UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
August 19, 1997
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
diction of incorporation) Number) 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)
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Item 5. Other Events
Private Placement of Preferred Stock and Warrants
On August 19, 1997, and in reliance on Section 4(2) and Regulation D
("Regulation D") of the Securities Act of 1933, as amended, Covol Technologies,
Inc. (the "Company") privately sold 3,000 Units to an "accredited investor," as
that term is defined under Rule 501 of Regulation D, for an aggregate purchase
price of $3,000,000. Each Unit consisted of (i) one share of the Company's
Series A 6% Convertible Preferred Stock, par value $.001 per share (the
"Preferred Stock"), and (ii) a warrant to acquire 28.571 shares of Company
common stock, par value $.001 per share (the "Common Stock") at a price of $8.00
per share. The purchase price for each Unit was $1,000. The Warrant is
exercisable at any time on or before August 31, 1999.
The Preferred Stock sold as part of a Unit was issued pursuant to the
terms of a Certificate of Designation filed with the Delaware Secretary of State
and included in this Current Report on Form 8-K as Exhibit 3.1.2. (the
"Certificate of Designation"). Under the Certificate of Designation, the
Preferred Stock (i) accrues dividends on a daily basis at a rate of 6% per annum
on the liquidation value ($1,000) of each share from the date of issuance until
paid or converted (with no compounding of dividends being authorized) payable
semi-annually in the discretion of the Company, (ii) is redeemable by the
Company at any time after 30 days' written notice, (iii) has no voting rights
unless specifically authorized by the Delaware General Corporate Law, (iv) is
convertible at any time by the holder into Common Stock at a conversion price of
$7.00 per share, and (v) is convertible by the Company at any time after August
31, 1999 after 30 days' written notice. Further, the Certificate of Designation
provides for certain anti-dilution protection to the holder of the Preferred
Stock if (i) certain dividends are distributed on the Common Stock, (ii) a
subdivision, combination or reclassification of the outstanding Common Stock
occurs or (iii) a reorganization event (such as a consolidation, merger, sale of
substantially all assets or a statutory exchange) occurs. Similar anti-dilution
protection was also granted to the shares of Common Stock issuable under the
Warrant.
The Units were privately placed pursuant to the terms of a Preferred
Stock Purchase Agreement, dated August 19, 1997 (the "Purchase Agreement"),
between the Company and the accredited investor. Under the Purchase Agreement,
the Company agreed (i) to use its best efforts to create a vacancy on the
Company's Board of Directors for a term to expire on the date of the next annual
meeting of the stockholders of the Company, (ii) to submit to the Board of
Directors, for their consideration, the appointment of a representative of the
accredited investor to fill the vacancy referred to in clause (i) above, (iii)
to demand registration rights for any person owning at least 50% of the Common
Stock issued or issuable upon conversion of the Preferred Stock and exercise of
the Warrant (such shares are referred to herein as "Converted Shares") at any
time prior to August 31, 1998 subject to the rights of any other holder of
Common Stock previously granted demand registration rights, and (iv) to
piggyback registration rights for the Converted Shares.
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Appointment of New Director to Fill Existing Vacancy
Effective August 19, 1997, the Board of Directors of the Company
appointed James A. Herickhoff as a new director to fill the vacancy resulting
from the resignation of Joe K. Johnson. This appointment is unrelated to the
discussion contained above regarding the private placement of Units. Set forth
below is a biographical summary of Mr. Herickhoff.
