Attached files
EXHIBIT 2.1
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLORADO
In re: RANCHER ENERGY, CORP., ) Case No. 09-32943 MER
)
Debtor. ) Chapter 11
)
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DEBTOR'S PLAN OF REORGANIZATION DATED
OCTOBER 15 , 2010
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Pursuant to Chapter 11, Title 11 of the United States Code, 11 U.S.C.
ss. l01 et seq., Rancher Energy Corp., debtor and debtor in possession in the
above-captioned bankruptcy case, hereby proposes the following Plan of
Reorganization. The Debtor is the Plan proponent within the meaning of 11 U.S.C.
ss. 1129. A detailed discussion of the Debtor's history, business, historical
financial information and other pertinent information, as well as a summary and
analysis of this Plan, are set forth in the Disclosure Statement filed
contemporaneously with this Plan.
ARTICLE 1
GENERAL
A. Definitions
The following terms, when used in this Plan or any subsequent
amendments or modifications thereof, and in addition to those terms defined in
the text of this Plan, shall have the respective meanings hereinafter set forth.
1.1. "Administrative Claim" means a Claim for costs and expenses of
administration allowed under ss.ss. 503(b) and 507(a)(1) including, without
limitation, (a) any actual, necessary costs and expenses of preserving the
Estate, (b) any indebtedness or obligations incurred or assumed by the Debtor in
the ordinary course of business in connection with the conduct of its business
during the Bankruptcy Case, (c) any Professional Fee Claims, and (d) any fees or
charges assessed against the Debtor's Estate under ss. 1930, chapter 123, title
28, United States Code.
1.2. "Allowed" means, with respect to any Claim (including any
Administrative Claim), (a) a Claim against the Debtor, proof of which was filed
within the applicable period of limitation fixed by the Bankruptcy Court in
accordance with Rule 3003(c)(3) of the Bankruptcy Rules (i) as to which, no
objection to the allowance thereof has been interposed within the applicable
period of limitation fixed by this Plan, the Bankruptcy Code, the Bankruptcy
Rules, or a Final Order, (ii) as to which no timely objection has been
interposed based upon 11 U.S.C. ss. 502(d), and (iii) as to which an objection
had been interposed, to the extent such Claim has been allowed (whether in whole
or in part) by a Final Order, (b) if no proof of such Claim was filed timely or
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was withdrawn, any Claim against the Debtor which is listed by the Debtor in the
Schedules, as such Schedules may be amended from time to time in accordance with
Rule 1009 of the Bankruptcy Rules, as liquidated in amount and not disputed or
contingent, (c) any Claim arising from the recovery of property under ss.ss. 550
or 553 of the Bankruptcy Code and allowed in accordance with ss. 502(b) of the
Bankruptcy Code, (d) any Claim allowed under or pursuant to the terms of this
Plan, or (e) any other Claim that has been allowed by a Final Order.
1.3. "Allowed Convenience Claim" means an Allowed Unsecured Claim in the
amount of $1000.00 or less.
1.4. "Bankruptcy Case" means In Re: Rancher Energy Corp., Case Number
09-32943 MER.
1.5. "Bankruptcy Code" means Title 11 of the United States Code, as
amended, in effect and applicable to the Bankruptcy Case concerning the Debtor.
1.6. "Bankruptcy Rules" means the Federal Rules of Bankruptcy Procedure.
1.7. "Bar Date" means March 5, 2010, the date fixed by the Bankruptcy Court
as the last date by which Claimants could file proofs of claim, unless the Court
set a different date by which a specific Claimant must file a proof of claim, in
which case it means, for the specific Claimant, such different date set by the
Court.
1.8. "Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in Denver, Colorado are required or authorized by
law to be closed.
1.9. "BWAB Agreement" means that certain definitive Agreement between
Debtor and BWAB dated _______ , 2010.
1.10. "Cash" means legal tender of the United States, including amounts on
deposit at financial institutions in checking accounts, money market accounts
and the like.
1.11. "Causes of Action" means any and all Claims, rights, actions, chose
in action, suits, causes of action, liens, judgments, insurance coverage claims,
and damages belonging to the Debtor or its Estate and any and all liabilities,
obligations, covenants, undertakings and debts owing to the Estate, whether
arising prior to or after the Petition Date and in each case whether known or
unknown, in law, equity or otherwise, including but not limited to all causes of
action pursuant to ss.ss. 544 through 553 of the Bankruptcy Code.
1.12. "Claim" means: (a) right to payment from either Debtor, whether or
not such right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured,
or unsecured; or (b) right to an equitable remedy for breach of performance if
such breach gives rise to a right to payment, whether or not such right to an
equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured,
disputed, undisputed, secured, or unsecured. "Claim" shall not include unmatured
or unearned interest as of the Petition Date on the amount of any Claim except
as permitted by the Bankruptcy Code or except as expressly provided otherwise in
this Plan.
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1.13. "Claimant" means the holder of a Claim against the Debtor.
1.14. "Class" means a category of Claims or Interests described in Article
3 hereof.
1.15. "Confirmation Date" means the date on which the Clerk of the
Bankruptcy Court enters the Confirmation Order on the docket corresponding to
the Bankruptcy Case.
1.16. "Confirmation Order" means the order of the Bankruptcy Court
confirming this Plan, or any amendment thereto, pursuant to ss.1129 of the
Bankruptcy Code.
1.17. "Court" means the United States Bankruptcy Court for the District of
Colorado.
1.18. "Debtor" means Rancher Energy Corp., debtor in possession in the
Bankruptcy Case.
1.19. "Disclosure Statement" means the disclosure statement and all
exhibits thereto filed in this case pursuant to ss. 1125 of the Bankruptcy Code
and approved by the Bankruptcy Court, as may be amended or modified from time to
time by any duly authorized amendment or modification.
1.20. "Disputed" means, as to a Claim: (a) if such Claim is not an Allowed
Claim as of a particular point in time; (b) if no proof of claim has been filed
by the Bar Date or has otherwise been deemed timely filed under applicable law,
(i) that is listed on the Debtor's Schedules as disputed, contingent or
unliquidated, or (ii) that is not listed on the Debtor's Schedules; or (c) if a
proof of Claim has been filed by the Bar Date or has otherwise been deemed
timely filed under applicable law, for which an objection, complaint or request
for estimation has been filed by the Debtor or any other party in interest
within 270 days after the Effective Date (or such later date the Bankruptcy
Court allows upon motion by the Debtor), and such objection has not been
withdrawn or denied in its entirety by Final Order.
1.21. "Disputed Claims Reserve" means the segregated interest bearing
accounts established by the Debtor consistent with Section 9.6 of this Plan.
1.22. "Distribution" means any distribution made pursuant to the terms of
this Plan.
1.23. "Effective Date" means the thirtieth (30th) day, or such earlier date
specified by the Debtor if such day is a Business Day, and otherwise the first
Business Day after such thirtieth (30th) day, after (a) the Confirmation Order
(together with other orders entered in aid of Confirmation of this Plan, and
signed contemporaneously with the Confirmation Order) has been entered pursuant
to Bankruptcy Rules 5003 and/or 9021; and (b) all conditions precedent have been
satisfied or waived as provided in Article 8 hereof.
1.24. "Estate" means the Debtor's estate created pursuant to ss. 541 of the
Bankruptcy Code upon the Petition Date.
1.25. "Final Order" means an order or judgment of the Bankruptcy Court as
to which the time to appeal, petition for certiorari, or move for reargument or
rehearing has expired and as to which no appeal, petition for certiorari or
other proceedings for reargument or rehearing shall then be pending; provided
that if an appeal, or writ of certiorari, reargument or rehearing thereof has
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been filed or sought, such order of the Bankruptcy Court shall have been
affirmed by the highest court to which such order was appealed, or certiorari
shall have been denied or reargument or rehearing shall have been denied or
resulted in no modification of such order, and the time to take any further
appeal, petition for certiorari or move for reargument or rehearing shall have
expired; provided, further, that the possibility that a motion under Rule 60 of
the Federal Rules of Civil Procedure, or any analogous rule under the Bankruptcy
Rules, may be filed with respect to such order shall not cause such order not to
be a Final Order.
1.26. "GasRock" means GasRock Capital LLC.
1.27. "GasRock Adversary" means Adversary Proceeding number 10-1173 MER
pending in the Bankruptcy Court.
1.28. "General Unsecured Claim" means any Claim against either of the
Debtor that is not an Administrative Claim, Priority Unsecured Tax Claim,
Priority Non-Tax Claim, Professional Fee Claim or Secured Claim.
1.29. "Interest" means the rights and interests of a holder of stock in the
Debtor.
1.30. "South Cole Creek Sales Proceeds" means the net cash proceeds from
sale of the Debtor's interests in the South Cole Creek Oil field received by
Debtor.
1.31. "Person" means any individual, corporation, partnership, association,
joint venture, limited liability company, limited liability partnership, estate,
trust, unincorporated organization or governmental unit or subdivision thereof
or other entity.
1.32. "Petition Date" means October 28, 2009, the date upon which the
Debtor filed its voluntary petition for relief under Chapter 11 of the
Bankruptcy Code.
1.33. "Plan" means this plan of reorganization, as the same may be amended
or modified from time to time by any duly authorized amendment or modification.
1.34. "Priority Non-Tax Claim" means a Claim which is entitled to priority
treatment under ss. 507(a) of the Bankruptcy Code, excluding Claims entitled to
priority under Bankruptcy Code ss.ss. 507(a)(1) and 507(a)(8).
1.35. "Priority Unsecured Tax Claim" means a Claim or a portion of a Claim
which is entitled to priority under ss. 507(a)(8) of the Bankruptcy Code.
1.36. "Professional Fee Claim" means any Claim of a Professional retained
in the Bankruptcy Case pursuant to ss.ss. 327 or 1103 of the Bankruptcy Code,
for compensation or reimbursement of costs and expenses relating to services
incurred prior to and including the Effective Date, when and to the extent any
such Claim is Allowed by the Bankruptcy Court pursuant to ss.ss. 329, 330, 331,
503(b), or 1103 of the Bankruptcy Code.
1.37. "Professional" means a professional person duly retained by the
Debtor during the Bankruptcy Case pursuant to an order of the Court authorizing
same. [is this needed??]
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1.38. "Pro Rata" means, in connection with a particular Allowed Claim and
in connection with any Distribution, the ratio between the amount of such
Allowed Claim and the aggregate amount of all Allowed Claims in such Class
entitled to such Distribution.
1.39. "Record Date" means the date set by the Court pursuant to motion that
will be at least ten days prior to the deadline for mailing this Plan to
Interest holders for purposes of voting.
1.40. "Scheduled Claim" means a Claim that is listed by the Debtor in the
Schedules.
1.41. "Schedules" means the schedules of assets and liabilities, schedules
of executory contracts and unexpired leases, statements of financial affairs and
other schedules and statements filed by the Debtor pursuant to Federal Rule of
Bankruptcy Procedure 1007, and any amendments thereto.
1.42. "Secured Claim" means a Claim secured by a lien, as that term is
defined inss.101(37) of the Bankruptcy Code, including, but not limited to, a
judicial lien as that term is defined at ss.101(36) of the Bankruptcy Code,
against any property of the Estate, but only to the extent of the value, as
determined by the Bankruptcy Court pursuant to ss.506(a) of the Bankruptcy Code
and Bankruptcy Rule 3012 or as otherwise agreed, of such Claimant's interest in
the Debtor's interest in such property.
B. Rules of Interpretation
For purposes of this Plan: (a) where appropriate in the relevant
context, each term, whether stated in the singular or the plural, will include
both the singular and the plural; (b) unless otherwise provided in this Plan,
any references in this Plan to a contract, instrument, release, indenture or
other agreement or document being in a particular form or on particular terms
and conditions means that such document will be substantially in such form or
substantially on such terms and conditions; (c) unless otherwise provided in
this Plan, any reference in this Plan to an existing document or appendix filed
or to be filed means such document or appendix, as it may have been or may be
amended, modified or supplemented pursuant to this Plan; (d) unless otherwise
specified herein, any reference to a Claimant or Interest holder includes that
Person's successors, assigns and affiliates; (e) unless otherwise specified, all
references in this Plan to Sections and Articles are references to Sections and
Articles of this Plan; (f) the words "herein", "hereto" and "hereof" refer to
this Plan in its entirety rather than to a particular portion of this Plan; (g)
headings are utilized in this Plan for the convenience of reference only, and
shall not constitute a part of this Plan for any other purpose; and (g) the
rules of construction set forth in ss. 102 of the Bankruptcy Code will apply. To
the extent that this Plan is inconsistent with the Disclosure Statement, the
provisions of this Plan shall be controlling.
ARTICLE 2
PAYMENT OF CLAIMS NOT REQUIRED TO BE CLASSIFIED
2.2. Claims Not Classified. No Class is designated for Administrative
Claims, Professional Fee Claims or Priority Unsecured Tax Claims.
2.3. Administrative Claims. The Debtor shall pay all Allowed Administrative
Claims, other than Professional Fee Claims, at Debtor's sole option in Cash, (a)
as soon as practicable following the later of the Effective Date or the date
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upon which the Court enters a Final Order Allowing any such Administrative
Claim, or (b) as such Claims may be due according to their terms in the ordinary
course, or (c) as may be agreed upon between an Administrative Claim Claimant
and the Debtor. In the event any Disputed Administrative Claims exist on the
Effective Date, the Debtor shall at all times hold and maintain Cash in an
amount equal to that portion of the Disputed Claims Reserve attributable to all
Disputed Administrative Claims.
2.4. Professional Fee Claims. Except as a Claimant with a Professional Fee
Claim agrees otherwise, the Debtor shall pay all Professional Fee Claims on or
before ten (10) Business Days after a Final Order approving such compensation
and reimbursement of expenses in accordance with Section 5.5 hereof. Except as a
Claimant with a Professional Fee Claim agrees otherwise, in the event any
Disputed Professional Fee Claim exists on the Effective Date, the Debtor shall
at all times hold and maintain Cash in an amount equal to that portion of the
Disputed Claims Reserve attributable to Disputed Professional Fee Claims.
ARTICLE 3
CLASSIFICATION AND VOTING OF CLAIMS AND INTERESTS
3.1. Criterion of Class. A Claim is in a particular Class only to the
extent that the Claim qualifies within the description of that Class and is in a
different Class to the extent that the remainder of the Claim qualifies within
the description of the different Class.
3.2. Class Categories. The following classes of Claims and Interests are
designated pursuant to and in accordance with ss. 1123(a)(1) of the Bankruptcy
Code, which classes shall be : mutually exclusive:
---------------------- ----------------------------------------- ----------------------------------
CLASS CLAIM VOTING
---------------------- ----------------------------------------- ----------------------------------
Class 1 Pre-Petition Ad Valorem Tax Claims Impaired/Entitled to Vote
-Secured
---------------------- ----------------------------------------- ----------------------------------
Class 2(a) Wyoming State Dept. of Revenue - Impaired/Entitled to Vote
Unsecured
---------------------- ----------------------------------------- ----------------------------------
Class 2(b) IRS Pre-Petition Tax Claims - Impaired/Entitled to Vote
Unsecured
---------------------- ----------------------------------------- ----------------------------------
Class 2 (c) All Other Pre-Petition Tax Claims - Impaired/Entitled to Vote
Unsecured
---------------------- ----------------------------------------- ----------------------------------
Class 3 Secured Claim of GasRock Impaired/Entitled to Vote
---------------------- ----------------------------------------- ----------------------------------
Class 4 Priority Wage Claims Unimpaired/Deemed to Accept
---------------------- ----------------------------------------- ----------------------------------
Class 5(a) General Unsecured Claims Impaired/Entitled to Vote
---------------------- ----------------------------------------- ----------------------------------
Class 5(b) BLM Unsecured Claim Impaired/Entitled to Vote
---------------------- ----------------------------------------- ----------------------------------
Class 6 Convenience Class Unsecured Claims Unimpaired/Deemed to Accept
(less than $1,000)
---------------------- ----------------------------------------- ----------------------------------
Class 7 Royalty and Profit Interests Unimpaired/Deemed to Accept
---------------------- ----------------------------------------- ----------------------------------
Class 8 Interests (common shareholders) Impaired/Entitled to Vote
---------------------- ----------------------------------------- ----------------------------------
Class 9 Interests (holders of options and Impaired/Entitled to Vote
warrants)
---------------------- ----------------------------------------- ----------------------------------
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Class 10 Employee/Retention Agreement Stock Unimpaired/ Deemed to Accept
Options
---------------------- ----------------------------------------- ----------------------------------
Class 11 Convertible Promissory Notes Impaired/Entitled to Vote
---------------------- ----------------------------------------- ----------------------------------
3.3. Voting of Claims. Each Claimant with an Allowed Claim as of the last
date set by the Court on which a vote must be received in Classes 1, 2, 3, 5, 8,
9, and 11 shall be entitled to vote to accept or reject this Plan.
