Long-Term Debt

On August 19, 2010, the Company issued $150 million in principal amount of its 10% Senior Notes due 2017. On July 3, 2013, the Company issued an additional $200 million in principal amount of its 10% Senior Notes due 2017 (collectively, the "2017 Notes").

On February 17, 2016, the Company closed a private exchange offer (the "February Exchange") and consent solicitation (the "February Consent Solicitation") to certain eligible holders of its outstanding 2017 Notes. In satisfaction of the tender of $214.4 million in aggregate principal amount of the 2017 Notes, representing approximately 61% of the then outstanding aggregate principal amount of 2017 Notes, the Company (i) paid approximately $53.6 million of cash, (ii) issued $144.7 million aggregate principal amount of its new 10% Second Lien Senior Secured Notes due 2021 (the "2021 Notes") and (iii) issued approximately 1.1 million shares of its common stock. Following the completion of the February Exchange, $135.6 million in aggregate principal amount of the 2017 Notes remained outstanding. The February Consent Solicitation eliminated or waived substantially all of the restrictive covenants contained in the indenture governing the 2017 Notes.

On September 27, 2016, the Company closed private exchange offers (the "September Exchange") and a consent solicitation (the "September Consent Solicitation") to certain eligible holders of its outstanding 2017 Notes and 2021 Notes. In satisfaction of the consideration of $113.0 million in aggregate principal amount of the 2017 Notes, representing approximately 83% of the then outstanding aggregate principal amount of 2017 Notes, and $130.5 million in aggregate principal amount of the 2021 Notes, representing approximately 90% of the then outstanding aggregate principal amount of 2021 Notes, the Company issued (i) $243.5 million in aggregate principal amount of its new 10% Second Lien Senior Secured PIK Notes due 2021 (the "2021 PIK Notes") and (ii) approximately 3.5 million shares of its common stock. The Company also paid, in cash, accrued and unpaid interest on the 2017 Notes and 2021 Notes accepted in the September Exchange from the last applicable interest payment date to, but not including, September 27, 2016. Following the consummation of the September Exchange, there were $22.7 million in aggregate principal amount of the 2017 Notes outstanding and $14.2 million in aggregate principal amount of the 2021 Notes outstanding. The September Consent Solicitation amended certain provisions of the indenture governing the 2021 Notes and amended the registration rights agreement with respect to the 2021 Notes.

On March 31, 2017, the Company redeemed its remaining outstanding 2017 Notes at a redemption price of $22.8 million. The redemption was funded by cash on hand and amounts borrowed under the Old Loan Agreement described below. On December 28, 2017, the Company issued approximately 2.2 million shares of common stock to extinguish approximately $4.8 million of outstanding principal amount of 2021 Notes.

The 2021 PIK Notes bear interest at a rate of 10% per annum on the principal amount and interest is payable semi-annually in arrears on February 15 and August 15 of each year. The Company was permitted, at its option, for the first three interest payment dates of the 2021 PIK Notes, to instead pay interest at (i) the annual rate of 1% in cash plus (ii) the annual rate of 9% PIK (the "PIK Interest") payable by increasing the principal amount outstanding of the 2021 PIK Notes or by issuing additional 2021 PIK Notes in certificated form. The Company exercised this PIK option in connection with the interest payments due on February 15, 2017, August 15, 2017 and February 15, 2018.

The 2021 Notes bear interest at a rate of 10% per annum on the principal amount and interest is payable semi-annually in arrears on February 15 and August 15 of each year.

The February Exchange and September Exchange were accounted for as troubled debt restructurings pursuant to guidance provided by Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 470-60 "Troubled Debt Restructurings by Debtors." The Company determined that the future undiscounted cash flows from the 2021 PIK Notes issued in the September Exchange through the maturity date exceeded the adjusted carrying amount of the 2017 Notes and the 2021 Notes tendered in the September Exchange. Accordingly, no gain or loss on extinguishment of debt was recognized in connection with the September Exchange. The net shortfall of the remaining carrying value of the 2017 Notes and 2021 Notes tendered as compared to the principal amount of the 2021 PIK Notes issued in the September Exchange of $0.6 million is reflected as part of the carrying value of the 2021 PIK Notes. Such shortfall is being amortized under the effective interest method over the term of the 2021 PIK Notes. At September 30, 2018, $0.4 million of the shortfall remained as part of the carrying value of the 2021 PIK Notes and the Company recognized $84,000 of amortization expense as an increase to interest expense during the nine months ended September 30, 2018.

