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.
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(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
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any liens. EXCEPT AS EXPRESSLY SET FORTH IN THE IMMEDIATELY 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 of the act or event from which the
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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 harmless against all sales, use,
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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.
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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:
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Name:
Title:
ALABAMA SYNFUEL #1, LTD.
By:
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Name:
Title:
PACIFICORP FINANCIAL SERVICES, INC.
By:
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Name:
Title:
BIRMINGHAM SYN FUEL I, INC.
By:
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Name:
Title:
BIRMINGHAM SYN FUEL II, INC.
By:
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Name:
Title:
