dielectric fluid containing levels of polychlorinated byphenyls or radon gas; (c) any chemical, material or substance defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous waste", "restricted hazardous waste", "toxic substances" or words of similar import under any applicable Hazardous Materials Laws. "Hazardous Materials Claims" means any enforcement, cleanup, removal, remedial or other governmental or regulatory demand, actions, agreements or orders threatened, instituted, pending or completed by any Governmental Entity pursuant to any Hazardous Materials Laws, together with any claims made or threatened by any third party against either of the Sellers or any Purchased Assets or in connection with the conduct of the construction, maintenance and operation of the Alabama Project relating to damage, contribution, cost recovery, compensation, loss or injury resulting from the presence, release or discharge of any Hazardous Materials. "Hazardous Materials Laws" means the following Federal laws, and their implementing regulations, as well as any amendments to such laws, and all State and local laws and ordinances which regulate the same subject matter: (a) the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), 42 USC 9601 et seq.; (b) the Solid Waste Disposal Act, 42 USC 6901 et seq., including the Resource Conservation and Recovery Act (RCRA) and the laws governing Underground Storage Tanks; (c) the Toxic Substances Control Act (TSCA), 15 USC 2601 et seq., including those provisions governing use and disposal of Polychlorinated Biphenyls (PCBs); (d) the Hazardous Materials Transportation Act (HMTA), 49 USC 1801, et seq.;(e) the Federal 4 Insecticide, Fungicide and Rodenticide Act (FIFRA), 7 USC 136 et seq.; (f) those portions of the Clean Air Act governing toxic air emissions, 42 USC 7401 et seq.; (g) those portions of the Clean Water Act governing toxic water pollutants and oil spills, 33 USC 1251 et seq.; (h) the Emergency Planning and Community Right-to-know Act (EPCRA, SARA Title III), 42 USC 11001 et seq.; and (i) those portions of the Occupational Safety and Health Act (OSHA) governing worker safety with respect to hazards from chemical substances, including requirements for Material Safety Data Sheets, 29 USC 651, et seq. "Indemnitee" has the meaning given in Section 10.3(b). "Indemnitor" has the meaning given in Section 10.3(b). "Inventory" means all inventory (as defined in the UCC) of Sellers held for sale, lease or demonstration, or to be furnished under contracts of sale or service in connection with the Alabama Project, in all forms, wherever located, now or hereafter existing, including (i) all inventory, raw materials, work in process, finished goods, materials and supplies used or to be consumed in connection with the conduct of the construction, maintenance and operation of the Alabama Project, and all additions and accessions to such property, (ii) goods in which Sellers have an interest in mass or a joint or other interest or right of any kind, and (iii) goods which are returned to or repossessed by Sellers, and all accessions thereto and products thereof. "Letter Ruling" has the meaning given in Section 7.1(i). "Lien" means any interest in property securing an obligation, whether such interest is based on common law, statute or contract, and including any restriction on the use, voting, transfer, receipt of income or other exercise of any attributes of ownership, any security interest or lien arising from a mortgage, claims, encumbrance, pledge, charge, easement, servitude, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term "Lien" shall also include reservations, exceptions, covenants, conditions, restrictions, leases, subleases, licenses, occupancy agreements, pledges, equities, charges, assessments, covenants, reservations, defects in title, encroachments and other burdens, and other title exceptions and encumbrances 5 affecting property of any nature, whether accrued or unaccrued, or absolute or contingent. "Loan Documents" means the Convertible Loan and Security Agreement, dated as of the date hereof, by and between Covol and PacifiCorp Financial Services, Inc., and the other Loan Documents (as such term are defined in the Convertible Loan and Security Agreement), and any and all other documents executed pursuant thereto, or contemplated thereby (other than the Purchase Agreement Documents), as the same may be modified, extended, renewed, amended or replaced from time to time. "1986 Code" has the meaning given in Section 7.1(i). "Party" or "Parties" means Buyer and Sellers and their successors, as parties to this Agreement. "Permitted Liens" means: (i) Liens (but only to the extent not yet delinquent or (a) which are being contested in good faith by appropriate proceedings with reserves acceptable to Buyer having been set aside and maintained and (b) with respect to tax liens on the Purchased Assets, as to which Sellers shall have paid the undisputed amount) securing taxes, assessments or governmental charges or levies, or arising in connection with workers' compensation, unemployment insurance or social security obligations, or securing the claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like Persons; (ii) Attachment, judgment or similar liens arising in connection with court proceedings (a) which are discharged or stayed pending appeal within thirty (30) days of attachment or levy, and, if so stayed, the stay remains in effect or (b) payment of which is covered in full (subject only to customary and reasonable deductibles) by insurance or surety bonds; (iii) Liens in favor of PacifiCorp Financial Services, Inc. under the Loan Documents; and (iv) Existing Liens disclosed on Schedule 4.1(q) attached hereto and Liens affecting real property interests consisting of (a) zoning regulations, (b) easements, (c) set-back lines, or (d) covenants, conditions or restrictions, now existing 6 or hereafter arising, which do not in the aggregate have a material adverse effect on the construction, operation or maintenance of the Alabama Project. "Permits" means any existing permit, license, franchise, authorization, variance, exemption, concession, lease, instrument, order or approval of any Governmental Entity and any applications therefor appurtenant or relating to the Purchased Assets or otherwise held by Sellers in connection with the conduct of the construction, maintenance and operation of the Alabama Project as described on Schedule 4.1(n). "Person" means any natural person, corporation, partnership, sole proprietorship, firm, association, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. "Personal Property" means all tangible and intangible personal property owned by Sellers and used or held in connection with the conduct of the construction, maintenance and operation of the Alabama Project Alabama Project as described on Schedule 4.1(q). "Promissory Note" has the meaning given in Section 2.2. "Property Leases" means the real property leases, rights-of-way, easements, licenses and agreements held by Sellers in connection with the conduct of the construction, maintenance and operation of the Alabama Project as described on Schedule 4.1(o). "Purchase Agreement Documents" means this Agreement, and any and all other documents executed pursuant hereto, or contemplated hereby (other than the Loan Documents), as the same may be modified, extended, renewed, amended or replaced from time to time. "Purchase Price" has the meaning given in Section 2.2. "Purchased Assets" means all of Sellers' right, title, and interest in the assets set forth on Schedule 2.1. "Related Person" means (i) any shareholder who owns or controls more than five percent (5%) of the voting securities of either Seller, (ii) any officer or director of either Seller, and (iii) any other Person that, directly or indirectly, controls, is 7 controlled by or is under common control with or is related to, by blood or marriage, either Seller or any Person identified in clauses (i) or (ii). "Retained Assets" means those assets retained by the Sellers as described in Section 3.2. "Retained Liabilities" means those liabilities retained by Sellers as described in Section 3.4. "Section 29 Credits" has the meaning given in Section 7.1(i). "Sellers" has the meaning given in the preamble of the Agreement. "Sellers' Disclosure List" has the meaning given in Section 4.2. "Transaction Documents" means the Loan Documents and the Purchase Agreement Documents. "UCC" means the Uniform Commercial Code as enacted in the State of Alabama. ARTICLE II AGREEMENT TO PURCHASE AND SELL; PURCHASE PRICE 2.1 Agreement to Purchase and Sell. Subject to the terms and conditions of this Agreement, Sellers agree to sell to Buyer and Buyer agrees to purchase from Sellers, the Purchased Assets, free and clear of all Liens. 2.2 Purchase Price. The total consideration for the Purchased Assets shall be a promissory note in the principal amount of Three Million Four Hundred Thousand Dollars ($4,800,000)(the "Purchase Price"), in the form attached hereto as Exhibit A-1 (the "Promissory Note"). The Promissory Note shall be secured by a Security Agreement and Collateral Assignment of Sublease in the form attached hereto as Exhibit A-2 and Exhibit A-3, respectively. 8 ARTICLE III ASSETS AND LIABILITIES TO BE SOLD AND RETAINED 3.1 Assets to be Sold. The assets to be sold are the Purchased Assets. 3.2 Assets to be Retained. The assets to be retained by Sellers are all assets of the Sellers other than the Purchased Assets. 3.3 Liabilities to be Assumed by Buyer. Subject to the terms of this Article III and upon completion of the Closing, Buyer covenants and agrees to assume, fulfill, perform and in due course discharge, all obligations and liabilities of any kind or character whatsoever resulting from, relating to, arising out of, or incurred in connection with the Purchased Assets, which obligations and liabilities result from, relate to, arise out of, or are incurred in connection with actions taken after completion of the Closing; provided, however, Buyer shall not assume any liability or obligation arising from or relating to a breach by Sellers of a representation, warranty or covenant set forth in this Agreement; provided, further, Buyer shall not assume any liability or obligation retained by Sellers under Section 3.4; provided, further, Buyer shall not assume any liability or obligation incurred by Covol under the Operation and Maintenance Agreement. 3.4 Liabilities to be Retained by Sellers. Subject to the terms of Article III and upon completion of the Closing, Sellers covenant and agree to assume, fulfill, perform, and in due course discharge, indemnify, defend and hold harmless Buyer and its directors, officers, agents, representatives, subsidiaries and Affiliates from and against (i) all obligations and liabilities of any kind or character whatsoever resulting from, relating to, arising out of, or incurred in connection with the Retained Assets and (ii) all obligations and liabilities of any kind or character whatsoever resulting from, relating to, arising out of, or incurred in connection with the Purchased Assets to the extent such obligations and liabilities resulted from, related to, arose out of, or were incurred in connection with actions prior to completion of the Closing. 9 ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.1 Representations and Warranties of Sellers. Sellers jointly and severally represent and warrant to Buyer that as of the date of this Agreement, the facts set forth below in this Section 4.1 are and shall be true: (a) Corporate Standing. Covol is a corporation duly organized and validly existing and in good standing under the laws of the State of Delaware. Alabama Synfuel is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware. Each Seller has corporate power to own its property, and to execute, deliver and perform this Agreement and each of the Transaction Documents, and to carry on its business as now being conducted. Each Seller is duly qualified to do business in and is in good standing as a foreign corporation authorized to do business under the laws of the State of Alabama. (b) Authorizations; Binding Agreements. The execution, delivery and performance of this Agreement and the other Transaction Documents by Sellers and each conveyance, assignment, agreement, and other document herein contemplated to be executed by Sellers, has been duly authorized by all necessary corporate action. This Agreement and the other Transaction Documents and the conveyances, assignments, agreements, and other documents herein contemplated to be executed, delivered and performed by Sellers are, or will be upon execution, legal, valid and binding obligations of Sellers, duly enforceable against Sellers in accordance with their terms (subject, however, to the effects of bankruptcy, insolvency, reorganization, moratorium, and similar laws from time to time in effect relating to the rights and remedies of creditors as well as to general principles of equity), do not and will not result in any violation of, conflict with or default under the terms of Sellers' organizational documents (nor, to the best of each Seller's knowledge after due inquiry, does there exist any condition which upon the passage of time or the giving of notice would cause such violation, conflict or default), and, subject only to such consents as are set forth on Schedule 4.1(c), do not and will not result in any violation of, conflict with or default under any material permit, lease, venture, mortgage, agreement, contract, judgment, order or other obligation or restriction to which Sellers, the Purchased Assets or the conduct of the construction, maintenance and operation of the Alabama Project may be bound or 10 encumbered (nor, to the best of each Seller's knowledge after due inquiry, does there exist any condition which upon the passage of time or the giving of notice would cause such violation, conflict or default). (c) No Actions Affecting Enforcement of the Agreement and the other Transaction Documents. There are no actions, suits, or proceedings pending, or, to the best of either Seller's knowledge after due inquiry, threatened, against either Seller in any court, or administrative governmental body or agency which will affect in any adverse manner the ability of Sellers to execute, deliver and perform this Agreement and the other Transaction Documents. Subject only to such consents as are set forth on Schedule 4.1(c), and such consents which the failure to obtain could not reasonably be expected to have a material adverse effect on the Purchase Assets or the construction, maintenance and operation of the Alabama Project, Sellers have obtained all permits, licenses, franchises, authorizations, variances, exemptions, concessions, leases, instruments, orders, consents or approvals of Governmental Entities and third parties necessary to execute, deliver and perform this Agreement and the other Transaction Documents. (d) Taxes. All tax returns and reports relating to the Purchased Assets and the conduct of the construction, maintenance and operation of the Alabama Project required by law (including all federal, state, and local property tax, severance and franchise tax laws) to be filed by Sellers prior to the Closing have been timely filed or will be caused to be timely filed, except for such returns and reports which the failure to file could not reasonably be expected to have a material adverse effect on the Purchase Assets or the construction, maintenance and operation of the Alabama Project. All taxes, assessments, fees, interest, penalties and other governmental charges relating to the Purchased Assets and the conduct of the construction, maintenance and operation of the Alabama Project which are due and payable have been paid when due and payable, except for such taxes, assessments, fees, interest, penalties and other governmental charges which the failure to pay could not reasonably be expected to have a material adverse effect on the Purchase Assets or the construction, maintenance and operation of the Alabama