SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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) APRIL 17, 1996
TEXOIL, INC.
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(Exact name of Registrant as specified in its charter)
NEVADA 0-12633 8-0177083
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification
incorporation) Number)
1600 SMITH STREET
SUITE 4000
HOUSTON, TEXAS 77002
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(Address of principal executive offices)
Registrant's Telephone Number, including Area Code: (713) 652-5741
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Item 5. OTHER EVENTS
On April 17, 1996, Texoil, Inc. ("Texoil") entered into a non-binding letter of
intent with Fortune Petroleum Corporation ("Fortune") for the acquisition of
Texoil by Fortune in a tax-free merger transaction.
In the transaction, Fortune will, at closing, issue to Texoil shareholders one
share of Fortune common stock, par value $.01 per share, for every 3.2 shares of
Texoil common stock, up to a maximum of 1,845,000 Fortune common shares. Prior
to the record date of the transaction, all owners of Texoil's 23,000 shares of
preferred stock will exchange such shares and any accrued dividends into common
stock of Texoil at the market price of such stock on the effective date of the
exchange, in a total aggregate amount of not more than 1,700,000 shares of
Texoil common stock.
On the closing of the transaction, the outstanding principal on all loans from
Texoil shareholders (presently $1,100,000) to Texoil will be converted to
Fortune common stock at the average of the closing market price of such stock on
the ten (10) business days immediately prior to the closing of the transaction.
Fortune shall provide assistance in the liquidation of such shares by ensuring
that such shareholders receive the entire amount of their previously existing
loan amounts within fifteen (15) months of the closing of the transaction,
provided, however, that Fortune shall guarantee the receipt by T. W. Hoehn, Jr.
of the first $200,000 of such proceeds during the two-week period following the
closing and the balance of such proceeds within one year following the closing.
Fortune and Hoehn will reconcile the accounting of such liquidation so as to
provide for the proportionate return to Fortune of any amounts received by Hoehn
insofar as Fortune was required to advance funds on its guarantee.
Prior to closing of the transaction, each of the current officers, directors and
principal shareholders of Texoil shall enter into "lock-up" agreements whereby
their ability to trade the Fortune stock (exclusive of the Fortune common to be
issued in conversion of outstanding loans) shall be restricted for a period of
not less than six (6) months nor more than the period required to consummate the
sale of the shares issued in conversion of the outstanding loans, and upon other
mutually-acceptable terms. At the conclusion of the lock-up period, Fortune will
register for resale under Form S-3 those shares previously subject to the
agreement.
The letter of intent states that, subject to further review, the outstanding
options and warrants of Texoil will be assumed by Fortune in accordance with
their terms. The letter of intent states that the parties will enter into a
definitive merger agreement not later than April 26, 1996. The parties expect
that the transaction will close on or before August 15, 1996.
Upon closing of the transaction, Walter L. Williams, the Chairman and Chief
Executive Officer of Texoil, will be appointed to Fortune's board of directors,
and T. W. Hoehn, III will be appointed to Fortune's executive committee. It is
contemplated that Mr. Williams will be elected chairman of the board of Fortune.
Further, Fortune believes that a continuity of Texoil's professional staff is a
desirable component of the transaction contemplated hereby. Fortune intends to
devote further review to the feasibility of extending offers of employment to
certain of Texoil's professional staff.
During the interim period between the signing of the definitive merger agreement
and closing or earlier termination of the merger, Fortune has agreed to lend to
Texoil on a secured basis Texoil's working interest share of the costs of
Texoil's Raceland, Greens Lake and Laurel Grove prospects.
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Texoil's share of those costs over the next six months is projected to be
approximately $1,000,000. In addition, Fortune will lend amounts up to $150,000
to Texoil to assist Texoil in paying other reasonable and necessary expenses of
conducting its business during the interim period. The determination of
"reasonable and necessary costs" will be determined solely by Fortune. Any
amounts loaned by Fortune to cover reasonable and necessary expenses of Texoil
over and above $150,000 will reduce the purchase price to be paid by Fortune for
Texoil. Specifically, to the extent that such amounts, along with any other
increase in the total of the net working capital deficit and other liabilities
exceed Texoil's total net working capital deficit and other liabilities, as of
March 31, 1996, by more than $150,000, the purchase price will be reduced
accordingly. At the time of the first delivery of such funds by Fortune to
Texoil, Texoil will be required to execute and deliver to Fortune a security
interest in the three prospects named above, including, but not limited to, all
seismic data, seismic options, and leasehold interests.
In the event that Texoil is acquired by a third party which thereafter
repudiates the transaction contemplated by the letter of intent, or in the event
that Texoil, due to acquisition or merger discussions with a third party,
repudiates or materially impairs the ability of either party to proceed with the
transaction, Fortune shall be entitled to (i) the repayment within two (2)
business days of the amounts loaned to Texoil together with interest at 18% per
annum, plus (ii) an assignment of the greater of 10% of the total working
interest in each of the prospects named above on the same basis as Texoil holds
its interest, or 50% of Texoil's interest in each of the three prospects,
proportionally adjusted as provided below.
