Securities and Exchange Commission
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
March 3, 1998
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Date of Report (Date of earliest event reported):
COVOL TECHNOLOGIES, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 0-27803 87-0547337
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(State or Other Juris- (Commission File (IRS Employer Number)
diction of Incorpo Identification No.)
3280 North Frontage Road
Lehi, Utah, 84043
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(Address of Principal (Zip Code)
Executive Offices)
(801) 768-4481
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(Registrant's telephone number, including area code)
This Current Report on Form 8-K/A amends the Current Report on Form 8-K dated
March 23, 1998.
Item 2. Acquisition or Disposition of Assets
General Description of the Disposition
On March 6, 1998, Covol Technologies, Inc. (the "Company"), and Alabama
Synfuel #1, Ltd., a Delaware limited partnership ("AS #1"), completed the sale
to Birmingham Syn Fuel, L.L.C. ("BSF"), a wholly-owned subsidiary of PacifiCorp
Financial Services, Inc. ("PacifiCorp"), of a synthetic fuel briquetting plant
in Birmingham, Alabama (the "Alabama Plant"). The Alabama Plant was constructed
by the Company and AS #1, which is a limited partnership formed by the Company
in which the Company retains an interest of approximately 74%. The sale of the
Alabama Plant was effected pursuant to that certain Alabama Project Purchase
Agreement, dated as of March 20, 1997, as amended by letter agreements dated
June 27, 1997, July 7, 1997, August 28, 1997, December 12, 1997, and February
20, 1998 (the "Alabama Purchase Agreement"), between the Company, AS #1 and BSF.
The terms of the sale included delivery of a Promissory Note executed
by BSF in favor of AS #1 in the amount of $6,500,000 (the "Note"). BSF's
obligation to repay the Note is secured by a security interest and lien on the
property comprising the Alabama Plant. The Note provides for interest at twelve
percent (12%) per annum, and quarterly payments of principal and interest,
subject to the provision that quarterly payments will not begin until the
Alabama Plant has reached prescribed production amounts, costs and sales. The
Note provides for final payment on February 20, 2003.
The sale of the Alabama Plant to PacifiCorp had no significant impact
on the Company's operations. The disposition resulted in the removal of
approximately $6,500,000 in fixed assets and the recognition of the Note as a
note receivable in the amount of $6,500,000.
There are a number of actions required to be taken by the Company and
AS #1 involving the completion of and modifications to the Alabama Plant within
specific periods provided in the Alabama Purchase Agreement. Failure to meet
such conditions will trigger penalties to the Company in the form of delay
payments, and will give rise to an option in BSF to return the parties to the
Alabama Purchase Agreement to their respective positions prior to the Closing.
Pursuant to that certain Amended and Restated License and Binder
Purchase Agreement dated December 12, 1997 (the "License Agreement"), between
BSF, the Company and AS #1, upon substantial completion of the Alabama Project a
fee of $250,000 was due to AS #1, and BSF was subsequently invoiced. In addtion,
BSF will pay quarterly royalty payments at a prescribed dollar amount per
British thermal unit ("Btu") in the briquettes produced and sold during the
calendar quarter. The prescribed dollar amount is subject to adjustment based
upon the "inflation adjustment factor" as set forth in Section 29(d)(2) of the
Internal Revenue Code of 1986, as amended (the "Code"). The amount to be paid is
subject to adjustment to the extent that BSF incurs an operating loss on the
production and sale of synthetic fuel (exclusive of the amount BSF pays as a
license fee for the use of the technology). The Company cannot predict with any
certainty the amount of ongoing fees that may be generated under the Licensing
Agreement.
The Company has agreed to provide binder material to BSF for the
manufacture and production of synthetic fuel at an amount equal to the Company's
cost plus a prescribed mark-up subject to adjustment under certain
circumstances. The Company has provided to BSF warranties with respect to the
operation of a facility to produce the binder materials.
