CHAPTER 11 PROCEEDINGS:

On December 14, 2016, the Debtors filed the Bankruptcy Petitions seeking relief under the provisions of Chapter 11 of the Bankruptcy Code. On February 15, 2017, the Bankruptcy Court entered an order confirming the Plan. During the bankruptcy proceedings, the Debtors are operating as "debtors-in-possession" in accordance with applicable provisions of the Bankruptcy Code. The Bankruptcy Court granted all first day motions filed by the Debtors, allowing the Company to operate its business in the ordinary course throughout the bankruptcy process. The first day motions included, among other things, a cash collateral motion, a motion maintaining the Company's existing cash management system and motions making various vendor payments, wage payments and tax payments in the ordinary course of business.

Subject to certain exceptions under the Bankruptcy Code, the Chapter 11 filings automatically stayed most judicial or administrative actions against the Debtors or their property to recover, collect or secure a pre-petition claim. This prohibits, for example, our lenders or noteholders from pursuing claims for defaults under our debt agreements.

Restructuring Support Agreement

Prior to filing the Bankruptcy Petitions, on October 20, 2016, the Debtors entered into a restructuring support agreement (the "Original RSA") with certain holders of the Company’s 2017 Convertible Notes and the Company’s 7 1⁄2% Senior Notes due 2022 (the "2022 Notes") (collectively, the "Notes" and the holders thereof, the "Noteholders") to support a restructuring on the terms of the Plan. On November 17, 2016, the Debtors commenced a solicitation to seek acceptance by a majority of those voting in each voting class of claims of the Company’s creditors under the Plan, including (a) the lenders (the "Banks") under the Fourth Amended and Restated Credit Agreement, dated as of June 24, 2014, as amended, modified, or otherwise supplemented from time to time (the "Credit Facility") among Stone as borrower, Bank of America, N.A. as administrative agent and issuing bank, and the financial institutions named therein, and (b) the Noteholders. On December 14, 2016, the Debtors, the Noteholders holding approximately 79.7% of the aggregate principal amount of Notes and the Banks holding 100% of the aggregate principal amount owing under the Credit Facility entered into an Amended and Restated Restructuring Support Agreement (the "A&R RSA") that amended, superseded and restated in its entirety the Original RSA. In connection with entry into the A&R RSA and the commencement of the bankruptcy cases, the Debtors amended the Plan. The solicitation period ended on December 16, 2016 and (i) of the 94.24% of Noteholders in aggregate outstanding principal amount that voted, 99.95% voted in favor of the Plan and .05% voted to reject the Plan, and (ii) 100% of the Banks voted to accept the Plan.

Additionally, on December 16, 2016, an ad hoc group of certain of the Company's stockholders (the "Stockholder Ad Hoc Group") filed a motion (the "Equity Committee Motion") to appoint an official committee of equity security holders in connection with the Debtors' Chapter 11 proceedings. On December 21, 2016, the Company reached a settlement agreement with the Stockholder Ad Hoc Group (the "Settlement") and on December 28, 2016, the Plan was amended.

Upon emergence from bankruptcy by the Debtors, and pursuant to the terms of the Plan, as amended to be consistent with the terms of the A&R RSA and the term sheet annexed to the A&R RSA (the "Term Sheet") and as amended pursuant to the Settlement, Noteholders, Banks and other interest holders will receive treatment under the Plan, summarized as follows:


•	The Noteholders will receive their pro rata share of (a) $100,000 of cash, (b) 95% of the common stock in reorganized Stone and (c) $225,000 of new 7.5% second lien notes due 2022 (the "Second Lien Notes").

•

Existing common stockholders of Stone will receive their pro rata share of 5% of the common stock in reorganized Stone and warrants for ownership of up to15% of reorganized Stone's common equity exercisable upon the Company reaching certain benchmarks pursuant to the terms of the proposed new warrants. The warrants will have an exercise price equal to a total equity value of the reorganized Company that implies a 100% recovery of outstanding principal to the Company’s noteholders plus accrued interest through the Plan’s effective date less the face amount of the Second Lien Notes and the Prepetition Notes Cash (as defined in the Plan). The warrants may be exercised any time prior to the fourth anniversary of the Plan’s effective date, unless terminated earlier by their terms upon the consummation of certain business combinations or sale transactions involving the Company.

•

Banks signatory to the A&R RSA will receive their respective pro rata share of commitments and obligations under an amended credit agreement (the "Amended Credit Facility") on the terms set forth in Exhibit 1(a) to the Term Sheet, as well as their respective share of the Company’s unrestricted cash, as of the effective date of the Plan, in excess of $25,000, net of certain fees, payments, escrows or distributions pursuant to the Plan and the PSA, defined below.


•	All claims of creditors with unsecured claims other than claims by the Noteholders, including vendors, shall be unaltered and will be paid in full in the ordinary course of business to the extent such claims are undisputed.

Each of the foregoing common equity percentages in reorganized Stone is subject to dilution from the exercise of the new warrants described above and a management incentive plan. Assuming implementation of the Plan, Stone expects that it will eliminate approximately $1,191,500 in principal amount of outstanding debt.

