NOTE

5—Debt

Debt consisted of the following balances as of the dates indicated (in thousands):

	December 31, 2019						December 31, 2018
	Principal		Carrying Amount		Fair Value		Principal		Carrying Amount		Fair Value
2017 Senior Credit Facility (1)	$	-	$	-	$	-	$	27,000	$	27,000	$	27,000
2019 Senior Credit Facility (1)		92,900		92,900		92,900		-		-		-
Convertible Second Lien Notes (2)		-		-		-		53,691		49,820		60,857
New 2L Notes (3)		12,969		11,535		12,952		-		-		-
Total debt	$	105,869	$	104,435	$	105,852	$	80,691	$	76,820	$	87,857

(

)

The carrying amount for the

2017

Senior Credit Facility and the

2019

Senior Credit Facility represent fair value as they were fully secured.

(

)

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

August 30, 2019

until the Convertible Second Lien Notes were fully paid off on

May 29, 2019.

(

)

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

May 31, 2021.

The principal includes paid-in-kind interest of

$1.0

million as of

December 31, 2019.

The carrying value includes

$1.1

million of unamortized debt discount and

$0.3

million of unamortized issuance cost at

December 31, 2019.

The fair value of the New

Notes, a Level

fair value estimate, was obtained by using the last known sale price for the value on

December 31, 2019.

The following table summarizes the total interest expense (contractual interest expense, amortization of debt discount, accretion and financing costs) and the effective interest rate on the liability component of the debt (amounts in thousands, except effective interest rates) for the periods as noted below:

	Year Ended December 31, 2019					Year Ended December 31, 2018
	Interest Expense		Effective Interest Rate			Interest Expense		Effective Interest Rate
2017 Senior Credit Facility	$	872		7.2	%	$	1,130		8.9	%
2019 Senior Credit Facility		3,409		6.0	%		-		-
Convertible Second Lien Notes (1)		5,304		24.1	%		10,814		23.9	%
New 2L Notes (2)		1,416		21.6	%		-		-
Total	$	11,001				$	11,944

(

) The Convertible Second Lien Notes had a coupon interest rate of

13.50%;

however, the discount recorded due to the convertibility of the notes increased the effective interest rate to

24.1%

for the year ended

December 31, 2019 (

until payoff on

May 29, 2019)

and

23.9%

for the year ended

December 31, 2018.

Interest expense for the year ended

December 31, 2019

included

$2.3

million of debt discount amortization and

$3.0

million of paid-in-kind interest. Interest expense for the year ended

December 31, 2018

included

$4.1

million of debt discount amortization and

$6.7

million of paid-in-kind interest.

(

) The New

Notes have a coupon interest rate of

13.50%;

however, the discount recorded due to the convertibility of the notes increased the effective interest rate to

21.6%

for the year ended

December 31, 2019.

Interest expense for the year ended

December 31, 2019

included

$0.3

million of debt discount amortization and

$1.0

million of accrued interest to be paid in-kind.

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 provided for revolving loans of up to the borrowing base then in effect (as amended, the

“2017

Senior Credit Facility”). The

2017

Senior Credit Facility was set to mature on (a)

October 17, 2021

or (b)

December 30, 2019,

if the Convertible Second Lien Notes had

not

been voluntarily redeemed, repurchased, refinanced or otherwise retired by

December 30, 2019.

The maximum credit amount under the

2017

Senior Credit Facility when it was paid off in full on

May 14, 2019

was

$250.0

million with a borrowing base of

$75.0

million.

All amounts outstanding under the

2017

Senior Credit Facility bore 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 was utilized, or (ii) adjusted LIBOR plus an applicable margin ranging from

2.75%

3.75%,

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

2017

Senior Credit Facility were subject to a

0.50%

commitment fee.

The obligations under the

2017

Credit Agreement were secured by a

first

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

May 14, 2019,

the

2017

Senior Credit Facility was paid off in full and amended, restated and refinanced into the

2019

Senior Credit Facility. In connection with the refinancing, we recorded a

$0.2

million loss on early extinguishment of debt related to the remaining unamortized debt issuance costs.

