SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
COVOL TECHNOLOGIES, INC.
------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
COVOL TECHNOLOGIES, INC.
3280 North Frontage Road
Lehi, Utah 84043
January 28, 1999
Dear Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of
Stockholders of Covol Technologies, Inc., which will be held on Wednesday March
17, 1999, at 1:00 p.m., Mountain Standard Time, at the Utah County Convention
Center at the Provo Marriott Hotel, at 100 West 100 North, Provo, Utah 84601. In
addition to the matters to be acted upon at the meeting, which are described in
the attached Notice of Annual Meeting of Stockholders and Proxy Statement, there
will be a report with respect to the progress of Covol and an opportunity for
stockholders to ask questions.
Whether or not you plan to attend the meeting, please complete, date,
sign and return the enclosed proxy card or voting instruction form in the
accompanying envelope as promptly as possible to ensure that your shares are
represented and voted in accordance with your wishes.
Sincerely,
Brent M. Cook
Chief Executive Officer
<PAGE>
COVOL TECHNOLOGIES, INC.
3280 North Frontage Road
Lehi, Utah 84043
--------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, MARCH 17, 1999
--------------------
To the Stockholders of Covol Technologies, Inc.:
The 1999 Annual Meeting of Stockholders (the "Meeting") of Covol
Technologies, Inc., a Delaware corporation ("Covol"), will be held on Wednesday,
March 17, 1999, starting at 1:00 p.m., Mountain Standard Time, at the Provo
Marriott Hotel, at 100 West 100 North, Provo, Utah 84601, for the following
purposes:
1. To elect three class II directors of Covol to serve until the 2002
annual meeting of stockholders, or until their successors are duly elected and
qualified;
2. To ratify a grant by the Board of options to purchase 250,000 shares
of common stock to Brent M. Cook at $12.97 per share to vest pro rata over 60
months beginning on May 1, 1998;
3. To ratify the selection by the Board of PricewaterhouseCoopers LLP
as independent auditors of Covol for the fiscal year ending September 30, 1999;
and
4. To transact such other business as may properly come before the
Meeting and any and all adjournments or postponements thereof.
The Board has fixed the close of business on Monday, January 18, 1999,
as the record date for determining the stockholders entitled to notice of, and
to vote at, the Meeting. Only stockholders of record as of the record date are
entitled to notice of, and to vote at, the Meeting and any adjournments or
postponements thereof. A copy of Covol's Annual Report, a Proxy Statement and a
proxy card accompany this notice. These materials will be first sent to
stockholders on or about February 15, 1999.
Stockholders are cordially invited to attend the Meeting in person.
However, to assure your representation at the Meeting, please complete and sign
the enclosed proxy card and return it promptly. If you choose, you may still
vote in person at the Meeting even though you previously submitted a proxy card.
By Order of the Board of Directors,
ASAEL T. SORENSEN, JR.
Secretary
Lehi, Utah
January 28, 1999
Your vote is important.
You are urged to date, sign and promptly return your proxy card so that your
shares may be voted in accordance with your wishes and that the presence of a
quorum may be assured. The prompt return of your signed proxy card, regardless
of the number of shares you hold, will aid Covol in avoiding the expense of
additional proxy solicitations. Giving your proxy does not affect your right to
vote in person at the meeting or your right to resubmit later dated proxy cards.
<PAGE>
COVOL TECHNOLOGIES, INC.
3280 North Frontage Road
Lehi, Utah 84043
--------------------
PROXY STATEMENT
Annual Meeting of Stockholders
To Be Held on Wednesday, March 17, 1999
--------------------
GENERAL INFORMATION
This Proxy Statement is being furnished to the stockholders of Covol
Technologies, Inc. ("Covol"), in connection with the solicitation of proxies on
behalf of the Board of Directors of Covol (the "Board") for use at Covol's 1999
Annual Meeting of Stockholders and any and all adjournments or continuations
thereof, (the "Meeting") to be held Wednesday, March 17, 1999, at 1:00 p.m.,
Mountain Standard Time, at the Provo Marriott Hotel, at 100 West 100 North,
Provo, Utah 84601, for the purposes set forth in the accompanying Notice of
Annual Meeting of Stockholders (the "Notice"). These materials will be first
mailed to stockholders on or about February 15, 1999. The Annual Report is not
to be considered a part of Covol's proxy solicitation materials.
PURPOSE OF ANNUAL MEETING
At the Meeting, stockholders will be asked: (i) to elect three class II
directors of Covol to serve until the 2002 annual meeting of stockholders, or
until their successors are duly elected and qualified; (ii) to ratify the grant
by the Board of options to purchase 250,000 shares of common stock to Brent M.
Cook at the price of $12.97 per share to vest pro rata over 60 months beginning
on May 1, 1998; (iii) to ratify the selection by the Board of
PricewaterhouseCoopers LLP as independent auditors of Covol for the fiscal year
ending September 30, 1999 ("Fiscal 1999"); and (iv) to transact such other
business as may properly come before the Meeting or any adjournments or
postponements thereof. If a quorum exists, directors will be elected by a
plurality of the votes of the shares of Covol common stock, $.001 par value,
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors. If a quorum exists, action on items (ii) and (iii)
above will be approved by affirmative vote of the holders of a majority of the
shares of the common stock present or represented by proxy at the Meeting and
entitled to vote on such matters. The Board recommends a vote "FOR" (i) the
election of the three nominees for class II director of Covol listed below; (ii)
the ratification of the grant by the Board of options to purchase 250,000 shares
of common stock to Brent M. Cook, and (iii) the ratification of
PricewaterhouseCoopers LLP as independent auditors of Covol for Fiscal 1999. The
Board knows of no other matters which are likely to be brought before the
Meeting. If any other matters properly come before the Meeting, however, the
persons named in the enclosed proxy, or their duly constituted substitutes
acting at the Meeting, will be authorized to vote or otherwise act thereon in
accordance with their judgment on such matters. If the enclosed proxy is
properly executed and returned prior to voting at the Meeting, the shares
represented thereby will be voted in accordance with the instructions marked
thereon. In the absence of instructions, executed proxies will be voted "FOR"
the items listed in the Notice.
QUORUM, VOTING RIGHTS AND OTHER MATTERS
The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of common stock is necessary to constitute a quorum at
the Meeting. Only stockholders of record at the close of business on Monday,
January 18, 1999 (the "Record Date"), will be entitled to notice of, and to vote
at,
1
<PAGE>
the Meeting. As of the Record Date, there were 12,494,029 shares of common stock
outstanding and entitled to vote at the Meeting. Holders of common stock as of
the Record Date are entitled to one vote for each share held. Holders of common
stock are not entitled to cumulative voting rights.
All shares of common stock represented by properly executed proxies
will, unless such proxies have previously been revoked, be voted in accordance
with the instructions indicated in such proxies. If no such instructions are
indicated, such shares will be voted in favor of (i.e., "FOR") the items listed
in the Notice. Abstentions will be counted as shares present for quorum
purposes, but otherwise will count as a vote against the applicable proposal.
Any stockholder executing a proxy has the power to revoke such proxy at
any time prior to its exercise. A proxy may be revoked prior to exercise by (i)
filing with Covol a written revocation of the proxy, (ii) appearing at the
Meeting and casting a vote contrary to that indicated on the proxy or (iii)
submitting a duly executed proxy bearing a later date.
The cost of preparing, printing, assembling and mailing this Proxy
Statement and other material furnished to stockholders in connection with the
solicitation of proxies will be borne by Covol. In addition to the solicitation
of proxies by use of the mails, officers, directors and employees of Covol may
solicit proxies by written communication, telephone, telegraph or personal call.
Such persons are to receive no special compensation for any solicitation
activities. Covol will reimburse banks, brokers and other persons holding common
stock in their names, or those of their nominees, for their expenses in
forwarding proxy solicitation materials to beneficial owners of common stock.
EXECUTIVE OFFICERS
The following table sets forth (i) the names of the executive officers,
(ii) their ages as of the Record Date and (iii) the capacities in which they
serve Covol:
Name Age Position(s) Officer Since
Brent M. Cook 38 Chief Executive Officer and 1996
Chairman of the Board
Stanley M. Kimball 44 President and Director 1997
Steven G. Stewart 50 Chief Financial Officer 1998
George W. Ford, Jr. 53 Principal Scientist / Vice President 1993
of Science and Technology
Steven R. Brown 40 Sr. Vice President of 1995
Engineering and Development
Max E. Sorenson 49 Sr. Vice President of 1997
Engineered Resources
Dee J. "D.J." Priano 53 Sr. Vice President of 1997
Synfuel Engineered Fuels
Harlan M. Hatfield 38 Vice President, General Counsel 1998
Asael T. Sorensen, Jr. 44 Secretary and Corporate Counsel 1995
Stephanie E. Black 36 Vice President of 1998
Research and Development
Kenneth R. Frailey 45 Vice President of Operations 1998
2
<PAGE>
See "Proposal No. 1 -- Election of Directors - Nominees for Election as
Directors" for biographical information regarding Messrs. Cook and Kimball.