Purchase and Sale Agreement

The A&R RSA contained certain covenants on the part of the Company and the Noteholders and Banks who are signatories to the A&R RSA, including that such Noteholders and Banks would support the sale of Stone's producing properties and acreage, including approximately 86,000 net acres, in the Appalachia regions of Pennsylvania and West Virginia (the "Appalachia Properties") to TH Exploration III, LLC, an affiliate of Tug Hill, Inc. ("Tug Hill"), pursuant to the terms of a Purchase and Sale Agreement dated October 20, 2016, as amended on December 9, 2016 (the "Tug Hill PSA"), and otherwise facilitate the restructuring transaction, in each case subject to certain terms and conditions in the A&R RSA. The consummation of the Plan is subject to customary conditions and other requirements, as well as the completion of the sale of the Appalachia Properties. Pursuant to the terms of the Tug Hill PSA, Stone agreed to sell the Appalachia Properties to Tug Hill for $360,000 in cash, subject to customary purchase price adjustments. In connection with the execution of the Tug Hill PSA, Tug Hill deposited $5,000 in escrow.

Pursuant to Bankruptcy Court orders dated January 11, 2017 and January 31, 2017, two additional bidders were allowed to participate in competitive bidding on the Appalachia Properties, and on January 18, 2017, the Bankruptcy Court approved certain bidding procedures (the "Bidding Procedures") in connection with the sale of the Appalachia Properties. In accordance with the Bidding Procedures, Stone conducted an auction for the sale of the Appalachia Properties on February 8, 2017 and upon conclusion, selected the final bid submitted by EQT Corporation, through its wholly-owned subsidiary EQT Production Company ("EQT"), with a final purchase price of $527,000 in cash, subject to customary purchase price adjustments and approval by the Bankruptcy Court. See Note 21 – Subsequent Events. We expect to close the sale of the Appalachia Properties by February 28, 2017, subject to customary closing conditions.

Executory Contracts

Subject to certain exceptions, under the Bankruptcy Code, the Debtors' may assume, assign, or reject certain executory contracts and unexpired leases subject to the approval of the Bankruptcy Court and certain other conditions. The rejection of an executory contract or unexpired lease is generally treated as a pre-petition breach of such executory contract or unexpired lease and, subject to certain exceptions, relieves the Debtors of performing their future obligations under such executory contract or unexpired lease but may give rise to a pre-petition general unsecured claim for damages caused by such deemed breach. Counterparties to rejected contracts or leases may assert unsecured claims against the Debtors, as applicable, for such damages. Generally, the assumption of an executory contract or unexpired lease requires the Debtors to cure existing monetary defaults under such executory contract or unexpired lease and provide adequate assurance of future performance. Accordingly, any description of an executory contract or unexpired lease with the Debtors, including where applicable a quantification of the Company's obligations under any such executory contact or unexpired lease of the Debtors, is qualified by any overriding rejection rights the Company has under the Bankruptcy Code.

Potential Claims

The Debtors have filed with the Bankruptcy Court schedules and statements setting forth, among other things, the assets and liabilities of the Debtors, subject to the assumptions filed in connection therewith. The schedules and statements may be subject to further amendment or modification after filing. Certain holders of pre-petition claims are required to file proofs of claim by the deadline for general claims (the "bar date"). Differences between amounts scheduled by the Debtors and claims by creditors will be investigated and resolved in connection with the claims resolution process. In light of the expected number of creditors, the claims resolution process may take considerable time to complete and will likely continue after our emergence from bankruptcy. Accordingly, the ultimate number and amount of allowed claims is not presently known, nor can the ultimate recovery with respect to allowed claims be presently ascertained.

Liabilities Subject to Compromise

We have applied ASC 852 in preparing our consolidated financial statements for periods subsequent to the filing of the Bankruptcy Petitions. The consolidated financial statements include amounts classified as "liabilities subject to compromise", which represent our current estimate of known or potential obligations to be resolved in connection with our Chapter 11 proceedings. Differences between liabilities we have estimated and the claims filed, or to be filed, will be investigated and resolved in connection with the claims resolution process. We will continue to evaluate these liabilities throughout the Chapter 11 process and adjust amounts prospectively as necessary. Such adjustments may be material.

The following table summarizes the components of liabilities subject to compromise included in the Company's consolidated balance sheet as of December 31, 2016:



	December 31, 2016
1 3⁄4% Senior Convertible Notes due 2017	$	300,000
7 1⁄2% Senior Notes due 2022	775,000
Accrued interest payable	35,182
Liabilities subject to compromise	$	1,110,182

Reorganization Items

Under ASC 852, the direct and incremental costs resulting from the reorganization and restructuring of the business are reported separately as reorganization items on the statement of operations. The following table summarizes the components of reorganization items in the Company’s consolidated statement of operations for the year ended December 31, 2016:



	Twelve Months Ended December 31, 2016
Professional fees	$	2,615
Write-off of unamortized deferred financing costs	4,792
Write-off of unamortized discount and premium of Notes	3,540
Reorganization items	$	10,947