CJ 2017 Annual Report

financial covenants could materially and adversely affect our business, financial condition, results of operations, cash flows and prospects. If we are unable to meet our debt service obligations or should we fail to comply with, or obtain relief from, the financial and other restrictive covenants contained in our Amended Credit Facility or future debt agreements, we may trigger an event of default. Upon such an event of default, our lenders may refuse to fund borrowings and have the right to terminate their commitments and potentially accelerate all of our outstanding debt. If an event of default occurs and the lenders under our Amended Credit Facility or future debt agreements accelerate the maturity of any loans or other debt outstanding. We may not be able to make all required payments or borrow sufficient funds to refinance such indebtedness. Even if new financing is available at that time it may not be on terms that are acceptable to us. Any reduction of the borrowing base under our Amended Credit Facility could require us to repay that portion of indebtedness that exceeds the new borrowing base under our Amended Credit Facility earlier than anticipated, which could adversely impact our liquidity. Our Amended Credit Facility allows us to borrow amounts up to the lesser of $200 million and a borrowing base based on the value of our accounts receivable and inventory. Currently, our borrowing base is $178.5 million. Reductions in accounts receivable and inventory due to events or market forces beyond our control could reduce the amount available to us under our Amended Credit Facility and could result in a redetermination, and potentially a reduction, of our borrowing bases under our Amended Credit Facility. If our Amended Credit Facility eventually becomes fully drawn, any reduction in the borrowing bases could require us to make mandatory prepayments under our Amended Credit Facility to the extent existing indebtedness under the Amended Credit Facility exceeds the borrowing base. We may have insufficient cash on hand to be able to make mandatory prepayments under our Amended Credit Facility. Any failure to repay indebtedness in excess of our borrowing bases in accordance with the terms of the Amended Credit Facility would constitute an event of default under the Amended Credit Facility. Such event of default would permit our lenders to accelerate our outstanding debt, which if actually accelerated, would become immediately due and payable and could permit our secured lenders to foreclose on any of our assets securing indebtedness. We are subject to restrictive covenants in our Amended Credit Facility, which may restrict our operational flexibility. The Amended Credit Facility governing our indebtedness contains, and future debt agreements may contain, financial and other restrictive covenants that may limit our ability to obtain future financings to withstand a future downturn in our business or the economy in general, conduct necessary corporate activities, take advantage of business opportunities that arise and/or to engage in activities that may be in our long-term best interests. Specifically, our Amended Credit Facility includes a Fixed Charge Coverage Ratio and minimum liquidity threshold covenants and restrictive covenants that limit our ability and that of our subsidiaries to, among other things: • sell or otherwise dispose of assets; • make certain restricted payments and investments; • create, incur, assume, suffer to exist or guarantee additional indebtedness; • create, incur, assume, or suffer to exist liens on our assets; • make capital expenditures, investments or acquisitions; • repurchase, redeem or retire our capital shares; • merge or consolidate, or transfer all or substantially all of our assets and the assets of our subsidiaries; • engage in specified transactions with subsidiaries and affiliates; and • pursue other corporate activities. We may be prevented from taking advantage of business opportunities that arise because of the limitations imposed on us by restrictive covenants under the Amended Credit Facility, which could: limit our ability to plan for, or react to, market conditions, to meet capital needs or otherwise restrict our activities or business plan; and adversely affect our ability to finance our operations, enter into acquisitions or to engage in other business activities that would be in our interest. Please see “Liquidity and Capital Resources - Description of Our Amended Credit Facility” in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information about the Amended Credit Facility, including the financial and other restrictive covenants contained therein. 21