UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 22, 2004
CROWN ENERGY CORPORATION
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(Exact name of registrant as specified in its charter)
Utah 000-19365 87-0368981
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(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
1710 West 2600 South
Woods Cross, UT 84087
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(Address of principal executive offices) (Zip Code)
801-296-0166
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(Registrant's telephone number, including area code)
n/a
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(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
The Proposed Joint Venture Formation
General
We have signed definitive agreements with Idaho Asphalt Supply's
affiliate, Peak Holding, LLC, or Peak Holding, for the formation of a joint
venture through which we will continue to participate in the asphalt
distribution business. Under our agreements with Peak Holding, we organized a
new limited liability company, Peak Asphalt, LLC ("Peak Asphalt") with the
following principal terms:
o We will sell to Peak Asphalt substantially all of our asphalt
business, operations and assets, which represent approximately
93% of our total assets as of September 30, 2004, in
consideration of:
o a promissory note for $7.5 million secured by the
assets and business sold to Peak Asphalt, the payment
of which will be largely contingent upon Peak Asphalt
having earnings sufficient to permit such payment,
o assumption of approximately $2.5 million in
liabilities relating to the assets transferred, and
o a 49% interest in Peak Asphalt.
o Peak Holding will own 51% of Peak Asphalt and will designate a
majority of its managers.
Idaho Asphalt Supply, a private, closely-held corporation, advises us
that none of its officers, directors or owners, and none of the managers or
owners of Peak Asphalt appointed by it, own or have owned any of our common or
preferred stock or is or have been at any time our officer, director or other
affiliate. Prior to initiating the discussions with Idaho Asphalt Supply that
led to the agreements and transactions described below, we had not had any
business transactions with Idaho Asphalt Supply for several years.
This transaction was the result of arm's-length negotiations and has
been approved unanimously by our board of directors on the grounds that it is
fair to our corporation and our stockholders. We have not obtained any report,
opinion or appraisal from any outside party as to whether the terms of the
transaction are fair to our corporation or our stockholders.
Formation of New Limited Liability Company
Peak Asphalt was organized under the laws of the state of Utah. Peak
Holding will own 51% and we will own 49% of the membership interests in Peak
Asphalt. The members will not be bound by, or personally liable for, the
expenses, liabilities, debts or obligations of Peak Asphalt. Peak Asphalt will
be managed by a management committee comprised of three persons, two of whom
will be designated by Peak Holding and one of whom will be designated by us. The
day-to-day operations of the business of Peak Asphalt will be managed by a
president and secretary and such other officers as the management committee
deems necessary. Peak Holding will appoint the initial president until his or
her successor is appointed by the management committee. We will appoint the
secretary and his or her successor until such time as the promissory note from
Peak Asphalt to us has been paid in full. The person appointed by us as the
secretary will be an employee of Peak Asphalt on mutually acceptable terms and
will remain as an employee until the promissory note from Peak Asphalt to us has
been paid in full. We anticipate that we initially will appoint Jay Mealey, our
president, as secretary of Peak Asphalt. After the promissory note from Peak
Asphalt to us has been paid, the secretary will be appointed by the management
committee.
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We do not believe there are any federal or state regulatory
requirements that must be complied with or approval that must be obtained in
connection with the formation of Peak Asphalt.
Purchase of Assets
On the date the proposed joint venture formation is closed, but
effective as of May 1, 2004, we will sell to Peak Asphalt our asphalt business,
operations and assets, including all ownership and leasehold interests in real
and tangible personal property, the equipment and fixtures used in our asphalt
business, all intangible rights and property relating to the asphalt business,
all of our rights under leases, contracts and agreements to which we are a party
or by which we benefit that are used in the asphalt business, all of our
goodwill and going concern value of our asphalt business, including the rights
to any trade names, service marks or copyrights, all of our interest as a member
in Cowboy Asphalt Terminal, L.L.C., and all other rights, interests, assets and
properties owned by us and used in connection with our asphalt business and
operations. Peak Asphalt will purchase only the assets generally set forth
above, which represented approximately 93% of our total assets as of September
30, 2004, and will not purchase any of our cash, accounts receivable, other
current assets, or any assets owned directly by us (but not including assets
owned by our subsidiaries that are related to the asphalt business).
Purchase Price
In consideration of the rights, interests, assets and properties
transferred to Peak Asphalt, Peak Asphalt will issue us a $7.5 million
promissory note and will assume certain obligations. The principal terms of the
promissory note provide for interest to accrue at 4.0% per annum, with interest
only payable quarterly on or before the last day of the month following the
calendar quarter, commencing April 2005. The principal balance will be paid in
annual installments on January 31 of each year, commencing January 31, 2005,
based on earnings before interest, taxes, depreciation and amortization, or
EBITDA, less interest accruing on current debt, including Idaho Asphalt's
operating line of credit advances to Peak Asphalt, or Adjusted EBITDA. The
annual principal payment shall be equivalent to 40% of the Adjusted EBITDA for
the preceding year, less the amount of interest payments on the note during such
year. If the interest payments on the note during such year exceed 40% of
adjusted EBITDA for that year, no principal payment will be required for that
year. Notwithstanding the foregoing, for the payment due January 31, 2005, if
the Adjusted EBITDA for 2004 is less than zero, no principal payment will be
due, and an amount equal to 60% of the Adjusted EBITDA deficit will be
subtracted from the principal balance of the note. The principal amount of the
note will be increased by the amount of the interest accrued on the 2004
operating line of credit. Any principal amount of the note outstanding on
January 31, 2014, will be cancelled.