Mr. Herickhoff is and has been a corporate consultant since 1994, and
from 1987 to 1994 was the former President of Atlantic Richfield Company's
Thunder Basin Coal Company. Mr. Herickhoff has over 25 years of experience in
the coal and mining industries and extensive experience in strategic positioning
of these companies for long-term growth and competitiveness. Mr. Herickhoff led
the growth of the Black Thunder and Coal Creek coal mines from 19 million to
approximately 40 million tons per year of production. Mr. Herickhoff previously
served as President of Mountain Coal Company, managing all of the ARCO's
underground mining and preparation plants. Mr. Herickhoff is the past President
of the Wyoming Mining Association and a former Board member of the Colorado and
Utah Mining Associations. Mr. Herickhoff received his Bachelor degree in 1964
from St. John's University, a Master of Science degree in 1966 from St. Cloud
State University, and attended the Kellogg Executive Management Institute at
Northwestern University in 1986.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired.
Not applicable.
(b) Pro Forma Financial Information.
Not applicable.
(c) Exhibits.
Listed below are the exhibits furnished in accordance with
Item 601 of Regulation S-K.
3.1.2. Certificate of Designation, Number, Voting Powers,
Preferences and Rights of the Company's Series A 6%
Convertible Preferred Stock
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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/ Stanley M. Kimball
Date: August 19, 1997 --------------------------------
By: Stanley M. Kimball
Title: Chief Financial Officer
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Certificate of Designation, Number, Voting Powers,
Preferences and Rights of the Series of the Preferred Stock
of
COVOL TECHNOLOGIES, INC.
To be Designated
Series A 6% Convertible Preferred Stock
Covol Technologies, Inc., a Delaware corporation (the "Corporation"),
pursuant to authority conferred on the Board of Directors of the Corporation by
its Certificate of Incorporation, as amended, and in accordance with the
provisions of Section 151 of the General Corporation Law of Delaware ("DGCL"),
certifies that the Board of Directors of the Corporation, at a meeting duly
called and held pursuant to Section 141 of the DGCL, duly adopted the following
resolution providing for the establishment and issuance of a series of Preferred
Stock to be designated as "Series A 6% Convertible Preferred Stock" and to
consist of 3,000 shares as follows:
RESOLVED, that, pursuant to the authority expressly granted and vested
in the Board of Directors of this Corporation in accordance with the provisions
of its Certificate of Incorporation, as amended, a series of Preferred Stock of
the Corporation be and hereby is established, consisting of 3,000 shares, to be
designated as "Series A 6% Convertible Preferred Stock" (the "Series A 6%
Preferred"); the Board of Directors be and hereby is authorized to issue such
shares of Series A 6% Preferred Stock from time to time and for such
consideration and on such terms as the Board of Directors shall determine; and
subject to the limitations provided by law and by the Certificate of
Incorporation, as amended, the powers, designations, preferences and relative,
participating, option or other special rights of, and the qualifications,
limitations or restrictions upon, the Series A 6% Preferred Stock shall be as
follows:
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Section 1. Definitions.
"Common Stock" means, collectively, the Corporation's common stock, par
value $.001 per share.
"Conversion Stock" means shares of the Corporation's Common Stock;
provided that if there is a change such that the securities issuable upon
conversion of the Series A 6% Preferred are issued by an entity other than the
Corporation or there is a change in the class of securities so issuable, then
the term "Conversion Stock" shall mean one share of the security issuable upon
conversion of the Series A 6% Preferred if such security is issuable in shares,
or shall mean the smallest unit in which such security is issuable if such
security is not issuable in shares.
"Junior Securities" means any of the Corporation's Common Stock.
"Liquidation Value" of any Share (as defined in Section 2A hereof) as
of any particular date shall be equal to $1,000.