Project. (e) Brokers or Finders Fees. Except as set forth on Schedule 4.1(e), no obligation or liability, contingent or otherwise, for brokers or finders fees created by Sellers with 11 respect to the matters provided for in this Agreement and the other Transaction Documents shall be imposed upon Buyer or the Purchased Assets. (f) No Imposition of Liens. The execution, delivery and performance of this Agreement and the other Transaction Documents by Sellers shall not result in the imposition of any Lien, other than Permitted Liens, upon any of the Purchase Assets or by which the construction, maintenance and operation of the Alabama Project may be bound or encumbered. (g) Completeness of Schedules. The Schedules made a part of this Agreement are true, correct and complete. No information furnished by or on behalf of Sellers to Buyer in connection with this Agreement and the other Transaction Documents or on any such Schedule contains any untrue statement of a material fact or omits to state a material fact necessary to make such statements accurate. (h) Title to Purchased Assets. Sellers have marketable title to and possession of the Purchased Assets free and clear of all Liens, other than Permitted Liens. (i) Applicable Contracts and Permits. The Contracts, the Permits and the Property Leases set forth on Schedules 4.1(m), 4.1(n) and 4.1(o)), respectively, are the only material agreements, contracts, leases, purchase orders, permits, licenses, franchises, authorizations, variances, exemptions, concessions, leases, instruments, orders or approvals of any Governmental Entity to which the Purchased Assets or the conduct of the construction, maintenance and operation of the Alabama Project are bound. (j) Pending Litigation. Except as disclosed on Schedule 4.1(j), there are no actions, suits, arbitrations, claims, grievances, or proceedings currently pending or, to the best of Sellers' knowledge after due inquiry, threatened against or affecting the Purchased Assets or the conduct of the construction, maintenance and operation of the Alabama Project, the consequence of which could reasonably be expected to have a material adverse effect on the construction, operation or maintenance of the Alabama Project. There are no outstanding or unsatisfied judgements, orders or decrees to which the Purchased Assets or the conduct of the construction, maintenance and operation of the Alabama Project are bound. 12 (k) Compliance with Laws. Sellers are in compliance with all material orders, writs, injunctions, decrees, judgments, rulings, laws, rules or regulations of any Governmental Entity to which the Purchased Assets or the construction, maintenance and operation of the Alabama Project are bound. There are no outstanding "notices of violation" with respect to the Purchased Assets or the construction, maintenance and operation of the Alabama Project. The construction, maintenance and operation of the Alabama Project are in compliance with, and neither Seller is in violation of, conflict with or default under (nor, to the best of either Seller's knowledge after due inquiry, does there exist any condition which upon the passage of time or the giving of notice would cause such violation, conflict or default), any order, writ, injunction, decree, judgment, ruling, law, rule or regulation of any Governmental Entity, the consequence of which could reasonably be expected to have a material adverse effect on the construction, operation or maintenance of the Alabama Project. (l) Hazardous Materials. Except as disclosed on Schedule 4.1(l), no Hazardous Materials exist on, under or about any of the Purchased Assets or the Alabama Project in violation of any Hazardous Materials Laws to the satisfaction of the relevant governmental agency that enforces such laws. The construction, maintenance and operation of the Alabama Project is and has been in compliance with all Hazardous Materials Laws. Neither Seller has received any notice of, and to the best knowledge of each Seller after due inquiry, there are no existing or threatened Hazardous Materials Claims. The construction, maintenance and operation of the Alabama Project do not generate any Hazardous Materials. No storage tanks are or have been located on or under the Purchased Assets or the Alabama Project within the last five (5) years. (m) Status of Contracts. Schedule 4.1(m) is a true, correct and complete list of all the material contracts, leases, mortgages, credit agreements, indentures, sales contracts, purchase orders, and other agreements entered into by the Sellers to which the Purchased Assets and the construction, maintenance and operation of the Alabama Project are bound. The Contracts are valid and in good standing, and there is no violation of, conflict with or default under the Contracts (nor, to the best of either Seller's knowledge after due inquiry, does there exist any condition which upon the passage of time or the giving of notice would cause such violation, conflict or default), the consequence of which could reasonably be expected to have a material adverse 13 effect on the construction, operation or maintenance of the Alabama Project. The Sellers have not received any notice from any party to any Contract that such party intends to terminate, cancel or refuse to renew the same or that such party intends to offset any amount due thereunder or assert any defense to the enforceability thereof. No action other than the execution of appropriate transfer documents by Sellers and Buyer is required to transfer such Contracts to Buyer, subject only to such consents as are set forth on Schedule 4.1(c). (n) Governmental Approvals, Licenses, Orders, Agreements and Permits. Schedule 4.1(n) is a true, correct and complete list of all material permits, licenses, franchises, authorizations, variances, exemptions, concessions, leases, instruments, orders or approvals of any Governmental Entity to which the Purchased Assets are bound or are held or used by Sellers in connection with the conduct of the construction, maintenance and operation of the Alabama Project. The construction, maintenance and operation of the Alabama Project are in compliance with the Permits, the consequence of which could not reasonably be expected to have a material adverse effect on the Purchase Assets or the construction, operation or maintenance of the Alabama Project, and no additional permits, licenses, franchises, authorizations, variances, exemptions, concessions, leases, instruments, orders or approvals of any Governmental Entity are necessary to lawfully conduct the construction, maintenance and operation of the Alabama Project. The Sellers have not received any notice from any party to any Permit that such party intends to terminate, cancel or refuse to renew the same or that such party intends to assert any defense to the enforceability thereof. No action other than the execution of appropriate transfer documents by Sellers and Buyer is required to transfer such Permits to Buyer, subject only to such consents as are set forth on Schedule 4.1(c). (o) Leases. Schedule 4.1(o) contains a true, correct and complete list of the Property Leases. There is no violation of, conflict with or default under the Property Leases (nor, to the best of either Seller's knowledge after due inquiry, does there exist any condition which upon the passage of time or the giving of notice would cause such violation, conflict or default), except for such violations, conflicts and defaults the consequences of which could not reasonably be expected to have a material adverse effect on the Purchased Assets or the construction, maintenance or operation of the Alabama Project. The Sellers have not received any notice from any party to any 14 Property Lease that such party intends to terminate, cancel or refuse to renew the same or that such party intends to assert any defense to the enforceability thereof. No action other than the execution of appropriate transfer documents by Sellers and Buyer is required to transfer such Property Leases to Buyer, subject only to such consents as are set forth on Schedule 4.1(c). (p) No Fee Property. The Purchased Assets do not include any interest in real property other than the Property Leases, and no other interest in real property is held or used by the Sellers in connection with the construction, maintenance and operation of the Alabama Project. (q) Personal Property. Schedule 4.1(q) is a true, correct and complete list of the Personal Property (excluding Inventory) used or held by Sellers in connection with the Purchased Assets and the construction, maintenance and operation of the Alabama Project. Sellers are the beneficial owners of and have title to the Personal Property (including Inventory) free and clear of all Liens, other than Permitted Liens. No action other than the execution of appropriate transfer documents by Sellers and Buyer is required to transfer such Personal Property (including Inventory) to Buyer. (r) Inventory. The Inventory (i) is reflected on Schedule 4.1(r) hereto in accordance with GAAP, and (b) all unusable Inventory has been written off in accordance with GAAP. The values at which such Inventories are carried reflect an inventory valuation policy stating inventory based on actual physical count and at the lower of Sellers' cost or fair market value, in accordance with GAAP. (s) Complete Project. The Purchased Assets will constitute, upon completion of construction in accordance with the Contracts and Permits, a fully operational coal briquette and extrusion manufacturing facility with all real property, personal property, agreements, contracts, leases, purchase orders, files, reports, records, data, permits, licenses, franchises, authorizations, variances, exemptions, concessions, leases, instruments, orders or approvals of any Governmental Entity necessary to conduct the construction, maintenance and operation of the Alabama Project. (t) ERISA and Labor Matters. Neither Seller has initiated any ERISA Plans, nor is either Seller party to any collective bargaining agreements. The transfer of the Purchased 15 Assets does not obligate Buyer to employ any of Sellers' employees or require Buyer's assumption of any liabilities, obligations or costs incurred as a result of, in connection with, arising under or related to Sellers' employment of any employee. (u) Agreements with Related Persons. There are no contracts, licenses, agreements or arrangements with any Related Person in connection with the construction, maintenance and operation of the Alabama Project, other than as disclosed on Schedule 4.1(u). 4.2 Changes Prior to Closing. Prior to and at the Closing, Sellers shall provide Buyer with a list ("Sellers' Disclosure List") of any knowledge acquired or events occurring after the date hereof that cause Sellers' representations and warranties in Section 4.1 to be untrue in any respect, or are reasonably likely to cause them to be untrue in any respect, if such representations and warranties were to be made on and as of the Effective Time. 4.3 Representations and Warranties of Buyer. Buyer represents and warrants that as of the date hereof, the facts set forth below in this Section 4.3 are and shall be true: (a) Corporate Standing. Buyer is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Oregon, has power to own its own property, and to execute, deliver and perform this Agreement and each of the other Transaction Documents, and to carry on its business as now being conducted. Buyer is qualified to do business and is in good standing as a foreign limited liability company authorized to do business under the laws of the State of Alabama. (b) Authorizations; Binding Agreements. The execution, delivery, and performance of this Agreement and the other Transaction Documents by Buyer and of each conveyance, assignment, agreement, and other document herein contemplated to be executed by Buyer have been fully authorized by all necessary corporate actions. This Agreement and the other Transaction Documents and the conveyances, assignments, agreements, and other documents herein contemplated to be executed, delivered and performed by Buyer are, or will be upon execution, legal, valid and binding obligations of Buyer, duly enforceable against Buyer in accordance with their terms (subject, however, to the effects of bankruptcy, insolvency, reorganization, moratorium, and 16 similar laws from time to time in effect relating to the rights and remedies of creditors as well as to general principles of equity), do not and will not result in any violation of, conflict with or default under the terms of Buyer's organizational documents, and do not and will not do not result in any violation of, conflict with or default under the terms of any permit, lease, venture, indenture, mortgage, agreement, contract, judgment, order or other obligation or restriction to which Buyer is bound (nor, to the best of Buyer's knowledge after due inquiry, does there exist any condition which upon the passage of time or the giving of notice would cause such violation, conflict or default). (c) No Brokers or Finders Fees. No obligation or liability, contingent or otherwise, for brokers or finders fees created by Buyer with respect to the matters provided for in this Agreement shall be imposed upon Sellers. (d) Single Purpose Entity. Buyer was formed for the purpose of acquiring the Purchased Assets and does not conduct any operations other than in connection with acquisition and operation of the Alabama project in accordance with the Transaction Documents. 4.4 Changes Prior to Closing. Prior to and at the Closing, Buyer shall provide Sellers with a list ("Buyer's Disclosure List") of any knowledge acquired or events occurring after the date hereof that cause Buyer's representations and warranties in Section 4.3 to be untrue in any respect, or is reasonably likely to be untrue in any respect, if such representations and warranties were to be made on and as of the Effective Time. 4.5 Joint Obligations. The following shall apply with equal force to Sellers and Buyer: (a) Buyer and Sellers shall each promptly give the other written notice of the existence or occurrence of any item to be reflected on Sellers' Disclosure Statement or Buyer's Disclosure Statement. (b) Neither Party shall intentionally perform any act which, if performed (or omit to perform any act which, if omitted to be performed) would prevent or excuse the performance of this Agreement by either party hereto or which, except as a result of the conduct of the business in the usual and ordinary course, 17 would result in any representation or warranty herein contained being untrue in any respect if made on and as of the Closing. ARTICLE V CONDUCT OF BUSINESS 5.1 Operations by Sellers. During the period from the date hereof to the Effective Time: (a) Sellers shall maintain the Purchased Assets and conduct the construction, maintenance and operation of the Alabama Project in compliance with this Agreement and the other Transaction Documents, the Contracts, the Property Leases and the Permits and each applicable order, writ, injunction, decree, judgment, ruling, law, rule or regulation of any Governmental Entity, and pay all fees, assessments and costs arising in connection with the execution, delivery and performance of this Agreement and the Transaction Documents and the construction, maintenance and operation of the Alabama Project. (b) Sellers may remove any items included in the Retained Assets; provided, however, such removal does not damage or impair the Purchased Assets or interfere with the conduct of the construction, maintenance and operation of the Alabama Project in any manner. (c) Buyer and its duly authorized agents, employees, and representatives, at their sole risk and expense, shall have access to the Purchased Assets and the Alabama Project for familiarization and orientation purposes; provided, however, that such access and observation does not unreasonably interfere with or delay the conduct of construction, maintenance and operation of the Alabama Project. Sellers shall cooperate in orienting Buyer's personnel to the construction, maintenance and operation of the Alabama Project. (d) Sellers shall use reasonable efforts to preserve intact Sellers' relationships with suppliers, customers and others having business dealings with respect to the Purchased Assets and the construction, maintenance and operation of the Alabama Project. (e) Sellers shall take all necessary actions to maintain the Purchased Assets in their present condition, quantity and state of repair, reasonable wear and tear excepted. 