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 matures (a)

May 14, 2024

or b)

December 3, 2020,

if the New

Notes (as defined below) have

not

been voluntarily redeemed, repurchased, refinanced or otherwise retired by

December

2020,

which is the date that is

180

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

Notes (the “New

Notes Indenture”) as in effect on the issuance date of the New

Notes. The

2019

Senior Credit Facility provides for a maximum credit amount of

$500

million subject to a borrowing base limitation, which originally was

$115

million. The borrowing base was increased to

$125

million in

August

2019

and is scheduled to be redetermined thereafter 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 Borrower 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 at their sole discretion and consistent with their oil and gas lending criteria at the time of the relevant redetermination. The Borrower

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 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. As of

December 31, 2019

, the interest rate on the borrowings from the

2019

Senior Credit Facility was

5.047%.

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 as defined in the

2019

Credit Agreement)

not

to be less than

1.00

and (iii) until

New

Notes remain outstanding, a ratio of Total Proved PV-

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. On

May 14, 2019,

the Company utilized borrowings under the

2019

Senior Credit Facility to refinance its obligations under the

2017

Senior Credit Facility and to fund the Redemption (as defined below) of the Convertible Second Lien Notes.

As of

December 31, 2019

, the Company had a borrowing base of

$125.0

million with

$92.9

million of borrowings outstanding. The C

ompany also had

$2.2

million of una

mortized debt issuance costs recorded as of

December 31, 2019

related to the

2019

Senior Credit Facility.

As of

December 31, 2019

, the Company was in compliance with all covenants within the

2019

Senior Credit Facility.

Convertible Second Lien Notes

October 2016,

the Company issued

$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”) along with

-year costless warrants to acquire

2.5

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

second

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

two

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

The Convertible Second Lien Notes 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 Convertible Second Lien Notes bore interest at the rate of

13.50%

per annum, payable quarterly in arrears on

January 15,

April 15,

July 15

and

October 15

of each year. The Company also had the option under certain circumstances 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.

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 was amortized using the effective interest rate method based upon an original term through

August 30, 2019.

The Convertible Second Lien Notes were redeemed in full on

May 29, 2019

for

$56.7

million, using borrowings under the

2019

Senior Credit Facility. In connection with the redemption of the Convertible Second Lien Notes, we recorded a

$1.6

million loss on early extinguishment of debt related to the remaining unamortized debt discount and debt issuance costs.

New Convertible Second Lien Notes

May 14, 2019,

the Company and the Subsidiary entered into a 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 issued 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 occurred on

May 31, 2019.

Proceeds from the sale of the New

Notes were primarily used to pay down outstanding borrowings under the

2019

Senior Credit Facility. Holders of the New

Notes have a

second

priority lien on all assets of the Company.

The New

Notes, as set forth in the indenture governing such notes (the “New

Notes Indenture”), are scheduled to mature on

May 31, 2021.

The New

Notes bear interest at the rate of

13.50%

per annum, payable quarterly in arrears on

January 15,

April 15,

July 15

and

October 15

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 New

Notes by increasing the principal amount of the outstanding New

Notes.

The New

Notes 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 sales of assets and stock; business activities; transactions with affiliates; and changes of control. The New

Notes Indenture also contains a financial covenant which requires the maintenance of a ratio of Total Proved PV-

attributable to the Company's and Subsidiary's Proved Reserves (as defined in the New

Notes Indenture) to Total Secured Debt (net of any Unrestricted Cash

not

to exceed

$10.0

million)

not

to be less than

1.50

1.00.

The New

Notes are 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 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’s ability to redeem the New

Notes with cash is subject to the terms of the

2019

Senior Credit Agreement.

The New

Notes were issued and sold to the New

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

1933,

as amended, pursuant to Section

(a)(

) thereunder. The Company has completed the registration with the U.S. Securities and Exchange Commission of the resale of the New

Notes and the shares of common stock issuable upon conversion of The New

Notes.

Upon issuance of the New

Notes on

May 31, 2019,

in accordance with accounting standards related to convertible debt instruments that

may

be settled in cash upon conversion, we recorded a debt discount of

$1.4

million, thereby reducing the

$12.0

million carrying value upon issuance to

$10.6

million and recorded an equity component of

$1.4

million. The equity component was valued using a binomial model. The debt discount is amortized using the effective interest rate method based upon an original term through

May 31, 2021.

As of

December 31, 2019

$1.1

million of debt discount and

$0.3

million of debt issuance costs rem

ained to be amortized on the New

Notes.

As of

December 31, 2019

, the Company was in compliance with all covenants within the New

Notes Indenture.