The promissory note will be secured by a first priority security
interest in all of the assets we convey to Peak Asphalt (subject to any prior
third-party liens) pursuant to a security agreement. If Peak Asphalt refinances
the existing obligations against the purchased assets (other than the promissory
note), our security interest will be subordinated to the liens created by such
refinancing. Peak Asphalt will assume our obligations for third-party
indebtedness for certain previous facility purchases and improvements, equipment
purchases and leases, and similar items, estimated to total approximately $2.5
million, but not assume any prior obligations of or claims against us or to
which the purchased assets are subject. Peak Asphalt will use its best efforts
to cause us to be released from all liability related to such all assumed
obligations. However, we cannot assure that the third-party creditors will
release us from the obligations assumed by Peak Asphalt prior to payment or that
Peak Asphalt will have the financial resources to pay such third-party
indebtedness prior to or at maturity.
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The sale to Peak Asphalt will be effective as of May 1, 2004.
Therefore, appropriate adjustments will be made to the purchase price to account
for the revenues, expenses and payments on the assumed obligations and other
items attributable to the purchased assets for the period from May 1, 2004, to
the closing date.
Interim Financing for our Asphalt Operations
In order to provide interim operating capital for operating the asphalt
business after May 1, 2004, pending the effective date of our required
stockholder approval and formation of Peak Asphalt, Idaho Asphalt Supply
advanced a high of approximately $3.5 million during 2004, with a balance
outstanding of approximately $3.3 million as of September 30, 2004. These
advances to us by Idaho Asphalt Supply are secured by a security interest in all
of the asphalt oil, extender oils, chemicals and asphalt modifiers owned by us
as of April 30, 2004, inventory we acquired subsequent to May 1, 2004, and our
accounts receivable relating to the asphalt business after May 1, 2004. Upon the
closing of the asset sale to Peak Asphalt, we will assign the above loan and
security documentation to Peak Asphalt, which will assume the obligations
thereunder, and Idaho Asphalt Supply will release us from further obligation for
repayment of that interim funding.
Inventory quantities valued at cost, effective as of April 30, 2004,
will be verified prior to closing and adjustments will be made to account for
any discrepancies in volume, cost or amounts advanced. The amount of any such
discrepancy will be paid to either Peak Asphalt or us, as the case may be, by
the other party at closing.
Operating Line of Credit
As described above, Idaho Asphalt Supply provided an operating line of
credit for much of our working capital requirements in calendar year 2004, and
Peak Holding may elect to continue to do so for Peak Asphalt in future years.
The operating line of credit will be secured by and have a first priority in all
of Peak Asphalt's inventory, accounts receivable, bank accounts and contracts.
In addition, the operating line of credit will be secured by the purchased
assets, equipment, real estate and other assets, subject to our prior lien
securing Peak Asphalt's $7.5 million promissory note to us. The outstanding
balance of the operating line of credit will accrue interest at one percentage
point over the prime interest rate. Peak Asphalt will repay the operating line
of credit from available cash. Peak Asphalt will maintain sufficient cash
reserves in its bank accounts to pay the estimated expenses and inventory
purchases for the succeeding 30-day period. Available cash will be used to repay
the outstanding balance of the operating line of credit prior to any
distributions to Peak Holding and us as members. It is anticipated that the
operating line of credit will be provided beginning in 2005 in the amount
necessary to fund Peak Asphalt's operations as budgeted each year; however, Peak
Holding will have the option not to provide such operating line of credit.
If Peak Holding does not provide an operating line of credit to Peak
Asphalt at any time, Peak Asphalt will seek financing from other sources. If
Peak Asphalt is unable to obtain financing from other sources, it may be unable
to continue operations or to pay amounts due us under the $7.5 million note
issued to us for the purchase of our asphalt assets and operations, in which
case we may grant a forbearance, extend payment terms, or seek to negotiate an
alternative solution, or, in the alternative, we would be entitled to exercise
our remedies under the security agreement and recover possession of our asphalt
assets and operations. If we repossess our assets and operations, we would be
solely responsible for funding ongoing operations, and in view of our previous
experience in seeking external funding, we may be unable to continue.
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Conditions to Closing of the Agreement
1. Our obligations and those of Peak Holding are subject to the
satisfaction, at or before closing, of the following conditions:
(a) All required third-party consents to the agreement and the
transactions contemplated thereby shall have been received.