18 (f) Sellers shall take all commercially reasonable actions (i) to construct the Alabama Project as soon as practicable, (ii) to secure the consents and permits identified in Schedule 4.1(c), and (iii) to conduct the construction, maintenance and operation of the Alabama Project in accordance with commercially reasonable practices. (g) Sellers shall continue to carry and maintain in full force and effect the existing casualty and liability insurance as provided in the Loan Document through and including the Effective Time. (h) Sellers shall comply with all applicable bulk sales laws, if any, in effect in any jurisdiction in which the Purchased Assets are located and where Sellers have their place of business. 5.2 Negative Covenants. During the period from the date hereof and the Effective Time, Sellers shall: (a) not sell, lease, assign, hypothecate or agree to sell, lease, assign, hypothecate or otherwise transfer or dispose of, any of the Purchased Assets; (b) not enter into any lease, contract, agreement, commitment, arrangement or transaction relating to the Purchased Assets or the Alabama Project except in the normal course of construction, maintenance and operation of the Alabama Project and in accordance with past practice, or terminate, cancel or modify or in any way impair any of the Contracts, Property Leases or Permits; (c) not subject to any Lien, other than Permitted Liens, any of the Purchased Assets, or permit or allow any of the Purchased Assets to become subject to any Lien, other than Permitted Liens; (d) not fail to pay any taxes, debts or other obligations relating to the Purchased Assets, as the same become due and payable; (e) not enter into any lease, contract, agreement, commitment, arrangement or transaction or do any other act or omit to do any act that might adversely affect the Purchased Assets or the construction, maintenance and operation of the Alabama Project or the consummation of the transactions 19 contemplated by this Agreement and the other Transaction Documents; and 5.3 Additional Covenants. (a) None of the Sellers and Buyer shall issue any public statement with respect to the Alabama Project or the transactions contemplated by this Agreement and the other Transaction Documents without the prior written consent of the other parties, which consent shall not be unreasonably withheld; provided, however, that the consenting party shall have two (2) Business Days to review the proposed public statement. (b) Seller shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect the Contracts, including the Construction Contract, and shall not breach, violate or commit any event of default under the same. In the event of any breach, violation or event of default with respect to the Contracts, Sellers shall give immediate notice thereof to Buyer. (c) Prior to June 30, 1997, Sellers shall construct the Alabama Project to conform with the representations set forth in the Letter Ruling. (d) So long as the Promissory Note is outstanding, Buyer shall (i) not engage in any other business other than the operation and maintenance of the Alabama Project, (ii) not transfer the Purchased Assets or any assets acquired by Buyer to be used in connection with the operation and maintenance of the Alabama Project, and (iii) maintain in full force and effect hazard and liability insurance with respect to the Alabama Project, in such amounts as are commercially reasonable in accordance with industry standards. (e) Sellers shall not issue any public statement that, either directly or indirectly, makes reference to PacifiCorp or any of its directors, officers, agents, representatives, subsidiaries and Affiliates without the prior written consent of Buyer, which consent shall not be unreasonably withheld. (f) During the term of the Operation and Maintenance Agreement, and subject to clauses (a) and (e) of this Section 5.3, Sellers shall have the right to (i) make and use photographs and videotapes of the Alabama Project for promotional purposes and (ii) conduct tours of the Alabama Project for potential 20 investors and purchasers of Covol's products and services; provided, however, that such activities shall not interfere with the construction, operation or maintenance of the Alabama Project; provided, further, that Covol shall reimburse Buyer for any cost incurred by Buyer as a result of such activities, including any incremental increase in insurance costs. ARTICLE VI DESTRUCTION OF ASSETS If, prior to the Closing, all or any material part of the Purchased Assets shall be destroyed by fire, flood, or other casualty (including condemnation), and the items affected by such destruction have not been effectively restored before the Closing Date at least to their condition immediately prior to such destruction, either Buyer or Sellers may elect not to proceed with the Closing and to terminate this Agreement. If Buyer and Sellers nonetheless elect to proceed with the Closing, or if less than a material part of the Purchased Assets shall have been destroyed, then notwithstanding any such destruction, the Closing shall take place and the Purchase Price shall be reduced by an amount equal to the amount of such destruction measured by the costs of restoring such Purchased Assets as are destroyed to their condition immediately prior to such destruction, less the amount of any insurance proceeds paid or payable without contingency to Sellers on account of such destruction (which Sellers shall make available to Buyer). If Sellers elect not to proceed with the Closing as provided in the first sentence of this Article VI, Buyer may, within ten (10) days after receiving notice of such election from Sellers, elect to proceed with the Closing without any restoration of destroyed Purchased Assets or reduction in the Purchase Price. For purposes of this Article VI, any of the Purchased Assets shall be considered material if the loss of such assets would materially adversely affect the ability of Buyer to operate the Alabama Project. ARTICLE VII CONDITIONS PRECEDENT TO CLOSING; TERMINATION 7.1 Conditions Precedent to the Obligations of Buyer. All obligations of Buyer under this Agreement are subject to the fulfillment on or before the Closing Date of each of the following conditions: 21 (a) Correctness of Representations and Warranties. The representations and warranties of Sellers contained in this Agreement and in the related Exhibits and Schedules, to be delivered to Buyer pursuant hereto and in connection herewith shall be true on the date hereof and on the Closing Date as though such representations and warranties were made on and as of the Closing Date. (b) No Adverse Change in Purchased Assets and Alabama Project. The Purchased Assets and the Alabama Project shall not be or shall not have been threatened or affected, or interfered with, in a material adverse way, whether or not covered by insurance, as a result of fire, explosion, earthquake, disaster, accident, labor dispute, any action of the United States or other governmental authority, riots, civil disturbances, uprising, activity of the Armed Forces, or act of God or the public enemy. (c) Compliance with Agreement. Sellers shall have performed and complied in all material respects with all obligations under this Agreement which are to be performed or complied with by them prior to the Closing Date. (d) Certification of Compliance. Sellers shall have delivered to Buyer a certificate dated the Closing Date, certifying as to the fulfillment of the conditions set forth in this Section 7.1. (e) Absence of Litigation. No suit, action or other proceeding or investigation shall be threatened or pending before any court or governmental agency to restrain or prohibit, or to obtain damages or other relief in connection with this Agreement or the other Transaction Documents, or the consummation of the transactions contemplated by this Agreement or the Transaction Documents. (f) Consents. Sellers shall have obtained (and delivered copies thereof to Buyer) all permits, licenses, franchises, authorizations, variances, exemptions, concessions, leases, instruments, orders, consents or approvals of Governmental Entities and third parties necessary to execute, deliver and perform this Agreement and the other Transaction Documents as set forth on Schedule 4.1(c). (g) Further Assurances. Buyer shall have received such further instruments and documents as it may reasonably require to carry out effectively the transactions contemplated by 22 this Agreement and the Transaction Documents and to evidence the fulfillment of the agreements contained in this Agreement and the Transaction Documents and the performance of all conditions to the consummation of such transactions. (h) Opinion of Counsel. Buyer shall have received from counsel to Sellers, opinions of counsel to the Sellers, dated as of the Closing Date, in form and substance reasonably satisfactory to Buyer and its counsel. (i) Letter Ruling; Initial Production. Buyer shall have received either (i) a letter ruling (the "Letter Ruling") from the Internal Revenue Service setting forth the specific terms of the proposed transaction and confirming to the satisfaction of Buyer, among other things, (a) the availability and calculation of the credit available under Section 29 (the "Section 29 Credits") of the Internal Revenue Code of 1986, as amended (the "1986 Code"), (b) that the construction contract for the Alabama Project satisfies the requirements of the Section 29 Credits, and (c) that the allocation of the Section 29 Credits to the various members of Buyer is valid under the 1986 Code, or (ii) a certificate of the Sellers (together with such other evidence as Buyer requests) certifying that the Alabama Project is ready to be placed into commercial operation. (j) Covol shall be the general partner of Alabama Synfuel, with an 80% partnership interest. (k) Covol shall assign to Buyer the coal sale contracts set forth on Schedule 7.1(l). (l) Sellers shall have assigned the Construction Contract to Buyer as a Purchased Asset and Contract under the terms of this Agreement. (m) Other Deliveries. The other deliveries referred to in Section 8.2 shall be made at Closing. 7.2 Conditions Precedent to the Obligations of Sellers. All obligations of Sellers under this Agreement are subject to fulfillment on or before the Closing Date of each of the following conditions: (a) Correctness of Warranties and Representations. The representations and warranties of Buyer contained in this Agreement and in the related Exhibits and Schedules, to be 23 delivered to Sellers pursuant hereto and in connection herewith shall be true on the date hereof and on the Closing Date as though such representations and warranties were made on and as of the Closing Date. (b) Compliance with Agreement. Buyer shall have performed and complied in all material respects with all obligations under this Agreement which are to be formed or complied with by it prior to the Closing Date. (c) Certification of Compliance. Buyer shall have delivered to Seller a certificate dated the Closing Date, certifying as to the fulfillment of the conditions set forth in this Section 8.1. (d) Absence of Litigation. No suit, action or other proceeding or investigation shall be threatened or pending before any court or governmental agency to restrain or prohibit, or to obtain damages or other relief in connection with this Agreement or the Transaction Documents, or the consummation of the transactions contemplated by this Agreement or the Transaction Documents. (e) Opinion of Counsel. Sellers shall have received an opinion of Stoel Rives LLP, counsel to the Buyer, dated as of the Closing Date, in form and substance reasonably satisfactory to Sellers and their counsel. (f) Other Deliveries. The other deliveries referred to in Section 8.2 shall be made at Closing. (g) Further Assurances. Sellers shall have received such further instruments and documents as it may reasonably require to carry out effectively the transactions contemplated by this Agreement and the other Transaction Documents and to evidence the fulfillment of the agreements contained in this Agreement and the other Transaction Documents and the performance of all conditions to the consummation of such transactions. 7.3 Termination. This Agreement may be terminated prior to the Closing as follows: (a) at the election of the Sellers, if any one or more of the conditions to the obligation of Sellers to close has not been fulfilled as of the Closing Date; 24 (b) at the election of the Buyer, if any one or more of the conditions to the obligation of Buyer to close has not been fulfilled as of the Closing Date; (c) at the election of the Sellers, if the Buyer has breached any representation, warranty, covenant or agreement contained in this Agreement, which breach cannot be or is not cured within thirty (30) days after the occurrence of such breach, but in no event after December 31, 1997; (d) at the election of the Buyer, if either of the Sellers has breached any representation, warranty, covenant, or agreement contained in this Agreement, which breach cannot be or is not cured within thirty (30) days after the occurrence of such breach, but in no event after December 31, 1997; (e) at the election of the Buyer or Sellers, if any legal proceeding is commenced or threatened by any Governmental Entity or other person directed against the consummation of the Closing and either the Buyer or the Sellers, as the case may be, reasonably and in good faith deem it impractical or inadvisable to proceed in view of such legal proceeding or threat thereof; (f) upon the election of Buyer or Sellers pursuant to Article VI, if there has been damage or destruction of the Purchased Assets giving them an election to terminate this Agreement if such damage or destruction is not or cannot be cured within thirty (30) days of the occurrence thereof, but in no event after December 31, 1997; or (g) at any time on or prior to the Effective Time, by mutual written consent of the Sellers and the Buyer. A party who terminates this Agreement in accordance with this Section 7.3 shall have no liability to the other party in respect of such termination, but any cause of action held by a party related to a breach of this Agreement prior to such termination shall survive. ARTICLE VIII CLOSING 8.1 Time and Place of Closing. The closing of the transaction contemplated by this Agreement (the "Closing") shall be at 9:00 a.m., Mountain Time, on such date as the parties shall mutually agree, not later than the earlier of (i) ten (10) 25 business days following the satisfaction or waiver of the condition set forth in Section 7.1(i) hereto or (ii) December 31, 1997 (the "Closing Date"), at the offices of Stoel Rives, LLP, 201 South Main Street, Suite 11, Salt Lake City, Utah 84111-2215, or at such other time or place as the parties shall mutually agree. 8.2 Actions at Closing. At the Closing, the following events shall occur, each being a condition precedent to the other and each being declared to have occurred simultaneously with the other: (a) Buyer shall pay to Sellers the Purchase Price by executing and delivering to Alabama Synfuel the Promissory Note. (b) Sellers shall execute, acknowledge and deliver to Buyer the deeds, bills of sale, assignments and other documents necessary to transfer all of Sellers' right, title, and interest in and to the Purchased Assets to Buyer. (c) The Parties shall execute, acknowledge and deliver to each other the Operation and Maintenance Agreement substantially in the form attached hereto as Exhibit D. (d) The Parties shall execute, acknowledge and deliver to each other the Licensing and Binder Purchase Agreement substantially in the form attached hereto as Exhibit E. (e) The Parties shall execute, acknowledge and deliver to each other the Covenant Not to Compete substantially in the form attached hereto as Exhibit F. (f) The Parties shall execute, acknowledge and deliver to each other the Call Option Agreement substantially in the form attached hereto as Exhibit G. (g) The Parties shall enter into a sublease, license agreement, easement or such other arrangement as is mutually agreeable to the Parties, with respect to locating a facility in which to conduct the manufacture of the proprietary binder material used in connection with the operation of the Alabama Project. (h) Sellers shall deliver original executed copies of all required permits, licenses, franchises, authorizations, variances, exemptions, concessions, leases, instruments, orders, 26 consents and approvals of Governmental Entities and third parties necessary to execute, deliver and perform this Agreement and the Transaction Documents as set forth on Schedule 4.1(c). (i) Sellers shall take all steps necessary to put Buyer in actual possession and control of the Purchased Assets and the Alabama Project. (j) Sellers shall deliver to Buyer, at agreed locations, the Files and Records. ARTICLE IX APPROVALS AND CONSENTS Sellers, at their sole expense, shall make every reasonable effort prior to the Closing to obtain all required permits, licenses, franchises, authorizations, variances, exemptions, concessions, leases, instruments, orders, consents and approvals of Governmental Entities and third parties necessary to execute, deliver and perform this Agreement and the Transaction Documents as set forth on Schedule 4.1(c). Buyer shall make every reasonable effort to cooperate in connection with obtaining all required permits, licenses, franchises, authorizations, variances, exemptions, concessions, leases, instruments, orders, consents and approvals of Governmental Entities and third parties necessary to execute, deliver and perform this Agreement and the Transaction Documents as set forth on Schedule 4.1(c); provided, however, that Buyer shall not be obligated to incur any cost or expense associated with such transfer or application. ARTICLE X CROSS INDEMNIFICATION 10.1 Obligations of Sellers. Sellers shall indemnify, defend and hold harmless Buyer and its 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 of the following: 27 (a) Any breach by either Seller of any of Sellers' representations, warranties and covenants contained in this Agreement; and (b) All liabilities and obligations assumed or retained by Sellers under this Agreement. 10.2 Obligations of Buyer. Buyer shall indemnify, defend, and hold harmless Sellers, and their respective 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 original costs of defending any and all actions, suits, proceedings, demands and assessment which shall include reasonable attorneys' fees and court costs) resulting from, relating to, arising out of or incurred in connection with any of the following: (a) Any breach by Buyer of any of Buyer's representations, warranties and covenants contained in this Agreement; and (b) All obligations and liabilities assumed by Buyer under this Agreement. 10.3 Indemnity Procedures. (a) Notwithstanding any provision to the contrary included in this Article X, each party hereto waives the right, for itself and its respective Affiliates, to be indemnified by the other party hereto to the extent of any insurance proceeds or other recovery it receives with respect to the liabilities for which indemnification would otherwise be required hereunder. (For the purposes of this paragraph, insurance proceeds shall not include any payments received pursuant to an insurance program under which the party seeking indemnification or an Affiliate of such party bears the ultimate cost.) (b) A party claiming indemnification under this Article X (the "Indemnitee") shall notify in writing the party from whom indemnification is claimed (the "Indemnitor") in reasonable detail of the nature, basis and estimated amount of the claim within a reasonable time after discovery by the Indemnitee of the basis therefor or the assertion thereof by a third party against the Indemnitee. Notice of a claim filed in 28 any court or administrative agency, or submitted to arbitration, shall be given the Indemnitor within ten (10) days of the Indemnitee's receipt of knowledge of such filing but failure to provide notice within the 10 days shall not result in forfeiture of indemnification rights except to the extent that the ability of the Indemnitor to defend against the claim is materially impaired. In the event of such notice by the Indemnitee to the Indemnitor of a third party claim, the Indemnitor shall have twenty (20) days after receipt thereof in which to admit or deny responsibility for indemnification of the Indemnitee by written notice to the Indemnitee, and (i) as to claims with respect to which the Indemnitee and the Indemnitor may share responsibility, each party may elect to participate in the defense of the claim through counsel of its choice and at its expense, and neither party shall settle or compromise the claim without the consent of the other; (ii) if the Indemnitor denies responsibility or fails to admit or deny responsibility for a claim within twenty (20) days of the notice, the Indemnitee shall have the sole option and right to defend the claim, including the right to settle or compromise the claim without consent of the Indemnitor, by counsel of its choice; and (iii) except with respect to a claim as to which the Indemnitee and the Indemnitor share responsibility, if the Indemnitor admits responsibility for indemnification, the Indemnitor may at the same time elect to control the defense of the claim by counsel of its choice and at its expense, which counsel shall consult with the Indemnitee or its counsel at the Indemnitee's expense, and except as limited herein shall in such case have the right to settle or compromise the claim as the Indemnitor deems fit, and the Indemnitee shall cooperate in such defense and agree to and accept any money settlement or compromise approved by the Indemnitor. If the Indemnitor does not so elect to control the defense, the Indemnitee shall appear and defend the claim by counsel of its choice, and the Indemnitor may participate in such defense by counsel of its choice at its expense, which counsel shall be consulted by and shall assist counsel for the Indemnitee, in which case the Indemnitor shall reimburse the Indemnitee for its reasonable legal fees and expenses on a monthly basis. 29 ARTICLE XI REMEDIES AND SURVIVAL 11.1 Survival of Representations, etc.. All of the warranties, covenants and agreements of the parties hereto contained in this Agreement and in any certificates or documents delivered at Closing in connection with the transactions contemplated hereby shall survive Closing of this transaction, the sale and purchase herein, and any reorganization, or merger by any of the parties hereto or permitted assignment of this Agreement. No examination or investigation by or on behalf of any party shall in any way modify, affect or diminish the obligations of the party with respect to the representations, warranties and covenants contained herein or in any of the other Transaction Documents. No warranty or representation of any party herein or in any of the other Transaction Documents shall be deemed waived or modified by any fact or matter within the actual or imputed knowledge any party hereto, nor shall any party hereto be estopped from claiming damages for breach of any warranty or representation herein or in any other Transaction Document by virtue of such knowledge, as it is the expressed intention of the parties that each party shall be fully responsible for the falsity of any warranty or representation herein or in any other Transaction Document notwithstanding such knowledge. Each party hereto expressly waives all defenses based on such knowledge to any claim by party to this Agreement or the other Transaction Documents for breach of warranties and representations of such party in this Agreement or any other Transaction Documents. 11.2 Procedure. Notice of any claim shall be given by a party (for purposes of this Article XI the "claiming party")to the other party (for purposes of this Article XI the "defaulting party") as soon as reasonably practicable after the claiming party becomes aware thereof and, if the claim in question is as a result of or in connection with a liability to or from, or a dispute with, any other third party, the claiming party shall take reasonable steps in connection with such liability or dispute so as to recover or minimize or resolve such liability or dispute. The claiming party shall give to the defaulting party full facilities to investigate the subject matter of the claim and, at the request of the defaulting party, to allow it at its own expense to participate in, or have the conduct of (as it may elect), all proceedings of whatsoever nature against the relevant third party arising out of, or in connection with, such liability or dispute, in the name of the claiming party as it may consider 30 necessary in order to mitigate any such claim. The claiming party shall not accept or pay or compromise any such liability or claim without providing the defaulting party a reasonable opportunity to dispute the same. ARTICLE XII MISCELLANEOUS 12.1 Books, Records and Assistance by Personnel. (a) Buyer agrees that for a period of four (4) years following the Closing, Buyer shall take all necessary actions to ensure that all relevant records relating to the Purchased Assets, with respect to periods ending on or before the Effective Time that are in the possession or control of Buyer or its Affiliates (whether acquired before or after the Closing) shall be retained intact and shall be opened for inspection by representatives of Sellers at any time during regular business hours, and that Sellers may, during such period at its expense, make such excerpts therefrom as Sellers may reasonably request. (b) Sellers agree that for a period of four (4) years following the Closing, Sellers shall take all necessary actions to ensure that all of their relevant records relating to the Purchased Assets that are not required to be delivered to Buyer hereunder, shall be retained intact and shall be opened for inspection by representatives of Buyer at any time during regular business hours and that Buyer may during such periods at its own expense make such excerpts therefrom as Buyer may reasonably request. (c) Buyer and Sellers shall each use their respective best efforts to cooperate with the other as requested from time to time and make their employees available to the other at requesting party's expense (including the fully allocated costs and out-of-pocket expenses of the party of whom cooperation is being requested) to the extent that the requesting party may reasonably require for its corporate purposes including attendance at depositions or legal proceedings, or audits requested by the requesting party to be performed by their employees or independent accountants relating to any period through or including the Closing. (d) Each party shall provide the other party with reasonable access to all relevant documents, data and other 31 information which may be required by the other party for the purpose of preparing tax returns and responding to any audit by any taxing jurisdiction. Each party shall cooperate with all reasonable requests of the other party made in connection with contesting the imposition of taxes. Notwithstanding anything to the contrary in this Agreement, neither party to this Agreement shall be required at any time to disclose to the other party any tax return or other confidential tax information. 12.2 Assignment. This Agreement shall not be assigned in whole or in part by Sellers without the prior written consent of Buyer, or assigned in whole or in part by Buyer without the prior written consent of Sellers. 12.3 Notices. All notices required or permitted to be given under this Agreement shall be in writing. Notices may be served by certified or registered mail, postage paid with return receipt requested; by private courier, prepaid; by telex, 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, property addressed. Couriered notices shall be deemed delivered when delivered as addressed, or if the addressee refuses delivery, when presented for delivery notwithstanding such refusal. Telex or 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: Sellers: Covol Technologies, Inc. 3280 North Frontage Road Lehi, Utah 84043 Telephone: (801)768-4481 Telecopier: (801)768-4483 Attn.: Mr. Asael T. Sorensen 32 Alabama Synfuel #1 Ltd. c/o Covol Technologies, Inc. 3280 North Frontage Road Lehi, Utah 84043 Telephone: (801)768-4481 Telecopier: (801)768-4483 Attn.: Mr. Asael T. Sorensen With a copy to: Ballard Spahr Andrews & Ingersoll 201 South Main Street, Suite 1200 Salt Lake City, Utah 84111-2215 Telephone: (801) 531-3000 Telecopier: (801) 531-3001 Attn.: Mr. William Marsh Buyer: Birmingham Syn Fuel, L.L.C. c/o PacifiCorp Financial Services, Inc. 775 NE Multnomah Suite 775 Portland, Oregon 97232 Telephone: (503)7977222 Telecopier: (503)797-7246 Attn.: Mr. Reynold Roeder With a copy to: Stoel Rives LLP 700 NE Multnomah Suite 950 Portland, Oregon 97232-4109 Telephone: (503)294-9100 Telecopier: (503)230-1907 Attn.: Gary R. Barnum, Esq. 12.4 Expenses and Fees. Each party hereto agrees to pay, without right of reimbursement from the other, the costs incurred by it incident to the preparation of this Agreement, and the fees and disbursements of counsel, accountants and consultants employed by it in connection with the negotiation of this Agreement and the consummation of the transaction contemplated herein. All sales, use, or similar taxes imposed by or due to any taxing authority in connection with, or as a result of, the sale by Seller of the Purchased Assets shall be the sole responsibility of Seller. 33 12.5 Successors and Assigns. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 12.6 Waiver. Buyer or Sellers, by written notice to the other, may: (i) extend a time for performance of any of the obligations or other actions under this Agreement; (ii) waive by express written waiver any inaccuracy in the representations or warranties contained in this Agreement or any document delivered pursuant to this Agreement; (iii) waive by express written waiver any compliance with the conditions or covenants contained in this Agreement; or (iv) waive or modify by express written waiver or agreement performance of any of the obligations performed under this Agreement; provided, however, that neither such party may without the consent of the other grant such extension of time, waiver of inaccuracies or compliance or waiver or modification of warranties, conditions or covenants hereunder. Except as provided in this section, no action taken pursuant to this Agreement (including without limitation the acts taken at the Closing) shall be deemed to constitute a waiver of compliance with any representations, warranties or covenants contained in this Agreement and shall not operate or be construed as a waiver of any subsequent breach of a similar or dissimilar nature. 12.7 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. 12.8 Amendments, Supplements and Etc. This Agreement may be amended or supplemented at any time only by an additional written agreement executed by the parties hereto. 12.9 Applicable Law. This Agreement and the legal relations among the parties hereto shall be governed by and construed in accordance with the substantive laws of the State of Utah without giving effect to the principles of conflict of laws thereof. 12.10 Execution and Counterparts. This Agreement may be executed in two or more counterparts, each which shall be deemed 34 an original, but all of which together shall constitute one and the same agreement. 