Steven G. Stewart was appointed Chief Financial Officer of Covol in July 1998,
and served as Vice President of Finance and Treasurer from April 1998 through
July 1998. Prior to joining Covol, Mr. Stewart was a partner for 11 years with a
"Big Five" accounting firm, an audit partner with Ernst & Young (formerly Arthur
Young) and was the Salt Lake City office Director of High Technology and
Entrepreneurial Services. From January 1994 through September 1996, Mr. Stewart
was self-employed and provided consulting services to high technology companies,
established strategic alliances, advised companies on alternative valuation
methods applicable to acquisition targets and negotiated acquisition/sale
transactions. From October 1996 through March 1998, Mr. Stewart was a business
assurance partner at PricewaterhouseCoopers LLP (formerly Coopers & Lybrand
LLP), with primary responsibility for public companies operating in the high
technology, mining and extractive industries. Mr. Stewart is a Certified Public
Accountant.
George W. Ford, Jr. has served as Vice President of Research and Development of
Covol since August 1993. From August 1993 to February 1997, Mr. Ford served as a
Director of Covol. From 1982 to 1993, Mr. Ford was employed at Ballard Medical
Products, Inc. in research and development, principally in the biomedical field.
Mr. Ford holds 17 national and international patents covering a wide variety of
technologies. Mr. Ford has functioned as an independent consultant working on
projects in computer programming, medical product device design and process
polymer chemistry design for the energy industry. Mr. Ford is a member of the
American Association for the Advancement of Science and the Iron and Steel
Society.
Steven R. Brown was appointed Senior Vice President of Engineering and
Development in December 1998. Since July 1998 he served as Vice President -
Synfuel Operations. Previously he served as Vice President of Engineering and
Construction of Covol since February 1995. Mr. Brown served as a Director of
Covol from September 1995 to March 1997. From 1993 to 1995, Mr. Brown was
President of Construction Management Service, Inc. Mr. Brown is a licensed
professional engineer and a licensed general contractor.
Max E. Sorenson was appointed Senior Vice President of Engineered Resources in
December 1998. He served as Vice President of Covol since April 1997. Prior to
Mr. Sorenson's employment with Covol, Mr. Sorenson was Senior Vice President of
Operations, Engineering and Technology of Geneva Steel Company. Mr. Sorenson
began his employment with Geneva Steel Company in October 1989. During his
employment with Geneva Steel Company, Mr. Sorenson also had responsibility for
raw materials, transportation contracts and information systems and also served
as Chief Engineer of Coke, Iron and Steel, and Vice President of Engineering.
Prior to joining Geneva Steel Company, Mr. Sorenson worked for 16 years for
Inland Steel, Inc., one of the largest steel companies in the United States,
where he served in various operational and technology management positions in
ironmaking and steelmaking. Mr. Sorenson obtained a B.S. degree in Metallurgical
Engineering from the University of Utah in 1973 and a Master of Science degree
in Industrial Management from Purdue University in 1978.
Dee J. "DJ" Priano was appointed Senior Vice President of Synfuel Engineered
Fuels in December 1998. Prior thereto, he served as Vice President of Covol
since August 1997. Mr. Priano had been employed by Kennecott Corporation for
more than 32 years prior to that time. Mr. Priano worked in several different
positions at Kennecott including Principal Planning Engineer for Kennecott's
Bingham Canyon mine, Manager of Operations Analysis, Controller of Kennecott's
Bingham Canyon mine as well as the Controller of Kennecott's U.S. Mines
Division. In addition to managing general accounting and financial reporting
activities, he was responsible for the administration of purchasing, MIS and
land and water management functions. Mr. Priano received a BS degree and Master
of Business Administration from the University of Utah.
3
<PAGE>
Harlan M. Hatfield has served as Vice President and General Counsel since July
1998 and Corporate Counsel since October 1996. His primary activities with Covol
have been the development of synthetic fuel projects, including licensing,
financing, permitting, construction, feedstocks, site selection, and other
aspects of project development. As General Counsel he oversees the legal staff
and outside legal counsel, litigation, regulatory disputes, contracts, and other
legal matters. Prior to his employment with Covol, he was in private practice at
the Seattle law firm of Oles, Morrison and Rinker for more than nine years where
he was a partner.
Asael T. Sorensen, Jr. joined Covol as its legal Counsel in September 1995. He
has also served as Corporate Secretary since June 1996. From 1982 to 1995, Mr.
Sorensen was an in-house attorney for the Church of Jesus Christ of Latter-Day
Saints in Salt Lake City, Utah and practiced law primarily in the area of
contract negotiations and administration. Mr. Sorensen graduated from Brigham
Young University with a joint Juris Doctor and Master of Business
Administration. He is admitted to practice law in the State of Utah.
Stephanie E. Black joined Covol in March of 1998 as Director of Research and
Development, and in December 1998, was appointed Vice President of Research and
Development. She was employed as a Strategic Account Manager with PacifiCorp
from June of 1995 until joining Covol. For the approximately 11 years prior to
June 1995, Ms. Black was employed with Hercules, Inc. (now Alliant Techsystems).
While with Hercules, Ms. Black acted at various times as engineer, analyst,
supervisor, and subcontract manager.
Kenneth R. Frailey joined Covol in August 1998, and in December 1998, was
appointed Vice President of Operations. Until August 1998, Mr. Frailey was
employed by Kennecott Corporation and General Electric for a total of
approximately 20 years. Mr. Frailey's Kennecott experience related to mining and
electrical power generation, and particularly managerial assignments in plant
operations and engineering.
4
<PAGE>
EXECUTIVE COMPENSATION AND RELATED INFORMATION
The following sets forth the compensation Covol's Chief Executive Officer,
and the other most highly compensated executive officers who were executive
officers as of September 30, 1998 and whose total annual salary and bonus
exceeded $100,000 in 1998. The amounts shown represent what was earned in the
respective years.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term Compensation
-----------------------------------------------------------------------------------------
Awards Payouts
----------------------- ----------------
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Name and Salary Bonus Compensation Awards Options Payouts Compensation
Principal Position Year ($) ($) ($)(2) ($) (#) ($) ($)
- -------------------- ----------------- -------------------------------------- ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Brent M. Cook (1) 1998 133,333 54,400 53,120 - 250,000(3) - -
Chief Executive 1997 93,811 - 46,520 - - - -
Officer 1996 23,335 60,000 1,163,000 - 40,000 - -
Stanley M. 1998 100,000 5,366 287,850 - 100,000(3) - -
Kimball,
President
Max E. Sorenson, 1998 113,304 25,000 78,125 - 25,000(3) - -
Sr. VP of
Engineered
Resources
Steven R. Brown, 1998 80,000 50,000 126,369 - 25,000(3) - -
Sr. VP of
Engineering and
Development
- ------------------
</TABLE>
(1) In 1996, Mr. Cook received immediately exercisable options to acquire
100,000 shares of common stock at a price of $1.50 per share. Compensation
expense of $1,163,000 was recorded by Covol for this transaction. Mr. Cook
also received an option to acquire 40,000 shares of common stock at a price
of $1.50 per share, which vests over 10 years. Compensation expense of
$46,520 in both 1998 and 1997 was recorded by Covol relating to this
transaction.
(2) For all of the named executives, other annual compensation represents
primarily compensation expense from the grant of options to purchase common
stock which have an exercise price at grant date below market value.
Compensation is recognized during the period the stock options vest. In
1998, it also includes $6,600 of car allowance compensation for Mr. Cook
and for Mr. Kimball, and $35,000 of other compensation for Mr. Brown.
(3) The 1998 option grant to Mr. Cook for the purchase of 250,000 shares of
common stock is subject to stockholder approval (see proposal No. 2). The
1998 option grants to Messrs. Kimball, Sorenson and Brown were granted
under the 1995 Stock Option Plan.
Other than Covol's 1995 Stock Option Plan, there are no retirement,
pension, or profit sharing plans for the benefit of Covol's officers, directors
and employees. Covol provides health, dental and life insurance coverage for its
employees. The Board of Directors may recommend and adopt additional programs in
the future for the benefit of officers, directors and employees.
5
<PAGE>
Option Grants in 1998
The following table sets forth certain information concerning options to
purchase common stock granted during fiscal year 1998 to the executives named in
the Summary Compensation Table.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees in Exercise Expiration Grant Date
Name Granted (#) 1998 Price ($/Sh)(1) Date Value ($)(2)
- ---------------------- ------------------------------------ ------------------ --------------------------------------
<S> <C> <C> <C> <C> <C>
Brent M. Cook 250,000 36.9% 12.97 June 2008 2,556,450
Stanley M. Kimball 100,000 14.8% 12.97 June 2008 1,022,580
Max E. Sorenson 25,000 3.7% 12.97 June 2008 255,645
Steven R. Brown 25,000 3.7% 12.97 June 2008 255,645
- ------------------
</TABLE>
(1) The exercise price was equal to the fair market value on the date of grant,
determined by the closing price of the common stock as reported by the
NASDAQ stock market.
(2) Determined using the Black-Scholes option valuation model.
Aggregated Option Exercises in 1998 and September 30, 1998 Option Values
The following table summarizes for the named executive officers of Covol
the number of stock options exercised during fiscal year 1998, the aggregate
dollar value realized upon exercise, the total number of unexercised options
held at September 30, 1998 and the aggregate dollar value of in-the-money
unexercised options held at September 30, 1998. Value realized upon exercise is
the difference between the fair market value of the underlying stock on the
exercise date (based upon the closing price of common stock as reported by the
NASDAQ stock market for the exercise date) and the exercise price of the option.
