-----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, OwAq5CeFDU4xgwtcqzvienZSVYnecsLHIbJdj4kkIIiDFNZ605QSAa20YteKL5lh fNp+1S9PVbUIIWwAdGawUg== 0001038838-99-000070.txt : 19990319 0001038838-99-000070.hdr.sgml : 19990319 ACCESSION NUMBER: 0001038838-99-000070 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980303 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990318 FILER: 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: 8-K/A SEC ACT: SEC FILE NUMBER: 000-27808 FILM NUMBER: 99567988 BUSINESS ADDRESS: STREET 1: 3280 N FRONTAGE RD CITY: LEHI STATE: UT ZIP: 84043 BUSINESS PHONE: 8017684481 8-K/A 1 Securities and Exchange Commission Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 March 3, 1998 ------------- Date of Report (Date of earliest event reported): COVOL TECHNOLOGIES, INC. ------------------------ (Exact Name of Registrant as Specified in its Charter) Delaware 0-27803 87-0547337 -------- ------- ---------- (State or Other Juris- (Commission File (IRS Employer Number) diction of Incorpo Identification No.) 3280 North Frontage Road Lehi, Utah, 84043 ------------------------- ----- (Address of Principal (Zip Code) Executive Offices) (801) 768-4481 ----------------------------------------------------- (Registrant's telephone number, including area code) This Current Report on Form 8-K/A amends the Current Report on Form 8-K dated March 23, 1998. Item 2. Acquisition or Disposition of Assets General Description of the Disposition On March 6, 1998, Covol Technologies, Inc. (the "Company"), and Alabama Synfuel #1, Ltd., a Delaware limited partnership ("AS #1"), completed the sale to Birmingham Syn Fuel, L.L.C. ("BSF"), a wholly-owned subsidiary of PacifiCorp Financial Services, Inc. ("PacifiCorp"), of a synthetic fuel briquetting plant in Birmingham, Alabama (the "Alabama Plant"). The Alabama Plant was constructed by the Company and AS #1, which is a limited partnership formed by the Company in which the Company retains an interest of approximately 74%. The sale of the Alabama Plant was effected pursuant to that certain Alabama Project Purchase Agreement, dated as of March 20, 1997, as amended by letter agreements dated June 27, 1997, July 7, 1997, August 28, 1997, December 12, 1997, and February 20, 1998 (the "Alabama Purchase Agreement"), between the Company, AS #1 and BSF. The terms of the sale included delivery of a Promissory Note executed by BSF in favor of AS #1 in the amount of $6,500,000 (the "Note"). BSF's obligation to repay the Note is secured by a security interest and lien on the property comprising the Alabama Plant. The Note provides for interest at twelve percent (12%) per annum, and quarterly payments of principal and interest, subject to the provision that quarterly payments will not begin until the Alabama Plant has reached prescribed production amounts, costs and sales. The Note provides for final payment on February 20, 2003. The sale of the Alabama Plant to PacifiCorp had no significant impact on the Company's operations. The disposition resulted in the removal of approximately $6,500,000 in fixed assets and the recognition of the Note as a note receivable in the amount of $6,500,000. There are a number of actions required to be taken by the Company and AS #1 involving the completion of and modifications to the Alabama Plant within specific periods provided in the Alabama Purchase Agreement. Failure to meet such conditions will trigger penalties to the Company in the form of delay payments, and will give rise to an option in BSF to return the parties to the Alabama Purchase Agreement to their respective positions prior to the Closing. Pursuant to that certain Amended and Restated License and Binder Purchase Agreement dated December 12, 1997 (the "License Agreement"), between BSF, the Company and AS #1, upon substantial completion of the Alabama Project a fee of $250,000 was due to AS #1, and BSF was subsequently invoiced. In addtion, BSF will pay quarterly royalty payments at a prescribed dollar amount per British thermal unit ("Btu") in the briquettes produced and sold during the calendar quarter. The prescribed dollar amount is subject to adjustment based upon the "inflation adjustment factor" as set forth in Section 29(d)(2) of the Internal Revenue Code of 1986, as amended (the "Code"). The amount to be paid is subject to adjustment to the extent that BSF incurs an operating loss on the production and sale of synthetic fuel (exclusive of the amount BSF pays as a license fee for the use of the technology). The Company cannot predict with any certainty the amount of ongoing fees that may be generated under the Licensing Agreement. The Company has agreed to provide binder material to BSF for the manufacture and production of synthetic fuel at an amount equal to the Company's cost plus a prescribed mark-up subject to adjustment under certain circumstances. The Company has provided to BSF warranties with respect to the operation of a facility to produce the binder materials. In connection with the sale of the Alabama Plant, BSF granted a call option to the Company requiring BSF to sell all of the right, title and interest of BSF in the Alabama Project at its then fair market value, exercisable during the period beginning the first business day succeeding January 1, 2010 and ending sixty (60) days thereafter. Item 5. Other Events Exercise of Conversion Right - PacifiCorp Financial Services, Inc. On March 3, 1998 PacifiCorp Financial Services, Inc. ("PacifiCorp") provided the Company notice of PacifiCorp's intent to convert the total amount of principal outstanding under a loan made by PacifiCorp to the Company (the "PacifiCorp Loan"), plus interest of $313,527, into shares of common stock at a conversion price of approximately $7.00 per share. As of March 3, 1998, the Company had borrowed $6,686,473 under the Pacificorp Loan. On March 20, 1997, the Company and PacifiCorp entered into a Convertible Loan and Security Agreement (the "Loan Agreement"), pursuant to which PacifiCorp agreed to make the PacifiCorp Loan to the Company in an amount up to $5,000,000. The proceeds of the PacifiCorp Loan were to be used by the Company to: (i) complete construction of the Alabama Plant; (ii) finance the purchase of coal fines for the Alabama Plant; (iii) fund the net working capital needs of the Alabama Plant; (iv) finance the development and construction of a wash plant for coal fines; and (v) other uses related to the Alabama Plant approved by PacifiCorp. On December 12, 1997, the Company and PacifiCorp amended the Loan Agreement to permit the Company to borrow up to $7,000,000. The Loan Agreement, as amended, provides for the conversion, at the option of PacifiCorp, of the PacifiCorp Loan into shares of the Company's common stock at a conversion price of $7.00 per share, subject to certain adjustments. Pursuant to PacifiCorp's exercise of its conversion right, the Company issued 1,000,000 shares of its common stock to PacifiCorp on March 4, 1998. The exact conversion price will be adjusted and additional shares will be issued based on the anti-dilution provisions of the Loan Agreement, as amended. The Company expects such additional shares to be less than 30,000 shares. PacifiCorp has been granted certain registration rights with respect to the shares issued and to be issued. Director Resignation On March 8, 1998 Vern May resigned as director. Mr. May's resignation was tendered due to his acceptance of a call to serve a full-time mission for the Church of Jesus Christ of Latter-day Saints. Such resignation was subsequently accepted at a board of directors meeting held March 17, 1998, at which the board expressed appreciation for Mr. May's service. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits (a) Financial Statements of Business Acquired. Not applicable. (b) Pro Forma Financial Information. Included in narrative discussion under Item 2 in reliance upon Rule 11-02(b)(1) of Regulation S-X. (c) Exhibits. 