Resaca Exploitation Inc Disposal of assets and De-Listing from AIM (8722F)

TIDMRSOX

RNS Number : 8722F

Resaca Exploitation Inc

30 May 2013

FOR IMMEDIATE RELEASE 30 MAY 2013

Resaca Exploitation, Inc.

("Resaca" or the "Company")

Disposal of substantially all assets and De-Listing from AIM

Further to the announcement made on 1 May 2013, Resaca announces that it:

-- has signed a purchase and sale agreement conditionally to dispose of substantially all of its assets to Legacy Reserves LP (the "Disposal");

-- proposes cancellation of admission of the Company's depositary interests to trading on AIM (the "De-listing");

-- expects, following completion of the Disposal, to embark on a voluntary liquidation process and complete the wind up of the Company and;

-- has called a Special Meeting of the Company to be held at the offices of the Company at 1331 Lamar Street, Suite 1450, Houston, Texas at 10.00 a.m. Central Time on 25 June 2013 for the purpose of approving the Disposal and the De-Listing.

The Disposal and De-Listing are conditional on Shareholder approval. Full details of the proposals, including what action Shareholders should take, are set out in the Circular posted to Shareholders today (the "Circular"). A copy of the Circular will be made available on the Company's website (www.resacaexploitation.com) and a summary is given below. Unless otherwise defined, terms used in this announcement have the meaning given to them in the Circular.

Shareholders should note that the Directors believe that the proposals set out in the Circular are in the best interests of the Company and the Shareholders as a whole. Accordingly, Shareholders are encouraged to vote in favour of the Resolutions at the Special Meeting.

For further information please contact:

 
 Resaca Exploitation, Inc. 
 J.P. Bryan, Chairman and Chief 
  Executive Officer                        [phone] 
 John J. ("Jay") Lendrum, III, 
  Vice Chairman                            [phone] 
 Dennis Hammond, President and 
  Chief Operating Officer                  [phone] 
 David Love, Vice President 
  and Treasurer                            [phone] 
 
 Buchanan (Investor Relations)         [phone] 
 Tim Thompson 
  Ben Romney 
 
 finnCap Limited (Nomad and               + 44 (0) 20 7220 
  Broker)                                             0500 
 Matt Goode, Corporate Finance 
  Christopher Raggett, Corporate 
  Finance 
  Victoria Bates, Corporate Broking 
 

Proposed Disposal of the Properties, De-listing and Notice of a Special Meeting

The Company has conditionally agreed to dispose of substantially all of its oil and gas properties to Legacy Reserves pursuant to the terms of the PSA. Further details of the properties subject to the disposal are set out below.

The Consideration is $72,000,000, subject to customary adjustments, and is payable upon Completion. Further details of the PSA can be found in the paragraph headed "Summary of the PSA".

The Disposal will constitute a sale of substantially all of the assets owned by the Company, which is a fundamental change of business, pursuant to Rule 15 of the AIM Rules for Companies and a fundamental business transaction under the Texas Business Organizations Code, each of which requires the approval of Shareholders (see Resolution 1 in Part III of the Circular).

Following the Disposal, it is expected that the Company will embark on a voluntary liquidation process and complete wind-up of the Company culminating in the Proposed Distribution. The Board therefore believes it is not in the interests of Shareholders for the Company to continue to incur the costs associated with maintaining its admission to trading on AIM. The Board therefore intends to implement the De-listing which will also require approval of Shareholders pursuant to Rule 41 of the AIM Rules for Companies (see Resolution 2 in Part III of the Circular).

Since the Company breached certain covenants under the Facilities during 2012, the management team has explored numerous strategic alternatives including corporate merger, asset sale, recapitalization of the Company and joint property development arrangements in order to reduce its outstanding indebtedness under the Facilities. These efforts included the retention of a professional business broker that specializes in the sale of oil & gas properties to assist in such sale. Numerous potential buyers approached the Company but all declined to enter into a definitive agreement. Management was in regular discussions with the lenders under the Facilities to seek time to effect a transaction with a third party. In April 2013, the Company was approached by Legacy Reserves with a bid of $72,000,000, subject to customary adjustments, in Consideration to be paid 100% in cash for the purchase of substantially all of Resaca's assets. In order for the Company to accept the Consideration, its lenders under the Facilities and the Torch Note had to agree to the transaction, provide forbearances and to make considerable concessions (as described in more detail below) in order to provide the Proposed Distribution after all outstanding obligations are repaid and the wind up of the Company is complete. The concessions in total are approximately $4.7 million.

