<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 21, 1995
HARKEN ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 0-9207 95-2841597
(State or other jurisdiction of (Commission File (IRS Employer
incorporation) Number) Identification No.)
5605 N. MACARTHUR BLVD, SUITE 400 75038
IRVING, TEXAS 75038 (ZIP Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (214) 753-6900
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 15, 1995, Harken Energy Corporation (the "Company")
entered into a Purchase and Sale Agreement (the "Purchase and Sale Agreement")
with Harken Exploration Company, a wholly owned subsidiary of the Company
("Harken Exploration"), and Momentum Operating Co., Inc. ("Momentum"). The
transactions contemplated by the Purchase and Sale Agreement were consummated
on December 21, 1995. Pursuant to the Purchase and Sale Agreement, Harken
Exploration acquired all of Momentum's working interests in certain producing
oil and gas leases located on approximately 6,800 acres in Hutchison County,
Texas, a gas gathering system located thereon, property and equipment related
thereto and the surface rights to a 161 acre tract of land (the "Properties"),
in exchange for 2,500,000 shares of common stock, $.01 par value per share (the
"Common Stock") of the Company (the "Purchase Shares"), $2,500,000 in cash and
a promissory note of Harken Exploration (the "Note") in the principal amount of
$13,000,000.
The Note bears interest at 5% per annum as to $8,000,000 in principal
amount only, is secured by Harken Exploration's interest in the Properties (but
is otherwise a non-recourse note) and has not been guaranteed by the Company.
The Note matures and becomes payable in two stages. Upon the earlier of (i)
the expiration of 270 days following the date upon which the Securities and
Exchange Commission (the "Commission") declares the First Registration
Statement (as defined below) effective or (ii) January 15, 1997, $8,000,000 in
principal amount of the Note, subject to adjustment as described below, will
mature, and become payable ("Maturity I"). The remaining $5,000,000 in
principal amount of the Note, subject to adjustment as described below, will
mature and become payable ("Maturity II") on July 15, 1997; provided, however,
that if the amount due at Maturity I is paid in shares of Common Stock as
described below, such principal amount will mature and become payable on the
earlier of (i) the expiration of 270 days following the date upon which the
Commission declares the Second Registration Statement (as defined below)
effective or (ii) November 15, 1997.
Pursuant to the Purchase and Sale Agreement, Harken Exploration may
elect to pay the amounts due at either or both of Maturity I and Maturity II in
shares of Common Stock, with the number of shares to be issued at Maturity I to
be determined by dividing the amount due at Maturity I by the average of the
closing prices of the Common Stock on the American Stock Exchange during the
period beginning upon the date which the First Registration Statement is
declared effective and ending ten (10) trading days prior to Maturity I (the
"Maturity I Average Trading Price") and the number of shares to be issued at
Maturity II to be determined by dividing the amount due at Maturity II by the
average of the closing prices of the Common Stock on the American Stock
Exchange during the period beginning upon the date which the Second
Registration Statement is declared effective and ending ten (10) trading days
prior to Maturity II.
The Purchase Shares issued to Momentum have not been registered under
the Securities Act of 1933 (the "Securities Act"), and were issued in reliance
upon exemptions from registration available under the Securities Act. Such
shares are "restricted securities" within the meaning of
2
<PAGE> 3
Rule 144 promulgated by the Commission under the Securities Act and may not be
sold, transferred, or otherwise disposed of unless they are registered or sold,
transferred, or otherwise disposed of pursuant to an exemption from
registration.
Pursuant to the terms of a Registration Rights Agreement between the
Company and Momentum executed concurrently with the Purchase and Sale
Agreement, the Company has agreed to file a "shelf" registration statement (the
"First Registration Statement") pursuant to Rule 415 under the Securities Act
covering the sale by Momentum of the Purchase Shares no later than January 20,
1996, and to use diligent efforts to maintain the effectiveness of the First
Registration Statement for the shorter of (i) 270 days from the date of
effectiveness of the First Registration Statement, or (ii) the date on which
all of the Purchase shares have been sold by Momentum. If the amount due at
Maturity I is paid in shares of Common Stock, Harken has agreed to file a
second "shelf" registration statement (the "Second Registration Statement")
pursuant to Rule 415 under the Securities Act on or before the expiration of 30
days following Maturity I, covering all of the shares of Common Stock issued to
Momentum at Maturity I, and to use diligent efforts to maintain the
effectiveness of the Second Registration Statement for the shorter of (i) 270
days from the date of effectiveness of the Second Registration Statement, or
(ii) the date on which all of the shares of Common Stock covered by the Second
Registration Statement have been sold by Momentum. If the amounts due at
Maturity II are paid in shares of Common Stock, Harken has agreed to file a
third "shelf" registration statement (the "Third Registration Statement")
pursuant to Rule 415 under the Securities Act on or before the expiration of
30 days following Maturity II, covering the sale of all of the shares of Common
Stock issued to Momentum at Maturity II, and to use diligent efforts to
maintain the effectiveness of the Third Registration Statement for the shorter
of (i) 270 days from the date of effectiveness of the Third Registration
Statement, or (ii) the date on which all of the shares of Common Stock covered
by the Third Registration Statement have been sold by Momentum.
The principal amount due at Maturity I is subject to adjustment as
follows: (i) the principal amount due will be reduced by an amount equal to (x)
the value of any title, mechanical or environmental defects with respect to the
Properties discovered by Harken Exploration after closing and (y) the amount of
costs, expenses, or losses suffered by Harken Exploration as a result of a
breach of Momentum's representations and warranties contained in the Purchase
and Sale Agreement, up to a maximum of $800,000; (ii) the principal amount will
be adjusted in an amount equal to the difference between $500,000 and the net
revenue received by Momentum with respect to the Properties between July 1,
1995 and December 21, 1995; (iii) the principal amount will be adjusted in an
amount equal to the difference between (x) the amount realized by Momentum or
which could have been realized by Momentum upon the sale of the Purchase Shares
and (y) $2.00 per share multiplied by the number of shares of Common Stock sold
by Momentum between December 20, 1995 and Maturity I; (iv) the principal amount
will be increased by a factor equal to 10% per annum of the weighted average of
the daily differences between $5,000,000 and the aggregate proceeds received by
Momentum upon the sale of the Purchase Shares; and (v) the principal amount
will be increased by $200,000.
3
<PAGE> 4
The principal amount due at Maturity II is subject to adjustment as
follows: (i) the principal amount will be adjusted by an amount equal to the
difference between (x) the amount realized by Momentum or which could have been
realized by Momentum upon the sale of the shares of Common Stock issued to
Momentum at Maturity I and (y) Maturity I Average Trading Price multiplied by
the number of shares of Common Stock sold by Momentum between Maturity I and
Maturity II; and (ii) the principal amount will be increased by a factor equal
to 10% per annum of the weighted average of the daily differences between
$8,000,000 and the aggregate proceeds received by Momentum upon the sale of the
shares of Common Stock issued to Momentum at Maturity I.
Each of the Purchase and Sale Agreement, the Note, and the
Registration Rights Agreement, attached hereto as Exhibits 2.1, 99.1 and 99.2
respectively, is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired.
4
<PAGE> 5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Harken Energy Corporation:
We have audited the accompanying statements of revenues and direct operating
expenses of Momentum Properties for the fiscal years ended July 31, 1993, 1994,
and 1995. These statements of revenues and direct operating expenses are the
responsibility of Harken Energy Corporation's management. Our responsibility
is to express an opinion on these statements of revenues and direct operating
expenses based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of revenues and direct
operating expenses are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statements of revenues and direct operating expenses. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the
statements of revenues and direct operating expenses. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the statements of revenues and direct operating expenses
referred to above present fairly, in all material respects, the revenues and
direct operating expenses of Momentum Properties as of July 31, 1993, 1994, and
1995, in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Dallas, Texas, ARTHUR ANDERSEN LLP
November 13, 1995
5
<PAGE> 6
MOMENTUM PROPERTIES
STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
FOR THE FISCAL YEARS ENDED JULY 31, 1993, 1994, AND 1995,
AND FOR THE THREE-MONTH PERIODS ENDED OCTOBER 31, 1994 AND 1995
(In thousands)
<TABLE>
<CAPTION>
Three-Month
Fiscal Years Ended Periods Ended
July 31, October 31,
--------------------------------- --------------------
1993 1994 1995 1994 1995
------- ------- ------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Oil $ 156 $ 138 $ 217 $ 61 $ 36
Gas 812 920 1,110 277 297
------- ------- ------- -------- --------
968 1,058 1,327 338 333
------- ------- ------- -------- --------
DIRECT OPERATING EXPENSES:
Production and other expenses 182 191 190 52 39
Taxes on production 71 76 94 24 24
------- ------- ------- -------- --------
Total 253 267 284 76 63
------- ------- ------- -------- --------
EXCESS OF REVENUES OVER DIRECT
OPERATING EXPENSES $ 715 $ 791 $ 1,043 $ 262 $ 270
======= ======= ======= ======== ========
</TABLE>
See notes to statements of revenues and direct operating expenses.
6
<PAGE> 7
MOMENTUM PROPERTIES
NOTES TO STATEMENTS OF REVENUES AND DIRECT OPERATING EXPENSES
1. BASIS OF PRESENTATION:
On December 15, 1995, Harken Energy Corporation (the "Company") and Harken
Exploration Company, a wholly owned subsidiary of the Company, entered into an
agreement, effective July 1, 1995, with Momentum Operating Co., Inc. to acquire
certain oil and gas producing properties ("Momentum Properties") in exchange
for, among other consideration, 2,500,000 shares of the Company's restricted
common stock, $2,500,000 cash consideration, and a note payable for
$13,000,000. The closing of these transactions occurred on December 21, 1995.
Eight million dollars of the $13,000,000 note payable bears interest at 5% per
annum, is payable in either cash or shares of the Company's restricted common
stock, and matures on the earlier of (i) nine months following the date of
effectiveness of the registration statement for the shares of the Company's
restricted common stock issued at closing or (ii) January 15, 1997 (the "First
Maturity Date"). The remaining $5,000,000 of the $13,000,000 note payable is
non-interest bearing, is payable in either cash or shares of the Company's
restricted common stock, and matures on July 15, 1997; provided, however, that
if the amount due at the First Maturity Date is paid in shares of the Company's
restricted common stock, such amount shall mature on the earlier of (i) nine
months following the date of effectiveness of the registration statement for
the shares of the Company's restricted common stock issued at the First
Maturity Date or (ii) November 15, 1997. The total purchase price was allocated
to producing properties. The producing interests in approximately 52 wells
consist entirely of operated interests in the panhandle region of Texas.
The accompanying statements of revenues and direct operating expenses do not
include general and administrative expense, interest income or expense, a
provision for depreciation, depletion and amortization or any provision for
income taxes because the property interests acquired represent only a portion
of a business and the costs incurred by Momentum Operating Co., Inc. are not
necessarily indicative of the costs to be incurred by the Company. In
addition, the accompanying statements of revenues and direct operating expenses
do not include any operating overhead costs as Momentum Operating Co., Inc.
operates all of the Momentum Properties and did not allocate internal overhead
costs incurred by Momentum Operating Co., Inc. to the properties. The
accompanying statements of revenue and direct operation expenses are presented
for the fiscal years ended July 31, 1993, 1994 and 1995 as this is the fiscal
year end of Momentum Operating Co. Inc.
Historical financial information reflecting financial position, results of
operations, and cash flows of the Momentum Properties is not presented because
the acquisition cost was assigned to the oil and gas property interests
acquired. Accordingly, the historical statements of revenues and direct
operating expenses have been presented in lieu of the financial statements
required under Rule 3-05 of Securities and Exchange Commission Regulation S-X.
2. SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (unaudited):
Estimated Quantities of Proved Oil and Gas Reserves
Reserve information presented below has been estimated using October 31, 1995,
prices and costs. Proved reserves are estimated quantities of crude oil and
natural gas which, based on geologic and engineering data, are estimated to be
reasonably recoverable in future years from known reservoirs under existing
economic and operating conditions. Proved developed reserves are those which
are expected to be recovered through existing wells with existing equipment and
operating methods. Because of inherent uncertainties and the limited nature of
reservoir data, such estimates are subject to change as additional information
becomes available.
7
<PAGE> 8
The proved oil and gas reserves at October 31, 1995, are as follows:
<TABLE>
<CAPTION>
Oil (Mbbls) Gas (Mmcf)
----------- ----------
<S> <C> <C>
Proved reserves 863 24,102
Proved developed reserves 131 4,935
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil
and Gas Reserves
The standardized measure of discounted future net cash flows ("Standardized
Measure") is prepared using assumptions required by the Financial Accounting
Standards Board. Such assumptions include the use of period-end prices for oil
and gas and period-end costs for estimated future development and production
expenditures to produce period-end estimated proved reserves. Discounted
future net cash flows are calculated using a 10% discount rate.
The Standardized Measure does not represent the Company's estimate of future
net cash flows or the value of proved oil and gas reserves. Furthermore,
period-end prices, used to determine the Standardized Measure, are influenced
by seasonal demand and other factors and may not be the most representative in
estimating future revenues or reserve data.
The Standardized Measure at October 31, 1995, is as follows (in thousands):
<TABLE>
<S> <C>
Future cash inflows $ 97,772
Future costs-
Production (17,254)
Development (8,161)
--------
Future net cash flows 72,357
10% annual discount (29,649)
--------
Standardized Measure before income taxes $ 42,708
========
</TABLE>
8
<PAGE> 9
(b) Pro forma financial information.
The following unaudited pro forma combined condensed financial
statements give effect to the December 21, 1995, acquisition by Harken
Exploration Company, a subsidiary of Harken Energy Corporation ("Harken"), of
certain oil and gas producing properties ("Momentum Properties") in exchange
for, among other consideration, 2,500,000 shares of restricted Harken common
stock, $2,500,000 cash consideration and a note payable in the face amount of
$13,000,000. In addition, the unaudited pro forma combined condensed financial
statements also reflect the October 5, 1995, acquisition of certain oil and gas
properties ("Yellowhouse Properties"), as well as the May 12, 1995, issuance of
European 8% Senior Convertible Notes in the amount of $15,000,000, the May 22,
1995, merger with Search Exploration, Inc. ("Search"), and the October 1994
acquisition of an additional 20.35625% interest in the CHAP Joint Venture (the
"Prior Transactions").
The pro forma combined condensed balance sheet gives effect to the acquisition
of the Momentum Properties and the Yellowhouse Properties as if they had been
consummated as of September 30, 1995. The pro forma combined condensed
statements of operations for the year ended December 31, 1994, and for the nine
months ended September 30, 1995, give effect to all transactions as if each had
been consummated at the beginning of each period.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the financial position or operating results that
would have occurred had the transactions been consummated at the dates
indicated, nor are they indicative of future financial position or operating
results.
9
<PAGE> 10
HARKEN ENERGY CORPORATION
PRO FORMA COMBINED CONDENSED BALANCE SHEET--SEPTEMBER 30, 1995
(Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Adjustments- Adjustments-
Harken Yellowhouse Momentum
ASSETS Actual Properties(1) Properties(2) Pro Forma
------ ------- ------------ ------------- ---------
<S> <C> <C> <C> <C>
CURRENT ASSETS $ 9,059 $ 345 $ - $ 9,404
PROPERTY AND EQUIPMENT, net 27,363 4,426 20,790 52,579
RESTRICTED CASH IN EUROPEAN
SEGREGATED ACCOUNT 9,674 - (2,500) 7,174
INVESTMENTS IN FORMER
SUBSIDIARIES 1,219 - - 1,219
NOTES RECEIVABLE FROM
RELATED PARTIES, including interest 232 - - 232
OTHER ASSETS, net 1,846 - - 1,846
------- ------ ------- -------
Total assets $49,393 $4,771 $18,290 $72,454
======= ====== ======= =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES $ 4,556 $ 580 $ 346 $ 5,482
LONG-TERM DEBT 13,300 - 12,944 26,244
REDEEMABLE PREFERRED STOCK 1,868 - - 1,868
STOCKHOLDERS' EQUITY 29,669 4,191 5,000 38,860
------- ------ ------- -------
Total liabilities and
stockholders' equity $49,393 $4,771 $18,290 $72,454
======= ====== ======= =======
</TABLE>
10
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HARKEN ENERGY CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Adjustments- Adjustments-
Harken Search Prior Momentum
Actual Actual Transactions Properties Pro Forma
----------- ------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
OIL AND GAS REVENUES $ 4,189 $ 188 1,510 (7) $ 982 (1) $ 6,869
OTHER REVENUES 992 - 248 (8) (90)(2) 1,150
----------- ------- ------- ------ -----------
Total revenues 5,181 188 1,758 892 8,019
OIL AND GAS OPERATING
EXPENSE 1,343 79 665 (7) 214(3) 2,301
GENERAL AND
ADMINISTRATIVE EXPENSE 2,285 236 123 (7) 81(4) 2,725
DEPRECIATION AND
AMORTIZATION 1,810 18 725 (9) 346(5) 2,899
INTEREST EXPENSE AND
OTHER 322 19 388 (8) 713(6) 1,442
----------- ------- ------- ------ -----------
Total expenses 5,760 352 1,901 1,354 9,367
----------- ------- ------- ------ -----------
INCOME/(LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES (579) (164) (143) (462) (1,348)
INCOME TAX EXPENSE - - - - -
----------- ------- ------- ------ -----------
INCOME/(LOSS) FROM
CONTINUING OPERATIONS $ (579) $ (164) $ (143) $ (462) $ (1,348)
=========== ======= ======= ====== ===========
Net loss per share from
continuing operations
attributable to common
stock $ (0.01) $ (0.02)
=========== ===========
Weighted average shares
outstanding 63,052,443 69,924,089
=========== ===========
</TABLE>
11
<PAGE> 12
HARKEN ENERGY CORPORATION
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Acquired Adjustments- Adjustments-
Harken Interest in Search Prior Momentum
Actual CHAP-Actual Actual Transactions Properties Pro Forma
---------- ----------- ------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
OIL AND GAS REVENUES $ 4,156 $ 1,035 $ 495 $ 2,154 (7) $ 1,252 (1) $ 9,092
OTHER REVENUES 739 39 221 660 (8) (120)(2) 1,539
---------- ------- ------- ------- ------- ----------
Total revenues 4,895 1,074 716 2,814 1,132 10,631
OIL AND GAS OPERATING EXPENSE 1,535 337 274 940 (7) 335 (3) 3,421
GENERAL AND ADMINISTRATIVE
EXPENSE 3,132 96 698 166 (7) 108 (4) 4,200
DEPRECIATION AND AMORTIZATION 1,993 416 499 781 (9) 416 (5) 4,105
PROVISION FOR ASSET IMPAIRMENTS 6,361 - 2,667 (2,667)(9) - 6,361
INTEREST EXPENSE AND OTHER 85 - 5 1,155 (8) 846 (6) 2,091
---------- ------- ------- ------- ------- ----------
Total expenses 13,106 849 4,143 375 1,705 20,178
---------- ------- ------- ------- ------- ----------
INCOME/(LOSS) FROM
CONTINUING OPERATIONS
BEFORE INCOME TAXES (8,211) 225 (3,427) 2,439 (573) (9,547)
INCOME TAX EXPENSE/(BENEFIT) - - (227) 227 (10) - -
---------- ------- ------- ------- ------- ----------
INCOME/(LOSS) FROM CONTINUING
OPERATIONS $ (8,211) $ 225 $(3,200) $ 2,212 $ (573) $ (9,547)
========== ======= ======= ======= ======= ==========
Net loss per share from continuing
operations attributable to common
stock $ (0.14) $ (0.14)
========== ==========
Weighted average shares
outstanding 59,722,853 68,345,609
========== ==========
</TABLE>
12
<PAGE> 13
HARKEN ENERGY CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
PRO FORMA ADJUSTMENTS - PRO FORMA COMBINED CONDENSED BALANCE SHEET:
(1) Pro forma entry to record the acquisition of Yellowhouse Properties at
September 30, 1995, in exchange for 3,000,000 shares of restricted Harken
common stock previously held as treasury stock. Harken also issued
1,000,000 warrants to purchase additional shares of restricted Harken
common stock at $2 per share, and also issued 82,759 shares of restricted
Harken common stock previously held as treasury stock to a financial
advisor in connection with the acquisition. The purchase price was
calculated using the market value, discounted by 25%, of the shares
issued in the acquisition. In addition, Harken assumed certain
short-term notes payable with a remaining balance of $333,000. The
purchase price was allocated entirely to the Yellowhouse Properties
proved reserves and includes $100,000 of estimated transaction costs. In
addition, certain closing adjustments have been reflected in the pro
forma balance sheet.