In the event that Fortune, due to acquisition or merger discussions with a third
party, repudiates or materially impairs the ability of either party to proceed
with the transaction, Fortune shall only be entitled to the return, within one
year, of the amounts loaned to Texoil, without interest.
In the event that consummation of the merger is enjoined by a court of competent
jurisdiction, the obligations of the parties shall be terminated and Fortune
shall receive within ninety (90) days from the date such injunction becomes
final, (i) the return of the amounts loaned to Texoil by Fortune, together with
interest at 18% per annum, plus (ii) an assignment from Texoil of a working
interest in each of the three prospects equal to five percent (5%) of the total
working interest in each of the prospects, proportionally adjusted as provided
below.
In the event that the merger is not consummated due to the failure of any
representations or warranties made by Texoil, or the breach by Texoil of any of
the terms and provisions of the merger agreement, or for any other reason
attributable to Texoil's failure or inability to proceed (except as provided
above), Fortune shall have the right to receive, at its election, either (i) the
return within thirty (30) days after termination of the transaction of all
amounts loaned to Texoil, together with interest at 18% per annum, or (ii) an
assignment of working interest equal to an unpromoted 50% of Texoil's total
interest in each of the three prospects under the same terms and conditions as
Texoil owns the interests, proportionally adjusted as provided below.
In the event the merger is not consummated due to the failure of any of the
representations or warranties made by Fortune, or the breach by Fortune of any
of the terms or provisions of the agreement between the parties, or for any
other reason attributable to Fortune's failure or inability to proceed (except
as provided above), Fortune shall have the right to receive, at Texoil's
election, either (i) the return within ninety (90) days after termination of the
transaction, of all of the amounts loaned by Fortune to Texoil, together with
interest at 18% per annum, or (ii) an assignment
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of working interest equal to an unpromoted 50% of Texoil's total interest in
each of the three prospects, proportionally adjusted as provided below.
The proportionate adjustment referred to above shall be a fraction, the
numerator of which shall be the total of amounts loaned by Fortune to Texoil,
and the denominator of which shall be 1,208,000, subject to a possible revision
in the denominator based upon any future sale of a portion of Texoil's interest
in the Laurel Grove Prospect. The fraction may be greater than one.
The parties will each continue to operate their businesses and operations from
the date hereof through the closing of the transaction contemplated hereby in a
reasonable and prudent manner so as to not cause or allow a material loss or
decline in the value, use, or contemplated benefit of their respective assets or
any portion thereof. Further, neither party shall take any action to enter into
any agreement prior to the closing of the transaction contemplated hereby for
the issuance of significant additional shares of stock or securities convertible
into stock or otherwise take steps to alter their capital structure without the
prior written consent of the other. Texoil will not sell or encumber, or enter
into any agreement to sell or encumber, any of its properties, leases,
prospects, or other assets without the prior written approval of Fortune.
Fortune shall, prior to the sale, acquisition, or encumbrance of any assets,
advise Texoil of its intention and shall provide it with the details of the
transaction.
While the letter of intent is non-binding, Fortune and Texoil each acknowledge
in the letter of intent that by entering into the letter of intent, the parties
will begin to expend considerable sums in due diligence, preparing and
negotiating a definitive merger agreement, and preparing and filing appropriate
documents with the Securities and Exchange Commission ("SEC"). Such expenditures
are being made pursuant to explicit representations and warranties made, each to
the other by Fortune and Texoil, that majorities of each parties directors, and
shareholders representing a majority of all outstanding Texoil shares have each
been notified of and approved the transaction in substantially the form set out
in the letter of intent. In the event that the board of directors of either
party fails to approve a definitive merger agreement in substantially the form
set forth in the letter of intent, the parties have agreed that the resulting
damages would be impracticable or extremely difficult to ascertain. Because of
these difficulties, the parties have agreed that in the event of such a breach,
the party which fails to approve the definitive merger agreement shall pay the
sum of $50,000 to the other as liquidated damages. Except for the specific
representations and warranties set forth in this paragraph, neither party is
bound to any of the terms and provisions set forth in the letter of intent.
The transaction is subject to a number of contingencies, including completion of
due diligence by Texoil and Fortune, execution of a definitive merger agreement,
effectiveness of a registration statement for the Fortune shares, listing of the
Fortune shares that will be issued on the American Stock Exchange, approval of
the merger by the directors and shareholders of both companies, and to the
receipt by Texoil of a favorable opinion regarding the fairness of the proposed
transaction from a financial point of view from an investment banking firm or
other person suitable to both Texoil and Fortune.
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Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of business acquired.
Not applicable.
(b) Pro forma financial information.
Not applicable.
(c) Exhibits.
2.1 Letter of Intent dated April 17, 1996.
99. Press release dated April 18, 1996.
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.
TEXOIL, INC.
Date: APRIL 22, 1996 By: /S/ WALTER L. WILLIAMS
-------------- Walter L. Williams
Chairman
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