As filed with the Securities and Exchange Commission on May 27, 1999
Registration No. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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COVOL TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 87-0547337
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
3280 North Frontage Road
Lehi, Utah 84043
(801) 768-4481
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
Kirk A. Benson
Chairman of the Board of Directors
3280 North Frontage Road
Lehi, Utah 84043
(801) 768-4481
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copies to:
Richard T. Beard, Paul H. Shaphren
Callister Nebeker & McCullough
Gateway Tower East, Suite 900
10 East South Temple
Salt Lake City, Utah 84133
(801) 530-7300
Approximate date of commencement of proposed sale to the public: From
time to time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box: |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
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CALCULATION OF REGISTRATION FEE:
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<S> <C>
o Title of Each Class of Securities to Be Registered: Common Stock ($.001 par value)
o Amount to Be Registered: 2,026,484 shares (1)
o Proposed Maximum Offering Price Per Share (2) $4.39
o Proposed Maximum Aggregate Offering Price (2) $8,896,265
o Amount of Registration Fee (2)(3) $2,473.16
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(1) Shares which may be resold by selling stockholders. No consideration
will be received by the Registrant for such shares being registered
hereby. Includes the resale of shares issuable by the Registrant on
conversion of its Series D Preferred Stock and on exercise of
outstanding warrants.
(2) Calculated in accordance with Rule 457(c) on the basis of the average
of the high and low prices as of May 25, 1999 of Registrant's Common
Stock as reported by the Nasdaq National Market(sm).
(3) Registration Fee is calculated on the basis of $278 per $1,000,000 of
the Proposed Maximum Aggregate Offering Price.
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Covol hereby amends this Form S-3 on such date or dates as may be
necessary to delay its effective date until Covol shall file a further amendment
which specifically states that this Form S-3 shall thereafter become effective
in accordance with Section 8(a) of the Securities Act of 1933 or until this Form
S-3 shall become effective on such date as the SEC, acting pursuant to said
Section 8(a), may determine.
The information contained in this prospectus is not complete and may be
changed. We may not sell these securities until the Form S-3 filed with the SEC
is effective. This prospectus is not an offer to sell these securities and is
not soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
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The information contained in this prospectus is not complete and may be changed.
We may not sell these securities until the Form S-3 filed with the SEC is
effective. This prospectus is not an offer to sell these securities and is not
soliciting an offer to buy these securities in any state where the offer or sale
is not permitted.
Preliminary prospectus Subject to Completion dated May 27, 1999
Prospectus
2,026,484 SHARES
COVOL TECHNOLOGIES, INC.
COMMON STOCK
This is an offering of shares of common stock of Covol Technologies, Inc.
Only the selling stockholders identified in this prospectus are offering shares
to be sold in the offering. Covol is not selling any shares in the offering.
Covol's common stock is quoted on the Nasdaq Stock Market(sm) under the
symbol CVOL. On May 25, 1999, the last reported sale price for the common stock
on the Nasdaq Stock Market(sm) was $4.41 per share.
Covol's executive offices and telephone number are:
3280 North Frontage Road
Lehi, Utah 84043
(801) 768-4481
This investment involves high risks. See "Risk Factors" beginning on page 3.
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The common stock offered in this prospectus has not been approved by the SEC or
any state securities commission, nor have these organizations determined that
this prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
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The date of this prospectus is ____________, 1999
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You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. We are not making an
offer of these securities in any state where the offer is not permitted. You
should not assume that the information in this prospectus or any prospectus
supplement is accurate as of any date other than the date on the front of those
documents.
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TABLE OF CONTENTS
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Page
RISK FACTORS............................................................... 3
FORWARD LOOKING STATEMENTS.................................................10
AVAILABLE INFORMATION......................................................10
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................10
USE OF PROCEEDS............................................................11
SELLING STOCKHOLDERS.......................................................11
PLAN OF DISTRIBUTION.......................................................12
LEGAL MATTERS..............................................................12
EXPERTS....................................................................13
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RISK FACTORS
You should consider carefully the following risk factors and other
information in this document before investing in our common stock.
We Have a History of Losses; No Assurance of Profit
We have incurred total losses of approximately $46,000,000 from February
1987 through March 31, 1999. Although we earned net income for the quarters
ended March 31, 1998 and June 30, 1998, our performance for these quarters may
not be indicative of future results. These two quarters included income from
one-time payments of advance license fees. We may not be profitable in the
future. Subsequent quarters have had operating losses, including a loss of
approximately $5,000,000 for the quarter ended March 31, 1999.