In connection with the sale of the Alabama Plant, BSF granted a call
option to the Company requiring BSF to sell all of the right, title and interest
of BSF in the Alabama Project at its then fair market value, exercisable during
the period beginning the first business day succeeding January 1, 2010 and
ending sixty (60) days thereafter.
Item 5. Other Events
Exercise of Conversion Right - PacifiCorp Financial Services, Inc.
On March 3, 1998 PacifiCorp Financial Services, Inc. ("PacifiCorp")
provided the Company notice of PacifiCorp's intent to convert the total amount
of principal outstanding under a loan made by PacifiCorp to the Company (the
"PacifiCorp Loan"), plus interest of $313,527, into shares of common stock at a
conversion price of approximately $7.00 per share. As of March 3, 1998, the
Company had borrowed $6,686,473 under the Pacificorp Loan.
On March 20, 1997, the Company and PacifiCorp entered into a
Convertible Loan and Security Agreement (the "Loan Agreement"), pursuant to
which PacifiCorp agreed to make the PacifiCorp Loan to the Company in an amount
up to $5,000,000. The proceeds of the PacifiCorp Loan were to be used by the
Company to: (i) complete construction of the Alabama Plant; (ii) finance the
purchase of coal fines for the Alabama Plant; (iii) fund the net working capital
needs of the Alabama Plant; (iv) finance the development and construction of a
wash plant for coal fines; and (v) other uses related to the Alabama Plant
approved by PacifiCorp. On December 12, 1997, the Company and PacifiCorp amended
the Loan Agreement to permit the Company to borrow up to $7,000,000. The Loan
Agreement, as amended, provides for the conversion, at the option of PacifiCorp,
of the PacifiCorp Loan into shares of the Company's common stock at a conversion
price of $7.00 per share, subject to certain adjustments.
Pursuant to PacifiCorp's exercise of its conversion right, the Company
issued 1,000,000 shares of its common stock to PacifiCorp on March 4, 1998. The
exact conversion price will be adjusted and additional shares will be issued
based on the anti-dilution provisions of the Loan Agreement, as amended. The
Company expects such additional shares to be less than 30,000 shares. PacifiCorp
has been granted certain registration rights with respect to the shares issued
and to be issued.
Director Resignation
On March 8, 1998 Vern May resigned as director. Mr. May's resignation
was tendered due to his acceptance of a call to serve a full-time mission for
the Church of Jesus Christ of Latter-day Saints. Such resignation was
subsequently accepted at a board of directors meeting held March 17, 1998, at
which the board expressed appreciation for Mr. May's service.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired.
Not applicable.
(b) Pro Forma Financial Information.
Included in narrative discussion under Item 2 in reliance upon Rule
11-02(b)(1) of Regulation S-X.
(c) Exhibits.
10.39.6 Letter Amendment dated February 20, 1998 to the Alabama
Project Purchase Agreement dated as of March 20, 1997, by and
among the Company, Alabama Synfuel #1 Ltd. ("AS #1"),
Birmingham Syn Fuel, L.L.C. ("BSF").*
10.39.7 Call Option Agreement dated February 20, 1998 between BSF and
the Company.
10.39.8 Letter Amendment dated February 20, 1998 to the Amended and
Restated License and Binder Purchase Agreement dated as of
December 12, 1997 by and among the Company, AS #1 and BSF.*
10.39.9 Non-negotiable Promissory Note dated February 20, 1998, in
favor of AS #1, executed by BSF as debtor.*
10.39.10 Security Agreement dated February 20, 1998 by and among the
Company, AS #1 and BSF.
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* Exhibits 10.39.6, 10.39.8, 10.39.9, each contain confidential
information which has been omitted pursuant to a Confidential
Treatment Request and filed separately with the Securities and
Exchange Commision
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
COVOL TECHNOLOGIES, INC.
(Registrant)
/s/Brent M. Cook
Date: March 18, 1999 -------------------
By: Brent M. Cook
Title: Chief Executive Officer
and Principal Executive Officer