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): January 8, 1997 (December 31,
1997)
TEXOIL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 0-12633 88-0177083
(STATE OF INCORPORATION) (COMMISSION FILE NUMBER) (IRS EMPLOYER
IDENTIFICATION NO.)
1600 SMITH STREET, SUITE 4000
HOUSTON, TEXAS 77002
(ADDRESS OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
(713) 652-5741
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(NOT APPLICABLE)
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
On December 31, 1997, Texoil, Inc., a Nevada corporation ("Texoil"),
Texoil Acquisition, Inc., a Texas corporation and wholly-owned subsidiary of
Texoil ("Texoil Sub"), and Cliffwood Oil & Gas Corp., a Texas corporation
("Cliffwood"), signed and closed an Agreement and Plan of Merger dated December
31, 1997 (the "Merger Agreement") pursuant to which Texoil Sub was merged with
and into Cliffwood, with Cliffwood being the surviving entity (the "Merger").
Articles of Merger were filed with the Secretary of State of the State of Texas
on December 31, 1997.
Pursuant to the Merger Agreement, fifty-three former Cliffwood
shareholders were issued shares of Texoil's common stock, par value $.01 (the
"Texoil Common Stock"), equal to approximately 70% of Texoil's outstanding
shares. Texoil's Board of directors was restructured so that five Texoil
directors (T. W. Hoehn Jr., Walter L. Williams, William F. Seagle, Joe C.
Richardson Jr. and Ruben Medrano) resigned and the remaining members of the
Texoil Board of Directors filled the resulting vacancies with five candidates
nominated by Cliffwood's Board of Directors. The current members of the Texoil
Board of Directors are: Frank A. Lodzinski, Jerry M. Crews, Michael A. Vlasic,
Robert E. La Joie and Thomas A. Reiser, all of whom have been, and currently
are, directors of Cliffwood, and Gary J. Milavec and T. W. Hoehn, III, both
formerly directors of Texoil. Also, upon closing, Frank A. Lodzinski, the
President and Chief Executive Officer of Cliffwood, became the President and
Chairman of the Board of Texoil, and Jerry M. Crews, the Secretary and Executive
Vice-President of Cliffwood, became the Secretary of Texoil.
Frank A. Lodzinski, age 48, has been President and a director of
Cliffwood since he founded Cliffwood and it commenced operations in February
1996. From January 1992 to February 1995 he served as President and a director
of Hampton Resources Corporation, a public corporation which he co-founded. From
February 1995 (when Hampton was sold to Bellwether Exploration Company) to
February 1996, he was self-employed and was a consultant to Bellwether
Exploration Company. From 1984 to 1992, Mr. Lodzinski was engaged in the oil and
natural gas business through Energy Resource Associates, Inc., a closely-held
Texas corporation which he owned and controlled. Prior to 1984, he was employed
in public accounting with Arthur Andersen & Co., and in various capacities with
independent oil and gas companies. He is a Certified Public Accountant and holds
a BSBA degree from Wayne State University.
Jerry M. Crews, age 47, has been an officer and director of Cliffwood
since he joined Cliffwood in April 1996. For the preceding 12 years he was an
officer of Citation Oil & Gas Corporation and was responsible for all production
operations. His experience includes acquisitions, drilling and development in
most of the producing basins of the United States. Prior experience was with
Conoco and Lear Petroleum. He holds a B.S. in petroleum engineering from Texas
A&M University.
Michael A. Vlasic, age 38, has been a director of Cliffwood since July
1996. For more than the past five years, he has been a principal with Vlasic
Investments L.L.C. He is a graduate of Brown University.
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Robert E. La Joie, age 72, has been a director of Cliffwood since July
1996. Mr. La Joie retired in 1977 and is a private investor with more than forty
years experience in oil and natural gas, real estate and food services. He is a
graduate of the University of Michigan.
Thomas A. Reiser, age 46, has been a director of Cliffwood since April
1996. For more than the past five years he has served as Chairman and President
of Technical Risks, Inc. a private insurance brokerage firm, which he founded.
He is a graduate of the College of William and Mary.