3.4. Presumed Acceptances of Plan. Classes 4, 6, 7 and 10 are unimpaired
under this Plan and therefore are presumed to have accepted this Plan.
ARTICLE 4
TREATMENT OF CLASSES OF CLAIMS AND INTERESTS
The following treatment of and consideration to be received by Claimants of
Allowed Claims and Allowed Interests pursuant to this Plan shall be in full
settlement, release and discharge of such Allowed Claims and Allowed Interests.
4.1 Class 1 (Ad Valorem Claims- Secured Tax Claims). Class 1 consists of
the Allowed Ad Valorem Tax Claims of Converse County, Wyoming. The Class 1
Claims shall retain their statutory liens with the same validity, priority and
effect as such liens existed immediately prior to the Petition Date. The Class 1
Claims shall be amortized with interest at the rate specified by applicable
Wyoming law for delinquent ad valorem taxes over the period from the Effective
Date to a date that is five (5) years from the Petition Date and paid in monthly
installments on the fifth of each month commencing on the fifth day of the
calendar month after the Effective Date. The Class 1 Claim may be prepaid in
whole or in part at any time without penalty or other cost.
4.2 Class 2(a) (Wyoming Department of Revenue) Class 2(a) consists of the
Allowed Claim of the State of Wyoming Department of Revenue for taxes entitled
to priority under ss.507(a)(8) of the Code. The Class 2(a) Claim shall accrue
from the Petition Date and shall be paid as follows:
A. The amount of the Class 2(a) Claim shall be amortized over the period
from the Effective Date to the date that is five (5) years from the
Petition Date with interest at the rate specified by applicable
Wyoming law for such delinquent taxes and shall be paid in monthly
installments on the fifth of each month commencing on the fifth day of
the first calendar month after the Effective Date.
B. The Class 2 Claims may be prepaid in whole or in part at any time
without penalty or other cost.
4.3 Class 2(b) (Internal Revenue Service) Class 2(b) consists of the
Allowed Claims of the Internal Revenue Service for taxes entitled to priority
under ss.507(a)(8) of the Code. The Class 2(b) Claims shall be paid as follows:
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A. The Class 2(b) Claims shall be amortized with interest at the rate
specified in ss.6621(a)(2) of the Internal Revenue Code in effect on
the Effective Date over the period from the Effective Date to the date
that is five (5) years from the Petition Date and shall be paid in
monthly installments on the fifth of each month commencing on the
fifth day of the first calendar month after the Effective Date.
B. The Class 2(b) Claims may be prepaid in whole or in part at any time
without penalty or other cost.
4.4 Class 3 (GasRock) Class 3 consists of the Allowed Secured Claim of
GasRock pursuant to the October 16, 2007 Term Note originally payable to GasRock
in the original principal amount of $12,240,000.00, as amended. The Class 3
Claimant shall retain its liens encumbering Debtor's Property with the same
extent, validity, priority and effect as such liens existed immediately prior to
the Petition Date. The Allowed Class 3 Claim shall accrue interest at the rate
of 7.0% per annum, or such other rate as determined by the Court, from and after
the Effective Date of the Plan.
A. The Class 3 Claim shall be paid $11.8 million in Cash on or before the
Effective Date. Any amount of the Class 3 Claim in Dispute will be
treated in accordance with Section 9.6 of this Plan.
B. Any balance of the Allowed Class 3 Claim remaining after the payment
under subparagraph A above shall be paid in monthly installments
calculated by amortizing the remaining balance over a 25 year period
with interest at 7% per annum or such other rate as is determined by
the Court, with the balance of principal and interest and payable in
full five (5) years from the Effective Date.
C. The Class 3 Claim may be prepaid in whole or in part at any time
without penalty or other cost.
4.5 Class 4 (Priority Wage Claims). Class 4 shall consist of all Allowed
Claims entitled to priority under ss. 507(a)(2) of the Code. All Class 4 Claims
shall be paid in full on the Effective Date. Any Allowed Claim held by a Class 4
Claimant in excess of the amount entitled to priority under ss. 507(a)(2) of the
Code shall be treated as Class 5(a) Claim.
4.6 Class 5(a) (General Unsecured Claims). Class 5(a) shall consist of
Allowed General Unsecured Claims not otherwise specifically classified under
this Plan. The Class 5(a) Claims shall be paid as follows:
A. On the fifth day of the calendar month that is at least sixty days
after the Effective Date, each Class 5(a) Claimant will receive a
payment equal to its Pro Rata share of $600,000.
B. The Class 5(a) Claims shall not accrue interest.
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4.7 Class 5(b) (BLM Allowed Unsecured Claim) Class 5(b) shall consist of
the Allowed General Unsecured Claim of the BLM for plugging and reclamation
liability. The Class 5(b) Claim shall be satisfied by Rancher's remediation and
other well workovers as required by the BLM pursuant to the schedule attached
hereto as Plan Exhibit B and otherwise as required by the BLM and applicable law
and regulation in the ordinary course. Debtor's Performance Bond posted by
Rancher for the benefit of the BLM in the current amount of $25,000.00 shall
remain in place, and BLM shall retain all of its rights thereto in the event of
a default by Rancher in its plugging and reclamation obligations.
4.7 Class 6 (General Unsecured Claims less than $1000 - Convenience Class).
Class 6 shall consist of Allowed General Unsecured Claims of less than $1000.00.
Class 6 Claims shall be paid in cash in full on or before the first day of the
calendar month that is at least thirty days after the Effective Date.
4.8 Class 7 (Royalty & Leasehold Interest) Class 7 shall consist of all
holders or royalty, overriding royalty, profit, net profit, working interests,
or other similar oil and gas interests. Class 7 Allowed Claimants shall retain
their interests and continue to be paid under their current agreements and thus
remain unimpaired.
4.9 Class 8 (Shareholder Interests) Class 8 shall consist of all common
stock Interests in the Debtor as of the date that is twenty days after the
Effective Date, and the holders of any Allowed Claims subject to subordination
under ss. 510(b) of the Code. All Allowed Class 8 holders shall receive 1 new
share in Rancher for every 15 shares currently held, thus effectuating a 15 for
1 reverse stock split (the "Reverse Split Ratio").
4.10. Class 9 (Warrants) Class 9 shall consist of all holders of warrants
as shown on the Stock and Transfer records of Rancher as of the Record Date. All
such warrants shall be cancelled and each Class 9 Claimant shall receive shares
of the Debtor's common stock based on the following formula: one share of
pre-reverse split common stock for every 25 shares of pre-reverse split common
stock to which such Claimant would be otherwise entitled upon exercise of the
warrants, divided by the Reverse Split Ratio. For purposes of illustration, the
holder of warrants that would have entitled a Class 9 Claimant, upon exercise
thereof, to 1500 shares will receive four shares of post-reverse split common
stock (2500 divided by 25 divided by 15).
4.11. Class 10 (Employee Stock Options) Class 10 shall consist of Allowed
Claims for stock options vested as of the Record Date as the result of
management retention agreements or employee stock option agreements. Such
options shall remain unimpaired.
4.12. Class 11 (Convertible Note Holders) Class 11 shall consist of Allowed
Claims pursuant to Convertible Promissory Notes dated October 27, 2009. Each
holder of such Notes shall retain the right to convert the Convertible
Promissory Note to shares of common stock pursuant to the terms thereof,
provided that conversion shall be at the conversion price provided in the
Convertible Promissory Note adjusted for the reverse split described in Section
4.9 of this Plan regarding the treatment of Class 8 Interest Holders.
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ARTICLE 5
MEANS OF IMPLEMENTATION OF THIS PLAN
5.1. Vesting of Assets. On the Effective Date, all property of the Debtor's
Estate shall vest in the Debtor, free and clear of all claims and interests
except as specifically set forth in this Plan.
5.2. Post Confirmation Investment. The Debtor will obtain funding pursuant
to the BWAB Agreement. Pursuant to the BWAB Agreement, BWAB shall be issued 12
million newly designated Class A convertible preferred shares at a par value of
$0.0001 ("Rancher Preferred Stock"). The Rancher Preferred Stock shall have a
liquidation value of $1.00 per share and mandatory cumulative dividends at the
per annum rate of 12% compounded annually, and payable in cash or common stock
at the option of BWAB. At such time as the holders of the Rancher Preferred
Stock have received $12.8 million plus the cumulative mandatory dividends
thereon, the Rancher Preferred Stock shall convert to (a) 70% of the fully
diluted outstanding shares of Rancher's common stock in the event the Debtor has
recovered the 10% Net Profits Interest and 1% of the overriding royalty
interests held that are the subject of the GasRock Adversary, (b) 80% of the
fully diluted outstanding shares of Rancher's common stock in the event the
Debtor has not recovered the 10% Net Profits Interest and 1% of the overriding
royalty interests that are the subject of the GasRock Adversary, or (c) as
otherwise provided in the BWAB Agreement if some but not all of the 10% Net
Profits Interest and 1% Overriding Royalty Interest is recovered. In addition,
10% of the common stock shall be reserved for incentives to management personnel
for services rendered after closing on the BWAB Agreement. The holders of the
Rancher Preferred Stock shall have the right to elect five (5) of the eight (8)
members of the Debtor's Board of Directors and the holders of the Debtor's
common stock shall have the right to elect three (3) of the eight (8) members of
the Debtor's Board of Directors so long as the Rancher Preferred Stock is
outstanding.
5.3. Amended Articles. To implement the terms of this Plan, the Debtor's
Articles of Incorporation shall be deemed amended as set forth in Plan Exhibit C
hereto.
5.4. Stock Incentive Plan Termination. The Debtor's 2006 Stock Incentive
Plan will be deemed terminated as of the Effective Date.
5.5. Preservation of Causes of Action. Unless expressly waived or
relinquished, released, compromised or settled in this Plan, or in any contract,
instrument, release or other agreement entered into or delivered in connection
with this Plan: (a) the Debtor shall exclusively retain and may prosecute and
enforce, and the Debtor expressly reserves and preserves for these purposes in
accordance with ss.ss. 1123(a)(5)(B) and 1123(b)(3) of the Bankruptcy Code, any
Claims, demands, rights and Causes of Action that its Estate may hold or have
held prior to Confirmation against any Person, including but not limited to the
GasRock Adversary; and (b) no preclusion doctrine, including, without
limitation, the doctrines of res judicata, collateral estoppel, issue
preclusion, claim preclusion, estoppel (judicial, equitable or otherwise), claim
splitting or laches shall apply to such Claims and Causes of Action by virtue of
or in connection with Confirmation, consummation or effectiveness of this Plan.
5.6. Single Claim Rule. With respect to each Class of Claims, a Claimant
shall be deemed to hold only a single claim in such Class, regardless of how
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many separate Claims the Debtor has scheduled or the Claimant has filed. If any
Claim or any portion of the Claim in a particular Class is disputed, no
distribution shall be made with respect to such Claim until all or a portion of
the Claim is Allowed and the remainder, if any, is determined to be not Allowed
by Final Order.
5.7. Deadline for Filing Professional Fee Applications. All parties seeking
payment of Professional Fee Claims arising prior to the Effective Date must file
with the Bankruptcy Court and serve upon the Debtor, a final application on or
before the first Business Day which is the sixtieth (60th) day after the
Effective Date. Failure to timely file and serve such application shall act as a
bar against the assertion of any such right to payment. The Debtor shall mail
Notice of the Effective Date and the foregoing deadline not later than ten (10)
calendar days after the Effective Date.
5.8. Execution of Documents to Effectuate Plan. Prior to the Effective
Date, the Debtor shall execute any instruments or documents that are necessary
to effectuate the provisions of this Plan. Claimants with Secured Claims and all
other necessary parties shall execute or deliver, or join in the execution and
delivery, of any instrument required to effect a transfer of property under this
Plan, and shall perform any other act, including the satisfaction, release or
assignment of any lien that is reasonable or necessary for the consummation of
this Plan. From and after the Effective Date, the Debtor shall have the
exclusive power and authority to execute any instrument or document to
effectuate the provisions of this Plan. The Debtor may require surrender of the
original warrants or options in exchange for the stock to be issued hereunder or
implement such other reasonable procedures with respect to the issuance of new
stock as contemplated under this Plan.
5.9. Disallowance of Claims without Further Order of the Court. As of the
Confirmation Date, any Scheduled Claim designated as disputed, contingent,
unknown in amount or unliquidated in amount, and for which the Claimant has not
filed a proof of Claim, shall be deemed expunged, without further act or deed.
All Scheduled Claims that correspond to a proof of Claim filed by a particular
Claimant shall be deemed to have been superseded by such later filed proof of
Claim.
5.10. Post-Confirmation Reports and Fees. The Debtor shall be responsible
for the filing of all post-Confirmation reports with the U.S. Trustee and
payment of all post-Confirmation fees charged or assessed under 28 U.S.C. ss.
1930 until the Debtor's Chapter 11 case is closed. Any outstanding quarterly
fees pursuant to 28 U.S.C. ss. 1930(a)(6) payable as of the Effective Date shall
be paid in full on or before the Effective Date.
ARTICLE 6
TREATMENT OF EXECUTORY CONTRACTS & UNEXPIRED LEASES
6.1. Executory Contracts and Leases. All executory contracts and unexpired
leases of the Debtor are hereby deemed assumed as of the Effective Date, unless
a particular executory contract or unexpired lease (i) has previously been
assumed or rejected pursuant to order of the Bankruptcy Court or applicable
provisions of the Bankruptcy Code, (ii) is the subject of a pending motion to
11
reject such contract or lease filed by the Debtor, or (iii) is otherwise
specifically addressed in this Plan. The amount necessary to cure any default
proposed under this Plan shall be determined in accordance with the underlying
agreement and applicable nonbankruptcy law.
6.2 Unitization Agreements, Unit Operating Agreements, Wyoming Oil and Gas
Commission Rulings and Orders. On May 29, 2009 the Wyoming Oil and Gas
Conservation Commission (the "Commission"), entered its Commission Order No.
225-2008 (the "Commission Order") approving Debtor's request to form the Big
Muddy (2nd Frontier/2nd Wall Creek) Unit. The Commission's ruling is final and
non-appealable, and the Unit Agreement and related Unit Operating Agreement (now
jointly the "Unit Agreement") are in effect and are not executory contracts
within the meaning of ss. 365 of the Code. The Debtor will continue to honor its
obligations under the ruling and Unit Agreements.
6.3 Modified Agreements. As of the Effective Date, the following leases as
modified with the consent of the lessor are also assumed as follows:
Date of Lease Lease Description Modified Terms
------------- ----------------- --------------
Month to Month Office Space Month to Month
Rent at $_______/
month
The payments pursuant to the modified terms shall commence on the first day of
the calendar month following the Effective Date. No cure shall be required as a
condition of assumption or otherwise. All other terms of the lease shall remain
in full force and effect.
