NOTE

4—Debt

Debt consisted of the following balances as of

March 31, 2019

and

December 31, 2018

(in thousands):

	March 31, 2019				December 31, 2018
	Principal		Carrying Amount		Principal		Carrying Amount
2017 Senior Credit Facility	$	32,000	$	32,000	$	27,000	$	27,000
Convertible Second Lien Notes (1)		55,493		52,969		53,691		49,820
Total debt	$	87,493	$	84,969	$	80,691	$	76,820

(

) The debt discount is being amortized using the effective interest rate method based upon a maturity date of

August 30, 2019.

The principal includes

$15.5

million and

$13.7

million of paid in-kind interest as of

March 31, 2019

and

December 31, 2018

, respectively. The carrying value includes

$2.5

million and

$3.9

million of unamortized debt discount as of

March 31, 2019

and

December 31, 2018

, respectively.

The following table summarizes the total interest expense for the

three

months ended

March 31, 2019

and

2018

including contractual interest expense, amortization of debt discount and financing costs (amounts in thousands, except effective interest rates):

	Three Months Ended March 31, 2019					Three Months Ended March 31, 2018
	Interest Expense		Effective Interest Rate			Interest Expense		Effective Interest Rate
2017 Senior Credit Facility	$	508		6.7	%	$	173		6.3	%
Convertible Second Lien Notes (1)		3,149		24.3	%		2,500		24.6	%
Total interest expense	$	3,657				$	2,673

(

) Interest expense for the

three

months ended

March 31, 2019

included

$1.3

million of debt discount amortization and

$1.8

million of paid in-kind interest, and interest expense for the

three

months ended

March 31, 2018

included

$0.9

million of debt discount amortization and

$1.6

million of paid in-kind interest.

2017

Senior Credit Facility

October 17, 2017,

the Company entered into the Amended and Restated Senior Secured Revolving Credit Agreement (as amended, the

“2017

Credit Agreement”) with the Subsidiary, as borrower, JPMorgan Chase Bank, N.A., as administrative agent, and certain lenders that are party thereto, which provides for revolving loans of up to the borrowing base then in effect (as amended, the

“2017

Senior Credit Facility”). The

2017

Senior Credit Facility matures (a)

October 17, 2021

or (b)

December 30, 2019,

if the Convertible Second Lien Notes have

not

been voluntarily redeemed, repurchased, refinanced or otherwise retired by

December 30, 2019.

The maximum credit amount under the

2017

Senior Credit Facility as of

March 31, 2019

was

$250.0

million with a borrowing base of

$75.0

million, subject to an elected draw limit of

$50.0

million in recognition of the limitation set forth in the Convertible Second Lien Notes. The borrowing base is scheduled to be redetermined in

March

and

September

of each calendar year, and is subject to additional adjustments from time to time, including for asset sales, elimination or reduction of hedge positions and incurrence of other debt. Additionally, each of the Subsidiary and the administrative agent

may

request

one

unscheduled redetermination of the borrowing base between scheduled redeterminations. The amount of the borrowing base is determined by the lenders in their sole discretion and consistent with their oil and gas lending criteria at the time of the relevant redetermination. We

may,

however, elect to reduce the proposed borrowing base to a lower draw limit by providing notice to the lenders contemporaneously with each redetermination of the borrowing base. The Company

may

also request the issuance of letters of credit under the

2017

Credit Agreement in an aggregate amount up to

$10.0

million, which reduce the amount of available borrowings under the borrowing base in the amount of such issued and outstanding letters of credit.

All amounts outstanding under the

2017

Senior Credit Facility shall bear interest at a rate per annum equal to, at the Company's option, either (i) the alternative base rate plus an applicable margin ranging from

1.75%

2.75%,

depending on the percentage of the borrowing base that is utilized, or (ii) adjusted LIBOR plus an applicable margin ranging from

2.75%

3.75%,

depending on the percentage of the borrowing base that is utilized. Undrawn amounts under the

2017

Senior Credit Facility are subject to a

0.50%

commitment fee. To the extent that a payment default exists and is continuing, all amounts outstanding under the

2017

Senior Credit Facility bear interest at

2.00%

per annum above the rate and margin otherwise applicable thereto. As of

March 31, 2019

, the interest rates on the borrowings from the

2017

Senior Credit Facility were between

5.74%

and

7.50%.

