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The Indenture will take those limitations into account and provide for appropriate limitations language (as applicable to
the individual jurisdictions concerned). However, in many jurisdictions such limitations language has not been tested in a
court and it is uncertain whether, in the event of violation of capital maintenance or similar rules, a Note Guarantee will
be null and void altogether or only in part (
i.e
., to the extent it is not compliant with capital maintenance or similar rules).
Irrespective thereof, the application of such limitation language may result in a Note Guarantee having a value of zero
because of insufficient profits or assets of the respective Guarantor.
If a court were to find that the issuance of a Note Guarantee was a fraudulent conveyance or held it unenforceable for
any other reason, the court could hold that the payment obligations under the Notes or such Note Guarantee are
ineffective, or require the Noteholders to repay any amounts received with respect to the Notes funded by any payments
on the Notes that are guaranteed by such Note Guarantee. In the event of a finding that a fraudulent conveyance occurred
in respect of the Note Guarantee, the Noteholders may cease to have any indirect claim in respect of the relevant
Guarantor and would be a creditor solely of the Issuer and indirectly, if applicable, of the other Guarantors under any
Note Guarantees which have not been declared void.
The Notes will be structurally subordinated to the liabilities of non-Guarantor subsidiaries.
Some, but not all, of the members of the Group will guarantee the Notes. As at and for the three months ended 31 March
2014, the Issuer and the Initial Guarantors represented 78.7% of the Group’s consolidated EBITDAX, 81.4% of the
Group’s average daily working interest production and 89.4% of the Group’s PPE, and as at 31 May 2014, the Issuer and
the Initial Guarantors represented 96.8% of the Group’s 1P reserves on a net entitlement basis and 88.0% of the Group’s
NPV of 1P reserves. As at and for the three months ended 31 March 2014, the Post-Closing Guarantor represented
21.3% of the Group’s consolidated EBITDAX, 18.6% of the Group’s average daily working interest production and
10.6% of the Group’s PPE, and as at 31 May 2014, the Post-Closing Guarantor represented 3.2% of the Group’s 1P
reserves on a net entitlement basis and 12.0% of the Group’s NPV of 1P reserves. The Indenture will, subject to certain
limitations, permit Non-Guarantors to incur additional indebtedness and will not contain any limitation on the amount of
other liabilities, such as trade payables, that may be incurred by these subsidiaries. Creditors of such additional
indebtedness are entitled to payments of their claims from the assets of such non-Guarantors before these assets are made
available for distribution to the Issuer or any Guarantors, as a direct or indirect shareholder. Moreover, in the event that
any of the Non-Guarantors or joint venture entities becomes insolvent, liquidates or otherwise reorganizes, the creditors
of the Guarantors will have no right to proceed against such subsidiary’s assets and creditors of such Non-Guarantors
will generally be entitled to payment in full from the sale or other disposal of the assets of such subsidiary before any
Guarantors will be entitled to receive any distributions from such subsidiary. As such, the Notes and the Note Guarantees
will be structurally subordinated to the creditors (including trade creditors) and preference shareholders (if any) of the
Non-Guarantors.
If the Group experiences a Change of Control, the Issuer may not have the ability to raise the funds necessary to
repurchase the Notes as may be required under the Indenture or to meet its payment obligations under the Indenture
and the Notes, and the Change of Control provisions may not protect you against certain events or transactions.
Under the terms of the Indenture, upon the occurrence of a Change of Control (as defined in the Indenture) together with
a downgrade or withdrawal of a rating from certain ratings agencies within 90 days following the occurrence of such
event, the Group will be required to offer to purchase all its outstanding Notes at a purchase price equal to 101% of the
aggregate principal amount thereof on the date of purchase, in addition to accrued and unpaid interest, if any, up to the
purchase date. If a Change of Control were to occur, the Group cannot assure you that it would have sufficient funds
available at such time, or that it would have sufficient funds to provide to the Issuer to pay the purchase price of the
outstanding Notes or that the restrictions in the Indenture or the Group’s other then existing contractual obligations
would allow the Group to make such required repurchases. A Change of Control may result in an event of default under,
or acceleration of the Group’s other indebtedness. The repurchase of the Notes pursuant to such an offer could cause a
default under such indebtedness, even if the Change of Control itself does not. The ability of the Issuer to receive cash
from the Group and for the Issuer to receive cash from its subsidiaries to allow the Issuer to pay cash to the holders of
Notes following the occurrence of a Change of Control may be limited by the Group’s then existing financial resources.
If an event constituting a change of control occurs at a time when the Group is prohibited from providing funds to the
Issuer for the purpose of repurchasing the Notes, the Group may seek the consent of the lenders under such indebtedness
to the purchase of the Notes or may attempt to refinance the borrowings that contain such prohibition. If such consent to
repay such borrowings is not obtained, the Issuer will remain prohibited from repurchasing any Notes. In addition, the
Group expects that it would require third party financing to make an offer to repurchase the Notes upon a Change of
Control. The Group cannot assure you that it will be able to obtain such financing. Any failure by the Issuer to offer to
purchase the Notes would constitute a default under the Indenture, which would, in turn, constitute a default under the
Convertible Loans. See “
Description of Notes—Repurchase at the Option of Noteholders—Change of Control.
”