Gary J. Milavec, age 35, has been a director of Texoil since September
1996 and served as its Secretary from October 1996 to December 1997. He has been
a Vice President of RIMCO Associates, Inc. and active in its investment
management and corporate finance activities since October 1990. He is also a
director of Universal Seismic Associates, Inc. and Brigham Exploration Company.
From May 1989 to October 1990, he was an investment banker with Rauscher Pierce
Refsnes, Inc. From July 1986 to May 1989, he was a geologist with Shell Oil
Company. Mr. Milavec received a B.A. in Geology from the University of
Rochester, an M.S. in Geology from the University of Oklahoma, and an M.B.A.
from the University of Houston.
T. W. Hoehn, III, age 47, has been a director of Texoil since 1984 and
became its Chairman in October 1996. He is President and General Manager of
Hoehn Motors, Inc., a multi-line automobile agency located in Carlsbad,
California, where he has been employed since 1975. He is a graduate of Stanford
University.
There are no arrangements known to Texoil, including any pledge by any
person of Texoil securities, the operation of which may result at a subsequent
date in a change in control of Texoil.
Additional information concerning the Merger is contained in Items 2 and
5 below.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
AGREEMENT AND PLAN OF MERGER WITH CLIFFWOOD OIL & GAS CORP.
As a result of the Merger and pursuant to the terms of the Merger
Agreement, Texoil issued 6.74 shares of Texoil Common Stock for every share of
issued and outstanding Cliffwood Class A common stock, par value $.01 per share,
and Class B common stock, par value $.01 per share, comprising an issuance of
25,450,179 shares of Texoil Common Stock representing approximately 70% of the
shares of Texoil Common Stock currently outstanding. In addition, Texoil issued
replacement warrants and options to holders of Cliffwood warrants and options
representing obligations to issue, upon exercise of such replacement warrants or
options, up to 9,385,450 shares of Texoil Common Stock.
In connection with the Merger, the holders of all of Texoil's Series A
Preferred Stock and all of Texoil's outstanding convertible notes converted
those securities into Texoil Common Stock in accordance with the terms of such
securities. Prior to the Merger, 23,000 shares of Series A Preferred Stock were
outstanding for which Texoil issued 766,667 shares of Texoil Common Stock upon
conversion, in addition to 138,000 shares issued for accrued but unpaid
dividends on such
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Series A Preferred Stock. Similarly, $5.1 million in convertible notes were
outstanding for which Texoil issued 5.5 million shares of Texoil Common Stock
upon conversion, in addition to 90,813 shares issued for accrued and unpaid
interest on such notes. Texoil also repaid $1,050,000 of nonconvertible notes
owed to a Texoil director and his affiliates. The cash necessary to repay the
notes and pay transaction costs associated with the Merger was obtained from
cash on hand and the proceeds of the financing from affiliates of Resource
Investors Management Company ("RIMCO") described below.
Texoil expects that the Merger will be accounted for under the pooling
of interests method of accounting pursuant to generally accepted accounting
principles. The effect of pooling of interests accounting treatment is that the
assets and liabilities accounts of Cliffwood will be recorded at their
historical book values on December 31, 1997.
The Texoil Common Stock that was issued in the Merger was not registered
under the Securities Act of 1933, as amended, (the "Securities Act") or
applicable state securities laws in reliance on exemptions from the securities
registration provisions of the Securities Act and state securities laws. Texoil
has extended registration rights with respect to the shares of Texoil Common
Stock issued in the Merger and with respect to certain shares of Texoil Common
Stock held by current and former affiliates of Texoil prior to the Merger. As a
result of the registration rights granted in connection with the Merger,
approximately 93.3% of outstanding Texoil Common Stock is subject to various
registration rights. In addition, Texoil has extended registration rights with
respect to 11,623,218 shares of Texoil Common Stock issuable upon exercise of
the options and warrants issued in conjunction with the Merger and certain
options and warrants held by current and former affiliates of Texoil prior to
the Merger.