(2) Pro forma entry to record the acquisition of Momentum Properties at
September 30, 1995, in exchange for, among other consideration,
$2,500,000 in cash, a note payable in the face amount of $13,000,000, and
2,500,000 shares of Harken common stock. The purchase price was
calculated by recording the note payable at its discounted fair value,
using a market rate of interest. The recorded amount of the note
payable, which is payable at Harken's election in either cash or shares
of Harken common stock, also reflects certain estimated adjustments to be
made to the principal balance at its maturity dates. Additionally,
Harken has valued the 2,500,000 shares of Harken common stock issued at
closing at an undiscounted value of $2.00 per share, as Harken has
guaranteed such a sales proceeds value to the seller as part of the
adjusted principal value of the note payable. The purchase price was
allocated entirely to the Momentum Properties proved reserves and
includes $150,000 of estimated transaction costs. In addition, certain
closing adjustments have been reflected in the pro forma balance sheet.
PRO FORMA ADJUSTMENTS - PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS:
(1) Pro forma entry to reflect the actual revenues of the Momentum
Properties.
(2) Pro forma entry to reflect the reduction in interest income earned due to
the $2,500,000 cash consideration to be paid at closing of the
acquisition of the Momentum Properties.
(3) Pro forma entry to reflect the estimated increase in production expenses
attributable to the Momentum Properties, including historical production
expenses of $178,000 and $287,000 for the nine months ended September 30,
1995, and for the year ended December 31, 1994, respectively, and
operating costs expected to be incurred by Harken which were not included
in the historical statements of revenues, and direct operating expenses
of $36,000 and $48,000 for the nine months ended September 30, 1995, and
for the year ended December 31, 1994, respectively.
(4) Pro forma entry to reflect estimated increase in general and
administrative expenses attributable to the Momentum Properties.
(5) Pro forma entry to reflect depreciation and depletion expense on oil and
gas properties for the Momentum Properties calculated on a consolidated
basis.
(6) Pro forma entry to record the accretion of interest expense related to
the discounted fair value of the note payable issued by Harken as part of
the acquisition of Momentum Properties.
13
<PAGE> 14
(7) Pro forma entry to reflect the actual revenues and direct operating
expenses primarily of the Yellowhouse Properties.
(8) Pro forma entry to reflect interest income earned on European segregated
cash as well as interest expense incurred primarily on the European 8%
Senior Convertible Notes.
(9) Pro forma entry to adjust actual depreciation and depletion expense and
valuation provision on oil and gas properties for the Yellowhouse
Properties, Search, and the acquired interest in CHAP Joint Venture
calculated on a consolidated basis.
(10) Pro forma entry to eliminate income tax benefit of Search.
14
<PAGE> 15
(c) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
2.1 -- Agreement of Purchase and Sale dated December 15, 1995, by and between Harken Energy Corporation,
Harken Exploration Company and Momentum Operating Co., Inc.
99.1 -- Promissory Note of Harken Exploration Co., Inc., dated December 15, 1995, in the principal amount of
$13,000,000.
99.2 -- Registration Rights Agreement, dated as of December 15, 1995, by and among Harken Energy Corporation
and Momentum Operating Co., Inc.
</TABLE>
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HARKEN ENERGY CORPORATION
Date: December 22, 1995 By: /s/ Bruce N. Huff
Bruce N. Huff,
Senior Vice President and
Chief Financial Officer
16
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Exhibit Page
---------- ------- ------------
<S> <C>
2.1 Agreement of Purchase and Sale dated December 15, 1995, by
and between Harken Energy Corporation, Harken Exploration
Company and Momentum Operating Co., Inc.
99.1 Promissory Note of Harken Exploration Co., Inc., dated
December 15, 1995, in the principal amount of $13,000,000.
99.2 Registration Rights Agreement, dated as of December 15, 1995,
by and among Harken Energy Corporation and Momentum Operating
Co., Inc.
</TABLE>
17
<PAGE> 1
Exhibit 2.1
PURCHASE AND SALE AGREEMENT
DATED DECEMBER 15, 1995
MOMENTUM OPERATING CO., INC. (SELLER)
AND
HARKEN EXPLORATION COMPANY (BUYER)
AND
HARKEN ENERGY CORPORATION (COMPANY)
PANHANDLE WEST (RED CAVE) FIELD
PANHANDLE WEST FIELD
PANHANDLE HUTCHINSON COUNTY FIELD
<PAGE> 2
HUTCHINSON COUNTY, TEXAS
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 - PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Excluded Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 2 - PURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Purchase Price Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Adjustments to Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Payment of Adjusted Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5 Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 3 - REPRESENTATIONS AND DISCLAIMERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Seller's Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Buyer's Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.3 Company's Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.4 Disclaimers and Waiver of Consumer Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 4 - COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.1 Seller's Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.2 Buyer's Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 5 - TITLE, ENVIRONMENTAL AND OPERATIONS DEFECTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.1 Defensible Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.2 Title Defects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.3 Casualty Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.4 Environmental Defects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.5 Operations Defects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.6 Notice of Defects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.7 Remedies for Defects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.8 Adjustments for Defects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.9 Upward Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
Table of Contents - 1
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TABLE OF CONTENTS, CONT'D
<TABLE>
<S> <C>
ARTICLE 6 - CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.1 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.2 Closing Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 7 - OBLIGATIONS AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.1 Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.2 Subsequent Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.3 Filings and Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.4 Files and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.5 Sales and Use Taxes and Recording . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.6 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.7 Assumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.8 Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.9 Survival and Limitations of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.10 Administration of Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.11 Information and Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.12 Company's Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.13 Section 4.1(h) Refund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE 8 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.4 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.5 Table of Contents/Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.6 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.7 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.9 Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.10 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.11 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.12 Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.13 Severance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.14 Time of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
Table of Contents - 2
<PAGE> 4
PURCHASE AND SALE AGREEMENT
This Agreement is dated December 15, 1995 between Momentum Operating
Co., Inc. ("Seller") and Harken Exploration Company ("Buyer") and Harken Energy
Corporation ("Company"). For value received, Seller, Buyer and Company agree
as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 PURCHASE AND SALE. Subject to the terms of this Agreement,
Seller agrees to sell the Properties to Buyer and Buyer agrees to purchase the
Properties from Seller.
1.2 PROPERTIES. The following, less the Excluded Properties, are
the Properties:
(a) all of Seller's undivided right, title and interest
in the oil and gas leases described in Schedule 1.2(a) to this Agreement
("Leases");
(b) all of Seller's undivided interests in all wells,
salt water disposal wells, equipment, fixtures, personal property and
improvements which are located on and used in connection with the Leases,
including, without limitation, the wells and salt water disposal wells listed
in Schedule 1.2(b) to this Agreement ("Wells and Equipment");
(c) all of Seller's interests in all agreements and other
rights of Seller relating to the other items among the Properties, including,
without limitation, those listed in Schedule 1.2(c) and all other division and
transfer orders; production purchase or sale agreements; product processing,
balancing, gathering, compression and transportation agreements; farmout, dry
hole, bottom hole, acreage contribution and operating agreements; area of
mutual interest agreements; salt water disposal agreements; unitization and
pooling agreements; and claims arising to the benefit of Seller as operator of
the Properties before the Effective Time which are associated with Seller's
representation in Section 3.1(i) if such claims are not disclosed in Schedule
3.1 to this Agreement ("Contracts");
(d) all of Seller's interest in the natural gas gathering
systems depicted in Schedule 1.2(d) to this Agreement, including, without
limitation, compressors, engines, meters and related equipment, pipes,
fittings, valves, dehydrators, regulators, cathodic or electric protection
equipment, pumps, gates, tanks, launchers and receivers, supplies and
replacement parts ("Gathering System");
<PAGE> 5
(e) all of Seller's interest in all rights-of-way,
easements, leases, permits, licenses and other surface use rights which are
held or used in connection with the Leases and the Gathering System, including,
without limitation, those listed in Schedule 1.2(e) ("Surface Rights");
(f) all severed oil, gas, condensate, products, other
hydrocarbons and other minerals produced from the Leases and (i) as measured
and in storage or in pipelines at the Effective Time, or (ii) produced on or
after the Effective Time ("Substances");
(g) copies of all of Seller's data and information
relating to the other items among the Properties, the transfer of which is not
prohibited, including, without limitation, geological, geophysical and
engineering data (excluding interpretations); production records; copies of
land, legal, title and contract files; copies of revenue records and lease
expense invoices; and other items listed in Schedule 1.2(g) to this Agreement
("Data").
(h) all of Seller's right, title and interest in the
surface only of the 161.192-acre tract described in Schedule 1.2(h) to this
Agreement.
1.3 EXCLUDED PROPERTIES. The following items are not included
among the Properties:
(a) all of Seller's accounts, rights to payment, rights
of reimbursement, claims, insurance and condemnation proceeds, and causes of
action arising out of or related to the Properties and attributable to acts,
omissions or events which occurred before the Effective Time;
(b) all of Seller's equipment which is not located on and
used in connection with the Properties, including, without limitation,
computers and peripheral equipment, copiers, fax machines, radio and telephone
equipment, tools, vehicles, and all of Seller's field equipment which is listed
in Schedule 1.3(b) to this Agreement; and
(c) all of Seller's geological, geophysical and
engineering interpretations, proprietary computer software and other
intellectual property;
(d) all of Seller's right, title and interest acquired in
bill of sale dated June 1, 1994, from Mustang Oil and Gas Corporation to
Seller, covering water well bores, equipment, fresh water pipelines and
personal property located in Sections 37 and 38, Blk.
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<PAGE> 6
47, H. & T. C. RR. Co. Survey, Hutchinson County, Texas, a copy of which is
attached as Schedule 1.3(d) to this Agreement;
(e) all of Seller's right, title and interest in all
Contracts insofar as they cover or affect Seller's rights and interests which
are not among the Properties, including, without limitation, (i) electric
service agreement dated May, 1991, between Southwestern Public Service Company
and Seller, and (ii) gas purchase contract dated August 11, 1995, between GPM
Gas Corporation and Seller.
1.4 EFFECTIVE TIME. Except as provided in Section 2.3(b)(1), the
purchase and sale of the Properties shall be effective for all purposes on July
1, 1995, at 7:00 a.m., local time ("Effective Time").
ARTICLE 2
PURCHASE PRICE
2.1 PURCHASE PRICE. The purchase price for the Properties is U.S.
$21,000,000.00, subject to adjustment as provided in this Agreement ("Purchase
Price").
2.2 PURCHASE PRICE ALLOCATIONS. Attached to this Agreement as
Schedule 2.2 is an allocation of the Purchase Price among the Leases
("Allocated Value"). The Allocated Value is solely to provide a means for
adjusting the Purchase Price as required by this Agreement. The Allocated
Value shall not be considered by Seller, Buyer or any third party as a
representation or warranty as to actual value.
2.3 ADJUSTMENTS TO PURCHASE PRICE. The Purchase Price shall be
adjusted as provided in this Agreement and the resulting amount shall be
referred to as the "Adjusted Purchase Price". Buyer waives any right it may
have, now or in the future, to offset the Purchase Price with amounts not
contemplated by this Agreement.
(a) The Purchase Price shall be increased by the
following, without duplication:
(1) an amount equal to Seller's interest in the
quantity of Substances produced from the Leases as measured and in storage or
pipelines at the Effective Time, multiplied by the contract price at the
Effective Time, net of all applicable taxes;
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<PAGE> 7
(2) the amount of all costs and expenses that are
(i) attributable to the Properties for the period from the Effective Time to
the Closing Date and paid by or on behalf of Seller, and (ii) otherwise
incurred and paid by or on behalf of Seller in compliance with this Agreement;
(3) an amount equal to $150.00 per day from the
Effective Time to the Closing Date (i) for Seller's indirect overhead expenses,
and (ii) with respect to Properties owned entirely by Seller, for operating
expenses that Seller would have paid under a standard operating agreement
employing customary accounting principles;
(4) an amount equal to the value of Upward
Adjustments under Section 5.9; and
(5) the sum of $200,000.00 in addition to all
other adjustments in this Section 2.3(a).
(b) The Purchase Price shall be decreased by the
following, without duplication:
(1) the amount by which (i) the amount of
proceeds received by Seller for the sale of Substances produced after the
Effective Time, net of applicable taxes not reimbursed to Seller by a purchaser
of the Substances, exceeds (ii) $500,000.00;
(2) the amount of proceeds received by Seller for
the disposition after the Effective Time of the Properties listed in Schedule
2.3(b)(2) to this Agreement, excluding amounts under Section 2.3(b)(1);
(3) an amount equal to the value of Defects
adjustments determined under Article 5, subject to the limitation contained in
Section 7.9(b); and
(4) the amount of all unpaid taxes and
assessments based on the ownership of property, the production of hydrocarbons
or the receipt of proceeds, excluding income taxes, accruing to the Properties
before the Effective Time. If possible, this adjustment shall be computed
using the tax rate and values for the tax period in question. If this is not
possible, the adjustment shall be based on the taxes assessed against the
Properties for the immediately preceding tax period.
2.4 PAYMENT OF ADJUSTED PURCHASE PRICE. The Adjusted Purchase
Price shall be paid as follows:
4
<PAGE> 8
(a) At Closing, Buyer shall pay Seller the sum of U.S.
$2,500,000.00 in cash ("Closing Cash Payment").
(b) Seller shall retain so much of the first U.S.
$500,000.00 of proceeds as is received by Seller for the sale of Substances
produced after the Effective Time, net of applicable taxes not reimbursed to
Seller by a purchaser of the Substances ("Retained Proceeds").
(c) At Closing, Buyer shall deliver to Seller 2,500,000
shares of the Company's common stock $.01 par value per share ("Purchase
Shares").
(d) At Closing, Buyer shall execute and deliver to Seller
Buyer's promissory note in the original principal amount of $13,000,000.00 in
the form attached as Schedule 2.4(d) to this Agreement ("Note"). Adjustments
to the Purchase Price shall be made as provided in the Note and this Agreement.
2.5 SECURITY. At Closing, Buyer shall execute and deliver to
Seller the deed of trust, security agreement, financing statement and
assignment of production attached to this Agreement as Schedule 2.5 ("Deed of
Trust"), together with any other financing statements deemed appropriate by
Seller. The Deed of Trust shall secure payment of the Note, as well as
performance of Buyer's and Company's obligations under this Agreement and under
any other instrument executed in connection with this Agreement.
ARTICLE 3
REPRESENTATIONS AND DISCLAIMERS
3.1 SELLER'S REPRESENTATIONS. Seller represents to Buyer that as
of Closing, except as disclosed in Schedule 3.1 to this Agreement:
(a) Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas. Seller is
qualified to do business in the State of Texas. Seller is qualified under all
applicable laws, rules and regulations to own and operate the Properties.
(b) Seller has the power and authority to carry on its
business as presently conducted, to enter into this Agreement and to perform
its obligations under this Agreement.
5
<PAGE> 9
(c) Execution and delivery of this Agreement,
consummation of the transactions contemplated by this Agreement, and
performance of all obligations under this Agreement have been authorized by all
necessary action, corporate and otherwise, on the part of Seller. Execution
and delivery of this Agreement does not, and the consummation of the
transactions contemplated by this Agreement will not, violate or be in conflict
with any agreement, instrument, judgment, order, decree, law, rule or
regulation by which Seller or the Properties is bound.
(d) Subject to laws and equitable principles affecting
the rights of creditors generally, this Agreement is a binding obligation of
Seller enforceable according to its terms.
