Note 4 — Long-Term Debt

Long-Term Debt


	June 30,		December 31,
	2011		2010
	(in thousands)
Senior convertible notes, unsecured, with interest at 8.25%
See description below	$	32,000	$	32,000
Term loan facility with interest at 10%
See description below		—		60,000

		32,000		92,000

Discount on term loan facility
See description below		—		(10,763	)

	$	32,000	$	81,237

On February 17, 2010, we closed an offering of $32.0 million in aggregate principal amount of our 8.25 percent senior convertible notes. Under the terms of the notes, interest is payable semi-annually in arrears on March 1 and September 1 of each year, beginning September 1, 2010. The senior convertible notes will mature on March 1, 2013, unless earlier redeemed, repurchased or converted. The notes are convertible into shares of our common stock at a conversion rate of 175.2234 shares of common stock per $1,000 principal amount of senior convertible notes, equivalent to a conversion price of approximately $5.71 per share of common stock. The senior convertible notes are general unsecured obligations, ranking equally with all of our other unsecured senior indebtedness, if any, and senior in right of payment to any of our subordinated indebtedness, if any. The senior convertible notes are also redeemable in certain circumstances at our option and may be repurchased by us at the purchaser’s option in connection with occurrence of certain events. Financing costs associated with the senior convertible notes offering are being amortized over the remaining life of the notes and are recorded in other assets. The balance for financing costs was $1.4 million and $1.9 million at June 30, 2011 and December 31, 2010, respectively.

On October 29, 2010, we closed a $60.0 million term loan facility with MSD Energy Investments Private II, LLC (“MSD Energy”), an affiliate of MSD Capital, L.P., as the sole lender under the term loan facility. Under the terms of the term loan facility, interest was paid on a monthly basis at the initial rate of 10 percent and had a maturity of October 28, 2012. The initial rate of interest was scheduled to increase to 15 percent on July 28, 2011, the Bridge Date. Financing costs associated with the term loan facility offering were being amortized over the remaining life of the loan and were recorded in other assets. The balance for financing costs was $0.3 million at December 31, 2010.

The proceeds from the sale of our Antelope Project are considered an “Extraordinary Receipt” as defined in the term loan facility with MSD Energy. Pursuant to the terms of the term loan facility, on May 17, 2011, we paid amounts outstanding under the term loan facility, including principal, accrued and unpaid interest and a prepayment premium of 3.5 percent of the amount outstanding, or an aggregate $62.1 million, with the net cash proceeds received from the sale of our Antelope Project. With the payment of the term loan facility, the balance of the financing costs related to the issuance of the term loan facility of $0.3 million was expensed to loss on extinguishment of debt in the six months ended June 30, 2011.

In connection with the term loan facility, we issued to MSD Energy (1) 1.2 million warrants exercisable at any time on or after the closing date for a period of five years from the closing date on a cashless exercise basis at $15 per share until the Bridge Date, at which time the exercise price per share will equal the lower of $15 or 120 percent of the average closing bid price of Harvest’s common stock for the 20 trading days immediately preceding the Bridge Date (“Tranche A”); (2) 0.4 million warrants exercisable at any time on or after the closing date for a period of five years from the closing date on a cashless exercise basis at $20 per share until the Bridge Date, at which time the exercise price per share will equal the lower of $15 or 120 percent of the average closing bid price of Harvest’s common stock for the 20 trading days immediately preceding the Bridge Date (“Tranche B”); and (3) 4.4 million warrants exercisable at any time on or after the Bridge Date for a period of five years from the Bridge Date on a cashless exercise basis at the lower of $15 per share or 120 percent of the average closing price of Harvest’s common stock for the 20 trading days immediately preceding the Bridge Date (“Tranche C”). The Tranche C warrants may be redeemed by Harvest for $0.01 per share at any time prior to the Bridge Date in conjunction with the repayment of the loan prior to the Bridge Date. On May 17, 2011, in connection with the payment of the term loan facility, we repurchased all of the Tranche C warrants at $0.01 per share. The cost to repurchase the warrants ($44,000) was expensed to loss on extinguishment of debt in the six months ended June 30, 2011. On July 28, 2011, the Bridge Date, Tranche A and Tranche B warrants were repriced to $14.78 per warrant which is the lower of $15 or 120 percent of the average closing price of Harvest’s common stock for the 20 trading days immediately preceding the Bridge Date.

The Black-Scholes option pricing model was used in pricing Tranche A and Tranche B. Tranche A was priced at $5.46 per warrant, and Tranche B was priced at $4.60 per warrant. The Monte Carlo option pricing model was used in pricing Tranche C due to the pricing and vesting variables in the agreement. Tranche C was priced at $0.62 per warrant. The value of the warrants was recorded as discount on debt with a corresponding credit to additional paid in capital. On May 17, 2011, in connection with the payment of the term loan facility, the balance of the discount on debt for Tranche A and Tranche B was expensed to loss on extinguishment of debt in the six months ended June 30, 2011. The balance of the discount on debt for Tranche C ($2.7 million) was reversed out of additional paid in capital as the warrants associated with Tranche C were unvested.