ABANDONMENT OPTION AGREEMENT
UTAH PROJECT
THIS ABANDONMENT OPTION AGREEMENT (this "Agreement"), dated as of March
7, 1997, between AJG Financial Services, Inc., a Delaware corporation and Square
D Company, a Delaware corporation (not individually but collectively, "Option
Holders"), on the one hand, and Covol Technologies, Inc., a Delaware corporation
("Covol"), on the other hand.
WHEREAS, Option Holders are the limited partners of Coaltech No. 1
L.P., a Delaware limited partnership ("Coaltech").
WHEREAS, Reference is made to that certain Utah Project Purchase
Agreement, dated March 7, 1997, (the "Purchase Agreement") by and between Covol
and Utah Synfuel, as Sellers, on the one hand, and Coaltech, 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 Utah 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 Put Option. Covol hereby grants to Option Holders a put
option (the "Option") to require Covol to purchase and acquire from Option
Holders, for the purchase price (the "Option Price") and on the terms and
conditions hereinafter set forth, all (but not less than all) of the limited
partnership interests ("Interests") owned by Option Holders in Coaltech at the
time of the closing of the transaction contemplated hereby ("Abandonment Option
Closing"):
2. Exercise of Put Option. The Option may only be exercised as follows:
(a) The Option may only be exercised during an 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) All of the Option Holders shall be unable to
utilize all of the federal income tax credits under Section 29
of the 1986 Code which are contemplated to be allocated to
such limited partner pursuant to Section 4.1(a) of the
Agreement of Limited Partnership of Coaltech No. 1 L.P. dated
March 7, 1997, by and among the partners of Coaltech (the
"Partnership Agreement") and as in effect on the date hereof,
including without limitation any such credits attributable to
any period after December 31, 2007 for which, as a result of
one or more amendments to the 1986 Code, such credits are
available (the "Intended Allocation");
(ii) The economic benefits or effects (required
capital contributions, imposition of liability, allocations of
profits, losses, deductions or credits, tax characterizations
of any such items, and distributions of cash or other
property) accruing to or experienced by all of Coaltech's
limited partners shall differ, in any material respect adverse
to all of the limited partners, from the economic benefits or
effects projected for all of the limited partners (or their
predecessor in interest) as set forth on the financial
projections attached hereto as Exhibit A and/or as reasonably
contemplated based on the letter agreement dated November 13,
1996 by and between Covol and Arthur J. Gallagher & Co.; or
(iii) There shall be a permanent force majeure as set
forth in Section 8.8 of the Operation and Maintenance
Agreement or a material damage or destruction as set forth in
Section 8.9 of the Operation and Maintenance Agreement.
(c) For purposes hereof, the term "Option Period" shall mean,
with respect to any particular Put Event, the period beginning on the
first Business Day immediately succeeding the date on which Coaltech's
limited partners shall have actual knowledge of such Put Event and
ending 180 days thereafter.
(d) The Option shall be exercisable by irrevocable written
notice (the "Option Notice") given by the Option Holders to Covol at
any time during the Option Period. The closing date (the "Closing
Date") shall be a date, selected by Covol, not more than the later of
(i) either (A) six months after receipt by Covol of the Option Notice
or (B) three months after receipt by Covol of the Option Notice if the
closing of the purchase of the expansion production line has previously
occurred as contemplated under the Purchase Agreement or (ii) ten (10)
Business Days after receipt of the appraisal contemplated under
subclause (e) below.
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(e) If the Option is exercised prior to the third anniversary
of the date of this Agreement, then the Option Price shall be equal to
the fair market value of the Interests calculated on a going concern
basis, which shall be set by mutual agreement of the parties hereto;
provided, however, that, if the parties cannot agree on the Option
Price within fifteen (15) Business Days after the receipt by Covol of
the Option Notice, then the Option Price shall be determined as
follows:
(i) Subject to subclause (ii) hereof, the fair market
value of the Interests calculated on a going concern basis
shall be determined by an independent appraiser(s) experienced
in appraising similar projects in the United States, who shall
be mutually agreed to by the Option Holders and Covol;
provided, however, if they cannot agree within ten (10)
Business Days after the Option Notice, then the Option
Holders, 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 Interests calculated on a going
concern basis; provided, further, that if either the Option
Holders, 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
Interests calculated on a going concern basis 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 the Option Holders, 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 the Option Holders and Covol shall be bound
by any appointment so made;
(ii) If three appraisers shall be appointed as
contemplated under subclause (i) 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 the Option
Holders and Covol; otherwise, the average of all three
determinations shall be final and binding upon the Option
Holders and Covol;
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(iii) The expenses of the appraisal procedure shall
be borne equally by Covol and the Option Holders.
Provided, however, the Option Price under this Section 2(e) in no event
exceed 50% of the Capital Contributions made by the Option Holders to
Coaltech pursuant to Section 3.2(a) and Section 3.2(b) of this
Partnership Agreement exclusive of Capital Contributions necessary to
fund the payments under the Non-Negotiable, Non-Recourse Promissory
Note, the Earned License Fee under the License and Binder Purchase
Agreement and the payments of to Geocapital, Inc.
(f) If the Option is exercised on or after the third
anniversary of the date of this Agreement, then the Option Price shall
be Ten Dollars ($10) and the Option Holders will not be entitled to any
further payment hereunder.
(g) On the Closing Date, Covol shall pay to the Option
Holders the Option Price.
3. Delivery of Interests. Upon payment in full of the Option
Price the Option Holders shall transfer to Covol all of the Interests by
appropriate assignment.
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) The parties acknowledge that each party and its counsel
has materially participated in the drafting of this Agreement and the
Transaction Documents; consequently, the rule of contract
interpretation, that ambiguities, if any, in a writing be construed
against the drafter, shall not apply.
(b) 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) The parties intend that this Agreement shall be governed
by and construed in accordance with the laws of the State of Utah
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applicable to contracts made and wholly performed within Utah by
persons domiciled in Utah (without regard to choice of law rules).
(d) 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) 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.
7. Integration; Amendment. This Agreement 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 Utah Transaction Documents expressly referred to
herein. This Agreement supersedes 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; Attorneys' Fees.
(a) Each party shall bear its own expenses in connection
with the transactions contemplated by this Agreement.
(b) 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.
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10. Binding Effect. 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.
11. 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.
12. Assignment. Neither party may assign its interest in this Agreement
without the prior written consent of the other party except that: (i) Covol may
assign its interest in this Agreement to a subsidiary at least eighty percent
(80%) owned by Covol, provided such assignment will not release Covol of its
obligations hereunder, and (ii) the Option Holders (or either of them) may
assign its interest hereunder in connection with a transfer of all or part of
its respective Interests made in accordance with the Partnership 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: CEO/President
AJG FINANCIAL SERVICES, INC.
By: /s/ David R. Long_____________
Name: David R. Long
Title: Vice President
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SQUARE D COMPANY
By: /s/ William P. Brink__________
Name: William P. Brink
Title: Vice President and Chief Financial
Officer
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