12.11 Titles and Headings. Titles and headings to paragraphs herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 12.12 Third Parties. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person or entity other than the parties hereto and their successors and assigns any right or remedies by reason of this Agreement as a third party beneficiary or otherwise. 12.13 Further Assurances. The parties agree from time to time to execute such additional documents as are necessary to effect the intent of the parties as manifested by this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized representatives the day and year first above written. SELLERS: COVOL TECHNOLOGIES, INC. By:______________________________________ Name: Title: ALABAMA SYNFUEL #1 LTD. By:______________________________________ Name: Title: 35 BUYER: BIRMINGHAM SYN FUEL, L.L.C. By:_______________________________________ Name: Title: EX-5 6 REGISTRATION RIGHTS AGREEMENT Exhibit 5 THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of March 20, 1997, by and between Covol Technologies, Inc., a Delaware corporation (the "Company"), and PacifiCorp Financial Services, Inc., an Oregon corporation ("PFS"). WHEREAS this Agreement is made pursuant to the Convertible Loan and Security Agreement, dated as of the date hereof (the "Loan Agreement"), by and between the Company and PFS, whereby the Company has agreed, among other things, to issue shares of its Common Stock, par value $.001 per share (the "Common Stock"), to PFS upon conversion of indebtedness outstanding thereunder. WHEREAS to induce PFS to enter into the Loan Agreement, the Company has agreed to provide the registration rights 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, the Company and PFS agree as follows: ARTICLE I DEFINITIONS 1.1 Certain Definitions. In this Agreement, capitalized terms and other defined terms described below shall have the meanings set forth or cross-referenced below: "Blue Sky Filing" has the meaning set forth in Section 2.7(a) of this Agreement. "Commission" means the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. "Common Stock" has the meaning set forth in the introduction to this Agreement. "Company" has the meaning set forth in the introduction to this Agreement. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Reference to a particular section therein shall include a reference to the comparable section, if any, of any such successor federal statute. 2 "Holder" means any Person owning or having a right to acquire Registrable Securities, including any assignee thereof in accordance with Article VII hereof. "Initiating Holders" has the meaning set forth in Section 2.1(a) of this Agreement. "Loan Agreement" has the meaning set forth in the introduction to this Agreement. "Person" means a corporation, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency. "Registrable Securities" means any shares of Common Stock issued pursuant to the Loan Agreement, or issued, with respect to such Common Stock, as a stock dividend, stock split or other distribution or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. As to any particular Registrable Securities, once issued such securities shall cease to be Registrable Securities when (i) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (ii) they shall have been sold pursuant to Rule 144 (or any successor provision) under the Securities Act, (iii) they represent less than one percent (1%) of the issued and outstanding Common Stock and they shall be eligible for sale pursuant to Rule 144 (or any successor provision) under the Securities Act, (iv) they shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent public distribution of them shall not require registration or qualification of them under the Securities Act or any similar state law then in force, or (v) they shall have ceased to be outstanding. Calculations of required percentages of Registrable Securities herein shall be determined by the number of shares of Common Stock included in, and the number of shares of Common Stock issuable with respect to, the Registrable Securities that are the subject of such calculation. "Registration Expenses" has the meaning set forth in Section 2.9 of this Agreement. "Securities Act" means the Securities Act of 1933, as amended, or any successor federal statute, and the rules and 3 regulations of the Commission thereunder, all as the same shall be in effect at the time. References to a particular section therein shall include a reference to the comparable section, if any, of any such successor federal statute. ARTICLE II REGISTRATION UNDER SECURITIES ACT, ETC. 2.1 Demand Registration. (a) Request. At any time on or after the date of this Agreement, upon the written request of the Holder or Holders of at least twenty-five percent (25%) of the Registrable Securities then outstanding (the "Initiating Holders") that the Company effect the registration under the Securities Act of all or part of such Holders' Registrable Securities specifying the types of Registrable Securities to be registered and the intended method of disposition thereof, the Company will give prompt written notice of such request to all registered Holders of Registrable Securities, and thereupon the Company will use its best efforts to effect the registration under the Securities Act of: (i) Registrable Securities which the Company has been requested to register by the Initiating Holders, and (ii) all other Registrable Securities which the Company has been requested to register by written request of the Holders thereof given to the Company within thirty (30) days after the giving of the aforesaid written notice by the Company (specifying the intended method of disposition of such Registrable Securities), all to the extent requisite to permit the intended disposition of the Registrable Securities to be so registered. (b) Registration of Other Securities. Whenever the Company shall effect a registration pursuant to this Section 2.1 in connection with an underwritten offering, securities other than Registrable Securities may be included among the securities covered by such registration unless the managing underwriter of such offering shall in writing have advised the Company and the Holders requesting registration that the inclusion of such other securities would adversely affect such offering. (c) Registration Statement Form. Registrations under this Section 2.1 shall be on such appropriate 4 registration form of the Commission (i) as shall be selected by the Company and as shall be reasonably acceptable to the Initiating Holders and (ii) as shall permit the disposition of such Registrable Securities in accordance with the intended method or methods of disposition specified in the requests for such registration. The Company agrees to include in any such registration statement all information which, in the opinion of both counsel to the Initiating Holders and counsel to the Company, is required to be included. (d) Effective Registration Statement. A registration requested pursuant to this Section 2.1 shall not be deemed to have been effected and will not be considered one of the three (3) demand registrations which may be requested pursuant to this Section 2.1 (i) unless a registration statement with respect thereto has become effective, (ii) if after it has become effective, it does not remain effective for a period of at least sixty (60) days (unless the Registrable Securities registered thereunder have been sold or disposed of prior to the expiration of such sixty (60) day period) or such registration is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason and has not thereafter become effective, or (iii) if the conditions to closing specified in the underwriting agreement entered into in connection with such registration are not satisfied or waived other than by reason of the failure or refusal of a Holder of Registrable Securities to satisfy or perform a condition to such closing. (e) Priority in Demand Registrations. If a demand registration pursuant to this Section 2.1 involves an underwritten offering, and the managing underwriter shall advise the Company in writing (with a copy sent to each Holder of the Registrable Securities requesting registration) that the number of securities requested to be included in such registration exceeds the number which can be sold in such offering within a price range acceptable to the Initiating Holders, such registration will include only that number of the Registrable Securities which the Company is so advised can be sold in such offering, drawn pro rata from the Holders of the Registrable Securities requesting such registration on the basis of the percentage of Registrable Securities held by the Holders of Registrable Securities which have requested that such securities be included. In connection with any such registration, no securities other than the Registrable Securities shall be covered by such registration. 5 (f) Three Demand Registrations. Demand registrations may only be requested by one or more Holders, and notwithstanding anything in this Section 2.1 to the contrary, the Company shall not be required to effect (i) more than a total of three (3) registrations pursuant to this Section 2.1 or (ii) more than one registration pursuant to this Section 2.1 in any consecutive twelve (12) month period. 2.2 Incidental Registration. (a) Right to Include the Registrable Securities. Each time the Company proposes to register any of its securities under the Securities Act by registration on Forms S-1, S-2 or S-3 or any successor or similar form(s) (except registrations on such Forms solely for registration of shares in connection with any employee benefit plan on Form S-8 or an acquisition, exchange, merger or consolidation on Form S-4), whether or not for sale for its own account, it will give prompt written notice to all Holders of the Registrable Securities of its intention to do so and of such Holders' rights under this Section 2.2. Upon the written request of any such Holder (specifying the Registrable Securities intended to be disposed of by such Holder and the intended method of disposition thereof), made within ten (10) days after the receipt of any such notice, the Company will use its best efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the Holders thereof, to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of such Registrable Securities to be so registered. If the Company thereafter determines for any reason not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each Holder of the Registrable Securities and, thereupon, (i) in the case of a determination not to register, shall be relieved of the obligation to register such Registrable Securities in connection with such registration (but not from any obligation of the Company to pay the Registration Expenses in connection therewith), without prejudice, however, to the rights (if any) of Holders to request that such registration be effected as a registration under Section 2.1, and (ii) in the case of a determination to delay registration, shall be permitted to delay registering any Registrable Securities, for the same period as the delay in registration of such other securities. No registration effected under this Section 2.2 shall relieve the Company of its obligation to effect any registration upon request under Section 2.1. 6 (b) Priority in Incidental Registrations. In a registration pursuant to this Section 2.2 involving an underwritten offering of the securities so being registered, whether or not for sale for the account of the Company, by or through one or more underwriters of recognized standing, if the managing underwriter of such underwritten offering shall inform the Company and the Holders of the Registrable Securities requesting registration in such offering by letter of its belief that the number or type of securities to be included in such registration would materially adversely affect its ability to effect such offering, then the Company will be required to include in such registration only that number and type of Registrable Securities which it is so advised can be sold in such offering, drawn pro rata from the Holders of the Registrable Securities requesting such registration on the basis of the percentage of the Registrable Securities held by the Holders of Registrable Securities which have requested that such securities be included, without prejudice, however, to the rights (if any) of Holders to request that such registration be effected as a registration under Section 2.1. 2.3 Registration Procedures. In connection with the Company's obligations pursuant to Sections 2.1 and 2.2 hereof, the Company will use best efforts to effect such registrations to permit the sale of Registrable Securities in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Company will as expeditiously as reasonably possible: (a) prepare and file with the Commission, a registration statement or registration statements on any appropriate form under the Securities Act, which form shall be available for the sale of the Registrable Securities by the Holders thereof in accordance with the intended method or methods of distribution thereof, and use its best efforts to cause such registration statement to become effective and to remain continuously effective for a period of sixty (60) days following the date on which such registration statement is declared effective; provided, however, that the Company shall have no obligation to maintain the effectiveness of such registration statement after the sale of all Registrable Securities registered thereunder; (b) prepare and file with the Commission such amendments and post-effective amendments to a registration statement as may be necessary to keep such registration statement effective for the applicable period; and cause the related prospectus to be supplemented by any required 7 prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act; (c) notify the selling Holders of Registrable Securities, and the managing underwriters, if any, promptly, and (if requested by any such Person) confirm such advice in writing, (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and, with respect to a registration statement or any post-effective amendment when the same has become effective, (ii) of any request by the Commission for amendments or supplements to a registration statement or related prospectus or for additional information, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of a registration statement or the initiation of any proceedings for that purpose, (iv) if at any time the representations and warranties of the Company made as contemplated by paragraph (l) below cease to be true and correct, (v) of the receipt by the Company of any notification with respect to the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (vi) of the happening of any event which requires the making of any changes in a registration statement or related prospectus so that such documents will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (vii) of the Company's reasonable determination that a post-effective amendment to a registration statement would be appropriate; (d) make every best effort to obtain the withdrawal of any order suspending the effectiveness of a registration statement, or the lifting of any suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction, at the earliest possible moment; (e) if requested by the managing underwriters or any Holder of Registrable Securities being sold in connection with an underwritten offering, immediately incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriters and such Holder agree should be included therein relating to the sale and distribution of Registrable Securities, including information with respect to the number of Registrable Securities being sold to such underwriters, the purchase price being paid therefor by such underwriters and any other terms of the offering; make all required filings of such prospectus supplement or post-effective amendment as soon as notified of the matters to be