14. SUBSEQUENT EVENTS

Restructuring Support Agreement

On August 2, 2019, the Halcón Entities entered into a Restructuring Support Agreement with the Unsecured Senior Noteholders. On August 3, 2019, the Halcón Entities commenced a solicitation for acceptance of the Plan. On August 7, 2019, the Halcón Entities filed voluntary petitions for relief under chapter 11 of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas to effect an accelerated pre-packaged bankruptcy restructuring as contemplated in the Restructuring Support Agreement.

Pursuant to the terms of the Plan contemplated by the Restructuring Support Agreement, the Unsecured Senior Noteholders and other claim and interest holders will receive the following treatment in full and final satisfaction of their claims and interests:

borrowings outstanding under the Senior Credit Agreement, plus unpaid interest and fees, will be repaid in full, in cash, including by a refinancing;

the Unsecured Senior Noteholders will receive their pro rata share of 91% of the common stock of reorganized Halcón (New Common Shares) issued pursuant to the Plan and the right to participate in the Senior Noteholder Rights Offerings (defined below);

the Company’s general unsecured claims are unimpaired; and

the existing common stockholders will receive their pro rata share of 9% of the New Common Shares issued pursuant to the Plan, together with Warrants (defined below) to purchase common stock of reorganized Halcón and the right to participate in the Existing Equity Interests Rights Offering (defined below and, collectively, the Existing Equity Total Consideration); provided, however, that registered holders of existing common stock with fewer than or equal to 2,000 shares of common stock will instead receive cash in an amount equal to the inherent value of such holder's pro rata share of the Existing Equity Total Consideration (the Existing Equity Cash Out).

Each of the foregoing percentages of equity in the reorganized company is subject to dilution by New Common Shares issued in connection with (i) a management incentive plan, (ii) the Warrants, (iii) the Equity Rights Offerings (defined below), and (iv) the Backstop Commitment Premium (defined below).

As a component of the Restructuring Support Agreement (i) each Unsecured Senior Noteholder will be offered the right to purchase its pro rata share of New Common Shares for an aggregate purchase price of $150,150,000 (the Senior Noteholder Rights Offering) and (ii) each existing common stockholder will be offered (subject to the Existing Equity Cash Out) the right to purchase its pro rata share of New Common Shares for an aggregate purchase price of up to $14,850,000 (the Existing Equity Interests Rights Offering, and together with the Senior Noteholder Rights Offering, the Equity Rights Offerings), in each case, at a price per share equal to a 26% discount to the value of the New Common Shares based on the lesser of the total enterprise value of the reorganized company as set forth in the Disclosure Statement and an assumed total enterprise value of $425 million. Certain of the Unsecured Senior Noteholders will backstop the Senior Noteholder Rights Offering and will receive as consideration (the Backstop Commitment Premium) either (i) New Common Shares equal to 6% of the aggregate amount of the Senior Noteholder Rights Offering subject to dilution by New Common Shares issued in connection with a management incentive plan and the Warrants or (ii) a cash payment equal to 6% of the aggregate amount of the Senior Noteholder Rights Offering if the backstop agreement is terminated. The proceeds of the Equity Rights Offerings will be used by the Company to (i) provide additional liquidity for working capital and general corporate purposes, (ii) pay all reasonable and documented restructuring expenses, and (iii) fund Plan distributions.

Under the Restructuring Support Agreement, each existing common stockholder (subject to the Existing Equity Cash Out) will be issued a series of warrants exercisable in cash for a three year period subsequent to the effective date of the Plan (Warrants). The Warrants will be issued in three series with three distinct strike prices, which will be based upon stipulated rate-of-return levels achieved by the Unsecured Senior Noteholders. Each series of Warrants represents 10%, and cumulatively representing 30%, of the New Common Shares issued pursuant to the Plan.

Debtor-in-Possession Financing

In connection with the chapter 11 proceedings and pursuant to an order of the Bankruptcy Court dated August 8, 2019 (the Interim Order), the Company anticipates that it will enter into a Junior Secured Debtor-In-Possession Credit Agreement (the DIP Credit Agreement) with the Unsecured Senior Noteholders party thereto from time to time as lenders (the DIP Lenders) and Wilmington Trust, National Association, as administrative agent.

Under the DIP Credit Agreement, the DIP Lenders will make available a $35.0 million debtor-in-possession junior secured term credit facility (the DIP Facility, and the loans thereunder, the DIP Loans), of which $25.0 million will be available as an initial draw and the remainder of which will be available to the Company as a single delayed draw term loan following the entry of the final DIP orders of the Bankruptcy Court. The DIP Loans will, subject to the terms set forth in the DIP Credit Agreement and the Exit Credit Agreement (as defined below), be rolled over or converted into, or otherwise refinanced with a $750.0 million exit senior secured reserve-based revolving credit facility (the Exit Facility), which will be evidenced by a senior secured revolving credit agreement (the Exit Credit Agreement), by and among the Company, as borrower, the lenders party thereto from time to time, and BMO Harris Bank N.A., as administrative agent.