6.4 Rejection and Rejection Claim Bar Date. All contracts and unexpired
leases of the Debtor not assumed under this Article and not otherwise
specifically addressed in this Plan shall be deemed rejected as of the
Confirmation Date unless the particular executory contract or unexpired lease
has previously been assumed or rejected pursuant to order of the Bankruptcy
Court or applicable provisions of the Bankruptcy Code or is the subject of a
pending motion to assume or reject as of the Confirmation Date. No more than ten
(10) Business Days following the Confirmation Date, the Debtor shall provide
notice to all known parties to any executory contract or unexpired lease deemed
rejected under this Section and not previously rejected of their right to file
proofs of Claim relating thereto. Any party to an executory contract or
unexpired lease that is rejected in accordance with Section 6.1 shall file a
proof of Claim for damages resulting from such rejection not later than thirty
(30) days after the date of such notice was mailed. The failure to timely file a
proof of Claim shall be deemed a waiver of any claim in connection with the
rejection of such contract or lease.
ARTICLE 7
CONDITIONS PRECEDENT; CONFIRMATION & EFFECTIVE DATE
7.1. Conditions Precedent to Confirmation of this Plan. Unless this
condition is waived in accordance with Section 7.3, the Confirmation Order
shall, among other things:
A. Authorize the implementation of this Plan in accordance with its
terms.
12
B. Provide that any transfers effected or mortgages or other security
documents entered into or to be effected or entered into under this
Plan shall be and are exempt from any state, city, or other
municipality transfer taxes, mortgage recording taxes, and any other
stamp or similar taxes pursuant to ss. 1146(c) of the Bankruptcy Code.
C. Approve in all respects the other settlements, transactions, and
agreements to be effected pursuant to this Plan.
7.2. Conditions Precedent to the Effective Date. The Effective Date shall
not occur and no obligations and rights set forth in this Plan and set to occur
as of the Effective Date or thereafter shall come into existence, unless each of
the following conditions is met or, alternatively, is waived in accordance with
Section 7.3 hereof on or before the Effective Date:
A. The Confirmation Order shall have been entered and become a Final
Order.
7.3. Waiver of Conditions Precedent. Each of the conditions precedent in
Sections 7.1 and 7.2 hereof may be waived or modified, in whole or in part, but
only by the Debtor. Any such waiver or modification of a condition precedent in
Section 7.1 or 7.2 hereof may be effected at any time upon filing a notice
thereof with the Bankruptcy Court, without leave or order of the Bankruptcy
Court and without any other formal action.
ARTICLE 8
EXCULPATION
The Debtor and its respective officers, employees and professionals
retained pursuant to ss. 327 of the Bankruptcy Code (acting in such capacity)
shall neither have nor incur any liability to any Person for any act taken or
omitted to be taken in connection with or related to the formulation,
preparation, dissemination, implementation, administration, confirmation or
consummation of this Plan, the Disclosure Statement or any contract, instrument,
release or other agreement or document created or entered into in connection
with this Plan, or any act taken or omitted to be taken during the Bankruptcy
Case, except for acts or omissions as a result of willful misconduct or gross
negligence.
ARTICLE 9
PROVISIONS GOVERNING DISTRIBUTIONS
9.1. Distributions Only on Business Days. Notwithstanding the foregoing
provisions, if any Distribution called for under this Plan is due on a day other
than a Business Day, such Distribution shall instead be due on the next Business
Day.
9.2. Unclaimed Distributions. Any Distributions (i) by checks which have
been returned as undeliverable without a proper forwarding address and the
Claimant fails to notify the Debtor in writing within 90 days of a proper
address, and (ii) by checks which have not been negotiated within 90 days of
issuance and the Claimant has not notified the Debtor in writing to stop payment
and reissue the check, shall be deemed forfeited and the Claimant with such
Claim shall be removed from the Distribution schedules and shall receive no
further Distributions under this Plan. Any such Distributions shall become
property of the Debtor.
13
9.3. Disputed Distribution. If any dispute arises as to the identity of a
Claimant with an Allowed Claim who is to receive any distribution, the Debtor
may, in lieu of making such distribution to such Claimant, make such
distribution into a segregated account until the disposition shall be determined
by Final Order of the Bankruptcy Court or by written agreement among the
interested parties to such dispute.
9.4. Transmittal of Payments and Notices. All Distributions shall be made
to a Claimant by regular first-class mail, postage prepaid, in an envelope
addressed to such Claimant at the address listed on its proof of Claim filed
with the Bankruptcy Court or, if no proof of Claim was filed, (i) at the address
listed by the Debtor on the Schedules, (ii) as the Claimant may direct in
writing, or (iii) otherwise at such Claimant's last known address. Debtor shall
take reasonable steps to ascertain the most current address of the Claimant
whose distribution check is returned as undeliverable prior to treating such
check as an Unclaimed Distribution. The date of payment or delivery shall be the
date of mailing. Distributions made in accordance with the aforementioned
provisions of this Section will be deemed made to the Claimant regardless of
whether such Claimant actually receives the Distribution.
9.5. Record Date for Distributions. A transferee of a Claim will be treated
as the holder of the Claim for purposes of Distributions and otherwise, provided
written notice of the transfer signed by the original Claimant is delivered to
the Debtor and compliance with Bankruptcy Rule 3001, if applicable, is
completed, at least ten (10) days prior to the next proposed Distribution.
Absent such notice, in making any Distribution, the Debtor shall be entitled to
recognize and deal for all purposes hereunder only with the Person who is listed
on the proof of Claim filed with respect thereto or on the Debtor's Schedules as
the holder thereof as of the close of business on the Confirmation Date and upon
such other evidence or record of transfer or assignment known by such Persons as
of the Confirmation Date. No amendments to Claims shall be permitted after the
Effective Date.
9.6. Disputed Claims Reserve. Except to the extent the Court determines
that a lesser amount is adequate, the Debtor shall, with each Distribution,
deposit into one or more separate interest-bearing Disputed Claims Reserve
accounts established by the Debtor and that meet the requirements of ss. 345 of
the Bankruptcy Code, Cash equal to the Distributions that would have been made
to Claimants with Disputed Claims if such Claims were Allowed Claims in their
full amounts. When a Disputed Claim becomes an Allowed Claim, the Debtor shall
distribute to the Claimant with such Allowed Claim, as soon as practicable and
in accordance with the provisions of this Plan (but in no event later than the
next succeeding Distribution Date), Cash in the amount of all Distributions to
which such Claimant would be entitled to if such Claimant's Claim were Allowed
on the Effective Date. In no event shall the Debtor be responsible or liable for
any loss to or of any amount reserved under this Plan unless such loss is the
result of the Debtor's fraud or willful misconduct.
9.7. Setoff and Recoupment. Except as otherwise provided in this Plan, the
Debtor may, but shall not be required to, set off against, or recoup from, any
Claim and the Distributions to be made pursuant to this Plan in respect thereof,
any Claims, defenses or Causes of Action of any nature whatsoever that the
Debtor may have, but neither the failure to do so nor the allowance of any Claim
14
under this Plan shall constitute a waiver or release by the Debtor of any right
of setoff or recoupment against the Claimant with any Claim.
9.8. Payment of Taxes on Distributions Received Pursuant to this Plan. All
Entities that receive Distribution under this Plan shall be responsible for
reporting and paying, as applicable, taxes on account of their Distributions.
9.9. Compliance With Tax Withholding and Reporting Requirements. With
respect to all instruments issued and distributions made under this Plan, the
Debtor will comply with all withholding and reporting requirements of any
federal, state, local or foreign taxing authority.
ARTICLE 10
PLAN INTERPRETATION, CONFIRMATION AND VOTING
10.1. Withdrawal and Modification of Plan. The Debtor may withdraw or
modify this Plan at any time prior to the Confirmation Date. The Debtor may
modify this Plan in any manner consistent with ss. 1127 of the Bankruptcy Code
prior to substantial consummation thereof. Upon request by the Debtor, this Plan
may be modified after substantial consummation with the approval of the
Bankruptcy Court, provided that such modification does not affect the essential
economic treatment of any Person that objects in writing to such modification.
10.2. Governing Law. Unless a rule of law or procedure is supplied by
federal law (including the Bankruptcy Code and the Bankruptcy Rules) with
respect to matters of corporate governance, the laws of the State of Colorado
applicable to contracts executed in such State by residents thereof and to be
performed entirely within such State will govern the construction and
implementation of this Plan and any agreements, documents and instruments
executed in connection with this Plan.
10.3. Cram Down. The Debtor requests that, in the event that any impaired
Class entitled to vote on this Plan accepts this Plan, the Bankruptcy Court
confirm this Plan in accordance with the provisions of ss. 1129(b) of the
Bankruptcy Code.
ARTICLE 11
RETENTION OF JURISDICTION BY BANKRUPTCY COURT
11.1. From the Confirmation Date until entry of a final decree closing the
Debtor's Bankruptcy Case (pursuant to 11 U.S.C. ss.350 and Bankruptcy Rule
3022), the Bankruptcy Court shall retain such jurisdiction as is legally
permissible over the Bankruptcy Case for the following purposes:
A. to hear and determine any and all objections to the allowance of any
Claim or Administrative Claim, or any controversy as to the
classification of Claims or any matters which may directly, indirectly
or contingently affect the obligations of the Debtor to any Claimants,
or other parties in interest;
B. to hear and determine any and all applications for compensation and
reimbursement of expenses by professionals retained pursuant to ss.327
of the Bankruptcy Code;
15
C. to hear and determine any and all pending motions for the assumption
or rejection of executory contracts and unexpired leases, and to Allow
or disallow any Claims resulting therefrom;
D. to adjudicate such contested matters and adversary proceedings as may
be pending or subsequently initiated in the Court;
E. to enforce and interpret the provisions of this Plan and the
Confirmation Order;
F. to issue any injunction or other relief appropriate to implement the
intent of this Plan, and to enter such further orders enforcing any
injunctions or other relief issued under this Plan or pursuant to the
Confirmation Order;
G. to modify this Plan pursuant toss.1127 of the Bankruptcy Code and the
applicable Bankruptcy Rules;
H. to correct any defect, cure any omission, or reconcile any
inconsistency in this Plan or in the Confirmation Order as may be
necessary to carry out the purpose and the intent of this Plan;
I. to interpret and determine such other matters as the Confirmation
Order may provide for, or as may be authorized under the Bankruptcy
Code; and
J. to enter and implement such orders as may be appropriate in the event
the Confirmation Order is, for any reason, stayed, reversed, revoked,
modified or vacated.
Dated: October 15, 2010.
Debtor and Debtor in Possession
Rancher Energy Corp.,
By: /s/ Jon Nicolaysen
-----------------------------------
Its: CEO & President
Onsager, Staelin & Guyerson, LLC
/s/ Christian C. Onsager
---------------------------------------
Christian C. Onsager, CBN 6889
/s/ Michael J. Guyerson
---------------------------------------
Michael J. Guyerson , CBN 11279
1873 S. Bellaire St., Suite 1401
Denver, Colorado 80222
Ph: (303) 512-1123
Fax: (303) 512-1129
consager@osglaw.com
mguyerson@osglaw.com
Counsel for the Debtor
16
PLAN EXHIBIT A
[to be appended upon approval of the Disclosure Statement]
17
PLAN EXHIBIT B
[to be finalized upon approval of the Disclosure Statement]
Short Term Mitigation Plan:
Completed Items 2010:
I. The local Bureau of Land Management District Office requested that
Rancher plug and abandon East Big Muddy well # W - 1. This well was plugged
and abandoned according to BLM and Wyoming State Oil and Gas Commission
regulations.
II. Rancher Energy completed the abandonment of three locations located on
BLM lease number WYW 0249 in the summer of 2010 as a part of addressing
items set forth in the BLM Claim. These wells are South Glenrock B Unit
#184, 188, and 189.
Partial Projected Work 2011
I. Rancher Energy will finish the abandonment and surface reclamation of a
South Glenrock A Unit Well # 19, which is located on BLM Lease WYW - 610 no
later than May of 2011. This well was plugged previously, but the surface
reclamation has not been finished as of this date and the bond for surface
reclamation has not been released.
II. Rancher Energy currently plans to lay a pipeline from the South
Glenrock A Unit tank battery to South Glenrock A Unit Well # W - 4. Rancher
plans to do the permitting for the pipeline during the 4th quarter of 2010.
It is anticipated that after the right of Way permit is received, the well
can be reactivated in the 2nd quarter of 2011. This well will change from
temporarily abandoned to an active water injection status. Scheduling is
subject to change.
18
PLAN EXHIBIT C
[to be appended upon approval of the Disclosure Statement]
19
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLORADO
--------------------------------------------------------------------------------
)
In re: RANCHER ENERGY, CORP., ) Case No. 09-32943 MER
)
Debtor. ) Chapter 11
)
--------------------------------------------------------------------------------
DISCLOSURE STATEMENT FOR
PLAN OF REORGANIZATION DATED OCTOBER 15, 2010
--------------------------------------------------------------------------------
Rancher Energy Corp., ("Rancher") Debtor-in-Possession in the
above-captioned case submits this Disclosure Statement pursuant to ss. 1125 of
the Bankruptcy Code, 11 U.S.C. ss.101 et seq. (the "Bankruptcy Code"), to all
known holders of claims against Rancher's chapter 11 bankruptcy estate in order
to disclose information deemed to be material, important, and necessary for
creditors of Rancher to make an informed decision in exercising their right to
vote for acceptance or rejection of the Debtor's Plan of Reorganization dated
October 15, 2010 (the "Plan"). The Plan has been filed with the United States
Bankruptcy Court for the District of Colorado (the "Court"), and a copy of the
Plan is attached as Exhibit 1 hereto.
THIS DISCLOSURE STATEMENT HAS NEITHER BEEN APPROVED NOR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, AND THE COMMISSION HAS NOT RENDERED AN
OPINION UPON THE ACCURACY OR ADEQUACY OF ANY STATEMENTS CONTAINED IN THIS
DOCUMENT. BANKRUPTCY COURT APPROVAL OF THIS DISCLOSURE STATEMENT DOES NOT IMPLY
BANKRUPTCY COURT APPROVAL OF THE PLAN. IN THE EVENT OF ANY INCONSISTENCIES
BETWEEN THE PLAN AND THIS DISCLOSURE STATEMENT, THE PROVISIONS OF THE PLAN SHALL
CONTROL.
I. PROCEDURE REGARDING APPROVAL OF DISCLOSURE STATEMENT AND VOTING
PROCEDURES AND CONFIRMATION OF THE PLAN
This Disclosure Statement is provided to all of Rancher's creditors,
equity security holders and other parties in interest entitled to it under the
Bankruptcy Code. This Disclosure Statement is intended to provide adequate
information to enable the typical creditor, equity security holder, or other
party in interest to make an informed decision to accept or reject the Plan. YOU
ARE ENCOURAGED TO READ THE PLAN, THIS DISCLOSURE STATEMENT, AND ALL EXHIBITS
THERETO IN THEIR ENTIRETY BEFORE VOTING ON THE PLAN. Prior to its distribution
to all creditors, equity security holders and other parties in interest, the
Court approved this Disclosure Statement by Order dated _________ __, 2010 as
containing adequate information; however, Court approval of this Disclosure
Statement does not imply Court approval of the Plan.
1
A. Voting on the Plan
Your vote on the Plan is important. The Plan can be implemented only if
it is confirmed by the Court. The Plan can be confirmed only if, among other
things, it is accepted by the holders of two thirds in amount and more than
one-half in number of the Claimants holding Claims in at least one impaired
Class who actually vote on the Plan. In the event the requisite acceptances are
not obtained from the other impaired Classes, the Court may nevertheless confirm
the Plan if the Court finds that it is fair and equitable to the Class or
Classes rejecting it.