incorporated in such prospectus supplement or post-effective 8 amendment; and supplement or make amendments to any registration statement relating to the sale and distribution of the Registrable Securities if requested by any Holder of Registrable Securities covered by such registration statement or any underwriter of such Registrable Securities; (f) furnish to each selling Holder of Registrable Securities and each managing underwriter, without charge, at least one signed copy of the registration statement or statements and any post-effective amendment thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits (including those incorporated by reference); (g) deliver to each Holder of Registrable Securities and the underwriters, if any, without charge, as many copies of the prospectus or prospectuses (including each preliminary prospectus) and any amendment or supplement thereto as such Persons may reasonably request; the Company consents to the use of such prospectus or any amendment or supplement thereto by each of the selling Holders of Registrable Securities and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by such prospectus or any amendment or supplement thereto; (h) prior to any public offering of Registrable Securities, use its best efforts to register or qualify or cooperate with the selling Holders of Registrable Securities, the underwriters, if any, and their respective counsel in connection with the registration or qualification of such Registrable Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions as the managing underwriter, in the case of an underwritten offering, or the selling Holder, in the case of any other offering, reasonably requests in writing; keep each such registration or qualification effective during the period such registration statement is required to be kept effective and do any and all other reasonable acts or things necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the applicable registration statement; provided, however, that the Company will not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to general service of process in any such jurisdiction where it is not then so subject; (i) cooperate with the selling Holders of Registrable Securities and the managing underwriters, if any, to facilitate the timely preparation and delivery of 9 certificates representing Registrable Securities to be sold and not bearing any restrictive legends unless required by applicable law; and enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriters may request at least two business days prior to any sale of Registrable Securities to the underwriters; (j) use its best efforts to cause the Registrable Securities covered by the applicable registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof or the underwriters, if any, to consummate the disposition of such Registrable Securities; (k) upon the occurrence of any event contemplated by paragraph (c)(vi) above, prepare a supplement or post-effective amendment to the applicable registration statement or related prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, such prospectus will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading; (l) enter into such agreements and take all such other reasonable actions in connection therewith in order to expedite or facilitate the disposition of such Registrable Securities and in such connection, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration, (i) make such representations and warranties to the Holders of such Registrable Securities with respect to the registration statement, prospectus and documents incorporated by reference, if any, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings, and confirm the same if and when requested; (ii) obtain the opinions of counsel to the Company and updates thereof with respect to the registration statement and the prospectus in the form, scope and substance which are customarily made in underwritten offerings; (iii) in the case of an underwritten offering, enter into an underwriting agreement in form, scope and substance as is customary in underwritten offerings and obtain opinions of counsel to the Company and updates thereof addressed to each selling Holder and the underwriters, if any, covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such Holders and underwriters; (iv) furnish to each seller of Registrable Securities a signed counterpart, addressed to such seller (and the underwriters, if 10 any) of (x) an opinion of counsel for the Company, dated the effective date of such registration statement (or, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), and (y) a "comfort" letter, dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), signed by the independent public accountants who have audited the Company's financial statements included in such registration statement, covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and in the case of the accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to the underwriters in underwritten public offerings of securities and, in the case of the accountants' letter, such other financial matters, and, in the case of the legal opinion, such other legal matters, as such seller (or the underwriters, if any) may reasonably request; (v) if an underwriting agreement is entered into, the same shall set forth in full the indemnification and contribution provisions and procedures of Section 2.7 hereof with respect to all parties to be indemnified pursuant to said section, with such other provisions regarding indemnification and contribution as are customary and acceptable to the underwriters, the Holders of a majority of the Registrable Securities to be sold and the Company; and (vi) the Company shall deliver such certificates of its officers as may be reasonably requested by the Holders of a majority of the Registrable Securities to be sold and the managing underwriters, if any, to evidence compliance with this clause (l) and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company. The above shall be done at each closing under such underwriting or similar agreement or as and to the extent required thereunder; (m) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission and make generally available to its security holders earnings statements satisfying the provisions of Section 11(a) of the Securities Act, no later than ninety (90) days after the end of any twelve (12) month period (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm or best efforts underwriting offering and (ii) beginning with the first day of the Company's first fiscal quarter next succeeding each sale of Registrable Securities after the effective date of a registration 11 statement, which statements shall cover said twelve (12) month periods; (n) use its best efforts to cause all such Registrable Securities to be listed on each securities exchange (including for this purpose the National Association of Securities Dealers Automated Quotation System), if any, on which Registrable Securities of the type then being registered are listed; (o) provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by such registration statement from and after a date not later than the effective date of such registration statement; and (p) cause its officers to participate in such information and marketing meetings as the managing underwriter, in case of an underwritten offering, or the selling Holders, in the case of any other offering, reasonably request. Each Holder of Registrable Securities as to which any registration is being effected shall furnish to the Company in writing such information regarding such Holder and the distribution of such Registrable Securities as the Company may from time to time reasonably request in writing in order to comply with the Securities Act, which writing shall state that such information is being provided specifically for use in the preparation of the related registration statement. Each Holder of Registrable Securities as to which any registration is being effected agrees to notify the Company as promptly as practicable of any inaccuracy or change in information previously furnished by such Holder to the Company or of the happening of any event in either case as a result of which any prospectus relating to such registration contains an untrue statement of a material fact regarding such Holder or the distribution of such Registrable Securities or omits to state any material fact regarding such Holder or the distribution of such Registrable Securities required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and to promptly furnish to the Company any additional information required to correct and update any previously furnished information or required such that such prospectus shall not contain, with respect to such Holder or the distribution of such Registrable Securities, an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. 12 Each Holder of Registrable Securities agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 2.3(c)(ii), (iii), (v), (vi) or (vii) hereof, such Holder will forthwith discontinue disposition of such Registrable Securities covered by such registration statement or prospectus until such Holder's receipt of the copies of the supplemented or amended prospectus relating to such registration statement or prospectus, or until it is advised in writing by the Company that the use of the applicable prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in such Prospectus, and, if so directed by the Company, such Holder will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Holder's possession, of the prospectus covering the Registrable Securities current at the time of receipt of such notice. 2.4 Underwritten Offerings. (a) Demand Underwritten Offerings. In the event that a registration pursuant to Section 2.1 is for a registered public offering involving an underwriting, the Company shall so advise each Holder of Registrable Securities as part of the notice given pursuant to Section 2.1(a). In such event, the right of any such Holder pursuant to Section 2.1 shall be conditioned upon such Holder's participation in the underwriting arrangements required by this Section 2.4. In any such underwritten offering, sales shall be made through a nationally recognized investment banking firm (or syndicate managed by such firm) selected by the Initiating Holders pursuant to Section 2.1 and approved by the Company and the Company shall enter into an underwriting agreement as provided in Section 2.3(l). The Holders of Registrable Securities to be distributed by such underwriters shall be parties to such underwriting agreement and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of such Holders of Registrable Securities and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of such Holders of Registrable Securities. Any such Holder of Registrable Securities shall be required to make representations and warranties to and agreements with the Company and the underwriters regarding only such Holder, such Holder's Registrable Securities and such Holder's intended 13 method of distribution and any other representation required by law. (b) Incidental Underwritten Offerings. If the Company at any time proposes to register any of its securities under the Securities Act as contemplated by Section 2.2 and such securities are to be distributed by or through one or more underwriters, the Company will, if requested by any Holder of Registrable Securities as provided in Section 2.2 and subject to the provisions of Section 2.2(b), use best efforts to arrange for such underwriters to include all the Registrable Securities to be offered and sold by such Holder among the securities to be distributed by such underwriters. The Holders of Registrable Securities to be distributed by such underwriters shall be parties to the underwriting agreement between the Company and such underwriters and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters shall also be made to and for the benefit of such Holders of Registrable Securities and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement be conditions precedent to the obligations of such Holders of Registrable Securities. Any such Holder of Registrable Securities shall be required to make representations and warranties to and agreements with the Company and the underwriters regarding only such Holder, such Holder's Registrable Securities and such Holder's intended method of distribution and any other representation required by law. 2.5 Preparation; Reasonable Investigation. In connection with the preparation and filing of each registration statement under the Securities Act pursuant to this Agreement, and upon the request of the Holders of Registrable Securities to be registered under such registration statement after notice thereof by the Company, the Company will give the Holders of Registrable Securities to be registered under such registration statement, their underwriters, and their respective counsel and accountants the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment thereof or supplement thereto, and will give each of them such reasonable access to its books and records and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the reasonable opinion of such Holders' and such underwriters' 14 respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. 2.6 Limitations, Conditions and Qualifications to Obligations Under Registration Covenants. The obligations of the Company to use its best efforts to cause the Registrable Securities to be registered under the Securities Act are subject to each of the following limitations, conditions and qualifications: (a) The Company shall be entitled to postpone for a reasonable period of time (but not exceeding ninety (90) days) the filing or effectiveness of any registration statement otherwise required to be prepared and filed by it pursuant to Section 2.1 if the Company determines, in its reasonable judgment, that (i) the Company is in possession of material information that has not been disclosed to the public and the Company reasonably deems it to be advisable not to disclose such information at such time in a registration statement or (ii) such registration and offering would materially and adversely affect any financing, acquisition, corporate reorganization or other material transaction involving the Company or any of its Affiliates (as defined in the rules and regulations adopted under the Exchange Act) and, in any such case, the Company promptly gives the requesting Holders of Registrable Securities written notice of such determination, containing a general statement of the reasons for such postponement and an approximation of the anticipated delay or (iii) such other cause as the Company shall have been advised by its investment banker make it undesirable or unpracticable to proceed with the offering. If the Company shall so postpone the filing of a registration statement, the requesting Holders of Registrable Securities shall have the right to withdraw the request for registration by giving written notice to the Company within thirty (30) days after receipt of the notice of postponement and, in the event of such withdrawal, such request shall not be counted for purposes of the requests for registration to which Holders are entitled pursuant to Section 2.1 hereof. (b) Holders of Registrable Securities shall use all reasonable efforts to effect as wide a distribution of the Registrable Securities as reasonably practicable, including, if such distribution is pursuant to any underwritten offering, using reasonable efforts to secure the agreement of the underwriters to the same effect. (c) No Holder of Registrable Securities may participate in any underwritten offering hereunder unless such Holder 15 (i) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements, (ii) agrees not to sell Common Stock of the Company in a public offering for a period of ninety (90) days after the date of the offering, without the prior consent of the managing underwriter of the offering, and (iii) completes and executes all questionnaires, custody