As filed with the Securities and Exchange Commission on October 7, 1999
Registration No. 333-67371
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM S-3
AMENDMENT NO. 4
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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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 October 7, 1999
Prospectus
4,987,454 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 October 6, 1999, the last reported sale price for the common
stock on the Nasdaq Stock Market(sm) was $2.50 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 October 7, 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....................................................9
AVAILABLE INFORMATION........................................................ 9
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................. 10
MATERIAL CHANGES............................................................ 11
USE OF PROCEEDS............................................................. 12
SELLING STOCKHOLDERS........................................................ 12
PLAN OF DISTRIBUTION........................................................ 17
LEGAL MATTERS............................................................... 17
EXPERTS..................................................................... 18
PART II INFORMATION NOT REQUIRED IN PROSPECTUS ............................. 18
SIGNATURES ................................................................. 23
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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 $58,000,000 from
February 1987 through June 30, 1999. All quarters have had operating losses,
including a loss of approximately $5,500,000 for the quarter ended June 30,
1999. We may not be profitable in the future.
Ongoing Financial Viability Depends on Operations Success for 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. There are four additional facilities which
utilize a technology that we acquired during the six months ended March 31,
1999. Collectively, 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. Licensees and our owned facilities must successfully address all
operating issues, including but not limited to, feedstock availability, cost,
moisture content, Btu content, correct binder formulation, operability of
equipment, product durability, resistance to water absorption and overall costs
of operations, which in many cases to date have resulted in unit costs in excess
of resale prices. 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 three synthetic fuel facilities that are held for
sale. Operation of these facilities requires a substantial amount of cash. In
September 1999, we obtained debt financing which provided net proceeds of
approximately $800,000 with availability for additional borrowings of up to
$2,800,000. These proceeds will be used for operating expenses and debt service
requirements until sufficient operating revenues are generated or the facilities
are sold. 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 $500,000 per month.
Marketing difficulties have kept us from generating sales revenues equal to
operating expenses, negatively affecting cash flows and increasing capital
requirements. 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.
A non-binding letter of intent has been signed, which if fully consummated,
would result in the sale of Covol's synthetic fuel business, including the three
owned synthetic fuel facilities. More information on this proposed transaction
is provided in Covol's Form 8-K filed July 7, 1999.
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Debt Terms and Covenants Restrict Our Activities
We entered on March 17, 1999 into debt and equity financing 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, 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.
Our accounting and valuation procedures assume qualification for
Section 29 tax credits so that synthetic fuel production will continue to be the
highest and best use of our equipment and facilities. If they lose their
qualification under Section 29, the equipment and facilities could be overvalued
in any alternative highest and best use.
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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 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 for:
o debt repayments,
o working capital, and
o implementation of our business strategy.
The current amount of outstanding debt is approximately $40,000,000, of
which approximately $5,000,000 is due between now and December 31, 1999.
Additional debt of approximately $16 million is due in the calendar year 2000.
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 three
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 sell
the facilities or be able to raise any additional funds when needed on terms
acceptable to us.
Potential Asset Impairment for Advances on Inventories
From February 1997 through May 1999, Covol paid approximately
$3,900,000 to acquire coal fines for feedstock for the Utah Synfuel plant and to
lease the related property where the coal fines are located. Coal fines
representing approximately $200,000 of the amount paid have been used in
operations. The balance of $3,700,000 has been recorded as an advance on
inventories on Covol's balance sheet, and a possible future impairment could
reduce Covol's recorded inventories in an amount up to $3,700,000. Covol has
learned that there is a dispute over the ownership of the property and is also
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concerned there may be less recoverable coal fines on the property than was
understood when the contract was entered into. As a result of these
developments, Covol has demanded the lessor to modify the lease and has stopped
making quarterly payments under the contract. See "Material Changes--Earthco
Lease" in this prospectus.
Covol may need to record a future asset impairment for all or a portion
of the amount recorded as advances on inventories if:
o the legal ownership of the fines is not satisfactorily
resolved,
o Covol can not use the coal fines paid for prior to contract
termination or any extension thereof, or
o the quantity of coal fines at the site is materially less than
what was understood and Covol is unable to recover amounts
already paid.
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. Synthetic fuel is a relatively new product and competes
with standard coal products. Industrial coal users must be satisfied that the
synthetic fuel is a suitable substitute for standard coal products. Moisture
control, hardness, special handling requirements and other characteristics of
the synthetic fuel product may affect its marketability, including sales price.
We may be unable to meet the product quality requirements of all our customers.
Many industrial coal users are also limited in the amount of synthetic fuel
product they can purchase from us and our licensees because they have committed
a substantial portion of their coal requirements through long-term contracts.
Reliance on spot markets have generally produced lower resale prices compared to
long-term coal supply contracts in the utility industry. For these and other
possible reasons, customers may not purchase the synthetic fuel products made
with our technology. To date our owned facilities and licensees have secured
contracts for the sale of only a portion of their production. The suitability of
synthetic fuel as a coal substitute and particularly the quality characteristics
of synthetic fuel, the overall downward trend in coal prices, and the
traditional long-term supply contract practices of fuel buying in the utility
industry have made the identification of purchasers of synthetic fuel difficult.
We do not know if our owned facilities and 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 materials
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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 -
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Licensing and Technology Transfer" for a discussion of our efforts to continue
to develop and refine our technology.
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 March 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.
Preferred Dividends Accumulate Until Paid and Must Be Paid Prior to Any
Dividends to Holders of Common Stock
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 12,234,474 additional shares of
common stock and 9,922,490 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 October 6, 1999, we had approximately 12,765,000 shares
outstanding and substantially all remaining authorized shares are issuable upon
conversion of convertible preferred stock and convertible debt, and
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upon exercise of warrants and options. Approximately 3,600,000 shares are
issuable upon exercise or conversion at prices below the current market price.
We have commitments to issue approximately 2,975,000 shares of common stock to
current and prior management, consultants, advisors and board of director
members under all option agreements. Approximately 1,070,000 options are
exercisable at prices below the current market price. These options have a
weighted average exercise price of $1.50 per share. These numbers are as of
October 6, 1999 and do not reflect additional shares we may issue in the future
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.
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
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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, as amended on Form
10-K/A filed October 7, 1999,
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, as amended on Form
10-Q/A filed October 6, 1999,
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, as amended on Form 10-Q/A
filed October 6, 1999,
o Current report on Form 8-K filed July 7, 1999, relating to 1)
the proposed sale of Covol's River Hill synthetic fuel
facility, and 2) the proposed sale of substantially all of
Covol's synthetic fuel business,
o Quarterly report on Form 10-Q filed August 16, 1999, for the
fiscal quarter ended June 30, 1999, as amended on Form 10-Q/A
filed October 6, 1999,
o Current report on Form 8-K filed September 13, 1999, related
to the sale of Covol's River Hill synthetic fuel facility, as
amended on Form 8-K/A filed September 28, 1999, and
o Description of securities contained in Item 11 of Covol's
Registration Statement on Form 10/A, Amendment No. 2 filed
April 24, 1996.
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
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MATERIAL CHANGES
The Company has experienced the following material events since the
date of filing of its last Annual Report on Form 10-K, which have not previously
been the subject of subsequent Quarterly Reports on Form 10-Q or Current Reports
on Form 8-K:
1. Earthco Lease
In February 1997, Covol entered into a contract with Earthco to acquire
coal fines and to lease property allowing Covol to conduct fines recovery and
preparation activities at a location near Wellington, Utah, approximately six
miles from the Utah Synfuel plant site. The terms of the contract included an
initial payment to Earthco upon execution of the contract and an agreement to
acquire the fines and make quarterly payments through May 2000, with options to
extend the contract or purchase the property.
Covol entered into the contract based on the understanding that Earthco
was the fee owner of the property and that there were in excess of 2 million
tons of recoverable coal fines on the property. Subsequently, Covol learned that
Nevada Electric Investment Company disputes that Earthco is the owner of the
property, and that there may be substantially less than 2 million tons of
recoverable fines on the property. Consequently, in August 1999, Covol notified
Earthco that unless Earthco could procure and provide evidence that it could
warrant title to the property and adjust contract payments to reflect the actual
recoverable fines at the property, Covol may elect to terminate the contract and
seek appropriate damages. On this basis, Covol has refused to make further
quarterly payments to Earthco under the contract. Covol has previously made
payments under the contract totaling $3,916,664 and the contract called for
future quarterly payments totaling $1,583,732 through May 2000. Earthco has
responded by denying Covol's claims and alleging issues of property reclamation
and bonding, U.S. Department of Interior fees, and failed contract payment.
Covol denies these allegations. The dispute is at an early stage and resolution
is uncertain. However, if the matter is resolved adversely to Covol it could
result in a reduction of Covol's recorded inventories in an amount up to
$3,700,000.
2. Secured Convertible Debt
On September 17, 1999, Covol entered into a financing arrangement with
Aspen Capital Resources to provide up to $4 million of funding in the form of
convertible secured debt. Covol can make draws under this arrangement as working
capital is needed. Amounts drawn under this arrangement are convertible into
Covol common stock at the lesser of $3.00 or current market rates at the time of
conversion. The arrangement also requires issuance of warrants for the purchase
of Covol common stock at an exercise price of $3.60 per share. The number of
warrants issued is equal to 40% of the Covol common shares issuable pursuant to
the actual convertible secured debt issued under this arrangement. Covol can
redeem all outstanding debt under this arrangement at a rate equal to 125 % of
the face value of the debt. Covol assigned royalties to be received from one of
its licensed synthetic fuel facilities as collateral for this financing.
Borrowings under this arrangement are due March 17, 2001, if not converted or
redeemed earlier.
11
<PAGE>
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
and options. The exercise price of most warrants and options exceeds the market
price of the common stock on the date of this prospectus. Any proceeds to Covol
from the exercise of options or warrants will be used as working capital.
SELLING STOCKHOLDERS
The information in the table below is taken as of October 7, 1999. The
amounts in the table assume full conversion of Series A, B and C preferred stock
held by a selling stockholder and exercise of all warrants and options held by
each 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 partly due to registration rights
granted to the selling stockholders, not because the stockholders had expressed
an intent to immediately sell their shares.
<TABLE>
<CAPTION>
Number of Shares Shares to be Shares Beneficially Owned
Beneficially Owned Registered After the Offering,
Prior to the Offering, for Sale in Assuming All Registered
Name of Including Convertible the Shares Are Sold
Beneficial Owner Securities Offering(1) Number Percent(2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AJG Financial Services, Inc.
(Lender, Licensee and former 5% 140,642 140,642
Stockholder) w432,544 w432,544 0 0
Alder, Susan 5,400 5,400 0 0
Allen, George J. & Roy G. 9,200 6,000 3,200 Less than 1%
Anderson, Bennett & Rochelle 32,879 9,000 23,879 Less than 1%
72,467 72,467
Asia Orient Enterprises Ltd. w52,800 w52,800 0 0
Ayers, Alan D. (Former Officer 40,000 40,000
and Employee) w125,000 w125,000 0 0
12,650 12,650
Baildon Holdings Pty Limited w12,650 w12,650 0 0
Banyan Investment 98,496 58,000 40,496 Less than 1%
Beesley, William B, Jr. 5,329 1,329 4,000 Less than 1%
Beesley, Mark K 1,049 1,049 0 0
Benson, Kirk A. (Officer, Director 466,665 466,665
and 5% Stockholder) w355,555 w355,555 0 0
12
<PAGE>
<CAPTION>
Number of Shares Shares to be Shares Beneficially Owned
Beneficially Owned Registered After the Offering,
Prior to the Offering, for Sale in Assuming All Registered
Name of Including Convertible the Shares Are Sold
Beneficial Owner Securities Offering(1) Number Percent(2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
4,400 4,400
Black, Geoffrey w4,400 w4,400 0 0
60,000 60,000
Blackhawk Properties, LLC w60,000 w60,000 0 0
Bours Family Superannuation Fund 16,160 160 16,000 Less than 1%
Bradshaw, Brett 1,200 200 1,000 Less than 1%
Brannon, Anna T. 2,500 2,500 0 0
Bridgewater, Timothy A. (Broker) w10,000 w10,000 0 0
Busch, Lawrence R. 14,641 9,000 5,641 Less than 1%
Bush, Neil M. w10,000 w10,000 0 0
Campbell & George, LLP (Broker) w30,000 w30,000 0 0
Cecala, Enrico 24,000 24,000 0 0
42,142 42,142
Chase, Michael H. w25,000 w25,000 0 0
Citano Pty Limited ATF G.N. 9,900 9,900
Willis Family Trust w9,900 w9,900 0 0
5,000 5,000
Connors, Tom w5,000 w5,000 0 0
11,000 11,000
Coralco Pty Limited w11,000 w11,000 0 0
Criddle, Mark & Jolynn 3,600 3,600 0 0
Dahl, Robert E. (Former 9,748 9,748
Employee) w30,000 w30,000 0 0
D'Ambrosio, Christianne 1,200 1,200 0 0
D'Ambrosio, Kara C. 6,000 6,000 0 0
D'Ambrosio, Louis J. 25,939 14,000 11,939 Less than 1%
D'Ambrosio, Sue R. 6,000 6,000 0 0
Danks, Donald (Finder) 15,000 15,000 0 0
14,850 14,850
Davey, Miranda w14,850 w14,850 0 0
Diamond Jay Ltd. Co. (Lender to w85,713 w85,713
Covol) AP 428,571 AP 428,571 0 0
Emery, Robert R. 200 200 0 0
13
<PAGE>
<CAPTION>
Number of Shares Shares to be Shares Beneficially Owned
Beneficially Owned Registered After the Offering,
Prior to the Offering, for Sale in Assuming All Registered
Name of Including Convertible the Shares Are Sold
Beneficial Owner Securities Offering(1) Number Percent(2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
24,200 24,200
Foster, Craig H. w24,200 w24,200 0 0
Fun Enterprises Pty Limited 2,500 2,500
(Lender to Covol) w97,738 w97,738 0 0
Gronning, C. Eugene 2,000 2,000 0 0
5,500 5,500
G T Investments w5,500 w5,500 0 0
20,800 20,800
Hannes, Damien A. w16,500 w16,500 0 0
Hardcastle, Larry A. 400 400 0 0
Hardcastle, Lloyd A. 11,000 11,000 0 0
Harper, Prudence 11,000 11,000
w11,000 w11,000 0 0
Hartman, Douglas E. 18,000 18,000 0 0
Jensen, W. Reed 8,000 8,000 0 0
279,129 279,129
CP36,363 CP36,363
Johnson, Joe (Lender to Covol) w198,727 w198,727 0 0
Kamdar, Kiran 1,800 1,800 0 0
Kaufmann, Marjorie B., TTEE 24,041 8,400 15,641 Less than 1%
Kelley, Steven P. 1,500 1,500 0 0
KGB Family Ltd. 400 400 0 0
Krueger, Siegfried 1,500 1,500 0 0
Lakeshore Securities, L.P. Profit
Sharing Plan fbo Jeffrey T.
Kaufmann 9,841 4,200 5,641 Less than 1%
Lakeshore Securities, L.P. Profit
Sharing Plan fbo Van V. Hemphill 7,020 4,200 2,820 Less than 1%
Lambert, Richard (Former 44,450 44,450
Employee) w45,000 w45,000 0 0
Lanier, Judson & Joyce 9,000 9,000 0 0
Lowe, Raymond E. 18,000 18,000 0 0
McMullin, Garn (Broker) w10,000 w10,000 0 0
22,000 22,000
Merinda Controls Pty Limited w22,000 w22,000 0 0
14
<PAGE>
<CAPTION>
Number of Shares Shares to be Shares Beneficially Owned
Beneficially Owned Registered After the Offering,
Prior to the Offering, for Sale in Assuming All Registered
Name of Including Convertible the Shares Are Sold
Beneficial Owner Securities Offering(1) Number Percent(2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6,500 5,500
Michelsen, F. Lynn w5,500 w5,500 1,000 Less than 1%
Midgley, Michael (Former Officer) 124,923 108,000 16,923 Less than 1%
Mills, Diana F. 12,120 9,300 2,820 Less than 1%
4,000 4,000
Mower, Clark w4,000 w4,000 0 0
22,000 22,000
Pacific Asset Investment Limited w22,000 w22,000 0 0
Olafson, Gregory 19,500 19,500 0 0
Pedersen, Kris (Former Employee) w3,000 w3,000 0 0
Perwick Holding Ltd. 36,000 36,000 0 0
Peterson, Mark (Broker, Finder) 18,000 18,000 0 0
Peterson, Nancy 3,000 3,000 0 0
Pillsbury, Taylor & Jill 600 600 0 0
Pitcher, Steven (Former Employee) w2,500 w2,500 0 0
BP 14,310 BP14,310
Pooley, John 7,300 7,300 0 0
Purmort, Andrew T. 4,500 4,500 0 0
4,400 4,400
Reflex Nominees Limited w4,400 w4,400 0 0
Risher, Donald (Former Employee) w22,500 w22,500 0 0
24,600 24,600
Roberts, John w17,600 w17,600 0 0
30,000 30,000
September Corporation w30,000 w30,000 0 0
Sherbak, Ronald (Former w35,000 w35,000 0 0
Employee)
6,500 4,000
Smith, Edward L. w4,000 w4,000 2,500 0
26,000 26,000 0 0
Smith, Robert A. w26,000 w26,000
Sorensen, Asael T., Jr. (Former 54,450 54,450
Officer and Employee) w115,000 w115,000 0 0
Sowby, James & Teri 3,600 3,600 0 0
15
<PAGE>
<CAPTION>
Number of Shares Shares to be Shares Beneficially Owned
Beneficially Owned Registered After the Offering,
Prior to the Offering, for Sale in Assuming All Registered
Name of Including Convertible the Shares Are Sold
Beneficial Owner Securities Offering(1) Number Percent(2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11,358 11,358
Stamford Holdings (Finder) w25,819 w25,819 0 0
Stapleton, James P. 6,000 6,000 0 0
Steel Number 4 Investments 20,900 20,900
Limited w20,900 w20,900 0 0
S&N Partnership 9,000 5,000 4,000 Less than 1%
Todd, Michael J. (Former Officer) w50,000 w50,000 0 0
Trans Pacific Stores (Lender,
affiliated with a director) w100,000 w100,000 0 0
Turnbow, Lynn 11,119 2,000 9,119 Less than 1%
Vanderhoof, Mike (Finder) 41,282 30,000 11,282 Less than 1%
Whisper Investment (Finder) 32,273 13,400 18,873 Less than 1%
Wolt, Eddie, IRA 2,500 2,500 0 0
Wolt, Linda, IRA 5,500 5,500 0 0
Wolt, Scott 10,000 10,000 0 0
Wright, Nicholas H. (Majority 245,425 245,425
Owner of Fun Enterprises Pty Ltd, w20,000 w20,000 0 0
a Lender to Covol)
4,000 4,000
Wright, Stephen w4,000 w4,000 0 0
- --------------------------------------- --------------------------- ---------------- ---------------- ---------------
</TABLE>
(1) This column indicates shares of common stock; shares issuable on exercise
of warrants and options by the letter "w," shares issuable upon conversion
of Series A preferred stock by the letters "AP," shares issuable upon
conversion of Series B preferred stock by the letters "BP," and shares
issuable upon conversion of Series C preferred stock by the letters "CP."
