December 14, 2020 – The Court hearing the MD America Energy cases issued an order confirming the Debtors' Modified Joint Prepackaged Chapter 11 Plan of Reorganization [Docket Nos. 241]. Also on December 14th, the Court approved Plan modifications submitted by the Debtors on December 11th, with that order obviating the need to resolicit the Plan (see further below on those late-hour Plan amendments relating to the "Waller Settlement").

On October 12, 2020, MD America Energy, LLC and five affiliated Debtors (“MD America” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case number 20-34966. At filing, the Debtors, a Texas-based oil and gas operating company operating principally in the Woodbine formation, noted estimated assets between $50.0mn and $100.0mn; and estimated liabilities between $100.0mn and $500.0mn. In a subsequently filed Schedule A/B, the lead Debtor noted $529.0mn of assets and $134.9mn of liabilities [Docket No. 101].

Plan Overview

The Debtors' memorandum of law in support of the Plan confirmation [Docket No. 232] notes, “The Debtors commenced the chapter 11 cases (the ‘Chapter 11 Cases’) to implement a restructuring through their prepackaged Plan. The Plan reduces the Debtors’ prepetition debt by approximately $58 million, deleverages their balance sheet and allows the Debtors to emerge from the Chapter 11 Cases as a going concern. The Plan has the support of 100% of the Debtors’ secured debt holders (the ‘Consenting Term Loan Lenders’), who are overwhelmingly the largest creditor group. Prior to filing bankruptcy, the Consenting Term Loan Lenders and the Debtors entered into a restructuring support agreement with respect to these Chapter 11 Cases (the ‘Restructuring Support Agreement’).

Pursuant to the Plan negotiated with the Consenting Term Loan Lenders, the claims of the Consenting Term Loan Lenders are impaired under the Plan and will be exchanged for a pro rata share of (i) the New First Lien Term Loan in the amount of $60 million and (ii) 100% of the equity in the Acquired Entity. The Plan leaves all known unsecured creditors unimpaired. In addition, the Debtors have an outstanding loan under the Paycheck Protection Program in the principal amount of $1,163,893, which will be unimpaired by the Plan, but for which the Debtors have applied for forgiveness and their lender has indicated it will recommend to the Small Business Administration that the entire amount of the loan should be forgiven. All of the Holders of Class 4 (Prepetition Term Loan Claims), the only class entitled to vote on the Plan, voted to accept the Plan.

The only significant opposition in these Chapter 11 cases has come from: MeiDu America, Inc., the parent company of the Debtors (‘MeiDu’), C. Eric Waller, the former Chief Executive Officer of MD America (‘Waller’), and Waller Family Heirs, LLC (‘WFH’), an entity wholly-owned by Waller…MeiDu’s Complaint seeking to dismiss the Chapter 11 Cases was dismissed with prejudice in the MeiDu Adversary Proceeding, and MeiDu did not object to confirmation. In addition, the Debtors, Waller and WFH have reached a global settlement of all claims and objections raised by Waller and WFH in these Chapter 11 Cases.” (see more on MeiDu Adversary Proceeding and Waller objection below).

Restructuring Support Agreement

The term sheet included with the RSA, attached to the Avila Declaration, states: “The Restructuring Support Agreement contemplates a consensual reorganization to be implemented through Chapter 11 Cases. As part of the reorganization, all outstanding Term Loan Claims will be exchanged and cancelled. Each affiliated group of Holders of Term Loan Claims (each, a 'Holder Group') will receive, on account of and in full and final satisfaction, settlement, release and discharge of and in exchange for its Term Loan Claims, its Pro Rata share of (i) the New First Lien Term Loan and (ii) 100% of the stock in MDA Energy Holdings (unless the Required Consenting Term Lenders elect for the Holder Groups to instead receive membership interests in a subsidiary of MDA Energy Holdings, which will be, or will be the direct or indirect parent of, MD America, in lieu of stock in MDA Energy Holdings) (the stock in MDA Energy Holdings or membership interests in a subsidiary of MDA Energy Holdings referred to hereinafter as 'Acquired Entity Equity'). Provided that the Holder Groups ultimately receive 100% of the stock of MDA Energy Holdings as contemplated above, each Holder Group will contribute its portion of such stock to a new limited liability company that shall serve as New Parent.”