(e) Other than proceedings affecting the oil and gas
industry generally, no suit, claim, demand or investigation is pending or, to
Seller's knowledge, is threatened, that would impair Seller's title to the
Properties or impede their operation and development. There are no bankruptcy
or reorganization proceedings pending or, to Seller's knowledge, threatened
against Seller. As used in this Agreement, the term "knowledge" means actual
awareness of relevant facts and actual awareness of facts which would cause a
person exercising reasonable prudence to discover relevant facts.
(f) Seller is not in breach of any Lease, Contract or
Surface Right which could, to Seller's knowledge, materially and adversely
affect Buyer's use, development and enjoyment of the Properties or give rise to
any claim for damages under any Lease, Contract or Surface Right.
(g) Seller has properly made all payments which Seller
was obligated to make in connection with the Properties, including, without
limitation, delay rentals, royalties, shut-in royalties, surface damage claims,
and payments associated with Contracts and Surface Rights.
(h) To its knowledge, Seller is not in material violation
of any governmental laws, rules or regulations affecting ownership of,
operations on or production from the Properties. There are no wells on the
Properties, other than those listed on Schedule 1.2(b), which have not been
properly plugged.
(i) Seller is not obligated, under any take-or-pay,
gas-balancing or similar arrangement, to deliver its share of hydrocarbons
produced from the Leases at a future time without receiving payment in full at
the applicable contract price within a reasonable time following delivery.
6
<PAGE> 10
(j) All taxes related to the Properties which are based
on or measured by ownership of property, production of hydrocarbons or receipt
of proceeds that have become due have been properly paid.
(k) Seller is timely receiving payment for its share of
proceeds from the sale of hydrocarbons produced from the Leases. Neither
Seller nor the Properties is bound to any contract covering the sale of
hydrocarbons from the Properties which cannot be terminated on notice of 30
days or less.
(l) Seller has no knowledge of any physical change in the
Properties after the Effective Time which materially affects the operation of
the Properties. This representation excludes changes arising out of operations
and production in the ordinary course of business, declines due to normal
depletion, depreciation of equipment through ordinary wear and tear and any
other transaction permitted by this Agreement or approved by Buyer.
(m) Seller has incurred no liability for brokers' or
finders' fees related to the transactions contemplated by this Agreement for
which Buyer shall be liable.
(n) Except for Permitted Encumbrances, Seller has allowed
no liens to be attached to or arise against any of the Properties. Seller has
paid all costs, charges and fees of third parties furnishing labor or materials
to any of the Properties, and no third party has the right to file a mechanics'
or materialmen's lien against any of the Properties.
(o) Seller has not received any notice from the
Environmental Protection Agency, the Railroad Commission of Texas or any other
federal, state or local governmental agency claiming or asserting that any past
or current operations or activities of Seller or its predecessors in title to
the Properties were or are being carried out or performed in material violation
of any law, rule or regulation. Seller is unaware of any event or activity
that was carried out before Seller's acquisition of the Properties, or, to
Seller's knowledge, that has been or is being carried out on the Properties
following Seller's acquisition which was or is in material violation of any
applicable law, rule or regulation.
(p) Seller has Defensible Title to the Properties as
defined in Section 5.1.
(q) To Seller's knowledge, there are no valid and
enforceable operating agreements, farmout agreements, area of mutual interests
agreements, unitization agreements, production purchase agreements and salt
water disposal agreements which affect the Properties except those listed in a
Schedule to this Agreement.
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<PAGE> 11
(r) No Well is producing hydrocarbons from, carrying on
any operations in, or is completed in a depth or formation not covered by one
of the Leases.
(s) Following its original acquisitions of the
Properties, Seller conveyed all of its right, title and interest in the
Properties to MJP Investments, Inc. and Tidwell Investments, Inc. In four
assignments dated January 3, 1995, MJP Investments, Inc. and Tidwell
Investments, Inc. collectively conveyed all of their right, title and interest
in the Properties to Westar Natural Gas, LLC, Westar Natural Gas, LLC, Elmer
Tidwell, Inc. and Parvest Exploration, Inc., reserving certain rights and
interests, including an overriding royalty equal to the difference between 20%
of 8/8 of all production of oil, gas and other minerals from the Properties and
lease burdens (Volume 738, Pages 42, 59, 76 and 89, Official Property Records,
Hutchinson County, Texas). Westar Natural Gas, LLC, Elmer Tidwell, Inc. and
Parvest Exploration, Inc. subsequently executed conveyances of certain
interests in the Properties to affiliated entities. MJP Investments, Inc.,
Tidwell Investments, Inc., Westar Natural Gas, LLC, Elmer Tidwell, Inc.,
Parvest Exploration, Inc. and the affiliated entities (collectively referred to
as the "Seller affiliates") have reconveyed to Seller all of their right, title
and interest in the Properties, excluding, however, the overriding royalty
reserved by MJP Investments, Inc. and Tidwell Investments, Inc. which is
retained by those entities and is not among the Properties conveyed to Buyer.
The conveyances described in this Section 3.1(s) are all of the conveyances of
the Properties executed by Seller and the Seller affiliates. Except for the
overriding royalty retained by MJP Investments, Inc. and Tidwell Investments,
Inc. and the rights and interests contemplated by this Agreement, neither
Seller, nor any Seller affiliate, will own an interest in the Properties after
Closing. As of the dates of all conveyances affecting the Properties from and
among Seller and the Seller affiliates, Seller represents that:
(1) each Seller affiliate was duly organized,
validly existing and in good standing under the laws of the State of Texas.
Each Seller affiliate was qualified to do business in the State of Texas;
(2) each Seller affiliate had the power and
authority to carry on its business as then conducted and to execute all
conveyances affecting the Properties;
(3) execution and delivery of all conveyances
affecting the Properties by the Seller affiliates was authorized by all
necessary action, corporate and otherwise, on the part of each Seller
affiliate. Execution and delivery of the conveyances did not violate or
conflict with any agreement, instrument, judgment, order, decree, law or
regulation by which any of the Seller affiliates or the Properties was bound;
8
<PAGE> 12
(4) subject to laws and equitable principles
affecting the rights of creditors generally, each conveyance by a Seller
affiliate is a binding obligation of the Seller affiliate, enforceable
according to its terms; and
(5) there are no bankruptcy or reorganization
proceedings pending or, to Seller's knowledge, threatened against a Seller
affiliate.
(t) To Seller's knowledge, there is no Data which is
subject to a prohibition on transfer;
(u) With respect to the Purchase Shares and any shares of
stock which Seller may receive in payment of the Note (collectively referred to
as the "Stock"):
(1) Seller is acquiring the Stock for its own
account, and for the account of certain Seller affiliates, for investment only
and not with a view toward the public sale or distribution of the Stock in
contravention of any laws, rules or regulations;
(2) Seller is an "Accredited Investor" as that
term is defined in Rule 501 of Regulation D by reason of Rule 501(a)(3) of the
Securities Act of 1933, as amended (the "1933 Act");
(3) Seller has engaged its own advisors for
advice and counsel concerning Seller's acquisition of the Stock, so that it is
capable of evaluating the merits and risks of its investment in the Company and
has the capability to protect its own interests;
(4) all subsequent offers and sales of the Stock
by Seller shall be made pursuant to registration of the Stock under the 1933
Act or pursuant to a valid exemption from registration;
(5) Seller understands that the Stock is being
offered and sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that Buyer
and Company are relying upon the truth and accuracy of and Seller's compliance
with the representations, warranties, agreements, acknowledgements and
understandings of the Seller in this Section 3.1(u) in order to determine the
availability of such exemptions and the eligibility of Seller to acquire the
Stock;
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(6) Seller and/or its advisors have been
furnished with all materials relating to the business, management, finances and
operations of the Company and materials relating to the offer and sale of the
Stock which have been requested by Seller. Seller and its advisors have been
afforded the opportunity to ask questions of the officers of the Company and
have received satisfactory answers to any such inquiries. Without limiting the
generality of the foregoing, Seller has had the opportunity to obtain and to
review the Company's (i) Annual Report on Form 10-K for the year ended December
31, 1994, (ii) Quarterly Reports on Form 10-Q for the quarters ended March 31,
June 30, and September 30, 1994, March 31, June 30, and September 30, 1995,
(iii) Proxy Statement dated April 26, 1995 for the Company's 1995 Annual
Meeting, (iv) Current Reports on Form 8-K, dated November 4, 1994, as amended
January 3, 1995, and dated April 27, 1995, May 16, 1995, June 2, 1995, amended
on August 3, 1995, October 11, 1995 (two), October 16, 1995 (two), (v) Form S-3
dated October 4, 1995, in each case as filed with the Securities and Exchange
Commission, and (vi) Confidential Placement Memorandum dated October 25, 1995;
(7) Seller understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Stock; and
(8) Seller acknowledges that the Stock must be
held indefinitely unless subsequently registered under the 1933 Act or unless
an exemption from such registration is available. It is aware of the
provisions of Rule 144 promulgated under the 1933 Act which permit limited
resale of shares purchased in a private placement subject to the satisfaction
of certain conditions, including, among other things, the existence of a public
market for the shares, the availability of certain current public information
about the Company, the resale occurring not less than two years after a party
has purchased and paid for the security to be sold, the sale being effected
through a "brokers transaction" or in transactions directly with a "market
maker" and the number of shares being sold during any three- month period not
exceeding specified limitations.
(v) None of Seller's statements or representations in
this Agreement contains any untrue statement of any material fact or omits to
state any material fact necessary to be stated in order to make the statements
or representations made not misleading.
3.2 BUYER'S REPRESENTATIONS. Buyer represents to Seller that, as
of Closing:
(a) Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Buyer
is qualified to do business in the
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State of Texas. Buyer is qualified under all applicable laws, rules and
regulations to own and operate the Properties.
(b) Buyer has the power and authority to carry on its
business as presently conducted, to enter into this Agreement and to perform
its obligations under this Agreement.
(c) Execution and delivery of this Agreement,
consummation of the transactions contemplated by this Agreement, and
performance of all obligations under this Agreement have been authorized by all
necessary action, corporate and otherwise, on the part of Buyer. Execution and
delivery of this Agreement does not, and the consummation of the transactions
contemplated by this Agreement will not, violate or be in conflict with any
agreement, instrument, judgment, order, decree, law, rule or regulation by
which Buyer is bound.
(d) Subject to laws and equitable principles generally
affecting the rights of creditors, this Agreement is a binding obligation of
Buyer enforceable according to its terms.
(e) Buyer has incurred no liability for brokers' or
finders' fees related to the transactions contemplated by this Agreement for
which Seller shall be liable.
(f) Buyer has filed with the Railroad Commission of Texas
the organization report required by Section 91.142 of the Texas Natural
Resources Code ("Code") and the report has been approved by the Commission.
Buyer has either obtained a bond covering the wells included among the
Properties and the bond has been approved by the Commission, or Buyer is
eligible for a non-refundable annual fee as provided in Sections 91.104(b)(1) -
(3) and Section 91.107 of the Code.
(g) Buyer has knowledge and experience in financial and
business matters that enable it to evaluate the merits and risks of the
transaction contemplated by this Agreement and is not in a significantly
disparate bargaining position. Buyer is represented by legal counsel in
seeking or acquiring the Properties and its legal counsel was not directly or
indirectly identified, suggested or selected by Seller or an agent of Seller.
Buyer is purchasing the Properties for its own account and not with the intent
to sell or distribute the Properties in violation of any applicable federal or
state securities laws, rules or regulations.
(h) None of Buyer's statements or representations in this
Agreement contains any untrue statement of any material fact or omits to state
any material fact necessary to be stated in order to make the statements or
representations made not misleading.
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3.3 COMPANY'S REPRESENTATIONS. Company represents to Buyer that,
as of Closing and as of the date of issuance of any Stock:
(a) Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Company
is qualified to do business in the State of Texas. Company is qualified under
all applicable laws, rules and regulations to own and operate its properties.
(b) Company has the power and authority to carry on its
business as presently conducted, to enter into this Agreement and to perform
its obligations under this Agreement.
(c) Execution and delivery of this Agreement,
consummation of the transactions contemplated by this Agreement, and
performance of all of its obligations under this Agreement have been authorized
by all necessary action, corporate and otherwise, on the part of Company.
Execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated for it by this Agreement will not, violate or be in
conflict with any agreement, instrument, judgment, order, decree, law or
regulation by which Company is bound.
(d) Subject to laws and equitable principles generally
affecting the rights of creditors, this Agreement is a binding obligation of
Company enforceable according to its terms.
(e) All shares of capital stock of Company have been duly
and validly authorized and issued and are fully paid and nonassessable. The
Stock when issued, sold and delivered in accordance with the terms of this
Agreement and the Note, if applicable, will be duly and validly issued, fully
paid and nonassessable. As of the Closing Date, the authorized capital stock
of Company is 100,000,000 shares of common stock, par value $.01, of which
74,472,936 shares are issued and outstanding and 10,000,000 shares of preferred
stock, par value $1.00, of which 186,760 shares are issued and outstanding.
Except as disclosed in Schedule 3.3(e), (i) there are no outstanding
subscriptions, warrants, options, calls or commitments of any character
relating to or entitling any person to purchase or otherwise acquire from
Company any capital stock of Company, (ii) there are no obligations or
securities convertible into or exchangeable for any shares of capital stock of
Company or any commitments of any character relating to or entitling any person
to purchase or otherwise acquire any such obligations or securities, and (iii)
there are no preemptive or similar rights to subscribe for or to purchase any
capital stock of Company.
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(f) The Company's (i) unaudited consolidated balance
sheet as at September 30, 1995 and the related consolidated statement of
income, cash flows and shareholders' equity for the six months then ended and
(ii) audited consolidated balance sheet as at December 31, 1994 and the related
audited consolidated statement of income, cash flows and shareholders' equity
for the fiscal year then ended (including in all cases the notes thereto)
(collectively, the "Financial Statements") have been prepared in accordance
with generally accepted accounting principles consistently applied except as
noted therein and except, in the case of unaudited interim financial
statements, for normal year-end adjustments, and fairly present the
consolidated financial position of Company and its consolidated subsidiaries as
of the respective dates set forth therein and the results of operations and
cash flows for Company and its consolidated subsidiaries for the respective
fiscal periods set forth therein.
(g) Neither Company nor any of its subsidiaries has
sustained since the date of the September 30, 1995 Financial Statements any
adverse change in its businesses, financial condition or results of operations
that would be material to the Company and its subsidiaries on a consolidated
basis.
(h) Assuming the accuracy of the representations of
Seller in Section 3.1(u), no consent, approval, authorization, order,
registration or qualification of or with any court or governmental agency or
body is required by or on behalf of Company which has not been obtained as of
Closing, for the valid execution and delivery of, or for the performance by
Company of its obligations under, this Agreement.
(i) There are no legal or governmental proceedings
pending to which Company or any of its subsidiaries is a party or to which any
of its or their properties is subject, or which challenge the validity or
legality of Company's obligations under this Agreement or the transactions
contemplated thereby which, individually or in the aggregate, would be
reasonably expected to have a material adverse effect on the business of
Company and any of its subsidiaries taken as a whole; and, to the Company's
knowledge, no such proceedings are threatened by any governmental authority or
by any other person.
(j) Each of Company and its subsidiaries is in material
compliance with all statutes, laws, ordinances, governmental rules or
regulations or any judgment, order or decree to which it is subject and
possesses such certificates, authorizations and permits issued by the
appropriate regulatory agencies or bodies necessary to conduct the business now
operated by it, except for such violations which, and except for such
certificates, authorizations and permits which if not possessed, would not be
reasonably expected to have a material adverse effect on the business of
Company and its subsidiaries taken as a whole; and neither Company nor any such
subsidiary has received any notice of proceedings related to any such
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violation or the revocation or modification of any of the same which,
individually or in the aggregate, if the subject of any unfavorable decision,
ruling or finding, would be reasonably expected to have a material adverse
effect on the business of Company and its subsidiaries taken as a whole.
(k) Except (i) as and to the extent disclosed or reserved
against in the Financial Statements, or (ii) for liabilities and obligations
incurred after September 30, 1995, 1995 that would not be reasonably expected
to have a material adverse effect on the business of Company and any of its
subsidiaries taken as a whole, neither Company nor any of its subsidiaries has
any liabilities or obligations of any nature, whether due or to become due,
including, without limitation, liabilities or obligations on account of taxes
or other governmental charges or penalties, interest or funds thereon or in
respect thereof and Company does not know of any basis for any assertion
against Company or any of its subsidiaries of any debt, liability or obligation
in any amount not reflected or reserved against in the Financial Statements
which would be required to be set forth therein in accordance with generally
accepted accounting principles.
(l) Except as disclosed in Schedule 3.3(l), (i) neither
Company nor any of its subsidiaries has received any written complaint, or
notice of violation, alleged violation, investigation, advisory action,
potential liability or potential responsibility, regarding environmental
protection matters or permit compliance with regard to any of its or their
properties, nor does the Company have knowledge that any governmental authority
or third party is contemplating delivering to Company or any of its
subsidiaries any such notice, (ii) there are no governmental, administrative or
judicial actions or proceedings pending under any Environmental Laws to which
Company or any of its subsidiaries is or, to Company's knowledge, is likely to
be named as a party with respect to any of its or their properties, nor are
there any consent decrees, other decrees, consent orders, administrative orders
or other orders, or other administrative or judicial requirements, outstanding
under any Environmental Law with respect to any of such properties, and (iii)
neither the Company nor any of its subsidiaries is an owner or operator of any
facility or operation which is in violation of any Environmental Law or at
which there has been or exists a release or threatened release of Hazardous
Materials to the environment.
(m) Company and each of its subsidiaries has caused to be
duly filed in a timely manner, including any applicable extensions, with the
appropriate governmental authorities all returns, statements and reports with
respect to any taxes that are required to be filed by or with respect to it.
Except for tax liens securing the payment of taxes not yet due and payable,
there are no tax liens upon any assets of Company or any of its subsidiaries
and no claim for assessment or collection of any material taxes has been
asserted against
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Company or any of its subsidiaries, except for claims being challenged by the
Company in good faith which are listed in Schedule 3.3(m) to this Agreement.