10.39.6 Letter Amendment dated February 20, 1998 to the Alabama Project Purchase Agreement dated as of March 20, 1997, by and among the Company, Alabama Synfuel #1 Ltd. ("AS #1"), Birmingham Syn Fuel, L.L.C. ("BSF").* 10.39.7 Call Option Agreement dated February 20, 1998 between BSF and the Company. 10.39.8 Letter Amendment dated February 20, 1998 to the Amended and Restated License and Binder Purchase Agreement dated as of December 12, 1997 by and among the Company, AS #1 and BSF.* 10.39.9 Non-negotiable Promissory Note dated February 20, 1998, in favor of AS #1, executed by BSF as debtor.* 10.39.10 Security Agreement dated February 20, 1998 by and among the Company, AS #1 and BSF. - ---------------------------- * Exhibits 10.39.6, 10.39.8, 10.39.9, each contain confidential information which has been omitted pursuant to a Confidential Treatment Request and filed separately with the Securities and Exchange Commision SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. COVOL TECHNOLOGIES, INC. (Registrant) /s/Brent M. Cook Date: March 18, 1999 ------------------- By: Brent M. Cook Title: Chief Executive Officer and Principal Executive Officer EX-10.39.6 2 February 20, 1998 Alabama Synfuel #1, Ltd. c/o Covol Technologies, Inc. 3280 North Frontage Road Lehi, Utah 84043 Covol Technologies, Inc. 3280 North Frontage Road Lehi, Utah 84043 Re: Letter Amendment Gentlemen: Reference is made to the Alabama Purchase Agreement, dated as of March 20, 1997, as amended by letter agreements dated June 27, 1997, July 7, 1997, August 28, 1997 and December 12, 1997 (the "Project Purchase Agreement"), by and among Alabama Synfuel #1, Ltd. and Covol Technologies, Inc., as sellers, and Birmingham Syn Fuel, LLC, as buyer. The parties to the Project Purchase Agreement hereby amend the Project Purchase Agreement as follows: a. deleting the language "Three Million Four Hundred Thousand Dollars ($4,800,000)" and replacing it with "Six Million Five Hundred Thousand Dollars ($6,500,000)" in Section 2.2. b. adding to the end of Section 3.3 the language "provided, further, that Buyer shall enter into a Security Agreement with Alabama Power Company to replace that Security Agreement between Covol and Alabama Power Company dated as of January 28, 1998 ("Alabama Power Agreement") promptly after the Closing Date and execute and cause to be filed UCC Financing Statements and take any other actions necessary to ensure that Alabama Power Company maintains a first priority perfected security interest in the Collateral (as defined in the Alabama Power Agreement)." c. deleting the language "February 27, 1998" in Section 5.3 (c) thereof and inserting "the Closing Date" in place thereof. d. inserting the language "except for the City of Birmingham occupancy permit" at the end of Section 7.1 (f). e. deleting Section 7.1 (h) in its entirety. * This exhibit contains confidential material which has been omitted pursuant to a Confidential Treatment Request and replaced by asterisks. The omitted information has been filed separately with the Securities and Exchange Comission. f. amending and restating the title of Article VIII to read in its entirety "CLOSING; CONDITIONS SUBSEQUENT". g. deleting the language "February 24, 1998" in Section 8.1 thereof and inserting "February 20, 1998" in place thereof. h. inserting the language "except for the City of Birmingham occupancy permit" at the end of Section 8.2 (f). i. After Section 8.2, inserting the following language: "8.3 Conditions Subsequent to Obligations of Buyer. At Buyer's sole discretion and direction, the parties to this Agreement shall be returned to their respective positions prior to the Closing Date if the following conditions are not fulfilled within the time specified: [(a) Opinion of Counsel. Buyer shall receive 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 within two weeks of the Closing Date.] (b) Items under the Construction Contract. Sellers, at their sole cost and expense, shall perform the actions specified on Schedule 8.3 within 30 days of the Closing Date. Sellers shall also perform, at their sole cost and expense, any other actions necessary to bring the Alabama Project to Substantial Completion (as defined in the Construction Contract). (c) Other Items. Sellers, at their sole cost and expense, shall perform the following actions within 30 days of the Closing Date: (i) with respect to the barge loadout: install a tailpiece for the belt, repair the hopper over the tailpiece, repair the belt structure, replace the belting, and perform all work necessary to ensure that the barge facility complies with OSHA; and (ii) with respect to the scales: relocate the scales and scalehouse to the roadway and perform the associated cut and fill work. In the event that the items specified in Section 8.3 are not completed within 30 days of the Closing Date, Sellers shall pay Buyer a delay payment in the amount of $*. If such items are not completed within 60 days of the Closing Date, and if at such time Buyer has not yet exercised its option to return the parties to their respective positions prior to the Closing Date, in addition to all other rights and remedies under the Purchase Agreement Documents, Sellers shall pay Buyer a delay payment in the amount of $*. Notwithstanding any provisions of this paragraph, each of the delay payments provided for in this paragraph shall not apply until 45 and 75 days of the Closing Date, respectively, to the installation of the nitric acid tank or the installation of the water tank and associated fire system. * This exhibit contains confidential material which has been omitted pursuant to a Confidential Treatment Request and replaced by asterisks. The omitted information has been filed separately with the Securities and Exchange Comission. j. deleting the number "4,800,000" above the first paragraph of Exhibit A-1 thereto and inserting "6,500,000" in place thereof; k. deleting the number "*" in the third paragraph of Exhibit A-1 thereto and inserting "*" in place thereof. l. deleting the language "Four Million Eight Hundred Thousand Dollars ($4,800,000)" in the first paragraph of Exhibit A-1 thereto and inserting "Six Million Five Hundred Thousand Dollars ($6,500,000)" in place thereof. m. deleting the number "4,800,000" in the first paragraph of Exhibit A-2 thereto and inserting "6,500,000" in place thereof. n. replacing Schedules 2.1 and 4.1(c) thereto and replacing them with the Schedules 2.1 and 4.1(c) attached hereto in place thereof. This letter agreement may be executed in one or more counterparts, all of which shall be considered one and the same letter agreement. Very truly yours, BIRMINGHAM SYN FUEL, LLC By: /s/ Reynold Roeder Name: Reynold Roeder Title: Vice President ACCEPTED AND AGREED TO AS OF THE DATE FIRST SET FORTH ABOVE: ALABAMA SYNFUEL #1, LTD. By: /s/ Brent M. Cook Name: Brent M. Cook Title: President COVOL TECHNOLOGIES, INC. By: /s/ Brent M. Cook Name: Brent M. Cook Title: President * This exhibit contains confidential material which has been omitted pursuant to a Confidential Treatment Request and replaced by asterisks. The omitted information has been filed separately with the Securities and Exchange Comission. EXHIBIT 8.3 Feed Hopper (C-1 Conveyor) Adjust Height of feed hopper to proper height for loader feeding. Install chute at the dumping point onto C-2 conveyor Install wiper on the C-1 feed belt. C-2 Conveyor Install belt on the motor and speed reducer. Complete ends of the catwalk. Install dust collector. Install chute at the dumping point. Install wiper. Install pull cord. C-3 Conveyor Install chute at discharge into Even Flow Feeder Install wiper Move all grease fittings on belt idlers to the catwalk side Complete catwalk Install magnet