NOTE 6 — NOTES PAYABLE
On June 22, 2007, Trans Energy finalized a financing agreement with CIT Capital USA Inc. (“CIT”) for $30,000,000.
Interest payment due dates are elected at the time of borrowing and range from monthly to six months. Principle payments were due at maturity
on June 15, 2010 for all borrowing outstanding on that date.
The Company worked with its financial advisor and investment banker in an
effort to restructure the credit agreement since its maturity date. In July 2010, the Company repaid $15,000,000 from the sale of certain assets. Then the Company repurchased its net profit interest from CIT with the $1,780,404 purchase price added
to the outstanding balance. Amendment fees and interest totaling $539,835 were added to the principal in 2010, resulting in a balance of $17,320,239 due to CIT as of December 31, 2010. Between June and December 2010, the Company was charged
$725,000 in forbearance fees by CIT, to be paid in cash or five year warrants. The $725,000 of forbearance fees were included in accrued expenses at December 31, 2010.
On March 31, 2011, the Company and CIT entered into the Sixth Amendment to the Credit Agreement. The Sixth Amendment and other related agreements extended the maturity date of the Credit Agreement to
March 31, 2012. The Sixth Amendment confirmed that the principal amount due under the Credit Agreement prior to the application of a portion of the proceeds from the acreage sale to Republic under the March 31, 2011 Purchase and Sale
Agreement (the “PSA”) was $17,320,239 plus accrued interest of $139,748, plus forbearance fees of $725,000 to be added to the principal balance. Thus, the total amount owed under the Credit Agreement, as per the Sixth Amendment, was
$18,184,978. After the payment of accrued interest and a principal payment of $5,000,000 on April 2, 2011, and the accrued interest of $1,245,697 for the period April 1, 2011 thru December 31, 2011 being added to the loan, the Company
owed $14,290,936 as of December 31, 2011. During the first quarter of 2012, the Company added $557,226 of interest, legal and administrative expense to the loan balance. On April 2, the Company paid $125,000 on the principal amount
outstanding and the remainder of the principal was paid with proceeds received from the American Shale Development, Inc. Credit Agreement.
part of the Sixth Amendment, the Company also granted to CIT a 1.5% overriding royalty interest in each of the Stout #2H, Groves #1H and Lucey #1H wells, as well as a 1.5% overriding royalty interest in the next six horizontal wells drilled in the
Marcellus Shale, which have commercial production for a period of at least 30 consecutive days and in which the Company, or any of its subsidiaries, has an interest. Each 1.5% overriding royalty interest is to be proportionately reduced to the
extent the Company or its subsidiary owns less than the full working interest in the leases, or to the extent such oil and gas leases cover less than the full mineral interest. CIT still retains ownership of the 1.5% overriding royalty interest
after the payoff.
On March 30, 2012, the Company
and CIT entered into the Eighth Amendment to the Credit Agreement. The Eighth Amendment and other related agreements extended the maturity date of the Credit Agreement to April 30, 2012. The Eighth Amendment also waived specific items of
On April 26, 2012 (“Funding Date”), our newly created, wholly owned subsidiary, American Shale Development, Inc.
(“American Shale or ASD”), closed a Credit Agreement transaction (hereafter the “ASD Credit Agreement”) that was entered into on February 29, 2012 by and among American Shale, several banks and other financial institutions
or entities that from time-to-time will be parties to the ASD Credit Agreement (the “Lenders”), and Chambers Energy Management, LP as the administrative agent (“Agent”). Trans Energy is a guarantor of the ASD Credit Agreement as
is Prima Oil Company, Inc. (“Prima”), another of our 100% wholly owned subsidiaries. The ASD Credit Agreement provides that Lenders will lend American Shale up to $50 million, which funds will be used to develop wells and properties that
we have transferred to American Shale. Trans Energy received a portion of the funds from the ASD Credit Agreement to repay CIT and certain outstanding debts.
In order to accommodate the terms of the ASD Credit Agreement we have transferred certain assets and properties to American Shale. Trans Energy is not a direct party to the ASD Credit Agreement, but is a
guarantor of loans to be made thereunder and has received a portion of the loan proceeds to repay certain outstanding debts. The assets and properties transferred are referred to herein as the “Marcellus Properties.” These consist of
working interests in 13 gross, 7.60 net, producing Marcellus shale liquids-rich gas wells and approximately 22,000 net acres of Marcellus shale leasehold rights, located in Northwestern West Virginia in the counties of Wetzel, Marshall, Marion,
Tyler, and Doddridge.
The ASD Credit Agreement is for a notional amount of $50 million, which was received at closing net of a $3 million
Original Issue Discount (OID) and a $50,000 administrative fee. These $3,000,000 of costs are netted against Notes Payable. $166,167 of the OID was amortized as interest expense for the six months ended June 30, 2012. The administrative fee is
due annually. Interest is due monthly at 10% plus the greater of 1% or the 3 month LIBOR rate (11% at June 30, 2012). Principle is due at maturity, February 28, 2015.
The ASD Credit Agreement is collateralized by American Shale’s natural gas and oil reserves and is guaranteed by Trans Energy. The ASD credit agreement includes reporting, financial and other
restricted covenants. ASD was in compliance with the covenants at June 30, 2012. The Company has to pay the interest through April 26, 2014 on any principal prepayments prior to April 26, 2014, at the time of the prepayment.
The ASD Credit Agreement also required American Shale to sell the Lenders for a total of $2 million a warrant for 19,500 shares representing
19.5% of ASD’s stock, at $263.44 per share. The warrant expires on February 28, 2015. The warrant includes a put option whereby the Lenders could require ASD to repurchase the warrant as of February 28, 2015, or earlier if certain
events occur. Under the put option, ASD would pay the excess of the fair market value per share of the stock over $263.44 times the number of shares exercisable less any distributions or similar payments defined by the agreement. Under certain
circumstance ASD has the option to transfer working interests in all of its wells equal to the value of the excess value instead of paying in cash.
As of June 30, 2012 and December 31, 2011, the Company owed $51,283 and $23,256, respectively, for other loans, primarily for vehicles.