Note

— Preferred Stock and Common Stock Warrants

Preferred Stock

August 2018,

we sold an aggregate of

50,000

shares of Series A Convertible Preferred Stock, par value

$0.0001

per share (the “Series A Preferred Stock), at

$1,000

per share for an aggregate purchase price of

$50

million and we issued an additional

1,000

shares of Series A Preferred Stock in aggregate as origination fees to (i) York Capital Management Global Advisors, LLC, severally on behalf of certain funds or accounts managed by it or its affiliates (“York”), (ii) Valinor Management, L.P., severally on behalf of certain funds or accounts for which it is investment manager (“Valinor”), (iii) Bardin Hill Investment Partners LP (formerly known as Halcyon Capital Management LP), severally on behalf of certain funds or accounts managed by it or its affiliates (“Bardin Hill,” and together with York and Valinor, the “Fund Purchasers”) and (iv) HGC NEXT INV LLC (“HGC” and, together with the Fund Purchasers, the “Series A Preferred Stock Purchasers”). Warrants were issued together with the shares of Series A Preferred Stock (the “Series A Warrants”).

In connection with the issuance of Series A Preferred Stock and pursuant to backstop commitment agreements with the Fund Purchasers dated

April 11, 2018,

as subsequently amended on

August 3, 2018 (

as amended, the “Backstop Agreements”), we also issued a total of

413,658

shares of Company common stock as fees to the Fund Purchasers. Each Fund Purchaser is a Company stockholder and, pursuant to that certain Agreement and Plan of Merger, dated as of

April 17, 2017,

by and among the Company, each Fund Purchaser and/or

one

or more of its affiliates, and the other parties named therein,

three

individuals,

two

individuals, and

one

individual from York, Valinor, and Bardin Hill, respectively, were appointed to the Company’s board of directors.

September 2018,

we sold an aggregate of

29,055

shares of Series B Convertible Preferred Stock, par value

$0.0001

per share (the “Series B Preferred Stock” and, together with the Series A Preferred Stock, the “Convertible Preferred Stock”), at

$1,000

per share for an aggregate purchase price of

$29.055

million and we issued an additional

581

shares of Series B Preferred Stock in aggregate as origination fees to certain funds managed by BlackRock (“BlackRock”).

May 2019,

we sold an aggregate of

20,945

shares of Series B Preferred Stock, at

$1,000

per share for an aggregate purchase price of

$20.945

million and we issued an additional

418

shares of Series B Preferred Stock in aggregate as origination fees to York Tactical Energy Fund, L.P. and York Tactical Energy Fund PIV-AN, L.P. (the “York Tactical Funds” and, together with BlackRock, Bardin Hill, Valinor and HGC, the “Series B Preferred Stock Purchasers”), (ii) Bardin Hill, (iii) Valinor and (iv) HGC. Warrants were issued together with the shares of Series B Preferred Stock (the “Series B Warrants” and, together with the Series A Warrants, the “Common Stock Warrants”).

The Company has the option to convert all, but

not

less than all, of the Convertible Preferred Stock into shares of Company common stock at a strike price of

$7.34

per share of Company common stock (the “Conversion Price”) on any date on which the volume weighted average trading price of shares of Company common stock for each trading day during any

of the prior

trading days is equal to or greater than

175%

of the Conversion Price, in each case subject to certain terms and conditions. Furthermore, the Company must convert all of the Convertible Preferred Stock into shares of Company common stock at the Conversion Price on the earlier of (i)

ten

(

) business days following a FID Event (as defined in the certificates of designations of the Convertible Preferred Stock) and (ii) the date that is the

tenth

(

10th

) anniversary of the closings of the issuances of the Convertible Preferred Stock, as applicable.

The shares of Convertible Preferred Stock bear dividends at a rate of

12%

per annum, which are cumulative and accrue daily from the date of issuance on the

$1,000

stated value. Such dividends are payable quarterly and

may

be paid in cash or in-kind. During

2019

, the Company paid-in-kind

$11.2

million of dividends to holders of the Convertible Preferred Stock. On

January 9, 2020,

the Company declared dividends to holders of the Convertible Preferred Stock as of the close of business on

December 15, 2019.

January 15, 2020,

the Company paid-in-kind

$3.4

million of dividends to holders of the Convertible Preferred Stock.

The holders of Convertible Preferred Stock vote on an “as-converted” basis with the holders of the Company common stock on all matters brought before the holders of Company common stock. In addition, the holders of Convertible Preferred Stock have separate class voting rights with respect to certain matters affecting their rights.

The Convertible Preferred Stock do

not

qualify as liability instruments under ASC

480,

because they are

not

mandatorily redeemable. However, as SEC Regulation S-

Rule

does

not

permit a probability assessment for a change of control provision, the Convertible Preferred Stock must be presented as mezzanine equity between liabilities and stockholders’ equity in our Consolidated Balance Sheets because a change of control event, although

not

considered probable, could force the Company to redeem the Convertible Preferred Stock for cash or assets of the Company. At each balance sheet date, we must re-evaluate whether the Convertible Preferred Stock continue to qualify for equity classification.