Even Flow Feeder and Screw Conveyor Install handrails around top of bin Install handrails around base of screw conveyor on two sides. Install chute where screw conveyor discharges onto C-4 conveyor. C-4 Conveyor Move impact idlers to where screw conveyor discharges onto C-4. Install chute at the discharge into int pug mixer. Install belt on motor and speed reducer. Install wiper. Move all grease fittings on belt idlers to the catwalk side. Install moisture sensor. Replace or repair hub on discharge roller. Wire metal detector. Complete scales. Complete handrails at the discharge. * This exhibit contains confidential material which has been omitted pursuant to a Confidential Treatment Request and replaced by asterisks. The omitted information has been filed separately with the Securities and Exchange Comission. Pug Sealer and Extruder Install two additional locking handles on the lid. Relocate vacuum gauge so that it does not interfere with the locking handles. Install extra filter and plumbing on vacuum line so one filter can be serviced while equipment is operating. Install backstop at floor level in front of extruder. Install drive belts for extruder. Install 1 1/2" vacuum relief valve. C-5 Conveyor Install proper number of bolts on bottom rollers and roller frame. Align bearing on drive roller. Install legs of correct size on drive end of conveyor system. Bolt legs to the floor Install wiper Relocate grease fittings on idlers to offside of extruder. Install snub rollers on each end of the conveyor. C-6 Conveyor Bolt down the top idlers. Install wiper. Repair belt to run as designed. C-7 Conveyor Install proper number of bolts on bottom rollers and the roller frame. Relocate grease fittings on idlers offside from conduit. Install wiper. Relocate pull cord switches toward to tail roller so they can be reached form the floor. Oscillitating Conveyor Weld positive stops on base. Dryers and Controls Complete grounding wiring on underside of dryer. Complete topside piping, wiring, control valves, and regulators. Complete wiring on control panel. Install fines collection apparatus underneath the feed end of the dryer. C-8A Conveyor Install grease fittings on three top idlers under dryer discharge. Install wiper. Install dust collection system. * This exhibit contains confidential material which has been omitted pursuant to a Confidential Treatment Request and replaced by asterisks. The omitted information has been filed separately with the Securities and Exchange Comission. C-8 Conveyor Affix bottom idler to brackets. Install three bottom idlers at take up area. Install bolts on top idlers. Tighten nuts where legs are bolted to concrete. Install wiper. Install pull cords and pull cord switches. Install belt cover. C-9 Conveyor (Radial Stacker) Install top idler in front of skirts. Weld bottom stip in catwalk. Install pull cord switch. Tighten bolts on top idlers. Install wiper Install cover Install rut-resistant surface on area where tacker drive wheels roll. C-10 Conveyor Complete installation on C-10 Conveyor. MCC and Binder Plant Complete wiring. Install wiring to instruments. Install wiring on main PLC. Install wiring on transfer pump. Install and wire air conditioners. Install wiring on air compressor. Complete air system. Nitric Acid Tank (Stainless) Deliver Nitric Acid Tank. Holding Tank for Wash Down Repair or replace tank if it has a leak. Water Install three inch water line from Highway 269 to the plant for process water. Install tank and associated fire water system. Office and Bath Facilities Install bath facilities. * This exhibit contains confidential material which has been omitted pursuant to a Confidential Treatment Request and replaced by asterisks. The omitted information has been filed separately with the Securities and Exchange Comission. EX-10.39.7 3 THIS CALL OPTION AGREEMENT (this "Agreement"), dated as of February 20 1998, between Birmingham Syn Fuel, L.L.C., an Oregon limited liability company ("Birmingham"), on the one hand, and Covol Technologies, Inc., a Delaware corporation ("Covol"), on the other hand. WHEREAS, Reference is made to that certain Alabama Project Purchase Agreement, dated as of March 20, 1997 as amended by letter agreements dated June 27, 1997, July 7, 1997, August 28, 1997, December 12, 1997 and February 20, 1998 (the "Purchase Agreement") by and between Covol and Alabama Synfuel #1 Ltd., a Delaware limited partnership ("Alabama Synfuel"), as Sellers, on the one hand, and Birmingham, as Buyer on the other hand. Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to such terms in the Purchase Agreement. WHEREAS, the parties are mutually unwilling to close the transfer of the Alabama Project under the Purchase Agreement 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 obligations under the Purchase 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 Call Option. Birmingham hereby grants to Covol a call option to require Birmingham to sell all of the right, title and interest of Birmingham in the Alabama Project and in all the 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: (a) The call option granted hereby (the "Option") may only be exercised during the Option Period (as defined below); provided, however, that the Option may not be exercised at any time there has occurred and is continuing any Default or Event of Default with respect to the payment of money by Covol or any Affiliate of Covol (including, without limitation, Alabama Synfuel #1, Ltd., a Delaware limited partnership) to any of the PFS Parties under any of the Transaction Documents (unless such Default or 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). (b) For purposes hereof, the period beginning the first Business Day immediately succeeding January 1, 2010 and ending sixty (60) days thereafter shall be the "Option Period". (c) The Option shall be exercisable by irrevocable written notice (the "Option Notice") given to Birmingham by Covol at any time during the Option Period. The Option Price (defined below) shall be payable in immediately available U.S. funds on the closing date, which shall be a date, selected by Covol, not more than the later of (i) sixty (60) days after the receipt by Birmingham of the Option Notice or (ii) ten (10) Business Days after receipt of the appraisal contemplated under subclause (d) below. (d) The "Option Price" for the Interest shall be equal to the fair market value of the Interest, which shall be set by mutual agreement of the parties hereto; provided, however, that in the event that at the time of the exercise of the option hereunder there is an outstanding Event of Default under any of the Transaction Documents, the occurrence of which adversely effects the fair market value of the Interest, the fair market value of the Interest shall be determined as if such Event of Default had not occur; provided, further, that, if the parties cannot agree on the Option Price within fifteen (15) Business Days after the receipt by Birmingham of the Option Notice, the Option Price shall be determined as follows: (i) Subject to subclause (ii) hereof, the fair market value shall be determined by an independent appraiser(s) experienced in appraising similar projects in the Southeastern United States, who shall be mutually agreed to by Birmingham and Covol; provided, however, if they cannot agree within ten (10) Business Days after the Option Notice, then Birmingham, on the one hand, and Covol, on the other hand, shall each appoint an appraiser within the next succeeding ten (10) Business Days and such appraisers shall jointly determine the fair market value of the Interest; provided, further, that if either Birmingham, on the one hand, or Covol, on the other hand, shall fail to appoint an appraiser within such 10-Business Day period, the determination of fair market value of the Interest by