(n) Each Material Contract is valid and binding on the
parties thereto and in full force and effect and neither Company nor any of its
subsidiaries is in breach of a Material Contract, which breach would reasonably
be expected to have a material adverse effect on Company or any of its
subsidiaries. To Company's knowledge, no other party to any Material Contract
is in material breach thereof. For the purposes of this Section, Material
Contract shall mean: (i) all contracts requiring payment, or being reasonably
likely to result in payment, by any party thereto of more than $50,000.00
annually; (ii) all material contracts with any governmental authority; (iii)
all contracts not made in the ordinary course of business, which are material
to Company or any of its subsidiaries; and (iv) all contracts relating to
indebtedness of Company or any of its subsidiaries of a principal amount in
excess of $250,000.00.
(o) Company has furnished Buyer a portion of the Purchase
Price in the amount of $2,500,000.00 and Buyer has granted Company certain
liens, security interests and other encumbrances covering Buyer's interests in
the Properties as provided in the deed of trust and note attached to this
Agreement as Schedule 3.3(o) ("HEC Mortgage").
(p) Seller has furnished Company with all materials
relating to the business, management, finances and operations of the Seller and
materials relating to the offer and sale of the Stock which have been requested
by Company in connection with its audit and other reviews of Seller. Company
and its advisors have been afforded the opportunity to ask questions of the
officers of the Seller and have received satisfactory answers to all such
inquiries.
(q) None of Company's statements or representations in
this Agreement contains any untrue statement of any material fact or omits to
state any material fact necessary to be stated in order to make the statements
or representations made not misleading.
3.4 DISCLAIMERS AND WAIVER OF CONSUMER RIGHTS. BUYER AND COMPANY
STIPULATE THAT THE FOLLOWING DISCLAIMERS AND WAIVERS ARE CONSPICUOUS.
(a) EXCEPT AS STATED IN THIS AGREEMENT, THERE ARE NO
REPRESENTATIONS OR WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, CONCERNING THE
PROPERTIES, INCLUDING, WITHOUT LIMITATION, NO
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REPRESENTATIONS OR WARRANTIES OF (i) MERCHANTABILITY, (ii) FITNESS FOR A
PARTICULAR PURPOSE, (iii) CONFORMITY TO MODELS OR SAMPLES OF MATERIALS, OR (iv)
CONDITION. EXCEPT AS STATED IN THIS AGREEMENT, ALL PROPERTIES WILL BE CONVEYED
AS IS, WHERE IS, WITH ALL FAULTS AND IN THEIR PRESENT CONDITION AND STATE OF
REPAIR.
(b) BEFORE EXECUTION OF THIS AGREEMENT, BUYER AND COMPANY
HAVE HAD THE OPPORTUNITY TO CONDUCT INVESTIGATIONS CONCERNING THE PROPERTIES.
SELLER DISCLAIMS ANY REPRESENTATION OR WARRANTY THAT RESERVE ESTIMATES, DECLINE
RATES, RECOMPLETION OR DEVELOPMENT POSSIBILITIES, PROJECTED PRICES, COSTS,
TAXES AND ANY OTHER CHARACTERISTIC OF THE PROPERTIES AS REFLECTED IN MATERIALS
MADE AVAILABLE TO BUYER AND COMPANY, BEFORE OR AFTER EXECUTION OF THIS
AGREEMENT, ARE COMPLETE, ACCURATE OR FREE FROM CONTRARY INTERPRETATION.
(c) BUYER AND COMPANY ACKNOWLEDGE THAT THE PROPERTIES
HAVE BEEN USED FOR EXPLORATION, DEVELOPMENT AND PRODUCTION OF OIL, GAS,
ASSOCIATED HYDROCARBONS AND OTHER MINERALS. BUYER AND COMPANY ACKNOWLEDGE THAT
THERE MAY HAVE BEEN SPILLS OF CRUDE OIL, PRODUCED WATER OR OTHER MATERIALS IN
THE PAST. BUYER AND COMPANY ALSO ACKNOWLEDGE THAT SOME WELLS AND EQUIPMENT MAY
CONTAIN ASBESTOS AND/OR NATURALLY OCCURRING RADIOACTIVE MATERIALS ("NORM").
BUYER AND COMPANY UNDERSTAND THAT NORM MAY ATTACH ITSELF TO THE INSIDE OF
WELLS, MATERIALS AND EQUIPMENT AS SCALE OR IN OTHER FORMS, THAT WELLS,
MATERIALS AND EQUIPMENT AMONG THE PROPERTIES MAY CONTAIN NORM AND THAT THE NORM
CONTAINING MATERIALS MAY BE BURIED OR OTHERWISE DISPOSED OF ON THE PROPERTIES.
BUYER AND COMPANY ACKNOWLEDGE THAT SPECIAL PROCEDURES MAY BE REQUIRED TO REMOVE
AND DISPOSE OF ASBESTOS AND NORM.
(d) SELLER, BUYER AND COMPANY WAIVE ALL RIGHTS UNDER THE
DECEPTIVE TRADE PRACTICES-CONSUMER PROTECTION ACT, SECTION 17.41 ET SEQ., TEXAS
BUSINESS & COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND
PROTECTIONS. AFTER CONSULTATION WITH ATTORNEYS OF THEIR OWN SELECTION, SELLER,
BUYER AND COMPANY VOLUNTARILY CONSENT TO THIS WAIVER.
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ARTICLE 4
COVENANTS
4.1 SELLER'S COVENANTS. Seller agrees with Buyer that before
Closing:
(a) Seller made available to Buyer all Data in Seller's
possession which is not subject to prohibitions on disclosure. Seller
permitted Buyer to inspect and copy the materials at Seller's place(s) of
business during Seller's normal business hours. Seller also allowed Buyer
access to Leases operated by Seller. Seller cooperated with Buyer, to the
extent of Seller's available resources, in furnishing materials and
information, answering questions and otherwise facilitating Buyer's review.
All actions taken by Buyer under this Section 4.1(a) were at Buyer's sole risk
and expense. Seller shall not be obligated to update title materials or incur
any other costs associated with Buyer's inspections and review.
(b) From the Effective Time until Closing, and except as
reflected in Schedule 4.1(b) to this Agreement, Seller has:
(1) operated the Properties in a good and
workmanlike manner and in substantially the same manner as it previously
operated the Properties; however, it shall have no liability to Buyer for
losses sustained or liabilities incurred in connection with operations, except
those arising out of Seller's gross negligence or willful misconduct;
(2) maintained insurance now in force with
respect to the Properties which is listed in Schedule 4.1(b)(2) to this
Agreement;
(3) not received notice of any claim or demand
which might materially adversely affect title to or operation of the
Properties;
(4) paid costs and expenses which Seller was
obligated to pay in connection with the Properties as they became due, except
for costs and expenses Seller is contesting in good faith;
(c) From the Effective Time until Closing, and except as
reflected in Schedule 4.1(c) to this Agreement, Seller has not done any of the
following :
(1) abandoned any well;
(2) released all or a portion of a Lease,
Contract or Surface Right;
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(3) commenced or consented to an operation if
the estimated cost of the operation exceeds $5,000.00 net to Seller's interest;
(4) created a lien, security interest or other
encumbrance on a Property (except for Permitted Encumbrances);
(5) sold or disposed of a Property unless (i) the
Property sold or disposed of was personal property, and (ii) was replaced by
equivalent property whose cost did not exceed the value of the Property sold or
disposed of by more than $5,000.00, or (iii) was consumed or produced in the
normal course of operations;
(6) amended a Lease, Contract or Surface Right or
entered into new contracts affecting a Property;
(7) waived, compromised or settled any claim that
would adversely affect title to or operation of the Properties.
4.2 BUYER'S COVENANTS. Buyer shall indemnify and hold Seller
harmless from and against all claims, demands, losses, damages (but not
consequential or punitive damages), costs (including reasonable attorney's
fees), liabilities and causes of action arising out of Buyer's access to,
review and inspection of the Properties and materials related to the Properties
for any purpose contemplated by this Agreement.
ARTICLE 5
TITLE, ENVIRONMENTAL AND OPERATIONS DEFECTS
5.1 DEFENSIBLE TITLE.
(a) "Defensible Title" means such right, title or
interest held by Seller that (i) will entitle Buyer, as Seller's assignee, to
receive from its aggregate ownership interest(s) not less than the net revenue
interest shown in Schedule 1.2(a) of all oil, gas, condensate and related
hydrocarbons produced under the terms of a particular Lease or Leases; (ii)
obligates Buyer, as Seller's assignee, to bear an aggregate percentage of costs
and expenses related to the maintenance, operation and development of a
particular Lease or Leases not greater than the working interest shown in
Schedule 1.2(a), unless the circumstance causing the working interest to be
greater will cause the corresponding net revenue interest to increase in the
same proportion; and (iii) is free of all liens, security interests,
encumbrances and defects, except
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for Permitted Encumbrances, which would materially interfere with the
ownership, operation or value of a Property.
(b) "Permitted Encumbrances" are:
(1) royalties, overriding royalties, production
payments, net profits interests, reversionary interests and similar burdens
that will not reduce Buyer's net revenue interest, as Seller's assignee, below
the net revenue interest shown in Schedule 1.2(a) or increase Buyer's working
interest, as Seller's assignee, above the working interest shown in Schedule
1.2(a) (unless the circumstance causing the working interest to increase will
cause the corresponding net revenue interest to increase in the same
proportion);
(2) the terms of Leases, Contracts and Surface
Rights listed in this Agreement;
(3) preferential rights to purchase and third
party consents with respect to which (i) waivers or consents are obtained by
Seller from the appropriate parties, or (ii) the time for asserting such rights
has expired without exercise;
(4) mechanics', materialmen's, operators', tax
and similar liens or charges arising in the ordinary course of business related
to a Property (i) if they have not been filed pursuant to law, (ii) if filed,
they are not due or payment is being withheld as provided by law, or (iii) if
their validity is being contested in good faith;
(5) all consents from, notices to, approvals by
or other actions by private persons or governmental authority in connection
with sale or transfer of assets such as the Properties if such action is
customarily obtained after the sale or transfer;
(6) rights of reassignment arising out of an
owner's election to surrender or abandon all or any portion of a Property;
(7) liens, security interests and other
encumbrances released at Closing;
(8) rights of a governmental entity to control or
regulate any of the Properties in any manner, together with all applicable
laws, rules and regulations; and
(9) any matter which would otherwise be a Title
Defect but which is disclosed in this Agreement.
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5.2 TITLE DEFECTS. "Title Defect" means any encumbrance,
encroachment, irregularity or defect in Seller's title, excluding Permitted
Encumbrances, that causes Seller's title to be less than Defensible Title. In
determining whether a Title Defect exists, consideration shall be given to,
among other factors, (i) whether a person engaged in the ownership, development
and operation of oil and gas properties with knowledge of all relevant
circumstances and appreciation of their legal significance would be willing to
accept and pay for the affected Property notwithstanding the defect, (ii) the
length of time a Property has been producing and whether a material issue has
ever arisen concerning the defect, and (iii) whether the defect would cause a
reasonably prudent purchaser of production to suspend payment of proceeds.
Seller and Buyer stipulate that certain defects are customarily acceptable to
persons engaged in the oil and gas business, including, without limitation,
defects that have been cured by possession; defects in the chain of title such
as failure to recite marital status, omission of heirship or probate
proceedings; lack of survey; and absence of releases of interests that have
expired according to their terms or that are barred by limitations.
5.3 CASUALTY LOSS. If, between the Effective Time and Closing,
all or any portion of a Property was destroyed, damaged or taken under the
right of eminent domain ("Casualty Loss"), there shall be no reduction of the
Purchase Price but Seller shall, at Closing, pay to Buyer all sums paid to
Seller to the extent attributable to the actual value of the Casualty Loss and
shall assign to Buyer all of Seller's interest in any unpaid payments,
insurance proceeds, including any deductible to be paid or borne by Seller, or
causes of action to the extent attributable to the actual value of the Casualty
Loss. Seller shall not voluntarily compromise or settle a Casualty Loss
without Buyer's consent. A Casualty Loss shall not be considered a Title,
Environmental or Operations Defect.
5.4 ENVIRONMENTAL DEFECTS. After Closing, Buyer shall have the
right, at its own risk and expense, to confirm that, as of the Closing Date,
there were no failures to comply with Environmental Laws and to confirm the
absence, as of the Closing Date, of a Release or threat of a Release of
Hazardous Materials ("Environmental Defects"). Environmental Laws means all
federal, state and local laws, rules, regulations, orders, ordinances and
common law, relating to the protection of public health, welfare and the
environment. "Hazardous Material" means "hazardous substance", "pollutant or
contaminant", and "petroleum and natural gas liquids", as those terms are
defined or used in Section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq. "Release" means
depositing, spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping or otherwise disposing.
Immediately upon its availability, Buyer shall furnish Seller a copy of all
reports
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it prepares or receives in connection with this Section 5.4, which reports
Seller shall treat with strict confidentiality.
5.5 OPERATIONS DEFECTS. After Closing, Buyer shall have the
right, at its own risk and expense, to confirm that there were no Operations
Defects present as of the Closing Date. Operations Defects are (i) material
deficiencies in the surface or subsurface Equipment on a Well listed in
Schedule 5.5 which make the Well less than mechanically adequate for the
production of hydrocarbons as of the Closing Date, and (ii) material
non-compliance with any applicable law, rule or regulation which, as of the
Closing Date, causes or is likely to cause there to be a legal restriction or
prohibition on production of hydrocarbons from a Well listed in Schedule 5.5.
Defects associated with Properties which are not listed in Schedule 5.5 shall
not be considered Operations Defects. In determining whether an Operations
Defect exists, consideration shall be given to, among other factors, whether a
person engaged in the ownership, development and operation of oil and gas
properties with knowledge of all relevant circumstances and appreciation of
their significance would be willing to accept and pay for the affected Well
notwithstanding the defect.
5.6 NOTICE OF DEFECTS. Title Defects, Environmental Defects and
Operations Defects are collectively referred to as Defects. No later than 180
days after the Closing Date, Buyer shall notify Seller in writing of all
Defects. To be effective, Buyer's notice must include (i) a description of the
Property affected by the Defect, (ii) a thorough explanation of the basis for
the Defect, and (iii) the amount, not to exceed its Allocated Value, by which
Buyer believes the value of the affected Property is reduced by the Defect.
Buyer's failure to give notice of a Defect within the time and in the manner
required by this Section 5.6 shall be a waiver by Buyer of all recourse arising
under this Agreement or otherwise in connection with the Defect.
5.7 REMEDIES FOR DEFECTS. Upon proper notice of a Defect, Seller
shall have the right to either (i) remedy or agree to remedy the defect within
61 days, or (ii) agree with Buyer on an adjustment to the Purchase Price to
reflect the value of the Defect or Buyer's cost to remedy the defect.
5.8 ADJUSTMENTS FOR DEFECTS. If Seller is unable or elects not to
remedy or agree to remedy a Defect, the following shall occur, subject to the
limitations contained in Section 7.9:
(a) If the Title Defect is a preferential right to
purchase or similar right which was not exercised before Closing, the Purchase
Price shall not be reduced and Buyer
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shall comply with all obligations associated with the right. If the right is
exercised, Buyer shall be entitled to all consideration paid by the holder of
the right.
(b) With respect to all other Defects, the Purchase Price
shall be reduced by the amount by which the value of all uncured Defects
exceeds $480,000.00. If the value of all uncured Defects is less than
$480,000.00, no adjustment to the Purchase Price shall be made. If the value
of all uncured Defects exceeds $1,280,000.00, no adjustment to the Purchase
Price shall be made for the value in excess of $1,280,000.00. The value of a
Defect shall be determined as follows:
(1) if Seller agrees with the value stated in
Buyer's notice, that value shall control;
(2) if the Defect is undisputed and liquidated,
the value shall be the amount necessary to be paid to the obligee to remove the
Defect;
(3) if the Defect is disputed and/or unliquidated
and the parties cannot agree on value, Seller and Buyer shall negotiate in good
faith in an attempt to agree on value. Relevant factors affecting value
include, without limitation, the portion of the Property materially affected by
the Defect, the legal and economic effect of the Defect over the likely
productive life of the Property and the relative values placed on the Defect by
the parties. If Seller and Buyer cannot agree on the value of Defects within
210 days after the Closing Date, the matter shall be submitted to arbitration
under Section 5.8(b)(4).
(4) Seller and Buyer shall each select a mutually
acceptable person as an arbitrator and the two arbitrators so chosen shall
mutually select a third arbitrator. The group of three arbitrators shall
decide the following matters if the parties are unable to agree: (i) whether a
Defect exists, (ii) whether a Defect has been cured, (iii) the value of a
particular uncured Defect or Upward Adjustment, (iv) the value of an adjustment
to the Purchase Price, (v) the validity of an adjustment to the Purchase Price,
and (vi) disputes concerning adjustments to principal as provided in the Note.
If the two arbitrators selected by Seller and Buyer cannot agree on an
arbitrator, or successor arbitrator if necessary, the parties shall request the
American Arbitration Association to appoint the third arbitrator or successor
arbitrator. All arbitration hearings shall be held in Abilene, Texas and shall
begin within thirty days after delivery of written notice from one party to the
other party and the arbitrators stating the grounds for submitting an issue to
arbitration. The arbitrators shall arbitrate the dispute in accordance with
the terms of this Agreement, the Texas General Arbitration Act, and the Rules
of the American Arbitration Association to the extent such rules are not in
conflict with the terms of this Agreement or the Act. The arbitrators shall
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issue a written decision which shall be final and binding on Seller and Buyer
and may be enforced in any court having jurisdiction. Seller and Buyer shall
bear their own legal fees and other costs incurred in connection with
presenting their respective cases. The costs and expenses of the arbitrators
shall be shared equally by Seller and Buyer. In fulfilling his duties, the
arbitrators shall be bound by the terms of this Agreement and may consider
other matters which, in the opinion of the arbitrators, are necessary or
helpful to make a proper decision.