The following is an amended summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement, see also the Liquidation Analysis and Waterfall below):

• Class 1 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is 100%.
• Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is 100%.
• Class 3 (“Secured Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is 100%.
• Class 4 (“Prepetition Term Loan Claims”) is impaired and entitled to vote on the Plan. The estimated amount of claims is $117.8mn, and the estimated recovery is 51%. On the Effective Date, each affiliated group of Holders of Prepetition Term Loan Claims will receive (other than with respect to the Prepetition Term Loan Deficiency Claim), its Pro Rata share of (i) the Acquired Entity Equity and (ii) the New First Lien Term Loan.
• Class 5 (“Trade Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is 100%.
• Class 6 (“Waller Claim”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is 100%.
• Class 7 (“Paycheck Protection Loan Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is 100%.
• Class 8 (“General Unsecured Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated recovery is 0%.
• Class 9 (“Section 510 Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated recovery is 0%.
• Class 10 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept or reject and not entitled to vote on the Plan. The estimated recovery is N/A.
• Class 11 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept or reject and not entitled to vote on the Plan. The estimated recovery is N/A.
• Class 12 (“MD America Energy Holdings, Inc. Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated recovery is 0%.

Voting Results

On December 12, 2020, the Debtors' claims agent notified the Court of the Plan voting result [Docket No. 23], which was as follows:

• Class 4 (“Prepetition Term Loan Claims”): 11 claim holders, representing $117,849,544.40 in amount and 100% in number, accepted the Plan.

Exhibits attached to the Disclosure Statement [Docket No. 21]:

• Exhibit A: Plan of Reorganization
• Exhibit B: Restructuring Support Agreement
• Exhibit C: Liquidation Analysis
• Exhibit D: Financial Projections

Waller Settlement

On December 11th, the Debtors filed a modified Prepackaged Plan and a related redline [Docket Nos. 230 and 231, respectively] which reflect a settlement reached with C. Eric Waller, the former Chief Executive Officer of MD America (“Waller”) and Waller Family Heirs, LLC (“WFH”) that resolves claims and objections to confirmation of the Prepackaged Plan. Under the modified Plan, Waller will have a $225k Class 6 claim against the Debtors, which will be paid in full in cash under the Plan.

With respect to the settlement, the modified Plan provides, "Pursuant to Bankruptcy Rule 9019 and in full and final settlement of Waller’s and WFH’s Claims against the Debtors and all objections Filed by Waller and/or WFH to confirmation of the Plan or any other relief requested by the Debtors in these Chapter 11 Cases, the Debtors, Waller and WFH agreed to the following:

• (i) the treatment of the Allowed Waller Claim in Article III.B.6 of the Plan;
• (ii) the Debtors shall not alter the relevant D&O Liability Insurance Policies for Waller’s actions prior to October 10, 2020; provided, however, that the Debtors shall not be required to expend any additional funds or to take any affirmative action with respect to the D&O Liability Insurance Policies, including, but not limited to, purchasing a tail policy for any of the D&O Liability Insurance Policies;
• (iii) the Debtors’ proposed order confirming the Plan will provide that Waller disputes that he was properly terminated by the Debtors for 'cause;'
• (iv) Waller and WFH shall each be (and are) a Released Party and a Releasing Party under the Plan;
• (v) Waller and WFH hereby withdraw with prejudice, subject to the occurrence of the Effective Date of the Plan: (a) all objections to confirmation of the Plan, including the Objection of Eric Waller and Wilson Family Heirs, LLC to Confirmation of Debtors’ Joint Prepackaged Chapter 11 Plan of Reorganization [Docket No. 205]; (b) all objections to the Debtors’ Motion for Entry of an Order (I) Authorizing Rejection of the Transaction Bonus Plan Effective as of the Petition Date and (II) Granting Related Relief [Docket No. 26] and the Debtors’ Motion for Entry of an Order (I) Authorizing Rejection of the Wilson Family Heirs Surface Use Agreement Effective as of the Petition Date and (II) Granting Related Relief [Docket No. 27]; and (c) all proofs of claim filed against any of the Debtors;
• (vi) Waller and WFH hereby waive any right to assert any Claim against the Debtors as a result of the rejection of any agreements, including the Transaction Bonus Plan and the Waller Surface Use Agreement;
• (vii) Waller and WFH hereby release each and every claim, interest, real property or other right in and to the property previously conveyed by the Debtors to WFH pursuant to the Waller Surface Use Agreement or any other agreement, provided that WFH and its assigns shall have 30 days from the Effective Date to remove temporary cattle pens/panels and Waller will provide dates and times when he will be on the North Zulch Reservoir property and allow a representative of the Debtors or the Reorganized Debtors, as applicable, to accompany him onto the property;
• (viii) …the Debtors and Waller shall enter into a Confidentiality and Non-Disparagement Agreement (a) regarding Waller’s employment with the Debtors, including any disclosure of confidential or non-confidential information to any other party, specifically including MeiDu Energy Corporation, absent compulsion pursuant to subpoena or order of a court or administrative agency and agreement that the Reorganized Debtors may provide only the dates of his employment at the Debtors and (b) containing Waller’s representation that except for the employment agreements, Transaction Bonus Plan and the Waller Surface Use Agreement (all of which have been terminated and/or are being rejected), neither he, WFH, nor any person or entity affiliated with Waller or WFH, have any interest in any property of the Debtors or any contract, lease or other agreement with any of the Debtors or any of the Debtors’ property, other than Caddo Oilfield Construction LLC, solely with respect to the Caddo MSA; and
• (ix) the Caddo MSA (and any other agreement between Caddo Oilfield Construction LLC and any Debtor) is hereby terminated to the extent not rejected pursuant to Article V.A hereof. As of the Effective Date, no Reorganized Debtor shall have any obligation to Caddo Oilfield Construction, LLC on account of the Caddo MSA (or any other agreement)." 