The

2017

Senior Credit Facility also contains certain financial covenants, including (i) the maintenance of a ratio of Total Debt (as defined in the

2017

Credit Agreement) to EBITDAX

not

to exceed

4.00

1.00

as of the last day of any fiscal quarter, (ii) in accordance with the

second

amendment to the

2017

Credit Agreement, beginning with the quarter ended

December 31, 2018,

a current ratio (based on the ratio of current assets plus availability under the current borrowing base to current liabilities)

not

to be less than

1.00

and (iii) until

Convertible Second Lien Notes remain outstanding, (A) the maintenance of a ratio of Total Proved PV-

attributable to the Company’s and Borrower’s Proved Reserves (as defined in the

2017

Credit Agreement) to Total Secured Debt (net of any Unrestricted Cash

not

to exceed

$10.0

million)

not

to be less than

1.50

1.00

and (B) minimum liquidity requirements.

The obligations under the

2017

Credit Agreement are secured by a

first

lien security interest in substantially all of the assets of the Company and the Subsidiary.

As of

March 31, 2019

, the Company had a borrowing base of

$75.0

million, subject to an elected draw limit of

$50.0

million, with

$32.0

million outstanding. The Company also had

$0.5

million of unamortized debt issuance costs recorded as of

March 31, 2019

related to the

2017

Senior Credit Facility.

As of

March 31, 2019

, the Company was

not

in compliance with all covenants within the

2017

Senior Credit Facility

as the current ratio was less than

1.00

primarily due to the elected draw limit of

$50.0

million.

April 29, 2019,

the Company entered into a Limited Waiver to Credit Agreement with the Subsid

iary, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto, pursuant to which the lenders agreed to waive the Company’s failure to comply with the current ratio financial covenant under the

2017

Senior Credit Facility as of the last day of the fiscal quarter ending

March 31, 2019.

2019

Senior Credit Facility

May 14, 2019,

the Company entered into a Second Amended and Restated Senior Secured Revolving Credit Agreement (the

“2019

Credit Agreement”) among the Company, the Subsidiary, as borrower (in such capacity, the “Borrower”), SunTrust Bank, as administrative agent (the “Administrative Agent”), and certain lenders that are party thereto, which provides for revolving loans of up to the borrowing base then in effect (the

“2019

Senior Credit Facility”). The

2019

Senior Credit Facility amends, restates and refinances the obligations under the

2017

Credit Agreement.

The

2019

Senior Credit Facility matures (a)

May 14, 2024

or (b) the date that is

180

days prior to the “Maturity Date” as defined in the New

Notes Indenture (as defined below) as in effect on the date of issuance of the New

Notes if the New

Notes (as defined below) have

not

been voluntarily redeemed, repurchased, refinanced or otherwise retired by, such date. The maximum credit amount under the

2019

Senior Credit Facility is currently

$500

million with an initial borrowing base of

$115

million. The borrowing base is scheduled to be redetermined on or about

June 1, 2019

and thereafter in

March

and

September

may

request

one

may

also request the issuance of letters of credit under the

2019

Credit Agreement in an aggregate amount up to

$10

million, which reduce the amount of available borrowings under the borrowing base in the amount of such issued and outstanding letters of credit.

All amounts outstanding under the

2019

Senior Credit Facility shall bear interest at a rate per annum equal to, at the Company’s option, either (i) the alternative base rate plus an applicable margin ranging from

1.50%

2.50%,

depending on the percentage of the borrowing base that is utilized, or (ii) adjusted LIBOR plus an applicable margin from

2.50%

3.50%,

depending on the percentage of the borrowing base that is utilized. Undrawn amounts under the

2019

Senior Credit Facility are subject to a commitment fee ranging from

0.375%

0.50%,

depending on the percentage of the borrowing base that is utilized. To the extent that a payment default exists and is continuing, all amounts outstanding under the

2019

Senior Credit Facility will bear interest at

2.0%

per annum above the rate and margin otherwise applicable thereto.

The obligations under the

2019

Credit Agreement are guaranteed by the Company and secured by a

first

lien security interest in substantially all of the assets of the Company and the Borrower.

