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
July 23, 1998
Rio Grande, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
1-8287 74-1973357
(Commission File Number) (I.R.S. Employer Identification Number)
10101 Reunion Place, Suite 210
San Antonio, Texas 78216-4156
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(210) 308-8000
Item 5. Notice of Default and Acceleration - Senior Credit Facility.
The Company has received from its senior lender, Comerica Bank - Texas
(the "Bank"), a "Notice of Defaults and Events of Default" whereby the Bank has
declared the entire outstanding principal balance of the Senior Credit Facility
and all interest accrued thereon to be immediately due and payable. In addition,
the Bank has advised that it intends to pursue all remedies that are available
in law and in equity, including but not limited to, foreclosure proceedings in
order to collect all amounts due. The aggregate amount of principal and interest
currently outstanding is approximately $13,400,000.
The Bank has also submitted "Letters in Lieu of Transfer Order and
Division Order" to certain purchasers and marketing entities of the Company's
oil and gas products. The Letters in Lieu direct such purchasers to make
payments for the settlement of purchased products directly to the Bank. As a
result of such action, the Company will likely receive no further payments from
such purchasers until the default under the Senior Credit Facility has been
remedied or other agreements have been negotiated with the Bank. Such action
will severely impact the Company's ability to pay direct operating expenses of
its oil and gas leases, including applicable royalties, and general and
administrative expenses.
The Company is currently evaluating the sale of certain or all of its
oil and gas properties; however, any significant sale of oil and gas properties
outside of a bankruptcy proceeding likely will require stockholder approval,
which in turn will require preparation and circulation of a Proxy Statement or
Information Statement (the "Statement") and the passage of approximately twenty
days between mailing of the Statement and the ability to effectuate any such
sale. Although the Company is currently in the process of preparing such
Statement, no assurance can be given that the Bank will not effectuate its
remedy of foreclosure before the sale of the oil and gas properties may be
completed by the Company.
The Company is also considering other alternatives, which could include a
restructuring or reorganization of the Company or an alternative transaction
that would address the Company's default under the Senior Credit Facility in a
manner acceptable to the Bank. No assurances can be given that the Company can
identify a transaction acceptable to the Bank or that if any such transaction
can be identified, that it can be documented and concluded successfully or in a
timely manner. Any of the transactions or occurrences described above would
likely result in nominal or no value being afforded to the interests of existing
holders of the Company's common stock.
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Item 7. Financial Statements and Exhibits
(a) Financial Statements
Not applicable.
(b) Exhibits
Number Document
99(d) Thompson & Knight, attorneys for Comerica
Bank - Texas, letter dated July 8, 1998
regarding notice of default of Company to
terms of the Senior Credit Facility and
notice that all outstanding indebtedness is
immediately due and payable.
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SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RIO GRANDE, INC.
By: /s/
Guy Bob Buschman, President
Dated: July 23, 1998
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THOMPSON & KNIGHT
A PROFESSIONAL CORPORATION
ATTORNEYS AND COUNSELORS
1700 PACIFIC AVENUE SUITE 3300 Austin
DALLAS, TEXAS 75201-4693 Fort Worth
Houston
Monterrey, Mexico
DIRECT DIAL: (214) 969-1700
FAX (214) 969-1751
July 8, 1998
VIA FACSIMILE 210/308-8111
WITH COPY VIA CERTIFIED MAIL
Rio Grande, Inc.
Rio Grande Drilling Company
Union Square, Suite 210
10101 Reunion Place
San Antonio, Texas 78216-4156
Attention: Guy Bob Buschman, President
Re: Loan Agreement dated as of March 8, l996 (as amended,
supplemented or restated, the "Loan Agreement") by and between
Rio Grande, Inc. and Rio Grande Drilling Company
(collectively, "Borrowers") and Comerica Bank - Texas ("Bank")
governing the loan evidenced by a promissory note in the
original principal sum of $50,000,000 dated as of January l 5,
l 997 executed by Borrowers and delivered to Bank (the "First
Renewal Note"), which First Renewal Note is secured by oil and
gas property interests owned by Borrowers and their affiliates
located in Louisiana, Mississippi, Oklahoma, Texas and
Wyoming, pursuant to various deeds of trusts and mortgages
(collectively, the "Oil and Gas Mortgages."
NOTICE OF DEFAULTS AND EVENTS OF DEFAULT
Ladies and Gentlemen:
This firm represents the Bank. Reference is made to the Loan Agreement
defined above. Terms which are used in this letter without definition shall have
the meanings assigned to them in the Loan Agreement. We have been informed by
the Bank that the following defaults or events of default have occurred and are
continuing under the Loan Agreement:
1. Amortization. An event of default has occurred under Section 9.1 of
the Loan Agreement because Borrowers defaulted in the due and punctual payment
of the principal and interest of the Note.