Further MeiDu and Waller Background

Regarding the MeiDu Adversary Proceeding, the memorandum states, "On November 3, 2020, MeiDu commenced an adversary proceeding against the Debtors and the Consenting Term Loan Lenders, alleging, among other things, that the Debtors had filed the Chapter 11 Cases in bad faith and that the Chapter 11 Cases should be dismissed 'for cause' pursuant to section 1112(b) of the Bankruptcy Code. See MeiDu America, Inc. v. MD America Energy Holdings, Inc. et al. (In re MD America Energy, LLC, et al.), Adv. No. 20-03456 (Bankr. S.D. Tex. Nov. 3, 2020) (the 'MeiDu Adversary Proceeding'), Docket No. 1 (the 'Complaint') at 20. The Court conducted an emergency trial on November 19, 2020. Upon an oral motion for directed verdict by the Consenting Term Loan Lenders and the Debtors, the Court dismissed the MeiDu Adversary Proceeding with prejudice. On December 8, 2020, the Court entered findings of fact and conclusions of law, including (i) that Messrs. Warshauer and Ritter were lawfully appointed as directors and/or managers of the Debtors; (ii) that Messrs. Warshauer and Ritter, acting as the Debtors’ directors and/or managers, had the requisite organizational and legal authority to authorize these Chapter 11 Cases; and (iii) that these Chapter 11 Cases were filed in good faith. Findings of Fact and Conclusions of Law [MeiDu Adversary Proceeding, Docket No. 79]."

In his objection to confirmation of the Debtors' Plan, Waller stated [Docket No. 205], "After first asking him to rejoin the board of MD America and keeping him employed as the CEO, the newly appointed board members (either on their own or suggested by the Term Lenders) terminated Waller, based on, among other things, allegations made in an anonymous letter submitted to Don Ritter. The Debtors’ board asserts that terminated Waller for 'Cause,' as defined in the Agreement. Although he has asked repeatedly, the Debtors have never made available to Waller an investigation of Waller that supposedly justified termination for Cause. Waller has vigorously denied that Cause existed to terminate him and filed pleadings to arbitrate the termination. Had MD America prevailed in the arbitration, it would have paid out $0 to Waller. Had MD America lost the arbitration because it could not prove Cause, Waller would be entitled to $2,992,400.

Waller submits that the Term Loan Lenders’ board filed the MD America bankruptcy for an improper purpose: to gain litigation leverage against Waller and the Chinese equity owners, MeiDu…After having him act as, among other things, the go between the new board/Term Loan Lenders and MeiDu, Waller was terminated for purported Cause. Waller submits that an excuse for Cause was manufactured to gain a litigation advantage against Waller. Waller further submits that the Term Loan Lenders’ board undertook the termination and fabricated Cause to minimize the amount Term Loan Lenders would have to pay out to Waller outside of bankruptcy and is now using these allegations to (potentially) improperly subordinate Waller’s claim in the bankruptcy. Waller has filed a proof of claim and has asserted an unsecured claim in the amount of $7,611,575.34. This amount reflects that Waller was not terminated for Cause and includes amounts for the Transaction Bonus Plan."