The

2019

Credit Agreement contains certain customary representations and warranties, affirmative and negative covenants and events of default. If an event of default occurs and is continuing, the lenders

may

declare all amounts outstanding under the

2019

Senior Credit Facility to be immediately due and payable.

The

2019

Credit Agreement also contains certain financial covenants, including the maintenance of (i) a ratio of Net Funded Debt to EBITDAX

not

to exceed

4.00

1.00

as of the last day of any fiscal quarter, (ii) a current ratio (based on the ratio of current assets to current liabilities)

not

to be less than

1.00

and (iii) from and after the issuance of the

2021

Notes, until

2021

Notes remain outstanding, a ratio of Total Proved

PV10%

attributable to the Company’s and Borrower’s Proved Reserves to Total Secured Debt (net of any Unrestricted Cash

not

to exceed

$10

million)

not

to be less than

1.50

1.00

and minimum liquidity requirements.

The foregoing description of the

2019

Credit Agreement is qualified in its entirety by reference to such

2019

Credit Agreement, a copy of which is filed herewith as Exhibit

10.1

and is incorporated herein by reference. Capitalized terms used but

not

otherwise defined in the foregoing description have the respective meanings ascribed to such terms in the

2019

Credit Agreement.

May 14, 2019,

the Company drew down funds from the

2019

Senior Credit Facility to refinance its obligations under the

2017

Senior Credit Facility and to fund the Redemption (as defined below).

Convertible Second Lien Notes

October 12, 2016,

the Company and the Subsidiary, entered into a purchase agreement (the “Purchase Agreement”) with certain investors (collectively, and together with each of their successors and assigns, the “Purchasers”), in connection with the issuance of

$40.0

million aggregate principal amount of the Company’s

13.50%

Convertible Second Lien Senior Secured Notes due

2019

(the “Convertible Second Lien Notes”).

The aggregate principal amount of the Convertible Second Lien Notes is convertible at the option of the Purchasers at any time prior to the scheduled maturity date at

$21.33

per share representing

1.9

million shares of the Company's common stock, subject to adjustments. At closing, the Purchasers were issued

-year costless warrants to acquire

2.5

million shares of common stock. Holders of the Convertible Second Lien Notes have a

second

priority lien on all assets of the Company, and holders of such warrants have a right to appoint

two

members to our Board of Directors (the “Board”) as long as such warrants are outstanding.

The Convertible Second Lien Notes, as set forth in the agreement, were scheduled to mature on

August 30, 2019

six

months after the maturity of our current revolving credit facility but in

event later than

March 30, 2020.

The

2017

Senior Credit Facility was scheduled to mature

earlier than

December 30, 2019;

consequently, the Convertible Second Lien Notes were scheduled to mature on

March 30, 2020.

The Convertible Second Lien Notes bear interest at the rate of

13.50%

per annum, payable quarterly in arrears on

January

15,

April

15,

July

and

October

of each year. The Company

may

elect to pay all or any portion of interest in-kind on the then outstanding principal amount of the Convertible Second Lien Notes by increasing the principal amount of the outstanding Convertible Second Lien Notes or by issuing additional Second Lien Notes (“PIK Interest Notes”). The PIK Interest Notes are

not

convertible. During such time as the Exit Credit Agreement (but

not

any refinancing or replacement thereof) was in effect, interest on the Convertible Second Lien Notes had to be paid in-kind. As to the new

2017

Senior Credit Facility, interest on the Convertible Second Lien Notes must be paid in-kind, provided however, that after the quarter ending

March 31, 2018,

if (i) there is

default, event of default or borrowing base deficiency that has occurred and is continuing, (ii) the ratio of total debt to EBITDAX as defined under the

2017

Senior Credit Facility is less than

1.75

1.0

and (iii) the unused borrowing base is at least

25%,

then the Company can pay the interest on the Convertible Second Lien Notes in cash, at its election.

The indenture governing the Convertible Second Lien Notes (the “Indenture”) contains certain covenants pertaining to us and our Subsidiary, including delivery of financial reports; environmental matters; conduct of business; use of proceeds; operation and maintenance of properties; collateral and guarantee requirements; indebtedness; liens; dividends and distributions; limits on sale of assets and stock; business activities; transactions with affiliates; and changes of control.