5.9 UPWARD ADJUSTMENTS. If, within 180 days after the Closing
Date, either party discovers any title inaccuracy in Schedule 1.2(a) that
results in an increase in value of Seller's interest in a Property, the party
discovering the inaccuracy shall immediately notify the other party in writing.
The parties shall negotiate in good faith in an attempt to agree on the
increase in value attributable to the inaccuracy ("Upward Adjustment"). If the
parties are unable to agree, the issue shall be submitted to arbitration under
Section 5.8(b)(4).
ARTICLE 6
CLOSING
6.1 CLOSING DATE. The consummation of all transactions
contemplated by this Agreement ("Closing"), occurred as of December 20, 1995
("Closing Date").
6.2 CLOSING OBLIGATIONS. At Closing, the following occurred, each
being a condition precedent to the others and each being deemed to have
occurred simultaneously, although the parties expect that some actions to be
taken at Closing may not actually occur simultaneously:
(a) Seller executed and delivered to Buyer the Assignment
conveying the Properties to Buyer in the form attached to this Agreement as
Schedule 6.2(a) ("Assignment").
(b) Buyer delivered the Closing Cash Payment to Seller by
certified check, cashier's check or wire transfer, as directed by Seller.
(c) Buyer delivered to Seller a certificate for the
Purchase Shares, registered in Seller's name.
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(d) Buyer and Company executed and delivered to Seller
the Note and Buyer executed and delivered to Seller the Deed of Trust.
(e) Seller and Buyer executed the Gas Transportation
Agreement attached to this Agreement as Schedule 6.2(e).
(f) Seller and Company executed the Registration Rights
Agreement attached to this Agreement as Schedule 6.2(f).
(g) Seller and Buyer executed the Joint Operating
Agreement attached to this Agreement as Schedule 6.2(g).
(h) Seller delivered to Buyer, at Buyer's expense, a
reserve report covering the Properties prepared by Ryder Scott Company. The
reserve report shall be a year-end proven SEC case showing future net income
attributable to the Properties to have a present value discounted at 10% of at
least $35,000,000.00.
(i) Seller and Buyer executed a closing statement
prepared in accordance with generally accepted accounting principles used in
the oil and gas industry. The closing statement reflects adjustments to the
Purchase Price which were known as of Closing.
(j) Seller delivered to Buyer exclusive possession of the
Properties, the receipt of which Buyer acknowledges.
(k) Seller executed transfer orders or letters-in-lieu on
forms prepared by Buyer and reasonably satisfactory to Seller directing
purchasers of production to make payment to Buyer as contemplated by this
Agreement.
(l) Seller delivered releases of all liens, security
interests and encumbrances to be released at Closing.
(m) Seller and Buyer executed Form P-4's, and any other
forms required by the Railroad Commission of Texas associated with the transfer
of operations, specifically identifying all wells among the Properties for
which Buyer assumes sole responsibility for operations, including plugging.
(n) Seller delivered and Buyer accepted custody of
suspended funds listed in Schedule 6.2(n) which are held by Seller and
attributable to the Properties;
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(o) Seller and Buyer delivered to each other, and Company
delivered to Seller, opinions of their respective counsel, Loren Williams for
Seller and Larry Cummings for Buyer and Company, to the effect that:
(1) the party is duly organized, validly existing
and in good standing under the laws of the state of its formation;
(2) the party has the power and authority to
carry on its business as presently conducted, to enter into this Agreement and
to perform its obligations under this Agreement;
(3) execution and delivery of this Agreement,
consummation of the transactions contemplated by this Agreement, and
performance of all obligations under this Agreement have been authorized by all
necessary action, corporate and otherwise, on the part of the party;
(4) execution and delivery of this Agreement,
consummation of the transactions contemplated by this Agreement, and
performance of all obligations under this Agreement will not violate or be in
conflict with any provision of the party's charter, bylaws or other governing
documents, or, to counsel's knowledge, any agreement, instrument, judgment,
order, decree, law, rule or regulation by which a party is bound; and
(5) in the case of Company only, the Purchase
Shares, are duly and validly issued, fully paid and nonassessable.
ARTICLE 7
OBLIGATIONS AFTER CLOSING
7.1 ADJUSTMENTS. Within 180 days after the Closing Date, Seller
and Buyer shall jointly prepare a statement containing adjustments to the
Purchase Price contemplated by Section 2.3 ("Final Settlement Statement"). The
parties shall negotiate in good-faith to agree on the actual Adjusted Purchase
Price within 210 days after the Closing Date. If Buyer and Seller are unable
to agree on the Final Settlement Statement within 210 days after the Closing
Date, the matter shall be submitted to arbitration on the terms contained in
Section 5.8(b)(4). Appropriate adjustment to the principal amount of the Note
shall be made within five days after the parties reach agreement or the
arbitrators render a decision ("Final Settlement Date").
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7.2 SUBSEQUENT ADJUSTMENTS. Seller and Buyer recognize that
either party may receive funds or pay expenses after the Final Settlement Date
which are properly the property or obligation of the other party. Upon
accumulation of net proceeds or net expenses due to or payable by the other
party in the amount of $5,000.00, such party shall submit a statement showing
the items of income and expense. Payment by the appropriate party shall be
made within 30 days of receipt of the statement.
7.3 FILINGS AND COMPLIANCE. Immediately after Closing, Buyer
shall file with the Railroad Commission of Texas all forms signed at closing
and shall take all steps required to obtain Railroad Commission approval of
Buyer as operator of those Properties for which it assumes operations. Buyer
shall maintain all wells among the Properties in compliance with Railroad
Commission rules. After Closing, Buyer shall own, operate and use the
Properties in a good and workmanlike manner and shall comply with all federal,
state and local laws, rules, regulations, orders and decrees.
7.4 FILES AND RECORDS. Immediately after Closing, Seller shall
permit Buyer to take possession, at Buyer's sole risk and expense, of all Data
in Seller's possession relating to the Properties. From time to time as
requested by Seller, Buyer shall make the Data available to Seller for
inspection and copying during normal business hours.
7.5 SALES AND USE TAXES AND RECORDING. It is the parties'
understanding that the sale of the Properties is exempt from all transfer,
sales and use taxes imposed by Chapter 151 of the Texas Tax Code and the rules
and regulations of the Texas Comptroller of Public Accounts. If it is
determined that the transaction is not exempt, Seller shall pay all applicable
transfer, sales and use taxes occasioned by the sale of the Properties.
Immediately after Closing, Seller, at Buyer's expense, shall file the
Assignment and Deed of Trust for record in the real property records of
Hutchinson County, Texas. Buyer shall pay all documentary, filing and
recording fees required in connection with the filing and recording of all
instruments contemplated by this Agreement.
7.6 FURTHER ASSURANCES. Seller and Buyer agree to execute and
deliver such instruments and take other action as may be necessary or advisable
to carry out their obligations under this Agreement.
7.7 ASSUMPTION. Buyer assumes and agrees to discharge:
(a) all obligations and liabilities to plug, abandon,
remove and dispose of all wells, pipelines, equipment and improvements located
on the Properties at or after the
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Closing Date, and all obligations and liabilities to restore the surface and
subsurface in accordance with the terms of all Leases, Contracts and Surface
Rights;
(b) all obligations and liabilities arising before or
after the Effective Time under Environmental Laws, including, without
limitation, all obligations and liabilities to dispose of or properly handle
NORM, Hazardous Materials and wastes located on the Properties at or after the
Closing Date;
(c) all of Seller's obligations and liabilities related
to any production, pipeline, storage, processing or other production-related
imbalance existing at or after the Effective Time;
(d) all obligations and liabilities related to the
Properties which arise or accrue at or after the Effective Time, including,
without limitation, the obligation to pay all taxes which become due after the
Effective Time, subject to reimbursement for taxes which apply to a time period
before the Effective Time, without duplication of any adjustment to the
Purchase Price;
(e) all obligations and liabilities related to the
custody, administration and disbursement of suspended funds attributable to the
Properties which were transferred to Buyer at Closing;
(f) all obligations and liabilities related to the
Properties which arise under any law, rule, regulation, order or decree of any
governmental authority with jurisdiction which affect the Properties at or
after the Closing Date; and
(g) all obligations and liabilities arising under
preferential rights to purchase or similar rights which affect the Properties
and which were not exercised before Closing.
Buyer agrees to execute any specific assumption agreements related to matters
assumed under this Section 7.7 which may be required by third parties or
governmental authorities.
7.8 INDEMNITIES.
(a) To the extent permitted by law, Buyer shall indemnify
and hold Seller, its affiliated companies, directors, officers, stockholders,
partners, employees, agents, successors and assigns, harmless from and against
all claims, demands, losses, damages, (but not consequential and punitive
damages), costs (including reasonable attorney's fees), liabilities and causes
of action, caused by or arising out of (i) any act, omission or condition
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related to ownership, operation or use of the Properties after the Closing
Date, (ii) matters assumed by Buyer under Section 7.7, (iii) the breach of any
representation, covenant or obligation of Buyer or Company in this Agreement;
and (iv) arrangements between Buyer and brokers or finders which are related to
the transactions contemplated by this Agreement.
(b) IN ADDITION TO THE INDEMNITY IN SECTION 7.8(a) AND TO
THE EXTENT PERMITTED BY LAW, BUYER AND COMPANY SHALL INDEMNIFY AND HOLD SELLER,
ITS AFFILIATED COMPANIES, DIRECTORS, OFFICERS, STOCKHOLDERS, PARTNERS,
EMPLOYEES, AGENTS, SUCCESSORS AND ASSIGNS, HARMLESS FROM AND AGAINST ALL
CLAIMS, DEMANDS, LOSSES, DAMAGES, (EXCLUDING CONSEQUENTIAL DAMAGES), COSTS
(INCLUDING REASONABLE ATTORNEY'S FEES), LIABILITIES, CAUSES OF ACTION,
PROCEEDINGS, LIENS, FINES, PENALTIES, ORDERS, REMEDIATION REQUIREMENTS, AND
ENFORCEMENT ACTIONS OF ANY KIND, CAUSED BY OR ARISING OUT OF ANY VIOLATION OF
ENVIRONMENTAL LAWS OR THE RELEASE OR THREATENED RELEASE OF ANY HAZARDOUS
MATERIAL, ARISING AFTER THE CLOSING DATE, AND WHETHER CAUSED BY OR ATTRIBUTABLE
TO THE SOLE OR CONCURRENT NEGLIGENCE OF ANY INDEMNITEE. THE PARTIES STIPULATE
THAT THIS SECTION COMPLIES WITH THE EXPRESS NEGLIGENCE RULE.
(c) To the extent permitted by law, and except with
respect to (i) Defects under Article 5, (ii) matters assumed by Buyer under
Section 7.7, and (iii) matters within the scope of Section 7.8(b), Seller shall
indemnify and hold Buyer, its affiliated companies, directors, officers,
stockholders, partners, employees, agents, successors and assigns, harmless
from and against all claims, demands, losses, damages, (but not consequential
and punitive damages), costs (including reasonable attorney's fees),
liabilities and causes of action of third parties and governmental agencies,
caused by or arising out of (i) Seller's operation, ownership or use of the
Properties before the Closing Date, (ii) the breach of any representation,
covenant or obligation of Seller in this Agreement; and (iii) arrangements
between Seller and brokers or finders which are related to the transactions
contemplated by this Agreement.
(d) To the extent permitted by law, Company shall
indemnify and hold Seller, its affiliated companies, directors, officers,
stockholders, partners, employees, agents, successors and assigns, harmless
from and against all claims, demands, losses, damages, (but not consequential
and punitive damages), costs (including reasonable attorney's fees),
liabilities and causes of action, caused by or arising out of the breach of any
representation, covenant or obligation of Company in this Agreement.
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7.9 SURVIVAL AND LIMITATIONS OF LIABILITY. All terms of this
Agreement shall survive Closing. Claims associated with (i) the breach or
inaccuracy of a representation contained in Section 3.1, (ii) the breach of a
covenant contained in Section 4.1, and (iii) the indemnity contained in Section
7.8(c), shall be remedied only by payment of actual money damages (but not
consequential and punitive damages) and shall be limited as provided in this
Section 7.9. Buyer waives all legal and equitable remedies, other than those
contained in this Section 7.9, for claims associated with the items listed in
the preceding sentence.
(a) Seller shall have no obligation or liability to
Buyer arising out of Sections 3.1, 4.1 and 7.8(c) unless (i) written notice of
potential obligation or liability is given to Seller on or before 180 days
after the Closing Date, and (ii) Buyer was without knowledge of the basis for
obligation or liability at or before Closing. To be effective, the notice must
include an adequate explanation of the basis for liability. If the preceding
conditions are satisfied, Seller shall have liability to Buyer only for the
amount by which the value of all obligations or liabilities arising under
Sections 3.1, 4.1 and 7.8(c) exceed $480,000.00 but are less than
$1,280,000.00. Seller shall have no obligation or liability to Buyer arising
out of Sections 3.1, 4.1 and 7.8(c) if the value of all obligations or
liabilities asserted is less than $480,000.00, nor shall Seller have any
obligation or liability to Buyer for any amount by which the asserted
obligations or liabilities exceed $1,280,000.00.
(b) Notwithstanding any other provision in this
Agreement, the sum of (i) all actual downward adjustments in the Purchase Price
associated with Defects under Article 5, plus (ii) the amount of all of
Seller's out- of-pocket liabilities under Sections 3.1, 4.1, 7.8(c) and 7.9(a),
shall not exceed $800,000.00, without duplication.
7.10 ADMINISTRATION OF INDEMNITIES. All claims for
indemnification under this Agreement shall be asserted and resolved under this
Section 7.10.
(a) Any person claiming indemnification is referred to as
the "Indemnified Party" and any person against whom indemnification is sought
is referred to as the "Indemnifying Party". Upon discovery of an indemnifiable
claim, the Indemnified Party shall immediately give the Indemnifying Party
written notice of the claim specifying in reasonable detail (to the extent
known at the time) the nature of the claim and the estimated amount of such
claim ("Claim Notice"). The Indemnifying Party shall not be obligated to
indemnify the Indemnified Party with respect to any such claim if the
Indemnified Party fails to properly notify the Indemnifying Party.
(b) The Indemnifying Party shall have 30 days from the
receipt of the Claim Notice (the "Notice Period") to notify the Indemnified
Party (i) if the Indemnifying Party
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accepts or disputes the liability of the Indemnifying Party to the Indemnified
Party and/or (ii) if the Indemnifying Party desires, at its sole cost and
expense, to contest the claim in the name of and on behalf of the Indemnified
Party or the Indemnifying Party, as appropriate. During the Notice Period, the
Indemnified Party may file any motion, answer or other pleading that it deems
necessary or appropriate to protect its interests or those of the Indemnifying
Party and shall give notice of the filing to the Indemnifying Party. If the
Indemnifying Party fails to notify the Indemnified Party of its election within
the Notice Period, the Indemnifying Party shall be deemed to have accepted
liability for indemnification. If the Indemnifying Party notifies the
Indemnified Party within the Notice Period that it desires to contest the
claim, the Indemnifying Party shall have the right to contest all appropriate
proceedings, using competent counsel of its own choosing, which proceedings
shall be diligently settled or prosecuted to a conclusion. The Indemnifying
Party shall give the Indemnified Party and its counsel the opportunity to
participate in, but not control, all matters relating to the claim at the
Indemnified Party's sole cost and expense; provided, however, that any
settlement involving consideration other than the payment of cash by the
Indemnifying Party must have the prior written approval of the Indemnified
Party. If requested by the Indemnifying Party, the Indemnified Party agrees,
at the cost and expense of the Indemnifying Party, to cooperate with the
Indemnifying Party and its counsel in contesting any claim that the
Indemnifying Party elects to contest or, if appropriate, in making any
counterclaim or cross-complaint. If the Indemnifying Party is not disputing
its liability to the Indemnified Party with respect to a claim, the claim shall
not be settled or otherwise compromised without the prior written consent of
the Indemnifying Party.
(c) Before taking action against the Indemnifying Party
(other than to give the written notices required by this Agreement), the
Indemnified Party shall use its best efforts to claim under any relevant
insurance policy and to pursue any claims related to the event giving rise to
the relevant damages or rights it may have against any third party which would
reduce the amount of the relevant damages otherwise incurred by the Indemnified
Party. If the Indemnifying Party pays to the Indemnified Party any damages
under this Article 7 and the Indemnified Party subsequently recovers from some
other person any sum in respect to any matter giving rise to the relevant
claim, the Indemnified Party shall repay to the Indemnifying Party the lesser
of (i) the amount paid by the Indemnifying Party to the Indemnified Party, or
(ii) the sum recovered from such other person.
(d) If the Indemnifying Party fails to fully perform its
obligations under this Agreement, the Indemnified Party may perform those
obligations at its sole discretion and control, at the cost and expense of the
Indemnifying Party, without relieving the Indemnifying Party of its
obligations.
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7.11 INFORMATION AND ACCESS.
(a) Seller and Buyer each grant to the other a right of
access to Information which may be obtained by the other party, or its
affiliates, from the other party's, or its affiliate's, operations carried out
on the Property or on other lands located in Hutchinson County, Texas ("Area").
Information means any seismic data, drilling reports, well logs, mud logs, well
tests, core analyses, and other test results of wells drilled in the Area.
Information does not include analyses, interpretations or work product, nor
does it include data, reports or other information that may be acquired from an
unaffiliated third party which is subject to a prohibition on disclosure. Each
party shall notify the other party following the completion or plugging and
abandoning of any new well drilled in the Area. Upon request by the party
receiving such notice, the party who drilled the well will provide copies of
the Information which is available to the other party. The party requesting the
copies shall bear or reimburse the reasonable costs of copying the Information.
Each party agrees to maintain in strict confidence any and all Information it
acquires from the other party under this Section 7.11. This confidentiality
provision shall not apply to data and information (i) which is publicly
available (other than by a breach of this Section 7.11), or (ii) which a party
obtains independently. All Information which is subject to confidentiality
shall remain the property of the party which furnished it and the receiving
party shall only have rights to use the Information through its own employees,
agents and consultants for its own operations and purposes and may not disclose
any or all of the Information to any third party at any time or for any purpose
without the prior express written consent of the party owning the Information.
