COVOL TECHNOLOGIES INC
10-Q, 2000-05-10
BITUMINOUS COAL & LIGNITE MINING
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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities  Exchange
    Act of 1934

                  For the quarterly period ended March 31, 2000

                                       or

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934

                 For the transition period from ______ to ______

                         Commission file number 0-27808

                            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 No.)

          3280 North Frontage Road
                 Lehi, Utah                                84043
  (Address of principal executive offices)               (Zip Code)

                                 (801) 768-4481
              (Registrant's telephone number, including area code)

                                 Not applicable
              (Former name, former address and former fiscal year,
                          if changed since last report)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __

The number of shares  outstanding of the Registrant's  common stock as of May 8,
2000 was 23,415,200.

<PAGE>

                            COVOL TECHNOLOGIES, INC.

                                TABLE OF CONTENTS

                                                                        Page No.

PART I - FINANCIAL INFORMATION

     ITEM 1.   CONSOLIDATED FINANCIAL INFORMATION (Unaudited):
               Consolidated Balance Sheets - As of September 30, 1999
                 and March 31, 2000......................................... 3
               Consolidated Statements of Operations - For the three
                 months ended March 31, 1999 and 2000 and the six months
                 ended March 31, 1999 and 2000.............................. 5
               Consolidated Statement of Changes in Stockholders'
                 Equity (Deficit) - For the six months ended March
                 31, 2000................................................... 6
               Consolidated Statements of Cash Flows - For the six
                 months ended March 31, 1999 and 2000....................... 7
               Notes to Consolidated Financial Statements................... 8

     ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                AND RESULTS OF OPERATIONS.................................. 15


PART II - OTHER INFORMATION

     ITEM 1.   LEGAL PROCEEDINGS........................................... 20

     ITEM 2.   CHANGES IN SECURITIES....................................... 20

     ITEM 3.   DEFAULTS UPON SENIOR SECURITIES............................. 20

     ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 20

     ITEM 5.   OTHER INFORMATION........................................... 20

     ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K............................ 20


SIGNATURES................................................................. 21


Certain statements in this Report constitute  forward-looking  statements within
the meaning of the Private  Securities  Litigation  Reform Act of 1995. As such,
actual results may vary materially from current  expectations.  For a discussion
of certain  of the  factors  that  could  cause  actual  results to differ  from
expectations,  please see the information  set forth under the caption  entitled
"Forward Looking Statements" in PART I, ITEM 2 hereof. There can be no assurance
that  Covol's  results of  operations  will not be  adversely  affected  by such
factors.  Covol  undertakes  no  obligation  to revise or  publicly  release the
results  of any  revision  to  these  forward-looking  statements.  Readers  are
cautioned not to place undue reliance on these forward looking statements, which
reflect management's opinion only as of the date hereof.

                                       2
<PAGE>

ITEM 1.   CONSOLIDATED FINANCIAL INFORMATION (Unaudited)


<TABLE>
<CAPTION>
                                         COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

                                                 CONSOLIDATED BALANCE SHEETS
                                                         (Unaudited)

                                                                                              September 30,         March 31,
(thousands of dollars)                                                                                1999             2000
- ------------------------------------------------------------------------------------------- ---------------- -----------------
ASSETS

Current assets:
<S>                                                                                                   <C>             <C>
     Cash and cash equivalents                                                                        $ 461           $ 9,172
     Receivables                                                                                      3,155             8,766
     Due from related party                                                                           2,722             2,986
     Inventories                                                                                        573                --
     Facilities and equipment held for sale                                                          20,139            10,035
     Prepaid expenses and other current assets                                                           19               279
     Deferred income taxes                                                                               --             3,000
                                                                                            ---------------- -----------------
            Total current assets                                                                     27,069            34,238
                                                                                            ---------------- -----------------

Property, plant and equipment, net of accumulated depreciation                                       14,182             3,661
                                                                                            ---------------- -----------------

Other assets:
     Restricted cash and investments                                                                    843               846
     Facility-dependent note and accrued interest receivable                                          7,879             8,365
     Facility transferred under note receivable arrangement                                           2,641                --
     Intangible assets, net of accumulated amortization                                               3,647             1,305
     Deposits and other assets                                                                        1,834             1,403
                                                                                            ---------------- -----------------
            Total other assets                                                                       16,844            11,919
                                                                                            ---------------- -----------------

Total assets                                                                                        $58,095           $49,818
                                                                                            ================ =================
</TABLE>

                                   (continued)

                     The accompanying notes are an integral
                  part of the consolidated financial statements

                                       3
<PAGE>

<TABLE>
<CAPTION>
                                         COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

                                           CONSOLIDATED BALANCE SHEETS, continued
                                                        (Unaudited)


                                                                                              September 30,        March 31,
(thousands of dollars and shares)                                                                    1999             2000
- -------------------------------------------------------------------------------------------- --------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
<S>                                                                                                 <C>                <C>
     Accounts payable                                                                               $ 1,179            $ 945
     Due to related party                                                                             2,706            2,915
     Accrued interest payable, current                                                                1,452              256
     Accrued liabilities                                                                              2,905            3,042
     Notes payable, current                                                                          20,626           11,380
                                                                                             --------------- ----------------
            Total current liabilities                                                                28,868           18,538

Long-term liabilities:
     Notes payable, non-current                                                                      17,887           15,357
     Accrued interest payable, non-current                                                              210               --
     Deferred revenues from advance license fees                                                      7,501            7,040
     Deferred compensation                                                                              208              174
                                                                                             --------------- ----------------
            Total long-term liabilities                                                              25,806           22,571
                                                                                             --------------- ----------------
            Total liabilities                                                                        54,674           41,109
                                                                                             --------------- ----------------

Minority interest in consolidated subsidiaries                                                          117               --
                                                                                             --------------- ----------------
Commitments and contingencies (Note 8)

Redeemable convertible preferred stock, $0.001 par value, issued and outstanding 60 shares
     at September 30, 1999 and 0 shares at March 31, 2000                                             4,332               --
                                                                                             --------------- ----------------
Stockholders' equity (deficit):
     Convertible  preferred stock,  $0.001 par value;  authorized 10,000 shares,
         issued and  outstanding  17 shares at September  30, 1999 and 55 shares at
         March 31, 2000 (aggregate liquidation preference of $7,415 at March 31, 2000)                    1                1
     Common stock, $0.001 par value; authorized 50,000 shares, issued and outstanding
         12,766 shares at September 30, 1999 and 21,701 shares at March 31, 2000                         13               22
     Capital in excess of par value                                                                  78,457           83,626
     Accumulated deficit                                                                            (71,713)         (73,541)
     Notes and interest receivable - related parties, from issuance of, or collateralized
          by, common stock, net of allowance                                                         (6,564)            (269)
     Deferred compensation from stock options                                                        (1,222)          (1,130)
                                                                                             --------------- ----------------
            Total stockholders' equity (deficit)                                                     (1,028)            8,709
                                                                                             --------------- ----------------

Total liabilities and stockholders' equity (deficit)                                                 $58,095          $49,818
                                                                                             =============== ================
</TABLE>

                     The accompanying notes are an integral
                  part of the consolidated financial statements

                                        4
<PAGE>
<TABLE>
<CAPTION>
                                         COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF OPERATIONS
                                                        (Unaudited)

                                                                  Three Months Ended March 31,        Six Months Ended March 31,
(thousands of dollars, except per-share data)                             1999            2000            1999              2000
- ---------------------------------------------------------------------------------------------------------------------------------
Revenues:
<S>                                                                      <C>           <C>             <C>               <C>
     License fees                                                        $ 546         $ 4,798         $ 1,247           $ 8,833
     Binder sales                                                          423           1,883             956             3,236
     Gain on sale of facility                                               --              --              --             5,341
     Gains on non-recurring transactions                                    --           1,079              --             1,079
     Other                                                                 174             139             322               459
                                                              -------------------------------------------------------------------
          Total revenues                                                 1,143           7,899           2,525            18,948
                                                              -------------------------------------------------------------------
Operating costs and expenses:
     Cost of coal briquetting operations                                 2,553             700           6,199             2,289
     Cost of binder                                                        274           1,367             650             2,228
     Loss on sale of facilities, net                                        --             598              --               598
     Asset write-offs and other non-recurring charges                      556             841             556            11,862
     Selling, general and administrative                                 1,233           1,085           2,162             1,996
     Compensation expense from stock options                               163              46             325                92
                                                              -------------------------------------------------------------------
        Total operating costs and expenses                               4,779           4,637           9,892            19,065
                                                              -------------------------------------------------------------------
Operating income (loss)                                                (3,636)           3,262         (7,367)             (117)
                                                              -------------------------------------------------------------------

Other income (expense):
     Interest income                                                       234             310             990             1,110
     Interest expense                                                  (1,377)         (1,711)         (2,413)           (3,766)
     Write-up (write-down) of notes receivable - related
        parties,  collateralized by common stock                         (178)             161           (749)             (131)
     Other, net                                                          (100)             115            (76)               115
                                                              -------------------------------------------------------------------
          Total other income (expense)                                 (1,421)         (1,125)         (2,248)           (2,672)
                                                              -------------------------------------------------------------------

Income (loss) before income taxes and extraordinary item               (5,057)           2,137         (9,615)           (2,789)

Income tax benefit                                                          --              --              --           (3,000)
                                                              -------------------------------------------------------------------

Income (loss) before extraordinary item                                (5,057)           2,137         (9,615)               211

Extraordinary loss on early extinguishment of debt                          --         (1,823)              --           (1,823)
                                                              -------------------------------------------------------------------

Net income (loss)                                                     $(5,057)           $ 314        $(9,615)          $(1,612)
                                                              ===================================================================

Basic and diluted income (loss) per common share                        $(.41)            $.01          $(.80)            $(.12)
                                                              ===================================================================
</TABLE>

                     The accompanying notes are an integral
                  part of the consolidated financial statements

                                        5
<PAGE>
<TABLE>
<CAPTION>
                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

      CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                     For the Six Months Ended March 31, 2000
                                   (Unaudited)

                                                                                                 Notes and
                                                                                                  interest
                                                                                                 receivable-
                                                                                                  related
                                                                                                parties, from
                              Convertible                                                        issuance of,
                              Preferred            Common                                        or collater-      Deferred
                                Stock              Stock               Capital                      alized       compensation
(thousands of dollars      --------------------------------------     in excess    Accumulated    by, common      from stock
and shares)                Shares    Amount   Shares      Amount     of par value    deficit        stock           options
- -----------------------------------------------------------------------------------------------------------------------------
<S>                           <C>      <C>    <C>          <C>         <C>           <C>            <C>             <C>
Balances at
 September 30, 1999           17       $1     12,766       $13         $78,457       $(71,713)      $(6,564)        $(1,222)

Preferred stock
 cash dividends                                                                          (205)

Common stock issued
 on conversion of
 redeemable convertible
 and convertible
 preferred stock and in
 payment of dividends         --       --      2,662         3           1,631           (11)

Reclassification of
 redeemable convertible
 preferred stock to
 convertible preferred
 stock                        38       --                                2,710

Common stock issued
 for cash                                      3,629         4           4,662

Common stock issued
 on conversion of
 convertible debt                              2,540         2           1,114

Common stock issued
 in connection with
 redemption of                                   214        --             256
 debt

Common stock issued
 for cash and in
 connection with
 cashless exercise
 of warrants                                     646         1             202

Value of common
 stock warrants
 issued in connection
 with convertible debt
 financing                                        --        --             468

Value of extended
 common stock warrants
 and repriced stock
 options issued in
 connection with debt
 financing                                        --        --              70

Cancellation of
 notes receivable -
 related parties and
 common stock
 collateralizing the
 notes                                          (756)       (1)         (5,944)                       6,164

Write-down of notes
 receivable - related
 parties                                                                                                131

Amortization of
 deferred compensation
 from stock options                                                                                                      92

Net loss for the
 six months ended
 March 31, 2000                                                                        (1,612)
                        -----------------------------------------------------------------------------------------------------
Balances at
 March 31, 2000               55       $1     21,701       $22         $83,626      $(73,541)         $(269)       $(1,130)
                        ====================================================================================================
</TABLE>

                     The accompanying notes are an integral
                  part of the consolidated financial statements

                                        6
<PAGE>
<TABLE>
<CAPTION>
                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                   ----------

                                                                                                      Six Months Ended March 31,
     (thousands of dollars)                                                                                   1999          2000
- ------------------------------------------------------------------------------------------------- ----------------- -------------
     Cash flows from operating activities:
<S>                                                                                                        <C>           <C>
     Net loss                                                                                              $(9,615)      $(1,612)
     Adjustments to reconcile net loss to net cash used in operating activities:
           Depreciation and amortization                                                                       845           749
           Recognition of deferred revenue from advance license fees                                          (453)         (461)
           Deferred income taxes                                                                                --        (3,000)
           Gain on sale of facilities, net                                                                      --        (4,743)
           Loss (gain) on disposition of equipment                                                             103           (57)
           Gains on non-recurring transactions                                                                  --        (1,079)
           Asset write-offs and other non-recurring charges                                                    556        10,631
           Amortization of deferred compensation from stock options                                            325            92
           Interest expense related to amortization of debt discount and debt issuance costs                   326         2,272
           Extraordinary loss on early extinguishment of debt                                                   --         1,823
           Write-down of notes receivable - related parties                                                    749           131
           Decrease from changes in operating assets and liabilities                                        (2,688)       (6,860)
                                                                                                  ----------------- -------------
   Net cash used in operating activities                                                                    (9,852)       (2,114)
                                                                                                  ----------------- -------------

   Cash flows from investing activities:
        Proceeds from sale of facilities and equipment                                                         170        18,089
        Purchase of property, plant and equipment and facilities held for sale                                (323)         (551)
        Purchase of rights to technology and other assets                                                     (128)          (75)
        Decrease (increase) in restricted cash and in deposits collateralizing letters of credit                50            (3)
        Proceeds from facility transferred under note receivable arrangement                                   261            --
                                                                                                  ----------------- -------------
   Net cash provided by investing activities                                                                    30        17,460
                                                                                                  ----------------- -------------

   Cash flows from financing activities:
        Proceeds from issuance of notes payable and warrants, net                                           10,498         2,980
        Payments on notes payable, including redemption premiums                                            (4,692)      (14,279)
        Proceeds from issuance of common stock and warrants, net                                             3,774         4,666
        Proceeds from issuance of preferred stock and warrants, net                                          6,394            --
        Preferred stock dividends                                                                               --          (205)
        Proceeds from exercise of warrants                                                                      --           203
                                                                                                  ----------------- -------------
   Net cash provided by (used in) financing activities                                                      15,974        (6,635)
                                                                                                  ----------------- -------------

   Net increase in cash and cash equivalents                                                                 6,152         8,711

   Cash and cash equivalents, beginning of period                                                              727           461
                                                                                                  ----------------- -------------

   Cash and cash equivalents, end of period                                                                $ 6,879       $ 9,172
                                                                                                  ================= =============


   Supplemental schedule of non-cash investing and financing activities:
        Cancellation of notes receivable - related parties and the common stock collateralizing              $  --        $6,164
           the notes
        Reclassification of redeemable convertible preferred stock to convertible preferred                     --         2,710
           stock
        Common stock issued on conversion of redeemable convertible and convertible preferred
           stock and in payment of dividends                                                                 2,159         1,634
        Common stock issued on conversion of convertible debt                                                   --         1,116
        Common stock issued to purchase minority interests in subsidiaries                                     519            --
        Common stock issued for rights to technology                                                           375            --
        Notes payable issued for equipment and rights to technology                                            640            --
</TABLE>

                     The accompanying notes are an integral
                  part of the consolidated financial statements

                                       7
<PAGE>

                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                                   ----------


1.   Nature of Operations and Basis of Presentation

     Covol Technologies,  Inc. and its Subsidiaries'  ("Covol") primary business
     is to commercialize its proprietary  binder  technologies which are used to
     recycle waste  by-products  from the coal,  steel and other industries into
     marketable fuel and resources.  Through June 1998, Covol's focus was on the
     construction of facilities and the licensing of its binder  technologies to
     entities that constructed facilities that convert coal fines into synthetic
     fuel briquettes.  Currently,  Covol's licensees are operating 28 facilities
     in ten states at various levels of production.  There are 24 synthetic fuel
     plants  that  utilize  Covol's  patented  technology  and  four  additional
     facilities that use an alternative  technology that Covol acquired in early
     fiscal 1999.  During 1999 and 2000,  Covol has been  actively  pursuing the
     sale of its four owned  facilities  and the licensing of its  technology to
     the buyers,  which  sales and  licensing  were  completed  in August  1999,
     December  1999,  January  2000 and April 2000,  respectively  (see Note 5).
     Covol  has  no  current  plans  to  construct   additional  synthetic  fuel
     facilities.

     The  accompanying  unaudited  consolidated  financial  statements have been
     prepared in accordance with the rules and regulations of the Securities and
     Exchange  Commission for quarterly  reports on Form 10-Q. In the opinion of
     management,  all adjustments  considered  necessary for a fair presentation
     have been included. All adjustments, except the extraordinary loss on early
     extinguishment  of debt  (see Note 2) and the  items  described  in Note 6,
     consist of normal recurring adjustments.  The results of operations for the
     periods  presented  are not  necessarily  indicative  of the  results to be
     expected for the full year.  Certain  information and footnote  disclosures
     normally  included in  financial  statements  prepared in  accordance  with
     generally accepted accounting principles have been condensed or omitted. It
     is suggested that these  financial  statements be read in conjunction  with
     the consolidated financial statements and notes thereto included in Covol's
     Annual  Report on Form 10-K for the year ended  September  30,  1999 and in
     Covol's  Quarterly  Report on Form 10-Q for the quarter ended  December 31,
     1999.  Certain prior period amounts have been  reclassified to conform with
     the current period's  presentation.  The reclassifications had no effect on
     net loss, total assets or total liabilities.

2.   Financing and other Equity Transactions

     During and subsequent to the quarter ended March 31, 2000,  Covol completed
     several transactions, including the following.

     Convertible Debt

     In January 2000,  Covol  redeemed all of the  convertible  debt issued from
     September 1999 through  December 1999. The redemption  consideration  given
     included approximately $1,000,000 in redemption premiums plus approximately
     214,000  shares of common  stock.  The loss  recognized  as a result of the
     redemption  consideration paid plus the acceleration of amortization of the
     unamortized  debt  discount and debt issuance  costs totaled  approximately
     $1,823,000.  This  loss  is  reflected  as an  extraordinary  item  in  the
     Consolidated  Statements of  Operations  as required by generally  accepted
     accounting principles ("GAAP").

     In April 2000,  Covol and the holder of the  $20,000,000  convertible  debt
     amended the terms of the  convertible  secured note. The revised terms call
     for i) a change in the due date to September  2001,  and ii) changes in the
     provisions for early redemption, including a reduction in the amount of the
     cash  required  to  be  paid  upon  early  redemption,  and  new  mandatory
     redemption  requirements  upon the  receipt  by Covol of  certain  deferred
     payments  from the sales of synthetic  fuel  facilities  which  occurred in
     August  1999 and  January  2000  (see  Note 5).  In  connection  with  this
     amendment, Covol was required to redeem $3,000,000 of the face value of the
     debt  in  April  2000  and   $2,000,000  in  May  2000,   resulting  in  an
     extraordinary loss of approximately $2,600,000.  Also, Covol was allowed to
     redeem the preferred  stock held by this entity (see Preferred Stock on the
     following page).

     Notes Payable

     In February 2000,  Covol  restructured its outstanding debt associated with
     the  construction  of a wash plant (see Note 3). The  creditor,  which is a
     limited partner of Coaltech,  agreed to accept Covol's note receivable from
     Coaltech  (classified

                                       8
<PAGE>

                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                                   ----------

     as  "Facility  transferred  under  note  receivable   arrangement"  in  the
     Consolidated Balance Sheet) as partial payment on the debt. The outstanding
     principal and accrued  interest,  totaling  approximately  $4,927,000,  was
     reduced to a remaining balance of approximately  $1,962,000  ($1,927,000 at
     March 31, 2000) and the due date of the  restructured  note was extended to
     October  2000.  A gain of  approximately  $324,000 was  recognized  on this
     transaction,  which amount  represents the interest on the note  receivable
     that, as required by GAAP, had not been previously recognized.

     In April 2000, the holder of the  $3,000,000 14% note payable  described in
     Note 3 converted  $2,000,000  of  principal  into  approximately  1,186,000
     shares of common  stock and  warrants  for the  purchase  of  approximately
     296,000 shares of common stock.  The due date for the remaining  $1,000,000
     of  principal  was extended to April 2001.  The  warrants  are  exercisable
     through April 2005 at a price of $2.10 per share.  In connection  with this
     transaction,   the  creditor  released  as  collateral  a  promissory  note
     receivable  reflected as "Note receivable - related party" in stockholders'
     equity in the March 31, 2000  Consolidated  Balance  Sheet.  The promissory
     note requires an annual payment to Covol of approximately $515,000 with the
     outstanding balance of approximately $3,700,000 due January 2005.

     Preferred Stock

     During  the  quarter  ended  March  31,  2000,  7,257  shares  of  series D
     redeemable  convertible  preferred stock were converted into  approximately
     878,000  shares of common  stock.  In March 2000,  an amendment was made to
     Covol's Series D Preferred Stock Agreement  eliminating the provisions that
     in certain  situations  allowed  the holder to require  Covol to redeem the
     preferred  stock.  Accordingly,  this  preferred  stock is  classified as a
     component  of  stockholders'  equity at March 31, 2000.  In April 2000,  an
     additional  1,910  shares  of series D  convertible  preferred  stock  were
     converted into approximately 150,000 shares of common stock.

     Also in April 2000,  an  agreement  was entered into with the holder of the
     series D preferred  stock,  which  entity also holds the  $20,000,000  face
     value convertible debt. The agreement provided for the redemption of 16,000
     shares of the outstanding  preferred stock,  which  redemption  occurred in
     April 2000.  In May 2000,  the remaining  19,631 shares of preferred  stock
     were redeemed. The total amount paid for both redemptions was approximately
     $4,454,000, including a redemption premium of approximately $891,000.

     Common Stock

     In March 2000, Covol issued approximately  3,629,000 shares of common stock
     for cash proceeds of approximately $4,666,000, net of cost of approximately
     $270,000.  Subsequent to March 31, 2000, Covol issued approximately 379,000
     shares of common  stock and  warrants  for the  purchase  of  approximately
     133,000  shares of common stock to certain  officers and  directors for net
     cash  proceeds of  approximately  $592,000.  The warrants  are  exercisable
     through March 2005 at a price of $1.56 per share.

     Notes and Interest Receivable - Related Parties

     In March 2000,  Covol  entered  into  termination  agreements  with certain
     current and former officers and employees having notes and interest payable
     to  Covol  totaling  approximately  $6,164,000.  All of  these  notes  were
     collateralized  by shares of Covol's common stock and were  classified as a
     reduction  in  stockholders'   equity.   The  agreements   called  for  the
     cancellation  of  the  outstanding  balances  under  the  notes,  including
     interest, in exchange for the surrender and cancellation of the outstanding
     shares  of common  stock  collateralizing  the  notes.  These  transactions
     resulted in the  cancellation  of  approximately  756,000  shares of common
     stock and the recognition of a loss of approximately $219,000, which amount
     represents the interest recognized on the notes in prior periods.

     Warrants

     During the quarter ended March 31, 2000, the terms of existing warrants for
     the purchase of approximately  2,750,000 shares of common stock at exercise
     prices  ranging  from $3.50 to $12.00 per share were  changed.  The revised
     terms of the warrants  reduced the shares  issuable under these warrants to
     approximately 620,000 shares of common stock with a corresponding reduction
     in the exercise price to $1.32 per share. During the quarter,  warrants for
     the purchase of approximately

                                       9
<PAGE>

                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                                   ----------

     213,000  shares  of  common  stock  were  exercised  for cash  proceeds  of
     approximately  $203,000.  Also during the  quarter,  approximately  433,000
     shares of common stock were issued in a cashless  exercise of warrants.  As
     of March 31,  2000,  warrants  for the  purchase of  approximately  766,000
     shares of common stock were outstanding,  with exercise prices ranging from
     $1.32 to $3.84 per share.  Additional  warrants  were issued  subsequent to
     March 31, 2000, as described in preceding paragraphs.

3.   Notes Payable

     Notes payable consist of the following:
<TABLE>
<CAPTION>
                                                                                                 September 30,    March 31,
  (thousands of dollars)                                                                             1999            2000
  ---------------------------------------------------------------------------------------------- -------------- ---------------
<S>                                                                                                <C>             <C>
  Note payable to a corporation, bearing interest at 6%, collateralized by a coal wash plant
  in Utah, principal and interest due October 2000, as described in Note 2.                            $ 4,313         $ 1,927

  Note payable to the same corporation referred to in the preceding paragraph, bearing
  interest at prime, repaid in December 1999 (see Note 5).                                               2,900              --

  Note payable to the same corporation referred to in the preceding two paragraphs, bearing
  interest at 6%, repaid in January 2000 (see Note 5).                                                   6,500              --

  Note payable to a limited liability company, bearing interest at 10%, repaid in April 2000
  (see Note 5).                                                                                          9,191           8,994

  Convertible  secured  note  payable  to an  investment  company,  issued  at a discount,
  bearing a stated  interest rate of 2.5% on the $20,000 face amount. The note, as amended,
  is due September  2001,  but is expected to be redeemed earlier by Covol (see Note 2).
  Interest is payable  semiannually on January 1 and July 1. The note is collateralized by
  license fees payable to Covol from the production and sale of synthetic fuel from five
  synthetic fuel  facilities.                                                                           10,265          11,978

  Convertible secured note payable to a Covol shareholder, issued at a discount, bearing a
  stated interest rate of 8%. This note,  which increased in amount in October  1999,
  along with  another  convertible  note payable to an unrelated entity issued in December
  1999, were redeemed by Covol in January 2000, as described in Note 2.                                   622              --

  Note payable to a corporation, bearing interest at 14% payable monthly. $1,000 of principal
  was paid in January 2000. The remaining  principal was originally due April 2000, but in
  April 2000,  $2,000 was converted into shares of common stock and  warrants  for the
  purchase of common stock and $1,000 was extended and is now due April 2001, as described
  in Note 2. The note is  collateralized by future license fees payable to Covol from the
  production and  sale of synthetic fuel from two synthetic fuel facilities.  A member of
  Covol's Board of Directors is affiliated with this corporation.                                        4,000           3,000

  Other                                                                                                    722             838
                                                                                                 -------------- ---------------
                                                                                                        38,513          26,737
       Less: current portion                                                                           (20,626)        (11,380)
                                                                                                 -------------- ---------------
       Total non-current                                                                               $17,887         $15,357
                                                                                                 ============== ===============
</TABLE>

   A substantial  portion of facilities  and equipment held for sale and license
   fees from the production and sale of synthetic fuel from approximately 50% of
   the licensed synthetic fuel facilities are collateral for notes payable.  The
   weighted  average  interest  rate on notes  payable was 7.9% at September 30,
   1999 and March 31, 2000.

