NOTE 15. EQUITY

Share Repurchase Program

In December 2019, the Board approved a share repurchase program under which Harvest is authorized to repurchase up to $5.0 million of its outstanding common stock. Share repurchases may be made from time to time, at the Company’s discretion, through open market repurchases or negotiated transactions, which may be effected through Rule 10b5-1 trading plans. The Company intends to fund repurchases from cash on hand. This program is intended to continue the Company’s commitment to shareholder returns and the efficient management of the Company’s assets, including cash on hand. Repurchases by the Company will be subject to general market and economic conditions, alternate uses for the capital and other factors, and the share repurchase program may be suspended, modified or discontinued by the Board at any time. The Company has no obligation to repurchase any amount of its common stock under the program. During the year ended December 31, 2019, the Company repurchased 2,379 shares under the share repurchase program. As of December 31, 2019, the Company had approximately $5.0 million available under the share repurchase program for future purchases.

Dividends

On October 8, 2019, the Board of Directors of Harvest declared a dividend of $7.00 per share of common stock, approximately $71.3 million in the aggregate, paid on October 28, 2019 to its shareholders of record as of the close of business on October 18, 2019.

Warrants

On the Effective Date, the Company entered into a warrant agreement with Computershare Trust Company N.A., as warrant agent, pursuant to which the Company issued Warrants to purchase up to 800,000 shares of the Company’s common stock (representing 8% of the Company’s outstanding total issued and outstanding common stock as of the Effective Date including shares of the Company’s common stock issuable upon full exercise of the Warrants, but excluding any common stock issuable under the MIP), exercisable for a five year period commencing on the Effective Date at an exercise price of $37.48 per warrant.

The fair values for the Warrants upon issuance were estimated using the Black-Scholes option pricing model using the following assumptions:


	Warrants Issued in
	Successor Period
Risk–free interest rate		2.8	%
Dividend yield		—	%
Expected life (years)		5.0
Expected volatility		69.0	%
Strike price	$	37.48
Calculated fair value	$	9,345

In October 2019, the declaration of the dividend resulted in an adjustment to the warrant exercise price from $37.48 to $30.48 per share, effective immediately prior to the opening of business on October 21, 2019.

Predecessor

Prior to the Effective Date, owner’s equity of the Predecessor consisted of a 98% limited partnership interest and a 2% general partnership interest.

The common units had limited voting rights as set forth in the partnership agreement.

Pursuant to the partnership agreement, if at any time the general partner and its affiliates owned more than 80% of the common units outstanding, the general partner had the right, but not the obligation, to “call” or acquire all, but not less than all, of the common units held by unaffiliated persons at a price not less than their then current market value. The general partner had the right to assign this call right to any of its affiliates or to the Predecessor.

The general partner owned a 2% interest in the Predecessor. This interest entitled the general partner to receive distributions of available cash from operating surplus as discussed further below under “Cash Distributions.” The partnership agreement set forth the calculation to be used to determine the amount and priority of cash distributions that the common unitholders, Class B unitholders and general partner would receive.

The general partner had the management rights as set forth in the partnership agreement.

Predecessor Allocations of Net Income

Net income was allocated between the general partner and the limited partners in accordance with the provisions of the partnership agreement. Net income was generally allocated first to the general partner and the limited partners in an amount equal to the net losses allocated to the general partner and the limited partners in the current and prior tax years under the partnership agreement. The remaining net income was allocated to the general partner and the limited partners in accordance with their respective percentage interests of the general partner and limited partners.

Predecessor Cash Distributions

The Predecessor’s credit facility prohibited the Partnership from making cash distributions if any default or event of default, as defined in the credit facility, occurred or would result from the cash distribution.

Within 45 days after the end of each quarter, the Predecessor would distribute all of its available cash (as defined in the partnership agreement) to its general partner and unitholders of record on the applicable record date. The amount of available cash generally was all cash on hand at the end of the quarter; less the amount of cash reserves established by the general partner to provide for the proper conduct of business, to comply with applicable laws, any of the debt instruments, or other agreements or to provide funds for distributions to unitholders and to the general partner for any one or more of the next four quarters; plus all cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made after the end of the quarter. Working capital borrowings were generally borrowings that were made under the Partnership’s credit facility and in all cases was used solely for working capital purposes or to pay distributions to partners.

The partnership agreement required that the Predecessor make distributions of available cash from operating surplus in the following manner:

first, 98% to the unitholders, pro rata, and 2% to the general partner, until the Predecessor distributed for each outstanding common unit an amount equal to the minimum quarterly distribution for that quarter; and

thereafter, cash in excess of the minimum quarterly distributions is distributed to the unitholders and the general partner based on the percentages below.

The minimum quarterly distribution was not guaranteed and distributions below the minimum quarterly distribution were not accrued in arrears.

The general partner was entitled to incentive distributions if the amount distributed with respect to one quarter exceeded specified target levels shown below:


			Marginal Percentage
			Interest in Distributions
	Total Quarterly Distributions		Limited		General
	Target Amount		Partner		Partner
Minimum quarterly distribution		$0.7615	98	%	2	%
First target distribution		Up to $0.875725	98	%	2	%
Second target distribution		Above $0.875725, up to $0.951875	85	%	15	%
Thereafter		Above $0.951875	75	%	25	%

The Predecessor did not pay any distributions during the five months ended May 31, 2018 or during the year ended December 31, 2017. During the five months ended May 31, 2018 and the year ended December 31, 2017, the board of directors of EV Management announced that it had elected to suspend distributions for all quarters of those periods.