Covol Technologies Inc. releases letter to shareholders.

LEHI, Utah--(BUSINESS WIRE)--June 18, 1996--The following is a letter to shareholders of Covol Technologies Inc. (OTC/BB:CVOL):

June 17, 1996

Dear Shareholder:

I would like to take a moment to introduce myself and the new management team at Covol and update you on the Company. I am very excited about the recent events inside Covol, especially the new management team. In this letter I hope to outline the structure of current management, the status of Covol's coal and iron projects, the progress and likelihood of the Section 29 Tax Credit extension, the NASDAQ listing, as well as provide answers to other pertinent questions that you may have. Management feels that the recent trading volume for Covol stock as well as the drop in share price does not accurately reflect what is really going on within the company. As management, we have one primary goal: TO CREATE VALUE FOR COVOL SHAREHOLDERS. As an R&D company, Covol has developed several innovative industrial recycling technologies. While we will continue to improve and further modify our technologies, it is time to operationalize and bring to the marketplace the current technologies and start on the road to profitability and positive cash flow. This will take Covol from an emerging development company into production and thus realize the full commercial potential of these resource recovery technologies. The key to the future of Covol is the earnings associated with this technology. This is our objective: GENERATE THE SIGNIFICANT EARNINGS POTENTIAL OF THE TECHNOLOGY.

Management Changes

First, I would like to express my appreciation to Kirby Cochran and Mike Bodon for their service and dedication to Covol. As a management team, we wish continued good health to Kirby and good luck to Mike in his new career ventures. Because of Kirby's retirement, I have been asked to move from Chief Financial Officer to President. I am pleased to take on this new role and attempt to take the baton from Kirby and move Covol to the next level.

I am also pleased to announce that Brent Cook has joined our team replacing me as Chief Financial Officer. Formerly, Brent was Director of Strategic Accounts at PacifiCorp and was instrumental in its growth over the past 12 years. Brent's experience in the electric utility and coal industries will be invaluable for Covol as we move forward in establishing our processing plants and marketing the coal product.

In addition, Alan Ayers has been appointed Chief Operating Officer, a new position within Covol. In addition to Investor Relations, Alan will oversee the internal and operational aspects of Covol's production facilities.

With the Company moving from its former research and development status and into full commercial application of its technology, it is imperative that this type of organizational structure be in place. These additions and changes are designed to benefit Covol in the long run and with them in place I feel that we have now positioned the management team to provide the necessary leadership to implement Covol's strategic plan.

Coal Agglomeration Plants

Recently Covol has reviewed several sites in an attempt to best locate it's coal agglomeration plants and has, accordingly, selected two locations. The first plant will be located in Carbon County, Utah and will produce up to 400,000 tons of coal product per year. Covol has formed Utah Synfuel No. 1, a limited partnership, to finance the construction of the plant. Covol will retain 60% of the partnership and will raise $3,500,000 in limited partnership capital for the remaining 40%. Covol will realize a profit from the sale of the plant to Utah Synfuel No. 1, as well as receiving a license fee of $500,000.

The second plant will be located in Birmingham, Alabama and will be financed in the same manner as Utah Synfuel No. 1. Alabama Synfuel No. 1 will raise $4,000,000 for 50% of the partnership capital and will similarly receive a license fee of $500,000. The Alabama plant will produce 360,000 tons of met coal annually.

I expect that there will be sufficient funding in each of these partnerships by the end of June, 1996 allowing Covol to break ground this summer and have the plants in operation by fall and winter of 1996, respectively.

Once these plants are operational and producing product, Covol and the limited partners will have the opportunity to sell their equity interests in the projects to third party investors. The value of the plant is based on the discounted value of the underlying tax credits over their eleven year life. Management feels that both plants will return significant earnings per share to Covol over the next eleven years.

In summary, Utah Synfuel No. 1 is expected to process up to 400,000 tons per year once it is fully operational and will generate some profits based on the sales price of the final product, but more importantly, it will yield a minimum of $10 million in annual tax credits. At this point, Covol will sell the tax credits to a third party at a discount of 10% to 15% of face value. Essentially, this will provide Covol and the limited partners in the project with over $8 million in annual revenues. The economics for Alabama Synfuel No. 1 will be essentially the same in nature and it is obvious that each of these coal processing plants will contribute substantially to Covol's bottom line.

Section 29 Tax Credits

As you know, after significant product testing and review, Covol received a Private Letter Ruling from the IRS on September 12, 1995. According to the letter, as a direct result of Covol's patented polymer process, coal fines undergo a significant chemical change. According to Section 29 of the IRS Code, Covol's coal product qualifies as a "synthetic fuel" and the related tax credit which is based on the BTU value of the coal product. The tax credit will be between $25 and $28 per ton of coal product produced.