                                       10
<PAGE>

                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                                   ----------

4.   Basic and Diluted Earnings per Share
<TABLE>
<CAPTION>

                                                             Three Months Ended March 31,     Six Months Ended March 31,
  (thousands of dollars and shares, except per-share data)            1999            2000            1999            2000
  ---------------------------------------------------------- -------------- --------------- --------------- ---------------
  Numerator:
<S>                                                               <C>              <C>            <C>                <C>
       Income (loss) before extraordinary item                    $(5,057)         $ 2,137        $(9,615)           $ 211
       Extraordinary item                                               --         (1,823)              --         (1,823)
                                                             -------------- --------------- --------------- ---------------
       Net income (loss)                                           (5,057)             314         (9,615)         (1,612)
       Preferred stock dividends (undeclared)                         (77)           (119)           (137)           (265)
       Imputed preferred stock dividends                              (40)              --            (40)            (58)
                                                             -------------- --------------- --------------- ---------------
  Numerator for basic earnings per share -- net income
  (loss) attributable to common stockholders                       (5,174)             195         (9,792)         (1,935)

  Effect of dilutive securities - preferred stock dividends             --              72              --              --
                                                             -------------- --------------- --------------- ---------------
  Numerator for diluted earnings per share -- net income
  (loss) attributable to common stockholders after assumed
  conversions                                                     $(5,174)           $ 267        $(9,792)        $(1,935)
                                                             ============== =============== =============== ===============

  Denominator:
  Denominator for basic earnings per share --
    weighted-average shares outstanding                             12,472          18,025          12,224          15,818

  Effect of dilutive securities:
       Shares issuable upon exercise of warrants                        --             337              --              --
       Shares issuable upon conversion of preferred stock               --           8,009              --              --
                                                             -------------- --------------- --------------- ---------------
  Total dilutive potential shares                                       --           8,346              --              --
                                                             -------------- --------------- --------------- ---------------
  Denominator for diluted earnings per share --
    weighted- average shares outstanding after assumed
    exercises and conversions                                      12,472          26,371          12,224          15,818
                                                             ============== =============== =============== ===============
  Basic earnings per share:
  Income (loss) before extraordinary item                           $(.41)            $.11          $(.80)          $(.01)
  Extraordinary item                                                    --           (.10)              --           (.11)
                                                             -------------- --------------- --------------- ---------------
  Net income (loss) per common share                                $(.41)            $.01          $(.80)          $(.12)
                                                             ============== =============== =============== ===============

  Diluted earnings per share:
  Income (loss) before extraordinary item                           $(.41)            $.08          $(.80)          $(.01)
  Extraordinary item                                                    --           (.07)              --           (.11)
                                                             -------------- --------------- --------------- ---------------
  Net income (loss) per common share                                $(.41)            $.01          $(.80)          $(.12)
                                                             ============== =============== =============== ===============
</TABLE>

    During the  quarter  ended  March 31,  2000,  Covol's  potentially  dilutive
    securities  consisted  of options and  warrants  for the  purchase of common
    stock,  three  convertible  debt  issues  and three  series  of  convertible
    preferred  stock.  Only the warrants and the series D convertible  preferred
    stock,  all of which was  redeemed  in April and May 2000 (see Note 2), were
    dilutive.  For the  quarter  ended  March 31,  2000,  all other  potentially
    dilutive  securities were  anti-dilutive.  For all other periods,  all other
    potentially  dilutive  securities were anti-dilutive and were not considered
    in the calculation of diluted earnings per share.

5.  Sale of Facilities

    Covol's business plan called for the construction and sale of synthetic fuel
    manufacturing facilities and the licensing of Covol's technology to facility
    purchasers to generate ongoing  royalties.  In December 1999, Covol sold one
    of the three remaining synthetic fuel facilities it owned. This facility was
    located  in  Price,  Utah.  Covol  reported  a gain on this  transaction  of
    approximately  $5,341,000.  Covol will sell proprietary binder material used
    at the facility and will receive an ongoing  royalty  based upon  production
    and sale of synthetic fuel from this  facility.  Net cash proceeds to Covol,
    after  payment of  construction  debt and certain  other  obligations,  were
    approximately $5,500,000.

    In January 2000, Covol sold a synthetic fuel facility located in North Fork,
    West  Virginia  and an option to  acquire a  licensee  facility  located  in
    Nevada, to a major U.S.  utility.  Combined net cash proceeds to Covol after
    payment of related

                                       11
<PAGE>

                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                                   ----------

     debt and other obligations were approximately $1,500,000.  Covol reported a
     combined  loss  on  these  transactions  of  approximately  $598,000.  Both
     facilities are being  relocated and additional net cash proceeds,  totaling
     approximately  $6,500,000,  are due to Covol when the two facilities  reach
     commercial operation at the new location,  at which time $6,500,000 will be
     recognized as revenue.  Covol will sell proprietary binder material used at
     both facilities and will receive future royalties based upon production and
     sale of synthetic fuel at the facilities.

     In April 2000,  Covol sold its remaining  owned  synthetic  fuel  facility,
     located in Tallmansville,  West Virginia. Net cash proceeds to Covol, after
     payment of related debt and other obligations were approximately  $300,000.
     Covol will report a gain on this transaction of  approximately  $1,200,000.
     Covol will also sell  proprietary  binder material used at the facility and
     will receive an ongoing royalty based upon production and sale of synthetic
     fuel from this facility.

     In addition to the  subsequent  payments  receivable  upon  relocation  and
     commercial  operation of the  facilities  sold in January  2000,  Covol can
     receive  additional  cash payments from the August 1999 sale of a synthetic
     fuel  facility in the form of both  accelerated  and  increased  royalties.
     These payments, totaling up to approximately $9,000,000 are receivable upon
     obtaining  firm  synthetic  fuel  "off-take"   agreements  and  by  meeting
     specified operating  performance  criteria.  Covol must achieve some of the
     performance  milestones  by June 30, 2000 and others  prior to December 31,
     2001.  Covol will  recognize  revenue  under the royalty  arrangement  upon
     receipt  of the  royalty  payments  and  upon  achievement  of  performance
     milestones.

     Under the terms of the April 2000 amendment to the convertible secured note
     agreement (see Note 2), Covol is required to pay  approximately  80% of the
     cash  received  from  subsequent  payments  related to the August  1999 and
     January 2000 sales of synthetic fuel facilities to the debtholder to redeem
     any outstanding balances of convertible debt.

6.   Gains on Non-recurring Transactions and Asset Write-offs and Other
     Non-recurring Charges

     During the quarter ended March 31, 2000, Covol recorded non-recurring gains
     of  approximately  $1,079,000  related to the  satisfaction of a contingent
     contract  liability  (see Note 8) and the gain  recognized  on the Coaltech
     note receivable transaction described in Note 2.

     Covol  recorded  in the  December  1999  quarter  an  impairment  charge of
     approximately  $10,300,000  related to assets located in Price,  Utah. This
     impairment charge consisted of an approximate  $8,100,000  writedown to net
     realizable  value of certain plant and equipment  which remains on the site
     and is now idle, plus an approximate  $2,200,000  writeoff of an intangible
     asset which was no longer  considered  recoverable due to the relocation of
     the  Coaltech   facility.   Covol  recorded  other  asset   write-offs  and
     non-recurring  charges in the quarter ended  December 31, 1999 which,  when
     added to the impairment charge, totaled approximately $11,021,000.  Of this
     amount,  approximately  $10,412,000  represented a non-cash charge.  In the
     March  2000  quarter,  Covol  recorded  additional  non-recurring  employee
     severance and other settlement charges totaling approximately  $841,000, of
     which $219,000 represented a non-cash charge.

7.   Income Taxes

     In the quarter ended December 31, 1999, Covol recognized  $3,000,000 of its
     deferred  tax asset.  Covol  believes  it is more likely than not that this
     portion of its total  deferred  tax assets  will be realized as a result of
     income  resulting  from  the  sales in  January  2000 of a  synthetic  fuel
     facility and an option to acquire a synthetic fuel facility.  Covol did not
     recognize any income tax expense in the quarter ended March 31, 2000 due to
     available net operating loss carryforwards.

8.   Commitments and Contingencies

     Commitments and contingencies as of March 31, 2000 not disclosed elsewhere,
     are as follows.

     Included in accrued  liabilities at September 30, 1999 is $755,000  related
     to canceled  construction  contracts  that contained a "failure to proceed"
     liability  clause.  This  contingent  liability was satisfied at no cost in
     March 2000.

     In March 1997, Covol  transferred the Utah Synfuel #1 facility to Coaltech.
     In connection with this transaction, Covol licensed Coaltech to use Covol's
     proprietary binder technologies for a non-refundable advance license fee of
     $1,400,000,

                                       12
<PAGE>

                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                                   ----------

     which is being  recognized as income through 2007, the contractual  term of
     the  license  agreement,  and a  recurring  license  fee  that  is  payable
     quarterly  and that is based upon  synthetic  fuel produced and sold at the
     Coaltech  facility.  Covol contracted with Coaltech to operate the facility
     for which  Covol  received  a  quarterly  fee,  which was also  based  upon
     synthetic fuel produced and sold. The limited  partners of Coaltech have an
     option  wherein they can require  Covol to repurchase  this facility  under
     certain  conditions.  This put  option can be  exercised  if 1) none of the
     limited  partners are able to utilize the federal  income tax credits under
     Section  29 of the  tax  code,  2) the  economic  benefits  accruing  to or
     experienced by all of the Coaltech  limited  partners differ  significantly
     from what was initially projected, or 3) there is a permanent force majeure
     or material  damage or destruction of the Utah facility.  If the put option
     is  exercised,  the  option  price is $10.  In  accordance  with  generally
     accepted accounting  principles and after discussions with the staff of the
     Securities and Exchange Commission, this transaction was not reflected as a
     sale for accounting  purposes.  The original cost of the facility less cash
     payments received from Coaltech,  was reflected in the consolidated balance
     sheet  as  of  September  30,  1999  as  facility  transferred  under  note
     receivable arrangement.  As described in Note 2, this asset was realized in
     February  2000 in  connection  with the reduction of the amount due under a
     note payable to one of the limited partners of Coaltech.

     Additionally,  Covol  entered  into a supply and  purchase  agreement  with
     Coaltech  wherein  Covol  agreed to  provide  to  Coaltech  coal  fines for
     processing  into  synthetic  fuel at a price equal to Covol's  cost.  Covol
     agreed to purchase from Coaltech the synthetic fuel produced, at Coaltech's
     cost plus one dollar per ton.  As a result of this  commitment  to purchase
     Coaltech's production,  Covol experienced significant losses related to the
     write-down of the synthetic  fuel purchased to the lower of cost or market.
     This write-down historically  approximated 90% of the amount Covol paid for
     the synthetic fuel.

     In  anticipation  of a  relocation  of the Utah  facility by  Coaltech,  on
     October 29, 1999 Covol received  notification  from the limited partners of
     Coaltech  that they were  effecting  a  retirement  of Covol as the general
     partner of the  partnership and were  terminating  Covol as operator of the
     Utah  facility.  The limited  partners also assert that as a consequence of
     the  retirement  of Covol as  general  partner,  Covol  is  deemed  to have
     forfeited its 1% interest in the partnership. The notification demands that
     Covol  indemnify  the limited  partners for all of their  losses,  damages,
     payments, costs and expenses. Covol disputes the limited partners' demands.
     On December 1, 1999, the parties entered into  negotiations and as a result
     an interim  standstill  agreement was reached pursuant to which the limited
     partners  and Covol have agreed not to pursue  formal  proceedings  against
     each other pending the outcome of the current settlement  negotiations.  As
     more fully described in Note 2, in February 2000,  Covol,  Coaltech and one
     of the limited partners of Coaltech reached a settlement regarding both the
     note payable due to the limited  partner from Covol and the note receivable
     due to Covol from Coaltech. It is likely that the ultimate outcome of these
     negotiations  will result in  relocation of the Utah facility to a new site
     and termination of contractual and operational activities between Covol and
     the limited partners with settlement  payments  materially  consistent with
     amounts reflected in the accompanying consolidated financial statements. It
     is also  expected  that the  limited  partners  will  continue  to purchase
     proprietary  binder materials from Covol and use Covol's  technology in the
     production of synthetic fuel when operations of the facility are resumed.

     In June 1996,  Covol  formed  Alabama  Synfuel  #1,  Ltd.  to  construct  a
     synthetic  fuel  facility.  In  connection  with the  construction  of this
     facility,  Covol entered into a supply  agreement for coal fines to be used
     at the  facility.  Covol  assigned  this  agreement to the purchaser of the
     facility and accordingly,  has no ongoing  obligation.  Covol has been paid
     for the coal fines sold to the facility  purchaser,  but has a dispute with
     the  provider  of the coal fines for a portion of the coal fines Covol paid
     for.  The  resolution  of this  dispute is not  expected to have a material
     impact on Covol.

     In September 1996, Covol entered into an agreement with Coalco  Corporation
     whereby  Coalco was to advise Covol with respect to the  financing and sale
     of certain synthetic fuel manufacturing facilities. A dispute arose between
     Covol and Coalco  about  services  rendered or to be rendered by Coalco and
     the amount and timing for  payment  for such  services.  A  settlement  was
     reached in November 1999 whereby Covol agreed to pay Coalco $1,500,000 plus
     a  royalty  based on the  synthetic  fuel  sold  from  five  licensee-owned
     facilities.  Of the  $1,500,000  to be paid,  $469,000  was  accrued  as of
     September 30, 1999 and was paid in November  1999.  An additional  $901,000
     has been paid  through  March 31, 2000  resulting  in an unpaid  balance of
     $130,000. Pelletco, an affiliate of Coalco, is a licensee of Covol.

     In March 1999,  Covol  entered into a financing  transaction  involving the
     issuance of convertible preferred stock and a convertible secured note (see
     Note 3). The  transaction  requires,  among other things,  (i)  stockholder
     approval of the

                                       13
<PAGE>

                    COVOL TECHNOLOGIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                                   ----------

     transaction,  (ii)  registration  of common stock into which the securities
     issued  may  be  converted,  and  (iii)  achievement  of  earnings  targets
     beginning in the first quarter of Covol's fiscal year 2000. The transaction
     was approved in Covol's  stockholder  meeting held in February 2000.  Covol
     filed the  required  registration  statement on Form S-3 covering the March
     1999 financing  transaction  and such  registration  statement was declared
     effective. Also, the earnings targets have been met through March 31, 2000.
     Failure  to  comply  with the  terms  and  conditions  of  these  financing
     agreements  could  result in an increase in the  interest  rate,  immediate
     convertibility,  required escrow payments and possible immediate payment of
     outstanding amounts.

     Covol may incur costs  associated  with  relocation of the  synthetic  fuel
     facility  sold in April  2000.  The  costs to be paid by  Covol,  currently
     estimated to be  approximately  $300,000,  will reduce the net proceeds and
     the gain recognized on the sale of the facility.

     In February  1997,  Covol entered into a contract with Earthco  regarding a
     parcel of real property  located near Price,  Utah, in which Covol obtained
     certain possessory and related interests,  Covol's primary purpose being to
     obtain a source of coal fines to serve as feedstock for a nearby  synthetic
     fuel facility.  In August 1999,  Covol sent a notice of default to Earthco,
     alleging  that  Earthco had  breached a material  provision of the contract
     because  Earthco did not have title to the  property.  Covol has refused to
     tender its August 1999 payment and subsequent payments because of Earthco's
     breach.  In addition,  Covol  contends that the quantity  and/or quality of
     recoverable  coal  fines  was  substantially   less  than  what  Covol  had
     understood  when entering into the contract,  thereby  creating  grounds to
     reform  the terms of the  contract.  Earthco  subsequently  countered  with
     allegations  that Covol has breached its  obligations  under the  contract,
     including failure to make the August 1999 payment.

     In November 1999,  Covol was served with a Complaint in litigation  pending
     in the Seventh Judicial District Court of Carbon County, Utah titled Nevada
     Electric  Investment  Company v. Earthco,  et al. In the Complaint,  Nevada
     Electric  Investment  Company ("NEICO") alleges that it is the lawful owner
     of the property  near  Wellington,  Utah  described  in Covol's  lease from
     Earthco.  NEICO seeks a declaratory judgement that Covol is not entitled to
     possession  of the property  due to the lack of  ownership by Earthco.  The
     Complaint also seeks further relief from Earthco.  Covol received Earthco's
     Answer,   Counterclaims   and  Cross-claim  in  December  1999.   Earthco's
     cross-claim   against  Covol  alleged  breach  of  contract  and  requested
     substantial damages in an amount to be proven at trial but alleged to be in
     excess of $5,000,000. Covol filed its Reply and Cross-claim against Earthco
     in  January  2000  denying   Earthco's   claims  and  asserting  claims  of
     misrepresentation,  breach of lease, unjust enrichment,  and related claims
     and for  general  and  consequential  damages  in an amount to be proven at
     trial.  The disputes  among Covol,  Earthco and NEICO are at an early stage
     and  resolution is uncertain.  Covol intends to defend  against  claims and
     prosecute its own claims vigorously.

     During the six months ended March 31, 2000,  Covol  recorded  approximately
     $6,800,000  of license fee revenues  from a single  licensee that owns four
     synthetic fuel facilities that use Covol's  proprietary  binder technology.
     These  revenues  relate  to sales  of  synthetic  fuel at these  facilities
     primarily  between June 1999 and March 2000 which were recently reported by
     this  licensee.  Covol and this  licensee  agreed to amend the  license fee
     arrangements  for prior and future periods and the  Consolidated  Financial
     Statements  reflect these amended terms.  In addition,  the future interest
     rate on the $6,500,000  note  receivable from this licensee will be reduced
     from 12% to 6%  effective  on the  date of the  formal  agreement  which is
     expected to be in May 2000.

     In January 2000,  Covol received a letter from Nasdaq  informing Covol that
     it may not meet continued listing  requirements of The Nasdaq Stock Market.
     Following Covol's response, Nasdaq sent another letter notifying Covol that
     its listing would be continued subject to Covol meeting certain  conditions
     on or before March 31, 2000.  These conditions were met and Nasdaq notified
     Covol that it meets all Nasdaq listing requirements.

     Covol is also involved in several legal proceedings that have arisen out of
     the normal course of business. Covol believes that many of these claims are
     without merit and in all cases  intends to vigorously  defend its position.
     Management does not believe that the outcome of these  activities will have
     a  significant  effect upon the  operations  or the  financial  position of
     Covol.

                                       14
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following Management's Discussion and Analysis should be read in conjunction
with the  accompanying  unaudited  consolidated  financial  statements and notes
thereto.

Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999

Revenues.  Total  revenues for the three  months  ended March 31, 2000  ("2000")
increased by $6,756,000  to  $7,899,000 as compared to $1,143,000  for the three
months ended March 31, 1999 ("1999"). During 2000, Covol recognized license fees
totaling  $4,798,000 while $546,000 of license fees were recognized during 1999.
The  license  fees  in  2000  consisted  of the  straight-line  amortization  of
one-time,  non-refundable  initial license fees of $231,000 and recurring earned
license fees or royalty  payments of $4,567,000.  License fees in 1999 consisted
of the straight-line  amortization of one-time,  non-refundable  initial license
fees of $226,000 and  recurring  license  fees or royalty  payments of $320,000.
Initial  license  fees are not  expected to  increase in future  periods and are
recognized on a  straight-line  basis over the period covered by Covol's license
agreements with licensees.  Recurring  earned license fees or royalty  payments,
which over the long term are  expected to increase  in future  periods,  are due
quarterly  based upon  synthetic  fuel produced and sold as reported to Covol by
its  licensees.  The increase in 2000 earned  license fees was due  primarily to
significant increases from a licensee that owns and operates four synthetic fuel
facilities (see Note 8 to the Consolidated Financial Statements).

Covol provides  proprietary  binder material to its licensees  either at a fixed
price or at Covol's cost plus a contracted  markup.  Covol  purchases the binder
materials under a long-term contract with a large chemical company. Binder sales
during 2000 were  $1,883,000  with a  corresponding  direct cost of  $1,367,000.
Binder  sales  during 1999 were  $423,000  with a  corresponding  direct cost of
$274,000.  The  increase in binder  sales in 2000 over 1999 was due to increased
synthetic fuel production by Covol's licensees.

Gains on Non-recurring Transactions. In 2000, Covol recorded non-recurring gains
of approximately $1,079,000 related to the satisfaction of a contingent contract
liability for $755,000 (see Note 8 to the Consolidated Financial Statements) and
the gain  recognized on the Coaltech note  receivable  transaction  described in
Note 2 to the Consolidated Financial Statements.

Operating Costs and Expenses. Operating costs and expenses decreased by $142,000
to  $4,637,000  during 2000 from  $4,779,000  during  1999.  Cost of  operations
decreased $1,853,000 from $2,553,000 during 1999 to $700,000 during 2000. During
2000, Covol incurred  significantly  lower operating expenses in connection with
the  continued   refinement  and  implementation  of  the  briquetting   process
associated  with  the 24  facilities  placed  in  service  during  1998,  and in
particular the operating  costs  associated  with the four  facilities  owned by
Covol which have now been sold.  Consistent  with its business  plan to sell the
facilities and earn royalties  from facility  buyers,  Covol sold its four owned
facilities  in  August  1999,  December  1999,  January  2000  and  April  2000,
respectively  (see Note 5 to the Consolidated  Financial  Statements).  In 1999,
cost of  operations  primarily  related to labor and  operating  expenses at the
owned  synthetic  fuel  facilities  and the wash plant  located in Utah,  losses
related  to the  writedown  of  inventory  purchased  from  Coaltech,  and costs
incurred in providing  assistance  to Covol's  licensees  in  resolving  ramp-up
issues at their synthetic fuel facilities.  Covol expects the cost of operations
to continue to decrease in 2000 as compared to 1999 levels.

Loss on Sale of Facilities. In 2000, Covol sold a synthetic fuel facility and an
option to acquire a licensee  facility.  Covol reported a combined loss on these
transactions of approximately  $598,000. Both facilities are being relocated and
additional  net cash proceeds,  totaling  approximately  $6,500,000,  are due to
Covol when the two facilities reach commercial operation at the new location, at
which  time  $6,500,000  will  be  recognized  as  revenue  (see  Note  5 to the
Consolidated Financial Statements).

Asset  write-offs  and other  non-recurring  charges.  In 2000,  Covol  recorded
non-recurring   employee   severance  and  other  settlement   charges  totaling
approximately $841,000, compared to non-recurring charges of $556,000 in 1999.

Selling,  general  and  administrative  expenses  decreased  $148,000  or 12% to
$1,085,000  during 2000 from  $1,233,000  for 1999.  The largest  components  of
selling,  general and  administrative  expenses for both  periods were  payroll,
professional services and travel expenses. Payroll costs increased approximately
$60,000;   professional  services,   primarily  legal,  increased  approximately
$120,000;  and travel  expenses  decreased  approximately  $100,000 from 1999 to
2000. There were significant decreases in most of the other selling, general and
administrative  expenses  from  1999 to 2000  which  more  than  offset  the net
increase in the three major expense categories.

Compensation  expense from stock options decreased  $117,000 to $46,000 for 2000
from $163,000 for 1999. This expense relates to options granted in prior periods
that vest over several years and the compensation value that is being recognized
as

                                       15
<PAGE>

an expense over the vesting  period.  During the fiscal year ended September 30,
1999, Covol terminated several employees to whom compensatory stock options were
granted in prior years. These stock options were not forfeited upon termination,
resulting in the write off of the unamortized  deferred  compensation related to
these individuals. As a result of the write-off, amortization expense decreased.

Other Income and  Expense.  During 2000,  Covol  reported net other  expenses of
$1,125,000 compared to $1,421,000 for 1999. This decrease of $296,000 relates to
a  negative  variance  in  interest  expense  of  $334,000,  offset by  positive
variances  between periods of $339,000 in the  mark-to-market  adjustment of the
carrying value of a related party note receivable collateralized by Covol common
stock and $291,000 in interest income and other income.

Interest expense increased in 2000 due primarily to the higher effective cost of
debt which existed in 2000 as compared to 1999,  most notably as a result of the
convertible  debt issued at a discount  during March 1999.  Interest  expense of
$1,122,000  in 2000  resulted  from the  amortization  of debt discount and debt
issuance  costs,  while only $244,000 of interest  expense in 1999  consisted of
amortization  of debt  discount and debt  issuance  costs.  Interest  expense is
expected to decrease in the future as a result of  repayment  of debt related to
the sale of company-owned facilities in late 1999 and 2000 and the redemption of
convertible debt in January 2000, as well as other debt payoffs.

During  1996,  Covol  sold  certain  construction   companies  and  received  as
consideration  a $5,000,000  note  receivable  ("Note").  The Note is "marked to
market" each quarter based upon the market value of Covol's common stock held as
collateral and is reflected in the consolidated  balance sheet at the underlying
value of this collateral,  $269,000 at March 31, 2000. This adjustment  resulted
in a write-up of $161,000  during  2000,  compared to a  write-down  of $178,000
during 1999, for a variance of $339,000.