(2) Indicates the percentage of Covol's common stock outstanding, assuming
conversion of convertible securities and exercise of warrants and options
by the indicated selling stockholders.
This prospectus applies to the offer and sale by the selling
stockholders of our common stock. The shares being offered for sale include
2,290,914 shares currently owned by the selling stockholders, plus 2,217,296
shares obtainable by exercising warrants and options, and approximately
479,244shares obtainable by converting the Series A preferred stock, Series B
preferred stock and Series C preferred stock which they owned as of the date of
this prospectus.
Each share of the Series A preferred stock is convertible into a number
of shares of common stock determined by dividing the original purchase price of
$1,000 per preferred share, plus accrued dividends, by $7.00. Dividends on any
Series A preferred stock accrue at 6% per year. There are 3,000 shares of Series
A preferred stock outstanding.
16
<PAGE>
Each share of the Series B preferred stock is convertible into a number
of shares of common stock determined by dividing the original purchase price of
$7.00 per preferred share, plus accrued dividends, by $7.00. Dividends on any
Series B preferred stock accrued at 7.29% per year from September 18, 1997
through March 17, 1998, and accrued at 7.03% per year beginning March 18, 1998.
There are 14,310 shares of Series B preferred stock outstanding. Approximately
90% of the Series B preferred stock along with the related accrued dividends,
was converted into 308,425 shares of common stock during October 1998.
Each share of the Series C preferred stock is convertible into a number
of shares of common stock determined by dividing the original purchase price of
$1,000 per preferred share, plus accrued dividends, by $5.50, subject to
adjustment for a decrease in market price of Covol's common stock. Dividends on
any Series C preferred stock accrue at 7% per year. There are 200 shares of
Series C preferred stock outstanding.
If the outstanding Series A, B and C preferred stock were converted
into common stock, the total number of shares of common stock issued on
conversion would be approximately 479,244 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. The conversion
price for each class of preferred stock is subject to anti-dilution adjustment.
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 some of 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.
17
<PAGE>
EXPERTS
The consolidated financial statements incorporated in this prospectus
by reference to the annual report on Form 10-K/A for the fiscal year ended
September 30, 1998, have been so incorporated in reliance upon the report, which
includes an explanatory paragraph relating to the restatement of the 1998 and
1997 financial statements, of PricewaterhouseCoopers LLP, independent
accountants, given upon the authority of said firm as experts in auditing and
accounting.
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...................................... $ 8,972.64
Accountants' Fees and Expenses............................ $ 100,000.00
Legal Fees and Expenses................................... $150,000.00
Miscellaneous............................................. $10,000.00
------------
TOTAL................................................ $268,972.64
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.
18
<PAGE>
Item 16. Exhibits.
Exhibit
Number Description Location
2.1 Agreement and Plan of Reorganization, dated (1)
July 1, 1993 between the Registrant and the
Stockholders of R1001
2.2 Agreement and Plan of Merger dated August 14, 1995 (1)
between the Registrant and Covol Technologies,
Inc., a Delaware corporation
2.3 Stock Purchase Agreement, dated July 1, 1993, among (1)
the 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 (1)
of September 30, 1994, between the Registrant and
Farrell F. Larson regarding Larson Limestone
Company, Inc.
2.5 Stock Purchase Agreement dated February 1, 1996 by (1)
and among 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 (1)
sale of the Construction Companies
2.5.2 Amendment No. 2 to Share Purchase Agreement regarding (2)
the sale of the Construction Companies
3.1 Certificate of Incorporation of the Registrant (1)
3.1.1 Certificate of Amendment of the Certificate of (1)
Incorporation of the Registrant dated January 22,
1996
3.1.2 Certificate of Amendment of the Certificate of (3)
Incorporation dated June 25, 1997
3.1.3 Certificate of Designation, Number, Voting Powers, (4)
Preferences 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, (5)
Preferences 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, (8)
Preferences and Rights of Covol's Series C 7%
Convertible Preferred Stock.
19
<PAGE>
3.1.6 Certificate of Designations, Number, Voting Powers, (9)
Preferences 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 (1)
dated 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, (3)
1997 (Originally designated as Exhibit No. 3.2.2)
4.1 Promissory Note between Covol and Mountaineer Synfuel, (6)
L.L.C. 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 (9)
of OZ 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
10.1 Securities Purchase Agreement dated September 17, 1999 *
between Aspen Capital Resources, L.L.C. and Covol
10.2 Security Agreement dated September 17, 1999 between *
Aspen Capital Resources, L.L.C. and Covol
23.1 Consent of PricewaterhouseCoopers LLP *
24.1 Power of Attorney (included in Part II of this Registration
Statement)
- ------------------------
* Attached hereto.
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.
20
<PAGE>
(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.
(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
21
<PAGE>
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 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]
22
<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 October 7, 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 October 7, 1999
- -------------------------- Director
Name
[/s/] Brent M. Cook President and Director October 7, 1999
- --------------------------
Name
[/s/] Steven G. Stewart Chief Financial and Accounting October 7, 1999
- -------------------------- Officer
Name
[/s/] DeLance W. Squire Director October 7, 1999
- --------------------------
Name
[/s/] James A. Herickhoff Director October 7, 1999
- --------------------------
Name
[/s/] Raymond J. Weller Director October 7, 1999
- --------------------------
Name
[/s/] John P. Hill, Jr. Director October 7, 1999
- --------------------------
Name
23
CALLISTER NEBEKER
& McCULLOUGH
A PROFESSIONAL CORPORATION
ATTORNEYS AT LAW
GATEWAY TOWER EAST SUITE 900
10 EAST SOUTH TEMPLE
SALT LAKE CITY, UTAH 84133
TELEPHONE 801-530-7300
FAX 801-364-9127
October 7, 1999
Covol Technologies, Inc.
3280 North Frontage Road
Lehi, Utah 84043
Re: Registration Statement on Form S-3 of Covol Technologies, Inc.
Ladies and Gentlemen:
We have acted as counsel to Covol Technologies, Inc., a Delaware
corporation (the "Company"), in connection with the Registration Statement on
Form S-3 of the Company, SEC File No. 333-67371 filed on November 16, 1998, as
amended pursuant to Amendment No. 3, to which this opinion is attached as
Exhibit 5.1 (the "Registration Statement"), with the Securities and Exchange
Commission (the "Commission"). The Registration Statement relates to 5,149,358
shares (the "Shares") of common stock of the Company, par value $.001 per share
(the "Common Stock") including (i) 2,449,913 shares of Common Stock currently
issued and outstanding and owned by certain persons listed in the Registration
Statement as selling stockholders (the "Selling Stockholders"), (ii) 2,129,291
shares of Common Stock issuable to certain of the Selling Stockholders by the
Company upon exercise of Common Stock purchase warrants and options for purchase
of Common Stock (collectively "Warrants") issued by the Company, (iii) 428,571
shares of Common Stock issuable by the Company to certain of the Selling
Stockholders upon conversion of the Company's Series A 6% Convertible Preferred
Stock ("Series A Preferred"), (iv) 14,310 shares of Common Stock issuable by the
Company to certain of the Selling Stockholders upon conversion of the Company's
Series B Convertible Preferred Stock ("Series B Preferred"), and (v) 127,273
shares of Common Stock issuable by the Company to certain of the Selling
Stockholders upon conversion of the Company's Series C 7% Convertible Preferred
Stock ("Series C Preferred"), to be offered for sale by the Selling Stockholders
of the Company as described in the prospectus included in the Registration
Statement.
This opinion is an exhibit to the Registration Statement, and is being
furnished to you in accordance with the requirements of Item 601(b)(5) of
Regulation S-K under the Securities Act of 1933, as amended (the "1933 Act").
In that capacity, we have reviewed the Registration Statement and
originals, or copies certified or otherwise identified to our satisfaction, of
other documents, corporate records, certificates and other instruments as we
have deemed necessary or appropriate for purposes of this opinion.
<PAGE>
In such examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity of all documents submitted to us as
certified, conformed or photostatic copies and the authenticity of the originals
of such documents. In making our examination of documents executed by parties
other than the Company, we have assumed that such parties had the power,
corporate or other, to enter into and perform all obligations thereunder and
have also assumed the due authorization by all requisite action, corporate or
other, and execution and delivery by such parties of such documents and the
validity, binding effect and enforceability thereof. As to any facts material to
the opinions expressed herein, we have, to the extent we deemed appropriate,
relied upon statements and representations of officers and other representatives
of the Company and others.
Our opinions expressed herein are limited to the corporate law of the
State of Delaware, and we do not express any opinion herein concerning any other
law.
Based upon and subject to the foregoing, and to the limitations,
qualifications, exceptions and assumptions set forth herein, we are of the
opinion that (i) the shares of Common Stock currently outstanding and owned by
certain of the Selling Stockholders and being registered on the Registration
Statement have been duly authorized and legally issued, and are fully paid and
non-assessable, (ii) the shares of Common Stock being registered on the
Registration Statement to be issued by the Company to certain of the Selling
Stockholders upon exercise of the Warrants have been duly authorized and, when
sold to the Selling Stockholders and paid for in the manner provided in the
Registration Statement and the various agreements and instruments governing the
Warrants of the Selling Stockholders and the Company, will be legally issued,
fully paid and non-assessable, (iii) the shares of Common Stock being registered
on the Registration Statement to be issued by the Company to certain Selling
Stockholders upon conversion of the Series A Preferred, the Series B Preferred,
and the Series C Preferred have been authorized and, when issued to the Selling
Stockholders upon conversion of the Series A Preferred, the Series B Preferred,
or the Series C Preferred, will be legally issued, fully paid and
non-assessable.
In rendering this opinion, we have assumed that
(i) the certificates representing the Shares will conform to
the form of specimen examined by us and such certificates will be duly
executed and delivered by the Company;
(ii) the consideration for Shares as provided in the
applicable resolutions of the Board of Directors of the Company has
been actually received by the Company as provided therein.
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Prospectus. In giving this consent, we do not thereby admit that
we are in the category of persons whose consent is required under Section 7 of
the 1933 Act or the rules and regulations of the Commission promulgated
thereunder.
Very truly yours,
/s/CALLISTER NEBEKER & McCULLOUGH
COVOL TECHNOLOGIES, INC.
SECURITIES PURCHASE AGREEMENT
Dated as of September 17, 1999
<PAGE>
TABLE OF CONTENTS
Page
Article I - DEFINITIONS.....................................................1
1.1 Definitions; Interpretation...................................1
Article II - ISSUANCE AND SALE OF THE SECURITIES............................7
2.1 Authorization of the Securities...............................7
2.2 Issuance and Sale of the Securities...........................8
2.3 Additional Issuances and Sales of the Securities..............8
2.4 Option to Acquire Additional Securities.......................9
Article III - CLOSING; CLOSING DELIVERIES...................................9
3.1 Closing.......................................................9
3.2 Payment for and Delivery of the Securities....................9
Article IV - REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................10
4.1 Existence; Qualification; Subsidiaries.......................10
4.2 Authorization and Enforceability; Issuance of the
Securities, the Conversion Shares and the Warrant Shares....10
4.3 Capitalization...............................................11
4.4 Private Sale.................................................12
4.5 Financial Statements; Disclosure.............................12
4.6 Absence of Certain Changes...................................13
4.7 Litigation...................................................14
4.8 Licenses, Compliance with Law, Other Agreements, Etc.......14
4.9 Third-Party Approvals........................................15
4.10 No Undisclosed Liabilities..................................15
4.11 Tangible Assets.............................................15
4.12 Inventory...................................................15
4.13 Owned Real Property.........................................15
4.14 Real Property Leases........................................15
4.15 Agreements..................................................16
4.16 Intellectual Property.......................................16
4.17 Employees...................................................17
4.18 ERISA; Employee Benefits....................................17
4.19 Environmental Laws..........................................17
4.20 Transactions With Affiliates..............................18
4.21 Taxes.......................................................18
4.22 Other Investors.............................................19
4.23 Year 2000 Representations..................................19
4.24 Investment Company.........................................19
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4.25 Certain Fees................................................19
4.26 Solicitation Materials.....................................20
4.27 Form S-3 Filing............................................20
4.28 Listing and Maintenance Requirements Compliance.............20
4.29 Registration Rights; Rights of Participation................20
4.30 Synthetic Fuel Facilities...................................20
Article V - REPRESENTATIONS AND WARRANTIES OF THE PURCHASER................21
5.1 Authorization and Enforceability.............................21
5.2 Purchaser's Ability to Perform...............................21
5.3 Restrictions on Sale.........................................21
Article VI - COMPLIANCE WITH SECURITIES LAWS...............................22
6.1 Investment Intent of the Purchaser..........................22
6.2 Status of Securities........................................22
6.3 Accredited Investor Status..................................22
6.4 Access to Information.......................................22
6.5 Transfer of Securities, Conversion Shares and Warrant
Shares.......................................................23
Article VII - CONDITIONS PRECEDENT.........................................23
7.1 Conditions Precedent........................................23
Article VIII - COVENANTS OF THE COMPANY....................................26
8.1 Restricted Actions..........................................26
8.2 Required Actions............................................27
8.3 Reservation of Common Stock..................................29
8.4 Payments Free of Withholding.................................30
Article IX - REGISTRATION RIGHTS...........................................30
9.1 Registration Rights..........................................30
9.2 Piggyback Registration Rights................................30
Article X - SURVIVAL.......................................................31
10.1 Survival....................................................31
Article XI - INDEMNIFICATION...............................................31
11.1 Indemnification.............................................31
Article XII - GENERAL PROVISIONS...........................................32
12.1 Successors and Assigns......................................32
12.2 Entire Agreement...........................................32
12.3 Notices.....................................................32
12.4 Purchaser Fees and Expenses.................................33
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12.5 Amendment and Waiver.......................................34
12.6 Counterparts................................................34
12.7 Headings....................................................34
12.8 Remedies Cumulative........................................34
12.9 GOVERNING LAW...............................................34
12.10 CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE.....34
12.11 No Third Party Beneficiaries...............................35
12.12 Severability...............................................35
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<PAGE>
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of September
17, 1999, by and between COVOL TECHNOLOGIES, INC.(the "Company"), a Delaware
corporation with an address at 3280 North Frontage Road, Lehi, Utah 84043; and
ASPEN CAPITAL RESOURCES, LLC or its assigns (the "Purchaser"), a Utah limited
liability company with an address at 8989 South Schofield Circle, Sandy, Utah
84093.
The Company desires to issue to the Purchaser and the Purchaser desires
to purchase from the Company, upon the terms and subject to the conditions set
forth herein (i) the Convertible Secured Debentures of the Company and (ii) the
Warrants.
In consideration of the mutual promises, representations, warranties,
covenants and conditions set forth in this Agreement, the parties hereto agree
as follows:
Article I - DEFINITIONS
1.1 Definitions; Interpretation. For purposes of this Agreement, the
following terms have the indicated meanings:
"Affiliate" of a Person means any officer, director or employee of the
Company and any other Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with such
Person. For purposes of this definition, "control" of a Person means the power,
directly or indirectly, either to (i) vote 10% or more of the Capital Stock
having ordinary voting power for the election of directors of such Person or
(ii) direct or cause the direction of the management and policies of such Person
whether by contract or otherwise.