The Company previously determined that the future undiscounted cash flows from the 2021 Notes issued in the February Exchange through the maturity date exceeded the adjusted carrying amount of the 2017 Notes tendered in the February Exchange. Accordingly, no gain on extinguishment of debt was recognized in connection with the February Exchange. The excess of the remaining carrying value of the 2017 Notes tendered over the principal amount of the 2021 Notes issued in the February Exchange of $13.9 million was reflected as part of the carrying value of the 2021 Notes. The amount of the excess carrying value attributable to the 2021 Notes tendered in the September Exchange is now reflected as part of the carrying value of the 2021 PIK Notes. The excess carrying value attributable to the remaining 2021 Notes is being amortized under the effective interest method over the term of the 2021 Notes. At September 30, 2018, $0.5 million of the excess remained as part of the carrying value of the 2021 Notes and the Company recognized $132,000 of amortization expense as a reduction to interest expense during the nine months ended September 30, 2018.

The indentures governing the 2021 PIK Notes and the 2021 Notes contain affirmative and negative covenants that, among other things, limit the ability of the Company and the subsidiary guarantors of the 2021 PIK Notes and the 2021 Notes to incur indebtedness; purchase or redeem stock; make certain investments; create liens that secure debt; enter into transactions with affiliates; sell assets; refinance certain indebtedness; merge with or into other companies or transfer substantially all of their assets; and, in certain circumstances, to pay dividends or make other distributions on stock. The 2021 PIK Notes and the 2021 Notes are fully and unconditionally guaranteed on a senior basis, jointly and severally, by certain wholly-owned subsidiaries of the Company.

The 2021 PIK Notes and the 2021 Notes are secured equally and ratably by second-priority liens on substantially all of the Company's and the subsidiary guarantors' oil and gas properties and substantially all of their other assets to the extent such properties and assets secure the Multidraw Term Loan Agreement (as defined below), except for certain excluded assets. Pursuant to the terms of an intercreditor agreement, the security interest in those properties and assets that secure the 2021 PIK Notes and the 2021 Notes and the guarantees are contractually subordinated to liens that secure the Multidraw Term Loan Agreement and certain other permitted indebtedness. Consequently, the 2021 PIK Notes and the 2021 Notes and the guarantees will be effectively subordinated to the Multidraw Term Loan Agreement and such other indebtedness to the extent of the value of such assets.

On October 17, 2016, the Company entered into a multidraw term loan agreement (the "Old Loan Agreement") with Franklin Custodian Funds - Franklin Income Fund, as a lender, and Wells Fargo Bank, National Association, as administrative agent (the "Agent"), replacing the prior credit agreement with JPMorgan Chase Bank, N.A. Effective August 14, 2018, the Company and certain of its subsidiaries entered into a Forbearance Agreement (the "Forbearance Agreement") with the Agent for the lenders with respect to the Old Loan Agreement. Pursuant to the Forbearance Agreement, the Agent and the lenders under the Old Loan Agreement agreed to forbear from taking any action with respect to certain specified events of default occurring under the Old Loan Agreement as a result of non-payment by the Company of interest with respect to the 2021 PIK Notes and 2021 Notes when due and payable on August 15, 2018 under the indentures governing those notes. On August 31, 2018, the Company and PetroQuest Energy, L.L.C. entered into a new Multidraw Term Loan Agreement (the "Multidraw Term Loan Agreement"), which replaced the Old Loan Agreement with the lenders party thereto from time to time (the "Lenders") and the Agent. The Multidraw Term Loan Agreement provides a multi-advance term loan facility in the principal amount of up to $50.0 million. The loans drawn under the Multidraw Term Loan Agreement (collectively, the "Term Loans") may be used to repay existing debt,to pay transaction fees and expenses, to provide working capital for exploration and production operations and for general corporate purposes. On August 31, 2018, the Company borrowed $50.0 million under the Term Loans, and repaid $32.5 million of outstanding borrowings under the Old Loan Agreement, plus accrued interest and fees, and retained the balance of the borrowings for general corporate purposes. As a result, as of September 30, 2018, the Company had no borrowing availability under the Multidraw Term Loan Agreement.

