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
March 25, 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
<PAGE>
Item 5. Notice of Letter Agreement with Senior Lender Deferring Compliance
Date.
As previously reported, the Company received 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 balance of
the Company's current outstanding indebtedness with Comerica Bank - Texas (the
"Bank"), its senior lender, is approximately $13,178,000, which exceeds the
Borrowing Base by approximately $6,678,000 (the "Deficiency"). Under the terms
of the Loan Agreement, the Company had until March 4, 1998 to either provide the
Bank 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.
The Company has entered into subsequent letter agreements with the Bank
which extend to the close of business on Friday, April 3, 1998, the time by
which the Company must eliminate the Deficiency in the manner set forth above or
reach other accommodation with the Bank. For and in consideration of the
extension to April 3, 1998, the Company agreed to execute certain supplemental
documents pertaining to collateral properties; pay an extension fee of $25,000
on or before April 3, 1998; terminate its ability to utilize the Eurodollar Rate
Option under the Loan Agreement; increase the applicable interest rate to prime
rate plus three percent; execute a letter waiving compliance with the working
capital covenant for the month of November 1997; pay the Bank specified legal
and engineering expenses and furnish the Bank with copies of any agreements
related to any proposed refinancing. The description of the agreements as set
forth above is qualified in its entirety by reference to the agreements
themselves, copies of which are attached hereto as exhibits.
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 the indebtedness. The Company is continuing
to evaluate and pursue alternatives in connection with addressing the
Deficiency, which include, but are not limited to, refinancing the Deficiency or
the entire indebtedness with another lender or seeking further accommodation
from its existing lender. The recent decline in oil prices and the potential
effect such decline may have on gas prices could adversely affect the Company's
ability to secure alternative financing. No assurance can be given that the
Company will be successful in its efforts to obtain additional financing
sufficient to address the requirements of the Bank or that the Bank will be
amenable to any further extensions of the compliance date or other accommodation
If the Company is unable to make the requisite principal reduction by
April 3, 1998 or satisfy the requirements of the Bank in some other manner, the
Company would be in default under the terms of the Loan Agreement and the Bank
may seek to exercise its remedies under the Loan Agreement, which include, but
are not limited to, foreclosure of its security interest in the collateral and
notification to purchasers of the Company's products to direct funds
representing the proceeds of such purchases to the Bank.
2
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial Statements
Not applicable.
(b) Exhibits
Number Document
99(b) Comerica Bank - Texas
letter dated February 18,
1998, regarding waiver
letter concerning
non-compliance with
working capital covenant
for month of November
(E-1).
99(c) Comerica Bank - Texas
letter dated March 5,
1998, regarding Borrowing
Base Deficiency
Deferral/Waiver Letter
concerning non-compliance
with working capital
covenant for month of
December (E-5).
3
<PAGE>
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: March 25, 1998
4
<PAGE>
Comerica Bank - Texas P.0. Box 650282
Dallas, Texas 75265-0282
February 18, 1998
VIA FACSIMILE - 210/308-8111
Mr. Guy Bob Buschman
President
Rio Grande, Inc.
Rio Grande Drilling
Union Square, Suite 201
San Antonio, Texas 78216
Re: Waiver Letter Concerning Non-Compliance With Working Capital
Covenant For Month of November
Dear Guy Bob:
We refer to the Loan Agreement among Rio Grande, Inc., Rio Grande
Drilling Company and Comerica Bank - Texas dated as of March 8, 1996, as amended
by the First Amendment to Loan Agreement dated as of January 15, 1997
(collectively, the "Loan Agreement"). The defined terms in this letter have the
same meanings as are set forth in the Loan Agreement except that "you" and
"yours" means the Borrowers, and "we", "ours" and "us" mean the Bank.
Your financial statements for the month ending November 30, 1997,
reflect that your working capital is negative and therefore is not in compliance
with the covenant contained in Section 7.8 of the Loan Agreement. Effective upon
the execution by you of this letter, we are waiving your working capital
covenant non-compliance which is reflected on your financial statements for the
month of November 1997 and which may have been reflected on financial statements
for months prior to November 1997. This waiver is limited to working capital
covenant non-compliance reflected on your financial statements of November 1997
and earlier only, and does not apply to any working capital covenant
non-compliance which may be reflected on your subsequent financial statements.