The Company estimates the Proposed Distribution to be $0.11 per share based on estimated adjustments to the Consideration set out in the PSA which are further detailed in the paragraph headed "Summary of the PSA", estimates to closeout Swaps, outstanding trade payables and projected transaction fees and windup expenses and ongoing costs of the Company prior to the date of wind-up.

The attention of Shareholders is drawn to the following regarding the Proposed Distribution:

The figure of $0.11 per share is based on the Company's estimates of its assets and liabilities prior to wind-up which cannot occur until at least 90 days following Completion and may not occur for until some time after that.

Some of the liabilities which the Company will incur during this period (such as fixed payables to existing vendors) may be predicted with a degree of certainty by the Company as at the date of the Circular but others may not.

By way of illustration of the latter category, in calculating the figure of $0.11 per share, the Company has made certain estimates in respect of uncured title and environmental defects arising in respect of the Properties to be sold pursuant to the PSA. The Purchaser must notify the Company of any such defects on or prior to the Defect Notice Date and the Company then has the option to cure such defects during a period of 90 days after the Defect Notice Date. There may however be defects notified under this procedure which the Company is unable to cure and in these circumstances the Consideration will be decreased pursuant to the dispute mechanisms of the PSA. The Company has no reason to expect a notification under this procedure but it may be that, if one is made, the reduction of the Consideration may exceed the estimates which the Company has made in respect of uncured title and environmental defects to such an extent that it entirely extinguishes the Company's ability to pay the Proposed Distribution.

In this regard it should further be noted that in connection with the execution of the PSA, the Purchaser has deposited $3.6 million into escrow, which will be credited toward the Consideration at Completion. In the event that the PSA is terminated by the Purchaser because of a breach by the Company, including a breach of exclusivity, or because the Shareholders do not approve of the Disposal at the Special Meeting, the deposit will be refunded to the Purchaser and the Company will be required to pay a termination fee of $3.6 million to the Purchaser. In such circumstances the Company will probably not be able to make the Proposed Distribution.

Furthermore as at the date of the Circular, the Company is not certain of the relevant date in respect of the entitlement by Shareholders to payment of the Proposed Distribution as this will depend on how long the wind-up process takes. The Company undertakes to give shareholders regular updates via RNS on the wind-up process and the likely date of the Proposed Distribution.

Shareholders are therefore advised to take careful account of these factors in making any decision based on the Proposed Distributions the final amount of which may be less than the estimated amount.

The Directors of the Company strongly believe all other options have been fully exhausted and liquidation is a highly probable outcome should Resolution 1 not be passed. In addition, Resolution 2 provides for the De-listing which the Directors believe is in the best interests of the Company and its Shareholders in order to reduce Company's expenses during the wind-up period. The Directors also believe that should Resolution 1 not be passed, bankruptcy proceedings will be immediately initiated by the Company's lenders and liquidation under insolvency proceedings will result in there being no surplus available for distribution to the Shareholders.

The required vote needed to pass Resolution 1 is two-thirds of all outstanding Common Shares and Depositary Interests. The required vote to pass Resolution 2 is 75% of the votes cast by Shareholders at the Special Meeting.

Abstaining from the vote is the same as a "no vote" on Resolution 1 and will negatively impact the needed vote to approve Resolution 1 and consummate the Disposal.

The Board has convened the Special Meeting to be held at the offices of the Company at 1331 Lamar Street, Suite 1450, Houston, Texas, at 10.00 a.m. Central Time on 25 June 2013 for the purpose of Shareholders considering and, if thought fit, passing the Resolutions implementing the Disposal and the De-listing. The Notice, which sets out the terms of the Resolutions in full, is set out in Part III of the Circular.