Extraordinary  Item. In January 2000, Covol redeemed all of the convertible debt
issued from September 1999 through  December 1999. The redemption  consideration
given   included   approximately   $1,000,000   in   redemption   premiums  plus
approximately 214,000 shares of common stock. The loss recognized as a result of
the redemption  consideration  paid plus the acceleration of amortization of the
unamortized  debt  discount  and  debt  issuance  costs  totaled   approximately
$1,823,000.  This loss is reflected as an extraordinary item in the Consolidated
Statements of Operations.

Net Income.  For 2000, net income of $314,000  represents a change of $5,371,000
from the net loss of  $5,057,000  in 1999.  This is  primarily  due to increased
revenues,  especially  license fees,  and the  reduction in cost of  operations,
offset by the increase in interest  expense.  Covol did not recognize any income
tax expense in 2000 due to available net operating loss carryforwards. No income
tax benefit was  recognized  in 1999 since the  realization  of the deferred tax
asset, consisting primarily of net operating loss carryforwards, is dependent on
generation of future taxable income.

Six Months Ended March 31, 2000 Compared to Six Months Ended March 31, 1999

Revenues.  Total  revenues  for the six months  ended  March 31,  2000  ("2000")
increased by  $16,423,000  to  $18,948,000 as compared to $2,525,000 for the six
months ended March 31, 1999 ("1999"). During 2000, Covol recognized license fees
totaling  $8,833,000  while  $1,247,000 of license fees were  recognized  during
1999. The license fees in 2000 consisted of the  straight-line  amortization  of
one-time  non-refundable  initial license fees of $461,000 and recurring  earned
license fees or royalty  payments of $8,372,000.  License fees in 1999 consisted
of the  straight-line  amortization of one-time  non-refundable  initial license
fees of $453,000 and recurring license fees or royalty payments of $794,000. The
increase in 2000 earned license fees was due primarily to significant  increases
from a licensee that owns and operates four synthetic fuel  facilities (see Note
8 to the  Consolidated  Financial  Statements).  Binder  sales  during 2000 were
$3,236,000 with a corresponding  direct cost of $2,228,000.  Binder sales during
1999 were $956,000 with a corresponding direct cost of $650,000. The increase in
binder sales in 2000 over 1999 was due to increased synthetic fuel production by
Covol's licensees.

Gain on sale of  facility.  In December  1999,  Covol sold one of the  remaining
synthetic fuel  facilities it owned.  This facility was located in Price,  Utah.
Covol reported a gain on this  transaction of  approximately  $5,341,000.  There
were no sales of synthetic fuel facilities in fiscal 1999,  however Covol sold a
facility and an option to acquire a facility in January 2000 on which a combined
loss was recognized (see Note 5 to the consolidated financial statements).

Gains on Non-recurring Transactions. In 2000, Covol recorded non-recurring gains
of approximately $1,079,000 related to the satisfaction of a contingent contract
liability for $755,000 (see Note 8 to the Consolidated Financial Statements) and
the  $324,000  gain  recognized  on the  Coaltech  note  receivable  transaction
described in Note 2 to the Consolidated Financial Statements.

                                       16
<PAGE>

Operating  Costs  and  Expenses.  Operating  costs  and  expenses  increased  by
$9,173,000 to $19,065,000 during 2000 from $9,892,000 during 1999, primarily due
to  non-recurring  charges  of  approximately   $11,862,000  in  2000.  Cost  of
operations decreased $3,910,000 from $6,199,000 during 1999 to $2,289,000 during
2000.  During 2000,  Covol incurred  significantly  lower operating  expenses in
connection with the continued  refinement and  implementation of the briquetting
process  associated with the 24 facilities placed in service during 1998, and in
particular the operating  costs  associated  with the four  facilities  owned by
Covol which have now been sold. In 1999, cost of operations primarily related to
labor and operating expenses at the owned synthetic fuel facilities and the wash
plant located in Utah,  losses  related to the writedown of inventory  purchased
from Coaltech,  and costs incurred in providing  assistance to Covol's licensees
in resolving  ramp-up issues at their synthetic fuel  facilities.  Covol expects
the cost of  operations  to  continue  to  decrease  in 2000 as compared to 1999
levels.

Loss on Sale of Facilities. In 2000, Covol sold a synthetic fuel facility and an
option to acquire a licensee  facility.  Covol reported a combined loss on these
transactions of approximately $598,000 (see Note 5 to the Consolidated Financial
Statements).

Asset write-offs and other non-recurring charges. Coaltech owns a synthetic fuel
facility  which is located on the same property as the facility that was sold by
Covol  in  December  1999.  As a result  of the  anticipated  relocation  of the
facility  owned by Coaltech,  combined  with the sale and  relocation of Covol's
owned  facility,  all of which relate to the same property  site in Price,  Utah
(see Notes 5 and 8 to the Consolidated Financial Statements),  Covol recorded in
the December 1999 quarter an  impairment  charge of  approximately  $10,300,000.
This impairment charge consisted of an approximate  $8,100,000  writedown to net
realizable value of certain plant and equipment which remains on the site and is
now idle, plus an approximate  $2,200,000 write-off of an intangible asset which
was no longer  considered  recoverable  due to the  relocation  of the  Coaltech
facility.

Covol recorded additional  non-recurring employee severance and other settlement
charges in 2000 which,  when added to the  charges  described  in the  preceding
paragraph,  totaled  approximately  $11,862,000.  Of this amount,  approximately
$10,631,000 represented a non-cash charge. In 1999, Covol recorded non-recurring
charges of approximately $556,000.

Selling,  general  and  administrative  expenses  decreased  $166,000  or  8% to
$1,996,000  during 2000 from  $2,162,000  for 1999.  The largest  components  of
selling,  general and  administrative  expenses for both  periods were  payroll,
professional services and travel expenses. Payroll costs increased approximately
$130,000;   professional  services,  primarily  legal,  increased  approximately
$80,000; and travel expenses decreased approximately $160,000 from 1999 to 2000.
There were  significant  decreases  in most of the other  selling,  general  and
administrative  expenses  from  1999 to 2000  which  more  than  offset  the net
increase in the three major expense categories.

Compensation  expense from stock options decreased  $233,000 to $92,000 for 2000
from $325,000 for 1999.  During the fiscal year ended September 30, 1999,  Covol
terminated  several employees to whom compensatory stock options were granted in
prior years. These stock options were not forfeited upon termination,  resulting
in the write  off of the  unamortized  deferred  compensation  related  to these
individuals. As a result of the write-off, amortization expense decreased.

Other Income and  Expense.  During 2000,  Covol  reported net other  expenses of
$2,672,000  compared to $2,248,000 for 1999.  This increase of $424,000  relates
primarily to a negative  variance in interest  expense of $1,353,000,  offset by
positive variances between periods of $618,000 in the mark-to-market  adjustment
of the carrying value of a related party note receivable collateralized by Covol
common stock and $311,000 in interest income and other income.

Interest expense increased in 2000 due primarily to the higher effective cost of
debt which existed in 2000 as compared to 1999,  most notably as a result of the
convertible  debt issued at a discount  during March 1999.  Interest  expense of
$2,272,000  in 2000  resulted  from the  amortization  of debt discount and debt
issuance  costs,  while only $326,000 of interest  expense in 1999  consisted of
amortization  of debt  discount and debt  issuance  costs.  Interest  expense is
expected to decrease in the future as a result of  repayment  of debt related to
the sale of facilities in late 1999 and 2000 and the  redemption of  convertible
debt in January 2000, as well as other debt payoffs.

Income  Taxes.  In  the  quarter  ended  December  31,  1999,  Covol  recognized
$3,000,000 of its deferred tax asset.  Covol believes it is more likely than not
that this portion of its total  deferred tax assets will be realized as a result
of income  resulting  from the sale in January 2000 of a synthetic fuel facility
and an option to acquire a synthetic fuel facility.  Covol did not recognize any
income tax benefit in fiscal 1999.

Extraordinary  Item. In January 2000, Covol redeemed all of the convertible debt
issued from September 1999 through  December 1999. The redemption  consideration
given   included   approximately   $1,000,000   in   redemption   premiums  plus

                                       17

<PAGE>

approximately 214,000 shares of common stock. The loss recognized as a result of
the redemption  consideration  paid plus the acceleration of amortization of the
unamortized  debt  discount  and  debt  issuance  costs  totaled   approximately
$1,823,000.  This loss is reflected as an extraordinary item in the Consolidated
Statements of Operations.

Net Loss. For 2000, the net loss of $1,612,000 represents a change of $8,003,000
from the net loss of  $9,615,000  in 1999.  This is  primarily  due to increased
revenues,  especially  license  fees and the gain on sale of  facility,  and the
reduction  in cost of  operations,  offset  by the  increases  in  non-recurring
charges and interest expense.

Liquidity and Capital Resources

During 1998,  Covol and its licensees  completed the  construction  of and began
operations at 24 synthetic fuel facilities. Covol owned four facilities which it
held  for  sale  and  sold  during  1999  and  2000.  Proceeds  from the sale of
facilities have been used primarily to retire debt that was incurred principally
in connection  with the  construction  and operation of the  facilities  and for
working capital needs.

Net cash used in operating activities during the six months ended March 31, 2000
("2000")  was  $2,114,000  compared  to  $9,852,000  of cash used during the six
months  ended  March 31,  1999  ("1999").  Most of this change in cash flow from
operations is attributable to the 2000 net loss of $1,612,000 as compared to the
1999  net  loss of  $9,615,000.  Covol  has  been  able to  fund  its  operating
activities,  including the continued  refinement  and  commercialization  of its
patented binder technologies, through the issuance of debt and equity securities
and the sale of  facilities.  During 2000,  proceeds from the sale of facilities
were approximately $18,089,000,  net proceeds from the issuance of notes payable
and common stock warrants  totaled  approximately  $2,980,000,  and net proceeds
from  the   issuance  of  common   stock   totaled   approximately   $4,666,000.
Approximately $14,279,000 of notes payable were repaid during 2000.

With  the  exception  of the  sale of  facilities  in  2000,  Covol's  investing
activities in both 2000 and 1999 were not significant. Covol believes that funds
required for investing  activities will continue to be relatively low during the
remainder of fiscal  2000.  Covol has no current  plans to construct  additional
synthetic fuel  facilities or to incur  significant  costs to acquire  property,
plant and equipment.

Covol's working capital improved from a working capital deficit of approximately
$1,799,000  at  September  30, 1999 to a positive  working  capital  position of
approximately  $15,700,000  as of March 31, 2000.  Several  factors  caused this
change,  most  notably  an  increase  in cash  from the sale of  facilities  and
increased  royalty  revenues  and  from  the  sale  of  common  stock.  Accounts
receivable  has  increased as a result of growth in revenues  during the period.
Also, the balance due under notes payable has decreased as facility-related debt
has been repaid.  Covol expects its future  operations to produce  positive cash
flows due to the  increases in synthetic  fuel  production  by its licensees and
expects its working capital position to continue to improve during the remainder
of fiscal 2000.

In addition to expected positive cash flows from operations,  Covol will receive
additional funds,  totaling more than  $15,000,000,  when three facilities which
have been sold reach certain levels of commercial operation. For two facilities,
the requirements relate to reaching commercial  operation at their new location,
and for the third facility,  obtaining firm synthetic fuel "off-take" agreements
and by  meeting  specified  operating  performance  criteria  (see Note 5 to the
Consolidated  Financial  Statements).  Covol  expects to  receive  some of these
proceeds before  September 30, 2000 and the balance before December 31, 2000, if
all  milestones  are  accomplished.  In addition to cash  provided by  operating
activities  and  deferred  proceeds  from  the  sale of  facilities,  Covol  has
initiated negotiations with two financial institutions in order to secure a line
of  credit.  Negotiations  are in the early  stages  and it is not  possible  to
project their ultimate outcome.

In April 2000, Covol sold its remaining owned synthetic fuel facility.  Net cash
proceeds  to  Covol,  after  payment  of  related  debt  totaling  approximately
$9,000,000 and other obligations,  were approximately  $300,000.  Also, in April
2000, the creditor for the  $3,000,000  14% note payable  described in Note 3 to
the Consolidated  Financial  Statements  converted  $2,000,000 of principal into
shares of common stock and warrants  for the purchase of common  stock.  The due
date for the  remaining  $1,000,000  of  principal  was  extended to April 2001.
Following   this   transaction,   Covol's  notes  payable  total   approximately
$16,000,000,  of which  approximately  $2,400,000  is due  within  the 12 months
ending March 31, 2001. Most of the long-term  notes payable  balance  represents
the carrying value of the  $20,000,000  long-term debt issued at a discount (see
Note 3 to the Consolidated Financial Statements).

In April 2000, Covol and the holder of the $20,000,000  convertible debt amended
the terms of the  convertible  secured  note.  The  revised  terms call for i) a
change in the due date to September  2001, and ii) changes in the provisions for
early  redemption,  including a reduction  in the amount of cash  required to be
paid upon early redemption, and mandatory

                                       18
<PAGE>

redemption  requirements  upon the receipt by Covol of certain deferred payments
from the sales of synthetic  fuel  facilities  which occurred in August 1999 and
January 2000. In connection  with this amendment,  Covol redeemed  $3,000,000 of
the face value of debt in April 2000 and  $2,000,000 in May 2000.  Covol intends
to redeem the balance of the outstanding  convertible  debt as soon as possible,
depending  on the  timing of  receipt  of cash from  operations,  deferred  cash
proceeds from the sale of facilities,  and cash proceeds, if any, from a line of
credit currently being negotiated.

Also in April 2000,  an agreement was entered into with the holder of the series
D  preferred  stock,   which  entity  also  holds  the  $20,000,000  face  value
convertible debt. The agreement  provided for the redemption of 16,000 shares of
the outstanding  preferred stock,  which redemption  occurred in April 2000. The
total redemption price paid of $2,000,000 included a $400,000 premium calculated
at 25%  of the  carrying  amount  of the  preferred  stock.  The  holder  of the
preferred  stock also agreed that it would not  exercise its  conversion  rights
under the preferred  stock  agreement  prior to May 15, 2000.  In May 2000,  the
remaining  19,631 shares of preferred stock were redeemed for a total redemption
price  of   approximately   $2,454,000,   including  a  redemption   premium  of
approximately $491,000.

Forward Looking Statements

Statements in this Report  regarding  Covol's  expectations as to the financing,
development,  construction, operation and sale of facilities utilizing the Covol
binder technologies,  the marketing of products,  the receipt of licensing fees,
the ability to extend or refinance existing  obligations,  and other information
about Covol that are not purely historical by nature, including those statements
regarding  Covol's  future  business  plans,  the operation of  facilities,  the
estimated   capacity  of  facilities,   the  availability  of  coal  fines,  the
marketability  of the  synthetic  fuel and other  briquettes  and the  financial
viability of the facilities,  constitute  forward-looking  statements within the
meaning of the Private Securities  Litigation Reform Act of 1995. Although Covol
believes that its  expectations are based on reasonable  assumptions  within the
bounds  of its  knowledge  of  its  business  and  operations,  there  can be no
assurance that actual results will not differ  materially from its expectations.
In addition to matters  affecting  Covol's  industry or the coal industry or the
economy  generally,  factors  which  could cause  actual  results to differ from
expectations stated in these forward looking statements  include,  among others,
the following:

(1)  The commercial success of the Covol binder technologies.
(2)  Operating issues for licensed facilities including feedstock  availability,
     moisture content,  Btu content,  correct application of binder formulation,
     operability  of  equipment,   product   durability,   resistance  to  water
     absorption and overall costs of operations.
(3)  Marketing  issues  relating to market  acceptance of products  manufactured
     using Covol's technology,  including control of moisture content, hardness,
     special handling  requirements and other  characteristics  of the synthetic
     fuel product which affect its marketability and its sales price.
(4)  Securing of  necessary  sites,  including  permits and raw  materials,  for
     relocation and operation of facilities.
(5)  Maintenance of placed in service  requirements  under Section 29 of the tax
     code by synthetic fuel manufacturing facilities.
(6)  Ability to obtain needed additional capital on terms acceptable to Covol.
(7)  Changes in  governmental  regulations  or failure to comply  with  existing
     regulations   which  may  result  in  operational   shutdowns  of  licensee
     facilities.
(8)  The availability of tax credits under Section 29 of the tax code.
(9)  The commercial  feasibility of the Covol synthetic fuel  technologies  upon
     the  expiration of Section 29 tax credits.
(10) Ability  to  meet  financial   commitments   under   existing   contractual
     arrangements.
(11) Ability  to  meet  non-financial  commitments  under  existing  contractual
     arrangements.
(12) Ability to  commercialize  the  non-synthetic  fuel  related  Covol  binder
     technologies  which  have only been  tested  in the  laboratory  and not in
     full-scale operations.
(13) Ability  to   commercialize   the   technology   of  others  and  implement
     non-technology  based  business  plans  which  are  at an  early  stage  of
     investigation   and  which  will  require   significant  time  and  capital
     investment.
(14) Dependence on licensees to successfully implement Covol binder technologies
     and make license and other payments to Covol.
(15) The  market   acceptance  of  products   manufactured   with  Covol  binder
     technologies in the face of competition from traditional products.
(16) Success in the face of competition by others  producing  synthetic fuel and
     other recycled products.
(17) Sufficiency of intellectual property protections.

See "ITEM 1.  BUSINESS--Forward  Looking Statements" in Covol's Annual Report on
Form 10-K for the year ended  September 30, 1999 for a description of additional
factors which could cause actual results to differ from expectations.

                                       19
<PAGE>

Other Items

Covol  has  reviewed  all  recently  issued,  but  not yet  adopted,  accounting
standards  in order to  determine  their  effects,  if any,  on the  results  of
operations or financial position of Covol. Based on that review,  Covol believes
that none of these  pronouncements  will have any significant effects on current
or future financial position or results of operations.

                          PART II -- OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

See "ITEM 3: LEGAL  PROCEEDINGS"  in Covol's  Annual Report on Form 10-K for the
year ended September 30, 1999 for descriptions of current legal proceedings.  No
material changes have occurred since that report was filed.

ITEM 2.     CHANGES IN SECURITIES

Recent Sales of Unregistered Securities

The following sets forth all  securities  issued by Covol within the past fiscal
quarter without  registering the securities under the Securities Act of 1933, as
amended. No underwriters were involved in any stock issuances.

Covol  believes  that the  following  issuances  of shares of common  stock,  or
securities  exercisable  for or  convertible  into shares of common stock,  were
exempt from the  registration  requirements  of the  Securities  Act of 1933, as
amended,  pursuant to the exemptions set forth in Sections 3(a)(9), 4(2) or 4(6)
thereof or  Regulation D promulgated  thereunder  and the  certificate  for each
security bears a restrictive legend. Each investor made representations to Covol
that it was  accredited  as that term is  defined in  Regulation  D and that the
security was acquired for investment purposes.

Reference  is  made to the  redemptions  of  certain  convertible  debt;  to the
conversions  of series D preferred  stock;  to the  issuance of common stock for
cash;  to the  issuance of warrants  and common  stock  issued upon  exercise of
warrants;  and to the changes in the terms of certain notes and warrants for the
purchase  of  common  stock,  all as  described  in  Note 2 to the  consolidated
financial statements.

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Reference  is made to Covol's  Form 8-K filed on March 2, 2000  which  describes
both the matters  voted on by  stockholders  at Covol's  annual  meeting held on
February 29, 2000 and the results of that voting.

ITEM 5.     OTHER INFORMATION

None.

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

         (a)        The following exhibits are included herein:

         10.58.1.1  Amendment  No. 1 dated as of April 24,  2000 to  Convertible
                    Secured  Note  executed by Covol in favor of OZ Master Fund,
                    Ltd.

         10.59.3    Modification  and Extension  Agreement  dated April 30, 2000
                    between Covol and Cherokee  Associates LLC 10.67 Mountaineer
                    Fuels Asset Purchase  Agreement dated April 17, 2000 between
                    DTE Kentucky, LLC and Covol

         10.67.1    Mountaineer  License and Binder Purchase  Agreement  between
                    DTE Kentucky, LLC and Covol *

         27.1       Financial Data Schedule

                                       20
<PAGE>

             *        This exhibit contains confidential material which has been
                      omitted pursuant to a Confidential  Treatment Request. The
                      omitted  information  has been filed  separately  with the
                      Securities and Exchange Commission.

         (b)      The  following  reports  on Form 8-K  were  filed  during  the
                  quarter ended March 31, 2000:

         o        Form 8-K filed on January 24,  2000,  as amended on Form 8-K/A
                  filed on March 16, 2000,  for events  dated  December 31, 1999
                  and January 18, 2000 (Sales of two synthetic fuel facilities),

         o        Form 8-K filed on February 22, 2000,  for event dated February
                  16, 2000 (Letter sent to stockholders),

         o        Form 8-K filed on March 2, 2000,  for event dated February 29,
                  2000 (Results of annual meeting of stockholders),

         o        Form 8-K filed on March 22,  2000,  for event  dated March 15,
                  2000 (Sale of common stock),

         o        Form 8-K filed on March 30,  2000,  for event  dated March 15,
                  2000  (Response  to Nasdaq  requirement,  including  pro forma
                  condensed  consolidated  statement of  operations  for the two
                  months  ended  February  29,  2000  and  pro  forma  condensed
                  consolidated balance sheet as of February 29, 2000).

                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                          COVOL TECHNOLOGIES, INC.

Date:  May 8, 2000                        By: /s/ Kirk A. Benson
                                              ------------------
                                              Kirk A. Benson, Chief Executive
                                              Officer and Principal Executive
                                              Officer

Date:  May 8, 2000                        By: /s/ Steven G. Stewart
                                              -------------------------------
                                              Steven G. Stewart, Chief Financial
                                              Officer and Principal Financial
                                              Officer

                                       21


         AMENDMENT NO. 1 TO CONVERTIBLE SECURED NOTE

         AMENDMENT NO. 1, dated as of April 24, 2000, to the CONVERTIBLE SECURED
NOTE (the "Note") dated March 17, 1999, issued by Covol Technologies,  Inc. (the
"Company") in favor of OZ Master Fund, Ltd. (the "Purchaser").

         The parties agree as follows:

         Section 1.  Definitions in Amendment.  Any capitalized term used herein
and not  defined  shall  have  the  meaning  assigned  to it in the  Note or the
Purchase Agreement (as defined in the Note).

         Section 2. Modifications to the Note.

                  (a)  Mandatory and Optional  Redemptions.  Section 3(a) of the
Note is hereby amended to read in its entirety as follows:

                  "(a)  Mandatory  and  Optional   Redemptions.   (i)  Upon  the
occurrence  of each and any  Redemption  Event,  the  Company  shall  redeem the
outstanding  principal  amount of this Note in an amount equal to the  Mandatory
Redemption  Amount  (plus  accrued  and  unpaid  interest  thereon  through  and
including the date of payment).  Any redemption pursuant to this Section 3(a)(i)
shall be made within five (5) Business Days of the  occurrence of the Redemption
Event and  shall  reduce  the  outstanding  principal  amount of this Note by an
amount equal to the Deemed Reduction Amount.

                  (ii) At any time after the  occurrence of the  Effective  Date
(as defined in the First  Amendment),  the Company may redeem all or any part of
the aggregate  principal  amount of this Note,  provided that the amount of such
redemption (the "Optional  Redemption Amount") must be at least $1,000,000,  and
must include any accrued and unpaid  interest  through and including the date of
payment on the  Optional  Redemption  Amount.  Any  redemption  pursuant to this
Section  3(a)(ii) shall reduce the outstanding  principal amount of this Note by
an amount equal to the Deemed Reduction Amount.

                  (iii) If at any time the  Company  fails to perform or observe
Section  8.2(j) of the Purchase  Agreement,  at the option of the holder of this
Note, the Company shall redeem the aggregate  principal amount of this Note at a
price equal to the Optional  Redemption  Price (plus accrued and unpaid interest
thereon through and including the date of payment)."

                  (b) Event of Default.  Section  4(a) is hereby  amended by (i)
deleting the word "or" at the end of clause (xvii)  thereof,  (ii) replacing the
period at the

<PAGE>

end of clause (xviii) thereof with "; or" and (iii) adding a new clause (xix) at
the end thereof as follows:

                  "(xix) the Company shall amend any of the Algoma Contract, the
Mohave Contract or the River Hill Contract without the consent of the holders of
at least two-thirds (2/3) in outstanding principal amount of this Note."

                  (c) Maturity Date. The definition of the term "Maturity  Date"
in Section 8 of the Note is hereby amended to read in its entirety as follows:

                  ""Maturity Date" means September 17, 2001."

                  (d) Optional  Redemption  Price.  The  definition  of the term
"Optional  Redemption  Price" in Section 8 of the Note is hereby amended to read
in its entirety as follows:

                  ""Optional  Redemption  Price"  means  (i)  in the  case  of a
redemption of this Note pursuant to Section  3(a)(i) of this Note, the Mandatory
Redemption  Amount,  (ii) in the case of a redemption  of this Note  pursuant to
Section 3(a)(ii) of this Note, the Optional  Redemption  Amount and (iii) in the
case of a redemption  of this Note  pursuant to Section  3(a)(iii) of this Note,
the then-outstanding principal amount of this Note."

                  (e)  Additional  Definitions.  Section 8 of the Note is hereby
amended by having the following  definitions  added  thereto in the  appropriate
alphabetic order:

                  "Deemed Reduction  Amount",  with respect to any redemption of
this Note  pursuant  to Section  3(a)(i)  or (ii) of this  Note,  sum of (i) the
Mandatory  Redemption Amount or Optional  Redemption Amount, as the case may be,
paid in connection  with such  redemption,  plus (ii) interest on such Mandatory
Redemption  Amount  or  Optional  Redemption  Amount,  as the case may be, at an
interest rate of twelve  percent (12%) per annum  calculated  from and excluding
the date on which  such  Mandatory  Redemption  Amount  or  Optional  Redemption
Amount,  as the case may be, is actually paid to the holder of this Note through
and including the Maturity Date, based upon a 360 day year.

