NOTE 12 – SUBSEQUENT EVENTS

As discussed in Note 1, the Company’s credit facilities contain the requirement to deliver annual audited consolidated financial statements without a going concern or like qualification or exception. The issuance of the Company’s annual report for the year ended December 31, 2019 with the accompanying audit opinion constituted a default under the Revolving Facility and Term Loan agreements. The Company obtained waivers from its Revolving Facility and Term Loan lenders to waive the events of default arising from the inclusion of the going concern explanatory paragraph included in the audit report for the year ended December 31, 2019 and with respect to the defaults arising from a failure to deliver audited consolidated financial statements for the year ended December 31, 2019 and related reports and certificates by the applicable deadline. These waivers were effective as of April 29, 2020, subject to the conditions set forth in the waivers.

Under the Term Loan waiver, the Company agreed to amend certain provisions in the Term Loan, as to be mutually agreed with the Term Loan lenders. On June 24, 2020, the Company entered into the third amendment to the Term Loan, which modified the Company’s Term Loan agreement as follows:

Increases the applicable interest rate margin from 8% to 10%, of which 2% of the applicable margin is PIK, effective May 30, 2020;

Requires that 50% of excess cash flow (as defined in the Term Loan agreement) generated during each quarter, if any, be used to pay down the outstanding balance on its Revolving Facility, with a permanent corresponding reduction in the borrowing base. If the outstanding balance on the Revolver is zero, any Required ECF Prepayment Amounts will be applied to reduce amounts outstanding under the Term Loan;

Removes the Asset Coverage Ratio requirement for the period ended March 31, 2020;

Limits the Company’s capital expenditures (as defined in the Term Loan agreement) for the period from May 1, 2020 to September 30, 2020 to $5 million;

Limits the Company’s general and administrative expense (as defined in the term Loan agreement) for second and third quarters 2020 to $3 million per quarter; and

Negotiate in good faith with the Lenders by September 30, 2020 to reduce the Company’s total debt and leverage and explore transactions to increase the Company’s capital, which may include asset sales, public or private issuance of debt or equity, or any combination thereof.

Under the Revolving Facility waiver, the Company was not permitted to draw any additional funds on the Revolving Facility until completion of the Company’s second quarter 2020 borrowing base redetermination. On June 24, 2020, the Revolving Facility lenders provided notice to the Company that they had completed the Company’s borrowing base redetermination and via this redetermination, the Company’s borrowing base was reduced from $190 million to $170 million. The waiver under the Revolving Facility also provided for a right to require corresponding amendments of that facility manner, as requested by the administrative agent in its discretion. The Company entered into the fifth amendment to the Revolving Facility on June 24, 2020. The amendment also increased the interest rate margin on its Revolving Facility by 25 basis points. The Company is in the process of determining the financial effect of the amendments, if any.