SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
COVOL TECHNOLOGIES, INC.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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COVOL TECHNOLOGIES, INC.
3280 North Frontage Road
Lehi, Utah 84043
January 17, 2000
Dear Stockholder:
You are cordially invited to attend the 2000 Annual Meeting of Stockholders
of Covol Technologies, Inc., which will be held on Wednesday, March 1, 2000, at
2:00 p.m., Mountain Standard Time, at the Provo Marriott Hotel, at 100 West 100
North, Provo, Utah 84601. In addition to the matters to be acted upon at the
meeting, which are described in the attached Notice of Annual Meeting of
Stockholders and Proxy Statement, there will be a report with respect to the
progress of Covol and an opportunity for stockholders to ask questions.
Whether or not you plan to attend the meeting, please complete, date, sign
and return the enclosed proxy card or voting instruction form in the
accompanying envelope as promptly as possible to ensure that your shares are
represented and voted in accordance with your wishes.
The Proxy Statement contains a more extensive discussion of each proposal and
therefore you should read the Proxy Statement carefully. After you have read the
Proxy Statement and accompanying instructions, you should execute and return the
enclosed form of proxy card or voting instructions with respect to the proposed
matters. THE BOARD OF DIRECTORS STRONGLY RECOMMENDS THAT YOU APPROVE ALL
PROPOSALS.
Only stockholders of record at the close of business on January 4, 2000 are
entitled to vote at the meeting. Stockholders are cordially invited to attend
the meeting in person. However, to assure your representation at the meeting,
please complete, date and sign the enclosed proxy card and return it promptly.
If you choose, you may still vote in person at the meeting even though you
previously submitted a proxy card.
If you have any questions after reading the Proxy Statement and other
materials we have sent, please call 1-800-566-9061. You will be able to talk to
someone from Morrow & Co., Inc., a shareholder services company that is helping
Covol with this Proxy Statement.
Sincerely,
/s/ Kirk A. Benson
------------------------------------
Kirk A. Benson
Chairman and Chief Executive Officer
THE BOARD ENCOURAGES STOCKHOLDERS TO ATTEND THE MEETING IN PERSON. WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE. STOCKHOLDERS
WHO ATTEND THE MEETING MAY VOTE THEIR SHARES PERSONALLY EVEN THOUGH THEY HAVE
SENT THEIR PROXIES.
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COVOL TECHNOLOGIES, INC.
3280 North Frontage Road
Lehi, Utah 84043
--------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, MARCH 1, 2000
--------------------
To the Stockholders of Covol Technologies, Inc.:
The 2000 annual Meeting of Stockholders (the "Meeting") of Covol
Technologies, Inc., a Delaware corporation ("Covol"), will be held on Wednesday,
March 1, 2000, starting at 2:00 p.m., Mountain Standard Time, at the Provo
Marriott Hotel, at 100 West 100 North, Provo, Utah 84601, for the following
purposes:
1. To elect one Class III director of Covol to serve until the
2003 annual meeting of stockholders, or until his successor is
duly elected and qualified;
2. To ratify the selection by the Board of PricewaterhouseCoopers
LLP as independent auditors of Covol for the fiscal year
ending September 30, 2000;
3. To ratify the issuance by Covol in March 1999 of convertible
Preferred Stock and convertible debt financing;
4. To approve an amendment to Covol's Certificate of
Incorporation increasing its authorized number of shares of
Common Stock from 25,000,000 to 50,000,000; and
5. To transact such other business as may properly come before
the Meeting and any and all adjournments or postponements
thereof.
The Board has fixed the close of business on Tuesday, January 4, 2000
as the record date for determining the stockholders entitled to notice of, and
to vote at, the Meeting. Only stockholders of record as of the record date are
entitled to notice of, and to vote at, the Meeting and any adjournments or
postponements thereof. A copy of the following materials accompany this notice:
Covol's Annual Report on Form 10-K for the year ended September 30, 1999, a
Proxy Statement and a proxy card, the March 31, 1999 Quarterly Report on Form
10-Q, as amended on October 6, 1999, and a Current Report on Form 8- K filed
March 24, 1999. These materials will be first sent to stockholders on or about
January 24, 2000.
Stockholders are cordially invited to attend the Meeting in person.
However, to assure your representation at the Meeting, please complete, date and
sign the enclosed proxy card and return it promptly. If you choose, you may
still vote in person at the Meeting even though you previously submitted a proxy
card.
By Order of the Board of Directors,
Harlan M. Hatfield
Secretary
Lehi, Utah
January 17, 2000
Your vote is important.
You are urged to date, sign and promptly return your proxy card so that your
shares may be voted in accordance with your wishes and that the presence of a
quorum may be assured. The prompt return of your signed proxy card, regardless
of the number of shares you hold, will aid Covol in avoiding the expense of
additional proxy solicitations. Giving your proxy does not affect your right to
vote in person at the meeting or your right to resubmit later dated proxy cards.
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COVOL TECHNOLOGIES, INC.
3280 North Frontage Road
Lehi, Utah 84043
--------------------
PROXY STATEMENT
Annual Meeting of Stockholders
To Be Held on Wednesday, March 1, 2000
--------------------
GENERAL INFORMATION
This Proxy Statement is being furnished to the stockholders of Covol
Technologies, Inc. ("Covol"), in connection with the solicitation of proxies on
behalf of the Board of Directors of Covol (the "Board") for use at Covol's 2000
Annual Meeting of Stockholders and any and all adjournments or continuations
thereof (the "Meeting"), to be held Wednesday, March 1, 2000, starting at 2:00
p.m., Mountain Standard Time, at the Provo Marriott Hotel, at 100 West 100
North, Provo, Utah 84601, for the purposes set forth in the accompanying Notice
of Annual Meeting of Stockholders (the "Notice"). These materials will be first
mailed to stockholders on or about January 24, 2000.
PURPOSE OF ANNUAL MEETING
At the Meeting, stockholders will be asked: (i) to elect one class III
director of Covol to serve until the 2003 annual meeting of stockholders, or
until his successor is duly elected and qualified; (ii) to ratify the selection
by the Board of PricewaterhouseCoopers LLP as independent auditors of Covol for
the fiscal year ending September 30, 2000 ("Fiscal 2000"); (iii) to ratify the
issuance by Covol in March 1999 of convertible Preferred Stock and convertible
debt financing; (iv) to approve an amendment to Covol's Certificate of
Incorporation increasing its authorized number of shares of Common Stock from
25,000,000 to 50,000,000; and (v) to transact such other business as may
properly come before the Meeting or any adjournments or postponements thereof.
Covol's Common Stock, $.001 par value, and its Series D Convertible
Preferred Stock (collectively, the "Voting Stock") will be entitled to vote as a
single class at the Meeting. If a quorum exists, action on items (ii) and (iii)
above will be approved by affirmative vote of the holders of a majority of the
shares of Voting Stock, present or represented by proxy at the Meeting and
entitled to vote on such matters. Broker non-votes will not be considered to be
present for such purpose. If a quorum exists, action on item (iv) above will be
approved by affirmative vote of the holders of a majority of the Voting Stock.
Directors are elected by a plurality of the Voting Stock represented at the
meeting. The Board recommends a vote "FOR" each of the proposals. The Board
knows of no other matters which are likely to be brought before the Meeting. If
any other matters properly come before the Meeting, however, the person named in
the enclosed proxy, or his duly constituted substitute acting at the Meeting,
will be authorized to vote or otherwise act thereon in accordance with his
judgment on such matters. If the enclosed proxy is properly executed and
returned prior to voting at the Meeting, the shares represented thereby will be
voted in accordance with the instructions marked thereon. In the absence of
instructions, executed proxies will be voted "FOR" the items listed in the
Notice.
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QUORUM, VOTING RIGHTS AND OTHER MATTERS
The presence, in person or by proxy, of the holders of a majority of
the voting power of the Voting Stock is necessary to constitute a quorum at the
Meeting. Only stockholders of record at the close of business on Tuesday,
January 4, 2000 (the "Record Date"), will be entitled to notice of, and to vote
at, the Meeting. As of the Record Date, there were 17,176,911 shares of Common
Stock outstanding and 62,108 shares of Preferred Stock issued and outstanding
under three series designated as series A, series B, and series D. Only the
series D Preferred Stock has voting rights. Each share of series D Preferred
Stock is entitled to one vote for each share of Common Stock issuable upon
conversion of such preferred share, limited however to 2,481,925 shares, which
number is 19.9% of the outstanding shares of Common Stock outstanding as of
March 17, 1999, the date of issuance of the series D Preferred Stock. As a
result of the 19.9% limitation and further reduced by conversions into Common
Stock up to the Record Date, the maximum number of shares of Common Stock which
could have been issued on conversion on the Record Date, and therefore the
Common Stock equivalent voting power of the Series D Preferred Stock on such
date, was 878,150 shares. Without regard to the 19.9% limitation, the 44,798
shares of series D Preferred Stock outstanding on the Record Date would have
been convertible into 9,556,908 shares of Common Stock on that date. Therefore,
there are a total of 18,055,061 shares of Voting Stock which can vote as of
January 4, 2000, consisting of 17,176,911 shares of Common Stock and 878,150
shares of Common Stock issuable upon conversion of the series D Preferred Stock.
Holders of Common Stock as of the Record Date are entitled to one vote for each
share held. Holders of Common Stock and holders of Preferred Stock are not
entitled to cumulative voting rights.
All shares of Voting Stock represented by properly executed proxies
will, unless such proxies have previously been revoked, be voted in accordance
with the instructions indicated in such proxies. If no such instructions are
indicated, such shares will be voted in favor of (i.e., "FOR") the items listed
in the Notice. Abstentions and broker non-votes will be counted as shares
present for quorum purposes. Abstentions otherwise will have the effect of a
vote against Proposals 2 through 4. Broker non-votes will not affect the outcome
of Proposals 2 and 3, but will have the same effect as a vote against Proposal
4. Abstentions and broker non-votes have no effect on the outcome of the
election of directors.