Ongoing Financial Viability Depends on License Revenues
Our existence depends on the ability of our licensees to produce and sell
synthetic fuel which will generate license fees to us. There are twenty-four
synthetic fuel plants that utilize our patented technology and from which we
intend to earn license fees. We have four additional facilities which utilize a
technology that we acquired during the six months ended March 31, 1999. These 28
facilities do not presently operate at levels needed to generate significant
revenues to us. Improved operations at each of these plants depends on the
ability of the plant owner to produce a marketable quality of synthetic fuel,
and the ability of the plant owner to market the synthetic fuel. It is not
certain what time will be required to resolve these operating issues or whether
these issues can be resolved, and it is not certain how much time will be
required for the synthetic fuel to obtain market acceptance. These problems are
in some ways beyond our control.
Our Owned Facilities Have Not Been Sold and Have Substantial Operating Cash
Needs
We currently own four synthetic fuel facilities that are held for sale.
Operation of these facilities requires a substantial amount of cash. In March
1999, we obtained debt and equity financing from a selling stockholder which
provided net proceeds of approximately $14,800,000. These proceeds will be used
for operating expenses, debt repayment and debt service requirements until
sufficient operating revenues are generated. It is not certain when or whether
license revenues will be sufficient to meet operating and debt service
requirements. Therefore, we do not know how long the current capital will last.
We are continuing to cut operating costs, but further potential cost reductions
are limited due to our need to work with plant owners in order to increase
license revenues. Operating expenses associated with these plants currently cost
approximately $600,000 per month. We are actively trying to sell these plants
and enter into license agreements under which we would be paid advance license
fees and license fees based on production. None of these plants is presently
under contract for sale and no letter of intent has been signed.
Debt Terms and Covenants Restrict Our Activities
We entered on March 17, 1999 into debt and equity financing with a selling
stockholder that contains restrictions on business activities and covenants for
future activities. We also agreed to meet specific quarterly earnings targets
beginning with the quarter ending December 31, 1999 and for subsequent quarters.
The consolidated earnings target for the quarter ending December 31, 1999,
adjusted principally for interest, taxes, depreciation and amortization, is
$5,000,000. The earnings target increases in subsequent quarters. These terms
and conditions also restrict or prohibit specific activities,
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including for example, incurring more than $4,000,000 of additional
indebtedness, and the issuance of debt or equity securities in a senior
position. Non-compliance could result in penalty charges, acceleration of
repayment, increased interest or assignment of royalty payments from related
collateral. See our Form 8-K filed March 24, 1999 for a discussion of the debt
terms.
We or Our Licensees May Not Qualify for Tax Credits Granted by Congress to
Encourage Production of Alternative Fuels
Section 29 of the Internal Revenue Code provides a tax credit for the
production and sale of qualified synthetic fuel. We received a private letter
ruling from the IRS in which the IRS agrees that synthetic fuel manufactured
using our technology qualifies for the Section 29 tax credits. At least seven
other private letter rulings have been issued by the IRS to licensees of our
technology. These rulings may be modified or revoked by the IRS if the IRS
adopts regulations that are different from these rulings. Also, a private letter
ruling may not apply if the actual practice differs from the information given
to the IRS for the ruling. Therefore, tax credits may not be available in the
future, which would materially adversely impact us. See our Form 10-K for fiscal
year 1998, "ITEM 1. BUSINESS - Tax Credits" for an explanation of qualifications
for Section 29 tax credits.
Based upon the language of Section 29 of the Internal Revenue Code and
private letter rulings issued by the IRS to us and our licensees, we and our
licensees believe the synthetic fuel facilities built and completed by June 30,
1998 are eligible for Section 29 tax credits. However, the ability to claim the
tax credits is dependent upon a number of conditions including, but not limited
to, the following:
o The facilities were constructed pursuant to a binding contract
entered into on or before December 31, 1996;
o All steps were taken for the facility to be considered placed in
service;
o Manufacturing procedures are applied to produce a significant
chemical change and hence a "qualified fuel";
o The synthetic fuel is sold to an unrelated party; and
o The owner of the facility is in a tax paying position and can
therefore use the tax credits.
The IRS may challenge us or our licensees on any one of these or other
conditions. Also, we or our licensees may not be in a financial position to
claim the tax credits if we or they are not profitable. The inability of a
licensee to claim tax credits would potentially reduce our income from the
licensees.
Synthetic Fuel Facilities May Not Be Commercially Viable After the Tax Credits
Expire
The synthetic fuel facilities that qualify for tax credits under Section 29
of the tax code receive economic benefits from the tax credits in addition to
the benefits, if any, from operations. It is possible that synthetic fuel
facilities that are not eligible for tax credits cannot be built and operated
profitably.
Section 29 expires on December 31, 2007 after which tax credits will not
apply to the synthetic fuel facilities. In order to remain competitive and
commercially viable after 2007, we must manage our costs of production and
feedstock, and we must also develop the market for synthetic fuel with adequate
prices to cover the costs.
Other Applications of Our Technology May Not Be Commercially Viable
We have developed and patented technologies related to the briquetting of
wastes and by products from the coal, coke and steel industries. We have also
tested in the laboratory the briquetting of
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other materials. However, to date we have only commercialized our coal-based
synthetic fuel application. The other applications have not been commercialized
or proven out in full-scale operations. We may not be able to employ these other
applications profitably. See our Form 10-K for fiscal year 1998, "ITEM 1.