Options are in-the-money if the fair market value of the underlying securities
exceeds the exercise price of the option. The value of unexercised, in-the-money
options at September 30, 1998 is the aggregate amount of the difference between
their exercise price and $9.38 per share, the fair market value of the
underlying stock on September 30, 1998, based on the closing price of the common
stock on that date. The underlying options have not been and may never be
exercised. The actual gains, if any, on exercise will depend on the value of the
common stock on the actual date of exercise. There can be no assurance that
these values will be realized.
6
<PAGE>
Aggregated Option Exercises in 1998
and September 30, 1998 Option Values
The following table sets forth certain information concerning the exercise
in fiscal year 1998 of options to purchase common stock by the executives named
in the Summary Compensation Table and the unexercised options to purchase common
stock held by these individuals at September 30, 1998.
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised
Acquired Value Underlying Unexercised In-the-Money Options at
on Exercise Realized Options at 9/30/98 (#) 9/30/98 ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---------------------- --------------- ----------------------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Brent M. Cook 2,500 22,813 126,333 / 261,167 830,813 / 252,000
Stanley M. Kimball 5,000 52,345 78,764 / 116,236 340,892 / 69,734
Max E. Sorenson 0 0 53,750 / 71,250 311,250 / 138,750
Steven R. Brown 0 0 29,583 / 120,417 216,563 / 767,813
</TABLE>
Long-Term Incentive Plan ("LTIP") Awards in 1998
Covol granted no LTIP awards in fiscal year 1998.
Future Benefits of Pension Plan Disclosure in 1998
Covol has no such benefit plans.
Stock Option Plans
1995 Stock Option Plan. Covol has only one stock option plan, the 1995
Stock Option Plan (the "Plan"), under which 2,400,000 shares of common stock are
reserved for ultimate issuance. A committee of Covol's Board of Directors, or in
its absence, the Board (the "Committee") administers and interprets the Option
Plan. This Committee is authorized to grant options and other awards both under
the terms of the Option Plan and outside the Option Plan to eligible employees,
officers, directors, and consultants of Covol. The Option Plan provides for the
granting of both incentive stock options and non-statutory stock options. Terms
of options granted under the Option Plan, including vesting requirements, are
determined by the Committee. Options granted under the Option Plan vest over
periods ranging from 0 to ten years, expire ten years from the date of grant and
are not transferable other than by will or by the laws of descent and
distribution. Incentive stock option grants must meet the requirements of the
Internal Revenue Code.
As of September 30, 1998, Covol had issued 900,000 shares of common
stock upon exercise of options granted under the Plan, and options for the
purchase of an aggregate of 702,500 shares of common stock (net of exercises and
cancellations) were outstanding under the Plan. Options for an additional
797,500 shares could be granted in the future, under terms of the Plan. During
fiscal year 1998, options to purchase 427,000 shares of common stock were
granted to 13 officers and employees of Covol, of which 150,000 were granted to
the named executives, as shown in the Summary Compensation Table. All of the
option grants to the named executives have terms of 10 years, an exercise price
of $12.97 per share, the fair market value of Covol's common stock on the date
of grant, and provide for vesting ratably over a 60-month period, beginning the
month following the grant date.
Other Options. In addition to options granted under the Plan, Covol has
granted options for the purchase of common stock to employees, officers,
directors and consultants outside the Plan that were not qualified
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<PAGE>
as incentive stock options for tax purposes. Such option grants totaled 379,750
shares in fiscal year 1998, of which 250,000 were granted to Mr. Cook, subject
to shareholder approval (see Proposal No. 2), 74,750 were granted to four
non-employee directors, and 55,000 were granted to consultants.
Employment Contracts and Termination of Employment and Change in Control
Arrangements
Brent M. Cook. As of April 21, 1998, Covol and Mr. Brent M. Cook
entered into an employment agreement for Mr. Cook covering the succeeding five
year term, with salary to be established by the Board of Directors consistent
with an annual compensation review of comparable positions of public companies.
The employment agreement further provides for participation in Covol's incentive
bonus plan, if any, as in effect from time to time, expense reimbursement, and
the grant of stock options. Specifically, the employment agreement provides for
the grant of options for 250,000 shares of common stock at an exercise price of
$12 31/32 per share, to vest on a pro rata basis at the beginning of each month
during the term of the employment agreement, with full vesting upon disability
or death. Under the employment agreement, Mr. Cook is also entitled to six weeks
paid vacation, $550 per month automobile allowance, a dental allowance of $4,500
per year, and other benefits comparable to those generally available to Company
employees. If his employment is terminated by Covol without cause or terminated
by Mr. Cook for good reason, he is entitled to termination benefits equal to
100% of his then annual base salary
Max E. Sorenson. Covol entered into an employment agreement, dated
March 20, 1997, with Max E. Sorenson. The employment agreement extends for a
period of three years unless terminated by Covol for cause or death, or by the
employee for certain Company actions which constitute good cause or without good
reason provided 60 days prior written notice is given. During the first, second
and third twelve month periods, Mr. Sorenson's regular monthly salary will be
$6,667 ($80,004 annualized), $10,833 ($129,996 annualized) and $10,833 ($129,996
annualized) respectively. Mr. Sorenson is entitled to receive a bonus pursuant
to Covol's bonus plan, if any, in effect from time to time. Further, under his
employment agreement, Mr. Sorenson was issued stock options to purchase 50,000
shares of Covol common stock at a purchase price per share of $1.50, vesting
25,000 immediately, 12,500 and 12,500 at the end of the first and second twelve
month periods of employment, respectively. Additionally, Mr. Sorenson receives a
monthly car allowance of $550, received a signing bonus of $50,000, and may
receive termination benefits at the expiration of the employment agreement
(whether or not Mr. Sorenson is offered employment by Covol after the three
years) equal to the sum of one year's annual wages.
Stanley M. Kimball. Covol entered into an employment agreement, dated
January 1, 1997, with Stanley M. Kimball. The employment agreement extends for a
period of three years unless terminated by Covol for cause or disability, or by
the employee for certain Company actions which constitute good reason or without
good reason provided 90 days prior written notice is given. Mr. Kimball is
entitled to an annual base salary of at least $80,000. However, the agreement
provides that Mr. Kimball's base salary shall be in line with the salary paid to
the President and Chief Executive Officer of Covol. Effective June 1997, Mr.
Kimball's annual base salary was increased to $100,000. Mr. Kimball was issued
stock options to purchase 50,000 shares of Covol common stock at a purchase
price per share of $1.50, vesting on a pro rata basis over two years commencing
January 1, 1997 and ending December 31, 1998. Additionally, Mr. Kimball receives
a monthly car allowance of $550 and is entitled to termination benefits equal to
200% of the then current annual base salary if Mr. Kimball's employment is
terminated by Covol without cause or terminated by Mr. Kimball for good reason.
D.J. Priano. Covol entered into an employment agreement with Mr. Priano
effective August 1, 1997 as a Vice President. The employment agreement extends
for a period of three years unless terminated by Covol for cause or death, or by
the employee for certain Company actions which constitute good cause or without
good reason provided 60 days prior written notice is given. Mr. Priano's regular
monthly salary will be at least $6,667, $6,667, and $10,417 for the twelve month
period from August 1, 1997 through 1998, 1999 and 2000, respectively. Mr. Priano
is entitled to receive a bonus pursuant to Covol's bonus plan, if any, in effect
8
<PAGE>
from time to time. Mr. Priano was issued stock options to purchase 100,000
shares of Covol common stock at a purchase price of $8.25 per share, vesting on
a pro rate basis over 25 months beginning September 1, 1997 and are exercisable
through August 1, 2007. In addition, Mr. Priano receives a monthly car allowance
of $550 and if employment is terminated by Covol without cause or terminated by
Mr. Priano for good reason he is entitled to termination benefits equal to 200%
of his then annual base salary and all outstanding options vest immediately.
Steven G. Stewart. Covol entered into an employment agreement with Mr.
Stewart effective May 1, 1998 as the Vice President of Finance and Treasurer.
The employment agreement extends for a three-year period unless terminated by
Covol for cause or death, or by the employee for certain Company actions which
constitute good cause or without good reason provided 90 days prior written
notice is given. Mr. Stewart's regular monthly salary will be at least $6,667,
$8,334 and $10, 417 for the twelve month periods from May 1, 1998 through 1999,
2000 and 2001, respectively. Mr. Stewart is entitled to receive a bonus pursuant
to Covol's bonus plan, if any, in effect from time to time with a minimum
quarterly bonus of $5,000. Mr. Stewart was issued stock options to purchase
50,000 shares of Covol common stock at a price of $12.625, vesting on a pro rate
basis over 60 months beginning May 1, 1998 which are exercisable through April
30, 2008. In addition, Mr. Stewart receives a monthly car allowance of $550 and
if employment is terminated by Covol without cause or terminated by Mr. Stewart
for good reason he is entitled to termination benefits equal to 200% of his then
annual base salary and all outstanding options vest immediately.