As described above, abstentions (including failures to return a proxy
or cast a vote) and broker non-votes are effectively the same as votes "against"
Proposal 4. Broker non-votes result from stockholders who own stock through a
brokerage account failing to properly instruct their broker how to vote their
shares. Due to the critical nature of these Proposals, Covol urges every
stockholder to vote (by proxy or in person) at this meeting.
Any stockholder executing a proxy has the power to revoke such proxy at
any time prior to its exercise. A proxy may be revoked prior to exercise by (i)
filing with Covol a written revocation of the proxy, (ii) appearing at the
Meeting and casting a vote contrary to that indicated on the proxy, or (iii)
submitting a duly executed proxy bearing a later date.
The cost of preparing, printing, assembling and mailing this Proxy
Statement and other material furnished to stockholders in connection with the
solicitation of proxies will be borne by Covol. In addition to the solicitation
of proxies by use of the mails, officers, directors, employees and agents of
Covol may solicit proxies by written communication, telephone, telegraph or
personal call. Such persons are to receive no special compensation for any
solicitation activities. Covol will reimburse banks, brokers and other persons
holding Common Stock in their names, or those of their nominees, for their
expenses in forwarding proxy solicitation materials to beneficial owners of
Common Stock.
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<PAGE>
EXECUTIVE OFFICERS
The following table sets forth (i) the names of the executive officers,
(ii) their ages as of the Record Date and (iii) the capacities in which they
serve Covol:
Name Age Position(s) Officer Since
---- --- ----------- -------------
Kirk A. Benson 49 Chief Executive Officer and 1999
Chairman of the Board
Brent M. Cook 39 President and Director 1996
Steven G. Stewart 51 Chief Financial Officer 1998
Harlan M. Hatfield 39 Vice President, General Counsel 1998
and Secretary
See "Proposal No. 1 -- Election of Director - Nominee for Election as
Director" for biographical information regarding Messrs. Benson and Cook.
Steven G. Stewart was appointed Chief Financial Officer of Covol in July 1998,
and served as Vice President of Finance and Treasurer from April 1998 through
July 1998. From October 1996 through March 1998, Mr. Stewart was a business
assurance partner at PricewaterhouseCoopers LLP (formerly Coopers & Lybrand
LLP), with primary responsibility for public companies operating in the high
technology, mining and extractive industries. From January 1994 through
September 1996, Mr. Stewart was self-employed and provided consulting services
to high technology companies, established strategic alliances, advised companies
on alternative valuation methods applicable to acquisition targets and
negotiated acquisition/sale transactions. Prior to 1994, Mr. Stewart was an
audit partner with Ernst & Young (formerly Arthur Young) and was the Salt Lake
City office Director of High Technology and Entrepreneurial Services. Mr.
Stewart is a Certified Public Accountant.
Harlan M. Hatfield has served as Corporate Counsel since October 1996, as Vice
President and General Counsel since July 1998, and as Secretary since July 1999.
His primary activities with Covol have been the development of synthetic fuel
projects, including licensing, financing, permitting, construction, feedstocks,
site selection, and other aspects of project development. As General Counsel he
oversees the legal staff and outside legal counsel, litigation, regulatory
disputes, contracts, and other legal matters. Prior to his employment with
Covol, he was in private practice at the Seattle law firm of Oles, Morrison and
Rinker for more than nine years where he was a partner.
EXECUTIVE COMPENSATION AND RELATED INFORMATION
The following sets forth the compensation of Covol's Chief Executive
Officer, the other officers who were executive officers as of September 30, 1999
and whose total annual salary and bonus exceeded $100,000 in fiscal 1999, and
one officer who served as an executive officer during the year whose total
annual salary and bonus exceeded $100,000. The amounts shown represent what was
earned in the respective years.
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<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
------------------------------------ ---------- -----------
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Name and Salary Bonus Compensation Awards Options Payouts Compensation
Principal Position Year ($) ($) ($)(3) ($) (#)(4) ($) ($)
- -------------------------------- --------- --------- ---------------- ------------ ------------------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kirk A. Benson (1) 1999 80,000 - 13,142 - 250,000 - -
Chief Executive
Officer
Brent M. Cook 1999 180,000 - 52,845 - - - -
President 1998 133,333 54,400 53,120 - 250,000 - -
1997 93,811 - 46,520 - - - -
Steven G. Stewart (2) 1999 119,580 - 6,325 - 50,000 - -
Chief Financial 1998 56,175 - 2,750 - 50,000 - -
Officer
Stanley M. Kimball (2) 1999 112,500 - 81,368 - - - -
Vice President 1998 100,000 5,366 287,850 - 100,000 - -
1997 66,667 - 215,334 - 50,000 - -
- ------------------
</TABLE>
(1) Mr. Benson was appointed Chairman and CEO in April 1999. The above
salary for Mr. Benson is for the period April 1999 through September
1999. Prior to his appointment as CEO, Mr. Benson was not an officer or
employee of Covol, but served as a director for which he earned $10,667
of director fees. These director fees, along with $2,475 of other
compensation, are included in other annual compensation in the above
table.
(2) Mr. Stewart was employed by Covol in May 1998. The 1998 salary for Mr.
Stewart is for the period May 1998 through September 1998. Mr. Kimball
was employed by Covol in January 1997. The 1997 salary for Mr. Kimball
is for the period January 1997 through September 1997.
(3) For Messrs. Cook and Kimball, other annual compensation represents
primarily compensation expense from the grant of options to purchase
Common Stock which have an exercise price at grant date below market
value. Compensation is recognized during the period the stock options
vest. In 1999, it also includes $6,325 of other compensation for
Messrs. Cook and Stewart and $11,325 of other compensation for Mr.
Kimball. In 1998, it includes $6,600 of other compensation for Messrs.
Cook and Kimball and $2,750 for Mr. Stewart. In 1997, it includes
$4,400 of other compensation for Mr. Kimball.
(4) The 1998 option grant to Mr. Cook for the purchase of 250,000 shares of
Common Stock was approved by stockholders in March 1999. The option
grants to Messrs. Benson, Stewart and Kimball were granted under the
1995 Stock Option Plan.
Other than Covol's 1995 Stock Option Plan, there are no retirement,
pension, or profit sharing plans for the benefit of Covol's officers, directors
and employees. Covol provides health, dental and life insurance coverage for its
employees. The Board of Directors may recommend and adopt additional programs in
the future for the benefit of officers, directors and employees.
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Option Grants in 1999
The following table sets forth certain information concerning options
to purchase Common Stock granted during fiscal 1999 to the executives named in
the Summary Compensation Table.
<TABLE>
<CAPTION>
OPTION GRANTS IN 1999
- ---------------------------------------------------------------------------------------------------------------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees in Exercise Expiration Grant Date
Name Granted (#) 1999 Price ($/Sh)(1) Date Value ($)(2)
- ---------------------- ------------------------------------ ------------------ --------------------------------------
<S> <C> <C> <C> <C> <C>
Kirk A. Benson 250,000 57.5% 4.13 May 2009 668,300
Steven G. Stewart 50,000 11.5% 5.88 December 2008 182,115
- ------------------
</TABLE>
(1) The exercise price was equal to the fair market value on the date of
grant, determined by the closing price of the Common Stock as reported
by the NASDAQ stock market.
(2) Determined using the Black-Scholes option valuation model.
Aggregated Option Exercises in 1999 and September 30, 1999 Option Values
The following table summarizes for the named executive officers of
Covol the number of stock options exercised during fiscal 1999, the aggregate
dollar value realized upon exercise, the total number of unexercised options
held at September 30, 1999 and the aggregate dollar value of in-the-money
unexercised options held at September 30, 1999. Value realized upon exercise is
the difference between the fair market value of the underlying stock on the
exercise date (based upon the closing price of Common Stock as reported by the
NASDAQ stock market for the exercise date) and the exercise price of the option.
Options are in-the-money if the fair market value of the underlying securities
exceeds the exercise price of the option. The value of unexercised, in-the-money
options at September 30, 1999 is the aggregate amount of the difference between
their exercise price and $2.50 per share, the fair market value of the
underlying stock on September 30, 1999, based on the closing price of the Common
Stock on that date. The underlying options have not been and may never be
exercised. The actual gains, if any, on exercise will depend on the value of the
Common Stock on the actual date of exercise. There can be no assurance that
these values will be realized.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN 1999 AND SEPTEMBER 30, 1999 OPTION VALUES
Shares Number of Securities Value of Unexercised
Acquired Value Underlying Unexercised In-the-Money Options at
on Exercise Realized Options at 9/30/99 (#) 9/30/99 ($)
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---------------------- --------------- ----------------------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Kirk A. Benson 0 0 0 / 250,000 0 / 0
Brent M. Cook 0 0 180,333 / 207,167 109,500 / 28,000
Steven G. Stewart 0 0 20,833 / 79,167 0 / 0
Stanley M. Kimball 0 0 110,417 / 84,583 45,000 / 0
</TABLE>
5
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Long-Term Incentive Plan ("LTIP") Awards in 1999
Covol granted no LTIP awards in fiscal 1999.
Future Benefits of Pension Plan Disclosure in 1999
Covol has no such benefit plans.