the single appraiser appointed shall be final; provided, further, that if two appraisers shall be appointed and within twenty (20) Business Days after the appointment of the latter of such two appraisers, such two appraisers cannot agree upon such amount, such two appraisers shall, within 5 Business Days after such 20-Business Day period, appoint a third appraiser and such amount shall be determined by such three appraisers, who shall make their separate appraisals within ten (10) Business Days following the appointment of third appraiser, and any determination so made shall be final; provided, further, that, if no such third appraiser is appointed within such 5-Business Day period, either Birmingham, on the one hand, or Covol, on the other hand, may apply to the Salt Lake City Office of the American Arbitration Association to make such appointment, and Birmingham and Covol shall be bound by any appointment so made; (B) If three appraisers shall be appointed as contemplated under subclause (A) and the difference between the determination which is farther from the middle determination and the middle determination is more than 125% of the difference between the middle determination and the third determination, then such farther determination shall be excluded, the remaining two determinations shall be averaged and such average shall be final and binding upon Birmingham and Covol; otherwise, the average of all three determinations shall be final and binding upon Birmingham and Covol; (C) The expenses of the appraisal procedure shall be borne by Covol. 2. Releases. Upon payment of the Option Price, each of the parties hereto(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 and obligations and liabilities arising out of an outstanding Event of Default under any of the Transaction Documents arising prior to the exercise by Covol of the option hereunder). 3. Delivery of Interests; AS-IS. Upon payment in full of the Option Price, Birmingham shall transfer to Covol all of its Interest. Birmingham shall only be required to represent that it is transferring its entire Interest, that it has made no prior transfers with respect to its Interest and that it has not encumbered its Interest with any Liens. EXCEPT AS EXPRESSLY SET FORTH IN THE IMMEDIATELY PRECEDING SENTENCE, THE TRANSFER OF THE INTEREST SHALL BE MADE "AS IS," AND NEITHER BIRMINGHAM 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 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 Birmingham on demand all reasonable out-of-pocket costs and expenses incurred by Birmingham (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 Birmingham 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 the Option Period has elapsed and the Option has not been exercised, 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. 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: /s/ Brent M. Cook ----------------------- Name: Brent M. Cook Title:President BIRMINGHAM SYN FUEL, L.L.C. By: /s/ Reynold Roeder --------------------- Name: Reynold Roeder Title:Vice President EX-10.39.8 4 February 20, 1997 Alabama Synfuel #1, Ltd. c/o Covol Technologies, Inc. 3280 North Frontage Road Lehi, Utah 84043 Covol Technologies, Inc. 3280 North Frontage Road Lehi, Utah 84043 Re: Letter Amendment Gentlemen: Reference is made to the Amended and Restated License and Binder Purchase Agreement, dated as of December 12, 1997 (the "License and Binder Agreement"), by and among Alabama Synfuel #1, Ltd., as licensor, Covol Technologies, Inc., as vendor, and Birmingham Syn Fuel, LLC, as licensee. The parties to the License and Binder Agreement hereby amend the License and Binder Agreement as follows: 1. Deleting the language "after consummation of the transactions under the Purchase Agreement upon "Substantial Completion" of the Alabama Project as defined in the Construction Contract" in Section 3.1 and replacing such language with "after Licensee has sold an aggregate of * tons of coal briquettes/extrusions." 2. Deleting the number "*" in all places it appears in Section 3.2 and replacing all such references with "*." This letter agreement may be executed in one or more counterparts, all of which shall be considered one and the same letter agreement. Very truly yours, BIRMINGHAM SYN FUEL, LLC By: /s/ Reynold Roeder --------------------- Name: Reynold Roeder Title: Vice President * This exhibit contains confidential material which has been omitted pursuant to a Confidential Treatment Request and replaced by asterisks. The omitted information has been filed separately with the Securities and Exchange Comission. ACCEPTED AND AGREED TO AS OF THE DATE FIRST SET FORTH ABOVE: ALABAMA SYNFUEL #1, LTD. By: /s/ Brent M. Cook ------------------------------------- Name: Brent M. Cook Title: President if Its General Partner COVOL TECHNOLOGIES, INC. By: /s/ Brent M. Cook ------------------------ Name: Brent M. Cook Title: President * This exhibit contains confidential material which has been omitted pursuant to a Confidential Treatment Request and replaced by asterisks. The omitted information has been filed separately with the Securities and Exchange Comission. EX-10.39.9 5 NON-NEGOTIABLE PROMISSORY NOTE U.S. $6,500,000 Dated as of February 20, 1998 FOR VALUE RECEIVED, the undersigned, Birmingham Syn Fuel, L.L.C., an Oregon limited liability company ("Debtor"), promises to pay to the order of Alabama Synfuel #1 Ltd., a Delaware limited partnership ("Lender"), the principal amount of Six Million Five Hundred Thousand Dollars ($6,500,000), together with interest thereon at the Interest Rate (as hereinafter defined) (collectively, the "Obligation") from the date hereof until paid in full, all in accordance with the terms of this Note. For purposes of this Note, capitalized terms used but not otherwise defined herein shall have the meanings ascribed thereto in the Alabama Project Purchase Agreement dated as of March 20, 1997, by and among Debtor, Lender and Covol Technologies, Inc., as the same may be amended, supplemented or otherwise modified from time to time ("Purchase Agreement"). Debtor shall pay interest on the aggregate principal balance of this Note from the date hereof until the repayment in full thereof at twelve percent (12%) per annum ("Interest Rate"). Interest shall be calculated based on a 365-day year calculated for the actual number of days elapsed, and shall be compounded monthly. Interest on the aggregate principal balance of this Note shall be due and payable quarterly in arrears on each March 31, June 30, September 30 and December 31 until final payment; provided, however, that prior to the commencement of principal payments pursuant to the immediately succeeding sentence, the Debtor shall have no obligation to make interest payments on the aggregate principal balance of this Note; provided, further, that all interest payments on the aggregate principal balance of this Note that accrue prior to the commencement of principal payments pursuant to the immediately succeeding sentence shall be deemed principal and included in the calculation of the aggregate principal balance of this Note. The aggregate principal balance of this Note shall be repaid in equal consecutive quarterly installments of principal, commencing on and calculated as of, the first March 31, June 30, September 30 or December 31 after certification by the Lender to Debtor (together with such other evidence as Debtor requests) to the effect that the Alabama Project has achieved a production level of * (*) tons per month of first-quality commercial coal extrusions or briquettes at an average cost of less than $* per ton, and has maintained that production/cost level for thirty (30) consecutive days. Notwithstanding anything herein to the contrary, the obligation of Debtor to make payments of principal and interest with respect to this Note in any quarter shall be limited to an amount equal to the lesser of (i) the net operating cash flow of the Debtor (which amount shall include the funding of replacement and operating reserves for the Alabama Project), or (ii) * This exhibit contains confidential material which has been omitted pursuant to a Confidential Treatment Request and replaced by asterisks. The omitted information has been filed separately with the Securities and Exchange Comission. 