Holders of claims in Classes 1, 2(a), 2(b), 2(c), 3, 5(a), 5(b), 8, 9
and 10 are impaired. Holders of Allowed Claims in these Classes are therefore
entitled to vote. If you have a disputed, contingent or unliquidated claim, you
must have your claim estimated by the Court in order to vote.
Because Claims in Classes 4, 6 and 7 are unimpaired, these Classes are
deemed to accept the Plan, and holders of Claims and interests in these Classes
will not vote on the Plan.
The Court will hold a hearing on confirmation of the Plan on
_______________________, and will then, among other things, determine the
results of the vote. The date on which the Court approves the Plan is the
"Confirmation Date," and the "Effective Date" is the date that is thirty (30)
days after the Confirmation Date (unless an appeal is taken and a stay of the
confirmation order is obtained, or Rancher, by notice filed with the Court,
elects an earlier Effective Date). Objections to Confirmation are due on or
before _______________________.
A ballot pursuant to which the holder of an Allowed Claim may vote on
the Plan accompanies this Disclosure Statement. Completed ballots should be
mailed or otherwise delivered so as to be received no later than 5:00 p.m.
Mountain Time on _______________________ to:
Christian C. Onsager
Michael J. Guyerson
Onsager, Staelin & Guyerson, LLC
1873 S. Bellaire St., Suite 1401
Denver, CO 80222
If your ballot is damaged or lost, or if you have any questions concerning
voting, you may contact Christian C. Onsager (email: consager@osglaw.com) or
Michael Guyerson (email: mguyerson@osglaw.com) or by phone at (303) 512-1123.
2
B. Cram Down
The Bankruptcy Code allows the Court to confirm a plan of reorganization or
to "cram down" a plan of reorganization despite its rejection by a class of
impaired claims under some circumstances. The Bankruptcy Code provides that if
an impaired class rejects a proposed plan, then the plan cannot be confirmed
unless at least one class of claims that is impaired under that plan has
accepted it. In this regard, the Court must determine acceptance without
including any vote by any insider, and further, the Court must conclude that the
plan "does not discriminate unfairly, and is fair and equitable" with respect to
the claims of the impaired class. Rancher will invoke its right to request the
Court to confirm the Plan under such circumstances.
II. HISTORY OF THE DEBTOR
A. Origin of the Business.
Rancher was incorporated as Metalex Resources, Inc., ("Metalex") on
February 4, 2004, a Nevada corporation. Metalex became publicly traded on April
22, 2005 with the stated purpose of exploring for precious metals in the
Province of British Columbia, Canada. Metalex found no commercially exploitable
deposits or reserves of gold. On April 19, 2006, Metalex changed its name to
Rancher Energy Corp. Rancher then focused its business on oil and gas
exploration and production in the Rocky Mountains. In June, 2006, Rancher began
acquiring oil and gas properties in Wyoming and Montana.
B. Rancher's Oil and Gas Operations
A. By 2007 Rancher's business strategy was to use modern tertiary recovery
techniques on older, historically productive fields with proven, in-place oil
and gas. Using water flood injection and CO2 flooding, coupled with other
leading edge hydrocarbon recovery techniques such as 3-D seismic data and
directional drilling, Rancher expects to extract proven in-place oil that
remains behind in mature fields. Rising energy demand and strong oil prices
combined with advances in oil recovery have made this strategy profitable to
other companies in the industry.
Rancher acquired its significant oil and gas holdings in January, 2007 for
approximately $67 million. By the middle of 2007, Rancher had acquired oil and
gas properties with proved and unproved reserves worth an estimated $79 million.
In 2007 and 2008, Rancher assembled a team of technical staff with expertise in
applying secondary and tertiary enhanced oil recovery techniques and,
specifically, water flooding and CO2 injection.
Rancher now operates four fields, including the South Glenrock A Field,
South Glenrock B Field, the Big Muddy Field, and the Cole Creek South Field in
the Powder River Basin, Wyoming in the Rocky Mountain region of the United
States. The oil production from Rancher's properties is relatively high quality
crude, ranging in gravity from 34 to 36 degrees, and low in sulfur. Rancher
sells its oil to a crude aggregator on a month-to-month term. The oil is
transported by truck, with loads picked up daily. The prices Rancher currently
receives are based on daily price postings for Wyoming Sweet crude oil, adjusted
for gravity, plus approximately $2.12 to $2.35 per barrel
3
C. Rancher's Prepetition Financial Structure
i. Rancher's Capital Structure
Rancher is a publicly traded company (ticker ID: RNCHQ) and has current
outstanding common shares of 119,036,700 out of a total of 275,000,000
authorized shares, par value ($0.0001) each. Rancher also has reserved
54,632,565shares for outstanding warrants and 12,206,000 for options for a total
of 185,875,265 shares. Thus only 89,124,735 shares currently remain available
for issue. Rancher's Plan implements a 15 for 1 reverse stock split for all
common shareholders and option holders. Warrant holders are provided common
stock based on the reverse split and the deemed current value of the warrants.
Rancher anticipates that a maximum of 20% of the common shares of the
reorganized company will be available for distribution to holders of common
stock, options and warrants.
ii. Rancher's Principal Assets
On December 22, 2006, Rancher purchased certain oil and gas properties for
$46,750,000, before adjustments for the period from the effective date to the
closing date, plus costs of $323,657 and warrants to purchase 250,000 shares of
common stock. The oil and gas properties consisted of (i) a 100% working
interest (79.3% net revenue interest) in the Cole Creek South Field, and (ii) a
93.6% working interest (74.5% net revenue interest) in the South Glenrock B
Field. Both fields are located in Converse County Wyoming in the Southern Powder
River Basin. On January 4, 2007, Rancher acquired the Big Muddy and South
Glenrock A Fields, also located in the Southern Powder River Basin. The total
purchase price was $25,000,000 and closing costs were $672,638.
As of the Petition Date, Rancher's principal assets were interests in oil
and gas producing properties in Wyoming. The proven developed and producing
("PDP") reserves on those properties have an estimated value of $14,590,000. The
proven, developed but not producing ("PDNP") reserves on those properties have
an estimated value of $763,000. The proven undeveloped ("PUD") reserves to be
extracted using enhanced oil recovery techniques have an estimated value in
excess of $60,000,000. The remaining economic life of the Rancher fields, the
point when the cost of production is forecasted to exceed the revenues to be
generated from the remaining reserves is at least 50 years, perhaps longer
depending on technologies used. There are approximately 15.0 million barrels of
proven recoverable reserves on these properties.
4
As, estimated by Gustavson & Associates as of February 26, 2010, the value
of Rancher's oil and gas properties totals $50,200,000, which is broken down as
follows:
Net Oil Market Value
Reserve Category MBbl $
------------------------------- ------------------------ -----------------------
PDP
Rancher Interests 762.88 $11,100,000
Gas Rock 3% ORRI 30.10 $688,000
Gas Rock 10% NPI $1,300,000
------------------------------- ------------------------ -----------------------
PDNP
Rancher Interests 1,622.40 $17,400,000
Gas Rock 3% ORRI 65.68 $ 1,500,000
Gas Rock 10% NPI $2,500,000
------------------------------- ------------------------ -----------------------
PUD
Rancher Interests 9,153.66 $21,700,000
Gas Rock 3% ORRI 352.35 $2,700,000
Gas Rock 10% NPI $4,800,000
------------------------------- ------------------------ -----------------------
In addition, Rancher's properties include the Niobrara formation, which
is believed to contain significant quantities of shale oil. The extent of this
formation and its value are not entirely known, though as explained in Section
D(iii), below, there has been significant interest in this formation in the area
in which Rancher's properties are located.
South Glenrock B Field
The South Glenrock B Field, located in Converse County, Wyoming, is
about 20 miles east of Casper in the east-central region of the state. The field
was discovered by Conoco, Inc. The South Glenrock B Field produces primarily
from the Lower and Upper Muddy formations as well as the Dakota formation. All
the formations are Cretaceous fluvial deltaic sands with extensive high
reservoir quality channels. The structure dips from west to east with
approximately 2,000 feet of relief. The South Glenrock B Field is an active
waterflood that currently produces approximately 128 barrels of oil per day
("BOPD") of sweet 35-degree API crude oil. As of the date of this Disclosure
Statement, there are twenty active producing wells and thirteen injector wells
servicing the field. This waterflood unit was developed with a fairly regular
40-acre well spacing and drilled with modern rotary equipment.
In February, 2010 Rancher engaged a geologist to conduct a preliminary
evaluation and analysis of Niobrara Shale potential for hydrocarbon production
in the South Glenrock B Field. The report concluded that the Niobrara in the
study area has characteristics similar to Niobrara sections where oil production
has already been established, making the area a viable target for development.
Big Muddy Field
The Big Muddy Field is located seventeen miles east of Casper, in
Converse County, Wyoming. The field was discovered in 1916 and has produced
approximately 52 million barrels of oil from several producing zones including
the First Frontier, Stray, Shannon, Dakota, Lakota, Muddy and Niobrara
5
formations. The Big Muddy Field was waterflooded starting in 1957. The Big Muddy
Field is currently producing about 38 BOPD of 36-degree API sweet crude oil,
from five producing wells with two water injection wells servicing the field.
The field was developed with an irregular well spacing and drilled mostly with
cable tools.
In February 2010 Rancher engaged a geologist to conduct an evaluation
and analysis of Niobrara Shale potential for hydrocarbon production in the Big
Muddy Field. The report concluded that the Niobrara in the study area has
characteristics similar to Niobrara sections where oil production has already
been established, making the area a viable target for development.
The current reservoir pressure is very low and not sufficient for
effective CO2 flooding. Pending financing, Rancher's near-term plans for the Big
Muddy Field are to build facilities and reactivate or drill new injection wells
in order to inject disposal water produced as a result of CO2 operations in the
South Glenrock B Field. The injection of this water should have the effect of
raising the Big Muddy reservoir pressure for the planned CO2 flood. Rancher also
hopes to drill or reactivate additional production wells in order to produce
more oil from this reactivated waterflood. The Big Muddy Field required
unitization prior to a waterflood or a CO2 flood.
The Wyoming law required Rancher to form the Wall Creek/2nd Frontier
formation. The unitization 2nd Frontier was completed in calendar year 2008.
Cole Creek South Field
The Cole Creek South Field, also in the Powder River Basin, is located
in Converse and Natrona counties, about fifteen miles northeast of Casper in the
east-central region of wyoming. The Cole Creek South Field was discovered in
1948 by the Phillips Petroleum Company. Production at Cole Creek South was
originally discovered on the structure in the Lakota sandstone. After drilling a
number of wells along the crest of the structure that had high water cuts, the
Lakota zone was not developed in favor of the Dakota sandstone. Injection into
the Dakota formation began in December 1968 and reached peak production in April
1972.
Production comes from two units at Cole Creek South. One unit is the
Dakota Sand Unit which is under active waterflood. The other unit is the Cole
Creek South Unit which is a primary production unit. Cole Creek South Field
produces, in total, approximately 73 BOPD of 34 degree API sweet crude oil from
ten producing wells. There are nine active injector wells in the field.
Production is from the Dakota, Lakota and First and Second Frontier formations.
In February, 2010 Rancher engaged a geologist to conduct an evaluation
and analysis of Niobrara Shale potential for hydrocarbon production in the Cole
Creek South Field. The report concluded that the Niobrara in the study area has
characteristics similar to Niobrara sections where oil production has already
been established, making the area a viable target for development.
The Cole Creek South Field is presently at reservoir pressure
sufficient for miscible CO2 flooding and the wells are generally in good working
condition. Due to the small size, in comparison to the South Glenrock B Field
and the Big Muddy Field, the Cole Creek South Field would be the third field to
6
undergo CO2 flooding. Subject to obtaining financing and securing a CO2 supply,
Rancher would start CO2 injection in the Cole Creek South Field in within four
to five years after commencing CO2 injection in the South Glenrock B Field.
South Glenrock A Field
The South Glenrock A Field, also located in Converse County Wyoming
about 18 miles east of Casper, produces approximately twenty six BOPD from two
wells in the Muddy, Dakota and Shannon formations. Due to the relatively small
reservoir, this field was not included in plans for CO2 flooding. Sinclair Oil &
Gas Company was the initial Operator and started waterflooding activities late
1966.
In February, 2010 Rancher engaged a geologist to conduct an evaluation
and analysis of Niobrara Shale potential for hydrocarbon production in the South
Glenrock A Field. The report concluded that the Niobrara in the study area has
characteristics similar to Niobrara sections where oil production has already
been established, making the area a viable target for development.
The following table summarizes reserves, ownership interests and daily
production of Rancher's properties as of March 31, 2010:
------------------------- --------------- ------------------ ----------- ------------- ---------------- --------------
Proved Proved Developed Daily Daily
Reserves Producing % PV - 10 Net Revenue Production Production
Field (Barrels) (A) ($000) (A) Interest (Bbls) - Gross (Bbls) - Net
------------------------- --------------- ------------------ ----------- ------------- ---------------- --------------
South Glenrock B 399,302 100% $3,832 73.4% - 128 96
77.7%
------------------------- --------------- ------------------ ----------- ------------- ----------------- -------------
Big Muddy 40,229 100% 579 77.9% 38 30
------------------------- --------------- ------------------ ----------- ------------- ----------------- -------------
Cole Creek South 344,442 90% 4.321 75% - 78.3% 73 56
------------------------- --------------- ------------------ ----------- ------------- ----------------- -------------
South Glenrock A 67,206 100% 1,018 75% - 77.6% 26 20
------------------------- --------------- ------------------ ----------- ------------- ---------------- --------------
TOTAL 851,179 - $9,750 265 202
------------------------- --------------- ------------------ ----------- ------------- ---------------- --------------
On the Petition Date, Rancher also owned machinery, equipment and
vehicles with an estimated value of $700,000; accounts receivable of
approximately $556,000; and a cash performance bond posted for the benefit of
the State of Wyoming in the face amount of $815,000.
As of __________, 2010, Rancher has cash in Bank in the amount of
$______[to be updated]. As of August 31, 2010, the face amount of Rancher's
accounts receivable was $529,948.
7
iii. Rancher's Prepetition Debt
In October 2007, Gasrock Capital, LLC ("Gasrock") loaned Rancher
approximately $12,240,000 (the "Loan") to allow Rancher to begin development of
its properties while Rancher sought further capital infusions. The Loan was
extended through October, 2009 and the outstanding principal balance Gasrock
claimed due on the date Rancher filed its bankruptcy petition (the "Petition
Date") was approximately $10,275,000. Gasrock holds prepetition security
interests in substantially all of Rancher's assets, including oil and gas
properties, accounts receivable and machinery and equipment. As explained in
section III(D)(ii), Rancher disputes the amount Gasrock claims is due and has
commenced an adversary proceeding to recover transfers of property and money to
Gasrock.
Rancher scheduled approximately $325,000 in unsecured, prepetition debt
to various service providers, taxing authorities and employees.
Anadarko Petroleum Corporation ("Anadarko") has filed a proof of claim
against Rancher for an unliquidated amount alleging no less than $54,000,000 is
due. Rancher disputes that any amount is due to Anadarko because Rancher
believes the contract never became effective and the penalty is unenforceable.
Rancher filed an objection to Anadarko's proof of claim and the deadline for
Anadarko to respond to Rancher's Objection is August 20, 2010. On October 13,
2010, Rancher and Anadarko agreed to settle the dispute and allow Anadarko's
claim in the amount of $375,000.
Creditors alleging claims against Rancher have filed additional proofs
of claim against Rancher totaling approximately $1,575,000. These claims include
a claim by the Bureau of Land Management ("BLM") for approximately $1,095,000
for certain forecasted expense related to plugging and shutting-in wells on
Rancher's property. Rancher believes that no amount is currently due to the BLM
because Rancher will continue to operate its wells and perform its plugging and
shutting-in responsibilities, which is provided for in the Plan. The BLM has
indicated to Rancher it approves of the proposed treatment of the BLM claim in
the Plan.