"Capital Stock" of any Person shall mean any and all shares, interests
(including membership and economic interests in a limited liability company),
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, but excluding any debt
securities convertible into such equity prior to such conversion.
"Capitalized Lease" means any lease which is required under GAAP to be
capitalized on the balance sheet of the lessee.
"Capitalized Lease Obligation" means obligations for the payment of
rent for any Capitalized Lease; for purposes hereof, the amount of any such
obligation shall be the capitalized amount thereof determined in accordance with
GAAP.
<PAGE>
"CERCLA" shall mean the federal Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means, collectively, the Company's Common Stock, $.001
par value per share, and any Capital Stock of any class of the Company hereafter
authorized which is not limited to a fixed sum or percentage of par or stated
value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Company.
"Confidential Information" means any proprietary information concerning
the Company's business other than information that (i) was already known to the
Person having a duty to keep confidential such information on a nonconfidential
basis prior to the time of disclosure, (ii) is or becomes generally available to
the public through no act or omission of such Person or (iii) becomes available
to such Person on a nonconfidential basis from a source other than any party
hereto (or any agent or representative thereof) if such source was not under a
prohibition against disclosing the information or otherwise bound by a
confidentiality agreement with respect thereto.
"Conversion Shares" means shares of Common Stock issued or issuable
upon conversion of the Debentures, whether or not a Debenture is presently
convertible; provided, that if there is a change such that the securities
issuable upon conversion of the Debentures are issued by an entity other than
the Company or there is a change in the securities so issuable, then the term
"Conversion Shares" shall mean shares or the security issuable upon conversion
of the Debentures if such securities are issuable in shares, or shall mean the
equivalent units in which such security is issuable if such security is not
issuable in shares.
"Current Balance Sheet" means the unaudited balance sheet of the
Company as at June 30, 1999.
"Debentures" has the meaning set forth in Section 2.1.
"Employee Plan" means an employee benefit plan (other than a
Multiemployer Plan) covered by Title IV of ERISA and any employee benefit plan
as defined in Section 3(3) of ERISA, maintained or contributed to by the
Company, or any predecessor or Subsidiary or any ERISA Affiliate at any time
during the 5-calendar years immediately preceding the date of this Agreement.
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"Environmental Actions" refers to any complaint, summons, citation,
notice, directive, order, claim, litigation, investigation, judicial or
administrative proceeding, judgment, letter or other communication from any
governmental agency, department, bureau, office or other authority, or any third
party involving violations of Environmental Laws or Releases of Hazardous
Materials (i) from any assets, properties or businesses of the Company or any of
its Subsidiaries, licensees or predecessors in interest; (ii) from adjoining
properties or business; or (iii) from or onto any facilities which received
Hazardous Materials generated by the Company or any of its Subsidiaries,
licensees or predecessors in interest.
"Environmental Law" means the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. ss. 9601, et seq.), the Hazardous
Materials Transpiration Act (49 U.S.C. 42 ss. 1801, et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. ss. 6901, et seq.), the Federal Water
Pollution Control Act (33 U.S.C. ss. 1251, et seq.), the Clean Air Act (42
U.S.C. ss. 7401, et seq.), the Toxic Substances Control Act (15 U.S.C. ss. 2601,
et seq.) and the Occupational Safety and Health Act (29 U.S.C. ss. 651 et seq.),
as such laws may be amended or supplemented from time to time, and any other
present or future federal (United States or Canada), state, provincial, local or
foreign statute, ordinance, rule, regulation, order, judgment, decree, permit,
license or other binding determination of any Governmental Agency imposing
liability or establishing standards of conduct for protection of the
environment.
"Environmental Liabilities and Costs" means all liabilities (including
strict liabilities), monetary obligations, Remedial Actions, losses, damages,
punitive damages, consequential damages, treble damages, costs and expenses
(including all reasonable out-of-pocket fees, disbursements and expenses of
counsel, out-of-pocket expert and consulting fees, and out-of-pocket costs for
environmental site assessments, remedial investigations and feasibility
studies), fines, penalties, sanctions and interest incurred as a result of any
Environmental Action filed by any Governmental Agency or any third party, which
relate to any violations of Environmental Laws, Remedial Actions, Releases or
threatened Releases of Hazardous Materials from or onto (i) any property
presently or formerly owned by the Company or any of its Subsidiaries, licensees
or predecessors in interest or (ii) any facility which received Hazardous
Materials generated by the Company or any of its Subsidiaries, licensees or
predecessors in interest.
"Environmental Lien" means any Lien in favor of any Governmental Agency
for Environmental Liabilities and Costs.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, and regulations thereunder
in each case as in effect from time to time. References to sections of ERISA
shall be construed also to refer to any successor sections.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Indebtedness" has the meaning set forth in Section 4.2.
"Facilities" has the meaning set forth in Section 4.30.
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<PAGE>
"Fair Market Value" means the closing bid price of a share of Common
Stock quoted on the NASDAQ Stock Market System.
"Family Group" means, with respect to an individual Purchaser, such
Purchaser, such Purchaser's spouse, siblings, descendants and/or ancestors
(whether natural, by marriage or adopted) and any trust solely for the benefit
of such Purchaser and/or such Purchaser's spouse, siblings, their respective
ancestors and/or descendants (whether natural, by marriage or adopted).
"Financial Statements" means (i) the unaudited balance sheets of the
Company as at December 31, 1998 and 1997, March 31, 1999 and 1998, and June 30,
1999 and 1998, and the related unaudited statements of income and consolidated
cash flow for the quarterly periods then ended, and (ii) the audited balance
sheets of the Company as at September 30, 1998 and 1997, and the related audited
statements of income and consolidated cash flow for the fiscal year periods then
ended, all as filed with the Securities and Exchange Commission on the date of
this Agreement.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time, consistently applied.
"Governmental Agency" means any federal, state, local, foreign or other
governmental agency, instrumentality, commission, authority, board or body and
the National Association of Securities Dealers.
"Hazardous Materials" includes (a) any element, compound or chemical
that is defined, listed or otherwise classified as a contaminant, pollutant,
toxic pollutant, toxic or hazardous substance, extremely hazardous substance or
chemical, hazardous waste, special waste, or solid waste under Environmental
Laws; (b) petroleum and its refined products; (c) poly-chlorinated biphenyls;
(d) any substance exhibiting a hazardous waste characteristic, including but not
limited to corrosivity, ignitability, toxicity or reactivity as well as any
radioactive or explosive materials; and (e) any raw materials, building
components, including but not limited to asbestos-containing materials and
manufactured products containing hazardous substances.
"Hedging Agreement" means any interest rate swap, collar, cap, floor or
forward rate agreement or other agreement regarding the hedging of interest rate
risk exposure executed in connection with hedging the interest rate exposure of
the Company, and any confirming letter executed pursuant to such agreement, all
as amended, supplemented, restated or otherwise modified from time to time.
"includes" and "including" mean includes and including, without
limitation.
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"Indebtedness" means, without duplication, as to any Person (i)
indebtedness for borrowed money; (ii) indebtedness for the deferred purchase
price of property or services (other than current trade payables incurred in the
ordinary course of business and payable in accordance with customary practices);
(iii) indebtedness evidenced by bonds, notes, debentures or other similar
instruments (other than performance, surety and appeal or other similar bonds
arising in the ordinary course of business); (iv) obligations and liabilities
secured by a Lien upon property owned by such Person, whether or not owing by
such Person and even though such Person has not assumed or become liable for the
payment thereof; (v) obligations and liabilities directly or indirectly
guaranteed by such Person; (vi) obligations or liabilities created or arising
under any conditional sales contract or other title retention agreement with
respect to property used and/or acquired by such Person, even though the rights
and remedies of the lessor, seller and/or lender thereunder are limited to
repossession of such property; (vii) Capitalized Lease Obligations; (viii) all
liabilities in respect of letters of credit, acceptances and similar obligations
created for the account of such Person; (ix) net liabilities of such Person
under Hedging Agreements and foreign currency exchange agreements, as calculated
on a basis satisfactory to the Purchaser and in accordance with accepted
practice; and (x) the Debentures issued hereunder valued at the Optional
Redemption Price (as defined in the Debentures) for purposes hereof.
"Initial Closing" and "Additional Closing" have the meanings set forth
in Section 3.1.
"Initial Closing Date" and "Additional Closing Dates" have the meanings
set forth in Section 3.1.
"Intellectual Property" means all domestic and foreign patents, patent
applications, disclosures, industrial designs, discoveries and inventions;
trademarks, service marks, trade dress, trade names, d/b/a's, Internet domain
names and corporate names and all goodwill associated therewith; published and
unpublished works of authorship, copyrights; registrations, applications and
renewals for any of the foregoing; trade secrets, Confidential Information,
know-how, technical and computer data, databases, proprietary information,
documentation and software, financial, business and marketing plans, customer
and supplier lists and all other intellectual property and proprietary rights;
and all copies and tangible embodiments of the foregoing.
"IRS" means the Internal Revenue Service.
"knowledge" or "know" when used with respect to the Company means the
knowledge of the senior management (vice president or senior) of the Company, or
any other management personnel that has had significant involvement in the
business and affairs of the Company.
"Liability" means any liability or obligation (whether absolute or
contingent, liquidated or unliquidated or due or to become due).
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"Lien" means any mortgage, deed of trust, pledge, lien, security
interest, charge, encumbrance, security arrangement, restriction, covenant,
encroachment or other title imperfection of any nature whatsoever, including but
not limited to any conditional sale or title retention arrangement, and any
assignment, deposit arrangement or lease intended as, or having the effect of,
security.
"Material Adverse Change" means any material adverse change in the
business, condition (financial or otherwise), prospects or results of operations
of the Company and its Subsidiaries taken as a whole.
"Material Adverse Effect" means any material adverse effect on (i) the
business, condition (financial or otherwise), prospects or results of operations
of the Company and its Subsidiaries taken as a whole, or (ii) any of the
transactions contemplated hereby or by the Related Documents.
"ordinary course of business" means the ordinary course of business of
the Company consistent with past practice (including with respect to quantity,
quality and frequency).
"Permitted Liens" has the meaning set forth in Section 8.1(l).
"Person" means any individual, partnership, joint venture, corporation,
trust, unincorporated organization or other entity.
"RCRA" shall mean the federal Resource Conservation and Recovery Act,
as amended.
"Related Documents" means all documents and instruments to be executed
or adopted by the Company in connection herewith, including without limitation
each of the Debentures, the Security Agreement, each of the Warrants and all
other documents and instruments to be executed or adopted by the Company
pursuant thereto.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, seeping, migrating,
dumping or disposing of any Hazardous Material (including the abandonment or
discarding of barrels, containers and other closed receptacles containing
Hazardous Materials) into the indoor or outdoor environment, including ambient
air, soil, surface or ground water.
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"Remedial Action" means all actions taken to (i) clean up, remove,
remediate, contain, treat, monitor, assess, evaluate or in any other way address
Hazardous Materials in the indoor or outdoor environment; (ii) prevent or
minimize a Release or threatened Release of Hazardous Materials so they do not
migrate or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment; (iii) perform pre-remedial studies and
investigations and post-remedial operation and maintenance activities; or (iv)
any other actions authorized by 42 U.S.C. 9601.
"SEC" means the Securities and Exchange Commission.
"Securities" has the meaning given that term in Section 2.1.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means the Security Agreement by and between the
Company and the Purchaser, substantially in the form attached as Exhibit "A"
hereto.
"Subsidiary" means any corporation, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by the Company or
(ii) if a partnership, association or other business entity, a majority of the
partnership or other similar ownership interest thereof is at the time owned or
controlled, directly or indirectly, by the Company. For purposes hereof, the
Company shall be deemed to have a majority ownership interest in a partnership,
association or other business entity if the Company, directly or indirectly, is
allocated a majority of partnership, association or other business entity gains
or losses, or is or controls the managing director or general partner of such
partnership, association or other business entity.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code ss.59A),
customs duties, Capital Stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Returns" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Warrant Shares" means shares of the Common Stock obtained or
obtainable upon exercise of the Warrants, whether or not a Warrant is presently
exercisable; provided, that if there is a change such that the securities
issuable upon exercise of the Warrants are issued by an entity other than the
Company or there is a change in the class of securities so issuable, then the
term "Warrant Shares" shall mean shares of the security issuable upon exercise
of the Warrants if such security is issuable in shares, or shall mean the
equivalent units in which such security is issuable if such security is not
issuable in shares.
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Article II - ISSUANCE AND SALE OF THE SECURITIES
2.1 Authorization of the Securities. The Company has authorized the
issuance and sale to the Purchaser, on the terms and subject to the conditions
of this Agreement, of (a) its Convertible Secured Debentures in an aggregate
principal amount of up to $4,000,000 and containing the terms and conditions and
in the form of the Debenture set forth in Exhibit "B" attached hereto (the
"Debentures"), and (b) its Warrants containing the terms and conditions and in
the form of the Warrant set forth in Exhibit "C" attached hereto (the "Warrants
and, together with the Debentures, the "Securities"). The Debentures are
convertible into and the Warrants are exercisable for shares of the Company's
Common Stock and the Debentures are secured by a first priority security
interest in the collateral described in the Security Agreement.
2.2 Issuance and Sale of the Securities. At the Initial Closing, on the
terms and subject to the conditions of this Agreement, the Company shall issue
to the Purchaser (a) Debentures in the aggregate principal amount of
$850,000.00, and (b) Warrants initially exercisable for an aggregate of 113,333
Warrant Shares (the number of Warrant Shares shall be determined by multiplying
40% times the quotient of (i) the aggregate principal amount of the Debentures
divided by (ii) the Conversion Price (as defined in the Debentures) of the
Debentures on their Issue Date (as defined in the Debentures)). For federal
income tax purposes, the Company and the Purchaser agree that the aggregate
amount paid by the Purchaser for (i) the Debentures is $850,000.00, and (ii) the
Warrants is $0. Neither the Company nor the Purchaser shall file any Tax Return
or take any position with any taxing authority inconsistent with the preceding
sentence.
2.3 Additional Issuances and Sales of the Securities. Following the
Initial Closing but not later than December 15, 1999, on the terms and subject
to the conditions of this Agreement, the Company may, at its option, issue to
the Purchaser and the Purchaser shall purchase from the Company additional
Debentures and additional Warrants, exercisable for the purchase of the number
of Warrant Shares calculated as provided in Section 2.2 above with respect to
such additional Debentures, each such additional issuance being referred to
herein as an "Additional Funding." Additional Fundings shall not occur more than
once during any 15 day period. The Company shall deliver to the Purchaser a
written request for each Additional Funding not less than 15 days prior to the
Closing Date of each such Additional Funding, and such written request shall
state (a) the aggregate principal amount of additional Debentures to be issued
in such Additional Funding, which aggregate principal amount shall not be less
than $500,000.00 for each Additional Funding, (b) the number of Warrant Shares
for which the additional Warrants are exercisable, and (c) the Closing Date for
such Additional Funding, each such Closing Date to be referred to herein as an
"Additional Closing Date" and each Closing in connection therewith to be
referred to herein as an "Additional Closing." The Securities issued at the
Initial Closing together with Securities issued at all Additional Closings shall
not exceed in the aggregate the following cumulative amounts, stated in terms of
aggregate principal amounts of Debentures outstanding:
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At October 15, 1999 $1,750,000.00
At November 15, 1999 $2,750,000.00
At December 15, 1999 and thereafter $4,000,000.00
Notwithstanding the foregoing, the Purchaser shall have no obligation
to purchase any Securities in connection with any Additional Funding pursuant to
Section 2.3, provided that the Purchaser may in its sole discretion purchase
such Securities, (a) if the Company is in default or has breached any of its
obligations under this Agreement or any of the Related Documents or if an Event
of Default has occurred under the Debentures, (b) if the average of the closing
bid prices for the Company's Common Stock for five (5) consecutive trading days,
as quoted in the NASDAQ Stock Market System, is less than $1.50, or (c) if on
October 15, 1999, the Company's Registration Statement on Form S-3, File No.
33-385753 has not been declared effective by the SEC or has not continued
effective.
On December 15, 1999, if the aggregate principal amount of the
Debentures issued pursuant to this Section 2.3 and Section 2.2 above is less
than $3,000,000.00, the Company shall pay to the Purchaser an amount equal to 2%
of such difference.
2.4 Option to Acquire Additional Securities. Notwithstanding the
foregoing, the Company hereby grants to the Purchaser the option, exercisable in
whole or in part from time to time but not after February 28, 2000 at the
Purchaser's sole discretion, to acquire Securities from the Company consisting
of (a) Debentures in an aggregate principal amount of up to $1,750,000.00, and
(b) Warrants exercisable for the purchase of the number of Warrant Shares
calculated as provided in Section 2.2 above with respect to such Debentures.
Article III - CLOSING; CLOSING DELIVERIES
3.1 Closing. The closing of the transactions contemplated by Section
2.2 of this Agreement (the "Initial Closing") shall take place at 10:00 a.m. on
September 17, 1999, at the offices of Corbridge Baird & Christensen, Salt Lake
City, Utah or at such other time, place and/or date as shall be agreed upon by
the parties hereto. The date upon which the Initial Closing occurs is referred
to herein as the "Initial Closing Date." The closing of the transactions
contemplated by Sections 2.3 and 2.4 of this Agreement (the "Additional
Closings") shall take place at such time, place and/or date as designated by the
Company if pursuant to Section 2.3 or as designated by the Purchaser if pursuant
to Section 2.4. The dates upon which the Additional Closings occur are referred
to herein as the "Additional Closing Dates."