Stock Option Plans
1995 Stock Option Plan. Covol has only one stock option plan, the 1995
Stock Option Plan (the "Plan"), under which 2,400,000 shares of Common Stock are
reserved for ultimate issuance. A committee of Covol's Board of Directors, or in
its absence, the Board (the "Committee") administers and interprets the Option
Plan. This Committee is authorized to grant options and other awards both under
the terms of the Option Plan and outside the Option Plan to eligible employees,
officers, directors, and consultants of Covol. The Option Plan provides for the
granting of both incentive stock options and non-statutory stock options. Terms
of options granted under the Option Plan, including vesting requirements, are
determined by the Committee. Options granted under the Option Plan vest over
periods ranging from 0 to ten years, expire ten years from the date of grant and
are not transferable other than by will or by the laws of descent and
distribution. Incentive stock option grants must meet the requirements of the
Internal Revenue Code.
As of September 30, 1999, Covol had issued 900,000 shares of Common
Stock upon exercise of options granted under the Plan, and options for the
purchase of an aggregate of 1,281,500 shares of Common Stock (net of exercises
and cancellations) were outstanding under the Plan. Options for an additional
218,500 shares could be granted in the future, under terms of the Plan. During
fiscal 1999, options to purchase 579,000 shares of Common Stock were granted to
six officers and employees and four non-employee directors of Covol, of which
300,000 were granted to the named executives, as shown in the Summary
Compensation Table. The option grants to the named executives have terms of 10
years, an exercise price equal to the fair market value of Covol's Common Stock
on the date of grant ($4.13 for Mr. Benson, and $5.88 for Mr. Stewart), and vest
ratably over a three-year period, beginning the year following the grant date
for Mr. Benson, and ratably over a 60-month period, beginning the month
following the grant date for Mr. Stewart.
Other Options. In addition to options granted under the Plan, Covol has
granted options for the purchase of Common Stock to employees, officers,
directors and consultants outside the Plan that were not qualified as incentive
stock options for tax purposes. Such option grants totaled 88,000 shares in
fiscal 1999, of which 28,000 were granted to four non-employee directors, and
60,000 were granted to consultants.
Employment Contracts and Termination of Employment and Change in Control
Arrangements
Kirk A. Benson. Effective April 1999, Covol and Mr. Benson entered into
an employment agreement covering the succeeding three-year term, with a salary
of $15,000 per month until adjusted by the Board of Directors. The employment
agreement further provides for participation in Covol's incentive bonus plan, if
any, as in effect from time to time, expense reimbursement, and the grant of
stock options. Specifically, the agreement provides for the grant of options for
250,000 shares of Common Stock at an exercise price of $4.13 per share, to vest
on a pro rata basis at the beginning of each 12 month anniversary during the
term of the employment agreement, which are exercisable through April 2009, with
full vesting upon disability or death. Under the agreement, Mr. Benson is
entitled to six weeks annual paid vacation, a monthly car allowance of $550, and
other benefits comparable to those generally available to Covol employees. If
his employment is terminated by Covol without cause or
6
<PAGE>
terminated by Mr. Benson for good reason, he is entitled to termination benefits
equal to 100% of his then annual base salary.
Brent M. Cook. In April 1998, Covol and Mr. Cook entered into an
employment agreement covering the succeeding five year term, with the salary to
be established by the Board of Directors consistent with an annual compensation
review of comparable positions of public companies. The employment agreement
further provides for participation in Covol's incentive bonus plan, if any, as
in effect from time to time, expense reimbursement, and the grant of stock
options. Specifically, the agreement provides for the grant of options for
250,000 shares of Common Stock at an exercise price of $12.97 per share, to vest
on a pro rata basis at the beginning of each month during the term of the
employment agreement, which are exercisable through April 2008, with full
vesting upon disability or death. Under the agreement, Mr. Cook is entitled to
six weeks annual paid vacation, a monthly car allowance of $550, an annual
dental allowance of $4,500, and other benefits comparable to those generally
available to Covol employees. If his employment is terminated by Covol without
cause or terminated by Mr. Cook for good reason, he is entitled to termination
benefits equal to 100% of his then annual base salary.
Steven G. Stewart. Effective May 1998, Covol and Mr. Stewart entered
into an employment agreement, as amended, covering a three-year period, unless
terminated by Covol for cause or disability, or by Mr. Stewart for certain
Company actions which constitute good cause or without good reason provided 90
days prior written notice is given. Mr. Stewart's regular monthly salary will be
at least $8,334 for the period from May 1998 through September 1999 and $11,360
thereafter. The employment agreement further provides for participation in
Covol's incentive bonus plan, if any, as in effect from time to time, and the
grant of stock options. Specifically, the agreement provides for the grant of
options for 50,000 shares of Common Stock at an exercise price of $12.63 per
share, to vest on a pro rata basis over 60 months beginning May 1998, which are
exercisable through April 2008, with full vesting upon disability or death. In
addition, Mr. Stewart receives a monthly car allowance of $550 and if employment
is terminated by Covol without cause or terminated by Mr. Stewart for good
reason, he is entitled to termination benefits equal to 200% of his then annual
base salary and all outstanding options vest immediately.
Stanley M. Kimball. In January 1997, Covol and Mr. Kimball entered into
an employment agreement covering the succeeding three-year period. Mr. Kimball's
employment with Covol terminated effective as of January 1, 2000. Mr. Kimball
alleged his employment was constructively terminated by Covol, which allegation
Covol disputes. The employment agreement called for payment of two years' base
salary upon constructive termination of employment; however, in settlement of
any claims under the employment agreement, the parties agreed that Mr. Kimball
would be paid an amount approximating one year's base compensation.
Board Meetings
The Board held a total of ten regular meetings and four special
meetings during fiscal 1999. All directors attended over 75% of the aggregate
number of regular meetings of the Board.
Committees of the Board
The Board of Directors has two committees, an Audit Committee and a
Compensation Committee, both of which are comprised solely of outside directors.
The Compensation Committee consists of Mr. Weller, as chair, and Mr. Herickhoff.
The Audit Committee consists of Mr. Herickhoff, as chair, Mr. Squire, and Mr.
Hill. The Audit Committee held two meetings in fiscal 1999. The Compensation
Committee held one meeting in fiscal 1999.
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<PAGE>
Compensation Committee Report on Executive Compensation
The Compensation Committee reviews and makes recommendations to the
Board of Directors concerning the overall compensation for Covol's officers and
other key executives, including the named executives. The Committee also
oversees the granting of stock options to all executives and employees of Covol.
Future compensation polices will be dependent on Covol's cash flow and employee
performance.
Covol seeks to compensate executives at competitive levels, considering
current compensation surveys for companies in similar industries and development
patterns, the growth of Covol, each executive's individual contribution to
meeting Covol's goals and objectives, and overall business conditions as part of
the total benefit package for employees.
The current employment agreement for Mr. Benson was approved by the
Board of Directors in a meeting on April 20, 1999. The Compensation Committee
recommended the cash compensation and grant of options to Mr. Benson based on
Mr. Benson's prior business experience and ability to meet Covol's objectives as
well as the compensation that was paid to Covol's prior CEO.
The Compensation Committee strives to ensure that Covol's compensation
plan attracts, retains and rewards both staff and management personnel while
continuing to operate in the best interests of the stockholders.
Compensation Committee,
Raymond J. Weller, Chairman
James A. Herickhoff
January 7, 2000
Compensation of Directors
Covol's directors hold office until the end of their respective terms
or until their successors have been duly elected and qualified.
Outside directors are entitled to annual cash compensation of up to
$32,000, which is paid quarterly. The outside directors are also entitled to
1,000 options for each month of service, subject to vesting limitations. The
Chairman of the Board, unless a salaried employee of Covol, is entitled to cash
compensation and options on the same vesting terms, but in the amount of 125% of
that which may be received by the other directors. Directors receive
reimbursement for out-of-pocket expenses. The cash compensation and options
described in this section do not apply to directors who are salaried employees
of Covol.
In December 1998, each of Covol's outside directors received (i) 7,000
options for the period of service from the fiscal 1998 annual shareholders'
meeting to the fiscal 1999 shareholders' meeting, subject to vesting, and (ii)
36,000 options for the three-year period following the 1999 annual shareholders'
meeting, subject to vesting, on a pro rata basis, at the fiscal 2000, 2001 and
2002 annual shareholders' meetings. The options granted in December 1998 are
exercisable at the closing price of the Common Stock on the grant date. The
option grants described in (ii) above were granted under the 1995 Stock Option
Plan.
Covol's executive officers are appointed by the Board of Directors and
serve at the discretion of the Board. The authority of the Board of Directors
over the officers of Covol has been delegated to the Chief Executive Officer.
8
<PAGE>
Stockholder Return Performance Graph
The following graph shows a comparison of the cumulative total
stockholder return, calculated on a dividend reinvestment basis, for September
30, 1994 through September 30, 1999, on Covol's Common Stock with (1) the NASDAQ
Composite Index--U.S. and (2) the Standard & Poors Energy Composite Index. The
comparison assumes $100 was invested on September 30, 1994.
Please note that historic stock price performance shown on the graph is
not necessarily indicative of future price performance. Covol has not paid
dividends on its Common Stock.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Total Returns Assume Reinvestment of Dividends
9/30/94 9/30/95 9/30/96 9/30/97 9/30/98 9/30/99
------------- ------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Covol $100 $240 $264 $296 $300 $80
S&P Energy Composite 100 120 150 221 209 249
NASDAQ Composite (US) 100 138 164 225 229 372
</TABLE>
9
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS, NOMINEES
AND PRINCIPAL STOCKHOLDERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of January 4,
2000 regarding the beneficial ownership of Covol's Common Stock, for: (i) each
person (or group of affiliated persons) who, insofar as Covol has been able to
ascertain, beneficially owned more than 5% of the outstanding shares of Common
Stock; (ii) each director and executive officer of Covol; and (iii) all
directors and executive officers of Covol as a group. Covol has relied on
information received from each stockholder as to beneficial ownership, including
information contained on Schedules 13D and Forms 3, 4 and 5. As of January 4,
2000, there were 17,176,911 shares of Common Stock outstanding. As of that date,
there were outstanding options to purchase 2,969,250 shares of Common Stock,
outstanding warrants to purchase 4,298,053 shares of Common Stock, outstanding
shares of Preferred Stock convertible into approximately 9,999,790 shares of
Common Stock, and outstanding debt convertible into approximately 7,877,387
shares of Common Stock.