agreements, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 2.7 Indemnification and Contribution. (a) Indemnification by the Company. In the event of a registration of any Registrable Securities under the Securities Act pursuant to this Agreement at a time that the Holders own in the aggregate (prior to such registration) less than twenty-five (25) percent of outstanding Common Stock of the Company, the Company will, and hereby does, indemnify and hold harmless, to the fullest extent permitted by law, the Holder of any Registrable Securities whose Registrable Securities are covered by such registration statement, its directors and officers, each other Person who participates as an underwriter in the offering or sale of such securities and each other Person, if any, who controls such seller or any such underwriter within the meaning of the Securities Act, against any and all losses, claims, damages, liabilities and expenses, joint or several, (or actions or proceedings, whether commenced or threatened, in respect thereof) to which they or any of them may become subject under the Securities Act or any other statute or common law, including any amount paid in settlement of any litigation, commenced or threatened, and to reimburse them for any legal or other expenses incurred by them in connection with investigating any claims and defending any actions, insofar as any such losses, claims, damages, liabilities, expenses or actions arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the registration statement relating to the sale of such securities or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under Blue Sky or other securities laws of jurisdictions in which the Registrable Securities are offered ("Blue Sky Filing"), or the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading or (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, if used prior to the effective date of 16 such registration statement (unless such statement is corrected in the final prospectus and the Company has previously furnished copies thereof to the Holder of Registrable Securities seeking such indemnification and the underwriters), or contained in the final prospectus (as amended or supplemented if the Company shall have filed with the Commission any amendment thereof or supplement thereto) if used within the period during which the Company is required to keep the registration statement to which such prospectus relates current, or the omission or alleged omission to state therein (if so used) a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the indemnification agreement contained herein shall not (i) apply to such losses, claims, damages, liabilities, expenses or actions arising out of, or based upon, any such untrue statement or alleged untrue statement, or any such omission or alleged omission, if such statement or omission was made in reliance upon and in conformity with written information furnished to the Company by such seller or such underwriter specifically stating that it is for use in connection with preparation of the registration statement, any preliminary prospectus or final prospectus contained in the registration statement, any such amendment or supplement thereto or any Blue Sky Filing or (ii) inure to the benefit of any underwriter or any person controlling such underwriter, to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of such person's failure to send or give a copy of the final prospectus, as the same may be then supplemented or amended, to the person asserting an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of Registrable Securities to such person if such statement or omission was corrected in such final prospectus. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such seller or any such director, officer, controlling person or underwriter and shall survive the transfer of such securities by such seller. (b) Indemnification by the Company of Costs and Expenses of Defense. In the event of any registration of any Registrable Securities under the Securities Act pursuant to this Agreement, the Company will and hereby does indemnify and hold harmless, to the fullest extent permitted by law, the Holder of any Registrable Securities whose Registrable Securities are covered by such registration statement, its directors and officers, each other Person who participates as 17 an underwriter in the offering or sale of such securities and each other Person, if any, who controls such seller or any such underwriter within the meaning of the Securities Act, against the costs and expenses of defending any claims, joint or several, (or actions or proceedings, whether commenced or threatened, in respect thereof) to which they or any of them may become subject under the Securities Act or any other statute or common law, and to reimburse them for any legal or other expenses incurred by them in connection with investigating any claims and defending any actions, insofar as any such claims, expenses or actions arise out of or are based upon matters of the type indemnified for in subdivision (a) of this Section 2.7 (without regard to the percentage ownership by the Holders of the outstanding Common Stock of the Company). (c) Indemnification by the Sellers. Each Holder selling Registrable Securities in any registration statement filed pursuant to Section 2.1 or 2.2 will, and hereby does, indemnify and hold harmless (in the same manner and to the same extent as set forth in Section 2.7(a)) the Company, each director of the Company, each officer of the Company and each other Person, if any, who controls the Company within the meaning of the Securities Act, with respect to any untrue statement or alleged untrue statement in, or omission or alleged omission from, such registration statement, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, if such statement or omission was made in reliance upon and in conformity with written information furnished to the Company by such seller specifically stating that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, amendment or supplement. Such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling person and shall survive the transfer of such securities by such seller. In no event shall any indemnity paid by a Holder to the Company pursuant to this Section 2.7(c), or otherwise, exceed the proceeds received by such Holder in such offering. (d) Notices of Claims, etc. Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding subdivisions of this Section 2.7, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action, provided that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subdivisions of this Section 2.7, except to the 18 extent that the indemnifying party is actually prejudiced in any material respect by such failure to give notice. In case any such action is brought against an indemnified party, the indemnifying party shall be entitled to participate in and, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, to assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of reasonable investigation. In the event that the indemnifying party advises an indemnified party that it will contest a claim for indemnification hereunder, or fails, within thirty (30) days of receipt of any indemnification notice to notify, in writing, such person of its election to defend, settle or compromise, at its sole cost and expense, any action, proceeding or claim (or discontinues its defense at any time after it commences such defense), then the indemnified party may, at its option, defend, settle or otherwise compromise or pay such action or claim. In any event, unless and until the indemnifying party elects in writing to assume and does so assume the defense of any such claim, proceeding or action, the indemnified party's costs and expenses arising out of the defense, settlement or compromise of any such action, claim or proceeding shall be losses subject to indemnification hereunder. The indemnified party shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the indemnified party which relates to such action or claim. The indemnifying party shall keep the indemnified party fully informed at all times as to the status of the defense or any settlement negotiations with respect thereto. If the indemnifying party elects to defend any such action or claim, then the indemnified party shall be entitled to participate in such defense with counsel of its choice at its sole cost and expense, except that the indemnifying party shall be liable for such costs and expenses if, in such indemnified party's reasonable judgment, a conflict of interest between such indemnified and indemnifying parties may exist as described above. If the indemnifying party does not assume such defense, the indemnified party shall keep the indemnifying party informed at all times as to the status of the defense; provided, however, that the failure to keep the indemnifying 19 party so informed shall not affect the obligations of the indemnifying party hereunder. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its written consent; provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. (e) Indemnification Payments. The indemnification required by this Section 2.7 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or expense, loss, damage or liability is incurred. (f) Contribution. If the indemnification provided for in the preceding subdivisions of this Section 2.7 is unavailable to or insufficient to hold harmless a party otherwise entitled to be indemnified thereunder in respect to any losses, claims, damages and expenses (or actions or proceedings, whether commenced or threatened, in respect thereof) referred to therein, then the Company and the Holders selling Registrable Securities in such registration statement shall contribute to the amount paid or payable by such party as a result of such losses, claims, damages, liabilities, expenses or actions in such proportion as is appropriate to reflect the relative fault of each of (i) the Company and (ii) such sellers in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities, expenses or actions. The relative fault of the Company and such sellers shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or such sellers and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and such sellers agree that it would not be just and equitable if contributions pursuant to this subdivision (f) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to above in this subdivision (f). Notwithstanding the provisions of this subdivision (f), no such seller shall be required to contribute any amount in excess of the amount by which the proceeds received by such seller from Registrable Securities sold by it pursuant to such registration statement exceeds that amount of any damages which such seller 20 has otherwise paid or become liable to pay by reason of any untrue statement or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. For purposes of this subdivision (f), each director of the Company, each officer of the Company who signed such registration statement, and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act shall (in addition to any other rights of contribution) have the same rights to contribution as the Company; and each person, if any, who controls any such seller within the meaning of Section 15 of the Securities Act shall (in addition to any other rights of contribution) have the same rights to contribution as such seller. (g) Other Rights, Liabilities. The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the indemnified party against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law. 2.8 Adjustments Affecting Registrable Securities. During any period commencing on either (i) the date a request for a demand registration has been made pursuant to Section 2.1(a) hereof or (ii) the date on which any Holder of Registrable Securities makes written request in accordance with the terms of Section 2.2(a) hereof to have its Registrable Shares registered, and in either event, terminating on the date which is the earlier of (i) 365 days after the date on which the registration statement registering such Registrable Securities becomes effective and (ii) the date on which all Registrable Securities registered under such registration statement are sold, transferred or disposed of, the Company will not effect, permit to occur or announce any future intent to effect or permit to occur, any combination or subdivision of shares which would materially adversely affect the ability of the Holders of Registrable Securities to include Registrable Securities in any registration of securities contemplated by this Section 2 or the marketability of Registrable Securities under any such registration. 2.9 Registration Expenses. All expenses incident to the Company's performance of or compliance with Section 2.1 of this Agreement, including without limitation all registration and filing fees, including fees with respect to filings required to be made with the National Association of Securities Dealers, Inc., fees and expenses of compliance with securities or blue 21 sky laws (including reasonable fees and disbursements of counsel for the underwriters), printing expenses, messenger, telephone and delivery expenses, and fees and disbursements of counsel of the Company and of all independent public accountants of the Company (including the expenses of any special audit and "comfort" letters required by or incident to such performance), and fees and expenses of other Persons retained by the Company (all such expenses being herein called "Registration Expenses") will be borne by the Holders whether or not any of the registration statements becomes effective. All Registration Expenses incident to the Company's performance or compliance with Section 2.2 of this Agreement (other than registration filing fees for shares to be offered by Holders) will be borne by the Company. The Company will in each case pay its internal expenses (including all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange, rating agency fees and the fees and expenses of any Person, including special experts, retained by the Company. ARTICLE III RULE 144 The Company shall take all actions reasonably necessary to enable Holders of Registrable Securities to sell such securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (ii) any similar rule or regulation hereafter adopted by the Commission including filing on a timely basis all reports required to be filed by the Exchange Act. Upon the request of any Holder of Registrable Securities, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements. ARTICLE IV AMENDMENTS AND WAIVERS This Agreement may be amended with the consent of the Company and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company shall have obtained the written consent to such amendment, action or omission to act, of the Holder or Holders of a majority of the Registrable Securities then outstanding. Each Holder of any Registrable Securities at the 22 time or thereafter outstanding shall be bound by any consent authorized by this Article IV, whether or not such securities all have been marked to indicate such consent. ARTICLE V REGISTRATION RIGHTS The Company covenants that it will not grant any right of registration under the Securities Act relating to any of its shares of capital stock or other securities to any Person other than pursuant to this Agreement, unless (i) the rights so granted to another Person do not limit or restrict the right of the Holders to request three (3) demand registrations as provided for in Section 2.1 hereof at such times and covering such amount of Registrable Securities as the Holders determine in their sole judgment (except as such timing or amount of Registrable Securities may otherwise be limited by the express terms of this Agreement) and (ii) the rights so granted to another Person do not limit or restrict the rights granted pursuant to Section 2.2 hereof to any Holders of Registrable Securities to have such Registrable Securities included in any registration by the Company under the Securities Act of any of its securities for