Neither party shall in any way guarantee the accuracy or validity of any
Information and the party receiving the Information shall use the Information
at their sole and absolute risk. This obligation to provide access to
Information may not be transferred nor assigned by either party to an
unaffiliated person. This obligation shall extend for the shorter of (i) the
term of Buyer's or an affiliate's ownership of the Property, or (ii) five years
from the Closing Date.
(b) To the extent permitted by the Leases and Surface
Rights, Seller shall have the concurrent right of access on and across lands
covered by the Leases and Surface Rights in connection with Seller's operations
on lands in the vicinity of the lands described in the Leases and Surface
Rights. Seller shall indemnify and hold harmless Buyer from any cost,
obligation, loss, damage or other liability caused by Seller's exercise of its
rights under this Section 7.11(b).
(c) Seller will furnish to Buyer from time to time copies
of all trade confirmations, receipts, account reports and other documentation
relating to any and all sales of Stock made at any time by Seller, up to and
including the date of Maturity II. Seller will
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furnish all such copies and information to Buyer as soon as reasonably possible
after Seller's own receipt of same. Seller shall allow Buyer the right, at
Buyer's expense, to audit Seller's records regarding sales of Stock by Seller.
7.12 COMPANY'S COVENANTS.
(a) Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its existence and all
consents, approvals, authorizations, registrations and qualifications of
governmental or regulatory agencies necessary for the operation of its
business; provided, however, that Company will not be required to preserve any
such consent, approval, authorization, registration or qualification if, in the
good faith judgment of Company, the failure to preserve such consent, approval,
authorization, registration or qualification would not have a material adverse
effect on Company and its subsidiaries taken as a whole.
(b) Company will cause all material properties used or
useful in the conduct of its business or the business of any of its
subsidiaries to be maintained and kept in good condition, repair and working
order and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements and improvements thereof, all as in
the judgment of Company may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that nothing in this Section 7.12 shall prevent Company from
discontinuing the operation or maintenance of any of such properties if such
discontinuance is, in the good faith judgment of Company, desirable in the
conduct of its business or the business of any of its subsidiaries and would
not have a material adverse effect on the Company or its subsidiaries.
(c) Company will pay or discharge, or cause to be paid or
discharged, before the same shall become delinquent, (1) all material taxes,
assessments and governmental charges levied or imposed upon Company or upon the
income, profits or property of Company, and (2) all lawful material claims for
labor, materials and supplies which, if unpaid, might by law become a lien upon
the property of Company; provided, however, that Company shall not be required
to pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim which amount, applicability or validity is being contested in
good faith by appropriate proceedings if adequate reserves therefor have been
established in accordance with generally accepted accounting principles.
(d) Company will not (whether in a transaction or a
series of transactions) consolidate with or merge into any other person or
convey, transfer or lease its properties and
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assets substantially as an entirety to any person, and Company shall not permit
any person to consolidate with or merge into Company, unless:
(1) in case Company shall consolidate with or
merge into another person or convey, transfer or lease its properties and
assets substantially as an entirety to any person, the person formed by such
consolidation or into which Company is merged or the person which acquires by
conveyance or transfer, or which leases, the properties and assets of Company
substantially as an entirety shall be a corporation, shall be organized and
validly existing under the laws of any State of the United States of America
and shall expressly assume the obligations of Company hereunder;
(2) immediately after giving effect to such
transaction and treating any indebtedness which becomes an obligation of
Company as a result of such transaction as having been incurred by Company at
the time of such transaction, no default or event of default under any
mortgage, deed, indenture or other instrument of indebtedness or any other
material agreement of Company shall have happened and be continuing; and
(3) immediately after giving effect to such
transaction, the consolidated net worth (as determined on the basis of
generally accepted accounting principles) of the person surviving such merger
or to which such conveyance, transfer or lease is made is equal to or greater
than the consolidated net worth (as determined in accordance with generally
accepted accounting principles) of Company and its subsidiaries immediately
prior to such transaction.
(e) Company will deliver to Seller copies of all
documents filed by Company with the Securities and Exchange Commission promptly
after such filings have been made.
(f) With respect to the HEC Mortgage, Company agrees
that:
(i) it shall immediately provide Seller with
copies of all notices, demands, claims and other communications related to or
arising out of the HEC Mortgage which are sent or received by Company;
(ii) at no time shall the principal amount secured
by the HEC Mortgage exceed $2,500,000.00;
(iii) the HEC Mortgage is superior to the Deed of
Trust to the extent provided in the HEC Mortgage and the Deed of Trust;
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(iv) as a condition to exercising its rights
following an Event of Default under the HEC Mortgage, Company shall give Seller
written notice of its intention to do so at least thirty (30) days before
exercising such rights and shall afford Seller the opportunity, exercisable at
Seller's sole option, to pay or discharge the indebtedness secured by the HEC
Mortgage to the extent of its priority over the Deed of Trust and become
subrogated to Company's rights under the HEC Mortgage;
(v) without Seller's prior written consent,
Company shall not amend, modify or otherwise alter the terms of the HEC
Mortgage from those contained in the instrument attached to this Agreement as
Schedule 3.3(o);
(vi) in addition to its rights under 7.12(f)(iv)
above, Seller shall have the right, exercisable at Seller's sole option at any
time after the earlier of (i) the end of a Cure Period defined in the Note if
Buyer has failed to cure the Event, as defined in the Note, which is associated
with the Cure Period, or (ii) Default under the Deed of Trust, and from time to
time, to pay or discharge the indebtedness secured by the HEC Mortgage to the
extent of its priority over the Deed of Trust and become subrogated to
Company's rights under the HEC Mortgage.
7.13 SECTION 4.1(H) REFUND. If Buyer has paid Seller the amounts
contemplated by Section 4.1(h) of the Deed of Trust to prevent Default caused
by the Third Registration Statement not being declared effective, Seller shall
immediately refund to Buyer all such amounts paid to Seller if the Third
Registration Statement is declared effective on or before the end of the
six-month period during which Buyer can prevent Default associated with the
Third Registration Statement. If the Third Registration Statement has not been
declared effective on or before the end of the six-month period, Seller shall
retain such amounts in addition to all other remedies provided in the Deed of
Trust.
ARTICLE 8
MISCELLANEOUS
8.1 NOTICES. All notices required or permitted under this
Agreement shall be effective upon receipt if personally delivered, if mailed by
registered or certified mail, postage prepaid, or if delivered by telegram, fax
or telecopy if directed to the parties as follows:
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To Seller:
Momentum Operating Co., Inc.
232 South Main
P.O. Box 578
Albany, Texas 76430
Attn: Michael J. Parsons, President
To Buyer or Company:
Harken Exploration Company
Harken Energy Corporation
5605 N. MacArthur Blvd., Suite 400
Irving, Texas 75038
Attn: Richard H. Schroeder, President
Copy to: Larry E. Cummings, General Counsel
Any party may give written notice of a change in the address or individual to
which delivery shall be made.
8.2 EXPENSES. Except as otherwise provided in this Agreement, all
fees, costs and expenses incurred by the parties in negotiating this Agreement
and in consummating the transactions contemplated by this Agreement shall be
paid by the party which incurred them.
8.3 AMENDMENT. The provisions of this Agreement may be altered,
amended or waived only by a written agreement executed by the party to be
charged. No waiver of any provision of this Agreement shall be construed as a
continuing waiver of the provision.
8.4 ASSIGNMENT. Neither Buyer nor Company may assign all or any
portion of its rights or delegate all or any portion of its duties under this
Agreement without Seller's prior written consent. To the extent permitted by
law, Seller shall have the right to assign all or any portion of its rights
under this Agreement to any Seller affiliate at any time after 180 days
following the Closing Date.
8.5 TABLE OF CONTENTS/HEADINGS. The table of contents and
headings are for convenience only and do not limit or otherwise affect the
provisions of this Agreement.
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8.6 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be an original and which, taken together, shall constitute
the same agreement.
8.7 REFERENCES. References, including use of a pronoun, shall
include, where applicable, masculine, feminine, singular or plural individuals
or legal entities.
8.8 GOVERNING LAW. This Agreement and the transactions
contemplated by this Agreement shall be governed and construed under the laws
of the State of Texas without giving effect to any rules of law which might
require application of the law of another jurisdiction. Venue of any action
arising under this Agreement shall be in Abilene, Texas.
8.9 ANNOUNCEMENTS. Neither Seller, Buyer nor Company shall
announce or otherwise publicize this Agreement or the transactions contemplated
by this Agreement without the prior written consent of the other party.
8.10 ENTIRE AGREEMENT. This Agreement is the entire understanding
between Seller, Buyer and Company concerning the subject matter of this
Agreement. This Agreement supersedes all negotiations, discussions,
representations, prior agreements and understandings, whether oral or written,
including, without limitation, all letters or expressions of intent between the
parties.
8.11 PARTIES IN INTEREST. This Agreement is binding upon and shall
inure to the benefit of Seller, Buyer and Company and, except where prohibited,
their successors, representatives and assigns. Unless expressly stated to the
contrary, no other person is intended to have any benefits, rights or remedies
under this Agreement.
8.12 SCHEDULES. All schedules attached to this Agreement are
incorporated into this Agreement for all purposes. Reference to the
"Agreement" includes all agreements and instruments attached as schedules to
this Agreement and/or executed in connection with the transactions contemplated
by this Agreement.
8.13 SEVERANCE. If any provision of this Agreement is found to be
illegal or unenforceable, the other terms of this Agreement shall remain in
effect and this Agreement shall be construed as if the illegal or unenforceable
provision had not been included.
8.14 TIME OF THE ESSENCE. Time is of the essence of this
Agreement.
36
<PAGE> 40
SELLER
MOMENTUM OPERATING CO., INC.
By: /s/ Michael J. Parsons
--------------------------------
Name: Michael J. Parsons
--------------------------------
Title: President
--------------------------------
BUYER
HARKEN EXPLORATION COMPANY
By: /s/ Richard H. Schroeder
--------------------------------
Name: Richard H. Schroeder
--------------------------------
Title: President
--------------------------------
COMPANY
HARKEN ENERGY CORPORATION
By: /s/ Richard H. Schroeder
--------------------------------
Name: Richard H. Schroeder
--------------------------------
Title: President
--------------------------------
37
<PAGE> 1
Exhibit 99.1
PROMISSORY NOTE
December 20, 1995 Principal: $13,000,000.00
For value received, the undersigned, Harken Exploration Company
("Buyer"), a Delaware corporation, promises to pay to the order of Momentum
Operating Co., Inc. ("Seller"), a Texas corporation, at 232 South Main,
Albany, in Shackelford County, Texas 76430, upon maturity hereof, as is
hereinafter defined, the principal amount of Thirteen Million Dollars
($13,000,000.00), adjusted as hereinafter provided, plus interest at the rate
of five percent (5%) per annum accrued from the date hereof until Maturity I,
as hereinafter defined, on the fixed, unadjusted amount of Eight Million
Dollars ($8,000,000.00) only of this debt.
RECITALS:
This Note is executed in accordance with the terms of that certain
Purchase and Sale Agreement dated as of even date herewith ("Purchase
Agreement"), by and among Buyer, Seller, and Harken Energy Corporation
("Company").
The Company executes this Note not as a maker but only for the limited
purposes of evidencing its consent to the giving of this Note and the related
Vendor's lien and Deed of Trust by Buyer. This vendor's lien and Deed of Trust
lien are subordinate to the HEC Mortgage, to the extent provided in the HEC
Mortgage.
DEFINITIONS:
PURCHASE SHARES are the Two Million Five Hundred Thousand (2,500,000)
shares of the common stock $.01 par value of the Company which are delivered to
Seller at the closing ("Closing") of the transaction of which this promissory
note ("Note") is a part.
STOCK is the common stock $.01 par value of the Company.
TIER ONE STOCK is that Stock which may be issued and delivered to
Seller in payment of the Eight Million Dollar ($8,000,000.00) portion of this
Note, as adjusted.
AVERAGE CLOSING PRICE is the arithmetic mean of the daily closing
prices of a share of Stock during the specified time period as quoted on the
American Stock Exchange, Inc., and reported in the Wall Street Journal, or
other recognized publications. There will be excluded from this calculation
any days during the specified time period(s) during which Seller was prohibited
from selling shares of Stock at the request of Buyer or Company.
<PAGE> 2
Promissory Note
Page 2
TIER ONE PRICE is the Average Closing Price used to determine the
number of shares of Tier One Stock issued at Maturity I.
Capitalized terms used herein, unless otherwise stated in this Note,
shall have the meanings as set forth in the Purchase Agreement and in the
agreements attached as Schedules to the Purchase Agreement.
SECURITY:
This Note is secured by a vendor's lien retained in the Assignment
from Seller to Buyer and by the Deed of Trust, which vendor's lien and Deed of
Trust are subordinated to the HEC Mortgage to the extent provided in the HEC
Mortgage.
MATURITY:
The maturity date of this Note as to a principal amount of Eight
Million Dollars ($8,000,000.00) only, subject to adjustments as hereinafter
provided, shall be that date which is the earlier of (i) 270 days following the
date of effectiveness of the First Registration Statement, or (ii) January 15,
1997 ("Maturity I").
Except as provided in the second sentence of this paragraph, the
maturity date of this Note as to the remaining principal amount of Five Million
Dollars ($5,000,000.00), subject to adjustments as hereinafter provided, shall
be that date which is the earlier of (i) two hundred seventy (270) days
following the date of effectiveness of the Second Registration Statement, or
(ii) November 15, 1997, or, alternatively, July 15, 1997 if Tier One Stock is
not issued ("Maturity II"). If, however, Buyer has (i) defaulted in the
payment due at Maturity I, (ii) cured that default by payment in Stock within
the Cure Period or Additional Cure Period defined below, and (iii) elected at
the Maturity II date calculated as provided in the preceding sentence to make
the payment due at Maturity II in Stock, then the date of Maturity II shall be
three hundred sixty five (365) days following the date Buyer cured the
Maturity I default under the terms of this Note.
Should the Maturity I or Maturity II date fall on a weekend, holiday
or other date on which banks located in Dallas, Texas, are closed, then in such
event the Maturity I or Maturity II date shall be the next following banking
business day.
FORM OF PAYMENT UPON MATURITIES:
This Note is payable no later than five (5) business days following
the date of Maturity I, as to the Eight Million Dollar ($8,000,000.00) portion
plus accrued interest as provided herein, at the election of Buyer in either
(i) cash, or (ii) except as provided below, in the number of shares of Stock
equal to the payment due divided by the Average Closing Price for the greater
of (x) the trading days during the period beginning the date which the First
Registration Statement is declared effective and ending ten (10) trading days
prior to Maturity I, or, (y) the one hundred eighty (180) trading days
preceding ten (10) trading days prior to Maturity I.
<PAGE> 3
Promissory Note
Page 3
This Note is payable no later than five (5) business days following
the date of Maturity II, as to the Five Million Dollar ($5,000,000.00) portion,
at the election of Buyer in either (i) cash, or (ii) except as provided below,
in the number of shares of Stock, equal to the payment due divided by the
Average Closing Price for the greater of (x) the trading days during the period
beginning the date on which the Second Registration Statement is declared
effective and ending ten (10) trading days prior to Maturity II, or, (y) the
one hundred eighty (180) trading days preceding ten (10) trading days prior to
Maturity II. In the event the portion of this Note due at Maturity I is paid
by Buyer in cash and not Stock, then the number of shares of Stock which may
then be issued at Maturity II shall be equal to the payment due divided by the
Average Closing Price for the one hundred eighty (180) trading days preceding
ten (10) trading days prior to the Maturity II.
Buyer's right to elect at Maturity I or at Maturity II to make a
payment in Stock is subject to satisfaction at such time of the following
conditions: (i) each of the representations and warranties of Buyer and
Company contained in the Purchase Agreement and in any other agreement or
instrument described in the Purchase Agreement, executed in connection with
Closing, or executed after Closing in connection therewith, is true and correct
in all material respects as of the respective maturity date, (ii) as of the
respective maturity date, neither Buyer nor Company are in material breach of
or default under the Purchase Agreement, or under any other agreement or
instrument described in the Purchase Agreement, and executed in connection with
Closing, or executed after Closing in connection therewith, (iii) Buyer and
Company shall each have delivered to Seller a certificate executed by an
executive officer, dated as of the respective maturity date, certifying the
satisfaction of the conditions listed in (i) and (ii) above, and (iv) the
Company shall have delivered an opinion from its counsel addressed to Seller
that the shares of Stock being issued and delivered are duly and validly
issued, fully paid and non-assessable.
ADJUSTMENTS TO PRINCIPAL:
The Principal amounts due on Maturity I and on Maturity II shall be
increased and/or decreased as appropriate for each and all of the following
adjustments ("Adjustments"). If there is a dispute between Seller and Buyer
concerning the amount or propriety of an Adjustment, Buyer shall pay the
undisputed portion of the principal payment, and interest as applicable, and
Seller and Buyer shall submit the disputed portion to arbitration under the
terms of Section 5.8(b)(4) of the Purchase Agreement.
AT PAYMENT OF EIGHT MILLION DOLLAR ($8,000,000.00) PORTION AT MATURITY
I:
A. Seller shall calculate (i) the gross price (prior to
deducting any commissions and other costs of sale) for which the
Purchase Shares were sold by Seller prior to Maturity I ("Purchase
Shares Proceeds"), and (ii) the product of Two Dollars ($2.00) per
share multiplied by the number of Purchase Shares sold prior to
Maturity I ("Purchase Shares Floor Amount"). The principal payment
then due at this Maturity I shall then either be decreased by the
amount by which the Purchase Shares Proceeds exceeds the Purchase
Shares Floor Amount, or increased by the amount by which the Purchase
Shares Floor Amount exceeds the Purchase Shares Proceeds.