One significant claim not scheduled may arise from the rejection of
Rancher's office lease. The amount the landlord claims due is approximately
$398,000. Rancher is investigating the validity of the amount claimed due, but
in all events does not believe the claim will exceed $________ as the result of
the cap imposed by ss. 502(a)(7) of the Code, which limits the claim to one year
of rent.
In addition, a group of stockholders have asserted claims against
Rancher for securities violations in the aggregate amount of $1,776,050. Rancher
is currently investigating the validity of the claims. Even if the claims were
allowed in full, however, the claims will be subordinated to other claims
pursuant to 11 U.S.C. ss. 510(b). I insurance coverage may exist for the claims
and the respective carriers have been notified.
iv. Rancher's Prepetition Financial Performance
For the year ended March 31, 2009, Rancher recorded crude oil sales of
$5,140,660 on 65,308 barrels of oil at an average price of $78.71. In 2009,
8
Rancher recorded an impairment in the carrying value of its oil and gas
properties of $39,000,000 to reflect the excess carrying value over the
estimated value of the assets for combined loss of $46,000,000.
Immediately prior to the Petition Date, Rancher's daily oil production
was approximately 205 barrels per day and the average net price per barrel
Rancher received was approximately $53. Rancher's quarterly revenue from the
sale of oil was approximately $696,000 with total operating expenses of
approximately $1,542,049, of which Rancher had $781,846 in general
administrative expenses.
D. Events Precipitating Bankruptcy
The final event that caused Rancher to file for bankruptcy protection
was the seizure of funds in Rancher's bank account by Gasrock and Gasrock's
threat to commence a foreclosure of Rancher's oil and gas properties in October,
2009.
i. Gasrock Loan History
The enhanced oil recovery techniques Rancher intended to employ
required a significant capital investment and Rancher had sought additional
equity investments and loans to satisfy its capital needs. The October, 2007
loan from Gasrock was intended to be a one year loan to allow Rancher to begin
work on its enhanced oil recovery techniques by re-working existing wells to
increase production and revenue and to attract additional investment to fund the
capital expenses necessary for the water flooding and CO2 injection of certain
of its fields. In connection with the Loan, and in addition to interest, Gasrock
required that Rancher give Gasrock a 2.0% overriding royalty interest in all its
oil and gas properties. The overriding royalty interest requires that Rancher
pay Gasrock an amount equal to 2.0% of the gross oil sold less specified tax,
marketing and transportation costs.
By October, 2008, Rancher had not attracted the equity investment it
needed to complete the proposed development of its oil and gas properties. On
October 22, 2008 Rancher and GasRock extended the Loan. The terms of the
extensions required Rancher to make a $2,240,000 principal payment to GasRock
and required Rancher to give Gasrock an additional 1.0% overriding royalty
interest in Rancher's oil and gas properties. In exchange, the maturity date of
the Loan was extended only six months to April 30, 2009.
By April 30, 2009, Rancher was still unable to attract the investment
capital or a replacement credit to pay the Loan. Six short extensions were
granted between April 30 and June 3, 2009. On June 3, 2009 Rancher and Gasrock
entered into the eighth amendment to the Loan that extended the maturity date of
the Loan to October 15, 2009. Gasrock also increased the face rate of interest
payable on the Loan to 16.0%. In exchange for the extension, Gasrock required
that Rancher give Gasrock a 10% net profits interest, in all of Rancher's oil
and gas properties. The net profits interest requires that Rancher pay Gasrock
10% of the proceeds from Rancher's oil sales, reduced only by specified tax,
marketing, lease operating expenses and transportation costs.
The Loan matured on October 15, 2009 because Rancher was unable to
attract capital or credit to pay the Loan. Shortly thereafter, Gasrock gave
Rancher notice of default and notice of its intent to foreclose on its
9
collateral. On October 21, 2009, Gasrock swept Rancher's bank accounts taking
approximately $99,000, which left Rancher with no operating funds. Rancher filed
its voluntary petition on October 28, 2009.
ii. Other Events
In December, 2006, Rancher entered into a contract to purchase CO2 from
Anadarko Petroleum Corporation in anticipation of implementing its enhanced oil
recovery techniques. The contract provides for a penalty of $54,750,000 in the
event Rancher breached the agreement. No pipeline to deliver the CO2 was ever
constructed, Anadarko never delivered any CO2 to Rancher, and Rancher never
purchased any CO2 from Anadarko. As a result, Rancher believes that the contract
never became effective and that the penalty is unenforceable. Nevertheless,
potential investors were concerned about investing until the enforceability of
the contract was resolved. As noted above, Rancher and Anadarko have settled the
amount of Anadarko's claim at $375,000.
In June, 2008, the price Rancher received for a barrel of crude oil
peaked at more than $128 per barrel. That price fell to $63 per barrel by
October, 2008, and by December, 2008, bottomed at $25 per barrel. This drop, the
tightening in credit markets and global financial crisis reduced the short term
value of Rancher's oil and gas holdings and hurt Rancher's ability to obtain
investment capital or permanent financing to replace Gasrock.
The overriding royalty interests and net profits interest Gasrock
required in connection with the Loan and first extension also contributed to
Rancher's inability to obtain the necessary capital or additional credit it
needed for its development and to pay the Loan. In effect, the overriding
royalty interests require that Rancher pay Gasrock 3.0% of the total revenue
Rancher received from the sale oil each month. Similarly, the net profits
interest requires that Rancher pay to Gasrock 10% of the net profit it receives
on oil sales.
During Rancher's highest period of oil production in the term of the
Loan, Rancher paid more than $16,000 to Gasrock for one month on the overriding
royalty interests. Because the net profits interest is calculated before many
expenses and accrued costs are taken into account, Rancher, and paid more than
$29,500 in a single month to Gasrock on the net profits interest for a month in
which Rancher sold 6,422 barrels of oil.
Over the course of the Loan, Rancher has paid more than $460,000 on the
overriding royalty interests and the net profits interest. Gasrock did not apply
these payments to the Loan. This cash drain that left Rancher unable to do the
work necessary to increase or even sufficiently maintain oil production of some
of its fields. Moreover, because the payments required under overriding royalty
interests and net profits interest increase as production increases, no equity
investment in Rancher would yield a sufficient return on the capital.
Accordingly, the overriding royalty interests and net profits interest
collectively left Rancher with too little net revenue interest in the oil fields
to attract investment.
In June, 2009 a shareholder proxy contest was commenced by a group of
Rancher shareholders and ultimately a shareholder election was held on September
30, 2009. A new slate of company directors was elected as a result of the vote.
Shortly after taking control, the new board terminated the company CEO and
10
President, Mr. John Works. Mr. Richard Kurtenbach, the Chief Accounting Officer,
Ms. Denise Greer, the Manager of Land & Operations, and Lisa Dimuccio, the
Controller, were retained by the new board. Ms. Greer and Ms. Dimuccio are
presently acting in that capacity for Rancher. Mr. Kurtenbach left the company
in July 2010.
III. EVENTS SINCE THE PETITION DATE
A. Operations. Since the Petition Date, Rancher has used funds to repair,
maintain, and bring back into production dormant or idle wells with a success
rate of approximately 80%. As a result, Rancher has increased its daily oil
production to approximately 260 barrels today. Rancher anticipates the eventual
recovery of the capital costs of the repairs and the generation of net new
revenues for the company from these efforts. This program will continue under
this Plan.
In November, 2009, the Court granted Rancher's motion for interim use
of cash collateral. Rancher immediately took steps to reduce operating costs and
overhead, including salary cuts of 10% - 20% for employees and the rejection of
the office lease for our corporate headquarters. In addition, Rancher carried
out a program of repair and remediation on a number wells that had become
non-producing, resulting in a 25% increase in daily crude oil production as
compared to pre-petition production levels.
Commencing in December, 2009, Rancher has carried out repair and
remediation work on a number of non-productive wells, bringing them back on
production and increasing daily production from the fields by approximately 50
barrels or 25% compared to the pre-petition production levels. Rancher continues
to evaluate the productive capabilities of the fields with the primary objective
of identifying additional low cost projects to enhance production and a
secondary objective to identify additional productive formations on our existing
leasehold position.
B. In March, 2010, with Court authorization, Rancher retained a
professional geologist with extensive experience in the Powder River Basin, to
conduct an evaluation and analysis of the Niobrara Shale potential for
hydrocarbon production in and around our fields and other aspects of its assets.
That evaluation and analysis was completed in May 2010 and concluded that the
Niobrara in the study area has characteristics similar to Niobrara sections
where oil production has already been established, making the area a viable
target for development. Rancher is developing a strategy with BWAB Oil and Gas
Investments, LLC ("BWAB") to fully exploit this resource.
C. Financial Performance. Monthly revenue from production and sales has
increased from approximately $225,000 per month for the period immediately prior
to the Petition Date to over $358,000 for June, 2010. Cash in the bank increased
from $0 to more than $674,956.00 as of September 30, 2010, subject to normal
collection and payment cycles.
As of _______________, Rancher's daily oil production was approximately
___barrels per day and the average net price per barrel Rancher received was
approximately $__. Rancher's third quarter revenue from the sale of oil was
approximately $_____ with total operating expenses of approximately $________,
of which Rancher had $______ was general administrative expense. Attached as
11
Exhibit __ are the balance sheet and profit and loss statement from Rancher's
most recent monthly operating report filed with the Court.
D. Chapter 11 Events.
i. Cash Collateral.
Because Gasrock claimed prepetition security interests in substantially
all of Rancher's assets, Rancher could not use the funds it obtained from
selling oil absent without the consent of Gasrock or court permission. Rancher
filed its Supplemental Emergency Motion for Use of Cash Collateral (the
"Motion"), on November 6, 2009. With the consent of GasRock and upon the record
made at the November 10, 2009 hearing to consider the interim relief requested
in the Motion the "Interim Hearing" and the final hearing(s) held on January 27,
2010 and April 9, 2010 ("Final Hearing"), the use of cash collateral has been
allowed, albeit restricted by a Cash Collateral Budget, pending a final ruling
by the Court.
Until April 1, 2010, Rancher used proceeds from oil sales to run its
business with Gasrock's consent. A final cash collateral hearing was concluded
on April 30, 2010, final written closing arguments filed on May 27, 2010 and the
matter now before the Court for a final order on the use of cash collateral. The
primary dispute between Rancher and Gasrock is over the value of Rancher's oil
and gas producing properties. Rancher estimates the value of its oil and gas
properties as $50,200,000. Gasrock estimates the value of Rancher's oil and gas
properties as $12,500,000. The difference in value estimates results from
Gasrock not assigning any value to PDNP and PUD reserves that Rancher intends to
recover with its enhanced recovery techniques, including waterflood and CO2
injection. Rancher believes Gasrock's estimate of value is the liquidation value
of Rancher's properties if the properties were operating at the time of a sale.
On September 2, 2010, the Court entered an order granting Rancher's
Motion to Use Cash Collateral. As part of the September 2nd order, the Court
required Rancher to file a proposed amended final cash collateral order in
cooperation with Gasrock. Rancher and Gasrock did not agree on the proposed form
of the amended final cash collateral order. The Court is conducting a hearing on
the proposed form on October 19, 2010.
ii. Gasrock Adversary.
On February 12, 2010, Rancher commenced an adversary proceeding (the
"Adversary") against Gasrock in which Rancher seeks to avoid conveyances of
property to Gasrock or for damages in the amount of the property conveyed, to
recognize that conveyances of property to Gasrock were intended only as
security, to recover damages for violations of applicable usury law and to
recover payments and conveyances of property to Gasrock as preferences, among
other claims. Rancher claims damages in the total amount of approximately
$40,000,000 and the return of certain transfers of property.
Rancher's complaint (the "Complaint") in the Adversary contains nine
claims for relief. The First, Second and Third Claims for Relief seek to
recharacterize the Initial ORRI,1 the Extension ORRI and the 10% NPI,
respectively, as security interests. The Fourth Claim for Relief seeks damages
for violations of usury law. The Fifth Claim for Relief seeks to avoid as
12
constructive fraudulent transfers under 11 U.S.C. ss. 548, the Extension ORRI,
the 10% NPI and all payments made on the ORRI and 10% NPI. The Sixth Claim for
Relief seeks to avoid as constructive fraudulent transfers under 11 U.S.C. ss.
544 and the applicable Uniform Fraudulent Transfer Act, the Extension ORRI, the
10% NPI and all paymen s made on the ORRI and 10% NPI. The Seventh Claim for
Relief seeks to avoid as preferences the Extension ORRI, the 10% NPI and all
payments made on the ORRI and 10% NPI within one year of the Petition Date. The
Eighth Claim for Relief seeks to avoid all postpetition payments made on the
ORRI and 10% NPI to the extent the ORRI and 10% NPI are avoided or
recharacterized. The Ninth Claim for Relief seeks to equitably subordinate any
allowed claim of GasRock.
Gasrock has disputed its liability in the Adversary and filed a motion
to dismiss all of Rancher's claims in the Adversary. The Court has not yet ruled
on Gasrock's motion to dismiss. Rancher and Gasrock have conducted and are
conducting discovery in the Adversary. No trial date has been set in the
Adversary. The Complaint and other pleadings filed in the Adversary are
available through the Court's electronic filing system at case no. 10-01173.
iii. Plan Evalaution Options
Before filing its Plan, Rancher explored three plan and potential field
development options. The first option required investment capital sufficient to
implement the CO2 flood which was the original development plan of Rancher. The
second option required sufficient capital to implement only the water flood of
its Big Muddy field. The third option required a smaller capital infusion to
fund the repair and re-working of current idle or down wells to increase
production from current assets and to fund capital expansion and operations over
a longer term while servicing the GasRock debt.
A fourth option has now emerged with the development of technology
designed to open up the Niobrara shale formations to oil production. Recent
success in North and South Dakota and now reaching down into Wyoming has
directly impacted Rancher's oil properties in a positive manner. Rancher's
current properties appear to hold significant Niobrara shale formations and the
recent success of BLM lease auctions in the Casper area for shale properties has
yielded a value in excess of $2,000.00 dollars per acre in many cases. Rancher
and BWAB have now developed a strategy for developing the Rancher shale
prospects and increasing production and returns from existing wells and have
planned the drilling of new wells to target the shale formation. The agreement
between BWAB and Rancher is discussed in Section VI "Means of Implementation of
the Plan," below.
Rancher has aggressively pursued each option to field development and
after receiving three written letters of interest as well as numerous other
inquiries, and with the assistance of its advisors, has concluded that the Plan
it has filed is the best method of preserving all future development options,
including shale development and future CO2 and water flood operations. The
feasibility of the Plan is analyzed in more detail in Section V, below.
Upon Rancher's emergence from bankruptcy, it expects to pursue its
existing longer term business strategy to employ modern enhanced oil recovery
technology to recover hydrocarbons that remain behind in mature reservoirs.
13
Directional drilling and advanced fluid fracking will be utilized to explore and
maximize the shale formations which have been identified as the most readily
developable. Long term and if feasible CO2 injection may be utilized as it is
one of the most prevalent tertiary recovery mechanisms for producing light oil.
Water injection and water flood, which is already being done on portions of the
Rancher fields, will continue and be increased as appropriate. Finally existing
wells will be repaired and reworked as is prudent to increase production from
existing assets. In addition, Rancher anticipates drilling to establish
production from the Niobrara shale.
iv. Miscellaneous Adminitrative Events
Since the Petition Date, Rancher has accomplished the following:
1. Rancher has requested and obtained a Court approved deadline for
filing prepetition proofs of claim;
2. Rancher has assumed all non-residential real property leases, purely
as a precautionary matter;
3. Rancher has rejected its prior office space lease and an executory
contract with Anadarko.
4. Rancher has improved its per day oil production by approximately 20%,
without the use of any Debtor-In-Possession funding or credit, and
continues to increase production further;
5. Rancher has retained General Capital Partners ("GCP") as its
investment bankers and business consultant to assist it in exploring
of all its Plan options and in the filing of this Plan. GCP has
significant experience in the oil and gas industry and in raising
capital and funding.