"Market Price" of any security means the average of the closing prices
of such security's sales on all securities exchanges on which such security may
at the time be listed, or, if there has been no sales on any such exchange on
any day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or, if on any day such security is not so
listed, the average of the representative bid and asked prices quoted in the
NASDAQ System as of 4:00 P.M., New York time, or, if on any day such security is
not quoted in the NASDAQ System, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization,
in each such case averaged over a period of 21 days consisting of the day as of
which "Market Price" is being determined and the 20 consecutive business days
prior to such day. If at any time such security is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
"Market Price" shall be the fair value thereof determined jointly by the
Corporation and the holders of a majority of the Series A 6% Preferred. If such
parties are unable to reach agreement within a reasonable period of time, such
fair value shall be determined by an independent appraiser experienced in
valuing securities jointly selected by the Corporation and the holders of a
majority of the Series A 6% Preferred. The determination of such appraiser shall
be final and binding upon the parties, and the Corporation shall pay the fees
and expenses of such appraiser.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
"Redemption Date" as to any Share means the date specified in the
notice of any redemption at the Corporation's option or the applicable date
specified herein in the case of any other redemption; provided that no such date
shall be a Redemption Date unless the Liquidation Value of such Share (plus all
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accrued and unpaid dividends thereon) is actually paid in full on such date, and
if not so paid in full, the Redemption Date shall be the date on which such
amount is fully paid.
Section 2. Dividends.
2A. General Obligation. When and as declared by the Corporation's
Board of Directors and to the extent permitted under the General Corporation Law
of Delaware, the Corporation shall pay preferential dividends to the holders of
the Series A 6% Preferred Stock as provided in this Section. Except as otherwise
provided herein, dividends on each share of the Series A 6% Preferred (a
"Share") shall accrue on a daily basis at the rate of 6% per annum of the sum of
the Liquidation Value thereof, from and including the date of issuance of such
Share to and including the date on which the Liquidation Value of such Share is
paid or the date on which such Share is converted into shares of Conversion
Stock hereunder; provided, however, that no compounding of such dividends shall
be authorized thereon. Such dividends shall accrue whether or not they have been
declared and whether or not there are profits, surplus or other funds of the
Corporation legally available for the payment of dividends. Such dividends shall
be cumulative such that all accrued and unpaid dividends shall be fully paid or
declared with funds irrevocably set apart for payment before any dividend,
distribution or payment may be made with respect to any Junior Securities. The
date on which the Corporation initially issues any Share shall be deemed to be
its "date of issuance" regardless of the number of times transfer of such Share
is made on the stock records maintained by or for the Corporation and regardless
of the number of certificates which may be issued to evidence such Share.
2B. Dividend Reference Date. To the extent not paid semi-annually
on July 1 and December 1 of each year, commencing on the first semi-annual date
following the date of issuance, all dividends which have accrued on each Share
outstanding during the six month period (or other period in the case of the
initial Dividend Reference Date) ending upon each such Dividend Reference Date
shall be accumulated and shall remain accumulated dividends with respect to such
Share until paid.
2C. Distribution of Partial Dividend Payments. Except as otherwise
provided herein, if at any time the Corporation pays less than the total amount
of dividends then accrued with respect to the Series A 6% Preferred, such
payment shall be distributed ratably among the holders thereof based upon the
number of Shares held by each such holder.
2D. Payment of Stock Dividends. In the sole discretion of the
Corporation, any dividends accruing on Shares of Series A 6% Preferred may be
paid in lieu of cash dividends by the issuance of additional Shares of Series A
6% Preferred (including fractional Shares) having an aggregate Liquidation Value
at the time of such payment equal to the amount of the dividend to be paid;
provided that if the Corporation pays less than the total amount of dividends
then accrued on the Series A 6% Preferred in the form of additional Shares, such
payment in Shares shall be made pro rata to the holders of Series A 6% Preferred
based upon the aggregate accrued but unpaid dividends on the Shares of Series A
6% Preferred held by each such holder.
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Section 3. Liquidation.