If the Purchase Shares Floor Amount exceeds the Purchase
Shares Proceeds and the quantity
<PAGE> 4
Promissory Note
Page 4
of Purchase Shares which Seller sold in any one or more trading days
prior to Maturity I exceeds 25,000 shares per day (the number of
Purchase Shares sold over 25,000 shares per day during this term are
hereinafter referred to as "Excess Purchase Shares") then the portion
of the Purchase Shares Proceeds which were derived from the sale of
Excess Purchase Shares ("Purchase Shares Excess"), for purposes of
calculation of this Adjustment shall be the greater of either (i) the
Purchase Shares Excess, or ii) the Average Closing Price from the date
on which the First Registration Statement is declared effective until
ten (10) trading days prior to Maturity I times the number of Excess
Purchase Shares.
Subject to the limitation contained in this paragraph, if
less than all Purchase Shares are sold by Seller prior to Maturity I,
then the Adjustment provided for under this section "A" shall be
calculated based only on the actual number of Purchase Shares sold.
If the First Registration Statement has not been effective for at
least 180 trading days preceding the ten (10) trading days prior to
Maturity I, the time for calculating the Adjustment provided for under
this section "A" shall be tolled until the earlier of (i) the date on
which the First Registration Statement has been effective for at least
180 trading days, or (ii) the date on which Seller may exercise its
rights under Section 5.1(b) of the Deed of Trust. If the date for
calculating the Adjustment is determined under (ii), the principal
payment due shall be adjusted in accordance with the first paragraph
of this section "A" by the difference between (x) the gross value of
the Purchase Shares on the adjustment date as determined by agreement
of Seller and Buyer and (y) the Purchase Shares Floor Amount.
B. The principal payment due shall be increased by the
amount by which $500,000 exceeds the Retained Proceeds defined
in Section 2.4 of the Purchase Agreement.
C. The principal payment shall be increased or
decreased, as appropriate, by the net amount due either Seller or
Buyer as an adjustment to the Purchase Price under Section 2.3 of the
Purchase Agreement.
D. The principal payment shall be increased by an amount
equal to 0.02739726% of the balance remaining at the end of each
calendar day between the Closing Date and Maturity I of (i) Five
Million Dollars ($5,000,000) less (ii) the Purchase Shares Proceeds.
If the time for calculating the Adjustment under section "A" above has
been tolled, for purposes of calculating the Adjustment under this
section "D", Maturity I shall be deemed to occur on the earlier of (x)
the date on which the First Registration Statement has been effective
for at least 180 trading days or (y) the date on which Seller may
exercise its rights under Section 5.1(b) of the Deed of Trust.
AT PAYMENT OF FIVE MILLION DOLLAR ($5,000,000.00) PORTION AT MATURITY
II:
A. If the Tier One Stock was issued at Maturity I,
Seller shall calculate (i) the gross price (prior to deducting
commissions and other costs of sale), for which the shares of Tier One
Stock were sold by Seller prior to Maturity II ("Tier One Proceeds")
and (ii) the product of the Tier One Price multiplied by the number of
shares of Tier One Stock sold prior to Maturity II ("Tier One Floor
Amount"). For purposes of this paragraph and the succeeding
paragraph, all Stock sold by
<PAGE> 5
Promissory Note
Page 5
Seller between the date the Second Registration Statement is declared
effective and Maturity II shall be considered Tier One Stock. The
principal payment due shall be decreased by the amount by which the
Tier One Proceeds exceeds the Tier One Floor Amount, or increased by
the amount by which the Tier One Floor Amount exceeds the Tier One
Proceeds.
If the Tier One Floor Amount exceeds the Tier One Proceeds and
the quantity of Tier One Stock which Seller sold in any one or more
trading days prior to Maturity II exceeds the quotient obtained by
dividing the number of shares of Tier One Stock issued by 180 (the
number of shares of Tier One Stock sold over that quotient per day
during this term are hereinafter referred to as "Excess Tier One
Shares"), then the portion of the Tier One Proceeds which were derived
from the sale of Excess Tier One Shares ("Tier One Excess") for the
purposes of the calculation of this Adjustment shall be the greater of
either (i) the Tier One Excess or ii) the Average Closing Price from
the date on which the Second Registration Statement is declared
effective until ten (10) trading days prior to Maturity II times the
number of Excess Tier One Shares.
Subject to the limitation contained in this paragraph, if less
than all Tier One Stock is sold by Seller prior to Maturity II, then
the Adjustment provided for under this section "A" shall be calculated
based only on the actual number of shares of Tier One Stock sold.
If the Second Registration Statement has not been effective for at
least 180 trading days preceding the ten (10) trading days prior to
Maturity II, the time for calculating the Adjustment provided for
under this section "A" shall be tolled until the earlier of (i) the
date on which the Second Registration Statement has been effective for
at least 180 trading days, or (ii) the date on which Seller may
exercise its rights under Section 5.1(b) of the Deed of Trust. If the
date for calculating the Adjustment is determined under (ii), the
principal payment due shall be adjusted in accordance with the first
paragraph of this section "A" by the difference between (x) the gross
value of the Tier One Stock on the adjustment date as determined by
agreement of Seller and Buyer and (y) the Tier One Floor Amount.
B. If the Tier One Stock was issued, the principal
payment due at Maturity II shall be increased by an amount equal to
0.02739726% of the balance remaining at the end of each calendar day
between Maturity I and Maturity II of (i) Eight Million Dollars
($8,000,000) less (ii) the Tier One Proceeds. If the time for
calculating the Adjustment under section "A" above has been tolled,
for purposes of calculating the Adjustment under this section "B",
Maturity II shall be deemed to occur on the earlier of (x) the date on
which the Second Registration Statement has been effective for at
least 180 trading days, or (y) the date on which Seller may exercise
its rights under Section 5.1(b) of the Deed of Trust.
C. In the event no Tier One Stock was issued at Maturity
I, then there shall be no Adjustments to the Five Million Dollar
($5,000,000) principal payment due at Maturity II.
<PAGE> 6
Promissory Note
Page 6
MAXIMUM AMOUNT OF INTEREST:
Seller and Buyer intend to conform strictly to state and federal usury
laws applicable to payment of this Note. Notwithstanding any provisions to the
contrary in this Note, the aggregate of all interest and any other charges
constituting interest under applicable law which are contracted for, charged or
received under this Note, or otherwise, shall not exceed the maximum amount of
interest permitted by the then applicable law of the State of Texas, or the
United States of America, whichever is greater. If applicable law provides
for an interest ceiling under TEX. REV. CIV. STAT. ANN art. 5069-1.04
(Vernon), as amended, the ceiling shall be the "indicated rate ceiling". If
any interest in excess of the maximum amount of interest permitted by law is
contacted for, charged or received (a) the provisions of this paragraph shall
control, (b) neither Buyer nor Buyer's successors, legal representatives or
assigns or any other party liable for the payment of this Note shall be
obligated to pay the amount of such interest that is in excess of the maximum
permitted by law, (c) any excess shall be deemed a mistake and canceled
automatically and if already paid, shall, at the option of the holder of this
Note be refunded to Buyer or credited on the principal amount of this Note, and
(d) the effective rate of interest shall be automatically reduced to the
maximum rate permitted by applicable law. In determining whether the interest
contracted for, charged or received exceeds the maximum amount of interest
permitted by law, all interest contracted for, charged or received shall be
amortized, prorated, allocated and spread throughout the full stated terms of
this Note, and any renewals or extensions, in accordance with the amounts
outstanding from time to time and the maximum legal rate of interest from time
to time in effect under applicable law.
PREPAYMENT:
Each of the principal payments due at Maturity I and Maturity II, as
adjusted, may be prepaid in whole, together with accrued interest if
applicable, at any time without penalty. Except as permitted in Section
4.1(h) of the Deed of Trust, Buyer does not have the right to make partial
prepayments. The date Seller receives the final payment of all principal due
shall be deemed to be Maturity I or Maturity II, as the case may be.
CURE PERIOD.
Except with respect to events of Default described in Sections 4.1(e),
(f), and (g) of the Deed of Trust, upon the occurrence of any other event
which would constitute an event of Default either under this Note, or under
the Deed of Trust ("Event"), Buyer shall have thirty (30) calendar days (the
"Cure Period") in which to cure such Event without penalty other than the
continuation of applicable interest, as provided for under this Note, before
Seller may exercise its rights and remedies permitted by the Deed of Trust.
Upon the termination of such Cure Period if such Event shall then be continuing
and not remedied, Buyer may at its option further elect to extend the Cure
Period for up to an additional 365 days (the "Additional Cure Period") during
which the Event shall not constitute an event of Default. Buyer shall exercise
this election by giving Seller written notice on or before the end of the Cure
Period describing the Event and designating the number of days Buyer elects to
include in the Additional Cure Period. Buyer may elect to extend an
Additional Cure Period in the same manner. The sum of all days in all
Additional Cure Periods shall not exceed 365 days through the entire term of
this Note. If the Event is Buyer's failure to pay the amount due
<PAGE> 7
Promissory Note
Page 7
at Maturity I or Maturity II, Buyer may make the payment due during the Cure
Period or the Additional Cure Period by paying the amount due, together with
the interest and any other amount due as a result of the occurrence of such
Event in the form, either cash or Stock, which Buyer could have elected at
either Maturity I or Maturity II. If Buyer elects to make such payment in
Stock, the number of shares issued shall be equal to the payment due divided by
the Average Closing Price for one hundred eighty (180) trading days preceding
ten (10) trading days prior to the date on which the payment is made. During
any Additional Cure Period and so long as the Event remains uncured Seller
shall have the right and option to exercise any or all of its rights and
remedies permitted by the Deed of Trust.
DEFAULT:
At the end of a Cure Period or the Additional Cure Period(s), if
Buyer has failed to cure the Event, the Event shall be deemed a Default under
this Note and the Deed of Trust and Seller may declare the remaining entirety
of this Note including, principal and interest, immediately due and payable in
cash and exercise all the rights, at law or in equity, as provided for under
the terms of this Note or under any instrument executed in connection with, or
as security for this Note.
Seller's failure to exercise such rights at any time shall not
constitute a waiver of Seller's right to do so at any other time.
Subject to the terms and provision of this Note and of the Deed of
Trust, Buyer and all other parties now or later liable for the payment of this
Note in whole or in part, (i) waive demand, presentment for payment, notice of
nonpayment, protest, notice of protest, notice of intent to accelerate, notice
of acceleration and all other notice, filing of suit and diligence in
collecting this Note or enforcing any security; (ii) agree to any
substitution, subordination, exchange or release of any security or release of
any party primarily or secondarily liable for payment of this Note or to
enforce Seller's rights against them or any security; (iii) agree that Seller
shall not be required first to institute suit or exhaust its remedies against
Buyer or others liable or to become liable for payment of this Note or to
enforce Seller's rights against them or any security; and (iv) consent to any
extension or postponement of time of payment of this Note and to any other
indulgence with respect to this Note without notice to Buyer or to any person
liable for payment of this Note.
If Default occurs in the payment of this Note, or this Note is
collected or enforced through probate, bankruptcy or other proceedings, Buyer
promises to pay all reasonable costs and expenses of collection and
enforcement. If this Note is placed with an attorney for collection or
enforcement, Buyer promises to pay Seller's reasonable attorney's fees, in
addition to all other costs of collection and enforcement. Interest on past
due principal and, to the extent permitted by law, on past due interest, shall
accrue at the rate of seven percent (7%) per annum from the date due until
paid. Interest shall accrue during a Cure Period or Additional Cure Period.
DISCLAIMER OF ORAL AGREEMENTS:
The Parties warrant and represent that the entire agreement made
between the Parties is contained within the executed documents, as amended and
supplemented hereby, and that no agreements or promises
<PAGE> 8
Promissory Note
Page 8
exist between the parties, that are not reflected in the language of the
various documents executed in conjunction with this transaction.
This Note, and the Purchase Agreement represents the final agreement
between the Parties and may not be contradicted by evidence of prior,
contemporaneous, or subsequent oral agreements between the Parties. There are
no unwritten oral agreements between the Parties.
THIS NOTE IS INTENDED TO BE PERFORMED IN SHACKELFORD COUNTY, IN THE
STATE OF TEXAS AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS
FOR SUCH STATE (WITHOUT GIVING EFFECT TO ANY RULES OF LAW WHICH MIGHT REQUIRE
APPLICATION OF THE LAW OF ANOTHER JURISDICTION), EXCEPT TO THE EXTENT THE SAME
IS GOVERNED BY APPLICABLE FEDERAL LAW.
HARKEN EXPLORATION COMPANY
By: /s/ Richard H. Schroeder
---------------------------------------
Richard H. Schroeder, President
EXECUTED FOR THE LIMITED PURPOSES AS STATED ABOVE:
HARKEN ENERGY CORPORATION
By: /s/ Richard H. Schroeder
---------------------------------------
Richard H. Schroeder, President
<PAGE> 1
Exhibit 99.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made and entered into as of
December 15, 1995, by and between Harken Energy Corporation, a Delaware
corporation ("HARKEN") and Momentum Operating Co., Inc., a Texas corporation
("MOMENTUM").
RECITALS:
A. Reference is hereby made to that certain Purchase and Sale
Agreement dated as of even date herewith (the "PURCHASE AGREEMENT"), by and
among Harken, Momentum and Harken Exploration Company.
B. In order to induce Momentum to enter into the Purchase
Agreement (and recognizing that Momentum would not be willing to enter into the
Purchase Agreement in the absence of this Agreement), Harken has agreed to
provide Momentum with the registration rights set forth herein.
AGREEMENT:
NOW, THEREFORE, for and in consideration of the foregoing Recitals
and the mutual agreements contained herein, the sufficiency of which is hereby
acknowledged and confirmed, the parties hereto, intending to be legally bound,
agree as follows:
SECTION 1. DEFINITIONS AND REFERENCES.
(a) When used in this Agreement, the following terms shall have
the respective meanings assigned to them in this Section 1 or in the sections,
subsections or other subdivisions or other documents referred to below:
"AGREEMENT" shall mean this Registration Rights Agreement, as
hereafter amended or modified in accordance with the terms hereof.
"CLOSING DATE" shall have the meaning assigned to it in the Purchase
Agreement.
"COMMISSION" shall mean the Securities and Exchange Commission (or any
successor body thereto).
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, and all rules and regulations under such Act.
"FIRST REGISTRATION STATEMENT" shall have the meaning assigned to it
in Section 2(a).
"FIRST SHELF LIFE" shall have the meaning assigned to it in Section
2(a).
<PAGE> 2
"MATURITY I" shall have the meaning assigned to such term in the Note.
"MATURITY II" shall have the meaning assigned to such term in the
Note.
"NOTE" shall mean the promissory note of Harken issued to Momentum
pursuant to Section 2.4(d) of the Purchase Agreement.
"PURCHASE AGREEMENT" shall have the meaning assigned to it in
Paragraph A of the Recitals hereto.
"PURCHASE SHARES" shall mean the shares of Stock issued to Momentum
pursuant to Section 2.4(c) of the Purchase Agreement.
"REGISTRABLE SECURITIES" shall mean (i) the Purchase Shares, (ii) the
Tier One Stock and (iii) the Tier Two Stock.
"REGISTRATION EXPENSES" shall mean all expenses incident to Harken's
performance of or compliance with the registration rights granted hereunder,
including (without limitation) all registration and filing fees, fees and
expenses of compliance with securities and blue sky laws, printing and
engraving expenses, messenger, telephone and delivery expenses, and fees and
disbursements of counsel for Harken, all independent certified public
accountants and underwriters (excluding discounts and commissions); provided,
that Registration Expenses shall not include any Selling Expenses and shall not
include any expenses incurred by or on behalf of Momentum, including without
limitation, expenses or disbursements of any counsel retained by Momentum.
"SECOND REGISTRATION STATEMENT" shall have the meaning assigned to it
in Section 2(b).
"SECOND SHELF LIFE" shall have the meaning assigned to it in Section
2(b).
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended,
and all rules and regulations under such Act.
"SELLING EXPENSES" shall mean underwriting discounts or commissions
and any selling commissions attributable to sales of Registrable Securities.
"STOCK" shall mean the common stock, par value $0.01 per share, of
Harken.
"THIRD REGISTRATION STATEMENT" shall have the meaning assigned to it
in Section 2(c).
"THIRD SHELF LIFE" shall have the meaning assigned to it in Section
2(c).
2
<PAGE> 3
"TIER ONE STOCK" shall mean those shares of Stock issued to Momentum
at Maturity I in accordance with the terms of the Note upon conversion of the
principal amount thereunder due at Maturity I into shares of Stock.
"TIER TWO STOCK" shall mean those shares of Stock issued to Momentum
at Maturity II in accordance with the terms of the Note upon conversion of the
principal amount thereunder due at Maturity II into shares of Stock.
(b) All references in this Agreement to sections, subsections and
other subdivisions refer to corresponding sections, subsections and other
subdivisions of this Agreement unless expressly provided otherwise. Titles
appearing at the beginning of any of such subdivisions are for convenience only
and shall not constitute part of such subdivisions and shall be disregarded in
construing the language contained herein. The words "this Agreement," "this
instrument," "herein," "hereof," "hereby," "hereunder" and words of similar
import refer to this Agreement as a whole and not to any particular subdivision
unless expressly so limited. Words in the singular form shall be construed to
include the plural and vice versa, unless the context otherwise requires.
SECTION 2. SHELF REGISTRATIONS.
(a) Harken will use its reasonable best efforts to prepare and
file with the Commission as soon as reasonably practicable after the Closing
Date and in any event no later than 30 days after the Closing Date a shelf
registration statement on Form S-3 or other appropriate form (the "FIRST
REGISTRATION STATEMENT") pursuant to Rule 415 under the Securities Act covering
the sale by Momentum of the Purchase Shares. Harken shall use its best efforts
to cause the First Registration Statement to be declared effective as soon as
reasonably practicable after the Closing Date and to keep the First
Registration Statement effective for no less than 270 days (the "FIRST SHELF
LIFE").
(b) On or before 30 days subsequent to Maturity I, Harken will
prepare and file with the Commission a shelf registration statement on Form S-3
or other appropriate form (the "SECOND REGISTRATION STATEMENT") pursuant to
Rule 415 under the Securities Act covering the sale by Momentum of the Tier One
Stock. Harken shall use its best efforts to cause the Second Registration
Statement to be declared effective as promptly as possible after the filing
thereof with the Commission and to keep the Second Registration Statement
effective for no less than 270 days (the "SECOND SHELF LIFE").