Board Meetings
The Board held a total of twelve regular meetings during fiscal year
1998 and one special meeting during fiscal year 1998. All directors attended
over 75% of the aggregate number of the regular meetings of the Board.
Committees Of The Board
The Board of Directors has two committees, an Audit Committee and a
Compensation Committee, both of which are comprised solely of outside directors.
The Compensation Committee consists of Mr. Weller, as chair, and Mr. Herickhoff.
The Audit Committee consists of Mr. Herickhoff, as chair, Mr. Squire, and Mr.
Hill. The Audit Committee held three meetings in fiscal 1998. The Compensation
Committee held two meetings in fiscal 1998.
9
<PAGE>
Compensation Committee Report on Executive Compensation
The Compensation Committee reviews and makes recommendations to the
Board of Directors concerning the overall compensation for Covol's officers and
other key executives, including the named executives. The Committee also
oversees the granting of stock options to all executives and employees of Covol.
Future compensation polices will be dependent on Covol's cash flow and employee
performance.
Covol seeks to compensate executives at competitive levels, considering
current compensation surveys for companies in similar industries and development
patterns, the growth of Covol, each executive's individual contribution to
meeting Covol's goals and objectives, and overall business conditions as part of
the total benefit package for employees.
The current employment agreement for Mr. Cook was approved by the Board
of Directors in a meeting on April 15, 1998. The Compensation Committee
recommended the cash compensation and grant of options to Mr. Cook based on the
progress of Covol and its licensees in meeting its primary objective of timely
constructing 24 synthetic fuel facilities.
The Compensation Committee strives to ensure that Covol's compensation
plan attracts, retains and rewards both staff and management personnel while
continuing to operate in the best interests of the stockholders.
Compensation Committee,
Raymond J. Weller, Chairman
James A. Herickhoff
January 15, 1999
Compensation of Directors
Covol's directors hold office until the end of their respective terms
or until their successors have been duly elected and qualified. On June 22,
1998, each of Covol's outside directors received options for shares of Covol
common stock, exercisable at the closing bid price of the common stock as of
that date, in the amount of 1,000 shares for each director for each month of
service of the director as such, from and including November, 1996 through and
including July, 1998, for a maximum 21,000 shares for each director. Mr. Weller
received an additional 5,250 options for his service as chairman of the board.
Outside directors are entitled to annual cash compensation of up to
$32,000, of which $20,000 represents an annual retainer, and $12,000 is earned
by attendance at 75% or more of the meetings of the Board of Directors. The
outside directors are also entitled to 1,000 options for each month of service,
subject to vesting at each annual shareholders meeting. Vesting of options
occurs if the director has attended at least 75% of the meetings of the Board of
Directors since the last annual shareholders meeting. The Chairman of the Board,
unless a salaried employee of Covol, is entitled to cash compensation and
options on the same vesting terms, but in the amount of 125% of that which may
be received by the other directors. Directors receive reimbursement for
out-of-pocket expenses. The cash compensation and options described in this
section do not apply to Directors who are salaried employees of Covol.
On December 11, 1998, each of Covol's outside directors received (i)
7,000 options for the period of service from the fiscal 1998 annual
shareholders' meeting to the fiscal 1999 shareholders' meeting, subject to
vesting, and (ii) 36,000 options for the three year period following the 1999
annual shareholders' meeting, subject to vesting, on a pro rata basis, at the
fiscal 2000, 2001 and 2002 annual shareholders' meetings, and
10
<PAGE>
also subject to shareholder approval. The options granted on December 11, 1998
are exercisable at the closing price of the common stock on that date.
Covol's executive officers are appointed by the Board of Directors and
serve at the discretion of the Board. Officers serve at the will of the Board of
Directors. The authority of the Board of Directors over the officers of Covol
has been delegated to the Chief Executive Officer.
Stockholder Return Performance Graph
The following graph shows a comparison of the cumulative total
stockholder return, calculated on a dividend reinvestment basis, for September
30, 1994 through September 30, 1998, on Covol's common stock with (1) the NASDAQ
Composite Index--U.S. and (2) the Standard & Poors Energy Composite Index.
The comparison assumes $100 was invested on September 30, 1994.
Please note that historic stock price performance shown on the graph is
not necessarily indicative of future price performance. Covol has not paid
dividends on its common stock.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Total Returns Assume Reinvestment of Dividends
9/30/94 9/30/95 9/30/96 9/30/97 9/30/98
-------------- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Covol $100 $230 $265 $296 $300
S&P Energy Composite 100 120 140 200 184
NASDAQ Composite (US) 100 137 161 221 222
</TABLE>
11
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS, NOMINEES
AND PRINCIPAL STOCKHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of January 18,
1999, regarding the beneficial ownership of Covol's common stock, for: (i) each
person (or group of affiliated persons) who, insofar as Covol has been able to
ascertain, beneficially owned more than 5% of the outstanding shares of common
stock; (ii) each director and executive officer of Covol; and (iii) all
directors and executive officers of Covol as a group. Covol has relied on
information received from each stockholder as to beneficial ownership, including
information contained on Schedules 13D and Forms 3, 4 and 5. As of January 18,
1999, there were 12,494,029 shares of common stock outstanding. As of that date,
there were outstanding options to purchase 2,686,250 shares of common stock,
there were outstanding warrants to purchase 2,834,940 shares of common stock,
and there were outstanding shares of preferred stock convertible into 455,739
shares of common stock.
Name and Address of Amount and Nature of Percent of
Beneficial Owner (1) Beneficial Ownership(2) Class
-------------------- ----------------------- ----------
PacifiCorp Financial Services, Inc. 1,027,000 8.22%
775 NE Multnomah, Suite 775
Portland, Oregon 97232
Kirk A. Benson 822,220(3) 6.40%
4184 West Alpine Cove Drive
Alpine, UT 84004
Directors
Brent M. Cook 158,083(4) 1.25%
Stanley M. Kimball 104,367(5) *
Raymond J. Weller 335,997(6) 2.68%
DeLance W. Squire 30,500(7) *
James A. Herickhoff 22,500(8) *
John P. Hill, Jr. 21,500(9) *
Executive Officers
George W. Ford, Jr. 134,700(10) 1.08%
Steven R. Brown 121,765(11) *
Max E. Sorenson 61,250(12) *
Dee J. Priano 80,583(13) *
Asael T. Sorensen, Jr. 117,026(14) *
Harlan M. Hatfield 52,950(15) *
Steven G. Stewart 10,833(16) *
Stephanie E. Black 11,375(17) *
Kenneth R. Frailey 9,444(18) *
All directors and executive officers 1,272,874(19) 9.67%
as a group (fifteen (15) persons)
- ------------------
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<PAGE>
* Less than 1%
(1) Unless otherwise indicated, the address of each person named in the
table is c/o Covol, 3280 North Frontage Road, Lehi, Utah 84043.
(2) The persons named in this table have sole voting and investment power
with respect to all shares of common stock reflected as beneficially
owned by them. A person is deemed to be the beneficial owner of
securities that can be acquired by such person within sixty (60) days
from January 18, 1998, and the total outstanding shares used to
calculate each beneficial owner's percentage includes such shares.
Beneficial ownership as reported does not include shares subject to
options that are not exercisable within 60 days of January 18, 1999.
(3) Consists of 466,665 shares owned by Mr. Benson, and warrants for 55,555
shares exercisable at $12 per share, and warrants for an additional
300,000 shares exercisable at $7.50 per share.
(4) Consists of 2,750 shares owned by Mr. Cook and options to purchase
155,333 shares held by Mr. Cook which are exercisable within 60 days of
January 18, 1999.
(5) Consists of 6,200 shares owned by Mr. Kimball and options to purchase
97,917 shares held by Mr. Kimball which are exercisable within 60 days
of January 18, 1999. Lee Kimball, the son of Mr. Kimball, owns 250
shares for which Mr. Kimball disclaims beneficial ownership.
(6) Consists of 285,247 shares owned by Mr. Weller and options to purchase
50,750 shares held by Mr. Weller which are exercisable within 60 days
of January 18, 1999.
(7) Consists of 2,500 shares owned by Mr. Squire and options to purchase
28,000 shares held by Mr. Squire which are exercisable within 60 days
of January 18, 1999.
(8) Consists of options to purchase 22,500 shares held by Mr. Herickhoff
which are exercisable within 60 days of January 18, 1999.
(9) Consists of options to purchase 21,500 shares held by Mr. Hill which
are exercisable within 60 days of January 18, 1999.
(10) Consists of 114,200 shares owned by Mr. Ford and options to purchase
20,500 shares held by Mr. Ford which are exercisable within 60 days of
January 18, 1999.
(11) Consists of 97,182 shares owned by Mr. Brown and options to purchase
24,583 shares held by Mr. Brown which are exercisable within 60 days of
January 18, 1999.
(12) Consists of options to acquire 61,250 shares held by Mr. Sorenson which
are exercisable within 60 days of January 18, 1999.
(13) Consists of options to acquire 80,583 shares held by Mr. Priano which
are exercisable within 60 days of January 18, 1999.
(14) Consists of 97,026 shares owned by Mr. Sorensen and his wife in trust,
and options to purchase 20,000 shares held by Mr. Sorensen which are
exercisable within 60 days of January 18, 1999.