Upon any liquidation, dissolution or winding up of the Corporation,
each holder of Series A 6% Preferred shall be entitled to be paid, before any
distribution or payment is made upon any Junior Securities, an amount in cash
equal to the aggregate Liquidation Value (plus all accrued and unpaid dividends)
of all Shares held by such holder, and the holders of Series A 6% Preferred
shall not be entitled to any further payment. If upon any such liquidation,
dissolution or winding up of the Corporation, the Corporation's assets to be
distributed among the holders of the Series A 6% Preferred are insufficient to
permit payment to such holders of the aggregate amount which they are entitled
to be paid, then the entire assets to be distributed shall be distributed
ratably among such holders based upon the aggregate Liquidation Value (plus all
accrued and unpaid dividends) of the Series A 6% Preferred held by each such
holder. Prior to the liquidation, dissolution or winding up of the Corporation,
the Corporation shall declare for payment all accrued and unpaid dividends with
respect to the Series A 6% Preferred. The Corporation shall mail written notice
of such liquidation, dissolution or winding up, not less than 60 days prior to
the payment date stated therein, to each record holder of Series A 6% Preferred.
Neither the consolidation or merger of the Corporation into or with any other
entity or entities, nor the sale or transfer by the Corporation of less than
substantially all of its assets, nor the reduction of the capital stock of the
Corporation, shall be deemed to be a liquidation, dissolution or winding up of
the Corporation within the meaning of this Section.
Section 4. Redemption.
4A. Optional Redemptions. The Corporation may at any time redeem all
or any portion of Series A 6% Preferred then outstanding. On any such
redemption, the Corporation shall pay a price per Share equal to the Liquidation
Value thereof plus all accrued and unpaid dividends thereon.
4B. Redemption Payment. For each Share which is to be redeemed, the
Corporation shall be obligated on the Redemption Date to pay to the holder
thereof (upon surrender by such holder at the Corporation's principal office of
the certificate representing such Share) an amount in immediately available
funds equal to the Liquidation Value of such Share (plus all accrued and unpaid
dividends thereon). If the funds of the Corporation legally available for
redemption of Shares on any Redemption Date are insufficient to redeem the total
number of Shares to be redeemed on such date, those funds which are legally
available shall be used to redeem the maximum possible number of Shares ratably
among the holders of the Shares to be redeemed based upon the aggregate
Liquidation Value of such Shares (plus all accrued and unpaid dividends thereon)
held by each such holder. At any time thereafter when additional funds of the
Corporation are legally available for the redemption of Shares, such funds shall
immediately be used to redeem the balance of the Shares which the Corporation
has become obligated to redeem on any Redemption Date but which it has not
redeemed.
4C. Notice of Redemption. The Corporation shall mail written notice
of each redemption of any Series A 6% Preferred to each record holder thereof
not more than 60 nor less than 30 days prior to the date on which such
redemption is to be made. Irrespective of mailing any notice of redemption which
relates to a redemption at the Corporation's option, the Corporation shall
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not become obligated to redeem the total number of Shares specified in such
notice at the time of redemption specified therein if such notice contains
conditions precedent which must be satisfied prior to redemption. In case fewer
than the total number of Shares represented by any certificate are redeemed, a
new certificate representing the number of unredeemed Shares shall be issued to
the holder thereof without cost to such holder within ten (10) business days
after surrender of the certificate representing the redeemed Shares.
4D. Determination of the Number of Each Holder's Shares to be
Redeemed. Except as otherwise provided herein, the number of Shares of Series A
6% Preferred to be redeemed from each holder thereof in redemptions hereunder
shall be the number of Shares determined by multiplying the total number of
Shares to be redeemed times a fraction, the numerator of which shall be the
total number of Shares then held by such holder and the denominator of which
shall be the total number of Shares then outstanding.
4E. Dividends After Redemption Date. No Share is entitled to any
dividends accruing after the date on which the Liquidation Value of such Share
(plus all accrued and unpaid dividends thereon) is paid to the holder thereof.
On such date all rights of the holder of such Share shall cease, and such Share
shall not be deemed to be outstanding.
4F. Redeemed or Otherwise Acquired Shares. Any Shares which are
redeemed or otherwise acquired by the Corporation shall be cancelled and shall
be deemed to be undesignated authorized and unissued preferred shares.