2 the product of (A) $*, as adjusted pursuant to the immediately succeeding proviso, multiplied by (B) the MM Btu of the briquettes sold by the Debtor during the immediately preceding quarter; provided, however, that on each February 20, commencing on February 20, 1999, the amount set forth in clause (A) shall be adjusted by an amount equal to * (*) of the relative change between (y) the "inflation adjustment factor" (as set forth in Section 29(d)(2) of the Code) calculated for the immediately preceding year and (z) the "inflation adjustment factor" calculated for the penultimate year; provided, further, that the amount of all principal and interest due and payable but for the application of this sentence shall be included in the calculation of the aggregate principal balance of this Note; provided, further, that all accrued and unpaid Obligations outstanding under this Note shall be due and payable on February 20, 2003. In addition to any rights of the Debtor under the Transaction Documents and applicable law, any amounts owing to Debtor from either the Lender or Covol under any of the Transaction Documents may be offset and applied toward the payment of the Obligations owing to the Lender, whether or not the Obligations, or any part thereof, shall be due and payable. Subject to the immediately preceding paragraph, and upon thirty days written notice by Lender of (i) a failure by the Debtor to make payments required pursuant to the terms hereof, or (ii) an absolute and irrevocable abandonment of the Alabama Project, the Lender may declare this Note immediately due and payable without further presentment, demand, protest or notice of any kind, and thereafter interest shall continue to accrue at the Interest Rate. In no contingency or event whatsoever shall the rate or amount of interest paid by the Debtor 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 Debtor to Lender or, if the amount of such excess exceeds the unpaid balance of such principal, Lender shall promptly refund such excess interest to Debtor 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 Debtor 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. This Note is subject to voluntary prepayment in whole or in part at the election of the Debtor. * This exhibit contains confidential material which has been omitted pursuant to a Confidential Treatment Request and replaced by asterisks. The omitted information has been filed separately with the Securities and Exchange Comission. 3 The payment of this Note is secured by a security interest in the Alabama Project, as more fully described in the Security Agreement, dated as of the date hereof, by and between Debtor and Lender, and a Collateral Assignment of Sublease, dated as of the date hereof, delivered by Debtor for the benefit of the Lender. This Note is not assignable without the prior written consent of the Debtor, and Debtor shall be entitled to deal solely with the Lender with respect to the subject matter of this Note. Debtor 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 Utah 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 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 DEBTOR AND LENDER OR THE ACTIONS OF LENDER IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF. IN WITNESS WHEREOF, Debtor has caused this Note to be executed as of the date and year first above written. BIRMINGHAM SYN FUEL, L.L.C. By: /s/ Reynold Roeder ----------------------- Name: Reynold Roeder Title: Vice President * This exhibit contains confidential material which has been omitted pursuant to a Confidential Treatment Request and replaced by asterisks. The omitted information has been filed separately with the Securities and Exchange Comission. EX-10.39.10 6 SECURITY AGREEMENT This Security Agreement (the "Agreement") dated as of February 20, 1998, is entered into by and between COVOL TECHNOLOGIES, INC., a Delaware corporation ("Covol"), Alabama Synfuel #1 Ltd., a Delaware limited partnership ("Alabama Synfuel") (Covol and Alabama Synfuel are collectively referred to herein as "Sellers" and "Secured Party"), and Birmingham Syn Fuel, LLC, an Oregon limited liability company (the "Buyer" and "Debtor"), pursuant to that certain Alabama Project Purchase Agreement dated as of March 20, 1997 by and between the Secured Party and the Debtor (the "Purchase Agreement"). All capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings set forth in the Purchase Agreement for all purposes of this Agreement. WITNESSETH WHEREAS pursuant to Section 2.2 of the Purchase Agreement the Buyer is required to deliver a promissory note (the "Promissory Note"), in an aggregate principal amount of six million five hundred thousand dollars ($6,500,000) to the Sellers representing the purchase price for the Purchased Assets; and WHEREAS in order to secure the obligations of Buyer under the Purchase Agreement Documents, this Agreement and the Promissory Note, the Buyer, as Debtor, has agreed to grant a continuing first priority security interest in the Collateral (as defined herein) to the Sellers, as Secured Party; and WHEREAS, the execution, delivery and filing of this Agreement is a condition precedent to the Sellers' obligation to consummate the transactions contemplated by the Purchase Agreement. NOW, THEREFORE, to induce the Secured Party to enter into the Purchase Agreement, and to consummate the transactions contemplated thereby, the Debtor hereby agrees as follows: Section 1. 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. "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 of deposit issued by, any federally insured or state chartered financial institution, (iv) direct obligation 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 Debtor 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 usefu in connection with the Alabama Project; (ii) All Computer Hardware and Software used or useful in connection with the Alabama Project; (iii) 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, licenses, franchises, copyrights, patents and other intellectual property of Debtor used or useful in connection with the Alabama Project, all depository accounts or deposits by Debtor 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, licenses, franchises, copyrights, patents and other intellectual property of Debtor used or useful in connection with the Alabama Project; 2 (iv) 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 secured party is the loss payee thereof), and all claims, indemnities, 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; (v) All fixtures and other appurtenances to the Alabama Project and the real property owned by the Debtor. (b) all leasehold interests of Debtor in the real property covered by the Lease and all other real property assets (as described in Schedule 2 hereto) of Debtor used or useful in connection with the Alabama Project, and all rents, income, issues and profits thereof. "Collateral Assignment of Lease" means the Collateral Assignment of Lease, dated as of February 20, 1998, between Debtor, as assignor, and Secured Party, as assignee. "Computer Hardware and Software" means all of Debtor'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 Debtor, at any time, in the operation of such computer equipment and hardware, including all software, all of Debtor'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 Debtor's use, at any time, of