                  "Algoma  Contract"  means the Asset Purchase  Agreement  dated
January 13, 2000 among  Premier  Elkhorn Coal  Company,  TECO Coal  Corporation,
Pocahontas Synfuel,  L.L.C., Covol Technologies,  Inc., and Synfuel Investments,
Inc.

                  "Algoma Event" means payment of the  Subsequent  Consideration
under, and as defined in, section 2.2(b) of the Algoma Contract.

                  "First Amendment" means Amendment No. 1 to this Note, dated as
of April 24, 2000, between the Company and the Purchaser.

                                      -2-
<PAGE>

                  "First  River Hill Event"  means any  payment of any  Lump-Sum
Royalty Payment under,  and as defined in, section 3.2 of the River Hill License
Contract.

                  "Mandatory  Redemption  Amount"  means  (i) in the case of the
First River Hill Event or the Second River Hill Event,  eighty  percent (80%) of
the  difference  of (A) the amount of any and all  proceeds  paid to the Company
under  the  River  Hill  License  Contract  or  River  Hill  Purchase  Contract,
respectively, less (B) the sum of (1) the amount, if any, and in no event exceed
ten percent (10%) of the amount referred to in clause (i)(A) of this definition,
of  payments  to third  parties due as a result of the First River Hill Event or
Second River Hill Event,  as the case may be, under that  Settlement and Release
Agreement  dated  October  15, 1999 among Covol  Technologies,  Inc.,  Interlink
Management Corporation,  and Campbell,  George & Strong, L.L.P.; (2) the amount,
if any, and in no event exceed  $350,000,  of payments to third parties due as a
result of the First River Hill Event or Second River Hill Event, as the case may
be, under that Letter Agreement dated March 10, 1999 between Covol Technologies,
Inc. and Meridian Energy Corporation;  and (3) subject to the proviso at the end
of this  definition,  the amount,  if any, of payments to third parties due as a
result of the First River Hill Event or Second River Hill Event, as the case may
be, under that Settlement Agreement and Mutual General Release dated November 9,
1999 between Covol Technologies,  Inc. and Coalco  Corporation,  as amended (the
"Coalco  Settlement  Agreement");   (ii)  in  the  case  of  the  Algoma  Event,
$1,600,000,  less eighty percent (80%) of the amount  (subject to the proviso at
the end of this  definition)  of any payment due as a result of the Algoma Event
under the  Coalco  Settlement  Agreement;  and  (iii) in the case of the  Mohave
Event, $3,200,000;  provided,  however, that for the purposes of this definition
the there shall be no reduction of the Mandatory  Redemption Amounts for amounts
payable under the Coalco Contract as a result of any Redemption  Event in excess
of $125,000 in the aggregate for all Redemption Events.

                  "Mohave  Contract"  means the  Option and  Purchase  Agreement
dated  January  21,  2000  among  Premier   Elkhorn  Coal  Company,   TECO  Coal
Corporation, and Covol Technologies, Inc.

                  "Mohave Event" means payment of the  Subsequent  Consideration
under, and as defined in, section 2.2(b) of the Mohave Contract.

                  "Optional  Redemption  Amount"  has the  meaning  set forth in
Section 3(a)(ii) hereof.

                  "Redemption Event" means each of the following:  (i) the First
River Hill Event,  (ii) the Second River Hill Event,  (iii) the Algoma Event and
(iv) the Mohave Event.

                  "River  Hill  License  Contract"  means the License and Binder
Purchase  Agreement  dated  August 27, 1999 between DTE River Hill,  L.L.C.  and
Covol Technologies, Inc.

                  "River Hill  Purchase  Contract"  means the River Hill Project
Purchase  Agreement  dated  August 27, 1999 between DTE River Hill,  L.L.C.  and
Covol Technologies, Inc.

                                      -3-
<PAGE>

                  "Second  River Hill Event"  means  payment of the  Performance
Payment  under,  and as  defined  in,  section  2.7 of the River  Hill  Purchase
Contract.

         Section 3. Consent.  Upon the Effective  Date (as defined  below),  and
subject  to the  Purchaser  receiving  the  payment  of the  amount set forth in
Section 5(b) of this Amendment No. 1, the Purchaser hereby consents, pursuant to
Section 4 of the Note,  Section  5(B) of the  Certificate  of  Designations  and
Section 8.1 of the Securities Purchase  Agreement,  to (a) the redemption by the
Company,  at any time on or prior to May 15, 2000, of all outstanding  shares of
Preferred  Stock held by the  Purchaser  for an aggregate  Redemption  Price (as
defined  in the  Certificate  of  Designations)  of $125 per  share  and (b) the
optional  redemption  of the Note from time to time by the Company in accordance
with the terms of the Note as amended  hereby.  This  consent does not and shall
not constitute a consent to any other or further  departure  from, or the waiver
of any Default or Event of Default under, the terms of the Purchase Agreement or
the Related  Documents,  which  terms  shall  continue in full force and effect;
provided,  that nothing  herein  shall be  construed  as a  limitation  upon the
consent  to  the  Partial  Note  Redemption  and  the  Partial  Preferred  Stock
Redemption  under, and as defined in, that letter agreement dated April 24, 2000
between the parties hereto.

         Section 4. Covenants.  Subject to the occurrence of the Effective Date,
the Purchaser hereby agrees that if the outstanding principal amount of the Note
is at any time reduced to $7,500,000 or less, the Purchaser shall negotiate with
the Company in good faith to amend the  covenants  contained in Sections 8.1 and
8.2 of the Purchase  Agreement  and Section 4 of the Note to reduce or eliminate
the requirements of the Company thereunder.

         Section 5.  Conditions  to  Effectiveness.  This  Amendment No. 1 shall
become  effective  only upon  satisfaction  in full of the following  conditions
precedent  (the first date upon which all such  conditions  have been  satisfied
being herein called the "Effective Date"):

                  (a) The Purchaser  shall have  received a counterpart  of this
Amendment No. 1 signed by the Company.

                  (b) The Company shall have redeemed the Note in part by paying
to the Purchaser an aggregate  amount of $5,000,000  (together  with accrued and
unpaid interest thereon), such that the outstanding principal amount of the Note
shall be reduced to $15,000,000.

                  (c) All legal matters  incident to this  Amendment No. 1 shall
be satisfactory to the Purchaser and its counsel.

                                      -4-
<PAGE>

         Section 6.  Representations and Warranties.  The Company represents and
warrants to the Purchaser as follows:

                  (a) the Company (i) is a corporation  duly organized,  validly
existing and in good  standing  under the laws of the State of Delaware and (ii)
has all requisite corporate power, authority and legal right to execute, deliver
and perform this Amendment No. 1, and to perform the Note, as amended hereby.

                  (b) The execution,  delivery and performance of this Amendment
No. 1 by the Company, and the performance by the Company of the Note, as amended
hereby (i) have been duly authorized by all necessary  corporate action, (ii) do
not and will not contravene  its charter or by-laws or any  applicable  law, and
(iii) except as provided in the Related  Agreements,  do not and will not result
in the  creation  of any  lien  upon or with  respect  to any of its  respective
properties.

                  (c) This  Amendment  No. 1 and the Note,  as  amended  hereby,
constitute the legal, valid and binding obligations of the Company,  enforceable
against the Company in accordance with its terms.

                  (d) No  authorization  or approval or other  action by, and no
notice to or filing with, any  governmental  authority is required in connection
with  the  due  execution,  delivery  and  performance  by the  Company  of this
Amendment  No. 1 and the  performance  by the  Company  of the  Note as  amended
hereby.

                  (e) The representations and warranties  contained in Section 4
of the Purchase Agreement and in each other Related Agreement are correct on and
as of the date made,  and no Event of Default or Default  will  result from this
Amendment No. 1 becoming effective in accordance with its terms.

         Section 7. Continued  Effectiveness of the Note and Related Agreements.
The Company hereby (i) confirms and agrees that each Related  Agreement to which
it is a party is,  and shall  continue  to be, in full  force and  effect and is
hereby  ratified and confirmed in all respects except that on and after the date
hereof all  references in any such Related  Agreement to "the Note",  "thereto",
"thereof", "thereunder" or words of like import referring to the Note shall mean
the Note as amended by this  Amendment  No. 1; and (ii) confirms and agrees that
to the extent that any such  Related  Agreement  purports to assign or pledge to
the Purchaser,  or to grant a security interest in or lien on, any collateral as
security  for the  obligations  of the  Company  from time to time  existing  in
respect of the Note and the Related Agreements,  such pledge,  assignment and/or
grant of the security  interest or lien is hereby  ratified and confirmed in all
respects.

                                      -5-
<PAGE>

         Section 8. Miscellaneous.

                  (a) Continued  Effectiveness of the Note.  Except as otherwise
expressly  provided herein,  the Note and the other Related  Agreements are, and
shall  continue  to be, in full force and effect  and are  hereby  ratified  and
confirmed in all respects.  Except as expressly  provided herein, the execution,
delivery  and  effectiveness  of this  Amendment  No. 1 shall not  operate as an
amendment of any right,  power or remedy of the Purchaser  under the Note or any
other  Related  Agreement,  nor  constitute an amendment of any provision of the
Note or any other Related Agreement.

                  (b) Counterparts.  This Amendment No. 1 may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which shall be deemed to be an original, but all of which taken together
shall constitute one and the same agreement.

                  (c)  Headings.   Section  headings  herein  are  included  for
convenience  of reference only and shall not constitute a part of this Amendment
No. 1 for any other purpose.

                  (d) Governing  Law. This Amendment No. 1 shall be governed by,
and construed in accordance with, the law of the State of New York.

                  (e)  Amendment  as  Related  Agreement.   The  Company  hereby
acknowledges  and  agrees  that this  Amendment  No. 1  constitutes  a  "Related
Agreement".  Accordingly,  it shall be an Event of Default under the Note if the
Company  shall  fail to  perform  or observe  any term,  covenant  or  agreement
contained in this Amendment No. 1.

                  (f) Waiver of Jury Trial.  THE COMPANY AND THE PURCHASER  EACH
HEREBY IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM  (WHETHER BASED ON CONTRACT,  TORT OR OTHERWISE)  ARISING OUT OF OR
RELATING TO THIS  AMENDMENT NO. 1 OR THE ACTIONS OF THE COMPANY OR THE PURCHASER
IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.

                                      -6-
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1
to be executed by authorized persons thereof.


                                                     COVOL TECHNOLOGIES, INC.



                                                     By: /s/ Steven G. Stewart
                                                         ----------------------
                                                     Name: Steven G. Stewart
                                                     Title: CFO



                                                     OZ MASTER FUND, LTD.


                                                     By: /s/ Daniel S. Och
                                                         ----------------------
                                                     Name: Daniel S. Och
                                                     Title: Managing Member

                                      -7-


                      MODIFICATION AND EXTENSION AGREEMENT

         THIS  MODIFICATION AND EXTENSION  AGREEMENT is made and entered into as
of April 30, 2000  between  COVOL  TECHNOLOGIES,  INC.,  a Delaware  corporation
("Covol") and CHEROKEE  ASSOCIATES  LLC, a Colorado  limited  liability  company
("Cherokee").

                                    RECITALS

         A. Covol is a party to a Loan and Security  Agreement  dated as of June
12, 1998 (the "Security  Agreement") in which Trans Pacific Stores, Ltd. ("TPS")
appears as the "Lender",  together with the related Secured Draw Down Promissory
Note in the original  principal amount of $4 Million (the "Note").  The Security
Agreement,  the Note and the related Common Stock Purchase  Warrants dated as of
October 12, 1998 to purchase  100,000 shares of Covol common stock are sometimes
referred to herein as the "Loan  Documents".  The Loan Documents have previously
been modified by a Letter Amendment dated May 6, 1999.

         B. TPS has  assigned  all of its right,  title and interest in the Loan
Documents to Cherokee.

         C. As currently  written,  the principal balance of the Note is due and
payable  on April 30,  2000.  Covol  and  Cherokee  desire  to  modify  the Loan
Documents  to provide for (i) the  repayment  of $2.0  Million of the  principal
balance  of the Note  through  the  issuance  of Covol  common  stock,  (ii) the
extension of the maturity date of the remaining $1.0 Million  principal  balance
of the Note, and (iii) certain other changes as set forth herein.

         NOW  THEREFORE,  in  consideration  of the premises,  the covenants and
condition  contained  herein  and other  good and  valuable  consideration,  the
receipt and sufficiency of which is hereby acknowledged, the parties agree to be
legally bound as follows:

         1.  Acknowledgment of Amounts Owed. Covol and Cherokee  acknowledge and
agree that as of April 30, 2000 the total  amount owed by Covol  pursuant to the
Note and other Loan Documents is (i) the principal balance of $3.0 Million, plus
(ii) accrued interest for the month of April, 2000 in the amount of $34,520.55.

         2.  Modification  of Note.  Section 2 of the Note is hereby modified to
provide  that (i) $2.0  Million of the  principal  balance  shall be paid on the
effective date of this  Agreement  through the issuance of Covol common stock as
set forth in  paragraph  4 below,  (ii) the  remaining  $1.0  Million  principal
balance shall be due and payable, together with any accrued but unpaid interest,
on April 30, 2001.  Interest on the  principal  balance  shall  continue to bear
interest at 14% per annum, payable monthly in arrears. This Agreement,  together
with the May 6, 1999 Letter Amendment  referred to in the Recitals above,  shall
be affixed to the original Note.

         3.  Payment  of  Accrued  Interest.   Cherokee  agrees  that,  in  full
satisfaction of accrued

                                        1
<PAGE>

interest  due  under  the Note  through  April  30,  2000,  Covol  shall pay (i)
$19,561.64 to TPS, representing interest accrued through April 17, 2000 and (ii)
$14,958.91 to Cherokee. Such payments shall be by Covol check.

         4. Payment of Principal in Stock. Covol shall deliver to Cherokee,  and
Cherokee shall accept from Covol,  1,185,818 shares of Covol's restricted common
stock,  $.001 par value (the "Shares") in full payment and  satisfaction  of the
$2.0 Million of principal due on April 30, 2000.

         5. Partial Release of Collateral.  Cherokee hereby releases any and all
interest  it may have  pursuant  to the  Security  Agreement  or the other  Loan
documents in and to the Promissory Note between Covol and Gerald M. Larson dated
August,  1996 and referred to in paragraph 3.2 of the Security  Agreement in the
original principal amount of $5,000,000.00.  Cherokee shall deliver, or cause to
be  delivered,  to Covol the original of such  Promissory  Note,  including  the
related  Guaranty  of  Gerald  M.  Larson  dated  April  29,  1998,  as  soon as
practicable  after the  effective  date of this  Agreement,  but in any event no
later than May 19, 2000.

         6.  Consideration  for  Modification.  As additional  consideration for
Cherokee's agreement to accept the Shares in payment of principal and modify the
Note as set forth herein,  Covol shall issue to Cherokee  Common Stock  Purchase
Warrants (the "Warrants") entitling Cherokee to purchase up to 296,454 shares of
Covol  restricted  common stock (the "Warrant  Shares") at an exercise  price of
$2.10 per share.  The Warrants will expire April 30, 2005.  The Warrants will be
in substantially the form attached hereto as Exhibit "A".

         7. Cherokee  Representations  and Warranties.  Cherokee  represents and
warrants to Covol as follows:

                  a.  Cherokee  acknowledges  receipt  of the  summary  of  risk
         factors (the "Risk Factors")  attached as Exhibit "B" to this Agreement
         and has access to and has  reviewed  the  publicly  filed  reports (the
         "Public  Filings")  of Covol  listed on Exhibit "C" to this  Agreement.
         Cherokee   further   acknowledges   that  it  has  read  carefully  and
         understands  the Risk Factors and the Public  Filings,  and has had the
         opportunity  to meet with officers of Covol to ask questions and, prior
         to its  execution  of this  Agreement,  was  given  full  access to all
         information  which Covol possesses or can acquire without  unreasonable
         effort  or  expense  that  is  necessary  to  verify  the  accuracy  of
         information  furnished to Cherokee,  and all such questions,  if asked,
         have been answered satisfactorily and such documents, if examined, have
         been  found to be fully  satisfactory.  Cherokee  further  acknowledges
         that,  in making its  investment  decision,  it is relying upon its own
         investment  judgment and the Risk Factors and Public Filings.  No other
         representations  have  been  made  to,  or  authorized  to be made  to,
         Cherokee.  Cherokee agrees to keep  confidential and not to disclose to
         third  parties  any  non-public  information  concerning  Covol that it
         receives in connection with the purchase of the Shares and Warrants.

                                        2
<PAGE>

                  b. The Shares and Warrants are being  acquired by Cherokee for
         its own account,  for  investment  only and not  presently  with a view
         toward  resale  or   distribution  in  a  manner  which  would  require
         registration of such  securities  under the Securities Act of 1933 (the
         "Securities Act").

                  c. Cherokee is  authorized  and  otherwise  duly  qualified to
         purchase and hold the Shares and Warrants.  Cherokee certifies that all
         of its equity owners are "accredited  investors" as defined in Rule 501
         promulgated  under the Securities Act. Upon request of Covol.  Cherokee
         will provide a list of its equity  owners and  questionnaires  or other
         proof of the  accredited  investor  status  of each.  Cherokee  was not
         formed  for the  specific  purpose  of  acquiring  the Note,  Shares or
         Warrants.

                  d. Cherokee  understands that the Shares, the Warrants and the
         Warrant  Shares  have not been  registered  under the  Securities  Act.
         Cherokee is fully aware of the  restrictions  on sale,  transferability
         and assignment of the Shares,  Warrants and Warrant Shares as set forth
         in this Agreement and the  certificates  of such  securities,  and that
         Cherokee must bear the economic risk of Cherokee's  investment in Covol
         for an  indefinite  period of time  because the  offering  has not been
         registered  under the Securities  Act, and,  therefore,  the securities
         cannot be offered or sold unless they are subsequently registered under
         the Securities Act or an exemption from such registration is available.
         Cherokee  further  understands  that the Shares,  Warrants  and Warrant
         Shares will bear an appropriate legend to this effect.

                  e. Cherokee is aware of the following:

                           i.  The  Shares,  Warrants  and  Warrant  Shares  are
         speculative  investments which involve a high degree of risk, including
         those risks outlined in Exhibit "B" and Exhibit "C"; and

                           ii.  There  are   substantial   restrictions  on  the
         transferability  of the  securities.  The Shares,  Warrants and Warrant
         Shares  have not  been,  and  except  as set  forth  in this  Agreement
         shareholders  have no  rights  to  require  that  such  securities  be,
         registered  under the  Securities  Act and it may not be  possible  for
         Cherokee to liquidate Cherokee's  investment in Covol. Cherokee further
         agrees to be responsible for compliance with all conditions on transfer
         imposed by any state blue sky or securities law.

                  f. Cherokee warrants and represents that it has such knowledge
         and experience in financial and business  matters that it is capable of
         evaluating  the  merits  and  risks of an  investment  in Covol and the
         Shares,  Warrants and Warrant Shares, and that Cherokee is able to bear
         the economic risks of the  investment for an indefinite  period of time
         and  at  the  present  time  could  afford  a  complete  loss  of  such
         investment.

                                        3
<PAGE>

                  g. Cherokee originally acquired the Note from TPS in a private
         transaction  between related  entities which did not involve any public
         offering, general advertising or general solicitation.

         8. Covol Representations and Warranties.  Covol represents and warrants
to Cherokee as follows:

                  a.  Covol  is a  corporation  duly  incorporated  and in  good
         standing under the laws of the State of Delaware.

                  b. Covol's execution of this Agreement and the issuance of the
         Shares and Warrants have been duly authorized. The Shares will be, when
         issued as set forth herein, duly issued, fully paid and non-assessable.
         When the Warrants are  exercised  and the full  exercise  price paid as
         provided therein, the Warrant Shares issued on exercise of the Warrants
         will be duly issued, fully paid and non-assessable.

                  c. Covol has  completed  the sale of its  Mountaineer  synfuel
         facility.  Except as set forth  herein,  there has not been a  material
         adverse  change to the business or  financial  condition of Covol since
         the date of the most recent Public Filing described on Exhibit "C".

         9. Registration Rights Under Securities Act.

                  a. Covol agrees to use its best reasonable  efforts to file at
         its  expense,  no  later  than 15 days  following  the date  hereof,  a
         registration  statement  on Form S-3  including  the Shares and Warrant
         Shares for resale.  Covol will use its best reasonable efforts to cause
         such registration statement to become effective as soon as practicable,
         and will take all other  reasonable  action necessary under any Federal
         or state law or regulation of any governmental  authority to permit all
         such  Shares  and  Warrant   Shares  which  it  has  included  in  such
         registration  statement to be sold or  otherwise  disposed of, and will
         use its best  reasonable  efforts to maintain such compliance with each
         such Federal and state law and regulation of any governmental authority
         for the earlier of (A) twelve months from the date of  effectiveness of
         such  registration  statement under the Securities Act and (B) the date
         upon which Cherokee has completed the sale or other  disposition of all
         of the  Shares.  Covol  may  include  securities  being  sold by  other
         stockholders  in  such  registration   statement.   Cherokee  shall  be
         responsible  for the costs of any separate  counsel  retained by it and
         for any underwriting discounts or commissions incurred by it.

                  b. Cherokee shall promptly provide Covol with such information
         regarding  Cherokee and Cherokee's  plan of  distribution  as Covol may
         reasonably  request in order to  prepare  the  registration  statement.
         Covol's  obligation  to obtain and  maintain the  effectiveness  of any
         registration statement is conditioned on Covol's continued ability to

                                        4
<PAGE>

         utilize Form S-3 (or any successor short form  registration  statement)
         for secondary  offerings.  If Covol determines in good faith that it is
         necessary  or  in  Covol's  best   interest  to  amend  any   effective
         registration  statement, it shall so notify Cherokee and Cherokee shall
         suspend  all sales  under the  registration  statement  until Covol has
         either  amended the  registration  statement or notified  Cherokee that
         sales can resume.  The twelve month period referred to in paragraph 9.a
         shall be extended by any period for which sales were so suspended.

                  c.  If  Covol   fails  or  is  unable   to  file  and   obtain
         effectiveness  of the Form S-3  registration  statement  as provided in
         paragraph described 9.a, Covol shall grant Cherokee, as Cherokee's sole
         and exclusive remedy, the piggy-back registration rights as provided in
         Exhibit  "D"  attached  hereto,  subject to the  existing  registration
         rights previously granted by Covol to other persons.

                  d. In connection with any registration statement including the
         Shares or Warrant  Shares,  Covol shall (i) furnish to Cherokee and any
         underwriter  designated  by  Cherokee,  such copies of the  prospectus,
         including the preliminary prospectus,  conforming to the Securities Act
         (and such other  documents  as  Cherokee or each such  underwriter  may
         reasonably  request) in order to facilitate the sale or distribution of
         the Shares or Warrant Shares,  (ii) use its best reasonable  efforts to
         register or qualify the Shares and  Warrant  Shares  under the blue sky
         laws (to the extent  applicable) of such  jurisdiction or jurisdictions
         as Cherokee and any appointed  underwriter shall reasonably request and
         (iii)  take  such  other  actions  as may be  reasonably  necessary  or
         advisable to enable  Cherokee and such  underwriters  to consummate the
         sale or distribution in such  jurisdiction  or  jurisdictions  in which
         Cherokee shall have reasonably requested.

         10.  Notice  Addresses.  For  purposes of this  Agreement  and the Loan
Documents,  the notice address of Cherokee is 555 Zang St., Suite 300, Lakewood,
Colorado 80228. Covol's notice address remains 3280 N. Frontage Road, Lehi, Utah
84043.

         11. Continued  Validity.  Except as modified herein and as necessary to
reflect the assignment by TPS to Cherokee,  the Loan  Documents  shall remain in
full force and effect.

         12. Further Assurances. Covol and Cherokee hereby covenant and agree to
execute and deliver,  or cause to be executed and delivered,  and to do or make,
or cause to be done or made, upon the reasonable  request of the other,  any and
all instruments,  papers, deeds, acts or things,  supplemental,  confirmatory or
otherwise,  as may be  reasonably  required  by such  party for the  purpose  of
effecting the modification described herein.

         13. Merger. This Agreement and the Loan Documents constitute the entire
agreement between the parties hereto as to the transactions  contemplated hereby
and supersedes all prior  discussions,  understandings or agreements between the
parties hereto.

                                       5
<PAGE>

         14. Successors and Assigns.  This Agreement shall bind and inure to the
benefit of the parties hereto and their respective successors and assigns.

         15. Governing Law. This Agreement and all other instruments referred to
herein shall be governed by, and shall be  construed  according  to, the laws of
the State of Utah.

         16.  Counterparts.  To  facilitate  execution,  this  Agreement  may be
executed in as many  counterparts as may be required.  It shall not be necessary
that the signature on behalf of the parties  hereto  appear on each  counterpart
hereof,  and it shall be  sufficient  that the signature on behalf of each party
hereto  appear  on  one  or  more  such  counterparts.  All  counterparts  shall
collectively constitute a single agreement.

         IN WITNESS  WHEREOF,  the  parties  have caused  this  Agreement  to be
executed as of the date and year first above written.

         Cherokee:                  CHEROKEE ASSOCIATES LLC


                                    By /s/ John P. Hill, Jr.
                                       -----------------------------
                                       John P. Hill, Jr.
                                       Its Manager


         Covol:                     COVOL TECHNOLOGIES, INC.

                                    By /s/ Steven G. Stewart
                                       -----------------------------
                                       Steven G. Stewart
                                       Its: Chief Financial Officer

                                        6



                                MOUNTAINEER FUELS

                            ASSET PURCHASE AGREEMENT

                                 by and between

                                DTE KENTUCKY, LLC

                                       and

                            COVOL TECHNOLOGIES, INC.

                             MOUNTAINEER FUELS, LLC

                            SYNFUEL INVESTMENTS, INC.