4G. Other Redemptions or Acquisitions. The Corporation shall not
redeem or otherwise acquire any Series A 6% Preferred, except as expressly
authorized herein or pursuant to a purchase offer made pro-rata to all holders
of Series A 6% Preferred on the basis of the number of Shares owned by each such
holder.
4H. Accrued Dividends Must be Paid Prior to Any Redemption. The
Corporation may not redeem any Series A 6% Preferred, unless all dividends
accrued on the outstanding Series A 6% Preferred through the immediately
preceding Dividend Reference Date have been paid in full.
Section 5. Voting Rights. The Series A 6% Preferred shall have
no voting rights unless specifically authorized by the DGCL.
Section 6. Conversion.
6A. Conversion Procedure.
(i) At any time and from time to time, any holder of Series A
6% Preferred may convert all or any portion of the Series A 6% Preferred
(including any fraction of a Share) held by such holder into a number of shares
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of Conversion Stock computed by multiplying the number of Shares to be converted
by $1,000 and dividing the result by the Conversion Price then in effect.
(ii) Each conversion of Series A 6% Preferred shall be deemed
to have been effected as of the close of business on the date on which the
certificate or certificates representing the Series A 6% Preferred to be
converted have been surrendered at the principal office of the Corporation. At
such time as such conversion has been effected, the rights of the holder of such
Series A 6% Preferred as such holder shall cease and the Person or Persons in
whose name or names any certificate or certificates for shares of Conversion
Stock are to be issued upon such conversion shall be deemed to have become the
holder or holders of record of the shares of Conversion Stock represented
thereby.
(iii) The conversion rights of any Share subject to redemption
hereunder shall terminate on the Redemption Date for such Share unless the
Corporation has failed to pay to the holder thereof the Liquidation Value
thereof (plus all accrued and unpaid dividends thereon).
(iv) As soon as possible after a conversion has been effected
(but in any event within ten (10) business days), the Corporation shall deliver
to the converting holder:
(a) a certificate or certificates representing the
number of shares of Conversion Stock issuable by reason of such
conversion in such name or names and such denomination or denominations
as the converting holder has specified;
(b) payment in an amount equal to all accrued
dividends with respect to each Share converted, which have not been
paid prior thereto, plus the amount payable under subparagraph (ix)
below with respect to such conversion; provided, however, that such
accrued dividends may, at the Corporation's option, be converted into
an additional number of shares of Conversion Stock by dividing the
amount of unpaid dividends by the Conversion Price; and
(c) a certificate representing any Shares of Series A
6% Preferred which were represented by the certificate or certificates
delivered to the Corporation in connection with such conversion but
which were not converted.
(v) If the Corporation is not permitted under applicable law
to pay any portion of the accrued dividends on the Series A 6% Preferred being
converted, the Corporation may (i) pay such dividends to the converting holder
as soon thereafter as funds of the Corporation are legally available for such
payment or (ii) at the Corporation's option, convert such portion of the unpaid
dividends into an additional number of shares of Conversion Stock (which will be
delivered within ten (10) business days) determined by dividing the amount of
the unpaid dividends to be applied for such purpose, by the Conversion Price.
(vi) The issuance of certificates for shares of Conversion
Stock upon conversion of Series A 6% Preferred shall be made with a nominal
transfer charge to the holders of such Series A 6% Preferred for any issuance
tax in respect thereof or other cost incurred by the Corporation in connection
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with such conversion and the related issuance of shares of Conversion Stock.
Upon conversion of each Share of Series A 6% Preferred, the Corporation shall
take all such actions as are necessary in order to insure that the Conversion
Stock issuable with respect to such conversion shall be validly issued, fully
paid and nonassessable.
(vii) The Corporation shall assist and cooperate with any
holder of Shares required to make any governmental filings or obtain any
governmental approval prior to or in connection with any conversion of Shares
hereunder (including, without limitation, making any filings required to be made
by the Corporation).