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3.2 Payment for and Delivery of the Securities. At the Initial Closing,
the Company shall issue and deliver to the Purchaser, (a) a Debenture in the
aggregate principal amount of $850,000.00, against payment by the Purchaser, by
wire transfer of immediately-available funds to the account designated by the
Company not less than two (2) days prior to the Initial Closing Date, of
$765,000.00 (net of 10% placement fee payable to Aspen Capital Resources, LLC
pursuant to Section 12.4), and (b) duly issued Warrants initially exercisable
for an aggregate of 113,333 Warrant Shares. At each Additional Closing, the
Company shall issue and deliver to the Purchaser, (a) a Debenture in the
aggregate principal amount specified pursuant to Section 2.3 or 2.4, against
payment by the Purchaser, by wire transfer of immediately-available funds to the
account designated by the Company not less than two (2) days prior to the
Additional Closing Date, of the aggregate principal amount of the Debenture (net
of a 10% placement fee payable to Aspen Capital Resources, LLC pursuant to
Section 12.4), and (b) duly issued Warrants exercisable for the purchase of the
number of Warrant Shares calculated as provided in Section 2.2 above with
respect to such additional Debentures.
Article IV - REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Purchaser as follows:
4.1 Existence; Qualification; Subsidiaries. Each of the Company and its
Subsidiaries is a corporation, partnership or limited liability company, as the
case may be, duly organized, validly existing and in good standing under the
laws of the state of its incorporation or formation and has full corporate or
partnership power and authority, as the case may be, to conduct its business and
own and operate its properties as now conducted, owned and operated. The copies
of the Certificate of Incorporation, as amended, and By-Laws of the Company and
all amendments thereto previously delivered to the Purchaser are true, correct
and complete copies of such documents. The Company and each Subsidiary is
licensed or qualified as a foreign corporation, partnership or limited liability
company and is in good standing in all jurisdictions where such person is
required to be so licensed or qualified, except where the failure to be so
licensed, qualified or in good standing would not have a Material Adverse
Effect. Except as set forth on Schedule 4.1, the Company has no Subsidiaries and
owns no Capital Stock or other securities of, and has not made any other
investment in, any other entity. All of the issued shares of Capital Stock,
partnership interests or membership interests, as the case may be, of each
Subsidiary have been duly and validly authorized and issued, are fully paid and
non-assessable and are owned directly or indirectly by the Company, free and
clear of all liens, encumbrances, equities or adverse claims.
4.2 Authorization and Enforceability; Issuance of the Securities, the
Conversion Shares and the Warrant Shares.
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(a) The Company has full power and authority and has taken all
required corporate and other action necessary to permit it to execute and
deliver this Agreement and the Related Documents and to carry out the terms
hereof and thereof and to issue and deliver the Securities, the Conversion
Shares and the Warrant Shares, and none of such actions will violate any
provision of the Certificate of Incorporation of the Company, the By-Laws of the
Company or of any applicable law, regulation, order, judgment or decree or rule
of any stock exchange where the Company's Common Stock is listed or market in
which the Company's Common Stock is quoted, or result in the breach of or
constitute a default (or an event which, with notice or lapse of time or both
would constitute a default) under any material agreement (including the
Company's current secured debt instruments set forth on Schedule 4.2 (the
"Existing Indebtedness")), instrument or understanding to which the Company is a
party or by which it is bound or by which it will become bound as a result of
the transactions contemplated by this Agreement. This Agreement, each of the
Related Documents and all other agreements and instruments contemplated hereby
to which the Company is a party, have been duly executed and delivered by the
Company and each constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except to
the extent that enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws of general application
related to the enforcement of creditor's rights generally and (ii) general
principles of equity.
(b) The execution, delivery and performance of this Agreement,
each of the Related Documents and all other agreements and instruments
contemplated hereby to which the Company is a party have been duly authorized by
the Company. The Conversion Shares and the Warrant Shares, will be fully paid
and nonassessable. The Conversion Shares and the Warrant Shares have been duly
reserved for issuance upon conversion of the Debentures and exercise of the
Warrants, as the case may be, and, when so issued, will be duly authorized,
validly issued and outstanding, fully paid and nonassessable shares of Common
Stock. Neither the issuance and delivery of any Conversion Shares upon
conversion of any Debentures nor the issuance and delivery of any Warrant Shares
upon exercise of the Warrants is subject to any preemptive right of any
stockholder of the Company or to any right of first refusal or other similar
right in favor of any Person.
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4.3 Capitalization. The authorized Capital Stock of the Company
consists of (a) 25,000,000 shares of Common Stock, par value $.001 per share, of
which, as of September 3, 1999, 12,744,009 shares were outstanding, 439,699
shares are reserved for issuance upon conversion of the Debentures, 175,880
shares are reserved for issuance upon exercise of the Warrants, and 6,250,756
shares are reserved for issuance upon the exercise of certain stock options and
warrants, and (b) 10,000,000 shares of preferred stock, par value $.001 per
share, of which (i) 3,000 shares have been designated Series A Preferred Stock,
of which 3,000 shares are issued and outstanding, (ii) 312,882 shares have been
designated Series B Preferred Stock, of which 14,310 shares are issued and
outstanding, (iii) 1,500 shares have been designated Series C Preferred Stock,
of which 200 shares are issued and outstanding, (iv) 80,000 shares have been
designated Series D Preferred Stock, of which 60,000 shares are issued and
outstanding; and (v) 3,000,000 are reserved for issuance upon conversion of
certain convertible secured debt. All of the outstanding Capital Stock has been
validly issued and is fully paid and nonassessable and has been issued in
compliance with all applicable securities laws (including the provisions of the
Securities Act and the rules and regulations promulgated thereunder). Except as
set forth in Schedule 4.3, there are no options, convertible securities,
warrants, calls, pledges, transfer restrictions (except restrictions imposed by
federal and state securities laws), voting restrictions, liens, rights of first
offer, rights of first refusal, antidilution provisions or commitments of any
character relating to any issued or unissued shares of Capital Stock of the
Company other than as contemplated in the Related Documents. Except as
contemplated by this Agreement and the Related Documents or as set forth in
Schedule 4.3, there are no preferential rights applicable to the issuance and
sale of the Securities, the Conversion Shares and the Warrant Shares.
4.4 Private Sale. Assuming the accuracy of the representations and
warranties made by recipients of the Company's Capital Stock in connection with
the acquisition of such Capital Stock, the Company has not violated any
applicable federal or state securities laws in connection with the offer, sale
and issuance of any of its Capital Stock. Subject to the accuracy of the
Purchaser's representations contained herein, neither the offer, sale and
issuance of the Securities hereunder nor the issuance and delivery of any
Conversion Shares upon conversion of any Debentures or any Warrant Shares upon
exercise of any Warrants requires registration under the Securities Act or any
state securities laws.
4.5 Financial Statements; Disclosure.
(a) The Financial Statements (together with the notes thereto,
as applicable), subject to modifications required by the current SEC review of
the Company's Registration Statement on Form S-3, (i) are true, correct and
complete in all material respects, (ii) are in accordance with the books and
records of the Company and (iii) fairly present the financial condition and
results of operations of the Company as of the dates and for the periods
indicated in accordance with GAAP, except that the unaudited balance sheets and
related financial statements do not contain an auditors' opinion and do not
contain footnotes and are subject to normal, recurring year-end audit
adjustments which are not material.
(b) This Agreement together with the schedules, attachments,
exhibits, written statements and certificates supplied to the Purchaser by or on
behalf of the Company with respect to the transactions contemplated hereby does
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements contained herein or therein, in light of
the circumstances in which they were made, not misleading. There is no fact
which has not been disclosed to the Purchaser of which the Company has
knowledge, and which has had or could reasonably be anticipated to have a
Material Adverse Effect.
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(c) As of its filing date, each document filed with the SEC by
the Company, as amended or supplemented prior to the Initial Closing Date or any
Additional Closing Date, if applicable, pursuant to the Securities Act and/or
the Exchange Act, true and correct copies of which have been given to the
Purchaser, subject to modifications required by the current SEC review of the
Company's Registration Statement on Form S-3, (i) complied in all material
respects with the applicable requirements of the Securities Act and/or Exchange
Act and (ii) did not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
Each final registration statement filed with the SEC by the Company pursuant to
the Securities Act, as of the date such statement became effective (i) complied
in all material respects with the applicable requirements of the Securities Act
and (ii) did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading (in the case of any prospectus, in light of
the circumstances under which they were made).
4.6 Absence of Certain Changes.
(a) Except as set forth on Schedule 4.6(a) since the date of
the Current Balance Sheet, neither the Company nor any Subsidiary has:
(i) incurred any Liabilities other than current
Liabilities incurred, or obligations under contracts entered into, in
the ordinary course of business and for individual amounts not greater
than $250,000;
(ii) paid, discharged or satisfied any claim, Lien or
Liability, other than any claim, Lien or Liability (A) reflected or
reserved against on the Current Balance Sheet and paid, discharged or
satisfied in the ordinary course of business since the date of the
Current Balance Sheet or (B) incurred and paid, discharged or satisfied
since the date of the Current Balance Sheet, in each case in the
ordinary course of business;
(iii) sold, leased, assigned or otherwise transferred
any of its assets, tangible or intangible (other than sales of
inventory in the ordinary course of business and use of supplies in the
ordinary course of business);
(iv) permitted any of its assets, tangible or
intangible, to become subject to any Lien (other than any Permitted
Lien);
(v) written off as uncollectible any accounts
receivable other than (A) in the ordinary course of business or (B) for
amounts not greater than $50,000 in the aggregate;
(vi) terminated or amended or suffered the
termination or amendment of, or other than in the ordinary course of
business, failed to perform in all material respects all of its
obligations or suffered or permitted any material default to exist
under, any material agreement, license or permit (except the agreement
as disclosed between the Company and EARTHCO relating to a preparation
plant and fines ponds lease in Wellington, Utah);
(vii) suffered any damage, destruction or loss of
tangible property (whether or not covered by insurance) which in the
aggregate exceeds $100,000;
(viii) made any loan (other than intercompany
advances) to any other Person (other than advances to employees in the
ordinary course of business which do not exceed $10,000 individually or
$50,000 in the aggregate);
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(ix) canceled, waived or released any debt, claim or
right in an amount or having a value exceeding $100,000;
(x) paid any amount to or entered into any agreement,
arrangement or transaction with, or any series of agreements,
arrangements or transactions with, any Affiliate (including its
officers, directors and employees) having a value of in excess of
$50,000 in the aggregate (other than as Company-wide employee benefits
or termination benefits paid in the ordinary course of business);
(xi) declared, set aside, or paid any dividend or
distribution with respect to its Capital Stock or redeemed, purchased
or otherwise acquired any of its Capital Stock;
(xii) other than in the ordinary course of business
or under existing contractual terms or obligations, granted any
increase in the compensation of any officer or employee or made any
other change in employment terms of any officer or employee (except the
arrangements as disclosed between the Company and Messrs. Kimball,
Fraley, Thompson, Madden and Cook);
(xiii) made any change in any method of accounting or
accounting practice;
(xiv) suffered or caused any other occurrence, event
or transaction outside the ordinary course of business or which could
have a Material Adverse Effect; or
(xv) agreed, in writing or otherwise, to any of the
foregoing.
(b) Since the date of the Current Balance Sheet, there has
been no Material Adverse Change.
(c) Schedule 4.6(c) hereto sets forth a complete and accurate
list as of the date hereof of (i) each place of business of the Company and each
of its Subsidiaries and (ii) the chief executive office of the Company and each
of its Subsidiaries.
4.7 Litigation. Except as set forth in Schedule 4.7, no claim, suit,
proceeding or investigation is proceeding, pending or, to the knowledge of the
Company, threatened against or affecting the Company, any Subsidiary or any
licensee or any officer or director thereof or the Company's, the Subsidiaries'
or the licensee's business which if decided adversely to any such person could
have a Material Adverse Effect.
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4.8 Licenses, Compliance with Law, Other Agreements, Etc. Each of the
Company and its Subsidiaries has all material franchises, permits, licenses and
other rights to allow it to conduct its business and is not in violation, in any
material respects of any order or decree of any court, or of any law, order or
regulation of any Governmental Agency, or of the provisions of any contract or
agreement to which it is a party or by which it is bound (except the agreement
as disclosed between the Company and EARTHCO and the financing arrangement as
disclosed for the Mountaineer Facility), and neither this Agreement nor the
Related Documents nor the transactions contemplated hereby or thereby will
result in any such violation. Each of the Company's and its Subsidiary's
business has been conducted in compliance with all federal, state and local
laws, ordinances, rules and regulations, in all material respects. To the
knowledge of the Company, conditions or events of non-compliance with respect to
the Company's licensees that would have a Material Adverse Effect on the Company
or its contractual relationships with its licensees.
4.9 Third-Party Approvals. Assuming the accuracy of the representations
and warranties of the Purchaser contained in this Agreement, the Company is not
required to obtain any order, consent, approval or authorization of, or to make
any declaration or filing with, any Governmental Agency or other third party
(including under any state securities or "blue sky" laws) in connection with the
execution and delivery of this Agreement or the Related Documents, or the
consummation of the transactions contemplated hereby or thereby to occur on the
Initial Closing Date or any Additional Closing Date, except for the consent and
approval of OZ Master Fund, Ltd.
4.10 No Undisclosed Liabilities. Neither the Company nor any of its
Subsidiaries has any material Liabilities except (i) as and to the extent of the
amounts reflected or reserved against on the Current Balance Sheet and (ii)
liabilities and obligations incurred in the ordinary course of business since
the date thereof that in the aggregate could not result in a Material Adverse
Effect.
4.11 Tangible Assets. Each of the Company and its Subsidiaries has good
and marketable title to, or valid leasehold interests in, all material tangible
assets used or reasonably necessary in connection with the conduct of its
business.
4.12 Inventory. All inventory of each of the Company and its
Subsidiaries, whether reflected on the Current Balance Sheet or otherwise,
consists of a quality and quantity usable or salable in the ordinary course of
business, subject to defect or obsolescence consistent with the Company's
historical experience.
4.13 Owned Real Property. Set forth on Schedule 4.13 is a true and
correct description of all real property owned by the Company and its
Subsidiaries. The Company and each of its Subsidiaries has good and marketable
title in fee simple, free and clear of all Liens (other than any Permitted
Lien), to all of the real property owned by the Company and each of its
Subsidiaries.
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4.14 Real Property Leases. There exists no event of default (nor any
event which with notice or lapse of time would constitute an event of default)
with respect to the Company, any Subsidiary and, to the Company's knowledge,
with respect to any other party thereto under any agreement pursuant to which
the Company is the lessee or lessor of any real property, except for such
defaults and defects in enforceability as could not in the aggregate be expected
to have a Material Adverse Effect, and all such agreements are in full force and
effect and enforceable against the lessor or lessee in accordance with their
terms except for such defaults and defects in enforceability as could not in the
aggregate be expected to have a Material Adverse Effect (except the agreement as
disclosed between the Company and EARTHCO relating to a preparation plant and
fines ponds lease in Wellington, Utah).
4.15 Agreements. None of the Company, any Subsidiary or, to the
knowledge of the Company, any licensee is in default, nor to the knowledge of
the Company is there any basis for a valid claim of default, and to the
Company's knowledge no event has occurred which, with notice or lapse of time,
would constitute a default, under any agreement, arrangement or understanding to
which the Company, any Subsidiary or any licensee is a party, and to the
knowledge of the Company, no Person other than the Company is in default under
any such agreement, in each case other than defaults which in the aggregate
could not be expected to have a Material Adverse Effect (except the agreement as
disclosed between the Company and EARTHCO relating to a preparation plant and
fines ponds lease in Wellington, Utah). Additionally, none of the Company, any
Subsidiary or, to the knowledge of the Company, any licensee is party to any
agreement the performance of which in accordance with its terms (including any
termination provision thereof) could be expected to have a Material Adverse
Effect.
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4.16 Intellectual Property. Schedule 4.16 sets forth a complete list of
(i) all patented, registered, applied for or otherwise material Intellectual
Property owned, filed or used by the Company; and (ii) all trade names and
material unregistered trademarks and other designations used by the Company in
connection with its business. The Company owns and possesses all right, title
and interest in and to, or has a valid and enforceable license to use, all
Intellectual Property used by the Company in its business as currently conducted
and as currently proposed to be conducted. No claim by any third party
contesting the validity, enforceability, use or ownership of Intellectual
Property owned, held or used by the Company has been made or, to the knowledge
of the Company, is threatened. To the knowledge of the Company, neither it nor
its indemnitees has violated or misappropriated the Intellectual Property of any
third party and no third party has violated or misappropriated Intellectual
Property owned, held or used by the Company. No claim by any third party has
been asserted, or to the knowledge of the Company threatened, that the Company
or its indemnitees is violating or misappropriating Intellectual Property. To
the knowledge of the Company, all Intellectual Property owned or held by the
Company is valid, subsisting and enforceable, and all such Intellectual Property
is free of all Liens, and, except as set forth on Schedule 4.16, is fully
assignable by the Company to any Person, without payment, consent of any Person
or other condition or restriction. The Company has taken all reasonable measures
to protect the secrecy, confidentiality and value of all Confidential
Information, proprietary information and trade secrets owned, held or used by
the Company (including, without limitation, entering into appropriate
confidentiality agreements with all officers, directors, employees, and other
Persons with access to such information and trade secrets). To the knowledge of
the Company, such information and trade secrets have not been disclosed to any
Persons other than Company employees or Company contractors who had a need to
know and use such information and trade secrets in the ordinary course of
employment or contract performance and who executed appropriate confidentiality
agreements.