The Company anticipates using the proceeds of the DIP Facility to, among other things, (i) provide working capital and other general corporate purposes, including to finance capital expenditures and the making of certain interest payments as and to the extent set forth in the Interim Order and/or the final order, as applicable, of the Bankruptcy Court and in accordance with the Company’s budget delivered pursuant to the DIP Credit Agreement, (ii) pay fees and expenses related to the transactions contemplated by the DIP Credit Agreement in accordance with such budget and (iii) cash collateralize any letters of credit.

The maturity date of the DIP Facility will be the earlier of (i) six months from the date of execution and (ii) the effective date of a plan of reorganization that is confirmed pursuant to an order entered by the Bankruptcy Court.

The DIP Loans will bear interest at a rate per annum equal to (i) adjusted LIBOR plus an applicable margin of 5.50% or (ii) an alternative base rate plus an applicable margin of 4.50%, in each case, as selected by the Company. Any undrawn delayed draw term loans will be subject to an undrawn fee at a rate per annum equal to 1.00%.

The DIP Facility will be secured by (i) a junior secured perfected security interest on all assets that secure the Senior Credit Facility and (ii) a senior secured perfected security interest on all unencumbered assets of the Company and any subsidiary guarantors. The security interests and liens will be further subject to certain carve-outs and permitted liens, as set forth in the DIP Credit Agreement.

The DIP Credit Agreement will contain certain customary (i) representations and warranties; (ii) affirmative and negative covenants, including delivery of financial statements; conduct of business; reserve reports; title information; indebtedness; liens; dividends and distributions; investments; sale or discount of receivables; mergers; sale of properties; termination of swap agreements; transactions with affiliates; negative pledges; dividend restrictions; gas imbalances; take-or-pay or other prepayments and swap agreements; and (iii) events of default, including non-payment; breaches of representations and warranties; non-compliance with covenants or other agreements; cross-default to material indebtedness; judgments; change of control; dismissal (or conversion to chapter 7) of the chapter 11 proceedings; and failure to satisfy certain bankruptcy milestones.

A hearing before the Bankruptcy Court to consider approval of the DIP Facility on a final basis will be scheduled for a later date.

Exit Financing

In connection with the Restructuring Support Agreement and the chapter 11 proceedings, the Company has received an underwritten commitment from BMO Harris Bank, N.A. for a $750 million Exit Facility, effective upon the Company’s emergence from the chapter 11 proceedings, which will be arranged by BMO Capital Markets Corp. The Exit Facility will have an expected initial borrowing base of $275 million. A portion of the Exit Facility, in the amount of $50 million, will be available for the issuance of letters of credit. The proceeds of the Exit Facility will be used to refinance indebtedness that the Company incurs during the pendency of the chapter 11 proceedings under the DIP Facility, for working capital and other general corporate purposes, to issue letters of credit, for transaction fees and expenses and for fees related to the Company’s emergence from the chapter 11 proceedings.

Loans extended under the Exit Credit Agreement will bear interest at a rate per annum equal to (i) adjusted LIBOR plus an applicable margin of 2.00% to 3.00% or (ii) an alternative base rate plus an applicable margin of 1.00% to 2.00%, in each case, at the election of the Company and based on the borrowing base utilization percentage under the Exit Facility. Any undrawn amounts under the Exit Facility will be subject to a commitment fee at a rate per annum equal to 0.375% to 0.500%, based on the borrowing base utilization percentage.

The maturity date of the Exit Facility will be five years from the date of execution of the Exit Credit Agreement. The Company will be able, at its option, to prepay any borrowing outstanding under the Exit Credit Agreement without premium or penalty (except with respect to any break funding payments which may be payable pursuant to the terms of the Exit Credit Agreement). The Company may also be required to make mandatory prepayments of the loans under the Exit Facility in connection with certain borrowing base deficiencies.

Amounts outstanding under the Exit Credit Agreement will be guaranteed by the Company’s direct and indirect material domestic subsidiaries and secured by a security interest in substantially all of the assets of the Company and such guarantors.

The Exit Credit Agreement will contain certain customary representations and warranties and affirmative and negative covenants.

The Exit Credit Agreement will contain certain financial covenants, including the maintenance of (i) a Total Net Leverage Ratio (to be defined in the Exit Credit Agreement) not to exceed 4.00:1.00 and (ii) a Current Ratio (to be defined in the Exit Credit Agreement) not to be less than 1.00:1.00, in each case commencing with the first full fiscal quarter ending after the date of the Exit Credit Agreement.

The Exit Credit Agreement will also contain certain customary events of default, including non-payment; breaches of representations and warranties; non-compliance with covenants or other agreements; cross-default to material indebtedness; judgments; change of control; and voluntary and involuntary bankruptcy.

The Exit Facility is subject to customary closing conditions and approval by the Bankruptcy Court, which has not been obtained at this time.

The terms of the Exit Facility are set forth in a senior secured revolving credit facility commitment letter (the Exit Commitment Letter), and the foregoing description of the Exit Facility is qualified by reference to the full text of the Exit Commitment Letter, a copy of which was filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed on August 5, 2019, and is incorporated herein by reference.