The Company’s obligations under the Multidraw Term Loan Agreement and the Term Loans are secured by a first priority lien on substantially all of the assets of the Company and certain of its subsidiaries, including a lien on all equipment and at least 90% of the aggregate total value of the oil and gas properties of the Company and its subsidiaries, a lien on certain undeveloped acreage, a pledge of the equity interests of PetroQuest Energy, L.L.C. (the "Borrower") and certain of the Company’s other subsidiaries, and corporate guarantees of the Company and certain of the Company’s other subsidiaries of the indebtedness of the Borrower. Term Loans under the Multidraw Term Loan Agreement bear interest at the rate of 10% per annum.

The Company and its subsidiaries are subject to a restrictive covenant under the Multidraw Term Loan Agreement, consisting of maintaining a ratio of (i) the present value, discounted at 10% per annum, of the estimated future net revenues in respect of the Company’s and its subsidiaries’ oil and gas properties, before any state, federal, foreign or other income taxes, attributable to total proved reserves, using three-year strip prices in effect at the end of each calendar quarter, including swap agreements in place at the end of each quarter, to (ii) the sum of the outstanding Term Loans and the then outstanding commitments to provide Term Loans, that shall not be less than (a) 1.4 to 1.0 as measured on September 30, 2018, and (b) 1.5 to 1.0 as measured on December 31, 2018 and the last day of each calendar quarter thereafter (the "Coverage Ratio"). If the Coverage Ratio is less than 1.4 to 1.0 as of September 30, 2018 or less than 1.5 to 1.0 as of December 31, 2018 or any quarterly measurement date thereafter, the Company may, at its option, prepay outstanding Term Loans or permanently reduce the then outstanding Term Loan Commitments (i.e. the available borrowings) under the Multidraw Term Loan Agreement, or a combination thereof, by a proportionate amount. As of September 30, 2018, the Coverage Ratio was greater than 1.4 to 1.0.

Sales of the Company’s and its subsidiaries’ oil and gas properties outside the ordinary course of business are limited under the terms of the Multidraw Term Loan Agreement. In addition, the Multidraw Term Loan Agreement prohibits the Company from declaring and paying dividends on its Series B Preferred Stock.

The Multidraw Term Loan Agreement also includes restrictions with respect to debt, liens, dividends, distributions and redemptions, investments, loans and advances, nature of business, international operations and foreign subsidiaries, leases, sale or discount of receivables, mergers or consolidations, sales of properties, transactions with affiliates, negative pledge agreements, gas imbalances and swap agreements. Effective September 14, 2018, the Company and certain of its subsidiaries entered into a Forbearance Agreement (the "Loan Forbearance Agreement") with the Agent for the lenders with respect to the Multidraw Term Loan Agreement. Pursuant to the Loan Forbearance Agreement, the Agent and Lenders agreed to forbear from taking any action with respect to certain anticipated events of default occurring under the Multidraw Term Loan Agreement as a result of the non-payment of interest with respect to the 2021 Notes and 2021 PIK Notes when due and payable on August 15, 2018 and such non-payment continuing for a period of 30 days under the indentures governing the notes. The Loan Forbearance Agreement was effective from September 14, 2018 until the earlier of (i) 11:59 p.m. Eastern time on September 28, 2018 or (ii) the occurrence of any specified forbearance default, which includes, among other things, any event of default under the Multidraw Term Loan Agreement other than the anticipated events of default or a breach by the Company or certain of its subsidiaries of the Loan Forbearance Agreement. On September 28, 2018, October 5, 2018, October 19, 2018 and October 31, 2018, the Company and certain of its subsidiaries, the Agent and the Lenders entered into first, second, third and fourth amendments to the Loan Forbearance Agreement that extended the September 28, 2018 deadline to 11:59 p.m. Eastern time on each of October 5, 2018, October 19, 2018, October 31, 2018 and November 6, 2018, respectively. The Loan Forbearance Agreement terminated on the commencement of the Chapter 11 Cases described in Note 2.