(viii) If any fractional interest in a share of Conversion
Stock would, except for the provisions of this subparagraph, be deliverable upon
any conversion of the Series A 6% Preferred, the Corporation, in lieu of
delivering the fractional share therefor, shall pay an amount to the holder
thereof equal to the Market Price of such fractional interest as of the date of
conversion.
(ix) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Conversion Stock, solely
for the purpose of issuance upon the conversion of the Series A 6% Preferred,
such number of shares of Conversion Stock issuable upon the conversion of all
outstanding Series A 6% Preferred. All shares of Conversion Stock which are so
issuable shall, when issued, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges. The Corporation shall
take all such actions as may be necessary to assure that all such shares of
Conversion Stock may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities exchange
upon which shares of Conversion Stock may be listed (except for official notice
of issuance which shall be immediately delivered by the Corporation upon each
such issuance).
(x) If the shares of Conversion Stock issuable by reason of
such conversion of Series A 6% Preferred are convertible into or exchangeable
for any other stock or securities of the Corporation, the Corporation shall, at
the converting holder's option, upon surrender of the Shares to be converted by
such holder as provided above together with any notice, statement or payment
required to effect such conversion or exchange of Conversion Stock, deliver to
such holder or as otherwise specified by such holder a certificate or
certificates representing the stock or securities into which the shares of
Conversion Stock issuable by reason of such conversion are so convertible or
exchangeable, registered in such name or names and in such denomination or
denominations as such holder has specified.
6B. Conversion Price. The Conversion Price shall be $7.00, which
price shall be subject to adjustment as set forth in Section 6E.
6C. Limitation on Conversion. Notwithstanding any other provisions
hereof, no holder of Shares shall be entitled to exercise the conversion rights
under this Section to acquire any share or shares of Common Stock if, as a
result of such conversion, such holder and its affiliates, directly or
indirectly, would own, control or have power to vote a greater quantity of
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securities of any kind issued by the Corporation than such holder and its
affiliates would be permitted to own, control or have power to vote under any
law or under any regulation, rules or other requirement of any governmental
authority at any time applicable to such holder and its affiliates. For purposes
of this paragraph, a written statement of the holder involved, to the effect
that such holder is legally entitled to exercise its conversion rights under
this Section to acquire shares of Common Stock and that such holder shall not
violate the prohibitions set forth in the preceding sentence, shall be
sufficient evidence of the legality thereof and shall obligate the Corporation
to deliver certificates representing the shares of Common Stock so purchased in
accordance with the other provisions hereof.
6D. Corporation's Option to Force Conversion. At any time after
August 31, 1999, the Corporation has the right to require any holder of the
Series A 6% Preferred to convert such Shares (including accrued and unpaid
dividends thereon) within thirty (30) days after written notice is given to such
holder at the Conversion Price stated herein.
6E. Anti-Dilution Provisions.
(a) If, at any time or from time to time after the date
hereof, the Corporation shall distribute property or assets to all holders of
Common Stock (excluding (x) dividends paid in, or distributions of, the
Corporation's capital stock for which the number of Conversion Stock receivable
hereunder shall have been adjusted pursuant to Subsection 6E(b), and (y)
dividends or distributions paid in cash if the Series A 6% Preferred is
converted into Conversion Stock within 30 days of receiving notice of such
distribution) (any of the foregoing being hereinafter in this Subsection 6E(a)
called the "Property"), then, in each such case, the Corporation shall reserve
sufficient Property for distribution upon conversion of Series A 6% Preferred so
that, in addition to the Conversion Stock to which a person owning Series A 6%
Preferred ("Holder") is entitled, the Holder will receive upon such conversion
the amount and kind of such Property which such Holder would have received if
the Holder had, immediately prior to the record date for the distribution of the
Property, converted the Series A 6% Preferred to the Conversion Stock. Notice of
each such distribution shall be given to the Holder concurrently with any notice
given to the holders of Common Stock regarding such distribution.