NATURE OF THE BUSINESS OF THE ACQUIRED COMPANY
Cliffwood is a private independent energy company whose primary focus is
on the acquisition and development of oil and natural gas properties. Cliffwood
was initially incorporated in September 1993 as AMF Production Company. The name
was changed to Cliffwood Oil & Gas Corp. when it commenced operations in early
1996. In May 1996, the corporate structure was revised and Cliffwood Oil & Gas
Corp. became the parent corporation to Cliffwood Production Co. ("Cliffwood
Production") and Cliffwood Energy Company ("Cliffwood Energy"), both
wholly-owned subsidiaries. In June 1997, Cliffwood formed Cliffwood Exploration
Company ("Cliffwood Exploration"), a wholly-owned subsidiary. References herein
to the term "Cliffwood" shall refer to Cliffwood Oil & Gas Corp. and all
consolidated subsidiaries.
Cliffwood is principally engaged in the exploration, acquisition,
development and production of oil and natural gas. Cliffwood's exploration
efforts are focused primarily in Texas with additional undeveloped properties
and prospects located in southern Louisiana and the Texas Gulf Coast area.
Cliffwood's principal proved reserves are located onshore in Texas. As of
September 30, 1997, Cliffwood had estimated proved reserves of 2,874,000 bbls of
oil and 7,022,000 mcf of natural gas having an estimated Present Value of Proved
Reserves of approximately $23.5 million. The estimates of Cliffwood's proved
developed reserves as of September 30, 1997, referred to in this Memorandum are
based upon the reports prepared by Cliffwood's management and technical staff.
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Such reports do not vary materially from independent reports prepared to
calculate Cliffwood's lending capacity by Comerica Bank-Texas, the lead bank for
Cliffwood's existing line of credit. The term "Present Value of Proved Reserves"
refers to the present value of estimated future revenues to be generated from
the production of proved reserves calculated in accordance with Securities and
Exchange Commission guidelines, net of estimated production and future
development costs, using prices and costs as of the date of estimation, without
giving effect to certain non-property related expenses and discounted using an
annual discount rate of 10%.
From the commencement of its operations in February 1996, Cliffwood has
focused on reserve acquisitions and development activities. Following the
acquisition of Cliffwood Energy and its related oil and gas interests in
February, 1996, Cliffwood acquired 15 wells located in Madison County, Texas in
April 1996. In September of 1996, in connection with the acquisition of the Fort
Stockton and Goldsmith-Landreth Units, Cliffwood Energy became the general
partner of a limited partnership known as Cliffwood Acquisition 1996 Limited
Partnership ("CALP 96"). CALP 96 was capitalized with approximately $3,000,000
by its limited partners who include Energy Capital Investment Company, PLC and
Encap Equity 1996 Limited Partnership, who were issued warrants to acquire a
total of 300,000 shares of the Cliffwood Class A Common Stock. Generally,
Cliffwood Energy funds 10% of the capital requirement for each project
undertaken by CALP 96 and may earn up to 70% of the cash flows of CALP 96 if
certain conditions are satisfied. Cliffwood must offer CALP 96 25% of future
acquisitions sponsored by Cliffwood up to CALP 96's capital limit of
$10,000,000.
Cliffwood and its affiliated partnerships acquired a 100% working
interest in the Fort Stockton Unit in September 1996. At approximately the same
time, Cliffwood and its affiliated partnerships acquired an 83% working interest
in the Goldsmith-Landreth San Andres Unit.
Effective December 1, 1996, Cliffwood and its affiliated partnerships
acquired a 100% interest in the Huff and McFadden Fields. The Company thereafter
acquired interests in two additional fields in 1996 and closed the acquisition
of an interest in the Magnet Withers and Ollie London Fields in March of 1997.
In the summer of 1997, Cliffwood established an exploration and development
joint venture with Bechtel Exploration Company known as the Cliffwood-Blue Moon
Joint Venture ("Cliffwood-Blue Moon JV"). Pursuant to the Cliffwood-Blue Moon
JV, Cliffwood has acquired rights to certain 3-D seismic data covering 150
square miles located in Acadia, Lafayette and Vermilion Parishes, Louisiana, and
access to 3-D seismic data covering an additional 50 square miles located in
Cameron and Calcasieu Parishes, Louisiana.