We will address subsequent working capital covenant non-compliance on a
"financial statement by financial statement" basis.
In consideration of the foregoing, you agree as follows:
1. Payment of Our Legal Expenses. We have incurred legal
expenses in connection with your credit facility. You have agreed to
pay our legal expenses as provided in Section 12.0 of the Loan
Agreement. Attached are statements from our counsel for work incurred
in connection with your credit facility as follows:
E-1
<PAGE>
Mr. Guy Bob Buschman
February 18, 1998
Page 2
Statement Date Month Covered Amount
12/5/97 November 1997 $ 7,588.55
1/14/98 December 1997 $ 7,608.71
2/11/98 January 1998 $ 8,781.11
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TOTAL: $23,978.37
We anticipate legal expenses of approximately $9,500 for the
month of February, 1998. Accordingly, upon your execution of this
letter, you will pay November, December and January statements
totaling $23,978.37 directly to Strasburger & Price, and deposit with
us the sum of $9,500 which we will apply to our February legal fees
for work done on your credit facility. We will account to you for the
deposit. If the total amount of the legal expenses for the month of
February is less than $9,500, we will either refund the balance to you
or hold it to apply to subsequent expenses you are obligated to pay,
as you direct. If the total of the legal expenses for the month of
February is greater than $9,500, we will bill you for the balance and
you will pay it promptly. We will, of course, furnish you with a copy
of the February statement we receive from our counsel.
2. Payment of Our Engineering Expenses for Borrowing Base
Determinations. We have incurred engineering expenses in connection
with the Borrowing Base determinations under your credit facility,
computed at $100 per hour which is the rate for all our petroleum
customers. You have agreed to pay up to $5,000 of our engineering
expenses per redetermination of the Borrowing Base as provided in
Section 6.6 of the Loan Agreement. We incurred $6,198.72 of engineering
expenses for the determination of the Borrowing Base as of August 1,
1997, which we did not determine at your request, for which we are
charging you $5,000. We have incurred $700 of engineering expenses for
the determinations of the Borrowing Base with respect to the various
collateral releases done in the last quarter of 1997. We have incurred
$8,263 51 of engineering expenses for the determination of the
Borrowing Base as of February 1, 1998, for which we are charging you
$5,000. A copy of the invoice for these Borrowing Base determinations
is attached. Upon your execution of this letter, you will pay us
$10,700 for these engineering expenses.
E-2
<PAGE>
Mr. Guy Bob Buschman
February 18, 1998
Page 3
3. Payment of Expenses for Collateral Audit. We have incurred
$4,618.13 of expenses in connection with the collateral audit performed
by BMNW Resources, L.L.C. in December 1997. A copy of the invoice is
attached. You have agreed to pay this expense as part of the general
expense reimbursement covenant contained in Section 12.0 of the Loan
Agreement. Upon your execution of this letter, you will pay us
$4,618.13 for this collateral audit expense.
4. Deed of Trust / Mortgage Cleanup. As you know, in December
we completed a collateral audit of the various properties which secure
the Obligations for the purposes of identifying matters which need to
be corrected in order to describe fully the collateral intended as
security for the Obligations. We are appreciative of the assistance and
support you provided us during the course of the collateral audit. We
have prepared the various correction documents necessary to supplement
the existing mortgages to correct omissions and defects in the creation
of the Loan Documents and to evidence more fully the liens which secure
the Obligations. A documentation package containing duplicate execution
counterparts of the correction documents is enclosed. Execution
instructions are attached. Please follow the execution instructions,
and then return the executed documents to us by courier. Note that the
Louisiana First Amendments to Present and Future Obligations Mortgages
(the "Louisiana First Amendments") are to be executed, but not the
Louisiana First Amendments themselves. Both of us need to sign the
Louisiana First Amendments in the presence of the same witnesses and
notary. We can sign them together when we meet this Friday at your
office. This will confirm your agreement contained in Section 6.10 of
the Loan Agreement to execute all such additional documents as are
necessary to accomplish the foregoing.
