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qualifications and exceptions, and, under certain circumstances, the amount of debt that could be incurred in compliance
with these restrictions could be substantial. Under the Indenture, in addition to specified permitted debt, the Group will
be able to incur additional debt so long as on a pro forma basis the Group’s consolidated fixed charge coverage ratio is at
least 2.25 to 1.00. In addition, the Indenture will not prevent the Group from incurring obligations that do not constitute
indebtedness under those agreements. If new debt is added to the Group and its subsidiaries’ existing debt levels, the
risks associated with the Group’s substantial indebtedness described above, including its possible inability to service its
debt, will increase.
The Group requires a significant amount of cash to service its debt and sustain its operations. The Group’s ability to
generate sufficient cash depends on many factors beyond its control.
The Group’s ability to meet its other debt service obligations, including under the Convertible Loans, or to refinance its
debt or to fund working capital and capital expenditures, depends on its future operating and financial performance,
which will be affected by its ability to successfully implement the Group’s business strategy as well as general
economic, financial, competitive, regulatory and other factors beyond its control. The Group cannot assure you that its
business will generate sufficient cash flow from operations, that currently anticipated revenue and production growth and
operating improvements will be realized or that future debt or equity financing will be available to the Group in an
amount sufficient to enable it to pay its debts when due, including the Notes, or to fund its other liquidity needs,
including the repayment at maturity of the then outstanding amount under the Convertible Loans, which will mature in
December 2018 and March 2019. If the Group cannot generate sufficient cash to meet its debt service requirements or if
future cash flows from other capital resources are insufficient to pay its obligations as they mature or to fund its liquidity
needs, the Group may, among other things, need to restructure or refinance all or a portion of its debt, including the
Notes, obtain additional financing, delay planned capital expenditures or investments or sell material assets. The Group
cannot assure you that it would be able to accomplish any of these alternatives on a timely basis or on commercially
reasonable terms, if at all.
Any failure to make payments on the Notes on a timely basis would likely result in a reduction of the Group’s credit
rating, which could also harm its ability to incur additional indebtedness. In addition, the terms of the Indenture and any
future debt may limit the Group’s ability to pursue any of these alternatives. Any refinancing of the Group’s debt could
be at higher interest rates and may require it to comply with more onerous covenants, which could further restrict its
business, prospects, financial condition and results of operations. There can be no assurance that any assets which the
Group could be required to dispose of can be sold or that, if sold, the timing of such sale and the amount of proceeds
realized from such sale will be acceptable. If the Group is unsuccessful in any of these efforts, it may not have sufficient
cash to meet its obligations.
In the event that the Group is unable to satisfy its debt obligations, borrowings under other debt agreements or
instruments that contain cross default or cross acceleration provisions may become payable on demand, and it may not
have sufficient funds to repay all of its debts, including its obligations under the Notes. Please see “
Description of other
indebtedness.
”
Restrictive covenants in the Convertible Loans, the Indenture or other forms of financial indebtedness may restrict
the Group’s ability to operate its business. The Group’s failure to comply with these covenants, including as a result
of events beyond its control, could result in an event of default that could materially and adversely affect its business,
results of operations and financial condition.
The Group is subject to various negative covenants restricting, among other things, the Group’s ability to:
incur or guarantee additional indebtedness and issue certain preferred stock;
make certain payments, including dividends or other distributions, with respect to the shares of such entity;
create or incur certain liens;
prepay or redeem subordinated debt or equity;
make certain investments;
sell, lease or transfer certain assets, including stock of Restricted Subsidiaries;
create encumbrances or restrictions on the payment of dividends or other distributions, loans or advances to, and
on the transfer of, assets to such entity;