                                 April 17, 2000


<PAGE>

                                TABLE OF CONTENTS

                                                                          Page

ARTICLE I DEFINITIONS.......................................................1
         1.1. Acknowledgment and Release....................................1
         1.2. Affiliate.....................................................1
         1.3. Agreement.....................................................1
         1.4. As-Built Drawings.............................................1
         1.5. Assets........................................................2
         1.6. Assignment Agreement..........................................2
         1.7. Bill of Sale..................................................2
         1.8. Books and Records.............................................2
         1.9. Buyer's Closing Certificate...................................2
         1.10. Closing......................................................2
         1.11. Closing Date.................................................2
         1.12. Code.........................................................2
         1.13. Confidentiality Agreement....................................2
         1.14. Contracts....................................................2
         1.15. Covol........................................................2
         1.16. Covol Process................................................2
         1.17. Effective Time...............................................3
         1.18. Excluded Assets..............................................3
         1.19. Facility.....................................................3
         1.20. Facility Site................................................3
         1.21. Fixed Assets.................................................3
         1.22. GAAP.........................................................3
         1.23. Holdback Amount..............................................3
         1.24. HSR Act......................................................3
         1.25. Improvements.................................................3
         1.26. Initial Purchase Consideration...............................3
         1.27. IRS..........................................................3
         1.28. Knowledge of Buyer...........................................3
         1.29. Knowledge of Sellers.........................................3
         1.30. Law..........................................................3
         1.31. License and Binder Purchase Agreement........................4
         1.32. Lien.........................................................4
         1.33. Loss.........................................................4
         1.34. Material Adverse Effect......................................4
         1.35. Opinion of Sellers' Counsel..................................4
         1.36. Permitted Liens..............................................4
         1.37. Plans and Specifications.....................................4
         1.38. Product......................................................4
         1.39. Purchase Consideration.......................................4
         1.40. Required Consents............................................4
         1.41. Section 29 Product...........................................5

                                       i
<PAGE>

         1.42. Sellers' Closing Certificate.................................5
         1.43. Site.........................................................5
         1.44. Transaction Documents........................................5

ARTICLE II PURCHASE AND SALE................................................5
         2.1. Purchase and Sale.............................................5
         2.2. Payment of the Initial Purchase Consideration; Holdback
                Amount......................................................5
         2.3. Deliveries at Closing.........................................6
         2.4. Allocation of Purchase Price..................................7
         2.5. No Assumption of Liabilities..................................7
         2.6. Sales Tax Exemption...........................................7

ARTICLE III REPRESENTATION AND WARRANTIES OF SELLERS........................7
         3.1. Corporate Standing............................................7
         3.2. Authorizations; Binding Agreements............................8
         3.3. No Actions Affecting Enforcement of the Agreement and
                the other Transaction Documents.............................8
         3.4. Taxes.........................................................9
         3.5. Brokers or Finders Fees.......................................9
         3.6. No Imposition of Liens........................................9
         3.7. Title to Assets...............................................9
         3.8. Condition of Assets...........................................9
         3.9. Pending Litigation...........................................10
         3.10. Compliance With Laws........................................10
         3.11. Status of Contracts.........................................10
         3.12. Consents....................................................11
         3.13. Books and Records...........................................11
         3.14. Environmental Conditions....................................11
         3.15. Liabilities.................................................12
         3.16. Agreements with Related Persons.............................12
         3.17. Adequacy of the Purchased Assets............................12
         3.18. No Default..................................................12
         3.19. Production Capacity.........................................12
         3.20. Section 29 Issues...........................................12

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER.........................13
         4.1. Organization and Standing....................................13
         4.2. Authorizations; Binding Agreements...........................13
         4.3. Brokers or Finders Fees......................................13
         4.4. No Action Affecting Enforcement of the Agreement and
                the other Transaction Documents............................13

ARTICLE V CERTAIN UNDERSTANDINGS AND AGREEMENTS............................14
         5.1. Best Efforts.................................................14
         5.2. Public Announcements.........................................14
         5.3. Confidentiality..............................................14

                                       ii
<PAGE>

         5.4. Taxes........................................................14
         5.5. Private Letter Ruling Repurchase Option......................14
         5.6. Solvency Representations and Covenants.......................15
         5.7. Removal and Delivery of Facility.............................15
         5.8. Software Reinstallation......................................16

ARTICLE VI CONDITIONS PRECEDENT TO THE PAYMENT OBLIGATIONS OF BUYER........16
         6.1. Compliance with Agreement....................................16
         6.2. Proceedings and Instruments Satisfactory.....................16
         6.3. No Litigation................................................16
         6.4. Representations and Warranties...............................16
         6.5. Consents.....................................................16
         6.6. Tax Opinion..................................................17
         6.7. Antitrust Filings............................................17

ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLERS.............17
         7.1. Compliance with Agreement....................................17
         7.2. Proceedings and Instruments Satisfactory.....................17
         7.3. No Litigation................................................17
         7.4. Representations and Warranties...............................17
         7.5. Required Consents............................................17
         7.6. Antitrust Filings............................................18

ARTICLE VIII INDEMNITIES AND ADDITIONAL COVENANTS..........................18
         8.1. Sellers' Indemnity...........................................18
         8.2. Buyer's Indemnity............................................19
         8.3. Bulk Sales Compliance........................................20
         8.4. Additional Instruments.......................................20
         8.5. Access to Books, Records and Employees.......................21

ARTICLE IX TERMINATION.....................................................21
         9.1. Termination..................................................21
         9.2. Rights on Termination; Waiver................................21

ARTICLE X MISCELLANEOUS....................................................22
         10.1. Entire Agreement; Amendment.................................22
         10.2. Expenses....................................................22
         10.3. Governing Law; Consent to Jurisdiction......................22
         10.4. Assignment..................................................23
         10.5. Notices.....................................................23
         10.6. Counterparts; Headings......................................24
         10.7. Interpretation..............................................24
         10.8. Severability................................................24
         10.9. No Reliance.................................................24
         10.10. Parties in Interest........................................24
         10.11. Specific Performance.......................................25

                                      iii
<PAGE>

                             EXHIBITS AND SCHEDULES

SCHEDULE 1.14     Contracts
SCHEDULE 1.18     Excluded Assets
SCHEDULE 1.21     Fixed Assets
SCHEDULE 1.28     Knowledge of Buyer
SCHEDULE 1.29     Knowledge of Sellers

SCHEDULE 1.35     Opinion of Sellers' Counsel
SCHEDULE 1.36     Permitted Liens
SCHEDULE 1.40     Required Consents
SCHEDULE 2.2      Third Party Engineers
SCHEDULE 3.3      Pending Actions
SCHEDULE 3.5      Brokers or Finders Fees of Sellers
SCHEDULE 3.7      Exceptions to Title
SCHEDULE 3.8      Condition of Assets
SCHEDULE 3.9      Pending Litigation
SCHEDULE 3.11     Status of Contracts
SCHEDULE 3.14     Environmental Conditions
SCHEDULE 3.16     Agreements with Related Persons

EXHIBIT A         Assignment Agreement
EXHIBIT B         Bill of Sale
EXHIBIT C         Buyer's Closing Certificate
EXHIBIT D         Sellers' Closing Certificate
EXHIBIT E         License and Binder Purchase Agreement
EXHIBIT F         Allocation of Purchase Price

                                       iv
<PAGE>

                            ASSET PURCHASE AGREEMENT

         ASSET PURCHASE AGREEMENT, made as of April 17, 2000, by and between DTE
KENTUCKY,  LLC,  a  Delaware  limited  liability  company  ("Buyer"),  and COVOL
TECHNOLOGIES,  INC.,  a Delaware  corporation,  MOUNTAINEER  FUELS,  LLC, a Utah
limited liability  company,  and SYNFUEL  INVESTMENTS,  INC., a Utah corporation
("Sellers").

                                    RECITALS

         WHEREAS,  Mountaineer  Fuels,  LLC  owns  the  Assets  comprised  of  a
processing  Facility to produce  solid  synthetic  fuel  pellets from coal fines
located  near  Tallmansville,  West  Virginia  and  Mountaineer  Fuels,  LLC  is
controlled by the other Sellers; and

         WHEREAS, Sellers desire to sell the Assets and assign the Contracts (as
defined  herein) to Buyer and Buyer desires to purchase the Assets from Sellers,
all on the terms and subject to the conditions set forth herein.

         NOW,  THEREFORE,  in  consideration  of the  Recitals and of the mutual
covenants,  conditions  and  agreements  set forth herein and for other good and
valuable  consideration,  the  receipt  and  sufficiency  of  which  are  hereby
acknowledged, it is hereby agreed that:

                                    ARTICLE I
                                   DEFINITIONS

         When  used in this  Agreement,  the  following  terms  shall  have  the
meanings specified:

         1.1.  Acknowledgment and Release shall mean that certain Acknowledgment
and Release,  made as of April 17, 2000,  by and between  Covol and  Mountaineer
Synfuel, L.L.C.

         1.2. Affiliate shall mean, as to any person, any other person or entity
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" (including,  with correlative meanings,  the terms "under
common control with" and  "controlled  by"), as used with respect to any Person,
means the  possession,  directly or indirectly,  of the power to direct or cause
the direction of the management or policies of such Person,  whether through the
ownership of voting stock or other equity interests, by contract or otherwise.

         1.3.  Agreement shall mean this Purchase  Agreement,  together with the
Exhibits and Schedules  attached hereto, as the same may be amended from time to
time in accordance with the terms hereof.

         1.4.  As-Built   Drawings  shall  mean  as-built  drawings   reflecting
necessary revisions on the original tracings of the Plans and Specifications and
related  drawings  relating to the  Facility

<PAGE>

necessary  to indicate  such field  changes as may have been found  necessary to
suit  conditions at the Facility Site and any other revisions made in the course
of construction of the Facility.

         1.5. Assets shall mean, collectively,  the Improvements,  the Books and
Records,  and the Fixed Assets,  together with all goodwill  associated with the
Facility.

         1.6. Assignment  Agreement shall mean the Assignment  Agreement between
Sellers and Buyer  relating to the  Contracts  in the form of Exhibit A attached
hereto.

         1.7.  Bill of Sale  shall  mean the Bill of Sale from  Sellers to Buyer
relating to the Assets, in the form of Exhibit B attached hereto.

         1.8. Books and Records shall mean original or true and complete  copies
of all of the books, records, files, data and information of Sellers relating to
the design,  construction  and  operation of the  Facility and  operation of the
business prior to the Effective  Time,  which are relevant to Buyer's use of the
Assets,  performance  under the  Contracts and operation of the Facility and the
Business  after the  Effective  Time,  including  without  limitation  Plans and
Specifications,  all original  tracings of the related  drawings and designs and
the As-Built Drawings.

         1.9.  Buyer's Closing  Certificate  shall mean the certificate of Buyer
substantially in the form of Exhibit C attached hereto.

         1.10.  Closing shall mean the meeting of the parties to be held at 9:00
a.m.,  local  time,  on the Closing  Date,  at the offices of Hunton & Williams,
Riverfront Plaza, East Tower, 951 East Byrd Street, Richmond,  Virginia, or such
other time and place as the parties may mutually agree in writing.

         1.11. Closing Date shall mean April 17, 2000, or such other date as the
parties may mutually agree in writing.

         1.12.  Code shall mean the Internal  Revenue Code of 1986,  as amended,
and the regulations thereunder.

         1.13.  Confidentiality Agreement shall mean the Letter Agreement, dated
April 27, 1999, between Sellers and DTE Energy Services Company.

         1.14. Contracts shall mean all construction  agreements relating to the
Facility and the Improvements,  or components thereof, all as listed on Schedule
1.14 attached  hereto or as otherwise  agreed upon by Buyer prior to the Closing
Date.

         1.15. Covol shall mean Covol Technologies, Inc.

         1.16. Covol Process shall mean Covol's proprietary  synthetic coal fuel
production process for manufacturing  solid synthetic fuel from coal fines which
is defined in and is the subject of the License and Binder Purchase Agreement.

                                       2
<PAGE>

         1.17.  Effective  Time shall  mean 12:01  a.m.,  Eastern  Time,  on the
Closing Date.

         1.18.  Excluded  Assets  shall mean the items  listed on Schedule  1.18
attached hereto.

         1.19. Facility shall mean the solid synthetic fuel pellet manufacturing
Facility  and  related  support   facilities  owned  by  Sellers  and  currently
dismantled  and stored at the  Buccaneer  Storage Yard,  Buccaneer  Enterprises,
Inc., Route 10, Box 393, Buckhannon, West Virginia.

         1.20.  Facility Site shall mean the Buccaneer  Storage Yard,  Buccaneer
Enterprises,  Inc.,  Route 10, Box 393,  Buckhannon,  West  Virginia,  where the
Facility is currently stored.

         1.21. Fixed Assets shall mean all tangible personal property  currently
located at the Facility Site which  constitute  part of, or are otherwise  owned
and used by  Sellers  in the  operation  of, the  Facility,  including,  but not
limited to, all fixed assets, chattels, machinery, equipment, computer hardware,
fixtures, furniture,  furnishings,  handling equipment, implements, spare parts,
tools and  accessories  of all kinds which are listed on Schedule  1.21 attached
hereto;  provided,  however, that Fixed Assets shall exclude (a) leased items of
property and (b) the Excluded Assets.

         1.22. GAAP shall mean generally accepted  accounting  principles of the
United States as applied by Sellers in a manner consistent with prior periods.

         1.23.  Holdback  Amount  shall have the  meaning  given to such term in
Section 2.2(a) hereof.

         1.24. HSR Act shall mean the Hart-Scott-Rodino  Antitrust  Improvements
Act of 1976, as amended.

         1.25.   Improvements   shall  mean  the   structures,   buildings   and
improvements  now standing on the  Facility  Site and  constituting  part of the
Facility,  and replacements thereof,  including,  without limitation,  all plant
equipment,  apparatus,  and machinery of every kind and nature forming a part of
such Facility, buildings, and improvements.

         1.26.  Initial Purchase  Consideration  shall have the meaning given to
such term in Section 2.2 hereof.

         1.27. IRS shall mean the Internal Revenue Service

         1.28.  Knowledge  of Buyer shall mean the actual  knowledge,  after due
inquiry, of any person listed on Schedule 1.28 attached hereto.

         1.29.  Knowledge of Sellers shall mean the actual knowledge,  after due
inquiry, of any person listed on Schedule 1.29 attached hereto.

         1.30.  Law  shall  mean any  federal,  state,  local  or  other  law or
governmental  requirement  of any kind,  and the rules,  regulations  and orders
promulgated thereunder.

                                       3
<PAGE>

         1.31.  License and Binder  Purchase  Agreement  shall mean that certain
License and Binder  Purchase  Agreement  to be entered  into by Buyer and Covol,
relating to the  licensing by the Buyer of Covol's  proprietary  synthetic  coal
fuel extrusion,  pellet and briquette  production process for the Facility,  and
substantially in the form of Exhibit E attached hereto.

         1.32. Lien shall mean any interest in property  securing an obligation,
whether such interest is based on common law, statute or contract, and including
any  restriction  on the use,  voting,  transfer,  receipt  of  income  or other
exercise of any attributes of ownership,  any security  interest or lien arising
from a mortgage,  claims,  encumbrance,  pledge,  charge,  easement,  servitude,
security agreement, conditional sale or trust receipt or a lease, consignment or
bailment for security purposes. The term "Lien" shall also include reservations,
exceptions,  covenants, conditions,  restrictions,  leases, subleases, licenses,
occupancy  agreements,  pledges,  equities,  charges,  assessments,   covenants,
reservations, defects in title, encroachments and other burdens, and other title
exceptions and encumbrances affecting property of any nature, whether accrued or
unaccrued, or absolute or contingent.

         1.33. Loss shall have the meaning given to such term in Section 8.1(a).

         1.34.  Material  Adverse Effect shall mean a material adverse effect on
the Assets and  Contracts,  taken as a whole,  the  business to be  conducted by
Buyer with the Assets or the maintenance and operation of the Facility.

         1.35.  Opinion of Sellers' Counsel shall mean the opinion of Pillsbury,
Madison & Sutro,  LLP,  counsel  to  Sellers,  and Harlan M.  Hatfield,  general
counsel of Covol Technologies, Inc., substantially in the form of Schedule 1.35.

         1.36.  Permitted  Liens  shall mean Liens (but only for amounts not yet
due and payable) securing taxes,  assessments or governmental charges or levies,
Liens of an immaterial  nature which could not reasonably be expected to have an
adverse effect on the  maintenance and operation of the Facility or the good and
marketable title of the Assets or the enforceability of the Contracts, and Liens
disclosed on Schedule 1.36 attached hereto.

         1.37. Plans and Specifications  shall have the meaning given such terms
in the Contracts.

         1.38.  Product  shall  mean the solid  synthetic  fuel  pellet  product
produced at the Facility using and pursuant to the Covol Process.

         1.39. Purchase  Consideration shall have the meaning given to such term
in Section 2.2 hereof.

         1.40.  Required  Consents  shall mean  those  consents,  approvals  and
waivers required from parties to the Contracts or from governmental  authorities
or other third  parties that are  necessary or required in order to transfer the
Assets and  Contracts  to Buyer and  otherwise  give effect to the  transactions
contemplated  herein (other than such consents,  the failure of which to obtain,
taken as a whole,  could not  reasonably be expected to have a Material  Adverse
Effect) and that are specifically identified on Schedule 1.40 attached hereto.

                                       4
<PAGE>

                  1.41.   Section  29  Product   shall  mean  Product  which  is
reasonably  expected to constitute  "qualified  fuels"  pursuant to the terms of
Section  29(c)(1)(C)  of the Code  and  with  respect  to  which  Section  29 is
applicable pursuant to the terms of Sections 29(f) and 29(g) of the Code.

         1.42.  Sellers'  Closing  Certificate  shall  mean the  certificate  of
Sellers substantially in the form of Exhibit D attached hereto.


         1.43.  Site shall mean the  location  designated  by Buyer as  provided
herein for delivery of the Assets by the Sellers.

         1.44.  Transaction  Documents  shall mean this  Agreement,  the Bill of
Sale,  the Assignment  Agreement,  and those  agreements  and  instruments to be
executed and delivered as provided in Section 2.3.

                                   ARTICLE II
                                PURCHASE AND SALE

         2.1. Purchase and Sale.

                  (a) Buyer and Sellers  hereby agree that at the  Closing,  and
upon all of the terms and subject to all of the  conditions  of this  Agreement,
Sellers  shall  sell,  convey,  transfer  and assign to Buyer,  and Buyer  shall
purchase  and accept  from  Sellers,  all of the  Assets,  free and clear of all
Liens.

                  (b) Buyer and Sellers  hereby agree that at the  Closing,  and
upon all of the terms and subject to all of the  conditions  of this  Agreement,
Sellers shall assign to Buyer the Contracts and all rights arising thereunder.

         2.2. Payment of the Initial Purchase Consideration; Holdback Amount.

                  (a) In consideration of Sellers' sale,  conveyance,  transfer,
delivery and assignment of the Assets and Contracts, at the Closing, Buyer shall
(i) pay to the Sellers Nine  Million Six Hundred  Eighty-Five  Thousand  Dollars
($9,685,000.00)  (the  "Initial  Purchase  Consideration")  and  (ii)  hold in a
non-segregated  account the amount of Three  Hundred  Fifteen  Thousand  Dollars
($315,000.00)  (the  "Holdback  Amount"),  which  amount  shall be  disbursed in
accordance with Section 2.2(b) hereof.  The Initial Purchase  Consideration  and
the  Surplus  (as  defined   below),   if  any   (collectively,   the  "Purchase
Consideration"),  shall  be paid to the  Sellers  by wire  transfer  in  readily
available  funds to First Security Bank;  Salt Lake City,  Utah; 18A 124 000012;
for the account of Covol Technologies, Inc.; Acct. #0600019939.

                  (b) At the time of  Sellers'  delivery  of the  Assets  to the
Site,  Buyer shall  inspect the Assets and notify  Sellers,  in writing,  of any
missing  equipment or damage to the Assets.  Upon  completion of the assembly of
the Facility (including any required repairs), Buyer shall present Seller with a
notice (the  "Holdback  Claim  Notice")  stating the costs of such  repairs (the
"Holdback  Claim").  The amount of the Holdback  Claim shall be applied by Buyer
against the Holdback Amount by notice by Buyer to Sellers.  If the amount of the
Holdback  Claim made by Buyer is less than the Holdback  Amount (the  difference
being referred to herein as a "Surplus"), Buyer shall pay an amount equal to the
Surplus to Sellers  within five days of the  determination  of the amount of the
Surplus.  If the amount of the Holdback  Claim made by Buyer is greater than the
Holdback  Amount (the  difference  being referred to herein as a

                                       5
<PAGE>

"Deficiency"),  Sellers shall pay to Buyer the amount of such Deficiency  within
five days of the  determination of the amount of the Deficiency.  Alternatively,
if the  payment of the  Deficiency  is not paid by Sellers to Buyer  within five
days of the determination of the amount of the Deficiency,  Buyer shall have the
right to set-off the amount of the Deficiency  against any royalty payments that
Buyer may become  obligated to pay to Covol pursuant to Section 3 of the License
and Binder Purchase Agreement.

                  (c) Notwithstanding the foregoing,  if Sellers notify Buyer of
their  disagreement with the Holdback Claim Notice within seven business days of
receiving  such notice,  a committee  consisting  of two officers  designated by
Buyer and two  officers  designated  by Sellers  shall meet and  attempt in good
faith to resolve such dispute.  If such  committee  does not resolve the dispute
within seven business days following their initial meeting,  then a single third
party engineer (the "Third Party  Engineer") shall be designated to consider and
decide the issues raised by such  dispute,  unless both parties  determine  that
further  discussions  by the committee are merited.  The selection of such Third
Party  Engineer  shall be made from the list of engineers  set forth in Schedule
2.2 attached hereto. In selecting the Third Party Engineer, each party (starting
with Sellers for the first dispute and alternating between Sellers and Buyer for
each dispute  thereafter)  shall alternate in deleting one name from the list of
engineers until only one such engineer shall remain,  which  remaining  engineer
shall be the Third Party Engineer.  The Third Party Engineer shall be designated
from such list not later than the third business day following the expiration of
the second seven business day period described above and such designation  shall
become  effective on the third business day following such  designation.  In the
event that the Third Party Engineer so designated does not or is unable to serve
as such,  the  selection  process  shall be commenced  again until a replacement
Third  Party  Engineer  is so  designated.  Within  ten  business  days  of  the
effectiveness  of the designation of a Third Party  Engineer,  each of the Buyer
and  Sellers  shall  submit to the Third  Party  Engineer a notice (a  "Position
Notice")  setting forth in detail such party's position in respect of the issues
in dispute.  Such Position  Notice shall include  supporting  documentation,  if
appropriate.

                  (d) The Third Party Engineer  shall  complete all  proceedings
and issue its  decision  with  regard to the issues in dispute,  which  decision
shall be binding on the parties, as promptly as reasonably possible,  but in any
event within ten business  days of the date on which both  Position  Notices are
submitted, unless the Third Party Engineer reasonably determines that additional
time is required in order to give adequate  consideration  to the issues raised.
In such case,  the Third Party  Engineer  shall state in writing his reasons for
believing that additional time is needed and shall specify the additional period
required,  which  period  shall not  exceed ten days  without  the  Buyer's  and
Sellers' agreement.

         2.3. Deliveries at Closing.

                  (a) By Sellers to Buyer.  At the  Closing,  in addition to the
Assets,  Sellers  shall  deliver the  following  items to Buyer,  each  properly
executed and dated as of the Closing  Date by Sellers and in form and  substance
reasonably acceptable to Buyer: (i) the Assignment

                                       6
<PAGE>

Agreement,  (ii)  the  Bill of Sale,  (iii)  the  License  and  Binder  Purchase
Agreement,  (iv) all Required Consents applicable to Sellers, (v) the Opinion of
Sellers' Counsel,  (vi) Sellers' Closing  Certificate,  (vii) the Acknowledgment
and Release,  (viii) UCC-3 termination  statements with respect to the Facility,
(ix) a certificate of insurance containing an endorsement, in form and substance
acceptable  to Buyer,  showing  loss payment to Buyer as its interest may appear
and (x) a certificate  of the corporate  secretary of Sellers as to such matters
as may reasonably be requested by Buyer.

                  (b) By Buyer to Sellers.  At the Closing,  Buyer shall deliver
the Initial  Purchase  Consideration  and the following  items to Sellers,  each
properly  executed  and  dated as of the  Closing  Date by Buyer and in form and
substance reasonably acceptable to Sellers: (i) the Assignment  Agreement,  (ii)
the  License  and  Binder  Purchase  Agreement,   (iii)  all  Required  Consents
applicable to Buyer,  (iv) Buyer's Closing  Certificate and (v) a certificate of
the corporate secretary (or equivalent  official) of Buyer as to such matters as
may reasonably be requested by Sellers.

         2.4. Allocation of Purchase Price.

         On the Closing Date,  or at a later time agreed to by the parties,  not
to exceed 30 days  following  the  Closing  Date,  the  purchase  price shall be
allocated  among the Assets and Contracts in accordance  with Exhibit F attached
hereto.  Such  allocation  shall be intended to comply with the  requirements of
Section 1060 of the Code, and no party shall take any position inconsistent with
such allocation for income tax purposes, except that Buyer's cost for the Assets
and Contracts may differ from the amount so allocated to the extent necessary to
reflect Buyer's capitalized  acquisition costs other than the amount realized by
Sellers.

         2.5. No Assumption of Liabilities.

         Buyer does not and will not assume any  liability or  obligation of any
kind  of  Sellers,  or any  obligation  relating  to the  use of the  Assets  or
performance by Sellers under the Contracts prior to the Effective Time,  whether
absolute or contingent,  accrued or unaccrued,  asserted or unasserted, known or
unknown, or otherwise.

         2.6. Sales Tax Exemption.

         To the extent applicable, at the Closing, Buyer will deliver to Sellers
appropriate  and  customary  sales tax  exemption  certificates  relating to the
transfer of the Assets and the assignment of the Contracts contemplated hereby.