Effective August 1, 1997, Cliffwood acquired from V&C Energy Limited
Partnership ("V&C") all of the oil and natural gas interests held by V&C in
exchange for $2,500,000 cash, 100,000 shares of Cliffwood's Class A Common Stock
and a warrant to acquire 50,000 shares of Cliffwood Class A Common Stock at a
price of $4.50 per share. The acquisition of the V&C properties resulted in
Cliffwood acquiring V&C's undivided interests in six fields in which Cliffwood
already held an existing interest. V&C is a limited partnership whose general
partner is Energy Resources Associates, Inc., a wholly-owned entity of Mr.
Lodzinski and its limited partners include Mr. Lodzinski and Vlasic Investments,
LLC, an entity controlled by Michael A. Vlasic, a director of Cliffwood.
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In 1996, upon the closing of certain acquisitions for Cliffwood, Mr.
Lodzinski was paid a cash fee in the aggregate of $40,250. Cliffwood also had an
arrangement with Mr. Crews that he would earn a certain amount of its Class A
Common Stock based upon his agreement to work without compensation for a period
of six months. Mr. Crews also earned a fee of $57,250 for his services in
generating and closing certain acquisitions on behalf of Cliffwood. Mr. Mandell
C. Selber, an officer of Cliffwood, was paid a cash fee in the amount of $23,800
as a commission with respect to the acquisitions in the New Diana Field, such
fee was negotiated with Mr. Selber prior to his employment by Cliffwood.
Cliffwood's strategy has been to continue to pursue exploration and
development opportunities which shall constitute a significant part of the
overall business plan and to continue to achieve growth through purchases of
reserves, re-engineering, development and exploration. Cliffwood's primary
business strategy for drilling is to originate prospects, acquire leases and/or
options and solicit participants on a promoted basis pursuant to which Cliffwood
has the potential to earn interest in the properties and possibly receive a
profit interest greater than its proportionate cost. Cliffwood will also seek to
sell participations in the higher risk and higher cost prospects in an effort to
reduce the risk of exploration. Texoil presently intends to continue this
strategy with Cliffwood's properties and reserves.
ITEM 5. OTHER EVENTS
RIMCO FINANCING
Texoil Company and Texoil, Inc. had existing financing arrangements with
affiliates of RIMCO and with certain of their directors and affiliates of those
directors ("Existing Financing"). All of the outstanding principal and accrued
and unpaid interest under the Existing Financing was either paid in full or
converted into (or exchanged for) the Common Stock of Texoil, Inc. All unfunded
commitments to lend or sell notes under the Existing Financing were canceled or
terminated.
On December 31, 1997, Texoil entered into a Note Purchase Agreement (the
"RIMCO Agreement") with four limited partnerships of which RIMCO is the
controlling general partner (the "RIMCO Lenders"). Under the RIMCO Agreement,
the RIMCO Lenders have agreed to provide up to $10,000,000 in financing and
Texoil issued 7.875% Convertible Subordinated General Obligation Notes in the
principal amount of $10,000,000 to RIMCO (the "Convertible Notes").
A portion of the proceeds from the sale of the Convertible Notes was
used to repay a portion of the Existing Financing. The remainder of the proceeds
from the sale of the Convertible Notes may be used for working capital purposes.
The Convertible Notes will mature December 1, 1999, subject to extension
pursuant to the terms of the RIMCO Agreement ("Maturity Date"). Amounts advanced
under the Convertible Notes will accrue interest at a fixed, annual rate of
7.875%. Interest is payable on the first day of each month beginning February 1,
1998. All outstanding principal plus all accrued and unpaid interest
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is due and payable on the Maturity Date or upon a "Change of Control" as defined
in the RIMCO Agreement.
At any time prior to the Maturity Date, indebtedness outstanding under
the Convertible Notes is convertible by the holders, in whole or in part, into
Texoil Common Stock at an initial per share conversion price equal to $1.75,
subject to anti-dilution adjustments. Texoil can convert all of the outstanding
indebtedness under the Convertible Notes into Texoil Common Stock if the average
closing price per share during a period of 20 consecutive trading days ("Average
Price") equals or exceeds 130% of the conversion price.