Name and Address of Amount and Nature of Percent of
Beneficial Owner (1) Beneficial Ownership(2) Class
-------------------- ----------------------- -----
OZ Master Fund, Ltd.(3) 10,278,971 (4) 37.6%
153 East 53rd Street
New York, NY 10022
Joe K. Johnson(5) 3,779,268 (6) 19.2%
8989 South Schofield Circle
Sandy, UT 84093
DH Financial, L.C.(7) 3,814,725 (8) 18.2%
5478 Green Street
Murray, Ut 84123
Directors
Kirk A. Benson 827,220 (9) 4.7%
Brent M. Cook 208,917(10) 1.2%
Raymond J. Weller 362,838(11) 2.1%
DeLance W. Squire 42,500(12) *
James A. Herickhoff 34,500(13) *
John P. Hill, Jr. 33,500(14) *
Executive Officers
Steven G. Stewart 30,000(15) *
Harlan M. Hatfield 67,500(16) *
All directors and executive officers as a 1,606,975(17) 8.9%
group (eight persons)
- ------------------
* Less than 1%
(1) Unless otherwise indicated, the address of each person named in the
table is c/o Covol, 3280 North Frontage Road, Lehi, Utah 84043.
10
<PAGE>
(2) The persons named in this table have sole voting and investment power
with respect to all shares of Common Stock reflected as beneficially
owned by them. A person is deemed to be the beneficial owner of
securities that can be acquired by such person within sixty (60) days
from January 4, 2000, and the total outstanding shares used to
calculate each beneficial owner's percentage includes such shares.
Beneficial ownership as reported does not include shares subject to
option or conversion that are not exercisable within 60 days of January
4, 2000.
(3) OZ Master Fund, Ltd. is owned by more than 150 investors and is managed
by OZ Management L.L.C., which is also deemed to be the beneficial
owner of the listed shares.
(4) Consists of 150,633 shares held by OZ Master Fund, Ltd. on the record
date and for which OZ Master Fund, Ltd. has voting power, of which
150,603 shares were in process of being transferred, 9,556,908 shares
issuable upon conversion of 44,798 shares of series D Preferred Stock,
convertible within 60 days of January 4, 2000, and warrants for 571,430
shares exercisable within 60 days of January 4, 2000 at prices ranging
from $5.00 to $10.00 per share. Does not include 3,000,000 shares
issuable on conversion of convertible debt. Actual voting power
includes only 1,028,783 shares due to the limitation on conversion
to19.9% of the outstanding shares of Common Stock outstanding as of
March 17, 1999, the date of issuance of the series D Preferred Stock.
(5) Covol has been informed that Joe K. Johnson, a lender to Covol, owns
99% of Aspen Capital Resources, LLC, also a shareholder and lender to
Covol.
(6) Consists of 1,232,748 shares held by Mr. Johnson and by Aspen Capital
Resources, LLC on the record date and for which they have voting power,
of which 846,841 shares were in process of being transferred, warrants
for 549,133 shares exercisable within 60 days of January 4, 2000, at
prices ranging from $3.60 to $7.00 per share, and 1,997,387 shares
issuable upon conversion of convertible debt held by Aspen Capital
Resources, LLC convertible within 60 days of January 4, 2000.
(7) Covol has been informed that DH Financial, L.C. is owned 50% each by
Mr. Corwin L. Hair and Mr. Brad Dennis.
(8) Consists of warrants for 934,725 shares exercisable within 60 days of
January 4, 2000 at $.88 per share, and 2,880,000 shares issuable upon
conversion of convertible debt within 60 days of January 4, 2000.
(9) Consists of 471,665 shares owned by Mr. Benson and warrants for 355,555
shares exercisable within 60 days of January 4, 2000 at $7.50 to $12.00
per share.
(10) Consists of 3,750 shares owned by Mr. Cook and options to purchase
205,167 shares held by Mr. Cook which are exercisable within 60 days of
January 4, 2000.
(11) Consists of 295,088 shares owned by Mr. Weller and options to purchase
67,750 shares held by Mr. Weller which are exercisable within 60 days
of January 4, 2000.
(12) Consists of 2,500 shares owned by Mr. Squire and options to purchase
40,000 shares held by Mr. Squire which are exercisable within 60 days
of January 4, 2000.
(13) Consists of options to purchase 34,500 shares held by Mr. Herickhoff
which are exercisable within 60 days of January 4, 2000.
11
<PAGE>
(14) Consists of options to purchase 33,500 shares held by Mr. Hill which
are exercisable within 60 days of January 4, 2000.
(15) Consists of options to purchase 30,000 shares held by Mr. Stewart which
are exercisable within 60 days of January 4, 2000.
(16) Consists of options to purchase 67,500 shares held by Mr. Hatfield
which are exercisable within 60 days of January 4, 2000.
(17) Consists of 773,003 shares issued and outstanding, and options and
warrants to purchase 833,972 shares which are exercisable within 60
days of January 4, 2000.
TRANSACTIONS WITH RELATED PARTIES
Major Financing Transaction. On March 17, 1999, Covol completed a
financing transaction (the "Financing") with OZ Master Fund, Ltd., an affiliate
of the Och-Ziff Capital Management Group. The Financing consisted of the
issuance of $20,000,000 face value of convertible secured debt, issued at a 50%
discount, and the issuance of 60,000 shares of cumulative convertible preferred
stock (series D) for $6,000,000, for total gross proceeds of $16,000,000.
Warrants for the purchase of Common Stock were also issued as part of the
Financing. Net cash proceeds were used to retire maturing short-term debt and
related accrued interest, for working capital uses and other general corporate
purposes. This transaction is described in detail in the accompanying Form 8-K
filed March 24, 1999 and in the accompanying Form 10-Q/A for the quarterly
period ended March 31, 1999, both of which are incorporated herein by reference.
Beginning in November 1999 and through January 4, 2000, Covol has issued
1,603,775 shares of Common Stock on conversion of 15,202 shares of series D
Preferred Stock.
Sale of Series C Convertible Preferred Stock. During January 1999,
Covol completed a financing transaction with Joe K. Johnson, a major shareholder
and lender to Covol, that consisted of the sale of 1,000 shares of a new series
of non-voting preferred stock, designated as Series C 7% Convertible Preferred
Stock. Covol received $900,000 in net proceeds from the issuance of this
preferred stock, which has the following rights and privileges:
_ Dividends on the preferred stock are cumulative and accrue whether or
not they have been declared or whether Covol has any profits. The
dividend rate is 7% per year of the liquidation value of $1,000 per
share.
_ The preferred stock is convertible into common shares in incremental
stages beginning April 1999 through July 1999, at which time all of the
outstanding shares became convertible to Common Stock. The number of
common shares to be received upon conversion is determined by
multiplying the number of preferred shares by $1,000 and dividing that
number by the conversion price (originally $5.50 per share, subject to
market adjustment). Upon conversion, all accrued and unpaid dividends
are paid or converted into shares of Common Stock.
_ Covol may at its option redeem the outstanding preferred stock
beginning July 1999 for a redemption price equal to 125% of the
liquidation value plus any accrued and unpaid dividends thereon.
12
<PAGE>
Warrants for the purchase of 72,727 shares of Common Stock were issued
in conjunction with this preferred stock. The warrants are exercisable from
April 1999 through July 2001 at an exercise price of $6.88 per share. The
warrants issued and changes made to other existing warrants were valued at
approximately $500,000. The exercise deadline for certain other warrants with an
exercise price of $7.00 per share held by Mr. Johnson were extended to June 2000
and certain additional warrants with an exercise price of $30.00 per share were
relinquished and canceled. Covol granted registration rights for the restricted
common shares issuable upon conversion of the preferred stock or upon exercise
of the common stock warrants. Through January 4, 2000, all of the Series C
preferred stock had been converted. Approximately 237,000 shares of Common Stock
were issued on conversion of the preferred stock and related accrued but unpaid
dividends.
Issuance of Convertible Debt to Aspen Capital Resources, LLC . In
September 1999, Covol entered into a transaction with Aspen Capital Resources,
LLC ("Aspen"), which is 99% owned by Joe K. Johnson, a major shareholder and
lender to Covol, to provide financing of up to $4 million in the form of
convertible secured debt. The agreement provides for Covol to make draws as
needed. Covol received $850,000 at the time of closing, less a placement fee of
10%, and subsequent to September 30, 1999 received a total of $1,650,000, less a
placement fee of 10%. The debt is convertible at $3.00 per share, or market,
whichever is less, and is convertible at the rate of 25% every 30 days beginning
30 days from the date of closing, subject to certain restrictions. Covol can
redeem all outstanding debt at a rate of 125% of face value by providing 30 days
notice. Borrowings are due in March 2001, if not converted earlier, and interest
payments are due quarterly beginning March 2000. Covol assigned the royalties to
be received from a licensed synthetic fuel facility as collateral for the
financing. In November and December 1999, approximately 2,532,000 shares of
Common Stock were issued on conversion of $1,460,000 of the convertible debt.
The agreement requires the issuance of warrants to purchase Covol
shares equal to 40% of the shares issuable under any borrowings under this
financing arrangement. The warrants have a three-year exercise period and an
exercise price of $3.60 per share. Warrants for the purchase of a total of
approximately 350,000 shares of Common Stock were issued and were assigned a
value, using the Black-Scholes option valuation model, of approximately
$477,000.