The Indenture also contains certain financial covenants, including the maintenance of (i) a Total Proved Asset Coverage Ratio (as defined in the Exit Credit Agreement)

not

to be less than

1.50

1.00

after

September 30, 2017,

to be determined as of

January 1

and

July 1

of each year and (ii) minimum liquidity requirements.

Upon issuance of the Convertible Second Lien Notes in

October 2016,

in accordance with accounting standards related to convertible debt instruments that

may

be settled in cash upon conversion as well as warrants on the debt instrument, we recorded a debt discount of

$11.0

million, thereby reducing the

$40.0

million carrying value upon issuance to

$29.0

million and recorded an equity component of

$11.0

million. The debt discount is amortized using the effective interest rate method based upon an original term through

August

30,

2019.

As of

March 31, 2019,

$2.5

million of debt discount remains to be amortized on the Convertible Second Lien Notes.

As of

March 31, 2019,

the Company was in compliance with all covenants within the Indenture governing the Convertible Second Lien Notes.

Redemption of Convertible Second Lien Notes

May 14, 2019,

the Company delivered a notice of redemption to the trustee for the Convertible Second Lien Notes to call for redemption on

May 29, 2019 (

the “Redemption Date”) approximately

56.7

million aggregate principal amount of the outstanding Convertible Second Lien Notes, representing

100%

of the aggregate principal amount of the outstanding

2019

Notes (the “Redemption”). The Company instructed the trustee to provide notice of such redemption to the holders of the Convertible Second Lien Notes on

May 14, 2019

in accordance with the terms of the Indenture. The

2019

Notes will be redeemed at a redemption price equal to

100%

of the principal amount thereof, plus accrued and unpaid interest from

April 15, 2019

to, but

not

including, the Redemption Date. The Redemption is expected to be funded with proceeds from draws on the

2019

Senior Credit Facility.

New Convertible Second Lien Notes

May 14, 2019,

the Company and the Subsidiary entered into a purchase agreement (the “New

Notes Purchase Agreement”) with certain funds and accounts managed by Franklin Advisers, Inc., as investment manager (each such fund or account, together with its successors and assigns, a “New

Notes Purchaser”) pursuant to which the Company will issue to the New

Notes Purchasers (the “New

Notes Offering”)

$12.0

million aggregate principal amount of the Company’s

13.50%

Convertible Second Lien Senior Secured Notes due

2021

(the “New

Notes”). The closing of the New

Notes Offering is conditioned upon the Redemption and is expected to occur contemporaneously therewith, subject to the satisfaction of other customary closing conditions. Proceeds from the sale of the New

Notes will be used to pay down outstanding borrowings under the

2019

Revolving Credit Facility.

The New

Notes will be convertible into the Company’s Common Stock at the conversion rate, which is the sum of the outstanding principal amount of New

Notes to be converted, including any accrued and unpaid interest, divided by the conversion price, which shall initially be

$21.33,

subject to certain adjustments as described in the Indenture governing the Notes (the “New

Notes Indenture”). Upon conversion, the Company must deliver, at its option, either (

) a number of shares of its Common Stock determined as set forth in the New

Notes Indenture, (

) cash or (

) a combination of shares of its Common Stock and cash, however the Company is restricted in its ability to redeem the New

Notes with cash pursuant to the terms of the

2019

Credit Agreement.

The New

Notes will be issued and sold to the New

Notes Purchasers pursuant to an exemption from the registration requirements of the Securities Act of

1933,

as amended (the “Securities Act”), pursuant to Section

(a)(

) thereunder. The New

Notes Purchasers intend to resell the New

Notes only to qualified institutional buyers in accordance with Rule

144A

under the Securities Act and to certain persons outside the United States in accordance with Regulation S under the Securities Act. The New

Notes will

not

be registered under the Securities Act or applicable state securities laws and

may

not

be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and applicable state laws.

The New

Notes Purchase Agreement contains customary representations, warranties and agreements by the Company and the Subsidiary and obligations of the parties. The foregoing description of the New

Notes Purchase Agreement is qualified in its entirety by reference to such New

Notes Purchase Agreement, a copy of which is filed herewith as Exhibit

10.2

and is incorporated herein by reference.