4.17 Employees. The Company is not a party to or bound by any
collective bargaining agreement, nor has it experienced any strike, material
grievance, material claim of unfair labor practice or other collective
bargaining dispute. To the knowledge of the Company there is no organizational
effort being made or threatened by or on behalf of any labor union with respect
to its employees. To the knowledge of the Company, it has not committed any
unfair labor practice or violated any federal, state or local law or regulation
regulating employers or the terms and conditions of its employees' employment,
including laws regulating employee wages and hours, employment discrimination,
employee civil rights, equal employment opportunity and employment of foreign
nationals, except for such violations as could not be expected to have a
Material Adverse Effect.
4.18 ERISA; Employee Benefits. The Company has no Plans and agrees that
it will not adopt any Plan, other than a defined contribution 401(k) plan while
any of the Debentures are outstanding.
4.19 Environmental Laws. Except as set forth on Schedule 4.19:
(a) Each of the Company (as used in this Section 4.19, Company
shall include any predecessor and the Company's Subsidiaries) and, to the
knowledge of the Company, its licensees has complied and is in compliance with
all Environmental Laws.
(b) The Company and, to the knowledge of the Company, its
licensees have obtained and complied with, and are in compliance with, all
permits, licenses and other authorizations that are required pursuant to
Environmental Laws to operate its facilities, assets, and its businesses.
(c) No Environmental Actions have been asserted against the
Company or, to the knowledge of the Company, against any licensee or facility
that may have received Hazardous Materials generated by the Company or any
licensee, regarding any actual, threatened, or alleged violation of
Environmental Laws, or any liabilities or potential liabilities (whether
accrued, absolute, contingent, unliquidated, or otherwise), including any
investigatory, remedial, or corrective obligations, relating to it or its
operations under Environmental Laws.
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(d) To the knowledge of the Company, none of the following
exists at any property or facility currently or formerly owned or operated by
either the Company or, to the knowledge of the Company, any licensee: (i)
underground storage tanks, (ii) asbestos-containing material in any form or
condition, (iii) materials or equipment containing polychlorinated biphenyls, or
(iv) landfills, surface impoundments, or waste disposal areas, except for
feed-stock properties for Company facilities.
(e) Except as disclosed on Schedule 4.19, neither the Company
nor, to the knowledge of the Company, any licensee has treated, stored, disposed
of, arranged for or permitted the disposal of, transported, handled, or Released
any substance, including without limitation any Hazardous Material, or owned or
operated any property or facility (and no such property or facility is
contaminated by any such substance) in a manner that has given or would give
rise to Environmental Liabilities and Costs. There has been no Release at any of
the properties owned or operated by the Company or, to the knowledge of the
Company, at any of the properties owned or operated by its licensees or, to the
knowledge of the Company, at any disposal treatment facility which received
Hazardous Materials generated by the Company or any licensee which is reasonably
likely to result in Environmental Liabilities and Costs.
(f) Except as disclosed on Schedule 4.19, neither this
Agreement nor the consummation of the transactions that are contemplated by this
Agreement will result in any obligations for site investigation, cleanup or
notification pursuant to any so-called "transaction-triggered" or "responsible
property transfer" Environmental Laws.
(g) Neither the Company nor, to the knowledge of the Company,
any licensee has, either expressly or by operation of law, assumed or undertaken
any liability, including without limitation any obligation for corrective or
Remedial Action, of any other Person relating to Environmental Laws.
4.20 Transactions With Affiliates. Except as set forth on Schedule
4.20, neither the Company nor any Subsidiary is party to any agreement,
arrangement or transaction or series of agreements, arrangements or transactions
with any Affiliate which agreements, arrangements, transactions and series of
transactions in the aggregate have a value over $50,000 (other than as
Company-wide employee benefits paid in the ordinary course of business).
4.21 Taxes.
(a) Except as disclosed on Schedule 4.21, each of the Company
and its Subsidiaries has filed all Tax Returns that it was required to file, and
has paid all Taxes due with respect to the periods covered by such Tax Returns.
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(b)None of the Company and its Subsidiaries (i) has been a
member of an affiliated group filing a consolidated federal Tax Return (other
than a group the common parent of which was the Company) or (ii) has any
Liability for the Taxes of any Person (other than any of the Company and its
Subsidiaries) under Treas. Reg. ss.1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or otherwise.
(c) Each of the Company and its Subsidiaries has withheld and
paid all taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party.
(d) Except as set forth on Schedule 4.21, there is no dispute
or claim concerning any Tax Liability of any of the Company and its Subsidiaries
either (i) claimed or raised by any authority in writing or (ii) as to which any
of the directors and officers (and employees responsible for Tax matters) of the
Company and its Subsidiaries has knowledge based upon personal contact with any
agent of such authority.
4.22 Other Investors. Set forth on Schedule 4.22 is a list of all
shareholders (including option and convertible security holders) of the Company
who as of the date hereof, based on SEC filings of such shareholders, after
giving effect to the terms hereof, own more than 5% of the fully diluted common
equity of the Company and sets forth such percentage ownership.
4.23 Year 2000 Representations. The Company represents and warrants
that:
(a) The Company does not have any computer applications that
it believes are mission critical to the operation of synthetic fuel facilities
that it operates. While the Company has not formally verified Year 2000
compliance with licensees that utilize the Company's technology in their
synthetic fuel facilities, the Company believes that the computer applications
used in the operations of these facilities are not mission critical.
Accordingly, the Company believes that Year 2000 issues will not be significant
to these computer applications and therefore, upgrading or modifications to
these applications to make them Year 2000 compliant will not be significant.
(b) During 1998 the Company upgraded its network operating
system and believes that system is Year 2000 compliant and that any additional
upgrading to that system will not be significant. The Company utilizes computer
applications in the finance and accounting departments and in the corporate
office that need to be upgraded in order to be Year 2000 compliant. The Company
expects to complete the upgrade of its corporate computer applications for Year
2000 compliance by September 30, 1999.
4.24 Investment Company. The Company is not, and is not controlled by
or under common control with an affiliate of, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
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4.25 Certain Fees. Other than fees and expenses due and payable to the
Purchaser pursuant to Section 12.4, no fees or commissions will be payable by
the Company to any broker, financial advisor, finder, investment banker, or bank
with respect to the transactions contemplated by this Agreement. The Purchaser
shall not have any obligation with respect to any fees or with respect to any
claims made by or on behalf of any Persons for fees of a type contemplated in
this section that may be due in connection with the transactions contemplated by
this Agreement. The Company shall indemnify and hold harmless the Purchaser, its
employees, officers, directors, agents and partners, and their respective
Affiliates from and against all claims, losses, damages, costs (including
attorney's fees) and expenses suffered in respect to any such claimed or
existing fees.
4.26 Solicitation Materials. The Company has not (i) distributed any
offering materials to the Purchaser in connection with the offering and sale of
the Securities other than its public filings with the SEC, or (ii) solicited any
offer to buy or sell the Securities by means of any form of general solicitation
or general advertising within the meaning of Regulation D under the Securities
Act. None of the information provided to the Purchaser by or on behalf of the
Company contain any untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading.
4.27 Form S-3 Filing. The Company has filed a registration statement
with the SEC on Form S-3 promulgated under the Securities Act, File No.
33-385753, to register the resale of the Conversion Shares, the Warrant Shares
and shares otherwise issuable pursuant to this Agreement.
4.28 Listing and Maintenance Requirements Compliance.
(a) The Company has not received notice (written or oral) from
the National Association of Securities Dealers that the Company is not in
compliance with its listing or maintenance requirements.
(b) Upon conversion of the Debentures into Conversion Shares
or the exercise of the Warrants for the Warrant Shares, all such Conversion
Shares and Warrant Shares shall be listed on the NASDAQ National Market System.
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4.29 Registration Rights; Rights of Participation. Except as described
on Schedule 4.29 hereto, (a) the Company has not granted or agreed to grant to
any Person any rights (including "piggy-back" registration rights) to have any
securities of the Company registered with the SEC or any other Governmental
Agency which has not expired or been satisfied in full and (b) no Person,
including, but not limited to, current or former shareholders of the Company,
underwriters, brokers or agents, has any right of first refusal, preemptive
right, right of participation, or any similar right to participate in the
transactions contemplated by this Agreement or any other related document which
has not been waived. None of the rights granted to the Purchaser hereunder and
under the Related Documents conflicts with or would cause a default under any of
the agreements or arrangements listed on Schedule 4.29 hereto.
4.30 Synthetic Fuel Facilities.
(a) The Company shall take all reasonably necessary action to
ensure that the credit for producing fuel from a nonconventional source provided
under Section 29 of the Code is available and is maintained with respect to each
of the Company's and its licensee's facilities for producing synthetic fuels
("Facilities") including, without limitation, ensuring that the Facilities
produce "qualified fuels" (as defined in Section 29(c) of the Code) and such
qualified fuels are sold to persons that are not "related persons" (as defined
in Section 29(d)(7) of the Code). Each of the Facilities was placed in service
before July 1, 1998, in each case pursuant to a binding written contract in
effect on or before December 31, 1996. For purposes of this Section 4.30, each
representation made by the Company is made to the knowledge of the Company.
(b) Each of the representations and warranties made by any of
the Company, its Subsidiaries or its licensees in obtaining any private letter
ruling from the Internal Revenue Service was true and correct in all material
respects when made and as of the date the ruling was issued.
(c) Set forth on Schedule 4.30 is each private letter ruling
obtained from the Internal Revenue Service regarding the Facilities which is
addressed to the Company or any of its licensees or is otherwise able to be
relied upon by the Company. To the Company's knowledge, (i) no private letter
ruling listed on Schedule 4.30 has been amended, rescinded or revoked since the
date of issuance, and (ii) there exists no reason that the Internal Revenue
Service would deny a request by the Company or any owner of the Facilities for a
private letter ruling with regard to the Facilities owned by the Company or any
of its licensees.
Article V - REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company as follows:
5.1 Authorization and Enforceability. The Purchaser has full power and
authority and has taken all action necessary to permit it to execute and deliver
this Agreement and the other documents and instruments to be executed by it
pursuant hereto and to carry out the terms hereof and thereof. This Agreement
and each such other document and instrument, when duly executed and delivered by
the Purchaser, will constitute a valid and binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms, except to the
extent limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws of general application related to the enforcement of
creditors' rights generally and (ii) general principles of equity.
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5.2 Purchaser's Ability to Perform. As of the Initial Closing, the
Purchaser has the financial resources to perform fully its total obligations
under this Agreement.
5.3 Restrictions on Sale. The Purchaser agrees that it will not sell
(sell means making any long or short sales, purchasing put options, selling call
options, or selling any derivative security (i.e. swap agreements) in the
Company's Common Stock or related to the Company's Common Stock) any shares of
the Common Stock of the Company before the earlier of (i) the date which is 30
days after the effective date of the Registration Statement on Form S-3 filed
with the SEC on May 26, 1999, SEC File No. 333-79385, registering the sale of
shares of the Company's Common Stock by the OZ Master Fund, Ltd. (the "OZ Master
Fund Registration"), or (ii) the withdrawal of the OZ Master Fund Registration.
The Company acknowledges and agrees that it will file an amendment to the
Registration Statement on Form S-3, filed with the SEC on November 16, 1998, SEC
File No. 333-67371 (the "Johnson Registration"), amending the Registration
Statement to conform with comments received from the SEC, on or before September
24, 1999 and if the amendment is not filed on or before such date the Company
hereby covenants and agrees to issue or cause to be issued to the Purchaser on
such date additional shares of Common Stock equal in number to (i) 10% of the
aggregate principal amount of Debentures issued pursuant to this Agreement,
divided by (ii) the Conversion Price (as defined in the Debentures) on such
date. If the OZ Master Fund Registration has not been declared effective on or
before October 7, 1999 the Company hereby covenants and agrees to issue or cause
to be issued to the Purchaser on such date and on every date which is 30 days or
a multiple thereof after such date, until such registration shall become
effective, additional shares of Common Stock equal in number to (i) 10% of the
aggregate principal amount of Debentures issued pursuant to this Agreement,
divided by (ii) the Conversion Price (as defined in the Debentures) on such
date. On the earlier of November 6, 1999 or 30 days after the effective date of
the OZ Master Fund Registration, if the Company and OZ Master Fund, Ltd. ("OZ")
waive the provisions of Section 5.3 of the Purchase Agreement and the Aspen
Registration, SEC File No. 333-85753, has been declared effective by the SEC,
the Purchaser agrees to waive all penalties accruing to it pursuant to Section
5.3 of the Purchase Agreement. The Company and the Purchaser acknowledge and
agree that (a) OZ is intended to be, and is, a third-party beneficiary to
Section 5.3 of the Purchase Agreement, (b) OZ shall have the right to commence
and prosecute any judicial or other action seeking to enforce the requirements
of, or seeking damages for any violation of, Section 5.3 of the Purchase
Agreement whether or not the Company joins in such action seeking to enforce the
requirements of, or seeking damages for any violation of, Section 5.3 of the
Purchase Agreement and (c) no waiver of the obligations of the Purchaser under
Section 5.3 of the Purchase Agreement shall in any event be effective unless OZ
joins in writing in, or consents in writing to, such waiver.
Article VI - COMPLIANCE WITH SECURITIES LAWS
6.1 Investment Intent of the Purchaser. The Purchaser represents and
warrants to the Company that it is acquiring the Securities for its own account,
with no present intention of selling or otherwise distributing the same in
violation of the Securities Act.
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6.2 Status of Securities. The Purchaser has been informed by the
Company that the Securities have not been registered under the Securities Act or
under any state securities laws and are being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public offering.
6.3 Accredited Investor Status. The Purchaser represents and warrants
to the Company that it is an "Accredited Investor" as defined in Regulation D
under the Securities Act.
6.4 Access to Information. The Purchaser has had access to management
of the Company and has been able to ask questions of management related to the
Company and has reviewed the Company's filings pursuant to the Exchange Act.
Notwithstanding any due diligence investigations conducted by or on behalf of
the Purchaser, it is understood and agreed by each of the parties hereto that
the Purchaser is entitled to rely, and is relying, on the representations and
warranties made by the Company herein and in the Related Documents.
6.5 Transfer of Securities, Conversion Shares and Warrant Shares.
(a) Securities, Conversion Shares and Warrant Shares may be
transferred (i) pursuant to public offerings registered under the Securities
Act, (ii) pursuant to Rule 144 of the SEC (or any similar rule then in force),
(iii) to an Affiliate or member of the Family Group of the transferor (provided
that the subsequent transfer of the Securities, Conversion Shares or Warrant
Shares is restricted), or (iv) subject to the conditions set forth in Section
6.5(b), any other legally available means of transfer.
(b) In connection with any transfer of any Securities,
Conversion Shares or Warrant Shares (other than a transfer described in Section
6.5(a)(i), (ii) or (iii)), the holder of such shares shall deliver written
notice to the Company describing in reasonable detail the proposed transfer,
together with an opinion of counsel (which, to the Company's reasonable
satisfaction, is knowledgeable in securities law matters), to the effect that
such transfer may be effected without registration of such shares under the
Securities Act.
(c) Until transferred pursuant to clauses (a)(i) or (ii) above
or pursuant to clause (a)(i) above with an opinion of counsel pursuant to
paragraph (b) above that such legend is not required, each Debenture, Warrant,
Conversion Shares and Warrant Shares shall be imprinted with a legend
substantially in the following form:
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THE SECURITIES REPRESENTED BY THIS [DEBENTURE/CERTIFICATE/ WARRANT]
WERE ORIGINALLY ISSUED ON ________, 1999 AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAW. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
[DEBENTURE/CERTIFICATE/WARRANT] IS SUBJECT TO THE CONDITIONS SET FORTH
IN THE SECURITIES PURCHASE AGREEMENT, DATED AS OF SEPTEMBER 17, 1999,
BETWEEN THE ISSUER (THE "COMPANY") AND THE PURCHASER NAMED THEREIN. THE
COMPANY RESERVES THE RIGHT TO REFUSE ANY TRANSFER OF SUCH SECURITIES
UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH
TRANSFER. A COPY OF SUCH CONDITIONS SHALL BE FURNISHED WITHOUT CHARGE
TO THE HOLDER HEREOF UPON WRITTEN REQUEST TO THE COMPANY.