(b) There shall not be any action or threatened action before
any court or governmental body to restrain, prohibit, or invalidate the
transactions contemplated by the agreement or that, in the judgment of
the boards of directors and managers of us or Peak Holding, made in
good faith and based on the advice of legal counsel, make it
inadvisable to proceed with the transactions contemplated by the
agreement.
(c) Peak Holding shall have executed, acknowledged, and
delivered (i) a certificate, signed by a duly authorized officer of
Peak Holding and dated as of the closing date, warranting that all
action necessary to approve the transactions contemplated by the June
7, 2004 Memorandum of Understanding (the "Memorandum of Understanding")
have been taken and that all actions and undertakings required of Peak
Holding thereunder have been completed; (ii) all certificates,
opinions, schedules, agreements, resolutions, or other instruments
required by the Memorandum of Understanding or the agreement to be so
delivered by Peak Holding at or prior to the Closing; and (iii) such
other items as may be reasonably requested by us and our legal counsel
in order to effectuate or evidence the transactions contemplated by the
agreement and/or the Memorandum of Understanding.
(d) Peak Asphalt shall have been formed as a limited liability
company by filing articles of organization with the Utah Division of
Corporations and Commercial Code, and Peak Holding shall have executed,
acknowledged, and delivered an operating agreement acceptable to us
governing the affairs of Peak Asphalt.
(e) We and Peak Holding shall have received such further
documents, certificates or instruments relating to the transactions
contemplated hereby as we may reasonably request.
2. The obligations of Peak Asphalt under the terms of the agreement are
subject to the satisfaction, at or before the closing, of the following
conditions:
(a) The representations and warranties made by us in the
agreement were true when made and shall be true at the closing with the
same force and effect as if such representations and warranties were
made at and as of the closing.
(b) We shall have performed or complied with all covenants and
conditions required by the agreement to be performed or complied with
by us prior to or at the closing.
(c) No litigation, proceeding, investigation or inquiry is
pending or, to our best knowledge, threatened that might result in an
action to enjoin or prevent the consummation of the transactions
contemplated by the agreement or that might result in a material
adverse change in our assets, properties or business.
(d) We shall have taken all corporate or other action
necessary to approve the transactions contemplated by the agreement,
including obtaining the requisite approval of our stockholders and the
mailing of an information statement to our stockholders.
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(e) We shall deliver to Peak Asphalt a certificate, signed by
our duly authorized officer and dated as of the closing date,
warranting that the foregoing have been satisfied and that all
documents delivered at closing are accurate and shall provide
reasonable proof thereof as reasonably required by Peak Asphalt.
3. Our obligations under the agreement are subject to the satisfaction,
at or before the closing, of the following conditions:
(a) The representations and warranties made by Peak Asphalt in
the agreement were true when made and shall be true as of the closing
date except for changes permitted by the agreement or made in the
ordinary course of business.
(b) Peak Asphalt shall have performed and complied with all
covenants and conditions required by the agreement to be performed or
complied with by Peak Asphalt prior to or at the closing.
(c) No litigation, proceeding, investigation or inquiry is
pending or, to the best knowledge of Peak Asphalt, threatened that
might result in an action to enjoin or prevent the consummation of the
transactions contemplated by the agreement or that might result in any
adverse material change in the assets, properties or business
operations of Peak Asphalt.
(d) Jay Mealey and Peak Asphalt shall have executed an
employment agreement.
(e) We shall have received a release acceptable to us duly
executed by Idaho Asphalt Supply relating to the loan to us from Idaho
Asphalt Supply assumed by Peak Asphalt pursuant to the agreement.
(f) Peak Asphalt shall deliver to us a certificate, signed by
a duly authorized officer of Peak Asphalt and dated as of the closing
date, warranting that the foregoing have been satisfied and that all
documents delivered at closing are accurate and shall provide
reasonable proof thereof as reasonably required by us.
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ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
Exhibit
Number Title of Document Location
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Plan of Purchase, Sale, Reorganization, Arrangement, Liquidation or
Item 2. Succession
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2.01 Asset Purchase and Sale Agreement among Peak Asphalt, L.L.C. (Buyer) This filing.
and Crown Energy Corporation, Crown Asphalt Products Company, and
Crown Asphalt Distribution L.L.C. (Sellers) dated December 22, 2004,
with forms of the following:
o Promissory Note for $7,500,000 from Peak
Asphalt, L.L.C.;
o Security Agreement among Peak Asphalt,
L.L.C. (Buyer) and Crown Energy Corporation,
Crown Asphalt Products Company, and Crown
Asphalt Distribution L.L.C. (Sellers)
effective May 1, 2004;
o Employment Agreement between Peak Asphalt,
L.L.C. and Jay Mealey; and
o Operating Agreement of Peak Asphalt, L.L.C.
2.02 Operating Agreement of Peak Asphalt, L.L.C. This fliing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CROWN ENERGY CORPORATION
Date: January 19, 2005 By /s/ Jay Mealey
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Jay Mealey
Its Chief Executive Officer
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