such computer equipment, hardware or software, and all leases pursuant to which Debtor leases any computer equipment, hardware or software. "Equipment" means all equipment (as defined in the Code) of Debtor in all of its forms, wherever located, now or hereafter existing. "GAAP" means generally accepted United States accounting principles consistently applied as in effect from time to time. "Intangibles" means (i) goodwill, organizational expenses, research and development expenses, trademarks, trade names, copyrights, patents, patent applications, licenses, franchises, 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 or 3 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 Debtor, 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 Debtor's business, and all additions and accessions to such property, (ii) goods in which Debtor 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 Debtor and all accessions thereto and products thereof. "Lien" means any mortgage, pledge, lien, claim, charge, encumbrance, security interest, conditional sale or title retention agreement, easement, use restriction, covenant or reservation against or with respect to any of Debtor's property or interest in property. "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. "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. "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 Debtor, (ii) any officer or director of Debtor, and (iii) any other Person that, directly or indirectly, controls, is controlled by or is under common control with or is related to, by blood or marriage, Debtor or any Person identified in clauses (i) or (ii). "Security Documents" means this Agreement, the Collateral Assignment Lease, any financing statements and all other documents and agreements given to secure the Obligations. Section 2. Security Interest and Collateral. To secure the full, prompt and complete payment and performance when due of all indebtedness evidenced by that certain Promissory Note of even date herewith executed by the 4 Debtor, and any extension thereof or amendment thereto (collectively, the "Obligations"), the Debtor hereby irrevocably transfers, assigns, mortgages, sets over and grants to the Secured Party for security purposes, a continuing security interest (the "Security Interest") in and lien on all of the Debtor's right, title and interest in, to the Collateral, regardless of where located. Debtor 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 Purchase Agreement Documents. Secured Party acknowledges and agrees that in addition to any rights of the Debtor under the Transaction Documents and applicable law, any amounts owing to Debtor from either of the Sellers under any of the Transaction Documents may be offset and applied toward the payment of the Obligations, whether or not the Obligations, or any part thereof, shall be due and payable. Section 3. Representations and Warranties of the Debtor. The Debtor hereby represents and warrants to the Secured Party (which representations and warranties shall survive for so long as any part of the Obligations is outstanding) as follows: (a) No Other Encumbrances; No Filings By Third Parties. There is no security agreement or chattel mortgage, other than this Agreement, in each case entered into by Debtor and covering the Collateral and no financing statements naming the Debtor as debtor covering the Collateral have been filed with the Secretary of State or corresponding agency for the state of Alabama. The Debtor will not execute any financing statement or other public notice or recording covering the Collateral (other than any financing statement or other public notice or recording naming Secured Party as the secured party therein or as otherwise permitted under this Agreement) so long as any of the Obligations are outstanding. (b) Corporate Authority. The Debtor has full right, power and authority to assign and grant a continuing security interest in the Collateral to the Secured Party. The making and performance of this Agreement are within the corporate powers of the Debtor and have been duly authorized by all necessary corporate action on the part of the Debtor. This Agreement constitutes a legal, valid and binding obligation of the Debtor enforceable against Debtor in accordance with its 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). The Debtor's chief executive office within the meaning of the Code is located in Portland, Oregon. The Collateral is located in Birmingham, Alabama. (c) Security Interest. The grant of the security interest in the Collateral pursuant to this Agreement creates a valid security interest in the Collateral, enforceable against Debtor and securing payment of the Obligations (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). 5 Section 4. Covenants of the Debtor. The Debtor hereby agrees as follows: (a) Ownership and Possession of the Collateral. (1) Title to and ownership of the Collateral shall be and remain exclusively in Debtor and Debtor shall not transfer the Collateral out of the State of Alabama without prior written notice to Secured Party. Debtor agrees that Collateral not in the location identified above shall nevertheless remain subject to Secured Party's first priority security interest. (2) Debtor agrees not to change the location of its chief executive offices without prior written notice to Secured Party. Upon request by Secured Party, Debtor shall confirm to Secured Party the location of the Collateral. (b) Change in Debtor's Name or Corporate Structure. Debtor will not change its name, identity or corporate structure (including, without limitation, any merger, consolidation or sale of substantially all of its assets) without notifying Secured Party of such change in writing at least thirty (30) days prior to the effective date of such change. (c) Documents; Collateral in Possession of Third Parties. If certificates of title or other documents evidencing ownership or possession of the Collateral are issued or outstanding, upon the request of the Secured Party, Debtor will cause the interest of Secured Party to be properly noted thereon and will, forthwith upon receipt, deliver same to Secured Party. If any Collateral is at any time in the possession or control of any warehouseman, bailee, agent or independent contractor, upon the request of the Secured Party, Debtor shall notify such person or entity of Secured Party's security interest in such Collateral. Upon Secured Party's request, Debtor shall instruct any such person or entity to hold all such Collateral for Secured Party's account subject to Debtor's instructions, or, if an Event of Default has occurred hereunder, shall have occurred and be continuing, subject to Secured Party's instructions. (d) Maintenance of Existence. Debtor will maintain Debtor's corporate existence and remain in good standing and qualified to do business in all jurisdictions pursuant to the laws of which it is so required. (e) Sale, Disposition or Encumbrance of Collateral. Without Secured Party's prior written consent, Debtor will not sell, assign, lend, rent, lease or otherwise dispose of or transfer Collateral to or in favor of any person or entity other than Secured Party except in Debtor's ordinary course of business. (f) Maintenance. Debtor, at its own cost and expense, shall service, repair, maintain, overhaul, replace, test or cause the same to be done to each item of Equipment and Computer Hardware and Software used or useful 6 in connection with the Alabama Project so as to keep such items in as good an operating condition, repair and appearance as it was on the date of this Agreement, ordinary wear and tear excepted. (g) Event of Loss with Respect to the Alabama Project and Collateral. Upon the occurrence of an event of loss with respect to the Alabama Project or the Collateral, Debtor