I'm Thinking This is a Yes Vote Zargon is in brutal shape, thanks to the oil price collapse. Their oil quality is marginal. Their North Dakota assets look interesting, but can't be compared to premium Bakken assets, in the core areas of that play. (Need to stop this misinformation that they can sell North Dakota for $100K/bopd). Maybe over time, they'll be able to get more value, from their North Dakota properties, if they can work to show there is more oil to recover.
It looks like there has been the typical pattern of management sucking as much as they can, for high salaries. Of course when there was more oil production in the company, the salaries were justified. But now, the company is a skeleton of its former self, so the salaries should be reduced, and the number of VP's, should also be reduced.
The question now is: should the Debenture Holders throw them a lifeline, to keep the company going? I'm thinking the answer should be "yes", as much as I would like to keep the priority ranking of the Debentures. There may be too much downside risk, by not doing the deal.
The one positive thing about Craig Hansen's ownership of Debentures, is having $900,000 worth, which was more than I thought he had, means he has some skin in the game, and will want to get more value out of the stock, that he exchanges the debentures for. Of course he is entitled to a generous package, upon change of control, so he could make some money there, but if it all goes down, he would lose alot more on the debenture value.
Looking at the agreement, there is no default, unless the Debenture interest hasn't been paid for 30 days. So they would still have time to stall a bit more, if it looks like they have a chance of making payment.
Further reading the agreements:
"If an Event of Default has occurred and is continuing, the Debenture Trustee may, in its discretion, and will, upon the request ofholders of not less than 25% in principal amount of the then -outstanding Debentures declare the principal of (and premium, if any) and interest on all outstanding Debentures to be immediately due and payable. In certain cases, the holders of more than 50% of the principal amount of the Debentures then outstanding may, on behalf of the holders of all Debentures, waive any Event of Default and/or cancel any such declaration upon such terms and conditions as such holders shall prescribe."
So just because an interest payment isn't made, 30 days after the March 31st due date, the default could still be waived, if 50% of the Debenture Holders, vote to waive the default.
A company just doesn't go into Receivership, if the interest payment is missed. It can be a long and painful process, and Debenture Holders had better be prepared to bankroll the legal fees required, to organize a Receivership proceeding.
Don't forget that Debenture Holders are also subordinate to every other possible creditor. As long as the company is paying all other creditors, a judge may just say "give them more time to carry on, and sort out the interest that is owed." The company will be in default, but they'll just say "take us to Court".
A lot can happen in the next few months: it could either get better, or worse, and the recent collapse in world oil prices, isn't helping matters. Ideally, I would like to get more stock, like say 95% of the total valuation. But 93% is pretty close, so how much do we want to fight, with something that could drag on and on?
I haven't seen any signficant Debenture Holders posting that they are happy or unhappy with the proposed offer. Craig Hansen says he is all for it. I don't know who else has more Debentures than he does.
If there was some group that was more vocal, then there may yet be a chance to negotiate a bit more value. But I just haven't heard any chatter like that, just a few people thinking they'll get a magic windfall of interest paid in stock, if they vote "no". I just can't see that happening: companies are good at obfiscating things that they don't really want to do.
If the vote is approved, then the key to future success is ensuring that some large Debenture Holders now have a say in Board Matters. The share distriubtion will substantially change, so there must be someone out there, who has some desire to have more say.
Given time, we might eventually see the stated value of 10 cents per share, as the company stabilizes, assuming of course that oil prices can increase. So ultimately, I think the Debentures can recover close to their face value, if this deal goes through.
Giiving up a little, to stabilize a dying patient, might be better than having to deal with a corpse.