                                   ARTICLE III
                    REPRESENTATION AND WARRANTIES OF SELLERS

         Sellers jointly and severally represent and warrant to Buyer that:

         3.1. Corporate Standing.

                                       7
<PAGE>

         Sellers are corporations or a limited  liability company duly organized
and validly  existing  and in good  standing  under the laws of their  states of
organization  as indicated  in the  introductory  paragraph  of this  agreement.
Sellers  have the power to own  their  property,  and to  execute,  deliver  and
perform this Agreement and each of the Transaction  Documents  applicable to it,
and to  carry  on  their  business  as now  being  conducted.  Sellers  are duly
qualified to do business in and are in good standing as foreign  corporations or
limited  liability  companies,  authorized to do business  under the laws of the
State of West Virginia.

         3.2. Authorizations; Binding Agreements.

         The execution, delivery and performance of this Agreement and the other
Transaction Documents by Sellers and each conveyance, assignment, agreement, and
other document  herein  contemplated  to be executed by Sellers,  have been duly
authorized by all necessary  corporate and limited  liability company action, as
the case may be. This  Agreement  and the other  Transaction  Documents  and the
conveyances, assignments, agreements, and other documents herein contemplated to
be executed,  delivered and performed by Sellers are, or will be upon execution,
legal,  valid and binding  obligations  of  Sellers,  duly  enforceable  against
Sellers in  accordance  with their terms  (subject,  however,  to the effects of
bankruptcy, insolvency,  reorganization,  moratorium, and similar laws from time
to time in effect relating to the rights and remedies of creditors as well as to
general  principles  of  equity).  This  Agreement  and  the  other  Transaction
Documents and the  conveyances,  assignments,  agreements,  and other  documents
herein  contemplated  to be executed,  delivered and performed by Sellers (i) do
not and will not result in any violation of,  conflict with or default under the
terms of any of Sellers'  organizational  documents  (nor,  to the  Knowledge of
Sellers,  does there exist any  condition  which upon the passage of time or the
giving of notice  would cause such  violation,  conflict or  default),  and (ii)
subject  only to the  Required  Consents,  do not and  will  not  result  in any
violation of,  conflict with or default under any Contract or any other material
permit, lease, venture,  indenture,  mortgage,  agreement,  contract,  judgment,
order or other  obligation or  restriction  to which  Sellers,  the Assets,  the
Contracts or the conduct of the maintenance and operation of the Facility may be
bound or  encumbered  (nor,  to the  Knowledge of Sellers,  does there exist any
condition  which upon the  passage of time or the giving of notice  would  cause
such violation, conflict or default).

         3.3. No Actions  Affecting  Enforcement  of the Agreement and the other
Transaction Documents.

         Except as set forth in Schedule 3.3,  there are no actions,  suits,  or
proceedings  pending,  or, to the  Knowledge  of  Sellers,  threatened,  against
Sellers in any court, or  administrative  governmental body or agency which will
affect in any  adverse  manner the  ability of Sellers to  execute,  deliver and
perform this Agreement and the other Transaction Documents.  Subject only to the
Required  Consents  and such  consents  which the  failure  to obtain  could not
reasonably be expected to have a Material Adverse Effect,  Sellers have obtained
all  permits,  licenses,  franchises,  authorizations,   variances,  exemptions,
concessions,  leases, instruments, orders, consents or approvals of governmental
entities  and third  parties  necessary to  construct,  maintain and operate the
Facility  and to  execute,  deliver  and perform  this  Agreement  and the other
Transaction Documents.

                                       8
<PAGE>

         3.4. Taxes.

         All tax returns and reports  relating to the Assets,  the Contracts and
the conduct of the  construction,  maintenance  and  operation  of the  Facility
required by law (including all federal, state, and local property tax, severance
and  franchise  tax laws) to be filed by Sellers  prior to the Closing have been
timely filed or will be caused to be timely filed,  including  those tax returns
relating  to  periods  prior to  Closing  that are not yet due,  except for such
returns and reports  which the failure to file could not  reasonably be expected
to  have  a  Material  Adverse  Effect  on  the  Assets,  the  Contracts  or the
maintenance  and  operation  of the  Facility.  All  taxes,  assessments,  fees,
interest,  penalties and other governmental  charges relating to the Assets, the
Contracts or the conduct of the  construction,  maintenance and operation of the
Facility  prior to Closing  have been paid when due and  payable or payment  has
been provided for, except for such taxes, assessments, fees, interest, penalties
and other governmental  charges which the failure to pay could not reasonably be
expected to have a material  adverse effect on the Assets,  the Contracts or the
construction, maintenance and operation of the Facility.

         3.5. Brokers or Finders Fees.

         Except  as set  forth  in  Schedule  3.5,  there  is no  obligation  or
liability,  contingent  or  otherwise,  for brokers or finders  fees  created by
Sellers with respect to the matters provided for in this Agreement and the other
Transaction  Documents.  No  obligation or liability for brokers or finders fees
created by Sellers  with respect to the matters  provided for in this  Agreement
and the other  Transaction  Documents shall be imposed upon Buyer, the Assets or
the Contracts.

         3.6. No Imposition of Liens.

         The execution, delivery and performance of this Agreement and the other
Transaction Documents by Sellers shall not result in the imposition of any Lien,
other than Permitted  Liens,  upon any of the Assets,  the Contracts or by which
the maintenance and operation of the Facility may be bound or encumbered.

         3.7. Title to Assets.

         Except as set forth on Schedule

         3.7, as of the date hereof,  Mountaineer  Fuel, LLC owns, and as of the
Effective  Time, it will own,  good,  valid and  marketable  title to all of the
Assets,  free and clear of any and all Liens,  except for Permitted Liens. As of
the  Effective  Time and upon  Buyer's  payment  of the  Purchase  Consideration
pursuant  hereto,  good,  valid and  marketable  title to the Assets and holds a
fully enforceable leasehold interest in the Facility Site, free and clear of all
Liens, except for Permitted Liens, shall pass to Buyer.

         3.8. Condition of Assets.

         Except as set forth on Schedule 3.8, as of the Closing Date,  the Fixed
Assets,  taken as a whole,  will be in good  operating  condition and repair and
substantially  fit for the production of Section 29 Product at a rate of 360,000
tons per year, and the Facility has been  constructed  in

                                       9
<PAGE>

conformance  with that  degree  of skill  and  judgment  normally  exercised  by
recognized  engineering and construction firms of similar size and experience to
that of the  contractors  under the  Contracts,  and the Assets  comprising  the
Facility  conform to the  standards of material and  workmanship  prevailing  in
applicable industries and are free from material defects in design, material and
workmanship and are of good quality.

         3.9. Pending Litigation.

         Except as  disclosed  on Schedule  3.9,  there are no  actions,  suits,
arbitrations or proceedings  currently  pending or, to the Knowledge of Sellers,
threatened  against the Assets or the  Contracts.  There are no  outstanding  or
unsatisfied judgments, orders or decrees to which Sellers are bound.

         3.10. Compliance With Laws.

         To the Knowledge of Sellers, Sellers are in compliance with all orders,
writs, injunctions,  decrees, judgments,  rulings, laws, rules or regulations of
any  governmental  entity to which  Sellers,  the  Assets or the  Contracts  are
subject,  the violation of which could reasonably be expected to have a Material
Adverse Effect.

         3.11. Status of Contracts.

         Schedule 1.14 is a true,  correct and complete list of all the material
contracts  entered into by Sellers relating  primarily to the Assets.  Except as
described in the Schedule  3.11,  the Contracts are valid and in good  standing,
and there is no violation of, conflict with or default under the Contracts,  the
consequence  of which could  reasonably  be expected to have a Material  Adverse
Effect. Sellers have not received any notice from any party to any Contract that
such party intends to terminate, cancel or refuse to renew the same or that such
party  intends to offset any amount due  thereunder or assert any defense to the
enforceability thereof.

                                       10
<PAGE>

         3.12. Consents.

         Schedule  1.40 is a true,  correct and  complete  list of all  Required
Consents.

         3.13. Books and Records.

         As of the Closing  Date,  the Books and Records  shall be complete  and
correct in all material respects.

         3.14. Environmental Conditions.

                  (a) Definitions. When used in this Section:

                           (i)  "Environmental  Laws" shall mean all  applicable
laws (including common law), rules, orders, regulations,  statutes,  ordinances,
codes,  decrees  and  requirements  of any  Governmental  Authority  regulating,
relating to or imposing liability  standards of conduct concerning any Hazardous
Materials or environmental protection.

                           (ii) "Governmental Authority" shall mean any federal,
state, local,  municipal or other governmental  department,  commission,  board,
bureau,   agency  or  instrumentality,   or  any  court,  in  each  case  having
jurisdiction over the applicable matter.

                           (iii)  "Hazardous  Materials"  shall  mean any  solid
waste,  petroleum or petroleum  product,  hazardous  material,  hazardous waste,
infectious  medical waste, or hazardous or toxic substance  defined or regulated
as such in any Environmental Law.

                  (b) Environmental  Representations  and Warranties.  Except as
set forth on Schedule 3.14 attached hereto:

                           (i)  Sellers   have  not  operated  the  Facility  or
conducted  business or other  activities at or from the Facility,  in connection
with the construction of the Facility or otherwise, in a manner that constituted
or constitutes a violation of any applicable Environmental Law;

                           (ii) There has been no  off-site  shipment or release
of any  Hazardous  Materials  by the Sellers on,  under,  at, from or in any way
affecting the Facility or any part thereof,  which off-site  shipment or release
gives rise to liabilities or obligations  under applicable  Environmental  Laws;
and

                           (iii) Sellers have not received any notices or claims
that  they are a  responsible  party in  connection  with  any  claim or  notice
asserted pursuant to 42 U.S.C. Section 9601 et seq., or any state superfund law,
in connection with the Facility.

                           (iv)  Seller  has  received  all  permits  as  may be
required under applicable  Environmental  Laws to operate the Facility as of the
Effective  Time,  and Seller is in compliance in all material  respects with the
terms and conditions of each such permits. Such permits shall be

                                       11
<PAGE>

transferable to Buyer and will be effective  immediately (or, subject to Section
5.1, as soon as practicable) after the Closing.

         3.15. Liabilities.

         Except for liabilities underlying any Permitted Liens, the Sellers have
no  liabilities  which could  reasonably be expected to have a Material  Adverse
Effect  following  the  Closing,  nor has any  condition  existed  or any  event
occurred which could reasonably be expected to give rise to any such liability.

         3.16. Agreements with Related Persons.

         There are no contracts,  licenses,  agreements or arrangements with any
Affiliate of Sellers in connection with the construction, maintenance, ownership
and operation of the Facility, other than as disclosed on Schedule 3.16.

         3.17. Adequacy of the Purchased Assets.

         Except as  described  in Schedule  3.8,  the Assets and the  Contracts,
together with (i) the  technology  and know-how being licensed to Buyer by Covol
under the License and Binder Purchase Agreement,  (ii) the chemical binder to be
supplied to Buyer by Covol under the License and Binder Purchase Agreement,  and
(iii) rights and assets  required for the relocation of the Facility to the site
selected  by  Buyer  (including  but  not  limited  to  relocation  construction
contracts,  feedstock raw materials,  applicable real property rights,  permits,
etc.) which Buyer may arrange for but which are not the subject of this Purchase
Agreement,  constitute  all of  the  assets  and  technology  rights  reasonably
expected to be necessary  for the  production  by Buyer of Section 29 Product at
the rate of 360,000 tons per year.

         3.18. No Default.

         Covol has not defaulted in the  performance of any covenant,  agreement
or  condition  contained in the Deed of Ground  Lease,  dated as of May 5, 1998,
between Upshur Property, Inc. and Covol (the "Lease"), and no event has occurred
and no condition exists or existed which,  with the giving of notice or lapse of
time, or both, did or would  constitute a default by Covol under the Lease.  The
Lease terminated in accordance with its terms on September 24, 1999.

         3.19. Production Capacity.

         The  Facility  has a rated  capacity to produce  Product at the rate of
360,000 tons per year.

         3.20. Section 29 Issues.

         The  Facility was placed "in service" for purposes of the Code prior to
July 1, 1998  pursuant to a binding  contract  entered  into prior to January 1,
1997 and effective at all times thereafter.

                                       12
<PAGE>

                                   ARTICLE IV
                     REPRESENTATIONS AND WARRANTIES OF BUYER

         Buyer hereby represents and warrants to Sellers that:

         4.1. Organization and Standing.

         Buyer is a limited liability company duly organized,  validly existing,
and in good  standing  under the laws of the State of Delaware and has the power
to own its own property, and to execute,  deliver and perform this Agreement and
each of the  Transaction  Documents,  and to carry on its  business as now being
conducted.

         4.2. Authorizations; Binding Agreements.

         The  execution,  delivery,  and  performance  of this Agreement and the
other  Transaction  Documents  by  Buyer  and of  each  conveyance,  assignment,
agreement,  and other document herein  contemplated to be executed by Buyer have
been fully authorized by all necessary limited  liability  company action.  This
Agreement and the other Transaction Documents and the conveyances,  assignments,
agreements,  and other documents herein  contemplated to be executed,  delivered
and performed by Buyer are, or will be upon execution,  legal, valid and binding
obligations of Buyer,  duly  enforceable  against Buyer in accordance with their
terms   (subject,   however,   to  the   effects  of   bankruptcy,   insolvency,
reorganization,  moratorium,  and  similar  laws  from  time to  time in  effect
relating  to the  rights  and  remedies  of  creditors  as  well  as to  general
principles of equity).  This Agreement and the other  Transaction  Documents and
the   conveyances,   assignments,   agreements,   and  other  documents   herein
contemplated  to be executed,  delivered  and  performed by Buyer (i) do not and
will not result in any violation of, conflict with or default under the terms of
Buyer's  organizational  documents,  and  (ii)  subject  only  to  the  Required
Consents,  do not and will not  result in any  violation  of,  conflict  with or
default  under  any  material  permit,  lease,  venture,  indenture,   mortgage,
agreement, contract, judgment, order or other obligation or restriction to which
Buyer is bound (nor, to the  Knowledge of Buyer,  does there exist any condition
which  upon the  passage  of time or the  giving  of  notice  would  cause  such
violation, conflict or default).

         4.3. Brokers or Finders Fees.

         No  obligation or  liability,  contingent or otherwise,  for brokers or
finders fees  created by Buyer with respect to the matters  provided for in this
Agreement shall be imposed upon Sellers.

         4.4. No Action  Affecting  Enforcement  of the  Agreement and the other
Transaction Documents.

         There  are no  actions,  suits,  or  proceedings  pending,  or,  to the
Knowledge of Buyer,  threatened,  against Buyer in any court, or  administrative
governmental  body or agency which will affect in any adverse manner the ability
of  Buyer  to  execute,  deliver  and  perform  this  Agreement  and  the  other
Transaction Documents.

                                       13
<PAGE>

                                    ARTICLE V
                      CERTAIN UNDERSTANDINGS AND AGREEMENTS

         5.1.     Best Efforts.

         Subject  to the  terms  and  conditions  herein  provided,  each of the
parties  hereto agrees to use its  commercially  reasonable  efforts to take, or
cause to be  taken,  all  action,  and to do,  or cause to be done,  all  things
necessary, proper and advisable under applicable Law, and to obtain the Required
Consents,   necessary  to  consummate  and  make   effective  the   transactions
contemplated by this Agreement. In case at any time after the Effective Time any
further  action is  necessary  or  desirable  to carry out the  purposes of this
Agreement,  the proper  officers and  directors of each party to this  Agreement
shall  take all such  necessary  action.  Buyer and  Sellers  will  execute  any
additional  instruments  necessary to consummate the  transactions  contemplated
hereby. To the extent that any permits referenced in Section 3.14(b)(iv) are not
transferred  at the  Closing  Date,  Sellers  will use  commercially  reasonable
efforts to cause such transfer to Buyer as soon as practicable after the Closing
Date.

         5.2. Public Announcements.

         Buyer and Sellers will consult with each other before issuing any press
release or otherwise  making any public statement with respect to this Agreement
and the  transactions  contemplated  herein,  and shall not issue any such press
release or make any such public  statement  prior to such  consultation or as to
which the other party reasonably objects, except as may be required by Law or by
obligations  pursuant  to any listing  agreement  with any  national  securities
exchange or inter-dealer quotation system.

         5.3. Confidentiality.

         Notwithstanding  the execution of this Agreement,  the  confidentiality
provisions  of the  Confidentiality  Agreement  shall  remain in full  force and
effect and shall survive the Closing.

         5.4. Taxes.

         Following  Closing,  Sellers  shall  timely  file all tax  returns  and
reports  relating  to  the  Assets,   the  Contracts  and  the  conduct  of  the
construction,  maintenance  and operation of the Facility prior to Closing which
have not  been  filed or were  not yet due to be  filed  prior to  Closing,  and
Sellers shall timely pay all taxes, assessments,  fees, interest,  penalties and
governmental charges relating to the Assets, the Contracts or the conduct of the
construction,  maintenance  and operation of the Facility prior to Closing which
have not been paid or were not yet due and payable prior to Closing.

         5.5. Private Letter Ruling Repurchase Option.

         Following Closing, Buyer plans to seek a Private Letter Ruling from the
IRS as to matters  relating to the Facility and Section 29 of the Code.  Sellers
shall  cooperate  with and assist Buyer,  as reasonably  requested by Buyer,  in
connection with seeking such Private Letter Ruling. In the event that Buyer does
seek such a Private  Letter Ruling and the IRS refuses or fails to issue it in a

                                       14
<PAGE>

form that is  satisfactory in the sole and absolute  discretion of Buyer,  Buyer
shall be entitled to elect (by giving  written notice to Sellers to such effect)
to terminate the obligation to make further royalty  payments under Section 3 of
the License and Binder Purchase Agreement and, in such event, Sellers shall have
the option to purchase,  within one year following  such notice,  the Assets and
Contracts (and assume obligations under the Contracts) from Buyer at the greater
of (i) the amount of Purchase  Consideration  theretofore paid by Buyer plus the
amount of any capital expenditures made by Buyer in connection with the Facility
and Assets  plus any  obligations  of Buyer in respect of the  Facility  and the
Assets  and  Contracts,  or (ii)  the  fair  market  value  of such  Assets  and
Contracts.

         5.6. Solvency Representations and Covenants.

         Each Seller  hereby  represents  and  warrants (as to itself only) that
prior to consummating the transactions  contemplated  herein,  (i) the aggregate
fair market value of such Seller's  assets exceeds the aggregate  amount of such
Seller's  liabilities,   including  contingent  liabilities  discounted  by  the
probability of their  occurrence,  (ii) such Seller is able to pay and is paying
its  debts  generally  as and when they  become  due in the  ordinary  course of
business,  (iii) such  Seller is  adequately  capitalized  for its  current  and
contemplated  business   undertakings,   and  (iv)  the  Purchase  Consideration
constitutes reasonably equivalent value and fair consideration for the Assets.

         Each  Seller   hereby   covenants   (as  to  itself  only)  that  after
consummating  the transaction  contemplated by the Purchase  Agreement,  (i) the
aggregate  fair market value of such  Seller's  assets will exceed the aggregate
amount of such Seller's liabilities, including contingent liabilities discounted
by the probability of their occurrence, (ii) such Seller will be able to pay and
will pay its debts  generally as and when they become due in the ordinary course
of  business,  and (iii) such  Seller will not be left with  unreasonably  small
capital for its then-current and contemplated business undertakings.

         5.7. Removal and Delivery of Facility.

         As of the date hereof,  Sellers and their contractors have disassembled
and stored  the  Facility  at the  Facility  Site in  preparation  for  Sellers'
relocation  of the Facility to the Site.  Sellers  shall use their  commercially
reasonable efforts to deliver the disassembled  Facility and the other Assets to
Buyer at the Site within two weeks of written  notice  given by Buyer  notifying
Sellers of the location of the Site.  Except as provided below, all risk of loss
to the  Assets  shall  pass to the  Buyer  upon  the  earlier  to  occur  of (a)
acceptance of the Assets by Buyer at the Site or (b) the 121st day following the
Closing  Date if the Assets are still  located at the Facility  Site;  provided,
however, that,  notwithstanding the foregoing, in all cases, all risk of loss to
the Assets shall be borne by Sellers during the  transportation  and delivery of
the Facility to the Site. In addition to the Initial Purchase  Consideration set
forth in Section 2.2(a) herein,  and subject to the provisions of Section 2.2(b)
hereof,  Buyer shall  reimburse  Sellers  for any  reasonable  and actual  costs
incurred  by Sellers for the  disassembly,  removal  and  transportation  of the
Facility,  not to exceed Seven Hundred and Fifty  Thousand  Dollars  ($750,000),
within 30 days of the presentation of an invoice by Sellers therefore.

                                      15
<PAGE>

         5.8. Software Reinstallation.

         Upon the reasonable request of Buyer, Covol agrees to provide from time
to time during the ____ day period  following  delivery of the Facility to Buyer
at the Site, the services of Brent Atkins (or his successor) in connection  with
the  reinstallation  of the Facility  Control  Systems  Software  related to the
Facility.

                                   ARTICLE VI
            CONDITIONS PRECEDENT TO THE PAYMENT OBLIGATIONS OF BUYER

         Each and every  obligation of Buyer to be performed on the Closing Date
shall  be  subject  to the  satisfaction,  prior  to or at the  Closing,  of the
following express conditions precedent:

         6.1. Compliance with Agreement.

         Sellers shall have performed and complied in all material respects with
all of their  obligations  under this  Agreement  which are to be  performed  or
complied with by them prior to or on the Closing Date.

         6.2. Proceedings and Instruments Satisfactory.

         All  proceedings,  corporate  or  other,  to be  taken  by  Sellers  in
connection  with  the  transactions  contemplated  by  this  Agreement,  and all
documents  incident  thereto,  shall  be  reasonably  satisfactory  in form  and
substance to Buyer.

         6.3. No Litigation.

         No investigation, suit, action or other proceedings (including, without
limitation,  any petition  relating to any of the Sellers  under the  Bankruptcy
Code or similar  federal or state law) shall be threatened or pending before any
court or governmental agency that seeks restraint, prohibition, damages or other
relief in connection with this Agreement or the consummation of the transactions
contemplated hereby or in connection with obligations to creditors.

         6.4. Representations and Warranties.

         The  representations  and warranties  made by Sellers in this Agreement
shall be true and correct in all respects (as to representations  and warranties
qualified or limited by the term "Material Adverse Effect," the word "material,"
or phrases of like import),  and in all material respects (as to representations
and warranties not so qualified or limited) as of the Closing Date with the same
force and effect as though said  representations and warranties had been made on
the Closing Date.

         6.5. Consents.

         All Required Consents applicable to Sellers shall have been obtained.

                                       16
<PAGE>

         6.6. Tax Opinion.

         Buyer shall have  received an opinion of Hunton & Williams,  counsel to
Buyer,  in form and  substance  satisfactory  to Buyer,  with respect to matters
related to Section 29 of the Code.

         6.7. Antitrust Filings.

         The HSR Act and the regulations  promulgated thereunder shall have been
complied with,  and all waiting  periods under the HSR Act shall have expired or
been terminated.

                                   ARTICLE VII
               CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLERS

         Each and every  obligation  of Sellers to be  performed  on the Closing
Date  shall be  subject to the  satisfaction  prior to or at the  Closing of the
following express conditions precedent:

         7.1. Compliance with Agreement.

         Buyer shall have  performed and complied in all material  respects with
all of its  obligations  under  this  Agreement  which  are to be  performed  or
complied with by it prior to or on the Closing Date.

         7.2. Proceedings and Instruments Satisfactory.

         All proceedings, corporate or other, to be taken by Buyer in connection
with the transactions contemplated by this Agreement, and all documents incident
thereto, shall be reasonably satisfactory in form and substance to Sellers.

         7.3. No Litigation.

         No investigation,  suit, action or other proceeding shall be threatened
or  pending  before  any court or  governmental  agency  that  seeks  restraint,
prohibition,  damages or other relief in connection  with this  Agreement or the
consummation of the transactions contemplated hereby.

         7.4. Representations and Warranties.

         The  representations  and  warranties  made by Buyer in this  Agreement
shall be true and correct in all respects (as to representations  and warranties
qualified or limited by the term "Material Adverse Effect," the word "material,"
or phrases of like import),  and in all material respects (as to representations
and warranties not so qualified or limited) as of the Closing Date with the same
force and effect as though such  representations and warranties had been made on
the Closing Date.

         7.5. Required Consents.

         All Required Consents applicable to Buyer shall have been obtained.

                                       17
<PAGE>

         7.6. Antitrust Filings.

         The HSR Act and the regulations  promulgated thereunder shall have been
complied with,  and all waiting  periods under the HSR Act shall have expired or
been terminated.