BUSINESS - Business Strategy - Engineered Resources" for a discussion of
non-coal applications of our technology.
We May Be Unable to Obtain Necessary Additional Funding
We have significant cash outflow requirements during fiscal 1999 and
beyond, for:
o debt repayments,
o working capital, and
o implementation of our business strategy.
The current amount of outstanding debt is approximately $42,300,000, of
which approximately $6,700,000 is due between now and September 30, 1999.
Substantially all of our property, plant and equipment and facilities held for
sale are collateral for debt.
Our cash needs will differ depending on the operations of the licensees'
synthetic fuel facilities and the timing of the sale of four facilities which
are currently owned by us and held for sale. Our ability to pay debt as it
matures is dependent primarily upon our ability to sell the facilities which are
held for sale. There can be no assurance that we will be able to raise any
additional funds when needed or that such financing will be on terms acceptable
to us.
We are Dependent Upon Third Party Licensees for Commercial Application of
Technology
We depend on licensees to commercially employ our technology. The payments
received by us as royalties and from sales of our patented chemical binder to
the facilities, are directly related to the level of production and sales of the
synthetic fuel. There is no assurance that our licensees will be able to operate
the facilities at a sufficient level of production to provide adequate payments
to us to meet our ongoing financial needs. See our Form 10-K for fiscal year
1998, "ITEM 1. BUSINESS - Synthetic Fuel Manufacturing Facilities" for a list of
our licensees and a discussion of our license and royalty agreements with them.
Market Acceptance of Synthetic Fuel Products is Uncertain
We are uncertain of the market acceptance of products manufactured using
our technology. The synthetic fuel product competes with standard coal products.
Moisture control, hardness, special handling requirements and other
characteristics of the synthetic fuel product may affect its marketability. For
these and other possible reasons, customers may not purchase the synthetic fuel
products made with our technology. To date our licensees have secured contracts
for the sale of only a portion of their production. We do not know if our
licensees will be able to secure market contracts for their synthetic fuel
products at full production levels.
Supply of Sufficient Raw Materials for Synthetic Fuel Facilities is Not Assured
We and our licensees have not secured all the raw materials needed to
operate all of the facilities for the full term of the tax credit. Some of the
owners of facilities are constructing coal washing facilities to provide
feedstock and some of the facilities may have to be moved to sites with enough
raw
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materials for operation. See our Form 10-K for fiscal year 1998, "ITEM 1.
BUSINESS - Supply of Raw Materials" for a discussion of our principal sources of
raw materials.
We Must Comply With Government Environmental Regulations
The synthetic fuel facilities which use our technology must satisfy
regulations regarding the discharge of pollutants into the environment. We or
the facility owners may be subject to fines for any violation of regulations due
to design flaws, construction flaws, or operation errors. A violation may
prevent a facility from operating until the violation is cured. We or our
licensees may be liable for environmental damage from facilities not operated
within environmental guidelines. See our Form 10-K for fiscal year 1998, "ITEM
1. BUSINESS - Government Regulation" for a discussion of the principal areas of
federal and state regulation which we are subject to.
We have Significant Competitors
We experience competition from:
o Other alternative fuel technology companies and their licensees,
o Companies that specialize in the disposal and recycling of waste
products generated by coal, coke, steel and other resource
production, and
o Traditional coal, fuel, and natural resource suppliers.
Competition may come in the form of the licensing of competing technologies
or in the marketing of similar products. We currently have limited experience in
manufacturing and marketing. Many of our competitors have greater financial,
management and other resources than we have. We may not be able to compete
successfully. See our Form 10-K for fiscal year 1998, "ITEM 1. BUSINESS
Competition" for a discussion of the competitors in the synthetic fuel industry
that we are aware of.
Limitation on Protection of Key Intellectual Property
We rely on patent, trade secret, copyright and trademark law, as well as
confidentiality agreements and other security measures to protect our
intellectual property. These rights or future rights or properties may not
protect our interests in present and future intellectual property. Competitors
may successfully contest our patents or may use concepts and processes which
enable them to circumvent our technology. See our Form 10-K for fiscal year
1998, "ITEM 1. BUSINESS - Proprietary Protection" for a list of our trade names,
patents and other intellectual property and a discussion of its value to us.
Technological Developments by Third Parties Could Increase Our Competition
Alternative fuel sources and the recycling of waste products are the
subject of extensive research and development by our competitors. If a
competitive technology were developed which greatly increased the demand for
waste products or reduced the costs of alternative fuels or other resources, the
economic viability of our technology would be adversely affected.
Furthermore, we may not be able to develop or refine our technology to keep
up with future synthetic fuel requirements or to commercialize the other
applications of our technology as discussed in our business strategy. See our
Form 10-K for fiscal year 1998, "ITEM 1. BUSINESS - Business Strategy -
Licensing and Technology Transfer" for a discussion of our efforts to continue
to develop and refine our technology.