The principal purpose of the Circular is to give Shareholders the reasons for, and details of, the Disposal and the De-Listing, to explain how the Company will conduct its operations following Completion, to explain why the Directors unanimously consider that the Disposal and the De-listing are in the best interests of the Company and its Shareholders as a whole and to recommend that Shareholders vote in favor of the Resolutions.

Shareholders should be aware that if Resolution 1 is not passed and the Disposal does not proceed, the significant concessions agreed with the lenders under the Facilities pursuant to the Subsequent Forbearance Agreements and with Torch as to the Torch Note described earlier will cease to bind such lenders and they will likely foreclose on the Company's assets, initiate insolvency proceedings or take other enforcement actions, such as suing to enforce payment of the obligations.

Background to and reasons for the Disposal and the De-Listing

The Disposal and De-listing are being proposed owing to the culmination of a series of events including a breach of financial covenants under the Facilities, ageing outstanding payables and being fully drawn under the Facilities, the details of which are more fully described below.

Financing arrangements

On 30 June 2010, the Company entered into the Torch Note with Torch for $1,854,722. The Torch Note had a maturity date of 1 October 2012 and bore interest at Amegy Bank NA's prime rate plus 2%. At 30 June 2010, the interest rate was 7.0%. On 15 December 2010, the Torch Note was amended to increase the outstanding balance to $1,915,800, increase the interest rate provisions, provide for subordination to the Subordinated Credit Facility in addition to the Company's Senior Credit Facility and extend the maturity date as further described below.

On 21 December 2010, the Company entered into the Subordinated Credit Facility for $20 million over a period of four-years which bears Cash Interest at 9.5% per year per annum or 12.0% PIK Interest per annum. The Subordinated Credit Facility contains certain financial ratio restrictions and other customary covenants. This credit facility matures 31 December 2014. Proceeds from the Subordinated Credit Facility were used to repay pre-existing debt facilities and for general corporate purposes.

On 7 January 2011, the Company also entered into the Senior Credit Facility for $75 million with Regions Bank. The Senior Credit Facility contains certain financial ratio restrictions and other customary covenants, including a requirement to hedge at least 75% of proved developed producing reserves through December 31, 2014. This credit facility matures 7 January 2014. Proceeds from the Senior Credit Facility were used to repay a portion of existing debt facilities and for general corporate purposes. The Senior Credit Facility is governed by semi-annual borrowing base redeterminations assigned to the Company's proved crude oil and natural gas reserves.

Breach of financial covenants

The Company's interim results released on 30 March 2012 noted that it was in breach of certain financial covenants under both its Senior Credit Facility and its Subordinated Credit Facility.

In particular, the breach of the debt to EBITDA ratio and the EBITDA to interest ratio financial covenants of the Subordinated Credit Facility caused a breach of the Senior Credit Facility. These breaches required classification of the Facilities as current liabilities on the Company's balance sheet which in turn caused a failure of the current asset to current liability ratio financial covenant of both Facilities.

The Company remains in default under both Facilities as of the date of the Circular.

Financial and operational consequences of breach

As a result of the covenant breach the PIK Interest rate on the Subordinated Credit Facility increased by 2% to 14% in May 2012 and the interest rate on the Senior Credit Facility increased by 3.5 percent to 7.5 percent in September 2012. The Company's total indebtedness has continued to increase due to the accrual of PIK Interest and the Make-Whole provision under the Subordinated Credit Facility and the accrual of PIK Interest under the Torch Note. The current interest rate on the Torch Note is 14%. The Torch Note matures on the earlier of 31 January 2014 or 30 days after Senior Payment In Full.

