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
February 19, 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
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Item 5. Notice of Adjustment of Borrowing Base; Nonpayment of Preferred Stock
Dividends
Comerica Bank - Texas, senior lender to the Company, has submitted to the
Company a Borrowing Base Determination Notice advising the Company that
effective February 1, 1998, the Company's Borrowing Base had been redetermined
to be $6,500,000. The Borrowing Base represents the total line of credit the
Company may have with the bank. The Borrowing Base is determined by Comerica
Bank - Texas in its sole discretion and is derived from the analysis of the
Company's reserves and production data relative to its oil and gas properties.
The balance of the Company's current outstanding indebtedness with Comerica
Bank -Texas is approximately $13,178,000, which exceeds the Borrowing Base by
approximately $6,678,000 (the "Deficiency"). As a result of the notice, pursuant
to the loan agreement the Company has thirty (30) days, i.e., up to the close of
business on March 4, 1998, to either provide Comerica Bank - Texas with
additional collateral to increase the Borrowing Base, or reduce the outstanding
balance of the Company's indebtedness to an amount less than or equal to the
redetermined Borrowing Base.
All of the Company's assets currently serve as collateral to Comerica Bank
- - Texas; therefore, no additional collateral is available. The Company does not
have liquid assets sufficient to provide a source of internally generated funds
to pay the Deficiency. The Company is currently in discussions with other
financial institutions in an effort to refinance its outstanding indebtedness.
However, the Company currently has no commitment for any additional financing,
and there is no assurance that the Company will be able to refinance either the
Deficiency or the entire balance of indebtedness. If the Company is unable to
make the requisite principal reduction by March 4, 1998, the Company will be in
default under the terms of the Loan Agreement with Comerica Bank - Texas and it
may seek to exercise its remedies under the Loan Agreement which include, but
are not limited to, foreclosure of its security interests in the collateral. The
Company is pursuing alternatives in an effort to secure additional funding,
which efforts include continuing discussions with Comerica Bank - Texas and with
potential alternate sources of debt financing. The Company is also evaluating
other sources of funding in an effort to address the Company's liquidity
requirements. No assurance can be given that the Company will be successful in
its efforts to obtain additional financing sufficient to address the
requirements of Comerica Bank - Texas.
The Company has not made the three quarterly cash dividend payments of
$187,500 each due on the Series A Preferred Stock and the $6,125, $12,250, and
$18,375 quarterly cash dividend payments due on the Series C Preferred Stock on
August 1, 1997, November 1, 1997, and February 1, 1998, respectively. The
Company also has not issued the stock dividends of 17,500 shares of Series C
Preferred Stock each due on August 1, 1997, November 1, 1997, and February 1,
1998 accrued on the Series B Preferred Stock.
As a result of the Company's failure to pay dividends for three consecutive
quarters as described above, the holders of Preferred Stock have the right to
invoke remedies under the Certificate of Designation to exercise voting rights
equivalent to 51% of the common stock and/or to convene a special meeting of the
stockholders at which the holders of Preferred Stock would have the right to
elect a majority of the number of directors constituting the Company's Board.
Koch Exploration Company has not indicated a present intention to exercise the
applicable remedies provided by the Certificate of Designation.
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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/
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Guy Bob Buschman, President
Dated: February 19, 1998
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