2. Borrowing Base Deficiency. An event of default has occurred under
Section 3.4 of the Loan Agreement because Borrowers have failed to cure the
$6,678,002 deficiency in the Borrowing Base (as described in the Bank's letter
dated February 2, 1998).
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Rio Grande, Inc.
Rio Grande Drilling Company
July 8, 1998
Page 3
THE BANK HEREBY NOTIFIES BORROWERS THAT THE FOREGOING
VIOLATIONS EACH CONSTITUTE A DEFAULT OR EVENT OF DEFAULT UNDER
THE TERMS OF THE LOAN AGREEMENT AND UNDER THE OTHER LOAN
DOCUMENTS AND ARE CONTINUING.
Pursuant to Section 10.0 of the Loan Agreement, the Bank is not
obligated to make further Loans under the Loan Agreement if an event of default
has occurred and is continuing as of the date such request for advance and the
Bank does not intend to do so.
Furthermore, at the direction of the Bank and on its behalf the
undersigned hereby declares the entire outstanding principal balance of the
First Renewal Note and all interest accrued thereon, along with all other unpaid
indebtedness owed by Borrowers to Bank, to be immediately due and payable. You
are hereby advised that the Bank intends to pursue any and all remedies that are
available in law and in equity, including but not limited to, the institution of
foreclosure proceedings under one, or more, of the Oil and Gas Mortgages unless
the full amount due under the First Renewal Note, and secured by the Oil and Gas
Mortgages, is paid prior to such foreclosure sale.
The description of the Loan Agreement contained herein is for your
information and convenience only and shall not be deemed to limit, amplify or
modify the terms or otherwise affect either the Loan Agreement or any other
document securing or providing a source of payment of the Note. The description
herein of the defaults or events of default under the Loan Agreement is based
upon the information available to the Bank on the date hereof and shall not be
deemed to exclude the existence of other defaults or events of default. The
failure of the Bank to give notice to Borrowers of any such other defaults or
events of default which may be pending is not intended to be nor shall be a
waiver thereof. The terms and provisions of the Loan Agreement and all other
Loan Documents (as defined in the Loan Agreement and herein collectively
referred to as the "Loan Documents") are and shall remain in full force and
effect; you are advised that the Bank requires and will require strict
performance by Borrowers of all of their respective obligations, agreements and
covenants contained in the Loan Agreement and the other Loan Documents, and no
inaction or action regarding any such breach is intended to be or shall be a
waiver thereof.
The description herein of the specific rights and remedies of the Bank
shall not be deemed to limit or exclude any other rights to which the Bank may
be or become entitled under the Loan Documents, at law, in equity or otherwise.
All rights, remedies and powers conferred upon the Bank under the Loan Documents
and/or applicable law, and any exercise thereof are and shall continue to be
cumulative and not exclusive of any other rights, remedies or powers, or the
exercise thereof available under the Loan Documents, at law, in equity or
otherwise.
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Rio Grande, Inc.
Rio Grande Drilling Company
July 8, 1998
Page 3
In no event and under no circumstance shall any past or future
discussions with the Bank and/or the Bank's forbearance from exercising any of
its rights or remedies under the Loan Documents: (i) cause a modification of the
Loan Documents; (ii) establish a custom with respect to any of the Loan
Documents: (iii) operate as a waiver of any existing or future default or event
of default under the Loan Documents; (iv) entitle you to any other or further
notice or demand whatsoever; (v) in any way modify change, impair, affect,
diminish or release any of your obligations or liability under or pursuant to
the Loan Documents or any other liability you may have to the Bank; or (vi)
waive, limit or condition the Bank's rights and remedies under the Loan
Documents, all of which rights and remedies are expressly reserved. Furthermore,
any and all discussions, or drafts of documentation, relating to forbearance or
modification of Loan Documents, unless heretofore exercised in writing, are
hereby withdrawn.
This letter shall in no way be deemed to obligate the Bank to give you
or anyone else any notices of any kind in connection with the Loan Documents or
otherwise. All waiver provisions contained in the Loan Documents remain in full
force and effect and shall not be deemed to have been waived or released by the
Bank as a result of delivery of this letter.
Very truly yours,
Peter J. Riley
cc: James B. Smith, Jr. (via telecopy)
Gregory S. Wallis (via telecopy)
Joseph W. Sullivan (via telecopy)
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