In July 2012, the lenders under the Subordinated Credit Facility delivered a standstill notice to the lenders under the Senior Credit Facility pursuant to the terms of the intercreditor agreement. The standstill agreement commenced no earlier than July 3, 2012 and expired around December 30, 2012. Further, the lenders under the Subordinated Credit Facility have entered into a subsequent forbearance agreement with the Company dated 29 May 2013 in order to facilitate the Disposal. The forbearance provided by the lender under this agreement is in effect from 29 May 2013 to 28 June 2013 and provides that the lender will forbear from exercising the rights and remedies available under the credit agreement and other loan documents; provided that the lender may continue to monitor the Company's operations and administer the obligations in accordance with the terms of the loan documents. Interest will continue to accrue during the forbearance period and be due and payable in accordance with the loan documents. Pursuant to the forbearance agreement, the Company may repay the loans and other obligations under the Subordinated Credit Facility in full in the amount of $32,250,000, plus out-of-pocket legal expenses incurred by the lenders (the "Settlement Amount") which is $3.2 million less than what they are currently owed. In addition, the lenders will increase or decrease the Settlement Amount by the amount greater or less than $726,082 due to close out the currently outstanding Swaps subject to a maximum increase or decrease of $500,000. Stated a different way, the lenders under the Subordinated Credit Facility will pay the first $500,000 of losses on the closeout of the Swaps greater than $726,082 and will realize the first $500,000 of gain.

The lenders under the Senior Credit Facility sent a letter to the Company in August 2012 expressly retaining and reserving all of the rights and remedies available to them under the Senior Credit Facility, indicating that they do not waive any events of default which have occurred under the Senior Credit Facility, and invoking the default rate of interest. The lender under the Senior Credit Facility has entered into a subsequent forbearance agreement with the Company dated 29 May 2013 in order to facilitate the Disposal. The forbearance provided by the lender under this agreement is in effect from 29 May 2013 to 28 June 2013 and provides that the lender will forbear from exercising rights and remedies available as a result of the Company's existing defaults including the (1) the right to accelerate payments due, (2) rights to enforce security interests and (3) the right to file involuntary bankruptcy against the Company until the earlier of 28 June 2013 or the date of any forbearance termination event. This forbearance also provides the Company in certain circumstances with an interest abatement which eliminates the Cash Interest requirement and allows for accrual of interest at a rate of 4% per annum if the Disposal occurs on or prior to 28 June 2013. The projected cumulative savings on this interest abatement is $192,500.

Torch has also agreed that the Torch Note may be satisfied in full by the payment of $1,340,456 , which is $1.3 million less than what is currently outstanding.

It should therefore be noted for the avoidance of doubt that, both the lenders under the Subordinated Credit Facility and the lenders under the Senior Credit Facility are entitled to immediately commence enforcement action against the Company which could include insolvency or liquidation proceedings against the Company in the event that the Subsequent Forbearance Agreements expire in accordance with their terms or the Disposal does not occur. In this eventuality, the Company will be unable to make the Proposed Distribution and, indeed, expects to be unable to make any return to Shareholders.

The Company is currently unable to draw down funds under the Senior Credit Facility. Its capital constraints limit the Company's ability to seek to increase its production and operating cash flows sufficiently to bring the Facilities back into covenant compliance and accordingly the Company's capital projects have been limited to those necessary projects which can be funded through operating cash flow. In addition, our trade payables outstanding in the amount of $1.5 million cannot be reduced without completing the Disposal. The Company believes that there is a risk of vendors filing lawsuits and liens against its assets for payment. The Company is also under a cross-default under the Facilities and the counterparties to the Swaps, which technically are due immediately.

In conclusion, due to the Company being in continued default under the Facilities and enforcement rights available to the lenders under the Facilities, it has become imperative the Company realize cash in the near term in order to enable it to pay off its indebtedness under the Facilities and eliminate the risk of the lenders under those Facilities taking enforcement action, including foreclosing on the Company's assets, initiating insolvency proceedings or suing to enforce payment of the obligations.

Proposed course of action

Having investigated a number of alternative fundraising strategies, the Board is proposing that it should seek to alleviate the constraints on the Company's operations and prospects described above through the Disposal.