(b) In case the Corporation shall hereafter (i) pay a dividend
or make a distribution on its Common Stock payable in shares of capital stock,
(ii) subdivide its outstanding shares of Common Stock into a greater number of
shares, (iii) combine its outstanding shares of Common Stock into a smaller
number of shares or (iv) issue by reclassification of its Common Stock any
shares of capital stock of the Corporation, then, in any such event, the Holder
shall be entitled to receive the aggregate number and kind of shares which, if
the Holder had converted the Series A 6% Preferred to the Conversion Stock
immediately prior to the record date with respect to the dividend or
distribution or the effective date of the subdivision, combination or
reclassification, he would have been entitled to receive by virtue of such
dividend, distribution, subdivision, combination or reclassification, and the
Conversion Price shall be appropriately adjusted. Such adjustment shall be made
successively whenever any event listed above shall occur. An adjustment made
pursuant to this subsection (b) shall become effective immediately after the
record date in the case of a dividend or distribution and shall become effective
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immediately after the effective date in the case of a subdivision, combination
or reclassification. If, as a result of an adjustment made pursuant to this
subsection (b), the Holder shall become entitled to receive shares of two or
more classes of capital stock or shares of Common Stock and other capital stock
of the Corporation, then Series A 6% Preferred may thereafter be converted to
units consisting of whole number multiples of each such securities, as
designated by the Board of Directors.
(c) In case of any of the following events (each of which
shall be deemed a "Reorganization Event"): (i) any consolidation or merger to
which the Corporation is a party, other than a merger or consolidation in which
the Corporation is the continuing corporation, (ii) any sale or conveyance to
another entity of all or substantially all of the assets of the Corporation
(including a sale of all or substantially all of the assets of the Corporation
for a consideration consisting primarily of securities) or (iii) any statutory
exchange of securities with another corporation (including any exchange effected
in connection with a merger of a third party into the Corporation), the Holder
shall have the right thereafter to receive upon conversion of the Series A 6%
Preferred the kind and amount of securities, cash or other property which he
would have owned or have been entitled to receive immediately after such
Reorganization Event had such Series A 6% Preferred been converted immediately
prior to the effective date of such Reorganization Event and in any such case,
if necessary, appropriate adjustment shall be made in the application of the
provisions set forth in this Section with respect to the rights and interests
thereafter of the Holder to the end that the provisions set forth in this
Section shall thereafter correspondingly be made applicable, as nearly as may
reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Warrant. The foregoing
provisions of this Subsection shall similarly apply to successive Reorganization
Events. Notice of any Reorganization Event and of said provisions so proposed to
be made shall be mailed to the Holder not less than 30 days prior to the
effective date of such event.
(d) Notwithstanding any other provision of this Section, no
adjustment in the Conversion Price shall be required unless such adjustment
would require an increase or decrease of at least $0.05 per share of Common
Stock and no adjustment in the number of Conversion Stock issuable shall be
required if such adjustment would represent less than one percent of the number
of Conversion Stock to be so delivered; provided, however, that any adjustments
which by reason of this Subsection (d) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment, and
provided further, however, that adjustments shall be required and made in
accordance with the provisions of this Section (other than this Subsection (d))
not later than such time as may be required in order to preserve the tax-free
nature of a distribution to the Holder. All calculations under this Section
shall be made to the nearest cent or to the nearest 1/100th of a share, as the
case may be. Anything in this Section to the contrary notwithstanding, the
Corporation shall be entitled to make such reductions in the Conversion Stock,
in addition to those required by this Section, as it in its discretion shall
deem to be advisable in order that any stock dividend, subdivision of shares, or
distribution of rights to purchase stock or securities convertible or
exchangeable for stock hereafter made by the Corporation to its shareholders
shall not be taxable.