Additionally, Waller's objection provides, "The Debtors filed the bankruptcy and the Plan in bad faith. The dispute between the Lenders and the Debtors did not require the filing of chapter 11. The new board and the Term Loan Lenders could have easily agreed to restructure the allowed secured claim of $117,849,544.40 into a new secured claim of $60,000,000 and forgiven the unsecured deficiency claim. But outside of bankruptcy, such a resolution would have left company and the Term Loan Lenders to lawsuits and demand for arbitration by the three (3) disaffected parties. 12. The primary purpose for filing bankruptcy was to create a litigation advantage for the Debtors against Waller and the Term Loan Lenders against the MeiDu." 

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “Avila Declaration” [Docket No. 28]), Scott Avila, the Debtors’ Chief Restructuring Officer, detailed the events leading to MD America Energy’s Chapter 11 filing. The Avila Declaration provides: “The failure of MD America to pay the Term Loan Prepayment as required by the First Amendment triggered an immediate event of default under the Prepetition Term Loan Agreement. On April 1, 2020, the Term Loan Lenders issued a Notice of Default and the Term Loan Lenders exercised their rights under the Prepetition Term Loan Agreement and Pledge Agreements, including the Parent Pledge Agreement, to remove the MeiDu-appointed board at MD America and appointed the Current Board. Since then, the Current Board has worked to reduce costs and streamline the Debtors’ operations.

On June 24, 2020, more than ten weeks after the Term Loan Lenders exercised their remedies and the Current Board was appointed, MeiDu, as Plaintiffs, sued the Term Loan Lenders and the Current Board, as Defendants, and the Debtors, as nominal defendants in the Supreme Court of the State of New York, County of New York (the “New York Litigation”) seeking equitable remedies, including Declaratory Relief, Injunctive Relief, Discharge of Debt and Set-Off of Debt and damages for conversion and breach of fiduciary duty. My understanding is that MeiDu’s core assertion in the suit is that the Term Loan Lenders were not entitled to exercise their rights under the Pledge Agreements to vote the pledged shares of the Debtors, including the appointment of the Current Board, and, in so doing, acted improperly…On July 9, 2020, the court denied MeiDu’s request for a temporary restraining order and preliminary injunction which had sought to restrict the Current Board from taking any actions and to remove the Current Board and reinstitute the previous board. It is my understanding that, in denying MeiDu’s request, the New York court (Justice Peter Sherwood) found that Plaintiffs had failed to demonstrate the existence of any legal basis for preventing the Term Loan Lenders from exercising their rights to vote the pledged shares. MeiDu filed a notice of appeal of that ruling to the New York Appellate Division, First Department on July 22, 2020. On July 20, 2020, the Term Loan Lenders moved to dismiss the New York Litigation in its entirety. This motion to dismiss is now fully briefed, and as of the date hereof, remains pending.

[T]he Debtors commenced these Chapter 11 Cases following proactive liability management against the backdrop of consistently declining oil and gas prices. The Debtors have undertaken significant efforts to address their leverage and profitability – including (a) an aggregate 41% savings in compensation, office lease, information technology and other general and administrative expenses; and (b) aggregate lease operating expenses savings of 51%. Despite these efforts, the recent, dramatic drop in commodity prices and resulting tightening of the credit markets have frustrated the Debtors’ ability to further deleverage absent a chapter 11 proceeding.”

Liquidation Analysis and Waterfall (see Exhibit C of Disclosure Statement [Docket No. 21] for notes)

About the Debtors

According to the Debtors: “MD America is a Texas based oil and gas operating company engaged in the acquisition, development, exploitation and production of crude oil and natural gas properties in East Texas. Assets currently consist of approximately 71,000 net acres with over 300 drilled and operated wells.

MDAE’s parent company, Meidu Energy Corporation (“Meidu”), is a publicly listed company on the Shanghai Stock Exchange. Meidu acquired Woodbine Acquisition Corp. in 2013 and changed the operating company’s name to MD America Energy, LLC.”

Corporate Structure

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