shall forthwith (and in any event within ten (10) days after such occurrence) give Secured Party written notice of such event of loss. (h) Fees and Taxes. The Debtor shall pay when due all fees, taxes, recording fees and other governmental charges levied against the Alabama Project and the Collateral or incurred by the Secured Party in connection with the recording of this Agreement or otherwise perfecting the Security Interest. Section 5. Application of Insurance Proceeds. All insurance proceeds (other than proceeds from policies carried by Secured Party which shall be paid directly to Secured Party or its assignees) received as the result of the occurrence of an event of loss with respect to the Alabama Project or Collateral will be applied at Debtor's option either (a) in reduction of Debtor's Obligations under the Promissory Note and the Transaction Documents, subject, however, to the Debtor's set off rights described in Section 2 hereof and in the Promissory Note, or (b) to the replacement of Collateral or rebuilding of the Alabama Project, with any remaining balance to be paid to Debtor. Section 6. Other Insurance. Nothing shall prohibit Secured Party or any other Additional Insured from insuring the Alabama Project and the Collateral at its own expense. Section 7. Application of Payments from Governmental Authorities for Requisition of Title. Any payments (other than insurance proceeds) received at any time by Secured Party or Debtor from any governmental authority or other entity with respect to condemnation, confiscation, theft or seizure of, or requisition of title to or use of the Alabama Project or Collateral, shall be applied either (a) in reduction of Debtor's obligations under the Promissory Note, subject, however, to the Debtor's set off rights described in Section 2 hereof and in the Promissory Note or (b) to the replacement of Collateral or rebuilding of the Alabama Project, with any remaining balance to Debtor. Section 8. Inspection. The Secured Party may inspect the Alabama Project or the Collateral and the Debtor's books and records (and make copies thereof or extracts therefrom) concerning its financial condition at any reasonable time and upon reasonable notice from time to time during regular business hours, whether or not the Debtor is in default under the Agreement. Section 9. Default. Each of the following occurrences shall constitute an event of default under this Agreement (an "Event of Default"): 7 (a) Debtor fails to pay any Obligations when due and payable; and such failure continues for thirty (30) days after written notice from the Secured Party to the Debtor thereof; provided, however, that such failure to pay shall not constitute an Event of Default at any time that it results from at any time the Secured Party (or any affiliate thereof) is in default of its obligations under other Transaction Document, the withholding or application in set off of any amount otherwise due and payable with respect to the Obligations by the Debtor against amounts owed by the Secured Party (or any affiliate thereof) under any other Transaction Document; (b) Failure of the Debtor to perform any of its covenants or agreements contained in this Agreement and such failure continues for thirty (30) days after written notice from the Secured Party to the Debtor; provided, however, that such failure to pay shall not constitute an Event of Default at any time that it results from at any time the Secured Party (or any affiliate thereof) is in default of its obligations under other Transaction Document, the withholding or application in set off of any amount otherwise due and payable with respect to the Obligations by the Debtor against amounts owed by the Secured Party (or any affiliate thereof) under any other Transaction Document; or (c) Any representation or warranty by the Debtor set forth in this Agreement shall prove false or misleading in any material respect. The Debtor shall promptly notify the Secured Party in writing (i) upon becoming aware of the occurrence of an Event of Default or event that with notice or lapse of time or otherwise would become an Event of Default, and (ii) of any occurrence of which it becomes aware which might have a material adverse effect on its ability to perform its obligations under this Agreement, the Purchase Agreement Documents or the Promissory Note. Section 10. Remedies. Upon the occurrence of any Event of Default and at any time thereafter, so long as the same shall be continuing, the Secured Party may exercise any one or more of the following rights or remedies: (a) exercise and enforce any and all rights and remedies available upon default pursuant to the Purchase Agreement Documents; (b) exercise and enforce any and all rights and remedies available upon default to a secured party under the Uniform Commercial Code as in effect in the States of Utah and Alabama or any other applicable jurisdiction, and the Secured Party is hereby granted the right to enter upon any property of the Debtor, without a hearing or prior notice thereof, for the purpose of taking possession of the Collateral; or (c) exercise or enforce any and all other rights and remedies available to the Secured Party by law or agreement against the Collateral, against the Debtor or against any other Person or property. If notice to the Debtor of any intended disposition of the Collateral or any other intended action is required by law in a particular instance, such notice shall be deemed commercially reasonable if given (in the manner specified in this Agreement) at least ten (10) calendar days prior to the date of intended disposition or other action. The Secured Party may require the Debtor to return (at the Debtor's expense) the Collateral to any point within the United States designated by the Secured Party. 8 Section 11. Cure Rights. If the Debtor at any time fails to perform or observe any agreement contained herein, and if such failure shall continue for a period of thirty (30) calendar days after the Secured Party gives the Debtor written notice thereof, the Secured Party may, but shall not be obligated to, without further notice or demand on the Debtor, and without releasing the Debtor from any of the Obligations, perform or observe such agreement on behalf and in the name, place and stead of the Debtor (or, at the Secured Party's option, in the Secured Party's own name) and take any and all other actions which the Secured Party may deem necessary to cure or correct such failure, including the payment of taxes, the satisfaction of security interests, Liens, attachments or encumbrances, the procurement and maintenance of insurance, and the procurement of repairs or transportation, subject, however, to the terms of the other Transaction Documents. The Secured Party shall have the right to appear in and defend any action or proceeding purporting to affect the security interest or the rights or powers of the Secured Party hereunder and in the Purchase Agreement Documents. The Debtor shall indemnify and hold the Secured Party harmless from and against, any and all losses, liabilities, claims and causes of action arising from or in connection with the Secured Party's actions in the stead of the Debtor and the Debtor shall thereupon pay the Secured Party on demand the amount of all moneys expended and all reasonable costs and expenses (including attorneys' fees) incurred by the Secured Party in connection with or as a result of the Secured Party's performing or observing such agreements or taking such action, together with interest thereon from the date expended or incurred by the Secured Party at twelve percent (12%) per annum. Section 12. Secured Party's Costs and Expenses. In addition to other amounts payable hereunder, the Debtor will (whether or not legal proceedings are commenced) pay to the Secured Party, on