(15) Consists of options to purchase 52,950 shares held by Mr. Hatfield
which are exercisable within 60 days of January 18, 1999.
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<PAGE>
(16) Consists of options to purchase 10,833 shares held by Mr. Stewart which
are exercisable within 60 days of January 18, 1999.
(17) Consists of options to purchase 11,375 shares held by Ms. Black which
are exercisable within 60 days of January 18, 1999.
(18) Consists of 2,500 shares owned by Mr. Frailey and options to purchase
6,944 shares which are exercisable within 60 days of January 18, 1999.
(19) Consists of 607,855 shares issued and outstanding and options to
purchase 665,019 shares which are exercisable within 60 days of January
18, 1999.
TRANSACTIONS WITH RELATED PARTIES
PacifiCorp. During fiscal year 1998, Covol was involved in various
transactions with PacifiCorp Financial Services, Inc. and certain of its
affiliates ("PacifiCorp"). The transactions include (i) the Alabama Purchase
Agreement, (ii) the PacifiCorp Convertible Loan Agreement and related
agreements, and (iii) the PacifiCorp Licenses.
(i) Alabama Purchase Agreement. Covol, through Alabama Synfuel #1,
Ltd., a Delaware limited partnership in which Covol was at the time a 74% owner
and general partner ("AS #1"), constructed a synthetic fuel facility in
Birmingham, Alabama. The facility manufactures synthetic fuel from coal and is
expected to have an annual capacity of approximately 360,000 tons. Pursuant to
the Alabama Project Purchase Agreement, dated as of March 20, 1997 (the "Alabama
Purchase Agreement"), between Covol, AS #1 and Birmingham Syn Fuel, L.L.C.
("BSF"), a wholly-owned subsidiary of PacifiCorp Financial Services, Inc.
(together with any affiliates, "PacifiCorp"), Covol and AS #1 agreed to sell,
and BSF agreed to buy the Alabama facility, subject to the terms and conditions
of the Alabama Purchase Agreement. Such sale was completed on March 6, 1998 for
$6,500,000 payable in the form of a non-recourse promissory note collateralized
by certain portions of the synthetic fuel facility. A loss of $218,000 was
incurred in this sale. In connection with the sale of the Alabama facility,
Covol granted BSF a license to Covol's binder technologies for which it received
an advance license fee of $500,000. PacifiCorp purchased approximately
$2,473,000 of coal fines from Covol in conjunction with the purchase of the
synthetic fuel facility.
(ii) Pacific Corp Convertible Loan Agreement. In late July 1996, Covol
negotiated with PacifiCorp the general terms of the sale of the Alabama
facility, including an arrangement for convertible debt in the amount of up to
$5,000,000 to fund working capital and construction costs needed to complete the
facility. At the time of these negotiations, Covol agreed to a conversion price
of $7 per share, the trading price of Covol's stock at the time the transaction
was initially negotiated. The actual documents completing this agreement were
not finalized until March 20, 1997. The Convertible Loan Agreement was
subsequently amended December 12, 1997, increasing the amount available under
the loan to $7,000,000. As of March 3, 1998, Covol had borrowed $6,686,473 under
this loan and interest of $313,527 had accrued. On March 3, 1998, PacifiCorp
exercised its option to convert the full amount of $7,000,000 under this loan
into 1,000,000 shares of common stock (conversion at $7.00). In addition,
another 27,000 shares were issued pursuant to anti-dilution provisions of the
loan agreement. See "Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS in Covol's Annual Report on Form 10-K for
the fiscal year ended September 30, 1998 ("Form 10-K").
(iii) PacifiCorp Licenses. In addition to the license agreement between
Covol and BSF, in December 1996, PacifiCorp entered into binding agreements with
a third-party contractor for the construction of six additional synthetic fuel
facilities. Each facility was designed to manufacture approximately 360,000 tons
annually. Covol entered into a license agreement with PacifiCorp for the use of
Covol's binder technologies
14
<PAGE>
at the six facilities subject to the construction agreements. PacifiCorp
subsequently announced the construction of only three facilities, which included
a double-line synthetic fuel processing facility located in Walker County,
Alabama and a single-line facility located in Tuscaloosa County, Alabama, which
construction was completed on or before June 1, 1998. In connection with the
construction of these three facilities, Covol agreed to indemnify the contractor
if the facilities were not completed by June 1, 1998. The contractor and
PacifiCorp have initiated arbitration claims against each other. Covol is
closely monitoring the situation and believes that payment of a material amount
by Covol is unlikely. PacifiCorp agreed to pay Covol $1,000,000 in advance
license fees in 1998 and will pay a quarterly license fee at a prescribed amount
(subject to possible adjustment) times the British Thermal Units ("Btu") of
product produced and sold in future periods. Covol will also provide binder to
the facility at its cost plus a prescribed mark-up (subject to possible
adjustment).
Trans Pacific Stores, Ltd. ("TPS"). On March 17, 1998, Covol entered
into a loan agreement in which TPS, a company for which Mr. John Hill, a
director of Covol, serves as president, agreed to loan Covol up to $4,000,000.
The loan is secured by future earned license fees payable to Covol resulting
from the synthetic fuel manufacturing facilities constructed by Pace Carbon
Fuels, LLC. Interest on the outstanding principal balance originally accrued at
12%. The interest rate increased to 13% on September 20, 1998 and to 14% on
December 20, 1998. Each time the interest rate was adjusted, a 1% renewal fee of
$40,000 was incurred. Principal and interest are due in full on March 20, 1999.
As of September 30, 1998, $4,000,000 had been borrowed under this arrangement.
On June 12, 1998, Covol entered into another loan agreement in which TPS agreed
to loan Covol an additional amount up to $4,000,000. This loan is secured by a
certain promissory note between Covol and Gerald Larson and future cash flows
payable to Covol resulting from the synthetic fuel manufacturing facilities
constructed and owned by Appalachian Synfuel, L.L.C., a wholly-owned subsidiary
of Fluor Corporation. Interest on the outstanding principal balance accrued at
18% per annum until October 1998, at which time it increased to 22%. Principal
and interest is due and payable June 12, 1999. As of September 30, 1998,
$4,000,000 had been borrowed under this arrangement. Warrants to purchase
100,000 shares of common stock were granted in October 1998 based on the
outstanding principal balance.
Employment Agreements. Covol has entered into employment agreements
with Messrs. Cook, Kimball, Sorenson, Priano and Stewart which provide for
significant benefits. See "Employment Contracts and Termination of Employment
and Change in Control Arrangements."
$500,000 Loan from Certain Officers. In November 1996, Steven R. Brown
loaned $280,000 and Asael T. Sorensen, Jr. loaned $220,000 to Covol which
accrues interest at prime plus 2%. Principal and interest is due on or before
November 26, 2002. As of September 30, 1998, approximately $353,000 had been
paid by Covol toward the repayment of the loans. The purpose of the loans was to
provide operating capital for Covol.
Related Partnerships. In June 1996, Covol formed US #1 and AS #1, for
the purpose of facilitating the financing and construction of synthetic fuel
facilities in Utah and Alabama, respectively. Mr. Russell Madsen, Mr. Dean
Young, Mr. Kenneth M. Young, Mr. Alan D. Ayers, Mr. Asael T. Sorensen, Jr., Mr.
Steven R. Brown, and Mr. Michael Q. Midgley (former and current officers and
directors of Covol) acquired interests in US #1 and AS #1. Their aggregate
interests represented approximately 8.1% of the capital profits of US #1 and
0.6% of the capital profits of AS #1. See "Key Bank Loan" below. In connection
with the sale of the Utah facility, Covol granted US #1 a non-exclusive license
to Covol's binder technologies for which it received an advance license fee of
$500,000 from US #1. These transactions are not based on arms-length
negotiations by the parties. Covol retained a 64% interest in US #1 and a 74%
interest in AS #1 and privately placed the remaining partnership interests in
the Partnerships. The limited partners paid $3,277,500 for the remaining
partnership interests in US #1 and $2,062,500 for the remaining partnership
interests in AS #1. See "ITEM 1. BUSINESS--Sale of Facilities, Utah Synfuel #1
and Birmingham Syn Fuel," in the Form 10-K for a discussion of transactions with
related partnerships.
15
<PAGE>
In September 1998, Covol formally offered the limited partners in Utah
Synfuel #1, and Alabama Synfuel #1 an exchange of Covol's common stock for their
limited partnership interests. The exchange ratio was based in part on an
independent valuation of the limited partnerships' assets and other factors
including but not limited to current and future expected cash flows of the
partnerships and the market value of Covol's common stock at the date of the
offer, $9.00 per share. As of September 30, 1998, substantially all of the
limited partners had elected to exchange their limited partnership interests for
shares of Covol's common stock. During October and November 1998, all but one of
the other limited partners exchanged their interests and Utah Synfuel #1 became
a wholly-owned subsidiary of Covol and Alabama Synfuel #1 became a 98%- owned
subsidiary of Covol. Covol recorded this exchange using the market values of
Covol's common stock on the dates the limited partners tendered acceptance of
Covol's offer. These market values ranged from $6.75 to $11.13 per share.