6. Rancher has proper insurance in place, is current on payroll, payroll
taxes and withholdings, has filed and is current with all Monthly
Operating Reports and paid all U.S. Trustee fees to date. It has filed
all required SEC filings and reports to date and continues to maintain
its status as public company.
7. Initial claims objections are being prepared and the Anadarko proof of
claim has been formally objected to. Rancher and Anadarko have agreed
that Anadarko's $54,000,000 claim will be reduced to $375,000, pending
approval of the settlement. Settlement negotiations are underway with
several other disputed claims.
8. Rancher filed an adversary proceeding against Gasrock challenging the
NPI and ORRI interests and seeking a re-characterization of some of
the transactions with GasRock. Discovery is scheduled to be completed
in December 2010, and a trial setting will be obtained in December as
well.
14
9. Rancher filed and obtained a Court ruling authorizing its use of cash
collateral over the objections of Gasrock and also obtained an
extension of the exclusive period to file this Plan and obtaining
acceptances.
IV. PLAN OF REORGANIZATION
The following is a simplified description of the Plan. REFERENCE SHOULD
BE MADE TO THE PLAN FOR A FULL ANALYSIS OF ITS CONTENTS.
Purpose of the Plan: The primary purpose of the Plan is to repay
creditors. Rancher believes that its Plan is in the best interests of the
creditors and the Interest holders. See "FEASIBILITY AND LIQUIDATION ANALYSIS,"
Section IX, below.
General Overview: The Plan provides for the priority and secured
creditors to be paid in full. Unsecured creditors will share in a "pot" of
$600,000. Certain insider claimants with convertible notes are given the option
of conversion (all holders in this Class have indicated they will elect to
convert and therefore will not be paid in full). Shareholders will retain their
interests diluted either 5 to 1 or 10 to 1 depending on the resolution of the
GasRock adversary proceeding. In addition, all common stock will be subject to a
reverse split at a 15 for 1 ratio. Warrant holders will receive the deemed value
of their warrants in common stock, adjusted for the 15 for 1 reverse split. All
stock options will be adjusted for the reverse split.
Rancher's long term strategy is to substantially increase production and
reserves in these fields by using water flood and CO2 enhanced recovery
techniques and develop the Niobrara shale formation. Rancher will fund its
operations from current cash flow and will focus upon increasing production from
existing wells and non-producing wells. In addition, BWAB will contribute no
less than $12.0 million to, among other things, satisfy in full, or in
substantial part, any allowed claim of Gasrock. As a result of this de-levering
of the balance sheet, Rancher anticipates funding expanded oil and gas
development activities and other expenses from borrowing or further equity
contributions. In return for its equity contributions, BWAB will receive
preferred stock equal to 65% of the fully diluted equity interests in Rancher.
The preferred stock carries a 12% dividend, and at such time as the preferred
holders have recovered their equity infusion with fill dividend, the preferred
stock will convert to either 70% (if Rancher is substantially successful in the
GasRock adversary) or 80% (if Rancher is not substantially successful in the
GasRock adversary) of Rancher's common stock on a fully diluted basis. This Plan
is thus not dependent upon finding either equity or new lender or Rancher's
success in the Adversary proceeding against Gasrock.
A. TREATMENT OF CLASSES OF CLAIMS AND INTERESTS
Administrative Priority Claims. Claims for administrative expenses
include all costs and expenses of the administration of the Chapter 11 case
allowed under ss. 503(b) of the Bankruptcy Code and entitled to priority under
ss. 507(a)(1) of the Bankruptcy Code. The Plan provides for payment in full of
all allowed administrative expenses on or after the Effective Date in the
ordinary course of business unless paid prior thereto or if the holder of such
administrative expense has agreed to a different treatment, and otherwise as
soon as practicable after the Effective Date. Any administrative expense that is
15
the subject of an objection or potential objection as of the Effective Date, and
therefore has not yet been allowed by the Bankruptcy Court, will be paid in the
amount ultimately allowed promptly after resolution of the objection. Rancher
does not anticipate any Administrative Priority Claims out of the ordinary
course of business other than Professional Fee Claims.
Professional Fee Claims. The following professionals have incurred
fees through __$________________that remain unpaid in approximately the amounts
set forth (net of interim payments made with Court approval), with those amounts
subject to revision by virtue of the work necessary to conclude the
reorganization process and approval by the Court after application, notice and
opportunity for hearing:
Professional Approximate Fees and Costs
------------ --------------------------
Onsager, Staelin & Guyerson, LLC (counsel to Rancher) TBD
Dufford & Brown TBD
Overton & Associates TBD
Gustavson Associates TBD
General Capital Partners TBD
Goolsby, Finley & Associates, LLC TBD
TCF Services, Inc. TBD
Professional Fees will continue to accrue through the Effective Date of
the Plan. The Court will ultimately review and determine the allowance of all
fees paid or to be paid to Rancher's attorneys and the other professionals
described above. All fees of professionals approved by the Court will be paid by
Rancher; no such professional fees have been guaranteed by anyone else.
Fees of the United States Trustee payable under 28 U.S.C. Section 1930
will be paid on confirmation in accordance with ss. 1129(a)(12) of the
Bankruptcy Code. Rancher has paid a quarterly fee of $6,500.00 for each of the
quarters since the Petition Date. Rancher is current on payment of the quarterly
fees to the United States Trustee and anticipates remaining current.
Accordingly, Rancher estimates the total amount due to the United States Trustee
will be at most $6,500 as of the confirmation date of its Plan of
Reorganization. The obligation to pay quarterly fees will continue until the
chapter 11 case is dismissed, converted or closed.
16
Classified Claims in the Plan as are described below:
---------------------- ----------------------------------------- ------------------------------------
CLASS CLAIM VOTING
---------------------- ----------------------------------------- ------------------------------------
Class 1 Pre-Petition Ad Valorem Tax Claims Impaired/Entitled to Vote
-Secured
---------------------- ----------------------------------------- ------------------------------------
Class 2(a) Wyoming State Dept. of Revenue - Impaired/Entitled to Vote
Unsecured
---------------------- ----------------------------------------- ------------------------------------
Class 2(b) IRS Pre-Petition Tax Claims - Impaired/Entitled to Vote
Unsecured
---------------------- ----------------------------------------- ------------------------------------
Class 2 (c) All Other Pre-Petition Tax Claims - Impaired/Entitled to Vote
Unsecured
---------------------- ----------------------------------------- ------------------------------------
Class 3 Secured Claim of GasRock Impaired/Entitled to Vote
---------------------- ----------------------------------------- ------------------------------------
Class 4 Priority Wage Claims Unimpaired/Deemed to Accept
---------------------- ----------------------------------------- ------------------------------------
Class 5(a) General Unsecured Claims Impaired/Entitled to Vote
---------------------- ----------------------------------------- ------------------------------------
Class 5(b) BLM Unsecured Claim Impaired/Entitled to Vote
---------------------- ----------------------------------------- ------------------------------------
Class 6 Convenience Class Unsecured Claims Unimpaired/Deemed to Accept
(less than $1,000)
---------------------- ----------------------------------------- ------------------------------------
Class 7 Royalty and Profit Interests Unimpaired/Deemed to Accept
---------------------- ----------------------------------------- ------------------------------------
Class 8 Interests (common shareholders) Impaired/Entitled to Vote
---------------------- ----------------------------------------- ------------------------------------
Class 9 Interests (holders of options and Impaired/Entitled to Vote
warrants)
---------------------- ----------------------------------------- ------------------------------------
Class 10 Employee/Retention Agreement Stock Unimpaired/ Deemed to Accept
Options
---------------------- ----------------------------------------- ------------------------------------
Class 11 Convertible Promissory Notes Impaired/Entitled to Vote
---------------------- ----------------------------------------- ------------------------------------
V. TREATMENT OF CLAIMS
The following treatment of and consideration to be received by Claimants of
Allowed Claims and Allowed Interests pursuant to this Plan shall be in full
settlement, release and discharge of such Allowed Claims and Allowed Interests.
17
Class 1 (Ad Valorem Claims-Secured Tax Claims). Class 1 consists of the
Allowed Ad Valorem Tax Claims of Converse County, Wyoming. The Class 1 Claims
shall retain their statutory liens with the same validity, priority and effect
as such liens existed immediately prior to the Petition Date. The Class 1 Claims
shall be amortized with interest at the rate specified by applicable Wyoming law
for delinquent ad valorem taxes over the period from the Effective Date to a
date that is five (5) years from the Petition Date and paid in monthly
installments on the fifth of each month commencing on the fifth day of the
calendar month after the Effective Date. The Class 1 Claim may be prepaid in
whole or in part at any time without penalty or other cost.
Class 2(a) (Wyoming Department of Revenue) Class 2(a) consists of the
Allowed Claim of the State of Wyoming Department of Revenue for taxes entitled
to priority under ss.507(a)(8) of the Code. The Class 2(a) Claim shall accrue
from the Petition Date and shall be paid as follows:
A. The amount of the Class 2(a) Claim shall be amortized over the period
from the Effective Date to the date that is five (5) years from the
Petition Date with interest at the rate specified by applicable
Wyoming law for such delinquent taxes and shall be paid in monthly
installments on the fifth of each month commencing on the fifth day of
the first calendar month after the Effective Date.
B. The Class 2 Claims may be prepaid in whole or in part at any time
without penalty or other cost.
Class 2(b) (Internal Revenue Service) Class 2(b) consists of the
Allowed Claims of the Internal Revenue Service for taxes entitled to priority
under ss.507(a)(8) of the Code. The Class 2(b) Claims shall be paid as follows:
A. The Class 2(b) Claims shall be amortized with interest at the rate
specified in ss.6621(a)(2) of the Internal Revenue Code in effect on
the Effective Date over the period from the Effective Date to the date
that is five (5) years from the Petition Date and shall be paid in
monthly installments on the fifth of each month commencing on the
fifth day of the first calendar month after the Effective Date.
B. The Class 2(b) Claims may be prepaid in whole or in part at any time
without penalty or other cost.
Class 3 (GasRock) Class 3 consists of the Allowed Secured Claim of
GasRock pursuant to the October 16, 2007 Term Note originally payable to GasRock
in the original principal amount of $12,240,000.00, as amended. The Class 3
Claimant shall retain its liens encumbering Debtor's Property with the same
extent, validity, priority and effect as such liens existed immediately prior to
the Petition Date. The Allowed Class 3 Claim shall accrue interest at the rate
of 7.0% per annum, or such other rate as determined by the Court, from and after
the Effective Date of the Plan.
A. The Class 3 Claim shall be paid $11.8 million in Cash on or before the
Effective Date. Any amount of the Class 3 Claim in Dispute will be
treated in accordance with Section 9.6 of this Plan.
18
B. Any balance of the Allowed Class 3 Claim remaining after the payment
under subparagraph A above shall be paid in monthly installments
calculated by amortizing the remaining balance over a 25 year period
with interest at 7% per annum or such other rate as is determined by
the Court, with the balance of principal and interest and payable in
full five (5) years from the Effective Date.
C. The Class 3 Claim may be prepaid in whole or in part at any time
without penalty or other cost.
Class 4 (Priority Wage Claims). Class 4 shall consist of all Allowed
Claims entitled to priority under ss. 507(a)(2) of the Code. All Class 4 Claims
shall be paid in full on the Effective Date. Any Allowed Claim held by a Class 4
Claimant in excess of the amount entitled to priority under ss. 507(a)(2) of the
Code shall be treated as Class 5(a) Claim.
Class 5(a) (General Unsecured Claims). Class 5(a) shall consist of
Allowed General Unsecured Claims not otherwise specifically classified under
this Plan. The Class 5(a) Claims shall be paid as follows:
A. On the fifth day of the calendar month that is at least sixty days
after the Effective Date, each Class 5(a) Claimant will receive a
payment equal to its Pro Rata share of $600,000.
B. The Class 5(a) Claims shall not accrue interest.
Class 5(b) (BLM Allowed Unsecured Claim) Class 5(b) shall consist of
the Allowed General Unsecured Claim of the BLM for plugging and reclamation
liability. The Class 5(b) Claim shall be satisfied by Rancher's remediation and
other well workovers as required by the BLM pursuant to the schedule attached to
the Plan as Exhibit B and otherwise as required by the BLM and applicable law
and regulation in the ordinary course. Debtor's Performance Bond posted by
Rancher for the benefit of the BLM in the current amount of $25,000.00 shall
remain in place, and BLM shall retain all of its rights thereto in the event of
a default by Rancher in its plugging and reclamation obligations.
Class 6 (General Unsecured Claims less than $1000 - Convenience Class).
Class 6 shall consist of Allowed General Unsecured Claims of less than $1000.00.
Class 6 Claims shall be paid in cash in full on or before the first day of the
calendar month that is at least thirty days after the Effective Date.
Class 7 (Royalty & Leasehold Interest) Class 7 shall consist of all holders
or royalty, overriding royalty, profit, net profit, working interests, or other
similar oil and gas interests. Class 7 Allowed Claimants shall retain their
interests and continue to be paid under their current agreements and thus remain
unimpaired.
Class 8 (Shareholder Interests) Class 8 shall consist of all common stock
Interests in the Debtor as of the date that is twenty days after the Effective
Date, and the holders of any Allowed Claims subject to subordination under ss.
19
510(b) of the Code. All Allowed Class 8 holders shall receive 1 new share in
Rancher for every 15 shares currently held, thus effectuating a 15 for 1 reverse
stock split (the "Reverse Split Ratio").
Class 9 (Warrants ) Class 9 shall consist of all holders of warrants as
shown on the Stock and Transfer records of Rancher as of the Record Date, which
will be set by the Court as a date at least 10 days before the mailing of the
Plan and ballots. All such warrants shall be cancelled and each Class 9 Claimant
shall receive shares of the Debtor's common stock based on a deemed value for
the warrants of one tenth of one cent per share. The warrant holders will thus
receive common stock according to the following formula: one share of
pre-reverse split common stock for every 25 shares of pre-reverse split common
stock to which such Claimant would be otherwise entitled upon exercise of the
warrants, divided by the Reverse Split Ratio. For purposes of illustration, the
holder of warrants that would have entitled a Class 9 Claimant, upon exercise
thereof, to 1500 shares will receive four shares of post-reverse split common
stock (1500 divided by 25 divided by 15). No payment will be required from the
warrant holders.
Class 10 (Employee Stock Options) Class 10 shall consist of Allowed Claims
for stock options vested as of the Record Date as the result of management
retention agreements or employee stock option agreements. Such options shall
remain unimpaired.
Class 11 (Convertible Note Holders) Class 11 shall consist of Allowed
Claims pursuant to Convertible Promissory Notes dated October 27, 2009. Each
holder of such Notes shall retain the right to convert the Convertible
Promissory Note to shares of common stock pursuant to the terms thereof,
provided that conversion shall be at the conversion price provided in the
Convertible Promissory Note adjusted for the reverse split described for the
treatment of Class 8 Interest Holders.