Article VII - CONDITIONS PRECEDENT
7.1 Conditions Precedent. The obligation of the Purchaser to purchase
any Securities hereunder is subject to the satisfaction of each of the following
conditions precedent:
(a) The issuance and sale of the Securities shall not
contravene any law, rule or regulation applicable to the Purchaser or the
Company or any of its Subsidiaries;
(b) The following conditions have been satisfied as of the
Initial Closing Date and each Additional Closing Date,
(i) The representations and warranties of the Company
contained herein and in any Related Document and in any writing
delivered pursuant hereto or thereto shall be true and correct when
made and materially true and correct as of the time of the Initial
Closing and each Additional Closing;
(ii) No action, suit, investigation or proceeding
shall be pending or threatened before any court or Governmental Agency
to restrain, prohibit, collect damages as a result of or otherwise
challenge this Agreement or any Related Document or any transaction
contemplated hereby or thereby;
(iii) All acts or covenants required hereunder to be
performed by the Company prior to the Initial Closing and each
Additional Closing shall have been fully performed by it; and
(iv) No Material Adverse Change shall have occurred
between the date of the Current Balance Sheet and the Initial Closing
Date or Additional Closing Date and no event or occurrence shall have
occurred that could have a Material Adverse Effect.
(c) The following documents and items shall be delivered to
the Purchaser at or prior to the Initial Closing and each Additional Closing:
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(i) A fully executed counterpart of this Agreement
(at the Initial Closing only), and fully executed Debentures, the
Security Agreement and the UCC-1 financing statements related thereto,
the Warrants and the certificates (in such denominations as the
Purchaser shall request) for the Warrants being delivered by the
Company at the Initial Closing and each Additional Closing.
(ii) Certificates of a duly authorized officer of the
Company dated as of the Initial Closing Date and each Additional
Closing Date:
(A) Stating that the following conditions
have been satisfied as of the Initial Closing Date and each
Additional Closing Date:
(1) The representations and
warranties of the Company contained herein and in any
writing delivered pursuant hereto were true and
correct when made and are materially true and correct
as of the time of the Initial Closing and each
Additional Closing;
(2) No action, suit, investigation
or proceeding is pending or threatened before any
court or Governmental Agency to restrain, prohibit,
collect damages as a result of or otherwise challenge
this Agreement or any Related Document or any
transaction contemplated hereby or thereby;
(3) All acts or covenants required
hereunder to be performed by the Company prior to the
Initial Closing and each Additional Closing have been
fully performed by it; and
(4) No Material Adverse Change shall
have occurred between the date of the Current Balance
Sheet and the Initial Closing Date and each
Additional Closing Date and there shall have been no
event or occurrence that could result in a Material
Adverse Effect; and
(B) Setting forth the resolutions of the
Board of Directors authorizing the execution and delivery of
this Agreement and the Related Documents and the consummation
of the transactions contemplated hereby and thereby, and
certifying that such resolutions were duly adopted and have
not been rescinded or amended;
(iii) The Company shall have paid fees payable
pursuant to Section 12.4 hereof;
(iv) A copy of a certificate of the appropriate
official(s) of the state of organization and each state of foreign
qualification of the Company and each of its Subsidiaries certifying as
of the date of the certificate to the existence in good standing of,
and the payment of taxes by, such Person in such states;
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(v) A true and complete copy of the Certificate of
Incorporation, as amended, of the Company, certified as of a date not
more than six months prior to the Initial Closing Date by an
appropriate official of the state of organization of each such Person,
a true and complete copy of the Bylaws of the Company, certified as of
the Initial Closing Date by the Secretary of the Company, and a
certificate as of each Additional Closing Date by the Secretary of the
Company that there has been no change to the Certificate of
Incorporation or Bylaws of the Company since the Initial Closing Date;
and
(vi) Such other documents relating to the
transactions contemplated hereby as the Purchaser may reasonably
request.
7.2 Closing Deliveries to the Company. The Purchaser will deliver to
the Company the aggregate purchase price for the Securities to be acquired by
the Purchaser, net of a 10% placement fee payable to Aspen Capital Resources,
LLC.
Article VIII - COVENANTS OF THE COMPANY
8.1 Restricted Actions. Without the prior written consent of the
Purchaser, and for so long as any of the Debentures remain outstanding, the
Company shall not, and shall not permit any Subsidiary to:
(a) become subject to any agreement or instrument which by its
terms would (under any circumstances) restrict or impair the Company's right to
comply with or fulfill its obligations under the terms of this Agreement or any
of the Related Documents;
(b) use the proceeds from the sale of the Securities other
than for repayment of indebtedness, working capital and other general corporate
purposes; provided, that the Company will in no event use the proceeds to invest
in any securities other than short-term, interest-bearing government securities;
(c) enter into any transaction or series of transactions with
any stockholder, director, officer, employee or Affiliate, including, without
limitation, the purchase, sale, lease or exchange of any property, the rendering
of any service or any investment, loan or advance, unless such transaction (i)
is consummated by the Company in good faith on an arm's-length basis, (ii) is
less than $100,000 per occurrence or $250,000 in the aggregate, and (iii) is
approved by the Board of Directors, including by a majority of the Company's
disinterested directors;
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(d) declare or pay any dividends, purchase or otherwise
acquire for value any of its membership interests or other Capital Stock now or
hereafter outstanding, return any capital to its members as such, or make any
other payment or distribution of assets to its stockholders as such, or permit
any of its Subsidiaries to do any of the foregoing or to purchase or otherwise
acquire for value any Capital Stock of the Company or its Subsidiaries, or make
any payment or prepayment of principal of, premium, if any, or interest on, or
redeem, decrease or otherwise retire, any Indebtedness before its scheduled due
date;
(e) materially alter or change the business of the Company;
(f) issue any stock option or warrant at less than the Fair
Market Value at the time of grant;
(g) unless the Company has issued and sold $4,000,000.00 of
the Debentures to the Purchaser, create, incur or suffer to exist any
Indebtedness, other than:
(i) Indebtedness created hereunder and under the
Debentures; and
(ii) Indebtedness existing on the date hereof, and
any extension of maturity, refinancing or modification of the terms
there of provided, however, that such extension, refinancing or
modification (A) is pursuant to terms that are not materially less
favorable to the purchaser than the terms of the Indebtedness being
extended, refinanced or modified and (B) after giving effect to the
extension, refinancing or modification, such Indebtedness is not
greater than the amount of Indebtedness outstanding immediately prior
to such extension, refinancing or modification.
(h) alter the rights, preferences and privileges of the
Securities, the Conversion Shares or the Warrant Shares;
(i) allow the use, handling, generation, storage, treatment,
release or disposal of Hazardous Materials at any property owned or leased by
the Company or any of its Subsidiaries except in compliance with Environmental
Laws and so long as such use, handling, generation, storage, treatment, release
or disposal of Hazardous Materials does not result in a violation of
Environmental Law which would result in a Material Adverse Change; and
(j) grant any rights of registration under the Securities Act
relating to any of its shares of Capital Stock or other securities to any Person
other than pursuant to this Agreement, unless (i) the rights so granted to
another Person do not limit, restrict or impair the rights of the Purchaser
under this Agreement and under the Related Documents and (ii) such rights so
granted to another Person do not grant priority in registration rights to such
other Person over rights granted to Purchaser under this Agreement and under the
Related Documents.
8.2 Required Actions. For so long as any of the Debentures remain
outstanding, the Company shall, and shall cause each Subsidiary to:
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(a) cause all properties owned by the Company or any of its
Subsidiaries or used or held for use in the conduct of its business or the
business of any of its Subsidiaries to be maintained and kept in good condition,
repair and working order (reasonable wear and tear excepted) and supplied with
all necessary equipment and will cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Board of Directors may be necessary so that the business carried
on in connection therewith may be properly and advantageously conducted at all
times; provided, however, that the foregoing shall not prevent the Company from
discontinuing the maintenance or operation of any of such properties if such
discontinuance is, in the judgment of the management of the Company, desirable
in the conduct of its business or the business of any of its Subsidiaries and is
not disadvantageous in any material respect to the holders of the Securities;
(b) preserve and keep in full force and effect the corporate
existence, rights (charter and statutory), licenses and franchises of the
Company and each of its Subsidiaries; provided, however, that the Company shall
not be required to preserve any such right, license or franchise if the Board of
Directors shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and its Subsidiaries as a whole
and that the loss thereof is not disadvantageous in any material respect to the
holders of Securities;
(c) maintain the books, accounts and records of the Company
and its Subsidiaries in accordance with past custom and practice as used in the
preparation of the Financial Statements except to the extent permitted or
required by GAAP;
(d) keep all of its and its Subsidiaries' properties which are
of an insurable nature insured with insurers, believed by the Company in good
faith to be financially sound and responsible, against loss or damage to the
extent that property of similar character is usually so insured by corporations
similarly situated and owning like properties (which may include self-insurance,
if reasonable and in comparable form to that maintained by companies similarly
situated);
(e) comply with all material legal requirements and material
contractual obligations applicable to the operations and business of the Company
and its Subsidiaries and pay all applicable Taxes as they become due and
payable;
(f) permit representatives of any holder of the Securities and
its agents (including their counsel, accountants and consultants), subject to
the execution of a reasonable confidentiality agreement, to have reasonable
access upon reasonable notice during business hours to the Company's books,
records, facilities, key personnel, officers, directors, customers, independent
accountants and legal counsel so long as such access does not violate any
applicable Federal or state law or cause the loss of the attorney-client
privilege;
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(g) at all times (i) file all reports (including annual
reports, quarterly reports and the information, documentation and other reports)
required to be filed by the Company under the Exchange Act and Sections 13 and
15 of the rules and regulations adopted by the SEC thereunder, and the Company
shall use its best efforts to file each of such reports on a timely basis, and
take such further action as any holder or holders of the Securities, the
Conversion Shares or the Warrant Shares may reasonably request (including
providing copies of such reports to the holders of the Securities, the
Conversion Shares or the Warrant Shares), all to the extent required to enable
such holders to sell Securities pursuant to Rule 144 adopted by the SEC under
the Securities Act (as such rule may be amended from time to time) or any
similar rule or regulation hereafter adopted by the SEC and to enable the
Company to register securities with the SEC on Form S-3 or any similar
short-form registration statement and upon the filing of each such report
deliver a copy thereof to each holder of the Securities, the Conversion Shares
or the Warrant Shares, (ii) if the Company is no longer subject to the
requirements of the Exchange Act, provide reports to the holders of the
Securities, the Conversion Shares or the Warrant Shares in substantially the
same form and at the same times as would be required if the Company were subject
to the Exchange Act, and (iii) provide to each initial holder of the Securities,
the Conversion Shares or the Warrant Shares and each other holder who has
entered into a confidentiality agreement with the Company, pursuant to mutually
agreeable terms, any material information distributed to the Board of Directors;
(h) maintain at all times a valid listing for the Common Stock
on a national securities exchange, the NASDAQ National Market System or the
NASDAQ SmallCap Market;
(i) maintain all material Intellectual Property Rights
necessary to the conduct of its business and own or have a valid license to use
all right, title and interest in and to, such material Intellectual Property
Rights;
(j) deliver Conversion Shares in accordance with the terms and
conditions, and time periods, set forth in the Debentures;
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(k) (i) Keep any property either owned or operated by it or
any of its Subsidiaries free of any Environmental Liens or post bonds or other
financial assurances sufficient to satisfy the obligations or liability
evidenced by such Environmental Liens; (ii) comply, and cause its Subsidiaries
to comply, in all material respects with Environmental Laws and shall provide to
the Purchaser documentation of such compliance which the Purchaser reasonably
requests; (iii) promptly notify the Purchaser of any Release of a Hazardous
Material in excess of any reportable quantity from or onto property owned or
operated by the Company, any of its Subsidiaries or, to the knowledge of the
Company, any of its licensees and take any Remedial Actions required to abate
said Release or otherwise to come into compliance with applicable Environmental
Law; and (iv) promptly provide the Purchaser with written notice within ten (10)
days of the receipt of any of the following: (a) notice that an Environmental
Lien has been filed against any of the real or personal property of the Company,
any of its Subsidiaries or, to the knowledge of the Company, any of its
licensees; (b) commencement of any Environmental Action or notice that an
Environmental Action will be filed against the Company or any Subsidiary; and
(c) notice of a violation, citation or other administrative order which would
reasonably be expected to cause a Material Adverse Effect; and
(m) Take such actions and execute, acknowledge and deliver,
and cause each of the Subsidiaries to take such actions and execute, acknowledge
and deliver, at its sole cost and expense such agreements, instruments or other
documents as the Purchaser may reasonably require from time to time in order to
(i) carry out more effectively the purposes of this Agreement and the Related
Documents, (ii) maintain the validity and effectiveness of any of the Related
Documents, and (iii) to better assure, convey, grant, assign, transfer and
confirm unto the Purchaser the rights now or hereafter intended to be granted to
the Purchaser under this Agreement or any Related Document.
8.3 Reservation of Common Stock. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purposes of issuance upon conversion of the Debentures and the
exercise of the Warrants, such number of shares of Common Stock as are issuable
upon the conversion or exercise of all Debentures and all Warrants. All shares
of Common Stock which are so issuable shall, when issued, be duly and validly
issued, fully paid and nonassessable and free from all Taxes, liens and charges.
The Company, at its sole cost and expense, shall take all such actions as may be
necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which shall be
immediately transmitted by the Company upon issuance).
8.4 Payments Free of Withholding. All payments by the Company hereunder
or under the Debentures or the Warrants shall be made free and clear of, and
without any deduction for, any Tax imposed by any taxing jurisdiction, domestic
or foreign.
Article IX - REGISTRATION RIGHTS
<PAGE>
9.1 Registration Rights. The Company, at its sole cost and expense,
covenants to register or qualify or cause to be registered or qualified under
applicable federal and state securities laws the sale and resale by the
Purchaser of (i) all of the Conversion Shares, (ii) all of the Warrant Shares,
and (iii) all of the additional shares of Common Stock issued or issuable to the
Purchaser pursuant to this Agreement, if any, and to maintain such registration
statement effective for all periods during which any portion of any Debenture
may be converted or any Warrants may be exercised. The Company agrees to cause
such registration or qualification to be filed with the United States Securities
and Exchange Commission within 10 calendar days after the date of this
Agreement. The Company agrees to cause such registration or qualification to
become effective on or before the first date upon which any portion of any
Debenture may be converted and to remain effective for all periods during which
any portion of any Debenture may be converted or any Warrants may be exercised.
If such registration or qualification does not become effective within 120 days
after the date of this Agreement or remain effective thereafter as provided
herein, the Purchaser may, at its sole option, demand that the Company redeem
all or any portion of the Debentures as provided therein.
If such registration or qualification, registering all of the specified
shares of Common Stock, has not become effective on or before the first date
upon which any portion of any Debenture may be converted, the Company hereby
covenants and agrees to issue or cause to be issued to the Purchaser on such
date and on every date which is 30 days or a multiple thereof after such date,
until such registration or qualification shall become effective, additional
shares of Common Stock equal in number to 10% of (i) the total number of shares
of Common Stock issued or issuable upon conversion of all issued and outstanding
Debentures or portions thereof which are convertible by the Purchaser and (ii)
the additional shares of Common Stock issued or issuable to the Purchaser
pursuant to this Agreement, if any, and to cause the sale and resale of all such
additional shares to be included in the registration or qualification described
herein.
9.2 Piggyback Registration Rights. The Company covenants that if at any
time when any Debenture may be converted or any Warrant may be exercised the
Company should file a non-underwritten registration statement or offering
statement on behalf of the Company pursuant to applicable federal and state
securities laws for a public offering of securities, the Company will provide
written notification to the Purchaser at least 30 days but not more than 60 days
prior to the filing date of such registration statement or offering statement
and will register or qualify or cause to be registered or qualified, subject to
the rights pursuant to which the registration or qualification is filed, at the
option of the Purchaser and at the sole cost and expense of the Company, the
sale and resale by the Purchaser of (i) all of the Conversion Shares, (ii) all
of the Warrant Shares, and (iii) all of the additional shares of Common Stock
issuable to the Purchaser pursuant to this Agreement, if any, and the Company
will maintain such registration statement effective for all periods during which
any Debentures may be converted or any Warrants may be exercised.
Article X - SURVIVAL
10.1 Survival. The representations, warranties, covenants and
agreements of the parties hereto contained herein, or in any writing delivered
pursuant hereto, shall survive the Initial Closing and each Additional Closing
of the transactions contemplated hereby and by the Related Documents
notwithstanding any due diligence investigation conducted by or on behalf of
Purchaser and until such time as all of the obligations of the parties hereto
have been satisfied.
Article XI - INDEMNIFICATION
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11.1 Indemnification. In consideration of the Purchaser's execution and
delivery of this Agreement and acquiring the Securities hereunder and in
addition to all of the Company's other obligations under this Agreement, the
Company shall defend, protect, indemnify and hold harmless, on an after-tax
basis, the Purchaser and each other holder of the Securities and each of their
respective officers, directors, employees and agents (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the "Indemnitees") from and against any and all
actions, causes of action, suits, claims, Environmental Actions, losses, costs,
penalties, fees, liabilities, Environmental Liabilities and Costs and damages,
and expenses (including, without limitation, costs of suit and attorneys' fees
and expenses) in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought) (the "Indemnified Liabilities"), incurred by the Indemnitees or any of
them as a result of, or arising out of, or relating to (a) the material breach
or inaccuracy of any representation or warranty contained in this Agreement or
any Related Document or any other instrument, agreement or document delivered to
the Purchaser in accordance herewith or therewith, (b) the execution, delivery,
performance or enforcement of this Agreement, any Related Document and any other
instrument, document or agreement executed pursuant hereto or thereto by any of
the Indemnitees, or (c) resulting from any material breach or inaccuracy of any
representation, warranty, covenant or agreement made by the Company herein or in
any Related Document. The Company shall reimburse the Indemnitees for the
Indemnified Liabilities as such Indemnified Liabilities are incurred. To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.