Issuance of Convertible Debt to DH Financial, L.C. In December 1999,
Covol placed the final $1,500,000 of financing with DH Financial, L.C. rather
than Aspen providing the entire $4,000,000 of funding as provided under the
September financing arrangement. The terms and conditions of the financing with
DH Financial, L.C. are similar to the September financing. As of December 20,
1999, Covol had received a total of $1,500,000, less a placement fee of 10%. The
debt is convertible at $.73 per share, the market price at closing, or market
price on the conversion date, whichever is less. The debt is convertible after
January 21, 2000.
The agreement requires the issuance of warrants to purchase Covol
shares equal to 40% of the shares issuable under the debt agreement. Warrants
for the purchase of approximately 935,000 shares were issued. The warrants have
a three-year exercise period and an exercise price of $.88 per share, and were
assigned a value, using the Black-Scholes option valuation model, of
approximately $269,000.
Trans Pacific Stores, Ltd. ("TPS"). On March 17, 1998, Covol entered
into a loan agreement in which TPS, a company for which Mr. John Hill, a
director of Covol, serves as president, agreed to loan Covol up to $4,000,000.
The loan was secured by future earned license fees payable to Covol resulting
from the synthetic fuel manufacturing facilities constructed by Pace Carbon
Fuels, LLC. Interest on the outstanding principal balance originally accrued at
12%. The interest rate increased to 13% on September 20, 1998 and to 14% on
December 20, 1998. Each time the interest rate was adjusted, a 1% renewal fee of
$40,000 was incurred. Principal and interest were due and paid in full on March
20, 1999.
13
<PAGE>
On June 12, 1998, Covol entered into another loan agreement in which
TPS agreed to loan Covol an additional amount up to $4,000,000. This loan is
secured by a certain promissory note between Covol and Gerald Larson and future
cash flows payable to Covol resulting from the synthetic fuel manufacturing
facilities constructed and owned by Appalachian Synfuel, L.L.C., a wholly-owned
subsidiary of Fluor Corporation. Warrants to purchase 100,000 shares of Common
Stock were granted in October 1998 based on the outstanding principal balance at
that time. The warrants were assigned a value, using the Black-Scholes option
valuation model, of approximately $247,000. Interest on the outstanding
principal balance accrued at 18% per annum until October 1998, at which time it
increased to 22%. Principal and interest were originally due and payable June
12, 1999. The terms of this loan were amended in May 1999 to provide that
$1,000,000 of principal is due in December 1999 and $3,000,000 of principal is
due in April 2000. Subsequent to June 12, 1999, interest is payable monthly at a
rate of 14%. Additionally, the terms of existing warrants for the purchase of
185,713 shares of Common Stock were amended to extend the exercise periods for
one year and to lower the exercise prices to market value of Covol's Common
Stock. The warrants were assigned a value, using the Black-Scholes option
valuation model, of approximately $244,000.
Financing Transactions with Officer and Director. During November 1998,
Covol completed a financing transaction with several investors, one of whom was
Kirk A. Benson, then a major shareholder, and currently the Chairman and CEO of
Covol. Mr. Benson purchased 300,000 units at $5.00 per unit, for total cash
proceeds of $1,500,000. Each unit consisted of one share of Common Stock and a
warrant for the purchase of one share of Common Stock at a price of $7.50. The
warrants were exercisable until November 12, 1999, at which time they expired
unexercised.
Employment Agreements. Covol has entered into employment agreements
with Messrs. Benson, Cook, Stewart and Kimball which provide for significant
benefits. See "Employment Contracts and Termination of Employment and Change in
Control Arrangements."
$500,000 Loan from Certain Officers. In November 1996, Steven R. Brown,
an officer, loaned $280,000 and Asael T. Sorensen, Jr., a former officer, loaned
$220,000 to Covol which accrued interest at prime plus 2%. Principal and
interest was due on or before November 26, 2002. As of September 30, 1998,
approximately $353,000 had been paid by Covol toward the repayment of the loans.
The remaining balance of approximately $147,000 was paid by Covol during fiscal
1999. The purpose of the loans was to provide operating capital for Covol.
Related Partnerships. In June 1996, Covol formed Utah Synfuel #1 ("US
#1") and Alabama Synfuel #1 ("AS #1"), for the purpose of facilitating the
financing and construction of synthetic fuel facilities in Utah and Alabama,
respectively. Mr. Russell Madsen, Mr. Dean Young, Mr. Kenneth M. Young, Mr. Alan
D. Ayers, Mr. Asael T. Sorensen, Jr., Mr. Steven R. Brown, and Mr. Michael Q.
Midgley (former or current officers and directors of Covol) acquired interests
in US #1 and AS #1. Their aggregate interests represented approximately 8.1% of
the contributed capital of US #1 and 0.6% of the contributed capital of AS #1.
See "Key Bank Loan" below. In connection with the sale of the Utah facility,
Covol granted US #1 a non-exclusive license to Covol's binder technologies for
which it received an advance license fee of $500,000 from US #1. These
transactions are not based on arms- length negotiations by the parties. Covol
retained a 64% interest in US #1 and a 74% interest in AS #1 and privately
placed the remaining partnership interests in the Partnerships. The limited
partners paid $3,277,500 for the remaining partnership interests in US #1 and
$2,062,500 for the remaining partnership interests in AS #1. See "ITEM 1.
BUSINESS--Sale of Facilities, Utah Synfuel #1 and Birmingham Syn Fuel," in the
Form 10-K for a discussion of transactions with related partnerships.
In September 1998, Covol formally offered the limited partners in Utah
Synfuel #1, and Alabama Synfuel #1 an exchange of Covol's Common Stock for their
limited partnership interests. The exchange ratio was based in part on an
independent valuation of the limited partnerships' assets and other factors
14
<PAGE>
including but not limited to current and future expected cash flows of the
partnerships and the market value of Covol's Common Stock at the date of the
offer, $9.00 per share. As of September 30, 1998, substantially all of the
limited partners had elected to exchange their limited partnership interests for
shares of Covol's Common Stock. During October and November 1998, all but one of
the other limited partners exchanged their interests and Utah Synfuel #1 became
a wholly-owned subsidiary of Covol and Alabama Synfuel #1 became a 98%-owned
subsidiary of Covol.
Covol recorded this exchange using the market values of Covol's Common
Stock on the dates the limited partners tendered acceptance of Covol's offer.
These market values ranged from $6.75 to $11.13 per share. Subsequent to
September 30, 1999, Covol reached an agreement settling several outstanding
issues with the remaining limited partner of Alabama Synfuel #1 following which
Alabama Synfuel #1 became a wholly-owned subsidiary of Covol. The officers and
directors of Covol received an aggregate of 95,900 shares of Covol Common Stock
in exchange for their interests, with an aggregate market value, using a value
of $9.00 per share, of $863,100. Included in this amount is $304,632 related to
Mr. Weller.
Key Bank Loan. In an effort to obtain capital for the construction of
the Utah and Alabama facilities, Covol borrowed $700,000 from Key Bank of Utah
("Key Bank"). The loan accrued interest at Key Bank's prime rate plus 2% and was
to be paid in full in October 1996. In November 1996 Covol paid accrued interest
plus principal of $100,000. Covol and Key Bank agreed to roll over the remaining
$600,000 principal balance of the loan for another 90 days, until January 29,
1997, which was later extended to May 30, 1997. Additional payments of principal
and interest were paid in March and May, 1997 totaling $110,000. Key Bank
thereafter notified Covol that it was in default on the loan. Covol paid off the
principal and interest on the loan in the amount of $522,516 on August 20, 1997.
As a condition to making the loan, Key Bank required that certain officers,
directors and employees of Covol also sign as guarantors of the note evidencing
the loan (the "Key Bank Note"). To induce such officers, directors and employees
to sign individually and be severally liable on the Key Bank Note, Covol loaned
$100,000 each to Mr. Russell G. Madsen, Mr. Dean Young, Mr. Kenneth M. Young,
Mr. Alan D. Ayers, Mr. Asael T. Sorensen, Jr., Mr. Steven R. Brown and Mr.
Michael Q. Midgley (the "Individuals"). The loan to the Individuals is on
similar terms as the loan from Key Bank and was initially collateralized by
their respective interests in US#1 and AS#1 and is currently collateralized by
approximately 79,000 shares of Covol's Common Stock. The proceeds of the loan
from Covol to the Individuals, along with other money of the Individuals
aggregating $1,850,000, were invested in partnership interests in US #1 and AS
#1. Covol has not received any direct payments from the Individuals. On March
21, 1997, US #1 made cash distributions to each of the limited partners of US #1
in the aggregate amount of $272,000. The cash distributions attributable to the
interests in US #1 acquired through the loan to the Individuals as described
above were made directly to Covol and applied against the principal and interest
due from the Individuals. As of September 30, 1999, the individuals were
indebted to Covol in an aggregate amount of approximately $672,000, which is
collateralized by Common Stock of Covol. No interest income is being recognized
by Covol.
Option Exercise Notes. In 1995, Covol entered into loan agreements with
16 then current and former officers, directors and employees of Covol in payment
of the exercise price of options to purchase 900,000 shares of Covol Common
Stock. Nine of these individuals are current or former officers or directors of
Covol. Specifically, Messrs. Madsen, Ford, Brown, Weller, Sorensen, Ayers,
Lambert, Young and Midgley are indebted to Covol in the principal amounts of
$516,875, $488,519, $488,519, $417,266, $322,503, $251,250, $322,503, $288,938
and $516,875 respectively. The promissory notes bear interest at 5.7% with
principal and interest due in December 2000 and are collateralized by the shares
purchased. As of September 30, 1999, Covol had received approximately $313,000
toward repayment of the loans. No interest income is being recognized by Covol.