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Operations Liability May Exceed Insurance Coverage
We are subject to potential operational liability risks, such as liability
for workers compensation and injuries to employees or third parties, which are
inherent in the manufacturing of industrial products. While we have obtained
casualty and property insurance in the amount of $10,000,000, with the intent of
covering these risks, there can be no assurance that operation of our owned
facilities will not expose us to operational liabilities beyond our insurance
coverage.
No Dividends Are Contemplated in the Foreseeable Future
We have never paid and do not intend to pay dividends on common stock in
the foreseeable future. In addition, dividends on common stock cannot be paid
until cumulative dividends on our outstanding preferred stock are fully paid.
Our ability to pay dividends without approval of the debt and equity holders is
also restricted and prohibited by covenant as long as the debt and equity issued
in our recent financing is outstanding.
Common Stock Price May Continue to be Volatile
Our common stock is traded on the Nasdaq Stock Market(sm) . The market for
our common stock has been volatile. Factors such as announcements of production
or marketing of synthetic fuel from the synthetic fuel facilities, technological
innovations or new products or competitors announcements, government regulatory
action, litigation, patent or proprietary rights developments, and market
conditions in general could have a significant impact on the future market for
our common stock. You may not be able to sell our common stock at or above your
purchase price.
Common Share Rights Are Subject to Preferred Share Rights
We have issued preferred stock that has preferential dividend rights, which
dividends will accumulate if unpaid. Dividends on common stock are prohibited
until the preferential rights of the preferred stock are satisfied. If we are
liquidated, the preferred stockholders are entitled to liquidation proceeds
after creditors but before common stockholders. The preferred stock can be
converted to common stock. See our Form 8-K filed March 24, 1999 for a
discussion of rights of the preferred stock.
Future Sales of Common Stock May Dilute Stockholders
We have the authority to issue up to 12,528,015 additional shares of common
stock and 9,908,832 additional shares of preferred stock. We may issue stock in
the future at amounts below current market prices which would cause dilution to
stockholders.
Conversion of Convertible Securities May Dilute Stockholders
We have issued many securities which are convertible into registered common
stock. As of March 31, 1999, we had approximately 12,500,000 shares outstanding
and approximately 11,500,000 shares issuable upon conversion of convertible
preferred stock and convertible debt, and upon exercise of warrants and options.
Approximately 4,190,000 shares are issuable upon exercise or conversion at
prices below the current market price. We had commitments to issue approximately
2,690,000 shares of common stock to current and prior management, consultants,
advisors and board of director members under all option agreements.
Approximately 1,190,000 options are exercisable at prices below the current
market price. These options have a weighted average exercise price of $1.58 per
share. These numbers are as of March 31, 1999 and do not reflect additional
shares we may issue in the future
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pursuant to anti-dilution provisions. To the extent warrants, options and other
convertible securities are converted into common stock, stockholder interests in
us will be diluted. If the market value of the common stock decreases
significantly, the offering price per share in our private placements or public
offerings may decrease causing dilution of ownership to other stockholders.
Dilution of Stockholders Due to Sales of Common Stock and Conversion of
Convertible Securities May Affect Our Ability to Raise Additional Capital
Sales of common stock and convertible preferred stock, and the exercise of
options, warrants and other convertible securities may have an adverse effect on
the trading price of and market for our common stock. A significant portion of
shares underlying our outstanding convertible securities and options and
warrants are subject to registration rights. These rights may affect our ability
to raise additional capital because financial institutions which require
registration rights may be unwilling to proceed with a financing where there are
registration rights already in place which impair the value of any new
registration rights.
We are Under a Grand Jury Inquiry Which has Not Been Resolved
In 1997 we received a notice of violation and order of compliance from the
State of Utah, Division of Air Quality alleging improper asbestos handling. We
signed a settlement with the state and paid a fine in the amount of $11,000. In
1997 the U.S. Environmental Protection Agency began its own investigation. The
U.S. Attorney has proceeded with a grand jury inquiry. The outcome of this
matter may have adverse effects on us.
We May Be Adversely Affected By Year 2000 Non-Compliance of Computer
Applications
The Year 2000 issue is the result of computer programs being written to
define the applicable year using two digits rather than four digits. Thus,
programs that are date sensitive may recognize a date using "00" as the year
1900 rather than 2000. This could result in a systems failure or miscalculations
causing disruptions of operations including a temporary inability to engage in
normal business activities. This systems issue creates risk for us from
unforseen problems in our own computer systems and electronic equipment and from
third parties with which we conduct business. Such failures of our and third
parties' computer systems could potentially have a material adverse impact on
our business and results of operations. While the risks discussed in this
section have a possible material impact, the risk management actions and
contingency plans that are being developed and implemented will significantly
reduce the probability and potential impact of these identified risks.