demand, all reasonable costs and expenses (including attorneys' fees and legal expenses) paid or incurred by the Secured Party in connection with an Event of Default, including any suit to collect the Obligations. Section 13. Purchase Money Equipment Security Interest. Debtor and Secured Party agree and stipulate that this is a "purchase money security interest" as such term is used in the Code. Section 14. Successors; Governing Law. This Agreement shall be binding upon and inure to the benefit of the Debtor, the Secured Party and their respective successors and permitted assigns. This Agreement shall be governed by the substantive laws of the State of Utah, without giving effect to any choice of law or conflict of law provisions or rules that would cause the application of laws of any jurisdiction other than the State of Utah. Unless the context otherwise requires, all terms used herein which are defined in Articles 1 and 9 of the Uniform Commercial Code, as in effect in the State of Utah, shall have the meanings therein stated. If any provision or application of this Agreement is held unlawful or unenforceable in any respect, such illegality or unenforceability shall not affect other provisions or applications which can be given effect, and this Agreement shall be construed as if the unlawful or unenforceable provision or application had never been contained herein or 9 prescribed hereby. All representations and warranties contained in this Agreement shall survive the execution, delivery and performance of this Agreement and the creation and payment of the Obligations. Section 15. Notices. All notices to the Secured Party and the Debtor shall be given in accordance with the notice provisions set forth in the Purchase Agreement. Section 16. Further Assurances. The Debtor will defend the security interest of the Secured Party against all Persons, other than the Secured Party, at its own expense and from time to time shall execute and deliver to the Secured Party, and file all such instruments and take all such actions as the Secured Party may reasonably request in order to preserve and protect such security interest, to effectuate the purpose of this Agreement and the Purchase Agreement Documents or to carry out the terms hereof, including the execution and filing of financing statements or continuation statements under the Code. The Debtor hereby authorizes the Secured Party to file this Agreement or any such financing statements or continuation statements under the Code with respect to the Collateral with any appropriate governmental office in order to preserve, protect, perfect or continue the perfection of any and all security interests granted or created hereby. Section 17. Miscellaneous. This Agreement can be waived, modified, amended or terminated, and the security interest of the Secured Party can be released, only explicitly in a writing signed by the Secured Party and the Debtor. A waiver signed by the Secured Party shall be effective only in the specific instance and for the specific purpose given. Mere delay or failure to act shall not preclude the exercise or enforcement of any of the Secured Party's rights or remedies. All rights and remedies of the Secured Party shall be cumulative and may be exercised singularly or concurrently, at the Secured Party's option, and the exercise or enforcement of any one such right or remedy shall neither be a condition to nor bar the exercise or enforcement of any other right or remedy. The Secured Party shall not be obligated to realize on the Collateral at all or in any particular manner or order, or to apply any cash proceeds therefrom in any particular order of application. Section 18. Power of Attorney. The Debtor hereby irrevocably appoints the Secured Party as its true and lawful attorney-in-fact upon the occurrence of an Event of Default with full power, in the name of the Debtor or otherwise, for the purpose of (i) taking any action that the Secured Party may deem necessary or appropriate to preserve, protect, perfect and continue the perfection of the Secured Party's security interest in the Collateral; and (ii) enabling the Secured Party to sell, assign, transfer or dispose of the Collateral, including, without limitation, executing and delivering all bills of sale, assignments and other instruments as the Secured Party may consider necessary or appropriate, with full power of substitution, upon an Event of Default. Section 19. Consent to Jurisdiction and Venue. Debtor and Secured Party consent to personal jurisdiction, waive any objection as to jurisdiction or venue and agree not to assert any defenses based on lack of 10 jurisdiction or venue, in the County of Salt Lake, Utah. Service of process on Debtor or Secured Party in any action arising out of or relating to this Agreement shall be effective if mailed to such party at the address listed in the Purchase Agreement. Section 20. Mutual Waiver of Jury Trial. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT. Section 21. Pronouns and Certain Other Terms. All pronouns (and any variation) will be deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the Person may require. The words "and" and "or" will include the conjunctive and disjunctive, as the context requires. The word "include" and derivatives of that word are used in an illustrative sense and not a limiting sense unless specifically indicated. 11 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date set forth above. COVOL TECHNOLOGIES, INC. /s/ Brent M. Cook By: Brent M. Cook Attest: Title: President /s/ C. Parkinson Lloyd By: C. Parkinson Lloyd Title: Attorney, Ballard Spahr Andrews & Ingersoll, LLP ALABAMA SYNFUEL #1 LTD. by its corporate general partner ---------------------------- /s/ Brent M. Cook By: Brent M. Cook Attest: Title: President - Covol Technologies /s/ C. Parkinson Lloyd By: C. Parkinson Llyod Title: Attorney, Ballard Spahr Andrews & Ingersoll, LLP BIRMINGHAM SYNFUEL, L.L.C. /s/ Reynold Roeder By: Reynold Roeder Attest: Title: Vice President /s/ Gary R. Barnum By: Gary R. Barnum Title: Stoel Rives 12 STATE OF UTAH ) )ss: COUNTY OF SALT LAKE ) I, the undersigned authority, a Notary Public in and for said County, in said State, hereby certify that Reynold Roder, whose name as Vice President of Birmingham Syn Fuel, LLC, an Oregon limited liability company, is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the contents of the instrument, he, as such officer and with full authority, executed the same voluntarily for and as the act of said corporation. Given under my hand and official seal, this the 20th day of February, 1998. /s/ Stacey A. Kamaya Notary Public STATE OF UTAH ) )ss: COUNTY OF SALT LAKE ) I, the undersigned authority, a Notary Public in and for said County, in said State, hereby certify that Brent M. Cook, whose name as President (of Its General Partner) of Alabama Synfuel #1, Ltd., a Delaware limited partnership, is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the contents of the instrument, he, as such officer and with full authority, executed the same voluntarily for and as the act of said corporation. Given under my hand and official seal, this the 20th day of February, 1998. /s/ Stacey A. Kamaya Notary Public 13 STATE OF UTAH ) )ss: COUNTY OF SALT LAKE ) I, the undersigned authority, a Notary Public in and for said County, in said State, hereby certify that Brent M. Cook, whose name as President of Covol Technologies, Inc., a Delaware corporation, is signed to the foregoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the contents of the instrument, he, as such officer and with full authority, executed the same voluntarily for and as the act of said corporation. Given under my hand and official seal, this the 20th day of February, 1998. /s/ Stacey A. Kamaya Notary Public 14 -----END PRIVACY-ENHANCED MESSAGE-----