Article XII - GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns,
including each subsequent holder of Securities, Conversion Shares or Warrant
Shares. Except as otherwise specifically provided herein, this Agreement shall
not be assignable by the Company without the prior written consent of the
Purchaser.
12.2 Entire Agreement. This Agreement and the other writings referred
to herein or delivered pursuant hereto constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior oral
or written arrangements or understandings.
12.3 Notices. All notices, requests, consents and other communications
provided for herein shall be in writing and shall be (i) delivered in person,
(ii) transmitted by telecopy, (iii) sent by registered or certified mail,
postage prepaid with return receipt requested, or (iv) sent by reputable
overnight courier service, fees prepaid, to the recipient at the address or
telecopy number set forth below, or such other address or telecopy number as may
hereafter be designated in writing by such recipient. Notices shall be deemed
given upon personal delivery, upon receipt of return receipt in the case of
delivery by mail, upon acknowledgment by the receiving telecopier or one day
following deposit with an overnight courier service.
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(1) If to the Company:
Covol Technologies, Inc.
3280 North Frontage Road
Lehi, Utah 84043
Telecopy: (801) 768-4483
Attention: Steven G. Stewart
with a copy to (which shall not constitute notice to the Company):
Callister, Nebeker & McCullough
Ten East South Temple
Salt Lake City, Utah 84133
Telecopy: (801) 364-9127
Attention: Richard T. Beard, Esq.
(2) If to the Purchaser:
Aspen Capital Resources, LLC
8989 South Schofield Circle
Sandy, Utah 84093
Telecopy: (801) 501-9882
Attention: Joe K. Johnson
with a copy to (which shall not constitute notice to the Purchaser):
Corbridge Baird & Christensen
39 Exchange Place, Suite 100
Salt Lake City, Utah 84111
Telecopy: (801) 534-1948
Attention: James G. Swensen, Jr., Esq.
12.4 Purchaser Fees and Expenses.
(a) The Company shall pay a placement fee to Aspen Capital
Resources, LLC equal to 10% of the aggregate principal amount of Debentures
issued pursuant to this Agreement, payable upon issuance of each Debenture.
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(b) The Company shall reimburse the Purchaser upon demand for
(i) the reasonable fees and expenses of counsel(s) to the Purchaser incurred in
connection with the documentation, negotiation and consummation of the
transactions contemplated by this Agreement and the Related Documents and (ii)
reasonable due diligence expenses incurred by the Purchaser, limited to
$25,000.00 in connection with the Initial Closing. The Company shall reimburse
the Purchaser for the reasonable fees and expenses of counsel(s) to the
Purchaser incurred in connection with any Additional Closing and any future
amendment or waiver to this Agreement or any of the Related Documents, limited
in the aggregate to $10,000.00, without the prior approval of the Company.
(c) The Company also agrees to pay or cause to be paid, on
demand, and to save the Purchaser harmless against liability for the payment of
all reasonable out-of-pocket expenses incurred by the Company from time to time
arising from or relating to: (i) the preservation and protection of any of the
Company's rights under this Agreement or the Related Documents, (ii) the defense
of any claim or action asserted or brought against the Purchaser by any Person
that arises from or relates to this Agreement, any Related Document, the
Purchaser's claims against the Company, or any and all matters in connection
therewith, (iii) the commencement or defense of, or intervention in, any court
proceeding arising from or related to this Agreement or any Related Document,
(iv) the filing of any petition, complaint, answer, motion or other pleading by
the Purchaser in connection with this Agreement or any Related Document, (v) any
attempt to collect from the Company, or (vi) the receipt of any advice with
respect to any of the foregoing. Without limitation of the foregoing or any
other provision of any Related Document: (A) the Company agrees to pay all
stamp, document, transfer, recording or filing taxes or fees and similar
impositions now or hereafter determined by the Purchaser to be payable in
connection with this Agreement or any Related Document, and the Company agrees
to save the Purchaser harmless from and against any and all present or future
claims, liabilities or losses with respect to or resulting from any omission to
pay or delay in paying any such taxes, fees or impositions, and (B) if the
Company fails to perform any covenant or agreement contained herein or in any
Related Document, the Purchaser may itself perform or cause performance of such
covenant or agreement, and the expenses of the Purchaser incurred in connection
therewith shall be reimbursed on demand by the Company.
12.5 Amendment and Waiver. No amendment of any provision of this
Agreement shall be effective, unless the same shall be in writing and signed by
the Company and the Purchaser. Any failure of the Company to comply with any
provision hereof may only be waived in writing by the Purchaser, and any failure
of the Purchaser of the Securities, the Conversion Shares or the Warrant Shares
to comply with any provision hereof may only be waived in writing by the
Company. No such waiver shall operate as a waiver of, or estoppel with respect
to, any subsequent or other failure. No failure by any party to take any action
against any breach of this Agreement or default by any other party shall
constitute a waiver of such party's right to enforce any provision hereof or to
take any such action.
12.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one agreement.
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12.7 Headings. The headings of the various sections of this Agreement
have been inserted for reference only and shall not be deemed to be a part of
this Agreement.
12.8 Remedies Cumulative. Except as otherwise provided herein, the
remedies provided herein shall be cumulative and shall not preclude the
assertion by any party hereto of any other rights or the seeking of any other
remedies against any other party hereto.
12.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS OF THE STATE OF UTAH WITHOUT
GIVING EFFECT TO THE LAWS OF CONFLICT OR CHOICE OF LAWS OF THE STATE OF UTAH OF
ANY OTHER JURISDICTION THAT WOULD RESULT IN THE APPLICATION OF ANY LAWS OTHER
THAN THOSE OF THE STATE OF UTAH.
12.10 CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE. ANY LEGAL
ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY RELATED DOCUMENT MAY
BE BROUGHT IN THE COURTS OF THE STATE OF UTAH IN THE COUNTY OF SALT LAKE OR IN
THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH, AND, BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, THE PARTIES HEREBY IRREVOCABLY ACCEPT IN RESPECT OF
THEIR PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS.
12.11 No Third Party Beneficiaries. Except as specifically set forth or
referred to herein, nothing herein is intended or shall be construed to confer
upon any person or entity other than the parties hereto and their successors or
assigns, any rights or remedies under or by reason of this Agreement.
12.12 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Agreement as of the date first above written.
COVOL TECHNOLOGIES, INC.
Attest
By: /s/ Harlan M. Hatfield By: /s/ Steven G. Stewart
---------------------------------- -------------------------------
Harlan M. Hatfield, General Counsel & Steven G. Stewart, Chief Financial
Corporate Secretary Officer
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By: /s/ Stanley M. Kimball
--------------------------------
Stanley M. Kimball, Executive Vice
President
ASPEN CAPITAL RESOURCES, LLC
By: /s/ Joe K. Johnson
----------------------
Joe K. Johnson, Manager
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SCHEDULES
Schedule 4.1 Subsidiaries
Schedule 4.2 Existing Indebtedness
Schedule 4.3 Capitalization
Schedule 4.6(a) Certain Changes
Schedule 4.6(c) Places of Business
Schedule 4.7 Litigation
Schedule 4.13 Owned Real Property
Schedule 4.16 Intellectual Property
Schedule 4.19 Environmental Laws
Schedule 4.20 Transactions with Affiliates
Schedule 4.21 Taxes
Schedule 4.22 Other Investors
Schedule 4.29 Registration Rights
Schedule 4.30 Synthetic Fuel Facilities
EXHIBITS
Exhibit A Security Agreement
Exhibit B Form of Convertible Secured Debenture
Exhibit C Form of Warrant
SECURITY AGREEMENT
SECURITY AGREEMENT (this "Agreement"), dated as of September 17, 1999,
by and between COVOL TECHNOLOGIES, INC.(the "Grantor"), a Delaware corporation
with an address at 3280 North Frontage Road, Lehi, Utah 84043; and ASPEN CAPITAL
RESOURCES, LLC (the "Lender"), a Utah limited liability company with an address
at 8989 South Schofield Circle, Sandy, Utah 84093.
The Grantor and Lender are parties to a Securities Purchase Agreement,
dated as of the date hereof (as amended and modified from time to time, the
"Purchase Agreement"), pursuant to which the Grantor will issue and sell and the
Lender will purchase the convertible secured debentures (the "Debentures") of
the Grantor. Capitalized terms used but not defined herein shall have the
meanings given to such terms in the Purchase Agreement and the Debentures.
The Lender has agreed to make certain loans to the Grantor. The
obligation of the Lender to lend under the Debentures is conditioned on, among
other things, the execution and delivery by the Grantor of this Agreement.
Accordingly, the Grantor and the Lender, hereby agree as follows:
1. DEFINITIONS.
As used herein, the following terms shall have the following meanings:
"Code" means the Uniform Commercial Code as in effect in the State of
Utah.
"Collateral" means (a) all of the Grantor's right, title and interest
in and to (i) that certain License and Binder Purchase Agreement, dated as of
June 26, 1998, between the Grantor and Robena L.L.C. (the "Licensee"), a
Delaware limited liability company, a copy of which is attached hereto as
Exhibit "A" and incorporated herein by this reference, and (ii) all subsequent
and future license agreements or similar agreements between the Grantor and
Robena LLC, or the Grantor and any other party which relate to the facilities
that are the subject of (i) above (collectively, as such agreements may be
amended, restated or modified from time to time, the "License Agreement"), and
(b) all proceeds of any and all of the foregoing Collateral and, to the extent
not otherwise included, all payments under insurance (whether or not the Lender
is the loss payee thereof), or any indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the foregoing
Collateral.
<PAGE>
"Obligations" means all indebtedness, obligations and other liabilities
of the Grantor to the Lender now or hereafter arising pursuant to the Purchase
Agreement, including, without limitation, the indebtedness evidenced by the
Debentures.
"Person" means any individual, partnership, joint venture, corporation,
trust, unincorporated organization or other entity.
The foregoing definitions shall be equally applicable to both the
singular and plural forms of the defined terms. In addition, the words
"including," "includes" and "include" shall be deemed to be followed by the
words "without limitation."
2. GRANT OF SECURITY INTEREST.
The Grantor hereby pledges and grants a continuing security interest
in, and a right of setoff against, the Collateral to the Lender, to secure
payment, performance and observance by the Grantor of the Obligations.
3. REPRESENTATIONS AND WARRANTIES.
The Grantor makes the representations and warranties set forth in this
Section 3 to the Lender.
3.1 Necessary Filings. All filings, registrations and recordings
necessary or appropriate or otherwise requested by Lender to create, preserve,
protect and perfect the security interest granted by the Grantor to the Lender
hereby in respect of the Collateral will be delivered to Lender upon execution
of this Agreement or, if requested by Lender, will be delivered to Lender within
three (3) Business Days after the date of such request.
3.2 Principal Location. The Grantor's mailing address, and the location
of its chief executive office, is the address set forth in the preamble to this
Agreement (as the same may be modified pursuant to Section 4.4); the Grantor has
no other places of business.
3.3 No Other Names. The Grantor conducted business as Enviro-Fuels
Technology during 1993 and 1994, as Environmental Technologies Group
International during 1994 and 1995 and as Covol Technologies, Inc. since 1995.
Except as discussed herein, the Grantor does not conduct and has not conducted
since 1993 any trade or business under any name except the name in which it has
executed this Agreement. The Grantor has not been a party to any merger or
consolidation in the last five years.
3.4 No Financing Statements. No financing statement describing all or
any portion of the Collateral which has not lapsed or been terminated has been
filed in any jurisdiction except financing statements naming the Lender as
secured party.
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3.5 Patents. The Grantor owns and possesses all right, title and
interest in and to, or has a valid and enforceable license to use, all patents
described in the License Agreement.
3.6 License Agreement. Each License Agreement constitutes a legal,
valid and binding obligation of the Grantor, enforceable by and against the
Grantor in accordance with its terms, except to the extent limited by (a)
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
of general application related to the enforcement of creditor's rights generally
and (b) general principles of equity. The Grantor is not in default, nor to the
knowledge of the Grantor is there any basis for a valid claim of default, and to
the Grantor's knowledge no event has occurred which, with notice or lapse of
time, would constitute a default, under the License Agreement, and to the
knowledge of the Grantor no licensee is in default under any such License
Agreement.
3.7 Collateral. The Grantor has good title to the Collateral, free and
clear of all claims, liens and encumbrances, except the security interest
created by this Agreement. The Grantor has all requisite power and authority to
pledge and grant the security interest in the Collateral for the purposes
contemplated in this Agreement and to create a first lien on the Collateral in
favor of the Lender and this Agreement shall create a valid first lien upon and
perfected first priority security interest in the Collateral subject to no prior
security interest, lien, encumbrance or other restriction. This Agreement, when
executed, has been duly and validly executed and is the legal, valid and binding
obligation of the Grantor and is enforceable against the Grantor by the Lender
in accordance with its terms.
3.8 Claims. The Collateral is not the subject of any present or
threatened suit, action, arbitration, administrative or other proceeding, and
the Grantor knows of no reasonable grounds for the institution of any such
proceedings. No authorization, approval or other action by, and not notice to or
filing with, any governmental authority or regulatory body is required either
(i) for the pledge by the Grantor of the Collateral pursuant to this Agreement
or for the execution, delivery or performance of this Agreement by the Grantor
or (ii) for the exercise by the Lender of any remedies with respect to the
Collateral.
4. COVENANTS.
Grantor hereby covenants and agrees that from the date of this
Agreement, and thereafter until this Agreement is terminated:
4.1 Inspection and Verification. The Lender and such Persons as the
Lender may designate shall have the right, at any reasonable time or times upon
three (3) days prior notice and during Grantor's usual business hours, to
inspect the Collateral, all records related thereto (and to make extracts and
copies from such records), and the premises upon which any of the Collateral is
located, to discuss Grantor's affairs with the officers of Grantor and their
independent auditors to verify under reasonable procedures the validity, amount,
quality, quantity, value and condition of, or any other matter relating to, the
Collateral.
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4.2 Records and Reports. The Grantor will maintain complete and
accurate books and records with respect to the Collateral, and furnish to the
Lender such reports relating to the Collateral as the Lender shall from time to
time reasonably request.
4.3 Financing Statements and Other Actions. The Grantor will execute
and deliver to the Lender all financing statements and amendments thereto and
other documents, and take such other actions, as are from time to time
reasonably requested by the Lender in order to perfect and to maintain and
protect the validity, enforceability and perfected status of the first priority
perfected security interest in the Collateral or to enable the Lender to
exercise and enforce its rights and remedies hereunder with respect to the
Collateral.
4.4 Change in Location or Name. The Grantor will not (a) maintain a
place of business at any location other than the location specified in the
preamble to this Agreement, (b) change its name, or (c) change its mailing
address, unless, in each case, the Grantor shall have given the Lender at least
thirty (30) days' prior written notice thereof, including the new address or
name, and delivered any financing statements or other documents requested by the
Lender.
4.5 Other Financing Statements. The Grantor will not sign or authorize
the signing on its behalf of any financing statement naming it as debtor which
covers all or any portion of the Collateral, except financing statements naming
the Lender as secured party.
4.6 Exclusivity. The Grantor will not sell, convey or otherwise dispose
of any interest in the Collateral or create, incur or permit to exist any
pledge, mortgage, lien, charge or encumbrance or any security interest
whatsoever in or with respect to any of the Collateral other than that created
hereby, without the prior written consent of the Lender, which consent will not
be unreasonably withheld..
4.7 Defense. The Grantor will defend at its sole expense, the Lender's
right, title and security interest in and to the Collateral against the claims
of any person, firm, corporation or other entity.
4.8. Intellectual Property Covenants. The Grantor shall:
(a) consistent with commercially reasonable practices, not
perform or omit to perform any act whereby any patent rights necessary for the
License Agreement may become dedicated, invalidated or unenforceable;
(b) consistent with commercially reasonable practices,
prosecute diligently any necessary patent, trademark or copyright application
which is pending with respect to the License Agreement as of the date of this
Agreement or hereafter and otherwise maintain all rights in and to the patents
necessary under the License Agreement, including making all necessary filings
and recordings and paying all required fees and taxes to record and maintain its
registration and ownership of each such patent described in the License
Agreement;
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(c) not impair any of the Lender's rights of action described
herein.
4.9 Grant of License to Use Patents. For the purpose of enabling the
Lender to exercise its rights and remedies upon an Event of Default, the Grantor
hereby grants to the Lender an irrevocable, nonexclusive license (exercisable
without payment of royalty or other compensation to the Grantor) to use, license
or sublicense any of the patents and all of the patent rights described in the
License Agreement to the extent not inconsistent with the terms of the License
Agreement, wherever the same may be located. Except as set forth in the
preceding sentence, the Lender shall have no obligations or liabilities
regarding any or all of the patents by reason of, or arising out of, this
Agreement.
