8. Preferred Stock and Warrants

On August 10, 2017, the Company closed on the issuance and sale in a private placement of (i) $250.0 million initial liquidation preference (250,000 shares) of 8.875% redeemable preferred stock, par value $0.01 per share (the “Preferred Stock”) and (ii) warrants for 2,750,000 shares of the Company’s common stock, with a term of ten years and an exercise price of $16.08 per share, exercisable only on a net share settlement basis (the “Warrants”), for a cash purchase price equal to $970.00 per share of Preferred Stock, to certain funds managed or sub-advised by GSO Capital Partners LP and its affiliates (the “GSO Funds”).

The Preferred Stock has a liquidation preference of $1,000.00 per share and bears an annual cumulative dividend rate of 8.875%, payable on March 15, June 15, September 15 and December 15 of any given year. The Company may elect to pay all or a portion of the Preferred Stock dividends in shares of its common stock in decreasing percentages as follows with respect to any preferred stock dividend declared by the Company’s Board of Directors and paid in respect of a quarter ending:



Period	Percentage
September 15, 2018	100	%
On or after December 15, 2018 and on or prior to September 15, 2019	75	%
On or after December 15, 2019 and on or prior to September 15, 2020	50	%

If the Company fails to satisfy the Preferred Stock dividend on the applicable dividend payment date, then the unpaid dividend will be added to the liquidation preference until paid.

The Preferred Stock outstanding is not mandatorily redeemable, but can be redeemed at the Company’s option and, in certain circumstances, at the option of the holders of the Preferred Stock. On or prior to August 10, 2018, the Company had the right to redeem up to 50,000 shares of Preferred Stock, in cash, at $1,000.00 per share, plus accrued and unpaid dividends in an amount not to exceed the sum of the cash proceeds of divestitures of oil and gas properties and related assets, the sale or issuance of the Company’s common stock and the sale of any of the Company’s wholly owned subsidiaries. In the first quarter of 2018, the Company redeemed 50,000 shares of Preferred Stock, representing 20% of the issued and outstanding Preferred Stock. Upon redemption, the Company paid $50.5 million, which consisted of $1,000.00 per share of Preferred Stock redeemed, plus accrued and unpaid dividends, with a portion of the proceeds from the divestitures of oil and gas properties. See “Note 3. Acquisitions and Divestitures of Oil and Gas Properties” for information regarding divestitures.

In addition, at any time on or prior to August 10, 2020, the Company may redeem all or part of the Preferred Stock in cash at a redemption premium of 104.4375%, plus accrued and unpaid dividends and the present value on the redemption date of all quarterly dividends that would be payable from the redemption date through August 10, 2020. After August 10, 2020, the Company may redeem all or part of the Preferred Stock in cash at redemption premiums, as presented in the table below, plus accrued but unpaid dividends.



Period	Percentage
After August 10, 2020 but on or prior to August 10, 2021	104.4375	%
After August 10, 2021 but on or prior to August 10, 2022	102.21875	%
After August 10, 2022	100	%

The holders of the Preferred Stock have the option to cause the Company to redeem the Preferred Stock under the following conditions:


•	Upon the Company’s failure to pay a quarterly dividend within three months of the applicable payment date;


•	On or after August 10, 2024, if the Preferred Shares remain outstanding; or


•	Upon the occurrence of certain changes of control.

For the first two conditions described above, the Company has the option to settle any such redemption in cash or shares of its common stock and the holders of the Preferred Stock may elect to revoke or reduce the redemption if the Company elects to settle in shares of common stock.

The Preferred Stock are non-voting shares except as required by the Company’s articles of incorporation or bylaws. However, so long as the GSO Funds beneficially own more than 50% of the Preferred Stock, the consent of the holders of the Preferred Stock will be required prior to issuing stock senior to or on parity with the Preferred Stock, incurring indebtedness subject to a leverage ratio, agreeing to certain restrictions on dividends on, or redemption of, the Preferred Stock and declaring or paying dividends on the Company’s common stock in excess of $15.0 million per year subject to a leverage ratio. Additionally, if the Company does not redeem the Preferred Stock before August 10, 2024, in connection with a change of control or failure to pay a quarterly dividend within three months of the applicable payment date, the holders of the Preferred Stock are entitled to additional rights including:


•	Increasing the dividend rate to 12.0% per annum until August 10, 2024 and thereafter to the greater of 12.0% per annum and the one-month LIBOR plus 10.0%;


•	Electing up to two directors to the Company’s Board of Directors; and


•	Requiring approval by the holders of the Preferred Stock to incur indebtedness subject to a leverage ratio, declaring or paying dividends on the Company’s common stock in excess of $15.0 million per year or issuing equity of the Company’s subsidiaries to third parties.

The Preferred Stock is presented as temporary equity in the consolidated balance sheets with the issuance date fair value accreted to the redemption value using the effective interest method.

The table below summarizes changes in the carrying amount of Preferred Stock for the six months ended June 30, 2018:



	June 30, 2018
	(In thousands)
Preferred Stock, beginning of period		$214,262
Redemption of preferred stock	(42,897		)
Accretion on Preferred Stock	1,493
Preferred Stock, end of period		$172,858

Preferred Stock Dividends, Accretion, and Loss on Redemption

Dividends, accretion, and loss on redemption of preferred stock are presented in the consolidated statements of income as a reduction of net income to compute net income attributable to common shareholders.

For the three months ended June 30, 2018, the Company declared and paid $4.5 million of cash dividends to the holders of record of the Preferred Stock on June 15, 2018. For the six months ended June 30, 2018, the Company declared and paid $9.3 million of cash dividends to the holders of the Preferred Stock on June 15, 2018 and March 15, 2018.

For the three and six months ended June 30, 2018, the Company recorded accretion on Preferred Stock of $0.7 million and $1.5 million, respectively.

As a result of the redemption described above, the Company recorded a loss on redemption of preferred stock of $7.1 million, which included $0.1 million of direct costs incurred as a result of the redemption and a non-cash charge of $7.0 million attributable to the difference between $50.0 million, which was the consideration transferred to the holders of the Preferred Stock excluding accrued and unpaid dividends, and $42.9 million, which was 20% of the carrying value of the Preferred Stock on the date of redemption.