The information systems and electronic equipment utilized in our business
include a computer network system utilized for inter-company communication and
Internet access and a finance and accounting software package utilized for
billing, procurement, payroll, finance and accounting. Non-information
technology electronic equipment includes programmable logic controllers,
micro-controllers, specialized software packages for operations activities and
miscellaneous systems for lab and mobile equipment.
As a part of the information technology systems mentioned above, our
computer network system was upgraded in 1998 with year 2000 compliant equipment.
The provider of the finance and accounting software has indicated that this
software package is not currently compliant but that the package can be upgraded
at nominal cost. This work will be undertaken during the third quarter of fiscal
1999 and tested prior to the close of the fiscal year.
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Substantially all of the synthetic fuel facilities constructed by us and
our licensees were completed and placed in service shortly prior to June 30,
1998. As such, the electronic equipment utilized in the facilities is of recent
vintage (within 18 months of the June 30 date) and is year 2000 compliant.
Suppliers of the major electronic equipment for our four owned synfuel
facilities have notified us that their equipment is compliant. This includes
critical programmable logic controllers, micro-controllers and software
operating packages.
Licensees utilize proprietary technology provided by us including flow
sheets and equipment recommended by us in the construction of their facilities.
These licensees have represented to us that equipment within these facilities is
compliant or that operations will not be impacted in the event of an equipment
failure due to the Year 2000 issue. Malfunctions occurring in the synthetic fuel
operations could potentially have an adverse material effect to us by reducing
the sale of binder formulation materials to the facilities by us and the
collection by us of royalties on the production of synthetic fuel.
Our relationships with our third-party suppliers and transportation
providers is critical to the operation of the synthetic fuel facilities. We are
also dependent upon our customers who purchase and consume the synthetic fuel
produced. Our suppliers have represented to us that their computer systems and
equipment are year 2000 compliant.
The most reasonably likely worst case scenarios would be the extended
inability of major suppliers to deliver binder formulation materials and other
bulk materials required for the operation of the synthetic fuel facilities and
the failure of customers to be able to receive synthetic fuel production due to
unforseen shutdown due to non-compliant equipment.
As a contingency plan for the reasonably likely worst case events, we
intend to stock up on bulk materials in the last half of the fourth quarter of
1999 so that operations can continue for several days into the new year without
interruption. We have designed our facilities to accommodate bulk deliveries.
Electrical power suppliers have notified us that power interruptions are not
anticipated but that additional crews will be on hand to respond to problems as
they may occur at the change to the new year. We are also prepared to bypass
automated controls and operate facility systems in a manual if the automated
control systems fail. As supply contracts are written for operating materials,
we are striving to negotiate terms such that year 2000 issues are not an excuse
to performance.
Costs attributable to Year 2000 issues are expected to be minimal. The only
cost anticipated to date is for the upgrade to our finance and accounting
software package. This cost is estimated to be less than $5,000. Costs
associated with increased levels of bulk materials simply redistributes normal
operating costs but does not affect our ultimate financial performance.
We plan to continue to monitor the Year 2000 issue throughout the remainder
of 1999. Should this monitoring reveal other developments, whether it be
internal or third party, or identify additional electronic equipment and
software that may be at risk, we will assess the situation and take appropriate
action. There can be no assurance that we will discover all Year 2000 issues in
the course of the remainder of 1999 or that we will be able to remedy any or all
discoveries in a timely or cost effective manner such that the Year 2000 issues
will not have a material adverse impact on our business, financial condition and
results of operations.
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FORWARD LOOKING STATEMENTS
Some of the statements contained in this prospectus discuss future
expectations, contain projections of results of operations or financial
condition or state other "forward-looking" information. Such information can be
identified by the use of "may," "will," "expect," "anticipate," "estimate,"
"continue" or other similar words. When considering such forward-looking
statements, you should keep in mind the risk factors and other cautionary
statements in this prospectus. These statements are subject to known and unknown
risks, uncertainties and other factors that could cause our actual results to
differ materially from those contemplated by the statements.
AVAILABLE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's public reference rooms in Washington, D.C.,
New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-
SEC-0330 for further information on the public reference rooms. You may also
read and copy these documents at the offices of the Nasdaq Stock Market(sm) in
Washington, D.C.
This prospectus is part of a Form S-3 registration statement that we filed
with the SEC. This prospectus provides you with a general description of the
securities that may be offered for sale, but does not contain all of the
information that is in the registration statement. To see more detail, you
should read the entire registration statement and the exhibits filed with the
registration statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934
until all of the securities are sold. Our file number with the SEC is 0-27808.
o Annual report on Form 10-K filed January 13, 1999, for the fiscal year
ended September 30, 1998,
o Proxy statement dated and filed January 28, 1999,
o Quarterly report on Form 10-Q filed February 16, 1999, for the fiscal
quarter ended December 31, 1998,
o Current report on Form 8-K filed March 24, 1999,
o Quarterly report on Form 10-Q filed May 14, 1999, for the fiscal quarter
ended March 31, 1999, and
o Description of securities contained in Item 11 of Covol's Form S-3 on Form
10/A, Amendment No. 2 filed April 24, 1996.