VI. MEANS OF IMPLEMENTATION OF PLAN
Post Confirmation Investment. BWAB will provide Rancher no less than
$12.0 million in equity funding pursuant to the BWAB Agreement. In return, BWAB
will be issued newly designated Class A convertible preferred shares at a par
value of $0.0001 ("Rancher Preferred Stock"). The Rancher Preferred Stock shall
have a liquidation value of $1.00 per share and mandatory cumulative dividends
at the per annum rate of 12% compounded annually, payable in cash or common
stock at the option of BWAB. At such time as the holders of the Rancher
Preferred Stock have received $12.8 million plus the cumulative mandatory
dividends thereon, the Rancher Preferred Stock shall convert to (a) 70% of the
fully diluted outstanding shares of Rancher's common stock in the event the
Debtor has recovered the 10% Net Profits Interest and 1% of the overriding
royalty interests held that are the subject of the GasRock Adversary, (b) 80% of
the fully diluted outstanding shares of Rancher's common stock in the event the
Debtor has not recovered the 10% Net Profits Interest and 1% of the overriding
royalty interests that are the subject of the GasRock Adversary, or (c) as
otherwise provided in the BWAB Agreement if some but not all of the 10% Net
Profits Interest and 1% Overriding Royalty Interest is recovered. In addition,
10% of the common stock shall be reserved for incentives to management personnel
for services rendered after closing on the BWAB Agreement. The holders of the
Rancher Preferred Stock shall have the right to elect five (5) of the eight (8)
members of the Debtor's Board of Directors and the holders of the Debtor's
common stock shall have the right to elect three (3) of the eight (8) members of
20
the Debtor's Board of Directors so long as the Rancher Preferred Stock is
outstanding.
Rancher and BWAB have entered into a definitive agreement between them
(the "BWAB Agreement"). Closing on the BWAB Agreement will occur on or before
the Effective Date of the Plan. A copy of the executed letter of intent from
BWAB to Rancher outlining the agreement in principle is attached hereto as
Exhibit 2.
BWAB focuses on finding, evaluating, negotiating, and acquiring
producing oil and gas investor properties throughout the United States and
specializes in turnarounds, re-capitalizations, and in re-positioning of
troubled oil and gas assets and companies. BWAB currently owns production in
twenty six states and has a management and technical team on staff. BWAB has
more than twenty five years of oil and gas industry experience. Since 1985 our
entities have acted as direct intermediary and/or principal in aggregate oil and
gas reserve activity in excess of $1 billion, with deals ranging in value from
$2.9 million to $330 million.
BWAB has the capacity to and will fund its obligations under the BWAB
Agreement from its own resources. However, BWAB may seek other funding sources.
Rancher anticipates that once GasRock is substantially paid, Rancher will be
able to attract additional equity investment or to borrow to fund its operations
and development plans.
Rancher will remain a public company and its common stock will thus
continue to be traded. No new registration thereof will be required upon
confirmation. The preferred stock will not be registered and will therefore not
be tradable on established markets, although the common stock received upon
conversion will be tradable. The revision of Rancher's capital structure under
the Plan is essential to maintaining shareholder value.
Rancher's Articles of Incorporation and Bylaws will be amended
consistent with the BWAB Agreement and the foregoing.
VII. EXECUTORY CONTRACTS AND LEASES.
Rancher will assume all executory contracts and leases, unless the contract
or lease has previously been rejected, is the subject of a motion to reject
pending as of confirmation, or is specifically treated under the Plan, e.g.
Rancher's office lease. Within ten days of the Confirmation Order, Rancher will
send notice of rejection to the counter-party to any rejected lease or contract,
and the counter party will have thirty days thereafter to file a proof of claim
for any rejection damages, failing which any such claim will be barred.
VIII. BANKRUPTCY CODE REQUIREMENTS
The Bankruptcy Code imposes requirements for acceptance of the Plan by
creditors, minimum value of distributions, and feasibility. To confirm the Plan,
the Court must find that all of these conditions and other conditions set forth
in ss. 1129(a) of the Bankruptcy Code have been met, unless the "cram down"
provisions of the Bankruptcy Code are applicable. Even if each Class of Claims
accepts the Plan by the requisite majorities, the Court must undertake an
independent evaluation of Plan feasibility and other statutory requirements
before confirming the Plan. The conditions for minimum value and feasibility are
discussed below.
21
The Bankruptcy Code also requires disclosure of Rancher's proposed
post-confirmation management. After confirmation of the Plan, the following
persons will serve as Rancher's officers:
Officer Interest Compensation
------- -------- ------------
Thomas S. Metzger(2) $________ per year
After confirmation of the Plan, the following persons will serve as
Rancher's Board until the next scheduled election pursuant to its Bylaws:
Director Interest Compensation
-------- -------- ------------
$________ per year
$________ per year
$________ per year
$________ per year
$________ per year
$________ per year
$________ per year
$________ per year
IX. FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain expected federal income tax
consequences of the implementation of the Plan. No opinion of counsel has been
obtained and no ruling has been requested or obtained from the Internal Revenue
Service with respect to any of the tax aspects of the Plan, and the discussion
set forth herein is not binding upon the Internal Revenue Service. CREDITORS AND
HOLDERS INTERESTS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
CONSEQUENCES TO THEM UNDER FEDERAL AND APPLICABLE STATE AND LOCAL TAX LAWS, OF
THE CONFIRMATION AND CONSUMMATION OF THE PLAN.
Tax Consequences to Creditors. Creditors may be required to
recognize income or may be entitled to a deduction as the result of the
implementation of the Plan. The exact tax treatment will depend on each
creditor's method of accounting and the nature of each Claim in the hands of the
creditor.
Generally, a creditor will recognize gain or loss equal to the
difference between the amount of cash received and the creditor's tax basis in
the Claim or the Interest held. Such gain or loss may be a capital gain or loss
depending upon the creditor's particular tax situation and the nature of the
-------------------
2 Mr. Metzer is a principal founder of Sovereign Energy LLC. A summary of Mr.
Metzger's experience is contained on Exhibit ____, attached hereto.
22
creditor's Claim. Gain recognized by a creditor with respect to a Claim for
which a bad debt deduction has been claimed generally will be treated as
ordinary income to the extent of any such prior deduction. Gain or loss on a
form of security, e.g. warrants, will generally be a capital gain or loss
depending on the holder's basis. The gain or loss will be short term or long
term depending on the holder's holding period.
Notwithstanding anything to the contrary above or in this Disclosure
Statement, Rancher cannot opine regarding the tax consequence to any particular
creditor or interest holder, and each creditor and interest holder should not
rely on this summary in determining how to vote on the Plan.
Tax Consequences to Rancher. Rancher does not believe it will incur
"discharge of indebtedness" income. However, its net operating loss
carry-forwards may be reduced as a result. Further, because the reorganization
of its capital structure results in a "change of control," the ability to carry
forward its operating losses for tax purposes may be restricted.
X. INSIDER TRANSACTIONS AND AVOIDANCE ACTIONS
a. Gasrock Adversary. Rancher has alleged that Gasrock was a non-statutory3
insider with respect to the transactions at issue in the Gasrock Adversary.
Gasrock disputes that it is an insider of Rancher. Section III(C)(ii), above,
provides a description of the transactions and claims at issue in the Gasrock
Adversary.
b. Purchase of Big Muddy from Wyoming Minerals Exploration, LLC
On January 4, 2007, Rancher acquired the Big Muddy and South Glenrock A
Fields for $25,000,000 from Wyoming Minerals Exploration, LLC. In 2008 and 2009,
Rancher recorded an impairment in the value of the possible reserves of its oil
and gas fields, some of which was attributed to the Big Muddy and South Glenrock
A fields. Jon Nicolaysen, Rancher's current CEO, owned 23% of Wyoming Minerals
Exploration at the time of the sale. Mr. Nicolaysen did not own any shares of
Rancher at the time of sale. Mr. Nicolaysen did not become an officer of Rancher
until October, 2009 when he became the CEO.
After Rancher filed its Complaint in the Adversary, Gasrock demanded
that Rancher investigate whether Rancher's purchase of the Big Muddy and South
Glenrock A fields were improper and, specifically, whether the purchases could
be attacked as fraudulent transfers. Rancher's Board, with the assistance of
counsel and internal staff, conducted an investigation of the transaction. The
Board's conclusion was that Rancher paid fair value for the assets it acquired
and had adequate cash and property resources to operate on a going forward basis
at that time. In addition, Rancher does not believe it was insolvent at the time
of the purchase because Rancher financed the acquisition through equity capital
and Rancher had no significant debt at the time of the purchase, the acquisition
being a cash transaction. Gasrock has filed a Motion and obtained from the court
authority to conduct a Rule 2004 examination of the Debtor on this matter, but
has not to date scheduled any such examination..
----------------
3 The Bankruptcy Code, Section 101(31), provides a non-inclusive list of certain
persons that are insiders.
23
c. Preference Analysis
Rancher's normal billing and payment cycle resulted in payment to
virtually all vendors, suppliers, employees, and others on a current or 30 day
basis, and thus there are no preference claims of any significance against this
traditional target group of creditors.
There do not appear to be any colorable preference claims against any
of the current management of Rancher, including its Board members. Some Board
members lent money to the Debtor shortly before the Petition was filed, but none
of these loans have been repaid. Under the Plan, have the option of converting
the debt to equity and Rancher has been informed all the director-lenders will
do so. However, the Debtor has not relinquished any of its rights to pursue any
claims against any recipient of avoidable transfers, including current and
former management, employees and directors.
XI. LIQUIDATION ANALYSIS
To confirm the Plan, the Court must determine (with certain
exceptions) that the Plan provides to each member of each impaired class of
Allowed Claims a recovery at least equal to the distribution that such member
would receive if Rancher were liquidated under chapter 7 of the Bankruptcy Code.
As described below, Rancher has concluded that under the Plan each holder of a
Claim will receive or retain property of a value that is equal to or greater
than the amount that such holder would receive or retain if the estate of
Rancher were liquidated under chapter 7.
An analysis showing the outcome of a hypothetical chapter 7 liquidation
is attached as Exhibit 3 hereto. While the going concern value of Rancher's
assets exceeds the liens against the assets, it is unlikely a liquidation would
result in realization of the same value for several reasons.
First, Gasrock asserts Rancher's oil and gas properties have a market
value of $12,500,000. Gasrock would likely seek relief from stay to foreclose on
Rancher's oil and gas properties. If the Court granted relief from stay to
Gasrock, it is unlikely that Gasrock would sell the oil and gas assets for an
amount that would generate proceeds for unsecured creditors. As of September 30,
2010, Gasrock asserts a secured claim in the amount of $12,561,998. Gasrock
asserts that interest accrues at 1.5% per month, compounded monthly. For
September, 2010, Gasrock asserts that $183,545 in interest accrued on its debt.
The amount that Gasrock claims includes attorneys' fees, the current amount of
which Gasrock asserts is $433,331.
If Rancher's assets sold for more than the amount of Gasrock's
prepetition claim, Gasrock would be entitled to postpetition interest and
attorneys' fees. In a chapter 7, it is unlikely the sale price in a liquidation
sale by the trustee would exceed the claim to which GasRock would be entitled.
In addition, Rancher owes approximately $617,800 in ad valorem real estate
taxes, which are a prior lien against Rancher's properties. Gasrock would also
incur additional attorneys' fees and expenses. Gasrock itself has expressed the
intent to auction the assets should it gain control of them, a process Rancher
believes is unlikely to result in any recovery for unsecured creditors.
24
If a chapter 7 trustee would also incur additional expenses for sales
costs, trustee's fees and the administrative expense of the Chapter 7 itself,
all of which have priority in payment. In addition, though a chapter 7 trustee
could seek court approval to operate Rancher's oil and gas properties, it is
unlikely a trustee would do so because of a lack of cash and the complexity,
cost and risk associated with such operations, especially if the trustee lacks
experience in operating oil and gas properties. If Rancher's properties were
shut down, their values would drop substantially, and a potential buyer would be
faced with additional costs to restart the operations, the success of which is
not certain. Wyoming State environmental laws would also potentially be
implicated as a non-operating field poses environmental risks. Among other
things, this would put the cash performance bond posted by Rancher in Wyoming at
risk.
Rancher also believes that a chapter 7 trustee is unlikely to continue
to prosecute the Gasrock Adversary because of the cost associated with it and
the risk that the reduction in value of Rancher's oil and gas properties if the
properties are not operated would decrease the value of a successful outcome in
the Gasrock Adversary. The reduction in value for not operating the properties
would result in the portion of any payment for Rancher's property that might be
above Gasrock's claim to be reduced significantly in value as well. Further, the
value of recovering the net profit interest and overriding royalty interest has
more value to Rancher as and operating entity because the rate of return on
investment is significantly increased. The value of these interests to a
liquidating trustee is more difficult to determine. Thus, the cost/benefit of
continuing the litigation would be in serious question in a chapter 7
proceeding.
In a chapter 7, the value of Rancher's equipment and machinery will be
reduced materially, as it is primarily in the field and would be difficult to
sell. Typically, the value of accounts receivable is also impaired. However, in
all events, GasRock would be entitled to the proceeds of this collateral.
As shown on Exhibit 3, GasRock's claim with accrued interest would in
all likelihood be large enough to consume all assets of the estate (other than
what might be recovered if the trustee pursued the GasRock adversary). To the
extent GasRock's deficiency resulted from accrued interest, it would be
disallowed. However, GasRock conceivably would be entitled to post-petition
attorney's fees as an unsecured claim.
Moreover in a chapter 7 liquidation, the administrative costs of the
Chapter 11 case and those of the chapter 7 trustee must be paid first before
unsecured creditors are paid. There would be no $400,000 commitment from BWAB,
as there is under the Plan, to cover administrative claims in a chapter 7
liquidation.
The only asset that might be available to unsecured creditors is the
value of the interests that the trustee recovered from GasRock (assuming the
trustee could find counsel to pursue the case with little in the way of assets
to pay attorney's fees). However, as noted, the value of those interests in a
chapter 7 case may be problematic. As shown on Exhibit 3, the trustee's recovery
against GasRock would have to exceed $550,000 before the first dollar is
available for distribution to unsecured creditors. However, because the
unsecured claims would increase in a chapter 7 case (perhaps by more than
$650,000), the trustee would have to recover well over $1,050,000 before
creditors would receive a return equivalent to the return guaranteed under the
Plan.
25
XII. PLAN FEASIBILITY AND RISK FACTORS
Rancher may not be successful in the Gasrock Adversary Proceeding, and
GasRock may therefore be entitled to retain the overriding royalty interests and
the net profits interest. These interests have a significant negative impact on
Rancher's cash flow. However, Rancher's Plan is not contingent on the outcome of
the Gasrock Adversary, although the amount realized by Rancher stockholders
would be affected.
The directional drilling and fluid fracking and injection technology
Rancher and BWAB intend to apply to certain of its fields is estimated to cost
between $1.0 and $2.0 million per well. To carry out its strategy, Rancher
intends to borrow additional funds and/or obtain equity infusions. Even without
additional investment, Rancher's current rate of oil production produces
sufficient revenue to maintain operations and service Rancher's debt after
closing the BWAB Agreement and the resulting payment to GasRock, although future
field development would be slowed and cash flow impacted during the short term.
Rancher's financial performance may not occur as projected. Rancher has
never been profitable. Rancher incurred net losses of $20,261,262 and
$46,341,341 for the fiscal years ended March 31, 2010 and 2009, respectively.
Rancher does not expect to be profitable during the fiscal year ending March 31,
2011.
In prior years, Rancher had executed two CO2 supply agreements, one
with Anadarko Petroleum Corporation ("Anadarko") and one with ExxonMobil
Corporation (ExxonMobil). In April, 2009, ExxonMobil notified Rancher that it
was terminating the supply agreement based upon Rancher's failure to provide
performance assurances in the form of a letter of credit.
As with all oil and gas production, Rancher's business is inherently
risky. Rancher's short term plans are to increase crude oil production by
carrying out repair and remediation efforts on existing well bores, and, if it
is determined to be feasible, by exploiting additional formations within
Rancher's existing leasehold. While Rancher has had some success in the past six
months in repairing and restoring old wells to production, there is no certainty
Rancher will continue to have such success. Furthermore, there is no certainty
that Rancher will be successful in the exploitation of additional formations or
reservoirs within Rancher's existing leaseholds. If Rancher is not successful
these efforts, it could have a material adverse effect on Rancher's financial
condition and the results of operations and cash flows.
Rancher's success depends on the accuracy of technical information
about its oil fields, including the amount of oil existing in those fields.