                                  ARTICLE VIII
                      INDEMNITIES AND ADDITIONAL COVENANTS

         8.1. Sellers' Indemnity.

                  (a) Sellers  hereby  jointly and severally  indemnify and hold
Buyer  harmless from and against,  and agree to defend  promptly Buyer from, and
reimburse Buyer for, any and all losses, damages, costs, expenses,  liabilities,
obligations and claims of any kind, including, without limitation, environmental
liabilities  (whether involving personal injury or property damage),  reasonable
attorneys'  fees and other legal  costs and  expenses  (hereinafter  referred to
collectively as "Losses"), that Buyer and any Affiliate of Buyer may at any time
suffer or incur, or become subject to, as a result of or in connection with: (i)
any breach or inaccuracy of any of the  representations  and warranties  made by
Sellers in this  Agreement  or any other  agreement or  instrument  delivered by
Sellers  pursuant  hereto;  (ii) any  failure of Sellers to carry out,  perform,
satisfy  and  discharge  any  of  its   covenants,   agreements,   undertakings,
liabilities or  obligations  under this Agreement or under any of the agreements
and instruments delivered by Sellers pursuant to this Agreement; (iii) claims by
third parties (including governmental authorities) against Buyer relating to the
construction,  operation  and  ownership  by  Sellers  of  the  Assets  and  the
performance  by Sellers under the Contracts in each case under this clause (iii)
for the period prior to the Effective Time including,  without  limitation,  any
claim of  landlord's  statutory  lien;  (iv) any  violations  of, or  failure to
operate in accordance with,  necessary  permits prior to the Effective Time; and
(v) any and all liabilities and obligations of Sellers;

                  (b) In the  event a claim  against  Buyer  arises  that  Buyer
reasonably believes is covered by the indemnity  provisions of Section 8.1(a) of
this  Agreement,  notice shall be given promptly by Buyer to Sellers  containing
detail reasonably sufficient for Sellers to identify the nature and basis of the
claim.  Provided  that  Sellers  admit in  writing  to Buyer  that such claim is
covered by the indemnity provisions of Section 8.1(a) hereof, Sellers shall have
the right to contest and defend by all appropriate  legal proceedings such claim
and to  control  all  settlements  (unless  Buyer  agrees to assume  the cost of
settlement and to forgo such indemnity) and to select lead counsel to defend any
and all such claims at the sole cost and expense of Sellers; provided,  however,
that  Sellers  may not effect  any  settlement  that  could  result in any cost,
expense  or  liability  to  Buyer  unless  Buyer  consents  in  writing  to such
settlement  and Sellers  agree to  indemnify  Buyer  therefor.  Buyer may select
counsel to participate with Sellers' counsel in any such defense, in which event
Buyer's  counsel shall be at its own sole cost and expense.  In connection  with
any such claim,  action or  proceeding,  the parties shall  cooperate  with each
other and provide each other with access to relevant  books and records in their
possession.

                  (c)  Sellers  shall  not be  required  to  indemnify  and hold
harmless  Buyer  pursuant  to  Section   8.1(a)(i)  hereof  in  respect  of  the
representations  and  warranties  made by Sellers  herein  unless  such right to
indemnification  is asserted by Buyer  (whether or not such

                                       18
<PAGE>

Losses have actually been  incurred) by notice to Sellers within 12 months after
the Closing Date, with the exception of (i) the  representations  and warranties
set forth in Sections  3.4 and 3.20,  which must be asserted by Buyer within the
applicable  statute of  limitations or any  extensions  thereof  required by any
applicable  authority  relating to the taxes or  assessments  giving rise to the
Loss, plus 60 days, (ii) the representations and warranties set forth in Section
3.10,  which  must be  asserted  by  Buyer  within  the  applicable  statute  of
limitations for the violation of the underlying law that forms the basis of such
claim,  plus 60 days,  (iii) the  representations  and  warranties  set forth in
Sections 3.1, 3.2, and 3.7, which shall be without time limitation, and (iv) the
representations  and warranties set forth in Section 3.14 hereof,  which must be
asserted within 24 months after the Closing Date.

                  (d)  Notwithstanding  the  foregoing,  Sellers  shall  not  be
required  to  indemnify  Buyer  under  Section   8.1(a)(i)  in  respect  of  the
representations  and warranties  made by Sellers unless the amount of all Losses
for which indemnification is sought by Buyer under Section 8.1(a)(i) exceeds, in
the aggregate, $250,000, in which event, Sellers' indemnity obligation hereunder
would apply to all such Losses.  Sellers' aggregate  indemnification  obligation
pursuant  to  Section   8.1(a)(i)   shall  in  no  event   exceed  the  Purchase
Consideration described in Section 2.2 and paid to Sellers.

                  (e)  The   indemnification   provided  in  this  Section  8.1,
including the limitations  with respect  thereto,  shall be the exclusive remedy
for Buyer  with  respect  to Losses  as a result  of or in  connection  with the
matters described in Section 8.1(a)(i),  notwithstanding  any provisions in this
Agreement or any other such agreement or instrument to the contrary.

         8.2. Buyer's Indemnity.

                  (a) Buyer hereby  indemnifies and holds Sellers  harmless from
and against,  and agrees to defend promptly  Sellers from and reimburse  Sellers
for, any and all Losses that Sellers may at any time suffer or incur,  or become
subject to, as a result of or in connection  with:  (i) any breach or inaccuracy
of any of the  representations and warranties made by Buyer in this Agreement or
any other agreement or instrument  delivered by Buyer pursuant hereto;  (ii) any
failure  by  Buyer to carry  out,  perform,  satisfy  and  discharge  any of its
covenants,  agreements,  undertakings,  liabilities  or  obligations  under this
Agreement  or under any of the  agreements  and  instruments  delivered by Buyer
pursuant  to this  Agreement;  and  (iii)  claims  by third  parties  (including
governmental   authorities)  against  Sellers  relating  to  the  operation  and
ownership by Buyer of the Assets for the period following the Effective Time.

                  (b) In the  event  a  claim  against  Sellers  arises  that is
covered by the  indemnity  provisions of Section 8.2 of this  Agreement,  notice
shall  be given  promptly  by  Sellers  to Buyer  containing  detail  reasonably
sufficient  for Buyer to  identify  the nature and basis of the claim.  Provided
that  Buyer  admits in  writing  to  Sellers  that such  claim is covered by the
indemnity  provisions  of  Section  8.2  hereof,  Buyer  shall have the right to
contest  and  defend by all  appropriate  legal  proceedings  such  claim and to
control all settlements  (unless Sellers agrees to assume the cost of settlement
and to forgo such  indemnity)  and to select lead  counsel to defend any and all
such claims at the sole cost and expense of Buyer; provided, however, that Buyer
may not  effect  any  settlement  that  could  result  in any cost,  expense  or
liability to Sellers unless Sellers

                                       19
<PAGE>

consents in writing to such  settlement  and Buyer agrees to  indemnify  Sellers
therefor.  Sellers may select counsel to participate with Buyer's counsel in any
such  defense,  in which event  Sellers'  counsel  shall be at the sole cost and
expense of Sellers. In connection with any such claim, action or proceeding, the
parties  shall  cooperate  with each other and provide each other with access to
relevant books and records in their possession.

                  (c) Buyer shall not be required to indemnify and hold harmless
Sellers pursuant to Section  8.2(a)(i) hereof in respect of the  representations
and  warranties  made by Buyer herein  unless such right to  indemnification  is
asserted by Sellers  (whether or not such Losses have actually been incurred) by
notice to the Buyer within 12 months after the Closing Date,  with the exception
of the  representations and warranties set forth in Sections 4.1 and 4.2 hereof,
which shall be without time limitation.

                  (d) Notwithstanding the foregoing, Buyer shall not be required
to indemnify Sellers under Section  8.2(a)(i) in respect of the  representations
and  warranties  made by  Buyer  unless  the  amount  of all  Losses  for  which
indemnification  is sought by Sellers under Section  8.2(a)(i)  exceeds,  in the
aggregate,  $250,000,  in which event,  Buyer's indemnity  obligation  hereunder
would apply to all such Losses.

                  (e)  The   indemnification   provided  in  this  Section  8.2,
including the limitations  with respect  thereto,  shall be the exclusive remedy
for  Sellers  with  respect to Losses as a result of or in  connection  with the
matters described in Section 8.2(a)(i),  notwithstanding  any provisions in this
Agreement or any other such agreement or instrument to the contrary.

         8.3. Bulk Sales Compliance.

         To the extent  applicable,  Buyer hereby  waives  compliance by Sellers
with the provisions of the bulk sales law of any U.S.  jurisdiction,  and in any
event,  Sellers covenants and agrees to pay and discharge when due all claims of
any  governmental  entities and creditors of Sellers and its  subsidiaries  that
could be asserted against Buyer by reason of such non-compliance.  Sellers agree
to  indemnify  and hold  Buyer  harmless  from and  against  and shall on demand
reimburse  Buyer for any and all Losses  suffered by Buyer by reason of Sellers'
failure to pay and discharge any such claims.

         8.4. Additional Instruments.

         At any time and from time to time after the Closing,  at either party's
request and without further consideration, Sellers or Buyer, as the case may be,
shall execute and deliver such other instruments of sale, transfer,  conveyance,
assignment and  confirmation  and take such other action as Sellers or Buyer may
reasonably  deem necessary or desirable in order to more  effectively  transfer,
convey,  and assign to Buyer,  and confirm  Buyer's title to and interest in and
responsibility  and liability for, the Assets and Contracts and the consummation
of the transactions  contemplated herein. Without limiting the generality of the
foregoing,  Sellers  will  cooperate  with  and  assist  Buyer in  renewing,  or
transferring,  into Buyer's  name those  Permits for which Buyer  requests  such
assistance and cooperation at the appropriate  time for such renewal or transfer
as determined by Buyer.

                                       20
<PAGE>

         8.5. Access to Books, Records and Employees.

         From and after the  Closing  Date,  Buyer  will  authorize  and  permit
Sellers and its respective representatives to have access during normal business
hours, upon reasonable notice and for reasonable  purposes and in such manner as
will not unreasonably  interfere with the conduct of Buyer's business,  to Books
and Records  within the control of Buyer that relate to the  Facility.  From and
after  the  Closing  Date,  Sellers  will  authorize  and  permit  Buyer and its
representatives  to have access during normal  business  hours,  upon reasonable
notice and for reasonable  purposes and in such manner as will not  unreasonably
interfere  with the  conduct of  Sellers'  business,  to all books and  records,
files,  documents and other correspondence  related to the Facility prior to the
Effective  Time,  which are not included among the Books and Records.  Buyer and
Sellers  agree to  maintain  all  books,  records,  files,  documents  and other
correspondence related to the Facility prior to the Effective Time in accordance
with their  respective  normal  document  retention  practices after the Closing
Date.

                                   ARTICLE IX
                                   TERMINATION

         9.1.     Termination.

         This  Agreement may be  terminated  and the  transactions  contemplated
hereby may be abandoned as follows: (a) at any time prior to the Closing Date by
mutual written agreement of Sellers and Buyer; or (b) by either Sellers or Buyer
if the  Effective  Time shall not have  occurred  on or before  April 30,  2000;
provided,  however,  that the right to terminate this Agreement pursuant to this
clause (b) shall not be  available  to any party  whose  failure to fulfill  any
obligation  under  this  Agreement  has been the cause of, or  resulted  in, the
failure of the Effective Time to occur prior to such date.

         9.2. Rights on Termination; Waiver.

                  (a) If this  Agreement is terminated  pursuant to Section 9.1,
all further obligations of the parties under or pursuant to this Agreement shall
terminated.

                  (b) If any of the  conditions  set forth in Article VI of this
Agreement have not been satisfied,  Buyer may  nevertheless  elect to waive such
conditions and proceed with the  consummation of the  transactions  contemplated
hereby. If any of the conditions set forth in Article VII of this Agreement have
not been satisfied,  Sellers may nevertheless elect to waive such conditions and
proceed with the  consummation  of the  transactions  contemplated  hereby.  The
election by Buyer or Sellers to terminate this Agreement pursuant to Section 9.1
(b) shall not in any way affect the rights of such party against the other party
for any breach or default under this Agreement.

                                       21
<PAGE>

                                    ARTICLE X
                                  MISCELLANEOUS

         10.1.    Entire Agreement; Amendment.

         This Agreement and the documents referred to herein and to be delivered
pursuant hereto constitute the entire agreement  between the parties  pertaining
to the  subject  matter  hereof,  and  supersede  all prior and  contemporaneous
agreements, understandings, negotiations and discussions of the parties, whether
oral  or  written,  and  there  are  no  warranties,  representations  or  other
agreements  between the parties in connection  with the subject  matter  hereof,
except as specifically  set forth herein or therein.  No amendment,  supplement,
modification,  waiver or termination  of this Agreement  shall be binding unless
executed  in writing by the party to be bound  thereby.  No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision of this Agreement, whether or not similar, nor shall such waiver
constitute  a  continuing  waiver  unless  otherwise  expressly  provided.   The
representations  and  warranties  of each  party  hereto  shall be  deemed to be
material and to have been relied upon by the other party.  The  representations,
warranties, covenants and agreements of Sellers and Buyer contained herein shall
survive the execution and delivery of this  Agreement  and  consummation  of the
transactions  contemplated hereby and, as to the representations and warranties,
shall be effective  until the relevant time  limitation for making any indemnity
claim with respect to such representations and warranties under Sections 8.1 and
8.2 and shall have been reached and no longer.  All agreements,  understandings,
representations,  warranties and covenants made by Sellers herein shall be joint
and several obligations of Sellers.

         10.2. Expenses.

         Except as otherwise  specifically  provided herein, each of the parties
hereto shall pay the fees and expenses of their respective counsel,  accountants
and other  experts  and the  other  expenses  incident  to the  negotiation  and
preparation of this Agreement and consummation of the transactions  contemplated
hereby.

         10.3. Governing Law; Consent to Jurisdiction.

         This Agreement shall be construed and interpreted according to the laws
of the State of New York,  without regard to the conflicts of law rules thereof;
provided,  however,  that Section 5-1401 of the New York General Obligations Law
shall apply to this Agreement.  Each of the parties hereto, in respect of itself
and its properties,  agree to be subject to (and hereby irrevocably  submits to)
the  nonexclusive  jurisdiction  of the  United  States  federal  court  for the
Southern  District of New York or New York state court sitting in the Borough of
Manhattan, New York, in respect of any suit, action or proceeding arising out of
or relating to this  Agreement  or the  transactions  contemplated  herein,  and
irrevocably  agrees  that all  claims in  respect  of any such  suit,  action or
proceeding  may be heard and  determined in any such court.  Each of the parties
hereto irrevocably  waives, to the fullest extent it may effectively do so under
applicable  Law,  any  objection  to the  laying of the venue of any such  suit,
action or proceeding brought in any such court and any claim that any such suit,
action  or  proceeding  brought  in  any  such  court  has  been  brought  in an
inconvenient  forum.  Either party hereto may make service on the other party by

                                       22
<PAGE>

sending  or  delivering  a copy of the  process to the party to be served at the
address  and in the manner  provided  for the giving of notices in Section  10.5
hereof. Nothing in this Section, however, shall affect the right of any party to
bring any action or proceeding  arising out of or relating to this  Agreement in
any other court or to serve legal  process in any other manner  permitted by law
or in equity.

         10.4. Assignment.

         This Agreement and each party's  respective rights hereunder may not be
assigned, by operation of law or otherwise, without the prior written consent of
the other party  provided,  however,  that Buyer may assign this Agreement to an
Affiliate of Buyer without the consent of Sellers.

         10.5. Notices.

         All  communications,  notices and disclosures  required or permitted by
this Agreement shall be in writing and shall be deemed to have been given at the
earlier  of the  date  (a)  when  delivered  personally  or by  messenger  or by
overnight delivery service to an officer of the other party, (b) five days after
being mailed by registered or certified  United  States mail,  postage  prepaid,
return  receipt  requested,  or (c) when received via  telecopy,  telex or other
electronic  transmission,  in all cases  addressed  to the person for whom it is
intended  at his  address  set forth  below or to such other  address as a party
shall have  designated  by notice in  writing  to the other  party in the manner
provided by this Section:

If to Buyer:          DTE Kentucky, LLC
                      425 South Main Street
                      Suite 201
                      Ann Arbor, Michigan 48104
                      Fax:  (734) 668-9739
                      Attn:  Manager of Assets

With a copy to:       DTE Energy Services
                      425 South Main Street
                      Suite 201
                      Ann Arbor, Michigan 48104
                      Fax:  (734) 668-1028
                      Attn:  General Counsel

If to Sellers:        Covol Technologies, Inc.
                      3280 North Frontage Road
                      Lehi, Utah 84043
                      Fax:  (801) 766-1979
                      Attn:  Brent M. Cook

                                       23
<PAGE>

With a copy to:       Covol Technologies, Inc.    Pillsbury Madison & Sutro LLP
                      3280 North Frontage Road    235 Montgomery Street
                      Lehi, Utah 84043            San Francisco, CA 94104
                      Fax:  (801) 766-1979        Fax:  (415) 983-1200
                      Attn:  General Counsel      Attn:  Linda C. Williams, Esq.


         10.6. Counterparts; Headings.

         This Agreement may be executed in several  counterparts,  each of which
shall be deemed an original, but such counterparts shall together constitute but
one and the same  Agreement.  The Table of  Contents  and  Article  and  Section
headings in this  Agreement are inserted for  convenience  of reference only and
shall not constitute a part hereof.

         10.7. Interpretation.

         Unless the context requires otherwise, all words used in this Agreement
in the singular number shall extend to and include the plural,  all words in the
plural  number  shall  extend to and include the  singular  and all words in any
gender shall extend to and include all genders.  All  references  to  contracts,
agreements,  leases or other  understandings or arrangements shall refer to oral
as well as written matters.  The specificity of any  representation  or warranty
contained  herein  shall  not be deemed  to limit  the  generality  of any other
representation or warranty contained herein.

         10.8. Severability.

         If any provision,  clause or part of this Agreement, or the application
thereof under  certain  circumstances,  is held  invalid,  the remainder of this
Agreement,  or the  application  of such  provision,  clause or part under other
circumstances, shall not be affected thereby.

         10.9. No Reliance.

         No  third  party  is  entitled  to rely on any of the  representations,
warranties and agreements contained in this Agreement.  Buyer and Sellers assume
no liability to any third party because of any reliance on the  representations,
warranties  and  agreements  of Buyer or Sellers  contained  in this  Agreement.
Nothing contained in this Agreement shall be construed as creating a partnership
or joint venture or any agency  relationship  between the parties hereto, or any
other relationship other than buyer and Sellers as provided herein.

         10.10. Parties in Interest.

         This Agreement shall be binding upon and inure solely to the benefit of
each party  hereto,  and  nothing in this  Agreement,  express  or  implied,  is
intended  to or shall  confer  upon any other  person any  rights,  benefits  or
remedies of any nature whatsoever under or by reason of this Agreement.

                                       24
<PAGE>

         10.11. Specific Performance.

         The parties  hereto  agree that  irreparable  damage would occur in the
event any of the  provisions of this  Agreement were not performed in accordance
with the  terms  hereof  and that the  parties  shall be  entitled  to  specific
performance  of the terms  hereof,  in  addition  to any other  remedy at law or
equity.

                [Remainder of this page intentionally left blank]

                                       25
<PAGE>

         IN  WITNESS  WHEREOF,  each  party  hereto  has  caused  this  Purchase
Agreement to be executed in its name by a duly authorized  officer as of the day
and year first above written.

                                     DTE KENTUCKY, LLC

                                     By: /s/  Kent L. McCargar
                                         --------------------------------------
                                     Its:  Vice President and Chief Financial
                                           Officer



                                     COVOL TECHNOLOGIES, INC.

                                     By: /s/  Kirk A. Benson
                                         ------------------------------------
                                     Its: Chairman and Chief Executive Officer




                                     SYNFUEL INVESTMENTS, INC.

                                     By: /s/ Brent M. Cook
                                         --------------------------------------
                                     Its:  President



                                     MOUNTAINEER FUELS, LLC

                                     By: /s/ Brent M. Cook, President
                                         --------------------------------------
                                         Covol Technologies, Inc.
                                     Its: Manager

                                       26


** This exhibit contains  confidential  material which has been omitted pursuant
to a Confidential  Treatment  Request.  The omitted  information  has been filed
separately with the Securities and Exchange Commission.

                      LICENSE AND BINDER PURCHASE AGREEMENT

         THIS LICENSE AND BINDER PURCHASE AGREEMENT (the  "Agreement"),  is made
and  entered  into as of April 17,  2000 by and  between  DTE  Kentucky,  LLC, a
Delaware limited  liability company (the  "Licensee"),  and Covol  Technologies,
Inc., a Delaware corporation (the "Licensor").

         WHEREAS  Licensor  has  developed  a  proprietary  process  to  produce
synthetic coal fuel extrusions,  pellets, and briquettes  (collectively referred
to herein as  "briquettes")  from  waste  coal  dust,  coal fines and other coal
derivatives,  and Licensor is entitled to license the synthetic Coal Briquetting
Technology (as defined below) to Licensee;

         WHEREAS  Licensor  owns  a  synthetic  fuel  manufacturing  plant  (the
"Facility"),  which is  dismantled  and stored at the  Buccaneer  Storage  Yard,
Buccaneer  Enterprises,  Inc., Route 10, Box 393, Buckhannon,  West Virginia and
Licensee has or will acquire the Facility from Licensor as  contemplated by that
certain  Asset  Purchase  Agreement,  dated as of April 17, 2000, by and between
Licensee, Licensor, Mountaineer Fuel, LLC, a Utah limited liability company, and
Synfuel  Investments,  Inc., a Utah  corporation,  each subsidiaries of Licensor
(the "Purchase Agreement");

         WHEREAS  Licensee  wishes to  obtain  and  Licensor  wishes to grant to
Licensee a license for the synthetic Coal  Briquetting  Technology to be used in
connection  with the  Facility  on the  terms and  conditions  set forth in this
Agreement, and Licensee wishes to obtain and Licensor wishes to sell to Licensee
the  Proprietary  Binder Material (as defined below) for use in the operation of
the Facility.

         NOW, THEREFORE,  in consideration of the foregoing premises, the mutual
covenants  and  agreements  hereinafter  set forth,  and other good and valuable
consideration,  the receipt  and  sufficiency  of which is hereby  acknowledged,
Licensor and Licensee each agree as follows:

         Section 1.  Definitions.

         "Coal Briquetting Technology" means all intellectual property,  patents
(including,  but  not  limited  to,  United  States  Patent  Numbers  5,599,361;
5,487,764;  and 5,453,103) and  applications  therefor,  printed and not printed
technical  data,  know-how,  trade secrets,  copyrights  and other  intellectual
property rights, inventions, discoveries, techniques, works, processes, methods,
plans, software, designs, drawings, schematics,  specifications,  communications
protocols,  source and object code and modifications,  test procedures,  program
cards,  tapes,   disks,   algorithms  and  all  other  scientific  or  technical
information in whatever form including "Developed Technology" and "Improvements"
relating to,  embodied in or used in the process to produce  synthetic coal fuel
briquettes from waste coal dust, coal fines, run of mine coal, and other similar
coal derivatives,  including all such information in existence as of the date of
this  Agreement  as well as related  information  later  developed  by Licensor;
provided, however, that the defined term "Coal Briquetting Technology" shall not
include the proprietary  process/method  or other binder material or composition
developed by Licensor to produce  synthetic  coke  briquettes  from coke breeze,
iron revert materials,  or any technology used in any application other than the
processing

<PAGE>

and production of synthetic coal fuel  briquettes.  Nothing in this Agreement is
intended to grant to Licensee the right to apply the Coal Briquetting Technology
to produce  anything  other than synthetic coal fuel intended to qualify for tax
credits under Section 29(c)(1)(C) of the Internal Revenue Code.

         "Code" means the Internal Revenue Code of 1986, as amended.

         "Developed   Technology"   means  any  inventions,   "Improvement,"  or
technology that Licensor may conceive,  make,  invent,  or suggest in connection
with Licensor's disclosure to Licensee of the Coal Briquetting  Technology,  all
of which the  parties  hereto  acknowledge  and agree  constitutes  the sole and
exclusive   property  of  Licensor.   "Developed   Technology"  also  means  any
inventions,  "Improvement,"  or new  technology  directly  related  to the  Coal
Briquetting  Technology that Licensor or Licensee may conceive,  make, invent or
suggest  relating  to the Coal  Briquetting  Technology  during the Term of this
Agreement; provided, however, that "Developed Technology" shall not include coal
fines recovery,  coal fines washing,  material  handling,  or product  marketing
techniques or technologies  conceived,  made, invented, or suggested by Licensee
that are  generally  applicable  to the coal  industry but which are used at the
Facility in connection with the Coal Briquetting Technology.

         "Effective Date" means the date of this Agreement set forth above.

         "Facility" has the meaning set forth in the preamble.

         "Improvement"  means an  alteration  or  addition  to an  invention  or
discovery  which may  enhance  performance  or  economics  while  maintaining  a
product's,   device's,   or  method's  essential  identity  and  character.   An
"Improvement"  may  comprise  alterations  or  additions  to either  patented or
unpatented inventions,  discoveries,  technology, or devices, and may or may not
be patentable;  provided,  however,  that  "Improvement"  shall not include coal
fines recovery,  coal fines washing,  material  handling,  or product  marketing
techniques or technologies  conceived,  made, invented, or suggested by Licensee
that are  generally  applicable  to the coal  industry but which are used at the
Facility in connection with the Coal Briquetting Technology.

         "Licensee" has the meaning set forth in the preamble.

         "Licensor" has the meaning set forth in the preamble.

         "Proprietary  Binder  Material" means and refers to the binder compound
necessary  for the  production,  by Licensee,  of synthetic  coal  briquettes as
contemplated  under the Purchase  Agreement and which  briquettes are reasonably
expected  to  constitute  "qualified  fuels"  pursuant  to the terms of  Section
29(c)(1)(C)  of the Code and with  respect  to which  Section  29 is  applicable
pursuant to Section 29(f) and 29(g) of the Code.

         "Purchase Agreement" has the meaning set forth in the preamble.

         "Royalty" has the meaning set forth in Section 3.

         Section 2.  License Grant.

                                       2
<PAGE>

         2.1 General. Licensor hereby grants to Licensee a non-exclusive license
to use the Coal Briquetting  Technology,  including Developed  Technology and/or
Improvements relating to the Coal Briquetting Technology, throughout the term of
this  Agreement,  for the  purpose of  commercial  exploitation,  including  the
non-exclusive  right to make,  have made or use at the  Facility and to offer to
sell and to sell or otherwise transfer products that have been manufactured with
the Coal  Briquetting  Technology,  subject to the terms and  conditions of this
Agreement.  Licensee  hereby  accepts the license on the terms hereof.  Licensee
shall not have the right to sublicense the Coal Briquetting Technology.