Officers and directors of Covol received an aggregate of 95,900 shares of Covol
common stock in exchange for their interests, with an aggregate market value,
using a value of $9.00 per share, of $863,100. Messrs. Weller, Brown, and
Sorensen respectively received Covol common stock having a market value of
$304,632, $101,538, and $126,918.
Key Bank Loan. In an effort to obtain capital for the construction of
the Utah and Alabama facilities, Covol borrowed $700,000 from Key Bank of Utah
("Key Bank"). The loan accrued interest at Key Bank's prime rate plus 2% and was
to be paid in full in October 1996. In November 1996 Covol paid accrued interest
plus principal of $100,000. Covol and Key Bank agreed to roll over the remaining
$600,000 principal balance of the loan for another 90 days, until January 29,
1997, which was later extended to May 30, 1997. Additional payments of principal
and interest were paid in March and May, 1997 totaling $110,000. Key Bank
thereafter notified Covol that it was in default on the loan. Covol paid off the
principal and interest on the loan in the amount of $522,516 on August 20, 1997.
As a condition to making the loan, Key Bank required that certain officers,
directors and employees of Covol also sign as guarantors of the note evidencing
the loan (the "Key Bank Note"). To induce such officers, directors and employees
to sign individually and be severally liable on the Key Bank Note, Covol loaned
$100,000 each to Mr. Russell G. Madsen, Mr. Dean Young, Mr. Kenneth M. Young,
Mr. Alan D. Ayers, Mr. Asael T. Sorensen, Jr., Mr. Steven R. Brown and Mr.
Michael Q. Midgley (the "Individuals"). The loan to the Individuals is on
similar terms as the loan from Key Bank and was initially collateralized by
their respective interests in US#1 and AS#1 and is currently collateralized by
approximately 79,000 shares of Covol's common stock. The proceeds of the loan
from Covol to the Individuals, along with other money of the Individuals
aggregating $1,850,000, were invested in partnership interests in US #1 and AS
#1. Covol has not received any direct payments from the Individuals. On March
21, 1997, US #1 made cash distributions to each of the limited partners of US #1
in the aggregate amount of $272,000. The cash distributions attributable to the
interests in US #1 acquired through the loan to the Individuals as described
above were made directly to Covol and applied against the principal and interest
due from the Individuals. As of September 30, 1998, the individuals were
indebted to Covol in an aggregate amount of approximately $672,000. No interest
income is being recognized by Covol.
Ferro Resources. Max E. Sorenson, a Vice President of Covol,
beneficially owned Ferro Resources, L.L.C., a Utah limited liability company
("Ferro"). In December 1996, Covol together with Ferro, entered into binding
contracts with a third-party contractor for the construction of two synthetic
fuel facilities, each with a production capacity of 360,000 tons annually (the
"Ferro/Covol Construction Contracts"). Under the terms of the arrangement, Ferro
was to develop the projects and Covol was to provide a license for use of its
binder technologies. The net proceeds of the projects were to be shared equally
by Covol and Ferro. Covol and Sorenson have entered into an agreement for the
sale of the membership interests in Ferro to Covol for $15,000 plus a percentage
of revenue from the projects if constructed under the Ferro/Covol Construction
Contracts. Under the terms of the agreement, Mr. Sorenson has the opportunity to
receive up to $1,500,000 over a period of up to seven years based upon
performance factors of the specified projects. Covol's purpose for entering into
the agreement is to obtain all right, title and interest in the two Ferro/Covol
Construction Contracts. These transactions are not based on arms-length
negotiations by the parties. If the
16
<PAGE>
facilities are not constructed, the Construction Contracts call for liquidated
damages in the amount of 6% of the maximum contract price, or approximately
$636,000 in total, which amount has been accrued by Covol. Covol can give no
assurance that the facilities will be constructed and believes that construction
under the Ferro/Covol Construction Contracts is unlikely.
Option Exercise Notes. In 1995, Covol entered into loan agreements with
16 current and former officers, directors and employees of Covol in payment of
the exercise price of options to purchase 900,000 shares of Covol common stock.
Nine of these individuals are current or former officers or directors of Covol.
Specifically, Messrs. Madsen, Ford, Brown, Weller, Sorensen, Ayers, Lambert,
Young and Midgley are indebted to Covol in the principal amounts of $516,875,
$488,519, $488,519, $417,266, $322,503, $251,250, $322,503, $288,938 and
$516,875 respectively. The promissory notes bear interest at 5.7% with principal
and interest due in December 2000 and are collateralized by the shares
purchased. As of September 30, 1998, Covol had received approximately $313,000
toward repayment of the loans. No interest income is being recognized by Covol.
Financing Transactions with Major Shareholder. During September 1998,
Covol completed a financing transaction with Mr. Kirk A. Benson, a major
shareholder, and currently a director, of Covol. The transaction consisted of
the sale of 55,555 units at $27.00 per unit, for total cash proceeds to Covol of
$1,499,985. Each unit comprised three shares of common stock and a warrant for
the purchase of one share of common stock at a price of $12.00. The warrants are
exercisable until September 16, 2000, at which time they expire if unexercised.
During November 1998, Covol completed another financing transaction
with several investors one of whom was Mr. Benson. In this transaction, Mr.
Benson purchased 300,000 units at $5.00 per unit, for total cash proceeds of
$1,500,000. Each unit comprised one share of common stock and a warrant for the
purchase of one share of common stock at a price of $7.50. The warrants are
exercisable until November 12, 1999, at which time they expire if unexercised.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Covol's
officers and directors, and persons who own more than ten percent of a
registered class of Covol's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission and the
National Association of Securities Dealers. Officers, directors, and greater
than ten-percent stockholders are required by Securities and Exchange Commission
regulations to furnish Covol with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to Covol between
October 1, 1997,
17
<PAGE>
and September 30, 1998, on year-end reports furnished to Covol after September
30, 1998, and on representations that no other reports were required, Covol has
determined that during the 1998 fiscal year all applicable 16(a) filing
requirements were met except as follows, or as previously reported in Covol's
Proxy Statement dated July 20, 1998 for Covol's annual meeting held August 27,
1998.
Raymond G. Weller, a Director of Covol, gifted 3,100 shares of common
stock of Covol to his minor children, and an additional 3,100 shares of common
stock to his adult children, on April 24, 1998. Mr.
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<PAGE>
Weller acquired 1,285 shares of common stock of Covol on July 30, 1998. He filed
on or about January 27, 1999 a Form 5 reporting the transactions. The Form 5
should have been filed on or before November 14, 1998.
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
Nominees for Election as Directors
At the Meeting, the stockholders will elect all class II directors to
hold office until the annual meeting of stockholders in 2002, the expiration of
their term, or until their respective successors are duly elected and qualified.
The Board of Directors is divided into three classes, currently comprised of two
class I directors, whose terms will expire at Covol's annual meeting in 2001,
three Class II directors, whose terms will expire at the Meeting in 1999, and
two Class III directors, whose terms will expire at Covol's annual meeting in
2000. The Board currently consists of seven members: Raymond J. Weller, Brent M.
Cook, Stanley M. Kimball, DeLance M. Squire, John P. Hill, Jr., James A.
Herickhoff and Kirk A. Benson. The Board proposes that the three individuals
listed below as nominees be elected as class II directors of Covol. Each nominee
has consented to serve if elected to the Board. In the event that any nominee is
unable to serve as a director at the time of the Meeting (which is not
expected), proxies with respect to which no contrary direction is made will be
voted "FOR" such substitute nominee as shall be designated by the Board to fill
the vacancy.
The names of the nominees, together with certain information about them
are set forth below:
Name Age Position(s) with Covol Director Since
---- --- ---------------------- --------------
Raymond J. Weller 50 Director 1991
DeLance W. Squire 79 Director 1996
Kirk A. Benson 48 Director 1999
Raymond J. Weller has served as a Director of Covol since July 1991 and
served as Chairman of the Board from January 1997 through July 1998. Since 1991,
Mr. Weller has been Vice President of HMO Benefits of Utah, a Utah based
insurance brokerage firm. From 1985 to 1991, Mr. Weller was an agent with the
insurance brokerage of Galbraith, Benson, and McKay. Mr. Weller is a Class II
director, his term expires in 1999.
DeLance W. Squire has served as a Director of Covol since December 13,
1996. Currently Mr. Squire is President of Management and Professional Inc. Mr.
Squire was the founder of Squire & Co., Orem, Utah and retired in 1986. From
1986 until 1987, Mr. Squire served as the Executive Director for the Commission
for Economic Development, Orem, Utah. Mr. Squire was previously the mayor of the
City of Orem, Utah. In addition, Mr. Squire serves as the chairman of the board
of trustees for Timpanogos Regional Hospital, Orem, Utah. Mr. Squire received
his B.S. degree in Accounting from Brigham Young University in 1947 and became a
Certified Public Accountant in 1950. Mr. Squire is a Class II director, his term
expires 1999.