The Board's immediate goal is to consummate the Disposal to enable the Company to pay off its indebtedness under the Facilities and the Torch Note, terminate the Swaps and make payments to vendors on past due trade payables. The amounts due to the lenders under the Company's Senior Credit Facility, Subordinated Credit Facility and the Torch Note are $32,818,000, $32,250,000 and $1,340,456, respectively (adjusted for those concessions provided by the lenders under each of the forbearance agreements). Additionally, the Company has previously entered into Swaps to hedge against the risk of falling crude oil prices. As of 3 May 2013, those Swaps were "out-of-the money" to the Company in the amount of $726,082. This is a senior secured obligation of the Company and will be due and payable at the date of the Disposal. The Company also has outstanding trade payables as of 3 May 2013 in the amount of $1.5 million. These trade payables, as well as the transaction fees and expenses associated with the Disposal and the costs to de-list from AIM, would be paid as soon as practicable after Disposal. Once the above obligations are paid, management will wind-up the affairs of the Company.

If the Company is successful in completing the Disposal and staying within its projected budget, it plans to make a Proposed Distribution in the amount of $0.11 per Common Share and Depositary Interests outstanding. As of 1 May 2013 the Company had 20,805,743 shares outstanding.

Subject to the passing of the Resolutions, the Board intends to make application to the London Stock Exchange for the De-listing. Under the AIM Rules, the Company is required to give at least 20 Business Days' notice of De-Listing to the London Stock Exchange. Such notice was given on 23 May 2013. Additionally, De-Listing will not take effect until at least 5 Business Days have passed following the passing of Resolution 2 which is inter-conditional upon the passing of Resolution 1. If the Resolutions are passed at the Special Meeting, it is proposed that the De-Listing will take effect at 7.00 a.m. on 5 July 2013.

As noted earlier, the lenders under the Facilities are entitled to commence enforcement action against the Company which could include insolvency or liquidation proceedings against the Company in the event that the Subsequent Forbearance Agreements expire and the Disposal does not occur. In this eventuality, the Company will be unable to make the Proposed Distribution and, indeed, expects to be unable to make any return to Shareholders.

Summary of the Properties

 
 Lease/Unit    Operator    March        Net          Net         Proved       Proved         3P           3P PV10 
                           2013          Revenue     Operating    Reserves     PV10          Reserves 
                           Production    (March      Income       (Boe)                      (Boe) 
                           (Boepd)       2013)       (March 
                                                     2013) 
------------  ----------  -----------  -----------  ----------  -----------  -------------  -----------  ------------- 
 Cooper 
  Jal Unit     Resaca             324     $760,905    $613,158    9,175,077   $213,332,100   10,150,915   $245,026,720 
------------  ----------  -----------  -----------  ----------  -----------  -------------  -----------  ------------- 
 Edwards 
  Grayburg 
  Unit         Resaca              56      140,463      93,368      150,840      3,388,660    2,081,812     49,805,240 
------------  ----------  -----------  -----------  ----------  -----------  -------------  -----------  ------------- 
 Jordan 
  San 
  Andrews 
  Unit         Resaca              57      118,923      37,675    1,771,008     40,064,350    1,771,008     40,064,350 
------------  ----------  -----------  -----------  ----------  -----------  -------------  -----------  ------------- 
 Kayser 
  Leases       Resaca               5       11,635    (61,708)        1,140          3,900        1,140          3,900 
------------  ----------  -----------  -----------  ----------  -----------  -------------  -----------  ------------- 
 Kermit 
  Leases       Resaca              74      154,682      53,180    1,284,755     32,033,030    3,851,000     89,600,790 
------------  ----------  -----------  -----------  ----------  -----------  -------------  -----------  ------------- 
 Langlie 
  Jal Unit     Resaca              72      156,699      83,306    1,180,485      5,784,950    2,144,725     25,189,470 
------------  ----------  -----------  -----------  ----------  -----------  -------------  -----------  ------------- 
 McElroy 
  Leases       Resaca              37       82,167      64,393      193,462      4,208,160      193,462      4,208,160 
------------  ----------  -----------  -----------  ----------  -----------  -------------  -----------  ------------- 
 BTBN Leases   Resaca               2        5,495    (16,537)        3,900         98,630        3,900         98,630 
------------  ----------  -----------  -----------  ----------  -----------  -------------  -----------  ------------- 
 Cotton        Cimarex             35          N/A         N/A          N/A            N/A          N/A            N/A 
  Draw Deep 
  (1) 
------------  ----------  -----------  -----------  ----------  -----------  -------------  -----------  ------------- 
 Cotton 
  Draw 
  Shallow      Resaca               5       11,901       5,296      205,723      4,926,910      357,030      7,906,590 
------------  ----------  -----------  -----------  ----------  -----------  -------------  -----------  ------------- 
 University 
  Lands 
  Leases       Eland                0            0           0            0            N/A            0            N/A 
------------  ----------  -----------  -----------  ----------  -----------  -------------  -----------  ------------- 
 Total Oil & 
  Gas Property                    668   $1,442,870    $530,820   13,966,390    303,840,690   20,554,992   $461,903,850 
------------------------  -----------  -----------  ----------  -----------  -------------  -----------  ------------- 
 