         2.2  Licensor's  Ownership  of  Developed  Technology.   All  Developed
Technology  and/or   Improvements  are  and  shall  become  Licensor's  absolute
property,  subject to the terms of this  Agreement.  Licensee  shall at any time
during the Term of this  Agreement  and  thereafter,  at  Licensor's  reasonable
request,  execute any patent papers  covering such Developed  Technology  and/or
Improvements as well as any other documents that Licensor may consider necessary
or  helpful  in the  prosecution  of  applications  for a patent  thereon  or in
connection  with  any  litigation  or  controversy  related  thereto;  provided,
however,  that all expenses  incident to the filing of such applications and the
prosecution  thereof  and the  conduct  of such  litigation  shall  be  borne by
Licensor.

         2.3  Exclusive  Technology.  Licensee  agrees  to  use  only  the  Coal
Briquetting  Technology  at the Facility and not to use any other  technology at
the Facility,  except to the extent other or additional technology is necessary.
Licensee shall not use any process or  methodology  that is not part of the Coal
Briquetting Technology, except to the extent that other or additional technology
is necessary.  Licensee (a) shall not make or have made products  using the Coal
Briquetting  Technology  or similar  technology  except at the  Facility and (b)
shall only make and have made products using the Coal Briquetting  Technology at
the  Facility  under  this  License  Agreement,  except to the  extent  other or
additional  technology is  necessary.  Licensee  further  agrees to use the Coal
Briquetting  Technology  only under  authority  of this License  Agreement  with
Licensor. Notwithstanding the foregoing, Licensee may produce Section 29 Product
at the  Facility  without the use of the  Proprietary  Binder  Material and with
binder  material  provided  elsewhere  subject  to the  requirement  to pay  the
additional royalty provided in Section 3.1 hereof.

         2.4  Non-licensed  Technology.  Licensor  retains the absolute right to
fully exploit its technologies including, but not limited to, the application of
such technology embodied in the Coal Briquetting  Technology to produce,  market
and use synthetic coke briquettes from coke breeze,  iron revert materials,  and
any other materials to which Licensor's technology can be applied.

         2.5  Confidentiality.  Each of the parties hereby agree to maintain the
Coal  Briquetting   Technology   confidential  and  not  to  disclose  the  Coal
Briquetting  Technology,   or  any  aspect  thereof,   including  the  Developed
Technology  or  Improvements  (collectively,  the  "Confidential  Information").
Notwithstanding  the foregoing,  information  which (a) is or becomes  generally
available to the public other than as a result of an unauthorized  disclosure by
the parties or their respective agents, employees, directors or representatives,
(b) was available to the party receiving disclosure on a non-confidential  basis
prior to its receiving disclosure  hereunder,  (c) lawfully becomes available to
the party receiving  disclosure on a  non-confidential  basis from a third party
source (provided that such source is not known by the party receiving disclosure
or its agents,

                                       3
<PAGE>

employees,  directors or  representatives to be prohibited from transmitting the
information), or (d) a party is compelled by legal process by any court or other
authority to disclose  shall not be subject to the terms of this Section 2.5. In
the case of (d) above,  the  compelled  party shall give the other party  prompt
written  notice of such legal  process in order that an  appropriate  protective
order can be sought  and each  party  agrees  not to  oppose  the other  party's
efforts  to  prevent  the  disclosure  of  Confidential   Information.   At  the
termination  of this  Agreement,  all  copies  of any  Confidential  Information
(including,  without limitation,  any reports or memoranda) shall be returned by
the  party  receiving  disclosure.  Nothing  in this  Agreement  shall  prohibit
Licensee  from  disclosing  the  Confidential  Information  to  others as may be
reasonably  necessary  for  Licensee  to  exploit  Licensee's  rights  under the
Purchase  Agreement,  and/or this Agreement;  provided that the recipient of any
such Confidential  Information executes a Confidentiality  Agreement restricting
further disclosure of the Confidential Information.

         2.6 Know-How and  Assistance.  To enable Licensee to benefit fully from
the license of the Coal Briquetting Technology, Licensor shall provide access to
all  relevant  documentation,  drawings,  engineering  specifications  and other
know-how in its possession, reasonable access to its employees or agents who are
familiar  with  the  Coal  Briquetting  Technology,  Developed  Technology,  and
Improvements  and shall  provide such  technical  assistance  and training as is
requested  by  Licensee.  If  Licensor  does  not  have  responsibility  for the
operation of the Facility,  Licensee  shall  reimburse  Licensor for  reasonable
travel and other  similar  out-of-pocket  expenses  of  Licensor  in  performing
services under this Section 2.6;  provided  however,  that Licensor shall obtain
the prior approval of Licensee for any expenditures in excess of $5,000.

         Section 3.  Royalty.

         3.1 Royalty Payments. During the term of this Agreement, Licensee shall
pay to  Licensor  a  royalty  in an  amount  equal to $** per ton for the  first
360,000  tons  per  calendar  year,  and $** per ton for all tons in  excess  of
360,000 tons in a calendar year, of Section 29 Product  produced at the Facility
and sold during the period  commencing on the  effective  date hereof and ending
upon the expiration of the term (or earlier termination) of this Agreement. Such
royalty  shall be paid  quarterly  on the last day of January,  April,  July and
October  of each year for the  Section  29  Product  sold  during  the  previous
calendar quarter. In the event that, during the term of this Agreement, Licensee
elects to use a binder  material  other than the  Proprietary  Binder  Material,
Licensee will pay an additional royalty to Licensor in the amount of $** per ton
of Section 29 Product produced at the Facility,  without the Proprietary  Binder
Material, and sold to any third-party customer.

                                       4
<PAGE>

         Section 4.  Sales of Binder.

         4.1 Sale and Purchase.  Licensor  shall sell to Licensee,  and Licensee
shall  purchase from  Licensor,  all of Licensee's  requirements  of Proprietary
Binder  Material  required to operate the Facility.  Licensor  shall deliver the
Proprietary  Binder  Material at such times and in such  amounts as requested by
Licensee.  Licensor  shall  invoice  Licensee for  Proprietary  Binder  Material
monthly.  Payments for Proprietary  Binder Material delivered by Licensor during
any  calendar  month shall be due and payable to Licensor on the tenth  business
day of the immediately succeeding month.

         4.2  Price.  The price  which  Licensee  shall pay for the  Proprietary
Binder Material delivered by Licensor shall be an amount equal to (a) Licensor's
direct and actual costs  (including,  but not limited to,  material,  labor, and
transportation  costs) and a percentage of the total  overhead costs of Licensor
reasonably  reflecting  the  ratio  of  the  administrative  costs  incurred  in
connection  with the  manufacture  and sale of the  Proprietary  Binder Material
(estimated at the date hereof to be $** per unit of Proprietary  Binder Material
necessary to create one (1) ton of synthetic  fuel  product),  payable within 30
days  of  receipt  of an  invoice  therefor,  plus  (b) **  ($**)  per  unit  of
Proprietary  Binder  Material  necessary to create one (1) ton of synthetic fuel
product,  payable for the preceding calendar quarter on the last day of January,
April, July and October of each year.

         4.3  Licensor  Representations  and  Warranties.  Licensor  represents,
warrants and covenants as follows:

                  (a)  Licensor  shall  convey  to  Licensee  good  title to all
Proprietary Binder Material purchased by Licensee from Licensor hereunder,  free
and clear of any and all liens, claims and encumbrances of any type whatsoever.

                  (b) No Proprietary Binder Material shall contain any hazardous
material in violation of applicable laws and governmental regulations.

                  (c) At Licensee's reasonable request,  Licensor shall replace,
or  refund  the  purchase  price  of,  all  non-conforming  Proprietary  Binding
Material.

                  (d) Proper use of the Coal Briquetting  Technology,  including
use at an adequate,  qualified  Facility and with adequate  feedstocks and other
raw  materials,  will enable  Licensor to produce a product  which is reasonably
expected  to  constitute  "qualified  fuels"  pursuant  to the terms of  Section
29(c)(1)(C) of the Code.

         4.4 Order  Procedure.  Licensee  shall deliver all purchase  orders for
Proprietary  Binder  Material at least  thirty (30) days in advance of the first
day of the  month in which  delivery  of such  Proprietary  Binder  Material  is
required  under such  purchase  order.  (For example,  Licensee  shall deliver a
purchase order for December  delivery by no later than November 1st).  Each such
purchase order shall be delivered  either (a) in writing  (including by fax), or
(b) orally by  telephone  by an  authorized  agent of  Licensee  (subject to the
condition that it is followed by a

                                       5
<PAGE>

written  purchase order within 24 hours).  Such purchase orders shall be sent to
Licensor at such address as Licensor shall direct.

         4.5 Delivery and Acceptance.  All Proprietary Binder Material purchased
hereunder shall be delivered F.O.B. the Facility. Licensor shall arrange for any
necessary  transportation  of the  Proprietary  Binder Material to the Facility.
Licensee  shall bear the expense of unloading the  Proprietary  Binder  Material
from  the  trucks.  Licensee  shall  have a  reasonable  opportunity  to  sample
Proprietary  Binder  Material  delivered  to it  hereunder  to confirm that such
Proprietary  Binder Material conforms to the terms and requirements  hereof, and
Licensee shall not be deemed or required to accept any such  Proprietary  Binder
Material prior to the completion of such sampling.

         4.6 Delivery of Binder Material.  If Licensor's  ability to deliver the
Proprietary  Binder  Material to Licensee will be  interrupted or terminated for
any  reason,  Licensor  shall  give not less than  ninety  (90)  days  notice to
Licensee.  Subject to giving notice of its inability to deliver the  Proprietary
Binder  Material to Licensee  (or,  in the  absence of such  notice,  the actual
failure to deliver the Proprietary Binder Material for at least twenty (20) days
after  Licensee  gives written  notice of  non-delivery  to Licensor),  Licensor
hereby grants to Licensee a nonexclusive  license for the term of this Agreement
(or such shorter period as provided in the proviso hereto) to use the technology
used to manufacture the Proprietary Binder Material, and the copy of the Formula
delivered in escrow  pursuant to Section  4.7, to  manufacture  the  Proprietary
Binder  Material  in  sufficient  quantities  to operate  the  Facility  to full
capacity, and such technology shall be deemed "Coal Briquetting  Technology" for
the purposes of this Agreement;  provided,  however, that the license granted to
Licensee under this Section 4.6 shall cease (subject to  reinstatement  upon the
reoccurrence of the events  contemplated  above) and sales of Proprietary Binder
Material under the terms of this Agreement shall be reinstated, in each case, on
a date not less than ninety (90) days after  Licensor  gives notice to Licensee,
together with evidence reasonably satisfactory to Licensee that Licensor is able
to deliver the Proprietary Binder Material in accordance with this Agreement. No
additional  fee or royalty shall be payable to Licensor in  connection  with the
License  granted  pursuant to this Section 4.6 and Licensor shall be responsible
for any additional  out-of-pocket  costs incurred by Licensee in connection with
the production of Proprietary Binder Material pursuant to this Section 4.6.

         4.7 Escrow of Binder  Material  Formula.  As a material  inducement for
Licensee  entering  into this  Agreement  and for the Buyer  under the  Purchase
Agreement  entering  into  the  Purchase  Agreement,  and in  order  to  provide
assurance  to  Licensee of access to an adequate  and  continuing  supply of the
Proprietary  Binder Material during the term of this Agreement,  Licensor agrees
to place in escrow with Licensee the formula and technology  used to manufacture
the  Proprietary   Binder  Material  (the  "Formula")  as  provided  herein.  In
connection therewith,  Licensor agrees to deposit with Licensee, within ten (10)
days of the date of this  Agreement,  a copy of the Formula.  During the term of
this  Agreement,  Licensor  shall keep the  Formula in escrow  fully  current by
depositing  all updates and  revisions  thereto  and related  materials,  as the
Formula may be updated or revised from time to time. Such supplemental  deposits
will be  completed  no later  than ten (10)  days  after the date of use of such
revised Formula by Licensor.  Title to the Formula shall remain in Licensor, but
title to the copy  thereof to be  deposited in escrow  hereunder  shall,  in the
event the Formula  shall be released  for use to Licensee as provided in Section
4.6, pass to and vest in Licensee.  Licensee shall hold such copy of the Formula
and

                                       6
<PAGE>

any supplements in a safe-deposit box at a financial  institution located in the
Detroit/Ann  Arbor,  Michigan  region  designated  by  Licensee  and  reasonably
approved by Licensor.  Notwithstanding its ownership of a copy of the Formula in
such event,  Licensee's  use of the Formula shall remain subject to the terms of
this Agreement.

         Section 5.  Records;  Inspection;  Confidentiality.  Each party  hereto
shall keep accurate  records  containing  all data  reasonably  required for the
computation and verification of the amounts to be paid by the respective parties
under  this  Agreement,  and shall  permit  each other  party or an  independent
accounting  firm  designated  by such other party to inspect  and/or  audit such
records during normal business hours upon reasonable  advance notice.  All costs
and expenses  incurred by a party in connection  with such  inspection  shall be
borne by it. Each party agrees to hold  confidential  from all third parties all
information contained in records examined by or on behalf of it pursuant to this
Section 5; provided, however, that information which (a) is or becomes generally
available to the public other than as a result of an unauthorized  disclosure by
the parties or their respective agents, employees, directors or representatives,
(b) was available to the party receiving disclosure on a non-confidential  basis
prior to its receiving disclosure  hereunder,  (c) lawfully becomes available to
the party receiving  disclosure on a  non-confidential  basis from a third party
source (provided that such source is not known by the party receiving disclosure
or its agents,  employees,  directors or  representatives  to be prohibited from
transmitting the  information),  or (d) a party is compelled by legal process by
any court or other  authority  to disclose  shall not be subject to the terms of
this  Section 5. In the case of (d) above,  the  compelled  party shall give the
other  party  prompt  written  notice of such  legal  process  in order  that an
appropriate  protective  order can be sought and each party agrees not to oppose
the other party's efforts to prevent the disclosure of such information.  At the
termination  of this  Agreement,  all  copies  of such  information  (including,
without  limitation,  any reports or  memoranda)  shall be returned by the party
receiving disclosure.

         Section 6. Enforcement of Proprietary Rights.  Licensee shall cooperate
in good faith,  with Licensor's  efforts to enforce its  proprietary  patent and
trade secret rights.

         Section 7.  General Representations and Warranties.

         7.1  Authority.  Each of Licensee and Licensor  represents and warrants
that (a) the  execution,  delivery and  performance  of this  Agreement  and the
consummation of the transactions  contemplated  hereby have been duly authorized
on its behalf by all requisite  action,  corporate or otherwise,  (b) it has the
full right,  power and  authority to enter into this  Agreement and to carry out
the  terms  of this  Agreement,  (c) it has duly  executed  and  delivered  this
Agreement,  and (d) this  Agreement  is a valid  and  binding  obligation  of it
enforceable in accordance with its terms.

         7.2 No Consent.  Each of Licensee and Licensor  represents and warrants
that no approval, consent,  authorization,  order, designation or declaration of
any court or regulatory  authority or  governmental  body or any  third-party is
required to be obtained by it, nor is any filing or registration  required to be
made therewith by it for the consummation by it of the transactions contemplated
under this Agreement.

         7.3 Intellectual  Property  Matters.  Licensor  represents and warrants
that (a) it owns, free and clear of all liens and encumbrances,  patents related
to the Coal Briquetting Technology

                                       7
<PAGE>

(including,  but  not  limited  to,  United  States  Patent  Numbers  5,599,361,
5,487,764 and  5,453,103)  and has developed  the Coal  Briquetting  Technology,
including, but not limited to, printed and not printed technical data, know-how,
trade secrets,  copyrights, and other intellectual property rights and all other
scientific or technical information in whatever form relating to, embodied in or
used in the process to produce  synthetic coal fuel  briquettes  from waste coal
dust, coal fines, run of mine coal and other similar coal derivatives,  and, the
right to freely make, use, sell and exploit  Proprietary Binder Material used in
manufacturing  synthetic coal fuel  briquettes  from waste coal dust, coal fines
and other similar coal  derivatives,  (b) it has the right and power to grant to
Licensee the  licenses  granted  herein,  and (c) the sale or use of the rights,
Proprietary  Binder Material  and/or licenses  granted herein as contemplated by
this Agreement will not infringe any third-party's intellectual property rights.

         7.4  Indemnification.  Each party agrees to indemnify,  defend and hold
harmless the other party and its partners, directors, officers, members, agents,
representatives,  subsidiaries  and  affiliates  from  and  against  any and all
claims,  demands or suits (by any party,  including  any  governmental  entity),
losses,  liabilities,   damages,  obligations,   payments,  costs  and  expenses
(including  the  costs  and  expenses  of  enforcing  this  indemnification  and
defending  any and all actions,  suits,  proceedings,  demands and  assessments,
which shall include reasonable  attorneys' fees and court costs) resulting from,
relating to, arising out of, or incurred in connection with any breach of any of
the representations, warranties and/or covenants contained in this Agreement.

         Section  8.  Term.  The  term  of  this  Agreement  is for  the  period
commencing  on the Effective  Date of this  Agreement and ending on the later of
(a) 31 December  2007,  (b) the full term of Section 29 of the Code,  or (c) the
last to expire of the U.S.  patents in existence at the  Effective  Date of this
Agreement  that  disclose  and  claim  Covol's   proprietary   Coal  Briquetting
Technology  as  defined  herein.  Any  extension  of this  Agreement  must be in
writing, signed by both parties.

         Section  9.  Termination.  This  Agreement  shall  terminate  upon  the
termination  date set forth in Section 8,  unless the  Agreement  is  terminated
sooner pursuant to this Section 9.

         9.1  Termination  for Cause. In addition to any other remedies that may
exist,  either party may  terminate  this  Agreement  for cause in the event the
other party  commits a material  breach of any  provision  of this  Agreement by
giving the other  party at least  sixty (60) days prior  written  notice of such
termination, unless such default or breach is cured within said sixty (60) days.
If either party  terminates this Agreement  pursuant to this Section 9, Licensee
shall  promptly  return and cause all agents of Licensee  to promptly  return to
Licensor all Confidential  Information and all Coal Briquetting  Technology then
in Licensee's  possession,  and Licensee  shall not  thereafter  use for its own
commercial benefit or disclose to any third person any Confidential  Information
or Coal Briquetting Technology during the period ending three (3) years from the
date of such termination.  Notwithstanding the foregoing,  information which (a)
is or becomes  generally  available  to the public  other than as a result of an
unauthorized  disclosure  by the  Licensee or its  respective  members,  agents,
employees, directors or representatives,  (b) was available to the Licensee on a
non-confidential basis prior to its receiving disclosure hereunder, (c) lawfully
becomes available to the Licensee on a non-confidential basis from a third party
source  (provided  that such source is not known by the Licensee or its members,
agents,   employees,   directors  or   representatives  to  be  prohibited  from
transmitting the information), or (d) the Licensee is

                                       8
<PAGE>

compelled by legal process by any court or other authority to disclose shall not
be  subject  to the terms of the duty to protect  Confidential  Information  set
forth in this  section.  In the case of (d) above,  the Licensee  shall give the
Licensor  prompt  written  notice  of  such  legal  process  in  order  that  an
appropriate  protective  order can be sought and  Licensee  agrees not to oppose
Licensor's efforts to prevent the disclosure of Confidential Information.

         9.2 Termination for Insolvency or Ceasing Business.  This Agreement may
be terminated by either party if:

           (a) The other party  becomes  insolvent or is unable to pay its debts
as they fall due, seeks protection  voluntarily or  involuntarily  under any law
relating to bankruptcy, receivership, insolvency,  administration,  liquidation,
dissolution or similar law of any jurisdiction (other than for the purposes of a
reorganization  with a view to continuing  the business as a going concern under
relevant  bankruptcy  or  insolvency  proceedings)  or  enters  into  a  general
assignment  or  arrangement  or a  composition  with or for the  benefit  of its
creditors; or

           (b)  The  other  party  takes  any  step  (including  the  filing  or
presentation  of a  petition,  the  convening  of a meeting  or the filing of an
application  or  consent)  in any  jurisdiction  for,  or  with a view  to,  the
appointment of an administrator,  liquidator,  receiver,  trustee,  custodian or
similar official (other than for the purposes of a reorganization with a view to
continuing  the  business  as a  going  concern  under  relevant  bankruptcy  or
insolvency  proceedings)  for such  party  and/or  the  whole or any part of the
business,  undertaking,  property,  assets, receiver or uncalled capital of such
party Licensee or any such person is appointed.

         9.3 Effect of  Termination.  Upon  termination of this  Agreement,  all
rights granted to and future obligations of the parties shall immediately cease;
however  termination  shall not relieve either party of its obligations  accrued
during the term of this  Agreement  (including  any  pre-termination  obligation
Licensee  may  have to pay  Licensor)  which  has not  been  fulfilled,  and all
representations,  warranties,  indemnification  obligations and  confidentiality
agreements made herein shall survive termination of this Agreement.

         Section  10.  Effectiveness  of  Certain  Provisions.   Notwithstanding
anything herein to the contrary,  Licensee shall not be obligated under Sections
2.3,  3.1 or 4.1 hereof  unless and until  Licensee  has  entered  into  binding
agreements  with a third party to relocate  and place the Facility at a suitable
location  and to sell the  output of the  Facility,  all  pursuant  to terms and
conditions mutually acceptable to Licensee and a third party.

         Section 11. Waiver. The failure of any party to enforce at any time any
provision of this Agreement shall not be construed as a waiver of such provision
or the right  thereafter to enforce each and every  provision.  No waiver by any
party, either express or implied, of any breach of any of the provisions of this
Agreement  shall be  construed  as a waiver of any other  breach of such term or
condition.

         Section 12.  Severability.  If any provision of this Agreement shall be
held by a court of competent  jurisdiction to be invalid or unenforceable in any
respect for any reason, the validity and enforceability of any such provision in
any other respect and of the remaining provisions of this Agreement shall not be
in any way impaired.

                                       9
<PAGE>

         Section  13.  Notices.  All  notices  required  or  authorized  by this
Agreement shall be effective upon receipt and given to the parties in writing by
fax, mail, or courier as follows:

         To Licensor:          Brent M. Cook, President
                               Covol Technologies, Inc.
                               3280 North Frontage Road
                               Lehi, Utah 84043
                               Fax:  (801) 768-4481

         To Licensee:          DTE Kentucky, LLC
                               425 South Main Street
                               Suite 201
                               Ann Arbor, Michigan  48104
                               Fax:  (734) 668-9739
                               Attn:  Manager of Assets

         With a copy to:       DTE Energy Services, Inc.
                               425 South Main Street
                               Suite 201
                               Ann Arbor, Michigan  48104
                               Fax: (734) 668-1028
                               Attn:  General Counsel

         Section 14. Remedies Cumulative. Remedies provided under this Agreement
shall be  cumulative  and in  addition to other  remedies  provided by law or in
equity.

         Section  15.  Entire  Agreement.  This  Agreement,  together  with  the
Transaction  Documents (as defined in the Purchase  Agreement),  constitutes the
entire agreement of the parties relating to the subject matter hereof. There are
no promises,  terms,  conditions,  obligations,  or warranties  other than those
contained  herein and therein.  This  Agreement  and the  Transaction  Documents
supersede  any and all prior  communications,  representations,  or  agreements,
verbal or written,  between the parties  relating to the subject  matter hereof.
This  Agreement  may not be  amended  except in  writing  signed by the  parties
hereto.

         Section  16.  Governing  Law.  This  Agreement  shall  be  governed  in
accordance with the laws of the State of New York,  exclusive of its conflict of
laws rules.

         Section 17. Assignment. This Agreement may not be assigned, in whole or
in part,  by any party  without the written  consent of the other  party,  which
consent shall not be  unreasonably  withheld,  except that Licensor and Licensee
shall have the right to assign their  respective  rights and  obligations  under
this Agreement to any entity which is controlled by Licensor or Licensee, as the
case may be,  and of  which  Licensor  or  Licensee,  as the case may be,  owns,
directly  or  indirectly,  at least  fifty  percent  (50%) of each  class of its
outstanding securities,  provided that no such assignment shall release Licensor
or Licensee, as the case may be, from their respective obligations hereunder.

                  [Remainder of page intentionally left blank]

                                       10
<PAGE>

         Executed by the duly  authorized  representative  of the parties on the
date and year first above written.

COVOL TECHNOLOGIES, INC.                   DTE KENTUCKY, LLC



By: /s/ Kirk A. Benson                     By:  /s/  Kent L. McCargar
    ----------------------------               -------------------------------
Name:  Kirk A. Benson                      Name:   Kent L. McCargar
Its:     CEO                               Its: Vice President and Chief
                                                Financial Officer

                                       11

<TABLE> <S> <C>

<ARTICLE>                     5
<LEGEND>
THIS  SCHEDULE  CONTAINS  SUMMARY  FINANCIAL   INFORMATION  EXTRACTED  FROM  THE
CONSOLIDATED  FINANCIAL  STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED MARCH 31,
2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S>                             <C>
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                            SEP-30-2000
<PERIOD-END>                                 MAR-31-2000
<CASH>                                             9,172
<SECURITIES>                                           0
<RECEIVABLES>                                     11,752
<ALLOWANCES>                                           0
<INVENTORY>                                            0
<CURRENT-ASSETS>                                  34,238
<PP&E>                                             7,210
<DEPRECIATION>                                     3,549
<TOTAL-ASSETS>                                    49,818
<CURRENT-LIABILITIES>                             18,538
<BONDS>                                           15,357
                                  0
                                            1
<COMMON>                                              22
<OTHER-SE>                                         8,686
<TOTAL-LIABILITY-AND-EQUITY>                      49,818
<SALES>                                            3,236
<TOTAL-REVENUES>                                  18,948
<CGS>                                              4,517
<TOTAL-COSTS>                                      4,517
<OTHER-EXPENSES>                                  12,552
<LOSS-PROVISION>                                       0
<INTEREST-EXPENSE>                                 3,766
<INCOME-PRETAX>                                   (2,789)
<INCOME-TAX>                                      (3,000)
<INCOME-CONTINUING>                                  211
<DISCONTINUED>                                         0
<EXTRAORDINARY>                                   (1,823)
<CHANGES>                                              0
<NET-INCOME>                                      (1,612)
<EPS-BASIC>                                        (0.12)
<EPS-DILUTED>                                      (0.12)


</TABLE>


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