Effective September 14, 2018, the Company and certain of its subsidiaries entered into (i) a Forbearance Agreement (the "2021 Notes Forbearance Agreement") with certain holders (the "2021 Notes Supporting Holders") of approximately $7.3 million in aggregate principal amount (representing approximately 77.9% of the outstanding principal amount) of the 2021 Notes, and (ii) a Forbearance Agreement (the "2021 PIK Notes Forbearance Agreement" and together with the 2021 Notes Forbearance Agreement, the "Notes Forbearance Agreements") with certain holders (the "2021 PIK Notes Supporting Holders" and together with the 2021 Notes Supporting Holders, the "Supporting Holders") of approximately $194.6 million in aggregate principal amount (representing approximately 70.7% of the outstanding principal amount) of the 2021 PIK Notes.

Pursuant to the Notes Forbearance Agreements, the Supporting Holders agreed to forbear from exercising their rights and remedies under their respective indentures governing the 2021 Notes and the 2021 PIK Notes or the related security documents with respect to certain anticipated events of default occurring under the indentures as a result of the non-payment by the Company of interest with respect to the 2021 Notes and the 2021 PIK Notes when due and payable on August 15, 2018 and such non-payment continuing for a period of 30 days, until the earlier of (i) 11:59 p.m. Eastern time on September 28, 2018 and (ii) the date the Notes Forbearance Agreements otherwise terminate in accordance with the terms therein (the “Forbearance Period”). Pursuant to the Notes Forbearance Agreements, the Supporting Holders agreed to not deliver any notice or instruction in respect of the exercise of any of the rights and remedies otherwise available under the Indenture or the related security documents with respect to such anticipated events of default. The Supporting Holders also agreed to not transfer any ownership in the 2021 Notes and the 2021 PIK Notes held by any of the Supporting Holders during the Forbearance Period other than to potential transferees currently parties to, or who agree in writing to be bound by, the Notes Forbearance Agreements. On September 28, 2018, October 5, 2018, October 19, 2018 and October 31, 2018, the Company and certain of its subsidiaries, and the Supporting Holders entered into first, second, third and fourth amendments to the Notes Forbearance Agreements that extended the September 28, 2018 deadline to 11:59 p.m. Eastern time on each of October 5, 2018, October 19, 2018, October 31, 2018 and November 6, 2018, respectively. The Notes Forbearance Agreements terminated on the commencement of the Chapter 11 Cases described in Note 2.

The 2021 Notes are reflected net of $0.2 million of related unamortized financing costs as of September 30, 2018 and December 31, 2017 and the Term Loans are reflected net of $0.3 million and $2.0 million of related unamortized financing costs as of September 30, 2018 and December 31, 2017, respectively.

The following table reconciles the face value of the 2021 Notes, 2021 PIK Notes and Term Loans to the carrying value included in the Company's Consolidated Balance Sheet as of September 30, 2018 and December 31, 2017 (in thousands):



	September 30, 2018									December 31, 2017
	2021 Notes			2021 PIK Notes			Term Loans			2021 Notes			2021 PIK Notes			Term Loans
Face Value	$	9,427		$	275,046		$	50,000		$	9,427		$	263,202		$	30,000
Unamortized Deferred Financing Costs	(193		)	—			(284		)	(212		)	—			(2,037		)
Excess (Shortfall) Carrying Value	473			(425		)	—			606			(508		)	—
Accrued PIK Interest	—			—			—			—			8,883			—
Carrying Value	$	9,707		$	274,621		$	49,716		$	9,821		$	271,577		$	27,963

The commencement of the Chapter 11 Cases, described in Note 2 above, constitutes an event of default that accelerated the obligations under the Multidraw Term Loan Agreement and the indentures governing the 2021 Notes and 2021 PIK Notes. The Multidraw Term Loan Agreement and the indentures governing the 2021 Notes and 2021 PIK Notes provide that as a result of the Petition, the principal and interest due thereunder shall be immediately due and payable. However, any efforts to enforce such payment obligations under such debt instruments will be automatically stayed as a result of the Chapter 11 Cases, and the creditors’ rights of enforcement in respect of such debt instruments will be subject to the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court.