Harvest Enters Relationship with CT Energy

Instant Max AI

(Harvest Natural Resources, Inc., 19.Jun.2015) – On 19.Jun.2015, Harvest Natural Resources, Inc. entered into a strategic relationship with CT Energy and CT Energia Holding, Ltd., an international energy trading firm, designed to maximize the long-term success and value of Harvest’s Venezuelan operations and its 20.4% investment in Petrodelta.

Under the terms of this strategic relationship, the company entered into a term sheet with PDVSA for the repositioning and growth of Petrodelta’s business. The company agreed to appoint two of CT Energy’s designees as the company’s representatives on the Petrodelta board of directors.

CT Energia has entered into a management contract with the Company to oversee Harvest’s Venezuelan day-to-day operations and to assist in the development of a plan for the business operations and financing for Petrodelta and the negotiation of definitive documents to implement such plan.

Terms of the transaction with CT Energy include:

— The company sold CT Energy a $25.2 mln, 5year, 15% non-convertible senior secured promissory note (“15% Note”) and a $7 mln, 5-year, 9% convertible senior secured note (“9% Note”). The 9% Note is immediately convertible into 8,506,097 shares of Harvest common stock at an initial conversion price of $0.82. Harvest also issued to CT Energy 69.75 shares of a newly-created series of preferred stock that carry voting rights equivalent to the shares of common stock underlying the unconverted portion of the 9% Note.

— Harvest issued CT Energy a warrant to purchase up to 34,070,820 shares of Harvest’s common stock at an initial exercise price of $1.25/share (“CT warrant”). The CT warrant will become exercisable only after the 30-day volume weighted average price of Harvest’s common stock equals or exceeds $2.50/share (“Stock Appreciation Date”) and Harvest’s stockholders approve certain proposals related to the transaction with CT Energy by a majority of votes cast, as required by the New York Stock Exchange (NYSE) shareholder approval rules. The CT warrant is cash-exercisable, but CT Energy may surrender the 15% Note to pay for a portion of the aggregate exercise price.

— The company sold CT Energy a five-year 15% non-convertible senior secured note (“additional draw note”), under which CT Energy may elect to provide $2 mln of additional funds to the company per month for up to 6-months following the 1-year anniversary of the closing date of the transaction (up to $12 mln in aggregate). If funds are loaned under the additional draw note, interest will be compounded quarterly at a rate of 15% per annum and will be payable quarterly on the first business day of each Jan., Apr., Jul. and Oct., commencing 1.Oct.2016. If by 19.Jun.2016 (“Claim Date”), the volume weighted average price of the company’s common stock over any consecutive 30-day period has not equaled or exceeded $2.50/share, the maturity date of the additional draw note will be extended by two years and the interest rates on the additional draw note will adjust to 8%. During an event of default, the outstanding principal amount will bear additional interest at a rate of 2% per annum higher than the rate otherwise applicable.

— Harvest issued to CT Energy 69.75 shares of the company’s newly created Series C preferred stock, par value $0.01/share. The primary purpose of the Series C preferred stock is to provide the holder of the 9% Note with voting rights equivalent to the common stock underlying the unconverted portion of the 9% Note. Shares of the Series C preferred stock are entitled to vote on certain matters submitted to a vote of the stockholders on an “as converted” basis.

— At our upcoming annual shareholder meeting on 9.Sep.2015, Harvest stockholders will be asked to approve certain proposals related to the transaction under NYSE shareholder approval requirements and to approve an amendment to Harvest’s charter to authorize new shares of common stock in an amount sufficient for future needs, including the full conversion of the 9% Note and full exercise of the CT warrant issued in the transaction.

— If stockholder approval is not obtained, CT Energy has the right to accelerate full repayment of the 9% and 15% notes upon 60-days’ notice. Upon acceleration of the notes, Harvest would be required to seek alternative financing for liquidity and the strategic relationship with CT Energia would be terminated.

— CT Energy appointed three members to the company’s board of directors, including one appointee serving as an independent director under the NYSE and Securities and Exchange Commission (SEC) rules.

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