Return of Shares of Common Stock. In March 1996, Raymond G. Weller made
a personal loan of $459,250 to Covol at the request of Covol's then CEO and CFO
at a time when Covol was in great
15
<PAGE>
financial need. This loan was repaid in 1996 through the issuance of Covol
Common Stock to Mr. Weller. A certificate was issued to Mr. Weller for 34,000
shares of Covol Common Stock. Mr. Weller understood that the CEO and CFO
existing at the time intended this stock to be compensation for the personal
risk taken by Mr. Weller pending completion of the transaction. The CEO and CFO
left Covol in October 1996 before the transaction was fully documented. Mr.
Weller continued to support Covol and provided leadership and guidance as a
director through the period of transition between prior and current management.
After confirming the circumstances surrounding the transaction, Covol's current
management negotiated a resolution of the matter with Mr. Weller, and approved
the issuance of 20,000 shares of restricted stock in complete satisfaction of
any obligation Covol may have to Mr. Weller with respect to this transaction.
The disinterested members of the Board have approved the resolution and Mr.
Weller returned 14,000 shares of Common Stock to Covol in fiscal 1999, which
shares were subsequently canceled.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Covol's
officers and directors, and persons who own more than ten percent of a
registered class of Covol's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission and the
National Association of Securities Dealers. Officers, directors, and greater
than ten-percent stockholders are required by Securities and Exchange Commission
regulations to furnish Covol with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to Covol between
October 1, 1998 and September 30, 1999, on year-end reports furnished to Covol
after September 30, 1999, and on representations that no other reports were
required, Covol has determined that during the 1999 fiscal year all applicable
16(a) filing requirements were met.
PROPOSAL NO. 1 -- ELECTION OF DIRECTOR
Nominee for Election as Director
At the Meeting, the stockholders will elect a class III director to
hold office until the annual meeting of stockholders in 2003, the expiration of
his term, or until his successor is duly elected and qualified. The Board of
Directors is divided into three classes, currently comprised of two class I
directors, whose terms will expire at Covol's annual meeting in 2001, three
Class II directors, whose terms will expire at Covol's annual meeting in 2002,
and one Class III director, whose term will expire at Covol's annual meeting in
2000. The Board currently consists of six members: Raymond J. Weller, Brent M.
Cook, DeLance M. Squire, John P. Hill, Jr., James A. Herickhoff and Kirk A.
Benson. The Board proposes that the individual listed below as nominee be
elected as a class III director of Covol. The nominee has consented to serve if
elected to the Board. In the event that the nominee is unable to serve as a
director at the time of the Meeting (which is not expected), proxies with
respect to which no contrary direction is made will be voted "FOR" such
substitute nominee as shall be designated by the Board to fill the vacancy.
The name of the nominee, together with certain information about him,
is set forth below:
Name Age Positions with Covol Director Since
---- --- -------------------- --------------
Brent M. Cook 39 Director and President 1996
Brent M. Cook has served as President since April 1999. From November 1996 to
April 1999 he served
16
<PAGE>
as Chief Executive Officer and Director. He also served as President from
October 1996 until July 1998, and as Chief Financial Officer from June 1996
until November 1996. Mr. Cook is a Certified Public Accountant. Prior to joining
Covol, Mr. Cook was Director of Strategic Accounts-Utah Operations, for
PacifiCorp, Inc. ("PacifiCorp"). His responsibilities included the management of
revenues of approximately $128 million per year, and seeking out and evaluating
strategic growth opportunities for PacifiCorp, including joint ventures and
other transactions. Mr. Cook spent more than 12 years with PacifiCorp. Mr.
Cook's term expires in 2000.
The names of the Class I Directors, together with certain information
about them, are set forth below:
Name Age Position with Covol Director Since
---- --- ------------------- --------------
John P. Hill, Jr. 39 Director 1997
James A. Herickhoff 57 Director 1997
John P. Hill, Jr. has served as a Director since September 1997. Mr. Hill is the
president of Quince Associates, a closely-held investment company. Since 1989,
Mr. Hill has also served as President of Trans Pacific Stores, Ltd., a privately
held operator of retail stores. Prior to 1989, Mr. Hill was the Chief Financial
Officer for various privately held retail and restaurant companies. Mr. Hill
received a Bachelor of Science degree in Accounting from the University of
Maryland and became a Certified Public Accountant in 1984. Mr. Hill's term
expires in 2001.
James A. Herickhoff has served as a Director since August 1997 and was elected
Vice Chairman in April 1999. Mr. Herickhoff has been a corporate consultant
since 1994, and from 1987 to 1994 he served as President of Atlantic Richfield
Company's Thunder Basin Coal Company. Mr. Herickhoff has over 25 years of
experience in the coal and mining industries and extensive experience in
strategic positioning of these companies for long-term growth and
competitiveness. Mr. Herickhoff led the growth of the Black Thunder and Coal
Creek coal mines from 19,000,000 to approximately 40,000,000 tons per year of
production. Mr. Herickhoff previously served as President of Mountain Coal
Company, managing all of ARCO's underground mining and preparation plants. Mr.
Herickhoff is the past President of the Wyoming Mining Association and a former
Board member of the Colorado and Utah Mining Associations. Mr. Herickhoff
received a Bachelor degree in 1964 from St. John's University, a Master of
Science degree in 1966 from St. Cloud State University and attended the Kellogg
Executive Management Institute at Northwestern University in 1986. Mr.
Herickhoff's term expires in 2001.
The names of the Class II directors, together with certain information
about them, are set forth below:
Name Age Position with Covol Director Since
---- --- ------------------- --------------
Raymond J. Weller 54 Director 1991
DeLance W. Squire 80 Director 1996
Kirk A. Benson 49 Director 1999
Raymond J. Weller has served as a Director of Covol since July 1991 and served
as Chairman of the Board from January 1997 through July 1998. Since 1991, Mr.
Weller has been Vice President of HMO Benefits of Utah, a Utah based insurance
brokerage firm. From 1985 to 1991, Mr. Weller was an agent with the insurance
brokerage of Galbraith, Benson, and McKay. Mr. Weller's term expires in 2002.
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DeLance W. Squire has served as a Director of Covol since December 1996.
Currently Mr. Squire is President of Management and Professional Inc. Mr. Squire
was the founder of Squire & Co., Orem, Utah and retired in 1986. From 1986 until
1987, Mr. Squire served as the Executive Director for the Commission for
Economic Development, Orem, Utah. Mr. Squire was previously the mayor of the
City of Orem, Utah. In addition, Mr. Squire serves as the chairman of the board
of trustees for Timpanogos Regional Hospital, Orem, Utah. Mr. Squire received
his B.S. degree in Accounting from Brigham Young University in 1947 and became a
Certified Public Accountant in 1950. Mr. Squire's term expires in 2002.
Kirk A. Benson has served as a Director of Covol since January 1999, and as
Chairman and CEO since April 1999. Most recently, Mr. Benson was Senior Vice
President of Foundation Health Systems, Inc., the nation's 4th largest publicly
traded managed healthcare company. Mr. Benson was with Foundation Health Systems
and its predecessors for approximately ten years, holding various positions
including president and chief operating officer for commercial operations,
general counsel, and senior vice president for development with responsibility
for merger and acquisition activity. Mr. Benson is a Ph.D. candidate at the
Peter F. Drucker Graduate School of Management at Claremont Graduate University.
He also holds a Master of Laws in Taxation from the University of Denver, and a
Master of Accountancy and Juris Doctorate from Brigham Young University. Mr.
Benson's term expires in 2002.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
THE ELECTION OF MR. COOK
PROPOSAL NO. 2 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board has appointed PricewaterhouseCoopers LLP, certified public
accountants, as auditors to examine the financial statements of Covol for Fiscal
2000 and to perform other appropriate accounting services and is requesting
ratification of such appointment by the stockholders. PricewaterhouseCoopers LLP
(formerly Coopers & Lybrand L.L.P.) has served as Covol's auditors since 1994.
In the event that the stockholders do not ratify the appointment of
PricewaterhouseCoopers LLP, the adverse vote will be considered a directive to
the Audit Committee and the Board to select other auditors for the next fiscal
year. The appointment of other auditors could have a significant financial
impact on Covol and could significantly impact Covol's current registration
statements.
A representative of PricewaterhouseCoopers LLP is expected to attend
the Meeting and will have an opportunity to make a statement if he desires to do
so and to respond to appropriate questions.
THE BOARD OF DIRECTORS DEEMS PROPOSAL NO. 2 TO BE IN THE BEST INTERESTS
OF COVOL AND ITS STOCKHOLDERS AND RECOMMENDS
A VOTE "FOR" APPROVAL THEREOF
PROPOSAL NO. 3 -- RATIFICATION OF THE ISSUANCE OF CONVERTIBLE PREFERRED
STOCK AND CONVERTIBLE DEBT IN MARCH 1999
Covol is soliciting the proxies of its stockholders to ratify the
issuance by Covol in March 1999 of convertible Preferred Stock and convertible
debt financing. Funds provided by the financing were critical in order for Covol
to remain in business.
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The consequences of Covol stockholders not approving this financing
would be extremely detrimental for Covol. The financing agreements require Covol
to obtain stockholder approval of the transaction by March 31, 2000. Failure to
obtain that approval would put Covol in default of these financing agreements
and would require Covol to redeem the outstanding Series D Preferred Stock and
convertible debt, including significant premiums. Covol could be forced into
bankruptcy because of the inadequacy of funds available to redeem the Series D
Preferred Stock and convertible debt which has been issued. Covol's redemption
obligation would be in addition to Covol's ongoing need to meet debt service
requirements and the ongoing cash needs of its operating activities. Covol
believes it is critical that stockholders ratify this financing transaction and
the potential issuances of Common Stock that could result from the conversion of
the convertible securities that were issued in March 1999. Covol has no viable
alternative plans to remain solvent should this proposal not be approved by
stockholders. Further, it is also critical that stockholders approve the
proposed amendment to Covol's certificate of incorporation to increase the
number of authorized shares of Common Stock (See Proposal No. 4) in order to
allow the additional shares issuable upon conversion of the convertible
securities to actually be issued.