Kirk A. Benson has served as a Director of Covol since January 22,
1999. Most recently, Mr. Benson was Senior Vice President of Foundation Health
Systems, Inc., the nation's 4th largest publicly traded managed healthcare
company. Mr. Benson was with Foundation Health Systems and its predecessors for
approximately ten years, holding various positions including president and chief
operating officer for commercial operations, general counsel, and senior vice
president for development with responsibility for merger and acquisition
activity. Mr. Benson is a Ph.D. candidate at the Peter F. Drucker Graduate
School of Management at Claremont Graduate University. He also holds a Master of
Laws in Taxation from the
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University of Denver, and a Master of Accountancy and Juris Doctorate from
Brigham Young University. Mr. Benson is a Class II director, his term expires
1999.
The names of the Class I Directors, together with certain information
about them are set forth below:
Name Age Position(s) with Covol Director Since
John P. Hill, Jr. 38 Director 1997
James A. Herickhoff 56 Director 1997
John P. Hill, Jr. has served as a Director since September 1997. Mr.
Hill is the president of Quince Associates, a closely held investment company.
Since 1989, Mr. Hill has also served as President of Trans Pacific Stores, Ltd.,
a privately held operator of retail stores. Prior to 1989, Mr. Hill was the
Chief Financial Officer for various privately held retail and restaurant
companies. Mr. Hill received a Bachelor of Science degree in Accounting from the
University of Maryland and became a Certified Public Accountant in 1984.
James A. Herickhoff has served as a Director since August 1997. Mr.
Herickhoff is and has been a corporate consultant since 1994, and from 1987 to
1994 he served as 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 19,000,000 to approximately
40,000,000 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.
The names of the Class III directors, together with certain information
about them are set forth below:
Name Age Position(s) with Covol Director Since
Brent M. Cook 38 Chief Executive Officer and 1996
Chairman of the Board
Stanley M. Kimball 44 Director and President 1997
Brent M. Cook has served as Chief Executive Officer and Director since
November 1996, as President from October 1996 until July 1998, and served as
Chief Financial Officer from June 1996 until December 1996. Mr. Cook is a
Certified Public Accountant. Prior to joining Covol, Mr. Cook was Director of
Strategic Accounts-Utah Operations, for PacifiCorp, Inc. ("PacifiCorp"). His
responsibilities included the management of revenues of approximately $128
million per year, and seeking out and evaluating strategic growth opportunities
for PacifiCorp, including joint ventures and other transactions. Mr. Cook spent
more than 12 years with PacifiCorp. Mr. Cook is a Class III Director, his term
expires in 2000.
Stanley M. Kimball was appointed President in July 1998 and has been a
Director since January 1997. He served as Chief Financial Officer from January
1997 to July 1998. Prior to joining Covol, Mr. Kimball was employed by Huntsman
Corporation ("HC"). From 1989 to early 1995, Mr. Kimball served as the Director
of Tax for Huntsman Chemical Corporation ("HCC"). In May 1995, Mr. Kimball was
appointed as an
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officer of HCC, serving as Vice President, Tax. In July 1995, Mr. Kimball was
appointed as Vice President, Administration for HC. In this position, he had
numerous responsibilities, both for HC and for Mr. Jon M. Huntsman personally,
which included financial accounting, tax and estate planning, and cash and
investment management. In this position, Mr. Kimball also served as Mr.
Huntsman's Chief of Staff. In 1980, Mr. Kimball received a Master of
Accountancy, with emphasis in taxation, from Brigham Young University and is a
Certified Public Accountant. Between 1980 and 1989, he was employed by Arthur
Andersen & Co., and was serving as a Senior Tax Manager prior to his employment
with HCC. Mr. Kimball is a Class III Director, his term expires in 2000.
THE BOARD RECOMMENDS A VOTE "FOR" THE ELECTION
OF MESSRS. SQUIRE, WELLER AND BENSON
PROPOSAL NO. 2 -- RATIFICATION OF GRANT BY THE BOARD OF 250,000 STOCK
OPTIONS TO BRENT M. COOK AT $12.97 PER SHARE TO VEST PRO RATA
OVER 60 MONTHS FROM MAY 1, 1998
In a meeting of the Board of Directors on April 15, 1998, the Board
approved the issuance of options to purchase 250,000 shares of common stock at
an exercise price of $12.97 per share to Brent M. Cook, the Chief Executive
Officer and Chairman of the Board of Covol. Mr. Cook and Covol have agreed that
the grant of this option would be subject to shareholder approval.
Under Rule 4460 of the NASDAQ Stock Market, as a condition to the
continued listing of Covol's common stock, Covol must require shareholder
approval of the establishment of a plan or arrangement of a stock option or
purchase plan pursuant to which stock may be acquired by officers or directors,
with certain exceptions not applicable to the present situation. Accordingly,
the Board is requesting stockholder approval of the grant of this stock option
to Mr. Cook. In the event that the stockholders do not approve the grant of this
option to Mr. Cook, the grant will be rescinded.
If the stockholders do not approve the grant of this option to Mr.
Cook, the Board may grant other options to Mr. Cook. The Board, in its
discretion, may generally grant such options as the Board deems prudent in order
to retain qualified executives, reward performance and provide incentives for
Covol's executives to increase shareholder value, including the granting of
options to Mr. Cook, subject to applicable law and the listing requirements of
the NASDAQ Stock Market.
The option is nontransferable except by will or the laws of descent or
distribution. Transfer of the shares receivable under the option would be
restricted. The option is exercisable during the life of Mr. Cook only by him,
and thereafter by his executors, administrators, heirs, successors and assigns.
The option expires ten (10) years following the date of grant.
The option vests on a pro rata basis over the 60-month period which
began May 1, 1998. Notwithstanding the foregoing, the option is to fully vest
upon any of the following events:
o Any change of control of Covol.
o Termination of Mr. Cook's employment by Covol.
o The death of Mr. Cook.
o A vote by the Board of Directors allowing full vesting to Mr. Cook.
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o Covol becomes a controlled entity as defined by Section 1239 of
the Internal Revenue Code of 1986 (generally, that more than 50% of
the common stock of Covol becomes constructively owned by a single
person or entity).
The following table sets forth amounts to be received by or allocated
to Mr. Cook under the option, and the groups named in the table. Since Mr. Cook
is the sole person to receive benefits or amounts under the option, separate
disclosure with respect to other executive officers of Covol has been omitted.
NEW PLAN BENEFITS
Stock Option Agreement
Brent M. Cook
Name and Position Dollar Value Number of Shares
Brent M. Cook $2,556,450(1) 250,000
Executive Group $2,556,450(1) 250,000
Non-Executive Director Group -0- -0-
Non-Executive Officer
Employee Group -0- -0-
(1) Determined using the Black-Scholes option valuation model.
Mr. Cook is the only person to whom the option applies, and is the only
person to whom any similar option was granted in April 1998.
The option is a non-qualified option, and is not an incentive stock
option for purposes of Section 422 of the Internal Revenue Code of 1986. In
general, an optionee who receives a non-qualified stock option will recognize no
income at the time of the grant of the option. Upon exercise of a non-qualified
stock option, an optionee will recognize ordinary income (treated as
compensation subject to withholding) in an amount equal to the excess of the
fair market value of the shares of common stock on the date of exercise over the
exercise price of the option.
The basis in shares acquired upon exercise of a non-qualified stock
option will equal the fair market value of such shares at the time of exercise,
and the holding period of the shares (for capital gain purposes) will begin on
the date of exercise. Covol will be entitled to a business expense deduction in
the same amount and at the same time as the optionee recognizes ordinary income.
Mr. Cook is expected to attend the Meeting and will have an opportunity
to make a statement if he desires to do so and to respond to appropriate
questions.
THE BOARD DEEMS PROPOSAL NO. 2 TO BE IN THE BEST INTERESTS
OF COVOL AND ITS STOCKHOLDERS AND RECOMMENDS
A VOTE "FOR" APPROVAL THEREOF
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PROPOSAL NO. 3 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board has appointed PricewaterhouseCoopers LLP, certified public
accountants, as auditors to examine the financial statements of Covol for Fiscal
1999 and to perform other appropriate accounting services and is requesting
ratification of such appointment by the stockholders. PricewaterhouseCoopers LLP
(formerly Coopers & Lybrand L.L.P.) has served as Covol's auditors since 1994.
In the event that the stockholders do not ratify the appointment of
PricewaterhouseCoopers LLP, the adverse vote will be considered as a direction
to the Board to select other auditors for the next fiscal year.
A representative of PricewaterhouseCoopers LLP is expected to attend
the Meeting and will have an opportunity to make a statement if he desires to do
so and to respond to appropriate questions.
THE BOARD DEEMS PROPOSAL NO. 3 TO BE IN THE BEST INTERESTS
OF COVOL AND ITS STOCKHOLDERS AND RECOMMENDS
A VOTE "FOR" APPROVAL THEREOF
STOCKHOLDER PROPOSALS
Stockholders may submit proposals on matters appropriate for
stockholder action at Covol's annual meetings consistent with regulations
adopted by the SEC. For such proposals to be considered for inclusion in the
proxy statement and form of proxy relating to the 2000 annual meeting, they must
be received by Covol not later than October 1, 1999 or such later date as Covol
may specify in its SEC filings. Such proposals should be addressed to Covol at
3280 North Frontage Road, Lehi, Utah 84043, Attn: Corporate Secretary.
It is anticipated that proxies solicited in connection with Covol's
2000 annual meeting will confer discretionary authority to vote on matters,
among others, of which Covol does not receive notice prior to December 31, 1999.