5. Release of Claims. You hereby release and forever discharge
us from any and all Claims (as hereinafter defined), whether known or
unknown and whether arising now or which may arise in the future, from
any event or set of circumstances that took place or transpired prior
to your execution of this letter. "Claims" as used in the preceding
sentence means all claims, demands, obligations, liabilities, breaches
of contract, acts, omissions, misfeasance, malfeasance, cause or causes
of action, controversies, damages and losses of every type, kind,
nature or character which could have been, might or may be claimed to
exist.
The agreements set forth herein are limited precisely as written and
shall not be deemed (a) to be a waiver of or a consent to the modification of or
deviation from any other term or condition of the Loan Agreement or the Loan
Documents, or (b) to prejudice any right which we
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<PAGE>
Mr. Guy Bob Buschman
February 18, 1998
Page 4
may now have or may have in the future under or in connection with the
Loan Agreement and the Loan Documents.
Please indicate your agreement and acceptance of the foregoing by
signing below, and then returning the extra copy of this letter to me. Thank
you.
Very truly yours,
COMERICA BANK TEXAS
/s/
V. Mark Fuqua
Senior Vice President
Energy Lending
AGREED AND ACCEPTED as of February 18, 1998
RIO GRANDE, INC
By /s/
Guy R. Buschman, President
RIO GRANDE DRILLING COMPANY
By /s/
Guy R. Buschman, President
E-4
<PAGE>
Comerica Bank-Texas P.O. Box 650282
Dallas. Texas 75265-0282
March 5, 1998
VIA FACSIMILE - 210/308-8111
Mr. Guy Bob Buschman
President
Rio Grande, Inc.
Rio Grande Drilling Company
Union Square, Suite 201
San Antonio, Texas 78216
Re: Borrowing Base Deficiency Deferral/Waiver Letter Concerning
Non-Compliance with Working Capital Covenant for Month of
December
Dear Guy Bob:
We refer to the Loan Agreement among Rio Grande, Inc., Rio Grande
Drilling Company and Comerica Bank -Texas dated as of March 8, 1996, as amended
by the First Amendment to Loan Agreement dated as of January 15, 1997
(collectively, the "Loan Agreement"). The defined terms in this letter have the
same meanings as are set forth in the Loan Agreement except that "you" and
"yours" means the Borrowers, and "we", "ours" and "us" mean the Bank.
Pursuant to our letter to you of February 2, 1998, we notified you that
(a) the Principal Debt exceeds the Borrowing Base by $6,678,002 (the
"Deficiency"), and (b) the thirty (30) day period to cure the Deficiency will
expire on the close of business this coming Wednesday, March 4, 1998. You have
indicated that you are not prepared to comply with the provisions of Section 3.4
of the Loan Agreement by the close of business this coming Wednesday, March 4,
1998, and you have requested that we extend this compliance date to the close of
business on Friday, April 3, 1998. Effective upon your execution of this letter
and your compliance with the conditions specified below, we agree that the
period given you to elect one of the options available under Section 3.4 of the
Loan Agreement to eliminate the Deficiency is extended to the close of business
on Friday, April 3, 1998.
Your financial statements for the month ending December 31, 1997,
reflect that your working capital is negative and therefor is not in compliance
with the covenant contained in Section 7.8 of the Loan Agreement. Effective upon
the execution by you of this letter and your compliance with the conditions
specified below, we are waiving your working capital covenant non-compliance
which is reflected on your financial statements for the month of December 1997
and which may have been reflected on financial statements for months prior to
December 1997. This waiver is limited to working capital covenant non-compliance
reflected on your financial statements of December 1997 and earlier only, and it
does not apply to any working capital covenant non-compliance which may be
reflected on your subsequent financial statements. We will address subsequent
working capital covenant non-compliance on a "financial statement by financial
statement" basis.