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(e) Whenever the Conversion Price is adjusted as provided in
this Section and upon any modification of the rights of the Holder in accordance
with this Section, the Corporation shall promptly prepare a certificate of the
Corporation's Chief Financial Officer, setting forth the Conversion Price and
the number of Conversion Stock after such adjustment or the effect or such
modification, a brief statement of the facts requiring such adjustment or
modification and the manner of computing the same and cause a copy of such
certificate to be mailed to the Holder.
(f) If the Board of Directors of the Corporation shall declare
any dividend or other distribution in cash with respect to the Common Stock,
other than out of earned surplus, the Corporation shall mail notice thereof to
the Holder not less than 15 days prior to the record date fixed for determining
shareholders entitled to participate in such dividend or other distribution.
Section 7. Registration of Transfer.
The Corporation shall keep at its principal office a register for the
registration of Series A 6% Preferred. Subject to compliance with applicable
securities laws, upon the surrender of any certificate representing Series A 6%
Preferred at such place, the Corporation shall, at the request of the record
holder of such certificate, execute and deliver (at the holder's expense) a new
certificate or certificates in exchange therefor representing in the aggregate
the number of Shares represented by the surrendered certificate. Each such new
certificate shall be registered in such name and shall represent such number of
Shares as is requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate, and dividends
shall accrue on the Series A 6% Preferred represented by such new certificate
from the date to which dividends have been fully paid on such Series A 6%
Preferred represented by the surrendered certificate. All transfers of Shares
shall be subject to any restrictions imposed by applicable federal and state
securities laws.
Section 8. Replacement.
Upon receipt of evidence reasonably satisfactory to the Corporation (an
affidavit of the registered holder shall be satisfactory) of the ownership and
the loss, theft, destruction or mutilation of any certificate evidencing Shares
of any of the Series A 6% Preferred, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation, or, in the case of any such mutilation upon surrender of such
certificate, the Corporation shall (at the holder's expense) execute and deliver
in lieu of such certificate a new certificate of like kind representing the
number of Shares of such class represented by such lost, stolen, destroyed or
mutilated certificate and dated the date of such lost, stolen, destroyed or
mutilated certificate, and dividends shall accrue on the Preferred Stock
represented by such new certificate from the date to which dividends have been
fully paid on such lost, stolen, destroyed or mutilated certificate.
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Section 9. Amendment and Waiver.
No amendment, modification or waiver shall be binding or effective with
respect to any provision of Sections 1 to 10 hereof without the prior written
consent of the holders of at least 51% of the Series A 6% Preferred outstanding
at the time such action is taken; provided that no such action shall change (a)
the rate at which or the manner in which dividends on the Series A 6% Preferred
accrue or the times at which such dividends become payable or the amount payable
on redemption of the Series A 6% Preferred or the times at which redemption of
Series A 6% Preferred is to occur, without the prior written consent of the
holders of at least 80% of the Series A 6% Preferred then outstanding, (b) the
Conversion Price of the Series A 6% Preferred or the number of shares or class
of stock into which the Series A 6% Preferred is convertible, without the prior
written consent of at least 80% of the Series A 6% Preferred then outstanding or
(c) the percentage required to approve any change described in clauses (a) and
(b) above, without the prior written consent of the holders of at least 80% of
the Series A 6% Preferred then outstanding.
Section 10. Notices.
Except as otherwise expressly provided hereunder, all notices referred
to herein shall be in writing and shall be delivered by registered or certified
mail, return receipt requested and postage prepaid, or by reputable overnight
courier service, charges prepaid, and shall be deemed to have been given when so
mailed or sent (i) to the Corporation, at its principal executive offices and
(ii) to any stockholder, at such holder's address as it appears in the stock
records of the Corporation (unless otherwise indicated by any such holder).
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Designation to be signed by its Chief
Executive Officer and attested by its Secretary this 18th day of August, 1997.
/s/ Brent M. Cook
- ------------------------------------
Brent M. Cook
President and Chief Executive Officer
Covol Technologies, Inc.
ATTEST:
/s/ Asael T. Sorensen
- ------------------------
Secretary
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