OTHER MATTERS
Management does not intend to present, and has no information as of the
date of preparation of this Proxy Statement that others will present, any
business at the Meeting other than business pertaining to matters required to be
set forth in the Notice of Annual Meeting and Proxy Statement. However, if other
matters requiring the vote of the stockholders properly come before the Meeting,
it is the intention of the persons named in the enclosed proxy to vote the
proxies held by them in accordance with their best judgment on such matters.
SOLICITATION OF PROXIES
The accompanying form of proxy is being solicited on behalf of the
Board. The expense of solicitation of proxies for the Meeting will be paid by
Covol. In addition to the mailing of the proxy material, such solicitation may
be made in person or by written communication, telephone or telegraph by
directors, officers or employees of Covol or its subsidiaries.
23
<PAGE>
ANNUAL REPORT ON FORM 10-K
CERTAIN PORTIONS OF COVOL'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED SEPTEMBER 30, 1998, AS REFERENCED IN THIS PROXY STATEMENT, ARE
INCORPORATED HEREIN BY REFERENCE. COVOL WILL PROVIDE, WITHOUT CHARGE, TO EACH
PERSON SOLICITED BY THIS PROXY STATEMENT, ON THE WRITTEN REQUEST OF ANY SUCH
PERSON, A COPY OF THE ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED SEPTEMBER
30, 1998, FINANCIAL STATEMENTS, EXHIBITS AND SCHEDULES THAT ARE ATTACHED TO
COVOL'S ANNUAL REPORT ON FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION FOR ITS MOST RECENT FISCAL YEAR. SUCH WRITTEN REQUEST SHOULD BE
DIRECTED TO THE INVESTOR RELATIONS DEPARTMENT AT THE ADDRESS OF COVOL APPEARING
ON THE FIRST PAGE OF THIS PROXY STATEMENT OR FAXED TO COVOL AT (801) 768-4483.
By Order of the Board of Directors,
ASAEL T. SORENSEN, JR.
Secretary
THE BOARD ENCOURAGES STOCKHOLDERS TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO COMPLETE, DATE
AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE.
STOCKHOLDERS WHO ATTEND THE MEETING MAY VOTE THEIR SHARES PERSONALLY EVEN THOUGH
THEY HAVE SENT THEIR PROXIES.
24
<PAGE>
COVOL TECHNOLOGIES, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS
WEDNESDAY, MARCH 17, 1999
The undersigned stockholder(s) of Covol Technologies, Inc., a Delaware
corporation (the "Company"), revoking all previous proxies, hereby appoints
Asael T. Sorensen, Jr. and Harlan M. Hatfield and each of them acting
individually, as the attorneys and proxies of the undersigned, with full power
of substitution, to cast all votes for all shares of common stock of Covol which
the undersigned would be entitled to cast if personally present at the Annual
Meeting of Stockholders of Covol to be held at the Provo Marriott Hotel, at 100
West 100 North, Provo, Utah 84601, on Wednesday, March 17, 1999, at 1:00 p.m.,
Mountain Standard Time, and any and all adjournments or postponements thereof.
Said proxies are authorized and directed to vote as indicated with respect to
the following matters:
(Please date and sign below)
Please mark your vote as this |X|
1. ELECTION OF DIRECTORS
DeLance W. Squire FOR |_| WITHHOLD |_|
(If elected, Mr. Squire's term would AUTHORITY
expire 2002)
Raymond J. Weller FOR |_| WITHHOLD |_|
(If elected, Mr. Weller's term would AUTHORITY
expire 2002)
Kirk A. Benson FOR |_| WITHHOLD |_|
(If elected, Mr. Benson's term would AUTHORITY
expire 2002)
2. RATIFY THE GRANT BY THE BOARD OF FOR |_| AGAINST |_|
OPTIONS FOR THE PURCHASE OF 250,000 ABSTAIN |_|
SHARES OF COMMON STOCK TO BRENT M.
COOK AT $12.97 PER SHARE TO VEST PRO
RATA OVER 60 MONTHS FROM MAY 1, 1998
3. RATIFY THE SELECTION BY THE BOARD FOR |_| AGAINST |_|
OF PRICEWATERHOUSECOOPERS LLP AS ABSTAIN |_|
INDEPENDENT AUDITORS OF COVOL FOR
THE 1999 FISCAL YEAR
This Proxy is solicited on behalf of the Board of Directors. Unless otherwise
specified, the shares will be voted "FOR" items 1, 2 and 3. This Proxy also
delegates discretionary authority to the proxies to vote with respect to any
other business which may properly come before the 1999 Annual Meeting of
Stockholders and any and all adjournments or postponements thereof to the extent
allowed by Rule 14a-4(c) as promulgated by the U.S. Securities and Exchange
Commission.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING,
PROXY STATEMENT AND ANNUAL REPORT OF COVOL TECHNOLOGIES, INC.
Dated: ________________________________, 1999
- ---------------------------------------------
Name of Stockholder
- ---------------------------------------------
Signature of Stockholder
NOTE: Please date and sign this Proxy exactly as the names appear hereon. When
signing as attorney-in-fact, executor, administrator, trustee or guardian,
please add your title as such. Proxies executed in the name of a corporation
should be signed on behalf of the corporation by a duly authorized officer.
Where shares are owned in the name of two or more persons, all such persons
should sign.
PLEASE RETURN YOUR COMPLETED PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE
<PAGE>
Stock Option Agreement
COVOL TECHNOLOGIES, INC.
A. A STOCK OPTION for a total of Two Hundred Fifty Thousand (250,000)
Shares of Common Stock, par value $0.001, of Covol Technologies, Inc., a
Delaware Corporation (herein the "Company") is hereby granted to Brent M. Cook
(herein the "Optionee") on this 21st day of April, 1998.
B. The option price as determined by the Board of Directors of the
Company is Twelve dollars and thirty-one thirty seconds ($12 31/32) per share.
C. This Option may not be exercised if the issuance of shares of Common
Stock of the Company upon such exercise would constitute a violation of any
applicable Federal or State securities law or other law or valid regulation. The
Optionee, as a condition to his exercise of this Option, shall represent to the
Company that the shares of Common Stock of the Company that he acquires under
this Option are being acquired by him for investment and not with present view
to distribution or resale, unless counsel for the Company is then of the opinion
that such a representation is not required under the Securities Act of 1933 or
any other applicable law, regulation, or rule of any governmental agency.
D. This Option may not be transferred in any manner otherwise than by
will or the laws of descent and distribution, and may be exercised during the
lifetime of the Optionee only by him. The terms of this Option shall be binding
upon the executors, administrators, heirs, successors, and assigns of the
Optionee.
E. The Stock issued pursuant to this Option will vest over a 60 month
period on a pro rata basis until it is 100% vested on April 21, 2003. All Stock
which has not yet vested will be held in escrow by the Company until the Stock
is vested.
F. Nothwithstanding the vesting provision of Paragraph "E" above, the
Stock issued pursuant to this Option shall fully vest upon the occurance of any
of the following:
a. Any change of control of the Company. A change in control shall
be deemed to have taken place if, as the result of a tender offer,
merger, consolidation, sale of assets or contested election, or any
combination of the foregoing transactions, the persons who were
directors of the Company immediately before the transaction shall cease
to constitute a majority of the board of directors of the Company or
any successor to the Company; or
b. Termination of the Optionee's employment with the Company without
cause; or
c. Upon the death of the Optionee; or
d. Upon a vote of the Board of Directors allowing full vesting to the
optionee; or
e. The Company becomes a controlled entity as defined by IRC Section
1239.
<PAGE>
G. This Option may not be exercised more than ten (10) years from the
date of its grant, and may be exercised during such term only in accordance with
the terms of this Agreement.
Date of grant: April 21, 1998
COVOL TECHNOLOGIES, INC.
By: /s/ Stanley M . Kimball
CFO
ATTEST:
/s/ Stephanie Fowler
<PAGE>
COVOL TECHNOLOGIES, INC.
3280 North Frontage Road
Lehi, Utah 84043
(801) 768-4481
January 27, 1999
Brent M. Cook
Re: Stock Option Agreement
Dear Brent:
Because of the necessity of compliance with the rules of the NASDAQ Stock
Market, you and Covol Technologies, Inc. ("Covol") have heretofore orally agreed
that the option (the "Option") granted to you by Covol Technologies, Inc.
("Covol"), on April 21, 1998, for 250,000 shares of Covol common stock at a
price of $12-31/32 per share, would be subject to shareholder approval. By this
letter, with your acceptance as set forth below, in consideration of $10.00, the
premises, and the mutual agreements herein expressed, you and Covol hereby
agree, and memorialize our prior mutual agreement and understanding, that the
Option was granted and now is subject to approval by the holders of Covol common
stock, such that if approval of the Option by the holders of Covol common stock
is not obtained at the 1999 Annual Meeting of Covol, the Option shall be
rescinded, and shall be void ab initio and of no further force or effect
whatsoever.
Sincerely yours,
COVOL TECHNOLOGIES, INC.
By: /s/ Steven G. Stewart
Accepted and Agreed to this 27th day of January, 1999:
/s/ Brent M. Cook
Brent M. Cook