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You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Investor Relations Department
Covol Technologies, Inc.
3280 North Frontage Road
Lehi, Utah 84043
Telephone Number: (801) 768-4481
USE OF PROCEEDS
The net proceeds from the sale of common stock will be received by the
selling stockholders. Covol will not receive any of the proceeds from any sale
of the shares by the selling stockholders.
Some selling stockholders may acquire shares upon exercise of warrants. Any
proceeds to Covol from the exercise of warrants will be used as working capital.
SELLING STOCKHOLDERS
The information in the table below is taken as of March 31, 1999. The
amounts in the table assume full conversion of Series D preferred stock held by
a selling stockholder at $5.25 per share without adjustments based on changes in
market price of the common stock, and exercise of all warrants held by a selling
stockholder. The selling stockholders listed in the table do not necessarily
intend to sell any of their shares. Covol filed the registration statement which
includes this prospectus due to registration rights granted to the selling
stockholders, not because the stockholders had expressed an intent to
immediately sell their shares.
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Shares Beneficially
Number of Shares Owned After the
Beneficially Owned Shares to be Offering, Assuming All
Prior to the Offering, Registered for Registered Shares Are
Name of Including Convertible Sale in the Sold
Beneficial Owner Securities(1) Offering(1) Number Percent(2)
---------------- ------------- ----------- ------ ----------
<S> <C> <C> <C> <C>
CSD 3,000,000
DP 1,142,858 DP 1,142,858 CSD 3,000,000
OZ Master Fund, Ltd. w 971,430 w 571,430 w 400,000 19%
Leeds Group Inc. w 156,098 w 156,098 0 0
Howard L. Schwartz w 54,634 w 54,634 0 0
Jack A. Schwebel w 54,634 w 54,634 0 0
Brent M. Lockwood w 46,830 w 46,830 0 0
- ------------------------------ --------------------------- -------------------- ----------------------------------
</TABLE>
(1) This column indicates shares of common stock issuable on exercise of
warrants by the letter "w," shares issuable upon conversion of Series D
Preferred Stock by the letters "DP," and shares issuable upon conversion of
Convertible Secured Debt by the letters "CSD."
(2) Indicates the percentage of Covol's common stock outstanding, assuming
conversion of convertible securities and exercise of warrants by the
indicated selling stockholders.
11
<PAGE>
This prospectus applies to the offer and sale by the selling stockholders
of common stock of Covol. The shares being offered for sale include no shares
currently owned by the selling stockholders, plus 883,626 shares obtainable by
exercising warrants, and 1,142,858 shares obtainable by converting the shares of
Series D Preferred Stock which they owned as of the date of this prospectus.
Each share of the Series D Preferred Stock is convertible into a number of
shares of common stock determined by dividing the original purchase price of
$100 per preferred share, plus accrued dividends, by the lesser of $5.25 or 90%
of the market value of Covol's common stock on the date of conversion. Dividends
on Series D Preferred Stock accrue at 7% per year. There are 60,000 shares of
Series D Preferred Stock outstanding.
If the outstanding Series D Preferred Stock were converted into common
stock, the total number of shares of common stock issued on conversion would be
1,142,858 shares. The actual number of shares may be more than this amount
depending upon the amount of dividends which accrue on the preferred stock prior
to conversion into common stock and the market value of Covol's common stock on
the date of conversion.
PLAN OF DISTRIBUTION
The selling stockholders may sell some or all of their shares at any time
and in any of the following ways. They may sell their shares:
o To underwriters who buy the shares for their own account and resell them in
one or more transactions, including negotiated transactions, at a fixed
public offering price or at varying prices determined at the time of sale.
Any public offering price and any discount or concessions allowed or
reallowed or paid to dealers may be changed from time to time;
o Through brokers, acting as principal or agent, in transactions, which may
involve block transactions, on the Nasdaq Stock Market(sm) or on other
exchanges on which the shares are then listed, in special offerings,
exchange distributions pursuant to the rules of the applicable exchanges or
in the over-the-counter market, or otherwise, at market prices prevailing
at the time of sale, at prices related to such prevailing market prices, at
negotiated prices or at fixed prices;
o Directly or through brokers or agents in private sales at negotiated
prices; or
o In open market transactions in reliance upon rule 144 under the Securities
Act, provided they comply with the requirements of the rule; or
o By any other legally available means.
Selling stockholders may pay part of the proceeds from the sale of shares
in commissions and other compensation to underwriters, dealers, brokers or
agents who participate in the sales.
Some states may require shares to be sold only through registered or
licensed brokers or dealers. In addition, some states may require the shares to
be registered or qualified for sale unless an exemption from registration or
qualification is available and complied with.