Common Stock Warrants

The Series A Warrants issued to the Series A Preferred Stock Purchasers represent the right to acquire in the aggregate a number of shares of common stock equal to approximately

basis points (

0.71%

) of all outstanding shares of Company common stock, measured on a fully-diluted basis, on the exercise date with a strike price of

$0.01

per share. The Series B Warrants issued to the Series B Preferred Stock Purchasers represent the right to acquire in the aggregate a number of shares of common stock equal to approximately

basis points (

0.71%

) of all outstanding shares of Company common stock, measured on a fully diluted basis on the exercise date with a strike price of

$0.01

per share.

The Common Stock Warrants have a fixed

three

-year term commencing on the closings of the issuances of the associated Convertible Preferred Stock. The Common Stock Warrants

may

only be exercised by holders of the Common Stock Warrants at the expiration of such

three

-year term, except that the Company can force the exercise of the Common Stock Warrants prior to expiration of such term if the volume weighted average trading price of shares of Common Stock for each trading day during any

of the prior

trading days is equal to or greater than

175%

of the of the applicable Convertible Preferred Stock conversion price and, with respect to the Series B Warrants, the Company simultaneously elects to force a mandatory exercise of all other warrants then outstanding and un-exercised and held by any holder of parity stock. Pursuant to ASC

815

the fair value of the Common Stock Warrants was recorded as a non-current liability on our Consolidated Balance Sheet on the issuance dates. The Company revalues the Common Stock Warrants at each balance sheet date and recognized a loss of

$2.7

million and a gain of

$0.2

million as of

December 31, 2019

and

2018,

respectively. The Common Stock Warrant liabilities are included in Level

of the fair value hierarchy.

The assumptions used in the Monte Carlo simulation to estimate the fair value of the Common Stock Warrants as of

December 31, 2019

are as follows:

	December 31,			December 31,
	2019			2018
Stock price	$	6.14		$	5.40
Exercise price	$	0.01		$	0.01
Risk-free rate		1.6	%		2.5	%
Volatility		27.6	%		33.1	%
Term (years)		1.8			2.7

Initial Fair Value Allocation

Net proceeds in

2019

were allocated on a fair value basis to the Series B Warrants and on a relative fair value basis to the Series B Preferred Stock. The allocation of net cash proceeds from the sale of Series B Preferred Stock in

2019

is as follows (in thousands):

			Year Ended December 31, 2019
					Series B
			Series B		Convertible
			Warrants		Preferred
Gross proceeds	$	20,945
Equity issuance costs		—
Net proceeds - Initial Fair Value Allocation	$	20,945	$	1,936	$	19,009
Per balance sheet upon issuance			$	1,936	$	19,009

Net cash proceeds in

2018

were allocated on a fair value basis to the Series A Warrants and the Series B Warrants and on a relative fair value basis to the Company common stock, the Series A Preferred Stock and the Series B Preferred Stock. As described below,

$2.5

million of the

$41.1

million allocated to the Series A Preferred Stock was allocated to additional paid-in capital to give effect to the intrinsic value of a beneficial conversion feature (“BCF”). The allocation of net cash proceeds from the sale of Series A Preferred Stock and Series B Preferred Stock in

2018

is as follows (in thousands):

				Year Ended December 31, 2018
													Additional Paid-in Capital
								Series A			Series B				Beneficial
				Series A		Series B		Convertible			Convertible		Common		Conversion
				Warrants		Warrants		Preferred			Preferred		Stock		Feature
Gross proceeds	$	79,055
Equity issuance costs		(2,104	)
Net proceeds - Initial Fair Value Allocation	$	76,951		$	4,859	$	2,746	$	41,079		$	26,159	$	2,108	$	—
Allocation to BCF					—		—		(2,530	)		—		—		2,530
Per balance sheet upon issuance				$	4,859	$	2,746	$	38,549		$	26,159	$	2,108	$	2,530

Beneficial Conversion Feature

ASC

470

–

Debt – Debt with conversion and Other Options

(“ASC

470

20”

) defines a BCF as a nondetachable conversion feature that is in the money at the issuance date. The Company was required by ASC

470

to allocate a portion of the proceeds from the Series A Preferred Stock equal to the intrinsic value of the BCF to additional paid-in capital. The intrinsic value of the BCF is calculated at the issuance date as the difference between the “accounting conversion price” and the market price of shares of Company common stock multiplied by the number of shares of Company common stock into which the Series A Preferred Stock is convertible. The accounting conversion prices of

$5.58

per share and

$6.24

per share for the Fund Purchasers and HGC, respectively, is different than the initial conversion price of

$7.50

per share. The “accounting conversion price” is derived by dividing the proceeds allocated to the Series A Preferred Stock by the number of shares of Company common stock into which the Series A Preferred Stock is convertible. We are recording the accretion of the

$2.5

million Series A Preferred Stock discount attributable to the BCF as a deemed dividend using the effective yield method over the period prior to the expected conversion date.