Proved and 3P Reserves and PV10 provided in the table above are as of June 30, 2012. In addition to the oil and gas properties outlined in the table above, the Disposal includes the Odessa Field Office and other equipment utilized in the day to day operations of the Properties.

Summary of the PSA

Pursuant to the PSA, the Company has agreed to sell to the Purchaser all of its right, title and interest in and to the Properties for the Consideration as of the Effective Date, subject to certain customary adjustments upward or downward for (1) uncured title defects, (2) uncured environmental defects, (3) title benefits, (4) costs and expenses attributable to periods prior to the Effective Date or (5) the exercise by third parties of preferential rights to purchase. The Purchaser will have an opportunity prior to Completion to investigate the title to and environmental condition of the Properties. The Purchaser must notify the Company of any defects on or before the Defect Notice Date and the Company shall have the option but not the obligation to cure such defects either before or within 90 days after the Defect Notice Date. The Consideration will be decreased for any uncured title defects or environmental defects pursuant to the dispute mechanisms of the PSA. Price adjustments are subject to meeting an individual defect threshold of $50,000 and an aggregate defect deductible (2% of the Consideration). Either the Company or Purchaser may terminate the PSA without further liability in the event the sum of the adjustments to the Consideration with respect to title defects, environmental defects and certain other matters exceed 20% of the Consideration. In connection with the execution of the PSA, the Purchaser has deposited $3.6 million into escrow, which will be credited toward the Consideration at Completion. In the event that the PSA is terminated by the Purchaser because of a breach by the Company or because the shareholders do not approve of the Disposal at the Special Meeting, the deposit will be refunded to the Purchaser and the Company will be required to pay a termination fee of $3.6 million to the Purchaser.

Completion is subject to the satisfaction of a number of conditions, including the ability to obtain Shareholder approval at the Special Meeting.

Pursuant to the PSA, the Company has agreed to indemnify the Purchaser, its affiliates and their respective officers, directors, employees and agents (the "Purchaser Indemnified Parties") from and against all losses that Purchaser Indemnified Parties incur arising from (i) any breach of the Company's representations, warranties or covenants in the PSA and (ii) retained obligations of the Company including among other things claims for bodily injury or death arising prior to Completion and certain third party claims with respect to ownership, operation or maintenance of the Properties arising prior to Completion. The Purchaser agreed to indemnify the Company, its affiliates and their respective officers, directors, employees and agents (the "Company Indemnified Parties") from and against all losses that Company Indemnified Parties incur arising from or out of (i) any breach of the Purchaser's representations, warranties or covenants in the PSA, (ii) ownership and operations of the Properties by the Purchaser (relating to periods after Completion) to the extent such losses are not matters for which Company has indemnified the Purchaser Indemnified Parties, and (iii) certain obligations assumed by the Purchaser with respect to the Properties, including environmental matters arising out of conditions or obligations prior to or after Completion. The Company's indemnification obligations are subject to an individual threshold of $100,000, an aggregate deductible of 3% of the Consideration and a cap equal to 5 per cent of the Consideration. Obligations of indemnification survive for three months after Completion, after which all claims are waived.