The March 1999 financing consisted of convertible equity and
convertible debt securities which, upon conversion, could result in the issuance
of common shares of Covol in excess of 20% of the number of outstanding shares
as of the date of the transaction and 20% of the voting power. Regulations of
the Nasdaq Stock Market(sm) require stockholder approval for any equity
issuances at less than market value which result in or could result in the
issuance of Common Stock of Covol that exceeds 20% of the number of outstanding
shares and 20% of the voting power. This financing arrangement requires such
stockholder approval.
The March 1999 financing consisted of the issuance of $20,000,000 of
convertible secured debt, issued at a 50% discount, and the issuance of
$6,000,000 of a new series D cumulative convertible Preferred Stock, for total
gross proceeds of $16,000,000. Costs related to the financing totaled
approximately $1,400,000. Warrants for the purchase of Common Stock were also
issued as part of the financing. Covol received net cash proceeds of
approximately $14,600,000, which were used to retire maturing short-term debt
and related accrued interest, for working capital uses and other general
corporate purposes. No officers, directors, principal shareholders or other
affiliates provided any of the funding in this transaction.
The terms of the financing and the accounting for the financing are
described in detail in Covol's Current Report on Form 8-K, filed March 24, 1999,
and in Covol's Quarterly Report on Form 10-Q/A for the quarterly period ended
March 31, 1999, filed October 6, 1999, both of which are being provided with
this proxy statement and which have been incorporated herein by reference.
Stockholders are encouraged to read these documents to familiarize themselves
with the details of this transaction.
During 1998, Covol had significant cash needs for the construction of
synthetic fuel facilities. These requirements continued after June 30, 1998 when
construction of these facilities was completed in order to fund costs in excess
of construction financing, fund required facility modifications, fund operations
of the synthetic fuel facilities constructed including a facility located in
Price Utah operated by Covol, and for other working capital needs and general
corporate purposes. Covol completed a comprehensive review of funding
alternatives in the financial community, from conventional banking sources to an
offering of Common Stock. Several potential sources of funding were contacted
and the process of reviewing viable alternatives and performing due diligence
procedures began in the fall of 1998 and lasted over five months. This extensive
and exhaustive process culminated in the March financing. The financing obtained
was approved by Covol's Board of Directors as being the best alternative and in
the best interest of all stockholders, on both a short-term and a long-term
basis.
The Preferred Stock became convertible at the option of the
stockholders on June 15, 1999, up to
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a maximum of 20% of the outstanding shares of Preferred Stock. Each month
thereafter, the amount of Preferred Stock that could be converted increased by
20% until October 13, 1999, at which time all of the Preferred Stock was
convertible into Common Stock. On March 17, 2002, all outstanding Preferred
Stock automatically converts to Common Stock. The number of shares of Common
Stock into which the Preferred Stock is convertible is determined by multiplying
the number of preferred shares by $100 and dividing by the lesser of $5.25 or
90% of the market value of Covol's Common Stock on the date of conversion.
Market value is defined as the average of the three lowest closing bid prices
over the immediately preceding 20 business days.
The convertible debt has an effective three-year term and bears
interest at a stated rate of 2.5% per annum on the $20,000,000 face amount.
After consideration of the 50% discount and the value assigned to warrants, the
imputed interest rate is approximately 36%. The debt is convertible into Common
Stock of Covol at a discount to the market price at the time of conversion. The
debt is not convertible until after March 17, 2002 except upon the occurrence of
an event of default. If converted, the number of shares into which the debt can
be converted would be calculated based on a price per share of Common Stock
equal to 33% of the then market price at the time of conversion, but not less
than $6.67 per share nor more than $10.00 per share.
Beginning in November 1999 and through January 4, 2000, Covol has
issued 1,603,775 shares of Common Stock on conversion of 15,202 shares of the
convertible Preferred Stock issued in March 1999 (series D Preferred Stock). As
of January 4, 2000, the remaining 44,798 shares of series D Preferred Stock were
potentially convertible into 9,556,908 shares of Common Stock (using a
conversion price of $.47 which was 90% of the market value of Covol's Common
Stock at that date), and the convertible debt was potentially convertible into
3,000,000 shares of Common Stock (using a conversion price of $6.67 per share).
Warrants for the purchase of Common Stock were potentially convertible into
1,283,626 shares of Common Stock, with a total exercise price of more than
$8,000,000. As described previously, the conversion terms of both the Preferred
Stock and convertible debt provide for conversion into a number of shares of
Common Stock that could vary depending on the market value of Covol's Common
Stock on the conversion dates. Therefore, depending on the price of Covol's
Common Stock when these securities are actually converted into Common Stock, the
actual number of shares could be different from the above amounts, and the
difference could be significant. Also, at the election of Covol, additional
shares of Common Stock can be issued for dividends on the series D Preferred
Stock and in lieu of interest payments on the convertible debt. As of January 4,
2000, the total number of shares of Common Stock issuable under the terms of the
convertible Preferred Stock (reduced by 1,603,775 shares for conversions which
have occurred through January 4, 2000), convertible debt, and warrants is
13,840,534. Not all of these shares are actually issuable as of January 4, 2000;
some are not issuable until March 2002.
Current regulations of the Nasdaq Stock Market(sm) require stockholder
approval for the issuance of securities at less than market value where the
total shares to be issued exceed 20% of the current number of outstanding
shares. The contractual terms of the March financing agreements limit
convertibility to 19.9% of the outstanding Common Stock until shareholder
approval is obtained and obligate Covol to obtain such approval. As of March 17,
1999, there were 12,471,985 shares of Common Stock outstanding. If all of the
outstanding convertible securities issued in the March financing transactions
could have been converted as of January 4, 2000, there would be an increase of
13,840,534 shares of Common Stock outstanding related solely to the March
financing, which when added to the shares already issued on conversion of the
series D Preferred Stock, represents an increase in outstanding shares of
approximately 124%, using as a base number the number of shares outstanding on
March 17, 1999 of 12,471,985. Significant financial consequences could occur if
Covol is unable to convert all of the March 1999 securities due to the 20%
limitation and lack of stockholder approval.
The consequences of Covol stockholders not approving this financing
would be extremely
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detrimental for Covol. The financing agreements require Covol to obtain
stockholder approval of the transaction by March 31, 2000. Failure to obtain
that approval would put Covol in default of these financing agreements and would
require Covol to redeem the outstanding Series D Preferred Stock and convertible
debt, including significant premiums. Covol could be forced into bankruptcy
because of the inadequacy of funds available to redeem the Series D Preferred
Stock and convertible debt which has been issued. Covol's redemption obligation
would be in addition to Covol's ongoing need to meet debt service requirements
and the ongoing cash needs of its operating activities. Covol believes it is
critical that stockholders ratify this financing transaction and the potential
issuances of Common Stock that could result from the conversion of the
convertible securities that were issued in March 1999. Covol has no viable
alternative plans to remain solvent should this proposal not be approved by
stockholders. Further, it is also critical that stockholders approve the
proposed amendment to Covol's certificate of incorporation to increase the
number of authorized shares of Common Stock (See Proposal No. 4) in order to
allow the additional shares issuable upon conversion of the convertible
securities to actually be issued.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR"
RATIFICATION OF THE ISSUANCE IN MARCH 1999 OF THE CONVERTIBLE
PREFERRED STOCK AND CONVERTIBLE DEBT.
PROPOSAL NO. 4 - TO AMEND COVOL'S CERTIFICATE OF INCORPORATION TO
INCREASE THE AUTHORIZED NUMBER OF SHARES AVAILABLE FOR ISSUANCE
Covol is soliciting the proxies of its stockholders to approve the
amendment of its Certificate of Incorporation to increase the authorized shares
of Common Stock. Additional shares of Common Stock need to be available for
Covol in case additional shares are required to be issued upon the conversion of
equity securities or debt obligations convertible into Common Stock previously
discussed, and for general corporate growth.
As of January 4, 2000, there were 17,176,911 shares of Common Stock
outstanding. As of that date, there were outstanding options to purchase
approximately 2,969,250 shares of Common Stock, outstanding warrants to purchase
approximately 4,298,053 shares of Common Stock, outstanding shares of Preferred
Stock convertible into approximately 9,999,790 shares of Common Stock, and
outstanding debt convertible into approximately 7,877,387 shares of Common
Stock. Exercise of the current outstanding stock options and warrants, which
have exercise prices ranging from $.88 to $20.00 per share, would result in
Covol receiving approximately $44,000,000 of cash, although currently none of
these options and warrants are "in-the-money."
Not all of the convertible securities are immediately convertible.
However, if all convertible securities were converted into Common Stock as of
January 4, 2000, the total amount of Common Stock outstanding would be
approximately 42,321,391 shares, which would exceed the current number of
authorized shares of 25,000,000. The number of shares of Common Stock issuable
upon conversion is dependent, in part, on the price of Covol's Common Stock when
these securities are actually converted into Common Stock. Therefore, depending
on the price of Covol's Common Stock at the time of conversion, the issuable
number of shares of Common Stock could exceed the number of shares currently
authorized to be issued. Covol must meet obligations to issue Common Stock upon
conversion of convertible equity and debt securities, some of which have short
time periods in which Covol can act, in order to avoid being in default of those
security agreements.