Rancher operates four fields in the Powder River Basin, Wyoming. Oil in these
fields was discovered over fifty years ago and production has been ongoing.
Estimating quantities of proved oil and gas reserves is a complex process. It
requires interpretation of available technical data and various assumptions,
including assumptions relating to economic factors such as future commodity
prices, production costs, severance and excise taxes, capital expenditures, work
over and remedial costs, and the assumed effect of governmental regulation.
There are numerous uncertainties about when a property may have proved reserves
26
as compared to potential or probable reserves, particularly relating to
Rancher's tertiary recovery operations. Actual results most likely will vary
from Rancher's estimates.
Also, the use of a 10% discount factor for reporting purposes, as
prescribed by the SEC, may not necessarily represent the most appropriate
discount factor, given actual interest rates and risks to which Rancher's
business or the oil and gas industry in general is subject. Any significant
inaccuracies in these interpretations or assumptions or changes of conditions
could result in a reduction of the quantities and net present value of Rancher's
reserves. Quantities of proved reserves are estimated based on economic
conditions, including average oil and gas prices in existence on the first day
of the twelve months prior to the date of assessment. Rancher's reserves and
future cash flows may be subject to revisions based upon changes in economic
conditions, including oil and gas prices, as well as due to production results,
results of future development, operating and development costs, and other
condition, operating results and cash flows.
Rancher's strategy is to substantially increase production and reserves
in these fields by maximizing the Niobrara shale formations on its properties
and using directional drilling, fracking, water flood and CO2 EOR techniques as
feasible or necessary to maximize values. However, there is a risk that the
properties may be significantly depleted of oil over time, and if so, Rancher's
future results could be impacted negatively. Rancher's fields are estimated to
have a remaining useful economic life of 50 years, but these are only estimates.
Rancher's revenues, profitability, and liquidity are substantially
dependent upon prices for oil, which can be extremely volatile; and, even
relatively modest drops in prices can significantly affect Rancher's financial
results and impede Rancher's growth. Prices for oil may fluctuate widely in
response to relatively minor changes in the supply of and demand for oil, market
uncertainty, and a wide variety of additional factors that are beyond Rancher's
control, such as the domestic and foreign supply of oil, the price of foreign
imports, the ability of members of the Organization of Petroleum Exporting
Countries to agree to and maintain oil price and production controls,
technological advances affecting energy consumption, domestic and foreign
governmental regulations, and the variations between product prices at sales
points and applicable index prices.
Oil production is subject to local, state and federal regulations and
taxes. Failing to comply with these regulations can be costly. These regulations
and taxes are also subjection to change. More restrictive regulations or an
increase in taxes may increase Rancher's cost of compliance.
Rancher's activities are focused on the Powder River Basin in the Rocky
Mountain Region of the United States, which means its properties are
geographically concentrated in that area. As a result, Rancher may in the future
be disproportionately exposed to the impact of delays or interruptions of
production from these wells caused by significant governmental regulation,
transportation capacity constraints, curtailment of production, or interruption
of transportation of oil produced from the wells in this basin. Seasonal weather
conditions adversely affect Rancher's ability to conduct drilling activities and
27
tertiary recovery operations in some of the areas where Rancher operate. Oil and
gas operations in the Rocky Mountains are adversely affected by seasonal weather
conditions. In certain areas, drilling and other oil and gas activities can only
be conducted during the spring and summer months. This limits Rancher's ability
to operate in those areas and can intensify competition during those months for
drilling rigs, oil field equipment, services, supplies, and qualified personnel,
which may lead to periodic shortages. Resulting shortages or high costs could
delay Rancher's operations and materially increase Rancher's operating and
capital costs.
Competition in the oil and gas industry is intense, which may adversely
affect Rancher's ability to succeed. The oil and gas industry is intensely
competitive and Rancher competes with companies that are significantly larger
and have greater resources. Rancher's larger competitors may be able to absorb
the burden of present and future Federal, state, local, and other laws and
regulations more easily than Rancher can, which would adversely affect its
competitive position. Rancher's ability to acquire additional properties and to
increase reserves in the future will be dependent upon its ability to evaluate
and select suitable properties and to consummate transactions in a highly
competitive environment.
XIII. SOLICITATION OF ACCEPTANCE OF PLAN
Rancher hereby solicits acceptance of its Plan and urges creditors to vote to
accept the Plan.
Dated: October 15, 2010
Debtor and Debtor in Possession
Rancher Energy Corp.,
By: /s/ Jon Nicolaysen
----------------------------------
CEO & President
ONSAGER, STAELIN & GUYERSON, LLC
s/ Christian C. Onsager
-----------------------
Christian C. Onsager, #6889
Michael J. Guyerson, #11279
1873 S. Bellaire St., Suite 1401
Denver, Colorado 80222
Ph: (303) 512-1123
consager@osglaw.com
Counsel for Rancher Energy Corp.
28
EXHIBIT 1
Plan of Reorganization
[to be appended upon approval of the Disclosure Statement]
29
EXHIBIT 2
BWAB Letter of Intent
30
BWAB Oil & Gas Investments, LLC
--------------------------------------------------------------------------------
October 5th, 2010
Personal and Confidential
Rancher Energy Corp.
900 18th Street, Suite 3400
Denver, CO 80202
BWAB OIL & GAS INVESTMENTS, LLC/SOVEREIGN ENERGY LLC
SUMMARY OF PROPOSED TERMS FOR PREFERRED STOCK INVESTMENT
IN RANCHER ENERGY CORPORATION
Proposed Investment: A newly formed special purpose entity ("Investor") to be
formed by BWAB Oil & Gas Investments, LLC/Sovereign Energy LLC ("BWAB/SOV")
proposes to invest $12 million (the "Investment") in Rancher Energy Corporation
("Rancher") in exchange for 12 million shares newly designated Class A
Convertible Preferred Stock, $0.0001 par value, of Rancher (the "Preferred
Stock").
1.0 Use of Proceeds. In the event that the Rancher IS successful in eliminating
the disputed 10% net profits interest; and 1% of the total 3% ORRI.
(a) $11.8 million of the Investment proceeds will be used to repay in full
Rancher's indebtedness to GasRock Capital Partners, LLC.
(b) In the event the amount of the allowed secured claim exceeds the sum of
$11.8 million then BWAB shall have the option of either (1) paying the
remaining Allowed Secured Claim amount in full in cash or (2) electing
to pay the remaining balance amortized based upon a 25 year period at
7% APR or such other rate as allowed by the Court, and payable in full
at the end of five (5) years or (3) terminating this contract.
(c) the balance of the Investment proceeds, together with the proceeds from
a new credit facility that BWAB/SOV intends to secure for Rancher prior
to the closing (the "Closing") of the transaction contemplated herein
(the "Transaction") shall be used for the following purposes:
(i) payment of all the claims of the unsecured creditors of Rancher,
which total approximately $600,000;
(ii) payment of the bankruptcy administrative expenses of Rancher,
which total approximately $400,000;
(iii)provide for well development and working capital for Rancher, in
such amount as Rancher determines to be appropriate; and
(iv) pay fees and expenses relating to the Transaction.
BWAB Oil & Gas Investments, LLC
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1.1 Terms of Preferred Stock. The Preferred Stock will provide for a
liquidation preference of $1.00 per share and cumulative dividends
at the per annum rate of 12%, compounded annually, payable in
cash. At such time as the consideration for the Preferred Stock,
and the earned dividends have been paid in full to the investor,
then the Preferred Stock shall be convertible into 50% of the
fully diluted outstanding shares of Rancher's Common Stock. The
Preferred Stock shall have voting rights on an "as converted"
basis.
1.2 Post-closing Capitalization. Immediately following the Closing,
Rancher's fully diluted Common Stock shall be held as follows:
Converted Preferred Stock 70%
Management 10%
Current Rancher Equity 20%
---
Total 100%
2.0 Use of Proceeds. In the event that the Rancher is NOT successful
in eliminating the disputed 10% net profits interest; and 1% of
the total 3% ORRI.
(a) $11.8 million of the Investment proceeds will be used to
repay in full Rancher's indebtedness to GasRock Capital
Partners, LLC.
(b) In the even the amount of the allowed secured claim exceeds
the sum of $11.8 million then BWAB shall have the option of
either (1) paying the remaining Allowed Secured Claim amount
in full in cash or (2) electing to repay the remaining a
balance amortized based upon a 25 year period at 7% APR or
such other rate as allowed by the Court, and payable in full
at the end of five (5) years or (3) terminating this
contract.
(c) The balance of the Investment proceeds, together with the
proceeds from a new credit facility that BWAB/SOV intends to
secure for Rancher prior to the closing (the "Closing") of
the transactions contemplated herein (the "Transaction")
shall be used for the following purposes:
(i) payment of all the claims of the unsecured creditors of
Rancher, which total approximately $600,000;
(ii) payment of the bankruptcy administrative expenses of
Rancher, which total approximately $400,000;
(iii)provide for well development and working capital for
Rancher, in such amount as Rancher determines to be
appropriate; and
(iv) pay fees and expenses relating to the Transaction.
2.1 Terms of Preferred Stock. The Preferred Stock will provide for a
liquidation preference of $1.00 per share and cumulative dividends
at the per annum rate of 12%, compounded annually, payable tin
cash. At such time as the consideration for the Preferred Stock,
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BWAB Oil & Gas Investments, LLC
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and the earned dividends have been paid in full to the investor,
then the Preferred Stock shall be convertible into 80% of the
fully diluted outstanding shares of Rancher's Common Stock. The
Preferred Stock shall have voting rights on an "as converted"
basis.
2.2 Post-Closing Capitalization. Immediately following the Closing,
Rancher's fully diluted Common Stock shall be held as follows:
Converted Preferred Stock 80%
Management 10%
Current Rancher Equity 10%
---
Total 100%
3. Management Option Pool. The Investor anticipates creating a management
option or stock grant plan to provide for post-closing management
equity incentives representing up to 10% of the fully diluted shares of
Common Stock of the Company. The grants and terms of such equity
incentives shall be determined by Rancher's Board of Directors (the
"Board") after the Closing.
4. Governance. From and after the Closing, there will be an eight member
Board. The holders of the Preferred Stock shall have the right to
appoint Five of such Board members, and the current stake holders that
hold Common Stock at the time of the Closing shall have the right to
appoint the remaining three members of the Board. All Board
determinations shall be by simple majority.
5. Right of First Offer to BWAB/SOV Deal Flow. After the Closing, Rancher
shall have a right of first offer on all deal flow of BWAB/SOV and its
affiliates.
6. Definitive Agreement. BWAB/SOV's legal counsel, in joint collaboration
with Rancher's legal counsel, shall prepare the definitive agreements
necessary to complete the Transaction, including the certificate of
designation for the Preferred Stock.
7. Conditions. In addition to the conditions set forth herein and other
customary conditions that may be included in the definitive agreements,
the Closing shall be subject to the following conditions:
a) the Confirmation of the Plan of Reorganization on terms that are
acceptable to Investor;
b) the execution and delivery of mutually acceptable definitive
agreements and documents relating to the Transaction;
c) receipt of all requisite regulatory, administrative, and
governmental authorizations and consents;
d) absence of material adverse change in the condition (financial or
otherwise), business, operations, properties, assets, or
prospects of Rancher;
e) absence of pending or threatened litigation, investigations, or
other matters affecting the Transaction; and
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BWAB Oil & Gas Investments, LLC
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f) BWAB/SOV's completion of its due diligence investigation of
Rancher (including field inspections, environmental reviews,
title review, insurance, and boding requirements) and its
satisfaction (in its sole discretion) with the results thereof.
8. Closing. It is anticipated that the closing will occur as soon as
practicable, but in any event, no more than thirty days after the date
of the Confirmation of the Plan of Reorganization, which shall reflect
the terms of the Transaction and the full release of all liens, claims,
deeds of trusts, mortgages, and security agreements that encumber the
assets of Rancher.
9. Exclusivity. For a period of 25 business days from the date hereof (the
"Exclusivity Period"), Rancher shall not, directly or indirectly, enter
into negotiations, or hold any discussions, or enter into any
agreement, with any person or entity regarding a possible merger, sale
or other disposition of all or any part of its assets or stock.
Notwithstanding the foregoing, this Paragraph 9 shall terminate at the
election of Rancher if BWAB/SOV notifies Rancher that it no longer
desires to proceed with the Transaction.
10. Access. Rancher shall provide BWAB/SOV and its authorized representa-
tives full access to all personnel, properties, documents, contracts,
books, records, and operations relating to its business.
11. Expense Reimbursement. Each party shall pay its own expenses incurred
in the transaction contemplated herein, unless otherwise ordered by the
bankruptcy court.
12. Non-Binding Term Sheet. Except for the provisions of Paragraphs 9, and
10, and 11, which are intended to be legally binding obligations of
Rancher, this term sheet is non- binding indication of the principle
terms for a proposed transaction among the parties and is not
intended, and shall not be construed, as a legally binding obligation
of either party. The Closing and consummation of the Transaction are
subject to the negotiation and execution of mutually acceptable
definitive agreements, which neither party is obligated to execute.
13. Reverse Split of Stock. It is anticipated that Rancher will implement a
reverse split (i.e. 50/1) of all of the presently issued and outstand-
ing shares of common stock, warrants and stock options of the corpora-
tion to accommodate the terms of the transaction contemplated herein.
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BWAB Oil & Gas Investments, LLC
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14. Offering to Existing Shareholders. Rancher shall be permitted to offer
new shares of its preferred stock to its existing shareholders upon the
same terms and conditions as said preferred shares are purchased by
Investor, including convertibility privileges provided that BWAB/SOV
retains board control and governance and amount does not exceed 10% of
preferred shares.
15. Publicly Held Corporation. Rancher shall continue to be maintained as a
publicly held and traded company under the Security Act of 1933 and
the Security Exchange act of 1934 for a minimum period of 2 years
immediately subsequent to the entry of an order by the bankruptcy
court confirming the Plan of Reorganization.
BWAB OIL & GAS INVESTMENTS LLC & SOVEREIGN ENERGY LLC.
Colorado limited liability companies
By: /s/ Steven A. Roitman
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Steven A. Roitman
AGREED TO AND ACCEPTED this 7th day of October 2010.
RANCHER ENERGY CORP.
By: /s/ Jon C. Nicolaysen
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Jon C. Nicolaysen, President
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EXHIBIT 3
Liquidation Analysis
EXHIBIT 3
LIQUIDATION ANALYSIS
Asset Value (Liens) Net Value
------- -------------- ----------
Oil and Gas Properties* $12,500,000
Reduction in Value for Non-Operating Status** ($2,000,000)
Real Estate Taxes ($617,800)
Gasrock's claim*** ($13,870,998)
Net Value (deficiency) ($3,988,798)
Machinery, Equipment and Vehicles $200,000
Gasrock ($3,988,798)
Net Value (deficiency) ($3,788,798)
Accounts receivable $400,000
Gasrock ($3,788,798)
Net Value (deficiency) ($3,388,798)
Cash $526,670
Gasrock ($3,388,798)
Net Value (deficiency) ($2,862,128)
Assuming GasRock's deficiency were disallowed as interest not permitted under
Section 506 of the Code, its claim would be limited to attorneys fees.
GasRock's unsecured claim is therefore potentially: ($500,00)
Trustees fees and expenses ($250,000)
Chapter 11 Administrative Expenses ($300,000)
----------
Total Priority Claims ($550,000)
* Gasrock asserts the value of the properties is $12,500,000.
** Gasrock's valuation was for operating properties. Rancher believes of a
reduction in value of approximately $2,000,000 is appropriate to reflect the
impact on value if Rancher's operations ceased.
***Gasrock has asserted a right to postpetition interest at the rate of 1.5% per
month, compounded monthly. Gasrock has asserted a sale process to achieve
$12,500,000 would take a minimum of seven months. The estimated claim amount
reflects seven additional months of interest from October 1, 2010.