E-5
<PAGE>
Mr. Guy Bob Buschman
March 5, 1998
Page 2
In consideration of the foregoing, you agree as follows:
l. Waiver Letter Concerning Non-Compliance With Working
Capital Covenant for Month of November 1997. You will sign the waiver
letter concerning noncompliance with your working capital covenant for
the month of November 1997 dated February 18, 1998 ("November Working
Capital Waiver Letter"). You will promptly pay the items specified in
Sections 1, 2 and 3 of the November Working Capital Waiver Letter.
2. Deed of Trust - Mortgage Cleanup. You have reviewed the
document package described in Section 4 of the November Working Capital
Waiver Letter, and you have indicated there are a number of errors in
the legal descriptions affixed to some of those documents. As you know,
our engineering consultants, BMMW Resources, Inc., provided those
descriptions with the assistance of your personnel during the
collateral audit performed in December 1997. Simultaneously with your
execution of this letter, you will sign all of the documents enclosed
in the document package described in Section 4 of the November Working
Capital Waiver Letter. Then, you will instruct your personnel to work
with our attorneys and our engineering consultants to correct those
legal description errors which you have identified as soon as possible
thereafter. We wish to file these deed of trust/mortgage cleanup
documents no later than March 11, 1998, and you will use your best
efforts to assist us in correcting the erroneously legal descriptions
within this time frame.
3. Extension Fee. You will pay us an extension fee of $25,000.
The payment will be made on or before April 3, 1998
4. Termination of Eurodollar Loan Pricing Option. You and we
agree that the Eurodollar Rate option under the Loan Agreement shall no
longer be available. Accordingly, all references in the Loan Agreement
to Loans bearing interest at the Eurodollar Rate and to Eurodollar
Loans generally shall be of no force or effect, and the Eurodollar Rate
pricing option shall be deemed to be terminated in all respects.
5. Increase in Interest Rate. Effective as of March 1, 1998,
Section 2.9 of the Loan Agreement shall be deemed to be amended so as
to read in its entirety as follows:
"2.9 Interest Rate. The Principal Debt shall accrue
interest (calculated on the basis of the actual days
elapsed in a year consisting of 360 days) from March
1, 1998 until maturity (whether by acceleration or
otherwise) at a varying rate per annum equal to the
lesser of (1) the Maximum Rate or (ii) the Prime Rate
plus three percent (3%) per annum. Interest on the
Principal Debt computed at the rate of the Prime Rate
plus '/2 percent (50%) shall be payable on the last
day of each Prime Rate Interest Period. The remaining
2 '/2 percent (2.50%) of interest on the Principal
Debt shall accrue and be payable on demand any time
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<PAGE>
Mr. Guy Bob Buschman
March 5, 1998
Page 3
after April 3, 199& Each Prime Rate Loan may be
prepaid in whole or in part at any time and from time
to time without premium or penalty."
6. Possible Refinancing or Other Transaction. You have
informed us that there are discussions in progress with respect to the
possibility of your refinancing the Obligations with another financial
institution or entering into a transaction which shall include the
refinancing of the Obligations. You agree to furnish us promptly with a
term sheet, a commitment letter and such other documents as are
prepared from time to time in connection with any such refinancing. We
agree to sign a confidentiality agreement provided its terms are
reasonable.
The agreements set forth herein are limited precisely as written and
shall not be deemed (a) to be a waiver of or a consent to the modification of or
deviation from any other term or condition of the Loan Agreement or the Loan
Documents, or (b) to prejudice any right which we may now have or may have in
the future under or in connection with the Loan Agreement and the Loan
Documents.
Please indicate your agreement and acceptance of the foregoing by
signing below, and then returning the extra copy of this letter to me. Thank
you.
Very truly yours,
COMERICA BANK - TEXAS
/s/
V. Mark Fuqua
Senior Vice President
Energy Lending
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<PAGE>
Mr. Guy Bob Buschman
March 5, 1998
Page 4
AGREED AND ACCEPTED as of March 5, 1998
RIO GRANDE, INC.
By: /s/
Guy R. Buschman, President
RIO GRANDE DRILLING COMPANY
By: /s/
Guy R. Buschman, President
E-8
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