We have agreed to indemnify the selling stockholders against liabilities
under the Securities Act, or to contribute to payments the selling stockholders
may be required to make under the Securities Act.
LEGAL MATTERS
The law firm of Callister Nebeker & McCullough, Salt Lake City, Utah, has
rendered an opinion as to the validity of the shares offered under this
prospectus.
12
<PAGE>
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference to the annual report on Form 10-K for the fiscal year ended September
30, 1998, have been so incorporated in reliance upon the report of
PricewaterhouseCoopers LLP, independent accountants, given upon the authority of
said firm as experts in auditing and accounting.
[INTENTIONALLY LEFT BLANK]
13
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following is a list of the estimated expenses to be incurred by
the Registrant in connection with the issuance and distribution of the Shares
being registered hereby.
SEC Registration Fee...................................... $2,473.16
Accountants' Fees and Expenses............................ $2,000.00
Legal Fees and Expenses................................... $5,000.00
Miscellaneous............................................. $1,000.00
-----------
TOTAL................................................ $10,473.16
Item 15. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of the State of Delaware allows
us to indemnify our officers, directors, employees and agents, as well as
persons who have served in these capacities for other corporations at our
request, for reasonable costs and expenses associated with civil and criminal
suits related to their services in these capacities. The indemnification applies
to civil cases arising from acts made in good faith, reasonably believing that
they were in the best interests of the corporation. It may also apply to
criminal cases if the person had no reason to believe his conduct was unlawful.
In some cases, the availability of indemnification may be up to the discretion
of the court in which the suit was brought.
The Registrant's Certificate of Incorporation, as amended, has the
following indemnification provisions:
This Corporation shall indemnify and shall advance expenses on
behalf of its officers and directors to the fullest extent not
prohibited by law in existence either now or hereafter.
The Registrant's By-laws similarly provide that the Registrant shall
indemnify its officers and directors to the fullest extent permitted by the
Delaware Law.
14
<PAGE>
<TABLE>
<CAPTION>
Item 16. Exhibits.
Exhibit
Number Description Location
<S> <C> <C>
2.1 Agreement and Plan of Reorganization, dated July 1, 1993 (1)
between the Registrant and the Stockholders of R1001
2.2 Agreement and Plan of Merger dated August 14, 1995 between (1)
the Registrant and Covol Technologies, Inc., a Delaware
corporation
2.3 Stock Purchase Agreement, dated July 1, 1993, among the (1)
Registrant, Lloyd C. McEwan, Michael McEwan, Dale F. Minnig
and Ted C. Strong regarding the purchase of Industrial
Management & Engineering, Inc. and Central Industrial
Construction, Inc.
2.4 Stock Sale Transaction Documentation, effective as of September (1)
30, 1994, between the Registrant and Farrell F. Larson regarding
Larson Limestone Company, Inc.
2.5 Stock Purchase Agreement dated February 1, 1996 by and among (1)
the Registrant, Michael McEwan and Gerald Larson regarding the
sale of State, Inc., Industrial Engineering & Management, Inc.,
Central Industrial Construction, Inc., and Larson Limestone
Company, Inc.
2.5.1 Amendment to Share Purchase Agreement regarding the sale of (1)
the Construction Companies
2.5.2 Amendment No. 2 to Share Purchase Agreement regarding the (2)
sale of the Construction Companies
3.1 Certificate of Incorporation of the Registrant (1)
3.1.1 Certificate of Amendment of the Certificate of Incorporation of (1)
the Registrant dated January 22, 1996
3.1.2 Certificate of Amendment of the Certificate of Incorporation (3)
dated June 25, 1997
3.1.3 Certificate of Designation, Number, Voting Powers, Preferences (4)
and Rights of the Registrant's Series A 6% Convertible Preferred
Stock (Originally designated as Exhibit No. 3.1.2)
3.1.4 Certificate of Designation, Number, Voting Powers, Preferences (5)
and Rights of the Registrant's Series B Convertible Preferred
Stock (Originally designated as Exhibit No. 3.1.3)
3.1.5 Certificate of Designation, Number, Voting Powers, Preferences (8)
and Rights of Covol's Series C 7% Convertible Preferred Stock.
15
<PAGE>
Exhibit
Number Description Location
<S> <C> <C>
3.1.6 Certificate of Designations, Number, Voting Powers, Preferences (9)
and Rights of the Series of the Preferred Stock of Covol
Technologies, Inc. to be Designated Series D 7% Cumulative
Convertible Preferred Stock.