5. REMEDIES UPON DEFAULT.
5.1 Remedies upon Default. If any Event of Default shall occur, whether
or not all of the Obligations shall have become due and payable, the Lender may,
in addition to its rights under the Purchase Agreement and the Debentures,
exercise any or all of the rights and remedies provided (i) in this Agreement,
or (ii) to a secured party when a debtor is in default under a security
agreement governed by the Code or any other applicable law.
5.2 Specific Performance. The Grantor agrees that, in addition to all
other rights and remedies granted to the Lender in this Agreement and under the
Debentures, the Lender shall be entitled to specific performance and injunctive
and other equitable relief, and the Grantor further agrees to waive any
requirement for the securing or posting of any bond or other security in
connection with the obtaining of any such specific performance and injunctive or
other equitable relief.
5.3 Grantor's Secured Liabilities Upon Event of Default. Upon the
request of the Lender after the occurrence of an Event of Default, the Grantor
will promptly:
(a) Assemble and make available to the Lender the Collateral
and all records relating thereto at the Company's principal place of business.
(b) Permit the Lender, or the Lender's representatives and
Lenders, to enter any premises where all or any part of the Collateral, or the
books and records relating thereto, or both, are located, to take possession of
all or any part of the Collateral and to remove all or any part of the
Collateral.
5.4 Remedies Cumulative. All rights, powers and remedies contained in
this Agreement or afforded by law shall be cumulative and all shall be available
to the Lender until the Obligations have been paid in full.
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6. WAIVERS, AMENDMENTS AND REMEDIES.
No delay or omission of the Lender to exercise any right, power or
remedy granted under this Agreement shall impair such right, power or remedy or
be construed to be a waiver of any Event of Default or an acquiescence therein,
and any single or partial exercise of any such right, power or remedy shall not
preclude other or further exercise thereof or the exercise of any other right,
power or remedy, and no waiver, amendment or other variation of the terms,
conditions or provisions of this Agreement whatsoever shall be valid unless
signed by each of the parties hereto, and then only to the extent specifically
set forth in such writing.
7. COLLECTION OF RECEIVABLES; PROCEEDS.
7.1 Collection of Receivables. Grantor hereby covenants and agrees that
the Lender may at any time after the occurrence of an Event of Default, by
giving the Grantor written notice, elect to enforce collection of any proceeds
of any and all of the Collateral, including any Earned Royalty and any payment
of profits from sales of Proprietary Binder Material (each as defined in the
License Agreement) and to require that such proceeds be paid directly to the
Lender. In such event, the Grantor covenants and agrees to, and shall permit the
Lender to, promptly notify the account debtors or obligors under the License
Agreement of the Lender's interest therein and direct such account debtors or
obligors to make payment of all amounts then or thereafter due under the License
Agreement directly to the Lender. Upon receipt of any such notice from the
Lender, the Grantor shall thereafter hold in trust for the Lender all amounts
and proceeds received by it with respect to the License Agreement or any other
Collateral, shall segregate all such amounts and proceeds from other funds of
the Grantor, and shall at all times thereafter promptly deliver to the Lender
all such amounts and proceeds in the same form as so received, whether by cash,
check, draft or otherwise, with any necessary endorsements.
7.2 Payment of Proceeds from Collateral. Upon the receipt by the
Licensee of notice from the Lender of the occurrence of an Event of Default by
the Company pursuant to the Purchase Agreement or the Debentures issued pursuant
thereto, the Grantor acknowledges and agrees that the Licensee shall (a) make no
further payments to the Company under (i) the License Agreement, including any
Earned Royalty (as defined in the License Agreement ), or (ii) any other
agreement between the Company and the Licensee with respect to the Facility, and
(b) make all payments otherwise due to the Company under (i) the License
Agreement , including any Earned Royalty, or (ii) any other agreement between
the Company and the Licensee with respect to the Facility, to the Lender as
specified by the Lender in the notice referred to above.
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The Grantor further acknowledges and agrees that, notwithstanding
anything to the contrary contained in Section 3.4 of the License Agreement, (i)
payments with respect to the License Agreement, including Earned Royalty shall
be due as specified in Section 3.4 of the License Agreement and (ii) payments
shall be made in accordance with this Agreement and shall be deemed paid when
paid to the Lender. The Grantor further acknowledges and agrees that payments
made by the Licensee to the Lender under this Agreement shall be deemed to
satisfy the Licensee's corresponding payment obligations under the Licence
Agreement. The Grantor hereby agrees to continue to perform all of its
obligations under the License Agreement.
7.3 Application of Proceeds. (a) Upon the occurrence of an Event of
Default, the Lender shall have the continuing and exclusive right to apply or
reverse and re-apply any and all payments to any portion of the Obligations. To
the extent that the Grantor makes a payment or payments to the Lender or the
Lender receives any payment or proceeds of the Collateral, which payment or
proceeds or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to a trustee,
receiver or any other party under any bankruptcy law, state or federal law,
common law or equitable cause, then, to the extent of such payment or proceeds,
the Obligations or part thereof intended to be satisfied and this Agreement
shall be revived and continue in full force and effect, as if such payment or
proceeds had not been received by such party.
(b) Should the Lender receive proceeds of the Collateral, the
Lender shall apply the proceeds of such amounts withdrawn as follows:
FIRST, to the payment of all reasonable costs and expenses
incurred by the Lender in connection with such collection or sale or otherwise
in connection with this Agreement or any of the Obligations, including but not
limited to all court costs and the reasonable fees and expenses of its Lenders
and legal counsel, the repayment of all advances made by the Lender hereunder on
behalf of the Grantor and any other costs or expenses incurred in connection
with the exercise of any right or remedy hereunder.
SECOND, to the payment in full of all unpaid interest and
penalties on the Debentures.
THIRD, to the payment in full of the unpaid principal amount
of the Debentures, to be applied on a pro rata basis.
FOURTH, to the payment and discharge in full of the
Obligations (other than those referred to above).
FIFTH, to the Grantor, its successors or assigns, or as a
court of competent jurisdiction may otherwise direct.
8. GENERAL PROVISIONS.
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8.1 Compromises and Collection of Collateral. The Grantor recognizes
that setoffs, counterclaims, defenses and other claims may be asserted by
obligors with respect to certain of the proceeds of any and all of the
Collateral, including any Earned Royalty and any payment of profits from sales
of Proprietary Binder Material, that certain of such proceeds may be or become
uncollectible in whole or in part and that the expense and probability of
success in litigating disputed Collateral proceeds may exceed the amount that
reasonably may be expected to be recovered with respect to such Collateral
proceeds. In view of the foregoing, the Grantor agrees that the Lender may at
any time and from time to time compromise with the obligor on any Collateral
proceeds, accept in full payment of any Collateral proceeds such amount as the
Lender in its sole discretion shall determine, or abandon any Collateral
proceeds, and any such action by the Lender shall be commercially reasonable so
long as the Lender acts in good faith based on information known to it at the
time it takes any such action.
8.2 Secured Party Performance of Grantor Secured Liabilities. Without
having any obligation to do so, the Lender may, upon notice to the Grantor,
perform or pay any obligation which the Grantor has agreed to perform or pay in
this Agreement but has not performed or paid and the Grantor shall reimburse the
Lender for any amounts paid or incurred pursuant to this Section 8.2. The
Grantor's obligation to reimburse the Lender pursuant to the preceding sentence
shall be an Obligation payable on demand and shall bear interest at the rate of
2.5% per month from the date of payment until payment in full.
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8.3 Authorization for Secured Party To Take Certain Action. Upon the
occurrence of an Event of Default or with the consent of the Grantor, which
consent shall not be unreasonably withheld, the Grantor irrevocably authorizes
the Lender at any time and from time to time in the sole discretion of the
Lender, and irrevocably appoints the Lender as its attorney-in-fact to act on
behalf of the Grantor, in the name of the Grantor or otherwise, from time to
time in the Lender's discretion, to take any action and to execute any
instrument which the Lender may deem necessary or advisable to accomplish the
purposes of this Agreement, including without limitation (a) to execute on
behalf of the Grantor as debtor and to file financing statements necessary or
desirable in the Lender's sole discretion to perfect and to maintain the
perfection and priority of the Lender's security interest in the Collateral; (b)
to endorse, deposit and collect any cash and other proceeds of the Collateral;
(c) to file a carbon, photographic or other reproduction of this Agreement or
any financing statement with respect to the Collateral as a financing statement
in such offices as the Lender in its sole discretion deems necessary or
desirable to perfect and to maintain the perfection and priority of the Lender's
security interest in the Collateral; (d) to enforce payment of the Earned
Royalty and the payments from sales of Proprietary Binder Material in the name
of the Lender or the Grantor; (e) to cause the proceeds of any Collateral
received by the Lender to be applied to the Obligations; (f) to sign the
Grantor's name on any invoice or bill of lading relating to any Collateral,
including any Earned Royalty and Proprietary Binder Material profits, on drafts
against customers, on schedules and assignments of such Collateral, on notices
of assignment, financing statements and other public records, on verifications
of accounts and on notices to licensees; (g) to send requests for verification
of any Collateral or any proceeds therefrom, including Earned Royalty and
Proprietary Binder Material profits to licensees or account debtors (provided
that this clause (g) shall not limit the Lender's rights under Section 4.01);
(h) to do all things necessary to carry out this Agreement; (i) to grant or
issue any exclusive or nonexclusive license under the Collateral to any Person,
to the extent consistent with the terms of the License Agreement, and (j) to
assign, pledge, convey or otherwise transfer title in or to or dispose of the
Collateral to anyone, including without limitation, to make assignments,
recordings, registrations and applications therefor in the United States Patent
and Trademark Office, the United States Copyright Office or any similar office
or agency of the United States, any State thereof or any other country or
political subdivision thereof, and to execute and deliver any and all
agreements, documents, instruments of assignment or other papers necessary or
advisable to effect any of the foregoing or the recordation, registration,
filing or perfection thereof. The Grantor ratifies and approves all acts of such
attorney-in-fact. The Lender will not be liable for any acts or omissions except
those determined pursuant to a final, non-appealable order of a court of
competent jurisdiction to have resulted solely from the Lender's gross
negligence or willful misconduct. The power conferred on the Lender hereunder is
solely to protect its interests in the Collateral and shall not impose any duty
upon the Lender to exercise such power. This power, being coupled with an
interest, is irrevocable.
8.4 Grantor Remains Liable. Anything contained in this Agreement to the
contrary notwithstanding, (a) the Grantor shall remain solely liable to perform
its duties and obligations under the License Agreement included in the
Collateral to the extent set forth therein to the same extent as if this
Agreement had not been executed, (b) the exercise by the Lender of any of its
rights and remedies hereunder shall not release any Grantor from any of its
duties or obligations under the License Agreement included in the Collateral
except to the extent the exercise of such rights renders the performance of such
duties or obligations by the Grantor impracticable under any such agreement or
contract, and (c) the Lender shall not have any obligation or liability under
any License Agreement included in the Collateral by reason of this Agreement,
and the Lender shall not be obligated in any manner to perform any of the
obligations or duties of the Grantor thereunder or to take any action to collect
or enforce any claim for payment assigned hereunder.
9. MISCELLANEOUS
9.1 Security Interest Absolute. All rights of the Lender hereunder, the
security interest granted hereby, and all obligations of the Grantor hereunder,
shall be absolute and unconditional irrespective of (a) any lack of validity or
enforceability of the Debentures, any agreement with respect to any of the
Obligations or any other agreement or instrument relating to any of the
foregoing, (b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations, or any other amendment or waiver
of or any consent to any departure from the Debentures or any other agreement or
instrument, (c) any exchange, release or non-perfection of any other Collateral,
or any release, amendment or waiver of, or consent to or departure from, any
guaranty for all or any of the Obligations, or (d) any other circumstance which
might otherwise constitute a defense available to, or a discharge of, the
Grantor in respect of the Obligations or in respect of this Agreement.
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9.2 Lender's Fees and Expenses; Indemnification. (a) The Grantor agrees
to pay upon demand to the Lender the amount of all reasonable expenses,
including the fees and expenses of its counsel and of any experts of the Lender,
which the Lender may incur in connection with (i) the administration of this
Agreement, (ii) the custody or preservation of, or the sale of, collection from,
or other realization upon, any of the Collateral, (iii) the exercise or
enforcement of any of the rights of the Lender hereunder, or (iv) the failure by
the Grantor to perform or observe any of the provisions hereof.
(b) Without limitation of its indemnification obligations
under the Purchase Agreement or any Related Documents (as defined in the
Purchase Agreement) the Grantor agrees to indemnify the Lender against, and
defend and hold it harmless from, any and all losses, claims, damages,
liabilities and related expenses, including reasonable fees, disbursements and
other charges of counsel, incurred by or asserted against it arising out of, in
any way connected with, or as a result of, the execution, delivery or
performance of this Agreement or any claim, litigation, investigation or
proceeding relating hereto or to the Collateral, whether or not the Lender is a
party thereto; provided that such indemnity shall not, as to the Lender, be
available to the extent that such losses, claims, damages, liabilities or
related expenses are determined by a court of competent jurisdiction by final
and nonappealable judgment to have resulted from the gross negligence or willful
misconduct of the Lender.
(c) Any such amounts payable as provided hereunder shall be
additional Obligations secured by this Agreement. The provisions of this Section
9.2 shall remain operative and in full force and effect regardless of the
termination of this Agreement, the consummation of the transactions contemplated
hereby, the repayment of any of the Debentures, the invalidity or
unenforceability of any term or provision of this Agreement, or any
investigation made by or on behalf of the Lender. All amounts due under this
Section 9.2 shall be payable on written demand therefor and shall bear interest
at the rate of 2.5% per month from the date incurred by Lender until paid in
full
9.3 No Amendment of License the Agreements. The Grantor hereby agrees
not to amend or waive any provision of the License Agreements without the
written consent (which shall not be unreasonably withheld) of the Lender.
9.4 Binding Agreement; Assignments. This Agreement, and the terms,
covenants and conditions hereof, shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns,
except that the Grantor shall not be permitted to assign this Agreement or any
interest herein or in the Collateral or any part thereof, or otherwise pledge,
encumber or grant any option with respect to the Collateral or any part thereof,
or any cash or property held by the Lender as Collateral under this Agreement,
except as contemplated by this Agreement or the Debentures.
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9.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL SUBSTANTIVE LAWS OF THE STATE OF UTAH WITHOUT
GIVING EFFECT TO THE LAWS OF CONFLICT OR CHOICE OF LAWS OF THE STATE OF UTAH OR
ANY OTHER JURISDICTION THAT WOULD RESULT IN THE APPLICATION OF ANY LAWS OTHER
THAN THOSE OF THE STATE OF UTAH.
9.6 Consent to Jurisdiction and Service of Process. With respect to
jurisdiction, service of process, jury trial and all other procedural matters
the Grantor agrees that the provisions of Section 12.11 of the Purchase
Agreement apply to this Agreement mutatis mutandis.
9.7 Notices. All communications and notices hereunder shall be in
writing and given as provided in the Debentures.
9.8 Severability. In case any one or more of the provisions contained
in this Agreement should be invalid, illegal or unenforceable in any respect, no
party hereto shall be required to comply with such provision for so long as such
provision is held to be invalid, illegal or unenforceable and the validity,
legality and enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired. The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal and unenforceable provisions with
valid provisions, the economic effect of which comes as close as possible to
that of the invalid, illegal or unenforceable provisions.
9.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument.
9.10 Termination. (a) This Agreement and the security interest granted
hereby shall terminate only after all the Obligations have been indefeasibly
paid in full and the Lender has no further commitment to lend under the
Debentures, at which time the Lender shall execute and deliver to the Grantor
all Uniform Commercial Code termination statements and similar documents
prepared by the Grantor which the Grantor shall reasonably request to evidence
such termination.
(b) Notwithstanding anything to the contrary contained in this
Agreement, this Agreement shall remain in full force and effect and continue to
be effective should any petition be filed by or against the Grantor for
liquidation or reorganization, should the Grantor become insolvent or make an
assignment for any benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of the Grantor's assets, and shall
continue to be effective or be reinstated, as the case may be, if at any time
payment and performance of the obligations, or any part thereof, is, pursuant to
applicable law, rescinded or reduced in amount, or must otherwise be restored or
returned by any obligee of the obligations, whether as a "voidable preference",
"fraudulent conveyance" or otherwise, all as though such payment, or any part
thereof, is rescinded, reduced, restored or returned.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
Grantor: COVOL TECHNOLOGIES, INC.
Attest:
/s/ Harlan M. Hatfield By: /s/ Steven G. Stewart
- ------------------------------------- ----------------------------------
Harlan M. Hatfield, General Counsel & Steven G. Stewart, Chief Financial
Corporate Secretary Officer
By: /s/ Stanley M. Kimball
----------------------------------
Stanley M. Kimball, Executive Vice
President
Lender: ASPEN CAPITAL RESOURCES, LLC
By: /s/ Joe K. Johnson
----------------------------------
Joe K. Johnson, Manager
12
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report, which includes an explanatory paragraph
relating to the restatement of the 1998 and 1997 financial statements, dated
December 22, 1998, except for the last paragraph of Note 1, as to which the date
is October 5, 1999, relating to the consolidated financial statements which
appears in Covol Technologies, Inc.'s Annual Report on Form 10-K/A for the year
ended September 30, 1998. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
PRICEWATERHOUSECOOPERS LLP
Salt Lake City, Utah
October 5, 1999