its own account (except as such rights of Holders of Registrable Securities are otherwise expressly limited by the terms of this Agreement). ARTICLE VI NOTICES All notices or other communications required or permitted to be given under this Agreement shall be in writing. Notices may be served by certified or registered mail, postage paid with return receipt requested; by private courier, prepaid; by telex, facsimile, or other telecommunication device capable of transmitting or creating a written record; or personally. Mailed notices shall be deemed delivered five (5) 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. Telex or 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 change its address by giving notice to the other party as provided herein, notices shall be delivered to the parties as follows: (i) if addressed to PFS, at the address set forth in the Loan Agreement, or at such 23 other address as PFS shall have furnished to the Company in writing, or (ii) if addressed to any other Holder of Registrable Securities, at the address that such Holder shall have furnished to the Company in writing, or, until any such other Holder so furnishes to the Company an address, then to and at the address of the last Holder of such securities who has furnished an address to the Company, or (iii) if addressed to the Company, at the address set forth in the Loan Agreement, or at such other address, or to the attention of such other officer, as the Company shall have furnished to PFS in accordance with the Loan Agreement. ARTICLE VII ASSIGNMENT This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and, with respect to the Company, its respective successors and assigns and, with respect to the Holders, any Holder of any Registrable Securities. Furthermore, the rights of a Holder under this Agreement may be assigned by such Holder at its sole discretion (and thereupon by such assignee) without the consent of the Company to any Person who purchases or otherwise duly receives title to ten percent (10%) or more of the Registrable Securities then outstanding, provided that such assignee agrees in writing to be bound by the terms of this Agreement. ARTICLE VIII DESCRIPTIVE HEADINGS The descriptive headings of the several sections and paragraphs of this Agreement are inserted for reference only and shall not limit or otherwise affect the meaning hereof. ARTICLE IX GOVERNING LAW THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF UTAH. 24 ARTICLE X COUNTERPARTS This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute one and the same instrument. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their respective officers thereunto duly authorized as of the date first above written. COVOL TECHNOLOGIES, INC. By: ------------------------------------- Name: ------------------------------- Title: ------------------------------ PACIFICORP FINANCIAL SERVICES, INC. By: ------------------------------------- Name: ------------------------------- Title: ------------------------------ EX-6 7 CONDITIONAL OPTION AGREEMENT Exhibit 6 CONDITIONAL OPTION AGREEMENT BIRMINGHAM SYN FUEL, L.L.C. THIS CONDITIONAL OPTION AGREEMENT (this "Agreement"), dated as of March 20, 1997, between Birmingham Syn Fuel I, Inc., an Oregon corporation, and Birmingham Syn Fuel II, Inc., an Oregon corporation (collectively, the "PFS Parties "), and PacifiCorp Financial Services, Inc., an Oregon corporation("PFS") on the one hand, and Alabama Synfuel #1, Ltd., a Delaware limited partnership ("Alabama Synfuel"), and Covol Technologies, Inc., a Delaware corporation ("Covol"), on the other hand. WHEREAS, simultaneously with the execution and delivery hereof, (i) Birmingham Syn Fuel, L.L.C., an Oregon limited liability company in which the PFS Parties are the sole members, as Buyer ("Buyer"), and Alabama Synfuel and Covol, jointly as Sellers, have entered into that certain Alabama Project Purchase Agreement, dated as of March 20, 1997(the "Purchase Agreement"), and (ii) Covol, as Borrower and PFS, as Lender, have entered into that certain Convertible Loan and Security Agreement (the "Loan Agreement"). Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in the Purchase Agreement. WHEREAS, pursuant to the Purchase Agreement, Covol and Alabama Synfuel have agreed to complete the construction of the Alabama Project and to transfer the Alabama Project to Buyer. To provide funds for the construction and other items relating to the Alabama Project, PFS has agreed to loan up to $5,000,000 (the "Loan") to Covol pursuant to the Loan Agreement. WHEREAS, the parties are mutually unwilling to enter into the Purchase Agreement, the Loan Agreement or the other Transaction Documents, or to consummate or to permit the consummation of the transactions contemplated thereby, unless each of the parties hereto executes and delivers, and agrees to be bound by the terms of this Agreement. WHEREAS, each party hereto has received and will receive material, direct or indirect benefits, by virtue of the execution, delivery and performance by the other parties of the Purchase Agreement, the Loan Agreement and the other Transaction Documents, it being acknowledged by each party hereto that this Agreement is given in consideration of, among other things, such benefits received and to be received by each party hereto and is not gratuitous. NOW THEREFORE, in consideration of the foregoing and the mutual promises and undertakings in this Agreement and the other Transaction Documents, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Grant of Put Option. Covol hereby grants to the PFS Parties and PFS a put option to require Covol to simultaneously purchase all of the right, title and interest of the PFS Parties in Buyer and all of the interest of PFS in the Loan and in the other Transaction Documents (excluding (i) any Shares (as such term is defined in the Loan Agreement) received pursuant to the exercise of conversion rights under the Loan Agreement, and (ii) all rights under the Registration Rights Agreement (as such term is defined in the Loan Agreement); such non-excluded interests collectively referred to as the "Interest") on the following terms and conditions (it being acknowledged by the parties hereto that all of the Interests must be purchased and no partial purchase shall be permitted): (a) The put option granted hereby (the "Option") may only be exercised during the Option Period (as defined below) after the occurrence of a Put Event (as defined below). (b) For purposes hereof, the occurrence of any of the following shall constitute a "Put Event": (i) if, by June 30, 1997, the Alabama Project is not completed consistent with Buyer-approved plans and specifications and placed in service(for purposes of the 1986 Code and Section 29 of the 1986 Code); (ii) if, by June 30, 1997, a Letter Ruling satisfactory to Buyer (as contemplated under Section 7.1(i) of the Purchase Agreement) is not obtained by Buyer; or (iii) if, at any time, there has occurred and is continuing an Event of Default under the Loan Agreement (unless such Event of Default has been waived by the PFS Parties; it being acknowledged by the parties hereto that any such waiver shall be in the sole discretion of the PFS Parties); provided, however, that in no event shall a Put Event occur after the receipt by Buyer of a Letter Ruling satisfactory to Buyer. 2 (c) For purposes hereof, the period beginning the first Business Day immediately succeeding the Put Event and ending 120 days thereafter shall be the "Option Period". (d) The Option shall be exercisable by irrevocable written notice given to Covol by PFS on its behalf and on behalf of the PFS Parties at any time during the Option Period. The Option Price (defined below) shall be paid within thirty (30) days after delivery of the notice of exercise. (e) The "Option Price" for the Interest of PFS and the PFS Parties shall be an amount equal to the sum of the following: (i) all capital contributions of the PFS Parties to Buyer; (ii) all obligations of Covol and Alabama Synfuel under the Loan Documents, including, without limitation, the outstanding principal and interest on the Loan; and (iii) all of the out-of-pocket expenses of PFS and the PFS Investors in connection with the Transaction Documents, whether or not such expenses were otherwise reimbursable. The Option Price shall be payable to PFS and PFS Parties by Covol in immediately available U.S. funds. 2. Releases. Upon the exercise of the Option, PFS and the PFS Parties(and any Affiliate of any such parties) shall be automatically released from any further obligations under the Transaction Documents (except for the obligations under this Agreement). Upon payment in full of the Option Price pursuant to the terms hereof, Covol and Alabama Synfuel(and any Affiliate of any such parties) shall be automatically released from any further obligations to PFS and/or the PFS Parties(and any Affiliate of any such parties) under the Transaction Documents (except for the obligations under this Agreement). 3. Delivery of Interests; AS-IS. Upon payment in full of the Option Price, (i) PFS shall transfer to Covol all of its interest in the Loan and related "Loan Documents" (as such term is defined in the Loan Agreement), and (ii) the PFS Parties shall transfer to Covol all of their respective interest in the Buyer. PFS and the PFS Parties shall only be required to represent that they are transferring their entire Interest, that they have made no prior transfers with respect to their Interest and that they have not encumbered their Interest with any liens. EXCEPT AS EXPRESSLY SET FORTH IN THE IMMEDIATELY 3 PRECEDING SENTENCE, THE TRANSFER OF THE INTERESTS SHALL BE MADE "AS IS," AND NONE OF PFS, THE PFS PARTIES NOR ANY AFFILIATE THEREOF SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, NOW OR HEREAFTER AS TO ANY OTHER MATTER RELATING TO THE INTERESTS, INCLUDING, WITHOUT LIMITATION, (A) AS TO THE VALUE OF THE INTERESTS, OR THE VALUE, CONDITION, DESIGN, OPERATION, MERCHANTABILITY, QUALITY OF MATERIAL OR WORKMANSHIP, FITNESS FOR USE OR FOR A PARTICULAR PURPOSE, MAINTENANCE, OR MARKETABILITY OF THE ALABAMA PROJECT, (B) AS TO THE CREDITWORTHINESS OF ANY OBLIGOR UNDER ANY DOCUMENT, OR (C) AS TO THE ENFORCEABILITY OF ANY TRANSACTION DOCUMENT. 4. Further Assurances. Each party agrees, at the request of the other party, at any time and from time to time after the exercise of the Option, 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 perfect the transfers of rights contemplated herein or otherwise to confirm or carry out the provisions of this Agreement. 5. Notices. All notices to or demands or requests of the parties hereto shall be given pursuant to the terms of the Purchase Agreement. 6. Interpretation. (a) Ambiguities. The parties acknowledge that each party and its counsel has materially participated in the drafting of this Agreement and the other Transaction Documents; consequently, the rule of contract interpretation, that ambiguities, if any, in a writing be construed against the drafter, shall not apply. (b) Headings. The section headings in this Agreement are included for convenience only; they do not give full notice of the terms of any portion of this Agreement and are not relevant to the interpretation of any provision of this Agreement. (c) Governing Law. The parties intend that this Agreement shall be governed by and construed in accordance with the laws of the State of Utah applicable to contracts made and wholly performed within Utah by persons domiciled in Utah (without regard to choice of law rules). (d) Calculation of Time Periods. In the computation of any period of time provided for in this Agreement, the day 4 of the act or event from which the period of time runs shall be excluded, and the last day of the period shall be included, unless it is a Saturday, Sunday, or bank holiday under federal or Utah law, in which case the period shall be deemed to run until the end of the next day that is not a Saturday, Sunday, or bank holiday under federal or Utah law. (e) Severability. Any provision of this Agreement that is deemed invalid or unenforceable shall be ineffective to the extent of such invalidity or unenforceability, without rendering invalid or unenforceable the remaining provisions of this Agreement. Furthermore, in lieu of each such invalid or unenforceable provision, there shall be added automatically as a part of this Agreement a provision as similar in terms to such invalid or unenforceable provision as may be possible and be valid and enforceable. 7. Integration; Amendment. 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. 8. Waiver. No provision of this Agreement shall be deemed to have been waived unless such waiver is in writing signed by the waiving party. No failure by any party to insist upon the strict performance of any provision of this Agreement, or to exercise any right or remedy consequent upon a breach thereof, shall constitute a waiver of any such breach, of such provision or of any other provision. No waiver of any provision of this Agreement shall be deemed a waiver of any other provision of this Agreement or a waiver of such provision with respect to any subsequent breach, unless expressly provided in writing. 9. Expenses; Sales Taxes; Attorneys' Fees. (a) Expenses. Covol shall pay to PFS and the PFS Parties on demand all reasonable out-of-pocket costs and expenses incurred by PFS and the PFS Parties, or any of them (including the fees and charges of counsel) in connection with the preparation, execution and delivery of any documentation required to effect the provisions of this Agreement. (b) Sales Taxes. Covol shall be responsible for and shall indemnify, reimburse, and hold PFS and PFS Parties 5 harmless against all sales, use, transfer or similar taxes which may be imposed by any Federal, State or local authority in connection with the exercise of the Option and the transfer of the Interests hereunder. (c) Attorneys' Fees. If any suit or action arising out of or related to the this Agreement is brought by any party to any such document, the prevailing party or parties shall be entitled to recover the costs and fees (including without limitation reasonable attorneys' fees, the fees and costs of experts and consultants, copying, courier and telecommunication costs, and deposition costs and all other costs of discovery) incurred by such party or parties in such suit or action, including without limitation any post-trial or appellate proceeding. 10. Late Payments. Any amount payable by any party hereunder not paid when due shall bear interest at the lesser of the maximum rate permitted by applicable law or the "Default Interest Rate" (as such term is defined in the Loan Agreement) payable on demand, from the date when due until paid in full. 11. Binding Effect; Termination. This Agreement shall bind and inure to the benefit of, and be enforceable by, the parties hereto and their respective successors, heirs, and permitted assigns. In the event that no Put Event has occurred and the Buyer has received a Letter Ruling satisfactory to Buyer, then this Agreement shall terminate and be of no further force and effect. 12. Third-Party Beneficiary Rights. No person not a party to this Agreement is an intended beneficiary of this Agreement, and no person not a party to this Agreement shall have any right to enforce any term of this Agreement. 13. Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement binding on all the parties, notwithstanding that all parties are not signatories to the same counterpart. 6 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the day and year first above written. COVOL TECHNOLOGIES, INC. By: ------------------------------------- Name: Title: ALABAMA SYNFUEL #1, LTD. By: ------------------------------------- Name: Title: PACIFICORP FINANCIAL SERVICES, INC. By: ------------------------------------- Name: Title: BIRMINGHAM SYN FUEL I, INC. By: ------------------------------------- Name: Title: BIRMINGHAM SYN FUEL II, INC. By: ------------------------------------- Name: Title: 7 -----END PRIVACY-ENHANCED MESSAGE-----