Each one in plain English, with the numbers worked through for a shareholder.
20 Oct 2015material agreement▼ BadMajor
Effective October 9, 2015, the company and its Texas subsidiary signed a Tenth Amendment with lender Melody Business Finance, raising the loan commitments to $20,245,945.15 and extending the forbearance, alongside a Restructuring Support Agreement. The term sheet calls for a pre-packaged Chapter 11 plan, to be filed within 30 days of signing, in which Melody gets 100% of the equity in the reorganized Texas subsidiary and current equity holders, including the company, get no recovery and lose their equity. The filing says that subsidiary is the company's sole asset, so the company would have no operations or revenue and would likely be a shell. This is the reorganization that the February 2015 forbearance pointed to, and it ends in a total loss for shareholders; unsecured creditors are to be paid in full.
On April 2, 2015 the company and Melody Business Finance signed a Ninth Amendment to the loan and forbearance agreement. It raises the note principal to $16,729,200.78 and extends forbearance on existing and certain anticipated defaults to June 1, 2015. The filing says nothing about progress on the reorganization plan that was due by April 6; the higher principal is consistent with the 15% paid-in-kind interest, which is an inference.
On February 20, 2015 the company signed a forbearance agreement with Melody Business Finance, which took over the May 2011 Green Bank loan of $15,750,000 maturing June 1, 2015. Melody agrees not to act on existing and certain anticipated defaults. Interest becomes 15% paid in kind (21% on default), New York law replaces Texas law, and the company must pursue a plan of reorganization by April 6, 2015, to be implemented within 90 days. If no reorganization happens through its own failure or inconsistent action, it owes a $2,000,000 closing fee plus lender costs; no terms have been agreed. This continues the covenant default problem from June 2014 and points to a possible restructuring of the company, with the effect on shareholders undetermined.
On July 30, 2014 the company signed a joint venture with Core Resource Management to drill up to ten wells at its Pampa, Texas core area. Core pays 100% of drilling and completion costs up to $475,000 per well, with costs above that split 60% TransCoastal and 40% Core. Each party gets a 50% working interest; net revenue interest is 42.6% Core and 28.4% TransCoastal until costs are paid back, then 35.5% each. CoreTerra Operating is operator. This is partner-funded drilling on the proved undeveloped locations the company has described.
Effective June 30, 2014 the company borrowed $1,500,000 from Dalton Lott, father-in-law of CEO Stuart Hagler, at 5.5% simple interest for six years. No payments are due until January 1, 2015; interest-only payments of $6,875 a month follow until September 30, 2015, then 60 monthly payments of $28,651.74. Hagler, David May and Wilbur Westmoreland personally guarantee the note, and it can be prepaid without penalty. It is a related-party loan.
Rothstein Kass told the company it must resign as auditor, and the board approved Whitley Penn, the auditor dropped in July 2013, as the new auditor for 2014. Rothstein Kass's reports for 2013 and 2012 included a going concern paragraph, and the filing states no disagreements. The resignation comes days after the second restatement notice; the filing does not give a reason for it.
On June 9, 2014 the company said its 2013 annual statements and first-quarter 2014 statements should no longer be relied on, because its notes payable were wrongly shown as long-term. The majority of the lending group had signalled it would waive covenant failures at December 31, 2013 and March 31, 2014, but in June some non-majority lenders did not waive their right to call the loan. About $17.1 million (December 2013) and $16.8 million (March 2014) of notes payable move to current liabilities, with no cash effect. For a shareholder this means the main loan could be called due.