There are several important time factors regarding Section 29. First, Covol has contracted with Lockwood Greene to construct the facilities which is the first step in the tax credit qualification process. Secondly, Covol is pursuing the construction of the above referenced briquetting plants to be placed into service by the end of 1996. For the past 12 months, Covol has been diligently lobbying the U.S. House and Senate in a concerted effort to extend these critical time factors in Section 29. On June 12, 1996, Senator Roth (Chairman of the Senate Finance Committee) of Delaware, wrote into the Senate's version of the Small Business Relief Bill, passed earlier by the House, an extension of Section 29. The passage of this Bill appears imminent. The passage of this Bill is extremely important to Covol shareholders for several reasons: 1) It extends the time for signing contracts to build qualified coal fines processing plants, and 2) it provides a one year extension to place these plants into service. Covol's "synthetic fuel" makes economic sense without the tax credit, however, with the additional $25 to $28 per ton in tax credits, each of Covol's 360,000 ton per year extruders will generate over $9 million in additional annual revenues. Consequently, with the extension of Section 29, Covol will be able to build additional plants through 1997 enhancing company revenues.

Department of Energy Grant

We recently were awarded a grant from the U.S. Department of Energy for $225,000 for commercialization of the Covol iron recovery process. This award was issued under the National Industrial Competitiveness through Energy, Environment and Economics program and was one of 17 given in the United States from among 141 applicants. All grants are reviewed twice, once by a technical panel and once by a National Selection Panel made up of representatives from the Department of Energy and the technical review was performed by the Sandia National Laboratories. For a grant to be awarded, the project must be technically feasible and ready for commercial application. I feel that the decision to award this grant to Covol for the commercialization of our process provides further validation of the feasibility of our unique technology.

Department of Energy Test Burn

Along with the Department of Energy grant, Covol has made significant strides in advancing its Iron Reduction Technology. On April 17, 1996, Covol conducted a major test burn of iron rich briquette material (IRM) for industry leaders at the Department of Energy's Albany Oregon Research Facility in Albany, Oregon, with good results. The Albany Research Facility simulates actual steel making furnaces on a 1 ton burn basis. Covol's IRM briquettes yielded a high grade, low residual iron from millscale and other revert materials, recovering more than 88% of the recoverable iron content from these waste materials. Indeed, we have proven that we can produce iron in a cost effective and environmentally friendly manner.

Geneva Briquetting Plant

When Covol built its Geneva Briquetting Facility, the first material we were to process was coke breeze from a coke waste stream. Coke breeze is the analog of coke (with the same intrinsic chemical properties), but due to its small size (less than "1/4"), coke breeze is not a viable blast furnace product. According to a 1996 report by Combustion Resources, Covol's briquetting process renders these waste materials into usable coke products for the blast furnace. However, Geneva, in addition to producing coke, purchases a high quality coke from overseas. The coke product that Covol was initially processing/briquetting lacked certain specific chemical properties important for Geneva's blast furnace. There are, however, several other potentially viable waste materials that when processed will better serve Geneva's strategic needs. Geneva and Covol determined that briquetting Geneva's iron rich (revert) waste materials made more economic sense than the coke breeze, and in May, 1996 the two companies entered into a new agreement and accordingly, Covol is now processing iron rich briquettes for Geneva on a tolling basis. We realize that this is not the optimum use of Covol's unique technology, but this contract will provide, on a temporary basis, some positive cash flow until we can construct a fully integrated melting facility which will utilize Covol's patented process.

NASDAQ

In September, 1995 Covol filed an application with Nasdaq for listing on its exchange. Since that time, Covol has filed a Form 10 with the SEC and is now a full reporting company. In May, 1996 Nasdaq formed a Listing Qualification Committee to review its listing and maintenance requirements for all new applicants. According to a Nasdaq spokesman, "it may take a couple of weeks for staff to submit their recommendations to the Listing Qualification Committee. Nasdaq's board would then review the recommendations and propose a rule if it decided to change the listing and maintenance rules. It is a process that can take several months."

The reviewers at Nasdaq are currently in the process of evaluating Covol's application. However, based on the aforementioned review of the listing and maintenance rules, it appears that our application will not be approved until the new regulations are in place. If Nasdaq raises the qualification requirements much higher than those currently in place, Covol may be unable to list on Nasdaq without additional equity and cash flow. With the construction and placement into service of the two coal plants, however, we will be positioned to meet higher qualification requirements. Management is currently in the process of evaluating several alternative listing exchanges and will make a decision as to the appropriate listing venue after Nasdaq announces its new requirements, if any.

Summary

It is our sincere hope, that this letter has provided you with the type of information that you, as an investor, would like to receive from the Company. Our technology produces the best of both worlds, a high BTU, clean burning source of energy in our coal briquettes, and an energy efficient effective source of high grade, low residual iron from our IRM briquettes for the steel industry. As I stated earlier, we, as management, have only one goal and objective: to create and add value for Covol's shareholders. I feel, as do many of you, that a Nasdaq listing is a very important goal for Covol. However, the value of Covol's equity shares is going to be impacted largely from the projects that are built rather than its presence on the Bulletin Board, Nasdaq or some other exchange. As management, we are focused on the fundamentals of the Company. What we will do is concentrate on exploiting Covol's unique technology in a way that will generate the significant earnings potential it possesses.

Sincerely,

Mike Midgley President

CONTACT: Covol Technologies Inc., Lehi

Alan Ayers, 801/768-4481; Fax: [phone]