Use of Proceeds

Accordingly, after the cost of the transaction and assuming no adjustments with respect to environmental or title matters pursuant to the PSA, management estimates that Resaca's net receipts in respect of the Disposal will amount to approximately $70.5 million, of which $32,818,000 will pay off the amounts owed under the Senior Credit Facility, $32,250,000 will pay off amounts owed under the Subordinated Credit Facility and $1,340,456 will pay off amounts owed under the Torch Note. As a result, all of these obligations will be fully satisfied. Total indebtedness under the Facilities and the Torch Note are estimated as of 28 June 2013, the proposed date of Completion.

The balance of the net receipts from the Disposal after repayment of the Facilities and the Torch Note are planned to be applied to pay the Company's past due vendor invoices and to terminate Swaps, estimated at $1.5 million and $0.7 million, respectively as of 3 May 2013.

The Company's operations and strategy following the Disposal and De-Listing

Following the Disposal and the De-listing, the Company's only assets will be the Retained Property and the Company has retained these assets only because the Purchaser required their exclusion from the Disposal.

The Board will therefore make efforts to dispose of the Retained Property in a manner which is likely to provide value for shareholders within a reasonable time frame following Completion.

Following an orderly winding down of the Company's affairs, however, the Board intends to put in place procedures to wind the Company up regardless of whether it has succeeded in disposing of the Retained Property.

Shareholders should note that following the De-listing, no dealing facility will be offered and any transaction in

Common Shares or Depositary Interests would need to be negotiated privately directly between the buyer and seller. As a result, the liquidity and marketability of Common Shares will be significantly reduced and it may be difficult to place a fair value on any sale.

Special Meeting

Purpose of the Special Meeting

Completion is conditional upon the passing of the Resolution 1 at the Special Meeting. Accordingly, Shareholders will find in Part III of the Circular a notice convening the Special Meeting to be held at the offices of the Company at 1331 Lamar Street, Suite 1450, Houston, Texas at 10.00 a.m. Central Time on 25 June 2013 at which time the Resolutions will be proposed.

Resolutions:

Resolution 1: That the Disposal to the Purchaser in accordance with the terms of the PSA be and is hereby approved and that the officers of the Company be authorized to take all such steps as any of them may consider necessary or desirable to implement and give full effect to the intentions of the parties under the PSA (including waiver or variation of the terms and conditions of the PSA).

Resolution 1 will be proposed as an ordinary resolution of the Company requiring the approval of the affirmative vote of two thirds of all outstanding voting stock.

Resolution 2: Subject to the passing of Resolution 1, that the De-listing be and is hereby approved.

Resolution 2, which is conditional upon the passing of Resolution 1, proposes the De-listing. Under the AIM Rules , it is a requirement that the De-listing must be approved by not less than 75% of votes cast by shareholders in a "general meeting" (for UK registered companies) which for these purposes means the Special Meeting. Accordingly, the Notice of Special Meeting in Part III of the Circular contains a resolution to approve the De-listing.

Importance of the vote

The Directors are of the opinion that it is imperative the Company be able to pay off all of its indebtedness under the Facilities and the Torch Note (subject to those certain concessions made by the lenders under each of the respective forbearance agreements), terminate the Swaps and make payments to vendors on past due invoices. The Disposal is expected to allow the Company to achieve this goal. Shareholders should be aware that if Resolution 1 is not passed and the Disposal does not proceed, the significant concessions agreed with the lenders under the Facilities pursuant to the Forbearance Agreements and with Torch as to the Torch Note described earlier will cease to bind such lenders and they will likely take enforcement action, such as foreclosing on the Company's assets, initiating insolvency proceedings or suing to enforce payment of the obligation. Accordingly, Shareholders are encouraged to vote in favour of the Resolutions at the Special Meeting.

Board Recommendation

The Board considers the Disposal and the De-listing to be in the best interests of the Company and its Shareholders as a whole. Accordingly, the Board recommends that Shareholders vote in favor of the Resolutions to be proposed at the Special Meeting, as they intend to do in respect of their own beneficial holdings of, in aggregate, 3,883,437 Common Shares representing 18.67 percent of the current issued share capital of the Company.

This information is provided by RNS

The company news service from the London Stock Exchange

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