3.2 By-Laws of the Registrant (1)
3.2.1 Certificate of Amendment to Bylaws of the Registrant dated (1)
January 31, 1996
3.2.2 Certificate of Amendment to the Bylaws dated May 20, 1997 (3)
(Originally designated as Exhibit No. 3.2.1)
3.2.3 Certificate of Amendment to the Bylaws dated June 25, 1997 (3)
(Originally designated as Exhibit No. 3.2.2)
4.1 Promissory Note between Covol and Mountaineer Synfuel, L.L.C. (6)
dated May 5, 1998 (filed as Exhibit 10.52.2 to the filing
referenced in the next column)
4.2 Promissory Note dated December 8, 1998 of Covol to (7)
Mountaineer Synfuel, L.L.C. (filed as Exhibit 10.52.4 to the filing
referenced in the next column)
4.3 Security Agreement dated December 8, 1998 between (7)
Mountaineer Synfuel, L.L.C. and Covol (filed as Exhibit 10.52.5
to the filing referenced in the next column)
4.4 Convertible Secured Note executed by Covol in favor of OZ (9)
Master Fund, Ltd., dated as of March 17, 1999 (filed as exhibit
10.58.1 to the filing referenced in the next column)
5.1 Opinion of Callister Nebeker & McCullough regarding legality of **
shares
23.1 Consent of PricewaterhouseCoopers LLP *
24.1 Power of Attorney (included in Part II of this Registration
Statement)
- ------------------------
</TABLE>
* Attached hereto.
** To be filed by amendment.
Unless another exhibit number is indicated as the exhibit number for the exhibit
as "originally filed," the exhibit number in the filing in which any exhibit was
originally filed and to which reference is made hereby is the same as the
exhibit number assigned herein to the exhibit.
(1) Incorporated by reference to the indicated exhibit filed with the
Registrant's Registration Statement on Form 10, filed February 26, 1996.
(2) Incorporated herein by reference to the indicated exhibit filed with the
Registrant's Registration Statement on Form 10/A, Amendment No. 2, dated
April 24, 1996.
(3) Incorporated by reference to the indicated exhibit filed with the
Registrant's Quarterly Report on Form 10-Q, for the quarterly period ended
June 30, 1997.
16
<PAGE>
(4) Incorporated by reference to the indicated exhibit filed with the
Registrant's Current Report on Form 8-K, dated August 19, 1997.
(5) Incorporated by reference to the indicated exhibit filed with the
Registrant's Current Report on Form 8-K, for event dated September 18,
1997, filed October 28, 1997.
(6) Incorporated by reference to the indicated exhibit filed with the
Registrant's Quarterly Report on Form 10-Q, for the quarterly period ended
June 30, 1998.
(7) Incorporated by reference to the indicated exhibit filed with the
Registrant's Annual Report on Form 10-K, for the fiscal year ended
September 30, 1998.
(8) Incorporated by reference to the indicated exhibit filed with the
Registrant's Quarterly Report on Form 10-Q, for the quarterly period ended
December 31, 1998.
(9) Incorporated by reference to the indicated exhibit filed with the
Registrant's Current Report on Form 8-K, for event dated March 17, 1999,
filed on March 24, 1999.
Item 17. Undertakings.
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933, as amended (the "Act");
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement;
provided, however, that paragraphs (A)(1)(i) and (A)(1)(ii) do not
apply if the Registration Statement is on Form S-3, Form S-8 or Form F-3, and
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Securities and Exchange Commission (the "Commission") by the Registrant pursuant
to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
B. The undersigned Registrant hereby undertakes that for purposes of
determining any liability under the Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference
in the Registration
17
<PAGE>
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
D. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
[INTENTIONALLY LEFT BLANK]
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Salt Lake City, State of Utah on May 26, 1999
COVOL TECHNOLOGIES, INC.
By: /s/ Kirk A. Benson
----------------------------------
Chief Executive Officer, Chairman
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below in so signing also makes, constitutes and appoints Harlan M.
Hatfield and Stanley M. Kimball and each of them, as true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution
for him and in his name, place and stead, in any and all capacities to execute
and cause to be filed with the Securities and Exchange Commission any and all
amendments (including pre-effective and post-effective amendments) to this
Registration Statement, with exhibits thereto and other documents in connection
therewith, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully as to all intents and purposes as
he might or could do in person, and hereby ratifies and confirms all that said
attorneys-in-fact and agents or their or his substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
/s/ Kirk A. Benson Chief Executive Officer and May 26, 1999
- ------------------------- Director
Name
/s/ Brent M. Cook President and Director May 26, 1999
- -------------------------
Name
/s/ Steven G. Stewart Chief Financial and Accounting May 26, 1999
- ------------------------- Officer
Name
/s/ DeLance W. Squire Director May 26, 1999
- -------------------------
Name
/s/ James A. Herickhoff Director May 26, 1999
- -------------------------
Name
/s/ Raymond J. Weller Director May 26, 1999
- -------------------------
Name
/s/ John P. Hill, Jr. Director May 26, 1999
- -------------------------
Name
19
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated December 22, 1998 relating to the
consolidated financial statements which appears in Covol Technologies, Inc.'s
Annual Report on Form 10-K for the year ended September 30, 1998. We also
consent to the reference to us under the heading "Experts" in such Registration
Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP
Salt Lake City, Utah
May 20, 1999