If on December 1, 1999, cash availability of Texoil and its subsidiaries
is less than the principal and accrued and unpaid interest outstanding under the
Convertible Notes, the RIMCO Lenders can be required to convert the outstanding
principal and accrued and unpaid interest into Texoil Common Stock, if the
relationship between the Average Price and the conversion price satisfies
certain conditions set out in the RIMCO Agreement.
The Company granted the holders of the Convertible Notes certain
registration rights in respect of shares of Texoil Common Stock issuable upon
conversion of debt under the Convertible Notes.
The indebtedness under the RIMCO Agreement is subject to the terms of a
subordination agreement among the RIMCO Lenders, Comerica Bank-Texas, N.A. (as
agent for itself and certain other lenders), Cliffwood Oil & Gas Corp.,
Cliffwood Energy Company, and Cliffwood Production Company, under which
indebtedness under the RIMCO Agreement is subordinated in right of payment and
the RIMCO Lenders are subject to restrictions on their right to exercise
remedies under the RIMCO Agreement. The subordination provisions to not affect
the ability to convert indebtedness under the RIMCO Agreement into Common Stock
of Texoil.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
Financial statements will be filed as soon as practicable but no later
than sixty days from the date this report is required to be filed.
PRO FORMA FINANCIAL INFORMATION
Pro forma financial statements will be filed as soon as practicable but
no later than sixty days from the date this report is required to be
filed.
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EXHIBITS
The following exhibits are filed with the Form 8-K in accordance with
the provisions of Item 601 of Regulation S-B promulgated under the Securities
Act of 1933, as amended:
2.1 Agreement and Plan of Merger, dated December 31, 1997, by and among
Texoil, Inc., Texoil Acquisition, Inc., and Cliffwood Oil & Gas Corp.
2.2 Executive Employment Agreement, dated January 1, 1998, by and among
Texoil, Inc. and Frank A. Lodzinski.
5.1 Note Purchase Agreement, dated December 31, 1997, by and among Texoil,
Inc. and Resource Investors Management Company.
5.2 Form of the Texoil, Inc. 7.875% Convertible Subordinated General
Obligation Note.
5.3 Guaranty Agreement, dated December 31, 1997, by and among Cliffwood Oil
& Gas Corp. and RIMCO Partners, L.P., RIMCO Partners, L.P. II, RIMCO
Partners, L.P. III, and RIMCO Partners, L.P. IV.
5.4 Guaranty Agreement, dated December 31, 1997, by and among Texoil Company
and RIMCO Partners, L.P., RIMCO Partners, L.P. II, RIMCO Partners, L.P.
III, and RIMCO Partners, L.P. IV.
5.5 Amended and Restated Stock Ownership and Registration Rights Agreement
among Texoil, Inc. and RIMCO Partners, L.P., RIMCO Partners, L.P. II,
RIMCO Partners, L.P. III, and RIMCO Partners, L.P. IV, dated December
31, 1997.
FORWARD-LOOKING STATEMENTS
This Report contains certain statements that may be deemed
"forward-looking statements" within the meaning of Section 27A of the Securities
Act, and Section 21E of the Exchange Act. All statements, other than statements
of historical facts, so included in this Report that address activities, events
or developments that Texoil expects, projects, believes or anticipates will or
may occur in the future are forward-looking statements. Such statements are
based on certain assumptions and analyses made by management of Texoil in light
of its experience and its perception of historical trends, current conditions,
expected future developments and other factors it believes to be appropriate.
The forward-looking statements included in this Report are also subject to a
number of material risks and uncertainties. Such forward-looking statements are
not guarantees of future performance and actual results, developments and
business decisions may differ from those envisaged by such forward-looking
statements.
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SIGNATURE
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 thereunto duly authorized.
Date: January 8, 1998
TEXOIL, INC.
/S/ FRANK A. LODZINSKI
Frank A. Lodzinski,
President
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