(c) On or before 30 days subsequent to Maturity II, Harken will
prepare and file with the Commission a shelf registration statement on Form S-3
or other appropriate form (the "THIRD REGISTRATION STATEMENT") pursuant to Rule
415 under the Securities Act covering the sale by Momentum of the Tier Two
Stock. Harken shall use its best efforts to cause the Third Registration
Statement to be declared effective as promptly as possible after the filing
thereof with the Commission and to keep the Third Registration Statement
effective for no less than 270 days (the "THIRD SHELF LIFE").
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(d) Harken shall be entitled to postpone, for a period not to
exceed 90 days, the filing of the Second Registration Statement or the Third
Registration Statement if the board of directors of Harken determines, in the
good faith exercise of its reasonable business judgment, that such registration
and offering could materially interfere with bona fide financing, acquisition,
or other material business plans of Harken or would require disclosure of
non-public information, the premature disclosure of which could materially
adversely affect Harken; provided, however, that Harken shall not be required
to disclose to Momentum any such transaction, plan or non-public information.
If Harken postpones the filing of the Second Registration Statement or the
Third Registration Statement, it shall promptly notify Momentum in writing when
the events or circumstances permitting such postponement have ended and at such
time shall proceed with the filing of the Second Registration Statement or the
Third Registration Statement, as applicable.
SECTION 3. REGISTRATION PROCEDURES. In connection with the
First Registration Statement, the Second Registration Statement and the Third
Registration Statement, Harken will use its best efforts to effect the
registration of the Registrable Securities in accordance with the intended
method of disposition thereof, and pursuant thereto Harken will as
expeditiously as possible:
(a) prepare and file with the Commission a registration statement
on the appropriate form with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective
(provided, that before filing a registration statement or prospectus or any
amendments or supplements thereto, Harken will furnish copies of all such
documents proposed to be filed to Momentum);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for a period of not less than the period set forth in such section or
such shorter period which will terminate when Registrable Securities covered by
such registration statement have been sold (but not before the expiration of
the applicable prospectus delivery period) and comply with the provisions of
the Securities Act with respect to the disposition of all securities covered by
such registration statement during such period in accordance with the intended
methods of disposition by Momentum set forth in such registration statement;
(c) furnish to Momentum such number of copies of such registration
statement, each amendment and supplement thereto, the prospectus included in
such registration statement (including, without limitation, each preliminary
prospectus) and such other documents as Momentum may reasonably request in
order to facilitate the disposition of the Registrable Securities;
(d) use its best efforts to register or qualify such Registrable
Securities for sale under such other securities or blue sky laws of such
jurisdictions within the United States as Momentum may reasonably request and
do any and all other acts and things which may be reasonably necessary or
advisable to enable Momentum to consummate the disposition in such
jurisdictions of the Registrable Securities (provided that Harken will not be
required to qualify generally to do business
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or subject itself to any general service of process in any jurisdiction where
it is otherwise not then so subject);
(e) notify Momentum, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the happening
of any event which requires the making of any change in the prospectus included
in such registration statement so that such document will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and,
at the request of Momentum, Harken will prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an untrue statement of
a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading;
(f) use its best efforts to cause all such Registrable Securities
to be listed on each securities exchange or exchanges, automated quotation
system or over-the-counter market upon which securities of Harken of the same
class are then listed;
(g) enter into such customary agreements (including, without
limitation, underwriting agreements in customary form, substance, and scope)
and take all such other actions as Momentum or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of the
Registrable Securities;
(h) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make generally available to its
security holders an earnings statement no later than 90 days after the end of
the 12 month period beginning with the first day of Harken's first full
calendar quarter after the effective date of the registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder;
(i) advise Momentum after Harken shall receive notice of the
issuance of any stop order by the Commission suspending the effectiveness of a
registration statement, or of any order suspending or preventing the use of any
related prospectus or suspending the qualification of any shares of Stock
included in such registration statement for sale in any jurisdiction, or the
initiation or threatening of any proceeding for any such purposes and, Harken
will use its reasonable best efforts promptly to prevent the issuance of any
stop order or obtain the withdrawal of any such order if issued; and
(j) use its best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to enable
Momentum to consummate the disposition of the Registrable Securities.
Momentum agrees that, upon receipt of any notice from Harken of the
happening of any event of the kind described in Section 3(e) hereof, Momentum
will forthwith discontinue disposition of any Registrable Securities until
Momentum's receipt of the copies of the supplemented or
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amended prospectus contemplated by Section 3(e) hereof, or until it is advised
in writing by Harken that the use of the applicable prospectus may be resumed,
and has received copies of any additional or supplemental filings that are
incor- porated or deemed to be incorporated by reference in such prospectus.
Momentum also agrees that, upon a request from Harken to discontinue
disposition of any Registrable Securities for any reason, Momentum shall
discontinue disposition of any Registrable Securities covered by a registration
statement until Momentum has been advised in writing by Harken that Momentum
can resume disposition of the Registrable; provided, however, that any such
request will be limited to a period of no more than an aggregate of 60 days
during the First Shelf Life, an aggregate of 60 days during the Second Shelf
Life and an aggregate of 60 days during the Third Shelf Life. If any such
request shall be made, the First Shelf Life, the Second Shelf Life or the Third
Shelf Life, as applicable, shall be extended by an equal period.
Momentum shall furnish to Harken such information regarding Momentum,
the Registrable Securities held by Momentum and the intended method of
disposition thereof as Harken shall reasonably request and as shall be required
in connection with the preparation of the applicable registration statement and
other actions to be taken by Harken under this Agreement.
SECTION 4. EXPENSES. Harken shall pay all Registration Expenses
in connection with each registration effected pursuant to Section 2 and, in any
event, shall pay its internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal and
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the securities to be registered on
each securities exchange on which similar securities issued by Harken are then
listed. All Selling Expenses and all expenses incurred by or on behalf of
Momentum, including without limitation, expenses of counsel to Momentum,
incurred in connection with a registration effected pursuant to the terms
hereof shall be borne by Momentum.
SECTION 5. INDEMNIFICATION.
(a) Harken shall indemnify and hold harmless, with respect to any
registration statement filed by it, to the full extent permitted by law,
Momentum, and each other person, if any, who controls Momentum within the
meaning of Section 15 of the Securities Act and each of their respective
officers, directors, agents and employees (collectively, "MOMENTUM INDEMNIFIED
PARTIES") against all losses, claims, damages, fines, liabilities and expenses,
joint or several to which any such Momentum Indemnified Party may become
subject under the Securities Act, the Exchange Act, at common law or otherwise,
insofar as such losses, claims, damages, fines, liabilities or expenses (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in any registration statement in which
such Registrable Securities were included as contemplated hereby or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
any untrue statement or alleged untrue statement of a material fact contained
in any preliminary,
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final or summary prospectus, together with the documents incorporated by
reference therein (as amended or supplemented if Harken shall have filed with
the Commission any amendment thereof or supplement thereto), or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or (iii) any
violation or alleged violation by Harken of any federal, state or common law
rule or regulation applicable to Harken and relating to action of or inaction
by Harken in connection with any such registration; and in each such case,
Harken shall reimburse each such Momentum Indemnified Party for any reasonable
legal or other expenses incurred by any of them in connection with
investigating or defending any such loss, claim, damage, fine, liability,
expense, action or proceeding; provided, however, that Harken shall not be
liable to any such Momentum Indemnified Party in any such case to the extent
that any such loss, claim, damage, fine, liability or expense (or action or
proceeding, whether commenced or threatened, in respect thereof) arises out of
or is based upon any untrue statement or alleged untrue statement or omission
or alleged omission made in such registration statement or amendment thereof or
supplement thereto or in any such preliminary, final or summary prospectus in
reliance upon and in conformity with written information furnished to Harken by
or on behalf of any such Momentum Indemnified Party for use in the preparation
thereof. Such indemnity and reimbursement of expenses and other obligations
shall remain in full force and effect regardless of any investigation made by
or on behalf of the Momentum Indemnified Parties and shall survive the transfer
of any Registrable Securities by such Momentum Indemnified Parties.
(b) Momentum shall indemnify and hold harmless, to the fullest
extent permitted by law, Harken, its directors, officers, employees and agents,
and each person who controls Harken (within the meaning of Section 15 of the
Securities Act) (collectively, "HARKEN INDEMNIFIED PARTIES") against all
losses, claims, damages, fines, liabilities and expenses to which any Harken
Indemnified Party may become subject under the Securities Act, the Exchange
Act, at common law or otherwise, insofar as such losses, claims, damages,
fines, liabilities or expenses (or actions or proceedings, whether commenced or
threatened, in respect thereof) are caused by (i) any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement in which Registrable Securities were included or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary, final or summary prospectus, together with the documents
incorporated by reference therein (as amended or supplemented if Harken shall
have filed with the Commission any amendment thereof or supplement thereto), or
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading to the
extent in the cases described in clauses (i) and (ii), that such untrue
statement or omission was furnished in writing by Momentum for use in the
preparation thereof, or (iii) any violation by Momentum of any federal, state
or common law rule or regulation applicable to Momentum and relating to action
of or inaction by such holder in connection with any such registration. Such
indemnity obligation shall remain in full force and effect regardless of any
investigation made by or on behalf of the Harken Indemnified Parties (except as
provided above) and shall survive the transfer of any Registrable Securities by
Momentum.
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(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) of written notice of the commencement of any action,
suit, proceeding, investigation or written threat thereof with respect to which
a claim for indemnification may be made pursuant to this Section 5, such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the indemnifying party of the threat
or commencement thereof; provided, however, that the failure to so notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. If any such claim or
action referred to under subsection (a) or (b) is brought against any
indemnified party and it then notifies the indemnifying party of the threat or
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it wishes, jointly with any other indemnifying
party similarly notified, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. After notice from the indemnifying
party to such indemnified party of its election so to assume the defense of any
such claim or action, the indemnifying party shall not be liable to such
indemnified party under this Section 5 for any legal expenses of counsel or any
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation unless
(i) the indemnifying party has failed to assume the defense of such claim or
action or to employ counsel reasonably satisfactory to such indemnified party
or (ii) in the reasonable judgement of the indemnified party, based upon
written advice of such indemnified party's counsel, representation of both
parties by the same counsel would be inappropriate due to an actual or
potential conflict of interests. Under no circumstances will the indemnifying
party be obligated to pay the fees and expenses of more than one law firm for
all indemnified parties. The indemnifying party shall not be required to
indemnify the indemnified party with respect to any amounts paid in settlement
of any action, proceeding or investigation entered into without the written
consent of the indemnifying party, which consent shall not be unreasonably
withheld or delayed. No indemnifying party shall consent to the entry of any
judgment or enter into any settlement without the consent of the indemnified
party unless (i) such judgment or settlement does not impose any obligation or
liability upon the indemnified party other than the execution, delivery or
approval thereof, and (ii) such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a full release and discharge (in form and substance
reasonably satisfactory to such indemnified party) from all liability in
respect of such claim for all persons that may be entitled to or obligated to
provide indemnification or contribution under this Section 5.
(d) Indemnification similar to that specified in the preceding
subsections of this Section 5 (with appropriate modifications) shall be given
by Harken and Momentum with respect to any required registration or
qualification of securities under any state securities or blue sky laws.
(e) If the indemnification provided for in this Section 5 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b), then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of the losses,
claims, damages, fines, liabilities or expenses (or actions or proceedings in
respect thereof) referred to in subsection (a) or (b) in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and the indemnified party on the other in connection with the
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statements, omissions, actions or inactions which resulted in such losses,
claims, damages, fines, liabilities or expenses as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or the indemnified party, any action or
inaction by any such party, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement, omission,
action or inaction. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, fines, liabilities or expenses (or
actions or proceedings in respect thereof) pursuant to this subsection (e)
shall be deemed to include, without limitation, any reasonable legal or other
expenses incurred by such indemnified party in connection with investigating or
defending any such action or claim (which shall be limited as provided in
subsection (c) if the indemnifying party has assumed the defense of any such
action in accordance with the provisions thereof) which is the subject of this
subsection (e). No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Promptly after receipt by an indemnified party under this
subsection (e) of written notice of the commencement of any action, suit,
proceeding, investigation or threat thereof made in writing with respect to
which a claim for contribution may be made against an indemnifying party under
this subsection (e), such indemnified party shall, if a claim for contribution
in respect thereof is to be made against an indemnifying party, give written
notice to the indemnifying party in writing of the commencement thereof (if the
notice specified in subsection (c) has not been given with respect to such
action); provided, however, that the failure to so notify the indemnifying
party shall not relieve it from any obligation to provide contribution which it
may have to any indemnified party under this subsection (e) except to the
extent that the indemnifying party is actually prejudiced by the failure to
give notice.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this paragraph were determined by pro rata allocation
or by any other method of allocation which does not take account the equitable
considerations referred to in the immediately preceding paragraph.
If indemnification is available under this Section 5, the indemnifying
parties shall indemnify each indemnified party to the fullest extent provided
in subsections (a) and (b), without regard to the relative fault of said
indemnifying party or any other equitable consideration provided for in this
paragraph. The provisions of this paragraph shall be in addition to any other
rights to indemnification or contribution which any indemnified party may have
pursuant to law or contract, shall remain in full force and effect regardless
of any investigation made by or on behalf of any indemnified party, and shall
survive the transfer of any Registrable Securities by any such party.
(f) In connection with any underwritten offering contemplated by
this Agreement which includes Registrable Securities, Harken and Momentum
shall agree to customary provisions for indemnification and contribution
(consistent with the other provisions of this Section 5) in respect of losses,
claims, damages, fines, liabilities and expenses of the underwriters of such
offering.
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SECTION 6. SELECTION OF UNDERWRITERS.
(a) If any registration effected pursuant to Section 2 is an
underwritten offering, or a best efforts underwritten offering, the investment
banker or investment bankers and manager or managers that will administer the
offering shall be selected by Harken; provided, however, that any such
investment banker or manager shall be reasonably satisfactory to Momentum.
SECTION 7. RULE 144. Harken covenants to Momentum that, Harken
shall (a) timely file the reports required to be filed by it under the Exchange
Act or the Securities Act (including, but not limited to, the reports under
Section 13 and 15(d) of the Exchange Act referred to in subparagraph (c)(1) of
Rule 144 adopted by the Commission under the Securities Act), and (b) take such
further action as Momentum may reasonably request, all to the extent required
from time to time to enable Momentum to sell Registrable Securities without
registration under the Securities Act within the limitations of the exemption
provided by Rule 144 under the Securities Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted by the
Commission. Upon the request of Momentum, Harken shall deliver to Momentum a
written statement as to whether it has complied with such requirements.
SECTION 8. MISCELLANEOUS.
(a) Momentum agrees as follows:
(i) If any Registrable Securities are being registered in
any registration pursuant to this Agreement, Momentum will comply with all
anti-stabilization, manipulation and similar provisions of Section 10 of the
Exchange Act, as amended, and any rules promulgated thereunder by the
Commission and, at the request of Harken, will execute and deliver to Harken
and to any underwriter participating in such offering, an appropriate agreement
to such effect.
(ii) At the end of any period during which Harken is
obligated to keep a registration statement current and effective as described
herein, Momentum shall discontinue sales thereof pursuant to such registration
statement.
(b) All questions concerning the construction, validity and
interpretation of this Agreement shall be governed by the internal law, and not
the law of conflicts, of the State of Texas.
(c) Momentum shall not assign its rights or obligations under this
Agreement, nor delegate any of or all of its obligations under this Agreement,
to any person or entity (including without limitation any transferee of any
Registrable Securities); and, except as required under the laws of descent and
distribution, no transferee of any Registrable Securities shall have any rights
granted under this Agreement as a result of the transfer of any Registrable
Securities to such transferee; provided, however, that Momentum may assign its
rights to any affiliated entity to which it transfers all or a part of the
Registrable Securities. This Agreement shall be binding upon and shall inure
to the benefit of the Company and Momentum and to their respective heirs, legal
representatives, and with respect to Harken, its assignees.
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(d) All covenants and agreements in this Agreement by or on behalf
of any of the parties hereto will bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not.
(e) Except as may be provided in the Purchase Agreement, (i) this
Agreement is intended by the parties as a final expression of their agreement
and intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter herein
contained, (ii) there are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein, with respect to
the registration rights granted by Harken to Momentum, and (iii) this Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
(f) All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given (i) upon receipt, when delivered
personally or sent by reputable express courier service (charges prepaid), (ii)
two business days after mailing if mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid, or (iii) upon
receipt if sent by telefax, in each case to the parties at the following
address (or to such other address or to the attention of such other person as
the recipient party has specified by prior like notice to the sending party):
If to Harken:
Harken Energy Corporation
5605 N. MacArthur, Suite 400
Irving, Texas 75038
Telecopier No.: (214)753-6955
Attention: Mikel D. Faulkner, Chairman
with a copy to:
Larry E. Cummings, General Counsel
If to Momentum:
Momentum Operating Co., Inc.
232 South Main
P.O. Box 578
Albany, Texas 76340
Telecopier No.: (915) 762-3332
Attention: Michael J. Parsons, President
(g) If any provision of this Agreement is held to be
unenforceable, this Agreement shall be considered divisible and such provision
shall be deemed inoperative to the extent it is deemed unenforceable, and in
all other respects this Agreement shall remain in full force and effect;
provided, however, that if any such provision may be made enforceable by
limitation thereof, then
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such provision shall be deemed to be so limited and shall be enforceable to the
maximum extent permitted by applicable law.
(h) This Agreement may be executed by the parties hereto in any
number of counterparts, each of which shall be deemed an original, but all of
which shall constitute one and the same agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
HARKEN ENERGY CORPORATION
/s/ Richard S. Schroeder
-----------------------------------------
Richard H. Schroeder,
President and Chief Operating Officer
MOMENTUM OPERATING CO., INC.
/s/ Michael J. Parsons
-----------------------------------------
Michael J. Parsons
President
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