In anticipation of the need for future issuances of Common Stock for
future conversions of convertible securities and other general corporate
purposes, Covol is seeking to amend its Certificate of
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Incorporation to provide for authorization of up to 50,000,000 shares of Common
Stock. Currently, Article V of Covol's Certificate of Incorporation authorizes
the issuance of only 25,000,000 shares of Common Stock as follows:
The capital stock authorized, the par value thereof, and the
characteristics of such stock shall be as follows:
Number of Shares Par Value Class of
Authorized Per Share Stock
- ---------- --------- -----
25,000,000 $.001 Common
10,000,000 $.001 Preferred
The Board of Directors of Covol hereby proposes adoption of the
following resolution by Covol's stockholders:
RESOLVED, that Article V of Covol's Certificate of Incorporation is amended to
read as follows:
The capital stock authorized, the par value thereof, and the
characteristics of such stock shall be as follows:
Number of Shares Par Value Class of
Authorized Per Share Stock
- ---------- --------- -----
50,000,000 $.001 Common
10,000,000 $.001 Preferred
If Covol chooses to issue additional shares of Common Stock, existing
stockholders' ownership in the aggregate could be subject to dilution.
Notwithstanding this potential dilution, Covol believes that the adoption of the
proposed amendment is in the best interest of Covol stockholders as the
consequences of being in default of security agreements could be significant.
To the extent convertible Preferred Stock, convertible debt and
warrants, and other convertible securities are converted into Common Stock,
stockholder interests in Covol will be diluted. If the market value of the
Common Stock decreases, the variable conversion rate of the outstanding
convertible securities increases this dilution. If the market value of the
Common Stock decreases significantly, the offering price per share in any future
private placements or public offerings may decrease causing dilution of
ownership to other stockholders. Sales of Common Stock and convertible Preferred
Stock, and the exercise of options, warrants and other convertible securities
may have an adverse effect on the trading price of and market for Covol's Common
Stock. A significant portion of shares underlying Covol's outstanding
convertible securities and options and warrants are subject to registration
rights. These rights may affect Covol's ability to raise additional capital
because financial institutions which require registration rights may be
unwilling to proceed with a financing where there are registration rights
already in place which impair the value of any new registration rights.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
RESOLUTION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON
STOCK.
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RELATIONSHIP OF PROPOSALS
Stockholders are being asked to vote separately on Proposals 3 and 4.
Management urges a vote "FOR" both Proposals. Failure of the stockholders to
approve either one of Proposals 3 or 4 could result in a default under the
financing described above with potentially dire consequences. If you intend to
vote to ratify the financing described in Proposal 3, please consider that Covol
must have approval to the increase in authorized Common Stock described in
Proposal 4 in order to avoid default under the financing. Management believes
that it is essential to Covol's continued operation that both Proposals be
approved by the stockholders.
As described above, abstentions (including failures to return a proxy
or cast a vote) and broker non-votes are effectively the same as votes "against"
Proposal 4. Broker non-votes result from stockholders who own stock through a
brokerage account failing to properly instruct their broker how to vote their
shares. Due to the critical nature of these Proposals, Covol urges every
stockholder to vote (by proxy or in person) at this meeting.
STOCKHOLDER PROPOSALS
Stockholders may submit proposals on matters appropriate for
stockholder action at Covol's annual meetings consistent with regulations
adopted by the SEC. For such proposals to be considered for inclusion in the
proxy statement and form of proxy relating to the 2001 annual meeting, they must
be received by Covol not later than September 15, 2000 or such later date as
Covol may specify in its SEC filings. Such proposals should be addressed to
Covol at 3280 North Frontage Road, Lehi, Utah 84043, Attn: Corporate Secretary.
It is anticipated that proxies solicited in connection with Covol's
2001 annual meeting will confer discretionary authority to vote on matters,
among others, of which Covol does not receive notice prior to September 15,
2000.
OTHER MATTERS
Management does not intend to present, and has no information as of the
date of preparation of this Proxy Statement that others will present, any
business at the Meeting other than business pertaining to matters required to be
set forth in the Notice of Annual Meeting and Proxy Statement. However, if other
matters requiring the vote of the stockholders properly come before the Meeting,
it is the intention of the persons named in the enclosed proxy to vote the
proxies held by them in accordance with their best judgment on such matters.
SOLICITATION OF PROXIES
The accompanying form of proxy is being solicited on behalf of the
Board. The expense of solicitation of proxies for the Meeting will be paid by
Covol. In addition to the mailing of the proxy material, such solicitation may
be made in person or by written communication, telephone or telegraph by
directors, officers, employees or agents of Covol or its subsidiaries.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents are incorporated herein by reference:
o Current report on Form 8-K filed March 24, 1999, and
o Quarterly report on Form 10-Q filed May 14, 1999, for the fiscal
quarter ended March 31, 1999, as amended on Form 10-Q/A filed October
6, 1999.
ANNUAL REPORT ON FORM 10-K
CERTAIN PORTIONS OF COVOL'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED SEPTEMBER 30, 1999, AS REFERENCED IN THIS PROXY STATEMENT, ARE
INCORPORATED HEREIN BY REFERENCE. COVOL WILL PROVIDE, WITHOUT CHARGE, TO EACH
PERSON SOLICITED BY THIS PROXY STATEMENT, ON THE WRITTEN REQUEST OF ANY SUCH
PERSON, A COPY OF THE EXHIBITS THAT ARE ATTACHED TO COVOL'S ANNUAL REPORT ON
FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FOR ITS MOST
RECENT FISCAL YEAR. SUCH WRITTEN REQUEST SHOULD BE DIRECTED TO THE INVESTOR
RELATIONS DEPARTMENT AT THE ADDRESS OF COVOL APPEARING ON THE FIRST PAGE OF THIS
PROXY STATEMENT OR FAXED TO COVOL AT (801) 768-4483.
If you have any questions about giving your proxy or require any
assistance, please contact Morrow & Co., Inc., a shareholder services company
that is assisting Covol with this proxy statement, at 1-800-566-9061.
YOUR VOTE IS IMPORTANT. YOU ARE URGED TO DATE, SIGN AND PROMPTLY RETURN
YOUR PROXY CARD SO THAT YOUR SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES
AND THAT THE PRESENCE OF A QUORUM MAY BE ASSURED. THE PROMPT RETURN OF YOUR
SIGNED PROXY CARD, REGARDLESS OF THE NUMBER OF SHARES YOU HOLD, WILL AID COVOL
IN AVOIDING THE EXPENSE OF ADDITIONAL PROXY SOLICITATIONS. GIVING YOUR PROXY
DOES NOT AFFECT YOUR RIGHT TO VOTE IN PERSON AT THE MEETING OR YOUR RIGHT TO
RESUBMIT LATER DATED PROXY CARDS.
Covol Technologies, Inc.
By Order of the Board of Directors,
/s/ Harlan M. Hatfield
Harlan M. Hatfield
Secretary
Lehi, Utah
January 17, 2000
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COVOL TECHNOLOGIES, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS
WEDNESDAY, MARCH 1, 2000
The undersigned stockholder(s) of Covol Technologies, Inc., a Delaware
corporation (the "Company"), revoking all previous proxies, hereby appoints
Harlan M. Hatfield as the attorney and proxy of the undersigned, with full power
of substitution, to cast all votes for all shares of Common Stock of Covol which
the undersigned would be entitled to cast if personally present at the Annual
Meeting of Stockholders of Covol to be held at the Provo Marriott Hotel, at 100
West 100 North, Provo, Utah 84601, on Wednesday, March 1, 2000, at 2:00 p.m.,
Mountain Standard Time, and any and all adjournments or postponements thereof.
Said proxies are authorized and directed to vote as indicated with respect to
the following matters:
(Please date and sign below)
Please mark your vote as this |X|
1. ELECTION OF DIRECTOR
Brent M. Cook FOR [ ] WITHHOLD [ ]
(If elected, Mr. Cook's term would expire 2003) AUTHORITY
2. RATIFY THE SELECTION BY THE BOARD OF FOR [ ] AGAINST [ ]
PRICEWATERHOUSECOOPERS LLP AS ABSTAIN [ ]
INDEPENDENT AUDITORS OF COVOL FOR
THE 2000 FISCAL YEAR
3. RATIFICATION OF THE ISSUANCE IN MARCH FOR [ ] AGAINST [ ]
1999 OF CONVERTIBLE PREFERRED STOCK ABSTAIN [ ]
AND CONVERTIBLE DEBT
4. APPROVAL OF THE PROPOSED FOR [ ] AGAINST [ ]
AMENDMENT TO COVOL'S CERTIFICATE OF ABSTAIN [ ]
INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF
COMMON STOCK FROM 25,000,000 TO
50,000,000
This Proxy is solicited on behalf of the Board of Directors. Unless otherwise
specified, the shares will be voted "FOR" items 1, 2, 3 and 4. This Proxy also
delegates discretionary authority to the proxy to vote with respect to any other
business which may properly come before the 2000 Annual Meeting of Stockholders
and any and all adjournments or postponements thereof to the extent allowed by
Rule 14a-4(c) as promulgated by the U.S. Securities and Exchange Commission.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING,
PROXY STATEMENT AND ANNUAL REPORT OF COVOL TECHNOLOGIES, INC.
Dated: ________________________________, 2000
- ---------------------------------------------
Name of Stockholder
- ---------------------------------------------
Signature of Stockholder
NOTE: Please date and sign this Proxy exactly as the names appear hereon. When
signing as attorney-in-fact, executor, administrator, trustee or guardian,
please add your title as such. Proxies executed in the name of a corporation
should be signed on behalf of the corporation by a duly authorized officer.
Where shares are owned in the name of two or more persons, all such persons
should sign.
PLEASE RETURN YOUR COMPLETED PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE.